schoharie county - stream restoration project and contract ... · division of local government...

Division of LocaL Government & schooL accountabiLity

o f f i c e o f t h e n e w y o r k s t a t e c o m p t r o L L e r

report of ExaminationPeriod Covered:

January 1, 2013 — September 23, 2014

2015M-87

Schoharie CountyStream Restoration Project

and Contract Process

thomas p. Dinapoli

Page

AUTHORITY LETTER 1

EXECUTIVE SUMMARY 2

INTRODUCTION 4 Background 4 Objective 6 Scope and Methodology 6 CommentsofCountyOfficialsandCorrectiveAction 6

STREAM RESTORATION PROJECT 7 Recommendations 9

CONTRACT PROCESS 10 Recommendation 11

APPENDIX A County Board of Supervisor’s Complaint 13APPENDIX B ResponseFromCountyOfficials 16APPENDIX C OSCCommentsontheOfficials’Response 21APPENDIX D AuditMethodologyandStandards 22APPENDIX E HowtoObtainAdditionalCopiesoftheReport 24APPENDIX F LocalRegionalOfficeListing 25

Table of Contents

11Division of LocaL Government anD schooL accountabiLity

State of New YorkOffice of the State Comptroller

Division of Local Governmentand School Accountability August2015

DearCountyOfficials:

A toppriorityof theOfficeof theStateComptroller is tohelp localgovernmentofficialsmanagegovernment resources efficiently and effectively and, by so doing, provide accountability for taxdollarsspenttosupportgovernmentoperations.TheComptrolleroverseesthefiscalaffairsoflocalgovernmentsstatewide,aswellascompliancewithrelevantstatutesandobservanceofgoodbusinesspractices.Thisfiscaloversightisaccomplished,inpart,throughouraudits,whichidentifyopportunitiesforimprovingoperationsandBoardofSupervisorgovernance.Auditsalsocanidentifystrategiestoreduce costs and to strengthen controls intended to safeguard local government assets.

Following is a report of our audit ofSchoharieCounty, entitledStreamRestorationProject andContractProcess.ThisauditwasconductedpursuanttoArticleV,Section1oftheStateConstitutionandtheStateComptroller’sauthorityassetforthinArticle3oftheNewYorkStateGeneralMunicipalLaw.

This audit’s results and recommendations are resources for local government officials to use ineffectivelymanagingoperationsand inmeeting theexpectationsof their constituents. Ifyouhavequestionsaboutthisreport,pleasefeelfreetocontactthelocalregionalofficeforyourcounty,aslistedat the end of this report.

Respectfullysubmitted,

Office of the State ComptrollerDivision of Local Governmentand School Accountability

State of New YorkOffice of the State Comptroller

2 Office Of the New YOrk State cOmptrOller2

Office of the State ComptrollerState of New York

EXECUTIVE SUMMARY

Schoharie County (County), located in centralNewYork State, covers 626 squaremiles and hasapproximately 32,750 residents.TheCounty’s 2015 budgeted general fund expenditures of $71.2millionwerefundedprimarilywithrealpropertyandsalestaxes,Stateandfederalaidanduserfees.

The County is governed by a 16-member Board of Supervisors (Board) that is responsible for adopting policies and procedures as well as oversight of County contracts and projects. The Chairman of the Boardisresponsible,alongwithotheradministrativestaff,fortheCounty’sday-to-daymanagement.

InMay2012, theBoardentered intoanagreementwitha federalagency tohaveworkperformedonsixstreamsneedingrepairtopreventfutureflooddamage.ThesestreamswereheavilydamagedduringHurricaneIreneandTropicalStormLeein2011.Thefederalagencyestimatedthecosttorepairallsixstreamstobe$21million.Duetoprojectcostoverruns,theBoardrequestedthatourOfficeperformanaudit,havingnumerousdiscrepanciesdetailedinacomplaint.

Scope and Objective

TheobjectiveofourauditwastoexaminetheCounty’soversightoftheStreamRestorationProject(Project)andtheoverallcontractprocessfortheperiodJanuary1,2013throughSeptember23,2014.WeextendedourscopebacktoMay1,2012andforwardthroughFebruary2015toreviewBoardmeetingminutesrelatedtotheProject.Ourauditaddressedthefollowingrelatedquestions:

• DidtheBoardensurethattheCo-ManagersproperlymonitoredtheProject?

• DidtheBoardensurethatCountycontractswereproperlyapproved,monitoredandpaid?

Audit Results

WhilewecommendtheBoardforcontactinguswith itsconcernsregardingtheProject,wefoundthat the Board should have known about most of the discrepancies detailed in the complaint (see AppendixAforourcommentsonthecomplaint).TheBoarddidnotprovideadequateoversightoftheplanningandexecutionoftheProjectanddidnotensurethattheCo-ManagersproperlymonitoredtheProject.TheBoarddidnotalwaysprovideclear,writtenexpectations,suchastheauthoritygrantedtheappointedProjectCo-Managers,ortheirmonitoringandinterimreportingrequirementsfortheProject.Asaresult,theBoardhaltedfurtherworkontheProjectuntilitreceivedclarificationontheProject’sstatusandcosts.TheconstructionphaseoftheProjectwasfurtherdelayedduetotheredesignandrequirementsforlandowneraccess,whichresultedinincreasesinmaterialandprevailingwagerates.


TheBoarddidnotensurethatCountycontractswereproperlyapproved,monitoredandpaid.Of40contracts,11didnothaveapprovalofboth theBoardand theCountyAttorney, and fourcontractrenewals/amendmentswerenotapprovedbyeither theBoardor theAttorney.Noproceduresweretakentoensurethelowestpossiblecostwaspaidfor18of28professionalservicecontractsincluded,totaling$1.2million.Fortheother10contractstotaling$6.3million,althoughnoquotesorrequestsforproposal(RFPs)wererequiredpertheCounty’sprocurementpolicy,CountyofficialsdiduseRFPsto seek the lowest possible cost.

Comments of County Officials

TheresultsofourauditandrecommendationshavebeendiscussedwithCountyofficialsandtheircomments,whichappearinAppendixB,havebeenconsideredinpreparingthisreport.Countyofficialsdisagreedwithcertainaspectsofourfindingsandrecommendationsinourreport,butindicatedthattheyplannedtoimplementsomeofourrecommendations.AppendixCincludesourcommentsontheissues raised in the County’s response letter.


Background

Introduction

Schoharie County (County) is located in central NewYork Stateandcovers626squaremiles.TheCountyhasapproximately32,750residents. The County’s 2015 budgeted general fund expenditurestotaled$71.2million.Theseexpenditureswerefundedprimarilywithrealpropertyandsalestaxes,Stateandfederalaidanduserfees.

The County is governed by a 16-member Board of Supervisors (Board) that is responsible for adopting policies and procedures and oversight of County contracts and projects. The Chairman of the Board isresponsible,alongwithotheradministrativestaff,fortheCounty’sday-to-day management. The procurement of goods and services is a significantCountyfunction.Theinitiatingdepartmenthead,Board,CountyAttorney (Attorney) andPurchasingAgent/CountyAuditor(Auditor)andherstaffallplayaroleinthecontractapprovalprocess.The procurement procedures are outlined in the County’s PoliciesandProceduresManual,whichcoversCountyprocurementofgoodsand services. This manual sets forth specific guidelines to followwhenprocuringgoodsorservicesthroughvariousmechanisms,suchasformalsealedbids,requestsforproposals,competitiveproposals(quotes) and others.

Inthefallof2011,HurricaneIreneandTropicalStormLeefloodedparts of theCounty and causedmajor damage. In 2012, a federalagency performed an analysis1 of streams in the County for which workcouldbeperformedtoreducethepossibilityofanotherflood.InMay2012,theBoardenteredintoanagreementwiththefederalagencytohaveworkperformedonsixstreams:2PlatterKill,LittleSchoharie, Line Creek, Dave BrownMountain,Armlin Hill Roadand West Richmondville Road. The federal agency estimated the cost tocompleteall sixstreams tobe$21million, inwhich the federalgovernmentwouldpayupto75percent,or$15.8million,ofthetotalconstructioncostsandupto7.5percent,or$1.9million,forsoftcosts(suchasengineering),leavingtheCountyresponsiblefor25percent

1 The federal agency sent a project list to all town supervisors within the County requesting information regarding streams in need of repair to help prevent future flooding.

2 ThecontractcompletiondateforPlatterKillandLittleSchohariewasJuly18,2014,LineCreekwasApril 6, 2015andDaveBrownMountainwas January1, 2014; however, the original contractor scheduled towork onDaveBrownMountainpulledoperationsoutofthearea.InFebruary2015,CountyofficialsassignedtheDaveBrownMountainworktothecontractorworkingonPlatterKillandLittleSchoharie.TheArmlinHillRoadandWestRichmondvilleRoadstreamprojectswerecompletedbyCountyemployeesonSeptember11,2014andJuly24,2013,respectively.


oftheactualconstructioncosts.InJuly2012,theBoardappointedtwoCo-ManagerstooverseetheStreamRestorationProject(Project)–theCounty’sDirectorofPlanningandEconomicDevelopment3 and the County’sCommissioneroftheDepartmentofPublicWorks(DPW).

InJanuary2013,theBoardenteredintoacontractwithanengineeringfirm(EngineeringFirmA)toprovideengineeringandconstructionoversightoftheProjectforaninitialamounttotaling$2.875million.Afterengineeringdesignswerecompleted,theCountyawardedworkto be done on four creeks4 to three construction companies. Original construction bids came in at $17.2million,whichwas lower thantheestimatedcostsinthefederalawardforthesefourstreams.Inthesummerof2013,redesignsrelatingtoPlatterKillandLittleSchoharie(due to additional agency reviews and a storm which caused damages to these two streams) caused these twocontracts tobe re-bid, anddelays in start times caused four change orders which increased constructioncostsby$2.1million,bringingtotalactualconstructioncoststo$19.3million.

TheBoard entered into an agreementwithNewYorkStateUrbanDevelopment in December 2013, which would provide up to 25percent,or$5.3million,tobeusedforconstructionandadministrativecosts, such as engineering, not covered by the federal award. InFebruary 2014, the Board increased its contract with EngineeringFirmAby$1.3million,5foranewtotalcontractedamountof$4.2million.InMay2014,theBoardfiledacomplaint6withourOfficeregardingtheProjectcostoverrunsandworkbeingperformedoutsidescopeofEngineeringFirmA’scontract.

InJuly2014,theCountyhiredanotherengineeringfirm(EngineeringFirmB) tobe theProject’sfinancialcoordinatorforapproximately$79,000.This contractwas amended inOctober 2014, authorizingEngineeringFirmB to “be an advocate representing the [Board’s]interest in the [Project] decision making process and a neededcommunicationconduitbetweentheProjectTeam7andthe[Board]…”and increased the amount to $180,000, even thoughneither of theoriginal Co-Managers were compensated for their additional duties. InSeptember2014,CountyofficialsreceivedaletterfromadifferentStateagencynotifyingthemoftheapprovalfora$650,000grantto

3 TheCounty’sDirectorofPlanningandEconomicDevelopmentwasremovedasacting Co-Manager in October 2014.

4 Theothertwostreams,whichweresmallerinsize,werecompletedin-housebytheCounty’sDPW.

5 This increase was caused by hourly rate increases and rework performed due to additional agency reviews and landowner access.

6 SeeAppendixAforacopyofthecomplaint.7 TheProjectTeamincludesEngineeringFirmA,theCo-Managers, theCounty

Treasurer and the federal agency awarding the grant.


beusedfortheProject.Duringthesametimeperiod,theCountywasawarded$300,000fromafederalagencytoassistwiththeincreasein engineering costs.

TheobjectiveofourauditwastoexamineCountyofficials’oversightoftheStreamRestorationProject(Project)andtheoverallcontractprocess.Ourauditaddressedthefollowingrelatedquestions:

• Did the Board ensure that the Co-Managers properly monitoredtheProject?

• Did the Board ensure that County contracts were properly approved,monitoredandpaid?

WeexaminedCountyofficials’oversightoftheProjectandcontractprocessfortheperiodJanuary1,2013throughSeptember23,2014.Weextendedour scopeback toMay1,2012and forward throughFebruary2015toreviewBoardmeetingminutesrelatedtotheProject.

We conducted our audit in accordance with generally accepted governmentauditingstandards(GAGAS).Moreinformationonsuchstandards and the methodology used in performing this audit are includedinAppendixDofthisreport.

The results of our audit and recommendations have been discussed withCountyofficialsandtheircomments,whichappearinAppendixB, have been considered in preparing this report. County officialsdisagreedwithcertainaspectsofourfindingsandrecommendationsinourreport,butindicatedthattheyplannedtoimplementsomeofour recommendations.Appendix C includes our comments on theissues raised in the County’s response letter.

The Board has the responsibility to initiate corrective action. Awrittencorrectiveactionplan(CAP)thataddressesthefindingsandrecommendations in this report should be prepared and forwarded toourOfficewithin90days,pursuanttoSection35oftheGeneralMunicipalLaw.FormoreinformationonpreparingandfilingyourCAP, please refer to our brochure, Responding to an OSC Audit Report,whichyoureceivedwiththedraftauditreport.Weencouragethe Board to make this plan available for public review in the County Clerk’soffice.

Objective

Scope andMethodology

Comments ofCounty Officials andCorrective Action


Stream Restoration Project

The Board is responsible for the general oversight of all capital projects which includes contract authorizations,monitoring and controllingprojects’ progression and costs to ensure timely completion within established budgets. This responsibility could include delegating certain responsibilities to department heads or contracted third parties for the day-to-day oversight of the planning and construction ofprojects.Ifdutiesaredelegated,theBoard’sexpectationsshouldbe clearly communicated in order to ensure a smooth project implementation.

The Board did not ensure that the Co-Managers8 properly monitored theProject.TheBoard requested thatourOfficeperformanaudit,having numerous Project discrepancies detailed in a complaint.9 While we commend the Board for contacting us with its concerns regardingtheProject,wefoundthat theBoardshouldhaveknownaboutmostofthesecomplaints(seeAppendixAforourcommentson the complaint). The Board did not provide adequate oversight of theplanningandexecutionoftheProject.TheBoarddidnotalwaysprovide clear, written expectations, such as the authority grantedtheappointedProjectCo-Managers,ortheirmonitoringandinterimreporting requirements for the Project.Also, although the contractwithEngineeringFirmBwasclearastotheBoard’sexpectations,thecontractbetweentheBoardandEngineeringFirmAwasnot.Inshort,the numerous discrepancies the Board complained about generally resulted from a lack of proper oversight by the Board.

While the Board received monthly updates from the Co-Managers and EngineeringFirmAontheProject’sstatus,certainBoardmembersclaimed theywerenot fullyawareof theProject’scosts, includingadditional costs associated with any additional work performed. SeveralBoardmembersclaimedthatEngineeringFirmAperformedwork that was not in the initial scope of the contract and that they werenotmadeawareofthisadditionalwork.However,theadditionalworkperformedwaslistedinEngineeringFirmA’scontractasworkEngineeringFirmAcoulddoatspecifiedhourlyratesinexcessoftheapproved contract amount and was noted as being discussed in the February 2013 Board meeting minutes. While the Board members wereallprovidedcopiesofthecontractwithEngineeringFirmA,that

8 The Co-Managers were the main contact persons for the County and were responsible for overseeing the Project, maintaining communications withexternalparties,reviewingandapprovinginvoicesandpresentinginformationtothe Board.

9 See Supra note 6.


includedprovisions foradditionalwork, theBoardmemberseitherdid not fully understand that the additional work was not included in thetotalcontractcost,orhadnotreadthecontract.

Moreover, the reimbursable amounts for engineering costs werelimited to7.5percentof the actual constructioncosts.10 However,theBoardagreedtoacontractwithEngineeringFirmAatanamountequal to 14 percent of the estimated construction costs, creating afunding gap. The Board expanded this funding gapwhen it hireda second engineering firm, Engineering Firm B, in July 2014 tofinancially coordinate the Project.11 Therefore, these funding gapswere caused directly by actions taken by the Board.

Additionally, although the Board’s contracts with the constructioncompanies appropriately outlined timelines for the submission of billings,therewerenosuchtimelinesinthecontractwithEngineeringFirmA.As a result, Co-Managers could not track percentage ofcompletion as bills for engineering work were not submitted on a regular basis.Therefore, the bills couldnot be traced to specificdeliverables listed in the contract scope of services. Delays from variousProjectredesignsresultedinconstructionworknotbeginninguntil November 2014, and bills for construction work were notrequiredtobesubmittedasoftheendofourfieldwork,sowecouldnot determine if they were being submitted in accordance with the contracts.

The Project progressed beyond the Board members’ generalunderstanding of the scope because they assigned the responsibility for the day-to-day management without clearly communicating expectations. Eventually, the Board halted further work on theProjectuntilitreceivedclarificationontheProject’sstatusandcosts.TheconstructionphaseoftheProjectwasfurtherdelayedduetotheredesignand requirements for landowneraccess,which resulted inincreases in material and prevailing wage rates.Additionally, thetaxpayers’ share of the Project’s costs increased by approximately$1.3millionduetoincreasesinengineeringcosts.12 The County has obtainedapprovalforadditionalStateandfederalaid,but thiswillnot fully offset these costs. Furthermore, the delays in the Projecthaveextendedtheriskofdamagefromfutureflooding.

10Theseactualconstructioncoststotaled$19.3millionasoftheendofourauditscope period.

11Thecontract forEngineeringFirmBwas initiallyapproximately$79,000andincreased to $180,000 inOctober 2014 due to providing additional oversightservices.

12SeeSupranote5.


TheBoardshould:

1. Have a thorough understanding of contracts prior to approving them.

2. Createpoliciesandproceduresrelatingtomonitoringprojects,even if some oversight has been delegated. These procedures shouldinclude,ataminimum:

• Ensuring work is performed in accordance withcontracts prior to payment and report any variances to the Board in a timely manner.

• Trackingthepercentageofcompletion,calendardaysand budget-versus-actual disbursements.

• Establishing clear communication expectationsbetween projectmanager(s), contracted third partiesand the Board.

3. Develop controls to ensure approval of any changes to contracts,discuss implicationsofsuchchangesandaddresssuchchangestoavoidunnecessaryexpendituresanddelays.

Recommendations


Contract Process

The Board is responsible for ensuring that County contracts are properly approved in accordance with the County’s procurement policy, monitored and paid. General administration and oversightprovidestaxpayerswithassurancethatservicesareprocuredinthemostprudentandeconomicalmanner,thatservicesofdesiredqualityare being acquired at the lowest possible price and that procurement is not influenced by favoritism, extravagance, fraud or corruption.According to the County’s Policies and Procedures Manual, allcontractsmustbeapprovedby theBoardandAttorney.TheBoardshould establish written policies and procedures relating to the monitoring of contractual agreements to ensure that all services are provided in accordance with the contractual agreement and invoices for paymentareproperlysupportedandcontainsufficientdocumentation.These procedures should ensure periodic reconciliations between contractualprovisions,paymentsandaccountingrecords.Moreover,the Board should ensure payments and change orders are reviewed andapproved,andareforappropriatepurposes.

The Board did not ensure that County contracts were properly approved,monitoredandpaid.Specifically,weselected40contractstoreviewandfound:

• Therewasnoindicationthatsixofthe40contractsreviewedwereapprovedbyeithertheBoardorAttorney.

• Fiveofthe40contractswereapprovedbytheBoard,buttherewasnoindicationofAttorneyapproval.

• Forfourofthe40contracts,theoriginalcontractsweresignedby both the Board and Attorney. However, the renewals/amendments were not approved by either the Board or the Attorney.

Outofthecontractsabove,12contractstotaling$7.1millionrequiredbids or quotes, and County officials appropriately followed theCounty’sprocurementpolicy.However,oftheremaining28contracts(allofwhichwereprofessional servicecontracts),noactionsweretakentoensurethelowestpossiblecostwaspaidfor18totaling$1.2million.Fortheother10contractstotaling$6.3million,althoughnoquotesorrequestsforproposal(RFPs)wererequiredpertheCounty’sprocurementpolicy,CountyofficialsdiduseRFPstoseekthebestpossible value.


The Board relies on Department heads to monitor and control their respective contracts, and provides no oversight. Therefore, werandomly selected 10 contracts to review and found that two were notbeingproperlymonitoredandcontrolled.Specifically,therewasno support to indicate that anyone was comparing the invoices to the serviceslistedinthecontracts.Inaddition,wejudgmentallyselected11 change orders and found that they all were Board-approved and wereforappropriateCountypurposes.Moreover,whiletheAuditorandherstaffauditforaccuracy(i.e.,ensuringmathematicalaccuracyof invoices), they do not compare rates billed to Board-approvedcontracts to ensure proper amounts are billed.

These errors occurred because the Board has not established adequate procedures to ensure all County contracts are properly approved and monitored.Forexample,therearenoproceduresinplacetoensureDepartment heads provide all contracts to theBoard andAttorneytoapproveandsign,and therearenospecificationsregardinghowfrequentlycontractsshouldbereviewed,orwhatspecificallyshouldbe reviewed. In addition, theCounty’s current procurement policydoes not outline procedures to ensure the best economic value is obtainedforprofessionalservicecontracts.Furthermore,theAuditorand her staff do not have copies of Board-approved contracts available for their review while auditing claims.

When the Board does not approve all contracts, payments forunauthorizedorinappropriatepurposescouldoccur.ThereisalsoariskthatCountyofficialscouldbeoverpayingforprofessionalservicecontracts because the procurement policy does not include a procedure for ensuring competition. The Board cannot ensure that services of desiredqualityarebeingacquiredat the lowestpossibleprice,andthatprocurementisnotinfluencedbyfavoritism,extravagance,fraudor corruption.

4. The Board should develop policies and procedures to ensure that,ataminimum:

• DepartmentheadsprovidetheBoardandtheAttorneywith all contracts for review/approval.

• Contracts are monitored so that all services provided are in accordance with the agreement and invoices for paymentareproperlysupportedandcontainsufficientdocumentation.

• Department heads obtain the best economic value for professional services.

Recommendation


• Department heads provide theAuditor and her staffwith a signed copy of the contract.


APPENDIX A

COUNTY BOARD OF SUPERVISORS’ COMPLAINT13

Regarding the contract that Schoharie County entered into with Engineering Firm A to complete this project:Why are there major discrepancies in what the Board approved and what the County ultimately entered into with Engineering Firm A?

TheBoardagreedtoacapof15percentoftotalestimatedconstructioncosts,or$3.15million.However,EngineeringFirmA’soriginalcontractwas$2.875million,whichisapproximately14percentof totalestimatedconstructionscosts,or$275,000less than theagreedupon15percentcap.WefindthisvariancenominalandintheCounty’sfavor.Therefore,wedeemedthat there were not major discrepancies in what the Board approved and what the County ultimatelyenteredintowithEngineeringFirmA.

Who authorized amending the contract to something other than what the Board approved?

The Board allowed the Chairman of the Board to enter into the contracts on its behalf. We were not able to verify this complaint as we were not provided documentation to support differences betweencontracts.Also,weinterviewedfiveBoardmemberswhosaidtheyhadnotreadanyofthecontractsrelatingtotheProjectexceptforEngineeringFirmB’scontracts.

Why was the Board not immediately informed of such amendments? Especially prior to the execution of the contract?

SincethecontractenteredintowaslessthantheBoard-approved15percentcapofthetotalestimated construction costs and we were not provided documentation to support that the signedcontractandtheBoard-approvedcontractwerenotthesame,wecouldnotdeterminethe validity of this complaint.

Regarding Project cost overruns: Why did major Project cost overruns occur?

AdministrativeCosts:ThecostsforEngineeringFirmAtodesigntheprojectaswellasprovideconstruction oversight created overruns beyond the reimbursable amount for these purposes. Construction Costs: We determined increases in construction costs occurred because theProjectdidnotstartontimeduetochangesinengineeringdesigns,issuesobtaininglandownereasementswhichcauseddelaysinobtainingpermits,andtheBoard’spoliticalenvironment.These delays ultimately caused a 12 percent, or $2.1million, increase in prevailingwagerates,meansandmethods14andmaterialcosts.However,thesecostsarecurrentlystillwithinreimbursable amounts.

13InformationinitalicswasprovidedbyCountyofficials.OSCresponseisnotitalicized.14Atermusedinconstructiontodescribetheday-to-dayactivitiesacontractoremploystocompleteconstruction.Changes

to engineering designs or requirements to de-water the streams while working would change the day-to-day activities to complete the project.


Who authorized these overruns?

TheadministrativecostoverrunswereauthorizedatthetimetheBoardapprovedthecontract.TheconstructioncostoverrunsweredueprimarilyfromtheuntimelyexecutionoftheProject.Therefore, theBoardshouldhavediscussed thecost impactofsuchdelays. Instead,delaysoccurredinallphasesfromadelayedstart,todelaysduringtheProjectplanningandexecution.Sincetheoverrunsaredrivenbyinflationaryincreasestowagesandmaterials,theelapsedtimeaddedmorecostscollectively.Wedidnotfindaparticularclaimorcollectionofclaimsthatdirectlycausedtheoriginalconstructioncostestimatestobeexceeded.

When did the potential for Project cost overruns become apparent?

ThepotentialforProjectcostoverrunsbecameapparentwhenthecontractwithEngineeringFirmAwasapprovedbytheBoardinJanuary2013,becausethecontractwithEngineeringFirmAwas14percentoftheestimatedconstructioncosts.Engineeringcostswouldonlybereimbursedatupto7.5percentofactualconstructioncosts.TheBoardshouldhavebeenawarethat delays would cause additional costs.

Why was the full Board not immediately informed of these overruns? Especially prior to their occurrence?

Projectoverrunsoccurredbasedonvariousreasonssuchasredesigncosts,extendedagencyreviewsandlegalissuesrelatedtolandowneraccess.However,EngineeringFirmAdidnotsubmitmonthlybillingstotheCo-Managers,norweretheyrequiredtoundercontractualterms.Ifmonthlybillingsweresubmitted,Boardknowledgeoftheoverrunswouldhavebeensooner.

Regarding Engineering Firm A working outside the scope of the contract: Why did Engineering Firm A work outside the scope of the contract?

ThecontractallowedEngineeringFirmAtoperformadditionalworkfortheCounty,suchasobtainingnecessaryeasementsforlandowneraccess,atspecifiedhourlyrates.

Who authorized this additional work?

EngineeringFirmA’scontractstipulatedthattheBoardappointsomeonethatwouldhavefullcontrolovertheProject,whichincludesauthorization.TheBoardappointedtwoCo-Managers,oneofwhichauthorizedtheadditionalwork.Also,wefoundthatEngineeringFirmAreportedto the Board in February 2013 that they were performing work related to gaining landowner easements for the project.

Why was the Board not immediately informed of this additional work, prior to its commencement, especially if this incurred an additional cost to the County?

TheBoardwas informedof the additionalwork,beginningFebruary2013and subsequentmonths,viareportsatthemonthlymeetingsbyEngineeringFirmAandtheCo-Managers.15

15AdditionalworkperformedwasreportedtotheBoardinFebruary2013andinsubsequentmonths.WereviewedmonthlyinvoicessubmittedtotheCountybyEngineeringFirmAfromJanuary2013throughDecember23,2014andcouldnotdeterminewhentheadditionalworkstartedbutnotedbillingforthisworkdidnotstartuntilJuly2013.


However, theBoard did not read the contract and, therefore,was not aware that theworkbeingperformedwasnotincludedinthetotalcostsnotedinthecontractandwouldcostextra.Co-Managers should have reported to the Board that the additional work to be completed by EngineeringFirmArequiredadditionalcosts,butitisultimatelytheBoard’sresponsibilitytoestablish requirements regarding what information should be reported to it.

Currently, Project cost overruns are projected to cost Schoharie County taxpayers an additional $2.6 million.

Wedeterminedcurrentoverrunstobe$1.45millionrelatedonlytoengineeringcosts.WhentheBoardoriginallysignedEngineeringFirmA’scontractatanamountof14percentofestimatedengineeringcosts,theBoardimmediatelycreatedafundinggapof$1.3million,asthefederalawardwillonlypayfor7.5percent,or$1.6million,oftheengineeringcosts.Althoughtherearecurrentlyconstructioncostoverrunstotaling$2.09million,theseoverrunsarestillwithincurrent reimbursable amounts.

This is unacceptable. The actions that led us to this point must be revealed, and those responsible must be held accountable.

WedeterminedthattheBoardisresponsibleandhadbeenmadeawareofallitems.However,thefailuretoreadcontracts,adoptpoliciesandproceduresregardingmonitoringprojects,andstallingtheProjecthasledtoadditionalcoststhatinthefuturecouldincreasethelocaltaxpayershareoftheProject.


APPENDIX B

RESPONSE FROM COUNTY OFFICIALS

TheCountyofficials’responsetothisauditcanbefoundonthefollowingpages.


SeeNote1Page21


SeeNote2Page21


SeeNote3Page21

SeeNote4Page21


APPENDIX C

OSC COMMENTS ON THE OFFICIALS’ RESPONSE

Note1ThisincreasedcostaddedtothefundinggapintheProject.Initially,employeesprovidedoversightatno additional cost.

Note2This additional work was discussed at the February 2013 Board meeting and was listed in the original contractasworkthatcouldbeperformedatspecifiedhourlyratesinexcessoftheapprovedcontractamount.

Note3TheBoardshouldestablishclearcommunicationexpectationswhendutieshavebeendelegated toavoid such misunderstandings.

Note4The Board would be responsible to establish this chain of command because it is responsible for the general oversight of all capital projects.


APPENDIX D

AUDIT METHODOLOGY AND STANDARDS

Toaccomplishourobjective,weinterviewedCountyofficials,testedselectedrecordsandexaminedpertinentdocumentsfortheperiodJanuary1,2013throughSeptember23,2014.Weextendedourscopeback toMay1,2012andforward throughFebruary2015 to reviewBoardmeetingminutesrelatedtotheProject.Ourexaminationincludedthefollowing:

• WereviewedtheCounty’sPoliciesandProceduresManualtogainanunderstandingofBoardoversight responsibilities.

OurexaminationincludedthefollowingstepsspecificallyrelatedtotheProjectobjective:

• We interviewedCountyofficials,Co-Managersandexternal thirdparties,andwereviewedBoardandCommitteemeetingminutesandcontractstogainanunderstandingoftheProject.

• We reviewed contract changes to determine if they were properly approved by the Board and Attorney.

• We reviewed contract amounts and funding sources to determine if there would be a potential local cost to County residents.

• Wemade a field visit to one of the stream restoration projects to determine if work hadprogressed as indicated.

• WedevelopedauditprocedurestoaddresstheissuesidentifiedintheBoard’scomplainttoourOffice.

Ourexaminationincludedthefollowingstepsspecificallyrelatedtothecontractobjective:

• WeinterviewedCountyofficials,departmentheadsandemployeestogainanunderstandingofthecontractprocess,whichincludedapproving,monitoring,controlling,payingandapprovingamendments to contracts.

• Werandomlyselectedfivecontractsfromthemastercontractlist,15contractsfromdepartment

heads contract lists and 20 contracts from the County’s cash disbursement system to determine if contracts were approved in accordance with County’s procurement policy.

• We randomly selected 10 contracts to determine whether contractual services were paid in accordancewith the contract and services providedwere supported, and to verify that thepayment went to the appropriate contractual vendor.

• We randomly selected 10 contracts to determine if payments made per disbursement log totals were greater than contract amounts and if amendments or change orders were properly


approvedandforappropriatepurposes.WeinquiredofCountyofficialsiftheywereawareofany contract changes and tested one change that we were made aware of.

WeconductedthisperformanceauditinaccordancewithGAGAS.Thosestandardsrequirethatweplanandperform theaudit toobtainsufficient,appropriateevidence toprovidea reasonablebasisforourfindingsandconclusionsbasedonourauditobjective.Webelievethattheevidenceobtainedprovidesareasonablebasisforourfindingsandconclusionsbasedonourauditobjective.


APPENDIX E

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

OfficeoftheStateComptrollerPublicInformationOffice110StateStreet,15thFloorAlbany,NewYork12236(518)474-4015http://www.osc.state.ny.us/localgov/

Toobtaincopiesofthisreport,writeorvisitourwebpage:


APPENDIX FOFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENTAND SCHOOL ACCOUNTABILITYAndrewA.SanFilippo,ExecutiveDeputyComptroller

GabrielF.Deyo,DeputyComptrollerNathaalieN.Carey,AssistantComptroller

LOCAL REGIONAL OFFICE LISTING

BINGHAMTON REGIONAL OFFICEH.ToddEames,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Suite170244 Hawley StreetBinghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313Email:[email protected]

Serving:Broome,Chenango,Cortland,Delaware,Otsego,Schoharie,Sullivan,Tioga,TompkinsCounties

BUFFALO REGIONAL OFFICEJeffreyD.Mazula,ChiefExaminerOfficeoftheStateComptroller295MainStreet,Suite1032Buffalo,NewYork14203-2510(716)847-3647Fax(716)847-3643Email:[email protected]

Serving:Allegany,Cattaraugus,Chautauqua,Erie,Genesee,Niagara,Orleans,WyomingCounties

GLENS FALLS REGIONAL OFFICEJeffreyP.Leonard,ChiefExaminerOfficeoftheStateComptrollerOneBroadStreetPlazaGlensFalls,NewYork12801-4396(518)793-0057Fax(518)793-5797Email:[email protected]

Serving:Albany,Clinton,Essex,Franklin,Fulton,Hamilton,Montgomery,Rensselaer,Saratoga,Schenectady,Warren,WashingtonCounties

HAUPPAUGE REGIONAL OFFICEIraMcCracken,ChiefExaminerOfficeoftheStateComptrollerNYSOfficeBuilding,Room3A10250VeteransMemorialHighwayHauppauge,NewYork11788-5533(631)952-6534Fax(631)952-6530Email:[email protected]

Serving:NassauandSuffolkCounties

NEWBURGH REGIONAL OFFICETennehBlamah,ChiefExaminerOfficeoftheStateComptroller33AirportCenterDrive,Suite103NewWindsor,NewYork12553-4725(845)567-0858Fax(845)567-0080Email:[email protected]

Serving:Columbia,Dutchess,Greene,Orange,Putnam,Rockland,Ulster,WestchesterCounties

ROCHESTER REGIONAL OFFICEEdwardV.Grant,Jr.,ChiefExaminerOfficeoftheStateComptrollerThePowersBuilding16WestMainStreet,Suite522Rochester,NewYork14614-1608(585)454-2460Fax(585)454-3545Email:[email protected]

Serving:Cayuga,Chemung,Livingston,Monroe,Ontario,Schuyler,Seneca,Steuben,Wayne,YatesCounties

SYRACUSE REGIONAL OFFICERebeccaWilcox,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Room409333E.WashingtonStreetSyracuse,NewYork13202-1428(315)428-4192Fax(315)426-2119Email:[email protected]

Serving:Herkimer,Jefferson,Lewis,Madison,Oneida,Onondaga,Oswego,St.LawrenceCounties

STATEWIDE AUDITSAnnC.Singer,ChiefExaminerStateOfficeBuilding,Suite170244 Hawley Street Binghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313

schoharie county - stream restoration project and contract ... · division of local government...

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