P.O. Box 1209

Seattle, Washington 98111

www.portseattle.org; 206.787.3000

APPROVED MINUTES

AUDIT COMMITTEE SPECIAL MEETING

April 6, 2023

The Port of Seattle Commission Audit Committee met in a special meeting Thursday, April 6, 2023. The

meeting was held in the Commission Chambers located at the Port of Seattle Headquarters Building,

2711 Alaskan Way, Seattle, WA, and virtually via Microsoft Teams. Committee members present

included Commissioners Cho and Mohamed and Public Member Sarah Holmstrom (non-voting).

1. Call to Order:

The committee special meeting was called to order at 9:00 a.m. by Commissioner Mohamed. The agenda

was approved without objection.

*Internal Audit Department presentation is found here and contains information for Agenda Items 4 through

10.

2. Approval of Audit Committee Meeting Minutes of December 8, 2022:

The minutes of the Audit Committee special meeting of December 8, 2022, were approved without

objection.

3. Office of the Washington State Auditor – Accountability Audit Results for 2021

(Presentation and Report)

Presenters:

Joseph Simmons, Program Manager

Angela Funamori, Assistant State Auditor

Maddie Frost-Shaffer, Assistant Audit Manager

The Office of the Washington State Auditor presented its Exit Conference Report noting:

• they will publish the Accountability audit for January 1, 2021 through December 31, 2021; and the

Assessment Audit of the Port of Seattle Industrial Development Corporation (IDC) – January 1,

2019 through December 31, 2021;

• areas examined including accounts payable – electronic funds transfers; procurement – public

works and change orders; selected IT security policies, procedures, practices and controls

protecting financial; systems – patch management; promotional hosting; open public meetings –

compliance with minutes, meetings and executive session requirements; and financial condition –

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reviewing for indications of financial distress; and

• audit findings and responses.

Members of the Committee and staff discussed an external cyber loss finding, stating the Port lacked

adequate internal controls over electronic payments, which resulted in losses of public funds. This is the

only instance of cyber loss in Port history. Police investigation, loss recovery, policies and procedures, and

ACH system protocols and security were addressed.

Members of the Committee thanked management for their quick action and response.

UPDATES AND APPROVALS

4. Director’s Annual Communication – Independence, Internal Audit Charter, Quality Assurance,

and Follow-Up (charter)

Presenters:

Glenn Fernandes, Director, Internal Audit

Mr. Fernandes presented an update to the Members of the Committee regarding:

• information on auditing standards;

• annual communication required by the Institute of Internal Auditors’ International Standards for

the Professional Practice of Internal Auditing;

• requirements for the Internal Audit Department to maintain organizational independence to

perform its function;

• composition of the Internal Audit Charter; and

• quality assurance requirements.

5. Open Issue Status

Presenters:

Glenn Fernandes, Director, Internal Audit

Mr. Fernandes overviewed the status of Open Issues, reporting as of March 23, 2023.

The presentation addressed outstanding issues over one year from the target date of completion and

technology issues that do not have target dates and are not included in the aging chart.

Committee Member Sarah Holmstrom stated her concern for the overdue status of items on the Open

Issues aging report and inquired regarding the process for following up on open items.

Mr. Fernandes advised that items are reviewed quarterly and discussed reasons for completion date

extensions.

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6. Internal Outreach Project Update

Presenters:

Glenn Fernandes, Director, Internal Audit

Rumi Okuma, Senior Internal Auditor

Bruce Klouzal, Manager, Internal Audit

The presentation addressed:

• goals, scope, and stakeholders of the project - to promote the awareness and understanding of

the Port’s Internal Audit process, and the significance of internal controls and risk mitigations

internally and externally through outreach, education; and socialization; and to help small entities

that the Port does business with and that have limited resources to educate and train their staff on

internal controls;

• deliverables and timeline of the project.

• website upgrades to support the project to include external peer review; audit processes; audit

resources; and cybersecurity resources; and

• phase II of the project – internal controls training components, delivery methods, and target

audience in the second quarter of 2023.

Members of the Committee and staff discussed the Committee’s desire to have this information provided

proactively to small businesses.

7. 2023 Audit Plan Update

Presenters:

Glenn Fernandes, Director, Internal Audit

Mr. Fernandes provided an update on the completion status of 2023 Audit Plan items.

PERFORMANCE AUDITS

Presenters:

Glenn Fernandes, Director, Internal Audit

Dan Chase, Manager, Internal Audit

Spencer Bright, Manager, Internal Audit – Capital

8. Fishermen’s Terminal (See Report)

The presentation addressed:

• purpose of the audit - to evaluate billing processes; evaluate segregation of duties; assess internal

controls, including whether standard operating procedures were drafted and followed;

• the audit focused on the Marina Management System and did not focus on PeopleSoft Financials;

• Fishermen’s Terminal; Salmon Bay Marina; and the Maritime Industrial Center;

• findings that the billing and collection procedures at Fishermen’s Terminal were informal and

internal controls needed to be strengthened;

• recommendations of the audit; and

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o Billing and collection processes should be documented and formalized.

o Review and oversight over the processes should be required and well understood. This

should include who performs the review, when it is conducted, and what is being reviewed.

o Permissions and user access within the Marina Management System should be reviewed

and evaluated to assure that individuals cannot delete or make adjustments in the system

without approval.

• management’s response to findings and recommendations.

Members of the Committee and staff discussed:

• accounts receivable aging summary and accounts payables that need to be collected;

• billing and collection procedures; and

• creating segregation of duties in processing payments and a recommendation that the adjustment

process be reevaluated.

Mr. Kenny Lyles, Director of Maritime Operations and Security, Fishing and Operations Management:

• was commended for initiating the audit;

• stated that the current system is being upgraded and new standard operating procedures are being

created.

Discussion continued regarding moving the payment base to an all-electronic format and challenges that

present when working with small boat fishers who prefer to pay in cash.

Members of the Committee and staff also discussed:

• the status of the roofing at Salmon Bay Marina - Mr. Lyles noted that the roof is stable, and

maintenance routinely assesses it;

• the long term project in the capital plan to bring it up to standards;

• ultimate upgrade of the sprinkler system; and

• reasons for the initial purchase of the asset.

9. Terminal 5 Berth Modernization Project (See Report)

The presentation addressed:

• background of the project;

• findings that the Port’s internal controls over the review process for Pay Applications worked well to

assure billings pertaining to unit price work items were accurate and supported; however, the audit

identified instances in which Pay Applications were missing supporting documentation or billed

incorrectly, resulting in a potential overbilling of $124,771;

• recommendation that if the contractor is unable to provide supporting documentation, Construction

Management should seek and recover any amounts due;

• management’s response - the full amount of $124,771 will be credited from the next Pay Estimate

processed for this project unless the Contractor provides missing documentation; and outside of

the audit, Construction Management is confident that discrepancies would have been identified and

corrected during the independent verification process required when each Unit Price Bid Item is

completed, in line with standard operating procedures as part of the closeout of the project.

Discussion ensued regarding staff’s request to the contractor for backup documentation supporting the

billing.

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10. Supply Chain Disruption Management (See Report)

The presentation addressed:

• the COVID-19 pandemic disruption of 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; and

• the objective of the audit - to Identify how the Port is addressing supply chain disruption

management, assess the adequacy of its risk response plan, and determine how the Port’s

measures align with other agencies and the construction industry.

Based on the work performed, the audit concluded 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 addressed key risks from supply

chain disruption. They also aligned with processes used by other agencies and the results of research

within the construction industry.

INFORMATION TECHNOLOGY AUDITS

11. Security Awareness and Skills Training

Agenda Item No. 11 was discussed in non-public session, as it is security sensitive and all or part of the

audit reports may be exempt from public records disclosure under RCW 42.56.420.

12. Committee Comments

Mr. Fernandes and Members of the Committee thanked the Management teams for working with the

Internal Audit Department throughout the audits.

13. Adjournment

There being no further business, the special meeting recessed at 10:46 a.m. and re-convened in a non-

public session to address security-sensitive information technology audit information for Agenda Item 11 for

approximately 30 mins. The meeting adjourned immediately at the conclusion of the discussion and no

further action was taken.

Prepared: Attest:

__________________________________ __________________________________

Michelle M. Hart, MMC, Commission Clerk Hamdi Mohamed, Audit Committee Chair

Minutes approved: June 30, 2023.