INTERNAL AUDIT REPORT

Operational Audit – Capital

Supply Chain Disruption Management

Issue Date: March 21, 2023

Report No. 2023-04

Supply Chain Disruption Management

TABLE OF CONTENTS

Executive Summary ...................................................................................................................................... 3

Background .................................................................................................................................................. 4

Audit Scope and Methodology .................................................................................................................... 5

Appendix A: Risk Ratings .............................................................................................................................. 6

Supply Chain Disruption Management

Executive Summary

Internal Audit (IA) completed an audit of the Port of Seattle's Supply Chain Disruption

Management processes and internal controls. The objective of the audit was to identify how the

Port is addressing supply chain disruption management, assess the adequacy of its risk response

plan to minimize the consequences of a risk event, and how those measures align with other

agencies and the construction industry.

The COVID-19 pandemic severely disrupted global supply chains due to government-imposed

shutdowns, demand instability, labor shortages, and bottlenecks in shipping and transportation,

affecting the construction industry's ability to access key materials and equipment. To identify

best practices for mitigating supply chain risks, IA interviewed personnel from the Port and

benchmarked with other agencies and companies. We noted several effective processes, such

as procurement of materials in advance, in addition to industry outreach and awareness to identify

and mitigate long lead times for materials before bidding.

Based on our work performed, we conclude that the Port has established processes through close

coordination between multiple departments including, the Central Procurement Office, the Project

Management Group, and Construction Management. These processes address key risks from

supply chain disruption. They also align with processes used by other agencies and the results of

our research within the construction industry.

We did not identify any issues that warrant reporting.

Glenn Fernandes, CPA

Director, Internal Audit

Responsible Management Team

Loren Armstrong, Sr. Port Counsel

Eileen Francisco, Director Aviation PMG

Nora Huey, Director Central Procurement Office

Stuart Mathews, Assistant Director Aviation PMG

Janice Zahn, Chief Engineer and Director, Engineering Services

Supply Chain Disruption Management

Background

The COVID-19 pandemic had a significant impact on the global economy, including the

construction industry. During the pandemic, one of the major challenges faced by the construction

industry has been supply chain disruption.

The construction industry relies heavily on a global network of suppliers and manufacturers to

provide the necessary materials, equipment, and components required for construction projects.

The pandemic disrupted the supply chain in several ways:

1. Shutdowns and restrictions: Governments imposed lockdowns and restrictions on

businesses, including manufacturers and suppliers. These shutdowns and restrictions led

to a reduction in production capacity and delays in delivery times.

2. Labor shortages: The pandemic caused labor shortages in the construction industry.

Workers were unable to travel due to restrictions on movement, and some contracted

COVID-19, leading to reduced productivity and delays in construction projects.

3. Transportation delays: The pandemic caused significant delays in transportation, as

countries closed their borders and restricted movement. This led to delays in the delivery

of materials and equipment required for construction projects.

4. Price increases: The disruption in the supply chain led to price increases for certain

materials, such as lumber, due to increased demand and limited supply.

Overall, these disruptions led to delays, increased costs, and challenges for the construction

industry. At the time of this report, these disruptions were still being experienced.

Source: Gartner, Inc.

Supply Chain Disruption Management

Audit Scope and Methodology

We conducted the engagement 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 conduct an engagement to obtain sufficient, appropriate

evidence to provide a reasonable basis for our findings and conclusions based on our

engagement objectives. We believe that the evidence obtained provides a reasonable basis for

our findings and conclusions based on our engagement objectives. The audit included the

following procedures:

Current Supply Chain Disruption Management Processes and Internal Controls

To evaluate the Port's current supply chain disruption management processes and internal

controls, we performed the following procedures:

• Obtained an understanding of the Port's current supply chain disruption management

processes and related internal controls.

• Conducted interviews with personnel from Construction Management, Project

Management, and the Central Procurement Office, to assess their awareness of supply

chain disruption issues and to understand their roles in managing those risks.

• Reviewed the processes and internal controls the Port has in place to mitigate the risk of

supply chain disruptions.

• Performed a walkthrough of a laydown area, to confirm internal controls are properly

designed and implemented.

Outreach and Benchmarking

• Performed outreach with other airports and ports, government agencies, and consulting

firms, facing similar issues, to identify best practices and opportunities for improvement.

• Obtained an understanding of these external organizations’ processes and internal

controls to mitigate risks from supply chain disruptions.

• Assessed whether there were opportunities for the Port to implement and improve their

practices, based on best practices of other agencies.

Supply Chain Disruption Management

Appendix A: Risk Ratings

Findings identified during the audit are assigned a risk rating, as outlined in the table below. Only

one of the criteria needs to be met for a finding to be rated High, Medium, or Low. Findings rated

Low will be evaluated and may or may not be reflected in the final report.

Rating

Financial

Stewardship

Internal

Controls

Compliance Public

Commission/

Management

High Significant

Missing or not

followed

Non-compliance

with Laws, Port

Policies,

Contracts

High probability

for external audit

issues and / or

negative public

perception

Requires

immediate

attention

Medium Moderate

Partial controls

Not functioning

effectively

Partial

compliance with

Laws, Port

Policies

Contracts

Moderate

probability for

external audit

issues and / or

negative public

perception

Requires

attention

Low Minimal

Functioning as

intended but

could be

enhanced

Mostly complies

with Laws, Port

Policies,

Contracts

Low probability

for external audit

issues and/or

negative public

perception

Does not

require

immediate

attention