Audit Reveals VDOT Mismanagement of Tax Dollars - NBC12 - WWBT - Richmond, VA News On Your Side

Audit Reveals VDOT Mismanagement of Tax Dollars

By Andy Jenks - bio | email
Posted by Terry Alexander - email

RICHMOND, VA (WWBT) - Was VDOT asleep at the wheel? A scathing new audit reveals the department didn't spend nearly a billion dollars it already had. Now, the government is in trouble for not spending enough money. 

The McDonnell team pointed the finger at years under then-governor Tim Kaine, when VDOT closed rest areas and laid off thousands of employees, when, it turns out, the budget wasn't as bad as they thought. 

It's the big audit that Gov. Bob McDonnell says, reveals big problems. 

"I'd say there's been money sitting in accounts while people have been sitting in traffic," McDonnell said. 

The exhaustive 137 page study says VDOT left nearly a billion dollars collecting dust in a transportation bank account. No criminal conduct, but enough mismanagement that one unnamed person got fired. 

"We will not tolerate incompetence, mismanagement, or waste of taxpayer money," McDonnell said. 

In addition to the unused funding, the audit finds overly conservative spending controls leading to project delays affecting roads statewide. 

The findings come after VDOT spent much of the past two years trying to find ways to cut spending,  including layoffs, and scaling back road projects. Now, that philosophy is changing. 

"I think this will go a long way to improving efficiency, effectiveness, and freeing up this money  immediately," McDonnell said. 

With previously shuttered rest stops already re-opened, the question is where will the money go? Top transportation leaders pointed toward fixing up roads, but added nothing specific. 

Critics suggest this newly discovered mountain of money also means Virginia won't have to privatize the state's liquor monopoly. McDonnell has pledged to sell the state's ABC stores to raise money for transportation. 

"I don't agree with that at all. Our problems are far bigger than a one-time $1.5 billion infrastructure  improvement," McDonnell said. 

On ABC, McDonnell said he's not kicking that idea to the curb. 

In a rare response, former Governor Kaine said it was tight-fisted management under his leadership that led to the sudden windfall team McDonnell enjoys today.


MORE INFORMATION:

Governor Bob McDonnell released today the results of the independent financial and performance audit of the Virginia Department of Transportation (VDOT) that he ordered shortly after taking office.

The audit, conducted by the respected firm of Cherry, Bekaert and Holland, LLP beginning in April 2010, examined VDOT's operations to identify cost-savings strategies, organizational efficiencies, and performance and operational metrics.

Among the top findings: the presence of $1 billion in funding available for transportation projects in the Commonwealth, but not utilized to date.  The governor was joined at the afternoon press conference at the State Capitol by Lieutenant Governor Bill Bolling, Secretary of Transportation Sean Connaughton, VDOT Commissioner Greg Whirley, and a number of members of the General Assembly.

Among the more than 50 audit findings are:

  • Approximately $1 billion in funding is currently available for VDOT's maintenance and construction program that has not been used.  This is not new funding, rather it is funding that would result from better leveraging and management of current resources
  • Federal funds should be obligated earlier during the fiscal year to eliminate current delays. Over the past two federal fiscal years, less than 10% of available amounts had been obligated 6 months into the year.
  • Monitoring of inactive projects must be improved to release unused funding for other VDOT projects as soon as possible.  In FFY10, $163 million in federal obligations on inactive projects were released (20% of annual obligation).
  • More closely monitor locally administered safety and regional projects to ensure funding is utilized in a timely and cost effective manner
  • Over $100 million in projects were delayed due to partial funding and other administrative issues found in the audit.
  • Approval should be obtained from the Federal Highway Administration to use the over $400 million in toll credits available to Virginia. Toll credits allow VDOT to use 100% federal funds on a project and eliminates the state match requirement, thus freeing up a like amount of cash.
  • The $524 million federal revenue reserve should be eliminated to better leverage existing resources. Adding back these reserves to the budget will accelerate the planning of projects in the Six-Year Improvement Program
  • Revise cash reserve policies to reduce from a 5.5-month reserve to a 60-day reserve, freeing up $200 million for immediate use on transportation projects

Speaking about the audit, Governor McDonnell remarked, "Virginia's transportation infrastructure needs require a comprehensive approach, including greater management efficiency, more innovation and new sources of funding.

"We must demand better stewardship and utilization of existing funds. That is why I ordered this comprehensive performance and financial audit shortly after I took office, and why the findings are so important.

"This audit demonstrates that available funding has not been effectively used in the past few years. That is unacceptable. Money has been sitting in the state's wallet while Virginian's have been sitting in traffic.  We will move immediately to put this funding to work building roads and reducing congestion statewide. VDOT will award $800 to $900 million in contracts by December 31, and we will get long overdue construction underway. We will not tolerate inefficiency or mismanagement at VDOT or any other state agency."

The governor continued, noting, "Our transportation funding challenges, deteriorating pavements, aging bridges and the vital link between transportation and our economic prosperity required us to thoroughly examine VDOT policies and programs to find ways we can better manage Virginia's highways.

"This audit provides an objective set of recommendations upon which we can improve the administration of Virginia's transportation program. It is just one part of the comprehensive approach to transportation that we are taking. Through effective utilization of existing funds, and the procurement of new funding strategies, such as  gaining $500 million or more from the privatization of our ABC stores, we will get traffic moving faster in Virginia." 

The report cites several major contributing factors that led VDOT to its current situation:

  • A change in philosophy in managing maintenance projects beginning in 2006 which ignored the annual aspects of the maintenance budget.
  • Loss of focus on managing the maintenance and construction operation during 18-month agency reorganization
  • The economic downturn which caused VDOT to become extremely and overly hesitant in committing available funds, causing $877 million to remain unspent
  • Burdensome internal processes and financial controls for project development

Maintenance Spending

The study found significant opportunities to improve the way VDOT spends its available dollars to maintain Virginia's 58,000 miles of roadways.

During fiscal year 2009, VDOT had available $1.58 billion for maintenance. However, it spent only $1.23 billion, resulting in it carrying over $348 million. During fiscal year 2010, VDOT had available $1.66 billion for maintenance. However, it spent only $1.13 billion, resulting in it carrying over $529 million. This compares with $8 million carried over at the end of fiscal year 2005.

The audit identified a lack of budget accountability from 2006-2009 within the maintenance program as the primary reason funds were not being spent in a timely fashion.

Project Development and Execution

The audit identified VDOT's one-size-fits-all approach to project development and execution as a reason many projects are slow to develop. Major interchange projects are managed the same as small turn-lane or repaving projects. It cited burdensome fiscal controls that slowed project development, particularly the practice of developing every maintenance project as though it would be eligible for federal funding. This practice required all projects to undergo the rigorous environmental, funding and design reviews required of federally funded projects, even if they ultimately ended up being paid for by less restricted state funds.

The report suggests VDOT develop a tiered process to manage projects according to their complexity and risk, with corresponding levels of controls.

The report also identified procurement processes that take too long. Recent reviews by VDOT's own inspector general were referenced, stating that it could take over one year to hire an engineer to design a project. The audit recommends re-evaluating the processes and procedures that slow procurement and focus only on what is legally required.

Funding

Acknowledging that transportation funding is a highly complex process with multiple funding sources and eligibility rules, the audit recommends a more aggressive funding strategy that reduces cash balances, cuts federal reserves and accelerates the obligation of federal funding as soon as it becomes available. It also instructs VDOT to develop consistent processes to monitor inactive projects so that funding does not remain on projects that are not moving forward.

Reorganization and Staffing Changes

The audit recommends additional analysis to identify processes that can be changed to make the new organizational structure within VDOT work. It also encourages VDOT to quickly hire key staff and implement the functions necessary to make the new organizational structure work.

VDOT should also develop more robust policies and performance metrics to manage the outsourcing of work that comes with the new organizational structure.

Next Steps

"This review confirms many of the financial management concerns we have heard from industry experts and elected officials," said Connaughton. "It is time for us to take action to address the issues raised and reroute our transportation program to the right path for our future."

The governor has given Connaughton and VDOT Commissioner Gregory A. Whirley 45 days to develop a full action plan to address the audit findings. The administration has already taken numerous steps to improve accountability, focusing on delivering projects faster and improving how VDOT functions. This includes a new management team and changes in executive management duties and responsibilities.

Governor McDonnell recently appointed Charlie Kilpatrick as VDOT's Chief Deputy Commissioner and VDOT's nine district administrators now report to Kilpatrick. He is charged with holding them accountable for maintenance spending, project delivery and emergency response.

A new Chief of Planning and Programming has been established to put more focus on the development of the construction program, and the agency has advertised for a new Chief Financial Officer.  

VDOT will hire new state construction and maintenance engineers to provide clear leadership and to implement the findings of this audit in these areas.

To learn more about VDOT or these audit findings, visit www.VirginiaDOT.org.

Copyright 2010 WWBT NBC12. All rights reserved.

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