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					               Performance Audits
                 in Washington
                      The I-900 Experience

                   NASACT Annual Conference
                       August 12, 2008

                 Washington State Auditor’s Office
                        Ernst and Young




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             Today’s Agenda

         •     Performance Audit Overview
         •     Washington State Legislation and Who Is Subject to Performance Audits
         •     New Program Comes with Initial Challenges
         •     Observations to Date
         •     New Program Requires Partnering with Contractors
         •     E&Y Project Methodology
         •     The Auditor’s Search for Criteria
         •     Results to Date - E&Y Audits with SAO
         •     Results to Date – All Completed SAO Performance Audits
         •     Questions and Answers


         •     Supplemental Slide Deck
                – Results of Individual Performance Audits
                – Upcoming SAO Performance Audits



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     Performance Audit Overview
       • Generally Accepted Auditing Standards do not require an
         auditor to evaluate the reasonableness of business operating
         decisions or matters of management and operational
         efficiency that directly impact operating costs.
       • The Yellow Book does require the auditor to consider such
         matters; considered during a performance audit.
       • Performance audits encompass a wide variety of objectives,
         including
               – objectives related to assessing program effectiveness and results.
               – economy and efficiency.
               – internal control.
               – compliance with legal or other requirements.
               – and objectives related to providing prospective analyses, guidance, or
                 summary information.

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     Initiative 900

     • Specifies that performance audits be conducted in accordance with
       Yellow Book Standards. Requires every performance audit to look for
       opportunities in the following areas:
                  Cost savings
                  Services that can be reduced or eliminated
                  Programs or services that can be transferred to private sector
                  Best practices
                  Regulatory changes that allow entity to carry out its functions
                  Roles, functions and recommend changes, eliminations
                  Gaps, overlaps in programs or services
                  Feasibility of pooling technology systems
                  Departmental performance data, performance measures
                   and self-assessment systems




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           Who Is Subject To SAO
           Performance Audits in Washington?


           • More than 163 state agencies
           • Nearly 3,000 local governments




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     Initial Challenges


           State agencies and local governments:
           •   Were unfamiliar with performance audits and new SAO audit authority
           •   Are more familiar with financial and compliance audits
           •   Show a desire to negotiate audit criteria
           •   Some believe statutes are the sole performance audit criteria
           •   Want to limit criteria to those used within their government type
           •   Want to set criteria at the middle of the bell curve
           •   Are surprised by what can be said in a performance audit report
           •   Are unclear about the role of their attorneys in relation to performance
               audits




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           Observations On I-900 Performance
           Audits To Date


           • Citizens and officials appreciate narrower
             scopes and objectives.
           • On occasion, public policy and citizen
             expectations differ.
           • On occasion, one public policy competes with
             another (and becomes part of the report).
           • Examples include the following audits:
                How effective are WSDOT investments at minimizing
                 congestion?
                How efficient and economical are WSF operations?

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           New Program Requires Partnering
           Between SAO and Contractors (including E&Y)

           • SAO conducts performance audits with staff & vendors
           • SAO uses vendors for more than 80% of its
             performance audits (including E&Y)
           • Successful partnering model includes:
                SAO and E&Y communicate regularly
                E&Y provides opportunity for SAO to share input
                SAO supports E&Y interaction with the audited agency or local
                 government
                SAO supports/champions contractor’s independence
                SAO and E&Y support the use of risk-based audit approach in the
                 context of a fixed price proposal
                E&Y develops audit methodology to address fixed price
                 engagement considerations



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           E&Y Project Methodology

           •   Phase One: Conduct a broad view performance and risk assessment to identify
               improvement opportunities.

           •   Phase Two: Diagnose and prioritize process, initiative and or control issues that
               have the greatest opportunity to reduce costs and improve efficiency.

           •   Phase Three: Develop work plan to identify and quantify root causes of the highest
               risk areas identified in phase two.

           •   Phase Four: Execute the work plan.

           •   Phase Five: Develop the draft report of our findings to discuss with auditee
               management and obtain management’s input and feedback. Iterative process.

           •   Phase Six: Issue the final audit report to the SAO and assist the SAO in making
               presentations to State Legislators or Legislative Committees.




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           The Auditor’s Search for Criteria
           (creativity, pragmatism, remember the citizen)

           • With 7 billion people on the planet, auditors may never
             know with certainty they have identified the best
             practice. But if the criteria is valid and demonstrates
             higher performance is possible, you may want to run
             with it.
           • Consider citizen expectations in establishing criteria
             and measuring performance
           • How E&Y identified criteria on two audits?
                Efficiency and Economy of Administrative Operations at the
                 Washington State Department of Transportation
                Efficiency and Economy of Washington State Ferries
                 Operations


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           Support for the SAO Performance
           Audit Program


               – Tremendous public support for SAO performance
                 audits.
               – Tremendous support by the media.
               – Continually increasing support by state agencies,
                 the Legislature and local governments.




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           E&Y Results on SAO Performance
           Audits

           Completed Audits
               – Washington State Ferries (see supplemental slides)
               – Washington State Dept. of Transportation
                 Administrative and Overhead Operations (see
                 supplemental slides)
           Audits Underway
               – Use of Impact Fees at Five Cities
               – Administrative operations, capital projects and citizen
                 accountability at three public hospitals


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           Summary of Results to Date on
           Completed SAO Performance Audits
           • SAO has completed 10 performance audits of state agencies and
             local governments.
           • Collectively, the audits have made 454 recommendations to improve
             the efficiency and effectiveness of government.
           • They point the way toward millions in savings of taxpayer dollars
             and they recommend ways to transform government operations and
             to make significant improvements in services to citizens.
           • The audits identified $240 million in one-time and long-term potential
             cost savings and in unnecessary spending over five years. In
             addition, our audit of Puget Sound traffic congestion pointed to $3
             billion in economic impacts to citizens and businesses and to the
             environment, provided all the audit recommendations are heeded.
           • Considering the $9 million cost of conducting the audits,
             the findings and recommendations represent a healthy
             return on investment.



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           Questions and Answers

           • Questions and Answers




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               Performance Audits
                 in Washington
                    SUPPLEMENTAL SLIDES

                   NASACT Annual Conference
                       August 12, 2008

                 Washington State Auditor’s Office
                        Ernst and Young




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           Supplemental Information – Performance Audits
           in the State of Washington
           • Individual results to date - SAO has completed 10 performance
             audits of state agencies and local governments.
              – Collectively, the audits have made 454 recommendations to
                 improve the efficiency and effectiveness of government.
              – They point the way toward millions in savings of taxpayer dollars
                 and they recommend ways to transform government operations
                 and to make significant improvements in services to citizens.
              – The audits identified $240 million in one-time and long-term
                 potential cost savings and in unnecessary spending over five
                 years. In addition, our audit of Puget Sound traffic congestion
                 pointed to $3 billion in economic impacts to citizens and
                 businesses and to the environment, provided all the audit
                 recommendations are heeded.
           • Audits in process or the RFP stage


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           General Administration Motor Pool


           • Identified potential savings: $2.3 million over five years
           • Audit cost: $255,285
           • Findings and recommendations: Found 116 underused
             vehicles that should be sold or reassigned.
             Recommended changes in the method of buying new
             vehicles to save interest on auto loans. Also
             recommended raising the Motor Pool’s rental rates that
             were too low to cover operating expenses.
           • Issue date: February 28, 2007




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           Department of Health, Office of Health
           Professions Quality Assurance


           • Identified potential savings: The audit emphasized protecting
             patients and the public from abusive and predatory practitioners
             rather than identifying cost savings.
           • Audit cost: Slightly more than $1 million
           • Findings and recommendations: Found inconsistent practices and
             lax oversight among the 57 different health care professions, putting
             patients at risk. Made 67 recommendations to change how health
             professionals are credentialed and disciplined. The Department has
             put in place all the recommendations it is legally authorized to do
             using existing resources.
           • Recommendations requiring additional resources or policy changes
             are pending before the Legislature.
           • Issue date: August 21, 2007


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           Department of Transportation –
           Washington State Ferries

           • Identified potential savings: $50.2 million over five years
           • Audit cost: $947,682
           • Findings and recommendations: Found an inadequate
             number of manager positions to supervise staff and
             other weaknesses at the system’s main maintenance
             facility.
           • Recommended standardizing business practices across
             the system and consolidating low-ridership ferry runs to
             achieve significant savings in fuel and operating costs.
           • Issue date: September 4, 2007


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           Educational Service Districts


           • Identified potential savings: $23.5 million over five years
           • Audit cost: $1.7 million
           • Findings and recommendations:
               – Found most districts are operating efficiently and are
                 providing needed services to individual school districts.
               – Made 215 recommendations spread among the state’s
                 nine ESDs.
               – Recommended systemwide strategic planning to better
                 coordinate services and avoid duplication. Also
                 recommended restructuring of staff in some districts to
                 reduce administrative costs.
           • Issue date: September 18, 2007


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           Sound Transit’s Link Light Rail

           • Identified unnecessary spending: $5.1 million
           • Audit cost: $557,759
           • Findings and recommendations: Found inefficient and
             ineffective construction management leading to cost
             overruns and project delays. Also found inadequate
             assessments of contaminated sites, resulting in
             unnecessary cleanup costs.
           • Audit found that Sound Transit improved construction
             planning and management processes from its early
             years.
           • Recommended further improvements and refinements to
             construction management.
           • Issue date: October 4, 2007

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           Department of Transportation –
           Reducing Congestion in Puget Sound

           • Identified potential $3 billion over five years in economic impact to
             citizens and businesses as well as environment impacts
           • Audit cost: $1.6 million
           • Findings and recommendations:
              – Found that the Department does not consider reducing
                  congestion a priority in planning transportation improvements.
              – Concluded that congestion could be reduced 20 percent by
                  carrying out several near-term measures at little or no cost.
              – Identified long-term investments to significantly reduce
                  congestion.
           • Issue date: October 10, 2007




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           Department of Transportation –
           Administration & Overhead

           • Identified potential savings: $18.1 million over
             five years
           • Audit cost: $672,833
           • Findings and recommendations:
               – Found inefficient, decentralized and inconsistent
                 systems and practices in various administrative
                 functions.
               – Recommended centralizing functional areas as
                 well as major upgrades in programs.
           • Issue date: November 15, 2007

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           Port of Seattle Construction
           Management

           • Identified unnecessary spending: $97.2 million
           • Audit cost: $758,940
           • Findings and recommendations: Found serious and pervasive
             issues in Port management of $1.5 billion in construction projects.
           • Found a lack of adequate oversight by the Port Commission and
             inadequate controls that put taxpayer dollars at risk and raised the
             probability that fraud existed.
           • Made 51 recommendations calling for the Commission to reassert
             oversight responsibility. Also recommended hiring an executive to
             oversee all procurement activity and strengthening the Port’s
             internal audit function.
           • Issue date: December 20, 2007




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           Department of Transportation - Highway
           Maintenance and Construction Management

           • Identified savings and unnecessary costs: $41.9 million
           • Audit cost: $438,130
           • Findings and recommendations:
           • Found that while DOT follows several industry best
             practices, it has opportunities to improve inventory and
             supply management, purchase of hot-mix asphalt project
             management practices.
           • Made 34 recommendations calling for improved
             oversight of inventory management and tracking project
             costs.
           • Issue date: January 10, 2008

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           Open Public Records Practices at 30
           Government Entities

           • Savings and unnecessary costs are unquantifiable
           • Audit cost: $600,000
           • Findings and recommendations:
               – By and large, most of the 30 entities are providing good
                 customer service in responding to public records requests.
               – Tested the entities’ performance by submitting 10 public
                 records requests to each entity like a citizen would and
                 identified some trouble spots in which entities need
                 training on the Public Records Act; have problems tracking
                 requests; or are unable to receive them due to e-mail
                 filters or other issues with their mail systems.
           • Issue date: May 19, 2008


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           Audits in process or in RFP stage
           • Operations and administrative overhead at the state’s 10 largest
             school districts
           • How effectively six state agencies collect debt owed to the state
           • 13 school districts’ travel practices
           • State Parks and Recreation Commission’s operations
           • State Department of Fish and Wildlife’s salmon, pheasant and crab
             programs
           • Use and collection of impact fees by five cities with the highest
             amount of fees
           • How the state’s three largest public hospitals handle administration,
             oversight of capital projects and hold themselves accountable to
             citizens
           • K-12 education and capital projects
           • Public utilities operated by cities, counties and utility districts
           • King County Construction Project Management
           • King County Rural Library District


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