Kansas Corporation Commission: Evaluating Savings Achieved through the Facility Conservation Improvement Program
Published: APRIL, 2016
In 2000, the Kansas Legislature enacted legislation establishing the Facility Conservation Improvement Program (FCIP). Public entities can use the program to streamline the process for energy-efficient and deferred-maintenance projects such as installing new lighting or replacing boilers or chillers. The program is designed for project costs to be paid for with energy savings within a set period of time. We reviewed three FCIP projects and were unable to determine whether the public entity achieved the energy savings guaranteed under the terms of the contract with an energy service company because follow-up verification reports either were not required, were missing, or were based on faulty analysis. We made a number of recommendations to address issues with the program, and identified issues for further study.
State law calls for an annual financial-compliance audit of the general purpose financial statements and “the financial affairs and transactions of a state agency required to comply with federal government audit requirements…” CliftonLarsonAllen, under contract with Legislative Post Audit, conducted this two-part audit. The first part was the report on the state’s Comprehensive Annual Financial Report (report R-15-018, released in December 2015). This second part, the Report on Federal Awards in Accordance with OMB Circular A-133, reports on compliance with laws, regulations, and provisions of contracts and grant agreements.
The auditors concluded that the state complied, in all material respects, with the requirements applicable to each of the federal programs audited. The auditors reported 21 deficiencies in internal control, including one material weakness. The auditors also identified questioned costs for a number of programs. Eleven of the findings were repeated from prior years.
State Agency Information Systems: Reviewing Security Controls in Selected State Agencies – Kansas Corporation Commission
State law calls for an annual financial-compliance audit of the general purpose financial statements and “the financial affairs and transactions of a state agency required to comply with federal government audit requirements…” RubinBrown, under contract with Legislative Post Audit, conducted this two-part audit. The first part was the report on the state’s Comprehensive Annual Financial Report (report R-13-016, released in December 2013). This second part, the Report on Federal Awards in Accordance with OMB Circular A-133, reports on compliance with laws, regulations, and provisions of contracts and grant agreements.
The auditors concluded that the state complied, in all material respects, with the requirements applicable to each of the federal programs audited. However, the auditors reported 26 deficiencies in internal control. The auditors also identified questioned costs for a number of programs. Six of the findings were repeated from prior years.
State of Kansas: OMB Circular A-133 Audit of Fiscal Year 2012
State law calls for an annual financial-compliance audit of the general purpose financial statements and “the financial affairs and transactions of a state agency required to comply with federal government audit requirements…” RubinBrown, under contract with Legislative Post Audit, conducted this two-part audit. The first part was the report on the state’s Comprehensive Annual Financial Report (report R-13-005, released in March 2013). This second part, the Report on Federal Awards in Accordance with OMB Circular A-133, reports on compliance with laws, regulations, and provisions of contracts and grant agreements.
The auditors concluded that, except for the Unemployment Insurance program, the state complied, in all material respects, with the requirements applicable to each of the federal programs audited. However, the auditors reported 28 deficiencies in internal control, two of which were material weaknesses. The auditors also projected up to $73.4 million in questioned costs ($65,000 in known questioned costs). Six of the findings were repeated from prior years.
Accounts Receivable: Reviewing Agencies' Efforts To Collect Amounts Owed to the State (A K-GOAL Audit)
For the State, accounts receivable represent moneys expected to be collected for unpaid taxes, overpayments, fines, or goods and services provided. Our survey of 53 State agencies with significant accounts receivable found that many State agencies could improve their debt collection efforts if they strengthened their collection policies and adopted other collection best practices. Four of the six programs we reviewed in detail failed to meet many of the collection best practices applicable to their operations; three of those four also had inadequate collection policies. Overall, the four poor-performing programs had deficiencies in some or all of the following areas: monitoring receivables, aggressively pursuing debts, using enforcement tools, and using outside collection options, including the State’s Setoff Program. If those four programs improve their collection efforts, they might be able to collect a significant amount of additional revenue: collecting just 5% more of those programs’ delinquent receivables would generate almost $3 million in one-time revenues. We also noted that not all of the $2 billion accounts receivable shown in the State’s financial report is collectible because it includes aged, and therefore doubtful, receivables for a number of agencies.
American Recovery and Reinvestment Act: A Review of Reporting
The State has implemented ARRA reporting requirements fairly well. Agencies generally have done a good job of filing their Section 1512 reports timely, and all agencies required to report have done so. All but two of 74 reports flagged by federal reviewers were satisfactorily resolved. The methodology agencies used to calculate jobs created and retained was consistent with federal guidance. However, two of the four programs we reviewed inaccurately calculated and reported the number of jobs created. We were able to reconcile expenditures listed on the Section 1512 report to the State’s accounting system for 16 of 18 programs we reviewed. However, the differences were relatively minor.
Water-Related Agencies: Determining Whether the State Could Achieve Efficiencies and Reduce Costs by Combining the Operations of Its Water-Related Agencies
Although Kansas has several agencies involved in water management, the organizational structure isn’t out of line compared to other western states. In addition, we found very few problems with the current structure, and State and local officials told us the system doesn’t need significant changes. State officials went on to cite the Natural Resources Sub-Cabinet as a major reason for better coordination among water-related agencies. We estimated that creating a single State water agency may yield between $300,000 and $7 million in administrative savings, with the actual savings likely to be on the lower end of that estimate. We also identified a few opportunities for State agencies to improve their coordination and make their programs more efficient without consolidating. Those opportunities include having field staff from different agencies collaborate, improve the monitoring of Watershed Restoration and Protection Strategies (WRAPS) projects and taking steps to share water data more efficiently among themselves and with the public.
American Recovery and Reinvestment Act: A Preliminary Assessment of the Risk That Recovery Act Moneys Won’t Be Appropriately Accounted for or Spent
The $787 billion American Recovery and Reinvestment Act of 2009 (ARRA) requires unprecedented accountability and oversight of federal moneys being spent at the State and local levels. State agencies in Kansas will receive more than $2 billion in formula grants under the Act through 2011. The 2008 Statewide Single Audit had identified procedural or control weaknesses in four State programs that will be receiving ARRA moneys. Correction of those weaknesses, which related to things like reconciling records, improving eligibility determinations, and implementing computer edits to prevent improper payments, will be checked during the 2009 Single Audit. In eight other programs reviewed for this audit, the risk that agencies won’t comply with the requirements of ARRA appears to be relatively small. We found no weaknesses in the way that agencies are accounting for the ARRA moneys. However, in areas of monitoring and quarterly reporting, we found that officials from several of the programs needed to commit their procedures to writing to ensure consistency and, in a few cases, needed to further develop procedures or hire additional staff to ensure that monitoring or reporting functions could be carried out effectively. In separate work, we found that the Department of Transportation’s process for selecting highway projects to fund appears to comply with Recovery Act requirements.
Kansas Corporation Commission: Reviewing Issues Related to Consumer Complaints
The KCC’s Office of Public Affairs and Consumer Protection has 8.5 FTE staff who spend about two-thirds of their time handling customer inquiries and facilitating the resolution of customers’ informal complaints. Our review of 30 informal complaints showed that consumers received at least some relief 73% of the time--even when the utility wasn’t in the wrong--and the utilities appeared to take reasonable action in response to each complaint. Utility customers also can file formal complaints with the KCC, which are handled by KCC legal staff. We reviewed eight formal complaints; complainants received at least some relief in half those cases. Kansas is similar to surrounding states’ utility regulators in terms of how informal complaints are handled. We didn’t identify any strong reasons for moving the KCC’s informal complaint function to either the Citizens’ Utility Ratepayer Board (CURB) or the Attorney General’s Consumer Protection Division.
Kan-ed: A K-GOAL Audit Determining Whether It’s Achieving the Intended Results
In all, 90% of eligible entities are members of Kan-ed, and 34% of those members are fully connected members who can take advantage of videoconferencing and distance learning. A number of members told us they don’t need videoconferencing and distance learning, but others cited a lack of information, equipment, or expertise as reasons for not being connected. Kan-ed officials could strengthen its grant programs by enforcing provisions requiring members to connect as a condition for receiving grant moneys and by monitoring grant spending. Kan-ed’s marketing efforts haven’t been particularly effective because members say the information they receive is too technical, or doesn’t fully explain the benefits of being connected or how to connect to the network. Connected school districts generally have the capability to provide distance learning in a majority of their buildings, mostly through the use of local area networks. It appears that a significant number of new members may become connected over the next five years. If that happens, Kan-ed officials may need to take some of the money they currently use for broadband subsidies and apply that money to equipment grants. A recent study concluded that consolidating Kan-ed with two other similar Statewide networks wasn’t feasible because of differing security levels, differing backbone speeds, and differing governance structures. Although there are pros and cons to having Kan-ed administered by the Board of Regents or some other agency, we saw no significant benefit to be gained from moving Kan-ed at this time.
Compliance and Control Audit: Corporation Commission
The Telecommunications Act of 1996 required local phone companies to promise to provide existing and newly ordered broadband services at discounted rates. The Act didn't require phone companies to provide uniform rates to school districts, or to build a network that would interconnect all school districts. The Commission's actions haven't been sufficient to ensure that local phone companies provide broadband services at discounted rates. The amounts school districts pay for access to the Internet vary considerably, but recently charges have dropped and become more uniform. The KAN-ED proposal and the Telecommunications Act both would allow school districts to obtain broadband services, but they are very different in other ways. The proposed KAN-ED network is more likely to achieve the goal of getting all districts hooked up with high-speed lines to the Internet.
Reviewing Payments From the Kansas Universal Service Fund
The Kansas Telecommunications Act of 1996 required local telephone companies to reduce how much they charge long distance phone companies to use their local lines for in-State long distance calls. It also allowed those lost revenues to be replaced by payments from the Kansas Universal Service Fund, achieving @revenue neutrality.@" During its first two years
Like most other states we contacted, the Kansas Corporation Commission has adopted a reactive approach to administering and enforcing the Kansas Underground Utility Damage Prevention Act. The Commission doesn’t have routine reporting requirements or other means to monitor whether utilities and excavators are meeting their responsibilities under the law. Users of the system indicated they were happy with the amount of oversight provided by the Commission, and indicated they thought the system was effective. Although line locators don’t have training requirements, from the information that’s available it appears that underground lines are damaged relatively infrequently. Two areas of the law could be amended to make the system even better: not allowing excavators to dig if the buried utility lines haven’t been marked, and making more utilities subject to one-call.
Reviewing the Activities of the Corporation Commission’s Conservation Division: A K-GOAL Audit
Because the Corporation Commission's Conservation Division and its staff don’t have or retain all the information they need, the Division can’t be sure that it and the well operators it regulates are doing all that’s required by State law and Commission regulations. For example, staff in the Division can’t be sure whether a lease has been inspected, whether a complaint was investigated in a timely manner, whether operators corrected problems within a specified time, whether operators in prorated oil and gas fields consistently follow Commission orders on production, or whether wells were plugged at the lowest cost to the State. When violations are found, a bottleneck in the legal section slows actions against operators, thereby weakening the Division’s enforcement efforts. Weak enforcement increases risk to the environment, and could increase State costs for plugging wells abandoned in the future. New financial assurance requirements have been put in place to limit these costs, but because of their newness and some ambiguities in the law, it’s unclear how effective those assurances will be. The Division is making progress on plugging the already abandoned wells that are most likely to contaminate fresh water or cause other problems. However, it will take until 2008 at the earliest to plug the most dangerous wells.
Compliance and Control Audit: Kansas Corporation Commission
In general, we found that the Corporation Commission hasn't developed written procedures for granting certificates of convenience and necessity, but it does have standard practices. The Commission applied these practices consistently in all cases except for when Rural Telephone Company applied to serve an area that was already served by United Telephone Company. Treatment of this application may have been different in part because this was the first application that would allow competition within a local telephone service area. The Commission also hasn't developed written procedures for handling ratepayer complaints. Nonetheless, the complaints we reviewed appeared to be handled well. Although our review of the staff’s follow up on Commission orders identified only three instances where follow-up appeared to be deficient, those instances occurred on fairly major issues. In addition, we identified some instances where the Commission cited serious and ongoing problems with the services a utility provided, but never required the utility to take corrective action. The Commission hasn’t established any controls to prevent conflicts that might arise from hiring employees who've worked for utilities. Commissioners told us they are currently working on policies to address potential conflicts of interest.
Reviewing the Efficiency of State Printing Plant Operations (100-hour audit)
With few exceptions, standard jobs (such as letterhead, envelopes, and business cards) being printed at State agencies with their own printing facilities could be done by the State Printing Plant or a private-sector printing firm. For our limited sample of such printing jobs, the State Printer’s estimated charges were less to print most items than commercial printers or other State agencies, even though the other State agencies don’t include all costs of operation in their estimated charges.
Examining the Corporation Commission’s Management and Use of Its Conservation Fee Fund (100-hour audit)
In February 1994, the Kansas Corporation Commission informed the Legislature that oil and gas fee revenues coming into the Conservation Fee Fund might be inadequate to cover expenses. Commission officials were concerned that fluctuating revenues in any one month might jeopardize the Commission’s ability to meet payroll expenses. In an attempt to manage its cash flow problems, the Corporation Commission raised fees and cut costs, including cutting back on well-plugging activities and developing a plan to furlough Conservation Division employees. However, the Commission could have avoided these problems altogether if it had acted on a more timely basis to raise fees to meet rising costs. In conducting this audit, we also reviewed expenditures to-date in fiscal year 1994 and found them to be appropriate in light of the expected revenue shortfall. However, we did note that cutting back on well-plugging activities diminished the Commission’s ability to carry out its regulatory responsibilities.
Reviewing Potential Overlap in State Agencies’ Responsibilities for Protecting Groundwater and Regulating Transportation
The Corporation Commission and the Department of Health and Environment do not duplicate each other's efforts on the same pollution problems, but inefficiencies and confusion result from having two agencies involved. Because each agency follows essentially the same steps to ensure that pollution is cleaned up, there is no benefit to the State from having both involved. Other oil- and gas-producing states have placed pollution clean up from oil and gas with one agency. Having several agencies involved with motor carrier regulation also has not resulted in significant overlap in agency responsibilities. However, motor carriers would be better served, and the State could potentially reduce some administrative inefficiencies, if there were a greater degree of coordination in the regulatory system. Although there are no easy solutions to the inherent conflict regulatory agencies face in balancing the interests of the public and the regulated industry, restrictions on staff involvement with a regulated industry could help improve staff independence. Other oil-producing states generally have not enacted such restriction on their staffs.
Regulation of Oil and Gas Wells, Part II: Enforcement of Injection Well Procedures
The Corporation Commission’s monitoring program is weakened because no one reviews reports submitted by injection well operators. Because of unclear testing guidelines, some similar wells are tested at inconsistent pressures, and some unsound wells pass the pressure tests. The audit recommends ways to strengthen the monitoring and testing program. Finally, the Environmental Protection Agency is likely to reimpose injection well testing requirements if the State imposes a testing moratorium.
Regulation of Oil and Gas Wells, Part I: Enforcement of Well Plugging
Most complaints or violations related to abandoned, unplugged wells rather than to improperly plugged wells. Abandoned, unplugged wells present a significant potential for polluting groundwater, but current inspection procedures do not ensure that such wells are identified and plugged on a timely basis. The lack of basic, centralized information about the number and status of all wells also hampers the field staff’s ability to detect unplugged wells through inspections. The audit recommends improvements in each area.
Analyzing the Performance Evaluation System in Kansas
The system is well designed, but performance standards often are not written so they can be objectively measured, ratings often are not adequately justified, performance improvement goals are rarely used, and the system is not always uniformaly applied. The evaluation system is addressing problems of poor performers , but without the merit pay incentive, its effectiveness at reinforcing good performers has deminished.
Performance of the Mined-Land Conservation and Reclamation Board
The purpose of this audit was to answer a number of specific questions asked by the House Energy and Natural Resources Committee concerning the performance of the Board. The committees concerns were prompted by a letter in early March 1983 from the federal Office of Surface Mining to the Governor, which was highly critical of the Board’s regulatory program. Several of the Problenms cited by the OSM were also discussed in a March 1982 performance audit of the Mined-Land Regulatory Program by the Legislative Division of Post Audit.
Kansas Corporation Commission Public Utility Regulatory Program
Published: SEPTEMBER, 1982
The report concludes that regulation over public utilities should be continued. The Commission and its staff in the Utilities Division appear to be doing a good job of controlling utility rates and protecting consumers while helping ensure that the regulated utilities remain economically viable. The auditors did find, however, that some aspects of the public utility regulatory program aren’t being sufficiently addressed.
Kansas Corporation Commission: Mined-Land Regulatory Program
This report concludes that State regulation over strip mining of coal should be continued. Without a regulatory program to ensure that mined land is reclaimed, harm can occur both to land and to people because of safety hazards, water pollution, erosion, and loss of income from unproductive land.
Kansas Corporation Commission: Motor Carrier Regulatory Program
This sunset audit concludes that economic regulation over the trucking industry (covering such factors as entry into the industry, rates charged, and routes or services granted) should not be continued. The auditors found that certain aspects of economic regulation have limited competition without ensuring adequate service to some communities, and have allowed motor carriers to charge higher rates than they would charge in a competitive environment. The report also concludes that safety regulations over the trucking industry (covering standards for driver qualifications and work hours, and vehicle operations, equipment, and maintenance) should continue. Even with regulation of safety factors, Kansans can suffer injuries and other financial losses as a result of accidents caused by vehicle defects, driver fatigue, and drivers using alcohol. The report recommends that the Commission’s motor carrier regulatory program be abolished, and that safety regulation be continued under the jurisdiction of the Departments of Revenue and Transportation and the Highway Patrol.
Kansas Corporation Commission: Office of the Securities Commissioner
Because of the high potential for fraud, unethical sales tactics, misleading advertisements, and other problems with land and securities sales, the report concludes that State regulation over securities issuers and land sellers should be continued. Despite this need, the auditors found that the regulatory program administered by the Office’s Securities Division is not as effective as it could be and that some aspects of regulation favor the industry rather than the public. The audit disclosed delays and inadequacies in the process for handling securities-related complaints, and failure by the Division to follow up on violations discovered during on-site financial audits of broker-dealers. The report makes recommendations in each area to improve the regulatory program’s effectiveness and to increase the level of protection afforded to investors.