State DOT Financial Auditing Requirements for Public Transportation Assistance Programs (2012)

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12 the KentuCKY tRAnsPoRtAtion CABinet The Governor of Kentucky has designated the KYTC as the agency responsible for administering FTA programs for the state. Within KYTC, the Of- fice of Transportation Delivery (OTD) is responsible for the administration of all FTA programs awarded directly to the state. OTD also administers a little less than $1 million in state funds, used as an “up to 10 percent (10%)” match for capital purchases made using FTA funds. No other state funds are dedicated to public transportation. OTD’s executive director reports directly to the Kentucky secretary of trans- portation and is supported by a staff of 16 full-time employees, 9 of whom are dedicated 100 percent to FTA grants. In FY 2010, OTD awarded FTA pro- gram funds to subrecipients as follows: • Formula Grants for Non-Urbanized Areas (Section 5311)—24 subrecipients • Transportation for Elderly Persons and Per- sons with Disabilities (Section 5310)—13 subrecipients • Urbanized Area Formula Program (Section 5307)—two small urban subrecipients OTD also administers funds related to the Job Access and Reverse Commute Program (Section 5316) and New Freedom Program (Section 5317). source of Financial Audit Requirement The KYTC/OTD requires all subrecipients to submit copies of annual audits or financial statements, regardless of the amount of funding. The following requirement, while referencing the OMB Circular A-133 audit requirement, applies to all subrecipients. According to the KY State Management Plan, dated June 16, 2011, KYTC/OTD subrecipients shall comply with the Federal Single Audit Act Amendments of 1996 and OMB Circular A-133. Each (sub) recipient must submit two copies to KYTC/OTD by March 31st of each year or thirty days after the completion of the OMB Circular A-133 Audit. KYTC/OTD will log each audit received and submit the audit report to Division of Internal Audits to perform a desk review in accordance with gener- ally accepted auditing practices. OTD will conduct a financial and grant review of the audit report. If a finding is found, by Internal Audits or OTD, a letter or follow-up asking for an explanation on the findings will be made. Procedures for obtaining and Reviewing subrecipient Financial Audits Within KYTC, the Office of Audit has devel- oped procedures that define the structure and re- sponsibilities of the office.2 Within the Office of Audit, the Internal Audit Branch (IAB) is respon- sible for monitoring subrecipient compliance with OMB Circular A-133. In 2007 and 2008, the state auditor raised con- cerns about KYTC’s documentation of payments to subrecipients and contractors for federal highway planning and construction funds. Subsequently, the FHWA called for improvements in subrecipient oversight by KYTC, noting that subrecipients lacked an understanding of federal-aid requirements. In 2008, the IAB provided training for KYTC departments to address these concerns. The training was based, in large part, on procedures already de- veloped and in use by the OTD for oversight of its subrecipients. The training described the basic require- ments of OMB Circular A-133, as well as KYTC’s responsibilities, and required all departments within KYTC to annually create a spreadsheet of all sub- recipients and disbursements. The spreadsheet was to contain the following column headings: 1. Subrecipient Name 2. Contract Number 3. Catalog of Federal Domestic Assistance (CFDA) Number 4. Project Description 5. Award Date 6. Award Amount 7. Accts./Memo These procedures were intended to allow KYTC to actively and routinely identify those subrecipi- ents who met the OMB Circular A-133 audit thresh- old of expending more than $500,000 received in federal funds during a fiscal year. The procedures 2 Commonwealth of Kentucky Transportation Cabinet. Audits Guidance Manual. September 2007. Available at: http:// transportation.ky.gov/organizational-resources/policy%20 manuals%20library/audits.pdf (accessed December 19, 2011).