Last updated January 7, 2008 11:16 p.m.
Audit alleging waste, fraud catches U.S. attorney's eye
The U.S. Attorney for Western Washington is conducting a criminal investigation of the Port of Seattle based on a state performance audit of the port's construction management, which found the port wasted $97.2 million during contracts active from 2004 to 2007.
While the FBI did not corroborate that it is taking part in the investigation, Special Agent Robbie Burroughs said the agency investigates cases for the U.S. attorney, who prosecutes those cases.
Emily Langlie -- spokeswoman for the U.S. Attorney's Office in Western Washington, a division of the Department of Justice -- would not comment on which federal enforcement agencies are investigating the matter.
"The letter needs to speak for itself," Langlie said. "Federal law enforcement is very well-skilled, and they will be handling it. ... Generally, they come to our office with what they've discovered, ask us to look at it and then we would determine whether laws have been broken and what should be prosecuted."
Sonntag said representatives from several overlapping federal agencies -- including the FBI, the Justice Department and the Office of the Inspector General for the U.S. Department of Transportation -- "have had some preliminary meetings with some of our folks, to begin asking questions because they want more information and are asking for some of our work papers."
Langlie declined to comment on what shape the U.S. attorney's criminal investigation will take. But Jeff Coopersmith -- a criminal defense attorney with DLA Piper, which he joined after serving as an assistant U.S. attorney -- said the U.S. Attorney's Office "has obligations to look into violations of federal law," such as mail or wire fraud.
Without commenting on the audit findings, Coopersmith said the federal investigators would likely be "looking to see whether in this situation, there have been misrepresentations of material facts, intentional omission of material facts, whether there were kickbacks or bribes. That is the stuff that criminal investigations are made of."
Black's Law Dictionary defines fraud as "a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment."
The federal investigators can use a grand jury to subpoena witnesses and documents, said Coopersmith, who added that proving fraud doesn't have to mean catching someone in the act of pocketing money.
"A scheme of fraud could be depriving others of their intangible right to honest services," said Coopersmith, who said that "employees hiding facts so that people make decisions in a certain way" could qualify.
Above all, the audit found that the staff misled the five commissioners elected to oversee the port, leaving details out of memos that accompanied briefings, which are supposed to inform the commission so it can take action. On Tuesday afternoon, the commission is slated to review a 1994 decision in which it delegated much of its contract oversight to the port staff, which the audit described as proceeding to abuse the power through omission and misrepresentation.
The audit found that former Port Chief Mic Dinsmore and Aviation Director Mark Reis broke state law by negotiating a $125 million third-runway embankment contract with a TTI Construction principal at a steakhouse, keeping its cost within the port's procurement policies through cosmetic changes in order to avoid notifying the commission that the sole bid was vastly over the port's estimate -- and leaving the commission of the loop.
If the federal investigators or the fraud auditor the port plans to hire find fraud, new Port Chief Executive Tay Yoshitani has said he will "deal with it swiftly and appropriately." But on Monday, he said he has no plans to discipline those employees who violated state laws.
"We will be clear on expectations, and if people violated those expectations, we have clear rules going forward, and then we would take severe disciplinary action," Yoshitani said. "But to go back to these people who were working in that environment" -- which he earlier described as "get it done now, worry about the paperwork later" -- "and to take any disciplinary action against them would be, I think, unfair."
On Monday, Yoshitani sent a letter disputing some of the audit's central findings, saying what the audit described -- the port wasting $60.5 million by padding its staff with consultants on a contract that grew from $3.5 million to $129 million without a bidding process -- is consistent with "best industry practices."
During an interview, Yoshitani said he did not mean to say in December that the port agreed with the audit's findings, but rather that it would proceed with the recommendations -- regardless of whether port staff accepts the basis for them.
In its written response to the audit, the port fought, sidestepped or ignored major parts of the auditors' analysis, reserving its most strenuous objections for the audit's identification of 47 different situations that could be indications of fraud.
"The $60 million -- the allegation that that was wasted -- is just unfair and inaccurate," Yoshitani said.
In late December, Yoshitani described how the 1998 contract with Parsons Transportation Group allowed the port to use consultants to complement its staff and fill the gaps of uneven project timing during the third runway's construction.
But the audit's criticism of the port's practices did not deal only with the fact that the contract was reupped annually without competition for 10 years with the approval of the port's five-member elected board of commissioners, who again voted to expand the contract to $136 million in December. The auditors also lambasted the port for paying Parsons for overhead such as office space, as well as general and administrative expenses that the port was already subsidizing.
"As a result, the contractor and its subcontractors are reaping windfalls under this arrangement, and the (port) is paying substantially more than it would need to pay if it had simply hired employees to fill these positions," the auditors wrote. The port is paying as much as 216 percent of what it would have paid to fill the positions with regular staff, the audit found.
Yoshitani said that approving consultants' billing rate increases without reviewing them "needs to be changed," but said of the other "incidentals -- like working in our office -- I view that as part of the negotiations," which took place under Dinsmore.
Dinsmore could not be reached for comment Monday, but he told the Seattle P-I in late December that "I have no doubt that there is nothing of substance in anything that has been alluded to. Let the process show what I just said to be true."
When asked whether he thought the audit contained nothing of substance, Yoshitani said: "I don't know. He was here when all that was happening, and I wasn't, but just based on the findings, on the suggestions that we were vulnerable to fraud, I have to bring closure to it, and the only way I can bring closure to it is to follow up on some of those areas where the auditors suggest vulnerability of fraud."
The audit described a port staff that let money leak from contracts big and small; that failed to rein in late and costly projects and the contractors who ran them; that intentionally altered contracts to avoid state law's public bidding requirements and, when those rules were followed, steered such contracts to preferred bidders, manhandling the rules and the port's own procurement policies to guarantee their reward. It was during the course of those actions that the port may have committed fraud, the audit said.
The audit, the scope of which included examining how well the port kept its records, also found that the port had altered documents needed for the audit, patching holes in records, correcting mistakes and eliminating inconsistencies as it went along.
In his letter Monday, Yoshitani said staff did not alter records but rather "did catch up on backlog filing and documentation."
"The information was not changed, it was updated; it wasn't altered, it was updated," he said. "I guess you could make the case that updating the report is altering the report, but that's not the way we looked at it."
The port's response to the audit's findings does contain "some pushback," Yoshitani conceded. "That's where the cultural change has to take place. In the final analysis, I am the CEO, so they have to comply with what I want. What I want is compliance with statutes, with our policies, and there are certain policies that need to be reviewed."
