Presentation before the National Fraud Prevention Awareness Conference

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

2. 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.

3. 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.

4. Recovery Act Added New Challenges to Longstanding Ones 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. After years of extensive research, I have concluded beyond any doubt that I need more grants!

5. Distribution of ARRA Funds within DOT

6. OIG’s 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.

7. 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.

8. Phase 2: Scan DOT ModalPrograms to Evaluate Vulnerabilities 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.

9. 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)

10. 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.

11. 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)

12. 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 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)

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

14. 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.

15. Projects with Questionable Economic Merit:

16. 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.

17. 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

18. 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

19. 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.

20. 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.

21. 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.

22. ARRA Advisory on FHWA’s Oversight and Use of Value Engineering Studies Dave Pouliott Program Director, Office of the AIG for Highway and Transit Audits

23. ARRA Advisory on FHWA’s 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

24. 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.

25. 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 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

26. 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 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

27. Investigative Oversight John W. Long National Director, ARRA Investigations (404) 562-3850 email: John.W.Long @oig.dot.gov

28. Investigations Regional Offices (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

29. Strategic Investigative Plan • Outreach and Training • Proactive Investigative Oversight of ARRA funded projects • Criminal and Civil Prosecutions

30. 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

31. Proactive Investigative Activities • 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.

32. 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.

33. 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

34. TRENDS • Under-bidding • Bid-rigging • Increase in DBE fraud

35. www.oig.dot.gov

36. Contact Information • National OIG Hotline: (800) 424 - 9071 or (202) 366 -1461 • OIG Hotline E-mail: hotline@oig.dot.gov • OIG Web Page: www.oig.dot.gov

37. 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.

38. For More Informationhttp://www.oig.dot.gov/recovery • 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

39. Questions & Comments