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A Pital Improvement Project Management and Administration Audit

A Pital Improvement Project Management and Administration Audit

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Published by kevinhfd
CIP AUDIT
CIP AUDIT

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Published by: kevinhfd on Sep 30, 2013
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10/21/2013

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Date: September 27, 2013To: Saundra Kee Borges, Acting Chief Operating OfficerFrom: H. Patrick Campbell, Chief AuditorTele: 860.757.9951
HPC
City Of HartfordCapital Improvement ProjectManagement and Administration AuditReport 1403I. Executive Summary
In accordance with our audit plan for the fiscal year ending June 30, 2014, we completed an examination in July 2013 of the Management andAdministration of City of Hartford Capital Improvement Projects. The purpose of the examination was to evaluate and test internal accountingand operating controls, the accuracy and propriety of transactions processed, the degree of compliance with established operating policy and procedures, and to recommend improvements where required. The results of our audit were reviewed with K. Burnham, Former Director,Department of Public Works; T. Deller, Director, Department of Development Services, J. Molleda, Former Director, Finance Department; A.Matta, City Architect, Department of Public Works; and, other responsible members of operating management. The summary which followsincludes only the exceptions disclosed and recommended operating improvements. As noted in the details that follow, management has notedactions taken or planned, including timeframes, to resolve each finding and/or recommendation in this report. We thank Department of PublicWorks, Department of Development Services, and Finance Department management and staff for their cooperation and courtesies extended to usduring our audit.Background
Three City of Hartford (City) departments are involved in the management and administration of the City’s Capital Improvement
Project (CIP) program. The Department of Development Services is responsible for CIP program process management; the Department of Public Works is primarily responsible for CIP program construction management; and, the Finance Department is primarily responsible for the CIP programfiscal management. The projects fall into one of six major categories: Public Safety, Public Facilities, Parks and Recreation, Infrastructure,Development and Education Facilities. The MUNIS Financial Management System (MUNIS) is used to account for and control CIP financialactivity. For the fiscal year ending June 30, 2013, the CIP budget totaled approximately $158 million. For the six months ended December 31,2012, more than $48 million in CIP funds had been expended.GeneralIn general, we found that while the Department of Public Works had fairly extensive policies and procedures relating to the CIP program and process, we noted that policies, procedures and controls relating to a number of key CIP processes were either not fully documented and/or needed improvement. This included, but was not limited to, periodically performing reviews of and following-up on and closing-out older 
 
City Of HartfordCapital Improvement ProjectManagement and Administration Audit
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 projects with unexpended balances or projects with negative balances in MUNIS; processing and documenting change orders; reconciling CIP balances requiring funding in MUNIS with related bond, investment and bank account fund balances; and, reviewing, approving and paying CIPinvoices.ScopeThe scope of our audit included various reviews and tests of transactions recorded up to and through the calendar year ended December 31, 2012.The following audit procedures were performed:Reviews and evaluations of policies, procedures and related internal operating and accounting controls;Tests of invoices and change orders and related review and approval processes;Reviews of funding processes from budgeting to close-out and related reconciliations;Reviews to determine the effectiveness and efficiency of processes and functions; andReviews of various management and analytical reports.
II. Audit Results
Various tests, noted in the scope section above, and reviews of related operations disclosed the following:Project Financial Review and Close-Out ProcessVarious tests of CIPs and related balances as of December 31, 2012 and reviews of related operations disclosed the following:1.
 
The Finance Department process and related procedures for periodically performing reviews of and following-up on and closing out older  projects with unexpended balances or projects with negative balances in MUNIS were not fully documented and needed some improvement.2.
 
There were eight CIPs with negative balances totaling more than $340,000 in MUNIS. These CIPs were one to six years old. It was notclear what, if any, action had been taken by the Finance Department to identify, follow-up on and resolve these CIPs with negative balances.DPW management informed us that after we brought this to their attention, they developed a plan of action to work with Finance Departmentmanagement to follow-up on and resolve these negative balances and close-out the related projects.3.
 
There were 89 CIPs with unexpended balances totaling more than $21 million over five years old. This included two CIPs with balancestotaling $40,958 that were 13 years old. Again, it was not clear what, if any, action had been taken by DPW management to follow-up onand address these older CIPs. We were also informed by the City Treasurer that this is problematic because under Internal Revenue Service
rules, bond proceeds have to be spent within a designated period of time and can’t
remain outstanding for extended periods. DPWmanagement informed us that, after we brought this to their attention, they identified six older inactive projects including four with
 
City Of HartfordCapital Improvement ProjectManagement and Administration Audit
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unexpended balances totaling $3.4 million over five years old that they took action to work with Finance Department management toreallocate to other projects.4.
 
Both Finance and DPW management indicated that the process for and activities relating to following-up on and addressing old and/or inactive CIPs with unexpended balances and CIPs with negative balances could be improved and better documented. Finance Departmentmanagement noted that, although related procedures are not documented, they review all projects on a quarterly and annual basis andinforms DPW of any budget issues, negative balances or incorrect account classifications.We recommend that Finance Department management work with DPW management to review, evaluate and follow-up on old and/or inactive projects with unexpended balances and projects with negative balances that are outstanding and/or closed-out in MUNIS. In addition, werecommend that DPW management work with Finance Department management to take action to improve the process and document related procedures for periodically performing reviews of and following-up on and closing out older projects with unexpended balances or projects withnegative balances in MUNIS. DPW management also informed us that project management software was being used to monitor and manage project status.
Management Action Plan
Completion Date: December 31, 2013Responsible Persons: J. Ruffo, Interim Director, Finance Department; K. Chapman, Interim Director, Department of Public Works; T. Deller,Director, Department of Development Services; and, S. K. Borges, Acting Chief Operating Officer for ensuring follow-up and resolutionFinance Department management will work with DPW management to review, evaluate and follow-up on old and/or inactive projects withunexpended balances and projects with negative balances that are outstanding and/or closed-out in MUNIS. In addition, DPW management willwork with Finance Department management to improve the process and document related procedures for periodically performing reviews of andfollowing-up on and closing out older projects with unexpended balances or projects with negative balances in MUNIS. Department of Development Services management also noted that after the start of our review they have been working in cooperation with DPW to determine if there are any dollars that have not been committed, are left over that can be reallocated, or projects that are no longer being pursued so thedollars can be reallocated. They hope to complete this review in the next four weeks. They also indicated that there is an issue with MUNIS thatdoes not allow them to accurately track CIP dollars and are working with Metro Hartford Information Services (MHIS) to address this.Change Order ProcessingDPW records and maintains change orders in an EXCEL spreadsheet. At the time of our review, a total of 225 CIP change orders totaling over $7.3 million were recorded in the DPW spreadsheet for 67 CIPs. Five CIPs accounted for 37% of the total number and 60% of the total dollar value of the change orders recorded. Various tests of 13 change orders totaling more than $480,000 for one CIP and reviews of related changeorder processes, procedures and controls disclosed the following:

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