Presentation before the National Fraud Prevention Awareness Conference 1 Joseph Comé Assistant Inspector General for Highway and Transit Audits Darren Murphy Program Director Office of the AIG for Aviation and Special Program Audits David Pouliott Program Director Office of the AIG for Highway and Transit Audits John W. Long National Director ARRA Investigations ARRA Related Audits and Investigations

OIG Mission and Recent Accomplishments The OIG supports DOT in meeting its goals of safety, reduced congestion, global connectivity, environmental stewardship, security, and organizational excellence. OIG output for the past 6 months of fiscal year 2010:  48 audit reports with 188 recommendations;  Over $800 million in financial recommendations;  39 indictments and 31 convictions; and  Nearly $19 million in fines, restitutions, and recoveries. 2

On the Lookout for Stimulus Fraud

Recovery Act Added New Challenges to Longstanding Ones The Recovery Act provided over $48 billion for DOT’s aviation, highway, transit, maritime, and rail programs. Funded existing programs, mandated new ones, and added substantial new requirements. 4 After years of extensive research, I have concluded beyond any doubt that I need more grants!

Distribution of ARRA Funds within DOT DOT Component Stimulus Funds (Millions) Percent of Total Federal Highway Administration$27, % Federal Railroad Administration$9, % Federal Transit Administration$8, % Office of the Secretary of Transportation$1, % Federal Aviation Administration$1, % Maritime Administration$100.21% Office of Inspector General$20.04% Total$48, % 5

3-Phase Risk-Based OIG’s ARRA Oversight Strategy: 3-Phase Risk-Based Audit: Phase 1: Conduct comprehensive review of prior work. Phase 2: Conduct scans of DOT modal programs. Phase 3: Conduct audits of high-risk areas. Investigations: Conduct fraud awareness and prevention activities to alert DOT staff and grantees, including contractors, at all levels of government on how to recognize, prevent, and report suspected fraud. 6

Phase 1: Identify ARRA Challenges for DOT OIG Methodology  Conduct a comprehensive review of prior DOT OIG work, and  Relevant work of other organizations (e.g., GAO). Reported Challenges for DOT:  Ensure the Department's grantees properly spend ARRA funds.  Implement new accountability requirements and programs mandated by ARRA legislation (e.g., High Speed Rail).  Combat fraud, waste, and abuse. Grantees and their contractors need to understand how to recognize, prevent, and report potential fraud to the appropriate authorities. 7

Methodology: Conduct scans across DOT’s modal programs. Use a standardized methodology. Issue one report covering programs Department-wide. Reported Vulnerabilities: Action required now to address problems:  In project selection for the FAA Airport Improvement program and MARAD Small Shipyards Grant Program.  In staffing at FAA, FRA, FTA, and MARAD.  In DOT-wide suspension and debarment. Although no deficiencies are evident now, sustained focus required regarding:  Project selection for FHWA and FTA.  Project and contract oversight at FHWS, FTA, and OST.  Fraud. 8 Phase 2: Scan DOT Modal Programs to Evaluate Vulnerabilities

Oversight of state and local project planning will require sustained FTA attention to avoid imprudent spending. For instance, FTA provided $424 million to the Fulton Street Transit Center (NYC) despite already experiencing large cost increases and schedule delays. Federal Transit Administration (FTA) 9

10 MARAD decision making initially did not meet key ARRA requirements for transparency and economic considerations in its selection process. Aker Philadelphia Shipyard received a $2.3 million ARRA grant. Maritime Administration (MARAD)

11 ARRA created new discretionary grant programs, including $8 billion to jump start the creation of high-speed rail corridors and intercity passenger rail service (under FRA). Yet, FRA lacked the capacity (expertise/staffing) to effectively manage the program. Federal Railroad Administration (FRA)

ARRA Advisories: Provide Timely Reporting of OIG Concerns and Prompt Action OIG developed a new reporting tool to expeditiously communicate results to ensure that DOT, Congress, and taxpayers have real-time information related to our Recovery Act work. ARRA advisories were issued to DOT as we identified vulnerabilities that warrant immediate attention—four advisories have been issued to date.  Suspensions and Debarment (DOT-wide)  Improper Payments (DOT-wide)  Airport Improvement Program (FAA)  Value Engineering Studies (FHWA) 12

ARRA Advisory on FAA’s Process for Awarding Airport Grants 13 Darren Murphy Program Director, Office of the AIG for Aviation and Special Program Audits

ARRA Advisory on FAA’s Process for Awarding Airport Grants (Issued August 6, 2009) We reported FAA awarded some ARRA grants to: Low-ranked airport projects with questionable economic merit. Airport sponsors with multi-year histories of grant management problems. 14

Projects with Questionable Economic Merit: 15 ARRA Grant Recipient/Location Project Grant Amount Ouzinkie, AKNew airport/airfield$14.7 million Akiachak, AKNew airport/airfield$13.9 million Findlay, OHConstruct Taxiway$4.8 million Warrensburg, MONew apron$1.7 million Dover, DEDesign new runway$0.95 million Wilbur, WARunway and taxiway extension$3.0 million

Ouzinkie, Alaska 16 Grant Amount for new airport$14.7 million Population169 NPR Score40 Based Aircraft0 Aircraft OperationsAvg. 42/month Ouzinkie already had 2,200-foot runway with no history of serious safety incidents. Ouzinkie is 10 miles via boat or air to Kodiak.

17 Tiny Airports Get Big Cut of Stimulus Cash Small, Rural Airports Get Big Payouts While Safety Violations at Major National Airports Get Little Attention Alaska's Airport to Nowhere: $15 Million for Town of 150 People Small Villages Across State Have Received Millions in Grants for Airport Improvements Remote Murtha airport lands big bucks from Washington White House's Airport Stimulus Misguided? Federal money for Aspen airport upgrades called into question

Single Audit Findings ARRA grant recipients with histories of grant management problems raise doubt about their ability to ensure ARRA funds effectively administered:  Pitkin County, Colorado  Puerto Rico Ports Authority  Guam International Airport Authority  Owensboro, Kentucky Single audit findings included:  Allowable Costs,  Cash Management, and  Suspension and Debarment. 18 Guam International Airport

New OMB Guidance In its updated ARRA guidance (dated 3/22/10), OMB directed agencies to identify high-risk areas, resolve audit findings within 6 months, and consider additional monitoring and inspections of ARRA recipients based on their 2009 single audit reports. 19

Advisory Proposed Actions FAA needs to establish a selection process that considers economic merit and is transparent. FAA should cease awarding new grants to lower-ranked NPR projects unless it can demonstrate economic merit. For those ARRA grants already awarded with no funds expended, FAA needs to show economic merit or consider withdrawing the grant. FAA needs to enhance its risk-based approach to ensure that recipients with prior grant problems receive increased oversight. 20

Agency Response and Follow-up Actions FAA has taken a number of positive actions since the Advisory, including:  Ceased funding any more low-ranked projects.  Increased oversight including hiring Deloitte & Touche to look at a sample of ARRA payments from 24 airports.  Hired additional personnel to conduct physical site inspections.  Raised the risk level for Owensboro, KY and agreed to look at the single audit findings for other grantees. As a result of our Advisory, we also initiated an audit of FAA’s ARRA grant selection process, with our report due out later this year. 21

ARRA Advisory on FHWA’s Oversight and Use of Value Engineering Studies 22 Dave Pouliott Program Director, Office of the AIG for Highway and Transit Audits

 VE studies objectively review reasonable design alternatives on highway and bridge projects.  According to FHWA, state DOT VE programs resulted in estimated cost savings of more than $6.1 billion over the past 3 fiscal years.  In June 2010, we issued an ARRA Advisory - some states did not conduct VE studies or were not timely. Source: OIG and FHWA's Federal Highway Management Information System, as of April ARRA Advisory on FHWA’s Oversight and Use of Value Engineering Studies (Issued June 28, 2010) State/DistrictARRA ProjectRequired VE Study StatusProject Value In Millions District of ColumbiaNew York AvenueNot conducted$36.6 AlaskaWillow to KashwitnaNot conducted$27.5 MissouriI-44Not conducted$27.1 PennsylvaniaGirard Point BridgeConducted less than 2 months before the start of the project's contract bid process $77.4 North CarolinaFayetteville Outer LoopConducted 1 month before the anticipated start of the project's contract bid process $55.1

FHWA Actions Needed  Our Advisory urged timely action before the September 30, 2010 deadline for obligating ARRA funds.  Update the Code of Federal Regulations.  Ensure that FHWA, state, and local staff are fully informed regarding VE legislative requirements and FHWA's revised VE policy.  Require disclosure of VE requirements in their Stewardship and Oversight Agreements with FHWA.  FHWA Actions Taken:  Working to update the CFR.  April FHWA issued new VE performance measures to be integrated into Stewardship Agreements.  May FHWA revised its VE policy and addressed the timeliness of VE studies. 24

Phase 3: Conduct Audits of ARRA High-Risk Areas OIG Methodology:  Conduct full audits of high risk areas within each Operating Administration receiving ARRA funding. Reports Issued:  January 2010: Final Report on the DOT’s Suspension and Debarment Program  February 2010: Recovery Act Data Quality: Errors in Recipients' Reports Obscure Transparency  March 2010: Weaknesses in DOT's Suspension and Debarment Program Limit its Protection of Government Funds  April, 2010: Federal Railroad Administration Faces Challenges in Carrying Out Expanded Role 25

Phase 3: Ongoing Work Ongoing Audits: May 2009: ARRA Capital Assistance for High Speed Rail Corridors and Intercity Passenger Rail Service Programs September 2009: FAA's Process for Awarding ARRA Grants for Airport Projects October 2009: Oversight of Federal–aid Highway Projects Administered by Local Public Agencies October 2009: FHWA’s Federal–Aid Highway Program Oversight of Procurement Practices for ARRA–Funded Contracts at State Departments of Transportation November 2009: Job Creation Under ARRA November 2009: Evaluation of FHWA’s National Review Teams December 2009: DOT Oversight of Recovery Act Recipient Reporting December 2009: DOT Security Controls over the ARRA Related Websites January 2010: High Speed Rail Forecasting Best Practices January 2010: FHWA's Oversight of High Dollar ARRA Highway Projects March 2010: FTA's Oversight of Major Transit Projects in New York City April 2010: High-Speed Rail and Intercity Passenger Rail Infrastructure Access Agreements 26

Investigative Oversight 27 John W. Long National Director, ARRA Investigations (404)

Investigations Regional Offices 28 (1) Cambridge, MA (617) (2) New York, NY (212) (3) Washington, DC (202) (4) Atlanta, GA (404) (5) Chicago, IL (312) (6) Ft. Worth, TX (817) (9) San Francisco, CA (415)

Strategic Investigative Plan 29 Outreach and Training Proactive Investigative Oversight of ARRA funded projects Criminal and Civil Prosecutions

Outreach and Training 30 Fraud Awareness training for our transportation partners We have provided training to more than 15,000 transportation partners during more than 250 presentations Hotline – 24 hours for reporting ARRA fraud, waste and abuse

Proactive Investigative Activities 31 Previously we have been a reactive agency…for ARRA funded projects, we are much more proactive. Investigators are contacting project managers, inspectors, procurement managers, audit, and claims personnel.

Proactive Activities 32 Criminal checks and Suspension and Debarment checks on prime contractors, subcontractors, and DBEs. Reviewing Bidding Documents. Reviewing Certified Payrolls. Checking Certification and Net Worth Status on DBEs. Reviewing change orders, supplemental agreements, and claims.

Criminal & Civil Prosecutions 33 More than 40 active criminal investigations involving ARRA funded projects Types of Crimes: False Statements, False Claims, Bribery, Bid-rigging, DBE Fraud, Prevailing Wage Fraud, Product Substitution, and Conflict of Interest

TRENDS 34 Under-bidding Bid-rigging Increase in DBE fraud

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Contact Information National OIG Hotline: ( 800) or (202) National OIG Hotline: ( 800) or (202) OIG Hotline OIG Hotline OIG Web Page: OIG Web Page: 36

Emerging Issues From Audits and Investigations Continued Focus On: Transparency in project selection and funding. Oversight of ARRA Construction Projects. Accounting for ARRA expenditures. Meeting reporting requirements. 37

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Questions & Comments 39