Transcript American Recovery and Reinvestment Act: Challenges Facing

ARRA Related Audits and
Investigations
Joseph Comé
Assistant Inspector General
for Highway and Transit Audits
Darren Murphy
Program Director
Office of the AIG for Aviation and
Special Program Audits
Presentation before the
National Fraud Prevention
Awareness Conference
David Pouliott
Program Director
Office of the AIG for Highway
and Transit Audits
John W. Long
National Director
ARRA Investigations
1
OIG Mission and Recent
Accomplishments

The OIG supports DOT in meeting its goals of safety,
reduced congestion, global connectivity, environmental
stewardship, security, and organizational excellence.

OIG output for the past 6 months of fiscal year 2010:
 48 audit reports with 188 recommendations;
 Over $800 million in financial recommendations;
 39 indictments and 31 convictions; and
 Nearly $19 million in fines, restitutions, and
recoveries.
2
On the Lookout for Stimulus Fraud
By
Published: September 17, 2009
The conventional estimate is that 7 percent of
government spending is lost to waste, fraud or abuse.
Some government officials are warning that using that
percentage, $55 billion worth of the $787 billion stimulus
package would be lost. To try to prevent that, the various
Federal inspector general offices, state comptrollers and
auditors, and Federal and local prosecutors have trained their
sights on the stimulus money.
Recovery Act Added New
Challenges to Longstanding Ones
The Recovery Act
provided over $48 billion
for DOT’s aviation, highway,
transit, maritime, and rail
programs. Funded existing
programs, mandated new
ones, and added
substantial new
requirements.
After years of extensive research, I have
concluded beyond any doubt that I need
more grants!
4
Distribution of ARRA
Funds within DOT
DOT
Component
Stimulus
Funds
(Millions)
Percent
of Total
Federal Highway Administration
$27,500
57.15%
Federal Railroad Administration
$9,300
19.33%
Federal Transit Administration
$8,400
17.46%
Office of the Secretary of Transportation
$1,500
3.12%
Federal Aviation Administration
$1,300
2.70%
$100
.21%
$20
.04%
$48,120
100.00%
Maritime Administration
Office of Inspector General
Total
5
OIG’s ARRA Oversight
Strategy: 3-Phase
Risk-Based

Audit:
Phase 1: Conduct comprehensive review of prior work.
Phase 2: Conduct scans of DOT modal programs.
Phase 3: Conduct audits of high-risk areas.

Investigations:
Conduct fraud awareness and prevention activities to alert DOT
staff and grantees, including contractors, at all levels of government
on how to recognize, prevent, and report suspected fraud.
6
Phase 1: Identify ARRA
Challenges for DOT
• OIG Methodology
 Conduct a comprehensive review of prior DOT OIG work, and
 Relevant work of other organizations (e.g., GAO).
• Reported Challenges for DOT:
 Ensure the Department's grantees properly spend ARRA funds.
 Implement new accountability requirements and programs mandated
by ARRA legislation (e.g., High Speed Rail).
 Combat fraud, waste, and abuse. Grantees and their contractors
need to understand how to recognize, prevent, and report potential
fraud to the appropriate authorities.
7
Phase 2: Scan DOT Modal
Programs to Evaluate Vulnerabilities
Methodology:

Conduct scans across DOT’s modal programs.

Use a standardized methodology.

Issue one report covering programs Department-wide.
Reported Vulnerabilities:
Action required now to address problems:
 In project selection for the FAA Airport Improvement program and
MARAD Small Shipyards Grant Program.
 In staffing at FAA, FRA, FTA, and MARAD.
 In DOT-wide suspension and debarment.
Although no deficiencies are evident now, sustained focus required regarding:
 Project selection for FHWA and FTA.
 Project and contract oversight at FHWS, FTA, and OST.
 Fraud.
8
Federal Transit Administration (FTA)
Oversight of state and local project planning will require sustained
FTA attention to avoid imprudent spending. For instance, FTA
provided $424 million to the Fulton Street Transit Center (NYC)
despite already experiencing large cost increases and schedule delays.
9
Maritime Administration (MARAD)
Aker Philadelphia
Shipyard
received a $2.3 million
ARRA grant.
MARAD decision making initially did not meet key ARRA
requirements for transparency and economic considerations
in its selection process.
10
Federal Railroad Administration (FRA)
ARRA created new discretionary grant programs, including
$8 billion to jump start the creation of high-speed rail
corridors and intercity passenger rail service (under FRA).
Yet, FRA lacked the capacity (expertise/staffing) to
effectively manage the program.
11
ARRA Advisories: Provide Timely Reporting of
OIG Concerns and Prompt Action

OIG developed a new reporting tool to
expeditiously communicate results to ensure
that DOT, Congress, and taxpayers have
real-time information related to our
Recovery Act work.

ARRA advisories were issued to DOT as we
identified vulnerabilities that warrant
immediate attention—four advisories have
been issued to date.




Suspensions and Debarment (DOT-wide)
Improper Payments (DOT-wide)
Airport Improvement Program (FAA)
Value Engineering Studies (FHWA)
12
ARRA Advisory on FAA’s Process for
Awarding Airport Grants
Darren Murphy
Program Director, Office of the AIG for
Aviation and Special Program Audits
13
ARRA Advisory on FAA’s Process
for Awarding Airport Grants
(Issued August 6, 2009)
We reported FAA awarded some ARRA grants to:

Low-ranked airport projects with questionable
economic merit.

Airport sponsors with multi-year histories of grant
management problems.
14
Projects with Questionable
Economic Merit:
ARRA Grant
Recipient/Location
Project
Grant
Amount
Ouzinkie, AK
New airport/airfield
$14.7 million
Akiachak, AK
New airport/airfield
$13.9 million
Findlay, OH
Construct Taxiway
$4.8 million
Warrensburg, MO
New apron
$1.7 million
Dover, DE
Design new runway
Wilbur, WA
Runway and taxiway extension
$0.95 million
$3.0 million
15
Ouzinkie, Alaska
Ouzinkie is 10 miles via
boat or air to Kodiak.
Ouzinkie
already had
2,200-foot
runway with
no history of
serious safety
incidents.
Grant Amount for new airport
$14.7 million
Population
169
NPR Score
40
Based Aircraft
0
Aircraft Operations
Avg. 42/month
16
Alaska's Airport to Nowhere:
$15 Million for Town of 150 People
Remote Murtha
airport lands big bucks
from Washington
Small Villages Across State Have Received Millions in
Grants for Airport Improvements
Federal money for
Aspen airport upgrades
called into question
17
Single Audit Findings

ARRA grant recipients with histories of grant
management problems raise doubt about their ability
to ensure ARRA funds effectively administered:





Pitkin County, Colorado
Puerto Rico Ports Authority
Guam International Airport Authority
Owensboro, Kentucky
Single audit findings included:
 Allowable Costs,
 Cash Management, and
 Suspension and Debarment.
Guam International Airport
18
New OMB Guidance
In its updated ARRA
guidance (dated 3/22/10),
OMB directed agencies to
identify high-risk areas,
resolve audit findings within
6 months, and consider
additional monitoring and
inspections of ARRA
recipients based on their
2009 single audit reports.
19
Advisory Proposed Actions

FAA needs to establish a selection process that considers
economic merit and is transparent.

FAA should cease awarding new grants to lower-ranked
NPR projects unless it can demonstrate economic merit.

For those ARRA grants already awarded with no funds
expended, FAA needs to show economic merit or consider
withdrawing the grant.

FAA needs to enhance its risk-based approach to ensure
that recipients with prior grant problems receive increased
oversight.
20
Agency Response and Follow-up
Actions
FAA has taken a number of positive actions since the
Advisory, including:

Ceased funding any more low-ranked projects.

Increased oversight including hiring Deloitte & Touche to
look at a sample of ARRA payments from 24 airports.

Hired additional personnel to conduct physical site
inspections.

Raised the risk level for Owensboro, KY and agreed to
look at the single audit findings for other grantees.
As a result of our Advisory, we also initiated an
audit of FAA’s ARRA grant selection process, with
our report due out later this year.
21
ARRA Advisory on FHWA’s Oversight
and Use of Value Engineering Studies
Dave Pouliott
Program Director, Office of the AIG
for Highway and Transit Audits
22
ARRA Advisory on FHWA’s Oversight and
Use of Value Engineering Studies
(Issued June 28, 2010)

VE studies objectively review reasonable design alternatives on
highway and bridge projects.

According to FHWA, state DOT VE programs resulted in
estimated cost savings of more than $6.1 billion over the past
3 fiscal years.

In June 2010, we issued an ARRA Advisory - some states did not
conduct VE studies or were not timely.
State/District
ARRA Project
Required VE Study Status
Project Value In Millions
District of Columbia
New York Avenue
Not conducted
$36.6
Alaska
Willow to Kashwitna
Not conducted
$27.5
Missouri
I-44
Not conducted
$27.1
Pennsylvania
Girard Point Bridge
Conducted less than 2 months before the start of
the project's contract bid process
$77.4
North Carolina
Fayetteville Outer Loop
Conducted 1 month before the anticipated start of
the project's contract bid process
$55.1
Source: OIG and FHWA's Federal Highway Management Information System, as of April 2010
23
FHWA Actions Needed
 Our Advisory
urged timely action before the
September 30, 2010 deadline for obligating ARRA funds.
 Update the Code of Federal Regulations.
 Ensure that FHWA, state, and local staff are fully informed
regarding VE legislative requirements and FHWA's revised VE policy.
 Require disclosure of VE requirements in their Stewardship and
Oversight Agreements with FHWA.
 FHWA Actions Taken:
 Working to update the CFR.
 April 2010 - FHWA issued new VE performance measures to be
integrated into Stewardship Agreements.
 May 2010 - FHWA revised its VE policy and addressed the
timeliness of VE studies.
24
Phase 3: Conduct Audits of
ARRA High-Risk Areas
OIG Methodology:
 Conduct full audits of high risk areas within each Operating
Administration receiving ARRA funding.
Reports Issued:
 January 2010: Final Report on the DOT’s Suspension and
Debarment Program
 February 2010: Recovery Act Data Quality: Errors in
Recipients' Reports Obscure Transparency
 March 2010: Weaknesses in DOT's Suspension and Debarment
Program Limit its Protection of Government Funds
 April, 2010: Federal Railroad Administration Faces Challenges in
Carrying Out Expanded Role
25
Phase 3: Ongoing Work
Ongoing Audits:

May 2009: ARRA Capital Assistance for High Speed Rail Corridors and Intercity Passenger
Rail Service Programs

September 2009: FAA's Process for Awarding ARRA Grants for Airport Projects

October 2009: Oversight of Federal–aid Highway Projects Administered by Local Public Agencies

October 2009: FHWA’s Federal–Aid Highway Program Oversight of Procurement Practices
for ARRA–Funded Contracts at State Departments of Transportation

November 2009: Job Creation Under ARRA

November 2009: Evaluation of FHWA’s National Review Teams

December 2009: DOT Oversight of Recovery Act Recipient Reporting

December 2009: DOT Security Controls over the ARRA Related Websites

January 2010: High Speed Rail Forecasting Best Practices

January 2010: FHWA's Oversight of High Dollar ARRA Highway Projects

March 2010: FTA's Oversight of Major Transit Projects in New York City

April 2010: High-Speed Rail and Intercity Passenger Rail Infrastructure Access Agreements
26
Investigative Oversight
John W. Long
National Director, ARRA
Investigations
(404) 562-3850
email: John.W.Long
@oig.dot.gov
27
Investigations Regional Offices
(1) Cambridge, MA
(617) 494-2701
(2) New York, NY
(212) 337-1250
(3) Washington, DC
(202) 260-8580
(4) Atlanta, GA
(404) 562-3850
(5) Chicago, IL
(312) 353-0106
(6) Ft. Worth, TX
(817) 978-3236
(9) San Francisco, CA
(415) 744-3090
28
Strategic Investigative
Plan

Outreach and Training

Proactive Investigative Oversight of
ARRA funded projects

Criminal and Civil Prosecutions
29
Outreach and Training

Fraud Awareness training for our
transportation partners

We have provided training to more than
15,000 transportation partners during
more than 250 presentations

Hotline – 24 hours for reporting ARRA
fraud, waste and abuse
30
Proactive Investigative
Activities

Previously we have been a reactive
agency…for ARRA funded projects,
we are much more proactive.

Investigators are contacting project
managers, inspectors, procurement
managers, audit, and claims personnel.
31
Proactive Activities

Criminal checks and Suspension and
Debarment checks on prime contractors,
subcontractors, and DBEs.

Reviewing Bidding Documents.

Reviewing Certified Payrolls.

Checking Certification and Net Worth Status
on DBEs.

Reviewing change orders, supplemental
agreements, and claims.
32
Criminal & Civil Prosecutions

More than 40 active criminal investigations
involving ARRA funded projects

Types of Crimes:
False Statements,
False Claims,
Bribery,
Bid-rigging,
DBE Fraud,
Prevailing Wage Fraud,
Product Substitution, and
Conflict of Interest
33
TRENDS

Under-bidding

Bid-rigging

Increase in DBE fraud
34
www.oig.dot.gov
35
Contact Information

National OIG Hotline: (800) 424 - 9071 or
(202) 366 -1461

OIG Hotline E-mail:
[email protected]

OIG Web Page:
www.oig.dot.gov
36
Emerging Issues From Audits and
Investigations
Continued Focus On:

Transparency in project selection and funding.

Oversight of ARRA Construction Projects.

Accounting for ARRA expenditures.

Meeting reporting requirements.
37
For More Information

Audit Announcements, Reports, and Testimonies

Whistleblower Protection

Monthly ARRA Financial & Activity Report

Economic Recovery Oversight Plan and Audit Plan

OIG information governmentwide:
38
Questions & Comments
39