Construction Bond Audit Report. Office of Auditor General

Transcription

1 Construction Bond Audit Report

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3 TABLE OF CONTENTS Executive Summary 5 Background, Scope and Objectives, and Methodology....7 Audit Findings, Recommendations, and Management s Responses 10

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5 Executive Summary In accordance with the approved FY 2015 Annual Audit Plan, the completed an audit of the efficient and effective use of bond funds for construction use. The audit found that in general controls, around planning, prioritizing, and expenditure were adequate for capital improvement projects using bond funds. However, the audit identified opportunities for improvement both within the Department of Facilities and Transportation and in how the department coordinates activities with external parties. In addition, the audit found that the permitting process, which is outside of Fairfax County Public Schools (FCPS), has created delays in FCPS bidding of projects which may result in an escalation of cost. Bond funds are used to finance capital improvement projects for Fairfax County Public Schools. While the department responsible for the administration of the capital improvement projects is Facilities and Transportation Services, the process for prioritizing such projects is complex and involves departments from within FCPS and also Fairfax County. Fairfax County controls bond sales, release of funds to FCPS, the FCPS spending authority, permitting, zoning, and inspections. The County may require additional work, peripheral to the original construction (i.e. bike lane, trails, walkway, road renovation, etc.), which may increase project costs. This relationship may place restrictions on the FCPS project plan and could inhibit the efficient use of bond funds by FCPS. Areas for improvement within the Department of Facilities and Transportation Services, and specifically the Office of Design and Construction Services, include improving the management of changes to the scope of work for individual projects to ensure there is adequate approval for such changes and that the changes are reasonable. In addition, improvements are recommended around the monitoring of project status and internal file management. In addition to the audit findings, the audit identified processes, outside the immediate control of Facilities and Transportation Services that have an impact on Facilities and Transportation Service s ability to manage bond funds as efficiently and effectively as possible. FCPS has approximately 21,671 students not attending their base school. Coordination with FTS should be improved to ensure that the proposed educational program changes and projected student attendance for educational programs and student transfers can be more effectively incorporated into capacity planning for projects FCPS has a current 20 to 25 year renovation cycle goal, but is currently functioning on a 37+ year cycle which is limited by the $155 million yearly cap. Consideration should be given to increasing the cap and considering other forms of capital financing to close the gap between needs and funding. The County, in response to an Infrastructure Financing Committee recommendation, provided $13.1 million from the County s General Fund to the Schools Construction Fund to address infrastructure replacement and upgrades. FCPS pursue the reimbursement of actual costs incurred on behalf of the School Aged Child Care program from Fairfax County and to formalize a written agreement. Page 5 of 17

6 While FCPS has a full time permit expediting service, more active coordination with Fairfax County may serve to further expedite the permit acquisition process and reduce the construction inefficiencies and costs associated with permit delays. Page 6 of 17

7 Background, Scope and Objectives, and Methodology Background Within the Department of Facilities and Transportation (FTS), the Facilities Planning Office is responsible for preparing the five-year Capital Improvement Program (CIP). In support of this program, the office also prepares school enrollment projects by grade level, student accommodation reviews, and the bond referenda which are required to fund the program. The Office of Design and Construction Services is responsible for the design and construction of new school facilities, additions and renovations to existing schools, and evaluates the capacity and effective utilization of each school on a yearly basis. To aid in that effort, the office maintains a CIP Construction Status Report which provides a snapshot of the status of capital projects. This is an internal report utilized by FTS to monitor individual projects and increase its ability to identify where a project is not satisfactorily progressing. The construction and modification of schools are financed through the sale of municipal bonds by Fairfax County government, which spreads the cost of major capital improvements over the years the facilities are used. Capital Bond Improvement Projects include new construction, renovations, additions and facility modifications that are performed by contractors after a competitive procurement process. FTS provides information, and advises and receives direction from the School Board regarding the need for new facilities and for renovations, additions and facility modifications to existing schools by comparing available capacity with anticipated enrollment in conjunction with projected cash flows from county bond referendums. Capacity is an estimate of the number of student spaces available within a facility that considers the educational specifications for elementary, middle, and high schools, the program requirements and the appropriate pupil-teacher ratios, which in turn dictates the priority of the desired timeframe of when the capital project work will commence within available funding. Variations in educational programs offered within a school may cause its capacity to vary from year to year. Therefore, collaboration with Instructional Services is important to ensure that timely information is available to assist in this process. Scope and Objectives This audit was part of the approved FY2015 Annual Audit Plan. The FCPS Office of Auditor General is free from organizational impairments to independence in our reporting as defined by generally accepted government auditing standards. The office reports directly to the School Board Audit Committee. We report the results of our audits to the Audit Committee and the reports are made available to the public via the FCPS website. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to performance audits contained in Government Auditing Standards, excepting peer review, issued by the Comptroller General of the United States. The objectives of the audit were to: Assess the overall management of bond funds; Determine if bond funds are spent for their intended purpose; Ensure controls exist to avoid and prevent wasteful, careless, or inefficient practices. Page 7 of 17

8 A sample of capital projects was selected through stratification for review to determine if the expenditures were adequately supported relevant to the project and properly approved in accordance with FCPS regulations. These projects were: Project Fairfax Villa ES Addition Union Mill ES Addition Lemon Road ES Addition Number of Requisitions Reviewed Value of Requisitions Reviewed Number of Change Orders Reviewed Value of Change Orders Reviewed Contract Award Date 14 $2,866,300 5 $165,000 7/13/12 11 $2,913,493 2 $141,933 9/20/12 14 $2,598,150 3 $150,000 10/11/12 Frost MS Modular 7 $770,021 2 $106,000 10/25/12 Woodley Hills ES Addition Springfield Estates ES Addition Cunningham Park ES Addition Devonshire Renovation Stenwood ES Renovation Thoreau MS Renovation Terraset ES Renovation 16 $3,270,212 Not Selected 14 $2,534,999 Not Selected Not Selected Not Selected 2/26/12 5/10/12 14 $2,457,228 7 $365,228 4/26/12 24 $10,694, $1,557,958 9/23/10 24 $8,834,049 7 $706,339 2/23/10 11 $15,678, $11,183,874 Not Selected $179,257 Not Selected 2/21/14 12/19/13 Totals 161 $63,801, $3,371,715 The audit included a review of contractor payment requisitions and change orders for renovations, additions, and modular projects managed by capital project teams within Design and Construction Services. Methodology This audit entailed research, interviews with department staff, review of documentation in support of capital project transactions, an analysis of capital project budget planning, project monitoring, and processes and controls for documenting capital project expenditures. In addition, it was recognized that processes outside the control of FCPS impact the management of bond funds. Interviews were conducted with Fairfax County Department of Public Works and Environmental Services, Land Development Services. Page 8 of 17

9 The findings within this report have been attributed a risk rating in accordance with established risk criteria as defined in Table 1: Risk Criteria. Table 1: Risk criteria High (one or more of these exists) Moderate (one or more of these exists) Low (one or more of these exists) Controls are not in place or are inadequate. Compliance with legislation and regulations or contractual obligations is inadequate. Important issues are identified that could negatively impact the achievement of program/operational objectives. Controls are in place but are not sufficiently complied with. Compliance with subject government regulations or FCPS policies and established procedures is inadequate, or FCPS policies and established procedures are inadequate. Issues are identified that could negatively impact the efficiency and effectiveness of operations. Controls are in place but the level of compliance varies. Compliance with government regulations or FCPS policies and established procedures varies. Issues identified are less significant but opportunities exist that could enhance operations. Page 9 of 17

10 Audit Findings, Recommendations, and Management s Responses The audit identified a number of opportunities for improvement in the management of bond funds to increase the efficiency and effectiveness of their use within FCPS. These can be separated into two broad areas: findings related to overall FCPS management of the process and those related to processes that are outside the direct control of FTS, but have an impact on their ability to efficiently and effectively manage bond fund usage. Finding 1: Documentation of Cash Flow Analysis Risk Rating: Low The Office of Design and Construction Services has developed a key analysis tool in the form of a cash flow analysis spreadsheet. This is the base analytical tool for budgeting and planning capital projects and incorporates available bond referendum proceeds, projected student enrollment, square footage of the facility, and anticipated cost escalation based on previous actual escalation. It is a flexible planning document that addresses both known and unanticipated situations. This tool is considered to be a highly valuable part of the management of capital improvement projects. However, the process and methodology for this analysis is not documented in the form of written guidance for other Design and Construction Services staff to ensure continuity of its application by all. Recommendation 1: Documentation of Cash Flow Analysis It is recommended that procedures be documented for the development of the cash flow analysis spreadsheet and its application to the planning and funding of future capital projects to support planning and create consistency. D&C is currently revising the Procedures Manual. A new section will be created specifically regarding the capital construction cash flow. Lead Department Planned Date of for Action Action FTS 06/01/2016 Finding 2: Change Order Compliance Risk Rating: Low Change orders are amendments to the contract during the course of a project which may originate from the contractor, the architect, or a requested change in the scope of work by Design and Construction. A contingency allowance is established in the original contract to absorb the anticipated cost of such contingencies; however, if the available balance is not Page 10 of 17

11 sufficient to cover the cost of the change order, a budget transfer is necessary to provide sufficient funds to complete the work. The Facilities and Transportation Design and Construction Construction Procedures Manual, Section IV, Paragraph I, Change Orders Items 4 and 5, provides: Upon completion of an acceptable change order, the architect will execute three copies and forward to the contractor for execution. The contractor shall execute the change orders and forward them to the construction manager. The Construction Manager will forward the change order to the team coordinator for execution. A judgmental review of 44 change orders for 8 projects revealed the following: Change order #4 in file for $17, dated 4/20/2012 in connection with the Stenwood ES renovation was not signed and dated on the part of the owner, FCPS. The Internal Transfer Budget Adjustment Request form for this change order did not bear evidence of approval by the director of Design and Construction. The Internal Transfer Budget Adjustment Request for change order #4 on file for $379,144.00, dated 1/4/2012, in connection with the Devonshire at Graham Road renovation did not bear evidence of approval by the director of Design and Construction. Recommendation 2a: Change Order Compliance It is recommended that all change orders be reviewed and authorized by the contractor, architect, and coordinator, certifying that the change order is appropriate, justifiable, and supported by appropriate documentation. The Finance & Contracting section was moved from Administrative Services to Design & Construction in order to prevent management oversight concerns related to budget adjustments and change orders. Lead Department Planned Date of for Action Action FTS 06/01/2014 Proposed change orders that comprise the total change order sum may originate from a field directive initiated by FCPS or a proposed modification or request for information originating from the contractor or the architect. Proposed change orders often describe the amended or additional work to be performed on the project in addition to a breakdown of material and labor costs as far as labor hours, labor rates, unit prices for materials, quantities of materials to be applied to the work. These proposed change orders come under the review of Design and Construction staff as stated in the Design and Construction Construction Procedures Manual as stated in Section IV, paragraph H, Cost Proposals, Items 3, 4, and 5 where The Construction Manager shall evaluate the cost proposals utilizing the following criteria: Origin of change (PM, field directive or clarification memo) Review scope of work performed Compare costs to contractor unit pricing Proper backup has been provided (signed tickets, material invoices and equipment) Page 11 of 17

12 The field construction representative shall review the cost proposals for accuracy and conformance to FCPS standards, and advise the construction manager in writing of any conflicting issues. The team architect/engineer shall review the cost proposals and advise the construction manager in writing. The review of cost proposals consisting of 44 change orders for 8 projects did not indicate the signature or initials of review by Design and Construction staff nor is it a specific requirement for field representatives or constructions managers to do so. Recommendation 2b: Change Order Compliance It is recommended that to provide assurance to coordinators, proposed change orders be reviewed for reasonable labor hours, rates, unit prices and appropriate quantities of materials. Proposed change orders should evidence the review of field representatives and construction managers through their signing or initialing and dating the proposed change order to acknowledge their concurrence with the proposal and to facilitate the change order review process. These processes and procedures are already in place. The D&C staff will create additional processes to ensure compliance. Lead Department Planned Date of for Action Action FTS 06/01/2016 Finding 3: Inventory of Project Files and Compliance with Regulation Risk Rating: Low The shared drive is internal to Design and Construction and contains various forms, project documents, reports, schedules, and minutes of meetings pertaining to past and on-going capital projects. It is intended to serve as a reference for Design and Construction staff to refer to particular documents as needed in the course of their work. The shared drive should be reviewed for completeness for documents and information pertaining to capital projects as some documents, such as contractor payment requisitions, change orders and supporting proposed change orders are not posted and available for reference. In addition, the Design and Construction records room that contains the same documentation for projects also lack complete records for past capital projects that may lead to additional staff time in searching for needed information regarding a project. Policy , Facilities Design and Construction, Supervision, Inspection, Records, Reports, Acceptance, Payments, Occupancy, and Orientation, Section IV Construction Records and Reports states Adequate records, including costs of all construction, shall be maintained by the Office of Design and Construction Services representative, construction manager, architect and/or engineer as an aid to administration and as a history for maintenance purposes. Standard forms, reports, contractor record book submittals, and all forms of correspondence shall be utilized to achieve this purpose. As-built records of projects shall be provided and maintained by the Office of Design and Construction Services. Page 12 of 17

13 Recommendation 3: Inventory of Project Files and Compliance with Regulation It is recommended that the electronic files on the shared drive and the hard copy documents in the file room be inventoried to ensure that all relevant files and documents are included and readily available for all staff for reference purposes. This process is in place. D&C will add additional safeguards into the Procedures Manual to ensure greater compliance. Lead Department Planned Date of for Action Action FTS 06/01/2016 Finding 4: Management Financial Reporting Efficiency Risk Rating: Low While the financial information for bond projects is available in the FOCUS 1, it is not easily obtainable in a user friendly manner. FTS is required to complete multiple queries and to merge the information into spreadsheets in order to have the information in a format that meets the needs of management. Recommendation 4: Management Financial Reporting Efficiency It is recommended that FTS meet with Financial Services to outline their reporting needs and request that appropriate reports be created and made available in the system. The D&C staff will affirm their requirements in coordination with the Financial Services. Lead Department Planned Date of for Action Action FTS Fiscal Year 2016 Finding 5: Changes to Student Enrollment and Educational Programs Risk Rating: Low FCPS affords students opportunities to participate in programs designed to meet the educational needs of each individual student resulting in approximately 21,671 students attending a school, other than their base school. These students are attending a specific school as a result of: Acceptance into an advanced academic program Acceptance into foreign language immersion program Transfers required to meet the need for special education services Transfer to a school offering international baccalaureate (IB) or advance placement (AP) program Acceptance into a magnet school (Thomas Jefferson High School for Science and Technology (TJHSST) or Bailey s Elementary School for the Arts and Sciences) 1 FOCUS is the accounting system used by FCPS for appropriated funds Page 13 of 17

14 Transfers due to child care; medical, emotional, or social adjustment; FCPS parent work location; sibling attendance; or other circumstances as need warrants These transfers take place at varying times during the year and the resulting enrollment changes are not always communicated to FTS in a timely manner. In addition, changes to academic programs are recommended based on the academic needs of students and these changes are not consistently communicated to FTS when they may impact school capacity or enrollment projections. FTS is responsible for ensuring the efficient and effective accommodation of all students and programs. To do this, the office produces a five year Capital Improvement Program, student accommodation review, school enrollment projections by grade level, attendance area adjustment recommendations, and proposes bond referenda to fund required capital improvements. Student attendance projections, square footage, existing capacity and building age are the principal drivers for prioritizing the scheduling of capital projects and the allocation of projected costs, which should take into account the anticipated attendance levels from FCPS immersion programs and sites planning to add additional programs. It is important that accurate, timely, and defined information is received from Instructional Services to effectively enhance capital project planning for FTS. The lack of accurate student enrollment data by school site for programs can result in overstated or understated projections compared to actual attendance with the possible consequence of classroom overcrowding or student vacancies contributing to a misapplication of resources. Recommendation 5: Changes to Student Enrollment and Educational Programs It is recommended that information by school, grade, and program be formally shared with FTS as decisions are made regarding the placement of students outside their assigned school boundary. In addition, FTS should be included in all discussions involving changes to educational programs that may result in enrollment or facility changes to better align enrollment decision-making and reporting to increase the accuracy of information required to make meaningful planning decisions. Staff has initiated improvements in communication regarding changes in student enrollment. Lead Department Planned Date of for Action Action FTS and IS Fiscal Year 2016 Finding 6: Building Evaluation, Building Renovation, and Infrastructure Maintenance Risk Rating: Low School Board Policy 8258 Building Evaluation, Building Renovation, and Infrastructure Maintenance establishes goals and procedures for building evaluation, building renovation, and infrastructure maintenance of school facilities and other School Board-owned buildings. The policy states that It shall be the goal of the Fairfax County School Board to provide for the systematic renovation of the school facilities and other School Board-owned buildings. Page 14 of 17

15 Further, it shall be the goal of the Fairfax County School Board that school facilities be renovated on a 20- to 25-year cycle. Building renovations shall be designed to meet the needs of the educational program and to extend the useful life of a facility by 20 or more years. FCPS is currently at a 37 year cycle and within the next 5 years this will increase to a year cycle. Funding for capital improvement projects is currently limited by a $155 million yearly cap on school board bond sales. Unless the construction cap is increased the life cycle for school renovation will continue to grow. Recommendation 6: Building Evaluation, Building Renovation, and Infrastructure Maintenance It is recommended that FCPS meet with the Joint School Board/Board of Supervisors Infrastructure Financing Committee (IFC) to consider increasing the yearly cap and to consider other forms of capital financing in an effort to close the gap between needs and available funding. The County, in response to, an IFC recommendation provided $13.1 million from the County s General Fund to the Schools Construction Fund to address infrastructure replacement and upgrades. Person Planned Date of Responsible Implementation FTS Fiscal Year 2016 Finding 7: Reimbursement of Actual Costs for School Aged Child Care Program and Formal Written Agreement Risk Rating: Medium The Fairfax County Department of Family Services, through its Office for Children, provides care for children in kindergarten through sixth grade in the School Aged Child Care (SACC) program. The care is provided before school, after school, and during vacations. The program provides care at most elementary schools in the County. While the County has responsibility for managing most aspects of the program, the design and construction of SACC classrooms and associated costs is paid for by FCPS through bond funds. It is intended that FCPS is reimbursed for these costs. A written agreement, dated October 29, 1987, between FCPS and Fairfax County provides the terms, conditions and methodology for calculating the reimbursement owed for these costs. Specifically: Reimbursable costs shall be calculated by multiplying design and construction costs for an entire project times the percentage of total project square footage which is represented by the square footage of additional classrooms intended for use as extended school-aged child care facilities. Costs incurred by FCPS after June 30, 1989 are to be reimbursed quarterly, contingent on FCPS providing a statement of design and construction costs incurred at each site during that period. Page 15 of 17

16 The agreement also stipulates that any obligation to reimburse FCPS is contingent on the appropriation of sufficient funds for the payment. The School Board has an option to terminate the agreement if the County fails to appropriate sufficient funds to make payment. It appears that the agreement formalized in 1987 has been superseded by subsequent verbal agreements and/or memoranda. Since fiscal year 2007, a fiscal year fixed reimbursement amount of $750,000 has been received. The current rate may not be representative of the actual costs of providing design and construction services to the SACC program. In addition, there is benefit in formalizing a new agreement with Fairfax County. This would ensure that Fairfax County is not paying more than the actual costs involved with the level of service provided by FCPS and would also ensure that FCPS is reasonably reimbursed for costs incurred for SACC and that bond funds are not redirected from their intended purpose. Recommendation 7: Reimbursement of Actual Costs for School Aged Child Care Program and Formal Written Agreement It is recommended that FCPS pursue the reimbursement of actual costs incurred on behalf of the SACC program from Fairfax County and to formalize a written agreement. This is an ongoing discussion with the County and FCPS will continue to work with County staff for a resolution. Lead Department for Action FTS Planned Date of Action Ongoing Finding 8: Permit Expedition Risk Rating: High All capital improvement project sites and/or building plans are required to be reviewed and approved by Fairfax County, who then issue a permit. The cost of the permits alone is significant, and the escalation cost for delayed permits is material. FCPS pays approximately $200,000-$300,000 for renovation project permits and $430,000+ for new school construction permits. While FCPS employs a full time permit-expediting service in an effort to expedite the permitting process, it takes over a year to get all permits necessary to take a project to bid. All permits must be obtained prior to commencing the procurement process to select a contractor to perform the work and permitting delays which can result in an escalation of project costs. Audit has been advised that the average increase in costs to projects is 5.25%. This is considered to be material, and while this cost is being factored into cash flow planning analysis, it does represent a potential area of savings if the process can be managed more effectively. Improving communication with Fairfax County through pre-application plan submission meetings and ongoing progress meetings to proactively manage the permit process may result in an expedited timeframe and reduce pre-start project costs. Page 16 of 17

17 Recommendation 8: Permit Expedition It is recommended that FCPS meet with Fairfax County to design a process by which the FCPS permitting process can be expedited resulting in increased efficiency and decreased cost. Staff concurs and will continue to work with County staff. Lead Department for Action FTS Planned Date of Action Ongoing Page 17 of 17