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DCR Does Not Perform Inspections of All Leased Properties or Ensure That All of Its Lessees Comply With Liability Insurance Requirements.

The audit found that DCR still has problems ensuring that leases of its properties adhered to the insurance and property maintenance provisions of their use agreements. This finding follows-up on prior audit work.

Table of Contents

Overview

In our prior audit, we found that DCR did not ensure that lessees of its properties adhered to the insurance and property maintenance provisions of their use agreements. Not appropriately monitoring and enforcing these provisions creates a significant risk that the interests of the Commonwealth and the public may not be properly protected, that Commonwealth assets may not be properly maintained and cared for, or that unauthorized use of DCR property may not be detected. During our current audit, we found the following problems:

  • Ten out of 64 use agreements we sampled that called for user liability insurance coverage did not have certificates of insurance7 on file. Although the remaining 54 use agreements did have certificates of insurance on file, 12 did not identify DCR as the additional insured, which would ensure that DCR was covered in the event of an insurance claim against it. Because DCR does not always obtain evidence of current liability insurance that complies with use agreements, the Commonwealth may be liable for property damage or an injury to someone using state property.
  • Of 64 use agreement files we reviewed, 59 (92%) had no documentation indicating that property inspections were performed. Without properly completed inspections for skating rinks, cottages, and other properties under use agreements, there is inadequate assurance that DCR properties are properly maintained.

Authoritative Guidance

DCR use agreements stipulate the following:

  • Permittees/lessees must carry liability insurance in specified amounts.
  • Permittees/lessees must provide DCR with current certificates of insurance issued by insurers qualified to conduct business in Massachusetts.
  • The Commonwealth/DCR must be named as an additional insured party on the certificates of insurance.

Prudent business practices suggest that requiring lessees to abide by such terms obligates DCR to have controls in place to ensure that certificates of insurance are on file and that DCR is named as an additional insured party. They also suggest that properties associated with use agreements should be routinely inspected to detect any noncompliance with use agreements or other unauthorized use of DCR properties.

Reasons for Noncompliance

DCR has not established policies and procedures for insurance certificates and inspections. In addition, DCR management stated that because of insufficient staffing levels, the agency cannot perform property inspections and monitor liability insurance requirements. These officials also pointed out that there is no requirement that DCR periodically inspect these properties. However, in OSA’s opinion, periodic inspections of properties would be in in the public’s best interest, as they would allow DCR to detect any misuse of Commonwealth properties.

Recommendations

  1. DCR should establish and implement the necessary policies and procedures to ensure that all required certificates of insurance are on file and meet use agreement requirements.
  2. DCR should keep a certificate of insurance on file for each agreement that has a user liability insurance obligation.
  3. DCR should consider establishing a formal requirement of periodic inspections of all of its leased properties.

Auditee's Response

As discussed with OSA staff during the course of the audit, DCR does not have any obligation to conduct ”inspections” of its leased or permitted property, nor do staff have the appropriate credentials to perform certain types of inspections (such as plumbing, electrical work, etc.). Because DCR Operations staff are generally present at the various DCR properties and are better positioned to be aware of issues as they arise, they notify Permits and Leases staff of issues relating to agreement compliance. Nevertheless, Permits and Leases staff does in fact conduct site visits for hockey rinks and fixed concessions to the extent feasible, and for DCR leases (when required by the lease terms). Permits and Leases staff does not conduct site visits for Boat and Yacht Club permittees or Cottage permittees, as those buildings are not owned by DCR, but are owned by the permittees. Since November 2015, the Permits and Leases unit has had a written standard operating procedure for staff to follow in conducting site visits, which has been updated and revised twice since 2015, a copy of which was provided to OSA staff during the audit.

With respect to insurance, DCR’s leases and long-term permits include standard provisions requiring the respective lessees and permittees to carry liability insurance in the amounts specified in those agreements. Those provisions include a standard requirement that the Commonwealth of Massachusetts / DCR be named as an additional insured. We note that municipalities are often self-insured and do not buy insurance, and in some cases, their agreements may not reflect that. In addition, federal agencies do not buy insurance. Going forward, we will ensure that the insurance requirements in our agreements properly reflect the insurance obligations of these types of permittees and lessees. We further note that where the insurance certificates were not physically in the agreement file, in some instances, DCR had received the insurance certificates electronically but had not yet been printed them out and included them in the file. In addition, in many cases, DCR staff were actively working with the permittees and lessees to have them obtain and provide corrected insurance certificates, i.e., proper endorsements, correct name of the certificate holder, etc.

DCR, with the assistance of TRA, has established a collection and reminder procedure to ensure that all required Certificates of Insurance are on file and meet with use agreement requirements. TRA has entered a field in the DCR agreement database to show whether insurance is current or soon to expire. On a monthly basis, TRA generates information from the database to use to send to DCR a list of agreements with insurance requirements which will expire in the next sixty (60) days. DCR staff discusses the list with TRA staff to decide whether letters need to be sent to the permittees and lessees. Once decided, letters are sent prior to expiration of the last known insurance term to permittees and lessees to remind them of their obligation to have updated insurance certificates sent to DCR. Insurance certificates received by DCR or TRA are transmitted to the other. Since instituting this process in 2017, there has been increased success in obtaining evidence of up to date insurance coverage.

As noted, the Permits and Leases unit has a Procedures Manual which contains detailed information on the work processes of the unit, including information pertaining to different types of agreements, the [Request for Proposals] process, file maintenance, insurance requirements, work flows, and the approval process. The Manual will be revised to include the process improvements described above with respect to ensuring that insurance certificates are routinely updated and maintained. The Manual is in draft form, and we anticipate it will be finalized shortly.

Auditor's Reply

OSA acknowledges that there is no specific requirement for DCR to perform inspections of all of its leased properties. However, we believe it is a prudent business practice to inspect all leased properties routinely to detect any noncompliance with use agreements or other unauthorized use of DCR properties. Further, although we acknowledge that there are some situations where certificates of insurance cannot be obtained, as in the case of self-insured municipalities, in those instances DCR should note this fact in lessees’ files so that there is documentation that DCR has determined that the lessees have proper insurance coverage.

Based on its response, DCR is continuing to take measures to address our concerns in this area.

7. Section 1 of Chapter 175L of the Massachusetts General Laws defines a certificate of insurance as ”a document or instrument, regardless of how titled or described, that is prepared or issued by an insurer or insurance producer as evidence of property or casualty insurance coverage.”

Date published: June 14, 2018

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