Construction Engineering Inspection (CEI) Contracts and ...

1 Internal Audit Report Construction Engineering Inspection (CEI) Contracts and Work Authorizations TxDOT Office of Internal Audit CEI Contracts and Work Authorizations TxDOT Office of Internal Audit Limited Scope May 2015 2 Objective To ensure work authorizations for Construction Engineering Inspection (CEI) Contracts are for appropriate services and that those services are completed as intended. Opinion Based on the audit scope areas reviewed, control mechanisms are effective and substantially address risk factors and exposures considered significant relative to impacting operational execution and compliance.

2 The organization's system of internal controls provides reasonable assurance that key goals and objectives will be achieved despite control gap corrections and improvement opportunities identified. Control gap corrections and improvement opportunities identified have the potential to negatively impact the achievement of the organization's business/control objectives. Overall Engagement Assessment Satisfactory Control Environment Both TxDOT management and staff recognize the importance of the CEI contract process, the risks associated with CEI Contracts , and the impact of outsourcing various roles in TxDOT projects.

3 Although a framework has not been established and communicated to the districts, the Professional Engineering Procurement Services (PEPS) service centers and districts have developed a culture that ensures timely payment of consultant invoices and proper retention of supporting files. As TxDOT increases the use of CEI Contracts , there is a greater need for a defined and documented framework to drive statewide consistency and sustainability of its use. Summary Results Finding Scope Area Evidence None Identified District CEI contract Oversight No Findings Identified Invoice Review No Findings Identified Professional Engineering Procurement Services (PEPS) Division does not currently have a statewide framework in place to provide guidance for the management of CEI Contracts to ensure consistent oversight of consultants and invoicing.

4 An observation and recommendation to improve this structure has been included in this report and communicated to TxDOT management in the PEPS Division and districts. Audit Scope The audit covered active Construction Engineering Inspection (CEI) Contracts within the Austin, San Antonio, Paris, Houston, and Fort Worth districts that included a review of a sample of work authorizations and invoices over the lives of the Contracts beginning July 2011 through September 2014. All CEI Contracts , executed prior to Fiscal Year (FY) 2015, were included within the sample population in order to obtain a statewide understanding of the uses and oversight by the districts and PEPS.

5 CEI Contracts and Work Authorizations TxDOT Office of Internal Audit Limited Scope May 2015 3 The audit was performed by Jaime Resendez, William Urbina, and Lindsay Bibeau (Engagement Lead). The audit was conducted during the period from September 30, 2014 to November 14, 2014. Methodology The methodology included identifying active CEI Contracts and distinguishing between indefinite deliverable Contracts and specific deliverable Contracts . An indefinite contract is an overarching contract that allows flexibility to both TxDOT and the CEI firm to work in any part of the state by the utilization of a work authorization that specifies the project, location, and scope of work.

6 A specific deliverable contract may or may not include the use of work authorization as this type of contract is project specific. CEI Contracts were selected judgmentally based on dollar amounts and date executed. For each selected contract , a sample of invoices and, if applicable, work authorizations were reviewed. The contract oversight processes, as well as, the departments control design over the process, was evaluated for operational efficiency. The following procedures were applied as necessary to perform audit fieldwork and to complete the objectives of this audit: Reviewing TxDOT internal documents, including procurement policy and procedure manuals, contract management manuals, and organization charts Reviewing sections of state codes, such as the Texas Administrative Code, relating to procuring professional services Interviewing key personnel including PEPS service center staff, district Construction staff, and district project managers Testing a judgmental sample of Contracts , work authorizations, and invoices Reviewing Contracts , work authorizations, and invoices for services billed.

7 All coinciding with services defined within the Contracts Background This report is prepared for the Texas Transportation Commission and for the Administration and Management of TxDOT. The report presents the results of the Construction Engineering Inspection (CEI) Contracts and Work Authorizations audit which was conducted as part of the FY 2015 Audit Plan. CEI Contracts are professional service Contracts utilized for procuring Engineering Inspection services to assist TxDOT in overseeing Construction projects. CEI Contracts are expected to add resources by outsourcing the oversight of Construction Contracts , thus allowing TxDOT to manage more projects in a given period of time.

8 In FY 2011, TxDOT executed the first CEI contract valued at approximately $8 million in the Dallas district. Originally these Contracts were requested and procured by the districts. With the formation of the Professional Engineering Procurement Services (PEPS) Division in October 2013, these professional services Contracts are still requested by the district, but now procured by the PEPS Division. The PEPS Division uses 7 service centers to assist the districts with coordination, service, and oversight of the CEI Contracts , 5 of which (Austin, San Antonio, Houston, Fort Worth and Central) were visited during fieldwork.

9 From FY 2011 through FY 2014, the districts were overseeing Contracts totaling approximately $ million with $ million forecasted to be added in FY 2015. CEI Contracts and Work Authorizations TxDOT Office of Internal Audit Limited Scope May 2015 4 *Historical information obtained from PS-CAMS; Projected FY15 data obtained from PEPS Division We conducted this performance audit in accordance with Generally Accepted Government Auditing Standards and in conformance with the International Standards for the Professional Practice of Internal Auditing. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives.

10 Recommendations to mitigate risks identified were provided to management during the engagement to assist in the formulation of the management action plans included in this report. The Office of Internal Audit uses the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Integrated Framework version 2013. A defined set of control objectives was utilized to focus on operational and compliance goals for the identified scope areas. Our audit opinion is an assessment of the health of the overall control environment based on (1) the effectiveness of the enterprise risk management activities throughout the audit period and (2) the degree to which the defined control objectives were being met.