Agenda Item
a. E-SPLOST IV/V Executive Summary Report
Summary: Presented by: Plante Moran
DeKalb County
School District
E-SPLOST IV and E-SPLOST V Audit
September 9, 2024
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Our Commitment to You
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Agenda
I. Executive Summary and Engagement IV. Project Management Analysis| Findings +
Background Recommendations
II. Project Accounting Analysis | Findings + 1. General Conditions Bridging Documents
Recommendations + Management Response 2. Contract Forms
1. Policies and Procedures Manual 3. Payment Applications
2. Project Spend Tracking 4. Bonding and Default Insurance
3. Contract Execution and Monitoring 5. Cost Plus Contracts
4. Lost/Destroyed Records 6. General Cost Considerations
5. Vendor Selection V. Additional Risk-Based (Forensic) Procedures
6. Purchase Approval VI. Q & A
7. Accounting Errors
8. Internal Controls
9. Change Orders
10. Project Spending
11. Final Inspection Documentation
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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, train, enforce, and monitor compliance with policy.
DCSD Response:
• Plan to leverage existing documentation (ACERM PPM, Kahua Workflows) and district personnel to
expedite SOP development.
• Engage a third-party consultant for additional review and input.
• Implement regular review and updates for the SOPs.
• Ensure ongoing communication and training for SOPs adherence and updates.
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Project Accounting Analysis
#2 – Project Spend Tracking
Finding: Lack of Complete Project Spend Tracking
The District did not maintain a complete and accurate ledger of E-SPLOST-related transactions consisting of
project, expense details, vendor, date, and amount.
Recommendation:
Reconcile detailed subledgers to the general ledger on a monthly basis, all variances should be investigated
and resolved within 30 days.
DCSD Response:
• Conversion to Munis initiated in 2018, completed in 2024.
• Post-conversion, all financial details are consolidated within the Munis system.
• Monthly reconciliation of capital project subsidiary ledger with general ledger to be established.
• Management to implement training and support for financial record-keeping personnel.
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Project Accounting Analysis
#3 – Contract Execution/Monitoring
Finding: Improper Contract Execution and Monitoring
The District’s contractual and financial processes for implementing capital improvements from procurement and planning
through construction and close-out can be significantly improved. This includes procurement documentation, establishing
and tracking the budget-to-actual costs from the planning phase through construction (including contingencies), and close-
out activities.
Recommendation:
Review and update procurement processes to align with current market trends and conditions. The District should conduct
a comprehensive overview of its procurement of Construction Management services in alignment with its contract
documents and incorporate industry “best practice” processes.
DCSD Response:
• DCSD to hire a third-party consultant for construction management improvements.
• Consultant will collaborate with the Office of Legal Affairs to enhance Standard Operating Procedures.
• Aim is to align with top industry standards for managing project expenditures.
• Focus will be on minimizing overall project costs and maximizing budget savings.
• Collaboration will optimize the use of Munis' contract management module for fiscal efficiency.
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Project Accounting Analysis
#4 – 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.
DCSD Response:
• Division of Information and Instructional Technology (DIIT) creating a District-wide Records Retention
Policy.
• Policy complying with the Georgia Records Retention schedule.
• DIIT leads the digitization of all paper records within the retention period.
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Project Accounting Analysis
#5 – Vendor Selection
Finding: Lack of Vendor Score Compliance
223 out of 328 (68%) 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.
DCSD Response:
• DCSD to hire a third-party consultant for developing a monitoring program.
• Program to ensure selection committees align with policy and best practices.
• Internal Audits & Compliance to review vendor evaluations for policy adherence.
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Project Accounting Analysis
#6 – Purchase Approval
Finding: Lack of all Purchase Approvals
3,677 transactions (23%) 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.
DCSD Response:
• DCSD's previous ERM system, CrossPointe, lacked the ability to create/manage "blanket" POs.
• E-SPLOST program has ceased "after the fact" POs since Munis supports "blanket" POs for entire project
costs.
• Munis' workflow records necessary approvals and employs a 3-way match for the final approval of
purchase payments, aligning with best practices.
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Project Accounting Analysis
#7 – 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.
DCSD Response:
• E-SPLOST program has ceased "after the fact" POs since Munis supports "blanket" POs for entire project
costs.
• Utilization of Munis' approval workflow and reporting features
• Establishment of new Standard Operating Procedures aimed at rectifying remaining deficiencies.
• Enhancement of construction management's expense tracking and reporting capabilities within the E-
SPLOST program.
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Project Accounting Analysis
#8 – Internal Controls
Finding: Inadequate Internal Controls
Of the 18 key controls identified during our review of the Policies and Procedures Manuals (“PPM”), we noted
District procedures were not designed effectively for 7 controls to effectively provide oversight and management of
E-SPLOST funds.
Recommendation:
Employ a suite of preventive and detective controls that aid in reducing the risk of misstatement or fraud. These
controls can leverage the capabilities of the ERP system, with manual controls layered in as an extra line of defense.
DCSD Response:
• DCSD to utilize Munis for workflow and document verification enhancement.
• DCSD to hire a third-party consultant to establish a framework of robust internal controls in the E-SPLOST
program.
• Initiation of an Enterprise Risk Management (ERM) framework by Internal Audits & Compliance.
• Implementation of preventive and detective controls through ERM to mitigate risks of material misstatement or
fraud.
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Project Accounting Analysis
#9 – Change Orders
Finding: Possible Manipulation of the Bidding Process
Identified opportunities for contractors to exploit the procurement process. There were 30 instances of change
orders over $100,000 when the base contract value was less than $1M. The total value of the base contracts was
$8M. After the change orders were applied, the total contract value including change orders was $111.5M.
Recommendation:
Maintain an owner contingency within the overall budget and ensure strong controls exist, including implementing
oversight procedures during the procurement process.
DCSD Response:
• District uses "Exhibit M" for submitting and approving partial Guaranteed Maximum Price (GMP) proposals.
• Auditors' observed Change Orders are actually "Exhibit M" components within the total construction contract.
• DCSD to hire a third-party consultant to align construction management with industry standards.
• Initiative in place to revise contract structures and approval processes to benefit DCSD.
• Office of Legal Affairs and DCSD Finance will maximize the use of Munis' contract management module.
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Project Accounting Analysis
#10 – Project Spending
Finding: Project Spending
Several completed construction projects had total expenditures that surpassed the budgeted amount approved by
the Board. Due to incomplete retainage of approved change orders and a lack of a comprehensive record of all
contracts and change orders, we could not confirm the expenditures that exceeded the budgeted amounts were
approved by the Board.
Recommendation:
Maintain a detailed accounting ledger by project, with the supporting documentation behind it, in an organized
fashion. This provides the opportunity to not only re-trace the project from inception to completion but also allow
trends or anomalies to be detected and acted upon.
DCSD Response:
• DCSD Management utilizes Munis' contract management system.
• Detailed accounting ledger maintained by project with supporting documentation.
• Enables thorough expense reconciliation.
• Ensures accurate monthly reporting of project status and expenses.
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Project Accounting Analysis
#11 – Final Inspection Documents
Finding: Improper Maintenance of Final Inspection Documents
The final inspection documents for E-SPLOST IV and E-SPLOST V construction projects were not maintained
to provide them in a timely manner for audit purposes.
Recommendation:
Establish a close-out checklist, with a final review of the checklist and supporting documentation performed
by those charged with the management of the capital program.
DCSD Response:
• DCSD Management to utilize Munis for document retention.
• Integration of Records Digitization project with retention efforts.
• Establishment of District-wide document retention schedule and policy.
• Ensures availability of all key documents for future audits, assessments, or reviews.
• Focus on maintaining Final Inspection Documentation for financial and legal purposes.
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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
Findings #3A: Lack of Certification, #3B: Lack of Sworn Statements, & #3C Lack of Lien Waivers
• 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.
• 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.
• 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.
Recommendations:
• 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.
• 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.
• 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
Findings #4A: Double Bonding and #4B: Subcontractor Default Insurance (SDI)
• 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.
• 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.
Recommendations:
• 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.
• 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
Findings #5A: Contingency Governance and #5B: Owner Contingency
• 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.
• 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
Recommendations:
• 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.
• 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.
Findings #5C: CM Lump Sum General Conditions and #5D CM Buyout Savings
• 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.
• In the Cross Key Elementary project, it was observed that there was a line item in the G702 listed as "CM
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.
Recommendations:
• 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.
• 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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Additional Risk-Based
(Forensic) Procedures
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Forensic Analysis
The Forensic Process
Documentation
review
(500+)
Obtain data Data analytics
Interviews Email review
(15k trans) (13 tests)
(5M+ collected)
Background
research
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Forensic Analysis
Previously
23 Flagged Vendors
A flagged vendor or transaction DID NOT mean it
was problematic.
Example Red Flags:
Flagged vendors and transactions were vendors • Lack of web presence
identified through our analytics to warrant • Sequential invoice numbers
further research, including a review of invoices,
• Residential address
background research, and email review…but
again, did not mean it was problematic. • Being the only vendor to bid on
certain projects
The transaction activity and/or context involved • Unusual invoice numbers, such as
some characteristics which problematic low number and/or duplicates
transaction often share. • Invoices lack specific details
I.e., it is Risk-Based Testing Approach
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Forensic Analysis
Conclusion
Findings:
16 of 23 vendors: No evidence of fraud, waste, or abuse was identified.
Information and/or evidence existed to substantiate that the transactions were reasonable, thoroughly reviewed by Dekalb, and/or
mitigated/explained the reasoning for the transactional red-flags.
The other seven (7) vendors: Unable to make a determination due to limited information.
We did not find evidence to conclude that problematic activity occurred. However, we also did not identify evidence to substantiate the red-
flag anomalies as we did for the other 16 vendors. This is primarily due to the District not maintaining evidence, nor having institutional
knowledge of the transactions due to the length of time having passed since these transactions occurred, as previously explained in issues:
• #4 – Lost/Destroyed records
• #6 – Purchase approval
• #8 – Lack of internal controls
Recommendation:
More timely audits and/or transactional reviews are needed to ensure evidence and/or institutional knowledge exists to support the
transactions. The District should caution not penalize the seven (7) vendors for its own lack of record keeping and/or staff turnover.
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Q&A
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