1. New Directions in Auditing Construction and Public Works Projects Part 2 Beth Woodward, CGAP, CIA, CCA Senior Management Auditor Audit Services Division, Office of the City Auditor Portland, Oregon ALGA Webinar – April 9, 2013

2. 2  Created to enhance construction project controls  Auditors, contractors, owners and others interested in construction controls ~ 400 members  NACA grants certifications to members (exam format may start 2013) Certified Construction Auditor (CCA) Construction Control Professional (CCP)  http://thenaca.orghttp://thenaca.org Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 National Association of Construction Auditors (NACA), founded 2009

3. 3  Elected Auditor LaVonne Griffin-Valade  City Charter requires financial and performance audits, following GAGAS  Audit Services Division created by City Code,1986.  Annual audit plan at Auditor’s discretion Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 City of Portland – City Auditor

4. 4  Identify risks at different management levels  Learn about processes and tools used to effectively manage existing public infrastructure and construct new assets  Learn about construction management processes to control cost and quality Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Presentation Objectives Presentation Objectives

5. 5  Management role: Commissioner, Director  Bureau/department processes  Construction contracts Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Management levels for audit focus

6. 6 Is the right project getting constructed?  Clear direction – services, goals, objectives  Are decisions based on service needs and reliable information?  Creating culture of cooperation, trust, integrity  Ensuring accountability Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Management role Management role

7. 7 Found:  No overall plan for transportation services  Maintenance of $5 billion infrastructure treated as competing, low priority  Result: 44% poor or very poor condition, unmet need $750 million  Although technical managers were following industry-accepted practices. Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Management role – example 1 Management role – example 1 Recommended:  Develop clear transportation strategy  Manage assets for long-term – street maintenance is means of meeting service goal, not a separate goal.

8. 8 Management role – example 1 Management role – example 1

9. 9 Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Management role – example 1 Management role – example 1

10. 10 Found:  Data management not supporting evidence- based, cost effective decisions about assets  Service levels not clear, not used in budgeting, but used to define capital projects  No overall plan for managing assets, working on 20 asset-specific plans  Management decisions not documented or communicated Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Management role – example 2 Management role – example 2 Recommended:  Improvements to data management  Clarify service levels and use to allocate resources  Document management decisions and directions for prioritized actions  Incorporate accountability framework

11. 11 Management role – example 2 Management role – example 2

12. 12 Infrastructure management  Asset Management (existing and future in one plan)  Information management systems  Quality control and quality assurance Contracting processes  Estimating  Request for proposals (RFP) and Invitation to Bid  Evaluating proposals and bids for contract award  Contract ammendment (“change order”)  Construction documentation Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Bureau/department processes Bureau/department processes

13. 13  Know what assets you own, asset condition, cost to replace, expected life, failure mode. Maintain asset data needed for decisions  Define level of service provided, get customer agreement (differs from goals)  Lifecycle approach - plan tactics and resources needed to deliver service level at optimum cost over time, at acceptable risk  Maintenance and replacement in single plan - implement plan Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Asset management principles Asset management principles

14. 14 Benefits to ratepayers:  Reduce overall costs through efficient operations and maintenance  Make decisions based on agreed service levels - reduce spending not tied to meeting SLs  Provide sound basis for setting rates, at acceptable risk level  Improves accountability for use of resources Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Asset management - example Asset management - example

15. 15  Data about assets not readily usable for analysts  Service levels not clear  20 asset management plans in progress, with no overall direction or accountability for implementation  Progress made: Business Case Analysis for capital projects Communication needed to prepare the 20 plans promoted cooperation between operational groups Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Asset management - example Asset management - example

16. 16 Tools for managing and analyzing asset information to support decision-making and operations – examples:  StreetSaver  VUEworks  TEAMplan  Work order systems Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Information Mgmt Systems Information Mgmt Systems

17. 17  Do plans for quality control and quality assurance exist?  Is organization following them?  Do the plans clarify positional responsibility?  Do material supply contracts and construction contracts incorporate QC requirements? Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Quality control, quality assurance Quality control, quality assurance

18. 18 Quality assurance - example Quality assurance - example 2006 Found: 67% of asphalt mix tests did not meet City criteria. Recommended: Develop QA plan, take remedial action when necessary, improve product specifications…

19. 19 Contracting process - example Contracting process - example 2008 Found:  Designs incomplete before Invitation to Bid issued, leading to long addenda, and changes later  Facilities Services aggregated changes during construction into fewer Change Orders (e.g. 171 changes in 21 Change Orders)  Reasons for each change not fully documented

20. 20  Starts with design, whether or not performed by separate contract  Value of construction “observation”  Contract elements Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Managing construction contracts Managing construction contracts

21. 21 Design and design process impacts construction cost  Scope of work - Clear? Reflect users’ needs?  Did users review design to make any needed changes before construction?  Was design complete before Invitation to Bid issued? (reduce addenda and changes) Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Managing construction contracts Managing construction contracts

22. 22 Construction observation  Is Owner collecting physical and documentary evidence needed to check basis of payment? Are components the ones specified?  Resources should correlate to Type of work – will it be covered up? Type of contract – cost plus? See 1. Phase of contract – change without agreed $?  Results of quality control and quality assurance processes – material tests Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Managing construction contracts Managing construction contracts

23. 23 Contract elements  Construction documents control Product quality and performance Method of pricing – e.g. unit price, lump sum, cost plus fee  Basis for payment - check back up  Change order costs documented? Consistent with contract conditions?  Contingency used appropriately (not “savings”)  Substantial completion and closeout Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Managing construction contracts Managing construction contracts

24. 24  Management role – Service focus, direction, accountability  Bureau/department processes – align practices with goals and control risk  Construction contracts – did Owner pay the right amount? Get product wanted? Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Management levels for audit focus

25. 25 Performance Management Framework for State and Local Government: From Measurement and Reporting to Management and Improving, National Performance Management Advisory Commission (includes NASACT), 2010 Government Contracting – Promises and Perils, William Sims Curry, American Society for Public Administration, CRC Press, 2010 US EPA online resources such as:  Manage Infrastructure for the Long Term http://water.epa.gov/infrastructure/sustain/localofficials_manage_infrastructure.cfm http://water.epa.gov/infrastructure/sustain/localofficials_manage_infrastructure.cfm  Slides for Advanced Asset Management Training Workshops, and web-based training http://water.epa.gov/infrastructure/sustain/am_training.cfm http://water.epa.gov/infrastructure/sustain/am_training.cfm US Department of Transportation Federal Highway Administration:  Advancing a Transportation Asset Management Approach http://www.fhwa.dot.gov/asset/pubs/if12034.pdf http://www.fhwa.dot.gov/asset/pubs/if12034.pdf Ahead of the Wave – A Guide to Sustainable Asset Management for Canadian Municipalities, R.V. Anderson Associates Limited, 2002 http://www.fcm.ca/Documents/tools/PCP/Guide_to_Sustainable_Asset_Management_for_Canadia n_Municipalities_EN.pdf http://www.fcm.ca/Documents/tools/PCP/Guide_to_Sustainable_Asset_Management_for_Canadia n_Municipalities_EN.pdf Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Resources Resources

26. 26 Auditing Construction and Public Works, ALGA Webinar – April 9, 2013 Resources Resources Beth Woodward Senior Management Auditor 503.823.3543 Beth.woodward@portlandoregon.gov Office of the City Auditor www.portlandoregon.gov/auditor/auditservices http://twitter.com/PortlandAudits