PORT OF SEATTLE
MEMORANDUM

Corrected June 6, 2016

AUDIT COMMITTEE AGENDA         Item No.     4

Date of Meeting     Max 9, 2016

DATE:   May 3, 2016

TO:     Ted Fick, Chief Executive Officer

FROM:   Rudy Caluza, Director, Accounting & Financial Reporting (AFRg
Lisa Lam, AFR Assistant Director, Financial Reporting & Controls, and
Revenue Services   AK 6/6/I 6

CC:     Dan Thomas, Chief Financial Officer

SUBJECT: Selection of External Audit Services for the Financial Statement, Single
Audit (Federal Grant Compliance) and Passenger Facility Charge (PFC)
Audit for the Port's 2016 Operating Period with four one-year optional
renewals through 2020

Amount of This Request: Not to exceed $3,000,000

Source of Funds: AFR operating budget & Portwide non-operating budget

Estimated Workers Employed: 10 to 15

ACTION REQUESTED:

Request Audit Committee approval to select Moss Adams LLP as the Port's external
independent auditor and execute a contract for external audit services for the operating
periods 2016 to 2020 in an amount not to exceed $3,000,000.

SYNOPSIS:

Annual independent audits are required for the financial statements of the Port's
Enterprise Fund and the Warehousemen's Pension Trust Fund for purposes of obtaining
an independent auditor's opinion as to the fairness in presentation of the financial results
and net position. Independent audits are also required for the Port's administration of
federal grants and PFC revenues in accordance with applicable regulations. These audits
have been covered under the existing external audit services contract, which is expiring in
April 2016 once the audit services for the 2015 financial period are completed.

COMMISSION AGENDA
Ted Pick, Chief Executive Officer
May 3, 2016
Page 2 of 4

The annual external audit services include the following deliverables:

0  Independent Audit and Opinion  Financial Statements of the Port's Enterprise
Fund
0  Independent Audit and Opinion  Financial Statements of the Warehousemen's
Pension Trust Fund
0  Independent Audit and Opinion - Net Revenue Available for Revenue Bond Debt
Service
0  "Single Audit" and Report of Federal Grants Awarded

0  Passenger Facility Charge (PFC) Program Audit and Report

As in the past, the Port openly and competitively selects the external auditor. The request
for qualification (RFQ) incorporating the evaluation criteria was reviewed and approved
by the Audit Committee on October 6, 2015. Additionally, at the October 27, 2015,
Commission meeting, the Commission approved and gave authorization to CEO Fick to
execute a contract for external independent audit services once a competitive bid process
was completed. The RFQ process, including drafting, advertising, evaluation, and
selection, was led by the Central Procurement Office (CPO) and independently observed
by a senior auditor from the Port's Internal Audit Department in accordance with the Port'
Commission General Delegation of Authority.

Four national public accounting firms submitted proposals to the RFQ in November
2015. The four proposals                               criteria
were evaluated against pre-determined evaluation
contained in the RFQ by four evaluators from AFR, Corporate Finance & Budget, and
Aviation Finance & Budget departments, along with the presence of a CPO
representative and independent observation by a senior auditor from Port Internal Audit,
throughout the entire process.

Two finalists, KPMG and Moss Adams, were selected for interviews. The other two
'
firms were not selected for the interview due to the following reasons:

0  Responses to audit risks and challenges related to the Northwest Seaport Alliance

were too general.
Nonresponsive   the small business participation requirement, which is
0               to.
for
necessary "to execute the Commission's priority for contracting opportunities
small businesses.
0  Lack of a clear audit approach relating to PFC Program Audit and lT/systems
Audit.
0  Lack of. key engagement team member(s) required information, specifically senior
auditors' resume or IT/systems audit experience information. .
o  Inaccurate or unclear information on key aspects of the audit, such as a committed
audit timeline.

COMMISSION AGENDA
Ted Fick, Chief Executive Officer
May 3, 2016
Page 3 0f4

Six interview questions were developed by the four evaluators and reviewed by the CPO
and Internal. Audit representatives. One-hour interviews with the finaiists were
conducted, led by the CPO representative along with the independent observation by
Internal Audit.

The two finalists were evaluated against the pre=determined interview evaluation criteria
by the four evaluators, with the concurrence of the CFO and Internal Audit
representatives. Moss Adams was the highest ranked proposer based on both the
submittal scores and interview scores. Summary of the overall strengths of the highest
ranked proposal and interviews are as follows:

0  Audit approach and challenges related to the Northwest Seaport Alliance, joint
venture accounting, were presented in the written proposal and articulated in the
oral interview, along with an understanding of the intricacies related to joint
venture accounting and reporting.
0  Integration of a small business (local CPA firm) into the Moss Adams audit
engagement and work.
0  All audit reports will be delivered two weeks after audit fieldwork completion.

0  No additional costs will be charged if the Port proactively requires the audit
schedule to be moved up to accomplish earlier closure and release of the Port's
financial statements (CAFR).
.
0  Audit approach was comprehensively articulated, with good detail covering each
phase of the audit and the related risk areas
0  Specific and relevant examples were provided when asked about ai1p01t audit
risks
0  Discussion of the audit approach/risks focused on information technology/systems

was realistic and relevant to the Port's operations.

SOURCE OF FUNDS:

The total audit fee estimated for all five years is expected to be under $3,000,000. The fee             1
I
for the 2016 audit services, which is conducted during latter 2016 and first half of 2017,             l
is included in the AFR department's 2016 proposed budget and will be included in the            t
1
2017 AFR proposed operating budget, and in nonoperating budgets as appropriate. The            t
funding sources are approximately split 55% and 45% between operating and non-
operating expense, respectively. For audit services in 2017  2020, the budget will be
similarly included in the Port's annual budget accordingly.

STRATEGIC OBJECTIVES:

Approval of Moss Adams as the selected external auditor contributes to the Port being
high performance organization including: being fiscally transparent and accountable over
the stewardship of public funds/assets, being in full compliance with prescribed industry

COMMISSION AGENDA
Ted Fick, Chief Executive Officer
May 3, 2016
Page 4 of 4

accounting & financial reporting standards and Federal regulations, and being timely and
accurately reporting on the Port's financial results.

The RFQ for external audit services has incorporated the Port's "Small Business
Initiative" goals with guidance to allow at least 10% of subcontracting work with small
businesses.

PREVIOUS AUDIT COMMITTEE AND COMMISSION ACTION:

October 22, 2015  The Port of Seattle Commission authorized execution of a contract
for external audit services for the financial periods 20162020 in an estimated amount of
$3,000,000 for the full contract term of one year with four one-year options.

October 6, 2015  The Audit Committee agreed to recommend Commission approval of
the request for qualifications for external audit services, modified to include recognition
of the NSWA and accompanying risks and exposures to Port of Seattle financial
statements.

ATTACHMENTS:

None.