Report No.

13116

STATE OF FLORIDA AUDITOR GENERAL

OPERATIONAL AUDIT OF THE STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY For the Fiscal Year Ended June 30, 1996, And Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996 Through September 12, 1997 Dated: December 19, 1997

13116
STATE OF FLORIDA AUDITOR GENERAL

OPERATIONAL AUDIT OF THE STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY For the Fiscal Year Ended June 30, 1996, And Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996 Through September 12, 1997 Dated: December 19, 1997

ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY Table of Contents LETTER OF TRANSMITTAL I AUDIT REPORT SUMMARY A. Scope/Objectives B. Methodology C. Findings REPORT ON INTERNAL CONTROL AND LEGAL COMPLIANCE BACKGROUND A. Authority B. Organizational Structure C. Expressway System D. Financing 1. Bonded Debt 2. Florida Department of Transportation Advances E. Revenues F. Consultant Contracting G. Intergovernmental Agreements H. Interlocal Agreements I. Related Audits FINDINGS AND RECOMMENDATIONS A. Financial Condition B. Budgetary Controls C. Investments D. Tangible Personal Property

II III

IV

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ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY Table of Contents (Continued)

IV

FINDINGS AND RECOMMENDATIONS (Continued) E. Documentation of Expenditures 1. Related Organizations 2. Other Organizations 3. Communication Expenditures 4. Travel Expenditures 5. Lobbying Services F. Right-of-Way Acquisitions 1. Appraisal Reviews 2. Purchase Agreements G. Motor Vehicle Assignment and Use H. Prior Audit Findings STATEMENT FROM AUDITED OFFICIAL AUDIT AUTHORITY EXHIBITS

V VI VII

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STATE OF FLORIDA AUDITOR GENERAL TALLAHASSEE

CHARLES L. LESTER, CPA AUDITOR GENERAL

December 19, 1997

The President of the Senate, the Speaker of the House of Representatives, and the Legislative Auditing Committee Pursuant to the provisions of Section 11.45, Florida Statutes, and as part of the Legislature's oversight responsibility for operations of governmental entities, I have directed that an operational audit be made of the STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY For the Fiscal Year Ended June 30, 1996, and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997. The results of the audit of the Orlando-Orange County Expressway Authority are presented herewith. Respectfully submitted,

Charles L. Lester Auditor General Audit supervised by: James G. Drake Audit made by: Ransom D. Smith

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OPERATIONAL AUDIT OF THE STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY For the Fiscal Year Ended June 30, 1996, and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997 AUDIT REPORT SUMMARY This audit report summary highlights the scope, objectives, methodology, and findings of audit report No. 13116, dated December 19, 1997. It is intended to present the findings of our report in a condensed fashion. The entire audit report should be read for a comprehensive understanding of our audit findings.

SCOPE/OBJECTIVES

Orlando-Orange County Expressway Authority (Authority) management is responsible for administering expressway system-related programs, activities, functions, and classes of transactions in accordance with applicable laws, administrative rules, bond resolutions, and other guidelines. Additionally, the proper administration of public funds requires that management establish and maintain a system of internal control to provide reasonable assurance that specific entity objectives will be achieved. The Auditor General, as part of the Legislature's oversight responsibility for operations of governmental entities, makes operational audits to determine the extent to which Authority management has fulfilled those responsibilities and to determine the extent to which the system of internal control, as designed and placed in operation, promotes and encourages the achievement of management's control objectives.

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The scope of this audit focused primarily on assets, liabilities, revenues and cash collections, expenditures and disbursements, design and engineering contracts, construction contracts, right-of-way acquisition, budgetary controls, and other contractual agreements for the fiscal year ended June 30, 1996. METHODOLOGY We conducted our audit in accordance with generally accepted auditing standards, and Government Auditing Standards issued by the Comptroller General of the United States. FINDINGS Matters coming to our attention relating to noncompliance with various guidelines and those relating to significant deficiencies in the design or operation of the system of internal control for those operations audited are as follows: Financial Condition The Authority, in its previously issued audited financial statements, reported unreserved retained earnings deficits for the fiscal years ending June 30, 1993, through June 30, 1996; however, these deficits were primarily attributable to the application of accounting principles relating to depreciation, bond refunding, and other issues. The Authority's 1996-97 audited financial statements reported unreserved retained earnings of $116,723,000 at June 30, 1997. This positive unreserved retained earnings amount reflects the efforts of Authority management and the Authority's certified public accountant to thoroughly review and update the application of certain generally accepted accounting principles. paragraphs 40 through 44.) (See

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Budgetary Controls During the 1995-96 fiscal year, actual expenditures exceeded the legal level of budgetary control established of record by the Authority (object level) for numerous expenditure categories. (See paragraphs 45 through 50.) Investments The Authority invested moneys held in the Authority's Revenue Fund bank account in overnight repurchase agreements; however, because the Authority did not obtain the actual securities, trust receipts from a trustee, or third-party safekeeping receipts perfecting the Authority's secured interest in the securities pledged as collateral, such investments were subject to an increased risk of loss. (See paragraphs 51 through 55.) Tangible Personal Property The value of property shown on the Authority's listing of furniture and equipment ($771,040.30) had not been reconciled to the value of furniture and equipment recorded in the general ledger control account ($113,012.58). In addition, furniture and equipment purchases and Authority approved deletions had not been reconciled to changes to the property listing. paragraphs 56 through 60.) Related Organizations Our audit disclosed several Authority actions taken with respect to the OOCEA Foundation, Inc., a not-for-profit corporation created by the Authority, that did not appear to be authorized by applicable State law. (See paragraphs 65 through 68.) -3(See

The Authority contributed $35,000 to the Metropolitan Planning Organization (MPO) towards the MPO's operating budget. While the Authority's contribution to the MPO may be necessary to facilitate the Authority's active participation in the MPO, the Authority's records did not demonstrate how the Authority determined that the $35,000 contribution was appropriate. (See paragraphs 69 through 73.) Other Organizations The Authority made payments totaling $56,000 to the Minority/Women Business Enterprise Alliance, Inc. (Alliance) to provide funding for the operations of the Alliance and to fund a surety and risk assistance program. We are unaware of any statutory authority for the Authority to provide funding to not-for-profit organizations. (See paragraphs 74 through 77.) The Authority incurred expenses totaling $561.80 for food and alcoholic beverages relating to a reception for the Florida Transportation Commission. We are unaware of any specific legal authority for the Authority to expend funds for this purpose. (See paragraphs 78 and 79.) Communication Expenditures Telephone logs or similar records identifying the parties called and/or the purposes of telephone calls were not maintained by Authority staff for either long-distance or cellular telephone calls. In the absence of documentation evidencing the public purpose served by such calls, Authority personnel could not be assured that the calls made served an authorized public purpose. (See paragraphs 80 through 83.) -4-

Travel Expenditures The Authority's travel policies were not consistent with Section 112.061, Florida Statutes. (See paragraphs 86 through 89.) The Authority's records relating to travel expenses were not always adequate to demonstrate the authorized public purpose served and/or compliance with State law. (See paragraphs 90 through 92.) Lobbying Services The Authority contracted with and made payments during the 1995-96 fiscal year to two consultants to provide lobbying services. Although the Authority concluded that the consulting services were necessary to the conduct of the Authority's statutory responsibilities, the Attorney General has opined that public funds may not be expended by statutory entities for lobbying purposes unless expressly and specifically authorized by State law. (See paragraphs 93 through 96.) Appraisal Reviews The Authority's Right-of-Way Acquisition Procedures Manual requires that appraisal reports be reviewed by qualified review appraisers to ensure the appraisal reports are mathematically correct, complete, reasonable, and in conformance with the Uniform Standards of Professional Appraisal Practice. For three of the six parcel acquisitions we reviewed, the review appraiser noted deficiencies in the appraisal report; however, Authority records did not evidence that these appraisal report deficiencies,

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several of which were major deficiencies, had been corrected. (See paragraphs 106 through 108.) Purchase Agreements Our review disclosed three instances in which the Authority reached agreement on the purchase price for a parcel identified for right-of-way acquisition before the Authority's appraisal report was completed, reviewed, and accepted. Purchase prices for two of these parcels were 49.37 and 111.04 percent greater than the appraised values. In the absence of an independent appraisal for these parcels at the date of the purchase contract, it is not apparent how the Authority made an informed purchase offer on the parcels. (See paragraphs 109 through 114.) For four of the six parcel acquisitions we reviewed, the purchase agreement included a provision that required that the property owner be paid the agreed-upon purchase price or the appraised value, whichever is higher, and obligated the Authority to pay the agreed-upon purchase price even if the appraised value was determined to be less than the purchase price. This provision appears to be contrary to the Authority's Right-of-Way Acquisition Manual which requires that negotiations attempt to reach a fair settlement and protect the interest of both the property owner and the Authority. (See paragraphs 115 through 117.) Motor Vehicle Assignment and Use Authority-owned and/or leased vehicles were assigned to four employees on a full-time basis. The Authority had not established adequate written policies governing the assignment and use of -6-

Authority vehicles. Vehicle usage records were not maintained and/or adequate to identify and report the amount of taxable fringe benefits attributable to the personal use of the vehicles. Also, the Authority had not included the value of the personal use of employer-provided vehicles in reporting earnings for the employees, contrary to applicable United States Treasury Regulations. (See paragraphs 118 through 121.)

The Executive Director's written response to the audit findings and recommendations included in audit report No. 13116 is presented as Exhibit C.

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THIS PAGE INTENTIONALLY LEFT BLANK.

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OPERATIONAL AUDIT OF THE STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY For the Fiscal Year Ended June 30, 1996, and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997 Par. No. REPORT ON INTERNAL CONTROL AND LEGAL COMPLIANCE (1) Orlando-Orange County Expressway Authority management is responsible for administering expressway system-related programs, activities, functions, and classes of transactions in accordance with governing provisions of laws, administrative rules, bond resolutions, and other guidelines. Additionally, the proper administration of public funds requires that management establish and maintain a system of internal control to provide reasonable assurance that specific entity objectives will be achieved. The Auditor General, as part of the Legislature's oversight responsibility for operations of governmental entities, makes operational audits to determine the extent to which Authority management has fulfilled those responsibilities. (2) Section 348.753(1), Florida Statutes, created and established a body politic and corporate, an agency of the State, to be known as the Orlando-Orange County Expressway Authority (Authority). Section 348.754(1)(a), Florida Statutes, provides that the Authority was created for the purpose of and shall have the power to acquire, hold, construct, improve, maintain, operate, own, and lease the Orlando-Orange County Expressway System. Section 348.752(13), Florida Statutes, defines the Orlando-Orange County Expressway System as any and all expressways and appurtenant facilities thereto, including, but not limited to, all approaches, roads, bridges, and avenues of access for said expressway or expressways.

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Par. No. (3) following: Purchase of right-of-way and preliminary design and engineering on the Western Beltway, Parts A and C. State Road 528 (Bee Line Expressway) rehabilitation consisting of shoulder and median work, milling and resurfacing, asphaltic concrete pavement, signing, pavement markings, roadway lighting, and storm drainage improvements for 16.4 miles along State Road 528. State Road 408 (East-West Expressway) pavement striping from western terminus (State Road 50) to Kirkman Road, from Parramore Street to Holland East main toll plaza, and from Chickasaw Trail to the eastern terminus (State Road 50). Construction of the East-West Expressway (State Road 408) interchange with John Young Parkway (State Road 423), including the construction of roadways, signing and pavement marking, signalization, roadway lighting, drainage, utilities, fencing, and landscaping. Completion of a computerized toll collection and traffic management system, commonly known as E-Pass. (4) As permitted by Section 348.757(1), Florida Statutes, the Authority entered into a lease-purchase agreement dated December 23, 1985, and supplemental lease-purchase agreements dated November 25, 1986, and October 27, 1988, as well as interagency agreements, dated June 18, 1993, July 1, 1993, and January 20, 1995, with the Florida Department of Transportation. These agreements, as amended, placed the responsibility for the operation and maintenance of the Orlando-Orange County Expressway System with the Authority. (5) The nature and diversity of the Authority's operations preclude an examination of all programs, activities, functions, and classes of transactions during each audit. Accordingly, -10During the audit period, the Authority's activities were primarily concerned with the

Par. No. the scope of this audit focused primarily on assets, liabilities, revenues and cash collections, expenditures and disbursements, design and engineering contracts, construction contracts, right-of-way acquisition, budgetary controls, and other contractual agreements. For each of these areas, our audit included examinations of various transactions (as well as events and conditions) during the fiscal year ended June 30, 1996. (6) We conducted our audit in accordance with generally accepted auditing standards, and Government Auditing Standards issued by the Comptroller General of the United States. Our audit objectives for the programs, activities, functions, and classes of transactions within the scope of audit were: To evaluate the Authority's performance in administering its assigned responsibilities in accordance with applicable laws, administrative rules, bond resolutions, and other guidelines. To determine the extent to which the Authority's system of internal control, and selected relevant controls, promotes and encourages the achievement of management's objectives in the categories of compliance with controlling laws, administrative rules, bond resolutions, and other guidelines; the economic and efficient operation of the Authority; the reliability of financial records and reports; and the safeguarding of assets. To determine whether the Authority has corrected, or is in the process of correcting, all deficiencies disclosed in the prior audit (report No. 12255). (7) Authority management is responsible for compliance with applicable laws, administrative rules, bond resolutions, and other guidelines. As a part of our audit, we examined, on a test basis, evidence supporting transactions (as well as events and conditions) which occurred; performed analytical procedures; and reviewed management's administrative constructions of law. Our objective was to evaluate management's compliance with significant provisions of laws, administrative rules, bond resolutions, and other guidelines governing those programs, activities, functions, and classes of transactions within the scope of audit. However, -11-

Par. No. the objective of our audit was not to provide an opinion on overall compliance with such provisions. (8) The results of our tests of compliance indicated that, with respect to the items tested, the Authority had generally complied with the significant provisions of laws, administrative rules, bond resolutions, and other guidelines governing those programs, activities, functions, and classes of transactions within the scope of audit. Matters coming to our attention relating to noncompliance with various guidelines for those operations audited are noted in the FINDINGS AND RECOMMENDATIONS section of this report. (9) Authority management is responsible for establishing and maintaining a system of internal control. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of controls. The objectives of internal control are to provide management with reasonable, but not absolute, assurance of compliance with applicable laws, administrative rules, bond resolutions, and other guidelines; the economic and efficient operation of the Authority; the reliability of financial records and reports; and the safeguarding of assets. Because of inherent limitations in any system of internal control, noncompliance, errors, or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of internal control to future periods is subject to the risk that controls may become inadequate because of changes in conditions or that the effectiveness of the design and operation of controls may deteriorate. (10) In planning and performing our audit, we obtained an understanding of the system of internal control established by Authority management. With respect to internal control, we obtained an understanding of the components of internal control sufficient to understand the design of controls relevant to those programs, activities, functions, and classes of transactions within the scope of audit; determine whether they have been placed in operation; and assess control risk. Our purpose in obtaining an understanding of internal control and assessing the level of control risk was to determine the nature, timing, and extent of substantive audit tests and procedures necessary to the accomplishment of our audit objectives. However, our purpose

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Par. No. was not to provide an opinion on internal control; accordingly, we do not express such an opinion. (11) We noted certain matters involving the design and operation of the Authority's system of internal control that we consider to be reportable conditions under generally accepted government auditing standards. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the system of internal control that, in our judgment, could adversely affect Authority management's assurance of compliance with applicable laws, administrative rules, bond resolutions, and other guidelines; the economic and efficient operation of the Authority; the reliability of financial records and reports; and the safeguarding of assets. Those matters coming to our attention for the programs, activities, functions, and classes of transactions within the scope of audit are noted in the FINDINGS AND RECOMMENDATIONS section of this report. (12) A material weakness is a reportable condition in which the design or operation of one or more of the components of internal control does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial records and resources of the programs, activities, functions, and classes of transactions being audited may occur and not be detected within a timely period by Authority employees in the normal course of performing their assigned functions. (13) Our consideration of internal control would not necessarily disclose all matters in the system of internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses as defined above. However, we believe none of the reportable conditions described in the FINDINGS AND RECOMMENDATIONS section of this report is a material weakness. (14) This report is intended for the information of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, and applicable management. Copies of this report are available pursuant to Section 11.45(7), Florida Statutes, and its distribution is not limited. -13-

Par. No. BACKGROUND Authority (15) The Orlando-Orange County Expressway Authority was created by Chapter 63-573, Laws of Florida (Chapter 348, Part V, Florida Statutes), effective July 10, 1963. The Authority is a corporate body and an agency of the State. The Authority consists of five members, with three members being appointed by the Governor; one member being the Chair of the County Commissioners of Orange County, who shall serve as a member ex-officio; and one member being the District Secretary of the Florida Department of Transportation in the District that contains Orange County, who shall serve as a member ex-officio. The executive officer of the Authority is the Executive Director employed by the Authority pursuant to Section 348.753(4)(a), Florida Statutes. (16) Section 348.754(1)(a), Florida Statutes, grants the Authority the right to acquire, hold, construct, improve, maintain, operate, own, and lease in the capacity of lessor, the Orlando-Orange County Expressway System (Expressway System). Section 348.754(1)(b), Florida Statutes, authorizes the Authority to construct any extensions, additions, or improvements to the Expressway System or appurtenant facilities, including all necessary approaches, roads, bridges, and avenues of access, with such changes, modifications, or revisions as shall be deemed desirable and proper. Section 348.754, Florida Statutes, sets forth the powers of the Authority, including, in part, the power to: Acquire, purchase, hold, lease, and use any franchise or property, or any interest therein, necessary or desirable for carrying out the purposes of the Authority and to sell, lease, transfer, and dispose of any property or interest therein; Enter into lease-purchase agreements with the Florida Department of Transportation as provided in Section 348.757, Florida Statutes, for terms not exceeding 40 years, or until all bonds secured by a pledge thereunder, and all refundings thereof, are fully paid as to both principal and interest, whichever is longer;

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Par. No. Fix, alter, charge, establish, and collect tolls, rates, fees, rentals, and other charges for the services and facilities of the Expressway System, which tolls, rates, fees, rentals, and other charges shall always be sufficient to comply with any covenants made with the holders of any bonds issued pursuant to Chapter 348, Part V, Florida Statutes. Such right and power may be assigned or delegated by the Authority to the Florida Department of Transportation; Borrow money and make and issue negotiable notes, bonds, refunding bonds, and other evidences of indebtedness or obligations; Secure the payment of bonds by a pledge of any or all of its revenues, rates, fees, rentals, or other charges, including all or any portion of the Orange County Gasoline Tax funds in the manner provided by Chapter 348, Part V, Florida Statutes, and, in general, provide for the security of the bonds and the rights and remedies of the bondholders; Make contracts of every name and nature and execute all instruments necessary or convenient for the carrying on of its business; Borrow money and accept gifts or grants from, and enter into contracts, leases, or other transactions with any Federal agency, the State, any agency of the State, the County of Orange, the City of Orlando, or any other public body of the State; Have the power of eminent domain; and Do all acts and things necessary or convenient for the conduct of its business and the general welfare of the Authority, in order to carry out the powers granted to it. Organizational Structure (17) The Authority members and Executive Director serving during the 1995-96 fiscal year were as follows: -15-

Par. No.
Authority Members A. Wayne Rich, Chairman William A. Beckett, Vice-Chairman Inez J. Long, Secretary/Treasurer Linda W. Chapin, Orange County Chairman Nancy M. Houston, District V Secretary - Florida Department of Transportation Executive Director Dr. Harold W. Worrall

(18) 1996.

Exhibit B presents an organizational chart for the Authority in effect at June 30,

Expressway System (19) The Orlando-Orange County Expressway System is defined as meaning any and all expressways and appurtenant facilities thereto, including, but not limited to, all approaches, roads, bridges, and avenues of access for said expressway or expressways. A map of the expressway system as of July 1996 is shown as Exhibit A of this report. Financing Bonded Debt (20) Initial construction of the Orlando-Orange County Expressway System was financed through the issuance of $7,000,000 Expressway Revenue Bonds, Series 1965 (the 1965 Bee Line Expressway project); $70,500,000 State of Florida Full Faith and Credit Expressway Bonds, Series 1970 (the 1970 East-West Expressway project); $17,000,000 State of Florida Full Faith and Credit Orlando-Orange County Expressway Bonds, Series 1980 (the 1980 East-West Expressway project); and $4,900,000 State of Florida Full Faith and Credit Orlando-Orange County Expressway Bonds, Series 1980-A (the 1980 East-West Expressway project). The Authority issued Orlando-Orange County Expressway Authority Revenue Refunding Bonds, Series 1985, in the amount of $57,715,000 to refund the outstanding expressway bonds, Series 1965, Series 1970, Series 1980, and Series 1980-A. At the same time the Series 1985 bonds were issued, a lease-purchase agreement dated December 23, 1985, was entered into between -16-

Par. No. the Authority, as lessor, and the Florida Department of Transportation, as lessee. This lease-purchase agreement is discussed in this report under the subheading Intergovernmental Agreements. (21) The Authority issued $280,000,000 in Orlando-Orange County Expressway Authority Revenue Bonds, Series 1986, and $153,000,000 in Orlando-Orange County Expressway Authority Junior Lien Revenue Bonds, Series 1986, to pay a portion of the costs of acquisition and construction of improvements to the Expressway System (known as the 1986 Project), which primarily consisted of the east and west extensions to the original East-West Expressway and the north and south sections of the Central Florida GreeneWay (formerly known as the north and south sections of the Eastern Beltway). The various extensions were opened to traffic between December 1988 and October 1990. At the same time the bonds were issued, a supplemental lease-purchase agreement dated November 25, 1986, was entered into between the Authority, as lessor, and the Florida Department of Transportation, as lessee. This lease-purchase agreement is discussed in this report under the subheading Intergovernmental Agreements. (22) The Authority issued $140,600,000 in Orlando-Orange County Expressway Authority Junior Lien Revenue Bonds, Series 1988, to pay acquisition and construction costs of improvements to the Expressway System (known as the 1988 Project) consisting of a central connector from downtown Orlando to the Bee Line Expressway. At the same time the bonds were issued, a supplemental lease-purchase agreement dated October 27, 1988, was entered into between the Authority, as lessor, and the Florida Department of Transportation, as lessee. This lease-purchase agreement is discussed in this report under the subheading Intergovernmental Agreements. A portion of the proceeds from the Series 1988 bonds, originally allocated to finance the central connector, were used in July 1992 to redeem the portion of the Series 1988 bonds which had yet to ascend to senior lien status. The remaining proceeds from the Series 1988 bonds were used in April 1993 to defease the remaining portion of the Series 1988 bonds which had previously ascended to senior lien status. As a result, no Series 1988 bonds remain outstanding.

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Par. No. (23) The Authority issued $385,000,000 in Orlando-Orange County Expressway Authority Junior Lien Revenue Bonds, Series 1990, to pay a portion of the costs of acquisition and construction of improvements to the Expressway System (known as the 1990 Project). The 1990 Project consisted of the construction of the Southern Connector (part of the Central Florida GreeneWay), which provides a direct, high-speed connection between Interstate Highway I-4 on the west and the Central Florida GreeneWay at the Bee Line Expressway on the east and also provides access to the Orlando International Airport from the south. The Southern Connector, from the Bee Line Expressway to State Road 536 in southwest Orange County, was opened to traffic in July 1993. The remaining six-mile segment from State Road 536 to Interstate Highway I-4 has been designated a Turnpike project of the Florida Department of Transportation and was opened in June 1996. (24) Pursuant to Section 348.755(1)(b), Florida Statutes, the Authority negotiated the sale of $493,575,000 in Orlando-Orange County Expressway Authority Senior Lien Revenue Refunding Bonds, Series 1993, and $70,840,000 in Orlando-Orange County Expressway Authority Junior Lien Revenue Refunding Bonds, Series 1993, and $202,715,000 in Orlando-Orange County Expressway Authority Junior Lien Revenue Refunding Bonds, Series 1993A. The Series 1993 bonds were dated June 1, 1993, with the exception of $14,000,000 of the Senior Lien Bonds which were issued as Auction Rate Certificates and Leveraged Reverse Rate Securities dated June 23, 1993. The Series 1993A Bonds were dated November 1, 1993. The Series 1993 Senior Lien bonds were issued to refund the Series 1985 refunding bonds, the Series 1986 bonds, and the Series 1986 Junior Lien bonds which ascended to senior lien status. The Series 1993 Junior Lien bonds were issued to refund $61,725,000 of the Series 1990 Junior Lien bonds maturing in the years 2019 through 2021, inclusive. The Series 1993A Junior Lien Bonds were issued to refund $175,280,000 of the Series 1990 Junior Lien Bonds maturing in the years 2003, 2009, 2019, and 2020, inclusive. (25) The bond resolutions for the 1990 Series Junior Lien Revenue Bonds, 1993 Series Senior Lien Revenue Refunding Bonds, 1993 Junior Lien Revenue Refunding Bonds, and 1993A Series Junior Lien Revenue Refunding Bonds issued by the State of Florida placed the

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Par. No. responsibility for ensuring compliance with the provisions of the bond resolutions relating to pledged revenues and debt service payments with the Authority. Florida Department of Transportation Advances (26) Pursuant to bond covenants, and the lease-purchase agreements discussed in paragraph 34, construction completion costs in excess of the bond proceeds and the routine operation costs and maintenance and repair costs of several components of the Orlando-Orange County Expressway System are to be paid from Florida Department of Transportation (FDOT) funds. As of June 30, 1996, the Authority had received approximately $94,377,000 of FDOT funds for the completion of construction and the routine operation costs and maintenance and repair costs of several components of the Expressway System. Pursuant to the lease-purchase agreements, tolls will continue in effect until all debt defined in the lease-purchase agreements has been paid, and the FDOT has been reimbursed for those construction completion costs, operation costs, and maintenance and repair costs of applicable components of the Expressway System. (27) Section 338.251, Florida Statutes, created the Toll Facilities Revolving Trust Fund within the FDOT and authorized the FDOT to advance funds to local governmental entities for specified road projects. Section 338.251(4), Florida Statutes, provided that each advance made pursuant to this Section shall require repayment out of the initial bond issue proceeds or at the discretion of the Authority, beginning no later than 7 years after the date of the advance provided repayment shall be completed no later than 12 years after the date of the advance. Effective May 24, 1994, Chapter 94-237, Laws of Florida, amended Sections 338.251(4) and (7), Florida Statutes, repealing the requirement for local governments to pay interest to FDOT on advances received under this Section. Chapter 94-237, Laws of Florida, also amended Section 338.251(9), Florida Statutes, stating that repayment of funds advanced, including advances made prior to January 1, 1994, shall not include interest. However, Section 338.251(9), Florida Statutes, retained the requirement that interest accruing to local governmental entities from the investment of advances shall be paid to FDOT.

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Par. No. (28) The Authority has received, pursuant to various agreements with the FDOT, advances from the FDOT's Toll Facilities Revolving Trust Fund to finance various Expressway System projects. The agreements provide that repayment of the advance shall be from the initial bond issue proceeds or at the discretion of the Authority, within seven years after the date of the advance. The agreements further stipulate that the election shall be made at the time of the initial bond issue. If repayment is to be made during the seven-year period, a schedule of payments shall be submitted to and be acceptable to the FDOT. The original agreements required that repayments include interest charged at the average compound rate earned by the Florida State Treasury in the year preceding that of the current payment due; however, this provision was eliminated when the agreements were amended on August 19, 1994, to reflect the changes to Section 338.251, Florida Statutes, discussed in paragraph 27. Unpaid balances at June 30, 1996, applicable to these advances are as follows: An advance of $12,000,000 was received pursuant to an agreement dated February 23, 1987, for preliminary engineering, corridor, alignment, and environmental studies for the Western Beltway - North Section; final design on the Eastern and Western Beltway North Section, Eastern and Western Extension - East/West Expressway, and Eastern Beltway - South Section; General Engineering Consultant services and appraisals for the Eastern Beltway - North and South Sections, and Eastern and Western Extension East/West Expressway; and for right-of-way purchases for the Eastern Beltway - North Section. On November 12, 1992, an agreement was entered into by the Authority and the FDOT for the repayment of this advance. The schedule of repayment pursuant to this agreement stipulated an initial payment to the FDOT of $3,466,564 on March 1, 1994, with the remaining balance plus interest earned to be paid over a five-year period with the next payment being due March 2, 1995. As of June 30, 1996, the Authority has paid $7,231,294 to the FDOT which includes interest earned on this advance, leaving a balance due of $5,647,096. An advance of $18,000,000 was received pursuant to an agreement dated February 5, 1988, for right-of-way purchases for the Eastern Extension - East/West Expressway. On November 12, 1992, an agreement was entered into by the Authority and the FDOT for -20-

Par. No. the repayment of this advance. The schedule of repayment pursuant to this agreement stipulated six equal payments of $3,018,867 including interest earned to be paid over a six year period beginning February 17, 1995. As of June 30, 1996, the Authority has paid $6,037,734 to the FDOT which includes interest earned on this advance, leaving a balance due of $12,075,468. Revenues (29) Section 348.754(2)(f), Florida Statutes, establishes the Authority's power to fix, alter, charge, establish, and collect, rates, fees, rentals, and other charges for the services and facilities of the Expressway System. Pursuant to the three lease-purchase agreements with the Florida Department of Transportation (discussed in paragraph 34) and as permitted by Section 348.757, Florida Statutes, the responsibility for collecting tolls was assigned to the Florida Department of Transportation until January 20, 1995, when the responsibility for collecting tolls was reassigned to the Authority. On February 28, 1995, the Authority contracted with Florida Toll Services to operate the Expressway System. The Authority is responsible for the assessment of tolls and the subsequent application of the toll revenues in accordance with the bond resolutions related to the Orlando-Orange County Expressway System. (30) The majority of the Authority's revenue is from toll collections, interest income, and grant revenue. In addition, Authority personnel collect payments for photocopy and blueprint charges, right-of-way reservation maps, and other miscellaneous charges. The Authority's revenues as shown on its audited financial statements by an independent certified public accounting firm for the 1995-96 fiscal year are summarized in the following tabulation:

Description of Revenue Sources Toll Revenues Investment Income Grant Revenue Miscellaneous Sources Total

Amount $ 82,935,000 11,057,000 10,310,000 492,000 $104,794,000

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Par. No. Consultant Contracting (31) Section 348.753(4)(a), Florida Statutes, provides that the Authority may employ an executive secretary, an executive director, its own counsel and legal staff, technical experts, such engineers, and such employees, permanent or temporary, as it may require; determine the qualifications and fix the compensation of such persons, firms, or corporations; and employ a fiscal agent or agents. As of June 30, 1996, the Authority employed 32 people to perform the duties of the Authority including an Executive Director; Deputy Executive Director/Director of Engineering; Chief Financial Officer; Director of Construction/Maintenance; Director of Operations, Communications, and Marketing; and a Director of Business Development. (32) During the audit period, the Authority chose to perform most of its activities (as described in paragraph 16) pursuant to consulting contracts. Firms retained by the Authority included an architectural, engineering, and planning consultant to provide, among other services, project management, coordination, and administration, and an engineering consulting firm to perform a traffic and revenue study. Other consultants under contract to the Authority during the audit period included consultants in the areas of legal, financial, and right-of-way acquisition. (33) Section 287.055, Florida Statutes, governs the awarding of contracts for services performed by an architect, professional engineer, landscape architect, or registered land surveyor in connection with his/her professional employment or practice. The Authority adopted written procedures entitled GUIDELINE FOR CONTRACTS FOR CERTAIN PROFESSIONAL SERVICES (Guidelines) which includes provisions for public announcement and qualification procedures, competitive selection, and competitive negotiation. The Authority utilizes a Consultant Recommendation Committee which consists of the Executive Director, a representative from the City or the County, and two Authority staff members appropriate to the project. The Consultant Recommendation Committee evaluates proposals for firm qualifications and competency based on the criteria listed in the Guidelines and submits recommendations to the Authority for final approval.

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Par. No. Intergovernmental Agreements (34) Pursuant to the lease-purchase agreement dated December 23, 1985, and supplemental lease-purchase agreements dated November 25, 1986, and October 27, 1988, between the Authority and the Florida Department of Transportation (FDOT), the Orlando-Orange County Expressway System (1965, 1970, 1980, 1986, and 1988 Projects as discussed in this report under the subheading Financing) was leased to the FDOT. In an agreement dated June 18, 1993, between the Authority and the FDOT, the Department agreed to provide management and operational services for the toll collection facilities associated with the 1990 Project. In an agreement dated July 1, 1993, between the Authority and the FDOT, the Authority assumed the responsibility for supervision of maintenance activities for the Orlando-Orange County Expressway System, including the 1990 Project. In an agreement dated January 20, 1995, between the Authority and the FDOT, the Authority assumed the responsibility for operating the Orlando-Orange County Expressway System for the purpose of contracting the operation of the System to a third party. The Authority executed a contract with Florida Toll Services on February 28, 1995, to operate the System. The agreements noted above between the Authority and FDOT provided, among other things, that: All tolls will be collected by the Florida Toll Services and, to the extent practicable, be deposited daily into a special trust fund account maintained in a bank in Orange County to be designated by the Authority. The tolls will be applied by the Authority as prescribed in the appropriate bond resolutions. The Florida Department of Transportation must pay or cause to be paid from sources other than Expressway System revenues, the costs of maintenance of the 1965, the 1970, and the 1980 Projects, and the costs of operation of the 1970 and 1980 Projects. The Authority must pay from Expressway System revenues the costs of operation of the 1965 Project and the costs of operation and costs of maintenance of the 1986 and the 1990 Projects.

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Par. No. The application by the Authority of net revenues in accordance with the bond resolutions of the Orlando-Orange County Expressway Authority Senior Lien Revenue Refunding Bonds, Series 1993, and the Orlando-Orange County Expressway Authority Junior Lien Revenue Refunding Bonds, Series 1993, will constitute the rentals and purchase payments for the Expressway System by the Florida Department of Transportation. Such rentals shall continue until: (1) provision has been made for payment or redemption of all outstanding bonds, including any refunding thereof, and all interest thereon; and (2) the Department has been fully reimbursed all amounts to which it is entitled for costs of completion, costs of operation, and costs of maintenance of the Expressway System. Refer to paragraph 26 for the amount advanced by the Department for costs of completion, operation, and maintenance of the Expressway System. (35) A summary of the financial responsibilities of the Authority and the Florida Department of Transportation for the operation and maintenance of the Expressway System as of June 30, 1996, is shown in the following table:
System Component 1965, Bee Line Expressway 1970, East-West Expressway 1980, Airport Interchange and Bee Line Improvements 1980-A, Toll Facility, Bee Line Expressway 1986, East-West Expressway Extensions and Central Florida GreenWay 1990, Southern Connector Operation Authority Department Department Department Authority Authority Maintenance Department Department Department Department Authority Authority

Interlocal Agreements (36) The Authority and Orange County, Florida, have agreed in an Interlocal Agreement dated August 20, 1985, as amended and restated as of September 26, 1990, and as amended by County resolution on March 16, 1993, and October 12, 1993, that 80 percent of the gasoline taxes accruing to Orange County pursuant to Article XII, Section 9(c), Constitution of the State of Florida, as amended, are available for debt service on Authority bond issues in the event of

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Par. No. a deficiency in the Revenue Fund. No such deficiencies in the Revenue Fund occurred during the audit period. Related Audits (37) Our audit did not extend to an examination of the Authority's financial statements as of and for the fiscal year ended June 30, 1996. The Authority's financial statements as of and for the fiscal year ended June 30, 1996, were the subject of an audit of the Orlando-Orange County Expressway Authority conducted by a firm of certified public accountants and the audit report is on file in the Authority's office.

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Par. No. FINDINGS AND RECOMMENDATIONS (38) Section 348.753(1), Florida Statutes, created and established a body politic and corporate, an agency of the State, to be known as the Orlando-Orange County Expressway Authority (Authority). Section 348.754, Florida Statutes, grants the Authority power to acquire, hold, construct, improve, maintain, operate, own, and lease the Orlando-Orange County Expressway System as authorized by Chapter 348, Part V, Florida Statutes (see paragraph 16). (39) As discussed in paragraph 3, the Authority's activities during the audit period were related to the: (1) Western Beltway, parts A and C; (2) State Road 528 (Bee Line Expressway) rehabilitation; (3) State Road 408 (East-West Expressway) pavement striping; (4) East-West Expressway (State Road 408) interchange with John Young Parkway (State Road 423); and (5) the computerized toll collection and traffic management system, commonly known as E-Pass. Our review of these activities indicated that the Authority generally complied with governing provisions of laws, administrative rules, bond resolutions, and other guidelines. Our detailed findings and recommendations concerning some instances of noncompliance with governing provisions of laws, administrative rules, bond resolutions, and other guidelines, as well as those detailed findings and recommendations concerning deficiencies in the design or operation of the internal controls for those operations audited, are presented under appropriate subheadings below. Financial Condition (40) The Authority, in its previously issued audited financial statements, reported unreserved retained earnings deficits for the fiscal years ending June 30, 1993, through June 30, 1996; however, these deficits were primarily attributable to the application of accounting principles relating to depreciation, bond refunding, and other issues. The Authority's 1996-97 audited financial statements reported unreserved retained earnings of $116,723,000 at June 30, 1997. This positive unreserved retained earnings amount reflects the efforts of Authority management and the Authority's certified public accountant to thoroughly review and update the application of certain generally accepted accounting principles. -26-

Par. No. (41) Section 218.503(1), Florida Statutes, provides that a local governmental entity shall be in a state of financial emergency when one or more of certain specified conditions occur. Section 218.503(1)(d), Florida Statutes (1995), defined one of the conditions for determination of financial emergency as budget deficits for two successive years. Section 10.554(1)(b), Rules of the Auditor General for Local Governmental Entity Audits, as applicable to the 1995-96 fiscal year, defined a budget deficit as an unreserved or total fund balance or retained earnings deficit for which sufficient resources of the local governmental entity are not available to cover the deficit and for which the local governmental entity has not, through its budget process, made sufficient increases in revenues or reductions in expenditures (expenses) to prevent the occurrence of the deficit. (42) As shown on the Authority's previously issued audited financial statements for the fiscal years ended June 30, 1993, 1994, 1995, and 1996, the Authority reported unreserved retained earnings deficits of $16,680,000, $27,634,000, $47,826,000, and $45,861,000, respectively. Because the Authority's audited financial statements did not describe the specific resources available to cover these unreserved retained earnings deficits, we could not conclusively determine from our desk review of the audit reports whether the Authority had met the statutory definition of a state of financial emergency. However, our analysis of Authority financial records indicated that these previously reported deficits were primarily attributable to the application of accounting principles relating to depreciation, bond refundings, and other issues. Further, our analysis of the Authority's projected cash inflows and outflows for the fiscal years ending June 30, 1997, through June 30, 2023, the fiscal year in which bonded indebtedness currently outstanding will be repaid, disclosed that the Authority was not facing a financial crisis in terms of its ability to pay current or future obligations. (43) Subsequently, Authority management and the Authority's certified public accountant thoroughly reviewed and updated the application of certain generally accepted accounting principles. As a result, the Authority's audited financial statements for the 1996-97 fiscal year reported positive unreserved retained earnings of $116,723,000 as of June 30, 1997. This positive unreserved retained earnings balance was the result of the retroactive application of certain accounting principles related to depreciation of fixed assets, bond refundings, -27-

Par. No. capitalized interest, and bond discount/issue costs, and from the correction of an error in reporting a capital grant. Based on the Authority's 1996-97 fiscal year audited financial statements, the Authority does not meet the statutory definition of a state of financial emergency. (44) Through discussion with the Authority's certified public accountant, and examination of pertinent supporting documentation, we were able to determine that the accounting changes and corrections reflected in the Authority's 1996-97 fiscal year audited financial statements were in accordance with generally accepted accounting principles (GAAP), except for the Authority's change to the preservation method of accounting for infrastructure assets (i.e., roads and bridges). Existing authoritative literature does not conclusively indicate that the preservation method is acceptable under current GAAP. However, the preservation method, which is an alternative to the depreciation method of accounting for infrastructure assets, appears to be a reasonable method for accounting for the use of infrastructure assets and is used by other governmental entities within the transportation industry. Given the significant impact of this accounting change, which increased beginning retained earnings for the 1995-96 fiscal year by $95,474,000, we recommend that the Authority obtain written clarification from the Governmental Accounting Standards Board as to whether the preservation method of accounting for infrastructure is acceptable under GAAP. Budgetary Controls (45) During the 1995-96 fiscal year, actual expenditures exceeded the legal level of budgetary control established of record by the Authority (object level) for numerous expenditure categories. (46) Section 218.34(1), Florida Statutes (1995), requires the governing body of each special district to make appropriations but does not establish the level of detail at which the appropriations are to be made. Consequently, it is incumbent on the Authority to make appropriations, and adopt a budget, at the level of detail that it deems necessary in accordance with applicable provisions of State law and contractual agreements. Once the legal level of -28-

Par. No. budgetary control has been established by the Authority, expenditures must be limited accordingly. (47) Section 4.02 of the original lease-purchase agreement dated December 23, 1985, between the Authority and the Florida Department of Transportation (FDOT), requires that the Authority annually adopt a budget which is subject to approval of the Department. Section 4.04 of the original lease-purchase agreement described above provides that the Authority may at any time adopt an amended or supplemental budget which must be approved by the Department. Since the lease-purchase agreement does not establish the level of budgetary control, the only basis for determining the level of control for the appropriated budget is the budget document approved by the Authority. The budget document approved by the Authority and transmitted to the FDOT presented, for each fund, expenditures by object (e.g., salaries and wages, legal fees, etc.). These budgeted expenditures by object were integrated into the Authority's accounting system. The Authority Chairman, in a letter dated July 10, 1997, indicated that the Authority had established a policy that individual line items may be exceeded during the fiscal year provided that the total fiscal year budget is not exceeded. While we were provided with documentation evidencing that the Authority amended the 1992-93 fiscal year budget to allow individual line items to be exceeded, we were not provided with documentation evidencing that the Authority intended to apply this policy to future budgets. Accordingly, the only documented legal level of budgetary control established by the Authority for the 1995-96 fiscal year is the object level. (48) The Authority adopted the Administrative Fund, Operations Fund, and Maintenance Fund budgets for the 1995-96 fiscal year on June 28, 1995, which included 36 expenditure categories totaling $2,057,998; 50 expenditure categories totaling $18,007,855; and 46 expenditure categories totaling $5,943,854, respectively. These budgets were subsequently approved by the Florida Department of Transportation on August 17, 1995. During the 1995-96 fiscal year, amended Administrative Fund and Operations Fund budgets were adopted by the Authority on January 24, 1996, and approved by the Florida Department of Transportation on February 27, 1996.

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Par. No. (49) Section 218.34(1), Florida Statutes (1995), provides that it is unlawful for any officer of a special district to draw money from the treasury except in pursuance of appropriation made by law. Since the Authority established the legal level of control at the object level as noted above, Authority expenditures must be limited to the amounts budgeted by object as presented in the approved budget. As similarly noted in audit report No. 12255, paragraphs 38 through 41, our current review disclosed that, as of June 30, 1996, although none of the funds budgeted were exceeded in total, actual expenditures exceeded the approved budget for 7 expenditure categories totaling $10,427.21 in the Administrative Fund; for 13 expenditure categories totaling $439,001.71 in the Operations Fund; and for 13 expenditure categories totaling $372,507.11 in the Maintenance Fund. Overexpenditures in individual categories ranged from $510.04 in the Administrative Fund to $281,727.90 in the Operations Fund. (50) Subsequent to the audit period at its August 27, 1997, meeting, the Authority adopted a budget policy which allows for individual line items, other than salary line items, to be exceeded during the fiscal year provided that the total fiscal year budget is not exceeded. We will review the Authority's procedures for adhering to budgets adopted pursuant to Section 218.34(1), Florida Statutes, during our next audit of the Authority. Investments (51) The Authority invested moneys held in the Authority's Revenue Fund bank account in overnight repurchase agreements; however, because the Authority did not obtain the actual securities, trust receipts from a trustee, or third-party safekeeping receipts perfecting the Authority's secured interest in the securities pledged as collateral, such investments were subject to an increased risk of loss. (52) Section 218.345, Florida Statutes, authorizes the Authority to invest surplus public funds in various United States Government obligations and stipulates that such securities shall be properly earmarked and immediately placed in safekeeping in a safe-deposit box in a bank or institution carrying adequate safe-deposit box insurance. This Section further allows the Authority to receive bank trust receipts in return for investment of surplus funds in securities -30-

Par. No. and provides the actual securities on which the trust receipts are issued may be held by any bank depository chartered to operate as such by the United States Government or the State of Florida or their designated agents. (53) The Authority's Revenue Fund account includes moneys from toll collections, interest earned, and other miscellaneous sources. Moneys held in the Authority's Revenue Fund bank account were invested overnight in repurchase agreements pursuant to an agreement between the Authority and its bank. During the 1995-96 fiscal year, these investments ranged from $1,930,841.94 to $13,330,225.04. The Authority's investment in repurchase agreements was evidenced by a daily "Repurchase Agreement Confirmation" provided by the bank which described the securities pledged as collateral; however, the Authority did not obtain the actual securities, a trust receipt from a trustee, or a third-party safekeeping receipt perfecting the Authority's secured interest in the securities described in the "Repurchase Agreement Confirmation." Similar findings were also noted in audit report No. 12255, paragraph 34. (54) In the absence of trust receipts, there was nothing of record to indicate how the Authority would establish its preferential claim against such securities in the event the bank was unable to honor its agreement with the Authority. While our tests disclosed that the funds invested in repurchase agreements were returned to the Authority as agreed, we recommend that the Authority take appropriate steps to minimize the risk of loss through such investments either by obtaining and safeguarding the actual underlying securities or by requiring the bank to provide trust receipts evidencing the Authority's ownership of the securities purchased on its behalf. (55) The Executive Director, in his written response to paragraphs 51 through 54, stated that if the Authority did not invest its funds in an overnight repurchase agreement they would be negligent in their duties. We did not suggest that the Authority refrain from investing its moneys; however, we believe the investm ents in repurchase agreements should be secured by obtaining the actual securities or third-party safekeeping receipts. Although the Executive Director has indicat ed that the Authority obtains receipts for the securities identifying the securities held as collateral for the moneys invested, those -31-

Par. No. receipts serve only to identify the securities and do not provide assurance that the securities are pledged solely to secure the investment of Authority moneys and are held by an independent third party. Tangible Personal Property (56) The value of property shown on the Authority's listing of furniture and equipment ($771,040.30) had not been reconciled to the value of furniture and equipment recorded in the general ledger control account ($113,012.58). In addition, furniture and equipment purchases and Authority approved deletions had not been reconciled to changes to the property listing. (57) Section 273.02, Florida Statutes, requires each custodian to maintain an adequate record of property in his custody. Section 273.01(1), Florida Statutes, includes any "authority" within the meaning of custodian. Additionally, in opinion No. 83-20, the Attorney General opined that the term custodian was not limited to boards, commission, or authorities within the executive branch of State government, but rather it applies to any State board, commission, or authority regardless of which of the several branches of government such State board or authority may belong or be assigned to. Accordingly, the Authority is subject to the requirements of Chapter 273, Florida Statutes, and Chapter 10.300, Rules of the Auditor General for State-Owned Tangible Personal Property. (58) Section 10.350(6), Rules of the Auditor General, requires that a custodian-wide control account showing the total investment in property be maintained. Section 10.340(1), Rules of the Auditor General, defines control accounts as summary accounts designed to control accountability for the individual property records. Control accounts accumulate the total investment in property and, through entries to the control accounts documenting acquisitions, transfers, and dispositions, provide evidence of the change in that investment over periods of time as well as the total investment at any point in time. Control account totals should not be established by periodically summarizing the values recorded on the individual property records. Rather, entries to the control account should be derived from the documents

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Par. No. evidencing transactions and should be posted contemporaneously with entries to the individual property records. (59) Authority staff, as of June 30, 1996, had not reconciled the general ledger control account for furniture and equipment, with a reported value of $113,012.58, to furniture and equipment as shown on the Authority's listing of inventory by property number at a value of $771,040.30. According to Authority personnel, the difference between the value of the property listed and the general ledger control account balance resulted because the general ledger control account did not include property purchased prior to July 1, 1995. In addition, Authority staff did not compare furniture and equipment purchases and Authority-approved deletions with changes to the property listing. (60) Although we were able to locate those property items included in our tests and verify that the difference between the general ledger and subsidiary records was primarily attributable to the reasons cited above, effective control procedures require that policies and procedures be designed to provide reasonable assurance that recorded accountability of assets is established. We recommend that the Authority implement procedures to provide for a reconciliation of the control accounts and individual property records at reasonable intervals with appropriate action taken with respect to any differences, and that the control account be adjusted to reflect the correct amount of furniture and equipment. Such procedures should also provide for a comparison of furniture and equipment purchases and Authority-approved deletions with changes in the property records to ensure that all items are properly recorded and reported. Documentation of Expenditures (61) The Authority's power to expend public moneys is set forth in Chapter 348, Part V, Florida Statutes. Section 348.754(2)(1), Florida Statutes, states that the Authority is empowered "to do all acts and things necessary or convenient for the conduct of its business and welfare of the authority, in order to carry out the powers granted to it by this part or any other law." However, the discretionary authority to expend the public moneys for accomplishment of the Authority's purposes is not unlimited. Because of the fiduciary -33-

Par. No. responsibilities associated with the handling of public funds and the accomplishment of purposes set forth in law, certain constraints are imposed on all governmental entities in this State. While Chapter 348, Part V, Florida Statutes, contains several such constraints, additional legal compliance requirements to which the Authority is subject are found in various sections of the Florida Statutes (e.g., Section 112.061, Florida Statutes, which governs per diem and travel expenses of public officers, employees, and authorized persons). (62) No public official may take actions which are not authorized by law, either specifically or by necessary implication. To establish that official actions are proper, public officials have a duty to demonstrate the basis for their actions in the public records of the governmental unit they represent. In respect to the expenditure of public moneys of the Authority, its officials must, as a matter of record, demonstrate that expenditures were: (1) authorized by Chapter 348, Part V, Florida Statutes, or other applicable guidelines; (2) reasonable in the circumstances and necessary or convenient to the accomplishment of the authorized purposes of the Authority; and (3) in pursuit of a public, rather than a private, purpose. As the Authority is a special district, it possesses only such powers as are expressly or by necessary implication authorized or granted by statute. (63) In the absence of documentation establishing the foregoing purposes served by an expenditure, the basis in law for making such payments has not been established. The nature and extent of the documentation required to demonstrate the foregoing, as to a particular transaction, will depend on the nature of the transaction. However, as a general condition, the more unusual the transaction or the less apparent the authorized public purpose served by the proposed expenditure, the more extensive will be the need for detailed documentation establishing its propriety. The documentation of an expenditure in sufficient detail to establish the authorized public purposes served, and how that particular expenditure serves to further the identified public purposes, should be present at that point in time when the voucher is presented to the official empowered to make the payment of funds. Unless such documentation is present, the request for payment should be denied.

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Par. No. (64) Our audit disclosed several expenditures for which the authorized public purpose of the expenditure and/or the necessity of the expenditure in accomplishing the authorized purposes of the Authority had not been established of record. These expenditures are discussed in detail under the appropriate subheadings below. Related Organizations (65) Our audit disclosed several Authority actions taken with respect to the OOCEA Foundation, Inc., a not-for-profit corporation created by the Authority, that did not appear to be authorized by applicable State law. (66) On May 27, 1994, the OOCEA Foundation, Inc. (Foundation), a not-for-profit corporation, established pursuant to Chapter 617, Florida Statutes, was incorporated at the direction of the Authority. The purpose of the Foundation, as noted in the Articles of Incorporation, was "to receive contributions and make distributions in support of organizations that qualify as exempt organizations under Section 501(c)(3) of the Code and exempt from taxation under Section 501(a) of the Code within the Central Florida area." The initial Foundation Board of Directors consisted of the Chairman and Secretary/Treasurer of the Authority, the Authority's Executive Director, and an attorney employed by one of the Authority's law firms who also acted as the Foundation's incorporator. (67) The Foundation's revenue sources consist of donations, including moneys generated from fund-raising events. Donations also include surplus property donated by the Authority pursuant to Section 273.05, Florida Statutes. As of December 31, 1996, the Authority had donated approximately $59,660 of surplus property (based on historical cost) to the Foundation since its inception in May 1994. Surplus property received by the Foundation is subsequently auctioned off and the proceeds retained by the Foundation. Our audit disclosed the following Authority actions regarding the Foundation: The Authority incurred legal expenses totaling $8,762.99 relating to the creation of the Foundation. Subsequent to our inquiries regarding these expenses, the Foundation, on -35-

Par. No. June 10, 1997, reimbursed the Authority $8,762.99 for legal fees paid by the Authority on the Foundation's behalf. The Foundation's accounting records were maintained by Authority personnel. Although requested, Authority staff did not provide documentation evidencing how much time was spent by Authority employees for Foundation-related activities. We were informed by the Authority's Chief Financial Officer that the amount of time and effort spent by Authority staff to provide administration and accounting services to the Foundation is very minimal. (68) With the exception of Section 273.05, Florida Statutes, regarding the donation of surplus property, we are not aware of any legal authority that empowers expressway authorities to create, or utilize resources on behalf of, not-for-profit corporations. We recommend that the Authority seek clarification as to the legality of the creation of the Foundation and the above-noted Authority actions pertaining to the Foundation. (69) The Authority contributed $35,000 to the Metropolitan Planning Organization (MPO) towards the MPO's operating budget. While the Authority's contribution to the MPO may be necessary to facilitate the Authority's active participation in the MPO, the Authority's records did not demonstrate how the Authority determined that the $35,000 contribution was appropriate. (70) Section 339.175, Florida Statutes, provides for the creation of a Metropolitan Planning Organization (MPO) for each urbanized area of the State, to develop, in cooperation with the State, transportation plans and programs for metropolitan areas. Section 339.175(1)(b), Florida Statutes, provides that each MPO shall be created and operated under the provisions of this section pursuant to an interlocal agreement. The signatories to the interlocal agreement shall be the department and the governmental entities designated by the Governor for membership on the MPO.

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Par. No. (71) The Authority entered into an interlocal agreement dated March 16, 1993, which states that the purpose of the agreement was to assure eligibility for the receipt of Federal capital and operating assistance pursuant to various Federal laws, and to implement and ensure a continuing, cooperative, and comprehensive transportation planning process that results in coordinated plans and programs consistent with the comprehensively planned development of the affected urbanized area in cooperation with the Florida Department of Transportation. The agreement also provides that the MPO may accept funds, grants, assistance, gifts or bequests from local, state, and Federal resources. However, the agreement does not contain any provisions requiring the Authority to provide funding to the MPO nor does the agreement specify how each member's share of the MPO's funding needs would be determined. (72) On September 27, 1996, the Authority contributed $35,000 towards the operating budget of the MPO. According to the minutes for the Authority's June 26, 1996, meeting, the Authority is a member of the MPO by virtue of statute but had not previously contributed financially, and the $35,000 contribution represented one eighteenth of the MPO's operating budget for the upcoming fiscal year (i.e., the 1996-97 fiscal year). Our review of the MPO's 1996-97 fiscal year proposed budget disclosed that it did not specifically indicate that the MPO's funding sources were to include contributions from the Authority. As the Authority's active participation in the MPO is mandated by Florida law, it appears that the Authority's participation is necessary for the conduct of its business and, as such, that the Authority's contribution to the MPO is necessary to facilitate the Authority's active participation in the MPO. However, absent a provision in the MPO's budget and in the interlocal agreement addressing each member's share of the MPO's funding needs, it is not apparent how the Authority determined that the $35,000 contribution was appropriate. (73) We recommend the Authority obtain a copy of the MPO's operating budget and determine whether the $35,000 contribution was in the appropriate amount. We also recommend that the Authority take appropriate action to amend the interlocal agreement so that it addresses MPO funding by its members, including how the Authority's share of the MPO's funding needs is to be determined.

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Par. No. Other Organizations (74) The Authority made payments totaling $56,000 to the Minority/Women Business Enterprise Alliance, Inc. (Alliance) to provide funding for the operations of the Alliance and to fund a surety and risk assistance program. We are unaware of any statutory authority for the Authority to provide funding to not-for-profit organizations. (75) On October 31, 1995, the Authority disbursed $50,000 to the Minority/Women Business Enterprise Alliance, Inc. (Alliance), to provide funding for the operations of the Alliance. The Alliance was established on November 24, 1994, as a not-for-profit corporation pursuant to Chapter 617, Florida Statutes, to direct existing resources currently committed by public and private sources into a unified minority business assistance effort. Although the minutes for the Authority's October 25, 1995, meeting evidence Authority approval for this disbursement, they do not indicate the necessary public purpose served by the disbursement. On September 18, 1996, the Authority entered into a grant agreement to provide funding in the amount of $6,000 to the Alliance for the purpose of providing surety and risk assistance to minority and women-owned small businesses. Evidence of Authority approval for the $6,000 disbursement, which was made on October 24, 1996, is included in the minutes for the Authority's August 28, 1996, meeting; however, such minutes do not indicate why this disbursement was necessary to accomplish the purpose for which the Authority was established. (76) In response to our audit inquiry requesting specific legal authority for this contribution, the Authority's Chief Financial Officer cited Sections 255.101(2), 288.707, and 348.754(2), Florida Statutes, and concluded that the Authority's broad statutory powers to do anything necessary, appurtenant, convenient, or incidental to effectuate its powers and purposes can reasonably be deemed to include financial assistance to provide education, training, and technical assistance programs to the contractors and subcontractors needed for road construction projects. He further stated that Sections 255.101(2) and 288.707, Florida Statutes, which address utilization of minority-owned businesses, "illustrate the point that the Authority's powers certainly include the power to expand the ability for women and minority-owned businesses to compete for Authority contracts. The Alliance is the vehicle the Authority has -38-

Par. No. chosen to assist in meeting this statutory directive." Notwithstanding the Chief Financial Officer's response, we are unaware of any specific legal authority authorizing the Authority to expend funds for this purpose. (77) While expansion of opportunities for minority and women-owned businesses to compete for contracts is a commendable societal goal, it does not appear to be a purpose for which the Authority was established. We recommend that the Authority request an opinion from the Attorney General to clarify its authority to expend moneys for the purposes noted above. In the absence of an affirmative clarification from the Attorney General, the Authority should discontinue making payments for this purpose. (78) The Authority incurred expenses totaling $561.80 for food and alcoholic beverages relating to a reception for the Florida Transportation Commission. We are unaware of any specific legal authority for the Authority to expend funds for this purpose. (79) On December 11, 1996, the Authority, the Metropolitan Planning Organization (MPO), and the Efficient Transportation Commission of Central Florida co-sponsored a reception for the Florida Transportation Commission at Church Street Station and incurred expenses totaling $1,685.45 for hors d'oeuvres, sodas, and alcoholic beverages for 45 persons in attendance. The expenses were originally paid by the MPO which was subsequently reimbursed $561.80 on January 21, 1997, by the Authority for its share of these expenses. We are unaware of any specific legal authority for the Authority to expend funds for these purposes. On June 12, 1997, subsequent to our audit inquiry, the Authority requested that the MPO return the $561.80 to the Authority. The Authority should continue its efforts to recover this amount. Communication Expenditures (80) Telephone logs or similar records identifying the parties called and/or the purposes of telephone calls were not maintained by Authority staff for either long-distance or cellular telephone calls. In the absence of documentation evidencing the public purpose served by such -39-

Par. No. calls, Authority personnel could not be assured that the calls made served an authorized public purpose. (81) The Authority's communications system included participation in the SUNCOM Network which was established to provide communication services to State agencies, political subdivisions, municipalities, and nonprofit organizations, pursuant to Section 282.103, Florida Statutes. Also, the Authority utilized independent vendors to provide local, long-distance, and cellular telephone services. various Authority During the 1995-96 fiscal year, the Authority recorded including the Executive Director; Director of $152,582.55 for communication expenditures. Thirteen cellular telephones were assigned to employees, Construction/Maintenance; Director of Operations, Communications, and Marketing; and a representative of the Authority's maintenance contractor. (82) Our review of the Authority's communication expenditures for the 1995-96 fiscal year included an analysis of non-SUNCOM long-distance charges totaling $4,376.05 and cellular telephone charges totaling $8,155.89. For the long-distance and cellular telephone billings reviewed, the Authority, although requested, could not provide documentation indicating the public purpose of the calls. In the absence of documentation evidencing the public purpose served, Authority personnel could not be assured that the calls made served an authorized public purpose. (83) We recommend that the Authority develop procedures which will require, at a minimum, that the person placing the call, the party called, and the purpose of the call be documented for all long-distance toll calls and cellular telephone service calls made by Authority personnel. In addition, appropriate Authority personnel should use this documentation in performing the preaudit of telephone billings and seek reimbursement from any individuals making calls that do not serve an authorized public purpose of the Authority.

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Par. No. Travel Expenditures (84) Authority travel expenses are subject to Section 112.061, Florida Statutes, which governs per diem and travel expenses of public agencies, defined as any office, department, agency, division, subdivision, political subdivision, board, bureau, commission, authority, district, public body, body politic, county, city, town, village, municipality, or any other separate unit of government created pursuant to law. This law further states that the provisions of any special or local law, present or future, shall prevail over any conflicting provisions in Section 112.061, Florida Statutes, but only to the extent of the conflict; however, we are not aware of any such laws affecting the Orlando-Orange County Expressway Authority. Among the requirements of Section 112.061, Florida Statutes, are provisions establishing uniform rates (including the amounts of reimbursement that travelers may claim) and specific documentation requirements for the payment or reimbursement of travel expenses incurred by public officers, employees, and authorized persons in connection with official agency business. (85) The Authority incurred $45,372.48 for travel-related expenses during the 1995-96 fiscal year. Our audit included an examination of all Authority travel-related expenses during the 1995-96 fiscal year to determine whether such expenses were authorized in accordance with the above-noted State law and Authority guidelines. The results of our examination of these expenses are discussed below. (86) Statutes. (87) The Authority adopted a Personnel Policy Manual (Manual) which addressed, among other personnel matters, travel policies. Travel policy Section III.O. of the Manual refers to Attorney General Opinion No. 73-32 and states that "it has been determined that the employees of the Expressway Authority are not state employees and as such Section 112.061 does not apply." However, the Attorney General Opinion No. 73-32 does not address the provisions of Section 112.061, Florida Statutes, which applies to all public officers, employees, and authorized persons whose travel expenses are paid by a public agency. -41Section The Authority's travel policies were not consistent with Section 112.061, Florida

Par. No. 112.061(2)(a), Florida Statutes, includes any "authority" created pursuant to law within the definition of public agency. Section 112.061(2)(d), Florida Statutes, includes any individual who is filling a regular or full-time authorized position and is responsible to an agency head within the definition of employee. Accordingly, the employees of the Orlando-Orange County Expressway Authority are clearly subject to the provisions of Section 112.061, Florida Statutes. (88) Our review disclosed two instances in which the Authority's travel policies, as prescribed in the Manual, were not consistent with Section 112.061, Florida Statutes. The Manual's travel policy Section III.O.1.a. provides that the Authority will reimburse employees for actual meal expenses if substantiated by receipts. Section 112.061(6)(b), Florida Statutes, provides that travelers shall be allowed up to $21 per day for meals ($3 for breakfast, $6 for lunch, and $12 for dinner) and does not allow payment for actual meals. The Manual's travel policy Section III.O.8. provides that the Authority will pay charges for one personal telephone per day, not to exceed $5 per day, when an employee is out of town for business reasons. Section 112.061, Florida Statutes, contains no provisions for the reimbursement of personal long-distance telephone charges while traveling on official business. In addition, the Attorney General, in Opinion No. 75-7, indicated that telephone calls necessitated by considerations personal to the traveler are not reimbursable as a communication expense of the traveler. (89) The inconsistencies between the Authority's travel policy and Section 112.061, Florida Statutes, contributed to the instances of noncompliance with State law as discussed in paragraphs 90 through 92. The Authority should amend its travel policy to be consistent with the provisions of Section 112.061, Florida Statutes. (90) The Authority's records relating to travel expenses were not always adequate to demonstrate the authorized public purpose served and/or compliance with State law. (91) Pursuant to Section 112.061(3)(b), Florida Statutes, Authority employee travel expenses are limited to those expenses necessarily incurred by them in the performance of a public purpose authorized by law to be performed by the Authority and must be within the limitations prescribed by that Section. Our detailed examination of Authority travel-related -42-

Par. No. expenses during the 1995-96 fiscal year (56 transactions) disclosed that some of these expenses were not in accordance with State law as follows: Sections 112.061(5) and (6), Florida Statutes, establish guidelines for the payment of per diem and subsistence allowances to travelers while on official business. In seven instances totaling $154.45, amounts paid to travelers for meals were in excess of amounts allowed by Section 112.061(6)(b), Florida Statutes. In addition, in seven instances totaling $69, travelers were paid for meals for which they were not entitled to reimbursement based on times traveled or because the meals were included in conference/seminar registration fees. Subsequent to our inquiries regarding these expenses, the Authority recovered $48 of the $69 from the travelers. In 17 instances, personal telephone calls totaling $191.42 were reimbursed to Authority employees as travel expenses. It was not apparent from the Authority's records how these expenditures were incurred in the performance of a public purpose. In one instance, $53.80 was reimbursed to an employee for hotel room expenses; however, the employee was not entitled to such reimbursement since the hotel room had already been paid for with an Authority-issued credit card. The employee reimbursed the Authority for the cost of the hotel room on February 25, 1997 (15 months after the overpayment occurred). (92) Pursuant to law and Authority policies, adequate preaudit for travel and business expenses should include a review of the per diem meals allowed based on travel time and meals included in registration fees paid by the Authority to ensure that reimbursements were made in accordance with applicable laws. Adequate documentation for travel expenses should include explanations evidencing the necessary and authorized public purpose served by the expenditures. We recommend that, in the future, the Authority reimburse members/employees only for those expenses authorized by Section 112.061, Florida Statutes, and at the meal allowances rates authorized by that Section. We also recommend that Authority personnel review the remaining $366.87 of questioned travel expenses disclosed by our audit ($468.67 -43-

Par. No. of questioned travel expenses less $101.80 already recovered), details of which were provided to Authority personnel, and recover amounts which were not authorized by Section 112.061, Florida Statutes. Lobbying Services (93) The Authority contracted with and made payments during the 1995-96 fiscal year to two consultants to provide lobbying services. Although the Authority concluded that the consulting services were necessary to the conduct of the Authority's statutory responsibilities, the Attorney General has opined that public funds may not be expended by statutory entities for lobbying purposes unless expressly and specifically authorized by State law. (94) below: The Authority entered into a contract with one of the consultants dated January 7, 1994, and executed contract extensions dated December 21, 1994, and January 24, 1996, that covered the period January 7, 1994, through January 6, 1997. Payments to this consultant totaled $33,000 for services rendered during the 1995-96 fiscal year. The services to be provided by this consultant in accordance with the contract and subsequent extensions consisted of, among other matters, legislative representation with respect to matters involving State governmental or regulatory bodies, the provision of specialized assistance in guiding the Authority's proposals through the Legislature, and other similar assignments as directed by the Authority. The Authority entered into a contract on March 22, 1995, with the second consultant which stated that services to be provided consisted of legislative representation including: reviewing and reporting on all pertinent pending transportation legislation and appropriations affecting Central Florida and the Authority; assistance in the preparation of requests for funding for various transportation projects to the United States Department -44The Authority paid a total of $86,338.90, including $4,338.90 for reimbursable expenses, to two consultants for services rendered during the 1995-96 fiscal year as noted

Par. No. of Transportation, the Federal Highway Administration, the United States Congress, and other appropriate governmental agencies; and provision of specialized assistance in expediting and processing applications submitted to Federal regulatory bodies. While the contract was between the Authority and the consultant, several other local governmental entities participated in the cost of the services rendered by the consultant and received the same benefits from such services as did the Authority. Payments relating to the Authority's share of the cost of the consultant contract totaled $31,740.39, including $3,740.39 in reimbursable expenses, for services rendered for the period July 1, 1995, through December 31, 1995. Effective January 1, 1996, the Authority entered into an interlocal agreement with Orange County, which provided that the County would act as contract administrator for the consulting contract with the same consultant. The agreement provided that the Authority would provide annual funding in the amount of $42,000 plus expenses to the County for the purpose of funding the consultant contract. The consultant's contract with the County contained similar provisions to the contract noted above. The Authority's share of the cost of the consultant contract totaled $21,598.51, including $598.51 in reimbursable expenses, for the period January 1, 1996, through June 30, 1996. (95) In response to our inquiry as to the specific legal authority relied upon in entering into a contract and making payments for lobbying services, the Authority's Chief Financial Officer cited Section 348.754, Florida Statutes, and concluded:
"Section 348.754 of the Florida Statutes sets forth the Authority's general powers and purposes. These purposes include acquisition, construction, improvement, maintenance and operation of the Orlando-Orange County Expressway System (as defined in Section 348.752(13), Fla. Stat.) and appurtenant facilities. The Authority is further granted all powers necessary, appurtenant, convenient or incidental to carry out the foregoing purposes (348.754(2)). The statutory sections governing the authority, powers and purposes of the Authority do not prohibit the expenditure of Authority funds for legislative consulting services."

Notwithstanding the Chief Financial Officer's response we were not provided any specific statutory authorization for the Authority to contract and make payments for lobbying services.

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Par. No. (96) The Attorney General has expressed in numerous opinions the general principle that public funds may not be expended by a statutory entity unless there is a specific statutory provision authorizing such expenditure. More specifically, the Attorney General has opined that public funds may not be expended by statutory entities for lobbying purposes unless expressly and specifically authorized by State law (see Attorney General Opinions Nos. 77-8, 85-4, and 87-39). We recommend that the Authority request an opinion from the Attorney General to clarify its authority to expend moneys for services such as those described in the above-noted contract. In the absence of an affirmative clarification from the Attorney General, the Authority should discontinue making payments for lobbying services. Right-of-Way Acquisitions (97) Section 348.754(2)(c), Florida Statutes, grants the Authority the power to acquire, purchase, hold, lease as lessee, and use any franchise, property, real, personal or mixed, tangible or intangible, or any interest therein, necessary or desirable for carrying out the purposes of the Authority. Additionally, Section 348.759(1), Florida Statutes, provides that the Authority may acquire private or public property and property rights by gift, devise, purchase, or condemnation by eminent domain proceedings. The primary factor affecting the Authority's decision to acquire properties is whether those properties are necessary to the construction, improvement, extension, repair, maintenance, and operation of the Expressway System authorized by Chapter 348, Part V, Florida Statutes. (98) As a matter of general legislative policy and as interpreted, from time-to-time, by the courts of the State, public moneys should be expended for the acquisition of property only in amounts commensurate with the property's market value and, if factors other than the appraised value of the property acquired affect the determination of price, those other factors should be fully identified in the public record of the participating governmental unit to document management conclusions followed in expending public moneys. (99) In exercising the powers granted by law, the Authority should establish a system of internal control for the acquisition of property which ensures that: -46-

Par. No. The Authority obtains adequate and reliable information on which to base its decisions relative to the identification, selection, and acquisition of property. Decisions of the Authority are implemented in accordance with applicable laws and administrative rules and in an economic and efficient manner. The negotiation process is property documented and the executed and approved contract to purchase is fair and equitable to the Authority and the property owners. Titles of and rights to properties purchased are properly and timely conveyed to the Authority. (100) Our review of the Authority's internal control system relating to the acquisition of property and its actions relating to selected properties acquired during the audit period pursuant to Sections 348.754(2)(c) and 348.759(1), Florida Statutes, disclosed deficiencies which indicated the need for improvement in established procedures to provide assurance that the Authority acquires property in accordance with applicable laws, administrative rules, and good business practices. (101) The Authority initially attempts to acquire properties through direct negotiation with the property owner whereby the Authority and the property owner are able to agree on a purchase price. However, if the property owner is not satisfied with the Authority's offer and a direct negotiated settlement cannot be reached, there are other methods by which the Authority can acquire property including: Eminent domain proceedings, whereby the Authority files a petition in the Circuit Court of the county in which the property is located requesting that the property be condemned and taken for the use and purpose stated by the Authority. In this process, a 12-member jury is impaneled to determine the amount of compensation to be paid to the property owner.

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Par. No. Court-ordered (sometimes referred to as private) mediation, whereby an independent third party hears the arguments of both the Authority and the property owner and reviews documentation supporting claims made by either party. (102) The Authority obtains real estate appraisals to provide a basis for its decisions regarding the acquisition costs of the Expressway System right-of-way, regardless of the method used to acquire the property. Settlements, whether by direct negotiation, mediation, or condemnation, are greatly influenced by the credence placed on the facts presented in appraisal reports. Consequently, the adequacy (completeness and documentation) of appraisal reports is critical to the acquisition process. (103) The Authority's Right-of-Way Acquisition Procedures Manual, dated May 27, 1992, describes the right-of-way acquisition process to be used. After the project is designed and title information is obtained, the Authority contracts with independent appraisers for appraisal and appraisal review services. The Manual requires that negotiations with the property owner begin only after an offer letter has been prepared which includes, among other things, the tabulated fair market value of all fee takings, easement, and access rights (if applicable), and a fair market breakdown (land value, damages, cost-to-cure estimates, etc.). This information is determined through the appraisal process. If negotiations are successful, the transaction is closed. If unsuccessful, eminent domain proceedings may begin. (104) The Authority acquired 21 parcels of property during the 1995-96 fiscal year, including 13 parcels totaling $11,013,300 acquired through negotiated right-of-way agreements and 8 parcels totaling $3,938,879 acquired through condemnation by eminent domain proceedings. We selected 6 of the parcels acquired through negotiation for review. Those 6 parcels, with their appraised values and purchase prices, were as follows:

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Par. No.
Parcel Number 61-123 61-129 61-147 61-149 61-153 220-100 Purchase Price $1,821,300 1,950,000 1,200,000 2,000,000 1,050,000 1,800,000 $9,821,300 Appraised Value $1,825,000 924,000 1,092,000 1,339,000 1,030,000 1,685,000 $7,895,000 Difference $ (3,700) 1,026,000 108,000 661,000 20,000 115,000 $1,926,300 Percentage Difference (.20)% 111.04% 9.89% 49.37% 1.94% 6.82% 24.40%

(105)

The Executive Director, in his written response to our findings and recommendations regarding the Authority's right-of-way acquisition process, did not concur with our findings. The Executive Director, in several instances, questioned the accuracy of statements included in our findings and/or indicated that we did not have a proper understanding of the Authority's Right-of-Way Acquisition Procedures Manual (Manual). However, he did not provide additional documentation or information not previously considered by us during the course of the audit and used in developing our conclusions and recommendations. We continue to believe that our statements and conclusions regarding the Manual and the Authority's right-of-way acquisition procedures appropriately address matters that should be resolved by the Authority and its management. Appraisal Reviews

(106)

The Authority's Right-of-Way Acquisition Procedures Manual requires that appraisal reports be reviewed by qualified review appraisers to ensure the appraisal reports are mathematically correct, complete, reasonable, and in conformance with the Uniform Standards of Professional Appraisal Practice. For three of the six parcel acquisitions we reviewed, the review appraiser noted deficiencies in the appraisal report; however, Authority records did not evidence that these appraisal report deficiencies, several of which were major deficiencies, had been corrected.

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Par. No. (107) The Right-of-Way Acquisition Procedures Manual stated that appraisals must comply with the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation. We reviewed the appraisal reports for each of the above parcels. Generally, the appraisal reports conformed with USPAP and were reported in a summary report format option. The reports were technically accurate, except for some problems which were noted by the Authority's review appraisers (see discussion below). Due to the nature of our review, we did not determine whether additional market data may have been available for consideration by the appraisers and review appraisers in the appraisals that we reviewed. (108) The Right-of-Way Acquisition Procedures Manual requires that appraisal reports be reviewed by a qualified review appraiser for conformance with the USPAP, and that the appraisal review include a thorough check of all mathematical calculations and a review of the completeness of the appraisal, and reasonableness of the appraiser's conclusions. The Manual also provides that appraisal reviews must conform with USPAP Standard 3, Review Appraisal and Reporting. We reviewed the Authority's appraisal reviews of the six parcels and noted three instances in which the review appraiser noted deficiencies in the appraisal report. The review for parcel 61-149 noted only minor deficiencies. However, the reviews for parcels 61-123 and 61-147 noted several major deficiencies. The review appraiser cited instances in both reports in which the appraiser did not provide adequate support for value conclusions and did not comply with applicable provisions for reporting appraisal conclusions under USPAP. However, with the exception of some mathematical errors that were corrected regarding parcel 61-147, we were not provided with documentation evidencing that these deficiencies had been corrected. We recommend that the Authority implement procedures to ensure that documentation evidencing compliance with USPAP standards including correction of deficiencies noted by the review appraiser be retained in the Authority's files. Purchase Agreements (109) Our review disclosed three instances in which the Authority reached agreement on the purchase price for a parcel identified for right-of-way acquisition before the Authority's -50-

Par. No. appraisal report was completed, reviewed, and accepted. Purchase prices for two of these parcels were 49.37 and 111.04 percent greater than the appraised values. In the absence of an independent appraisal for these parcels at the date of the purchase contract, it is not apparent how the Authority made an informed purchase offer on the parcels. (110) The Right-of-Way Acquisition Procedures Manual outlines steps to be taken in the right-of-way acquisition process. After the appraisal report is completed it is reviewed by an appraisal reviewer and revised as necessary. Upon completion of the appraisal review and acceptance of the appraisal by the Authority, an offer to purchase (price) should be established based on the appraised market value and any other valuation studies conducted. An offer to purchase is made to and negotiations are conducted with the property owner. the Authority for approval. Upon approval by the Authority, a closing is scheduled. (111) Our review disclosed three instances in which the Authority entered into a purchase agreement for a parcel identified for right-of-way acquisition before the Authority's appraisal report was completed, reviewed, and accepted by the Authority as noted below: The purchase agreement for parcel 61-123 was signed by the property owner on March 6, 1996, and by the Authority Chairman on March 25, 1996. The appraisal report was dated April 2, 1996, with a valuation date of March 27, 1996. The appraisal review report was dated April 12, 1996. The Authority entered into a purchase agreement with the property owner 8 days prior to the appraisal report and 18 days prior to the appraisal review report. The purchase agreement for parcel 61-129 was signed by the property owner on March 4, 1996, and by the Authority Chairman on March 25, 1996. The appraisal report was dated April 15, 1996, with a valuation date of March 20, 1996. The appraisal review report was dated May 9, 1996. The Authority entered into a purchase agreement with the property owner 21 days prior to the appraisal report and 45 days prior to the appraisal review report. -51If the negotiations are successful, a purchase agreement is signed by the owner and is presented to

Par. No. The purchase agreement for parcel 61-149 was signed by the property owner on March 11, 1996, and by the Authority Chairman on March 25, 1996. The appraisal report was dated April 15, 1996, with a valuation date of March 20, 1996. The appraisal review report was dated May 9, 1996. The Authority entered into a purchase agreement with the property owner 21 days prior to the appraisal report and 45 days prior to the appraisal review report. (112) For two of the three acquisitions noted above the purchase price significantly exceeded the Authority's subsequent appraised value. While the purchase price for parcel 61-123 was slightly (.20 percent) under the appraised value, the purchase prices for parcels 61-129 and 61-149 were 111.04 and 49.37 percent, respectively, greater than the appraised value. In response to our inquiry as to why the Authority entered into these purchase agreements without benefit of an appraisal report certified by the review appraiser, the Authority's right-of-way attorneys indicated that parcels 61-129 and 61-149 were subject to pending inverse condemnation actions at the time the Authority contracted to purchase them. The response also stated that the Authority was exposed to very significant damage claims in connection with these parcels and that the Authority was able to have these lawsuits dismissed and receive general releases from the sellers in connection with the contract sales. However, although we are aware that these parcels involved inverse condemnation suits exposing the Authority to damage claims, it was not apparent from the Authority's records why the Authority could not wait for the appraisal reports before entering into these purchase agreements. (113) The attorneys' response further stated that after a general agreement is reached with a seller, a contract is executed by the seller and "conditionally accepted" by the Authority; the Authority is not bound until final acceptance; and the above-noted purchase agreements did not receive final Authority approval prior to the Authority having received a review certification of the appraisal. We acknowledge that these purchase agreements contained a conditional acceptance provision whereby the Authority had 45 days to accept or reject the agreement and that the Authority did not reject any of these agreements. However, the appraisal review reports for parcels 61-129 and 61-149 were dated 45 days after the purchase agreement date (see paragraph 111). As such, it is not apparent how the Authority could have given adequate -52-

Par. No. consideration to the appraisal report within the 45-day period. Furthermore, the purchase agreements included a provision assuring that the property owner would receive at least the agreed-upon compensation regardless of the appraised value (see paragraph 116). Therefore, although the appraised values for parcels 61-129 and 61-149 were subsequently determined to be lower than the purchase offers, it appears that the Authority was precluded from rejecting the agreements on that basis. (114) In the absence of an independent appraisal for the above-noted parcels at the date of the purchase contract, it is not apparent how the Authority made an informed purchase offer on the parcels. With an independent appraisal available, the Authority may have been able to negotiate a purchase price that was closer to the appraised market value of the parcels. We recommend that the Authority follow the procedures outlined in its right-of-way acquisition procedures manual by first obtaining an acceptable appraisal report, which has been subjected to an appraisal review, prior to making a purchase offer. (115) For four of the six parcel acquisitions we reviewed, the purchase agreement included a provision that required that the property owner be paid the agreed-upon purchase price or the appraised value, whichever is higher, and obligated the Authority to pay the agreed-upon purchase price even if the appraised value was determined to be less than the purchase price. This provision appears to be contrary to the Authority's Right-of-Way Acquisition Manual which requires that negotiations attempt to reach a fair settlement and protect the interest of both the property owner and the Authority. (116) Four of the six purchase agreements we reviewed, including parcels 61-129 and 61-149 for which the Authority paid 111.04 percent and 49.37 percent, respectively, above the subsequent appraised market value, contained contract provisions that stated, "In the event the appraised value of the Property as set forth in the Appraisal (the "Appraised Value") is greater than the Purchase Price set forth herein, then the Authority shall pay as the Purchase Price, the Appraised Value. In the event the Appraised Value is less than the Purchase Price set forth herein, then the Authority shall nevertheless, pay the Purchase Price set forth in Paragraph 3." Once a purchase agreement with this provision is signed and approved by the Authority, the -53-

Par. No. property owner is assured of receiving the agreed upon compensation, regardless of the appraised market value established by the Authority's appraisal. Conversely, the Authority is obligated to pay the higher compensation, regardless of the appraised market value. (117) The Right-of-Way Acquisition Procedures Manual requires that negotiations with property owners be conducted in good faith at all times with an honest and sincere effort to reach a fair settlement for the acquisition. The Manual further states that care should be exercised at all times by the negotiator to completely and honestly protect the interest of the affected property owner and the Authority. While the property owner's interests are of importance, the above-noted provision does not appear to be consistent with the Manual in that it could result in a settlement that is not in the Authority's best interest. We recommend that the Authority discontinue the use of purchase agreements with the noted provision. Motor Vehicle Assignment and Use (118) Authority-owned and/or leased vehicles were assigned to four employees on a full-time basis. The Authority had not established adequate written policies governing the assignment and use of Authority vehicles. Vehicle usage records were not maintained and/or adequate to identify and report the amount of taxable fringe benefits attributable to the personal use of the vehicles. Also, the Authority had not included the value of the personal use of employer-provided vehicles in reporting earnings for the employees, contrary to applicable United States Treasury Regulations. (119) During the 1995-96 fiscal year, Authority-owned and/or leased vehicles were assigned to four employees (the Executive Director; Director of Construction and Maintenance; Director of Operations, Communications and Marketing; and Manager of Maintenance Administration) on a full-time (24-hour) basis. United States Treasury Regulation Section 1.61-21(a) provides that gross income includes compensation for services, which includes the fair market value of any fringe benefits not specifically excluded from gross income by another provision of the Internal Revenue Service Code. An employer-provided automobile and fuel

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Par. No. are fringe benefits that, unless otherwise excluded, must be included in the employee's gross income as compensation for services. (120) Audit inquiry disclosed that the Authority had not established adequate written policies governing the assignment and use of Authority vehicles. For example, the Authority's vehicle use and maintenance policy did not require that vehicle usage records include the time of departure and return and a certification that the mileage was expended in connection with the traveler's duties with the Authority. The policy did require usage records to show the purpose and destination. However, vehicle usage records were not available for three of the vehicles assigned on a 24-hour basis and, although records were available for the remaining vehicle assigned on a 24-hour basis, such records did not provide sufficiently detailed information regarding the purpose and destination. We also noted that Authority personnel had not taken steps to identify and report the amount of taxable fringe benefits attributable to the personal use of the vehicles. Given the lack of adequate vehicle usage records, it was not practical for us to determine the extent to which vehicles assigned on a 24-hour basis had been used for personal use. (121) We recommend that the Authority seek clarification from its legal counsel as to reporting the value of personal use of employer-provided vehicles for Federal reporting purposes and take whatever corrective action is necessary to comply with Federal tax regulations. We also recommend that the Authority amend its written policies governing the assignment and use of Authority vehicles so that the extent of personal use of vehicles assigned on a 24-hour basis can be determined. Prior Audit Findings (122) For those programs, activities, functions, and classes of transactions within the scope of this audit, the Authority has substantially corrected the deficiencies noted in audit report No. 12255, except as noted in the preceding paragraphs of this report.

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Par. No. (123) In audit reports No. 11736 and 12255, paragraphs 219 and 47, respectively, we noted that Authority personnel were unable to provide us with a detailed listing showing the cost (or estimated fair market value at the date of acquisition for donated land) for each parcel of land acquired to date for right-of-way acquisitions totaling approximately $279,000,000. Our review during the current audit period disclosed that the Authority had substantially corrected this deficiency and had documented the cost for approximately 87 percent of the $302,744,000 reported as right-of-way (land) acquisitions as of June 30, 1996. We recommend that the Authority continue its efforts to document the cost of right-of-way acquisitions.

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Par. No. STATEMENT FROM AUDITED OFFICIAL (124) In accordance with the provisions of Section 11.45(7)(d), Florida Statutes, a list of audit findings and recommendations was submitted to the State of Florida, Orlando-Orange County Expressway Authority. The Executive Director's written responses to the audit findings and recommendations included in this report are shown as Exhibit C. AUDIT AUTHORITY (125) Pursuant to the provisions of Section 11.45(7), Florida Statutes, I have directed that this audit report, including all Exhibits thereto, be prepared to present the results of the operational audit of the State of Florida, Orlando-Orange County Expressway Authority. Respectfully submitted,

Charles L. Lester, CPA Auditor General

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EXHIBITS The following Exhibits are attached to and form an integral part of this report: EXHIBIT - A EXHIBIT - B EXHIBIT - C Map of Expressway System. Organizational Chart. Statement from Audited Official.

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STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY MAP OF EXPRESSWAY SYSTEM

EXHIBIT - A

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EXHIBIT - B

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY ORGANIZATION CHART As of June 30, 1996

ORGANIZATION
AUTHORITY BOARD

Executive Director Chief Financial Officer Director of Operations, Communications, and Marketing Director of Business Development Director of Construction/Maintenance

Deputy Executive Director/ Director of Engineering

PROJECT MANAGEMENT

AUTHORITY BOARD Florida Department of Transportation

Staff

Legal Counsel

General Engineering Consultant

Traffic and Earnings Consultant

Toll Facility Operations and Management Services Contractor

Planning and Design Consultants

Maintenance Management Counsultant

Construction Engineering and Inspection Consultants

Maintenance Contractors

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STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997

EXHIBIT - C

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EXHIBIT - C (Continued)

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997

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STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997

EXHIBIT - C (Continued)

Audit Report Par No.

Managements' Response

(40-44)

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EXHIBIT - C (Continued)

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997

Audit Report Par No.

Managements' Response

(45-50)

(51-55)

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STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997
Audit Report Par No.

EXHIBIT - C (Continued)

Managements' Response

(51-55)

(56-60)

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EXHIBIT - C (Continued)

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997

Audit Report Par No.

Managements' Response

(56-60)

(65-68)

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STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997
Audit Report Par No.

EXHIBIT - C (Continued)

Managements' Response

(69-73)

(74-77)

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EXHIBIT - C (Continued)

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997

Audit Report Par No.

Managements' Response

(74-77)

(78-79)

-68-

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997
Audit Report Par No.

EXHIBIT - C (Continued)

Managements' Response

(80-83)

(86-89)

-69-

EXHIBIT - C (Continued)

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997

Audit Report Par No.

Managements' Response

(86-89)

(90-92)

(93-96)

-70-

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997
Audit Report Par No.

EXHIBIT - C (Continued)

Managements' Response

(93-96)

-71-

EXHIBIT - C (Continued)

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997

Audit Report Par No.

Managements' Response

(97-105)

-72-

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997
Audit Report Par No.

EXHIBIT - C (Continued)

Managements' Response

(106-108)

(109-114)

-73-

EXHIBIT - C (Continued)

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997

Audit Report Par No.

Managements' Response

(109-114)

-74-

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997
Audit Report Par No.

EXHIBIT - C (Continued)

Managements' Response

(109-114)

(115-117)

-75-

EXHIBIT - C (Continued)

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997

Audit Report Par No.

Managements' Response

(115-117)

(118-121)

-76-

STATE OF FLORIDA ORLANDO-ORANGE COUNTY EXPRESSWAY AUTHORITY STATEMENT FROM AUDITED OFFICIAL For the Fiscal Year Ended June 30, 1996 and Selected Authority Actions Taken During the Periods July 1, 1993, Through June 30, 1995, and July 1, 1996, Through September 12, 1997
Audit Report Par No.

EXHIBIT - C (Continued)

Managements' Response

(118-121)

(122-123)

-77-