IMPROPER PAYMENTS IDENTIFIED IN 

FAA'S AIRPORT IMPROVEMENT PROGRAM

Federal Aviation Administration

Report Number: FI-2011-023

Date Issued: December 1, 2010
U.S. Department of

 Memorandum

Transportation

Office of the Secretary

of Transportation

Office of Inspector General

Subject: ACTION: Report on Improper Payments in the 

Airport Improvement Program, FAA

Report Number FI-2011-023

Date: December 1, 2010

From: Lou E. Dixon 

Principal Assistant Inspector General

for Auditing and Evaluation

Reply to 

Attn. of: JA–20

To: Assistant Administrator for Financial Services/ 

 Chief Financial Officer, FAA 

In fiscal year 2008, the Federal Aviation Administration (FAA) provided over 

$4 billion dollars to more than 1,500 Airport Improvement Program (AIP) 

grantees to enhance safety, capacity, and security at airports that are considered 

significant to national air transportation. In addition to the fiscal year 2009

$3.5 billion appropriation, AIP received an additional $1.1 billion under the 

American Recovery and Reinvestment Act of 2009 (ARRA). The Department of 

Transportation (DOT) has determined that AIP is susceptible to improper 

payments, such as payments for ineligible services or to ineligible recipients, 

duplicate and incorrect payment amounts, and payments based upon insufficient 

supporting documentation. The infusion of Federal dollars under ARRA increases

the amount of AIP dollars subject to risk. 

We assessed the sufficiency of FAA's internal controls to prevent and detect 

improper payments to AIP grant recipients. Specifically, we (1) determined the 

extent to which improper payments were made during the period reviewed, and (2) 

assessed FAA's approach to AIP grant oversight for preventing and detecting 

improper payments.

To conduct our work, we tested a sample of AIP payments to 26 grantees made 

between June 1, 2007, and September 30, 2008, and estimated the total amount of 

improper AIP payments for fiscal year 2008. In addition, we assessed FAA's risk-
2

based approach to AIP grant oversight, including the risk-assessment and payment 

review processes. This performance audit was conducted in accordance with 

generally accepted government auditing standards as prescribed by the 

Comptroller General of the United States and included such tests as we considered 

necessary to detect fraud, waste, or abuse. A detailed description of the scope and 

methodology used on this audit can be found in Exhibit A.

RESULTS IN BRIEF

Over $13 million (more than 5 percent) of AIP payments made to 17 of the 26 AIP 

grantees we reviewed were improper.

1

 Approximately $7 million of the

$13 million was paid for work performed that grantees did not sufficiently 

document. Almost $4 million was paid to grantees for ineligible or unallowable

services. The remaining $2 million was paid to ineligible recipients, in the 

incorrect payment amount, or as a duplicate payment. Overall, using statistical 

sampling techniques, we estimate that a total of about $161 million of fiscal year 

2008 payments to AIP grantees nationwide were improper.2

 

FAA's risk-based approach to AIP grant oversight is inadequate and does not 

effectively prevent or detect improper payments.

3

 1

 Improper AIP payments can represent FAA payments to grantees or grantee payments to contractors. 

With the latter, an improper payment determination was made only if AIP funds were requested by the 

grantee, and paid by FAA. 

 FAA rated 24 of the 26 

grantees in our sample as low-risk for making improper payments. However, we 

determined that 15 of these low-risk grantees met the agency's criteria for a 

moderate-risk rating, and 11 of them made improper payments totaling

$12.9 million—more than 98 percent of the improper payments we identified. 

Assigning a grantee an inaccurate low-risk status increases the potential for 

improper payments since low-risk grantees can receive funding without submitting 

documentation or obtaining prior approval from FAA as required for high-risk 

grantees. Furthermore, FAA's review of documentation submitted in support of 

payment requests to moderate-risk grantees is inadequate. We also found that one

grantee did not perform an adequate cost or price analysis to determine the price 

reasonableness of an AIP funded, $124.8 million contract award. As a result, this 

grantee may have overpaid for the work performed, and such overpayments 

constitute improper payments (incorrect amount). FAA also could not provide 

support that the contract costs were reasonable, and failed to notify the Office of 

Inspector General (OIG) of possible bid improprieties in this single-bid contract, 

per agency regulations.

2 The $161 million best estimate is applicable to the $3.2 billion in fiscal year 2008 electronic payments

only, with an estimated range from $88 million to $233 million, at 90 percent confidence. 3 The primary oversight of the Federal grants funds expended under AIP is provided by the Associate 

Administrator for Airports office through 21 Airport District Offices (ADO) and three regional offices. 
3

We are making a series of recommendations aimed at strengthening controls to 

prevent and detect improper payments, including improving FAA's risk-based 

assessments and AIP payment oversight. 

BACKGROUND

In 2002, Congress passed the Improper Payments Information Act (IPIA),

4

providing a framework for agencies to use in testing for improper payments, 

identifying their causes, and implementing solutions to reduce them. In August 

2006, the Office of Management and Budget (OMB) established detailed 

requirements for complying with IPIA.5

 OMB further clarified that improper 

payments include the following:

• payments to ineligible recipients;

• duplicate payments;

• payments in incorrect amounts;

• payments for ineligible services or services not received; or

• payments having insufficient documentation.

In November 2009, the President signed Executive Order 13520 to reduce 

improper payments and eliminate waste, fraud, and abuse in Federal programs. In 

coordination with Federal, state, and local governments, OMB is currently 

working to hold agencies accountable for misusing taxpayer dollars and is creating 

stronger incentives for reporting, reducing, and recovering these erroneous 

payments.

DOT has identified AIP as susceptible to improper payments. In fiscal years 2005 

and 2006, we reported that FAA lacked (1) an effective, risk-based approach to 

oversee and monitor AIP grantee activities; (2) policies and procedures describing 

the roles and responsibilities for those charged with grant monitoring; and

(3) front-end preventative and detective controls found in more reliable grant

administration and monitoring processes.6

 4

 Pub. L. No. 107-300 (2002).

 We also reported that FAA overly 

5 OMB Circular A–123, Appendix C (August 2006), which requires, (1) reviewing all programs and 

identifying those susceptible to improper payments, (2) obtaining an estimate of the annual amount of 

such payments, (3) implementing a plan to reduce improper payments, (4) reporting annual estimates of 

the amount of improper payments in agency programs and progress made in reducing them, and (5) 

recovering improper payments. 6 Quality Control Review of Audited Financial Statements for Fiscal Years 2005 and 2004, Federal 

Aviation Administration, OIG Report QC-2006-010, November 14, 2005. Quality Control Review of 

Audited Financial Statements for Fiscal Years 2006 and 2005, Federal Aviation Administration, OIG 

Report QC-2007-009, November 14, 2006. OIG reports and testimony can be found on our Web page: 

www.oig.dot.gov.
4

relied on single audits performed by independent audit firms for assurance that 

Federal funds were properly administered.7

In January 2007, FAA responded to our recommendations by supplementing the 

AIP Handbook8 and implementing a risk-based approach to AIP grant oversight. 

Grantees were categorized into one of three risk-levels based upon a grantee's 

potential for the misuse of AIP funds: nominal (low), moderate, or elevated

(high).

9

 Risk-level determines the extent of documentation grantees are required 

to submit to support payments and the intensity of FAA's payment and grant 

oversight. A brief description of AIP payment documentation requirements and 

FAA oversight by risk-categorization can be found in Exhibit B.

Since 2008, FAA has taken further action to improve its processes and procedures 

for detection of improper payments, and its oversight of AIP grants, including 

ARRA grant funds. For example, in response to an OIG audit advisory,

10 FAA

significantly increased its annual testing sample size, and began closely 

monitoring the execution of sampling methodology. Also, in an attempt to reduce 

improper payments in AIP, FAA has recently promoted improper payments 

education, and provided guidance and outreach to personnel in its field offices. 

For example, in December 2008, an e-mail alert was sent to field offices clarifying 

what constitutes an improper payment. Lastly, FAA has hired an independent 

contractor to evaluate its risk-based approach to grant oversight and to recommend 

enhancements to current risk-assessment methods based upon best practices. 

AIP GRANTEES RECEIVED MILLIONS IN IMPROPER PAYMENTS

We tested $251.3 million in AIP payments and found $13.1 million (over

5 percent) in improper payments to 17 of 26 grantees. Using statistical sampling 

techniques, we estimate that approximately $160.7 million of fiscal year 2008 

payments made electronically to AIP grantees nationwide were improper.

11

 7 OMB Circular A-133 sets forth standards for obtaining consistency and uniformity among Federal 

agencies for the single audit of States, local governments, and non-profit organizations expending 

Federal awards.

 For 

the improper payments we identified (see Table 1), over 51 percent were for 

8 The AIP Handbook provides FAA staff with guidance about the administration of the AIP. Between 

revisions of the Handbook, staff receives additional guidance in the form of Program Guidance Letters 

(PGLs). 9 Program Guidance Letter 07-1, Revised and Updated Requirements for Airport Improvement Program 

Grant Management, dated January 11, 2007. 10 OIG ARRA Advisory – Sampling of Improper Payments in Major DOT Grants Programs, Department of 

Transportation, Advisory No. AA-2009-002, June 22, 2009. 11 AIP grantees (if approved) can receive funding electronically via a "Letter-of-Credit" (LOC) draw-down 

system or manually by submitting documentation as required by the FAA Handbook Order 5100.38C. 

Our statistical sampling resulted in a best estimate of $160.7 million, which is 5 percent of the $3.2 

billion total "electronic or LOC" payments with ±2.3 percent of precision at 90 percent confidence. 
5

insufficient documentation of the work reimbursed from AIP.

12

 12 Each of the improper payments was classified into one of five categories identified by OMB Circular A123, Appendix C.

 Another

10 percent represent payments to ineligible recipients because of a lack of 

compliance with FAA guidance and FAA procurement regulations.

Approximately 39 percent and the most likely to be recoverable were payments for 

ineligible or unallowable services, payments in the incorrect amount, and duplicate 

payments. 
6

Table 1. Improper Payments Identified by OMB Category 

Grantee

Insufficient 

Documentation

Ineligible 

Services

Ineligible 

Recipient

Incorrect 

Amount

Duplicate 

Payment Total

Panama City-Bay County 

Airport and Ind. District 

(Florida) 4,419,134 2,120,971 121,501 6,661,606

Commonwealth Ports Authority

(Mariana Islands) 442 1,284,635 1,285,077

City of Santa Barbara

(California) 528,235 549,275 26,494 1,104,004

Memphis-Shelby County 

Airport Authority

(Tennessee) 2,153 1,093,797 5,723 1,101,673

Wisconsin Dept. of 

Transportation, Bureau of 

Aeronautics (Wisconsin) 711,869 711,869

City of Los Angeles

(California) 709,629 709,629

County of Sacramento

(California) 4,309 675,165 679,474

City of Houston

(Texas) 283,189 59,833 28,982 372,004

City of Phoenix

(Arizona) 156,821 11,009 167,830

City of Jonesboro

(Arkansas) 38,915 82,807 121,722

Illinois Dept. of Transportation, 

Division of Aeronautics (Illinois) 94,944 94,944

Barnwell County Airport 

Commission (South Carolina) 42,893 42,893

City of Dunsmuir

(California) 41,515 41,515

Port of Seattle

(Washington) 288 8,268 118 8,674

Erie Regional Airport Authority

(Pennsylvania) 3,515 3,515

City of Kansas City

(Missouri) 2,624 2,624

Lancaster Airport Authority 

(Pennsylvania) 907 725 1,632

Cumulative Total a $6,738,641 $3,990,158 $1,334,418 $1,041,627 $5,841 $13,110,685

Percentage of Total Improper 

Amount: 51.40% 30.43% 10.18% 7.94% 0.04% 100%

a Almost $4 million in improper payments were identified outside of the statistical sample and were not 

included in the projection. On May 18, 2009, FAA concurred with the Office of Inspector General on 

$1.015 million of these improper payments. 

Grant Recipients Lacked Documentation to Support AIP Payments

FAA made $6.7 million in AIP payments to grantees that failed to sufficiently 

document and maintain support for the work performed. An OIG engineer 

reviewed 23 construction line items from 11 grantees and found that 10 items from 
7

6 grantees lacked required documentation on work quantity, and in some cases, 

quality. For example:

• Panama City-Bay County Airport and Industrial District, FL (Panama City) 

received over $4 million for construction work on temporary pollution and

erosion control. However, Panama City could not provide documentation 

demonstrating that the completed work met FAA and contract requirements. 

Under FAA's AIP regulations, grantees are required to perform and document 

daily inspections and tests to ensure that all work conforms to the project’s 

technical specifications. 

• The City of Santa Barbara, CA (Santa Barbara) received $124,700 for pipe 

drain installations, but was unable to provide the OIG engineer inspection 

records to support claims for the completed work. FAA requires grantees to 

retain such records and a project engineer to verify that all construction 

invoices billed to a grantee reflect the actual work completed to date. 

However, the project engineer could not provide a breakdown of the specific 

length of pipe drains installed. Santa Barbara's progress and construction 

reports provided only a rough estimate of the percentage of work completed, 

which is insufficient to support a payment made on a linear foot basis as 

specified by the contract.

• Another four grantees received over $1 million: three for construction items 

without maintaining documentation supporting that the installed items met 

contract specifications for quality and one that did not sufficiently document 

quantity of work.

Grantees Received Payments for Ineligible Services

FAA made almost $4 million in improper payments to grantees that billed for 

expenses that were ineligible based on the terms of the grant agreement or FAA 

policy or regulation. For example:

• Panama City received payment for work that was not approved for

reimbursement under the AIP grant agreement. Because Panama City was a 

low-risk grantee, there was no requirement for them to submit payment 

documentation for FAA review and approval. The grantee used $784,000 to 

pay financing costs for a new airport, costs which are prohibited under AIP 

guidelines. The grantee also applied another $1.3 million towards AIP eligible 

tasks that were not approved in the grant agreement. For more than 2 years, 

FAA was unaware that this grantee was receiving payments to fund these 

ineligible/unapproved tasks. When a state auditor brought the matter to FAA's 

attention, instead of taking action to recover the funds, FAA's Airport District 
8

Office (ADO) modified the grant agreement by incorporating and approving 

AIP eligible tasks already billed, and identifying other eligible tasks to 

compensate for the $784,000 paid for prohibited expenses. 

• The Memphis-Shelby County Airport Authority, TN (MSCAA) received more 

than $680,000 for performance bonuses, even though FAA regulations prohibit 

reimbursement of such bonuses. MSCAA also billed FAA more than 

$264,000 for indirect costs without an approved Cost Allocation Plan, which is 

required by the AIP Handbook.13 Lastly, MSCAA billed FAA about $16,000 

for furnishing an Aircraft Fire Fighting and Rescue Station, which is prohibited

by FAA policy. 

• Santa Barbara billed for both eligible and ineligible services on the same AIP 

payment request and received $549,300 for a hangar that was not eligible 

under the grant agreement. The City used one construction contract which 

included work for the hangar, as well as taxiways, which were eligible for AIP 

funding under the terms of the grant agreement. While using one contract for 

ineligible and eligible AIP services is not prohibited, the costs of ineligible 

items must be removed from payment requests to FAA.

Grantees Made Payments to Ineligible Recipients 

We identified improper payments totaling $1.3 million to contractors (ineligible 

recipients), by three AIP grantees: one that did not comply with FAA guidance 

and two that did not follow FAA small purchase procedures.

14 

• The Commonwealth Ports Authority (CPA) awarded a non-competitive AIP 

funded contract for security enhancements at the Saipan International Airport 

two weeks prior to receiving FAA's official approval--despite FAA instruction 

that procurement by non-competitive proposal should be approved prior to any 

contract awards.15 The resulting improper payment under this contract was 

$1.3 million.

 13 In accordance with the FAA AIP Handbook Order 5100.38C and OMB Circular A-87, "Cost Principles 

for State, Local, and Indian Tribal Governments," grantees are not authorized to charge for indirect 

costs, such as administrative fees that are not directly associated with work stated in the grant agreement 

unless there is an approved Cost Allocation Plan. 14 AIP Handbook, Chapter 9, Paragraph 904(c), pg. 150. Small Purchase Procedures. Oral solicitation is 

acceptable for very small purchases, but should be adequately documented. Except for very small 

purchases, a letter request should be issued as a minimum, and a written proposal should be solicited. 15 February 7, 2003 Letter from Airports Division Manager (AWP-600) to Manager, Honolulu Airports 

District Office (HNL-600): Security Enhancements to Meet Transportation Security Administration 

Requirements at Saipan International Airport.
9

• The City of Dunsmuir, CA expended about $42,000 in AIP funding for treecutting services without providing evidence that small purchase requirements 

were met. In a written response, FAA agreed with OIG that the $42,000 

payment was improper.

• The Port of Seattle could also not provide evidence they met small purchase 

requirements when retaining escrow services, for which they received $8,300 

in AIP funds. 

FAA Made Payments for Incorrect Amounts

Another $1 million in improper payments was for incorrect amounts billed by 

eight grantees. FAA AIP policy prohibits grantees from billing for goods and 

services that exceed costs incurred to date. However, the County of Sacramento 

billed FAA the full amount of construction invoices before the construction 

contractor received full payment--$675,000 more than costs incurred.

The majority of the remaining payments in the incorrect amount were made by 

FAA to three grantees:

• On seven occasions, the Illinois DOT, Division of Aeronautics received 

payments for 100 percent of costs rather than the lower Federal share stated in 

grant agreements.

• Santa Barbara received AIP funds before all the work was completed, as many 

as 5 months before all vendors were paid.

• On one AIP payment request, Panama City overbilled FAA by $122,000. The 

grant agreement specifically limited the Federal contribution on four specific 

construction lines at the City's Bay-County International Airport. The airport 

authority did not properly account for the Federal limitation, yet FAA 

disbursed the funds.

FAA Made Duplicate Payments to Grantees

MSCAA billed FAA for identical expenses under two separate AIP grant 

agreements which resulted in a duplicate payment amount of about $6,000. We 

also found that more than $400,000 in duplicate payments were made to two 

grantees outside of our sample. In one case, the City of Farmington, New Mexico,

requested and received an electronic payment of $434,000 for eligible AIP costs. 

One week later, the City requested a manual payment for the same amount, which 

FAA processed and paid. The duplicate payment went undetected for more than

2 months before the grantee informed FAA that the error had occurred; subsequent 
10

draw-downs for reimbursement were reduced until the improper payment was 

recovered. Yolo County, California, similarly received a duplicate payment of 

about $10,000. The grantee identified the improper payment 1 month later and 

notified FAA. The County agreed to reduce subsequent draw-downs until FAA 

recovered the improper payment. These examples are indicative of a lack of 

controls to prevent grantees from receiving both manual and electronic 

reimbursements for the same expenses. 

FAA'S RISK-BASED APPROACH TO GRANT OVERSIGHT DOES 

NOT PREVENT OR DETECT IMPROPER PAYMENTS

FAA's risk-based approach to grant oversight is inadequate to effectively prevent 

or detect improper AIP payments. We found that a close relationship exists 

between the accuracy of a grantee's risk-rating and the potential for improper 

payments—more than 98 percent of the $13.1 million of improper payments 

identified were applicable to 11 grantees inaccurately categorized as low-risk. 

We also found that the risk-based approach does not require a sufficient level of 

documentation to support electronic payments to low and moderate-risk grantees. 

Documentation review and payment approval is only required for those grantees 

presenting the highest risk for improper payments. 

In addition, we found a lack of evidence that price or cost analysis was adequately 

performed prior to the Port of Seattle awarding a $124.8 million AIP funded 

contract for embankment work during the construction of the third runway at the 

Seattle-Tacoma International Airport. In the absence of such an analysis, the Port 

of Seattle may have overpaid for the embankment work performed on the third 

runway. Such overpayments constitute improper payments (incorrect amount). 

FAA Inaccurately Rated Grantees as Low-Risk

At the time of our review, all but 3 percent of FAA's 1,849 AIP grantees were 

assigned a low-risk rating.

16

 16 In fiscal year 2009, FAA informed the OIG that there were 1,849 entities (grantees) with at least one 

open grant. Forty-three grantees were deemed "moderate-risk" and five "high-risk."

 When the risk-based oversight process was originally

implemented, FAA assumed the majority of grantees administered their grants in 

good faith and as a result, rated all pre-existing airport grantees as low-risk, 

allowing them to electronically draw-down payments with minimal documentation 

support and management oversight. The oversight concern is also apparent in that 

ADO management is overly accommodating of grantee needs, as illustrated in the 

example of the $2.1 million of improper payments identified for Panama City and 

referenced on page 7. In that case, instead of raising the grantee's risk-rating for 
11

the improper use of grant funding, the ADO retroactively modified the grant 

agreement to make previously billed, but not approved, tasks eligible for AIP 

reimbursement. Such practices do not ensure the proper use of Federal funds. 

Among the 26 grantees in our sample, 24 were rated by FAA to be at low-risk of 

making improper payments. However, 15 of these low-risk grantees met at least 

one criterion for a moderate-risk rating, and 11 of the 15 received improper 

payments totaling $12.9 million (see Table 2).
12

Table 2. FAA AIP Low-Risk Grantees Meeting FAA's Criteria for Moderate 

Risk-Rating

Grantee (State)

FAA Criteria to Justify Raising 

Grantee's Level of Risk Improper 

Payments One Found ($'s) Criterion

Two 

Criteria

Three 

Criteria

Panama City-Bay County Airport and Ind. District 

(Florida) ● 6,661,606

Commonwealth Ports Authority (Mariana Islands) ● 1,285,077

City of Santa Barbara (California) ● 1,104,004

Memphis-Shelby County Airport Authority 

(Tennessee) ● 1,101,673

Wisconsin DOT, Bureau of Aeronautics 

(Wisconsin) ● 711,869

City of Los Angeles (California) ● 709,629

County of Sacramento (California) ● 679,474

City of Houston (Texas) ● 372,004

City of Jonesboro (Arkansas) ● 121,722

Illinois DOT, Division of Aeronautics (Illinois) ● 94,944

Port of Seattle (Washington) ● 8,674

State of Alaska, DOT and Public Facilities 

(Alaska) ●

Clark County Dept. of Aviation (Nevada) ●

City of San Antonio (Texas) ●

State of South Dakota, DOT (South Dakota) ●

TOTALS 7 7 1 $12,850,676

Based on FAA's risk-based approach to grant oversight, grantees receiving more 

than $20 million in total annual grant project funding qualify at the moderate-risk 

level. We found that 12 of the 15 low-risk grantees that were incorrectly 

categorized had received more than $20 million in funding for fiscal year

2008,17

 

and 8 of those 12 had improper payments. The failure to implement this 

particular criterion was not limited to the grantees in our sample. We analyzed the 

total fiscal year 2008 AIP payments and found that nationally only 1 of 34 lowrisk grantees having received more than $20 million was raised to a moderate-risk 

status.

 17 Commonwealth Ports Authority, City of Santa Barbara, and the City of Jonesboro did not receive more 

than $20 million in total annual grant funding for fiscal year 2008.
13

A number of grantees in our sample rated as low-risk met two criteria for a 

moderate-risk rating. For example, CPA met two moderate-risk criteria: a 

previous finding of noncompliance with grant assurances, and a single audit 

finding requiring payment to DOT in excess of $100,000. Regarding the latter, a 

single audit report for fiscal year 2005 identified over $706,000 of potentially nonreimbursable costs because CPA could not provide an approved Cost Allocation 

Plan, as required by the AIP Handbook and OMB Circular A-87, to demonstrate 

indirect administrative costs were allowable. While we reported this single audit 

finding to FAA in May 2007, FAA did not take action and recover the full amount 

of non-reimbursable costs until April of 2009. 

MSCAA, which had a total of $1.1 million in improper payments in our sample,

met three criteria: (1) total grant funding in excess of $20 million for fiscal year 

2008, (2) a previous finding of non-compliance with grant assurances, and

(3) repeated draw-down irregularities. For example, MSCAA was found to be in 

non-compliance with grant assurances because their cost allocation methodology 

did not comply with A-87 requirements. This resulted in improper payments 

totaling $265,000. Despite meeting three criteria for a moderate-risk rating, 

MCSAA continues to be rated low-risk.

The accuracy of a grantee's risk-rating and the potential for improper payments is 

closely related because lower risk-ratings require less payment oversight. 

Although we found that more than 98 percent of the improper payments identified 

were applicable to 11 grantees with inaccurate risk-ratings, FAA does not require 

ADO management to review grantee risk-assessments at regular intervals. 

Performing such a review on a regular basis using the most current information 

available about a grantee would enable FAA to determine which grantees require 

additional payment oversight and would aid in preventing and detecting improper 

payments. 

FAA's Insufficient Requirements and Procedures Contributed to 

Improper Payments

FAA's documentation requirements and payment review procedures under the 

risk-based approach to grant oversight are insufficient to prevent and detect 

improper payments to low- and moderate-risk grantees.18 FAA's July 2006 

guidance outlines the minimum financial documentation and review requirements 

for low-, moderate-, and high-risk grantees' AIP payment requests (see Table 3).

 18 Manual payment requests at any risk-level will generally require the submission of payment specific 

support such as a SF-271 and invoices prior to FAA approval. High-risk grantees are permitted to make 

only manual payment requests.
14

Table 3. Required Payment Documentation and Review Requirements by 

Risk-Level (PGL 07-1)

Requirement Low-Risk Moderate-Risk High-Risk

Payment documentation submitted to 

FAA

None Invoices or listing of 

invoices

Invoices

Documentation review prior to payment No No Yes

Documentation review after payment No Not Clear N/A

While the July 2006 guidance requires moderate-risk grantees to submit either 

invoices or a listing of invoices to substantiate payment requests, we found 

examples where payment documentation was not adequately reviewed by an FAA 

program manager. Specifically, we reviewed 22 payments to four moderate-risk 

grantees and found that invoices for 8 payment requests from one grantee were not 

reviewed—2 of the payments, totaling $152,000, were improper because they 

were applied to the wrong grant. This happened because FAA does not require 

ADO staff to review and determine if payment requests to moderate-risk grantees 

are proper. Further, FAA provides limited instruction to program managers on the 

purpose and use of the invoices and the listings of invoices requested for 

moderate-risk grantees. To significantly reduce and detect improper payments, a

timely review and approval of supporting documents submitted by moderate-risk 

grantees for each payment request is warranted. 

Grantees determined to be low-risk that request AIP funds electronically—which 

comprise all but 2 of the 24 low-risk AIP grantees we reviewed—were not 

required to submit invoices or a listing of invoices for each payment request. 

Instead, these grantees submitted on a quarterly basis a standard document 

(SF-272), which identified the payment amount requested for the period and other 

general information, such as the number of AIP payments received during the 

quarter.

19 Because the SF-272 captures quarterly data, it does not provide enough 

detail to support each request. Specifically, the SF-272 does not include payment 

specific information such as a summary of the work performed, vendor names, 

amounts billed, date of services, or the Federal share of costs. 

We found that even basic summary level information can be useful to determine if 

an AIP payment is proper. To initiate our sample item review, we requested a 

summary level listing of invoices and other eligible costs to substantiate the 

 19 In October 2009, FAA issued Program Guidance Letter 10-01, replacing the SF-272 with a new SF-425 

Federal Financial Report. The SF-425 is also required quarterly and does not contain any payment 

specific information.
15

payment amount. Prior to an in-depth review of the associated invoices and other 

supporting documentation, we used these spreadsheets to identify improper 

amounts totaling over $200,000 made by three grantees. For example, at the State 

of Illinois, we easily determined that on seven separate billing requests, FAA was 

billed at 100 percent of the project costs rather than the eligible lower Federal 

participation rate stated in the grant agreements. At Santa Barbara, we found that 

FAA was billed up to 5 months before the eligible services were received. 

The Port of Seattle Received AIP Funding for a $124.8 Million 

Contract without Performing Adequate Cost or Price Analysis 

We found that the Port of Seattle did not perform an adequate cost or price 

analysis for a $124.8 million AIP funded contract award to a sole bidder for 

embankment work on the third runway at the Seattle-Tacoma International 

Airport. We reviewed an independent audit report and a special investigative 

report that addressed the procurement in detail,

20 and we conducted our own 

review into this contract procurement. In the absence of an adequate cost or price 

analysis, the Port of Seattle was unable to determine if the final contract price was 

reasonable, and the Port may have overpaid for the third runway embankment 

work. Such overpayments constitute improper payments (incorrect amount). At 

the time of our review, FAA had already reimbursed the Port of Seattle about

$46 million in AIP funds, and according to FAA, AIP payments to fund this 

contract will be made until 2015.21 We also found that FAA did not satisfy itself 

that the contract costs were reasonable, including a questionable $9.4 million 

change order, and FAA did not notify OIG of the possibility of bid improprieties 

for this sole-bid contract, in accordance with AIP Handbook procedures.22

An adequate cost or price analysis would have determined the reasonableness of 

the bid accepted for contract award. The accepted bid for the embankment work--

which was also the only bid received--was for $124.8 million, but the Port of 

 20 Report of the Special Investigative Team, December 3, 2008 (McKay); Performance Audit of the Port of 

Seattle's Construction Management, Cotton and Company, November 27, 2007 (Cotton). The special 

investigation was requested by the Port's Board of Commissioners as a result of the Cotton findings. 21 The third runway project was funded by FAA under a Letter of Intent (LOI). The LOI program was 

established to fund large-scale airport projects. Under an LOI, FAA reimburses a grantee according to a 

given schedule as funds become available from Congress each year over the term of the LOI. 22 AIP Handbook, Chapter 10, Paragraph 1052(b)(3), pg. 183. If there are less than five bidders and the low 

bid exceeds the engineer's estimate by 10 percent, the grant should not be issued unless the FAA satisfies 

itself that the costs are reasonable. AIP Handbook, Chapter 10, Paragraph 1053(a)(4), pg. 184. Field 

Office should notify the OIG when — (1) there are fewer than five bidders, the low bid is 95 percent or 

more of the engineer’s estimate and the bid is $500,000 or more; or (2) there is only a single bidder on a 

construction contract, and the bid is $250,000 or more.
16

Seattle's, engineer's estimate to complete the work was approximately

$105 million, a difference of about $19.8 million, or almost 19 percent.23

Although we found that the Port did compare schedule totals between the estimate 

and the bid,

24 it did not perform sufficient additional procedures to verify price 

reasonableness. FAA's guidance for performing an adequate cost or price analysis 

as stated in the AIP Handbook does not identify best practices used by FAA for 

their procurements. For example, the Port could have performed additional 

analyses including, 1) obtaining more current prices from the contractor; 2) an 

evaluation of the subcontractors' bids; 3) documenting research of current market 

prices; 4) a review of historical costs for individual cost elements, such as labor 

and overhead rates; and 5) a review of the contractor's proposed profit.25 Based on 

discussions with the Port and with FAA staff, there is no documentation which 

states that either the Port or FAA determined that the price was fair and 

reasonable. Lastly, the special investigative team reported that the contractor's 

profit on this contract was approximately $28.9 million, a markup on job costs of 

more than 30 percent, which is far beyond typical industry markups.26

FAA Did Not Verify Price Reasonableness and Failed to Notify OIG of Possible 

Bid Improprieties 

FAA could not provide support that the contract costs for the embankment work 

performed on the third runway project at the Sea-Tac International Airport were 

reasonable as required by the AIP Handbook, prior to issuing AIP grants in 

support of this contract. Furthermore, FAA did not notify OIG regarding possible 

bid improprieties related to this sole-bid contract, even though this procurement 

met the criteria for doing so as stated in the AIP Handbook. As a result, OIG did 

not have an opportunity to review the propriety of the contract before it was

awarded.

 

 23 In negotiations between the Port and the contractor, the Port's CEO directed 3rd runway personnel to 

negotiate with the contractor to bring the contract price within 10 percent of the revised Engineer's 

Estimate. A deductive change order was subsequently developed, reducing the contractor's bid by $9.4 

million to approximately $115.4 million. The negotiations for the $9.4 million change order also did not 

involve an adequate cost or price analysis, and the conclusions reached did not ensure that cost 

reductions would actually occur. The special investigative team reported, and the Port confirmed, that 

the realized cost reduction that resulted from the negotiated $9.4 million change order was closer to $2 

million. Furthermore, the contractor did not agree to sign the deductive change order until 5 months after 

the negotiations occurred and the contract had already been awarded. 24 AIP Handbook, Chapter 9, Paragraph 906(a), pg. 153. "Required Analysis. Sponsors are required to 

perform some form of a cost or price analysis for every procurement, including change orders. This 

analysis is needed for FAA review to determine the reasonableness of cost...." 25 Title 49 - Code of Federal Regulations, Part 18.36(f), Contract Cost and Price, states that "a cost analysis 

will be necessary when adequate price competition is lacking......unless price reasonableness can be 

established on the basis of a catalog or market price..." 26 Report of the Special Investigative Team, December 3, 2008 (McKay).
17

CONCLUSION

Deterring improper payments has been identified as a Governmentwide priority to 

ensure the responsible use of Federal funds in today's tight economic environment. 

In DOT, FAA has more grantees to manage than any other Operating 

Administration. Overseeing billions of dollars of annual AIP payments is a major 

challenge by any account. The infusion of $1.1 billion of ARRA funds further 

increases the amount of AIP funds subject to risk. While FAA has taken steps to 

strengthen its oversight and annual testing for improper payments,

27 further action 

is needed to meet the level of accountability required. Until FAA takes the 

necessary actions to ensure that AIP grantees have been assigned an accurate riskrating and administers sufficient payment oversight, millions of taxpayer dollars 

provided under AIP and ARRA will be at risk for improper payments.

RECOMMENDATIONS

To strengthen controls over improper payments to AIP grantees, we recommend 

that the Acting Associate Administrator for Airports, in consultation with the FAA 

Chief Financial Officer:

1. Re-enforce FAA guidance to AIP grantees for preparing "construction" 

payment requests, including supporting documentation to be maintained for 

both the quantity and quality of the work/materials reimbursed under AIP.

2. Identify the funds that can be recovered from the improper payments 

identified in this report and develop and implement a plan to maximize the 

recovery of these payments.

3. Develop a procedure to prevent duplicate AIP payments to grantees that 

submit manual payment requests and draw-down funds electronically under 

the same grant.

4. Revise risk-management procedures to require:

a. ADO program managers to review annually the risk-assessments for 

their grantees and provide written confirmation to the associate 

administrator that the assessment was done in compliance with the riskmanagement criteria specified in the risk-management procedures.

 27 On June 22, 2009, we reported that the Department needs to increase its oversight and expand its sample 

sizes for the annual improper payments testing required under OMB Circular A-123, Appendix C. The 

Department responded by significantly increasing the sample sizes tested.
18

b. ADO program managers to review and approve payment support 

documents submitted by moderate-risk grantees within 30 days of 

payment.

c. All low-risk grantees requesting payment to prepare and have on file for 

FAA review, as needed, a summary listing of invoices and other eligible 

charges for each payment request to include: (1) a brief work summary, 

(2) vendor names, (3) dates of service, (4) billed amounts, (5) applicable 

payment dates, and (6) a calculation of the Federal share.

d. ADO program managers to review on a periodic basis the invoices or a 

summary listing of invoices and eligible charges for AIP payments to 

low-risk grantees. 

5. Initiate a review to determine if the final contract price for the third runway 

embankment contract at the Seattle-Tacoma International Airport was fair 

and reasonable. Within 30 days, provide a report to the Office of Inspector 

General detailing the results of this review and planned actions.

6. Revise the AIP Handbook to clarify what information is required to assist 

grantees in determining contract cost or price reasonableness, and further 

outline the responsibility for FAA ADO program managers to verify that 

contract costs are reasonable. Develop training for grantees and program 

managers to reinforce these revisions, if needed.

7. Re-emphasize to ADO management the AIP Handbook requirement for 

contacting OIG when conditions warrant a "Review for Bid Improprieties."

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE

We provided FAA a draft of this report on September 2, 2010, and received its 

written comments on October 5, 2010. FAA's complete response is included as an 

appendix to this report. In addressing our recommendations, FAA fully concurred

with five recommendations and partially concurred with two recommendations. 

We consider the proposed actions for recommendations 3, 4, 5, and 7 responsive 

and sufficient to resolve pending action dates. 

For recommendation 1, FAA stated that it will re-emphasize to AIP grant sponsors 

the requirements in the AIP Handbook and relevant Advisory Circulars on the 

quality and quantity of necessary documentation they should maintain for AIP 

grant projects. We do not take issue with the quantity of and quality of 
19

documentation, but the lack of required documentation to support the quantity and 

quality of work or materials billed to FAA.

For recommendation 2, FAA did not agree with the amount OIG deemed improper 

($13.1 million). Our analysis of the improper payments included in Exhibit C 

details the facts supporting our conclusion regarding the payments tested. Neither 

FAA's response nor the multiple requests made during the audit have disclosed 

facts or documents to refute these conclusions. 

The amount of $13.1 million in improper payments includes an OIG engineer's 

review of records provided in support of construction line items to ensure that the 

quantity and quality of work completed was sufficiently documented. Initial 

findings were discussed with FAA on July 8, 2009. FAA provided additional 

documentation, which was reviewed by our engineer, and items were cleared if the 

documentation adequately supported the payments made for the construction 

items. The items still lacking sufficient documentation were again discussed with 

FAA on August 28, 2009. FAA provided further documentation, which was 

considered by the engineer. On May 13, 2010, we met again with FAA, and with 

OIG's engineer, to review the summarized items that OIG's engineer had identified 

as improper. 

FAA did not agree with our projected estimate of $160.7 million in

improper payments made in fiscal year 2008. FAA indicated that its estimate of 

fiscal year 2008's improper payments could be as low as $46.6 million. On 

May 11, 2010, OIG's statistician provided an in-depth presentation to FAA on our 

sampling methodology and projection, and addressed all questions posed by FAA 

officials and their contractors. Neither at the conclusion of that presentation nor in 

its response, did FAA provide a basis for its position on the projected estimate of 

improper payments. 

For recommendation 6, while FAA concurred, it does not acknowledge the need to

revise current procedures when a cost or price analysis is required. The AIP 

Handbook does not indicate the circumstances in which sponsors are required to 

perform a cost analysis. Additional clarifying information is needed to determine 

price reasonableness of contracts reimbursed by FAA.

ACTIONS REQUIRED

FAA provided acceptable actions and timeframes for recommendations 3, 4, 5,

and 7, and we consider the actions resolved but open until the planned actions are 

complete. In accordance with Department of Transportation Order 8000.1C, we 

request FAA to re-evaluate its position on recommendations 1, 2, and 6 and 

provide a written response within 30 days of this report. We also ask FAA to 
20

reconsider its position on the $13.1 million in improper payments identified by 

OIG and its position on our estimate of $160.7 million in improper payments made 

in fiscal year 2008.

We appreciate the courtesies and cooperation of Department of Transportation, 

Federal Aviation Administration's Office of Airports representatives during this 

audit. If you have any questions concerning this report, please call me at

(202) 366-1427 or Earl Hedges, Program Director at (410) 962-1729.

#

cc: Assistant Secretary for Budget and Programs, and Chief Financial

Officer, DOT

 Acting Associate Administrator for Airports, FAA

 Martin Gertel, M-1

 Anthony Williams, AAE-001
21

Exhibit A. Scope and Methodology

EXHIBIT A. SCOPE AND METHODOLOGY

We conducted this audit 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. 

We conducted this audit between June 2008 and July 2010. Our objectives for this 

audit were to assess the sufficiency of FAA's internal controls to prevent and 

detect improper payment to AIP grant recipients. To address our audit objectives, 

we interviewed FAA headquarters and ADO officials on their procedures used to 

prevent and detect improper payments. FAA ADOs provided us with a walk 

through of their processes for: (1) approving grants, (2) identifying and monitoring 

high-risk AIP grantees, and (3) approving payment requests from grantees. We 

interviewed AIP grant recipients on controls used to prevent and detect improper 

payments.

During the survey phase, we tested a judgmental sample of 7 manual payments

and 69 electronic (letter-of-credit or LOC) payments, valued at $44.4 million and 

made to 9 AIP grantees. Manual payments require grantees to submit payment 

requests and documentation to ADOs for pre-payment approval, whereas LOC 

payments, allow grantees to draw funds automatically without prepayment 

approval. The sample was drawn from the universe of processed payments 

recorded in the Department’s Delphi accounting system.

For the verification phase, the OIG statistician selected a 3-stage statistical 

probability proportional to size sample with replacement to determine the extent of 

improper payments made during fiscal year 2008. ‘With replacement’ meant a 

payment had a chance of being selected more than once because it was returned to 

the pool of eligible's after being selected. This methodology resulted in a 

statistically valid sample of 18 out of 873 grantees, 116 out of 18,368 AIP 

payments, and 470 vouchers with a value of $204 million out of a universe total of 

$3.2 billion.

We also reviewed an additional $2.9 million of AIP payments not directly in the 

survey or verification phase samples. These AIP payments were made to two 

grantees, both of whom had associated payments that were tested in the 

verification sample. The additional payments were to the Panama City-Bay 

County International Airport and Industrial District and the City of Houston. 
22

Exhibit A. Scope and Methodology

We tested AIP payments for compliance with the Improper Payments Information 

Act of 2002 (IPIA) and in particular, OMB Circular A-123, Appendix C. 

Payments were also tested for compliance with OMB Circulars: A-87 and A-133; 

Code of Federal Regulation (CFR) Title 49: “Transportation, Part 18 – Uniform 

Administrative Requirements for Grants and Cooperative Agreements to State and 

Local Governments; FAA Order 5100.38C, “AIP Handbook”; and FAA Advisory 

Circulars 150/5370-10C and 150/5370-12A.

An OIG engineer reviewed 23 sample payment items to determine whether: 

(1) payment items complied with contract-specified quantities and prices, (2) 

payment quantities were properly measured and correctly calculated by the 

grantee’s engineer, and (3) material quality tests indicated that materials met 

contractual requirements.

We estimated the total amount of improper AIP payments made during the period 

reviewed and classified these payments into one of the five categories of improper 

payments as outlined in OMB Circular A-123, Appendix C. The categories are: 

(1) payments to ineligible recipients; (2) duplicate payments; (3) payments in 

incorrect amounts; (4) payments for ineligible services or services not received; 

and (5) payments having insufficient documentation. We statistically projected 

the amount of improper payments made in fiscal year 2008. We also assessed 

FAA's risk-based approach to AIP grant oversight (PGL 07-1) including the riskassessment and payment review processes. Lastly, we examined FAA and other 

procurement requirements (as applicable) for approving construction contracts to 

further evaluate the overall adequacy of FAA AIP grant oversight.
23

Exhibit B. Required Payment Documentation and FAA Oversight Based on 

Risk-Categorization (PGL 07-1)

EXHIBIT B. REQUIRED PAYMENT DOCUMENTATION AND FAA 

OVERSIGHT BASED ON RISK-CATEGORIZATION (PGL 07-1)

High-risk grantees are those that have committed a blatant or reckless violation of 

a grant agreement or have repeated any of the moderate-level infractions. Lowrisk grantees are those that do not meet the criteria for a moderate-risk rating.

Grantees with high-risk ratings must provide for FAA's approval project invoices 

before receiving reimbursement payments from AIP funding. Furthermore, highrisk grantees are not allowed to receive AIP funds electronically. On the other 

hand, grantees with low-risk ratings are not required to provide evidence of work 

completed for each payment request and can receive AIP funds electronically 

without prior FAA approval. Moderate-risk grantees are required to submit 

invoices or a listing of invoices for each payment request, although FAA's 

guidance is unclear as to the level of review required. 

A moderate-risk rating is applied to first-time airport grantees, grantees with an 

annual total grant project funding amount that exceeds $20 million, grantees with 

deviations from grant management processes resulting in criminal proceedings, 

and grantees with other documented occurrences such as: 1) a finding of fraud 

waste or abuse, 2) repeated grant draw-down irregularities, 3) single audit findings 

requiring payments to the Federal Government in excess of $100,000,

4) previous finding of noncompliance with grant assurances, and 5) a lack of 

conformance to plans and specifications.
24

Exhibit C. Analysis of Payments Deemed Improper

EXHIBIT C. ANALYSIS OF PAYMENTS DEEMED IMPROPER

Commonwealth Ports Authority, Mariana Islands - $1,284,635

The sole source contract award was not properly approved. The Boeing contract 

was signed on February 12, 2004. A letter dated February 7, 2003 from the 

Airports Division Manager (AWP-600) to the Manager, Honolulu Airports District 

Office (HNL-600) states that a pre-award review for the procurement by noncompetitive proposal should be approved by your office prior to any contract 

award. However, the contract award was approved by FAA on February 20, 2004, 

eight days after the contract was awarded without evidence of a pre-award review. 

City of Phoenix, Arizona - $156,821

This improper payment amount represents interest earned on ineligible payments 

to the grantee. The grantee provided a spreadsheet identified as "Schedule of 

Amounts Returned to FAA." The spreadsheet identified amounts of AIP funds 

drawn-down during the life of the grant to reimburse the City for costs to acquire 

properties surrounding the airport; the amounts totaled $1,413,058. The City 

notified us that these properties were not eligible for AIP reimbursement since AIP 

funds were previously used to sound mitigate the same properties. The City 

reported the $1,413,058 amount was returned to FAA via the last draw-down of 

the grant. In an April 13, 2009 teleconference with a City official, we were 

notified that the City was not made aware for over three years that these funds had 

been incorrectly drawn-down, until the City was notified by its contractor. Once 

they were made aware, they corrected the situation by returning the funds to FAA. 

We determined that the interest earned of $156,821 on AIP funds should be 

considered improper. 

Memphis-Shelby County Airport Authority, Tennessee - $1,093,797

The $1,093,797 amount is comprised of four improper payment amounts 

($264,999; $15,789; $687,645 and $125,364). In the May 18, 2009 response to 

our survey results, FAA agreed $264,999 was improper because the Airport lacked 

an approved cost allocation methodology, and the $15,789 was for ineligible

furnishings. We also identified $687,645 in ineligible bonuses. The Airport billed 

FAA without removing the bonus amounts in May 2008. In April 2010, we 

presented to FAA that the Airport spent $125,364 for decorative landscaping, 

which is prohibited by the AIP Handbook. 

City of Santa Barbara, California, OIG Engineer Review - $528,235

The $528,235 is comprised of three payments for construction line items at the 

Santa Barbara Municipal Airport. An OIG engineer found that these payments 

lacked sufficient documentation to demonstrate the amount of work completed. 

For two of the payments, the City of Santa Barbara could only provide a rough 

estimate of the percentage of work completed; however, FAA specifications 
25

Exhibit C. Analysis of Payments Deemed Improper

required these items to be measured and recorded on a linear foot basis. The third 

payment was not required to be measured on a linear foot basis; however, the City 

of Santa Barbara did not provide documentation to demonstrate any approximate 

measurement of the work completed. 

Memphis Shelby County Airport Authority, Tennessee - $2,153

In the May 18, 2009 response to our survey results, FAA agreed insufficient 

documentation existed for stored materials in the amount of $2,153. 

Wisconsin Department of Transportation, Bureau of Aeronautics, OIG 

Engineer Review - $711,869

Documentation provided did not support the payment made for construction work 

completed at the Austin-Straubel International Airport. An OIG engineer

identified a discrepancy between the amount of work completed as stated in the 

weekly progress reports and the invoiced amount. In addition, documentation was 

not provided to demonstrate that required field tests and inspections were 

performed, and that the quality of work performed and materials used met 

specifications. 

City of Los Angeles, California, OIG Engineer Review - $709,629

The $709,629 consists of three payments for construction line items at the Los 

Angeles International Airport. All three line items lacked documentation to 

support the quantity of work completed, and one line item lacked documentation 

to demonstrate the quality of work performed. The City of Los Angeles submitted 

documentation with contradicting quantities to support the amounts of work 

completed. The quantity of work performed stated on the contractor's quantity 

sheets was not supported by the supplemental documentation provided such as 

worksheets, a field memo, and bid item payment sheets. Also, sufficient 

documentation was not provided for one payment to demonstrate that various 

required field tests and inspections were performed, and that the quality of work 

performed and materials used met specifications. 

City of Jonesboro, Arkansas, OIG Engineer Review - $38,915

Construction work completed at the Jonesboro Municipal Airport was not 

sufficiently documented. An OIG engineer found discrepancies between the 

amount of work completed as shown in the measurement documentation and the 

project totals provided by the City of Jonesboro. In addition, the measurement 

documentation provided was not dated, did not contain calculations, and in several 

cases was not legible.

Barnwell County Airport Commission, South Carolina - $42,893

The Barnwell County Airport Commission lacked adequate construction 

documentation for the installation of medium intensity taxiway lights. The 
26

Exhibit C. Analysis of Payments Deemed Improper

supporting documentation from the Commission was a parts invoice, which did 

not support the quantities or item descriptions shown on the invoice for this 

construction line item.

Kansas City, Missouri - $2,624.

This payment was improper because of lack of documentation at the time of 

payment. On January 15, 2009, we received the requested documentation from a

Kansas City official. Our review of invoice #32 from a contractor included an 

engineer listed without an attached timesheet for this person. We contacted the 

Kansas City official on February 20, 2009, to obtain the missing timesheet. We 

were given a new invoice # 32 that replaced the original engineer with another 

engineer and timesheet. 

City of Phoenix, Arizona, OIG Engineer Review - $11,009

Documentation provided by this grantee demonstrated that a contractor was 

improperly paid for incomplete work on a pavement construction line item at the 

Phoenix Sky Harbor International Airport. The contract specification stated that 

payments shall only be made for pavement work that is completed and accepted. 

However, the City of Phoenix paid the contractor in advance for preparatory work. 

As a result, this improper payment was categorized as a payment in the incorrect 

amount. The OIG did not identify this amount as an alleged duplicate payment, as

stated in FAA's Response Memorandum.

Panama City- Bay County Airport and Industrial District, Florida, OIG 

Engineer Review - $4,031,200

Required documentation was not provided to support a construction payment at

the Panama City-Bay County International Airport. No documentation was 

provided to demonstrate that required field tests and inspections were performed 

to ensure that the quality of work performed and materials used met specifications. 

City of Houston, Texas, OIG Engineer Review - $77,495

Required documentation was not provided to support a construction payment at 

the William P. Hobby Airport. The documentation provided used a different 

material than stated in the contract; however, the City of Houston could not 

provide documentation to demonstrate the substituted material was of acceptable 

quality or that the substitution was approved. In addition, documentation to 

support the quantity of work completed did not contain source documentation of 

field measurements and calculations, which are necessary to verify the quantity of 

work performed. Also, documentation was not provided to demonstrate that 

various required field tests and inspections were performed, and that the quality of 

work performed and materials used met specifications. 
27

Exhibit C. Analysis of Payments Deemed Improper

City of Houston, Texas - $152,521

Neither the City nor FAA officials could explain why the City drew-down funds 

for $152,521 only to return the funds on a subsequent draw-down. The OIG 

contacted the City of Houston about this drawdown on April 14, 2009. The issue 

was discussed with the ADO on May 27, 2009. The issue was also discussed and 

documentation was provided to FAA Airports representatives on June 11, 2009. 

However, no documentation was provided to demonstrate that this payment was 

proper.

City of Houston, Texas - $53,172

This improper payment amount of $53,172 is based on a lack of documentation for 

improvements at the Ellington Field. In February 2009, we requested

documentation for a $335,061 payment. After three months, we received support 

for $281,889. It was not until May, 12, 2009 that the City of Houston provided an 

explanation for the remaining $53,172. The City claimed that there were 

significant overages that could be used to support this amount. However, the 

documentation provided by this grantee identified work that was performed at 

another airport, William P. Hobby Airport. Documents supporting our conclusion 

were provided and discussed with the ADO on May 27, 2009 and FAA Airports

representatives on June 11, 2009. In its response, FAA states that the payment 

amount is proper based on a preliminary review. The OIG disagrees with FAA's 

preliminary conclusion when a grantee provides support for work at an airport not 

identified in the grant agreement.

Panama City- Bay County Airport and Industrial District, Florida -

$2,508,905

The $2,508,905 is comprised of two improper payment amounts ($387,934 and 

$2,120,971) that resulted from a referral by the Florida Department of 

Transportation, Office of Inspector General. The $387,934 payment amount is 

improper based on a lack of documentation. The $2,120,971 improper payment 

occurred because the grantee received AIP funds for tasks not approved in the 

initial grant agreement. We discussed these issues with Orlando ADO officials on 

meetings held on February 23, 2010, March 5, 2010 and March 11, 2010. We 

asked the ADO to obtain supporting documentation for the $387,934. In the 

March 11, 2010 meeting, ADO Manager stated that the documentation was not 

available and it is unlikely that the grantee could provide it. Also, the ADO 

acknowledged that this grantee received payments of $2,120,971 for tasks not 

approved in the initial grant agreement. On February 19, 2010, the ADO modified 

the grant agreement to replace the tasks initially outlined in the original grant 

agreement with the other AIP eligible task work items that the grantee had already 

received payments for. Also, ineligible items that the grantee received payment 

for were replaced with other AIP eligible work. We determined that $2,120,971 is 
28

Exhibit C. Analysis of Payments Deemed Improper

improper under AIP grant #35 as an ineligible service because the costs billed 

were clearly not approved under the initial grant agreement. 
29

Exhibit D. Major Contributors to this Report

EXHIBIT D. MAJOR CONTRIBUTORS TO THIS REPORT

Earl Hedges Program Director 

Name Title___________________ 

Mark Rielly Project Manager 

Brian Frist Senior Analyst

Marguerite Nealon Senior Auditor

Lakarla Lindsay Senior Auditor 

Stephen Berkeridge Auditor

Allison Sturges Analyst

Gina Sammons Auditor

Petra Swartzlander Senior Statistician

Karen Sloan Communications Officer 

Aron Wedekind Engineer 

Amy Berks Senior Counsel

Terrence Letko Program Director

Susan Neill Writer-Editor
30

Appendix. Agency Comments

APPENDIX. AGENCY COMMENTS
31 

Appendix. Agency Comments 
32 

Appendix. Agency Comments 
33 

Appendix. Agency Comments 
34 

Appendix. Agency Comments 
35 

Appendix. Agency Comments