Presentation before the

National Fraud Prevention Awareness Conference

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Joseph ComéAssistant Inspector

General

for Highway and Transit Audits

Darren MurphyProgram Director

Office of the AIG for Aviation and

Special Program Audits

David PouliottProgram Director

Office of the AIG for Highway and Transit Audits

John W. LongNational Director ARRA Investigations

ARRA Related Audits and

Investigations

OIG Mission and Recent OIG Mission and Recent AccomplishmentsAccomplishments

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

Recovery Act Added New Recovery Act Added New Challenges to Longstanding Challenges to Longstanding

OnesOnes

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.

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After years of extensive research, I After years of extensive research, I have concluded beyond any doubt have concluded beyond any doubt

that I need more grants!that I need more grants!

Distribution of ARRA Distribution of ARRA

Funds within DOTFunds 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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OIG’s ARRA Oversight Strategy: 3-Phase 3-Phase

Risk-BasedRisk-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 Phase 1: Identify ARRA Challenges for DOTChallenges 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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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.

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Phase 2: Scan DOT ModalPrograms 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)

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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)

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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)

ARRA Advisories: Provide Timely ARRA Advisories: Provide Timely Reporting of OIG Concerns and Prompt Reporting of OIG Concerns and Prompt

ActionAction 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)

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ARRA Advisory on FAA’s Process for Awarding Airport Grants

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Darren MurphyProgram 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.

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Projects with Projects with Questionable Economic Questionable Economic

Merit:Merit:

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ARRA Grant Recipient/Locati

onProject

Grant Amount

Ouzinkie, AK New airport/airfield$14.7

million

Akiachak, AK New airport/airfield$13.9

millionFindlay, OH Construct Taxiway $4.8 millionWarrensburg, MO New apron $1.7 million

Dover, DE Design new runway$0.95

million

Wilbur, WARunway and taxiway extension

$3.0 million

Ouzinkie, Ouzinkie, AlaskaAlaska

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Grant Amount for new airport

$14.7 million

Population 169

NPR Score 40

Based Aircraft 0

Aircraft Operations Avg. 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.

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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 PeopleSmall Villages Across State Have Received Millions in Grants for Airport Improvements

Remote Murtha airport lands big bucks from Washington

White House's

Airport S

timulus

Misguided?

Federal money for Aspen airport upgrades

called into question

Single Audit FindingsSingle Audit FindingsARRA 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.

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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.

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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 FAA’s ARRA grant selection process, with

our report due out later this year.

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ARRA Advisory on FHWA’s Oversight and Use of Value

Engineering Studies

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Dave PouliottProgram 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 2010

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ARRA Advisory on FHWA’s Oversight and Use of Value

Engineering Studies (Issued June 28, 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

FHWA Actions FHWA Actions NeededNeeded

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 Phase 3: Conduct Audits of Audits of

ARRA High-Risk AreasARRA High-Risk AreasOIG 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

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Phase 3: Ongoing Phase 3: Ongoing WorkWork

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 Investigative OversightOversight

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John W. LongNational Director, ARRA

Investigations

(404) 562-3850

email: John.W.Long @oig.dot.gov

Investigations Regional Investigations Regional OfficesOffices

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(1) Cambridge, MA (617) 494-2701

(2) New York, NY (212) 337-1250

(3) Washington, DC (202) 260-8580

(4) Atlanta, GA (404) 562-3850

(5) Chicago, IL (312) 353-0106

(6) Ft. Worth, TX (817) 978-3236

(9) San Francisco, CA (415) 744-3090

Strategic Investigative

Plan

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Outreach and Training

Proactive Investigative Oversight of ARRA funded projects

Criminal and Civil Prosecutions

Outreach and Training

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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

Proactive Investigative

Activities

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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

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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 Criminal & Civil ProsecutionsProsecutions

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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

TRENDSTRENDS

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Under-bidding

Bid-rigging

Increase in DBE fraud

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www.oig.dot.gowww.oig.dot.govv

Contact InformationContact Information

National OIG Hotline:National OIG Hotline: ( (800) 424 - 9071 or800) 424 - 9071 or (202) 366 -1461 (202) 366 -1461

OIG Hotline E-mail:OIG Hotline E-mail: hotline@oig.dot.govhotline@oig.dot.govOIG Web Page:OIG Web Page: www.oig.dot.govwww.oig.dot.gov

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Emerging Issues From Emerging Issues From Audits and InvestigationsAudits 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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Questions & Questions & CommentsComments

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