Metropolitan Nashville Airport Authority

Transcription

1 Metropolitan Nashville Airport Authority MEMORANDUM TO: CC: FROM: Robert R. Wigington, President and CEO Douglas E. Kreulen, Senior Vice President and COO Stan Van Ostran, Vice President and CFO Davita Taylor, Chief of Staff and Board Liaison Robert Ramsey, V.P. Development and Engineering and Chief Engineer Bryan Barton, Manager of Civil Construction Julie Zwicknagel, Internal Audit Coordinator DATE: March 28, 2016 SUBJ: Reconstruct Runway 13/31 West Construction Audit Report Background On July 23, 2014, Hi-Way Paving, Inc. ( Hi-Way Paving ) entered into a construction contract with the Metropolitan Nashville Airport Authority ( Authority ). The Reconstruct Runway 13/31 West project involved the full-depth reconstruction of 2,900 linear feet of Runway 13/31 between Taxiway K-4 and L-2, which equated to 430,000 square feet of asphalt pavement to be replaced with Federal Aviation Administration ( FAA ) Specification P-501 Portland cement concrete. Adjacent Taxiways L-2 and L-3 would be reconstructed to the runway hold bar and taxiway K-4 would be removed permanently. Thirty-five-foot asphalt shoulders would be constructed on the runway between Taxiway A and the runway end in compliance with FAA Advisory Circular 150/ A. The Authority agreed to pay the Contractor for the performance of the work in the amount of Twelve Million Nine Hundred and Nineteen Thousand Seven Hundred and Sixty-Six and 25/100 Dollars ($12,919,766.25). The project would be fully completed no later than 180 calendar days from the commencement date established in the Notice to Proceed. The project included one change order that was appropriately approved by Authority personnel, as noted below.

2 Description Amount Original Contract $12,919, Change Order No. 1 ($77,539.05) Total Revised Contract $12,842, The Disadvantaged Business Enterprise ( DBE ) participation level for the contract was established at 12.11% of the total value of the contract. However, Hi-Way Paving was able to achieve a 14.95% participation level, as noted below. Description Amount DBE Participation $1,920,031 Total Construction Payments $12,842, DBE Percentage 14.95% Objectives The objectives of the audit were as follows: 1. Determine compliance with contract terms; 2. Determine the validity of payments made to Hi-Way Paving; and 3. Document and evaluate existing internal controls. Testing In order to satisfy the audit objectives, the following tests were performed: 1. Determined Contractor submitted payment and performance bonds in compliance with contract terms. a. Determined Development and Engineering ( D&E ) did not request Legal to verify the payment and performance bonding company was authorized to do business in the State of Tennessee and had sufficient underwriting limits. 2. Determined Contractor complied with drug-free workplace requirements. 3. Determined Contractor maintained adequate insurance coverage. a. Obtained a copy of the current certificate of insurance. b. Verified that the commercial general liability, auto, and worker s compensation insurance coverage met or exceeded the amounts specified in the contract. c. Verified the company/companies providing general liability, auto, and worker s compensation insurance were admitted to do business in the State of Tennessee. d. Verified the certificates of insurance were current and adhered to all other contract terms. 4. Determined contract modifications were appropriately approved by Authority personnel. 2

3 5. Determined bi-weekly construction progress meetings were conducted throughout the project. 6. Determined daily inspections were performed by Authority s Construction Inspectors. 7. Determined the DBE payments recorded for the project were understated in the amount of $97, Determined Contractor complied with wage and labor provisions. 9. Determined Contractor submitted a quality control program. 10. Determine Contractor received substantial completion certification. 11. Determined Contractor completed the project within the contracting time and did not exceed the contract amount. a. Reviewed the project closeout report. 12. Obtained invoices from July 2014 through current period and performed the following: a. Reviewed each invoice for mathematical accuracy. b. Reconciled payments to Contractor s payment applications. c. Determined 5% of the contract amount was properly retained. 13. Through inquiry and observations, reviewed the existing internal controls in place. Conclusion Based upon the audit, the following was determined with respect to the stated objectives: 1. D&E did not request Legal to verify the payment and performance bonding company was authorized to do business in the State of Tennessee and had sufficient underwriting limits, as noted in finding #1. 2. The DBE payments recorded for Reconstruct Runway 13/31 West have been understated in the amount of $97,034, as noted in finding #2. Finding #1 Observation D&E did not request Legal to verify the payment and performance bonding company was authorized to do business in the State of Tennessee and had sufficient underwriting limits. Background According to the Contract and Specifications for Reconstruct Runway 13/31 West, Section C, No. 15, Payment and Performance Bonds, The Bidder who is awarded the Contract must 3

4 provide Performance and Payment Bonds equal to One Hundred Percent (100%) of the Contract amount. All bonds must be completed on the forms provided with the Contract Documents. An objective of the audit was to determine Legal was verifying the payment and performance bonding company was authorized to do business in the State of Tennessee and had sufficient underwriting limits. Through audit testing, it was determined that D&E did not request Legal 4

5 to verify the payment and performance bonding requirements when the contract was executed on July 23, On January 8, 2016, D&E requested Legal to verify the payment and performance bonding requirements. Legal verified the bonding company was authorized to do business in the State of Tennessee and had sufficient underwriting limits. Recommendation D&E should request Legal to verify payment and performance bonding companies are authorized to do business in the State of Tennessee and have sufficient underwriting limits before a construction contract is executed. Management Response D&E has revised the contract process to ensure that Legal will verify/review the payment and performance bonds prior to executing the construction contract. Finding #2 Observation The DBE payments recorded for Reconstruct Runway 13/31 West have been understated in the amount of $97,034. Background An objective of the audit was to determine Hi-Way Paving met the DBE program requirements specified in the contract. Through audit testing, discrepancies were noted between the DBE payments stated on the invoices and the DBE payments recorded in the invoice journal diversity splits. Through audit inquiries with BDD, it was determined that BDD was in the process of verifying the DBE payments for the project. BDD received supporting documentation from Hi-Way Paving and the subcontractors verifying final payments in the amount of $1,920,031 were made to the subcontractors. From the invoices, BDD had recorded DBE payments in the amount of $1,822,966 in the invoice journal diversity splits. Therefore, the DBE participation recorded in the invoice journal diversity splits was understated in the amount of $97,034, as detailed below. 5

6 DBE Subcontractor DBE Total per the Invoice Journal DBE Total per Hi- Way Paving Variance Lane Hauling & Excavating, Inc. $1,026,010 $1,174,343 -$148,333 Kimberly, Inc. $255,785 $269,244 -$13,458 Archangel Protection $131,950 $76,262 $55,688 WMC Contracting $409, ,181 9,069 Total $1,822,996 $1,920,031 -$97,034 It should be noted that the total payments made to Hi-Way Paving are properly stated in the general ledger; however, the DBE participation payments are not properly recorded in the invoice journal diversity spits. Adjustments made to the subcontractor s payments will not impact the overall payments made to the prime contractor. Through further audit inquiries with BDD, it was determined that they are working on implementing a new process to capture payments made to subcontractors. The new process will consist of BDD setting up the DBE contractors and participation amounts into the B2G system. The Authority s general ledger system AX will interface with the B2G system. An from the B2G system will be sent to the prime contractor to input the amount of the DBE participation payments made to the subcontractors. Then an will be sent to the subcontractors to confirm the amount of payments received from the prime contractor. This new process will help strengthen the internal controls surrounding the payments made to subcontractors and properly recording DBE participation on projects. BDD anticipates the new process will be implemented by July 1, Recommendation BDD should adjust the invoice journal diversity splits to properly allocate payments to the subcontractors in the amount of $1,920,031. Additionally, BDD should implement their new process for capturing payments made to subcontractors by July 1, Management Response BDD recorded the changes in the invoice journal of AX. Going forward, we will implement B2GNow s payment confirmation with subcontractors on Federal projects. 6