INTERNAL AUDIT
INTERNAL AUDIT REPORT
OPERATIONAL AUDIT
DIVERSITY IN CONTRACTING
JANUARY 2018 – MARCH 2019
ISSUE DATE: June 18, 2019
REPORT NO. 2019-06
Diversity in Contracting
January 2018 – March 2019
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TABLE OF CONTENTS
EXECUTIVE SUMMARY ........................................................................................................................................... 3
BACKGROUND ........................................................................................................................................................ 4
AUDIT SCOPE AND METHODOLOGY ..................................................................................................................... 6
SCHEDULE OF FINDINGS AND RECOMMENDATIONS......................................................................................... 7
APPENDIX A: RISK RATINGS .................................................................................................................................. 9
APPENDIX B: DIVERSITY IN CONTRACTING POLICY .......................................................................................... 10
Diversity in Contracting
January 2018 – March 2019
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EXECUTIVE SUMMARY
Internal Audit (IA) completed an audit of the Diversity in Contracting Program for the period January
2018 through March 2019. The audit was performed to assess adherence to key requirements
specified in the Policy Directive on Diversity in Contracting (Policy) and to determine if the Port’s
diversity program aligns to regulatory guidance including the Revised Code of Washington (RCW)
49.60.400 and the Washington State Attorney General’s opinion on Initiative 200 (I-200).
I-200 was approved by voters in 1998 and codified in the RCW under 49.60.400, which states in part,
“The state shall not discriminate against, or grant preferential treatment to, any individual or group on
the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public
education, or public contracting.”
The Policy was adopted by Port Commission on January 9, 2018 and states that minority and women
owned and controlled businesses (WMBE) have been under-utilized on Port contracts. The Policy
aims to provide the maximum practicable opportunity for increased participation by WMBE businesses
in Port contracting for public works, consulting services, supplies, material, equipment, and other
services.
As a relatively new program, establishing clearly defined and agreed-upon goals is foundational to
measuring success and the effectiveness of the diversity program. We identified the following medium
rated issue.
1. (Medium) The Port established a five-year goal to increase to 15% the amount spent on WMBE
contracts and to triple the number of WMBE firms doing business with the Port. However, the starting
point or baseline that management was using to measure the goal was not consistent with the date
within the Policy Directive. Additionally, Port wide 2018 WMBE utilization was overstated by 14 firms in
the Diversity in Contracting 2019 Annual Plan.
This issue is discussed in more detail beginning on page seven.
We extend our appreciation to Port staff and management for their assistance and cooperation during
the audit.
Glenn Fernandes, CPA
Director, Internal Audit
Responsible Management Team
Nora Huey, Director, Central Procurement Office
Dave McFadden, Managing Director, Economic Development
Pete Ramels, General Counsel/Chief Compliance Officer
Mian Rice, Director, Diversity and Contracting
Diversity in Contracting
January 2018 – March 2019
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State Legal Requirement and Opinions
Washington State Inititative 200 (I-200) was approved by voters in 1998 and codified in the Revised
Code of Washington (RCW) under 49.60.400. RCW 49.60.400 in part states, “The state shall not
discriminate against, or grant preferential treatment to, any individual or group on the basis of race,
sex, color, ethnicity, or national origin in the operation of public employment, public education, or
public contracting.”
In March 2017, the Washington State Attorney General published an opinion on I-200. That opinion
states “I-200 prohibits only situations in which a government uses race or gender to select a less
qualified contractor over a more qualified contractor.” The opinion goes on to explain that measures
that are not prohibited are open to innovation, and could include aspirational goals, outreach, training,
use of race or gender as a tiebreaker between equally qualified contractors, and similar measures that
do not cause a less qualified contractor to be selected over a more qualified contractor.
On April 28, 2019, the Washington State Legislature approved Initiative Measure 1000 (I-1000). The
Measure will amend and add new sections to RCW 49.60.400. The Measure broadens the definition to
include “age, sexual orientation, the presence of any sensory, mental, or physical disability, or
honorably discharged veteran or military status.” It defines “preferential treatment” as “the act of using
race, sex, color, ethniciity… as the sole qualifying factor to select a lesser qualified candidate over a
more qualified candidate…”
Washington Referendum Measure 88, however, seeks to require a statewide vote on I-1000 as a veto
referendum. The referendum would be placed on the November 5, 2019 ballot for voters’ approval or
rejection of I-1000.
Port of Seattle Initiatives
On January 9, 2018, the Port Commission adopted the Policy Directive on Diversity in Contracting
(Policy). The Policy states that minority and women owned and controlled businesses (WMBE) have
been under-utilized on Port contracts. The purpose of the Policy is to provide the maximum practicable
opportunity for increased participation by WMBE businesses in Port contracting for public works,
consulting services, supplies, material, equipment, and other services.
The Policy establishes a goal to triple the number of WMBE firms that contract with the Port and
increase to 15% the percentage of dollars spent on WMBE contracts, within five years of the Diversity
in Contracting Program implementation. Table 1 reflects Port wide WMBE Utilization since 2016. Table
2 lists three contracts that were executed as pilot projects under the diverstiy program.
Table 1
WMBE Utilization
2016
2017
2018
Percent of Total Spend
5.3%
8.8%
11.8%
Number of Firms
118
200
244*
Source: Diversity in Contracting 2019 Annual Plan - *Adjusted
BACKGROUND
Diversity in Contracting
January 2018 – March 2019
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Source: Central Procurement Office Contracts
Table 2
Contract
Agreement Date
Vertical Conveyance Design Services
April 3, 2019
Graphic Design Services IDIQ
March 7, 2019
Aviation Restroom Phase 2
January 31, 2019
Diversity in Contracting
January 2018 – March 2019
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We conducted this performance audit in accordance with Generally Accepted Government Auditing
Standards and the International Standards for the Professional Practice of Internal Auditing. Those
standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings and conclusions based on our
audit objectives.
The period audited was January 2018 to March 2019 and included the following procedures:
Alignment of Contractor Selection Processes with Applicable State Laws and Guidance
• Evaluated the contractor selection process to determine whether it aligns to RCW 49.60.400, the
Washington State Attorney General’s Opinion, and Initiative Measure 1000.
• Reviewed solicitations, inclusion plans, and summary scores for two service agreements and one
construction project.
• Determined whether WMBE training was provided for individuals who evaluate and score
proposers.
Program Adherence to Key Policy Requirements
• Inquired with Port management/staff and reviewed documentation to gain an understanding of the
Diversity in Contracting Program.
• Assessed whether requirements in the Port of Seattle Commission Policy Directive on Diversity in
Contracting had been developed, including:
o A Diversity in Contracting Annual Plan
o Port wide goals
o Roles and responsibilities for accountability and implementation
o Internal and external training/outreach/technical assistance
o Contracting methods and procurement tools
o Program evaluation/monitoring/reporting
AUDIT SCOPE AND METHODOLOGY
Diversity in Contracting
January 2018 – March 2019
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SCHEDULE OF FINDINGS AND RECOMMENDATIONS
The Port established a five-year goal to increase to 15% the amount spent on WMBE contracts
and to triple the number of WMBE firms doing business with the Port. However, the starting
point or baseline that management was using to measure the goal was not consistent with the
date within the Policy Directive. Additionally, Port wide 2018 WMBE utilization was overstated
by 14 firms in the Diversity in Contracting 2019 Annual Plan.
Five-year goal
The Policy Directive on Diversity in Contracting (Policy Directive) adopted by Port Commission in
January 2018 through Resolution No. 3737, states “Program Implementation” as the starting point.
Strategy three in the Century Agenda reflects a similar date and references tripling the number of
WMBE firms and increasing the number of firms using a starting date of 2018 and an ending date of
2023. The Century Agenda strategy was approved by a commission motion in December 2017.
Policy directives provide direction from Port Commission to the executive director and Port staff. They
generally govern long-term processes and ongoing decision making. Policy directives govern any
related policy statements or procedures developed by staff. Resolutions are the documents the
commission uses to take important and long-lasting actions. Resolutions are like ordinances enacted
by towns and cities. Motions are used to express views or take specific actions.
However, the Diversity in Contracting 2019 Annual Plan that was presented to the commission on
March 26, 2019 (Item No. 7a) states 2016 as the baseline. However, this presentation also includes a
slide titled “Path to Implementation,” reflecting a commission briefing that occurred on June 2018 and
referencing a final implementation date of February 2019 when the annual plan was finalized (see
Appendix B).
Tables 1 reflects what the goals would be based on using 2018 as the baseline as required in the
Policy Directive. The Policy Directive is much more aggressive, requiring 732 WMBE firms by the end
of 2022.
Table 2 reflects using 2016 as the baseline. By using an earlier starting point and accordingly, a lower
base, requires 354 WMBE firms by the end of a five-year period. A significantly smaller number than
the 732.
Table 1
2018 Baseline WMBE Goals
2018
2022
Percent of Total Spend
11.8%
15.0%
Number of Firms
244*
732
* Adjusted to correct for overstatement of 14 firms
Table 2
2016 Baseline - WMBE Goals
2016
2020
Percent of Total Spend
5.3%
15.0%
Number of Firms
118
354
1) RATING: MEDIUM
Diversity in Contracting
January 2018 – March 2019
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Firm utilization
The 2019 Diversity in Contracting Annual Plan reflects utilization of 258 WMBE firms. During the audit,
Management was forthcoming and identified that the number was overstated by 14 firms and should
have been reported as 244.
Recommendations:
1. Determine through communication with Port Commission whether 2016 or 2018 is the correct
baseline and amend documents as necessary.
2. Implement a process to validate that data used to measure WMBE utilization is accurate.
Management Response/Action Plan:
Five Year Goal
The five-year goal was formed under good faith efforts based upon the information we had at the time.
Work began in 2017, where we had a full year of 2016 data to review; however, full Diversity in
Contracting program implementation was not complete until 2019. Staff recommends maintaining the
2016 baseline for the 5-year measurements to 2020. If 2018 is determined to be the starting point,
staff recommends Commission re-evaluates the Diversity in Contracting utilization goals.
Firm Utilization
During the audit process, the Planning and Analytics team discovered the problem, reported the issue
to the audit team, and have developed standard reports that remove duplicate records. This will
prevent double counting in the future.
Diversity in Contracting
January 2018 – March 2019
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APPENDIX A: RISK RATINGS
Findings identified during the course of the audit are assigned a risk rating, as outlined in the table below.
The risk rating is based on the financial, operational, compliance or reputational impact the issue identified
has on the Port. The finding and corresponding rating is not required to meet all five categories listed below.
Items deemed “Low Risk” will be considered “Exit Items” and will not be brought to the final report.
Rating Financial Internal Controls Compliance Public
Port Commission/
Management
HIGH
Large financial
impact
Remiss in
responsibilities
of being a
custodian of
public trust
Missing, or inadequate
key internal controls
Noncompliance
with applicable
Federal, State,
and Local Laws,
or Port Policies
High probability
for external audit
issues and/or
negative public
perception
Important
Requires immediate
attention
MEDIUM
Moderate
financial impact
Partial controls
Not adequate to identify
noncompliance or
misappropriation timely
Inconsistent
compliance with
Federal, State,
and Local Laws,
or Port Policies
Potential for
external audit
issues and/or
negative public
perception
Relatively important
May or may not
require immediate
attention
LOW/
Exit Items
Low financial
impact
Internal controls in place
but not consistently
efficient or effective
Implementing/enhancing
controls could prevent
future problems
Generally
complies with
Federal, State and
Local Laws or Port
Policies, but some
minor
discrepancies
exist
Low probability
for external audit
issues and/or
negative public
perception
Lower significance
May not require
immediate attention
Efficiency
Opportunity
An efficiency opportunity is where controls are functioning as intended; however, a modification would make
the process more efficient
Diversity in Contracting
January 2018 – March 2019
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APPENDIX B: DIVERSITY IN CONTRACTING POLICY
Item No. 7a
Date of Meeting – March 26, 2019