Internal Audit Report 

Limited Operational Audit 
Delegation of Authority 


January 1, 2010  December 31, 2011 




Issue Date: June 12, 2012 
Report No. 2012-10

Internal Audit Report 
Delegation of Authority 
January 1, 2010  December 31, 2011 

Table of Contents 
Transmittal Letter .....................................................................................................................3 
Executive Summary .................................................................................................................4 
Background ...............................................................................................................................5 
Highlights and Accomplishments ...........................................................................................7 
Audit Scope and Methodology ................................................................................................7 
Conclusion .............................................................................................................................. 10 












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Transmittal Letter 

Audit Committee 
Port of Seattle 
Seattle, Washington 

We have completed a limited performance audit of Delegation of Authority. 
We reviewed information relating to Resolution 3605 from January, 1 2010, through December 31,
2011. 
We conducted this performance audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives. 
We extend our appreciation to the Commissioners, Executive Management and other Port staff for
their assistance and cooperation during the audit. 


Joyce Kirangi, CPA 
Director, Internal Audit 







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Executive Summary 
Audit Scope and Objective The purpose of the audit was: 

1.  To determine whether the delegation of authority under Resolution 3605 is efficient and
effective 
2.  To determine whether management has adequate controls and has complied with the
requirements of Resolution 3605 
3.  To determine whether the requirements of Resolution 3605 continue to be commensurate with
the risks 
4.  To determine whether there have been any unintended consequences due to Resolution 3605 
We reviewed information for the period January, 1 2010, through December 31, 2011. 
Background In 2007, there was a confluence of events at the Port of Seattle. Two new
Commissioners were elected, the Commission appointed a new Chief Executive Officer (CEO) and
the State Auditor conducted a performance audit of construction management at the Port. 
One of the issues cited in the audit report related to perceived deficiencies in the delegation of
authority in Resolution 3181, which had not been revisited since 1994. The CEO and the
Commissioners had already identified the need for review and revision of the delegated authority. In
response to the state audit, this review process became a priority. The Commission formed a
subcommittee to oversee the review. This subcommittee included two Commissioners, an expert on
governance in public bodies and an expert in construction management, along with Port of Seattle
staff. In August 2008, the Port of Seattle Commission unanimously adopted Resolution 3605, which
was designed to strengthen the Commission's oversight of Port construction and other activities. 
Resolution 3605 delegates specific authority to the CEO for day-to-day operation of the Port.
Currently, under Resolution 3605, the CEO may authorize projects, contracts and agreements with a
value up to $300,000. Projects, contracts and agreements with an amount greater than $300,000
require Commission authorization. There are additional specific provisions related to change orders
and amendments to contracts and agreements. The delegation of authority is not limited to
contracting and procurement. It also includes provisions for real property agreements, legal services,
accounting activities, equal opportunity, risk management and other Port operations. In November
2009, the Commission adopted Resolution 3628, which amended certain sections of Resolution 3605. 

Audit Result Summary  The delegation of authority under Resolution 3605 is effective, but there
are opportunities to improve efficiency. Management has adequate controls and has complied with
the requirements of the Delegation of Authority. Given the improvements in the Port control
environment and operations, the requirements of Resolution 3605 are no longer commensurate with
the risks. The requirements of Resolution 3605 have created some unintended consequences. 


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Background 
Throughout most of its 100-year history, the Port of Seattle Commission has delegated administration
of Port operations to the Chief Executive Officer (CEO), of which there have been 11 between 1911
and 2012. The title Chief Executive Officer was adopted in 2001. Delegation of authority has evolved
and shifted over the years, based on the composition of the Commission, the individual serving as
CEO and other factors, not the least of which is public feedback. 
In 2007, there was a confluence of events at the Port of Seattle. First, two new Commissioners were
elected. Second, the Commission appointed a new CEO. Third, the State Auditor conducted a
performance audit of construction management at the Port. 
One of the major recommendations by the State Auditor suggested the Port of Seattle Commission
"re-evaluate the current delegation of authority to the POS CEO (encompassed in Resolution 3181)
and develop and issue a new delegation of authority resolution that defines more clearly the
Commission's intent with respect to construction management and reporting to the commission and
the public concerning construction activities." 
The delegation of authority in Resolution 3181 had not been revisited since 1994. The new CEO and
the Commissioners had already identified the need for review and revision of the delegated authority.
In response to the state audit, this review process became a priority. 
On January 8, 2008, the Commission formed a subcommittee to oversee the review. This
subcommittee included two Commissioners, an expert on governance in public bodies and an expert
in construction management, along with Port of Seattle staff. The Commission unanimously adopted
Resolution 3605 on August 26, 2008. This resolution established the authority delegated by the
Commission to the CEO. 
The resolution was designed to strengthen the Commissioner's relationship with the CEO and clarify
his authority. It included new procedures that defined when and how Commission authorization is
obtained on major Port construction projects. It provided for more transparency in Commission
approval of expenditures and increased the quality and quantity of the information available to the
public. 
A major change mandated by Resolution No. 3605 eliminated the previous practice of "project-wide
authorizations," which required only one Commission review of major construction projects.
Resolution 3605 substituted a three-step authorization process. It established a uniform $200,000
threshold for CEO approval on projects, but required additional Commission authorization if the
threshold was exceeded. It established a quarterly review/reporting on construction projects, ensuring
more timely and complete information for the Commission and the public. 
After passage of Resolution No. 3605, Commission and Port staff initiated a number of activities
centered on successful implementation of the resolution. Of significance were 1) extensive and
continuing staff training, 2) formation of an inter-departmental committee to address questions on the
individual sections of the resolution and 3) development of A Frequently Asked Questions (FAQ) page
on the Port's intranet site. Key organizational changes at the Port supported successful
implementation of the resolution:  1) creation of the Capital Development Division (CDD) and 2) the

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Central Procurement Office (CPO) within the CDD. This current structure centralizes procurement and
project management and provides additional control and oversight of Port operations. 
Resolution No. 3605 also contained a provision that it must be reviewed "in twelve (12) to eighteen
(18) months after it enters into force."  On November 3, 2009, Resolution 3628, which amended
Resolution 3605, was unanimously adopted by the Commission. It increased the CEO authority to
approve all contracts to $300,000, and made this authority consistent across all contract types to
facilitate contract administration. 
Resolution 3605 is not limited to contracting and procurement. It also includes provisions related to
real property agreements, legal services, accounting activities, equal opportunity, risk management
and other Port operations. The following summarizes the discrete sections of Resolution 3605, as
amended: 
Section  Title 
1       Roles and Responsibilities of the CEO 
2       Real Property Agreements 
3       Real Property Acquisitions and Sales; Street Vacations 
4       Public Works Projects 
5       Non-Public Work Projects 
6       Contract and Procurement Administration 
7       Professional, Personal, and Purchased Goods/Services Agreements 
8       Utilization of Port Crews 
9       Legal Services, Claims, and other Representation 
10     Adjustment and Write-off of Accounts Receivable 
11     Investment of Temporarily Idle Port Funds 
12     Insurance Programs 
13     Trade Development Programs 
14     Issuance of Tariffs 
15     Rules and Regulations 
16     Non-Discrimination and Equal Opportunity 
17     Travel of Employees and other Authorized Representatives of the Port 
18     Sale of Personal Property 
19     Working Funds 
20     General Interpretation 
The resolution is currently under review. It is anticipated that a revised resolution will be presented to
the Commission for approval later this year. 
Activity Highlights 
The Port initiated 412 projects during 2010 and 2011, with a current budget of $212 million. During
this two-year period, the Port entered into 736 contracts with a current value of $330 million. Of these
contracts, the Commission approved 23 percent of total contracts and 90 percent of the total contract
dollars expended. See Table 1. 


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Table 1 
2010                2011                Total 
Contract Type            No. of    Current Max   No. of   Current Max   No. of   Current Max
Contracts    Amount    Contracts    Amount    Contracts    Amount 
Fixed Price Contracts/Goods and Services         51    16,961,320        34     4,131,101        85    21,092,421 
Interlocal, Interagency, MOA, MOU             19     6,874,643         8      567,722        27     7,442,365 
Agreements 
Major Construction Contracts                  20   110,298,446        19    37,293,403        39   147,591,848 
Service Agreements                     234    75,612,261       150    42,843,610       384   118,455,871 
Blanket Vendor Contracts                   91    11,049,452        62    15,702,624       153    26,752,076 
Small Works Contracts                     24     4,201,986        24     4,989,456        48     9,191,442 
Grand Total                          439   224,998,107       297   105,527,916       736   330,526,023 
Source: PeopleSoft - As of February 14, 2012 

Highlights and Accomplishments 
Resolution 3605, as amended, is the "master policy directive" that establishes the authority
delegated by the Commission to the Chief Executive Officer. The resolution has resulted in
more transparency and accountability through: 
More frequent information presented by management to the Commission in open public
meeting 
More comprehensive information presented by management to the Commission in open public
meeting 
Formal redelegation of authority by the CEO to management 
The current "Tone at the Top" supports a "culture of compliance" with laws, regulations and
policies. It is clear from our discussions with the CEO, division directors and other managers that
there is a pervasive commitment to "do the right thing," to be accountable and to ensure
transparency in the Port's operations. 
The transparency and accountability that exists at the Port today ensure that the Commission
and the public will be completely and timely informed of Port activities.
The regular briefings that management presents to the Commission in open public meeting are
also available to the public on the Port's web site. 

Audit Scope and Methodology 
We utilized a risk-based audit approach, from planning phase to testing. We gathered information
through extensive interviews with the Commissioners, the Chief Executive Officer, division directors
and other managers. We received feedback from staff throughout the Port. We analyzed project and
contract activity, including real estate agreements, for the period 2010 through 2011. We obtained a
complete understanding of the history of delegation of authority, the current requirements of
Resolution 3605, the current control environment, the current control activities and the information
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and communication channels between management and the Commission. We conducted
comprehensive and extensive analysis of the activities that come under Resolution 3605. We tested
the controls that management has implemented to mitigate significant risks to the Port. 
We conducted the following procedures to address our audit objectives: 
1.  To determine whether the delegation of authority under Resolution 3605 is efficient and effective 
We obtained an understanding of the processes implemented to ensure compliance with the
requirements of Resolution 3605 
In our interviews with the Chief Executive Officer, management and staff, we discussed the
level of effort required to implement processes that support compliance with Resolution 3605.
We considered such activities as preparation of reports for submission to the Commission, the
number of times a project/contract was required to be submitted to the Commission for
authorization, the layers of staff and management that reviewed the reports and the frequency
of reporting to the Commission. We determined whether processes were efficient. 
We tested the processes that ensure compliance with the requirements of Resolution 3605 
Prior to testing compliance with the requirements, we tested the controls that were developed
to ensure compliance to determine whether they were working as intended. We conducted
detailed "walk-throughs" of the control points, which included extensive review of documents
and extensive discussions with responsible managers and staff, who are accountable for the
controls. We determined whether processes were effective. 
2.  To determine whether management has adequate controls and has complied  with the
requirements of Resolution 3605 
We tested whether real property agreements were properly authorized by the Commission 
We selected a sample of 32 real property agreements from a population of 58 agreements that
were executed during 2010 and 2011 and had a term of longer than five years or were
executed by the Chief Executive Officer or a division director and reviewed the files. Those
with a term longer than five years or a financial obligation to the Port of greater than $300,000
were examined to determine whether the agreement was authorized by the Commission prior
to execution. 
We tested whether contracts were properly authorized by the Commission 
We selected a sample of 46 contracts from a population of 171 contracts with a current value
over $300,000 that were executed during 2010 and 2011, and reviewed the files to determine
whether the contract was authorized by the Commission prior to execution. 
We tested whether management reported to the Commission as required 
We reviewed Commission meeting minutes and memos to the Commission to determine
whether required reports to the Commission  for 2010 and 2011  were provided by
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management in a timely manner. We identified the quarterly reports on public works projects
and financial performance and the semi-annual reports on real property agreements, small
works contracting and settled claims. 
3.  To determine whether the requirements of Resolution 3605 continue to be commensurate with the
risks 
We Analyzed the Current Control Environment 
As part of our interviews with Commissioners, the Chief Executive Officer and management,
we discussed the origins, intent and implementation of Resolution 3605. We asked questions
and evaluated responses in order to form a clear picture of the current "Tone at the Top." 
Based on our professional judgment, we determined whether the "Tone at the Top" supported 
compliance with the requirements of Resolution 3605. 
We obtained a detailed understanding of communication channels between management and
the Commission. We reviewed documents to develop an in-depth understanding of the quality
and frequency of information that management flowed to the Commission. 
We Obtained an Understanding of the Evolution of Commission Emphasis on Resolution 3605
Requirements 
We analyzed Commission meeting minutes for the period between 2009 and 2011, to
determine whether the Commission had increased or decreased its emphasis on certain
requirements of Resolution 3605.
We conducted a Benchmarking Survey 
We conducted a benchmarking survey with other airports and port districts through the
Association of Airport Internal Auditors  (AAIA),  to determine whether the authorization
thresholds at the Port are consistent with delegated authority at comparable organizations. We
gathered sufficient information about these other ports, to provide context for the authorization
levels (e.g., comparison of capital and operating budgets). Respondents included: 
1.  Salt Lake City International Airport (UT) 
2.  Denver International Airport (CO) 
3.  Metropolitan Washington Airports Authority (VA) 
4.  Dallas-Fort Worth International Airport (TX) 
5.  Edmonton International Airport (AB) 
6.  Port of Portland (Portland International and Marine Ports, OR) 
7.  MassPort (Boston-Logan International, and Port of Boston, MA) 
8.  Port of Oakland (CA) 
The most notable difference was the authorization threshold for public works projects, where
the mean threshold ($582,000) of the respondents was almost double the threshold at the Port
($300,000). 
We Analyzed Port Activity 
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We analyzed projects, contracts, real property agreements and property acquisitions and 
sales for the period under audit (2010 and 2011), to determine the extent of Port activities
governed by Resolution 3605. We determined whether the majority of activity flows to the
Commission or stops at the level of the CEO and his delegates. 
4.  To determine whether there have been any unintended consequences due to Resolution 3605 
We Analyzed the Practical Implications of the Policy 
In our interviews with Commissioners, the Chief Executive Officer, management and staff, we
discussed the practical implications of Resolution 3605 and the impact of the requirements on
Port operations. Based on the information collected and the common themes identified, we
obtained corroborating evidence. 
We Reviewed and Discussed the Original Intent of Resolution 3605 
We reviewed historical documents (audit reports and meeting minutes -- video and
transcribed), to understand the issues and the discussion that surrounded the development of
Resolution 3605. We stratified contract types and determined the percentage of the different
contract types reviewed and authorized by the Commission. We discussed original intent with
Commissioners, CEO, management and staff. 

Conclusion 
The delegation of authority under Resolution 3605 is effective, but there are opportunities to improve
efficiency. Management has adequate controls and has complied with the requirements of the
Delegation of Authority. Given the improvements in the Port control environment and operations, the
requirements of Resolution 3605 are no longer commensurate with the risks. The requirements of
Resolution 3605 have created some unintended consequences. 







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