• SCDOT’s procurements of preconstruction contracts do not always ensure the most qualified contractor receives the job. In half of the selections we reviewed, SCDOT selected firms that did not receive the highest scores based on the written criteria.
• SCDOT has not implemented adequate controls to ensure that preconstruction contracts are obtained at a reasonable price. Once a qualified firm has been selected, SCDOT is required by federal regulations to negotiate the price. We found no evidence documenting how SCDOT negotiated the price of the contract in 25% of the consultant contracts we reviewed.
• Federal regulations require agencies to prepare an independent cost estimate to evaluate the price proposed by the consultant. For half of the contracts we reviewed, there was no evidence of an independent estimate prepared by SCDOT. For contracts where SCDOT prepared an estimate, the costs were reduced an additional three percentage points from those where there was no evidence of an SCDOT estimate.
• SCDOT’s audit program for preconstruction contracts is inadequate, ineffective, and not in compliance with federal law. SCDOT does not comply with federal law in verifying contractors’ overhead rates.

We identified several problems with SCDOT’s consulting contracts with one firm that was paid $2.6 million in FY 04-05 and FY 05-06 for four contracts that we reviewed. There were problems with the noncompetitive selection of the firm, the vague terms and scope of services in the contracts, and billings and payment for services. SCDOT paid approximately twice as much as necessary to hire temporary employees, mostly former SCDOT employees, through this firm. Also, SCDOT paid more than $121,000 to another firm for business advisory services without competitively procuring these services as required by the state procurement code.

In 2004 and 2005, SCDOT awarded approximately $1.4 billion in construction contracts by a competitive bidding process. We reviewed SCDOT’s management of construction contracts and did not identify significant problems.

• SCDOT had implemented recommendations from our 2001 audit of road paving contracts. For example, the agency uses bid analysis software to improve its capacity to identify problems with bids.
• SCDOT’s use of partnering, a formal collaboration between the contractor and SCDOT, has improved its ability to complete projects within budget and on time. SCDOT calculated a cumulative $17 million in savings for partnering as of March 2006.

Program Management
We reviewed SCDOT’s management of its programs to construct and maintain the state’s roads and bridges and identified problems relating to resource management.

• We found evidence to support allegations that SCDOT attempted to lower its cash balances during the legislative session by delaying billings for reimbursements from the Federal Highway Administration (FHWA). Deferred billings in FY 03-04 and FY 04-05 may have cost the agency more than $1.5 million in lost interest.
• SCDOT spent over $3 million to address several environmental violations. From 1992 to 2005, SCDOT paid penalties totaling $163,880. Also, in 2002, the federal Environmental Protection Agency required SCDOT to undertake a $2.9 million supplemental environmental project as part of sanctions stemming from six actions against the agency.
• We examined SCDOT planning procedures for building and maintaining roads to determine if the process adequately prioritized projects. We found that SCDOT complies with federal regulations and generally has appropriate processes in place for planning construction and maintenance projects statewide.
• We found that SCDOT has an ongoing strategic plan and has regularly measured many of its actions. However, SCDOT has reported comparative data that is not valid and the agency has not adequately published the extent to which it is achieving its goals.

Administrative Management
During the period FY 02-03 through FY 04-05, we found that SCDOT took steps to reduce its administrative costs. However, we also identified areas of noncompliance with state law and suggestions for further reductions.

• We reviewed SCDOT’s headquarters renovations and found that the agency had not complied with requirements for oversight of capital improvements by the Joint Bond Review Committee (JBRC). Five projects were not initially submitted to the JBRC as required.
• Our review of SCDOT’s expenditures for conferences identified issues relating to conference finances. SCDOT’s report of expenditures for a 2004 conference did not fully disclose event costs. In violation of state law, SCDOT used private checking accounts from a credit union to handle registration fees and sponsor contributions for two conferences. Also, SCDOT has solicited contributions from its contractors to support conference activities. This creates a conflict of interest.
• In 2005, SCDOT initiated new procedures for planning agency conferences and events that have resulted in lower costs. However, additional cost savings could be realized from having conferences at a central location.
• Our review of SCDOT’s management of its passenger vehicle fleet did not reveal significant problems. In 2005, SCDOT made changes to improve compliance with legal requirements for commuting reimbursements and increase efficiency. The agency reduced the number of permanently assigned vehicles.
• Some aspects of SCDOT’s management of temporary employees and the executive director’s interns have created the appearance that SCDOT management showed favoritism in dealing with employees. SCDOT could take steps to ensure that its employment decisions are well justified and documented. Also, by employing long-term temporary employees, SCDOT has not complied with state law.
• SCDOT’s internal audit department does not report to the appropriate officials to provide adequate independence for the audit function. The activities of the internal audit department are not reported to the commission on a regular basis, and the commission does not have a standing audit committee.
• SCDOT could save by implementing the recommendations of a 2005 internal committee report. The agency could achieve savings by deactivating unnecessary pagers and eliminating the practice of issuing more than one computer to individual employees.