Audit Team Uncovers Inadequate Management Practices that Cause Late Payments to Contractors, Failure to Seek Timely Reimbursements from State and Federal Funds, and Subpar Inspection Services
Allegheny County ControllerChelsa Wagner announced that her Audit Team completed an Operational Analysis of the County Department of Public Works. Calling the work of the Audit Team, “extremely important to ensure the efficiency of a government function where considerable tax dollars are spent,” Wagner emphasized that no Operational Analysis or similar audit had occurred since the creation of the Public Works Department, despite the fact that the County budget earmarked approximately $30 million to the operation of Public Works in 2012 and the department routinely oversees on average an additional $50 million of spending in capital budget projects.
In addition to the significant tax dollars involved, Controller Wagner cited the numerous complaints received from local contractors and businesses awaiting payment on completed projects that spurred her to initiate an examination of the process. “I became especially concerned since many of the calls are from small businesses in Allegheny County that are desperate because late payment impairs their cash-flow and ultimate viability,” said Wagner. Expanding on this theme, she said, “If contractors cannot rely on timely payments for services rendered, then in many cases they are effectively shut-out from doing business with the County”. “Ultimately, this hurts the taxpayers because the County ends up with a less diverse and cost-effective pool of bidders on projects,” Wagner concluded.
Indeed, a sampling of invoices revealed that 66% of payments to contractors were not issued in a timely manner, and 16% of those invoices were more than 180-days beyond the payment period. Said Wagner, “This represents millions of dollars in monies owed to, in most cases, local businesses.” One of several reasons for these chronic payment delays is that the Audit Team found that Public Works had only requested reimbursement from PennDOT for $9,635,438 (or 54%) of the $17,798,563 in reimbursable costs on projects as of November 30, 2012. Wagner noted that her Audit Team made several recommendations designed to facilitate more timely submission and tracking of costs and invoices, as well as a recommendation that the County end the practice of repurposing monies earmarked for capital projects to the general fund to bridge budgetary shortfalls.
Construction inspection is another area of concern identified by the Audit Team. Of sampled projects, the Operational Analysis identified deficiencies in 60% of them. According to Wagner, this finding is mirrored by the daily activities of the construction inspectors working within her Audit Division, which, in 2012 alone, identified over 56 deficiencies from specification on public works projects. Such defects potentially cost County taxpayers millions of dollars per year if these defects are not caught.
Wagner also expressed concern over her Audit Team’s finding that on 50% of sampled projects the County’s combined “minority, women and disadvantaged business enterprise” (“M/W/DBE”) goals were not met. Said Wagner, “Public Works must strive to meet and exceed the County’s utilization goals. These goals need to become ‘realities’ – not just on Public Works projects but throughout the County to ensure that everyone in our region has an equal opportunity to participate in publicly funded projects.”
Among other things, the Operational Analysis called upon Public Works to employ project management software to ensure an appropriate review of costs and budgeting, to improve the payment process and the seeking of reimbursements, as well as establishing strict standards for the preparation and organization of project records and the evaluation of persons employed upon projects.
Wagner noted approvingly that the response she received to her Operational Analysis from Public Works indicates that project tracking systems will now be required of all construction management contractors, which to her is a step in the right direction of ensuring that all contractors receive prompt payment and that all available monies are leveraged to provide funding for projects. However, she stressed that significant strides in all issues identified in her Operational Analysis can and should still be made, as they represent a sound investment in the infrastructure, businesses and people of Allegheny County and the region.