December 11, 2019
Mandated by the FAA Reauthorization Act of 2018
FAA Needs To Improve Oversight and Enhance Transparency in Its Franchise Fund
What We Looked At
The Federal Aviation Administration (FAA) Administrative Services Franchise Fund is a Government-run, fee-for-service organization that aims to foster competition, increase efficiency, and reduce costs across the Federal Government. The Fund has six service organizations and reported $480 million in annual revenues in 2018. As required by the FAA Reauthorization Act of 2018, our office initiated an audit to assess FAA’s management and oversight of the Fund’s operations and activities. Specifically, we looked at the Fund’s history, intended purpose, and objectives; conformance to generally accepted accounting principles; and conformance to Federal policies and other guidelines.
What We Found
The Fund’s six service organizations serve multiple types of customers; by law, they are required to receive payment in advance. While the Fund’s annual revenues reflect increases in its services and customers, we found weaknesses in its internal controls. For example, the Fund does not track inventory age; as such, we could not determine if the inventory value, reported to be $656 million in 2018, had been overstated. Fund officials also do not conduct adequate oversight of the financial operations. For example, we found $2.6 million in unexpended funds that should have been returned to customers; we project the total unreturned amount to be $26 million of $338 million in unexpended funds. In addition, if they are not paid in advance, some service organizations use operating reserves to pay for the costs of providing services, contrary to law. Most of them do not fully comply with requirements for capital reserve plans—increasing the risk that funds could be mismanaged. Still, FAA is changing the Fund’s governance structure, which might allow it to measure whether the Fund is receiving adequate oversight and stability. However, FAA could do more to address customer concerns regarding transparency and to avoid the risk of improperly obligating funds. Enhancing financial-related internal controls is key to ensuring the Franchise Fund functions as Congress intended.
We made 13 recommendations to help FAA strengthen its management and oversight of the Franchise Fund. FAA fully concurred with recommendations 3 through 13, but did not concur with recommendations 1 and 2. We have asked the Agency to reconsider its position.