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Suggested Citation:"State DOT Best Practices." National Academies of Sciences, Engineering, and Medicine. 2012. State DOT Financial Auditing Requirements for Public Transportation Assistance Programs. Washington, DC: The National Academies Press. doi: 10.17226/14653.
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Page 10
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Suggested Citation:"State DOT Best Practices." National Academies of Sciences, Engineering, and Medicine. 2012. State DOT Financial Auditing Requirements for Public Transportation Assistance Programs. Washington, DC: The National Academies Press. doi: 10.17226/14653.
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Page 11

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10 • An independent audit may be arranged with the cost charged to the grant retainage (a retainage of 5 percent held from all reimbursements). • “Letters of noncompliance” may be sent to all state agencies that provide funding to that subrecipient, with a warning sent to the sub- recipient that further consequences will result if the subrecipient is not in compliance with state DOT requirements. subrecipient Financial Audit Manuals or guidelines Thirty-nine state DOTs responded to the ques- tion, “Does your state have any audit manuals/ guidelines that CPA firms must follow?” The question applied to OMB Circular A-133 and other financial audits. Of the respondents, 22 state DOTs (56 per- cent) indicated that they do not have audit manuals/ guidelines that auditing firms must follow for sub- recipient financial audits. Several states indicated that they rely on other sources, such as contractor’s state licensing board standards, state internal audits, OMB Circulars, or standards as determined by the secretary or commissioner of the state DOT. Seven states had their own guidelines that audit firms were required to follow. Three of these states (Michigan, New York, and West Virginia) cited state statutes that contained subrecipient audit require- ments. The remaining four states (Alaska, Maine, North Carolina, and Oregon) identified adminis- trative policies, usually issued by the state’s chief financial officer, as the source of financial audit guidelines. One state (Alaska) identified an audit manual available on the state’s Department of Ad- ministration (DOA) website. The website included links for downloadable software for the independent auditors to use for state programs, and the auditors were referred to the federal guidelines for federal funding. This guidance appeared to be intended for consultants and architects. stAte Dot Best PRACtiCes Federal Requirements (oMB Circular A-133) Most state DOTs reported only following federal OMB Circular A-133 requirements. OMB Circular A-133 places responsibility on pass-through entities, such as state DOTs, to monitor all subrecipients of federal assistance that non-federal entities receive or administer in the form of grants, loans, loan guaran- tees, property, cooperative agreements, interest sub- sidies, insurance, food commodities, direct appropri- ations, and other assistance. The monitoring process includes identifying and ensuring that subrecipients of federal awards have met the audit requirements for that fiscal year. Although most state DOTs include this requirement in their state management plans and in subrecipients’ grant agreements, many state DOTs do not appear to have standard operating procedures for assuring compliance. state Requirements Six states cited statutes or laws requiring finan- cial audits of subrecipients and an additional four states described state administrative policies ad- dressing financial audit requirements above and be- yond the OMB Circular A-133 requirements. Using the results of the survey, the research team sought to identify state DOTs whose financial auditing requirements represented best practices to be considered for more detailed description. In recommending state DOTs for further study, the re- search team considered • geography—all regions of the United States; • agency size—representing differing resource levels, as measured by the amount of state funding available for transit; and • financial auditing best practices—based on brief descriptions of the state DOT’s financial auditing requirements or practices. Ultimately, four agencies (from Kentucky, Ohio, Oregon, and New York State) were selected from among the candidate state DOTs (see Table 2). These agencies represent a cross-section of agencies that have implemented procedures and practices for requiring subrecipients to conduct annual financial audits and for reviewing the audits to ensure that program funds are used for their intended purposes. The research team reviewed the materials refer- enced in the survey responses, examined documents available on the state DOT websites, and conducted telephone interviews with the selected state DOTs to better understand the different policies and procedures used to monitor or conduct financial auditing of sub- recipients. Brief descriptions of each state’s approach to auditing subrecipients follow, with selected sample documents reproduced in Appendix C.

11 table 2 State DOTs selected for case studies, ranked by agency size. State DOT Region Agency Size* Highlights KYTC, Office of Transportation Delivery South Small (less than $1 million) Model for smaller state DOTs that may lack staff or resources to conduct in-depth audit reviews or financial audits of subrecipients. Procedures for monitoring OMB Circular A-133 audit requirements provide an easy-to-use frame- work and tracking spreadsheets adaptable for use by other small state agencies. Procedures also provide documentation that KYTC is fulfilling its OMB Circular A-133 obli- gation to monitor its subrecipients. Oregon DOT, Public Transit Division West Medium ($1 million to $50 million) Model for medium-sized state DOTs. Implemented electronic reporting procedures for all DOT subrecipients, as well as a special Pre- Award Audit Questionnaire for New Subrecipients. Ohio DOT, Office of Transit Midwest Large (greater than $50 million to $500 million) Model for medium-sized state DOTs. Created an Oversight Audit Program for its rural (Section 5311) subrecipients. In 2012, a state auditor dedicated to the Section 5311 program is expected to complete 120 desk audits and five site audits. New York State DOT, Bureau of Public Transportation East Largest (greater than $500 million) Model for large state DOTs; the Bureau of Pub- lic Transportation works closely with a Contract Audit Bureau (CAB) that is also part of the state DOT. Administers more than $4 billion in state Mass Transportation Operating Assistance and $33 mil- lion in FTA funding annually. In addition to moni- toring subrecipient compliance with OMB Circular A-133 audit requirements, New York State DOT has a state single audit requirement for agencies that receive $100,000 or more in state transporta- tion assistance. A 34-page Guidance for Auditors developed by the state’s CAB contains specific information that other state DOTs could use as a basis for providing uniform auditing requirements at the state level. The guidelines also incorporate OMB Circular A-133 requirements where applicable. *Based on amount of state funding available for public transportation listed in the AASHTO 2010 Survey of State Funding for Public Transportation.

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TRB’s National Cooperative Highway Research Program (NCHRP) Research Results Digest 368: State DOT Financial Auditing Requirements for Public Transportation Assistance Programs identifies various financial policies and procedures used by states for conducting grantee financial audits.

The report documents policies, procedures, and practices used by some state departments of transportation designed to enhance and streamline their current financial auditing requirements.

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