Audit Committee Minutes of December 9, 2019, submitted for review on Month D, YYYY, and proposed for approval on Month D, YYYY.

Soike, Chief Operating Officer; Glenn Fernandes, Director, Internal Audit; Dan Chase, Internal Audit

Manager; Olga Darlington, Audit Partner, Moss Adams; Tyler Reparuk, Senior Manager, Moss Adams; Sandy

Nguyen, Assistant State Auditor, State Auditor’s Office; Joseph Simmons, Program Manager, State Auditor’s

Office; Spencer Bright, Manager, Capital Audit; Bruce Klouzal, Manager, Information Technology Audit; Nora

Huey, Director, Central Procurement Office; Sophia Mayo, Senior Manager, Central Procurement Office

Consulting Group; Jonathan Foster, Manager, Central Procurement Office Planning and Analytics; Stephanie

Jones Stebbins, Managing Director, Maritime Division; Mark Longridge, Capital Project Manager; Aaron

Pritchard, Commission Policy Manager; and Paul J. White, Commission Clerk.

Call to Order

The committee received a presentation from Ms. Darlington and Mr. Reparuk that contained the following

relevant information:

• The audit scope includes financial statements for the port’s enterprise fund and the Warehousemen’s

Pension Trust Fund, internal control and compliance with Government Auditing Standards,

compliance related to federal award programs, the schedule of Passenger Facility Charges, revenue

bond debt service, agreed upon procedures relating to environmental mitigation at Terminal 91, and

agreed upon procedures relating to environmental mitigation at Terminal 117.

• The audit schedule and methodology were summarized.

• The audit period covers January 1, 2020, through December 31, 2020.

• Changes to Governmental Accounting Standards Board (GASB) pronouncements affecting 2019

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MONDAY, DECEMBER 9, 2019

Without objection, the committee advanced to consideration of –

Updates and Approvals – 2019 Audit Plan Update

• Thirteen high-risk and 29 medium-risk issues were identified representing opportunities to strengthen

internal contols, improve efficiency, and reduce capital costs.

• Auditors verify closed audits and track management’s response. If the audit recommendations

appear not to be satisfied, auditors would report that to the committee. A summary of the validation

of management response actions was requested for 2020. The difference between an “issued” audit

and a “closed” audit was explained.

• Examples of recoveries identified by auditors were provided. Collection of amounts identified or the

decision not to collect would fall to management.

• The process for identifying level of risk and planning lease and concession audits was described.

The highest-revenue contracts are reviewed on a four-year cycle, medium on a six-year cycle, and

• The process for selecting information technology audits was summarized and is consistent with cyber

security standards and standards of the Center for Internet Security.

• Biometric technology and data is an area of IT audit on the horizon for 2020.

• An historical overview of the number of audits completed between 2017 and 2020 was proposed.

Updates and Approvals – Proposed 2020 Internal Audit Plan Approval

The committee received a presentation from Mr. Fernandes, Mr. Chase, Mr. Bright, and Mr. Klouzal that

included the following relevant information:

• The 2020 proposed work plan includes seven limited contract compliance audits, four operational

audits, four capital project operational audits, and six information technology audits (see amendment

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MONDAY, DECEMBER 9, 2019

AMENDMENT

Without objection, the proposed work plan was amended to move the operational audit of the General

Delegation of Authority compliance to the list of contingency audits and make professional services a regular

operational audit, and to include biometrics as an additional information technology audit in 2020.

The 2020 Internal Audit Department workplan, as amended, was approved without objection.

The committee returned to consideration of –

External Audit – Office of the Washington State Auditor – Audit Opening

The committee received a presentation from Ms. Nguyen and Mr. Simmons that contained the following

of the port’s Industrial Development Corporation for the period 2016-2018.

• The scope of the State Auditor’s audit of architect and engineering services is not a duplication of

the current internal audit on architect and engineer consultant rates.

Operational Audit – Architectural and Engineering Consultant Rates – Report No. 2019-11

The management team provided a new copy of their management response, which is reflected in the revised

report attached above. A letter from Van Collins, President and CEO of the American Council of Engineering

Companies, was provided at the meeting and is attached as minutes Exhibit A.

The committee received a presentation from Mr. Fernandes and Mr. Chase that included the following

• The first of four findings focused on determination of whether consultant costs and associated

percent; five percent of the consultants had markups greater than 50 percent.

• With A&E costs representing 10-20 percent of port capital cost, the risk of extra port cost is high.

• The baseline used was the overhead rate used by the Washington Department of Transportation. In

the absence of that baseline or an audited rate, a Safe Harbor Indirect Cost Rate of 110 percent of

direct labor was used.

Factors underscored by management included that for these services, the port uses a qualification-based

selection, not a price consideration. Billing rates and evaluated job classifications are used to determine if

the rates are fair and reasonable. There is no price comparison between proposers.

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MONDAY, DECEMBER 9, 2019

The proposal by Internal Audit is that the port establish a standard by which to determine that rates are fair

and reasonable.

the validity of the billing rate analysis developed by Internal Audit. The audit team asked how they would be

expected to conduct post-audit follow-up in the absence of an alternative standard to determine whether rates

are fair and reasonable.

Committee members commented on their concerns that the management response was not submitted timely

for advance consideration prior to the meeting. Together with the strongly worded letter from the ACEC as

an industry representative challenging the auditors’ methodology, the committee voiced concerns

surrounding management’s transparency and indicated a need for an expeditious resolution. Comments by

committee members included acknowledgment that no action in bad faith by any parties is suggested in the

audit report. It was noted that management is not prevented from taking steps to improve standards or

• The period of the audit was November 2017 through December 2019.

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MONDAY, DECEMBER 9, 2019