Road Maintenance Contracts

Road Maintenance Contracts

Financial Audit

Report No. 98-05

Makoto (Mac) Fletcher, Principal Financial Auditor

Introduction
Audit Objectives
General Conclusion
Major Findings:

Finding - Road Services Division revenues and associated expenditures appear to be fairly stated and consistent with contracted service levels.
Finding - Charges to the cities appear to be fairly based on the county’s costs, and such costs were comparable to costs recorded for county maintenance work.
Finding - Road services budget and accounting procedures were not consistent and did not clearly present cities’ maintenance contract revenues and expenditures data.

INTRODUCTION

The financial audit of Road Maintenance Contracts was requested by the Metropolitan King County Council and was included in the 1998 County Auditor's Office work program. The request for the audit resulted from an unresolved budget issue regarding revenues from maintenance services provided to cities.

The Road Services Division ("Roads"), within the Department of Transportation, constructs and maintains roadways and other transportation facilities. Roads provides such services within unincorporated King County and may provide services to cities through interlocal agreements.

AUDIT OBJECTIVE

The primary objective of the audit was to review the revenues derived from Roads' maintenance contracts with the cities and determine whether such revenues, i.e., charges to the cities, are based on the fairly calculated "full-cost" incurred by Roads.

GENERAL CONCLUSION

The general conclusion of the financial audit was that the revenues and expenditures for road maintenance contracts are fairly stated. Moreover, the charges to the cities are based on appropriately calculated "full-cost" basis. However, the audit found that certain budget and accounting procedures need to be improved in order to more clearly present the cities' maintenance contract revenues and expenditures data.

MAJOR FINDINGS AND RECOMMENDATIONS

Finding 1. Road Services Division revenues and associated expenditures appear to be fairly stated and consistent with contracted service levels.

Audit staff analysis found that, on an overall basis, the budgeted revenues and expenditures were fairly based on historical and expected activity levels. Furthermore, it was found that the revenues from cities appeared to be fairly based on the expenditures incurred by the county and, also, within the budget and activity levels agreed to between the cities and the county.

Finding 2. Charges to the cities appear to be fairly based on the county’s costs, and such costs were comparable to costs recorded for county maintenance work.

The audit found that charges to the cities were fairly calculated and appropriately included relevant costs incurred by the county. Such charges included direct labor, direct material, equipment, and an appropriate share of the Division's overhead. Furthermore, it was found that the maintenance costs charged to the cities were calculated and accumulated on a basis comparable to costs incurred for maintenance work in unincorporated areas.

Finding 3. Road services budget and accounting procedures were not consistent and did not clearly present cities’ maintenance contract revenues and expenditures data.

Audit staff noted that the procedures used to record budgeted revenues and expenditures for road maintenance contracts were inconsistent with the procedures used to record actual revenues and expenditures. Thus, the budget and accounting data were not clearly presented. These inconsistencies included:

actual roadway maintenance revenues recorded in an account different than the account used for budgeted revenues,
roadway maintenance revenues and expenditures budgeted in several "low orgs" but actual revenues and expenditures recorded in another, single "low org,"
different budget and accounting procedures for roadway maintenance activities as opposed to traffic maintenance activities, and
use of workload indicators in the budget process which were not indicative of actual or expected work levels.

The audit recommended that actual revenues should be recorded consistently in the account in which the revenue was budgeted; revenues and expenditures related to the contracted cities should be budgeted and recorded in the same "low org;" and the budgeting and accounting procedures used for the roadway (street) maintenance and traffic maintenance activities should be consistent with each other. The audit further recommended that workload indicators presented in conjunction with the budget should fairly reflect specific actual and/or expected levels of service for the year(s) presented.

Updated: 07/22/02

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