Purpose. The purpose of the financial management review is to respond to the results of a risk assessment by evaluating a state process or system for managing Federal-aid funds. A division office may add other processes that are key to Federal-aid. Also, the division office is not required to assess a process that was reviewed by the division office during the previous fiscal year and corrective actions are still underway.
The process or system to be evaluated will be determined using the agency's approved risk management strategy (see An Interim User's Guide to the Risk Management Framework). The following finance core elements are identified:
Project Authorization, Modification and Voucher
Locally Administered Projects
After the review area has been identified, reviewers are encouraged to utilize the techniques presented in the Conducting Reviews That Get Results Participant Workbook or CD-ROM (National Highway Institute (NHI) Course No. 310111); see http://www.nhi.fhwa.dot.gov/download.asp. Appendix A of the Tool Kit contains two examples of review guidelines that could be used in conducting these reviews. The first provides an example for reviewing a process at the core element level (Project Authorization Process), while the second example illustrates a set of review guidelines at the sub-core element level (Contractor Payment Process).
The following list illustrates some of the more commonly used review elements:
Study policies, procedures, and practices related to the process. The reviewer should be familiar with Federal and State written directives relating to the process. The reviewer will determine that the directives are adequate and that directives are being followed.
Flowchart the process. If the State has not developed a flowchart of the process, then the reviewer should work with the State to develop one. Flowcharts should be initially developed to reflect written policies and procedures. The resulting chart should be compared to what is actually happening, through interviews and observation, and modified accordingly. The chart can then be analyzed for possible areas of improvement. Flowcharts highlight what is happening versus what should be happening in a process. They make it easy to identify duplicate or unnecessary steps and bottlenecks. They make it easier to determine if the steps are in the most efficient order and if documents/reports/information are flowing to the right people. Flowcharts make it easier to determine if internal controls are in place.
Interview key personnel.Identify people who are knowledgeable about the process to be interviewed. Carefully record the information provided by the person and clarify the information with the person at the end of the interview. The interview can determine if a person's understanding of the process is consistent with established policy and can be used to validate the flowchart.
Conduct surveys and/or questionnaires. Surveys and questionnaires are also tools that can be used to seek information. These tools are useful when feedback is needed from a number of people at various locations. However, if these tools are not well developed, responses can be difficult to interpret.
Explain how the process can be improved. The reviewer should:
Analyze the flowchart for steps that can be combined, eliminated, or automated and modify the flowchart to show the improved process;
Analyze the staff interviews to determine if there were any suggested improvements;
Review the directives to determine if any changes are needed based on this analysis;
Review to ensure that transactions are properly authorized and signed by the appropriate official;
Determine if there is appropriate separation of key duties or responsibilities;
Evaluate system edits to ensure adequate funds control; and
Ensure that supporting documentation is available.
Record of work performed. The reviewer should develop a record of the work performed that documents the information obtained or developed in support of the conclusions reached and recommended improvements. The record of work performed may include items such as the following:
References to or copies of relevant regulations, policies, and procedures;
Copies of flowcharts and organization charts;
Correspondence relating to the process;
Records of interviews and surveys;
Personal observations relevant to the process;
Tests performed and samples selected; and
Any other information that supports the findings and recommendations.
The reviewer should prepare a formal report that documents the results of the review, including the identification of strengths and weaknesses of the process and the impact if the weaknesses are not resolved, and improvements proposed or completed. It is suggested that a report be prepared that describes WHY the review was, HOW the work was accomplished, WHO performed the work, and WHAT was accomplished.
The report provides a reference document of the work performed and objectives accomplished for future use by others. Some key elements of a report include:
Purpose or objective. Explain why the review was performed and what the reviewer hoped to accomplish.
Background. Discuss pertinent circumstances or conditions having a bearing on the performance of the process.
Scope. Identify the coverage of the review such as type of costs, programs, or districts to be reviewed. This may differ somewhat from the planned scope, as the coverage of a project may change due to unforeseen circumstances.
Approach or methodology. Describe how the work was performed, tests were conducted, reports reviewed, staff interviewed, etc;
Responsibility. Identify the people conducting the review.
Findings. Identify areas that lacked appropriate/sufficient controls or where improvements could be made. Conditions that the reviewer believes should be corrected should identify the criteria, cause, effect, and recommendation.
Recommended improvements. Present any suggestions for improvements explaining why changes are needed. Try to identify the root cause of the problem and the impact that the improvement would have on the operation. The report will contain the formal response of State management to the findings and recommendations of the report, along with a plan of action to implement agreed upon recommendations.
Purpose. The purpose of an Improper Payments Review is to determine the extent to which improper payments were made in the Federal-aid Highway Program. An improper payment is defined as any payment that should not have been made or that was made in an incorrect amount (overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements; this also includes any payment to an ineligible recipient, any payment for an ineligible service, any duplicate payment, any payment for services not received, or any payment that does not account for credit for applicable discounts.
Background In FY 2003 and FY 2004, Federal outlays were reviewed in accordance with the Improper Payment Information Act of 2002 (IPIA) requirements and negligible rates of improper payments were found. These reviews focused on initial outlays (Federal to State) and not on payments made by a State to a final payment recipient. The propriety of payments made to final recipients of grant dollars was not studied in these reviews, and therefore an improper payment rate could not be determined for these payments. To resolve this shortcoming, the methodologies developed for the Improper Payments Review for FY 2006 will focus only on payments made by a State to contractors and other payment recipients.
The sampling will consist of two phases:
Phase One. The Office of the Chief Financial Officer, Office of Financial Management (HCF-30), will select a sample of payments from the Rapid Approval State Payment System and provide it to the division offices. The division offices will obtain the State billing detail, in Microsoft Excel where possible, to support each payment in the Phase One sample. The billing detail must equal the amount charged on the payment.
Phase Two. Washington Headquarters will provide worksheets and instructions to test the billing detail transactions and to identify the causes of improper payments. Questions to be answered will include:
whether the cost was incurred subsequent to FHWA approval
whether the cost is eligible for Federal participation,
whether the cost was charged to the correct project,
whether the cost was approved by the appropriate State/local official, and
The worksheets provided will be in addition to the Standard Working Papers. These worksheets will be submitted to HCF-30 in order to estimate the amount of improper payments nationwide.
It is important to note that this method of selecting transactions for review is the minimum statutory requirement. If the division office determines that additional transactions should be selected, whether random or judgmental, it is encouraged to expand the sample size for further review. However, the additional transactions are not to be included in the report to HCF-30.
Purpose. The purpose of reviewing inactive Federal-aid projects is to ensure that (a) Federal funds are properly obligated, (b) Federal funds are being used effectively, and (c) unused funds are properly safeguarded and/or de-obligated to minimize misuse.
In accordance with 23 CFR 630 Subpart A – Project Authorizations and Agreements (Appendix B), States are required to review, on a quarterly basis, inactive projects for which no expenditure have been charged against Federal funds for the past 12 months.
The division office will work closely with the State in developing a process for the review and monitoring of Federal-aid projects. This process should help the State and FHWA to determine the validity of the amounts obligated for each project, perform oversight to ensure that reviews are conducted in accordance with the criteria established in 23 CFR 630, Subpart A, and ensure copies of the new developed Fiscal Management Information System (FMIS) reports are available to the State to use when performing the reviews. The division office reviewer should obtain sufficient documentation to support the obligation, review project records, or take other actions that provide a reasonable assurance that the obligation amount is valid. An example of a valid obligation occurs when a project is delayed by litigation or contractor claim, but the unexpended obligation is still consistent with the remaining estimated costs.
If excess obligations are identified, the State is required to take action to promptly de-obligate the funds, and the division office should ensure that this is done promptly. This action requires a modification of the project agreement.
Results. In accordance with the FIRE Order, the results of inactive projects reviews shall be recorded in the agency's Standard Working Papers attached to the Tool Kit.
Fire Tool Kit Table of Contents | Order 45601a.htm