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Seattle port investigators say they found fraud

Seattle port investigators say they found fraud

A Port of Seattle investigatory team has uncovered “10 incidents of fraud in port contracting practices and exposed a culture that tolerated suppressing information from the elected commission.”

   While the team, headed by former U.S. attorney Mike McKay, “did not identify any embezzlement or personal gain,” it is recommending reform measures and training programs, and has encouraged Tay Yoshitani, the port's chief executive officer, to review its finding and take disciplinary action.

   McKay, now a private practice attorney specializing in white-collar crime, was asked in February to perform the investigation after a state audit alleged fraud and abuse and waste of taxpayer funds between 2004 and 2007.

   The state audit found nearly 50 indications of financial and contracting irregularities or fraud at the port. In addition, the state auditors found that nearly $100 million in taxpayer money was wasted by the port through improper construction contracting. The audit also led to an ongoing U.S. Justice Department investigation into alleged fraud at the port.

   McKay’s team said, “For the purposes of this investigation, fraud is defined as the intentional misrepresentation or concealment of material information, known to be false, with intent to deceive or mislead, with resulting damage. The concept of fraud is distinct from that of embezzlement, which requires that an individual personally profit from his or her misconduct.”

   The report said the findings of fraud included:

   ' A port staff member that leaked an internal port estimate to a potential bidder on the Sea-Tac International Airport third runway project. The bidder eventually won the contract and made a 30 percent profit on the $125 million project.

   ' At least four cases of port staff misleading the port commission on the details of contracts.

   ' Port staff steering contracts to preferred vendors, often for work already performed.

   ' Port staff amending a $25,000 no-competition 'emergency' professional services agreement to more than $1 million.

   ' Port staff steering work to a preferred minority consultant to artificially increase the volume of work that appeared to be awarded to minority owned businesses.

   The report also found four cases where port staff broke laws by:

   ' Engaging in invoice altering.

   ' Encouraging altering invoices to avoid bringing contracts that exceeded $200,000 to the commission for review.

   ' Using an existing service contract as a slush fund to pay consultants without having to seek new contracts.

   ' Breaking up larger contracts into smaller contracts to allow less stringent contracting rules to apply.

   The report also found that former port Chief Executive Officer Mic Dinsmore violated port ethics policies by using a port lobbying firm in Washington, D.C. to obtain a paid internship for his daughter with a member of Congress.

   But the report released this week said some other serious allegations raised in the state audit were not true.

   For example the state audit concluded that the port “unnecessarily spent” more than $90 million by using the Parsons’ Program Management Support Consultant agreement to facilitate the Capital Improvement Program work at the airport. The state audit alleged that port staff allowed a consulting agreement awarded in 1998 to grow without competition from $3.5 million to more than $120 million.

   “The investigative team found that this procurement was conducted with full competition, that the duration and scope of the agreement was anticipated and disclosed to potential vendors during the original competitive procurement, and that the commission was fully apprised of the duration and scope of this work both prior to the procurement and on an annual basis thereafter,” McKay’s report said.

   “We will immediately begin implementing the recommendations of Mr. McKay’s independent report, and we will embrace this as an opportunity to build on our existing reform efforts,” said Yoshitani, who joined the port in March 2007. “As to the report’s findings of civil fraud, I am deeply disappointed and saddened.”

   He said, “Any staff member who has committed fraud will be appropriately disciplined and potentially terminated.”

   Bill Bryant and Gael Tarleton, two members of the Port of Seattle Commission who comprise its “special investigatory committee,” released the results of the 10-month investigation into the port’s contracting policies and practices.

   “This report exposes a port culture that in the past tolerated suppressing information from the elected commission,” Bryant said. He said that in the last year the port “has made significant changes, increasing our transparency and accountability to King County citizens.”

   “The results bring serious violations out into the open,” Tarleton said. “Now we have to work to make sure this never happens again.”

   The port owns and operates Seattle-Tacoma International Airport, the nation’s 18th-busiest, and is in charge of both passenger and cargo facilities in Seattle, the nation’s seventh-busiest U.S. seaport in 2007.