HD53 - Follow-Up of the Special Review of Cash Management and Capital Budgeting Practices for the Department of Transportation

Executive Summary:
Our review has found that Transportation has made significant progress or completed most of the recommendations made in our 2002 special report. Complete implementation of these changes will take at least four to five years.

Over the last two years, Transportation's management has started not only implementing recommendations, but more importantly begun implementing a change in the corporate and cultural structure of the organization. The success of change with Transportation will depend on whether a true structural change in organization takes place. The measure of success will require a substantial long-term commitment by management to not only making the change, but to prevent backsliding into Transportation's old approaches.

In some ways, the accomplishments to date are the easy part of change. The harder part lays ahead in funding and implementing new systems, continuing to make the changes to get closer to capital budgeting process, and overcoming Transportation's corporate and cultural structure to improve project management. The success of this effort is highly dependent on management guidance and direction, and current management has demonstrated their dedication towards this effort. If any management change occurs, it is essential that they have the same commitment; otherwise, progress may be negatively impacted.

Transportation is restoring fiscal accountability by implementing several budgetary and financial changes, including adopting a debt management policy and model. Additionally, they are establishing a methodology to identify statewide transportation priorities and developing project management policies.

Transportation has completed several budgetary and financial changes, including attempts to make the Six-Year Improvement Program a realistic management tool and reduce the projects with a deficit status. However, to ensure accurate matching on cash inflows and outflows, Transportation must begin estimating the cost of projects by fiscal year. Transportation does not currently have sufficient controls and processes in place to manage the rate at which they spend funds.

For major projects, Transportation has begun assigning a project management team that follows a project from its inception to its completion. However, it is still too early in the process to determine if the policies put into place will provide Transportation with better project management. However, the actions to date are those considered best practices in both the private and public for large organizations.

Maintenance is still an area of concern at Transportation. The growing maintenance requirements and the limited ability to budget on a needs-based approach increases the risk of inappropriately applied funding. Once the asset management system is fully implemented a needs-based approach will be possible and Transportation will be able identify and prioritize maintenance projects.