PORT OF SEATTLE

MEMORANDUM

DATE: July 28, 2011

TO: Audit Committee

FROM: Tom Barnard, Audit Committee Staff

SUBJECT: Action steps for the Audit Committee

Following the July 9,

2011, Audit Committee meeting, there was discussion of concrete changes

the Audit Committee would like to approve to improve the ability of the Audit Committee to

carry out its function. This memo is intended to follow up those suggestions by formally

approving these measures.

 The Audit Committee would like an outside firm to assess the work of Internal Audit

Department, and to formally engage in the process to determine that firm. The

engagement would include three elements: 1) The expert member of the Audit

Committee would be part of the team that develops the requirements and scoring

criteria for an RFP that would be developed for seeking the outside firm that would

carry out such work; 2) The Audit Committee would be briefed in public session on the

scoring system before the RFP was sent out; and 3) The Audit Committee would be

briefed on both the winning applicant and the other respondents to the RFP. Steps 2

and 3 would follow the same basic pattern of review and approval as was carried out in

choosing the External Financial Auditing firm.

 The Audit Committee would like to recommend a re-organization of the Internal Audit

Department by transferring the responsibility for the Concession and Lease Audits

compliance work from the Audit Department to other management sections. The

Internal Audit Department would still periodically review the control systems

established for ensuring compliance, but that the compliance function itself would be

performed by other management entities. This could be accomplished by transferring

existing staff in the Internal Audit Department into that department; but the overall

object of this re-organization is to free up the Internal Audit Department to perform

other functions, such as Operational Audits or others that employ internal performance

metrics.

 The Audit Committee Charter will be brought into compliance with IIA and

governmental auditing standards, unless precluded by the unique nature of the

organization, as decided by the Audit Committee. This would be accomplished by

reviewing the current relevant standards listed by both the Institute of Internal Auditors

and the Government Auditing Standards (the Yellow Book), so as to get both the

requirements of public and private entities, as the Port has organizational features of

both.