Internal Audit Report 

Lease and Concession Audit 
Cruise Terminals of America (CTA) 

January 1, 2009  December 31, 2010 



Issue Date: January 06, 2012 
Report No. 2012-01 


Reissued on March 06, 2012 with an addendum to reflect Seaport Management
Supplemental Information

Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 

Table of Contents 
Transmittal Letter ................................................................................................................................................................... 3 
Executive Summary ............................................................................................................................................................... 4 
Background.............................................................................................................................................................................. 5 
Audit Objectives ..................................................................................................................................................................... 7 
Audit Scope and Methodology ............................................................................................................................................ 7 
Conclusion ............................................................................................................................................................................... 9 
Schedule of Findings and Recommendations .............................................................................................................. 10 
Addendum - Seaport Management Supplemental Informtaion ................................................................................ 20 














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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 
Transmittal Letter 


Audit Committee 
Port of Seattle 
Seattle, Washington 

We have completed an audit of the Lease and Concession Agreement between the Port of Seattle
and Cruise Terminals of America (CTA). The purpose of the audit was to determine whether: 
1)  The revenue reported was complete, properly calculated, and remitted timely to the Port. 
2)  The parties complied with significant provisions of the lease and concession agreement. 
3)  Port management oversight of the lease agreement was adequate. 
We examined information related to a two-year period from January 1, 2009, through December 31,
2010. 
We conducted this audit in accordance with Generally Accepted Government Auditing Standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence
that provides 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. 
Cruise Terminals of America did not report gross revenues in accordance with the terms of the lease
agreement.  We determined that CTA owes the Port $1,071,034 in underpaid percentage fees,
interest, and audit costs. Further, as discussed in the Schedule of Findings, we identified other issues
of noncompliance and Port management's failure to properly administer the terms of the agreement. 
We extend our appreciation to the management and staff of Seaport Cruise & Maritime Operations,
Seaport Finance & Budget, and Accounting & Financial Reporting at the Port for their assistance and
cooperation during the audit.  We also thank the management and staff of CTA for their assistance
during the audit. 


Joyce Kirangi, CPA 
Director, Internal Audit Department 


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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 
Executive Summary 
Audit Scope and Objectives The purpose of the audit was to determine whether: 
1)      The concession revenue was complete, properly calculated, and remitted timely to the
Port. 
2)      The parties complied with significant provisions of the lease and concession agreement. 
3)      Port management oversight of the lease agreement was adequate. 
This is our second audit of Cruise Terminals of America, LLC (CTA). We examined the books and
records for a two-year period from January 1, 2009, through December 31, 2010. Seaport Cruise &
Maritime Operations, in conjunction with Seaport Finance & Budget, and Accounting and Financial
Reporting (AFR), has the primary responsibility at the Port of Seattle for administering and monitoring
the agreement to ensure contractual compliance. 
Agreement Terms The concession percentage per Agreement 975 is calculated on two basic fees: 
Percentage Fees (Summarized) 
0% - for gross receipts less than $400,000 
73% - for gross receipts greater than $400,000 but less than $4.9 million 
76% - for gross receipts greater than $4.9 million 
The agreement provides a basic set of exclusions from gross revenue including taxes, refunds to
customers, and revenue derived from expenses passed directly through to third parties. However, any
markup on such pass-through expenses is included in gross revenue.
The agreement further provides for an annual calculation of an expense to gross revenue ratio. The
"Agreed Expense Ratio" is 17% of gross revenue and the calculation results in either a savings rent
that is returned to the Port or a rent credit that is returned to CTA. When the allowable operating
expenses are less than the Agreed Expense Ratio, the Port receives from CTA a Savings Rent of
50% of the amount saved. When the allowable operating expenses are more than the Agreed
Expense Ratio, CTA receives from the Port a Rent Credit of 50% of the excess amount.
In addition, when annual Net Operating Income is less than the Minimum Assured Income ($300,000),
CTA is allowed the difference as a credit, which is applied in accordance with the terms of the
agreement. 
The percentage fee is payable within 15 days after the end of each calendar month with respect to
gross revenues realized during the month. 
For untimely payments, the agreement provides for a one-time late fee of 5% of the overdue amount
and finance charges to be accrued at the rate of 18% per annum from the due date until paid. 
Audit Result Summary  Cruise Terminals of America did not report gross revenues in accordance
with the lease agreement.   We determined that CTA owes the Port $1,071,034 in underpaid
percentage fees, interest, and audit costs.  Further, as discussed in the Schedule of Findings, we
identified other issues of noncompliance and Port management's failure to properly administer the
terms of the agreement. 
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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 
Background 
The Port of Seattle is the owner of the cruise terminals at Piers 66 and 91.  Cruise Terminals of
America (CTA) has entered into a lease agreement with the Port to lease and operate the cruise
terminal facilities, in exchange for which it remits a percentage fee to the Port.  The lease agreement
establishes a landlord tenant relationship between CTA and the Port. 
CTA's owners consist of Columbia Hospitality Inc. (CHI), Stevedoring Services of America Marine, Inc
(SSA) and General Steamship Agencies, Inc.
Prior to May 2003, the Port of Seattle had a management services agreement with CTA for
management of the Port cruise business at Pier 66. The management services agreement allowed
CTA to manage the cruise business on behalf of the Port. The agreement with CTA was later
transitioned from a management services agreement to a lease agreement (572). 
The cruise business grew quickly in the early 2000s. Within a few years, the Port determined that the
assumptions embedded in the terms of the lease agreement warranted revision.
In 2005, the Port and CTA entered into a revised lease agreement (975) that provided more financial
benefits to the Port of Seattle in exchange for an extended lease term to CTA.  The timelines of the
agreements between the Port of Seattle and CTA are as follows: 
Description of Agreement          Date           Term Ends       Extension Option 
Executed                               Until 
Management Agreement          Late 1990s      April 2003                  N/A 
First Lease Agreement 572         April 2003       December 2005               N/A 
Second Lease Agreement 975     January 2006    December 31, 2012   December 31, 2019 
First Amendment to 975            May 2006        December 31, 2012   December 31, 2019 
The members of the Port of Seattle's original management oversight team for the CTA agreement
transitioned after the negotiation and execution of the second lease agreement. Two of the key
managers involved in the lease negotiations left the Port in 2006; only one manager remains part of
the current team charged with oversight of the CTA agreement. 
In 2008, Internal Audit conducted a limited scope review of the CTA management services agreement
with the Port. The primary objective was to ensure that Port funds were promptly returned to the Port
when the management services agreement  ended. Under that  limited review, we also briefly
assessed the effectiveness of Port management's  monitoring controls over the CTA lease
agreements. The report was issued in 2009, and it noted that Port management's monitoring system
was inadequate. This is our second audit of the Cruise Terminals of America, LLC (CTA) agreement
with the Port. In this audit, we examined the books and records for a two-year period from January 1,
2009, through December 31, 2010. 
Seaport Cruise & Maritime Operations, in conjunction with Seaport Finance & Budget, and Accounting
and Financial Reporting (AFR), has the primary responsibility at the Port of Seattle for administering
and monitoring the agreement to ensure compliance by CTA. 

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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 

The concession percentage per Agreement 975 is calculated on two basic fees: 
Percentage Fees (Summarized) 
0% - for gross receipts less than $400,000 
73% - for gross receipts greater than $400,000 but less than $4.9 million 
76% - for gross receipts greater than $4.9 million 
The agreement provides a basic set of exclusions from gross revenue including taxes, refunds to the
customers, and revenue derived from expenses passed directly through to third parties. However, any
markup on such pass-through expenses is included in gross revenue.
The agreement further provides for an annual calculation of an expense to gross revenue ratio. The
"Agreed Expense Ratio" is 17% of gross revenue and the calculation results in either a savings rent
that is returned to the Port or a rent credit that is returned to CTA. When the allowable operating
expenses are less than the Agreed Expense Ratio, the Port receives from CTA a Savings Rent of
50% of the amount saved. When the allowable operating expenses are more than the Agreed
Expense Ratio, CTA receives from the Port a Rent Credit of 50% of the excess amount.
In addition, when annual Net Operating Income is less than the Minimum Assured Income ($300,000),
CTA is allowed the difference as a credit, which is applied in accordance with the terms of the
agreement. 
The percentage fee is payable within 15 days after the end of each calendar month with respect to
gross revenues realized during the month. 
For untimely payments, the agreement provides for a one-time late fee of 5% of the overdue amount
and finance charges to be accrued at the rate of 18% per annum from the due date until paid. 
Three-year Financial Highlights 
Revenue 
Year      Reported Gross                 Percentage Fee 
Revenue 
2008             $12,280,187                              $9,384,994 
2009              12,413,916                               8,995,576 
2010              13,659,453                               9,942,185 
Source: PropWorks and PeopleSoft 
Allowable Expenses Used in the Calculation of Agreed Expense Ratio (17%) 
Year    Reported Allowable    Savings Rent Reported & Paid to the Port
Expenses 
2008              $1,307,613                                $390,009 
2009                1,379,807                                 365,280 
2010                1,625,795                                 348,156 
Source: CTA annual reports 

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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 

Audit Objectives 
The purpose of the audit was to determine whether: 
1)    The concession revenue was complete, properly calculated, and remitted timely to the Port. 
2)    The parties complied with significant provisions of the lease and concession agreement. 
3)    Port management oversight of the lease agreement was adequate. 

Audit Scope and Methodology 
The scope of the audit covered the period January 1, 2009, through December 31, 2010.
We determined whether: 
The lessee was in compliance with the lease agreement terms including, but not limited to, proper
concession payments. The audit approach was risk-based from planning to test sampling. We
applied additional detailed audit procedures to areas with the highest likelihood of significant
negative impact as follows: 
a.  Timely Payment                                      g.  Minimum Rent Income 
b.  Insurance Liability                                    h.  Allowable expenses 
c.  Surety Bond/Security Deposit                              Capital allowance 
d.  Certified Annual Report                                   Tenant improvement allowance 
e.  Percentage/Concession Revenue                        Maintenance allowance 
f.   Savings Rent/Credits 
a.  Timely Payment 
We reviewed payment records to determine whether the lessee complied with the timely
payment requirement. 
b.  Insurance Liability 
We determined whether insurance requirements had been met by reviewing the
certificates of insurance in force for the audit period. 
c.   Surety Bond/Security Deposit 
We reviewed and agreed surety requirements as stipulated in the agreement to
documentation submitted by the lessee to determine compliance. 
d.  Certified Annual Report 
We reviewed the annual certifications for the audit period to determine whether the
certifications were submitted timely. 
e.  Percentage/Concession Revenue 
We obtained a detailed trial balance and summarized a profit and loss statement by
category. 
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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 
We agreed the auditor's profit and loss statement to the actual monthly percentage
reported and paid to the Port from January 1, 2009, through December 31, 2010. We
verified that CTA's revenues were properly included or excluded from the gross revenue
as defined by the lease agreement. We selected three months from the audit period,
obtained detailed schedules of revenues, and traced the revenue to the cash receipts
journals. We  selected  25  detailed  revenue  items  (from  the  detailed  general  ledger
schedule) that were included in gross revenue in each month, and obtained support to
determine proper inclusion and/or exclusion as stipulated in the agreement-- per Section
1.20. We recalculated the percentage rent as defined in the lease agreement and
reconciled to the monthly rent report and remittance of funds recorded in the cash
disbursement journal. 
f.   Savings Rent or Rent Credits 
We verified that expenses were properly included or excluded in the allowable expenses
as stipulated in the agreement. We  selected four months from the high season and
obtained detailed schedules of expenses and compared to the cash disbursements
journal. We selected for testing over 440 detailed transactions of allowable expenses that
we deemed high risk. We obtained supporting records and determined proper inclusion or
exclusion as stipulated in the lease agreement -- Section 1.5. We traced the expenses to
the cash disbursements journal. 
We recalculated the agreed expense ratio and agreed the amount reported in the 2009
and 2010 financial reports, in order to determine whether allowable expenses, when
expressed as a fraction of gross revenue, were less or more than the agreed expense ratio
(17%). 
g.  Minimum Rent Income 
We verified whether the annual net operating income was greater than the minimum
assured income ($300,000). We recalculated the credit and traced to the monthly rent
reports. 
h.  Allowable Expense (Capital, Tenant Improvement, Maintenance Allowance) 
We obtained  detailed  job costs of capital, tenant improvement, and maintenance
allowance from the Port of Seattle, Marine Maintenance Department. We traced from the
detailed  job  costs  to  lessee's  accounts  receivable  clearing  account  and  to  Port
reimbursement. 
Management oversight of the CTA agreement was adequate.
o   We gained an understanding of Port managers' roles and oversight of the CTA agreement. 
o   We determined the time periods during which managers were responsible for the
oversight. 
o   We determined Port managers' understanding of the requirements in the agreement with
CTA. 

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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 

Conclusion 
Cruise Terminals of America did not report gross revenues in accordance with the lease agreement.
We determined that CTA owes the Port $1,071,034 in underpaid percentage fees, interest, and audit
costs. Further, as discussed in the Schedule of Findings, we identified other issues of noncompliance 
and Port management's failure to properly administer the terms of the agreement. 
















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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 
Schedule of Findings and Recommendations 
1.  Cruise Terminals of America (CTA) Did Not Report Gross Revenues In Accordance
With the Lease Agreement 
CTA reported parking revenues to the Port net of the related expenses. Based on the terms of the
lease agreement, revenues are supposed to be reported at gross, not net. This misapplication of
the terms of the lease agreement resulted in fees paid to the Port that were lower than owed.
Fees to the Port are calculated based on percentages of gross revenue tiers. The agreement
further provides for calculation of an expense to gross revenue ratio, which results in either a rent
savings that is returned to the Port or a rent credit that is returned to CTA. 
Below is a summary of gross revenue and related fees reported by CTA and the audited amounts: 
Reported by CTA                       Audited Amounts 
Total
Under                 Understatement
Gross     Percentage      Gross      Percentage   Reported   Rent Credits     to the Port 
Year      Revenue        Fees         Revenue         Fees         Fees      Due to CTA
2009    12,413,916    8,995,576     13,203,629     9,595,758    600,182     (319,582)          280,600 
2010    13,659,453    9,942,185     14,867,726    10,860,472    918,287     (499,119)           419,168 
Total Fees Underpaid to the Port           699,768 
Interest Charged as of December 6, 2011           346,313 
Audit Cost per Section 4.8.2 (408 hours plus benefits)             24,953 
Grand Total        $1,071,034 
The lease agreement defines gross revenue as follows (Section 1.20): 
"the aggregate gross amount of revenue derived in, on or about the Premises for
from Tenant's operations, and whether: (i) in cash, on credit or in kind, (ii) at wholesale,
at  retail  or  otherwise,  and  (iii)  transacted  by  Tenant,  by  any  persons,  firms  or
corporations on Tenant's behalf, or by any subtenants, licensees or concessionaires of
Tenant (specifically including any Parking Operator), from, in or upon the Premises" 
Recommendations 
We recommend Port management: 
1.  Recover approximately $1,071,034, which includes underpaid percentage fees, interest,
and audit costs as shown in the table above. 
2.  Ensure that CTA complies with the lease agreement definition of gross revenues and
allowable operating expenses. 
3.  Review agreement years 2006, 2007, 2008, and 2011 for the correct reporting of gross
revenues and recover underpaid fees, if applicable 

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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 
Management Response 
Management concurs with the audit finding that the tenant did not report Gross Revenue and
Allowable Operating Expenses in accordance with the lease. As a result, percentage rent
remitted to the Port was lower than the amount due under the lease for the two year audit period
(2009-2010). 
Management will work with the tenant to recover all rent, interest, and audit fees due to the Port
in accordance with the lease. In this effort, Management intends to review prior year tenant
reporting retroactive to the inception of the current lease (2006) to ensure reporting of parking
revenue and parking expenses are in compliance with lease requirements and to recover
additional unpaid rent, if applicable. 
Management will continue to reinforce the tenant's responsibility for maintaining true and
accurate records in compliance with the lease. 













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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 
2.  CTA Did Not Fully Comply With Its Lease Agreement With The Port Of Seattle And
Certain Multi-tier Service Arrangements Hindered The Port's Understanding Of
Parking/Shuttle Costs 
The Port of Seattle is the owner of the cruise terminals at Pier 66 and Terminal 91. The Port
entered into an agreement with Cruise Terminals of America (CTA) to lease and operate the
cruise terminals, including the Terminal 91 parking area.   Equity owners of CTA are Columbia
Hospitality Inc. (CHI), SSA Marine, Inc (SSA) and General Steamship Agencies, Inc.
The relevant provisions of the agreement in relation to the issues cited herein are as follows: 
Section 1.5.14 of the Lease Agreement between the Port and CTA states that allowable
expenses shall not include: 
"...any amounts paid to an affiliate or Qualifying Person (other than bona fide cost of
compensation specifically allowed by Section 1.5.3) unless expressly approved, in advance
in writing, by the Port..."
Section 1.2 of the Lease Agreement defines affiliate as follows: 
Affiliate shall mean and refer to any person that, directly or indirectly, (i) is owned by (ii)
owns, (iii) shares common ownership with, (iv) is controlled by, (v) controls, or subject to
common control with any Qualifying Person. 
Section 1.46 of the Lease Agreement states that a Qualifying Person shall mean and refer to: 
"Any equity interest owners of Tenant (including SSA Marine, Inc.., General Steamship
Agencies, Inc., and/or Columbia Hospitality, Inc.) 
Section 8.1.8 of the Agreement provides for parking: 
"Tenant may select a parking operator to operate the parking and undertake all parking
operations and/or parking servicessubject to the Port's reasonable approval."
CTA has an agreement with Republic Parking Northwest (Republic) for the operation of the
parking facility at Terminal 91. It states: 
"The Agreement shall not be assigned nor subcontracted in whole or in part without the written 
consent of [CTA]."
Further, the Port's agreement with CTA states: 
"This agreement sets forth all covenants, promises, agreements, conditions, and understanding
between the Port and Tenant concerning the Premises No subsequent alteration, change or
addition to the Agreement shall be binding upon the Port or Tenant unless reduced to writing and
signed by the Port and Tenant" (Section 22.15) 
"The failure of the Port to insist in any one or more instances, upon a strict performance of any of
the covenants of this Agreement, or to exercise any option herein contained, shall not be construed
as a waiver of or relinquishment for the future of the performance of such covenant" (Section
20.2) 
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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 

"No act or omission of any officer, employee or agent of the Portshall alter, change or modify
any of the provisions hereof" (Section 22.14) 
When cruise operations moved from Terminal 30 to Terminal 91 in 2009, it became necessary
to provide shuttle services from the terminal to the parking facility. Republic began providing the
shuttle services in April 2009.  However, in July 2009, SSA, an equity owner of CTA, assumed
responsibility for shuttle services at Terminal 91 and billed its services to Republic.
CTA arranged for SSA, an affiliate, to "subcontract" with Republic Parking.  However, CTA did
not authorize in writing this arrangement between Republic and SSA, which did not comply with
its management agreement with Republic.
The flow of costs was as follows: (1) SSA billed Republic for its shuttle services. (2) Republic
paid SSA and submitted the costs to CTA. (3) CTA passed these costs through to the Port of
Seattle. The arrangements for SSA to provide shuttle services were not transparent. 
SSA was paid approximately $440,000 and $1 million in 2009 and 2010, respectively, for shuttle
services.   The amount paid to SSA in 2011, for shuttle services, is estimated to be about
$900,000. 
By SSA providing shuttle services under the scope of work in this agreement, CTA was required
under its agreement with the Port to obtain advance approval in writing from the Port, because
SSA is a "Qualifying Person" (i.e., a related party) and such expenses are not allowed unless
expressly approved by the Port.
For the two months in 2009 that Republic operated the shuttle, the hourly rate charged and
billed to CTA was $80 (including Republic's cost of shuttle bus rental). The average hourly rate
Republic paid to SSA in 2009 was $112 (including a fee charged by SSA to recover the cost of
five buses).   These rates were not apparent in CTA's reports to the Port of Seattle and, 
therefore, Port management could not determine whether they were reasonable.
Parking shuttle services expense increased significantly from approximately $500,000 in 2009 to
over $1 million in 2010.  These expense increases resulted in rent credits owed by the Port to
CTA. As described in Finding 1, the concession fee that CTA remits to the Port is calculated
based on percentages of gross revenue tiers. The agreement further provides for calculation of
an allowable expense to gross revenue ratio (Agreed Expense Ratio).  If expenses decrease
below the agreed ratio, the Port realizes a rent savings; if expenses increase above the agreed
ratio,  CTA  realizes  a  rent credit.   Parking  operating  expenses  are  included  in  this  ratio
calculation. 
The multi-tier contractual arrangements in which CTA engaged led to a lack of transparency and
may have contributed to paying an affiliated party (SSA) for parking shuttle services, which did
not comply with the terms of the lease agreement.  Also, because of the lack of transparency,
Port management appears not to have fully comprehended the implications of the increased
costs for shuttle services provided by SSA. As stated in Finding 1, CTA netted parking expenses
against gross revenues when reporting to the Port. This inappropriate netting of expenses

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Internal Audit Report 
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January 1, 2009, through December 31, 2010 
against revenue prevented Port management from seeing and analyzing the shuttle services
costs.
Recommendations 
We recommend Port management: 
1.  Develop an improved process for monitoring CTA's compliance with the terms of its lease
agreement with the Port. 
2.  Consider disallowing parking shuttle services paid to SSA because SSA is an affiliate of
CTA. Per the agreement, any payment to an affiliate or related party is not allowed unless 
approved in advance and in writing by the Port.
3.  Ensure that CTA complies with the terms of its agreement with the Port and obtains written
consent for any scope of work that is contracted or provided by an affiliated party. 
Management Response 
Management concurs with the audit finding that multi-tier contractual relationships do hinder full
transparency of operating costs  including costs related to parking shuttle services, of which
the tenant is obligated to provide under the lease agreement. 
Management will work with the tenant to ensure all known affiliate relationships are properly
documented and administered in compliance with the lease. In addition Management will work
with Port counsel to determine if additional rent is owed to the Port due to unqualified payments
made to affiliates of CTA, in the absence of the required advance written approval. 
As noted in the audit finding, the cost for parking shuttle services at Terminal 91 was significant
in 2009 and increased again in 2010. It was also noted that effective in July 2009, Stevedoring
Services of America (SSA), assumed the responsibility of performing parking shuttle services at
Terminal 91. Management feels it would be helpful to provide some background information
related to this change in parking operations in order to facilitate a better understanding of the
labor issue at Terminal 91: 
Background Information: 
Under the terms of the lease agreement between the Port and CTA, the tenant shall
engage the stevedoring services provider for all terminal handling. The stevedoring
services, provided to the cruise lines to support each vessel call, which include line
handling, equipment, labor and the movement of luggage and stores/ship provisioning,
are billed directly to the cruise lines. CTA has designated SSA as the stevedore for
cruise terminal operations at both P66 and P91. 
Prior to the opening of the new cruise terminal at T91 in 2009, Union members of Local
19 International Longshore and Warehouse Union (ILWU)--a labor union which 
primarily represents dock workers on the West Coast of the United States--had
claimed to their employer SSA, that because T91 was considered to be a new cruise
terminal and under the ILWU West Coast Labor Bargaining Agreement, certain work at
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Internal Audit Report 
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January 1, 2009, through December 31, 2010 
the new terminal belonged to them. Through discussions between SSA and ILWU
Local 19, of which the Port did not participate, an agreement between SSA and Local
19 was reached regarding which labor activities would be performed by ILWU labor. All
parking shuttle operations in support of the new cruise terminal operation at Pier 91
were determined to be ILWU work. In July of 2009 Port management was verbally
informed by CTA of this change and that SSA would be providing parking shuttle
services and would be billing Republic Parking for these services.
















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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 
3.  Port Management Did Not Properly Administer The Terms Of The CTA Agreement 
In the late 1990s, the Port of Seattle entered into a management services agreement with
Cruise Terminals of America (CTA), to develop the cruise business at the Port of Seattle.  The
management services agreement allowed CTA to manage the cruise business on behalf of the
Port. 
CTA's owners consist of Columbia Hospitality Inc. (CHI), Stevedoring Services of America
Marine, Inc (SSA), and General Steamship Agencies, Inc.
In 2003, the Port transitioned the agreement with CTA from a management services agreement
to a lease agreement (572). The lease agreement establishes a landlord tenant relationship
between CTA and the Port. The cruise business grew quickly in the early 2000s, and within a
few years the Port determined that the assumptions embedded in the terms of the lease
agreement warranted revision.
In 2005, the Port and CTA entered into a revised lease agreement (975) that provided more
financial benefits to the Port of Seattle in exchange for an extended lease term to CTA. 
The terms of the CTA lease agreement are complex, unique, and have changed multiple times.
Further, the majority of the original Port managers who negotiated and established the terms of
the current lease structure have left the Port or transitioned into other roles. 
In 2008, Internal Audit conducted a limited scope review of the CTA management services
agreement. The primary objective of the review was to ensure that Port funds were promptly
returned to the Port when the management services agreement ended. Under that limited scope 
audit, we also briefly assessed the effectiveness of the Port management monitoring controls
over the CTA agreements. The report was issued in 2009, and it noted that Port management's 
monitoring system was inadequate. 
In response to the Internal Audit report, Port management required CTA to implement the
following process improvements: 
Certify the accuracy of each month's financial reports 
Hire an independent CPA to conduct an annual verification of financial reporting accuracy 
For the current CTA lease audit, we determined that Port management failed to identify and
correct two significant issues of non-compliance by CTA. However, nothing came to our
attention to indicate intentional wrongdoing by any of the Port staff we interviewed or audited. 
Contrary to the terms of the lease agreement, CTA reported parking revenues to the Port
net of the related allowable expenses. Based on the terms of the lease agreement, parking
revenues were required to be reported at gross, not net. (See Finding 1) 
Without express approval by the Port, as required by the agreement, payments for shuttle
services were made to an affiliated party.  (See Finding 2) 
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Internal Audit Report 
Lease and Concession Audit  Cruise Terminals of America 
January 1, 2009, through December 31, 2010 
As a result of the above non-compliance: 
The Port received a significantly lower fee than it was due, because CTA underreported
revenue.
When the shuttle services transitioned from Republic to SSA, the expense of shuttle
services increased significantly, which required the Port to owe rent credits to CTA. 
Management's failure to identify and correct these issues is attributable to the following: 
Management did not institute an adequate monitoring process commensurate with the
complex terms of the lease agreement. 
o   Given  the  complexity  of  the  CTA  agreement  and  the  management  transitions,
knowledge transfer may have been inadequate. In other words, issues that might have
been obvious to longer-term managers may not have been clear to the newer
managers. 
o   Financial analysis of the cruise business operation management is performed primarily
by one manager, and the analysis missed significant non-compliance by CTA. The
division  team  overseeing the  CTA  agreement  had  not  implemented  an  effective
monitoring system to detect such an oversight. As a result, the non-compliance
occurred for a long time. 
Compliance monitoring, although performed, was not always properly applied. 
For example:
o   Port management was aware that the lease agreement required parking revenue to be
reported at gross (not net of expenses).  Further, Port management knew that parking
expenses would increase during 2009 and 2010, due to the additional costs for shuttle
services at Terminal 91. Despite such knowledge, Port management did not detect the
errors in the financial reports submitted by CTA. The following is an excerpt from the 
monthly CTA reports, which clearly shows declining parking revenues and minimal
parking expenses. The reported amounts displayed "red flags" that should have alerted
Port management that revenue and expenses were not presented in accordance with
the terms of the agreement: 
2009           March      May       June       July      August    September     Total 

Parking Revenue                             166,237     31,309    31,867        18,254    247,667 
Non-Cruise Expense
(includes parking)           80                     74                               1,452.      1,606 
2010           March      May       June       July      August    September     Total 

Parking Revenue                  (12,938)    (61,154)     (31,602)    105,695                        -
Non-Cruise Expense
(includes parking)           95                 2,962                                 198       3,256 
Excerpt from CTA Financial Reports 
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o   Management was aware that SSA was one of the CTA owners and that SSA was
providing shuttle services to Republic at Terminal 91. However, Port cruise business
operation management did not question whether the relationship might fall under the
affiliate (related party) prohibition of Section 1.5.14 of the agreement. 
Port management may have over relied on processes it put into place in early 2009. For
example, Port management had required CTA to implement the following process
improvements: 
o   Certify the accuracy of each month's financial reports 
o   Hire an independent CPA to conduct an annual verification of financial reporting
accuracy 
Although these measures were intended to ensure financial reporting accuracy, neither measure
identified the errors cited in Finding 1. 
Recommendations 
We recommend Port management: 
1.  Ensure that transitions in Port management are carefully orchestrated to avoid knowledge
vacuums. 
2.  Develop a compliance checklist of the major lease requirements in order to guide and
supplement the review process. 
3.  Design and implement effective monitoring and oversight controls that will help detect 
reporting errors in a timely manner. 
4.  Consider whether it might be more effective for Port management to conduct periodic
inspections of the CTA accounting records. 
Management Response 
1. Ensure that transitions in Port management are carefully orchestrated to avoid knowledge
vacuums. 
Management  administered a level of transitioning that was commensurate with the
capabilities of employees fulfilling the roles. The CTA Lease transitioned to proven high
performers that were highly experienced, skilled, and capable people, exhibiting high
attention to detail. However, the gross vs. net revenue error may have been avoided with a
collaborative group review (including personnel from business operations, Seaport Finance,
and CTA) of the CTA Monthly Financial Report. Management intends to commence such
meetings effective immediately. 

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January 1, 2009, through December 31, 2010 
2. Develop a compliance checklist of the major lease requirements in order to guide and
supplement the review process. 
Management agrees and will develop a compliance checklist to bolster the thoroughness of
the review process. 
3. Design and implement effective monitoring and oversight controls that will help detect
reporting errors in a timely manner. 
Both Seaport business operations and finance staff are responsible for review and oversight
of the CTA agreement. Business operations staff is responsible for lease administration and
Seaport finance provides financial expertise.  To strengthen effectiveness of monitoring and
oversight controls, management intends to implement collaborative group meetings as
proposed in our response to Recommendation 1, and the additional measures as described
in our response to Recommendation 4. 
4. Consider whether it might be more effective for Port management to conduct periodic
inspections of the CTA accounting records. 
Management has given thoughtful consideration to conducting periodic inspections of CTA
accounting records. Since Seaport is not staffed for inspecting accounting records and such
inspections are more effectively and efficiently performed by an appropriately credentialed
auditor, management proposes to strengthen the audit of CTA accounting records, as
follows: 
a. Review and expand the current scope of work performed by the independent CPA hired
by CTA to conduct an annual verification of financial reporting accuracy. This expanded
scope of work may include an annual briefing of audit findings to Port/CTA staff, sample
size adjustment, more thorough drill-down into reporting categories to assure compliance
with lease, and/or similar. 
b. Expand the reporting requirements of CTA so that compliance with key elements of the
lease are more easily monitored, and increase effectiveness of review as described in our
response to Recommendation 1. 
c. Continue periodic reviews performed by Internal Audit as an additional check and balance
to the financial controls noted above. 




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January 1, 2009, through December 31, 2010 
Addendum - Seaport Management Supplemental Information 
Below is an image copy of the Seaport Management Supplemental Information. 

















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