TxDOT Internal Audit SH 130 Segments 5&6 Audit Report

Transcription

1 TxDOT Internal Audit SH 130 Segments 5&6 Audit Report Objective To determine if Texas Department of Transportation (TxDOT) management has assigned roles and responsibilities for operations of SH 130 Segments 5&6, and to determine if the control design for the operations of SH 130 Segments 5&6 is adequate. Opinion Based on the audit scope areas reviewed, control mechanisms need improvement and only partially address risk factors and exposures considered significant relative to impacting financial reporting reliability, operational execution, and regulatory compliance. TxDOT s system of internal controls needs improvement in order to provide reasonable assurance that key goals and objectives will be achieved. Improvements are required to correct control gaps and mitigate residual risk that may result in potentially negative impacts to the organization including the achievement of the organization's business/control objectives. Audit activities were performed prior to the completion of SH 130 Segments 5&6. During this time, management showed progress in the development of the required processes, and assigning roles and responsibilities. Actions to mitigate risks have been completed on some items. Overall Assessment Issue Title Findings Control Design Needs Improvement Operating Effectiveness Rating Finding 1 An Executive Sponsor was not initially established when audited and a process to ensure obligations are met across various functions has not been developed. Subsequently, an Executive Sponsor has been assigned. X Not Tested Needs Improvement Finding 2 The Financial Impact Model being used does not include all revenue sources, direct, and indirect costs. X Not Tested Needs Improvement Finding 3 Final roles have not been assigned and the process has not been defined related to the obligations identified in the Section 129 agreement for SH 130 Segments 5&6. X Not Tested Needs Improvement Finding 4 Specific roles, responsibilities, timelines, and written, defined processes related to the review and approval of Developer s deliverables, have not been established. X Not Tested Needs Improvement Management concurs with the above findings and has prepared management action plans to address deficiencies.

2 Internal Environment TxDOT has risk assessed SH 130 Segments 5&6 as low to moderate risk for the agency. The assessment is reflective of the outside financial investment in the project compared to TxDOT s financial commitment. Management has reviewed the findings contained in the report and has agreed that additional activities are required to improve the internal control over the project. Management agrees that the project will attract a high degree of public attention because it is the first project of its kind to commence operations in the State and because of the public s continued interest in tollway projects. Summary Results Scope Area Finding Evidence Maintenance, Toll Operations & Other 1, 2, 3 It was determined through Audit activities that: no single point of contact/executive sponsor responsible for the project across various functions and a process to ensure obligations are met has not been established the Fund 6 Financial Impact cost model has not been updated and does not include all pertinent revenues and costs the assignment of responsibilities identified in the Section 129 agreement for SH 130 Segments 5&6 compliance was not documented and/or agreed across various functions Maintenance 4 It was determined through Audit activities that: the process to deliver, review, and approve critical operations and maintenance service deliverables within contractual timelines was not documented 2 of 9 November 9, 2012

3 Audit Scope The audit covered the activities of the Strategic Projects Division (SPD), Toll Operations Division (TOD), and Finance Division (FIN). The activities including the preparation of project completion and assessment that procedures to identify and document TxDOT s monitoring and oversight have been developed. The audit was performed by Veronica Chacon (HQ), Yania Munro (HQ) and Sidney Shelton (AUS) and oversight was provided by Sonya Ayers (FTW) as lead. The audit was conducted during the period from June 25, 2012 to August 21, Methodology The work performed consisted of: research, analysis and review of pertinent contracts and regulation inquiry and interview of key personnel review of internal documents including current procedures, guidelines, organization charts, delegation of authority matrix, cost models and plans to commence operations for SH 130 Segments 5&6 review of specific assignments of critical project roles and responsibilities evaluation of control design to commence operations for SH 130 Segments 5&6 including development and design of maintenance procedures, toll operations procedures, and other design of control systems Background This report was prepared for the Transportation Commission, TxDOT Administration and Management. The report presents the results of the SH130 Segments 5&6 Audit which was conducted as part of the Fiscal Year 2012 Audit Plan and completed in FY2013. On June 30, 2006, TxDOT announced approval of the state's first concession agreement - a $1.3 billion private investment by the SH 130 Concession Company to build the remaining 41 miles of State Highway 130. Segments 5&6 are a continuation of the northern segments of State Highway 130, which extend from Georgetown in Williamson County to Mustang Ridge in southeast Travis County. State Highway 130 is intended to provide an alternative to the congestion of I-35 in Central Texas. Construction on the project began in April of Completion and commencement of operations is expected on November 11, We conducted this performance audit in accordance with Generally Accepted Government Auditing Standards and in conformance with the International Standards for the Professional Practice of Internal Auditing. 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. A defined set of control objectives was utilized to focus on financial, operational, and regulatory goals for the identified scope areas. Our audit opinion is an assessment of the health of the overall control environment based on (1) the effectiveness of enterprise risk management activities throughout the audit period, and (2) the degree to which the defined control objectives were being met. Our audit opinion is not a guarantee against financial misstatement, operational suboptimization, or regulatory non-compliance, particularly in areas not included in the scope of this audit. 3 of 9 November 9, 2012

4 Detailed Findings and Management Action Plans (MAP) Finding No. 1: Assignment of an Executive Sponsor and Development of a Process to Ensure TxDOT s Obligations are Met An Executive Sponsor responsible for cross-functional performance and ensuring TxDOT meets its obligations for the commencement of SH 130 Segments 5&6 operations was not established. Through our audit activity, we identified areas where roles and responsibilities related to commencement of SH 130 Segments 5&6 Operations weren t documented and/or assigned including: responsibilities related to TxDOT s obligations identified in the Section 129 agreement update and further development of a fully loaded cost model to effectively manage roadway resources the process to deliver, review, and approve critical operations and maintenance service deliverables within contractual timelines delegation of authority for South Central Texas Strategic Projects Office personnel Effect/Potential Impact: There is an increased potential for missed critical tasks and missed opportunities resulting in: violation of contractual obligations, state and local statues and regulations reduced financial resources available for other projects adoption of inadequate maintenance and operations standards by the Developer Management Action Plan (MAP): MAP Owner: Russell Zapalac-Chief Planning & Project Officer (CPPO) MAP Identify Executive Sponsor responsible for cross-functional performance for commencement of SH1 130 Segments 5&6 (completed, September 30, 2012) The Executive Sponsor will provide experience and expertise related to the service commencement of SH 130 Segments 5&6 Operations and will: MAP Coordinate with Chief Financial Officer (CFO) to identify specific personnel from the Strategic Projects Division (SPD), Toll Operations Division (TOD), and Finance Division (FIN) to establish a cross functional team that will meet periodically and report activities back to the Executive Sponsor. (completion, September 21, 2012) MAP Determine and assign specific personnel to serve on the team, develop and assign roles and responsibilities for the cross functional team, and determine the timing and frequency of the meetings with the Executive Sponsor. (completion, October 16, 2012). MAP Establish team responsibilities to include: (completion, October 29, 2012) a) Ensuring that roles and responsibilities related to the Financial Impact Model are assigned, documented, and deadlines are established and met b) Ensuring that roles and responsibilities related to TxDOT s obligations identified in the Section 129 agreement are assigned, documented and deadlines are established and met c) Ensuring that roles and responsibilities related to compliance with the Facilities Concession Agreement are identified, documented, and deadlines are established and met d) Identification and assignment of other specific critical tasks e) Meet periodically with the cross functional team to discuss service commencement, project status, and any issues that have not been resolved to include documentation of the content and attendance at the meetings. (completion, by September 30, 2012 to meet monthly in the initial stages and migrate to every other month or quarterly, as necessary) 4 of 9 November 9, 2012

5 Finding No. 2: Management of the Fund 6 Financial Impact Model The Financial Impact Model for SH 130 Segments 5&6 utilized by Toll Operations Division (TOD) and the Finance Division (FIN) does not include all revenue sources or direct and indirect costs. Through our audit activity we have confirmed that management is aware that the model is incomplete and requires an update to incorporate current revenues and costs. Effect/Potential Impact: The potential financial impact of a model not including all pertinent current revenues and costs could result in the risk that: TxDOT's plan to fund operations and payments to the Developer is not adequate the identified funding out of Fund 6 to cover any loss is not adequate Statewide Contingency fund for Strategy 144 is reduced below SH 130 Segments 5&6 estimated needs there will be reduced financial resources for other projects Management Action Plan (MAP): MAP Owners: Brian Ragland-Director Finance Division (FIN), Doug Woodall-Director Toll Operations Division (TOD) MAP In coordination between the Finance Division and the Toll Operations Division, a detailed work plan will be developed for the management of the Fund 6 Financial Impact Model. A meeting will be scheduled to clarify and assign responsibilities. The detailed plan will include the following deliverables: (completion, September 30, 2012) a) Specific assignment of responsibility for the Fund 6 Financial Impact Model b) Identification and definition of specific revenues and costs to be included in the model c) Identification of milestones related to the delivery of the model, including periodic updates d) Specific assignments to ensure budget resources are included in TxDOT budget 5 of 9 November 9, 2012

6 Finding No. 3: Compliance with the Federal Highway Administration (FHWA) Section 129 Agreement for SH 130 Segments 5&6 Specific roles and responsibilities were not assigned related to TxDOT s obligations identified in the Section 129 agreement including: the annual certification that the toll facility is being adequately maintained an audit of the toll facility for compliance with provisions of the agreement in accordance with Exhibit 8, Section 8 of the Facility Concession Agreement (FCA) Through our audit activity we have confirmed that Section 129 compliance assignment of specific roles and responsibilities were not documented and/or agreed between the Strategic Projects Division (SPD), Toll Operations Divisions (TOD) and the Finance Division (FIN). Effect/Potential Impact: Failure to assign specific responsibilities will increase the department s risk of not complying with FHWA regulation Section 129(a) of Title 23, United States Code resulting in the potential for: loss of confidence by FHWA resulting in potential delay of Federal funds for future projects diminished transparency and unfavorable public scrutiny the limited detection of improper use of toll revenues by the Developer Management Action Plan (MAP): MAP Owners: Ed Pensock-Director of Strategic Projects, Doug Woodall-Director of Toll Operations, Brian Ragland-Director of Finance MAP TOD will meet with FHWA to gain clarification and agreement on the wording and intent of the Section 129 agreement regarding "excess revenue". In particular TxDOT would like to understand the detail behind the annual certification that is noted in the agreement for the adequately maintenance of the toll facility as it relates to excess revenue. TOD will also seek clarification in writing on the audit of the toll facility for compliance with provisions of the agreement to determine the scope of the audit specific to Exhibit 8, Section 8 of the Facility Concession Agreement (FCA). (completed, August 31, 2012 waiting on written response from FHWA) MAP Once clarification is provided by the FHWA on the above item, SPD will perform annual maintenance inspections through the Independent Engineering (IE) contract as specified in the FCA. An annual work authorization will be issued to the IE to report on level of maintenance for roadway, bridges, general right of way and roadside appurtenances. The work authorization will be overseen by the TxDOT project manager assigned to the facility in coordination with TOD, and approved the Chief Project and Planning Officer. The final report will be delivered to the FHWA by TOD prior to the end of each fiscal year. If the above item will require certification related to excess revenue, the TMS to back office reconciliation will be performed by TOD for the facility with revenue amounts reported to FIN, in conjunction with the Developer's audited financial statements for each fiscal year. In coordination with TOD, FIN will determine available revenue after expenses that would be considered excess revenue and provide an annual report in a format acceptable to Chief Financial Officer, such as a General Engineering Consultant (GEC) format, prior to the end of the first quarter after the end of each fiscal year. (completion, November 30, 2012, and each year on this date thereafter) MAP In the event there are surplus revenues, FIN and the Transportation Planning and Programming (TPP) divisions will ensure that only projects eligible to utilize the surplus revenue are programmed in the Unified Transportation Program (UTP) and accurately set up in the Financial Information Management System (FIMS). (completion, November 30, 2012, and each year on this date thereafter) 6 of 9 November 9, 2012

7 Finding No. 4: Review and Approval of Maintenance and Operation Standards for SH 130 Segments 5&6 TxDOT Management has not provided a documented process or established specific roles, responsibilities, and timelines related to the review and subject matter expert approval of the Developer s deliverables. Effect/Potential Impact: Specific roles and responsibilities that are not documented or assigned have the potential to increase the risk for the following: TxDOT s acceptance of inadequate standards of maintenance and operations inconsistent application of the Facility Concession Agreement (FCA) obligations and regulatory requirements missed critical tasks loss of public confidence Management Action Plan (MAP): MAP Owner: Frank Holzmann Strategic Projects Division (SPD) South Central Texas Office MAP SPD will allow the requisite TxDOT approval of Chapter 2D to be obtained by the Developer not later than 60 days prior to the anticipated service commencement date (from 90 days) with no impact to or delay in the service commencement date. (completed, August 17, 2012) MAP 4.2 SPD will identify and assign a TxDOT representative from SPD to provide oversight to the Developer s operations and maintenance obligations under the FCA. The oversight manager will report to the Director of Strategic Projects and on a periodic basis reporting consistent application of the FCA obligations and regulatory requirements and/or reporting any inconsistent application of the FCA obligations and regulatory requirements. (completed, September 5, 2012) MAP 4.3 SPD will develop and document a list to ensure the deliverables required by the FCA during Operations and Maintenance (O&M) are included in the review and approval of Developer s deliverables. (completion, October 5, 2012) MAP 4.4 SPD will write procedures for receipt, review and approval of Developer s deliverables to include the list developed in MAP 4.3. The procedures will establish the responsibilities of the TxDOT oversight manager, subject matter experts, and the Independent Engineer, and will outline specific steps for review and approval of each deliverable identified in the detail plan. The procedures will include specific items to be retained as evidence of proper oversight activities. The oversight manager identified in MAP 4.2 will be involved in the development of the written procedures and primarily responsible for the successful implementation of the procedures. (completion, November 1, 2012) MAP 4.5 Once written procedures are completed, approval will be obtained from the authorized party identified in the SPD authorization matrix who is assigned the responsibility for such review/approval. (completion, November 15, 2012) MAP 4.6 Once approval of written procedures is obtained, the oversight manager identified in MAP 4.2 will begin implementation of procedures, and is responsible for retaining proper evidence of oversight of the outlined, review and approval process. (completion, November 15, 2012) 7 of 9 November 9, 2012

8 Detailed Observation and Audit Recommendation Audit Observation No. 1: At the time of the audit, TxDOT was in the process of selecting the Independent Engineering firm for commencement of operations and maintenance. TxDOT and the Developer were in the process of finalizing the scope of services to be provided by the Independent Engineer for Operations & Maintenance (IE for O&M). Under the Facility Concession Agreement, TxDOT and the Developer rely upon the IE for O&M to provide specific expertise related to: the review and approval of the Developer s deliverables for operations and maintenance standards the effective operation and maintenance of the roadway at commencement of operations completion of assigned deliverables to the Developer and TxDOT It was verbally communicated that a draft joint work authorization was being developed to identify the roles, responsibilities, deliverables, and timelines for the IE for O&M. Until the process is completed, TxDOT will rely upon Raba Kistner Consultants, Inc. to provide the necessary services for operations and maintenance. The contract for engineering services dated January 4, 2007 with Raba Kistner Consultants, Inc. was extended in January 2012 for two additional years. A supplemental agreement was executed to accommodate Engineer work authorizations needed to cover SH 130 Segments 5&6 Facility s construction schedule and operations and maintenance. Audit Recommendation: To ensure that the scope of work to be performed by the IE for O&M includes effective monitoring and oversight tasks and assignments to fulfill the obligations outlined in the FCA and meet industry standards: subject matter experts should be engaged in the development of the scope of services to be performed by the IE for O&M including the Office of General Counsel (OGC), General Services Division (GSD), Finance Division (FIN) and others, as considered necessary TxDOT should engage the dedicated IE for O&M, as soon as it is reasonably possible, to review the agreed upon Developer s Operations and Maintenance Standards and provide feedback to TxDOT and Developer for evidence of good industry practice and compliance with the Facility Concession Agreement TxDOT should engage the dedicated IE for O&M, as soon as it is reasonably possible, to focus efforts on assuring that there is a meaningful transition of assignments and responsibilities at the commencement of operations An audit observation does not require further response by management in the form of a management action plan. 8 of 9 November 9, 2012

9 Summary Results Based on Enterprise Risk Management Framework Business Objectives (Financial, Operational, Regulatory) Audit Results Dashboard SH 130 Segments 5&6 Scope Areas Evaluated O, R F, O, R F. O, R ERM Component Control Activities Maintenance Toll Operation Other (including Financial & Section 129) Internal Environment Objective Setting Event Identification Risk Assessment Risk Response Control Activities Information & Communication Monitoring Organizational Tone 1 1 1, 3 Ethical Culture & Attitude Planning 1, 4 1, 2 Forecasting 1, 4 2 1, 2 Goal-Setting 1 1 Cost-Benefit Analysis 2 Business Continuity 4 Evaluations/Analysis 2 Management Action Plans Policies/Procedure Development & Maintenance 4 Approvals/Authorizations 4 Supporting Evidence/Records Availability 4 2, 3 Segregation of Duties Safeguarding Assets Information Classification Information Input Information Processing Output/Reporting and Messaging Exception Reporting Review 3 Reconciliations 2 Peer Reviews Management Representations Scope Area Assessment Needs Improvement Satisfactory Needs Improvement Rating Legend: Exemplary Satisfactory Needs Improvement Unsatisfactory Closing Comments The results of this audit were discussed with the Chief Planning and Projects Officer, the Director of Strategic Projects, the Director of Toll Operations (by WebEx) and the Director of Finance in an exit conference held on September 14, We thank the employees of the Strategic Projects Division, Toll Operations Division, and the Finance Division contacted during this audit for their assistance and cooperation. 9 of 9 November 9, 2012