Financial Controls over Payments to Contractors on Major Projects (IA F) Leon Daniels, Managing Director, Surface Transport

Transcription

1 FINAL INTERNAL AUDIT REPORT Financial Controls over Payments to Contractors on Major Projects (IA F) Leon Daniels, Managing Director, Surface Transport Audit Conclusion: Audit Closed 28 June 2013 Issue categories Agreed actions Satisfactorily addressed Partially addressed No longer applicable Not addressed Priority Priority Priority TfL RESTRICTED

2 Contents EXECUTIVE SUMMARY... 3 STATUS OF AGREED ACTIONS... 5 APPENDIX 1 DISTRIBUTION LIST TfL RESTRICTED Page 2

3 EXECUTIVE SUMMARY Objective This audit aimed to provide assurance that Surface Transport has effective controls over payments to contractors on major projects. Scope The audit focused on the following key risk areas:- Controls over payments to the contractor, including: o The certification of work and validation of costs; o The integrity of data provided by the contractors; o The authorization of payments; o Effecting payments via Accounts Payable; o Dealing with disputed amounts; o Compensation event payments; o The segregation of duties between the procurement of the contract, the verification of payments and the approval of payments; Compliance with the terms of the contracts in relation to payments to contractors and compensation events; Management of contractor performance, in relation to applications for payments, the provision of supporting documentation, and compensation events; Fraud risk controls. The audit reviewed controls over the following projects:- A406 Bounds Green; East London Transit Phase 1b (ELT); Cycle Super Highways (CSH); Tottenham Hale Gyratory. Summary of findings Our Interim Audit Report dated 28 March 2013 entitled Financial Controls over Payments to Contractors on Major Projects identified four Priority 1 and four Priority 2 issues resulting in twelve management actions. We have now carried out a follow up review of the agreed management actions and can confirm that six have been satisfactorily addressed. TfL RESTRICTED Page 3

4 Six remain partially addressed, but appropriate plans are in place to ensure these will be completed in the near future. Therefore this audit is now closed. TfL RESTRICTED Page 4

5 STATUS OF AGREED ACTIONS Priority 1 actions NEC3 Refresher Training will be conducted to remind project managers that:- o Any TfL staff who exercise project manager powers under NEC3 contracts should be formally delegated those powers in a written communication to the contractor; o Such written communications should be retained and filed. Then these measures will be applied to future projects. Partially addressed. The content of the NEC Refresher Training has been decided in conjunction with, Surface and the programme will be arranged jointly with them. Whilst the content is primarily generic NEC processes, it will also focus on the audit issues. Three levels of training will be delivered introductory, practitioner and strategic. Partially addressed. Once the training sessions have been undertaken, as noted above, Complete the NEC refresher training programme. 31 July Ensure learning from the training programme is implemented on all future projects. TfL RESTRICTED Page 5

6 the measures will be applied to future projects. 31 July A process review will take place to determine how to strengthen monitoring processes to ensure payments are made on time. This will include reviewing the monitoring of:- o o Procurement, financial and project authorities to ensure any necessary additional authorities are applied for sufficiently early so as not to delay payments; Contractor invoices to ensure these are submitted sufficiently early to ensure payments are made on time. Partially addressed. A process review has been undertaken which concluded that current controls only required slight amendment. Monitoring processes have been strengthened as follows: A revised payment certificate now also requires the commercial manager to sign and authorise payment. As part of the move to the new Programme & Projects Directorate (PPD), a wider process review of the roles of client sponsor and the Project Management Office function will be undertaken and clarified and a process flow-chart produced. As part of this, monitoring controls will be further enhanced with a Complete review of the process following reorganisation. 31 August TfL RESTRICTED Page 6

7 regular review of outturn forecast v purchase order value across all contracts. Responsibility for this will pass from Project Management Office to. 4. Payment certificates for all contracts will be reviewed and formally authorised by the designated project manager for each contract. Satisfactorily addressed. Payment certificates are now reviewed and authorised by the commercial manager. For invoices of over 1m, five people will have reviewed and authorised the payment certificate prior to payment, including the project and commercial managers. NEC refresher training will reinforce this message. 5. Communications to contractors over compensation events such as notifications, acceptances, rejections and replies to quotations will be: o In writing and sent to Satisfactorily addressed. Asite, which is now used on all major projects, includes a communications function between TfL and suppliers with a full audit trail. TfL RESTRICTED Page 7

8 o o the contractor within the relevant NEC3 timescales; Sent by the project manager or a member of staff who has been officially delegated the powers of a project manager under the NEC3 contract; Stored in a system so they can be easily retrieved for later reference. Communications to contractors is also included on the training agenda which will reinforce this message. 6. Major contracts are now managed through Asite software and this will be used to ensure communications are dealt with as per contractual requirements. Satisfactorily addressed. Asite electronic change control management software is now used on all major projects. This includes a communications function between TfL and suppliers with a full audit trail. TfL RESTRICTED Page 8

9 7. If TfL needs extensions to deadlines for compensation event communications, new dates should be formally agreed in writing with the contractor. Satisfactorily addressed. Asite automatically records any change agreed in period for reply dates and replaces the need for communications in writing either by or post. Priority 2 actions 8. Management will consider if it is possible to minimise payments before activities are completed. Consideration will be given to other means of ensuring contractors have reasonable cash flow. For example, contractors could be encouraged to conduct short-duration activities capable of being completed Satisfactorily addressed. The NEC training includes a section to ensure there will be greater review and challenge to a supplier s proposed Activity Schedules. This will ensure the potential supplier can demonstrate sufficient cash flow in respect of planned activities. Note that this is only for NEC Option A contracts. TfL RESTRICTED Page 9

10 9. in isolation of other activities early on in a project. These can then be promptly paid. Surface Transport commercial management will ensure that the TfL staff who are responsible for checking quotations for compensation events are checking them against contractually agreed published price lists for all relevant contracts. Partially addressed. A checklist has been developed which will state what documents are needed to be referred to in what contract. This will ensure that each team knows what they should be referring to. This will be rolled out as part of the process review. Roll out the checklist following reorganisation. 31 August Additional contract management training will be provided to remind project managers of the rules to follow in assessing compensation events, including allowed exceptions. Partially addressed. As noted in action 1, refresher training sessions are being arranged, and the content includes the rules to follow in assessing compensation events, including exceptions. Complete the NEC refresher training programme. 31 July Consideration will be given to using alternative forms of contract for future similar Satisfactorily addressed. Early Contractor Involvement forms TfL RESTRICTED Page 10

11 projects. of contract are already in use for the construction phase one of the Structures and Tunnels Investment Programme. This involves contractors at an earlier stage in the design process and will help to ensure the appropriate contract type is used and limit the occurrence of adversarial working relationships. 12. TfL project / commercial staff will proactively monitor the level of forecast expenditure against purchase orders so that additional procurement authority can be applied for in good time, without delaying payments. Partially addressed. As noted in action 3, a process review has concluded that as part of the wider structural review, monitoring of purchase order value v forecast outturn will be carried out across all contracts. Complete review of the process following reorganisation. 31 August TfL RESTRICTED Page 11

12 APPENDIX 1 Distribution list This report was sent to Leon Daniels, Managing Director, Surface Transport, by Clive Walker, Director of Internal Audit, and copied to: David Hendry Kevin Smith David Stacey Garrett Emmerson Dana Skelley Nigel Hardy Graham Nash Penny Rees Pidcock Stuart Archer Andy Eastaugh Karlene Reid Nigel Blore Andrea Clarke David Goldstone Howard Carter Wayne Southwood Director of Finance Head of Business Controller, Streets Chief Operating Officer Director of Roads Head of Capital Team Senior Programme Senior Programme Head of TfL PMO as Key Risk Representative Head of Group Insurance Director of TfL Legal Chief Finance Officer General Counsel KPMG TfL RESTRICTED Page 12