Agenda Item
3. SPLOST IV/V Executive Summary
Summary: Presented by: Plante Moran
DeKalb County
School District
E-SPLOST IV and E-SPLOST V Audit
Update – July 2024
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Our Commitment to You
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Agenda
I. Executive Summary IV. Project Management Analysis| Findings +
II. Engagement Background Recommendations
III. Project Accounting Analysis | Findings + 1. General Conditions Bridging Documents
Recommendations 2. Contract Forms
1. Policies and Procedures Manual 3. Payment Applications
2. Lost/Destroyed Records 4. Bonding and Default Insurance
3. Vendor Selection 5. Cost Plus Contracts
4. Purchase Approval 6. General Cost Considerations
5. Accounting Errors V. Forensic Analysis | Findings + Recommendations
1. Project Spend Tracking
2. Analytics/Vendor Analysis
VI. Next Steps
VII. Q & A
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Executive Summary and
Engagement Background
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Executive Summary
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Engagement Background
Scope
E-SPLOST Program Scope Period Count of Transactions Total Expenses ($)
E-SPLOST IV 7/1/2012-4/25-2023 8,800 $605M
E-SPLOST V 7/1/2017-8/15/2023 6,800 $393M
Total 15,600 $999M
Procedures
1) Project Accounting Analysis – comprehensive analysis of all transactions (where documentation
was available) and review of procurement/project tracking/accounting processes
2) Project Management Analysis – analysis of contract terms, construction best practices, etc.
3) Forensic Analysis – analytical tests to identify risky transactions, background research, and email
review
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Project Accounting
Analysis
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Project Accounting Analysis
#1 – Policies and Procedures
Finding: Lack of Enforceable Policy
Policies and Procedures Manuals (“PPM”) were not developed to align with District processes or
communicated to District staff, as a result they were not adhered to by District staff.
Recommendation:
Engage a third party to develop a policy and tracking mechanism for future E-SPLOST programs that
considers input from District personnel while considering any legal or regulatory requirements.
Communicate, enforce, and monitor compliance with policy.
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Project Accounting Analysis
#2 – Lost/Destroyed Records
Finding: Lack of Retention Requirements
Over 12,000 records (~25% of expected documentation) were either lost or destroyed. District staff
were not aware of records retention requirements.
Recommendation:
Develop and execute training over records retention policies. Stand-up an oversight function and
monitoring program to ensure compliance with records retention policies.
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Project Accounting Analysis
#3 – Vendor Selection
Finding: Lack of Vendor Score Compliance
158 out of 328 vendor score sheets were not in compliance regarding selection committee
composition.
Recommendation:
Implement a monitoring program to prevent and detect deviations from policy regarding selection
committee composition. A combination of preventive procedures and an oversight function should be
in place to review composition prior to award and detect deviation via routine internal audits.
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Project Accounting Analysis
#4 – Purchase Approval
Finding: Lack of all Purchase Approvals
3,720 transactions (24%) did not have a purchase order or transmittal form that contained all approvals
as required by policy. Often, purchase orders were approved after an invoice was sent by the vendor.
Recommendation:
Implement a management oversight program to review compliance with purchase order requirements.
Enforce the policy that purchases are not to be made without a fully approved purchase order in
Munis.
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Project Accounting Analysis
#5 – Accounting Errors
Finding: Accounting Errors
Accounting errors including duplicate invoices, incorrect payment amounts to vendors, and incorrect
general ledger coding were noted throughout E-SPLOST IV and V.
Recommendation:
Develop and execute a training program to ensure team members have the tools and resources needed
to effectively track long-term projects and reduce error frequency.
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Project Management
Analysis
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Project Management Analysis
#1 - General Conditions Bridging Documents
Finding #1: Lack of Bridging Documents
Under normal industry standards, the document, “General Conditions of Construction,” governs the
processes associated with administering the construction. It acts as a “Bridging” document between AE
and CM/GC contracts to ensure the separate obligations of the AE and CM align for smooth
administration of work. This document is not in place.
Recommendation:
For future capital projects, include “General Conditions of Construction” documents that will govern the
processes associated with administering the construction.
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Project Management Analysis
#2 - Contract Forms
Finding #2: Lack of Specificity of Project Documents
Lump Sum contracts show that the scope of work was articulated by a general reference to the Drawings and
Project Manual and addendum. It is best to be specific with the project documents, such as including the dates
published, control version and/or having the AE provide their index of drawings and specifications (with dates
of final issuance) for incorporation. This can avoid disputes over which documents formed the basis of the
contract.
Recommendation:
For future capital projects, include more specificity of the project documents by including the dates published,
control version and/or having the AE provide their index of drawings and specifications (with dates of final
issuance) for incorporation.
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Project Management Analysis
#3 - Payment Applications
Finding #3A: Lack of Certification
Observed multiple instances where the architect of record did not certify the Application for Payment. The
architect’s certification is a critical control as an independent representation of the architect’s belief that the
work has progressed to the point of the requested payment and is in general conformance with the contract
requirements.
Recommendation:
Prior to processing payment applications, confirm that the architect of record certified the Application for
Payment and the work has progressed to the point of the requested payment and is in general conformance
with the contract requirements.
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Project Management Analysis
#3 - Payment Applications Cont.
Finding #3B: Lack of Sworn Statements
Did not observe any sworn statements included in payment applications. While not contractually
obligated, inclusion of sworn statements are a best practice as it requires the CM/GC to attest that
only the contractors listed are providing labor and materials and that the breakdown of costs is
accurate.
Sworn statements allow the Owner to monitor the flow of costs among the CM/GC and
subcontractors, secure appropriate waivers, and identify all potential claimants, secure appropriate
waivers. An industry standard AIA G907-2022 could be used.
Recommendation:
Require that all payment applications include sworn statements to allow the ability to monitor the flow
of costs among the CM/GC and subcontractors and secure appropriate waivers.
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Project Management Analysis
#3 - Payment Applications Cont.
Finding #3C: Lack of Lien Waivers
Not all payment applications included lien waivers/releases. Without a supporting sworn statement, it
is impossible to determine if all waivers and releases were provided.
Recommendation:
Require that all payment applications include lien waivers to allow the Owner to identify all potential
claimants and potential associated costs.
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Project Management Analysis
#4 - Bonding and Default Insurance
Finding #4A: Double Bonding
Bonding of the prime CM/GC is required by GA law for public contracts. CMs on a cost-plus contract
often require their subcontractors to also provide a bond protecting the CM against a subcontractor’s
default at the Owner’s cost.
There is no meaningful benefit to the Owner provided by double bonding because the CM is already
responsible for the subcontractor’s performance. Observed instances of double bonding being listed in
the Schedule of Values, but no bond information was provided to substantiate the procurement of a
bond.
Recommendation:
As part of the procurement process for CM services, indicate that double bonding will not be
allowed to be included as part of the cost-plus contracts.
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Project Management Analysis
#4 - Bonding and Default Insurance cont.
Finding #4B: Subcontractor Default Insurance (SDI)
Some CMs attempt to secure a subcontractor default insurance (SDI) policy or provide self-insurance,
instead of a subcontractor bond.
As with a subcontractor bond, SDI is a protection measure for the CM provided at the Owner’s cost
with no meaningful benefit being provided to the Owner. Observed instances of CM’s seeking
payment for SDI policies without backup demonstrating any policy was procured.
Recommendation:
As part of the procurement process for CM services, indicate that subcontractor default
insurance will not be allowed to be included as part of the cost-plus contracts.
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Project Management Analysis
#5 - Cost Plus Contracts
Finding #5A: Contingency Governance
It is best practice to have contractual terms governing the use of the contingency (e.g. specifying a
procedure for the use, the allowable uses, and a drawdown schedule for the return of unused
contingency to the Owner over the duration of the Project). Did not observe adequate contingency
controls within the cost-plus contracts relative to the original budget to actual costs, cause of
the contingency, reallocation of unused contingency, etc.
Recommendation:
Review current governance documents, policies, and procedures relative to overall program
contingency (owner as well as construction). Ensure that the proper review/approval from the
Owner is conducted and reporting of contingencies are reported on a consistent and regular basis.
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Project Management Analysis
#5 - Cost Plus Contracts cont.
Finding #5B: Owner Contingency
It is best practice to maintain an Owner Contingency within an overall project budget, observed
instances where the Owner Contingency was held within the CM GMP. This is not a preferred practice
given;
1. The lack of contingency controls
2. The CM is entitled to charge a fee on it.
3. If outside the CM contract, Owner contingency can be used for other contracts and costs at the owner’s
discretion
Recommendation:
As part of the procurement process for CM services, indicate that Owner contingency will not be
allowed to be included as part of the cost-plus contracts and will be held separately by DCSD.
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Project Management Analysis
#5 - Cost Plus Contracts cont.
Finding #5C: CM Back Up Information / Lump Sum General Conditions
As is common with many industry standard cost-plus contracts, the CM’s permissible general
condition/staffing costs are proscriptively defined.
Observed that the payment applications show that the CM’s general condition costs were set as a fixed
fee and no backup for the CM’s own costs were provided.
Recommendation:
As part of the procurement process for CM services, indicate that the CM will be required to provide
back-up and supporting documents to be included as part of the invoice process for the cost-plus
contracts.
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Project Management Analysis
#5 - Cost Plus Contracts cont.
Finding #5D: CM Buyout Savings
In the Cross Key Elementary project, it was observed that there was a line item in the G702 listed as
"Gilbane Buy Savings" for $106,527.30. This should be discussed further to determine what this line
item is and how the savings are allocated. Recommend obtaining a copy of the authorizing change
order this line item.
Recommendation:
As part of the procurement process for CM services, indicate that potential "buy savings" realized
during the project will be reviewed and the reallocation of the buy savings will be mutually agreed
upon accordingly. Supporting documents will need to be included as part of the invoice process for the
cost-plus contracts.
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Project Management Analysis
#6 - General Cost Considerations
Finding #6A: Independent Testing and Inspections
On cost-plus contracts, observed independent testing and inspection services being listed within the
CM’s cost of the work.
Independent testing services provide a critical verification function independent of the CM. By rolling
their services under the CM, their independence is impaired, and the CM is entitled to charge their fee
on the cost of those services.
Recommendation:
As part of the procurement process for CM services, indicate that independent testing and inspections
will be that of the Owner-directed scopes and costs.
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Project Management Analysis
#6 - General Cost Considerations cont.
Finding #6B: Pandemic Cost Absorption
It is noteworthy that several of these projects occurred throughout the COVID pandemic. The
pandemic saw unprecedented market escalation in construction as well as supply and labor disruptions.
DCSD should consider looking more closely to see how the projects absorbed these marked
conditions (i.e. were the contracts budgets overinflated to absorb the market conditions, was scope
reduced (reduced building area, less expensive infrastructure, etc.), or were change orders provided).
Recommendation:
Review pre-pandemic scope of work for projects and determine how the potential budgets absorbed
the marker conditions of cost escalation.
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Project Management Analysis
#6 - General Cost Considerations cont.
Finding #6C: GMP and Changer Orders
To more fully understand the project, we would like to see copies of GMP amendments for cost-plus
contracts.
This is a critical document as it not only establishes the project cost limit, it also establishes the
project’s scope of work and time. Additionally, DCSD would like to see copies of all Change Orders.
Recommendation:
Obtain copies of the Change Orders associated with each project to determine the original budget,
cost to date including project cost limit, and project’s scope of work and time.
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Project Management Analysis
#6 - General Cost Considerations cont.
Finding #6D: CM Fees and Costs
As a basis of comparison for CM Fees and Costs, the following are two cost-plus contracts compared
to what PMR typically observes as common cost ranges;
PMR Cross Keys ES McNair MS
1. Pre-Construction 0.50%-0.75% 0.07% 0.10%
2. CM Fee 2.0%-3.0% 2.76% 4.53%
3. CM Staffing 5.50%-9.50% 5.21% 8.60%
4. Insurance 1.10%-1.90% 1.61% 0.86%
Recommendation:
Review additional CM cost-plus agreements associated with each project to determine alignment with
industry standards, original budget, and project’s scope of work and time.
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Project Management Analysis
#6 - General Cost Considerations cont.
Finding #6E: Certificate of Substantial Completion
Certificates of Substantial Completion are a critical document that should be issued by the AE
certifying the project is ready for its intended use by the Owner.
This document typically signals the shift in control and responsibility for the work triggering the
Owner’s responsibility for utilities, insurance, etc. Substantial Completion is typically the
commencement of warranties of capital assets (i.e. roof, windows, door, mechanical, electrical,
plumbing, etc.)
Recommendation:
Obtain copies of the Certificate of Substantial Completion for each project identifying the "start
date" as well as associated close-out documents for each project (i.e. as-builts, warranties, etc.)
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Forensic
Analysis
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Forensic Analysis
The Forensic Process
Documentation
review
Obtain data Interviews Data analytics
Email review
Background
research
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Forensic Analysis
The Forensic Lens
Focusing on:
1. Relationships between vendors and employees
2. Legitimacy of vendors
3. Legitimacy of invoices
NOT looking at:
1. Compliance
2. Policies/procedures
3. Best practices
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Forensic Analysis
Information Reviewed
1. 15K+ transaction-level detail lines
2. Employee Master File
3. Vendor Master File
4. 400+ E-SPLOST vendors identified
5. Detailed review of 50+ vendors
1. Background research, including internet, social media, and CLEAR
2. 500+ of invoices
6. Email review and analytics/keyword searches
1. ~30 employees
2. 5M+ emails/files in population
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Forensic Analysis
#1 – Project Spend Tracking
Finding: Inaccurate Ledger
The District did not maintain a complete and accurate ledger of E-SPLOST-related transactions
consisting of Project, Expense details, Vendor Names, Dates, Amounts, etc.
Recommendation:
The District should provide comprehensive training sessions, standard operating procedures, and
ongoing support to personnel responsible for financial record-keeping duties.
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Forensic Analysis
#1 – Project Spend Tracking cont.
Example of original data source (no vendor name, check #, missing details)
E-SPLOST IV – Project #104
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Forensic Analysis
#1 – Project Spend Tracking cont.
Example of PM created ledger
E-SPLOST IV – Project #104
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Forensic Analysis
#1 – Project Spend Tracking cont.
Initial Spend and Budget
Initial Transaction Detail Provided
Reports
$1.223B
$998M
Incomplete transaction details
No transaction detail
Issue #1 – Crosspoint conversion lacking vendor details
Issue #2 – Munis data without project string
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Forensic Analysis
#1 – Project Spend Tracking cont.
Initial Transaction Detail Provided Compared to
Budget and Spend Reports
171 of 261 Projects Reconciled (66%)
~$240M Variance
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Forensic Analysis
#1 – Project Spend Tracking cont.
Review of
Crosspoint Munis Munis Project Munis Project
Supporting
Transaction Transaction Detail History Journal Inquiry
Documentation
Details Details Reports Reports
& Inquiries
15K+ Transactions with Vendor Detail
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Forensic Analysis
#2 – Analytics/Vendor Analysis
Tests Performed
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Forensic Analysis
#2 – Analytics/Vendor Analysis cont.
Tests Performed cont.
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Forensic Analysis
#2 – Analytics/Vendor Analysis cont.
Flagged Vendors
A flagged vendor DOES NOT mean it is
problematic vendor
. Flagged vendors are vendors identified
through our analytics to warrant further
research, including review of invoices,
background research, and email review…but
again, does not mean that they are necessarily
problematic
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Forensic Analysis
#2 – Analytics/Vendor Analysis cont.
Flagged Vendors
• Background research
• Includes “key” District employees
• Thomson Reuters CLEAR
• SoS Business Entity Search
• Internet/Social Media/Wayback Machine
• Documentation review
• Email review
• ~30 individuals
• 5M+ files
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Next Steps
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Next Steps
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Q&A
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