Audit Report on the School Construction Authority’s Management and Oversight Over Its Contract Payment Process

Executive Summary

This audit was conducted to determine whether the New York City School Construction Authority (SCA) maintains adequate oversight over its contract payment process for new capacity projects and whether it ensures that payments to contractors are accurate and in compliance with contractual terms and related guidelines.  SCA was established by the New York State Legislature in December 1988.  Pursuant to its enabling legislation, SCA is responsible for the design, construction, reconstruction, improvement, rehabilitation and repair of the New York City public schools.  SCA is also responsible for procuring and entering into contracts with major construction companies, managing and overseeing contractor performance, making contract payments and ensuring payments are properly reconciled and accurately reported.

SCA’s operations are funded by appropriations made by the City, and guided by five-year capital plans developed by the New York City Department of Education (DOE).  For its Five-Year Capital Plans covering Fiscal Years 2005 through 2009 and 2010 through 2014, SCA’s budget was $13.1 billion and $11.3 billion, respectively.  Upon completion of each of its capital projects, the assets are transferred to DOE.  SCA’s capital projects include new school constructions, building additions, major modernization and rehabilitation, reconstruction, renovations and system replacements, including electrical, plumbing, elevators, roofs, and security device installations.  According to SCA’s financial statements, SCA transferred assets valued at approximately $2 billion to DOE for Fiscal Year 2015.

Audit Finding and Conclusion 

Our audit found that SCA maintained adequate oversight over its contract payment process and ensured that payments to contractors were in compliance with contractual terms and related payment guidelines.  In addition, SCA ensured retainage amounts were withheld from contractors until the contract completion criteria had been met.

However, SCA does not have a system in place to ensure the proper closing of its new capacity projects.  Specifically, we found that SCA did not ensure that proper payment review procedures were followed and independent reconciliation was performed before making final contract payments. Further, we found that SCA did not develop a reporting process to monitor the balance of unused budgeted funds related to each project that remained open after the project had been deemed “final financial complete.”  The absence of such a reporting mechanism creates a risk that improper charges could be applied to open projects after they have been determined to be final financial complete. In addition, the practice of rolling forward the unused budgeted funds allocated to a completed capital project to other capital projects without any monitoring system may have an impact on SCA’s ability to properly account for unused budgeted funds in a transparent manner.

Audit Recommendations

The audit made the following three recommendations:

• SCA should develop procedures to close its capacity projects once all final payments have been made.
• SCA should perform reconciliation and independent review of each contract before making final payment once the contract is considered final financial complete.
• SCA should develop a reporting process to track and monitor the balance of unused budgeted funds for each project that remains open.

SCA Response

In their response, SCA officials agreed with all three audit recommendations, stating that “SCA will remove the budget for unused construction funds for all capacity projects once deemed complete.  This change will prevent any additional construction transactions from being processed on these financially complete contracts.”