18-30028-04

Purpose of the Report

In accordance with Title 24 of the Alaska Statutes and a special request by the Legislative Budget and Audit Committee, we conducted an audit of the Village Safe Water Program (VSW) administered by the Department of Environmental Conservation (DEC).

Our objectives were to evaluate DEC’s oversight of engineering firm billings and project payrolls and to evaluate its purchasing practices in project communities.

Report Conclusions

Approximately $35 million in VSW construction is being monitored by a dozen engineers buried within a regulatory agency. Though well meaning and exemplary in dedication, these DEC employees suffer from a lack of the usual business support services that enable other state engineers to focus on engineering. In short, there is a mismatch between their professional training and the tasks that consume much of their time. Our summary conclusions were as follows:

• Unskilled oversight of construction management firms and other engineers allows waste
• Unskilled oversight of on-site managers allows waste
• Noncompliance with tax and payroll laws invites enforcement
• Better monitoring needed for safeguards over outside employment
• The move to projects in recent road system subdivisions reflects changing priorities
• Questionable purchasing presumes unlimited future funding

Findings and Recommendations

1. The governor should, by executive order, place VSW within the Department of Transportation and Public Facilities’ (DOTPF) public facilities section.We recommend that the governor place the VSW program within DOTPF’s public facilities section. The program will benefit from DOTPF’s support services, economies of scale, training opportunities, career paths, and business discipline.
2. The state should mandate that on-site managers be paid with a salary rather than on an open ended hourly basis.
3. The VSW program should institute traditional business safeguards to protect the integrity of force account payrolls.
4. DEC’s designated ethics supervisor should, with comprehensive assistance from the Department of Administration, determine the extent of any conflicts of interest among VSW employees and establish clear boundaries.
5. For force account projects, the VSW program should adopt regulations setting basic business standards for potential conflicts of interest, transactions with project employees, and nepotism.

AUDITOR’S COMMENTS

VSW program could require meaningful in kind contributions by capable communities.

Though there have been some exceptions over the years, the usual assumption of the VSW program is that communities invest none of their own funds or property. Under DEC’s force account arrangement, the community gets a VSW facility along with paychecks for the local crew that builds it. DEC asserts that the use of force account labor, a business plan, and a local operator fosters a sense of community “ownership” in the completed project.

However, as the program is extended to more capable communities, DEC should not presume that the program needs to fund every element of the project. Capable communities could be encouraged to contribute and the program could be viewed as a startup partnership, rather than a perpetual entitlement.