Item 6e Memo

PORT OF SEATTLE 
MEMORANDUM 

COMMISSION AGENDA  POLICY AND STAFF BRIEFING 

Item No.       6e 
Date of Meeting   January 6, 2009
DATE:   December 31, 2008
TO:     Tay Yoshitani, Chief Executive Officer
FROM:   Tom Barnard, Research and Policy Analyst
SUBJECT: Briefing on the 2008 Audit Committee accomplishments

BACKGROUND

The Audit Committee was created to "represent the Commission and have review and oversight
authority on matters relating to the Port's auditing process and procedures." Its main tasks are to:

Review and recommend to the Commission the independent auditors to be selected to
audit the financial statements, the federal grant and Passenger Facilities Charge programs
of the Port of Seattle, and other audit services.

Meet with independent auditors and financial management to review proposed audits for
the current year and review such audits at their completion, including any
recommendations of the independent auditor.

Review the adequacy and effectiveness of the accounting and financial controls of the
Port of Seattle, and recommend improvement of such internal controls or establish new
controls, assisted by the independent auditors, the Internal Audit Manager, and Port staff.

Perform oversight over periodic independent performance audits to be conducted on Port
of Seattle, and report the results of such audits to the Commission when completed.

COMMISSION AGENDA 
T. Yoshitani, Chief Executive Officer
December 31, 2008
Page 2 of 4

REVIEW OF THE WORK OF THE AUDIT COMMITTEE FOR 2008 

Organizational Strengthening 

In the past, the Internal Audit Department was part of Accounting and Procurement
Services Department (APS). In December of 2007, the Port Commission voted to create
an independent Internal Audit Department. The Manager of the Internal Audit
Department now reports to the Audit Committee, as well as the Chief Executive Officer
(CEO). The Internal Audit work plan is reviewed and approved by the Audit Committee,
and all of the audits are reviewed in public session by the Audit Committee.

In 2008, the Audit Committee, comprised of Commissioners Lloyd Hara and Gael
Tarleton, added a public member, Steve Miller, in order to increase outside
accountability. Mr. Miller has extensive experience in auditing for governmental and
other public bodies and has played an important role in reviewing departmental audits.
He has also been a productive catalyst in the discussions on the long-range strategic
direction of the Audit Committee, and is responsible for the Audit Committee
considering other types of audits.

With the support of the Audit Committee and the CEO, the Internal Audit Director
recruited and hired three additional audit staff in 2008, virtually doubling the size of the
staff. The department now has six staff members and collectively the staff has more than
100-plus years of experience and knowledge in all disciplines in auditing.

The Audit Committee has designed a year-long plan, based on the Annual Audit Work
Plan for 2008 presented by the Senior Audit Manager. A draft schedule of upcoming
work is prepared through the end of 2009. A calendar of upcoming events is being
designed. In addition, a longer-range plan encompassing the next five years has been
drafted.

COMMISSION AGENDA 
T. Yoshitani, Chief Executive Officer
December 31, 2008
Page 3 of 4

Audit Committee External Results 

In 2008, Internal Audit has recovered more than $2 million from lease, concession, and
third-party agreement audits.

The Audit Committee reviewed and requested follow up from several external audits,
including the results of 2007 Moss Adams Audit, and the Comprehensive Annual
Financial Review (CAFR) audit. The Committee also reviewed the management
response to the 2007 TKW audit. It examined the follow-up on State Auditor's Office
(SAO) Performance Audit recommendations. Six selected recommendations from the
Washington State Auditor's Office 2007 performance audit were addressed by the
Internal Audit Department. Internal Audit confirmed some of the SAO findings,
including that Port Construction Services altered some contractors' invoices.

The Audit Committee reviewed the following audits by Internal Audit, whose primary
objective was to assess the effectiveness of Port operational controls and management
monitoring procedures.

Department operational audits, including ID/Badge, Public Parking, Ground
Transportation, two maintenance departments, and the Real State Recreational
Boating.

Three concession audits of RAC (Rent-A-Car), including Enterprise, Dollar, and
Advantage. In the past years, Internal Audit audited Hertz, Avis, and Budget and
recovered more than $1 million in concession underreporting.

The in-flight kitchens leases, including Gate Gourmet, Flying Food, and Sky
Chefs.

Lease audits, including Odyssey. The Port recovered approximately $100,000 in
the Odyssey lease audit.

Tracking documents have been developed to maintain a regular schedule of follow-ups to
problems revealed in the departmental audit reports. First reviews were begun of
outstanding issues from previous Department Audits given to Audit Committee.

COMMISSION AGENDA 
T. Yoshitani, Chief Executive Officer
December 31, 2008
Page 4 of 4

Upcoming Audit Committee work in 2009 

The Audit Committee will be engaged in the following tasks in 2009:

Audits are being prepared for the following third-party agreements, concessions, and
leases: World Trade Center, Bell Harbor Conference Center, Cruise Terminal of
America (CTA), Host, Airport Management Services Inc., Seattle Restaurant Associates,
and a review is underway of operational effectiveness of the Port procurement system.

Based on the Audit Committee's long-term goals and objectives, the Committee has
tasked Internal Audit to incorporate performance audits in its audits . In the next five
years, the goal is to have 50 percent of the Internal Audit projects focus on performance
audits. Implementation of performance audit will start in 2009.

Port management, in coordination with the Commission Audit Committee and the
Internal Auditor, has initiated development of a Port-wide Enterprise Risk Management
strategy. This effort has been briefed to the Audit Committee and has been the subject of
plans for the Audit Committee's 2009 work plan.

The Audit Committee will also be having Entrance and Exit Interviews for Moss Adams
external audits and the next SAO performance audit.

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