Kentucky Transportation Cabinet - AASHTO

Report
July 2012 AASHTO Internal/External Audit Subcommittee Conference
Alice S. Wilson, Executive Director, Office of Audits
Kentucky Transportation Cabinet
ANNUAL INTERNAL AUDIT RISK ASSESSMENT
AND AUDIT PLAN DEVELOPMENT
KYTC OFFICE OF AUDITS
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Consists of an Executive Director and two divisions:
Division of Audit Services and Division of Road Fund
Audits.
The Executive Director reported directly to the Secretary
and the Internal Audit Committee, and now also reports
to the Special Assistant to the Secretary – Cindy James.
Each Division has a Director and several branches.
Division of Audit Services has Internal Audit and External
Audit.
Division of Road Fund Audits has KIT/KYU, IFTA,UDI/IRP
and Tax Compliance.
KYTC OFFICE OF AUDITS
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The Office has a cap of 49 employees
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Division of Audit Services-Assistant Director
 Internal Audit-9 employees
 External Audit-7 employees
Division of Road Fund Audits-Director and 29 employees
KYTC OFFICE OF AUDITS
INTERNAL AUDIT BRANCH
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By policy, Internal Audit reports to an Internal Audit
Committee that meets quarterly
OIG is included in those meetings
Helpful to share concerns and issues at high level
Discusses highlights of past quarter’s investigations
and audits
INTERNAL AUDIT BRANCH
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Internal Audit Branch
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Manager, 2 supervisors and 6 auditors
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Several “letters” – CPA, CIA, CICA, CPM
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Various GAGAS engagements
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Performance Audits – related to compliance, efficiencies, financial
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Attestation engagements - mainly AUP
“Other” - joint investigations with OIG and FHWA FIRE (Financial
Integrity Review and Evaluation) review assistance
OMB A-133 Desk Reviews
INTERNAL AUDIT BRANCH
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How does Internal develop Internal Audit Plan?
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Conduct Risk Analysis using a combination of factors:
 Expenditures
 Receipts
 Past experience
 “problem” areas
 Management concerns
Assistant Director compiles, discusses with Executive Director, who then
sends plan to IAC for approval
Overall plan development follows….
AUDIT PLAN DEVELOPMENT
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During the last quarter of each year, the Assistant Director
conducts a risk assessment of Cabinet programs and
operations to determine the Annual Audit Plan for the
upcoming year:
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Emails management and IAC members and asks if there are
areas they would like for us to review
Prepares a 4 year trend analysis of revenues by Department and
Division
Prepares a 4 year trend analysis of expenditures by
Department/Division/Function
While performing the trend analysis, looks for unusual
fluctuations in revenues and expenditures that do not have
apparent reasonable explanation as well as any new programs.
AUDIT PLAN DEVELOPMENT
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(cont.)
 Determines
hours available in the plan year
 Emails and asks internal audit staff if they have any
areas they think should be covered
 Reviews the audit universe and leads noted
throughout the year
 Reviews notes from meetings with Division
Directors throughout the Cabinet
 Reviews “recommendations for future audits”
AUDIT PLAN DEVELOPMENT
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(cont.)
 Reviews
the most recent CAFR and CAFR
supplement
 Reviews prior year audit plan for engagements that
were not completed
 Reviews internal Financial Report to Management
 Reviews audit coverage organizationally
 Compiles list of possible engagements and sends
to the IAC for approval/discussion at upcoming IAC
meeting
AUDIT PLAN DEVELOPMENT
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There are two factors to consider when developing the
audit plan and engagement scheduling:
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Hours available for audit staff
Engagement timing for auditee
Hours available for audit staff:
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Prior to completing the audit plan, IAB management must
determine the number of engagement hours available for
each auditor for the fiscal year.
IAB management should consider the following when
determining the maximum annual hours available for audit
staff to perform audits:
DIRECT PROJECT HOURS AVAILABLE FOR THE FISCAL YEAR
TOM
TOTAL HOURS
JOHN
JESSICA P. REBECCA
CHRIS
JESSICA S.
KRISTEN
ROZELLA
1,950
1,950
1,950
1,950
1,950
1,950
1,950
1,950
(83)
(83)
(83)
(83)
(83)
(83)
(83)
(83)
(113)
(180)
(90)
(90)
(90)
(90)
(90)
(90)
SICK
(90)
(90)
(90)
(90)
(90)
(90)
(90)
(90)
TRAINING
(40)
(40)
(40)
(40)
(40)
(40)
(40)
(40)
STATUS MEETINGS
(100)
(100)
(50)
(50)
(50)
(50)
(50)
(50)
MISC ADMIN
(125)
(125)
(125)
(125)
(125)
(125)
(125)
(125)
(33)
(73)
(73)
(73)
(73)
(73)
(73)
1,400
1,300
1,400
1,400
1,400
1,400
1,400
1,400
(1,400)
(1,300)
-
-
1,400
1,400
1,400
1,400
1,400
1,400
0.0%
0.0%
71.8%
71.8%
71.8%
71.8%
71.8%
71.8%
HOLIDAYS
ANNUAL
ROUNDING/REPORTS/OTHER
AVAILABLE HOURS
REVIEWS/SUPERVISORY TIME
PROJECT HOURS
DIRECT PROJECT UTILIZATION
RATE
8400
Carryover Engagements
Cell Phone Towers
100
Receipts
150
COT Billings
150
GAX Documents
150
Statewide Agreements
150
Reserve for Carryover
Engagements
700
Total Hours Available
8400
Less: Reserve for Carryover
Engagements
-700 5 engagements
Less: Reserve for special
requests
-500 This would be approx 3-4 engagements
Less: Reserve for followups
(Follow up on old audit reports - easier than doing a new audit). Estimate of 30 @ 10
-300 hours each
Available Audit Hours
6900
Approx. Avg. Audit Time:
Number of New Audits
150
46.00
This puts us at approx 50 audits for the year
FY13 AUDIT PLAN
Review of Prior Engagements (FY09-FY12)
Purpose: To review engaements performed from FY09-FY12 for consideration of possible engagement in FY13.
Source:
Prior year audit reports on the N drive
the FY12 analysis
I reviewed the prior audits and FY12 analysis to determine where we've been from FY09-FY12. Although we do not have an established time
frame for when each Office/Division should be audited, it would be ideal to at least perform at least one engagement in each area once every 5
years (depending upon risk). That is not always possible given limited resources, risks, special requests, etc. The analysis below shows where we
have been during the past 4 years and the remaining areas that haven't been visited have been divided up into: 1) Engagement should be
considered for FY13, 2) engagement should be considered for FY14, and 3) no plans for the next two years based upon risk.
FY13-FY14
CONSIDERATION
Department of Aviation
Capital City Airport Division
Greater Commonwalth Aviation Division
Kentucky Airport Zoning Commission
Office of Public Affairs
Office of Inspector General
Office of Budget and Fiscal Management
Division of Accounts
Division of Purchases
Office of Legal Services
Office of Civil Rights & Small Business Development
Department of Highways
Division of Program Management
Office of Project Development
Division of Planning
Division of Structural Design
Division of Highway Design
Division of Environmental Analysis
Division of Right of Way and Utilities
Division of Professional Services
Office of Highway Safety
Division of Incident Management
Division of Highway Safety Programs
Motorcycle Advisory Commission for Highway Safety
Motorcycle Safety Education Advisory Commission
FY12
FY11
FY10
n
a
X
X
X
X
X
%
X
a
a
a
a
a
FY09
X
X
X
X
X
X
X
X
X
X
Office of Project Delivery and Preservation
Division of Construction
X
Division of Materials
X
Division of Construction Procurement
X
X
X
X
a
X n
Division of Equipment
X
n
Xn
n
Division of Traffic Operations
n
Division of Maintenance
X
X
n
X
n
n
X n
n
X
n
n
n
n
n
n
District Offices
D1
D2
D3
X n
D4
D5
D6
D7
D8
D9
To be
determined
at a later
date
n
n
X
n
X n
D10
D11
n
n
n
n
n
n
n
n
n
n
n
n
n
n
D12
Office of Information Technology
n
n
Xn
X
n
n
n
n
n
n
n
n
n
Office of Support Services
Division of Facilities Support
Division of Graphic Design and Printing
Office of Audits
Division of Road Fund Audit
Division of Audit Services
X
Department of Rural and Municipal Road Aid
Office of Local Programs
Kentucky Bicycle & Bikeway Commission
Office of Rural and Secondary Roads
Office of Human Resource Management
Division of Personnel Administration
Division of Employee Management
Division of Professional Development and
Organizational Management
Office of Transportation Delivery
Department of Vehicle Regulation
Division of Motor Vehicle Licensing
Division of Motor Carriers
Division of Driver Licensing
Kentucky Motor Vehicle Commission
Conclusion:
%
X
a
%
X
X%
X
X
X
X
X
We have reviewed engagements performed in FY09-FY12 and have determined that the areas below should be considered
for FY13 engagements given the length of time since prior audit.
FY13
Aviation
FY14
Program Management
Purchases
Highway Safety
Planning
Facilities support
Structural Design
Local Programs
Environmental Analysis
Incident Management
Construction Procurement
OHRM
Rural and Secondary Roads
MVL
Tickmark
Legend
n
Coverage in an inventory
engagement.
%
Covered in an External
Audit
X
Covered by an Internal
Audit
Engagement should planned in this area annually given
significance.
a
Possibility for FY13 engagement given time frame since
prior audit.
Possibility for FY14 engagement given time frame since prior
engagement.
No engagement planned due to low financial or
operational risks.
Receives extensive coverage by the External Audit Branch. No specific engagement needed for FY13 as they just received an
audit report at the end of FY12.
AUDIT PLAN DEVELOPMENT
Many of the engagements on our list didn’t arise
from exception based analysis but instead were
requests by management. We’ve had some
struggles and we’ve been trying to combat that by
working more closely with management…so if they
see us as a tool/resource, then hopefully it will
increase how we are received.
 Some of these engagements may not be “high
priority” risk wise, they are road blocks for mgt and
if we can make their lives easier/better/then they
will be more receptive to us.
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INTERNAL AUDIT BRANCH
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Things for us to consider:
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Total Employees Currently: 4755
 Central Office: 1176 employees
 District Offices: 3579 employees
1975—High: 9,464 employees
Less staff = more responsibility for existing employees and more
contracts with outside entities
A LITTLE MORE INFO ABOUT KYTC
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KYTC maintains 28,000 miles of highways and is the nations 8th
largest system
KYTC is responsible for all modes of transportation including 300
licensed airports and heliports as well as coordination with 12
railroads and 4 recreational railroads operating more than 2500
miles of track
KYTC also coordinates freight movement on nearly 1600 miles of
inland waterways, oversees 12 chartered public riverports, manages
7 ferryboat services and has 4 designated US Bicycle Routes and 5
state bicycle tours
KYTC licenses 4.6 million vehicles and 1.3 million drivers each year,
oversees 26 public transportation systems, issues more than
105,000 permits and collects taxes from nearly 70,000 carriers
annually
Annual Budget of $2.2 billion
INTERNAL AUDIT BRANCH
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Examples of recent engagements:
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Construction: Highway Design Estimates, Value Engineering,
Construction Procurement, Final Pay Estimates, Material Certification
Process
Maintenance: Salt Sharing Agreements, Permits, 98 Gallon Tanks, Fuel
Usage, GPS, Site Audits
Financial/Miscellaneous: Subrecipient Monitoring, Inventories, Accounts
Receivable, Oil/Gas/Mineral Rights, Cell Phone Towers, Recycling
INTERNAL AUDIT BRANCH
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Louisville Southern Indiana Ohio River Bridges Project (LSIORBP)
$2.6 billion mega project with KYTC, INDOT and FHWA
 Expended over $220 million to date on Design/EIS
 Span several years
 Over 70 design consultants – so will coordinate work with External
Audit
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INTERNAL AUDIT BRANCH
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Recent engagements requested by
management:
Emergency Preparedness (2009 Ice Storm)
 Overtime
 IRP (International Registration Plan) Accounts
 COT Billings
 Investigations
 Murray-Calloway Transit Authority
 Beaver Dam Service Area
 Louisville Metro Maintenance Agreement
 Salt Sharing Agreements
 Highway Safety
 SASHTO
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INTERNAL AUDIT BRANCH
We have developed audit programs and templates
to follow and standardized our processes where
we could.
 We have implemented TeamMate – an electronic
audit workpaper software package that we are all
learning how to use.
 In process of implementing TeamMate, we
improved our procedure steps, pulled everything
together and eventually this will result in greater
efficiency, which will help us do even more audits!
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INTERNAL AUDIT BRANCH
For example, for FY10, Internal Audit conducted 15
engagements and 87 OMB A-133 desk reviews
 In FY11, Internal Audit conducted 20
engagements and 72 OMB A-133 desk reviews
 In FY12 to date, Internal Audit has conducted 31
engagements and 82 OMB A-133 desk reviews
 As you can see this is a 55% increase over last
year
 Internal audit could potentially issue 50-60
engagements per year
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TOOLS IN THE TOOLBOX
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The Office has ACL and is learning how to use this and apply it
to our audits to gain efficiencies
We recently met with our GIS coordinator and believe this is an
exciting new tool we can use in our internal audit engagements
Staff have dual monitors, wand scanners, as well as cameras
they are encouraged to use on audits
FY13 INTERNAL AUDIT PLAN
Internal Audit Plan for FY2013
The Internal Audit Branch’s mission is to assist Cabinet management in:
Ensuring effectiveness and efficiency of programs, operations, and activities
Ensuring Cabinet program objectives are achieved
Reviewing the Cabinet’s compliance with statutes, regulations, and policies and procedures
Reviewing the Cabinet’s controls over assets to ensure they are adequately safeguarded
Each year, we prepare an internal audit plan to help accomplish these objectives. The process for preparing the
internal audit plan involves performing a risk assessment that includes (but is not limited to) performing the
following procedures:
Soliciting feedback from Cabinet management about any areas (internal or external) that are challenges for them or that they would like for us to
review on their behalf
Reviewing FY09-FY12 revenues and expenditures for significant changes in activity
Reviewing concerns expressed by other staff throughout the Cabinet, internal auditors, and concerns identified throughout the year
Reviewing each Division/Office and considering the amount of time that has passed since an engagement was last performed in that area
After performing the above procedures, we accumulate the results and prioritize the engagements based upon
known risks and the potential impact upon the Cabinet (positive or negative). We then determine the number
of engagements that can be performed based upon staff availability in the upcoming year.
Below is our list of proposed FY13 engagements based upon this analysis.
Please note that we do not expect to complete all of these within FY13, however, we are requesting more
engagements as a part of this year’s plan in the interest of efficiencies and not having to request approval for
interim engagements during the year.
FY13 INTERNAL AUDIT PLAN
Construction / Maintenance / Traffic / Equipment
Construction Inspection
Focus: General program review of KYTC's internal and outsourced construction inspection processes.
Potential areas affected: Division of Construction, District Offices
Construction Project Reviews
Focus: The Division of Construction has central office staff that perform reviews of project documentation in the districts.
This engagement will look at management's quality controls over these reviews. This is a replacement for the
Construction Site Audits performed by the Internal Audit Branch in FY12.
Potential areas affected: Division of Construction, District Offices
Fuel & Asphalt Adjustments
Focus: Review various aspects of fuel and asphalt adjustments. The specific scope could be determined after meeting
with management in this area, but it could include reviewing adjustments to determine: 1) if they were calculated
correctly, 2) prepared in accordance with Cabinet requirements, 3) applied when required, and 4) reviewed prior to
approval.
Potential areas affected: Division of Construction, Division of Accounts, District Offices
Contractor Performance Evaluations
Focus: Review the Cabinet's process for completing contractor performance evaluations.
Potential areas affected: Division of Construction, District Offices, as well as other Divisions in the Offices of Project
Development and Project Delivery & Preservation
FY13 INTERNAL AUDIT PLAN
Construction Procurement
Focus: The specific engagement would be determined after meeting with management, but could include reviewing
construction estimates and/or the bid process.
Potential areas affected: Division of Construction Procurement
Environmental Analysis
Focus: An engagement has not been performed in this area in several years. The specific engagement would be
determined after meeting with management.
Potential areas affected: Division of Environmental Analysis
Constructability Review
Focus: The Quality Assurance Branch within the Division of Highway Design performs reviews to intercept and resolve
constructability issues prior to letting. This engagement would involve a review management's processes within the
Constructability Review program.
Potential areas affected: Division of Highway Design
Project Warranties
Focus: Staff in the Cabinet expressed a concern with the time it takes to close projects and thought that project
warranties could be part of the delay. Therefore, this engagement would involve a review various aspects of project
warranties such as when they are applied, how they are tracked, their impact upon project funding, etc. and look for
opportunities for improvement with the hope of addressing management’s concern and trying to close out projects
sooner so that funding may be used elsewhere.
Potential areas affected: Division of Construction, District Offices, Division of Accounts
FY13 INTERNAL AUDIT PLAN
Materials Inspections
Focus: Review the materials inspections performed in various districts.
Potential areas affected: District Offices, Division of Materials
Structural Design
Focus: An engagement has not been performed in this area in several years. The specific engagement would be determined after
meeting with management.
Potential areas affected: Division of Structural Design
Resurfacing Program
Focus: Perform a general review of the Cabinet's resurfacing program as well as management's controls over this program.
Potential areas affected: Division of Maintenance, District Offices, Office of Rural & Secondary Road Aid, District Offices
Pavement Conditions
Focus: Review management's quality controls over monitoring and maintaining pavement conditions throughout the state.
Potential areas affected: Division of Maintenance, District Offices
Bridge Inspections
Focus: The specific engagement will be determined after meeting with management. The Auditor of Public Accounts (APA) performs
testing in this area as a part of their annual audit, therefore we will be requesting more information about what they test and
then perform an engagement in a different area so that there isn’t duplicate coverage. This engagement will likely include us
reviewing procedures used to prepare/review reimbursement requests made to other states for work performed in this area.
Potential areas affected: Division of Maintenance, District Offices
FY13 INTERNAL AUDIT PLAN
Emergency Call Outs
Focus: Review management’s processes and controls over emergency response to maintenance issues.
Potential areas affected: District Offices, Division of Maintenance
Louisville Bridges Bi-State Authority Expenditure Review
Focus: KYTC and INDOT provide funding to the Authority. We would perform a brief review of certain fiscal processes and
expenditures of the Authority to ensure they are operating within their governing documents, expenditures appear reasonable,
as well as ensure there are no double billings.
Potential areas affected: Bi-State Authority, Division of Construction, District Offices
Louisville Bridges – Procurement
Focus: We will attend and observe procurement and other miscellaneous meetings regarding the Louisville Bridges project
and review for compliance with procurement processes and regulations.
Potential areas affected: Construction, Construction Procurement, District 5
Louisville Bridges – Right of Way Acquisitions
Focus: Review right of way acquisition activity related to the Louisville Bridges project. Right of Way has been in the media several
times over the past few months and this engagement could help demonstrate that the Cabinet is looking into the process for
areas of possible improvement. Prior to starting this engagement, we will request information from the Office of Legal Services
to ensure that our work will not interfere with existing litigation.
Potential areas affected: Division of Right of Way, District 5 Office
FY13 INTERNAL AUDIT PLAN
Louisville Bridges – Accounts Receivable Billing Process
Focus: Review processes to ensure that KYTC is billing Indiana properly, timely, and for the appropriate amount.
Potential areas affected: Division of Accounts, District 5 Office
Lighting & Electrical Contracts
Focus: Review the district's oversight of lighting and electrical contracts to ensure they are monitored consistently and uniformly
throughout the state as concerns have been expressed by KYTC staff that some contractors are given more flexibility than
others.
Potential areas affected: Division of Traffic, District Offices
Utility & Rail Estimates
Focus: Concerns have been noted with Utility & Rail estimates. This engagement will look into the Cabinet's process and controls
over these estimates, consider federal regulations, and look for opportunities for improvement.
Potential areas affected: Division of Right of Way, District Offices
Maintenance Site Audit – 1 District
Focus: Internal controls and compliance over vehicles, equipment, inventory, safety, security and time and attendance at
maintenance facilities.
Potential areas affected: 1 District Office’s maintenance facilities
Traffic Site Audit – 1 District
Focus: Internal controls and compliance inventory, safety, security, vehicles, equipment, and time and attendance at traffic
facilities.
Potential areas affected: 1 District’s traffic facility
FY13 INTERNAL AUDIT PLAN
Office of Budget & Fiscal Management
Procard Expenditures
Focus: Our last engagement in this area was issued 2 years ago that covered FY09 transactions. Although this is not an inherently
high risk area, it does occasionally receive media attention, and it would be advantageous to perform another engagement so
that we can utilize a new software program (ACL) to data mine expenditures and learn more about utilizing the software’s
capabilities. We could also look into options to see if this tool could be utilized by Accounts on a periodic basis to help them
oversee and administer the risks in this program.
Potential areas affected: Division of Accounts, District Offices, Cabinet offices
Accounts Receivable & Collection Process
Focus: Review the controls and effectiveness of the Accounts Receivable Collection process performed by Accounts to ensure that
collection activity is performed timely, is sufficient, and collects the funds due the Cabinet.
Potential areas affected: Division of Accounts
Review & Approval Process
Focus: This engagement would briefly review the approval process performed by the Division of Accounts as well as review the type
and extent of documentation kept for transactions.
Potential areas affected: Division of Accounts
Procurement
Focus: An engagement has not been performed in this area in several years. The specific engagement would be determined after
meeting with management. KYTC management did express frustrations in a few areas (EO1s, affidavits, etc) and those will be
a part of this engagement.
Potential areas affected: Division of Purchases
FY13 INTERNAL AUDIT PLAN
Department of Vehicle Regulation
KDLIS & Driver License Review
Focus: While performing the Driver Licensing audit in FY12, we noted that the Division of Driver Licensing
and clerks statewide utilize this system to record driver license fees when they are received as well as
to divide the money among the various recipients. The financial controls of this system should be
reviewed so that any weaknesses can be corrected prior to the Cabinet investing millions of dollars in
the KDLIS replacement.
Potential areas affected: Division of Driver Licensing
CDL
Focus: Perform a program review of the CDL issuance and oversight process.
Potential areas affected: Division of Driver Licensing
IRP Application & Renewal Process
Focus: Perform a detailed transactional review of the IRP application and renewal processes performed in
Motor Carriers so that any system concerns can be incorporated into the new system being developed
by OIT.
Potential areas affected: Division of Motor Carriers
FY13 INTERNAL AUDIT PLAN
Aviation
Use Tax Collected by the Department of Revenue
Focus: These funds are collected by the Department of Revenue (Revenue) and they
transfer them directly to the Aviation Development Fund. The amount collected has
fluctuated considerably over the past few years ($7.7M in FY09, $4.8M in FY10,
$17.1M in FY11, and $12M projected for FY12). Given that the FY11-FY12
collections are projected to decrease between $4-$5M, it would be advantageous to
perform a brief review of Revenue’s processes in this area given that Revenue does
not provide OBFM staff with the details to properly oversee these funds.
Potential areas affected: FAC Department of Revenue
Aviation
Focus: An engagement has not been performed in this area in several years. The
specific engagement would be determined after meeting with management, but
could involve safety, inspections, contracting or relationships with airports and
heliports, or other areas.
Potential areas affected: Department of Aviation
FY13 INTERNAL AUDIT PLAN
Engagements In Other Areas
Follow Up On FY11 APA Recommendations
Focus: The APA is required by auditing standards to check on the status of prior recommendations in their next audit. The purpose of
this engagement would be to review the FY11 APA audit findings and follow-up on the status and implementation their
recommendations to determine if corrective actions have been taken before the APA’s FY12 audit which will be starting
soon. Over time, this could help reduce repeat findings by verifying that management has taken sufficient corrective actions,
which would reflect positively on Cabinet management. It also could possibly serve as extra assurance for the APA by showing
that the Cabinet takes their recommendations seriously and is taking actions towards correcting them (or at least correcting
the recommendations in which Cabinet management agrees with).
Potential areas affected: Various Divisions throughout the Cabinet
Hiring Process
Focus: Review various aspects of the hiring and promotion process such as the time it takes to post registers, obtain permission to
interview, offer a job, reclass staff, complete paperwork, etc. to see if the process can be streamlined so that KYTC staff can
hire and promote staff quicker. This process could also review documentation (district or central office level as applicable) to
ensure hiring was performed in compliance with Personnel regulations. Several KYTC management expressed concerns in this
area.
Potential areas affected: Office of Human Resource Management
Staff Shortages
Focus: This is probably the largest concern facing the cabinet. Everywhere we turn, concerns are being expressed about staff
shortages and how we’re being stretched too thin. This is a Cabinet wide concern and without solutions, the Cabinet's
problems will likely compound with time. The specific scope and procedures will be determined later, however, this could
include reviewing changes in staff over time, looking at areas that have lost the most personnel over the years, determining if
we are outsourcing more work at a greater cost, looking at areas outside the Cabinet that have increased staff size and
determining how they accomplished this, etc.
Potential areas affected: Office of Human Resource Management, various other Divisions
Louisville Metro Maintenance Contract
Focus: Review one month (May, June or July) of the Metro agreement. This engagement was requested by KYTC management.
Potential areas affected: District 5
FY13 INTERNAL AUDIT PLAN
Incident Management
Focus: An engagement has not been performed in this area in several years. The specific scope could be determined after meeting
with management, but could include, for example, a review of KYTC's plans for how to respond to major disasters.
Potential areas affected: Division of Highway Safety
Password Sharing in eMARS
Focus: There was a concern raised regarding password sharing among staff. Internal audit performed an engagement in this area
several years ago and it would be worth performing a follow-up audit.
Potential areas affected: Various Divisions throughout the Cabinet
Journal Voucher Review
Focus: Review the controls over the Cabinet's journal voucher processes and select a sample of journal vouchers to ensure there is
adequate supporting documentation, they were appropriately approved, etc.
Potential areas affected: Division of Accounts, other areas throughout Cabinet
Duplicate Payment Review
Focus: During FY11, the APA noted that a Cabinet office paid an invoice twice. We have also heard engineering firms mention they
have received duplicate payments for design work. This engagement would review KYTC expenditures for potential duplicates
transactions, investigate exceptions, request reimbursement (where applicable), and review the circumstances that caused the
duplicate payment to see what can be done to prevent it moving forward.
Potential areas affected: Division of Accounts, other areas throughout the Cabinet
FY13 INTERNAL AUDIT PLAN
Kentucky Public Transportation Infrastructure Authority
Focus: This engagement was requested by management as KPTIA is required to be audited in accordance
with KRS 175B.100 and the specific engagement will be worked out with management towards the
end of FY13 or early FY14 based upon OBFM needs.
Potential areas affected: KPTIA, Office of Budget & Fiscal Management
Fleet Program
Focus: We have heard multiple complaints about the value the Cabinet receives given the money we pay
to the Division of Fleet Management in Finance. For example, one Division Director mentioned paying
thousands of dollars to fleet annually for an older vehicle and indicated that although we have paid
for the price of the vehicle many times over, we can’t seem to get a replacement. Another Director
mentioned safety concerns. KYTC staff have expressed similar concerns – such as proper
maintenance, not having the vehicles needed, as well as noting that the charges seem to be higher
this year (possibly due to a system issue). Although the specific scope of this engagement has not
been determined, we propose obtaining more information from staff about their specific concerns
and designing an engagement (or engagements) to address these concerns.
Potential areas affected: Finance Division of Fleet Management, Division of Accounts, Division of
Maintenance, Division of Construction, and possibly other areas throughout the Cabinet.
FY13 INTERNAL AUDIT PLAN
Other Engagements (Lower Priority)
Subcontractor Review
Focus: Perform a brief review of a sample of subcontractor activity to ensure that primes aren't subcontracting out too much work
(in accordance with 108.01 of the standard specifications book).
Potential areas affected: Division of Construction, District Offices
Contractor Overpayments
Focus: Perform a review of a sample of contractor overpayments to determine what may have caused the overpayment and look for
ways to prevent overpayments in the future.
Potential areas affected: District Offices, Division of Construction, Division of Accounts
Work Zone / Traffic Reviews
Focus: Review management's quality controls over the Work Zone/Traffic Reviews performed in the Division of Construction.
Potential areas affected: Division of Construction, District Offices
Highway Design - Comparison of Costs of Outsourcing Design Work With Cost of Performing Work Internally
Focus: Conduct an analysis to compare the cost of outsourcing design work with the cost of doing the design work in house. The
objective is not so that we can bring all design work in house, but instead to determine if it is cost effective to bring more
design work in house and whether the savings would be sufficient to hire additional staff to perform this work. Staff, for
example, feel certain we are overpaying on smaller design projects. A key ingredient to this engagement is the compilations of
negotiated and actual costs of actual design work that is currently being performed by the External Audit Branch.
Potential areas affected: Division of Highway Design, Division of Professional Services
Rest Area Commercialization
Focus: While performing the Beaver Dam AUP in FY12, we noted we are being paid approximately $200,000 a year for a private
entity to operate one rest area on state right of way. Conversely, we pay several million dollars in rest area maintenance each
year. Other states (California, Iowa, Ohio and maybe WV) are starting to commercialize rest areas and this engagement would
look into the means/methods other states have utilized and explore options that KYTC could consider. Being proactive in this
area could possibly result in a steady, passive revenue stream instead of paying others to maintain certain rest areas, thereby
resulting in more money for other projects.
Potential areas affected: Division of Maintenance
FY13 INTERNAL AUDIT PLAN
Guardrail
Focus: This engagement would include a review of the controls over guardrail recycling to ensure the program is operating as
intended by Cabinet policy.
Potential areas affected: Division of Maintenance
Enhancement Value
Focus: The Cabinet is required by statute to collect property enhancement values when access to roads is granted. We performed
an engagement in this area in a prior year and found that this value was not being collected. This engagement would involve a
follow-up on the status of the prior recommendation and look at the process in more detail.
Potential areas affected: Division of Maintenance
Salt Spreading Contract Services
Focus: A member of management expressed a concern about the increase in quantity and cost of these services. A general review
could be performed on this program to look for possible areas of improvement.
Potential areas affected: Division of Maintenance
Sale of Surplus Property
Focus: The Cabinet received around $1.4M from the sale of surplus property in FY12. This engagement would review the Cabinet's
processes to ensure adequate controls and safeguards are in place and that the program is operating as intended.
Potential areas affected: Division of Right of Way, District Offices
Department of Rural and Municipal Aid
Focus: An engagement has not been performed in this area in a few years. The specific engagement would be determined after
meeting with management. Expenditures in this area increased significantly in FY12.
Potential areas affected: Department of Rural and Municipal Aid
FY13 INTERNAL AUDIT PLAN
Facilities Support
Focus: Has not had a recent engagement and a FY13 engagement should be considered in this area. The specific scope could be
determined after meeting with management.
Potential areas affected: Division of Facilities Support
Reflectorized Plates
Focus: This engagement would involve a general review of this process as well as ensure there are adequate safeguards and
controls in place. We did notice that payments to Kentucky Correctional Industries increased from $833k in FY11 to $1.4M in
FY12 and there were potential overpayments upon a very brief review.
Potential areas affected: Division of Motor Vehicle Licensing
Warning Signage Review - Areas With Fatalities
Focus: This engagement would perform a brief review of areas where high numbers of fatalities are occurring and ensure the
Cabinet has a process in place to attempt to lower these fatalities, such as with increased warning signs.
Potential areas affected: Division of Highway Safety
KYTC Fleet Utilization
Focus: This engagement would review KYTC's expenses for the use of fleet and determine if internal vehicles are being used
efficiently and sufficiently prior to leasing extra vehicles from Finance. This engagement could also review safety
considerations as well as verify if vehicles are being properly maintained.
Potential areas affected: Division of Accounts, various divisions throughout the Cabinet
KYTC Self-Insured Worker's Compensation Trust
Focus: KYTC has a self-insured workers compensation trust fund to help pay claims when workers are injured on the job. Each year,
a CPA firm performs an annual audit of this fund. Our engagement would perform a brief review of operations and processes to
ensure they are operating as effectively and as efficiently as possible.
Potential areas affected: KYTC Self-Insured Worker's Compensation Trust, Office of Legal Services, Division of Accounts, Office of
Human Resource Management
FY13 INTERNAL AUDIT PLAN
Monthly Inventory Process
Focus: Maintenance and traffic facilities statewide are supposed to be performing inventories monthly. Concerns were
expressed by staff that some areas may not be performing these as required. Our annual inventory observations have
indicated this as well. This engagement would briefly review documentation to determine if areas are conducting
monthly inventories as required by policy.
Potential areas affected: Maintenance and Traffic facilities in the Districts, Division of Maintenance, Division of Traffic
Motor Carrier Impoundments
Focus: Carriers who fail to pay their taxes can have their trucks impounded. This engagement could briefly review the impoundment
process including how towing companies are selected (such as ensuring there aren’t conflicts of interest) and also to ensure
that the Cabinet receives the funds due from these impoundments when applicable.
Potential areas affected: Division of Motor Carriers
Financial Integrity Review and Evaluations (FIRE)
Focus: As requested, we assist FHWA conducting FIRE reviews.
Potential areas affected: Accounts plus other areas determined by FHWA.
OMB Oversight
Focus: We conduct approximately 80 desk reviews each year to ensure that subrecipients meet auditing guideline as set in
OMB Circular A-133.
Potential areas affected: Local Programs, Transportation Delivery, Planning, Highway Safety, District Offices that serve as
Program Managers
INTERNAL AUDIT BRANCH
We are blessed with a great group of
employees
 We work together to get things done
 We are a team and celebrate together!
 It takes a village…..

THANK YOU!
Alice S. Wilson, CPA
Executive Director
Kentucky Transportation Cabinet
Office of Audits
200 Mero Street
Frankfort, KY 40622
502-564-6760 ext.3615
[email protected]
http://transportation.ky.gov/Audits/Pages/default.aspx

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