The Audit Meeting meeting scheduled for 2024-03-28 at Pier 69

Transcript

The Audit Meeting meeting scheduled for 2024-03-28 at Pier 69

This is Commissioner Calkins calling to order the Port of Seattle Audit Committee special meeting today is Thursday, March 28, 2024, and the time is 10:01 a.m
We are meeting today at the Port of Seattle Headquarters, Commission chambers, and virtually via the MS teams platform
Present with me today is Commissioner Hamdi Mohammed and public member Sarah Holmstrom
To make this meeting more accessible to the public, the meeting is being live streamed and digitally recorded and may be viewed or heard at any time on the port's website
A call in telephone number is also provided for anyone who would like to listen into the meeting
Our first item of business is approval of our last meeting minutes from December 14, 2023
As a reminder to the viewing audience, the public member of the audit committee is not a voting member for the purposes of casting votes on motions made per the committee's rules
Are there any corrections to the minutes? Are there any objections to approval of the minutes as presented hearing? None
The minutes are approved
All right, our next order of business is the Office of the Washington State Auditor Accountability audit results for 2022
Mister Fernandez, please introduce our speakers today
Thank you, commissioner
Today we have Mattie Frost Schaeffer and Kyne Yuen from the state auditor's office that will be presenting our accountability audit
Maddie and Kai
Thank you, Glenn
Thank you, commissioners
As you said, we're very excited to be here today to talk about the results of our recent 2022 accountability audit
The presentation serves as an overall summary of our audit results, but we've also provided an exit conference packet that goes into greater detail about some of the items we'll discuss today, and it also includes our completed audit report that will be published on our website
And on the next slide, we talk a little bit about our office
As I'm sure you know, we report to Pat McCarthy, who's the state auditor
She has over 30 years in public service
Other members of our management team include Kelly Collins, who's the director of local audits and oversees all of the audits across the state of Washington that are local, and Wendy Choi, who's our assistant director of local audits and oversees six teams in the Puget Sound area
And on the next slide, we'd just like to remind you a little bit about our mission and our vision
Our vision is to work with local and state governments to increase the public's trust in government
We do this by performing independent and transparent examinations and hopefully working with you to improve the efficiency and effectiveness of government and providing any helpful recommendations to work with you on that
And on that note, I will turn it over to Kai to talk about the results of our audit
Thank you, Maddie
All right, so for the port, we conducted an accountability audit that covers the period of January 1, 2022 through December 31, 2022
The purpose of an accountability audit is to ascertain whether the port has complied with state laws, regulations, contracts, grant agreements, and its own policies and procedures
In addition, those audits also look at whether, in general, the port has adequate controls to safeguard public funds
On the slide here, under the heading results in brief, you can see that our audit found that the ports operations complied in all material respects with applicable state laws, regulations, its own policies, and also provided adequate controls over safeguarding public resources
On the next slide in selecting specific areas for further review, we conducted a number of planning procedures that incorporated reviewing meeting minutes of the governing body analyzing financial trends
This included payroll and vendor information
We also conducted risk assessments and a few other procedures
We utilized a risk based approach in selecting areas for further testing based on those planning procedures included on the slide
Here are the areas that we identified for further testing in our audit
So we examined the ports controls over accounts payable tracking and monitoring of theft sensitive assets, also known as small and attractive assets
We looked at procurement and self insurance
We also reviewed the port's compliance with minutes, meetings, and executive sessions, and we looked at the port's financial condition on the next slide, we also looked at the work of other auditors
So we reviewed the financial statement and federal grant audit performed by Moss AdaMS As noted during our review, we did not find anything about their work that that caused concerns about its quality
We also did not know any instances in which a material misstatement of the financial statement has or may have resulted from fraud or suspected fraud
I will hand it back over to Maddie with the next slide
Thanks, Kai
So, as Kai mentioned, it was a good, clean audit
So the results you want to see, we had no findings and no management letters
So just a few closing remarks we have
We're pleased to report that audit costs are in alignment with our original estimate
We'd really like to thank the port for working with us so well
I think a lot of our ability to complete the audit within budget is based on the speed at which they're able to give us information
So we really do appreciate that your next scheduled audit will be fall will begin in fall 2024
It'll basically be the same audit and accountability audit, and we'll also review the work of the CPA CPA again, and we've included an estimate for that audit in the exit packet for you
And then on the next slide, as a reminder, as I said, we will publish the completed audit report on our website here, probably in the next week or two
When we do that, we will also send out an audit survey you can forward on the link to anyone you feel can provide us information about how the audit went
We really do want to provide the best possible services
We'd really appreciate any and all feedback on how we can better serve you in the future
And then on the next slide, I'll pass it back to Kai to give a few kudos
Thank you, Maddie
Alrighty
So, before wrapping up our presentation today, we just like to thank all port officials and staff for their timely communication throughout the audit
In particular, we'd like to thank the following people
So, Andrew, Lisa and Glenn, thank you for participating in our weekly status update meetings
This allowed for increased communication and kept the audit running smoothly
As Maddie mentioned
It's another reason why we are able to complete the audit within budget
And, yeah, we also would like to thank Sandra, Greg and Sanders for the walkthrough of various self insurance areas and prograMS Sophia, during our review of procurement
And then Diane and Tonya, while reviewing the electronic wire transfers
Eloise, while following up on the electronic fund transfers
And lastly is Carmen and Tiana for their detailed explanation of the port's small and attractive assets
So we are actually able to go on site in November
And they were super kind and was able to walk us through their process up at SEATAC
So really appreciate that
And on the next slide, this should be the last one
So this concludes our presentation to the port of our fiscal year 2022 audit
We just would like to thank everyone for your time today and letting us be here and walk you guys through our results
And I think now we just want to open it up to see if you guys have any questions or comments for myself and Maddie
Well, first off, thank you two for the presentation
And thanks to the office for preparing this audit for us
And with that, I'll turn it over to my colleagues for any questions
No questions
I just also wanted to say thank you so much for the work that you all do to ensure that we're being transparent and accountable
And congratulations to
To all of the port staff who participated in this audit
Sarah? Yeah, thanks
Something I'd like to say is, like, accountability audits, we're looking at a lot smaller things
So it's common, much more common, from my experience and perspective, to have issues found, because we're looking at smaller things that don't necessarily get the big attention and don't rise to level of financial materiality
So it's really good to see looking, you know, that level below and still see no issues
So good job to the board for the audit that begins in fall
24
Does that cover calendar year 23, correct? Yes
So similar to this one just the next year
Exactly
Do we do this every year? Yes, every year
We are generally here in the fall and usually wrap up around this time and cover this year
A requirement or a desire by the port
Yeah
So all state or all local governments throughout the state are audited by our office
Given the port size, you fall on an annual cycle
So we perform that audit annually
Okay, well, thank you very much, Glenn
Is there anything you wanted to add or nothing
Just thanks to Maddie and Kai for their work
And I think Sarah at one point worked for the state auditor's office as well, so she knows the details and the intricacies
Thanks
Congratulations to the board
Thank you again
Thanks for coming in
All right, we're going to move on to the next topic
Item number four on the agenda is the director's annual communication
Mister Fernandez, you have the floor
Thank you, commissioner
Next slide, please
Michelle
So, Commissioner Calkins, you know, just welcome back to the audit committee
I think I'm genuinely glad to be back
I enjoy this work and I particularly like the team that you get to work with when you're on the audit committee
So I'm excited to be back
Yeah, it's still early in the year, but here's a snapshot of the department that does all the work
We've essentially got three pillars
Dan Chase manages the performance audits and the concession audits
Spencer Bright manages capital audits, which is a large part of what we do, and ridicule
Marwah manages the it and technology audits
And Rumi kind of has a glue that holds it all together and keeps these audit committee meetings flowing
So next slide please
Michelle
One of the things we follow, we have standards that we have to live up to as well
And there's what we call the Red Book or the global internal Audit Standards and the Yellow Book, which are government auditing standards, essentially federal government
The GAO sets those up and they apply and are followed by many organizations
Historically, the global internal audit standards of the Red Book are followed by both private sector and public sector
And the two are very similar
There's a lot of overlap over the years for internal audit shops, even the GAO
The yellow book says, hey, you should be looking and following items in the Red book as well
So this is just a quick overview
There are some new changes and updates
The Red Book is becoming more public organization type specific and has specific pronouncements and items that we need to follow in the public sector
And one of the things that yellow Book is picking up is quality
We should have a system of quality to make sure that our work is always of the highest quality standards
Next slide, please
So one of the new things that's come out in this new structure and these new updates is the five domains, 15 principles that fall under there and the standards
Most of those apply to the way we do our work
But there's one called governing that applies to the audit committee, and I'm going to talk a little bit about that today because they asked me as a requirement to make sure that my committee is aware of their responsibilities
So the next slide please
You know, governing the internal audit function
And essentially, you know, our work is authorized by you, by the board, by the audit committee
We have an audit committee charter which is included in your deck that was updated a couple of years ago, about three years ago, some change
We have
You know, your responsibility is to make sure that we have board and senior management, not a committee support, which we do
We are positioned independently, which we are, by reporting functionally to you and administratively to Steve
So that is a best practice and it is the case
And then the third thing is just availability, making sure that I have the ability to interact with you like today and in our one on ones when we have our periodic briefing meetings
So all of these things are happening
We also do our external quality assessment
Every three years is required
And we have our internal quality assessment, which I'll talk briefly about today, also because we do have those in process
So these are just some very high level responsibilities of the audit committee
Next slide please, Michelle
So as required, and as mentioned, I'm also required to talk a little bit about the charter, make sure that the charter is updated and relevant still, that we are independent as we talked about
Yeah, the quality assurance program, making sure we have one
And we are following that and we have our external reviews and then finally follow up, which we always talk about at audit committee meetings
All the open issues from audits that we do in the past
Are we bringing those to the committee and are those getting addressed by the business? Next slide please, Michelle
The charter was last updated in late 2020 and signed by all audit committee members and the president of the commission
And it talks, it's attached in your deck and it's available for the public, but it talks about our authority and our accountability
It talks about our mission and our scope, our responsibility, our need to be independent and objective, and our commitment to quality and what we do, making sure that our reports and our work are always highest quality
Next slide, please
Independence
You know, I'm confirming that we continue to be organizationally independent by reporting functionally to the audit committee and administratively to the executive director
And the IIA standards, which is a red book, requires an annual confirmation of that
So that is happening
Next slide, please
Quality assurance
We have both the red book and the Yellow Book
The GAO and the international standards require a quality assurance program to make sure that our quality of our work is of the highest standards
And every year, generally, we try to do either an internal or external review
This year we did an external internal review because in 2022, we had outside auditors come in and look at the way we did our work
And I'm happy to say we did pass, that we got the highest rating, which was pass
And even with our internal work that was done by Rumi on our team this year, the items that she's looked at below are highlighted
She looks at our written policy, she looks at a sample of audit engagements and our work papers and just make sure that everything we're doing is well documented and followed and that we are following the standards
And I'm happy to say that from Rumi's work, she concluded that our quality control system was suitably designed and operating effectively
So that is at a high level of quality
And the last item, can you go to the next slide, please? Oh, it's okay
We're done as required
I'm required to talk about open issues that from
These are issues from audits that we've issued in the past reports
And it's to make sure that the business is addressing these issues
And, you know, after you do an audit, it's not put on a shelf and nobody looks at it
We actively follow up with the business and have discussions with the business to make sure open issues are addressed
Quite a significant amount have been addressed
There are some outliers out there that have been sitting open for a while
Most of them are technology issues
Please
Commissioner
So what we're looking at on left and right is, is time from time beyond when it was supposed to be resolved, versus on the right, it's time from when it was first identified
So some of the reason we have two charts is since about 2019 and 2020 ish, we started asking for target dates
And the chart on the left that shows from target dates, when people provide us with a target date and they miss their target date
So if you look at something in the two years, they missed their target date by two years
So they're behind in some instances
We have issues from the past where people, or for whatever reason they didn't provide a target date or they were unable to provide a target date
In those instances, from the date the report was issued, how long have all the issue, I mean, so the chart on the right, one way to look at it is includes both those with a target date and without a target date
So we're looking at report date comprehensively
So you see some that are more than two years old and they're slightly higher than the chart on the left
And the reason it's slightly higher is those, a few audits don't have target dates
So the bar is a little bit higher
The rate is cumulative of both targeted and not targeted
Yes
So you have some issues that are sitting out there
Like I said, they're mostly technology related with aviation data centers
We're not going to discuss those in public session
We will talk about those in more detail in non public session
They are being worked on
But I think we were, or the business was a little aggressive when they provided the original estimates in some cases, but it takes time to fix certain things and they are in the works and the business does take them seriously
But we'll get into more detail in the next non public session when we do have it
On the operational side, issues are being addressed
So, you know, the operational issues, I think we had a big discussion at the last audit committee meeting on, especially on the it issues and a lot of those, you know, we went back to the business and if, as we discussed, if issues were, if the risk was mitigated sufficiently to where the risk, residual risk or the remaining risk was very low, you know, we looked at that and we did close out a bunch of them
So many, many issues have been cleaned
Just the ones that truly have risk and no work's been done on them are the ones that are reflected here
So we'll get into more detail and now open for questions
So questions on either the open issue status report or on the annual remarks from the director
Sarah? Yeah, I know everyone hates me bringing this up, but every time I will bring it up, I guess when I want to make sure, last time when we talked about this, we talked about revisiting what had been outstanding
And I know when we talked it was like, well, these were old recommendations
Maybe they don't make sense at this point, whatever
So you mentioned that some of these risks were mitigated in other ways
What I'm curious of is, is anything removed from this? That, that basically they just said, we don't think we should do this
And you guys agreed
I'm not aware from what I reviewed that any risk was absorbed by the business, but I will ask ridicule Marwaha, our it audit manager, to come up and since she did all the detailed work on this and respond to that
Hi, my name is Reika Marwuha, it audit manager with the port of Seattle
And since the issues were sensitive in nature, I cannot share the details, but I do want to say that management did take actions to resolve the issues
For most of them, there was maybe one item where the risk was mitigated because they had other controls in place and so it was taken care of
But no, they have taken actions to mitigate all the risks there
The substantial decline we're seeing here in like, these outstanding ones, especially the one to more than two years sections are related to follow up on them
I guess what I want to understand is we've been tracking these, like, we've been talking about these since I've been on like the committee and we've had some outstanding
So it seems like was our process, like if you don't do this exactly exact solution or resolution we've proposed, then it's listed as outstanding
But like, when we went back to them, we were able to talk through it more and they found other ways to handle it
I guess I'm just not sure why that was probably just for one or two issues, but usually they have taken the action that was recommended
And I want to say that we started with 20 open items and we cleared out seven
So they really made a lot of progress
Progress
So they really worked hard
I'm talking about ICT, ABM, and Infosec, the three issues that you see outstanding related to the aviation data centers
There has been a lot of change in the management as well since we started the audit back in 2018
So things have been on hold or like transferred from one person to another
But they're also work in progress
And so I think one of the issues they're hoping to resolve, they have to do some constructions in order to install some access card readers
And that will happen by 2025 because they need to get approval from the commission
And then there was somewhere the fire extinguishers, fire suppression needs to be installed
And again, they're working on it
So we're hoping that maybe in the coming year or so, we'll be able to close out the three outstanding issues related to the data centers audit that was performed in 2018
And again back then, the dates that were given were probably based on the management that was in charge at that time, and some of them retired or left or there was some change
And so the new people are kind of taking over, and obviously it's taking a little longer than we had hoped for
Okay
So I just want to clarify
The steps of how we got here is not so much that we went back, and by we, I mean you guys kind of went back with them and reviewed what they've done, and you're like, oh, I guess we actually can close this out
It's more like they actually were taking, taking action because we've kind of been pushing on this, of, hey, what are you going to do? They've actually taken action within the department to address it, and that's why they're falling off
Absolutely
That's great
Thank you
All right
No further questions on those two topics
So item number six on the agenda is an update on the 2024 audit plan
Glenn, can you proceed with the presentation on that matter? Thank you, commissioner
So for, commissioner, for your benefit, in the December audit committee meeting, we presented our audit plan to the old audit committee
And this from, is a high level snapshot of the audits that were approved that are on our 2024 audit plan
So we have limited contract compliance audits
We also have contingency limited contracts compliance audits
And since we've streamlined our process, we anticipate completing all of these and then adding some additional ones on
So that's a big part of it
Performance audits are the more, they involve a little bit more than a limited contract compliance audit
But we've got quite a few on there, both performance and capital because, because they both fall under that umbrella
So we've got quite a bit of work ahead of us on the performance audits and information technology audits
You know, there are some new TSA cybersecurity requirements that we're looking at and we're tasked with as well
So it's quite a bit of, we also look at the center for Internet Security, CIS controls, and, and they've got top 18 controls that every business should have
So we cycle through those and make sure that all of those controls are robust at the port
And that's a big part of our plan as well
So this is a high level snapshot of our plan
Next slide, please
We also, because we do a lot of GCCM type construction projects or general contractor construction manager
That's what the GCCM stands for
It really works well for the port
We've had a lot, the port's had a lot of success with these
However, RCW does have a clause in there requiring an independent audit to confirm proper accrual of cost
So we do have to audit all of these projects
We do have an outside firm that we partner with that does a lot of the work, but we still have to manage that, find the firms and make sure that they come, at least periodically, to the audit committee and present the findings
And then also their findings have to be cleaned up and addressed by the business
So all of the projects listed are either in process or will be in process in 2024 or beyond
So we're working on all of these
And our teams, our capital project team is actually working with the business on all of these audits
Big part
Next slide, please
One of the things commissioners that we historically have done is we do these construction audits, and then we notice that the contracts have language in there that missed something
And we say, because of the contract language, you know, we've got these issues and we can't address them, but we can fix them going forward
So we're stuck with that particular audit
We're just noting it and saying that was a mistake that we made
And hindsight, yes, we should have caught that
So one of the things the audit committee asked us for at the direction of the audit committee last year, and commissioner Mohammed in particular, said, you know, I'd like you guys to get involved a little earlier and try to catch these problems before we sign these contracts and get them out
So we've put a process in place, and we had to work with the business on this with Karen Goon, who's deputy executive director, and with CPO, to come to agreement as to how we could best work with them and plug into the business without disrupting their process materially and slowing them down
So we came to an agreement that we'll be invited to all alternative works construction review meetings
So they have these meetings whenever a new project is coming on, and they're going to start involving us at the front end, inviting us in
So somebody in the capital audit team will sit in all those meetings, meetings and attend all of those meetings and provide recommendations and updates and guidance to them as needed
Now, to maintain our independence, we're not going to own the process
We're merely recommending and saying, it's your process
We're going to recommend these items change, and these are areas that are potentially at risk if needed
In certain cases, you know, we'll reach out to these construction audit firms that we work with that have vast amounts of experience in this
And, you know, we talk to them on a regular basis, but we'll seek their counsel as needed and pull them in
And then, you know, this is a proactive approach, but it doesn't mean we're not going to perform our regular audits
And we might even, you know, when we do our detailed testing later on, we still might find issues, but the intent is to try to mitigate as many as possible upfront
So one more slide and then we can take questions on this
The last slide I have is just a snapshot of our audit plan that I showed you
And green, yellow or the pinkish means we haven't kicked the audit off yet
So as you can see on the yellow side, we've got a lot of audits that we've kicked off
So I anticipate by June we'll have quite a few on the agenda and we've got a lot of work ahead of us
This is the first slide on the audits and our Gantt chart of where we stand
So, Commissioner Calkins, I'll pass it back to you
All right
Any questions on the audit plan updates? Thank you, Glenn, for that information
I had a question around the construction contract review process that you just laid out
It's great that you guys have been working together and coming up with some approaches
I wonder when folks from the audit committee will participate in that
Those initial conversations, what will be the overlap with the attorneys? Right, because the attorneys also review the contract
Like what are the different sort of roles the audit individual who will be a part of those discussion will play versus the attorneys that review those contracts
So the attorneys are looking at it through a different lens and they're in the meetings as well, so they'll provide their guidance
We do work with our legal team quite a bit on these and what might be important to us and things that we see as an issue might not be important to them
So the idea is to push for those recommendations and those items that we think are going to become problems down the road
And from a legal perspective, our legal team is usually pretty open to that
But we do have to push when we catch it on the back end, their comments usually are, well, we'll fix it in the next round
That's right
So I appreciate the proactive approach to this
And so thank you for this update
Thank you, Commissioner the question I had was, I think it was about four or five months ago
President Mahong was preparing then I guess president elect was preparing to take over
Generally, the commission were talking about stuff we'll be working on in 24
And one idea was a study session on what I think we're now being emerging technologies
And as you all think about your kind of late year work plan, if capacity does, in fact, become available, I'd like there be certainly participation from audit folks in that study session, at the very least there to hear the same reports that we're hearing, the questions that we're asking
And then if there's an integration of some of the sort of best practices emerge from that into our audit processes, we've got this brand new technology that is one of those classic double edged swords with tons of potential benefit and tons of potential risk
I think, I just think this is probably fits in the IT cybersecurity bucket for the most part, but not entirely
There are implications, too
So as a public agency, we're going to be held to a very high standard
We employ it and also how our partners in the spaces can employ it
And so I want us to be, all aspects of the organization can be very conscientious about its use
Very good
We definitely, commissioner, have room in the plan
And as we
The plan is designed to be flexible, so something with low risk, for instance, might get deferred or pushed out so we can spend more time on what the committee feels is important, such as emerging technologies
And there are other audit shops out there, audit firms, even the larger private sector organizations, not only on the public side, but on the private side that are doing a lot with emerging technologies and AI going forward
So, yes, it is going to revolutionize everything we do
Okay
Any other questions on those items, or should we jump into our audits? Okay, item number seven on the agenda is a performance audit for concourse a, building expansion for lounges
Delta TRA? Glenn, floor is yours
Thank you, commissioner
Yeah
Come on
I'm going to ask Stuart Matthews to come up and introduce himself and Jason Johnson and Karam Onaut as well
He's a new senior internal auditor in our construction audit team
Welcome
And I will present the issue
Stuart and Jason will provide management responses as appropriate, and everyone will introduce themselves
But concourse a
Next slide, please
Please
Michelle
Oh, no worries
So this is a Delta tenant reimbursement account agreement
I'm sorry
And essentially, we're expanding a building and building a lounge for Delta and concourse a at a cost of about $133
Million, the bulk of which the port will pay sooner, about $111 million
Of that the port pays, and then $22 million picked up by Delta for their specific work
So in this case, Hensel Phelps is selected as the general contractor and manages this process for essentially for Delta and for the port
And the port works very closely with both Hensel Phelps and with Delta on this
The commission approved the project in April of 2021, and it's anticipated to be completed in 2024
We have three issues that we've found from our audit that we'll talk about next
So next slide, please, Michelle
So the first issue is a higher risk issue
I'll talk through all three of the issues and then Stuart and team will provide their response
I'll talk to the first, and actually, Karen will talk to the second, too
But one element that we looked at was insurance
So as on any port projects, the contractors are required to have, have insurance
And the contract language says up to 15 million a minimum
Actually, I'm sorry, it says a minimum of 15 million
Now, historically, for whatever reason, nobody's gone over the 15 million or they stay at that 15 million level
There's always been this assumption that when the contract says minimum, it means 15 million, and they hover around there initially in the contracting process
Well, actually, during the work, Hensel Phelps reached out to the port's risk management team and said, you know, we think 10 million will be sufficient or something along those lines
And port's risk management team agreed to the 10 million in general liability insurance
So the two had created this sort of email agreement saying, we'll go at about $10 million, which will cost about $559,000
Now, that language didn't translate into the contract, so it goes back to the contract, and the contract still says minimum GLI of 15 million
So when we were doing our work, we saw Hensel Phelps bill the port for $100 million in general liability insurance at a cost of 1.12 million
So quite a bit larger amount
And, you know, the number, the insurance has been passed over risk management before payment
So we have not paid Hensel Phelps yet, but it's sitting with risk management, the port's risk management team, to make that determination if they have any grounds to push back or fight back with Hensel Phelps
But the gist of this issue is, you know, we need to get the contract language right up front so they don't have the ability to say, well, we want to bill you for 100 million later
Maybe that email exchange is adequate and legal would have to get involved there
The second item is when we're doing these audits, we like to look at a little more detail with subcontractors, their bid documents and other information that's being, being submitted by subcontractors
And our audit clauses are not, you know, are very high level, but they do exist
But we'd like to put a little bit more bite into them
And the reason being the team went out and asked Hansel Phelps for this detailed data and Hensel refused to provide it
I think what they were trying to find out is we being billed for insurance somewhere else in addition to this, which is sometimes, it occasionally happens
So since we didn't get the documents, legal recommendation to us is hey, maybe we need to put something more stronger in our audit clause next time
Like a clause saying there are penalties if you don't provide us with the data
So again, this is something that we're going to do in the future, but it goes back to contract language
The first high risk issue that we have, the next two issues, I'm going to hand it over to Kerem
And Kerem, if you could introduce yourself
Hello, my name is Kerem Monat, senior internal auditor at the capital project
Before I start talking about the next two issues, I would like to define two terms that we're going to use
One is general conditions
The other one is general requirements
General requirements are the direct costs associated with the project
General conditions are the indirect costs associated with the project and in both cases documentation is crucial
Issue number two, the medium rating issue
This one is about the general requirements, which are the direct costs associated with the project
The TRA under which this project is operating mandates adequate documentation for reimbursement
However, we observed that Hansel Phelps submitted, instead of invoices, they submitted accounting system printouts
This provides some insights, but it doesn't ensure that the costs associated with specific to this project are even accurate
Not having the breakdown invoices brings the integrity
Sorry
Makes it much harder to validate
Yes
To validate
Yes
So we recommend that the payment approved reimbursement approval approvers obtain proper documentation not only for the past approved reimbursement applications, but also for the future ones
Also, we also recommend to update the sops to make sure this is implemented in the process
And SOP is a standard operating procedure
Do I move? Next one? And we also have some screenshots
Next slide, please
I'm sorry
We also have some screenshots showing the accounting system printout
So it lists certain items, but there is no way for us to validate that these costs that we are seeing are actually specific to this project, or even if they're accurate, it's just they're GLS general ledgers basically
Next slide, please
Another example is this one here, for example, you will see that the phase description shows general conditions and the description lists general liability insurance
So
But the general liability insurance is not a general condition
So these accounting printouts don't really provide enough information for us to validate
Next slide
These were the recommendations that I mentioned before
So next slide, please
So issue number three is about the general conditions, which are the indirect costs associated with the project
These are things like staff salaries, safety measures, or the computer expenses
These are just some examples
So the agreement between Hassel, Phelps and Delta outlined allowable and not allowable costs for general conditions, but it also allows, hence helps, to submit general conditions as a lump sum without providing the details as to what included in them
So this creates some risks for the port where they may go to short term staff reductions affecting management
They may be reluctant to spend the general conditions funds, or they may shift the costs to the subcontractors, or they may move other expenses into general conditions to avoid scrutiny, or they may do early billing without the job is actually done because it's still lump sum
And when you look at it, as long as the budget is not exceeded, you think all is good
So for this next slide, please
So we recommend that the general conditions are reimbursed at a cost basis and not as a lump sum
So, however, if the port continues to decide to use lump sum as a route for general conditions, we recommend that at a minimum, they require a detailed expected scope for the line items for the general conditions to see what is being included and what those amounts are, and do not reimburse anything beyond the budgeted amount for a specific line item
And if it needs to be exceeded, then there will be like an approval process
Sub commissioners and Sarah, we also have Stuart Matthews and Jason who introduce themselves and speak to the response today
Thank you, Stuart
Thank you, commissioners, audit committee or audit team members and Miss Holtenstrom
I'm Stuart Matthews and I am the assistant director within the aviation Project Management Group
I'm here today on behalf of our director, Eileen Francisco
She's away on paid time off, so I am filling in on this one
I want to start off today by noting that tenant reimbursement agreements provide a different method for a project delivery from our traditional port sponsored capital projects
As such, the team that participates in a tenant reimbursement agreement for project delivery is significantly different than our standard as well, and the contractual arrangements are different
We have a broader group of port stakeholders in this effort
I make this point only to be clear that the project management team and the construction management team, which are usually the ones involved in audits around construction delivery, are not the only stakeholders or partners in this effort
I specifically may not be able to answer all your questions today
Hopefully, with the team that's here, here and on the teams meeting, we'll be able to answer whatever you have
As we noted in the management response, there's no less than six departments that are engaged in the process of delivering a TRA
And while we've agreed with the recommendations that are included, generations of the improvements that will come as a result of that, we'll take some time to develop and reach agreement amongst all of those parties
In response to item one, I'll defer primarily to risk management team and Jeff Hollingsworth, as this is aye
area of expertise
I am not an insurance expert by any means, but I did want to say a couple of things there
What I do understand in talking with the contractor is that the insurance requirements that the contractor has been invoicing the point for are the insurance requirements that are agreed to in their contract with Delta Airlines
And I make this distinction because the port of Seattle's contract is with Delta Airlines and not Hensel Phelps
As was noted in the audit report, the TRA requires a minimum insurance amount, as noted
And we think this is obviously an area of improvement that we can make discussions regarding the disagreement over the insurance costs, those are things that are outside my area of expertise, and I would defer to Jeff if, if you would like to respond on those, Jeff, I do know that Jeff is on the line, and I see Jeff there
Go ahead, Jeff
Yes
Good morning
Thank you
And good morning, commissioners and port staff
Just one comment before getting into the specifics earlier in the discussion in which it was brought up that there was correspondence during the kind of, the design or finalization of the contract requirements regarding the general liability limits suggested were requested by Hensel Phelps and the port, that was the $10 million and whether that would be acceptable
When questions like that come up, it's also formalized
It's not quite that informal
When there's a request like that that comes in, risk management doesn't just directly reply to the designer or the owner or, excuse me, or the contractor with a determination
When we get something like that, it gets vetted back up
And because the reviews and the input that we have to general conditions all get rolled up into the final contract with review, and there's different layers of final, you know, agreement on what's going to be put in there
Also from the risk management side, we've been doing construction contract reviews for many years, working with our CPO and the templates and the requirements and the way that they're pushed out
It is a formal process and we adhere to those as well
But the specifics of the audit here, the issue at hand, I think that's a really important note in the fact that this was tenant reimbursable agreement versus a direct contract in which our contracts and the general conditions as the port uses them are the ones that then the contractor on site is working to
For the TRA at hand
We had what was called an exhibit either, and that was what went to Delta and it did include, and that is the normal way that we express the requirements in terms of the minimum amount that is required when that was submitted and got worked into the agreement with Delta, the role from risk management, then our next involvement would be then looking at any of the documents that were required as they come through, and then we reply and comment on those
And one thing to be, one other important note as well is that with a lot of these projects, you have early work packages and you have work that may get started prior to the final guaranteed maximum price or while there's still design being finished
And on the insurance part, there's really two components
There's one, there's the insurance that's protecting the assets, the work that's being built, that's going to the work that's going to be the final product that the port or in this case, our tenant Delta is going to utilize
And that the groundbreaking for that was in September of 2022, whereas the final guaranteed maximum price in the final design wasn't really going to be completed until 23, but the insurance had to be purchased for that
That's one phase, which is the property insurance then on the liability as well
When we start mobilizing with the contractor vendors on site, that liability insurance has to be in place, even though again, the design is being finalized and the guaranteed maximum price has not yet been established
So in this case, when we got the review of the documents in December, it was when we really started looking at the different items and working with the project team, just like it was explained when the project team received the invoice or the accounting statement regarding just the one line
One of the comments that risk management had was that you can't tell what that means because within, even if it's just liability insurance or insurance, there's so many different purchases on the contractor side for the different types of coverage, which could be six or seven different policies on just the liability
And then you got, then you have again the builder's risk or the property insurance
So there were several emails between risk management and the project team stating that, well, we can't really, we don't know what those costs are until we can actually get the breakdown, the coverage, what was paid for it, and when we received those, that's when we started looking at the, matching that up with what we had in exhibit e for the TRA and notice that the coverage limits were much, much higher than were in the requirements to Delta
And like any, like for projects that the port has the direct contract with the contractor, I mean, we have a change order process in which the contractor has suggestions on whether it's materials or different materials, means or methods to propose in lieu of what's in the general conditions
There's a process to review that to determine if that's needed or necessary or if perhaps it's a good idea
So risk isn't, I mean, when we did the review on the cost and finally had it all broken out, that's when we proportioned out what we had actually required in the reimbursable versus what was presented with the invoices from Hensel Phelps and their insurance broker
That's where we noticed the big gap in the difference between what we felt was adequate to protect the port and the public and the work in hand that was related to Delta in the TRA versus what was actually purchased for that project
And I think that's where, and I've spoken with the both audit team and with the construction management folks, we have some ideas on the risk management side, how we can assist our project teams when, especially when the invoices and billing gets through
And the other thing to remember too, is that the insurance is all prepaid and you have to know, if you're going to be paying an invoice, you have to know, is this a cost for a one year policy, a two year or three year old, because it gets amortized over that period of time
So again, just a billing or an invoice doesn't tell you what is that duration that coverage is for which we just received the billing
So hopefully that wasn't too confusing
Thank you, Jeff
I appreciate the insight
From your perspective, risk management
Stuart, any further comments on issue 203? I believe, Jeff, you know, we still have the open issue with whether we pay the insurance or pay the amount that they billed or not that's sitting on your desk for approval
I know you talked about the process, but that falls to you and to your team
But anything else from your end on Kerem's recommendations and the general conditions or general requirements? No
I do have some comments on item two and three, but I don't know if anybody else wants to weigh in on item one
I have a quick clarifying question
When Jeff, you were talking about exhibit e and the cost breakdown, was that the cost breakdown that you guys didn't initially received? That it sounds like that might be an exhibit
I'm not looking at the appendix
Yeah, I think Jeff is referring to the contract itself, the whole contract with Hensel Phelps and the details in there
There's some, and I think Jeff, correct me if I'm wrong, but one of the things he said is the details submitted, which is very much what Kerham said as well by Hensel Phelps just wasn't adequate to identify what was this insurance for? Was it for one year? Was it for three years? He also wants more detail from Hensel Phelps
So I think it's going back to putting the information in a contract that we have with Delta saying this needs to flow down to your contractor having stronger contract language there, and then making sure that the subcontractor provide or the contractor provides that information so Jeff can do aye
job also and verify that what they're billing us for is accurate
One other comment
I think it's very important where we have a TRA, that we would also actually have the requirement between the contractor and the actual purchaser, which would be the contract between Delta and Hensel Phelps
Because if we had that and we had then what we gave to Delta in terms of the TRA and the detail on what's actually being billed for, we could pick up on if there's discrepancies between what Hensel Phelps had required or, excuse me, what Delta had required of their contractor and what was in the TRA
So at that point we could involve others as needed to see how we wanted to work out if there's material differences that impacted the overall cost
Thanks for that additional explanation
And then I just had one additional question
So it sounds like you guys accepted the recommendations and those sops will be updated
TRA process is a multi year process
Do you have a timeline on when you're intending to update those Sops? Is there an estimated timeline on it? I can speak to that a little bit
But did you have any other item? No, I was just going to note that exhibit e is to the tenant reimbursement agreement with between the port and Delta
That's referred to
Jason, could you introduce
Yeah, sorry
Jason Johnson
I'm the senior manager of aviation properties and airline affairs
So, Commissioner Mohammad, in response to your question on the timeline, there is a TRA working group of which I am a part of, amongst others
We actually meet every two weeks working on TRA improvements
They include elements well outside of the audit, but we're intending to incorporate all of these within that
That's why we note sort of in the general area, we're looking to have those all completed by 2020 in 2025
And our last item, two recommendation here, we're targeting 2025
A couple of things that lead to that
As you heard a little bit here, there are a number of different departments that have to weigh in as we develop these language changes
So that's one key part about getting all that buy in from all those stakeholders
The other element is that Tras don't come along at a steady pace, necessarily like our normal construction is
And part of what we consider completion of these is actually going through that with a tenant and a contractor to see if there's any changes that we have to make along the way
We're going to come forth with our best recommendations and try some things, but that may be an iterative process
We do have one TRA in process with our commercial management team right now, and we're working to incorporate as many of these changes, at least in our first round, as part of that
That's our concourse, a duty free TRA that's in process right now
I'm going to ask a follow up on that
The other big TRA that I'm aware of is the north terminal, the Alaska project
Sea Gates
Have we reviewed that one for the same
I know we're midstream at this point, but I would defer to Glenn on that one from an audit perspective
No, it's not on our plan, but I presume the same point where we could have a friendly agreement before we, this becomes a
I can certainly, commissioner, reach out to that project team and the folks involved with that, that resides in properties as well, business and properties as well with that group
So absolutely can
It doesn't have to be one of my projects
Yeah, it seems like the only beneficiary here is the insurer, who's getting more
Okay, I have a couple questions, a couple clarifying ones in the actual issue itself
The four fourth bullet point says, using risk management's estimate, we would have decreased the final price by 1.1 million
I'm trying to reconcile that 1.1 million, because we have invoices totaling 1.1 million
We estimated 560,000
So what is the 1.1 million? A lot of detail there
Yes
So one of the things that occurred when this started
So there's a lot of balls moving
Jeff and aye
team
Team agreed, or basically had an email exchange and settled on $559,000 for $10 million of GLI
Somehow in there, when the GMP was being built, there was
Hensel Phelps threw in a 1.7 million into the GMP for insurance
So that was highly inflated
So the GMP is really, really high, least by 1.7 million
It should have been brought down if we had used risk management's estimate of 559 for the cost of insurance
The difference between that and the 1.7 that was thrown into the GMP by Hansel Phelps is $1.1 million
So it seems like that would be another opportunity in our sops or our process, because that should have flagged this right out of the gate
Absolutely
Absolutely
Okay
So that, I mean, I don't know if that's on, like, what you guys are looking at, but it seems like reviewing that
You know, like, if we agreed on this amount and you guys are coming back at a totally different amount when we're looking at our maximum price here, then there's a discrepancy somewhere and we get ahead of it, essentially getting risk management's number into the GNP and using that
And I believe Jeff Hollingsworth's got aye
hand raised again, to answer your question
So, Jeff, briefly
Thanks, Glenn
Well, yeah, point of clarification
So, and it kind of ties back into what I was stating about when the, when the project starts, especially with the early work packages at that point in time, those are actual, real, the costs that the contractor actually incurred to get the coverage, those are actual, real costs that they're not estimates at that point
That's what they actually paid for
And that was the documentation that we didn't get and that I was asking for when we were asked to review the billing statement from the project team in December
The early work started in September, so they were already three plus months into the actual construction costs and schedule
And it took a little bit of asking, requesting from Hensel Phelps
But the costs that we got, which included a 30,000 commission to the broker that Hensel Phelps used were actual costs that they spent on various, various insurance coverages
Did not include their errors and emissions, which they purchased
$25 million worth of limits
We only had $5 million worth of limits, which is typical for that type of a job
So we took, and that also does not include any of the builders risk
It was just all liability
So we actually looked at what Hensel Phelps paid, and we had the correspondence between their broker and Hensel Phelps
So those were costs that they might not have been amortized or earned yet, which that relates, again, to the coverage term, because as each month goes by and insurance is used up for that portion, you still have remaining balance on the rest of the insurance that's being amortized
But what I did is I took, I prorated what was actually in the exhibit e
Again, this was the exhibit that Delta received and estimated based on what was actually paid with the equivalent cost for what the port had required should be
That's what that difference represents
Okay, so from what I'm understanding, the delta, the contract with delta required this $100 million limit, which is kind of how we ended up here
Is that accurate? No, I'm sorry, I didn't explain that
No
The requirements in exhibit e to delta is what would be the lower amounts
When we looked at this project, which was, it's not a small project, but from the risk side, we're very comfortable with those limits
This project the value of is roughly $111 million in terms of construction value
So the exhibit e requirements were much less than what we saw Hensel Phelps had actually purchased from their broker
So essentially we have a contract with Delta, and in that we said 15 million
And Delta is supposed to be passing that on to Hensel Phelps, but we don't know what happened there and how that negotiation went
Okay, so there isn't another contract that says we have to have 100 million that would require us to have to pay? Not that I'm aware of
Jeff, are you aware of any contracts? That's the missing piece
We don't know
At least risk management does not know what was the, in the actual contract between Delta and Hensel Phelps
So, I mean, most of the times when there's a TRA, the TRA requirements get passed along and are part of the contract between the airlines and their contractor
I don't know what Delta included or how much or how they conveyed it
Any additional language that they may have put in there for Hensel Fels, which is one of the takeaways that I mentioned or suggesting, is when I think it's crucial for the port to know what's in that contract
So when we're reviewing things like that, we can take that into account and involve other parties that need it, I guess
Go ahead, Sarah
But essentially our contract with Delta just needs to have the specific language in there
You were spot on
We need to update our sops to say that in the contract language to say your subcontractor will have 10 million of insurance or, you know, the general contract of the GC will have this and you'll pass that on, flow that through
But are we responsible for Delta's, I mean, this may be, I guess, a legal question
I don't know
Are we responsible for Delta's contract with Hensel Phelps? Like, is that our responsibility? Because that's what's ultimately going to drive
Do we have to reimburse them for this? We only have to, we have a contract with Delta and we have to only reimburse Delta up to what's in our contract with them
Okay, so our contract with Delta is strong
Well, it says a minimum of 15 million
So that verbiage is to that point
While I like the idea of creating greater specificity, I think we should be cautious about forbidding a higher upper bound
So I think there's language we could use to say we're requiring 15 million and we'll reimburse up to that amount
At that amount
However, if a third party contractor wants to ensure their own responsibility in a project, Sky's the limit for them, right? Absolutely
They would never go over that, though
My point is I wouldn't want them to then have a tool to say we would have insured higher
Agreed
But you told us not to
And so I think there's a finessing of the language there that we don't want to say
Just we want to say over and above that, you're on your own, you're welcome to it, but we're not going to reimburse
Perfect
Sorry, sir
Go ahead
I guess my other question is, since we had this inconsistency between contracts here and what we agreed to, like, is this something that legal would have typically reviewed? Like, is there a review process with legal that would have caught this, or because the contract and this other like $10 million conversation was like, not a contract, it was just kind of an email exchange that they wouldn't have seen that part, so they wouldn't have flagged it
Okay, thanks
It sounds like some of this is, and I appreciate getting a little bit of the kind of inside baseball on there is a task force on TRAs
I know when the talk of TRAs first came up ahead of this project, there was some discussion around the fact that we hadn't done this or at least recently, and that we were going to have to learn to exercise that muscle a little bit
So I'm glad to hear we've got that group working
You know, in some ways, when you change project types, you exchange one group of challenges and problems with a different group of
And so we've got to learn how to anticipate those and, and put on the belts and suspenders for those
But I'm glad to hear that we're thinking about that for future projects, too
We also do need to hear from Stuart and Jason
No problem
I just saw Jeff's head still up, so I don't know if he had more to say
Jeff, if you want to quickly
Yep
And I think the commissioners are really spot on with their suggestions
And from the risk management side, we're really sensitive to what we're putting in there
We've been working, for example, with me and Rice, because at the other end, we're trying to really work hard to make sure that the requirements don't, aren't a barrier to smaller firms that want to work with the port
So it's really a delicate balance about the upper and the lower ends
We want to make sure that we're not requiring too much, but not, but again, insurance that's sufficient
So, and then regarding whether legal gets involved with the reviews and whatnot, I think that, and also relative the minimum amount, I think the wording and the SOP, like Glenn mentioned, is a good start, but also making it very clear that any proposed changes to what we have in the TRA need to be discussed and put through, like in fashion of a change order, which would then bring in the project team and risk management and whoever else needs to be in there to see if the additional expense for what is being proposed to be purchased is something that we agree on or not
And then I think with the TRA, if, if the contractor is suggesting materials or other things that are in excess of the TRA, then I think that's, that then involves Delta as the owner to see if they want to pay for that additional cost, which was above what was in the TRA between the port and delta in this case
All right, let's make sure we have enough time for issues two and three
In regard to issue two again, or item two, we agree with the recommendation as provided in the audit
As we noted already, there's a team of port staff working on a variety of improvements in TRA and an overall enhancement to the general requirements section, specifically of the TRA
And that's where the more detail, as our audit team has requested, we'd begin to weave that into that area
We intend to incorporate these audit changes and recommendations as part of that work
This is a fairly large effort in getting to this level of detail, not only into what we want to require, but making sure we have the staff and the resources with the skill sets to do the reviews as it goes through as well
So it is going to take us some time to do and then to develop all the changes we want to make, incorporate, vet, and then gain agreement amongst all the parties
But we do agree with the recommendation and issue three as well
Sure
Issue three, again, a little bit simpler one, but we agree with that recommendation as provided in the audit, and we'll incorporate that item into our effort as well
The general condition appendix section is, or general conditions is a section that isn't currently included in the appendix of a TRA
So that'll be an element we'll be adding into that where we can, can itemize out all of those acceptable items to be sort of built into the schedule of values and be able to be charged against
So in all these cases, we're going to strive to get these changes incorporated as quickly as possible into the tenant reimbursement agreements
But we don't want to rush such significant contract language changes as well
We've got a lot of parties, including legal, business and properties, commercial management, construction management, and a variety of folks
So it's going to take some time for us to do and then aligning that with timing for new TRAs that are coming forward
All right, any further questions on this audit? Go ahead
Okay, quickly on number two
So it looks like if I'm reading these graphs right, 2.3 million is our total responsibility
We've reimbursed for 417,000 of that 2.3 million
Is that correct? Yes, that is correct
Okay, so I guess what I want to clarify is, like, even if it's not in our standard operating procedures, is this something like of the difference in the rest of that that we can implement where, like, we look through, we look, require invoice, like, even if it's not in the standard operating procedures, I would think we would have a minimum bar for like, when we're reviewing these requirements, requests for payment that we would want adequate support that helps us make sure these expenses are for the project
Yeah, I mean, the TRA language provides for reasonable documentation establishing that tenant incurred the costs
So it's pretty open that we could tell Delta we're not paying anything until you give us these, until Hensel Phelps gives you the invoices that support this
So I guess my question to the staff is explicitly, do you guys plan on changing your process now, or are you going to wait till you change the sop to change your process? I think specifically in the concourse, a duty free TRA
We can engage in that immediately
Yes
Okay
And then on number three, how much are we talking here? Like, there's nothing that tells me how much, like the other one had
Like that graph, how much does this one, I believe it's 7 million in total
6.6, which is the port share, I guess
Why would we ever agree, like, what is the actual upside to ever agreeing to something where we just say, you can bill us? Why would we ever want that? There are certain benefits of using a lump sum where on the management side, it's easier to manage because you just have a budget at the target number
As long as we
Oh, it's on
Okay
As long as we're not crossing, exceeding the budget, we should be good to go
So operationally, it's a little like easier to manage
But on the audit side, there's potential savings because you don't have to do as much of the kind of accounting that you would need to do, let's say
Yes
But on the other side, it also prevents savings because when you make it a lump sum, the contractor will meet that lump
They will spend all seven every time
If you make it a cost basis, you incentivize them to actually save money
But lump sum is easier to manage
On the management side, seems highly risky
I mean, you're basically just saying, here's $7 million, do with it what you want
The industry literature actually counsels people not using lump sum check
Okay, well, thank you, Karen and Glenn, for that presentation
Thanks for the management response as well
We're going to move on to item eight, which is in regard to the payment card industry and qualified security assessor assessment result
Go ahead, Glenn
Thank you, commissioner
One of the things we have to do periodically, because we handle a lot of credit card transactions
Well, actually every year we have to either in house do what's called a security assessment or hire someone, in this case a qualified security assessor, to come in and assure that we're compliant, that the controls over managing credit people's credit cards are compliant
So it's how we store process and transmit data
All of that needs to be compliant with payment card industry standards, and that's a requirement from Visa to the banks
Internal audit has done the self assessment questionnaire in the past
This year
Like I mentioned, it was an outside consultant that was engaged that did the assessment
Next slide, please, Michelle
So we accept credit cards for taxi driver fees
Parking garage is the largest thing, actually, the one at SEATAC
We have, gosh, close to $100 million in revenue from that
Majority of it is credit cards, a very small amount of cash
So we're a large merchant, and we've got to follow and do these audits periodically
So happy to say that the work was completed in December and we did receive a compliant rating
So congratulations to Dan and aye
team, but I'll pass it back to you
That's for questions
Commissioners, any questions? All right, continue with the next item
Okay
And congratulations to Dan Thomas and team for that one
The last
The last item
One we have, commissioners, is Polito at SEATAC airport
So essentially, we do these limited contract compliance audits, and, you know, a lot of the revenue is self reported to the port
We have over 100 concessionaires with over $100 million in revenue throughout the port that we look at
And it's really, you know, our big objective is always to just make sure that, one, they're paying us accurately
Not too much, not too little, just the right amount as required by the contract
So we've streamlined our procedures
We're trying to get more of these done at a quicker pace
And I'm happy to say that Palino Inc
Paid us as required
Required
And we identified no exceptions
That concludes my presentation
Back to you, commissioner
Any other questions on the Polina audit? Why did we only review six months? So part of what we did is we looked at other airports and our benchmarking and what they were doing
We noticed that the pace at some of these airports of cycling through, especially Atlanta, was much more rapid
And their big thing was, let's do them more often, but look at a smaller period
If you look at items more recently, they have those records readily available, and they don't have to go back and fish the records out
So by cycling through these at a much faster pace and more often, our hope is that we have to look at a smaller scope period also, so they can readily have those records and provide them to us, and then we'll cycle through them at a more rapid pace
Got it
And presumably, we'd be more likely to catch an instance in which they weren't complying
And could then go back further into the records if needed
Yeah, if we do find something where they're not complying
Absolutely
Go back and fix all the errors at that point
But the more recent records are readily available and easier to cycle through an audit on
Okay, at this point
Any final comments, Glenn, on that audit? Not on this audit, I think just moving forward
So no comments here for me
Great
Okay
Before we move into final closing comments today, I'd like to take a moment to recognize Pam Bailey and Rumi Okuma, who are retiring
Pam has been internal audits administrative assistant with the port for almost 23 years
That's remarkable
It makes me proud to work for an institution that can keep good people like that for so long
She's been with internal audit since its inception back in 2008
We'd also like to thank Pam for developing internal audits external facing website
No small task which increased one of our main values as an entity, which is transparency to the public
So thank you for that
Pam
Rumi
She's been with internal audit since 2018
And besides leading audits, she's been instrumental in managing key elements of the audit committee process
Rumi developed a quality control review process to assure all materials are accurate
She program manages and gathers all audit committee materials from internal and external presenters and transmits the material over to commission records in accordance with the strict deadlines we've set
She's also led many audits that have brought positive change to the port
For example, the parking airport garage audit just last year, which saves a lot of
Of money
I just want to sincerely say thanks to both Pam and Rumi for their contributions to the port
And we wish them the very best in their retirement
Glenn, would you like to add
Oh, I'll just second everything you said, Commissioner Calkins
Pam and Rumi have been instrumental
And especially, you know, when you look at all the work that Michelle does for this, actually, Michelle is the one that carries a big burden, and Rumi helps her with that weight throughout the auditory
Michelle, you better not be retiring, too
Thank you, Rumi and Pam
Okay, Glenn, I'm going to turn to you for closing comments
And then, committee members, no further comments from me
Commissioner
So just thank you
Thank you, Commissioner Mohammed, for sitting in on this commission
Welcome to the odd committee, Commissioner Calkins
Thank you, Sarah
Do you have any closing comments, commissioner? Well, I just want to say congratulations to Pam and Remy for your retirement
And thank you so much for your public service and the work that you've done at the port of Seattle
We deeply appreciate you both I do have one
I guess we'd call it like an other business matter
Something that has been been stewing my head since our public meeting on Tuesday
And I'm really glad Dan is here, because, Dan, this is some homework, I think
But I want us to
I want us to be thinking about a metric that we talked about on Tuesday and whether that's something we could incorporate here in the work of the audit committee, or it might be just a general evaluation, but it's about a metric around capital spend
Do you recall we had a little bit of a dialogue amongst commission executive leadership about that percentage target, and I had gone into the meeting feeling really good about how high that number was this particular year
You know, it is rare that we get close to what we had budgeted for capital spend for a variety of reasons about which, Dan, you could elucidate
I'm sure you could give us 8 hours of seminar about what might lead to achieving capital spending in particular
You're not
And the thing that I've been ruminating over is how, by when we measure something, we really want to strive to get that
And there are times when that reflects positive achievements
We've successfully worked as a team to complete projects that then get invoiced and we get those invoices paid
And it's all a good story, but I'm concerned that it might also create some incentives that work at cross purposes
So in the event that we have a budget for a project and there are opportunities for cost savings, save some money, it actually now brings that number down slightly
And so instead of celebrating that we were able to actually deliver a project for less money in that percentage of capital spend, it now reduces that
And so I guess my question for Dan and maybe for the other wise folks in the room is, is there a way for us to both continue to try to deliver actual physical capital, new buildings, ribbon cutting type things, and get that money out the door, so to speak, to ensure that we have those facilities that we need, while also celebrating when we're able to save as a part of the process, through innovation, through a better way of doing things, through incentivizing our staff and the teams we work with to deliver projects in the most affordable way possible
Does that make sense? Yeah
Thank you, Commissioner Dan Thomas, chief financial officer, for the record
Yeah
There's no single metric, right, for the capital program
We have a large capital program with hundreds of projects at various stages of development
Clearly, for specific projects, you want to look at things like on time and on budget, right? That's really what you want to look at for individual projects, and that needs to be reported and focused on as well
But for that annual number, admittedly, it's just a slice in time
It does happen to line up with our annual budget
So we do look at how much we spent against our capital plan for that given year
And you may recall that in the past we woefully underspent
You know, sometimes we only spent 60% of what we had planned to spend in that year and we felt that
But it's not that we're trying to spend money that we don't need to, but oftentimes it's because projects did get delayed and spending got delayed and pushed out
So we do focus on that just as one of many indicators that sort of says how we do it in terms of just looking at a slice in time
But I think we can probably do better
I think it's worth the conversation about how do we more comprehensively report out on our capital program, given that there are so many projects, and we do try to give you some information in those, the annual reports
And we used to produce more comprehensive capital spending reports that actually looked at dashboard dashboards, for example, on how many projects are on time and on schedule
I think we've moved away from that, but maybe we need to
Well, I think part of it too is, you know, we do want to recognize, when I think of the waterfront electrification program that included the Pier 66 shore power, in which a very thoughtful innovation by an in house engineer was able to find a significant cost savings through creative reimagining of the problem
And we want to celebrate those things large and small
I know we've got a lean process improvement team here that is working on how do we cut out waste and find more efficient ways of doing things
So I think there's, we are attacking this from a lot of different angles, but it almost feels like, and this may be a small portion of that overall, but it's almost as if we could take that capital budget and say if the number at the beginning of the year was $100 million, but through innovation and efficiency we were able to actually bring the anticipated spend down to 98 million, then that 89% number wouldn't be impacted because
Because it's what percent of the 98 rather than the 100 million? I don't know
And I know you are trying to deliver enormous amounts of information in a very small window to a bunch of non experts, but I just wanted to make sure we weren't cementing an incentive to just spend every dime, even if just to keep that number, right? No, I think it's worth a conversation
Thank you, Dan
Thanks for jumping in
Random question
And thank you, Glenn, for very good points, commissioner
It's one of our values
Also, right? Stewardship of assets
All right, hearing no further comments and having no further business
If there is no objection, the meeting is adjourned at 11:31 a.m., thanks, everyone, for participating.

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