Relocating utilities on Montana's highway right-of-way, Montana Department of Transportation : performance audit follow-up

10 Pages·1999·0.29 MB·English

by  Montana. Legislature. Legislative Audit Division

S LEGISLATIVE AUDIT DIVISION
354.77
L72RUMH
Scott 1999 auditor Deputy Legislative Auditors:
John \ nsel Jim Pellegrini, Performance Audit
iri Hunmausen, 11 a. uperationsManager JamesGillett, Financial-Compliance Audit
MONTANASTATELIBRARY
MEMORANDUM
3 0864 1002 4522 7
TO LegislativeAuditCommitteeMembers
FROM: JimPellegrini, DeputyLegislativeAuditor, PerformanceAudits <-Jf"
DATE: May 1999
RE: Follow-up to Performance Audit:
RelocatingUtilities on Montana's Highway Right-of-Wav
Montana Department ofTransportation (94P-31)
INTRODUCTION
In September 1995, wepresented ourperformanceAudit onRelocatingUtilitiesonMontana's
HighwayRight-of-WaytotheLegislativeAuditCommittee The auditwascompleted atthe
request oftheMontanaDepartmentofTransportation(MDT). Thereport made seven
recommendationstoMDT Werequested and received informationfromMDT ontheirprogress
in implementingtherecommendationsin December 1996. Somefollow-up work wascompleted
inJune and July 1997 andthentheproject wasput on hold. Thisallowedthedepartment more
timeto implementtherecommendations Theproject wasrestarted and completed in March
1999. To completethefollow-upproject, weinterviewed department officialsand staff, reviewed
changestowritten policiesand forms, and reviewed a sample ofutility relocation project files
Wealso reviewed variousreportsand documentsprepared by otherentitiesworkingwiththe
department intheutilityarea, includingaUtilityTaskForcecreated bythedepartment and a
consultanthiredbythedepartment.
Inadditionto summarizingtheresultsofourfollow-upwork, thismemo presentsbackgroundon
utilityrelocationandthechangesthedepartmenthasmadeinitsproceduressinceouraudit.
SUMMARY OFFOLLOW-UPRESULTS
Ourfollow-upworkshows thatall seven recommendations
from our 1995 report have been implemented.
Twomajorchangesweremadeintheutilityrelocationprocessasaresult ofaUtilityTaskForce
created bythedepartment in 1996. Becauseofchangesmadebythedepartment, the significance
1
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ofsomerecommendationshasbeenreduced, whileforothersthebest method ofimplementation
will change. Themost significant changebythedepartment wasthecreation ofaunit cost system
whichisdiscussedbeginningonpage3.
BACKGROUND ON UTILITY RELOCATION
Atthetimeofouraudit, four"workunits"withinthe departmentwereresponsibleforoverseeing
utilityrelocationwork. TheUtility Sectionworkedwiththeutilitycompaniesto determinewhat
facilitiesneededtoberelocated, reviewedestimatedproject costs, and finalizedtheagreements
withthe companies. Thedistrict officeswereresponsibleforday-to-dayadministrationofthe
agreements, conducted inspectionsofthework, andinitiallyapproved invoicesforpayment. The
ConstructionBureau reviewed and approved costsassociatedwithrelocationworkand changes
to planned scopeofwork. TheComplianceReview Sectionreviewedutilitycompanycost
estimatesandthecompanies' useofengineeringconsultants. Onceprojectswere completedthis
sectionalso reviewedfinalproject costs. Belowwediscussthechangesmadeintherelocation
process sincetheaudit.
UTILITYTASK FORCE
AUtilityTaskForcewasestablishedbyMDT'sdirectorin 1996tohelpthedepartment address
auditreportrecommendationsandto studyotherissuesaffectingthedepartment andutility
companies. Oneoftheprimary "otherissues" involved reviewingMontana'spolicyfor
reimbursingutilitycompaniesforrelocationsoffacilitieslocated onhighwayright-of-way. While
ourreport did not makearecommendationcoveringthisissue, wedid notethat most statesdo
not reimburseutilitycompaniesforrelocatingfacilitieswithinthehighwayright-of-way. We
reportedthat thelegislaturemaywantto reviewthis 30-yearold policyto seeifitwas still
appropriate.
Thefirst meetingofthetask forcewasheld on March 11, 1996. Thetask force met several times
in Helenaand in other locations inthe state Thetask forceconcentrated onthe reimbursement
(cost sharing) issueand thepotential to switchto aunit cost approach (Under aunit cost system,
the statewould payforeach relocatedunit, such asapole, based on preestablished and audited
costs.) During 1996, thedepartment held several meetingswithutilitycompaniesacrossthe state
to explaintheresultsoftheaudit andtheworkofthetaskforce(particularlythechangetounit
costs). ThefinaltaskforcereportwasissuedonDecember 16, 1996. Thetaskforcemade
several recommendationsincludingchangesinthecostsharingbetweenutilitycompaniesandthe
stateand inusingaunit costapproachwhenpayingforutilityrelocations. Asaresult ofthetask
force, HB320was introduced duringthe 1997 Legislature. Passageofthisbill (Chapter324,
LawsofMontana, 1997) providedthatthedepartment wouldno longerpayforengineeringcosts
forutilityrelocationsonhighwayright-of-way. Thefiscal noteforthelegislationestimatedthat
about 12 percent ofutilityrelocationpayments(about $500,000) areforengineeringcosts. The
legislationalso allowsthedepartment to adopt rulesrelatedtothedepartment'sreimbursement
responsibilities. Thedepartmentusedthischangetoimplementthetaskforcerecommendationto
requireutilitycompaniesto switchtotheunit cost system.
UNITCOSTAPPROACH
Thedepartment contractedwithanaccountingand consultingfirmto help intheimplementation
oftheunit costapproach. Theagreementcalled forthecontractorto:
gainanunderstandingoftheUnit CostProcess;
evaluatemethods ofdevelopingunitcostsand providerecommendations;
reviewutilitycompanyproposed unitcosts;
provideaverageunitcostsfor 1998; and
preparetrainingsessionsfordepartmentpersonnel andutilitycompanypersonnel.
Theinitial agreement calledforthecontractortoreviewunit costssubmittedby 19utility
companies. Theagreementrequiredtraining sessionstobeheld infourdifferent cities. The
contractoralso developed amanualforthedepartmenttitled: "UnderstandingtheUnit Cost
ProcessforUtilityRelocationProjects" Thismanualwasdesignedto helputilitycompanies
submittheirunit coststothedepartmentforreview. Thecontractwaslaterexpandedto include
thereviewofunit costsfor38 additional companiesandtohelpfourtelecommunication
companiesindevelopingunit costs. Alsoincludedinthisexpanded contractwere:
continued evaluationofaveragecosts;
developingapoliciesandproceduresmanual forthedepartment;
participatingin aUnitCostTaskForce; and
givingfouradditionaltrainingsessions.
Thiscontract istobecompletedbyJune30, 1999. Amajorpart ofthecontract istheprovision
forauditsofunit costsestablishedbyutilitycompanies. Inthefuturetheseunit cost auditsare
expected to be completedbythedepartment'sComplianceReview Section. These subsequent
audits should not be astime-consumingbecausethedepartment can reducethe scope ofthe audits
using its database information and by lookingat how much acompanychangesits costsfrom
prioryearcosts.
Accordingto department officials, all relocationagreementsarenowbeingbased onunit costs.
Thedepartmentwill approveanactual costagreement onanexceptionbasis, suchasforcomplex
urbanprojectswhereunitcostswouldbemoredifficultto manage. Allutilitycompanieshave
submittedunitcostsfor 1999 and auditsoftheseunitcostswillbecompletedbyJune30, 1999.
AUDITREPORTISSUESANDCORRESPONDING FOLLOW-UP FINDINGS
Duringour 1995 audit, wefoundthedepartment'sinternal control system didnot providefor
adequateoversight oftheutilityrelocationprocess. Therewerenumerousexamplesofboth
unallowableand questionable coststhatwerenotidentified and resolvedbythedepartment's
internal control structure. Department management and staffagreed onlyminimal monitoringof
utilityrelocationcostswasoccurring. The department'sprimaryemphasiswastomoveutilities
fromtheconstructionzone.
Thechangetotheunit cost systemwill help addressmany oftheissuesin ourreport. Thenew
systemwill:
Makeit much easiertoestablishtheestimated cost ofaproject andverifyfinal project
costs. Staffwill alsobebetterableto reviewthereasonsforanydifferencesbetween
estimated andfinal costs.
Makeit easierforthedepartmentto monitorrelocationcosts. Inspectionsandrecord
keepingwill concentrateonthenumberandtypeofunitsbeingrelocated ratherthana
trackingofmanhours, equipmentuse, etc.
Virtuallyeliminatetheneedforendofjob audits and insteadchangethe emphasistoup
frontauditsofcompanies' unitcosts.
Eliminatetheneedto approveuseofcontractors orconsultantsinmost instances.
Allowutilitycompaniestomoreeasilywrapupfinalbilling.
Thechangetounit costsreallyhelpsintheimplementation ofmost oftheaudit recommendations.
In somecases, it changeshowthedepartmentwillwanttoimplementtheauditrecommendations.
Forrelocation projectswherecompaniesarebeingreimbursedunderactual cost agreements, then
priordepartmentprocedureswill still needtobefollowed (consultant approval, costmonitoring
throughfieldinspections, etc.). However, department officialsindicatedtherewillbeveryfew
actual cost agreementsinthefuture. Thedepartment'sutilityrelocationpolicymanual also
indicatesmostutilityrelocationagreementswillbeunit cost orlump sumagreementsbased on
unit costs.
The remainderofthis memorandum addresses the department's actions related to each of
ourrecommendations.
Department Management Structure
Duringtheaudit wefound the department'sutilityrelocation process required fourdifferent work
unitsto beinvolved intheprocess. Thisresulted in both overlaps and gapsinthecontrol
structureoverutility relocation costs. Werecommendedthedepartment changethe control
structureto eliminatetheoverlapsandgapsand alsoto assignoverall project responsibilityto one
workunit.
PriorRecommendation #1
Werecommendthedepartmentchange the internalcontrolstructureto:
A. Definestaffresponsibilitiestoeliminateoverlapsandgapsbetweenworkunits.
B. Coordinateactivitiesbyassigningoverallprojectresponsibilitytooneworkunit.
Thisrecommendationisimplemented.
TheConstructionBureau isnolongerinvolvedintheutilityrelocation process. Theoverall
responsibilityfortheprocessrestswiththeUtility Section. Theutilityagents inthefield perform
initialreviewsoffinal billsandthenforwardthemtotheUtility Sectionforfinal approval. The
switchtounit costsgreatlyaffectsthewayrelocationcostswill bemonitored. Theutilityagents
willbeabletoconcentrateonthenumberandtypesofunitsthatareused onaproject. Theywill
no longerhavetomonitorhowmanypeoplewereworkingontheproject, whatvehiclesand
equipmentwereused, orwhat materialswereused. Thecost estimatingprocedureswill alsobe
simplified. Overall, themonitoringoftheagreementswillbe simplerand morecomputerizedthan
inthepast.
Management Information Requirements
Duringourauditwefound onlylimited managementinformation relatedto estimatedand actual
costsforrelocationprojects. Workunitsthatdid develop someinformationdid not providethis
informationto otherunits. Werecommendedthedepartment compilemanagement informationto
beused inassessingestimated costsand inreviewingfinal projectcosts. Wealso recommended
theinformationbedistributedtoappropriate staffresponsibleformonitoringcosts.
PriorRecommendation #2
Werecommendthedepartment:
A. Compilemanagementinformationtobeusedinassessingestimatedandendof
projectcostsofrelocatingutilities.
B. Ensuremanagementinformationisdistributedtostaffresponsibleformonitoring
projectcoststoprovide bettercoordination.
Thisrecommendationisimplemented.
Thechangeto aunit cost systemmakesitmuch easierforthedepartmentto establishthe
estimated cost ofaproject andtoverifyfinal project costs. Withtheunit cost database, the
department will alsobeableto produceneeded management information. Thedepartment is
usingaunit cost form wheretheutilitycompany submitsitsestimated numberofunits and
correspondingcosts This information isused duringthe development ofthe agreementbetween
the department and the company This sameform isthenusedbytheutilitycompanywhen it
submitsitsfinal bill Thismakesit relatively easyforthedepartment to compare estimated and
final costs. Overall, theunit cost processwill helpthedepartment meet the intent ofour
management informationrecommendation.
Field Inspections
Department officialsacknowledgedthat staffdid not inspectrelocationprojectsasoften aspolicy
dictates. Districtutilityagentsfocused inspection effortsonconfirminglocationofutilityfacilities
and monitoringjobprogress. Minimal inspectioneffortwasmadetoverifyproject costs. We
recommendedthedepartment prioritizewhichprojectsneedthemost inspection effort, maintain
betterinspection records, and providetrainingto monitoringstaff.
PriorRecommendation#3
Werecommendthedepartment:
A. Prioritizewhichutilityrelocationprojectsare tohavefieldinspectionsand
determine theamountofefforttobeexpendedwithvariousprojects.
B. Maintainbetterinspectionrecordstouseinreviewingprojectcosts.
C. Provide trainingtostaffresponsibleformonitoringutilityrelocationprojects.
Thisrecommendationisimplemented.
In 1996, thedepartment developed newpoliciesand anewinspectionformforusebyutility
agentswhichweredesignedto improvetheinspectionprocess. Thepolicymanual covers
inspectionrequirementsanddocumentationrequirements. It statesthat actual costagreements
will requirethegreatest amountofdocumentation. It also showstheareastheutilityagents
should checkforintheiragreements Anotherrequirementis completionofline drawingsthatwill
help showwhereutilityfacilitieswereinitiallylocated and theirnewlocation. Thishelpsboththe
utilityagentand reviewing staffintheUtility Section, to reviewtherelocationworkthatwas
completed and compareittowhatwasincluded intheagreement. Wefoundlinedrawingswere
includedinthesection'sfilesaspartofthedocumentationforthefinalbill. Ourreviewofthe
filesalso showedtheutilityagentswerecompletingthenewinspectionformsandthatinspections
werebeingmonitoredbytheUtility Section. Thedepartmenthasinformedutilitycompaniesof
thenewdocumentationrequirementsforactualcost agreements, suchastheuseofdiariesand
maintainingadocumentationtrailthatwill enabletheauditorstoverifycosts. Thedocumentation
requirementsare specifiedinthenewstandard agreement.
Withtheunit cost system, thedepartment haschangedtheemphasisofitsfield inspectionprocess
withthemain emphasis placed on determiningthenumberandtypesofunitsused. Documen-
tationrequirements forthecompanieshavebeenreduced, andthesechanges havebeen
communicated to theutilities. Utility staffand department staffhavebeentrained ontheunit cost
system
Project Audits
Wefound office-based auditswerenot completed inatimelymannerand 30 percent ofthe
projects hadnotbeen audited. Field auditshavenotbeenconducted since 1991 Therewereno
.
writtenpoliciesand proceduresforutilityaudits. Werecommendedthe departmentprioritize
utilityrelocationprojectsforaudit reviewand develop policiesforoffice-based and field audits.
PriorRecommendation #4
Werecommendthedepartment:
A. Prioritize utilityrelocationprojectsforauditreview.
B. Conducttimelyaudits.
C. Developauditpoliciesforusebyin-houseauditstaffinconductingoffice-based
andfieldaudits.
.
Thisrecommendationisimplemented
Thedepartment developed anewpolicyforconductingutilityaudits. Department officials
indicated thatplacingtheComplianceReview Sectionunderthe director'sofficehasallowedthe
sectiontoplacemoreemphasis onutilityaudits. Utilitycompanieswereinformedwhenactual
cost agreementsareused, thedepartmentwillplace moreemphasisonend ofproject audits. Our
reviewofsectionpoliciesand audit schedules showedthereisnowadded emphasisonutility
audits.
Theunitcost systemwillvirtuallyeliminatetheneedforend ofjob auditsand instead changethe
emphasistoupfrontauditsofcompanies' unitcosts Thedepartmenthasmadetheseup front
auditsapriorityandhascontracted outthefirst roundofaudits. Thecontractorhascompleted
auditsofmost oftheutilitycompaniesthat dealwiththedepartment duetoutilityrelocations.
Thedepartment also allowsutilitycompaniesto choosetouseaverageunit costs. Inthese
instancesthecompanieswill notbeaudited.
Approval ofConsultants and Contractors
Utilitycompaniesoftenhireconsultingengineersforthedesignofarelocationprojectand often
hirecontractorstoconstructtheproject. Wefoundthecompaniesandthedepartmentwerenot
alwaysdocumentingifaconsultant orcontractorwasworkingonaprojectasrequiredbyfederal
regulations. Fourdepartmentworkunitswereinvolvedingrantingapprovalsand staffwere
uncertainoftheirroles intheapproval processincludingwhichunit shouldbemaintainingthe
documentation. Werecommendedthedepartmentclarifypoliciesand staffresponsibilitiesfor
grantingapproval, notifyutilitiesoftherevised policy, denypayment when approval isnot
obtained, and maintainadequatedocumentation.
Prior Recommendation #5
Werecommendthedepartment:
A Clarifypoliciesandstaffresponsibilitiesfordepartmentapprovalofconsultants
andcontractors.
B. NotifyutilitiesofMDT'srevisedpolicygoverningthe use ofconsultantsand
contractors.
C. DenypaymentforconsultantandcontractorexpensesincurredwithoutMDT
authorization.
D. ProperlydocumentMDTapprovalofconsultantandcontractoruseinproject
files.
Thisrecommendationisimplemented
In 1996, thedepartment informedutilitycompaniesthatthedepartment had developed acheck
listto help ensurethatthe companiesobtained properapproval forusingconsultantsand
contractors. Aspart ofitsreorganization ofutilityactivities, thedepartment placed responsibility
forapprovingcontractorsand consultantswiththe Utility Section. Contractorapproval
procedureswerecovered inthedepartment'snewproceduremanual
WiththepassageofHB320, thedepartmentwillno longerbepayingforengineeringcostsfor
relocationson highwayright-of-way. Undertheunit cost system, thedepartmentisnot
concernedwith whethertheutilitycompanyusesconsultantsand contractorsorusestheirin-
housestaffsincethedepartmentwill bepayinga set dollaramount foreachunit. Thusforunit
cost agreements, thedepartmentwill notbeapprovingconsultant and contractorsinmost cases.
Overall, thedepartment hasaddressed ourrecommendationsforthepoliciesrelatedto approving
consultantsand contractors. Inaddition, changesduetoHB320 andunit costshave significantly
reducedtheimportanceoftheapproval process.
Final EngineeringAuthorization
Wefoundthedepartmentwasnot alwaysissuingfinal engineeringapproval letters. Sometimes
thisoccurredbecause staffdid notunderstand thepolicy. Theseapproval lettersalso requestthe
companyto informthedepartmentifacontractorwillbedoingtheconstruction. We
recommendedthedepartment clarifythepolicyand ensuredistrict officesarecomplying.
PriorRecommendation #6
Werecommendthedepartmentclarifythepolicyforfinalengineeringauthorizationand
ensuredistrictofficesareissuingwrittenauthorization.
Thisrecommendationisimplemented.
Thedepartment hasaddressedthisissueinitsletterthat is sent outtoutilitycompanieswiththe
final agreement. Wordingintheletterincludesthe statement: "Thisletterisyourauthorizationto
proceed withthefinal engineering ...".
Final Billing
Wefound that on manyprojectstheutilitycompanies did not submittheirfinal billsuntil more
than ayearaftertheprojectwascompleted. Thishinderedthedepartment in closingout projects
and assigning remaining fundsto otherprojects. Werecommendedthe department changethe
contract languageto requirefinal billingwithin 365 daysofproject completion, to notifyutilities
ofthischange, andto denylatebills.
PriorRecommendation #7
Werecommendthedepartment:
A. Changecontractlanguage torequirefinalbillsbesubmittedwithin365days
afterprojectcompletion.
B. Notifyutilitiesofthechangetocontractlanguageandstresstheimportanceof
compliance.
C. Denypaymentfornoncompliance.
Thisrecommendationisimplemented.
Thedepartment changedthewordingintheirstandardagreementto state: "Finalbillsmustbe
submittedtothe(department)within365 daysafteralltheworkhasbeencompleted. Non-
compliancecouldjeopardizereimbursement" Thischangewasdiscussedwithutilitycompaniesin
meetingsaroundthestatein 1996. Department officials statedthenewpolicywasworkingbetter
and companieswerecomplyingwithfinalbillingrequirements.
Unit costswill allowutilitycompaniesto moreeasilywrapupfinalbilling since acompanyonly
hastotrackthenumberofunitsand not detailed compilationsofman-hours, equipment hours,
travel, materials, etc. This shouldhelpto alleviateconcernstheutilitycompanieshad inbeing
ableto compiletheinformationneeded fortheirfinalbills
JobNumber: 97SP-72
JN\m\perform\utility\mem.99
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