INTERNAL AUDIT REPORT

Operational Audit – Capital

Internal Audit (IA) completed an audit of the Terminal 117 Sites 23 – 25 Restoration Project (Project) for

the period January 2020 through June 2023. The audit was performed to provide an independent

assessment of performance, with the purpose of determining how goals and objectives were achieved

and to determine if there were opportunities for improvement.

The Project was the first at the Port to use the Heavy Civil General Contractor/Construction Manager

named the Duwamish River People’s Park, opened in the summer of 2022.

Our audit focused on a review of bid package procurement processes and expenses, self-performed

work, and Negotiated Support Services (NSS), including COVID-19 expenses. In general, Port

management’s monitoring aligned with policies, procedures, and the unique state law requirements of

GC/CM projects. However, our audit identified opportunities where internal controls could be enhanced

or developed. These opportunities are listed below and discussed in more detail beginning on page six

of this report.

1. (Low) The GC/CM did not include a notification of their intent to bid on the public solicitation for

rather than actual hours, as required by the contract. The Construction Management project team

were aware of the overbilling and correction needed, prior to the start of the audit.

Glenn Fernandes, CPA

Director, Internal Audit

Stephanie Jones Stebbins, Managing Director, Maritime

Sandra Kilroy, Senior Director, Engineering, Environment, and Sustainability

Jonathan Ohta, Senior Construction Manager, Construction Services

Janice Zahn, Director of Engineering

Between 1937 to 1993, the Duwamish Manufacturing Company and Malarkey Asphalt Company used

the site for asphalt shingle manufacturing which left the site with contaminated soil and sediments. The

Port acquired the land in 1999, which was designated as an Early Action Area (EEA) as part of the

Lower Duwamish Waterway Superfund site by the U.S. Environmental Protection Agency (EPA). The

Port and the City of Seattle worked together to conduct multiple large-scale cleanups with EPA oversight.

Beginning in 2020, the Port broke ground on the Duwamish River People’s Park. This Project began in

2020 with the purpose of restoring 14 acres of habitat and shoreline access on the west bank of the

Lower Duwamish Waterway in South Park, Seattle. This Project contributes to salmon recovery in the

region, which can also support the endangered Southern Resident orca population. This area along the

river is also used by tribal fishers to harvest chinook, coho, pink, chum, and steelhead salmon as they

practice their Treaty Fishing Rights during the salmon migration season.

This Project was unique in that it established the Port’s first “habitat credit bank” which enabled third

parties to invest in habitat projects, as mitigation credits, to comply with the Clean Water Act and the

Endangered Species Act. Any revenue generated by the Port will help fund additional habitat restoration

projects in the Green-Duwamish Watershed and Elliott Bay. In addition, the site serves as a learning lab

for environmentalists seeking skills training and hands-on experience with careers in habitat restoration

and marine wildlife conservation.

The Port contracted with Scarsella Brothers Inc. to be the GC/CM of the project in August of 2020. The

original contract amount was $14.2 million. Considering executed change orders and the closing of open

change order trends, the final contract amount is projected to be approximately $14.9 million.

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.

Bid Packages and Self Performed Work

process for compliance with Washington State laws for the four subcontract bid packages in which the

GC/CM was a bidder, listed in Table 1.

Table 1: Subcontract scope and contractual estimate amount

In all four subcontract bid packages, the GC/CM did not include a notification of their intention to bid in

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.

Branch, Richards & Co., P.S. (Branch Richards) overall scope of work was to perform sufficient testing

and attest procedures on Pay Applications submitted by Scarsella to allow conclusions to be made on

whether any costs invoiced were not reimbursable due to a lack of accounting support or unallowable

per contract terms.

As of the date of this report, Branch Richards’ review is mostly complete, however, there are a few