The Audit Meeting meeting scheduled for 2023-04-06 at Pier 69

Transcript

The Audit Meeting meeting scheduled for 2023-04-06 at Pier 69

THIS IS COMMISSIONER MOHAMMED CALLING TO ORDER THE PORT OF SEATTLE'S AUDIT COMMITTEE SPECIAL MEETING
TODAY IS THURSDAY, APRIL 6, 2023, AND THE TIME IS 9:04 A.M
WE ARE MEETING TODAY AT THE PORT OF SEATTLE'S HEADQUARTERS COMMISSION CHAMBERS AND VIRTUALLY VIA THE MICROSOFT TEAMS PLATFORM
PRESENTED WITH ME TODAY IS COMMITTEE MEMBERS COMMISSIONER SAM CHO AND PUBLIC MEMBER SARAH HOLMSTROM
TO MAKE THIS MEETING MORE ACCESSIBLE TO THE PUBLIC, THE MEETING IS BEING LIVE STREAMED AND DIGITALLY RECORDED, AND MAY BE VIEWED OR HEARD AT ANY TIME ON THE PORT WEBSITE
A CALL AND TELEPHONE NUMBER IS ALSO PROVIDED FOR ANYONE WHO WOULD LIKE TO LISTEN INTO THE MEETING
OUR FIRST ITEM OF BUSINESS IS APPROVAL OF OUR LAST MEETING MINUTES FROM DECEMBER 8, 2022
AS A REMINDER TO THE VIEWERS OF THE AUDIENCE, THE PUBLIC MEMBER OF THE AUDIT COMMITTEE IS NOT VOTING MEMBER FOR THE PURPOSES OF CASTING VOTES ON MOTIONS MADE PER THE COMMITTEE RULES
ARE THERE ANY CORRECTIONS TO THE MINUTES? ARE THERE ANY OBJECTIONS TO THE APPROVAL OF THE MINUTES AS PRESENTED HEARING NONE
THE MINUTES HAVE BEEN APPROVED
OUR NEXT ORDER OF BUSINESS IS THE OFFICE OF THE WASHINGTON STATE AUDITORS ACCOUNTABILITY AUDIT RESULT FOR 2021
MR GLENN FERNANDEZ, PLEASE INTRODUCE OUR SPEAKERS TODAY
THANK YOU, COMMISSIONER
COMMISSIONER, I'D LIKE TO CALL UP JOE SIMMONS, ANGELA FUNIMORI AND MADDIE SCOTT FROST SCHAEFER FROM THE STATE AUDITOR'S OFFICE
AND THEY'LL BE PRESENTING OUR 2021 ACCOUNTABILITY AUDIT FOR THE PORT
JOE, PUSH THE BUTTON
ALL RIGHT, WELL, THANK YOU, GLENN
THANK YOU
COMMITTEE MEMBERS APPRECIATE THE OPPORTUNITY TODAY TO PRESENT THE RESULTS OF OUR 2021 ACCOUNTABILITY AUDIT
MY NAME IS JOE SIMMONS
I'M THE AUDIT MANAGER FOR TEAM CENTRAL KING COUNTY
I'M HERE WITH MADDIE FROST SCHAEFER, WHO IS ASSISTANT AUDIT MANAGER AND WAS THE SUPERVISOR ON THE AUDIT
AND THEN ANGELA FUNAMORI WAS THE AUDITOR IN CHARGE OF THE AUDIT
AND ON THE NEXT SLIDE, JUST WALKS THROUGH THAT
WE REPORT, OF COURSE, TO PAT MCCARTHY, WHO IS OUR ELECTED STATE AUDITOR IN HER SECOND TERM
AND KELLY COLLINS IS THE DIRECTOR OF LOCAL AUDIT, AND SHE'S RESPONSIBLE FOR ALL OF THE LOCAL AUDITS THROUGHOUT THE STATE
AND THEN WENDY CHOI IS ASSISTANT DIRECTOR OF LOCAL AUDIT, AND SHE OBVIOUSLY REPORTS TO KELLY COLLINS AND HAS RESPONSIBILITY FOR SIX AUDIT TEAMS FROM BELLINGHAM TO TACOMA
SO IN THE PUGET SOUND AREA
AND THEN ON THE NEXT SLIDE, JUST BRIEFLY WANT TO SAY, AS WE'VE SAID BEFORE, THAT WE LOOK AT OUR ROLE AS ONE TO HELP INCREASE TRUST IN GOVERNMENT, THAT WE WORK WITH STATE AND LOCAL GOVERNMENT TO PROVIDE INCREASED TRUST THAT WE SEE OUR ROLE AS REPORTING TO THIS INDEPENDENT STATE OFFICIAL AS A WAY TO PROVIDE INDEPENDENT, TRANSPARENT AUDITS OF STATE AND LOCAL GOVERNMENT AND PROVIDE RECOMMENDATIONS THAT HOPEFULLY HELP OPERATIONS OF STATE AND LOCAL GOVERNMENT
AND AGAIN, APPRECIATE THE CHANCE TO GO OVER THE RESULTS OF OUR 2021 AUDIT WITH YOU TODAY
AND THERE IS INFORMATION IN YOUR PACKET THAT WAS PROVIDED THAT HAS A LITTLE BIT MORE DETAIL THAT WE'LL REFER TO DURING THE PRESENTATION AND I'LL GO AHEAD AND HAND IT OFF TO ANGELA TO TALK ABOUT THE RESULTS OF THE AUDIT
THANK YOU, JOE
NEXT SLIDE, PLEASE
SO, AS JOE MENTIONED, WE CONDUCTED AN ACCOUNTABILITY AUDIT THAT COVERED THE PERIOD OF JANUARY 1 THROUGH DECEMBER 31 OF 2021
AND THE PURPOSE OF THE AUDIT IS TO DETERMINE WHETHER THE PORT COMPLIED WITH STATE LAWS, REGULATIONS, CONTRACTS, AND ITS OWN POLICIES AND PROCEDURES, AND JUST OVERALL TAKE A LOOK AT THE PORT, WHETHER THE PORT HAS ADEQUATE CONTROLS TO SAFEGUARD PUBLIC RESOURCES
AND SO IN MOST OF THE AREAS WE EXAMINED, THE PORT'S OPERATIONS COMPLIED IN ALL MATERIAL SPECS WITH APPLICABLE STATE LAWS, REGULATIONS AND ITS OWN POLICIES, AND PROVIDED ADEQUATE CONTROLS OVER SAFEGUARDING OF PUBLIC RESOURCES
WE ALSO WANTED TO KEEP IN MIND THAT WITH THE GENERAL AUDITING PRACTICES, WE DO NOT EXAMINE EVERY TRANSACTION OR ACTIVITY POLICY
SO AS A RESULT, NO INFORMATION IS GOING TO BE PROVIDED ON AREAS THAT WE DID NOT EXAMINE
NEXT SLIDE, PLEASE
SO, BASED ON OUR PLANNING PROCEDURES, WE MUTED A RISK BASED AUDIT APPROACH AND LISTED ON THE SLIDE ARE THE AREAS WE EXAMINED DURING THE PERIOD
AS YOU ALL KNOW, THE PORT HAD EXPERIENCED A CYBER SCHEME WHICH RESULTED IN A LOSS
SO PART OF OUR REVIEW WAS TO GAIN AN UNDERSTANDING OF THE CYBER LOSS EVENT, AMOUNT OF THE KNOWN LOSSES, AND THE PORT'S CORRECTIVE ACTIONS IN RESPONSE TO THE LOSS
ADDITIONALLY, WE REVIEWED THE PORT'S CONTROLS OVER EFT PAYMENTS TO VENDORS, TO TERMINAL, WHETHER THEY ARE ADEQUATE TO SAFEGUARD PUBLIC RESOURCES
WE DID HAVE A FINDING RECOMMENDATION IN WHICH WE'LL DISCUSS LATER IN THE PRESENTATION
THE NEXT AREA WE REVIEWED WAS THE PORT'S POLICIES AND PROCEDURES OVER PUBLIC WORKS CONTRACTS, GAINED AN UNDERSTANDING OF INTERNAL CONTROLS AND SELECTED CONTRACTS TO ENSURE CONTRACTS COMPLIED WITH STATE LAW PORT POLICIES AND WERE SUPPORTED
AND OUR AUDIT DETERMINED THE PORT COMPLIED WITH PORT POLICIES AND STATE LAW
NEXT AREA WE REVIEWED WAS THE PORT'S POLICIES AND PROCEDURES REGARDING PATCH MANAGEMENT OVER THE PORT SOFTWARE SYSTEM AND THE ASSOCIATED FINANCIAL APPLICATIONS, GAIN AN UNDERSTANDING OF THEIR CONTROLS AND SELECTED PATCHES TO TEST, AND WE DETERMINED THE PORT'S IT SYSTEMS ARE ADEQUATE TO SECURE AGAINST KNOWN VULNERABILITIES AND MITIGATE RISK
THE NEXT AREA WE REVIEWED THE PORT'S POLICIES AND PROCEDURES OVER PROMOTIONAL HOSTING AND RECALCULATED THE PORT'S PROMOTIONAL HOSTING LIMIT AMOUNT SPECIFIED BY RCW, AND WE DETERMINED THE PORT WAS WITHIN THE PROMOTIONAL HOSTING LIMIT
SO, PART OF THE PLANNING STAGES OF THE AUDIT, WHILE WE REVIEW MEETING MINUTES, WE ALSO REVIEWED WHETHER THE PORT COMPLIED WITH THE OPEN PUBLIC MEETINGS ACT REQUIREMENTS, ESSENTIALLY TAKING CREDIT FOR THE WORK THAT WE'RE DOING, AND OUR AUDIT DETERMINED NO INSTANCES OF NON COMPLIANCE
AND THEN LASTLY, AS PART OF OUR ANNUAL PROCEDURES, WE REVIEW FOR ANY INDICATORS FOR FINANCIAL DISTRESS AND NOTED NO ISSUES IN THE PORT'S FINANCIAL CONDITION OR SUSTAINABILITY
SO DURING OUR REVIEW OF THESE AUDIT AREAS, WE DID IDENTIFY TWO OPPORTUNITIES FOR THE PORT TO STRENGTHEN ITS INTERNAL CONTROLS AND THE RECOMMENDATIONS WERE PROVIDED TO MANAGEMENT FOR THEIR CONSIDERATION
BUT AS A REMINDER, THESE EXIT ITEMS ARE CONTROL OR COMPLIANCE ISSUES THAT ARE INSIGNIFICANT OR HAVE AN IMMATERIAL EFFECT
NEXT SLIDE, PLEASE
THANK YOU
SO, AS MENTIONED EARLIER, WE FOLLOWED UP ON THE PORT'S EXTERNAL CYBER LOSS
GIVEN THE AMOUNT OF THE LOSS IN THE NUMBER OF INSTANCES OUR OFFICE DETERMINED THE REPORTING LEVEL TO BE A FINDING IN THIS REPORT, YOU'LL FIND THERE ISN'T NEW INFORMATION
HOWEVER, WOULD LIKE TO TAKE THIS OPPORTUNITY TO GO OVER THE RECOMMENDATION IN MORE DETAIL
AND SO FOR THOSE LOOKING IN THE PACKET, THE RECOMMENDATION STARTS ON PAGE EIGHT
OVER THE LAST SEVERAL YEARS, OUR OFFICE HAS SEEN AN INCREASE OF VARIOUS TYPES OF CYBER FRAUD, SUCH AS PHISHING OR SPEAR PHISHING, WHICH ESSENTIALLY IS WHERE AN EXTERNAL ACTOR CONTACTS THE GOVERNMENT AND CONVINCES STAFF TO REDIRECT VALID PAYMENTS TO THOSE EXTERNAL ACTORS
THIS HAS BECOME A GROWING ISSUE STATEWIDE THAT OUR OFFICE HAS TAKEN VERY SERIOUSLY
SO TO SUMMARIZE THE FINDING, THE PORT REPORTED TWO PHISHING INCIDENTS TO OUR OFFICE
THESE INCIDENTS RESULTED IN EIGHT PAYMENTS TO PUBLIC FUNDS TOTALING JUST UNDER 573,000 TO FRAUDULENT BANK ACCOUNTS
ONCE THE PORT BECAME AWARE OF THESE LOSSES, THE INTERNAL AUDIT DEPARTMENT AUDITED THE EVENTS AND RELATED WEAKNESSES AND PROVIDED RECOMMENDATIONS TO MANAGEMENT
AND FOR OUR ACCOUNTABILITY AUDIT, WE FOLLOWED UP ON THE EXTERNAL CYBER LOSS BY REVIEWING THE PORT'S POLICY AND OPERATING PROCESSES OVER ELECTRONIC FUNDS TRANSFER OR EFT
AND ALTHOUGH THE PORT HAS ESTABLISHED PROTOCOLS, THERE WAS NOT ENOUGH ADEQUATE MANAGEMENT OVERSIGHT TO ENSURE STAFF FOLLOWED THE REQUIRED PROCEDURES
THE PORT WAS ABLE TO RECOVER MAJORITY OF THE FUNDS, WHICH INCLUDES THE RECOVERY FROM BANK INSTITUTIONS AND THE PORT'S INSURANCE POLICY
WHILE THE PORT HAS ACTIVELY BEEN STRENGTHENING THEIR INTERNAL CONTROLS, WE RECOMMEND THE PORT CONTINUE STRENGTHEN THEIR CONTROLS TO ENSURE STAFF FOLLOW VERIFICATION PROCEDURES TO PROTECT EFT TRANSACTIONS FROM INTERNAL AND EXTERNAL THREATS, AND PROVIDE ADEQUATE COMMUNICATION AND TRAINING TO STAFF ON CYBER RISK AND EFT VERIFICATION REQUIREMENTS
AND SO FOR ALL FINDINGS, THE OFFICE PROVIDES AN OPPORTUNITY FOR LOCAL GOVERNMENTS TO INCLUDE THEIR RESPONSE, WHICH YOU'LL FIND IN THE PORT'S RESPONSES INCLUDED IN THE REPORT THERE
LASTLY, WE WANT TO THANK THE PORT AND APPRECIATE THE COURT'S PORT'S COMMITMENT TO RESOLVING THIS FINDING AND WANT TO THANK EVERYONE FOR THEIR COOPERATION AND ASSISTANCE DURING THE AUDIT AND PLAN TO LOOK FORWARD TO REVIEWING THE FOLLOW UP ON THE CORRECTIVE ACTION PLAN
THANK YOU TO THE OFFICE OF THE WASHINGTON STATE AUDIT TEAM FOR THE PRESENTATION
ARE THERE ANY QUESTIONS FOR MY COMMITTEE MEMBERS? GREAT
SO IF THERE'S NO QUESTIONS, WE WILL BE MOVING ON TO THE NEXT ITEM, UNLESS MR FERNANDEZ, I'M GUESSING MR RUDY KALUZA WOULD LIKE TO RESPOND TO THE FINDINGS
SO YOU CAN STAY UP
JOE, MAYBE RUDY, YOU WANT TO SIT UP AND MAYBE ONE OF THE SEATS? WHOEVER? OKAY, THANK YOU
GOOD MORNING, MADAM CHAIR
MOHAMMED AND COMMISSIONER CHO AND PUBLIC MEMBER AND ADVISOR HOMESTEAD
THANK YOU SO MUCH
I'M RUDY KALUZA, DIRECTOR OF ACCOUNTING AND FINANCIAL REPORTING FOR THE PORT OF SEATTLE
WE DO SINCERELY APPRECIATE THE RIGOR AND THE WORK THAT THE STATE AUDITOR'S OFFICE HAS PROVIDED TO THE PORT OF SEATTLE ON THIS ISSUE HERE
I JUST WANT TO BRIEF THE AUDIT COMMITTEE AS WELL AS THE PUBLIC WITH REGARD TO HOW SERIOUS THE PORT OF SEATTLE TAKES OUR RESPONSIBILITY TO ENSURE SOUND STEWARDSHIP OVER PUBLIC FUNDS
SO WHEN THIS HAPPENED IN LATE 2021, MANAGEMENT TOOK IMMEDIATE ACTION AFTER THE FRAUD EXPERIENCE AND WE INSTITUTED RESPONSIBLE RISK MITIGATION MEASURES AND THAT WAS COMPLETED BY EARLY 2022 LAST YEAR
AND THIS DOES ADDRESS THE SAO RECOMMENDATIONS CONTAINED IN THIS YEAR'S AUDIT
AND THE TEAM WILL FOLLOW UP TO AFFIRM THAT WHEN THEY COME BACK WITH THEIR AUDIT
BUT THE DETAILS WERE FULLY SHARED DURING THE COURSE OF THE AUDIT WITH THE STATE AUDITOR'S OFFICE IN FULL DETAIL
WE ALSO INITIATED IMMEDIATELY A POLICE INVESTIGATION
SO MANAGEMENT CONTACTED PORT POLICE AND WE ASKED THAT DETECTIVES BE ASSIGNED AND EFFECT A FULL INVESTIGATION, AND NOT JUST OF THE EXTERNAL CYBERCRIME ATTEMPT AGAINST THE PORT OF SEATTLE, BUT ALSO INTERNALLY FOR DUE DILIGENCE
AND PORT POLICE CONFIRMED THAT THERE WAS NO IMPROPRIETIES WITHIN OUR PORT OPERATIONS OR STAFF, BUT BEFORE THEN THEY HANDED OVER THE INVESTIGATION TO THE FEDERAL AUTHORITIES, BUT WORKED IN PARTNERSHIP AS WELL
AND AS MENTIONED, THERE WAS A LOSS, BUT WE RECOVERED 91% OF IT IN FROZEN BANK ACCOUNTS THROUGH THE FEDERAL AUTHORITY ASSISTANCE, AS WELL AS THE COVERAGE THROUGH THE CRIME INSURANCE, WHICH WAS RELATED TO THE DEDUCTIBLE OF 25,000 PER INCIDENT, WHICH TWO INCIDENCES WERE INVOLVED HERE
SO THE LOSS TO THE PORT WAS ACTUALLY $50,000
BUT THIS REALLY EMPHASIZES THE RESPONSIBLE APPROACH THAT THE PORT OF SEATTLE TAKES WITH REGARD TO WE CAN HAVE INTERNAL CONTROLS, BUT WE ALSO RECOGNIZE THAT, AND IT'S RECOGNIZED IN THE PROFESSIONAL AUDIT INDUSTRY, THAT INTERNAL CONTROLS CAN ONLY PROVIDE REASONABLE, NOT ABSOLUTE ASSURANCE AGAINST FRAUD AND EXPOSURE LOSSES
SO ALONG WITH INTERNAL CONTROLS IN PLACE, THE PORT OF SEATTLE HAS A CRIME INSURANCE POLICY IN EFFECT AND IT LIMITS THE RISK THAT THE PORT HAS WITH REGARD TO PUBLIC FUNDS LOST EXPOSURE, WHICH HAS REALLY PROVEN TO BE WELL SERVED IN THIS EXPERIENCE IN TERMS IT WAS LIMITED TO THE DEDUCTIBLE ALONG WITH THE RECOVERY WITH THE ASSISTANCE OF THE FEDERAL AUTHORITIES
SO THE PORT OF SEATTLE DOES HAVE AND HAS HAD INTERNAL CONTROLS IN PLACE, POLICY PROCEDURAL AS WELL AS SYSTEMIC, AND THEY'RE VERY ROBUST AND THEY HAVE EXISTED AT THE PORT OF SEATTLE AND THEY WERE IN PLACE AT THE TIME OF THE CYBERCRIME EXPERIENCE
AND THIS WAS SHARED IN DETAIL AT THE STATE AUDITOR'S OFFICE AS WELL DURING THE COURSE OF THE AUDIT, IN FULL TRANSPARENCY
HOWEVER, THE PORT CONTROLS IN PLACE, THEY'RE PROVEN TO BE EFFECTIVE FOR MANY YEARS PRIOR, UP TO THE POINT OF THAT EXPERIENCE IN LATE 2021, UNTIL THE IMPOSTER FRAUD AYE
THE PORT OF SEATTLE, THIS WAS THE ONLY INSTANCE WE'VE HAD CYBERCRIME LOSS UP TO THIS POINT OVER THE MANY YEARS
AND SINCE THEN IT'S BEEN 15 MONTHS
AND OUR CONTROLS HAVE PROVEN TO BE EFFECTIVE IN THAT THERE HAVE NOT BEEN ANY FAILURES OR LOSSES OVER THE PAST, SINCE LATE 2021 TO DATE
AND ACTUALLY, THE CAUSE OF THIS, WE REALLY APPLIED DUE DILIGENCE TO REALLY UNDERSTAND WHAT FAILED US HERE
AND SO, DESPITE THE ROBUSTNESS OF CONTROLS IN PLACE, THE HUMAN ELEMENT ALWAYS PLAYS A ROLE, ALWAYS PLAYS A ROLE
AND THIS IS WHAT HAS OCCURRED IN THIS SITUATION IN THE 2021 CYBERCRIME EXPERIENCE
THE AUTOMATED CLEARINGHOUSE BANK ACCOUNT VETTING PROTOCOLS CLEARLY ARE ESTABLISHED IN THE PORT POLICY AND PROCEDURES
THESE WERE UNFORTUNATELY NOT SPECIFICALLY FOLLOWED, AND IT BECAME A POINT OF FAILURE
HOWEVER, IT WAS AN HONEST HUMAN ERROR HERE, BUT NEVERTHELESS, IT'S A RISK, AND WE TOOK IMMEDIATE STEPS TO MITIGATE THAT RISK EXPOSURE
SO WE INSTITUTED REDUNDANCY IN OUR CONTROLS, WHERE IT REQUIRES HUMAN INTERVENTION TO CALL THE SUPPLIERS
WE DO IT TWICE THAT WAY
WE COVER OURSELVES
IT'S THE ONLY WAY
AND WE HAVE OTHER MEASURES WE HAVE INSTITUTED, BUT WE'RE COVERING ALL BASES, SO IT DOES NOT RECUR
AND WE HAVE PROVEN IN THE LAST 15 MONTHS IT HAS NOT RECURRED, AND IT WILL NOT RECUR
SO WE DID ACKNOWLEDGE THIS ELEMENT TO BE A VULNERABILITY FOR THE PORT OF SEATTLE ADULT, BUT ALSO WE NEED TO MAKE SURE THAT OUR EMPLOYEES ARE WELL TRAINED IN CYBER FRAUD TRAINING
SO THAT'S A RECOMMENDATION STATE AUDITORS EMPHASIZED ON AS WELL AS INTERNAL AUDIT
SO IMMEDIATELY AFTER THE FRAUD LOST EXPERIENCE IN 2021, TEAM MEMBERS THAT WERE INVOLVED IN CROSS DEPARTMENTS IN THE CYBER FRAUD EXPERIENCE WERE MANDATED TO TAKE CYBERCRIME FRAUD EXPOSURE TRAINING, AND IT HAS BECOME A MANDATORY ANNUAL REFRESHER
SO FOR THIS YEAR, THE ANNUAL REFRESHER IS SCHEDULED ALREADY WITH INFORMATION SECURITY DEPARTMENT ON APRIL 12 NEXT WEEK, AND IT'LL BE A RECURRING MANDATORY REFRESHER
AGAIN, THIS IS HOW WE'RE ADDRESSING THE RECOMMENDATIONS OF THE AUDIT AS WELL
SO, IN CLOSING, I JUST WANT TO ACKNOWLEDGE THAT THE PORT OF SEATTLE HAS BEEN VERY TRANSPARENT WITH REGARD TO THIS UNFORTUNATE EXPERIENCE
IMMEDIATELY WE INFORMED THE STATE AUDITOR'S OFFICE, AS MR JOEL SIMMONS INDICATED, IN COMPLIANCE WITH STATE LAW, AND THEN THE AUDIT COMMITTEE WAS FULLY BRIEFED BY THE INTERNAL AUDIT WHEN THIS WAS REVIEWED, VERY TIMELY AT FRONT END OF 2022
AND THEN AGAIN, IT WAS MENTIONED IN THE FULL PORT COMMISSION MEETING IN DECEMBER BY INTERNAL AUDIT AS PART OF THEIR BRIEFING TO THE COMMISSION IN TERMS OF THE 2022 AUDITS THAT WERE COMPLETED
AND THERE WERE LITTLE MORE DETAILED SLIDES RELATED TO THIS
AND AGAIN, TRANSPARENCY WITH THE STATE AUDITOR'S OFFICE MAKING VISIBILITY TO THIS IN THEIR 2020
THE PORT TODAY
SO I JUST WANTED TO JUST EMPHASIZE SOME KEY POINTS, AND I SINCERELY APPRECIATE THE RIGOR, AGAIN THAT THE STATE AUDITOR'S OFFICE PROVIDES TO GOVERNMENTS IN THE STATE OF WASHINGTON
THEY BRING A LOT OF VALUE WITH REGARD TO CONTINUOUS PROCESS IMPROVEMENT
AND ON BEHALF OF THE PORT OF SEATTLE, WE'LL APPRECIATE YOUR PRESENCE, AND WE HAVE WORKED SO WELL TOGETHER AND ACTUALLY, I'VE BEEN HERE 23 YEARS, WORKED STATE AUDITORS SINCE, BUT ALSO 21 YEARS BEFORE
I HAVE 44 CAREER, 44 YEAR CAREER WORKING AT KING COUNTY GOVERNMENT
AND WE HAVE BUILT A VERY GOOD RELATIONSHIP HERE
AND SO I ALSO WANT TO MENTION ONE OTHER THING
WE FEEL VERY BADLY WITH REGARD TO AN ACCOUNTING AND FINANCIAL REPORTING TO RECEIVE THIS AS A FINDING, BECAUSE WE'VE NEVER RECEIVED A FINDING EVER FROM THE STATE AUDITOR'S OFFICE AS IT RELATES TO ACCOUNTING, FINANCIAL REPORTING
AND THAT SPEAKS A LOT TO THE TEAM MEMBERS IN ACCOUNTING, FINANCIAL REPORTING
ALL 60 OF US, THEY ARE VERY DEDICATED AND COMMITTED TO PUBLIC FUND STEWARDSHIP, TRANSPARENCY, AND ACCOUNTABILITY
AND WE HAVE PROVEN THAT THROUGH EXTERNAL REVIEW AS WELL
SO WE DO TAKE THIS VERY SERIOUSLY
WE TOOK IMMEDIATE ACTION TO MITIGATE THE RISKS
AND I JUST WANT TO ASSURE THE AUDIT COMMITTEE THAT WE'RE DOING WHAT WE SHOULD BE DOING IS PUBLIC STEWARDS WITH REGARD TO ANY EXPOSURE MITIGATION
SO THANK YOU SO MUCH, MADAM CHAIR
WELL, THANK YOU FOR THAT INFORMATION
IT IS REALLY IMPORTANT FOR THE PUBLIC TO HEAR THAT AND THE SWIFT ACTION THAT YOUR TEAM HAS TAKEN
I KNOW THAT SOME OF OUR COMMITTEE MEMBERS DO HAVE SOME QUESTIONS
I'LL KICK IT TO COMMISSIONER CHILL FIRST
YEAH, THANK YOU
THANK YOU, CHAIR MOHAMMED
FIRST AND FOREMOST, LET ME JUST THANK THE TEAM FOR THEIR SWIFT ACTION ON THIS
OBVIOUSLY, THIS HAS BEEN AN ISSUE WITH MUNICIPALITIES, SPECIAL PURPOSE GOVERNMENTS, STATE GOVERNMENTS, AND QUITE FRANKLY, I'M SURE, IN THE PRIVATE SECTOR AS WELL
AND SO THIS PROBLEM IS NOT UNIQUE TO US
SO I HOPE THE TEAM FINDS A LITTLE SOLACE IN KNOWING THAT THIS IS A WIDESPREAD PROBLEM
ONE THING THAT DID OCCUR TO ME, AND I FULLY TRUST THAT THE PROTOCOLS THAT WE'VE PUT IN PLACE WILL MITIGATE THE RISKS OF THIS FROM HAPPENING IN THE FUTURE
BUT I THOUGHT IT WAS A LITTLE WEIRD TO BEGIN WITH THAT THERE WAS SUCH INFORMALITY IN CHANGING ACH BANKING AND WIRING INFORMATION TO BEGIN WITH
FOR INSTANCE, WHEN SOMEONE PAYS RENT, USUALLY THERE'S LIKE A PORTAL YOU GO INTO AND THERE'S LIKE A LONG PROCESS OF, LIKE, HERE'S TWO DEPOSITS, AND YOU GOT TO CONFIRM THOSE TWO DEPOSITS IN ORDER TO KNOW THAT THIS IS THE RIGHT, CORRECT BANK ACCOUNT AND WHATNOT
AND SO I GUESS THE QUESTION HERE IS, HAVE WE LOOKED AT ANY SOFTWARE PLATFORMS THAT ARE MEANT FOR VENDORS TO GO IN THEMSELVES AND MAKE THOSE CHANGES THAT HAVE ALL THOSE CYBERSECURITY REQUIREMENTS? IT JUST SEEMS A LITTLE OLD SCHOOL FOR US FOR OUR VENDORS TO MAKE A REQUEST FOR A CHANGE IN BANK ACCOUNT AND ROUTING NUMBER AND THEN US TO JUST DO IT ON THE BACK END
I WONDER IF WE'VE LOOKED INTO ANY PLATFORMS OUT THERE THAT MIGHT HELP US AND REMOVE THAT ELEMENT OF OUR STAFFERS HAVING TO DO IT THEMSELVES
THANK YOU
COMMISSIONER CHO, TO ADDRESS ONE FIRST, I APPRECIATE YOUR COMMISSIONER AND YOUR SUPPORT TO PORT STAFF
WE ARE REALLY TAKING EVERY ASPECT OF OUR JOB VERY SERIOUSLY
NOTHING IS PERFECT
SO THANK YOU FOR ACKNOWLEDGING THAT
WITH REGARD TO THE PERCEPTION OF INFORMALITY, THERE'S FORMALITY
WE HAVE SOLID PROCEDURES IN PLACE, POLICY IN PLACE, WE HAVE CHECKLISTS THAT YOU SHALL FOLLOW THIS
WITH REGARD TO THE PROCESS ITSELF, PERHAPS IT COULD BENEFIT FROM THE RIGOR THAT YOU INDICATE AND EXPECT AND WE RESPECT AS WELL
BUT NEVERTHELESS, THERE IS FORMALITY THERE INCLUDING CONTROLS IN OUR SYSTEMS TO MAKE SURE, AND I CAN GO OVER THAT IN DETAIL IN A DIFFERENT VENUE, NOT TO PROVIDE THE PORT'S BLUEPRINT ON CONTROLS HERE
IT'S THE REASON WE KEPT THE RESPONSE TO A HIGH LEVEL AND IT'S PROHIBITED BY RCW AS ABIDE BY STATE AUDITOR'S OFFICE IN PUBLIC SESSION
BUT ALSO WITH REGARD TO YOUR GOOD IDEA, YOU HAD MENTIONED THIS WHEN WE BRIEFED YOU WITH REGARD TO WHY DON'T WE PUT THE ONUS ON THE SUPPLIERS, WE ARE ALREADY ON THE PROCESS
WE HAVE HAD TO RESEARCH THE MARKET TO SEE WHAT'S AVAILABLE
THERE ARE FRONT END SYSTEMS TO OUR FINANCIAL SYSTEMS THAT ARE AVAILABLE IN THIS CONTEXT, AS YOU DESCRIBE
WE ARE IN THE PROCESS RIGHT NOW OF DEVELOPING THE SCOPE OF WORK AND THE REQUEST FOR PROPOSAL AND WE'LL BE LAUNCHING THIS OUT VERY SHORTLY
BUT WHAT IT WOULD REQUIRE IS, AND THIS IS THE INFORMALITY PERHAPS IS GATHERING THE INFORMATION FROM SUPPLIERS AND THEN ENTERING IN AND THE METHOD OF COMMUNICATION IS EMAIL, WHICH IS VULNERABLE
SO WHAT WE'RE GOING TO DO, AND WE TOOK YOUR IDEA, COMMISSIONER CHO, IS WE'RE GOING TO HAVE A FRONT END SYSTEM AND WE'RE GOING TO TELL THE SUPPLIERS YOU WANT TO DO BUSINESS WITH THE PORT, YOU GO TO THIS ONLINE SYSTEM AND YOU PUT IN
SO EVERYTHING THAT'S REQUIRED OF OUR PURCHASING AGENTS TO OBTAIN FROM THE SUPPLIERS, WE DON'T TOUCH THAT ANYMORE
ANYTIME WE HAVE HUMAN INTERVENTION, WE HAVE AREAS FOR ERROR
SO IN THAT CONCEPT, WE'RE TELLING THE CONTRACTORS TO GO TO THIS SYSTEM, ENTER ALL THE REQUIRED INFORMATION, INCLUDING YOUR ACH, AND THEN WE'RE GOING TO AUGMENT THAT WITH ACH VALIDATION VERIFICATION SERVICE WITH THE BANKS
AND THIS IS A LOT OF CREDIT TO THE PORT TREASURER, DIANE CAMPBELL, SUPPORTING US, WORKING WITH THE SENIOR MANAGER DISBURSEMENTS ELOISE OLIVAR
AND WE WILL SOON BE EFFECTING A SUPPORT FROM US BANK TO PROVIDE THAT BANK ACCOUNT VERIFICATION SERVICE AS WELL
WITH REGARD TO IS IT GOOD OR NOT OR MAYBE WE'LL HAVE TO LOOK IN A LITTLE MORE, BUT THERE IS GOING TO BE A LOT MORE RIGOR
BUT IT TOOK TIME TO GET TO CERTAIN THINGS FOR VARIOUS REASONS
BUT WE ARE THERE THIS YEAR AND WE'RE GOING TO GET THERE THIS YEAR ON THE BANK ACCOUNT VERIFICATION SERVICE
WE GET THERE VERY QUICKLY
WE'RE ALREADY UNDERWAY WORKING OUT THE NEGOTIATIONS WITH THE US BANK AND THEN THE OTHER WILL GO OUT TO RFP AND THEN WE'LL BE ABLE TO IDENTIFY A SYSTEM
BUT THE GOAL AGAIN IS TO AUGMENT IT TOGETHER SO IT HAPPENS MORE SEAMLESS
RIGHT NOW IT'S A TWO SEPARATE ENVIRONMENT, BUT IMPLEMENT IT AT ASFP IN VARIOUS PIECES, BUT ULTIMATELY, WHEN IT GRADE IT
SO THAT DEFINITELY WILL ADDRESS WHAT YOU'RE ASKING US
COMMISSIONER CHO, WITH REGARD TO THIS, AND WE'RE ALREADY ON IT
GREAT
I APPRECIATE YOU TAKING THOSE THOUGHTS IN STRIDE
AND I JUST WANT TO MAKE CLEAR FOR THE PUBLIC THAT I'M NOT TRYING TO NECESSARILY PUT THE ONUS ON ANYONE ELSE
I THINK IT'S A PARTNERSHIP AND THE ONUS SHOULDN'T JUST BE ON US
RIGHT
I THINK IF YOU'RE DOING BUSINESS WITH THE PORT OF SEATTLE, YOU'RE DOING BUSINESS WITH THE PUBLIC SECTOR ENTITY AND YOU SHOULD TAKE CYBERSECURITY AND ALL THESE OTHER THINGS JUST AS SERIOUSLY AS WE DO
AND SO I THINK HAVING BOTH SIDES RESPONSIBLE FOR THINGS, REALLY IMPORTANT, THINGS LIKE HOW ARE WE PAYING PEOPLE IS REALLY IMPORTANT
SO I APPRECIATE YOU TAKING THAT RECOMMENDATION AND THOSE THOUGHTS AND RUNNING WITH IT
SO I LOOK FORWARD TO SEEING THAT BEING IMPLEMENTED
THANK YOU
COMMISSIONER CHO, IT'S ALWAYS A CHOICE OF WORDS, BUT DEFINITELY THE KEY POINT HERE
AS AN ELECTED OFFICIAL, YOU'RE PROVIDING DIRECTIVE TO STAFF TO ENSURE THERE'S RIGOR AND DUE DILIGENCE AND DISCIPLINE
AND THAT'S WHAT WE'RE IMPLEMENTING HERE
AND IT DOES REQUIRE PARTNERSHIP, BUT WE WILL ALSO HOLD OUR CONTRACTORS ACCOUNTABLE AS WELL TO PLAY THEIR ROLE
THANK YOU
COMMISSIONER SHAW, I HAVE ACTUALLY A QUICK FOLLOW UP QUESTION TO THAT
I IMAGINE YOUR DEPARTMENT DOESN'T MANAGE EVERY SINGLE ELECTRONIC FUND TRANSFERS, AND SO I'M WONDERING WHAT OTHER DEPARTMENTS ARE DOING, AND MAYBE THIS IS FOR DIRECTOR FERNANDEZ, HAS THESE PRACTICES HAVE BEEN STREAMLINED? I HEAR THAT YOUR TEAM WILL BE DOING SOME NEW TRAININGS AND GETTING SOME REFRESHMENTS
IS THAT THE SAME FOR OTHER DEPARTMENTS ACROSS THE ORGANIZATION? COMMISSIONER, FIRST WE'LL TALK ABOUT TRAINING A LITTLE BIT MORE IN NON PUBLIC SESSION
WE DID DO HAVE A FULL AUDIT ON THAT THAT WE'LL BRIEF YOU ON AS FAR AS OTHER TYPES OF TRANSFERS
AND THIS WAS ACH TRANSFERS THAT FAILED
THERE ARE WIRE TRANSFERS THAT ARE DONE FOR LARGER AND DIFFERENT AMOUNTS, I BELIEVE
DID YOU GUYS LOOK AT WIRE TRANSFER CONTROLS OR JUST ACH? NO
SO WE HAVE AN OPPORTUNITY TO LOOK AT WIRE TRANSFER CONTROLS AS A WHOLE, SO WE'LL PUT THAT ON THE LIST AND MOVE FORWARD
AND THERE ARE OTHER VULNERABILITIES THAT WE ALWAYS NEED TO BE AWARE OF AND KEEP WORKING AT BECAUSE THE CYBERCRIMINALS KEEP GETTING BETTER AND BETTER
AND THEN ALSO TO COMMISSIONER CHO'S POINT, THE FAILURE FOR THE ACH FRAUD STARTED AND OCCURRED AT SMALL BUSINESSES AT SEATTLE PARKS AND URBAN LEAGUES
THEIR SYSTEMS WERE COMPROMISED FIRST, WHICH ALLOWED THE FRAUDSTERS TO BE ABLE TO IMPERSONATE THEM AND THEN DUPE THE PORT THEREAFTER
SO, YES, ABSOLUTELY
WORKING WITH SMALL BUSINESSES AND ANY BUSINESS THAT WANTS TO DO BUSINESS WITH THE PORT IS IMPORTANT, CRITICAL
ABSOLUTELY NO
THANK YOU FOR THAT ANSWER
I THINK, LIKE YOU SAID, THESE FRAUDSTERS ARE GETTING MORE SOPHISTICATED, WHICH IS PROBABLY WHY WE'RE SEEING MORE OF THESE ACTIVITIES HAPPENING TODAY
AND AS WE USE TECHNOLOGY MORE, I THINK WE'LL SEE MORE OF THIS
SO I THINK BEING ABLE TO USE THIS ONE PARTICULAR SITUATION AS AN EXAMPLE TO ENSURE THAT ALL OF OUR CONTROLS ACROSS THE BOARD IS INTACT AND WE'RE GETTING AHEAD OF THESE THINGS WILL BE REALLY IMPORTANT
SO IS THERE ANY OTHER INFORMATION THAT WE HAVE FROM THE WASHINGTON STATE AUDITOR'S OFFICE? WE DO HAVE A FEW MORE SLIDES WE CAN GO THROUGH IF WE HAVE TIME
PLEASE DO
OKAY, SO ANOTHER THING TO BE AWARE OF IS WE ALSO, AS A PART OF OUR AUDIT, LOOKED AT THE PORT OF SEATTLE'S INDUSTRIAL DEVELOPMENT CORPORATION
THIS WAS AN ASSESSMENT AUDIT COVERING JANUARY 1, 2019 THROUGH DECEMBER 31, 2021
WE'RE PLEASED TO REPORT NO ISSUES AND NO RECOMMENDATIONS DURING THAT AUDIT, AND WE WOULD LIKE TO THANK SCOTT FREDERICK FOR AYE
ASSISTANCE DURING THAT AUDIT AS WELL
WE ALSO PERFORMED A REVIEW OF THE FINANCIAL AND FEDERAL AUDIT WORK PERFORMED BY A CPA FIRM, WHICH WE TALK ABOUT ON THE NEXT SLIDE
WE REVIEWED THEIR WORK AT THE START OF THE AUDIT TO SEE IF THERE'S ANY RISK WE CAN CONSIDER AS A PART OF OUR AUDIT AND ALSO ANY WORK WE CAN LEVERAGE
WE ALSO REVIEW IT TO SEE IF WE CAN ACCEPT THEIR AUDIT AND MOVE OUR OWN AUDIT
AND WE'RE PLEASED TO REPORT NO ISSUES WERE NOTED DURING THAT REVIEW
AND ON THE NEXT SLIDE, WE JUST HAVE A FEW OTHER CLOSING REMARKS
FIRST OFF, WE'RE HAPPY TO REPORT THAT OUR AUDIT COST IS IN ALIGNMENT WITH OUR ORIGINAL ESTIMATE, AND A LOT OF THAT IS DUE TO THE TIMELY RESPONSES FROM THE PORT STAFF
SO WE REALLY DO THANK YOU ALL FOR RESPONDING TO OUR REQUEST TIMELY
WE'VE INCLUDED AN ESTIMATE OF THE NEXT AUDIT IN THE EXIT PACKET FOR YOU
THAT AUDIT WILL ONCE AGAIN BE AN ACCOUNTABILITY AUDIT
AND ON THE NEXT SLIDE, WE EXPECT TO PUBLISH OUR AUDIT REPORT HERE LATER TODAY
IF YOU HAVEN'T ALREADY, YOU CAN SIGN UP TO BE NOTIFIED VIA OUR WEBSITE
AS A PART OF THAT, YOU CAN ALSO SUBSCRIBE TO OTHER HELPFUL NEWSLETTERS, TIPS, AND TRICKS THAT OUR OFFICE PUBLISHES AND EMAILS PERIODICALLY
ONCE WE PUBLISH THE AUDIT REPORT, WE WILL ALSO SEND AN AUDIT SURVEY
WE REALLY APPRECIATE ANY AND ALL FEEDBACK YOU CAN PROVIDE TO HELP US CONTINUE TO IMPROVE OUR AUDIT AND SERVICES
ON THE NEXT SLIDE, WE ALSO WANT TO PARTNER WITH GOVERNMENTS THROUGHOUT THE YEAR, NOT JUST DURING THE AUDIT
SO WE WANT TO MAKE SURE YOU'RE AWARE OF TWO OTHER TEAMS OUR OFFICE HAS
THE FIRST IS A LOCAL GOVERNMENT SUPPORT TEAM
THEY PROVIDE TRAINING STATEWIDE YEAR ROUND AND ALSO VIRTUAL TRAININGS TO ASSIST GOVERNMENTS COMPLETE THEIR ANNUAL FINANCIAL REPORT
THEY ALSO HAVE A CLIENT PORTAL THAT INCLUDES A HELP DESK SO YOU CAN SUBMIT ANY TECHNICAL QUESTIONS THROUGHOUT THE YEAR
WE ALSO HAVE THE CENTER FOR GOVERNMENT INNOVATION, WHICH PROVIDES TRAININGS ON PROCESS IMPROVEMENTS AND FACILITATIONS AND LEAN PROCESSES AND IMPROVEMENTS, AS WELL AS TEAM BUILDING WORKSHOPS
THEY ALSO RUN THE FINANCIAL INTELLIGENCE TOOL WHICH YOU CAN USE TO LOOK AT YOUR FINANCIAL CONDITION IN COMPARISON TO OTHER SIMILAR GOVERNMENTS
AND THESE TEAMS ARE BOTH AVAILABLE AT NO ADDITIONAL COST
AND THEN ON THE NEXT SLIDE, I BELIEVE I'LL BE TURNING IT BACK OVER TO ANGELA FOR A FEW LAST MINUTE COMMENTS
THANKS, MADDIE
BEFORE WE WRAP UP OUR PRESENTATION TODAY, WE'D LIKE TO THANK PORT MANAGEMENT AND THEIR OFFICIALS FOR ASSISTANCE AND COOPERATION DURING THE AUDIT
WE SPECIFICALLY WANT TO EXTEND OUR THANK YOU TO RUDY, GLENN, DON AND MELANIE FOR OUR WEEKLY MEETINGS THAT WE WOULD HAVE AND JUST HAVE THE AUDIT RUN SMOOTHLY
AND SO IN THE SLIDE HERE, WE WON'T MENTION EVERYONE, BUT JUST WANTED TO GIVE SPECIAL THANKS TO EVERYONE IN THE DEPARTMENTS THAT HELPED US
NEXT SLIDE, PLEASE
THANK YOU
SO THIS CONCLUDES OUR PRESENTATION TO THE PORT OF OUR FISCAL YEAR 2021 ACCOUNTABILITY AUDIT
AND SO WE'D LIKE TO THANK EVERYONE AGAIN FOR THEIR TIME FOR OUR PRESENTATION
AND AT THIS POINT, IF THERE'S ANY ADDITIONAL QUESTIONS, FEEL FREE TO WELL, WE THANK YOU SO MUCH FOR THIS AUDIT THAT YOU'VE CONDUCTED AND ENSURING THAT WE HAVE STRONG INTEGRITY IN OUR GOVERNMENT OPERATIONS, AS WELL AS ENSURING THAT WE ARE BEING TRANSPARENT AND ACCOUNTABLE TO THE PUBLIC AND BEING GOOD STEWARDS OF PUBLIC DOLLARS
SO I REALLY DO APPRECIATE THE WORK YOU'VE DONE AND IT'S GREAT TO HEAR THE PARTNERSHIP THAT YOU'VE HAD WITH PORT STAFF
AND I WANT TO ALSO EXTEND GRATITUDE TO ALL THE PORT STAFF MEMBERS WHO'VE PARTICIPATED IN THIS AUDIT
IS THERE ANY ADDITIONAL INFORMATION BEFORE I TURN IT OVER? SO I WILL TURN IT OVER TO MY COLLEAGUES
DO YOU GUYS HAVE ANY QUESTIONS? NO QUESTIONS
I JUST ALSO WANTED TO ECHO THE SENTIMENTS OF GRATITUDE TOWARDS OUR STAFF, OBVIOUSLY FOR THEIR TEAMWORK AND COOPERATION, BUT ALSO TO THE STATE AUDITOR'S OFFICE
REALLY APPRECIATE JOE, MADDIE, AND ANGELA FOR ALL YOUR GUYS' GREAT WORK
IT'S ALWAYS A PLEASURE TO HEAR FROM YOU AND WORK WITH YOU AND SO REALLY APPRECIATE THE PARTNERSHIP HERE AND LOOKING FORWARD TO MORE GOING FORWARD
IF THERE'S NO ADDITIONAL QUESTIONS FOR THE STATE AUDITOR'S OFFICE OR PORT MANAGEMENT AT THIS TIME, WE'LL BE MOVING ON TO THE NEXT TOPIC
THANK YOU
THAT BRINGS US TO ITEM NUMBER FOUR ON THE AGENDA, WHICH IS THE DIRECTOR'S ANNUAL COMMUNICATION, INDEPENDENCE, INTERNAL AUDIT, CHARTER, QUALITY ASSURANCE AND FOLLOW UPS
GLENN, PLEASE PROCEED WITH THE UPDATE
THANK YOU, COMMISSIONER
AND THANK YOU, MICHELLE
NEXT SLIDE, PLEASE
MICHELLE COMMISSIONERS, ONE OF THE THINGS I WANT TO START OFF BY JUST SHOWING THE PUBLIC AND YOU OUR INTERNAL AUDIT ORGANIZATION AND GIVING YOU A QUICK OVERVIEW
WE DO OPERATIONAL AUDITS, WHICH WOULD BE DAN CHASE AND TEAM AND CONCESSION AUDITS
WE SPEND A LOT IN CAPITAL
SO SPENCER BRIGHTON TEAM DOES A LOT OF STUFF ON THE CAPITAL AUDITS IN THE CAPITAL FRONT AND CONSTRUCTION SPEND AND THEN ON THE IT SIDE AND THE CYBERSECURITY SIDE, WHICH WE HEARD ABOUT TODAY A LITTLE EARLIER, IT'S BRUCE KLAUSAL AND AYE
TEAM AND
THE IMPORTANCE OF THAT IS BECOMING MORE AND MORE EACH DAY WITH TECHNOLOGY CHANGES
MICHELLE
NEXT SLIDE, PLEASE, COMMISSIONER
WE FOLLOW TWO STANDARDS
ONE ARE THE INTERNATIONAL PROFESSIONAL PRACTICES FRAMEWORK
THEY'RE GOING TO BE SOON CALLED THE GLOBAL INTERNAL AUDIT STANDARDS AND WE ALSO CALL THEM THE RED BOOK
SO IT'S A RED BOOK AND IT'S ACCORDINGLY AN EASY WAY TO REMEMBER IT
AND THE YELLOW BOOK OVER THERE, THOSE ARE US GOVERNMENT AUDITING STANDARDS
SO WE FOLLOW BOTH
THE GOVERNMENT AUDITING STANDARDS ALSO SAYS, HEY, IF YOU'RE AN INTERNAL ORGANIZATION, IT'S GOOD TO ALSO USE THE RED BOOK
SO WE USE BOTH AS THEY RECOMMEND AND WE FOLLOW BOTH
THEY'RE NOT MATERIALLY DIFFERENT, THEY BASICALLY DRIVE YOU TO SIMILAR THINGS, BUT SOME REQUIRE MORE SPECIFIC ITEMS NEXT SLIDE, PLEASE, MICHELLE
COMMISSIONER, ONE OF THE REQUIREMENTS OF THOSE STANDARDS IS THAT ON AN ANNUAL BASIS I COME BACK AND I COMMUNICATE TO YOU THAT I CONTINUE TO BE INDEPENDENT AND I SHARE MY CHARTER WITH YOU AND THE PUBLIC
I TALK A LITTLE BIT ABOUT OUR QUALITY ASSURANCE PROGRAM, WHICH IS LOOKING AT OURSELVES AND MAKING SURE THAT WE'RE FOLLOWING THE STANDARDS AND DOING THE RIGHT THINGS
AND THEN WHEN YOU DO AN AUDIT, YOU ALSO WANT TO MAKE SURE THAT THE ISSUES ARE BEING ADDRESSED AND THE REPORT IS NOT PUT IN A SHELF AND NOBODY FOLLOWS UP ON IT
NEXT SLIDE, PLEASE, MICHELLE SO, COMMISSIONERS ON OUR INDEPENDENCE REQUIREMENT, THIS IS JUST MY STATEMENT THAT I NEED TO MAKE PUBLICLY TO SAY THAT WE CONTINUE TO MAINTAIN ORGANIZATIONAL INDEPENDENCE
WE REPORT FUNCTIONALLY TO YOU, TO THE AUDIT COMMITTEE, AND ADMINISTRATIVELY TO THE EXECUTIVE DIRECTOR, STEVE SO WE'RE DUAL REPORTS
NEXT SLIDE, PLEASE, MICHELLE
THE CHARTER IS ATTACHED TO THE PACKET IN DETAIL, BUT ESSENTIALLY THE INTERNAL AUDIT CHARTER FOR THE PORT OF SEATTLE TALKS ABOUT OUR AUTHORITY AND ACCOUNTABILITY, THE MISSION AND SCOPE OF WHAT WE DO, OUR RESPONSIBILITY, OUR NEED TO BE INDEPENDENT AND OBJECTIVE, WHICH WE ARE, AND CONSTANT COMMITMENT TO QUALITY, TO DO THE BEST AND IMPROVE EVERY DAY AT WHAT WE DO
NEXT SLIDE, PLEASE, MICHELLE SO THOSE TWO BOOKS THAT I SHOWED YOU, THE RED BOOK AND THE YELLOW BOOK, BOTH HAVE QUALITY ASSURANCE REQUIREMENTS
THE YELLOW BOOK, WHICH IS THE GOVERNMENT AUDITING STANDARDS, SAYS WE NEED AN EXTERNAL PEER REVIEW EVERY THREE YEARS
SO AN EXTERNAL FIRM THAT'S CERTIFIED, IT'S USUALLY ONE OF OUR PEERS, BUT THEY HAVE TO BE CERTIFIED IN THESE PEER REVIEWS, COMES OVER AND LOOKS AT THE WORK WE DID
AND WE HAD ONE LAST YEAR AND I MENTIONED THAT WE DID PASS, WHICH IS THE HIGHEST RATING, AND THEN THE RED BOOK REQUIRES IT EVERY FIVE YEARS
BUT THEY ALSO REQUIRE INTERNAL QUALITY ASSESSMENTS
AND WE HAVE A TEAM IN HOUSE, AN INDIVIDUAL THAT'S TRAINED AND DOES THIS AND SHE LOOKS INTERNALLY RUMI OKUMA
AND SHE ALSO PARTNERS WITH OTHER ORGANIZATIONS AND IT'S AN OPPORTUNITY
WELL, WHEN WE HAVE THEM COME IN AT VIRTUALLY NO COST TO US AND DO A PEER REVIEW, WE'VE GOT TO RECIPROCATE AND SEND OUT STAFF SOMEWHERE IN THE COUNTRY AT LEAST ONCE A YEAR TO DO A PIER REVIEW OF SOMEBODY ELSE AND ANOTHER GOVERNMENT ENTITY OR AIRPORT
SO WE DO DO THAT AND WE'RE IN THE PROCESS
WE WILL BE DOING INTERNAL SELF ASSESSMENT LATER THIS YEAR
NEXT SLIDE, PLEASE, MICHELLE
SO, OPEN ISSUE, FOLLOW UP
WE HAVE AUDIT FINDINGS AND BE IT ACH OR ANYTHING ELSE, THEY END UP ON THIS CHART
THEY'RE ALL IMPORTANT IF THEY'RE ON THIS CHART AND WE BRING THIS TO THE COMMITTEE'S ATTENTION ON A PERIODIC BASIS, IF IT'S A HIGHER RISK OR MEDIUM RISK ISSUE, IT'LL GET NOTED AND WE'LL COMMUNICATE THAT AND WE'LL ALSO WORK WITH MANAGEMENT TO MAKE SURE THAT THESE ARE BEING ADDRESSED AND CLOSED OUT
THERE HAS BEEN PROGRESS, THE NUMBERS HAVE BEEN GOING DOWN
THEY WENT UP A LITTLE BIT DURING COVID BUT NOW MANAGEMENT IS ADDRESSING THE ITEMS AND WE WERE AT 34 OPENED ITEMS LAST QUARTER IN TOTAL
WE ADDED A FEW AND TOOK AWAY A FEW, BUT THE NET EFFECT IS DOWN TO 31
SO WE ARE MOVING IT TRENDING IN THE RIGHT DIRECTION AND SAME ON THE RIGHT HAND SIDE, OUTSTANDING ISSUES AND TARGET DATE, THERE WAS A NET REDUCTION OF ABOUT THREE THERE AS WELL
SO WE DO HAVE SOME OPEN ISSUES HERE THAT I'VE NOTED AND I'LL STOP THERE BEFORE MOVING ON TO THE NEXT ITEM COMMISSIONER AND TAKE ANY QUESTIONS THAT MIGHT THIS IS ITEM FIVE, BY THE WAY
I GUESS I KNOW THAT YOU GO OVER THIS AND WE TALK ABOUT IT AS FAR AS OUTSTANDING ISSUES, BUT IT STILL SEEMS LIKE, I MEAN, ESPECIALLY WHEN YOU SEE IT GRAPHICALLY, WE HAVE MORE OUTSTANDING, MORE THAN TWO YEARS THAN ANYTHING ELSE AND THAT'S JUST CONCERNING ME
AND I KNOW WE'VE TALKED THROUGH SOME OF THESE ON SPECIFICS AND THEY'RE WORKING THROUGH THINGS, BUT IT JUST SEEMS LIKE THERE'S A LOT OF WORK THAT GOES INTO THIS AND WE STILL HAVE QUITE A FEW SITTING THERE OUTSTANDING AND THAT'S CONCERNING TO ME
SO I KNOW YOU SAID WITH COVID COMING OUT OF COVID WE'RE MAKING PROGRESS AND WE'RE NET DOWN, BUT IT STILL IS, I GUESS, A LARGE NUMBER
SO ARE WE REGULARLY CHECKING IN WITH THESE PEOPLE OR WHAT IS OUR PROCESS ON YOUR GUYS' INTERNAL PROCESS FOR FOLLOWING UP WITH THESE TO MAKE SURE THIS PRODUCES? WELL, AS OF RIGHT NOW, WE FOLLOW UP WITH THEM ON A QUARTERLY BASIS AND WE REPORT BACK TO THE COMMITTEE ON A QUARTERLY BASIS
THE ITEMS THAT YOU SEE HIGHLIGHTED THERE, CONCOURSE CONCESSIONS, ANE AND IT INFORMATION TECHNOLOGY IS CLEARLY THE LARGEST AND WE'LL TALK A LITTLE BIT MORE ABOUT THAT IN NON PUBLIC SESSION
SOME OF THOSE ITEMS TAKE A LONG TIME
WHEN YOU'VE GOT TO RECONFIGURE AN AIRPORT, YOU'VE GOT ON A DISASTER RECOVERY PLAN, FOR INSTANCE, OR SOMETHING, THEY'RE STILL IMPORTANT, THEY'RE STILL UP THERE AND WE'LL GET INTO MORE SPECIFICS ON THOSE LATER TODAY
ON THE OTHER TWO, WE ARE PUSHING THEM, ADDRESSING THEM ON AN E
WE DID CLOSE OUT ONE OF THE ISSUES OVER THE LAST QUARTER, AND WE ARE ACTIVELY WORKING WITH CPO TO ADDRESS THOSE
BUT I WANTED TO KNOW ANY OTHER QUESTIONS? I HAVE A QUICK FOLLOW UP ON THAT
I KNOW THAT YOU GUYS ARE FOLLOWING UP WITH THESE AGING REPORTS QUARTERLY, ON A QUARTERLY BASIS
AND YOU DO REPORT DO YOU REPORT EACH ONE OF THOSE TO US EVERY QUARTER? I COME BACK TO THE AUDIT COMMITTEE
OKAY, THAT'S REALLY HELPFUL
YOU CAN PROCEED WITH THE PRESENTATION
AND COMMISSIONER, THE HIGHLIGHTED ONES THAT I'VE GOT UP HERE, THERE ARE ELEVEN ISSUES THAT HAVE BEEN OUTSTANDING FOR MORE THAN A YEAR FROM TARGET DATE
I'VE KIND OF HIGHLIGHTED THOSE FOR THE COMMISSION AND FOR THE PUBLIC
AND SOME OF THEM, COMMISSIONER, I'M GOING TO HAND IT BACK TO YOU BECAUSE WE'RE GOING TO MOVE TO ITEM SIX NEXT, AND I'M GOING TO INTRODUCE A COUPLE OF MEMBERS OF MY TEAM
ACTUALLY, ITEM SIX ON THE AGENDA, MICHELLE AND I CAN JUST MOVE FORWARD IF YOU WANT TO
NEXT SLIDE, PLEASE
OKAY, I'LL MOVE US TO ITEM NUMBER SIX
ON THE AGENDA IS AN UPDATE ON THE INTERNAL OUTREACH PROJECT
GLENN, PLEASE PROCEED WITH THE PRESENTATION
SO, COMMISSIONER MOHAMMED, I'M GOING TO ASK A COUPLE OF MEMBERS OF MY TEAM THAT DID THE WORK ON THIS TO COME UP
SO RUMI OKUMA SENIOR JOURNAL AUDITOR AND BRUCE PLAZA ARE MANAGER OF IT AUDIT
BOTH OF THEM HAVE WORKED, PUT A LOT OF EFFORT IN, AND AMAZINGLY MADE A LOT OF PROGRESS
SO I FIGURED IT BEST THAT THEY COME UP AND TALK ABOUT WHAT THEY'VE DONE
REMEMBER, COMMISSIONER, THIS IS YOUR DISCUSSION THAT YOU INITIATED ABOUT LAST YEAR ON HOW DO WE REACH OUT TO THE PUBLIC AND PROVIDE MORE INFORMATION AND VALUE TO THEM
AND IT'S A LARGER PROJECT BECAUSE IT'S NOT ONLY THE WEBSITE, BUT THERE'S MORE THAT BRUCE AND RIDICULE WILL TALK ABOUT I'M SORRY, BRUCE AND RUMI WILL TALK ABOUT AS WE MOVE FORWARD
SO, RUMI, IF YOU WANT TO INTRODUCE YOURSELF AND PROCEED
GOOD MORNING, COMMISSIONERS AND MS HOLMESTROM
MY NAME IS RUMI OKUMA
AS GRAHAM MENTIONED, WE IMMEDIATELY STARTED TAKING ACTION AFTER THE SEPTEMBER AUDIT COMMITTEE MEETING AND INITIATED THIS OUTREACH PROJECT WITH TWO MAIN GOALS
FIRST GOAL IS TO PROMOTE THE AWARENESS AND UNDERSTANDING OF THE PORT'S INTERNAL AUDIT PROCESS AND SIGNIFICANCE OF INTERNAL CONTROLS AND RISK MITIGATION THROUGH OUTREACH, EDUCATION, AND SOCIALIZATION
SECOND GOAL IS TO HELP SMALL ENTITIES THAT SUPPORT THAT BUSINESS WITH AND THAT HAVE LIMITED RESOURCES TO EDUCATE AND TRAIN THEIR STAFF ON INTERNAL CONTROLS
AS DISPLAYED IN THE TABLE
THIS PROJECT HAS TWO PHASES
FIRST PHASE WAS TO ENHANCE INTERNAL AUDITS WEBSITE, WHICH WE COMPLETED BY THIS JANUARY
PHASE TWO IS TO DEVELOP AND IMPLEMENT INTERNAL CONTROLS TRAINING
THIS EFFORT IS IN PROGRESS AND COMPLETION IS ANTICIPATED TOWARDS THE END OF THE SECOND QUARTER OF THIS YEAR
NOW, BRUCE KRAUSEL, OUR IT AUDIT MANAGER, WHO WAS THE MAIN CONTRIBUTOR TO PHASE ONE, WILL WALK YOU THROUGH OUR ENHANCED WEBSITE
GOOD MORNING, EVERYONE
SO I'M BRUCE CLAUSALL, THE PORT IT AUDIT MANAGER
AND SO MICHELLE, NEXT SLIDE
AND SO WE TOOK OUR WEBSITE AND MADE A FEW CHANGES TO IT
ACTUALLY, THE FIRST THING WE DID WAS WE UPDATED YOUR PICTURES TO MAKE THEM MORE STANDARDIZED WITH THE COMMISSION WEBSITE PICTURES
WE HAD DIFFERENT PICTURES ON THERE
SO ON THE RIGHT SIDE, WE ADDED THESE FOUR NEW SECTIONS TO OUR WEBSITE
THE FIRST SECTION IS ONE THAT CONTAINS ALL OF OUR EXTERNAL PEER REVIEWS
THE SECOND SECTION IS FOR IT DOCUMENTS THE INTERNAL AUDIT PROCESSES THAT WE USE
THE THIRD SECTION IS MORE OF A GENERAL AUDIT RESOURCE PAGE, AND THE FOURTH SECTION IS MORE OF A CYBERSECURITY RESOURCES PAGE
MICHELLE, NEXT SLIDE, PLEASE
SO THE FIRST SECTION WE ADDED WAS FOR OUR EXTERNAL PEER REVIEWS
AND SO WE HAVE REQUIREMENTS AND OBJECTIVES ON THE PAGE
AND BASICALLY THE EXTERNAL PEER REVIEWS ARE THE AUDITORS BEING AUDITED
AND WE HAVE THIS DONE EVERY THREE YEARS
AND SO THIS PAGE KIND OF EXPLAINS WHAT GOES INTO THAT
AND IT HAS ALL THE AUDIT DOCUMENTS THE REVIEWS FROM 2012 TO THE LAST ONE WE HAD DONE LAST YEAR IN 2022 FOR PEOPLE TO LOOK AT AND READ
MICHELLE, THE NEXT PAGE, THE NEXT SECTION WE ADDED WAS FOR OUR INTERNAL AUDIT, THE WAY WE DO OUR INTERNAL AUDITS
BASICALLY, WE HAVE TWO KINDS OF AUDITS
WE HAVE PERFORMANCE AUDITS AND CONTRACT COMPLIANCE AUDITS
AND THIS PAGE KIND OF DESCRIBES BOTH OF THEM
AND IT ALSO INCLUDES A GRAPHIC DESCRIPTION OF HOW WE DO EACH ONE OF THOSE AUDIT PROCESSES
SO MICHELLE, THE NEXT PAGE
SO HERE'S AN EXAMPLE OF THAT GRAPHIC FOR HOW WE DO THE PERFORMANCE AUDITS
ONCE AGAIN, IT TALKS ABOUT WHAT IS A PERFORMANCE AUDIT, WHAT'S IN IT FOR THE PORT STAFF
AND THEN HERE'S, THE VARIOUS PHASES WE GO THROUGH
THINGS BELOW THE LINE ARE KIND OF LIKE WHAT INTERNAL AUDIT DOES
ABOVE THE LINE IS KIND OF LIKE WHAT THE AUDITEES DO IN ORDER TO PARTICIPATE IN THE AUDIT
AND THAT JUST KIND OF LAYS OUT THE PROCESS OF THOSE AUDITS
MICHELLE, NEXT PAGE
SECOND KIND OF AUDIT WE DO ARE THE CONTRACT COMPLIANCE AUDITS WITH THE CONCESSIONNAIRES, A LOT OF THEM AT THE AIRPORT
AND SO, ONCE AGAIN, THIS TALKS ABOUT WHAT IS A CONTRACT COMPLIANCE AUDIT AND THE STEPS WE GO THROUGH TO COMPLETE TO COMPLETE THE AUDITS
MICHELLE, THE NEXT PAGE
THE THIRD AREA IS THESE ARE THE INTERNAL AUDIT RESOURCES THAT WE USE IN ORDER TO PERFORM OUR AUDITS
THE TOP SECTION IS THE INTERNAL AUDIT STANDARDS THAT WE FOLLOW
THERE ARE TWO OF THOSE, THE INTERNATIONAL STANDARDS, WHICH IS COMMONLY CALLED THE RED BOOK, AND THE GOVERNMENT AUDITING STANDARDS, COMMONLY CALLED THE YELLOW BOOK
WE FOLLOW BOTH OF THOSE IN PERFORMING ALL OF OUR AUDITS
AND THEN DOWN BELOW WE LIST A LIST OF PROFESSIONAL ORGANIZATIONS THAT WE LOOK TO TO HELP US WITH OUR AUDITS
MICHELLE, THE NEXT PAGE
THE LAST AREA THAT WE ADDED TO THE WEBSITE WAS A CYBERSECURITY RESOURCES PAGE, A LOT OF THESE WE USE AND A LOT OF THESE WOULD BE VERY HELPFUL TO SMALL BUSINESSES
THIS TOP SECTION, THE CENTER FOR INTERNET SECURITY AND LIKE THE CIS CONTROLS THAT IT SAYS THERE, THOSE ARE THE ACTUAL 18 CONTROL AREAS THAT WE ARE CURRENTLY DOING OUR OWN INTERNAL AUDITS ON
WE'VE BEEN WORKING FOR FIVE YEARS, WORKING DOWN THE LIST OF THOSE 18 CONTROL AREAS
AND THEN BELOW THAT, WE HAVE LINKS FOR THE CYBERSECURITY AND INFRASTRUCTURE SECURITY AGENCY
THIS IS THE MAIN FEDERAL AGENCY FOR CYBERSECURITY
THEY'RE QUITE BIG AND VERY HELPFUL
THEIR WEBSITE CONTAINS A SLEW OF THINGS THAT ARE HELPFUL TO SMALL BUSINESSES AND LARGE BUSINESSES
THEY EVEN HAVE A SECTION OF THEIR WEBSITE WHERE YOU CAN GO AND REQUEST THEIR ASSISTANCE TO HELP YOU
I DON'T ACTUALLY KNOW HOW THAT WORKS, BUT IT LOOKS GOOD
DOWN BELOW THAT, WE HAVE THE INSTITUTE OF NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY, NIST, WHICH HAS THEIR CYBERSECURITY FRAMEWORK, WHICH ACTUALLY IS WHAT THE PORT FOLLOWS FOR OUR MAIN FRAMEWORK WE FOLLOW FOR OUR CONTROLS ON THE RIGHT, WHICH IS ACTUALLY IF YOU LOOK AT THE WEB PAGE, IT JUST CONTINUES ON DOWN THE PAGE
WE HAVE SOME SMALL BUSINESS EXPLOITS, THINGS THAT WE THOUGHT WOULD BE MOST HELPFUL TO SMALL BUSINESSES WITH CURRENTLY, LIKE THE BUSINESS EMAIL COMPROMISE, WHICH IS WHAT AYE
THE PORT WITH OUR ACH ISSUE LAST YEAR
AND THEN RANSOMWARE AND THEN THE LINKS UNDERNEATH
THOSE ARE BOTH VERY HELPFUL LINKS TO EXPLAIN WHAT THOSE ISSUES ARE AND KIND OF EXPLAIN WHAT YOU CAN DO TO HELP ADDRESS THEM AND MITIGATE THEM AND FIGHT THEM
SO THOSE ARE THE FOUR AREAS THAT WE ADDED TO THE WEBSITE
IF ANYBODY HAS ANY QUESTIONS, HAPPY TO ANSWER THEM OR RUMI CAN CLOSE
SO THE NEXT SLIDE IS RUMI IS GOING TO TALK ABOUT PHASE TWO
YES
THANK YOU, BRUCE
SO FOR PHASE TWO, WE RESEARCH THE INTERNAL CONTROL TRAINING DONE BY SOME STATE AND LOCAL GOVERNMENT AGENCIES AS WELL AS PROFESSIONAL ORGANIZATIONS, AND DESIGNED OUR OWN TRAINING STRUCTURE
SO TRAINING COMPONENTS CONSIST OF RISKS AND CONTROLS
WHY DO WE NEED INTERNAL CONTROLS? BUT WE WILL DISCUSS RISKS FIRST, AS CONTROLS ARE INTENDED TO MITIGATE RISKS
TRAINING WILL BE AN IN PERSON LIVE SESSION WITH SLIDE SHOW OR VIDEO USE AND HANDOUTS AND FLYERS
OF COURSE
TRAINING, SORRY, TARGET AUDIENCE WILL BE BOTH INTERNAL AND EXTERNAL, INTERNALLY FOR PORT MANAGERS AND STAFF, EXTERNALLY FOR THE INDIVIDUALS AND PARTIES WHO ARE INTERESTED IN THE TRAINING OR CERTAIN TARGET AUDIENCE
IN THIS SECOND QUARTER, WE ARE ACTUALLY DEVELOPING TRAINING MATERIAL AND WE ARE GOING TO COORDINATE WITH DEPARTMENTS WHO ARE RESOURCEFUL AND INSTRUMENTAL FOR THE PORT'S OVERALL COMMUNITY OUTREACH EFFORTS SUCH AS HUMAN RESOURCES, INFORMATION AND COMMUNICATION TECHNOLOGY, AND OFFICE OF EQUITY, DIVERSITY AND INCLUSION
SO WE ARE VERY EXCITED ABOUT THAT
BUT PLEASE NOTE THOUGH, THAT THE PROJECT TEAM MEMBERS ARE AUDITORS TO BEGIN WITH
SO AUDIT COMPLETION IS OUR FIRST AND FOREMOST PRIORITY
SO OUR PROJECT TIMELINE MAY BE ADJUSTED AS NEEDED
SO WE APPRECIATE ANY FEEDBACK FROM YOU COMMISSIONERS AND MS HOLMESTROM ON THIS OUTREACH PROJECT
THANK YOU
WELL, I WANT TO FIRST THANK BRUCE AND RUMI FOR THE WORK THAT YOU'VE DONE, THAT YOU'VE TAKEN AN IDEA AND REALLY RUN WITH IT
IT IS THE RESOURCES THAT YOU GUYS ARE PROVIDING TO SMALL BUSINESSES AND EVEN GRASSROOTS ORGANIZATIONS, NONPROFIT ORGANIZATIONS THAT HAVE BEEN PARTNERING WITH THE PORT THROUGH THE SOUTH KING COUNTY FUND
THESE ARE REALLY HELPFUL INFORMATION FOR THEM
AND I JUST THINK THAT IT'S GREAT THAT YOU GUYS HAVE DONE THIS
AND AS FAR AS FEEDBACK GOES, I HOPE THAT THIS WOULD BE PROVIDED TO THEM PROACTIVELY, WHETHER THAT IS WHEN THEY SIGN A CONTRACT WITH US THAT THEY'RE DIRECTED TO THIS INFORMATION
THERE ARE FOLKS WHO END UP HAVING ISSUES WITH AUDITS FROM AN UNINTENDED PLACE
RIGHT
THEY DON'T KNOW THE RULES
THEY DIDN'T PUT THE RIGHT STRUCTURES IN PLACE
THERE ARE NEW ORGANIZATIONS PARTNERING WITH A LARGE GOVERNMENT ORGANIZATION LIKE OURSELVES
AND SO I THINK IT WOULD BE HELPFUL TO MAKE SURE THAT THEY HAVE THIS IN ADVANCE AS MUCH AS POSSIBLE, BUT REALLY APPRECIATE THE WORK THAT YOU HAVE DONE
ARE THERE ANY QUESTIONS OR COMMENTS FROM OUR COMMITTEE MEMBERS, COMMISSIONER CHO? NO, COMMISSIONER MOHAMMED TOOK THE WORDS RIGHT OUT OF MY MOUTH
SO THANK YOU ALL FOR THE GREAT WORK AND I REALLY APPRECIATE IT
GREAT
AGAIN, THANK YOU SO MUCH
AND I'M GOING TO MOVE US TO THE NEXT ITEM
THANK YOU
THANKS
SO, ITEM NUMBER SEVEN ON THE AGENDA IS AN UPDATE ON THE 2023 AUDIT PLAN
GLENN, YOU HAVE THE FLOOR
THANKS, MICHELLE
COMMISSIONER, IS THIS JUST A QUICK OVERVIEW OF OUR 2023 AUDIT PLAN FOR THE PUBLIC THAT WAS APPROVED IN DECEMBER OF LAST YEAR? WE'RE STILL ON TRACK AND THIS IS A LISTING OF THE AUDITS WE'VE GOT
NEXT SLIDE, PLEASE, MICHELLE
THIS GANTT CHART ESSENTIALLY LISTS OUT THE AUDITS AND SHOWS WHEN THEY'RE GOING TO BE COMPLETED
THERE'S SOME FLEXIBILITY HERE AND SOME CHANGES THAT CONSTANTLY OCCUR AND FINE TUNING
AUDITS GET MOVED BACK AND FORTH
BUT THE GREEN ONES ARE DONE, THE YELLOW ONES ARE IN PROGRESS
ALTHOUGH I WILL POINT OUT THAT LOUIS DREYFUS, WHICH IS A GRAIN TERMINAL DOWN THE ROAD, IS GOING TO BE MOVED OUT TO THE THIRD QUARTER
BUT OTHER THAN THAT, EVERYTHING IN HERE KIND OF PROVIDES A NICE PICTURE OF WHERE WE STAND
AND OUR HOPE IS TO BE ABLE TO COMPLETE EVERYTHING AND HAVE A LITTLE CAPACITY TO TAKE ON ANY OTHER SPECIAL REQUESTS THAT COME OUT
SO THIS IS IT
I HAVE NOTHING MORE ON THIS AGENDA ITEM
I WILL PASS IT BACK TO YOU AND THEN MOVE ON TO THE NEXT AGENDA ITEM
THANK YOU FOR THAT UPDATE
GLENN, ARE THERE ANY QUESTIONS FROM THE COMMITTEE MEMBERS AT THIS TIME? ALL RIGHT, MOVE US TO THE NEXT ITEM THEN
MOVING ON TO THE PERFORMANCE AUDITS SECTION ON THE AGENDA
ITEM NUMBER EIGHT BEFORE US IS A REPORT REGARDING FISHERMAN TERMINAL
GLENN, PLEASE PROCEED
THANK YOU, COMMISSIONER
AND FOR THIS, I'M GOING TO ASK DAN CHASE, WHO'S MANAGER FOR PERFORMANCE AUDITS, TO COME UP AND JOIN ME, KENNY AND KENNY LYLES AS WELL, AND I'LL PROVIDE A QUICK OVERVIEW, AND WE'LL GO FROM THERE
KENNY IS THE DIRECTOR OF MARITIME, AND HE WILL BE PROVIDING A RESPONSE THAT'S MARITIME OPERATIONS AND SECURITY
THERE WE GO
SO BEFORE I EVEN START THIS, I WANT TO POINT OUT THAT KENNY APPROACHED US LATE LAST YEAR, EARLY THIS YEAR IN THE DECEMBER TIME FRAME AND REQUESTED, NODDED AND SAID I MIGHT HAVE SOME OPPORTUNITIES FOR IMPROVEMENT AND CAN YOU GUYS HELP ME OUT? SO WE DID THE WORK
WE NOTED SOME THINGS, WHICH WE'LL TALK ABOUT, AND WE NOTED SOME OTHER THINGS ALSO THAT WE'LL TALK ABOUT
BUT WE'LL MOVE FROM THERE
GO AHEAD THEN
OUR AUDIT INCLUDED FISHERMAN'S TERMINAL, SALMON BAY MARINA, WHICH IS ADJACENT TO FISHERMAN'S TERMINAL, AND THE MARITIME INDUSTRIAL CENTER, WHICH IS ALL AT THE SAME COMPLEX
NOW, WE PRIMARILY WENT IN TO LOOK AT THE BILLING PROCESSES, TO LOOK AT SEGREGATION OF DUTIES AND THEIR OPERATIONAL PROCEDURES
I DO WANT TO POINT OUT THAT WE DID NOT ALL OF THIS INFORMATION THAT STARTS IN THE MARINA SIDE
THE MARINA MANAGEMENT SYSTEM THEN TRANSFERS TO PEOPLESOFT, WHICH IS OUR MAIN FINANCIAL SYSTEM
WE DIDN'T TOUCH PEOPLESOFT, SO WE JUST FOCUSED ON WHAT HAPPENS AT THE MARINA AND THE MARINA MANAGEMENT SYSTEM, WHICH IS THEIR SYSTEM
SO OUR AUDIT AND OUR DISCUSSION WILL FOCUS ON THAT
I ALSO WANT TO TALK ABOUT NEXT SLIDE, PLEASE, MICHELLE
ACTUALLY, TWO SLIDES FORWARD
OKAY, THANK YOU
I ALSO WANT TO POINT OUT THAT FISHERMAN'S TERMINAL, IT'S A BIG MARINA THAT INCLUDES OFFICE SPACE, RESTAURANTS, WAREHOUSE SPACE
IT'S A REALLY BEAUTIFUL LOCATION AND ONE OF THE CROWN JEWELS OF THE PORT OF SEATTLE
I LOVE WALKING OUT THERE
IT'S GOT THE ALASKAN FISHING FLEET AS WELL AS COMMERCIAL VESSELS
AND ONE OF THE BEAUTIFUL ADVANTAGES OF THIS IS THAT IT'S IN FRESH WATER
SO THAT MEANS IF YOUR BOATS ARE OUT IN THE SALTWATER, YOU GET BARNACLES
YOU'VE GOT TO PULL THEM OUT EVERY TWO YEARS AND PAINT THE BOTTOM WITH COPPER
AND IT'S VERY CORROSIVE HERE
YOU COME THROUGH THE LOCKS, AND FOR THE WINTER YOU CAN DOCK YOUR BOAT THERE
WE HAVE A COMPETITIVE ADVANTAGE THERE, AND IT'S FRESHWATER, SO EVERYTHING DIES UNTIL YOU'RE READY TO GO OUT THE NEXT YEAR FOR YOUR SALMON SEASON
SALMON BAY MARINA IS SOMETHING WE ACQUIRED RECENTLY, I BELIEVE IT'S A COUPLE OF YEARS AGO
AND BEFORE COVID IT'S INSIDE THE BALLOT LOCKS RIGHT NEXT TO A FISHERMAN'S TERMINAL
AND THEN THERE'S THE MARINA, THE MARINE MARITIME INDUSTRIAL CENTER, WHICH PRETTY MUCH HAS LARGER VESSELS UP TO 76 METERS IN LENGTH
SO YOU'LL SEE SOME REALLY LARGE DOCK SPACE AND BIG VESSELS THAT ARE BEING WORKED ON
AND IF THEY NEED TO BRING THEM IN FOR WHATEVER REASON AND WORK ON THEM, THEY'VE GOT FACILITIES THERE RIGHT AT FISHERMAN'S TERMINAL
NEXT SLIDE, PLEASE
BEFORE I HAND IT OVER TO DAN, JUST TO PROVIDE A LITTLE BACKGROUND ON ONE OF THE THINGS WE DID IS WE WALKED THROUGH THE TERMINAL, THE FACILITIES, AND DID SOME VISUAL INSPECTIONS OF EVERYTHING
IT'S JUST PART OF DOING AN AUDIT
AND AS WE DID, WE NOTED SOME AGING INFRASTRUCTURE AND SOME OF THE BUILDINGS JUST HAD KIND OF TAKEN YEARS, HAD TAKEN A TOLL ON THEM
TO PUT IT BLUNTLY
I KNOW THERE'S A MOTION TO REMOVE THE BANK OR APPROVED ACTION AND THERE'S NO BANKING BUILDING THAT WILL BE RAISED THAT WAS APPROVED IN THE LAST COMMISSION MEETING, BUT THAT REALLY NEEDED TO HAPPEN
AND THEN DAN AND TEAM CAME ACROSS WHILST THEY WERE LOOKING AT FISHERMAN'S TERMINAL, AN ENGINEERING REPORT THAT WAS DONE AT THE REQUEST OF MARITIME KENNY AND TEAM, BUT IT IDENTIFIED THAT SALMON BAY MARINA, THE ROOF, IS AT RISK OF STRUCTURAL FAILURE, ESSENTIALLY
AND IF THERE'S A WINDSTORM OR HEAVY SNOWSTORM OR SOMETHING, THIS NEEDS TO BE ADDRESSED
SO FOR TRANSPARENCY, WE WANT TO BRING IT OUT TO YOU AND JUST POINT THAT OUT THAT MANAGEMENT IS AWARE OF IT, THEY ASK FOR IT
BUT JUST FOR TRANSPARENCY, THAT SOMETHING NEEDS TO BE DONE THERE BEFORE SOMETHING HAPPENS
SINCE THIS ENGINEERING REPORT IS OUT, BEFORE I HAND IT OVER TO DAN TO TALK ABOUT THE ISSUE THAT WE HAVE, ARE THERE ANY COMMENTS AT THIS POINT OR QUESTIONS? NO, COMMISSIONER TELL, OR DO YOU WANT TO HOLD? WE'LL HOLD OUR QUESTIONS TILL THE END
SO LET'S MOVE FORWARD THEN
NEXT SLIDE, PLEASE, MICHELLE
I ALSO WANT TO POINT OUT JUST FOR DAN'S ISSUE THAT HE DID THE WORK ON
IT'S A VERY CASH BASED BUSINESS
THE FISHERMAN'S TURBULENT
THERE'S $3 MILLION A YEAR IN REVENUE
A LARGE PART OF THAT IS CASH
FISHERMEN COME OFF, THEY PAY IN CASH
IT'S JUST THE WAY THEY OPERATE
SO WHEN I LOOKED AT THE BANKING DATA, YET CLEARLY IN LINE WITH WHAT THE FOLKS AT THE TERMINALS TALKED ABOUT, IT'S HEAVY, HEAVY, HEAVY CASH
SALMON BAY MARINA PULLS IN ABOUT A MILLION A YEAR AND THE MARITIME INDUSTRIAL CENTER VARIES, BUT ABOUT 150,000 RELATIVELY SMALLER BUT VERY IMPORTANT THINGS
NEXT SLIDE, PLEASE, MICHELLE
AND THEN HERE TO LEAD INTO DAN'S PRESENTATION, THERE'S A LOT OF ACCOUNTS PAYABLE THAT ARE OVERDUE AND THERE'S ABOUT 900,000 OUT THERE
WELL, HALF IS ABOUT 400 IS CURRENT, BUT THE REST IS PAST DUE AND NEEDS TO BE COLLECTED
AND THERE'S A VERY MANUAL PROCESS TO THAT
AND WITH THAT, I'LL HAND IT TO DAN TO TALK
WELL, THANK YOU, GLENN
HELLO, AUDIT COMMITTEE
GOOD MORNING
SEEMS LIKE I WAS HERE A WEEK AGO AND THANKS, KENNY, FOR BEING HERE AS WELL
SO, YEAH, I'LL MOVE INTO THE RESULTS
SO IF WE COULD GO TO THE NEXT SLIDE, PLEASE
GREAT
SO I ALSO WANT TO SHARE THE GOOD NEWS THAT WE FOUND AS WELL
RIGHT
AND SO WE TESTED BERTHAGE AND MOARAGE AND THAT ACCOUNTS FOR THE MAJORITY OF THE REVENUE
AND THIS ISN'T ON YOUR SLIDES
IT'S ABOUT 70% OF THE FISHERMAN'S TERMINAL REVENUE, 2.3 MILLION OUT OF ABOUT 3.3 MILLION
SO WHAT WE DID IS WE TESTED 60 TRANSACTIONS WHERE WE VALIDATED THAT THE TARIFF WAS ACCURATE, MULTIPLIED THAT BY THE LENGTH OF THE BOAT TO GET WHAT THE MONTHLY BILLING WAS, AND THOSE AGREED WITHOUT EXCEPTIONS
SO THAT IS GOOD NEWS
OUR TESTING DID IDENTIFY SOME EXCEPTIONS TO THE ACCURACY OF AUXILIARY BILLING
THE FIRST WAS SPACE RENTAL
WE LOOKED AT FIVE TRANSACTIONS, AND OF THOSE FIVE TRANSACTIONS, THERE WERE THREE THAT WE IDENTIFIED THAT USED AN OUTDATED RATE, WHICH RESULTED IN ABOUT A $3,800 UNDER BILLING
AND SO WHAT WE DID IS WE TOOK THAT EXCEPTION RATE AND EXTRAPOLATED THAT TO THE POPULATION IN THAT REVENUE CATEGORY AND CAME UP WITH ABOUT 36,000 THAT WOULD HAVE BEEN UNDERBILLED
AND SO THAT'S AN ESTIMATE MANAGEMENT ALSO SELF DISCLOSED
AND WHAT I MEAN BY THAT IS THEY ACTUALLY TOLD US, RIGHT, SO WE WANT TO GIVE THEIR TEAM CREDIT FOR THAT, THAT THE NORDBEE CONFERENCE ROOM WAS BEING UNDERBUILT BY ABOUT $1,700 IN 2022
THE REASON FOR THIS WAS BECAUSE A CUSTOMER CALLS IN AND ON THEIR WEBSITE, IT HAS A RATE THAT DOESN'T MATCH THE APPROVED TARIFF RATE
RIGHT
AND SO WE WOULD HONOR WHAT THE WEBSITE REFLECTED
AND THEN FINALLY LET'S SEE
YEAH, FINALLY, THAT $900,000 OUTSTANDING BALANCE THAT GLENN HAD TALKED ABOUT BRIEFLY, WE DIDN'T MAKE ANY ASSESSMENT OF WHETHER 900,000 IS HIGH OR LOW
I'M NOT SURE
I MEAN, IT'S NORMAL TO HAVE AN ACCOUNTS RECEIVED FULL BALANCE
WHAT WE FOUND IS THAT THERE IS AN INDIVIDUAL, AND WE WERE CAREFUL, WE WANTED TO REVIEW FISHERMAN'S TERMINAL PROCESS AND NOT AUDIT AN INDIVIDUAL
RIGHT
SO WE REVIEWED THE PROCESS
WHAT WE FOUND IS THAT THERE'S AN INDIVIDUAL MANAGER THAT IS CUSTOMER FACING KIND OF A SALES TYPE OF FUNCTION, ADVOCATING FOR BRINGING CUSTOMERS IN, OWNERS OF THE BOATS
THEY ALSO PERFORM A LOT OF THE ONSITE COLLECTION EFFORTS
AND AGAIN, WE DID NOT REVIEW AFR'S COLLECTION PROCESS
SO THAT'S OUTSIDE OF THIS SCOPE
BUT THIS PERSON CAN ALSO ADJUST BILLINGS IN MMS, THE MARINA MANAGEMENT SYSTEM, BEFORE IT'S POSTED INTO PEOPLESOFT
SO WHEN YOU HAVE SOMEBODY THAT CAN COLLECT CASH, WORKING WITH CUSTOMERS, WORKING OUT DELINQUENCY PAYMENTS, AND THEN ALSO HAS THAT ABILITY IN THE BILLING SYSTEM, THERE'S OBVIOUS PROBLEMS THAT COULD OCCUR
RIGHT
AND THAT'S KIND OF THE WHOLE IDEA THAT KENNY AND I TALKED ABOUT THIS AROUND, SEGREGATION OF DUTIES
YOU DON'T WANT TO HAVE ONE PERSON BE ABLE TO START A PROCESS FROM THE BEGINNING AND TAKE IT ALL THE WAY TO THE END
YOU WANT TO HAVE DIFFERENT PEOPLE DOING VARIOUS THINGS
AND SO WHAT WE'VE RECOMMENDED IS TO REEVALUATE HOW THINGS ARE BEING DONE OUT THERE, INCLUDING THE SEGREGATION OF DUTIES, INCLUDING, YOU KNOW, HAVING MANAGEMENT REVIEW OR SOME ONE OVER ONE REVIEW WHEN ADJUSTMENTS ARE MADE SO THAT THERE'S A LITTLE MORE RIGOR AND SOME CHECKS AND BALANCES IN PLACE
THE LAST THING I'LL SAY AND THEN I KNOW KENNY, I'LL TURN IT OVER TO YOU
I THINK HE HAS SOME COMMENTS AS WELL
AND MAYBE MICHELLE, COULD YOU MOVE TO THE NEXT SLIDE, PLEASE? OH, YEAH
THANK YOU
KENNY AND I TALKED ABOUT KIND OF EVOLVING THE BUSINESS, RIGHT
AND IT'S NOT UNCOMMON IN SMALL BUSINESSES THAT YOU HAVE ONE OR TWO PEOPLE DOING LOTS OF THINGS
RIGHT
THEY WEAR MULTIPLE HATS
AND THIS IS KIND OF THE FEEL THAT I THINK FISHERMAN'S TERMINAL HAS
RIGHT
AND I THINK THEY'RE TRYING TO EVOLVE IT TO A LITTLE TO HAVE A LITTLE MORE RIGOR AROUND IT
RIGHT
AND SO THAT'S KIND OF HOW I WOULD KIND OF CAPTURE EVERYTHING THAT WE FOUND IN THE AUDIT WITH THAT
I DON'T KNOW
GLENN, DO YOU WANT TO ADD ANYTHING ADDITIONAL? NO, I THINK YOU AYE
ON THE IMPORTANT THINGS
I THINK, AS DAN SAID, IT'S BEING RUN
WE DIDN'T FIND ANY MISCONDUCT OR ANYTHING, BUT IT'S BEING RUN LIKE A SMALL BUSINESS AND THERE'S AN OPPORTUNITY TO ENHANCE CONTROLS
SO I'LL TURN IT BACK TO THE COMMISSIONER OR TO KENNY IF YOU WANT TO MAKE SOME COMMENTS
YES
THANK YOU, DAN
AND
GOOD MORNING, CHAIRWOMAN MOHAMMED
COMMISSIONER CHO AND MS HOLMSTEIN
MARITIME
AGAIN
KENNY LYLES, DIRECTOR OF MARITIME OPERATIONS AND SECURITY
WE ACCEPT THE FINDINGS OF THIS AUDIT AS WELL AS THE ASSOCIATED RECOMMENDATIONS
BASED ON THESE RECOMMENDATIONS, COMMERCIAL FISHING WILL WORK TO CREATE A STRUCTURE THAT WILL ACCOMPLISH A SEGREGATION OF DUTIES TO ENSURE INTEGRITY IN THE REVENUE MANAGEMENT PROGRAM
AS DAN MENTIONED, I HAD REQUESTED THIS AUDIT AND THAT WE HAD A CHANGE IN ADMINISTRATION AT THAT LOCATION, A NEW SENIOR MANAGER CAME ON BOARD
THE FIRST POINT OF CUSTOMER CONTACT WAS PROMOTED TO ANOTHER POSITION, AND WE ARE ALSO IN THE PROCESS OF UPGRADING OUR MARINA DATABASE MANAGEMENT SYSTEM, OR MARINA MANAGEMENT SYSTEM THAT DAN TALKED ABOUT
WE'RE GOING TO MIGRATE TO MARINE VESSEL MANAGEMENT SYSTEM MVMS, AS THE ACRONYM SAYS
AND SO I FELT THAT THIS WAS AN OPPORTUNE TIME TO REVIEW OUR PRACTICES TO MAKE SURE THAT OUR HOUSE WAS IN ORDER
SOME BACKGROUND
IN 2002
THE PRECURSOR TO THE MARITIME DIVISION WAS THE SEAPORT DIVISION
THE SEAPORT DIVISION REORGANIZED, ELIMINATING A BUSINESS MANAGER POSITION BY ONE FTE, OR FULL TIME EQUIVALENT
SINCE THAT TIME, ONE BUSINESS MANAGER HAS BEEN RESPONSIBLE FOR MANAGING BILLING AND COLLECTIONS
THE RESULTING REDUCTION IN FINANCIAL OVERSIGHT CAN BE ATTRIBUTED TO APPROXIMATELY 230,000 OF OVERDUE ACCOUNTS OF 120 DAYS OR MORE YEAR TO DATE
TO COMPOUND THIS EXPOSURE, SHOULD THE BUSINESS MANAGER POSITION BE VACATED FOR WHATEVER REASON, RECORDS OF CUSTOMER COLLECTION MANAGEMENT WOULD BE SUSCEPTIBLE TO LOSS
MANAGEMENT IS EVALUATING WHETHER AN ADDITIONAL POSITION IS NEEDED OR CAN BE ACCOMMODATED WITH EXISTING STAFF TO PROVIDE SEPARATION OF CUSTOMER INTAKE, THAT IS, THE ASSIGNING OF MORTGAGE AND BILLING AND TO PROVIDE REVENUE MANAGEMENT
ACCOUNTABILITY PROCESSES WILL ALSO BE BROUGHT UP TO DATE BY AUTOMATING CUSTOMER ENGAGEMENT TRACKING FOR THE COLLECTIONS PROCESS, AS WELL AS THE INCORPORATION AND UTILIZATION OF DASHBOARDS AS A PLATFORM AND OTHER INFORMATION RETENTION TYPE PLATFORMS THAT ARE AVAILABLE TO US, WHICH INCLUDES THE NEW VESSEL MANAGEMENT SYSTEM OR MVMS I WOULD LIKE TO ADD THAT I HAD MANAGED DIRECTLY FISHERMAN'S TERMINAL FOR OVER
15 YEARS, ABOUT 15 YEARS BEFORE I MOVED INTO MY CURRENT CAPACITY AND UNDERSTANDING THAT IT IS A RETAIL OPERATION
IT'S A MOM AND POP TYPE OF A CUSTOMER BASE WHERE FAMILIES OPERATE KNOWN THESE INDIVIDUAL FISHING VESSELS THAT HAVE CREW UP TO FIVE VERSUS THE TRAWL FLEET WILL HAVE A CREW UP TO 200
AND SO THESE ARE SMALL BUSINESSES
IN THAT ENVIRONMENT
IT'S ALMOST ENDEMIC THAT YOU'RE GOING TO HAVE THIS TYPE OF MANAGEMENT REQUIRED TO ENSURE OUR REVENUE PROGRAM HAS INTEGRITY
SO, HAVING SAID THAT, WE DO ACCEPT THE FINDINGS AND THE RECOMMENDATIONS, AND WE ARE IN PROCESS OF TRYING TO REFINE THESE CONCERNS
SO THANK YOU VERY MUCH
WELL, THANK YOU FOR THE PRESENTATION, AND THANK YOU TO THE STAFF AND MANAGEMENT FOR PRESENTING TODAY AND DIRECTOR KENNY LYLES
THANK YOU FOR YOUR WORK THAT YOU DO AND APPRECIATE THE PROACTIVE WORK THAT YOU'VE DONE TRIGGERING THIS AUDIT AND WANTING TO MAKE SURE THAT THERE ARE GOOD CHECKS AND BALANCES AND GOOD SYSTEMS AS CHANGES ARE COMING
ARE THERE ANY QUESTIONS FROM MY COMMITTEE MEMBERS AT THIS TIME? NO QUESTIONS, BUT I ALSO WANTED TO MAKE SURE THAT I COMMENDED YOU FOR BEING THE ONE TO INSTIGATE AN AUDIT
I DON'T REALLY KNOW OF ANYONE WHO ASKS FOR AN AUDIT RIGHT WILLINGLY, BUT I ALSO SEE THE TREMENDOUS VALUE IN THIS BECAUSE IT GIVES YOU SOME DATA POINTS AND I'M SURE IT CONFIRMS SOME THINGS THAT YOU SUSPECTED ABOUT FISHERMAN'S TERMINAL, BUT ALSO MAY HAVE UNCOVERED THINGS THAT YOU WEREN'T AWARE OF
AND SO I THINK THIS IS A TREMENDOUS EXAMPLE OF OUR LEADERSHIP BEING PROACTIVE AND UTILIZING AN INTERNAL FUNCTION AND UNCOVERING THINGS THAT NEED TO BE ADDRESSED IN THE MEDIUM AND LONG TERM
AND SO I REALLY WANT TO THANK YOU FOR THAT AND I HOPE YOUR COLLEAGUES TAKE NOTE AND UTILIZE THIS FUNCTION FOR THEMSELVES IN THEIR OWN DEPARTMENT
SO THANK YOU, KENNY, FOR SETTING THAT EXAMPLE
THANK YOU, COMMISSIONER
AND AS WE WENT INTO THIS EXERCISE, I ENSURED MY STAFF THAT THIS FUNCTION, THIS EXERCISE IS ONLY GOING TO ENHANCE OUR BUSINESS PROFILE
IT'S NOT NECESSARILY LOOKING FOR PUNITIVE ACTION
WE'RE LOOKING THE SUPPORT OF OUR CENTER OF EXPERTISE HERE IN INTERNAL AUDIT
I'LL JUST SAY THAT, KENNY'S, I'VE AUDITED YOU SEVERAL TIMES RIGHT NOW
RIGHT
AND IT'S GOOD THAT HE'S REACHING OUT TO US
WHAT WE'RE DOING IS WE'VE ACTUALLY ASKED FOR FEEDBACK AS WELL FOR HOW THEY EXPERIENCE THE AUDIT SO THAT WE CAN IMPROVE AS WELL, SO THEY GET A CHANCE TO AUDIT US BACK
I DID WANT TO JUST RECOGNIZE NICOLE WE, SO SHE'S NEW AND SHE ACTUALLY PERFORMED THE TESTING ON THIS AUDIT, SO SHE DESERVES A LOT OF THE CREDIT
SO WELCOME
THANK YOU, NICOLE, FOR THE WORK YOU'VE DONE
SARAH? YEAH
OKAY
I HAVE SEVERAL QUESTIONS
I WANTED TO FOLLOW UP ON A COUPLE OF THE MANAGEMENT RESPONSE COMMENTS YOU MADE TO MAKE SURE I UNDERSTAND
SO SINCE 2002, THERE'S BEEN ONE PERSON THAT'S THE BUSINESS MANAGER OVER THIS, IS THAT CORRECT? DID I UNDERSTAND THAT? WELL, WE HAVE A TEAM OF THREE AND HOWEVER, THE BUSINESS MANAGER IS ULTIMATELY ACCOUNTABLE FOR ALL BUSINESS PRACTICES
SO THAT INDIVIDUAL OVERSEES THE INTAKE PERSON, THE CUSTOMER SERVICE SPECIALIST, AS WELL AS THE MORTGAGE COORDINATOR THAT PERFORMS ALL THE ASSIGNMENTS
HOWEVER, THE BUSINESS MANAGER IS RESPONSIBLE IN CONJUNCTION WITH OUR ACCOUNTING AND FINANCIAL SERVICES REPRESENTATIVE IN TRACKING DELINQUENT ACCOUNTS AND TRYING TO GET PAYMENT FROM THESE ACCOUNTS
IT'S A TEAM EFFORT
HOWEVER, ONE INDIVIDUAL OVERSEES THIS CUSTOMER ENGAGEMENT, THAT IS REACHING OUT TO CUSTOMERS, BILL COLLECTING THOSE TYPES OF FUNCTIONS
SO WHEN YOU SAID THAT IF THAT POSITION WERE TO BE VACATED, WE'D BE SUSCEPTIBLE TO LOSS OF, LIKE, THE ACCOUNT, CAN YOU EXPLAIN WHAT YOU MEANT BY THAT? YES, AND NOT ACCOUNTS
HOWEVER, CUSTOMER ENGAGEMENT, FOR EXAMPLE, THE NUMBER OF ENGAGEMENTS THAT THIS MANAGER WILL HAVE DONE IN REGARDS TO REACHING OUT TO A CUSTOMER FOR PAYMENT, THE CONVERSATIONS WHEN THEY OCCURRED, WHAT CONSISTED OF THE OUTREACH, THAT TYPE OF INFORMATION IS NOW BEING RETAINED IN AN ANTIQUATED WAY
NOTEBOOKS, HANDWRITTEN NOTES
WE NEED TO AUTOMATE THAT
THAT'S NOT SUSTAINABLE
AND IS THAT PART OF A SYSTEM OR I KNOW YOU NOTICE NOTE PROCESSES AND REPORTING SYSTEM
IS THERE A SYSTEM YOU'RE LOOKING AT THEN, TO START DOING THAT? IS THAT THE PLAN? YES
WE ARE IN THE PROCESS OF UPGRADING OUR MARINA DATABASE
MARINA VESSEL MANAGEMENT, MARINE VESSEL MANAGEMENT SYSTEM, MVMS CURRENTLY WE HAVE MMS, WHICH WE ARE ABLE TO PUT NOTES IN
HOWEVER, THERE ARE VARIOUS PLATFORMS THAT CAN BE UTILIZED
EXCEL IS A BASIC PLATFORM THAT CAN BE UTILIZED, AND WE ARE TRYING TO FORMALIZE THESE PROCESSES THROUGH STANDARD OPERATING PROCEDURES
OKAY, THANKS FOR THAT CONTEXT
I WANT TO GO BACK TO JUST THE REVENUE BREAKDOWN AND JUST LIKE, I GUESS, A FUNDAMENTAL THOUGHT AROUND THE AMOUNT OF CASH FLOWING THROUGH THIS
SO I UNDERSTAND KIND OF WHAT YOU'RE SAYING OF THIS IS A CASH HEAVY BUSINESS AND THAT'S KIND OF WHAT PEOPLE ARE USED TO
BUT WITH MILLIONS OF DOLLARS FLOWING, NO MATTER WHAT CONTROLS YOU PUT IN PLACE, LIKE EVERYONE KNOWS, CASH IS EXTREMELY RISKY
NO MATTER YOU HAVE THE BEST INTERNAL CONTROLS IN THE WORLD, CASH CAN GO MISSING
IT'S JUST HIGH RISK
SO IS THERE ANY KIND OF EFFORT OR THOUGHT ABOUT OVER TIME TRYING TO CHANGE THE PROCESS SO THAT PEOPLE KNOW, HEY, WHEN YOU COME HERE, YOU'RE GOING TO NEED A CARD TO PAY? I UNDERSTAND THAT'S NOT GOING TO BE AN OVERNIGHT PROCESS, BUT I THINK IT'S DEFINITELY SOMETHING WE SHOULD START PROACTIVELY LOOKING AT, BECAUSE I WOULD EXPECT THESE NUMBERS ARE ONLY GOING TO GO UP AND THE RISK IS NOT GOING TO GO DOWN
AND THE MORE MONEY THERE IS, THE MORE CHALLENGE THERE IS AROUND IT
THANK YOU
THAT IS SOMETHING WE RECOGNIZE
WE HAVE CONTINUALLY OVER THE LAST 15 YEARS TRYING TO MIGRATE OUR CUSTOMER BASE INTO MORE ELECTRONIC TRANSACTIONS
HOWEVER, KEEP IN MIND OR BE MINDFUL THAT THIS IS A LEGACY INDUSTRY
HERE THE SMALL BOAT FISHER, THE INDEPENDENT FISHER, AND IT'S NOT NECESSARILY A MILLION DOLLARS CASH COMING THROUGH OUR CUSTOMER SERVICE FUNCTION, PASSING OVER OUR COUNTERS, I SHOULD SAY
BUT WE DO HAVE THOSE CUSTOMERS THAT DO PREFER TO PAY CASH
IT'S KIND OF LIKE YOUR TRADITIONAL FARMER
WHEN THE CROPS COME IN, THEY HAVE A POCKET FULL OF MONEY, THEY GO AND THEY PAY THEIR DEBTORS IN CASH
AND WE'RE TRYING TO MOVE ALL OF OUR CUSTOMER BASE TO ELECTRONIC TRANSACTIONS
THE MAJORITY OF OUR CUSTOMERS ARE UTILIZING ELECTRONIC TRANSACTIONS
THERE ARE, HOWEVER, SOME LEGACY PRACTICES THAT WE STILL HAVE TO HONOR
OKAY
AND I KNOW, GLENN, YOU KIND OF GOT ME SOME OF THIS INFORMATION, BUT IT WAS HARD TO TELL
I WOULD BE CURIOUS HOW MUCH OF IT IS IN CASH
AND AGAIN, JUST FUNDAMENTALLY KNOWING THAT HOW HIGH THE RISK IS AND UNDERSTANDING WE CAN'T DO IT OVERNIGHT, BUT STILL CHALLENGING TO SAY, HEY, THIS IS GOING TO BE OUR PROCESS GOING FORWARD
I'VE SEEN THAT A LOT OF COMPANIES OR, HEY, WE'RE NOT GOING TO ACCEPT PERSONAL CHECKS FROM THIS DATE ON OR SOMETHING LIKE THAT, WE OBVIOUSLY WOULDN'T SPRING THAT ON THEM TOMORROW
BUT I THINK IF WE MOVE IN THAT DIRECTION, IT HELPS THE PEOPLE THAT ARE THIS BUSINESS MANAGER AND ALL THE PEOPLE INVOLVED
IT'S MUCH BETTER PROTECTION FOR THEM AS WELL AS THE ORGANIZATION
IF I MAY, AT OUR MOST RECENT, AT OUR PREVIOUS AUDIT, THAT WAS ONE OF THE ITEMS THAT WAS IDENTIFIED AND WE CAME UP WITH A STANDARD OPERATING PROCEDURE TO ACCOUNT FOR THAT CASH TRANSACTION AND THE DEPOSITING OF CASH CHECKS, THINGS OF THAT NATURE
AND SARAH, WE'LL GET BACK TO YOU ON HOW MUCH OF IT IS IN CASH, THE EXACT NUMBERS, BEST OF OUR ABILITY, AND ANYTHING FURTHER WE CAN DISCUSS WITH KENNY
AND WE HAD THIS DISCUSSION AS WELL WITH SOME FOLKS OUT THERE ADVOCATING FOR LESS CASH AND MORE CREDIT CARD
AND IT'S CONSISTENT WITH WHAT KENNY IS SAYING
THE INDUSTRY IS VERY CASH HEAVY
THAT'S KIND OF THE NATURE OF IT
BUT I DO THINK IT'S A GOOD IDEA TO KIND OF EXPLORE THE IDEA OF MOVING AWAY FROM CASH BECAUSE IT IS INHERENTLY RISKY
THANK YOU BOTH FOR THOSE QUESTIONS
I HAD A COUPLE OF QUESTIONS MYSELF AND I'M ACTUALLY LOOKING FORWARD TO HEARING HOW MUCH OF THE DOLLARS ARE IN CASH
AND SARAH, THANK YOU SPECIFICALLY FOR ASKING THE QUESTIONS THAT YOU DID
I HAD A COUPLE OF QUESTIONS REGARDING THE ENGINEERS ASSESSMENT, RISK REPORT AND THE ROOFING OF THE SALMON BAY MARINA
DO YOU KNOW, GLENN, EXACTLY WHAT IS GOING TO HAPPEN WITH THAT FACILITY? KENNY, MAYBE YOU CAN THE PORT OF JUST THE STRATEGY FOR THAT BUILDING MOVING FORWARD
AND I KNOW WE'VE TAKEN COMMISSION ACTION, BUT FOR THE SHORT TERM, I WANT TO UNDERSTAND WHAT PROTECTIONS WE'RE PUTTING IN PLACE TO ENSURE THAT NO ONE IS HARMED THERE
RIGHT
THANK YOU, COMMISSIONER
AS GLENN MENTIONED, WE RECENTLY COMPLETED AN ENGINEERING ASSESSMENT
IT WAS IDENTIFIED THAT IT IS VULNERABLE
WE ARE JUST NOW STARTING THE WELL, WE JUST COMPLETED THE PLANNING AND ENGINEERING ASSESSMENT
WE'RE JUST NOW GOING INTO OUR CAPITAL PLANNING SEASON AND WE WILL BE IDENTIFYING THIS AS A VULNERABLE ASSET THAT WE NEED TO CATEGORIZE AND BASICALLY ELEVATE OUR ADVANCE
THIS PROJECT, IF YOU WILL
IT IS A PROJECT NOW IN REGARDS TO FUNDING, ELEVATING IT TO THE HIGHER LEVEL OF FUNDING
SO WE PURCHASED THIS ASSET IN 2017
WE'RE SPENDING OVER A SUBSTANTIAL AMOUNT OF MONEY AND BRINGING IT UP TO FORTERRA SEATTLE STANDARDS OF OWNERSHIP
WE'VE MADE MULTIPLE REPAIRS ALREADY SINCE ACQUIRING IT, THIS BEING ONE OF THE MAJOR ONES
SO WE ARE PUTTING IT ON OUR CAPITAL PLAN AND IT'S MY HOPES THAT WE CAN ADVANCE IT FOR CAPITAL AUTHORIZATION
CAPITAL FUNDING AUTHORIZATION COME THIS SPRING
DOCTOR, THAT'S REALLY HELPFUL TO UNDERSTAND THAT, AND I JUST WANT TO MAKE SURE THAT I UNDERSTAND CORRECTLY
SO FOR THE SHORT TERM, WHAT ARE WE DOING TO MAKE SURE THAT THE PEOPLE WHO ARE GOING IN AND OUT OF THAT BUILDING IS PROTECTED? YES, WELL, FROM WHAT WE UNDERSTAND AS OPERATIONS IS THAT IT IS STABLE
IT'S NOT TEETERING, BUT IT IS VULNERABLE
BUT IT IS STABLE AND WE ARE ASSESSING IT
OUR MAINTENANCE DEPARTMENT IS ASSESSING IT ROUTINELY
THAT'S WHAT WE ARE DOING CURRENTLY
THAT'S GREAT TO KNOW
AND I WOULD JUST EMPHASIZE THE IMPORTANCE OF ENSURING THAT WE ARE PROTECTING PEOPLE FROM THAT BUILDING
AND IF IT'S NOT PEOPLE WHO ARE NOT MAINTENANCE, MAKING SURE THAT THEY HAVE THE RIGHT EQUIPMENTS AND THINGS LIKE THAT ON TO ENSURE THAT NO HARM IS CAUSED THERE
I WAS CONCERNED ABOUT THE COMMENTS THAT WAS IN THE PORT
MAY I ASK A QUESTION TO YOU, KEN? IS THE VULNERABILITY FROM THE STRUCTURE COLLAPSE AND FIRE OR FIRE? WELL, ALL COVERED MORTGAGE IS VULNERABLE FOR FIRE, REGARDLESS OF SPRINKLER SYSTEM OR NOT
THIS PARTICULAR ASSET WAS ACQUIRED WITH THE SPRINKLER SYSTEM OR THE LACK THEREOF, BEING GRANDFATHERED IN, AS I UNDERSTAND IT, FROM AN EARLIER CODE
YES, PREVIOUS CODE
YEAH
SO IT WAS NOT REQUIRED WHEN WE ACQUIRED IT
BUT AS FAR AS THE VULNERABILITY, AGAIN, IT'S IN A STABLE CONDITION
WE'RE NOT AT THAT POINT OF FAILURE, BUT WE DO KNOW THAT WE HAVE TO UPGRADE IT
BUT THIS IS AGAIN AT TOP OF MIND WITH OUR ENGINEERS AND OUR PLANNERS, AND IT'S ON SCHEDULE FOR REVIEW
I WILL FOLLOW UP
I'VE GOT A COUPLE OF IDEAS, BUT I'LL FOLLOW UP WITH THE ENGINEERING TEAM AND WITH KENNY
THANK YOU
THANK YOU, VICKY
I APPRECIATE THAT
IT LOOKS LIKE SOMEONE ELSE HASN'T MADE AYE
QUESTION, ESPECIALLY PUBLIC MEMBER HOMESTEAD WITH REGARD TO THE AMOUNT OF CASH IN 2020
AND FURTHER, IT'S ABOUT $62,000 CASH
OTHER IS PROCESSED THROUGH OR NO MORE PROCESSING
SO THERE IS NOT THIS MAJOR CONCERN HERE, BUT NEVERTHELESS, JUST THE PRINCIPLE OF IT AND ACCOUNTING OFFENSE REPORTING WILL WORK
PARTNER WITH MR KENNY LYLES TO SEE HOW WE CAN MAKE SURE WE ENHANCE THAT CONTROL ENVIRONMENT AND ADDRESS YOUR RISK
SO IT'S VERY WELL TAKEN, BUT I JUST WANT TO AT LEAST GIVE YOU AN IMMEDIATE ASSESSMENT WITH REGARD TO HOW MUCH ACTUALLY CASH IS BEING TAKEN AT FISHERMAN'S TERMINAL
RUDY, I DID LOOK AT THE SAME REPORT ON THE 62,000
IT LOOKS LIKE THERE'S ANOTHER BUCKET CALLED CASH AND CHECKS WHERE THEY'RE DUMPING A LOT OF THE RECORDS IN AND THEY'RE NOT SEPARATING OUT CASH AND CHECKS
SO WE MIGHT HAVE TO GO BACK AND LOOK AT THAT
YES
AND WE'LL RECONCILE BECAUSE A LOT OF IT 85% GOES THROUGH OUR SYSTEMS RIGHT
NOT AT THE COUNTER, BUT WE WILL GIVE YOU A CLEAR ASSESSMENT
I JUST WANTED TO GIVE YOU A PICTURE AT THIS TIME OUT OF RESPECT FOR THE AUDIT COMMITTEE
THANK YOU SO MUCH
THANK YOU, RUDY
THAT'S REALLY HELPFUL TO KNOW THAT THOSE DOLLARS ARE NOT GOING ACROSS AT THE COUNTER
I THINK THAT'S IMPORTANT INFORMATION FOR THE PUBLIC
SO I APPRECIATE YOU COMING UP HERE AND SHARING THAT ADDITIONAL INFORMATION, AND WE LOOK FORWARD TO FURTHER CLARITY AROUND THAT
AND I APPRECIATE OUR ASSISTANT DIRECTOR
SHE'S LISTENING IN, EMAIL ME AND SAID, LET'S RESPECT THE AUDIT COMMITTEE
SO THIS IS THE ASSESSMENT SHE GAVE AT THIS TIME
THANK YOU SO MUCH
AND HER NAME IS LISA LAMB, ASSISTANT DIRECTOR
OKAY, THANK YOU
THANK YOU
I HAVE ANOTHER QUESTION AROUND THE SALMON BAY MARINA
I'M INTERESTED IN THE HISTORICAL CONTEXT OF THE ACQUISITION OF THAT SPACE AND WHETHER IT HAS ACHIEVED ITS OVERALL PERFORMANCE GOALS AND HOW MUCH NET REVENUE HAVE WE GOTTEN OUT OF THAT FACILITY
SOUNDS LIKE THERE'S A LOT OF CHALLENGES THERE, AND I'M TRYING TO UNDERSTAND IF THERE ARE ANY PROS ASSOCIATED WITH THAT FACILITY
WELL, I DON'T KNOW EXACTLY IF I'M THAT PERSON TO ASK THAT QUESTION, BUT I CAN TELL YOU THAT, AS GLENN MENTIONED, THE FACILITY BRINGS IN REVENUE, A MILLION DOLLARS A YEAR
OKAY, THAT'S HELPFUL
YES
BUT EXPENSES ARE VERY HIGH
THEY'RE OVER THAT AMOUNT
WE ARE ACCOMMODATING THE MARITIME CLUSTER THERE IN THE SHIP CANAL
THE IDEAL BEHIND THE ACQUISITION WAS TO INCREASE FORTERRA SEATTLE PORTFOLIO IN SERVICING THE MARITIME CLUSTER, WHICH INCLUDES WRECK BOATS
BUT WE WOULD HAVE TO GET BACK TO YOU ON THAT BECAUSE I DON'T WANT TO SPEAK OUT OF TURN OR OUT OF LINE REGARDING THE MOTIVATION OF THE ACQUISITION OTHER THAN THAT TOP LEVEL PERSPECTIVE
THAT'S JUST REALLY HELPFUL, BECAUSE IF WE'RE INVESTING SO MUCH MONEY IN RESTORING IT OR FIXING IT, IT IS ALSO HELPFUL TO HEAR WHAT SORT OF BENEFITS THE PORT HAS GOTTEN OUT OF IT
AND IF THERE IS, I HEAR THERE'S A LOT OF BOATING AND RECREATIONAL ACTIVITIES HAPPENING THERE, BUT I'M ALSO TRYING TO UNDERSTAND IF THERE IS A MARITIME INDUSTRY CONNECTION THERE
YEAH, A FEW COMMENTS FROM MYSELF, DAVE
SOIKI FOR THE RECORD, THERE WERE MULTIPLE OPTIONS AT THE TIME THAT THE PORT MADE THAT PURCHASE AND THE PORT WANTED TO HELP THE MARITIME CLUSTER
THE COMMISSION LOOKED AT VARIOUS OPTIONS AND MADE A CHOICE
AND I THINK WE COULD GET BACK TO YOU BECAUSE THAT ACQUISITION WAS SUPPORTED BY INVESTMENT SCENARIOS OVER A TIMELINE
SO THE PROFITABILITY OF THE ACQUISITION, ET CETERA
WE COULD PARALLEL HOW IT'S TURNED OUT COMPARED TO THE PLAN, IF YOU'D LIKE
THAT WOULD BE HELPFUL
YOU BET
AND I WOULD ALSO SAY THAT I REMEMBER THE SPECIFIC COMMISSION ACTION WHEN IT WAS ACQUIRED AND COMMENTS WERE, WE DON'T KNOW HOW THIS WILL TURN OUT
BUT COMPARED TO THOSE TWO OPTIONS, THE COMMISSIONER CHOSE A PIECE OF LAND IMMEDIATELY ADJACENT TO FISHERMAN'S TERMINAL AND THOUGHT THAT THAT WAS A VITAL PIECE TO PUT TOGETHER TWO PARCELS IN ONE FOR FUTURE VALUE
BUT LET US GET BACK TO YOU ON A COMPARISON OF WHAT THE PERFORMER WAS THEN VERSUS NOW
THAT WOULD BE REALLY HELPFUL BEING ABLE TO LOOK BACK AND WILL HELP US MAKE SOME DECISIONS AS WE'RE MOVING FORWARD
SO I WOULD APPRECIATE A FOLLOW UP
ANY OTHER COMMENTS FROM THE PRESENTERS OR THE COMMITTEE MEMBERS
GREAT
SO THANK YOU ALL WHO PRESENTED
THANK YOU, DIRECTOR KENNY LYLES FOR YOUR PRESENTATION AND APPRECIATE THE WORK THAT YOU AND YOUR WHOLE MARITIME TEAM DOES
THANK YOU
THANK YOU VERY MUCH, COMMISSIONER
THANK YOU VERY MUCH
THANK YOU, KEN
ITEM NINE
OKAY, NEXT ON THE AGENDA IS ITEM NUMBER NINE
THAT IS TERMINAL FIVE BERTH MODERNIZATION PROJECT
GLENN, PLEASE PROCEED
THANK YOU, COMMISSIONER
AND COMMISSIONER
FOR THIS, I'M GOING TO ASK SPENCER BRYCE, WHO'S OUR CAPITAL AUDIT MANAGER, TO COME UP AND SIT WITH ME
SO I'LL PROVIDE A QUICK OVERVIEW IN THE INTEREST OF TIME
I'LL MOVE RELATIVELY QUICKLY AND THEN SPENCER WILL TALK ABOUT THE FINDING THAT THEY HAVE
BUT IF YOU LOOK OUT IN THE HARBOR, YOU CAN SEE TERMINAL FIVE
IT'S ONE OF THE CROWN JEWELS AND SHIPPING SIDE
IT'S ONE OF PREMIER CARGO FACILITIES THAT HAS 10,020 FOOT EQUIVALENT UNITS AND VESSEL CAPACITY
IT CAN BASICALLY HANDLE HEAVIER SHIPS, LARGER CRANES, AND WE WERE UPDATING IT
SO WE'VE GOT THIS HUGE PROJECT GOING ON WITH THE SEAPORT ALLIANCE TO UPDATE IT
SO WE PUT IT ON THE AUDIT PLAN
NEXT SLIDE, PLEASE
AS AN AREA OF RISK THAT WE WANTED TO LOOK AT, WE LOOKED AT ORION CONSTRUCTION SPECIFICALLY
SO THE $159,000,000 THAT YOU SEE THERE, THE WHOLE PROGRAM HAD A VARIETY OF OTHER ITEMS THE PROGRAM AS A WHOLE TOTALS 454,000,000
OUR SEGMENT OF THE CONSTRUCTION WAS A LARGER CHUNK OF THAT
THE 340,000,000 THAT WE STARTED WITH IN 2019 THAT WAS AUTHORIZED BY THE COMMISSIONER OF THE MANAGING MEMBERS WAS THEN INCREASED
THE 50 MILLION WAS FOR NORTH REEF CONSTRUCTION
AUTHORIZATION
THERE WAS 25 2.5 MILLION FOR SETTLEMENT AGREEMENT AND 61 MILLION FOR A LEASE EXTENSION, LEASE AMENDMENT
AND ALL OF THESE WENT THROUGH THE NORTHWEST SEAPORT ALLIANCE COMMITTEE AND GOT APPROVED AND ENDED UP WITH THE 454,000,000 FINAL PRICE
NEXT SLIDE, PLEASE, MICHELLE
ONE OF THE THINGS THERE'S TWO ITEMS, WE WERE FOCUSED HERE ON ONE, BUT IT ALL CENTERED AROUND WHEN A BID QUANTITY FROM THE ORIGINAL PLAN OR THE ORIGINAL BID EXCEEDED 125%
SO SAY WE WERE GOING TO DO SOMETHING AND THE FINAL RESULT WAS OVER 125% OFF THAT THE CONTRACT ALLOWS US TO GO BACK AND RENEGOTIATE THAT ANY PROFIT
BECAUSE THE IDEA IS, UP TO THAT POINT, THE GENERAL CONTRACTORS MADE THEIR MONEY AND THEY'VE MADE THEIR PROFIT
AND IF YOU EXCEED THESE LEVELS, THERE'S ADDITIONAL PURE PROFIT FOR YOU
SO THE LEASE NAYS, YOU CAN GO BACK AND RENEGOTIATE THAT WITH THE PORT
SO LEGAL ASKED US TO DO SOME WORK THERE AND WE GOT BID DOCUMENTS AND PROVIDED THAT INFORMATION TO LEGAL AND RAN THE CALCS THERE
WE ALSO THROUGH THE COURSE OF THAT, WE IDENTIFIED SOME OTHER ISSUES THAT SPENCER WILL BRIEFLY TALK ABOUT, SO NEXT SLIDE, PLEASE, MICHELLE
SPENCER, INTRODUCE YOURSELF
THANK YOU, GLENN
GOOD MORNING, COMMISSIONERS
MS HOLMSTROM, I'M SPENCER BRIGHT, THE CAPITAL PROJECTS AUDIT MANAGER
I'D LIKE TO START OUT WITH JUST THANKING THE CONSTRUCTION MANAGEMENT TEAM AND ALL MEMBERS THAT ASSISTED US ON THIS PROJECT
VERY RESPONSIVE TO OUR REQUESTS AND VERY SUPPORTIVE
SO WE VERY GRATEFUL FOR THAT
WE DID IDENTIFY ONE LOW RATED ITEM, AND TO PUT THIS KIND OF INTO A PERSPECTIVE, WE TESTED THE EIGHT LARGEST BID ITEMS FOR THE PROJECT TOTAL OF $13 MILLION, APPROXIMATELY WHICH THE SUPPORTING DOCUMENTATION FOR THIS
THESE ITEMS ARE HUNDREDS UPON HUNDREDS OF TRIP TICKETS OR WEIGHT TICKETS ACROSS MULTIPLE PAY APPLICATIONS
THE RESULTS OF OUR TESTING AT THAT LEVEL WAS THAT LESS THAN 1% OR APPROXIMATELY $125,000 WAS UNSUPPORTED
SO VERY LOW ERROR RATE
WE SAW THAT THERE IS A STRONG REVIEW PROCESS IN PLACE AND THAT THE CONSTRUCTION TEAM WAS FOLLOWING STANDARD OPERATING PROCEDURES
NEXT SLIDE, PLEASE, MICHELLE
OUR RECOMMENDATION WAS FOR THE PORT TO SEEK THE SUPPORTING DOCUMENTATION THAT WAS MISSING FROM OUR REVIEW AND TO RECOVER ANY AMOUNT THAT'S DUE TO THE PORT
I WAS NOTIFIED THAT MANAGEMENT IS ALREADY ADDRESSING THIS RECOMMENDATION AND THEY ARE PLANNING ON ADJUSTING THE MARCH OR THE MOST RECENT PAY APPLICATION AS NECESSARY, DETERMINING ON HOW THE CONTRACTOR RESPONDS
NEXT SLIDE, PLEASE, MICHELLE
AND THEN JANICE, IF YOU CAN UNMUTE
WE'VE GOT JANICE ONLINE WHO'S GOING TO PROVIDE A MANAGEMENT RESPONSE
THANKS, JANICE
YEAH, I JUST WANT TO THANK THE INTERNAL AUDIT DEPARTMENT FOR THE CONTINUAL PARTNERSHIP BECAUSE I WOULD SAY SIMILAR TO KENNY'S COMMENT IN THE PREVIOUS AGENDA ITEM, IT'S ABOUT HOW WE MAKE SURE THAT ALL OF OUR PROCEDURES ARE BEING FOLLOWED, THAT IF THERE IS CONTINUOUS IMPROVEMENT, THAT WE LEVERAGE THAT
SO WHAT GLENN TALKED ABOUT RELATED TO THE ADDITIONAL INFORMATION THAT THE AUDIT DEPARTMENT WAS ABLE TO OBTAIN FOR THE PORT IS REALLY IMPORTANT BECAUSE UNTIL IF WE END UP IN A DISPUTE, THEN WE CAN PULL RECORDS TO UNDERSTAND WHAT THEIR ACTUAL COSTS ARE
BUT IN THIS AUDIT, WE WERE ABLE TO WORK IN PARTNERSHIP WITH GLENN'S DEPARTMENT TO OBTAIN SOME VERY IMPORTANT INFORMATION AS WE NEGOTIATE THOSE UNIT PRICES FOR THIS CONTRACT
AND THEN WE APPRECIATE THE WORK THAT THEY'VE DONE TO IDENTIFY THOSE ERRORS THAT WE WILL BE CORRECTING WITH THE CONTRACTOR
IF THEY ARE NOT ABLE TO PROVIDE THE DOCUMENTATION, THE NEXT BILLING INVOICE WILL HAVE THE CREDIT AMOUNT TAKEN AWAY AND THEN
IN ADDITION, THIS IS A FOUR YEAR CONTRACT
WE ISSUED THE CONTRACT IN MAY OF 2019
AND SO IT WAS HELPFUL TO GET SOME OF THIS INFORMATION BECAUSE THE SECOND BULLET THERE IS THAT WE DO HAVE AT THE END OF OUR CONTRACT, WE HAVE AN INDEPENDENT STAFFER THAT ACTUALLY GOES IN AND LOOKS AT ALL THE UNIT PRICE BID ITEMS TO VERIFY THAT ALL OF THE COSTS THAT WE'VE PAID ARE REMOVING ERRORS THAT WE MIGHT FIND
SO THIS ACTUALLY ALLOWED US TO DO THAT A LITTLE BIT SOONER ON THOSE DIFFERENT BID ITEMS THAT GLENN AND AYE
TEAM WERE ABLE TO LOOK AT
SO WE APPRECIATE THE WORK TOGETHER
WE CONTINUE TO FIND THAT THEY OFFER A REAL VALUABLE INPUT TO OUR PROCESS AND THAT THEIR WORK MAKES US BETTER
SO I APPRECIATE THESE EFFORTS
THAT'S IT
GREAT
THANK YOU FOR THE PRESENTATION AND FOR ALL THE INFORMATION THAT YOU GUYS HAVE PROVIDED AROUND THE SUPPLY CHAIN DISRUPTION MANAGEMENT
ANY QUESTIONS FROM MY COMMITTEE MEMBERS? COMMISSIONER CHO
NO QUESTIONS
I'M REALLY GLAD THAT WE DID THIS AUDIT
T FIVE HAS BEEN ONE OF THE MOST IMPORTANT PROJECTS THAT WE'VE DONE ON THE SEAPORT ALLIANCE SIDE, AND I'M SURE OUR COLLEAGUES IN TACOMA WILL BE HAPPY TO HEAR THAT THERE HASN'T BEEN ANY MAJOR SLIP UPS WHEN IT COMES TO PAYMENTS
AND SO I'M REALLY GLAD TO HEAR THAT
IS MY UNDERSTANDING CORRECT THAT WE ARE ACTUALLY GOING TO BE DISCOUNTING THE $124,000 FROM OUR NEXT PAYMENT TO ORION AND THEN PUTTING THE ONUS ON THEM AND PROVIDE US WITH I'M JUST READING THE FIRST BULLET POINT HERE ON THE RESPONSE AND WANT TO UNDERSTAND HOW THAT'S BEEN HANDLED
I SEE JANICE NODDING
SO JANICE TELL YOU? YEAH
SO OUR STAFF HAS ASKED ORION FOR ANY ADDITIONAL BACKUP DOCUMENTATION THAT THEY MAY NOT HAVE PROVIDED TO US TO JUSTIFY ANY OF THE $125,000
AND ANY AMOUNT THAT THEY'RE NOT ABLE TO VALIDATE WILL COME DIRECTLY FROM THE BILLING
SO WHAT I HAVEN'T CHECKED IN WITH STAFF, AND ACTUALLY THERE MIGHT BE ONE IN THE AUDIENCE
THERE IS WHETHER ANY ADDITIONAL INFORMATION HAS BEEN PROVIDED TO DATE, OR IF WE WILL TAKE THE 125,000 NOW, AND IF THERE IS ANY MORE INFORMATION THEY'RE ABLE TO VALIDATE, THEN IN THE NEXT BILLING CYCLE THAT WOULD BE ADDED BACK IN
IF I MIGHT ALSO OFFER ONE MORE COMMENT TO JUST THE POINT THAT THERE WERE EIGHT BID ITEMS THAT WENT OVER 125% IN THIS PROJECT
I BELIEVE THAT IS NOT UNUSUAL BECAUSE WE'RE DEALING WITH STEVADORS WHO ARE HIRING TENANTS WHO ARE OPERATING IN THE FACILITY
SO THINGS LIKE EARTHWORK MIGHT GO OVER THE ENGINEER'S ORIGINAL DESIGN ESTIMATE BECAUSE SINKHOLES MIGHT BE FOUND PAVING, AND THE GRAVEL BENEATH IT MIGHT GO OVER BECAUSE THE TENANT OR THE STEVADOR MAY ASK TO GET THIS LEASE DONE
WE NEED TO ADD MORE AREA BECAUSE THE OPERATION IS CHANGING DURING THE FOUR YEARS THAT THIS FACILITY HAS BEEN UNDERWAY
SO I DON'T THINK THAT THAT REFLECTS IN ANY WAY NEGATIVELY ON THE DESIGN AND I'LL NOTE FOR THE DESIGN TEAM THAT THAT DESIGN WAS PUT TOGETHER IN A VERY RAPID MANNER FOR BUSINESS REASONS AND TO MEET AND GET A LEASE
SO I WOULD JUST THANK THE DESIGN TEAM FOR ALL THEIR GOOD WORK EARLIER AND THE CONSTRUCTION TEAM WHO'S PRESENT
THANKS FOR ALL YOUR WORK
THANK YOU
THANK YOU FOR THOSE THOUGHTS AND FOR PROVIDING CLARITY AROUND THE OVERSPEND
I THINK THAT IS REALLY IMPORTANT FOR THE PUBLIC
WHEN YOU SEE ABOUT 100 MILLION DOLLAR OVERSPEND, IT'S A BIG NUMBER
AND SO I APPRECIATE THAT ADDITIONAL INFORMATION THAT YOU'VE SHARED
AND DIRECTOR GLENN, YOU'VE EMAILED ME SOME ADDITIONAL INFORMATION
I'VE ASKED THOSE COMMENTS IN PRIVATE SESSIONS AS WELL, AND SO I REALLY DO APPRECIATE THAT INFORMATION
I THINK IT'S VALUABLE INFORMATION FOR THE PUBLIC TO HAVE
IS THERE ANY ADDITIONAL INFORMATION RELATED TO THIS PRESENTATION THAT YOU ALL WOULD LIKE TO SHARE PRESENT? NOT AT THIS TIME FOR ME
GREAT
THANK YOU SO MUCH FOR THE PRESENTATION
SO I'LL MOVE IT ALONG IN THE AGENDA
WE ARE NOW AT ITEM NUMBER ELEVEN ON THE AGENDA AND THIS IS AN INFORMATION TECHNOLOGY AUDIT REGARDING SECURITY AWARENESS AND SKILLED TRAINING
THIS ITEM IS A SECURITY SENSITIVE AND WILL BE DISCUSSED IN NON PUBLIC SESSION
WE HAVE NO LIMITED I THINK YOU MISSED
DID I MISS TEN? ITEM TEN
ITEM TEN
I AM SORRY THAT'S MY APOLOGIES
I SKIPPED OVER TO ITEM NUMBER ELEVEN, BUT ITEM TEN IS STILL OUTSTANDING
SO MOVING US TO ITEM NUMBER TEN, SUPPLY CHAIN DISRUPTION MANAGEMENT
GLENN, PLEASE PROCEED
THIS WILL BE A RELATIVELY QUICK REPORT BECAUSE IT'S A CLEAN AUDIT REPORT
ESSENTIALLY, WE LOOKED AT THE SUPPLY CHAIN PROCESSES THAT THE PORT HAS
WE BENCHMARKED WITH PORT OF NEW YORK WITH A VARIETY OF OTHER PORTS AND GOVERNMENT ORGANIZATIONS AND ALSO GARTNER AND SOME OTHER INDUSTRY THINK TANKS
AND WHILST THERE'S SO MANY UNCONTROLLABLES OUT THERE, YOU CAN'T CONTROL FOR EVERYTHING, THAT DOESN'T MEAN THAT WE'RE NOT GOING TO BE AYE
WITH SUPPLY CHAIN PROBLEMS IT JUST MEANS WE HAVE A PROCESS IN PLACE AND WE DO THAT'S CONSISTENT WITH OTHER GOVERNMENT ORGANIZATIONS
SO WE WANT TO VALIDATE THAT WE HAD ONE
WE'RE ALL AT RISK, NOT ONLY US, BUT THE OTHER PORTS AS WELL FROM THE SUPPLY CHAIN
AND THAT'LL CONTINUE
BUT THE AUDIT WAS FOCUSED ON LOOKING AT IT AND MAKING SURE THAT WE HAVE ONE
SO WE'RE HAPPY TO REPORT BACK THAT OUR PROCESS IS CONSISTENT WITH OTHER GOVERNMENT ORGANIZATIONS OUT THERE AND PORTS
THAT'S IT
THANK YOU DIRECTOR GLENN
IT'S GOOD TO KNOW THAT OUR PROCESS IS CONSISTENT WITH OTHER GOVERNMENT ORGANIZATION
ANY COMMENTS OR QUESTIONS FOR MY COMMITTEE MEMBERS? ALL RIGHT, NOW MOVING US ALONG TO ITEM NUMBER ELEVEN ON THE AGENDA, WHICH IS AN INFORMATION TECHNOLOGY AUDIT REGARDING SECURITY AWARENESS AND SKILL TRAINING
THIS ITEM IS SECURITY SENSITIVE AND WILL BE DISCUSSED IN NON PUBLIC SESSION
WE HAVE NO LIMITED CONTRACT COMPLIANCE AUDITS ON OUR AGENDA TODAY, SO AT THIS TIME WE'LL MOVE TO CLOSING COMMENTS
MR FERNANDEZ, DO YOU HAVE ANY CLOSING COMMENTS FOR THE COMMITTEE TODAY? I DO NOT
I JUST WANT TO SAY THANK YOU FOR BEING HERE AND FOR YOUR SUPPORT
GREAT
ARE THERE ANY CLOSING COMMENTS FROM MY COMMITTEE MEMBERS? I'LL JUST SAY THAT WE PLOWED THROUGH A LOT OF AGENDA ITEMS TODAY
ALL VERY POSITIVE
AND SO I REALLY WANT TO THANK YOU, GLENN AND EVERYONE WHO HAS BEEN A PART OF THIS PROCESS AND PRESENTING US TODAY
GREAT WORK
GREAT
MY CLOSING COMMENTS
I ECHO THE SAME WORDS AS COMMISSIONER CHO
THANK YOU ALL FOR YOUR HARD WORK AND COMMITMENT TO TRANSPARENCY AND ACCOUNTABILITY
YOU ALL MAKE OUR ORGANIZATION STRONGER
HEARING
NO FURTHER COMMENTS WILL NOW RECESS INTO THE NON PUBLIC PORTION OF OUR MEETING AND THE TIME IS 10:46 A.M
TO DISCUSS ONE MATTER RELATING TO SECURITY SENSITIVE INFORMATION
THE NON PUBLIC PORTION OF THE MEETING WILL LAST APPROXIMATELY 30 MINUTES AND THE MEETING WILL ADJOURN WITH NO FURTHER BUSINESS AFTER THAT TIME
PARTICIPANTS JOINING THE NONPUBLIC PORTION OF THE MEETING VIA MICROSOFT TEAM, PLEASE CLOSE OUT OF THIS MEETING LINK AND JOIN THE 11:00 A.M
TEAMS MEETING INVITATION FOR EVERYONE JOINING IN THE PHYSICAL MEETING ROOM, PLEASE PROCEED TO THE THIRD FLOOR CONFERENCE ROOM 3 CC THREE AND THE CURRENT TIME IS 10:47
THANK YOU.

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