[Senate Hearing 111-393]
[From the U.S. Government Publishing Office]
S. Hrg. 111-393
DEPARTMENT OF TRANSPORTATION'S IMPLEMENTATION OF THE AMERICAN RECOVERY
AND REINVESTMENT ACT (ARRA)
=======================================================================
HEARING
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
SPECIAL HEARING
APRIL 30, 2009--WASHINGTON, DC
__________
Printed for the use of the Committee on Appropriations
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
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__________
COMMITTEE ON APPROPRIATIONS
DANIEL K. INOUYE, Hawaii, Chairman
ROBERT C. BYRD, West Virginia THAD COCHRAN, Mississippi
PATRICK J. LEAHY, Vermont CHRISTOPHER S. BOND, Missouri
TOM HARKIN, Iowa MITCH McCONNELL, Kentucky
BARBARA A. MIKULSKI, Maryland RICHARD C. SHELBY, Alabama
HERB KOHL, Wisconsin JUDD GREGG, New Hampshire
PATTY MURRAY, Washington ROBERT F. BENNETT, Utah
BYRON L. DORGAN, North Dakota KAY BAILEY HUTCHISON, Texas
DIANNE FEINSTEIN, California SAM BROWNBACK, Kansas
RICHARD J. DURBIN, Illinois LAMAR ALEXANDER, Tennessee
TIM JOHNSON, South Dakota SUSAN COLLINS, Maine
MARY L. LANDRIEU, Louisiana GEORGE V. VOINOVICH, Ohio
JACK REED, Rhode Island LISA MURKOWSKI, Alaska
FRANK R. LAUTENBERG, New Jersey
BEN NELSON, Nebraska
MARK PRYOR, Arkansas
JON TESTER, Montana
ARLEN SPECTER, Pennsylvania
Charles J. Houy, Staff Director
Bruce Evans, Minority Staff Director
------
Subcommittee on Transportation and Housing and Urban Development, and
Related Agencies
PATTY MURRAY, Washington, Chairman
ROBERT C. BYRD, West Virginia CHRISTOPHER S. BOND, Missouri
BARBARA A. MIKULSKI, Maryland RICHARD C. SHELBY, Alabama
HERB KOHL, Wisconsin ROBERT F. BENNETT, Utah
RICHARD J. DURBIN, Illinois KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota SAM BROWNBACK, Kansas
PATRICK J. LEAHY, Vermont LAMAR ALEXANDER, Tennessee
TOM HARKIN, Iowa SUSAN COLLINS, Maine
DIANNE FEINSTEIN, California GEORGE V. VOINOVICH, Ohio
TIM JOHNSON, South Dakota THAD COCHRAN, Mississippi (ex
FRANK R. LAUTENBERG, New Jersey officio)
ARLEN SPECTER, Pennsylvania
DANIEL K. INOUYE, Hawaii, (ex
officio)
Professional Staff
Peter Rogoff
Meaghan L. McCarthy
Rachel Milberg
Jonathan Harwitz
Jon Kamarck (Minority)
Matthew McCardle (Minority)
Ellen Beares (Minority)
Administrative Support
Teri Curtin
C O N T E N T S
----------
Page
Opening Statement of Senator Patty Murray........................ 1
Opening Statement of Senator Christopher S. Bond................. 3
Statement of Hon. Ray LaHood, Secretary of Transportation,
Department of Transportation................................... 4
Prepared Statement........................................... 5
Competitive Grants............................................... 8
High-speed Rail.................................................. 9
Highway Rescission............................................... 10
Jobs............................................................. 11
Amtrak Strategic Plan............................................ 12
Statement of Senator Dianne Feinstein............................ 12
High-speed Rail.................................................. 13
Bridges.......................................................... 15
Prepared Statement of Senator Frank R. Lautenberg................ 16
Discretionary Grant Program...................................... 16
New Starts....................................................... 17
High-speed Rail.................................................. 18
Deadline for Obligating Highway and Transit Funds................ 18
Statement of Hon. Calvin L. Scovel III, Inspector General, Office
of the Inspector General, Department of Transportation......... 19
Prepared Statement........................................... 21
DOT Must Continue to Address the Significant Oversight Challenges
Posed by ARRA.................................................. 22
The Office of Inspector General Will Continue to Examine Areas
That Present the Greatest Risks and Promptly Notify DOT and
Congress of Actions Needed to Minimize Fraud, Waste, and Abuse
and Achieve ARRA Goals......................................... 27
Memorandum--U.S. Department of Transportation, Office of the
Secretary of Transportation, Office of Inspector General....... 30
Results--Oversight Challenges Facing DOT......................... 31
Ensuring That DOT's Grantees Properly Spend ARRA Funds........... 31
Implementing New Accountability Requirements and Programs
Mandated by ARRA............................................... 36
Combating Fraud, Waste, and Abuse................................ 38
Conclusions and Recommendations.................................. 40
Agency Comments and Office of Inspector General Response......... 41
Actions Required................................................. 41
Additional Committee Questions................................... 47
Questions Submitted to Hon. Ray LaHood........................... 47
Questions Submitted by Senator Patty Murray...................... 47
Implementation of the Recovery Act............................... 47
Oversight of the Formula Grants for Highways and Transit......... 47
Projects Being Built With Recovery Act Funds..................... 48
Grants for Energy Efficiency..................................... 48
Questions Submitted by Senator Dianne Feinstein.................. 49
Question Submitted by Senator Susan Collins...................... 49
Questions Submitted by Senator George V. Voinovich............... 50
Questions Submitted to Hon. Calvin L. Scovel III................. 51
Questions Submitted by Senator Patty Murray...................... 51
Offices That Aren't Working on the Recovery Act.................. 51
Balancing Responsiveness With Objectivity........................ 51
Providing Quick Feedback to DOT.................................. 51
DEPARTMENT OF TRANSPORTATION'S IMPLEMENTATION OF THE AMERICAN RECOVERY
AND REINVESTMENT ACT (ARRA)
----------
THURSDAY, APRIL 30, 2009
U.S. Senate,
Subcommittee on Transportation and Housing
and Urban Development, and Related Agencies,
Committee on Appropriations,
Washington, DC.
The subcommittee met at 9:14 a.m., in room SD-138, Dirksen
Senate Office Building, Hon. Patty Murray (chairman) presiding.
Present: Senators Murray, Feinstein, Lautenberg, Bond, and
Alexander.
OPENING STATEMENT OF SENATOR PATTY MURRAY
Senator Murray. This subcommittee will come to order.
We are on a tight timeframe this morning as there is a full
Appropriations Committee going this morning as well on the
supplemental. So we have a number of members who want to get to
both. So we are going to get started.
Senator Bond is going to be here shortly. He is running a
little bit late. So I am going to go ahead and begin, and we
will have him join us as soon as he arrives.
I want to welcome Secretary LaHood and Inspector General
Calvin Scovel from the Department of Transportation to this
hearing this morning. We look forward to your testimony and to
learning more about the challenges and successes facing the
Department as you work to implement your slice of the American
Recovery and Reinvestment Act.
And this subcommittee is committed to working with you in
your efforts. I look forward to a continued partnership with
the Department of Transportation as we work to monitor the
spending of taxpayer dollars.
In total, the U.S. Department of Transportation received
over $48 billion from the Recovery Act to invest in every part
of our transportation system--our roads and bridges, airports
and railroads, public transportation, ports and maritime
communities. This funding should go to projects that reduce
congestion, improve safety, enhance freight mobility, and make
our Nation stronger long term--projects that put people to work
today and keep businesses moving.
In my home State of Washington, unemployment has now risen
to 9.2 percent, well above the national average. Businesses are
forced to cut back. Families have lost their homes to
foreclosure. Our State government is facing a $9 billion
deficit, which has left a lot of our worthy transportation
projects in doubt.
But the release of Federal recovery dollars means that 180
transportation projects in Washington State will be able to
move forward, creating and sustaining thousands of jobs. I
recently, in fact, toured a project on Interstate 405 in
Bellevue that received recovery funds, which is going to create
about 560 new family-wage jobs.
Washington, like other States, will also receive millions
to support much-needed capital investment in our transit
systems, which are struggling as well. But the true promise of
the Recovery Act will be realized only if DOT, and every other
agency that has been charged with its implementation, does its
job effectively, responsibly, and efficiently.
Now those are not words typically associated with large
bureaucracies. But so far, the Department has met its deadlines
for distributing highway and transit funds, for collecting
certifications from each Governor on its transportation plans,
and publishing a strategy for high-speed rail.
DOT has also created a Department-wide team to oversee and
coordinate its workload and created a risk management plan to
identify areas of concern and develop a course of action for
each one. But how will the Department oversee the funds on a
daily basis so that we avoid wasteful spending, we do create
jobs, and improve our Nation's infrastructure? The challenges
are significant.
The Recovery Act calls for frequent and detailed reports,
and the Department has only just started to prepare for those
requirements. DOT still needs to make key decisions about how
to allocate over $10 billion provided in the Recovery Act for
discretionary programs. That leaves a lot of unanswered
questions.
What criteria will the Department use to evaluate
applications for the $1.5 billion competitive program? What
guidance will the Department issue for applicants interested in
intercity and high-speed rail grants? What is the best use of
funding provided under the New Starts program?
Although the Department has distributed over $34 billion in
highway and transit formula grants, overseeing the use of this
funding presents its own challenges to the Department. How will
the Department ensure the funds are used correctly by State and
local jurisdictions at the same time that the Department must
oversee the regular highway and transit programs?
The inspector general recently identified unresolved
challenges for the Department that could interfere with the
best use of recovery funds. As an example, the Department still
needs to move quickly to suspend people that have engaged in
fraud so that they do not receive any additional Federal
contracts. It will be particularly important for the Department
to resolve this issue in order to avoid the kind of wasteful
spending that undermines the public's confidence.
So, as I said, the challenges are significant, and as the
Department continues to implement the Recovery Act, this
subcommittee will continue to monitor its progress. I hope the
information gathered today is the start of an ongoing dialogue
with the Department. There is too much at stake to not get this
right.
With that, we are joined by Senator Bond. Sorry we started
without you, but I am delighted you are here, and you can go
ahead and do your opening statement.
OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND
Senator Bond. Thank you, Madam Chair.
And welcome, Mr. Secretary. I apologize. I had to make a
speech downtown this morning, and I had a roomful of people I
had to shake and howdy with on the way in. And I am delighted
you started because we have got a tough morning schedule ahead,
but it is important that we have this oversight hearing.
I hope that in the months and years ahead, we will continue
to monitor how these funds are being administered through our
States and localities and that the Recovery Act will have its
intended effect on our Nation's economy.
I did not support passage of the Recovery Act, but I have
always supported investment in transportation because I do
believe that these are the types of investments that should be
included in any economic stimulus. Infrastructure spending
works to preserve and create jobs, promote the kind of economic
recovery that is necessary during these difficult times, and
lays the groundwork that is absolutely essential for continued
progress and development of our economy.
I would have preferred more spending be included in the
Recovery Act for crumbling highway and bridge infrastructure,
as well as water infrastructure and transit. I was one of only
two Republican Senators who supported our distinguished chair
on the Senate floor when she sponsored an amendment to increase
the level of investment for actual infrastructure spending.
I am disappointed that the overall total for transportation
was only $48.1 billion, and of that total, only $27.5 billion
was included for our States to address their ever-growing
highway and bridge needs. Additional funding for infrastructure
is what stimulus should be about.
We can already see that our aviation funding, highway
funding, and transit funding were the first of the funds to hit
the ground in sustaining and supporting jobs. And I applaud
you, Mr. Secretary, and the DOT employees for their ability to
meet all the deadlines thus far contained in your section of
the Recovery Act.
Funds are being announced, and we will see actual
obligations and outlays of funds to the States in the coming
weeks. And I understand, as expected, that the bids are coming
in significantly lower. We are getting good, particularly good
value for our spending now.
While progress has been good, however, and over 2,000
projects have been awarded, there are a number of new accounts
and activities that we need to monitor in the future. Of
particular interest to me and a number of Senators are two new
grant programs to be administered within the Department--$8
billion for high-speed rail and $1.5 billion for a new
discretionary grant program for surface infrastructure
projects.
We are awaiting the interim guidance and Federal Register
notices on the specifics of these new programs. I understand
that the GAO and the DOT IG will be auditing and reviewing
these new areas. It is my hope that we will have a follow-up
hearing in the future where we can expect the results of these
reviews.
And with that, Mr. Secretary, I look forward to hearing
your comments.
And I thank you, Madam Chair.
Senator Murray. Thank you very much, Senator Bond.
Mr. Secretary, welcome to our subcommittee. Your statement
will be printed in full in the record, but we would appreciate
some opening remarks from you.
STATEMENT OF HON. RAY LaHOOD, SECRETARY OF
TRANSPORTATION, DEPARTMENT OF
TRANSPORTATION
Secretary LaHood. Well, Madam Chair, first of all, this is
my first opportunity to personally thank you for your
leadership in supporting the President's economic recovery
plan. Without your leadership and the leadership of others here
in the Senate, we wouldn't be sitting here today talking about
our opportunity to put people to work. So I thank you very much
for all your leadership.
And to you, Senator Bond, thank you for your leadership
over the years in transportation. You have been a strong
advocate for almost everything we do at the Department, and we
are grateful for your support, sir.
And I am enormously proud of the men and women at the
Department who have worked extraordinarily hard to implement
this groundbreaking legislation in record time while fully
embracing the letter and spirit of the Recovery Act commitment
to accountability and transparency.
Our people have been working 24-7, and of the roughly $48
billion provided to the Department by the Recovery Act, we have
announced nearly $45 billion for roughly 2,800 surface and
aviation improvement projects. And as of this week, more than
$9 billion of these funds have been obligated in nearly every
State and territory. All 50 Governors have accepted our portion
of the Recovery Act funding because they know that they can put
their people to work in their States in well-paid jobs.
The FAA has been very effective in soliciting and reviewing
project proposals and awarding discretionary funds so that
ready-to-go airport improvement projects could begin.
Within 2 weeks of passage, the Federal Highway
Administration apportioned its funds and has been working
aggressively to move projects through the approval process.
The Federal Transit Administration now has 136 transit
agency grant proposals totaling nearly $1.5 billion that are
ready to be obligated.
And the Maritime Administration will soon award $100
million in grants to hundreds of small shipyards.
The Recovery Act also makes historic investments intended
to jump-start a new high-speed passenger rail service for the
Nation. Later this summer, we will begin awarding a portion of
the $8 billion in recovery funds to deserving rail corridor
projects all over the country.
I intend to invite all of the high-speed rail corridor
folks from around the country, folks that have been dreaming
about high-speed rail, to Washington so I can listen to their
proposals, talk to them, and begin working with them. We want
to establish the kind of relationships with them that we have
had with others. And so, we will listen to what they have been
doing and then figure out how we can apportion the $8 billion
to jump-start opportunities all over America.
I have traveled around the country to New Hampshire,
Vermont, Arizona, Texas, and a number of other States, and we
have been out meeting with Governors and other officials to
make sure that the projects that we are funding are on track
and the money is being well spent.
We put together the TIGER team, which works every day, with
all the modes coming together, talking to one another about how
the money is being spent and making sure that it is spent
correctly.
There are several checks on what we are doing.
Recovery.gov, the Web site established by the White House which
we give information to, lists the projects, the States that
funds are going to, and will eventually list what projects are
being funded, and how many jobs are being created.
There are two Inspector Generals looking at what we are
doing. The first is the Government-wide IG that was appointed
by the President, Mr. Devaney and his staff. And then, of
course, there is our own IG, from whom you will be hearing
today.
So transparency and making sure that every dollar is spent
correctly are the watchwords. No earmarks, no boondoggles, and
no sweetheart deals. These hard-earned dollars will be spent
the way that you all intended for it to be spent.
PREPARED STATEMENT
So we are working hard at this. We think we have got it
right. And we think very soon thousands of people will be
working around America in well-paid jobs, rebuilding America's
infrastructure.
I look forward to your questions, Madam Chair.
[The statement follows:]
Prepared Statement of Hon. Ray LaHood
Chairman Murray, Ranking Member Bond, and members of the
subcommittee, thank you for the opportunity to appear before you today
to discuss the U.S. Department of Transportation's (DOT) progress in
implementing the American Recovery and Reinvestment Act of 2009
(Recovery Act). The Recovery Act is an extraordinary response to a
crisis unlike any since the Great Depression. The act is an
unprecedented effort to jumpstart our economy, create or save millions
of jobs, and put a down payment on addressing long-neglected challenges
so our country can thrive in the 21st century. In the 10 short weeks
since this hallmark legislation was enacted, the Department has been
working hard to ensure that the Recovery Act is being implemented
quickly, wisely, and with unprecedented transparency and accountability
to finance transportation projects throughout America. Today, I want to
share with you our accomplishments and our plans for the future.
Even before the Recovery Act was enacted, DOT had prepared an
implementation strategy to ensure that the agency would be prepared to
implement our elements of the legislation as quickly and effectively as
possible. We brought together an intermodal team of experts from our
policy, legal, financial, and information technology disciplines to
work along side programmatic experts in our operating administrations
to anticipate the requirements in the new legislation. This new team--
termed the Transportation Investments Generating Economic Recovery, or
TIGER, Team--was tasked with coordinating and overseeing the
Department's responsibilities and reporting regularly to me on their
progress.
The work of the TIGER Team has been instrumental in keeping our
implementation on track and I am pleased to report that the efforts of
our TIGER Team and many others throughout our Department are achieving
success. Of the $48.1 billion of overall resources provided to DOT in
the Recovery Act, we have already announced the availability of $44.8
billion. And $8.1 billion of these funds have already been obligated on
specific projects in 48 States and Territories, and the figures are
increasing every day.
To keep the funds flowing and to ensure that accountability and
transparency are maintained, our DOT TIGER Team is tasked with a broad
range of responsibilities. We have established separate stewardship
working groups to coordinate issues such as data reporting, financial
management, procurement and grants, job creation, information
technology, and accountability. The reporting requirements in the
legislation are extraordinary and have required the Department to
establish guidance on data and financial reporting to ensure that
information provided to the public is accurate and easy to understand.
Just recently, we posted maps of the United States on DOT's Recovery
Act Web site showing the number of projects by State and the amount of
funds that have been obligated. We are working to refine these helpful
depictions of the progress being made in fulfilling the President's
objectives for the Recovery Act.
While implementation of the Recovery Act presents significant
management challenges, DOT has already taken steps through the TIGER
Team to provide effective oversight to ensure that the funds provided
by Congress are used efficiently, effectively, and provide maximum
benefit to the public.
For example, DOT has developed a systematic and comprehensive
approach to risk assessment and management. The risk management tool
developed by DOT was so well regarded by the Office of Management and
Budget that it subsequently adopted the tool for Government-wide use.
The tool uses a four-step approach, which is built upon the sound
foundation of internal controls assessments:
--Formal assessment of potential programmatic risks;
--Risk profile that categorizes the level of risk;
--Risk management and mitigation plan; and
--Validation and testing.
As a further check on the extent and validity of our validation
work, DOT will be reaching out to partner with another Federal agency
to share risk management best practices and to leverage resources for
cross validation and testing. At this point, the Department has
completed the first two phases of this approach for all Recovery Act
programs. We will be continuously updating our risk management efforts
due to the nature and sensitivity of risk management for Recovery Act
programs.
We are also creating new business processes that make better use of
the work done by both the Office of Inspector General (OIG) and the
Government Accountability Office (GAO). Early on, we established an
Accountability Executive Board that includes top officials from
throughout the Department. This group approached OIG and GAO seeking to
better ensure that audit findings are thoroughly considered in our
Recovery Act programs. First, we broadened the avenues of communication
to make certain we had a clear understanding of their concerns as
rapidly as possible. We created new mechanisms, including an
Accountability Stewardship Group to bring management and the auditors
together frequently for a frank, two-way exchange of information.
Together with the Inspector General, I have convened a fraud awareness
session broadcast throughout DOT to ensure everyone gets the message
that we have zero tolerance for waste or fraud. Simply put, I have
asked our people to say something if they see something. The
Accountability Executive Board continues working with the auditors to
identify new and innovative ways that will better enable DOT to
anticipate challenges and incorporate the changes necessary to provide
the public with meaningful and effective programmatic results.
President Obama, Vice President Biden and you, the Members of
Congress, have entrusted me with billions of dollars to help create
jobs and improve our Nation's infrastructure. I have just visited
several States where Recovery Act investments are making a real
difference in people's lives. In New Hampshire, for example, I met 35
construction workers hired to make highway repairs. Many of these
individuals had been laid off and were called back to work. They are
back on the payroll, supporting their families, and contributing to
their local economies. Similar stories are playing out in States all
over the country. This effort not only puts people to work, but it gets
people to work in a way that moves us towards our long-term goals of
energy security, a cleaner environment, and more livable communities.
The Federal Highway Administration (FHWA) has been moving at rapid
speed and on March 3, just 2 weeks after the legislation was passed,
FHWA announced the apportionment of funds to Maryland Route 650--the
first Recovery Act highway project in Maryland. Within 6 weeks DOT had
announced more than 2,000 transportation projects in nearly every State
in the Nation. Of the 2,000 projects, 1,860 were FHWA projects and 300
were Federal Aviation Administration (FAA) projects.
Projects are not only being approved ahead of schedule, but they
are also coming in under budget. State departments of transportation
around the country have reported intense competition by contractors for
Recovery Act projects. Some bids have been roughly 15 to 20 percent
lower, and some as much as 30 percent lower, than engineers
anticipated. For example, in Colorado, the State's bids for the first
five Recovery Act transportation projects announced on April 2, were 12
percent lower than anticipated. In Maine, the low bid for one bridge
project was 20 percent lower than estimated. In Oregon, during February
and March 2009, bids have averaged 30 percent lower than expected. Just
last week I sent a letter to our Nation's Governors and State
Secretaries of Transportation, reminding them that any money they save
as a result of Recovery Act projects bids coming in lower than
anticipated must be used for additional transportation projects.
FAA has been working hard to get Grants-in-Aid for Airports funding
distributed to eligible projects. To date, FAA has announced more than
$1 billion--or 94 percent--of its airport improvement funding for 301
projects. Of the $200 million provided for Facilities and Equipment
projects, FAA has been working on contract awards for air traffic
control facility improvements, power system upgrades, new airport
runway lighting, and navigation systems and other infrastructure
projects.
In the area of transit, the Federal Transit Administration (FTA)
has a total of 109 grants totaling $1.47 billion in the pipeline to be
obligated. FTA has engaged in significant outreach with stakeholders to
inform them of the requirements in the legislation. On March 5, FTA
announced $6.7 billion in formula funding under two transit capital
assistance programs and the Fixed Guideway Infrastructure Investment
program. FTA is in the midst of receiving grant applications under the
Transit Investments for Greenhouse Gas and Energy Reduction (TIGGER)
Program. When implemented, the TIGGER grants will reduce greenhouse gas
emissions and energy use for decades into the future. FTA has also
requested applications for the Tribal Transit Program.
The Federal Railroad Administration (FRA) was given $8 billion in
Recovery Act funds to support the development of a High-Speed Passenger
Rail initiative. On April 16, 57 days after the Recovery Act was
enacted, President Obama announced the release of the new High-Speed
Rail plan at a well-attended event at the White House. The strategic
plan outlines the administration's vision for high speed rail in
America. This administration believes that high-speed rail can
transform travel in America, reduce dependence on cars and airplanes,
and spur economic development. We would like States and local
communities to put together plans for a network of 100-mile to 600-mile
corridors, which will compete for the Federal dollars. The merit-driven
process will result in Federal grants as soon as late summer 2009.
President Obama's vision for high-speed rail mirrors that of
President Eisenhower, the father of the interstate highway system,
which revolutionized the way Americans traveled. Now, high-speed rail
has the potential to reduce U.S. dependence on oil, lower harmful
carbon emissions, foster new economic development, and give travelers
more choices when it comes to moving around the country.
The Recovery Act also includes $1.3 billion for capital grants to
the National Railroad Passenger Corporation (Amtrak), of which $450
million is to be used for capital security grants, including life
safety projects. Priority for the use of non-security funds is to be
given to projects for the repair, rehabilitation, or upgrade of
railroad assets or infrastructure, and for capital projects that expand
passenger rail capacity, including the rehabilitation of rolling stock.
Funding was also to be awarded within 30 days after enactment. Amtrak
and FRA personnel have worked diligently and expeditiously to identify
rail passenger capital projects that meet the Recovery Act
requirements, both in terms of their contribution to improving
intercity rail passenger service and in terms of prompt initiation of
new or expanded projects that will create or retain jobs and support
economic development. Consistent with the act's requirements, FRA and
Amtrak executed the American Recovery and Reinvestment Act of 2009
Grant Agreement on March 19, and Amtrak is moving aggressively to
implement Recovery Act funded projects.
The Maritime Administration is also implementing a new shipyard
assistance grants program under the Recovery Act. The $100 million
provided in Assistance to Small Shipyards will be used to award grants
in this area. As of April 20, more than 400 individual grant
applications had been received.
Finally, the Recovery Act includes a $1.5 billion discretionary
grant program for surface transportation to be administered under my
direction. These TIGER grants will be awarded based upon the criteria
specified in the legislation after an extensive review process. The
criteria for the TIGER Grants are currently in the review process
within the Department. There is lots of excitement about this new grant
program, and I welcome the opportunity to update you and other members
of the subcommittee at a later date on our progress.
I again want to thank Chairman Murray and the subcommittee for
inviting me here today. I can tell you that we are making real progress
in achieving the goals of the Recovery Act. I have had the privilege of
standing along side the President and the Vice President at events
marking the arrival of Recovery Act funds in cities throughout America.
I have seen first hand the excitement on the faces of newly hired
workers who now have a job. These people have families to care for and
communities that are counting on them. In turn, they are helping to
rebuild and refurbish our transportation infrastructure so we can
together keep America moving. I will be happy to answer your questions.
COMPETITIVE GRANTS
Senator Murray. Thank you very much, Mr. Secretary. I
appreciate your being here.
Let me start with the $1.5 billion in competitive grants
for transportation projects that will have a significant impact
on the Nation and the metropolitan area, or region. This is a
new program for the Department, and it is unique because it
involves almost every mode of transportation.
The competitive program was included in the Recovery Act to
make sure that billions of dollars that we are investing will
result in some meaningful legacy projects so that we can see
some real improvements to transportation infrastructure. And I
believe strongly that we can't invest more than $48 billion in
supplemental funds in transportation without making sure that
we get some real, measurable improvements for communities.
So I wanted to ask you today what kind of criteria you are
considering that will make sure that this program creates a
legacy of significant transportation improvements.
Secretary LaHood. We have submitted our criteria to the
White House and to OMB. We are waiting for guidance from them.
We believe that as early as next week the criteria will be made
public.
But I will tell you this, you all, in your bill that the
President signed, put in $28 billion for roads and bridges, $8
billion for transit, $1 billion for airports, and $8 billion
for high-speed rail. So we think the discretionary money ought
to look at some other modes that didn't get the kind of
attention that these did.
And so, we are thinking in terms of ports and multi-modal
opportunities that really weren't considered as much as maybe
some of you would have wished. And I know that that is one of
the reasons that these dollars were put in there. That is what
we are looking at, but the actual criteria will be made public
next week.
Senator Murray. Okay, and do States and local governments
understand when they apply for these grants, that we are
looking for long-term priorities?
Secretary LaHood. Absolutely, sustainable transportation
opportunities.
Senator Murray. Okay. What kind of outreach are you doing
to make sure people understand what these projects are, or are
you just waiting for people to apply to you?
Secretary LaHood. For the $1.5 billion?
Senator Murray. Right.
Secretary LaHood. Well, we need to get the criteria out. It
has not been made public. We are waiting for a little guidance
from the White House and OMB. And once we get that, we will put
it out publicly, and then we will begin working with folks
around the country that want to make application.
It will become very clear that we want some innovative
approaches. We want some approaches that were not covered under
the other portions of the Economic Recovery Act.
Senator Murray. And since you are looking toward making
sure port and freight rail and other improvements are part of
this, are you going to do some outreach to some of those
communities, States, and local governments to make sure they
understand that is what you are looking for?
Secretary LaHood. Absolutely. I think we may use the model
that we used for the highway money, where we invited all the
State DOT secretaries to Washington, even before the bill was
signed, and talked to them about how we wanted to get the money
to them. We are doing that again with high-speed rail
corridors, inviting all the folks to Washington. And we may
very well invite a number of folks to the District of Columbia
to talk about the $1.5 billion so there is a good understanding
of how this money should be used.
HIGH-SPEED RAIL
Senator Murray. Okay. Well, let me ask you about that high-
speed rail. You released your vision for that just a couple of
weeks ago and provided an overview for the high-speed rail
program, which didn't offer a lot of details yet about how
exactly the recovery funds are going to be used.
I think you said those were coming in June, the details for
that program. But I wondered if you could give us a little bit
of insight today on what you expect. Are you looking for brand-
new corridors or improving the speeds on current corridors, or
what are you looking for?
Secretary LaHood. Well, there are a number of high-speed
corridors around the country. We know about the Northeast
corridor, and we know that in California, they have been
working on high-speed rail for over 20 years, passed a
referendum, and set aside money. And they are in a much
different position than maybe a corridor in the Midwest, where
they have talked about it, or a corridor in the South, where
maybe they need some study money.
I think what we would do is look at the $8 billion as an
opportunity to begin several corridor opportunities. In
California, obviously they are way ahead of a number of other
places in the country.
In the Northeast, it is the same kind of a program. If you
straighten out some tracks along the Northeast corridor, you
can get some of the Amtrak trains to go a little bit faster. In
the Midwest, they have been dreaming about high-speed rail from
Wisconsin and Minnesota, through Illinois, all the way down to
St. Louis.
Senator Murray. Well, you could have a lot of applications.
How are you going to prioritize, what will be your criteria to
prioritize which of those projects?
Secretary LaHood. We will focus on where we really believe
we can help jump-start people's opportunities. In California,
they have done all their studies. They are working on their
environmental requirements. They have money set aside. That is
different than perhaps another part of the country where they
may need some money to begin to do a study.
It is not unlike when the interstate system was started. I
am sure that when President Eisenhower signed the bill, all the
lines weren't on the map. They only knew where they were going
to begin.
And I believe that two decades from now, you are going to
see a network of high-speed rail, and we are going to help
provide some opportunities. The $8 billion that you provided is
supplemented with another $5 billion in the President's next 5
budget years. So we have $13 billion. But $13 billion is not
nearly enough to do everything we want to do.
Senator Murray. Right.
Secretary LaHood. But it is a very good start. It is $13
billion more than we have ever had before.
Senator Murray. Well, there is no State match requirement
in this.
Secretary LaHood. That is correct.
Senator Murray. But will you give priority to projects that
do have a match?
Secretary LaHood. I think we are going to give priority to
those that have been working on high-speed rail, and have been
dreaming about it, and have made a commitment by having
referendums passed and putting their plans in place.
But we also know that there are other corridors that could
use a little bit of money to get a study going, and we don't
want to short-circuit those opportunities either.
Senator Murray. Okay. I appreciate it. Thank you.
Senator Bond.
HIGHWAY RESCISSION
Senator Bond. Thank you very much, Madam Chair.
And thank you, Mr. Secretary, for mentioning ports and
multi-modal. For those of us in the Midwest, we know how
important those ports are in taking large bulk commodities off
of our highways. The rails are absolutely clogged. We have got
to have those ports. I appreciate that.
I thank you for mentioning my constituents in St. Louis and
high-speed. When you are talking about all those wonderful
Midwest high-speed corridors, it would be helpful if one of
them crossed the Mississippi River. And I have got a pretty
good place to do that. So we will look forward to working with
you on that.
I understand, on earmarks, people get mad at congressional
earmarks. But those of us here know that we do earmarks because
we listen to our State DOTs. We listen to our local leaders.
And somebody has got to earmark them. Right now, it is going to
be the Department of Transportation people who earmark them,
and that is fine.
But I just urge you to continue, as you said you would,
listening to State DOTs and the local leadership because they
are the ones who really know where the priorities are. That is
what we do. We get criticized for it, but I read Article I,
section 8 and 9 saying that is our responsibility. But I
appreciate your willingness to listen.
I have got a big problem, something that was left out of
the American Recovery Act. I was advised by leaders on the
floor that they were going to deal with it. Somebody put the
kibosh on it so it didn't happen. But we all know there is a
looming $8.7 billion rescission of the highway funds on
September 30, if something is not done to fix it.
We are getting all this money for a recovery, to stimulate
job creations. But if this rescission goes through, it is going
to cancel numerous projects that are either ready to go or
already underway. I would like to know what your views are on
that unfortunate rescission provision and what you think can,
should, and will be done to fix it?
Secretary LaHood. Well, we are monitoring where we are with
the highway trust funds, and we realize that you all were good
enough to transfer the $8 billion out of the General Fund and
into the Highway Trust Fund last year. And as a Member of the
House, last year I supported that.
Senator Bond. I did, too. That was transit funds and
highway funds that had previously been transferred to the
General Fund.
Secretary LaHood. Right.
Senator Bond. But we got a little problem.
Secretary LaHood. So we are paying close attention to this,
and I think we will give you some pretty good guidance about
midsummer where we are at and if we are going to run out of
money again.
JOBS
Senator Bond. Well, something has got to be done on that
rescission or that messes up the plans that are already
underway. That one is a looming tragedy that I had hoped we
could deal with in the Recovery Act, but we need to deal with
it.
Now during the debate on the bill, it was stated that 3.5
million jobs would be created. The unemployment rate has gone
from 8.1 percent to 8.5 percent. Do you have a good fix yet on
how many jobs have been created by the Department with the
funds that have been allocated, and what quantitative methods
or tools will you use to determine how many jobs have been
created?
Secretary LaHood. During the month of May, we will put out
a report, Senator, that will define what the term ``jobs''
means here. We are trying to work with OMB, and we are trying
to work with our State DOT friends on this. We want to make
sure that everybody understands what a job means.
When somebody is working on a job in a certain part of
Missouri, that job is completed, and then they go to another
job, do you count that a second time? Or does that person
continue in their employment?
And so, there are a few of these delicacies here that we
are trying to work out. But very soon here, we will have a good
definition that people will understand and that everybody will
agree to. And once we do that, we can, I think, assess what an
enormous number of jobs have been created.
And we also know that as soon as the weather breaks here,
which it is now doing in the Midwest, a lot of these projects
will begin in places where the weather is----
AMTRAK STRATEGIC PLAN
Senator Bond. I understand. We have had a little weather.
One quick question. Does Amtrak have a strategic plan for
annual appropriations of the Recovery Act? We are worried that
Amtrak needs to get its act together. What are you doing to
make sure that it meets specific goals and targets?
Secretary LaHood. Well, we are going to work with Congress
on the bill that you all passed. We think it is a good bill,
and we think it really helps us work with Amtrak and keeps them
meeting the standards and obligations that were set out in the
legislation.
I just met with the Amtrak Board at their meeting here a
week or so ago, and we talked about some of these issues. But
we think the Amtrak bill is a pretty good guidepost for all of
us to make sure Amtrak continues to be a very viable passenger
rail service in America.
Senator Bond. Thank you, Mr. Secretary.
Thank you, Madam Chair.
Senator Murray. Thank you.
Senator Feinstein.
STATEMENT OF SENATOR DIANNE FEINSTEIN
Senator Feinstein. Thank you very much, Madam Chairman.
Thank you very much, Mr. Secretary. I very much appreciate
you coming and spending a little bit of time with me.
I wanted to concentrate on two subjects. One is the air
traffic controller, and the other is the high-speed rail.
Following this hearing last year--you were not here--I
asked the GAO for a study of the southern California TRACON on
the belief, and that belief remains, that we have major
problems with insufficiently trained air traffic controllers
doing the work of a controller.
The inspector general just came out with his report, and he
predicts that later this year, 40 percent of the people working
at the southern California TRACON will not have full
certification. I find that unacceptable.
The problems are that there really is, I think,
insufficiency in the training program. I think there is a cost
of living problem with respect to that area of our State. We
have found it with Federal firefighters, too. Other services
are more attractive to them because they pay better.
In any event, the GAO made four recommendations. One is to
validate the staffing ranges for southern California and
northern California TRACON to ensure that their staffing levels
are sufficient to handle the volume. I would ask you to carry
that out.
The second is expand the use of relocation, retention, and
other incentives to entice more experienced controllers to
accept positions or defer retirements at LAX and southern
California TRACON.
Third, to provide LAX, southern California TRACON, and
northern California TRACON with enough contract instructors,
classroom space, including offsite locations, and simulators
for the expected surge in new controllers. This is particularly
critical, GAO says, at southern California TRACON.
And to evenly distribute the placement of new trainees
through the year to avoid training bottlenecks and conduct an
independent analysis of overtime scheduling practices at all
three facilities.
I would like to ask you today to commit to carrying out
those recommendations of the GAO.
Secretary LaHood. I am committed to doing that, Senator.
Senator Feinstein. Good.
Secretary LaHood. And I thank you for your leadership. When
you and I met, this was the No. 1 issue on your list.
Senator Feinstein. That is right.
Secretary LaHood. And I take your point on this. We will
have an FAA Administrator in place as soon as the Senate can
confirm him. And I think he is an outstanding person, a former
airline pilot, the former president of the airline pilot union.
And I think he will bring extraordinary experience particular
to the issues that have been recommended in this report, and we
are committed to working with you to make sure these
recommendations are followed.
It has everything to do with safety, and I know that is
what you care about, and that is what we care about.
Senator Feinstein. Yes, I am very worried about a potential
serious accident.
I misspoke, Mr. Secretary. It is the IG report----
Secretary LaHood. Right. No, I understood.
Senator Feinstein [continuing]. Not the GAO report. But
thank you very much for that. You said that privately. You said
it publicly.
Secretary LaHood. Yes.
HIGH-SPEED RAIL
Senator Feinstein. That means a great deal to me.
The second thing is the high-speed rail. You pointed out
that California has passed a $9 billion bond for high-speed
rail with another $900,000 going into rail generally in the
State. We are prepared to move on the San Francisco to San Jose
line and also on Anaheim to LA.
The vision is to have a rail spine right down the center of
California that can move people and goods very, very rapidly,
2\1/2\ hours between Los Angeles and San Francisco, which then
should rival what is a very heavily congested air commuter
pattern. So we obviously will be coming in for additional
funds.
My question to you, do you find the California proposal
deficient in any way, or do you believe that the State has its
act together?
Secretary LaHood. California is far and away ahead of
anyplace else in the country. They are close to having just
about everything that is necessary, and I have no doubt that
they will be at the top of the list just because people have
been working on it, as you know, for 20-plus years. And their
dream finally comes true with the $8 billion that the President
was able to include in this bill that you all passed.
And so, California is ahead of the curve.
Senator Feinstein. Well, when Californians pass a financing
bond----
Secretary LaHood. That is right.
Senator Feinstein [continuing]. You can be sure it is
something that people want. So I very much appreciate that.
Secretary LaHood. That is exactly right. It is an
extraordinary commitment.
Senator Feinstein. Right, it is. So that completes my
questions, Madam Chairman.
And thank you, Mr. Secretary.
Secretary LaHood. Thank you.
Senator Murray. Thank you very much.
Senator Alexander.
Senator Alexander. Thank you, Madam Chair.
Mr. Secretary, welcome.
Secretary LaHood. Good morning.
Senator Alexander. Good to see you. I have got just a
couple of questions I would like to ask you.
I want to ask you about the possible relationship between
electricity transmission lines and railway rights of way. The
President and you are talking about new high-speed rail. The
President is talking a lot, as many others are, about the need
for an improved method of transmitting electricity across long
distances.
That raises the difficult prospect of where to put the
transmission lines because the areas where the electricity
needs to go is usually highly populated. So you end up with, at
the very least, a lot of delay or, if you succeed, a lot of
unsightly transmission lines in places where people don't want
them.
I don't know very much about this. I was talking with the
head of the Federal Energy Regulatory Commission about it the
other day. But is there any possibility of putting the
transmission lines along the railway routes, or even burying
them along the railway routes, or even making them useful for
electricity for trains and, in that way, provide a source of
revenue for the trains and, at the same time, avoid the
expensive delays and difficulties of siting transmission lines?
Or is that already being done?
Secretary LaHood. I am not an expert on this, Senator, but
I know this. In talking about really expanding our broadband
capability and putting fiber down where we are building roads
or building railway beds, it is possible to do that. I don't
know about the electrification.
I do know that Secretary Chu at Energy has been talking
about this and trying to figure out how to make it happen. And
so, rather than saying something where I don't really know of
what I speak, I would rather talk to him and see what his take
is on this.
I have not heard that you can do this, but I know you can
lay fiber down along roadways.
Senator Alexander. Yes, I haven't either. And the FERC
Chairman didn't either, and I am not sure you can do it. But it
would be typical of Government to start out and build a lot of
high-speed rail----
Secretary LaHood. Right.
BRIDGES
Senator Alexander [continuing]. Rights of way one place and
transmission lines another place, and it might be a good idea
just to explore whether there is any relationship between the
two. It might actually save money, time, do two or three things
at once.
The second is something I have always been intrigued with,
and you may not know about this either, and maybe Senator Bond
knows more about it. But a few years ago, I believe Missouri
had a different way of dealing with bridges. They made a deal
with the Department of Transportation and said give us the
money and we will build in 5 years what we would otherwise have
built in 30 years.
And they did it by the use of private contractors, and they
avoided a lot of delay and expense of going through the usual
Federal regulatory procedures. It sounded like that was a
successful effort, and it has been a year or two since I have
caught up with it.
But if it is, if I remember the bottom line well enough,
Senator Bond or Mr. Secretary, I believe Missouri felt it could
repair all the bridges it needed to repair within 5 years
rather than 30 years, and it could do it with the money that
was about to be allocated by the Federal Government over a
period of time.
Did that work? And if it did work, can it be tried other
places?
Senator Bond. I would say to my friend from Tennessee, it
was a great idea. You think it could work, to design-build
contracts. Unfortunately, FHWA didn't approve it. So it is an
idea that still----
Senator Alexander. They didn't?
Senator Bond. No. We are still--it is an idea out there
that could save us--could do a whole lot more with a whole lot
less.
Senator Alexander. Well, I would like--I am raising it just
to call it to your attention, Mr. Secretary. I know from my own
experience as Governor, we, on a couple of occasions,
experimented with buying a building from a private contractor.
We said, okay, here are the specifications and here is the
price. And we got it in half the time at half the cost.
And this was the same idea applied to bridges, a
negotiation between the State and the Federal Government. If
that is promising and if it permits States to take a certain
amount of tax dollars, which are scarce--you were just talking
about the trust fund and all the challenges we have there. If
that is possible to do, why not pick two or three States,
explore it, and see how it works?
And if you need some changes in the law to do it, I would
be glad to help you with it. Again, I am not expecting you to
know the answer to that. I just was very intrigued by it. And
my old Governor instincts got the best of me, and I just wanted
to ask whether it----
Secretary LaHood. Well, Senator, we have talked about
thinking outside of the box on how we use the Highway Trust
Fund, which is inadequate, and to do all the things we want to
do. We are talking about public-private partnerships, and we
are talking about these kinds of opportunities.
These are the kinds of things that we need to do if we are
going to do all of the things that we want to do in America
with new bridges and new roads. And public-private partnerships
certainly have to be a part of it.
Senator Alexander. Thank you, Madam Chairman.
Senator Murray. Thank you.
Senator Lautenberg.
STATEMENT OF SENATOR FRANK R. LAUTENBERG
Senator Lautenberg. Thanks, Madam Chairman.
And I apologize for the tardy arrival, and I ask unanimous
consent that my full statement be included in the record.
Senator Murray. It will be.
[The statement follows:]
Prepared Statement of Senator Frank R. Lautenberg
Madame Chairman, thank you for holding today's hearing.
Transportation funding is one of the most effective and efficient ways
to create good-paying jobs and boost our economy. For every $1 we
invest in infrastructure, we get a $1.59 in return. That's why, in the
Recovery Act, we included $48 billion for projects such as rebuilding
bridges, repaving roads, and laying new rail tracks.
Today, I look forward to hearing from Secretary LaHood about how
these funds are being spent to create jobs, stimulate our economy, and
move us toward the goals of reducing congestion and greenhouse gas
emissions.
In New Jersey, we have a project that embodies all of these goals
of the Recovery Act. The new rail tunnel under the Hudson River is
shovel-ready. It will create 6,000 construction jobs each year, 44,000
permanent jobs from the economic development it generates, and get
22,000 cars off the road daily as more New Jersey commuters take the
train.
Transit projects like the Tunnel boost our economy in the short-
term and help transform our economy in the long-term. Like transit,
passenger rail creates jobs, reduces congestion and cuts carbon
emissions and our dependence on foreign oil. And more Americans than
ever are taking Amtrak, even as our investment in passenger rail in
recent years has not kept up with demand.
That's why I wrote my Amtrak law last year: to help Amtrak be ready
for the next generation of travel. And the Recovery Act makes an
important down payment on the future of travel with $8 billion for
high-speed rail. The reality is, travelers will choose convenient rail
options if they are available--Amtrak's record ridership proves that.
In this tough economy, transportation investments are smart
investments.
The Recovery Act is a critical first step when it comes to
investing in our transportation infrastructure--but we must do more. As
we reauthorize our surface transportation programs this year, I look
forward to working with the administration and my colleagues to craft a
transportation policy that meets the needs of our country for
generations to come.
Senator Lautenberg. The focus here--and I welcome Secretary
LaHood. We are getting to know each other fairly well.
Secretary LaHood. Yes, sir.
Senator Lautenberg. Yes, and I think we are on a good
track.
Secretary LaHood. I agree with that.
DISCRETIONARY GRANT PROGRAM
Senator Lautenberg. Yes. Okay. Well, as long as you agree
with my track, we are going to do well.
The thing that I like here is that we are really focusing
on the transportation picture in total. Whether, as Senator
Feinstein discussed, getting the relationships in FAA squared
away, making sure that we have our highway improvement funding,
that is critical.
But finally, finally, Mr. Secretary, I think it is fair to
say that the position that the rail elements are coming into
play. And when I look and see that the kinds of spending that
we are looking at, the Recovery Act, for instance, includes a
new $1.5 billion grant program to fund nationally and
regionally significant transportation improvements for highway,
transit, rail, and port initiatives.
What is the yardstick by which the administration will make
judgments to determine which of the projects are truly national
or are of regional benefit?
Secretary LaHood. Well, as I indicated, we have the
criteria. We are waiting for guidance from OMB and the White
House, and we think we will have that very, very soon, maybe as
soon as next week. And we will publish the criteria so that
everybody around the country knows what they are, and then we
will begin to look at opportunities that really can provide the
kind of jobs that I know all of you want to create, but also
support projects that have national significance.
Senator Lautenberg. We have a target that touches several
objectives, and one of the things that we are being asked for
by the President is to make sure that we get to the quickest
way for value investment but to create jobs. And one of those
places that I see, and you know we have talked a lot about it,
is in the high-speed rail area, $8 billion in the Recovery Act
and the $1 billion in the President's 2010 budget. This is a
critical step forward, but there is still more that we need to
do to build a strong, high-speed passenger rail network in the
country.
And is it fair to say that the administration does support
a dedicated source of funding for high-speed rail?
Secretary LaHood. Well, I think there is no question about
that, Senator, given the fact that the President has included
$1 billion each year for the next 5 years in addition to the $8
billion that you all passed in the economic recovery. I believe
that is true.
NEW STARTS
Senator Lautenberg. All right. I just want to confirm these
things.
The New Starts process, the Federal program to fund major
transit projects, can take over a decade before the project
even begins construction. Now what can DOT do to speed up the
New Starts process without compromising environmental standards
or wasting any money in haste?
Secretary LaHood. We have proven at the Department that
when Congress gives us a deadline, which was 120 days in the
bill that you all passed, we can get $48 billion out the door.
And the way we did it was by creating what we call the TIGER
team, where we put all the modes together in a room every day,
talking to one another, trying to figure out if there are
problems or issues.
And in doing that, we eliminated a lot of bureaucracy and a
lot of redtape, and that is the kind of process we need to put
in place for these New Starts. It takes way too long. We don't
want to short-circuit anything. We want to make sure everything
is done by the book. But it should not take a decade to get a
New Start. It just shouldn't.
And we are going to work very hard to improve the system so
that we can really cut down the time that it takes for these
New Starts to be awarded.
Senator Lautenberg. Well, running the risk that repetition
doesn't carry the load that we would like to see it carry, I
want to talk for a moment about the tunnel, the ARC tunnel, and
the fact that New Jersey and the Port Authority have put $5.7
billion up for this tunnel and are looking to the Federal
Government to give just that extra push.
And I know that you have been committed to seeing this get
going, and I am hoping that next week, when we see the
President--is it next week that we are going to the President?
Secretary LaHood. I believe so, yes.
Senator Lautenberg. That we will get confirmation that
everybody is in the loop on this and that we will be able to
get shovel-ready, people standing at attention, holding their
shovels. That includes Jon Corzine and Frank Lautenberg, ready
to start digging.
Senator Murray. I can't wait to see that.
Senator Lautenberg. And we hope that the budget will--huh?
Senator Murray. You will have a hardhat on?
Senator Lautenberg. I could start off with one.
So thanks very much, Secretary LaHood. I think that you are
passing the elementary grades very rapidly and getting into the
full swing, and we are proud to see it happen.
Secretary LaHood. Thank you, sir.
HIGH-SPEED RAIL
Senator Murray. Thank you, Senator Lautenberg.
I just have a couple of quick questions, and then we want
to turn to the IG. The IG did identify the funding for
intercity and high-speed rail as a challenge for the Department
because the Federal Railroad Administration doesn't have the
experience in running a grant program of that size. We set
aside $80 million for that program. What can we know to ensure
that the FRA does have the expertise to oversee----
Secretary LaHood. Well, I think one thing you should know
is we hired one of the best rail people in the country in the
rail administration. She is doing a great job. She knows all of
the folks all over the country that have been working on high-
speed rail. She has been in place, and she is working very
hard.
We will have a rail Administrator, that the Senate just
approved last night, in place as soon as he is sworn in. So we
are staffing up with people that we think are the experts and
can really help us. If we need additional staff, we obviously
will come back and talk to you about that, Madam Chair.
DEADLINE FOR OBLIGATING HIGHWAY AND TRANSIT FUNDS
Senator Murray. Okay. I appreciate that, and we will be
following that closely.
And also I wanted to ask you about the tight deadlines for
the use of highway and transit programs in the recovery
package. Half of the States' highway grants have to be
obligated within 120 days or they are going to be
redistributed. The same with transit grants, I think they are
180 days.
Do you see any significant problems coming at us that we
need to correct?
Secretary LaHood. I don't at this point and mainly because
of the good relationships we have with transit districts and
with highway administrators. They get it. They want the money.
A lot of these projects have been sitting on shelves, and they
are going to do everything in their power to make sure that it
is done.
Senator Murray. We will be following that closely, too.
And finally, I just wanted to mention that Senator Bond and
I both were very concerned about ensuring that a fair share of
the transit funding was distributed to rural communities. I am
hearing reports now that the requirement that those funds be
used for capital expenses and not operating expenses is posing
some problems for our rural transit systems.
Do you have any reason to believe that transit funding will
be left unused because of that requirement?
Secretary LaHood. Well, we are just starting. That money
hasn't gone out the door. But we will keep you posted on how
that is going. We know the highway money is going to be on
time, and people are going to start to go back to work. We are
just starting to get the transit money out the door.
Senator Murray. If you can keep an eye on that because we
are hearing that many of the transit agencies, because of
budget cuts elsewhere, are laying off workers and cutting
services because of a shortage of operating funds. And if
that--no sense buying buses that sit there because they can't
be run. So if you can keep an eye on that?
Secretary LaHood. Sure. I would just recommend this, Madam
Chair. I think Congress needs to consider allowing transit
districts to use part of their money for operations. We are
very open-minded about that at the Department. I hope Congress
will be, too.
This is a real issue. It does no good to buy all these new
buses if you don't have people to drive them. So I hope
Congress will be open-minded about that.
Senator Murray. Okay. I appreciate it.
Mr. Secretary, you survived your first hearing here.
Secretary LaHood. Thank you.
Senator Murray. Well, actually, your second. We appreciate
your being here today and look forward to working with you as
we monitor this. And thank you for the great job you and your
folks are doing.
Secretary LaHood. Thank you very much.
Senator Murray. So thank you.
We will now turn to the IG. As I said earlier, we have a
full committee hearing now. So most of our members are having
to attend that.
But, Mr. Scovel, your input is extremely important to this
subcommittee. I know some members have questions that they will
be submitting that we can hope we can get an answer on. This is
not the only hearing we are going to have following this, and I
appreciate the opportunity to have you in front of us today.
So if you want to go ahead with your testimony?
STATEMENT OF HON. CALVIN L. SCOVEL III, INSPECTOR
GENERAL, OFFICE OF THE INSPECTOR GENERAL,
DEPARTMENT OF TRANSPORTATION
Mr. Scovel. Thank you very much.
Chairman Murray, Ranking Member Bond, and members of the
subcommittee, I welcome the opportunity to testify today on the
challenges facing DOT's implementation of the Recovery Act and
our related audit and investigative initiatives.
We are working with DOT officials in support of their
related efforts, and we have assembled a team of auditors,
investigators, and attorneys to review DOT's implementation of
the recovery program. To that end, we appreciate the additional
funding you provided to us, and we intend to make the most of
it. This funding will help us maintain staff, travel budgets,
information technology, and other resources that we need.
My statement today focuses on the challenges facing DOT and
our strategy to advance the effective and efficient use of
these funds. First, DOT must continue to address the
significant oversight challenges posed by the Recovery Act.
Last month, we issued a comprehensive report that
identified actions DOT should take now to address known
challenges and support Recovery Act requirements. These
challenges fall into three areas--first, overseeing grantees
receiving funding; second, implementing new programs and
reporting requirements in an effective manner; and third,
combating fraud, waste, and abuse.
The specific actions we noted in our report include
acquiring sufficient staff with relevant expertise; ensuring
that grantees use appropriate contract types; addressing
internal control weaknesses, such as identifying any unused
funds for use on other eligible projects; developing plans and
criteria for more than $9 billion in new programs; and finally,
taking timely action to suspend or debar contractors who
defraud the Government.
Next, I want to focus on what our office is doing to
promote accountability in the recovery program. Our audits and
investigations will continue to examine areas that present the
greatest risks, and we are committed to promptly notifying DOT
and Congress of actions needed to prevent fraud, waste, and
abuse and achieve program goals.
In anticipation of the act's passage, we initiated a risk-
based, three-part strategy. We completed phase one last month
by issuing our comprehensive report on DOT's oversight
challenges.
Phase two of our strategy is now underway. We are
conducting a series of structured reviews, or scans, of the DOT
agencies that received recovery funding. Specifically, we are
examining vulnerabilities in program management and planning
that could impede DOT's ability to effectively oversee projects
and meet new statutory and OMB requirements.
We will be reporting the results of phase two through a
series of advisories to the Department and Congress as events
warrant, and I would like to emphasize that these may not take
the form of full-blown audit reports. But our intent is to
fast-track our initial observations, confirm the results, and
bring them to the attention of the Congress and the Secretary
at the earliest opportunity.
Our investigators are also being proactive in supporting
DOT and its grantees. They are reaching out to officials in all
modes of transportation to conduct fraud awareness and
prevention briefings and training at all levels of Government
so those involved in carrying out the recovery program know how
to recognize, prevent, and report suspected fraud.
To date, we have made personal contact with FHWA officials
in all 50 States and the District of Columbia, FTA officials in
24 States; FAA officials in 20 States and the District of
Columbia; and State and local officials in 45 States and the
District of Columbia.
PREPARED STATEMENT
I assure you that we are strongly committed to meeting our
increased audit and investigative workload. And in conclusion,
it is critical that we do everything possible to maximize this
opportunity to make needed investments in our Nation's
infrastructure while protecting taxpayer dollars.
That concludes my statement, Madam Chairman. I would be
happy to answer your questions.
[The statement follows:]
Prepared Statement of Hon. Calvin L. Scovel III
Chairman Murray and Ranking Member Bond, thank you for the
opportunity to testify today on the challenges facing the Department of
Transportation's (DOT) implementation of the American Recovery and
Reinvestment Act (ARRA) of 2009 \1\ and our office's related audit and
investigative initiatives. We appreciate the $20 million in additional
funding that the subcommittee provided to our office to conduct audits
and investigations of DOT projects and activities funded by ARRA. This
additional funding will go a long way in ensuring that we have the
staff, travel budget, information technology, and other resources that
we need to help achieve new, ARRA-related goals, meet our increased
workload and protect the Federal investment over the long term. Since
the passage of ARRA, we have been working with DOT officials to support
and oversee their efforts and have assembled a cross-modal team of
auditors, analysts, investigators, and attorneys to review DOT's
management of recovery program funds.
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\1\ Public Law 111-5, (2009).
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ARRA designates an unprecedented $48 billion for DOT programs,
adding new challenges on top of the longstanding ones we have
highlighted in past reports to the Secretary of Transportation and
Congress. These include overseeing numerous grantees and projects
across the country as the recovery funding is infused into the economy.
In addition to significantly increasing funding for certain DOT
programs, ARRA directs DOT to create several new programs and
establishes tight timeframes for distributing and expending funds and
reporting results, such as the number of jobs created. The Office of
Management and Budget (OMB) also mandated additional requirements,
including weekly financial reports, which will test DOT's capacity as
it strives to effectively implement these changes.
Both the President and Congress have emphasized the need for
accountability, efficiency, and transparency in the allocation and
expenditure of ARRA funds and have recognized the role of Inspectors
General and the Government Accountability Office (GAO) in accomplishing
these objectives. For example, ARRA created the Recovery Accountability
and Transparency Board, consisting of our office and nine other
Inspectors General, and added substantial funding to help address the
increased workload. We want to acknowledge this subcommittee's strong
interest in vigilant oversight of the recovery program, with this
hearing as just one of the many indicators of that support.
We realize the enormity of the challenges facing DOT and note the
commitment of the Secretary of Transportation and his staff to the
success of DOT's recovery initiatives. DOT's leadership has been
proactive on several fronts. For example, the Department has
established the DOT-wide Transportation Investment Generating Economic
Recovery (TIGER) team to coordinate DOT's role in the recovery program,
ensure accountability, and develop a risk management and financial
reporting plan. In addition, DOT officials are working with grantees so
they can quickly submit proposals that will meet Federal requirements.
DOT is also evaluating how to redeploy current agency employees or use
``rehired annuitants'' to meet the increased workload and conducting
outreach to field staff and grantees through frequently-asked-questions
and guidance posted on DOT's recovery Internet sites. Sustained
leadership will be a prerequisite for continuing to meet the numerous
issues facing DOT.
Our statement today focuses on the specific challenges DOT faces as
it implements ARRA and our strategy to promote effective and efficient
use of funds. Specifically:
--DOT Must Continue to Address the Significant Oversight Challenges
Posed by ARRA.--Last month, we reported on the major challenges
facing DOT in ensuring that ARRA funds are spent properly and
identified actions DOT should take now to support ARRA
requirements (see attachment for the full report).\2\ This
report was based on a comprehensive review of our prior reports
and other relevant work. Based on our analysis, we concluded
that DOT must exhibit sustained and effective actions to
oversee grantees receiving ARRA funding; implement significant
new reporting requirements and programs mandated by ARRA; and
prevent fraud, waste, and abuse. Actions needed to address
these challenges include acquiring sufficient staff with
relevant expertise to oversee grantees; developing
comprehensive plans and sound criteria for the more than $9
billion in new programs created by ARRA; and enhancing
understanding among DOT staff, grantees, and their contractors
on how to recognize, prevent, and report potential fraud to the
appropriate authorities.
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\2\ OIG Report Number MH-2009-046, ``American Recovery and
Reinvestment Act of 2009: Oversight Challenges Facing the Department of
Transportation,'' March 31, 2009. OIG reports and testimonies are
available on our Web site: www.oig.dot.gov.
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In addition to serving as ``one-stop shopping'' for actions DOT
must take now to achieve ARRA-related goals, our report set out
a roadmap for our future audit and investigative initiatives.
In response to our recommendation to develop a plan to address
the issues in our report, DOT committed to providing us with a
document by April 30, 2009, that will outline its specific
actions taken or planned.
--Our Audit and Investigative Initiatives Must Continue to Examine
Areas That Present the Greatest Risks and Promptly Notify DOT
and Congress of Actions Needed To Minimize Fraud, Waste, and
Abuse and Achieve ARRA Goals.--We have begun working
aggressively to position our office to handle the increased
workload. In anticipation of ARRA's passage, we initiated a
three-phase approach to conducting related work. We completed
Phase 1 last month with the issuance of our report on key
oversight challenges facing DOT. We also identified several
audits that, although started prior to ARRA's passage, have a
direct connection to the programs funded under ARRA and related
requirements. We plan to fast-track the most time-sensitive
results of our work on these audits to ensure we provide DOT,
Congress, and taxpayers with timely and relevant information.
Phase 2 of our strategy is underway and involves a systematic
scan, or structured survey, of the DOT agencies that received
funding in ARRA, based on 10 focus areas identified in our
report. These scans will examine vulnerabilities in program
management and planning that could impede DOT's ability to
provide effective oversight of ARRA-funded projects and meet
new statutory and OMB requirements. We plan to begin reporting
the results of Phase 2 this summer through a series of ARRA
advisories to the Department. Phase 3 is a long-term initiative
in which we will drill down on high-risk areas that emerge as a
result of our agency scans.
I will now discuss these issues in further detail.
DOT MUST CONTINUE TO ADDRESS THE SIGNIFICANT OVERSIGHT CHALLENGES POSED
BY ARRA
In anticipation of ARRA's passage, we initiated a comprehensive
review of our prior audit and investigative work--as well as the
relevant work of other accountability organizations--to identify the
major challenges facing DOT as it implements such a large infusion of
new funding and program requirements. We reported the results of our
review last month: American Recovery and Reinvestment Act of 2009:
Oversight Challenges Facing the Department of Transportation. Our
report linked the challenges identified to 10 specific focus areas
where DOT must exhibit sustained and effective actions and oversight;
these areas are shown in table 1 on the next page. (The full report is
presented as an attachment to this statement.)
Based on our analysis of past findings, we see three major ARRA
oversight challenges facing DOT:
--Ensuring that DOT's grantees properly spend ARRA funds;
--Implementing new accountability requirements and programs mandated
by ARRA in an effective manner; and
--Combating fraud, waste, and abuse.
To ensure sufficient consideration of the potential risks discussed
in this report, we also recommended that the Secretary of
Transportation, through the DOT TIGER team, develop an oversight
implementation plan that outlines the key actions DOT has underway or
will take to address these issues. DOT agreed to provide us with a
document by April 30, 2009, outlining actions taken or planned in these
areas.
TABLE 1.--MAJOR ARRA CHALLENGES AND RELATED FOCUS AREAS FOR DOT
------------------------------------------------------------------------
------------------------------------------------------------------------
Ensuring that DOT's grantees properly Acquire sufficient personnel
spend ARRA funds. with relevant expertise to
oversee grantees.
Adhere to existing Federal
requirements for programs
funded under ARRA.
Evaluate the credibility and
completeness of cost and
schedule estimates.
Oversee grantees'
contracting management
activities and ensure
selection of appropriate
contract types.
Address internal control
weaknesses and identify
unused funds for use on
other eligible projects.
Implementing new accountability Implement new ARRA tracking
requirements and programs mandated by and reporting requirements
ARRA in an effective manner. that are designed to
promote accountability and
transparency.
Develop comprehensive plans
and sound criteria for the
new discretionary grant and
passenger rail programs
within statutory deadlines.
Develop appropriate
oversight strategies for
the new discretionary grant
and passenger rail
programs.
Combating fraud, waste, and abuse......... Enhance understanding among
DOT staff, grantees, and
their contractors on how to
recognize, prevent, and
report potential fraud to
the appropriate
authorities.
Take timely and effective
action to suspend or debar
individuals or firms that
have defrauded the
Department so they do not
receive future Federal
contracts.
------------------------------------------------------------------------
Today, I will highlight a few of the key areas where action is
needed.
Ensuring That DOT's Grantees Properly Spend ARRA Funds
The large amounts of funding that DOT is responsible for under ARRA
and the accelerated timeframes to use those funds will place great
demands on DOT's workforce, oversight processes, and financial
management systems. Some of the more significant challenges relate to
ensuring that DOT's Operating Administrations oversee grantees'
contract management activities; addressing internal weaknesses that
could lead to ineffective use of ARRA dollars; and having sufficient
staff with relevant expertise to monitor grantees' planning and
execution of ARRA-funded projects. We are encouraged by Secretary
LaHood's statement that DOT is committed to do things ``by the book,''
follow established policies and procedures, and employ sound business
practices.
Overseeing Grantees' Contracting Management Activities and
Ensuring Selection of Appropriate Contract Types
Oversight of grantees' contracting management practices warrants
particular attention as the ARRA program is quickly rolled out. Actions
needed are (1) specifying contract requirements early; (2) maximizing
competition; (3) using appropriate contract types; and (4) preventing
unallowable costs, improper payments, and excessive overhead charges
during contract execution. The magnitude and the accelerated pace for
spending ARRA dollars could exacerbate contract award problems we
previously identified, which include inappropriate contract types,
inadequate competition, and failure to ensure contract prices are fair
and reasonable.
Our basis for these concerns resides in several examples.
Specifically, audits of DOT and State contracts used to respond to the
Hurricane Katrina emergency found instances in which DOT money was
spent inefficiently. This occurred because grantees used risky
contracting methods in spending Federal funds, such as sole-sourced
contracts, which resulted in significantly higher costs.\3\ For
example, we found that a State department of transportation awarded two
sole-source contracts without assurance of fair and reasonable prices,
which resulted in the State paying about $1.7 million more than
necessary for bridge repairs. Our review of controls over DOT's
contract for Hurricane Katrina emergency disaster relief
transportation, also found that a Federal Aviation Administration (FAA)
contracting officer routinely authorized invoices for payment without
any documentation from the contractor showing that the services had
actually been provided.\4\ In one instance, this lack of controls
resulted in a $33 million overpayment to the contractor for emergency
bus transportation and chartered aircraft services; the overpayment was
later recovered.
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\3\ OIG Report Number MH-2006-065, ``Audit of the Mississippi
Department of Transportation's Award of Selected Hurricane Katrina
Emergency Repair Contracts,'' September 6, 2006.
\4\ OIG Report Number AV-2006-032, ``Internal Controls Over the
Emergency Disaster Relief Transportation Services Contract,'' January
20, 2006.
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Addressing Internal Control Weaknesses and Identifying
Unused Funds for Other Eligible Projects
DOT needs to assess risks and identify and mitigate any internal
control \5\ weaknesses to ensure that ARRA funding is spent effectively
in accordance with Federal regulations and OMB's new requirements.
Specifically, OMB is requiring that agencies ensure the prompt award
and outlay of ARRA dollars and minimize improper payments. Going
forward, DOT must ensure that its risk mitigation plans prevent new and
recurrent internal control weaknesses, identify unused funds promptly,
ensure timely action to free up unused funds for use on other projects,
and detect and prevent improper payments. Our prior and ongoing audit
work shows that DOT has experienced problems in these areas.
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\5\ Internal controls provide reasonable assurance of the
effectiveness and efficiency of an agency's use of financial resources,
the reliability of financial reporting, and compliance with applicable
laws and regulations.
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In particular, we have found that DOT must improve its controls for
identifying unused funds in its financial management systems and take
appropriate action to release them on completed, cancelled, and
reduced-scope projects. For example, in fiscal year 2008, auditors
found idle funds at the Federal Highway Administration (FHWA) estimated
at about $300 million. Similarly, we found that in 2007 FAA allowed
numerous Airport Improvement Program grants to remain inactive and
obligations to remain on closed grants, both for excessive periods of
time.\6\ Without sufficient controls going forward, any unused ARRA
funds could remain idle for long periods of time. This in turn could
prevent other worthy projects from receiving Federal funds and
potentially undermine ARRA's ability to stimulate the U.S. economy by
quickly spurring construction activity across the country.
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\6\ OIG Report Number AV-2007-073, ``FAA's Oversight of Inactive
Airport Improvement Program Grant Obligations,'' September 13, 2007.
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Avoiding improper payments also presents a continuing challenge to
DOT. For example, our prior work at FHWA identified oversight
weaknesses that led to such payments, which DOT must avoid in the ARRA
program. Specifically, we examined FHWA's oversight of design and
engineering (D&E) firms' indirect costs claimed on Federal-aid grants
and found that Federal funds were used to reimburse unallowable costs
totaling nearly $16 million.\7\ This occurred in part due to
ineffective oversight by FHWA and State transportation departments of
the certified public accounting firms hired by the D&E firms. As OMB
stipulated in its implementation guidance,\8\ it is critical to
mitigate the risks of improper payments in the recovery program to
ensure that DOT maximizes the return on the Federal investment.
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\7\ OIG Report Number ZA-2009-033, ``Oversight of Design and
Engineering Firms' Indirect Costs Claimed on Federal-Aid Grants,''
February 5, 2009.
\8\ OMB, ``Updated Implementing Guidance for the American Recovery
and Reinvestment Act of 2009,'' April 3, 2009.
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Acquiring Sufficient Personnel With Relevant Expertise To
Oversee Grantees
DOT must ensure that it has sufficient personnel with relevant
expertise to meet the increased workload, new requirements, and
accelerated timeframes associated with recovery spending. A sufficient
and trained workforce is critical to hold grantees accountable for
contract actions and realistic cost and schedule estimates and to
ensure that State or local recipients can effectively manage their
projects and the risks associated with the recovery program.
DOT officials expressed concerns about their ability to provide
sufficient oversight with limited time and staff, particularly in
regional and division offices, and noted actions under consideration.
For instance, some Operating Administrations may detail staff from each
of their headquarters to their regional and division offices and rehire
retired Federal employees on a temporary basis. These efforts were
supported when the Office of Personnel Management granted DOT direct-
hire authority and delegated to it dual compensation waiver authority.
These hiring flexibilities should help enable DOT to meet critical
hiring needs. The key will be to utilize these flexibilities
effectively to augment other staffing actions. We plan to evaluate the
adequacy of DOT's workforce as part of our future audits on DOT's
oversight of ARRA projects.
Implementing New Reporting Requirements and Programs Mandated by ARRA
in an Effective Manner
In addition to increasing the funding levels of existing programs,
ARRA presents new goals for DOT. First, ARRA mandates several new
reporting requirements that are designed to promote accountability and
transparency, which OMB enhanced in its recent implementation guidance.
Second, ARRA creates two new, large programs that provide $1.5 billion
in supplementary discretionary grants to improve the Nation's
transportation infrastructure and $8 billion in grants for high-speed
rail corridors and intercity passenger rail service.\9\ These programs
are being designed from the ground up and, therefore, pose particular
vulnerabilities for DOT.
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\9\ ARRA stipulates that the discretionary grant program can be
used for a variety of projects, including highway, bridge, public
transportation, passenger and freight rail, or port infrastructure
projects.
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Implementing New ARRA Tracking and Reporting Requirements
Designed To Promote Accountability and Transparency
To meet ARRA accountability and transparency requirements, DOT must
ensure that its financial management systems can track ARRA spending
and produce reliable information to report results in a meaningful way.
Specifically, DOT must ensure that its financial management systems can
clearly and reliably track recovery funds separately from other program
funds, as required by OMB. This will be important as OMB's guidance
requires agencies to submit regular reports, and the information to
generate these reports will come largely from DOT's financial
management systems.
For example, OMB's final implementation guidance requires DOT to
provide weekly Financial and Activity Reports that provide, by Treasury
Account, total obligations and total outlays as recorded in agency
financial systems on a cumulative basis. These reports will also
provide a bulleted list of the major actions taken or planned. In
addition, DOT will need to develop processes for meeting OMB
requirements to report on the number of jobs created or preserved. Some
ARRA information will be available publicly on the administration's Web
site, www.recovery.gov,\10\ and therefore must meet DOT and OMB data
quality requirements. These requirements underscore the need for DOT to
adjust its financial management systems so that they provide reliable
and complete management reports that DOT staff can use to effectively
guide and oversee grantees.
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\10\ The administration created this Web site to provide
information to the public on the planning and implementation of ARRA.
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In the past, DOT has experienced challenges in this area. For
example, in September 2007 we testified that FHWA was unable to
determine how much of the billions of dollars in Highway Bridge Program
funding were actually spent on structurally deficient bridges, because
its financial management system did not differentiate between spending
on structurally deficient bridges and other bridge-related
expenditures.\11\ In this case, the absence of sufficient management-
level information inhibited FHWA's ability to assess the impact of
Federal dollars on bridge conditions. We are working on a follow-up
audit to assess FHWA's bridge funding and oversight activities in
greater detail.
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\11\ OIG Testimony Number CC-2007-095, ``Federal Highway
Administration's Oversight of Structurally Deficient Bridges,''
September 5, 2007.
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Developing Comprehensive Plans and Sound Criteria for the
New Discretionary Grant and Passenger Rail Programs
Within Statutory Deadlines
Creating and executing the new programs called for by ARRA presents
a huge challenge for DOT. Meeting statutory deadlines will be difficult
due to the number of tasks that must be completed in short timeframes,
including quickly producing planning documentation and guidance. ARRA
directs the Office of the Secretary of Transportation (OST) to publish
criteria for its grant program within 90 days of ARRA enactment, accept
applications for grants within 180 days after the criteria are
published, and announce all projects selected within 1 year of ARRA
enactment. Further, ARRA requires the Federal Railroad Administration
(FRA) to produce a strategic plan for the passenger rail program within
60 days of ARRA enactment and interim implementation guidance to
applicants within 120 days.
We have reviewed the strategic plan FRA released on April 16. We
are cognizant that FRA had a limited timeframe in which to prepare the
plan and believe the plan provides a meaningful, broad vision for the
program and recognizes many of the risks inherent in implementing this
program. However, the plan lacks detailed strategies for achieving its
goals and performance measures to evaluate progress towards those
goals. The interim performance guidance will provide an additional
near-term opportunity for FRA to address these issues.
To meet deadlines for the discretionary grant program, the
Secretary established a working group within OST to develop criteria
and determine the best administrative structure. OST also has an
advisory task force comprised of staff from the Operating
Administrations. According to DOT officials, a central issue for the
task force is determining the most appropriate place to administer the
grants--within OST or the Operating Administration that would normally
be responsible for a particular type of project. For example, if OST
delegates administrative responsibility for a bridge replacement
project to FHWA, it would need to monitor how this delegation of
authority is effectively achieving the established goals and
requirements of ARRA.
FRA also faces daunting challenges because it has not previously
implemented a program like the large-scale, high-speed passenger rail
program called for in ARRA. FRA has begun establishing specific plans
for this program. These include determining how to allocate the funds
among the eligible purposes \12\ and developing program guidance within
the statutory timeframes. Because FRA is a small agency that had few
grant programs before ARRA was passed, it is critical for FRA staff to
leverage the in-house expertise throughout DOT and determine what
additional resources it may need. To design and implement this program,
FRA must, for example, establish sufficient controls to ensure that
Federal investments do not simply supplant investments the freight
railroads already planned to undertake on their rail lines.
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\12\ According to FRA, the $8 billion can be used for three
programs: (1) high-speed corridor program, (2) intercity passenger rail
service grants, and (3) congestion grants.
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Combating Fraud, Waste, and Abuse
DOT needs to tailor its counter-fraud efforts to adapt to the
increase in capital funding associated with the recovery program and
the expected surge in construction activity throughout the country.
OMB's guidance for ARRA implementation directs Federal agencies to be
aggressive in preventing fraud, waste, and abuse. This requires
sustained action in two key areas, discussed below.
Enhancing Understanding Among DOT Staff, Grantees, and
Their Contractors on How To Recognize, Prevent, and
Report Potential Fraud
DOT must target its outreach efforts at deterring fraud schemes
that we have seen with past DOT projects and must be avoided with
projects receiving funding under ARRA. These include false claims for
materials and labor, bribes related to contracts for materials or
labor, and product substitution.\13\ An important way to deter fraud is
for DOT staff and grantees to be aware of certain ``red flag''
indicators typically associated with fraud schemes. For example, a
contractor regularly taking or labeling quality control samples away
from inspector oversight or insisting on transporting these samples
from the construction site to a lab might indicate quality control
testing fraud.
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\13\ Our March 2009 report, which is attached to this statement,
contains a list of common fraud schemes and fraud indicators.
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One significant case we were involved with illustrates this type of
fraud. In this case, an Indiana contractor agreed to pay more than $8.2
million to settle Federal and State claims alleging that a contractor
fraudulently swapped samples of asphalt to inflate the amount paid on
road projects by FHWA, the Commonwealth of Kentucky, and the State of
Indiana. This joint investigation, conducted with FHWA and the U.S.
Attorney's Office for the Western District of Kentucky, revealed that
the contractor's employees fraudulently swapped ``good'' cores for
``bad'' cores (i.e., cores with failing density).
The best way to make individuals aware of fraud schemes and their
indicators is to conduct systematic fraud prevention education. DOT and
the Operating Administrations receiving ARRA funds will need to enhance
their outreach efforts to ensure recipients of Federal grants and
contracts--and their contractors--have meaningful ethics programs and
sound internal controls to recognize, prevent, and report fraud.
Taking Timely and Effective Action To Suspend or Debar
Individuals and Firms That Have Defrauded the
Department
DOT will need to ensure timely and effective action is taken on
suspension and debarment cases against those individuals or firms that
have defrauded the Department. Federal regulations prohibit firms and
individuals without satisfactory records of integrity and business
ethics from receiving Federal contracts. Our work has shown that the
Operating Administrations do not consistently take suspension and
debarment actions in a timely manner, even though the DOT Order
requires that such decisions be made within 45 days.\14\ Taking action
to address these deficiencies is critical as DOT implements ARRA. We
plan to issue the results of our ongoing audit in the near future as
part of our effort to fast-track the release of information that is
pertinent to the effective implementation of ARRA.
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\14\ DOT Order 4200.5D, ``Governmentwide Debarment, Suspension, and
Ineligibility,'' June 7, 2005.
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THE OFFICE OF INSPECTOR GENERAL WILL CONTINUE TO EXAMINE AREAS THAT
PRESENT THE GREATEST RISKS AND PROMPTLY NOTIFY DOT AND CONGRESS OF
ACTIONS NEEDED TO MINIMIZE FRAUD, WASTE, AND ABUSE AND ACHIEVE ARRA
GOALS
Our office supports DOT in its oversight initiatives, and we have
developed a risk-based strategy in response to the new challenges
presented by ARRA that will target the highest risk areas and emphasize
timely reporting of results. To that end, we will evaluate DOT's
management of the ARRA programs and its oversight of grantees and
contractors receiving recovery funding. Our work is being coordinated
with the Government Accountability Office to avoid duplication of
effort and maximize accountability coverage. In addition, we have a
number of ongoing audits--undertaken before passage of ARRA--that
directly relate to the DOT programs that received additional funding in
ARRA. We have also begun several actions to enhance our capacity to
assist DOT in ensuring accountability; these include hiring new staff
to handle our increased audit and investigations workload.
The Office of Inspector General is Using a Three-Phase Approach To
Emphasize High-Risk Areas and Promptly Report Results
In anticipation of ARRA's passage, we initiated Phase 1 of our
planned audit and investigative strategy. This phase involved a
comprehensive review of prior reports and testimonies to identify major
challenges facing DOT as it implements ARRA. We analyzed this work and
reported our results last month. As part of this effort, we identified
a number of ongoing audits and investigative activities that directly
relate to the challenges facing DOT under ARRA. For the most part, ARRA
provided an infusion of new money to existing DOT programs, such as
FHWA's Surface Transportation Program, the Federal Transit
Administration's (FTA) Urbanized Area Formula Grant and New Starts
programs, and FAA's Airport Improvement Program. We were already
conducting work on issues related to many of these programs before the
passage of ARRA. Any actions that DOT takes to improve these programs
based on our findings and recommendations may increase the likelihood
that ARRA dollars will be spent efficiently and effectively.
For example, our ongoing, follow-up audit of structurally deficient
bridges indicates that while FHWA could account for the overall amount
of Highway Bridge Program funding (in billions of dollars) apportioned
to States for deficient bridges, its project-based accounting system
lacks sufficiently detailed data. Therefore, the system could not
evaluate whether the money was used to effectively improve the
conditions of deficient bridges, as required by statute and FHWA
policy. As a result, FHWA could not determine whether Highway Bridge
Program funding improved the conditions of deficient bridges
nationwide.
We will place priority on issuing ARRA-related reports as quickly
as we can within compliance of generally accepted Government auditing
standards to provide timely information to DOT and Congress. To bolster
this effort, we will also issue interim ARRA advisories to highlight
key results of these audits that may warrant immediate attention by DOT
agencies.
Phase 2: Conducting Agency Scans To Identify
Vulnerabilities in ARRA Implementation
Currently, we are in Phase 2 of our strategy, which involves
conducting structured surveys, or scans, of each DOT agency's
implementation of ARRA. Our objective in these agency scans is to
evaluate vulnerabilities that could impede DOT's ability to (1) provide
effective oversight to ARRA-funded projects and (2) meet new
requirements mandated by ARRA and OMB, including financial and job
creation reporting.
We will conduct a scan at each DOT office or Operating
Administration that received funding in ARRA: FHWA, FRA, FTA, OST, FAA,
and the Maritime Administration (MARAD). Table 2 below shows the
agencies that received ARRA funds and the amount allotted to each
agency. In addition, once DOT provides us with its plan for addressing
the key challenges it faces under ARRA--in response to our March 2009
recommendation--we will assess the actions taken or planned as part of
our agency scans.
Each scan will be conducted using a standardized methodology,
including questions that probe what actions DOT has taken or planned to
address the 10 focus areas we reported. As with our ongoing, ARRA-
related audits, we plan to expedite our reporting to ensure that DOT,
Congress, and taxpayers have real-time information related to these
scans. That is, if we identify any issues during the scans that warrant
immediate attention, we will issue a series of ARRA advisories to
highlight those issues. Earlier this week, we issued an announcement
letter to formally initiate our Phase 2 work.
TABLE 2.--DISTRIBUTION OF ARRA FUNDS WITHIN DOT
[Dollars in millions]
------------------------------------------------------------------------
Percent of
DOT Component ARRA Funds Total \1\
------------------------------------------------------------------------
FHWA.................................... $27,500 57.15
FRA..................................... 9,300 19.33
FTA..................................... 8,400 17.46
OST..................................... 1,500 3.12
FAA..................................... 1,300 2.70
MARAD................................... 100 0.21
OIG..................................... 20 0.04
-------------------------------
Total............................. 48,120 100.00
------------------------------------------------------------------------
\1\ Percentages do not add up exactly due to rounding.
Source: ARRA.
Phase 3: Examining High-Risk Areas
Phase 3 of our strategy involves using the results of our agency
scans to identify areas that warrant additional work and reporting
based on potential risks. We will use this information to develop a
long-term plan outlining our ARRA audit and investigative initiatives.
In addition to our near-term phased approach, we remain committed to
protecting the Federal investment over the long term.
Other Investigative Initiatives
Our investigators have been proactive in their fraud deterrence
efforts, recognizing that risks of fraud will increase as the recovery
funds are poured into the economy in the coming months. To help
mitigate these risks, we are:
--Conducting fraud awareness and prevention activities to alert DOT
staff and grantees, including contractors, at all levels of
government so they know how to recognize, prevent, and report
suspected fraud. They must also know that fraudulent
misrepresentation for personal or corporate gain is
unacceptable under any circumstance. As part of this effort,
our special agents facilitated fraud, waste, and abuse
workshops for oversight officials within DOT's Operating
Administrations and State and local agencies receiving ARRA
funds, and we will continue these efforts. In addition, the
Secretary of Transportation and I hosted a web cast last month
for DOT staff that focused on how to prevent fraud, waste, and
abuse involving common fraud schemes.\15\
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\15\ This web cast can be viewed at: www.oig.dot.gov/recovery/.
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--Distributing materials such as hotline posters and ``red flag''
fraud indicator cards to Federal, State, and local agencies to
support their oversight efforts.
Our strategy also involves investigating allegations of fraud on
DOT-funded projects. We will be vigilant in presenting cases to the
Department of Justice (DOJ) for prosecution and participating in
resulting prosecutions. We will also focus on ensuring that DOT's
Operating Administrations and States take appropriate suspension and
debarment actions. For example, we have already met with various DOJ
personnel, including senior members of the National Procurement Fraud
Task Force and the Antitrust Division in Washington, DC. We also met
with Federal Bureau of Investigation fraud and public corruption agents
to discuss how we can best leverage scarce investigative resources.
Further, we are reaching out to our investigative counterparts at the
State and local levels.
The Office of Inspector General is Taking Action To Best Position
Itself To Meet the Increased Workload Under ARRA
ARRA also presented our office with resource challenges. Even
before ARRA's passage, we were already a small Inspector General office
in relation to DOT's large budget. Accordingly, we intend to make the
most of the $20 million in additional funding that ARRA provided to our
office. This additional funding will go a long way in ensuring that we
have the staff, travel budget, information technology, and other
resources that we need to help achieve new, ARRA-related goals.
I can assure you that we are maximizing the new funding and program
flexibilities we received in recent months. For instance, we are
working aggressively to hire new auditors and investigators. Our fiscal
year 2009 appropriation supports a base of approximately 414 full-time
equivalents (FTE), and we employed 397 FTEs as of April 7, 2009. By
this summer, we plan to have a new group of ARRA-focused auditors and
investigators on board to supplement our existing staff. We plan to
hire approximately 17 FTEs to reach our base and 37 new FTEs to perform
recovery work.
We have issued numerous vacancy announcements at all levels and
have begun selecting qualified applicants. Further, the Office of
Personnel Management gave us authority to utilize ``rehired
annuitants'' to supplement our staff. The ability to expeditiously hire
high-caliber staff is critical so we can deploy them to track the
influx of ARRA funds and deal with the increased workload of hotline
complaints that are likely to occur as ARRA projects begin
construction.
We are also conducting systematic outreach with congressional and
other stakeholders, including staff of our authorization and
appropriations committees in the House and Senate and major
transportation associations. For example, earlier this month we met
with various congressional staff directors and industry representatives
to listen to their concerns about ARRA's implementation.
Moreover, in response to the new challenges presented by ARRA, our
office is updating its comprehensive strategic plan so that our ARRA
audits and investigations are tied to an overarching strategy. This
strategy will recognize the connection of ARRA to other key
transportation issues and reflect the cross-cutting nature of DOT's
strategic goals, such as reducing congestion and improving safety. To
expedite this planning effort and target resources more effectively
going forward, we convened a daylong session earlier this month with
our Senior Executive Service staff and audit Program Directors.
Finally, we are developing new reporting formats that will allow us
to expeditiously issue the results of our work when we determine that
action can be taken in a timely manner. We are also focused on
presenting our ARRA work in a user-friendly, understandable manner to
maximize the impact of our findings and recommendations.
CONCLUSION
DOT will need sustained efforts to ensure that accountability,
efficiency, and effectiveness are maintained in its portion of the
recovery program. To that end, we acknowledge the TIGER team-led
efforts that DOT has underway to successfully implement the ARRA
program. We are focused on assisting DOT officials in their efforts by
identifying vulnerabilities and making recommendations for program
improvements. Further, we recognize the importance of collaboration
across the accountability community, which is necessary to best protect
taxpayer interests and promote achievement of ARRA's goals.
It is important that we ensure accountability to help restore
Americans' trust in Government and to maximize the return on the $48
billion in transportation investments provided by the recovery program.
ARRA presents a unique opportunity for DOT to make needed or neglected
investments in the repair, rehabilitation, and modernization of the
Nation's aging transportation infrastructure; to fund projects to
reduce congestion; and to improve the overall safety of the
transportation system. It is critical that we do everything possible to
maximize this opportunity. We are committed to doing just that.
That concludes my statement, Madam Chairman. Once again, I would
like to thank the subcommittee for its tremendous support of our
oversight efforts related to ARRA. I will be happy to answer any
questions you or other members of the subcommittee may have.
MEMORANDUM--U.S. DEPARTMENT OF TRANSPORTATION, OFFICE OF THE SECRETARY
OF TRANSPORTATION, OFFICE OF INSPECTOR GENERAL
Subject: ACTION: American Recovery and Reinvestment Act of 2009:
Oversight Challenges Facing the Department of Transportation
Report Number MH-2009-046
From: Calvin L. Scovel III, Inspector General
To: All Secretarial Officers, Heads of All Operating Administrations
On February 17, 2009, the President signed into law the American
Recovery and Reinvestment Act (ARRA), which designated over $48 billion
to the Department of Transportation (DOT).\1\ This audit report
represents the second product in the Office of Inspector General's
(OIG) review of DOT's implementation of ARRA.\2\ The objective of this
audit was to highlight key DOT oversight challenges--based on prior OIG
reports and other agencies' relevant audit work--and identify actions
DOT should take now in support of ARRA requirements.
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\1\ Public Law 111-5, February 17, 2009.
\2\ OIG Testimony CC-2009-045, ``Top Management Challenges Facing
the Department of Transportation,'' March 10, 2009. OIG reports and
testimonies are available on our Web site: www.oig.dot.gov.
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According to the Secretary of Transportation, ARRA represents ``the
largest investment in America's roads, bridges, transit lines, and rail
systems since the creation of the interstate highway system.'' Key
provisions of ARRA are preserving and creating jobs, promoting economic
recovery, and investing in transportation infrastructure that will
provide long-term economic benefits. In addition to providing funding
for a number of existing DOT programs, ARRA directs DOT to create
several new programs and establishes tight timeframes for distributing
and expending funds and for reporting results (for example, the number
of jobs created).
The vast majority of ARRA funding goes to the Federal Highway
Administration (FHWA), the Federal Railroad Administration (FRA), and
the Federal Transit Administration (FTA) for the construction and/or
maintenance of highway, road, bridge, transit, and rail projects. The
remaining ARRA funds are distributed among the Office of the Secretary
of Transportation (OST), the Federal Aviation Administration (FAA), the
Maritime Administration (MARAD), and OIG. Table 1 shows the
distribution of ARRA funding within DOT.
TABLE 1.--DISTRIBUTION OF ARRA FUNDS WITHIN DOT
[Dollars in millions]
------------------------------------------------------------------------
Percent of
DOT Component Stimulus Funds Total \1\
------------------------------------------------------------------------
FHWA.................................... $27,500 57.15
FRA..................................... 9,300 19.33
FTA..................................... 8,400 17.46
OST..................................... 1,500 3.12
FAA..................................... 1,300 2.70
MARAD................................... 100 0.21
OIG..................................... 20 0.04
-------------------------------
Total............................. 48,120 100.00
------------------------------------------------------------------------
\1\ Percents do not add up due to rounding.
Source: ARRA.
Both the President and Congress have emphasized the need for
accountability, efficiency, and transparency in the allocation and
expenditure of ARRA funds. Accordingly, the Office of Management and
Budget (OMB) has called on Federal agencies to: (1) award and
distribute funds in a prompt, fair, and reasonable manner; (2) ensure
the recipients and uses of the funds are transparent to the public, and
the resulting benefits are reported clearly, accurately, and promptly;
(3) ensure funds are used for authorized purposes and to mitigate
instances of fraud, waste, and abuse; (4) avoid unnecessary project
delays and cost overruns; and (5) achieve specific program outcomes and
improve results on economic indicators.\3\
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\3\ OMB ``Initial Implementing Guidance for the American Recovery
and Reinvestment Act of 2009,'' February 18, 2009.
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To achieve these goals, DOT's leadership has been proactive on
several fronts, including the establishment of the DOT-wide
Transportation Investment Generating Economic Recovery (TIGER) team to
coordinate the Department's role and ensure accountability. DOT's
Operating Administrations are also working with senior Department
officials in developing methods for tracking and reporting
expenditures, job creation, and results; working with potential
grantees to quickly identify and process proposals; and considering
strategies for strengthening their existing oversight processes. OIG
supports DOT in its oversight initiatives and has developed an audit
strategy in response to the new challenges presented by ARRA.
Exhibit A presents our scope and methodology. We discussed our work
and recommendations with DOT representatives, including the TIGER team,
and appreciate their courtesies and cooperation during this audit.
Exhibit B is a list of the relevant reports and testimonies issued by
OIG. Exhibit C provides additional information on the specific DOT
programs that received funding in ARRA and the statutory deadlines for
spending the money.
RESULTS--OVERSIGHT CHALLENGES FACING DOT
Based on our analysis of ongoing and prior audit work and
observations of DOT's efforts to implement ARRA, we see three major
oversight challenges facing DOT:
--Ensuring that DOT's grantees properly spend ARRA funds;
--Implementing new accountability requirements and programs mandated
by ARRA; and
--Combating fraud, waste, and abuse.
The challenges and 10 focus areas associated with them are shown in
table 2.
TABLE 2.--MAJOR ARRA CHALLENGES AND RELATED FOCUS AREAS FOR DOT
------------------------------------------------------------------------
Challenges Focus Areas
------------------------------------------------------------------------
Ensuring that DOT's grantees properly Acquire sufficient personnel
spend ARRA funds. with relevant expertise to
oversee grantees.
Adhere to existing Federal
requirements for programs
funded under ARRA.
Evaluate the credibility and
completeness of cost and
schedule estimates.
Oversee grantees'
contracting management
activities and ensure
selection of appropriate
contract types.
Address internal control
weaknesses and identify
unused funds for use
elsewhere.
Implementing new accountability Implement new ARRA tracking
requirements and programs mandated by and reporting requirements
ARRA. that are designed to
promote accountability and
transparency.
Develop comprehensive plans
and sound criteria for the
new discretionary grant and
passenger rail programs
within statutory deadlines.
Develop appropriate
oversight strategies for
the new discretionary grant
and passenger rail
programs.
Combating fraud, waste, and abuse......... Enhance understanding among
DOT staff, grantees, and
their contractors on how to
recognize, prevent, and
report potential fraud to
the appropriate
authorities.
Take timely and effective
action to suspend and/or
debar individuals or firms
that have defrauded the
Department so they do not
receive Federal contracts
in the future.
------------------------------------------------------------------------
ENSURING THAT DOT'S GRANTEES PROPERLY SPEND ARRA FUNDS
The large amounts of funding that DOT is responsible for under ARRA
and the accelerated timeframes to use those funds will place great
demands on DOT's workforce, oversight processes, business practices,
and financial management systems. Accordingly, to meet these demands
and provide effective oversight, DOT will need to:
--Acquire sufficient personnel with relevant expertise to oversee
grantees;
--Adhere to existing Federal requirements for programs funded under
ARRA;
--Evaluate the credibility and completeness of cost and schedule
estimates;
--Oversee grantees' contracting management activities and ensure
selection of appropriate contract types; and
--Address internal control weaknesses and identify unused funds for
use on other eligible projects.
Acquire Sufficient Staff With Relevant Expertise
DOT must ensure that it has sufficient personnel with relevant
expertise to meet the increased workload, new requirements, and
accelerated timeframes associated with recovery spending. A sufficient
and trained workforce is key to holding grantees accountable for
contract actions and realistic cost and schedule estimates, and
ensuring that State or local recipients can effectively manage their
projects and the risks associated with the recovery program.
DOT officials expressed concerns about their ability to provide
sufficient oversight with limited time and staff, particularly in
regional and division offices, and noted actions under consideration.
Some Operating Administrations are considering detailing staff from
each of their Headquarters to their regional and division offices and
rehiring retired Federal employees (often referred to as ``rehired
annuitants'') on a temporary basis. DOT officials informed us that,
earlier this month, the Office of Personnel Management granted DOT
direct-hire authority and delegated to it dual compensation waiver
authority. These hiring flexibilities should help enable DOT meet
critical hiring needs. The key will be to utilize these flexibilities
effectively to augment other staffing actions.
These temporary efforts are laudable; but the difficult tasks will
be to implement them promptly, evaluate their workability, and make any
course corrections, as needed. Additional options may also merit
consideration in addressing the increased workload. One is to use
private consultants to supplement--but not substitute for--DOT staff,
such as FTA's use of project management oversight contractors
(PMOCs).\4\ As we previously reported, the PMOC approach can provide
early warnings of cost, schedule, and quality problems, but does not
preclude them. Follow-through by DOT staff is critical to the success
of this approach. For example, on FTA's Lower Manhattan Recovery
Projects (totaling $4.55 billion), the PMOCs identified key risks early
on that were not sufficiently addressed, such as the insufficient
management and technical capabilities exhibited by some grantees.\5\
These issues contributed to significant cost increases and schedule
delays and an inability to stay within an overall Federal funding cap.
In the past year, FTA has enhanced its oversight of these projects and
is working with grantees to address issues the PMOCs identified.
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\4\ A project management oversight contractor is retained by FTA to
evaluate a grantee's technical capacity to build, operate, and maintain
a project and to monitor the grantee's implementation of a project.
This is done is accordance with FTA guidance.
\5\ OIG Report Number MH-2008-086, ``Baseline Report on the Lower
Manhattan Recovery Projects,'' September 26, 2008.
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However, a key requirement for evaluating staffing shortfalls for
ARRA work and other DOT demands is good information on DOT's workforce,
including up-to-date plans. Our work has shown that more needs to be
done in certain key areas. For example, DOT continues to face
challenges in developing a comprehensive strategic plan for its entire
acquisition workforce that oversees the direct award and administration
of DOT contracts. DOT officials said they are having difficulty
determining the total number of key acquisition workforce positions,
such as contracting officer technical representatives and program
managers. This is a result of the lack of critical information on these
positions, including workforce size, knowledge and skills requirements,
and attrition and retirement rates. Without such data, DOT is unable to
identify employment trends and assess the current condition of the
acquisition workforce, which are needed to determine the ideal
composition, skill mix, and talent for its future.
In February 2009, DOT officials compiled a succession plan for the
acquisition workforce. It includes a competency assessment for the
entire acquisition workforce, some retirement information, hiring
plans, and training strategies for contracting positions. As the
Operating Administrations design strategies to address weaknesses
identified in the plan, they will need to consider the impact of ARRA
on the acquisition workforce. We plan to evaluate the adequacy of DOT's
workforce as part of our future audit work evaluating the effectiveness
of the Department's oversight of ARRA projects.
Adhere to Existing Federal Requirements for Programs Funded Under ARRA
DOT must avoid waiving or expediting existing requirements for the
programs funded in ARRA and make sure that any required programmatic,
financial, or engineering reviews are conducted in a rigorous and
systematic manner. We have learned that when DOT's processes and
procedures are short cut or bypassed, the potential for inefficient
spending increases. Accordingly, DOT needs to carefully follow
requirements in these areas by: (1) ensuring that planning requirements
are met, including proper accounting for projects in a Statewide
Transportation Improvement Program (STIP) and (2) following policies
and procedures for the grant programs that received ARRA funding. These
requirements exist to increase the likelihood that funds will be
effectively planned and spent. As Secretary LaHood stated, DOT has
committed to do things ``by the book'' by following established
policies and procedures.
Follow Project Planning Requirements
The Federal Government has a number of key planning requirements,
including reviews related to environmental, financial, and project
management issues, which must be met before projects can receive
Federal funding. DOT will need to ensure that any ARRA projects meet
them, even though the Department will be under great pressure to get
shovels in the ground. Particular attention must be focused on reviews
of required STIPs for highway and transit projects, as well as Airport
Improvement Program (AIP) grant applications for aviation projects.
Review of STIPs for Highway and Transit Projects.--STIPs lay out
how States intend to use taxpayers' money to meet their transportation
needs, and they are to identify which projects will be funded and the
cost and funding sources for those projects. DOT requires that STIPs be
fiscally realistic and present truthful and credible information.
Having a realistic STIP is critical for transportation and budget
planning purposes.
DOT must make sure that FHWA and FTA ARRA-funded projects are
included in a STIP; and that they review each State's STIP for fiscal
constraint and compliance with statutory requirements, particularly in
light of the deteriorating budget situation that State and local
governments are experiencing. Further, States must also ensure that the
STIPs they submit to DOT have all the required assurances and
certifications at the State level. Going forward, we will be assessing
States' compliance with the STIP process as part of our planned audit
work.
AIP Grant Planning.--FAA must ensure that all ARRA-funded aviation
construction projects go through its AIP planning and programming
processes. By doing so, FAA and its airport sponsors will be assured
that only shovel-ready, high-priority construction projects are
approved for ARRA funding. FAA's processes include developing airport
layout plans, assessing environmental impacts, completing preliminary
designs, and determining project costs based on bids. Because these
processes normally take several years to complete, FAA plans to fund
only those projects that have already been through its grant review
process and are ready to move to the construction phase. FAA must
follow through on these plans and not circumvent any established AIP
procedures as it evaluates AIP grant applications.
Follow Grant Policies and Procedures
Once projects are approved, DOT's Operating Administrations must
ensure adherence to existing oversight requirements related to the
grant programs receiving ARRA funds, including FHWA's Surface
Transportation Program, FTA's Urbanized Area Formula Program, and FAA's
AIP. Failure to follow existing Federal requirements could result in
inefficient expenditure of scarce tax payer dollars.
FAA's experience in awarding airport grants in the aftermath of
Hurricanes Katrina and Rita is an example of what can happen when speed
trumps sound business practices. FAA expedited the award of 10 airport
grants totaling $40.5 million under AIP, without completing steps in
its grant award process. After bypassing controls to prevent duplicate
payments and basing grant awards on bids rather than estimates, FAA
issued grants for work that was later determined to be unneeded.
Ultimately, FAA withdrew 7 of the 10 grants until oversight was
improved and bids for hurricane-related projects were obtained.\6\
Having learned important lessons through these hurricane relief
efforts, FAA officials told us they intend to follow all AIP grant
policies and procedures during implementation of ARRA. Additionally,
FAA issued new ARRA grant guidance this month. In our discussions with
FHWA and FTA, they also assured us they will not undermine any
established policies and procedures in the rush to approve ARRA-funded
projects.
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\6\ OIG Report Number AV-2007-014, ``Oversight of Airport
Improvement Program Hurricane Grants,'' December 13, 2006.
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Evaluate the Credibility and Completeness of Cost and Schedule
Estimates
DOT must target its oversight efforts at ensuring that cost and
schedule estimates are examined and deemed credible and complete,
particularly the risks posed by larger and more complicated projects.
Cost estimates that are too high could lead to excess and idle funds,
while estimates that are too low could force grantees to find other
sources of funding to cover overruns. Having realistic estimates and
staying on-time and on-budget are even more critical now, considering
the tight fiscal environment in which State and local governments are
operating.
Our prior audit work points to the need for an early and more
rigorous evaluation of cost and schedule estimates for ARRA projects.
We have seen projects where earlier and more rigorous evaluation of
estimates would have been beneficial. For example, in 2008, after
assessing cost estimates for the Dulles Corridor Metrorail Project,\7\
two independent consultants for FTA determined that the project sponsor
underestimated the impact of schedule delays. These delays, in turn,
increased the overall cost estimate for this project to almost $3
billion--doubling an earlier estimate. Earlier scrutiny of the impact
of schedule delays on cost estimates might have helped FTA avoid this
situation and provide decisionmakers with more realistic information up
front.
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\7\ OIG Report Number MH-2007-060, ``Baseline Report on Major
Project Monitoring of the Dulles Corridor Metrorail Project,'' July 27,
2007.
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Oversee Grantees' Contracting Management Activities
To manage its portion of the economic recovery program, DOT and its
grantees must ensure that effective contracting and financial practices
are in place to make sound decisions under the tight timeframes and
quick roll out of the program. Actions needed are: (1) specifying
contract requirements early, maximizing competition, and using
appropriate contract types and (2) preventing unallowable costs,
improper payments, and excessive overhead charges during contract
execution.
The magnitude and the accelerated pace for spending ARRA dollars
could exacerbate contract award problems we previously identified, such
as use of inappropriate contract types, inadequate competition, and
failure to ensure contract prices are fair and reasonable. Audits of
DOT and State contracts used to respond to the Hurricane Katrina
emergency found instances in which DOT money was spent inefficiently
because grantees used risky contracting methods in spending Federal
funds, such as sole-sourced contracts, which resulted in significantly
higher costs.\8\ For example, we found a State department of
transportation awarded two sole-sourced contracts without assurance of
fair and reasonable prices, which resulted in the State paying about
$1.7 million more than necessary for bridge repairs.
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\8\ OIG Report Number MH-2006-065, ``Audit of the Mississippi
Department of Transportation's Award of Selected Hurricane Katrina
Emergency Repair Contracts,'' September 6, 2006.
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DOT is taking steps to avoid a repeat of the problems it
experienced in response to Hurricane Katrina. For example, it is
stepping up its oversight of ARRA funding through outreach to grantees
and posting frequently asked questions on the Web sites of DOT's
Operating Administrations; and it has implemented a ``help desk'' e-
mail site. Further, DOT's Office of the Senior Procurement Executive
(OSPE) revised its Financial Assistance Guidance Manual in March 2009
to reflect the increased demands posed by ARRA. The manual sets a
standardized process for grant processing and management. It will be
important to widely disseminate this information down to the local
grantee level, particularly to those grantees that have little or no
experience in managing Federal dollars.
Address Internal Control Weaknesses and Identify Unused Funds for Use
on Other Eligible Projects
DOT needs to identify and mitigate any internal control \9\
weaknesses to be assured that ARRA funding is spent in an efficient and
effective manner, and in accordance with Federal laws and regulations.
OMB is requiring agencies to immediately assess risk and develop
mitigation strategies to prevent internal control weaknesses in areas
such as ensuring the prompt award and expenditure of ARRA dollars and
minimizing improper payments. Our prior audit work shows that DOT has
experienced problems in some of these areas. To comply with OMB's
requirements and provide effective oversight of ARRA funding, DOT must:
ensure that its risk mitigation plans address internal control
weaknesses and actions to prevent them from recurring; identify unused
funds promptly and take timely action to free them up for use on other
projects; and detect and prevent improper payments.
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\9\ Internal controls provide reasonable assurance of the
effectiveness and efficiency of an agency's use of financial resources,
the reliability of financial reporting, and compliance with applicable
laws and regulations.
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Develop Risk Mitigation Plans That Address Internal Control
Weaknesses
DOT and its Operating Administrations need to work with their
grantees to correct internal control weaknesses that auditors have
identified during DOT's financial statement audits and Single Audit Act
reviews.\10\ It is critical that DOT use the OMB-required risk
assessment process as a way to identify strategies to prevent similar
issues with ARRA funds. Taking action to prevent internal control
lapses is particularly important for FHWA, which received more than
half of DOT's total funding allocation under ARRA. DOT's Single Audit
Act reviews related to FHWA grantees identified internal control
weaknesses and instances of noncompliance with grant requirements at
State DOTs across the country. For example, in the past year and a
half, auditors issued qualified opinions on eight State DOTs'
administration of Federal-aid grants because of problems identified
during the Single Audit Act reviews.
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\10\ The Single Audit Act requires State or local grantees to
maintain a system of internal control over all Federal programs in
order to demonstrate compliance with pertinent laws and regulations.
Single Audit Act reviews are conducted to determine whether grantees
are complying with these requirements.
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DOT has been identifying internal control risks and developing a
consistent risk management tool to ensure the successful implementation
of ARRA. For example, FHWA Headquarters recently issued a memorandum
directing its 52 Division Offices to implement a risk management
program to identify primary risks in successfully implementing ARRA.
First, FHWA directed its Division Offices to assess risks, prioritize
them, and report the assessments to Headquarters. Second, the
memorandum directed Division Offices to develop a risk management plan
that involves ``visual monitoring'' of items, such as State financial
transactions and consultant procurement and administration, enhanced
financial oversight of States, and communications and outreach to
assist States in mitigating risks. These are good first steps, but FHWA
needs to make sure these efforts are conducted consistently and
effectively across its 52 Division Offices, which are located in every
State, the District of Columbia, and Puerto Rico.
Providing consistent oversight across field locations has presented
a challenge in the past, particularly at FHWA. Our prior audit work
indicates that FHWA had not always ensured consistency in oversight
activities among its Division Offices. For example, our 2009 report on
FHWA's oversight of the National Bridge Inspection Program showed that
bridge engineers in the 10 States we reviewed did not perform
Headquarters-recommended risk assessments of bridge conditions in a
consistent or systematic manner.\11\ This inhibited FHWA's ability to
assess bridge-related risks nationwide, prioritize them, and target
those higher priority risks for remediation in coordination with
States.
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\11\ OIG Report Number MH-2009-013, ``National Bridge Inspection
Program: Assessment of FHWA's Implementation of Data-Driven, Risk-Based
Oversight,'' January 12, 2009.
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Identify Unused Funds Promptly
To maximize the impact of ARRA funds on the economy, DOT must
improve its controls for identifying unused funds in its financial
management systems and taking appropriate action to release them on
completed, canceled, and reduced-scope projects. Without sufficient
controls, it is possible for unused funds to remain idle for long
periods of time. This could prevent other worthy projects from
receiving Federal funds and potentially undermine ARRA's ability to
stimulate the U.S. economy by spurring construction activity across the
country.
In particular, DOT needs to ensure that it is addressing control
weaknesses we have identified in the past regarding unused funds. For
example, FHWA implemented the Financial Integrity Review and Evaluation
(FIRE) in fiscal year 2005 to improve oversight of Federal highway
funds, including its ability to identify idle funds that could be freed
up for use elsewhere. FIRE has improved FHWA's stewardship of Federal
funds, but problems related to idle funds persist. This is evidenced by
the fact that, in fiscal year 2008, auditors again found idle funds at
FHWA estimated at about $300 million. Similarly, we found that in 2007
FAA allowed numerous AIP grants to remain inactive and obligations to
remain on closed grants, both for excessive periods of time.\12\ These
examples indicate that further management attention is needed to make
sure that DOT's controls are effective at identifying unused funds that
could be freed up for use on other eligible projects.
---------------------------------------------------------------------------
\12\ OIG Report Number AV-2007-073, ``FAA's Oversight of Inactive
Airport Improvement Program Grant Obligations,'' September 13, 2007.
---------------------------------------------------------------------------
Detect and Prevent Improper Payments
In its guidance on implementing ARRA, OMB emphasized the need for
Federal agencies, including DOT, to prevent improper payments. Improper
payments are those made to an ineligible recipient or for an ineligible
service, duplicate payments, and payments for services not received.
Avoiding improper payments presents a challenge to DOT.
For example, during our review of controls over DOT's contract for
Hurricane Katrina emergency disaster relief transportation, we found
that an FAA contracting officer routinely authorized invoices for
payment without any documentation from the contractor showing that the
services had actually been provided.\13\ In one instance, this lack of
controls resulted in a $33 million overpayment to the contractor for
emergency bus transportation services and chartered aircraft services,
which was later recovered.
---------------------------------------------------------------------------
\13\ OIG Report Number AV-2006-032, ``Report on Internal Controls
Over the Emergency Disaster Relief Services Contract,'' January 20,
2006.
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At FHWA, we have identified oversight weaknesses that led to
improper payments, which must be avoided in the ARRA program. For
example, in a recent audit of deficiencies in FHWA's oversight of
design and engineering (D&E) firms' indirect costs claimed on Federal-
aid grants, we reported that Federal funds were used to reimburse
unallowable costs totaling nearly $16 million.\14\ This occurred in
part due to ineffective oversight by FHWA, State departments of
transportation, and the certified public accounting firms hired by the
D&E firms.
---------------------------------------------------------------------------
\14\ OIG Report Number ZA-2009-033, ``Oversight of Design and
Engineering Firms' Indirect Costs Claimed on Federal-Aid Grants,''
February 5, 2009.
---------------------------------------------------------------------------
IMPLEMENTING NEW ACCOUNTABILITY REQUIREMENTS AND PROGRAMS MANDATED BY
ARRA
In addition to increasing the funding levels of existing programs,
ARRA placed additional challenges on DOT by (1) mandating several new
reporting requirements that are designed to enhance accountability and
transparency and (2) creating two new large programs that provide for
$1.5 billion in supplementary discretionary grants to improve the
Nation's transportation infrastructure and $8 billion in grants for
high-speed rail corridors and intercity passenger rail service.\15\ To
meet these new demands, DOT will need to:
---------------------------------------------------------------------------
\15\ ARRA stipulates that the discretionary grant program can be
used for a variety of projects, including highway, bridge, public
transportation, passenger and freight rail, or port infrastructure
projects.
---------------------------------------------------------------------------
--Implement new ARRA tracking and reporting requirements that are
designed to promote accountability and transparency;
--Develop comprehensive plans and sound criteria for the new
discretionary grant and passenger rail programs created by
ARRA; and
--Develop appropriate oversight strategies for the new programs
created by ARRA by drawing lessons learned from DOT's Operating
Administrations.
Implement New Tracking and Reporting Requirements Designed To Promote
Accountability and Transparency
To meet ARRA requirements, DOT must ensure that its financial
management systems are able to track ARRA spending and produce reliable
information to report on results in a meaningful way. These new
requirements are spelled out in OMB's February 2009 implementation
guidance. To carry out these requirements, DOT must ensure that its
financial management systems are able to clearly and reliably track
recovery funds separately from other program funds. Beginning in
February 2009, OMB directed DOT and other agencies to distinguish ARRA
funds from non-ARRA funds in all agency financial systems, business
systems, and reporting systems. Further, OMB's guidance requires
agencies to submit regular reports and the information to generate
these reports will come largely from DOT's financial management
systems. We met with officials in DOT's Operating Administrations to
discuss these issues and they informed us they have been working to
modify their financial management systems to meet the new ARRA-related
requirements. The key will be following through with these plans and
making any needed adjustments to DOT's financial management systems as
ARRA is implemented.
DOT will need to stay focused on ensuring that its financial
management systems are programmed to enable officials to meet ARRA
requirements related to the tracking of funds. It will also need to
report on the impact of the ARRA investment promptly (such as the
number of jobs created) and provide meaningful information in these
required reports. For example, beginning on May 8, 2009, current OMB
guidance would require DOT to provide monthly financial reports citing
obligations, expenditures, and other financial data by Treasury
Account, vendor, and award number, and information on allocations of
mandatory and entitlement programs by State or other appropriate
geographical unit.
DOT also needs to aggressively enforce the new reporting
requirements and ensure that grantees are reporting accurate and
complete information. Further, DOT would face an even greater challenge
if OMB decides to expand current contractor reporting requirements,
which is under consideration.
Obtaining accurate information from DOT grantees has been an issue
in the safety arena. For example, we previously reported on
inaccuracies in FRA's national grade crossing inventory database \16\
and significant weaknesses in the data reported by States and motor
carriers to the Motor Carrier Safety Status Measurement System.\17\
Some ARRA information will be available publicly on www.recovery.gov
\18\ and, therefore, must meet DOT and OMB data quality requirements.
This underscores the need to make sure DOT's financial systems are
reporting reliable and complete information. Actions taken in the past
to promote complete State reporting of data in the safety arena have
included public disclosure of States with reporting problems by means
of a data quality map, and individual State reviews to assess data
quality issues.\19\
---------------------------------------------------------------------------
\16\ OIG Report Number MH-2004-065, ``Audit of the Highway Rail-
Grade Crossing Safety Program,'' June 16, 2004.
\17\ OIG Report Number MH-2004-034, ``Improvements Needed in the
Motor Carrier Safety Status Measurement System,'' February 13, 2004.
\18\ The administration created a Web site, www.recovery.gov, to
provide information to the public on the planning and implementation of
ARRA.
\19\ OIG Correspondence Control No. 2006-041, Correspondence to
Representative Petri Regarding SafeStat Data Quality, May 7, 2007.
---------------------------------------------------------------------------
Our prior audit work highlights the need for DOT to focus attention
on meeting the new tracking and reporting requirements. In the past,
DOT has not always been able to use its financial management systems to
ensure accountability for Federal dollars or report on results. For
example, in the wake of the 2007 collapse of the I-35W bridge in
Minnesota, we testified that FHWA must improve accountability by
enhancing its ability to track States' use of Highway Bridge Program
funding.\20\ FHWA was unable to determine how much of this funding was
actually spent on structurally deficient bridges, because its financial
management system did not differentiate between spending on
structurally deficient bridges and other bridge-related expenditures.
This inhibited FHWA's ability to assess the impact of Federal dollars
on bridge conditions.
---------------------------------------------------------------------------
\20\ OIG Testimony CC-2007-095, ``Federal Highway Administration's
Oversight of Structurally Deficient Bridges,'' September 5, 2007.
---------------------------------------------------------------------------
Develop Comprehensive Plans and Sound Criteria for OST's Discretionary
Grant Program and FRA's Passenger Rail Program
To design these new programs, DOT will need to accomplish a variety
of tasks in a short time. First, it must develop a comprehensive plan
for each program, including goals and objectives, to ensure that the
capital improvements are integrated into a national system. Second, it
must develop criteria and a transparent process for selecting projects
within the timeframes Congress specified. Third, it must issue clear
guidance for program implementation.
DOT is planning for these programs, but meeting statutory deadlines
will be difficult due to the number of tasks that must be completed in
short timeframes. Although DOT does not face the same deadlines for
spending the money that ARRA mandated for existing programs, it is
still required to quickly produce planning documentation and guidance.
ARRA directs OST to publish criteria for its grant program within 90
days of ARRA enactment, accept applications for grants within 180 days
after the criteria are published, and announce all projects selected
within 1 year of ARRA enactment. Further, ARRA requires FRA to produce
a strategic plan for the passenger rail program within 60 days of ARRA
enactment and interim implementation guidance to applicants within 120
days.
OST's New Discretionary Grant Program
To meet these deadlines, the Secretary established a working group
within OST to develop criteria for the discretionary grant program and
determine the best administrative structure. OST also has a task force
providing advice, consisting of staff from the Operating
Administrations. According to DOT officials, a central issue for the
group is determining the most appropriate place to administer the
grants--within OST or the Operating Administration that would normally
be responsible for a particular type of project. For example, OST could
delegate administrative responsibility for a bridge replacement project
to FHWA. If the Secretary decides to delegate authority over projects
to the Operating Administrations, the Department would need to decide
how this delegation of authority would work within the established
goals and requirements of ARRA.
FRA's New Passenger Rail Program
DOT has not previously implemented the large-scale high-speed
passenger rail program called for in the ARRA. It lacks recent
experience overseeing the design and construction of a new high-speed
rail system--in particular a new, stand-alone high-speed rail system.
FRA has allocated staff to plan the high-speed rail and intercity rail
service program, determine how to allocate the funds among the three
eligible purposes,\21\ and develop program guidance within the
statutory timeframes. Because FRA is a small agency that had few grant
programs before ARRA was passed, it is critical for FRA staff to
leverage the in-house expertise throughout DOT and determine what
additional resources it may need. According to FRA officials, they have
consulted with other Operating Administrations for advice and are
considering a variety of options to overcome staffing shortfalls and
insufficient expertise, such as borrowing staff from FTA or FHWA and
hiring consultants.
---------------------------------------------------------------------------
\21\ According to FRA, the $8 billion can be used for three
programs: (1) high-speed corridor program, (2) intercity passenger rail
service grants, and (3) congestion grants.
---------------------------------------------------------------------------
To design and implement this program, FRA will need to develop
strategies to address several tough issues prior to implementation.
Those key issues include:
--Ensuring that grantees obtain enforceable and meaningful capital
investment agreements with private freight railroads so that
users of intercity passenger rail receive benefits from these
investments.
--Establishing sufficient controls to be assured that Federal
investments do not simply supplant investments the freight
railroads already planned to undertake on their rail lines.
--Integrating the capital improvements and associated service
enhancements into a national intercity rail system that is tied
to an overall strategic plan.
--Acquiring the financial and economic modeling expertise needed to
evaluate a project's financing plans and revenue and ridership
projections. This is important because most grantees will
likely finance their projects through a mix of self-generated
revenues (such as through the farebox), and Federal, State, and
private investments. Equally important is conducting
appropriate analysis of the viability of a high-speed rail
project's long-term operating plan to ensure adequate resources
are identified up-front that would allow these systems to
continue operating over the long run.
Develop Appropriate Oversight Strategies for New Programs by Drawing
Lessons From DOT's Operating Administrations
Not all of the challenges facing FRA and OST are unique. Like the
other DOT Operating Administrations receiving ARRA funds, they will
need to eventually focus on deploying sufficient staff to implement
these new programs and provide oversight to construction projects to
ensure they are properly managed by grantees. However, the oversight
challenges facing FRA and OST are exacerbated by the fact that they
have limited experience managing large grant programs.
Because both FRA and OST have some time before projects will be
under construction, they need to use this period to evaluate the
experiences of other Operating Administrations for lessons learned on
what has worked well in the past. Then, they will need to decide what
type and level of oversight to provide to projects. For example, FRA
and OST could use a data-driven, risk-based approach to target their
oversight efforts at projects that pose the highest risk due to certain
factors, such as those projects with the largest dollar amounts
committed or grantees with less experience in managing Federal grants.
Along these lines, FHWA is implementing a data-driven, risk-based
approach to overseeing the National Bridge Inspection Program, based on
our recommendations.
Similarly, FRA and OST could learn from FTA's experience in
standing up its Lower Manhattan Recovery Projects program. FTA created
a separate Recovery Office to oversee the $4.55 billion Federal
investment.\22\ This office included reassigned FTA staff and
consultants to help provide oversight and advice on engineering,
financial, environmental, security, and other issues. An approach like
this could enable FRA and OST to quickly implement their new programs.
---------------------------------------------------------------------------
\22\ OIG Testimony C-2006-056, ``Lower Manhattan Reconstruction
Lessons Learned from Large Transportation Projects,'' July 13, 2006.
---------------------------------------------------------------------------
COMBATING FRAUD, WASTE, AND ABUSE
DOT needs to tailor its counter-fraud efforts to adapt to the
increase in capital funding associated with the recovery program and
the expected surge in construction activity throughout the country.
OMB's ARRA implementation guidance directs Federal agencies to be
aggressive in preventing fraud, waste, and abuse. Accordingly, DOT will
need to:
--Enhance understanding among DOT staff, grantees, and their
contractors on how to detect, prevent, and report potential
fraud; and
--Take timely and effective action to suspend and/or debar
individuals or firms that have defrauded DOT so they do not
receive future Federal contracts.
Enhance Understanding Among DOT Staff, Grantees, and Their Contractors
on How To Detect, Prevent, and Report Potential Fraud
DOT must target its outreach efforts at deterring fraud schemes
that have occurred on past DOT projects and could occur on projects
that receive funding under the recovery program. They include false
claims for materials and labor, bribes related to contracts for
materials or labor, product substitution, and disadvantaged business
enterprises fraud. Table 3 on the next page presents a list of common
fraud schemes that must be prevented under ARRA. DOT will need to make
sure that State and local grantees, and their contractors, understand
how to detect, deter, and report these types of transportation-related
fraud to the appropriate authorities.
An important way to deter fraud is for DOT staff and grantees to be
aware of certain ``red flag'' indicators typically associated with
fraud schemes. For example, any mismarking or mislabeling on products
and materials might indicate product substitution fraud. The best way
to make individuals aware of these indicators is to conduct systematic
fraud prevention education in the field. A description of fraud
indicators is presented in exhibit D.
TABLE 3.--COMMON FRAUD SCHEMES FOUND ON DOT-FUNDED PROJECTS
------------------------------------------------------------------------
Fraud Scheme Description
------------------------------------------------------------------------
Bid Rigging and Collusion....................... Contractors
misrepresent that
they are competing
against each other
when they actually
agree to cooperate on
the winning bid to
increase job profit.
Materials Overcharging.......................... A contractor
misrepresents how
much construction
material was used on
a job and is paid for
excess material to
increase job profit.
Time Overcharging............................... A consultant
misrepresents the
distribution of
employee labor to
charge for more work
hours, or a higher
overhead rate to
increase profit.
Product Substitution............................ A contractor
misrepresents the
product used in order
to reduce costs for
construction
materials.
Disadvantaged Business Enterprises Fraud........ A contractor
misrepresents who
performed the work in
order to appear to be
in compliance with
contract goals for
involvement of
minority/women-owned
businesses.
Quality-Control Testing Fraud................... A contractor
misrepresents the
results of quality
control tests to earn
contract incentives
falsely or to avoid
production shutdown
in order to increase
profits or limit
costs.
Bribery......................................... A contractor
compensates a
government official
in order to obtain
contracts or permit
overcharges.
Kickbacks....................................... A contractor or
subcontractor
misrepresents the
cost of performing
work by secretly
paying a fee for
being awarded the
contract and,
therefore, inflating
the cost to the
government.
Conflicts of Interest........................... A contracting or
oversight official
has an undisclosed
financial interest in
a contractor or
consultant, resulting
in improper contract
award or inflated
costs.
------------------------------------------------------------------------
Source: DOT OIG.
DOT has taken action to strengthen its fraud awareness and outreach
efforts to more aggressively combat fraud, but continued vigilance and
follow-through at all levels of the Department are needed to be assured
that ARRA dollars are spent appropriately. DOT is taking action on
fraud prevention in two key areas. First, DOT and the Operating
Administrations receiving ARRA funds will need to increase outreach
efforts to recipients of Federal grants and contracts to ensure they
have meaningful ethics programs and sound internal controls to
recognize, prevent, and report fraud. OIG has been working
constructively with DOT officials to assist them in their counter-fraud
outreach efforts. For example, earlier this month, the Secretary of
Transportation and the Inspector General hosted a web cast to DOT staff
that focused on how to prevent fraud, waste, and abuse involving common
fraud schemes. Our special agents have also been and will continue
providing fraud awareness briefings to DOT staff and grantees at the
State and local levels throughout the Nation.
Second, DOT must continue to follow through to fully implement its
ethics program. Last year, we reported that DOT needed to develop and
maintain a robust ethics program to promote integrity across
transportation programs. In response, in June 2008, the Department
instituted an enhanced annual ethics training program for all
acquisition and grants management personnel Department-wide. The
implementation of ARRA underscores the need to follow through and fully
implement this important annual training requirement.
Take Timely and Effective Action To Suspend and/or Debar Individuals or
Firms That Have Defrauded DOT so They do not Receive Future
Federal Contracts
DOT will need to ensure timely and effective action is taken on
suspension and debarment cases against those individuals or firms that
have defrauded the Department. Federal regulations prohibit firms and
individuals without satisfactory records of integrity and business
ethics from receiving Federal contracts or assistance agreements. DOT
revised its policy in June 2005, in part, to improve timely
decisionmaking of suspension and debarment actions. However, our
ongoing work shows that the Department needs to improve the policy--and
its implementation--to provide for more timely processing and reporting
of suspension and debarment actions.
Our work has shown that the Operating Administrations do not
consistently take suspension and debarment actions in a timely manner,
even though the DOT order requires such decisions be made within 45
days. Taking action to address these deficiencies is critical as DOT
embarks on the implementation of ARRA. For example, over half of the 45
actions we reviewed (56 percent) were not processed within the required
45 days. For 19 of these actions, the Operating Administrations took
from 10 days to more than 2\1/2\ years longer than the 45-day standard
to render final decisions. The remaining six debarment actions we
reviewed are still awaiting a decision from the debarring officials,
which currently takes between 165 and 945 days.
Further, in February 2009, the Government Accountability Office
(GAO) testified that it had confirmed allegations that businesses and
individuals suspended or debarred for egregious offenses were
continuing to receive Federal contracts.\23\ Our work did not find any
DOT contracts or assistance agreements awarded to suspended or debarred
firms or individuals. However, deficiencies in DOT's suspension and
debarment policy and implementation leave DOT, as well as other Federal
agencies, vulnerable to doing business with fraudulent or unethical
firms or individuals. This risk will increase significantly under the
recovery program.
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\23\ GAO Testimony GAO-09-419T, ``Excluded Parties List System:
Suspended and Debarred Businesses and Individuals Improperly Receive
Federal Funds,'' February 26, 2009.
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CONCLUSIONS AND RECOMMENDATIONS
The significant increase in funding for transportation projects
associated with ARRA adds new challenges on top of the longstanding
ones we have highlighted in past reports to the Secretary of
Transportation and Congress. At the same time, ARRA presents an
opportunity for DOT to make needed or neglected investments in the
repair, rehabilitation, and modernization of our aging transportation
infrastructure; to fund projects to reduce congestion; and to improve
the safety of our Nation's transportation system.
We recognize the TIGER team-led efforts that the Department has
underway to successfully implement the ARRA program. To assist in these
efforts, our report condensed the challenges into 10 areas where DOT
must exhibit sustained and effective actions and oversight. To that
end, our future audit work will use a risk-based strategy, carried out
in coordination with the Government Accountability Office, to evaluate
DOT's management of the ARRA programs and its oversight over grantees
and contractors receiving recovery funding.
To ensure sufficient consideration of the potential risks discussed
in this report, we recommend that the Secretary of Transportation,
through the DOT TIGER team, develop an oversight implementation plan
that outlines the key actions DOT already has underway or will take to:
--Acquire sufficient personnel with relevant expertise to oversee
grantees;
--Adhere to existing Federal requirements for programs funded under
ARRA;
--Evaluate the credibility and completeness of cost and schedule
estimates;
--Oversee grantees' contracting management activities and ensure
selection of appropriate contract types;
--Address internal control weaknesses and identify unused funds for
use on other eligible projects;
--Implement new ARRA tracking and reporting requirements that are
designed to promote accountability and transparency;
--Develop comprehensive plans and sound criteria for the new
discretionary grant and passenger rail programs created by
ARRA;
--Develop appropriate oversight strategies for the new programs
created by ARRA by drawing lessons from DOT's Operating
Administrations;
--Enhance understanding among DOT staff, grantees, and their
contractors on how to recognize, prevent, and report potential
fraud; and
--Take timely and effective action to suspend and/or debar
individuals or firms that have defrauded the Department so they
do not receive Federal contracts in the future.
In addition, the plan should prioritize the greatest risks for DOT
and address open OIG recommendations from prior audit reports that have
relevance to the implementation of ARRA.
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL RESPONSE
We provided a draft of this report to DOT for review and comment on
March 18, 2009. DOT provided us its formal comments on March 26, 2009,
which we incorporated into this report, as appropriate. DOT's complete
comments are included as the appendix to this report. DOT also provided
informal technical clarifications, which we incorporated into this
report, as appropriate. In its formal comments, DOT agreed that
vigilant oversight of ARRA funding is critical to the successful
implementation of ARRA and described some of the efforts it has
underway, including the work of the DOT TIGER team. We have included
highlights of DOT's key efforts in our report and recognize the ongoing
commitment and actions of the Department's leadership to ensuring the
efficient and effective use of ARRA funds. DOT also concurred with our
recommendation and agreed to provide us with a document outlining
actions taken and planned to address our 10 focus areas.
ACTIONS REQUIRED
We consider DOT's planned actions to be reasonable. However, in
accordance with Department of Transportation Order 8000.1C, we request
that DOT provide us with the plan called for in our recommendation
within 30 days of the date of this report.
If you have any questions, please call me at (202) 366-1959, or Ann
Calvaresi-Barr, Principal Assistant Inspector General for Auditing and
Evaluation at (202) 366-1427.
EXHIBIT A.--SCOPE AND METHODOLOGY
The objective of this audit was to highlight key ARRA oversight
challenges--based on prior OIG reports and other agencies' relevant
audit work--and identify actions DOT should take now in support of ARRA
requirements. To address our audit objective, we conducted a
comprehensive review of our prior work on relevant surface
transportation and aviation oversight issues, including: work on major
highway and transit projects, Hurricanes Katrina and Rita recovery
projects, and AIP grant oversight projects. We also reviewed the
relevant work of other organizations that have reported on
transportation-related oversight issues, including GAO.
Specifically, we:
--Reviewed the existing body of OIG, GAO, and others' work (for
example, Single Audits) to identify past challenges that are
likely to apply to projects funded under ARRA.
--Held discussions with OST, FHWA, FRA, FTA, FAA, and MARAD
officials; DOT's TIGER Team; and representatives of surface
transportation groups and an aviation constituency group to
identify what they believe are the oversight challenges to the
economic stimulus projects and obtain information on DOT's
preliminary efforts to prepare for the implementation of ARRA.
--Identified and analyzed internal DOT Operating Administration
reports to identify challenges previously known within DOT.
--Coordinated with OIG's investigative offices to identify other work
that was relevant to oversight challenges facing DOT.
We conducted this performance audit from January through March 2009
in accordance with Generally Accepted Government Auditing Standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
EXHIBIT B.--RELEVANT OIG REPORTS AND TESTIMONIES
OIG Testimony Number CC-2009-045, ``Top Management Challenges
Facing the Department of Transportation,'' March 10, 2009.
OIG Report Number ZA-2009-033, ``Oversight of Design and
Engineering Firms' Indirect Costs Claimed on Federal-Aid Grants,''
February 5, 2009.
OIG Report Number MH-2009-013, ``National Bridge Inspection
Program: Assessment of FHWA's Implementation of Data-Driven, Risk-Based
Oversight,'' January 12, 2009.
OIG Report Number AV-2009-012, ``FAA's Management and Maintenance
of Air Traffic Control Facilities,'' December 15, 2008.
OIG Report Number PT-2009-005, ``Fiscal Year 2009 Top Management
Challenges,'' November 17, 2008.
OIG Report Number MH-2008-086, ``Baseline Report on the Lower
Manhattan Recovery Projects,'' September 26, 2008.
OIG Report Number AV-2008-002, ``Prioritization of Airport
Improvement Program Funding,'' October 26, 2007.
OIG Report Number CR-2007-079, ``Growth in Highway Construction and
Maintenance Costs,'' September 26, 2007.
OIG Report Number AV-2007-073, ``FAA's Oversight of Inactive
Airport Improvement Program Grant Obligations,'' September 13, 2007.
OIG Report Number AV-2007-066, ``Review of Congressional Earmarks
Within Department of Transportation Programs,'' September 7, 2007.
OIG Testimony Number CC-2007-095, ``Federal Highway
Administration's Oversight of Structurally Deficient Bridges,''
September 5, 2007.
OIG Report Number MH-2007-060, ``Baseline Report on Major Project
Monitoring of the Dulles Corridor Metrorail Project,'' July 27, 2007.
OIG Report Number AV-2007-014, ``Oversight of Airport Improvement
Program Hurricane Grants,'' December 13, 2006.
OIG Report Number MH-2006-065, ``Audit of the Mississippi
Department of Transportation's Award of Selected Hurricane Katrina
Emergency Repair Contracts,'' September 6, 2006.
OIG Testimony Number CC-2006-056, Before the Committee on Homeland
Security Subcommittee on Management, Integration, and Oversight, U.S.
House of Representatives, ``Lower Manhattan Reconstruction: Lessons
Learned from Large Transportation Projects,'' July 13, 2006.
OIG Report Number AV-2006-051, ``Internal Controls over Payments
for Emergency Disaster Relief Transportation Services,'' June 30, 2006.
OIG Report Number AV-2006-032, ``Internal Controls over the
Emergency Disaster Relief Transportation Services Contract,'' January
20, 2006.
OIG Report Number FI-2006-011, ``Inactive Obligations,'' November
14, 2005.
OIG Report Number AV-2005-062, ``Safety Oversight of an Air Carrier
Industry in Transition,'' June 3, 2005.
OIG Report Number MH-2005-046, ``FHWA Needs to Capture Basic
Aggregate Cost and Schedule Data to Improve Its Oversight of Federal-
Aid Funds,'' February 15, 2005.
OIG Report Number FI-2005-044, ``FAA Inactive Obligations,''
January 31, 2005.
OIG Report Number MH-2005-012, ``Managing Risk in the Federal-Aid
Highway Program,'' November 19, 2004.
OIG Report Number MH-2004-098, ``Audit of the Tren Urbano Rail
Transit Project,'' September 29, 2004.
OIG Report Number AV-2004-094, ``FAA's Administration and Oversight
of Regionally Issued Contracts,'' September 28, 2004.
OIG Report Number IN-2003-003, ``Audit of the Springfield
Interchange Project,'' November 22, 2002.
OIG Report Number FI-2002-092, ``Oversight of Cost-Reimbursable
Contracts,'' May 8, 2002.
EXHIBIT C.--ARRA ALLOCATION AND EXPENDITURE DEADLINES AND
REDISTRIBUTION REQUIREMENTS
----------------------------------------------------------------------------------------------------------------
Available
Funding Type Amount Through Deadlines
----------------------------------------------------------------------------------------------------------------
FAA Infrastructure....................... $200 million............... 9/30/2010 N/A.
FAA Airport Improvement Program.......... $1.1 billion............... 9/30/2010 50 percent of total to be
awarded within 120 days of
enactment.
100 percent of total within
1 year of enactment.
FHWA Infrastructure...................... $27.5 billion.............. 9/30/2010 50 percent of total to be
obligated within 120 days
from the apportionment or
forfeit the unobligated
portion of that 50 percent
to redistribution process.
100 percent of remainder
within 1 year from the
apportionment or forfeit
100 percent of unobligated
funds to redistribution
process.
FRA Rail................................. $8 billion................. 9/30/2012 N/A.
FRA Amtrak............................... $1.3 billion............... 9/30/2010 N/A.
FTA Transit Capital Assistance........... $6.9 billion............... 9/30/2010 50 percent of total to be
obligated within 180 days
from the apportionment or
forfeit the unobligated
portion of that 50 percent
to redistribution process.
100 percent of remainder
within 1 year from the
apportionment or forfeit
100 percent of unobligated
funds to redistribution
process.
FTA Transit Capital Investment Grants.... $750 million............... 9/30/2010 Priority for projects
currently in construction
or projects that can
obligate funds within 150
days of enactment of Act.
FTA Fixed Guideway Infrastructure $750 million............... 9/30/2010 50 percent of total to be
Investment. obligated within 180 days
from the apportionment or
forfeit the unobligated
portion of that 50 percent
to redistribution process.
100 percent of remainder
within 1 year from the
apportionment or forfeit
100 percent of unobligated
funds to redistribution
process.
MARAD.................................... $100 million............... 9/30/2010 100 percent of total to be
obligated within 180 days
of the date of
distribution.
OST Discretionary........................ $1.5 billion............... 9/30/2011 N/A.
OIG...................................... $20 million................ 9/30/2013 N/A.
----------------------------------------------------------------------------------------------------------------
EXHIBIT D.--``RED FLAG'' INDICATORS FOR COMMON FRAUD SCHEMES AND HOW TO
REPORT SUSPECTED FRAUD
The following are brief descriptions of selected fraud schemes
commonly seen on transportation projects, along with sample ``Red
Flag'' indicators for each scheme. It is important to note that the
presence of one or more indicators does not prove fraud, nor are the
indicators shown all inclusive for each of the schemes described.
Bid Rigging and Collusion
In bid rigging and collusion schemes, contractors misrepresent the
competition against each other when, in fact, they agree to cooperate
on the winning bid to increase job profit. Watch for:
--Unusual bid patterns: too close, too high, rounded numbers, or
identical winning margins or percentages.
--Different contractors making identical errors in contract bids.
--Bid prices dropping when a new bidder enters the competition.
--Rotation of winning bidders by job, type of work, or geographic
area.
--Losing bidders hired as subcontractors.
--Apparent connections between bidders: common addresses, personnel,
or phone numbers.
--Losing bidders submitting identical line item bid amounts on
nonstandard items.
Materials Overcharging
In materials overcharging schemes, a contractor misrepresents how
much construction material was used on the job and is then paid for
excess material to increase job profit. Watch for:
--Discrepancies between contractor-provided quantity documentation
and observed data, including yield calculations.
--Refusal or inability to provide supporting documentation.
--Contractor consistently loading job materials into equipment away
from inspector oversight.
--Truck weight tickets or plant production records with altered or
missing information.
--Photocopies of quantity documentation where originals are expected.
--Irregularities in color or content of weight slips or other
contractor documents used to calculate pay quantities.
Time Overcharging
In a time overcharging scheme, a consultant misrepresents the
distribution of employee labor on jobs in order to charge for more work
hours or a higher overhead rate, to increase profit. Watch for:
--Unauthorized alterations to time cards and other source records.
--Billed hours and dollars consistently at or near budgeted amounts.
--Time cards filled out by supervisors, not by employees.
--Photocopies of timecards where originals are expected.
--Inconsistencies between a consultant's labor distribution records
and employee timecards.
Product Substitution
In product substitution schemes, a contractor misrepresents the
product used in order to reduce costs for construction materials. Watch
for:
--Any mismarking or mislabeling of products and materials.
--Contractor restricting or avoiding inspection of goods or service
upon delivery.
--Contractor refusing to provide supporting documentation regarding
production or manufacturing.
--Photocopies of necessary certification, delivery, and production
records where originals are expected.
--Irregularities in signatures, dates, or quantities on delivery
documents.
--High rate of rejections, returns, or failures.
--Test records reflect no failures or a high failure rate but
contract is on time and profitable.
--Unsigned certifications.
Disadvantaged Business Enterprises (DBE) Fraud
In disadvantaged business enterprises schemes, a contractor
misrepresents who performed contract work in order to appear to be in
compliance with contract goals for involvement of minority or women-
owned businesses. Watch for:
--Minority owner lacking background, expertise, or equipment to
perform subcontract work.
--Employees shuttling back and forth between prime contractor and
minority-owned business payrolls.
--Business names on equipment and vehicles covered with paint or
magnetic signs.
--Orders and payment for necessary supplies made by individuals not
employed by minority-owned business.
--Prime contractor facilitated purchase of minority-owned business.
--Minority-owned business owner never present at job site.
--Prime contractor always uses the same minority-owned business.
Quality-Control Testing Fraud
In quality-control testing schemes, a contractor misrepresents the
results of quality control (QC) tests to falsely earn contract
incentives or to avoid production shutdown in order to increase profits
or limit costs. Watch for:
--Contractor employees regularly taking or labeling QC samples away
from inspector oversight.
--Contractor insisting on transporting QC samples from the
construction site to the lab.
--Contractor not maintaining QC samples for later quality assurance
(QA) testing.
--Contractor challenging results, or attempting to intimidate QA
inspectors who obtain conflicting results.
--Photocopies of QC test results where originals are expected.
--Alterations or missing signatures on QC test results.
Bribery
In bribery schemes, a contractor compensates a Government official
to obtain a contract or permit contract overcharges. Watch for:
--Other Government inspectors at the job site noticing a pattern of
preferential contractor treatment.
--Government official having a lifestyle exceeding his/her salary.
--Contract change orders lacking sufficient justification.
--Oversight officials socializing with or having business
relationships with contractors or their families.
Kickbacks
In kickback schemes, a contractor or subcontractor misrepresents
the cost of performing work by secretly paying a fee for being awarded
the contract and therefore inflating job costs to the Government. Watch
for:
--Unexplained or unreasonable limitations on the number of potential
subcontractors contracted for bid or offer.
--Continuing awards to subcontractors with poor performance records.
--Non-award of subcontract to lowest bidder.
--``No-value-added'' technical specifications that dictate contract
awards to particular companies.
Conflicts of Interest
In conflict of interest schemes, a contracting or oversight
official has an undisclosed financial interest in a contractor or
consultant, resulting in improper contract award or inflated costs.
Watch for:
--Unexplained or unusual favoritism shown to a particular contractor
or consultant.
--Government official disclosing confidential bid information to a
contractor or assisting the contractor in preparing the bid.
--Employee having discussions about employment with a current or
prospective contractor or consultant.
--Close socialization with and acceptance of inappropriate gifts,
travel, or entertainment from a contractor.
--Vendor or consultant address is incomplete or matching employee's
address.
--Government official leasing or renting equipment to a contractor
for performing contract work.
Reporting Concerns About Fraud, Waste, or Abuse
OIG maintains a Hotline to report allegations of fraud, waste, and
abuse in DOT programs or operations. Allegations may be reported by DOT
employees, contractors, or the public. The OIG Hotline is available 24
hours a day, 7 days a week. Individuals who contact the Hotline, via
telephone or letter, are not required to identify themselves. However,
persons who report allegations are encouraged to identify themselves in
the event additional questions arise as the OIG evaluates or pursues
their allegations.
Report suspicions and allegations of fraud, waste, and abuse to OIG
by using one of the following methods:
--Online complaint form: www.oig.dot.gov/hotlineform.jsp
--Telephone: (800) 424-9071
--Fax: (540) 373-2090
--E-mail: [email protected]
--Mail: DOT Inspector General, P.O. Box 708, Fredericksburg, VA
22404-0708
APPENDIX--MANAGEMENT COMMENTS
MEMORANDUM TO: Calvin L. Scovel, III, Inspector General; Joel Szabat,
Deputy Assistant Secretary for Transportation Policy
FROM: Lana Hurdle, Acting Assistant Secretary for Budget and Programs;
Linda J. Washington Assistant Secretary for Administration
SUBJECT: Departmental Comments on Office of Inspector General (OIG)
Draft Report, ``American Recovery and Reinvestment Act of 2009:
Oversight Challenges Facing the Department of Transportation''
The Department of Transportation is committed to performing an
outstanding job implementing the President's initiative to enhance
economic growth through the American Recovery and Reinvestment Act
(ARRA). This commitment to excellence started well in advance of the
act being signed into law. In January, the Department assembled a
leadership team to provide oversight and serve as a conduit for
coordinated and consistent intermodal implementation of the act. Under
the auspices of this overall Transportation Investment Generating
Economic Recovery (TIGER) Team, the leadership created a dynamic forum
for exchanging information and provided guidance for consistent action
throughout the Department. The benefits of the Department's fast
response in anticipation of ARRA are already becoming apparent. For
example, these efforts positioned DOT to rapidly obtain direct hire and
rehired annuitant authority from OPM. Further, a DOT risk management
tool was developed early to strengthen internal DOT controls and the
tool was subsequently adopted verbatim by OMB for Government-wide
application. In addition, the TIGER Team is using leading edge, web-
based interactive technology to enable expedited information sharing
and data tracking. For example, it developed a web-based interactive
master planning document that tracks progress and assigns
responsibility for each of the Department's major actions. We also
created a web-based capability for tracking action and responsibility
on recommendations made by the OIG and the Government Accountability
Office (GAO) pertaining to ARRA implementation.
In addition to the overall perspective provided by the TIGER Team,
it also created the capabilities to provide detailed guidance and
leadership in key areas affecting ARRA implementation. Individual
stewardship groups were established to gather expertise from across the
Department to address common issues and identify coordinated and
appropriate actions. These groups provide leadership in the areas of
financial stewardship, data collection, procurement, and grant
management, job measurement, information technology and communication.
Finally, an Accountability Stewardship group has been established with
the participation of TIGER leadership, the OIG and GAO. The purpose of
this group is to achieve the type of transparency envisioned by ARRA,
and provide an efficient forum for sharing information between
management and the audit entities.
We appreciate the information provided in the OIG's draft report
and will provide detailed information to the OIG on actions taken and
planned in each of the 10 emphasis areas identified in the report. We
intend to provide this information within 30 days of the final report's
issuance. Finally, please note that we shared with your staff, a
separate listing of technical and specific comments from throughout DOT
to correct errors in your report and for your consideration in
finalizing the report. Please contact Martin Gertel at (202) 366-5145
with any questions or if you require further information.
Senator Murray. Thank you very much for that.
What is your biggest concern regarding the Department's
implementation of the Recovery Act?
Mr. Scovel. Our scan that we have underway, phase two of
our risk-based strategy will identify across every mode the
extent to which 10 individual focus areas, previously
identified, are being addressed in each mode. Frankly, that
doesn't concern me too, too much.
Our audit plan will subject every mode to what amounts to a
full-body scan. We are putting them under an MRI to see the
extent to which these focus areas' potential problems are
present in all the modes. We will know within about 90 days,
and we will be reporting to you and the Secretary.
What does keep me awake at night--and frankly, it is
unknowable--is the extent to which fraud and waste will
infiltrate the program. The commonly used figure of 7 percent
lost to fraud would mean the equivalent of 1.5 Wilson Bridges
right down the Potomac, and that is far too important a sum and
far too much potential infrastructure to be lost. Our
investigators will be doing everything they can to stem that.
Senator Murray. Have you given any specific recommendations
to the Department about how to deal with that?
Mr. Scovel. Yes, we have. And our specific recommendations
so far include our very proactive approach to briefing
throughout the Department, to State and local officials, and to
contractors at all levels.
I would like to give great credit to Secretary LaHood. He
has been very supportive in this effort, and he and I cohosted
a web cast that was broadcast throughout the Department back in
March. He has committed himself and the entire Department to
doing it by the book. And I am, frankly, very encouraged by
that because it speaks to his commitment to both program
integrity and to the fraud prevention effort.
Senator Murray. Okay. We would like you to keep this
subcommittee fully aware of any potential problems that you see
out there.
Mr. Scovel. We certainly will.
Senator Murray. Okay. And I understand that a number of
inspectors general from across the Federal Government are
meeting and communicating regularly about their experiences as
well with the Recovery Act. Are you participating in that
network?
Mr. Scovel. Madam Chairman, yes, I am. I am a statutory
member of the Recovery Accountability and Transparency Board,
headed by Earl Devaney, a former IG.
In addition, I was asked to co-chair a special working
group composed of all 28 IGs whose agencies are receiving
recovery funding. The idea is to communicate best practices,
coordinate efforts, and reach out to State and local officials
so that we can coordinate with them on how to best protect
taxpayer dollars.
Senator Murray. Any lessons learned from your participation
in that?
Mr. Scovel. We are just starting. On the RAT Board, we are
focusing on the transparency element, the recovery.gov piece.
The accountability program emphasis will be satisfied by this
special working group that I am co-chairing along with a member
of Mr. Devaney's staff, Jack Higgins, a distinguished former IG
in his own right.
Senator Murray. Okay, very good.
Well, as I said, there is a full supplemental
Appropriations Committee hearing that most of our members,
including myself, need to be at. So we will have to cut it
short at this point.
ADDITIONAL COMMITTEE QUESTIONS
I do have some questions I would like to submit for answers
in writing. I know other subcommittee members do as well. But I
really appreciate your staying on top of this and staying with
us.
[The following questions were not asked at the hearing, but
were submitted to the Department for response subsequent to the
hearing:]
Questions Submitted to Hon. Ray LaHood
Questions Submitted by Senator Patty Murray
IMPLEMENTATION OF THE RECOVERY ACT
Question. At the end of March, the Inspector General issued a
report on the challenges that your Department faces in implementing the
Recovery Act.
As I mentioned in my opening statement, one of the challenges that
the Inspector General identified in his report is that the Department
must be able to take timely action in suspending or debarring people
who have defrauded the Department from receiving any more Federal
contracts. I believe that the Department must address this issue if it
wants to avoid the kind of waste, fraud, and abuse that undermines the
public's confidence.
What response have you given the Inspector General on how the
Department will combat the waste, fraud and abuse of Recovery funds?
Answer. In response to your inquiry, I have attached the Deputy
Secretary of Transportation's May 19, 2009, response to the Inspector
General concerning our actions to improve the suspension and debarment
program across the Department and thereby combat potential waste,
fraud, and abuse of Recovery Act funds.
OVERSIGHT OF THE FORMULA GRANTS FOR HIGHWAYS AND TRANSIT
Question. The Department has distributed over $34 billion in
formula grants provided through the Recovery Act for highway and public
transportation investments. As I discussed in my opening statement,
these formula grants present a unique challenge to DOT. The Department
will have to oversee the use of these funds in addition to the regular
highway and transit formula grants. It must track the two different
kinds of formula grants separately, and fulfill special reporting
requirements on the use of Recovery funds.
How will the Department target its resources so that it can oversee
the use of Recovery funds at the same time that it must run the regular
formula grants programs?
Answer. Both FHWA and FTA have staffing plans to ensure sufficient
workforce resources are available to oversee both regular formula
grants and ARRA formula grants. Existing oversight procedures have been
replicated to address ARRA activities but with more robust features to
accommodate the added scrutiny expected for Recovery Act programs, such
as stewardship agreements with States, risk management assessments and
mitigation plans, and cooperation with the Department's Inspector
General to review suspension/debarment referrals. Applying unique
Treasury Account Fund Symbols and specific ARRA codes for all reporting
will help ensure that the funds and resultant program implementation
elements are tracked appropriately using existing systems that have
been appropriately modified to accommodate ARRA reporting requirements
in addition to regular reporting requirements. Further, recipients have
been issued clear ARRA-specific reporting forms and corresponding
guidance, such as instructions not to mix program funds in a single
grant. Staff are aware of the challenges and, although systems,
guidance and other preventative measures have been put in place to
avoid discrepancies, these staff will also actively work to monitor and
validate reporting under both regular and ARRA reporting deadlines.
PROJECTS BEING BUILT WITH RECOVERY ACT FUNDS
Question. Under the regular highway program, States may spend some
of their traditional highway funds on transit projects. For the funds
provided in the Recovery Act, we expanded this feature of the highway
program to include port and railroad investments. Ports and railroads
are an essential part of the Nation's transportation system, and this
provision provides States with another option for investing in
transportation without imposing any new requirements on them.
To date, however, the vast majority of highway Recovery funds have
been obligated for traditional highway projects, and a good portion of
these projects are for resurfacing.
As States have more time to develop their highway grant
applications, do you believe that they will invest in some more complex
projects or do you believe they will continue to invest heavily in road
resurfacing?
Answer. Since the States are also in the process of obligating
their regular Federal-aid highway funds, looking at the Recovery Act
projects alone does not provide a complete picture. The emphasis on
quickly obligating the first half of the Recovery Act funds to get the
fastest economic impact necessitated States' using their Recovery Act
funds for projects that were ready for immediate obligation. These
would have been projects, including complex projects, already at the
end of the project development pipeline and those that could be
advanced through the pipeline quickly. Of course, many of those that
can be advanced quickly are resurfacing projects. We are also seeing
investment in technology, such as intelligent transportation systems,
that often takes second place behind necessary road preservation
projects. States continue to add projects to their lists for Recovery
Act funding and only time will tell which projects they will advance
with the Recovery Act funds.
GRANTS FOR ENERGY EFFICIENCY
Question. Public transportation is an important way to reduce the
impact of daily transportation on the environment. Even so, transit
agencies themselves can make improvements in reducing their own impact
on the environment.
Working with Senator Dodd, we included $100 million for a
competitive program for transit agencies to make capital investments
that will reduce their energy use and greenhouse gas emissions.
Mr. Secretary, what level of interest are you getting in this
program?
Answer. We have experienced a significant level of interest in the
TIGGER program. We are about halfway through cataloguing and databasing
all of submissions received by the May 22, 2009 deadline, and if
current trends continue, we will have reviewed approximately 240
proposals containing over 400 individual projects, whose combined total
approximates $1.6 billion in funding requests. Given that only $100
million was appropriated under ARRA, we do not expect to be able to
fund every meritorious project.
Question. Do you believe Congress should do even more in
reauthorization in terms of pushing Federal assistance for highways and
transit to promote clean fuels?
Answer. Based on the number of applications we expect, I think I
can say there is already a strong interest among America's transit
agencies for additional funding for worthwhile projects that reduce
energy usage and greenhouse gas emissions. I think it's premature to
assess the effectiveness or impact of the TIGGER program at this stage,
but this is something I'm willing to address with you and your
colleagues as we work on developing the next surface transportation
authorization bill.
______
Questions Submitted by Senator Dianne Feinstein
Question. Secretary LaHood, at the hearing, I asked you what you
saw as the shortcomings of the California plan for high speed rail. You
assured me that California was far ahead of other High Speed Rail
Corridors in the United States and that you had no doubt that
California would be at the top of the list of projects funded. However,
you stated that there were some ``little things'' that would improve
California's proposal.
Please identify specifically the items that concern you about the
California High Speed Rail Authority's plan to develop high speed rail.
Answer. California's high-speed rail plan is very ambitious and
will take a decade to complete. Phase 1 of the California system is
estimated to cost approximately $35 billion and stretches from San
Francisco to Los Angeles and Anaheim. Our High-Speed Intercity
Passenger Rail program as funded with $8 billion from the Recovery Act
represents a down payment on the long-term vision to bring high speed
rail to this country. Even this significant investment is enough only
to make a contribution toward a section of the phase 1 for the
California high-speed rail system and we expect to receive other
applications as well. It will be important for California to identify
achievable goals in its application that meet the requirements for the
use of recovery funds.
Question. It is my understanding that high speed rail systems
operating in other parts of the world would all fail to comply with
current FRA regulations, making it impossible for American high speed
rail to adopt some systems that have proven safe in other parts of the
world.
What progress is being made to update and adapt Federal regulations
so that high speed rail systems proven from around the world may be
used in the United States?
Answer. FRA's safety regulations for railroad passenger equipment
have grown out of an operating environment in which passenger trains
generally operate commingled with heavier freight trains and over
highway-rail grade crossings used by heavier highway vehicles than in
Europe or Asia. As a result, passenger equipment built for operation in
those continents would likely not be designed in the same way and would
not meet FRA's safety standards. Nevertheless, there are procedures
currently in place to request FRA approval to allow the safe use of
such equipment in the United States, and FRA is engaged in discussions
and reviews of several draft proposals for California alone: the
California High-Speed Train Project, Caltrain's next generation
equipment, and DesertXpress.
Looking forward, FRA has been considering ways to amend our
regulations to facilitate the introduction of high speed rail systems
with proven safety records elsewhere in the world. A comprehensive
review is ongoing of international crashworthiness standards as well as
the differences in the operating environments for which those standards
are based. In certain countries, the risk associated with high speed
transport is addressed using complimentary measures for risk reduction,
including collision avoidance and post-accident mitigation, together
with crashworthiness requirements. Gaps in crashworthiness performance
are mitigated by efforts to reduce the exposure to harm, such as by
implementing advanced train control systems, separating freight from
passenger operations, and maintaining sealed corridors without any
highway-rail grade crossings.
FRA will continue its close examination of international approaches
to high speed rail safety for their application to the United States,
and will continue to work with the industry, States, and other
stakeholders to develop appropriate strategies for the safe
introduction in the United States of high speed rail systems operating
elsewhere in the world.
______
Question Submitted by Senator Susan Collins
Question. The American Recovery and Reinvestment Act was an
important step forward in efforts to rehabilitate and improve our
Nation's transportation infrastructure system, but there is more that
can be done.
Maine has struggled for years with the Federal truck weight limit.
Under current law, trucks weighing 100,000 pounds are allowed to travel
on Interstate 95 from the border of Maine with New Hampshire, to
Augusta, Maine. At that point, trucks weighing more than 80,000 pounds
are forced off Interstate 95, which proceeds north to Houlton, a
distance of more than 200 miles. As a result, heavy trucks are forced
onto smaller, secondary roads that pass through our cities, towns, and
villages, creating safety concerns.
Raising the Federal truck weight limit for Maine to 100,000 pounds
would keep heavy trucks on the interstates, which are designed to carry
more weight than the rural roads. This change is widely supported by
public officials throughout Maine, including the Governor, Maine
Department of Transportation, the Maine Secretary of State, and the
Maine State Police.
Trucks weighing up to 100,000 pounds are permitted on interstate
highways in New Hampshire, Massachusetts, and New York as well as the
Canadian provinces of New Brunswick and Quebec. The weight limit
disparity on various segments of Maine's Interstate Highway System is a
significant impediment to commerce, increases wear-and-tear on our
secondary roads, and puts our people needlessly at risk. Will the
Department of Transportation work with the State of Maine in its
efforts to secure an exemption from the 80,000 pound Federal truck
weight limit, similar to the limit in New Hampshire and other States?
Answer. The Federal Government has a sizable investment in the
Interstate System, and Congress balanced many parameters, including
commerce, safety, and system preservation, to establish the current
Federal truck size and weight limits.
As you know, Congress has granted a variety of statutory exceptions
to the 80,000 lbs. weight limit. These exceptions are generally
restricted by commodity or vehicle configuration. In addition, States
that had higher axle and gross weights when Congress established the
weight limits and bridge formula were given ``grandfather rights'' and
were allowed to retain the existing weight limits. Off the Interstate
System, States may allow heavier weights than are allowed under Federal
law on the Interstate System. Maine exercised this authority, and
raised its weight limits off the Interstate System to 100,000 lbs.,
which resulted in the weight limit disparity you described in your
question.
Truck size and weight limits are critically important to
maintaining our roadways. Heavy axle loads have a significant effect on
the Interstate system, as well as on secondary roads. Research
indicates that as axle weights increase, the level of infrastructure
damage rises significantly. A consistent national standard for vehicle
dimensions on the Interstate System is of primary importance to
facilitating interstate commerce.
As you know, Congress must enact into law any exceptions to the
current truck size and weight limits. Although the Department does not
have the authority to permit such exceptions, I would be pleased to
hear more about your concerns.
______
Questions Submitted by Senator George V. Voinovich
Question. In your letters to the State departments of
transportation (DOT), you spoke about wanting States to keep their
stimulus funding if projects came in below estimate or if the State
DOT's management of a project saved money. Essentially, a State DOT
would non-perform work on a project, which in turn would release
stimulus funds. If this occurs after September 30, 2010, would the
State DOT still be able to keep the funds, or would they be required to
return the funds to U.S. DOT?
Answer. No, States are not able to obligate or reobligate funds
after September 30, 2010. The Recovery Act specified a period of
availability (September 30, 2010) for Highway Infrastructure Investment
funds. Deobligated funds are available for reobligation to another
Recovery Act eligible activity within the State during the period of
availability, which in this instance ends on September 30, 2010, but
are also subject to 120-day and 1-year redistribution if deobligated
and not timely reobligated within those periods. Once the period of
availability for obligation has expired, funds will not be permitted to
be reobligated.
The letters to the State DOTs were sent to encourage them to
rapidly adjust project obligations to contract amounts in order to
maximize the impact of the Recovery Act on transportation
infrastructure and discourage/prevent inactive obligations. The letters
are in keeping with FHWA regulations (23 CFR 630.106(a)(4)-(6)),
which requires States to make a downward adjustment in the amount
obligated to the project, if the project comes in below estimate and
has decreased by $250,000. Additionally, FHWA is actively working with
State DOTs to ensure that States meet the 120-day and 1-year obligation
requirements.
Question. The Dayton International Airport has submitted two
projects to the FAA seeking stimulus funding. The first project would
provide for the replacement of the Airport's existing Security Systems.
The second project would provide for the replacement of lighting
infrastructure along T/W R at the Dayton International Airport. The
airport worked with the FAA on both of these projects, and was led to
believe that they had a high probability of success. At this point,
however, the Dayton Airport has yet to receive any stimulus dollars.
Can you please comment on the status of these requests?
Answer. Statutory language in the American Recovery and
Reinvestment Act of 2009 (ARRA) requires FAA to identify and award ARRA
funds quickly. Accordingly, FAA has identified and announced proposed
grants for nearly all ARRA airport grant funding. In the case of the
Dayton International Airport, ARRA funding was announced on May 29,
2009 for the completion of Taxiway R lighting improvements. The Federal
Aviation Administration (FAA) has been working with the airport sponsor
on the required application materials and plans to extend a grant offer
by June 17, 2009.
As to the security system project, the airport has been working
with the FAA regarding the potential funding of this project. Because
ARRA funds are otherwise allocated, the security system project will be
considered for funding under the normal Airport Improvement Program
relative to other competing projects as additional funds may become
available in fiscal year 2009. The airport sponsor has also added the
project to its fiscal year 2010 Airport Capital Improvement Program for
consideration in case funds are not available in fiscal year 2009 to
complete the project.
______
Questions Submitted to Hon. Calvin L. Scovel III
Questions Submitted by Senator Patty Murray
OFFICES THAT AREN'T WORKING ON THE RECOVERY ACT
Question. I understand that to meet its immediate workload, the
Department has borrowed people from offices that do not have any
responsibility over the implementation of the Recovery Act. While this
strategy certainly makes sense as an emergency measure, I am concerned
about what this strategy might mean if it is continued over a longer
period of time.
Do you worry about the work that isn't getting done in the other
offices that donated staff to work on the Recovery Act? Is other
important regulatory or safety work suffering because the staff has
been moved to work on the Recovery Act?
Answer. We are currently examining vulnerabilities in program
management and planning that could impede DOT's ability to provide
effective oversight of American Recovery and Reinvestment Act (ARRA)
funded projects and meet new statutory and OMB requirements. As part of
this review, we are also obtaining information on the impact of
staffing demands on other Departmental programs. We will report on the
results of our review in late summer 2009.
BALANCING RESPONSIVENESS WITH OBJECTIVITY
Question. Mr. Scovel, you have developed a strategy for identifying
the risks that the Department faces in implementing the Recovery Act,
evaluating the Department's efforts, and providing recommendations
based on these observations.
Your strategy also involves an unprecedented level of coordination
between your office and the Department. Your staff will be meeting with
the Department every 2 weeks to monitor its progress. But this constant
and regular interaction may also increase the pressure to direct or
participate in the Department's efforts, rather than monitoring them.
What actions are you taking to protect the objectivity of your
office?
Answer. The coordination between OIG and the Department as a result
of ARRA has not changed how we safeguard our independence.
Specifically, we do not participate in the Department's management
decisionmaking process nor do we perform management functions, such as
making specific recommendations for solutions to the issues addressed.
However, we can and do provide suggestions to management, based on our
prior work and good business practices. We also expect that the
Department will be sharing timely information with us as it implements
the ARRA requirements.
DOT OIG continues to take all measures to ensure its work remains
independent, objective and non-partisan. Our policy includes avoiding
to the greatest extent possible performing non-audit services, such as
participating on commissions, panels, and committees, etc. Since
providing non-audit services could limit our independence to perform
future audits of DOT programs and operations, all staff also must
routinely certify as to their personal independence.
PROVIDING QUICK FEEDBACK TO DOT
Question. Mr. Scovel, you usually have the luxury of being able to
spend more time evaluating how the Department is managing a program
before publishing recommendations. And usually your recommendations are
still relevant even a year or more after they are issued.
But the Recovery Act is different. This will not be an ongoing
program, and if the Department is to make use of your recommendations
they will have to be provided in real time--even before much of the
money goes out.
Your office will begin issuing a new kind of advisory that will be
used to provide the Department with feedback more quickly.
Mr. Scovel, how quickly will you be able to issue these advisories?
Are you going to be establishing a goal for the amount of time
between the initial identification of a problem and the issuance of an
advisory?
What are some of the other ways in which you can communicate your
concerns to the Department earlier in the process?
Answer. We have established criteria for determining if an issue
warrants an ARRA Advisory. For example, does the issue address the
effective and efficient use of ARRA funds, involve a long-standing or
systematic vulnerability, or has agency-wide, Department-wide or
Government-wide implications, etc? Although we have not established
specific timeframes for issuing an Advisory, we have procedures in
place to ensure that OIG staff timely communicates potential risks to
Department officials. We use multiple means of communication--
briefings, meetings, and, weekly reports to the Secretary--the ARRA
Advisory, a written product, serves as the last line of communication
not the first.
As of June 23, we have issued two ARRA Advisories--Department's
Suspension and Debarment Program and Sampling of Improper Payments in
Major DOT Grants Programs--to promptly alert the Department of
potential management and funding risks that emerge during an audit
consistent with ARRA and Office of Management and Budget guidance. As a
result of our ongoing ARRA review, some other issues that may lend
themselves to an ARRA Advisory have been identified and are currently
being reviewed for relevancy.
Senator Murray. We want to make sure that the considerable
amount of money that we put out there is spent wisely, and that
we earn the trust of America by doing it right. So I appreciate
the work you and your office are doing, and we will continue to
support that.
Mr. Scovel. Chairman Murray, thank you very much for your
support and your confidence.
CONCLUSION OF HEARING
Senator Murray. Thank you very much.
And this subcommittee is recessed, subject to the call of
the Chair.
[Whereupon, at 10:08 a.m., Thursday, April 30, the hearing
was concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]
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