February 1 SCM Audit Min

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

February 1, 2011 in the Commission Chambers at Pier 69, 2711 Alaskan Way, Seattle, WA.

Committee members Albro, Holland and Gehrke were present, as well as CEO Tay Yoshitani,

Joyce Kirangi, Port Internal Audit Manager, and Commission Staff Tom Barnard.

CALL TO ORDER

The meeting was called to order at 9:08 a.m. by Commissioner Albro (TA).

APPROVAL OF MINUTES FOR JANUARY, 2011

This was presented by Lisa Lam, Senior Manager, AFR Department. Ms. Lam reviewed the draft

of the RFQ. The draft was put together by the Central Procurement Office, with input from

Accounting on work scope and evaluation criteria. Form of RFQ is standard. Draft shows the

timeline put together by COP, with advertisement going out in February, with typical process of

getting applicants and conducting interviews and consulting on answers. The plan is to come back

to AC in May to notify them top candidates, before notifying winning bidder, or requesting full

Commission permission to execute a contract. Evaluators will be Lisa Lam, another Assistant

Director of AFR, and representatives from Aviation finance and budget, and Seaport and Real

Estate finance and budget. Confer also with Internal Audit Director Joyce Kirangi to ensure the

process was competitive and fair. All questions by prospective bidders will go to CPO, who will be

Feb 1 SCM Audit Min

Committee member Albro noted that in May, the Committee would like to see all work papers on

staff recommendation.

Holland made a motion for approval of the RFQ. The vote: 2-0

Review of current practices - Port’s Travel and Entertainment Expenses

involving four main accounts: airfare, lodging, employee food and beverage, and registrations in

and out of state. There was also some non-travel and registrations.

Holland: What does Entertainment include?

JK: initially IA had intended to include promotional hosting, but it was taken out because of SAO

work in this area. The title is a little misleading.

Tay Yoshitani (TY): Also training expenses are embedded. Police and Fire department need this

training. That category is underrepresented, travel category is overrepresented. We will make

adjustments to the next version that reflects our values.

TA: The bulk is related to those activities - some summary detail showed 60% in registration and

tuition.

Holland: Who were we benchmarking against?

AM: 20 entities, 7-8 airports.

Holland: Since we closed international office, increased travel.

AM: Benchmarking directed on terminology and policy.

AM: CSR Testing showed at department level, reports looked at before approval and AFR review

as well. Conclusions: Performance perspective, effective, and compliant, no findings. Couple items

we noted, and communicated to management.

Christina Gehrke (CG): What was period of time for transactions, and number of transaction?

AM: not sure of the total number, 12 actual trips, multiple expense reports, going back to April of

2008. Sample selection risk-based, based on which months and which departments had most

Feb 1 SCM Audit Min

TA: That gives us a good benchmark, but might miss info. Next month give us more contextual

information. And tell us at the beginning of the audit what features you focused on. Then tell us

what data on trips, tested at what level.

TA: Also notice we have 740 Credit cards, raised some questions, does this mean that 40% of port

employees carry cards?

JK: She clarifies that employees don’t carry, don’t have access. They are safeguarded in

accounting department, with permission required for use. The number is not the issue, but having

department. We check going back to obtaining detailed records from company. We look at

detailed activity. Did they remit what they actually owe? Did payment come in on time? Possible

financial charge? So in looking at figures on the graph on the slide.

TA: How did these numbers come from?

JK: They report on monthly basis on a self-reporting basis and then we look at details, coming from

them. Is it accurate?

JK: Objectives: concession payment complete; reported in a timely fashion, terms and conditions of

compliance, and state and local regulations. Also we look at Customer Facility Charges (CFCs.)

Our conclusion: Dollar Rent-a-Car underreporting revenue streams, untimely payments. We are

already pursuing payment back. For Dollar another issue of timely payment in 2008 – 2009. For

TY: Typically, this is partly an issue of the ambiguity of contract. Ex: Is GPS part of revenue? Not

unusual with these audits, companies not trying to circumvent policies. Turns to Jim Schone (JS).

JS: Management did agree with findings of audits, and have sent letters, asking for under reported

funds and CFCs. Audits over the past years, they have been more responsive. But we have been

successful in collecting. Good working relationships.

TA: Reviewed Dollar figures, good example of fees paid. Let’s go back to late fee issue.

JS: Good relations with car companies, especially new with Fox. All companies been responsive.

Dan Thomas: prior to 2009, late fees not consistently enforced. We are now enforced, but not try

and collect past fees. Effective of September of 2009, they are being enforced.

RH: agree with management approach. Should be no issues going forward.

Feb 1 SCM Audit Min

Approval of 2011 Internal Audit Work Plan

2011 work plan:

JK: Before going into 2011 Audit Plan, first there was an overview of the type of audits done at the

port. Audit Department is very new. From 2008, hiring, recruiting and filling the department, only in

the last two years are we doing full audits. Our goal is to add value to organization. Type of audits:

we don’t do are financial audits, but all financial activities that roll up to do that. Ex. Payroll,

would not look at the performance of a particular terminal?

JK: No, we would need to hire an expert.

TA: his definition of a performance audit has changed, but this is not the mission. His prior

definition was inputs, outputs and outcomes relative to results.

TY: Internal Audit focused on compliance of various kinds. Performance focused on what can we

do better. We are rolling out this whole program of performance metrics. Do we elevate this to ask

questions like how many jobs are we creating? Perhaps.

RH: We are doing outstanding, opportunities to look into possible changes. Are you capable of

doing performance audits?

TA: Depends on which meaning.

Audit and business goals. Let management and Commission as a whole oversee performance

metrics.

JH: He goes through operating revenue slide. First, 5-year operating revenue trend. More than half

of this revenue comes from space rentals, then others like port-owned properties leased out, and

car rentals. Then he went through by department node. Then by operating expenses. Then by

account category. Then by FTE, extracted by PeopleSoft, includes all paychecks, including all part-

time, interns. Then top 5 vendors in operating expenses. Then agreement-driven revenue. Then

top 20 customers.

TA: If you went down to a million in revenue, how many entities are involved?

JH: about 110.

Feb 1 SCM Audit Min

JH: 1) factor in contributing revenue. 2) 50% of resources to big revenue generators. 3) Continue

to monitor audit management controls. (department and system audits). Our resources available:

9 FTEs, one vacancy , certifications of individuals. We have 10,000 available person hours. This

divides up thusly: Administrative hours 25%. That leaves 8800-8900 hours. Contact managers for

their perceptions of the risk. 25-26 individual projects for 2011. We have dropped off 6-9 projects.

TA: Let us open it up to general questions.

CG: 2010 category as planned or carried out.

grown over the last ten years. We have had both growth of both AC and internal auditor. Job of

audit committee is to identify goals, and define what are our deliverables? What are our resources,

what’s the work plan, how do we monitor? We should make that part of the Committee’s work

throughout the year.

CG: I agree, what are goals of both the Committee and the Internal Audit functions.

RH: Good idea, especially for those of us who are new.

TY: Great question, difficult to define in practical application, example of IT function. There are

always more projects asked of that function than we can actually do. Where do you draw the line?

We could have an IT staff of 500. IA the same, when is enough, enough? When does this hit the

law of diminishing returns? Current workforce feels good, we are at a good place.

member, this is a logical point in time to look at it again, go back through it, with more robust audit

function, document should be true to what we are doing.

TA: We changed Audit Charter, so this is the right time. So let us spend the first half of year

updating, restating, clarifying its goals. Also we need to better understand risk assessment

document. Then we need to agree on staffing levels of internal audit, as the process moves over

time. How do we resource execution of the plan. We can add resource to address risk. Propose

we move our cycle so we approve our plan in December. Lastly, we talk about ERM – what do we

mean? What are our goals and objectives in relation to that? How does Internal Audit assess

that?

TB: Logistical issue: next AC meeting is in April. Either no meeting, or no action. Cannot approve

Feb 1 SCM Audit Min

ADJOURNMENT

There being no further business, the meeting was adjourned at 11:06 a.m.

(A digital recording of the meeting is available on the Port’s website.)

Rob Holland