S LEGISLATIVE AUDIT DIVISION 354.77 L72RUMH Scott 1999 auditor Deputy Legislative Auditors: John \ nsel Jim Pellegrini, Performance Audit iri Hunmausen, 11 a. uperationsManager JamesGillett, Financial-Compliance Audit MONTANASTATELIBRARY MEMORANDUM 3 0864 1002 4522 7 TO LegislativeAuditCommitteeMembers FROM: JimPellegrini, DeputyLegislativeAuditor, PerformanceAudits <-Jf" DATE: May 1999 RE: Follow-up to Performance Audit: RelocatingUtilities on Montana's Highway Right-of-Wav Montana Department ofTransportation (94P-31) INTRODUCTION In September 1995, wepresented ourperformanceAudit onRelocatingUtilitiesonMontana's HighwayRight-of-WaytotheLegislativeAuditCommittee The auditwascompleted atthe request oftheMontanaDepartmentofTransportation(MDT). Thereport made seven recommendationstoMDT Werequested and received informationfromMDT ontheirprogress in implementingtherecommendationsin December 1996. Somefollow-up work wascompleted inJune and July 1997 andthentheproject wasput on hold. Thisallowedthedepartment more timeto implementtherecommendations Theproject wasrestarted and completed in March 1999. To completethefollow-upproject, weinterviewed department officialsand staff, reviewed changestowritten policiesand forms, and reviewed a sample ofutility relocation project files Wealso reviewed variousreportsand documentsprepared by otherentitiesworkingwiththe department intheutilityarea, includingaUtilityTaskForcecreated bythedepartment and a consultanthiredbythedepartment. Inadditionto summarizingtheresultsofourfollow-upwork, thismemo presentsbackgroundon utilityrelocationandthechangesthedepartmenthasmadeinitsproceduressinceouraudit. SUMMARY OFFOLLOW-UPRESULTS Ourfollow-upworkshows thatall seven recommendations from our 1995 report have been implemented. Twomajorchangesweremadeintheutilityrelocationprocessasaresult ofaUtilityTaskForce created bythedepartment in 1996. Becauseofchangesmadebythedepartment, the significance 1 Room 135.StateCapitolBuilding. POBox201705 HelenaMT59620-1705 Phone(406)444-3122 FAX(406)444-9784 [email protected] ofsomerecommendationshasbeenreduced, whileforothersthebest method ofimplementation will change. Themost significant changebythedepartment wasthecreation ofaunit cost system whichisdiscussedbeginningonpage3. BACKGROUND ON UTILITY RELOCATION Atthetimeofouraudit, four"workunits"withinthe departmentwereresponsibleforoverseeing utilityrelocationwork. TheUtility Sectionworkedwiththeutilitycompaniesto determinewhat facilitiesneededtoberelocated, reviewedestimatedproject costs, and finalizedtheagreements withthe companies. Thedistrict officeswereresponsibleforday-to-dayadministrationofthe agreements, conducted inspectionsofthework, andinitiallyapproved invoicesforpayment. The ConstructionBureau reviewed and approved costsassociatedwithrelocationworkand changes to planned scopeofwork. TheComplianceReview Sectionreviewedutilitycompanycost estimatesandthecompanies' useofengineeringconsultants. Onceprojectswere completedthis sectionalso reviewedfinalproject costs. Belowwediscussthechangesmadeintherelocation process sincetheaudit. UTILITYTASK FORCE AUtilityTaskForcewasestablishedbyMDT'sdirectorin 1996tohelpthedepartment address auditreportrecommendationsandto studyotherissuesaffectingthedepartment andutility companies. Oneoftheprimary "otherissues" involved reviewingMontana'spolicyfor reimbursingutilitycompaniesforrelocationsoffacilitieslocated onhighwayright-of-way. While ourreport did not makearecommendationcoveringthisissue, wedid notethat most statesdo not reimburseutilitycompaniesforrelocatingfacilitieswithinthehighwayright-of-way. We reportedthat thelegislaturemaywantto reviewthis 30-yearold policyto seeifitwas still appropriate. Thefirst meetingofthetask forcewasheld on March 11, 1996. Thetask force met several times in Helenaand in other locations inthe state Thetask forceconcentrated onthe reimbursement (cost sharing) issueand thepotential to switchto aunit cost approach (Under aunit cost system, the statewould payforeach relocatedunit, such asapole, based on preestablished and audited costs.) During 1996, thedepartment held several meetingswithutilitycompaniesacrossthe state to explaintheresultsoftheaudit andtheworkofthetaskforce(particularlythechangetounit costs). ThefinaltaskforcereportwasissuedonDecember 16, 1996. Thetaskforcemade several recommendationsincludingchangesinthecostsharingbetweenutilitycompaniesandthe stateand inusingaunit costapproachwhenpayingforutilityrelocations. Asaresult ofthetask force, HB320was introduced duringthe 1997 Legislature. Passageofthisbill (Chapter324, LawsofMontana, 1997) providedthatthedepartment wouldno longerpayforengineeringcosts forutilityrelocationsonhighwayright-of-way. Thefiscal noteforthelegislationestimatedthat about 12 percent ofutilityrelocationpayments(about $500,000) areforengineeringcosts. The legislationalso allowsthedepartment to adopt rulesrelatedtothedepartment'sreimbursement responsibilities. Thedepartmentusedthischangetoimplementthetaskforcerecommendationto requireutilitycompaniesto switchtotheunit cost system. UNITCOSTAPPROACH Thedepartment contractedwithanaccountingand consultingfirmto help intheimplementation oftheunit costapproach. Theagreementcalled forthecontractorto: gainanunderstandingoftheUnit CostProcess; evaluatemethods ofdevelopingunitcostsand providerecommendations; reviewutilitycompanyproposed unitcosts; provideaverageunitcostsfor 1998; and preparetrainingsessionsfordepartmentpersonnel andutilitycompanypersonnel. Theinitial agreement calledforthecontractortoreviewunit costssubmittedby 19utility companies. Theagreementrequiredtraining sessionstobeheld infourdifferent cities. The contractoralso developed amanualforthedepartmenttitled: "UnderstandingtheUnit Cost ProcessforUtilityRelocationProjects" Thismanualwasdesignedto helputilitycompanies submittheirunit coststothedepartmentforreview. Thecontractwaslaterexpandedto include thereviewofunit costsfor38 additional companiesandtohelpfourtelecommunication companiesindevelopingunit costs. Alsoincludedinthisexpanded contractwere: continued evaluationofaveragecosts; developingapoliciesandproceduresmanual forthedepartment; participatingin aUnitCostTaskForce; and givingfouradditionaltrainingsessions. Thiscontract istobecompletedbyJune30, 1999. Amajorpart ofthecontract istheprovision forauditsofunit costsestablishedbyutilitycompanies. Inthefuturetheseunit cost auditsare expected to be completedbythedepartment'sComplianceReview Section. These subsequent audits should not be astime-consumingbecausethedepartment can reducethe scope ofthe audits using its database information and by lookingat how much acompanychangesits costsfrom prioryearcosts. Accordingto department officials, all relocationagreementsarenowbeingbased onunit costs. Thedepartmentwill approveanactual costagreement onanexceptionbasis, suchasforcomplex urbanprojectswhereunitcostswouldbemoredifficultto manage. Allutilitycompanieshave submittedunitcostsfor 1999 and auditsoftheseunitcostswillbecompletedbyJune30, 1999. AUDITREPORTISSUESANDCORRESPONDING FOLLOW-UP FINDINGS Duringour 1995 audit, wefoundthedepartment'sinternal control system didnot providefor adequateoversight oftheutilityrelocationprocess. Therewerenumerousexamplesofboth unallowableand questionable coststhatwerenotidentified and resolvedbythedepartment's internal control structure. Department management and staffagreed onlyminimal monitoringof utilityrelocationcostswasoccurring. The department'sprimaryemphasiswastomoveutilities fromtheconstructionzone. Thechangetotheunit cost systemwill help addressmany oftheissuesin ourreport. Thenew systemwill: Makeit much easiertoestablishtheestimated cost ofaproject andverifyfinal project costs. Staffwill alsobebetterableto reviewthereasonsforanydifferencesbetween estimated andfinal costs. Makeit easierforthedepartmentto monitorrelocationcosts. Inspectionsandrecord keepingwill concentrateonthenumberandtypeofunitsbeingrelocated ratherthana trackingofmanhours, equipmentuse, etc. Virtuallyeliminatetheneedforendofjob audits and insteadchangethe emphasistoup frontauditsofcompanies' unitcosts. Eliminatetheneedto approveuseofcontractors orconsultantsinmost instances. Allowutilitycompaniestomoreeasilywrapupfinalbilling. Thechangetounit costsreallyhelpsintheimplementation ofmost oftheaudit recommendations. In somecases, it changeshowthedepartmentwillwanttoimplementtheauditrecommendations. Forrelocation projectswherecompaniesarebeingreimbursedunderactual cost agreements, then priordepartmentprocedureswill still needtobefollowed (consultant approval, costmonitoring throughfieldinspections, etc.). However, department officialsindicatedtherewillbeveryfew actual cost agreementsinthefuture. Thedepartment'sutilityrelocationpolicymanual also indicatesmostutilityrelocationagreementswillbeunit cost orlump sumagreementsbased on unit costs. The remainderofthis memorandum addresses the department's actions related to each of ourrecommendations. Department Management Structure Duringtheaudit wefound the department'sutilityrelocation process required fourdifferent work unitsto beinvolved intheprocess. Thisresulted in both overlaps and gapsinthecontrol structureoverutility relocation costs. Werecommendedthedepartment changethe control structureto eliminatetheoverlapsandgapsand alsoto assignoverall project responsibilityto one workunit. PriorRecommendation #1 Werecommendthedepartmentchange the internalcontrolstructureto: A. Definestaffresponsibilitiestoeliminateoverlapsandgapsbetweenworkunits. B. Coordinateactivitiesbyassigningoverallprojectresponsibilitytooneworkunit. Thisrecommendationisimplemented. TheConstructionBureau isnolongerinvolvedintheutilityrelocation process. Theoverall responsibilityfortheprocessrestswiththeUtility Section. Theutilityagents inthefield perform initialreviewsoffinal billsandthenforwardthemtotheUtility Sectionforfinal approval. The switchtounit costsgreatlyaffectsthewayrelocationcostswill bemonitored. Theutilityagents willbeabletoconcentrateonthenumberandtypesofunitsthatareused onaproject. Theywill no longerhavetomonitorhowmanypeoplewereworkingontheproject, whatvehiclesand equipmentwereused, orwhat materialswereused. Thecost estimatingprocedureswill alsobe simplified. Overall, themonitoringoftheagreementswillbe simplerand morecomputerizedthan inthepast. Management Information Requirements Duringourauditwefound onlylimited managementinformation relatedto estimatedand actual costsforrelocationprojects. Workunitsthatdid develop someinformationdid not providethis informationto otherunits. Werecommendedthedepartment compilemanagement informationto beused inassessingestimated costsand inreviewingfinal projectcosts. Wealso recommended theinformationbedistributedtoappropriate staffresponsibleformonitoringcosts. PriorRecommendation #2 Werecommendthedepartment: A. Compilemanagementinformationtobeusedinassessingestimatedandendof projectcostsofrelocatingutilities. B. Ensuremanagementinformationisdistributedtostaffresponsibleformonitoring projectcoststoprovide bettercoordination. Thisrecommendationisimplemented. Thechangeto aunit cost systemmakesitmuch easierforthedepartmentto establishthe estimated cost ofaproject andtoverifyfinal project costs. Withtheunit cost database, the department will alsobeableto produceneeded management information. Thedepartment is usingaunit cost form wheretheutilitycompany submitsitsestimated numberofunits and correspondingcosts This information isused duringthe development ofthe agreementbetween the department and the company This sameform isthenusedbytheutilitycompanywhen it submitsitsfinal bill Thismakesit relatively easyforthedepartment to compare estimated and final costs. Overall, theunit cost processwill helpthedepartment meet the intent ofour management informationrecommendation. Field Inspections Department officialsacknowledgedthat staffdid not inspectrelocationprojectsasoften aspolicy dictates. Districtutilityagentsfocused inspection effortsonconfirminglocationofutilityfacilities and monitoringjobprogress. Minimal inspectioneffortwasmadetoverifyproject costs. We recommendedthedepartment prioritizewhichprojectsneedthemost inspection effort, maintain betterinspection records, and providetrainingto monitoringstaff. PriorRecommendation#3 Werecommendthedepartment: A. Prioritizewhichutilityrelocationprojectsare tohavefieldinspectionsand determine theamountofefforttobeexpendedwithvariousprojects. B. Maintainbetterinspectionrecordstouseinreviewingprojectcosts. C. Provide trainingtostaffresponsibleformonitoringutilityrelocationprojects. Thisrecommendationisimplemented. In 1996, thedepartment developed newpoliciesand anewinspectionformforusebyutility agentswhichweredesignedto improvetheinspectionprocess. Thepolicymanual covers inspectionrequirementsanddocumentationrequirements. It statesthat actual costagreements will requirethegreatest amountofdocumentation. It also showstheareastheutilityagents should checkforintheiragreements Anotherrequirementis completionofline drawingsthatwill help showwhereutilityfacilitieswereinitiallylocated and theirnewlocation. Thishelpsboththe utilityagentand reviewing staffintheUtility Section, to reviewtherelocationworkthatwas completed and compareittowhatwasincluded intheagreement. Wefoundlinedrawingswere includedinthesection'sfilesaspartofthedocumentationforthefinalbill. Ourreviewofthe filesalso showedtheutilityagentswerecompletingthenewinspectionformsandthatinspections werebeingmonitoredbytheUtility Section. Thedepartmenthasinformedutilitycompaniesof thenewdocumentationrequirementsforactualcost agreements, suchastheuseofdiariesand maintainingadocumentationtrailthatwill enabletheauditorstoverifycosts. Thedocumentation requirementsare specifiedinthenewstandard agreement. Withtheunit cost system, thedepartment haschangedtheemphasisofitsfield inspectionprocess withthemain emphasis placed on determiningthenumberandtypesofunitsused. Documen- tationrequirements forthecompanieshavebeenreduced, andthesechanges havebeen communicated to theutilities. Utility staffand department staffhavebeentrained ontheunit cost system Project Audits Wefound office-based auditswerenot completed inatimelymannerand 30 percent ofthe projects hadnotbeen audited. Field auditshavenotbeenconducted since 1991 Therewereno . writtenpoliciesand proceduresforutilityaudits. Werecommendedthe departmentprioritize utilityrelocationprojectsforaudit reviewand develop policiesforoffice-based and field audits. PriorRecommendation #4 Werecommendthedepartment: A. Prioritize utilityrelocationprojectsforauditreview. B. Conducttimelyaudits. C. Developauditpoliciesforusebyin-houseauditstaffinconductingoffice-based andfieldaudits. . Thisrecommendationisimplemented Thedepartment developed anewpolicyforconductingutilityaudits. Department officials indicated thatplacingtheComplianceReview Sectionunderthe director'sofficehasallowedthe sectiontoplacemoreemphasis onutilityaudits. Utilitycompanieswereinformedwhenactual cost agreementsareused, thedepartmentwillplace moreemphasisonend ofproject audits. Our reviewofsectionpoliciesand audit schedules showedthereisnowadded emphasisonutility audits. Theunitcost systemwillvirtuallyeliminatetheneedforend ofjob auditsand instead changethe emphasistoupfrontauditsofcompanies' unitcosts Thedepartmenthasmadetheseup front auditsapriorityandhascontracted outthefirst roundofaudits. Thecontractorhascompleted auditsofmost oftheutilitycompaniesthat dealwiththedepartment duetoutilityrelocations. Thedepartment also allowsutilitycompaniesto choosetouseaverageunit costs. Inthese instancesthecompanieswill notbeaudited. Approval ofConsultants and Contractors Utilitycompaniesoftenhireconsultingengineersforthedesignofarelocationprojectand often hirecontractorstoconstructtheproject. Wefoundthecompaniesandthedepartmentwerenot alwaysdocumentingifaconsultant orcontractorwasworkingonaprojectasrequiredbyfederal regulations. Fourdepartmentworkunitswereinvolvedingrantingapprovalsand staffwere uncertainoftheirroles intheapproval processincludingwhichunit shouldbemaintainingthe documentation. Werecommendedthedepartmentclarifypoliciesand staffresponsibilitiesfor grantingapproval, notifyutilitiesoftherevised policy, denypayment when approval isnot obtained, and maintainadequatedocumentation. Prior Recommendation #5 Werecommendthedepartment: A Clarifypoliciesandstaffresponsibilitiesfordepartmentapprovalofconsultants andcontractors. B. NotifyutilitiesofMDT'srevisedpolicygoverningthe use ofconsultantsand contractors. C. DenypaymentforconsultantandcontractorexpensesincurredwithoutMDT authorization. D. ProperlydocumentMDTapprovalofconsultantandcontractoruseinproject files. Thisrecommendationisimplemented In 1996, thedepartment informedutilitycompaniesthatthedepartment had developed acheck listto help ensurethatthe companiesobtained properapproval forusingconsultantsand contractors. Aspart ofitsreorganization ofutilityactivities, thedepartment placed responsibility forapprovingcontractorsand consultantswiththe Utility Section. Contractorapproval procedureswerecovered inthedepartment'snewproceduremanual WiththepassageofHB320, thedepartmentwillno longerbepayingforengineeringcostsfor relocationson highwayright-of-way. Undertheunit cost system, thedepartmentisnot concernedwith whethertheutilitycompanyusesconsultantsand contractorsorusestheirin- housestaffsincethedepartmentwill bepayinga set dollaramount foreachunit. Thusforunit cost agreements, thedepartmentwill notbeapprovingconsultant and contractorsinmost cases. Overall, thedepartment hasaddressed ourrecommendationsforthepoliciesrelatedto approving consultantsand contractors. Inaddition, changesduetoHB320 andunit costshave significantly reducedtheimportanceoftheapproval process. Final EngineeringAuthorization Wefoundthedepartmentwasnot alwaysissuingfinal engineeringapproval letters. Sometimes thisoccurredbecause staffdid notunderstand thepolicy. Theseapproval lettersalso requestthe companyto informthedepartmentifacontractorwillbedoingtheconstruction. We recommendedthedepartment clarifythepolicyand ensuredistrict officesarecomplying. PriorRecommendation #6 Werecommendthedepartmentclarifythepolicyforfinalengineeringauthorizationand ensuredistrictofficesareissuingwrittenauthorization. Thisrecommendationisimplemented. Thedepartment hasaddressedthisissueinitsletterthat is sent outtoutilitycompanieswiththe final agreement. Wordingintheletterincludesthe statement: "Thisletterisyourauthorizationto proceed withthefinal engineering ...". Final Billing Wefound that on manyprojectstheutilitycompanies did not submittheirfinal billsuntil more than ayearaftertheprojectwascompleted. Thishinderedthedepartment in closingout projects and assigning remaining fundsto otherprojects. Werecommendedthe department changethe contract languageto requirefinal billingwithin 365 daysofproject completion, to notifyutilities ofthischange, andto denylatebills. PriorRecommendation #7 Werecommendthedepartment: A. Changecontractlanguage torequirefinalbillsbesubmittedwithin365days afterprojectcompletion. B. Notifyutilitiesofthechangetocontractlanguageandstresstheimportanceof compliance. C. Denypaymentfornoncompliance. Thisrecommendationisimplemented. Thedepartment changedthewordingintheirstandardagreementto state: "Finalbillsmustbe submittedtothe(department)within365 daysafteralltheworkhasbeencompleted. Non- compliancecouldjeopardizereimbursement" Thischangewasdiscussedwithutilitycompaniesin meetingsaroundthestatein 1996. Department officials statedthenewpolicywasworkingbetter and companieswerecomplyingwithfinalbillingrequirements. Unit costswill allowutilitycompaniesto moreeasilywrapupfinalbilling since acompanyonly hastotrackthenumberofunitsand not detailed compilationsofman-hours, equipment hours, travel, materials, etc. This shouldhelpto alleviateconcernstheutilitycompanieshad inbeing ableto compiletheinformationneeded fortheirfinalbills JobNumber: 97SP-72 JN\m\perform\utility\mem.99 Digitized by the Internet Archive in 2010 with funding from Montana State Library http://www.archive.org/details/relocatingutilit1999mont