09 Capital Project Engagement Funding, 09 Capital Project Engagement Fundi
PORT OF SEATTLE MEMORANDUM DATE: August 8, 2016 TO: Audit Committee FROM: Joyce Kirangi, Internal Audit Director SUBJECT: Capital Projects Audit Engagement Update The Audit Committee oversees the Internal Audit Department's annual budget and staffing level. The 2016 Internal Audit budget approved by the Commission earlier this year had funding for only one capital project audit, the completion of the runway 16C/34C reconstruction project. The interim audit report on the 2015 construction was submitted in May. We propose to add the following continuous audits to the Internal Audit schedule, which would cover approximately 68% of the budgeted capital projects. Proposed Aviation Project Reasoning Est. Audit Duration Completion of the runway 16C- Impacts all airlines Through 2017 34C Reconstruction International arrivals facility Impacts all international Through 2020 or (IAF) airlines beyond NorthSTAR (NSAT) Impacts aviation largest To be determined (includes the expansion of the north customer satellite) Baggage Impacts all airlines To be determined optimization/replacement There are approximately 90 capital construction projects underway as of December31st 2015, with the bulk of the projects being in Aviation. Th e current 2016 - 2020 aviation capital program totals over $2 billion. Aviation Division Capital Budget (in millions) 2016 2017 2018 2019 2020 Total $360 $457 $454 $416 $363 $2,050 Source: 2016 Capital Budget We have obtained a broad understanding of the Port capital program, which encompasses many capital activities and projects. Some of the capital program costs will be incurred internally by the Port, and other costs will be incurred by contractors, subcontractors, consultants, and vendors-. The complexity of this capital program presents inherent risk exposures related to efficiency, effectiveness, cost, and compliance. In order to mitigate 1 these risks, Internal Audit plans to implement a long-term audit program, which will allow us to proactively audit various aspects of the capital program. This will include auditing contractors/consultants for compliance and other outside parties as necessary. We will also audit the effectiveness of the Port processes over various aspects of this capital program. We analyzed the 90 capital projects budgeted by applying a risk assessment methodology to date reported by the Capital Development Division. With this methodology, we rated the risk of each project. Out of the 90 projects analyzed, we proposed to audit 4 of the high risk projects that makes up 68% of the total capital projects budgeted. These projects all directly impact the airfield, ramps, baggage system, and/or gates. Proposed Audit Coverage of Bugeted Capital Projects 2,500 Total Budgeted Millions 2,000 RW16C/34C Design and 68% 1,500 Reconstruction Baggage 100% 1,000 NorthStar 500 IAF - Proposed Audits Total Budgeted Source: Capital Improvement Projects (CIP) 2nd quarter report 2016 For these projects, we will perform risk based audits that include procedures to evaluate: effectiveness of the Port's processes and controls; compliance of contractors/consultants; and any other areas highlighted by detailed risk assessments. Internal Audit is requesting additional staffing and an additional one-time budget item for the 2016 budget. 1. Additional Staffing In prior years, the continuous capital program audits were not part of the Internal Audit universe and/or work plan. Therefore, additional capital program audits in 2016 and beyond will require additional FTEs. These budgeted capital projects are long-term and mission critical for the Port. To effectively audit these projects proactively, we require additional full time employees as they move through the project life cycle. There will also be additional capital projects, as the Sustainable Airport Master Plan (SAMP) is executed. 2 The Internal Audit Department staffing level of six auditors has not changed for the last five years. We are requesting two senior auditors and one staff auditor. The annual cost of salary and benefits is about $405,000. For the remaining months in 2016, the projected costs of salary, benefits, and specialized training is $145,000 for these new position. Our 2016 operating budget for the department is approximately $1.5 million. With this request for additional staffing level, our annual budget would be approximately $1.9 million. Consideration of Alternatives to FTEs In addition to the requested FTEs, we considered the options of outsourcing these audit services or shifting FTEs from other projects. P lease see the table below for a summary of the options examined. We believe it will be more effective to hire and retain the knowledge in-house. Annual Estimated Option Option Cost Staffing Pros Cons Viability FTEs $405,000 2 Sr. Maintain High learning Preferred Auditors & knowledge and curve 1 Auditor experience Institutional knowledge retained Contracting $800,000 2 Sr. Expertise Lack of Not Auditors & instructional preferred 1 Auditor knowledge due to cost retained Shifting $0 1 Sr. Maintain Understaffed Not viable FTEs Auditor knowledge and High learning experience curve Less staff other audits 2. Additional One-Time Budget Request At the request of CDD executive management, we are proposing a contract audit of the capital project management process. The audit will assess project management organizational maturity, develop a detailed roadmap, and assist the Port in the implementation of a plan to improve the efficiency of capital project management processes. This audit intends to benchmark Sea-Tac's capital project management processes to comparable US airports. We are requesting approval to add this to our 2016 Audit Plan. We anticipate the cost to not exceed $83,000. 3
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