Washington State Auditor's Office
Accountability Audit Report

Port of Seattle
King County 
Report Date
November 2, 2010
Report No. 1004616 







Issue Date
December 13, 2010

Washington State Auditor
Brian Sonntag 

December 13, 2010

Board of Commissioners
Port of Seattle
Seattle, Washington
Report on Accountability
We appreciate the opportunity to work in cooperation with your Port to promote accountability,
integrity and openness in government. The State Auditor's Office takes seriously our role to
advocate for government accountability and transparency and to promote positive change.
Please find attached our report on the Port of Seattle's accountability and compliance with state
laws and regulations and its own policies and procedures. Thank you for working with us to
ensure the efficient and effective use of public resources.
Sincerely,


BRIAN SONNTAG, CGFM
STATE AUDITOR







Insurance Building, P.O. Box 40021  Olympia, Washington 98504-0021  (360) 902-0370  TDD Relay (800) 833-6388
FAX (360) 753-0646  http://www.sao.wa.gov

Table of Contents
Port of Seattle
King County
November 2, 2010 
Audit Summary ............................................................................................................................. 1
Related Reports ............................................................................................................................ 2
Description of the Port .................................................................................................................. 3
Schedule of Audit Findings and Responses ................................................................................. 5

Audit Summary
Port of Seattle
King County
November 2, 2010 

ABOUT THE AUDIT
This report contains the results of our independent accountability audit of the Port of
Seattle from January 1, 2009 through December 31, 2009.
We evaluated internal controls and performed audit procedures on the activities of the
Port. We also determined whether the Port complied with state laws and regulations
and its own policies and procedures.
In keeping with general auditing practices, we do not examine every transaction, activity
or area.  Instead, the areas examined were those representing the highest risk of
noncompliance, misappropriation or misuse. The following areas were examined during
this audit period:
Procurement                               Revenue and receivables
Disbursements                             Contract compliance
Conflict of interest                          Loss reporting
Insurance

RESULTS
In most areas, the Port complied with state laws and regulations and its own policies and
procedures.
However, we identified a condition significant enough to report as a finding:
The Port did not adequately monitor management contracts with third parties.
We also noted certain matters that we communicated to Port management. We
appreciate the Port's commitment to resolving those matters.





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Related Reports
Port of Seattle
King County
November 2, 2010

FINANCIAL
An audit of the Port's financial statements and compliance with federal program
requirements was performed by a firm of certified public accountants. That firm's reports
are available from the Port.

PERFORMANCE AUDITS
Initiative 900, approved by voters in 2005, gives the State Auditor's Office the authority
to conduct independent performance audits of state and local government entities.
Performance audits may include objective analysis on ways to improve program
performance and operations, reduce costs and identify best practices.
We issued the Port of Seattle Real Estate Management and Select Programs
performance audit report in December 2010 that is available on our Web site.











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Description of the Port
Port of Seattle
King County
November 2, 2010 

ABOUT THE PORT
The Port of Seattle was established in 1911 when King County voters approved its
formation to manage properties along the Seattle waterfront. In 1941 the Legislature
broadened the authority of port districts to operate airports. Approximately one year
later, local governments in King County selected the Port to operate Seattle-Tacoma
International Airport.
King County voters elect five Port Commissioners who serve four-year terms.
Commissioners establish policy for the Port and appoint a Chief Executive Officer who
oversees Port employees and programs. In 2009 the Port employed 1,575 employees.
The Port is comprised of three operating divisions. The Aviation Division serves the
predominant air travel needs of a five-county area. The Seaport Division focuses
primarily on containerized cargo and passenger marine terminals as well as industrial
property connected with maritime businesses.  The Real Estate Division manages
moorage facilities, leases commercial and industrial buildings/properties and plans and
facilitates the development of selected real estate assets.
Most of the Port's funding comes from bond proceeds, a local tax levy, passenger facility
charges, customer facility charges, grants, interest from investments, income from
leases and revenue collected from customers and the public for parking and other
services the Port provides.
The Board of Commissioners approves an operating budget annually. Actual operating
revenue totaled $449 million in 2009 while operating expenses totaled $246 million.
The Port uses revenue bonds and other sources to finance construction at the airport.
General obligation bonds, lease revenue and local property taxes help fund the seaport
and real estate construction programs. In 2009 the Port collected $73.5 million in
property taxes.
The capital budget for 2009 was $676 million and the capital improvement program for
2009-2014 is $2.1 billion.




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ELECTED OFFICIALS
These officials served during the audit period:
Board of Commissioners:                 Bill Bryant
John Creighton
Gael Tarleton
Lloyd Hara
Patricia Davis
Note: Tom Albro and Rob Holland replaced Patricia Davis and Lloyd Hara in January
2010.

APPOINTED OFFICIALS
Chief Executive Officer                   Tay Yoshitani
Chief of Staff                            Kurt Beckett
Chief Financial and Administrative Officer       Dan Thomas
General Counsel                     Craig Watson
Managing Director, Seaport               Charles Sheldon
Managing Director, Aviation                Mark Reis
Managing Director, Real Estate             Joe McWilliams
Managing Director, Capital Development       Ralph Graves

PORT CONTACT INFORMATION
Address:     Port of Seattle
P.O. Box 1209
Seattle, WA 98111
Phone:     (206) 728-3000
Website:     www.portseattle.org

AUDIT HISTORY
The last accountability audit was performed in 2009 covering the years 2006, 2007 and
2008.




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Schedule of Audit Findings and Responses
Port of Seattle
King County
November 2, 2010 

1.   The Port did not adequately monitor management contracts with third
parties.
Background
The Port contracts with outside parties to manage four properties: the Portside Caf,
Bell Harbor International Conference Center, World Trade Center  West and World
Trade Center  Seattle. Revenues from these four properties were approximately
$9 million in 2009. Bell Harbor is the largest property, with revenue of $6.6 million. The
management companies are reimbursed for expenses incurred on behalf of the Port.
Port management requested an internal audit of the Portside Caf prior to issuing a
request for proposal for a new management contract.  The audit period was from
January 1, 2008 through December 31, 2009. That audit revealed several conditions
that we are reporting.  As part of our audit, we reviewed the other management
agreements to determine if similar conditions are present.
Description of Condition
Portside Caf
The internal audit found:
Recurring operating losses. Since 2006, the Caf has lost an average of
$150,000 annually. The operating agreement for the Caf stipulated that it
should break even.
The management company did not conduct inventories during the audit period.
Consequently, the internal auditor could not ascertain the true cost of goods sold,
spoilage or loss.
More than $73,550 in unallowable expenses was paid to the management
company. The largest was $46,642 in salary and benefit overpayments to the
management company. The salary and benefits were calculated and billed to the
Port using an estimate rather than the actual costs causing the overpayment. An
estimated percentage of salaries, rather than actual costs, was used to calculate
the amounts.
As soon as the Port suspected the contractor was reimbursed in excess of actual costs,
the losses should have been reported immediately to our Office in accordance with state
law (RCW 43.09.185).

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As a result of the audit, the Port's Chief Executive Officer closed the Portside Caf in
April 2010.
Bell Harbor and World Trade Center  Seattle
State law (RCW 43.09.240) requires receipts to be deposited within 24 hours. The Port
sweeps money into a Port account out of an account used by the management company
that operates Port facilities. However, the management company makes deposits only
on Monday, Wednesday and Friday, which means Port funds are not deposited into the
Port's account daily.
Cause of Condition
The Port did not have internal controls sufficient to ensure the management companies
complied with state law and that expenses were for valid business purposes. The Port
also did not adequately monitor to ensure compliance with the terms of the management
agreements.
The Port relied on attendance by representatives of our Office at a meeting after the
internal audit was complete to be sufficient notification of known or suspected losses.
However, staff from our Office was not present at the meeting, at which the internal audit
results were discussed. In addition, the law requires reporting to occur when the Port
first suspects a loss.
Effect of Condition
By not immediately reporting all known or suspected losses or other illegal activity, the
Port is not complying with the law.  Moreover, by not complying with the law, full
accountability and transparency is not provided to taxpayers who pay for Port
operations.
By not adequately enforcing the terms of the management agreement, the Port spent
more public funds than it was legally required to do. Further, the Port was deprived the
use of these funds for public purposes.
Inadequate internal control over cash handling by Port contractors increases the risk that
a loss or misappropriation of public funds may occur and not be detected in a timely
manner, if at all.
Recommendation
We recommend the Port:
Immediately report all known or suspected losses or other illegal activity to the
State Auditor, as required by state law.
Seek recovery of unallowable expenses from the caf management company.
Improve monitoring of the management companies to ensure compliance with
the terms of the management agreement.
Ensure management companies deposit funds in accordance with state law.
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Port's Response
Immediately report all known or suspected losses or other illegal activity to the
State Auditor, as required by state law. 
The Port believes that existing policies and procedures address the auditor's
recommendation as detailed below.
Additionally, the Port is accountable and transparent in reporting of losses. This is
handled by means of the State Auditor's Loss Reporting Website, Audit Committee in
public session and/or discussions with Port management. The instance brought forward
by the SAO from review of the Port of Seattle Internal Audit Report on the Portside Caf
is an anomaly in that Port staff did not consider this type of agreement to fall within the
context of the RCW. It was not procedurally submitted to the SAO as with all other selfreported
losses but it was discussed in the Audit Committee during public session.
In 2009, the Port developed a Workplace Responsibility Program, a collaborative effort
among the Workplace Responsibility Office, Human Resource & Development
Information Technology, Internal Audit, Labor Relations, Risk Management and the
Legal Department to implement a comprehensive ethics and workplace compliance
program. In 2010, the Workplace Responsibility Office was established to provide
overall leadership and coordination of the Workplace Responsibility Program. The WR
Office guides, supports and reinforces efforts to successfully advance the Port's mission,
while upholding the highest standards of business conduct, ethics and workplace
behavior. This is reflected in the Code of Conduct/Workplace Responsibility Handbook
representing the Port's core values and is a collection of 14 policies that set forth
fundamental expectations regarding business and workplace conduct. These Code
policies include CC-5 Fraud Awareness and Prevention and CC-6 Loss Prevention.
The specific purposes of CC-5 and CC-6 are:
To ensure proper stewardship over public funds and assets, and provide
timely and proper handling of any known losses or suspected fraudulent
activity involving those funds and assets. To comply with RCW 43.09.185,
that requires State agencies and local governments to immediately report
any known or suspected loss of public funds or assets to the State Auditor's
Office (SAO)
To establish clear expectations and ensure consistent and timely action by
the Port
To ensure that losses are minimized; investigations and audits are not
hampered; and bond claims are not jeopardized.
The Workplace Responsibility Office is currently coordinating efforts among the Internal
Audit department, Legal, Risk Management, ICT and the POS Police department to
clarify, communicate and train on the reporting requirements and to streamline and
refine current information-sharing protocols.
Currently, the Internal Audit department receives a list of all reported losses from the
POS Police department monthly, as well as a report of all damages and/or losses to port
properties from the Risk Management department
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Existing policies and procedures address the auditor's recommendation but in an effort
to further improve those procedures, the Port has adopted a standard form for reporting
employee losses and it is used by Human Resources, Legal and Labor Relations
ensuring that information is reported uniformly.
Seek recovery of unallowable expenses from the caf management company 
The recovery of unallowable expenses referenced in the audit performed by the Port of
Seattle's Internal Audit Department is currently under legal review. The Port will be
assessing the expected costs to recover against the actual recovery itself.
Improve monitoring of the management companies to ensure compliance with the
terms of the management agreement.
The terms of the agreements are monitored by the staff managing those agreements.
Additionally, the Internal Audit Department audits the third party agreements for
compliance.  However, the Port will review existing processes and procedures to
determine if they need to be enhanced to mitigate risk.
Ensure that management companies deposit funds in accordance with state law
Effective September 21, 2010 Bell Harbor International Conference Center and World
Trade Center Seattle have daily Loomis pick-ups to ensure adherence to state law.
Auditor's Remarks
We thank the Port for its cooperation and assistance during the audit and look forward to
reviewing the Port's corrective action during our next audit.
Applicable Laws and Regulations
RCW 43.09.185, Loss of public funds--Illegal activity--Report to state auditor's office,
states, in its entirety:
State agencies and local governments shall immediately report to the
state auditor's office known or suspected loss of public funds or assets or
other illegal activity.
RCW 43.09.200 states in part:
The state auditor shall formulate, prescribe, and install a system of
accounting and reporting for all local governments, which shall be uniform
for every public institution, and every public office, and every public
account of the same class.
The system shall exhibit true accounts and detailed statements of funds
collected, received and expended for account of the public for any
purpose whatever, and by all public officers, employees, or other persons.
The accounts shall show the receipt, use, and disposition of all public
property, and the income, if any, derived there from; all sources of public
income, and the amounts due and received from every source; all
receipts, vouchers, and other documents kept, or required to be kept,
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necessary to isolate the validity of every transaction; all statements and
reports made or required to be made, for the internal administration of the
office to which they pertain; and all reports published or required to be
published , for the information of the people regarding any and all details
of the financial administration of public affairs. 
RCW 43.09.240 states in part:
Every public officer and employee, whose duty it is to collect or receive
payments due or for the use of the public shall deposit such moneys
collected or received by him or her with the treasurer of the local
government once every twenty-four hours.
RCW 43.09.260, Local government accounting--Examination of local governments--
Reports--Action by attorney general, states:
It shall be unlawful for any local government or the responsible head
thereof, to make a settlement or compromise of any claim arising out of
such malfeasance, misfeasance, or nonfeasance, or any action
commenced therefore, or for any court to enter upon any compromise or
settlement of such action, without the written approval and consent of the
attorney general and the state auditor. 












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ABOUT THE STATE AUDITOR'S OFFICE 
The State Auditor's Office is established in the state's Constitution and is part of the executive
branch of state government. The State Auditor is elected by the citizens of Washington and serves
four-year terms. 
Our mission is to work in cooperation with our audit clients and citizens as an advocate for
government accountability. As an elected agency, the State Auditor's Office has the independence
necessary to objectively perform audits and investigations. Our audits are designed to comply with
professional standards as well as to satisfy the requirements of federal, state, and local laws. 
The State Auditor's Office employees are located around the state to deliver our services effectively
and efficiently. 
Our audits look at financial information and compliance with state, federal and local laws on the part
of all local governments, including schools, and all state agencies, including institutions of higher
education. In addition, we conduct performance audits of state agencies and local governments and
fraud, whistleblower and citizen hotline investigations.
The results of our work are widely distributed through a variety of reports, which are available on
our Web site and through our free, electronic subscription service.  We continue to refine our
reporting efforts to ensure the results of our audits are useful and understandable. 
We take our role as partners in accountability seriously.  We provide training and technical
assistance to governments and have an extensive quality assurance program. 

State Auditor                                 Brian Sonntag, CGFM 
Chief of Staff                                    Ted Rutt 
Deputy Chief of Staff                            Doug Cochran 
Chief Policy Advisor                             Jerry Pugnetti 
Director of Audit                                Chuck Pfeil, CPA 
Director of Special Investigations                    Jim Brittain, CPA 
Director for Legal Affairs                           Jan Jutte, CPA, CGFM 
Director of Quality Assurance                      Ivan Dansereau 
Local Government Liaison                       Mike Murphy 
Communications Director                       Mindy Chambers 
Public Records Officer                           Mary Leider 
Main number                             (360) 902-0370 
Toll-free Citizen Hotline                            (866) 902-3900 
Website                                 www.sao.wa.gov 
Subscription Service         https://www.sao.wa.gov/EN/News/Subscriptions/ 

(SAO FACTS.DOC - Rev. 06/09)