INTERNAL AUDIT REPORT 
LIMITED OPERATIONAL AUDIT 
CAPITAL PROGRAM - INTERNATIONAL ARRIVALS FACILITY 

July 2015- July 2017 

ISSUE DATE: November 2, 2017 
REPORT NO. 2017-14

Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 
TABLE OF CONTENTS 


EXECUTIVE SUMMARY .................................................................................................................................................3 
BACKGROUND ...............................................................................................................................................................5 
AUDIT SCOPE AND METHODOLOGY ............................................................................................................................5 
SCHEDULE OF FINDINGS AND RECOMMENDATIONS ...............................................................................................6 
APPENDIX A: RISK RATINGS ...................................................................................................................................... 12 
EXHIBIT A: MISSING COMPONENTS OF THE DESIGN-BUILD PROCESS .................................................................13 
EXHIBIT B: OVERPAYMENT ........................................................................................................................................ 14 













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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 
EXECUTIVE SUMMARY 
Internal Audit (IA) completed an audit of the International Arrivals Facility (IAF) Capital Program for the
period July 2015  July 2017. The audit was performed to assess the design and operating effectiveness
of internal controls and to assure that vendors were being paid in a timely and accurate manner. 
In general, management controls were adequate to ensure compliance with Contract requirements.
However, we identified two opportunities where improving controls would allow Port management and
Clark Construction to  enhance the accuracy and timeliness of payments to contractors and
subcontractors. These are discussed in more detail, beginning on page six.
1) Important elements of the design-build approach were missing. These resulted in unexpected
costs due to rework and resulted in delayed payments to contractors and subcontractors.
2) Internal Controls need to be enhanced to validate invoice totals to payments. This resulted in
an overpayment of $89,454 to Clark in March 2017.
We also noted one efficiency opportunity1 for the Port, which will shave off a few days, from payments
that need to flow downstream to subcontractors. This is discussed in more detail on page ten.
1) Internal processes should be modified to allow faster payment to Clark Construction, which
will also allow for faster payment to subcontractors and the small businesses that they
employ.
The IAF payment process is structured, whereby subcontractors that represent small and minority owned
businesses submit their invoices to their contractors, who then in turn submit their invoices to Clark
Construction. When Clark submits their invoice to the Port, the Port also has to review and approve the
invoice, before making payment to Clark. Each step in this process requires review and takes time. The
downstream payment process takes time as well, resulting in approximately 90 days before the small
businesses are paid for work completed. Although these observations and related recommendations will
speed up the process, the fundamental design of the process will continue to result in a slow payment
process to subcontractors and small business owners. 

We extend our appreciation to Aviation Management and Staff for their assistance and cooperation during
the audit. 


Glenn Fernandes, CPA                      Spencer Bright, CIA, CFE, CCA, CGAP
Director, Internal Audit                           Senior Auditor 

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An efficiency opportunity is where controls are functioning as intended; however, a modification would make the process
more efficient. 

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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 


RESPONSIBLE MANAGEMENT TEAM 
Ralph Graves, Senior Director, Capital Development 
Michael Dysart, Capital Project Leader 
Ann Paustian, Resident Engineer 
Dan Thomas, Chief Financial Officer 
Elizabeth Morrison, Director, Corporate Finance 
Rudy Caluza, Director Accounting and Financial Reporting 















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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 

BACKGROUND 
The International Arrivals Facility (IAF) at Seattle-Tacoma International Airport will be expanded to
enhance the international passenger experience, advance the Puget Sound region as a leading tourism
and business gateway, and serve the traveling public. 
The IAF will be a multi-level, 450,000 square-foot facility located east of concourse A. It will consist of an
aerial walkway, which will span 900 linear feet at a clear height of 85 feet over the existing taxi lane,
connecting arriving international passengers from the south satellite, across the top of Concourse A, to
the new IAF. With the creation of a secure international corridor on Concourse A, more gates will be
available for arriving international flights with a direct connection to the IAF. 
Revenue bonds, passenger facility charges, and airport revenue will fund the project which is scheduled
for completion by December 31, 2020. 

AUDIT SCOPE AND METHODOLOGY 
We conducted this performance audit 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 July 20, 2015  July 31, 2017. To obtain an understanding of the program, we
performed the following procedures: 
1) Determined whether payments complied with contractual requirements:
Selected five pay applications and verified Port management reviewed the preliminary
payment requests prior to payment.
Verified that pay applications were  approved, accurately calculated, allowable, and
supported with sufficient documentation.
Evaluated the payment process and its impact on the timeliness of payments to Clark and
subcontractors.
2) Determined whether the use of contingency and allowance funds complied with the Revised Code
of Washington.
3) Reviewed the 2015 Washington State Auditor's Legal Compliance Audit and verified that prevailing
wage requirements were achieved.
4) Performed online research and provided Port management with ideas to improve the design-build
approach.

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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 
SCHEDULE OF FINDINGS AND RECOMMENDATIONS 
1) RATING: HIGH

FUNDAMENTAL COMPONENTS OF THE DESIGN-BUILD PROCESS WERE MISSING 
The design-build approach provides the Port a single point of responsibility to carry out all work on the
project. Clark Construction, as the design-builder, is contractually responsible to manage the project. To
be successful, the approach brings all members of the project team together early in the process to
identify and address issues of cost, schedule, and constructability. When executed correctly, this 
approach reduces risk and overall costs. 
The Port plays an important role by communicating the vision and objectives of the final project to the
design-builder. Clark as the design-builder manages the project so that Port expectations and
specifications are met. 
Management of the project includes working closely with the design firm(s) to ensure Port requirements
are incorporated. It also includes verifying that designs are accurate and substantially complete, prior to
construction, so that once construction begins, expectations and deliverables are clearly understood.
Finally, Clark  Construction  is expected to monitor and correct, if necessary, various phases of
construction. If performed effectively, the project meets specifications, is delivered on time, and within
budget. 
Our audit identified instances that indicate important elements of the design-build approach were missing.
Those instances included: 
Designs were incomplete prior to construction creating inefficiencies and increasing the likelihood
of unexpected costs due to re-work.
Clark Construction did not consistently provide the Port monthly status of potential uses of
contingency as required by the Contract.
Clark submitted payment requests that were incomplete and did not meet Port requirements
resulting in delayed payments to subcontractors.
Clark authorized work with its subcontractors prior to signing formal change orders.
SEE EXHIBIT A FOR ADDITIONAL INFORMATION 
Recommendations: 
Port: 
Although several mini Gross Maximum Price contracts (GMP) were established, the Port needs to
establish and finalize one main GMP with Clark Construction, which will minimize potential cost
overruns.
Enhance monitoring and communication with Clark Construction.
Clark Construction: 
Design documents should be completed to an acceptable level, for contractors and subcontractors
to provide accurate quotes.
Change orders and/or agreed upon prices should be signed prior to commencement of work.
Communication and training, to contractors and subcontractors, should be strengthened.
Monthly status of potential uses of contingency funds should be submitted to the Port.

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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 
Management Response/Action Plan:
Port of Seattle 
Management agrees with recommendation number 1, that establishing a single Guaranteed Maximum
Price (GMP) for the Contract, would give the Design Builder flexibility to manage and mitigate risk
associated with the design build process. However, Clark has yet to produce a GMP that the Port is
willing to accept and until that happens Port Management will continue to exercise the contract provision
that permits it to issue mini-GMPs to undertake limited scopes of work. The project team is actively
reviewing and validating Clark Construction's latest GMP proposal. The GMP must be evaluated and
meet contractually required criteria and backup prior to acceptance. Anticipated Completion: March 31,
2018
Management agrees that there are opportunities to strengthen oversight of the Design-Builder. Clark
Constructions has already made improvements to their management of subcontractors through better
controls management, and training of the subcontractors on the proper way to submit change requests.
Port staff is implementing the following best practices to better monitor Clark Construction management of
subcontractors: 
1.) A more rigorous review of Change Orders Clark issues to its subcontractors. Implemented 
2.) Segregating new scope from design evolution changes in order to identify the appropriate
contract mechanism for payment. Implemented 
3.) Timely processing of Change Orders or Authorization between Clark and the Port. 
Implemented 
Management further recommends review and appropriate adjustment of the contract terms relating to
subcontractor responsibilities in future design build procurements. Implemented 
Clark Construction 
Design was complete for enabling work prior to commencement of construction activities as evidenced by
permitted documents. Subsequent changes were made to the design as directed by the POS, and
incorporated by Clark Construction. Clark directed subcontractors to proceed with changes. A unilateral
CO was issued by the POS for the work, with a reconciliation change order required for the
remainder. Based on the nature of the changes and necessity for timely performance of the work, a
vehicle allowing confirmation of the final scope and price was not possible without impacting the overall
schedule. 
Clark agrees that whenever possible, EWAs, WA, etc. should be executed prior to the commencement of
the work. This practice will be followed wherever possible and practical for the nature of the design-build
work. 
Clark / POS review the log of outstanding exposures to Allowances and Contingencies weekly at the
scheduled CO meeting, and monthly in the Project Update Report. Clark will work with the POS to review
additional delivery methods of the outstanding exposures to ensure the information being presented is
accurate and timely. Implemented 


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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 
Additionally, in an effort to enhance the Subcontractor proposal turnaround time, Clark held Subcontractor
training to specifically address timeliness and accuracy of Subcontractor proposals (both for work
performed and prior to the commencement of the work). The complete proposal forms and process were
reviewed with time available for Q&A with each subcontractor. Additional training is scheduled for 10/19
with all on-board subcontractors to review the Labor Rates work sheets to ensure timely approval of wage 
and equipment rates. Implemented 
Clark and the POS are working together as a team to improve the review and turn-over times associated
with subcontractor proposals and billings to ensure timely payment of Subcontractors. In accordance with
the contract, the Clark / POS team share responsibility in ensuring timely processing of quality proposal
submissions from Subcontractors. Collaboratively, Clark and the POS are working on a "5 Day
Commitment" to ensure timely release of NTPs, WAs, etc. Additionally, the team is working to improve
the Force Account notice to ensure immediate action can be taken for occurrences in the field. 
Implemented 














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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 

2) RATING: MEDIUM 
INTERNAL CONTROLS NEED TO BE ENHANCED TO VALIDATE INVOICE TOTALS TO PAYMENTS. 
Port Management self-identified an $89,454 overpayment to Clark in March 2017. In August 2017, Port
Management identified and corrected the error by reducing the September payment. 
The error occurred because the payment request was incorrectly entered into the Contract Data System 
(CDS). 
Although the invoice was reviewed and approved, a review to verify the final Contractor Payment Request
(CPR) voucher amounts matched the amounts on the signed CDS pay application did not occur. 
SEE EXHIBIT B FOR ADDITIONAL INFORMATION 
Recommendations: 
We recommend management: 
Reinforce the existing review process to ensure final CPR voucher amounts match the amounts
on signed CDS pay applications prior to payment. 
Provide CDS users written processes/instructions for system use, including guidelines to properly
make coding corrections and adjustments. 
Management Response and Action Plan: 
Management is taking steps to reinforce with the Contract Administrators the importance of checking to
ensure the final CPR voucher amounts matches the amounts on signed CDS pay applications prior to
payment. The requirement for review is in CPO's standards manual. With this review the overpayment in
pay application 21 would have been identified and addressed at that time.
As a result of the overpayment, CPO learned that the new CDS system allowed individuals outside of the
CDS Administrator and CPO Management team to make corrections after a final contract pay request has
been issued. This capability has been corrected and now only the CDS Administrator and CPO
management team can make those changes. Within CDS, any corrections made after a final contract pay
request must be discuss with Sr. Manager and CDS Administrator to agree on how to correct error in
CDS and associated documentation. 
Management is working with CDS Administrator and CDS system developers to better understand the
issue related to pay application 28 and will be addressing that system issue.
To maintain system integrity and appropriate system controls we limit who has access to make
corrections or adjustments to final pay applications. Currently only the CDS System Administrator and
CPO management can address those changes. CDS Administrator and developers are responsible for
investigating system matters and making corrections. Implemented 


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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 

1) EFFICIENCY OPPORTUNITY 
PROCESSES NEED TO BE ADJUSTED TO EXPEDITE PAYMENTS TO CONTRACTORS. 
Best management practice dictate that an organization should pay its vendors as close as possible to the
last possible day permitted in a contract, without incurring a late payment penalty. This assures that the
organization benefits from the time value of money. 
The IAF contract requires payment to Clark Construction 30 days after the Port's approval of pay
applications. Once payment is received, Clark Construction has 10 days to pay their contractors, who in
turn, have another 10 days to pay their subcontractors. Clark and their subcontractors have not been
meeting the 10 day turnaround time for payments.  Some of the reasons for this and related
recommendations are highlighted and addressed in issue #1. 
The payment process for subcontractors includes submitting payment requests to Clark Construction for
review. Clark Construction then provides the request to the Port for final review. Although necessary, this
multi-layer approach is not efficient and results in delayed payments to subcontractors. 
The Commission has heard complaints from small businesses that have done work and not been paid in
a timely manner, thereby putting undue stress on small businesses that need these funds to meet their
internal payroll. 
Construction payments are typically large amounts and accordingly, meet the requirements to be paid
according to the Port's Policy: "Protocol for Large Payments".  The policy states that the Treasury
department needs to liquidate short term investments to fund large payments. This liquidation process
adds several additional days to the payment process. 
Recommendation: 
Although the Port has made payments to Clark Construction within 30 days after approval of invoices,
and in full compliance with contract terms and internal policy, this complex contractual situation
necessitates shaving off time wherever possible to increase the timeliness of payments to small
businesses. 
For this situation and for future situations of a similar manner, where a multilayer approach is adopted,
we recommend that Treasury work with the requester, to assure they have adequate advance notice,
so as to not be constrained by the "Protocol for Large Payments".

Management Response and Action Plan: 
Management acknowledges the Commission's desire to ensure that small businesses serving as
subcontractors are paid on a timely basis, and is continuing to work on expediting the Port's payment
process to meet this goal. 
The Protocol for Large Payments was originally established to provide Treasury with advance notice for
large payment requests in order to minimize the need to liquidate investment securities prior to maturity.
The Protocol's notice period, which ranges from 4 to 16 days depending on the size of the payment,
begins when all paperwork has been completed and submitted to Accounts Payable. The advance
notification requirement has, in fact, prevented the need to liquidate any investment securities over the

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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 
past several years. Treasury, however, has also recently begun working more closely with Capital
Development staff to obtain early indications of upcoming large payments by email prior to receipt of the
approved invoice in Account Payable in order to condense the payment time frame while ensuring that
funds are available to execute the payments.
As noted above, all payments to Clark Construction have been made within the 30 day contractual
requirement, and in practice the majority of payments to Clark since 2015 have been made within 1 to 6
days of Accounts Payable receiving an approved payment request. 
Staff will formally update the Protocol for Large Payments to align with the more flexible practice of early
email notification prior to receipt of a final approved invoice and will also continue to work with Capital
Development staff to ensure a timely and efficient contractor payment process. 














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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 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 and/or operational impact the issue identified has on maintenance of an
effective internal control environment and management of identified business risks. 
Rating     Financial       Internal Controls      Compliance       Public      Port Commission/
Management 
Large financial   Missing, or inadequate     Material violation  High probability for  Important 
impact and risk    internal controls          of laws,        external audit
HIGH                              regulations or   issues and/or     Requires immediate
policies          negative public     attention 
perception 
Moderate      Partial controls         Inconsistent    Potential for      Relatively important 
financial impact                       compliance      external audit
and risk         Not adequate to identify                  issues and/or      May or may not
MEDIUM            noncompliance or               negative public   require immediate
misappropriation timely                  perception        attention 
Low financial    Internal controls in place    Generally       Low probability for   Lower significance 
impact         but not consistently       complies with    external audit
efficient or effective         rules and        issues and/or       May not require
LOW                         regulations     negative public   immediate attention 
Implementing/enhancing               perception 
controls could prevent
future problems 










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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 
EXHIBIT A: MISSING COMPONENTS OF THE DESIGN-BUILD PROCESS 
In May 2017, Macro-Z-Technology (MZT) notified the Port Commissioners it submitted payment
applications to Clark Construction (Design-Builder) for additional work performed from February 2017,
through April 2017, in excess of $6.8 million. As of the date of the letter, there was an unpaid balance of
approximately $6 million. 
In August 2017, a sub-contractor of MZT, Sundancer Electric, Inc. (Sundancer) notified the Port
Commissioners it had not received payment for work completed through June 2017. This resulted in an
unpaid balance of $925,000. 
Subcontract Agreement No. 41554 (Article G-08(D)) states, in part; "the Design-Builder is required to
make payment to all subcontractors and suppliers for all work included within the Progress Payment
within ten (10) days from the receipt of the Progress Payment. Furthermore, the Design-Builder shall
require all subcontracts issued under this contract to all subcontractors and supplier at all tiers to also
make all due payments within ten (10) days of their receipt of payment." 













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Capital Program - International Arrivals Facility                                  INTERNAL AUDIT 
July 2015- July 2017 
EXHIBIT B: OVERPAYMENT 
On a monthly basis, Clark Construction (Contractor) submits a pay application for expenses incurred in
the previous month. The pay application reflects detailed approved "Schedule of Values" (SOVs) for
various elements of work. After review and approval by Port staff, the pay application is entered into a
Port database system, the Contract Data System (CDS), which is used by the Central Procurement Office
(CPO) The summarized CDS version of the pay application is printed and signed by the Contractor and
Port as the official request for that month. After signature by both parties, a utility within the CDS system
distills the summary SOV amounts into a summarized "Contractor Payment Request" form (CPR). The
CPR is a voucher request form submitted to Accounting that reflects the Purchase Order line numbers
and other chart field coding associated with the payment. 
Port staff brought to our attention that in March 2017, the Port miscoded one line of contractor costs
within CDS for Pay Application 20. The correct amounts were requested, approved, and paid to the
Contractor. However, they were aligned to the wrong lines in CDS database and therefore vouchered to
the wrong accounting coding on the CPR. The Port made CDS coding corrections in April 2017, during
the processing of Pay Application 21 by crediting the overstated line item and debiting the correct line
item. The printed and signed CDS pay application appeared to properly reflect the corrected coding,
revealed a net zero effect on the total amount due, and matched the contractor's total request. 
These coding corrections and changes were made at a time when a significant new upgrade to the CDS
system was issued. Concurrently, the CDS system administrator made additional adjustments to the CDS
configuration to situate several new change orders and realign other SOV elements. One of those
adjustments involved the line items associated with the coding correction. Port staff involved in
processing the pay application was not familiar with the new system and did not realize the coding
correction entries, in combination with other database configuration changes, were not properly entered.
While the CDS print out was correct, the underlying database elements were not and caused the CPR to
calculate incorrectly. As a result, the CPR for Pay Application 21 applied a credit line in the CDS as a
positive value on the voucher line. This resulted in an overpayment of $89,454. Port staff did not ensure
the CPR voucher request total matched the signed CDS pay application prior to submittal to Accounting
for payment. The discrepancy and overpayment was not noted until after the voucher processed and the
check was issued. 
Port staff, the CDS administrator, and the database design consultant met in August 2017, to determine
the cause and correct the overpayment. Changes and corrections to the underlying database were made
and tested at the meeting. It is anticipated that with Pay Application 28, due to be paid in September
2017, the CPR  voucher request will generate the coding corrections necessary to recover the
overpayment. The actual vouchered and paid amount for Pay Application 28 will be $89,454 less than the
approved and due amount of the request. 





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