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Summary

The Federal Highway Administration (FHWA) oversees States’ use of approximately $40 billion in Federal funds provided annually for thousands of projects. By issuing these grants to State and local governments, FHWA incurs contractual obligations. In 2004, we reviewed $1.3 billion in Federal-aid highway obligations and concluded that $284 million of them were no longer needed because they were associated with canceled, reduced scope, or completed projects. In response to that report and to safeguard funds against mismanagement, FHWA established the Financial Integrity Review and Evaluation (FIRE) Program in 2005. FHWA Division Offices annually conduct FIRE reviews that assess States’ management of Federal funds in key areas, such as inactive obligations and improper payments.

The five FHWA Division Offices’ FIRE reviews we assessed generally complied with Agency policies and procedures in carrying out the components of the FIRE Program. However, we identified three program areas where they lacked adequate oversight or documentation. First, four of the five Division Offices we sampled used outdated guidance to define materiality for FIRE reviews. Second, Division Offices did not consistently document the decisions they made in identifying risk areas and planning the required financial management reviews (FMR). Third, none of the five Division Offices maintained complete records for staff financial management training. We also found that, while Division Offices generally used the FIRE program as a tool to address financial management vulnerabilities, all five offices had outdated, incomplete, or missing follow-up information on the status of their FMR recommendations.

We made four recommendations to improve the implementation of the FIRE Program. FHWA concurred with all of our recommendations.