00:00:00:00 - 00:00:32:00 Robert Vaughn Good morning. It is 10 a.m., and I call to order the December 16, 2024, meeting of the Texas Transportation Commission Audit Subcommittee. Note for the record that public notice of this meeting, containing all items on the agenda, was filed with the Secretary of State at 3:36 p.m. on December 6, 2024, which is at least 7 days prior to the meeting in accordance with Government Code, §551.044. At this time, I would like to ask that, before we begin today's meeting, you place all cell phones and other communication devices in the silent or off mode. All speakers should turn their microphones on and say their name and title before speaking. Thank you. With that I will now turn the meeting over to Chief Audit and Compliance Officer, Parsons Townsend. 00:00:57:03 - 00:01:11:04 Parsons Townsend Good morning. Thank you, Chairman Vaughn. At this time, I ask for everyone's full attention to the screen as we show the Greer building safety video describing emergency exits and other emergency procedures. 00:01:11:06 - 00:02:29:07 Safety Briefing Attention Please. The following is a safety briefing to help ensure your personal safety while at the Texas Department of Transportation Greer Building. In case of a medical emergency, please call 911. The automated external defibrillator unit is located here on level 1 in the main lobby at the security booth. First aid kits are marked and located on each floor. Fire extinguishers are market and located on each floor. In the event of an evacuation proceed to the nearest exit. Once outside proceed to the west parking lot of the Greer building located at the corner of congress avenue and 11th street. In case of tornado or inclement weather, stay inside, move away from exterior walls and windows. The designated shelters are stairwells, basement, interior hallways, and centrally located restrooms. In case of active shooter or bomb threat, follow instructions from the public address system and onsite security personnel for more details. Thank you for your time, have a safe and productive meeting. 00:02:29:09 - 00:02:34:04 Parsons Townsend With the safety briefing completed, I’ll turn the meeting back to you Chairman Vaughn. 00:02:34:05 - 00:02:43:03 Robert Vaughn Thank you. Now, we will open with comments from my fellow commissioner. Commissioner Meade, do you have comments today? 00:02:43:03 - 00:02:44:10 Alex Meade I've got no comments. 00:02:44:10 - 00:03:07:05 Robert Vaughn You have no comments and I do not as well. See, the next item here. We'll now consider the approval of the minutes from the September 25th, 2024 Quarterly Audit Subcommittee meeting. Minutes have been provided. Do I have a motion to approve the minutes as presented? 00:03:07:07 - 00:03:09:01 Alex Meade III I'll make a motion to approve. 00:03:09:03 - 00:03:10:01 Robert Vaughn I second. All in favor, say I. 00:03:10:02 - 00:03:10:03 Alex Meade I. 00:03:10:04 - 00:03:18:00 Robert Vaughn I. Motion carries. I will now turn the meeting back over to Chief Townsend. 00:03:18:01 - 00:03:33:01 Parsons Townsend All right. Moving to agenda item three, the Independent Auditor's report. Kevin Smith, partner with Crowe LLP, will present this section. 00:03:33:03 - 00:06:15:07 Kevin Smith Thank you, Mr. Chairman, for allowing me to be here, Kevin Smith with Crowe. Unlike most years, we talked about this a little awkward a day or two before we finally issue. We issued last Friday. So everything is final. No caveats, saying we're almost done, etc. So as of December 13th, we issued four audit reports. Agency wide for the Texas Department of Transportation as well as individual opinions of The Texas Mobility Fund, The Central Texas Turnpike System, and The Grand Parkway Transportation Corporation. In accordance with government auditing standards, we’ve also issued an independent auditor's report on internal controls over financial reporting. Now, we would identify any material weaknesses or significant deficiencies. And then still, the good news from a couple of slides later, we identified zero material weaknesses or significant deficiencies, which speaks to the soundness of of the organization's internal control. We've also issued a SAS114 or a letter to those charged with governance that walks through the conduct of the engagement. And today's presentation, I will hit the highlights of that letter. Next slide please. So something somewhat unique, particularly when you think about the TxDOT or the agency wide report... there is a concept within governmental accounting called opinion unit. So that's basically each column within those financial statements. So we opine that that individual level. So again it's another higher level of assurance as we ground down into the individual components of the organization. There are four types of audit opinions under the standards that we can issue. Qualified and adverse a disclaimer or an unmodified. The unmodified is the highest level of assurance that we can provide. It really means two things, er three things, that the audit was conducted in accordance with generally accepted auditing standards, the financial statements follow generally accepted accounting principles, and that the books and records support those financial statements. And when in fact we have issued unmodified opinions upon all opinion units and those four reports that we referred to. We also include a variety of emphasis, matter paragraphs, that's just to draw people's attention to certain matters that may warrant additional, consideration. Those that are included on TxDOT are very standard and are prescribed by generally accepted auditing standards. And it just refers to the fact that it is the audit of TxDOT, not of the State of Texas. So it's really trying to define the boundaries of the audit, but it has no impact upon our ultimate opinion. Again, we issued our report on internal control over financial reporting. We really think about deficiencies in three levels. A normal deficiency exists when there's a design or operational control that does not allow management or its employees to identify a weakness er a material misstatement. A material weakness, which is what those on this committee should be most concerned about, is a deficiency or combination of deficiencies that it's reasonable, possibly that a material misstatement could exist within the financial statements. We identified zero material weaknesses, a significant deficiency is something kind of in between those two, and it just means it's not a material weakness, but it still warrants the attention of those charged with governance. And again, we noted no significant deficiencies. We did identify certain deficiencies around some immaterial adjustments that were included within the letter. Those deficiencies were warranted to be oral in nature. They did not rise to the level requiring a management letter, again, speaks to the sound internal control structure within the organization. Our letter also communicates our auditor responsibilities which we believe we have met. There were no changes to the plan, scope or timing of the engagement. We also have a variety of internal procedures to verify that we are independent of TxDOT and have confirmed that we are. There were no significant or unusual transactions during the period under audit as of August 31st, 2024. However, I would deem that there were two significant or unusual transactions that have happened subsequent to year end, and those are included within the subsequent footnotes on the financial statements. We have begun, we have performed enough auditing procedure at this time to feel comfortable with that support, but obviously would be a focal point without any future audits. There were no significant accounting policies and controversial or emerging areas. Everything or most items within the basic financial statements are addressed by governmental accounting standards. There are a variety of accounting estimates with, involved with and preparing the financial statements. We have spent a significant amount of time understanding both management's assumptions as well as the inputs that go into those estimates and believe them to be materially correct. The corrected and uncorrected misstatements were deemed to be qualitatively immaterial, and I've been included in that letter. Other communications that warrant the attention of this committee, there were none. So with that, I'd be happy to answer any questions, as it relates to the audit. 00:08:58:00 - 00:09:00:04 Alex Meade No questions. Thank you. 00:09:00:06 - 00:09:10:14 Robert Vaughn The two items that you spoke of that were a... I'm not sure if you used the term material or not, but they were... 00:09:11:04 - 00:09:14:05 Kevin Smith Subsequent, and I would deem them to be, infrequent or unusual. And that would be the TSA or the tolling service agreement, with HCTRA, in process of coming online right now, as well as the I don't even know the right words to to to describe the reversal of the public private partnership on State Highway 389. So again, those are significant and unusual, and those will be a focal point in the fiscal year 25 engagement. 00:09:42:09 - 00:09:48:14 Robert Vaughn Okay. Thank you. 00:09:49:00 - 00:09:57:01 Parsons Townsend Thank you, Kevin. At this time, we will move forward to agenda item four, the Internal Audit division update. Craig Otto, the division director, will go through items A and B. 00:09:57:02 - 00:10:06:14 Craig Otto Thank you, Parsons. Good morning. First I'd like to just, take us through a quick update on the management action plan follow ups status, the past due MAPs. Back last quarter we did not go through this. You know. Yeah. Good activity here, in regards to priority one, which are the most significant MAPs. For any that are past due, those are all been closed. So that's a good, progress and update regards to business side. Priority 2, we did see an increase. But oftentimes we get more to the end of the fiscal year we'll see more reports being issued. And so any time reports are issued or those that have been previously, issued, have passed or have MAPs that then become past due, we may see an increase. The ones that are in bold on the bottom four on the on the right side of that illustration are the audits where we did have, some, past due MAPs. And again, the good thing to report on, a lot of these if not most all, is we are seeing progress, in regards to, information being turned in, there's no really situations where we're seeing things being ignored. Um, and really, were it's up to my team to do down here in Q2 is really to start performing work on these engagements, and then we should probably have a better idea, update, as we get into, um, the next few months to see if those close or not. But what's, what's been, great to see is that a team in a few situations, we've had a, you know, work with the business just to remind them and try and maybe clarify a management action plan or the finding of a report that maybe was issued, you know, 2 or 3 quarters ago. But I think there's better synergy going on right now where we're able to make sure that we're seeing the right actions taking place. And again, these being past due most often than not, they're being done timely so that, you know, that's a good, good scenario, especially something that we want to make sure we discuss. And the other thing I think that, my team is looking to probably do to work a little bit more with the Chiefs, where we do see some of these that are past due and just, you know, keeping them ahead of the curve as well and giving them the ability to work with, you know, their business partners, down the chain to make sure that we get these things cleaned up as quickly as possible. But, you know, good news, it's always nice not to see any reds, but of course there's oranges, but we're continuing to work those. Are there any questions on the update as it relates to the management action plan? 00:10:06:15 - 00:15:55:08 Craig Otto Gentlemen, I also have two, internal audits that I would like to just, go through and discuss the results of, neither one of these were, significant in regards to risk priority. I think both were priority three or in the yellow. But I, you know, thought it would be interesting just to kind of talk about some of the dynamics involved, for the engineer's estimate, which is always an important process as we get into our letting. One of the things we wanted to understand a little bit is just how the engineer's estimate is put together. And, look at, not only the quantity aspect, but the, the value aspect of it. And this audit had one estimate or finding, I should say. And it was really around retention of documentation and show support ability and the substantiation of particularly the pricing that goes into, line items, etc. Oftentimes, there's, historical information. There's a three month, 12 month type of pricing information that we're able to utilize to help us come up with these estimates. And the one thing that we noticed, pretty frequent in the six districts that we looked at, there's often times where this documentation is not retained. So if questions do come up where we want to look at to understand why do we get so far from what the bid is, sometimes this information is not always, obtainable. And we want to ensure that that's that's being put into place. Secondly is, you know, if we do have, bids that go extreme greater than 10% or 20%, depending upon the number of bids, a justification needs to be compiled, and the information needs to be provided for review and approval. And what we saw here oftentimes is the information was not really, getting to all the variables that may have cause for that justification. And what we see oftentimes is there's a quick turnaround, to provide that information to you all for commission meetings for that approval, but what we, what we've asked is just kind of a reinforcement to make sure that information is obtained either through conversations with the company that won the lowest bid or what have you, that that information is just as important. It helps us all understand why those, some of those bids get kind of extreme and go to higher percentages in terms of variance. So we want to again make sure that documentation is not only completed but retained there. And then thirdly, you know, the final review process, there's a 30, 60, 90 and final review process. Oftentimes, you know, as we go through, these estimates. And one of the things that we noticed roughly half the time is not everyone is again, maintaining that. We did see some districts that did, you keep that information as you go throughout that review process. But that's really what's going to make sure you dot your I's and cross your T's as you go throughout the process is verifying and validating. And so again, clean up on that. What what we're happy to see is with the design division also and construction division is working together, to make sure that there's training, make sure that the information, is reinforced in terms of what needs to be kept. And ultimately I think is, is this thing, sustains itself and grows a little bit more. I think you're going to start seeing kind of that cohesion, where information will be more readily available for us to be able to get quicker answers. If Marc or anybody on the commission would like to seek that. So, I believe, firmly, that the management action plans put into place for this particular audit are going to mean going to be able to resolve and mitigate the potential risks associated with those with those estimates. Are there any questions on the first audit engineer's estimate? 00:15:55:09 - 00:15:55:10 Alex Meade I've got no questions. 0015:55:11 - 00:16:04:09 Robert Vaughn But since you brought it up Marc's involvement, Marc do you have any comments, questions, or just that... 00:16:04:10 - 00:16:33:02 Marc Williams No, we had a conversation about that, you know, I think one thing that, you know, I don't know that we ever really put our finger on is, you know, the of the ones that, you know, we were lacking justification, the significance of that particular item, you know, was that at maybe, you know, was that asphalt prices or were those wingnuts. So, you know but the point is, is, you know. Is it was was it a very significant, large significant bead item or was it something that was relatively small and that may be something to kind of look at, you know, may have gathered some more information on. 00:17:04:13 - 00:17:19:59 Craig Otto Yeah. So thanks for being on it, Marc. So one of the things that we did is we went back and looked and we looked at the top five, either that were for higher or top five that were lower. So you're going to have a combination. But most of them again are not of a significant nature. I mentioned it to Marc, you know, all fairness, there are many, many line items in bid items. but to Marc's point, though, it doesn't appear necessarily that a lot of them are confined to, you know, a large quantity type of item. So you can have a mixed bag in there. But it was a good point, that's always important, I think, clarity wise in these reports is to make sure that that that does come out. So thank you for that. 00:17:20:00 - 00:17:46:10 Marc Williams But nevertheless, that's something that I think we could clear up at least in our reporting. So people go back and look at it. They understand, you know, maybe we just made the determination. It was immaterial. Didn't need to go back, justify it. But you know, overall it's a helpful review for us. 00:17:46:11 - 00:17:48:00 Robert Vaughn Okay, thank you. 00:17:48:01 - 00:18:09:10 Craig Otto The second audit is around temporary employment service contracts. We often deal with a lot of third party, contracts, to help, you know, supplement and, and sometimes in areas where, you know, divisions or districts need additional resources. One thing we wanted to understand on here is sort of how do we go through and monitor these, on a periodic basis. So, temporary employment services are definitely needed. I think there's, there's always good, opportunities to, to use and learn from, from others. But the one thing we wanted to make sure on here is, is, you know what what reasoning and rationale do we go through, at point of renewal. Trying to make sure is, you know, do we should we just go ahead and hire somebody or should we just continue? Oftentimes the subject matter expertise is hard to let go. But we, we did find in in a few cases here that, you know, that we call them operational metrics, should be track, should be understood to say is is it something that can needs to continue to renew or not? I know in the ITD space, they're typically ones that do hire this types of contracts, they do a really good job at that, you know. So they're really set to make sure that they know, if they should continue or potentially ask, require, additional FTEs. Secondarily, I think what's important to is, is as these projects are ongoing, is are we looking and understanding, are we achieving what we're supposed to be getting? And looking at that not always at the end, but kind of throughout. And that sometimes will help that decision making process for chiefs or division directors, district engineers, etc. So, you know, making sure those ongoing inspections and evaluations are being performed is something that needs to be improved on. And again, management plans drafted for both of these will address both of these. And making sure that there is a good audit trail so that, you know, Mark or anybody asks, we can provide that information going forward. Any questions as it relates to the Temporary Employment Service contract audit? 00:19:45:15 - 00:19:47:00 Robert Vaughn No, thank you. 00:19:47:01 - 00:19:52:13 Parsons Townsend Thank you, Craig. At this time, we'll move to agenda item five, the compliance division update. Cheryl Durkop, division director, will go through this. 00:19:53:07 - 00:20:33:13 Cheryl Durkop So the summary investigations for Q1 includes both compliant and EEO investigations overall for the quarter 175 allegations were received, 40 investigations were initiated, and 45 investigations were closed, with 29 being substantiated. We did hold our substantiation rate at 64% this quarter. Q1 did show an increase in both allegations and substantiated investigations related to workplace harassment, the majority of which were sexual in nature. Substantiated third party investigations also increased in Q1. Our investigations of significance. We did see multiple investigations of third-party failure to maintain insurance. This is a theme that we've seen for several quarters now, and the construction division has been vigilant in identifying the issues. Four of seven substantiated third party investigations were related to failure to maintain workers compensation, general liability, and or automobile insurance, and have been referred to the sanctions committee, which will be in January. We also had multiple investigations for misuse of TxDOT vehicles. From six of our substantiated investigations, we identified between 4 and 39 instances of misuse per investigation. These incidences also included additional behaviors of employee misconduct, including excessive speeding, not recording time accurately, and falsifying daily work reports. In each instance, the employee involved is no longer with the department. Are there any questions on this information? 00:21:56:03 - 00:21:59:11 Robert Vaughn Okay. No questions. 00:21:59:12 - 00:22:31:01 Cheryl Durkop Our next slide shows the outcome by allegation category or the Q1 of FY25. As you can see, workplace harassment was the most common allegation investigated. Sexual harassment or harassment of sexual nature accounted for more than 70% of the EEO workplace investigations. Third party violations also remain one of the top allegation categories, with a high number of substantiated investigations. However, third party investigations are still in line with what we tend to see each quarter of 7 to 9 investigations. Are there any questions about the quarterly data? 00:22:45:09 - 00:23:06:14 Robert Vaughn So you're saying on this workplace harassment that it's, even though it's categorically the largest, for reports, that it's not necessarily increasing or it's just increase for the quarter. So it's increasing in general over a long... 00:23:11:12 - 00:23:41:10 Cheryl Durkop So the next the next slide I'm going to show you. Yes okay. The next slide is allegation by category. And these are substantiated investigations for the last 18 months. So, in general the data trend that we see is similar to what we see we saw in Q1, workplace harassment and third party violations were the most common substantiated allegations. So while there are ups and downs within, individual categories, the total numbers of substantiated investigations are represented in each time period. They are similar. So we have 53, 54, 52 for total allegations. And so you're you can see with the workplace harassment, it tends to go up and down. So this does highlight the need, for continued outreach and education. We do see that about 89% of our non third party investigations are related to incidences that are reported in TxDOT districts. So compliance is working with district and division to do outreach, and we have our coffee with the crew. We've done 60 presentations this year. We also attend supervisor meetings, and area engineer meetings, and our third-party outreach and training, speaking at industry conferences. So for example, we were recently at the Right Of Way facility conference. Also the Human Resources Division, they have issued guidance to management on how to handle workplace, workplace violence situations and continued outreach, with an emphasis on TxDOT's standard of conduct and professionalism in the workplace is, of course, ongoing. 00:25:15:12 - 00:25:20:13 Marc Williams One observation that you know, we had about the we did talk about the numbers and said, okay, are we trending you know, in the wrong direction. We're basically kind of holding steady. We did over the past couple of years, but some considerable in, you know, investment of time and training and Senior leaders speaking to the issue of, workplace harassment and just professionalism. So we were pleased to see and I think it was even higher in some of quarters or six-month periods that weren't on this chart. But we're pleased to see that it dropped as much as it did, in the last half of the last fiscal year or the Q2 through Q3. And but then going into Q4 of the last fiscal year and then Q1 of this year, it's it's bumped back up again. And so, you know, that's going to be one of the things that we need to be mindful and attentive to. But as Cheryl mentioned, the the overall totals on that page have stayed kind of within the range of 52, 53, 54. In that area. Personally, I'd like to see those continue to go down. But conversely, I would also say that Cheryl and Parsons and their team also are are improving their their methods and means of of doing investigations and identifying, you know, issues that might be outside of just being reported. So, you know, there's, there's a trend and a tendency for us to be more rigorous in our ability to identify issues, while we're still hoping that overall, we're performing better in these areas as an agency and as an organization. 00:27:48:15 - 00:28:00:02 Robert Vaughn You know, I think, you know, to keep it in maybe a little more in perspective rather than just focusing on these numbers going up and down. I mean, we are talking about employees over 13,500 people, right? Yes. And so, but on the other side of that coin, you know, we'd like to see these at zero. But, there's a reality to the situation. As long as we're being diligent working on culture, we're working on, you know, we're done things with you all identified earlier. I think we're doing pretty well. 00:28:00:03 - 00:29:24:13 Marc Williams Despite all that. Yes. We get a monthly report on issues that employees do. And, you know, you read that, you think, okay, what was going through their mind, you know, in this instance. So you're right. Sometimes it's difficult to control for people, but overall I get on it is something that we it is good in that it, it helps to highlight, areas that, you know, we need to be leading us through. On the third quarter that, you know, the, the issue and attention that's been given to maintaining, the required insurance is particularly important. Have action against those contractors that have failed to do that because, that puts their employees at risk if they are. Not doing their operational responsibility. Out on the job, our job sites, whether they're our employees or they're working for a pay, or a contractor. It's important area of focus, that our compliance division and construction division have been successfully working together on trying to define that category and allow us to make some take some corrective action on. 00:29:24:14 - 00:29:30:07 Robert Vaughn Okay. Thank you for that perspective. Okay. 00:29:30:08 - 00:29:35:04 Parsons Townsend Mr. Chairman Vaughn, all agenda items have been completed. I'll turn the meeting back to you, sir. 00:29:35:04 - 00:30:01:05 Robert Vaughn Thank you. Chief Townsend, we will not have an executive session today on the items on today's agenda are complete. We plan to conduct the next Texas Transportation Commission Audit Subcommittee meeting on March 26th, 2025. There being no other comments. May I have a motion to adjourn? 00: Alex Meade I'll make a motion to adjourn. 00:30:01:05 - 00:30:12:09 Robert Vaughn I second the motion. All in favor, say I. 00:30:12:10 - 00:30:12:11 Alex Meade I. 00:30:12:12 - 00:30:12:15 Robert Vaughn I. Motion carries. Please note for the record, the time is 10:30 a.m. and this meeting stands adjourned.