The Port of Seattle Commission Audit Committee met in a special meeting Tuesday, August 2,

2011, in the Commission Chambers at Pier 69, 2711 Alaskan Way, Seattle, Washington.

Committee members Commissioner Albro, Commissioner Holland, and Christina Gehrke were

present, as well as Tay Yoshitani, Chief Executive Officer; Joyce Kirangi, Internal Audit Department

Director; Rudy Caluza, Accounting and Financial Reporting Director; Jack Hutchinson, Internal

Audit Manager; Vickie Rawlins, Workplace Responsibility Officer; Tom Barnard, Research and

Policy Analyst; and Paul White, Commission Records Coordinator.

Call to Order:

Entrance Conference for Accountability Audit for fiscal year 2010:

Matt Lanier, Assistant State Auditor, addressed the Audit Committee and provided information

about the role of the State Auditor’s Office (SAO) and the legislation requiring auditing of the Port

of Seattle. Mr. Lanier described the factors considered in the frequency of conducting audits of the

Port and the scope of the annual audit, which he stated is an accountability audit for fiscal year

2010 that includes review of the following areas of compliance:

 Procurement and contracting;

 General disbursements;

 Payroll;

 Third-party management agreements;

Mr. Lanier stated the audit report is expected to be issued in November 2011. He described three

reporting levels for audit recommendations, from most serious to least serious, including written

findings, management letters, and exit items.

unanticipated increases in the cost of the audit would have to be absorbed as an unprogrammed

expense within the Accounting Department budget.

Mr. Lanier introduced Ryan Donnell from the SAO, who will be assisting with the audit.

In response to Ms. Gehrke, Mr. Lanier commented that the findings to be followed up at

Fishermen’s Terminal deal with issues of internal controls and cash handling. In response to

Commissioner Holland, Mr. Lanier commented further on intended review of how assets are

safeguarded and analysis of management of the roster of small contractors and suppliers. Mr.

Caluza described some of the areas of concern at Fishermen’s Terminal and steps already taken

School District.

Mr. Lanier described the standards to which the SAO conducts its accountability audit, including

State law and Port policy. He added that the audit is not a performance audit and is not intended

to evaluate best practices or industry standards but to focus on implementation of adequate

controls. In response to Commissioner Albro, Mr. Lanier explained that the SAO will expect the

Audit Committee to serve as the primary channel for open discussion of audit issues and receipt of

audit findings.

Discussion ensued surrounding the requirement that the Audit Committee, as part of an elected

interim or preliminary findings are not final or conclusive.

In response to Ms. Gehrke, Ms. Ehlinger commented on the role of the Port’s internal audit function

in mitigating the risk associated with the SAO’s Port audit planning and review of applicable work of

Internal Audit by the SAO. In response to Commissioner Albro, Ms. Ehlinger confirmed that

weaknesses in internal audit processes would be reported if identified.

Ms. Rawlins presented an overview of the Port of Seattle’s whistleblower policy and described her

role in ensuring appropriate follow-up to reports of compliance or ethics violations, including

whistleblower complaints. She stated that the Port’s whistleblower policy is contained within

added that the Code of Conduct provides protection for employees reporting violations of the Code

of Conduct not otherwise covered under Executive Policy 13 and extends retaliation protection to

Port consultants.

In response to Ms. Gehrke, Ms. Rawlins reported that all complaints and responses are tracked

and that reports of appropriate detail are available. She outlined some of the broad categories of

complaints received and noted that complaints suggesting issues with internal controls are noted

and referred to appropriate managers. Ms. Kirangi responded to Ms. Gehrke that applicable

internal control information reported by the Workplace Responsibility office would be considered in

internal audit planning.

disciplinary matters to the Chief Executive Officer and that the office of Workplace Responsibility,

in collaboration with the General Counsel, is able to evaluate and prioritize the complaints they

receive. Ms. Rawlins responded that the best management practice in the public and private

sectors is to ensure the Chief Executive Officer or Ethics Officer has access to and regularly

reports to the organization’s Audit Committee, rather than the committee’s being directly involved in

the whistleblower process.

Discussion ensued on issues surrounding the appropriateness of reporting whistleblower activity to

the Audit Committee, the relevance of complaints to the work of the Committee, and interest in

further discussion of how the whistleblower process should be reflected in the Committee’s charter.

He stated that the audit objectives included ensuring terminal and crane rent lease agreements are

effectively managed and lease and billing information is effectively monitored in the PROPworks

system. The period reviewed was January 1, 2010, to December 31, 2010, and the audit resulted

in no findings of significance.

In response to Commissioner Albro, Mr. Hutchinson reported that the drop in operating expenses

from 2009 to 2010 was due to project cancellations and delays. Mr. Yoshitani added that

environmental cleanup issues at Terminal 30 account for the higher expense numbers in 2008 and

2009.

Update on 2010 Internal Audit Department Work Plan:

Ms. Kirangi presented an organizational diagram for the Internal Audit Department showing current

staff positions and audit-type focus.

In response to Ms. Gehrke, Ms. Kirangi confirmed that Internal Audit consists of nine full-time

equivalent positions and a part-time intern.

The presentation materials described the status of audits in the 2011 work plan and the status of

remaining audit resources for 2011.

Commissioner Albro noted that there are four Audit Committee meetings remaining in 2011 and

that in the past eight meetings 14 completed audits have been exited. Based on carry-forward of

three audits into 2012, he asked whether the remaining 19 audits would be presented in the last

four meetings of 2011. Ms. Kirangi stated that the audits conducted later in the year tend to be

less complicated lease and concession audits. Mr. Hutchinson stated that out of 14 remaining

audits, six or seven are lease and concession audits, which tend to be completed more quickly

than comprehensive or limited operational audits. He added that “completion” of the audit does not

include the exiting of the audit and report to the Committee, which generally takes an additional

month following completion of the audit work, and noted that in the past audits have been reported

in January, February, or March of the year following the year in which the audit was scheduled.

In response to Ms. Gehrke, Ms. Kirangi estimated one or two of the seven 2010 audits exited in

2011 were not completed in 2010. Ms. Gehrke suggested distinguishing between audits for which

the work has been done, but which are still pending management response or exit report, and

those that are still in review by Internal Audit.

Discussion ensued on the issues and challenges involved in trying to complete numerous audits at

the end of the year, the consistency of the practice of carrying forward audits to the following year,

and clarification of what constitutes “completion” versus “reporting” of audits.

Mr. Barnard presented three recommendations for improvements to the Audit Committee, including

the following:

 An outside firm would assess the work of the Internal Audit Department, and the

order to allow Internal Audit to focus on operational audits and others that employ

performance metrics; and

 Bring the Audit Committee Charter into compliance with Institute of Internal Auditors

(IIA) standards and applicable governmental auditing standards as appropriate to

the nature of the organization and as determined by the Committee.

In response to Commissioner Albro, Mr. Barnard confirmed that Audit Committee improvements

would require Commission approval. Discussion ensued on the proposals, including the merits of

peer review of Internal Audit to accomplish outside independent review, compensation for

expenses by a peer group, whether an RFP would be required, desire for a quality independent

that further discussion follow at the September Committee meeting on the second

recommendation.

Adjournment:

There being no further business, the special meeting was adjourned at 11:01 a.m.

Rob Holland

Secretary