Presentation before the National Fraud Prevention Awareness Conference

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Presentation before the National Fraud
Prevention Awareness Conference
ARRA Related Audits and Investigations

• 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

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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.

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On the Lookout for Stimulus Fraud
By MICHAEL COOPER Published September 17, 2009
The conventional estimate is that 7 percent of
government spending is lost to waste, fraud or
abuse. Some government officials are warning that
using that percentage, 55 billion worth of the
787 billion stimulus package would be lost. To
try to prevent that, the various Federal
inspector general offices, state comptrollers and
auditors, and Federal and local prosecutors have
trained their sights on the stimulus money.
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Recovery Act Added New Challenges to Longstanding
Ones

• The Recovery Act provided over 48 billion for
  DOTs aviation, highway, transit, maritime, and
  rail programs. Funded existing programs,
  mandated new ones, and added substantial new
  requirements.

After years of extensive research, I have
concluded beyond any doubt that I need more
grants!
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Distribution of ARRA Funds within DOT
DOT Component Stimulus Funds (Millions) Percent of Total
Federal Highway Administration 27,500 57.15
Federal Railroad Administration 9,300 19.33
Federal Transit Administration 8,400 17.46
Office of the Secretary of Transportation 1,500 3.12
Federal Aviation Administration 1,300 2.70
Maritime Administration 100 .21
Office of Inspector General 20 .04
Total 48,120 100.00
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OIGs 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.

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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.

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Phase 2 Scan DOT ModalPrograms to Evaluate
Vulnerabilities

• Methodology
• Conduct scans across DOTs 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.

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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)
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MARAD decision making initially did not meet key
ARRA requirements for transparency and economic
considerations in its selection process.
Maritime Administration (MARAD)
Aker Philadelphia Shipyard received a 2.3
million ARRA grant.
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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)
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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
  attentionfour advisories have been issued to
  date.
• Suspensions and Debarment (DOT-wide)
• Improper Payments (DOT-wide)
• Airport Improvement Program (FAA)
• Value Engineering Studies (FHWA)

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ARRA Advisory on FAAs Process for Awarding
Airport Grants
Darren Murphy Program Director, Office of the AIG
for Aviation and Special Program Audits
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ARRA Advisory on FAAs 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.

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Projects with Questionable Economic Merit
ARRA Grant Recipient/Location Project Grant Amount
Ouzinkie, AK New airport/airfield 14.7 million
Akiachak, AK New airport/airfield 13.9 million
Findlay, OH Construct Taxiway 4.8 million
Warrensburg, MO New apron 1.7 million
Dover, DE Design new runway 0.95 million
Wilbur, WA Runway and taxiway extension 3.0 million
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Ouzinkie, Alaska
Ouzinkie is 10 miles via boat or air to Kodiak.
Ouzinkie already had 2,200-foot runway with no
history of serious safety incidents.
Grant Amount for new airport 14.7 million
Population 169
NPR Score 40
Based Aircraft 0
Aircraft Operations Avg. 42/month
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White House's Airport Stimulus Misguided?
Remote Murtha airport lands big bucks from
Washington
Alaska's Airport to Nowhere 15 Million for Town
of 150 People Small Villages Across State Have
Received Millions in Grants for Airport
Improvements
Federal money for Aspen airport upgrades called
into question
Tiny Airports Get Big Cut of Stimulus Cash Small,
Rural Airports Get Big Payouts While Safety
Violations at Major National Airports Get Little
Attention
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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.

Guam International Airport
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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.

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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.

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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 FAAs ARRA grant selection process,
  with our report due out later this year.

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ARRA Advisory on FHWAs Oversight and Use of
Value Engineering Studies
Dave Pouliott Program Director, Office of the
AIG for Highway and Transit Audits
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ARRA Advisory on FHWAs Oversight and Use of
Value Engineering Studies (Issued June 28, 2010)

• 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 2010

State/District ARRA Project Required VE Study Status Project Value In Millions
District of Columbia New York Avenue Not conducted 36.6
Alaska Willow to Kashwitna Not conducted 27.5
Missouri I-44 Not conducted 27.1
Pennsylvania Girard Point Bridge Conducted less than 2 months before the start of the project's contract bid process 77.4
North Carolina Fayetteville Outer Loop Conducted 1 month before the anticipated start of the project's contract bid process 55.1
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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 2010 - FHWA issued new VE performance
  measures to be integrated into Stewardship
  Agreements.
• May 2010 - FHWA revised its VE policy and
  addressed the timeliness of VE studies.

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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 DOTs
  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

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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 Federalaid Highway
  Projects Administered by Local Public Agencies
• October 2009 FHWAs FederalAid Highway Program
  Oversight of Procurement Practices for
  ARRAFunded Contracts at State Departments of
  Transportation
• November 2009 Job Creation Under ARRA
• November 2009 Evaluation of FHWAs 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

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Investigative Oversight
John W. Long National Director, ARRA
Investigations [phone] email John.W.Long
_at_oig.dot.gov
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Investigations Regional Offices
(1) Cambridge, MA [phone] (2) New
York, NY [phone] (3) Washington,
DC [phone] (4) Atlanta, GA
[phone] (5) Chicago, IL (312)
353-0106 (6) Ft. Worth, TX (817)
978-3236 (9) San Francisco, CA (415)
744-3090
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Strategic Investigative Plan

• Outreach and Training
• Proactive Investigative Oversight of ARRA funded
  projects
• Criminal and Civil Prosecutions

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Outreach and Training

• 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 ARRAfraud,
  waste and abuse

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Proactive Investigative Activities

• Previously we have been a reactive agencyfor
  ARRA funded projects, we are much more
  proactive.
• Investigators are contacting project managers,
  inspectors, procurement managers, audit, and
  claims personnel.

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Proactive Activities

• 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.

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Criminal Civil Prosecutions

• 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

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TRENDS

• Under-bidding
• Bid-rigging
• Increase in DBE fraud

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www.oig.dot.gov
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Contact Information

• National OIG Hotline (800) 424 - 9071 or
  (202) 366 -1461
• OIG Hotline E-mail hotline_at_oig.dot.gov
• OIG Web Page www.oig.dot.gov

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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.

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For More Informationhttp//www.oig.dot.gov/recove
ry

• Audit Announcements, Reports, and Testimonies
• Whistleblower Protection
• Monthly ARRA Financial Activity Report
• Economic Recovery Oversight Plan and Audit Plan
• OIG information governmentwide
  http//www.recovery.gov/Accountability/inspectors

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Questions Comments