Port :S~
Commissioners                                                                   Tay Yoshitani
ofSeattle          Chief Executive Officer
Bill Bryant
Chair and President
Tom Albro                                       P.O. Box 1209
John Creighton                              Seattle, Washington 98111
Rob Holland                                   www. portseattle.org
Gael Tar1eton                                     206.728.3000

An audio of the meeting proceedings and meeting materials are available on the Port of Seattle
web site - http://www.portseattle.org/about/organization/commission/commission.shtml
NOTES FOR AUDIT COMMITTEE SPECIAL MEETING DECEMBER 7, 2010
The Port of Seattle Commission Audit Committee met in a special meeting at 8:30a.m., Tuesday,
December 7, 2010 in the Commission Chambers at Pier 69, 2711 Alaskan Way, Seattle, WA.
Committee members Albro, Tarleton and Miller were present, as well as CEO Tay Yoshitani and
Joyce Kirangi, Port Internal Audit Manager.
SPECIAL ORDER OF BUSINESS: PRESENTATION OF AWARD FOR PUBLIC SERVICE
Commissioner Tarleton gave outgoing volunteer public member Steve Miller a plaque in
recognition of his outstanding contribution to the work of the Audit Committee.  Other members of
the Committee and CEO Tay Yoshitani joined in thanking Mr. Miller for his three years of service
on the Audit Committee.
CALL TO ORDER
The committee special meeting was called to order at 9:00a.m. by Commissioner Gael Tarleton.
SPECIAL ORDER OF BUSINESS: RECOGNTION OF SERVICE
The Audit Committee recognized Records Supervisor Donna Wynn for her service as minute taker
and staffing the Audit Committee and also her service to the Port of Seattle Commission.
APPROVAL OF MINUTES
The minutes from the September and October Audit Committee meetings were approved.
Committee member Albro made the motion for approval.
Preliminary Discussion of 2011 Internal Audit Work Plan
Committee Chair Tarleton decided to put the discussion of the 2011 Internal Audit Work Plan as
the Committee's first order of business.  Internal Audit Director Joyce Kirangi turned the
presentation over to Jack Hutchinson, Senior Audit Manager, to lead the presentation of progress

December 7 SCM Audit Min
PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING
TUESDAY, DECMBER 7 2010                                    P. 2
through the 2010 Internal Audit Work Plan.  Mr. Hutchinson went through the process for
developing the year-long work plan, including quantitative and qualitative issues in the year before.
Internal Audit will work from Port-wide level on down to departments.  Internal Audit (lA} combined
the quantitative and qualitative issues, to see what the Port is facing in terms of different kinds of
risk.
Reviewing 2010, there were 18 exited audits. Commissioner Tarleton asked how many were
carry-overs, and Jack Hutchinson stated 4from 2009 were carried over, which meant 14 of the
audits were completed in 201 0. They also completed a number of special projects, including, for
example on PCI compliance work. Currently five audits are in the wrap-up stage, including public
parking department, Republic Parking, concession audit, which the Real Estate Division is
handling, and crane rentals, which were held off due to State Auditor's Office (SAO) work in that
area.  Commissioner Tarleton stated she was asking because she was looking at totals for years
past, in order to see the trend in capacity, and that the Committee should be conscious of this in
planning the 2011 work plan. Ms. Kirangi agreed that using prior history as baseline is useful.
Commissioner Albro stated that a certain amount of carry-over items from year to year is
acceptable. This allows shuffling of work, and is not a negative sign per se. Commissioner
Tarleton stated that going into 2011, it's a good idea to have athree-year retrospective.
Jack Hutchinson went through the last three years of audits listed in the PowerPoint presentation.
He noted the large amount of time spent in Aviation Division, due to the high number of
concessions. There were 19 audits in Aviation, almost all lease and concession.  There was also
review of procurement processes in Capital Development Division(COD), but partly due to SAO
performance in 2007, which resulted in the creation of COD, they wanted some time to pass and
see what issues coming up. Commissioner Tarleton noted that considering 80% of operating
revenue comes out of the airport, and 20% out of the seaport so that relative level of risk
appropriate.  Jack Hutchinson. also went through percentages by Division so far. He reviewed the
agreement to do systems audit, which included accounts receivables and billing this year, and
payables the year before that.  Commissioner Albro asked how closely percentages agree with
allocation of labor hours?  Jack Hutchinson replied that were not exactly the same, since not all
audits take the same time, that the complexity of individual audits vary greatly. The process for
doing these is well-defined at this point.  Capital Development audit was only 3% of all audits, but a
tremendous amount of time, they were very complex, with many different aspects, 15-18% of time
spent. Commissioner Albro asked if this could be done ongoing, and Ms.Kirangi agreed that they
had arobust data base to do that.  Steve Miller asked how close time spent on audits came to our
long-range goals.  Commissioner Tarleton wanted to know this as well, and noted that we should
be gaining efficiency.  She noted that we're not just measuring quantitatively, but what performance
metrics looks like, and how performance measures work.  Mr. Hutchinson. assured the AC that lA
is capturing some of that information. He also mentioned a new computer system that will track
resource use.
Mr. Hutchinson. went through the preliminary numbers for 2011, requesting input from Committee,
Ms. Kirangi noted the process for deciding audit plan is when Senior Management requests audits.
lA is lowering those numbers from last year that year. Commissioner Albro noted how easy it was
to get overly focused on work plan, don't see some emerging issues. Wants to see dependencies
on external organizations, including those we rely on for various services, including municipal

Dec 7 SCM Audit Min
PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING
TUESDAY, DECMBER 7 2010                                    P. 3
organizations and consultants, reliance on organizations that cease to exist. Mention now that we
want to broaden perspective.
Miller noted we had more identified needs that we had time for. Acouple of those that were
dropped were hard to let go, and he hoped they would not let go again. All present agreed it would
be good to take notice of proactively affected lease audits as they come forward.  Joyce Kirangi
agreed, saying she would not drop the same items again.
Tarleton requested a review of strategic plan, and the need to dig deep in one or two areas that are
new for us. She wanted to lA to identify areas that cut across the organization, like security or
procurement. She requested from CEO Yoshitani that management requests be given a lot of
weight. Joyce K. stated she would do so.  CEO Yoshitani noted that Joyce Kirangi always asked
what areas need audits. He noted also that measuring our performance in the whole organization,
will uncover areas where we are not measuring as well, and we can ask help from lA in these
areas.
Interviews for 2011 Audit Committee Public Member
Tarleton noted same questions asked all candidates, process would be very open and last 15-20
minutes for each interviewee.  Each interview at atime, others would step out.
The first interview: Christina Gehrke. She gave her name and residence (Kirkland, WA.)
Ms. Gehrke made an opening statement about why she wanted the job. She noted she is always
looking for ways to give back to the community, and gave several examples.  She thought this
opportunity fit her qualifications very well.
Commissioner Albro wanted to know what she saw as challenges in the internal audit function.
Ms. Gehrke said it was important to have sufficient resources, especially in risk management, and
also be able to look beyond historical record to look ahead what are risks coming down, figure out
what those risks. Commissioner Albro asked further about marshalling resources, and Ms. Gehrke
said she would even borrow resources from other groups, hire additional staff, and work with senior
management.
Mr. Yoshitani also thanked her for applying, wanted to know if she could manage the time
commitment, given her full-time job. Ms. Gehrke noted she was very organized in looking at
materials, and time management.  Commissioner Tarleton also noted that flow of work and need
were uncertain, does employer support her participation.  Ms. Gehrke noted her management was
supportive of people taking part in outside boards.
Commissioner Tarleton noted the strength of her resume, as one consideration is expertise, as
most Commissioners don't have it that much. Her role is that of expert, working with others in
management. She asked Ms. Gehrke how her experience will lead her to lend that expertise. Ms.
Gehrke noted that in her job she had to help understand changes in FASBY and other regulations,
and to keep abreast of internal audit changes. This was also part of her role as educator in
teaching future auditors.

Dec 7 SCM Audit Min

PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING
TUESDAY, DECMBER 7 2010                                    P. 4

Mr. Miller: requested more information about her experience with GASSY. Ms. Gehrke stated an
example of helping Native American organizations prepare audits for various funds. She also
mentioned work with the Yellowbook standards, and other Federal standards. She mentioned how
she looked at different reporting standards, and helped organizations to understand them.
Commissioner Albro asked about her experience with Enterprise Risk Management (ERM). Ms.
Gehrke said at her job she helped organize an ERM for financial, operational and credit risk
groups. She went through her experience with controls for operational risk. She noted every
organization had different kinds of risk.  She noted the Port had lots of bonds, and concessions at
airport as examples of risk.
Commissioner Tarleton asked if she had any previous work with organizations that had business
with the Port, and whether she wished to make a final statement.  Ms. Gehrke replied she had no
prior work with the Port, noted she had work with Jack Hutchinson.  She also thought her
background does suggest she can add value for the organization.
The second interview: Mr. Kariuke Nderu. Residence in Issaquah, WA.
Opening statement: I work in Seattle, and am excited about this opportunity, which is a very
complex field, especially in assessing the work of lA.  Usually the public is not left with much
besides a lot of information.  My value is giving a meaning to what is being said, like assessing
when things are going well.
CEO Yoshitani notes his background, and experience with a public entity. He asked Mr. Nderu
what is the structure and relationship to the board. Mr. Nderu noted he reports to CEO, CFO, and
reports to the board.  Added that it is difficult for the board to know what day-to-day work is.  He
notes that the kind of structure he works with was recommended by the Organization of Internal
Auditors, but it can fail. The risk is that sometimes the reporting structure can fail to work.
Commissioner Albro noted what challenges he sees in an Audit Committee. What would guide
your approach? Mr. Nderu replied that the biggest risk is misunderstanding how to measure risk.
This is a very tricky field, there are many nuances to what risk are, and it can be complicated, since
the auditor has interest in keeping the board happy, the board wants to keep the constituents
happy, so sometimes the elephant in the room can be evaded.
His example of risk is that at the POS, the business of the Port is to transport. The possible risk to
revenue is perhaps 80%. What is this based on? Maybe this year is 50%, and we should be able
to talk about specifically.
Mr. Miller asked if he has knowledge of GASSY, other government audit standards?  Mr. Nderu
replied he reviews CAFR for many cities for GFOA.  He also reviews financial statement for Seattle
schools. Experience gives you the of understanding the story that the financial statements is trying
to say.
Commissioner Tarleton asked about the time commitment of monthly meetings in public. She also
wanted to know why do you think you can be representative for people. Mr. Nderu replies that his

Dec 7 SCM Audit Min
PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING
TUESDAY, DECMBER 7 2010                                    P. 5
exposure to audits gives him a perspective and that he also has created internal audit functions.
He believe that from the public's point of view, he would not be an employee at the port, but the "3rd
eye".  He thought about commitment, something to be said about people volunteering in high-
stress area.  He can make time.
In his closing statement, his closing thought is that there is internal audit discussion, which is
technical, and human discussion, which I have experience in as well.
The third interview: Mr. Ty Watanabe.  Residence in Redmond, WA
Opening statement: He noted that he had a lot of experience with private sector audits, but no prior
public experience.
Experience: External audits in financial and quasi-governmental audit (housing services) GAP,
GAS, but limited in government procedures. He mentioned setting up internal audit function,
including ERM, global risk procedures, risk appetite, governance risk and compliance.
CEO Yoshitani noted he did not mention a lot of public institutional experience in auditing. How did
he feel this was a difference?  Mr. Watanabe replied that the environment is entirely different.  He
noted his technical side, governmental side is weakest, and that he would rely on your financial
people for expertise.
Commissioner Albro asked what challenges there were for the port in internal audit, allocating
resources, work plan.  Mr. Watanabe felt that the ERM is great at understanding what risk exists
that needs to be addressed with limited resources.  He would continue work with ERM, and see
how it reflects in the internal audit plan.
Commissioner Tarleton asked atwo-fold question: why is your experience helpful in representing
public, and do you have the time for this work?
Mr. Watanabe replied it would be honestly difficult to answer truthfully, as he did not know how
much time this group takes.  He thought there might some Push/pull between the time spent with
the Internal Auditor and the Audit Committee.  He needed flexibility if there are side meetings, but
every meeting is fine. He also feels he is ordinary middle class person who has the knowledge
hones in private industry.
Mr. Miller asked if he had any conflict of interest, any prior work with Port? Mr. Nderu mentioned
No, but that he has submitted an application to be an auditor with ST.
In his closing statement, Mr. Watanabe noted his contribution is developing ERM frameworks,
incorporating aspects of audit function, and financial background at KPMG.  And he had astrong
financial reporting and governance perspective.
Commissioner Tarleton thanked Tom Barnard for organizing the slate of candidates. Commissioner
Abro questioned Mr. Miller about his time commitment? Mr. Miller replied he spent lots of time in

Dec 7 SCM Audit Min

PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING
TUESDAY, DECMBER 7 2010                                    P. 6
first year, but that won't reoccur.  His prep time is half an hour on reports, 10 minutes on minutes,
overall it is a manageable commitment.
Lease and Concession Audits: Sodexho America, LLC. and Smarte Carte Inc,
Ms. Kirangi reported she was closing two lease audits, and there were not a lot of issues with
either.
The first was Sodexho, avending machine concession.  Ms. Kirangi went through revenue figures
on PowerPoint. She said that the audit is a clean audit, according to usual terms of compliance
with regulations and laws, terms and conditions of the lease. There is one issue of untimely
payment, and the assessment of financial charge for late payment. Audits in 2008-2009 were late
in some instances.  This is old period, when we looked at the new 2010 audits, it is no longer an
issue.  2010 payment history for this concessionaire is clean.
Commissioner Tarleton asked: What do you attribute this to? Ms. Kirangi said that management
practice change in accounting department in 2010.
Deanna Zachrisson added that both accounting had stepped up its monitoring practice, but also
Sodexho has had trouble w~h its business in 2008-09. There were changes in their accounting
staff, and we have helped them.
Commissioner Albro asked what percent of monthly payments were late?
Ms. Kirangi, referenced that data on page 7 of report,
Commissioner Albro noted then that about half the time they were late. Average number of days
late? Jack Hutchinson said they did not calculate, but time schedule for MAG payments is quite
specific, payment is understood without notification.  He also noted that the timeline can be difficult
to comply, because concessionaire has to close their books to calculate what is owed. This can be
challenging.
Commissioner Albro asked whether it was a big or small company? The answer was that it makes
an excess of $1M a year. He then asked about the strategy for collection of fees, and that was
explained later.
Mr. Miller asked about whether there was a loss of funds, as in the recent SAO finding.  Ms. Kirangi
noted that this is not an issue here, and the concessionaire was bonded.
One other issue raised JK: also communicated to management on issue of vending machine in
admin building, first right to operate goes to Department of the Services for the Blind.  You need to
contact them, and work this out.
Smartcarte lease audit: Clean report, no issues.
Commissioner Albro: Made a statement that in his opinion is no need to forgive any late payments,
and the POS should be uniform in enforcing that. There should be zero tolerance for late
payments for concessionaires, and there is no reason for us in public sector to accept it.
Commissioner Tarleton supports it, noting concessions have bonding and surety payments as well.

Dec 7 SCM Audit Min
PORT COMMISSION MINUTES OF THE AUDIT COMMITTEE MEETING
TUESDAY, DECMBER 7 2010                                    P. 7
It was also noted that the concessionaires Concessions International and Borders have been billed
on those late fees noted earlier this year.
Update on Concession payment issue
Caluza: Status of Management Receivables and Accounting Financial Reporting. Pertinent facts:
The Port bills $42M monthly, about $500M yearly.
Aging of those is indication of how well collecting of money it is owed.
$6.3 m$5.3 are current.  Situation not a problem.
$200k of 31-60 days.
$27K, 6-0-90,
$6K over 90.
Late fees has been a concern, and we received a clarification in 2009. We received resources to
address. We issued Late fees of $200k, collected $190K, the rest are in disputes, or collection
enforcement through surety and bonding. One tenant in default.
Zero tolerance:  Been aligned with that since we have had resources of all late fees.
Commissioner Albro: Two different situations 1) no warning of slow pay or no pay, 2) alerting there
is a problem.
Rudy Caluza notes that there is pro-active management.
ADJOURNMENT
There being no further business, the meeting was adjourned at 11 :00 a.m.
(A digital recording of the meeting is available on the Port's website.)
1:wsfii3??1P
ROB HOLLANQ
~
SECRETARY






Dec 7 SCM Audit Min