HomeMy Public PortalAboutExhibit MSD 61D - Review of Construction Projects in Progress, December 2018This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD.
Review of Construction Projects in Progress FY ’18 AUDIT PLAN
Metropolitan St. Louis Sewer District
Review of Construction Projects in Progress
December, 2018
This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD.
Review of Construction Projects in Progress I FY ’18 AUDIT PLAN
The St. Louis Metropolitan Sewer District
Review of Construction Projects in Progress
December, 2018
Table of Contents
Overview and Scope ............................................................................. 2
Objectives .............................................................................................. 4
Methodology ........................................................................................... 5
Overall Conclusion and Results ............................................................. 6
Opportunities for Improvement ............................................................... 7
Acknowledgements ................................................................................ 8
OVERVIEW/SCOPE
This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD.
Review of Construction Projects in Progress 2 FY 2018 AUDIT PLAN
During 2012, a Consent Decree (the Decree) between the United States of America (EPA), the
Missouri Coalition for the Environment, and the Metropolitan St. Louis Sewer District (“MSD”)
was entered with an effective date of April 27, 2012. As a result of the Decree requirements, the
District developed and implemented Project Clear, which contains a very large construction
component, called Build System Improvements. The work outlined in this component was
originally scheduled to take place over twenty-three years. However, on June 22, 2018, a
United States District Judge approved an amendment that extends the schedule from twenty-
three years to twenty-eight years. (The reasoning behind the extension is the issuance of
new regulatory requirements requiring the acceleration of projects outside the scope of the
Consent Decree.)
Since the initial execution of the Decree, construction activities and costs have steadily
increased. District payments for capital assets are as follows (per audited cash flow
statements):
Fiscal Year Payments for Capital Assets
FY 2018 $236,673,660
FY 2017 $259,279,932
FY 2015 $201,243,603
FY 2014 $163,882,733
FY 2013 $154,847,862
FY 2012 $147,723,685
The budgeted amount for the CIRP (Capital Improvement and Replacement Program) in FY ’19
is $381.6 million. The overall estimated cost for Project Clear is $4.7 billion (in 2010 dollars).
With construction activities and costs continually increasing throughout the past several years
and no real “slowdown” in sight, the importance of maintaining effective procedures and controls
around the administration of construction/capital improvements projects remains a significant
objective for the District.
OVERVIEW/SCOPE
This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD.
Review of Construction Projects in Progress 3 FY 2018 AUDIT PLAN
Scope
For this engagement, Internal Audit (IA) took a slightly different approach than that used for prior
engagements in this area. Instead of focusing on completed projects, the focus for this
engagement was on “active” projects. With that in mind, IA selected two active projects from
the April 30, 2018 current project listing provided by Engineering. The two projects selected are
summarized below:
Project Name 1. Jefferson Barracks Tunnel 2. Harlem Baden Relief
Project Description
South St. Louis County - construct
Sanitary Storage Tunnel:
a) 17,800 feet (3.37 miles)
tunnel lined with a 7-foot
diameter fiberglass pressure
pipe and containing
instrumentation conduits;
tunnel is 150 to 230 feet
below ground (stores 5
million gal of wastewater);
b) 88-foot diameter launch
shaft;
c) 28-foot diameter recovery
shaft;
d) 7-new intake structures.
City of St. Louis - Construct storm
sewers:
a) 5,550 feet of 12-inch to 108-
inch (9ft) storm sewers;
b) 540 feet of sanitary sewers;
and
c) 3,240 feet of sewer lining.
Contract # #11711 #11770
Contract amount $63,333,333 $8,014,995
Contractor SAK Construction Bates Utility
Type of contract Lump Sum Unit Cost
Start date March, 2017 June, 2017
End date – estimated April 2020 January 2019
Duration 3 years 18 months
Payments as of 6-30-2018 $14,416,685 $3,270,371
% complete at 6-30-2018 23.0% 40.3%
The overall scope was to review the administration of these two active contracts with a specific
focus on the processing of payment application and change order transactions.
OBJECTIVES
This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD.
Review of Construction Projects in Progress 4 FY 2018 AUDIT PLAN
Objectives
The main objectives were to:
Ensure payment application and change order transactions are:
• Processed in compliance with the terms of each contract.
o Processed only for costs that are reasonable and allowable per the
provisions of the contract.
• Accurately processed (mathematically accurate).
o And prepared:
Using appropriate rates.
For work/costs actually performed/incurred (unless for
appropriate mobilization costs).
For costs not already paid by (or billed to) the District.
• Priced accurately and consistently for portions of work performed by
subcontractors.
• Supported by adequate documentation.
Ensure compliance with other contract and District requirements.
METHDOLOGY
This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD.
Review of Construction Projects in Progress 5 FY 2018 AUDIT PLAN
Methodology
To accomplish the above objectives, Internal Audit (IA):
• Held discussions with personnel from Engineering to gain an understanding of the
overall procedures utilized for project oversight as well as contractor payment and
change order processing.
• Obtained and reviewed District documentation related to the overall process and
documentation related to the two selected contracts. Documentation included:
o Contract documentation for each selected project
o Ordinances for each project
- #14599 - Jefferson Barracks Tunnel
- #14881 - Harlem-Baden Relief
o Change order documentation
o Pay application documentation
• Performed detailed testing of pay applications and change order transactions for:
- Mathematical accuracy, reasonableness, and overall propriety
- Adequacy of the supporting documentation
- Compliance with contract terms
- Accuracy, consistency, and propriety of amounts pertaining to subcontractors
• Reviewed for compliance with other contract and District requirements such as:
- Timely completion of monthly diversity reports
- Compliance with prevailing wage requirements
• At completion of fieldwork met with the process owners to clarify any ambiguities around
the processes and the methodology utilized by the District
OVERALL CONCLUSION AND RESULTS
This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD.
Review of Construction Projects in Progress 6 FY 2018 AUDIT PLAN
In the opinion of Internal Audit, in all significant respects, the controls and procedures utilized to administer construction/capital improvement contracts are
effectively designed and implemented.
Initial Inherent Business Process Risk: High Risk #
Overall Assessment of Engagement Results: Satisfactory **
____________________________________________________
^DEFINITIONS
How Results Are Assessed
** Engagement results are evaluated as Satisfactory, Generally Satisfactory or Unsatisfactory.
• Satisfactory (clean opinion) – No significant engagement findings2 or material
weaknesses3 were noted. Engagement findings1 may have been noted.
• Generally Satisfactory (qualified opinion, i.e. “except for”) – Results contain
significant engagement findings2. No material weaknesses3 were noted.
• Unsatisfactory (adverse opinion, immediate Management attention required) –
Significant engagement findings2 and/or material weaknesses3 were noted.
Types of Findings
1. Engagement Finding (#Low Risk): An engagement finding is a condition that could adversely affect the organization but is less severe than a significant engagement finding or significant deficiency. Classification includes
process or control deficiencies that are not significant deficiencies as well as includes other low risk or low impact conditions.
2. Significant Engagement Finding (# Moderate to High Risk): A significant engagement finding is a condition that could adversely affect the organization. Definition includes all types of findings, such as irregularities, waste, ineffectiveness, conflicts of interest, illegal acts, errors, and significant deficiencies in internal control over financial reporting as well as other significant internal control weaknesses. From a financial reporting perspective, a significant deficiency is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is
less severe than a material weakness, yet important enough to merit attention by those charged with governance. 3. Material Weakness (# High Risk): A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected and corrected in a timely basis. For internal audit purposes, the definition also includes material and/or severe irregularities, waste, ineffectiveness, conflicts of interest, illegal acts, errors, and other material
control weaknesses, etc.
(The term “material weakness” should be thought of as a serious category of significant engagement findings and/or significant deficiencies. However, not all significant engagement findings and significant deficiencies are material weaknesses.)
^ - Definitions are based on guidance from the IIA Standards, GAAS, and the PCAOB.
# - Risk is assessed at the District (Entity) Level. (Risk to the District as a whole)
OPPORTUNITIES FOR IMPROVEMENT
This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD.
Review of Construction Projects in Progress 7 FY ’18 AUDIT PLAN
No reportable items were identified.
ACKNOWLEGEMENTS
This report is intended solely for the use of The Metropolitan St. Louis Sewer District (“MSD”) and is not intended to be and should not be used by any other parties without the prior written consent of MSD.
Review of Construction Projects in Progress 8 FY ’18 AUDIT PLAN
Internal Audit Engagement Team:
MSD Internal Audit:
Todd Loretta
Brown Smith Wallace: Ron Steinkamp
Keenan McKinney
Stephen Strohman Dennis Jung
We would like to thank District personnel for their excellent cooperation and assistance during
this engagement. Specifically, we would like to express our gratitude to the following:
Engineering:
Rich Unverferth
Marie Collins David Frierdich
Kent Kotthoff
Allen Muehlher