PORT OF SEATTLE
MEMORANDUM 
DATE:      July 8, 2010 
TO:        POS Audit Committee 
FROM:     Tom Barnard, Policy Analyst 
SUBJECT:    Suggested Changes to the Audit Committee and Audit Committee Charter 
BACKGROUND 
Internal Audit was initially established in 2002 within what is currently known as Accounting and
Financial Reporting (AFR). In January 2008, the Internal Audit was reorganized, with a dual reporting
responsibility to the Audit Committee and the Chief Executive Officer (CEO).
In 2008, the Audit Committee began a regular series of monthly meetings. It revised its charter to
reflect an enlarged agenda. It also added a public member, Steve Miller, with extensive experience in
auditing. That first year focused on establishing a regular schedule of audits, with an emphasis on
internal departmental audits and lease and concession audits. A longer-range plan encompassing five
years was also initiated. The Internal Audit Manager also hired three additional audit staff, nearly
doubling her staff.
The Audit Committee's primary responsibility has been to review audit reports prepared by the Internal
Audit Department. That department develops an Internal Audit annual work plan, with Audit projects
selected based on mitigating financial, operational, reputation, compliance, and accountability risks. 
Most internal audits have focused on 1) Internal Port Department controls and 2) Lease and Concession
Agreement compliance. The Lease and Concession Audits are of major importance, as approximately
70% of Port's operating revenue is generated through the more than 400 Lease and Concession
Agreements (LCAs). Results have been quite positive; to date, Internal Audit has cumulatively recovered
over $2 million from such audits. The audit recovery has also been steadily declining; better compliance
on the part of the lessees clearly shows that those audits are achieving the intended impact. The Audit
Committee also initiated a series of "report-backs" in 2009, which were designed to insure that
recommended changes to internal departments by Internal Audit were taking place and achieving
results. 
The Audit Committee has also reviewed the annual Audits performed by Moss Adams, including the
Comprehensive Annual Financial Review (CAFR), and two FAA-required audits, the Passenger Facility
Charges Audit, and what is known as the "Single Audit," an audit that monitors the Port's compliance
with the Federal Financial Assistance Programs in accordance with Federal OMB Circular A-133. The
2009 audits had no findings whatsoever, a significant achievement. It has also reviewed finding by the

State Auditor's Office (SAO) and TKW, an outside firm which conducted a limited performance audit in
2007. 
CURRENT ISSUES 
The Audit Committee is currently reviewing its Charter, with an eye towards insuring the Charter
remains an accurate guide to its responsibilities. Some initial changes have been suggested, and passed
on to the Audit Committee in preparation for its June meeting. That meeting did not have time to take
up that agenda item, and it will be reviewed at the July meeting. In the meantime, there have been two
suggestions put forward regarding future work. One is a recommendation by the Audit Manager Joyce
Kirangi, in consultation with the Chair of the Audit Committee that an Information and Technology
Auditor be added to the Internal Audit staff to augment its capabilities in that area. In addition, there
has been internal discussion that the Audit Committee be tasked with additional powers and duties, and
those be reflected in the next iteration of the Audit Charter. Specific decisions have not been taken in
this regard, but a variety of suggestions have been advanced. 
In making such recommendations, it is vitally important that the work of the Audit Committee reflect 
the overall strategic goals of the Port. That coordination is what will give the AC the ability to monitor
the internal controls, organizational abilities and performance measures necessary to succeed in
implementing those goals. At the current time, the Port is engaged in a goal-setting exercise, mainly
through the aegis of the Century Agenda. Both the Commission and the Senior Executives are
coordinating on the formation of goals and objectives at this time.
Beyond any mandates that arise from those objectives, some of the strategic considerations that touch
on the work of the Audit Committee can be drawn from the current external and internal environment.
These are: 
The Port's emergence from the most serious economic downturn since the 1930's.Though the
Seaport Division is on track to have one of its best years, long-range revenue growth is not likely
to match current growth rates. Passenger growth at the Airport is likely to rise slowly as well.
This situation, combined with financial demands on the budget from the environmental and
regional transportation arenas, make it important for Port operations to be as efficient and
productive as possible. 
The transition from a phase of concentrated building of new infrastructure to a new phase of
maintenance and updating of infrastructure already built. This indicates pressure on particular
departments, such as Seaport Maintenance, but also on all departments to insure their expense
budgets are sufficient to protect the infrastructure they already have. 
The assessment, refinement and improvement of the Port's internal departmental and
procedural architecture, in response to the 2007 SAO audit recommendations and legislative
directives. Some of this will probably be driven by the response to the new SAO performance
audit, due to be released in August. Nonetheless, the Port is moving from a phase of setting up
this architecture to one of assessing and measuring its performance and efficiency.

The necessity to measure new initiatives arising from increased responsibilities of some Port
departments. The clearest examples are the new Small Contractors Program and the Port Jobs
Program, both from the Office of Social Responsibility (OSR). 
SUGGESTED CHANGES 
For the Internal Audit department and the Audit Committee to be able to assist in the Port's response to
these challenges, certain capabilities need to be added to the Internal Audit Department and the Audit
Committee that would enhance their joint oversight of Port operations. These capabilities would likely
require increased staffing for the Internal Audit Department and increased responsibilities for the Audit
Committee.  Much of this capability falls under the general heading of performance auditing, which
responds to several needs 
The ability to understand strategic risk, as opposed to an operational risk. For instance,
understanding operational risk from inadequate revenue controls, though important, is entirely
different from the strategic risk to the seaport of deferring maintenance that would result in
deteriorating or aging infrastructure, causing cargo operations to leave the Port. 
The need to understand how well a Department performs in obtaining the maximum bang from 
their spending buck. 
The need to understand how well a Department is keeping its budget in line with its long-range
strategic Division or Port-wide goals. 
The need to understand how well the Department is working in cooperation with other cross-
divisional functions, like the Capital Development Division and the Central Procurement
Department. 
For respond to these types of issues, I would like to make the following recommendations. These
recommendations are put forward to enhance and enlarge the authority of the Audit Committee, and to
give it more a pro-active role in the Port's Audit function. Upon approval, the Audit Committee should
codify these changes in the new version of the Audit Committee Charter. 
The Audit Committee should review its current long-range plan, and turn it into a formal
document requiring authorization by the Audit Committee. It should contain a specific plan for
achieving one-year goals and three-year goals. 
The Audit Committee should have authority to formally approve the Internal Audit Department
work plan. Currently that plan is closely reviewed and suggestions for changes are made, but
the final version is not formally approved. 
The Audit Committee should receive not just exit reports, which most audits are, but also
expand its work to hear general briefings on Port departments and the work they do. These
would be pre-audit briefings, where the Audit Committee could request specific information to

be included in the audits, or particular types of audits to be done for a given department or
lease. 
The Audit Committee should request a briefing from the Executive, especially Chief of Staff Kurt
Beckett to discuss the establishment of performance measures for the divisions, a task currently
in his portfolio. 
The Audit Committee should seek formal input into the budgetary authorizations for the
Internal Audit Department. This would increase the authority of the Committee over the
Internal Audit function, without changing its dual reporting status.
The Audit Committee should seek formal budget authorization to increase the staff of the
Internal Audit Department to hire performance auditors.
The proposed changes are incorporated into the current suggested changes to the Audit Committee
Charter. Changes are listed in red. Both the existing Charter and the version containing suggested
changes will be sent. Discussion of this memo and the Charter can occur at the July 13, 2010 meeting.