In January 2005, the California Legislature authorized the state auditor to conduct audits of state agencies to determine those that are at risk.  The rationale for the authorization was that identification and mitigation of these risk would improve government efficiency and effectiveness. This piece looks at key aspects of the 2013 and 2018 high risk audits results and how the process of mitigating risk can link to broader risk management efforts.

High Risk Determinants

There are four main determinants of a high-risk agency.  There are:

1. The potential waste, fraud, abuse, mismanagement, or impaired economy, efficiency, or effectiveness may result in serious detriment to the State or its residents.
2. The likelihood of this serious detriment is great enough to present a substantial risk to the State or its residents.
3. The agency is not taking adequate corrective actions to prevent the substantial risk of serious detriment to the State or its residents.
4. The substantial risk of serious detriment to the State or its residents may be significantly reduced by our performance of an audit and issuance of recommendations that are implemented to control or eliminate the causes of risk.

High Risk Audit Results 2013 and 2018

The Hi-Risk audits of 2013 and 2018 indicate several continuing risks. These risks cut across agency boundaries.  One of these is the transportation infrastructure. This will be the focus for two reasons.  First, it is a major concern in every state and local government. Second, actions by the California legislature indicate the increasing concern for the efficient and effective use of resources.

In 2013 it was noted that the state’s transportation systems, water supply and flood management infrastructure is aging and needs to be improved to meet current and future needs.  The 2018 audit indicated the same concerns.  But it goes on to say: “It is too early to determine if changes in laws will fully address funding shortfalls.”

Transportation Funding Short Fall

In 2017 it was estimated that the state faced, over the next ten years, a $137 billion transportation shortfall.  Of this, $59 billion is needed to adequately maintain existing state highways and $78 billion is needed to maintain existing local streets and roads.

In 2017, the Legislature passed the Road Repair and Accountability Act. It will generate $52 billion in revenue over the next ten years.  This amount is well short of the amount needed. Consequently, the Legislature included requirements to ensure the efficient use of resources.  One requirement is a set of outcome-based performance measures to be achieved by 2027.  Another is the creation of a Transportation Asset Management Plan (TAMP).

Performance Outcomes

The act includes five performance goals for the California Department of Transportation to meet by 2027.

1. At least 98 percent of the state highway pavement is good or fair condition.
2. At least 90 percent level of service is achieved for maintenance of potholes, breaks and cracks.
3. At least 90 percent of culverts are in good or fair condition.
4. At least 90 of transportation management system units, such as traffic signals, freeway ramp meters, and roadway weather information systems are in good condition.
5. At least an additional 500 bridges are fixed.

The imposition of the measures is a clear indication of the Legislature’s expectations.

Transportation Asset Management Plan

The development of a state TAMP is part of a federal requirement.  Under the federal requirement, the Federal Highway Administration (FHWA) must certify state TAMPs. The certified TAMP must include a Risk Based Asset Management Plan. Such a risk management plan can help improve efficient use of resources.  FHWA issued the guidelines for integrating risk management into the TAMP in November 2017. The guidelines are based on the use of the international risk management standard ISO 31000.

The purpose of the TAMP is to provide a guide for the allocation of transportation funds.  To this end, the California TAMP will include targets for 2027.  In June 2017, the Transportation Commission adopted guidelines for developing the TAMP. It also established interim benchmarks for demonstrating progress in meeting the 2027 performance standards. Because many of the actions towards meeting the Legislative requirements have just been implemented, the High-Risk Status was maintained by the Auditor’s office.

Summary

The California High-Risk audit results from 2013 and 2018 highlight several issues. First, risks will persist over time, if not addressed. Second, given a lack of resources, activities must be prioritized and the risks of not doing anything considered. Third, there is a coalescing in the federal and state government view that risk assessment is important for the efficient use of resources. Lastly, facing limited resources legislators are increasingly likely to attach outcome-based performance goals to funding authorization.

BIO:

James J. Kline is a Senior Member of ASQ, a Six Sigma Green Belt, a Manager of Quality/Organizational Excellence and a Certified Enterprise Risk Manager.  He has over ten year’s supervisory and managerial experience in both the public and private sector.  He has consulted on economic, quality and workforce development issues for state and local governments.  He has authored numerous articles on quality in government and risk analysis. jeffreyk12011@live.com