INTERNAL AUDIT REPORT 

LIMITED OPERATIONAL AUDIT 
ON/OFF-BOARDING OF CONSULTANTS AND CONTRACTORS 

JANUARY 2016  SEPTEMBER 2017 

ISSUE DATE: DECEMBER 12, 2017 
REPORT NO. 2017-20



ON/OFF BOARDING OF CONSULTANTS AND CONTRACTORS                   INTERNAL AUDIT 
JANUARY 2016  SEPTEMBER 2017 

TABLE OF CONTENTS 


EXECUTIVE SUMMARY ................................................................................................................................................. 3 
BACKGROUND ............................................................................................................................................................... 4 
AUDIT SCOPE AND METHODOLOGY ............................................................................................................................ 5 
SCHEDULE OF FINDINGS AND RECOMMENDATIONS ............................................................................................... 6 
EXHIBIT 1- POLICY EX-10 CONTINGENT (CONTRACT) WORKERS ........................................................................ 8 
APPENDIX A: RISK RATINGS ...................................................................................................................................... 10 












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ON/OFF BOARDING OF CONSULTANTS AND CONTRACTORS                   INTERNAL AUDIT 
JANUARY 2016  SEPTEMBER 2017 

EXECUTIVE SUMMARY 
Internal Audit (IA) completed an audit of the Port of Seattle's (Port) on and off boarding process of 
consultants and contractors for the period January 2016  September 2017. The audit was performed to
assess the design and operating effectiveness of internal controls. 
Management controls were not adequate to ensure compliance with Port Policy and Internal Revenue
Service (IRS) requirements. We identified two opportunities to improve internal controls to enhance
Management'smonitoring of independent contractors and contingent workers. These opportunities are
discussed in more detail, beginning on page six. 
The Port's Contingent (Contract) Workers Policy [(the Policy) EX-10] needs to be updated with recent
IRS and case law guidance. 
A process has not been established to account for and manage/monitor on and off-boarding of
contingent and contract workers. 
We extend our appreciation to management and staff in the Port's Central Procurement Office, Human
Resources, and Legal Department for their assistance and cooperation during the audit. 



Glenn Fernandes, CPA                       Dan Chase, CPA 
Director, Internal Audit                         Manager, Internal Audit 

RESPONSIBLE MANAGEMENT TEAM 
Paula Edelstein, Senior Director, Human Resources 
Craig Watson, General Counsel / Chief Compliance Officer 
Dave Caplan, Senior Director, Strategic Initiatives 
Nora Huey, Director, Central Procurement Office 
Selena Tonti, Director, Security and Preparedness 
Anne Purcell, Senior Port Counsel 





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ON/OFF BOARDING OF CONSULTANTS AND CONTRACTORS                   INTERNAL AUDIT 
JANUARY 2016  SEPTEMBER 2017 

BACKGROUND 
The Port's Contingent (Contract) Workers Policy(EX-10), establishes procedures so that independent
contractors and temporary agency employees (contingent workers) are used appropriately and lawfully. 
The Policy defines an independent contractor as an individual or vendor who contracts with the Port to
perform in a non-employee status and meets Internal Revenue Service (IRS) criteria. 
Temporary agency employees or contingent workers are employed by an outside agency, on a specific
project, for a limited duration, and performance issues are conducted by the outside agency. 
Regardless of classification (contingent, consultant, independent contractor, etc.), the IRS considers
these individuals independent contractors and has developed criteria to determine their classification. The 
criteria are streamlined into three general categories: 
1) Behavioral control: The payer has the right to control or direct only the result of the work and
not what will be done or how it will be done. 
2) Financial control: How the individual is paid, e.g., weekly or hourly versus a flat fee. 
3) Type of Relationship: How permanent and how the Port and individual contractor views the 
relationship. 
Generally, the greater the behavioral and financial control, and the more permanent the relationship is,
the greater the likelihood that the individual would be considered an employee. 









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ON/OFF BOARDING OF CONSULTANTS AND CONTRACTORS                   INTERNAL AUDIT 
JANUARY 2016  SEPTEMBER 2017 

AUDIT SCOPE AND METHODOLOGY 
Our audit was conducted 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 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. 
The period audited was January 2016  September 2017. We performed the following procedures: 
To obtain an understanding of the program audited, we interviewed management, reviewed policy and
procedural documents, and performed the following procedures: 
1) Reviewed policy document EX-10 Contingent (Contract) Workers. 
2) Manually identified over 250 independent contractors throughout the Port. Selected 29 "workers" and
performed the following procedures: 
Determined whether they had worked with the Port over 12 months. 
Reviewed the type of work performed. 
Determined whether a parking pass was provided. 
Determine if the individual worked under a professional, personal, or purchasing agreement.
3) Conducted interviews with Port management to assess the general awareness of IRS rules and Port
Policy requirements. 










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ON/OFF BOARDING OF CONSULTANTS AND CONTRACTORS                   INTERNAL AUDIT 
JANUARY 2016  SEPTEMBER 2017 
SCHEDULE OF FINDINGS AND RECOMMENDATIONS 
1)  RATING: HIGH 
The Port's Contingent (Contract) Workers Policy (the Policy) needs to be updated with recent IRS
and case law guidance. 
Policies are the foundation of an internal control environment. They provide organizations with useful
and necessary information on how to make responsible and informed decisions in a consistent manner. 
When Policies are clear, accurate, and concise, they can raise employee awareness of regulatory and
Port requirements. 
The Port's Contingent (Contract) Workers EX-10 Policy, however, has not been updated in almost 10
years, is not consistent with recent IRS guidance and case law, and is not presented in a way that is
easily understood. 
For example, the Policy states "The Port is responsible for directing the work" which is not consistent
with IRS guidance that states an organization, "has the right to control or direct only the result of the
work and not what will be done and how it will be done". 
The Policy also states "Independent contractors may deliver services through a Professional Services
Agreement for a one year period." IRS guidance evaluates the type of relationship and how permanent
the parties view the relationship, but does not limit the duration. Furthermore, the Port frequently
enters into contracts extending beyond one year. 
Finally, the Policy defines contingent workers  as  temporary agency employees or independent
contractors each with a different set of requirements. The IRS, however, does not distinguish between
the two classifications. Rather these "workers" are considered independent contractors with one set of
evaluation criteria. 
Managing or treating independent contractors like employees increases the likelihood that the IRS
would consider those individuals as employees. The classification of employee or independent
contractor impacts income tax withholding and benefits, which are offered to employees, but not
independent contractors. 
Recommendation: 
Central Procurement, Human Resources, and the Port's Legal Department need to evaluate and rewrite
the Port's Policy. This evaluation should include recent IRS guidelines, case law and other
information relevant to the Port. The evaluation should also identify who will monitor general
compliance with Policy requirements. 
Management Response: 
Dave Caplan will lead a team with representatives, including but not limited to, Human Resources and
Development, Central Procurement Office, ICT, Legal and Capital Development to develop an updated 
EX-10 Policy addressing the issues. This policy will be developed by March 30, 2018. 

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ON/OFF BOARDING OF CONSULTANTS AND CONTRACTORS                   INTERNAL AUDIT 
JANUARY 2016  SEPTEMBER 2017 
2) RATING: HIGH 

A process has not been established to account for and monitor/manage on and off boarding of
independent contractors and contingent workers. 
The Port does not maintain a list of contingent workers or have a standard process (i.e. a checklist) to
on and off-board independent contractors (consultants and contractors). As a result, these workers may
not be used "appropriately and lawfully". (1) 
Internal Audit manually identified more than 250 individuals (non-Port employees) working at the Port.
We selected 29 individuals and identified the following exceptions: 
Nine individuals worked more than 12 months without a break in service. One of these
individuals began working at the Port dating back to 2002. According to Port Policy, no
individual may provide services through a temporary agency to the Port in excess of 12 months
without a 90-day absence from the Port. 
Thirteen individuals received Port paid parking cards which is not allowed by Port Policy. 
These exceptions illustrate that an effective monitoring process has not been established. This process
should not only monitor breaks in service and Port paid parking, but should also validate that
system/logical access is removed and badges, keys, laptops are collected prior to the individual's last
day.
We also observed that contractors are not provided with core training. Although Internal Audit
recognizes that a training program should not mirror that of a Port employee, consultants/contingent
workers should be provided with certain core training material. This training program should include:
1) emergency evacuation, 2) fire prevention and extinguisher use, and 3) Port ethics and integrity, and
policies regarding the use of Port IT systems. 
Recommendation: 
1)  Institute a system to track non-port workers. This system should include the individual's name,
the responsible manager, start/estimated end date, department, and type of service contract. 
2)  Develop a standard on and off boarding program that establishes processes so that contractors
have necessary information, training, and access to perform their role, while also meeting Port
minimum requirements. 
Management Response: 
Dave Caplan will lead a Port-wide team to develop the processes, procedures and structure to address
this audit finding by June 29, 2018. A representative from the Continuous Process Improvement team
(Lean) will play an important role in facilitating development of the processes, procedures and
structure. 
(1) Port Policy EX-10 states as the purpose "To assure temporary agency and independent contractor
services are used appropriately and lawfully." 

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ON/OFF BOARDING OF CONSULTANTS AND CONTRACTORS                   INTERNAL AUDIT 
JANUARY 2016  SEPTEMBER 2017 

EXHIBIT 1- POLICY EX-10 CONTINGENT (CONTRACT) WORKERS 
I. STATEMENT OF THE POLICY: 
It is a policy of the Port to assure that the services of contingent workers are used appropriately. 
II. DETAILS: 
A. Purpose: 
1. To define contingent workers. 
2. To assure temporary agency and independent contractor services are used appropriately and lawfully. 
3. To establish procedures related to the use of temporary agency services and independent contractors. 
B. Definition: 
Contingent workers are temporary agency employees and independent contractors providing services to
the Port. 
C. Temporary Agency Employees: 
1.  These workers are employed by an outside agency. 
2.  Their time is billed to the requesting department's Port Procurement Card by the outside agency. 
3.  Temporary agency employees work for a limited duration on a specific project. 
4.  The Port directs their work and provides the necessary equipment. 
5.  Performance issues are handled by the outside agency. 
Accessing Temporary Agency Services: 
All requests for temporary agency services must be submitted to the Port Contract Administrator in
Human Resources and Development. Requests for temporary agency services should include: 
Department name 
Requestor's name 
Phone number of Port staff overseeing the assignment 
Length of the assignment 
Preferred start date 
Description of the assignment and skill required, and, 
Department's Procurement Card number and subclass 
Services may be delivered by temporary agencies for six (6) months. Written requests for extensions
must be approved by the Director, Human Resources and Development. Requests must include the
reason for the extension and a date certain for end of the service. These requests will be honored only in
rare circumstances and in no case will an extension exceed six (6) months. 
The Human Resources and Development Department will monitor this function and notify temporary
agencies of the end of the six-month assignment unless the assignment ended earlier or a request for
extension has been approved. 

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ON/OFF BOARDING OF CONSULTANTS AND CONTRACTORS                   INTERNAL AUDIT 
JANUARY 2016  SEPTEMBER 2017 

Employees of Temporary Agencies: 
Employees of temporary agencies are not eligible for Port training offerings, recognition programs, Portpaid
leave, or any other Port employee program. 
Port-paid parking is not provided. 
No individual may provide services through a temporary agency to the Port in excess of 12 months full
time without a 90-day absence from the Port. 
The Port is responsible for directing the work of such employees but status issues such as hiring, pay,
benefits, and performance issues are managed by the agency. 
Rates and Fees: 
Hourly rates for services are negotiated between Human Resources and Development and the temporary
agency and are set rates for the different levels of service delivered. 
Hourly rates for services are not negotiable between temporary agency employees and the department
receiving the service. 
Human Resources and Development will pay invoices using the receiving department org and subclass
information. 
Each department using temporary agency services will review and reconcile their Procurement Card
charges. All questions regarding charges should be directed to the Port Contract Administrator in Human
Resources and Development. 
D. Independent Contractors 
An independent contractor is any individual or vendor who contracts with the Port to perform service in a
non-employee status and meets Internal Revenue Service criteria regarding independent contractors. 
Independent contractors are self-employed and in control of both the results and the method of the work
or service. They are hired to provide a pre-defined deliverable for a set fee. 
Independent contractors typically have other clients, a business license, an office, and equipment. 
Independent contractors provide their own project management. The Port has oversight but not direct
management responsibility for the independent contractor's work. 
Independent contractors may deliver services through a Professional Services Agreement for a one year
period. After consultation with Human Resources and Development and Legal Department staff, Port
Project Managers may make recommendations for renewal of agreements to the Chief Financial Officer. 
III. COMMENTS: 
Refer to:     Policy PUR-2 - Acquisition of Goods and Services 
Procedure PUR-2 - Consultant Procedures 
For further information contact Rosalee Walz, Nicole Martin 

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ON/OFF BOARDING OF CONSULTANTS AND CONTRACTORS                   INTERNAL AUDIT 
JANUARY 2016  SEPTEMBER 2017 

APPENDIX A: RISK RATINGS 
Findings identified during the course of the audit are assigned a risk rating, as outlined in the table below. The
risk rating is based on the financial, operational, compliance or reputational impact the issue identified has on
the Port. Items deemed "Low Risk" will be considered "Exit Items" and will not be brought to the final report. 
Port Commission/
Rating      Financial      Internal Controls      Compliance       Public 
Management 
Large financial
impact                        Noncompliance
High probability
with applicable                     Important 
Missing, or inadequate                 for external audit
Remiss in                      Federal, State,
HIGH               key internal controls                issues and/or
responsibilities                        and Local Laws,                  Requires immediate
negative public
of being a                        or Port Policies                     attention 
perception 
custodian of
public trust 
Partial controls         Inconsistent       Potential for    Relatively important 
compliance with    external audit
Moderate
MEDIUM            Not adequate to identify   Federal, State,   issues and/or   May or may not
financial impact 
noncompliance or     and Local Laws,   negative public   require immediate
misappropriation timely    or Port Policies      perception         attention 
Generally
Internal controls in place                   Low probability
complies with
but not consistently                   for external audit
Federal, State and                Lower significance 
Low financial     efficient or effective                    issues and/or
LOW/                            Local Laws or Port
impact                                      negative public
Exit Items                                  Policies, but some                 May not require
Implementing/enhancing                 perception 
minor                  immediate attention 
controls could prevent
discrepancies
future problems 
exist 
Efficiency   An efficiency opportunity is where controls are functioning as intended; however, a modification would make
Opportunity                           the process more efficient 







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