Under the Federal Financial Management Improvement Act of 1996 (FFMIA), we are required to report whether the financial management systems used by HTF Agencies substantially comply with the Federal financial management systems requirements, applicable Federal accounting standards, and the SGL at the transaction level. To meet this requirement, we performed tests of compliance with FFMIA Section 803a requirements.

The objective of our audit was not to provide an opinion on compliance with FFMIA. Accordingly, we do not express such an opinion. However, our work disclosed instances, described below, in which financial management systems used by HTF Agencies did not substantially comply with federal financial management systems requirements, Federal Accounting Standards and the SGL at the transaction level. Such instances of noncompliance, summarized below, are described in more detail in the Material Weaknesses described in our Report on Internal Control.

1. Preparation of Financial Statements - As indicated in our Report on Internal Controls, the process used, including utilization of the Delphi accounting system, was not adequate to prepare reliable and timely financial statements during the year or at September 30, 2004. Prior to preparing the HTF financial statements, an extensive amount of adjustments were made to the FHWA accounting records. Even though some of these adjustments are considered “normal cleanup” entries, many were the result of the performance of manually intensive analysis and reconciliations. In addition, these adjustments included entries to correct system processing errors, record activities not recorded at the transaction level due to the lack of standard transaction codes set up in Delphi, and entries to correct the discrepancies with the data reflected in subsidiary systems.

   FFMIA requires agencies to produce auditable financial statements based on data from its financial systems on a timely basis. Given the problems HTF Agencies encountered in generating reliable financial statements in a timely manner, and the difficulties they encountered with their accounting and reporting systems, HTF Agencies did not substantially comply with Federal financial management system requirements for the year ended September 30, 2004.

2. Use of Standard General Ledger – Agencies did not use Delphi to capture all accounting events at the transaction level to meet OMB or Treasury reporting requirements. Some examples of this situation are noted below:
   • NHTSA reported a negative $737 million in SGL account 4139 when the accounts should have a positive balance of approximately $1 million at September 30.
   • FHWA suspense account transactions did not follow the SGL posting rules set forth by the Treasury. SGL Accounts 1310, 1450, 2110, 2120, 4610, 4901, 4902, 6100, and 6330 were used to record suspense transactions throughout FY 2004.
   • Certain Agencies used SGL Account 2400 as the default account to balance entries that did not balance initially throughout FY 2004.
3. Federal Accounting Standards – Some HTF Agencies were not in full compliance with the SFFAS No. 4 Managerial Cost Accounting Concepts and Standards for the Federal Government and the related provisions of the Government Performance and Results Act (GPRA). The FY 2004 financial statements did not properly reflect full costs or measure the effectiveness of the Agencies' programs. The Statement of Net Cost for HTF was not presented by GPRA program and was therefore not comparable to DOT's major goals and outputs described in its strategic and performance plan.
   

   In addition, FHWA was not compliant with SFFAS No. 7, Accounting for Revenue and Other Financial Sources, in its revenue and expense recognition related to Federal Lands inter-agency advance payments and collections. The earned revenue and expenses related to Federal Lands were incorrectly reported during the year and at year-end.

4. Data Processing Control Environment - During our review of IT controls, we determined there was a Material Weakness in certain IT controls. The matters supporting this determination are detailed in Material Weakness No. 4 in the Internal Control Report.