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HomeMy WebLinkAboutAudit Reports - Public - City of Glendale Capital Improvement Program Evaluation - 6/1/2022 FINAL REPORT City of Glendale CAPITAL IMPROVEMENT PROGRAM EVALUATION June 2022 Moss Adams LLP 999 Third Avenue, Suite 2800 Seattle, WA 98104 (206) 302-6500 Capital Improvement Program Evaluation FOR INTERNAL USE OF CITY OF GLENDALE ONLY Table of Contents Executive Summary 1 A. Objectives 1 B. Conclusions 1 C. Commendations 4 Detailed Report 5 A. Introduction 5 B. Background 5 C. Objectives 5 D. Scope and Methodology 6 Findings and Recommendations 7 A. Moderate-to-High Risk Findings 7 B. Moderate Risk Findings 11 C. Low-to-Moderate Risk Findings 19 Appendix A: Definitions of Audit Findings Ranking 25 Capital Improvement Program Evaluation | 1 FOR INTERNAL USE OF CITY OF GLENDALE ONLY EXECUTIVE SUMMARY Moss Adams LLP (Moss Adams) was contracted by the City of Glendale (the City) to perform an evaluation of the City’s Capital Improvement Program (CIP). This audit was performed as part of the Fiscal Year (FY) 2022 Annual Audit Plan developed by the City’s Independent Internal Audit Program (IIAP). The Engineering Division (Engineering) is charged with executing the City’s capital improvement program by guiding major construction projects from start to finish. Engineering works closely with partner departments across the City including Budget and Finance; Field Operations; Legal; Public Facilities, Recreation, and Special Events; Transportation; and Water Services. We performed a variety of fact-finding and testing procedures to assess the CIP efforts, including interviewing 18 members of City leadership, Engineering, and partner departments; reviewing documents including plans, processes, and policies; and testing a sample of project data for compliance with policies. This engagement was performed in accordance with Standards for Consulting Services established by the American Institute of Certified Public Accountants. Accordingly, we provide no opinion, attestation, or other form of assurance with respect to our work or the information upon which our work is based. This engagement was also performed consistent with guidance issued by the Institute of Internal Auditor’s (IIA) International Professional Practices Framework (IPPF). This report was developed based on information gained from our interviews and analysis of sample documentation. The procedures we performed do not constitute an examination in accordance with generally accepted auditing standards or attestation standards. Our objective for this engagement was to assess the City’s capital planning, budgeting, forecasting, project identification, and programming practices for:  Adherence to best practices  Ability to meet the City’s needs and strategic goals  Efficiency and effectiveness In general, the City has implemented many CIP processes that are in alignment with industry best practices. However, interviews, procedure reviews, and testing identified several areas that could be strengthened. These are highlighted in the following table. Capital Improvement Program Evaluation | 2 FOR INTERNAL USE OF CITY OF GLENDALE ONLY FINDINGS AND RECOMMENDATIONS Capital Improvement Program Roles and Responsibilities – Moderate-to-High Risk Rating 1 Finding The City lacks documentation between Engineering and partner departments detailing roles and responsibilities for capital improvement projects. Recommendations A. Develop a clear policy that describes when Engineering and other partner departments should be involved in project delivery. B. Document decision-making authority for the major capital improvement project stages. C. Consider reviewing the intended goals and policies related to the 3.8% Engineering chargeback fee. Change Order Policies and Procedures – Moderate-to-High Risk Rating 2 Finding Detailed change order documentation requirements, change order processes, signature authority matrix, and amendment and change order controls did not appear to be included within current policies and procedures. Recommendations Update amendment and change order policies and procedures to include change order documentation requirements and change order review and approval processes. Construction Delivery Method Selection – Moderate Risk Rating 3 Finding Engineering has not developed policies or procedures to document a consistent method to guide the selection of the appropriate construction delivery method. Recommendations Document the various construction delivery methodologies and selection criteria to help ensure consistent usage of the most appropriate contract type. Cost Estimation – Moderate Risk Rating 4 Finding Departments are using inconsistent cost estimate methodologies, which increases the risk of projects requiring additional funds or reducing in scope and can cause inaccuracies in long-term planning. Recommendations Develop a consistent methodology for project cost estimates and annual cost adjustments for future projects included in the CIP. Performance Reporting – Moderate Risk Rating 5 Finding The current CIP reporting methods could be strengthened to provide more clear and consistent information. Recommendations Strengthen performance reporting to City Council and the public by including metrics that clearly communicate project progression and performance. Capital Improvement Program Evaluation | 3 FOR INTERNAL USE OF CITY OF GLENDALE ONLY FINDINGS AND RECOMMENDATIONS Policies and Procedures – Moderate Risk Rating 6 Finding Engineering does not have updated policies and procedures to guide daily operations. Recommendations A. Continue current efforts to develop a shorter, streamlined, and up-to-date set of CIP policies and procedures. B. Consider developing an expanded staff directory for Engineering. Systems – Moderate Risk Rating 7 Finding The current project management system does not integrate with the financial system resulting in the manual transfer of information between systems. Recommendations Consider implementing a more robust project management system that has the capability to integrate with the finance system providing access to accurate schedule and budget details. Planning and Project Prioritization – Low-to-Moderate Risk Rating 8 Finding The City has not formalized a project prioritization process, which creates risks that the capital improvement efforts are not aligned with the City’s strategic goals. Recommendations A. Consider developing a set of strategic goals or guiding principles to help ensure that individual department master plans are in alignment with the City’s overarching vision for development. B. Return to utilizing a scoring framework that can be applied to all projects and form the basis for prioritization. Staffing – Low-to-Moderate Risk Rating 9 Finding The City has not been able to fill open positions in Engineering, resulting in high workloads for the current staff. Recommendations Continue current efforts to hire for open Engineering positions. If positions are not filled, there should be periodic reviews in consultation with Human Resources to determine if any adjustments could be made to the position scope or compensation to make the roles more competitive. Vendor Selection – Low-to-Moderate Risk Rating 10 Finding Engineering policies and procedures lack details related to vendor scoring and selection processes. Recommendations Update policies and procedures to clearly identify vendor scoring criteria, weighting, selection committee formation, and JOC vendor selection processes. Capital Improvement Program Evaluation | 4 FOR INTERNAL USE OF CITY OF GLENDALE ONLY Although the focus of this internal audit was to identify opportunities for improvement, it is important to note the areas that are operating well. The City should be commended for the following accomplishments:  Continual Improvement: Multiple interviewees noted that Engineering has been making steady and active improvements to operations, collaboration, and processes in recent years. More broadly, the City has also been focusing on growing the capital improvement efforts by establishing a CIP plan and other resources to support increased construction as City funding has expanded.  Strong Collaboration and Support: It is apparent that Engineering has strong support from City management and that City Council has approved significant investments in construction to support the maintenance and growth of City assets.  Development of Tools: Engineering has developed many useful tools—like the configuration of Smartsheet systems, project charters, and the cost estimator spreadsheet—to bring greater consistency and structure to CIP work.  Interdepartmental Relationships: While there is still progress to be made, interviewees noted that the Engineering team has been actively focused on strengthening relationships and improving communication with partner departments.  Engaged Staff: During our interview and the data request process, City staff who were assigned to this project were responsive and collaborative. We would like to thank City staff and management for their willingness to assist with this evaluation. Capital Improvement Program Evaluation | 5 FOR INTERNAL USE OF CITY OF GLENDALE ONLY DETAILED REPORT Moss Adams was contracted by the City to perform an evaluation of the CIP. This audit was performed as part of the FY 2022 Annual Audit Plan developed by the City’s IIAP. Our assessment was performed between January and April 2022. Engineering is charged with executing the City’s CIP by guiding major construction projects from start to finish. Engineering’s responsibilities include the design and construction of various City facilities including buildings, streets, sewer, water lines, and drainage. This division tracks the contract paperwork and functions as the project manager. It also functions as the custodian of good engineering practices in the City through design review, construction inspection, and testing of materials on the jobsite to ensure they meet specifications. Engineering primarily collaborates with the following partner departments:  Budget and Finance  Field Operations  Legal  Public Facilities, Recreation, and Special Events  Transportation  Water Services As the City’s financial resources have grown in recent years, the capital program activities have also expanded. As a result, Engineering has been taking on more projects and developing new processes, systems, and staff resources to accomplish their work. Within this context, the City opted to assess the capital program efforts for efficiency, effectiveness, compliance, and adherence to industry best practices. Our objective for this engagement was to assess the City’s capital planning, budgeting, forecasting, project identification, and programming practices for:  Adherence to best practices  Ability to meet the City’s needs and strategic goals  Efficiency and effectiveness  Compliance with select policies and regulations Capital Improvement Program Evaluation | 6 FOR INTERNAL USE OF CITY OF GLENDALE ONLY In order to obtain an understanding of the CIP, we performed the following work:  Interviews: We conducted interviews with 18 representatives from City leadership, Engineering, and partner departments who are actively involved with identifying, executing, reporting, or supporting capital program activities.  Document Review: We requested all current documentation related to capital improvement activities and reviewed plans, reports, procedures, policies, and regulations.  Bidding and Procurement Testing: We requested a sample of representative CIP projects from the City and the most used contract types. We received four different projects and reviewed the data for compliance with policy in the following areas: ○ Advertisement ○ Bids Received ○ Bid Selection ○ Board Review and Approval ○ Bid Award ○ Contract Issuance and Approval ○ Amendment and Change Order Execution Capital Improvement Program Evaluation | 7 FOR INTERNAL USE OF CITY OF GLENDALE ONLY FINDINGS AND RECOMMENDATIONS 1. Finding The City lacks documentation between Engineering and partner departments detailing roles and responsibilities for capital improvement projects. Recommendation A. Develop a clear policy that describes when Engineering and other partner departments should be involved in project delivery. B. Document decision-making authority for the major capital improvement project stages. C. Consider reviewing the intended goals and policies related to the 3.8% Engineering chargeback fee. Risk Rating Moderate-to-High Condition: In general, interviewed staff reported that collaboration between Engineering and partner departments has significantly improved in recent years. However, there are still opportunities to strengthen partnerships and clarify roles and responsibilities. For example, partner departments have sometimes overstepped appropriate roles by favoring the selection of a specific contractor or desiring to have the final decision on the construction delivery type. In addition, change orders have been a common area for tension. For change orders that are not initiated by the requesting department (for example, change orders that are required due to design errors) Engineering should decide whether a change order scope and cost is appropriate. However, staff report that partner departments frequently question the validity of change orders— which can delay construction processes. Most critically, while it is widely known that Engineering needs to be involved in all Title 34 projects, Engineering is sometimes not brought into projects at the appropriate time. Interviewed staff attributed this challenge to the 3.8% chargeback fee that is required to utilize Engineering. This fee structure has created an incentive to reduce Engineering’s involvement and has the potential to create an adversarial relationship as some departments do not often view or account for the chargeback fee as a normal cost of a project. This can create issues where the Engineering team is not included at the appropriate times in the project life cycle due to a mentality of using the Engineering resource sparingly as a result of the perceived costs. Staff also reported issues of individual partner departments building project management capacity internally by hiring or contracting their own engineers rather than using Engineering resources resulting in inefficiencies and an increased cost of staffing. Criteria: Industry best practice recommends clearly defining roles and responsibilities to reduce inter- departmental tension and ensure consistent processes. Capital Improvement Program Evaluation | 8 FOR INTERNAL USE OF CITY OF GLENDALE ONLY Cause: Without clearly defined roles and responsibilities, buy-in from partner departments, and documented policies for when partner departments must involve Engineering, it is difficult to ensure that Engineering will be appropriately involved in projects. This situation appears to be exacerbated by the 3.8% chargeback fee structure, which can discourage the use of Engineering. Effect: If Engineering is not appropriately involved in projects, this can lead to tensions between departments, delays in project work, and inconsistency in the quality of work performed. Recommendations: A. Engineering should develop a clear policy that describes when Engineering should be involved in project delivery. This work should be supported by City leadership to ensure buy- in and participation from partner departments. B. Engineering should document decision-making authority for the major project stages— including project identification, cost estimation, delivery method and vendor selection, delivery, and change orders. Ideally, this work would be completed via collaborative work sessions, where key representatives from each stakeholder group (including partner departments and finance) could identify all functions and major decision types and develop a responsibility assignment matrix (like a RACI model) or Service Level Agreement to clarify roles and expectations. C. City leadership should consider reviewing policies and intended goals of the 3.8% chargeback fee. If it is the City’s intention to ensure that this fee is not seen as a disincentive to working with Engineering, this message should be actively communicated to key departmental stakeholders. Management Response Management Agreement Owner Target Completion Date Concur Engineering, Budget & Finance 12/31/2022 Action Plan: A. We concur. The Engineering department will work with Budget & Finance and the City Manager’s Office to develop a set of CIP policies that address the areas identified for improvement throughout this report. Expected completion date is 12/31/2022. B. We concur. The Engineering department will work with Budget & Finance and the City Manager’s Office to develop a set of CIP policies that address the areas identified for improvement throughout this report. Expected completion date is 12/31/2022. C. We concur. Engineering meets with Budget & Finance annually to determine if the 3.8% and $250,000 max cap of the engineering chargeback fee is still applicable. We will gather feedback from partner departments and the City Manager’s Office to evaluate appropriateness of the fee and its impact on project synergies. Expected completion date is 12/31/2022. Capital Improvement Program Evaluation | 9 FOR INTERNAL USE OF CITY OF GLENDALE ONLY 2. Finding Detailed change order documentation requirements, change order processes, signature authority matrix, and amendment and change order controls did not appear to be included within current policies and procedures. Recommendation Update amendment and change order policies and procedures to include change order documentation requirements and change order review and approval processes. Risk Rating Moderate-to-High Condition: The City’s current change order policies and procedures as prescribed in Section IV of Engineering’s Project Management Manual, Article C “Contract Amendments and Contractor Change Orders” include:  Any amendments that will change the original Consultant’s Professional Services Agreement (PSA) contract amount ($$$) equal to or less than $50,000 does not require council approval.  Any amendments to a Consultant’s Professional Services Agreement (PSA) contract amount ($$$) greater than $50,000 will require council approval (follow council report process).  For contracts originally under $50,000 and not initially approved by City Council: Any amendments that increase an original Consultant’s Professional Services Agreement (PSA) contract amount greater than $50,000 will require council approval (follow council report process).  Construction Change Orders which bring the cumulative total of the original construction contract amount greater than $50,000 requires council approval. Less than $50,000 does not necessitate council approval UNLESS there was a prior contract that pushes the cumulative total above $50,000 (follow council report process). Per inquiry with City staff, approval of change orders, signature authority, change in scope, and allowance and contingency use policies and procedures are available through standard contract language, City Code Section 2-156, and the City’s attorney’s office. However, the current policies and procedures, as prescribed in the Engineering Project Management Manual, do not include information related to change order documentation requirements, change order processes, signature authority matrix, and/or amendment and change order controls. During our review of the four sampled projects, we identified three projects that included change orders. However, change order documentation (i.e., formal documentation including date, reason for change, change amount, and documentation of approvals) was not available on either the O'Neil Park Splash Pad or the Bell Road Reconstruction projects: Project No. Project Name Change Order No. Change Order Cost Amount Calendar Days Added/ (Deducted) Date Fully Executed Change Order Documentation Received? Yes/No 151633 Heroes Regional Park Library 1 ($124,628.00) - 9/19/2018 Yes Capital Improvement Program Evaluation | 10 FOR INTERNAL USE OF CITY OF GLENDALE ONLY 181935 O'Neil Park Splash Pad Not Provided ($15,028.49) Not provided Not provided No 192030 Bell Road Reconstruction 12 - Not provided Not provided No In addition, while there were 12 change orders listed for the Bell Road Reconstruction project, there were no formal contract change orders completed. Per inquiry with the City, this is because the final amount paid to the vendor was $213,921.28 less than the contract amount so the change orders did not increase the overall cost of the project. Criteria: All change orders should be itemized, substantiated, and available for review to formalize the contract sum. As a best practice to promote transparency and consistency, amendment and change order policies and procedures should include the following elements:  Change order documentation requirements  Change order review and approval process  Signature authority matrix Cause: The City’s current change order policies and procedures are not aligned with industry best practices. Effect: Absent updated change order policies and procedures, change order documentation, evaluation, and approval may be inconsistently maintained and applied resulting in lack of appropriate and consistent documentation, unapproved scope changes, cost overruns, non-authorized approvers, and delays in change order review and approval. Recommendation: The City should consider updating amendment and change order policies and procedures to include itemized and substantiated change order requirements to formalize contract sums. In addition, the City should consider including the following items in change order policies and procedure updates:  Change Order Documentation Requirements ○ Consider including the following elements on change order forms: − Name and address of the project − Owner’s name as well as name and phone number of the person requesting the change − Complete description of the planned work, including change order type, including:  Owner initiated  Design error  Unforeseen condition − Price and percentage of the change, including a breakdown of the costs as well as the total change orders to date − Schedule impact, if applicable − Signatures of all necessary representatives − Date on which all necessary representatives (and other relevant third parties) sign the change order Capital Improvement Program Evaluation | 11 FOR INTERNAL USE OF CITY OF GLENDALE ONLY − Revised project completion date ○ Additionally, the change order policies and procedures should include language to support and require itemized prices be provided in detail with cost substantiation. Lump sum change order proposals reduce transparency and makes it difficult to understand the reasoning behind costs. Fully supported change orders ensures that there are no hidden costs and validates that the profit margin of an order does not exceed that of the contract requirements.  Change Order Review and Approval Process ○ Consider including a signature authority matrix with thresholds, establishing defined roles and responsibilities between project management, procurement, and legal, as well as standard turnaround timelines for each stage of the review process to provide greater transparency, clarity, and accountability to internal and external customers. Management Response Management Agreement Owner Target Completion Date Concur Engineering 12/31/2022 Action Plan: The Engineering department will work with Budget & Finance and the City Manager’s Office to develop a set of CIP policies that address the areas identified for improvement throughout this report. We kindly request Moss Adams to provide some examples for us to consider in order to acknowledge the current and industry appropriate use of field orders (no adverse impact to construction budget or schedule) they have experienced with other municipal clients. Expected completion date is 12/31/2022. 3. Finding Engineering has not developed policies or procedures to document a consistent method to guide the selection of the appropriate construction delivery method. Recommendation Document the various construction delivery methodologies and selection criteria to help ensure consistent usage of the most appropriate contract type. Risk Rating Moderate Condition: The City currently utilizes several construction delivery methods including, but not limited to:  Design-Bid-Build (DBB): DBB projects typically consist of three distinct phases: the design phase, the bid phase, and the build phase. Within this method, there is a sequential award of two separate contracts. The first contract is for design services, and the second contract is for construction.  Design-Build (DB): For DB projects there is a single contract for design services and construction services. This method is not commonly used by the City. Capital Improvement Program Evaluation | 12 FOR INTERNAL USE OF CITY OF GLENDALE ONLY  Construction Manager at Risk (CMAR): CMAR is a derivative of the DBB process. However, within this method a general contractor is hired to oversee the entire project.  Job Order Contracting (JOC): JOC is an Indefinite Delivery Indefinite Quantity (IDIQ) construction delivery method that allows many projects to be completed through a competitively awarded contract. The construction to be performed is specified in job orders issued with the contract. According to Arizona statute Title 34-602.A, “An agent may procure design services, construction and construction services, as applicable under any of the following project delivery methods: 1. Design- bid-build. 2. Construction-manager-at-risk. 3. Design-build. 4. Job-order-contracting.” Currently, the construction delivery method used on a given project is determined in collaboration between Engineering and the partner department when creating the project charter. However, there are no policies or standard criteria in place to guide the decision on which method should be used and who should make that decision. Criteria: In alignment with Title 34, industry best practices, and per inquiry with City staff, Engineering should be responsible for establishing how construction delivery methods are selected. Cause: There are not clear policies or procedures in the current process to determine which construction delivery method should be selected for a given project, and who the responsible party should be. Effect: Without guidance on how to select the construction delivery method, it is possible that the City is not utilizing the most advantageous delivery method. In addition, Engineering may come into conflict with partner departments if roles and responsibilities are not followed. Recommendation: Engineering should document the various construction delivery methodologies and selection criteria to help ensure consistent usage of the most appropriate contract type. As part of this effort, Engineering should clarify their role as the final decision-maker on selecting construction type. In addition, the selection criteria for specific JOC vendors should be documented. Management Response Management Agreement Owner Target Completion Date Concur Engineering 12/31/2022 Action Plan: The Engineering department will work with Budget & Finance and the City Manager’s Office to develop a set of CIP policies that address the areas identified for improvement throughout this report. We will note that because the City of Glendale has multiple options to choose from when selecting the construction delivery method (JOC, CMAR, DBB), Engineering and the partner departments evaluate each individual project. Together, we determine whether the driving factor is “speed to market”, price, various other elements, or a combination of the above when deciding on the most appropriate construction delivery method to utilize. Ultimately, Engineering has the authority to select the optimal construction delivery method in the best overall interest of the City. Expected completion date is 12/31/2022. Capital Improvement Program Evaluation | 13 FOR INTERNAL USE OF CITY OF GLENDALE ONLY 4. Finding Departments are using inconsistent cost estimate methodologies, which increases the risk of projects requiring additional funds or reducing in scope and can cause inaccuracies in long-term planning. Recommendation Develop a consistent methodology for project cost estimates and annual cost adjustments for future projects included in the CIP. Risk Rating Moderate Condition: To estimate project costs for inclusion in the CIP and the annual budget, partner departments collaborate with Engineering to develop project charters. As part of this work, initial cost estimates are often established by the partner departments while creating annual budget requests. Engineering has created a cost estimation spreadsheet tool to aid partner departments in this work, but staff report that cost estimates often vary in accuracy. For complex projects, Engineering sometimes uses third-party estimators to validate estimates. This situation is exacerbated by external market conditions where supply chain issues and inflation are contributing to high variability in cost estimates. In addition, cost estimate adjustments for projects slated for future years of the CIP are not performed consistently across all departments. For example, some departments apply a set percentage increase across all projects to account for inflation while others vary by project type. Criteria: It is critical for City leadership to have as accurate and consistent cost estimate process as possible to aid in annual and long-term planning. Cause: The City has not yet established a consistent methodology to either estimate costs for individual projects or to perform annual cost adjustments for future CIP projects. Effect: Without a consistent cost estimate process, the City is at an increased risk for requiring additional funds to complete projects or descoping projects to meet capped funding. In addition, a lack of accurate estimates can make long-term planning more imprecise. Recommendation: Led by Engineering, the City should develop a consistent methodology for project cost estimates and annual cost adjustments for future CIP projects. This work should be supported by City leadership to ensure buy-in and participation from partner departments. While the City cannot control external factors that may increase the variability of actual construction expenses, these steps will help to reduce unexpected cost increases due to project estimation errors. Capital Improvement Program Evaluation | 14 FOR INTERNAL USE OF CITY OF GLENDALE ONLY Management Response Management Agreement Owner Target Completion Date Concur Engineering 10/31/2022 Action Plan: We concur. Engineering routinely provides cost estimating for capital project planning. To assist partner departments in developing their CIP requests, Engineering has developed and incorporated into the CIP process, a new Cost Estimating Work Sheet to promote consistency in project estimating; this has already yielded positive results. Also, City Council recently adopted the tentative FY23 budget, which included a supplemental request of $150K for Engineering Services. Portions of this supplemental amount may be used to cover third-party cost estimating services for unique – complicated projects when needed, to further promote consistency with estimating methodologies. Expected initial completion date is 10/31/2022, with services ongoing thereafter. 5. Finding The current CIP reporting methods could be strengthened to provide more clear and consistent information. Recommendation Strengthen performance reporting to City Council and the public by including metrics that clearly communicate project progression and performance. Risk Rating Moderate Condition: The City has not developed a standardized annual CIP report to track progress and performance. However, Engineering has provided other best practice tools to keep stakeholders up to date and was able to provide performance reporting on a project-by-project basis as requested. Project update reports are reported to City Council, management, and partner departments via a one- sheet including information in a narrative form such as project overview and scope, budget information, public involvement, and schedule. This provides useful information about the general project scope—especially for high-visibility projects that City Council may receive questions about. As part of the annual budget development and CIP development, the City also prepares presentations for City Council. However, interviewees reported that these presentations can cause confusion as reports do not always clearly show the project’s original budget, change order amounts, and revised project budget. In alignment with best practice, the City has developed a robust set of key performance indicators (KPIs) on the City’s performance management website which gives the public a transparent view of the City’s work. In relation to capital improvement initiatives, the City is currently reporting on invoice processing times and percent of warranty inspections passed. The City tracks active project status on an internal dashboard in Smartsheet and has recently started deploying a public-facing dashboard that will contain similar information. However, the City is not reporting on other industry-standard metrics like percentage of projects completed on budget and percentage of construction projects completed on time. Capital Improvement Program Evaluation | 15 FOR INTERNAL USE OF CITY OF GLENDALE ONLY Criteria: The Government Finance Officers Association (GFOA) recommends clear and consistent capital improvement reporting for all stakeholders, including members of the public. Cause: The City has not yet established standardized procedures for documenting and reporting CIP performance metrics. Effect: Absent defined procedures for documenting and reporting CIP performance metrics, CIP reporting may be inconsistently prepared and/or cause confusion when presented to City Council and other stakeholders. Recommendation: As a best practice and as recommended by GFOA, Engineering should strengthen performance reporting to City Council and the public by including metrics that clearly communicate project progression and performance. Such efforts can improve financial accountability, enhance operational effectiveness, and promote confidence in the CIP. Based on GFOA Capital Project Monitoring and Reporting, performance reports on summarized CIP project data should at minimum include the following:  Comparison of actual results to the project plan, including: ○ Percent of project completed ○ Percent of project budget expended ○ Progress on key project milestones ○ Contract status information including time remaining and percentage used ○ Revenue and expenditure activity ○ Cash flow and investment maturities ○ Funding commitments ○ Available appropriation ○ Comparison of results in relation to established performance measures  Highlight significant changes to project scope, costs, schedule, or funding  To aid in the reporting, an annual snapshot of key schedule, cost estimate, and available funding information to establish baseline data for performance measures and report components Management Response Management Agreement Owner Target Completion Date Concur Engineering N/A, Ongoing Action Plan: We concur. Both Engineering and Budget & Finance have established KPIs for their public- facing webpages and will continue to update, refine, and improve those as part of the City’s Balanced Scorecard Tier II initiative. For marquee and/or specially funded projects (such as ARPA or Enterprise Funds), the Engineering department briefs the City Manager’s Office and the City Council on the status of those regularly. A monthly meeting with partner departments, Engineering, Budget & Finance, and the City Manager’s Office is also held to ensure the most current and accurate information is being conveyed to stakeholders. In addition, weekly project management meetings with partner departments are held for specific, active CIP projects. These are all ongoing processes that will undergo constant review and updating as appropriate. Capital Improvement Program Evaluation | 16 FOR INTERNAL USE OF CITY OF GLENDALE ONLY 6. Finding Engineering does not have updated policies and procedures to guide daily operations. Recommendation A. Continue current efforts to develop a shorter, streamlined, and up-to- date set of CIP policies and procedures. B. Consider developing an expanded staff directory for Engineering. Risk Rating Moderate Condition: Engineering developed an extensive and detailed Project Manager’s Manual that was created in the early 2010s, but this manual has not been significantly updated since it was created. Because this resource does not have current information and it is only available in a paper copy, it is rarely referred to by project managers. The City has begun to draft a smaller version of this manual, but it does not cover the entire CIP process and is in draft form. Interviewed staff noted that onboarding new hires can be difficult due to the lack of updated procedure documentation. There are also some gaps within the current PM Manual, including:  Partner Department Guidance: In the current Project Manager’s Manual, there is a chapter documenting procedures, roles, and responsibilities for partner departments, but this documentation is not easily accessible to partner departments resulting in them often forgetting their roles and responsibilities. Due to a lack of a staff directory, partner departments along with new staff are unclear at times who should be contacted in a department for a certain need or request.  Close-Out Construction Audits: Based on our review of the sampled construction projects, a right to audit clause is available to the City to validate compliance of construction charges as defined within GMP, CMAR, and JOC contract cost of work definitions. Based on our interviews with Engineering staff, expenditure management processes and controls to validate cost compliance occurred as payment application or invoices were received by appropriate parties. However, the City has not established policies and procedures for conducting an independent close-out construction audit as allowed by Guaranteed Maximum Price (GMP), Construction Manager at Risk (CMAR), and Job Order Contracting (JOC) contracts.  Other Gaps: Other policies and procedure gaps are mentioned throughout this report, related to change orders (Finding 2), Construction delivery method selection (Finding 3), cost estimation (Finding 4), and vendor selection (Finding 10). Criteria: Industry best practice recommends complete and updated policies and procedures to ensure consistent processes, aid in onboarding new staff members, and provide the basis for partner department trainings. Cause: Engineering has not updated the Project Manager’s Manual or developed partner department-specific resources. Capital Improvement Program Evaluation | 17 FOR INTERNAL USE OF CITY OF GLENDALE ONLY Effect: Without updated policies and procedures, Engineering is at increased risk of performing processes inconsistently. This also impacts the ease of onboarding new hires. Engineering relies heavily on the expertise of experienced staff as there are no reference materials available. Experienced staff share knowledge by word of mouth, and the burden of training becomes their responsibility. Finally, this can negatively impact inter-departmental relationships if partner departments are unaware of processes or appropriate points of contact. Recommendations: A. Engineering should continue current efforts to develop a shorter, streamlined, and up-to-date set of CIP policies and procedures. As part of this work, the City should address current policy and procedure gaps, including: a. Creating partner department-facing procedure documentation to clarify requirements and responsibilities. This work should be aligned with recommendations in Finding 1. b. Developing guidance for conducting an independent construction audit on significant GMP, CMAR, and JOC contracts to ensure any potential non-compliant charges are not billed to the City and to support transparency and consistency of the project billings. c. Addressing specific policy recommendations mentioned in Findings 2, 3, 4, and 10. B. Consider developing an expanded staff directory for Engineering that includes the role, individual, and contact information, in addition to a high-level description of activities associated with each role. Management Response Management Agreement Owner Target Completion Date Concur Engineering 12/31/2022 and 3/31/2023 Action Plan: We concur. Once overall CIP policies and procedures are updated (by 12/31/2022), Engineering will develop a Construction Manager’s “Quick Reference Guide,” including a staff directory, for use throughout the CIP process. Expected initial completion is 3/31/2023, with regular updates as policies, procedures, and staff members change. 7. Finding The current project management system does not integrate with the financial system resulting in the manual transfer of information between systems. Recommendation Consider implementing a more robust project management system that has the capability to integrate with the finance system providing access to accurate schedule and budget details. Risk Rating Moderate Capital Improvement Program Evaluation | 18 FOR INTERNAL USE OF CITY OF GLENDALE ONLY Condition: Engineering has built a project management system within Smartsheet for project tracking, budgets, and the interface between project managers and contractors. The implementation of Smartsheet has been an improvement over past systems, but there are capability limitations when compared with available systems in the market. A critical limitation is that Smartsheet does not integrate with the City’s financial system, Tyler Munis. This lack of integration necessitates manual entry of data between the two systems. In addition, many of the other processes necessitate manual data entry. For example, partner departments often send project data in spreadsheets to Engineering and project managers are expected to manually transfer the information into Smartsheet. Engineering is also primarily responsible for recording information from meetings into the system by hand. Criteria: Industry best practice recommends CIP project management systems be integrated with the financial system of record to reduce manual data entry and ensure the highest level of data accuracy possible. Cause: While Smartsheet is a reputable work collaboration platform, the City has not invested in a dedicated project management system that could integrate with Tyler Munis or support robust digital workflows. Effect: While Engineering has done an admirable job structuring Smartsheet to meet their current project management needs, the system requires a high degree of manual data entry and reconciliation. This increases the risk of inaccurate data and requires significant staff time to maintain accurate records. By eliminating this type of manual, transactional work, staff would have increased availability to work on more strategic initiatives. Recommendation: The City should consider implementing a more robust project management system that has the capability to integrate with the finance system. Construction project management software should provide at minimum the following features: planning, scheduling, building, resources, and reporting associated with construction projects. The software should streamline the process and improve productivity while providing easy access to accurate schedule and budget details. Construction management software is designed to help managers control every phase of their projects by organizing its disparate parts and automating routines to add efficiencies. A construction project management tool should also serve to update stakeholders by enabling data-rich reports. Management Response Management Agreement Owner Target Completion Date Concur Engineering, Budget & Finance, IT 6/30/2023 Action Plan: We concur. Engineering will work with Budget & Finance and the IT department to research possible software solutions that may integrate with MUNIS and include the functionality listed above. We will present our summary to the City Manager’s Office by 6/30/2023. Capital Improvement Program Evaluation | 19 FOR INTERNAL USE OF CITY OF GLENDALE ONLY 8. Finding The City has not formalized a project prioritization process, which creates risks that the capital improvement efforts are not aligned with the City’s strategic goals. Recommendation A. Consider developing a set of strategic goals or guiding principles to help ensure that individual department master plans are in alignment with the City’s overarching vision for development. B. Return to utilizing a scoring framework that can be applied to all projects and form the basis for prioritization. Risk Rating Low-to-Moderate Condition: In alignment with industry best practice, the City has developed a rolling 10-year Capital Improvement Plan that is updated each year. The CIP comprises project details, including a brief description, project justification, and estimated costs for projects that are slated to be in progress within the next five years. Projects are identified for inclusion in the CIP through a variety of methods:  The City’s General Plan outlines high-level priorities for development.  Individual City Departments have created master plans to identify construction projects related to their area of work.  Ad hoc projects are occasionally identified by City Council to support specific strategic goals or economic development activities. These planning activities are frequently siloed, and the City has not developed a strategic framework to help ensure that departments are selecting projects that are aligned with the City’s current priorities or long-term strategies. Some staff report that the siloing is not an issue given the distinct nature of individual departments’ areas of focus. However, without a unified approach the City runs the risk of completing projects in a haphazard manner, rather than identifying opportunities for synergies, collaboration, or sequencing. In addition, the City is not currently utilizing a formal methodology to prioritize or reject projects Instead, once all projects are submitted for consideration during the annual planning cycle, the City Manager’s Office makes the decision about what projects to prioritize for the year and bring to City Council for approval based on available funds (the City budgets to the maximum obligation bond funding amount available for general construction projects). The City developed a scoring tool that rates projects based on their alignment to the City’s strategic goals, but it reportedly has not been used in the past two years. Staff report that the City also used to operate a cross-functional governance team that would make determinations on whether projects should be moved forward for City Council approval, but this process is no longer in place. Capital Improvement Program Evaluation | 20 FOR INTERNAL USE OF CITY OF GLENDALE ONLY At present, Engineering is not involved in project selection or prioritization. However, if new priority projects arise mid-year, Engineering often works directly with partner departments to determine which lower-priority projects can be moved into the following year. Criteria: Industry best practice recommends that the City develop a consistent methodology to identify and prioritize incoming projects and ensure that work is completed in alignment with the City’s overarching strategic goals. Cause: The City has not developed a master plan or strategic framework to help ensure that departments are selecting projects that are aligned with the City’s current or long-term strategies and has not yet implemented a formal methodology to prioritize capital projects. Effect: Without a framework to guide how to select and prioritize projects, the City’s capital improvement efforts may become disjointed and, in the worst-case scenario, place departments in conflict with one another. In addition, without a consistent methodology for prioritizing projects, the City lacks transparency into a critical process. Recommendations: A. The City should consider developing a set of strategic goals or guiding principles to help ensure that individual department master plans are in alignment with the City’s overarching vision for development. B. The City return to utilizing a standard scoring framework that can be applied to all projects and form the basis for prioritization. The criteria used to determine capital project prioritization varies across the industry with some cities simply utilizing a list of general criteria that a project must meet to be approved, while others have developed more complex ranking systems. Best practice is to use a rating system that assigns a quantitative value to a project priority. A decision-making tool such as a weighted decision matrix can be useful in attributing value to higher-priority criteria in the rating scale. The rating system helps facilitate decision- making by appropriate personnel and/or committees and standardizes the project prioritization process. Management Response Management Agreement Owner Target Completion Date Concur Budget and Finance 12/31/2022 Action Plan: We concur. Budget & Finance will review the City’s current general obligation bond funded capital project prioritization procedures and scoring matrix to determine if the same process can be utilized to prioritize all capital projects. If necessary, Budget & Finance will develop new procedures and/or update existing capital project prioritization. Expected completion date is 12/31/2022. Capital Improvement Program Evaluation | 21 FOR INTERNAL USE OF CITY OF GLENDALE ONLY 9. Finding The City has not been able to fill open positions in Engineering, resulting in high workloads for the current staff. Recommendation Continue current efforts to hire for open Engineering positions. If positions are not filled, there should be periodic reviews in consultation with Human Resources to determine if any adjustments could be made to the position scope or compensation to make the roles more competitive. Risk Rating Low-to-Moderate Condition: City leadership has provided strong support to Engineering by approving additional staffing positions to meet the current needs. There are currently two vacant Engineering Construction – Project Manager positions and another Engineering Studies and Design Senior Civil Engineer position. With the two vacant project manager roles, the capacity of current project managers is strained. There has been an effort to fill these positions. However, interviewed staff noted that, as with many public sector entities, recruitment for open positions has been challenging. Given current labor market restraints, the positions have not been attracting qualified candidates. Because the Engineering team is short-staffed and is working at full capacity to handle the workload of current CIP projects, there are concerns of a lack of capacity of staff to train the new project management hires when the positions are filled. Criteria: Vacant roles should be filled in as timely a manner as possible to ensure that Engineering is appropriately staffed. Cause: The current recruitment environment is creating challenges to attracting qualified candidates to fill open positions. Effect: The vacancy of the two project manager positions is a limiting factor in the City’s capability to take on more capital improvement projects, update and create procedure documentation, and train new staff. Capital Improvement Program Evaluation | 22 FOR INTERNAL USE OF CITY OF GLENDALE ONLY Recommendation: The City should continue current efforts to hire for open Engineering positions. For positions that have not attracted qualified candidates within two to three months, Engineering should coordinate with Human Resources to determine if any adjustments could be made to the position scope or compensation to make the roles more competitive. Management Response Management Agreement Owner Target Completion Date Concur Engineering, HR, City Manager N/A, Ongoing Action Plan: We concur. This is an ongoing effort currently underway as Engineering works with Human Resources and the City Manager’s Office to develop successful recruitment and retention strategies. 10. Finding Engineering policies and procedures lack details related to vendor scoring and selection processes. Recommendation Update policies and procedures to clearly identify vendor scoring criteria, weighting, selection committee formation, and JOC vendor selection processes. Risk Rating Low-to-Moderate Condition: During our review of the procurement for the Glendale Avenue Pavement Improvements project we noted the selection of the construction managers was based on a weighted criteria. The following criteria was outlined in the document that was sent to the firms that were selected for an interview:  Team working relations – 10 points  Key team members – 15 points  Project related experience – 5 points  Design phase assistance – 10 points  Subcontractor selection plan – 10 points  Understanding of project scope – 15 points  Value your team adds – 10 points  Budget and schedule plan – 10 points  Evaluation of responses – 10 points  Overall evaluation – 10 points The Project Manager Manual provides policies and procedures that address:  Use of selection criteria and a weighted scale (G.2)  Selection process and schedule (G.3) Capital Improvement Program Evaluation | 23 FOR INTERNAL USE OF CITY OF GLENDALE ONLY  Selection committee (G.3.e)  RFP/RFQ evaluation procedures (G.3.f)  Presentation/interview procedures (G.3.j) However, specific criteria and their weighted scale was not included within the policies or procedures. In addition, according to Note 6 of the selection committee policy (Project Manager Manual – Section G.3.e.i) states, “Article 34-603 paragraph C.1 thru C.3…stipulates different selection committee requirements for design consultants, CMAR’s, Design-Build and Job Order Contractors. The solicitation and selection procedures for an RFP and RFQ are relatively the same. However, the members of the selection committee and criteria are slightly different.” As such, it appears that the Project Manager Manual does not yet include itemized selection committee requirements as defined by Title 34, only references to specific Title 34 sections for review. In addition, staff members and interviewees report that when using the JOC construction delivery method—which includes a list of qualified vendors who have pre-bid on a catalog of construction tasks—partner departments are often interested in selecting the specific vendor. Criteria: As a best practice, policies and procedures should include specific selection criteria, weighted scoring, and selection committee requirements for all contract types, as outlined in Title 34, that can be consistently applied across all procurements performed by the City. Cause: While compliant with Title 34 overall, the Project Manager Manual does not include, in detail, all best practice elements of selection criteria, weighted scoring, and selection committee requirements. Effect: Absent updated selection criteria, weighted scoring, and selection committee policies and procedures, the selection and evaluation of criteria, the application of weighted scoring, and the formation of the selection committee may result in inconsistent application and interpretation of criteria, improper scoring, and inadequate or improper selection committee formation. In addition, if there is not a set procedure for selecting JOC vendors, this could create the appearance of favoritism. Recommendation: Engineering should update their policies and procedures to clearly identify the criteria and weighted scoring for consistent application across all City procurements that require a selection based on a criteria—including for JOC vendors selections—to promote transparency and accountability. As part of this effort, Engineering should also update policies and procedures to include all variations of the formation of a selection committee as outlined in Title 34 to prevent inconsistent interpretation of Title 34. Capital Improvement Program Evaluation | 24 FOR INTERNAL USE OF CITY OF GLENDALE ONLY Management Response Management Agreement Owner Target Completion Date Partially Concur Engineering N/A, Ongoing Action Plan: We partially concur. While some criteria may have equal weight regardless of project size or type, no two are exactly alike. Due to the nature of RFQs and the projects they generate, the selection committee (we follow Title 34 requirements) utilizes the flexibility allowed by the State of Arizona in the scoring to apply different weights to varying criteria as necessary. For instance, in one RFQ we may want to weigh the contractor’s experience with local subcontractors more than the firm’s overall experience. With respect to the JOC vendor selection process, there are multiple factors that get reviewed before a contractor is selected such as our prior experience with the contractor, familiarity with the project, potential timing/availability, etc. The City of Glendale is currently establishing their own JOC pool for various construction types to lessen reliance on linking agreements with other government organizations’ contracts. Overall, we will look for criteria and process steps that can be used more consistently where appropriate. This is an ongoing process that constantly evolves as projects and budgets change. Capital Improvement Program Evaluation | 25 FOR INTERNAL USE OF CITY OF GLENDALE ONLY APPENDIX A: DEFINITIONS OF AUDIT FINDINGS RANKING We utilized the City’s Independent Internal Audit Program risk rankings, presented below, and assigned rankings based on our professional judgment. A qualitative assessment of high, medium, or low helps to prioritize implementation of corrective action, as shown in the following table. HIGH Critical control deficiencies that expose the City to a high degree of combined risks. Recommendations from high-risk findings should be implemented immediately (preferably within three months) to address areas with most significant impact or highest likelihood of loss, misappropriation, or damage related to City assets. MODERATE Represents less than critical deficiencies that expose the City to a moderate degree of combined risks. Recommendations arising from moderate-risk findings should be implemented in a timely manner (preferably within six months) to address moderate risks and strengthen or enhance efficiency in internal controls on areas with moderate impact and likelihood of exposure. LOW Represents low-risk or control deficiencies, and the exposure is not likely to expose the City and its assets to significant losses. However, they should be addressed in order to improve efficiency and effectiveness of operations. Recommendations arising from low-risk findings should be implemented within 12 months.