The Office of the Inspector General released an audit report, FHWA Does Not Effectively Ensure States Account For Preliminary Engineering Costs and Reimburse Funds As Required, last week that questioned why money extended to states for preliminary engineering (PE) for road and bridge work isn't being repaid to the FHWA as required. The results of the audit show the FHWA isn't keeping track and the states have figured out they aren't being held accountable.
Barry DeWeese, Assistant Inspector General for Surface Transportation Audits, writes, "The Federal Highway Administration (FHWA) authorizes billions of dollars in Federal -aid funding for preliminary engineering (PE) to assist States in the design and related ground work needed before a highway or bridge project advances to physical construction or acquires right-of-way."
"To achieve program efficiency, Federal law requires States to repay the Highway Trust Fund the full amount of Federal -aid expended on PE when a project does not acquire right-of-way or start construction within 10 years after Federal funds expended on PE were first made available. "
"FHWA’s Division Offices are responsible for authorizing PE funding, assessing States’ PE systems and processes, and collecting PE repayment as required. However, FHWA allow s States to extend the 10- year limit under certain conditions, such as when the delay is reasonable and beyond the State’s control."
"Given the billions of dollars in Federal funds spent on State highway and bridge PE projects, we assessed FHWA ’s policies and procedures for (1) accounting for Federal PE funds used for highway projects, and (2) ensuring States repay the Highway Trust Fund for Federal PE expenditures when required."
DeWeese's office sampled 718 projects to assess compliance with PE requirements, and also selected a statistical sample of 76 bridge and highway projects authorized between 200 and 2004. The FHWA division offices samples were in Alabama, California, New York, and Pennsylvania.
What the audit found:
FHWA does not effectively account for federal funds spent on PE highway and bridge projects. The audit showed that in the four division offices sampled, FHWA do not have effective controls and processes in place to account for PE projects. Because of this inefficiency, these offices are not able to track or pursue repayment of the PE funds from the state.
Division offices do not effectively assess whether states’ systems and processes accurately account for PE projects: FHWA division offices are required to make sure the state's accounting systems can accurately identify PE costs by project and work with the state to establish procedures to identify PE project that are either nearing the 10-year limit or have started construction.
However, none of the four division offices reviewed could provide evidence that they effectively assessed whether a states’s system accurately provided PE project data. In fact, one division office took no oversight actions at all.
Why are these FHWA division offices not keeping track of millions of dollars in Federal funding?
They Got No Teeth. The audit says that while FHWA Order 5020.1 assigns responsibility for PE oversight exclusively to the division offices, the order isn't clear on what actions the office can take to verify a state's PE tracking systems and processes. The order also does not spell out what the division office can do if a state does not comply with the PE requirements.
It's Not My Job: The FHWA oversight reviews do not require an assessment of the state's compliance with the PE regs. This means the FHWA reviews do not identify or keep track of PE projects that have been closed out or owe money.
Who Cares: The four division offices sampled said in interviews that they do not consider compliance with PE requirements to be a 'high risk' - important enough -to act upon. In fact, in 2015 one division office, after discovering a state did not repay the FHWA millions of dollars for PE funds, declared the situation just a 'moderate risk.'
Questionable authorizations: The audit found that methods some division offices use to authorize federal PE funding may not be allowable. Problems were found when states used a single federal project number for funding a project in phases. Incremental funding is a grey area for the FHWA and is still being looked at. None the less, the audit found in six PE projects authorized between 2000 and 2004, $1.1 billion was done in incremental phases.
No state oversight: One problem highlighted in the report is states inaccurately designating their project as PE's. The audit found 12 of 76 projects incorrectly designated by the state as PE projects. Because the FHWA did not effectively verify what the states submitted as PE projects, 12 projects were not PEs for which the FHWA division offices handed over $3.1 billion for non-PE highway and bridge projects.
You've got ten years, more or less: One-third of the projects sampled had either passed the 10-year repayment deadline or had not started construction, and FHWA didn't make sure those funds were repaid. Instead, some projects were given questionable repayment extensions.
The audit said about $3.3 billion was at risk of not being repaid, approximately 9 percent of all PE funds spent nationwide. Some projects were given questionable repayment extensions.
Why is repayment of PE funds important? Because those repaid dollars go directly back into the Highway Trust Fund to be used on future PE projects.
The entire report, FHWA Does Not Effectively Ensure States Account For Preliminary Engineering Costs and Reimburse Funds As Required, is available here.