Audit Report On The Department Of Correction Engineering Audit Office’s Compliance With Comptroller’s Directive #7

Audit Report on the Department of Correction Engineering Audit Office’s Compliance with Comptroller’s Directive #7

EXECUTIVE SUMMARY

The New York City Department of Correction (DOC) provides for the care, custody, and control of individuals charged with crimes in New York City and detainees awaiting the disposition of their case or convicted of a crime and sentenced to one year or less.These individuals are housed in various jails and detention centers and an infirmary on Rikers Island, four borough facilities, and in prison wards in two City hospitals. Various units within DOC manage construction, maintenance, and service projects for these facilities. These DOC units submit to the Engineering Audit Office (EAO) payment requests associated with construction, maintenance, and service projects which are, among other things, reviewed and approved by an engineering audit officer.

New York City Comptroller’s Directive #7, entitled “Audit of Requests for Payment Received Under Contracts for Construction, Equipment, and Construction-Related Services,” provides agencies’ Engineering Audit Officers with guidelines for independently auditing payment requisitions for construction, equipment and related consultant service contracts to ensure that contractors or vendors fulfilled their contractual obligations to the City. In this capacity, the EAO conducts reviews to ascertain the accuracy of payment amounts including prices, quantities and calculations, performs field visits to physically verify work progress, and determines whether completed work is in accordance with plans and specifications and the City has received appropriate value. Based on the results of reviews, the EAO either approves or revises requested payment amounts.

According to DOC records, a total of 391 payment vouchers in the amount of $162.7 million were approved in Fiscal Year 2012, and 502 payment vouchers totaling $100.8 million were approved in Fiscal Year 2013.

Audit Findings and Conclusion

Our audit found that the EAO in the Department of Correction did not always follow appropriate audit procedures to ensure compliance with Directive #7. According to Directive #7, the EAO’s primary function is to audit contractor, vendor, and consultant payment requests prior to payment approval. However, our review found that the EAO approved a total of $35.58 million in payment vouchers, but did not maintain adequate documentation to support that approvals were justified as is required by Directive #7. While it is possible that this work was completed, the EAO files did not adequately document the work, thereby failing to fulfill a basic requirement of the EAO function.  In addition, the EAO’s files did not contain evidence that a review was conducted to verify that the amounts paid were accurate and appropriate.

Overall, the following problems were identified in our review of 49 sampled vouchers selected from the Fiscal Years 2012 and 2013 vouchers:

• 28 vouchers lacked evidence of required field inspections;
• 4 vouchers reflected amounts approved that were not consistent with supporting documentation;
• 5 vouchers reflected amounts that were reduced without supporting documentation;
• 2 vouchers lacked all certified payrolls and sign-in sheets necessary to comply with prevailing wage requirements; and
• 3 vouchers reflected payments made for equipment purchases prior to delivery.

Further, in several instances we found no evidence that the EAO reviewed the cost reasonableness and classification of the change orders it approved and that change orders were submitted to the Comptroller’s Office for registration.

In addition, we found internal control deficiencies such as failure to properly segregate duties which impairs the EAO’s ability to maintain independence. Such segregation of duties is an important internal control to ensure that audits are properly conducted and serves as a safeguard to prevent fraud.

Audit Recommendations

This report makes a total of 8 recommendations.

• To comply with Directive #7, DOC should:

• Conduct field visits to physically verify requested payment amounts;
• Record reasons why field audits were not conducted in the cases when payments were authorized based solely on desk audits and then field audits must subsequently be conducted;
• Retain all notes, documents, reports, and recommendations;
• Ensure that retained documentation is sufficient to support EAO audit findings, payment certifications, disputed payments, or any other actions taken;
• Conduct tests to ensure that contractors are compliant with prevailing wage requirements;
• Ensure that equipment is delivered, accepted, and inspected before approving payment requests unless otherwise provided for in the contract; and
• Maintain complete and accurate payment log and payment reviews.

DOC should:

• Ensure that the EAO reviews and adequately documents change orders for cost reasonableness and classification;
• Submit to the General Counsel change orders that are classified as design errors or design omissions for possible recoupment;
• Only authorize change order payments for change orders that have been registered with the Comptroller’s Office;
• Immediately submit for registration the change orders cited in this report that are still not registered;
• Ensure that the EAO reports to the agency head and, alternatively, if the EAO reports to a designated agency official, that official should not be responsible for the agency’s design or construction functions;
• Segregate audit review and approval tasks; and
• Evaluate the necessity for the EAO to audit payment requisitions that do not fall under the scope of Directive #7.

Agency Response

In its response, DOC stated that “the agency believes in strengthening its auditing capabilities and efforts, is making improvements to its staffing levels, and updating its manuals and training to ensure alignment with latest policies and best practices.” In addition, DOC stated that “[o]ur agency is continuing its restructuring by initiating improvements across all departments in order to optimize operations and efficiency, resolve existing problems and prevent the occurrence of new ones.” Although DOC did not respond directly to our recommendations, the agency indicated that it would be implementing various actions that coincide with many of our recommendations.

These actions include: increasing staffing levels to increase the number of field audits and properly document evidence of field audits; revising the EAO operational manual; developing a training guide for new field auditors; revising and updating DOC payment forms; and developing payment check lists for better tracking and document accountability. In addition, DOC stated that the reporting structure of the EAO has been changed to preserve the EAO’s independence and a full-time Deputy Engineering Audit Officer has been designated. Additionally, the EAO has conducted training seminars for DOC staff and outside vendors on how to properly complete, document and submit payments to the agency.

DOC, however, challenged our conclusions that the EAO did not comply with Directive #7 when it approved, prior to delivery, three vouchers that reflected payments made for equipment purchases; that in certain instances there was no evidence that the cost reasonableness and classification of change orders were reviewed; and that change orders were not submitted to the Comptroller’s Office for registration before approving payments. DOC also claimed that it submitted all documentation to substantiate two other voucher payments.

The full text of DOC’s response is included as an addendum to the report.