Chairman Vaughn It is 2 p.m. and I call to order the March 24th, 2026 meeting of the Texas Transportation Commission Audit Subcommittee in Austin, Texas. Note for the record that public notice of this meeting, containing all items on the agenda, was filed with the Secretary of State at 2:26 p.m. on Monday, March 16th, 2026, which is at least seven days prior to the meeting in accordance with government code section 551.044. At this time, I would like to ask that before we begin today's meeting, you place also cell phones and other communication devices in the silent for off mode. All speakers should state their name and title before speaking. Thank you and I will now turn the meeting on Chief Audit and Compliance Officer, Parsons Townsend. Chief Parsons Townsend Thank you. Thank you Chairman Vaughn. At this time, I ask for everyone's full attention to the screen as we show the safety video describing emergency exits and other emergency procedures. Greer Building Safety Video Narrator The following is a safety briefing to help ensure your personal safety while at the Texas Department of Transportation Greer Building. In case of a medical emergency, please call 911. An automated external defibrillator is located here on level one, in the main lobby at the security booth. The first aid kits are marked and located on each floor. Fire extinguishers are marked and located on each floor. In the instance of an evacuation, proceed to the nearest exit. Once outside, proceed to the west parking lot of the Greer Building, located at the corner of Congress Avenue and 11th Street. In case of a tornado or inclement weather, stay inside and move away from exterior walls and windows. The designated shelters are: stairwells, basement, interior hallways, and centrally located restrooms. In case of an active shooter or bomb threat, follow instructions from the public address system and on-site security personnel for more details. Thank you for your time. Have a safe and productive meeting. Chief Parsons Townsend Thank you, I turn the media back over you, Chairman Vaughn. Chairman Vaughn All right. Thank you. Now we will open with comments from my fellow commissioner. Commissioner Alvis, do you have any comments for us today? Commissioner Alvis Well, only just really to thank you for your three year journey. Chairman Vaughn You're welcome. It was a real pleasure. And, you know, everyone here made that pretty easy on me. Commissioner Alvis Thank you. I wanted to thank you publicly for that. Looks like it's all right. And I have no further comments. Chairman Vaughn I have no further comments, so we will now consider the approval of the minutes from December 16th, 2025 quarterly audit subcommittee meeting. Minutes have been provided. Commissioner Alvis I move to approve Chairman Vaughn Seconded. And all in favor, say aye. Commissioner Vaughn and Chairman Vaughn Aye. Aye. Chairman Vaughn Motion carries. I will now turn the meeting over to Chief Townsend Chief Parsons Townsend Thank you Chairman Vaughn. Item three is the compliance division update. Division Director Cheryl Durkop will present this item. Director Cheryl Durkop Good afternoon Chairman Vaughn and Commissioner Alvis. The Compliance Commission is presenting a summary of investigations (referring to SLIDE 5 of the presentation] for the second quarter of fiscal year 26, as well as the results of our annual metrics. The summary of investigations includes fraud, waste and abuse, as well as EEO investigations. Overall, for the quarter, we received 212 allegations. We initiated 26 investigations and substantiated 13 of the 30 investigations that we closed, resulting in a substantiation rate of 43%. Significantly, this quarter, we substantiated two third party investigations concerning falsification of laboratory equipment calibration results. In both cases, as a part of TxDOT's independent assurance annual lab audit, vendor lab employees submitted equipment calibration records for 2025 that were identical to calibration records submitted in 2024. Both vendor labs have been referred to the sanctions committee. Also significant this quarter, we substantiated two investigations regarding violations of non-disclosure agreements. One case was the result of a mistake in email communication, and the employee received verbal coaching. The second case involved an employee sharing with a vendor a screenshot of vendor names who had bid on the contract. In this case, the employee resigned before disciplinary action was assigned. So these are [referring to SLIDE 6 of the presentation] the results of our investigations that were closed during a quarter. The third party violations were the most common allegation investigated this quarter. We substantiated four cases that included a lapse of insurance, submission of a falsified invoice, and the two vendor labs who falsified equipment calibrations. Are there any questions about our quarterly results? Commissioner Alvis No questions here, thank you. Director Cheryl Durkop Here [referring to SLIDE 7 of the presentation] you're seeing the substantiated allegations by category over the past 12 months. The third party investigations have increased this quarter after multiple quarters trending down. This is due in part to the identification of those falsified equipment calibrations at third party labs. And while the allegations of workplace harassment and workplace violence do continue to be reported. We're seeing fewer cases that are being substantiated. So that downward trend has also continued. There any questions on our 12 month summary? Chairman Vaughn Question. Well, we just we noted earlier Parsons and I were discussing this. You know, the flip side or the negative is third parties are up and the other policy violations, but it sounds like you're very much on top of that and tracking that stuff. Chief Parsons Townsend Yes. Yes sir. And we're still communicating with the district engineers as we update these facts to let them know what we're seeing so they can communicate the right message down to staff to help reduce some of this. As you can see, with the reduction on the EEOC side and the workplace harassment. Chairman Vaughn Overall, great results. Good job. Director Cheryl Durkop The compliance division metrics include measures for staff training and certification, site audits, timeliness, triage, processing, investigative readiness, quality assurance standards, and outreach activities. The division did meet or exceed these performance measures. There is a lot of positive to report here, but there are also a few items that we need to continue to work on. We did meet eight out of ten of our performance metrics. The two items that we did not meet. The first was report issuance timeliness. This metric is looking at two different types of reporting and two different types of engagements. Our external audits and compliance reviews. This is our first year incorporating the compliance review into the metric. And we're working to establish an appropriate baseline for those. On the second metric not met, is for our Smith safety driving all our compliance employees did take and complete the training. However, we did have several employees with three employees who did not take the required timeframe. So our areas of focus for the next quarter and moving forward include reassessing our project timelines for report issuance dates and monitoring those long term three year schedules for training. Any questions I can ask you? Commissioner Alvis None here Chief Parsons Townsend Thank you, Cheryl. Moving onto item four the internal audit division update. The division director, Craig Otto, will present this item. Director Craig Otto Thank you, Parsons. Good afternoon everyone. I'll take you through two audit engagements as well as discuss, briefly, the audit division metrics, similar to what Cheryl did. Item 4.a.1. take you through the first audit, which is the Multiple Use Agreements (MUA) audit. And, you know in this one kind of the primary thing to keep in mind is we had 514 active ways, these multiple use agreements that get access working with public entities. Oftentimes they could be the cameras DPS uses and our right-of-way for license plate reading. But we also have parking underneath, in our right-of-way, underneath interstates and things of that nature too. So there could be hiking bike trails, any anything like that. But again, there were 514 active at the time of the engagement. Areas of improvement, things that we saw that, you know, we will talk about here on the next slide is you know, again, tracking our MUA's making sure that we're in agreement with these public entities as to are they still active or not. And if they are closed they should be recorded as such. Also making sure that we have proper oversight and monitoring of these. It is our property and we do want to make sure it's in [an attendee sneezed and meeting members said "bless you" to them] good light and all agreements are being followed. Is in, good light and making sure that, you know, all agreements are being followed. Go to the next page [referencing SLIDE 11 of the presentation]. The things that, areas that we that we found way for findings. Overall, the overall rating on this audit again was a yellow priority three rating. So again, not severe risk. But I think what's important about this again is you know, you know, some of these things again is going to take a little bit more cooperation collaboration between TxDOT is to start in the districts as well as these public entities and things that we, we focus, you know, as again, as I said, is making sure that we have proper tracking. So there were three, different elements of areas where, we had numbers, we had the maintenance division, that tracks these as well as the districts and divisions. And then you also had OnBase, which is sort of the repository system. And so we saw three differing numbers. And again, the fix on this is getting together and taking a look at each of these active agreements, all MUAs, but also trying to determine which ones are active and making sure that there's consistency and communication. So a district may be notified that a public entity does want to prolong that any longer, and of course that information needs to get back to the divisions as well. So we just want to make sure that all parties are having that collaboration and consistency of communication. In terms of oversight there is dual approval responsibilities, with the district and maintenance division. For nine of the 11, or 82% of parking lots, where an MUA was created, they had no. There's two primary clauses that our contracts should include, and that's right to audit, and then there's also a nominal fee when some of what that nominal fee is, we want to make sure that, you know, there's a adjust fee that's being charged to the, to the citizens and making sure that that fee does not necessarily go above and beyond the construction of the maintenance and the operations of it. Otherwise, they're walking away to big profit. And two things can happen. One is if we see that those costs are exorbitantly high. And again, that's communication between the districts and those those public entities providing financial information. Tell us how much money you're making. Well, we want to make sure that if it does exceed that, that limit, then you have to put a proposal together. That's going to say as well, how are you going to potentially utilize that money could be doubling of the parking spots, repainting, doing all that type of stuff. Or TxDOT could create a lease or basically the revenue would come back to us and we would work with those public entities in that fashion. There were two MUAs that, that did have those, clauses in there, but again, the, we were unable to verify the fees collected because that's going to us having to ask for financial information, which in some cases they weren't even prepared to provide, etc.. So again, those agreements have information in there that we need to continue to, you know, invoke and make sure that they are understanding that on an annual basis there's things that have to be complied with. And so again, districts working with the maintenance division and those public entities, there's a process that's going to help improve that and make sure that communication is there. Also the monitoring some of these locations again could be anywhere. One of the things that is required on an annual basis after the entity or MUA has been create is there is an inspection on an annual basis going out there seeing, you know, looking for graffiti and vandalism and things of that nature, the ones that we did go and visit, there was only one, that wasn't very well maintained. And of course we then, discuss that with, with the district to make sure that that's something that they're going to continue to look at. Are there any questions as it relates to item 4.a.1 Multiple Use Agreements by TxDOT? Commissioner Alvis Do these come up for renewal? Director Craig Otto Well, they go to perpetuity. So basically once they're signed, they auto renew. Commissioner Alvis So basically they auto renew? Director Craig Otto Right. Commissioner Alvis We don't get another bite at the apple? And then you go. Does it have a default provision in there for lack of cleanliness and maintenance? Director Craig Otto I believe, I believe there is something against stipulating that. But again it's up for us to determine and go to see. Commissioner Alvis And we're inspecting those at the district level, not at a general consensus of what the holding them to a cleanliness standard to designate bike trails and park and etc. and I'm finding a lot [unintelligible]. Yeah. So, has it including this report next month, could you kind of tell us maybe what we could do to tighten up the default provision to put these municipalities on notice for cleanliness... of some sort like litter, trash, etc. Director Craig Otto Okay. It's some sort of where we feel like. So. Yeah. Yeah, it's a, it's a PR then thing, you know. Executive Director Marc Williams It's like the, one of the key findings that came out of this commissioner inconsistency on our side. Yeah. You know that, we are not always consistently holding these entities to the same standard, and depending upon what district you're in or even what area engineer you may be getting or director of maintenance, there may be different standards. Commissioner Alvis Just because it was, you know, it is a reflection on this agency. And so I think just an overall thought process can be put in place kinda... Executive Director Marc Williams This will be a part of the follow up action. You know, follow up actions that come out of this will be to include... Director Craig Otto Commissioner, to your first question in some of these signed years ago did and over time people change and things of that nature and you sort of forget what's involved in some of these things. Commissioner Alvis And so I think they all should have the right to terminate. Yeah. Well, wouldn't you agree? Thank you. Thank you. Chairman Vaughn No, those are good points. You said there's 519 Director Craig Otto 514, yeah Chairman Vaughn Good stuff, you divide that by 25 districts. But I'm sure there's a lot more to balance among Houston or Dallas. But, it doesn't seem, you know, I think the time element, the issue, you know, the turnover of personnel over what kind of leads to this. But, you know, each district on average hit 20 to check out each year. Seems like a very doable. Director Craig Otto Absolutely. Thank you. Item 4.a.2. Construction Change Order Price Justification audit. And this again, focus mainly on the purchase if we can aspects of line items that are being added as part of a change order. Things we also looked at too, is within this process, there's oftentimes verbal approval as provided upfront. And that's again to get the work commenced, keep things moving along. So if we move to the next slide [referring to SLIDE 13 of the presentation].Things that we found again are two findings, overall was a yellow priority three. So you know, nothing of huge materiality substantiation, but things again to keep in mind that this is in relation to the verbal approvals. So yeah, within the verbal approval, you know, there needs to be support and substantiation for who provided it. And also then it also be included in our system of record. The other thing that we noted, with, with verbal approvals is at some point the change order does need to be documented, signed, handwritten, signed, etc. and what we saw on this is that sometimes there was a range between 32 to 344 calendar days between that verbal approval of the work commencing to the point of actual signature. So again, you know, many things potentially could be could be possibilities in terms of causes. But, you know, there's going to be more meaningful expectation that once the work is completed within 30 days, that documented signature needs to be had. And so there will be, again, more of that monitoring and observation of that, rather than just feeling that it's being completed and done. So again, there's going to be a lot more eyes on that to make sure that that process is not taking such an extenuated amount of time. And then also looking at the pricing aspect. So we sampled, line items within, you know, these change orders. And again, what we're looking for here is making sure that there's documentation and just cause for what it is that we will be paying in regards that change order. We did see some missing documentation again. Also, oftentimes it's the retention of it, for about $5.9 million. It was about 34 out of 69 light items that were we actually saw and total those up, those things could be certified payrolls and verifying the labor cost that's associated with it. There could be invoices missing as well, as well as Blue Book values. So as you look at the second item in regards to outdated equipment sources, typically on a quarterly basis, there's publications that we can go on and take a look at that, that book value of that equipment. What we saw was being used for stuff that might have been eight months to three years old. So again, we want to make sure we pull in more current substantiation for justifying those prices. And then lastly, in regards to, missing detail. As you go through these change orders and on the line items to it, or it needs to be a declaration of fair and reasonable pricing. And so that was missing, $1.7 million of the change or climate change. Was that we had looked at. So again, working with the business, our audit clients, they understand this. They know, you know, construction division actually even, audits on a quarterly basis to help also try to justify the completeness of all this too. So again, it's, I think we kicked a few tires here. I think we got, you know, some alertness to some areas that we need to pay a little bit more attention to. But again, overall, you know, decent audit for priority three reading. So any questions as it relates to the construction change order or price justification audit? Commissioner Alvis Yes. As you were going through that, I guess we have two ways to do change order, time and materials, plus contractor profit. Or bid the change order and accept the price that comes in. In both cases, are they held to that contract or profit on those change orders that was in the contract or allowing it to slip out of there? Or do you know the percentage? Director Craig Otto I looked at my team and I'm not sure if we did so go ahead. Director Duane Milligan [guest speaker was asked to come up to the table and state their name and title before speaking] Duane Milligan Director of the construction division. So, for change orders, there are two ways that we we handle those. What is with, existing bid prices? So existing bid prices have unit cost and, unit cost. They have that built in. So we don't typically add markups for profit overhead for those. The second is time and materials and, and for that we do include profit in and overhead. Standard markups for... Commissioner Alvis Is that typically our option for? Director Duane Milligan Again so we've got standard percentages for equipment, labor, and materials. We've got standard markup percentages that we apply to those, those three. So it's just kind of we do the math. The contractor shows us what their labor, equipment, materials costs, and we apply those those markups to those numbers. Commissioner Alvis Thank you. Director Craig Otto The last item is in relation to the internal audit division metrics. We had, six of the metrics. Just to give you a little bit of highlight what those might include. So there's continuing professional education, that my team is expected to complete on an annual basis, there's professional certifications that we're trying to push more on our staff to incentivize them in our profession to, develop better acumen and, and also look at the internal quality assessments. So we perform an internal quality assessment. And every three years we have an external part come out in that will be coming up here in a few months. And we'll meet up for that later this year. Also client surveys, wanting to make sure how our business clients think, the job that we did. Then there's also an internal external, collaboration. So we meet annually with that. We talk about the risk assessment process from them. We also work with our partners at AASHTO And there's also peers of mine and Parsons' at other state agencies that we get together on a quarterly basis and talk about the ins and outs, talk about what's going on across street legislation. So our expectation is that we attend those and if we can, when we get someone to attend and, they look to us oftentimes, in terms of how we lead, not only from a national perspective, but also, you know, within state. There's also a safety component to driving, defensive driving, which we also, because we are on the field quite a bit, we do want to make sure that our staff are properly trained in that capacity. So we met those when we did not meet was the audit action plan completion. So the expectation is as any audit starting in Q1, Q3, those will get done by the end of the fiscal year. There were two that did not get done by the end of August. One was completed September or the other was December. And and again, corrective actions for that is because we began working with our business partners to make sure that there's better and earlier deliberation on the action plan. Sometimes those can help, depending upon the multiple parties that may be involved in the finding. But again, we need to, you know, be keep that in the forefront of our mind to make sure that we fulfill our obligations as we communicated through our metrics. And again, overall, good job. But, you know, we look to improve upon that in the next fiscal year. So any questions in relation to those metrics? Chairman Vaughn No questions. Thank you. Chief Parsons Townsend Thank you Craig. All right. Commissioner Vaughn, with our agenda items completed I now turn the meeting back over to you, sire. Chairman Vaughn All right. Thank you. The, time is take 2:24. And we will recess to executive session in accordance with Government Code Section 551.071 and 551.074. For the record again, it is 2:24. [Chairman Vaughn, Commissioner Alvis, Chief Parsons Townsend, Chief Counsel Jeff Graham, and Executive Director Marc Williams recessed to executive session - held in a conference room adjacent to the meeting room] Chairman Vaughn Okay. We will now reconvene the open session. And for the record, it is 2:41. With all the agenda items concluded, are there any other comments? Commissioner Alvis, No comments. Chairman Vaughn Okay, chairman, we plan to conduct the next Texas Transportation Commission Audit subcommittee meeting on May 20, 2026. There being no other comments, may I have a motion to adjourn? Commissioner Alvis I move to adjourn. Chairman Vaughn Seconded. And all in favor, say aye. Commissioner Vaughn and Chairman Vaughn Aye. Aye. Chairman Vaughn Motion carries. Please note for the record, the time is 2:41.