Order 45601a.htm

CHAPTER 4

CONDUCTING AN ADMINISTRATIVE REVIEW

1. Purpose. The purpose of the administrative review is to ensure internal controls are in place in the division office. This includes ensuring that sufficient documentation exists to support transactions, appropriate management approvals have been obtained, and the transactions are properly recorded in the agency's accounting system.

2. Method.  The administrative reviews will be conducted by a team external to the division office under the direction of the Resource Center and the Chief Financial Officer (CFO). The reviews will be conducted once every 3 years using the criteria in this chapter.

3. Results

   1. In accordance with the FIRE Order, the results of the administrative review shall be recorded in the agency's Standard Working Papers attached to the Tool Kit.

   2. The following presents the guidelines by which all administrative reviews will be conducted. It is included in the Tool Kit to provide division staff with a clear statement of what standards the division offices are being held to, and how the reviews will be conducted.

Administrative Review Guide

An administrative review is required as part of the Financial Integrity Review and Evaluation (FIRE) Order. The person conducting the review should not be involved in the administrative process being assessed. The following are some additional items that may be helpful in completing this review.

Internal Controls

An important aspect of completing the administrative review is to look at the internal controls. The employee entering the accounting data should not also be the person buying the goods and services. Separation of duties and privileges should be reviewed for all systems, including the Fiscal Management Information System (FMIS). If separation of duties cannot be practiced (e.g., division offices that do not have the capacity and/or manpower to segregate critical privileges), ensure that the division has established adequate compensating controls to reduce the risk of a potential weakness that could result from not separating those privileges. There should also be a separation of responsibilities so that an individual does not have control over the entire process. For example, an office employee determines the item to purchase and completes a purchase request form. This form would then be handed to a certifying official to evaluate the availability of funds. Once the availability of funds is confirmed, the approving official would then authorize the expenditure. The credit card holder would then make the purchase. An individual could complete more than one of these tasks but it is important to verify that more than one person is involved in the process. The approving official should be responsible for reviewing the account statements from the credit card company. The credit card statements should be reconciled monthly against the transaction documents. The credit card holder completes this reconciliation. The approving official (NOTE - ONLY the cardholder and the approving official shall see the monthly bank statement!) is responsible for reviewing and verifying the monthly statements. Reviewing the Delphi reports is vital. The reports show you what the office has spent and to whom. Do not use "cuff" records or documents generated by office employees to reconcile expenditures. Only official Delphi reports should be utilized in verifying transactions and source documentation. A good way to evaluate the internal controls in the office is to sketch out a flowchart of who does what. An example of a flowchart that maps the procurement process is included at the end of this chapter.

Review Transactions

The FIRE Order requires that you review five transactions from each of the following areas.

• Purchase Orders
• Credit Cards
• Travel Vouchers
• Collections
• Property Inventory

All transactions reviewed shall include a selection drawn from the 12-month period prior to the review. The attached outline gives you more detail on what to look for in each of these areas. In a small office, there may not be five transactions available in some of these areas. In those instances, review all of the transactions in that area for the year.

Delphi Review

As part of the transaction review, you need to determine if the charge in Delphi matches the amount listed in the transaction documentation. You do not need a Delphi ID to do this. An Excel spreadsheet has been created to select the transactions from DELPHI. This program will run the 024. DELPHI GOE SUMMARY BY OBJECT CLASS report and the 030. RECON GL DETAIL BY FISCAL YEAR.

Execute Excel, making sure Macros are enabled, and complete the following procedures:

1. Click on File/Open

2. Browse the computer for C:\AdminReview\AdminTrack.xls (file and install procedures provided separately)

3. Click on the InfoView Menu Item

4. Select "Download Data via Business Objects" from the dropdown list

5. Select "Download Data via Business Objects" from the dropdown list

6. Click on "OK" Acknowledging the download will take some time to complete

7. The User Name and Password are simply the name of the state.
   User Name: Utah
   Password: Utah

8. Complete the Selected Values dialog box for the 030 Report

   1 - Select Fund: 1550955010 (good for FY05, for FY06 it will be 1560956010)

   2 - Select Allotee: 249 (Divisions are always 2 plus the office number. In this case Utah is number 49. The accounting person will know the office's number. HQ codes have four numbers, starting with 0, and resource centers start with 5.)

   3- Type 2003 or 2004 or 2005: Enter previous fiscal year.

9. Complete the Selected Values dialog box for the 024 Report

   1 - Select Agency: FHWA
   2 - Select Fund: 1560956010 (Enter code for current Fiscal Year. This code is FY 2006)
   3 - Select Allotee: 249 (Divisions are always 2 plus the office number. In this case Utah is number 49. The accounting person will know the office's number. HQ codes have four numbers, starting with 0, and resource centers start with 5.)
   4 - Select Cost Center: 0049 (Divisions are always 00 followed by the office number).
   5- Select Object Class: Leave it as it is.

10. Click on "Yes" to save the 024 Report if asked

Two worksheets will now exist. The "Admin" worksheet includes all of the payment transaction from the previous fiscal year. The "admin24" worksheet will include all of the information from the 024 Report for the current fiscal year. Format the worksheets for printing. Print the worksheets and prepare for selecting the transactions to be reviewed. Only include transactions from the "Admin" worksheet within the previous 12-month time period. Include all of the listed transactions in the "admin24" worksheet. After excluding transactions outside of the review period (previous 12 months), you will begin the random selection process. You may use any statistical random number generator (RNG) to select the transactions. The following is a web site that provides a RNG:

http://www.graphpad.com/quickcalcs/randomN1.cfm

Select at random, 5 transactions from each of the areas to be reviewed (travel vouchers, credit card purchases and purchase orders). Looking at the Object Class, Purchase Order Number, and Vendor Name can do this.

The following are examples of the object class and document type:

The first two numbers of an object class indicate the general category. The last three numbers of an object class indicate the specific expense within that category. The categories are as follows:

Each office determines the numbering scheme in the PO Number field. The Financial Manager can assist in determining the type of transaction based on the information in the Delphi report. It is important to remember that the selection of transactions for review should be an independent process and those involved in the procurement of goods and services should not be involved in selecting the sample. Compare the costs for the document numbers on your records to what is recorded in Delphi. In all cases, the amounts in the source documentation should be equal to or less than the Delphi amounts. Credit cards are entered by the system and should always match. The amount of the purchase order may be less if the obligation exceeds that which has been spent. Look over the vendors to whom payment was made. Do any seem inappropriate?

Monthly reconciliations

The reconciliation process is covered in the outline, and it is required by the FIRE Order. It must be completed on a monthly basis and reviewed by staff that is not responsible for entering accounting data (Financial Manager or Assistant Division Administrator). Your financial staff should be comparing their cuff records and source documentation to Delphi records.

Interviews

Interviewing those involved in the process is an important step to evaluating the internal controls and designing a flowchart. Example questions are included in the outline, but feel free to ask additional questions to resolve issues and provide clarification.

Physical and Computer Security

Some of this is covered in the outline, but make sure security is a high priority for things such as credit cards, convenience checks, computers, user-ids and passwords. Verify that office policies exist to safeguard agency assets and prevent fraud. This includes verifying the sharing of passwords or allowing financial staff access to user accounts other than their own. Credit cards and convenience checks should be stored in a locked cabinet when not being used. It also includes preventing system access to all employees who are involved in the process and voluntarily leave the division or who are dismissed for cause.

Division Administrative Review Outline

1. Fund Authority / monthly reconciliations

   Interview questions:

   • Do written procedures exist?
   • What method is used to monitor funds allocated to your office?
   • Is status of funds verified periodically by senior management?
   • Who does the verification? Who reviews it?
   • Are reconciliations of obligations and expenditures performed each month using the Delphi reports?
   • Are the warrants current for all contracting officers?
   • Are reconciliations printed each month and signed off on?
   • Has the financial staff received training in Delphi?

2. Purchase Orders

   Review 5 transactions.

   Documentation required for each transaction:

   • Purchase Request
   • Vendor Quotes

     • 3 or more vendor quotes if greater than $2500 and an open market purchase, if GSA order over $2,500 is there documentation that two or more GSA schedules were looked at and why they were not chosen for supplies and for services over $2,500 is there evidence that at least two other GSA vendors were solicited?

     • Form DOT 4230, Summary Sheet filled out and included with files of orders over $2,500

     • Evidence that the vendor is registered in the Central Contractor Registration (CCR) http://www.bpn.gov/ccrinq/

     • Have the proper clauses been included with the open market purchase orders (52.213-4 and 52.204-7) and has the CCR clause 52.204-7 been included with GSA orders that will be paid electronically.

   • Purchase Order
   • Vendor invoice
   • Shipping/Receipt of Goods documents

   Interview questions:

   • Do you have procedures in place to track and monitor these purchase orders?
   • Are these procedures written?
   • What procedure is followed if a purchase order is found to be in error?
   • Are the purchase orders recorded timely into the accounting system?
   • Are documents retained for 3 years after proof of receipt and final payment in accordance with the records retention policies?
   • Are orders made to the required sources prior to open market?  If open market, ask for a justification.
   • Are the contracting officers current in their training?
     • Simplified Acquisitions Course – 40 hrs
     • Simplified Acquisition Refresher Course – 16 hrs every two years
     • Additional 8 hours of training every two years which can consist of on-line training

3. Travel-related transactions

   Review 5 transactions

   Documentation required for each transaction:

   • Travel Authorization
   • Travel Voucher
   • Required receipts (Airfare, rental car, lodging, expenses that exceed $75)

   Interview questions:

   • Do written procedures exist?
   • Is travel authorized and approved in accordance with Federal Travel Regulations and FHWA delegations of Authority?
   • Are travel authorizations recorded timely and correctly in the accounting system?
   • Are government credit cards used for official travel in accordance with the Federal Travel Regulations?
   • Have the office personnel been recently trained in use of travel charge cards?
   • Are travel advances issued and repaid in accordance with travel regulations and policy? Is the use of non-contract carriers approved by the appropriate authorizing official?
   • Are vouchers submitted timely with all supporting documentation attached?
   • Are vouchers approved timely?
   • Are blanket travel authorizations closed in accordance with Federal Travel Regulations?
   • Are travel documents retained for 6 years 3 months?

4. Credit cards and convenience checks

   Review 5 transactions from each card assigned to your office

   Documentation required for each transaction.

   • Procurement Request (filled out correctly with proper accounting/appropriation code? Signed and dated?)
   • Credit card log
   • Invoice, receipt and/or packing slip
   • Competitive quotes if greater than $2,500 and Form DOT 4230 Summary Sheet properly filled out

   Interview questions

   • Do written procedures exist?
   • Were orders from required sources?  For supplies, the preferred vendors are BCOP or Staples online.
   • Were Convenience Checks used when the purchase credit card could have been used?
   • Were convenience checks logged?
   • Does the approving official receive, review and sign the statement?
   • Are the amounts on the cardholder’s statement reconciled on a regular basis?
   • Has training been provided to cardholders? The requirement is successful completion of the online course annually.
   • Is supporting documentation retained for 3 yrs?
   • Are convenience checks and credit cards kept in a secured location?

5. Property Inventory

   Documentation required for each transaction.

   • Property list ⁷ All items greater than $300 and all sensitive items (i.e. PDAs)
   • Disposal of Surplus Property forms (SF120)
   • Transfer of property FHWA1363

   Interview questions:

   • Are non-expendable property inventory reports (Form FHWA-162), submitted to the Finance Division?
   • Are there any capitalized items (> $25,000)?  Are they properly recorded?
   • Does a current property list exist?
   • Are regular physical inventories conducted (every two years)?
   • Are the inventory records properly adjusted for loss, disposal, transfer, etc?
   • Is excess inventory provided to individuals or groups in accordance with FHWA policy (i.e. other FHWA offices, other Federal agencies, schools, or non-profit organizations)?
   • Is the person doing the site inventory different than the one keeping track of the inventory?

6. Collections

   Review 5 transactions

   Documentation requirements:

   Interview questions

   • Is the receipt reconciled to the accounting system?
   • Is the receipt properly recorded?
   • Is the physical security for each collection item maintained?
   • Are cash/check receipts recorded, secured, and deposited in a timely manner upon receipt?
   • Is a cash receipts log regularly reconciled to the deposit tickets?
   • Are the locks, combinations, and keys periodically changed to avoid potential losses?

7. Procurement and internal control process review.

   Documentation requirements

   • Process map of procurement process (See attached example)

   Interview questions

   • Are the duties of authorizing, approving, and recording transactions assigned to different individuals?
   • Are the duties of authorizing, issuing, receiving, and making payments for capital assets assigned to different individuals?
   • Are the duties of creating, reviewing, verifying, and auditing transactions assigned to different individuals?
   • Are adequate desk procedures available and are instructions adequate to meet the needs of the accounting staff?
   • Has the accounting staff attended training (formal or informal)?

References

Simplified Acquisitions Manual – The credit card holder should have a copy.
Appropriation Law – http://www.gao.gov/special.pubs/redbook1.html
Transportation Acquisition Manual Part 1213, Appendix B – http://www.dot.gov/ost/m60/ FHWA Purchase Card Manual
Federal Acquisition Regulation Part 13.301
FIRE Order – The financial manager should have a copy.
Staff Net Website

Contacts

Frank Trent/Lakewood Administrative Services Team/720-963-3065
Dan Parker/Finance Service Team (Lakewood)/720-963-3063
William Thornton/Finance Service Team (Atlanta )/404-562-3661
Donna McAleer/HAAM-10 – Procurement/202-366-4270
Abebe Ayalew/HCF Accounting/202-366-2867
Lee Ann Upshur/HCF-20/202-366-3580
HAAM-10 Purchase Credit Cards/202-366-2872

CHAPTER 5

REVIEWING SINGLE AUDIT REPORTS

1. Purpose. The Single Audit Act Amendments of 1996 requires non-Federal entities that expend $500,000 or more in a year in Federal awards to have a single audit conducted (see §.200 of Office of Management and Budget (OMB) Circular A-133). The purpose of this review is to verify that a single audit was performed by the State covering the State transportation departments and to issue a management decision(s) as needed. Located at the end of this chapter is a spreadsheet listing the States, their auditee names, fiscal year end date, single audit reporting due date, corresponding Entity Identification Number (EIN), and cognizant agency.

2. Method

   1. The initial steps in accomplishing this component are to identify when the audit is due and to determine if the audit has been completed and filed on time. States are required to submit their audit reports to the Federal Audit Clearinghouse (FAC) within the earlier of 30 days after receipt of the auditor’s report or nine months after the end of the State’s fiscal year (see §.320(a)) of OMB Circular A-133). The status can be checked at the Federal Audit Clearinghouse web site, http://harvester.census.gov/sac/. Included at the end of this chapter is a print screen of the FAC home page and instructions for verifying that required audit reports have been filed.

   2. If the audit is not submitted timely, the division office should obtain confirmation that an extension has been granted by the cognizant agency.   The Department of Health and Human Services (HHS) is the cognizant agency for all statewide single audits, and the Department of Transportation (DOT)/ Office of Inspector General (OIG) is the cognizant agency for State transportation departments single audits.

   3. The next step is to obtain a copy of the single audit report or, at a minimum, a copy of the portion of the report that relates to FHWA programs. This information may be requested from the State transportation agency's Chief Financial Officer or the Auditor in charge of the single audit for your State. The OIG will issue correspondence outlining the single audit findings/recommendation for any material internal control weakness or questioned costs over $10,000. The division is responsible for complying with the instructions outlined in the OIG's correspondence. A copy of the division office’s response to the OIG should be provided to the FHWA Audit Liaison in HAIM-13.

   4. In accordance with the FIRE Order and OMB A-133, the division office will complete the following for findings related to FHWA programs:

      1. Obtain a copy of the State DOT corrective action plan including the due dates for the proposed corrective actions. If the State has not completed a corrective action plan, the division office is encouraged to assist the State in completing the plan.

      2. Issue a management decision to the State DOT addressing each FHWA program related finding. The management decision shall be issued in a formal letter to the State DOT and either concur with the State DOT's proposed action plan and/or prescribe additional or alternative actions be taken to resolve the findings. A Sample Management Decision letter is included at the end of the chapter.

      3. Monitor activities to ensure that corrective actions are taken and provide summaries/documentation supporting corrective actions taken to close out the single audit finding(s). The FHWA Audit Liaison will work with the divisions to close out findings reported through the OIG.

      4. Document single audit review and oversight actions.

   5. OMB Circular A-133 requires Federal agencies to issue a management decision on audit findings within six months after receipt of the audit report (see, §.405 of OMB A-133). Division offices should strive to resolve findings as quickly as possible. The division office should also work with the State DOT to ensure that sub-recipients are completing corrective actions.

3. Results. In accordance with the FIRE Order, the results of the Single Audit Review will be recorded in the agency's Standard Working Papers attached to the Tool Kit.

Federal Audit Clearing House Home Page

Instructions for Verifying Reports are Filed in the Federal Audit Clearinghouse

1. To search the Federal Audit Clearinghouse (FAC) database, go to the FAC homepage and Click on "Search the Single Audit Database." The next screen you will see is the "Single Audit Disclaimer Information" page; after reading the disclaimer, click on the "Retrieve Records" button.

2. Search options are broken out by two main categories:

   1. Search for Status of Submissions (Complete and Incomplete Records). Select Option 1, Entity Search, and enter the complete 9-digit EIN number (see attached list of EINs by State).

   2. Search for Complete Records Only. Select Option 3, Entity Search, and enter the complete 9-digit EIN.

3. Once you select one of the above options, scroll down to the bottom of the screen and click on "View Results" of your search.

4. The results of your search by EIN will appear as the next screen, and should list the auditee's name, fiscal year, status, and date the form was filed in the FAC. To obtain additional information (auditor's name, company, address, etc.), click on the auditee's name and a screen will appear listing this information. You can scroll down to the bottom of the page and click on page numbers (2 or 3) to get a summary of all Federal Agencies by Catalog of Federal Domestic Assistance having findings in the report as well as a description of the findings.

5. You may print a copy of this page to provide additional documentation identifying the date of the review.

Sample Management Decision Letter

Dear Susan:

As required by Department of Transportation Order 4600.17A, and the Financial Integrity Review and Evaluation (FIRE) program, the FHWA is required to issue Management decisions on audit findings contained in the annual single audit of the Commonwealth. This correspondence is to address findings contained in the State’s Fiscal 2004 Single Audit report.

Enclosed, please find our observations on the three (3) findings relating to the Massachusetts Highway Department (MHD). The single audit finding is in bold, the MHD planned corrective action is in regular type, and the FHWA position is in italic. FHWA would appreciate receiving any letters or memorandums sent out by MHD as corrective actions to the findings. Our office will take the lead in sampling CA/T requests for payment to ensure certified payrolls have been received in a timely manner.

Please contact us if you have any questions. Thanks.

Massachusetts- Single Audit Findings State Fiscal 2004

Subrecipient Identification & Award Documents Need Improvement

All new and amended contracts with other governments and non-profit organizations should be reviewed by one bureau with MHD to ensure all federal-funded agreements or extensions the Department enters into are properly classified as either vendors or subrecipients.

Planning and Highway Engineering will continue to make the determination as to whether a contract or agreement should be classified as a vendor or sub-recipient. The Chief Counsel's office will verify that the contract language is appropriate for a sub-recipient before it goes to the Commissioner for signature.

The FHWA agrees there should be consistency in awards and payments made to other governmental units and non-profit organizations. MHD's position that the Planning and Highway Engineering section will make a determination that an award is a vendor or sub-recipient transaction is adequate. However, FHWA recommends that a memorandum be issued charging the Planning and Highway Engineering section this specific responsibility. FHWA considers the high level check by the Chief Counsel's office adequate for ensuring appropriate contract language is included on awards made to subrecipients.

Monitoring of Davis-Bacon Compliance Need Improvement

The Department should instruct those overseeing the CA/T at the MTA as well as the MHD's Resident Engineers to ensure all contractors and subcontractors submit certified payrolls within seven days after the regular payment date of the payroll period. CQE's should not be prepared for payment until the MHD receives certified payrolls for the payment period in question.

MHD will have the Chief Engineer send out a letter to Responsible Section heads outlining the importance of compliance with Davis-Bacon requirements, the letter will also have the appropriate SOP attached. (CSD-28-03-1-000, dated 4/10/98)

FHWA agrees with the Department's action as outlined above, however this action should be expanded to include the responsible CA/T official(s). Since approximately 90% of the late or missing Statements of Compliance came from CA/T prime contractors, FHWA will be making a random check of CA/T payments requests to ensure corrective action has been taken.

Inaccurate Recording of Payroll, Accrued Leave and Relocation Expenditures

The Department should stress to all individuals entering payroll and other information the need to recheck their entries before posting them and require management review of the information before it is recorded in the accounting system. In addition, the Department needs to ensure that employees' leave records are updated when any corrections are made.

In a memo, dated 4/5/01… Districts were instructed on procedural safeguards for recording of payroll. The procedures require time and attendance to be viewed by an employee other than the employee who did the data entry of payroll. These procedures were later incorporated into the Internal Control Plan, which is available on the Intraway. The Director of Payroll will send out a reminder to the Districts regarding proper payroll procedures to prevent future errors in posting.

The FHWA considers MHD's plan to send out a reminder to District Offices adequate to address this finding.

Fire Tool Kit Table of Contents | Order 45601a.htm