Office of the County Auditor Evan A. Lukic, CPA County Auditor

Transcription

1 Exhibit 1 B FLO R I DA Review of Hourly Labor Rates - Craven, Thompson and Associates, Inc. Consultant Services Contract for North County Neighborhood Improvement Project Northeast Quadrant February 6, 2015 Report No Office of the County Auditor Evan A. Lukic, CPA County Auditor

2 Table of Contents Executive Summary...1 Purpose and Scope...1 Methodology...2 Background...2 Findings...4 Recommendation...5

3 Executive Summary This report presents the results of our review of hourly labor rates invoiced under the consultant services contract between Broward County and Craven, Thompson & Associates, Inc. (CTA) executed on February 28,2007 (RLI # EED-1). The purpose of our review was to determine whether hourly labor rates billed for maximumnot-to-exceed work by CTA and its subconsultants complied with contract requirements. To accomplish our objective, we reviewed hourly labor rates invoiced by CTA and four of their subconsultants in six pay applications totaling $437,016. Hourly labor rates consist of actual hourly salary, overhead, and fringe benefit cost elements plus a negotiated profit. Consultants are required to certify that the cost elements invoiced reflect their actual costs and provide supporting documentation to enable verification and recalculation. Our review disclosed that three of CTA's subconsultants billed the County at hourly rates in excess of the actual rates paid to their employees resulting in overpayments totaling $54,400. It is important to note that we found no issues pertaining to hourly labor rates billed for services provided directly by CTA and that CT A's cooperation and assistance with our review was exceptional. CTA representatives were candid in response to our requests and in communicating the results of their own self audit effort. Once our field work was completed they immediately remitted the $54,400 in overpayments. Our review also indicates that WWS contract administration was deficient as invoices were not reviewed for proper support prior to payment. To address this issue, we recommend the Board of County Commissioners direct the County Administrator take steps to ensure pay applications are reviewed and supported by proper documentation prior to payment. Purpose and Scope The purpose of our review was to determine whether hourly labor rates billed for maximum-not-to-exceed work by CTA and its subconsultants complied with contract requirements. Our review covered pay applications numbered 61, 67, 71, 77, 83, and 89 submitted by CTA for the time periods between March 2012 and July

4 Methodology To accomplish our objective, we: Reviewed o The contract between CTA and Broward County dated February 28,2007; o Two pay applications from CTA, including invoices from its subconsultants; o Four pay applications self- audited by CTA; and o Payroll registers and other payroll related documentation from CTA and its subconsultants. Compared the billed overhead and fringe benefit rates to Financial Reports 1 certified by Independent Certified Public Accountants (CPA) for CTA and three subconsultants Consulted with the County Attorney's Office Interviewed staff at: o Broward County Water and Wastewater Services Division (WWS), and o CTA and its subconsultants. Background Craven, Thompson & Associates, Inc. (CTA) was engaged to perform design and construction of water, sewer, and storm drainage and roadway improvements for the North County Neighborhood Improvement Project (Northeast Quadrant). The contract was executed on February 28,2007 for a total of $11,668,668 which included: o Maximum-not-to-exceed of $5,214,883, o Reimbursables not-to-exceed of $564,724, and o Lump sum of $5,889,061. The County has paid approximately $11.2 million to CTA as of May Subconsultants CT A contracted with six subconsultants to perform professional engineering and construction administration services for the project. Our review covered the four subconsultants that submitted invoices for labor costs during the period sampled. Exhibit B Salary Costs Exhibit B Salary Costs presents the raw hourly salary, overhead, fringe benefits, profit and the total billing rate for each personnel category anticipated to be assigned to the project. Exhibit B also shows an overall multiplier, which is computed by dividing the total billing rate by the raw hourly labor rate. For example, a position with a raw hourly labor 1 We reserve our rights to perform in-depth review of the supporting documentation for overhead and fringe benefit rates billed. 2

5 rate of $25 per hour and billed to the County at a total billing rate of $75 equates to a 3.0 multiplier. The established multiplier is applied to the actual hourly labor rate paid to the consultant's and subconsultants' employees to determine the billing rates invoiced to the County. Invoice Process CT A submits pay applications to the County for hours worked at its contract rates and reimbursable expenses. CTA's pay applications also include amounts billed to CTA by its subconsultants and reimbursable expenses. CTA is responsible for reviewing invoices from its subconsultants for accuracy and completeness before including them in their pay application package to the County. When CTA's pay application is received at WWS, it is time stamped, entered in the "pay request log" and reviewed by the Project Manager and the Construction Management Specialist. The amounts are entered in the County's Advantage financial system that generates a receiver document. The Engineering Division Director reviews and approves the pay application and receiver before the package is scanned into Fortis 2 and forwarded to WWS Fiscal Operations Division (FaD). FaD staff are to date stamp the package, ensure the amount on the purchase order is adequate to process the amount billed and review the pay application and supporting documentation for the following: Project name and unit number, Payment type (construction or consultant services), Vendor name, invoice number and invoice amount, Proper supporting documentation, and Arithmetic accuracy. The pay application package is then sent for a final review and FaD staff enters payment information into the Advantage Financial system. The pay application package is then sent to the Accounting Division located at the Government Center to finalize processing and payment to the vendor. Invoice Sampling We initially reviewed pay applications 61 and 71 totaling $251,552 for the periods March 2012 and January 2013 and subsequently reviewed pay applications 67,77,83 and 89 totaling $185,464, that were self-audited by CT A. Table 1 on page 4 shows a summary of labor costs reviewed for CTA and its subconsultants. 2 Fortis is the electronic imaging system used by wws. 3

6 Table 1 CTA and Subconsultants Labor Costs Reviewed Pay Application Amounts ConsultantlSubconsuHants Reviewed Reviewed Craven, Thompson & Associates, Inc. (CTA) 61 & 71 $ 93,092 Tierra South Florida, Inc. 61 & ,276 67, 77,83 & 89 EAC Consulting, Inc. 61 & ,490 67,83 & 89 LakdasNohalem Engineering, Inc. 61,71 & 67 55,566 Dickey Consulting Services 61 & 71 51,592 67,77,83 & 89 Total Amounts Paid $ 437,016 Source: eta and Its subconsultants' Invoices Findings Finding 1: Three of CTA's subconsultants billed the County at hourly rates in excess of the actual rates paid to their employees resulting in overpayments totaling $54,400. CT A and its subconsultants are contractually required to bill actual hourly labor rates paid to their employees. We reviewed six pay applications and found that the County overpaid CTA for hourly labor rates billed in excess of the actual cost by Dickey Consulting Services (Dickey), LakdaslYohalem Engineering, Inc. (Lakdas) and Tierra South Florida, Inc. (Tierra). The labor costs overbilled represented error rates of 14.3% for Dickey, 3.5% for Lakdas and 0.7% for Tierra. We also noted that Dickey paid employees assigned to the County contract higher labor rates for hours billed to the County while paying the same employee lower labor rates for hours that were not billed to the County. For example, an employee was paid $24.61 per hour for 10 hours billed to the County and the same employee was paid $22.00 per hour for non-county work in the same pay period. We applied the error rate 3 for each subconsultant to labor costs billed and paid through May 2015 and calculated overbillings of $54,400 from the inception of the contract. Table 2 on page 5 shows the breakdown of overbillings by the three subconsultants. 3 Error rate is calculated by dividing the overbilled amount by the total labor cost for each subconsultant. 4

7 Table 2 overb"11" I mgs 0 f $54, 400 b,y 5 ubconsultants SubconsuHants Overbilled Amounts Tierra South Florida, Inc. $ 5,704 LakdaslYohalem Engineering, Inc. 14,177 Dickey Consulting Services 34,516 Total Amounts Paid $ 54,397 Source: Prepared by the County AudItor's Office CTA assisted in our review by performing accurate self-audits of four pay applications, responding quickly and candidly to our inquiries and remitting the $54,400 overpayments immediately following completion of our fieldwork. Finding 2: WWS contract administration was deficient as invoices were not reviewed for proper support prior to payment. The Accounting Division Internal Control Handbook (ICH) requires contract administrator to verify proper documentation and ensure invoices comply with the respective contract requirements. We noted WWS did not verify documentation to support invoices prior to payment. WWS approved labor costs totaling $12,234 with missing or incomplete documentation (e.g., name and title of employees performing the work and detailed timesheets showing project hours worked). Without this documentation it is not possible to determine the appropriateness of the invoiced amounts" As a result of our inquiry during our review, WWS obtained the documentation from CTA to support labor costs in question. Failure to obtain and review supporting documentation for invoices weakens control over vendor payments and could result in undetected errors and irregularities. Recommendation We recommend the Board of County Commissioners direct the County Administrator take steps to ensure pay applications are reviewed and supported by proper documentation prior to payment. 5