Office of Inspector General

Audit Report

ACTIONS NEEDED TO ENSURE ACCURATE

EXECUTIVE ORDER 13520 REPORTING

Department of Transportation

Report Number: FI-2012-004

Date Issued: November 7, 2011
U.S. Department of

Memorandum

Transportation

Office of the Secretary

of Transportation

Office of Inspector General

Subject: ACTION: Actions Needed To Ensure

Accurate Executive Order 13520 Reporting

Department of Transportation

Report No. FI-2012-004

Date: November 7, 2011

From: Louis King

Assistant Inspector General for Financial and

Information Technology Audits

Reply to 

Attn. of: JA-20

To: Assistant Secretary for Budget and Programs/

Chief Financial Officer

The Federal Government has long been concerned about improper payments1

made through its programs and has intensified efforts to eliminate payment errors.

In March 2010, the Office of Management and Budget (OMB) designated the 

Department of Transportation’s (DOT) Federal Highway Administration (FHWA) 

Federal-Aid Highway Program a high-priority program—one that makes the 

highest dollar value2 improper payments. OMB based its designation on DOT's 

projection that the Federal-Aid Highway Program had made an estimated 

$1.4 billion in improper payments, or 3.5 percent of its total payments tested for

fiscal year 2009. 

Executive Order (EO) 13520, “Reducing Improper Payments,” requires each 

Department to submit a onetime report on its high-priority programs, and quarterly 

reports on individual high-dollar improper payments. The EO also requires 

Inspectors General (IG) to review their agencies' reports and provide 

recommendations to agency heads for improvements to the programs and their 

internal controls.

DOT based its EO 13520 high-priority and high-dollar improper payment reports 

on the results of its annual improper payments testing. To meet our requirements 

 1 An improper payment is any payment that should not have been made or that was made in an incorrect amount under 

statutory, contractual, administrative, or other legally applicable requirements. An improper payment may also be a 

payment that an agency cannot determine is proper or improper due to a lack of sufficient supporting documentation. 2 For fiscal year 2010, OMB designated $750 million in improper payments as the threshold for designation as a highpriority program, and designated 14 programs. The majority of improper payments occur in these Federal programs.
2

under EO 13520, we reviewed the DOT reports to determine: (1) whether the 

improper payment amounts reported were accurate and consistent with the annual 

improper payments testing, and (2) whether DOT complied with EO 13520's

reporting requirements for high-priority programs and high-dollar overpayments.3

We conducted this audit in accordance with generally accepted Government 

auditing standards, and included tests we considered necessary to detect fraud, 

waste, and abuse. A detailed description of our scope and methodology can be 

found in Exhibit A.

RESULTS IN BRIEF

DOT's September 2010 report to the Office of Inspector General (OIG) did not 

accurately account for high-dollar overpayments and recoveries. While DOT 

intended to ensure transparency, it reported amounts that did not need to be 

reported as they were under the threshold and understated actual payments 

recovered. Furthermore, the report did not agree with the results of the annual 

improper payments testing. For example, the report overstated overpayments at 

one location by almost $2 million. Both the September 2010 annual report and the 

January 2011 quarterly report included high-dollar improper payment amounts 

that did not meet OMB's reporting requirements. For example, the annual report 

contained payments that did not meet OMB's minimum reporting threshold of 

$25,000. We did not identify any high-dollar overpayments that should have been 

reported and actual payment recoveries were understated in the report. While we 

recognize DOT's conservative approach and its efforts to increase transparency, it 

is incumbent upon DOT to accurately estimate improper payments in its programs 

in order to better evaluate the effectiveness of its improper payment remediation 

efforts. 

DOT did not meet a number of reporting requirements for high-priority programs 

and high-dollar overpayments. For example, neither of DOT's annual or quarterly 

reports met OMB's requirement for reporting of a strategy for the prevention and 

recovery of high-dollar improper payments. Also, the Department submitted its 

September 2010 report4 to OIG more than 3 months after the submission deadline 

specified in EO 13520. As a result, neither the Department nor OMB can measure 

the effectiveness or timeliness of DOT's actions to reduce improper payments. 

 3 A high-dollar overpayment is an improper payment to an entity that exceeds the correct amount by $25,000 or more, 

in a single payment or in cumulative payments throughout a quarter. 4 In May and July 2010, DOT submitted draft versions to OIG of its first reports on high priority programs and high 

dollar improper payments.
3

On March 28, 2011, OMB removed the Federal-Aid Highway Program's 

designation as a high-priority program. However, the requirement for DOT to 

report quarterly on high-dollar improper payments continues. Accordingly, we are 

making a recommendation to assist the Department in its preparation of quarterly

reports on high-dollar improper payments. 

BACKGROUND

The Improper Payments Information Act of 20025 (the Act) requires Federal 

agencies to: (1) review and identify programs susceptible to significant improper 

payments; (2) report to Congress the amount and cause of improper payments; and 

(3) develop approaches for the reduction of improper payments. To meet the Act's 

requirements, DOT annually tests four programs for improper payments—

FHWA's Federal-Aid Highway Program, the Federal Transit Administration’s 

(FTA) Formula Grants Program, FTA's Capital Investment Grants Program, and

the Federal Aviation Administration’s (FAA) Airport Improvement Program 

(AIP). In its fiscal year 2009 Performance and Accountability Report (PAR) and 

fiscal year 2010 Agency Financial Report (AFR), DOT reported these four 

programs had more than $21 million in improper payments (see Table 1). 

Table 1. Improper Payments Identified During Annual Sample 

Testing

 2009 2010

 Improper Improper

Program Payments Payments Total

Federal-Aid Highways 

(FHWA)

$16,317,015 $550,740 $16,867,755 

Formula Grants Program 

(FTA)

$269,616 $3,803 $273,419 

Capital Investment Grants 

Program (FTA)

$1,879,124 0 $1,879,124 

Airport Improvement Program 

(FAA)

$2,152,202 $1,312 $2,153,514 

Total $20,617,957 $555,855 $21,173,812 

Source: US DOT Performance and Accountability Report for Fiscal Year 2009

 US DOT Agency Financial Report Fiscal Year 2010

In November 2009, President Obama signed EO 13520 which encourages the

elimination of payment error, waste, fraud, and abuse in Government-administered 

programs. The EO requires agencies with high-dollar overpayments to describe 

 5 Public Law Number 107-300 (2002).
4

the actions taken or planned to recover improper payments and the actions they

will take to prevent improper payments in the future. 

In March 2010, OMB issued Circular A-123 Appendix C, Part III6 to implement 

EO 13520. The Circular prescribes additional requirements for the high-priority 

program and quarterly high-dollar improper payments reports. It specifies 

improper payment reporting thresholds, and requires agencies to list the program 

responsible for each high-dollar overpayment error and the location where each 

payment was made. DOT Office of Financial Management officials indicated that 

to meet the EO and Circular's reporting requirements, they will report the 

improper payments identified during their annual improper payments testing.

In September 2010, DOT'

s Assistant Secretary for Budget and Programs and Chief 

Financial Officer (CFO) submitted to OIG a single report, “Department of 

Transportation High Dollar Improper Payments” (Appendix I) for fiscal year 

2009, to meet the EO's requirement for quarterly reporting on high-dollar improper 

payments and the Circular's requirement for annual reporting on high-priority 

programs. The CFO based this report on the results of DOT's annual improper 

payment testing during fiscal year 2009. In January 2011, DOT submitted its 

report, “Department of Transportation High Dollar Improper Payments for the 

Quarter Ending December 31, 2010” (Appendix II) to OMB to meet the EO's

quarterly reporting requirement.

DOT REPORTED HIGH-DOLLAR OVERPAYMENTS AND 

RECOVERIES INACCURATELY 

The September 2010 report to OIG incorrectly cited overpayment amounts and 

recoveries and did not agree with the results of annual testing. The report included 

improper payment amounts that should not have been reported. We did not 

identify any high-dollar overpayments that should have been reported and actual 

payment recoveries were understated in the report. DOT overstated the amounts of 

high-dollar improper payments because it relied on inaccurate summary schedules. 

Specifically, the results of the 2009 improper payments testing were incorrectly 

summarized into improper payment schedules used for the preparation of the PAR 

and the high-dollar improper payments report. Additionally, DOT incorrectly 

applied OMB criteria for reports on high-dollar overpayments. For example, the 

September 2010 report:

• Listed a $13.6 million payment to the State of New York as a high-dollar 

overpayment, even though it consisted of three overpayments as well as three 

 6 Requirements for Implementing Executive Order 13520: Reducing Improper Payments, March 22, 2010.
5

underpayments which reduced the total amount of the overpayment to 

$11.7 million;

• Contained two incorrect overpayment amounts and locations;

• Understated improper payment recoveries; it identified five recoveries, totaling

$2,172,905, instead of ten recoveries totaling $2,965,547; and

• Listed eight payments that did not meet the overpayment reporting 

thresholds7

—four payments that were not in excess of 50 percent of the correct 

payment amount, and four payments that were each less than $25,000. 

The January 2011 report also included improper payment amounts that did not 

meet OMB's reporting requirements. For example, two of the six payments did not 

exceed 50 percent of the correct payment amounts and therefore should not have 

been reported.

THE DEPARTMENT DID NOT COMPLY WITH THE EO AND 

CIRCULAR'S REPORTING REQUIREMENTS 

DOT did not meet all reporting requirements established in EO 13520 and OMB 

Circular A-123. The EO and OMB circular contain reporting requirements on the 

actions taken to prevent or recover high-dollar overpayments. In addition, the 

OMB circular requires agencies to list the program responsible for each highdollar overpayment error and the location where each payment was made. The EO 

required agencies to submit their reports within 180 days of the EO's issuance, or 

by May 24, 2010. DOT officials were not fully aware of these reporting 

requirements. As a result, DOT did not do the following, as required by the EO or 

the Circular: 

• Describe a strategy or actions taken to prevent high-dollar improper payments;

• Accurately identify in its September 2010 report8 the locations of ten grantees

that received improper payments;

• Meet reporting deadlines; the September report was 113 days late;

9

 7 To require reporting, overpayments must both exceed $25,000 and be in excess of 50 percent more than the correct 

payment amount (OMB Circular A-123, Appendix C, Part III). 8 The report should describe the city or county and state where the grantee is located. 9 OIG received the Department’s finalized report on September 14, 2010. The EO required agencies to submit their 

reports on high-dollar programs to their IGs within 180 days of the EO’s issuance. The Department’s report was 113 

days late since it was due by May 24, 2010. 
6

• Consistently report payments in its September 2010 report; it reported six 

individual payments to the State of New York as one payment when all other 

locations listed individual payments;

• List in its September 2010 report the FTA program that made each high-dollar 

overpayment; and

• Describe the actions taken to recover improper payments.

Furthermore, DOT did not determine recoverability in a timely manner. More 

than 11 months after it completed its program testing for fiscal year 2009, the 

Department had not determined the recoverability of 3 of the 29 payments 

contained in the report. Still, DOT has indicated that current payment procedures 

effectively prevent improper payments. It attributed improper payments identified 

in the Federal-Aid Highway program to non-systemic administrative, clerical and 

documentation errors. While DOT discussed the strategy to reduce improper 

payments in its 2009 PAR and 2010 AFR and developed a Best Practices Guide 

for grantees to use to reduce improper payments, this strategy was not discussed in 

either the September 2010 or January 2011 reports. Without fully compliant 

improper payment reporting, neither the Department nor OMB can measure the 

effectiveness or timeliness of DOT's actions or strategy to reduce improper 

payments.

CONCLUSION 

Reducing improper payments has been designated by OMB as a top priority for all 

Federal agencies. Reducing improper payments at DOT is a significant challenge 

as the Department makes over $60 billion in payments to grantees annually. While 

DOT has taken actions to strengthen its annual improper payment testing and 

adopted a conservative approach, DOT needs to take further action to ensure 

accurate EO 13520 reporting. Proper action will enable DOT to improve its 

controls and minimize the possibility of improper payments, as well as heighten its 

vigilance over increasingly scarce Federal funds.

RECOMMENDATION

We recommend that the CFO develop procedures for preparation and issuance of

the quarterly reports on high-dollar improper payments that ensure reporting is 
7

consistent with the results of annual improper payment testing, issued in a timely 

manner, and in compliance with key reporting requirements. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

We provided the Department a draft of this report on August 24, 2011, and 

received its written comments on September 20, 2011. DOT's complete response 

is included as Appendix III to this report. DOT concurred with our 

recommendation and provided appropriate planned actions and timeframes.

Accordingly, we consider our recommendation resolved but open pending 

completion of the planned actions. 

ACTIONS REQUIRED 

DOT's planned action for the recommendation is responsive, and its target action 

date is appropriate. Subject to the follow-up provisions in Department of 

Transportation Order 8000.1C, we request that DOT provide information 

demonstrating completion of its planned action within 10 days after the action has 

been taken. 

We appreciate the courtesies and cooperation of Department of Transportation

representatives during this audit. If you have any questions concerning this report, 

please call me at (202) 366-1407, or Earl Hedges, Program Director, at (410) 962-

1729. 

#

cc: Martin Gertel, M-1
8

Exhibit A. Scope and Methodology

EXHIBIT A. SCOPE AND METHODOLOGY

We conducted this audit from December 2010 through July 2011, 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.

To address our audit objectives, we reviewed applicable laws and regulations. We 

also interviewed departmental personnel and contractors responsible for the 

implementation of the Improper Payments Information Act of 2002. Using OMB's

reporting thresholds, we determined whether the reports accurately presented the 

highest-dollar improper payment amounts identified during the annual improper 

payment testing for fiscal years 2009 and 2010 that DOT and contractors

performed. We also assessed the Department's compliance with the reporting 

requirements for high-priority programs and high-dollar overpayments. We 

obtained supporting documents on the amounts reported and actions taken as

described in the Department's reports. The documentation included, but was not 

limited to; grant agreements, invoices, checks, and payment vouchers. We did not 

re-test the propriety of sample items that the Department determined to be proper 

payments.
9

Exhibit B. Major Contributors to This Report

EXHIBIT B. MAJOR CONTRIBUTORS TO THIS REPORT

Earl Hedges Program Director

Name Title

Mark Rielly Project Manager

Lakarla Lindsay Senior Auditor

Susan Neill Writer-Editor

Sharon Ayers Referencer
10

Appendix I. DOT September 14, 2010 Annual EO Report Memorandum

APPENDIX I. DOT SEPTEMBER 14, 2010 (ANNUAL) EO REPORT

MEMORANDUM
11

Appendix I. DOT September 14, 2010 Annual EO Report Memorandum
12

Appendix I. DOT September 14, 2010 Annual EO Report Memorandum
13

Appendix I. DOT September 14, 2010 Annual EO Report Memorandum
14

Appendix I. DOT September 14, 2010 Annual EO Report Memorandum
15

Appendix II. DOT January 20, 2011 Quarterly EO Report Memorandum

APPENDIX II. DOT JANUARY 20, 2011 QUARTERLY EO REPORT

MEMORANDUM
16

Appendix II. DOT January 20, 2011 Quarterly EO Report Memorandum
17

Appendix III. Agency Comments

APPENDIX III. AGENCY COMMENTS
18

Appendix III. Agency Comments