KimberlyK. Hagara, CPA, CIA, CISA, C _Q'}) _ Associate Vice President, Audit Services U'"'Q

Transcription

1 . Health MEMORANDUM TO: FROM: DATE: Michael R. Shriner Vice President, Business Operations & Facilities KimberlyK. Hagara, CPA, CIA, CISA, C _Q'}) _ Associate Vice President, U'"'Q September 8, 2015 SUBJECT: Engagement Number Attached is the final audit report regarding the Deferred Maintenance Program. This audit will be presented at the next Institutional Audit Committee meeting. Additionally, please find attached audit recommendation follow up policy. Each of the recommendations is classified by type at the end of its identifying number: Significant (S), Risk Mitigation (R), or Process Improvement (P). As you will note in the policy, the classification of the recommendation determines the frequency of our follow up. All follow up results are reported quarterly to the Institutional Audit Committee. Thank you for your cooperation and assistance during the course of this review. If you have any questions or comments regarding the audit or the follow-up process, please feel free to contact me at (409) Attachments c: Cheryl A. Sadro David R. Ketchens

2 I utmb Health The University of Texas Medical Branch Audit Report Def erred Maintenance Program Audit Engagement Number September 2015 The University of Texas Medical Branch 301 University Boulevard, Suite Galveston, Texas

3 Background The Texas Higher Education Coordinating Board (THECB) defines "deferred maintenance" as the accumulation of facility components in need of repair or replacement brought about by age, use, or damage for which remedies are postponed or considered backlogged, that are necessary to maintain and extend the life of a facility. "Critical deferred maintenance" refers to any reported deferred maintenance that if not corrected in the current budget cycle places building occupants at risk of harm or the facility at risk of not fulfilling its functions. In its most recent report to the THECB, the University of Texas Medical Branch (UTMB Health) reported no critical deferred maintenance items. Equipment and repairs over $10,000 to existing facility components are funded using funds allocated to deferred maintenance and are scheduled for repair and/or replaced based on priority with budget availability. UTMB Health's fiscal year (FY) 2014 expenditures for deferred maintenance totaled $10.5 million. The FY 2015 deferred maintenance budget totaled $14.5 million, with expenditures through June 30, 2015 totaling approximately $9.2 million. Property Services, a division of Business Operations and Facilities (BOF), has overall responsibility for the deferred maintenance program. Deferred maintenance may be performed by BOF employees or by contract personnel. "Backlog" refers to an accumulation of deferred maintenance projects waiting to be performed. UTMB Health's cumulative deferred maintenance backlog totals more than $827 million through Annual budgeting for deferred maintenance projects is based on available funds, necessity of repairs, and consideration of future capital projects. The Bureau of the Fiscal Service, U.S. Department of the Treasury, states the consequences of not performing regular maintenance could include increased safety hazards, poor service to the public, higher costs in the future, and inefficient operations. Audit Objective The primary objective of this audit is to perform an operational assessment of U'IMB Health's deferred maintenance program. Scope of Work and Methodology The scope of work is current operational activities. Our methodology included interviews, reviews of financial reports, policies, procedures, project files, and processes observations. The audit was conducted in accordance with the International. Standards for the Professional Practice of Internal Auditing as promulgated by the Institute of Internal Auditors. Audit Results Overall, the Business Operations and Facilities deferred maintenance program appears to be working effectively. noted opportunities for improvement around supporting documentation during the project execution process. Facility Assessment Process interviews with BOF personnel indicated a process is in place to determine a building's condition. Critical buildings (healthcare and major research) are assessed annually September 20lfi Page 1of 4

4 while less critical (business and academic) are assessed on a two-to-three year cycle. BOF maintains an annual building assessment schedule, documenting when buildings are due for an assessment. review of the assessment schedule indicated assessments are being completed timely. BOF personnel use a Facility Assessment Worksheet to document the results of their field assessment (e.g. roof, building exterior, elevator & conveying systems, electrical equipment, etc.) of the building. observed BOF personnel's assessment of the Customs House at 1700 Strand, noting BOF followed the documented process for conducting building assessments. BOF Property Services utilizes the Facilities Renewal Resource Model (FRRM) provided and maintained by the University of Texas System Office of Facilities, Planning, and Construction to document the backlog of institutional deferred maintenance and estimate the annual funding required for on-going capital renewal. Using specific building information (e.g. building name, gross square feet and construction date), and a proprietary methodology based on sub-system life-cycles and replacement costs to estimate deferred maintenance and future capital repair needs, FRRM automatically calculates an estimated repair cost. Repairs estimated to cost more than $10,000 are added to the FRRM as backlog. Planning Process The FRRM generates a building portfolio titled "Facility Condition Index" (FCI) which is a snapshot of a building's current condition, scheduled repairs for the current FY, and projected repairs for the next five years. Building portfolios, in conjunction with the FRRM generated Campus Condition Reports, are reviewed at regularly scheduled meetings to plan for and prioritize deferred maintenance projects. Meeting attendees include: Program Directors for Research Property Services, Academic/Business Property Services, Clinical Property Services, Vice President, Business Operations and Facilities, Assistant Vice President, Facilities Design and Construction, and the Associate Vice President, Property Services. attended both a monthly project meeting and a related financial meeting. Although meeting minutes are not maintained, the project-by-project discussions are in-depth and attendees took extensive notes. Subsequent to the approval for, creation of, and funding of the project, the Project Manager assigns work to the appropriate technician or contractor. Program Directors, Project Managers, and Technicians communicate in person, via , via phone, and during monthly meetings to monitor the progress of the project and update the FRRM in real time as assessments are completed. Budget Allocation The Associate Vice President, Property Services together with Program Directors for Research Property Services, Academic/Business Property Services, and Clinical Property Services establish projects, project budgets, and project priority. Priority is given to a project based on professional judgment considering the information from FRRM and in-depth knowledge of the buildings, as well as if the building's use is for either patient care or animal research. The list of proposed projects and their respective budgets are submitted for funding from the overall pool of available funds in the deferred maintenance project budget. Once approved, each project is set up within its respective fiscal year operating unit and funds are transferred from that fiscal year's pool of deferred maintenance funds. If a project needs additional funding and Sevtember 201!') Page 2 of 4

5 cannot be deferred to the following year, the overall budget is adjusted to transfer funds from another project to the in progress project. If budget funds remain after project completion, the funds are returned to the overall pool for distribution to other projects within that fiscal year or returned to Institutional Finance. validated this process is working as indicated. Project Execution reviewed the Deferred Maintenance Projects Status Report as of March 31, The Project Manager in Design and Construction responsible for the creation and maintenance of the status report indicated projects with a zero budget balance available (BBA) indicate a completed project. Seventy two of the 102 projects listed in the report from FY2012 through FY 2014 had a zero BBA; however, only 16 of the 72 projects with a zero BBA were designated inactive (closed) in PeopleSoft, the institutional financial system. Review of the data maintained within PeopleSoft indicates a lack of timeliness of around the project financial closeout process. The BOF Project Delivery Manual indicates the project closeout is the final step in project completion and begins once construction reaches substantial completion. The closeout process enables the BOF Finance team to collect unexpended balances of capital from the funding lines of a project and return it to the Facilities Plan Institutional for application against other requirements. Additionally, the BOF Project Delivery Manual indicates the Team Coordinator (TC) is responsible for generating the hard copy project files upon notice from BOF Finance that the project is open and then distribute those files to the various project team members. To verify that information maintained in PeopleSoft tied to project files, randomly selected five projects, reviewing the files for project funding documentation, start date, and end date. Only one of the five project files reviewed contained funding documentation, start date, and end date. However, the start date in the project file differed from the date entered into PeopleSoft. The remaining four project files contained a mixture of paperwork such as purchase orders, invoices, contractor correspondence, etc. Recommendation P: To improve the reliability and usefulness of project information, the Vice President, Business Operations & Facilities, should implement a process to verify PeopleSoft project information is accurate. Management's Response: All project management group-managed projects are reported on a monthly cycle in a scheduled and recurring review with the Vice President, Business Operations and Facilities (BOF). The PeopleSoft Project Costing module format project summaries provide the focus of these reviews. In each meeting, Program Directors present budget and schedule data for each project using a PeopleSoft spreadsheet. This existing series of meetings was initiated starting August 14, They occur on a weekly basis and provide a framework for reviewingall projects on a monthly basis. We will use this forum to provide the process required in the recommendation. September 20lfi Page of 4

6 Implementation Date: August 14, 2015 Recommendation P: To ensure record keeping consistency, the Vice President, Business Operations & Facilities should consider standardizing the content of the project files (e.g. a checklist of required documents) with consideration given to including notes generated from project status meetings. Management's Response: The Project Delivery Manual (PDM) specifies that each project manager will communicate to their customers in a routine and consistent manner. Chapter 9, paragraphs 9.5 and 9.6 discuss this reporting; paragraph 9.6 specifies the following content be maintained and used for each customer review: 1. Project (BUDGET) Status report 2. Critical Path method Schedule 3. Agenda 4. Minutes of prior meetings 5. Updated Action Log. This provides the list of standard project tracking documents but does not firmly state that a standardized file be kept by each project manager. Additionally, the Appendix A, Project Checklist, does not have these specifically listed. These two PDM cites provide a basis for uniformity and can be altered with a paragraph and a list of these items to provide the recommended standard project file. This will be accomplished and implemented within sixty days or by December 1, Implementation Date: December 1, 2015 Conclusion Overall, Business Operations and Facilities' (BOF's) deferred maintenance program appears to be working effectively. noted opportunities for improvement around supporting documentation related to the project execution process. We greatly appreciate the assistance provided by Business Operations and Facilities staff and hope that the information presented in our report is beneficial. KimberR Hagara, CPA, CIA, CISA, CRMA Associate Vice President, Barbara L. Winburn, RHIA, CIA, CRMA Senior Manager September 20lfi Page4 of 4