Senate panel reviews DOT spending audit
State Auditor Beth Wood goes through an audit of the state Department of Transportation for a Senate committee.
have your Ginger, Please will now bring this Senate Transportation Committee order. The 1st 1 of this section like to welcome everybody here. Appreciate your your attendance and your your attention to this very important meeting. Like thing started. Take the arms. They're diligent. Especially having to do with all this. 19 related. No, Appreciate them. Terry Barnhart, little Billy Creature Paterson and whoever is responsible for sanitizing. Well, thank you for that. As most of you know, especially those of you have the the Monitor's report. We're in a serious problems financial of a bot that we need to resolve and is the Is it all now? Okay, so everybody could hear me before. So anyway, welcome. Those of you who didn't hear me before way have some serious financial issues having to do with the O. T. And they've been exacerbated by covert 19 and our economy. Nevertheless, we have to address them, and the Hollinger is here to give her report. But before that, I'd like to invite coach here. McGuinness toe have any comments if he has any, like Mr Chairman and welcome everybody. Dont of course has provided highways we travel on in North Carolina For many decades we've seen course ups and downs, and they kind of had that sort of thing. And we find ourselves now in a down economy. But it's been exasperated by issues that have taken place under the under the managed but the T that through storms, map, active litigation, many other things that have all coincided at one time. And we're very, very pleased that the auditor is then the audience, that this will be here today to give us that that results. But we're also here to work towards an end result in a bipartisan way to make sure that this doesn't happen again. So we're we got work to come out for work today, but again, we've got work in a bipartisan way can to come to a resolution that's gonna be benefiting the citizens of North Carolina and those that drive over highways and byways thinking go, Terry McGinnis. Now, I'd like to ask Howard Mercy Leo to summarize the latest D O. T funding legislation that we'll share a little bit light on this issue that we're dealing. Mr. Howard, floor is yours. Thank you, Chairman Davis, my intent is to go over the two page document which I believe was distributed to the committee and put on the website as well. That's not up. We will be certainly happy to put that up is necessary. What I plan to do is go throw through four pieces in summary of pieces of legislation which affected Yoki. More specifically, any questions, please let us know we'd be happy to answer them in more detail or if it's something that you could look back on, we can always get back to you as well. First session law. I would like to discuss secession along 2019 deaths. 15 which is an act. Transfer funds to BOT to be used as cash flow needs for results. Disaster recovery primarily that was legislation that created a disaster really cash loan fund. It also specified initial funding sources, which included a $90 million transfer from the General fund. To that fun In physical, you're 18. 19. It police the $300 million limitation on it and it also set out requirements for closure of that fund on the conditions being met of the $300 million cap being reached or the night also included a $90 million transfer to the saving reserve on if that will be addressed in another piece of legislation, which all this stuff shortly second piece of legislation was passed in November of 2019. That's 2019 to 51 which is an active mate. Revenue adjustments. Implement budget stabilization measures and enhance transparency and accountability of GOP That many different things. But one of some of the highlighted portions and provisions is it directed the state treasurer, too, to issue up the $400 million build and see bonds directed BOT. The transfer. $100 million from the highway trust fund to the highway fund. In 2020. It created the Transportation Emergency Reserve, which included initial funding of 64 million from the general fund and, additionally, put some limitation that uses on money within that one. It authorized you. You work with OS PM on several provisions and authorizations that they had in that legislation, And it also required that some other provisions regarding that map settlements, such as $150 million for fiscal year cap enacted. Um, additionally discussed previously with $90 million transfer. Earlier recession, long there was a provision that's this session law to forgive or no one require that $90 million saving transfer savings reserve upon closure of that emergency fund. There was an appropriation $36 million from the general, several reporting requirements. And that was a session well, that passed the state auditor's office to conduct performance on it, as well as directed the department to cement financial management report, which all came in this year and most recently, where two pieces of legislation related to relief 22 23 required the envy to extend the validity of specify credential concludes driver's licenses, inspection station licenses. Those are all this within the legislation that a lot that required them to extend the validity of 45 months that expired between March 1 2020 and August 1. They also have other extensions of the lady of certain credentials, such a certain medical waivers, certain driver eligibility certificates and in that several provisions to account for the extension, such as the waivers, registration, registration deadlines, tats, registration, cats, payment deadlines that are kind registrations from motor vehicles. Also, I think the envy vacation with another session, we'll out by over one from your main building and rolling that was extended or modified and also directed the Department of Transportation not to make a transfer to the emergency Reserve House required pre recession. Last leave pointed US 24. Is all the amounts of money that were allocated or from Radio SPM for allocations or hoping relief. There is a provision in there regarding 300 million that would be able to be allocated to deal you should a federal government authorized the use of that off federal bombs or lost revenue replaced. That is my summary. Morning, Mr Chairman. Any questions? Happy? Thank you. How are appreciate that presentation. Does anybody in the committee? I have a question for Howard regarding his presentation. If not, I will move on to the next part in our co chair. McGuinness. And our goal is to to bring in presenters to provide relevant information for us to then, uh, craft appropriate legislation to help remedy this problem. And that is our goal. And we're gonna do our best to provide you with the sufficient information in order for us to do that. So at this time, I'm gonna light are very capable, Auditor that would matter. Monitor the floor. Your we look forward to your presentation. Thank you, Mr Chairman. Members of the committee appreciate the ability. Are the opportunity I should say, Teoh, present to you the findings and our performance audit on the cash spending place. So our audit objectives, based on the our objectives based on our requirements from the statute, was to confirm the amount that D. O. T exceeded the plan and then, more importantly, to identify the causes. What we looked at, the scope of our audit in terms of the journal simply was requiring us to do It's right. So again, the objectives confirming the amount exceeded didn't find causes of overspending. And then, based on the decision law, we were asked to look at whether how what the budget here is. My department division and highway division was like time, and it's a federal reimbursement request. Timeliness of response to federal enquiries, controls and oversight right related to the cash management project, Coordination, delivery of budget adherence effective is a communication and coordination and the effectiveness of the cash management for state fiscal Year 2019. So, in starting out, we started with the budget and found, after some problems that what the budget that is certified by the General Assembly is not the spending plan or the budget that duty necessarily uses. So what you have is your certified budget, and here it is in the second column, $3.59 million. I'm sorry, $3.5 billion in the highway thought 1,000,000,005 highway trust fund. But then, do you know T takes that certain budget? And they might add money. Steps are being used from that work spent part here. They might use moneys that they anticipate Ron Line proceeds, and they add all that together to come up with their spent plan. So for 2019 they made an intentional conscious decision to spend down $670 million off the excess cash that they had. And then they had planned to sell Garvey bonds in the amount of 126 million, which brought the total for the spend plan to 5.9 billion, again sort of a budget. That's what these oh SBM tracks. But there is Nobody will talk about that later. Get really tracts of D o T total spins plane. So we confirmed that the spending plan waas over budget by 742 million, and I point out that 742 million more that is 670 million intentional spin down cash they had left over from prior years. And the categories under the First column, a big category of construction that included big projects capital projects. Every $10 million difference here is a little bit deceiving. The difference is 124 million net overspend budget. But what really happened? There was $207 million a couple of categories over span it. But then there was another 80 plus 1,000,000 that was understanding. Another category brought the net to 1 24 The title under span will be more the more parent and why that supported in the next couple slides. Then you can see the big over spanned was operations and maintenance. That is your repaving that is resurfacing, that is the maintenance of the highways. But important note here, too, is that it also includes your disaster funding. So are finding We ended up with one finding and several reasons for that over spanned, and we are saying that BOT exceeded their spending plan. And then we're talking about the reasons that they dio within this audit. We ran into a couple of other issues that necessarily we either didn't have time to finish in the time frame that we had, or it was things that we ran across we thought this committee needed to know about. So the findings were that was plan was not based on cost estimates. Now talk about that in more detail for the fiscal year, the achievement of years office didn't monitor compliance with spending plan that was set, and they didn't enforce compliance with plan. So you have the planet being set in Raleigh of Central Office, and then it is allocated out to the 14 highway divisions, regional division offices. And so these findings are that the chief engineer's office didn't monitor and they did. It forced 14 division offices to be in plaice with slim spin planned and allocated to them. The spirit plan was not based on cost estimates. Anything about what we're talking about. The construction category, that big category that has to do with capital projects are over $10 million. Preliminary engineering align was an over span of what they had expected to span by $194 million. The estimate for the preliminary engineering WAAS, not based on cost estimates for specific projects. We think for preliminary engineering engineering that be specific to different projects specific projects that wasn't based on that was based on the prior year spending. The other thing I would point out on this line is that there was much conversation had about the map act and all the money they dont have to spend on the map Back map act in the monies that were Spence for court cases that were settled or any settlements that came out of that, The fact is within the right of way category within this construction category and the map back to the right way. Overspend for 2019 was only $13 million. So big culprit here getting to that $742 million over span was 100 $94 million preliminary engineered again not based on specific projects operations. But based on prior spending. The other big category that we saw that the over span was operations. Maintenance again. This is your groom paving, resurfacing. It is the right way. The side of the road efforts, it is breached. Replacement is rich maintenance on DSO. That category was $578 million overspend and again for the operations and maintenance, Whether it's repaving servicing or whatever comes into this category again was not based on actual plan maintenance projects across the state, but it was based on seasonal spending and a 10 year prior average historical average. So again, not really dedicated to what we plan to do with the anti for 2019 but again, based on priority numbers and a 10 year historic average off the 578 million the over span Teoh Hurricanes Snow removal 246 million, Um, for whatever reason, the disaster spending the money set aside for disaster spending where it's hurricane or isis on every level has been a step number 50 milion since 2014. Since 2014 we have always been more than 50 year and disaster spending whether Turk aids isis very removal. But the number that's been set aside has never changed, and so in 2019. It was almost $300 million for reconstruction, rebuilding or replacing roads that were washed off hurricanes or snow and ice removal situations. And it was over. Stand up. $246 million. This is probably the time, that sort historical looking backwards what has been happening? Carolina with disasters might have been a number to use, but they didn't talk to the A. T. It appears that what everybody says, sy for this disaster funding, get the disasters. Don't meet that number, then you don't aren't able to use that money for anything else. But I would just say that in November, October for her kings had and simply s t a t The great job you putting back the roads washed whatever they earlier on here but spending once they knew that commitment. Teoh Disaster funding for 2019 funding in any other areas of maintenance operation was not the chief engineer's office is another cause did not monitor compliance with planning. So when this plane is developed, it is allocated across the 14 highway divisions ways given to 14 Howie divisions there, given their full years allocation, is provided to them initially. And then there is no there's no requirement that you must follow this plan. And so the 14 or how to follow this plan that basically 14 division engineers according to take are allowed managed plans however they choose, and then the chief engineer's office do not enforce compliance with plan. So they did not reject the divisions, contracts or unspent budget. If they became aware that the money's or insufficient that the budget was be able handler thing, they plan to do that here. They did not reject any contract, any contracts. There were no midyear budget reductions that they learned that division was getting in trouble or their projections didn't look like they're gonna make it to the end of the year. They're allowed to borrow against next year's budget. The idea is that if you spend money this year and it's going against next year's budget, that it will reduce next year's budget. But when you got into the next year, it just reduced the next year's budget and they reduce next year's budget. So there was never really assuring up off that practice, so it allowed worry across multiple years, So I understand I don't build highways, But I do know that the law says Transportation Project Fund shall be budgeted, expended and accounted for. Only cash flow bases pursuant to this and transportation project contract shall be planned and limited, so payments do it any time will not exceed the cash available to pay. So when you look at what happened along, requires him to do, it appears that oversight and monitoring that was necessary to make sure that each individual office across the 14 divisional offices did not make their spending plan and did not. That was the directional requirement that they hear their spending plan and really no monitoring of spending plans. Our recommendations and any other piece that I think is is critical to is I know that a lot off projections for expenditures will be based on prime numbers. But you still got a little bit at Here's what we did last year was next year like that changed, so you either increase or decrease your rejections. But so we're recommending that the spending plans should be based on cost estimates of specific projects and operations. The chief engineer's office should formally monitor each highway spending on a regular basis and just whether those adjustments are holding back our slowing down some of the spending. But there should be some adjustments. Made it again. The idea of the disaster spending respect. $300 million to replace roads destroyed by Hurricane. Yet no swelling down for the rest of the year actually happened. The chief in two years office should take corrective actions whenever highway divisions are overspending and the chief engineers consider requiring corrections according bases. So based on the finding again, $7.2 million over spent over spanned 742 million off the cognitive decided spin down 670 million cash in hand. And these recommendations that we had to go find we had to work matters for further consideration. The 1st 1 was that oversight should be improved so always. BM doesn't have Access Teoh Spin plan. They only have access to the budget that certified by the General Assembly on there is really nobody overseeing the spin plan. Outside of the department transportation, there is a Capital Management Planning Committee kept financial planning committed with Indian tea and it is made off c o d o T c F on the chief engineer of other executives, and their job is to look at spending on a monthly basis. Look at projects. Look what what's needed to be done and make adjustments or handle situations accordingly. Um, and then when I say who's gonna providing oversight, he's in the West. You find planning committee? Is that somebody else also were pointing out that there is no approved budget or spend. So once you, the General Assembly, uh, you sort of either budget, there's other things added to that budget, and they come up with a spin plant. But this is coming up from D. O. T. And there really is no outside approval of that spent a plea, and then it's not adequately monitor. So began another reason for some external oversight. But what I would point out his BM doesn't have passing at this point time. According to them, they don't have access to a spending plan plating committee, and this is their job. This is what they do. I'm not sure anybody outside of somebody with some intimate knowledge of how this whole thing works is going to be that so this Financial Planning Committee seems to be the place depending on who gets added. That's find that external oversight that's needed to make sure that highway divisions and dont was following their own spin. The other issue that we had managed for the consideration to there is a 4.8 moving dollar balance in what is called advanced construction. And we are having looked at this saying this committee should recommend should consider that these monies be reported and line. So right now there's no valuation advanced construction practices. There's no detailed report on Advanced used, um, use of advanced construction, and there's no detailed report on the outstanding balance. So take a couple minutes to talk about that. So I dont tells us there's some information provided. But once you learn how this works, what you see how this works, I think you'll understand that the information is being provided is sort of sketchy. The other thing we talk about at State Honors office is that you have members on committees that come on and off. You have administrations, governors, secretaries. They come in, they come out. This is a pretty complex and convoluted process, and again, once you get into the details, we're going out. We think this should be better reported. Monitored. Help See line. There is no single document that describes what advanced construction is, what the benefits will restart. What beginning balance is what expenditures are that year. Contract amounts within that balance. Plant additions planned inversions are ending balance. So talking about advanced construction, what is it? Every state has access to federal highway dollars. A having dollars. This is given to each state through the Federal Housing Commission. So there's an annual limit first day, and that's calling our obligation authority. North Carolina's obligation authority is 1.1 billion. We must occur this the and pay the expenditures and then request reimbursement. Now every state has to meet its annual complications authority. If not, then the federal government in August takes everything that didn't get obligated for their fiscal year, puts it in a pot and reallocates it back to everybody that do you meet their obligations, authority and again. 2019. North Carolina's was 1.1 billion. There's two ways to get this federal funding you get through traditionally financed or the advance construction. And I'm here that North Carolina has opted to use advanced construction on almost all of its projects. So traditionally financed, D. O T. Would submit a program to the Federal Highway Administration. They in turn approved project, and at the time we started contract, they obligate federal money at 80%. They they said, Aside from North Carolina and all that they approved for us, then the signal Carolina begins in pace with construction with state funds and then we submit we could really mess. Let's to federal highway Under advanced construction, we submit projects that they approved to be eligible for federal funding. At the time, they proved that this is a project that's eligible for federal funding. There is the obligation of $7. So then do t takes whatever they decided in this case. So you think about all the projects we plan to do with state of North Carolina duty, and then this is a subset of that bigger plan that we plan to pay for with federal reimbursements so duty when thieves projects are approved. But how a commission that there eligible for federal finding again no obligation of federal funds, do you t adds this chair l because Teoh um abouts, if you will, it's not really a part of their financial statements in any way. It's just sort of has it uses for off the books kind of number that you're keeping up with. So there were big instruction. We pay for the construction costs with state funds and in some point in the future. And it may be the very year that you started this project and you get this conversion from advanced construction, too, a federal aid project. Okay, so we're keeping an account of it in this federal advanced construction bounce. And then when we Because constructor, when we build highways, then we move it from the base construction of two federal eight Project, and they re submit that to federal government. They approve it. They then obligate funds for Caroline and understand. In this presentation, the state auditor's office was neither advocating for or against advanced finding versus attrition, traditional whatever, but talking to d o. T. The thoughts behind their traditionally financed and not using that is that it limits the numbers of federal aid projects that you could start in a year. Because once you present this project, the Federal Housing Administration funds once it equals the state's obligation authority. You can't start any more federal A projects can start. But if you go with advanced construction, it doesn't require the allegation of federal funds. Projects are crude, but dollars are not obligated. You could start more projects annually with anticipation that down the road you will convert these over to the federal aid projects that we're gonna create because they're already proved to be knowledgeable. But then you would convert them. And then what? You convert them and the Federal Highway Administration pace gruesome. They will obligate the 4.8 big, and it does tie to a federal court of approved projects. And then we asked. So our first assumption was that statement Carolina had spent 4.8 billion. I was Money's Teoh for this advanced construction waiting be reimbursed. But when we asked about that, that's not actually the case. There are a number of projects that have been said that we would like to, um, constructions projects. We would like to build these highways. We'd like to do these projects and then we would like to get federal a money back. So what's in that balance, according to BOT, is that there is in total $1.3 billion in expenditures. So I got 4.8 billion projects that the how the commission has said could be eligible, and we've actually spent money on 1.3 bills. Okay, The breakdown of the 1.3 expenditures 706.6 million of that has been funded with garbage. So we've gone out, mark money proceeds. We paid for 706.6 million in guarding bonds. And then there has been actually 604.5 million state funds that we will comfort and seek reimbursement down the road. Then you've got 3.5 billion. So how much of that is committed in contracts already? What did you spam with Vardy bond money. Would you spend state expenditures goddess in contracts? What's committed? That mistake's gonna have to build eventually because you can't build a bridge. You have to complete the project. Um, they couldn't tell us what's committed in a 3.5 billion. They believe that most of its been committed, but we couldn't get a spring and you would take too much time to go back and give us that break down by the time we had to meet this deadline. The other piece I would say about this is that the 706.6 million later having these Barbie bonds is that they submit and convert whatever the principal payment is on the bonds for that current year that your so we're not trying to pay off. All the sudden or 6.6 million is just We're paying the principal payment for that year and converted that from the advanced construction to the federal eight projects. And so the point there is Army bonds are 15 year turn belongs, and now some of these air back in 2010 2009. So I don't think that there are all stretched out from 15 years from here, but again, carbon bonds, 15 year bonds. But really, we don't have schedules of how much of a 4.8 then is tired of your mama's, how old the bonds are and whether projections going to be like and how Steven Payment is a and then 604 million again were able Teoh. I'll be obligated that we are able to get OBLIGATED Federal funds $1.1 billion a year. So again, where is a 604 billion sitting at all this began. This is the federal fiscal year, so you know, I still haven't finished that yet, so I can very easily. And then for all the other 3.5 billion. What projects doesn't fall, what contracts are let where we already obligated because the issue is we could Onley obligate 1.1 billion a year. And so how far does all this stretch out? We're comfortable that well, I guess we were before the pandemic comfortable that the federal government and the federal A money will keep coming. But again, you can only get so far stretched out and start to the risk gets hard and higher that the monies will be about the letters a pandemic, whether it's some other issues that calls is the federal government's a withdrawal back some of their money again on this cash standing up for the advanced construction, including the things that we just talked about. There should be a list this list that I started out with a document that includes all this. But we're also saying that we would ask this committee to consider that duty provided a breakdown of the entire $4.8 billion. How much of this is expenditures paid with state monies? And what is the thought of schedule for collecting that from the federal government expenditures funded regarding bonds? How older bonds proceeds was payment for this year. And what's the Termini in? So how far out do you think this is good to go? And then to detail all of the projects with associative contracts or commitments, And we entered into contracts that your contracts and we did not have time to get into this balance. And the more I thought about it, I thought, Well, you know, it's up to your teeth do this no state auditors and then along that most we had schedule right down as a starting point to continue this because that is a recommendation that the document and detailed information be home going and in all things I had listed in that detailed description. But for us to audit those numbers to know that we're starting state ours almost audio post numbers. Where we're starting is a true star. You get me some because, as I said, many items only the 4.8 million being eligible for federal funding down the road is the only thing that we really could tie anything back to. Wasn't able to tie down the garden Bonds, you know, is that all this involved guardian wants I wasn't able to tie down. It's a 604 million. All that we have spent in state funds just way didn't have time and again detailed work to pull that all together is gonna take quite some. It really should be a dont. And with that secure, I presented my results of our performance due to cash. Thank you, Monitor. Appreciate that. Comprehensive report. There are a lot of pieces to this puzzle. There are a lot of variables to this cash financial crisis. What is the most meaningful thing that you think that we can recommend this committee into the Legislature in the form of legislation that would assist and getting a handle on this financial persons? Um, you gotta know where you are. You know what you started years and there's got to be some kind off check and balance some kind of oversight to ensure that that spending plan is being followed like it should be again. Who that use? What was the M Financial Planning Committee? Some other external? The Financial Planning Committee really has the day, day month involvement. Forecasting, Um, that was a lot of your reasoning, your problems. That what? How they forecasted was not based on projects that are being done. So they're forecasting is not what it should be. And then the oversight wants their spending and casual about into trouble. So between the two better forecasting and then the oversight to make sure that whatever spin playing to come up with and and, um, that detailed report on the advanced construction, I know that her people talk about its advanced construction, do any time, pay for it and get our money back from the fans. But I'm not sure anybody understood the how far out some of this might be going. So details on the advanced construction oversight to make sure that spending plan is being a cure to and somebody is making some decisions. When some of these offices are way over what should be. There's certainly much better forecasting on the expenditures. Basically, what do you plan to build next year at forecasting to come along with that. What you plan to make tank next year and it's certainly better forecasting disaster funding. Thank you. Know like to, uh, don't go far. We have some questions for you. I'm sure like to recognize co chair McGinnis for a serious question. Thank you, Mr Chair. Thank you, Madam Monitor for that detailed report. We appreciate the quality of work. You do observe it from North Carolina that says, Do you take Beauty is recently lady that public announcement rolling furloughs that it plans to enact view to its financial situation. In their letter to the General suddenly this week, the T said the attached plan is necessary to reduce expenditures this fiscal year to offset the negative impact code 19 revenue. It seems to be A T continues to not take responsibility for the mishandling of contracts and are attempting to use the cover crisis is their excuse for the financial system. This is nothing new is DIA is attempting to use natural disaster than the back as excuse for their spending mismanaged from the time this was my question is why? Because it contributed to deal with these financial situation and recent actions some of which were actually being implemented before covered. Do you believe the cash management is a strong contributing factor to the poor financial situation we see in the agency based on the audit that we did? Would you go as far to say that you believe it is more of a contributing factor than the revenue due to cover? Yeah, coming hit this far? I mean, that's billions of dollars. But certainly that's the time when you should be banned. Absolutely the best you can, because had they stuck to their spending plan into a 19 year TV, have $700 million more money? Do you believe that the tea is used because of virus to cover up a pre existing issue they faced with their cash mounts? I can't I don't Oh, do you believe Viotti is still not taking proper responsibility for cash management folks that have come to life in this? According to their response, it appears they are making that move, and they do have a new secretary and he has yet have chance to see what he can accomplish. I received no pushback at all from him on the five, except we had and certainly brand you. I guess this Some thought there was a move to olds out museum. So, you know, it's hard to say when he has a chance to do anything. While the appearance of blame in your audit report falls significantly on the office of the chief engineer who has the responsibility in your opinion. Polling Chief Engineer, account the CEO. Oh, at what point do you believe that spending authority of the Office of the Chief Engineer should have been revoked due to the ever spent? That's all a matter of of management and strategy. I know that they were aware some cash flow that was going to cash flow issues. Earliest number 2018 a zai understand it. And it's reported in the audit that, you see, I was the only line and secretary was so down. Have the authorities slow down. Oh, and you're all it did you find? Chief operating officer attempted to slow down or correct the spending rate for which the Office of Chief Engineer waas based on the idea that that's all this time. Okay, I would like to recognize Senator Rip for a couple of questions. That chairman again, you cited in section 43 on base 12 that the dft did have the ability to slow down or stop letting. Is that right? I do. But man and to the Yes, And some of it makes sense that if you have a bridge that have finished, then you certainly couldn't stop. So So the idea is that slowing down stopping would be at certain milestones. So, given that example, I understand that that's part of the reason they said they didn't blood again. You can't stand. You have to follow with you. But again, there were other projects that they didn't stop or slow down that weren't in that process. That could be true. Did you determine their being the evidence that suggested that attended to stop looked in, stopping the letting of any of these contracts slowing down the process of this contract? I was not aware we were not aware of any of that in our audit, but I'm not sure that that waas we were into that depth given the time friend, we're trying to get this office finished. Audio finished. Follow now. Was there any point where he determined that form of transportation took any type of corrective action to try slow. No, we didn't see any evidence and at work. Look, do you believe that upper management were told to keep spending? General Assembly would possibly bailed them out? We I have no knowledge of that conversation. Nor did it come up in our and you asked earlier what actions were taking about Seo. Did you notice any email, traffic or anything else in your all of it about Seo winning out to the chief engineer of the issues with cash balance? No, but I don't know that we get through and look through all emails to determine that again. There are there other things that need to be audited as a result of this audit that we just didn't have time to get into, and more some of those other things that thinking well, some of the contracting process is I mean, you just have to wonder if you have preliminary preliminary engineering contracts and spending is a $194 million over budget. You believe that the preliminary engineering should be associated with certain projects. I mean, just looking at a plan on how that went on, and then again the 4.8 billion. And it's just a balance of projects that kid anticipate to be paid for with federal monies again. What's what's really in that number? Oh, at what did the O. T. Appear to realize that there was a spending problem? Cash balances again? We were told that in November of 2018 in their cash projections, they recognize that there would be so problems in their cash projections November 2018. So most of these problems follow most of these problems. They they recognized within almost two years ago, not since the night things that right, That would be seven. It would also be true. Even though Kobe 19 situation didn't make this work a lot of problems. Excellent. And one will follow. What? Was there any information that the government was aware of? The problems Beauty goats He made aware of the problems? I have no idea. Thank you, Mr Chairman. Like recognize Senator Harry intend for a series of questions. Thank you, Mr Chair. Actually, I have one and it's a clarification. Did you say that the SPM has the authority to monitor dio t, but not the capacity they on it, but they have your 40 to oversee all of our budgets, but with the O. T. They had a spin plan, and spin plan is not included in the budget, so they would never know when they reached the cash poor. And OS PM's job was to make sure that I will never spend a certain line items that total. So it really is not to monitor the cast floor. I do have one more follow up. Would you have any knowledge of ESPN would have had the capacity or desire to receive any on it. We question them about that and in the audit, and I can't remember what pages on. But in the audit, there is a list of things they said they would have to have have to do to be able to monitor That spent, uh, in the way that would have called these issues before they got this far. I'd like to recognize, said Daniel, for a couple of questions. Thank you, Mr Chair. Madam Monitor. I'm just a couple questions Have you received as your office received feedback from the governor or his staff about the audit? So there's yeah, receiving back? Yeah, in your opinion. Does this current secretary Has he acknowledged, spending problem Dut has and lack of controls in place? Yes, does the secretary has he acknowledged how unstable the program BOT has developed? Is it wasn't still is no pushback or any defense or arguments to our findings, not at all. And final question in regard to the disaster funding, your are indicated that over the past five or six years, UT was so setting side $50 million for a disaster response. How much do you think would have been a reasonable amount for a year for the idiot? What would have been necessary for them to set aside for a year? I'm just based on prior. Your experience is sort of a realistic estimate. Well, the, um it's anybody's guess, because from in 2015 they spent 78 million, and then it went to 16. It was, I think, 100,000,200 million, back down to 170 million and then back up to 300 million. I guess you could do some averaging Feel your way through that. Um, I think the important piece might be is that if they set aside the money, and it's too much. So you get through hurricane season. And you didn't have the disaster that spent all that money, that they have the ability to put it back into the general construction. Thank you. Like to recognize Sandra Alexander. Thank you, Mr Chair. Thank you, madam. Are your continued excellent work this CEO over there? Is this an appointed position or you know how long that person has been there? Do? No, I don't think it's appointed. I hear about this Financial Planning Committee. How involved are they in the day to day spending on? Are they appointed, or can you tell me a little bit about them, please? The Financial Planning Committee consists of the CEO, the CFO and chief engineer. And then we were told in other executives I could find out who the other executives are on that committee they make monthly. And it is stated in the autumn report that their job is to look at projects and keep him on schedule and in accordance with cash you're doing I apologize from the left currency. I don't think that that state man I just didn't know what that was gonna be. A bunch of people who were just appointed because won't this be cool to be on the Financial Planning Committee for the From what you're telling me, that's not a situation that hopefully people who are maybe with the operation of the Department of Transportation, the individuals is not a sport. Thank you for your response. And thank you for your continued working. Don't leave town like you would be calling you back. Thank you, Senator Alexander. That question, maybe for a d o t. We have them on the calendar present next week. And so they would be prepared to that. Senator Rated. You have a question. Are serious questions. Thank you. Have a rail frequent on a thank you. Bring forth. I like to you talking about the markets for disaster. But first, no real way to say. But on average, over a period of five years, reasonable place to start it would be a reasonable place to start. The indication that we received is that once you set the money aside, he has to be spent with disaster. And then if you don't spend it, then you can use it for anything else. And I think just coming up with an average that makes sense. But then once you get there and I think hurricane season is really the season, that once you get the hurricane season making disasters than the ability, dont have to confirm that that I'm right on that. That was the money set aside. You have to use it for the disaster. But then again, if there is no disaster or there's not of the magnitude, have been allowing them to be able to put it back to your operations. Thank you. What would it be reasonable to? Possibly that we should have a nominal amount of money for on if that is exceeded because of the disaster, that rather than foot $50 in jeopardy, what's exceeding that amount should request additional farms from the rented A farm and that those funds be okay back to general falling upon receipt of female I'm seeing everywhere or another thing. You could set up a fun based on five or 10 year average, and once that fun reaches the limit of the maximum that has been spent on emergency relief, that money stays there. But no additional money has put in place, and money that would go into that would go to the regular general fund or transportation and some other. But I said, What do you have a question on? Welcome to this committee's newly nominated by Senator Blue to this committee. We appreciate your being here. Thank you. Mr Chair. Hurt you in your presentation before to various level oversight. Well, I think you talk about the oversight. Did your older side No. No. May I leave? Um, I can't stress enough that obviously this is such a big and complex. I think about how many thousands of projects are going on 14 divisions across the state. I'm not sure that that's the place for the oversight. That way. We're looking to see the Financial Planning Committee is man correctly and they're doing their job. Probably have called this any other questions from committee members or non committee members. Senator Smith, you recognize? Or a series of questions. Thank you. Mr. And I also like to thank our state auditor for an excellent job and presenting us the findings of I do have a couple of questions as it relates to clarity on the overspend of $742 million. I believe that he stated that 194 million could you go back and explain 194 million and share with me? What percentage of that exceeds this clean expending amount was for disaster recovery. Americans Mad wants sure. 101 194 that I talked about that to, you know. So the 194 million is really on. The construction line is 124 million. That's been netted with some construction project projects that didn't use all the expenditures. So you had 194 billion, um, over spanned and planning and engineering. You had 13 million overspending right away in the map Act. But then you have got netted against some other big construction projects that brought it down to 124 million net overspend. So that's where your preliminary engineering is. Okay? Your disaster funding is down in that $578 million overspend on the slide second line and that IHS 332 million over span and operations and maintenance and then 246 million over stand and the just ask your funding, replacing roads that washed out about her case. So is it. Thank you, Mr Chairman, for you need to do a series of questions. So Archer Beth would would you please give your best assessment of the overspend in terms of percentages that were spent responding to situations that no one could predict, including or even before Kobe, 19 to the natural disasters that we have had to respond to this state? I think 246 is the number in 2019 that had to do with over stand and the point being more that there was a budget that included only $50 million for disaster upper span so that but it was too small. And then when you had to use $246 million more Teoh address the overspending again. Dut did an awesome job on getting those roads replaced and getting done very timely, like he used 246 more than budgeted. No, nothing else in the scheme of things for the rest of the year was slow down or and so again it just comes back, toder signed and accountability. Thank you and last follow up, Mr Chairman. He spoke about $300 million in 2019. And so I was wondering if you also mentioned 2014. So is this your assessment that there has not been oversight since 2014? Or would you? Where would you pinpoint that lack of oversight? Since I've been stayed on, that would be three governors. Let me say three administrations I am. And I must say this about all three governors that none of us are getting better than secretaries that way depend on we trust to do the right thing. So trying to lay this is one of their feet again. The secretary is where they should stop for any agency this steak up, including just a final statement. Mr. Chairman, I would like to thank her for her, and we look forward on going conversations to address the issue instead of looking for opportunities to finger pointing and blame. Way have identified with the issues are thank you for your assistance. Thank you, said she way have getting anybody said You have a question for you recognize for a series of questions that you choose. Thank you, Mr. Here's a short series of questions, man. Thank you for the detailed report. Just a couple questions you reference the map act and the expenses around the map with their remind me of the dollar amount like you mentioned earlier. What what I said was the math act monies is wrapped up in the right away money and in total, those that category was only $13 million overspend order dollars outside of right away dollars that you saw. That would be an expense from the mat, including property acquisition. We did not looking way didn't look in that. So there's a potential that there are other expenses that could be related to the map back that weren't Dorada audit, we noted. And this is a prime example. The information that we are given, we did not have the opportunity to audit every balance. So their information that's on the books of D. O. T. And we met throughout the report that we have not audited figures. So each one of these categories of expenditures this is what they have on their books. One last question. And I understand you have limited time, different weekly audit in scope with, So I understand we have other things to do. I just have one more question. The a lot of conversation around the disaster spending budgeted amount in the $50 million per year since 2015. In any of your conversation in any of your research, could you see where there was a difference in the requested them out vs the legend ed amount since 2015 for that specific. Thank you, Stan. Yes, you do have a question. Yeah. Do you recognize? Thank you. Yes. I'm looking at page 13 here where you talk about matters for future consideration. All sides should be improved managing biggest of dolls without external control, the approved budgets thinking spending that with a margin. I just want to know how long has this been going on? And what the planets voiced, I would imagine. For decades, D o. T. Has been spending and monitoring their own budget forces follow water future plans for rectifying this from improvements that would be up to the O. T. On another. One of the comments in their response was that they are audited a lot during the course of a year and that there's a lot of oversight with the tea and this gives me an opportunity and did so in the report. In response, dont receives a part of the state's financial statement on it. D O. T. Is audited. They also present their own financial statements and we on it those pine those. They also have a federal grant monies that we audit. And then there they're required do their own audit of them, their internal controls over financial information. None of those four audits, none of those four audience our performance on it. It would have caught what we find so again, and it's a misconception. Across the state, across many bodies is that oddities and audit is an audit finds stuff, and it really does performance all. It is really great inefficiencies and processes that are not working. Controls are not in place. That's really where you gonna find these kinds of things before you ask your last question. I've got a question related to that. 24 f te's there signified as being auditors in the bot. So you're saying that none of those monitors would have found this performance deficiency. They absolutely could have and probably should have. You use your internal auditors, Teoh, keep me for finding stuff and so and I I am getting I'm getting ready to do so In 2007 the general simply put into law the internal audit at require agencies with $10 million expenditures, $10 or $10 receipts and 100 employees to have a sink, an internal audit function. And so that's been in place since about 2000 and nine. And I don't think it's working. We have 100 87 internal auditors, and I'm getting ready to go on that process now because this this is exactly looking at the risk in an agency. What is your risk? And then send your internal auditors to identify our there's risk mitigated. And so the internal audit function would have been exactly what would have caught this. It's been told some of their eternal lovers they have not put out in turn our report. That's 2016 Senator, What L you're recognized for another question. I think it was answered in the discussion that you just presented what you said that they sense certain things, and sometimes he is. It has been, So they want to find I apologize center ideal for a preempting your question. I just wanted Teoh and clarity. Any other questions from committee members? Center Alexandria. Question Senator, thank you very much. I think you get mad after a show with this audit said. Like primarily highway. But did you have any problems with rail reports? Regulation? No, Again, we were just looking at the side issues budget adherence on and then we kind of figure out what the budget waas it's been planned. And then So it was more to the five issues that had to do with spinning and cash management. And those two I heard you correctly is that what we had was $670 million over spanning. Never spend the money. And then, on top of that, we had explained overspending the budget of 742 million for total. If my math is correct of $1.4 billion I correct in assuming my math is right, man, Yes, but I think it was the direction from this committee that they spend some of that cash that they have sitting and the intentional spend down in their plan with 670 million. But they went over that a total of 742 additional. Thank you. Since you have a question No, I'm not a question, Mr Chairman. Is anyone in the audience that we're going to hear from you? Well, we next week we plan to have a bot there to present this committee and that That brings me to the fact that we're drawing to a close well, center. McGuinness has a couple of follow up questions, I think. But our goal here is to present the facts and Teoh allow this committee to develop legislation to help address this financial conundrum that we have a duty. It's not, too. I think we need to hold people accountable, But our goal is to solve the problem service. I just I want to send Teoh. This is not an issue, just beauty. I have to say that the other piece of it is when we perform an audit way, sit down with findings and the department and ask them to prove us wrong. We never put out a report or investigation where the department doesn't have chance to go through in detail. What we wrote in what are signings were and what recommendations are. And again they were in agreement with all and thats so noted. They're they're fixes their Their corrective actions are in the report center parent, you have a question. Serious questions. Yes, Mr. Chairman, I'll be brief. Um, thank you, Madam Arbiter, for this report. It's very insightful if someone who knew this entire process so I just have some clarifying questions, Um, focusing on the advanced construction practices. Do you know how long the department has utilized those? I don't know. Okay, um, have there if you had any audits in the past that have raised that is an issue. No, but we have concentrated a lot of our efforts at DHS, which spends about half of our budget 14 baby, that being Medicaid. So I have a, uh, 14 person performance audit division. So re sources are small, and we have really concentrated our efforts at department. Thank you. Um, just a comment, if I may, Because in in the report department's response, since they're not gonna be responding to us today here, I just want highlight that according to them, they've been using the advanced instruction practice for over 25 years that it has increased North Carolina share of federal highway funds to our state, and I think if it hasn't created an issue in the past, anything that brings more federal dollars to the state to build infrastructure or are people in our business is a good thing. And I also, since they're not going to speak today about follow up on Senator every years, question the request for general maintenance and repairs. I know that the department has requested more from this General Assembly that has been awarded, I think, almost twice as much as we've allocated to the department. So there's enough blame to go around to the department, of course, or a lot of the issues that you've raised in this report, and I break for that. But I think we need to do some soul searching here. Make sure that this General Assembly does share some responsibility, because when parts of our state suffer natural disasters, we don't want communities to be cut off from transportation just because we run out of emergency funds. Everybody wants the roads rebuild communities put back together. So I just hope, as we move forward, way truly do come up with a solution that is bipartisan, that focuses on solving this problem and make sure that we address these issues from people I do want to re emphasize. I think I said it before I started. That audit is no, um it is not advocating are going against advance construction in any way? That's not what it was intended to do. What it is intended to do is point out that there is no detailed plan, there isn't a detailed description and that there are things buried in that 4.8 million that I believe the General Assembly and the governor and the secretary needs to understand again. So the idea is advanced construction will reverse event construction. We have reversed but stretching out across too many years there. The risk of not getting that reversal in that was the pushback on pushback. I really got mdot was that I'm not questioning. The advantage of advanced construction without questioning is the fact that you can't give me a detailed explanation what's in that number and how much is really span homages guarding boss, How much is committed to multiyear contracts? So reiterate I'm not against base construction. I'm just talking about that is just a black hole that we don't have details. It's again when they show up next week. I'm not aghast in the on its not against advanced construction. It's just about the details that go in the advanced construction, that this committee and the secretary of BOT can move forward with what's right. Yes, ma'am, I didn't mean to imply that you had in it. Some of some of the questions seem leading in that direction, and I just wanted to wear my perspective. Nothing. One thing I've learned in this researching this advanced construction, as I understand that North Carolina is only one of 20 states that uses advanced construction. But that's a question that we can ask. There's gonna be a reason why 30 states we need to ask Bot that next week. Any other questions from committee were sent for Jan and I have a statement. It's based on walking just recently said, We build a d o t out time and time again, and there's no deaf ears here. We built the mouth of the late last year, and quite frankly, when you look at the map back, thank you. That was coming for decades. It was just put off. Put all they knew was coming. It was bad. Bad for citizens to say Hey, we got a highway coming here in 30 years later, not even a shell been turned. People can't sell the property. They knew the man back bad. They knew it was coming that you were back. These people give these people their money that they deserve. And then you have storms. Nobody in predict those 19 meteorology Step coming. We might go a couple of years with that one. We may have sent what we've had recently. I will tell you, the O. T. Is our for sated as long as she's been our She's seen tons of problems. And as long as I've been alive, I believe has been problems in the O. T and films. I've been here in Raleigh. It's something every year. There's always an excuse of why we've got to have more money. It's because they don't manage the money they have. And they say that time Tomicki thank Mr Jim. Any other questions from committee? Yes, Senator. Battle. Thank you, Mr Chair. I was just sitting here thinking through and I've spoken with our state comptroller previously as well, and I just noticed that as part of your recommendations, I know there's no kind of role. Maybe necessarily. But I didn't know if you had any thoughts about that position and just even the amount of I guess responsible. I'm just looking at your glands. That they mean, is a lot of cash flow. And so they got best practices, even cash management systems that maybe duty doesn't have that could be part of the recommendation process. Do you think they operate off cash management system? That only allows them like when you're out cash that no longer prevent further propositions? Essentially. So I'm just trying to understand maybe even differences from a technical standpoint. What systems are in place, just even like the computer's infrastructure. That's actually they. Even how old it is vs, you know, I can be better relying work order systems in the accounting systems in order to even have a lever in there that will actually kick into place once we know it sounds. That floor duties system there, their computer system accounting system, what they have so much further ahead of what States accounting system is controllers that works right now trying to get into accounting system in. That's up today. I think I just 23 25 years old, but it's a decline. So deity has a pretty sophisticated and and I think that was part of their response is that they do know that they need to make me computerized like before casting come up with more statistical, sophisticated forecasting mechanism for some of those expenditures are talking about. I believe I've already had response hurt responsible in the way that they control says, Really, not you what she does. I think there's some best practices there that could be sort of captured on then. Weston As we wind down, I'd like to recognize co chair McGinnis for any closing comments like this chair. Difficult study. Thank you to our professional and business like public service what you did, and she works the taxpayer every day. She's to looking at the taxpayer's money every day. Way got a lot of work. This is a big, big undertaking. We understand you know there's challenges, but again, this is gonna be worked out in a bipartisan. But we were ahead by force to come in here, and we will come up with a piece of legislation. There's gonna be a bipartisan desolate and this go work for everybody, and it's gonna work for a better outcome than we've ever had before. Were very, very blessed to have a strong leadership in the House and feels the same way that we did on this issue. And this time. Teoh. Let's move into the 21st century. Let's get some new systems in place, a new mechanics and new new opportunities in place and let's move of the greatest state in the nation of the great state of North Carolina. Let's move it forward and let's make things happen. Appreciate everybody being on the comedian today. Participate Thank you. Like to echo those comments. Thank you for being here today. Watch your email notices because next week we have at least two states over presenting and more than likely have meetings the following week. Our goal is to find a riveting to address this issue that is a long standing issue that has transcended several administrations. It's a dynamic process, and we hope Teoh, at least attack it in a bipartisan way. Thank you again. This meeting is adjourned