INTERNAL AUDIT REPORT 
Operational Audit – Capital 
Terminal 117 Sites 23– 25 Restoration Project 






January 2020 – June 2023 
Issue Date: June 16, 2023 
Report No. 2023-08

            Terminal 117 Sites 23– 25 Restoration Project 

TABLE OF CONTENTS 

Executive Summary ................................................................................................................................................ 3 
Background............................................................................................................................................................. 4 
Audit Scope and Methodology ............................................................................................................................ 5 
Schedule of Findings and Recommendations ................................................................................................... 6 
Appendix A: Risk Ratings ...................................................................................................................................... 8 
Appendix B: GC/CM Project External Audit Review Summary ......................................................................... 9 













2

            Terminal 117 Sites 23– 25 Restoration Project 
Executive Summary 
Internal Audit (IA) completed an audit of the Terminal 117 Sites 23 – 25 Restoration Project (Project) for
the period January 2020 through June 2023. The audit was performed to provide an independent
assessment of performance, with the purpose of determining how goals and objectives were achieved
and to determine if there were opportunities for improvement. 
The Project was the first at the Port to use the Heavy Civil General Contractor/Construction Manager 
(GC/CM) project delivery method. Scarsella Brothers Inc. was selected to be the GC/CM in August of
2020 with a cost of $14,211,077, with a Maximum Allowable Construction Cost (MACC) of $10,378,373. 
Washington State Law (RCW 39.10.908) requires an independent audit for heavy civil GC/CM projects.
In addition to this audit, the Port contracted with the firm, Branch, Richards & Co., P.S. (Branch 
Richards), to perform an independent construction cost control and cost verification audit. A summary
of Brach Richards work to date is reflected in Appendix B. Construction began in 2020 and the project,
named the Duwamish River People’s Park, opened in the summer of 2022. 
Our audit focused on a review of bid package procurement processes and expenses, self-performed
work, and Negotiated Support Services (NSS), including COVID-19 expenses. In general, Port
management’s monitoring aligned with policies, procedures, and the unique state law requirements of
GC/CM projects. However, our audit identified opportunities where internal controls could be enhanced
or developed. These opportunities are listed below and discussed in more detail beginning on page six 
of this report. 
1.  (Low) The GC/CM did not include a notification of their intent to bid on the public solicitation for
subcontract work, as required by state law (RCW 39.10.390). Additionally, the Trucking bid package
was competitively bid for Site 25, but not for Site 23. Since the time of these solicitations in 2020,
the Central Procurement Office has updated their processes to assure future solicitations comply
with state laws. 
2.  (Low) The Port was overbilled by approximately $44,728 for Street Sweeping and $122,385 for
Traffic Control subcontract expenses. Payments were made on a percentage of completion basis
rather than actual hours, as required by the contract. The Construction Management project team
were aware of the overbilling and correction needed, prior to the start of the audit. 


Glenn Fernandes, CPA 
Director, Internal Audit 



Responsible Management Team: 
Nora Huey, Director, Central Procurement Office 
Stephanie Jones Stebbins, Managing Director, Maritime 
Sandra Kilroy, Senior Director, Engineering, Environment, and Sustainability 
Jonathan Ohta, Senior Construction Manager, Construction Services 
Janice Zahn, Director of Engineering 

3


Terminal 117 Sites 23– 25 Restoration Project 
Background 
Between 1937 to 1993, the Duwamish Manufacturing Company and Malarkey Asphalt Company used
the site for asphalt shingle manufacturing which left the site with contaminated soil and sediments. The
Port acquired the land in 1999, which was designated as an Early Action Area (EEA) as part of the
Lower Duwamish Waterway Superfund site by the U.S. Environmental Protection Agency (EPA). The
Port and the City of Seattle worked together to conduct multiple large-scale cleanups with EPA oversight. 
The large-scale cleanups were done in two phases. The first phase was for the uplands and sediments
cleanup which included the removal of pavement, derelict structures, and about 60,000 tons of soil and
sediment. Following that, another round of cleanup was done for streets and stormwater. This work
included storm drainage pipes under the streets, sidewalks, environmentally friendly landscaping, 
installation of art, signage, and rain gardens which will improve the stormwater quality. These two
phases were completed in 2015 and 2016. 
Beginning in 2020, the Port broke ground on the Duwamish River People’s Park. This Project began in
2020 with the purpose of restoring 14 acres of habitat and shoreline access on the west bank of the
Lower Duwamish Waterway in South Park, Seattle. This Project contributes to salmon recovery in the
region, which can also support the endangered Southern Resident orca population. This area along the
river is also used by tribal fishers to harvest chinook, coho, pink, chum, and steelhead salmon as they
practice their Treaty Fishing Rights during the salmon migration season. 
This Project was unique in that it established the Port’s first “habitat credit bank” which enabled third
parties to invest in habitat projects, as mitigation credits, to comply with the Clean Water Act and the
Endangered Species Act. Any revenue generated by the Port will help fund additional habitat restoration
projects in the Green-Duwamish Watershed and Elliott Bay. In addition, the site serves as a learning lab
for environmentalists seeking skills training and hands-on experience with careers in habitat restoration
and marine wildlife conservation. 
Some of the park’s features include: 
• Pathway and bridge to 275-foot-long pier 
• Gathering area, seating, and entrance to shoreline pathways and viewpoints 
• Public art and interpretive features 
• Interpretive trail to 0.5 acre restored marsh and riparian area 
• Marsh platform and steppingstone pathway 
• Hand-carried boat launch 
• 5.5 acres of restored marsh and native riparian shoreline 
• 750 feet of lighted pathway to viewpoints and interpretive information 
• Access stairway to 35-foot-high waterway and habitat viewing platform 
The Port contracted with Scarsella Brothers Inc. to be the GC/CM of the project in August of 2020. The
original contract amount was $14.2 million. Considering executed change orders and the closing of open
change order trends, the final contract amount is projected to be approximately $14.9 million. 

Source: Duwamish River People's Park | Port of Seattle (portseattle.org) 



4

            Terminal 117 Sites 23– 25 Restoration Project 
Audit Scope and Methodology 
We conducted the engagement in accordance with Generally Accepted Government Auditing Standards 
and the International Standards for the Professional Practice of Internal Auditing. Those standards
require that we plan and conduct an engagement to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our engagement objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and conclusions based on our
engagement objectives. 
We used a judgmental method to determine the samples selected for our audit test work. The results of
this work cannot be projected to the population as we did not select a random sample. 
The period audited was January 2020 through June 2023 and included the following procedures: 
External Audit Review 
• We met with the external audit firm: Branch, Richards & Co., P.S. to understand their processes
and areas reviewed during their audit. 
• We obtained a copy of their draft audit report and workpapers. 
• We reviewed their recommendations, including corrections on billing errors and confirmed that
corrections had been made. 
Bid Packages and Self Performed Work 
• We interviewed the Central Procurement Office (CPO) personnel to understand subcontract
bidding oversight internal controls. 
• We reviewed the Contract Agreement’s criteria for bidding, self-performed work, applicable
Washington State Laws, and the Subcontract Plan. 
• We obtained supporting documentation and verified that the Port and the GC/CM complied with 
criteria established in the Contract, Washington State Law, and the Subcontract Plan. 
• We reviewed Related Parties to determine if any of Scarsella’s related parties were awarded bid
packages. 
Negotiated Support Services (NSS) 
• We interviewed the Construction Management personnel to understand procedures and internal
controls. 
• We reviewed the contract’s criteria for NSS. 
• We selected five NSS areas to focus our testing. 
• We reviewed Construction Bulletins, related to each NSS area. 
• We obtained and reviewed supporting documentation for compliance with NSS. 






5

            Terminal 117 Sites 23– 25 Restoration Project 
Schedule of Findings and Recommendations 
1) Rating: Low 
OPPORTUNITY 
The GC/CM did not include a notification of their intent to bid on the public solicitation for
subcontract work, as required by state law (RCW 39.10.390). Additionally, the Trucking bid
package was competitively bid for Site 25, but not for Site 23. Since the time of these solicitations
in  2020,  the  Central  Procurement  Office  has  updated  their  processes  to  assure  future
solicitations comply with state laws. 
Total estimated subcontract costs were approximately $4.8 million. We reviewed the procurement
process for compliance with Washington State laws for the four subcontract bid packages in which the
GC/CM was a bidder, listed in Table 1. 
Table 1: Subcontract scope and contractual estimate amount 
Subcontract Scope         Estimate 
Street Sweeping           $ 212,160 
Traffic Control               $ 213,354 
Trucking                   $ 458,019 
Water Treatment          $ 474,080 

In all four subcontract bid packages, the GC/CM did not include a notification of their intention to bid in
the public solicitation, as required by state law (RCW 39.10.390). Additionally, we determined that one
of the four subcontract bid packages, Trucking, did not meet the requirement of RCW 39.10.380 which
states in part, “All subcontract work and equipment and material purchases shall be competitively bid
with public bid openings and require the public solicitation of the bid documents.” 
Trucking work for Site 25 was performed first and we verified the public solicitation procurement process
was followed. The GC/CM was the successful bidder in the amount of $206,100. However, for Site 23,
Trucking subcontract work did not follow the required public solicitation process. During interviews, we
were told the project’s Resident Engineer (at the time) directed Scarsella to move forward with continuing
the Trucking work for Site 23. Without going through the procurement process, outside subcontractors
did not have the opportunity to bid on the Trucking bid package for Site 23. 
We discussed these items with the Central Procurement Office (CPO) personnel and the Construction
Management project team. CPO personnel explained that these bid packages were awarded in 2020
and since then, their procurement processes were updated, and current processes now address the
concerns we identified. We reviewed CPO procurement documents, established in May 2022, and
concur our concerns have been addressed. 
Recommendations 
Continue using procurement processes that assure compliance with state laws. 
Management Response/Action Plan 
Engineering – Construction Management (CM) appreciates the updated CPO processes to help identify
these issues earlier. CM will focus on implementing training for awareness of GC/CM processes
including CPO management of bid packages when the GC/CM is bidding the work.



6

            Terminal 117 Sites 23– 25 Restoration Project 
2) Rating: Low 
OPPORTUNITY 
The Port was overbilled by approximately $44,728 for Street Sweeping and $122,385 for Traffic
Control subcontract expenses. Payments were made on a percentage of completion basis rather
than actual hours, as required by the contract. The Construction Management project team were 
aware of the overbilling and correction needed, prior to the start of the audit. 
The contract estimates total subcontract costs of $4,792,308 for the project. We reviewed expenses
associated with a sample selection of four subcontract bid packages, listed in Table 2. 
Table 2: Subcontract scope and amount paid, as of Pay Application 15 
Subcontract Scope       Amount Paid 
Street Sweeping             $ 169,728 
Traffic Control                 $ 163,202 
Trucking                     $ 456,036 
Water Treatment            $ 474,080 

We reviewed supporting documentation in the form of bid proposals, third-party invoices, and labor
hours. We identified two instances in which the Port overpaid for subcontract work. 
Street Sweeping 
During our testing, we noted the amount paid through Pay Application 15 was $169,728. We were able
to verify $125,000 with third party invoices, provided by Scarsella. The overpayment occurred because
Pay Applications were paid as portions of a lump sum, rather than based on actual labor hours incurred. 
Our testing confirmed current amounts should be 924 hours at $125/hour, plus the $9,500 for premiums,
totaling $125,000. The Construction Management project team already identified this discrepancy, prior
to the audit, and agreed with the correction needed. The project is currently on hold, but the correction
will be made on the next Pay Application, crediting an amount of $44,728 for this subcontract work. 
Traffic Control 
During the cost development phase, and prior to a Competitive Bid package, Scarsella coded designated
traffic control work to Traffic Control and Coordination. After traffic control work went to bid, Scarsella
was awarded the work by having the lowest bid of two proposers. The total traffic control and
coordination work was budgeted at $317,429. 
We performed a reconciliation and identified $122,385 as an overpayment. The Port’s CM team also
performed a reconciliation and identified the same overpayment amount. 
Recommendations 
CM should continue with their plans to move forward with collection of overpayment. 
Management Response/Action Plan 
Engineering –  Construction Management (CM) and Central Procurement Office –  Construction
Contracting (CPO) recognize this as a training and oversight opportunity for project teams to further
understand the set-up of Heavy Civil GC/CM contract items for proper payment and tracking. We will
be doing the training on the processes that are in place that allowed us to catch this in advance of this
audit. 


7

            Terminal 117 Sites 23– 25 Restoration Project 
Appendix A: Risk Ratings 
Findings identified during the audit are assigned a risk rating, as outlined in the table below. Only one
of the criteria needs to be met for a finding to be rated High, Medium, or Low. Findings rated Low will be
evaluated and may or may not be reflected in the final report. 
Financial      Internal                                               Commission/
Rating                                   Compliance      Public 
Stewardship  Controls                                         Management 
High probability
Non-compliance
Missing or not                       for external audit   Requires
with Laws, Port
High       Significant     followed                          issues and / or     immediate
Policies, 
negative public     attention 
Contracts 
perception 
Moderate
Partial
Partial controls                        probability for
compliance with
external audit       Requires
Medium   Moderate                  Laws, Port
Not functioning                      issues and / or      attention 
Policies 
effectively                               negative public
Contracts 
perception 
Low probability
Functioning as   Mostly complies                       Does not
for external audit
intended but     with Laws, Port                        require
Low      Minimal                                   issues and/or
could be        Policies,                             immediate
negative public
enhanced       Contracts                          attention 
perception 











8

            Terminal 117 Sites 23– 25 Restoration Project 
Appendix B: GC/CM Project External Audit Review Summary 
Branch, Richards & Co., P.S. (Branch Richards) overall scope of work was to perform sufficient testing
and attest procedures on Pay Applications submitted by Scarsella to allow conclusions to be made on
whether any costs invoiced were not reimbursable due to a lack of accounting support or unallowable
per contract terms. 
As of the date of this report, Branch Richards’ review is mostly complete, however, there are a few
remaining items to complete on the project. Once Branch  Richards completes their review, they will
issue a final report which we will provide to the Audit Committee. Table 3 details the work performed.
Table 4 details their preliminary results. 
Table 3: Areas reviewed 
Area                              Description 
Negotiated Self-Performed Work     Tested underlying cost support for a sample of labor, materials,
supplies, and equipment that were invoiced. 
Labor Costs                         Traced labor hours to Scarsella’s Burdened Labor Reports and verified
billed labor costs were properly supported. 
Equipment Costs                   Agreed equipment hour use to Scarsella’s supporting documentation
and verified that equipment rates did not exceed the Equipment Watch
Blue Book report. 
Materials Costs                       Reviewed supporting vendor invoices, agreed the invoiced cost to
Scarsella’s Job Cost Report and verified that the cost totals were equal
to the posting of materials on the Job Cost Report summary and
ultimately to the pay applications. 
Other Costs                         Obtained invoices and logs to test the accuracy of the quantities and
costs from invoices to job cost postings. 
General Conditions                  Determined whether accounting records supported, on a reasonable
basis, the total costs invoiced under the cost items making up the
General Conditions. 
Source: Branch, Richards & Co., P.S. 

Table 4: Preliminary results 
Actual Costs Incurred per System
Contract      Labor     Equipment   Material     Other       Total     Total Billed Cost (Under) Over
Item    Description                    Amount       Cost        Cost        Cost       Cost        Cost      Thru Aug     VS. Billed
103.001 Temp Erosn&Sdmnt Controls     232,393      69,904      12,986       243      58,371     141,504     185,914        44,410
106.001 Excavation to Subgrade          775,782     154,101     105,714      9,612         218     269,645     775,782       506,137
108.001 Off-site Dispsl-Subtitle D         892,215      62,935      75,001             2,165,589   2,303,525   2,022,977      (280,548) 
109.001 Log Edge                      223,737      66,006      42,121   138,361              2,024          248,512     223,737        (24,775)
110.001 Log Footer                     131,265      22,626      16,528     18,309                 57,462     106,306        48,844
111.001 Log Toe                       145,980      55,669      31,541     16,275      1,734          105,218     145,980        40,762
112.001 Log Crib Wall                   157,683      39,563      38,703     16,320         111      94,698     157,683        62,985
705.001 Environmental Clean-Up               -      29,788      24,739                2,476           57,003          -         (57,003)
2,559,055              500,592     347,331    199,120   2,230,523   3,277,566    3,618,379       340,812
Source: Branch, Richards & Co., P.S. 



9