By Frank Chmelik

This month, we look at what happens when a port discovers a “known or suspected loss of public funds.”  Honestly, this does not happen very often, but when it does occur it can be very stressful on port staff and the commissioners, particularly when it involves some misfeasance or error of a port employee.

These “known or suspected loss of public funds” situations usually arise when the port accounting staff uncover an anomaly in processing reimbursement requests or paying invoices.  Experience shows that the staff do not automatically jump to a loss conclusion, rather the initial concern is merely to understand the anomaly so that it can be resolved.  However, at some point, accounting staff cannot reconcile the paperwork and becomes concerned.  If such a situation happens, here are the action steps.

  • Contact the port auditor. Each port is required to have a person appointed by the port commission to act as the port auditor; usually, the port auditor is also the chief financial officer.  This person has a dule role: as port auditor, they report to the port commission, and as CFO, they report to the executive director.  The port auditor will be the person who leads the actions for these situations.
  • The port auditor should contact the port attorney. Like the port auditor, the port attorney is appointed by and reports directly for the port commission.  The port attorney can provide guidance to the port auditor.
  • Provide notice to the executive director. The executive director or port manager should be notified.  Keep in mind that, at this point, this may not yet rise to the level of “known or suspected loss” of public funds.
  • Port auditors should be skeptical. Not all anomalies prove a “known or suspected loss of public funds.”  Sometimes a set of fresh eyes can help resolve the issue; or, what looks like a loss may, in fact, be a failure to follow procedures or otherwise be explainable.  The Port auditor may ask for additional investigation, additional analysis, or additional details.
  • Notify the Commissioners.   At some point, and for sure at the point that the port auditor has determined that there is a “known or suspected loss of public funds,” the commission should be notified, and authorization obtained to make the report to the State Auditor’s Office (the “SAO”) in compliance with RCW 43.09.185.
  • Comply with RCW 43.09.185. This statute requires an immediate report to the SAO of a “known or suspected loss of public funds”.  Note that there is not a minimum value – the statute indicates all losses.  I think “immediate” means that point at which the port auditor has been satisfied that this is indeed a “known or suspected loss” as opposed to an anomaly or merely a failure to follow procedures.  The report can be made online at the SAO’s website or by calling the port’s SAO contact.
  • Report the situation to the port’s insurance carrier. Most ports have insurance that will cover the loss.  In addition, a loss may result in employee discipline or termination.  Some employment practices insurance policies include a waiver of a deductible for employee claims for wrongful termination where the insurance company has been notified before the personnel action was taken.
  • Consider remedial actions. If there is a problem – either an actual loss or an anomaly that gets resolved – consider changing polices or procedures to fix the issue.  Where there is a loss, the best practice is to adopt a fix as soon as possible.  Experience shows the SAO’s office appreciates proactive action to fix a system or procedure.

After report, the SAO will conduct an initial review to determine the SAO response.  For small losses or a loss where the funds were recovered, it may result in only a discussion with SAO personnel.  A larger or unsolved loss may result in additional investigative suggestions from the SAO office or an actual physical visit to your port by SAO personnel.  If a specific person is identified as having unlawfully taken port funds, the SAO may recommend a referral to local law enforcement.  Indeed, if a port declines to pursue an action to recover lost funds, the SAO may refer the matter to the State Attorney General’s Office that can itself begin an action in the name of the port.  If the SAO issues a report, it is a public record.

Finally, consider including a segment on loss of port funds in annual staff training. Experience shows that this training can help prevent loss.  One issue that frequently arises when there is an investigation, employees are offended when their actions are questioned, (i.e., “how could you question my integrity?”).  In my view, training should include an acknowledgement that when there is a loss, there will be an investigation and involved staff will be asked to provide information – nothing personal – just the port auditor doing his/her job.

As always, please contact your port counsel with any questions regarding this topic.   And, if you have a particular question for a Knowing the Waters, please email me at