Unreleased DOT Audit Finds Inadequate Internal Controls over Outsourcing

September 23, 2015

Investigative Reports

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Unreleased DOT Audit Finds Inadequate Internal Controls over OutsourcingIn fiscal 2013, the S.C. Department of Transportation outsourced 70 percent of its total expenditures, involving the equivalent of more than 1,100 full-time outside jobs in two main non-construction areas, according to an internal report obtained by The Nerve.

In a follow-up, four-page audit submitted earlier this year to DOT management though not made public, which was based on the 17-page 2013 report, DOT Chief Internal Auditor Paul Townes concluded that:

  • No “significant actions have taken place within SCDOT as a result of Report 2013,” which noted total estimated expenditures outsourced by the agency that fiscal year was about $810 million, mainly for road and bridge construction;
  • Outsourcing decisions are “usually de-centralized and in most cases not accomplished in accordance with any agency strategic plan or priority”; and
  • Determining “accurate accounting data associated with outsourcing is difficult at best within SCDOT.”

Townes wrote that the 2013 report was authorized by DOT management and produced by a “temporary employee” at a cost of more than $52,000.

Although Townes completed a preliminary draft of his audit at the end of February and finished the final draft by April 30, documents show, the DOT Commission’s Audit Committee, chaired by Mike Wooten,  has never approved it, Wooten confirmed when contacted Tuesday by The Nerve.

“That audit is awful,” said Wooten, who is the commission’s vice-chairman and founding partner and president of a Myrtle Beach civil engineering company. “In two years, we got three-and-a-half pages. We already had that (the 2013) audit. We didn’t need it (Townes’ follow-up audit).”

Asked if his five-member committee earlier this year tabled Townes’ audit because it was critical of the agency’s handling of outsourcing, Wooten replied, “It absolutely had nothing to do with tabling it,” adding, “To my knowledge, that’s the only piece of work that he’s produced that’s been tabled.”

In an April 10 written response to the audit, which was obtained by The Nerve, DOT’s management disagreed with the first two findings in the above list.

Contacted Tuesday by The Nerve, Townes, a longtime certified public accountant, said in a written response, “The disputed quality issue of this audit is unsupported.”

“My conclusion is that the audit findings and recommendations are sound,” Townes said. “The Commission had ample opportunity to have a discussion of this audit if quality was an issue. Finally, whether the audit has value to the Commission or not, it should always be released to the Legislature per Act 114 unless something is materially misstated.”

Townes pointed out that DOT management and his office agreed to do “separate studies and see if there were similar conclusions,” adding his office “had agreed with management, to avoid harassing departments with too many auditors, that we would not begin until management completed their study.”

Townes said at a February meeting, DOT’s chief of staff said the timing of his audit would be “unfavorable to SCDOT,” noting, “This was during the discussion to raise the gas tax.”

The Nerve in 2013 first reported, citing internal DOT documents including a memo from then-Commission Chairman Eddie Adams, that Townes had been stripped of his authority to conduct independent investigations of waste and fraud at the $1.8 billion agency, which has about 4,300 employees.

The more-recent internal battles between Townes and Wooten became public at a House Oversight subcommittee meeting in August during which Townes, under questioning by Rep. Phyllis Henderson, R-Greenville and the subcommittee chairwoman, said his job has “become a little more difficult lately.”

“I don’t think the commission sees themselves as much as an oversight (body) as they do an advocate of the department,” Townes told the subcommittee. “So if we come through and have critical audits, then it tends to make the commission uncomfortable.”

Wooten didn’t mince words in his response to the subcommittee.

“There is a huge philosophical difference between where the commission is and where Mr. Townes is,” he said. “I’ll remind Mr. Townes he does work for the commission. The job of the chief internal auditor is to find ways to improve the efficiency of SCDOT.”

Wooten later added, “Either Mr. Townes needs to understand the wishes of his boss – the commission – or he needs to find another job.”

Under a 2007 state law that created Townes’ office, DOT and “any entity contracting with the department must fully cooperate with the chief internal auditor in the discharge of his duties and responsibilities,” and that the commission is “vested with the exclusive management and control” of the office, though the chief internal auditor can be removed only for “malfeasance, misfeasance, incompetency, absenteeism, conflicts of interest, misconduct, persistent neglect of duty in office, or incapacity.”

The law also requires that all final audit reports be submitted to the DOT Commission and chairmen of the Senate Transportation, Senate Finance, House Education and Public Works, and House Ways and Means committees “before being made public.”

In his interview Tuesday with The Nerve, Wooten said the outsourcing audit is “indicative of the ongoing struggle between the commission and staff to get what they need from the Office of Chief Internal Auditor,” though he acknowledged, “Outsourcing is a big deal; we need to get a handle on how we’re doing it and can we do it better.”

DOT’s use of outside consultants has faced public criticism over the years. The 2013 outsourcing report said most state “DOT-sponsored projects concluded that consultants cost more than in-house staff, in contrast with reports commissioned by trade associations that indicate the use of consultants is the more cost-effective option.”

The 2013 report said the total number of outsourced “FTE” (full-time equivalent) employees for all types of maintenance work in fiscal 2013, which started July 1, 2012, was 877, including 293 for mowing, at a collective estimated cost of approximately $56 million. In the professional engineering area, the total number of outsourced FTE employees that fiscal year was 235, at an overall estimated cost of about $38 million.

Road and bridge construction accounted for the largest share of outsourcing costs, the report said, though it noted federal regulations require that “actual construction work shall be performed by contract awarded by competitive bidding.”

Among other things, the report concluded that DOT “does not have a holistic strategy in place to determine when to outsource functions or specific activities for the Department.”

Wooten said the DOT Commission recently recommended that a different consultant do an outsourcing study, noting it was “much too important an issue to lollygag and having to wait for the Office of Chief Internal Auditor (OCIA), whom we had lost faith in,” though he added he didn’t know if that consultant had been hired. In his written response, Townes said Wooten during a March Audit Committee meeting recommended  that “an outside firm conduct the study and excluded the OCIA staff.”

Some outside DOT studies have resulted in big taxpayer bills. The Nerve in March, for example, reported that the taxpayer tab for a road-plan report projecting more than $70 billion in transportation needs in South Carolina to 2040, which was prepared by global engineering and construction firm CDM Smith, was nearly $2.4 million.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick. Follow The Nerve on Facebook and Twitter @thenervesc.