Feds Investigate Evidence of Fraud in Seattle Port Projects

Published March 1, 2008

The U.S. Department of Justice has launched a criminal investigation of the Port of Seattle after a recent performance audit uncovered compelling evidence that fraud may have occurred in some of the port’s construction projects.

The port’s facilities, including the Seattle-Tacoma International Airport, support nearly $12 billion in annual revenue. Five elected part-time commissioners oversee a 1,700-member staff.

The audit, released December 20 by State Auditor Brian Sonntag, found the port wasted nearly $100 million in taxpayer dollars and violated numerous state laws on projects from January 2004 through March 2007.

No Controls in Place

The audit’s findings revealed “no controls were in place to deter, prevent, or detect bribery, kickbacks, illegal gratuity, or bid-rigging schemes.” In addition, auditors found the port frequently circumvents competitive bidding requirements and fails to enforce basic contract provisions, “resulting in delays, extra costs, and an inability to defend against claims.”

Numerous contracts were awarded without any evidence of competition, and in some cases, the audit found, the port awarded sole-source contracts to former port employees. Auditors also found evidence some employees illegally altered contractor invoices to pay them for work that exceeded maximum contract amounts.

Details of certain contracts were concealed from the port’s commission, the audit notes. For example, port management authorized a third runway contract that cost $32.7 million more than the port engineer’s original estimate and that the auditors say violated state law.

Astonishing Cost Increases

The audit lists several examples to support the overall conclusion that port construction management lacks cost controls and accountability.

A consulting agreement awarded in 1993 grew without competition from $950,000 to more than $30 million. In another case, a consulting agreement awarded in 1998 increased without competition from $10 million to more than $120 million and is currently being used “to augment Port staffing, unnecessarily costing taxpayers $60.5 million,” the audit charges.

Refused to Tell Truth

Auditors claim some port workers doctored documents, delayed responses, and tried to obstruct the investigation.

At least 13 port officials refused to sign standard statements confirming what they had told the auditors was true, among other things.

These normally routine statements included language saying the officials had “no knowledge of any allegations of fraud or suspected fraud” in the port’s construction contracts.

Formal Denials Issued

Port officials did not agree with all of the audit’s findings.

Port Chief Executive Tay Yoshitani issued a formal statement disputing auditor claims that the port wasted taxpayer dollars (http://www.portseattle.org/about/organization/ceomessage.shtml). He also denied accusations port employees deliberately obstructed the audit investigation or altered information, saying instead they “updated and assembled” information for the auditors’ convenience.

“Given the get-it-done attitude of the staff members involved with many of these large construction projects, I’m sure that some employees went on to the next challenge and left the paperwork for later. In the future, we will not let good intentions get in the way of good record keeping,” Yoshitani said.

‘Abdicated Responsibilities’

Evergreen Freedom Foundation President Bob Williams was disappointed in the port’s response.

“This performance audit shows a completely unacceptable level of misfeasance and malfeasance throughout the entire Port of Seattle operation. The elected commissioners, senior management, and everybody else below them abdicated their responsibilities to the taxpayers and customers to a degree that is unimaginable to the average person.”

The audit issued three overall recommendations for the port, in order to ensure “a genuine opportunity to reduce the port’s vulnerability to loss and to ensure construction projects are completed on time and within projected costs.”

  • Appoint a Chief Procurement Officer. All procurement authority, including contract awards, approval of contract change orders, and amendments and other related activities should be reassigned to the procurement officer.
  • The Port Commission should reassert its responsibility for port management. The elected commissioners should provide stronger oversight of port operations and take back much of the decision-making responsibility that has been delegated to port management, particularly as it relates to capital projects.
  • Restructure the port’s internal audit function. The individual or individuals in this position should report directly to the port’s chief executive and an independent audit committee, not to the chief financial officer.

Amber Gunn ([email protected]) is a policy analyst for the Evergreen Freedom Foundation’s Economic Policy Center.

For more information …

Performance Audit Report: Port of Seattle Construction Management: http://www.sao.wa.gov/Reports/AuditReports/AuditReportFiles/ar1000008.pdf.