Lake County School District s BGA/Con-Ed Contract Audit Detailed Audit Report Fiscal Year

Transcription

1 Lake County School District s BGA/Con-Ed Contract Audit Detailed Audit Report Fiscal Year Completed By: Thomas A. Mock, CIA Date: November 30,

2 TABLE OF CONTENTS Cover Page. 1 Table of Contents... 2 Detailed Audit Report A. Background B. Objective & Scope C. Procedures and Reviews D. Findings...8 E. Recommendations F. Management Response..9 G. Conclusion

3 Internal Audit s Detailed Report A. Background BGA/Con-Ed was selected to perform a Guaranteed Energy Performance Contracting (GEPC) Project (aka Guaranteed Energy Savings Project) to provide energy savings through the installation of energy efficient devises at selected school facilities within Lake County School District. The GEPC Project was initiated with an Investment Grade Audit (IGA) that specifically identified areas for energy improvements and operational changes. This IGA was performed for a fee of $98,494. The IGA identified Energy Conservation Measures (ECMs) in the School District s aging capital structure that should be replaced or upgraded to decrease energy consumption and also reduce maintenance costs. The School District agreed to five (5) ECMs after the IGA; and they are as follows: ECM #1 Lighting Improvements & Controls; reduce energy consumption by replacing old fixtures with new energy conserving fixtures and controls. Also, included in the upgrades are planned reduction in usage hours for selected areas within the schools. The new lighting will require less maintenance annually, and a maintenance cost savings was provided in the overall calculated savings. The lighting Installation was completed at seventeen (17) selected schools. ECM #2 HVAC Replacement; replace 87 old units with new energy conserving units. The new HVAC units will require less maintenance annually, and a maintenance cost savings was provided in the overall calculated savings. All work completed at South Lake High School. ECM #3 Demand Controlled Ventilation; install control units on air handler to control amount of outdoor air during hot/cold periods of the day. These air intake controls were installed at South Lake High School. ECM #4 Network Computer Controls; monitor all District Personal Computers (PCs) and place in a reduced energy consumption mode during the day or night when idle. Monitoring would be completed by a software package placed on a server in the IT Center. The School District s 21,000 PCs would require the purchase of licenses costing $27 per computer for the monitoring system. ECM #5 Vending Machine Controls; a devise placed on each Vending Machines would monitor and place in a reduce energy consumption mode when idle during the day or night. Installation to be completed on 225 vending machines throughout the School District. The old (Lighting/HVAC) systems would become the baselines to measure future energy savings against the performance of the newly installed/upgraded systems or the reductions achieved when devises installed decrease energy consumption. Once the School District elected to move forward with the GEPC Project it required an investment of over $6.5 million in capital improvements necessary to generate reduced energy consumption in the old equipment. The money needed for the capital improvements was secured through an Equipment Finance & Leasing agreement through SunTrust with an interest rate of 2.078%. The SunTrust agreement would require nine (9) annual payments of $776, beginning in August 2012 and run through August The GEPC Project contract was approved by the School Board in their regular School Board meeting on September 12, 2011 and signed by the Chair on October 3, The GEPC Project contract is automatically renewed each year through The contract outlined that the reduced 3

4 energy savings generated from the five (5) ECMs implemented would pay the annually cost ($776,966.39) of the Equipment Finance & Leasing agreement, plus generate additional energy dollar savings. The additional energy dollars generated by the GEPC Project contract would provide a guaranteed savings of $1,369,445. If there is a greater amount, the School District will maintain all additional dollars beyond the guaranteed amount. The GEPC Project contract s Schedule D Compensation to Company and Deliverables requires the School District to provide payments for the Construction Cost, Annual Reconciliation Cost and Annual Software Maintenance Cost projected to cost $7,229,511, $97,302 and $309,982 respectively. The BGA/Con-Ed GEPC Project contract, is under the general supervision of the Energy Program Manager, who reports to the Director of Maintenance within the Chief of Operation s Division of the School District. B. Objective and Scope Internal Audit performed a Contract Audit of the BGA/Con-Ed Guaranteed Energy Performance Contracting (GEPC) Project. The audit included documenting the key abstract terms of the GEPC Project contract and the IGA Report. Internal Audit used information gained from the GEPC Project contract and IGA to audit the five year time period from 2011 to The objective of the audit were to determine if key requirements of the GEPC Project contract are being accomplished and performed as outlined in the agreement. Internal Audit efforts were focused on the three highest energy saving ECMs (#1, #4 & #5) as related to their annual performances. The scope of the audit covered September 2010 through October 2016 for information generated from the IGA report that initiate the GEPC Project Contract. Internal Audit did not perform a Construction Audit for the Capital Improvement costs of the work required to complete this Contract Audit. All audit work and audit testing focused on the key requirements of the contract, amendments and reports during this time period and in these areas. C. Procedure & Reviews Internal Audit noted during the preliminary work for the Contract Audit that Annual Reconciliation Reports were only completed for the first two years of the GEPC Project. Additionally, the Software Maintenance Cost were never paid by the School District after the initial three years of the agreement. The GEPC Project has completed 6 of the 9 years of the agreement. Internal Audit requested various documents pertaining to calculations and research for work completed for the BGA/Con-Ed project. Internal Audit found documentation to be limited in substance and detailed for most areas of the GEPC contract. Internal Audit s work for this review involved: documenting the terms of the agreement, confirming the ECM formulas, agreeing support data to baseline numbers, recalculation of Annual Reconciliation data to reported energy savings and projection of final energy savings. Internal Audit observed areas of noteworthy performance and savings to the School District from the execution of this energy savings initiative: The School District was able to complete needed replacement and upgrades in its Capital Improvements during a time when funding and budget was very tight. Three of the five ECM energy savings paybacks were to be less than 3 years. The School District received cost saving from BGA/Con-Ed performed during the construction phase of the project that were estimated at approximately $100,000 in savings. BGA/Con-Ed removed the old HVAC units and took them to the scrap yard and returned $16,561 to the School District. 4

5 BGA/Con-Ed was able to obtain for the School District a check for $140,000 from the Federal Government. This money was used to invest in energy water saving devices throughout the district. These new devices provide real time information on water leaks that has saved over $360,000 by addressing a water leak within short time period verses days/weeks. Seven of twenty South Lake HS & Umatilla MS gymnasium lights were not working properly after the warranty period. BGA determined the lighting was overheating and recommended that they be replaced. BGA acquire a more efficient LED product and replaced all 20 lights at South Lake HS and Umatilla MS at no cost to the School District. BGA/Con-Ed renegotiated the Software Maintenance Fee agreement, reducing it from $50,000 to $30,000. BGA/Con-Ed has provided consulting services for various issues and recommended positive solutions to issues and problems throughout the contract period. Additionally, they have provided consulting hours for this Contact Audit. Internal Audit completed analyses of ECM #1 Lighting Upgrades, #4 Network Computer Controls & #5 Vending Machine Controls, as these ECMs were projected to provide approximately 90% of the annual energy savings in the project. Internal Audit noted the following information about these ECMs from the documents provided: a. The installation of lighting upgrades and controls for the 17 schools selected in the contract was completed on-time (July 2012). In the two years following the lighting upgrades, random testing performed by using a power meter determined the upgraded lighting fixture electrical load in Kilowatts to be in accordance with manufacture data. The data collected during the annual review was used to determine the overall performance and calculate the annual energy savings for ECM #1. Testing completed on this ECM indicated energy savings were aligned with the baseline s expectations to provide reduced energy consumption at or above projections. b. The implementation of the monitoring software (Surveyor) for ECM #4 Network Computer Controls was installed in The initial number of PCs controlled and monitored by Surveyor (version 5) software in the first year was 12,718 or 60.6% and in second year 12,893 or 61.4% of the baseline total 21,000. By July 2015 the computers controlled and monitored reached 16,513 or 78.6%. The last update to the software was completed in July 2015 for Surveyor to version 6, but updates to the Java operation system have caused the software to become nonoperational. Issues began in 2015 when the software firm Verdiem (owner of the Surveyor software) was purchase by Aptean and a decline in customer service support was experienced. However, the decision to not purchase the software s annual management/upgrade contract ($30,000) caused software compatibility issues. The current software edition is Surveyor version 7 released in October c. The installation of motion controls on 122 vending machines or 54% complete during the first and second year s annual review of the baseline s 225. The Annual Reconciliation s testing performed showed this ECM was performing above expectations for their performance than calculated during the baseline. The district achieved 99.96% in energy savings the first year and % in energy savings the second year. From the review of the contract, IGA and other related documents Internal Audit found discrepancies in calculations and formulas. Internal Audit also determined the ongoing requirements of the contract were not being executed by the School District. Since the inception of the contract many of the School District administration staff involved with the IGA and contract no longer work for the School District. In addition, none of the current School Board members were on the Board when the contract was reviewed and approved in

6 Review of ECMs Internal Audit reviewed ECM #1 Lighting Upgrades as this initiative is projected to generate $377,487 or 46.1% of the annual energy savings and reduced maintenance costs. Internal Audit initiated the review by recalculating the baseline data using the vendor s formula. Internal Audit s calculations were slightly different using the same data, resulting in a slightly lower annual dollar savings. The difference was determined to be a result of rounding as the documents used from the Investment Grade Audit (IGA) were rounded numbers. No documentation to support the reduced hours of usage in lighting used in the baseline calculations or savings generated from reduced monthly maintenance costs. Internal Audit did not review ECM #2 Air Handler Replacement the savings generated from the replacement of HVAC equipment at South Lake High School was projected to produces an annual energy savings and reduced maintenance costs of $88,295 or 10.8% of the overall initiatives savings. Because this ECM s energy savings is projected to be approximately 11% of the overall annual savings it was not reviewed. However, Internal Audit requested the detail for the maintenance annual savings of $81,484 (which is 92% of the overall savings for this ECM annually) but no detail support was provided for validation. Internal Audit did not review ECM #3 Demand Control Ventilation the installation of these air control devices at South Lake High School are projected to produce an annual energy savings of $1,912 or.2% of the overall initiatives savings. Because this ECM s energy savings is projected to be immaterial to the overall annual savings it was not reviewed. It was noted that this initiative delivers an excellent payback for its cost of $11,688. Internal Audit reviewed ECM #4 Network Computer Controls as this initiative was projected to generate $302,187 or 42.2% of the annual energy savings. The concept for this initiative was to install a software monitoring package called Surveyor on a server in the IT Center. Surveyor would monitor 21,000 PCs in the School District and apply preset procedures during idle periods that will reduce PCs energy consumption. The data collected in the IGA was not available for Internal Audit to validate the information used to support the number of PCs being managed and energy consumption savings calculated used in the baseline. The Surveyor software is no longer operational because updates have not been completed since Therefore, Internal Audit could not substantiate the baseline data and/or the Annual Reconciliation data for year 1 and 2. Internal Audit held various meetings and discussions with IT, BGA/Con-Ed and the Energy Programs Manager and it became clear the Network Computer Controls initiative was not properly executed as intended. Internal Audit met separately with IT Staff, BGA/Con-Ed and the Energy Program Manager to try and understand why this initiative was unable to reach its full potential as presented in the IGA and GEPC. Internal Audit documented the following issues: 1. IT indicated they were not involved with the selection process for the vendor software and many problems ensued from installation through the software s daily monitoring functionalities. 2. Documentation for the baseline data is lacking, Internal Audit was only provided a PowerPoint presentation as support for all the data used to determine the School District s overall energy savings. 3. The lack of communication regarding the importance of this ECM to the new CIO impacted its overall success and achievement. 6

7 4. The calculation for the energy savings for the 21,000 PCs was not provided to Internal Audit, and appears to not have been studied in detail to determine if all PCs in the School District should have been included. 5. A pilot program was not performed to determine what issues would result from powering down PCs during the day, prior to rolling out to the whole organization. 6. Changes in ownership of the software vendor resulted in customer support issues. 7. Management s decisions to no purchasing the annual software maintenance resulted in compatibility issues with the Java operating systems rendering Surveyor unusable. Internal Audit requested an update for the current total number of PCs in the School District and found there are 27,000 (a 28.6% increase since 2011). At present, half of the PCs are laptops and the other half are PC towers. Laptops computers consume up to 80% less electricity than desktop PC towers. And today s PC desktops are 50% more efficient than older models. IT has been sunsetting older models each year as the budget allows. The School District has increased the number of monitors used over the past six years, as many district staff use a two monitor configuration with their PC (laptop or tower). Finally, Microsoft Power Management (MPM) has been in place at IT long before the implementation of Surveyor. MPM has been providing the School District a power management architecture through the management of PCs software, hardware and Windows. However, MPM has never offered reporting capabilities for tracking energy savings as the district updates and makes changes in it s; hardware, software and/or operating system to more energy efficiency that newer PC models provide. Internal Audit reviewed ECM #5 Vending Machine Controls as this initiative was to generate $49,105 or 6.8% of the annual energy savings. This project required the installation of monitoring devices that will place vending machines in a low energy consumption mode during inactive period of the day/night. The IGA determined that the School District had 225 vending machines. Internal Audit found there was no detailed information maintained for the School District vending machines. In the first and second year 122 vending machines were outfitted with a Vending Miser monitoring device. Random testing on six machines indicated a 25% decrease in energy consumption from the baseline data resulting in an annual energy savings of $47,170. Since the School District did not accomplish all requirements in ECM #4 and #5, Internal Audit calculated there was a lost opportunity energy savings totaling $105,194 in year #1 and $201,654 in year #2 based on the data assembled from the baseline audit. The breakdown is as follows: Projected Savings Projected Savings Calculated Savings Calculated Savings Lost Opportunity Lost Opportunity Lost Opportunity Energy Savings Year #1 Year #2 Year #1 Year #2 Year #1 Year #2 Year #1&#2 ECM 1: Lighting Upgrades/Controls $ 386,574 $ 396,130 $ 386,574 $ 396,130 $ $ $ ECM 2: Air Handler Replacement $ 90,615 $ 92,473 $ 90,615 $ 92,473 $ $ $ ECM 3: Demand Controlled Ventilation $ 1,912 $ 1,960 $ 1,912 $ 1,960 $ $ $ ECM 4: Network Computer Controls $ 302,187 $ 309,742 $ 208,609 $ 208,609 $ 93,578 $ 101,133 $ 194,711 ECM 5: Vending Machine Controls $ 47,170 $ 48,349 $ 44,288 $ 44,288 $ 2,882 $ 4,061 $ 6,943 Total Projected Real Annual Savings $ 828,458 $ 848,654 $ 731,998 $ 743,460 $ 96,460 $ 105,194 $ 201,654 7

8 D. Findings Contract 1. Internal Audit found during the review of the BGA/Con-Ed Contract that the guaranteed savings support Schedule D was not accurate. The contract denoted guarantee savings for $1,369,445, however the support provide in Schedule D contained an error and the guaranteed savings should have been $1,315,185 resulting in an overstatement of $54, The Guaranteed Energy Savings Contract was drafted to be automatically renewed each year for a total of nine (9) years without School Board review or approval. 3. Internal Audit was not able to gain detail support for the numbers in the Contract. Numbers such as: 21,000 Personnel Computers, $100,000 in Maintenance Savings, 225 vending machines, etc. 4. The Guaranteed Energy Savings Contract did not provide a Right to Audit section within the terms of the agreement. 5. The construction activities were deemed maintenance and no construction records were maintained by Facilities. 6. The project didn t have an assigned Project Manager responsible for managing the project and insure detail documentation were created and maintained for the project from beginning to end. Investment Grade Audit 7. The Investment Grade Audit provided formulas that were not used as presented in the Guaranteed Energy Savings calculations. Annual Reconciliation Report 8. The School District did not have anyone assigned to perform the verification of the Annual Reconciliation Report computations within the 60 day timeframe. 9. Each Annual Reconciliation Report was not submitted to the School Board for discussion, review and/or approval into public record. 10. Internal Audit calculated a Lost Opportunity Savings in year 1 to be approximately $96,460 and year 2 to be approximately $105,194 for a total of 201,654 over the two years of Annual Reconciliation Reports and approximately $600,000 for the time period of the review. 11. The Annual Reconciliation Report was discontinued after the second year without Senior Management or School Board s authorization. 12. The Network Computer Control MIS maintenance payments were never paid by the School District, which led to Surveyor becoming non-functional. Internal Audit found oversight of the program deficient of authority to insure maximum implementation, the development of effective procedures, and the initiation of a training programs for school and district staff. Energy conservation, maintenance and IT documented data associated to this initiative are imperative to this contract s successful outcome. E. Recommendations Internal Audit offers the following recommendations for future large projects. A Senior Manager or School Board Member should be identified as a sponsor to provide support to the project. The Project Manager s role should be clearly defined and all team members should understand the Project Manager s role. The Project Manager s responsibilities should encompasses all aspects of the project, such as: manage the master schedule, track key project milestones, coordinate work, ensure project data is detailed/supported, repository for documents, testing/pilot projects are executed, maintain minutes for all meetings, draft quarterly status reports, gain proper approval for changes to the project, etc. 8

9 It should be expected that turnover will occur on long term projects, therefore a process for new staff to meet with the Project Manager and gain an understanding of the project s objective, schedule and expectations required for the successful outcome of the project should be established. In the future, long term projects must give consideration to the fast pace changes in technology, when it is a significate piece of the projects success. Finally, updates for the project should be made to the School Board at least annually, regarding: objectives, accomplishments, amendments and status of the project. F. Management Response The GEPC Project should be sunset as all efforts have run their course and savings recognized. Maintenance and Operations is planning future initiatives to drive down energy consumption through efforts like: window treatments, roof insulation, and an Automated Logic System to alert management proactively of failing parts in our HVAC equipment. Technology continues to introduce lower energy consuming equipment such as the new Surface Tables that help to lower the overall energy consumption costs in the School District. Sustained efforts to control and reduce energy consumption such as these together with future replacement of aged capital infrastructure will help manage energy expenditure throughout the School District. G. Conclusion The ultimate success of any project will be a direct result of how well it is managed. The appropriate communication and reporting channels must be established throughout the project s life. If there are any shortcomings or changes in the scope of the project they must reach a level that ensures the proper outcome is achieved for the project s overall success. Sincerely, Thomas A. Mock Director of Internal Audit 9