An Audit Report on the Department of Transportation's Financial Forecasting and Fund Allocation
August 2008
Report Number 08-045
Overall Conclusion
Ineffective internal communication, a complex reporting structure, and misunderstanding of reported data led the Department of Transportation (Department) to overschedule $1.1 billion in planned contract awards for fiscal year 2008.
The Department failed to immediately communicate the error and the main causes that led to its overscheduling of contract awards to oversight entities, including the full Texas Transportation Commission, legislative committees, state and local government transportation officials, and the public.
Although the Department has made organizational changes that should help reduce communication obstacles in the future, its reporting process still needs improvement.
Additionally, there are control weaknesses in the Department's process for approving the projected funding amount used to develop contract award schedules. The Department considers all significant revenue sources and associated expenses in its cash forecasting and monitoring processes. However, Department management did not use that information to avoid overscheduling fiscal year 2008 contract awards by $1.1 billion. Texas Transportation Commission meeting transcripts and supporting documentation for meetings from October 2007 through April 2008 contain no evidence that executive management made the full Texas Transportation Commission aware of the $1.1 billion error and its causes (see Chapter 1, page 2 for additional details). The Department should improve controls within its cash forecasting processes and the communication of its cash forecasts.
The Department also has experienced significant delays in completing cash forecasts. For example, monthly cash forecast reports for October 2007 through January 2008 were all completed in March 2008 (see Chapter 2, page 12 for additional details).
The Department does not have a transparent process that communicates the effects on districts when other districts accelerate projects. When a district accelerates projects, the cash it uses to pay contractors may have been designated for another district, and this can result in delaying project funding in that region.
Over multiple years, all districts are restricted to spending funds allocated to their current and planned construction and maintenance projects. However, due to the impact of inflation, there is concern that districts may lose financial leverage if their projects are funded in the later years of their funding allocations (because the initial amount of funds originally allocated will buy less roadway in future years). It is important to note, however, that one of the Department's priorities is to spend all federal funds within the period of availability, so the need to have cash available to districts must be balanced with the need to prevent federal funds from lapsing.
The Department received $7.5 billion in total federal obligation authority for fiscal years 2006 to 2008. Of that amount, the Department's obligation authority was reduced by $36.5 million ($23.4 million in fiscal year 2006 and $13.1 million in fiscal year 2008) or 0.5 percent. As of August 21, 2008, the Department had (1) $28.0 million in remaining authority for fiscal year 2008 to issue Proposition 14 bonds and (2) $2.9 billion in overall remaining authority to issue Proposition 14 bonds (see Appendix 7, page 54 for additional details).
The Department has made progress in implementing recommendations to address deficiencies identified in An Audit Report on the Department of Transportation's Reported Funding Gap and Tax Gap Information (State Auditor's Office Report No. 07-031, April 2007). Of the four recommendations reviewed, two recommendations have been substantially implemented, one recommendation's implementation is incomplete and ongoing, and one recommendation has not been implemented. The State Auditor's Office will release a separate report that follows up on recommendations in An Audit Report on Flight Services Provided by the Department of Transportation's Aviation Division Flight Services Section (State Auditor's Office Report No. 07-001, September 2006).
External audits of Department processes reported weaknesses that are related to issues noted in this report.
Texas Transportation Code, Section 201.109(b)(5), required the Department to contract for an independent audit of its management and business operations in 2007 and every 12 years after 2007. In response to this requirement, the Department entered into contracts for five audits covering certain operational areas. The reports from these audits included issues related to some of the same conditions identified in this audit report, including issues in:
- Organizational development.
- Accounting for total project costs in the allocation of programming targets.
- Oversight and analysis of contract change orders.
- Information technology systems that are capable of tracking total project costs, and the risk of manual transfer of information between systems.
- Deficient internal communication (specifically regarding modified and accelerated letting dates for projects).
- Processes related to developing and tracking total costs on a project basis and applying performance metrics to guide future planning.
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