Report No. 100008

SAO
AO Annual Report Summary
July 1, 2009
Vol. I

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PORT PERFORMANCE AUDIT ACTION SUMMARY
Recommendations
OA-1
OA-2
1
2
3
4
5
6
7
8
9
10
11
12
13
14
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16
17
18
19
20
21
22
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24
25
26
27
28
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Port Response

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12/07
6/14/08 | 5/22/09

Introduction 3

Recommendations
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4 Introduction

Port Response

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1/1/08

KEY TO SUMMARY TABLE:
Green Diamond [♦]

The Port agrees fully with this recommendation, and has/will implement reforms as
stipulated in the original audit report.
In its original response, the Port agreed with 39 of the auditor’s 51 recommendations;
however, upon further review, the Port also agreed with the Recommendation 49,
bringing the total to 40.

Blue Diamond [♦]

While the Port did not fully agree with the recommendation as it was stated in the
report, we agree the underlying intent of the recommendation has merit.
The Port partially agreed with 6 of the report’s 51 recommendations.
The Port has/will implement reforms designed to meet the underlying intent of the
recommendation through a combination of the auditor’s recommended steps and/or
alternate methods as stated in the attached SAO Annual Report Summary.

Red Diamond [♦]

The Port disagrees with this recommendation, either because it believes the underlying
assumptions are incorrect (such as the use of a particular type of software) or because
it disagrees with the auditor’s interpretation of data.
The Port disagreed with 5 of the 51 recommendations contained
in the auditor’s report.
contai
However, members of the organization have worked
address the intent behind
ed to addr
the recommendations, and implement reforms
ms designed
designed to allay those underlying
concerns. The Port’s action plan has/will implem
implement reform
orm actions that relate to the
underlying intent of the recommendation.
These ref
reforms include
the revision of policies
ndat
incl
and procedures, completion of reforms
prior
eforms already
eady underway
un
prio to the audit report, or
review of technology systems
used and available improvements.
system currently
rrently use

As of April 21, 2009 the Port
rt of Seattle has
as completed the actions related to this Performance Audit
as described in the Port’s “State
tate Auditor
Audit Report Responses and Action Plan.”
The Recommendations previously reported in the Port’s Annual Report dated July 1, 2008 are
greyed out with a transparent bar.
This report covers recommendations OA-2, 2, 5, 7, 8, 9, 11, 13 thru 21, 24 thru 26, 33, 34, 37, 43, 44,
47 and 48.

Introduction 5

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Report No. 100008

SAO Annual Report Summary
July 1, 2009

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Sum:8 • SAO Annual Report Summary

The table below addresses 51 recommendations submitted to the Port of Seattle following the Washington State Auditor’s Office report focusing on Port construction practices. The first two
recommendations, shown in blue (OA1, OA2), are overarching for the Port in general, and others, numbered 1–49, are specific to construction and contracting practices.
SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

OA1. The Port should establish a
senior-level Chief Procurement Officer
(CPO) position. This official should
report directly to the [Port] CEO
and be responsible for managing
and overseeing all procurementrelated activity. This official should
have authority to hire trained and
independent procurement officials
who will be charged with reviewing
and approving all procurement-related
transactions. Current delegations of
authority related to procurement –
contract awards, approval of contract
changes and amendments, and
related activities involving expenditure
of public funds related to construction
and construction management –
should be rescinded and re-assigned
to the CPO and her or his staff.

The Port agrees this recommendation
has merit. A team is in place, and work
is already underway to identify and
evaluate procurement models in other
organizations that engage in major
construction projects. With the help
of an outside facilitator experienced
in capital project delivery, the team
is reviewing and analyzing several
options for mission, role, personnel,
reporting location, and structure of a
Chief Procurement Office (or similar
functional unit) over the next several
weeks. The Port’s CEO has asked the
team to provide him with an outline of
options and a preferred recommendation
within 90 days. A necessary period of
implementation planning will follow, but
the CEO anticipates that the new unit or
department can be operational by June
1, 2008. The working team includes
representatives from the Port’s executive,
legal, project management, engineering,
and purchasing staffs.

Port Chief Executive Officer (CEO) directed
Port staff to review options and best practices
for procurement systems, and recommend
organizational and process change to CEO by
March 15, 2008.
OA1.a Outside facilitator with extensive
procurement expertise hired in
November 2007.
OA1.b Internal Procurement
Recommendation Team assembled
in December 2007. Team includes
representatives from major procurement
centers within the Port.
OA1.c Procurement Recommendation Team
meets weekly.
Implement functional centralized
procurement office.
OA1.d Prepare job description, advertise,
vertise
and select Chief Procurement
urem
Officer.
OA1.e Complete necessary
cessary org
organizational
zational
logistics.
cs.

Contact
Person
Linda Strout
Deputy CEO

Completion
Date
6/13/08

Action Taken / Status
OA1.a. In November 2007 the Port obtained the services
of an outside facilitator with extensive procurement
expertise who led a planning process that defined
roles, responsibilities, and related position descriptions
for the new Central Procurement Office. In addition,
CEO Tay Yoshitani began the process of establishing
a Capital Development Division to oversee the Central
Procurement Office – a step designed to govern the
Port’s procurement practices in a more robust manner
than what is included in the recommendation.
OA1.b. December 20, 2007 through March 8, 2008 the Internal
Procurement Team was assembled by the Deputy CEO.
OA1.c. December 20, 2007 through March 8, 2008 the
Internal Procurement Team met weekly.
OA1.d. On March 15, 2008 the Central Procurement Office
functions, responsibilities, and staffing were sufficiently
defined and a job description for a Chief Procurement
Officer was prepared.
On March 19, 2008 Dwayne Lee was appointed interim
Chief Procurement Officer and the Central Procurement
Office was made functionally active on March 20, 2008.
On March 21, 2008 the position description was posted and
advertised for a permanent Chief Procurement Officer.
On May 7, 2008 the process of interviewing for a Chief
Procurement Officer was completed.
On June 12, 2008 the new Director of the Central
Procurement Office, Nora Huey, was announced. A
licensed attorney, Ms. Huey has significant experience in
contracting and procurement practices. Her first day of
work was June 30, 2008.
0A1.e. On February 28, 2008, CEO Yoshitani announced the
creation of the Capital Development Division to oversee the
Central Procurement Office as well as existing engineering
and construction functions with in the organization.
On March 20, 2008 the Port functionally established a
Central Procurement Office and consolidated procurement
functions and activities within this new organization.
April 7, 2008 through May 5, 2008 the organizational
logistics, roles and responsibilities of the Central
Procurement Office were announced Port wide via email.
As of June 3rd the Capital Development Division was
functionally established.
On August 11, 2008 Ralph Graves began working for the
Port of Seattle as the Managing Director of the Capital
Development Division.

SAO Annual Report Summary • Sum:9

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

OA2. The [Port] Commission
should re-evaluate the current
Delegation of Authority to the [Port]
CEO (encompassed in Resolution
3181) and develop and issue a new
Delegation of Authority resolution that
more clearly defines the Commission’s
intent with respect to construction
management and reporting to
the Commission and the public
concerning construction activities.

Resolution 3181 is the structural
framework underlying the relationship
between the Port Commission and
the CEO. Resolution 3181 was
adopted in 1994. It has remained
substantially unchanged for the past
13 years. However, only one of the five
Commissioners who voted on and signed
Resolution 3181 remains in office. A
change of CEO occurred earlier this
year. Given these circumstances, it is
appropriate that the Commission and the
CEO review the provisions of this bedrock
document. Ultimately, the Commission,
in conversation with the CEO, will strike
the balance between policy direction and
implementation, as well as other matters
concerning the scope of the CEO’s
authority. To advance that effort, the CEO
has asked members of his executive
team, led by the General Counsel, to
provide him with recommendations for
updating, clarifying and strengthening a
variety of provisions in Resolution 3181
within 90 days. The CEO has directed
the team to give specific attention to
the results of this performance audit
and the 49 resulting recommendations.
In particular, the team is charged with
providing specific recommendations for
process improvements and enhanced
checks and balances for project-wide
contracting authority, as well as increased
public visibility and Commission
participation for larger construction
projects. The CEO then will share these
recommendations with the Commission.

On January 8, 2008, the Port Commission
established a subcommittee to review the
delegation of Commission authority currently
described in Resolution 3181.
OA2.a Commissioners Davis and Tarleton
will serve on the subcommittee.
OA2.b Subcommittee may retain outside
experts.
OA2.c Subcommittee will report back
to full Commission with proposed
amendments by June 30, 2008.
CEO directed Port staff to review and
provide detailed recommendations for
changes to the Resolution 3181 provisions
related to construction management and
construction activity reporting by March 15,
2008.
OA2.d Internal team assembled and
meeting to review specific provisions
ns
and processes.

Contact
Person
Commissioners
Davis/Tarleton

Completion
Date
7/22/08

Action Taken / Status
OA2.a. On January 8, 2008, the Port Commission passed
a motion establishing a subcommittee to review
delegation of the Commission’s authority throughout the
organization. Commissioners Davis and Tarleton agreed
to lead the subcommittee, and invited several members
of the public with expertise in governance structures to
serve as panelists assisting the subcommittee. Phyllis
Campbell, President, The Seattle Foundation, Thomas
L. Purce, President, The Evergreen State College, Jim
Warjone, Chairman, Port Blakely Companies and current
chair of the Seattle Chamber of Commerce, and Shan
Mullin, Partner, Perkins Coie, accepted the invitation
and agreed to assist Commissioners Davis and Tarleton
in revising Resolution 3181, the document governing
delegation of Commission authority.
On May 1, 2008 the Subcommittee held its first hearing
to accept public comment on proposed changes to the
Delegation of Authority.
On May 13, 2008 the Port opened a 30 day public
comment period on the Delegation of Authority.
On June 10, 2008 the Port extended the public comment
period to June 30, 2008. Also the Subcommittee held its
second hearing to accept public comment on proposed
changes to the Delegation of Authority. At the same time
the Port invited employees to comment on the subject.
On June 23, 2008 the Subcommittee held its third
hearing to accept public comment on the proposed
changes to the Delegation of Authority.
OA2.b. On May 1, 2008 the Subcommittee held its first
hearing to accept public comment on proposed changes
to the Delegation of Authority.
On June 10, 2008 the Subcommittee held its second
hearing to accept public comment on proposed changes
to the Delegation of Authority.
On June 23, 2008 the Subcommittee held its third
hearing to accept public comment on the proposed
changes to the Delegation of Authority.
OA2.b. Phyllis Campbell, President, The Seattle Foundation,
Thomas L. Purce, President, The Evergreen State
College, Jim Warjone, Chairman, Port Blakely
Companies and current chair of the Seattle Chamber
of Commerce, and Shan Mullin, Partner, Perkins
Coie, assisted Commissioners Davis and Tarleton in
developing Resolution 3606, the document governing
delegation of Commission authority. Resolution 3605
replaced Resolution 3181.

Sum:10 • SAO Annual Report Summary

SAO Recommendation Dec 2007
OA2. cont.

Original Port Response Dec 2007

Actions Taken

Contact
Person

Completion
Date

Action Taken / Status
OA2.c. Commissioners Davis and Tarleton have spent
multiple hours with Port staff discussing best practices
for organizational governance. On July 1, 2008 the
Subcommittee reported to the full Commission and
presented a summary of recommended changes to the
Delegation of Authority.
On August 5, 2008 Tom Barnard, Commission Research
and Policy Analysis, presented a consolidated draft of the
revised delegation of authority to the full Commission.
On August 12, 2008 the Commission passed the first
reading of Resolution 3605, repealing Resolution 3181,
and restating the master policy directive on the role and
responsibilities of the Port of Seattle Commission and the
administrative authority of the Chief Executive Officer.
On August 26, 2008 the Commission passed the
second reading and adopted Resolution 3605, repealing
Resolution 3181, and restating the master policy directive
on the role and responsibilities of the Port of Seattle
Commission and the administrative authority of the Chief
Executive Officer.
OA2.d. The Port Commission passed a motion on January
8, 2008 affirming its desires to review Commission
Resolution 3181 to ensure that the delegated authority
is structured in a manner that ensures maximum
public trust in the Port and is in line with best practices
in organizational governance. Per the motion the
Commission established a subcommittee to review
Resolution 3181 and to make recommendations on
amendments to Resolution 3181 to the full Commission.
The Subcommittee drafted revisions to the construction
management sections of Resolution 3181. On May
1, 2008 the subcommittee hosted a public meeting
to receive comment and testimony on the proposed
changes. The Port received public comment during a
comment period from May 13, 2008 to June 30, 2008.
On August 26, 2008 the Commission passed the
second reading and adopted Resolution 3605, repealing
Resolution 3181, and restating the master policy directive
on the role and responsibilities of the Port of Seattle
Commission and the administrative authority of the Chief
Executive Officer.

SAO Annual Report Summary • Sum:11

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

Contact
Person

1. We recommend that [The
Port] immediately implement and
strengthen control procedures to
assure that Engineers’ change
order estimates are (a) prepared
without knowledge of the contractors’
proposed amounts, and (b) change
order estimates and cost analyses
are fully and completely documented.
Where cost or price analysis is used
to evaluate change order proposals,
[The Port] should require full and
complete documentation of these
reviews, including fully documented
supervisory reviews and approvals.

The Port will review its change order
control procedures and will implement
changes where warranted to ensure
alignment with industry best practices.
The Port has already begun, and will
continue, to make improvements as part
of the 37-point action plan from the TKW
performance audit, and it will incorporate
the Performance Auditor’s additional
recommendations into that action plan
as appropriate. The Port agrees that
independent estimates, cost analysis and
secondary reviews of contractor change
order proposals are vital to transparency
and accountability and will ensure that
these estimates and reviews are welldocumented in the files.

The Port has implemented and strengthened
control procedures for change orders as follows:

Ray Rawe
Chief Engineer

Immediate Action:
1.a All change orders are double checked
by a Construction Manager (CM) and a
Contract Administrator (CA) before they are
executed by the Port.
1.b Provide training to ensure compliance for
each Resident Engineer (RE), CM and CA
on current requirements for change order
estimates and document training specifics.
Additional Action:
1.c Evaluate documentation of analyses of
estimates and make recommendations for
standardization and consistency.
1.d Establish a policy outlining when a
change order request requires a separate
estimate in lieu of a direct evaluation of the
existing contractor’s change order proposal.
posal.
1.e Coordinate policy and procedures
edure with
th
the Chief Procurement Office..
1.f Update CM and CA man
manuals
s to reflect
new processes
rocess s and procedures.
proce es.
1.g Provide training
Port
training to CMs, CAs,
CA
As P
Construction
Services
(PCS) and Project
nstruction Se
vices (PCS
Management
on new cost
agement Group
G up (PMG)
(
estimate
procedures.
ate proce

Completion
Date
6/4/08

Action Taken / Status
1.a. On January 24, 2008 by direction of the Chief Engineer
interim actions were implemented requiring all change
orders to be reviewed by Construction Managers and
Contract Administrators prior to execution and that
evidence of that effort to be placed in the files.
On February 8, 2008 the item was discussed at the
training sessions held for action item 1b.
On February 27, 2008 the item was discussed at the
training sessions held for action item 1b.
1.b. On February 8, 2008 training was completed on the
review process for all change orders. This included roles
and responsibilities within the new review process and
change order estimating.
On February 27, 2008 training was completed on the
review process for all change orders. This included roles
and responsibilities within the new review process and
change order estimating.
1.c. On May 29, 2008 a standard procedure for preparing
Engineer’s Estimates was established. For modifications
greater than ten thousand dollars but less that fifty
thousand dollars a Rough Order of Magnitude (ROM) is
required. For modifications exceeding fifty thousand dollars
an Independent Estimate is required. A standard cover
sheet will be used for all cost estimates; this sheet will also
summarize the information contained in the estimate.
On May 30, 2008 training for change order estimating
was provided to capital development personnel that are
directly affected by the new procedures.
On June 2, 2008 training for change order estimating
was provided to capital development personnel that are
directly affected by the new procedures.
1.d. On May 29, 2008 a standard procedure for preparing
Engineer’s Estimates was established. For modifications
greater than ten thousand dollars but less that fifty thousand
dollars a Rough Order of Magnitude (ROM) is required. For
modifications exceeding fifty thousand dollars an Independent Estimate is required along with a standard cover sheet.
On May 30, 2008 training for change order estimating
was provided to capital development personnel that are
directly affected by the new procedures.
On June 2, 2008 training for change order estimating
was provided to capital development personnel that are
directly affected by the new procedures.
1.e. As of June 2, 2008 the Engineering Department had
coordinated with the Chief Procurement Office to
implement revisions to the Construction Manual Standard
Operating Procedures and the Contract Manual. Training
for affected employees was also completed.

Sum:12 • SAO Annual Report Summary

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

Contact
Person

Completion
Date

1. cont.

Action Taken / Status
1.f. On May 29, 2008 online CA & CM Manuals were updated
with the new forms.
1.g. On May 30, 2008 training was provided to capital
development personnel that are directly affected by the
new procedures.
On June 2, 2008 training was provided to capital
development personnel that are directly affected by the
new procedures.

2. We recommend that [The Port]
undertake a review of all major recent
and ongoing projects to identify cases
where engineers’ estimates and
contractors’ proposed amounts are
consistently the same and, in such
cases, undertake a further evaluation
of the underlying causes; followed by
remedial actions as appropriate.

The Port has begun a review of
change orders and trend logs to identify
similarities between Port estimated
costs and contractor proposed amounts.
The Port will take remedial action as
appropriate and also apply the process
improvements described above in
Recommendation 1.

The Port will review current project trend logs,
identify inconsistencies and note corrective
actions or evaluate recommendations.
Immediate Action:
2.a Identify all cases where engineers’
estimates and contractors’ proposed
amounts are consistently the same and
determine underlying causes.
Additional Action:
2.b Review matches identified and
recommend remedial action.
2.c Provide report to Senior Management.
ement.
2.d Take appropriate
e remedial action
a
n as
directed by Senio
Senior Management.
Manageme

Joyce Kirangi
Internal Audit
Manager

8/31/08

2.a. On February 22, 2008 an analysis of project trend logs
detailing change order amounts which coincided with the
contracts amount was completed. On March 3, 2008 this
information was forwarded to the Internal Audit Manager.
2.b. On February 26, 2008 the Internal Audit Manager
forwarded a copy of the proposed review methodology to
SAO.
On August 5, 2008 the Internal Auditor submitted the
draft Internal Audit Report. On September 10, 2008 Port
staff responded to the Internal Audit.
Internal Audit completed the exit interview with the Audit
Committee on October 7, 2008.
2.c. On August 5, 2008 the Internal Auditor submitted the
draft Internal Audit Report. On September 10, 2008 Port
staff responded to the Internal Audit.
Internal Audit completed the exit interview with the Audit
Committee on October 7, 2008.
2.d. Results from the internal auditor were reviewed with
Senior Management and remedial action has been taken
by construction management and contract administration
personnel. This action included training on change order
estimating, change order negotiations and schedule
enforcement, and change order documentation.

SAO Annual Report Summary • Sum:13

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

3. We recommend that [The Port]
revise its SOP Manual to include
specific guidelines for proper and
accurate change order documentation.
[The Port] should provide training
to its consultant staff/construction
managers to improve the manner
in which [The Port] is documenting
project change orders.

The Port has begun revising its
construction Standard Operating
Procedures Manual as part of its
TKW performance audit action plan.
Specifically, this revision will include more
guidelines for change order negotiations
and documentation. Port staff will receive
necessary training to support these new
guidelines.

The Port will revise its Standard Operating
Procedures manual to include specific
guidelines for proper and accurate change order
documentation, and will take the following steps:
Immediate Action:
3.a Provide training on current requirements
for change order documentation for CMs,
REs and CAs.
Additional Action:
3.b Establish team to evaluate current
practices.
3.c Establish minimum change order
documentation requirements and provide
change order review checklist.
3.d Review current documentation of change
order negotiations and develop standard
format.
3.e Provide training to inspectors, REs, CMs,
CAs, Program Leaders, Project Managers,
gers
PCS, Facilities & Infrastructure,
internal
re, int
al
designers and internal auditors
new
rs on ne
procedures.
3.f Coordinate
ordinate process with new
w Central
Procurement
Office
which
rocurement O
ffice (CPO), w
hic will
provide
oversight and
ovide quality control,
ontrol, oversig
continuous
improvement.
tinuous imp
vem

Sum:14 • SAO Annual Report Summary

Contact
Person
Ray Rawe
Chief Engineer

Completion
Date
6/2/08

Action Taken / Status
3.a. On February 27, 2008 training was completed on the
review and documentation process for all Change Orders
as well as roles and responsibilities within this new review
process.
3.b. On March 12, 2008 team members were established and
the team was formed.
3.c. On February 7, 2008 minimum change order
documentation requirements were included in the
new change order review process and checklist.
These requirements are an update to already existing
requirements in the Construction Manual.
3.d. As of June 2, 2008 revisions incorporating improved
change order negotiation and documentation procedures
have been made to the Construction Manual Standard
Operating Procedures.
3.e. On May 30, 2008 required training for affected personnel
was completed.
On June 2, 2008 required training for affected personnel
was completed
3.f. As of June 2, 2008 the processes were coordinated
and carried out by members of both the Engineering
Department and the Central Procurement Office.

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

4. We recommend that [The Port]
develop Standard Operating
Procedures (SOPs) that align with
industry practices. Current [Port]
SOPs do not provide adequate
information regarding change order
negotiations.

As noted in the Port’s response to
Recommendation 3, the Port has begun
revisions to its procedures manual to
better conform to industry best practices.

The Port will develop standard operating
procedures that align with best industry
practices and will take the following steps:
Immediate Action:
4.a A negotiation summary will be reviewed
by a CM and a CA before the Port executes
any change order.
4.b Provide training in conjunction with
change order training described in 3.a.
Additional Action:
4.c Determine best industry practice for
change order negotiations.
4.d Identify differences, if any, between best
industry practices and those applicable to
Port operations.
4.e Develop and/or revise current Port
standards.
4.f Provide training to appropriate staff.

Contact
Person
Ray Rawe
Chief Engineer

Completion
Date
6/2/08

Action Taken / Status
4.a. As of March 25, 2008 the requirement for a negotiation
summary was included in the change order review and
checklist.
4.b. On February 27, 2008 training was completed on the
review and documentation process for all Change Orders
as well as roles and responsibilities within this new review
process.
4.c. On March 11, 2008 a team was established to review
best industry practices for change order negotiations.
On April 3, 2008 team members interviewed various
public agencies to determine best industry practices for
change order negotiations.
4.d. On April 3, 2008 the team developed a spread sheet to
compare various local agencies best industry practices
for change order negotiations.
On April 14, 2008 the team determined that the method
currently used by the Port of Seattle is consistent with
industry best practices.
On May 29, 2008 Pre-Negotiation Position form for
change orders valued at or above two hundred thousand
dollars was established.
4.e. On April 14, 2008 it was determined by the team that the
current “Summary of Negotiations” form is consistent
with best industry practices. The form shall contain
a chronological summary of the negotiations and all
pertinent information shall be attached to the form.
On May 29, 2008 Pre-Negotiation Position form for
change orders valued at or above two hundred thousand
dollars was established.
4.f. On May 30, 2008 and June 2 & 19, 2008 training for
Port of Seattle personnel directly affected by the new
procedures

SAO Annual Report Summary • Sum:15

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

Contact
Person

5. [Port] management should take
immediate steps to assure that
[The Port] rigorously enforces all
contractual schedule requirements.
Then, when requests for time
extensions are made, they can and
should be properly evaluated. [The
Port] should also provide more
oversight of the Change Order
process to ensure that estimates are
properly created and used.

The Port will review its practices of
contract schedule enforcement and the
evaluation of time extension requests
to identify where further improvements
can be made. The Port will pay specific
attention to the practices of other
state and local agencies with respect
to scheduling and enforcement when
conducting this review.

The Port’s response to change order estimates
is addressed under Recommendation 1.

Ray Rawe
Chief Engineer

Port management will immediately ensure
that the Port enforces, consistent with best
practices, all contractual requirements for
preparation and submission of schedules by
taking the following steps:

Completion
Date
8/1/08

Action Taken / Status
5.a. On February 27, 2008 training was completed on the
review process for all Change Orders as well as roles
and responsibilities within this new review process,
including construction schedules.
5.b. As of February 26, 2008 all active projects were reviewed
for contractual schedule compliance. Information
gathered from the compliance review was utilized to
develop the schedule training presentation.

Immediate Action:
5.a Provide training on current contract
schedule requirements for CM and CA staff.

5.c. As of February 26, 2008 a compliance survey of all active
projects was performed. A list of items requiring attention
or response was identified.

5.b Review all active projects for compliance
with contractual schedule requirements.

From February 26 to April 4, 2008 construction managers
and resident engineers met to discuss the necessary
action steps. This was done to achieve compliance in
schedule requirements for each contract in compliance.

5.c If any contracts are not in compliance
with contractual schedule requirements, the
Port will implement enforcement consistent
with the project specifications.
Additional Action:
5.d Review industry best management
mple
ting
practices for specifying and implementing
schedule enforcement.
nts identified in
5.e Implement any improve
improvements
item 5.d.
training to CM, CA, PC
5.f Provide training
PCS and
MG on revised procedures.
PMG

On April 4, 2008 all ongoing non-compliant contracts
were reviewed and resident engineers issued notification
letters to the Contractors that were out of compliance.
Where applicable they requested Contractors submit
required documentation to bring contracts into
compliance.
5.d. On April 4, 2008 a team was established to benchmark
other government agencies practices and policies relating
to schedule and schedule compliance.
5.e. Review of other agencies practices was completed,
comparisons were analyzed and recommendations were
implemented. Action complete on July 31, 2008.
5.f. On May 29, 2008 and June 2 & 19, 2008 training
associated with the revised schedule enforcement
procedures and processes was conducted by
Engineering and Procurement Office Staff.

Sum:16 • SAO Annual Report Summary

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

Contact
Person

6. We recommend that [The Port]
immediately cease its informal method
of resolving change order differences,
and that [The Port] improve its change
order documentation requirements
to include that details of change
order negotiations must be based
on discussions of scope/means and
methods/pricing differences.

The Port concurs that change order
negotiations should be based on
all relevant factors, including formal
schedule, scope, means, methods,
pricing, and operational considerations.
Improvements to standard procedures
that are underway will emphasize change
order documentation training, including a
focus on the above factors.

The Port immediately ceased any informal
method of resolving change order differences.

Ray Rawe
Chief Engineer

Immediate Action:
6.a Port staff was notified that this practice is
no longer permitted.
6.b A negotiations summary must be
reviewed by a CM and a CA before a
change order can be executed by the Port.
Additional Action:
6.c All change order negotiations will be fully
documented.
6.d Change order documentation will be
improved as outlined in Recommendations
1, 3, 4 and 5.
6.e Port management will provide interim
guidance until revised processes and
procedures are put in place.

Completion
Date
6/2/08

Action Taken / Status
6.a. On January 24, 2008 an email was issued to all
Construction Managers and staff with a directive to stop
any informal resolution of change orders and actions.
On February 8 & 27, 2008 this item was discussed, along
with required documentation, at the training sessions held
in conjunction with action item 1b.
6.b. On January 24, 2008 an email was issued to all
Construction Managers and staff that all change order
negotiations and actions shall be reviewed by the
Construction Manager and Contract Administrator prior to
execution.
On February 8 & 27, 2008 this item was reviewed at the
training sessions held in conjunction with action item 1b.
6.c. As of February 27, 2008 the change order training
sessions held for all Resident Engineers, Construction
Managers, and Contract Administrators, emphasized
that all negotiations shall be fully documented. The
requirement for a negotiation summary has been
included in the change order review and checklist.
6.d. As of June 2, 2008 Change Order documentation was
improved as outlined in Recommendations 1, 3, 4, and 5.
These improvements were included in the Construction
Manual Standard Operation Procedures.
6.e. As of February 27, 2008 the change order training
sessions held for all Resident engineers, Construction
Managers, and Contract Administrators, emphasized the
requirement for improved change order documentation,
including a new change order review and checklist.

SAO Annual Report Summary • Sum:17

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

7. We recommend that [The Port]
undertake a review of the change
orders negotiated and approved under
all contracts to determine if there were
other incorrect mark-ups on change
orders.

The Port will undertake additional review
of change orders using procedures
consistent with accepted auditing
standards to determine whether other
incorrect mark-ups on change orders
exist.

Using a statistical sampling methodology,
Internal Audit will review Port construction
contracts and determine whether the Port has
paid for other incorrect mark-ups. In addition to
the statistical sample mentioned above, Internal
Audit will use a risk-based audit approach to
test other contracts that might be vulnerable to
payment of incorrect mark-ups.
Immediate Action:
7.a Obtain State Auditor’s Office (SAO)
confirmation of the sampling and risk-based
audit methodology that will be used.
7.b Review those contracts identified
by the sampling and risk-based audit
methodology.
Additional Action
7.c Determine if further review is necessary,
based on outcome of the immediate action.
7.d

Sum:18 • SAO Annual Report Summary

Implement cost recovery where
appropriate.

Contact
Person
Joyce Kirangi
Internal Audit
Manager

Completion
Date
8/31/08

Action Taken / Status
7.a. On February 26, 2008 the Internal Audit Manager
forwarded a copy of statistical sample methodology to
SAO.
7.b. On August 5, 2008 the Internal Auditor submitted the
draft Internal Audit Report. On September 10, 2008 Port
staff responded to the Internal Audit.
7.c. The review identified an additional four errors totaling
$3,285 that had been overpaid, based on mark-up
errors, to contractors. This was corrected. The auditor
noted that “Beyond the above errors, it is important
to note that we also saw clear evidence that markups
were being reviewed as part of the normal construction
manager’s review process.” No additional further review
is necessary at this time.
7.d. As of August 30, 2007 corrective action was taken by CM
and CA with the recovery of $8,895.54. As noted above
an additional $3,285 was identified and was recovered.
Internal Audit completed the exit interview with the Audit
Committee on October 7, 2008.

This page left blank

SAO Annual Report Summary • Sum:19

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

8. We recommend that [The Port]
improve management information
systems to provide more accurate
and up-to-date information regarding
project and contract expenditures.
[The Port] should develop a better
means for tracking actual project
expenditures against initial estimates
to prevent unforeseen cost overruns.

The Port will review its management
information systems to ensure that
information available to project managers
is accurate and up-to-date, and will
make improvements as necessary. The
Port will conduct a systematic review
of the small works program to improve
timely tracking of actual project costs
on contracts. There will be an emphasis
on providing safeguards to preclude
work authorizations from exceeding the
contract amount.

Information & Communications Technology
(ICT) will work with PCS to investigate options
for providing additional visibility and more
accurate and up-to-date information regarding
project and contract expenditures. The Port
will assign a business analyst to develop
business requirements, analyze current
system capabilities, evaluate options and
prepare cost estimates for small works system
improvements.
Immediate Action:
8.a On open order contracts, PCS does not
authorize work that would increase the
amount spent to above 90% of the contract
value.
Additional Action:
8.b Continually evaluate options to limit
contract spending beyond that 90%
threshold. Options might include further
nd/
reducing the maximum contract value and/
or limiting cumulative value of all workk
authorizations.
8.c Provide training for sta
staff on revised
or tracking small
s
procedures for
works
expenditures against bud
budgets..
T to review the co
8.d Work with IC
ICT
controls
rrently contained
contai ed in the Pro
currently
Project
nagement Information
In rma
Management
System (PMIS)
ware and d
software
develop additional controls to
nt cost
cos overruns and improve project
prevent
reporting.
8.e Provide final recommendations to the
CPO.

Contact
Person
Larry McFadden
PCS General
Manager

Completion
Date
7/31/08

Action Taken / Status
8.a. On January 29, 2008 PCS contract administration staff was
formally notified by e-mail to not authorize any new work
authorizations above 90% of the current contract value.
On February 21, 2008 a meeting was held with the departments within the Port that prepare, advertise, execute,
and administer small works contracts to address this item.
On March 20, 2008 a meeting was held for all
Construction Managers and Contract Administrators to
review the new required procedures.
On June 5, 2008 the immediate action item that was
signed off as being completed on March 31, 2008, was
amended to include additional action item steps that had
been implemented.
8.b. On January 29, 2008 PCS contract administration staff was
formally notified by e-mail to not authorize any new work
authorizations above 90% of the current contract value.
On February 21, 2008 the departments within the Port
that prepare, advertise, execute, and administer small
works contracts participated in discussions on this item
and agreed to comply with the new required procedures.
On February 27, 2008 a meeting was held to discuss to limit
work authorizations from going over their original amounts.
On March 6, 2008 a decision was made to create a matrix
that could be used by the Construction Managers to monitor
their costs with the information contained on the daily logs.
On June 5, 2008 the immediate action item that was
signed off as being completed on March 31, 2008, was
amended to include additional action item steps that had
been implemented.
8.c. On March 20, 2008 a meeting was held for all
Construction Managers and Contract Administrators
within PCS to provide training on revised procedures for
tracking small works expenditures against budgets.
On March 21, 2008 The Contract Work Authorization
Estimate and Tracking Sheet was revised.
On June 5, 2008 the immediate action item that was
signed off as being completed on March 31, 2008, was
amended to include additional action item steps that had
been implemented.

Sum:20 • SAO Annual Report Summary

SAO Recommendation Dec 2007
8. cont.

Original Port Response Dec 2007

Actions Taken

Contact
Person

Completion
Date

Action Taken / Status
8.d. On March 27, 2008 A meeting with ICT was held to
discuss existing and future enhancements to the Project
Management Information System (PMIS) that will prevent
cost overruns and improve project reporting.
In PMIS, there is a formula that restricts the total value of
Work Authorizations (WA) that can be opened against a
contract. The formula has been changed to assume that all
WA will exceed their budgets by 20%. If the total remaining
unencumbered amount on the contract is less than the
total of all budgeted WA amounts plus 20%, a Construction
Manager cannot open a new WA against the contract.
8.e. Final recommendations were provided to the CPO on
July 16, 2008.

SAO Annual Report Summary • Sum:21

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

9. We recommend that [The Port]
develop and include in all contracts
a “cost limitation” clause that
advises contractors that they should
not accept work authorizations or
perform any work that would result in
exceeding the maximum amount of
the contract.

The Port will strengthen the language
limiting the contract to the stated amount
and ensure that this revised standard is
consistently included in all contracts.

The Port will strengthen the existing “cost
limitation” clause in small works open order
contracts so that, consistently with the statutory
requirements and Port policies, the contractors
are advised that they shall not accept work
authorizations or perform any work that would
result in exceeding the maximum amount of the
contract.
Immediate Action:
9.a The Port will continue to include the
current “cost limitation” clause (that advises
contractors that they shall not perform any
work over the authorized not-to-exceed
amount) in all open order contracts.
9.b In keeping with current Port procedure,
PCS will not write any new Work Authorizations that would increase amount spent
beyond 90% of the maximum amount of the
contract.
Additional Action:
9.c The Port will review the small works
w
specifications, developing language
guage to
be included in all contracts
to further
ntr
strengthen these
ese clauses.
clauses

Contact
Person
Larry McFadden
PCS General
Manager

Completion
Date
7/31/08

Action Taken / Status
9.a. On February 14, 2008 existing “not to exceed” language
was identified to others.
On April 7, 2008 this immediate action item was complete in
that the Port would continue using the existing “not to exceed”
language while developing new language for the specifications.
9.b. On January 29, 2008 PCS contract administration staff was
formally notified by e-mail to not authorize any new work
authorizations above 90% of the current contract value.
On February 21, 2008 the departments within the Port
that prepare, advertise, execute, and administer small
works contracts participated in discussions on this item
and agreed to comply with the new required procedures.
On March 20, 2008 a meeting was held for all
Construction Managers and Contract Administrators
within PCS to provide training on revised procedures for
tracking small works expenditures against budgets.
On June 5, 2008 this immediate action item that was
signed off as being completed on March 31, 2008, was
amended to include additional action steps that have been
implemented.
9.c. On March 4, 2008 a meeting was held to review edits to
the proposed language changes.
On March 6, 2008 a meeting was held to review edits to
the proposed language changes.
On March 27, 2008 a meeting was held to review edits to
the proposed language changes.
On April 16, 2008 a meeting was held to review edits to
the proposed language changes.
On April 29, 2008 a meeting was held to review edits to
the proposed language changes.
On May 2, 2008 a meeting was held to review edits to the
proposed language changes.
On March 20, 2008 a meeting was held for all Construction
Managers and Contract Administrators within PCS to
provide training on revised procedures for tracking small
works expenditures against budgets and to be informed of
future changes to the language in the specifications.
The Port has completed its evaluation of this action item
and identified changes to be made to the bid documents
regarding the “Cost Limitations” language. Responding
to the Auditor’s recommendation, the existing “cost
limitation” language in the following sections has been
revised and will be included in the contract documents for
all projects bidding through the CPO as of July 31, 2008.
• 0100 Requests for Bids
• 0200 Instruction to Bidders
• 0410 Bid Form
• 0800 Supplementary Conditions

Sum:22 • SAO Annual Report Summary

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

Contact
Person

10. We recommend that controls
be implemented to prevent specific
companies from being added
to randomly-generated [Port
Construction Services] bid lists by
project management personnel.

The Port disagrees with this
recommendation. Except to advance
important societal objectives like those
reflected in the Port’s small business
contracting initiative, the Port does
not believe that it is in its best interest
to preclude interested bidders from
competing for Port contracts.

The Port believes it is neither in its best interest
nor a requirement of state law to prevent
contractors who want to bid from doing so.

Larry McFadden
PCS General
Manager

Immediate Action:
10.a 1.) Consistent with statutory
requirements and Port policies, the Port will
continue to solicit bids from all contractors
listed under the applicable craft code for
each contract in the Small Works Roster,
and to publicly display all contracts on its
Web site. We believe these steps preclude
any need to add specific companies.
2.)New contractors will continue to be
encouraged to register for the Small
Works Roster, and the Port will continue to
review and validate the existing contractor
information on the Small Works Roster for
accuracy on a regular basis, promoting
broad competition on small works
contracts.
Additional Action:
10.b Required procedures will be coordinated
oordinate
and applied Port-wide
de for all users
u s of the
Small Works Roster.
er.

Completion
Date
6/12/08

Action Taken / Status
While the Port disagrees with the auditor’s
recommendation, we took several steps to ensure that our
project recruitment processes, particularly those related
to the Port’s Small Works Roster, are as inclusive as
possible and adhere to Washington statutes. We believe
these changes achieve the intent behind the auditor’s
recommendation.
10.a.(1) On November 16, 2007 the Port decided to solicit
bids from all contractors under the applicable craft code
for each contract and to publicly display all contracts on
the website.
On February 21, 2008 these required procedures were
communicated to all departments that compile plans and
specifications, advertise, execute, and administer small
works contracts for the Port of Seattle.
On March 6, 2008 these required procedures were
communicated to all departments that compile plans and
specifications, advertise, execute, and administer small
works contracts for the Port of Seattle.
10.a. (2) In October 2007 the Port of Seattle began the
Account Information Update Project to update the Small
Works Roster (SWR) by sending out letters, e-mail and
faxes to approximately 1,580 contractors on the roster
that were identified as active accounts.
In November 2007 notices were placed in the Daily
Journal of Commerce, the NW Asian Weekly, and the
Medium News that the Port of Seattle was accepting
requests for inclusion onto the Port of Seattle Small
Works Roster.
During May 2008 the Account Information Update Project
was completed with a total of 971 active accounts on the
SWR.
On June 5, 2008 this specific action item was signed
off as being completed. The Port solicits bids from all
contractors listed under applicable craft code, publicly
displays all bids on its website, and has updated the
Small Works Roster Program.
10.b. On February 21, 2008 a meeting was held in the Office
of Port Construction Services to review immediate
procedures and processes that are being taken in
response to the SAO Audit.
On March 6, 2008 meetings were held in the AOB and at
P-69 to review immediate procedures and processes that
are being taken in response to the SAO audit.
On June 10, 2008 a meeting was held with all Contract
Administrators in the Centralized Procurement Office
that work on small works projects to again review those
procedures and processes that are being taken by the
Port in response to the SAO Audit.
On June 11, 2008 this specific action item was signed off
as being completed.
SAO Annual Report Summary • Sum:23

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

11. We recommend that [The Port]
evaluate all of its [Port Construction
Services] contracts during the past
three years to determine other
instances where the practice of
lapping contractor invoices occurred
and take appropriate corrective
actions.

The Port will undertake an internal audit
of Port Construction Services contracts
to determine whether additional lapping
of contractor invoices occurred. The Port
will take corrective action as warranted.

Internal Audit will review all contracts for PCS
for the past three years and establish the total
population of contractors that had multiple
contracts. From the total population, Internal
Audit will establish a statistical sampling
methodology and test whether the practice
of moving work from one contract to another
may have occurred with other PCS contracts.
In addition to the statistical sample mentioned
above, Internal Audit will use a risk-based audit
approach and test other contracts that could be
vulnerable to that practice.
Immediate Action:
11.a Obtain SAO confirmation of sampling
and risk-based audit methodology that will
be used.
Additional Action
11.b Review those contracts identified
based on sampling and risk-based audit
methodology.
ssar
11.c Determine if further review iss necessary
eps.
based on outcome of initial steps.
priate corre
e action.
11.d Take appropriate
corrective

Sum:24 • SAO Annual Report Summary

Contact
Person
Joyce Kirangi
Internal Audit
Manager

Completion
Date
8/31/08

Action Taken / Status
11.a. On February 26, 2008 the Internal Audit Manager forwarded
a copy of the statistical sampling methodology to SAO.
11.b. On August 5, 2008 the Internal Auditor submitted the
draft Internal Audit Report. On September 10, 2008 Port
staff responded to the Internal Audit.
11.c On August 5, 2008 the Internal Auditor submitted the
draft Internal Audit Report. On September 10, 2008 Port
staff responded to the Internal Audit.
11.d Many of the action steps that have already been
implemented in response to the recommendations made
by the State Auditor also address the findings and the
recommendations made by the Port of Seattle Internal
Auditor. The following specific action steps taken will not
only improve cost reporting, provide additional contract
contingency, and prevent cost overruns; but also, will
eliminate overlapping of invoices.
• Open Order Time and Material Contracts are now
being written with a maximum amount of $180,000.
• Work Authorizations for new work are now being
written to a maximum of 90% of the contract value
or $162,000 for an $180,000 contract.
• PCS’s Project Management Information System
(PMIS) includes a formula that prevents a
Construction Manager from opening a WA that
would commit more than 50% of the remaining
capacity of a current contract plus an additional
20% of the entire value of all open WA’s on that
contract. In other words, this means that no WA
can encumber more than half of the remaining
unencumbered amount of a contract, even if no
other WA exists. However, open WA’s further reduce
this maximum amount by 20% of their entire value,
which creates a contingency for actual costs that
may exceed the estimated WA amount as written.
• Each contract Work Authorization will include
a calculation showing the current commitment
amount expressed both in dollars and percentage
of the contract total value. Prior to signing the Work
Authorization, the Contract Administrator will verify
that there is existing capacity for this new work and
the cumulative value of all Work Authorizations is
below 90% of the original contract value.
• Contract Administrators are responsible for
accuracy, completeness and payment of all
contractor invoices.
• There is new contract language in all Open Order
Time and Material contracts that further strengthens
the “cost limitation” clause and advises contractors
that they should not accept work authorizations or
perform any work that would result in exceeding the
maximum amount of the contract.
• The Contract Work Authorization Estimate and
Tracking Sheet has been developed as a tool
to be used by PCS Construction Managers to
monitor daily work activities and compare actual
expenditures by the contractor against their
proposed budgets.

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

Contact
Person

Completion
Date

11. cont.

Action Taken / Status
• Construction Mangers are being more proactive
with the contractors and working with them to
expedite the submittal of their invoices
Numerous training classes have been held with
Construction Managers and those Contract
Administrators within the Centralized Procurement Office
that prepare, advertise, execute and administer small
works contracts. The purpose of these meetings were
to communicate to them the required procedures and
processes that are to be followed when executing and
administering small works contracts, change orders, work
authorizations and payment of invoices.
Numerous training classes have been held with
Construction Managers and those Contract
Administrators within the Centralized Procurement Office
that prepare, advertise, execute and administer small
works contracts. The purpose of these meetings were
to communicate to them the required procedures and
processes that are to be followed when executing and
administering small works contracts, change orders, work
authorizations and payment of invoices.
Internal Audit completed the exit interview with the Audit
Committee on October 7, 2008.

12. We recommend that [The Port]
conduct a more detailed investigation
of this contract SWV-311608 to
determine how and why the preferred
electrical contractor was added to the
bid list, contact the other bidders on
the list to determine if they were aware
of the procurement, and initiate follow
up actions as appropriate.

The Port will review this contract and
take action as appropriate.

An Internal Audit investigation
stigation of Contract
C ract
No. SWV-311608
608 is ccurrently
rrently underway
unde
y to
determine how the con
contractor
added
ractor was ad
ed to the
bid list. The
reported to the
e audit results will be reporte
Commission Audit Committee
Comm ttee and CEO.

Joyce
Kirangi
J
Internal Audit
Manager

4/30/2008

12.a. As of April 30, 2008 the Internal Audit concluded that
available documentation clearly shows how the contract
was awarded, but does not resolve the question as to
how the contractor in question was added to the invite-tobid list with the same degree of clarity.

SAO Annual Report Summary • Sum:25

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

13. We recommend that [The Port]
take immediate steps to review and
enforce its policies and procedures for
awarding and amending [professional
services agreement] contracts and
establish controls to ensure that
competition requirements are not
circumvented.

This recommendation is consistent with
the action plan from the Port’s internal
audit. The Port will review and enforce
its procedures for awarding professional
services agreements and strengthen
controls to ensure compliance with Port
procurement policies.

Once current review is complete and the
Central Procurement Office is operational,
the Port will implement protocols to review
all contracts and amendments and approve
through this central office.
Immediate Action:
13.a The Port completed a partial audit
review of Professional Service Agreements
in 2007.
13.b At the direction of Senior Management,
Internal Audit completed an audit of an
expanded number of capital Professional
Services Agreements in 2007.
13.c Internal Audit report was presented to
Senior Management in 2007.
13.d Interim action was taken to strengthen
the controls related to execution of new
PSA contracts and amendments. Until
the CPO is operational in June 2008, only
senior personnel are allowed to execute
ute
these agreements.
Additional Action:
13.e Develop a training curriculum
capital
cur
um for capita
al
development
velopment staff,
taff, and complete
co
ete training
activities
enforce
through
ctivities to enf
orce processes
s th
education.
ucat
13.f Develop
control and compliance
evelop quality
qua
procedures
dures with
w the newly created Central
Procurement Office.

Sum:26 • SAO Annual Report Summary

Contact
Person
Tim Jayne
Senior Manager,
Procurement
Services

Completion
Date
7/31/08

Action Taken / Status
13.a. In August 2006 a partial review was conducted.
13.b. As of August 8, 2007 the review was complete and the
report was issued.
13.c. As of August 8, 2007 the review was complete and
presented to Senior Management.
13.d. As of February 22, 2008 the Senior Manager of
Procurement reviews and approves all PSA contracts and
amendments in excess of $100,000 to ensure that proper
polices and procedures are being followed, including
insuring that competition requirements are not being
circumvented.
13.e. A training curriculum was developed that will enforce
procedures for awarding and amending service
agreements. Training for Project Management and
Administration Personnel was held on June 24th and
26th, 2008. Training for Construction Management was
already completed. Additional training was completed on
June 29th.
13.f. As of April 7, 2008 the CPO will assist and manage
all Personal and Professional Service Agreements
according to the Authority matrix.
All Action Steps for this recommendation were completed
on or before June 26, 2008

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

14. We recommend that [The Port]
initiate a comprehensive review of all
[professional services agreements]
to determine the full extent to which
competition requirements have been
circumvented, and take appropriate
corrective actions.

The Port will undertake additional review
of professional services agreements
using procedures consistent with
accepted auditing standards to evaluate
whether other instances of noncompliance exist and will take corrective
action as warranted.

Internal Audit will undertake a comprehensive
review of Port PSAs. We will establish the total
population of PSAs for the past three years.
Using a statistical sampling method, we will
sample the PSAs and determine the extent
to which competitive requirements may have
been circumvented and/or Port policies and
procedures not followed. Using a risk-based
audit approach, Internal Audit will further review
additional PSAs from Port departments that
are deemed high risk and vulnerable to noncompliance.
Immediate Action
14.a Obtain SAO confirmation of sampling
and risk-based audit methodology that will
be used.
14.b Review PSA contracts for past 3 years.
Additional Action
14.c Determine further review based on
outcome of the immediate action.
tion.
14.d Take appropriate corrective action.

Contact
Person
Joyce Kirangi
Internal Audit
Manager

Completion
Date
8/31/08

Action Taken / Status
14.a. On February 26, 2008 the Internal Audit Manager
forwarded a copy of the statistical sampling methodology
to SAO.
14.b. On August 5, 2008 the Internal Auditor submitted the
draft Internal Audit Report. On September 10, 2008 Port
staff responded to the Internal Audit.
14.c. On August 5, 2008 the Internal Auditor submitted the
draft Internal Audit Report. On September 10, 2008 Port
staff responded to the Internal Audit.
14.d (1) The Port accepts and is implementing the Internal
Auditor’s recommendations. However, Port staff does
not believe that it circumvented the then-existing PUR2 competition requirements for the award of several
Category 2 agreements identified in this section. The
CEO had the responsibility for obtaining professional
and consultant services pursuant to the delegation of
authority from the Port Commission, see Resolution
3181. The CEO has established procedures under PUR-2
for the competitive selection of such services. Services
for “representative legislation” were expressly excluded
from coverage under PUR-2. The agreements identified
are for representative legislation professional services.
At the time the agreements in question were executed
there was no statutory requirement that Port Districts
competitively award contracts for professional services
nor did Resolution 3181 require competitive procedures
for this category of professional service contracts. A
2008 legislative change now requires that contracts for
services of this type be competitively awarded. The Port
has updated its procedures for selection of consultants to
reflect the statutory changes as well as changes related
to the Port Commission’s recent adoption of Resolution
3605, the successor to Resolution 3181.
(2) In regard to the second group of identified Category
C agreements, staff acknowledges that no competitive
process was utilized. The selection of this consultant
was made by the Port’s CEO who waived competitive
requirements. The Port’s General Counsel believed that
the CEO had the ability to waive the requirements of the
PUR-2 procedure, which was enacted under the CEO’s
authority. Staff acknowledges, however, that PUR-2 does
not contain an explicit waiver provision and that the CEO
waiver in this case was not adequately or appropriately
documented. All agreements with this consultant have
since expired. Port staff accepts and is implementing the
Internal Audit recommendations.
Internal Audit completed the exit interview with the Audit
Committee on October 7, 2008.

SAO Annual Report Summary • Sum:27

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

15. We recommend that [The Port]
revise [Purchasing Policy] PUR-2 to
incorporate a limit on the size allowed
for amendments to Category 3 and
Category C contracts so that a legal
review becomes necessary before
a contract is allowed to exceed a
specified limit. That review should be
designed to assure that:

The Port agrees that large professional
service agreements should have
additional controls to ensure
amendments are consistent with original
scope and prevent inappropriate contract
segmentation. The Port will evaluate what
kind of controls are most effective.

As recommended, the Port will revise
Purchasing Policy PUR-2, incorporating a
limit on the size allowed for amendments on
Category 3 and C contracts making a legal
review necessary.

1. The project scope of work is not
being divided into smaller segments
to avoid PUR-2, statutory, or
delegation of authority procedures.
2. The increased amended
consultant responsibilities are
generally related or associated with
the project scope utilized in the
original consultant selection.

Sum:28 • SAO Annual Report Summary

Immediate Action:
15.a As an interim step, the Port immediately
requires that all amendments over
$100,000 receive review and concurrence
from Purchasing Manager, who may
elect to forward the review to the Legal
Department as necessary.
Additional Action:
15.b Upon completing the review currently
underway and implementing the CPO, the
Port will implement necessary changes
PUR-2 to strengthen procurement protocols
and establish appropriate central oversight.

Contact
Person
Tim Jayne
Senior Manager,
Procurement
Services

Completion
Date
7/31/08

Action Taken / Status
15.a. As of January 29, 2008 a Senior Manager in
procurement services now reviews all requests for
amendments and contract requests over $100,000, and
coordinates with the Legal department on any requests
the present potential compliance issues.
15.b. On August 26, 2008 the Port of Seattle adopted
Resolution 3605. This resolution established the
foundation for the development of a revised PUR-2.
On December 31, 2008 Pur-2 was replaced by CPO-1,
“Procedures for Personal and Professional Services.”

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

16. We recommend that [The Port] a)
determine the extent to which costs in
violation of Federal grant requirements
have been claimed for reimbursement
and received from DOT and other
Federal agencies, (b) notify applicable
Federal grant officers of these
violations, and (c) initiate corrective
actions prescribed by Federal officials.

The Port has been subject to extensive
external audits with respect to both its
financial statements and federal grant
compliance by public accounting firms
(who themselves are subject to regular
review by the federal government). These
audits, which include rigorous internal
controls testing of major risk areas, have
not identified any material compliance or
accountability concerns involving federal
grants. While this performance audit
did not identify any violations of federal
grant requirements, if, in the course of
investigating and following up on these
findings and recommendations, the Port
discovers any federal grant violations it
will take prompt and appropriate action,
including notification to applicable
agencies.

Immediate Action:
16.a The Port will conduct a complete review
to identify all PSAs funded by Federal
grants and any PSA contract awards not
awarded in compliance with competitive bid
requirements.
Additional Action:
16.b If discrepancies are identified, determine
necessary corrective action and resolve
with U.S. Department of Transportation
(DOT) or Transportation Security
Administration (TSA), referencing details
of the applicable SAO performance audit
findings.

Contact
Person
Joyce Kirangi
Internal Audit
Manager

Completion
Date
8/31/08

Action Taken / Status
16.a. It was determined that a complete review of all PSAs
would be too broad in scope. Internal Audit proposed an
alternative means to establish the review base.
On February 26, 2008 the Internal Audit Manager
forwarded a copy of the statistical sampling methodology
to SAO.
16.b. On August 5, 2008 the Internal Auditor submitted the
draft Internal Audit Report. On September 10, 2008
Port staff responded to the Internal Audit. No specific
discrepancies were identified. However, it was noted
that in some cases documentation was incomplete. The
auditor’s recommendations address this issue.
The Port concurs with the recommendations of the
Internal Audit. The Port has created initial checklists
and implemented training on the subject of awarding
and amending Service Agreements. Initial training
was completed on June 24, 26, and 29, 2008 and
continues as needed. The CPO is evaluating additional
subject matter training opportunities that will be offered
for all staff who participate in the procurement and
administration of service agreements.
In response to SAO Recommendation OA1 on March 20,
2008, the Port established a Central Procurement Office
and consolidated procurement functions and activities
within this new organization. On August 26, 2008, the
Port Commission adopted Resolution 3605, which
replaces Resolution 3181, the Master Policy Directive
for the Port of Seattle. This document defines the
Commissions delegation of authority to the Port’s Chief
Executive Officer. On August 26, 2008 the Port of Seattle
adopted Resolution 3605. This resolution establishes the
foundation for the development of a revised PUR-2.
On December 31, 2008 Pur-2 was replaced by CPO-1,
“Procedures for Personal and Professional Services.”
CPO provided training and updated checklists and
requirements for contract files in conjunction with the new
PUR-2.

SAO Annual Report Summary • Sum:29

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

17. We recommend that [The Port]
undertake a review of all of its
professional services agreements to
assure that:
• Such agreements comply with
State law in terms of being for
specific [Port] requirements rather
that being used as supplements of
[Port] staffing,
• The agreements are being
administered in strict conformity
with contract provisions and
requirements,
• The contracts contain defined
labor category qualifications, and
• Contract files are complete and
maintained by [Port] employees
rather than contractor personnel.

The Port will undertake additional review
of professional service agreements using
procedures consistent with accepted
auditing standards to ensure compliance
with applicable statutes and Port policy.
The Port will also ensure that agreements
are administered in conformance with
contract provisions and requirements
and contain all relevant rates. The Port
will also ensure that contract files are
complete, but separate supporting files
will hold the qualification information
(degrees, experience, etc.) related to
labor category rates.

Internal Audit will undertake a comprehensive
review of current active PSAs awarded in the
past three years. Using a statistical sampling
methodology enhanced by a risk-based audit
approach, Internal Audit will review PSAs for
the 4 key areas of vulnerability identified in the
recommendation.

18. We recommend that [The Port]
establish a policy whereby, before
contracting for consultant services,
[The Port] perform a cost analysis to
determine if the required work can be
more economically performed with
[Port] personnel. (We suggest that
[The Port] study and adapt Federal
Office of Management and Budget
Circular A-76 for this purpose.)

The Port will take this recommendation
into consideration in reviewing its existing
consultant policies and procedures,
given that cost is not the only factor used
in considering the use of consultants.
The Port will note its reasoning for
retaining outside consultants within the
set of documentation files that support
actual future agreements. For example,
documentation will include whether the
consultant has been hired as a result of
having special expertise not found among
the Port staff, or hired because existing
Port staff do not have enough available
time to perform the work, etc. For fulltime consultant assignments longer than
twelve months, the documentation will
consider the potential benefits or risks of
hiring a new Port staff member to perform
the work. The Port will also review OMB
Circular A-76 for applicability.

Sum:30 • SAO Annual Report Summary

Contact
Person
Joyce Kirangi
Internal Audit
Manager

Completion
Date
8/31/08

17.c On August 5, 2008 the Internal Auditor submitted the
draft Internal Audit Report. On September 10, 2008 Port
staff responded to the Internal Audit.
The Port of Seattle Legal Department, with the
assistance of Capital Development and Human
Resources, has for some time been in the process
of reviewing consultant contracts and contracting
procedures consistent with the audit recommendation.
The effort is being headed by attorney Anne Purcell.

Additional Action
17.b Review current active PSAs awarded or
amended during the past 3 years.
17.c Determine further review based on
outcome of the immediate action.

Additional Act
Action:
n:
18.a As recommended,
recommended, the Port
Po t will
w review
OMB
MB Circular A
A-76
76 for applica
applicability.
b
18.b The Port wil
will develop
ev
a cost analysis
modell that also
als will consider:
• Special expertise;
• Availability of existing Port staff;
• Duration of assignment;
• Potential benefits or risks in hiring new
Port staff.
18.c The Port will then provide training on
new procedures for all appropriate staff
members.

17.a. On February 26, 2008 the Internal Audit Manager
forwarded a copy of the statistical sampling methodology
to SAO.
17.b. On August 5, 2008 the Internal Auditor submitted the
draft Internal Audit Report. On September 10, 2008 Port
staff responded to the Internal Audit.

Immediate Action
17.a Obtain SAO confirmation of sampling
and risk-based audit methodology that will
be used.

The Port will establish a policy requiring
performance of a cost analysis prior to
contracting for consultant services. The analysis
nalysis
will determine if the required workk can b
be more
economically performed with Portt personn
personnel.

Action Taken / Status

Internal Audit completed the exit interview with the Audit
Committee on October 7, 2008.
Bob R
Riley
recto Aviation
Director
CIP

7/31/08

18.a. On March 17, 2008 a meeting was held to review the
applicability of A-76. It was determined that A-76 is
not applicable to the Port of Seattle. Information from
“Attachment C – Calculating Public-Private Competition
Costs” will be included in design of our cost analysis
model.
18.b. Guidelines have been drafted for the decision about
when to hire Port FTE employees versus when to use
consultants. The guidelines include appropriate concepts
from OMB Circular A-76.
As of June 26, 2008 the guidelines are complete and in
place.
18.c. Training on new procedures for Service Agreements
includes the guidelines developed for 18.b above.
All Action Steps for this recommendation were completed
on or before June 26, 2008

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

19. We recommend that [The Port]
add the following procedures to the
list of procedures being performed
during the invoice approval process
for the PMSC contract and other
[professional services agreements], as
appropriate:
• Assure that all personnel being
billed have been approved to work
on the contracts based on the
most recent annual review or work
authorization.
• Assure that labor categories and
rates being billed do not exceed
the contractually stipulated labor
categories and rates.

The Port agrees and has implemented
the recommendation.

Immediate Action:
19.a The Port confirmed that during invoice
approval on the PMSC contract, those
billed have been approved; consultants
have not been paid more than stipulated
rates; and that labor categories on invoices
match those in the contract.
Additional Action:
19.b Suggestions included in this
recommendation will be used to improve
the Port’s PSA procedures.

Contact
Person
Bob Riley
Director Aviation
CIP

Completion
Date
7/31/08

Action Taken / Status
19.a. On October 1, 2007 Invoices were checked for correct
billing rates for each individual and all labor categories
used on invoices have been corrected to match those in
the PMSC contract.
19.b. On August 26, 2008 the Port of Seattle adopted
Resolution 3605. This resolution establishes the
foundation for the development of a revised PUR-2.
On December 31, 2008 Pur-2 was replaced by CPO-1,
“Procedures for Personal and Professional Services.”

SAO Annual Report Summary • Sum:31

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

20. We recommend that [Port
Construction Services] develop
a means of tracking the award of
contracts to ensure that a majority
of the work isn’t being repeatedly
awarded to the same contractors.

Port Construction Services does track
contract awards and has information
available on the distribution of both
contracts and the contract dollars
awarded. The Port notes that the current
distribution is based entirely on award
to the responsible bidder submitting
the lowest price. Nonetheless, the Port
will evaluate the distribution of Small
Works Roster Program awards and will
also look carefully at the suggestion to
distribute Port contracts on a basis other
than low bid. In fact, this appears to tie
to the Port’s small business contracting
initiative. However, since this change
raises a major policy issue, it will require
careful consideration by and discussion
with the Port Commission and local
stakeholders.

Immediate Action:
20.a The Port will continue tracking and
reporting the distribution of small works
contracts using existing procedures.
Additional Action:
20.b The Port will work on enhancing its
current means of tracking and reporting the
distribution of small works contracts.
20.c PCS will work with the newly
established Office of Social Responsibility
and the Legal Department to investigate
alternatives other than lowest responsible
bidder for awarding small works contracts.
20.d Required procedures will be coordinated
and applied Port-wide for all users of the
Small Works Roster.

Contact
Person
Larry McFadden
PCS General
Manager

Completion
Date
7/31/08

Action Taken / Status
20.a. On April 7, 2008 this specific action item was completed.
The Port will continue to use existing systems to report
contract awards while working with ICT on possible
enhancements.
20.b. On March 20, 2008 a meeting was held with ICT to
address the current means of tracking and reporting on
small works contracts and possible enhancements.
On April 2, 2008 the ICT Governance Board approved
the expenditure of $187,000 for the Small Works Roster
Program Project.
A meeting was held on May 14, 2008 to address
enhancements to the Small Works Roster Program.
A meeting was held on May 21, 2008 to address
enhancements to the Small Works Roster Program.
A meeting was held on June 4, 2008 to address
enhancements to the Small Works Roster Program.
The working draft revisions (dated May 6, May 16, and
June 4, 2008) had been discussed.
On July 10, 17, and 31, 2008 meetings were held that
included ICT, OSR, CPO, PCS, and representatives from
the small business community to discuss alternatives for
awarding small works contracts as identified in item 20.c.
This specific action item continues to be worked on as
part of the Small Works Roster V2 Program Update. In
the meantime, the CPO will continue to invite quotations
from all contractors on the small works roster that have
indicated the capability of performing the kind of work
being contracted.
20.c. Meetings were held on March 6 & 26, April 17, May 19
& 27, and June 3, 2008 with representatives from Legal,
Centralized Procurement Office, Seaport Maintenance,
and the office of Social Responsibility. During the
meeting alternatives were discussed to ensure that
contracts were not being repeatedly awarded to the
same contractors and possibly not awarding to the lowest
responsible bidder.
On May 15, 2008 the Port of Seattle staff had the
opportunity to hear about the Regional Small Business
Development Program used in the Seattle School District
for Historically Underutilized Businesses (HUB)
On June 11, 2008 this specific action item was signed off
as being completed. An investigation of the alternatives
to ensure a more equitable distribution of contract awards
has been completed and is ready to move forward with
our recommendations as part of action item 20d.

Sum:32 • SAO Annual Report Summary

SAO Recommendation Dec 2007
20. cont.

Original Port Response Dec 2007

Actions Taken

Contact
Person

Completion
Date

Action Taken / Status
20.d. Currently the Port’s PeopleSoft Financial System and
PCS’s Project Management Information System both
have information available on contracts and the contract
dollars awarded.
On June 25, 2008 representatives from the Office of
Social Responsibility, Central Procurement Office,
Capital Development Division, Legal, Executive, and
Port Construction Services met to review alternatives for
awarding small works contracts, seek Executive and CPO
input/guidance, and reach agreement on how to proceed
forward. Upon final decision of a possible new process
for awarding contracts, the policy will be developed and
implemented.
On July 10, 17, and 31; August 7, 14, and 28; September
11 and 15; and October 30, 2008 meetings were held
that included ICT, OSR, CPO, PCS, and representatives
from the small business community to discuss policy
development, implementation procedures, and
enhancements to the Small Works Roster V2 project.
The decision made to proceed with development of
these alternatives will require additional and significant
enhancements to the Small Works Roster Program.
Further development and programming changes to the
existing system are on hold. ICT, OSR, and CPO will
finalize the alternatives and present them to the Senior
Executive Team.
On April 21, 2009 the Port Commission was briefed on a
proposed Small Works Roster Resolution.
On April 28, 2009 the Small Works Roster resolution was
presented and the First Reading of the resolutions was
passed by the Commission.
On May 5, 2009 the Second Reading and Final Passage
of Resolution No. 3616, The Small Works Roster
Resolution, was approved by the Commission.

SAO Annual Report Summary • Sum:33

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

21. We recommend that Small
Works Roster program controls
be established to assure that the
random rotation process cannot
be circumvented to allow preferred
contractors to be added to the
selection list.

The Port disagrees with this
recommendation. Except to advance
important societal objectives like those
reflected in the Port’s small business
contracting initiative, the Port does
not believe that it is in its best interest
to preclude interested bidders from
competing for Port contracts. The Port is,
however, currently reviewing the rotation
process and making appropriate revisions
to eliminate any ability to otherwise
circumvent that process.

The Port’s Action Steps to advertise to all
contractors with the applicable craft code are
addressed under Recommendations 10, 22, &
23.

Contact
Person
Larry McFadden
PCS General
Manager

Completion
Date
7/31/08

Action Taken / Status
While the Port disagrees with the auditor’s recommendation,
we took several steps to ensure that our project recruitment
processes, particularly those related to the Port’s Small Works
Roster, are as inclusive as possible and adhere to Washington
statutes. We believe these changes achieve the intent behind
the auditor’s recommendation.
21.a. On February 21and March 6, 2008 meetings were held
with those additional departments within the Aviation
Division, Seaport Division, and Corporate Division
that prepare, advertise, execute and administer small
works contracts. The purpose of this meeting was
to communicate the new required procedures and
processes that are to be followed when executing small
works contracts. Specifically, the Port will advertise to all
contractors with the applicable craft code.
Meetings were held on March 20 & 27, May 14 & 21,
and June 4, 2008 to discuss future enhancements to the
Small Works Roster Program.
The working draft revisions (dated May 6, May 16, and
June 4, 2008) had been discussed.
This specific action item continues to be worked on as
part of the Small Works Roster V2 Program update.
On July 10, 17, and 31, 2008 meetings were held that
included ICT, OSR, CPO, PCS, and representatives
from the small business community to discuss policy
development, implementation procedures, and
enhancements to the Small Works Roster V2 project.
Specific Action Item 21 is now complete and further
constraints of revisions to the Small Works Roster V2
Enhancement Project, associated with the random
contractor rotation process for bid announcements,
will be completed with the development of a solicitation
process for different size contacts as identified in Specific
Action Item 20.d. The Port of Seattle may change this
process as it redefines the Small Works Roster Program.

Sum:34 • SAO Annual Report Summary

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SAO Annual Report Summary • Sum:35

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

22. We recommend that [Port
Construction Services] require
contract files to include email and fax
confirmations for the advertisements
as proof that invitations to bid are
actually received by potential bidders.

Although currently complying with
all legal requirements related to the
advertisement of small works contract
opportunities, Port Construction Services
agrees with this recommendation and will
improve its documentation associated
with advertisements and bid notice
communications. Port Construction
Services intends to integrate this
documentation into the Small Works
Roster Program.

Immediate Action:
22.a The Port will continue to followup on any bid invitations returned as
“undeliverable” and proactively maintain
and update the information in the Small
Works Roster for accuracy to promote
broad competition on small works
contracts.
Additional Action:
22.b The Port will require documentation
for small works contracts to include
confirmation as proof that invitations to
bid have been sent, and to improve its
procedures to make the bid advertisement
as widely available as possible.
22.c Required procedures will be coordinated
and applied Port-wide for all users of the
Small Works Roster.

Contact
Person
Larry McFadden
PCS General
Manager

Completion
Date
6/12/08

Action Taken / Status
22.a. As of November 2007 the following documents are
now contained in the contract files as confirmation of
follow-up on those bid invitations that were returned as
“undeliverable.”
• Copy of the Abstract of Bids that identifies all the
firms that were invited to bid, which firms actually
bid on the contract, and their actual bid amount
• Small Works Roster Screenshot showing the
contract advertisement on the Port’s website
• List of all contractors invited to bid (also indicates
that it was publicly displayed on Port’s website
• List of all current contractors (as of March 7, 2008)
that are listed with the applicable craft code for
the work that is being advertised (Note: This list
constantly changes as new contractors are added
to the list or existing contractors are removed from
the active list)
• E-mail corrections / contacts log when applicable –
(Began checking on February 13, 2008 as a result
of working with the contractors to have them update
their contact information on the small works roster)
• Re-sent bid advertisements when applicable –
(Began resending on February 13, 2008 as a
result of working with the contractors to have them
update their contact information on the small works
roster)
During October 2007 the Port of Seattle began the
Account Information Update Project to update the Small
Works Roster (SWR) by sending out letters, e-mail
and faxes to 1,580 contractors on the roster that were
identified as active accounts.
Notices were placed in the Daily Journal of Commerce,
the NW Asian Weekly, and the Medium News that the
Port of Seattle was accepting requests for inclusion onto
the Port of Seattle Small Works Roster.
In May 2008 the Account Information Update Project was
completed with a total of 971 active accounts on the SWR.
On June 5, 2008 this immediate action item was
completed. All “undeliverable” bid invitations are being
followed-up on and the Small Works Roster has been
updated.
22.b. On November 16, 2007 actual work to address these
findings began with a decision by the Port to solicit bids
from all contractors under the applicable craft code for
each contract and to publicly display all contracts on its
website.
On February 21and March 6, 2008 the departments
that prepare, advertise, execute, and administer small
works contracts participated in discussions on this action
item and agreed to comply with these new required
procedures.

Sum:36 • SAO Annual Report Summary

SAO Recommendation Dec 2007
22. cont.

Original Port Response Dec 2007

Actions Taken

Contact
Person

Completion
Date

Action Taken / Status
A notebook has been created that contains information
on all bid advertisements beginning November 16, 2007
and ending March 31, 2008. Because these documents
are now required to be a part of the contract files, this
information will no longer be kept in a separate notebook.
On March 31, 2008 this immediate action item was
completed. All contract files are required to contain proof
that invitations have been sent and bid advertisements
have been widely distributed.
22.c. On February 21, 2008 a meeting was held in the office
of PCS to review immediate procedures and processes
that are being taken in response to the SAO audit. This
included the requirement that the contract files are to
have a list of all contractors that the solicitation was sent.
This will also demonstrate that it was displayed publicly
on the Port’s website.
On March 6, 2008 a meeting was held with those
additional departments within the Aviation Division,
Seaport Division, and Corporate Division that prepare,
advertise, execute and administer small works contracts.
The purpose of this meeting was to communicate the
new required procedures and processes that are to
be followed when executing small works contracts.
Specifically for this recommendation, there is a
requirement to ensure that the contract files contain a list
of all contractors to whom the solicitation was sent. This
will also demonstrate that it was displayed publicly on the
Port’s website.
On June 10, 2008 a meeting was held with all Contract
Administrators in the Central Procurement Office that
work on small works projects. The purpose of this
meeting was to review those procedures and processes
that are being taken by the Port in response to the SAO
Audit.
On June 12, 2008 this specific action item was signed off
on as being completed. Bid invitations are on the Port’s
website, all contractors with applicable craft code are
being invited to bid, “Undeliverable” invitations are being
followed-up on, and the Small Works Roster Program
had been updated.

SAO Annual Report Summary • Sum:37

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

Contact
Person

23. We recommend that [Port
Construction Services] create controls
in the Small Works Roster Program
to ensure that all procurements are
advertised (i.e. that solicitations are
actually distributed to potential bidders
as required).

See response to Recommendation 22.

The Port’s action items regarding this
recommendation are addressed under
Recommendation 10.

Larry McFadden
PCS General
Manager

Completion
Date
7/31/08

Action Taken / Status
23.a. On February 21and March 6, 2008 meetings were held
to review immediate procedures and processes to ensure
that all procurements are advertised.
On March 20, 2008 a meeting was held to discuss future
enhancements to the Small Works Roster Program.
On May 14, 2008 a meeting was held with ICT and PCS
to discuss the latest revision, dated May 6, 2008 of the
business case (Titled Small Works Roster V2) for future
Small Works Roster Program enhancements. There were
several modifications requested.
Meetings were held to discuss the latest revisions (dated
May 16, 2008 and June 4, 2008) of the business case
(titled Small Work Roster V2) for future Small Works
Roster Program enhancements. There were several
modifications requested.
On July 10, 17, and 31, 2008 meetings were held that
included ICT, OSR, CPO, PCS, and representatives
from the small business community to discuss policy
development, implementation procedures, and
enhancements to the Small Works Roster V2 project.
Specific Action Item 23 is now complete and further
constraints of revisions to the Small Works Roster V2
Enhancement Project, associated with the random
contractor rotation process for bid announcements,
will be completed with the development of a solicitation
process for different size contacts as identified in Specific
Action Item 20.d. The Port of Seattle may change this
process as it redefines the Small Works Roster Program.

24. We recommend that [Port
Construction Services] develop
consistent bid evaluation criteria,
particularly when the descriptions of
work state that “[Port Construction
Services] is unable to determine the
precise types of work that may be
performed under this contract at this
time.”

The Port will review and evaluate its
process regarding open order contracts
and make changes as appropriate
to ensure fair competition among all
potential bidders.

Immediate
eA
Action:
24.a The Port will continue to ensure bid
evaluations are developed prior to bid
opening of any small works contract, and
that documentation of this process is
included in the contract file.
Additional Action:
24.b PCS will work with Purchasing and
Legal departments to review and evaluate
its current bid evaluation process and
identify possible improvements.
24.c Required procedures will be coordinated
and applied Port-wide for all users of the
Small Works Roster.

Larry McFadden
PCS General
Manager

7/31/08

24.a. On February 21 and March 6, 2008 meetings were
held with departments affected to communicate the
new required procedures and processes that are to
be followed when executing small works contracts.
Specifically there is a requirement to ensure that bid
evaluations are developed prior to the bid opening for
every small works open order contract and that the
documentation is included in the contract file.
On April 7, 2008 this specific action item was signed off
as being completed. Bid evaluations will continue to be
developed prior to the bid opening while the bid matrix
evaluation process is being reviewed as identified in
action item 24b.
24.b. Meetings were held on April 21, May 8, and June 5 & 11,
2008 to review language edits and discuss this specific
action item.
On June 16, 2008 this specific action item was signed off
as being completed.
24.c. The Port completed its evaluation of this action item
and identified changes to be made in the bid documents
regarding the evaluation process for time and materials
contracts. The required procedures have been
coordinated and applied Port-wide for all users of the
Small Works Roster.

Sum:38 • SAO Annual Report Summary

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

25. We recommend that the [Port]
Commission revise Resolution
3181 to make it clear that, when
circumstances requiring reporting
under Paragraph V (Contract
Administration/Bid Irregularities)
occur, [The Port] should provide full
and complete information and allow
the Commission adequate time for
deliberation and decision-making.

Port staff currently notifies the Port
Commission of all bid irregularities and
provides a window of time within which
the Port Commission can consider and
provide input on those irregularities.
Nonetheless, Port staff will look for and
recommend ways in which it can increase
transparency and oversight by the Port
Commission in connection with bid
irregularities. The Chief Executive Officer
will review these recommendations with
the Port Commission for approval and
formal adoption.

On January 8, 2008, the Port Commission
established a subcommittee to review the
delegation of Commission authority currently
described in Resolution 3181.
• Commissioners Davis and Tarleton will
serve on the subcommittee.
• May retain outside experts.
The subcommittee will report to the
Commission on proposed amendments by
June 30, 2008.

Contact
Person
Commissioners
Davis/Tarleton

Completion
Date
8/26/08

Action Taken / Status
25.a. On January 8, 2008 the Port of Seattle passed a motion
establishing a Commission Subcommittee to review the
Delegation of Authority.
On May 1, 2008 the Subcommittee held its first hearing
to accept public comment on proposed changes to the
Delegation of Authority.
On May 13, 2008 the Port opened a 30 day public
comment period on Delegation of Authority.
On June 10, 2008 the Port extended the public comment
period to June 30, 2008. Also, the Subcommittee held its
second hearing to accept public comment on proposed
changes to the Delegation of Authority. At the same time,
the Port invited employees to comment on the subject.
On June 23, 2008 the Subcommittee held its third
hearing to accept public comment on the proposed
changes to the Delegation of Authority.
On July 1, 2008 the Subcommittee reported to the full
Commission and presented a summary of recommended
changes to the Delegation of Authority.
On August 5, 2008 Tom Barnard, Commission Research
and Policy Analysis, presented a consolidated draft of the
revised delegation of authority to the full Commission.
On August 12, 2008 the Commission passed the first
reading of Resolution 3605, repealing Resolution 3181,
and restating the master policy directive on the role and
responsibilities of the Port of Seattle Commission and the
administrative authority of the Chief Executive Officer.
On August 26, 2008 the Commission passed the
second reading and adopted Resolution 3605, repealing
Resolution 3181, and restating the master policy directive
on the role and responsibilities of the Port of Seattle
Commission and the administrative authority of the Chief
Executive Officer.

SAO Annual Report Summary • Sum:39

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

26. We recommend that the [Port]
Commission re-evaluate the policy
under which [Port] management
has carte blanche approval and
spending authority under project-wide
authorizations regardless of project
size and, instead, develop more
sensible requirements for [The Port] to
fully inform the Commission regarding
significant or unusual expenditures of
public funds.

In connection with project-wide
authorizations, the Port Commission
currently identifies the specific staff
vested with authority to act and places
bounds on that authority. Nonetheless,
Port staff will review the practice
of project-wide authorizations and
recommend additional notifications
and/or limitations to ensure adequate
oversight by the Port Commission.
The Chief Executive Officer will review
these recommendations with the Port
Commission for approval and formal
adoption.

On January 8, 2008, the Port Commission
established a subcommittee to review the
delegation of Commission authority currently
described in Resolution 3181.
• Commissioners Davis and Tarleton will
serve on the subcommittee.
• May retain outside experts.
The subcommittee will report to the
Commission on proposed amendments by
June 30, 2008.

Contact
Person
Commissioners
Davis/Tarleton

Completion
Date
8/26/08

Action Taken / Status
26a. On January 8, 2008 the Port of Seattle passed a motion
establishing a Commission Subcommittee to review the
Delegation of Authority.
On May 1, 2008 the Subcommittee held its first hearing
to accept public comment on proposed changes to the
Delegation of Authority.
On May 13, 2008 the Port opened a 30 day public
comment period on Delegation of Authority.
On June 10, 2008 the Port extended the public comment
period to June 30, 2008. Also, the Subcommittee held its
second hearing to accept public comment on proposed
changes to the Delegation of Authority. At the same time,
the Port invited employees to comment on the subject.
On June 23, 2008 the Subcommittee held its third
hearing to accept public comment on the proposed
changes to the Delegation of Authority.
On July 1, 2008 the Subcommittee reported to the full
Commission and presented a summary of recommended
changes to the Delegation of Authority.
On August 5, 2008 Tom Barnard, Commission Research
and Policy Analysis, presented a consolidated draft of the
revised delegation of authority to the full Commission.
On August 12, 2008 the Commission passed the first
reading of Resolution 3605, repealing Resolution 3181,
and restating the master policy directive on the role and
responsibilities of the Port of Seattle Commission and the
administrative authority of the Chief Executive Officer.
On August 26, 2008 the Commission passed the
second reading and adopted Resolution 3605, repealing
Resolution 3181, and restating the master policy directive
on the role and responsibilities of the Port of Seattle
Commission and the administrative authority of the Chief
Executive Officer.

Sum:40 • SAO Annual Report Summary

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

27. We recommend that [The Port]
begin preparing and providing the
semi-annual report summarizing
contracts awarded under Resolution
3181, Paragraph V (Contract
Administration/Bid Irregularities) as
required.

The Port agrees and has already
implemented this recommendation.

Immediate Action:
27.a This semi-annual reporting requirement
has been implemented. The next semiannual report is due to be published
January 30, 2008 and will cover the period
of July through December 2007.

Contact
Person
Ray Rawe
Chief Engineer

Completion
Date
6/10/08

Action Taken / Status
27.a. On August 30, 2007 the 1st Semi-annual report was
submitted for the time frame of January – June 2007.
On January 30, 2008 the 2nd Semi-annual report was
submitted for the time frame of July – December 2007.
27.b. As of April 1, 2008 a list of all projects greater than
$10 million and a draft reporting format for the January
through March 2008 report were presented to the
Commission. A report will be made to the Commission in
May of only those projects that have an exception.

Additional Action:
27.b On January 8, 2008, the Commission
passed a motion directing that quarterly
reports be given to the Commission for
each capital project with approved funding
over $10 million. Staff is developing a report
format to meet this new requirement.

27.c. On April 22, 2008 a request was made to the
Commission to postpone the submission of 1st quarter
2008 reports until May 23, 2008 in order to have
additional time to provide a uniform format. The next
available meeting to present the exceptions would be
June 10, 2008.

27.c The reports will be presented to the
Commission in public session quarterly
and published on the Port’s Web site. The
first report will cover the period January to
March 2008.

On May 21, 2008 the 1st Quarter 2008 reports were
posted to the Port’s web page.
On June 10, 2008 the 1st Quarter 2008 projects
were presented to the Commission. Projects that had
variances were discussed.

28. We recommend that when the
[Port] general counsel is asked to
provide legal advice, he document
the advice provided so that a clear
record of his analysis and advice is
established and retained.

The Port agrees that legal advice
provided in connection with significant
contracting decisions should be
reflected in writing. While the degree of
formality associated with those records
will vary depending on the needs and
circumstances, the fact of review should
be captured.

Immediate Action:
The Port will record
rd the fact of legal
al review
in connection
o with significant ccontracting
racting
decisions.
ons.

Craig Watson
so
General Counsel
G

1/29/08

28.a. As of April 1, 2008 this recommendation has been
discussed in a regularly scheduled attorney meeting and
direction given by the general counsel to all attorneys to
reflect any significant contracting decisions in writing.

29. We recommend that [The Port]
reassign Consultant SK to a position
where he has no conflict of interest.
We also recommend that [The Port]
either establish an ethics policy for
consultants or revise [Port] Policy
EX-3 to make it clear that [Port]
consultants are expected to adhere
to at least the same ethical standards
that [Port] employees are required to
follow.

The Port has fully reviewed the
circumstances surrounding Consultant
SK and finds no conflict of interest. As
a result, there is no need to reassign
Consultant SK. Existing consultant
contracts include a prohibition on
conflicts of interest. Nonetheless,
the Port agrees that it should adopt
an additional clear policy statement
reflecting the ethical standards to which
it expects its consultants to adhere and
will, in consultation with relevant industry
groups, develop such a policy statement.

Immediate Action:
i
29.a All consultant contracts at the Port will
now require that consultants adhere to
relevant portions of the Port’s Employee
Ethics Code.

Craig Watson
General Counsel

3/17/08

After full review of the circumstances, the Port does not believe
that Consultant SK’s position represented a conflict of interest.
The Port has adopted a clear policy statement reflecting ethical
standards for consultants, which we believe addresses the
auditor’s underlying concern.

29.b The Port will draft specific language
in PSAs and will develop a proposed
consultant’s ethics code.
29.c Presentation to the Commission.

29.a. On March 7, 2008 Ethics Policy for Port Consultants
(EX-16) was created.
29.b. On March 6, 2008 PSA agreements were revised for
Agreements valued at $50,000 or less and Agreements
valued at more that $50,000 by adding section XII Ethics
and Interest of Consultants.
29.c. As of March 6, 2008 PSA agreements were revised for
Agreements valued at $50,000 or less and Agreements
valued to more than $50,000 and by adding section XII
Ethics and Interest of Consultants.
On March 17, 2008 EX-16 was created.

SAO Annual Report Summary • Sum:41

This page left blank

Sum:42 • SAO Annual Report Summary

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

30. We recommend that [Port] Policy
EX-3 be (a) clarified to make clear
that conflicts of interest are not limited
solely to situations where there is
a direct financial interest and (b)
revised to require employees and
consultants to recuse themselves
from participating in decisions where
conflicts of interest exist.

The Port’s Ethics Policy currently
recognizes and prohibits conflicts beyond
those that are strictly financial. A review
of the Port’s Ethics Policy for employees
is currently underway. As part of this
review, the Port will ensure the policy
is consistent with both government and
industry best practices and will implement
revisions as appropriate.

Immediate Action:
30.a The Port’s Employee Ethics Code was
revised and republished in December 2007.
Its provisions are now consistent with the
State of Washington Ethics Code as well as
similar codes adopted by the City of Seattle
and King County. The Port’s code now
clearly states that it extends to both actual
conflicts and the appearance of conflicts of
interest.

Contact
Person
Craig Watson
General Counsel

Completion
Date
12/07

Action Taken / Status
30.a. As of December 21, 2007 a revised Ethics Policy for
Port Employees (EX-3) is in place.

SAO Annual Report Summary • Sum:43

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

31. We recommend that [The Port]
develop, implement, and enforce
control procedures that include timely
updating for the SPOTS, PACT, and
PMIS systems with accurate project
information until the project is closed
out and the project data are archived.

The Port agrees that timely and accurate
updates of its management information
systems are vital and will evaluate
opportunities for additional improvement
to its practices with respect to the use of
the SPOTS, PACT and PMIS systems.
As an example of this commitment, the
Seaport Project Management group
recently staffed a Project Controls office
to ensure timely and accurate updates of
SPOTS.

The Port has control procedures that include
timely updating with accurate information for
the Seaport Project Office Tracking System
(SPOTS), Parsons Aviation Cost Trends
(PACT), and PMIS systems until the project
is closed and the project data is archived.
The standard for timeliness is different for
the various systems. Seaport and Aviation
projects can last several months or, in some
cases, five or more years. Conversely, PCS
projects can be as short as one day. Therefore,
project management information needs differ
significantly.
Immediate Action:
31.a The Port is committed to effectively
using and improving these systems, and
several efforts are underway to actively
improve them, including the following:
SPOTS: Seaport Project Management has
staffed a dedicated Project Controls office
ice
to ensure timely and accurate updatess of
SPOTS.
PACT: Aviation Project M
Management
has
gement h
s
written procedures
dures for the system
stem and hass
assigned
ned a dedicated
d dicated staff
sta of 12 to track
and
nd update the PACT system.
system
PMIS:
staff
IS: PCS will emphasize
mph
accountability
for accurately
updating
ountability fo
ac
projects
and will continue to
cts and contracts,
c
use weekly
eek management reports to monitor
accuracy and timeliness of project and
contract information.
Additional Action:
31.b The Port will evaluate the possibility of
acquiring a single source project control
system that would be used across the
Port’s capital project delivery system.

Sum:44 • SAO Annual Report Summary

Contact
Person
Curt Stahlecker
Seaport Programs
Controls Manager

Completion
Date
6/14/08
5/22/09

Action Taken / Status
31.a. As of September 12, 2007 the staffing of a dedicated
Seaport Project Controls Office was completed. Monthly
Project Controls meetings were set up to provide the
Project Controls Team with time for verification of
information accuracy in SPOTS and in PeopleSoft.
Starting on September 20, 2007 the Project Controls
Office issued monthly reports for the Project Managers
to review. The information will be used to facilitate the
monthly meetings.
On November 9, 2007 the Seaport Project Management
Team was requested to transmit project related financial
information to the Project Controls Office. This minimizes
the possibility of disconnect between databases and
provide a central control procedure.
On January 28, 2008 a spreadsheet (DM651303) was
created to track updates to the SPOTS database from
PeopleSoft.
As of January 29, 2008:
• Contracts information is managed by the Engineering Department. The contract information in PACT
is used at the Discretion of the Project Manager.
When a new enterprise wide system is implemented
functionality will be evaluated to determine if contract
information can be maintained in the system.
• The MARGEN system is used to report on
Authorization, Budget, and Expenditures. This
report is generated on a monthly basis and
extrapolates information form both PACT and
PeopleSoft. Reconciliation capabilities are there.
• Project Schedule Dates maintained at the contract
level are not the official records for the contract. The
official information is maintained by the Engineering
department. Project schedule is maintained in
Primavera which is included in MARGEN reporting
and is periodically reconciled with PeopleSoft.
When a new enterprise wide system is implemented
functionality to match schedule information between
the two systems will be considered.
• Aviation control procedures include creating
trends for construction change orders. This is
done on a monthly basis and more often if need
arises. Project or program contingency may be
utilized to cover these change order amounts if it
is determined that the construction contingency
is insufficient to cover the specific change order
or the trend of change orders shows a significant
increase to the contract.
• When a new enterprise wide system is implemented
the functionality will be evaluated to determine if
contract information can be maintained in the system
and follow into the trending system. If so, this would
eliminate the need to process monthly construction
change order trends in the project management
system.

SAO Recommendation Dec 2007
31. cont.

Original Port Response Dec 2007

Actions Taken

Contact
Person

Completion
Date

Action Taken / Status
• Actual costs are captured in PACT on a monthly
basis at the end of the reporting month. If the
actual amounts were compared to the month end
reports there would be a discrepancy due to the
timing difference between the actual end of the
month and the closing of the books at months end
by accounting. The decision to complete an earlier
capture in PACT is to provide more timely reporting of
data and avoid the most significant exclusions of prorated overhead. This practice will continue.
As of March 6, 2008 the Project Control Office Mailbox
is in use allowing for the centralization of requests for
amendments and new work project requests at the
Seaport. This is available to all members of the Project
Control staff and allows the staff to keep SPOTS up to date.
31.b. On February 21, 2008 the ICT Department formed
a team that was comprised of technical experts and
representatives from each of the project management
groups to conduct the evaluations.
On April 18, 2008 a thorough review and evaluation of
the existing systems was conducted. This review included
evaluations of technical architecture, data integrity,
system security, functionality and ability of the systems
to meet business requirements for managing projects. A
report was presented that documented the findings.
On April 30, 2008 alternative project control systems
were evaluated through both system demonstrations and
response to requests for information. A table representing
this information was developed.
On May 30, 2008 a review of systems used in other
organizations was conducted and documentation was
made on the discoveries.
On June 6, 2008 a draft report with evaluations and a
recommendation for proceeding with a new enterprise project
delivery system was prepared and reviewed by the team.
As of June 10, 2008 the report had been reviewed by the
team and a final draft was prepared for submittal to the
ICT Governance Board.
On June 11, 2008 the report was presented to the ICT
Governance Board.
On June 14, 2008 a final report was completed.
On November 25, 2008 the Port Commission approved
Resolution No. 3607 adopting the Port’s annual budget, this
included funding for a new enterprise project delivery system.
On April 21, 2009 the Port Commission approved
$1,975,000 for the acquisition of a new enterprise project
delivery system.
On May 22, 2009 the Port announced Skire as the vendor
selected to provide the enterprise project delivery system.
SAO Annual Report Summary • Sum:45

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

32. We recommend that [The Port]
develop policies and procedures for
ensuring that [PeopleSoft Financial
System] data are consistent with data
maintained in the other systems.

The Port disagrees with this
recommendation. PeopleSoft Financial
System is the Port’s general ledger and
project costing software. PeopleSoft
is not a project management tool.
PeopleSoft is the definitive source for
data on all Port financial transactions.

Currently, the Port updates from PeopleSoft to
PMIS daily for reporting, SPOTS twice weekly,
and PACT at least monthly. These frequencies
meet and match the requirements for the Port
project control systems.
Additional Action:
32.a The Port will evaluate the possibility of
acquiring a single source project control
system that would be used across the
Port’s capital delivery system.

Contact
Person
Kim Albert,
Senior Manager,
IT Business
Services

Completion
Date
6/14/08
5/22/09

Action Taken / Status
As stated in the Port’s original response, PeopleSoft is not
a project management tool. The Port’s ICT Department has
researched available systems and made a recommendation
for a dedicated project management system to the ICT
Governance Board.
32.a. On February 21, 2008 the ICT Department formed a
team comprised of technical experts and representatives
from each of the project management groups to conduct
the evaluations.
On April 18, 2008 a thorough review and evaluation of
the existing systems was conducted. This review included
evaluations of technical architecture, data integrity,
system security, functionality and ability of the systems
to meet business requirements for managing projects. A
report was presented that documented the findings.
On April 30, 2008 alternative project control systems
were evaluated through both system demonstrations and
response to requests for information. A table representing
this information was developed.
On May 30, 2008 a review of systems used in other
organizations was conducted and documentation was
made on the discoveries.
On June 6, 2008 a draft report with evaluations and a
recommendation for proceeding with a new enterprise
project delivery system was prepared and reviewed by
the team.
On June 10, 2008 the report had been reviewed by the
team and a final draft was prepared for submittal to the
ICT Governance Board.
On June 11, 2008 the report was presented to the ICT
Governance Board.
On June 14, 2008 a final report was completed.
On November 25, 2008 the Port Commission approved
Resolution No. 3607 adopting the Port’s annual budget,
this included funding for a new enterprise project delivery
system.
On April 21, 2009 the Port Commission approved
$1,975,000 for the acquisition of a new enterprise project
delivery system.
On May 22, 2009 the Port announced Skire as the
vendor selected to provide the enterprise project delivery
system.

Sum:46 • SAO Annual Report Summary

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

33. We recommend that SPOTS
be revised to include information
regarding change order costs.

Currently, change order costs for
Seaport contracts are accurately tracked
outside of SPOTS. The Port will assess
whether the benefit of upgrading SPOTS
to include this information offsets the
costs associated with doing so and make
upgrades as appropriate.

SPOTS will be revised to include information
regarding change order costs.
Immediate Action:
33.a Establish a CA/CM/PM/ICT working
group.
Additional Action:
33.b Develop a plan for including change
order costs in SPOTS.

Contact
Person
Curt Stahlecker
Seaport Program
Controls Manager

Completion
Date
5/22/09

Action Taken / Status
33.a. On February 23, 2008 the working group was
established
33.b. & c. The POS is proceeding with the procurement of
an enterprise wide Project Delivery System (See SAO
34). The new system replaces SPOTS and PACT/
MARGEN and will incorporate change order costs.
Procurement and implementation of the Project Delivery
System resolves this recommendation and the decision
to procure the system completes work on these action
steps.

33.c Upgrade SPOTS to include change
order costs information.

SAO Annual Report Summary • Sum:47

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

34. We recommend that [The Port]
enforce contract requirements
for project schedule updates so
forecasted project completion
dates can be accurately recorded
in the [Port’s] project management
information systems. We recommend
that [The Port] implement a means
of tracking current forecasted project
completion dates, current change
order amounts, original budget
amounts, commission funding
authorizations, budget transfers in
all of its management information
systems (SPOTS, PACT/Margen,
PMIS).

The Port continues to look for integrated
software solutions to meet its project
management needs and, until one is
sourced, will be proactive in making
improvements to its current information
systems. Currently, detailed project
schedules are maintained outside of
SPOTS, PACT and PMIS. The Port will
assess whether the benefit of upgrading
these systems to include detailed
schedule information offsets the costs
associated with doing so and make
upgrades as appropriate.

Additional Action:
34.a The Port’s response to schedule issues
is addressed under Recommendation 5.
34.b The Port’s response to project control
systems issues is addressed under
Recommendation 31, Action Stem 31.b.

Contact
Person
Ray Rawe
Chief Engineer

Completion
Date
5/22/09

Action Taken / Status
34.a. The Review and Acceptance Forms for
Recommendation 5 describe the actions the Port has
taken to improve enforcement of schedule provisions
in construction contracts. The decision to proceed
with a Port-wide project management system is
pending. At present the current scheduling systems
are adequate for the Port’s needs. With the completion
of Recommendation 5 issues related to this item and
schedules are complete.
34.b. On February 21, 2008 the ICT Department formed a
team comprised of technical experts and representatives
from each of the project management groups to conduct
the evaluations.
On April 18, 2008 a thorough review and evaluation of
the existing systems was conducted. This review included
evaluations of technical architecture, data integrity,
system security, functionality and ability of the systems
to meet business requirements for managing projects. A
report was presented that documented the findings.
On April 30, 2008 alternative project control systems
were evaluated through both system demonstrations and
response to requests for information. A table representing
this information was developed.
On May 30, 2008 a review of systems used in other
organizations was conducted and documentation was
made on the discoveries.
On June 6, 2008 a draft report with evaluations and a
recommendation for proceeding with a new enterprise
project delivery system was prepared and reviewed by
the team.
As of June 10, 2008 the report had been reviewed by the
team and a final draft was prepared for submittal to the
ICT Governance Board.
On June 11, 2008 the draft report was presented to the
ICT Governance Board.
On June 14, 2008 a final report was completed.
On November 25, 2008 the Port Commission approved
Resolution No. 3607 adopting the Port’s annual budget,
this included funding for a new enterprise project delivery
system.
On April 21, 2009 the Port Commission approved
$1,975,000 for the acquisition of a new enterprise project
delivery system.
On May 22, 2009 the Port announced Skire as the
vendor selected to provide the enterprise project delivery
system.

Sum:48 • SAO Annual Report Summary

Contact
Person

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

35. We recommend that [The Port]
establish a central repository for
Project Notebooks within each [Port]
division.

The Port agrees and intends to establish
a central repository within each division
for Project Notebooks.

Immediate Action:
35.a The Port will establish a central
repository for Project Notebooks within
each division.

Curt Stahlecker
Seaport Program
Controls Manager

36. We recommend that [The Port]
develop a check-out and tracking
system for the Project Notebooks and
utilize it.

The Port agrees and intends to establish
an appropriate check-out and tracking
system for Project Notebooks.

Immediate Action:
36.a The Port will develop and utilize a
check-out and tracking system for the
Project Notebooks.

Curt Stahlecker
Seaport Program
Controls Manager

This item will be completed in conjunction
with Recommendation 35.

Completion
Date
2/5/08

Action Taken / Status
35.a. On January 2, 2008 a request was made that a central
notebook repository be established in each division.
On February 5, 2008 a central notebook repository was
established for both the Seaport and the Airport Divisions

2/5/08

36.a. On January 27, 2008 a request was made of project
management staff to have a central repository notebook
check out policy in place by February 5, 2008.
On February 5, 2008 notebook repository procedures
were developed and implemented.

SAO Annual Report Summary • Sum:49

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

37. We recommend that [The
Port] require project managers to
periodically and on a timely basis
update the Project Notebooks with
current Construction Trend Logs,
Change Order Logs, and Schedule
Updates.

The Port disagrees with this
recommendation because it would be
inconsistent with industry best practices.
Construction trend logs, change order
logs, and schedule updates are more
efficiently maintained elsewhere; and
including this information in Project
Notebooks would be redundant. The
earlier independent TKW performance
audit noted that the Port’s notebook
process is consistent with best industry
practices. The Port will continue to
implement the TKW recommendations
to ensure consistent Project Notebook
entries.

Immediate Action:
37.a The Port will continue current practices
for maintaining trend and change order
logs and schedule updates in existing data
management systems.
Additional Action:
37.b The Port will require PMs to update
Project Notebooks to support authorization
actions such as a change in status or
requests for Commission action.
37.c Improvements to the Project Notebooks
are being made in accordance with the
recommendations contained in the TKW
performance audit.

Contact
Person
Curt Stahlecker
Seaport Program
Controls Manager

Completion
Date
7/31/08

Action Taken / Status
The Port believes the recommendations contained in the TKW
audit report, received in 2007, better address the industry best
practices, and therefore, the Port has chosen to implement
those recommendations. However, the Port believes that
implementing those reforms will address the auditor’s concerns
about timely and accurate documentation in project notebooks.
37.a. As of October 30, 2007 the Port continues to maintain
trends, change order logs, and schedule updates with the
existing data management systems.
37.b. On February 5, 2008 procedures detailing setup of the
Central Notebook Repository were distributed to Project
Management staff.
On February 22, 2008 a directive was distributed to
the Project Management Group requiring notebooks
to be updated with Revisions to the Commission
Authorizations.
On March 31, 2008 procedures were established for
updating the notebooks and were distributed.
37.c. On July 17, 2007 a copy of the Internal Performance
Audit Tasks 7/05/08.xls spreadsheet was distributed via
email. This spreadsheet identifies the leads and team
members assigned to work on the TKW tasks.
On December 17, 2007 an outline was distributed to the
team for review and comment.
On December 20, 2007 the redline version of the
notebook outline was transmitted to PEMC.
On January 30, 2008 the notebook team was reengaged and resumed bi-weekly meetings and writing
assignments.
On April 25, 2008 the notebook team presented the
current version of the notebook outline and the schedule
to PEMC.
On May 13, 2007 weekly team meetings are established.
During the months of June and July 2008 the draft
notebook guidelines were routed for edits and review.
On July 31, 2008 final notebook guidelines were
complete.

Sum:50 • SAO Annual Report Summary

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

Contact
Person

38. We recommend that [The Port]
integrate assessments of Project
Notebook completeness and quality
into the [Port] personnel performance
evaluation processes.

The Port agrees that accountability of its
personnel is important and will include
assessments of Project Notebooks in
connection with the Port’s Performance
Review, Evaluation and Planning
process.

The Port will integrate assessment of Project
Notebook completeness and quality into POS
personnel performance evaluations.

Anne Porter
Capital Project
Manager V

Completion
Date
3/31//08

Action Taken / Status
38.a. On March 13, 2008 the proposed language had been
drafted and was under review.
On March 31, 2008 an email with the final language
was sent out to Aviation project managers and to
Seaport project managers with direction to add to PREP
documents.

Immediate Action:
38.a The POS PREP documents will be
revised for Project Management staff
to include accountability for Project
Notebooks. Requirements will be defined
and will include:
• Notebook content;
• When notebooks will be submitted;
• When notebooks will be updated;
• Filing and maintaining notebooks.

39. We recommend that if [The Port]
continues including the [Construction
Document Management System]
requirement in its contracts, it develop
a system for monitoring each project’s
[Construction Document Management
System] data updates. This contract
requirement, just as any other, should
be enforced and controlled.

Livelink® – the Port’s Construction
Document Management System –
enhances efficiency and transparency
in connection with construction contract
management. The Port agrees that
timely, consistent use of Livelink® is
important on contracts where it is
employed and will, consistent with the
recommendation, take steps to ensure
and monitor its usage.

Immediate Action:
39.a Training for consistent application of
Livelink® by all document control specialists
was completed in December 2007.
Additional Action:
39.b Develop a process for determination
nation of
when a project will utilize Livelink®.
39.c Provide additional
onal training to
documentt control
contro specialists, construction
struct
management
gement and ccontract
ontract admin
administrative
stra
personnel
nel on when to
o use Livelink®.

Ray Rawe
Chief Engineer

4/22/08

39.a. As of December 7, 2007 the training for consistent
application of Livelink was completed.
39.b. On March 14, 2008 a policy was developed stating
Engineering’s commitment to using Livelink on all
projects, that any exceptions must go through a stated
approval process, and what the determining factors are
for such a decision.
39.c. On April 15, 2008 training was held with Document
Control Specialists.
On April 22, 2008 special announcement email sent to all
Livelink users to inform them of an upgrade scheduled for
June 30, 2008. This email included an attachment of the
Livelink Policies and Procedures. Livelink training is an
ongoing process as new projects start or new staff joins
a project.
On June 30, 2008 POS upgraded from Livelink version
9.5 to Livelink 9.7. Step-by-step instructions were
provided to the users on the changes/differences with
this new version.

SAO Annual Report Summary • Sum:51

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

40. We recommend that [The
Port] immediately undertake
a comprehensive review of its
contracts requiring use of Livelink® to
determine the full extent of contract
noncompliance and initiate corrective
actions accordingly.

The Port disagrees with this
recommendation since it believes that the
current use of Livelink® generally meets
its requirements. Nonetheless, the Port is
developing a procedures manual with its
document control specialists to enhance
Livelink® utilization consistent with Port
requirements in connection with each
active contract and will initiate corrective
action as required.

The Port will review contracts that require use of
Livelink® to determine the extent of any contract
noncompliance and initiate corrective actions.
Immediate Action:
40.a The Port is currently reviewing all
active projects to identify projects utilizing
Livelink® and the level of compliance with
the specifications.
40.b Initiate corrective actions.
40.c In October 2007, the Port initiated the
development of a procedures manual for
the use of Livelink®. The manual will be
complete in March of 2008.
Additional Action:
40.d Training of additional project and
construction staff as necessary.

Contact
Person
Ray Rawe
Chief Engineer

Completion
Date
4/23/08

Action Taken / Status
40.a. On February 28, 2008 an audit of all projects currently
open was completed to determine those projects utilizing
Livelink and their compliance with procedures.
On February 29, 2008 a memo was sent out to Contract
and Construction Managers noting which contracts
were not in compliance and the list of items that needed
correcting.
By April 23, 2008 memos giving status were updated
and memos stating that all contracts are now within
compliance had been received.
40.b. Between January 17 and March 6, 2008 meetings were
held with Document Control staff to ensure compliance
with policy and procedures of Livelink. Also, a request
to ITC was made to have Livelink explorer installed
on Construction Managers and Resident Engineers
computers.
On March 13, 2008 a step-by-step instruction on the
use of Livelink was provided to those individuals for the
upgrade that will take place on June 30, 2008.
40.c. From October 2007 to March 2008 the development
was completed for the policy and the procedures manual
for the use of Livelink. The completion date was March
14, 2008.
40.d. On November 8 and 9, 2008 meetings were held to
advise staff of Livelink updates that would be coming up,
provide preliminary training on the new procedures being
developed, and the review of LiveLink audit findings.
On June 30, 2008 POS upgraded from Livelink version
9.5 to Livelink 9.7. Step-by-step instructions were
provided to the users on the changes/differences with
this new version.

Sum:52 • SAO Annual Report Summary

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

Contact
Person

41. We recommend that [The Port]
take immediate steps to enforce all
contract provisions on all ongoing
and future contracts, particularly
provisions regarding [Critical Path
Method] project schedule submission
requirements and withholding of
contractor payments due to contractor
failures to comply with contract
requirements. [The Port] should
also be more aggressive in timely
assessing liquidated damages based
on contemporaneous analyses of
delay impacts.

The Port disagrees with the facts
supporting this recommendation
and believes that its enforcement of
contract terms in the cases cited was
appropriate under the circumstances.
Nonetheless, the Port will review
whether opportunities exist to enhance
its enforcement of contract schedules,
evaluation of time extension requests,
and contemporaneous assessment of
liquidated damages. The Port will also
evaluate the practices of other state and
local agencies with respect to scheduling
and enforcement. When appropriate, the
Port will continue to withhold contractor
payments consistent with contract
documents and state law.

The Port’s response to schedule issues is
addressed under Recommendations 5.

Ray Rawe
Chief Engineer

Completion
Date
6/4/08

Immediate Action:
41.a The Port will continue to put contractors
on notice for liquidated damages, and
assess liquidated damages consistent
with contract documents and resolution
of disputed issues. When appropriate, the
Port will continue to withhold contractor
payments consistent with contract
documents and state law.

Action Taken / Status
41.a. On February 26, 2008 a compliance survey of all active
projects was performed that took into consideration
contract schedule requirements for each active project.
Items requiring action or response were identified and a
spreadsheet was created.
Between February 26 and April 4, 2008 Construction
Managers and Resident Engineers met to discuss
necessary action steps. This was done to facilitate the
recovery of liquidated damages requirements for each
contract in compliance.
As of April 4, 2008 all ongoing Airport contracts were
reviewed and found to be in compliance or proper
enforcement steps were in process. Resident Engineers
will continue to asses liquidated damages at the
appropriate time and as required by the contract.

Additional Action:
41.b The Port will review industry best
management practices for specifying
and implementing liquidated damage
enforcement.

41.b. On April 4, 2008 a team was established to benchmark
other government agencies practices and policies.
On June 4, 2008 the benchmarks were completed
for eight local agencies. A draft of the guidelines for
assessment and withholding of Liquidated Damages was
written and submitted for review.

42. We recommend that [The Port]
establish a fraud governance policy
that provides for the design and
implementation of a comprehensive
and coordinated approach to fraud
mitigation (deterrence, detection, and
prevention).

The Port agrees that it should have
a fraud governance policy. The Port
will research best practices in fraud
governance among other state and
local governments and will implement
policy enhancements as necessary.
If appropriate, the Port will integrate
this new policy with its Ethics Policy,
which the Port is currently revising. In
addition, the Port will, as part of its annual
compliance and financial audits, continue
to review its controls to deter, detect,
and prevent fraud and will implement
additional controls as appropriate.

Immediate Action:
42.a A draft fraud awareness
wareness an
and prevention
revention
policy hass been prepared
p epared and is circulating
irculating
internally
ally for final le
legal
gal review and co
comment
from Senior
enior Manage
Management.
men
Additional Actio
Action
42.b The policy
licy will
wil be incorporated into
existing Port policy HR 18, Standards of
Performance and Conduct. “Fraud” will
be included in the definition of “gross
misconduct” as set out in HR 18, for which
immediate termination without progressive
discipline may be imposed.

Craig Watson
General Counsel
G

3/21/08

42.a. As of March 7, 2008 a fraud awareness and prevention
policy had been implemented by the CEO as Port policy
EX-18 and is posted on the Port’s website.
42.b. As of March 7, 2008 Port Policy HR-18 had been
revised to include a reference to “Fraud, as defined and
determined in Port policy EX-18” in a section listing types
of situations that may be viewed as “gross misconduct”,
for which immediate termination without progressive
discipline may be imposed.
42.c. As of March 21, 2008 this reference was in place and
a Port-wide message from the CEO was sent out on the
Fraud Policy and the revision of HR-18.

42.c Notice of change and staff orientation
plan to be developed.

SAO Annual Report Summary • Sum:53

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

43. We recommend that [The Port]
initiate a comprehensive fraud
risk assessment focused on its
procurement and management
of construction and professional
services. This assessment should
focus on vulnerabilities to fraud under
current [Port] procurement processes
and the identification of possible fraud
schemes that may be occurring.

The Port agrees and will undertake a
comprehensive fraud assessment using
its internal audit and Financial Controls
Analysis teams.

Immediate Action:
43.a On January 22, 2008, the Port
Commission established a Special
Investigative Committee to investigate
the findings of the State Auditor’s 2007
Performance Audit of the Port.
Additional Action:
43.b Committee may hire legal counsel and
independent fraud investigator.
43.c Committee to recommend how the Port
should strengthen controls in areas deemed
vulnerable to fraud and recommend control
mechanisms designed to deter, prevent and
detect fraud.

Contact
Person
Commissioners
Tarleton/Bryant

Completion
Date
4/21/09

Action Taken / Status
43.a. On January 22, 2008 the Port of Seattle Commission
created a Special Investigative Committee to investigate
the findings of the State Auditor’s 2007 Performance
Audit. The Committee will investigate certain contracting
policies, procedures, and practices vulnerable to fraud or
under which fraud may have occurred. The Committee is
compromised of Commissioners Tarleton and Bryant with
Commissioner Bryant as the chair.
43.b. On February 22, 2008 the Port Commission passed a
motion to retain the services of Mike McKay, of McKay
Chadwell, to assist in the ongoing audit investigation.
43.c On December 3, 2008 McKay and his team provided their
final report to the Commission Sub-Committee. The report
(McKay Report) was presented to the full Commission by
Mr. McKay in public session on December 9, 2008.
The McKay Report identified ten findings of possible civil
fraud. In addition, the report identified areas in which
policies or laws were violated but fraud was not established
and areas in which neither violations of law or fraud were
established or where the conclusions of the State Audit
were not substantiated by fact.
In addition to the findings, the report contains eight recommendations for improvements. One concerned disciplinary
measures. The Port’s Chief Executive Officer reported to
the Port Commission regarding disciplinary measures in
December 2008. The Port’s Chief Executive Officer has
tasked members of the executive staff with implementing
the seven remaining recommendations. This internal Port
team assembled the McKay Report recommendations, Port
responses and a set of implementing action steps into a matrix
format. The resulting “Matrix” is accessible to the public on
the Port’s website. The internal team reviews and updates
the Matrix every two weeks. For each recommendation or
action step, the Matrix identifies the internal team member
accountable and establishes an estimated completion date.
In direct response to one of the recommendations, the
Port of Seattle is establishing a comprehensive ethics
compliance program. Specifically, the Port has committed
to developing a comprehensive workplace responsibility
awareness and training program, utilizing at a minimum, the
principles expressed in six existing policies, including: the
Ethics Policy for Employees, Ethics Policy for Consultants,
Fraud Awareness and Prevention, Anti-Harassment Policy,
ICT Appropriate Use Policy and Whistleblower Policy.
The compliance program will be built upon a new State-ment
of Values and Code of Conduct, with robust and regular
training and communication elements, as well as a structured
compliance component with accountability for encouraging
and tracking reporting of alleged violations, prompt and fair
investigation and consistent and appropriate discipline.
On April 21, 2009 the Port Commission was updated on the
implementation of the McKay Report Recommendations.
We consider recommendation 43 complete, as further
work will be tracked in the investigation response.

Sum:54 • SAO Annual Report Summary

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

44. We recommend that [The Port]
use the results of the fraud risk
assessment to revise its policies
and procedures in order strengthen
controls in the areas deem [sic]
vulnerable and implement specific
control mechanisms designed to deter,
prevent, and detect the fraud schemes
deemed to be viable.

Based on the outcome of the fraud
risk assessment, the Port will revise its
policies and procedures and implement
all necessary training to ensure that
employees both understand their
obligations with respect to fraud, and
adhere to the Port’s protocols regarding
fraud.

Additional Action:
44.a Further action will be taken in response
to recommendations of the independent
fraud investigator and the Commission
Special Investigative Committee.

Contact
Person
Joyce Kirangi
Internal Audit
Manager

Completion
Date
4/21/08

Also see Action Item for Recommendation
#43.

Action Taken / Status
44.a. On January 22, 2008 the Port of Seattle Commission
created a Special Investigative Committee to investigate
the findings of the State Auditor’s 2007 Performance
Audit. This committee will investigate certain contracting
policies, practices, and procedures vulnerable to fraud or
under which fraud may have occurred.
On February 12, 2008 the Commission passed a motion
to retain the services of Mike McKay, of McKay Chadwell,
to assist in the ongoing audit investigation.
On December 3, 2008 the Special Investigative Team
issued their final report to the Committee. The report was
reviewed with the Commission on December 9, 2008 and
presented in public session that same day.
The investigation identified 10 findings of civil fraud.
In addition the investigation identified areas in which
policies or laws were violated but fraud was not
established and areas in which neither violations of law
nor fraud were established or where the conclusions of
the State Audit were not substantiated by fact.
There were 8 recommendations listed in the investigative
report. The Port has developed an action plan to
implement those recommendations or document actions
previously taken that respond to the recommendations.
Implementation of the recommendations will be
completed in 2009.

45. We recommend that [The
Port] revise and strengthen its
policies regarding employee
conflicts of interest and establish
an organizational code of conduct
designed to make all [Port] employees
and consultants aware of their fraud
deterrence, prevention, and detection
responsibilities. Training on these
policies should be mandatory for all
existing and new employees and
annual update training sessions
should be mandatory.

The Port’s Ethics Policy broadly
addresses conflicts of interest, but the
Port will nonetheless look at that issue
as it proceeds with revisions to that
Policy. As noted above in response
to Recommendation 42, the Port
agrees that it should also have a fraud
governance policy and intends to develop
one consistent with best governmental
practices. The Port will also implement
communication and training protocols
related to these policies as appropriate.

Immediate Ac
Action:
45.a The Port’s Emplo
Employee
ee Ethics
E
Code was
revised and
nd republished
republis
in December 2007.
Its provisions
ons now are consistent with the
State of Washington Ethics Code as well as
similar codes adopted by the City of Seattle
and King County. Changes clarify that the
Port’s code extends to both actual conflicts
and the appearance of conflicts of interest.
45.b A draft fraud awareness and prevention
policy has been prepared and is circulating
internally for final legal review and comment
from Senior Management.
45.c The fraud awareness and prevention
policy will be incorporated by reference
into existing Port Policy HR 18, Standards
of Performance and Conduct. “Fraud”
will be included in the definition of “gross
misconduct” as set out in HR 18, for which
immediate termination without progressive
discipline may be imposed.

Craig Watson
General Counsel

3/7/08

45.a. On December 21, 2007 revised Ethics Policy for Port
Employees (EX-3) was established.
On December 31, 2007 this was e-mailed to all Port
employees.
45.b. On February 15, 2008 a Fraud Awareness & Prevention,
Loss of Public Funds &Assets Policy (EX-18) was
established.
On March 11, 2008 a memo was sent to all Managers
and Directors requiring all employees to read EX-18.
45.c. During the week of February 11, 2008 the Human
Resources and Development staff began revising existing
Port procedure HR-18, Standards of Performance and
Conduct, Corrective Action and Discipline.
During the week of February 25, 2008 the Port provided
revised HR-18 to General Counsel for review.
On March 7, 2008 the CEO approved HR-18.
During the week of March 10, 2008 the Port staff worked
with General Counsel and Public Affairs
As of March 21, 2008 this reference was in place and a
Port-wide message from the CEO was sent out on the
Fraud Policy and the revision of HR-18.

SAO Annual Report Summary • Sum:55

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

Contact
Person

46. We recommend that [The Port]
establish a fraud hotline through
which [Port] employees, consultants,
and contractors can report known
or suspected irregularities in the
procurement and management of
contracts.

The Port agrees and will implement a
fraud hotline as soon as practicable for
use by its employees, contractors, and
members of the public.

The Port’s Confidential Fraud Hotline is fully
implemented. The number is 1-877-571-5237.

Commissioner
Creighton

1/30/08

46.a. On March 7, 2008 a confidential fraud hotline was
established. The number is 1-877-571-5237.

47. We recommend that [The Port]
investigate the findings contained
in this report and take prompt
disciplinary and punitive actions,
including the direct involvement
of appropriate law enforcement
agencies. [The Port] should
also establish and enforce a
comprehensive policy for investigating
all future indicia of fraud.

As mentioned previously, the conditions
supporting this finding recast other
findings described by the Performance
Auditor elsewhere in this report. The
Port has fully responded to each of
these detailed findings, noting where
it believes the Performance Auditor’s
assessments and interpretations of
events are inaccurate or incomplete,
and openly acknowledging instances
where errors have been made, policies
have been occasionally circumvented,
and opportunities for improvement
exist. While the Port believes that it is
not vulnerable to fraud to the degree
suggested by the Performance Auditor,
it nonetheless takes such risk seriously
and has zero tolerance for fraud. If, in the
course of investigating and following up
on the findings and recommendations
of this report, the Port discovers fraud
of any kind it will take immediate action,
including notification of law enforcement
where appropriate.

Immediate Action:
47.a On January 22, 2008, the Port
Commission passed a motion establishing
a committee that will employ an
independent fraud investigator. Please see
the action steps for Recommendation 43.

Craig Watson
General Counsel

3/9/08

47.a. On January 22, 2008 Port of Seattle Commission
motion to create a Special Committee to investigate fraud
vulnerability was passed.

47.b The U.S. Attorney is currently
investigating matters raised by the SAO
Performance Audit Report. The Port has
communicated to the US Attorney’s Office
the Port’s full and complete cooperation
with this investigation.
47.c The Port has conferred with the U.S.
Attorney’s Office to ensure that any fraud
aud
investigation will not interfere with any
criminal investigation.
47.d The Port is
s implementing
implement
a fraud
awareness and
nd prevention
preventio policy,
licy, which is
rrently circu
ating interna
currently
circulating
internally for final le
legal
eview and Senior
Senior Management
Manageme
ent comment.
review
plementation of this policy will provide
Implementation
disci nary action for Port
for prompt disciplinary
oyees and for reporting to appropriate
employees
force
law enforcement
for any fraud discovered
(employees, contractors, others).
Additional Action:
47.e If, in the course of the Port’s own
fraud investigation or any of the external
investigations, fraud of any kind is
discovered, the Port will take immediate
action, including notification of law
enforcement where appropriate. Immediate
termination without progressive discipline
also may be imposed.

Completion
Date

Action Taken / Status

47.b. On January 11, 2008 a Port wide email was sent out
regarding the Department of Justice Investigation.
47.c. The Port’s outside counsel Yarmuth, Wilsdon, Calfo
PLLC and Daielson, Harrigan, Leyh & Tollefson LLP has
met with the U.S. Attorney’s Office to ensure that any
fraud investigation will not interfere with any criminal
investigation.
47.d. On February 15, 2008 a Fraud Awareness & Prevention,
Loss of Public Funds &Assets Policy (EX-18) was
established. On March 11, 2008 a memo was sent to all
Managers and Directors requiring all current employees
to read EX-18.
47.e. On February 15, 2008 a Fraud Awareness & Prevention,
Loss of Public Funds &Assets Policy (EX-18) was
established. On March 11, 2008 a memo was sent to all
Managers and Directors requiring all employees to read
EX-18.
On December 3, 2008 the Special Investigative Team
issued their final report to the Committee. The report was
reviewed with the Commission on December 9, 2008 and
presented in public session that same day.
The investigation identified 10 findings of civil fraud.
In addition the investigation identified areas in which
policies or laws were violated but fraud was not
established and areas in which neither violations of law
nor fraud were established or where the conclusions of
the State Audit were not substantiated by fact.
There were 8 recommendations listed in the investigative
report. The Port has developed an action plan to
implement those recommendations or document actions
previously taken that respond to the recommendations.
Implementation of the recommendations will be
completed in 2009.
In response to the findings and recommendations of
the special investigation the CEO has taken disciplinary
action.

Sum:56 • SAO Annual Report Summary

SAO Recommendation Dec 2007

Original Port Response Dec 2007

Actions Taken

48. We recommend that [The Port]
re-examine and clarify its policies
and guidelines on art expenditures
regarding (a) what “accessible and
visible to the public” means; (b) how
the 1-percent determination should be
made in cases where major projects
consist of portions that are clearly
outside the policy’s defined base; and
(c) when matters should be referred
back to the Commission for discussion
in public meetings. The guidelines
should also be revised to require
budget-versus-actual reporting for
each project so that accountability
is assured. The guidelines should
stipulate that the Art Oversight
Committee should document its
determination that specific projects
comply with all provisions, including
the recommended revisions above.

The Port’s Art Program has always been
subject to oversight and final approval by
the Port Commission (including the case
cited by the Performance Auditor), thus
assuring that the program is open and
transparent and that the public interest
is served by the Program. Nonetheless,
the Port will examine its policy in light of
these recommendations.

Immediate Action:
48.a Port staff has completed first draft of
revised Art Program Guidelines and PMG
procedure. The Guidelines and Procedures
address:

49 We recommend that the following
actions be taken with respect to the
internal audit function within [The
Port]:
• The internal auditor should be
given a direct reporting line to
both the [Port] CEO and the [Port]
Audit Committee and should not
be under the direct supervision
or management of or have
performance appraisals done by
either the Director of Accounting,
Internal Audit & Procurement
Services or the Chief Financial
Officer.
• The internal auditor should not be
able to be terminated without the
concurrence of the [Port] Audit
Committee.
• The [Port] Audit Committee should
meet at least monthly with the
internal audit manager, without the
presence of [Port] management.
• The [Port] Audit Committee
should review, have input into, and
approve the internal audit annual
work plan.

The Port generally agrees with this
recommendation. It notes, however, that
while it concurs that the Audit Committee
should be able to meet with the internal
audit manager without management
present, the specific timing will be
developed in collaboration with the Audit
Committee.

Contact
Person
Michael Feldman
Deputy Airport
Director

Completion
Date
8/26/08

Action Taken / Status
48.a. As of June 10, 2008 Project Reporting: Policy and
Guidelines have been revised to require budget versus
actual costs reporting.
48.b. As of June 10, 2008 revised guidelines and procedures
were presented to the Art Oversight Committee for
review.

• “Visible or accessible” determinations
• The 1 percent for art determinations.

48.c. On July 8, 2008 revised Port of Seattle Art Program
Policy and Guidelines were presented to the Port
Commission. At the request of the Commission, Port staff
worked with Commissioners Davis and Tarleton to make
revisions to the proposed revised policy.

• Budget and cost accounting of art
projects.
Additional Action
48.b Present revised guidelines and
procedures to Art Oversight Committee
(that includes Commission membership) for
review.

On August 26, 2008 the Port of Seattle Commission
approved the revised Port of Seattle Art Program Policy
and Guidelines.

48.c Convene panel of outside art
administration professionals and community
experts to consider possible future
refinements to art policies and procedures,
based on best practices for public art.
Present best practices recommendations
to Art Oversight Committee and ultimately
ltima
to the entire Port Commission to ratify
procedures.
Reported Complete
mplet July 1, 2008
200

Tay Yoshitani
CEO

1/1/08

49.a. As of January 1, 2008 the Port’s internal Audit function
reports to the Port Commission Audit Committee and the
Port CEO. Some daily management may be provided
by the Port Deputy CEO. The Internal Auditors will
schedule monthly meetings with the Port Commission
Audit Committee. The Port Commission Audit Committee
review, have input into and approve the internal audit
work plan and any resulting audit reports. The Internal
Auditor shall not be terminated without the concurrence
of the Port Commission Audit Committee and the Port
CEO.

SAO Annual Report Summary • Sum:57

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Sum:58 • SAO Annual Report Summary