Ex-prosecutor's review finds fraud at Port of Seattle

A former federal prosecutor hired by the Port of Seattle found 10 instances of fraud in the Port's contracting practices.

The investigation released today follows up a state audit nearly a year ago that found the Port's contracting practices were lax and vulnerable to fraud.

Former U.S. Attorney Mike McKay's report said the investigation did not find evidence of embezzling or personal gain by Port employees. But McKay's investigation did identify fraud in Port contracting and "exposed a culture that tolerated suppressing information" from elected Port commissioners.

The report recommends the Port take action to deal with employee misconduct it discovered. McKay did not specify what action should be taken. His report does not name Port employees involved in fraud.

But it does say former Port CEO Mic Dinsmore inappropriately asked the Port's Washington, D.C., lobbying firm to help secure Dinsmore's daughter a paid internship with a congressman.

McKay said Dinsmore violated the Port ethics policy when he used the firm, McBee Strategic Consulting, for personal benefit. McKay said "the only reason the service was provided was because it was the Port CEO who asked for it."

The 57-page investigation report, authorized by the Port commission in January, does not contain many new findings. But it goes beyond the state audit in confirming fraud did occur in a number of Port contracts.

Port CEO Tay Yoshitani said he was disappointed and saddened by the findings. He said employees who committed fraud will be "appropriately disciplined and potentially terminated."

The U.S. Justice Department is conducting an ongoing criminal investigation into fraud at the Port. Port Commissioner Bill Bryant, who oversaw McKay's investigation, said that information is being shared with federal prosecutors.

"This port belongs to the people of King County and no Port employee should feel they have a license to ignore requirements or laws," Bryant said.

McKay's investigation took 10 months, cost $1.39 million, reviewed more than 250,000 documents, and more than 300 gigabytes of electronic date and e-mail.

The report divided the incidents of fraud into three areas:

Third runway

Four cases of fraud stemmed from a contract to build a massive dirt embankment for Seattle-Tacoma International Airport's new third runway, which opened two weeks ago. The Seattle Times wrote about that contract earlier this year.

McKay found a Port employee provided an internal contract estimate to a potential bidder and eventual contract winner, TTI Constructors. The employee's failure to inform Port leaders that the estimate was provided to a potential bidder constitutes fraud, the report said.

An employee also negotiated with TTI after receiving TTI's bid but before award of the contract, violating state law. TTI, which stands for "The Three Italians" is a partnership of local construction firms Gary Merlino Construction, Scarsella Brothers and Tri-State Construction. It won a $125 million bid for the embankment work.

Senior Port staff also misled the commission about the amount of the bid and the fact it exceeded the Port's internal estimate by more than 10 percent. A memo to the commission about the contract was "intended to lull the Commission into tacking no action" on the bid, McKay said, which constitutes fraud.

A Port employee also paid TTI "up-front" for material costs that were not due to be paid until the conclusion of the contract, McKay found. The payments may have amounted to "unlawful gifts of public funds," he said.

Small contracts

McKay found two incidents of fraud in which Port personnel "steered contracts to preferred vendors, often to pay for work that had already been performed ... "

The investigation said Port employees did not notify certain vendors of small contract opportunities and opened additional contract opportunities when the "wrong" contractor won a contract. It also found that the Port routinely breaks large-dollar projects into smaller "subcontracts" to keep contracts under $200,000 and avoid competitive bidding.

Consultant agreements

Investigators found four cases of fraud relating to lack of competition for consultant contracts.

Port staff awarded no-bid or limited-bid contracts then repeatedly amended those contracts and awarded follow-on agreements to avoid competition requirements of Port policies. In one instance, a senior Port executive issued a no-bid $25,000 contract for emergency work, then amended it to more than $1 million, most of which was for different nonemergency work.

McKay also found that the Port steered work to a preferred minority consultant to "artificially increase the volume of work that appeared to be awarded to minority-owned businesses."

Yoshitani has already taken steps to correct the Port's lax practices which he attributed earlier this year to a corner-cutting culture driven to get things built and jobs done. Yoshitani has reorganized the Port's procurement practices and centralized them under a new procurement director.

Bob Young: 206-464-2174 or byoung@seattletimes.com