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

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17 imately $1.6 billion annually to New York State through formula and discretionary program funding sources. Of this amount, the New York State DOT typically directly administers $33 million on behalf of FTA for the following programs: • Formula Grants for Non-Urbanized Areas (Section 5311) • Transportation for Elderly Persons and Per- sons with Disabilities (Section 5310) • Job Access and Reverse Commute Program (Section 5316) • New Freedom Program (Section 5317) • Metropolitan and Statewide Planning (Sec- tions 5303 & 5304) The Bureau of Public Transportation is led by a director of public transportation and is supported by a staff of 20 full-time employees. sources of Financial Audit Requirement The New York State DOT’s Rules and Regula- tions, Part 975, Statewide Mass Transportation Oper- ating Assistance Program contains the following information in Section 975.21, Audits: The Commissioner pursuant to Sections 18b and 14g of the Transportation Law, and any city or county contracting for the provision of mass transportation services pursuant to section 119r of the General Municipal Law has the power to audit and examine the accounts, books, records, documents and papers of any participating pub- lic transportation system or person, firm, or corporation. In the event the system, or person, firm, or corporation refuses to comply with the audit provisions, all future operating assistance payments will be withheld to that system or person, firm, or corporation, until the system, or person, or firm or corporation complies with the audit provisions. Furthermore, the Commis- sioner shall be provided, upon request with cop- ies of audits performed by or in satisfaction of requirements for other levels of government that directly related to the provision of governmental operating aid.10 prepares an audit engagement letter. Although the scope of the audit will vary depending on the size of the subrecipient and the concerns of the Office of Transit, the audit will generally include • a review of internal controls over revenue and expenditures; • a review of financial statements; • a variance analysis on the general ledger accounts; • farebox revenue testing; • contract revenue testing; • expenditure testing; and • inventory records and procurement practices. At the completion of the audit, the Office of Ex- ternal Audits prepares a written report. The report identifies areas of noncompliance and ineligible costs. The Office of External Audits presents the final report to the governing body of the audited agency, after which the Office of Transit has the responsibility of following up with the agency to ensure that the areas of concern are addressed. A corrective action plan (CAP) is developed to assist with tracking completion of outstanding items. Before FY 2012, the Office of Transit had no dedicated auditor. Subrecipient audits typically were limited to one or two site audits per fiscal year. However, beginning in January 2011 an auditor was dedicated to the Office of Transit and completed a total of 119 desk inspections and one site audit within that fiscal year. Transit audits budgeted for FY 2012 target completion of 120 desk inspections and five site audits. the neW YoRK stAte Dot The Governor of New York has designated the New York State DOT as the agency responsible for administering state and FTA public transportation programs. The Bureau of Public Transportation within the New York State DOT Division of Pol- icy and Planning is responsible for administering more than $4 billion in state operating assistance for approx imately 130 systems statewide, including the New York Metropolitan Transportation Authority (MTA). The New York State DOT also provides $37 million in state capital assistance to downstate suburban and upstate public transportation systems. Capital funding for the MTA is addressed through a separate capital program supported through local, state, and federal resources. FTA provides approx- 10 State of New York, Rules and Regulations, Part 975, Statewide Mass Transportation Operating Assistance Program. Available at: https://www.nysdot.gov/divisions/policy-and-strategy/public- trans-respository/stoarr.pdf (accessed December 19, 2011).

18 Audits are conducted in accordance with Gen- erally Accepted Government Auditing Standards (GAGAS) issued by the United States General Accounting Office (GAO) and with standards pro- mulgated by the American Institute of Certified Public Accountants (AICPA) to determine if rea- sonable assurances exist that contractors and subre- cipients are compensated for goods and services at fair and equitable amounts pursuant to compliance requirements.11 CAB audits are conducted based on a risk- assessment process. Factors considered in assessing risk with relation to a subrecipient include • the presence of material findings in an OMB Circular A-133 single audit report that could adversely impact transportation-related con- tracts and programs; • contract dollars (for individual contracts and for the entity as a whole); and • prior audit experience. Special requests for audits made by the program area also are accepted and acted upon as appropriate. The following types of audits apply to subrecipi- ents of the Bureau of Public Transportation: • Reviews of federal single-audit reports and other limited-scope audit procedures to mon- itor grantee compliance with OMB Circular A-133 and other federal-aid requirements • Mass transit audits, consisting of reviews of grantee compliance with provisions of con- tracts for state projects or for state matching agreements on federal grant projects and state transit operating assistance audits Appendix C contains examples of monitoring letters and audit closeout letters used by the New York State DOT to inform subrecipients of an audit and document its activities. Role of the internal Auditor The responsibility for federal single audit moni- toring resides within the Contract Audit Bureau Additionally, Section 21 of Article 2 of the New York State Transportation Law provides for state single audit coverage of the state transportation assis tance expended by municipalities and certain public authorities. The law requires that agencies that receive $100,000 or more in state transporta- tion assistance must submit a state single audit of transportation funds. The following links are provided to guide au- ditors, finance officers, and program personnel in implementation: • Article 2 Section 21, New York State Trans- portation Law: From the webpage at http:// public.leginfo.state.ny.us/menuf.cgi click on “Laws of New York,” then “TRA” (for trans- portation), “Article 2,” and scroll down to click on “21” for the single audit program. • Guidance for Auditors (pages may be marked “Draft”): https://www.nysdot.gov/main/ business-center/audit/repository/guidance.pdf The 34-page guidance document contains spe- cific detail, such as that one-third of all state transit operating assistance funds should be tested, as well as general information covering topics that include • audit coverage guidelines and examples; • matching programs covered under the federal single audit; • program-specific compliance coverage; • guidelines for charging eligible audit costs; and • reporting. Appendixes to the guidance document contain program-specific compliance testing guidelines. Procedures for obtaining and Reviewing subrecipient Financial Audits The Contract Audit Bureau (CAB) of the New York State DOT conducts financial and compliance audits of contractors, subrecipients, and other exter- nal parties who participate in Department programs. Audits are performed to assure that contractors and subrecipients are using state and federal funds in compliance with applicable laws, rules, and regula- tions, and in accordance with the specific contract or grant terms. 11 An Introduction to the New York State Department of Trans- portation Contract Audit Bureau. Available at: https://www. nysdot.gov/main/business-center/audit/repository/cab.pdf (accessed December 19, 2011).