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

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15 fiscal year. The reporting forms include required information on each agency’s registered agent, officers, documentation of fidelity or performance bonds (required to remain exempt from audit requirements), and a report of budgeted and actual transactions.6 The Oregon DOT’s Audit Division, along with PTD, tracks OMB Circular A-133 audits for com- pliance. Responsibilities are described in the state management plan as follows: • The division, or the [Oregon DOT] Internal Audit Division, reviews the annual audits of sub recipients to assure that federal and state transit funds are reported in the audits. • The division maintains copies of the audits for at least three years. • The division reviews the management letter accompanying an audit to determine if there are material findings that need to be addressed before grant agreements are executed with the subrecipient. • The division is responsible to issue manage- ment decisions within six weeks on subrecipi- ent audit findings and ensure that subrecipi- ents take corrective action. Appendix C contains a pre-award audit ques- tionnaire developed by PTD for new subrecipients.7 The questionnaire is designed to help PTD assess the subrecipient’s ability to comply with the require- ments associated with FTA funding. Areas covered by the questionnaire include • general information, including the amount of federal awards from all sources for the previ- ous fiscal year; • cash management, addressing controls over fed eral funds, documentation of disbursements, and reconciliation of bank accounts; and • other areas, covering indirect costs, cost shar- ing, compliance, and procurement. the ohio Dot The Governor of Ohio has designated the Ohio DOT as the agency responsible for administering FTA programs for the state. Section 5501.07 of the Ohio Revised Code designates the Office of Transit within the Ohio DOT to administer all FTA programs for which the state is administratively responsible. The Ohio DOT also administers approximately $15 million in state funds for public transportation annually. The Office of Transit is led by an adminis- trator and is supported by a staff of 12 full-time em- ployees, one part-time employee, and one consultant. In a typical fiscal year, the Ohio DOT awards FTA program funds to subrecipients as follows: • Formula Grants for Non-Urbanized Areas (Section 5311)—35 rural subrecipients • Transportation for Elderly Persons and Per- sons with Disabilities (Section 5310)—195 subrecipients The Ohio DOT also administers funds related to the Job Access and Reverse Commute Program (Section 5316) and the New Freedom Program (Sec- tion 5317). source of Financial Audit Requirement According to the Ohio DOT’s state management plans covering Section 5311 and 5310 subrecipients, [a]ll Section 5311 grantees are required to have an annual audit. Where grantees subcontract, subcontractors are subject to the audit require- ments as well. Section 5311 grantees must follow the requirements of the (Federal) Single Audit Act of 1984 and OMB A-133 as applicable. and Section 5310 recipients that receive $500,000 or more annually in federal funds are required to submit an annual A-133 audit to [Ohio DOT]. Recipients are also required to submit operating reports to [Ohio DOT] for as long as they operate the vehicle or until disposition is granted, which- ever is earlier.8 The Ohio DOT has a number of Section 5311 sub- recipients that expend less than $500,000 in federal 6 Oregon Secretary of State, Audits Division. Report in Lieu of Audit (Revised 2008). Available at: http://www.sos.state.or. us/audits/pages/municipal/forms.html (accessed December 19, 2011). 7 Oregon Department of Transportation, Public Transit Divi- sion, Pre-Award Audit Questionnaire for New Sub-Recipient. Available at: http://www.oregon.gov/ODOT/PT/PROGRAMS/ SHARED/MGMT_PLAN/PreawardProgQs.pdf?ga=t (accessed December 19, 2011). 8 State of Ohio. Management Plan for Rural (FTA Section 5311) and for Elderly Individuals and Individuals with Dis- abilities (FTA Section 5310), 2008.

16 systems with the highest perceived risks are referred to the Office of External Audits for a more detailed site audit. The Ohio DOT Office of External Audits tracks all expenditures of federal funds associated with the Section 5311 program. The Ohio DOT auditor rec- onciles federal expenditures for each subrecipient to the entity financial reports or other source docu- mentation. For entities not subject to OMB Circular A-133 requirements, the auditor seeks positive con- firmation, usually through desk inspection, that fed- eral expenditures have been identified and recorded accurately. A desk inspection employs limited-scope audit procedures that include reconciliation and confirmation of federal funds expended by the tran- sit system, ensuring the subrecipient accurately re- corded and classified all federal (and state) funds in its accounting system, and ensuring that ARRA funds are separately identified. Desk inspections are conducted primarily by e-mail and telephone cor- respondence. If there are major compliance issues, the transit system may be subject to additional over- sight by the Ohio DOT through a corrective action plan, compliance audit, or increased monitoring. If the Ohio DOT auditors have financial findings, the Ohio DOT will recover funds. Role of state Dot Auditor The Section 5311 Financial Audit Model out- lines the agreed-upon procedures of an audit to be performed by the Office of External Audits. The specific procedures performed for each subrecipient are determined based on risk assessments. The risks are identified based on information gathered from many sources, which may include • compliance reviews conducted by the Office of Transit, • site visits, • audit results, and • ongoing external investigations. The timeliness and accuracy of submitted invoices, reports, and other documents and the sub- recipients’ general responsiveness to Office of Tran- sit staff also are factors in risk assessment. Once an agency has been selected, the Office of External Audits prepares an agreement letter and sub- mits it to the Office of Transit for signature. On ap- proval by the Office of Transit, the Office of External Audits contacts the agency, schedules a site visit, and funds annually. According to agency policy, all tran- sit subrecipients under the Section 5311 program that received federal funds from the Ohio DOT will have either a desk inspection or a site audit performed. In 2006, at the request of the Office of Transit, the Division of Finance & Forecasting, Office of Audits created an oversight audit program for the Ohio DOT’s Section 5311 rural subrecipients (see Appendix C). According to the program document informally known as the Section 5311 Financial Audit Model, [t]he audit shall be conducted in accordance with the provisions contained in Federal Regulations and Generally Accepted Government Auditing Standards (GAGAS) and will cover the entire financial operation of the entity. The agreed- upon procedures to be performed may include various combinations of those described in this document. The specific procedures performed for each sub-recipient will be determined based upon an assessment of perceived risks.9 Procedures for obtaining and Reviewing subrecipient Financial Audits The Ohio DOT Office of Transit has conducted compliance reviews of its subrecipients for many years. These reviews have included some cursory over sight of financial processes, including fare col- lection, budget reports, and basic internal controls. Two isolated cases of management fraud were found to have been perpetrated through the use of credit cards, reimbursement for travel expenses, and other similar schemes. In both cases, the managers were charged with theft and found guilty. As a result of problems found with the compliance reviews and the legal cases, the Office of Transit requested assis- tance from the Ohio DOT Office of External Audits (OEA) to perform comprehensive financial audits for identified transit systems. Each year, the Office of Transit completes a risk assessment of each transit system based on its com- pliance review, noting findings and any ongoing is- sues with annual budget submissions and quarterly invoice submissions. Subrecipients undergoing ex- ternal investigations for potential violations receive a high score on the risk assessment. Those transit 9 Ohio Department of Transportation, Division of Finance & Forecasting, Office of Audits. Rural Transit—FTA Section 5311 Program, Oversight Audit Program.