INTERNAL AUDIT REPORT 



Operational Audit 
Rent and Concession Deferral Recovery 
April 2020  October 2021 

Issue Date: November 5, 2021 
Report No. 2021-18

Rent and Concession Deferral Recovery 


TABLE OF CONTENTS 

Executive Summary .......................................................................................................................................................... 3 
Background ....................................................................................................................................................................... 4 
Audit Scope and Methodology ........................................................................................................................................ 6 
Appendix A: Risk Ratings .................................................................................................................................................. 8 














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Rent and Concession Deferral Recovery 
Executive Summary 
Internal Audit completed an audit of the Rent and Concession Deferral Recovery Program (Program) for the
period April 2020 through October 2021. The audit was performed to evaluate current processes and
related internal controls to assure Program compliance with applicable laws and Port of Seattle (Port) 
policies, and safeguarding of Port resources. 
On March 23, 2020, in response to the COVID-19 pandemic, Governor Jay Inslee imposed the Stay Home
Stay Healthy Order throughout Washington State. In an effort to slow the spread of the virus, nonessential
businesses were strongly encouraged to immediately cease operations, other than performance of
basic minimum operations. Since April 2020, the Port Commission has authorized short-term economic
relief to customers, airlines, concessionaires, and tenants located at various Port properties to address
impacts of the economic crisis resulting from the COVID-19 pandemic. Based on approvals by Port
Commission via Motions 2020-07 and 2020-13, the Port created and implemented the Program, to ensure
financial support to the local economy and to protect the Port's assets. The Program accomplishes the
Port's goals of "supporting regional economic vitality; environmental stewardship; and equity and inclusion." 
The Port and the tenants or concessionaires entered into deferral agreements detailing the arrangement
that includes a repayment plan with interest to be paid on deferred amounts, and a waiver of other late fees
and finance charges. As of December 31, 2020, the deferred charges were $61.1MM, including $4.1MM of
Norwegian Cruise Line Holdings (NCL). As of October 27, 2021, the outstanding deferred charges were 
$2.7MM, of which NCL had the largest balance of $2MM. 
Through document review and inquiries with 13 business leaders, Internal Audit identified monitoring
controls that are significant to the current processes, including: the Executive Director's quarterly recovery
status/action reporting to the Commission, Legal department's involvement/oversight, Executive oversight
meetings, business leaders' ongoing monitoring engagement, centralized function's use of a tracking tool,
and an associated quality review by Accounting and Financial Reporting (AFR). Business leaders also
expressed concern about the uncertainty of the COVID-19 pandemic, Centers for Disease Control and
Prevention (CDC) requirements, and the related impact on the Port and tenants. Internal Audit performed
detail testing for a sample of six deferral agreements and noted that participating tenants were compliant
with Program requirements. 
Based on the work we performed, Internal Audit concluded that the current processes and related
internal controls are operating as intended, to assure Program compliance with applicable laws and
Port policies.
Internal  Audit  would  like  to  thank  AFR,  Legal,  Lease  Administration,  Finance  &  Budget,  and  all
Divisions/Departments that participated in information gathering, for their cooperation and partnership
during this audit. 


Glenn Fernandes, CPA 
Director, Internal Audit 
Responsible Management Team 
Rudy Caluza, Director, Accounting and Financial Reporting 
Dawn Hunter, Director, Aviation Commercial Management 
Lisa Lam, Assistant Director, Accounting and Financial Reporting 
Melinda Miller, Director, Portfolio and Asset Management 

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Rent and Concession Deferral Recovery 
Background 
On March 23, 2020, in response to the COVID-19 pandemic, Governor Jay Inslee imposed the Stay Home
Stay Healthy Order throughout Washington State. In an effort to slow the spread of the virus, nonessential
businesses were strongly encouraged to immediately cease operations other than performance of
basic minimum operations. The Port of Seattle (Port) received questions and concerns from tenants and
concessionaires regarding the uncertainty and decline of revenues that were correspondingly impacting
their ability to make payments. 
Since April 2020, the Port Commission has approved the following Motions and Order, and authorized
short-term economic relief to customers, airlines, concessionaires, and tenants: 
Motion 2020-06:  Provided guidance for Port leadership in prioritizing Port investments to assist
local, regional, and statewide economic recovery from the COVID-19 pandemic. 
Motion 2020-07: Provided immediate relief and support to Port employees, Port tenants, and
concessionaires. Also authorized the Executive Director to approve further relief depending on the
economic conditions facing businesses on airport and non-airport Port properties. 
Motion 2020-13: Authorized adjustments to leases and the temporary suspension of the Minimum
Annual Guarantee (MAG) for Airport Dining and Retail tenants. 
Order 2020-21:  Authorized additional short-term adjustments to agreements for tenants and
concessionaires, consistent with April 1, 2020 direction on relief measures. 
The Port created and implemented the Rent and Concession Deferral Recovery Program (Program), to
provide financial support to the local economy and to protect the Port's assets. The Program accomplishes
the Port's goals of "supporting regional economic vitality; environmental stewardship; and equity and
inclusion." The Port and the tenants or concessionaires entered into deferral agreements detailing the
arrangement that includes a repayment plan with interest to be paid on deferred amounts, and a waiver of
other late fees and finance charges. A memo entitled, "Accounting Treatment of Rent Deferral Payment
Plans" ("White Paper"), which was prepared by the Assistant Director, Accounting and Financial Reporting 
(AFR), described the key provisions of the deferral agreements by business or operation, and related
technical matters: 
Deferred Charges 
Depending on the operation group type, the deferred charges mostly ranged from March 2020 through
March 2021 with a few exceptions. No finance charges or late fees were included as deferred charges. For
customers who had already paid the deferred charges prior to the execution of the deferral agreement, the
paid amount was excluded from the deferred charges. 
Repayment Plan 
Depending on the operation group type, the deferred amount was either due on October 1, 2020 or monthly
installments generally began on July 1, 2020. Some installments went beyond 2022 (e.g., Cruise lines
January - April 2022). 
Interest 
Depending on the operation type group, the Port charged a one percent interest per annum on unpaid
deferred charges extending for more than one year from original due dates. 
Accounting Treatment & Guidance 
The Port recorded the deferred charges as revenue earned and accounts receivable, during the period in
which services were provided. The Port followed the specific guidance addressed through the Financial
Accounting Standards Board (FASB) Staff Q&A and Federal Aviation Administration (FAA) guidance to 
airport sponsors related to COVID-19 accommodations, specifically on "Deferral of rental payments or other
fees." 

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Rent and Concession Deferral Recovery 

As displayed in the table below, as of December 31, 2020, the total deferred charges were $61.1MM,
including $4.1MM of Norwegian Cruise Line Holdings (NCL). As of October 27, 2021, the outstanding
deferred charges were $2.7MM, of which NCL had the largest balance of $2MM. 









[Source: Port of Seattle Memorandum: Accounting Treatment of Rent Deferral Payment Plans ("White Paper"), dated September
21, 2020 & most recently updated, September 20, 2021] 
Through document review and inquiries with 13 business leaders, Internal Audit identified monitoring
controls that are significant to the current processes, including the following: 
The Executive Director's quarterly recovery status/action reporting to the Commission for transparency
and oversight. 
Legal's oversight of and involvement in all phases of the Program to assure the program intent, legality,
consistency with the Port Commission guidance, and ongoing issue resolution as arising. 
Executive oversight meetings, so called, "3R" (Relief, Reopening, Recovery) meetings, where the
Executive Director, Managing Directors and/or Directors, General Counsel, Chief Financial Officer, 
Executive Chief of Staff, and other key stakeholders are informed of what Divisions/leaders are deciding
or proposing. 
Business leaders' active engagement in the ongoing Program monitoring of outstanding AR balances,
delinquencies, default/bankrupticies, etc., via regular and ad-hoc status/review meetings and other
communication methods, with AFR and other key stakeholders (e.g., Legal, Finance & Budget, and
Lease Administration). 
AFR's centralilzed function for deferral agreement record retention, and billing/collection/accounting/ 
tracking of deferred rent. 
A centralized tracking mechanism, to monitor the deferrals/repayment plan status, utilizing AFR's 
tracking spreadsheet. 



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Rent and Concession Deferral Recovery 
Audit Scope and Methodology 
We conducted the engagement 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 conduct an engagement to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our engagement objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on  our engagement
objectives. 
We used a judgmental method to determine the samples selected for our audit test work. The results of this
work cannot be projected to the population as we did not select a random sample. 
The period audited was April 2020 through October 2021 and included the following audit procedures: 
Program Documentation, Approval, and Communication 
Gained an understanding of the program structure/content, scope, and timeline.
Reviewed the relevant documentation to determine if the program was developed, documented,
reviewed/approved, and communicated to Port employees, tenants, and the public. 
Analyzed the relevant program data (including the AFR deferral tracking Excel spreadsheet, named
"2020 Deferral Payment Plans") to identify the, total population of the deferred rents, distribution
among business groups, total  deferred amounts, paid amounts, and current AR outstanding
balances. 
Applicable Laws and Policy Compliance 
Gained understanding of the requirements under the applicable laws, policies, and procedures. 
Reviewed the relevant documentation to determine if the Program complied with applicable laws,
policies, and procedures. 
[Note:  For this procedure, Internal Audit partially relied on the work performed by the Washington 
State Auditor Office as part of the Accountability Audit for the operating year 2019.] 
Program Components for Safeguarding of Port Resources 
Gained an understanding of the program structure/content.
Reviewed the relevant documentation to determine if the Program clearly specified requirements. 
Monitoring Process & Related Communication/Information Flow 
Inquired with the following Port management: 
o   Assistant Director, Accounting and Financial Reporting 
o   Deputy General Counsel 
o   Director, Aviation Business and Property 
o   Director, Aviation Commercial Management 
o   Senior Manager, Aviation Business Development 
o   Senior Manager, Aviation Finance and Budget 
o   Manager, Aviation Lease Administration 
o   Manager, Airport Landside Operations 
o   Director, Portfolio and Asset Management 
o   Director, Maritime Operations and Security 
o   Director, Maritime Finance and Budget 
o   Cruise Operations and Business Development Manager 
o   Manager, Lease Management and Utility Management, Portfolio Management 
Gained an understanding of the monitoring process and related controls/gaps (if any) to assure the
tenants' program compliance, collectability, and whether exceptions are detected/reported.


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Rent and Concession Deferral Recovery 

Participating Tenants' Program Compliance 
Obtained a list of tenants that had deferred their rent for the period under audit. Judgmentally
selected a sample of six deferral agreements. Included in the sample was one of the five deferral
agreements signed by tenants in the World Trade Center; the billing and collection of which is
managed by Kidder Matthews, the third-party property management company. 
Reviewed the relevant documentation for the above sample to test attributes, including the following:
o   Approval/sign-off of deferral agreements/amendments 
o   Valid lease agreements 
o   Consistency of deferral charges/repayment plans with the Port policy/procedures 
o   Valid reasons for adjustments, write-offs, and credit memos 
o   Interest calculation accuracy 
o   Consistency of deferral charges/repayment plans among tenants 
o   Repayments, default/collection cases, and collectability 















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Rent and Concession Deferral Recovery 
Appendix A: Risk Ratings 
Findings identified during the audit are assigned a risk rating, as outlined in the table below. Only one of the
criteria needs to be met for a finding to be rated High, Medium, or Low. Findings rated Low will be evaluated
and may or may not be reflected in the final report. 
Financial      Internal                                               Commission/
Rating                                   Compliance      Public 
Stewardship  Controls                                         Management 
High probability
Non-compliance
Missing or not                       for external audit   Requires
with Laws, Port
High       Significant     followed                          issues and / or     immediate
Policies, 
negative public     attention 
Contracts 
perception 
Partial              Potential for
Partial controls 
compliance with   external audit
Requires
Medium   Moderate                  Laws, Port       issues and / or
Not functioning                                          attention 
Policies             negative public
effectively 
Contracts          perception 
Functioning as
Low probability
intended but     Mostly complies                       Does not
for external audit
could be        with Laws, Port                       require
Low      Minimal                                   issues and/or
enhanced to     Policies,                            immediate
negative public
improve        Contracts                           attention 
perception 
efficiency 











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