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Audit Meeting on Sep 01, 2009 1:00PM

Minutes for the Port Of Seattle Commission meeting, held on Sep 01, 2009 1:00PM

                        Commissioners                                               Tay Yoshitani 
                                                                                              Chief Executive Officer 
                      Bill Bryant 
                      Chair and President 
                   John Creighton                           P.O. Box 1209 
                     Patricia Davis                           Seattle, Washington 98111 
                   Lloyd Hara                             www. portseattle.org 
                   Gael Tarleton                              206.728.3000 

             An audio of the meeting proceedings and meeting materials are available on the Port of
                                        Seattle web site - 
                http://www.portseattle.org/about/organization/commission/commission.shtml 
                     APPROVED MINUTES 
             AUDIT COMMITTEE SECIAL MEETING SEPTEMBER 1, 2009 
            The Port of Seattle Commission Audit Committee met in a special meeting at 9:00 a.m.,
            Tuesday, September 1, 2009 in the Commission Chambers at Pier 69, 2711 Alaskan
           Way, Seattle, WA. Committee members Creighton, Hara and Miller were present, as
            well as Deputy CEO Linda Strout and Joyce Kirangi, Port Internal Audit Manager.
            Commissioner Tarleton was also in attendance. 
        CALL TO ORDER 
            The committee special meeting was called to order at 9:00 a.m. by Commissioner Lloyd
            Hara. 
           Approval of Minutes 
            Motion for approval of the Minutes of July 7, 2009 and August 4, 2009  Creighton 
            Motion carried by the following vote: 
            In Favor: Creighton, Hara (2) 
            Mr. Miller participates as a non-voting member of the Committee. 
            Internal Audit Report of Aviation Acquisitions and Relocation 
            Presentation documents: Computer slide presentation from Jack Hutchinson, Manager,
            Internal Audit Department and report titled, "Internal Audit Report  Acquisition and
            Relocation Department Audit." 
             Presenter: Mr. Hutchinson 

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        PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING 
         TUESDAY, SEPTEMBER 1, 2009                        P. 2 
            As background, Mr. Hutchinson stated that this department manages property acquisition
             and subsequent relocations of tenants as part of the Airport"s noise remediation efforts.
             The Port works with the tenants as a landlord. 
            Mr. Hutchinson noted that the purpose of this audit was to identify and assess department
            operations to determine whether management has established adequate controls,
             specifically to 1) ensure that the Port"s assets are adequately safeguarded and are properly
            accounted for at all times, and 2) promote and ensure compliance with Port policies in
            disbursements and procurements. He clarified that the audit was not looked at from the
            perspective of any Federal grants, as that is something covered by Moss Adams, and that
             the internal auditor did not want to duplicate those efforts. 
            Mr. Hutchinson stated that it was found that the department did not have adequate
             controls in three specific areas: 
               Incomplete accountability over rent collection 
               Inadequate controls over cash collection 
               Noncompliance with Port procurement and disbursement policies and procedures 
            Regarding the rent collection, Mr. Hutchinson noted that although the department does
            have a complete roster of tenants from whom they expect monthly rent payments, the
            department does not actually bill those tenants and does not know what the total monthly
            expected rent should be. Also noted was the fact that although the department did have
             some level of controls, those controls were just not to the level that internal audit would
              like to see. He also acknowledged that this is a difficult thing to do as tenants are
            relocated on a continuous basis and the amounts change over time. 
            Mr. Hutchinson stated that the department had been accounting for incoming payments
            and processing those, but they were not certain of how much was supposed to be
             collected. Responding to a question from Commissioner Hara, Mr. Hutchinson clarified
            that the department had no real billing or accounts receivable system, however they did
            have a structure for processing and depositing payments which included the use of an
             armored car service. 
            Deputy CEO Strout posed the question, and Mr. Hutchinson clarified that the information
             discussed in the report were limited to the acquisition of the mobile home parks rather
             than the commercial properties or the single family residences that have been a large part
             of the acquisition program. 
            Responding to a question from Committee member Miller as to whether or not there were
            plans to acquire more mobile home parks, Mr. Hutchinson responded that he did not
             believe so. 
            Regarding inadequate controls over cash collection, Mr. Hutchinson clarified that the
             definition of what was referred to as "cash" included personal checks, travelers checks,
             and cashier"s checks, and stated that the department does not receive any "real cash." He

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            noted that the department did not really have good control surrounding cash payments,
             partially due to the fact that payments were collected via a drop box, the slot of which
             went into a department office which was accessible to all staff, allowing for a greater
              possibility of errors. He stated that the audit found the department did not have a proper
            segregation of duties and recommended strengthening this area. 
            Regarding procurement and disbursement policies and procedures, Mr. Hutchinson
            commented that no instances of misappropriation had been found during the period of
             audit, but stated that a lot of this finding has to do with a lack of documentation retained
            within the department. He reviewed recommendations made to the department as a result
             of the audit findings, which included the need to ensure the entire department has the
            necessary knowledge base necessary to comply with Port policies, procedures and
             guidelines. 
            The following staff members were then introduced to provide comments and answer any
            questions that the Committee may have: Jim Schone, Director, Aviation Business
           Development and Management; Allan Royal, Real Estate Development Manager; and
            Jude Barrett, Manager, Aviation Property Acquisition. 
            Mr. Schone expressed his appreciation for the work that the audit team had done in
             reviewing the department, noting that it had been a collaborative process. He assured the
           Committee that the department has begun implementing the recommendations made by
             the audit team and also noted that the mobile home park acquisition program is one that is
           now winding down. 
            Responding to questions from Commissioner Hara about how many tenants are left to
            relocate, staff noted that there are 30 remaining in the Town & Country Mobile Home
            Park. Mr. Barrett also commented that there was one 16-unit building remaining for
             acquisition. 
            Mr. Royal assured the Committee that the accounting department had been highly
             involved in the structuring of the rent collection process, and also spoke of the difficulties
            in absorbing over 200 tenants that change monthly. 
            Commissioner Hara stated that he would like the department to return to the Committee
            in approximately 90 days to provide a follow-up on the implementation of audit
             recommendations in order to bring closure to this area. 
            Commissioner Tarleton asked that going forward, staff relationships with the property
            managers be monitored more effectively, and stated that she would like to see monthly
            invoice approvals of the property management fees, and she also reiterated the
            importance of good documentation. 
            Regarding the Port"s acquisition procedures, Commissioner Hara commented that they
            should perhaps be examined in upcoming revisions to Port Resolution No. 3605. 

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        PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING 
         TUESDAY, SEPTEMBER 1, 2009                        P. 4 
           Internal Audit Report of Aviation Security Department 
            Presentation documents: Computer slide presentation from Jack Hutchinson, Manager,
            Internal Audit Department and report titled, "Internal Audit Report  Aviation Security
            Department." 
             Presenter: Mr. Hutchinson 
            As introduction, Mr. Hutchinson stated that the Aviation Security Department, in addition
             to the Port Police, is responsible for the security in general in the area surrounding the
             Airport as well as within the perimeter of the Airport. 
             Mr. Hutchinson stated that overall this was a clean audit and there were no findings that
             resulted. He stated that the general areas of the audit covered procurement practices and
              payroll activity. 
            Commissioner Hara asked whether or not the audit team had looked at the function of the
             Security Department as a part of the audit. Mr. Hutchinson responded that within this
            audit, focus on risk management and performance were introduced, although that would
            not be the primary focus. He stated that the audit team had not seen anything to suggest
             that the operation of the department was not effective. 
           Lease and Concession Audit: Fireworks Gallery 
            Presentation documents: Computer slide presentation from Jack Hutchinson, Manager,
            Internal Audit Department and report titled, "Internal Audit Report  Fireworks Lease
           and Concession Compliance Audit." 
             Presenter: Mr. Hutchinson 
            Mr. Hutchinson stated that the primary focus of this audit was to determine compliance
            with the provisions of the Lease and Concession Agreement for Fireworks. He noted that
            the lessee materially complied with the terms and conditions of the agreement; however,
             there were two instances of late payments that resulted in late charges and interest due to
             the Port. The suggested financial recovery was $1,366.14. He commented that the audit
            team recommendation was for Aviation Business Development to bill and collect the
            suggested recovery amount, and he also noted that over the two year period which was
             audited, this amount was not significant. 
           Proposal for Moss Adams 2009 Audit Engagement Services 
            Presentation document: Memorandum to Audit Committee dated August 27, 2009 from
            Dan Thomas, Chief Financial Officer and Rudy Caluza, Director, Accounting and
            Financial Reporting. 
             Presenter: Mr. Caluza 

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        PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING 
         TUESDAY, SEPTEMBER 1, 2009                        P. 5 

             As introduction to Mr. Caluza"s briefing, he noted that annual independent audits are
             required for the financial statements of the Port, federal regulatory grant compliance, as
            well as the Passenger Facility Charge (PFC) at Sea-Tac Airport. He stated that the State
            Auditor"s Office (SAO) conducts the Public Accountability/Legal Compliance and
            Performance Audits, and a national/regional independent CPA firm conducts the three
            audits previously mentioned. The CPA firm of Moss Adams was selected and awarded
             the contract in 2006 to conduct the audit services for those three audits. He noted that the
             briefing today was to provide information on the request to exercise the first of the twoyear
             options to cover the 2009 audit period. 
             Mr. Caluza stated that the Port has established a priority to have a contract cost reduction
             initiative, which requires departments at the Port to negotiate with its contractors and
             consultants to reduce the costs of contracts, and therefore the costs to the Port of Seattle
             with regard to pursuing services. He noted that Moss Adams has agreed to meet the full
             5% in contract cost reduction for the renewal, for a cost of $578,000 compared to the
            2008 amount of $608,000. 
            Commissioner Hara mentioned the fact that the Port has worked with Moss Adams for
             the past three years, stating that it was up to the Port to decide whether or not to change
              auditors at this point. Mr. Caluza affirmed that staff recommendation was to move
            forward with a renewal of the contract with Moss Adams, and noted that Moss Adams is
             a nationally recognized firm. 
            Responding to questions from Commissioner Hara as to which other Seaports are
            required to use nationally recognized CPA firms because they do not have a State
            Auditor"s Office that would be able to do the same work, Mr. Caluza stated that he could
            do some research and provide that information. 
             Commissioner Creighton clarified that approval of a contract for the auditing services
            would go before the full Commission approval. 
            Commissioner Hara asked what the timing is in terms of the next audit. Mr. Caluza
             stated that the field work, risk assessment, and audit scoping needs to begin next month
             (October). 
            Commissioner Creighton commented on the importance of rotation of auditors to
            maintain independence, while on the other hand recognizing the value of having an
             auditor that has developed expertise in an organization to continue on. He stated that he
            was not prepared to make a recommendation at this time. 
             Mr. Caluza clarified that there is nothing that requires audit firm rotation, but noted that
             the Sarbanes-Oxley Act does speak to the rotation of audit partners. 


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        PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING 
         TUESDAY, SEPTEMBER 1, 2009                        P. 6 
            Committee member Miller commented on several issues, including that of the rotation of
             audit firms vs. audit partners and stated his belief that it is good to have a rotation of the
             audit partner in charge from time to time. 
            Mr. Miller voiced a concern that during his time as a member of the Committee, he has
            constantly heard problems related to procurement, and wondered since there have been so
            many changes within the Port since 2006, whether or not the procurement policies in
            place then would meet the standards of current procurement policies. He noted that to
            consider that may help make the decision of how to proceed with the audit services
            question. He also raised the question of whether or not current procurement would allow
             a switch in auditing services without going out for bid. 
            Mr. Miller also asked the question of both proposals (Moss Adams and the SAO) how
            many hours of engagement were involved in coming up with the proposed prices. He
             also requested information on whether or not both entities had completed their client
             retention procedures. 
            Laurie Tish, partner with Moss Adams, was invited to respond to Mr. Miller"s questions,
             stating that the number of hours proposed for their 2009 audit services matches fairly
            closely to what was incurred in 2008, that being a minimum of 3800 hours, with an
            additional cushion of 200 hours in case any complications or unexpected items arise. She
            stated that Moss Adams had completed their client retention. As a follow-up to an earlier
            question about peer review reports, Ms. Tish noted that under government auditing
             standards, they are required to provide their peer review reports along with their
            engagement letter, and they do so each year. She stated that their most recent peer review
             report was in 2008 and it was unqualified. 
            Responding to Mr. Miller"s question about a deadline of April 30 for financial
             statements, Mr. Caluza stated that it was a deadline that the Port of Seattle tries to hold
                itself to. 
            Commission Hara suggested that Ms. Tish might like to provide her thoughts as to why
            Moss Adams should be retained for another year. Ms. Tish reiterated that Moss Adams
             very much values their relationship with the Port of Seattle, and stated that the firm has a
             thriving practice in serving the businesses of government. She also commented on the
             unique training that the firm"s staff receives. 
           State Auditor's Office (SAO) 2009 Engagement Offer 
            Presentation document: A copy of a letter to Commissioner Hara dated July 21, 2009
            from Carol Ehlinger of the State Auditor"s Office was provided regarding the proposed
             cost of auditing services 
            Presenters: Tony Martinez and Reid Richards, both of the State Auditor"s Office 


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        PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING 
         TUESDAY, SEPTEMBER 1, 2009                        P. 7 
            Mr. Martinez stated that the estimate of charges for the SAO to complete the Port"s 2009
            Financial Statement Audit, Federal Single Audit, and Passenger Facility Charge Audit
            would be approximately $298,680, and he clarified to the Committee that this amount
            was based on 3800 hours of work. 
             Commissioner Hara stated his concern of the timeliness of reporting, noting that the Port
             has yet to receive the report on the last compliance audit which was done. He asked what
             the intended timeframe would be for getting results to the Port for the proposed services.
            Mr. Martinez responded that they would plan to meet the Port"s desired deadline of April
             30. 
            Responding to a question from Commissioner Tarleton as to whether or not the SAO had
             completed their client retention procedures, it was clarified that this is not something the
             SAO normally does, as they are the auditor of all public accounts and that technically
             they do not have to offer letters of engagement. 
            Commissioner Hara raised a question of what is happening at other port authorities in
            terms of state auditors" offices. Mr. Martinez commented that he would make some
            inquiries and provide the information to the Committee. 
            Commissioner Hara then asked if there were further comments as to why the SAO should
            be considered. Mr. Martinez stated they are independent auditors, and even though they
             work in a political environment, the head of their agency is independently elected. He
             stated that their audits are designed to comply with professional standards, and he noted
             that they are a peer reviewed organization and that their last peer review was unqualified. 
            Following the SAO presentation, Ms. Strout addressed a question which was raised
             earlier by Mr. Miller. She commented that it might be useful for the Committee to have
            both a short description of the 2006 procurement process as well as what the current
             process would require in terms of the scope of participants. She stated that the
            information could be provided quite quickly by memo. 
            Commissioner Hara commented on the importance of quality and timeliness of work as
              well as the cost factor. 
            Commissioner Creighton stated that he believes the full Commission should review this
             procedure on an annual basis, noting that he understood the value of continuity, but that
             continuity vs. price vs. having a new set of eyes are all factors that need to be weighed. 
            Mr. Miller commented on the difficulty of weighing quality vs. cost. 
           Motion that the Committee allow both proposals to go before the full Commission
           was made by Commissioner Creighton. 
            Motion carried by the following vote: 

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        PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING 
         TUESDAY, SEPTEMBER 1, 2009                        P. 8 
           In Favor: Creighton, Hara (2) 
            Mr. Miller participates as a non-voting member of the Committee. 

           Review of updated tracking calendar 
            Mr. Barnard, Commission Policy Analyst, stated that he would update the tracking
            calendar on a monthly basis to reflect upcoming items, and would provide the calendar to
            the Committee. 
            A suggestion from Mr. Miller regarding the calendar was that a discussion of the 2010
            Internal Audit Workplan be added to November, 2009. 
            There was discussion as to whether the Committee is done receiving risk management
             reports for the year. Mr. Miller stated that he just does not want to see the ball dropped
             as far as receiving these reports. 
       ADJOURNMENT 
            There being no further business, the meeting was adjourned at 9:29 a.m. 
             (A digital recording of the meeting is available on the Port"s website.) 

           Lloyd Hara, Commissioner 









                Sept 1 SCM Audit Min