Sunset review of the Arizona Department of Transportation

              ~ RIZONAS TATE SENATE

RESEARCH STAFF

TO: JOINT LEGISLA'TIVE AUDIT COMMITTEE RYAN IIEMENNA

Senator Robert Blcndu, Chair 1, EGISLA'rIV E IIESEARCI- 1 ANALYST

7TKANSI'OR'I'A~ fIONCOMM1 rl Ek

iiepresentative John Nelson, Vice- Chair ' I - C I C ~ I ~ O(~ 6C0 2) 926- 3 17I

DA'J'E: November 30,2007

SUBJECT: Sunset Rcview of the Arizona Department of Transportation

Attached is the final report of thc sunsct rcvicw of thc Arizona Dcpartnient of Tra~ isportation

( ADOT), wllich was conducted by the Arizona Slate Senate ' Transportalion and I- louse Transportation

Committee oSRefcreiice. A perfi~ rmancea udit of ADOT, consisting of three reports, was conducted by

tlie Arizona Oflice oi'tllc Auditor General ( report nos. 06- 05, 07- 03 and 07- 04)

This report has been distributed to the following individuals and agencies:

Govel- nor of tlie State of Arizona

Tlie Honorable Janct Napolitano

IJresident of tlic Scnatc

Senator Tinlothy Bee

Sl) eal< er of the House of Representatives

liepresentative James Weiers

Senate Members House Members

Senator lion Could, Cochair presentative Marian McClure, Cochair

Senator Robert Blendi~ Representative Sam CI- ump

Senator Pamela Gorn~ an Representative Solin Nelson

Senator Rebecca Rios Representative Toni Prezclski

Scnator Victor Soltcro Representative Jackie Thrasher

Arizona Dcpartnient of Transportation

Arizona State Library, Archives and I'ublic Records

Oflice of the A~~ ditGore neral

Senate Majority Stafl'

Senalc Minority Stafl'

Senate Research Stall'

Senate Resource Center

I- louse Majority Stafl'

1- IOLISC Minority Stafl'

House Rcsearcli Stafl'

Chief' Clcrli

RL)!; as

Attachment

* 4

Senate Transportation and House of Representatives Transportation

Committee of Reference Report

ARIZONA DEPARTMENT OF TRANSI'ORTATION

Victor Mcndez, Ilirector

BACKGROUND

Pursuant to A. R. S. $ 41- 2953, the Joint Legislative Audit Coni~ nittee ( JLAC) assigned tlie

sunset review of the Arizona Department of Transportation ( ADOT) to the Senate ' I'ransportation and

1- louse ' 1 ransportation Committee oiRefel- ence for review. The Ol'licc ol'tlic Auditor General ( OAG)

conipletcd tlirce reports that comprise the performance a ~ ~ d( rietp ort nos. 06- 05, 07- 03 and 07- 04).

ADO1' was established in 1974 pursuant to A. R. S. 5 28- 33 1 and is statutorily charged under

A . R. S. l'itle 28 wit11 providing an integrated and balanced statc 11- ansportat ion system. ADOl' has

exclusive control and jurisdiction over state highways, statc I- outcs, state- owned airports and all

state- owned transportation systems. Additionally, under Arizona law, AIIO'I' is rccluircd to rcgislcr

motor vchicles and aircraft, license driven, collect revenues, cnl'oi- cc niotor vchiclc and nviat~ on

statutes, perform multi- modal state transportation planning, design and consti- uct transportation

facilities, and maintain and operate state public transportation syslems. In order to carry out tlicsc

responsibilities and others, ADO1' is organized into six divisions: Motor Vehicle ( MVD);

7 1 I- ansportation Planning; I- fighways; Aeronautics; Public ' I'ransit: and Administrative Services.

111a ccorda~~ wccit h A. R. S. 6 41 - 3008.17, ADO'I'~ erminalcso n July I , 2008, unless continued.

COMMI'I'TEE OF IIEFEIIISNCE SUNSET IIEVIEW I'liOCI< IlUIIES

The Committee of Ref'crencc held one public hearing on ' l'uesday, Novelnber 6,2007, to rev~ ew

tlie perl'ormancc audit prepared by the OAG, receive testimony regarding the OAG's rindings and

recommendations li- om Victor Mendez, tlie Director of ADO'], and allow an opportunity Ihr pi~ blic

leslinio11y.

, . I lie presentation s~ unmarizedth e OAG's lindings and recommendations as follows:

AI- izona Ilcparln~ cnto i'l'ransportation - Aspects of'Constructio11 Managenicnt Autlit (, July 2006,

licport No. 06- 05)

findin,? I : ADOI' has increasingly used consultants to provide scsvices traditionally provided by

A130rI' employccs. ADOT slio~ llde vali~ ate~ tuss e ol'cons~~ ltanatsn d identify ways to reduce their use

Rrco111mrnrkrtio11. r:

ADOT should:

1. Fill existing vacancies

2. Continue to develol) strategies to recruit and retain employccs

3. Develop criteria for deciding when to use consultants.

4. I'erli,~- m Inore work in- house when appropriate and stafl'arc availuhlc

5. ' I'rack and monitor consultant usagc

I; ilidir~. y2 : ADOT sliould improve inspection consistency, documentation and follow- up to ensure

compliance with construction standards.

Rrcontntenclrrtiorts:

ADOT should:

1. Ensure that field inspectors document inspection results and consistently complete checklists.

2. Provide training to inspectors and ensure that field inspectors and Quality Assurance ( QA)

inspectors silnilarly apply standards.

3. Require follow- up for major and critical noncompliant items fo~ ound by QA inspections.

F ~ I I ~ 3:~ AIDIO. T~ s hould address its backlog of consultant and construction contract audits.

Hecon~ rtten( krtio~ t.~:

ADOT should:

1 . I- ill audit staff vacancies.

2. Ens~~ trlicat the highest- risk pro- jects are audited.

3. Reinstitute pcrformancc measures lor its audit u~ iit.

Arizona 1) epartlnent of Transportation - Nigllway Maintenance Audit ( June 2007, Report No. 07-

03)

fil1r1in. v: Money for highway ma~ ntcnancer epresents about 10 percent of ADOT's higliway funding,

supporting about 250 maintenance activities throughout the state. Arizona's highway system has niostly

smooth and good- quality pavement and was in better condition in 2005 than in 1995. ADOT's

lntcrmodal Transportation Division ( ITD), which is responsible for highway design, constl- uction and

maintenance, could better measure and identiiy annual maintenance work needed to maximize the state

highway system's life, ci'liciency, appearance and salcty.

Rrcomr~~ erick~ tiorrs:

ADOT's ITD sliould:

1 . Develop and implement guidelines to identily and prioritize needed annual niaintenance work.

2. Identiiy, quantify and prioritizc all annually needed maintenance work.

3. Identify work tliat cannot be done with existing resources to quantify any maintenance funding gap.

4. 1) cvclop and implement a mctliodology that ensures systematic allocation ol'resources based on

statewide needs and priorities, and districts' or regions' needs and responsibilities.

SIJNSET IIEPOIIT IIEQUIREMENTS PURSUANT 10 A. 1I. S. 5 41- 2954

Arizoni~ 1 ) cpartnicnt of Transportation - Sunset F;~ ctors( July 2007, Report No. 07- 04)

Con~ plere~ * espor? se1s0 all 12 sunset factors are contained in llqe Pet: jor/? zunceA udil,

A~' izo~ D'~ ea]? urt/? zenot j Tra1.11sporfalio- n S unset Faclors, July 2007, Repot* t No. 07- 04. Sunset

Fuclor- s 2 u~ zd4 received ~ l? e, followitzag~ nplijicationsa tld con~/ nents, f,. onDz irector Mendez:

findin:.: Overall, ADOcI' gcncrally operates efl'ectively and ei'ficicntly and has operated within the

public interest.

Factor 2. The cffcctivencss with which ADO'I has met its objectives and purposes and the

efficiency with which the agency has operated.

A1) O'l" s licsponse: ADO- 1' is in the process of iniplenienting all of tlic recomlncndations fiom the

Nighwuy Muintenunce and A. vl7ect. s of Construction Munugement audits.

Regarding tlie use of consultants, ADO'T uses a management level process to dcterniine

consultant needs based on project schedule, availability of in- house staff and expertise rcquirc~ iientso n

the project. ADO1' uses tliis process to evaluate the need for consultal~ tso n any given pro- ject.

Also, ADO'f would like to draw a clear distinction between the contractors that are utilized for

highway construction versus consultants that are utilized in the desigli, development, prqject

managenicnt, inspection and testing processes. The Arizona Revised Stalutes require ADOT to utilize

private contractors to construct the highways.

Factor 4. The cxtcnt to which rules adopted by AlIOT arc consistent with the legislative mandiitc.

AlIOT's Response: ADOT has formed a committee to review the areas identilied by the Auditor

General and will develop such I- ules as necessary.

A, nency Responses to the Fo~ lAr . ye11c~ fi ctors:

I . Identify the problem or the needs that the agency is intended to address.

ADO'I' was established by A. R. S. $ 28- 331 to provide for an integrated and balanced state

t~ ansportation sysleni. AD07' serves as the state's public agency to plan, build and maintam the state

~ iiul~ imodtarla nsportation inli- astructure througliout Arizona.

MVD has its own sunset date and was sepal- ately reviewed by the Auditor Gcncral; Illel- efore, it

is not included in this sunset.

2. State, to the cxtcnt practicable, in quantitative or qualitative terms, the objectives of the agency

and its iinticipated acconiplislimcnts.

AUO'I7' s mission is to plan, build and maintain Arizona's multimodal transportation

inli. astructurc. That inli- ash- ucturc includes operating the Grand Canyon Airport and assisting local

communities lo provide public transportation services.

ADO' 17' s main objectives are to:

Coordinate and coopcrate with metropolitan planning organizations, counties and local comniunities

to idcntily ~ nultiniodalt ransportation needs and prioritize iniprovcmeiits to meet the needs of'thc

citizens of Arizona.

Construct, on time and on budget, improvements and cnliancements to the transportation

infi- astructure in accordance with the identilied priorities

Maintain tlie slate's transpol- tation iiifi- astructure through a comprelicnsivc preservation program.

State Transportation planning is accon~ plishedb y working with ADOT's planning partners to

facilitate n~ ultil- nodalt ransportation planning. These partners include Arizona's n~ etropolitanp lanning

organizations, councils of governments, federal agencies, tribes, counties, cities, the public and other

stakeholders. ADOT anticipates continuing to perform transportation studies ( such as the Interstate 17

Alternative Study and Multimodal Freight Analysis Study) to identifi transportation needs and

111~ 1lti111odsaol lutio~~ tos those needs.

ADOT also anticipates continuing to assist the State Transportation Board in prioritizing

transportation infrastructure improvement projects in accordance with the " Priority Programming Law"

( A. R. S. 28- 6951) that culminates in the annual update of the Five Year Transportation Facilities

Construction Program lbr highways and airports.

l'ransportation infrastructure construction and preservation is accomplished by contracting all

projects above $ 1 89,000 as required by statute to private constructio~ i companies. ADOT pl- ovides

project oversight and inspection to ensure quality. ADOT's Five Ycar l'ransportation 1- acilitics

Construction Program for 2008 through 2012 totals $ 6.6 billion for highways and $ 762 million ios

airports. Included in thc $ 6.6 billion is $ 120 million for bridge preservation.

Significant anticipated accon~ plishments include the award of 100 percent of thc total

construction dollars planncd to be awarded and the construction of8 16 travel lanc miles by Decembcr

31, 2012.

Arizona taxpayers have a significant investment in the state's transportation inl'rastructurc. The

cost 01' highway pavcmcnt preservation is f~~ ndethdr ougl~ t he Five Year l'ransportation I- acilities .- Constrilction 1' 1-~ gram. I lie cost of all otlier maintenance is includcd in ADOT's operating

appropriation ($ 129 million lbr FY 2007- 2008).

As the state's transportation infrastructure continues to grow, additional lilnding is rccluired to

maintain landscaping, pickilp littcr, rcpair cable barriers, sweep roadside debris, maintain signs and

pavcmcnt striping. rcpair guardrail and crash attenuators, maintain drainage I'acilities, pay lor electricity

lbr lighting and signals, and to respond to motor vehicle accidents.

ADOT has been challenged to meet the needs of maintaining new l'calures while prcsel- ving tlic

exist~ ngs ysteln. l71icr ecent sharp incrcase in the cost of materials and fucl has diminished ADOT's

ability to maintain the transportation inli- astructure. 1- he most visible result Iias been public concerns

and commcnts relative to litter, landscaping and vegetation control, wl~ ilcl ess visible niaintcnancc

activit~ css uch as pave~ ncntr epair, drainage repair and roadside work, when safe to delay, have bcen

reduced in frequency.

AIIOT anticipates continuing challenges meeting the public's expectation for transportation

infi. astructurc ma~ ntcnancc.

3. Identify any other agcncics having simil;~ r, conflicting or duplicative objectives, and an

explan; rtion ofthe miinner in which the ilgcncy irvoids duplication or conflict with other agencies.

The ADOT lnission is unique 110111 othcr state agencies. No other state agency is able to carry

out ADOT's mission as cffectively and efficiently. Federal agcncics rely heavily 011 state departments

of transportation to carry out national transportation programs.

The technical cxpcrtise and knowledge that is required to plan, build and mainlain the statc

transportation inli- astructure are confined to ADOI'.

There is no conflict or duplication of effort within state government for Ihesc fi~ nctions.

4. Asscss the conscqucnces of eliminating the agency or of consolidating it with another irgency.

*. I enmination of'ADOT would harm the public welfare and place the public's safety at significant

risk. Onc of'our strategic issues is to make Arizona's transportation infi- astructure salk. ADOT plays an

important role to ensure the sale and eflicicnt transport of pcoplc and goods through and within the

Statc of Arizona. Elimination of the agency would seriously impact tllat movement. Furthenmore,

fcdcral law rcquil- cs state transportation dcpartmcnts to adccluately maintain transportation

improvemcnts funded by ledcral monies.

I, ikewise, thc consolidation of a large agency, such as ADO'I', with another would have serious

I- cpercussions that could not only jeopardize the public's salkty, but also impact the maintenance of the

state's investment in our transportation systems and seriously dclay thc planncd constl- uction that the

public cxpccts. At approxin~ ately 4,600 employees, ADOT is one of the largest statc agencies in

AI- IZOIII~ t w ould be difficult for another agency to be able to absorb ADO']- and providc thc internal

services ncedcd to continue operations without a signilicant decllnc in thc cjuality and cl'liciency of

those services, and to allow ADO']- to continue to serve thc cit~ zenso f Ar~ zonaa t the same level of'

scrvlce currently provided

ATTACHMENTS

1. Meeting notice

2. Minutes from the Committee of Reference mecting

3. ADOT's response to the four agency questions outlined in A. R. S. 3 41- 2954

4. OAG staff's Powerpoint presentation handout

5. ADO'I- - Aspccts of Construction Management Performance A~~ diJut, ly 2006, licport No. 06- 05

6. ADO'I' - Highway Maintenance Audit, Junc 2007, licport No. 07- 03

7. ADOT - Sunset Factors, July 2007, licport No. 07- 04

1

Interim agendas can be obtained via the Internet at http: llwww. azleg. state. az. usllnterimCommittees. asp

ARIZONA STATE LEGISLATURE

INTERIM MEETING NOTICE

OPEN TO THE PUBLIC

SENATE TRANSPORTATION COMMITTEE AND HOUSE TRANSPORTATION COMMITTEE OF

REFERENCE

Date: Tuesday, November 6, 2007

Time: I : 30 P. M.

Place: SHR 109

AGENDA

1. Call to Order

2. Roll Call and Introduction of Members

3 Arizona Department of Transportation Sunset Audit

Presentation by the Office of the Auditor General

Response by the Arizona Department of Transportation

4 Public Testimony

5 Recommendations by the Committee of Reference

6 Adjourn

Members:

Senator Ron Gould, Co- Chair

Senator Robert Blendu

Senator Pamela Gorman

Senator Rebecca Rios

Senator Victor Soltero

Representative Marian McClure, Co- Chair

Representative Sam Crump

Representative John Nelson

Representative Tom Prezelski

Representative Jackie Thrasher

Persons with a disability may request a reasonable accommodation such as a sign language interpreter. by contacting the

Senate Secretary's Off~ ce:( 602) 926- 4231 ( voice). Requests should be made as early as possible to allow time to arrange the accommodation

ARIZONA STATE LEGISLATURE

SENATE TRANSPORTATION COMMITTEE AND HOUSE TRANSPORTATION

COMMITTEE OF REFERENCE

Minutes of the Meeting

Tuesday, November 6,2007

1: 30 P. M., Senate Hearing Room 109

Members Present:

Senator Ron Gould, Co- Chair

Senator Rebecca Rios

Senator Victor Soltero

Representative Marian McClure, Co- Chair

Representative Sam Crump

Representative John Nelson

Representative Tom Prezelski

Representative Jackie Thrasher

Members Excused:

Senator Robert Blendu

Senator Pamela Gorman

Staff:

Ryan DeMenna, Senate Transportation Research Analyst

John Halikowski, House Transportation Research Analyst

Chairman Gould called the meeting to order at 1: 43 p. m. and attendance was noted.

Arizona Department of Transportation Sunset Audit

Shan Hays, Performance Audit Manager, Office of the Auditor General, distributed

the following handouts:

" Arizona Department of Transportation - Highway Maintenance" ( Attachment

A)

" Arizona Department of Transportation - Aspects of Construction

Management" ( Attachment B)

" Arizona Department of Transportation - Sunset Factors" ( Attachment C)

" Arizona Department of Transportation - Performance Audit and Sunset

Review" ( Attachment D).

Ms. Hays explained the procedures of the audit, their findings and recommendations.

Response by the Arizona Department of Transportation

Victor Mendez, Director, Arizona Department of Transportation, distributed " Arizona

Department of Transportation, Office of the Director" ( Attachment E) and explained that

the department agrees with the audit's findings and how the department is implementing

the audit's recommendations.

Recommendations by the Committee of Reference

Senator Soltero made the motion to extend the Department of

Transportation for 10 years. Senator Rios seconded the motion. The

motion PASSED by voice vote.

There being no further business, the meeting was adjourned at 2: 34 p. m.

Respectfully submitted,

Shelley Ponce

Committee Secretary

( Tapes and attachments on file in the Secretary of the Senate's Office/ Resource Center, Room 115.)

SENATE TRANSPORTATION COMMITTEE

AND HOUSE TRANSPORTATION

COMMITTEE OF REFERENCE

November 6, 2007

Page 2

Arizona Department of Transpartation

Office of the Director

206 South Scvcntccnth Avenue Phoenix. Arizona 85007- 3213

Richard Trovrt,

Gep~.,: 9,:~ r-::: r o:

September 21,2007

Victor IS!. lAcndcz

?. . , ,- . . , . , .,< -* L. ....

Mr. Ryan DeMenna

Assistant Research Analyst

Arizona State Senate

1700 ' fiest Washington

Phoenix, AZ 85007

Subject: Arizona Department of Transportation

Sunset Review Quest~ ons

Dear Mr. DcMenna:

Thank you for the opportunity to respond to questions related to the Arizona

Department of Transportation's sunset review. Our response is attached.

If you need additional information or further clarification, please contact Dian

Work at 602- 712- 8533 or me at 602- 712- 7227.

Sincerely,

gctor Id. Mendez

Attachment

The Arizona Department of Transportation

Sunset Review Responses

1. Identify the problem or the needs that the agency is intended to address.

The Arrzona Department of Transportation ( ADOT) was established by A. R. S. $ 28- 331

to provide for an integrated and balanced state transportation system. ADOT senles as

the state's public agency to plan, build and main. tain the state multi- modal transportation

~ nfrastructureth roughout Arizona.

The Motor Vetlicle Divrsion has its own sunset date and was separately reviewed by the

Auditor General; therefore, it is not included in this sunset.

2. State, to the extent practicable, in quantitative and qualitative terms, the

objectives of the agency and its anticipated accomplishments.

Thc Dcpartmcnt mrssion is to plan, bui! d and maintain Arizona's rnultimodal

trarisportatiorl infrastructure. That infrastructure Includes operating Grand Canyon

Airport and assisting local communities to provide public transportation services.

The Department's main objectives are to:

Coordinate and cooperale with metropolitan planning organization, counties

and local communities to identify multrmodal transportation needs and

prioritize improvements to meet the needs of the citizens of Arizona.

Construct, on time and on budget, improvements and enhancements to the

transportation infrastructure In accordance with the identified priorities.

Ma~ ntarnth e state's transporlation infrastructure ihrouyh a comprehensive

preservat~ onp rogram.

State transportation planning is accomplished by workrng w~ th the Department's

planning partners to facilitate rnultimodal transportat~ on pianning. These partners

~ nclude Arizona's fvletropolilan Planning Organizations ( hlPOs), Councils of

Governments ( COGS), federal agencies, tribes, count~ es, cr! ies, : he public, and other

stakeholders. The Department anticipates continu~ ngt o perfornl transportallon stuc~ es

( such as the Interstate 17 Alternative Study and hAultrn~ odaFl reight Analysis Study) to

rtjentify transportation necds and muliimodai sol~ tronsto those needs.

The Depariment also anticipates cont~ nuing to assist the State Transportalion Board in

prior~ tiz~ ntgra nsportat~ on infrastructure improvement projects in zccordance w~ thth t.

" Priority Programming Law" ( ARS 28- 6951) that culminates in the annual update of the

Five Year Transportation Facilities Construction Program for highways and airports.

Construction

- i ransporfation infrastructure consrruction and preservarion is accomplished by

con~ raciins all projects aSove S169,000 as required by slate statute to private

c~ nstruction companies. ADOT provides project oversight and inspection to ensure

quality. The Department's Five Year Transportation Facilities Construction Program for

2008 through 2012 totals $ 6.6 biil~ onfo r highways and S762 million for airports. Included

in the $ 6.6 biliion is 5120 million for bridge pr~ ser~~ taticn

Signiflcant anticipated accomplishments include the avbtlard of 100% of the rota1

construcrion doltars planned to be awarded, and the construction of 816 travel lane

miles by December 31. 2012.

Maintenance

Arlzona taxpayers have a siyniiicsnt investment in the State's transportation

infrasiructure. The cost of highway pavement preservation is funded through the FIVE

Year Transportation Facilities Construction Program The cost of all other maintenance

1s ~ ncludedin the Department's operating appropriation ( 5129 rnlllion for flscal 2008).

As tbe stale's trar~ sportation infrastructure cont~ nues to grow. additional funding IS

required to maintain landscaping, plckup litter, repair cable barriers, sweep roadside

debris, maintain slgns and pavement strip~ ng. repair guardrail and crash attenuatcrs.

~ lalntaind rainage facilities, pay for electricity for lighting and slgnais, and to respond : o

motor vehicle accidents.

ADOT has been challenged to meet the needs of rna~ ntaining new features while

preserJing the existing system. The recent sharp increase in the cost of materisls and

fuei has diminished ADOT's ability to maintain the transpor! ation infrastructure. Tne

most v~ sible result has been public concerns and comments re! airvc to lirter,

landscaping and vegetation contro!, while the less visible nia~ ntenances ctivities such as

pavenient repair, clra~ nage repair, and roadside work. ;< men safe to delay, have been

reduced in frequency

Tne Department anticipates con'inuing challenges rnest~ ng tne public's expectailon for

transportalion infrastructure maintenance.

3. Identify any other agencies having similar, conflicting or duplicative

objectives, and an explanation of the manner in which the agency avoids

duplication or conflict with other such agencies.

The ADOT mission is unique from other state agencies. No other state agency is able

to carry out ROOT'S mission as effectiveiy and efficiently. Federal agencies rely heavi! y

on state departments of transportation to carry out national transportation programs.

The technical expertise and knowledge that is required to plan, build and maintain the

state transportation infrastructure are confined to ADOT.

There is no conflict or duplication of effort within state government of these functions.

4. Assess the consequences of eliminating the agency or of consolidating it with

another agency.

Termination of ADOT would harm the public welfare and place the public's safety at

significant risk. Onc of our strategic issues is to make Arizona's transportation

infrastructure safe. ADOT plays an important role to ensure the safe and efficient

transport of people and goods through and within the state of Arizona. Elirninatlon of

the agency vlrould seriously impact that movement. Furthermore, federal law requires

state transportation departments to adequately maintain transportation improvements

funded by federal rnonles.

Likewise, the consolidation of a large agency, such as ADOT, with another v~ ould have

serious repercussions that could not only jeopardize the public's safety, but also irnpact

the rnalntenance of the state's ~ nvestmentin our transportation systems and seriously

delay the planned construction that the public expects At approxirnateiy 4,60r3

employees. ADOT IS one of the largest state agencies In Ar~ zona. It ~ voilldb e difficul!

for another agency to be able to absorb ADOT and provide the internal services needed

to cont~ nueo perations without a significant decline in the quality and efficiency of those

services, and to allow the Department to continue to serve the cilizens of Arizona at the

same level of servlce currently provided.

Shan nays

-- -- November 6,2007 -

Performance Audit and Sunset

Review

Arizona Department of

Transportation

Audit reports

Aspects of Construction Management ( July

2006)

Highway Maintenance ( June 2007)

Sunset Factors ( July 2007)

- - -- -.-

Aspects of Construction

Management

June 2006

- - -- --

1

Construction management

ADOT responsible for highway

infrastructure

Projects based on 5- year plan

- State Transportation Board approves

- FY 2006- 2010 plan total: $ 5.1 billion

.- --

-

Use of contractors

Construction contractors build roads

Consultants perform several functions:

- Design

- Engineering services

- Construction management

- -- -

.*

Finding 1

ADOT should optimize internal

resources to reduce consultant

usage

-

-

External consultant usage

Factors affecting consultant

use

Increasing workload

- 5- year plan more than doubled in 10 years

- Accelerated urban freeway construction

Staff vacancies ( Feb. 2006)

- 27% of all engineering jobs

- 46% of resident engineers

--

d

Recommendations

Consultant use can be costly, reduce

staff competency

Recommendations

- Optimize in- house resources

- Develop criteria for consultant use

- Track and monitor consultant use

-- -

Finding 2

ADOT should improve

implementation and documentation

of inspection process

-

2

Inspections key to quality

220 field inspectors do daily monitoring

9 independent Quality Assurance

inspectors review all projects at least

once

- - - -

/

Improvements needed

Incomplete documentation of results of

inspections

Inconsistent application of inspection

standards

Deficiency follow- up lacking

- --.

1

Recommendations

Ensure field inspectors:

- Document observations

- Use checklists

Include field inspectors in checklist

revision process

Follow up on independent quality

assurance inspection results

Finding 3

ADOT needs to improve audits of

design and construction

contracts

- -

-

Audits important

Check contractor's accounting system

Determine overhead rates

Avoid over- or underpayments

Verify contract requirements met

.- - --

-

Several problems

Inadequate audit planning

Too few audits

Audit backlogs

Causes included vacancies, inadequate

management

- --

2

Recommendations

Improvements needed:

- Fill vacancies, implement performance

measures, replace database, prioritize

workload, revise audit manual

New chief auditor hired January 2006

6- month follow- up

- All recommendations were implemented

- -. . . -. .

-

Highway Maintenance

June 2007

-- --

/

Maintenance districts

Finding 1

Maintenance monies support

numerous activities

- --

d

Maintenance monies

Maintenance monies in FY07:

- $ 118.6 million ( 10% of highway monies)

- $ 5.7 million Proposition 400

Not included: $ 103.3 million for

pavement preservation from 5- year plan

- -

/

Maintenance expenditures

70% allocated to districts

Contractor expenditures increased

- $ 17.5 rn W06 from $ 4. lrn FY97

- FTEs dropped 951 to 922

-

/

W06 direct expenditures

$ 63.5m

-

$ 10 1

/

W06 other expenditures

$ 45m

Other

OPerabng

$ 21.2177

- --- -

1

Finding 2

Most Arizona pavement rated

satisfactory

--

i

Pavement rated satisfactory

ADOT rates on several criteria

Arizona's roads

- Compared favorably to other states

- Improved from 1995 to 2005

- Interstates better than other roads

- Residents generally satisfied

-- .. .-.

/

Finding 3

ADOT should improve method to

determine

maintenance needs and allocate

maintenance dollars

- . -- .-

/

Maintenance needs up

Expenditures up 56% FY97- 06

Costs up ( ex: asphalt up 171%)

Demands up ( lane miles, traffic volume)

-- --

/ -

Planning inadequate

Inadequate planning process

- Needed work not identified

- Allocations not based on needs

ADOT can further improve needs

measurement

- 4 computerized systems in development

-

- More can be done

- - --.

-

Recommendations

Identify and prioritize maintenance

needs

- Develop guidelines

- Identify needs

- Determine needed funding

Allocate based on state- wide priorities

-- - ---

,

Sunset Factors

July 2007

Overall conclusions

ADOT generally operations effectively

and efficiently.

ADOT has operated within the public

interest

---- -

Performance Audit and Sunset

Review

Arizona Department of

Transportation

Shan Hays

November 6,2007

-. -- -.

-

Performance Audit Division

Performance Audit

Arizona Department of

Transportation-

Aspects of Construction

Management

JULY 2006

REPORT NO 06 - 05

OFrlCE OF THE AUDITOR

GENERAL

Debra K. Davenport

Aud~ tor Gerreral

The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators

and f~ ve representat~ ves Her mlsslon 1s to provlde independent and impartial information and specific recommendattons to

improve the operations of state and local government entities To this end, she provldes financ~ aal udits and accounting services I

to the State and polltical subd~ vis~ onisn, v estigates possible misuse of publlc monies, and conducts performance audits of

school districts, slate agencies, and the programs they adminster

The Joint Legislative Audit Committee

-

Representatrve Laura Knaperek, Chalr Senator Robert Blendu, V~ ce Chalr

Representatrve Tom Boone Senator Ed Ableser

Hepresentatwe Ted Downing Senator Carolyn Allen

Representat~ veP ete Rios Senator John Huppenthal

Representative Steve Yarbrough Senator Richard Miranda

Hepresentatwe Jim Weiers ( ex- ofilc~ o) Senator Ken Bennett ( ex- ofilc~ o)

Audit Staff

Melanie Chesney, D~ rector

Shan Hays, Manager and Contact Persori

Brent Nelson, learn Leader

Lori Babbitt

Mark Haldane

Copies of the Aud~ tor General's reports are free

You may request therri by contaci~ ngu s at

Office of the Auditor General

2910 N. 44th Street, Suite 410 Phoenix, AZ 85018 ( 602) 553- 0333

Arizona Department

of Transportation

Aspects of Construct~ on

Management

Division ( ITD) constructs and manages

the State's highway system in five

phases:

Scoping- studies of where and when ADOT logo from Arrzona Department of

Transportat~ onW eb slte

highways should be built;

Desigvroject design, environmental

studies, and right- of way acquisition;

Bidding- selecting contractors to build

highways;

Constructio~ versighto f contractors

building highways; and

Operation and maintenance- oversight of

maintenance, preservation, and

landscaping once the highway is / --.

completed

ITD relies heavily

on consultants

i Payments to consultants

$ 140 r-- ---

-- - -

ITD relies on consultants to provide

- - .-. services during the scoplng, deslgn, and

construction ~ hasesA. 2003 national $ 20

survey reported that almost all state

1996 1997 1951 1993 2WO 2W1 2W2 2W3 ZGU4 2005 departments of transportation use private Fiscal Year

consultants for the design and

management of highway projects.

As of January 2006, ADOT had 430

contracts with 121 private consultants

worth $ 559 million. This included 72

contracts worth $ 78 million with

" supplemental consultants" who perform

the duties of vacant employee positions,

including resident engineers, field

inspectors, and design engineers.

Increased consultant use- ADOT's use

of consultants has increased by 424

percent over the last 10 years.

ADOT gives several reasons for the

increased use of consultants, including:

increased highway construction;

increased complexity of construction

p. r. o. j ects; and. <, . , ,

n l g n AUW I statt vacancies causea ~ y I(

salaries.

Increased construction-- The highway Risks- The risks of using consultants

construction workload, as measured by include higher costs and lost competency.

construction payments, increased by Most studies on the use of consultants in

about 76 percent from fiscal year 1999 to state departments of transportation agree

2005, requiring more use of consultants. that using consultants increases the cost

of services.

i Construction payments

Fiscal years 1995 through 2005

19E 1996 1997 1998 1999 2WO 2001 2Ma 2003 2004 2M) 5

Fiscal Year

28 percent vacancy rate- As of February

2006, almost 28 percent ( 79 of 286) of

ADOT's engineering positions were

vacant. ADOT attributes the high vacancy

rate to employees retiring or leaving for

the higher salaries paid by private

consulting firms. A November 2005 ADOT

salary survey disclosed that ADOT

technical and engineering salaries were

13 to 26 percent lower than comparable

public and private positions, even after a

5 percent pay increase.

Further, national research also shows that

high consultant use can affect the ability

to maintain employee core competencies,

because state employees may not get

enough experience with core functions

and must spend more time monitoring

consultant activities and contracts than

performing core functions. Adding to this

concern is a decline in experience levels

among ADOT's engineers. For example,

from 2000 to 2006, the average

experience level for ADOT engineers has

decreased by 2 years.

Need to evaluate

consultant use

In addition to continuing its efforts to fill its

vacancies, ITD needs to collect data to

evaluate consultant usage. Better

information can help ITD identify

consultant work that could be done by in-house

staff if sufficient in- house resources

were available, and to analyze whether

doing more in- house work could be cost-

ADOT should:

Fill existing vacancies;

Continue to develop strategies to recruit and retain employees;

.. TPDreearvcfoke rloampn dmc rmoitreoern iwait ofoorrkr c dionen- chsiuodluitnasgne t ww uhhseeanng teao. p upsroep croiantseu altnadn tsst; a ff are available; and

ADOT Should Improve Highway

Construction Inspections

More than 220 ADOT field inspectors do not comply with plans and

observe contractors' compliance with specifications. In addition to daily

construction speciftcations and inspections, ADOT conducts at least one

standards. These inspectors have the independent qualily assurance ( QA)

authority to reject work or materials that inspection of each project.

ADOT

inspec

' can ir

= tions

nprove 1 interpretatic

field inspec

projects:

of quality standards than do

) rs. As a result, based on two

ADOT can take several actions to

improve its field inspections. . Field inspectors determ' ' '

. standards 66 F - - - -'- ' QA inspectors

Inspections not fully recorded- Although specifications c,,,, ,,,, ,, ,, ,,,, ,,,, , ,.,, ,,

field inspectors conduct daily inspections,

lned work met

) ercenr of the time, and

found work met

> nl\?~ K n~ rrnnnt f tho timn

they do'not consistently record their Field inspectors kck ~! xneri~? nrs-observations

and whether work met An ADOT off ici:

specifications. They also do not record inspectors

whether problems were resolved. For experience to b

example, in one instance, an inspector proficient, and

rejected 10 feet of concrete pipe and the less experience

contractor later removed 6 feet of the assigned less- tc

pipe. However, there was no However, many

documentat~ one xplaining the problem, are relatively int AWGI IGI ILGU. nor why only part of the 10 feet of pipe

was removed. Quality assurance

Checklists not used- Inspectors are inspections lack followup

given checklists to ensure that contractors ~ l t hQ~ A i~ nrn~ nfitnhrrr --,, q n r \ l \ r

complete the most critical aspects of

construction properly. There are over 80 stricter standarc

checklists that cover various parts of change work in

construction, such as concrete curing, inspectors are c

grading, and concrete box culverts. can only recom

However, we reviewed 9 projects and personnel that t

found that 27 of 47 inspectors failed to fill changed.

out any checklists.

Further, ITD does not require followup

. .--. . -=- I---.-.-- .

iI stated that

j about 5 years'

ecome fully

nspectors with

are usually

xhnical work.

field inspectors

\ vnnr; nnnnA

~ ~ G L L3U II I lay apply

Is, they cannot reject or

progress as the field

2mpowered to do. They

mend to ADOT project

he work processes be

ADOT has taken steps to make it easier when QA inspections have significant

to use checklists. Online database findings. Of 1,970 QA inspections, 1,586

checklists are available on inspectors' ( 80 percent) identified one or more critical

laptop computers, and ITD has formed or major noncompliant items. Critical

teams to create new checklists. noncompliant items include some that

may potentially pose risks to human life,

Application of inspection standards while major noncompliant items can have

varies- Inspection results vary between an impact on the quality of a project.

field inspectors and QA inspectors. QA ADOT does not require follow up on these

inspectors appear to apply a stricter noncompliant items.

ADOT should:

. Ensure that field inspectors document inspection results and consistently

. cPoromvpidleet tera cinhiencgk tlios tisn; s pectors and ensure that field inspectors and QA inspectors

similarly apply standards; and . Require followup for major and critical noncompliant items found by QA

inspections.

STATE OF ARIZONA

DEBRA K. DAVENPORT, CPA OFFICE OF THE

AUDITOR GENERAL AUDITOR GENERAL

WILLIAM THOMSON

DEPUTY AUDITOR GENERAL

July 20, 2006

Members of the Arizona Legislature

The Honorable Janet Napolitano, Governor

Mr. Victor Mendez, Director

Arizona Department of Transportation ( ADOT)

Transmitted herewith is a report of the Auditor General, A Performance Audit of the Arizona

Department of Transportation, Aspects of Construction Management. This report is in

response to a May 24, 2005, resolution of the Joint Legislative Audit Committee. The

performance audit was conducted as part of the sunset review process prescribed in

Arizona Revised Statutes 541- 2951 et seq. I am also transmitting with this report a copy of

the Report Highlights for this audit to provide a quick summary for your convenience.

As outlined in its response, ADOT agrees with all of the findings and plans to implement all

of the recommendations.

My staff and I will be pleased to discuss or clarify items in the report.

This report will be released to the pubiic on July 21, 2006.

Sincerely,

Debbie Davenport

Auditor General

Enclosure

2910 NORTH 44TH STREET m SUITE 4 1 0 . PHOENIX, ARIZONA 85018 I ( 6 0 2 ) 5 5 3 - 0 3 3 3 . FAX ( 6 0 2 ) 553- 0051

SUMMARY - - .- ~ .- . . ... - -

The Office of the Auditor General has conducted a performance audit of the Arizona

Department of Transportation ( ADOT) pursuant to a May 24, 2005, resolution of the

Joint Legislative Audit Committee. This is the first in a series of three reports on ADOT

and was conducted as part of the sunset review process prescribed in Arizona

Revised Statutes ( A. R S.) 941- 2951 et seq. This audit focuses on the lntermodal

Transportation Division's ( ITD) use of consultants to design and manage construction

projects, the process for inspecting projects under construction, and the audits

- conducted by ADOT's Office of Audit and Analysis on consultant and construction

contracts. The other audit reports will focus on the highway maintenance program

and the 12 statutory sunset factors.

ADOT was established in 1974 to plan, develop, maintain, and operate Arizona's

highway transportation infrastructure to move people and goods by surface and air

throughout the State. ITD relies on private consultants to help design and contractors

to construct highway projects. In fiscal year 2005, ADOT paid consultants $ 110

million for transportation corridor- related studies, pre- design, design, and

construct~ on administration. In fiscal year 2005, ITD awarded 126 construction

contracts valued at $ 510 million. ITD field inspectors and independent quality

assurance ( QA) inspectors inspect construction work to verify quality construction

and compliance with specifications. ADOT internal auditors review consultant and

construction contracts to verify that payments are proper.

ADOT should optimize internal resources to reduce

consultant usage ( see pages 9 through 17)

The lntermodal Transportation Division ( ITD), which plans, designs, constructs,

maintains, and operates the State's highway transportation infrastructure for the

movement of people and goods throughout Arizona, should evaluate consultant

usage and complete project design, construction management, and other similar

functions in- house when appropriate to control costs and maintain employee core

competency levels. ITD has had to meet an increased workload, including an

accelerated urban freeway construction program that reduced 14 years of

construction to 7- l/ i years, while simultaneously dealing with reduced FTE counts,

vacancies, and an inability to fill many of its engineering and technical positions.

ADOT attributes these vacancies to employees retiring or leaving for higher salaries

offered by private consulting firms and local governments. For example, ITD

surveyed nine consulting firms that provide services to ITD and found that 45 percent

of these consultants' employees were former ADOT employees. Also, in November

2005, an ADOT salary comparison found that even after a recent 5 percent pay

increase, ADOT engineer salaries were 13 to 26 percent lower than comparable

private and public positions in the Phoenix area. The amount of work planned in

ADOT's 5- year construction program more than doubled in the past 10 years, but ITD

has been unable to fill nearly one- fourth of its engineering positions. As a result, ITD

has substantially increased its use of private consultants to supplement its staff in

providing project design, construction management, inspection, and other services.

ADOT's payments to consultants Increased 424 percent after adjusting for inflation,

with payments increasing from $ 1 7 million in fiscal year 1996 to $ 1 10 million in fiscal

year 2005. In June 2005, the Governor's Efficiency Review Team reported that ITD's

consultant spending and usage was more than all other state agencies combined.

ITD must use consultants because of its workload and the difficulty in hiring and

retaining experienced staff. However, filling vacant pos~ tionsa nd completing more

project design, construction management, and other similar funct~ onsin - house can

reduce reliance on consultants and maintain and develop internal core

competencies. One risk of high consultant usage as demonstrated in professional

literature is that consultants can cost more than internal staff for design work. Another

is that excessive consultant usage can reduce internal staff competence. ITD's

engineering employee experience levels have declined In recent years. ITD has

attempted to stem its turnover and vacancy rates by making counter- offers to some

employees who receive offers of higher- salary jobs and by higher utilization of an

Engineer in Training program to attract new hires. Additional actions needed include

establishing criteria to evaluate whether consultants are necessary and maintaining

adequate management information to evaluate consultant usage and identify where

project design, construction management, and other similar functions could be more

appropriately provided by lower- cost, in- house staff.

ITD should improve implementation and documentation

of inspection process ( see pages 19 through 25)

To ensure contractors meet construction standards for highway projects, ITD should

improve construction inspection quality. ADOT employs more than 220 field '

inspectors who visit construction sites daily as a means of ensuring construction

quality and compliance with specifications. As an additional quality control measure,

ITD independent QA inspectors inspect the same construction sites at least once

using the same inspection standards. However, auditors identified three problems

with the inspection and review processes:

Documentation of inspection results is incomplete- ITD inspectors do not

consistently document the results of their observations. For example, auditors'

review of 9 projects determined that 43 of 47 inspectors' diaries showed the type

of work observed, but not whether the work met specifications. Lack of

documentation may affect ADOT's ability to determine the progress and quality

of work and to identify problem areas and determine if sufficient action has been

taken to resolve identified problems. Additionally, 27 of 47 inspectors whose

records were reviewed did not fill out any of the required checklists, which are

based on standard specifications and important to ensure the product meets

quality requirements of workmanship and testing. To comply wlth ADOT policy

and help ensure the quality of work inspected, ADOT should ensure that field

inspectors complete and submit checklists as part of their daily diaries, and that

diaries document work quality, problems found, and problem resolutions.

Inspection standards are not consistently appliecCWhen ITD's independent QA

inspectors conduct periodic reviews, they appear to apply a stricter

interpretation of the standards than field inspectors do during their daily vislts.

Auditors' analysis of two construction projects where both field inspectors and

independent QA inspectors conducted inspections during July 1, 2005 through

December 19, 2005, found that field inspectors determined work met

specificat~ ons6 6 percent of the time, while independent QA lnspectors found

work met specifications only 35 percent of the time. ITD should ensure that

checklist results are consistent among field lnspectors and independent QA

inspectors by identifying reasons for differences and providing training and/ or

developing guidelines to help inspectors interpret the checklist items in a similar

manner.

Followup on important deficiencies is lacking-- Although field inspectors'

findings may be resolved at once, making followup unnecessary, ITD has not

developed any follow- up procedures for deficiencies identified by the

independent QA inspectors even when they identify critical or major

noncompliance that in some cases may potentially put human life at risk, or

have a substantial impact on operability, durability, cost, or the environment.

Auditors' analysis of 1,970 reviews revealed that 80 percent identified one or

more of these types of noncompliance. For example, one independent QA

inspection found noncompliance with rebar spacing and size that, if not

corrected, could result in a shorter lifespan or failure of the roadway structure.

ADOT could better use the results of independent QA inspections by requiring

a followup for critical and major deficiencies.

ADOT needs to improve its audits of design and

construction contracts ( see pages 27 through 34)

ADOT has not adequately planned and managed the audits of its highway design

and construction contracts. The Office of Audit and Analysis ( Office) is required to

conduct audits covering the full range of consulting and construction contracting

practices. The Office conducts several types of audits to ensure that contractors set

rates appropriately, comply with contract requirements, and do not overcharge.

However, office productivity has diminished in recent years. The Office does not

conduct the number of audits required by its own policies and, according to internal

reports, had backlogs of each audit type. Even those contracts with the largest dollar

amounts, as much as $ 221 million, had Insufficient audits.

Several factors have contributed to the low productivity, including ongoing, long- term

vacancies and inadequate workload planning and management. In December 2005,

the Office's unit responsible for consultant and construction audits had vacancies in

7 of 16 positions, 4 of which had been unfilled for over 3- l/ 2 years. In addition, the

Office has not complied with its policy to develop an annual audit plan or select

construction progress audits based on a department- wide audit risk assessment.

These problems continue to exist, but they show signs of being addressed under a

new chief auditor hired in January 2006. The chief auditor has announced plans for

filling vacancies, reinstifuting performance measures, revising the audit manual,

prioritizing audit projects using a risk- based approach, and obtaining an automated

audit management system. In addition to these efforts, the Office should measure

the number and types of audit requests it receives and audits it conducts, the

timeliness of its audits, and its audit results

I TABLE OF CONTENTS

Introduction & Background

Finding 1 : ADOT should optimize internal resources to

reduce consultant usage

ITD relies on consultants to deliver transportation program

Workload and vacancies increase consultant use

Consultant use may have unintended consequences

ITD should take further actions

Recommendations

Finding 2: ITD should improve implementation and

documentation of inspection process

ITD monitors contractor activities

ITD can improve field inspections

Independent quality assurance inspections lack followup

Recommendations

Finding 3: ADOT needs to improve audits of design

and construction contracts

Audits required during all construction phases

Office fails to complete audits or completes them late

Several factors contribute to low productivity

Department has begun to address problems

Recommendations

continued

$ 0Acco(, ; - TABLE -- OF CONTENTS

% t

D, vv@ 6

I

continued

Endnotes:

Tables:

1 ADOT's Project Development Process

2 lntermodal Transportation Division

Schedule of Appropriations and Expenditures, in Thousands

Fiscal Years 2004 through 2006

( Unaudited)

3 Average Years' Experience for Selected ITD Engineer Positions

as of December 31 , 2000 through February 6, 2006

4 Status of Required Audits

Ten Largest Completed Projects

Fiscal Year 2005

5 Status of External Audit Unit Positions

As of December 31, 2005

Figures:

1 ITD Engineering Districts

As of April 2006

2 Payments to Consultants

Fiscal Years 1996 through 2005

3 Payments to Construction Contractors

Fiscal Years 1995 through 2005

( Unaudited)

4 Comparison of Responses on Checklists

July 1 through December 19, 2005

I TABLE OF CONTENTS

- -- -- - - - - . -- - -- --

Photos:

1 View of U. S. 60 from SR 202 overpass under construction

2 Paving the San Tan Freeway

3 Pouring a retaining wall footing

concluded

INTRODUCTION

& BACKGROUND

The Office of the Auditor General has conducted a performance audit of the Arizona

Department of Transportation ( ADOT) pursuant to a May 24, 2005, resolution of the

Joint Legislative Audit Committee. This is the first in a series of three reports on ADOT

and was conducted as part of the sunset review process prescribed in Arizona

Revised Statutes ( A. R. S.) 541- 2951 et seq. This audit focuses on the use of

consultants to design and manage construction projects, the process for inspecting

projects under construction, and the audits conducted on consultant and

construction contracts. The other audit reports will focus on the highway

maintenance program and the 12 statutory sunset factors.

I

ADOT responsible for the State's transportation Photo , : View of U. S. from SR 202

itlfra~ fru~ ture-~ DOwTas established in 1974 and is over~ assu nder construction

statutorily charged under A. R. S Title 28 with planning, I I

developing, designing, constructing, maintaining, and

operating the State's highway transportation

infrastructure for the movement of people and goods by

surface and air throughout Arizona. The lntermodal

Transportation Division ( ITD) is primarily responsible for

designing, constructing, and maintaining the state

highway system that includes operating interstate

highways and state highway routes. ITD has highway

management activities throughout the highway life cycle,

from conceptual design and scoping to roadway

maintenance. ( Photo: Courtesy of the Arizona Deparnn of Transportation

New highways and existing highway improvement

projects are based upon an annually updated 5- year Transportation Facilities

Construction Program approved by the seven- member State Transportation

Board. As shown in Table 1 ( see page 2), highway construction projects go

through a Project Development Process, which includes all the engineering,

construction, and administrative functions required to advance a project from

conception, through design and construction, and into the operation and

maintenance of the highway. The scoping phase includes studies and analysis to

determine where and when highways should be built or improved and what

features should be included. The design phase includes project design,

/

environmental studies, and right- of- way acquisition. The bidding phase includes

preparing and advertising the project for bidding. After contract award, the

construction phase involves oversight of contractor work, inspecting work

progress and quality, and resolving any construction problems. Finally, when

construction projects are completed, additional work occurs during the operation

and maintenance phase. In addition, ITD district maintenance crews are also

responsible for the day- to- day maintenance of the districts' highways.

Table 1 : ADOTs Project Development Process I

Phase Description of Activity

& oping Corridor studies help define individual projects to meet

transportatiin needs. Addinal studies help determine project

alignment, engineering, and environmental issues that must be

addressed; estimated costs for project development; and time

estimates necessary for project completion. Prioritized projects are

included in the Syear program for approval by the State

Transportation Board.

Design

Bidding

Approved projects in the 5- year program advance to design and

preconstruction activities where a number of design, environmental,

utility, and right- of- way activhes take place.

Once design is completed, the project is prepared for bidding and

awarded to a contractor to complete construction.

Construction After the contract is awarded, the contractor is responsible for

constructing the project in accordance with speclitions and

contract provisions. ADOT and its consultants administer

construction contracts and conduct inspections of contractor work.

Design consultant contracts continue during the construction phase

to address any design issues.

Operation and Once completed, ADOT provides maintenance to new or improved

Maintenance highway facilities to ensure continued utility and useful life.

Source: Auditor General staff analysis of the ADOT P~$ ectD eve@ rnent P mMa nual,

February 2004.

1 ITD contracts for project planning, design, and

1 construction P/

i ITD uses the services of private consultants and contractors. ADOT uses

. independent contractors to construct roadway projects, while consultants have been increasingly used to provide services traditionally provided by in- house employees.

Consultants provide services such as project design, construction management, and

various engineering services during the scoping, design, and construction phases of

project development, while contractors perform construction. A national survey

reported in 2003 that virtually all state departments of transportation use contracts

with private consultants and contractors to complete some functions of highway

programs. ADOT's Office of Audit and Analysis ( Office) is responsible for auditing

many of these contracts to ensure appropriate payment, in addition to completing

other internal functions.

In fiscal year 2005, ITD awarded 126 contracts for construction projects at a value of

$ 510 million to contractors for building roadway projects. According to an ADOT

official, these contracts do not include monies paid to consultants who provide

design, inspection, and construction management services. Many of these

construction projects take several years to construct. For example, a construction

contract for a portion of the Loop 202 freeway in Maricopa County was awarded in

April 2002 and the project was completed in August 2004.

Organization and staffing 1 -

Figure 1 : ITD Engineering Districts

Both ITD and the Office in ADOT1s Transportation 1

Services Group have responsibilities related to

consulting and construction contracts. ITD

administers construction projects through district

offices, as shown in Figure 1. Uniquely, Phoenix,

because of its size, has two districts, one for

construction and one for maintenance, while the

other districts combine both functions into one

physical location for a total of ten districts. Each

district office is headed by a district engineer and

staffed with other employees assigned to

organizational units and sub- units called " orgs."

As of February 2006, ITD had 2,218 FTE, of which

31 6 were vacant ( 1 4 percent), as follows1 :

ITD- State Engineer's Office ( 23 FTE, 8

vacant)- The State Engineer's Office is

responsible for the administration of ITD and

provides overall division support in the areas

of management, budget, personnel, and

As of April 2006

', training.

Source ADOT Web site graphic of construct~ ona nd maintenance districts

ITD- Development ( 529 FIE, 84 vacant)-- ITD-Development

is responsible for project I - 7 development and design. For example, once the State Transportation Board .

approves a highway project, ITD- Development coordinates pre- construction

engineering functions including roadway and bridge design, compliance with

environmental laws, and the design of traffic control plans. It also acquires right-of-

way needed for highway construction. According to ADOT officials, ITD-Development

designs some projects when sufficient staff is available, but

employs consultants for design work in order to meet increasing workload

demands. After design, ITD- Development is responsible for preparing

construction projects for bidding by construction contractors and overseeing the

bidding process. ITD- Development is organized into seven groups:

Environmental & Enhancement Group, Statewide Project Management Group,

Right- of- way Group, Engineering Technical Group, Roadway Engineering

Group, Traffic Engineering Group, and the Bridge Group.

ITD- Operations ( 1,234 FTE, 128 vacant)- ITD- Operations oversees roadway

construction, maintenance, testing and evaluation of materials, pavement

design strategies for new and old pavements, and emergency maintenance

response. It includes the Construction, Ma~ ntenanceT, r ansportation Technology

and Materials groups, and eight of the ten state- wide districts. Districts are

responsible for highway operations, construction, and maintenance in their

respective geographical areas. ITD- Operations also include some of the field

inspectors who inspect daily construction work and the Construction Operations

section that conducts independent reviews of construction projects.

ITD- Valley Transportation ( 421 FIE, 93 vacant)- The Valley Transportat~ on

Program provides and coordinates pre- construction, construction, and

maintenance functions for the urban highway systems in Maricopa County. The

Valley Transportation Program contains the Phoenix Construction District, the

Phoenix Maintenance District, the Regional Freeway System Office, and the

Valley Project Management Group.

Transportation Services Groupoffice of Audit and Analysis Edema1 Audit Unit

( 16 RE, 7 vacant as of December 31,2005)- The Office of Audit and Analysis,

an internal auditing office, conducts audits of consultant and construction

contracts to aid in managing and overseeing both design and construction

contracts, and conducts administratwe audits of ADOT's highway construction -

organizations. The Office also has other audit duties related to information

technology, revenue, and third- party collections.

ITD spends most ADOT monies earmarked for its highway program. Table 2 ( see

page 5) shows ITD operating budget information for fiscal years 2004 through 2006.

As shown by Table 2, ITD's expenditures totaled approximately $ 220.7 million in fiscal

. !

year 2005, and estimated expenditures for fiscal year 2006 are $ 231.3 million. Table

2 contains the operating expenses of ITD and does not include highway construction

costs. About 48 percent of ITD's annual operating budget is spent on salaries and

benefits, while another 43 percent is spent on other operating costs, including

utilities, landscaping, cable barrier and guardrail repair, and rest area maintenance.

In addition to its operating budget, ITD expends state monies and federal grant funds

for highway construction and improvement projects that are approved by the State

-.

Table 2: Intermodal Transportation Division

Schedule of Appropriations and Expenditures, in Thousands'

Fiscal Years 2004 through 2006

( Unaudited)

2004 2005 2006

( Actual) ( Actual) ( Estimated)

Appropriations:

State Highway Fund 2 $ 1 90,269.0 $ 220,185.4 $ 230,730.1

Safety Enforcement and Transportation Infrastructure Fund 3 558.7 558.7 558.7

Total revenues 190,827.7 220.744.1 231.288.8

Expenditures:

Personal services and related benefits

Professional and outside services

Travel

Other operating 5

Equipment

Total expenditures

Excess of appropriations over expenditures $ 256.8 $ 19.8 $ - 0-

This table includes only department appropriations and expenditures relatlng to the lntermodal Transportation Division's

operating budget and IS presented on a budgetary basis, in which expenditures are reported in the budget year incurred.

Consists of the Division's portion of the Department's appropriation from State Highway Fund monies used to pay for ~ ts

operations. The State Highway Fund receives monies from the Highway User Revenue Fund, and fuel and motor carrier taxes.

3 Cons~ stso f the Dms~ on'sp ortlon of the Department's approprlatlon from Safety Enforcement and Transportat~ onIn frastructure

Fund monles used to pay for ~ tsop erations Thls Fund recelves monles prlmanly from motor veh~ clel~ censesa nd reg~ strat~ on

fees

Consists of payments made to external parties for sewices provided to the Division, such as temporary sewlces; prellmlnary

engineering costs; and various consultants. For example, the Division contracts for pre- design and design, bridge inspection,

environmental, and asbestos abatement work.

5 Consists of various costs for division operations, including utilities; landscaping; cable barrier and guardrail repair; rest area

maintenance; traffic control; equipment, building, and land rental; general repair and maintenance; and materials. In addition,

the 2005 amount costs increased significantly primarily because the Department began paying the risk management premium

of $ 16.1 million, effective July 1,2005, from division monies since the Division actually incurred the associated risk.

Source: Auditor General staff analysis of financial information provided by the Arizona Department of Transportation for fiscal years

2004 through 2006.

Transportation Board. According to ADOT, a total of approximately $ 834 million was

expended in fiscal year 2005 on highway projects.

Scope and methodology

This audit focused on ITD's use of consultants, construction inspection practices,

and ADOT's audits of consultants and construction projects. This audit includes

three findings and associated recommendations as follows:

ITD should optimize its internal resources to reduce consultant usage when

appropriate during completion of project design, construction management,

and other similar functions to control costs and maintain employee core

competency levels. This will require establishing division- wide criteria for

deciding when to use consultants, maintaining better consultant usage

information, and implementing strategies to recruit and retain employees.

ITD should improve the consistency and documentation of daily field

inspections and follow up on deficiencies found by independent quality

assurance ( QA) inspections.

The Office of Audit and Analysis should continue to take several steps to

increase productivity, improve audit management, and provide an effective

program for auditing consultant and construction contracts.

Auditors used a variety of methods to review and study the issues addressed in this

audit. Audit methods included interviews with management and staff at ADOT, ITD,

the Audit and Analysis group, the Federal Highway Administration, and private

consulting firms; a review of agency- prepared documents, such as the salary

comparison for engineers; and a review of various policies and procedures regarding

project inspection and ADOT contract- auditing requirements. Auditors analyzed data

provided by ITD to determine the number of filled employee positions and to

compare and evaluate employee vacancies, under- filled positions, and employee

experience levels for the period of December 31, 2000 through February 6, 2006.

I Auditors also used the following methods to perform more specific audit steps:

To evaluate ADOT's use of consultants, auditors summarized annual payments #-

ADOT made to private consulting firms between fiscal years 1995 and 2005.

This data was obtained from ITD's Contract Management System ( CMS).

Auditors verified the accuracy and completeness of CMS data by comparing it

to 41 payment requests submitted by private consulting firms. To evaluate

trends in ITD workload changes and its impact on staffing issues, auditors

compared 5- year Transportation Facilities Construction Programs from 1987 to

2006, and analyzed data provided from ITD on annual payments made to

contractors from fiscal years 1995 to 2005. To determine the impacts of using

large amounts of consultant services instead of conducting work by in- house

staff, auditors reviewed ten state and national reports that addressed core

competency and consultant cost comparisons at several state transportation

agencies. ( See Endnotes on pages a- iii through a- v.)

To examine the inspection process, auditors observed the activities of four field

inspectors and two independent QA inspectors. In addition, to determine if field

inspectors and independent QA inspectors were adequately documenting their

quality control activities over construction projects, auditors examined

Certification Acceptance Procedure agreements between ADOT and the

Federal Highway Administration ( FHWA); the ITD Construction Manual

containing inspection procedures; FH WA's Construction Program Management

and Inspection Guide; and ADOT's Standard Specifications for Road and Bridge

Construction. To examine the documentation of inspections, auditors compared

electronic and paper construction inspection checklists completed by both field

inspectors and QA inspectors. Additionally, auditors assessed the level of

inspection documentation contained in 47 field inspectors daily diaries for 9

projects.

To evaluate consultant and construction auditing activities and determine the

number of audits backlogged, auditors first analyzed records maintained on the

ADOT Help Desk Expert Automation Tool ( HEAT) Audit database for aud~ tsth at

were shown as being open between July 1,2003 and December 31,2005. HEAT

is primarily used as the incident and service request track~ ng tool of ADOT's

Information Tracking Group ( ITG) and was modified to track audits for the Office

of Audit and Analysis ( Office). Auditors examined 94 audit files to determine the

database's reliability and found that the data was not sufficiently reliable to

determine audit backlogs. Therefore, to determine audit backlogs, auditors.

Reviewed pre- award audit data from the Office's HEAT Audit database,

which was revised and expanded by individual office auditors. The Office

provided three different reports of the pre- award backlog between

February 9,2006 and May 31,2006. However, auditors could not validate

the accuracy of the source data, and could only estimate the backlog

based on the Office's assertions.

Matched a list of pending incurred cost audits provided by the Office,

which was extrapolated from HEAT Audit data, with a list of incurred cost

audits provided by ITD's Engineering Consultants Section from its

Contract Management System database to determine the minimum

backlog. The Office was unable to produce reliable data that would allow

auditors to determine the actual incurred cost audit backlog.

Compared office spreadsheets of construction cost audits completed to

the Office's audit files for each project and audits scheduled with data

from the Construction Operations database. The data was sufficiently

reliable to determine the number of completed audits, the minimum

number of projects that should have been audited, and the minimum

backlog.

Compared office spreadsheets of administrative compliance audits

completed and in progress to office audit files for each of ADOT's 26

construction field offices. The data was sufficiently reliable to determine

which audits were completed and to extrapolate the administrative

compliance audit backlog.

Auditors also reviewed the Construction Operations database to identify the ten

largest dollar value construction projects completed in fiscal year 2005 and

reviewed associated audit and contract files to determine whether the Office had

completed audits in accordance with its policies and procedures. In addition,

auditors examined internal reports and associated audit files to determine the

number of construction cost and administrative audits requested but not yet

completed. To determine how the Office of Audit and Analysis should ensure

appropriate audit coverage of design and construction contracts, auditors

reviewed the Office's Audit and Analysis Audit Manual, a Memorandum of

Understanding between ADOT and FHWA, an article on governmental contract

auditing from the Journal of Government Financial Management,* and an article

on construction auditing from The Internal Auditor. 3

a To complete the Introduction and Background section of the report, auditors

compiled unaudited information from ADOT's Web site and other agency-prepared

documents and interviews with the agency.

The audit was conducted in accordance with government auditing standards

The Auditor General and staff express appreciation to the director of the Arizona

Department of Transportation, the state engineer, and their staff for their cooperation

and assistance throughout the audit.

FINDING 1

ADOT should optimize internal resources to

reduce consultant usage

The Intermodal Transportation Division ( ITD) should optimize its internal resources to

reduce consultant usage when appropriate during completion of project design,

construction management, and other similar functions to control costs and maintain

employee core competency levels. ITD relies heavily on consultants for project

design and management, largely because consultants provide additional expertise

and enable ITD to complete projects in a timely manner when 1TD's internal

resources are insufficient to complete the construction program. ITD also uses

consultants where staff positions are vacant. However, relying on consultants can be

costly, and too much usage can erode staff competency. ITD has a number of

initiatives under way to address staffing issues, but reports that recruitment and

retention are difficult because current salary levels are below market. ITD should

continue its efforts and pursue additional ways to identify and maintain the proper

level of consultant usage.

ITD relies on consultants to deliver

transportat ion program

ITD hires private consultants to provide project design,

construction management, and various engineering and other

services. These consultants are separate from the contractors who

complete actual construction of projects. See text box at right for

examples of services consultants provide. As of January 2006, ITD

had 430 contracts with 121 private consulting firms at a total value

of $ 559 million. Consultant contracts are for multiple years, and

payments are made as work is completed.

The practice of using consultants is common among

transportation agencies in other states, as well. According to a

The Governor's

Efflc~ encyR evlew Team

reported that ADOT

spent more on

consultants than all

other state agencles

comb~ ned

2003 national survey report, most state transportation agencies use consultants for

some of the design and management of highway projects. 4 The report found

agencies were increasingly using consultants to deliver services driven by growth in

highway programs coupled with the same number of or fewer people in their

workforces. The major factors influencing states' decisions to contract out were staff

constraints, specialty skills, and equipment. A 2003 review of literature of other state

transportation agencies prepared for the Georgia Department of Transportation

found that of the respondents, 79 percent used consultants for design, 53 percent

for construction management, and 50 percent for right- of- way work. 5

ADOT's use of consultants is by far the largest of any state agency. The Governor's

Efficiency Review Team ( Team) reported in June 2005 that ADOT spent more on

consultant contracts and used more consulting servlces than all other state agencies

combined. 6 The Team attributed this rellance in part to state salaries too low to attract

qualified professionals from the private sector. ADOT's use of consultants for one

type of work- project des~ gn- also appears to be one of the highest among states

Specifically, during an on- site interview in 2000 with members of the Federal Lands

Highway Bench Marking Study Team of the Federal Highway Administration, ADOT

reported using consultants for 80 to 90 percent of its project deslgn work.' Of the 11

other states that were sent a questionnaire in preparation for an on- site interview, the

10 that responded to the question reported consultant use for preconstruction

Figure 2: Payments to Consultants

Fiscal Years 1996 through 2005

$ 0

I

1996 1997 1998 1999 2000 2001 2W2 2003 20W 2005

Fiscal Year

I - Payments to Consultants

I Source Aud~ torG eneral staff analysls of actual payments made to consulting flrms

for flscal years 1996 through 2005 obta~ nedfr om ITD's Engineer~ ngC onsultant Sect~ on.

engineering ranging from a low of 3 to

6 percent to a high of 80 percent. In

the same year, the Federal Highway

Administration also conducted an e-mail

survey of 32 states and Puerto

Rico, where the average consultant

use for the design phase was closer

to 60 percent for those responding

with a percentage. The range

extended from a low of 15 percent in - Wyoming to 95 percent in New

Jersey.

In addition to hiring consultants for

specific projects, ITD also hires

" supplemental consultants" to

perform duties of ITD vacant

positions. As of January 2006, ITD

had 72 contracts for supplemental

consultants at a value of $ 78 million.

Consultant use has increased- ITD'S dependence on consultants has

substantially increased over the past 10 years. Although ITD paid consultants $ 1 7

million in fiscal year 1996, in fiscal year 2005 the consultant payments totaled $ 1 10

million. This is a 424 percent increase since 1996 after adjusting for inflation using

the Consumer Price Index. As shown by Figure 2, payments to consultants have

remained above $ 1 10 million for the past 4 fiscal years and were as high as $ 1 19

million for fiscal year 2004. ITD was unable to quantify the percentage of its total

workload completed by consultants. However, ITD reported that it used

consultants for approximately 28 percent of construction administration and 90

percent of design work.

Workload and vacancies increase consultant use

ITD has increased its use of consultants over the past 10 years to keep up with an

expanding workload and high staff vacancies. The State's demand for highway

construction, including the Regional Freeway System in Maricopa County, has

significantly increased ITD's workload. At the same time, ITD has experienced

vacancies close to or exceeding one- fourth of its engineer positions.

Workload has increased-

Between fiscal years 1995 and

1998, ITD paid contractors an

average of $ 331 million annually

for the construction of highway

projects. This amount increased

76 percent to an average of

$ 581 million between fiscal

years 1999 and 2005. Figure 3

illustrates payments to

contractors for fiscal years 1995

through 2005. In addition, the

amount of work planned in

ADOT's 5- year construction

programs more than doubled in

the past 10 years, from $ 1.9

billion to $ 5.1 billion. 8 According

to ADOT, an acceleration of

regional freeway construction in

response to population growth

has contributed to the increased

activity. For example, the 2006

through 201 0, 5- year program

allocates $ 2.8 billion, or 55

percent, of total funding to the

Maricopa Regional Freeway

System. ADOT reported that

since 2000, ITD has been on

Figure 3: Payments To Construction Contractors

Fical Year 1995 through 2005

( Unaudited)

I Fiscal Year I

- t Payments To Consbudion Contractors

Source: Auditor General staff analysis of agency documents on construction

contractor payments for fiscal years 1995 through 2005.

track to deliver 14 years of urban freeway construction in 7- l/ 2 years.

Further, the workload increase has been accompanied by an increase in project

complexity. According to ADOT officials, increased project complexity contributes

to ITD's use of consultants. They stated that ADOT builds projects differently now

than it did 10 years ago. Specifically, they noted that environmental assessments,

interaction with other state agencies, utility conflicts, plant salvage, noise barriers,

and wildlife fencing requirements all increase the complexity of highway

construction. For example, ADOT reported that environmental impact studies may

take 5 to 7 years, much longer than they took 10 years ago.

Staff vacancies are high- staff vacancies and reduced FTEs have forced ADOT

to increase its use of consultants. According to ITD records, vacancies among ITD

AS of February 2006, engineers have not dropped below 23 percent in 5 years. As of February 2006, 79

27 6 percent of ITD's

englneerlng posltlons of 286, or 27.6 percent, of engineering positions were vacant. Vacancies are

were vacant particularly acute for resident engineers who provide oversight of the construction

projects. Forty- six percent of resident engineer and senior resident

engineer positions were vacant as of February 6, 2006, and ITD hires

consultants to serve as resident engineers ( see text box). In January

2006, ITD's Operations Divislon also had 135 supplemental services

consultants in other technical positions, such as field inspectors

Accord~ ngto ADOT, the supplemental services consultants functlon as

ITD staff and are physically located in ADOT facilities. In addition to

staff vacancies, the number of ITD- authorized employee positions was

10.9 percent lower in flscal year 2006 than in fiscal year 1995.

ADOT attributes its high engineer vacancies to employees retiring or

leaving for hlgher salarles offered by private consulting firms and local

governments. In 2005, ITD surveyed nine consulting firms that provide

services to ITD and found that altogether, 45 percent of the

consultants' employees were former ADOT employees ( see text box)

Based on exlt surveys and interviews of employees departing ADOT rn

fiscal year 2005, ADOT reported that 18.6 percent cited retirement, and

14.9 percent reported receiving a better job or salary as reason for

leaving Also, in November 2005, ADOT completed a salary

comparison of ITD's engineer positions and found that salaries were

13 to 26 percent lower than comparable private and public positions

in the Phoenix area. This comparison was

completed after a 5 percent pay Increase had

taken effect

Consultant use may have

unintended consequences

Although ITD needs to use consultants to

complete its growing workload and to meet a

project schedule, research shows that using

Higher cost may be one outcome- Most studies that focus on use of

consultants in state departments of transportation agree that consultants increase

the cost of services, according to a 1999 report. 9 The report reviewed 17 studies

since 1977, including reports conducted by state departments of transportation,

other public bodies, universities, and private firms. Thirteen studies found

consultants were generally more expensive, while three found no difference in

cost, and one found that consultants were less expensive. Overall, literature

reviewed for this audit suggests that although consultants give departments more

flexibility to handle their workloads while managing staff size, they do not provide

cost savings and in fact may be more expensive than performing work in- house,

in part because of the added cost of administering consultant contracts. However,

studies differ in their estimates of the cost differential. 10 Further, legislative audits in

other states have raised questions about the accuracy of data used to perform

cost comparisons. 1 1

consultants may be more costly than using highway department staff and can pose

risks to the department's level of core competency.

Loss of core competency another potential outcome--~ onsu~ tantu se

may also pose a risk to the core competency needed to manage projects.

According to state and national reports, use of consultants by state transportation

agencies may have other effects besides increasing project costs. Some state

transportation agencies recommend limiting the amount of work outsourced in

order to retain in- house expertise and the ability to review consultants' work,

according to a national survey published in 2000. l2 Another report states that

maintaining technical expertise within the agency may become

more difficult as the percentage of projects contracted out

increases and that it is important to keep interesting and

challenging projects in- house to maintain some level of

expertise. 13 A 2003 report for the Georgia Department of

Transportation states that state departments of transportation are

now relying on consultant services for functions that have

traditionally been performed in- house, requiring managers to

learn new sets of skills. 14 According to ADOT officials, the Arizona

_ Chapter of the Associated General Contractors lobbied for a pay

plan to increase ADOT salaries in July 2005 to reduce turnover of A

contractors were concerned with a lack of experience, competency, and slower

decision- making by consultant resident engineers and inspectors.

Consultants are usually

more expensive than

~ n- houses taff

In addition to these outcomes, the 2003 report for the Georgia Department of

Transportation stated that the use of consultants may also result in the loss of

accountability, less control of the quality and timing of projects, and less capacity

to serve a traditional role of hiring and training entry- level engineers. 15

Although it was impossible to measure staff competency as part of auditors'

review, the length of time employed is generally one indicator of competence. ITD

ITD experience levels

are decltn~ ng

i Table 3: Average Years' Experience for Selected ITD Engineer Positions

As of December 31,2000 and February 6,2006

Position

Number of Averaae vears of experience

filled December 31, February 6, 5- yr

positions 2000 2006 change

Engineer l 95 11.23 8.50 ( 2.73)

Engineer II 67 13.78 13.36 ( 0.42)

District Engineer 10 25.01 15.25 ( 9.76)

Average of all 207

engineering positions - 14.31 12.24 ( 2.07)

Source: Auditor General staff analysis of ADOT's Human Resource Management System and Human

Resource Information System data for ITD engineer positions as of December 31, 2000 and

February 6,2006. I

experience levels are declining. Although ITD's 207 engineers had an average of

more than 12 years of experience at ADOT as of February 2006, this represents a

decline of 2.07 years since December 2000 ( see Table 3). The average years of

experience among Englneer I employees, who represent the bulk of ITD engineer

positions, decreased from more than 11 years to about 8- lh years. According to

an ITD official, an Engineer I employee must be a registered engineer who has an

engineering degree, a passing score on a written engineering registration test, and

4 years of work under a registered engineer. As of February 2006, 50 percent of

the engineer positions have fewer than 10 years' experience. Auditors could not

verify or measure construction project inspectors' experience levels because

inspectors share employee classes with other employee groups, and separate

data on inspectors was unavailable

ITD should take further actions

Although ITD has developed strategies to reduce vacancies and increase retention,

research and additional information shows that ITD should continue to develop

strategies to address staffing issues, develop criteria for deciding when to use a

consultant, and monitor the use of consultants.

ITD working to address vacancies- ITD has taken steps to increase retention

and improve its ability to attract qualified personnel:

In some cases, ITD has made counter- offers when engineers were offered

higher- paid positions in the private sector. For example, in August 2005, an

ITD engineer was offered a private consulting position with a $ 24,000 annual

salary increase. ITD counter- offered with a salary increase over $ 7,000 and the

engineer accepted ITD's offer. In eight of ten cases where ITD made counter-

offers, the employees elected to remain employed at ITD. However, according

to ADOT, many employees are not receptive to receiving a counter- offer once

an external offer has been made, or the difference between the two salaries is

too high for ADOT to bridge.

ITD has hired more people into its 18- 24- month Engineer in Training ( EIT)

program to allow individuals to experience all areas of ITD.

a In July 2005, ITD's engineers and other technical positions received a 5

percent pay increase.

Even with recent pay plan increases, ADOT salary surveys show salaries below

market. The success of ITD's counter- offers indicates that higher salaries may help

stem turnover rates in engineering positions. ITD should continue to develop

strategies to recruit and retain employees by filling existing vacant employee

positions with competent staff.

Other states' efforts to recruit and retain- A national report and a report on

the Minnesota Department of Transportation identified that the development of

core competencies was a concern among many state transportation agencies and

offered examples of methods used to increase recruitment and retention of quality

employees. 16 These include:

The Wyoming Department of Transportation developed a mentoring program

where a senior administrator mentors two employees. Wyoming also uses a

training program to prepare employees for future positions.

The Minnesota Department of Transportation developed a succession

planning model that identifies the core competencies needed for essential

executive- level positions and reviews potential internal candidates with a 360-

degree assessment to identify the person's work experience and potential to

fill a position.

The Louisiana Department of Transportation and Development ( DOTD) works

with universities in a cooperative program that allows college students to

complete a 30- week rotation through 17 different functions in DOTD. This

program is similar to ADOT's EIT program.

Although ADOT reports that its EIT program has helped to attract talented

employees, ADOT may also want to consider mentoring, succession, and other

programs to help reduce the impact of employee turnover and retirements.

According to ADOT, it is exploring and piloting a talent management program.

ITD should establish criteria and monitor consultant usage- ITD does

not have formal division- wide criteria for when and how to use the various types of

consultants. According to an ADOT official, each group manager or the district

management team makes the decision to hire consultants based on whether they .

believe in- house staff has the expertise and time to complete the work.

However, reasons for using consultants, such as lack of staff or time

constraints, are not documented. State and national reports found that using

criteria to decide when work must be done by outside consultants is

important. 17 In some cases, such as cyclical workload and projects requiring

one- time or infrequently used expertise or equipment, consultant usage is

usually warranted. However, in other situations, consultants may be used to

provide ongoing, recurrent work that could be provided more cheaply by in-house

staff. Louisiana's Department of Transportation has developed a

computerized model to systematically evaluate both qualitative and cost

aspects of contracting 0ut. 18

ITD should establish division- wide criteria for deciding when to use a

consultant to complete projects and tasks. Possible criteria should include:

needed skill can't be utilized on a full- time basis; consultants have equipment

or other assets for work that is not cost- effective to purchase; and consultants

can provide needed higher- quality services or services at a lower cost, or

workload is temporary, short- term, or seasonal. Having criteria to determine

when consultants should be used instead of in- house staff will allow

managers to document consultant workload that could be redirected to

internal staff. For example, the Governor's Efficiency Review Team reviewed

individual consultant contracts, and ADOT officials reported that $ 80 million in

contracts were for work that regular employees could provide if ITD had

sufficient authorized and filled positions. ITD should identify ongoing,

recurrent work related to project design, construction management, and other

functions currently provided by consultants and perform these services in-house

when appropriate. ADOT currently prepares a weekly manpower roll-up

report to identify projected manpower needs on current projects

throughout the State. Further development of such tools could help ITD to

identify where internal staffing could provide work now done by consultants.

In addition to lacking formal criteria for the appropriate use of consultants, ITD

does not keep adequate data on consultant usage to identify where internal

staff resources can reduce consultant usage. ITD's administrative office and

most groups within ITD's development section do not keep records of the

number or type of projects that consultants complete and reasons justifying

consultant contracts. Specifically, bridge construction groups document the

number and percentage of projects completed by consultants in annual

strategic plans, but other groups, including ITD administration, do not keep

similar records. ITD should develop a method of tracking and monitoring

consultant usage, such as compiling data on the dollar amount, quantity, and

type of projects completed by consultants, and also which consultant services

did not meet established criteria, but were obtained because of inadequate

staffing. Such information can be used to quantify and evaluate reasons for

using consultants, and to identify strategies, such as identifying consultant

services that could be more cost- effectively provided by in- house employees.

Such information could also be used to demonstrate how higher salaries

combined with more in- house work and less consultant usage could reduce

total costs while also improving core competency.

Recommendations:

1. To better ensure that it develops competency internally and reduces costs, ITD

, should aggressively seek to:

a. Fill existing vacant employee positions with competent staff;

b. Identify ongoing, recurrent work related to project design, construction

management, and other similar functions currently provided by consultants

and perform these services in- house when appropriate; and

c. Continue to develop strategies to recruit and retain staff, and consider

mentoring, succession, and other programs to help reduce the impact of

employee turnover and retirements.

2. To better ensure that it identifies and maintains the proper level of consultant

usage, ITD should:

a. Develop division- wide criteria for deciding when to use a consultant to 1

complete projects or tasks; and I

i

b. Develop methods of tracking and monitoring consultant usage, such as

compiling data on the dollar amount, quantity, and type of projects or

services completed by consultants, and reasons for using consultants or

other relevant information, and evaluate information to identify consultant

services that could be more cost- effectively provided by in- house

employees.

FINDING 2

ITD should improve implementation and

documentation of inspection process

To ensure that contractors meet construction standards, ITD should improve

inspection quality. ITD conducts both daily field inspections and periodic

independent quality assurance ( QA) inspections of construction activities. However,

ITD could improve consistency and documentation in daily field inspections. In

addition, ITD should implement follow- up procedures on deficiencies found by

independent QA inspections.

/ --.

( Example: Asphalt specifications

ITD monitors contractor activities

In order to ensure that roads are safe and durable, ADOT

has established Standard Specifications for Road and

Bridge Construction. ( See text box at right for an example

of applicable specifications.) Contractors must adhere to

these specifications and each project's special contract

provisions. ITD monitors contractors' compliance with all

of these requ~ rements by conducting daily inspections

and periodic independent QA inspections. Inspections

also enable ADOT to make correct payments to

contractors based upon actual material quantities used

and work completed.

ITD employs both field inspectors and independent QA

inspectors to ensure compliance with roadway

construction quality specifications.

ADOT's Standard Specifications provide standards

for asphalt paving such as the asphalt temperature,

placement of the asphalt in front of the paving

machine, and how to place joints ( a narrow space

separating two slabs or sections of pavement) in

the asphalt.

Photo 2: Paving the San Tan Freeway

I

Photo Arizona Office of the Auditor General

Field inspectors monitor on a daily basis- Daily ,

inspections by more than 220 field inspectors, as of February 6, 2006, monitor

ongoing contractor activities. Under the supervision of resident engineers and

project supervisors, these inspectors observe contractors' daily work and

compare it to specifications. Field inspectors communicate with contractor staff

on construction requirements and any problems they observe. Field inspectors

must document their observations in daily diaries for the project supervisor's

review. Further, for most types of work observed, field inspectors must complete

a checklist indicating whether various aspects of the work met specifications.

Field inspectors are authorized to reject work or materials that do not comply

with plans and specifications.

a Independent QA inspectors review all projects at least once- Independent QA

inspections by nine inspectors, as of March 8, 2006, in ITD's construction

operations section provide further assurance that construction work is

completed according to all specifications and requirements. The Federal

Highway Administration ( FHWA) conducted these reviews until 1992, when it

transferred this responsibility to ADOT. ITD employees in the construction

operations section conduct the independent QA inspections. According to an

agency official, each construction project receives at least one QA inspection,

and some larger projects receive up to fwe. Similar to field inspectors, the QA

inspectors observe the work conducted and determine its conformance with

plans and specifications. lndependent QA inspectors document their

observations on construction inspection checklists and nonconformities are

compiled in a Certification Acceptance report to project management staff.

ITD can improve field inspections

Although inspections provide important assurance of construction quality, the field

inspection process could be made more effective by consistently documenting

inspection results. Not all inspectors document in their daily diaries whether

construction work met specifications and whether there were problems identified and

resolved as required by ADOT policies. In addition, ADOT's Construction Manual

requires inspectors to follow checklists to help ensure quality goals are met, but not

all inspectors use the checklists effectively. To ensure its inspection processes are

effective, ITD should ensure that its inspectors follow the requirements.

Inspectors do not consistently record observations in accordance

with PO~~ CY-~ lthougdho cumentation is critical to ensuring problems are

resolved and payments are accurate, ITD inspectors do not consistently document

the results of their observations. As a result, it is unclear whether the work met

specifications, whether there were problems or if problems were resolved, and

whether payments are accurate. For example, during one inspection an auditor

observed, the inspector determined that approximately 10 feet of concrete pipe

did not meet specifications. The auditor observed the inspector discussing the

problem with the contractor, but the inspector's diary entry for that day indicated

that the pipe met specifications. When asked about this, the inspector explained

that the contractor removed 6 feet of the problematic pipe and the payment was

reduced. However, the inspector did not document the problem in the daily diary

and did not indicate that the 6 feet of pipe was removed later. Because no entry

was made concerning this problem, there was no documentation indicating why

the inspector required only 6 feet be removed instead of the approximately 10 feet

that was found in noncompliance on the day of the auditor observation. Without an

accurate record of the problem and its resolution, ADOT cannot ensure that the

pipe met specifications and that the payment was accurate.

Inspectors vary in the type and level of documentation they maintain. Auditors'

review of nine projects determined that 43 of 47 inspectors' diaries showed the

type of work observed, but not whether work met specifications. This practice does

not conform to documentation requirements. ADOT's Standard Specifications for

Road and Bridge Construction states that inspectors' documentation should

include the level or degree of conformance of the work with plans and

specifications. Further, ADOT's Construction Manual states that historical

information on how work was constructed is valuable in the future if a project has

to be modified or rebuilt. Finally, the FHWA's Construction Program Management

and Inspection Guide states that documentation is essential to define the progress

and quality of work, inspectors should identify problem areas and document

resolution of concerns, and that inspectors should follow up on

previous inspection findings and draw conclusions on the

finished product's acceptability.

Checklists not used consistently- ln addition to not

completing diaries, field inspectors do not always use required

checklists. ADOT policy requires field inspectors to complete

checklists applicable to work observed. According to an

independent QA inspector, ITD has developed approximately

80 checklists to cover the variety of construction work

observed by field inspectors and QA inspectors. For example,

separate checklists address traffic control, concrete curing,

grading, and concrete box culverts. The checklists include

" critical" items, some where noncompliance may potentially

put human life at risk, and " major" items, where

noncompliance could cause substantial reduction of highway

operability or durability, increased cost, or major environmental

impact. According to ADOT, it is planning to revise the

definition of " critical" items because some may not put human

life at risk. The checklists, based on standard specifications,

are meant to affirm quality requirements at the beginning of a

project and to ensure the product meets quality goals. In

addition, they may help less- experienced staff feel more confident to approach

contractors with solid evidence of noncompliance.

For nine projects, 27 out

of the 47 ~ nspectorsd id

not fill out any

inspection checklists.

Despite the importance of checklists, in a review of nine projects, auditors

determined that 27 out of 47 inspectors did not fill out either electronic or paper

checklists. When asked why checklists were not used, a supervisor and a resident

engineer said they had difficulty enforcing the requirement. Another supervisor

said checklists could be improved by removing unnecessarily labor- intensive

items. Auditors' analysis of checklist results from April 5, 2001 through December

19, 2005, showed that of 2,788 checklist items, 276, or approximately 10 percent,

were never used because they were marked not applicable every time the

checklist was used.

Met Spedfications Did Not Meet Specifications Marked " Not Applicable"

Inspection Results

Application of inspection standards varies-~ ield inspectors report fewer

deficiencies than independent QA inspectors when using mandatory inspection

checklists. According to managers who auditors interviewed in both areas,

independent QA inspectors apply a stricter interpretation of the quality standards

than field inspectors. Results of independent QA inspections suggest that when a

strict interpretation of the standards is applied, work does not meet specifications

i as often as field inspection results show. Specifically, as shown in Figure 4, field

inspectors determined that work met specifications 66 percent of the tlme while

independent QA inspectors found work met specifications only 35 percent of the

time, based on an analysis of two projects where both field Inspectors and

independent QA Inspectors conducted inspections. It should be noted that fleld

inspectors and independent QA inspectors were not observing the projects at the

same tlme and the independent QA inspectors had a very high level of " not

applicable" responses for the standards However, the two groups were using the

same checklists to observe the same type of work

on the same projects, and the " not applicable" / Figure 4: Comparison of Responses on Checklists responses have no effect on the checkllst items

Field Inspections Independent QA Inspections

July 1 through December 19, 2005

I

I

- - - - I

Source: Auditor General staff analysis of checklist inspection records for two projects

rev~ ewedb y both field ~ nspectorsa nd independent QA inspectors.

marked as failed, but may have an impact on the

Items that passed. The probability that the two

groups' conforming results would be so different IS

less than 1 in 100, based on statistical analysis.

The result suggests that the two groups may be

applylng different standards when determining

what conforms. To ensure that the checklist results

are determined in a consistent manner, ITD should

assess how field inspectors and independent QA

inspectors are interpreting the checklist items

Further, ITD should provide training and/ or

develop guidelines to help field Inspectors and QA

inspectors interpret the checkllst items in a stmllar

manner

Knowledgeable persons have questioned whether

ITD field inspector experience levels are sufficient.

For example, an FHWA official expressed concern

about inspection quality because he had

observed a drain on ADOT inspector expertise

and believed that inspectors were " spread too

thin." This official stated that he was familiar with

the ADOT situation because although no longer conducting the independent

reviews, FHWA personnel monitor most ADOT highway projects to help ensure

that projects are being built within the design scope proposed when approved for

federal aid. Additionally, an ITD supervisor believed that many contractor firms had

more experienced staff than ADOT, which caused some inspectors to be

intimidated and hesitant to tell contractors about observed problems. ITD records

show that 34 percent of its inspectors had fewer than 5 years' experience with

ADOT as of February 6, 2006. An ITD official stated that about 5 years' inspecting

experience was needed to become fully proficient and that inspectors with less

experience were usually assigned to perform less technical inspection work until

they gained adequate experience. Additionally, 29 percent of the inspector

positions were under- filled, and 32 percent of the positions were vacant. An under-filled

position means that ITD could not recruit someone who meets the minimum

experience and qualifications required for the position and instead hired someone

without those qualifications at a lower- level position to perform the job duties. ITD

reported that it has a recruitment strategy to develop inspectors by providing a

technical training and certification program, combined with on- the- job work

experience, to allow people hired at other experience levels to advance to the

desired position level.

ADOT should take steps to increase effectiveness- TO better ensure that

inspect~ onss erve their intended purposes, ADOT should ensure that inspectors

document pertinent information about their observations, including whether work

conforms to requirements, any problems encountered, and problem resolution. In

addition, to comply with policy and help ensure the quality of work inspected,

ADOT should ensure that field inspectors complete and submit checklists as part

of their daily diaries and document that critical and major checklist items were

addressed.

ADOT has begun taking steps to make it easier for field inspectors to use the

checklists. First, in July 2005, ITD began providing field inspectors access to an

online checklist database previously used only by independent QA inspectors and

began training them on how to use it. Once trained, field inspectors can enter

checklist responses and supporting comments directly onto the checklists in the

database using laptops in the field. Second, according to ADOT, new checklists

are developed and updated with a committee that includes the district's most

experienced technical and engineering staff. However, an ITD official stated that

field staff has not been consistently involved in the creation and revision of the

checklists. To help ensure the checklists meet the needs of field inspectors and

include appropriate and most applicable content, ADOT should consider a

checklist revision process that includes knowledgeable field inspectors.

Independent quality assurance inspections lack followup I

Followup on noted deficiencies would enhance the effectiveness of the independent 1

QA inspections. Specifically, ADOT could better use the results of independent QA .

inspections by requiring formal responses from the field organizations and followup

for critical and major deficiencies.

ITD does not require followup on important areas of noncompliance identified by

independent QA inspectors. As previously described, independent QA inspectors

from the construction operations section provide periodic independent inspections

of construction work and determine its conformance with plans and specifications by

observing the work and filling out the inspection checklists. According to an agency

official, independent QA inspectors do not have the authority to change work in

progress, but they can recommend to ADOT project personnel that work be rejected

, or processes be changed. Any deficiencies they find are I

Photo 3: Pouring a retaining wall footing documented in a Certification Acceptance report that is provided

to project management staff.

Photo Ar~ zonaO ff~ ceo f the Aud~ torG eneral. )

As discussed previously, ITD classifies inspection checklist items

according to importance, with risks to human life included as

" critical" items and important quality factors considered " major."

Auditors' analysis of 1,970 independent QA inspections

determined that in 1,586 cases ( 80 percent), inspectors identified

one or more critical or major noncompliant item. For example,

during one inspection, an independent QA inspector found two

major items to be noncompliant. One item concerned the

placement of rebar used to reinforce a concrete structure, and the

other item concerned the slze of the rebar used to reinforce a

concrete structure. According to ADOT, if a smaller size rebar or

larger rebar spacing occurs, cracks could develop in the concrete

resulting in a shorter lifespan, and if the rebar placement deviates greatly from the

specifications, it may result in a complete failure of the structure. However, ADOT

reported that industry design standards provide safety factors for critical

specifications to ensure that minor variations do not cause failures.

Although critical and major noncompliance items are reported to project managers

through Certification Acceptance reports, ITD has not developed any follow- up

provisions and requirements. According to an agency official, ITD does not require

that resident engineers or project supervisors respond to or specifically address

independent QA inspection results, and while some project staff indicated that they

may respond informally to specific deficiencies, they are not required to do so. As a

result, critical and major items may not receive adequate attention to correct them

and to reduce future occurrences. ADOT could better use the results of independent

QA inspections by requiring followup for critical and major deficiencies. Following up

on QA inspections would supplement existing ADOT quality control practices that

include resident engineers' consideration of sampling and testing results prior to final

acceptance of a project as well as use of information obtained in daily inspections by

field inspectors.

- Recommendations:

1. To ensure that the checklist results are determined in a consistent manner, ITD

should assess how field inspectors and independent QA inspectors are

interpreting the checklist items. Further, ITD should provide training and/ or

develop guidelines to help field inspectors and independent QA inspectors

interpret the checklist items in a similar manner.

2. To comply with department policy and FHWA inspection practices, ADOT

should ensure that field inspectors document inspection results, including:

Whether work conforms to plans and specifications;

Whether problems occurred; and

Problem resolution. 1

3 To comply with department policy, ADOT should ensure that field inspectors

complete and submit checklists as part of their daily diaries, and document that

critical and major items were addressed.

4 To help ensure that checklists meet field inspectors' needs and contain

applicable content, ADOT should consider a checklist revision process that

includes knowledgeable field inspectors.

5. ADOT should require followup on independent QA inspection results that

identify critical or major noncompliance.

FINDING 3

ADOT needs to improve audits of design and

construction contracts

ADOT has not adequately planned and managed the audits of its highway design

and construction contracts. The Office of Audit and Analysis ( Office) should audit all

phases of ADOT's construction projects. However, the Office has not completed the

number of audits required by its own polic~ esa, nd many completed audits have not

been issued in a timely manner. Several factors have contributed to these problems,

including ongoing, long- term vacancies and inadequate audit management. ADOT

hired a new chief auditor in January 2006 who has begun taking steps to address

problems.

Audits required during all construction phases

The Office is required to conduct audits covering the full range of consulting and

construction contracting practices. Under an intergovernmental agreement with the

Federal Highway Administration, ADOT must provide total operational audit

coverage of both design and construct~ onc ontracts for all projects with federal

funding. Federal law also requires audits of engineering design contracts to ensure

that they comply with cost principles in Federal Acquisition Regulations. ADOT

adopted a policy to audit all contracts similarly, whether or not federal money is

involved.

The Office conducts four types of audits to comply with its auditing mandate. These

audits are described in the text box ( see page 28) and are important to ensure that

ADOT pays the correct amount for construction and consulting work. For example, a

highway design engineering contract with compensation paid on a cost-reimbursement

basis and valued at more than $ 250,000 would require a pre- award

audit before the contract is awarded to ensure that the contractor has an acceptable

accounting system and to determine an overhead rate that will apply to the contract

( see text box, page 29). A subsequent incurred- cost audit is later required after

contract completion.

Audits are important to ensure contract compliance and proper payments.

Ineffectively monitoring consultants' and contractors' performance can result in

failing to detect:

Overcharges and underpayments- Failure to perform pre- award audits may

result in improper payments because provisional rates may vary from audited

rates. Additionally, if incurred- cost audits are not conducted or completed in a

timely manner, overpayments owed to ADOT or underpayments owed to the

consultant may be undetected or delayed. Moreover, failure to perform

construction- cost audits increases the risk that incorrect payments will be made

to contractors. For example, one construction progress audit completed in

September 2003 questioned $ 272,500 in payments made

to a contractor, but the report was not issued until October

2005, delaying any required corrective action.

Whether contractors have delivered all services- Not

conducting construction- cost audits can mean paying for

services not delivered. For example, a construction

progress audit completed in July 2004 and issued in

October 2005 found errors in contract quantities for

delivered concrete and questioned over $ 300,000 in

invoices that ADOT had paid without verifying that the

contractor provided the equipment, labor, and materials.

In addition, according to the state construction engineer, audits

of construction administration are valuable in identifying areas

for improvement that could result in better project management,

decreased cost overruns, and better quality. The state

construction engineer reported that district and resident

engineers and the State Engineer's Office use audit results to

identify trends in consultant and staff compliance with

requirements.

Office fails to complete audits or completes ~ them late

Office productivity has diminished in recent years. Specifically, because the Office

has not issued the number of audits required by policy, it has backlogs of each audit

type. Additionally, some of ADOT's highest- cost projects have not received all the

audits that office policy requires. Finally, completed audits have often not been

issued for at least 6 months after audit work was finished.

Some audits not conducted- he Office does not conduct the

number of audits required by its own policies. The Office had

backlogs of each audit type:

The Office estimates it had approximately 500 pre- award

audits in its backlog as of May 31, 2006.19 The Office could

not provide verifiable data regarding the size of its pre- award

backlog.

A minimum of 40 incurred cost audits dating back to March 2001 have not

been done as of March 19, 2006. Additionally, the Office did not conduct 17

other audits because they were not begun before a statutory record- keeping

time limit expired or because the company was no longer in business. No

projects started after July 1, 2002, have received the required incurred- cost

audit.

Auditors' review of office spreadsheets of scheduled and completed

construction cost audits and completed audit files identified that 47 required

construction cost audits dating back to 2003 were backlogged as of

December 31, 2005. Productivity in this area declined from 23 audits

completed in fiscal year 2003 to only 5 completed in fiscal year 2005, but has

increased in fiscal year 2006, with 12 audits completed in the first 6 months.

Auditors' review of the Office's audit files found that 17 of 26 ITD construction

organizations have not received an administrative compliance audit in the

2005 calendar year, and 7 have not been audited since July 2003. The

organizations should receive 1 audit per year, and altogether, 41 of 78 such

audits were not conducted in the 3 years ending June 30, 2005.

/

Table 4: Status of Required Audits

Ten Largest Completed Projects

Fiscal Year 2005

Audit Type Required Issued Not done

Pre- award1 52 5 1 1

Incurred cost 1 0 1

Construct~ on - 25 - 7 - 18

Total -- 78 - 58 -- 20

In addition to the required audits shown in this table, contract

flles revealed that the Office of Audit and Analysis was not

notified to conduct 17 audits and conducted 2 pre- award audits

on subcontractors that were approved but not used on the

projects.

Projects missing audits include ADOT's largest

c ~ n ~ f r u c f ip~ ronje cts-~ he Office has not conducted all

required audits on its largest construction project contracts. To

evaluate the amount of audlt coverage that the Office provided,

Auditor General staff selected the ten largest projects by dollar bid

amount that ADOT completed in fiscal year 2005. Those projects

ranged in size from $ 15.7 milllon to $ 221.1 million. As shown by

Table 4, the Office did not conduct the minimum number of audits

required by its policies in any of the three audit categories for these

ten projects. Pre- award audlts are required for each of 52

consultants on these ten projects. Multiple audits for each project

are often required because a prime contractor and multiple

subcontractors provide services for each project. An incurred cost

audit was also required for the one project with a cost plus fixed-fee

contract, though not for the nine other projects completed

Source: Auditor General staff analysis of audit reports issued by under lump- sum contracts. Additionally, because office policy

Office of Audit and Analysis for projects identified by

analyzing ADOT's checklist system. requires construction- cost audits at $ 20 million intervals, these

I projects should have received at least 25 construction- cost audits.

Some aud~ tsw ere

Issued 6 months to 2

years after the audlt exlt

conference

Some audit reports issued late- ln additlon to not conducting some audits, the

Office has not issued some reports In a timely manner. In the first half of fiscal year

2006, the Office issued 17 construction cost and administrative compliance

reports. At least 14 were issued 6 months or more after the audit exit conference.* O

Those 14 reports were issued from 183 to 769 days after the exit conference, with

the average being 371 days. Office pollcy requires issuing the report within 20 days

after the draft report date. According to office management, the original draft report

is discussed at the exit conference. Thus, it appears these reports were issued - J

substantially later than the pollcy requires.

Issuing reports late delays recovery of overpayments. In addition, because

contractors are required to retain records for only 5 years after the final payment,

ADOT may be unable to conduct audits after that time. As a result, long delays

before ADOT conducts audits may prevent ADOT from recovering monies paid in

error. For example, one project was completed in March 2001, but the Office did

not conduct an incurred cost audit within 5 years. Further, the 5- year period will

expire on 21 other projects in calendar year 2006. In addition, long delays hinder

project accounting because ADOT closes completed project accounts and

transfers any excess funds to other accounts, making it more difficult to process

any underpayments identified by untimely audits.

Several factors contribute to low productivity

The Office's low productivity has resulted from management's failure or inability to fill

vacant positions, adequately plan and manage its workload, and other factors. The

Office lacked a chief auditor for several months, until January 2006. In addition, an

inadequate database and other problems contribute to the Office's failure to meet

requirements. Specifically:

The Office has not been able to reduce staff ,,- I

7

a Ongoing, long- term vacancies- The Office has not ensured that staffing is

adequate to meet audit requirements. As of December 31, 2005, the Office had

only 9 of 16 posit~ onsfi lled in the unit responsible for consultant and construction

aud~ tsa, s shown in Table 5. Of the unit's 7 vacancies, 4 were unfilled for over 3-

' h years, since before July 2002.

vacancies. Although the Office has filled recent

departures with new hires, it has only recently

reduced its vacancy level. According to office

managers, it was difficult to find candidates with

the cost accounting experience necessary to

conduct audits in accordance with the Federal

Acquisition Regulations. The Office had not

sought applicants without that experience

because understaffing inhibited its ability to

provide training.

Four of the Off~ ce's

seven vacancies are

over 3-~ yie ars old

/

Table 5: Status of External Audit Unit Positions

As of December 31,2005

Total

Position Positions Filled Vacant

Manager 1 1

Audit Superv~ sor 3 2 1

Construct~ onA uditor 4 1 3

Consultant Aud~ tor - 8 - 5 - 3

Total - 16 - 9 - 7

Audit management inadequate- The Office is not

Source: Aud~ torG eneral staff analys~ so f ADOT's Offlce of Audlt

and Analys~ sO rgan~ zat~ onCalh art and vacancy data.

complying with its policy requiring an annual audit

plan that projects the number of audit requests, I

considers other audit requirements, and prioritizes audits based on available

resources. For example, the policy requires that audits be selected based on a

department- wide audit risk assessment. This approach to selecting and

The Office could not

prov~ deth e number of

audits scheduled or

completed.

The Office hopes to fill

all of its vacancies by

Jluy 2006.

conducting audits is intended to ensure that projects with the highest risk factors

are audited. The risk assessment should identify characteristics of contracts and

projects that have a higher probability of errors and may demand more audit

attention. However, the Office does not select these audits based on a risk

assessment approach.

Additi