TxDOT Internal Audit Letting Programming and Scheduling Function (1101-2) Department-wide Report

Transcription

1 Introduction Letting Programming and Scheduling Function (1101-2) Department-wide Report This report has been prepared for the Transportation Commission, TxDOT Administration and Management. The report presents the results of the Letting Programming and Scheduling Audit which was conducted as part of the Fiscal Year 2008 Audit Plan. The objective of the audit was to determine if the current Programming and Letting Scheduling processes and related controls produce verifiable financial constraints. Background In September 2007 TxDOT Administration discovered that scheduled project lettings for that fiscal year surpassed available funding by $1 billion due to gaps in internal communication among the staff involved in the process. To bridge the communications gap, the Executive Director combined the Programming and Letting Scheduling functions and placed them in the Finance Division (FIN) in February Previously Programming was in the Transportation Planning and Programming Division (TPP), and Letting Scheduling was located in the Design Division (DES). The new function, titled Programming/Letting, reports to the Director of Funds Management who also oversees the Cash Forecasting function. The operational function of Programming is to calculate available federal funds and state match funds, and to develop a verifiable, realistic and constrained federal transportation funding plan. The operational function of Letting Scheduling is to develop an annual and monthly letting schedule that is constrained to available funding, and that has lettings equally spread throughout both the year and the (normally) two letting days per month. The annual letting schedule is a planning tool for both TxDOT and the construction contractor community. For the purpose of this audit, the functional area is referred to as Programming/Letting, as indicated on the organizational chart. The process of calculating available funds is referred to as Programming and the process of developing the annual and monthly letting schedules is referred to as Scheduling. Project scope, engineering cost estimates, and funding information is stored in the Design and Construction Information System (DCIS) information. Also stored in this system is local governments participation information in accordance with Advanced Funding Agreements (AFA), and letting information such as anticipated letting date, actual let date and low bid amounts. The office of record for AFAs is the General Services Division s Contract Services Section (GSD-CS). Scope Audit team members included Karin Faltynek (Lead Auditor), Cynthia Walker and Milan Hawkins (Staff Auditors) with Paula Bishir-Jensen (Auditor-in-Charge) providing oversight for the audit. The audit work was conducted during the period of October 2008 through June Report of 12 July 17, 2009

2 All work was performed in accordance with the International Standards for the Professional Practice of Internal Auditing of The Institute of Internal Auditors. The audit work focused on the assessment of processes in the current Programming and Letting Scheduling functions, with the exception of the Letting Advertising process. Audit work included interviews with FIN Programming/Letting and Cash Forecasting staff, flowcharting processes and judgmental sampling of representative data and reports for the current fiscal year s letting schedule. Audit work also included reviewing general compliance with Information Technology (IT) security policies and electronic data management. Opinion The Programming and Letting Scheduling processes, with active participation by the Chief Financial Officer (CFO) and the Assistant Executive Director for Engineering Operations (AEDEO), are operating within financial constraints; however, the processes are not verifiable due to the lack of documented methodology. Management is currently in the process of developing a methodology for future years programming and letting scheduling. The need for policy manuals and for improvements in documentation, along with additional concerns is addressed in the audit findings and observations below. Summary of Findings and Observations Finding No. 1: Finding No. 2: Finding No. 3: Finding No. 4: Observation No. 1 The Programming/Letting function is not clearly defined or documented in policy and guidelines. A majority of supervisory IT access requests and approvals for transferred employees are not on file. A majority of employees Performance Plans are outdated and past due. Data inaccuracies along with inadequate coordination and communication of data were found in a judgmental sample of programming and letting related documentation. The cost of construction change orders is not deducted from the district letting caps. Detailed Findings and Recommendations No. 1: The Programming/Letting function is not clearly defined or documented in policy and guidelines. Due to the criticality of the Programming and Letting Scheduling functions and the absence of documented guidance and policies for the functions, the CFO and AEDEO assumed a number of programming and letting management related functions to facilitate the process flow and to temporarily have more control over fiscally constraining project planning and funding. Report of 12 July 17, 2009

3 The initial change management plan to transition the functions and staff stalled due to time constraints and other competing priorities. As a result the CFO and AEDEO continued to stay closely involved in programming and letting management responsibilities to ensure that their vision is communicated. The risk in this situation is that oversight of these responsibilities may not be occurring and checks and balances may be inadvertently eliminated. The hierarchy of roles and responsibilities is documented as follows in TxDOT s business classification system: The job description for the CFO includes oversees the programming and scheduling of all transportation projects and the letting management activities associated with project delivery, formulates and implements policy/procedures for Department budget and financial activities, and institutes controls for sound fiscal management of state/federal funds to implement and maintain departmental program goals and objectives. The job description for the AEDEO includes Assists in overseeing and coordinating engineering operations to ensure the Department operates in an efficient and effective manner. Recommends policy and procedures, staffing and funding required to execute agency programs. The job description for the FIN Director includes Directs and manages all activities of the Finance Division to include annual letting and utilization of federal funding, and oversees and manages the Department s contract letting program. The job description for the Funds Management Section Director includes Manages and directs the Funds Management Section of the Finance Division. Responsible for transportation programming and letting The job description for the Letting/Programming Branch Manager includes Directs the administration of state and federal transportation funded programs and the programming and scheduling for transportation projects. Directs the development, administration and monitoring of the Department s funding and letting schedule. Oversees funding to include coordinating funding allocations and setting letting schedules with districts, Administration and directing District Obligation Authority. Effect: Processes without documented policy and guidelines affect accountability, verifiability, employee performance and morale, and ultimately public perception. It may also not be possible to verify or support the decisions made in Programming and Letting Scheduling, making accountability difficult or impossible, controls may not be functioning as intended, and miscommunications may occur. Recommendation: The CFO should develop clear goals and objectives for the Programming/Letting functions. The methods, guidance and policies for achieving the goals and objectives should be documented. Report of 12 July 17, 2009

4 The risks associated with the goals and objectives should be assessed, a control structure to mitigate risks should be established. Functional roles and responsibilities with adequate oversight of duties should be assigned and adhered to. A communications plan should be developed to ensure appropriate coordination between FIN, members of TxDOT s administration, and various other process stakeholders. Management Response and Action Plan: The CFO, FIN Division Director, the Director of Funds Management and the Manger of Programming and Letting will be meeting to determine goals and objectives of the section. Multiple planning sessions have been scheduled to determine a process for requesting CFO guidance and direction as it pertains to the functions of Programming and Letting. A regularly scheduled meeting, frequency to be determined later, but not less than once monthly, will be held with these individuals to discuss regular business including cash forecasting, monthly letting volume and schedules, information technology requirements of the section, ADM guidance and direction on the Unified Transportation Program and other issues that affect the responsibilities of the section and the division. Functional roles and responsibilities will be the first outcome from the initial meetings of these individuals. This will also include a control structure with direct report framework established. Text of these roles and responsibilities will be supplemented by a flow chart or decision matrix for ease in understanding. A communications plan will be the overall guidance produced as a result of several meetings among these members. The CFO will share the final plan with other members of ADM and AUD for verification and further guidance if required. Anticipated completion date: January 2011 Responsible party: CFO No. 2: A majority of supervisory IT access requests and approvals for transferred employees are not on file. Supervisory IT access requests and approvals for transferred employees are not on file. A review of the FIN Security Administration files during preliminary survey found that the FIN Security Administrator did not have all Forms 1828 on file for employees transferred earlier in the year from TPP. Although Forms 1931 and 1936 were electronically stored, these forms did not reflect the current supervisor's signature. IT Security Manual Chapter 5, Section 2 states that access criteria needs to be reviewed when the following occurs: TxDOT policy changes, job functions change, application system/software is modified or replaced, and a review has not been conducted within the past year. Report of 12 July 17, 2009

5 The IT Security Manual, Chapter 3, Section 2, Supervisor Responsibilities also states that the supervisor approve and forward all access requests, this is true for a transferred employee as well, see Chapter 5, Section 4 which states: "Supervisors must provide security administrators with timely notice of effective dates for terminations, new hires, job reassignments, resignations, retirements, and transfers of their employees." The Security Administrator on-line guidance for filing and records retention states that original access request forms with signatures must be maintained by the Security Administrator. Forms 1828, 1931 and 1936 state (on the form) that the original of the form is maintained by the Human Resources Division, a copy is maintained in the user's security file, maintained by the Security Administrator. The updated access requests for transferred employees are not on file because there was no formal change management plan to include this action. The major concern was to get the employees on board and working. Effect: Access controls protect TxDOT information resources against unauthorized disclosure, modification, or destruction. If employees are transferred from one division to another and their access is not reviewed at the time of transfer, then access controls become ineffective. Recommendation: FIN should complete the Security Administrator's required access documentation. In addition, the access rights of all employees transferred to the FIN Programming/Letting Branch should be reviewed and current access needs should be verified with their current manager in writing. A plan should be developed to monitor the periodic review of user application access privileges as suggested in the IT Security Manual, Chapter 5, Section 4. Management Response and Action Plan: Reviews are conducted approximately every 12 months within the Finance Division where directors and managers are sent a list of their employees and what mainframe systems and rights to these systems they have been assigned. Managers have the opportunity to make updates and then approve the final access. Finance initiated a special review for the Programming and Letting area and completed it in August All forms 1828, 1931, and 1936 (or equivalent) have been reviewed and signed by Programming and Letting Manager and/or Director of Funds Management. Anticipated completion date: Completed Responsible party: Mark Pollard No. 3: A majority of employee s Performance Plans are outdated and past due. Report of 12 July 17, 2009

6 The review of current (May 2009) Human Resource records indicates that new performance plans for the nine employees originally transferred from DES that now report directly to the Programming/Letting Manager, have not yet been developed. The transfer of these employees to FIN occurred in April The absence of current performance plans and standards was also confirmed with staff in individual interviews. The Human Resources Manual, Chapter 6, Section 1, Performance Plan states the following with respect to transferred employees: "When employees transfer or are competitively hired in different job positions, their current supervisor must close out their evaluation. New supervisors are responsible for developing new performance plans within 30 calendar days of the employee's first day on the job. Thereafter, such plans must be updated and adopted on an annual basis. Upon their effective date in the new position, employees will be evaluated on an annual basis." Employees do not have up-dated performance plans because goals and objectives and the related roles and responsibilities of the new Section were never defined. A plan for preparing new performance plans was not in place, possibly due to the lack of a strategy for developing goals and objectives and the associated roles and responsibilities for the new section. The priority undoubtedly was to transfer these employees and to continue the business process. Effect: The absence of an up-to-date performance plan can have a negative effect on workflow effectiveness, efficiency, work quality, and employee morale. Recommendation: FIN should develop roles and responsibilities associated with business goals and objectives; assign the roles and responsibilities and update staff performance plans accordingly. This should be sequenced with the development of written procedural guidance and policies (see Finding #1) for the new section's processes, so that these performance plans reflect an up-to-date framework. Management Response and Action Plan: All employee s performance plans and evaluations have been brought up-to-date and filed with HRD. Each employee s performance plan was reviewed and updated by the Programming and Letting Manager to ensure that the employee s primary roles and responsibilities were properly reflected in their plan. The Programming and Letting Manager s performance plan reflects the importance of this activity in their plan and will be evaluated based on their future performance. Plans and evaluations will remain in compliance with the Human Resources Manual. Anticipated completion date: Completed Responsible party: Wayne Wells Report of 12 July 17, 2009

7 No. 4: Data inaccuracies along with inadequate coordination and communication of data were found in a judgmental sample of programming and letting related documentation. Examples are listed below: A. Data Available to the Public Data in reports such as the updated Statewide Summary of 2009 lettings did not always match the data published for monthly actual lettings for the same period. Both reports are available on the internet site. The projects on the statewide annual FY2009 Letting Schedule for all districts combined exceed the Obligation Limit amount set by the TxDOT Commission in a public meeting on August 28, The statewide annual letting schedule is available to the public on the TxDOT internet site. B. Reports Prepared for Management The Obligation Limit report, formerly known as the Construction and Maintenance Funding report, intended to provide management with information on cumulative statewide letting amounts and pending lettings does not include up-to-date information for non-let projects and those let by local governments (local lets) and the reports reviewed included some discrepancies that are due to timing of compiling this report and publishing related or source information. C. Non-Let and Local Government Let Project Coordination Review of records and interviews indicate one district has several landscape projects on the FY2009 letting schedule for which the actual work occurred and was paid prior to FY2009. All the projects were labeled as purchase of materials, one of the purchase orders reviewed further indicates that a vendor was also contracted to place the materials on-system. While this practice may be following the standard purchasing process, the risk is that the vendor may not have insurance or follow safety practices when working in State Right-of-Way. Not all the AFAs for the sample projects were scanned in the FIN IMAGING system because they had not been received by GSD-CS. To date for FY 2009, TxDOT had to submit three Section 1.9 letters to the Federal Highway Administration (FHWA) to ask for funding approval after the fact because a Federal Project Authorization Approval (FPAA) for non-let projects was not submitted in accordance with FHWA protocol to secure funding prior to beginning work. D. Inaccuracy of Design and Construction Information System (DCIS) Data The Remaining Statewide Letting Schedule dated March 30, 2009 available on the TxDOT Internet Site shows projects remaining on the letting schedule between June and August 2009, and it lists projects that let between September 2008 and March The report draws its data from DCIS. The review of the report data indicated that authorized amounts and low bid amounts were the same for 29 projects that had previously let. All of these projects, except for one, are non-let projects. Authorized amounts and low bid amounts are rarely the same. This type of discrepancy skews the balances of the district Report of 12 July 17, 2009

8 work programs along with any reports that are generated from that data. These discrepancies also impact the potential charge to the district letting caps and overall letting volume calculations. Project Budget information in a judgmental sample of AFAs for non-let projects was compared with like information in DCIS. Discrepancies between the participation amounts indicated in the AFA and DCIS were found in 5 of 9 projects. The participation amounts stated in DCIS are used to prepare the FPAA for the project and to set up Obligation amounts in the Financial Information Management System (FIMS). A comparison of district self reported data found the following discrepancies between the project letting handling code reported and the letting handling code indicated in DCIS: Of 65 projects reported, the districts indicated that 46 are local let, handling code LC. When project data for these same projects was reviewed in DCIS, only 19 projects were coded as local let, 6 were coded as non-let (handling code XX) and 21 had no letting handling code, meaning they are statewide let. Throughout the audit, FIN P/L staff made corrections they deemed appropriate as deficiencies were pointed out. The job description for the Letting/Programming Branch Manager includes Provides reports and correspondence concerning project cost, development and funding for the Commission, Administration and Department. The Financial Management Policy Manual, Chapter 2, Section 3 states: "Maintaining accurate cost records is a part of every employee's job. The manager of each project, job, or account is the primary person responsible for ensuring that its cost records are correct, only he or she knows what is missing or overstated in the cost records" Due to the dynamic nature of the records in DCIS, data retrieved for one report may differ from that retrieved for another report within the same day or week. This is compounded by variances in standards for data inclusion. Other contributing factors are users general perception that DCIS is merely a planning tool and thus updates of original data is arbitrary. Other external factors such as coordination of AFAs with local governments can cause some last minute rush and AFA data in DCIS simply does not get verified. Effect: Loss of confidence in published data by both the internal and external users. In addition, management may not receive all information needed to present a complete financial picture, because incorrect state project cost participation amounts for non-let projects in DCIS will be included in overall available funding calculations. Recommendations: Report of 12 July 17, 2009

9 Overall, the Programming/Letting section should establish increased coordination and communication along with improved monitoring processes. Specific to reporting (A. & B.), FIN should: o Implement a process of data verification prior to publishing the data in reports. o Reports that contain data which may change after the publishing date should state so, but those instances should be kept to a minimum. Specific to non-let and government let projects (C.), FIN should: o Consideration should be given to develop a year end-close out process of all non-let and local let projects scheduled in any given fiscal year. This could take place in the form of a district certification that the low bid amounts, letting dates etc. of all such projects are up-dated in DCIS. Specific to the signature delegation of authority for Section 1.9 letters: o TxDOT Administration should review the signature delegation for these letters and should consider to giving this authority to the Deputy Executive Director instead of the Finance Director. The signature authority should reside at a level of influence over both FIN and the Districts. Specific to the accuracy of DCIS data (D.), the DCIS OPR should: o Emphasize and communicate the criticality of data accuracy to the system users. Management Response and Action Plan: A. Data Available to the Public: The Original Statewide 12 Month Letting Schedule reflects the data in DCIS at the time the schedule was published and approved by the Administration. Projects are added, removed and updated daily. Once a letting has occurred and projects are awarded, they would never match the amount shown in the Original Statewide 12 Month Letting Schedule; however would match the Statewide Summary page on the Remaining 12 Month Letting Schedule for months that have been let and awarded. A review of the Remaining 12 Month Letting Schedule has been completed and the amounts match the low bid amounts in DCIS. The State Highway Fund (Fund 006) amount is within the funding levels approved by the commission. There are many other funding sources used to support the schedule that are excluded from the letting caps approved by the commission. The schedule is maintained throughout the fiscal year to ensure we do not exceed the Fund 006 amounts. B. Reports Prepared for Management: FIN has begun to address the Obligation Limit report by changing the report format and by including detailed footnotes to help the audience understand the report. C. Non-Let and Local Government Let Project Coordination: Report of 12 July 17, 2009

10 FIN depends on the districts to tell us when to update DCIS with regard to state funded non-letting projects. In addition the districts are instructed to follow established procedures regarding the authorization of federal funding prior to starting any work. It is the district s responsibility to work with local governments to ensure work is not started or purchases initiated prior to a federal authorization. If FIN notices a missing AFA in the FIN-Imaging system during a review of a project, FIN will notify GSD. A process is underway by districts to train local governments in the proper administration of their projects. Our hope is that this will include a formal communication process between district and local government staff about FHWA approval and authorization prior to beginning work or allowing purchases to occur. D. Inaccuracy of Design and Construction Information System (DCIS) Data: Projects that do not go through the letting process (non-let) are obligated using the authorized amount and that amount is reflected as the low bid. This is not an anomaly. For example, if we obligate funds for the purchase of material, DCIS is not updated with the actual expenditure dollar amount of the purchase. The amount obligated is what is charged against the districts' letting cap. The difference between the low bid amount and actual expenditure will be included in the final payment variance calculation of the Obligation Summary Report and their letting cap adjusted for the difference. Historically, we have depended on the district to accurately update DCIS in accordance with the AFA they prepare and sign. We rely on a memo supplied by the district requesting obligation of a non-letting project and verify DCIS matches the AFA if attached. In the future, Programming and Letting personnel will be required to review the AFA for all non-let projects to ensure the accuracy of DCIS and FPAAs. Procedural manuals will be updated to reflect this change. The districts only have access to this field to input LC or XX when they formulate their annual schedule. If the method of performing the work has changed, they should coordinate with our office and we will update the code. It is the districts' responsibility to correctly code DCIS or coordinate with us if it's information they don't have authorization to change. When the project is closed out in DCIS, our office updates the code if it is missing or in error. In the future, Programming and Letting personnel will be required to review the AFA for all non-let projects to ensure the accuracy of DCIS. Procedural manuals will be updated to reflect this change. To address the issues raised in this audit, FIN will: Report of 12 July 17, 2009

11 1. Increase coordination and communication with ADM and the districts. Monthly meetings will be scheduled with the CFO, AEDEO, Directors of Finance and Funds Management, and specific Programming and Letting staff to discuss relevant issues and direction concerning monthly letting schedules, project categories, rescissions, cash balances, federal funds, other funding sources, and any other current issues. Memorandums and/or will be used to notify districts as appropriate. 2. Staff has reconciled DCIS, the 12 month letting reports, the bucket report and the forecasting system to each other and differences have been identified. Changes to programs or processes are being implemented to correct the differences. These reports will be reconciled monthly prior to release. 3. Programming and Letting staff have created a data check error report that shows if a non-letting project has been obligated but not closed out. Staff coordinates with districts that have not submitted concurrence memos in a timely manner. 4. Any Section 1.9 letter will require the signature of the CFO and the Deputy Executive Director. 5. Revise the appropriate manuals to include district guidance concerning local let and non-let projects. Districts will be provided specific instructions on how to update or notify FIN when changes to DCIS are required. Added emphasis will be placed in the manuals of how important it is to follow these steps and verify the accuracy before submitting data to FIN. Programming and Letting personnel will be required to review the AFA for all non-let projects to ensure the accuracy of DCIS and FPAAs. Procedural manuals will be updated to reflect this change. There has been interest expressed in recent years by districts and divisions concerning the need for a DCIS training class. In 2007, a presentation was made to the Standing Committee on Training proposing the creation of this training. The committee approved the request and an estimate was obtained from a consultant for content development only. Recently, the Training, Quality and Development section asked for a status if this class would be pursued. At the same time, another district inquired if such a class existed. We believe the need certainly exists and there appears to be interest from districts and divisions. Funding remains to be identified as well as the appropriate staff or consultant to instruct. Anticipated completion date: February 2011 Responsible party: Wayne Wells Detailed Observations Report of 12 July 17, 2009

12 No. 1: The cost of construction change orders is not counted as part of the district letting caps. In March, 2008 TxDOT Administration stated in a policy memorandum that change order costs will be deducted from the district s work programs and letting caps to ensure proper accounting for the impact of change orders on the department s financial resources. Audit work found that this important control has not yet been put in place. Management Response and Action Plan: FIN, in concert with CST, has identified and developed a process to capture change orders by district and category. A list of change orders from SiteManager was distributed to the districts beginning in early August 2009 for their review and comment. This process happens monthly with districts in that they verify category and change order amount. District FY 2010 letting caps will be reduced based on ADM direction and approved by the commission. Anticipated completion date: Completed Responsible party: Wayne Wells Closing Comments An exit conference was held on July 13, 2009 with the FIN Director, the Funds Management Section Director and the Letting/Programming Branch Manager. The discussion included the above findings and observations, and a small number of other issues documented in the exit conference notes. Briefings were provided to the AEDEO and the CFO on July 9 and July 10, 2009 respectively. Report of 12 July 17, 2009