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Audit Reports

Date

Review of Major Western Capital Projects Points to Overall Improvements Needed in FTA’s Financial Guidance and Oversight

Requested By
Self-Initiated
Project ID
ST2017047
File Attachment

The Federal Transit Administration (FTA) receives approximately $2 billion in annual appropriations for its discretionary Capital Investment Grant (CIG) program, which funds a range of transit projects, including heavy, commuter, and light rail. FTA’s three western regions in Denver, San Francisco, and Seattle oversee CIG program New Starts projects—new construction projects valued at $300 million or more and improvement projects valued at $100 million or more—with Federal investments of almost $8 billion. We initiated this audit due to the large Federal investment in the New Starts program. Our objectives were to evaluate FTA’s (1) processes for identifying and assessing major capital (New Starts) projects’ financial risks, and reviewing and approving grantee financial plans and reports, and (2) oversight of grantees’ mitigation of financial risks.

For the four projects we reviewed, FTA followed its processes to identify and assess financial risks, but did not ensure that each project’s financial capacity assessment (FCA) report was fully documented. None of the financial management oversight contractors (FMOC) that FTA hired included proposed local financial commitment ratings and justifications in their FCA reports, as required in the statements of work, making it difficult to assess the extent to which FTA considered this information in its final financial ratings in its investment decisions. FMOCs also did not document their sensitivity testing decisions, making it difficult for FTA to determine whether the testing was appropriate to inform its funding decisions.

FTA did not mitigate key financial risks by ensuring that grantees completed all critical third party agreements prior to FTA’s funding approval and that FTA staff reviewed grantees’ Federal Financial Reports (FFR) per FTA procedures. Three of the four grantees did not complete their third party agreements before award. We could not determine which of the incomplete agreements were critical because FTA’s guidance lacks specificity on which third party agreements are critical and available documentation did not identify agreements as critical. In addition, because they did not review FFRs as required, FTA regional staff also did not verify one grantee’s indirect cost rates. As a result, the grantee’s use of incorrect rates went undetected for several years. Furthermore, we could not reconcile the support this grantee provided for the Federal share of expenditures—over $37 million—reported in a sample of its FFRs. Consequently, FTA has put at least $37 million in Federal funds at risk of overpayment if it reimbursed the grantee for ineligible or unsupported expenditures.

We made five recommendations to FTA to strengthen its New Starts program’s oversight and processes. FTA concurred with two recommendations and partially concurred with another three recommendations.

Recommendations

Closed on
No. 1 to FTA
Establish and implement controls to ensure the FMOCs meet contractual requirements to include in all Financial Capacity Assessment reports:a. Complete project ratings that are in accordance with all elements of FTA's rating criteria; andb. Sensitivity testing performed.
Closed on
No. 2 to FTA
Require that FMOCs include in their Financial Capacity Assessment reports the rationales for all testing decisions and parameters selected for testing.
Closed on
No. 3 to FTA
Establish and implement controls to ensure FTA regional staff follow the existing Federal Financial Report review procedures which require reviewing the reports and documenting the reviews.
Closed on $37,000,000
No. 4 to FTA
Complete a financial analysis of all SFMTA's Federal expenditures incurred on the Central Subway project, including its indirect expenses, as reported in the Federal Financial Reports to quantify the amount of Federal funds to be reimbursed to FTA. Implementation of this recommendation could put at least $37 million in Federal funds to better use.
Closed on
No. 5 to FTA
Revise FTA's policy guidance to include requirements identifying which project's third party agreements are critical versus those that are not, and which agreements are required to be completed and in place prior to FFGA approvals, to mitigate risks to project cost and schedule due to uncompleted third party agreements.