our audit identified internal control weaknesses in the ... · pdf filethe scope of the audit...

Slate or California California State Traosporrntion Agency DEPAllTMENT OF TRANSPORTATION

Memorandum Serious drought Help s111bulle water

To CHRIS SCHMIDT Chief Date March 2 2017 Division of Transportation Planning

Fi~e Pl580-0020

~

1

From MARSUE MORRILL CP~--middot Chief External Audits - Local Governments Audits and Investigations

Subicct PREmiddotAWARD AUDIT- NEVADA COUNTYTRANSPORTAION COMMISSION

We performed a pre-award audit of the Nevada County Transportation Commission (NCTC) to determine whether NCTCs financial management system is adequate to accumulate and segregate reasonable allowable and allocable project costs It was also performed to determine whether NCTC has a procurement and contract management system that complies with state and federal regulations The audit period covered costs incurred on an agreement with Caltrans from July 1 2013 through June 30 2014 The final report along with NCTCs full response is attached

Based on our audit NCTCs financial management system is capable of adequately accumulating and segregating reasonable a11owable and allocable project costs however we noted weaknesses in NCTC s internal controls and procurement and contract management practices

Please provide our office with a corrective action plan addressing the recommendations in the report including time lines by April 14 2017

If you have any questions please contact Teresa Greisen Audit Manager at (916) 323-7910 or me at (916) 323-7105

Attachment Nevada County Transportation Commission Pre-award Audit Report

Provide a sofe smmiddotainable mtegrCJed andcjicienl trq11spoation system to enhance Califomtu seconomy and li1bullahilfly

CHRIS SCHMIDT March 2 201 7 Page 2of 2

c Dan Landon Executive Director Nevada County Transportation Commission Venes hia Smith Financial Manager Financial Services Federal Highway Administration Roberto Rodrigues FlRE amp Program Review Coordinator Federal Highway

Administration Tashia Clemons Director Program Development Federal Highway Administration Kara Magdaleno Administrative Program Assistant Planning and Finance

Federal Highway Administration Rihui Zhang Acting District Director District 3 Caltrnns C Edward Philpot Jr Branch Chief GrantsPublic Engagement Office o( Community

Planning Caltrans Ezequiel Castro Branch Chief State Transit Grants Division of Rail amp Mass

Transportation Cal trans Sadie Smith Branch Chief Division of Rail Division of Rai l amp Mass Transportation

Cal I rans Erin Thompson Chief Office of Regional Planning Division of Transportation Planning

Caltrans Jacqucl inc Kahrs Branch Chief Office of Regional Planning Division of Transportation

Planning Caltrans James Ogbonna Chief Division of Mass Transportation Calt rans Mark Samuelson Acting Chief Division of Local Assistance Caltrans Wenyi Long Policy Liaison Office of Policy Development and Quality Assurance

Division of Local Assistance Caltrans Phyllis Nahale Audits Liaison Office of Policy Development and Quality Assurance

Division of Local Assistance Callrans Marlon Flournoy Deputy District Director Planning and Local Assistance District 3

Call rans Marlin Villanueva District Local Assistance Engineer District 3 Caltrans Marsuc Morrill Audits and Investigations Caltrans

lorn1bull 11 safernsta111ahle 1111erated and eicie1111m11spmmiddot111tirm ~rs11middot111

m e11lu111ce ( ol fom111 secmwmr wul 1mh1ltty middotmiddot

Audit Report March 2017

lbtransbull

Nevada County Transportation Commission Pre-Award Audit

PREPARED BY California Department of Transpmtation

Audits and Investigations - MS 2

Post Office Box 942874

Sacramento California 94274-000 l

wwwdotcagovhqaudits

AUDIT TEAM

MarSue Morrill CPA Chief External Audits-Local Agencies

Teresa Greisen Audit Manager

Carvin Seals Jr Auditor-in-Charge

Jose Hernandez Auditor

Pl580-0020

Provide a safe s11srai11able integrotedandefficie1 transportation system 10 mh1111ce California middotr economy andlivability

Nevada County ofTransporfation Commission Pre~AwardAudit

TABLE OF CONTENTS

SUMMARY 1

OBJECTIVES 1

SCOPE 1

METHODOLOGY 2

BACKGROUND 2

CONCLUSION 2

VIEWS OF RESPONSIBLE OFFICIALS 2

FINDINGS AND RECOMMENDATIONS 4

FINDING I - Financial Management System Weaknesses 4

FINDING 2- Procurement and Contract Management Weaknesses 6

ATTACHMENTS

I Audit Response from the Nevada County Transportation Commission


SuMMARY OBJECTIVES ScoPE

METHODOLOGY BACKGROUND AND CoNCLUSION

SUMMARY

The California Department of Transportation (Caltrans) Audits and Investigations (AampI) performed a pre-award audit of the Nevada County Transportation Commission (NCTC) and identified weaknesses in the financial management system procurement and contract management processes that do not ensure compliance with Cal trans agreement provismiddotions and state and federal regulations

OBJECTIVES

Caltrans AampJ performs pre-award audits to ensure Caltrans is meeting its legal and fiduciary responsibilities and that state and federal funds are properly expended by local government agencies This audit was performed to determine whether NCTC had an adequate financial management system capable of accumulating and segregating reasonable allowable and allocable project costs in compliance with state and federal regulations It was also performed to determine whether NCTC has a procurement and contract management system in compliance with state and federal regulations The audit included tests of select transactions from costs incurred on one agreement with Cal trans from July 1 2013 through June 30 20 I 4

SCOPE

The scope of the audit was limited to reviewing financial and compliance activities The audit included interviews ofNCTC staff necessary to obtain an understanding of the NCTCs financial management system and reviews ofpolicies and procedures ofNCTC It also included transaction testing of reimbursed project costs to evaluate compliance with Title 2 Code of Federal Regulations (CFR) Part 225 Title 48 CFR Chapter l Part 31 Title 49 CFR Part 18 Public Contract Code Caltrans Local Assistance Procedures Manual and requirements stipulated in the NCTCs agreements with Caltrans Field work was completed on August 18 2015 and transactions occurring subsequent to this date were not tested and accordingly our conclusion does not include costs or credits arising after this date

The NCTC is responsible for costs incurred and billed to Caltrans compliance with applicable agreement provisions state and federal regulations and the adequacy ofits financial management system to accumulate and segregate reasonable allocable and allowable costs Because ofinherent limitations in any financial management system misstatements due to error or fraud may occur and not be detected Also any projection or evaluation of the financial management system in future periods using the results of this audit are subject to the risk that the financial management

1

Nevada County Transportation Commission Pre-Award Audi

system may become inadequate because of changes in conditions or that the degree ofcompliance with the policies or procedures may deteriorate

METHODOLOGY

We conducted this performance audit in accordance with generally accepted government auditing standards Those standards require that we plan and perform the audit to obtain sufficient appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives The audit was less in scope than an audit performed for the purpose of expressing an opinion on the financial statements of the NCTC Therefore we did not audit and are not expressing an opinion on the NCTCs financial statements

An audit includes examining on a test basis evidence supporting the amounts and disclosures in the data and the records selected An audit also includes assessing the accounting principles used and significant estimates made as well as evaluating the overall presentation

BACKGROUND

Caltrans AampJ conducts pre-award audits on local agencies receiving state and federal funds to determine if local agencies are complying with state and federal requirements Caltrans requires pre-award audits to be performed by AampI prior to establishing a Master Agreement with local agencies for state and federal funded projects

CONCLUSION

Based on our audit NCTCs financial management system is capable ofadequately accumulating and segregating reasonable allowable and allocable project costs however we noted the following exceptions

bull Internal control weaknesses in the financial management system related to the preparation ofbillings to Caltrans and inadequate policies and procedures

bull Weaknesses in procurement and contract management practices to ensure compliance with Cal trans agreement requirements and state and federal regulations

VIEWS OF RESPONSIBLE OFFICIALS

Our findings and recommendations considered NCTCs response dated February 14 2017 to our February 2 2017 draft report Our findings and recommendations NCTCs response and our analysis of the response are set forth in the Findings and Recommendations section of this report A copy of NCTCs full written response is included as Attaclunent I

2

Nevada Coun~v Transportation Commission Pre-Award Audit

This report is intended as information for Caltrans management the Federal Highway Administration The Federal Transit Administration and the NCTC This report is a matter of public record and will be placed on Caltrans AampIs website which can be viewed at ltwwwdotcagovhqauditsreports_issuedhtmlgt

If you have any questions please contact Carvin Seals Jr Auditor at (916) 323-7965 or Teresa Greisen Audit Manager at (916) 323-7910

( middot I middot ) I ~) ( middot ) middotmiddotmiddot middot_ 1- 1 middotmiddot t I t middot

MARSUE MORRILL CPA Chief External Audits - Local Governments Audits and Investigations

March 2 20 t7

3

Nevada Coumy Transportation Commission Pre-AwardAudit

FINDINGS AND RECOMMENDATIONS

FINDING 1 - FINANCIAL MANAGEMENT SYSTEM WEAKNESSES

Our audit identified internal control weaknesses in the Nevada County Transportation Commissions (NCTC) financial management system and non-compliant billing practices that are not in compliance with 2 CFR 225 Cost Principles (superseded by 2 CFR 200) Internal control weaknesses and improper practices can result in unallowable costs billed to the California Department of Transportation (Caltrans) The following issues were identified

bull Billings to Caltrans for labor and fringe benefit costs did not tie to the financial management system for the period reported on the billings Billings were not submitted at least quarterly as required by Caltrans

bull There is no timesheet correction policy to ensure a proper audit trail for changes made to employee time charges

bull No unallowable account is established to accumulate and segregate all costs related to projects

Specifically we tested two billings to Caltrans and found that NCTC did not use a monthly cutM off when preparing the billings and consistently indicated the wrong period for when the costs were incuned NCTC lacked an audit trail between the costs billed and the source documents (timesheets and payroll register) supporting the costs for the period identified The labor costs captured for the development of the billings were based on hours associated to pay dates versus the actual hours worked in the month represented on the billings The misstated billings resulted in the labor costs and associated fringe benefits to be overstated for some billings and understated for other billings

The Master Fund Transfer Agreement between NCTC and Caltrans requires billings to be submitted at least quarterly Of the two billings tested NCTC failed to submit the billings quarterly One billing covered a five month period and the other a twelve month period)

In our review of staff time charges we found that NCTC did not have a policy and procedure for time sheet corrections to ensure an audit trail exists between the employees original time charges and changed or corrected time charges When changes or corrections are required on an employee time sheet the original is discarded and a new time sheet is prepared by the employee and signed

We also found that NCTC did not have an unallowable account within their chrut of accounts to segregate and tTack allowable costs and unallowable costs associated to a projectwork element (WE) Rather than establishing an unallowable account to track such costs NCTC records unallowable costs to Fund 327 - Admin amp Planning and classifies these costs as indirect Fund 327 is funded by NCTCs local funds This method does not provide an accurate total cost per projectWE when unallowable costs are not accumulated and segregated by projectWE

4

Nevada County Transporlation Commission Pre-Award Audit

NCTC stated that they believed that bilHngs based on pay dates was acceptable and felt the costs would even out at the end of the fiscal year NCTC also did not feel it was necessary to bill every quarter due to the low dollar amounts they were seeking for reimbursement

NCTCs Master Fund Transfer Agreement No 74A0132 Article II Section 1A1 states RTPA shall prepare and submit to State not more frequently than once a month but at least quarterly two signed Request for Reimbursements for the reimbursement of actual allowable costs incurred and paid by RTPA consistent with the work elements described in the OWP

Article III Section IA states in part RTPA agrees to comply with Federal procedures in accordance with Office of Management and Budget Circular A-87 Cost Principles for State Local and Indian Tribal Governments and 49 CFR Part 18 Unifo1m Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments

Article III Section 3B states RTPA shall establish and maintain and shall require that its subrecipients contractors and subcontractors shall establish and maintain an accounting system conforming to Generally Accepted Accounting Principles (GAAP) to support Requests for Reimbursement which segregate and accumulate the costs of work elements by line item and produce quarterly reports which clearly identify reimbursable costs and other expenditures by OWP work elements

2 CFR Part 225 Appendix B (8) ( d) states in pa1t ( l) Fringe benefits are allowances and services provided by employers as compensation in addition to regular salaries and wages (2) the cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job are allowable if they are provided llllder established written leave policies the costs are equitably allocated to all related activities including Federal awards and the accounting basis selected for cost each type of leave is consistently followed by the government unit

49 CFR Part 1820(b) (3) states Internal Control Effective control and accountability must be maintained for all grant and subgrant cash real and personal property and other assets

49 CFR Part 1 820(b) (1) states Financial reporting Accurate current and complete disclosure of the financial results of financially assisted activities must be made in accordance with the financial reporting requirements of the grant or subgrant

RECOMMENDATION

We recommend NCTC implement the following

bull Prepare the billings to Caltrans based on actual labor costs worked in a specific month and ensure costs tie to the financial management system between the costs included on the billings and the source documentation supporting the same costs

5


bull Submit billings to Caltrans on a quarterly basis as required in the Master Fund Transfer Agreement

bull Develop written timesheet correction policy and procedures which includes a requirement to maintain an audit trail between original time sheets and corrected time sheets

bull Establish an account to accumulate and segregate unallowable costs The unallowable account should allow for the accumulation of unallowable costs on each projectWE to ensure the total cost ofeach projectWE is accurate and reflects allowable and unallowable cost components

NCTCS RESPONSE NCTC indicated they will identify the dates covered by the labor costs shown on the billings submit biUings to Caltrans no less than quarterly develop written timesheet conmiddotection policies and procedures and that they have established an account to accmnulate and segregate unallowable costs within their financial management system See Attachment I for NCTCs complete responses to the finding

AUDITORS ANALYSIS OF NCTCS RESPONSE NCTCs response indicated they will correct processes and will update policies and procedmes to address the audit recommendations NCTC also indicated they already added a classification to their financial management system to accumulate unallowable costs The change to their financial management system was done subsequent to our fieldwork and has not been audited or reviewed

FINDING 2 - PROCUREMENT AND CONTRACT MANAGEMENT WEAKNESSES

NCTCs procurement and contract management practices did not ensure compliance with Cal trans agreement requirements and state and federal regulations Our testing found weaknesses in the procurement of a consultant weak internal controls over contract management and no contracts with recipients of pass-through funds Additionally NCTC lacked adequate policies and procedures for procurement and contract management Weak internal controls over procurements and contract management can result in disallowed costs related to noncompliant procurements of consultants andor unallowable invoiced consultant costs or recipient pass-through costs

Specifically we found the following

Procurement

We tested one consultant procurement and found that NCTCs procurement practices did not adequately support that a competitive procurement was performed in compliance with state and federal regulations We noted the following deficiencies

bull NCTC did not seek approval from their board to release the request for proposal (RFP) and the selection panel members were not required to sign a conflict of interest form

6


bull NCTC did not advertise the RFP in a major newspaper of general circulation however they did post the RFP on their website and sent a copy to various consultants on a consultant mailing list they maintain Failure to advertise in a major newspaper could potentially limit the number of qualified candidates from pru1icipating

bull NCTC indicated they included a series of questions during their oral interviews that were not consistent with the RFP criteriaevaluation factors

bull NCTC did not maintain the interview questions and interview scores that were used to detennine the most qualified candidate

Improper procurement practices and lack of a documented history of the procurement actions performed to support compliance with state and federal procurement requirements could result in disallowed consultant costs

NCTC stated that they believed that the fact the Board approved their OWP that included budgeted costs for consultants they were not required to seek approval prior to releasing the RFPs Furthermore NCTC felt if they ranked and scored the candidates based on the proposals and oral interviews were held they did not have to maintain interview score sheets as well as rank them in the same manner as the RFP

Contract Management

We reviewed the consultant contract and three invoices related to the consultant procurement tested and noted the following deficiencies with NCTCs contract management practices that were not in compliance with Caltrans agreement and Caltrans Local Assistance Procedure Manual (LAPM) Chapter 10

bull The consultant contract lacked required contract language requiring consultants and subshyconsultants to comply with the specific fiscal provisions administrative requirements and the state CalHR travel reimbursement rates

bull The contract lacked an end date bull The contract lacked a contract number or identifier to differentiate the consultant by

project bull The consultants cost proposal included loaded labor rates which did not identify the makeshy

up of the rates such as the hourly rate fringe benefit rate overhead rate and profit A detailed breakdown of the proposed costs allows for an evaluation of the reasonableness of the costs proposed

Failure to ensure clear consistent contract language as well as including the term end date increases the risk for noncompliance and overpayment

7

Nevada Counly Transportation Commission Pre-Award Audit

It was also noted that the Project Managers (PM) were signing and dating the approval of the consultant invoices however the PMs were not including the WEs associated to the projects on the invoice NCTC was not familiar with the state and federal contract regulations as well as Caltrans agreement provisions

Sub-recipient Pass-Through Funds

NCTC did not enter into contractual agreements with sub-recipient agencies who perfonn work on their behalf We did not perform tests ofthe sub-recipient invoiced costs but rather inquired on the work that was performed by the sub~recipient agencies identified on the billings NCTC staff stated that they believed that since the sub-recipient costs were included within the OWP that was approved by the board NCTC was not required to enter into contractual agreements The lack of contractual agreements with sub-recipients of pass-through funds could result in disallowed costs incurred by NCTC Caltrans agreements require that sub-recipient contracts contain specific fiscal provisions regarding compliance with state and federal regulations Additionally contractual agreements provide documented agreement on the roles and responsibilities ofeach party the start and end date of the agreement and the expectations for the work to be performed and reimbursed

Procurement and Contract Management Policies and Procedures

NCTCs procurement and contract middot management policies and procedures documented in the Administrative Operating Procedures Manual were not in compliance with California Public Contract Code (PCC) 49 CFR 18 and LAPM Chapter 10 Specifically we found NCTCs policies and procedures lacked the following

bull A discussion of the different types of procurements that can be used (Invitation for BidRequest for ProposalRequest for Qualifications) and the procedures and processes associated to each type

bull A discussion of the evaluation process and evaluation criteria and weights or relative importance of each

bull Procedures for preparing an independent cost estimate or cost analysis bull Procedures detailing proper processes to manage consultant contracts including amending

contracts and closing-out contracts bull Procedures detailing proper processes for managing sub~recipients of pass through funds bull Procedures for preparing purchase orders that identifies the purpose and approval process

for small purchases ($1000 or less) associated to the four credit cards that are issued in the name ofeach employee CuITently NCTC has weak internal controls over smalfpurchases as employees made purchases with no docwnented approval

Additionally we found that NCTC Administrative and Operating Procedures Manual included a clause relating to charging a five percent administrative fee to other local agencies and private firms tliat is not based on actual costs incurred We informed NCTC that they may not charge subshyrecipients a fee that is not based on actual incurred costs when seeking reimbursement of state and federal funds

8


Failure to develop and implement adequate policies and procedures over procurements and contract management can result in errors and irregularities and an increased risk of disallowed costs

NCTCs Master Fund Transfer Agreement No 74A0132 Article III Section IA states RTPA agrees to comply with Federal procedures in accordance with Office of Management and Budget Circular A-87 Cost Principles for State Local and Indian Tribal Governments and 49 CFR Part 18 Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments

Article III Section 1B states in part RTPA agrees and shall require all of its contractors subcontractors and subrecipients to agree to the following (a) the Contract Cost Principles and Procedures 48 CFR Chapter 1Part31 shall be used to determine the allowability of individual project cost items and (b) these parties shall comply with Federal administrative procedures in accordance with 49 CFR Part 18

Local Assistance Procedures Manual Chapter 10 Consultant Selection Exhibit l 0-H Sample Cost Proposal identifies the breakout of the labor rates and Fee (Profit) that is only applied to labor and not non-labor expenditures

Local Assistance Procedures Manual Chapter 10 states in part The contract administrators duties include the followingReview billings and makes a determination whether costs are reasonable in relation to the work perfonned during billing period Approves the consultant s progress payments

48 CFR Chapter 1 Part 31204 (a) Costs shall be allowed to the extent they are reasonable allocable and determined to be allowed under 31202 (direct Costs)

49 CFR Part 1820 (b) (3) states Internal Control Effective control and accountability must be maintained for all grant and subgrant cash real and personal property and other assets

49 CFR Part 1836 (b) (2) states Grantees and subgrantees will maintain a contract administration system which ensures that contractors perform in accordance with the terms conditions and specifications of their contracts or purchase orders

49 CFR Part l 836 (i) states in part a grantee s contracts must contain provisions in paragraph (i) of this section (I) Administrative contractual or legal remedies in instances where contractors violate or breach contract terms (2) Termination for cause and for convenience by the grantee (10) Access by the grantee to books documents papers and records (11) Retention ofall required records for three years after grantees make final payments and all other pending matters are closed

49 CFR Part 1836 b) (9) states Grantees and subgrantees will maintain records sufficient to detail the significant history of a procurement These records will include but are not necessarily

9


limited to the following rationale rationale for the method of procurement selection of contract type contractor selection or rejection and the basis for the contract price

49 CFR Part 1836 (d) (3) (i) states in part requests for proposals will be publicized and identify all evaluation factors and their relative importance PCC 10351 (a) (2) states in part Grantee shall establish written policies and procedures and a management system that will ensure the state agencys contracting activities comply with applicable provisions of law and regulations and that it has demonstrated the ability to carry out these policies and procedures and to implement the management system

PCC 10344 (c) states in part All proposals meeting the formal requirements shall then be submitted to an agency evaluation committee which shall evaluate and score the proposals using the methods specified in the request for proposal All proposals and all evaluation and scoring sheets shall be available for public inspection at the conclusion of the committee scoring process

PCC 10351 (a) (2) states in part~ Grantee shall establish written policies and procedures and a management system that will ensure the state agencys contracting activities comply with applicable provisions of law and regulations and that it has demonstrated the ability to carry out these policies and procedures and to implement the management system

PCC 10346 states No state agency shall make progress payments on a contract unless it first has established procedures which will ensure that the work or services contracted are being delivered in accordance with the contract

RECOMMENDATION


bull Ensure procurements of consultants are properly documented and comply with statemiddot and federal procurement regulations

bull Ensure all consultant contracts and sub-recipient agreements reimbursed with state andor federal funds contain language as required in the Caltrans Agreements and contain end dates

bull Ensure contract numbers or unique identifiers are assigned to consultant contracts bull Ensure consultant cost proposals contain detailed information regarding the make-up of the

proposed costs such as hourly rates fringe benefit rates overhead rates and profit amount bull Include the WE on approved consultant invoices to ensure correct project is charged bull Ensure contractual agreements are entered into between NCTC and sub-recipients of passshy

through funds bull Revise policies and procedures over consultant procurements contract management and subshy

recipients ofpass-through funds to ensure compliance with state and federal requirements bull Develop Purchase Orders and written policy and procedures for small purchases bull Ensure the unsupported 5 percent administrative fee is deleted from NCTC s policies and

procedures or the language is revised to ensure it is not billed to Cal trans

IO

Nevada Comuy Transportation Commission Pre-A ward Audit

bull Ensure staff are trained on and comply with all revised policies and procedures

NCTCS RESPONSE NCTC partially agreed with the finding and recommendations NCTC indicated they will implement recommendations for conflict of interest forms revisions to their RFP templates revisions to consultant and sub-recipient contracts and will assign unique identifiers to contracts and invoices Additionally they will update their policies and procedures manual See Attachment I for NCTCs complete responses to the finding

NCTC indicated that each of the work elements in the OWP reflects the work activities lo be conducled by a consultant and includes a schedule for the development of the scope of work release of the RFP and the execution of the contract

NCTC acknowledged they did not advertise the RFPs in the local newspaper but stated they did advertise on their website and seut a copy to various consultants on a consulting mailing list which are acceptable methods of solicitation in accordance to the Caltrans Local Assistance Manual See Attachment I for NCTCs complete responses to the linding

AUDITORS ANALYSIS OF NCTCS RESPONSE NCTCs response indicated they will correct processes and will update policies and procedures to address the audit recommendations

With regard to the recommendation that the BoardCommission approve the release of each RFP AampI found the OWP resolution to be unclear as to the Executive Directors authority NCTCs proposed revision appears to provide adequate clarification

The LAPM in affccl during the period of costs selected for testing in the audit was the 2013 version The 2013 LAPM required RFP advertisement in a major newspaper therefore placing the RFP on the agencies web site was not considered adequate advertising NCTC is correct that in the most current LAPM advertising RFPs on their website as well as mailing to consultantlt on aconsulting mailing I isl are acceptable methods of solicitation

Based on the analysis of the response the finding remains as written

11

ATTACHMENT I

JAN ARBUCKLE - Grass Valley City Council DANIEL B LANDON EKecutlve Director CAROLYN WALLACE DEE - Truckee Town Council Nevada County Transportation Commission ANN GUERRA - Member-At-Large (Vice-Chairman) Nevada County Airport Land Use Commission LARRY JOSTES - Member-At-Large (Chairman) DAN MILLER - Nevada County Board ofSupervisors VALERIE MOBERG - Nevada City City Council ED SCOFIELD - Nevada County Board of Supervisors

Nevada County bull TruckeeGrass Valley bull Nevada City ------------------ COMMISSION -- shy

File 7400

February 14 2017

Marsue Morrill Chief External Audits - Local Governments Audits amp Investigations Department ofTransportation

Dear Ms Morrill

NCTC management appreciates the assistance of the California Department of Transportation Division of Audits and Investigations in identifying and strengthening any weaknesses in our internal control of the financial management system and in procurement and contract management practices In that regard and with respect to findings and recommendations of the Per-award audit report NCTC management notes that there were no improper expenditures of either state or federal funds and NCTC did not invoice for any unallowable costs

Below is a restatement of Caltrans findings and recommendations (shown in bold italics) followed by NCTC management s response andor proposed action to address each finding and implement Cal trans recommendations

FINDING 1-FINANCIAL MANAGEMENT SYSTEM WEAKNESSES

Caltrans provided the following recommendations to improve NCTCs financial management system

bull Prepare the billings to Catrans based on actual labor cost worked in a specific month and ensure cost tied to the financial management system between the costs included on the billings and the source documentation supporting the same cost

NCTCs payroll system is set up on biweekly pay periods To ensure that billings to Caltrans correctly capture labor costs shown on quarterly invoices NCTC will clearly indicate the dates covered by the labor costs included in the billing and will maintain the source documents (timesheets and payroll registers) supporting the cost for the period identified consistent with its bi-weekly pay periods

bull Submit billings to Catrans on a quarterly basis as required in the Master Fund Transfer Agreement

NCTC will submit billings to Caltrans no less than quarterly

101 Providence Mine Road Suite 102 Nevada City California 95959 bull (530) 26amp-3202 bullFax (530) 26amp-3260

E-mail nctcnccnnet bull Web Site wwwnctccagov

Response Draft Pre-Award Audit February 102017 Page2

bull Develop written timesheet correction policy and procedures which includes a requirement to maintain an audit trail between original timesheets and corrected timesheets

In the period covered by the audit no incorrect timesheets were entered into the financial system however to prepare for the possibility that in the future an incorrect timesheet could be entered NCTC will develop a written timesheet correction policy and procedure including a requirement to maintain an audit trail between original timesheets and corrected timesheets Further it will continue to be the policy of the Executive Director not to accept any incorrect timesheet

bull Establish an account to accumulate and segregate unallowable costs The unallowable account should allow for the accumulation ofunallowable costs on each projectWE to ensure the total cost of each projectWE is accurate and reflects allowable and unallowable cost components

NCTC has added a classification to its financial management system to allow for the accumulation of unallowable costs on each projectWE as recommended This will be done to ensure that the full cost of each projectWE is known During the period covered by the audit (July 1 2013 through June 30 2014) the total amount invoiced to Caltrans for reimbursement from Rural Planning Assistance funds was $287 562 and no unallowable costs were billed to Cal trans

FINDING 2-PROCUREMENT AND CONTRACT MANAGEMENT WEAKNESSES

Caltrans noted the following concerns regarding NCTCs procurement practices

bull NCTC did not seek approval from their board to release the request for proposal (RFP) and the selection panel members were not required to sign a conflict ofinterest form

In the future NCTC will request that all panel members sign a conflict of interest fonn prior to participating in the proposal review and selection process

With respect to the finding that NCTC did not seek approval to release the RFP reviewed prior to soliciting proposals NCTC would point out that each work element in NCTCs Overall Work Program (OWP) reflected the work activities to be conducted by a consultant and included a schedule for the development of the Scope of Work the release of the RFP the execution of the consultant contract and development of technical memoranda and the draft and final reports In its resolution approving the OWP the Commission provided the following authority to its Executive Director

BE IT FURTHER RESOLVED that the Executive Director of the NCTC or his designee is hereby authorized to apply for grants sign certifications and assurances and execute agreements to facilitate receipt of revenues and expenditure of funds as set forth


in the Overall Work Program in accordance with NCTCs Administrative Operating Procedures Manual

Based on the Commissions review and approval of the OWP the Executive Director did have approval to release RFPs enumerated therein without further action by the Commission However in revising its policies and practices NCTC will request that the Commission adopt a policy directing the Executive Director to bring RFPs to the Commission prior to their release for projects not included in the OWP Furthermore resolutions approving the OWP will explicitly authorize the Executive Director to issue the RFPs enumerated in the OWP

bull NCTC did not advertise the RFP in a major newspaper of general circulation however they did post the RFP on their website and sent a copy to various consultants on a consultant mailing list they maintain Failure to advertise in a major newspaper could potentially limit the number ofqualified candidates from participating

While it is accurate to state that NCTC did not advertise the RFP in a major newspaper of general circulation it is NCTC staffs understanding that such a method of advertisement is one acceptable method of solicitation but it is not a required method

The following is an excerpt from page 28 of 49 Chapter 10 of the Local Assistance Procedures Manual

Advertise for Consultants

The solicitation process for consultant services shall be by public advertisement or by any other public forum or method that assures qualified in-State and out-of-State consultants are given a fair opportunity to be considered for award ofcontract

Advertisement of the RFP in a major newspaper of general circulation technical publications of widespread circulation professional associations and societies recognized DBE organizations web hosting or clearing houses known for posting government contract solicitations such as BidSync or posting the RFP on the local agencys or other widely used websites are all acceptable methods of solicitation [Emphasis added]

As noted in the audit report NCTC does post its RFPs on its website distributes them to firms on its consultant list and utilizes a clearing house that distributes government contract solfoitations to its subscribers If in the future NCTC determines that advertisement in a major newspaper of general circulation will increase the number ofqualified candidates participating in its procurement process NCTC does have the ability to utilize that tool


Response Draft Pre-Award Audit February 10 2017 Page 4

NCTC will ensure that its interview questions are consistent with the RFP criteria and will revise its RFP template to reflect that oral interview scores will be taken into account in selecting the preferred candidate

bull NCTC did not maintain the interview questions and interview scores that were used to determine the most qualified candidate

In the future NCTC will retain copies of all the interview questions and scores used to determine the most qualified candidate in its procurement files

Caltrans also provided the following recommendations to improve NCTCs Contract Management Practices

bull Ensure procurements of consultants are properly documented and comply with state andfederal procurement regulations

In response to Caltrans recommendations NCTC staff has utilized the RTPA Procurement Policies and Procedures Manual completed in June 2015 for the Rural Counties Task Force to ensure that all procurements are properly documented and comply with state and federal procurement regulations Further staff is completing an update to the NCTC Policies and Procedures Manual which will be presented to the Commission for consideration later this year

bull Ensure all consultant contracts and sub recipient agreements reimbursed with state andor federal funds contain language as required in the Catrans Agreements and contain end dates

In 2015 NCTC staff and legal counsel updated the NCTC consultant contract template to include all appropriate state andor federal language as required in the Caltrans Agreements including a _provision that sets forth the end date for each contract

Similarly in 2016 NCTC staff and legal counsel developed and implemented sub recipient agreements that included state and federal language as required in the Caltrans Agreements

bull Ensure contract numbers or unique identifiers are assigned to consultant contracts

In 2016 NCTC staff implemented a system for assigning unique identifiers on consultant contracts and invoices

bull Ensure consultant cost proposals contain detail information regarding the makeup of proposed costs such as hourly rates fringe benefit rates overhead rates and profit amount

NCTC staff and legal counsel have updated the NCTC consultant cost proposal template to include detailed information regarding the makeup ofproposed costs such as hourly rates fringe benefit rates overhead rates and profit amount


bull Include the WE on approved consultant invoices to ensure correct project is charged

NCTC staff has implemented a system for identifying the OWP Work Element (WE) on approved consultant invoices It should be noted that in the period covered by the audit NCTC utilized four consultant contracts to conduct planning work and those contracts were managed by two staff members Based on NCTCs historic practices it is typical that NCTC has no more than four consulting contracts in place in a single year NCTC now includes WE numbers on invoices to assist its auditors in looking back at the projects But given the small number of contracts NCTC manages annually NCTC is confident that its prior failure to include unique identifiers has not lead to any invoicing errors

bull Ensure contractual agreements are entered into between NCTC and sub recipients of pass-through funds

As stated above in 2016 NCTC staff and legal counsel developed and implemented sub recipient agreements that include all required state and federal language

bull Revise policies and procedures over consultant procurements contract management and sub recipients ofpass-through funds to ensure compliance with state and federal requirements

As stated above staff is completing an update to the NCTC Policies and Procedures Manual which will be presented to the Commission for consideration later this year This update will include policies and procedures in compliance with state and federal requirements regarding consultant procurements contract management and the pass-through funds to sub recipients

bull Develop Purchase Orders and written policy andproceduresfor small purchases

NCTC staff has implemented of the use of purchase orders and a written policy will be included in the update of the NCTC Policies and Procedures Manual

bull Ensure the unsupported 5 percent administrative fee is deleted from NCTCs policies andprocedures or the languages revised to ensure it is not billed to Catrans

In the update to the NCTCs Policies and Procedures Manual the reference to the five percent administrative fee will be removed Furthermore no administrative fee is included in any of NCTC s current agreements

bull Ensure staffare trained on and comply with all revise policies and procedures

Upon completing the update of NCTCs Policies and Procedures Manual staff will be trained to comply with all the policies and procedures

Response Draft Pre-Award Audit February IO 2017 Page6

NCTC management welcomes the opportunity to implement practices that improve our internal controls and our management of public funds to enable us to continue providing efficient and effective service to our region and the State ofCalifornia

Sincerely

-~-B~A Daniel B Landon ~ Executive Director

CHRIS SCHMIDT March 2 201 7 of 2

c Dan Landon Executive Director Nevada County Transportation Commission Venes hia Smith Financial Manager Financial Services Federal Highway Administration Roberto Rodrigues FlRE amp Program Review Coordinator Federal Highway

Administration Tashia Clemons Director Program Development Federal Highway Administration Kara Magdaleno Administrative Program Assistant Planning and Finance

Federal Highway Administration Rihui Zhang Acting District Director District 3 Caltrnns C Edward Philpot Jr Branch Chief GrantsPublic Engagement Office o( Community

Planning Caltrans Ezequiel Castro Branch Chief State Transit Grants Division of Rail amp Mass

Transportation Cal trans Sadie Smith Branch Chief Division of Rail Division of Rai l amp Mass Transportation

Cal I rans Erin Thompson Chief Office of Regional Planning Division of Transportation Planning

Caltrans Jacqucl inc Kahrs Branch Chief Office of Regional Planning Division of Transportation

Planning Caltrans James Ogbonna Chief Division of Mass Transportation Calt rans Mark Samuelson Acting Chief Division of Local Assistance Caltrans Wenyi Long Policy Liaison Office of Policy Development and Quality Assurance

Division of Local Assistance Caltrans Phyllis Nahale Audits Liaison Office of Policy Development and Quality Assurance

Division of Local Assistance Callrans Marlon Flournoy Deputy District Director Planning and Local Assistance District 3

Call rans Marlin Villanueva District Local Assistance Engineer District 3 Caltrans Marsuc Morrill Audits and Investigations Caltrans

lorn1bull 11 safernsta111ahle 1111erated and eicie1111m11spmmiddot111tirm ~rs11middot111

m e11lu111ce ( ol fom111 secmwmr wul 1mh1ltty middotmiddot


lbtransbull






wwwdotcagovhqaudits

AUDIT TEAM





Pl580-0020



TABLE OF CONTENTS

SUMMARY 1

OBJECTIVES 1

SCOPE 1

METHODOLOGY 2

BACKGROUND 2

CONCLUSION 2





ATTACHMENTS





SUMMARY


OBJECTIVES


SCOPE



1



METHODOLOGY



BACKGROUND


CONCLUSION






2






March 2 20 t7

3












4









RECOMMENDATION



5










Procurement



6







Contract Management







7













8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely



lbtransbull






wwwdotcagovhqaudits

AUDIT TEAM





Pl580-0020



TABLE OF CONTENTS

SUMMARY 1

OBJECTIVES 1

SCOPE 1

METHODOLOGY 2

BACKGROUND 2

CONCLUSION 2





ATTACHMENTS





SUMMARY


OBJECTIVES


SCOPE



1



METHODOLOGY



BACKGROUND


CONCLUSION






2






March 2 20 t7

3












4









RECOMMENDATION



5










Procurement



6







Contract Management







7













8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely







wwwdotcagovhqaudits

AUDIT TEAM





Pl580-0020



TABLE OF CONTENTS

SUMMARY 1

OBJECTIVES 1

SCOPE 1

METHODOLOGY 2

BACKGROUND 2

CONCLUSION 2





ATTACHMENTS





SUMMARY


OBJECTIVES


SCOPE



1



METHODOLOGY



BACKGROUND


CONCLUSION






2






March 2 20 t7

3












4









RECOMMENDATION



5










Procurement



6







Contract Management







7













8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill

































Response Draft Pre-Award Audit February 10 2017





























Sincerely



TABLE OF CONTENTS

SUMMARY 1

OBJECTIVES 1

SCOPE 1

METHODOLOGY 2

BACKGROUND 2

CONCLUSION 2





ATTACHMENTS





SUMMARY


OBJECTIVES


SCOPE



1



METHODOLOGY



BACKGROUND


CONCLUSION






2






March 2 20 t7

3












4









RECOMMENDATION



5










Procurement



6







Contract Management







7













8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill















































Response Draft Pre-Award Audit February 10 2017















Sincerely





SUMMARY


OBJECTIVES


SCOPE



1



METHODOLOGY



BACKGROUND


CONCLUSION






2






March 2 20 t7

3












4









RECOMMENDATION



5










Procurement



6







Contract Management







7













8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely




METHODOLOGY



BACKGROUND


CONCLUSION






2






March 2 20 t7

3












4









RECOMMENDATION



5










Procurement



6







Contract Management







7













8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely







March 2 20 t7

3












4









RECOMMENDATION



5










Procurement



6







Contract Management







7













8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely













4









RECOMMENDATION



5










Procurement



6







Contract Management







7













8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely










RECOMMENDATION



5










Procurement



6







Contract Management







7













8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely











Procurement



6







Contract Management







7













8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely








Contract Management







7













8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely














8












9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely













9







RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely








RECOMMENDATION









IO










11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely











11

ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely


ATTACHMENT I



File 7400

February 14 2017


Dear Ms Morrill






























































Sincerely





















































Sincerely


our audit identified internal control weaknesses in the ... · pdf filethe scope of the audit...

Documents