Agenda Item No.: 10a_attach_2
Meeting Date: January 24, 2023

INTERNAL AUDIT REPORT 
OPERATIONAL AUDIT 
DELEGATION OF AUTHORITY 

JANUARY 2019 – JULY 2020 

ISSUE DATE: NOVEMBER 18, 2020 
REPORT NO. 2020-15 


INTERNAL AUDIT

            Delegation of Authority 

TABLE OF CONTENTS 

Executive Summary ................................................................................................................................................ 3 
Background ............................................................................................................................................................. 4 
Audit Scope and Methodology ............................................................................................................................... 5 
Schedule of Findings and Recommendations ....................................................................................................... 6 
Appendix A: Risk Ratings ....................................................................................................................................... 9 














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            Delegation of Authority 
Executive Summary 
Internal Audit (IA) completed the Delegation of Authority audit for the period January 2019 through July 
2020. The audit was performed to evaluate internal controls to assure monetary and contractual
delegation compliance with rules, policies, and dollar limitations governing redelegations by the
Executive Director to staff. 
The Port of Seattle’s (Port) Delegations of Authority schedule EX-2A specifies limits of authority for
conducting day-to-day business transactions. Limits are established based on the individual’s business
needs and are typically commensurate with the individual’s title/position in the company. 
In general, we concluded that Port management’s internal controls are operating effectively. We
did not identify any issues that warranted reporting. 
This audit employed a unique approach. While we conducted the audit using protocols consistent with
Internal  Audit  Standards,  we  partnered  with  the  Strategic  Initiatives  Department  so  that  any
recommendations resulting from the audit could then be implemented, leveraging the knowledge and
insight gained from the audit experience. We also invited Mr. John Okamoto to participate in weekly
status meetings and considered his subject matter knowledge and expertise. 
Delegation limits are generally established by balancing risk and efficiency. Transactions that represent
significant financial risk typically receive governing body approval, while delegating to management
those of lesser value, to execute unilaterally. Due to the scale of the capital program at the Port, and the
burden placed on various teams, we believe the Port has an opportunity to re-evaluate the $300,000
limit from the Port Commission to the Executive Director. This is reflected as an efficiency opportunity1
and is discussed in more detail on page six and seven. 
1) In March 2010, the Port’s Delegation of Authority limit was established at $300,000. The limit requires
Port Commission approval for expenditures that exceed $300,000. Re-evaluating the limit using a
risk-based approach could result in increasing the limit, thereby allowing the Commission to maintain
a more strategic focus while providing greater autonomy for the Executive Director and staff to carry
out day-to-day business. 
We extend our appreciation to Port management and staff for their assistance and cooperation during
this audit. 


Glenn Fernandes, CPA 
Director, Internal Audit 
Responsible Management Team 
Dave Soike, Chief Operating Officer 
Nora Huey, Director, Central Procurement Office 

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

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            Delegation of Authority 
Background 
The Port’s Delegation of Responsibility and Authority to the Executive Director (ED), as amended June
13, 2017, incorporated Commission Resolutions 3605, 3628, and 3704, and established general
redelegations from the Commission to the ED. Policy EX-2 captures the ED’s administrative, monetary,
and contractual redelegations of his authority to Port staff. The Policy specifies the responsibilities of the
Central Procurement Office (CPO), Executive Leadership Team Members, Delegates, Directors, and
Managers. Similarly, Policy EX-2A redelegates non-monetary authority from the ED to Port staff. 
The Delegations of Authority Schedule EX-2A specifies the limits of authority to Port staff for conducting
day-to-day business transactions. Limits are established based on the individual’s business needs and
are typically commensurate with the individual’s title/position in the company. The 43-page schedule is
organized by business unit (Aviation, Legal, Maritime, etc.) and lists the role and action that a 
title/position is authorized to take. 
Delegation limits are generally established by balancing risk and efficiency. Transactions that represent
significant financial risk typically receive governing body approval, while delegating to management
those of lesser value to execute unilaterally. 
Delegation structures should not only require governing body approval for transactions that meet a
certain  financial  threshold.  For  example,  publicly  traded  companies  require  board  approval  to
repurchase stock or issue a dividend. Board approval is also required for a merger or acquisition.
Government Agencies are no different. For example, government oversight boards may want to review
and approve business-critical transactions that impact the agencies’ mission. For example, the Port
Commission may want to approve efforts that promote social responsibility or impact environmental
sustainability although they may not exceed the delegated limit. 
Traditionally, the governing body (board of directors, commission, council, etc.) establishes policy and
allows management to carry out the governing body’s mission and policy directives. The governing body
then evaluates the Chief Executive Officer (CEO) or ED’s performance against those measures. 
This audit employed a unique approach. John Okamoto, under the direction of the Port’s Chief Operating
Officer, Dave Soike, provided outside expertise and perspective. Mr. Okamoto serves on the Executive
Review Panel  and  provides  recommendations,  to the ED  and the Commission,  related to the
International Arrivals Facility. Mr. Okamoto has unique expertise and knowledge in policy oversight and 
large-scale capital project development, both as a management consultant and through his experience
serving as a senior executive in the public sector at the Port of Seattle, Washington State Department
of Transportation, and the City of Seattle. 
Larry Ehl, Executive Chief of Staff and Director of Strategic Initiatives and Mandela Thomas, Process
Improvement Manager, participated in status update meetings where audit results were reviewed. Mr.
Thomas will help management implement recommendations after the audit concludes. 





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            Delegation of Authority 
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. 
The period audited was January 1, 2019 through July 31, 2020 and included the following procedures: 
Policy and Procedure Review 
• Reviewed foundational documents, including the Port’s Delegation of Responsibility and
Authority to the Executive Director, as amended June 13, 2017, Policies EX-2 and EX-2A, and
Schedule EX-2A. 
• Reviewed CPO’s policy/schedule communication, training, and monitoring processes. 
Data Analysis 
• Analyzed major construction contract and service agreement data. Used this data to determine
the number of items requiring Commission approval and measured the percentage of spend
within financial groupings (refer to Table 2 on page six).
Management Interviews 
• Conducted interviews with management and staff from various departments to gain anecdotal 
evidence of the time and resources required to compile material and to present to the
Commission seeking authorization. 
• Gauged staff’s general understanding of the delegation schedules, monitoring and ratification
processes, and training opportunities. 
• Elicited feedback, using open-ended questions, to identify opportunities that may improve the
limits and delegation process. 
Benchmarking 
• Obtained delegation limits/schedules for comparison from several Government Agencies in
Washington State. 
• Obtained best practice information from various sources, including the California multi-city
agencies Capital Improvement Plan (CIP) benchmarking report. 
Substantive Tests 
• Selected six major construction contracts, four service agreements, and three purchase orders
exceeding $300,000 and determined whether commission approval was granted, and if the
contracts/agreements, related amendments, service directives, or change orders (if any), were 
authorized within the limits reflected in the schedule. 
• Reviewed the ratification log and supporting  documentation to determine  whether the
responsible executive member was aware, provided justification, and took corrective action. 




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            Delegation of Authority 
Schedule of Findings and Recommendations 
1) Efficiency Opportunity 
In March 2010, the Port’s Delegation of Authority limit was established at $300,000. The limit
requires Port Commission approval for expenditures that exceed $300,000. Re-evaluating the
limit using a risk-based approach could result in increasing the limit, thereby allowing the
Commission to maintain a more strategic focus while providing greater autonomy for the
Executive Director and staff to carry out day-to-day business. 
Prior to entering into an agreement, Commission approval is required for contracts that exceed
$300,000. Table 1 reflects contracts that were executed over the 19-month period ending July 31, 2020.
Commission approval was required for 74 contracts and represent 98 percent of the overall spend.
Table 1: 
Major Construction / Service Agreements                 # of contracts            Amount     % of Spend 
> $300,000                                                        74       $598,831,699            98% 
< $300,000                                                      136        $10,063,130             2% 
210       $608,894,829          100% 
Table 2 reflects the number of contracts and the percent of spend within financial ranges. If Commission
delegated authority increased from $300,000 to $1,000,000, Commission approval would still be
required for 95 percent of the overall spend. 
Table 2: 
Major Construction / Service Agreements                     Contracts            Amount     % of Spend 
>$10,000,000                                                     6       $418,496,152           69% 
$5,000,001 - $10,000,000                                           11        $73,677,331            12% 
$3,000,001 - $5,000,000                                             15        $63,031,110            10% 
$1,000,001 - $3,000,000                                             14        $25,113,715             4% 
$300,001 - $1,000,000                                              28        $18,513,391             3% 
$0 - $300,000                                                       136        $10,063,130             2% 
210       $608,894,829           100% 
We also performed limited benchmarking with other Government Agencies in Washington State. This
information is not intended to illustrate why the Port’s limits should be increased. Rather, it provides a
reference point for comparison that may be useful when evaluating current delegated limits. 
Agency                             Governing Body               Delegate       Amount Delegated 
King County                        9-member council   King County Executive                  No limit    * 
City of Seattle                          9-member council                City Mayor                    No limit    * 
Sound Transit                       18-member board   Chief Executive Officer   $5,000,000/$2,000,000   ** 
Northwest Seaport Alliance    10-member commission   Chief Executive Officer                 $300,000 
Port of Seattle                   5-member commission        Executive Director                  $300,000 
Port of Tacoma                5-member commission       Executive Director                $300,000 

*Council approves a budget (King County – biennially; City of Seattle – annually). Management is not required to obtain Council approval if the
contract amount is within the Agency’s adopted appropriation authority. 
** Sound Transit’s delegations limits are dependent on type of contract. 

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            Delegation of Authority 

King County has a biennial budget that is approved by the 9-member council. Part of the budget process 
includes approval of the CIP, which details out the major capital projects for the year and the related
spend. The City of Seattle has a similar process, whereby its budget and CIP approval is the key 
authorization mechanism from the governing body. The Port also has an annual budget and CIP that is
approved by the governing body. However, the Port has an additional control, by which, prior to any
contract over $300,000 being executed, approval of the Commission is needed. Memos and PowerPoint
Presentations are prepared for this, and the average Memo is revised 30 times with various touchpoints
within the Port and approximately 15 hours is spent on each iteration of the Memos1. 
In September of 2018, Sound Transit passed resolution R2018-40 to ensure that the Board’s time was
optimized on key issues facing the agency. This resolution delegated up to $50 million to the Standing
Board Committees for contracts, agreements, and real property agreements. It also delegated, up to $5
million to the CEO for the approval of competitively procured construction contracts and architectural
and engineering services contracts, and up to $2 million to the CEO for the approval of competitively
procured materials, technology, and other services contracts. 
Internal Audit also conducted interviews with several business leaders at the Port. During these
interviews, we asked for feedback on the time and resources used to prepare materials for Commission
authorization. We commonly heard that an inordinate amount of time is spent gathering information,
revising material, and preparing for Commission presentations. 
Recommendations: 
Based on our discussions with management, review of data, and benchmarking with other organizations,
we recommend that management work with the Commission to identify if the current process and
thresholds can be modified to maintain or increase transparency and governance, while alleviating part
of the burden on staff. Sound Transit held an open public meeting in 2018, as part of a board workshop, 
prior to making substantial changes to their delegation of authority. Where possible, the Port should also
consider leveraging standing committees to achieve efficiencies and increase transparency. 
Internal Audit also advocates applying a risk-based approach, to determine items that require full
commission attention. Risk factors not only include financial exposure that the Commission is willing to
delegate to management, but should also include non-financial factors, such as social, environmental,
reputational or regulatory elements. 
If limits are raised, we also recommend frequent (monthly) and robust reporting to the Commission and
the public. This approach would allow for a “passive approval” while preserving Commission oversight
and transparency. Raising the limit could also result in management spending more effort on “value
added” activity and simultaneously allowing the Commission more time to maintain their strategic focus. 
Management Response/Action Plan: 
We concur that this audit found that the Port’s Delegation of Authority controls were operating correctly
and that no concerns were found. An opportunity for greater efficiency was noted and we agree that
efficiencies could be gained with a risk and lean based approach to raise the overall, and/or selected
aspects, of the delegation limit to the Executive Director (ED). The impact of delegations spans many
employees across operations, capital, and corporate functions, and ranges through staff levels, to
management and executives, and all the way to the Commission. Increasing delegation limits may speed
staff work, and ultimately may free up Commission’s time for other important and strategic work.

1 September 27, 2017 Aviation Program Management Group Study of 26 Commission Memos. Unaudited directional Information. 

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            Delegation of Authority 

The management staff’s fully detailed response and recommendations cannot be identified within ten 
days, as research and data analyses are necessary to determine if current thresholds can be raised
along with providing added transparency and governance control.  The intention of any added
transparency controls would to be alert the Commission and ED of situations where relative significant
risk would not otherwise be raised. For example, adjusted existing or new procedures may alert the
Commission and ED to important scope changes in construction, professional service contracts, or
significant purchases of goods.
Determining an optimum balance of delegations and transparency involves many processes and internal
controls that reach to a large portion of the Port’s workforce across the wide number of departments
involved. The audit looked at capital, consultant contracts, and purchase of goods and services. Just
capital work itself involves a large segment of the Port’s workforce, so the potential for internal staff
efficiency gain may be significant.
Our objectives will be efficiency for processes and those involved, along with public transparency for the
Commission and ED, while considering higher delegation levels in various instances.
The initial focus areas for our research and analyses will include: 
1)  Establishing a port-wide team across relevant departments and business units. 
2)  Identifying and resolving gaps between existing and benchmarked transparency procedures and
controls and what may be needed with higher delegations, in addition to seeking input from the
Commission and ED. 
3)  Considering necessary ‘checks and balances’ of controls for increased delegations. 
4)  Evaluating delegation level options, considering risks, and test for balance against transparency
and efficiency needs;  updating and interacting with the Commission and ED  regarding
recommendations.
The broad team will help ensure any recommendations work within the level of ongoing operational,
capital, consulting, purchasing, equity, environmental, technology, and all other work of the Port. 
We recognize that with the COVID-19 pandemic, and its uncertainty, has placed added burden on
employees. The workload of Port employees has shifted to having to balance the needs of home and
work throughout long days. However, staff are resilient and flexible, and will want to get this right to gain
efficiencies.  With those factors in mind, staff will report progress back to the Commission and ED by
the end of Q1, 2021.

DUE DATE: 3/31/2021 





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            Delegation of Authority 
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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