State Auditor’s Office
Performance Audit

Port of Seattle
Real Estate Management and Selected Programs
December 13, 2010
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I            Washington
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A          E  Brian Sonntag
Report No. 1004635                       W N   9
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V 11 , 18   N
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H I N G                       State Auditor

   Table of Contents
Introduction...................................................................................3
Audit Results and Recommendations...............................6
1. Strategic Planning and Organization................................................................................. 6
2. Property Purchases and Sales...................................................................................................... 9
3. Port Property Leases.........................................................................................................................12
4. Cargo crane management and Fishermen’s Terminal ..............................................19
5. Accountability and compliance with laws and regulations..............................21
Appendix A: Initiative 900 Elements.................................. 27
Appendix B: audit Methodology....................................... 28
Appendix c: Laws and Policies.............................................. 29
Appendix D: Details of Property Losses......................... 31
Appendix E: Leases examined in Section 3..................... 32
Appendix F: Port of Seattle Response.............................. 33
Appendix G: State Auditor’s Response............................. 42
State Auditor’s Office Contacts........................................ 43

  Introduction
This audit of the Port of Seattle was conducted under the Washington StateAuditor’s Office performance audit authority granted by citizens’ approval
of Initiative 900 in 2005. It is the second performance audit of the Port. Our
first audit, conducted in 2006-2007, focused on how effectively the Port manages
its construction contracts, with a particular emphasis on the Third Runway
project at Seattle-Tacoma International Airport.
This audit examined the Port’s real estate management and leasing
transactions and practices. We looked at sales and purchases of Port property
since 2004, and we looked at current and original leases back to when tenants
first moved into Port properties. In addition to those performance-related
issues, we assessed the Port’s internal controls and compliance with laws and
requirements for promotional expenses and marina moorage collections, and
its contract with the nonprofit Port Jobs organization.
Initiative 900 called for audits of the “largest, costliest governmental entities
first.” Given the scale of the Port’s operations, it fit that category. We conducted
this audit with the help of two contractors – Thompson, Cobb, Bazilio and
Associates, and IMS Worldwide Inc., which provided port-related real estate
management expertise.
The Port of Seattle is the seventh-busiest maritime port in the country for
processing containerized and bulk cargo. It also operates SeaTac Airport,
maintains cruise ship terminals and vessel mooring facilities, hosts Seattle’s
fishing fleet, provides recreational and commercial boat moorage, and leases
facilities to industries and businesses. The Port’s annual operating revenues
approach a half-billion dollars, and it employs 1,700 people.
Scope and objectives
When we set the scope of our first performance audit of the Port, we focused
on construction management with the intent to subsequently audit real estate
and leasing practices. Our interest in the real estate operation in this audit is
based on its large size and complexity, on concerns raised by citizens, and on
suggestions from Port commissioners about programs that could benefit from
a performance audit.
Our audit of real estate and leasing centered on three fundamental questions:
•    Did the Port pay or receive fair market value when it purchased or sold
property? We reviewed two major real estate purchases and two property
sales dating back to 2004.
•    Did the Port establish lease rates at fair market value? We examined 21
current leases managed by the Real Estate and Seaport divisions. We
selected them based upon interviews with Port commissioners and staff
and on our assessment of risks associated with various leases. We reviewed
transactions through the life of each lease.
•    Does the Port effectively manage billings and collections related to
shipping terminals and moorage fees at Fishermen’s Terminal? We looked
at these collection activities because the facilities are an important part of
Port property management.

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As part of our ongoing responsibility to audit the Port’s compliance with
finance-related laws and regulations, we looked at how the Port monitored
and measured the benefits of its promotional activities; how it managed
contracts with Port Jobs, a nonprofit organization; and how effectively the Port
reported losses resulting from fraud, misuse and abuse of public resources.
Summary of results and recommendations
Since 2005, the Port has taken steps to become more accountable and open
to the public. It hired a new chief executive in 2007 and restructured parts of
its organization to create more accountability. The Port Commission has taken
steps to establish stronger oversight of Port operations and has embarked on a
major effort to update the long-term strategic plan that guides its operations.
Some of the changes were the direct result of our first performance
audit, which found insufficient Port Commission oversight of contracting
practices and inadequate safeguards to protect public funds from misuse,
misappropriation and abuse. Subsequently, the Port Commission adopted
a resolution re-asserting its authority over Port administration. Port
executive management created a new division to oversee procurement and
strengthened the internal audit function.
Based on this audit’s review of the Port’s real estate and leasing management
functions over the past six years, we found the Port can improve how it buys,
sells and leases its property and generates revenue, serves the community and
invests in its future. These are our major conclusions, which are reflected in 10
specific recommendations:
•    The Port should regularly analyze its current and future property needs
within the context of a long-term strategic plan. To support this effort, the
Port needs to complete its strategic planning process, called the Century
Agenda, to include specific real estate and leasing goals and objectives.
•    The Port should review its property management-related organizational
structure and clarify the responsibilities among the Real Estate Division,
Seaport Division and support operations. This would lead to more
consistent property management practices.
•    Decisions about property sales, purchases and leases should be informed
by thorough financial and risk-based analyses. Up-to-date appraisals
and competitive marketing should be used to obtain the most favorable
transaction terms.
•    The Port’s financial analyses of proposed leases or renewals were
inconsistent, incomplete and sometimes inaccurate. Although we found
no evidence that this was deliberate, Port personnel have not consistently
communicated to the Commission all the information it needs about the
costs, benefits and alternatives associated with proposed leases.
•    The Port did not regularly establish lease rates at fair market value or
did not use appraisals, competitive marketing or comparisons to similar
properties. Moreover, we noted inconsistencies in lease rates and rent
increases for similar property types. As a result, the Port received less lease
revenue than it could have for some leases.

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•     The Port’s controls over collections at Fishermen’s Terminal and from
users of its cargo terminal cranes need to be strengthened.
•     The Commissioners effectively oversee the Port’s promotional
expenditures to ensure they achieve economic development objectives.
The Port did not effectively manage its contracts with the nonprofit Port
Jobs between 2006 and the first quarter 2009 to ensure it received the
services it purchased. The Port lacked the legal authority to purchase
some of the services provided by Port Jobs, although state law was
revised in 2010 to permit some of the activities in the future. The Port paid
Port Jobs and also required construction contractors to pay as a condition
of working for the Port. Between 2006 and 2009, Port staff did not report
losses to the State Auditor’s Office as required by law.
We also noted other less significant issues related to the management
of leases and have separately communicated them to Port officials in a
management letter.














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   Audit Results and Recommendations
1. Strategic Planning and Organization
Port of Seattle needs to finish its strategic plan
In 2008, the Port Commission and Port executive launched a far-reaching
effort to update its nine-year-old strategic plan. Called the Century Agenda,
this planning effort began when the Commission created four advisory panels
made up of individuals from business, governments and the community. Their
assignment was to inform the Port on emerging issues with the potential to
affect its future. The Port Commission amended and adopted the guiding
principles developed by the panels and is using them to set specific goals and
objectives for the updated strategic plan, scheduled for completion in 2011.
Several principles apply to real estate and land use and call for the Port to use
its property holdings to financially sustain its core maritime/transportation
mission; to enhance economic development; to create jobs; and to be a
responsible steward benefitting the community and the environment. That
generally reflects tenets of the Port’s 2001 strategic plan, known as Harbor
Development Strategy 21. The older plan is in effect pending completion of
Century Agenda.
However, Harbor Development Strategy 21 lacks key provisions that are
necessary to guide the Port on how to best capitalize on its real estate
portfolio and carry out the broad principles identified above. It left out specific
goals, timelines and performance measures.
Recommendation 1 
We recommend the Port complete its Century Agenda as soon as possible and
include the following elements:
•    Specific goals and objectives to use real estate holdings to achieve
financial security and promote economic development and community
stewardship. The Port needs to set priorities and clarify the sometimes
conflicting direction of Strategy 21’s guiding principles. For example, the
importance of generating revenue may conflict with the need to provide
financial incentives to attract job-creating industries. The absence of
priorities can create inconsistent and unclear decisions that do not align
with long-term goals. These conditions may have contributed to the
unexplained inconsistencies in lease rates and rate hikes discussed in
Section 3.
•    Identification of the specific types of businesses and industries – outside of
traditional air- and sea-related companies – that the Port wants to secure
and maintain as short- and long-term tenants.
•    Goals and objectives that describe how the Port can best use its real
estate to compete with other West Coast ports for tenants, industries and
importers/exporters.



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Commission should clarify responsibilities of Real Estate,
Seaport divisions
The Port established a new Real Estate Division in 2008 to improve the port’s
management of its real estate properties. The new division was assigned to
manage facilities and properties not associated with cargo, cruise ship or
airport operations. The Seaport Division, which had held responsibility over
all non-maritime properties, retained management of shipping container
operations, seaport marketing and operation of cruise and industrial
properties. The Airport Division’s responsibilities were not changed.
Although the Port established the Real Estate Division to address deficiencies
in the management of its real estate portfolio, Port management has not
clearly established which division is responsible for which tenants. Based on
our interview with Port employees, confusion occurs over which properties
are assigned to the Real Estate and Seaport divisions. The assignments were
initially based on whether properties were water-oriented and, thus, assigned
to the Seaport Division, or whether they were land-oriented, falling under the
oversight of the Real Estate Division. We found instances in which the Seaport
Division was managing land-oriented property and the Real Estate Division
was managing water-oriented property.
Current policies and procedures do not provide clear, consistent direction or
ensure accountability. The two divisions do not use consistent approaches to
manage their assigned properties and Port policy lacks overarching guidance.
It is difficult to hold either division fully accountable given that neither has
clear responsibility over key functions that are necessary to manage Port
properties. Despite the Port’s intent to confine real estate operations within
two divisions, several key real estate management functions remain outside
each division’s direct authority. These include financial and accounting services
related to real estate functions, project management, facility planning,
maintenance and environmental services.
Recommendation 2
To ensure clear and consistent real estate management, we recommend the
Port clarify the responsibilities of the Real Estate and Seaport divisions and
improve the enforcement of its policies and procedures.
It is equally critical for senior managers to improve oversight of Port property
transactions and to monitor employees’ compliance with new policies and
procedures.





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Commission should strengthen its real estate oversight
In our performance audit of the Port’s construction management program, we
found that the Commission needed to exercise greater oversight and decisionmaking
on construction and professional services contracts. The Commission
earlier had ceded much of its authority to the Port’s then-chief executive
officer, who was not required to report to the Commission on key matters,
including construction and professional services contracts. We also concluded
that Port staff needed to provide the Commission with more complete and
accurate information so it could fulfill its oversight role.
Acting on our audit recommendations, the Port Commission in 2008 adopted
Resolution 3605 to reassert its authority over construction and professional
services contracts. The resolution also redefined some of what it delegates
the current chief executive officer, requiring increased reporting to the
Commission. However, the resolution did not address real estate management.
Recommendation 3
We recommend the Commission assert the same level of authority over real
estate transactions that it established in Resolution 3605 for construction
management. In this audit, we identify conditions in which Port managers do
not always provide complete and accurate information that the Commission
needs to make sound real estate decisions. The Commission needs to ensure
staff collect, track and convey key information related to the cost and benefits
of the leases to the Commission.
In the long-term, an updated strategic management plan approach may call
for further reorganization of these divisions to ensure that policies, procedures
and daily operations contribute to achieving the Port’s vision and goals.
As the Port updates its strategic plan, it may want to reassess its division of
responsibilities over real estate property management.
 








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2. Property Purchases and Sales
Improvement seen in Port property transactions
Since 2004, the Port has purchased two sizeable pieces of property and sold
two others. We examined all four in this audit, recognizing that two occurred in
2004 and 2005 and were not overseen by the Port’s current administration and
Commission. Our audit, which focused on whether the sales and purchases
prices were based on fair market value, found that the two more recent
transactions, earlier this year and in 2008, went considerably better than the
two earlier ones.
Specifically:
•    In 2004, the Port sold shipping Terminal 106E to a private company and
received about $4.1 million less than the property’s fair market value.
•    In 2005, the Port paid market value for the Tsubota Steel plant site but the
Commission decided to buy the parcel without considering important
information that could have influenced the decision.
In contrast:
•    In 2008, the Port received fair market value when it sold the Pier 48 facility
to the state Department of Transportation for $11 million.
•    In early 2010, the Port purchased a rail corridor in East King County,
originally agreeing on a purchase price of $107 million that was based on
an outdated appraisal. Recognizing market conditions had changed, the
Port ultimately renegotiated the purchase for $25 million less.
Port sold Terminal 106E below market value
In 2004, the Port sold Terminal 106E, a complex of two warehouses on 28 acres
near Diagonal Avenue and East Marginal Way in Seattle, for $18.85 million. A
Port appraisal valued the parcel at $27.7 million, but reduced that value to $23
million to reflect costs the buyer would need to pay for site improvements.
Port staff incorrectly subtracted the improvement costs a second time and
recommended a lower sale price of $19 million to the Commission, which
approved the sale. Subsequent negotiations with the buyer reduced the price
to $18.85 million.
The Port Commission also bypassed its own policies and procedures by
declaring the property surplus to its needs on the same day the sale was
approved. Port policies require a thorough evaluation of whether property
was still needed before being declared surplus. In addition, the Port did not
market this property to solicit other potential buyers. We identified the same
marketing issue in current Port practices related to real estate leases.



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Port paid fair price for Tsubota parcel, but overlooked risks
In April 2005, the Port purchased a 3.4-acre property known as the Tsubota
Steel parcel, a former industrial site, for $5.5 million. In addition, the Port paid
$402,000 to a third party who acted on behalf of the Port in negotiations so
the Port would not be identified as a potential buyer.
We found Port staff did not fully assess or document environmental and other
risks associated with the purchase and did not present a thorough analysis of
the advantages, potential liabilities, alternative uses, limitations and ongoing
ownership costs to the Commission. As a result, the Commission decided to
purchase the property without key information that potentially could have
influenced the decision. The Port had planned to use the property for a 57-acre
development project, but those plans never materialized.
In addition, the Port Commission did not receive accurate and complete
information on this transaction. For example, staff presented the Port real
estate development manager’s recommendation to purchase the property by
using the third party to the Commission in an executive session. But we found
no record of a discussion about how the third party was selected or how the
$402,000 fee was established. This condition was similar to issues we identified
in our construction-related performance audit. Since then, the Commission has
adopted a resolution strengthening its oversight of construction.
We identified similar issues in this audit related to lease management that are
described in the next section of this report. We encourage the Commission
to maintain strong, transparent authority over all Port operations, including
property purchases, sales and leases.
Port saved $25.5 million in purchasing Eastside Rail Corridor
The Port purchased the Eastside Rail Corridor near Lake Sammamish from the
Burlington Northern Santa Fe Railway in spring 2010. The Port wanted the
parcel for its freight transportation or regional transit potential.
The initial $107 million sale price was based on an appraisal commissioned by
King County more than four years earlier. It did not reflect substantial declines
in property values that had occurred since then. While performing fieldwork
for this audit, we identified this issue and discussed our concerns with Port
management.
The Port eventually renegotiated the property purchase from $107 million to
$81.5 million, a reduction of $25.5 million that reflected the drop in real estate
prices. The Port’s authority to purchase this property is in litigation. This audit
did not evaluate the issues raised in the legal action.
The Port needs to ensure it uses current appraisals when it buys and sells
property.



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Port successfully handled Pier 48 sale
The Pier 48 sale involved a dilapidated pier and warehouse, the underlying
submerged land and an upland parcel. The property was sold “as is” in 2008 for
$11 million to the state Department of Transportation, and the Port retained
the right to repurchase the upland parcel at the appraised market value if the
Department decides to sell it within 15 years.
Under the threat of legal action by the Department to condemn the land, the
Port carefully developed an estimated value to maximize the property’s sale
price. It effectively addressed a weak negotiating position by identifying the
property’s unique value to the Port. Because the parcel could help mitigate
the environmental effect of projects on adjacent property, it had substantially
greater value to the Port than to potential purchasers. The Port was able to
demonstrate this value to the Department, which substantially increased the
estimated value and final sale price.
Through careful negotiations and consideration of the property’s unique value
to the Port’s operations, it successfully ensured it received a fair market price
from the Department.
Recommendation 4
To strengthen its oversight of property sales and purchases, we recommend
the Port Commission adopt and enforce policies that require staff to perform
and document the following efforts :
•    Regularly and thoroughly analyze the Port’s current and future property
needs in the context of the goals and objectives of a long-term strategic
plan. These ongoing analyses should clearly describe the justification for all
purchases and sales. Properties with no current or future need should be
declared surplus and made available for sale. The Port should not declare
property surplus simply to expedite a sale.
•    Review in detail all property value appraisals and determinations by Port
staff involved in the property sale or purchase. This should also include
a concurrent review by the Port’s chief financial officer to ensure the
appraisal is fully understood. When it buys and sells property, the Port
should use current appraisals to establish and negotiate a good fair market
price.
•    Perform complete financial and risk analyses of the purchase that
include remediation costs, potential ownership costs and environmental
conditions.
•    Scrutinize information from staff to ensure it is adequate and complete
and decide on purchases and sales in an open public meeting.
•    Effectively market and advertise the availability of Port property to allow
multiple purchasers an equal opportunity to buy it in order to achieve the
best purchase price.


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3. Port Property Leases
Property leases generate significant revenue for Port
Property leases help cover Port operating costs and reduce the tax burden on
King County property owners. In 2008, the Seaport Division generated $95.1
million, principally from waterfront property leases it manages. The Real Estate
Division generated $17.6 million from lease revenue.
We reviewed 21 of the 244 leases the two divisions collectively manage.
We selected the leases based on interviews, reviews of documents and an
assessment of risk. In some cases, the same tenant occupied a property
through multiple lease periods. In these cases, we reviewed all of the leases
involved, which included as many as three leases on a single property. These
leases are shown in Appendix E.
Our evaluation was designed to determine how well each division established
fair market value, set lease rates, marketed the properties, selected tenants
and negotiated lease terms. We also looked at the review and approval of
leases, lease agreement content and lease administration. We identified many
opportunities for the Port to improve its leasing policies and practices.
Port should align leasing practices with its strategic plan
The Real Estate Division needs clear direction on how to use the assets it
manages to help the Port reach its mid- and long-term vision. We found the
Division primarily focuses on a short-term strategy of generating revenue
without considering whether the makeup of tenants enhances economic
development and creates jobs. The Division evaluates all of its leases based on
its perception of today’s market rates, demand for space, the current cost of
proposed rent concessions or tenant improvements, and the perceived cost
and benefit of rejecting a lease proposal and waiting for a better offer.
The Port does not have an asset management plan, which is critical tool
used by successful real estate managers to meet long-term goals. Its asset
management planning should directly connect with the update of its strategic
plan and at the same time, it should detail how the Port will effectively
manage its property in the context of long-term goals. The Port’s current
strategic plan does not give adequate guidance on managing leases over the
mid- and long-term.
An asset management plan would enable Port real estate managers to
evaluate leasing opportunities and consider whether the property use, lease
terms, property improvements and other incentives that accommodate
tenants are consistent with the Port’s long-term interests.
Lease rates have not always reflected fair market value
We identified several leases for which the Port relied on insufficient and
outdated market data and, as a result, unknowingly negotiated lease rates that
were below fair market value or did so without a documented justification.
We found that Port managers did not use effective methods to market
property and collect and evaluate complete and timely information needed to
keep abreast of market conditions and consistently set lease rates in keeping
with those conditions. As a result, the Port did not generate as much revenue
as it could from leasing Port-owned property.
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Sound real estate management requires the use of detailed current market
data to evaluate lease proposals and determine the best strategies and
processes to negotiate leases with diverse prospective tenants with myriad
needs. During our audit, we identified these specific issues:
•    Lease rates, credits and other adjustments were made inconsistently
Port real estate managers did not use a uniform process to determine lease
rates for Port property. This caused instances in which initial lease rates
and adjustments to those rates were inconsistent for similar properties. We
found instances in which rates for similar properties differed by 20 percent
to 70 percent without explanation. These differences in the initial rates were
compounded by inconsistent rent adjustments.
For example, the lease rate for one property was adjusted annually based on
the Consumer Price Index, while the rate for another property with very similar
characteristics was adjusted just once in seven-and-half years. The rate for
a third property was not adjusted at all during its five-year term. In some of
these leases, the rationale for credit amounts was not sufficiently documented.
•    Properties were not competitively marketed to prospective tenants
We found the Port has not developed marketing strategies and rate-setting
procedures to promote competition and to generate multiple offers for space
it wishes to lease. Such strategies lead to transparent negotiations, increased
rates, fewer concessions to tenants, and clearer employee understanding of
how to use competition.
For example, the Seaport Division does not have an overall real estate
marketing strategy, particularly for properties vacant for more than six months.
The Port disbanded a Business Development group responsible for marketing
these types of properties a few years ago when the economy was strong and
most Seaport Division properties were occupied. Despite current economic
conditions and longstanding vacancies, the Port has not re-activated this
important responsibility.
The Division also did not widely market two of 10 leases reviewed, limiting
the number of companies that competed to lease Port properties. Although
rates were very low for one lease, the Port did not provide other firms the
opportunity to lease at potentially higher rates.
For a second lease, the Port determined the market rate was between 45 cents
and 50 cents per square foot. But when the tenant refused that amount, the
Port agreed on 40 cents instead of marketing the property to find tenants
willing to pay the market rate. Consequently, the Port relinquished between
$500,000 and $1 million in potential revenue over the 10-year term of the
lease.
•    Port real estate managers relied on inadequate market information
Knowing a property’s value per square foot is critical in determining lease rates
and calculating the potential rate of return. Independent real estate appraisals
and careful property comparisons can provide this information. However,
the Real Estate Division’s efforts to obtain detailed market information were
limited. It commonly estimated a property’s fair market rent through informal

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contacts with brokers familiar with specific property types and locations, or
by using general industry publications and market reports published by real
estate brokerage firms. These sources did not provide precise information
about property values, particularly higher-valued parcels located on or near
the water.
The Seaport Division established some lease rates based on what other
Port tenants paid in rent for similar properties. However, those rates, which
had been negotiated in past years, did not reflect current market value or
the properties’ proximity to water. For example, we identified negotiations
for warehouse leases that were influenced by low rates paid by other Port
tenants and by rates in areas well outside the Port’s boundary. Although the
Port periodically uses appraisals to determine fair market rents for larger and
longer-term leases, it does not routinely use them for smaller, shorter term
leases.
The Seaport Division, which manages 45 leases, obtained only seven appraisals
from 2001 through 2009. Four of these were conducted between 2001 and
2006 and estimated the values at $14 to $25 per square foot. A 2007 and 2009
appraisal estimated property values at $28.50 and $32.50 per square foot
respectively. This wide range in estimated values shows how important it is for
the Port to obtain current market information specific to individual properties.
Without it, the Port is at risk of inconsistent lease rates that are less than fair
market value.
Port real estate managers acknowledged their divisions’ processes may
over-emphasize the opinions of staff, local real estate experts and industry
publications. They also agreed documentation was lacking to show how
market information affected decisions for individual leases.
•    Financial analyses of proposed leases were inadequate
Beyond information needed to establish fair market rents, a thorough
financial analysis of a potential property lease is also necessary. An analysis
commonly used in the industry considers the fair market value of a piece of
property, costs to improve it, credits for relocating tenants and other costs of
preparing property for lease or obtaining a tenant. It compares these costs
and the resulting revenues to those expected under different potential uses
for the property. Doing this allows owners to determine whether property is
underperforming in its current use or is suitable for investments to change
that use and increase the property’s rent potential. We found Port real estate
staff did not prepare adequate financial analyses needed to enable the
Division managers or the Port Commission to fully evaluate the benefits
and disadvantages of leases before approving them. Some analyses were
incomplete, inconsistent or inaccurate although we found no evidence that
these departures were deliberate.
Real estate managers did not sufficiently document financial analyses and did
not obtain independent third-party review to make sure they were accurate,
complete and consistent.
Port real estate policies require the divisions to prepare financial analyses
but they are not specific enough and should be revised so they share a
common definition of what costs and considerations must be reflected. Our

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review of Seaport Division’s lease financial analyses found they were not well
documented and did not account or accurately account for the fair market
value of existing land, buildings and improvements included in the lease as
required by Port policy. Also, anticipated revenue as well as projected benefits
on the investments for some leases was overstated.
In the Real Estate Division, we found financial analyses varied significantly in
detail and were not well documented. For example, the Division evaluated
new lease proposals primarily on the current net present value of projected
rental income and expenditures, including tenant improvements. However,
it did not consider the value of the Port’s investment in the property, which
it treated as a past cost. This practice is inconsistent with a comprehensive
long-term perspective and strategy for each asset and the Port’s own policy.
In some cases, the lease analyses compared future cash flows of the proposed
lease to the alternative of offering it to other prospective tenants. For lease
renewals, the Division either did not perform financial analysis or only cursorily
compared costs and the benefits of renewing a lease versus marketing the
property to other potential tenants.
During the audit, the Real Estate Division began using a uniform and relatively
sophisticated financial analysis template, which should better support the
Division’s decision making on individual leases and assist with the Division’s
overall asset management strategy.
•    Certain leases do not receive Commission oversight
Port policy requires Commission approval of leases only if they are longer than
five years. Shorter lease periods are approved administratively. Consequently,
a tenant can renew its lease every four and a half years without Commission
review or approval. Therefore, the same tenant can occupy a property for
a significant number of years without direct Commission oversight. An
unprofitable short-term lease that is extended again and again over long
periods of time can cause the Port to collect less in rent than it otherwise
could. Port Commissioners should also review and approve short-term leases
that are extended beyond five years.
We also found some instances in which Seaport Division staff omitted or
misstated details of lease terms and conditions. For example, the information
did not accurately describe rent adjustments and lease options or disclose
details about rent increases or tenants’ leasing history.
•    Leasing decisions were not well documented
Most Seaport Division lease files lacked key information. Some employees
kept detailed files of lease negotiations, while others did not keep any records,
working files, notes or correspondence. Some files did not demonstrate
whether or how the Division assessed the financial strength of prospective
tenants. Other files lacked documentation to show how the Division
determined the amount of rent credits, including a $1 million rebate to one
tenant and a $250,000 credit to another.
The Real Estate Division’s documentation of how its staff evaluated business
terms, proposals and counter-proposals varied widely. We found no
documentation for some leases, while documentation for others consisted
mostly of e-mails between members of the negotiating team or staff members
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who reviewed part of the transaction. Files often lacked market information
to support recommendations for new or renewed leases. Documented signoffs
for legal, environmental and other Port divisions for leases not subject to
Commission approval were inconsistent and difficult to verify because they
were done through a combination of printed material and e-mail.
The Port does not have a centralized, uniform system for documenting and
tracking lease approvals, which increases the risk that some leases were not
reviewed and approved as required. These reviews and approvals are critical to
ensuring the Port maximizes its revenue and return on investment, and avoids
significant legal and environmental risks.
•    The Port needs policies and procedures to direct how it negotiates
and manages leases
The Port does not have clear policies and procedures that guide real estate
staff and managers to successfully market Port property to attract tenants, to
obtain current and detailed market information to successfully negotiate fair
market rental rates and to prepare and use comprehensive financial analyses
that assure its leases result in acceptable returns on the Port’s properties. Those
conditions significantly contributed to the lease-related issues described
above.
The Port should adopt policies and procedures that establish rental rates
based on prevailing market conditions. As an example of insufficient policies,
Port Policy “RE-1” says rental rates will be set to achieve an acceptable rate of
return on the fair market value of the property and that rates for Port-owned
property will be comparable to those charged for non-Port owned property.
However, this policy can be used to justify a wide range of rates.
Recommendation 5
Port Commissioners should establish a comprehensive strategy for each real
estate asset and operating procedures to ensure prospective transactions are
evaluated against those strategies. Specifically, the staff should:
•     Develop a written asset management plan and strategies for each real
property consistent with the Port’s overall real estate strategy.
•     Establish and document its desired business terms before negotiations are
initiated for large complex transactions.
•     Measure, evaluate and document the proposed business terms against
whether the property use, lease terms, property improvements and tenant
incentives are consistent with the Port’s long-term interests.
•     Use standardized analytical tools to assess the degree to which the
proposed tenancy fits in with the Port’s asset management plan.



16

                                        • State Auditor’s Office • Port of Seattle •

Recommendation 6
Port Commissioners should establish policies and procedures designed to
ensure:
1.   Rental rates reflect fair market value and consistent lease pricing.
2.   Financial analyses enable the Commission to negotiate acceptable rates of
return.
Procedures to set rental rates should require staff members to:
•    Treat similar properties consistently and follow the private sector practice
of adjusting rental rates over the term of the leases.
•    Obtain Commission approval for any lease whose rent does not reflect the
prevailing market rate and provide a rationale consistent with the Port’s
strategic goals and mission.
•    Obtain Commission approval for leases that are extended or renewed for
combined periods that exceed five years.
•    Establish methods to formalize and document the type and frequency of
market analyses required for each lease. These methods should address
the risks associated with changes in market conditions and over-reliance
on third-party brokers.
•    Establish a comprehensive marketing strategy that exposes properties to
the greatest number of potential tenants.
•    Suspend negotiations with a prospective tenant who is unwilling to pay
fair market rent, and aggressively market the property to other potential
tenants.
•    Fully document all lease decisions.
Financial analysis procedures should require Port staff to:
•    Prepare financial analyses of leases and capital projects early in the
process when internal discussions begin. The financial analyses should
consider all costs associated with a given asset so the Port can measure
its performance against the asset management plan. The Port should
continue to develop, improve and use rigorous, standardized financial
analysis tools.
•    Prepare a written narrative that describes all relevant facts and
assumptions used in the analysis, including the basis for revenue
assumptions, tenant selection, land and asset values and evaluation of
alternatives.
•    Require property managers and analysts to discuss and evaluate
alternatives for the use of the land/assets.
•    Calculate the projected benefits of the lease using both an “all in” approach
(includes new capital expenditures, fair market value of all land and all
existing assets, and all lease revenue) and an operational costs-andrevenue
approach.

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                                        • State Auditor’s Office • Port of Seattle •

•    Develop an independent review system that reports to the Commission.
The individual who does this should review and verify information
provided to the Commission regarding property transactions. This party
would provide in writing:
•    A narrative describing all its relevant facts and assumptions, the
method of evaluation, alternatives studied, and the overall conclusion
of the financial analysis.
•    An independent review of the financial data prepared by the Division
and verification as to its completeness and accuracy for major
transactions.
•    A recommendation to approve or reject the proposal.















18

                                        • State Auditor’s Office • Port of Seattle •
4. Cargo crane management and Fishermen’s Terminal
Seaport Division should improve oversight of cranes
The Port leases its 18 cranes and other equipment to shipping terminal
operators to transfer cargo containers to and from ships. The Seaport Division
manages the equipment leases, which generate part of the Division’s $95.1
million in annual lease revenue. The lease rates for this equipment varies from
a fixed monthly rate for some cranes to a fixed hourly rate and variable hourly
rates based on the amount of use. Leases for other equipment used to move
containers are billed on a “per lift” basis.
We found the Seaport Division over-relies on operators’ cargo crane use
reports for billing and does not adequately monitor crane maintenance.
For rates based on use, the Division relies on electronic entries recorded and
maintained by operators to determine how much to bill them. Division staff
does not review or audit those records to verify their accuracy. This creates a
risk that operators will underreport use and the Port will receive less revenue
than it should.
Seaport Division management acknowledged those risks during our audit
work, and said it was considering options to ensure its billings accurately
reflect use. Those options include regular audits by independent third parties,
alternate methods of payment and software that records crane movement and
verifies use.
The crane lease agreements require tenants to pay for and perform scheduled
maintenance following the crane manufacturers’ requirements. Tenants must
record all maintenance performed and provide the records to the Seaport
Division for review. The lease agreements also require the Port to inspect
cranes at least annually and to allow the Seaport Division access to the cranes
to conduct these inspections. But, the Division stated because of limited staff
and workload constraints, it did not inspect any cranes in 2008 and inspected
only one in 2009. The Port also does not review maintenance records unless a
crane has a mechanical problem.
Depending on size, cranes can cost millions of dollars. Regular inspections and
oversight to ensure cranes are properly maintained is crucial to extending how
long the cranes can be used as well as potentially affecting worker safety.
Improved safeguards needed at Fishermen’s Terminal
Fishermen’s Terminal is home to the North Pacific fishing fleet and provides
moorage for fishing vessels and commercial and recreational boats. Moorage
rates vary depending on a vessel’s length and type of use. Rates are highest for
recreational boats and lowest for active fishing boats. Customers pay monthly
or daily. The Terminal generates approximately $1.4 million annually from
moorage.
In 2008, Fishermen’s Terminal began using the Marina Management System
(MMS), which was intended to make the moorage fee collection process more
efficient. During the audit, we identified internal control weaknesses that make
those fees vulnerable to misuse and misappropriation. We did not find any
evidence that either occurred.

19

                                        • State Auditor’s Office • Port of Seattle •

Terminal employees enter information such as vessel name, slip location,
length of vessel and moorage classification for all the vessels moored and use
the system to calculate moorage rates into MMS. They then transfer the data to
the Port’s main accounting system, which bills customers each month.
Port employees who use MMS log into the system with their own user
identification and password. This is designed to control who has access and
can enter information in customer accounts.
We found that nine of the 10 Terminal employees can access MMS along with
another 10 employees in accounting and other operations. In addition, no
supervisory review and approval is required for billing rate adjustments to
customer accounts. That raises the risk that customers’ payment and account
information can be manipulated.
Although contained in MMS, the reports it generates for monitoring billings
and collections do not contain vessel length or moorage classifications. These
two pieces of information are crucial to determine whether the correct rate is
being charged.
The Port should limit the number of staff members who have access to MMS
and should ensure employee duties are properly segregated so no individual
can receive payments, record them and adjust the records.
Recommendation 7
To better safeguard its assets and income related to the Seaport’s leased
cranes, we recommend the Commission revise its procedures to require Port
staff to:
•    Verify that reported container crane use is accurate. The most practical
verification method is to periodically compare longshoreman/operator
use data with data reported by the operator through the Seaport Division’s
Crane billing system.
•    Inspect the cranes annually. The Port should consider hiring or contracting
for crane specialists to do the inspections if it determines that reprioritizing
the current staff’s workload will not enable it to do so with current staff.
•    Audit crane logs, reports and records of maintenance performed.
Recommendation 8
To better safeguard its billings and receipts at the Fishermen’s Terminal, we
recommend the Port:
•    Segregate duties to ensure the same employees cannot enter customers,
make adjustments to customer accounts, and receipt payments from
customers in MMS.
•    Require supervisory review of adjustments to customer accounts in the
MMS that affect billing rates.
•    Restrict access to make adjustments and apply payments to customer
accounts to employees who need it as part of their regular job duties. The
Port has reports containing vessel length and moorage classification for
use when reviewing billing information for accuracy.
 
20

                                        • State Auditor’s Office • Port of Seattle •
5. Accountability and compliance with laws and regulations
We reviewed three Port programs or activities:
•    Spending for promotional activities.
•    Contracts with the nonprofit Port Jobs organization.
•    Reporting losses to the State Auditor’s Office.
We evaluated whether the Port has opportunities to improve these areas and
whether it is complying with state law and its own policies. We selected these
activities based on an assessment of risk, the results of past audits and citizen
concerns. The audit period was 2006 through the first quarter of 2009.
Port effectively manages, monitors promotional spending
The Port spent $3.1 million from 2006 to 2008 to promote trade, tourism and
economic development. These activities are authorized by state law, which
allows only Ports to spend money on items such as meals, refreshments,
lodging, transportation, entertainment and souvenirs in connection with
business meetings, social gatherings and ceremonies.
We found the Port spent its promotional funds properly and used best
practices to communicate the intended uses of promotional funds. The
Port Commission was actively involved in developing promotional project
budgets and staff provided it, and the public, accurate, timely and complete
information about results.
Port management sets promotional spending at a line-item level and
identifies specific activities and expected results. Port executives attend
department meetings in which business and customer needs are discussed.
Executives at the division level review decisions on how to address those
needs. Each promotional spending account is reviewed, and the accounts
most eligible for reductions are identified at the executive level. The budget
development process also includes public meetings and budget workshops for
Commissioners.
The results of promotional activities are reviewed in the Port’s quarterly
performance reports. The Public Affairs Division monitors attendance at Port
events and tracks international advertising efforts. The Container Marketing
Department in the Seaport Division tracks customer retention and acquisition
efforts. The Aviation Division maintains detailed records of promotional events
and marketing efforts it coordinates with airlines. The Commission receives
high-level information on promotional expenditures and briefings on major
events, and the commissioners are invited to participate in promotional
activities.
Port lacked statutory authority for contracts with Port Jobs
We found the Port did not effectively manage its 2006, 2007 and 2008
contracts with Port Jobs, a nonprofit organization, to ensure it received the
services it purchased. The Port also lacked legal authority to purchase some of
the services provided by Port Jobs, although in 2010, the Legislature revised
state law to allow some of these activities. We also found the Port may have
increased the cost of its construction projects by requiring companies to
contribute to Port Jobs.

21

                                        • State Auditor’s Office • Port of Seattle •

State law allows ports to contract with nonprofit organizations to support
economic development. In 1993, the Port created an organization, now called
Port Jobs, to address concerns about the skill level of applicants for Port
employment and about the limited number of living-wage jobs available to
King County residents. Today, with funding from the Port, the City of Seattle,
King County and other organizations, Port Jobs coordinates job training and
social services for low-income residents, and supports public policies intended
to increase residents’ access to living-wage jobs.
The Port’s involvement with Port Jobs was three-fold:
•    Contracts for services. The Port had two service agreements with Port Jobs
that were renewed annually. The Port paid Port Jobs $365,000 per year
during the audit period.
•    Mandatory contributions by contractors. The Port required construction
companies who received public works contracts of at least $1 million
to contribute 20 cents per labor hour directly to Port Jobs. Contractors’
contributions averaged about $215,000 annually.
•    In-kind donations of office space. The Port provided Port Jobs free office
space at Sea-Tac Airport and at the Port’s headquarters on Pier 69 in
Seattle. These donations were valued at about $520,000 for the three years.
State law governing public ports’ economic development activities in effect
during this time stated: “It shall be in the public purpose for all port districts
to engage in economic development activities. In addition, port districts may
contract with nonprofit corporations in furtherance of this and other acts
related to economic development.” The law was amended in 2010, but this
statement remains in the law.
While port districts could contract with nonprofit organizations for economic
development, the law did not specifically authorize support for education or
social service programs. Some education programs, such as career-specific job
training, may be linked to economic development strategies and outcomes.
However, programs that primarily deliver social services are not within the
Port’s authority. (Appendix C contains background documents and laws
regarding the Port’s legal authority).
Port supported services not allowed under state law
During the period covered by this audit, Port funding supported these
educational and social service programs through Port Jobs. The Port lacked the
legal authority to support these programs at the time:
•    Financial Tools for the Trades (2007).
•    Women in Construction (2007).
•    Career-Workplace Exploration in the Skilled Trades (2006, 2007 and 2008).
•    Apprenticeship Opportunities Project (2006, 2007 and 2008).
•    Center for Working Families (2007).
•    Low-Income Car Ownership Project (2007).

22

                                        • State Auditor’s Office • Port of Seattle •

•    Free Tax Preparation for Individuals (2007).
•    Working Wheels (2006).
•    Women in Apprenticeship Study (2006).
•    Financial Education and Mentoring Project 2006).
The following factors make it difficult to know what the Port’s funding of Port
Jobs specifically supported:
•    Although Port contracts show which third parties were supposed to
receive money from Port Jobs, the contracts do not specify how the money
was to be spent by these third parties. Without such requirements, the Port
cannot verify or control the types of services it is supporting.
•    The contracts did not clearly identify the deliverables due to the Port, and
the Port paid Port Jobs without assessing whether required services had
been provided.
Port required contractors to contribute to Port Jobs
Between 2006 and 2008, construction companies directly donated about
$638,000 to Port Jobs under the Port’s requirement that contractors receiving
public works contracts of at least $1 million donate 20 cents per labor hour.
Payments totaled:
•    $270,685 in 2006.
•    $241,695 in 2007.
•    $125,647 in 2008.
Neither the law in effect at the time nor the Legislature’s 2010 revision permits
the Port to raise money for a nonprofit corporation. Similarly, the Port lacks the
authority to require contractors to donate to a nonprofit.
Port officials concede they probably paid higher costs than necessary for
public works projects, as contractors likely included the cost of the donation in
their bids.
After learning of a citizen’s concern in January 2008, the Port commissioned
an audit to determine whether the revenue generated by contractors’
contributions was used for its intended purpose. The audit report, issued on
August 20, 2008, determined the Port had set no criteria on how the 20 centper-hour
contribution was to be used by Port Jobs. The report also noted
internal differences of opinion among Port officials about whether the Port
was legally permitted to support Port Jobs activities.




23

                                        • State Auditor’s Office • Port of Seattle •
Port provided more than $500,000 in free office space and
general support to Port Jobs
Port Jobs has offices at Port headquarters and at SeaTac Airport. During the
period covered by the audit, the Port provided in-kind support valued at
$520,707 in the form of free office space and general office support to Port
Jobs. Support totaled:
•     $174,195 in 2006.
•     $167,941 in 2007.
•     $178,571 in 2008.
The amount of in-kind support provided to Port Jobs was not consistently
disclosed to the Commission or included in agreements with Port Jobs. In
2006, Port staff members informed the Port Commission that it was providing
in-kind support to Port Jobs, but the value of the support was not disclosed
to the Commission or stated in the agreements with Port Jobs. In 2007, only
$66,000 of the in-kind support was disclosed. In 2008, the amount of in-kind
support provided to Port Jobs was disclosed but not stated in the agreements.
Port failed to follow prudent business and accounting practices
We identified several additional shortcomings in the Port’s dealings with Port
Jobs that contradict prudent business and public-sector accounting practices:
•     The Port paid Port Jobs before it received documentation that contracted
services had been provided.
•     The Port allowed Port Jobs to occupy Port facilities before signed
agreements were in place. The 2006 service agreement was not signed
until February 2006. The 2007 agreements were not signed until July 2007,
and the 2008 agreements were not signed until September 2008.
•     Port Jobs staff rather than Port employees prepared contracts for services.
Our discussions with Port personnel indicated they perceive Port Jobs to
function as a department within the Port rather than as a legally separate
organization.
•     The Port funded social services programs for low-income residents that
were outside the scope of activities permitted by state law, such as free
income-tax preparation.
2010 legislation expands the range of permitted economic
development activity
Our auditors informed Port staff of concerns about the legality of the Port’s
contracts with Port Jobs. Shortly thereafter, legislation was introduced in the
state House of Representatives to permit the Port to support certain economic
development activities that were not specified in the original law.
Substitute House Bill 2651, which took effect June 10, 2010, added the
following language to the law:

24

                                        • State Auditor’s Office • Port of Seattle •

“Economic development programs may include those programs for job
training and placement, pre-apprenticeship training or educational programs
associated with port tenants, customers, and local economic development
related to port activities that are sponsored by a port, operated by a nonprofit
entity and are in existence on the effective date of this section.”
The new law also requires annual reports from nonprofit contractors to
document the number of workers and businesses served and other tangible
outcomes.
During public hearings, supporters said the bill was designed to respond
to the draft audit finding by clarifying the authority of the Port to contract
for some of the existing programs provided by Port Jobs, and particularly to
support such initiatives as pre-apprenticeship and skills training.
Recommendation 9
We recommend the Port revise its policies and procedures to establish and
enforce safeguards against inappropriate spending. The revised procedures
should:
•     Limit funding of Port Jobs to programs that are clearly within its legal
authority as stated in the 2010 legislation
•     No longer require construction companies to contribute to Port Jobs as
part of their construction contracts.
•     Ensure its agreements to clearly identify the scope of work and all related
deliverables.
•     Require Port Jobs and its partners to document all deliverables have been
provided before payments are made.
•     Disclose to the Port Commission the nature and value of all in-kind
support to Port Jobs or other nonprofit organizations. These amounts
should be reflected in the Port’s agreements with these groups.
•     Disallow any organization to operate from Port facilities unless an
agreement is in place authorizing them to do so.
Port failed to report losses of public funds, assets as required
State law requires state agencies and local governments to immediately report
all known or suspected losses of public funds or assets to the State Auditor’s
Office. The law does not set a dollar threshold for reporting. The Port has a
policy to ensure compliance with state law but Port department managers
have not reported losses as required.
Port managers reported 41 losses estimated at$107,000 to Port police – but
not to executive management, internal auditors or our Office – from January
2006 through March 2009. In addition, the Port terminated four employees for
other losses. Appendix C includes relevant laws and policies for loss reporting
and Appendix D has details of specific losses.
Our Office is responsible for investigating misappropriations of public
resources and has established an online loss-reporting process for all
government agencies. When governments do not immediately notify our
Office, our staff cannot act quickly and assure the public that losses have been
25

                                        • State Auditor’s Office • Port of Seattle •

properly investigated, restitution agreements made and law enforcement
agencies notified.
In previous audits, we noted the Port did not comply with state law in this
area and have recommended Port executives develop an effective reporting
system. For this audit, we reviewed three departments we judged to be the
most susceptible to misappropriation of property:
•    Information and Communication Technology: Although the Port has
policies on reporting losses, the Department was unaware of them and did
not have its own policies.
•    Aviation Maintenance Department: The Department required employees
to report lost equipment to their managers, but did not require managers
to report to the executive managers, internal auditors or our Office.
•    Marine Maintenance Department: Before June 2007, Department
managers were unaware of the state law regarding loss reporting. Once
they became aware, they updated policies and procedures. However, they
did not communicate them to employees.
Overall, we found:
•    The Port did not have consistent loss-reporting policies across all
departments.
•    The policy for reporting losses did not clearly state to whom employees
should report.
•    The departments did not adequately communicate policies to employees
and managers and did not make sure employees followed the policies.
•    Some Port executives believed they were not required to report small
losses to the State Auditor’s Office.
Recommendation 10
We recommend the Port Commission clarify and enforce policies on loss
reporting to ensure compliance with state law
Specifically, the Commission should:
•    Amend current Port policies to require all departments to report all known
or suspected losses to executive management, the Port’s internal auditor
and the State Auditor’s Office. The policy also should require the Port
Police Department to check with these parties to ensure they have been
notified when losses are reported to that Department.
•    Monitor compliance with Port policies to ensure they are followed.
•    Use a standard loss reporting form to notify executive management, the
internal auditor and the State Auditor’s Office.



26

   Appendix A: Initiative 900 Elements
Initiative 900, approved by Washington voters in 2005 and enacted into statelaw in 2006, authorizes the State Auditor’s Office to conduct independent,
comprehensive performance audits of state and local governments. Specifically
, the law directs the State Auditor’s Office to “review and analyze the economy
, efficiency, and effectiveness of the policies, management, fiscal affairs, and
operations of state and local governments, agencies, programs, and accounts.”
The law identifies nine elements we must consider within the scope of each
performance audit. We evaluate the relevance of all nine elements to each
audit.
The table below indicates how the elements are addressed in the Port of
Seattle audit:
I-900 Element                                       Addressed
1. Identification of cost savings                                     Yes
2. Identification of services that can be reduced or eliminated    No
3. Identification of programs or services that can be        No
transferred to the private sector
4. Analysis of gaps or overlaps in programs or services      Yes
and recommendations to correct gaps or overlaps
5. Feasibility of pooling information technology systems   Yes
within the Port
6. Analysis of roles and functions of the Port, and           Yes
recommendations to change or eliminate Port roles or
functions
7. Recommendation for statutory or regulatory changes   Yes
that may be necessary for the Port to properly carry out
its functions
8. Analysis of Port performance data, performance         Yes
measures, and self-assessment systems
9. Identification of best practices                               Yes







2727

   Appendix B: audit Methodology
In 2005, voters gave the State Auditor’s Office authority to conduct indepen-dent performance audits of local governments to promote accountability
and the cost-effective uses of public resources. Consistent with this authority,
we conducted this performance audit in accordance with generally accepted
government auditing standards as developed by the U.S. Government Accountability
Office. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
We conducted the audit as follows:
During the planning phase we interviewed Port staff, commissioners and
citizens to identify specific property transactions and practices to audit. We
interviewed personnel at the Seaport and Real Estate Divisions, and staff
in several other departments, including finance and internal audit. We also
reviewed the work performed by other external auditors.
During the fieldwork phase we gathered and analyzed audit evidence to
develop the issues identified during the planning phase. Specifically, we:
•    Analyzed business processes and practices related to strategic planning,
the establishment of fair market value, and the management of
information necessary to manage properties and those responsible for
them. Part of this work included examining the Port’s information systems
and how well they supported the management of leases and tenants.
•    Compared processes and practices to best practices, state laws and Port
policies, as required.
•    Reviewed records and other evidence to understand transactions
and assess performance, including the prices paid and received for
property and the quality of the analysis of property transactions and the
information presented to the commissioners.
•    Reviewed appraisals obtained by the Port and how the Port used them
to make purchase, lease and sale decisions. In such instances, our work
was limited to assessing how effectively the Port used the appraisals in its
decision-making. We did not audit the accuracy, completeness or basis of
the appraisals themselves, which were performed by licensed appraisers.
We conducted this audit with the assistance of two contractors – Thompson,
Cobb, Bazilio and Associates, and IMS Worldwide Inc. These audit and
consulting firms have significant knowledge of leading industry practices
for managing, purchasing and selling port real estate. They have extensive
experience with entities that are similar to the Port of Seattle in size, scope and
operations.  


2828

   Appendix c: Laws and Policies
Policies on property purchases and sales
The Port’s policies “Acquisition and Sale of Any Interest in Real Property” (AV/
MAR) RE-4 as of 11/08/94 regarding the acquisition and sale of any interest in
real property state:
“All property to be sold by the Port must be declared surplus prior to sale by
resolution of the Port Commission.
Port properties will usually be a part of the Port’s Comprehensive Scheme of
Harbor improvements at the time they are considered for sale. If property is in
the Comprehensive Scheme, the Comprehensive Scheme must be modified
prior to sale by resolution of the Port Commission to declare the property no
longer needed for Port purposed and surplus to Port need.”
When establishing the property value, Port staff should use processes that allow it
to understand and accurately determine the value of its property. These processes
should include the use of accurate property appraisals and due diligence
reviews. This includes understanding and accurately presenting the impact of
environmental hazards and remediation costs on the value of the property.
Regarding the valuation of property and the reconciliation of differing
appraisals, Port policy states:
“Surplus real property should be sold for not less than fair market value as
established by a Port-retained appraiser with the qualifications set forth in
Section II above, provided, however, it is recognized that a sales price may
need to be negotiated based on estimates of value made by Port retained and
purchaser retained appraisers.”
Contracts with Port Jobs
State Law
RCW 53.08.245
“It shall be in the public purpose for all port districts to engage in economic
development programs. In addition, port districts may contract with nonprofit
corporations in furtherance of this and other acts relating to economic
development.”
RCW 42.24.080, states in part,
(1) All claims presented against any…municipal corporation…by personas
furnishing materials, rendering services or performing labor, or for any
contractual purpose, shall be audited, before payment, by an auditing
officer…. Such claims shall be prepared for audit and payment on a form and
in the manner prescribed by the state auditor. The form shall provide for the
authentication and certification by such auditing officer that the materials have
been furnished, the services rendered, the labor performed as described, or that
any advance payment is due and payable pursuant to a contract...and that the
claim is a just, due and unpaid obligation against the municipal corporation….
No claim shall be paid without such authentication and certification.
RCW 43.09.200 requires adequate records be maintained to show how
revenues and expenses served a public purpose. It states in part:
“..all receipts, vouchers, and other documents kept, or required to be kept,
necessary to isolate and prove the validity of every transaction..”
2929

                                            • Appendix • Port of Seattle •
Loss Reporting
State Law
RCW 43.09.185:
“State agencies and local governments shall immediately report to the state
auditor’s office known or suspected loss of public funds or assets or other
illegal activity.”
RCW 43.09.260, states in part:
“..It shall be unlawful for any local government or the responsible head
thereof, to make a settlement or compromise of any claim arising out of such
malfeasance, misfeasance, or nonfeasance, or any action commenced therefor,
or for any court to enter upon any compromise or settlement of such action,
without the written approval and consent of the attorney general and the state
auditor.”
Port of Seattle Policy
Port Policy Executive EX-18 Fraud Awareness & Prevention, Loss of Public
Funds & Assets, states in part:
II. Details:
A. Purpose
2. To comply with RCW 43.09.185, that requires State agencies and local
governments to immediately report any known or suspected loss of public
funds or assets to the State Auditor’s Office (SAO).
B. Requirements
1. Losses required to be reported – Irregularities that reasonably
leads a Port employee to suspect a loss of Port funds or assets due to
misappropriation or fraud, must be reported in accordance with this
policy. This includes all suspected losses, including those that have
occurred in the past but only recently become apparent.
2. Materiality of reportable losses – All suspected and known losses shall
be reported in accordance with this policy, regardless of amount. The full
exposure to the Port can only be determined by a thorough investigation.
3. Losses not required to be reported – Consistent with SAO guidance, the
following are not considered losses reportable under this policy. However,
those in leadership positions for the related operations are responsible to
monitor such activities for unreasonable irregularities and take action in
accordance with this policy as necessary.
a. Normal and reasonable “over and short” situations from cash
receipting operations. These transactions are to be recorded in
the accounting system as miscellaneous income and expense,
respectively, and monitored by cashier for any unusual trends.
b. Reasonable inventory shortages identified during a physical count.
These inventory adjustments are to be recorded in the accounting
system and monitored accordingly.
C. Fraud Response Committee
7. At the point it is suspected or known that a loss of public funds or Assets
or fraud has occurred, the Internal Audit Manager shall Immediately notify
the SAO in accordance with RCW 43.09.185.

30

   Appendix D: Details of Property Losses
The following losses totaling $107,000 were reported to Port of Seattle police betweenJanuary 2006 and March 2009:
•    Information and Communications Technology: $36,900 worth of assets, including 29
computers.
•    Aviation Maintenance: $25,300 worth of assets, including copper wire, aluminum
window frames and a pressure washer.
•    Construction Services: $20,800 worth of assets, including copper wire and three drills.
•    Aviation Facilities and Infrastructure: $8,500 worth of assets, including a projector.
•    Seaport Maintenance: $6,100 worth of assets, including steel cables and copper
pipes.
•    Harbor Services: $2,600 worth of assets, including four computers.
•    Seaport Administration: One laptop and accessories valued at $2,165.
•    Labor Relations: One computer estimated at $1,500.
•    Aviation Security: 300 blank security badges estimated at $1,200.
•    The Police Department: Two handguns estimated at $1,100.
•    Aviation Landside: $608 lost when customers did not pay for airport parking.
•    Aviation Project Management: Three digital cameras valued at $260.
•    Engineering Services: Two rain jackets and a pair of boots valued at $110.
•    Aviation Planning: Two computer chips valued at $40.
In addition, the Port managers:
•    Terminated two employees for falsifying time cards in 2008. The losses totaled
$395. The Port recovered $297 by deducting the falsely reported hours from one
employee’s vacation leave balance. The Port provided restitution agreements to our
Office on June 30, 2009 for these employees. The Port was aware of these falsified
timesheets in July 2008. The State Auditor’s and Attorney General offices did not
approve these agreements as required by state law. The Port did not seek repayment
for the remaining $98 from the second employee.
•    Terminated one employee for falsifying information in order to obtain a vanpool
participation voucher valued at $20. The Port did not seek reimbursement.
•    Terminated one employee for allowing an airline employee to use a Port-issued
parking card. The airline employee used the parking card to exit the airport parking
garage without paying. The Port was unable to determine the amount of loss and did
not seek reimbursement.
•    Delayed its reporting of losses to the State Auditor’s Office. For example, the Port
failed for almost two years to report the October 1, 2007 loss of a pipe threading
machine valued at $1,200. The loss was reported to us on July 6, 2009.



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   Appendix E: Leases examined in Section 3
Seaport Division
We examined the following Seaport Division properties and associated leases
and amendments:
•     SSA Terminals 859 at Terminal 25
•     Cruise Terminals of America 975
•     Cruise Terminals of America first Amendment
•     Long-Term Preferential Berthing Agreement
•     Customer Support Amendments
•     Trident Seafoods 154
•     Carnitech Agreement 1010
•     Carnitech Agreement 1517
•     City Ice Agreement 1481
•     City Ice Agreement 594
Real Estate Division
We examined the following Real Estate Division properties and associated
leases:
•     Department of Homeland Security (Office Space) T102
•     Marine Terminals Corporation at T102 (Commercial)
•     Puget Sound Institute at T102 (Office and Laboratory)
•     Starbucks (Office Space and Warehouse) at T102
•     Virtuoso, Ltd. (Office Space) T102
•     Republic Parking Garage at P66
•     Republic Parking Surface Lot at P66
•     Carlson Insurance (Office Space) at FT
•     Mad Anthony’s Restaurant at FT
•     Mad Anthony’s Restaurant at Pier 66
•     M.T. Housing, Inc. (Industrial Use) at T91



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   Appendix F: Port of Seattle Response

November 24, 2010 

The Honorable Brian Sonntag 
Washington State Auditor 
P.O. Box 40021 
Olympia, Washington 98504-0021 

Dear Auditor Sonntag, 
Attached please find the Port of Seattle’s response to the 2009 performance audit of real estate
management and selected program performance. We appreciate the opportunity to provide our
feedback.
The Port of Seattle Commission is an elected body ultimately responsible for establishing policy for the
organization, doing so only after discussion in a public meeting. As a result, the commission must
approve the port’s final response to any audit involving policy or recommendations suggesting
commission action, and must do so in public. Current SAO procedures prevent such discussion, as
responses must be submitted to your office prior to publication of the audit report.
Port staff members have prepared a thorough response to the recommendations made in the report.
However, as commissioners must both finalize the port’s response in public session and determine
responses to policy recommendations, the Port of Seattle Commission may provide additional responses
to those recommendations specifically directed to them at a later date.
Sincerely, 


Bill Bryant                                           Tay Yoshitani 
Commission President                        Chief Executive Officer 



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                                            • Appendix • Port of Seattle •



Port of Seattle Response 
Performance Audit of Real Estate Management and Selected Program Performance 
Overall response: 
The performance audit conducted in 2009 by the State Auditor’s Office covers events that date back as
far as 2004. The Port of Seattle is a very different organization in 2011, with a new CEO, a new board of
commissioners, two new divisions, and a centralized procurement process. Commission oversight of
port operations is more robust.
The Port of Seattle Commission is an elected body ultimately responsible for the port’s performance,
and the commission as a body must approve the port’s final response to any audit involving policy or
recommendations suggesting commission action in public. Because SAO procedures require that public
discussion only be held once the audit is finalized and released, further response may be provided by
the commission at a later date. 
Commissioners and staff members appreciate the opportunity to work with the State Auditor’s Office
during this performance audit.
SAO Recommendation No. 1 - We recommend the Port complete its Century Agenda as soon as
possible and include the following elements: 
• Specific goals and objectives to use real estate holdings to achieve financial security and
promote economic development and community stewardship. The Port needs to set
priorities and clarify the sometimes conflicting direction of Strategy 21’s guiding principles.
For example, the importance of generating revenue may conflict with the need to provide
financial incentives to attract job-creating industries. The absence of priorities can create
inconsistent and unclear decisions that do not align with long-term goals. These conditions
may have contributed to the unexplained inconsistencies in lease rates and rate hikes
discussed in Section 3. 
• Identification of the specific types of businesses and industries – outside of traditional air- 
and sea-related companies – that the Port wants to secure and maintain as short- and longterm
tenants.
• Goals and objectives that describe how the Port can best use its real estate to compete
with other West Coast ports for tenants, industries and importers/exporters. 



34

                                            • Appendix • Port of Seattle •

Port Response to Recommendation No. 1: At the commission’s direction, the scope and timeline of the
Century Agenda were extended to ensure that the new strategic plan fully addresses the challenges
facing the Port of Seattle in the coming decades. While the Century Agenda process remains underway,
commissioners have used the real estate and land use guiding principles already developed to evaluate
real estate transactions since August of 2009, when they were formally adopted. The Century Agenda
process will be completed as planned in 2011, the port’s centennial year. 
SAO Recommendation No. 2 - To ensure clear and consistent real estate management, we
recommend the Port clarify the responsibilities of the Real Estate and Seaport divisions and
improve the enforcement of its policies and procedures. 
It is equally critical for senior managers to improve oversight of Port property transactions and to
monitor employees’ compliance with new policies and procedures.
Port Response to Recommendation No. 2: CEO Tay Yoshitani established the Real Estate division in
2008 to bring more focus to managing the port’s real estate portfolio. Responsibilities within the
relatively new division continue to evolve. This recommendation is timely and managing directors of the
Seaport and Real Estate divisions have begun work to further clarify roles and responsibilities. 
SAO Recommendation No. 3 – We recommend the Commission assert the same level of authority
over real estate transactions that it established in Resolution 3605 for construction management.
In this audit, we identify conditions in which Port managers do not always provide complete and
accurate information that the Commission needs to make sound real estate decisions. The
Commission needs to ensure staff collect, track and convey key information related to the cost and
benefits of the leases to the Commission. 
In the long-term, an updated strategic management plan approach may call for further
reorganization of these divisions to ensure that policies, procedures and daily operations contribute
to achieving the Port’s vision and goals. As the Port updates its strategic plan, it may want to
reassess its division of responsibilities over real estate property management. 
Port Response to Recommendation No. 3: The Port of Seattle Commission establishes policy for the
organization and will determine final response to this recommendation after further review and
discussion. Because SAO procedures require that public discussion only be held once the audit is
finalized and released, further response may be provided by the commission at a later date.
Resolution 3605 does establish authority and protocols for real estate transactions in sections two and
three of the document. 
SAO Recommendation No. 4 - To strengthen its oversight of property sales and purchases, we
recommend the Port Commission adopt and enforce policies that require staff to perform and
document the following efforts: 



35

                                            • Appendix • Port of Seattle •


• Regularly and thoroughly analyze the Port's current and future property needs in the
context of the goals and objectives of a long-term strategic plan. These ongoing analyses
should clearly describe the justification for all purchases and sales. Properties with no
current or future need should be declared surplus and made available for sale. The Port
should not declare property surplus simply to expedite a sale.
• Review in detail all property value appraisals and determinations by Port staff involved in
the property sale or purchase. This should also include a concurrent review by the Port's
chief financial officer to ensure the appraisal is fully understood. When it buys and sells
property, the Port should use current appraisals to establish and negotiate a good fair
market price. 
• Perform complete financial and risk analyses of the purchase that include remediation
costs, potential ownership costs and environmental conditions. 
• Scrutinize information from staff to ensure it is adequate and complete and decide on
purchases and sales in an open public meeting.
• Effectively market and advertise the availability of Port property to allow multiple
purchasers an equal opportunity to buy it in order to achieve the best purchase price. 
Port Response to Recommendation No. 4: The Port of Seattle Commission establishes policy for the
organization and will determine final response to this recommendation after further review and
discussion. Because SAO procedures require that public discussion only be held once the audit is
finalized and released, further response may be provided by the commission at a later date.
As noted by the auditors, port real estate sales or purchases are relatively rare - four instances in 
seven years. Commissioners and staff members discuss these transactions repeatedly while they
are under consideration, and staff members provide all information requested by the port’s
governing body.
During the annual budget process, commissioners discuss and approve long-term plans for port real
estate assets. Property is rarely sold; rather, when there is no immediate use to support port
business operations, land is leased under long-term agreements so that the port receives ongoing
revenue from the property. While final decisions on sale, purchase, or lease agreements are made
in public session, discussions regarding active negotiations are protected by Washington law and
may happen in executive session.
When auditors first asked about the Eastside Rail Corridor transaction, CEO Yoshitani noted that
negotiations with BNSF Railway and possible partner agencies were already underway. The port
was committed to placing the corridor into public ownership, and these negotiations ultimately
lowered the purchase price and included multiple partners in the transaction. These efforts
preceded the audit fieldwork and are not the result of auditor recommendations. 


36

                                            • Appendix • Port of Seattle •

SAO Recommendation No. 5 - Port Commissioners should establish a comprehensive strategy for
each real estate asset and operating procedures to ensure prospective transactions are evaluated
against those strategies. Specifically, the staff should: 
• Develop a written asset management plan and strategies for each real property consistent
with the Port’s overall real estate strategy. 
• Establish and document its desired business terms before negotiations are initiated for
large complex transactions. 
• Measure, evaluate and document the proposed business terms against whether the
property use, lease terms, property improvements and tenant incentives are consistent
with the Port’s long-term interests. 
• Use standardized analytical tools to assess the degree to which the proposed tenancy fits in
with the Port’s asset management plan. 
Port Response to Recommendation No. 5: The Port of Seattle Commission establishes policy for the
organization and will determine final response to this recommendation after further review and
discussion. Because SAO procedures require that public discussion only be held once the audit is
finalized and released, further response may be provided by the commission at a later date.
As noted under Recommendation 1, the Century Agenda process will be completed in 2011, but
commissioners adopted the recommended land use and real estate guiding principles in 2009 and
use those to evaluate real estate transactions. In addition, plans for the port’s real estate portfolio
are evaluated and approved annually during the budget process. 
Port staff members evaluate management plans for specific assets regularly, through the annual
budget planning process, during lease negotiations, and when vacancies occur. As discussed with
auditors, the port has specific competitive process and financial analysis expectations for long-term
(more than ten years) lease negotiations. Real estate staff members have proposed additional
policy guidelines for these leases. 
Documentation of early lease discussions could be improved. The division has used a standardized
lease analysis template since mid-2009 to better analyze and track the business terms and financial
return to the port for all new lease transactions. 
SAO Recommendation No. 6 - Port Commissioners should establish policies and procedures
designed to ensure that (1) rental rates reflect fair market value and consistent lease pricing, and
(2) financial analyses enable the Commission to negotiate acceptable rates of return. 
Procedures to set rental rates should require staff members to: 
o  Treat similar properties consistently and follow the private sector practice of adjusting
rental rates over the term of the leases. 


37

                                            • Appendix • Port of Seattle •

o  Obtain Commission approval for any lease whose rent does not reflect the prevailing
market rate and provide a rationale consistent with the Port’s strategic goals and
mission. 
o  Obtain Commission approval for leases that are extended or renewed for combined
periods that exceed five years. 
o  Establish methods to formalize and document the type and frequency of market
analyses required for each lease. These methods should address the risks associated
with changes in market conditions and over-reliance on third-party brokers. 
o  Establish a comprehensive marketing strategy that exposes properties to the greatest
number of potential tenants. 
o  Suspend negotiations with a prospective tenant who is unwilling to pay fair market
rent, and aggressively market the property to other potential tenants. 
o  Fully document all lease decisions. 
Financial analysis procedures should require Port staff to: 
o  Prepare financial analyses of leases and capital projects early in the process when
internal discussions begin. The financial analyses should consider all costs associated
with a given asset so the Port can measure its performance against the asset
management plan. The Port should continue to develop, improve and use rigorous,
standardized financial analysis tools. 
o  Prepare a written narrative that describes all relevant facts and assumptions used in
the analysis, including the basis for revenue assumptions, tenant selection, land and
asset values and evaluation of alternatives. 
o  Require property managers and analysts to discuss and evaluate alternatives for the
use of the land/assets. 
o  Calculate the projected benefits of the lease using both an “all in” approach (includes
new capital expenditures, fair market value of all land and all existing assets, and all
lease revenue) and an operational costs-and-revenue approach. 
o  Develop an independent review system that results in reports to the Commission. The
individual who does this should review and verify information provided to the
Commission regarding property transactions. This party would provide in writing: 
 A narrative describing all its relevant facts and assumptions, the method of
evaluation, alternatives studied, and the overall conclusion of the financial
analysis. 
 An independent review of the financial data prepared by the Division and
verification as to its completeness and accuracy for major transactions. 
 A recommendation to approve or reject the proposal. 



38

                                            • Appendix • Port of Seattle •

Port Response to Recommendation No. 6: The Port of Seattle Commission establishes policy for the
organization and will determine final response to this recommendation after further review and
discussion.  Because SAO procedures require that public discussion only be held once the audit is
finalized and released, further response may be provided by the commission at a later date.
Rental and lease rates: The direction to establish lease rates that are both consistent and pegged to fair
market value seems contradictory; by its nature, fair market value changes often and if lease rates are to
be pegged to those fluctuating values, they will not be consistent. Current policy is to consider first,
how use of a facility contributes to the port’s overall mission of job generation and economic
development; and second, how best to achieve the greatest short- and long-term value to the
organization for specific properties.
Financial analysis: The port uses the incremental cash flow analysis model – a well-established financial
model used widely in both the public and private sectors. The incremental cash flow model includes all
of the cost and revenue components prescribed by the auditors except fair market value. The port
rarely sells a real estate asset; fair market value is typically considered relevant when a sale is under
consideration. The financial analysis provided to commissioners and executives has been accurate and
correct under the model currently used.
The auditors prefer a different model used by other agencies, including some ports, but have not
provided guidance as to how a change in the model would result in better decision making or provide
more accurate information to commissioners. 
The port will improve documentation of financial analysis performed for leases that do not require
commission approval and of evaluations considered by property management staff. The port has, and
staff members follow, policies regarding providing written details, reviews, and recommendations of the
financial analysis performed. Commission memos used to brief commissioners prior to final action
contain only the key components of the analysis performed, but commissioners may ask (and often do)
for additional information which staff members readily provide. 
SAO Recommendation No. 7 - To better safeguard its assets and income related to the Seaport’s
leased cranes, we recommend the Commission revise its procedures to require Port staff to: 
o  Verify that reported container crane use is accurate. The most practical verification
method is to periodically compare longshoreman/operator use data with data reported
by the operator through the Seaport Division's Crane billing system. 
o  Inspect the cranes annually. The Port should consider hiring or contracting for crane
specialists to do the inspections if it determines that reprioritizing the current staff’s
workload will not enable it to do so with current staff. 
o  Audit crane logs, reports and records of maintenance performed. 
Port Response to Recommendation No. 7: The port is currently updating the automated crane billing
process and will use that opportunity to implement additional audit procedures as recommended by the
auditors.


39

                                            • Appendix • Port of Seattle •

Currently, the port conducts annual inspection and certification of all port-owned cranes, and conducts
a structural inspection of those cranes every five years. Though there is no evidence to suggest that
tenant maintenance of cranes has been lacking or caused additional costs to the port, inspection
procedures will be reviewed to determine how they might be improved. 
SAO Recommendation No. 8 - To better safeguard its billings and receipts at the Fishermen’s
Terminal, we recommend the Port: 
• Segregate duties to ensure the same employees cannot enter customers, make
adjustments to customer accounts, and receipt payments from customers in MMS. 
• Require supervisory review of adjustments to customer accounts in the MMS that affect
billing rates. 
• Restrict access to make adjustments and apply payments to customer accounts to
employees who need it as part of their regular job duties. The Port have reports containing
vessel length and moorage classification for use when reviewing billing information for
accuracy. 
Port Response to Recommendation No. 8: Effective internal controls for billing and receipts at all port
facilities are a priority, as is good customer service. Fisherman’s Terminal operates 24 hours a day,
seven days a week, and customers and tenants sometimes need to pay bills or conduct other business 
outside of regular business hours; because of that, many staff members were authorized to perform
those tasks. However, in light of auditor recommendations, duties have been segregated to the extent
practical, supervisory review has been strengthened, and system access has been restricted. 
SAO Recommendation No. 9 - We recommend the Port revise its policies and procedures to
establish and enforce safeguards against inappropriate spending. The revised procedures should: 
• Limit funding of Port Jobs to programs that are clearly within its legal authority as stated in
the 2010 legislation 
• No longer require construction companies to contribute to Port Jobs as part of their
construction contracts. 
• Ensure its agreements to clearly identify the scope of work and all related deliverables. 
• Require Port Jobs and its partners to document all deliverables have been provided before
payments are made. 
• Disclose to the Port Commission the nature and value of all in-kind support to Port Jobs or
other non-profit organizations. These amounts should be reflected in the Port’s
agreements with these groups. 
• Disallow any organization to operate from Port facilities unless an agreement is in place
authorizing them to do so. 
Port Response to Recommendation No. 9:  In early 2010, the Washington State Legislature passed
legislation clarifying the port’s ability to participate in programs such as Port Jobs. The new contract
with Port Jobs is clear about the scope of work expected and reflects all in-kind support. On new


40

                                            • Appendix • Port of Seattle •

construction contracts, companies are no longer required to contribute 20 cents per hour toward the
pre-apprenticeship program designed to develop a workforce skilled in the trades. 
SAO Recommendation No. 10 - We recommend the Port Commission clarify and enforce policies
on loss reporting to ensure compliance with state law 
Specifically, the Commission should: 
• Amend current Port policies to require all departments to report all known or
suspected losses to executive management, the Port’s internal auditor and the State
Auditor’s Office. The policy also should require the Port Police Department to check
with these parties to ensure they have been notified when losses are reported to that
Department. 
• Monitor compliance with Port policies to ensure they are followed. 
• Use a standard loss reporting form to notify executive management, the internal
auditor and the State Auditor’s Office. 
Port Response to Recommendation No. 10:  The Port of Seattle Commission establishes policy for the
organization and will determine final response to this recommendation after further review and
discussion.  Because SAO procedures require that public discussion only be held once the audit is
finalized and released, further response may be provided by the commission at a later date.
The loss of port property or resources is always a serious matter.  In 2008, the port implemented
Executive Policy EX-18, which establishes protocols for fraud awareness and prevention, and for
reporting the loss of public funds and assets.  In 2010, the port’s newly-formed Workplace
Responsibility Office developed a code of conduct, read and signed by all port employees; two of the
policies included in that document supersede EX-18 and further clarify employee responsibility for fraud
awareness and prevention and loss prevention. The Port of Seattle Police Department provides a
monthly report that details any damages to port properties or losses to internal auditors.
The Workplace Responsibility Office is currently working with the port’s internal audit, legal, risk
management, information technology, and police departments to streamline reporting procedures and
further train staff members.






41

   Appendix G: State Auditor’s Response
The Port of Seattle’s response to the audit findings and recommendations is shownin Appendix F. The State Auditor’s Office provides the following comments to that
response.
Regarding the Port’s response to Recommendation 4
The State Auditor’s Office communicated concerns about the purchase price to
Port officials on October 9, 2009. On November 2, 2009, the Port responded: “It is
premature to reach conclusions with regards to an event that has not occurred.”
On January 13, 2010, Port officials told the State Auditor’s Office that the price had
been reduced after several days of negotiations, which began in late October 2009.
Regarding the Port’s response to Recommendation 6
The State Auditor’s Office believes that leases of similar properties initiated at
similar points in time should have rent rates that are consistent and in line with fair
market value.













4242






State Auditor’s Office Contacts
State Auditor Brian Sonntag, CGFM 
(360) 902-0361 
Brian.Sonntag@sao.wa.gov

Larisa Benson              Mindy Chambers 
Director of Performance Audit   Director of Communications 
(360) 725-9720                        (360) 902-0091 
Larisa.Benson@sao.wa.gov      Mindy.Chambers@sao.wa.gov

To request public records from the State Auditor’s Office:
Mary Leider
Public Records Officer 
(360) 725-5617 
Mary.Leider@sao.wa.gov 
General information
Headquarters                             Website
(360) 902-0370                          www.sao.wa.gov
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http://apps.leg.wa.gov/districtfinder


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43