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What is the purpose of this directive? This directive establishes the Financial Integrity Review and Evaluation (FIRE) Program, a review and oversight program that each Federal-aid division office is required to perform in support of the Federal Highway Administration's (FHWA's) annual certification of internal and financial controls to support the financial statements. This directive consolidates the various financial management oversight responsibilities of the Federal-aid division offices into one directive. This directive does not apply to other organizational components of FHWA, such as Washington Headquarters program offices, the Resource Center, and Federal Lands Highway offices. Separate financial oversight directives will be issued for those offices in the future.
Does this directive cancel an existing FHWA directive? Yes. This directive cancels the Federal-aid Policy Guide (FAPG) Non-Regulatory Non-Code of Federal Regulations (CFR)-Related Guidance, G 3015.2, Financial Management Improvement Program, Transmittal 9, dated March 31, 1994.
What authorities govern this directive?
The Chief Financial Officer Act of 1990 requires Federal agencies to establish a plan for improving financial management.
The Federal Managers' Financial Integrity Act of 1992 requires Federal agencies to continuously review and improve their internal control systems.
The Cash Management Improvement Act of 1990 requires Federal agencies to improve their processes for transferring funds to the States.
Office of Management and Budget (OMB) Circular A-123, Management Accountability and Control, requires Federal managers to (1) implement cost-effective management controls, (2) assess the adequacy of management controls in Federal programs, (3) identify needed improvements, (4) take corrective actions, and (5) report annually on management controls.
OMB Circular A-127, Financial Management Systems, requires each Federal agency to conduct appropriate reviews of its financial management systems.
OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, establishes responsibilities and requirements for complying with the Single Audit Act of 1984.
Department of Transportation (DOT) Order 8000.1C, Office of Inspector General Audit and Investigation Report Findings, Recommendations, and Follow-up Action, dated July 20, 1989, establishes reporting requirements.
What are the timeframes to complete the annual FIRE Program requirements? The program will be conducted on a fiscal year basis as indicated in the following example:
| Review year time period | October 1, 2005, to September 30, 2006 |
|---|---|
| Submission of annual review plan | October 31, 2005 |
| Conduct reviews | October 1, 2005, to September 30, 2006 |
| Submit annual certification | October 31, 2006 |
What are the key terms used in this directive?
Administrative Review. A sampling of transactions related to administrative activities, including purchase orders and contracts, travel, credit card purchases, and convenience checks. The review will ensure that proper documentation and approvals have been provided for these transactions and that they have been properly recorded and accounted for in the Agency’s accounting system. The review may also recommend improvements to the process that would enhance effectiveness, efficiency, and internal controls.
Grant Financial Management Process Review. A thorough analysis of a key process employed by the State in managing Federal-aid funds. The review will ensure compliance with Federal requirements and that proper internal controls are applied. The review may also recommend improvements to the process that would enhance effectiveness, efficiency, and internal controls.
Federal-aid Billing Transactions Review. A sampling of transactions selected from Federal-aid billings. These transactions are derived from the State’s detailed transaction list that identifies the items that support the billed amount for specific projects. These transactions may include a payment to a contractor, a salary charge for a State employee, or a right-of-way payment, for example. This review will trace the origin of the transaction to ensure compliance with Federal requirements and that proper internal controls were applied.
Single Audits. Annual, or in a few cases, biennial audits required in accordance with the Single Audit Act and OMB Circular A-133.
What are the goals of the FIRE Program?
Each FHWA division office will establish an effective oversight program in accordance with the provisions of this directive. The Division Administrator is responsible for taking the necessary actions to ensure that Federal funds are properly managed and effectively used in accordance with Federal policies. This responsibility includes providing the staff to carry out the requirements of this directive, working with the Office of Budget and Finance (HABF) to ensure that employees are properly trained, establishing appropriate performance objectives, and reviewing financial processes and transactions to ensure that safeguards are in place to minimize fraud, waste, and abuse.
Under this directive, each division office will accomplish the following activities each year:
(1) Develop and submit an annual plan for carrying out this directive.
(2) Conduct a grant financial management process review resulting from the performance of a risk assessment.
(3) Conduct a Federal-aid billing transactions review.
(4) Review inactive Federal-aid projects.
(5) Conduct an administrative review.
(6) Resolve audit report findings.
(7) Certify the results of these activities to the Federal Highway Administrator.
The actions described in paragraph 6b are the minimum requirements to be performed each year to comply with Federal internal control and accounting requirements. Division Administrators are encouraged to supplement these activities with other actions specific to their own office or State activities that will further enhance internal financial controls and financial oversight. The Division Administrators are also encouraged to include a wide range of employees in the review process, in addition to the Financial Manager and supporting staff, to ensure objectivity and separation of duties and to integrate internal controls and financial oversight as a key component of the Agency’s day-to-day program and business activities.
What is the first step in carrying out the FIRE Program?
The first step in carrying out the FIRE Program is to develop an annual plan that will be used by the Division Administrator to ensure that each element of the program will be completed in sufficient time to issue a certification at the end of the year. The division office will develop a plan for accomplishing each activity required by this directive at the beginning of the review cycle. The division office will conduct a risk assessment to identify a grant financial management process for review. The division office plan will identify the grant financial management process to be reviewed and will establish a schedule for completing that review. The plan will also include timeframes and resources identified for conducting the Federal-aid billing transactions review, the review of inactive projects, the administrative review, and any activities needed to resolve audit findings.
A copy of the annual plan will be submitted to the Director, HABF, by October 31 of each year.
What are the responsibilities assigned to the FIRE Program?
The Director, HABF, is responsible for:
(1) Providing nationwide leadership, goals, and direction relating to the FIRE Program;
(2) Promoting consistent field financial management activities through the development of policies, procedures, and guidelines;
(3) Serving in an advisory capacity in the overall direction of the FIRE program; and
(4) Interpreting and implementing laws and regulations that may impact the FIRE Program.
The Administrative Service Teams are responsible for:
(1) Serving in an advisory capacity to the field offices in the overall direction of the FIRE Program;
(2) Coordinating and disseminating best practices and other significant management improvements and techniques; and
(3) Providing financial management technical assistance to field offices.
The Federal-aid division offices are responsible for administering the FIRE Program within their respective States, which includes:
(1) Establishing a plan for carrying out the FIRE Program at the beginning of the fiscal year;
(2) Ensuring that reviews are scheduled and performed during the year;
(3) Ensuring that corrective actions or follow ups are taken on a timely basis; and
(4) Reporting the results of the FIRE Program to HABF.
What are the responsibilities for conducting grant financial management process reviews?
The division office will conduct a financial management process review each year. The process selected for review will be determined from those identified as the highest risk areas from the following processes:
(1) Project Authorization Process.
(2) Payroll Process.
(3) Construction Contractor Payments Process.
(4) Right-of Way Payments Process.
(5) Utility/Railroad Payments Process.
(6) Equipment Costs Process.
(7) Subgrants Administration Process.
(8) Consultant Contract Payment Process.
(9) Process for Making Direct Payments to Local Public Agencies.
(10) Planning Program Payment Process.
(11) Research Program Payment Process.
(12) Bond Service Payment Process.
(13) Non-construction Contract (ITS, LTAP, etc.) Payment Process.
(14) Funds Management Process (Financial Plans, Advance Construction, Earmarks, etc.).
The process reviewed by the division office in the prior fiscal year, and for which corrective actions are still underway, need not be assessed again during the current review cycle. The division office will note in the risk assessment that the process is not included because corrective actions are still underway. The process will be included in the following year’s risk assessment.
The division office will use the risk assessment in Appendix A of the attached FIRE Tool Kit (see paragraph 18) to quantify the risks inherent in the identified areas. The risk assessment tool will be modified, if necessary, to conform to any overall FHWA policy regarding risk assessments. The division office may include other key financial management processes in its risk assessment in addition to those listed above. If a process as listed above is not used in a State for claiming Federal funds, the division office should document in its risk assessment that the process is not applicable and, therefore, the risk assessment is not required.
What are the responsibilities for conducting Federal-aid billing transactions reviews? The division office will perform an annual review of a selected number of transactions that support Federal-aid billings. The reviewer will select a number of transactions for review based on overall Federal-aid program size for the State (e.g., 15 transactions for a small program, 25 for a medium program, and 50 for a large program). The transactions review must cover a representative sample of the types of costs identified in Chapter 4 of the attached Fire Tool Kit that are claimed by the State (e.g., a payment to a contractor, a salary charge for a State employee, a right-of-way payment, etc.). The review will also include transactions from at least 5 or more Federal-aid billings to determine that the costs are billed in accordance with Federal requirements throughout the year. For the purpose of this directive, a small State is defined as having apportionments less than $300 million, a medium State is defined as having apportionments of $300 million to $600 million, and a large State is defined as having apportionments exceeding $600 million.
What are the responsibilities for reviewing inactive Federal-aid projects? The division office will periodically review inactive projects with outstanding balances of $500,000 where there has been no payment activity within the last 12 months. This review must occur at least once each fiscal year but may be performed more frequently based on division office and State needs. The purpose of this review is to timely close all projects and de-obligate any remaining funds. Division offices and States may choose to review outstanding project balances less than $500,000 as desired.
What are the responsibilities for conducting administrative reviews?
The division office will annually review a select number of transactions that support each of the following areas and identify the potential risk for waste, loss, unauthorized use, or misappropriation of Federal government resources:
(1) Fund authority – monthly reconciliations of general operating expenses and any program allotments.
(2) Purchase orders and administrative contracts.
(3) Travel-related transactions.
(4) Credit cards and convenience checks.
(5) Property inventories and capitalized assets.
(6) Collections (cash/check receipts) and sensitive/controlled documents.
The division office will review each of these areas, as they apply to the division office, to ensure that internal controls are in place to protect Federal funds. This includes ensuring that sufficient documentation exists to support the transaction, appropriate management approvals have been obtained, and the transactions are properly recorded in the accounting system. It is important that the person conducting the review not be involved in performing the function to ensure an independent evaluation of the process.
What are the responsibilities relating to single audit reports?
The division office will ensure that the audit reports covering the State transportation department are provided to the Federal Audit Clearinghouse within nine months following the end of the State’s fiscal year. If reports are not submitted by the due date, the division office will determine if an extension has been granted by the cognizant agency, and, if not, will document the reason for the delay and advise HABF.
The division office will obtain, at a minimum, a copy of the portion of the single audit report that relates to FHWA programs. The division office will issue a management decision to the State transportation department identifying the findings relating to FHWA programs and describing the actions, if any, to be taken to resolve any problems.
The division office will obtain due dates when the State transportation department will correct the findings and monitor activities to ensure that corrective actions have been taken. The division office will document actions taken and retain that information /documentation for possible audit follow-up.
What are the responsibilities relating to Federal audit reports? The Office of Inspector General or the Government Accountability Office will notify FHWA, including the division office, of any findings requiring resolution. The division office will respond to the findings in accordance with DOT Order 8000.1C, Office of Inspector General Audit and Investigations Report Findings, Recommendations, and Follow-up Action, dated July 20, 1989.
What are the responsibilities for certifying the results of the FIRE Program?
The Division Administrator will certify annually the results of the program. This will include the results of the:
(1) Grant financial management process review,
(2) Federal-aid billing transactions review,
(3) Review of inactive Federal-aid projects,
(4) Administrative review, and
(5) Follow-up on audit findings.
The annual certification will be addressed to the Federal Highway Administrator, signed by the Division Administrator, and submitted to the Director, HABF, by October 31 of each year. The certification will satisfy the financial, accounting, and reporting requirements of the Federal Managers’ Financial Integrity Act of 1992, Sections 2 and 4.
The following documentation is to be included with the certification identified in paragraph 14b:
(1) Summary of instances of non-conformance.
(2) The risk assessment of grant management processes.
(3) Grant management process review report.
(4) The list of the Federal-aid billing transactions reviewed identifying the transactions that were questioned.
(5) The list of the inactive projects reviewed identifying those where funds are released.
(6) The list of administrative transactions reviewed identifying those in noncompliance and describing any internal control weaknesses.
(7) Management decisions issued as a result of single audit or Federal audit reports.
The division office should not submit source documents or other data that are obtained to support the findings and conclusions of the various reviews. This information should be retained in the division office and be readily available if requested by HABF or the auditors.
After certifying the results, what more is required? The division office must continue to pursue corrective action on any findings reported in the certification. For each recommendation, a corrective action plan will be established to ensure that improvements will be implemented in a timely manner. The division office must also evaluate the corrective action taken to determine that the finding was effectively resolved.
What documentation must be retained to support the FIRE Program activities?
The division office will maintain documentation to support the review activities and conclusions. The documentation should include such things as the specific transactions tested, source documents supporting the transactions, the results of interviews, flowcharts of processes, organization charts, and notes to the file on corrective actions taken to resolve weaknesses identified in audit reports.
This directive is not intended to require division offices to retain an inordinate amount of paperwork. However, it is critical that division offices retain sufficient documentation to validate to program managers and auditors the support behind the statements and assurances made by the Division Administrator in the annual certification.
Is other assistance available to the division offices in carrying out this directive?
Yes. A Fire Tool Kit (see attachment) has been prepared to support this directive. The tool kit contains detailed information about the risk assessment, review guides, single audits, compliance requirements, and other information that will assist division office personnel in conducting the review program. To ensure a consistent implementation of the oversight program, the tool kit provides the minimum expectations for division offices in performing their individual reviews and retaining documentation. However, it is recognized that certain aspects of the tool kit may not apply to a specific division office, in which case, the division office should document the basis for deviating from the established process. Periodic updates will be made to the tool kit and will be posted on Staffnet at the Federal-Aid Financial Management Division (HABF-40) site (see the HABF site).
The Office of Administration will provide training, information, and other support, as appropriate, to assist the division offices in complying with this directive. HABF will review the results of the division office FIRE Program activities and annual certifications to identify opportunities for improvements or policy changes that may benefit all divisions and programs.
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Mary E. Peters |
