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3 golden objects Minnesota Legislature

Office of the Legislative Auditor - Program Evaluation Division

Physical Plant Management and Operations: Follow-up


July 1991

Physical Plant Operations is a major support department of the University of Minnesota's Twin Cities campus. It employs over 1,300 workers and spends $79 million a year to repair, clean, heat, and cool campus buildings. In August 1988, our office issued a program evaluation and financial audit of Physical Plant. We found a need to improve financial controls, operating efficiency, and employee supervision--particularly in Physical Plant's maintenance shops. In February 1990, we conducted a brief review of changes at Physical Plant and concluded that "the progress still required by Physical Plant is more noteworthy than the progress that has been made." In April 1990, the University hired a new Assistant Vice President for Physical Plant, and she finished assembling a new management team in October 1990.

In February 1991, we began a more complete follow-up of our 1988 Physical Plant report. In addition to a review of management issues and Physical Plant's maintenance and custodial operations, the follow-up included a financial audit. We asked:

  • What changes have occurred since our 1988 report, and what have been the effects of these changes so far?
  • How do Physical Plant's costs and staffing levels compare to other universities'?
  • Does Physical Plant adequately manage its finances, and does it have appropriate internal controls?
  • Are Physical Plant's customers satisfied with maintenance and custodial services?

Overall, we found that Physical Plant's new management team has articulated a reasonable plan for improving cost-effectiveness, accountability, customer satisfaction, and financial controls. Some important foundations have been laid for future changes. But change has been slow in the three years since our original report, and most of the problems cited in 1988 still exist. It remains to be seen whether management's proposed changes, which constitute the most significant reorganization in the recent history of Physical Plant, will result in a more cost-effective organization that improves service to customers and has the confidence of employees.

Our financial audit suggests that Physical Plant has several material weaknesses in its internal control structure that impair its efforts to achieve important financial objectives. Because some of these weaknesses result from more general problems with University financial systems, Physical Plant will need the support of University administrators to make the recommended changes.

Shop and Custodial Operations

Our 1988 report found that Physical Plant was an expensive and often inefficient operation--particularly the maintenance shops. Work was not properly planned and there was an inefficient system for transporting workers to job sites. Compared to workers in similar organizations, shop workers were more specialized and more highly paid. Physical Plant lacked an effective preventive maintenance program. There was inadequate supervision of both maintenance and custodial workers.

Most of these problems still exist today, although management has started to address some of them. We reviewed data from a national survey of university physical plant costs and found that:

  • The University of Minnesota's costs for custodial and maintenance services are still above the norm for similar universities.

In 1989-90, the University of Minnesota employed fewer custodians per square foot than comparable universities. However, Physical Plant's custodial costs per square foot were about 40 percent higher than the median costs of other Midwest research universities. It is not clear whether this is solely due to higher salaries, but we did find that Physical Plant's starting salaries are higher than those paid by most comparable schools, and its average salaries are higher than those paid by most Twin Cities employers.

Minnesota's 1989-90 building maintenance costs per square foot were about one-third higher than the median of other Midwest research universities, and the starting salaries of selected trades workers were 24 to 43 percent higher. The University negotiated a contract with the trades workers in June 1990 that reduced overtime and premium pay, but did not change its practice of paying prevailing construction wages to maintenance workers.

We also examined customer satisfaction with Physical Plant's maintenance and custodial work. Based on 303 survey responses from University deans, department heads, and program directors (a 75 percent response rate), we found that:

  • Most customers believe that Physical Plant's maintenance work is high quality, but inefficient and too costly. Most customers think that custodial service levels are inadequate.

One of the main causes of shop inefficiency cited in our 1988 report was the lack of work planning and scheduling. To date, only minor improvements have been made, although management intends to fully implement daily work scheduling, backlog monitoring, and systematic preventive maintenance in 1991. We found that 32 percent of a recent sample of shop tickets from the Minneapolis campus had time estimates, compared to 10 percent in 1988. Despite this improvement, the Minneapolis shops still lag far behind the St. Paul shops, which develop estimates for 70 percent of shop tickets. Physical Plant has improved its system of transporting workers to job sites, mainly through the purchase of additional vehicles and by encouraging workers to walk, when possible.

The adequacy of Physical Plant supervision will depend largely on the quality of people selected to fill supervisory positions recently restructured by management. Through internal promotion or outside hiring, more than 40 people will be selected in 1991 to supervise maintenance and custodial workers. Physical Plant continues to have insufficient in-house supervisory training. Management hired a personnel consultant in 1990--partly to develop supervisory training--but only one two-day course was offered in the past year, in addition to considerable one-on-one training. Also, most Physical Plant employees still do not receive performance appraisals from their supervisors.

Organization and Management

Our 1988 report noted that effective organizations have several common characteristics. Such organizations have logical reporting relationships, clear lines of authority, effective internal and external communications, high morale, and clear objectives. In 1988, we found that Physical Plant had an awkward and ineffective organizational structure. Management did not communicate effectively with employees, and employees distrusted management. Physical Plant management also did not communicate effectively with other University units, including the Board of Regents. We reviewed these issues again in 1991.

In general, Physical Plant has a more effective organization and management team today than it had three years ago. Physical Plant now reports to the Senior Vice President for Finance and Operations, who has been able to commit more time to Physical Plant issues than did the Vice President for Academic Affairs. Several of Physical Plant's top managers have been replaced, resulting in a more cohesive management team that seems to be working toward common goals.

Our conclusions about the effectiveness of Physical Plant's organization and management team are tentative because a major reorganization is now being implemented. Management wants to improve the efficiency and effectiveness of Physical Plant's services, while encouraging wiser investments of construction and maintenance funds in University facilities. Most shop employees will work in only one part of the campus, rather than being dispatched from a central location to a variety of work sites around campus. Within each zone of campus, a general supervisor will oversee the work of both custodians and maintenance workers, who now function separately. In a broad sense, we think management has conceived a reasonable plan. However, the plan must stand the test of implementation, and management still needs to articulate timelines for improvements and measurable objectives.

Internal communications within Physical Plant have improved since 1988, but there remains considerable room for improvement. About 100 supervisors have been trained in communication skills, and the management team has taken more time to meet with employees and respond to questions. However, management decided to announce its reorganization proposal to employees before all of the details were worked out, which has engendered distrust and resentment among many employees. Management has expressed a commitment to greater employee involvement in decision making under the new organization.

Physical Plant management has, with considerable success, given high priority to improving its relations with external groups, such as the Board of Regents, University departments, and organized labor. However, we think the relationship between Physical Plant and the University's Office of Physical Planning needs to be addressed. Physical Plant management's recently-stated goal of managing facilities on the Twin Cities campus, rather than simply providing custodial and repair services to buildings, potentially duplicates the role played by Physical Planning.

Financial Management

Our 1988 audit revealed numerous deficiencies in Physical Plant's internal control structure. We found incomplete financial information and inadequate budget techniques. We also expressed concern about the equity of rates charged for services and the potential cost of the University's deferred maintenance backlog. The 1988 audit also cited several areas, such as inventory and personnel, that needed better control procedures.

In our current audit, we found that:

  • Most of Physical Plant's problems with internal controls remain unsolved. The new management team has concentrated its initial efforts on addressing the fundamental flaws in Physical Plant's control environment and accounting system.

The current internal control structure contains significant material weaknesses which impair management from achieving important financial objectives. In addition, we again found several deficiencies in the control procedures used by Physical Plant.

Of particular concern, the financial information on Physical Plant's operations remains incomplete. The University accounting system provides Physical Plant with financial information on only the portion of service costs paid for from Physical Plant's operating budget. For fiscal year 1990, we identified additional expenditures of $23 million for services which Physical Plant charged to other University department budgets. These additional expenditures account for over 30 percent of Physical Plant's total service costs. Further, the lack of information in University accounting records prevented us from verifying the accuracy and completeness of these additional expenditures. As a result, we concluded that Physical Plant's financial information provides an unreliable basis for assessing its operations.

We found that Physical Plant continues to lack a clear definition of the basis for its operating budget. Management has not clearly articulated what levels and types of services it intends to provide from the operating budget. Thus, we could not determine whether expenditures qualified as "routine" services payable from Physical Plant's operating budget or "nonroutine" services for which the user department was liable. Further, there is no clear policy on which University activities should be defined as "support" activities, which entitles them to receive Physical Plant services at no charge.

The lack of precision in the Physical Plant budget has resulted in the accumulation of significant residual balances. As of June 30, 1990, over $19 million was unspent. Of this amount, $12.7 million was committed to long-term encumbrances, $5.5 million had been accumulated for specific operating and asset replacement reserves, and $1.5 million was available free balance. Ironically, the residual balances have accumulated at a time when Physical Plant has a sizable backlog of deferred maintenance. Physical Plant has identified maintenance deficiencies at the University that it estimates would cost $300 million to correct. However, the University has not formulated a meaningful plan for how to address a problem of such magnitude with its limited resources.

We also found that Physical Plant has accumulated and utilized its heating plant reserves in an arbitrary manner. Our 1988 audit cited the volatile financial activity of the heating plant as a problem. Physical Plant has since begun to accumulate reserves to counter this volatility. However, we found that the reserve amounts were calculated arbitrarily and that operating reserves have been used in an inequitable manner. Physical Plant used $1.6 million of operating reserves to pay off a loan to central administration and $1.3 million to finance deficits which had accumulated in the utility budget for "support" units.

Finally, we found various problems with the control procedures for several financial areas. We identified problems with controls over inventory, billings, and payroll costs. We also questioned the amounts paid for some repair and replacement projects and settlements made by central University administrators with past Physical Plant administrators.

Physical Plant management has taken note of the weaknesses in its internal control structure. The new management team has concentrated its initial efforts on addressing concerns relating to Physical Plant's control environment and accounting system. It has devised a new organizational structure and begun efforts to communicate its expectations and philosophy. Also, the University is developing a new accounting system.

We recognize that management must address these fundamental issues first. Once the management team has established the importance of internal control in Physical Plant, it will be more successful in designing and implementing effective control procedures.


Most of the problems we found in our 1988 review of Physical Plant still exist today, and many of the earlier recommendations are still applicable. Within this report, we make many recommendations for specific changes. A few of our most important recommendations are worth highlighting here.

Although we are encouraged that Physical Plant's current managers appear to have worked hard in the past year to address the department's deficiencies, there has been less progress than we think is reasonable in the three years since our first report. We think the University should be held more accountable for results than it has been in the past.

To accomplish this, it is essential that Physical Plant managers develop more concrete objectives for improvement, particularly related to the cost of services. Physical Plant remains an expensive operation, and costs are a primary source of frustration with University customers. Management should set goals for efficiency and cost control, and have more specific timetables for making changes within the department.

Physical Plant also needs to address the basic weaknesses in its internal control structure. To improve financial management and track progress toward objectives, Physical Plant management must have more complete information on its expenditures. Management must also establish the policies that clarify which services will be paid from Physical Plant's budget.

In addition, management should do better financial planning. Physical Plant has not maximized its own funds at a time when the University has a large deferred maintenance problem. Physical Plant has also set rates for utilities without determining the appropriate levels for operating and capital reserves.

Finally, we think the University should clarify the respective roles of Physical Plant and the Office of Physical Planning. These roles have never been clearly distinguished, but Physical Plant management's new focus on facilities management heightens the need for clarification. If necessary, the University should consider merging functions.



Office of the Legislative Auditor, Room 140, 658 Cedar St., St. Paul, MN 55155 : or 651‑296‑4708