Internal Audit Report

World Trade Center West Building
Management Agreement No.665
Audit Period

January 1, 2007 through December 31, 2008




Issue Date: May 5, 2009
Report No. 2009-06

Internal Audit Report
World Trade Center West Building Agreement No. 655 
Audit Period January 1, 2007  December 31, 2008

Table of Content
Internal Auditor's Report .............................................................................................. 3 
Executive Summary ...................................................................................................... 4 
Background ................................................................................................................... 5 
Audit Objectives ............................................................................................................ 5 
Audit Scope ................................................................................................................... 5 
Audit Approach ............................................................................................................. 5 
Conclusion ..................................................................................................................... 6 
Summary of Findings and Recommendations ........................................................... 7 
I.       Inadequate Monitoring Related to the Third-party Employee Compensation Costs Paid
by the Port 








2

Internal Audit Report
World Trade Center West Building Agreement No. 655 
Audit Period January 1, 2007  December 31, 2008

Internal Auditor's Report

We have completed an audit of World Trade Center West Building (WTC-W). The Port of
Seattle owns the WTC-W, and management of the WTC-W is outsourced to Wright Runstad &
Company (WR&C), a private company that oversees the day-to-day operations of the facility.
The Port Real Estate Property Management Department administers the management services
agreement.
We conducted the audit using due professional care. The audit was planned and performed to
obtain reasonable assurance of Wright Runstad & Company compliance with the management
lease agreement. We also evaluated the effectiveness of Port management's monitoring system
Port Management has the primary responsibility to establish and implement effective controls.
Our role was to assess and evaluate the controls in order to determine whether the controls
were adequate and operating effectively.
We have identified opportunities to improve the effectiveness of Port management's monitoring
practices, which are discussed in the subsequent sections of this report.
We extend our appreciation to Real Estate Property Management, Wright Runstad & Company
staff for their assistance and cooperation during the audit.



Joyce Kirangi, CPA
Internal Audit Manager






3

Internal Audit Report
World Trade Center West Building Agreement No. 655 
Audit Period January 1, 2007  December 31, 2008

Executive Summary
Audit Scope and Objective  The purpose of the audit was to determine whether:
1) Port management effectively monitored the agreement with Wright Runstad & Company.
2) Wright Runstad & Company complied with the provisions of the management services
agreement, as well as other applicable laws and regulations. 
Agreement Terms  The WTC-W (World Trade Center West Building) management
agreement with WR&C (Wright Runstad & Company) provides a management fee of $4,166.67
per month. All revenue generated by the Facility is remitted to the Port, and the Port pays for all
the Facility operating expenses, including costs related to compensation, benefits, and payroll
taxes for WR&C employees working at WTC-W Facility. 
The WR&C is responsible for the overall day-to-day management of WTC-W to include keeping
the building in good, clean and safe condition, handling complaints, maintaining tenant
insurances and collecting rents. 
Audit Result Summary  Wright Runstad & Company materially complied with the terms of
the agreement; however, we determined that the current Port monitoring system is not effective
in managing the risks associated with WTC-W management lease agreement. Specifically,
management monitoring over third-party employee compensation costs paid by the Port was
ineffective for the period under audit.








4

Internal Audit Report
World Trade Center West Building Agreement No. 655 
Audit Period January 1, 2007  December 31, 2008

Background
The Port of Seattle (POS) is the owner of the building located at 2200 Alaskan Way, known as
World Trade Center West Building (WTC  W). WTCW derives its revenues from leasing of
approximately 69,507 net rentable square feet for office and retail spaces.
At a fee, the Port has outsourced the day-to-day management of the WTC-W to Wright Runstad
& Company. All revenue generated by the Facility is remitted to the Port, and the Port pays for
all the Facility operating expenses, including costs related to compensation, benefits, and
payroll taxes for WR&C employees working at WTC-W Facility.

Financial Highlights
Table 1 - Revenue
Description             2006             2007             2008 
Lease Revenue            $920,405        $1,094,930        $1,281,335 
Source:     PeopleSoft GL Account 45410
Table 2 - Expense 
Description             2006             2007             2008 
3rd Party Mgmt
Operating Exp              $858,356          $944,735          $738,880 
Source:     PeopleSoft GL Account 64100 - 67700
Audit Objectives
The purpose of the audit was to determine whether:
1. Port management effectively monitored the agreement with Wright Runstad & Company.
2. Wright Runstad & Company complied with the provisions of the management services
agreement, as well as other applicable laws and regulations.

Audit Scope
The scope of the audit covered the period 2007 through 2008.

Audit Approach
Internal Audit performed the following audit procedures:

5

Internal Audit Report
World Trade Center West Building Agreement No. 655 
Audit Period January 1, 2007  December 31, 2008
Obtained an understanding of Wright Runstad & Co, Accounting Report Financial, and
Real Estate Management operations related to the WTC-W
Reviewed all applicable state and local laws, rules and regulations, and Port policies
Analyzed the data (internal and external) to achieve audit objectives

Conclusion
Wright Runstad & Company materially complied with the terms of the agreement; however, we
determined that the current Port monitoring system is not effective in managing the risks
associated with WTC-W management lease agreement. Specifically, management monitoring
over third-party employee compensation costs paid by the Port was ineffective for the period
under audit.













6

Internal Audit Report
World Trade Center West Building Agreement No. 655 
Audit Period January 1, 2007  December 31, 2008

Summary of Findings and Recommendations 

I.  Inadequate Monitoring Related to the Third-party Employee Compensation
Costs Paid by the Port
A system of monitoring is necessary to provide management with reasonable assurance of
compliance with agree-upon terms and conditions. Such a system should be based on an
analysis of risks related to the agreement and an identification of key controls that may mitigate
identified risks. Management then determines what controls to monitor and how the controls will
be monitored.
We concluded that the contractor, Wright Runstad & Company, was in compliance with the
terms of the agreement, but observed that the Port management monitoring system of the thirdparty
employee compensation needs improvement.
As part of the management services agreement, Port management has advanced some working
capital (funds) to Wright Runstand for the payment of the World Trade Center West Building's
day-to-day expenses. The Port pays for all costs related to the Facility, including costs related to
compensation, benefits, and payroll taxes for the Wright Runstad employees working at the
Facility. Wright Runstad uses the Port working capital (funds) to disburse these payments.
For the Wright Runstad employees working at the Facility, we observed that the Port paid their
benefits based on a certain percentage or estimate. The auditor tested the benefit estimate and
determined it was reasonable, but found no evidence where Port management had reviewed,
questioned, or was aware how employee benefits were calculated.
The auditor also found evidence that Port funds were used to pay for Wright Runstad employee
bonuses, although there was no evidence of a bonus program. Washington State Constitution
does not allow public entities to use public funds to make additional compensation for services
already rendered and compensated.
We acknowledge that Property management group does conduct monthly reviews of WTC-W
expenses, but the review does not seem to address meaningful risks related to this agreement.

Recommendation
Port management should implement an appropriate level of monitoring and review to
ensure that it is aware of what it pays at the World Trade Center West Facility related to
the third-party employee compensation costs. 


7

Internal Audit Report
World Trade Center West Building Agreement No. 655 
Audit Period January 1, 2007  December 31, 2008
Management Response
The Management Agreement grants Wright Rundstad & Company ("WR&C") the
discretion to hire, manage and terminate staff.  As described, all personnel hired by
WR&C for the World Trade Center West ("WTC-W") facility are WR&C employees and
not the Port's. While employee compensation cost components are not broken out as
separate line items, the Budget submitted by WR&C, and approved by the Port, includes
the total compensation for all employees assisting in the operation of the WTC-W facility.
Port staff agrees that employee compensation should be reviewed with more discrete
detail that identifies the various components of employee compensation. Port staff has
requested such detail as it relates to the 2009 budget and will request such detail in
future budget packages.













8