Port of Seattle Audit Committee 
June 28, 2019 
Pier 69, Commission Chambers 
11:00 AM – 1:00 PM

        Awards & Recognition 

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    Audit Committee Recognition 
•Christina Gehrke 
– 8 years of outstanding voluntary service 
– 2011 - 2019 
– 3rd term 
– Provided invaluable expert counsel to
commissioners and to Internal Audit 
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         Internal Promotions 
Spencer Bright – Capital Audit Manager 
 Hired January 2017 
 Certified Internal Auditor, Certified Fraud Examiner 
Rumi Okuma – Senior Internal Auditor 
 Hired November 2018 
 CPA, Certified Internal Auditor, Certified Fraud Examiner 

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                                                                                                Glenn Fernandes 
Internal Audit                                      Director 
Organization
Structure                                   Pam Bailey 
Sr. Administrative
Assistant 

Operational & Compliance 
Spencer Bright                Bruce Klouzal 
Dan Chase 
Manager – Capital Audit          Manager - IT Audit 
Sr. Manager - Internal Audit 

Ritika Marwaha 
Rumiko Okuma                     Open 
Sr. Internal Auditor 
Sr. Internal Auditor               Internal Auditor 

Jennifer Albrecht 
Internal Auditor 

Nikita Goyal 
Internal Auditor 


Open 
Internal Auditor                                                                                 5

     2019 Audit Plan                                              INTERNAL AUDIT 
Limited Contract
Operational                      Information
Compliance                                                 Technology 
•Sixt Rent A Car          •Airport security screening program       •Security of Personally
LLC                       •Diversity Program                             Identifiable Information 
•Enterprise Rent A       •Marine Maintenance                     •HIPAA – Compliance 
Car                                                                    •PCI-Quality Security
•Anton Airfood            Capital                                    Assessor 
• Mad Anthony’s         •Baggage Optimization                   •Closed Network System
•Marketing Fund-       •Noise Insulation Programs (FAA            Security 
Concessions              Part 150)                                •T2 Airport Garage
•Concourse D Hardstand Terminal           Parking System
•Shilshole Tenant Service Building            Replacement 

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                                         2019 AUDIT PLAN STATUS 
Audit Title                              Type            Jan     Feb     Mar     Apr     May     Jun      Jul      Aug      Sep      Oct      Nov     Dec 
Sixt Rent A Car LLC                                    Limited Compliance 
Marketing Fund-Concessions                             Limited Compliance 
Security of Personally Identifiable Information                 IT 
Noise Insulation Programs (FAA Part 150)                    Operational - Capital 
Marine Maintenance                                   Operational 
Mad Anthony's                                       Limited Compliance 
Baggage Optimization                                  Operational - Capital 
Anton Airfood                                       Limited Operational 
Diversity Program                                     Operational 
Closed Network System Security                          IT 
Enterprise Rent A Car                                  Limited Compliance 
Airport Security Screening Program                        Operational 
Concourse D Hardstand Terminal                          Operational - Capital 
HIPAA Compliance                                    IT 
Shilshole Tenant Service Building                          Operational - Capital 
PCI Quality Security Assessor                             IT 
Add: Inventory and Control of Hardware Assets               IT 
Add: Architectural, Engineering & Related Support Services       Operational - Capital 
Remove: T2 Airport Garage Parking System Replacement         IT 

Complete 
Key:                      In Process                                                                                                             7 
Request to Remove/Add from Audit Plan

                                                                                                                           INTERNAL AUDIT 
Audits to be discussed 
1) Marine Maintenance Shop 
2) Diversity in Contracting 
3) Checked Baggage Optimization - Phase I 
4) Noise Insulation Program 
5) Mad Anthony’s, Inc. 
6) Anton Airfood 


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                                                                                                                           INTERNAL AUDIT 
Marine Maintenance Shop 
Maintains Port waterfront properties, fleet, and equipment 
14 specialized crafts (Plumbing, Painting, Electrical,
Carpentry, etc.) 
Operates one central repair facility at 25 South Horton
Street 
Performs small works projects, generally < $300,000 

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       Results                                          INTERNAL AUDIT 
High – (self-identified) A process to issue and track keys
and badges needs to be enhanced. 
 Comprehensive list of physical access points did not exist 
 Segregation of duties for authorization, custody,
distribution did not exist 
 Badges of terminated employees were still active 
 Badge applications, showing authorization not retained 
 Policies and procedures not established 

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                                                                                                                           INTERNAL AUDIT 
Results 
High – Internal controls to monitor and account for fleet and
fuel usage need to be strengthened.
 Certain Fuel Master controls (functionality) need to be used 
 Process to assure Fleet vehicles are only used for business
purposes 
 Process to monitor fuel usage for unusual patterns 
 Fuel logs were not always complete / lost 
 Surveillance camera on fuel pump 

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                                                                                                                           INTERNAL AUDIT 
MANAGEMENT RESPONSE 
Management to discuss in person. Detailed response
presented in audit report. 



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                                                                                                                           INTERNAL AUDIT 
Diversity In Contracting 
Audit required per Policy Directive 
 Revised Code of Washington 49.60.400 
“The state shall not discriminate against, or grant preferential treatment to, any
individual or group on the basis of race, sex, color, ethnicity, or national origin in
the operation of public employment, public education, or public contracting.” 
 Washington State Attorney General opinion 
 Provides measures not prohibited: aspirational goals, outreach, training 
I-1000 
 Clarity of definitions / expanded scope 
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         Results                                         INTERNAL AUDIT 
Medium – The Port established a five-year goal to increase to
15% the amount spent on WMBE contracts and to triple the number
of WMBE firms. However, the starting point or baseline that
management was using to measure the goal was not consistent
with the date within the Policy Directive. 

Table 1:      2018 Baseline - WMBE Goals                         2018          2022
Percent of Total Spend                               11.8%       15.0%
Number of Firms                                    244*         732
* Adjusted to correct for overstatement of 14 firms 
Table 2:      2016 Baseline - WMBE Goals                        2016          2020
Percent of Total Spend                               5.3%        15.0%
Number of Firms                                    118          354

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                                                                                                                           INTERNAL AUDIT 
Results (Continued) 

Medium – 2018 WMBE utilization was overstated by 14 firms in
the Diversity in Contracting 2019 Annual Plan. 





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  MANAGEMENT RESPONSE                    INTERNAL AUDIT 
The five-year goal was formed under good faith efforts based upon the
information we had at the time. Work began in 2017, where we had a full
year of 2016 data to review; however, full Diversity in Contracting Program
implementation was not complete until 2019. Staff recommends maintaining
the 2016 baseline for the 5-year measurements to 2020. If 2018 is
determined to be the starting point, staff recommends Commission re-
evaluates the Diversity in Contracting utilization goals. 
During the audit process, the Planning and Analytics team discovered the
problem, reported the issue to the audit team, and have developed standard
reports that remove duplicate records. This will prevent double counting in
the future. 
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                                    Port of Seattle 
Operational Audit – Checked Baggage Optimization 
June 28, 2019 
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                                              Checked Baggage Optimization Project
Phase I 
Project Background               Audit Scope 
 Designer – BNP Associates, Inc.              Evaluate Contract Compliance 
$12 million Service Agreement                 Lump Sum Agreement 
 Contractor – PCL Construction Services,          Subcontract Agreements 
Inc. 
 Assess Project Management 
 $52 million Lump Sum Agreement 
 Pay Estimates 
 $2.5 million of change orders
increased contract to $54.5 million              Change Order Management 
 Reviewed progress at 83% complete at           Reporting 
June 2019                                     Communications 
 Target Completion - December 2019          Testing 
 Actual Completion - Delayed
(projecting March 2020)                    Schedule Analysis 
June 28, 2019                                                           18                                                                    18

                                              Checked Baggage Optimization Project
Phase I 
Audit Area                                                    Description 
Contract Compliance           Adequate by POS and PCL. Includes assessing pay estimates, submittals and project reporting 
PCL lacked proper oversight of subcontractors (J Webb) causing delays – MEDIUM RATING 
J Webb submittals delayed fabrication, delivery, testing and installation 
Project Management 
High turnover of project staff and lack of experienced professionals for specialized project 
Current PCL Project Manager was not approved by formal submission to POS per specifications and
lacks BHS experience 
Contractor schedule appeared to be adequate to meet contractual completion dates 

Schedule Analysis      POS has not formally accepted PCL’s revised completion dates / Liquidated damages can be pursued 
Potential additional three week schedule delay due to replacement of water damaged EDS equipment 

June 28, 2019                                                           19                                                                     19

                                              Checked Baggage Optimization Project
Phase I 
What Went Well 
1.POS Project Oversight 
Use of Serial Letters to document project risks / concerns 
Use of POS staff to mitigate testing and installation schedule risks 
Overall project cost management….sufficient contingency 
2.Employment of Industry Best Practices 
Change Management Process 
Openness to accept the audit and recommendations 

June 28, 2019                                                           20                                                                     20

                                              Checked Baggage Optimization Project
Phase I 

Audit Recommendation 
1.Continued suitable oversight by POS project staff to maintain current
budget condition and mitigate further scheduling delays 

2.Upon completion of Phase I, Port management should calculate and
pursue liquidated damages from PCL 

June 28, 2019                                                           21                                                                     21

                                              Checked Baggage Optimization Project
Phase I 

Management Responses (to be provided in person) 

Management agrees and intends to pursue liquidated
damages for unexcused delays. 


June 28, 2019                                                           22                                                                     22

                                              Checked Baggage Optimization Project
Phase I 
Questions 
Ken Brzozowski, CCA, CCP 
Engagement Director 
kbrzozowski@talsonsolutions.com 


June 28, 2019                                                           23                                                                     23

                                                                                                                           INTERNAL AUDIT 
Noise Insulation Program 
Commission requested IA look at program 
Established in 1985 to reduce noise in homes, condominium
complexes, and schools 
$400 MM spent to date 
Historical mitigation costs funded by airport funds 
 Future costs 80% FAA grants and 20% airport funds 
Audit focused on 2013 through 2016, work performed by Burton
Construction Inc. 
Reviewed costs associated with 20 out of 48 houses 

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                                                                                                                           INTERNAL AUDIT 
Noise Insulation Program (cont.) 
Port utilized the Job Order Contract (JOC) project delivery method for
noise insulation of single family residential residences 
 Burton Construction paid $2.8 million 
 Subcontracted more than 90% of work, as required 
Job Order Contracting Delivery Method 
 Price Book used to establish Job Order pricing 
 Contractor bids a price “co-efficient” to cover overhead, profit and
management costs 
 Contractor submits a work authorization request for each project
by priced item list 

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                                                                                                                           INTERNAL AUDIT 
Noise Insulation Program (cont) 
Example of summary costs by description 

The coefficient
is bid by the
JOC 

Billed amount is “Bare
Cost” X “Cost Index” X
“Contractor Coefficient” 
Abatement not
consistent with
asbestos/lead and
work done 

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                                                                                                                           INTERNAL AUDIT 

General Conditions: Costs of a general
and administrative nature 
Per “Blueprint to Construction Auditing”,
should average 5-8% 
 High General Conditions %
warrants further review 
Burton averaged 30% 

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    Noise Insulation Program (cont)                      INTERNAL AUDIT 
General Conditions / Adjustment Factors for Work Order 24 
Usage curtailment
is billed twice; both
the minimum and
maximum 

Per the RFP this
should have been
in the coefficient 

A charge for a
pickup truck? 


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                                                                                                                           INTERNAL AUDIT 
Results 
High – Port’s controls related to review of Job Order Contract
proposed work not functioning effectively. 
 Burton charged the Port a 51% average mark-up 
• Results are the same whether you look at mark-up or detail
line items 
 Assuring line items and quantities proposed are appropriate
requires a diligent review and necessitates questioning items
that appear inaccurate 
 Our work indicated a reasonableness review was not always
performed. 
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     Results                                             INTERNAL AUDIT 
Medium – Highline School District (HSD), an FAA Airport
Improvement Plan grant recipient, was not always in
compliance with Grant requirements. 
 Port is responsible to verify subrecipient compliance with
FAA grant requirements 
 Failure of HSD to comply with requirements can jeopardize
current federal grants 
 Port working with HSD to assist with Federal Procurement
Contracting guidelines and compliance with grant
requirements 
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                                                                                                                           INTERNAL AUDIT 
MANAGEMENT RESPONSE - JOC 

Management to discuss in person. Detailed response
presented in audit report. 



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                                                                                                                           INTERNAL AUDIT 
MANAGEMENT RESPONSE – FAA Grant 
Port staff appreciates and supports Audit’s recommendation to
enhance current processes to ensure grant recipient
awareness. Our recent experience with the Highline School
District (HSD) provides a good basis for that enhancement. 

Management to provide more information in person. 

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                                                                                                                           INTERNAL AUDIT 
Mad Anthony’s 
Anthony’s at Fisherman’s Terminal (Chinook’s) 
Lease Agreement established in 1987 
Percentage Rent 6.25% of gross sales in 1990 up to first $3 MM,
thereafter 8% 
 $3 MM adjusted annually since 1990 using CPI 
Gross Revenue Range 
 2014 – 2018 between $6.600 MM and $7.391 MM / year 
Annual Percentage Rent Range 
 2014 – 2018 between $437,000 and $491,000 / year 
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                                                                                                                           INTERNAL AUDIT 
Results 
Medium – Revenue underreported by $194,461 during the two-
year audit period. $15,557 in additional percentage rent due. 
 Surcharge – 4% added to customer bills between January
2017 and March 2018. Half (2%) paid to kitchen staff
($172,055 ) not included in Gross Revenue. 
 Employee Meals – $22,406 included family and friends of
employees. 

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                                                                                                                           INTERNAL AUDIT 
MANAGEMENT RESPONSE 
Management accepts that Mad Anthony’s has understated
revenues during the audit period and will pursue collection
of $15,557. 



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                                                                                                                           INTERNAL AUDIT 
Anton Airfood 
Anthony’s Restaurant and Fish Bar at Sea-Tac 
Lease Agreement established in 2003, expired March 31, 2019 
Managed by Host 
Gross Revenues between April 2016 – March 2019 between $18 - 
$20 million / year 
Percentage Fees Paid between $2.0 - $2.3 million / year 

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    Results                                              INTERNAL AUDIT 
High – Anton did not provide a complete chart of accounts, the daily point of
sale data, cash register z-tapes, and guest checks in its original format resulting
in a scope limitation. 
 IA unable to obtain sufficient and appropriate audit evidence to provide
reasonable assurance. 

Medium – Anton did not report $42,022.90 in gross revenue in January 2019. 
 $5,420.46 in additional percentage fees is due to the Port. 

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                                                                                                                           INTERNAL AUDIT 
MANAGEMENT RESPONSE 
Management agrees with this finding. Airport Dining and Retail staff continues to
work with Host and Internal Audit staff to resolve this specific issue and will
emphasize to all ADR tenants, the need to maintain accounting records for three (3)
years so as to avoid this problem in the future. 
Management to discuss in person if needed. Detailed response presented in audit
report. 


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