Internal Audit Report 

Limited Operational Audit 
Controls Over Debt Service 

January 1, 2011, through December 31, 2012 




Issue Date: June 11, 2013 
Report No. 2013-07

Internal Audit Report 
Controls Over Debt Service 
January 1, 2011, through December 31, 2012 

Table of Contents 

Transmittal Letter ..................................................................................................................... 3 
Executive Summary .................................................................................................................. 4 
Background .............................................................................................................................. 5 
Highlights and Accomplishments ........................................................................................... 6 
Audit Scope and Methodology ................................................................................................ 6 
Conclusion ................................................................................................................................ 7 












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Internal Audit Report 
Controls Over Debt Service 
January 1, 2011, through December 31, 2012 

Transmittal Letter 


Audit Committee 
Port of Seattle 
Seattle, Washington 

We have completed an audit of Controls Over Debt Service. 
The scope of the audit covered information relating to debt service from January 1, 2011, through 
December 31, 2012.
We conducted this performance audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives. 
We extend our appreciation to the management and staff of Corporate Finance and Budget for their
assistance and cooperation during the audit. 



Joyce Kirangi, CPA, CGMA 
Internal Audit, Director 





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Internal Audit Report 
Controls Over Debt Service 
January 1, 2011, through December 31, 2012 
Executive Summary 

Audit Scope and Objective The purpose of the audit was to determine whether management has 
implemented adequate controls to ensure: 
Timely utilization of refinancing (i.e., refunding) opportunities to reduce overall borrowing costs. 
Compliance with applicable IRS, State, and Port requirements. 
Proper debt service cost allocation among divisions, funds, and accounts. 
The scope of the audit covered the period January 1, 2011, through December 31, 2012. 
Background The Port, under the authority of Chapter 53.40 RCW and Chapter 53.44 RCW, issues 
municipal bonds (short- and long-term obligations) to invest in necessary Port facilities, including longterm
infrastructure projects. These investments support Port initiatives to promote economic vitality, to 
maintain optimum operations at the Port facilities, and to meet future demands. 
The Port of Seattle, as of December 31, 2012, had a total debt balance of $3.3 billion, which
consisted of Revenue and General Obligation (GO) bonds. The majority (91%) of the debt are fixedrate
debt with an original term of 25 to 30 years. The oldest outstanding debt issuance is from 1997 
with an outstanding balance of $108.8 million. 
To benefit from historically low interest rates in recent years, older debt issues have been refunded to 
reduce overall debt service costs. On average, the Port disburses annually $154 million in interest
payments.
Corporate Finance in partnership with each division administers debt. 
Audit  Result Summary Management has implemented adequate controls to ensure timely
utilization of refunding opportunities, compliance with applicable requirements, and proper debt
service cost allocation among divisions, funds, and accounts. 






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Internal Audit Report 
Controls Over Debt Service 
January 1, 2011, through December 31, 2012 
Background 
The Port of Seattle, under the authority ofChapter 53.40 RCW Revenue         Bonds and Warrants, and
Chapter 53.44 RCW Funding and Refunding Indebtedness - 1947 Act, issues municipal bonds (shortand
long-term obligations) to invest in necessary Port facilities, including long-term             infrastructure
projects. These investments support Port initiatives to promote economic vitality, to maintain optimum 
operations at the Port facilities, and to meet future demands. 
The Port of Seattle, as of December 31, 2012, had a total debt balance of $3.3 billion,                                           which
consisted of the following: 
(in thousands) 
Bond Types          Tax Exempt  Taxable 
General Obligation            281,790     30,215 
Revenue               2,329,085   404,600 
PFC Revenue            157,150       0 
Fuel Hydrant Special 
Facility                       100,175         0 
Total                    $ 2,868,200  $ 434,815 
Source: SymPro, as of 5/01/2013 
The difference between the types of bond the Port issues (i.e., general obligation bonds vs. revenue
bonds) depends on the security pledge for bond repayments: 
General Obligation Bonds - Port's available resources, including tax revenues, secure bond
repayments. 
Revenue Bonds  Port's net revenues (e.g., airport revenues, seaport revenues) secure bond
repayments. 
The Port of Seattle has 91% of its debt as fixed rate and 9% as variable rate. For the past nine years,
the Port has incurred the following interest payments: 






Source: SymPro, as of 5/01/2013 
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Internal Audit Report 
Controls Over Debt Service 
January 1, 2011, through December 31, 2012 
Corporate Finance, in partnership with each division, administers debt, which involves the following 
processes: 
Financing projects at the lowest possible issuance costs within a required timeframe. 
Maintaining pre- and post-issuance compliance with IRS, Municipal Securities Rulemaking
Board (MRSB), and bond covenants. 
Maintaining records and documentation of proper debt service cost allocation. 
Tracking bond proceeds and associated compliance requirements. 
Servicing debt (e.g., principal and interest payments). 
Refunding debt to reduce future debt service costs. 

Highlights and Accomplishments 
During the course of the audit, we observed that management has: 
In 2011 and 2012, the Port refunded (partially or fully) eleven separate series of outstanding
Port bonds, resulting in an overall reduction in future debt service costs of approximately $151
million over the remaining life of the bonds. 
Maintained detailed policies and procedures as a guide to administer debt. 
Leveraged technology (e.g., SharePoint) to centralize debt-related information such as official
debt documents, annual disclosures etc. 

Audit Scope and Methodology 
We reviewed information for the period January 1, 2011, through December 31, 2012. We utilized a
risk-based audit approach from planning to testing. We gathered information through research,
interviews, observations, analytical reviews, and obtained  a complete understanding of debt
administration. We assessed significant risks and identified controls to mitigate those risks. We
evaluated whether the controls were functioning as intended. 
We applied additional detailed audit procedures to areas with the highest likelihood of significant
negative impact as follows: 
1.  To determine whether management has implemented adequate controls to ensure timely
utilization of refunding opportunities: 
We reviewed management processes of identifying refunding opportunities for timeliness and
completeness. 
o  Reviewed the Port's debt portfolio to identify potential refunding opportunities. 
o  Reviewed management's process to identify refunding opportunities. 
o  Researched refunding topics to understand the impact and likelihood of refunding. 
o  Conducted a process walk-through to validate the current refunding process. 
o  Verified whether management has a proper review and approval process. 
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Internal Audit Report 
Controls Over Debt Service 
January 1, 2011, through December 31, 2012 
We analyzed refunding issues in 2011 and 2012 for intended savings. 
2.  To determine whether management has implemented adequate controls to ensure compliance 
with applicable rules and requirements (federal, state, bond covenants, etc): 
We reviewed management compliance processes. 
o  Conducted a process walk-through to validate the current compliance process. 
o  Identified pre- and post-issuance compliance requirements. 
o  Reviewed IRS requirements (which included industry best practices) against the Port's
current policies and procedures to ensure completeness. 
We determined compliance with Municipal Securities Rulemaking Board's disclosure 
requirements for 2010 and 2011, which includes disclosure of: 
o  Financial statements. 
o  Material event notices 
o  Port operations, as well as financial information, to assist investors. 
3.  To determine whether management has implemented adequate controls to ensure debt service
costs are properly allocated:
We reviewed the process of assigning and communicating debt service related funds and
accounts. 
We analyzed debt service costs to determine whether the costs were allocated to the correct
divisions, funds, and accounts. 

Conclusion 
Management has implemented adequate controls to ensure timely utilization  of  refunding
opportunities, compliance with applicable requirements, and proper debt service cost allocation 
among divisions, funds, and accounts. 






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