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Federal Highway Administrator Mary Peters
Remarks as prepared for delivery
National Fraud Awareness Conference on Surface Transportation and Construction Fraud
June 9, 2004, Seattle, Washington

I want to thank Washington State DOT for volunteering to host this third National Fraud Awareness Conference and for working on the program with other sponsoring partners. You're hearing from a tremendous group of people.

President Bush, Secretary Mineta, and I are committed to ensuring that American tax dollars are properly spent. That's why the Federal Highway Administration works very closely with Ken Mead's office, with AASHTO, with the IRS -- with all of you. We want to increase awareness of transportation fraud. More importantly, we are working to prevent it.

You are on the front line. The strongest message that we collectively can send is that all of us -- local agencies, states, and FHWA -- will only consider doing business with responsible contractors. We can make a real difference for our country if we leave here energized and ready to take action.

We're doing a lot today to combat fraud, but I want to talk about some ways we can do more. But first, a little historical perspective . . .

The Interstate Highway Program got underway in 1956 and was quickly immersed in a cloud of controversy stemming from a series of abuses in right-of-way and contracting. In the early 1960s, an article in Look Magazine called "The Great Highway Scandals" was subheaded: "Outrageous fraud harasses the building of our vast new interstate-highway system."

Reacting to the criticism, some in Congress were thinking about killing the highway program. The solution came when Speaker Sam Rayburn appointed a special subcommittee to investigate the allegations, headed by Rep. John Blatnik of Minnesota. Blatnik found some abuses, but also found they affected a relatively small part of the program.

At the same time, FHWA established an audit office to give us the ability to root out abuses on our own. Audit functions were eventually shifted to the OIG.

The early close scrutiny laid the foundation for the oversight we do today.


Under Secretary Mineta's leadership, we are dedicated to vigilance.

That's very important because when any program increases significantly in funding as the Federal-aid program did in 1998 under TEA-21, risk increases. There are more opportunities and more temptation for people to cheat the system. When funds are tight, as they are now as we await reauthorization of surface transportation legislation, there is a renewed motivation (in some quarters) to cheat or steal. Fraud is a constant threat and preventing it requires constant watchfulness.

The DOT Inspector General places a greater emphasis on fraud detection. People in all parts of the highway construction business have been prosecuted. Employees of FHWA, state DOTs, contractors, producers, suppliers, and professional services consultants have all done jail time. Public employees have ruined their careers, paid restitution, shamed their families, and forfeited their retirement. That's quite an expensive price to pay for illegal gains.


Part of our role at FHWA within the transportation community is to put an end to this kind of human tragedy.

We are:
Leaders for National Mobility;
Innovators of a Better Future; and, I want to emphasize,
Stewards of National Highway Programs.

With stewardship comes responsibility to raise the bar on the performance of our highway system. We must ensure financial accountability, and deliver the Federal-aid and Federal Lands programs as well as DBE (Disadvantaged Business Enterprise) contracts, consistent with the intent of Congress.

The detection and avoidance of fraud is a big part of our stewardship responsibility. DBE fraud is of particular concern to me, to the Secretary and to the Inspector General. DBE fraud hurts all small businesses because it makes it more difficult for legitimate firms to do business. I have asked our Division Administrators to work with their states to identify DBE fraud and when it is found, to take the necessary corrective action.

Remember, the Federal-aid highway program is a federally-assisted, state-administered program, with most project and engineering decisions delegated to the states. FHWA oversight focuses on process oversight instead of specific project oversight.

We are working actively with the states to increase their capabilities so that each state DOT is equipped to manage the responsibilities that come with the use of federal funds. We verify that each state DOT has adequate internal control processes in place to effectively manage federally-assisted projects.

To succeed, we must cooperate, all the time.

Our division office in Washington State, led by division administrator Dan Mathis, is a good example of the stewardship and cooperation needed to ensure that a state is spending federal funds wisely. The office conducts project inspections, program reviews, financial audits including inactive projects audits, billing reviews, construction inspections, and construction cost tracking.


The excellent work here in Washington State, and around the country, helps taxpayers get as much bang for the buck as possible. We are aggressively working on two areas of particular concern, fuel tax evasion and mega-project oversight.

Fuel tax evasion robs the public of its investment in the highway system. The Highway Trust Fund finances our nation's highways, and we are committed to doing everything possible to make sure everyone pays their fair share. The most significant percentage of revenue comes from fuel taxes -- projected at roughly 88 percent of revenues into the HTF over the next 10 years. Loss of motor fuel taxes poses a serious threat to both federal and state programs.

One report in 2001 estimated that over $1 billion a year in federal gas tax evasion and fraud was occurring. However, it is virtually impossible to ascertain the magnitude of the problem because until the "crime" is "uncovered" it is difficult to know the loss. There is no way to track what is not being reported. New cases being discovered, such as bypassing the dye injector systems at terminals, confirm our belief that evasion is with us and is significant.

FHWA is working with the OIG and the IRS on the development of new technologies and enforcement through audits, examinations and criminal investigations. I met with Mark Everson, the IRS commissioner, just last week. In many states, revenue departments are charged with enforcing the motor fuel tax, and it is through their diligent efforts that DOTs are able to pay for numerous transportation projects. Cooperative enforcement efforts within your state and with surrounding states can go far in addressing fuel tax evasion.

State transportation agencies would be well rewarded for devoting a portion of STP funds to fuel tax compliance initiatives, since funds invested in enforcement programs have been shown to yield at least $10 of additional revenue for each $1 spent.

I cannot overemphasize that we must work together at all levels to prevent fraud.


Like with fuel taxes, taxpayers get more for their money when we pay special attention to financial oversight of mega-projects . . . keeping a close eye on how and where funds are spent. And we are.

The Central Artery and Tunnel project in Boston has provided much insight into what it takes to manage a mega public project. FHWA is actively sharing lessons learned and best practices that emerge from this and other large undertakings so these experiences become part of our useful body of knowledge. A new team should be able to advance a major project without having to go on a journey of rediscovery.

While I'm on the subject of best practices, please encourage your folks to attend the FHWA Contract Administration Core Curriculum. It can be a big help in ways to detect and investigate fraud, waste and abuse.

In the past year, there were 10 two-day courses with 30-40 people per course. We have at least four more sessions scheduled during the rest of the fiscal year. We think this course is so important that it's free. Just show up and learn.


While we have made great strides in fraud detection and prevention, we can do more to preserve American mobility and our quality of life -- to get taxpayers more bang for the buck.

That's why we are calling on Congress to pass our SAFETEA legislation.

Under current law, projects with an estimated total cost of $1 billion or more are required to submit an annual financial plan to the Secretary. We would add a requirement to submit a project management plan as well.

Projects that receive $100 million or more in federal financial assistance would be required to prepare an annual financial plan.

Portions of monetary judgments won in federal criminal and civil fraud cases against contractors would be shared with the state or local transit agency that was injured by the fraud.

Contractors who are convicted of fraud related to Federal-aid highway or transit programs would be debarred.

We need to use all tools available to protect the Federal-aid highway program. Prosecuting cases can lead to convictions. The discretionary, administrative approach -- suspension or debarment -- ensures that the government does not do business with a company that has an unsatisfactory record of integrity and business ethics.

Just to give a feel for the magnitude of how FHWA has embraced the call to strengthen suspension and debarment efforts: Since an April 2003 memorandum to the field, we have seen 10 times as many recommendations as in previous years.


We are committed to the reforms in the Administration's SAFETEA proposal.

We are committed to fighting fuel tax fraud and mega-project abuses.

We must earn the public's trust and confidence that we will deliver successful projects on a routine basis. The public must be convinced that a dollar entrusted to the transportation community -- large project or small -- is a dollar wisely invested.

Even with "state of the art" tools and processes, fraud may occur. Fraud schemes are sophisticated operations, and can operate undetected.

If you have a concern, please seek help from the investigative experts in the OIG.

Asking for help is not a reflection on the quality of your agency's personnel or processes. As states and local agencies expand the use of consultant services and implement new contracting procedures, we need to continually review the risks and revise our project management procedures to manage these risks. As public employees, we need to be sure all our employees understand their responsibilities and that they conduct their duties with the highest ethical standards.

The work that you do is important to FHWA and to the whole transportation community. Always remember, we have a public trust -- together, we are protecting the investment of American taxpayers. We have a long history of success.

Now, more than ever, we have to be wary, we have to be vigilant, and we have to stay prepared.


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