Tuesday, December 14, 2010

State Audit Critical of Seattle Port Real Estate Deals

The Washington state auditor's office on Monday released its second major audit in three years of the Port of Seattle, finding that while the port may have addressed many problems since the first audit in 2007, there remains room for improvement.

The 42-page report included a performance audit report that reviewed the Port’s real estate purchases and leases, crane management and Fishermen's Terminal management, strategic planning and three programs' accountability and compliance with laws and regulations. The audit also included an accountability report, which found the Port did not adequately monitor management contracts and another accountability report, which reviewed the Industrial Development Corporation of the Port of Seattle and found that the Corporation adequately safeguarded public assets.

The performance review portion of the audit found numerous oversight and management failing in regards to real estate transactions.

For example, the audit found an accounting error that led to a $4.1 million undercharge on a port property land transaction.

During the 2004 sale of the 28-acre Terminal 106E, port officials had the property appraised at $27.7 million--which the port later lowered to $23.7 to reflect approximately $4 million in improvements the buyer said were to be done of the facility.

According to the audit, port staff inadvertently subtracted the roughly $4 million from the sale price on two separate occasions, leading to a $4.1 million loss for the port.

The 42-page report also highlighted the port's $5.5 million purchase of a steel mill, done, according to the audit, without fully assessing the property's environmental contamination which in turn lead to the port abandoning development at the site.

In light of such transactions, and other identified problems such as the use of outdated market data resulting in low lease rates, the audit recommends that the port commission take over direct control of the Real Estate Management Division.

The state auditor made the same recommendation in 2008, after a 350-page audit of port operations between 2004 and 2007 found nearly 50 indications of financial and contracting irregularities or fraud. In addition, the 2007 audit found that the port wasted nearly $100 million in taxpayer money through improper construction contracting. Released in December 2007, the audit led to a United States Department of Justice investigation into the accusation of fraud at the port. At the time, the state auditor’s office was unable to prove fraud due to state regulations putting the collection of substantiating evidence outside the legal mandate of the office.

Following the scathing 2007 audit, the port adopted numerous oversight and accountability measures, including more direct oversight of port operations by the port commission.

In all, the recent audit made 10 recommendations to the port, with most centered around port leadership providing more oversight, more consistent application of port policies, and additional diligence by port staff.