Audit Committee Minutes of April 5, 2011, for amendment and approval, as amended, on June 7, 2011

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

April 5, 2011, in the Commission Chambers at Pier 69, 2711 Alaskan Way, Seattle, WA.

Committee members Commissioner Albro, Holland and Gehrke were present, as well as Dan

Thomas, Chief Financial Officer, Joyce Kirangi, Port Internal Audit Manager, and Commission Staff

Tom Barnard.

CALL TO ORDER

The committee special meeting was called to order at 9:02 a.m. by Commissioner Albro.

together to manage projects. Jack Hutchinson then took over for the rest of the presentation.

Jack Hutchinson described context for the policies and procedures that CPO and CDD came up

with, which was not in existence prior to SAO 2007 Performance. Prior to this, the tasks of project

management were dispersed into three divisions: Airport, Seaport, and Corporate. Current FTEs

for the CDD division include 200 FTEs, and the division manages procurement at an average

amount of $300 M, including allocated costs, and fully loaded costs. He also described training

process of over 1000 employees of new procedures, which continue. He noted changes in service

agreements, and the drop in Category I service agreements (< $50K), whose preponderance were

noted by the 2007 SAO Performance Audit. He noted management work in the Small Works

Audit Committee Minutes of April 5, 2011, for amendment and approval, as amended, on June 7, 2011

Finally, audit staff noted certain features of this audit report which will be included in further reports,

including an expanded methodology section and management response section.

Mr. Hutchinson noted that the audit was clean and had not any individual findings; there were a

couple of issues brought to management’s attention. One was vague language associated with

Change Orders on some contracts, which made it difficult to see whose responsibility project

changes were – the contractor or the Port. (In those cases, it was noted in Management’s

Finally, he noted the ongoing work to update the Small Works Contracting database. He described

the system as it exists, and weaknesses in being alerted for contracting opportunities. This could

result in contractors being excluded, and the lack of an audit trail to note that. Management has

been aware of this, and is implementing a new system in mid-2011.

Commissioner Albro suggested discussion be broken up into 1) audit issues, 2) management letter

issues, and 3) small works issues.

Ms. Gehrke and the Committee discussed how far along CDD efforts were at measuring

performance. Mr. Hutchinson noted that measures did exist; were moving in the right direction,

includes goals as well as measurements. The process used to measure still evolving at a

conceptual level, not yet solid and robust.

The training program by CPO was also noted and commended by the Committee. One question is

whether the burden of all regulations worth the benefit, and the balance between the new

regulations and efficient procurement for projects. Ralph Graves noted that the initial goal had

been to build a program that complies with state law and best practices, and not bring projects to

standstill. We believe that can do that at a lower cost, but it can be done more efficiently, for

example by using LEAN procedures. Training effort for both CPO and others will bear fruit.

Audit Committee Minutes of April 5, 2011, for amendment and approval, as amended, on June 7, 2011

Committee commended CDD and CPO for embracing findings of SAO Audit, foster culture of

compliance, and embrace change.

The discussion then moved on to the issues mentioned in the Management letter and Change

Orders. These were not findings and were minor isolated issues. These included vague language

in a couple of Change Orders that made it unclear whose responsibility changes were – the

contractor or the Port. Procedures for disclosing site conditions were reviewed by CDD. Secondly,

and connected to this, was the possible splitting of Change Orders, which affected the level of

model of 10% gross percentage in this lease was described as a common rate. The audit made

sure that what was reported in revenue was correct and matched internal company records. They

also measured that the CFC revenue came in correctly. There were two issues. One involved a

CFC not collected correctly, and the Port was asking for reimbursement. The other issue involved

overpayment of the concession fee based on location of Thrifty outlets. One location was over

paying by $87K. In both cases, the issue will be resolved shortly.

Approval of Minutes of February 1, 2011, Audit Committee meeting:

Minutes were approved. It was noted that the format was tending towards a verbatim reading of

the audit, and it would be better to modify it towards a summary format. Mr. White is also taking

Committee Staff reviewed the history of the Long-Range Goals and Objectives document, and how

it reflects the changing focus of the Audit Committee and the IA depending on who is heading the

Committee. There are problems of continuity with this, and a more rational system of the

developing work. The Charter was also out of compliance with IIA standards. The Risk

Assessment Plan that the Internal Audit work plan is based on was reviewed, and the underlying

risks associated with it. That would provide a long-term (3 year) guide for the long-term goals and

objectives, and the level of resources available to the Internal Audit Department, and use an

external audit assessment as a way of measuring the work of the Internal Audit.

members was noted, and the necessity of everyone being in agreement, and of the committee’s

Audit Committee Minutes of April 5, 2011, for amendment and approval, as amended, on June 7, 2011

work not be politicized. The correct relationship of resources to the reach of the Committee was

noted, and the ability to refine the mission was mentioned. Finally, the key starting point of the

Charter and the necessity of common language of defining audits were stressed, and the IA

Department promised work on this front. The matching of work of the Internal Audit to the risk

presented was important. Because the lease revenue is important, and the organization was built

based on addressing that, the auditing is much better. Therefore, is the same level of risk present?

Much better controls exist, less revenue is being collected. Should the function stay the same, and

the focuses of the Audit Committee stay the same? Has the internal audit become part of the

The importance of providing oversight was noted, and the good use of Internal Audit is more vital of

that than individual acts of oversight by the Commission. The perception of oversight should not

be confused with effective oversight itself.

ADJOURNMENT

There being no further business, the meeting was adjourned at 11:00 a.m.

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

Rob Holland