Performance Audit Report
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PERFORMANCE AUDIT REPORT REVIEWING THE OPERATIONS OF THE KANSAS TURNPIKE AUTHORITY A Report to the Legislative Post Audit Committee By the Legislative Division of Post Audit State of Kansas January 1994 94-30 Legislative Post Audit Committee Legislative Division of Post Audit The legislative Post Audit Committee and its audit members of the Legislative Post Audit Committee (in agency, the Legislative Division of Post Audit, are the cluding the Chairman and Vice-Chairman), the Secre audit arm of Kansas government. The programs and tary of Administration, and the Legislative Post Auditor. activities of State government now cost about $6 billion This audit work also meets the State's audit responsi a year. As legislators and administrators try increas bilities under the federal Single Audit Act of 1984. ingly to allocate tax dollars effectively and make gov Second, the Act provides for a regular audit pres ernment work more efficiently, they need information to ence in every State agency by requiring that audit work evaluate the work of govemment agencies. The audit be conducted at each agency at least once every three work performed by Legislative Post Audit helps provide years. Audit work done in addition to the annual finan that information. Cial statement audit focuses on compliance with legal We conduct our audit work in accordance with and procedural requirements and on the adequacy of applicable government auditing standards set forth by the audited agency's internal control procedures in ar the U. S. General Accounting Office. These standards eas not covered by the annual audit. These compli pertain to the auditor's professional qualifications, the ance and control audits are conducted by the Division's quality of the audit work, and the characteristics of pro staff under the direction of the Legislative Post Audit fessional and meaningful reports. These audit stan Committee. dards have been- endorsed by the American Institute of Certified Public Accountants and adopted by the Legis lative Post Audit Committee. LEGISLATIVE POST AUDIT COMMrrrEE The Legislative Post Audit Committee is a biparti san committee comprising five senators and five repre Representative James E. Lowther, Chairman sentatives. Of the Senate members, three are ap Representative Tom Bishop pointed by the President of the Senate and two are ap Representative Duane Goossen pointed by the Senate Minority Leader. Of the repre Representative Walker Hendrix sentatives, three are appointed by the Speaker of the Representative Ed McKechnie House and two are appointed by the House Minority Leader. Senator Alicia Salisbury, Vice-Chairwoman As part of its audit responsibilities, the Division is Senator Anthony Hensley charged with meeting the requirements of the Legisla Senator Phil Martin tive Post Audit Act which address audits of financial Senator Lana Oleen matters. Those requirements call for two major types Senator Todd Tiahrt of audit work. First, the Act requires an annual audit of the State's financial statements. Those statements, pre LEGISLATIVE DIVISION OF POST AUDIT pared by the Department of Administration's Division of Accounts and Reports, are audited by a certified 800 S.W. Jackson, Suite 1200 public accounting firm under contract with the Legisla Topeka,Kansas 66612-2212 tive Division of Post Audit. The firm is selected by the (913) 296-3792 Contract Audit Committee, which comprises three The Legislative Division of Post Audit supports full access to the services of State government for all citizens. Upon re quest, Legislative Post Audit can provide its audit reports in large print, audio, or other appropriate alternative format to accommodate persons with visual impairments. Persons with hearing or speech disabilities may reach us through the Kansas Relay Center at 1-800-766-37IT. Our office hours are 8:00 a.m. to 5:00 p.m., Monday through Friday. PERFORMANCE AUDIT REPORT REVIEWING THE OPERATIONS OF THE KANSAS TURNPIKE AUTHORITY OBTAINING AUDIT INFORMATION This audit was conducted by Joe Lawhon, Cindy Denton, Jim Davis, and Allan Foster, of the Division's staff. If you need any additional information about the audit's findings, please contact Mr. Lawhon at the Division's offices. TABLE OF CONTENTS SUMMARY OF AUDIT FINDINGS REVIEWING THE OPERATIONS OF THE KANSAS TURNPIKE AUTHORITY An Overview of the Kansas Turnpike Authority .................................. 3 ',. On'a Per"'Mile Basis; How Do Staffing Levels and Operating Costs Compare for the Kansas TurnpikeAuthority and the Kansas Department of Transportation? ........................................... 12 How Do Salary Levels and Fringe Benefits Compare For the Kansas Turnpike Authority and the Kansas Department of Transportation .................................................................... 19 Does the Authority Have Adequate Operational Plans, Procedures, and Controls? .........................................................28 Conclusion ......................................................................... 34 . .Recommendations ................................................................. 36 Do There Appear To Be Any Problems With the Way The Kansas Turnpike Authority Handled Its Recent Bond Issues? ............... .37 Conclusion .........................................................................46 Recommendations .................................................................46 What Would It Cost the State to Pay Off the Authority's Bonds and Operate the Kansas Turnpike as a Toll-Free Road? ............... .47 APPENDIX A: A Comparison Between the Kansas Turnpike and Turnpikes in Other States ...........................................53 APPENDIX B: Traffic Volumes for Selected Interchanges ........................55 APPENDIX C: Underwriting Syndicate and Bond Allocation 1993 Kansas Turnpike Authority Revenue Bond ................ 57 APPENDIX D: 1992 Campaign Contributions .....................................59 APPENDIX E: Toll-Free Passes Issued By the Turnpike Authority ............. 61 APPENDIX F: AgencyResponses................................................... 71 REVIEWING THE OPERATIONS OF THE KANSAS TURNPIKE AUTHORITY Summary of Legislative Post Audit's Findings On a per-mile basis, how do staffing levels and operating costs compare for the Kansas Turnpike Authority and the Kansas Department of Transportation? After the exclusion of the toll collection staff, the Authority had about three more employees per 100 lane miles than the Department. In addition, it spent more on routine maintenance than the Department. However, when the total costs of boilding, reconstructing, and maihtainingsiniilar sections of highway were compared over the lives of the highways, we found the Authority spent less per lane mile than the Department. How do salary levels and fringe benefits compare for the Kansas Turnpike Authority and the' Kansas Department of Transportation? During 1993, the Authority generally paid higher salaries than the Department paid for employees in similar positions. In addition, the Authority provided its employees with a more generous fringe benefits package than the Department. It also provided additional benefits which were not available to Department employees, such as toll-free turnpike passes and paying for spouses to travel with Authority employees and Board members. Does the Kansas Turnpike Authority have adequate operational plans, procedures, and controls? Many of the Authority's practices are governed by restrictions imposed through its agreements with bondholders. In general, we found that those and other practices help ensure that the organization operates efficiently. However, we did identify a few internal control weaknesses related to competitive bidding, documentation of credit card expenditures, and the analysis of interchange feasibility. Do there appear to be any problems with the way the Kansas Turnpike Authority handled its recent bond issues? The Authority generally has done well financially in its recent bond issues. It saved money by refinancing its debt and by receiving lower-than'-average interest rates on its bonds. The Authority could improve its practices by soliciting proposals from more bond underwriters and by using a financial advisor. In addition, the Authority has signed an agreement with the federal government in which it agreed not to issue any bonds which mature after the year 2024. What would it cost the State to payoff the Authority's bonds and operate the Kansas Turnpike as a toll-free road? The State would have to retire the outstanding bonded indebtedness of the Authority. Depending on the date of the takeover, this cost could range between $72 million and $160 million. The State also would have to maintain the road and pay for capital improvements at an estimated cost of $20 million annually. In addition, if the State used federal funds to reconstruct portions of the Turnpike, it could incur millions of dollars in additional costs to bring the Turnpike into compliance with federal highway design standards. This report includes several recommendations for improving documentation and more closely analyzing interchange feasibility. In the area of bonds, the report recommends hiring a financial advisor and soliciting proposals from more bond underwriters. We would be happy to discuss these recommendations or any other items in the report with any legislative committees, individual legislators, or other State officials. ~ro~~ Legislative Post Auditor REVIEWING THE'OPERATIONS OF THE KANSAS