The Audit Meeting meeting scheduled for 2022-06-17 at Pier 69

Transcript

The Audit Meeting meeting scheduled for 2022-06-17 at Pier 69

THIS IS COMMISSIONER CHO CALLING TO ORDER THE PORT OF SEATTLE AUDIT COMMITTEE SPECIAL MEETING
TODAY IS FRIDAY, JUNE 17, AND THE TIME IS 02:04 PM
WE ARE MEETING TODAY IN PERSON FOR THE FIRST TIME SINCE PRE-PANDEMIC HERE AT THE PORT OF SEATTLE HEADQUARTERS COMMISSION CHAMBERS AND VIRTUALLY VIA THE TEAM'S PLATFORM
I DO HAVE TO ADMIT I'M EMBARRASSED TO SAY THAT I FORGOT THAT THIS WAS IN PERSON, EVEN THOUGH I WAS REMINDED SEVERAL TIMES BY STAFF
I THINK I JUST DEFAULTED TO TEAMS SO I APOLOGIZE TO OUR COLLEAGUES FOR NOT BEING THERE IN PERSON
PRESENT WITH ME TODAY IS COMMITTEE MEMBER COMMISSIONER HAMDI MOHAMED AND OUR NEW PUBLIC AUDIT COMMITTEE MEMBER, SARAH HOLMSTROM
MS HOLMSTROM IS A CERTIFIED PUBLIC ACCOUNTANT WITH OVER 15 YEARS OF EXPERIENCE WORKING WITH VARIOUS FEDERAL, STATE, AND LOCAL GOVERNMENT AGENCIES
SHE SERVES AS THE CHIEF FINANCIAL OFFICER FOR OVER TEN YEARS WITH TWO NATIVE AMERICAN ORGANIZATIONS IN WASHINGTON STATE
CURRENTLY, SHE IS A FINANCE LEADER FOR AMAZON WEB SERVICES, WORKING IN INFRASTRUCTURE, FINANCIAL PLANNING AND ANALYSIS
WE WELCOME YOU TO THE COMMITTEE, SARAH
WE ARE SO HAPPY TO HAVE YOU JOIN WITH US IN THIS COMMITTEE
WELCOME
HOW DOES THAT AFFECT ANYTHING TO MAKE THIS MEETING MORE ACCESSIBLE TO THE PUBLIC? THE MEETING IS BEING LIVE STREAMED AND DIGITALLY RECORDED, AND MAY BE VIEWED OR HEARD AT ANY TIME ON THE PORT'S WEBSITE
A CALL-IN NUMBER TELEPHONE NUMBER IS ALSO PROVIDED FOR ANYONE WHO WOULD LIKE TO LISTEN TO THE MEETING
OUR FIRST ITEM OF BUSINESS IS APPROVAL OF OUR LAST MEETING MINUTES FROM APRIL 7, 2022
ARE THERE ANY CORRECTIONS TO THE MINUTES SEEING NONE
ARE THERE ANY OBJECTIONS TO APPROVAL OF THE MINUTES AS PRESENTED HEARING? NONE MINUTES ARE APPROVED
GREAT
OUR NEXT ORDER OF BUSINESS IS THE MOSS ADAMS 2021 FINANCIAL STATEMENT AUDIT RESULTS AND A SERIES OF OTHER AUDITS THAT THEY'VE ALSO PERFORMED THAT ARE RELATED AND PART OF THE PROCESS
SO WITH THAT, I'LL HAND THE FLOOR OVER TO OGA AND MICHELLE, IF YOU COULD PULL UP THE DECK FOR OGA AND CONOR GO FROM THERE
THANK YOU, GLENN
GOOD AFTERNOON, MEMBERS OF THE AUDIT COMMITTEE
WE DO HAVE A SHORT PRESENTATION ON THE RESULTS OF THE 2021 FINANCIAL STATEMENT AUDIT OF THE PORT OF SEATTLE, AND IF WE HAVE A SHORT AGENDA ON THE NEXT SLIDE THAT HIGHLIGHTS SOME OF THE KEY TOPICS OF OUR PRESENTATION
OKAY, PERFECT
WE'LL START OUT WITH JUST COVERING THE TYPES OF REPORTS THAT WE ISSUED
THERE ARE SEVERAL DELIVERABLES AS THE RESULT OF OUR AUDIT, SO WE'LL HIGHLIGHT WHAT EACH ONE OF THOSE REPORTS IS
IN AVIATION, WE'LL TALK ABOUT THE SIGNIFICANT AREAS OF AUDIT, GIVING YOU A LITTLE BIT OF AN INSIGHT INTO WHAT WE LOOK AT, AND SOME OF THE AREAS OF AUDIT WHERE WE SPEND SIGNIFICANT AUDIT EFFORT DURING OUR AUDIT, WE'LL TALK ABOUT INTERNAL CONTROLS
MATTERS AS INTERNAL CONTROLS IS AN INTRICATE PART OF OUR AUDIT, AND WE DO LOOK AT THE PROCESSES DURING THE AUDIT
AND THEN THERE'S A CERTAIN NUMBER OF ITEMS THAT ARE REQUIRED TO BE COMMUNICATED TO THOSE CHARGES, GOVERNANCE SUCH AS THE AUDIT COMMITTEE ON THE BOARD, WE'LL COVER THOSE AS WELL
AND WE'LL CONCLUDE OUR PRESENTATION WITH THE HIGHLIGHT OF THE UPCOMING ACCOUNTING PRONOUNCEMENTS THAT WILL BE EFFECTIVE FOR REPORTING IN THE NEXT COUPLE OF YEARS
THAT WILL TAKE QUITE A BIT UNDERTAKING TO IMPLEMENT
SO, WITH THAT, ON THE NEXT SLIDE, WE START WITH THE TYPES OF REPORTS THAT WE HAVE ISSUED
WE DID PERFORM THE AUDIT JUST FOR THOSE MEMBERS THAT ARE NEW TO THE AUDIT COMMITTEE
WE START OUR AUDIT PLANNING EFFORT IN SEPTEMBER
EACH YEAR
WE PERFORM SOME INTERNAL CONTROL AND PRELIMINARY WORK IN NOVEMBER, OCTOBER TIME FRAME, AND THEN WE COME BACK IN FEBRUARY, MARCH AND APRIL AND COMPLETE OUR AUDIT PROCEDURES
SO IT DOES TAKE QUITE A BIT OF EFFORT AND WE DID COMPLETE ALL OF OUR AUDIT PROCEDURES AND ISSUED OUR REPORTS IN APRIL
REPORTS WERE DATED APRIL 28
THE FIRST, OF COURSE, AND THE MOST IMPORTANT IS THE AUDIT REPORT ON THE FINANCIAL STATEMENTS OF THE PORT IT'S ENTERPRISE FUND
IT'S SEPARATELY WAREHOUSEMEN'S PENSION TRUST FUNDS, IT'S A FIDUCIARY FUND AND AN ENTERPRISE FUND AT THE PORT
THE OPINION IS UNMODIFIED, WHICH MEANS IT'S A CLEAN OPINION
IT'S A CLEAN BILL OF HEALTH, AS I LIKE TO CALL IT
DOESN'T CALL ANY EXCEPTIONS OR EMPHASIS OF THE MATTER IN ITS REPORT BECAUSE WE DO PERFORM THE AUDITS IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS WHICH REQUIRE US TO REPORT ON INTERNAL CONTROLS OF THE ENTITY
SO, AS I MENTIONED, WE DO PERFORM PROCEDURES AND TESTING INTERNAL CONTROLS AND IF WE DO IDENTIFY ANY WEAKNESSES IN INTERNAL CONTROLS OR SIGNIFICANT DEFICIENCIES, WE'RE REQUIRED TO REPORT THOSE IN THE REPORT
AND I'M PLEASED TO REPORT THAT THE REPORT ON INTERNAL CONTROL DOES NOT INCLUDE ANY MATERIAL WEAKNESSES OR FINDINGS
SO THAT'S ALSO GOOD NEWS
THE ADDITIONAL COMPLIANCE AUDIT THAT WE PERFORM IS A COMPLIANCE OVER MAJOR FEDERAL PROGRAMS THAT THE PORT RECEIVES FROM FEDERAL GOVERNMENTS THROUGH DIFFERENT CHANNELS
SO WE ISSUE A COMPLIANCE REPORT OVER THE COMPLIANCE REQUIREMENTS OF THE AIRPORT IMPROVEMENT PROGRAM, THAT'S THE MAJOR PROGRAM THAT WE AUDIT, AS WELL AS A REPORT ON INTERNAL CONTROLS OVER COMPLIANCE OVER THAT FEDERAL PROGRAM
AND JUST TO HIGHLIGHT AND GIVE YOU AN IDEA, THERE WASN'T ONE MAJOR PROGRAM THAT WE AUDITED THIS YEAR AND THAT'S AS I MENTIONED, AIRPORT IMPROVEMENT PROGRAM
THE TOTAL RECEIPTS, THE FEDERAL RECEIPTS WERE 135.9 MILLION, OF WHICH OVER 100 MILLION WERE IN COVID 19 FUNDING THAT CAME THROUGH CARES ACT, CRSA AND A LITTLE BIT OF ARPA FUNDING THERE AS WELL
SO THAT WAS OUR FOCUS OF OUR COMPLIANCE AUDITS THERE
ON THE NEXT SLIDE, WE HAVE SOME MORE REPORTS THAT WE ISSUED
ADDITIONAL COMPLIANCE AUDIT THAT WE PERFORM IS SCHEDULE OF PASSENGER FACILITY CHARGES, RECEIPTS AND EXPENDITURES
THAT IS A REQUIRED REPORT THAT GOES TO FAA AND THAT'S FOR PASSENGER FACILITY CHARGE, THAT'S COLLECTED BY THE AIRLINES ON BEHALF OF THE PORT AND IT GETS REMITTED TO THE PORT TO USE FOR SPECIFIC APPROACH PROJECT
SO THAT REPORT WE ISSUED, IT HAD ONE FINDING AND INTERNAL CONTROLS THAT'S HIGHLIGHTED RELATED TO TRACKING SOME OF THE PFC REVENUES AND SOME OF THE ADJUSTMENTS THAT REQUIRED TO BE MADE TO THE SCHEDULE SUBMITTED TO FAA
AND I WILL COVER THAT FINDING A LITTLE BIT LATER IN MY PRESENTATION
ADDITIONAL REPORT ON SCHEDULED NET REVENUES AVAILABLE FOR DEBT COVERAGE, DEBT SERVICE
THAT REPORT DIDN'T HAVE ANY EXCEPTIONS
AND THERE ARE TWO ADDITIONAL REPORTS THAT WE ISSUE AGREED UPON PROCEDURES THAT GOES TO DEPARTMENT OF ECOLOGY AND THE EPA
SO ALL OF THOSE REPORTS HAVE BEEN COMPLETED AND THERE'S NO FINDINGS IN THOSE REPORTS AND NO EXCEPTIONS IN THOSE REPORTS
WITH THAT, I'LL ASK CONNOR TO TALK ABOUT SOME OF THE AREAS OF EMPHASIS IN THE AUDIT THAT START ON THE NEXT SLIDE
YEAH, THANK YOU, OLGA
I'M CONNOR MCAULEY AND I WAS KIND OF IN CHARGING ON THIS ENGAGEMENT
AND SO THE AREAS OF AUDIT EMPHASIS WITH ANY AUDIT INTERNAL CONTROLS ARE KIND OF VERY IMPORTANT TO THE PROCESSES THAT LEAD TO THE NUMBERS THAT GET PUT OUT INTO THE FINANCIAL STATEMENTS
AND SO WE SPEND QUITE A BIT OF OUR TIME IN SEPTEMBER AND THEN ALSO AT YEAR END LOOKING AT INTERNAL CONTROLS
A LOT OF THE AREAS THAT WE LOOKED AT FOR THESE CONTROLS INCLUDE CAPITAL ASSETS WITH PROJECT MANAGEMENT, CASH RECEIPTS AND RECEIVABLES, CASH DISBURSEMENTS AND PAYABLES, PAYROLL BONDS, INVESTMENT TRANSACTIONS IN GENERAL
THE OTHER ITEMS I'M GOING TO TALK ABOUT WITH OUR SUBSTANTIVE TESTING, ANOTHER AREA OF AUDIT EMPHASIS IS MANAGEMENT ESTIMATES
WITH ANY NUMBER THAT IS DERIVED FROM A MANAGEMENT ESTIMATE, THERE'S A LOT OF JUDGMENT THAT GOES INTO THERE
AND SO WE'RE GOING TO TAKE A KIND OF SPECIAL ATTENTION THERE BECAUSE IT CAN BE A LITTLE MORE HIGHER RISK
SOME OF THOSE ESTIMATES INCLUDE ALLOWANCE FOR DOUBTFUL ACCOUNTS, THE ENVIRONMENTAL REMEDIATION LIABILITY, SPECIAL ITEM RELATED TO THE HABITAT RESTORATION COST THIS YEAR, LEGAL CONTINGENCIES, INSURANCE RECOVERIES, COMPENSATED ABSENCES, AND SOME OTHER ACTUARIAL VALUATIONS AS WELL
THEN WE LOOK AT THE NORTHWEST SEAPORT ALLIANCE NWSA, THE JOINT VENTURE WITH THE PORT OF TACOMA, AND THROUGH THAT WE CONFIRM ONE THE PORT SHARE OF THAT JOINT VENTURE AS WELL AS THE NWSA
AUDITED FINANCIAL STATEMENTS COME OUT BEFORE WE ISSUE OUR REPORT AND WE COMPARE NUMBERS TO THAT TO MAKE SURE EVERYTHING IS IN LINE
ANOTHER AREA OF AUDIT EMPHASIS IS CAPITAL ASSETS, WHICH MAKES A LARGE PART OF THE PORT ASSETS
AND SOME OF THE MAJOR ITEMS WE LOOK AT THERE WOULD BE CAPITALIZATION POLICIES, TESTING OF ADDITIONS, RETIREMENT OVERHEAD, APPLICATION DEPRECIATION
AND THEN RECENTLY WE'VE PUT KIND OF A BIGGER ATTENTION TO THE CLASSIFICATION AND TIMING OF CLOSING OF CAPITAL IMPROVEMENT PROGRAMS INTO ASSET KIND OF MANAGEMENT SO THEY BEGIN TO BE DEPRECIATED AND ARE PROPERLY CLASSIFIED WITHIN THE BALANCE SHEET
AND THEN ON THE NEXT SLIDE, WE'VE GOT MORE AREAS ABOUT AN EMPHASIS
BOND ACTIVITY ALWAYS KIND OF A SENSITIVE TOPIC AND SO WE LIKE TO, ANYTIME THERE IS ACTIVITY, WE TAKE A LOOK THERE
WE TESTED THE FIVE NEW BOND ISSUANCES AND FOUR REFUNDING BONDS DURING 2021
WE'RE ALSO LOOKING AT ANY DEBT REPAYMENTS, ARBITRAGE, LIABILITY DISCOUNTS, PREMIUMS, COMPLIANCE WITH COVENANTS, AND JUST ALL THE OTHER KIND OF FACTORS AROUND DEBT
AND THEN LOOKING AT KIND OF REVENUE AND SPECIFICALLY AT THE AIRLINE LEASE AND OPERATING AGREEMENTS, WE DO A LOT OF ANALYSIS OVER KIND OF COST CENTER CATEGORIES, TAKING A LOOK AT SELECTION OF SIGNATORY LEASES AND OPERATING AGREEMENTS, WHICH IS SLOW
AND THEN WE ALSO KIND OF LOOK AT SOME OF THE OTHER PORTIONS OF THERE, WHICH INCLUDE LANDING FEES, TERMINAL RENT, GATE FEES, AND BAGGAGE CLAIMS AND THEN ON TOP OF THAT, WE ALSO CONFIRM DIRECTLY WITH SOME OF THE MORE SIGNIFICANT AIRLINES ON THE REVENUE AND INVOICES THAT WERE PROVIDED FOR THE YEAR
AND THEN WE ALSO HAVE THE FIDUCIARY ACTIVITIES AUDIT, WHICH IS OF THE WAREHOUSEMEN'S PENSION TRUST FUND, AND WE'RE LOOKING AT INVESTMENT BALANCES, CONTRIBUTIONS AND DISTRIBUTIONS THERE
AND THEN ON THE NEXT SLIDE, AGAIN, REVENUE RELATED TO LEASES AND THEN OTHER KIND OF FORMS OF REVENUE WE'RE ALWAYS TAKING A LOOK AT AND REVENUE RECOGNITION BECAUSE THERE ARE SO MANY DIFFERENT FORMS OF REVENUE, IT'S IMPORTANT THAT WE MAKE SURE THEY'RE BEING RECOGNIZED IN ACCORDANCE WITH GOVERNMENTAL ACCOUNTING STANDARDS
AND SO WE DO AN ANALYSIS OVER KIND OF THE REVENUE AND THEN WHAT DRIVES REVENUE TO MAKE SURE THAT KIND OF MAKES SENSE AND IS LINING UP WITH JUST THE ACTIVITY IN THE PORT FOR THE YEAR, WHICH INCLUDES LANDING WEIGHTS, LOOKING AT EMPLOYMENT, GATE USAGE, BOAT COUNTS, ITEMS LIKE THAT
WE ALSO LOOK AT OTHER REVENUES LIKE AD VALOREM, TAX LEVY, INVESTMENT INCOME, PASSENGER FACILITY CHARGES, AND CUSTOMER FACILITY CHARGES, AND THEN FEDERAL GRANTS, AS OLGA MENTIONED IN THE SINGLE AUDIT
AND I'LL TALK ABOUT THAT IN A SECOND AS WELL
AND THEN THE OTHER SIDE OF THAT WOULD BE THE AR AND COLLECTABILITY, WHICH WE ALSO LOOK AT TO MAKE SURE THAT WHAT IS COMING IN, I GUESS, WILL COME IN
WE ALSO HAVE OUR MOSS ADAMS IT SPECIALISTS THAT DO A FULL ON IT AUDIT EVERY YEAR, GENERAL COMPUTER CONTROLS
THEY LOOK AT STUFF LIKE TIMELINESS OF REMOVING ACCESS WHEN PEOPLE EITHER SWITCH POSITIONS OR LEAVE, AND TIMELINESS OF GRANTING ACCESS WHEN PEOPLE COME IN, AND OTHER CONTROLS LIKE THAT
WE DID NOT HAVE ANY CONTROL FINDINGS THERE WITHIN IT, SO IT'S GOOD
AND THEN WE ALSO LOOK AT THROUGH, AS OLGA MENTIONED IN OUR SINGLE AUDIT, WE'RE LOOKING AT FEDERAL AWARDS AND GRANTS
EACH GRANT HAS ITS OWN SPECIAL REQUIREMENTS
WE WANT TO MAKE SURE THAT THE PORT IS KIND OF FOLLOWING WITH WHAT IS IN THE GRANT AGREEMENT
AND THIS YEAR WE SELECTED THE FAA AIRPORT IMPROVEMENT PROGRAM, WHICH CONTAINED THE MAJORITY OR ALL OF THE COVID RELIEF FUNDING
SO IT MADE UP ALMOST ALL OF FEDERAL AWARDS
YOU CAN SEE 100 MILLION OUT OF THE TOTAL, 137,000,000 THERE
AND I'LL PASS IT BACK TO OLGA
I'M NOT SURE IF YOUR MIC IS GONE
THE PORT STAFF IDENTIFIED ONE ISSUE RELATED TO THE INFORMATION THAT WAS SUBMITTED TO FAA IN THEIR QUARTERLY REPORTS WITH RESPECT TO SOME VERY SPECIFIC TRANSACTIONS THAT WEREN'T QUITE REPORTED CORRECTLY IN PREVIOUS YEARS AND IN 2021
SO THE PORT STAFF, IN THE PROCESS OF RECONCILING THE INFORMATION REPORTED TO THE FAA AND TO THE FUNDS THAT ARE SET ASIDE AND KEPT TRACKED SEPARATELY BY THE PORT, TRYING TO RECONCILE THOSE UNLIQUIDATED REVENUES THAT HAVE BEEN RECEIVED BY THE PORT, IDENTIFIED THIS ONE ISSUE
THE REASON THAT IT ROSE TO A LEVEL OF SIGNIFICANT DEFICIENCY BECAUSE IT WAS MATERIAL WITH RESPECT TO THE MATERIALITY THAT WE HAD ESTABLISHED FOR AUDIT OF THIS PARTICULAR PROGRAM, THE OVERALL ADJUSTMENT TO THE ANNUAL REPORT OF RECEIPTS AND EXPENDITURES SUBMITTED TO FAA WAS MADE IN THE AMOUNT OF 6.8 MILLION
THAT CORRECTION HAS BEEN MADE IN THE FINAL REPORT
THE PORT STAFF COMMUNICATED WITH FAA DIRECTLY AS WELL SELF IDENTIFYING AND NOTIFYING THEM OF THE ERRORS THAT HAVE BEEN PRESENTED IN THE PREVIOUSLY SUBMITTED REPORTS AND OVERALL RECEIVED A RECOMMENDATION FROM FAA AS TO HOW TO REPORT FUTURE AMOUNTS IN THE SUBMITTED PFC REPORTS
WE DID PROVIDE A RECOMMENDATION AS A RESULT OF THIS FINDING
HOWEVER, AS THE PORT STAFF IDENTIFIED THE ISSUE, THEY IMMEDIATELY PUT IN THE PROCESS IN PLACE TO REMEDY THE SITUATION
SO IT'S ALREADY IN PLACE AND BEING TRACKED CORRECTLY
I JUST WANTED TO HIGHLIGHT ONE MORE TIME THAT THIS WAS A SELF IDENTIFIED, SELF REPORTED ON THE PORT
ANY QUESTIONS ON THE FINDINGS OR ANY COMMENTS FROM THE PORT STAFF ON CLARIFYING THIS MATTER? LOOKS LIKE RUDY KALUZA HAS A QUESTION
RUDY, THANK YOU FOR RECOGNIZING THE COMMISSIONER CHO
I JUST WANTED TO PROVIDE CLARIFICATION AND MEMBERS OF THE AUDIT COMMITTEE THAT WE'RE VERY PROUD WITH REGARD TO THE AUDIT RESULTS IN TERMS OF THE KEY AREAS OF OUR FINANCIAL STATEMENTS AS WELL AS COMPLIANCE, INDUSTRY PRESCRIBED ACCOUNTING, FINANCIAL REPORTING STANDARDS, AS WELL AS FEDERAL REGULATORY COMPLIANCE
IN THIS SITUATION ON GRANTS, IN THIS SITUATION OF PASSENGER FACILITY CHARGES
THIS HAS NOTHING TO DO WITH THE ADMINISTRATION OF THE FUNDS THEMSELVES
IT'S THE QUARTERLY REPORTING
AND THE PORT OF SEATTLE SELF IDENTIFIED SEVERAL NONSTANDARD TRANSACTIONS THAT WERE ACCURATELY RECORDED IN THE PORT'S FINANCIAL SYSTEMS, BUT ZERO NOS COMPILED CORRECTLY WHEN PREPARING THE REPORTS BECAUSE OF THE NONSTANDARD NATURE OF THE TRANSACTIONS
SO WE TOOK IMMEDIATE ACTION TO ASSESS THE COST AND IMPLEMENT A CORRECTIVE ACTIONS TO PREVENT RECURRENCE, PERIOD
IT'S NOT GOING TO OCCUR
WE FOUND OUT WHAT THE CAUSE WAS, IT'S THE COMPILATION OF THE DATA, IT RELATED TO NONSTANDARD TRANSACTIONS
SO WE ALSO SUPPORT SEATTLE MET, PROACTIVELY WITH AND INFORMED THE FEDERAL AVIATION ADMINISTRATION TO ENSURE FULL TRANSPARENCY WITH AAA AND THE OFFICIALS THERE INDICATED THAT THEY VIEW THE IMPACT OF THIS REPORTING ERROR AS INCONSEQUENTIAL AS THERE WAS NO IMPACT ON THE ADMINISTRATION OF THE PST FUNDS OR LOSS
THERE WAS A REPORTING ERROR ON A RECURRING REPORT, WAS PROACTIVE REACTIVELY, REMEDIATED, IMPROVED AND GOING FORWARD NOT TO RECUR AGAIN
SO I JUST WANTED TO PROVIDE THE CONTEXT HERE WITH WHICH WE EMBRACED THIS FINDING
IT'S PRETTY MUCH A REPORTING ERROR
WE HAVE FOUND THE CAUSE, IT WILL NOT RECUR AGAIN
THANK YOU
THANK YOU, RUDY, FOR PROVING THE CONTEXT AND CLARIFICATION
THANK YOU, MOSS-ADAMS AND YOUR TEAM FOR THE PRESENTATION
ARE THERE ANY OTHER QUESTIONS FOR COMMITTEE MEMBERS AT THIS TIME? I HAVE A QUICK QUESTION ABOUT THAT FINDING
ECHOING HAVE YOU SEEN SIMILAR FINDINGS IN PREVIOUS AUDITS HERE AT THE PORT OF SEATTLE SPECIFIC TO PFC? NOW, AS I MENTIONED, THIS WAS A RATHER UNIQUE TRANSACTION WHERE A PIECE OF LAND PURCHASED ORIGINALLY WITH PFC FUNDS WAS DISPOSED OF AND THE REPORTING WASN'T CORRECTLY CAPTURED
SO THERE WERE RATHER UNUSUAL TRANSACTIONS THAT REQUIRED A LITTLE EXTRA SPECIAL CARE AND REPORTING
SARAH, DID YOU HAVE A QUESTION? YEAH, I JUST WANTED TO CONFIRM THIS WAS SIGNIFICANT EFFICIENCY, NOT A MATERIAL WEAKNESS
IS THAT CORRECT? SO COULD YOU EXPLAIN WHY IT'S NOT A MATERIAL WEAKNESS, JUST SO EVERYONE KIND OF UNDERSTANDS THE LESSER IMPACT AND WHY? RIGHT
SO JUST TO GIVE A BACKGROUND A LITTLE BIT, THERE ARE THREE LEVELS OF FINDINGS THAT WE CAN REPORT
AND INTERNAL CONTROL DEFICIENCY IS LIKE THE LOWEST LEVEL, A SIGNIFICANT DEFICIENCY IS THE SECOND
AND THEN MATERIAL WEAKNESS IS THE HIGHEST AND MOST AGREED WITH THE FENCE, IF YOU WILL
THE REASON THIS ONE IS WE CLASSIFY DETERMINED THAT IT WAS A SIGNIFICANT EFFICIENCY BECAUSE ONCE AGAIN, IT WAS MATERIAL TO THE SCHEDULE, TO THE PFC REPORTING SCHEDULE
AT THE SAME TIME IT WAS SELF IDENTIFIED BY THE PORT STAFF THROUGH THEIR PROCESSES THAT THEY'RE CONSTANTLY LOOKING AT AND REVISING
SO FOR THAT REASON, WE DETERMINED THAT IT WAS MOST APPROPRIATE TO BE SIGNIFICANT EFFICIENCY
ALL RIGHT, AND I JUST HAVE A FEW MORE BULLET POINTS RELATED TO SOME OF THE REQUIRED COMMUNICATIONS THAT START ON THE NEXT SLIDE
JUST A REMINDER THAT THE FINANCIAL STATEMENTS OF THE PORT OF SEATTLE ARE RESPONSIBILITY OF MANAGEMENT
THEY DO DRAFT THE ANNUAL REPORT, ALL OF THE SCHEDULES, AND ESTABLISH ALL OF THE INTERNAL CONTROLS FOR PROPER REPORTING WITH, OF COURSE, THE AUDIT COMMITTEES AND THE BOARD'S OVERSIGHT
OUR RESPONSIBILITY IS TO AUDIT THOSE STATEMENTS AND ISSUE AN INDEPENDENT OPINION
SO I JUST WANTED TO HIGHLIGHT THAT MANAGEMENT REALLY DOES TAKE THAT RESPONSIBILITY VERY SERIOUSLY
THROUGHOUT THE YEAR, WE WORK VERY CLOSELY WITH THE FINANCE AND ACCOUNTING DEPARTMENT IN TERMS OF TALKING ABOUT SIGNIFICANT TRANSACTIONS THAT HAPPEN THROUGHOUT THE YEAR
WHAT IS APPROPRIATE ACCOUNTING GUIDANCE, HOW TO HANDLE THESE DIFFERENT TRANSACTIONS
SO THEY DO TAKE THAT FIRST STEP ON DETERMINING THE ACCOUNTING TREATMENT FOR THE TRANSACTIONS, BRINGING IT OUT TO US AS AUDITORS, AND THEN MAKING SURE THAT WE'RE ON THE SAME TRACK
SO THAT ESTABLISHES THAT INDEPENDENCE THAT WE HAVE WITH THE PORT
AND BECAUSE WE HAVE THOSE CONVERSATIONS THROUGHOUT THE YEAR, WHEN WE DO PLAN OUR YEAR ON AUDIT, IT'S RATHER NON EVENTFUL
THERE'S NO SURPRISES THAT COME UP IN OUR AUDIT AND NOTHING THAT WE HAVE TO KIND OF CHANGE COURSE LAST MINUTE
SO IT'S VERY MUCH A COLLABORATIVE EFFORT IN GETTING THE AREA AND AUDIT DONE
THERE ARE SIGNIFICANT ACCOUNTING POLICIES DISCLOSURE, BUT NOT ONE TO THE FINANCIAL STATEMENTS
THOSE DESCRIBE HOW REVENUE IS RECOGNIZED, DEFINES WHAT CASH EQUIVALENTS ARE, AND VARIOUS OTHER POLICIES
WE DO EVALUATE THOSE POLICIES, MAKING SURE THEY'RE CONSISTENT FROM YEAR TO YEAR, OR IF THERE HAS BEEN A NEW POLICY IMPLEMENTED, WE MAKE SURE IT'S CONSISTENT WITH GAP
SO THE POLICIES THAT ARE INCLUDED IN FOOTNOTE ONE THIS YEAR, THERE'S NOT ANY SIGNIFICANT CHANGES TO THOSE FROM PREVIOUS PERIODS, SO THEY'RE VERY CONSISTENT FROM PRIOR REPORTING, IN PART BECAUSE THERE WERE NOT SIGNIFICANT ACCOUNTING, NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN THE CURRENT YEAR
WE DIDN'T HAVE ANY DISAGREEMENTS IN PERFORMING THE AUDIT
IF WE DID HAVE THOSE DISAGREEMENTS OR DIFFICULTIES IN GETTING AUDIT DONE, WE'RE REQUIRED TO REPORT THOSE TO YOU
AND I'M PLEASED TO REPORT THERE IS NOTHING THAT ROSE TO THAT LEVEL OF DISAGREEMENT
SO THAT'S GOOD NEWS AS WELL
SOME MORE INFORMATION ON THE NEXT SLIDE
WE'RE REQUIRED TO LET YOU KNOW IF THERE WERE ANY SIGNIFICANT EITHER POSTED AUDIT ADJUSTMENTS OR PROPOSED AND NOT POSTED AUDIT ADJUSTMENTS
PLEASED TO REPORT THERE WERE NONE THAT WE IDENTIFIED THAT HAD TO BE RECORDED BY MANAGEMENT OR THAT DIDN'T GET RECORDED BECAUSE OF MATERIALITY THAT SPEAKS HIGHLY, ONCE AGAIN, OF THE FINANCIAL RECORDS THAT THE PORT MAINTAINS
AND WHAT WE PROVIDED TO AUDIT IS OUR CLEAN RECORDS
AND OF COURSE, THAT'S THE INFORMATION THAT'S USED BY MANAGEMENT THROUGHOUT THE YEAR AND MAKING THE DECISION AND REPORTS TO THE BOARD AND TO YOU
WE ARE NOT PERFORMING A FRAUD AUDIT, BUT WE ARE REQUIRED TO PERFORM SOME PROCEDURES TO DETERMINE IF THERE IS ANY INDICATION OF FRAUD IN THE AUDIT
THAT USUALLY INVOLVES COMMUNICATION WITH EXECUTIVES AND OTHER INDIVIDUALS THROUGHOUT THE ORGANIZATION, WHICH WE DO TALK TO A LOT OF PEOPLE, NOT JUST IN FINANCE, BUT OUTSIDE OF FINANCE AND INTERNAL AUDIT AND ACCOUNTING
SO WE DIDN'T IDENTIFY ANY ISSUES THAT COULD BE NON COMPLIANCE WITH LAWS OR REGULATIONS OR ANY AVIATION OF FRAUD
SO JUST WANTED TO LET YOU KNOW THAT
AND I THINK THERE'S JUST A COUPLE MORE THINGS ON THE NEXT SLIDE
I DID MENTION THAT THERE WERE NO SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS ADOPTED IN THE CURRENT YEAR
THIS WAS THE LAST PUGET YEAR FOR US, STARTING WITH 2022
THE FIRST AND THE MOST SIGNIFICANT STANDARDS THAT WE HAVE BEEN WORKING WITH THE PORT STAFF FOR A NUMBER OF YEARS NOW IS THE LEASING STANDARD THAT WILL INCREASE THE AMOUNT OF LEASE ASSETS AND REVENUES
IT WILL CHANGE EVERYTHING IN THE FINANCIAL STATEMENTS, CHANGED QUITE A FEW THINGS BECAUSE OF JUST THE NUMBER OF REAL ESTATE AND LEASE TRANSACTIONS THAT THE PORT HAS
SO THAT'S THE BIGGEST ONE THAT, LIKE I SAID, MANAGEMENT HAS BEEN WORKING ON THAT IMPLEMENTATION FOR QUITE SOME TIME
WE HAD REVIEWED SOME PRELIMINARY MEMOS AND ASSUMPTIONS FOR IMPLEMENTATION OF THAT STANDARD ALREADY, SO THAT WILL BE A BIG ONE FOR 22, AND THERE'S A NUMBER OF OTHER GAS FEES THAT WILL BECOME EFFECTIVE AS WELL THAT WILL JUST KEEP YOU UPDATED AS WE START IMPLEMENTATION OF THOSE
ALL RIGHT
AND THE NEXT, I THINK, IS MY LAST SLIDE TO LET YOU KNOW THAT AS I MENTIONED, THE AUDIT STARTS IN THE FALL AND GOES THROUGH LATE SPRING
SO WE DO COMMUNICATE AND STAY IN TOUCH WITH THE PORT THROUGHOUT THE YEAR
AND IN THAT PROCESS WE STAY IN REGULAR COMMUNICATIONS WITH THE PORT MANAGEMENT DURING THE FIELD WORK
AND AS WE'RE ISSUING THE FINANCIAL STATEMENTS OR OUR REPORT ON FINANCIAL STATEMENTS, WE HAVE REGULAR STATUS MEETINGS WHICH EVERYBODY ATTENDS TO MAKE SURE THAT WE'RE ALL ON THE SAME PAGE ABOUT ANY POTENTIAL FINDINGS OR ISSUES OR TRANSACTIONS OR QUESTIONS
SO THAT KEEPS THE AUDIT GOING AND ON TRACK
AND WE HAVE CONSISTENTLY ISSUED THE AUDIT REPORTS AT THE SAME TIME, YEAR AFTER YEAR
I DID MENTION THAT MANAGEMENT DOES TAKE THAT FIRST STEP IN IDENTIFYING THE APPLICABLE ACCOUNTING PRONOUNCEMENTS OR TRANSACTIONS THAT NEED TO BE ADDRESSED IN UPCOMING AUDITS
THEY DO DRAFT WHITE PAPERS FOR US TO REVIEW, WHICH IS GREAT
WE GET A NUMBER OF WHITE PAPERS THROUGHOUT THE YEAR THAT WE REVIEW AND MAKE SURE THAT ONCE AGAIN WE AGREE WITH THE ACCOUNTING APPLICATION THE PORT INTENDS TO HAVE
AND ONCE AGAIN, THAT'S NOT A SURPRISE AT THE END OF THE AUDIT, AS I MENTIONED, WE DO HAVE EXECUTIVE INTERVIEWS THAT WE HOLD THROUGHOUT OUR AUDIT AT ALL LEVELS FROM CEO DOWN TO THE DIFFERENT DEPARTMENT MANAGERS
AND I JUST WANTED TO HIGHLIGHT THE TONE AT THE TOP AND THE ATTITUDE OF MANAGEMENT TOWARDS THE APPROPRIATE FINANCIAL REPORTING AS WELL AS JUST MAKING SURE THAT THE PORT IS DOING THE RIGHT THING WHEN IT COMES TO MANAGING PUBLIC FUNDS AND EXECUTING ON THE PROGRAMS THAT THE PORT HAS UNDERTAKEN
IT HAS A VERY HIGH STANDARDS FOR THAT AND WE JUST WANT TO ACKNOWLEDGE THAT ONE OF THE AREAS OF FOCUS FOR THE BOARD OF DIRECTORS OR BOARD OF COMMISSIONER IN THE PAST OR STILL IS WORKING WITH THE COMPANIES THAT ARE DISADVANTAGED, EITHER MINORITY OWNED OR WOMEN OWNED, SMALL BUSINESS FIRMS SO WE HAVE PARTNERED WITH THE PORT IN THE PAST TO PARTNER WITH SOME OF THESE SMALL FIRMS AND MAKE THEM PART OF OUR AUDIT TEAM
WE'VE HAD IT FOR A NUMBER OF YEARS
THIS YEAR WE HAD TWO FIRMS WORKING WITH US AND TO WHOM WE PAID 14, ACTUALLY IT'S ALMOST 15% OF TOTAL AUDIT CONTRACT TO THESE TWO SMALL BUSINESSES THAT ARE WOMEN OWNED FIRMS SO PART OF OUR TEAM, THAT'S OUR PLAN TO CONTINUE TO WORK WITH THEM AND HELP THEM KIND OF GROWING THEIR EXPERIENCE IN WORKING WITH A LARGE ENTITY SUCH AS SUPPORT, WHERE THEY MAY NOT BE ABLE TO DO SUCH A BIG AUDIT ON THEIR OWN
IT'S A GREAT PARTNERSHIP FOR US
AND OVERALL, I JUST WANTED TO SAY A HUGE THANK YOU TO THE PORT STAFF, THE INTERNAL AUDIT AND EVERYBODY THAT WE HAD TALKED TO DURING THE AUDIT AND ASKED QUESTIONS OF BECAUSE EVERYBODY HAS BEEN VERY HELPFUL AND VERY COLLABORATIVE WITH US DURING THE AUDIT AND IT'S BEEN ANOTHER GREAT AUDIT FOR US
THAT'S ALL I HAVE
EXCELLENT THANK YOU SO MUCH FOR THAT PRESENTATION
GREAT WORK TO THE MOSS ADAMS TEAM AND TO THE PORT TEAM WORKING TOGETHER
AND I ALSO WANT TO JUST EXPRESS MY THANKS TO MOSS ADAMS FOR THEIR EFFORTS
AND INCLUDING SMALL MINORITY BUSINESSES IN THIS CONTRACT, PERCENT IS AN EXCELLENT PORTION OF THAT
SO THANK YOU SO MUCH
IF THERE ARE NO ADDITIONAL QUESTIONS FOR THE AUDIT TEAM OR MR FERNANDEZ ON THIS ITEM, ARE THERE ANY QUESTIONS? GO AHEAD
THANK YOU, SAM
I ECHO THE WORDS OF COMMISSIONER CHO
THANK YOU FOR THIS PRESENTATION AND THE HARD WORK THAT YOU GUYS HAVE PUT INTO THIS AUDIT
I JUST HAD ONE QUESTION
AT OUR LAST COMMITTEE MEETING, WE LEARNED ABOUT THERE WAS AN ACCOUNT THAT GOT HACKED, THE ACH FRAUD
SO I WAS WONDERING, IN RELATION TO THAT, DID YOU GUYS LOOK AT THOSE INTERNAL CONTROLS? WHAT DID YOU THINK ABOUT THAT PARTICULAR SITUATION AND WHAT WERE SOME OF THE FINDINGS YOU SAW THERE AND THE GENERAL COMPUTER CONTROL IT GROUP? I'M INTERESTED IN KNOWING WHAT THEY THOUGHT ABOUT THAT AS WELL
YES, WE DID BECOME AWARE OF THAT AS WELL EARLY IN 2022 AS WE'RE STARTING THE FINAL FIELD WORK
THAT PARTICULAR FRAUD WAS MORE OF A HUMAN CONTROLS RATHER THAN ELECTRONIC CONTROLS
SO THE IT CONTROLS COULD HAVE PREVENTED IT SOMEWHERE, BUT NOT IT WAS MORE TRAINING OF PERSONNEL
I THINK SOME OF THE HACKING ATTACKS WERE SEEN, PARTICULARLY WHEN IT COMES TO PUBLIC AGENCIES ARE VERY SOPHISTICATED WHEN THE PROCESSORS CAN IMPERSONATE THE REAL VENDORS OR REAL EMPLOYEES OF THE COMPANY
SO WE DID NOT INCLUDE IT AS A SIGNIFICANT DEFICIENCY BECAUSE OF THE SCOPE OF IT
IT WAS RATHER IMMATERIAL WHEN IT COMES TO THE MATERIALITY OF THE FINANCIAL STATEMENTS OF THE PORT
BUT IT WAS DISCUSSED WITH THE PORT
THERE WERE PROCESSES PUT IN PLACE AS THE PORT HAD IDENTIFIED THAT ISSUE AS WELL THAT WE REVIEWED
THANK YOU FOR THAT QUESTION, COMMISSIONER MOHAMED, IT LOOKS LIKE RUDY'S HAND IS UP
IS THAT RESIDUAL HAND, RUDY? YES, PLEASE, COMMISSIONER, THANK YOU FOR RECOGNIZING ME
THANK YOU
AND I APOLOGIZE WHEN I SPOKE FIRST INTRODUCE MYSELF AND I SINCERELY APOLOGIZE
I'M RUDY KALUZA, THE COUNTY DIRECTOR, PORT OF SEATTLE, 21 YEARS
I JUST WANTED TO EMPHASIZE ONE THING VERY IMPORTANT TO THE COMMISSION, PORT OF SEATTLE AND THE PUBLIC IS THE STRONG POLICY DIRECTION THAT'S GIVEN BY OUR PORT COMMISSION TO EXECUTIVE AND STAFF WITH REGARD TO EMBRACING OPPORTUNITIES AND CREATING OPPORTUNITIES FOR WOMEN AND MINORITY OWNED BUSINESSES TO BE PART OF OUR CONTRACTING
AND MOSS ADAMS HAS BEEN A SIGNIFICANT PARTNER OVER THE RECENT YEARS AND JUST OVER THE PAST TWO YEARS
THE REPRESENTATION THAT OLGA HAD INDICATED IS REALLY DOUBLE THE REPRESENTATION
WE HAVE TWO WMBE FIRMS WORKING WITH MOSS ADAMS AND ONE THING MOSS ADAMS IS VERY MODEST ABOUT, OLGA MENTIONED THAT THEY'RE INTEGRAL PART OF THEIR TEAM IN THE WAY IT'S SUBSTANTIVE, IT'S NOT A PART OF CARVING OUT OF THE PIECE OF THE CONTRACT
AND HERE YOU GO, HERE'S SOME OF THE MONEY IT'S REALLY BEING A PART OF THE MOSS ADAMS TEAM
THEY GET THE MOSS ADAMS COMPUTER, THEY GET THE LAPTOP AND THEY GET THE TRAINING AS WELL AS THE WHOLE SYSTEMATIC APPROACH IN TERMS OF HOW MOSS ADAMS APPROACHES AUDITS FROM A BIG REGIONAL COMPANY, NATIONAL AS WELL WITH REGARD TO THE MODEL
AND SO WHAT THIS REALLY ACCOMPLISHES, AND I THINK THIS IS VERY PROUD, WE SHOULD BE PROUD OF THIS IS THE PORT OF SEATTLE'S ACCOMPLISHING BUILDING SKILL SETS, BUILDING RESUME, BEING ABLE TO COMPETE AT A HIGHER LEVEL WITH REGARD TO SAYING, I'VE DONE THIS AUDIT WITH THE PORT OF SEATTLE
AND SO REALLY, IT'S REALLY ENRICHING THEIR OPPORTUNITIES WITH REGARD TO BEING ABLE TO COMPETE FOR BIGGER AUDITS
AND I JUST WANTED TO MAKE THAT ONE POINT AS WELL, THAT WE ARE EMBRACING THIS VERY SERIOUSLY AND MOS EDEN HAS BEEN A SIGNIFICANT PARTNER AND WE'RE MOVING AHEAD IN THAT CONTEXT AS WELL
SO I DO WANT TO SINCERELY APPRECIATE THE DIRECTION FOR THE PORT OF SEATTLE COMMISSION IN TERMS OF THE TONE AT THE TOP THAT OLGA MENTIONED WITH REGARD TO FISCAL ACCOUNTABILITY AND FINANCIAL TRANSPARENCY AND ACCOUNTING FINANCIAL FOR THE INTEGRITY
WE EMBRACE THAT POLICY DIRECTLY
YOU GIVE TO THE EXECUTIVE AND STAFF VERY SERIOUSLY
AS YOU CAN SEE, THE AUDIT RESULTS SHOW THAT, AND THAT HAS SHOWN THAT CONSISTENTLY OVER THE YEARS WITH REGARD TO THIS
SO THANK YOU SO MUCH FOR RECOGNIZING OUR ACCOMPLISHMENTS AND I SINCERELY APPRECIATE YOUR SUPPORT IN TERMS OF BEING ABLE TO ACCOMPLISH WHERE WE ARE TODAY
AND WE SHOULD BE VERY PROUD IN THE EYES OF THE PUBLIC
THANK YOU
THANK YOU, RUDY
ALL RIGHT, I THINK WE WILL NOW MOVE ON TO THE NEXT TOPIC, ITEMS NUMBER FOUR AND FIVE
THANK YOU
THANKS, CONNOR
REGARDING POINTS WITH THE AUDIT PLAN AND OPEN ISSUES ITEMS, GLENN, CAN YOU PLEASE PROCEED WITH THE PRESENTATION? THANKS, COMMISSIONER
MICHELLE, IF YOU COULD DO THE HONORS
ONE MOMENT HERE
OKAY, VERY GOOD
LET'S MOVE TO THE NEXT SLIDE
WE'RE GOING TO JUMP TWO SLIDES
THE FIRST SLIDE IS ACTUALLY WE ENDED UP PUTTING 2022 AUDIT PLAN OUR GUIDING PRINCIPLES
THE COMMISSIONER, BEFORE I START MY PRESENTATION, SINCE WE'RE HERE IN PERSON, I'D LIKE TO ACKNOWLEDGE THE TEAM SITTING BEHIND ME BECAUSE THEY DO ALL THE WORK THAT MAKES THIS POSSIBLE
SO THANKS EVERYONE
FOR THOSE THAT ARE HERE, OUR GUIDING PRINCIPLES
I'M GOING TO GO OVER SOME BASIC STUFF
ALSO, SINCE WE HAVE A NEW AUDIT COMMITTEE MEMBER, SARAH, FOR HER BENEFIT AND THEY'RE KIND OF IMPORTANT TO HOW WE DO OUR WORK, WE FOLLOW TWO SET OF STANDARDS, THE GAGA OR GENERALLY ACCEPTED GOVERNMENT AUDITING STANDARDS, WHICH IS ALSO IN A YELLOW BOOK FOR GOVERNMENT STANDARDS, AND THE IPPF, OR INTERNATIONAL PROFESSIONAL PRACTICES FRAMEWORK, WHICH IS IN A RED BOOK
SO WE CALL IT THE RED BOOK
AND THE YELLOW BOOK IPPF IS MORE ENTERPRISE
SO IF YOU LOOK AT THE INTERNAL AUDIT GLOBAL STANDARDS, LARGE CORPORATIONS AND ORGANIZATIONS GENERALLY USE THOSE, AND GOVERNMENT ORGANIZATIONS USE THE YELLOW BOOK
THE YELLOW BOOK WILL ALSO SUGGEST FOR SHOPS LIKE US
INTERNAL AUDIT SHOPS, THAT WE ALSO USE THE RED BOOKS BECAUSE THEY'RE KNOWN FOR THEIR BEST PRACTICES AND AUDITING AND THE STANDARDS THAT THEY SET UP
SOME OF THE THINGS THAT WE TRY TO DO IS IF SOMETHING CHANGES IN THE BUSINESS AND SOMETHING NEW COMES AROUND, WE TRY TO ADDRESS THAT AND BE A VALUE ADD INTERNALLY AND ADDRESS EMERGENT RISKS
ONE EXAMPLE, COMMISSIONER MOHAMED, LIKE YOU MENTIONED, THE ACH FRAUD, WHEN THAT BROKE, WE TALKED TO THE AUTO COMMITTEE AND STARTED AN AUDIT ON THAT TO IDENTIFY THE CONTROL WEAKNESSES THAT CAUSE THAT OCCUR
ADDITIONALLY, EVEN NOW WITH ALL THE CYBERSECURITY RISKS FOR THE WAR IN UKRAINE AND RUSSIA AND THE AIRPORT BEING A VERY BIG TARGET, WE MAKE SURE THAT WE HAVE IT CONTROLS AND WE HAVE NOT A TEAM THAT FOCUSES ON IT RISK AND CYBERSECURITY
AND WE'VE DONE A WHOLE SERIES OF AUDITS THERE THAT WE TALK ABOUT IN NON PUBLIC SESSION AND WE'LL TALK ABOUT THOSE LATER TODAY
AND THEN FINALLY, WE'RE DOING A LOT OF CONSTRUCTION AT THE AIRPORT GCCM, OR GENERAL CONTRACTOR CONSTRUCTION MANAGER TYPE AUDITS TYPE PROJECTS
AND WHILE THE LEGISLATURE HAS ALLOWED THOSE FOR GOVERNMENT ENTITIES, THEY DO REQUIRE, REQUIRE THAT INDEPENDENT AUDITS BE CONDUCTED OFF THESE GCCM PROJECTS FOR KEY SUBCONTRACTORS
AND THAT'S EVOLVED OVER THE YEARS AND NOW ALL SUBCONTRACTORS SELECTED THROUGH ALTERNATIVE MEANS HAVE TO BE AUDITED
SO WE'VE INTEGRATED THAT INTO OUR PROCESSES AS WELL
SO WE CAN SUPPORT THE BUSINESS AND CONSTRUCTION AT THE AIRPORT UNLESS EVERYONE KNOWS CONSTRUCTION IS EXPECTED TO BE QUITE LARGE IN THE YEARS TO COME
MOVING ON TO THE NEXT SLIDE PLEASE
ONE OF THE THINGS THAT THE RED BOOK OR THE INSTITUTE OF INTERNAL AUDITORS REQUIRES IS THAT WHEN AUDIT ISSUES ARE IDENTIFIED, THAT THEY'RE NOT JUST PUT ON A SHELF AND NEVER ADDRESSED ANYMORE, THAT ONCE YOU COME TO AGREEMENT WITH YOUR AUDIT CLIENTS AS TO THIS IS WHAT THEY'RE GOING TO DO TO FIX THE ISSUE, THAT YOU PERIODICALLY FOLLOW UP WITH THEM AND MAKE SURE THAT THEY ARE ADDRESSING THESE ISSUES AND THEY ARE GETTING SYSTEMATICALLY FIXED
IT'S GOOD FOR THE BUSINESS, IT'S GOOD FOR THE CONTROL ENVIRONMENT, AND IT'S GOOD FOR EVERYONE
SO IT'S A GOOD STANDARD
AND WE'VE INSTITUTED A PROCESS WHERE WE REPORT BACK IN EVERY AUTO COMMITTEE AS TO WHERE THESE FINDINGS ARE
ARE THEY GETTING ADDRESSED? ARE THEY SITTING OPEN FOR A LONG TIME? FOR THE MOST PART, I THINK THINGS ARE IMPROVING RIGHT NOW
WE HIT A LITTLE BIT FOR LULL DURING COVID WHERE THINGS SLOWED DOWN AND PEOPLE WEREN'T PUT ON THE SHELF FOR A LITTLE BIT OR THINGS SLOWED DOWN BECAUSE THERE WERE OTHER PRIORITIES WHEN COVID HIT, BUT NOW THAT WE'RE KING COUNTY OF COVID AND BUSINESSES RESUMING MORE THAN NORMAL, WE ARE SEEING THESE GET ADDRESSED
THERE ARE SOME THAT ARE NOTED OVER HERE THAT ARE STILL OPENED, BUT THERE ARE PLANS TO ADDRESS SOME OF THESE AND OTHER ONES
WE'RE CONTINUING TO PRESSURE THE BUSINESS TO MAKE THEM A PRIORITY AGAIN AND ADDRESS THEM
SO THERE'S MORE DETAIL ON THESE OPEN ISSUES IN THE APPENDIX, WHICH LISTS OUT EVERYTHING
AND COMMISSIONERS AND MISS HOLSTROM, IF YOU DO HAVE QUESTIONS, JUST STOP ME AT ANY TIME AND MOVE FORWARD
THERE ARE NO QUESTIONS ON FOLLOW UP
I WILL MOVE TO THE NEXT SLIDE, PLEASE
MY QUESTION IS REGARDING WHEN YOU FIND SOME SORT OF ISSUE WITH A CONSTRUCTION CONTRACT
LET'S SAY, FOR INSTANCE, HYPOTHETICALLY, DURING THE PANDEMIC, THERE WAS JUST SO MUCH THAT WE WEREN'T EXPECTING UNPRECEDENTED TIMES
AND SO THERE COULD BE ISSUES AROUND LIKE CONTRACTS NOT HAVING ENOUGH TEETH IN THEM OR NOT RESPONDING TO THE PANDEMIC ITSELF
IN A CASE LIKE THAT, WHAT DO YOU GUYS DO WHEN YOU FIND THAT SORT OF FINDING? WHAT SOLUTIONS DO YOU PUT IN PLACE OR WHAT CONTROLS GET PUT IN PLACE TO HELP ADDRESS THAT? COMMISSIONER, IF THERE'S A FINDING RELATED TO A CONTRACT SPECIFICALLY, OR IF WE HAVE A CONCERN WITH THE CLAUSE IN THERE OR NOT ENOUGH TEETH IN, AS YOU MENTIONED, WE WOULD FIRST SIT DOWN WITH LEGAL AND TALK ABOUT OUR CONCERNS AND GET THEIR BUY IN
AND AFTER WE AGREE WITH LEGAL, IT DEPENDS ON THE CONTRACT
WE GENERALLY THEN GO TO THE CONSTRUCTION MANAGEMENT FOLKS AND THEY'LL SET UP A MEETING WITH THE AGC, THE GENERAL CONTRACTOR GROUP, THE ASSOCIATION OF GENERAL CONTRACTORS, AND WE'LL SIT DOWN WITH THEM AND DISCUSS ADDING THESE CLAUSES OR CHANGING THE CONTRACTS
WE USUALLY COME TO SOME AGREEMENT THERE
I THINK IN THE PAST WE'VE DONE IT WHERE AN AUDIT CLAUSE WAS VERY RESTRICTIVE AND WE WANTED IT TO BE OPENED UP A LITTLE BIT MORE TO ALLOW US TO LOOK AT MORE SPECIFIC DATA
AND AFTER WE COME TO SOME AGREEMENT, THEN IT'S A MATTER OF LEGAL AND PROCUREMENT UPDATING THE CONTRACTS GOING FORWARD, AND THEN ALL CONTRACTS ARE UPDATED GOING FORWARD
BUT WE DO BRING THOSE TO THE COMMITTEE WHEN WE IDENTIFY THEM AS WELL
WE WILL SHARE THEM WITH YOU
THAT'S HELPFUL
THANK YOU
I HAVE A QUESTION
LOOKING AT THE OPEN ISSUES STATUS REPORT, IT LOOKS LIKE SOME OF THESE YOU KIND OF KNOW FOLLOW UPS ARE HAPPENING, AND SOME OF THEM KIND OF SAY THERE ISN'T SOMETHING HAPPENING
BUT WHEN I LOOK AT THE APPENDIX, THERE'S QUITE A FEW HERE, I GUESS
FROM YOUR PERSPECTIVE, IS THERE ANY OF THESE THAT YOU THINK WE SHOULD REALLY REVIEW CLOSELY OR THAT YOU GUYS ARE MORE CONCERNED ABOUT THAN OTHERS? OR IS THERE ANYTHING I GUESS YOU'D WANT TO HIGHLIGHT FROM HERE THAT'S PRETTY CONCERNING, THAT IS PAST ITS TARGET COMPLETION OR RESOLVED DATA
ARCHITECTURAL ENGINEERING WAS AN AUDIT THAT WAS BROUGHT UP
IT WAS CONTENTIOUS AUDIT FROM A FEW YEARS AGO
IT'S BEEN PUT IN THE BACK BURNER, AND A LOT OF PROGRESS HAS NOT BEEN MADE ON THAT
IT'S JUST SOMETHING TO NOTE
THE OTHER ONES ARE EITHER PARTIALLY DONE OR ARE IN THE PROCESS OF BEING DONE
SO I'M JUST LIKE TO HIGHLIGHT THE AME ON IT
COMMISSIONERS, MS HOLSTROM, THIS SLIDE PROVIDES YOU WITH AN OVERVIEW OF OUR AUDIT PLAN AND IT'S JUST FOR TRANSPARENCY AND FOR A LITTLE BACKGROUND
WE PERFORMED THREE MAJOR TYPES OF AUDITS, LIMITED CONTRACT COMPLIANCE AUDITS
THOSE ARE CONCESSIONNAIRES AT THE AIRPORT AND WE TRY TO CYCLE THROUGH THEM PERIODICALLY BECAUSE IT'S A SIGNIFICANT AMOUNT OF REVENUE THAT GETS PAID TO THE PORT AND A LOT OF IT IS MORE OR LESS AN HONOR SYSTEM
SO THE KEY CONTROL IS US GOING IN AND AUDITING THEIR BOOKS AND RECORDS AND MAKING SURE THAT WHAT THEY REPORT TO THE PORT IS ACCURATE
AND WE DON'T ALWAYS SOMETIMES IT BENEFITS THEM IF THEY'RE OVERPAYING US, WE'LL SAY YOU'RE PAYING US INCORRECTLY AND WE HAVE OCCASIONALLY FOUND THAT
BUT IT ALSO KEEPS THEM HONEST AND MAKES SURE THAT THERE ARE A SECOND SET OF FIRES COMING IN TO LOOK AT THEM
AND WHATEVER THEY REPORT TO THE PORT WILL HAVE THE POTENTIAL OF GETTING AUDITED AND LOOKED AT
OPERATIONAL AUDITS
THESE INCLUDE CAPITAL AUDITS AND ALL THE CAPITAL AND CONSTRUCTION THAT WE DO
BUT THESE ARE DESIGNED AT THE BEGINNING OF THE YEAR THROUGH RISK ASSESSMENT AND THROUGH DISCUSSION WITH MANAGEMENT AND LOOKING AT SOME KEY PROCESSES THAT MIGHT HAVE GAPS AND EMERGING AREAS AS WELL
SO WE'VE GOT A FERRIES OF OPERATIONAL AUDITS AND THEN LAST BUT NOT LEAST, A WHOLE SLEW OF CONSTRUCTION AUDITS OR CAPITAL AUDITS
AND THOSE ARE JUST BECAUSE SOME OF THEM ARE REQUIRED, SUCH AS THE POST IF AIRLINE REALIGNMENT, THE C ONE BUILDING EXPANSION AND THE MAIN TERMINAL LOW VOLTAGE, THOSE ARE ALL GCCM PROJECTS
AND ALL GCCM PROJECTS PER THE RCW HAVE TO BE AUDITED BY AN INDEPENDENT AUDITOR PERIODICALLY WELL THROUGH THE COURSE OF THE CONSTRUCTION PROJECT
SO WE'VE GOT THOSE IN OUR PLAN AND WE DO SEEK AN OUTSIDE FIRM TO PARTNER WITH US AND PERFORM THAT WORK
BUT WE DO REPORT BACK TO THE COMMITTEE AS TO THE FINDINGS AND THE IMPROVEMENTS THAT ARE SUGGESTED
AND IT'S JUST BECAUSE THERE'S JUST SO MUCH DETAIL AND PAY APPLICATIONS THAT HAVE TO BE REVIEWED THAT THE LEGISLATURE RIGHTLY SO THOUGHT THAT IT'S IMPORTANT TO PUT THAT DOWN AS A REQUIREMENT THAT ALL OF THOSE PAY APPLICATIONS AND BILLINGS FROM SUBCONTRACTORS ARE REVIEWED FOR ACCURACY
AND THEN SOME OF THE OTHER PROJECTS THAT YOU SEE IN THE CAPITAL FRONT ARE JUST BECAUSE OF THE SIZE OR THEY'RE BEHIND SCHEDULE AND OVER PUGET
THOSE ARE SOME OF THE KEY ELEMENTS THAT WE LOOK AT WHEN WE SELECT THEM
AND THEN FINALLY, LAST BUT NOT LEAST, A LOT OF INFORMATION TECHNOLOGY AUDITS
THIS YEAR WE HAVE TWO INFORMATION TECHNOLOGY GROUPS, ICT INFORMATION AND COMMUNICATION TECHNOLOGIES THAT HANDLES MOST OF THE COURSE SYSTEMS AND FINANCIAL SYSTEMS AND THEN WE ALSO HAVE AVIATION MAINTENANCE WHICH MANAGES A LOT OF THE TECHNOLOGY AT THE AIRPORT
THE CRITICAL CLOSED NETWORK SYSTEMS WHICH ARE LIKE THE BAGGAGE SYSTEM OR RUNWAY LIGHTS OR WASTEWATER TREATMENT, OTHER CRITICAL ARCHITECTURE AND SYSTEMS THAT WE AUDIT AS WELL
SO THERE'S A BIG ARRAY OF SYSTEMS THAT THE PORT MANAGERS THAT WE AUDIT AND WE ASSURE CONTROLS ARE ROBUST ON AND WE'LL TALK ABOUT THESE AUDITS IN NON PUBLIC SESSION LATER THIS AFTERNOON
NEXT SLIDE, PLEASE, MICHELLE
SO, COMMISSIONERS, THIS GANTT CHART ESSENTIALLY TELLS YOU WHERE WE ARE IN OUR AUDITS
GREENS, WHAT WE'VE COMPLETED, YELLOW IS IN PROGRESS, AND THE BEIGE PINKISH COLOR IS WHAT'S NOT STARTED YET
SO YOU CAN SEE WE COVID ONE AUDIT TO NEXT YEAR PAYROLL CONTROLS AND IT WAS PRIMARILY BECAUSE MANAGEMENT REQUEST THAT THEY DIDN'T HAVE TIME TO SUPPORT THE AUDIT THIS YEAR AND ASKED IF WE COULD MOVE IT TO 2023 AND WE'LL KICK THAT OFF EARLY 2023
BUT IN LIEU OF THAT, WE DID PICK UP ACH AS AN AUDIT THAT WAS ADDED TO THE PLAN
AND IF WE HAVE CAPACITY TOWARDS THE END OF THE YEAR, WE DO HAVE A FEW CONTINGENCY AUDITS THAT WE CAN MOVE UP INTO OUR PLAN, BUT THIS LOOKS LIKE A REASONABLE WORKLOAD THAT WE SHOULD BE ABLE TO COMPLETE BY THE END OF THE YEAR
IN A NUTSHELL, THIS SLIDE SAYS WE'RE ON TRACK TO COMPLETE OUR AUDIT PLAN
THANK YOU
THERE ARE NO QUESTIONS
I'M GOING TO MOVE TO AUDITS THAT WERE COMPLETED IN THE SECOND QUARTER OF 2022
SO THERE'S A TOTAL OF FIVE THAT WERE COMPLETED
WE'RE GOING TO DISCUSS FOUR IN NON PUBLIC SESSION HERE TODAY AND THE ONE IN RED, AUDIT LOG MANAGEMENT WILL DISCUSS LATER TODAY
WITH THAT, I'M GOING TO MOVE TO OUR FIRST AUDIT AND I'M GOING TO ASK SPENCER BRIGHT TO COME UP
SO, COMMISSIONER SPENCER BRIGHT IS OUR CAPITAL AUDIT MANAGER THAT MANAGES THE CAPITAL AUDITS
AND WHILE I'LL OPEN THIS, SPENCER WILL ADD A LITTLE MORE CONTEXT TO THE WORK THAT WAS DONE SINCE HE DOES MANAGE THESE PROCESSES
BUT AS I MENTIONED, RCW 39.10 REQUIRES AN INDEPENDENT AUDIT OF SUBCONTRACTORS WHEN THESE SUBCONTRACTORS ARE SELECTED THROUGH ALTERNATIVE MEANS
AND PRIMARILY THEY STARTED OFF BY FOCUSING ON THE MECHANICAL CONTRACTORS AND THE ELECTRICAL CONTRACTORS BECAUSE THOSE ARE THE LARGEST SUBCONTRACTORS
BUT NOW, AS OF LAST YEAR, THE RCW WAS UPDATED TO INCLUDE TO REQUIRE LOOKING AT ALL SUBCONTRACTORS, INCLUDING ANYONE THAT SELECTED THROUGH AN ALTERNATIVE METHOD, MEANING YOU DON'T BID THEM OUT
THE GENERAL CONTRACTOR SAYS, I LIKE WORKING WITH THIS PERSON, SO I'M GOING TO HIRE THIS PERSON
THE RCW REQUIRES YOU TO AUDIT EVERYTHING IN THAT CASE FROM THAT SELECTED SUBCONTRACTOR
THIS REPORT WAS DONE BY RL
TOWNSEND AND ASSOCIATES, WHICH IS A WIMPY FIRM, I'LL POINT THAT OUT, BUT ALSO VERY WELL REGARDED FIRM IN THE CONSTRUCTION AUDIT SPACE
AND THROUGH A COMPETITIVE PROCESS, THEY WERE SELECTED AND THEY'LL CONTINUE FOR A SERIES OF THESE AUDITS WITH US
THE KEY AREAS THAT THEY LOOKED AT, LIKE I MENTIONED, WAS THE MC AND EC, MECHANICAL AND ELECTRICAL
AND THEN SPENCER AND HIS TEAM ARE ALSO LOOKING AT THE OTHER SUBCONTRACTORS FOR THE NORTH SATELLITE BECAUSE IT WAS A REALLY LARGE PROJECT
IT WAS ABOUT 700+ MILLION DOLLARS AND THERE'S A LOT TO LOOK AT
SO WE'RE GOING IN AFTER THE FACT AND I THINK OUR KEY LEARNING IS IT'S BETTER TO BE INVOLVED DURING THE PROCESS BECAUSE YOU CAN STOP MISTAKES, WHEREAS IF YOU COME IN AFTER THE FACT, YOU'RE WORKING WITH THEM TO TRY TO CLEAN UP A LOT OF THAT STUFF AND RECOUP THINGS
BUT WE'LL REPORT ON THAT AUDIT IN THE THIRD QUARTER IN THE SEPTEMBER TIME FRAME, SOME OF THE KEY AREAS THAT THEY LOOKED AT, AND IF YOU WANT TO JUMP IN, YOU CAN'T
THAT NORTH SAT WAS LOOKED AT BY THE INDEPENDENT AUDITOR, WAS JOB COST ACCOUNTING RECORDS
DID THEY LOOK AT SUBCONTRACTS FOR ALTERNATES? WHAT DO THEY DO? DID THEY GIVE THE WORK OUT TO SOMEONE ELSE? WERE THERE ALLOWANCES AND WERE THEY CORRECT IN UNIT RATES? UNIT RATES ARE WHEN YOU HAVE A CHARGE FOR SOMETHING AND THEY GO TO A TABLE AND THEY'RE SUPPOSED TO SAY, OKAY, I'M GOING TO CHARGE YOU $100 FOR THIS PER OCCURRENCE
ARE THEY USING THE RIGHT TABLE AND ARE THEY CHARGING US THE RIGHT AMOUNT? AND THEN RL tOWNSEND AND ALSO LOOKED AT CHANGE ORDERS FOR SUPPORTING DOCUMENTATION WITH THE FEES, THE RATES CORRECT, WITH THEIR DUPLICATES MATH ERRORS, ANYTHING ALONG THOSE LINES
SO QUITE A BIT OF COMPREHENSIVE WORK
AND THE NEXT SLIDE WILL TALK A LITTLE BIT ABOUT WHAT THEY RECOUPED THROUGH THIS
BUT THESE ARE HUGE DOCUMENTS, HUNDREDS OF PAGES LONG THAT YOU'VE GOT TO GO THROUGH AND DOUBLE CHECK AND TIE EVERYTHING OUT TO TABLES AND MAKE SURE EVERYTHING'S CORRECT
IT'S THROUGH THAT, THAT YOU FIND ERRORS AND SAY, THIS IS A MISTAKE
WE'RE NOT PAYING YOU FOR THIS
THIS IS A MISTAKE, BECAUSE THOSE ERRORS CAN ADD UP
AND SPENCER WILL TALK A LITTLE BIT ABOUT THAT AS WELL
NEXT SLIDE, PLEASE
AND SPENCER, YOU CAN TAKE THIS IF YOU'RE COMFORTABLE WITH IT AND INTRODUCE YOURSELF AND TALK ABOUT WHAT THEY GOT BACK
THANK YOU, GLENN SPENCER, BRIGHT CAPITAL PROJECTS AUDIT MANAGER GOOD AFTERNOON, COMMISSIONERS AND MS HOLMSTROM
SO ON OUR SLIDE ON THE TABLE HERE, AS LYNN MENTIONED, RL
TOWNS AND AN ASSOCIATE PERFORMED SOME AGREED UPON PROCEDURES
AND IN ADDITION TO THE STANDARD REQUIREMENTS OF RCW, THE CONSTRUCTION MANAGEMENT TEAM ALSO HAD TOWNS AND REVIEW SOME OF THE PAY APPLICATIONS DURING THE COURSE OF THE PROJECT AND PROVIDE RECOMMENDATIONS ON DOCUMENTATION AND QUESTIONS FOR THE CONSTRUCTION MANAGEMENT FOLKS PRIOR TO APPROVAL OF THOSE PAY APPLICATIONS
AND SO ON THE TABLE HERE, THE AGREED TO CREDIT AMOUNT OF $1 MILLION CAME FROM COST RECONCILIATION WORK PERFORMED BY THE EXTERNAL AUDIT FIRM
THEY WORKED WITH THE MCCM AND THE ECCM
SO THIS AMOUNT LISTED HERE WAS AGREED TO AND THE PORT WAS CREDITED FOR THAT AMOUNT
FOR THE COST AVOIDANCE TABLE
THAT NUMBER, THE 1.1 MILLION, CAME FROM THE PAY APPLICATION REVIEW
THAT AVOIDANCE WAS ACHIEVED PRIOR TO PAYMENT
SO THE PORT ACTUALLY NEVER PAID THAT AND THEY WORKED WITH THE SUBCONTRACTORS TO REMEDY THOSE PAY APPLICATIONS BEFORE PAYMENT
SPENCER, COULD YOU ALSO PROVIDE A LITTLE INSIGHT AS TO WHAT WAS SOME OF THE EXCEPTIONS THAT THEY FOUND AND HOW? YES, SOME OF THE LARGEST ON THE RECONCILIATION HAD A LOT TO DO WITH THE SALARIES, THE SALARIES AND BENEFITS THAT ARE BILLED TO THE PORT
A GOOD EXAMPLE THAT AMOUNTED TO MOST OF THIS WAS FEDERAL UNEMPLOYMENT TAXES AND STATE UNEMPLOYMENT TAXES
THOSE PARTICULAR ARE BASED ON A PERCENTAGE UP TO A CERTAIN SALARY AMOUNT FOR EMPLOYEES AND THEN THE EMPLOYER NO LONGER HAS TO COLLECT THOSE TAXES
TAXES OFTENTIMES WE NOTICED THROUGH CONSTRUCTION PROJECTS IS THAT IT'S EASIER TO SUBMIT A CONSTANT BILLABLE RATE, IT'S EASIER FOR THE REVIEWER ON THE OWNER SIDE AND IT'S EASIER FOR A CONTRACTOR TO SUBMIT
HOWEVER, WHEN THE ACTUAL COSTS ARE RECONCILED, IT CAN BECOME EXPENSIVE AMOUNT THAT AN OWNER IS PAYING, ESPECIALLY OVER A MULTI YEAR PROJECT SUCH AS THE NORTH SATELLITE
AND SO THAT WAS A BIG PORTION OF THIS CREDIT AMOUNT
I HAVE A QUESTION ON THE TIMING OF HOW WE DO THESE
SO I WOULD ASSUME WE WANT TO CAPTURE ALL OF THE COSTS THAT WE PAID
SO MY TWO QUESTIONS ARE WHEN DO WE START DOING AN AUDIT LIKE THIS ON A BIG PROJECT LIKE THIS TO TRY AND CAPTURE ALL OF THE COSTS SO THAT WE'RE NOT COMING BACK? OR ARE WE HAVING TO DO LIKE A FINAL RECONCILIATION MAYBE BEFORE WE PAY OUT RETAINERS OR SOMETHING TO MAKE SURE THERE'S NO MORE COST LIKE ADDITIONAL THINGS LIKE THIS, OR PAYROLL TAXES THAT STILL NEED TO BE CORRECTED BEFORE WE CLOSE OUT THE PROJECT ENTIRELY
SO HOW DOES THE TIMING OF THAT WORK HERE? THESE ARE STARTING AT THE BEGINNING OF THE PROJECT, RIGHT WHEN CONSTRUCTION COSTS START FROM THE DESIGN PHASE TO CONSTRUCTION, WE'RE GETTING THESE FIRMS IN EARLY ON TO WORK CLOSELY WITH CONSTRUCTION MANAGEMENT THROUGH THE LIFECYCLE OF THE PROJECT
SO MS HOLSTROM, TO ADD TO THAT
ALSO, THERE'S AN EVOLUTION HERE AND SPENCER AND HIS TEAM ARE GETTING MORE AND MORE INVOLVED IN THE BEGINNING OF PROJECTS
SO ALTHOUGH IN COMPLIANCE WITH THE RCW, THE INDEPENDENT ORDER, WE GET THEM STARTED RIGHT AWAY
WE HAVE A FERRIES STARTING IN 2022 AND WE'VE GOT THE INDEPENDENT ORDER LINED UP TO START WITH THE PROJECT WHEN THE PROJECT STARTS AND BE WELL INVOLVED
BUT IT'S A CONTINUOUS PROCESS WHERE WE WANT TO GET OUR TEAMS OUT THERE WORKING WITH THEM AND CONTINUOUSLY IDENTIFY THINGS AT THE BEGINNING AND BE MORE INVOLVED
AND YOUR SECOND QUESTION, YOU STILL HAVE THAT? OR IS IT JUST ONE THAT WAS KIND OF AT THE BEGINNING AND THEN END? LIKE HOW DOES THE TIMING WORK? COMMISSIONERS MOHAMED AND COMMISSIONERS JOE, ANY QUESTIONS IN THIS AUDIT OR ANY COMMENTS? NO, NOT AT THIS TIME
THANKS
OKAY, VERY GOOD
THANK YOU, SPENCER
WE'LL MOVE TO THE NEXT
THANK YOU
AND FOR THE RECORD, THIS IS ITEM NUMBER SEVEN ON THE AGENDA
YES, WE'RE AN ITEM NUMBER SEVEN ON THE AGENDA
IT'S HERE, EMERGENCY PROCUREMENT
AND ACTUALLY I'M GOING TO ASK DAN CHASE, OUR OPERATIONAL AUDIT MANAGER, TO COME UP AND HAVE A SEAT
SO DAN AND HIS TEAM ACTUALLY WORKED IN THIS AUDIT
AND ALTHOUGH I'LL WALK THROUGH IT, DAN CAN CHIME IN AND PARTNER WITH ME ON THIS, ESPECIALLY SINCE HE AND HIS TEAM DID ALL THE WORK ON IT
THIS AUDIT WAS REQUESTED BY THE COMMISSION PRIMARILY BECAUSE THE COMMISSION GRANTED STEVE THE AUTHORITY AND WHEN STEVE DECLARED THE EMERGENCY STEVE METRUCK IS THE EXECUTIVE DIRECTOR OF THE PORT FROM PUBLIC
SO IN MARCH 16, 2020, WHEN EMERGENCY WAS DECLARED, BECAUSE OF COVID, CERTAIN RULES AND REGULATIONS WERE BYPASSED
AND IN ORDER TO PUGET TO EXPEDITE THE PURCHASE OR PROCUREMENT OF GOODS AND SERVICES, PRIMARILY HAND SANITIZER, MASKS, CLEANING SUPPLIES, CLEANING CONTRACTS
TO KEEP TSA UP AND RUNNING, WE HAD TO SPEED UP AND RESPOND TO THINGS, BUT RELATIVELY QUICKLY
THE SPEND WASN'T THAT MUCH, BUT IT DEPENDS
IT'S ALL PERSPECTIVE
IT WAS CLOSE TO $5 MILLION ON CLEANING SUPPLIES AND CLEANING CONTRACTS, BUT IT'S PART OF RUNNING A BIG AIRPORT
WHEN THE EMERGENCY WAS BASICALLY ANNOUNCED, WE WAIVED COMPETITIVE REQUIREMENTS AND EXPEDITED THE PROCUREMENT PROCESS
SO PART OF WHAT WE DID ALSO WHEN WE DID THIS IS NOT ONLY DID WE LOOK AT DID WE COMPLY WITH ALL THE RULES AND REGULATIONS AND BUY THINGS THAT WE WERE SUPPOSED TO
AND THE PURPOSE OF THIS AUDIT IS REALLY TO PROVIDE ASSURANCE WHETHER WE DID OR DIDN'T
IN THIS CASE, WE'RE PROVIDING INSURANCE THAT WE DID, BUT WE'LL MOVE ON
IT WAS ALSO TO MAKE SURE THAT WE GOT A FAIR PRICE FOR SOME OF THESE PRODUCTS
ALSO DID WE GET GOUGED ON PRICING
SO GIVEN THE ENVIRONMENT WASN'T AS CHEAP AS YOU'D EXPECT TO BUY SANITIZER AND MASKS EARLIER ON THE PANDEMIC, BUT GIVEN THE ENVIRONMENT, THEY WERE REASONABLE
SO WE DID LOOK AT THAT ALSO
MICHELLE, NEXT SLIDE, PLEASE
SO, AS I MENTIONED, THIS TABLE REFLECTS COSTS OF SOME OF THE ITEMS THAT WE DID BUY CLEANING SERVICES, MASKS, SANITIZERS SUPPLIES
NOT REALLY THAT LARGE GIVEN THE PANDEMIC, BUT STILL DEPENDING ON PERSPECTIVE
MICHELLE, THE NEXT SLIDE
ANOTHER THING I WANT TO POINT OUT THAT WE DIDN'T PICK UP IN THIS AUDIT, BUT WE ARE PICKING UP IN OUR CAPITAL AUDITS ARE COVID-19 CHANGE ORDERS
SO PART OF THE RCW AND ACTUALLY THE GOVERNOR'S ORDER IN ORDER TO KEEP CONSTRUCTION RUNNING WAS TO HAVE A COVID SUPERVISOR AND HAD SOME OTHER PROCEDURES IN PLACE
SO WE INCURRED SOME COVERT SAFETY COSTS AND WE'LL CONTINUE TO INCUR THOSE AND WE'LL CONTINUE TO AUDIT AND LOOK AT THOSE AND REPORT BACK TO THE COMMITTEE BASED ON WHAT WE SEE IN THOSE CAPITAL AUDITS
SO 8.7 MILLION, PROBABLY A LITTLE MORE RISKIER AND LITTLE MORE OPPORTUNITIES, BUT WE ARE ADDRESSING THESE AND THEY WERE NOT PART OF THIS
NEXT SLIDE, PLEASE
MICHELLE AND DAN, I'LL LET YOU READ OUT THE CONCLUSION IF YOU WANT THE NEXT SLIDE, IT'S ESSENTIALLY OR ANY COMMENTS, IF YOU MIGHT
SO WE DIDN'T HAVE ANY ISSUES ON IT
THANKS
CLAN IN A NUTSHELL, THE WORK WE COMPLIED, IT WAS REALLY SAYING EVERYTHING WE DID AT THE PORT MET THE REQUIREMENTS, WERE PROVIDING ASSURANCE BACK TO THE COMMITTEE THAT WE COMPLIED WITH THE REQUIRED RCW
THE ONE THING I WOULD SAY IS THAT WHEN WE MET WITH THE CPO AND THE AUDIT, WE TALKED ABOUT THE REASONABLENESS OF THE COST, AND REALLY THE PURPOSE OF THE EMERGENCY PROCUREMENT PROCESS WAS TO PROCURE GOODS THAT ARE IN HIGH DEMAND, RIGHT? SO WE EXPECTED THAT THE PRICE WOULD BE A LITTLE BIT HIGHER, BUT IT LOOKED FAIRLY REASONABLE AND THE SPEND WAS A LITTLE BIT LOWER THAN WE ACTUALLY THOUGHT IT MIGHT BE
I THOUGHT IT WAS GOING TO BE HIGHER THAN, WHAT, 4.5 MILLION
SO RELATIVELY SMALL
SO NO ISSUES
THAT'S THE CONCLUSION
I HAVE A QUESTION FOR YOU
THESE NUMBERS LOOK REALLY GREAT, AND IT'S GREAT THAT THERE WSDOT ISSUES FOUND
DO YOU LOOK AT OTHER PORTS AND AIRPORTS AND WHAT THEY'RE DOING? AND DO YOU EVER COMPARE THAT? WELL, WE DIDN'T IN THIS AUDIT
WE WILL FROM TIME TO TIME REACH OUT TO SEE WHAT OTHER AIRPORTS ARE DOING AND INTERNAL AUDIT GROUPS
WE'VE DONE THAT WITH OUR GROUND TRANSPORTATION FOLKS, BECAUSE GROUND TRANSPORTATION IS CONSISTENT ACROSS AIRPORTS AND HOW THEY MONITOR TRAFFIC AND TRACK ACTIVITY, TAXIS, THAT SORT OF THING
SO NOT IN THIS AUDIT, BUT IT'S SOMETHING THAT WE COULD DO
IT MIGHT BE KIND OF TOUGH TO DO IT IN THIS ENVIRONMENT WITH THE COVID EMERGENCY PROCUREMENT PIECE, JUST DEPENDING ON THE NEED AND ALL THAT
BUT IT'S DEFINITELY SOMETHING WE DIDN'T DO IN THIS AUDIT, BUT WE HAVE DONE IN OTHERS
THAT'S HELPFUL
THANK YOU
QUESTION, MOHAMED, JUST IF I CAN ADD SOMETHING IN ACTUALLY A COUPLE OF WEEKS, DAN AND I, LESS THAN TWO WEEKS, WE'LL BE MEETING WITH ALL THE AIRPORT AUDITORS FROM A VARIETY OF DIFFERENT AIRPORTS FROM ALL OVER THE US
AND SOME GLOBALLY ALSO
SO WE WILL POSE THAT QUESTION TO THEM AND ASK AROUND AND SEE WHAT THEY WOULD DO AND COMPARE
AND I'LL LET YOU KNOW IN OUR NEXT MEETING
THAT'D BE GREAT
YEAH, IT'D BE GOOD TO KNOW WHAT SOME OF THEIR BEST PRACTICES WERE AND WHAT THEY'VE DONE AND WHAT WE'VE DONE AND TO COMPARE THAT, ESPECIALLY DURING THE PANDEMIC
THANK YOU
YEAH, I JUST HAVE TWO COMMENTS
THE FIRST ONE IS THAT I THINK THIS EXPERIMENT, SO TO SPEAK, WITH THE TIMES THAT WE WENT THROUGH JUST NOW WITH THE PANDEMIC AND THE EMERGENCY AUTHORITY, YOU HAD MENTIONED THAT SOME OF THE COSTS CAME IN LOWER THAN WHAT WE EXPECTED
AND I THINK THAT'S A TESTAMENT TO THE ADAPTIVENESS AND THE AGILITY THAT WE HAD IN PROCUREMENT
BECAUSE OFTENTIMES IN COMPETITIVE LANDSCAPES LIKE PPE, FOR INSTANCE, IT WAS EXTREMELY HARD TO PROCURE THESE NEEDS WHEN OTHER GOVERNMENT AGENCIES, QUITE FRANKLY, STATES, WERE COMPETING WITH EACH OTHER
AND SO I THINK FOR US TO HAVE CUT DOWN ON SOME OF THE BUREAUCRATIC PROCESS BETWEEN THE EXECUTIVE OFFICE AND THE COMMISSION OFFICE AUTHORIZING CERTAIN PROCUREMENTS, IT REALLY HELPED US TO KEEP THOSE COSTS DOWN AND PROVIDE THAT STREAMLINED PROCUREMENT PROCESS
SECONDLY, ONE THING THAT I WOULD ASK THE STAFF, AND MAYBE GLENN TO CONTEMPLATE IS THE COMMISSION IS GOING TO CONSIDER A REVISION OF THE DELEGATION OF AUTHORITY TO EXECUTIVE DIRECTOR
THAT INCLUDES POTENTIALLY LOOKING AT THE AUTHORITY AMOUNT THAT WE MIGHT PUGET TO THE EXECUTIVE DIRECTOR
RIGHT NOW, IT STANDS AT $300,000
AND WITHIN THE CONTEXT OF WHAT WE WENT THROUGH IN THE LAST THREE YEARS, IF THE STAFF IN PARTICULAR, GLENN, IF YOU COVID STAY ENGAGED WITH US AS COMMISSIONERS ON WHAT THE LESSONS LEARNED ARE, AND IF THERE ARE ANY LESSONS LEARNED THAT WE SHOULD BE TAKING INTO ACCOUNT DURING THE REVIEW OF THE DELEGATION REPORT INTO EXECUTIVE DIRECTOR, THAT'D BE REALLY HELPFUL
AH, YES, COMMISSIONER YES, CHO I WILL DEFINITELY DO THAT
JUST FOR THE RECORD, WE DID PERFORM AN AUDIT ON THIS A COUPLE OF YEARS AGO
IT WAS MORE OF A CONSULTATIVE ENGAGEMENT WHERE WE LOOKED AT THE DELEGATION OF AUTHORITY
WE LOOKED AT COMMUNITIES, KING COUNTY SOUND TRANSIT, CITY OF SEATTLE AND OTHER MUNICIPALITIES ACROSS THE REGION
AND WE CONCLUDED THAT WE ARE THE TIGHTEST AND WE DO HAVE AN OPPORTUNITY
BUT THAT REPORT IS AVAILABLE, AND I'M HAPPY TO PARTNER WITH THE COMMISSION AND THE EXECUTIVE DIRECTOR AS WE MOVE FORWARD WITH THIS PROCESS
AND LET'S GET THEM A COPY OF THAT REPORT
IT'S A HELPFUL REPORT TO READ
I WOULD LOVE THAT
WILL DO
OKAY, EXCELLENT
IS THAT ALL FOR THIS ITEM? GLENN THAT IS ALL FOR THIS ITEM
WITH THAT WILL MOVE TO THE NEXT ITEM ON THE AGENDA, WHICH IS ITEM NINE, THE HERTZ CORPORATION AUDIT
ON THAT ITEM EIGHT, AUDIT LOG MANAGEMENT, WILL BE DISCUSSED IN NONPUBLIC SESSION LATER THIS AFTERNOON
OKAY
COMMISSIONERS AND MS HOLSTROM
SO WITH HERTZ, WE ENTERED INTO A LEASE AGREEMENT, ALTHOUGH IT NAYS JULY 2008 UP THERE IN THE SCREEN, HERTZ HAS BEEN AROUND A LOT LONGER
IT'S JUST THE LATEST AGREEMENT THAT WE SIGNED WITH HERTZ WAS SIGNED IN ITS CURRENT FORM IN 2008
AND PART OF THAT IS WE HAVE A NEW PARKING STRUCTURE THAT WAS BUILT, A NEW RENTAL CAR FACILITY
PRIOR TO THAT, I REMEMBER BEING ABLE TO GO DOWN TO THE BASEMENT OF THE PARKING GARAGE RIGHT WHEN YOU GOT OFF THE AIRPLANE AND GET YOUR RENTAL CAR AND DRIVE OFF
SO A LOT CHANGED, AND A LOT OF THE AGREEMENTS CHANGED AROUND WHEN THAT NEW FACILITY WAS BUILT
BUT THE LATEST AGREEMENT WAS SIGNED IN 2008, AND IT REQUIRED A MINIMUM ANNUAL GUARANTEE, WHICH DURING COVID, WE WAIVED A LOT OF THESE
SO THE PRIOR'S AMOUNT THAT YOU PAID TO US, YOU'VE GOT TO PAY US AT LEAST 85% OF THAT
AND EVERYONE SAID, WAIT A MINUTE, WE CAN'T DO THAT
COVID HAS JUST SHUT OUR BUSINESS DOWN
SO WE WAIVED A LOT OF THOSE DURING COVID AND RELIED ON JUST A PERCENTAGE FEE, A PERCENTAGE OF THEIR REVENUE, AND THE CUSTOMER FACILITY CHARGE FEES
SO DURING THE COURSE OF OUR AUDIT, OR THE BULK OF OUR AUDIT, THE CUSTOMER FACILITY CHARGE WAS $6 PER VEHICLE TRANSACTION, AND IT'S NOW RATE INCREASED TO SIX POINT $50
I ALSO WANT TO POINT OUT THAT IN 2018 TO 2019, THE AGREEMENT YEAR GOES FROM JUNE TO MAY
THAT HURT PAID US ABOUT $11 MILLION
A LITTLE OVER THAT
IN 2019 TO 2020, THAT NUMBER WENT DOWN FROM ELEVEN TO ABOUT 9 MILLION
SO REMEMBER, IN EARLY 2020, WE HAVE THE PANDEMIC BY 2021, JUNE 2020 TO MAY 2021, THAT NUMBER HAD DROPPED FROM THE HIGH OF 11 MILLION DOWN TO 3 MILLION
SO THEY'VE TAKEN A BIG HIT ON THEIR BUSINESS
AND ALTHOUGH THEY'RE RECOVERING NOW, THE PANDEMIC WAS HARD AND A LOT OF CONCESSIONNAIRES
NEXT SLIDE, PLEASE, MICHELLE
WE HAVE ONE ISSUE ON CONCESSION, THE CFC AND THE CUSTOMER FACILITY CHARGE
AND DAN WILL TALK A LITTLE BIT ABOUT THIS
BUT BEFORE WE GO INTO THIS, I ALSO WANT TO POINT OUT THAT ON THE PERCENTAGE FEE REVENUE THAT THEY PAY US BASED ON A PERCENTAGE OF THEIR REVENUE, THAT WAS ACCURATE
WE TIED THAT OUT
WE FOUND SOME DISCREPANCIES ON THE CUSTOMER FACILITY CHARGE, AND DAN AND HIS TEAM DID A LITTLE BIT OF WORK THERE, AND THEY'LL TALK ABOUT IT
YEAH
AND ACTUALLY, THE CUSTOMER FACILITY CHARGE IS NOW $7
I THINK JANUARY OF THIS YEAR, IT WENT TO $7
SO THE CUSTOMER FACILITY CHARGE, THERE'S A DAILY CHARGE, AND IT'S CHARGED TO EACH RENTAL VEHICLE, REGARDLESS OF WHETHER IT WAS COLLECTED AND PAID
THE HERTZ COLLECTS IT AND THEY PASS IT THROUGH TO US
SO WHAT WE DID ON THIS AUDIT IS A LITTLE BIT PRIOR TO THAT, WE WORK WITH OUR BUSINESS INTELLIGENCE GROUP
THEY'RE THE FOLKS THAT HAVE LOTS OF KNOWLEDGE OF COMPUTERS, EXCEL, HOW TO BUILD FORMULAS, THAT SORT OF THING
WE DEVELOPED A TOOL USING TABLEAU, AND SO WE'RE ABLE TO TEST 100% OF THE TRANSACTIONS DURING THE SCOPE PERIOD
SO TO GIVE YOU SOME CONTEXT FOR HERTZ, THERE WERE 458,000 RENTAL TRANSACTIONS, INDIVIDUAL LINE ITEMS, RIGHT? SO ONE TRANSACTION COULD BE ONE DAY, IT COULD BE 20 DAYS
SO WHAT WE DID IS WE RAN THIS TOOL, AND IT'S LITERALLY SECONDS, AND IT GOES THROUGH THE CHECK IN DATE, THE CHECKOUT DATE AND THE TIME, AND CALCULATE, USING THEIR DATA, WHAT THE CSE SHOULD HAVE BEEN
WE COMPARE THAT TO WHAT THEY ACTUALLY PAID US, AND WE CAN DRILL DOWN ON THE EXCEPTIONS
IN THIS CASE, WE FOUND $173 WORTH OF CSC THAT APPEARED THAT YOU MEAN 173,000 OF CFC DOLLARS THAT WE FEEL SHOULD HAVE BEEN PASSED THROUGH TO US
AND SO WE'VE GONE BACK TO HERTZ
WE TALKED WITH JEFF FOSTER AND JEFF WOLF, WHO ARE WITH OUR AVIATION BUSINESS DEVELOPMENT TEAM, WHO KIND OF HAVE THE RELATIONSHIP WITH HERTZ, THE ONGOING RELATIONSHIP
SO WE'VE HAD SOME DISCUSSIONS WITH THEM
HERTZ CAME BACK AFTER SOME BACK AND FORTH AND SAID, WE AGREE THAT $9,000 IS OWED TO YOU
WHAT THEY'VE ASSERTED TO US IS THAT THE REMAINING $164,000 IS FOR INSURANCE REPLACEMENT RENTALS
AND SO THEREFORE, THEY'RE EXCLUDED FROM PAYING THE CSC
SO LET'S SAY I WRECKED MY CAR
MY INSURANCE COMPANY CAN SEND ME DOWN TO THE PORT, AND I CAN RENT A CAR
I'M NOT USING THE AIRPORT FACILITY, SO I'M EXEMPT FROM PAYING THAT CFC
RIGHT
SO THAT'S WHAT THEY'RE ASSERTING
WE HAVEN'T SEEN DOCUMENTATION THAT ILLUSTRATES THAT WE'RE GOING TO BE REQUESTING THAT
AND SO IN THE NEXT MONTH OR TWO, I THINK WE'LL PROBABLY HAVE A PRETTY GOOD IDEA OF WHAT THE DOCUMENTATION LOOKS LIKE, IF THERE'S ANYTHING
IF THERE'S NO DOCUMENTATION, WE'RE PROBABLY GOING TO ASK THE AUDIT COMMITTEE OR GLEN WILL DECIDE KIND OF WHAT APPROACH WE'LL TAKE AT THAT POINT
IF THEY DON'T HAVE THE DOCUMENTATION, THEY'RE UNABLE TO SUBSTANTIATE WHY THE TRANSACTIONS ZERO NOS PAID, THEN WE WILL PROCEED WITH COLLECTING
BUT I THINK MORE LIKELY THAN NOT, I WILL GIVE THEM THE BENEFIT OF THE DOUBT AT THIS POINT AND SAY, WE AGREE
IF YOU SAY THEY'RE INSURANCE RENTALS, THAT'S FINE, BUT YOU NEED TO PROVIDE US WITH THAT DATA
WE CAN'T JUST TAKE YOUR WORD ON IT
WE WOULD LIKE TO SEE SOME SORT OF BACKUP
AND THEY'VE ACKNOWLEDGED THAT HERTZ HAS ACKNOWLEDGED THAT THEIR SYSTEMS NEED TO BE IMPROVED
THEY'VE GOT OPPORTUNITIES TO IMPROVE ON THEIR END AND THAT THEY'RE STRUGGLING TO GET THE DATA, BUT THEY'RE GOING TO HAVE TO ESSENTIALLY DIG THROUGH THEIR SYSTEMS AND FIGURE OUT HOW TO GET THE DATA
BECAUSE IF THEY DON'T, THEN WE'VE GOT TO MAKE THAT DECISION AT THAT POINT, WHICH WE WILL
AND I WILL SAY THAT MAURA OMUEGA, WHO'S OUR SENIOR AUDITOR, USED THE TOOL BY HERSELF
I WASN'T INVOLVED WITH IT
I HELPED BUILD THE TOOL
BUT SHE DID IT
SHE'S NOT HERE
BUT SHE DOES DESERVE THE CREDIT FOR DOING THIS
SO I'LL HAVE TO GO BACK AND LISTEN TO THE PRESENTATION
SHE CAN VALIDATE THAT SHE GETS CREDIT FOR IT
I HAVE A QUICK QUESTION ABOUT THE FEE INCREASE
IS THAT DONE THROUGH THE CFC, THE CUSTOMER FACILITY CHARGE INCREASE? YOU SAID IT WENT FROM $650
YEAH
SO IT WENT FROM SIX DOLLARS TO SIX HUNDRED AND FIFTY DOLLARS, I THINK, OF BEGINNING OF 2021
HOW ARE THOSE RATES SET? I DON'T KNOW
I'M NOT SURE
I'M NOT INVOLVED WITH THAT
I DON'T KNOW IF JEFF FOOL OR JEFF FOSTER ON THE LINE, BUT THEY COULD PROBABLY ANSWER THAT FOR YOU
YES, I SEE
JEFF FOSTER, JEFF COVID
YOU ANSWER THAT? POSSIBLY? YES
GOOD AFTERNOON, COMMISSIONERS AND PUBLIC MEMBER
MY NAME IS JEFF OSR
I'M THE INTERIM SENIOR MANAGER FOR AVIATION BUSINESS DEVELOPMENT
SO TO ANSWER YOUR QUESTION, SPECIFICALLY ON THE CFC RATE, IT'S A PROCESS WE GO THROUGH EACH YEAR DURING THE BUDGET PROCESS
WE WORK WITH OUR RENTAL CAR PARTNERS, LOOKING AT THE CFC BALANCE, WHAT OUR ONGOING COMMITMENTS ARE GOING TO BE FOR BOTH CAPITAL IMPROVEMENTS, BOND DEBT COVERAGE, WHICH IS THE PRIMARY PURPOSE FOR THE CFC, AS WELL AS THE OPERATION EXPENSES FOR OUR COMMON TRANSPORTATION SYSTEM, AKA THE BUSES THAT PASSENGERS TAKE TO AND FROM SCA TERMINAL AND THE RENTAL CAR FACILITY
SO IT'S THROUGH THAT PROCESS LOOKING AT WHAT THE NEXT FEW YEARS ARE GOING TO BE AND HOW MUCH MONEY WE NEED TO ENSURE THAT THE CFCS HAVE ENOUGH CUSHION
WE WENT THROUGH A LEARNING PROCESS WITH COVID WHERE IT TESTED HOW MUCH WE HAD IN THAT WE WERE FINE
WE DIDN'T HAVE ISSUES WITH THAT
SO WE DO LOOK AT THAT
WE TALK WITH OUR RENTAL CAR PARTNERS BECAUSE WE'RE ALSO MINDFUL THAT THESE ARE THE CUSTOMERS THAT ARE PAYING THIS AS MANDATED BY COMMISSION RESOLUTION AND OUR LEASE AGREEMENT THAT THE RENTAL CAR COMPANIES ARE REQUIRED TO CHARGE THE CUSTOMERS
SO WE ARE MINDFUL OF THAT
AND THERE IS A RESOLUTION THAT COMMISSIONER HAS ESTABLISHED, RESOLUTION 3624, THAT GIVES THE EXECUTIVE DIRECTOR GUIDANCE FOR SETTING THOSE RATES
GREAT, THAT'S REALLY HELPFUL
AND IT SOUNDED LIKE, IF I UNDERSTOOD YOU CORRECTLY, THAT SOME OF THOSE FEES WERE WAIVED
DID I UNDERSTAND THAT CORRECTLY? WE DID NOT WAIVE ANY OF THE CFC FEES
EACH LEASE AGREEMENT HAD PROVISIONS FOR EXCEPTIONAL CIRCUMSTANCE WHEN IT CAME TO THEIR MINIMUM ANNUAL GUARANTEE, WHICH IS ON THE LEASE SIDE, THIS IS ON THE CONCESSION SIDE
SO WE DID LOOK AT THE MINIMUM MANUAL GUARANTEE
THERE WERE SOME MODIFICATIONS TO THAT
WE DID ALLOW SOME DEFERRALS AS PART OF OUR GENERAL TENANT RELIEF THAT WAS SPEARHEADED BY THE ENTIRE AVIATION DIVISION THAT WAS OFFERED TO ALL OF OUR TENANTS
SO THAT APPLIED TO ALSO TNC DRIVERS
I'M ASSUMING WE OFFERED IT TO THE TNC COMPANIES BECAUSE THE TNC COMPANIES ARE THE ONES THAT PAY THE PER TRIP FEES ON A MONTHLY BASIS
NO TNC COMPANY SIGNED UP FOR THE DEFERRAL PROGRAM, BUT IT WAS OFFERED
INTERESTING
THANK YOU JEFF, WHILE WE HAVE YOU COVID YOU ALSO, IS THERE ANY COMMENT OR ANYTHING YOU WANT TO ADD TO YOUR MANAGEMENT RESPONSE? IT'S PRETTY CLEAR HERE
ONE THING I JUST WANTED TO SAY IS FROM OUR PERSPECTIVE, KIND OF ECHOING WHAT GLENN AND DAN WERE TALKING ABOUT IS HERTZ IS MAKING THE CONTENTION THAT SO MUCH MONEY OF THE CFC THAT WAS FOUND IS ACTUALLY DUE TO INSURANCE
OUR POSITION IS THEY NEED TO PROVE IT, OTHERWISE WE WILL GO AFTER THE FULL AMOUNT
SO I JUST WANTED TO MAKE THAT PERFECTLY CLEAR THAT THE ONUS IS ON THEM TO PROVE TO US THAT THOSE ARE NOT CFC EXPENSE OR ELIGIBLE TRANSACTIONS
AND WE WILL CONTINUE TO WORK WITH DAN, MAURA AND GLENN AS WE GET THAT DOCUMENTATION
I HAVE A QUESTION ON THE MINIMUM ANNUAL GUARANTEES THAT WE DELAYED OR DIDN'T REQUIRE DURING COVID
MAKES SENSE BECAUSE THEY WEREN'T MAKING AS MUCH MONEY
SO WHAT'S OUR PLAN COMING NOW OUT OF THAT? ARE WE GOING TO GO BACK TO LIKE PRE-PANDEMIC REVENUE TO MEASURE AGAINST THAT 85% OR HOW ARE WE MANAGING THAT GOING FORWARD? I GUESS SO, JUST AS A CLARIFIER
SO WE NEVER WAIVED OR STOPPED COLLECTING MINIMUM ANNUAL GUARANTEE
SO WHAT WE DID IS THE EXCEPTIONAL CIRCUMSTANCE PROVISION OF THEIR LEASE, WHICH REQUIRES US TO CALCULATE IT BASED OFF OF THE DROP OF EMPLOYMENT
SO IN SOME CASES THE MAD DROPPED PRETTY SIGNIFICANTLY, ESPECIALLY EARLY ON IN THE PANDEMIC AS WHEN PASSENGER TRAVEL FELL SIGNIFICANTLY
SO IN A SENSE, MINIMUM ANNUAL GUARANTEE WAS WAIVED IN THAT REGARD, BUT IT WAS BASED OFF OF THE LEASE PROVISION
SO WE STILL CALCULATE THEIR MAG ON AN ANNUAL BASIS BASED OFF OF 85% OF THEIR PRIOR YEAR'S REVENUE DUE TO THE PORT, WHETHER IT BE THE PRIOR YEAR'S MAG OR CONCESSION FEES
SO THAT HAS NOT CHANGED AND THAT WILL CONTINUE GOING FORWARD
OKAY, SO JUST TO CLARIFY, WHEN THEIR REVENUES WERE WAY DOWN, THEY'RE USUALLY 50 MILLION AND THEY WERE ONLY 10 MILLION
WE'RE ONLY SAYING YOU HAVE TO GIVE US 85% OF 10 MILLION
SO REALLY THE NUMBERS WAY DOWN, BUT WE'LL CORRECT FOR THAT ONCE WE GET MORE OF A YEAR POST COVID
YEAH, THE MINIMUM ANNUAL GUARANTEE DID DROP SIGNIFICANTLY IN THE YEAR, THE FIRST, ESSENTIALLY 2021
HOWEVER, THEY WERE STILL HAVING TO PAY US 10% OF THE GROSS REVENUES, WHICH FAR EXCEEDED WHAT THE MINIMUM MANUAL GUARANTEE WAS
SO WE STILL COLLECTED A SIGNIFICANT NUMBER OF REVENUE, ESPECIALLY IN 2021
IT WAS JUST THAT THE FLOOR OF THE MINIMUM MANUAL GUARANTEE WAS SET MUCH LOWER
AND JEFF, WOULD IT BE FAIR TO SAY THAT NOTHING WAS WAIVED, IT WAS DEFERRED? CORRECT
COMMISSIONERS, IF THERE'S NO FURTHER QUESTIONS THAN THAT
THANKS JEFF
AND TO STEVE
FOR ALL THEIR PARTNERSHIP, I THINK WE HAVE A GREAT WORKING RELATIONSHIP WITH HIS TEAM AND WE REALLY GET A LOT DONE THERE
SO IT WORKS OUT WELL
MOVE ON TO THE NEXT
YOU'RE WELCOME TO SIT AND WE'LL GET ONE MORE AUDIT
SO, COMMISSIONER, IS THE LAST AUDIT THAT WE'RE GOING TO TALK ABOUT
AND AS I MENTIONED TODAY IS A RELATIVELY LIGHT SCHEDULE
WE'VE GOT INTERSPACES ITEM TEN ON THE AGENDA, WHICH IS AGAIN A CONCESSION AUDIT, AND IT'S A CLEAN AUDIT REPORT
SO I'LL JUST GIVE YOU A LITTLE BACKGROUND ON INTERSPACES
CLEAR CHANNEL
THEY GO BY THE NAME OF CLEAR CHANNEL
THEY DO THEIR BUSINESS AS CLEAR CHANNEL
THAT'S WHAT THE DBA STANDS FOR, DOING BUSINESS AS
AND YOU SEE ALL THE BILLBOARDS AT THE AIRPORT, THE BIG ELECTRONIC ONES, AND SIGNAGE, ADVERTISING, BECAUSE THEY DO THAT
AND AS WITH ANYTHING ELSE, THEY PAY US A PERCENTAGE OF THEIR REVENUE
QUITE A BIG SHIFT FOR THEM AS WELL OVER THE LAST FEW YEARS, EVEN THOUGH THIS SLIDE SAYS THE LAST BULLET, THAT THEIR PERCENTAGE FEES WERE 13 MILLION AND THEIR CONTRACT RENT WAS A MILLION OVER THE COURSE OF THE AUDIT
SO THAT'S A THREE YEAR PERIOD
IF YOU LOOK AT IT ON A YEAR TO YEAR BASIS, THEY WENT FROM 7 MILLION IN REVENUE AND PAYMENTS TO THE PORT
SO THEY PAID THE PORT 7 MILLION IN 2019, AND BY 2021 THAT HAD DROPPED TO LIKE THREE AND A HALF MILLION
AND 2020 WAS ALL SET, ABOUT 4 MILLION TO 2020
2021, HUGE DROPS IN THEIR REVENUE AND THEIR PAYMENTS TO THE PORT
THE IMPACT OF COVID, OF COURSE, AND THEY'RE STARTING TO RECOUP AND GET BACK TO NORMAL AS THE AIRPORT GETS BUSY
BUT JUST LIKE THE RENTAL CAR AGREEMENT
THIS TELLS YOU THERE'S MINIMUM ANNUAL GUARANTEE AND WHAT THEY HAVE TO PAY US THERE ARE DEFERRALS
AND FORGIVE ME, BUT I'M NOT SURE IF THEY TOOK ADVANTAGE OF THE DEFERRALS, BUT I THINK EVEN IF THEY DID, I DO RECALL THAT THIS IS ONE OF THE VENDORS THAT HAVE COME HOME AND PAID US BACK AND THE PERCENTAGE FEE IS STATED, YOUR PERCENTAGE OF THEIR GROSS SALES
SO, YEAH, QUITE A LARGE AMOUNT
ANYWAYS, MOVE TO THE NEXT SLIDE
WE DID LOOK IN QUITE A LOT OF DETAIL THROUGH A LOT OF THE WORK THAT THEY'VE DONE, THEIR BOOKS AND RECORDS, THEIR FINANCIAL STATEMENTS AND WHAT THEY PAID US
AND WE TIED EVERYTHING BACK
AND WE'RE HAPPY TO CONCLUDE THAT THEY MATERIALLY COMPLIED WITH ALL SIGNIFICANT TERMS OF THE AGREEMENT AND PAID US ACCURATELY
SO THIS, IN ESSENCE, CONCLUDES MY REPORT BACK TO THE AUTO COMMITTEE
COMMISSIONER MOHAMED, COMMISSIONER CHO, AND MS HOLSTROM, IF YOU HAVE ANY QUESTIONS, WE'LL TAKE THEM AT THIS POINT
OTHERWISE IT'S BACK TO YOU, COMMISSIONER CHO
EXCELLENT
ANY QUESTIONS FOR STAFF? I CAN'T SEE ANY HANDS BECAUSE NO HANDS UP AND THEIR MOVEMENTS
NO QUESTIONS
IN THAT CASE, THAT CONCLUDES OUR PUBLIC MEETING BUSINESS AGENDA
SO WE'LL MOVE TO CLOSING COMMENTS AT THIS TIME AND THEN PROCEED TO OUR SECURITY SENSITIVE ITEM DISCUSSION
MR FERNANDEZ, DO YOU HAVE ANY CLOSING COMMENTS? I DO NOT
I JUST WANT TO SAY THANKS TO THE TEAM
WELCOME TO MISS HOLSTROM AGAIN AND THANK YOU TO THE COMMITTEE FOR GOOD QUESTIONS AND FOR YOUR SUPPORT, BECAUSE WITHOUT YOUR SUPPORT, WE CAN'T DO THIS
SO YOU'RE BACKING AND HAVING THIS INDEPENDENT AUDIT COMMITTEE ASSURES THAT WE HAVE TRANSPARENCY AT THE PORT AND ACCOUNTABILITY
GREAT
THANKS
GLENN, ANY CLOSING COMMENTS AT THIS TIME? THANK YOU SO MUCH TO THE WHOLE AUDIT COMMITTEE TEAM
THANK YOU FOR YOUR COMMITMENT TO TRANSPARENCY AND ACCOUNTABILITY
I DEEPLY APPRECIATE THE WORK THAT YOU ALL DO
MRS SARAH HOLSTROM, WELCOME
IT'S GREAT TO HAVE YOU HERE
AND YEAH, WELCOME TO THE TEAM
THAT'S ALL I JUST WANT TO SAY THANKS FOR THE WARM WELCOME, EVERYONE
IT'S REALLY GREAT TO BE HERE
I'M EXCITED TO JOIN AND THANKS FOR GIVING A LITTLE MORE BACKGROUND ON SOME THINGS TO KIND OF GET ME UP TO SPEED
I REALLY APPRECIATE THAT AND THANKS FOR TAKING TIME TO ANSWER ALL THE QUESTIONS AND GET ME COMFORTABLE WITH EVERYTHING
SO I'M EXCITED TO BE HERE AND THANKS EVERYBODY
EXCELLENT
WELL, I WANT TO ENTER THOSE SENTIMENTS
THANK YOU TO OUR ENTIRE TEAM FOR DOING YOUR TREMENDOUS WORK
AND OF COURSE, WELCOME TO MISS HOLSTROM, TO THE TEAM
VERY EXCITED TO HAVE YOU
AND IT SOUNDS LIKE YOU'RE ALREADY GETTING INTO THE THICK OF THINGS, SO WELCOME
ALL RIGHT, HEARING NO FURTHER COMMENTS WILL REACH US INTO THE NON PUBLIC PORTION OF OUR MEETINGS, DISCUSS ONE MATTER RELATED TO SECURITY SENSITIVE INFORMATION
THE NON PUBLIC PORTION OF THE MEETING WILL LAST APPROXIMATELY 30 MINUTES AND THE MEETING WILL ADJOURN WITH NO FURTHER BUSINESS
AFTER THAT, PARTICIPANTS JOINING THE NON PUBLIC PORTION OF THE MEETING VIA TEAMS PLEASE CLOSE OUT THIS MEETING AND CALL INTO THE TEAM'S TELEPHONE CONFERENCE NUMBER PROVIDED IN THAT 04:00 P.M
MEETING EDUCATION AND USE THAT CONFERENCE CODE
THERE'LL BE NO TEAMS VIDEO FOR THE SEGMENT
THE CALL ONLINE IS AVAILABLE FOR JOINING THE MEETING
FOR THOSE JOINING THE RECESSION ON SITE, WE WILL RECONVENE THE MEETING UPSTAIRS IN ROOM THREE, CC 130
PLEASE GIVE US A FEW MINUTES TO GET TO THAT ROOM
THE CURRENT TIME IS 03:31 P.M.
THANK YOU ALL
GOOD MEETING
THANK YOU.

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