OTHER ACCOMPANYING INFORMATION
IPIA REPORTING DETAILS
1. IMPROPER PAYMENT PROGRAM RISK ASSESSMENT DESCRIPTIONIn prior years, the Department identified the following ten programs as being susceptible to significant improper payments. At that time, the Department identified the ten programs in the table below as having the highest potential for improper payments.
| Operating Administration | Program |
|---|---|
| *Identified in the former Section 57 of OMB Circular A-11 **For administrative purposes, payroll was reviewed as a single program for all of DOT Bolded programs were included in the FY 2008 nationwide IPIA review |
|
| Federal Highway Administration | Federal-aid Highway Program – State Project* Federal Lands Highway Program – Contracts |
| Federal Aviation Administration | Operations Facilities and Equipment Airport Improvement Program* |
| Federal Transit Administration | Capital Investment Grants* Formula Grants* |
| Office of the Secretary of Transportation | Working Capital Fund DOT Payroll** |
| Federal Railroad Administration | Grants |
In accordance with Improper Payments Information Act (IPIA) requirements and OMB guidelines, during FY 2004 and 2005 six of the Programs reflected in the Table above were subject to a risk assessment and an in-depth improper payment review, including a review of payments by the Department to grantees. No improper payments exceeding both 2.5 percent of program payments and $10 million were found. The six programs were subject to a risk assessment based on the following criteria: Gross Expended Amount, Complexity of Payments, Established Internal Controls and Oversight, Type of Program Recipient, Number of Program Recipients, Volume of Payments, Probability of Growth, and Changes in the Program from the previous year. The risk criterion was used to determine the sampling size for each program. From that, each program underwent an in depth statistically based improper payment review.
Based on the FY 2004 and 2005 reviews, the Department concluded that the six programs subject to the risk assessment and improper payment test procedures were not susceptible to significant improper payments as defined by the OMB. For the remaining four programs, because of the significance of grantee payments and the fact that such payments were not tested under previous efforts due to a lack of data required for testing at the Federal level, additional testing was required. The four programs are the Federal Highway Administration (FHWA) Federal-aid Highway Program, Federal Aviation Administration (FAA) Airport Improvement Program, Federal Transit Administration (FTA) Formula Grants Program, and the FTA Capital Investment Grants Program.
2. SAMPLING PROCESS AND RESULTSIn FY 2008, the Department completed full implementation of the IPIA, which requires that agencies: (1) review programs and identify those susceptible to significant improper payments (2) report to Congress on the amount and causes of improper payments and (3) develop approaches for reducing such payments.
The Department’s FY 2008 review covered the FHWA Federal-aid Highway Program, FAA Airport Improvement Program, FTA Formula Grants Program, and the FTA Capital Investment Grants Program. With respect to the Formula Grants Program, as described below, successful completion pertains to approximately one-third of the grantees.
The Department re-engaged AOC Solutions, Inc. to develop the nationwide sampling plan, collect the results from the application of test procedures, and provide a nationwide estimate of improper payments for Federal-aid Highway Program, Airport Improvement Program, Formula Grants Program, and Capital Investment Grants Program. As noted above, with respect to the Formula Grants Program, the sampling plan, test procedures, and test results only apply to approximately one-third of the grantees covered by the FTA’s Formula Grant Triennial Review Program. 49 U.S.C. 5307 prescribes a Triennial Review of all Formula Grant grantees. OMB Circular A-123, Attachment C, paragraph F, provides for alternative approaches, including determining the amount of improper payments for components, such as those addressed in the foregoing statute.
The sampling plan provided sample size of sufficient size to yield an estimate with a 90 percent confidence interval within +/- 2.5 percent points around the estimate of the percentage of erroneous payments, as prescribed by OMB. The results of these efforts are discussed below.
FEDERAL-AID HIGHWAY PROGRAM
The FHWA executed the nationwide sampling plan using personnel from the FHWA division offices and covered Federal payments to grantees over the twelve-month period March 1, 2008 through February 29, 2008.
The sampling plan involved a multi-staged statistical approach that included the selection of 40 Federal payments totaling $109,732,056, 49 state payments totaling $30,910,426, and then 182 testable line items totaling $20,733,729 for testing. Consistent with the sampling plan used in 2007, the 2008 sample was designed to support a nationwide estimate of improper payments and was not designed to provide sample items to all states and territories. The states that did not appear in the IPIA sample received sample items for FIRE testing.
The test procedures applied to the line items were designed to test a range of administrative elements and contractual elements. Tests of administrative elements included determining whether payments were properly approved, billed at the correct federal participation rate, and whether billings and payments were mathematically accurate. Tests of contractual elements included determining whether payments were in accordance with contract rates/prices for specified materials and whether material quality tests indicated that materials met contractual requirements.
Improper payments totaling $149,035 were found in the sample of 182 tested items. The projection of known improper payments to the population of program payments for the twelve-month period results in an improper payment estimate of $55.1 million +/- $4 million. The estimated improper payment rate is .17% +/- .1%. This projection does not meet OMB’s definition of significant improper payments ($10 million and 2.5 percent of total program payments).
The improper payments reported resulted from factors such as underpayments related to retainage not covered by contract provisions and incorrect calculations.
FTA FORMULA GRANTS PROGRAM
The FTA executed the nationwide testing program for grantees covered by the 2008 Triennial Review Program using contractor personnel. The review covered the twelve-month period March 1, 2007 through February 29, 2008.
The sampling plan involved a multi-staged statistical approach that included the selection of 8 Federal payments totaling $95,650,747, 24 transportation authorities’ payments totaling $29,989,649, and then 44 testable line items from supporting invoices totaling $10,657,250 for testing. The test procedures applied to the line items were designed to test a range of administrative elements and contractual elements. Tests of administrative elements included determining whether payments were properly approved, billed at the correct federal participation rate, and whether billings and payments were mathematically accurate. Tests of contractual elements included determining whether payments were in accordance with contract rates/prices for specified materials and whether material quality tests indicated that materials met contractual requirements.
Improper payments totaling$199,874 were found in the sample of 44 tested items. The projection of known improper payments to the population of program payments for the twelve-month period results in an improper payment estimate of $47.6 million +/- 5.3 million. The estimated improper payment rate is 5.63% +/- .63%. This projection meets OMB’s definition of significant improper payments ($10 million and 2.5 percent of total program payments).
The improper payments reported are attributable primarily to the absence of documentation in support of the fringe benefit rate used to recover fringe benefit costs allowable under the Formula Grants Program. While such costs are allowable charges, OMB Circular A-87, Attachment E, requires that fringe benefit charges to Federal programs be supported by formal documentation and retained in accordance with the records retention provisions of the Grants Management Common Rule.
FTA CAPITAL INVESTMENT GRANTS PROGRAM
In FY 2008 the FTA completed its first nationwide testing for this program. As with the Formula Grants Program, the sampling plan involved a multi-staged statistical approach that included the selection of 10 Federal payments totaling $321,661,382, 31 transportation authorities’ payments totaling $35,783,951, and then 66 testable line items from supporting invoices totaling $12,804,680 for testing.
The test procedures applied to the line items were designed to test a range of administrative elements and contractual elements. Tests of administrative elements included determining whether payments were properly approved, billed at the correct federal participation rate, and whether billings and payments were mathematically accurate. Tests of contractual elements included determining whether payments were in accordance with contract rates/prices for specified materials and whether material quality tests indicated that materials met contractual requirements.
Improper payments totaling $43,672 were found in the sample of 66 tested items. The projection of known improper payments to the population of program payments for the twelve-month period results in an improper payment estimate of $87 million +/- $6 million. The estimated improper payment rate is 3.13% +/- .23%. This projection meets OMB’s definition of significant improper payments ($10 million and 2.5 percent of total program payments).
The improper payments reported resulted from draw-downs in excess of federal participation share. The grantee reimbursed the known overdraw.
FAA AIRPORT IMPROVEMENT PROGRAM
The FAA developed and executed a sampling plan to determine the amount and cause of improper payments in the Airport Improvement Program. The FAA review covered the twelve-month period March 1, 2007 through February 29, 2008.
The sampling plan involved a multi-staged statistical approach that included the selection of 30 Federal payments to sponsors totaling $48,796,094, 30 sponsor payments totaling $37,107,109, and then 63 testable line items from invoices totaling $15,390,373 for testing. The test procedures applied to the line items were designed to test a range of administrative elements and contractual elements. Tests of administrative elements included determining whether payments were properly approved, billed at the correct federal participation rate, and whether billings and payments were mathematically accurate. Tests of contractual elements included determining whether payments were in accordance with contract rates/prices for specified materials and whether material quality tests indicated that materials met contractual requirements.
Improper payments totaling $658.44 were found in the sample of 63 tested items. The projection of known improper payments to the population of program payments for the twelve-month period results in an improper payment estimate of $.973 million +/- $0.128 million. The estimated improper payment rate is .02 percent. This projection does not meet OMB’s definition of significant improper payments ($10 million and 2.5 percent of total program payments).
The known improper payments are attributable to unexplained differences between payments to sponsors and payments to contractors.
3. CORRECTIVE ACTION PLANS FOR REDUCING THE ESTIMATED RATE OF IMPROPER PAYMENTS.FHWA FEDERAL-AID HIGHWAY PROGRAM
FHWA Division Offices listed the following reasons for the improper payments identified as a result of the IPIA review: underpayments related to retainage not covered by contract provisions and incorrect calculations.
The Department and the FHWA will continue full implementation the FHWA’s Financial Integrity Review and Evaluation Program in FY 2009 to monitor State and Territory payments and provide a mechanism for assisting these entities with addressing effectively operational issues that result or could result in improper payments. The Department believes that this proactive approach will establish internal control mechanisms for both preventing and detecting improper payments through effective oversight and outreach, the latter being intended to assist grantees in improving program management.
FTA FORMULA GRANTS PROGRAM
The FTA plans on adapting its statutorily required Triennial Review Program to include procedures to test for improper payments.
In addition, the FTA will advise grantees of the provisions of OMB Circular A-87 with particular attention to the requirement that fringe benefit and indirect cost rates used for cost reimbursement be documented and retained for audit and program review. Finally, the FTA will assess the feasibility of follow-up actions to assess the extent to which grantees covered by the 2009 review are addressing deficiencies that resulted in improper payment determinations.
FTA CAPITAL INVESTMENT GRANTS PROGRAM
The FTA will advise grantees of actions needed to ensure reimbursement requests are in accordance with grant cost sharing or matching requirements.
FAA AIRPORT IMPROVEMENT PROGRAM
The FAA will advise field personnel and sponsors of the need to establish control procedures for ensuring agreement between payments and requests for Federal reimbursement.
The Department completed its implementation of the IPIA in its major grant programs. The FHWA review of the Federal-aid Highway Program, FAA Airport Improvement Program, FTA Formula Grants Program, and the FTA Capital Investment Grants Program represented the nationwide application of an innovative research and develop strategy implemented in FY 2005 and finalized in FY 2008. Testing over the past several years has shown that the amount and rate of improper payments are not the result of systemic problems but rather are associated with generalized operational issues at some grantees.
5. IMPROPER PAYMENT ESTIMATED ERROR RATES, FOLLAR ESTIMATES1, AND OUTLOOK2| Program | PY | CY3 | CY+1 | CY+2 | CY+3 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Outlays | IP % | IP $ | Outlays | IP % | IP $ | Est. Outlays | IP % | IP $ | Est. Outlays | IP % | IP $ | Est. Outlays | IP % | IP $ | |
|
|||||||||||||||
| FHWA: Federal-aid Highway Program | 33,347 | 0.2 | 55.2 | 32,190 | 0.17 | 55.1 | 39,264 | NA | NA | 37,513 | NA | NA | 35,046 | NA | NA |
| FTA: Formula Grants Program4 | 6,2815 | 0.3 | 4.32 | 7,298 | 5.63 | 47.6 | 8,557 | .5 | 14.26 | 9,080 | .05 | 1.51 | 8,597 | .05 | 1.43 |
| FTA: Capital Investment Grants Program | 2,663 | 1.16 | .6 | 2,473 | 3.13 | 87.0 | 2,626 | .5 | 13.0 | 2,218 | .05 | 1.11 | 2,098 | .05 | 1.05 |
| FAA: Airport Improvement Program | 3,874 | NA | 0 | 4,428 | .02 | .973 | 3,967 | NA | NA | 4,075 | NA | NA | 4,200 | NA | NA |
