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Highway Trust Fund

Financial Report for Fiscal Year 2004

Management's Discussion and Analysis

Table of Contents | Management's Discussion and Analysis | Financial Section | Appendices

 

Improper Payments Information Act

In the first year of implementation of the Improper Payments Information Act (IPIA) of 2002, the Department conducted a review of the majority of its programs and activities to identify those that may be susceptible to significant improper payments. OMB has defined significant as 2.5 percent of payments or $10 million. This improper payments risk assessment was conducted in two phases. For the first phase, the Department engaged KPMG, LLP to research and develop an improper payment risk assessment process and methodology. The Department identified four programs within HTF with the highest potential for improper payments based on the highest 2003 fiscal year expenditures, which comprised the majority of FY 2003 Department expenditures.

The following programs were identified as most susceptible to improper payments based on the Department's assessment of their full program inventory:

PROGRAMS MOST SUSCEPTIBLE TO IMPROPER PAYMENTS
OPERATING ADMINISTRATION PROGRAM

Federal Highway Administration

  • Federal Aid Highway Program – State Project
  • Federal Lands Highway Program – Contracts
Federal Transit Administration
  • Capital Investment Grants
  • Formula Grants

The Department used a statistical sample to evaluate payments made in these programs. KPMG did not find improper payments exceeding either 2.5 percent of program payments or $10 million, which would require reporting under the IPIA on any of the above listed programs. However, KPMG's scope was limited in two ways. First, there was an inadvertent sample population reduction in the FHWA Federal Aid program based on the extract requirements provided by FHWA. DOT and KPMG will work to identify the missing population amounts and review the additional balance amounts.

The second limitation was due to limited grant data being available for grants processed electronically based on the requirements of the Federal Financial Assistance Management Improvement Act of 1999 (PL106-107). PL 106-107 streamlines the payment process for grants. As a result, documentation was not available to permit KPMG to test whether the payment was calculated correctly, whether discounts and credits were properly taken and if all costs were allowable. KPMG was able to test electronically processed grants for eligibility, award and payment approval, incurrence of cost during the funding period, payment within the award or other funding limitations and that payment was sent to the proper recipient. It should be noted that all Federal agencies that electronically process grant payments in compliance with PL 106-107 will encounter this same limitation.

To resolve the issue of limited data in support of grant payments made in compliance with PL 106-107, DOT has devised an innovative research and development (R&D) strategy. This strategy involves using a proof of concept project to test the feasibility of using the Single Audit process to provide the information needed to determine if grant payments made in compliance with PL 106-107 meet the improper payment estimation and remediation requirements of the IPIA. This proposal has been presented to OMB, and with OMB's concurrence, DOT has executed a contract with a consultant to begin the process of this proof of concept effort.

 

 

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