Financial Stewardship Accountability Transparency Port of Seattle Audit Committee Internal Audit Update Glenn Fernandes - Director, Internal Audit September 16, 2025 P69 Commission Chambers 12:30 PM - 2:30 PM Operational Excellence Governance Internal Audit Overview Item #4  Internal Audit, through an annual Audit Plan, provides assurance that the Port's controls are effective and efficient. The department facilitates four public Audit Committee meetings per year, and non-public meetings, as needed.  The department facilitates RCW required independent audits on GC/CM Projects and periodically assists in the required Payment Card Industry audit.  The department provides advisory services to the Port, to the extent that it does not compromise the department's independence.  The department maintains its independence and objectivity by reporting administratively to the Executive Director and functionally to the Audit Committee. 2 Internal Audit Organization Structure Glenn Fernandes Director Dan Chase Item #4 Saylor Nygaard Sr. Administrative Assistant Manager Internal Audit - Operational Spencer Bright Manager Internal Audit - Capital Ritika Marwaha Nicole Uy Nikita Goyal Brent Layman Sr. Internal Auditor Sr. Internal Auditor Sr. IT Auditor Derek Dewar Darcey Axon Concession Auditor Sr. Internal Auditor Manager Internal Audit - IT Vacant Sr. Internal Auditor 3 2026 Baseline Budget Overview Org/Node Name Line Account Description 1 Salaries and Benefits 2 Equipment Expense 3 Supplies & Stock 4 Outside Services 5 Travel & Other Employee Exp 6 Promotional Expenses 7 General Expenses 8 Other Expenses 9 Total Charges To Capital Non Payroll Subtotal Total $ $ 2024 Budget 2,118,896 563 1,000 42,095 52,287 0 505 8,397 0 104,847 2,223,743 2025 Budget 2,193,568 563 1,000 2,095 60,812 0 505 8,004 0 $ 72,979 $ 2,266,547 2026 Budget 2,375,925 0 1,035 2,265 60,511 0 825 8,343 0 $ 72,979 $ 2,448,904 26 Bud to 25 Bud Change $ 182,357 (563) 35 170 (301) 0 320 339 0 $ (0) $ 182,356 Item #5 26 Bud to 25 Bud Var % 8.31% (100.00%) 3.46% 8.11% (0.49%) 0.00% 63.37% 4.24% 0.00% 0.0% 8.0% 4 Item #5 2025 YTD Actuals Org/Node Name Line Account Description 2024 2024 1H 2025 1H 2025 1H 25 Bud to 1H 25 Act 1H 25 Bud to 1H 25 Act Budget Actuals Budget Actuals Bud Change $ Bud Change % 1 Salaries and Benefits 2,118,896 1,854,092 1,083,234 1,139,274 56,040 5.2% 2 Equipment Expense 563 4,849 489 2,402 1,913 391.2% 3 Supplies & Stock 1,000 995 492 812 320 65.0% 4 Outside Services 42,095 21,653 2,095 1,181 (914) (43.6%) 5 Travel & Other Employee Exp 52,287 47,274 55,675 22,892 (32,783) (58.9%) 6 Promotional Expenses 0 0 0 0 0 7 General Expenses 505 (1,750) 505 2,660 2,155 426.7% 8 Other Expenses 8,397 8,317 4,002 3,845 (157) (3.9%) 9 Total Charges To Capital 0 0 0 0 0 Non Payroll Subtotal $ 104,847 $ 81,338 $ 63,258 $ 33,792 $ (29,466) -46.6% Total $ 2,223,743 $ 1,935,430 $ 1,146,492 $ 1,173,066 $ 26,574 2.3% 5 Item #5 (Capitalized) Outside Services GC/CM Audit Costs (Outside Services) are directly capitalized to each Project and are not reflected in the expense budget. Below is a summary of GC/CM spending for informational purposes. Project Firm Construction Cost Estimate Est. Audit Spend over Life of Project Audit Work Post IAF Airline Realignment RL Townsend C Concourse Expansion Project RL Townsend Main Terminal Low Voltage Project RL Townsend South Concourse Evolution Talson Solutions Primary Fire Station (Eastside) FACT Financial Solutions Industrial Wastewater Treatment PlantNot Selected Heavy Civil GC/CM Baggage Optimization 3 Fort Hill & Associates Concourse HVAC Improvement Not Selected Renewal/Replacement Program (CHIRRP) Terminal 25 South Restoration Not Selected (Heavy Civil GC/CM) $45 MM $49.2 MM $55 MM $1B $15 MM $150 MM $82,044 In Process, expected completion 2027 $304,000 In Process, expected completion 2026 $73,555 In Process, expected completion 2026 $634,310 In Process, expected completion 2032 $21,805 In Process, expected completion 2026 $118,500 Expected timeline 2026 - 2029 $300 MM $200 MM $217,500 In Process, expected completion 2027 $180,000 Expected timeline 2026 - 2032 Main Terminal Improvement Program Concourse Low Voltage Upgrades Total $520 MM $22.3 MM $2.35 B RL Townsend - - Expected timeline 2026 - 2029 Construction and audit budgets not established $499,200 Expected timeline 2026 - 2034 $27,195 In Process, expected completion 2026 $2.15 MM 6 Audit Title Recovery Effort - Data Integrity - General Banking/Fraud Controls Community Initiatives - ANEW1 Consultants/Contractor Management Port Management Governance Committees Terminal 91 Berths 6 & 81,2 Maritime Center at Fishermen's Terminal 2023 Airfield Projects - Contract 2 Widen Arrivals Roadway Recovery Effort - Data Integrity - Construction Management Club at SEA4 Closed Network System - Satellite Transit System (STS) (AVM) Third-Party Risk Management (ICT & AVM) Access Control Management (AVM) Access Control Management (ICT) Baggage Conveyor System (AVM)3 New IT Environment - Information Technology General Controls (ITGC)5 Gate Gourmet, Inc. BF Foods, LLC Concourse Concessions, LLC SSP America SEA, LLC (Ballard Brew Hall) SSP America SEA, LLC (Mi Casa Cantina) SSP America SEA, LLC (Le Grand Comptoir) SSP America SEA, LLC (Camden Food Co.) Sun's, Inc. 3 The Yarrow Group, LLC3 LaTrelle's Flight Kitchen, LP (Wendy's) 3 2025 AUDIT PLAN STATUS Type Performance Performance Performance Performance Performance Performance - Capital Performance - Capital Performance - Capital Performance - Capital Performance - Capital Performance - Capital IT IT IT IT IT IT Contract Compliance Contract Compliance Contract Compliance Contract Compliance Contract Compliance Contract Compliance Contract Compliance Contract Compliance Contract Compliance Contract Compliance 1 Audit renamed to better align to scope 2 Scope of Terminal 91 audit will include Construction Solicitation/Bidding 3 Added to plan from contingency audit plan 4 Addition to plan at request of Construction Management 5 Deferred to 2026 Audit Plan at request of Port Management, added Contingency Audit in lieu of this Audit Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Item #6 Complete KEY In Process Not Started Deferred 7 2025 Audit Plan Limited Contract Compliance • Gate Gourmet, Inc. • BF Foods, LLC • Concourse Concessions, LLC • SSP America SEA, LLC (Ballard Brew Hall) • SSP America SEA, LLC (Mi Casa Cantina) • SSP America SEA, LLC (Le Grand Comptoir) • SSP America SEA, LLC (Camden Food Co.) • LaTrelle's Flight Kitchen, LP (Wendy's)3 • The Yarrow Group, LLC3 • Sun's, Inc.3 Item #6 Performance Performance - Capital Information Technology • Recovery Effort - Data Integrity - General • P-Cards & Accounts Payable Payments and Banking/Fraud Controls • Community Initiatives ANEW1 • Consultants/Contractor Management2 • Port Management Governance Committees • Terminal 91 - Berths 6 & 81,2 • Maritime Center at Fishermen's Terminal • 2023 Airfield ProjectsContract 2 • Widen Arrivals Roadway • Recovery Effort - Data Integrity - Construction Management4 • Club at SEA4 • Closed Network System - Satellite Transit System (STS) (AVM) • Third-Party Risk Management (ICT & AVM) • Access Control Management (AVM) • Access Control Management (ICT) • Baggage Conveyor System (AVM)3 • New IT Environment - Information Technology General Controls (ITGC)5 1 Audit renamed to better align to scope 2 Scope of Terminal 91 audit will include Construction Solicitation/Bidding 3 Added to plan from contingency Audit Plan 4 These are not full audits, they will be performed as reviews and a summary memo will be issued 5 Deferring to 2026 Audit Plan at the request of Port Management, and added a Contingency Audit in lieu 8 Internal Audit Capital GC/CM Continuous Audits Item #6  RCW 39.10.385 requires an independent audit  Third-party independent auditor provides the Audit Committee with annual updates and final reports upon completion of each project  The following table represents GC/CM projects that Internal Audit is overseeing: Capital GC/CM Continuous Audits Main Terminal Low Voltage System Upgrade Under Contract Post IAF Airline Realignment Under Contract C Concourse Expansion Project Under Contract Eastside Fire Station Under Contract Baggage Optimization Phase 3 Under Contract Concourse Low Voltage Upgrade Under Contract South Concourse Evolution Under Contract 9 Audits Completed in Third Quarter - 2025 Items #7-10 1) Port Management Governance Committees 2) Widen Arrivals Roadway 3) Access Control Management (AVM)1 4) LaTrelle's Flight Kitchen, LP (Wendy's) 1Security Sensitive - Exempt from Public Disclosure per RCW 42.56.420 - Issue Not Discussed in Public Session 10 Port Management Governance Committees Item #7  Scope: January 2024 - June 2025  Objectives: 1) To determine whether management oversight committees adhered to requirements within their charters, such as the occurrence of meetings and attendance of members Eight standing committees or boards that engage in outreach efforts and communicate Commission priorities to the public Not legally authorized to act on behalf of the Port of Seattle (POS) Sanctioned to evaluate information, advise, and make recommendations to the POS Commission 11 Port Management Governance Committees Item #7  Objectives (continued): 2) To assess the Trade Business and Community Development (TBCD) process, specifically how requests were made and approved TBCD requests are evaluated and approved through the Development Funding Review Committee Must be associated with one of four categories: 1) Promotion of Tourism 2) Economic Development Programs 3) Education and Awareness 4) Promotion of Port Properties and Facilities/Trade Promotion 12 Item #7 1) Rating: Low Procedural documents did not exist. Additionally, Resolution 2779 is approximately 50 years old, and internal policy documents have not been updated in six years. While the respective RCWs have not changed, an opportunity exists to modernize the language in Resolution 2779.  According to RCW 53.36.120, "trade promotion or promotional hosting shall be pursuant to specific budget items as approved by port commission at the annual public hearings on the port districts budget." Of the 130 approved requests, 27 ($264,840) reflected "false" or not budgeted. 13 Item #7 1) Rating: Low Recommendations:  The TBCD Committee should be owned jointly by Legal and Accounting & Financial Reporting (AFR).  The title of the Policy AC-4 and the related account and approval process should be updated to remove "Community" Development, to better align with the RCW and to minimize confusion.  Educate Port staff and the Commission on what constitutes an allowable expenditure per the RCW and Port Policy.  An effort should be made to identify if the Port would benefit from updating Resolution 2779 to modernize the language and to better align to current operations of the Port.  Procedures should be created, and the SharePoint file should be completely and accurately filled out. 14 Management Response Item #7  We appreciate the Internal Auditor's review of Port governance practices, specifically the AC-4 Policy, Promotional Hosting; Trade/Business and Community Development (TBCD) Expenses. Since spring 2025, the TBCD Development Funding Review Committee (Review Committee) has been actively engaged in a cross-functional work group including Commission staff to update the AC-4 Policy and develop associated procedures to ensure all required fields of the SharePoint application are properly documented, and reasons for denied applications are included. We acknowledge the need to enhance these procedures to improve clarity, streamline the process, and provide education for the appropriate use of funds budgeted for qualifying TBCD expenses. We expect the workgroup to complete the policy review and development of the procedures in 2025. DUE DATE: 12/31/2025 Management will discuss in detail. (Full response in Audit Report No. 2025-15) 15 Widen Arrivals Roadway Item #8  The Project will expand the roadway to boost tourism and access  This Project is one of four major within the broader Widen Arrivals Roadway Program  Bus Canopy Project added to this Project to meet 2026 FIFA World Cup deadlines and avoid delays  Port management's strong documentation process enabled continuity during cyber-attack system outage 16 Widen Arrivals Roadway Item #8  Original contract was $52.6MM  As of July 2025, there are $4.4MM in change orders bringing the current contract to $57.3MM  Substantial completion is anticipated to occur in June 2026  Period audited was August 2023 - July 2025 17 Item #8 1) Rating: Low Payments issued by the Port exceeded the contractual timeframe and omitted a Port standard clause that aligns with state law.  Contract omitted the Port's standard 30-day payment clause  Two pay estimates exceeded the 30-day timeframe:  #11 (34 days, due to cyberattack)  #16 (41 days, no justification) Recommendations: 1. Future contracts should include the standard payments clause aligned with RCW 39.76.011(2) 2. Document and communicate payment delays to contractors 18 Item #8 2) Rating: Low Misclassification of Change Order (CO) 31 as Lump Sum Instead of Notto-Exceed (NTE)  CO 31 issued as lump sum, not NTE  Lump sum conflicts with unit price cost tracking  Misclassification risks overpayment or unintended contractor cost liability Recommendations: CO 31 should be reclassified as NTE; future variable costs should be managed with NTE orders for proper tracking and financial control. 19 Item #8 3) Rating: Low Duplicate Payment Identified for Unit Price Bid Item.  Duplicate payment of $5,387 identified for contaminated soil  Port construction team verified and applied corrective credit on Pay Estimate 18 Recommendations: No further action was required as the overpayment was identified and resolved prior to the issuance of the audit report. 20 Management Response Item #8 We concur with the Auditor's recommendations. DUE DATE: 09/17/2025 Management will discuss in detail. (Full responses in Audit Report No. 2025-17) 21 LaTrelle's Flight Kitchen, LP (Wendy's) Item #10 This is a Limited Contract Compliance Audit without any issues and will not be presented during this meeting. However, the final report (No. 2025-18) is made available. 22 Questions/Committee Comments Item #11 23