SUMMARY. 1,278 regular budget positions and 148 resolution authorities. Page i

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1 SUMMARY The Department of Transportation (DOT) is responsible for the development of plans to meet the ground transportation needs of the traveling public and commerce in the City of Los Angeles. It has centralized authority over the conceptual planning and operation of the City s streets and highways system, and provides a primary interface with other government agencies on transportation matters. For Fiscal Year (FY) , the Department had 1,426 budgeted full-time positions 1 that were assigned to one of six main operating groups: 1. Project Delivery Transit Planning and Land Use develops long-range transportation plans which are used as a blueprint to implement transportation projects and programs consistent with policy objectives. Transportation design and ATSAC operates and maintains the City s real-time traffic signal systems, and continuously improves on existing signal systems. 2. Operations Responsible for day-to-day activities related to the city s streets. Includes district engineering offices, major construction, special traffic operations, installation and maintenance of street signs and striping, and emergency management. 3. Parking Enforcement & Traffic Control Responsible for ensuring public safety through traffic control and enforcement of state and City parking laws. 4. Parking Management & Regulations Manages parking infrastructure assets, parking meters, permits, parking operations support and adjudication and regulatory services (taxi, non-emergency ambulance, and pipeline). 5. Transit Services Capital programming plans and coordinates highways, bikeways, pedestrian ways, transit priority, parking lots and other collector-distributer system; mass transit information systems provides freeway commuter bus services and local, community-based shuttle bus services. 1 1,278 regular budget positions and 148 resolution authorities. Page i

2 6. Administration Supports the operations of other groups, prepares and manages the Department s budget and provides other finance and administrative functions such as accounting, procurement, contract administration, information technology, risk management, and communications. During 2014 DOT provided a paycheck to 1,961 unique individuals, including part-time employees and those who worked at DOT for only a portion of the year. In recent years DOT, like other City Departments, has had resource reductions and limited new hiring of staff. Continuing critical functions with fewer staff may have necessitated an increase in overtime; however, as employees are the department s greatest resource, their work and time must be effectively managed. As a percentage of total salary costs, the Department of Transportation pays more overtime than any other City department except Fire. Moreover, the majority of non-sworn City employees who incurred excessive overtime during the last three years were DOT employees 2. The Controller s Office also received allegations that certain individuals within one division had recorded overtime not worked. We conducted this audit to determine if overtime payments were reasonable and justifiable, and if DOT had sufficient controls to manage overtime, both paid and earned as compensatory time off. We evaluated DOT s practices to determine if sufficient controls are in place to minimize costs and prevent the abuse of paid overtime. The audit focused on authorization, compliance with regulations and policies, and monitoring. It should be noted that: The cost of paid overtime at DOT has more than doubled since While rising pay rates contribute to this 3, both overtime hours and payments have increased steadily: o FY ,486 hours, paid $7 million o FY ,487 hours, paid $11 million o FY ,879 hours, paid $14 million o FY ,854 hours, paid $14.6 million 2 Excessive overtime is considered as more than 40 hours of overtime within a pay period, for more than half the total pay periods during the year. 3 Employees represented by the Coalition of City Unions also received salary adjustments upon serving one year at their top step of their salary scale, which cumulated to a maximum of 8.5% above top step. Page ii

3 DOT s paid overtime as a percentage of total salaries is approximately 12%, which is significantly higher than the citywide average of 7%, which includes sworn personnel. Though some overtime may be necessary for emergencies or critical public service priorities, management is expected to control costs and prevent potential abuse through proper authorization and approval, as well as regular monitoring of overtime hours and costs by function and individual. Background The City of Los Angeles provides overtime pay to eligible employees who work additional time beyond their approved scheduled hours to address emergency situations, deliver essential services, provide holiday coverage, and other priority staffing needs. Premium overtime is paid (or accrued) at 150% of the employee s straight time rate. The City is subject to the federal overtime provisions contained in the Fair Labor Standards Act (FLSA); however, it also has 41 separate Memorandums of Understanding (MOUs) and some include more generous overtime provisions than what are required by FLSA. The specific terms contained in each MOU are negotiated with various represented labor units. MOUs typically state that overtime is to be incurred only when required to meet the City s public service obligations, and all nonemergency overtime must be approved in advance by a supervisor or management. In addition, management is to attempt to assign work as equitably as possible among all qualified employees in the same classification in the same unit/work location, though management may consider special skills required to perform the particular work. Except for crossing guards (MOU 34), hiring hall craft workers (MOUs 35 and 62) and some police officers (MOU 24), MOUs stipulate that management has the discretion to determine whether overtime compensation will be paid in cash or as compensatory timeoff. However, MOU 12 and 18 state that compensation for overtime worked by Senior Traffic Supervisors and Traffic Officers at special events shall be in cash only. Some classifications within DOT (and other City departments) are salaried positions and are therefore exempt from FLSA and are not entitled to overtime regardless of their actual hours worked. Per Section of the City s Administrative Code, salaried employees qualify for exemption from FLSA overtime provisions based upon duties and are assigned to a class or pay Page iii

4 grade above that established for the class of Senior Administrative Analyst I (annual top step salary of $105,590 as of February 2015). I. Overall Assessment Overtime at the Department of Transportation has been poorly controlled and creates an environment that encourages abuse and misuse of overtime hours. Not only does DOT pay proportionately more overtime than other City departments, it has risen steadily over the last four years, and has exceeded its initial approved budget for overtime by an average of 172%. In accordance with City policy 4, all traffic control activities for special events are conducted by DOT traffic officers while on overtime. In addition, several employees, mostly those in the Traffic Paint and Sign Section, have been paid a startling amount of overtime. Specifically, we identified 30 employees who claimed over 1,000 hours of overtime in FY , with seven employees paid over 2,000 hours of overtime during that one year. It should be noted that 2,000 hours of overtime during one year equates to working over 38 hours of overtime every single week comparable to working a double shift throughout the entire year. We observed that while the overtime recorded on timecards had been approved by first-level supervisors, due to lack of evidence of management approval and the results of work performed on overtime noting a poor control environment, the amount of overtime raises serious questions over the validity of overtime hours incurred. We noted that there was a significant decrease in the number of overtime hours worked in the period immediately after the investigatory interviews. Comparing the four pay periods for the specific employees before and after the investigation and interviews, there was between a 10% and 64% decrease in overtime hours worked, with an average of 44%. Our review lends support to the possibility that some employees may have overstated their overtime hours worked. Some of the overtime costs incurred by DOT s Traffic Officers who conduct traffic control during special events is reimbursed to the City. A separate, targeted review of DOT s Special Events staffing and overtime costs is ongoing and will be communicated through a separate report. 4 Los Angeles Municipal Code Section defines Special Events and related City processes; negotiated labor agreement for traffic officers (MOU 18) and senior traffic supervisors (MOU 12) state that assignment to work special events shall be paid in cash at the overtime rate, and there shall be no limits to the number of hours worked. Page iv

5 In order to effectively manage and curtail its high overtime, the Department needs to improve its control environment. This would include setting clear policies and procedures and monitoring for compliance to those procedures. It would also include setting overtime budgets for different levels in the Department and holding managers accountable to these budgets. Finally, the Department must implement a better system to track and report on overtime, so that managers can quickly identify and correct potential problems, such as unreasonable or excessive amounts of overtime claimed. II. Key Points Overtime Authorization and Monitoring In FY , 30 DOT employees received more than $70,000 in overtime pay, including one who received $155,319. This resulted in the employee tripling his regular salary for the year. Certain DOT employees incur a startling amount of overtime. For a large portion of these employees, DOT could not show that the overtime had been pre-approved, and it could not demonstrate what specific work was performed in conjunction with the overtime. Employees incurring the highest amount of overtime are those in the Traffic Paint and Sign Section. As an example, one employee was compensated for 261 hours (181 hours of overtime, 8 hours of holiday pay, and 72 hours of regular pay) over a two-week period. This included working all 14 days of the pay period, including ten days of at least 18 hours, while the remaining four days averaged 16 hours worked. Another employee claimed 245 hours worked in one pay period (14 days; see Exhibit 7). The Traffic Paint and Sign Section was unable to provide documentation showing the overtime was pre-approved by an Assistant General Manager for any of the 30 sampled timecards. In addition, the Section was unable to show that even the Section Head had pre-approved the overtime. The Section was also unable to provide documentation to show what specific work was performed in connection with the overtime claimed, stating that it does not maintain this type of documentation. We also sampled 36 employees from other Offices/sections within DOT, focusing primarily on those that incurred high amounts of overtime. Generally, documentation to support the overtime was poor or non-existent. As with the Traffic Page v

6 Paint and Sign Section, we found a lack of pre-approvals and support to show what work was done in connection with the overtime. The Department s written overtime policies are outdated, inconsistent, and often not followed. Poor controls over overtime appear to be the result of inconsistent and outdated policies, and inattention to updating, communicating and enforcing those policies. The Department s main overtime policy was established in 2006; however, it is outdated. For example, the policy requires overtime to be pre-approved by Bureau Heads on (paper) General Form 68, also known as "blue slips." However, based on discussions with various staff, most units managers approve overtime via , and these are not centrally maintained. The policies are also unclear and inconsistent, which may have led to confusion regarding authorization responsibility. The Department issued an overtime directive in July 2011 requiring that all overtime requests be routed to and approved by the Assistant General Manager (AGM) of Administration. The directive then goes on to state that all overtime is subject to review and justification by the appropriate Assistant General Manager and prior approval by the General Manager. The language is unclear whether the overtime should be approved by the AGM of Administration, by appropriate, i.e., responsible Assistant General Managers by the General Manager, or by all of these individuals. The confusion resulted in units not obtaining management s pre-approval to work overtime. In addition, the Department has not held high-level managers accountable for conducting periodic reviews of the overtime used by their respective work units, as required by the policy to ensure that overtime is justified, fairly distributed, and not overused. We found no offices/sections/units within the Department that conducts formal, regular, and documented reviews of compliance to these policies. DOT lacks the necessary tools and reports to Though DOT policy and good governance requires highlevel managers to periodically review overtime incurred by their respective work units, the Department lacks necessary tools or reports to monitor overtime for reasonableness and Page vi

7 effectively manage overtime. potential abuse. Although the Department has some overtime reports available on its intranet site, they are focused on project costs and funding sources and do not show the total overtime amounts paid to each employee for a given period to identify whether these amounts are reasonable. For example, in order to obtain total overtime for one employee, 25 different reports would need to be reviewed to obtain the overtime paid to that employee. While management can request ad-hoc reports from DOT Accounting, they don t appear to be doing so regularly. The most frequently requested report is of limited benefit to managers since it does not isolate or identify the employees by office, section, or unit. As a result of the lack of comprehensive overtime reports or appropriate monitoring, management appeared unaware of the magnitude of overtime payments to certain employees. Actual overtime paid over the last three years has averaged $13.2 million per year, exceeding the initial budget amounts by 172%. DOT does not allocate its overtime budget to various offices, sections, and units Budgets should reflect realistic amounts based on historical data and future expectations. Unrealistic and inaccurate budget amounts can mislead the public and City management regarding expected expenditures, and can erode the confidence of those stakeholders if the budgets consistently differ significantly from actual amounts. The initial budgeted overtime amounts (as published in the City s adopted budget) have remained essentially the same for each of the last five fiscal years, despite the fact that actual overtime significantly exceeded the budgeted amounts each year. On average, actual overtime has exceeded initial budgeted amounts by 122% over the last five years; though over the last three years, this percentage has increased to 172%. However, DOT routinely requests increases to its overtime budget during the year as part of the quarterly Financial Status Reporting process. While DOT has had an annual (initial) overtime budget of approximately $4.9 million, this budget is not allocated to offices, sections, or units within DOT for effective management of overtime. Since managers are not provided with expectations for overtime costs within their areas, this may have contributed to the increasing levels of Page vii

8 within the Department or hold managers accountable for operating within those budgets. overtime over the last several years. In addition, as they have no budgets or expected limits by division or office within DOT, there is nothing to monitor actual costs against. We also found that DOT does not capture actual overtime costs at various DOT organizational levels (e.g., divisions, sections, units). While DOT management indicated a system was previously developed for labor reporting by mapping data maintained in the City s (prior) financial system, the citywide payroll system and the Department s position control system, it is no longer in use. Opportunities to Reduce Costs Fair Labor Standards Act (FLSA) rules specify the circumstances under which an employee is entitled to receive overtime compensation. As a general rule, employees are entitled to overtime when their hours worked exceed 40 hours within a workweek. DOT could avoid an estimated $1.2 million in annual payroll costs if the City adopted uniform FLSA - compliant criteria to determine when to pay a premium overtime rate. Almost all DOT employees belong to MOUs which entitle them to overtime pay when their compensated hours exceed 40 hours within a workweek. Compensated hours include paid absences, such as vacation and sick time. Therefore, under these MOUs, an employee can receive overtime even though they did not actually work more than 40 hours in a workweek. Several other City MOUs compensate employees for overtime only if they work more than 40 hours in a workweek, or work on a City holiday. If the City was to pay DOT employees a premium overtime rate only when they work more than 40 hours in a week, DOT could avoid $1.2 million per year in payroll costs attributed to the premium rate. Note that this estimate relates only to DOT employees; there would be a much greater impact to the City as a whole if all MOUs used FLSAcompliant criteria for compensating overtime. Page viii

9 The Department has not performed sufficient analyses to determine the cost-effectiveness of incurring significant overtime versus hiring staff and/or contracting out. It may be more cost effective to hire additional staff, or to contract out some work, rather than paying significant overtime costs. Certain DOT units, such as those related to traffic control for special events and traffic markout/sign-painting functions incur substantial amounts of overtime. The Department has never conducted a Department-wide or functional analysis to determine whether overall costs could be reduced by hiring additional staff and/or by contracting out certain functions, rather than by incurring such a significant additional overtime cost. The Department does contract out some paint-sign posting work. However, formal analyses may identify further opportunities to contract out more of this work, and may also identify other potential cost savings Department-wide. III. Significant Recommendations By implementing the recommendations in the audit, the Department should be able to significantly reduce its overtime costs. Key recommendations include: To safeguard the well-being of its employees, DOT management should implement policies and procedures limiting employees from working more than a certain number of hours within a specified period, such as a day or week. DOT should update its overtime policies and ensure they are consistent and clear. DOT management should ensure that support documentation for overtime worked (pre-approvals, and documentation to show what work was done) is maintained centrally within each Office. DOT management should design overtime reports that will be more useful in controlling overtime costs, such as reports of employees incurring the most overtime and trend analyses of overtime for each organization level in the Department. Page ix

10 DOT should work with the City Administrative Office to develop more accurate yearly overtime budgets, which are more realistic and based on historical data. DOT should allocate the Department s overtime budgets to offices, sections, and/or units within the Department and hold managers accountable for their budgets. Policymakers should examine the benefit of consistency among the City s MOUs relative to FLSA overtime provisions. DOT management should examine the cost-effectiveness of hiring additional staff and/or contracting out work for functions incurring substantial amounts of overtime. IV. Review of Report On February 23, 2015, a draft of this report was provided to DOT management. We met with DOT management at an exit conference held on March 4, 2015 and we considered the comments and additional information provided as we finalized this report. V. Department Response The Department provided a formal response and action plan on March 27, 2015 (See Appendix IV). DOT s response indicates general agreement with the ten recommendations addressed to the Department (The audit contained 11 recommendations, one of which was addressed to City policymakers). Based on DOT s response, we now consider: - One recommendation (4.1) to be Implemented - Three recommendations (1.1, 2.1, and 7.1) to be In Progress - Six recommendations (1.2, 2.2, 2.3, 3.1, 5.1, and 5.2) to be Not Yet Implemented With respect to recommendation #2.2, which is for the Department to ensure that support documentation for overtime work is maintained centrally, DOT indicates that it is working on a software solution that would make this recommendation moot. Until the solution is effected, documentation should be maintained centrally. Page x