Sept 1 SCM Audit Min

The Port of Seattle Commission Audit Committee met in a special meeting at 9:00 a.m.,

Tuesday, September 1, 2009 in the Commission Chambers at Pier 69, 2711 Alaskan

Way, Seattle, WA. Committee members Creighton, Hara and Miller were present, as

well as Deputy CEO Linda Strout and Joyce Kirangi, Port Internal Audit Manager.

Commissioner Tarleton was also in attendance.

CALL TO ORDER

The committee special meeting was called to order at 9:00 a.m. by Commissioner Lloyd

Motion carried by the following vote:

In Favor: Creighton, Hara (2)

Mr. Miller participates as a non-voting member of the Committee.

Internal Audit Report of Aviation Acquisitions and Relocation

Presentation documents: Computer slide presentation from Jack Hutchinson, Manager,

Internal Audit Department and report titled, ‘Internal Audit Report – Acquisition and

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As background, Mr. Hutchinson stated that this department manages property acquisition

The Port works with the tenants as a landlord.

Mr. Hutchinson noted that the purpose of this audit was to identify and assess department

operations to determine whether management has established adequate controls,

controls in three specific areas:

Regarding the rent collection, Mr. Hutchinson noted that although the department does

have a complete roster of tenants from whom they expect monthly rent payments, the

department does not actually bill those tenants and does not know what the total monthly

expected rent should be. Also noted was the fact that although the department did have

collected. Responding to a question from Commissioner Hara, Mr. Hutchinson clarified

that the department had no real billing or accounts receivable system, however they did

have a structure for processing and depositing payments which included the use of an

armored car service.

Deputy CEO Strout posed the question, and Mr. Hutchinson clarified that the information

discussed in the report were limited to the acquisition of the mobile home parks rather

than the commercial properties or the single family residences that have been a large part

of the acquisition program.

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noted that the department did not really have good control surrounding cash payments,

partially due to the fact that payments were collected via a drop box, the slot of which

went into a department office which was accessible to all staff, allowing for a greater

possibility of errors. He stated that the audit found the department did not have a proper

segregation of duties and recommended strengthening this area.

Regarding procurement and disbursement policies and procedures, Mr. Hutchinson

The following staff members were then introduced to provide comments and answer any

questions that the Committee may have: Jim Schone, Director, Aviation Business

Development and Management; Allan Royal, Real Estate Development Manager; and

Jude Barrett, Manager, Aviation Property Acquisition.

Mr. Schone expressed his appreciation for the work that the audit team had done in

reviewing the department, noting that it had been a collaborative process. He assured the

Committee that the department has begun implementing the recommendations made by

the audit team and also noted that the mobile home park acquisition program is one that is

Mr. Royal assured the Committee that the accounting department had been highly

involved in the structuring of the rent collection process, and also spoke of the difficulties

in absorbing over 200 tenants that change monthly.

Commissioner Hara stated that he would like the department to return to the Committee

in approximately 90 days to provide a follow-up on the implementation of audit

recommendations in order to bring closure to this area.

Commissioner Tarleton asked that going forward, staff relationships with the property

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Internal Audit Report of Aviation Security Department

Presentation documents: Computer slide presentation from Jack Hutchinson, Manager,

Internal Audit Department and report titled, “Internal Audit Report – Aviation Security

Department.”

Presenter: Mr. Hutchinson

resulted. He stated that the general areas of the audit covered procurement practices and

payroll activity.

Commissioner Hara asked whether or not the audit team had looked at the function of the

Security Department as a part of the audit. Mr. Hutchinson responded that within this

audit, focus on risk management and performance were introduced, although that would

not be the primary focus. He stated that the audit team had not seen anything to suggest

that the operation of the department was not effective.

Lease and Concession Audit: Fireworks Gallery

Mr. Hutchinson stated that the primary focus of this audit was to determine compliance

with the provisions of the Lease and Concession Agreement for Fireworks. He noted that

the lessee materially complied with the terms and conditions of the agreement; however,

there were two instances of late payments that resulted in late charges and interest due to

the Port. The suggested financial recovery was $1,366.14. He commented that the audit

team recommendation was for Aviation Business Development to bill and collect the

suggested recovery amount, and he also noted that over the two year period which was

audited, this amount was not significant.

Proposal for Moss Adams 2009 Audit Engagement Services

Presenter: Mr. Caluza

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As introduction to Mr. Caluza’s briefing, he noted that annual independent audits are

required for the financial statements of the Port, federal regulatory grant compliance, as

well as the Passenger Facility Charge (PFC) at Sea-Tac Airport. He stated that the State

Auditor’s Office (SAO) conducts the Public Accountability/Legal Compliance and

Performance Audits, and a national/regional independent CPA firm conducts the three

audits previously mentioned. The CPA firm of Moss Adams was selected and awarded

consultants to reduce the costs of contracts, and therefore the costs to the Port of Seattle

with regard to pursuing services. He noted that Moss Adams has agreed to meet the full

5% in contract cost reduction for the renewal, for a cost of $578,000 compared to the

2008 amount of $608,000.

Commissioner Hara mentioned the fact that the Port has worked with Moss Adams for

the past three years, stating that it was up to the Port to decide whether or not to change

auditors at this point. Mr. Caluza affirmed that staff recommendation was to move

forward with a renewal of the contract with Moss Adams, and noted that Moss Adams is

a nationally recognized firm.

Commissioner Creighton clarified that approval of a contract for the auditing services

would go before the full Commission approval.

Commissioner Hara asked what the timing is in terms of the next audit. Mr. Caluza

stated that the field work, risk assessment, and audit scoping needs to begin next month

(October).

Commissioner Creighton commented on the importance of rotation of auditors to

maintain independence, while on the other hand recognizing the value of having an

auditor that has developed expertise in an organization to continue on. He stated that he

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Committee member Miller commented on several issues, including that of the rotation of

audit firms vs. audit partners and stated his belief that it is good to have a rotation of the

audit partner in charge from time to time.

Mr. Miller voiced a concern that during his time as a member of the Committee, he has

constantly heard problems related to procurement, and wondered since there have been so

many changes within the Port since 2006, whether or not the procurement policies in

many hours of engagement were involved in coming up with the proposed prices. He

also requested information on whether or not both entities had completed their client

retention procedures.

stating that the number of hours proposed for their 2009 audit services matches fairly

closely to what was incurred in 2008, that being a minimum of 3800 hours, with an

additional cushion of 200 hours in case any complications or unexpected items arise. She

stated that Moss Adams had completed their client retention. As a follow-up to an earlier

question about peer review reports, Ms. Tish noted that under government auditing

itself to.

Commission Hara suggested that Ms. Tish might like to provide her thoughts as to why

Moss Adams should be retained for another year. Ms. Tish reiterated that Moss Adams

very much values their relationship with the Port of Seattle, and stated that the firm has a

thriving practice in serving the businesses of government. She also commented on the

unique training that the firm’s staff receives.

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Financial Statement Audit, Federal Single Audit, and Passenger Facility Charge Audit

would be approximately $298,680, and he clarified to the Committee that this amount

was based on 3800 hours of work.

Commissioner Hara stated his concern of the timeliness of reporting, noting that the Port

has yet to receive the report on the last compliance audit which was done. He asked what

SAO normally does, as they are the auditor of all public accounts and that technically

they do not have to offer letters of engagement.

Commissioner Hara raised a question of what is happening at other port authorities in

inquiries and provide the information to the Committee.

Commissioner Hara then asked if there were further comments as to why the SAO should

be considered. Mr. Martinez stated they are independent auditors, and even though they

work in a political environment, the head of their agency is independently elected. He

process would require in terms of the scope of participants. She stated that the

information could be provided quite quickly by memo.

Commissioner Hara commented on the importance of quality and timeliness of work as

well as the cost factor.

Commissioner Creighton stated that he believes the full Commission should review this

procedure on an annual basis, noting that he understood the value of continuity, but that

continuity vs. price vs. having a new set of eyes are all factors that need to be weighed.

Motion that the Committee allow both proposals to go before the full Commission

was made by Commissioner Creighton.

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In Favor: Creighton, Hara (2)

Mr. Miller participates as a non-voting member of the Committee.

There was discussion as to whether the Committee is done receiving risk management

reports for the year. Mr. Miller stated that he just does not want to see the ball dropped

as far as receiving these reports.