Single Audit Report Fiscal Year Ended June 30, 2012 - State ...

State of GeorgiaFinancial Statement Findings and Questioned CostsFor the Fiscal Year Ended June 30, 2012Finding Control Number: FS-484-12-02EXPENSES/EXPENDITURES AND LIABILITIESInternal Control Deficiencies Over Contractual ObligationsCondition:Our examination of the Department of Transportation’s (Department) fiscal year 2012 contractualobligations, which consisted of construction, consultant, railroad, utility and right-of-way contracts andcontract modifications (i.e. contract amendments and supplemental agreements), disclosed thefollowing deficiencies:1. The Department did not have adequate internal controls in place to monitor the recording ofconsultant, railroad, utility and right-of-way contracts and contract modifications.2. Controls performed to ensure the timely recording of construction contracts were not adequatelydocumented from July 2011 through March 2012.3. Fifty-two (52) contractual obligations were recorded on the general ledger more than sixty (60)days after execution by the Department. Forty-seven (47) of the fifty-two (52) contractualobligations were consultant contracts.4. One (1) supplemental agreement in the amount of $9,040.00 and three (3) consultant contractstotaling $1,970,419.41 were unrecorded as of fiscal year end. The supplemental agreement wasexecuted by the Department in October 2011 and the consultant contracts were executed in June2012.Criteria:An adequate system of internal controls dictates that contractual obligations be supported withadequate documentation and recorded on the general ledger in a timely manner to ensure that liabilitiesare recognized as soon as they are incurred in accordance with generally accepted accountingprinciples.The Department of Transportation's Contracts Processing policy (7110-9) states, in part:"It is the policy of the Georgia Department of Transportation, Office of General Accounting to processcontracts, supplemental agreements (SAs), and modifications (MODs) as they are received in theContracts Payable Unit on a daily basis or as time permits"; and"To ensure all construction contracts are received and recorded timely, the Contracts Payable Unit willcheck off the contracts as they are received on a tracking document created from the letting and followup periodically with appropriate departments/personnel if the contracts are not received."Information:Cause:Effect:Six (6) of the fifty-two (52) contractual obligations noted above were identified during our review ofsixty-one (61) contractual obligations consisting of twenty-one (21) individually significant itemcontractual obligations totaling $515,597,647.96 and forty (40) random sample item contractualobligations totaling $22,698,762.33 that were recorded on the Department’s general ledger during thefiscal year (FY). Furthermore, forty-six (46) of the fifty-two (52) contractual obligations wereidentified during our review of contractual obligation data, which included one hundred forty-five(145) items totaling $60,215,775.55, reported on six (6) vendor confirmations. The unrecordedsupplemental agreement and consultant contracts were also identified on the vendor confirmations.The deficiencies noted above were a result of the Department's failure to implement adequate internalcontrols to ensure the timely recording of consultant, railroad, utility and right-of-way contracts andcontract modifications and to provide for adequate documentation of controls in place over theconstruction contract recording process.Failing to record contractual obligations in a timely manner resulted in budgetary expenditures andliabilities being understated with fund balance being overstated by $1,979,459.41. In addition,64