Facilities Planning and Management Performance Audit

Transcription

1 Facilities Planning and Management Performance Audit June 2010 Office of the Auditor Audit Services Division City and County of Denver Dennis J. Gallagher Auditor

2 The Auditor of the City and County of Denver is independently elected by the citizens of Denver. He is responsible for examining and evaluating the operations of City agencies for the purpose of ensuring the proper and efficient use of City resources and providing other audit services and information to City Council, the Mayor and the public to improve all aspects of Denver s government. He also chairs the City s Audit Committee and oversees the City s Comprehensive Annual Financial Report (CAFR). The Audit Committee is chaired by the Auditor and consists of seven members. The Audit Committee assists the Auditor in his oversight responsibilities of the integrity of the City s finances and operations, including the integrity of the City s financial statements. The Audit Committee is structured in a manner that ensures the independent oversight of City operations, thereby enhancing citizen confidence and avoiding any appearance of a conflict of interest. Audit Committee Dennis Gallagher, Chair Maurice Goodgaine Jeffrey Hart Timothy O Brien Robert Bishop Robert Haddock Bonney Lopez Audit Staff John Carlson, Deputy Director, JD, MBA, CIA, CICA Chris Horton, Internal Audit Supervisor, MA Jacob Claeys, Lead Auditor, CICA Rebecca Corral, Senior Auditor, CFE Mary Mutchler, Senior Auditor, CICA Emily Gibson, Senior Auditor, MS You can obtain copies of this report by contacting us at: Office of the Auditor 201 W. Colfax Avenue, Dept. 705 Denver CO, (720) Fax (720) Or view an electronic copy by visiting our website at:

3 City and County of Denver Dennis J. Gallagher Auditor 201 West Colfax Ave., Dept. 705 Denver, Colorado FAX June 17, 2010 The Honorable John Hickenlooper, Mayor Office of the Mayor City and County of Denver Dear Mayor Hickenlooper: Attached is the Auditor s Office Audit Services Division s report of its audit of facility planning and management for the City and County of Denver. The audit found that the City should make technical changes to Executive Order 100, and potentially amend the City Charter, to reflect modifications to the structure and nomenclature of its entities overseeing and managing the City s real property assets. In addition, the Real Estate Division of the Department of Finance can enhance its oversight of the City s real estate assets by creating complete and accurate inventories of the City s real estate assets and of its space usage. The audit also found that the City has not planned fully for maintenance costs when considering the design and budget for the Justice Center. However, it appears that changes are being made to maintenance planning, and the City should ensure that its internal facilities management resources are adequately used to prevent unnecessarily large future maintenance costs. Finally, the audit found that the Facilities Management Division appears to be using some contractors for work that City employees could do, in part because maintenance teams do not always check for availability of applicable skill sets on other teams before contracting for work. Due to limitations in how the Division s tracking database is being used, auditors were not able to confirm that specific contract tasks fit current employees skill sets, or that employees had time to perform these tasks. However, these limitations prevent Division management from fully assessing whether it can meet maintenance needs internally rather than spending additional funds for outside contractors. The audit also found that the City maintenance teams sampled were performing at least 95 percent of preventative maintenance on time. If you have any questions, please call Kip Memmott, Director of Audit Services, at Sincerely, Dennis Gallagher Auditor To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

4 John Hickenlooper, Mayor June 17, 2010 Page Two DJG/cnh cc: Honorable Members of City Council Members of Audit Committee Roxane White, Chief of Staff Mr. Claude Pumilia, Chief Financial Officer Mr. David T. Roberts, Chief Services Officer Mr. David Fine, City Attorney Mr. Derek Brown, General Services Manager Mr. L. Michael Henry, Staff Director, Board of Ethics Ms. Lauri Dannemiller, City Council Executive Staff Director Ms. Beth Machann, Controller Mr. James Williamson, Director of the Facilities Management Division Mr. Jeff Steinberg, Director of the Real Estate Division To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

5 City and County of Denver Dennis J. Gallagher Auditor 201 West Colfax Ave., Dept. 705 Denver, Colorado FAX AUDITOR S REPORT We have completed an audit of the City s facility planning and management practices. The purpose of the audit was to examine the oversight of City facilities and other real estate assets, the process of budgeting for facility maintenance, and the management of facility maintenance. This performance audit is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, General Powers and Duties of Auditor, and was conducted in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The audit found that the Mayor s Office should make some technical corrections to Executive Order 100, and possibly pursue an amendment to the City Charter. The Real Estate Division of the Finance Department could more effectively fulfill its role of overseeing the City s real estate portfolio and strategically plan for future real property usage if it develops complete and accurate inventories of the City s real property and space utilization. Further, the audit determined that the Mayor s Office could assist with real estate management and maintenance by ensuring that City agencies manage space usage changes and property acquisition through the Real Estate Division. Audit work determined that the City did not effectively plan for maintenance costs for the new Justice Center. City agencies should leverage recent communication improvements with the Facilities Management Division of the General Services Department to ensure that facility design mitigates unnecessary ongoing maintenance costs. In addition, the Facilities Management Division may be contracting for work that internal employees could perform. Improvements in the use of the Division s internal maintenance database would help management to better determine internal resource availability for completing maintenance work prior to contracting for such work. Despite diminishing resources, the three maintenance teams sampled by auditors had completed at least 95 percent of preventative maintenance on time for January through March We extend our appreciation to the General Services Department, especially the Facilities Management Division, and to the Real Estate Division, who assisted and cooperated with us during the audit. Audit Services Division Kip Memmott, MA, CGAP, CICA Director of Audit Services To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

6 TABLE OF CONTENTS EXECUTIVE SUMMARY 1 INTRODUCTION & BACKGROUND 4 SCOPE 7 OBJECTIVE 7 METHODOLOGY 7 FINDING 1 9 Lack of Internal Controls Hinders Effective Management of City Properties 9 RECOMMENDATIONS 12 FINDING 2 14 Strategic Resource Planning for Facility Maintenance can be Enhanced 14 RECOMMENDATIONS 19 APPENDICES 20 Appendix 1 City Charter Provisions Related to Management of Facilities 20 Appendix 2 Executive Order AGENCY RESPONSE 45

7 EXECUTIVE SUMMARY Management of Facilities and Other City Property Primary responsibility for City facility management is shared by two City entities, the Real Estate Division and the Facilities Management Division. Since 2008, the Real Estate Division of the Finance Department has been responsible for overseeing the City s real estate portfolio. Real Estate s role includes consulting with City agencies regarding their facility needs, conducting strategic assessments for the City s short-term and long-term real estate needs, negotiating sales, purchases, and leases, and managing the use of space within City buildings. The Facilities Management Division of the General Services Department is responsible for operations, management, and maintenance of City facilities. Facilities Management s mission is to manage maintenance needs for approximately 120 buildings, including office buildings, child care centers, police and fire facilities, and a variety of storage and maintenance facilities. Facilities Management also contracts for various maintenance and management services including security and custodial services. Finding 1: Lack of Internal Controls Hinders Effective Management of City Properties Audit work determined the current system of internal controls are insufficient to allow the Real Estate Division (Real Estate) to effectively manage the City s real estate portfolio. Governing Documents Should Be Updated Executive Order 100 and certain aspects of the City Charter, which set responsibilities for planning and management of City facilities and real property, are out of date. For example, Executive Order 100 assigns real property transaction responsibilities to the Asset Management Division. This Division no longer exists, as real property transaction responsibilities now reside with Real Estate. Executive Order 100 should be updated to reflect changes to the organizational structure and responsibilities. In addition, the Mayor s Office should direct the City Attorney s Office to render an opinion as to whether conforming changes to the Charter are required. Lack of Complete Real Estate Inventory Auditors found that Real Estate Division does not have a complete inventory of City real estate holdings. For example, a review of property lists from the Risk Management Office and the Assessor s Office revealed some properties that were not on Real Estate property inventory list. According to some City officials, City agencies historically have maintained lists of their own property. However, the Real Estate Division was created to centralize property management and planning. A property inventory list is a key internal control document and if it is not complete and accurate, Real Estate cannot effectively oversee current property use or strategically plan for future use. Space Management Processes Could Be Improved Audit work determined that Real Estate and the City s other agencies could work together to improve space P a g e 1 Office of the Auditor

8 management processes for the City. Real Estate has instituted a Moves, Adds, and Changes (MAC) committee comprised of members from Real Estate, Technology Services, and Facilities Management to improve oversight of space usage. City agencies should work with this committee to make space management practices more efficient and effective. Specifically, utilizing the MAC committee will ensure that future City needs are appropriately balanced with move requests as well as costs. It will also help to ensure that Technology Services and the Budget and Management Office are apprised of potential moves and can comment on any technological or budgetary impediments. In addition, the Real Estate Division should take steps to improve its space management practices by working to ensure that it has an accurate inventory of the City s space usage. Real Estate has not developed a complete inventory of space usage in City buildings due at least in part to the lack of staff resources to create and maintain a space inventory list. Similar to the real property inventory list, having an accurate and complete space usage inventory will help Real Estate manage current needs and plan strategically for future needs. Finding 2: Strategic Resource Planning for Facility Management can be Enhanced Auditors found that planning for facility management resources could be improved, and that Facilities Management is completing at least ninety-five percent of preventative maintenance on time. Citywide Planning for Maintenance Costs Can Be Improved Auditors reviewed documents relating to the development of the Justice Center, and did not find evidence that the City adequately considered maintenance and operational costs in the planning stages. However, Facilities Management budget was increased by approximately $1.14 million in 2010 to address the costs of maintaining the Justice Center. While Facilities Management is responsible for maintenance and operations, the planning for the Justice Center generally did not include Facilities Management s input in the development phase. The design of buildings can have a significant effect on maintenance and other facilities management costs. For example, the City and County Building has higher security costs than the Wellington Webb Municipal Office Building due to additional entrance and exit points. 1 However, an official with Facilities Management reports having greater input in the development of plans for future buildings, which can result in a reduction in the maintenance of the structure during its service life. In addition to maintaining newly-constructed building, Facilities Management also must sometimes absorb the cost of maintaining existing buildings the City acquires, without an increase in its budget. This occurred in 2010 with the acquisition of the building formerly used by the Church in the City. Having advance knowledge of acquisitions can help Facilities Management adequately plan for its increased maintenance requirements. 1 Security costs are paid for through the Facilities Management budget. See Table 1, p.15. City and County of Denver P a g e 2

9 Contractors May Be Performing Work City Employees Could Conduct Of the approximately $4.5 million Facilities Management spent for contract work in 2009, about $251,000 involved categories of work, such as electrical, painting, and heating, ventilation, and air conditioning (HVAC), that matched the skills set of certain facility maintenance employees. In light of the manner that contract work and employee time are tracked within the Infor Enterprise Asset Management (Infor) maintenance tracking system, auditors could not determine whether specific contract jobs were beyond the skill capabilities of Denver maintenance employees. However, auditors found some city maintenance teams do not utilize employees from other city maintenance teams that may possess the required skill sets for the job at hand. This situation may result in the City contracting for work that could be completed by City personnel. Facilities Management should effectively monitor contractor and employee time within Infor so it can ensure that it does not contract for work that Denver employees can perform. Additionally, the Division should utilize this data to perform a cost-benefit analysis to determine if and when it is more cost-effective to use an external contractor versus City personnel for various maintenance activities as there are circumstances where using a contractor may result in cost-savings to the City. Facilities Management is Performing Preventative Maintenance For the period January through March 2010, the three Facilities Management maintenance teams auditors reviewed have completed at least ninety-five percent of preventative maintenance on time. However, teams report periodically deviating from manufacturer-recommended maintenance schedules and recent changes in Infor preventative maintenance tracking inhibited auditors ability to determine whether altered maintenance schedules used by the Division were reasonable. Audit work also found that maintenance teams reviewed were not generally performing timely completion of other maintenance work, such as repairing broken equipment, at the same percentage levels, although in many cases there is an explanation for the delay, such as a wait time for parts. In addition, Facilities Management, which is experiencing a decrease in resources, has made a strategic decision to focus on preventative maintenance as the highest work priority. P a g e 3 Office of the Auditor

10 INTRODUCTION & BACKGROUND Facility Management Responsibilities and Governance Responsibility for City facility management is shared by multiple City agencies. The Facilities Management Division (Facilities Management) of the Department of General Services is responsible for operations, management, and maintenance of City facilities. Since 2008, the Real Estate Division of the Finance Department has been responsible for overseeing the City s real estate portfolio. In addition, the Public Works Department oversees significant capital improvement projects, including management of facility construction projects. Guidance for facility asset management is provided in the City Charter and in Executive Order 100 (XO 100). The City Charter gives authority for facility management and occupancy to the Department of General Services (General Services). However, the actual organizational structure and responsibilities has changed since the Charter was last amended. As a result, XO 100 is also somewhat outdated. Issues with current City governance for facilities management are discussed in detail in Finding 1. Real Estate Asset Management The Real Estate Division (Real Estate) was created in 2008 as the central managing agency for the City s real estate assets. Real Estate is responsible for consulting with City agencies regarding their facility needs, performing strategic assessments for the City s short-term and long-term real estate needs, negotiating sales, purchases, and leases, and managing the use of space within City buildings. Real Estate has six employees, and a 2010 budget of approximately $690,000. Real Estate works with agencies to coordinate usage of facility space, such as configuration of offices and cubicles, on an ongoing basis. The Division has inaugurated a Moves, Adds, and Changes (MAC) committee which reviews move requests that could range from one employee moving to a different cubicle to a large-scale move of agency personnel from one building to another. The MAC committee also works with key entities such as Technology Services and the Budget and Management Office. Since virtually every space change requires moving telephones, computers, and other technology, Technology Services is a key partner in space management. Working with the Budget and Management Office allows Real Estate to ensure that funds are available prior to any moves. Real Estate has a space planning specialist who works to compile and maintain an inventory of space usage in the City. The MAC committee, the space planning manager, and the partnerships with Technology Services and the Budget Management Office all play a role in working to prevent unknown and unauthorized moves that could impede Real Estate s ability to manage space effectively. City and County of Denver P a g e 4

11 Real Estate has also worked with a consulting firm to develop a Master Plan for Civic Center core assets. 2 This effort involves assessing how to effectively use space vacancies that have arisen due to opening the new Justice Center, and how to plan effectively for space usage over the next twenty years. The draft plan reviewed by the audit team also contains recommendations for upgrades and renovations to Civic Center core facilities to better meet future needs. Another Real Estate role is working to oversee the acquisition, sale, and leasing of City real estate assets. To assist in these functions, Real Estate uses various real estate resources to ensure that value for the City is maximized including CoStar, for lease prices, LoopNet, a commercial real estate listing service, and newspapers. The Division has also worked with other City agencies to compile a list of the City s real estate assets, although this list is incomplete. One of Real Estate s strategic initiatives for 2010 is to acquire new database software that will become Real Estate s primary system. This system would provide information about space usage, the cost of operating expenses per employee per building and cost-benefit analysis information for proposed capital expenditures. 3 Facility Maintenance and Operations Management The Facilities Management Division (Facilities Management) within the Department of General Services is responsible for operations, management, maintenance and improvements of City facilities. 4 Facilities Management is responsible for approximately 120 buildings, including office buildings, child care centers, police and fire facilities, and a variety of storage and maintenance facilities. 5 The Division is divided into two areas: Facilities Operation and Maintenance; and Administration. Facilities Operation and Maintenance is primarily responsible for completing maintenance tasks while Administration processes work orders and provides general administrative and clerical functions for the Division. Facilities Management also contracts for various maintenance and management services including facility security and custodial services at certain facilities. The Facilities Management budget for 2010 is approximately $15.7 million of which approximately $14.9 million is allocated to the Operations and Maintenance unit. The 2010 budget allocates 111 full-time equivalent (FTE) positions to Operations and Maintenance, and four FTEs to Administration. Facilities Operation and Maintenance comprises five functional teams consisting of a facility manager and various trade or custodial personnel. 6 These teams are responsible 2 These assets include the City and County Building, the Wellington Webb Building, the Minoru Yasui Office Building, the Permit Center, the Police Administration Building, the Pre-Arraignment and Detention Facility, the McNichols Office Building, and the Fire Headquarters Office portion of Fire Department Station No.1. 3 City of Denver 2010 Budget Book, p In early 2010 the project management and design engineering function of Facilities Management, which oversaw and provided engineering services for large-scale facility capital improvement projects was moved under the Department of Public Works. 5 City of Denver 2010 Budget Book, p.271. Certain city agencies, such as the Department of Parks and Recreation and Denver libraries, maintain their own facilities. 6 Teams A, B and D have a permanent custodial staff; Teams C and E do not. P a g e 5 Office of the Auditor

12 for various general and preventative maintenance requirements including plumbing, heating and cooling, electrical, doors and windows. 7 The teams also handle assorted odd jobs, such as maintaining refrigerators and other appliances in building break rooms. The five teams are assigned to specific City facilities, as follows: Team A is assigned to facilities including the City and County Building, the Justice Center, the McNichols Building, and various other downtown buildings; Team B is assigned to facilities including the Central Maintenance Facility, the Arie P. Taylor Municipal Center, various Human Services facilities, such as the Richard Castro Building, and some City Council offices. Team C is assigned to facilities including the Cultural Center and Performing Arts Complex Garages, the Fire Academy Building, various Public Works facilities including building on the Roslyn campus at 5440 Roslyn St., and some City Council Offices. Team D is assigned to facilities including most Fire Department stations, the Police Administration Building, some Police District stations, the Animal Control Shelter, and some City Council offices. Team E is assigned to the Wellington Webb Municipal Office Building, Minoru Yasui Plaza, and the building formerly used as the Permit Center. 8 To manage various maintenance objectives, Facilities Management uses a system called Infor Enterprise Asset Management (Infor). This system tracks work orders that are created to address general maintenance requests. The system also allows for tracking preventative maintenance schedules, including the frequency with which this maintenance should occur. Facility teams use system data to track the percentage of preventative maintenance and general repairs that are completed on time. In addition, Infor can be used to track the hours that team members spend in accomplishing various maintenance tasks and work completed by contractors. 7 General maintenance involves reacting to maintenance issues as they occur. Fixing a broken piece of equipment is considered general maintenance. Preventative maintenance involves following a predetermined schedule of activities designed to maintain or extend the working life of equipment. 8 The former Permit Center is located at 200 W. 14 th Ave. City and County of Denver P a g e 6

13 SCOPE This audit reviewed the management of planning and maintenance for City facilities. Specifically, the audit reviewed whether Real Estate effectively manages the City s real estate portfolio and if any improvements could be made to related governing documents, asset management, and space planning. The audit also reviewed how effectively Facilities Management manages and addresses City facility maintenance needs including whether the Division is using contractors appropriately. In addition, the audit reviewed whether the City is adequately incorporating maintenance costs within new City facilities budgets. The audit did not review the project management of capital improvement projects. This area will be addressed in a separate audit planned for later in The audit team extracted data from Facilities Management s Infor system for analysis in Finding 2. In 2009, Facilities Management initiated an upgrade of the Infor system. However, system issues limited the audit team s ability to fully review Facilities Management s performance. The audit team notes these limitations in Finding 2, and makes recommendations regarding possible upgrades to improve management oversight. OBJECTIVE The audit objectives were: To determine if the Real Estate Division was effectively administering the City s real estate portfolio, and if its governance authority should be enhanced; To determine whether the Facilities Management Division was implementing its maintenance responsibilities in a timely and cost effective manner, and; To determine whether the City is adequately incorporating maintenance costs within new City facilities budgets. METHODOLOGY Evidence gathering and analysis techniques used to meet the audit objectives included, but were not limited to: Analyzing the City Charter, Denver Revised Municipal Code (DRMC), Executive Order 100 and Executive Order 123; Interviewing personnel within the Facilities Management Division including members of various facility maintenance teams; Interviewing personnel within the Real Estate Division to learn about its structure and roles, as well as risks faced by Real Estate in accomplishing its purpose; P a g e 7 Office of the Auditor

14 Reviewing and analyzing documents provided by Facilities Management and Real Estate; Reviewing and analyzing various City documents including budget documents provided by the Budget and Management Office; Reviewing and analyzing data within Infor and interviewing Facilities Management personnel regarding any limits to data interpretation; Obtaining and reviewing Facilities Management budget and actual expenditure figures from the Office of the Controller; Obtaining and reviewing various documentation regarding the new Justice Center prior to initial approval of the project; Obtaining and analyzing lists of assets from the Risk Management Office, the Assessor s Office, and Facilities Management to assess the completeness of Real Estate s asset inventory list; Touring portions of the Wellington Webb Municipal Office Building and the City and County Building to learn more about how the Real Estate Division conducts space planning; Attending a meeting of the Move, Adds, and Changes committee to learn more about the decision process and management of space usage, and; Reviewing audits of facility planning and management from other cities to learn risk areas and proposed solutions. City and County of Denver P a g e 8

15 FINDING 1 Lack of Internal Controls Hinders Effective Management of City Properties Audit work determined the current system of internal controls is insufficient to allow the Division of Real Estate (Real Estate) within the Department of Finance to effectively manage the City s real estate portfolio. Specifically, the City lacks governing authority for the Division of Real Estate, does not have a complete real property inventory list, and can improve its processes for managing City properties space. Lack of Specific Governing Authority Certain aspects of the City Charter require review and Mayoral Executive Order 100 (XO 100) needs to be updated to provide the appropriate level of authority to the Division of Real Estate in order for it to achieve its organizational objectives. While both the City Charter and Executive Order identify the need to have an authority over the City's real property decisions, both are outdated and refer to positions that no longer exist. Specifically, both the City Charter and XO 100 give authority to the Department of General Services (General Services) Division of Public Office Buildings (POB) for operation, maintenance, and occupancy of City-owned buildings and XO 100 gives space planning, leasing, and property management to the Asset Management Division. As a result, the Charter and XO 100 appear to contradict each other concerning space management. Moreover, since the Charter was last amended and XO 100 was implemented, there has been a reorganization of POB and Asset Management. POB is now the Facilities Management Division within General Services and the Division of Real Estate under the Department of Finance is now responsible for functions previously handled by Asset Management. The City Charter gives General Services the appropriate level of authority to govern the management and maintenance of City buildings. However, office space management responsibilities have moved to the Real Estate group. Additionally, neither the Charter nor XO 100 recognizes the Real Estate Division as the City s real estate management group. Without specific governing authority, the Division s ability to implement effective internal controls is hindered. The Director of the Real Estate has submitted a draft of proposed changes to XO 100 to the City Attorney s Office. The proposed changes would establish the Real Estate Division and its own authority as well as outline processes and procedures related to areas including acquisition, asset management, programmed space use, and leasing of real property and city facilities. To date, the proposed changes have not been implemented. The Director of Real Estate should work with the City Attorney and Mayor s office to update Executive Order 100 to clarify and implement proper governance and controls to manage the City s real estate efficiently and effectively. Additionally, the Mayor s P a g e 9 Office of the Auditor

16 Office should direct the City Attorney s Office to review and render an opinion as to whether conforming changes to the Charter should be made. Lack of a Comprehensive Property Asset Inventory Audit work determined the City does not have a comprehensive inventory list for real property. Auditors assessed inventory lists maintained by Risk Management which manages the City s self insurance program, the Assessor s Office which tracks all properties in the city and county, and the list maintained by Facilities and determined: 296 of 447 properties (66.2%) on the Risk Management inventory list did not appear on the Real Estate's inventory list. 74 of 82 properties (90.2%) on the Assessor's inventory list did not appear on the Real Estate's inventory list. 9 The properties in our sample included 64 parcels of vacant land totaling approximately 33.2 million square feet, which the Assessor valued at roughly $41 million. 12 of 107 (11.2%) properties tested on the Facilities Management list were not on the Real Estate's list. There may be legitimate reasons for the various agencies to maintain property inventory lists for their own internal purposes. For example, Risk Management may maintain a list of only the properties which require insurance, and Facilities Management may only need to track the buildings for which they provide services. Specifically, Risk Management does not provide insurance for City property that does not contain buildings. Further, some city entities, such as the Department of Parks and Recreation and Denver libraries, maintain their own facilities. The lack of a single comprehensive list inhibits strategic planning on a citywide basis. For the Real Estate Division to appropriately fulfill its strategic planning role, it must have a complete and accurate listing of the various properties the City owns or leases. In addition, without an accurate inventory list, Real Estate cannot implement cost effective and efficient space planning and real property portfolio management. Further, without a complete asset list, the Facilities Management Division cannot ensure that all facilities are being properly managed and maintained. According to officials from General Services and Real Estate, in the past, agencies have often maintained their own asset lists because they were primarily responsible for those assets. However, since the Real Estate Division has become the centralized group responsible for the City s property portfolio, the Division needs an effective internal control structure for asset management planning and oversight. Consequently, Real Estate should ensure that it has a complete, accurate inventory of the City s real estate portfolio. 9 The Assessor s database contains all parcels within the City and County of Denver. While some building and properties comprise multiple parcels, our sample of 82 parcels covered 78 unique addresses. The Division of Real Estate reports it does not track orphan parcels of land (non-salable or very small), parks, and property under the control of Denver International Airport. The random sample tested included one DIA property, one park, and 21 parcels of vacant land less than 1,000 square feet in size. City and County of Denver P a g e 10

17 Space Management Processes can be Enhanced Audit work determined that Real Estate and the City s other agencies could work together more effectively to improve space management processes for the City. While Real Estate s Move, Add, Change (MAC) committee works to ensure that space management is effective, the committee likely does not see all moves within the City. For example, an employee can switch cubicles without requesting a space change through the committee or contacting Technology Services. Advantages to using Real Estate Using Real Estate, including the MAC committee, to plan space changes offers city agencies several advantages. First, through its strategic planning function Real Estate knows whether spaces have been earmarked for a specific future use. Second, if an agency wants to vacate a building, the Division may consider selling the building. The Real Estate Division is best able to identify if the property is worth selling or if it could be better used by another agency. If City agencies were to utilize the Real Estate Division, who maintains professionally licensed staff, negotiations and contracts could be more consistent and cost-effective. The Real Estate Division provides market knowledge and leverage for the City to operate more efficiently. Third, the Real Estate Division could provide guidance when an agency is operating above capacity or is under utilizing space. Finally, the Division provides a single point of contact to agencies needing assistance. Real Estate should continue its efforts to establish formal processes for requesting moves, additions, or changes to City owned or leased space. To fully benefit from the advantages that the Real Estate Division offers to the City, the Mayor s Office should also direct city agencies to act in concert with the Division in planning any change to its space usage. Accurate cost estimates make space management more effective To assist in its space management function, Real Estate needs to use accurate cost estimates. When space utilization costs are inaccurately projected, space management is less effective. Costs for various types of moves are determined by the new space needs. For example, there are certain costs to reconfigure a work space, create new work spaces, and to move employees. These costs vary depending on the scale of the project such as furniture and moving costs as well as technology costs. The MAC committee works with the agencies, Technology Services, and Budget and Management to encumber funds before a project is performed. However, some technology cost estimates do not appear to be correct and can undermine a project budget. For example, according to documents provided by Real Estate, the actual cost for moving the Treasury Division to the Wellington Webb Municipal Office Building was approximately $88,000 higher than originally estimated. Without accurate cost estimates, encumbered funds may not be enough to cover a move and therefore prevent planned moves from being completed. To mitigate the risk of inaccurate estimates, the MAC committee and Technology Services should review methodologies for providing cost estimates. Specifically, the two groups should compile lists for costs of furniture and design needs as well as specific costs for technology in order to better estimate project costs. P a g e 11 Office of the Auditor

18 Improvements are needed in the space inventory process Real Estate could further enhance effective space management by creating an effective process for conducting, generating, and maintaining space inventory of City-owned buildings. For certain City buildings, Real Estate maintains space usage documents known as stacking plans. These stacking plans explain space usage by floor, and space usage within floors. However, the Real Estate Division does not have space plans or an inventory of other City-owned property space, such as the Castro Building. The City needs an effective internal control for space planning management and oversight. The lack of adequate staffing to compile and maintain an accurate space inventory contributes to this problem. As of May 2010, there is only one employee in Real Estate tasked with generating and maintaining space records. In addition, this individual is responsible for coordinating and planning moves for the entire City. As a result, Real Estate s ability to conduct and maintain physical space inventories is limited. Notwithstanding these limitations, Real Estate should implement a process for creating and maintaining an accurate space inventory for City buildings. Specifically, Real Estate should work with the MAC committee to determine the City buildings for which they need a detailed analysis of space usage by floor, and the buildings for which they need a more general stacking plan. Real Estate should enhance its work with Facilities Management to explore using facility managers to assist Real Estate in maintaining the accuracy of the space inventory documents that are developed. RECOMMENDATIONS 1. The Director of Real Estate should work with the City Attorney and Mayor s Office to update Executive Order 100 to clarify and implement proper governance and controls to manage the City s Real Estate efficiently and effectively. 2. The Mayor s Office should direct the City Attorney s Office to review and render an opinion as to whether conforming changes to the Charter should be made. 3. Real Estate should ensure that it has a complete, accurate inventory of the City s real estate portfolio. 4. Real Estate should continue its efforts to establish formal processes for requesting moves, additions, or changes to City owned or leased space. 5. The Mayor s Office should direct city agencies to act in concert with Real Estate in planning any change to its space usage. 6. The MAC committee and Technology Services should review methodologies for providing cost estimates. Specifically, the two groups should compile lists for costs of furniture and design needs as well as specific costs for technology in order to better estimate project costs. City and County of Denver P a g e 12

19 7. Real Estate should work with the MAC committee to determine the City buildings for which they need a detailed analysis of space usage by floor, and the buildings for which they need a more general stacking plan. 8. Real Estate should collaborate with Facilities Management to explore using facility managers to assist Real Estate in maintaining the accuracy of the space inventory documents that are developed. P a g e 13 Office of the Auditor

20 FINDING 2 Strategic Resource Planning for Facility Maintenance can be Enhanced Audit work determined that opportunities exist to enhance strategic resource planning for maintenance activities. The Facilities Management Division often lacks comprehensive information to plan effectively for resource utilization. Further, audit work identified instances of inadequate planning for maintenance costs and cases where resource information was not adequately tracked. Despite these areas for improvement, completion percentages of facility maintenance are generally high. Citywide Planning for Maintenance Costs is Not Always Adequate Auditors identified several instances where new facilities were constructed or acquired without planning for maintenance costs, a situation that is largely outside the control of Facilities Management. For example, in all interviews and communications with various Facilities Management staff and management and City Council employees, none could recall a discussion of estimated operating maintenance costs for the Justice Center prior to authorization of the project. Further, City Council minutes from the meeting approving the Justice Center proposal do not reference any discussion of ongoing maintenance costs. Similarly, the Mayor s Task Force Report, which discusses different scenarios and recommendations for the Justice Center, does not include any reference to maintenance costs. 10 A Department of General Services (General Services) official stated that the Department did have a representative at some Justice Center planning meetings; however, the person s involvement was minimal. However, after the project had been formally approved, the Facilities Management budget was eventually increased by approximately $1.14 million in 2010 to address the costs of maintaining the Justice Center, and Facilities Management officials participated in developing this budget. It is important to plan for maintenance costs prior to constructing or acquiring a new facility since many costs depend on facility design, such as square footage, building materials and points of entry and exit for security. For example, security costs for the Wellington Webb Municipal Office Building and the City and County Building differ due to the number of entries and exits requiring security personnel. Additionally, Facilities Management has to absorb maintenance costs for any building acquired during a budget cycle. For example, the facility located at 3888 E. Mexico that formerly housed the Denver Elections Division was acquired during the 2008 budget cycle. As a result, Facilities absorbed $26,000 in maintenance costs. Further, based on interviews with a Facilities Management official, some buildings that are scheduled to become the responsibility of Facilities in 2010 were not budgeted for last year, such as 10 The Mayor s Task Force was appointed by the Mayor in 2004 and was comprised of 48 members from different disciplines, including finance, design, construction and agency specific activities (e.g., law enforcement). City and County of Denver P a g e 14

21 the building that formerly housed the Church in the City. 11 The maintenance cost that must be absorbed for these facilities is unknown at this time, but maintaining these new acquisitions will inevitably diminish resources available to maintain other City facilities in Having advance knowledge of acquisitions can help Facilities Management adequately plan for its increased maintenance requirements. In the past, Facilities has not always been involved in the facility construction and acquisition process, which is often outside its control. However, this situation appears to be improving. For example, the new Animal Shelter, East Side Office Building and Crime Lab facilities have all planned for maintenance costs. A Facilities official reported that a closer partnership with Public Works resulting from the functions previously under Facilities responsibility recently being transferred to Public Works has helped ensure that planning for maintenance costs is performed. In order to continue improving facility budget development, the Mayor s Office should ensure Facilities Management is included in all planning discussions for new facility acquisitions or new facility construction. The Mayor s Office should also ensure that maintenance cost estimates are obtained prior to acquiring a new facility, whether constructed or otherwise. Third Party Contractors May be Performing Maintenance Work that could be Completed by City Employees In our review of budgeting and expenditure information, auditors identified several instances where third party contractors might be performing maintenance work that could possibly be performed by City employees. During 2009, Facilities Management spent approximately $4,500,000 of the Division s approximately $8,600,000 overall budget for the year for various contract work. Most of these contract expenditures were for work that cannot be performed by City personnel, like security and janitorial services for facilities without a janitorial staff. However, approximately $251,000 was expended for work that potentially could have been performed by City employees. This contract work related to heating, ventilating, and air conditioning (HVAC) services, painting, electrical services and janitorial services for teams that have a janitorial staff (see Table 1, p.16). 11 The City acquired this building in March 2010, and plans to raze the building as part of site development for a new recreation center. Facilities Management is maintaining the building until it is torn down. P a g e 15 Office of the Auditor

22 Table 1 Facilities Management 2009 Contract Expenditures Service Type Team A Team B Team C Team D Team E Category Totals Concrete Work $ $0.00 $1, $1, $0.00 $4, Electrical Maintenance/ Repair $5, $9.44 $2, $0.00 $34, $43, Elevator $11, $9, $20, $8, $51, $101, HVAC Maintenance/ Repair $3, $5, $38, $27, $0.00 $75, Janitorial Service $43, $33, $110, $43, $1,123, $1,354, Landscaping $0.00 $0.00 $13, $1, $0.00 $15, Maintenance of sandtraps, lift station, greasetraps $0.00 $2, $57, $2, $1, $63, Moving Services $0.00 $0.00 $0.00 $0.00 $ $ Painting $0.00 $12, $ $0.00 $0.00 $12, Security $1,235, $7, $212, $344, $1,007, $2,806, TOTALS $1,301, $70, $457, $429, $2,219, $4,477, Source: Auditors analysis of information provided by the Controller s Office. Audit work determined a possible overlap between third-party maintenance work and work performed by City maintenance employees. Specifically, as of January 2010, the City employs two painters, four electricians, one electrical maintenance worker, one electronic systems technician, four HVAC certified workers and nine master trades workers, which have various maintenance certifications. 12 After conversations with various Facility Managers and Facility Supervisors, it is clear that the rationale behind utilizing contract workers varies amongst the different maintenance teams. Some teams will only utilize contract workers to complete work that requires a permit (usually new construction), some use contractors to handle after-hours emergency calls and others 12 Master Trades Workers are required to have two separate maintenance related certifications and/or licenses to qualify for the position. City and County of Denver P a g e 16

23 use contractors for everyday work orders that the team cannot otherwise resolve in a timely manner. Overall, there is work being contracted out that could be performed inhouse solely based on skill set requirements. General Services management believe that ideally City employees should be used to perform maintenance work within their skill areas rather than contracting this work to outside parties. However, some of these activities can result in cost savings when a contractor is utilized. For example, hiring a contractor to perform after-hours emergency calls can be more cost-effective than paying City employees overtime in certain situations In addition to varying methods for using contractors, there are other factors that impact the ability of City employees to perform this work. For example, Facilities Management officials stated that the Division s emphasis on preventative maintenance, limited budget for staff overtime and staffing shortages greatly influence how the teams use contract workers for maintenance. Specifically, the 2010 budget Facilities Management incurred a net loss of at least ten maintenance-related positions. 13 Additionally, Facilities has been asked to maintain some additional facilities, such as the former Church in the City location. Thus, Facilities expected that some work would need to be contracted out due to lack of staff availability. Moreover, audit work revealed the maintenance teams have a semi-rigid structure, meaning that the availability of other teams members to perform maintenance work is not always considered before contracting for the work. To help ensure the best use of City resources, Facilities Management officials should develop policies and procedures to ensure a cost-benefit analysis is performed when determining whether contractors will be used to perform maintenance work. Facilities Management officials should also ensure that there is a cross-utilization of maintenance team members to decrease contractor costs. Tracking of Third-Party Costs and Internal Resources can be Improved Auditors were unable to adequately assess how much contract work could have been performed in-house, for two specific reasons. First, although the Infor Enterprise Asset Management system (Infor) has the capacity to track contract work, such work is only being tracked by individual task order outside of Infor. Secondly, current employee time tracking practices do not account for all maintenance activities, resulting in a lack of information regarding employee utilization. Since contract work is tracked via task order outside of Infor, there is no way to search by contractor for specific work performed beyond the larger category labels assigned like HVAC. Consequently, even though some overlap was identified between the skill set of City employees and the categories of contract work performed, without being able to search for specifics on the actual maintenance completed, auditors could not determine if the City truly possessed the in-house skills required to complete the work. 13 For 2010, Facilities Management eliminated 16 maintenance-related positions (e.g. electricians) and gained 5 full time employees for operation and maintenance of the Justice Center. Further, it eliminated 10 positions in the project management function, which could impact normal maintenance activities. Facilities Management also has budgeted $233,793 in 2010 for positions it is holding vacant. This likely includes maintenance positions, but the audit team could not verify this from budget documents it reviewed. P a g e 17 Office of the Auditor

24 Further, only portions of Facilities Management employee time is captured within Infor. This unrecorded time resulted in misleading information generated by Infor reports. For example, when auditors ran the Employee Time Summary reports in Infor for three months for three teams, large discrepancies were found when the total time available for work was compared with hours logged to maintenance duties. 14 In some cases, Infor data inaccurately indicated as much as 70 percent of a team s available time to work was unaccounted for in a given month. Upon further investigation, auditors learned that many types of activities are not captured by these reports including, leave time, training, and miscellaneous maintenance tasks for which work orders are not issued. 15 Also, some teams interviewed were unaware that they needed to be tracking all time in Infor. As a result of this limitation, auditors were unable to fully assess the extent to which certain employees or teams were utilized, which hinders the ability to know whether some contract work could be performed in-house based on employee utilization. Without comprehensive staff utilization information and tracking of contractor use, Facilities Management cannot fully analyze the extent to which in-house resources are utilized prior to contracting work out. As a result, critical cost-savings opportunities could be missed. To assist in developing information regarding employee utilization, Facilities Management should refine Infor reports and develop revised timekeeping practices that will allow teams to assess staff utilization, such as creating work orders for activities not captured by Infor. Preventative Maintenance and Work Orders are Generally Completed at High Percentages Auditors reviewed performance data for January through March 2010 for three facility management teams and found that the teams were generally completing 95 percent or more of their scheduled preventative maintenance tasks each month. Completion percentages for other types of work orders are generally slightly lower than preventative maintenance percentages. 16 In most cases, the lower percentages have reasonable explanations, including elapsed time resulting from ordering parts or cancelled work orders. Additionally, Facility Management officials attribute the slightly larger percentage of outstanding work orders to the strategic emphasis being placed on preventative maintenance. The emphasis on preventative maintenance completion was a strategic decision by Facilities management based on identifying the highest priority work that could be completed with decreasing resources. While the preventative maintenance work that is scheduled is generally being completed on time, auditors had difficulty assessing the adequacy of maintenance schedules. The basis of preventative maintenance schedules vary across teams. Some 14 Total time available to work was based on forty hour work weeks, excluding weekends and holidays. 15 Some examples of these miscellaneous tasks include, snow removal, landscaping, and servicing personal employee equipment (e.g., toasters and window air conditioning units). 16 For the three teams reviewed, the average work order completion rates for January March 2010 were 89.1 percent percent, and 96.2 percent. These averages are not adjusted for cancelled work orders, duplicate work orders, work orders awaiting parts, or any other explanation for an open work order. City and County of Denver P a g e 18

25 teams strictly adhere to manufacturer recommendations for preventative maintenance schedules. In contrast, other teams will adjust preventative maintenance schedules based on other factors such as, the use of the equipment, the age of the equipment and available resources. Based on audit interviews, Facility Managers believe these are appropriate strategies for formulating maintenance schedules. However, due to the Infor limitations including incomplete repair information for specific machines inhibited auditor s ability to assess whether the deviations from manufacturer specifications have had any impact on machines or equipment. RECOMMENDATIONS 1. The Mayor s Office should ensure Facilities Management is included in all planning discussions for new facility acquisitions or new facility construction so the City can accurately budget for maintenance costs. 2. The Mayor s Office should ensure that maintenance cost estimates are obtained prior to acquiring a new facility, whether constructed or otherwise. 3. Facilities Management officials should develop policies and procedures to ensure a cost-benefit analysis is performed when determining whether contractors will be used to perform maintenance work. 4. Facilities Management should ensure that there is a cross-utilization of maintenance team members to decrease contractor costs. 5. Facilities Management should refine Infor reports and develop revised timekeeping practices that will allow teams to assess staff utilization, such as creating work orders for activities not captured by Infor. P a g e 19 Office of the Auditor

26 APPENDICES Appendix 1 City Charter Provisions Related to Management of Facilities Section of the City Charter provides the various roles and responsibilities of the Manager of General Services. These include responsibility for control and operation of municipal office building and other municipal facilities. City and County of Denver P a g e 20

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28 Section of the City Charter provides the various roles and responsibilities of the Manager of Finance. The Real Estate Division falls under the Department of Finance, but is not reflected in the duties of the Manager of Finance. This section allows the City Council to add by ordinance to the duties of the Manager of Finance. City and County of Denver P a g e 22

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