Justice Department to investigate Port

The U.S. Justice Department has launched a criminal investigation into the Port of Seattle following a scathing state audit that found waste and possible fraud.

U.S. Attorney Jeffrey Sullivan notified State Auditor Brian Sonntag of the investigation in a letter Friday.

The Dec. 20 audit blasted the Port for shoddy management of construction contracts, and identified violations of competitive-bidding laws and waste of $97 million. Port officials have disputed those findings but said they would work to improve management.

While the audit did not find proof of fraud, auditors said they found many "indicators" of possible fraud and urged law-enforcement agencies to probe further.

To protect its investigation, the Justice Department letter requested that the auditor not publicly disclose any information beyond what was included in the 334-page audit report.

In particular, the letter requested that the auditor's office not disclose, for at least three months, the identities of people interviewed during the course of the audit. The audit report referred to several Port managers and contractors only anonymously, and the auditor's office had delayed responding to a media request for the names of those involved.

A Port spokeswoman today said officials there did not know anything about the Justice Department investigation before seeing a Seattle Times report online this afternoon.

The five-member Port Commission is scheduled to hold a public hearing on the audit tomorrow.

Port CEO Tay Yoshitani today sent a letter to business and community leaders disputing some of the audit's findings. In particular, Yoshitani said, the Port had not wasted $97 million as claimed by the auditor. He noted that most of what the audit identified as "waste" was money that went to a consultant who did necessary work on the third runway at Seattle-Tacoma International Airport.

Yoshitani stressed in an interview this morning — before learning of the Justice Department probe — that the audit had not found any cases of fraud. Still, Yoshitani said he concurred with most of the audit's recommendations to improve Port operations. He said he has already acted on one recommendation: He has started recruiting a chief procurement officer.

The Port Commission, meanwhile, is expected at tomorrow's meeting to start the process of expanding its oversight power over Port staff and projects, although commissioners have not made any proposals public.

"There is no question that the direction they're going in is to tighten controls," Yoshitani said. "I think it's the right thing and appropriate. What that translates into in terms of specific policy I don't know."

The Port's problems do not result from corruption, Yoshitani said, but from a hard-charging, get-things-built culture that sometimes did not follow Port policy. "The pendulum swung too far toward loose controls and we need to bring that back," he said.

Almost all of the audit's findings concerned practices that occurred under the leadership of former CEO Mic Dinsmore, who retired in 2007. Yoshitani said he has no doubts he can change the Port's behavior quickly. "I'm convinced I can change behavior and the culture with that," he said.

The Port also may face scrutiny from the U.S. Department of Transportation's Office of the Inspector General.

Sonntag's office today confirmed the inspector general's office, which investigates fraud in federal transportation contracts, had expressed interest in following up on the audit's findings.

Jim Brunner: 206-515-5628 or jbrunner@seattletimes.com. Bob Young: 206-464-2174 or byoung@seattletimes.com