STATE OF
NORTH CAROLINA
PERFORMANCE AUDIT
NORTH CAROLINA DEPARTMENT OF
TRANSPORTATION
HEAVY EQUIPMENT FLEET MANAGEMENT
SEPTEMBER 2010
OFFICE OF THE STATE AUDITOR
BETH A. WOOD, CPA
STATE AUDITOR
PERFORMANCE AUDIT
NORTH CAROLINA DEPARTMENT OF
TRANSPORTATION
HEAVY EQUIPMENT FLEET MANAGEMENT
SEPTEMBER 2010
Beth A. Wood, CPA
State Auditor
STATE OF NORTH CAROLINA
Office of the State Auditor
2 S. Salisbury Street
20601 Mail Service Center
Raleigh, NC 27699- 0601
Telephone: ( 919) 807- 7500
Fax: ( 919) 807- 7647
Internet
http:// www. ncauditor. net
September 20, 2010
The Honorable Beverly Perdue, Governor
Members of the North Carolina General Assembly
Eugene A. Conti, Jr., Secretary, North Carolina Department of Transportation
Ladies and Gentlemen:
We are pleased to submit this performance audit titled North Carolina Department of
Transportation Heavy Equipment Fleet Management. The audit objective was to determine
whether Department of Transportation policies and procedures provide reasonable assurance
that underused or idle heavy equipment will be detected and corrective action taken. Eugene
A. Conti, Jr. reviewed a draft copy of this report. His written comments are included in the
appendix.
The Office of the State Auditor initiated this audit to identify improvement opportunities in
heavy equipment fleet management.
We wish to express our appreciation to the staff of the Department of Transportation for the
courtesy, cooperation, and assistance provided us during the audit.
Respectfully submitted,
Beth A. Wood, CPA
State Auditor
TABLE OF CONTENTS
PAGE
SUMMARY ............................................................................................................................... . 1
INTRODUCTION
BACKGROUND.................................................................................................................. 3
OBJECTIVES, SCOPE, AND METHODOLOGY ...................................................................... 3
FINDINGS AND RECOMMENDATIONS.......................................................................................... 5
APPENDIX
AUDITOR’S RESPONSE ................................................................................................... 10
DEPARTMENT RESPONSE ............................................................................................... 12
ORDERING INFORMATION........................................................................................................ 15
PERFORMANCE AUDIT
SUMMARY
PURPOSE
This audit report evaluates whether Department of Transportation ( Department or DOT)
policies and procedures provide reasonable assurance that underutilized or idle heavy
equipment will be detected and corrective action taken. The report also makes
recommendations so Department management can take appropriate corrective action.
RESULTS
Department of Transportation’s policies and procedures do not provide reasonable assurance
that underutilized or idle heavy equipment will be detected and corrective action taken. An
analysis of DOT reports for approximately 2,300 pieces of heavy equipment, 1 costing around
$ 153 million, shows that more than half of those items were used less than 30% of the
available time2 between October 1, 2006, and September 30, 2009. Approximately one third
of these pieces, costing $ 56 million, were used less than 15% of the time during each year of
the three- year period.
DOT could generate significant cash and reduce the amount of direct and overhead costs if it
identified and disposed of underused equipment. Based on the average selling price over the
past seven years, DOT could realize around $ 3.5 million by selling half of the equipment
( about 390 pieces) that was used less than 15% of the time during the year ending September
30, 2009.
Idle and seldom used equipment exist in part because the Department has not established a
goal or expectation for heavy equipment usage rates. Furthermore, DOT lacks specific
written policies and procedures that direct managers to identify and report underutilized
equipment or instruct managers on what corrective action to take.
RECOMMENDATIONS
DOT management should establish performance measures or expectations for heavy
equipment usage rates that would justify the cost associated with continued ownership. The
Department should periodically review and adjust performance measures to increase
efficiency and achieve departmental goals.
DOT management should develop written policies and procedures that clearly assign
responsibility for identifying and reporting underused equipment. The Department should
1 The audit focused on six classes of heavy equipment used for road maintenance: excavators, tractors, backhoes,
motor graders, loaders and dump trucks. These classes were chosen after consulting with DOT equipment
managers because those classes were the most commonly used high- dollar- value classes of heavy equipment.
2 Available time is considered to be 40 hour a week or 2,080 hours a year. Utilization rates were calculated by
dividing the annual hours of actual use by available time ( 2,080 hours a year). Equipment use during emergency
conditions ( nights and weekends) is included in the actual use but does not increase the total available time.
1
PERFORMANCE AUDIT
also develop written procedures to instruct managers on what corrective action to take when
underused equipment is detected.
The Department should identify and dispose of underused equipment. Classes of equipment
that are used less than defined minimum- use standards should be analyzed, by location, to
identify the number of pieces that should be sold or transferred to other locations that need
that type of equipment. Similarly, individual pieces of equipment that are routinely identified
as idle or underutilized should be sold or transferred. Reasons for keeping underused
equipment should be documented and approved by central managers.
The Department should provide training to all equipment managers in order to expand their
knowledge in efficient fleet management practices. The Department should continue its
efforts to obtain the Association of Equipment Manager Professionals fleet manager
certification for all equipment superintendents.
AGENCY’S RESPONSE
The Agency’s response is included in the appendix.
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PERFORMANCE AUDIT
INTRODUCTION
BACKGROUND
North Carolina General Statute § 136- 18 assigns responsibility for maintaining the State’s
80,000- mile highway system to the North Carolina Department of Transportation
( Department or DOT). To meet its statutory responsibility, DOT owns, maintains, and
manages a fleet of heavy equipment. The Department supplements its fleet on an as needed
basis by renting heavy equipment from commercial rental businesses. The Fleet and Material
Management Unit, a centralized unit within DOT’s Highway Division, is charged with
primary oversight of DOT’s fleet of heavy road maintenance equipment.
After purchase, equipment is assigned to local DOT facilities within the 14 geographically
clustered divisions in order to meet central and divisional road maintenance goals and
objectives. Divisions, each headed by a Division Engineer and a Division Equipment
Superintendent, are responsible for storing, scheduling, and maintaining their assigned fleet of
heavy equipment. Each division performs an annual equipment needs and replacement
assessment, at which time recommendations are made for disposals and new equipment
purchases. Disposed equipment items are sold at auction or via surplus property, transferred
to other facilities, or scrapped for used parts. All disposals and purchases require state level
approval from the Fleet and Material Management Unit.
As of June 30, 2009, the Department held over 25,000 pieces of heavy equipment with an
acquisition cost of approximately $ 633 million.
OBJECTIVE, SCOPE, AND METHODOLOGY
The audit objective was to determine whether Department of Transportation policies and
procedures provide reasonable assurance that underused or idle heavy equipment will be
detected and corrective action taken.
The Office of the State Auditor initiated this audit to identify improvement opportunities in
heavy equipment fleet management.
The audit scope included a review of current fleet management practices and the use of
equipment within six classes of DOT owned heavy equipment3 between October 1, 2006, and
September 30, 2009. We conducted the fieldwork from October 2009 to July 2010.
To determine current DOT fleet management procedures, we conducted interviews with Fleet
and Material Management Unit personnel and division equipment managers and reviewed
policies and procedures as they related to equipment use and fleet management. We also
reviewed DOT management meeting minutes and Board of Transportation meeting minutes.
3The audit focused on six classes of road maintenance heavy equipment: excavators, tractors, backhoes, motor
graders, loaders and dump trucks.
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PERFORMANCE AUDIT
To determine current fleet management procedures in other states, we conducted internet
research and interviewed DOT fleet managers in Virginia, Missouri and Texas.
To determine potentially underused or idle equipment, we analyzed DOT equipment
utilization reports for six classes of DOT- owned heavy equipment for the three years ending
September 30, 2009. These six classes ( excavators, crawler tractors, backhoes, motor graders,
loaders and dump trucks) were chosen after consulting with DOT equipment managers
because those classes were the most commonly used high- dollar- value classes of heavy
equipment.
The equipment utilization data we analyzed was available to Department management and
equipment managers during the audited period. We did not verify or validate this data.
Therefore, we do not conclude as to the exact amount of idle and underused equipment.
However, we conclude that the Department had information available to it that indicated that
some equipment was idle or used less than 15% of the time, and the Department did not take
corrective action.
To determine the cost of the heavy equipment, we relied on cost information in DOT’s fleet
management records after reconciling the total to the Department’s accounting and financial
reporting system. To estimate the current value of the heavy equipment, we used DOT’s
average sale proceeds for excavators, tractors, backhoes, motor graders, loaders and dump
trucks over the last seven years.
Because the sample of items analyzed is not intended to be statistically representative4, the
results of our analysis cannot be projected to the entire ( approximately 25,000 piece) heavy
equipment fleet. The results of any analysis performed under this audit are restricted to the
specific pieces of equipment selected for testing.
This report contains the results of the audit including findings and recommendations.
Because of the test nature and other inherent limitations of an audit, together with limitations
of any system of internal and management controls, this audit would not necessarily disclose
all performance weaknesses or lack of compliance.
We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
We conducted this audit under the authority vested in the State Auditor of North Carolina by
North Carolina General Statute 147.64.
4 We judgmentally selected the six classes of heavy equipment after consulting with DOT equipment managers
because those classes were the most commonly used high- dollar- value classes of heavy equipment.
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FINDINGS AND RECOMMENDATIONS
DOT PROCEDURES DO NOT DETECT UNDERUSED AND IDLE HEAVY EQUIPMENT
Department of Transportation’s ( DOT or Department) policies and procedures do not
provide reasonable assurance that underutilized or idle heavy equipment will be detected
and corrective action taken. An analysis of three years of DOT reports shows that more
than half of items analyzed were used less than 30% of the available time5 and some
equipment was not used at all. The Department did not identify underused and idle
equipment because DOT has not established a goal or expectation for heavy equipment
usage rates that would justify the cost associated with continued ownership.
Furthermore, DOT does not have specific written policies and procedures that direct
managers to identify and report underutilized equipment or instruct managers on what
corrective action to take.
DOT Reports Indicate Underused and Idle Equipment
DOT has approximately 25,000 pieces of heavy equipment costing approximately $ 633
million. Though DOT has not set minimal use rates or expectations, central equipment
managers agreed during the audit that it would be reasonable to further investigate
maintenance equipment utilization rates of less than 30%.
An analysis of DOT reports for approximately 2300 pieces of heavy equipment, 6 costing
around $ 153 million, shows that more than half of those items were used less than 30%
of the available time between October 1, 2006, and September 30, 2009. Approximately
one third of these pieces, costing $ 56 million, were used less than 15% of the time during
each year of the three- year period.
DOT reports indicate that some pieces of heavy equipment were not used at all. During
the 12 months ending September 30, 2007, there were 274 pieces of heavy equipment
( 12% of items analyzed), with a cost of $ 20.7 million, which were never used. There
were 15 pieces of equipment, costing $ 1.1 million, which sat idle during the entire three
year period from October 1, 2006 to September 30, 2009.
Examining individual classes of equipment provides more insight into apparent
underused and idle equipment. For example, of the 330 loaders analyzed, over 235
( 71%) sat idle more than 70% of the time for the entire three- year period. During the
year ending September 30, 2009, there were 270 loaders that sat idle 82% of the time.
During the two years ending September 30, 2008, there were 54 loaders on DOT
equipment yards that were never used.
5 Available time is considered to be 40 hour a week or 2,080 hours a year. Utilization rates were calculated by
dividing the annual hours of actual use by available time ( 2,080 hours a year). Equipment use during emergency
conditions ( nights and weekends) is included in the actual use but does not increase the total available time.
6 The audit focused on six classes of heavy equipment used for road maintenance: excavators, tractors, backhoes,
motor graders, loaders and dump trucks. These classes were chosen after consulting with DOT equipment
managers because those classes were the most commonly used high- dollar- value classes of heavy equipment.
5
FINDINGS AND RECOMMENDATIONS
In addition to the initial purchase price and ongoing depreciation expense, there are other
costs to owning any piece of heavy equipment. DOT must pay for regular maintenance
and other overhead costs in order to own any piece of machinery. Incurring these costs
for seldom or never used items is not cost effective.
It would be impractical for DOT to dispose of all pieces of the equipment that have low
utilization rates. In addition to scheduled maintenance projects, the Department stages
back- up equipment throughout the state for emergency situations such as debris and snow
removal after significant storms and to respond to unexpected road failures due to
accidents or natural disasters.
Nevertheless, DOT could generate significant cash and reduce the amount of direct and
overhead costs if it were to identify and sell underused equipment. Based on the average
selling price of equipment within the six classes over the past seven years, DOT could
realize around $ 3.5 million in cash by selling just half of the equipment ( about 390
pieces) identified as being used less than 15% of the time during the year ending
September 30, 2009.
No Usage Goals or Expectations
Idle and seldom used equipment exist because DOT has not established performance
measures that define an efficient and productive level of equipment use. Though the data
is available, no analysis has been conducted that looks at historical average use rates for
classes of DOT owned maintenance equipment. Conducting such a trend analysis and
comparing the results to average equipment use rates from DOT agencies in other states
would provide management a baseline for establishing minimum use rates.
Managers are supposed to set performance goals and expectations and communicate the
measures to the agency, activity, and individual level. The U. S. Government
Accountability Office recommends the setting of performance measures and indicators so
that management can compare actual performance to expected or planned goals, identify
and investigate unexpected results, and take corrective action.
The Association of Equipment Management Professionals teaches Certified Fleet
Managers that setting and comparing actual results to performance measures is an
effective way to achieve greater efficiency7. Several other state DOT agencies adopted
this valuable management control and have established or redefined equipment use goals
and expectations. Within the past five years DOT agencies in Virginia, Missouri and
Texas established minimum performance measures for heavy equipment use.
According to DOT management, the Department identified equipment utilization as an
area in need of improvement in 2006, and began formulating a plan to increase
7 From The Career Equipment Fleet Manager manual published by the Association of Equipment Manager
Professionals. The Certified Fleet Manager is a designation that DOT seeks for its managers of heavy
equipment.
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FINDINGS AND RECOMMENDATIONS
equipment utilization awareness and efficiency. In July 2009, DOT contracted with East
Carolina University to analyze heavy equipment use and determine the point at which
items in an asset class begin to cost more to retain than their projected market value. The
Department states that one of the outcomes of the study will be a recommendation for
minimum use standards for each equipment class. DOT managers also stated that this
analysis was not conducted previously due to the lack of reliable historical equipment use
data within its computerized fleet management system.
No Written Policies and Procedures
Another reason idle and seldom used equipment exists is because the Department does
not have written policies and procedures that direct managers to identify and report
underutilized equipment or instruct managers on what corrective action to take if they
suspect or detect underutilized equipment.
Central equipment managers stated that responsibility for monitoring and acting on low
use rates lies at the division level. However, the responsibility for monitoring and acting
on low use rates is not documented in written policy. Furthermore, DOT has not
provided written guidance to assist division managers in defining inefficient use levels or
specific steps to take if underused equipment is identified.
Government agencies should clearly assign authority and delegate responsibility to the
proper personnel to manage organizational goals, objectives, and ensure general
government accountability. The U. S. Government Accountability Office states that
responsibility for decision- making should be clearly linked to the assignment of authority
and that individuals should be held accountable.
Without clearly defined authority and responsibility to identify, report, and act upon
underused or idle equipment, the Department likely retains underused or unneeded
equipment in its heavy equipment fleet. Keeping underused and idle equipment in the
fleet is inefficient, causing unnecessary expenses associated with storing and maintaining
that equipment and preventing the Department from converting the asset to cash and
using it for other priorities.
Recommendation:
DOT management should establish performance measures or expectations for heavy
equipment usage rates that would justify the cost associated with continued ownership.
The Department should periodically review and adjust performance measures to increase
efficiency and achieve departmental goals.
DOT management should develop written policies and procedures that clearly assign
responsibility for identifying and reporting underused equipment. The Department
should also develop written procedures to instruct managers on what corrective action to
take when underused equipment is detected.
7
FINDINGS AND RECOMMENDATIONS
The Department should identify and dispose of underused equipment. Classes of
equipment that are used less than defined minimum use standards should be analyzed, by
location, to identify the number of pieces that should be sold or transferred to other
locations that need that type of equipment. Similarly, individual pieces of equipment that
are routinely identified as idle or underutilized should be sold or transferred. Reasons for
keeping underused equipment should be documented and approved by central managers.
The Department should provide training to all equipment managers in order to expand
their knowledge in efficient fleet management practices. The Department should continue
its efforts to obtain the Association of Equipment Manager Professionals fleet manager
certification for all equipment superintendents.
8
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APPENDIX
Auditor’s Response
It is the intent of the Office of the State Auditor that the Governor, the General Assembly, and
the citizens of North Carolina receive only complete and accurate information from the
reports issued by this office. Therefore, we are required to provide additional explanation
when an agency’s response could potentially cloud an issue, mislead the reader, or
inappropriately minimize the importance of our findings.
Additionally, Generally Accepted Government Auditing Standards state,
When the audited entity’s comments are inconsistent or in conflict with the
findings, conclusions, or recommendations in the draft report, or when planned
corrective actions do not adequately address the auditor’s recommendations, the
auditors should evaluate the validity of the audited entity’s comments. If the
auditors disagree with the comments, they should explain in the report their
reasons for disagreement.
To ensure the availability of complete and accurate information and in accordance with
Generally Accepted Government Auditing Standards, we offer the following clarification.
In response to audit recommendation # 3, Department of Transportation ( Department)
management notes, “ The department disposed of approximately 3,900 pieces of equipment
which sold for approximately $ 15.5 million during the years represented by the audit.”
It is important for readers of this report to understand that the 3,900 pieces of equipment the
Department reports as sold were from the total heavy equipment fleet of almost 300
categories, not just the six categories ( 2,300 pieces) analyzed in this report. The Department’s
response to our recommendation does not make this distinction. Readers of this report should
not assume that the disposal of 3,900 pieces of equipment was solely from the six classes of
equipment referenced in the audit report.
The Governor, Legislators, and the citizens of North Carolina should consider the clarification
provided above when using this report to evaluate the Department of Transportation’s heavy
equipment fleet management and holding government managers accountable for their
programs.
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ORDERING INFORMATION
Audit reports issued by the Office of the State Auditor can be obtained from the web site at
www. ncauditor. net. Also, parties may register on the web site to receive automatic email
notification whenever reports of interest are issued. Otherwise, copies of audit reports may be
obtained by contacting the:
Office of the State Auditor
State of North Carolina
2 South Salisbury Street
20601 Mail Service Center
Raleigh, North Carolina 27699- 0601
Telephone: 919/ 807- 7500
Facsimile: 919/ 807- 7647
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State Publications Collection
