U.S. Department of Transportation

Agency Financial Report Fiscal Year 2010
Photography Credit:

Cover and header photograph of the

Colorado Bridge courtesy of

the U.S. Department of Transportation

Federal Highway Administration.
Agency Financial Report FY 2010

i

Table of Contents

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Message from the Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Management’s Discussion and Analysis

DOT Mission and Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Organizational Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Overview Legislative Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Performance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 

Performance Summary Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

System, Controls, and Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 28

Federal Managers’ Financial Integrity Act (FMFIA) . . . . . . . . . . . . . . . . . . . 28

FY 2010 FMFIA Assurance Letter to the President . . . . . . . . . . . . . . . . . . . . . 31

Federal Financial Management Improvement Act (FFMIA) . . . . . . . . . . 34

Federal Information Security Management Act (FISMA) . . . . . . . . . . . . . 36

SAS-70 Review on DOT’S Financial Management System . . . . . . . . . . . . . 37

Other Mgmt Info, Initiatives & Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Inspector General’s FY 2010 Top Management Challenges . . . . . . . . . . . 41

Financial Report

Message from the Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . 81

Office of Inspector General Quality Control Review . . . . . . . . . . . . . . . . . 84

Independent Audit Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 
ii

Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 

Notes to Principal Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 

Required Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 

Required Supplementary Stewardship Information . . . . . . . . . . . . . . . . . 167 

Other Accompanying Information

Summary of Financial Statement Audit and

Management Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 

Inspector General’s FY 2011 Top Management Challenges . . . . . . . . . . 179 

Improper Payments Information Act (IPIA) Reporting . . . . . . . . . . . . . . . 234
Agency Financial Report FY 2010

1

FOREWORD

The United States Department of Transportation’s (DOT or Department) Agency Financial Report (AFR) for fiscal year (FY) 2010 provides an overview of the Department’s 

financial performance and results to Congress, the President and the American people. 

The report details information about our stewardship over the financial resources entrusted to us. Additionally, the report provides information about our performance as an 

organization, our achievements, initiatives and our challenges. 

The AFR is the first in a series of reports required under the Office of Management and 

Budget’s Program for Alternative Approaches to Performance and Accountability Reporting. This is the first year that the Department has participated in this voluntary program 

in an effort to strengthen its annual reporting documents and to present more streamlined and timely information to clarify the relationship between performance, budgetary 

resources and financial reporting. The Department intends to provide a more meaningful, 

transparent and easily understood analysis of accountability over its resources. The report provides readers with an overview of the Department’s highest priorities, as well as 

our strengths and challenges.

The Department’s FY 2010 annual reporting includes the following three components:

Agency Financial Report (AFR) [available November 2010] 

The AFR, the following report, is organized into three major sections:

•	 The Management’s Discussion and Analysis section provides executive-level information on the Department’s history, mission, organization, key activities, analysis of 

financial statements, systems, controls and legal compliance, accomplishments for 

the fiscal year and management and performance challenges facing the Department.

•	 The Financial Details section provides a Message From the Chief Financial Officer, 

consolidated and combined financial statements, the Department’s notes to the financial statements and the Report of the Independent Auditors.

•	 The Other Accompanying Information section provides Improper Payments Information Act reporting details and other statutory reporting requirements.
2

Annual Performance Report (APR) [available February 2011] 

The APR will be produced in conjunction with the FY 2011 President’s Budget Request 

and will provide the detailed performance information and descriptions of results by 

each key performance measure.

FY 2010 Summary of Performance and Financial Information [available February 2011] 

This document will provide an integrated overview of performance and financial information that integrate the AFR and the APR into a user-friendly consolidated format.

This report satisfies the reporting requirements of the following major legislation:

•	 Reports Consolidation Act of 2000

•	 Government Performance and Results Act of 1993

•	 Chief Financial Officers Act of 1990

•	 Government Management Reform Act of 1994

•	 Federal Managers' Financial Integrity Act of 1982

•	 Federal Financial Management Improvement Act of 1996

•	 Improper Payments Information Act of 2002

All three reports will be available on the Department’s Web site at:

http://www.dot.gov/about.html#perfbudgplan
Message

from the Secretary

Message from the Secretary

5

MESSAGE FROM THE SECRETARY

I am pleased to present the U.S. Department of Transportation’s (DOT) Agency Financial Report. As 

required by statute, this material provides reliable 

and complete data on DOT’s financial operations and 

performance for the fiscal year (FY) that ended September 30, 2010 (FY 2010). Together with our Annual 

Performance Report that will be released in February 

2011, these two documents are presented this year as 

an alternative to the consolidated Performance and 

Accountability Report that was prepared and submitted in the past. Our nearly $77 billion budget, summarized below, focuses on DOT’s many efforts over the 

past year to improve safety and reduce congestion in 

each of the Nation’s major transportation systems. We 

have made significant progress in these areas.

recovery act implementation

Fiscal Year 2010 marks the second year of DOT’s implementation of the American Recovery and Reinvestment Act of 2009, and DOT’s programs continue to generate worthwhile 

jobs through careful investments in useful transportation infrastructure. The $48.1 billion appropriated to DOT has been used to support more than 15,000 infrastructure projects. These investments have improved the safety and efficiency of the Nation’s system 

of highways, transit, ports, and airports. Just as important, these projects generated 

tens of thousands of jobs in transportation and related sectors, in a difficult economic 

environment.

increase safety

The most important issue DOT addresses is public safety. We have made tremendous 

strides over the decades through a variety of solutions, such as auto manufacturing safety standards, commercial driver regulations, and public awareness. Our most pressing 

concern, highway fatalities, accounts for about 95 percent of transportation deaths each 

year; therefore, we have devoted substantial attention in 2010 to targeted highway safety 

initiatives. Through these efforts, traffic fatalities in the United States have fallen to a 

historic 60-year low. The record-breaking decline occurred even while estimated vehicle-miles traveled increased. The data show that the number of people who died on the 
6

nation’s roads fell nearly 10 percent from 2008 to 2009, the latest year of available data. 

This is the lowest total since 1950, when over 33,000 people were killed, with only one-fifth 

of the number of vehicles on the road. In support of this notable success, some of DOT’s 

initiatives in 2010 included major steps to reduce distracted driving, the development of 

a new five-star vehicle safety system to assist consumers, and the establishment of a new 

Transportation Safety Council.

Action to Stop Distracted Driving - Building on the ground-breaking 2009 Distracted Driving Summit, I launched a second Distracted Driving Summit in 2010 with the 

announcement of several new programs, including regulations to stop commercial 

truck and bus operators from texting behind the wheel, pilot programs to enforce 

cell phone bans, and new rules to revoke commercial licenses for school bus drivers convicted of texting while driving. Further, the Department developed tough 

model distracted driving legislation for States to use in crafting their own bills. I 

also announced the creation of FocusDriven, the first national nonprofit organization devoted specifically to raising awareness about the dangers of distracted driving.

Tougher Five-Star Safety System - The DOT announced a significant improvement 

to its five-star vehicle rating system in 2010, which now includes ratings on a vehicle’s ability to withstand a frontal crash and a side crash, as well as its resistance 

to roll-overs during a crash. The new system, which will provide an overall rating 

score, will be applied to model year 2011 vehicles and beyond. New tests, better 

crash data, and higher standards are making the ratings tougher and more meaningful for consumers.

New Safety Council - In October 2009, I convened the first DOT Safety Council 

to address the top safety issues that cut across all modes of transportation. I created this council to serve a broad-based safety leadership role and help break down 

organizational stovepipes, enabling an even stronger safety culture. Sharing data, 

research, and best practices among the 10 agencies on the council will result in new 

ideas and new perspectives on safety issues.

reduce congestion

Over many years, we have seen increased mobility among Americans, and we now are 

seeing the effects of our very mobile society, namely increased congestion. Our ability 

to move people and goods across the domestic transportation system has become insufficient for modern transportation patterns. Americans already lose over four billion hours 

and nearly three billion gallons of fuel sitting in traffic jams annually, yet highway vehi-
Message from the Secretary

7

cle-miles traveled have been projected to grow substantially by 2030. This increases the 

likelihood of greater congestion. As challenging as the issue of highway congestion is, 

we see similar issues in air transportation. We know that we are not meeting our targets 

for on-time performance in air travel, although approximately 70 percent of the delays 

are caused by weather. By 2025, air traffic is projected to increase at least twofold, placing additional demands on the system. In 2010, DOT has continued to implement several 

initiatives to address congestion throughout the Nation’s transportation system, including 

the Federal Aviation Administration’s (FAA) NextGen program, which is modernizing the 

air traffic control system, new high-speed rail projects, and a program to promote livable 

communities around urban transportation hubs.

Next Generation Air Transportation System (NexGen) - Over the next 20 years, 

NextGen is being deployed to improve our air traffic management procedures so 

that aircraft can choose more efficient routes and make quicker in-flight decisions 

to avoid other traffic and weather by replacing World War II-era, ground-based radar technology with satellite operations. As part of this long-term modernization 

project, in 2010 FAA launched a full-scale, nationwide deployment of the satellitebased surveillance system called Automatic Dependent Surveillance - Broadcast 

(ADS-B), following its successful roll-out at four key sites. The new system tracks 

aircraft with greater accuracy, integrity, and reliability than the current radarbased system.

High-Speed Rail - President Obama’s bold vision for high-speed rail is a game 

changer for the U.S. transportation system. With an initial $8 billion investment, 

the Department laid the groundwork for development of an efficient, high-speed 

passenger rail network of 100 to 600 mile intercity corridors that represent an essential component of a modernized, nationwide system. The popularity of the program was evident in the 2010 grant announcements, where demand for funding 

greatly exceeded the money available.

Livable Communities - During 2010, the Administration announced the Nation’s 

first Livable Communities initiative, which will measurably enhance the quality 

of life for families, workers, and communities across America. This translates 

into Federal support for more transportation choices, more public transportation, 

and more commercial and residential development around transportation hubs. In 

August, DOT and the U.S. Department of Housing and Urban Development jointly 

announced the availability of $75 million for Community Challenge and Transportation Planning Grants. Communities will use the funds to integrate planning and 

design for livable communities and the surface transportation systems that are essential to achieving the desired level of livability.
8

In addition to DOT’s programs to enhance safety and reduce congestion, I want to highlight our success during 2010 in taking a significant step toward cleaner air and energy 

efficiency. Responding to one of the first major directives of the Obama Administration, 

DOT and the Environmental Protection Agency jointly established a historic new corporate average fuel economy (CAFE) standard that requires cars and light trucks to average 

34.1 miles per gallon by 2016. The new standard will conserve about 1.8 billion barrels of 

oil over the lifetime of the vehicles regulated.

In conclusion, I am proud of the work we are doing at the U.S. Department of Transportation. We have made significant progress in 2010 on some of the most important issues 

facing our transportation system. As we look to 2011, the Department and its dedicated 

employees embrace the challenge of continuing this year’s record of achievement in 

addressing the Nation’s most pressing transportation and infrastructure needs.

Ray LaHood

November 8, 2010
Management’s 

Discussion and Analysis

Agency Financial Report FY 2010

11

United States

Department of Transportation

MISSION AND VALUES

MISSION

The Department's mission is to serve the United States by ensuring a fast, safe, efficient, 

accessible and convenient transportation system that meets our vital national interests 

and enhances the quality of life of the American people, today and into the future.

VALUES

Professionalism

As accountable public servants, we exemplify the highest standards of excellence, integrity, and respect in the work environment.

Teamwork

We support each other, respect differences in people and ideas, and work together in ONE 

DOT fashion.

Customer Focus

We strive to understand and meet the needs of our customers through service, innovation, 

and creativity. We are dedicated to delivering results that matter to the American people.
12

Organization

History

Established in 1967, DOT sets Federal transportation policy and works with State, local, and 

private sector partners to promote a safe, secure, efficient, and interconnected National 

transportation system of roads, railways, pipelines, airways, and seaways. DOT’s overall 

objective of creating a safer, simpler, and smarter transportation program is the guiding 

principle as we move forward to achieve specific goals.

How We Are Organized

DOT employs almost 60,000 people across the country, in the Office of the Secretary of 

Transportation (OST) and through twelve Operating Administrations (OAs) and bureaus, 

each with its own management and organizational structure.

The Office of the Secretary of Transportation provides overall leadership and management direction, administers aviation economic programs, and provides administrative 

support. The Office of Inspector General (OIG) and the Surface Transportation Board 

(STB), while formally part of DOT, are independent by law.

SECRETARY/

DEPUTY SECRETARY

ASSISTANT

SECRETARY FOR

TRANSPORTATION

POLICY

ASSISTANT SECRETARY 

FOR AVIATION AND

INTERNATIONAL

AFFAIRS

UNDERSECRETARY

FOR POLICY

ASSISTANT

SECRETARY FOR

ADMINISTRATION

BOARD OF

CONTRACT

APPEALS

ASSISTANT SECRETARY

FOR BUDGET AND

PROGRAMS & 

CHIEF FINANCIAL

OFFICER

OFFICE OF

THE CHIEF

INFORMATION

OFFICER

OFFICE OF

CIVIL RIGHTS

OFFICE OF

DRUG & ALCOHOL

POLICY & COMPLIANCE

EXECUTIVE

SECRETARIAT

GENERAL

COUNSEL

ASSISTANT

SECRETARY FOR

GOVERNMENTAL

AFFAIRS

OFFICE OF

INTELLIGENCE

AND SECURITY

OFFICE OF

PUBLIC

AFFAIRS

OFFICE OF SMALL &

DISADVANTAGED

BUSINESS

UTILIZATION

FEDERAL

AVIATION

ADMINISTRATION

FEDERAL

HIGHWAY

ADMINISTRATION

FEDERAL MOTOR

CARRIER SAFETY

ADMINISTRATION

FEDERAL

RAILROAD

ADMINISTRATION

FEDERAL

TRANSIT

ADMINISTRATION

MARITIME

ADMINISTRATION

NATIONAL

HIGHWAY TRAFFIC

SAFETY

ADMINISTRATION

OFFICE OF

INSPECTOR

GENERAL

PIPELINE AND

HAZARDOUS

MATERIALS SAFETY

ADMINISTRATION

RESEARCH AND

INNOVATIVE

TECHNOLOGY

ADMINISTRATION

SAINT LAWRENCE

SEAWAY

DEVELOPMENT

CORPORATION

SURFACE

TRANSPORTATION

BOARD
Agency Financial Report FY 2010

13

Overview of Legislative Authorities

The DOT strategic plan summarizes the legislative authorities of each Operating Administration. To provide a context for the reader, highlights of the responsibilities of each 

Operating Administration are listed below.

Office of the Secretary. The Office of the Secretary (OST) oversees the formulation of 

national transportation policy and promotes intermodal transportation. Other responsibilities range from negotiation and implementation of international transportation agreements, assuring the fitness of U.S. airlines, enforcing airline consumer protection regulations, issuance of regulations to prevent alcohol and illegal drug use in transportation 

systems and preparing transportation legislation.

Federal Aviation Administration. The Federal Aviation Administration’s (FAA) mission 

is to promote aviation safety and mobility by building, maintaining, and operating the 

Nation’s air traffic control system; overseeing commercial and general aviation safety 

through regulation and inspection; and providing assistance to improve the capacity and 

safety of our airports.

Federal Highway Administration. The mission of the Federal Highway Administration 

(FHWA) is to enhance mobility through innovation, leadership, and public service.

Federal Motor Carrier Safety Administration. The Federal Motor Carrier Safety Administration’s (FMCSA) primary mission is to prevent commercial motor vehicle-related fatalities and injuries.

Federal Railroad Administration. The Federal Railroad Administration’s (FRA) mission is 

to ensure that our Nation has safe, secure, and efficient rail transportation that enhances 

the quality of life for all.

Federal Transit Administration. The Federal Transit Administration (FTA) provides leadership, technical assistance, and financial resources for safe, technologically advanced 

public transportation that enhances mobility and accessibility, improves America’s communities, preserves the natural environment, advances economic growth, and ensures that 

transit systems are prepared to function during and after criminal or terrorist attack.

Maritime Administration. The Maritime Administration’s (MARAD) mission is to promote 

the development and maintenance of an adequate, well-balanced U.S. merchant marine 

that is sufficient to carry the Nation’s domestic waterborne commerce and a substantial 

portion of its waterborne foreign commerce, and to serve as a naval and military auxiliary in time of war or national emergency.
14

National Highway Traffic Safety Administration. The National Highway Traffic Safety 

Administration’s (NHTSA) mission is to save lives, prevent injuries and reduce economic 

costs due to road traffic crashes through education, research, safety standards, and 

enforcement activity. 

Office of Inspector General. The Inspector General Act of 1978, as amended, established 

the Office of Inspector General (OIG) as an independent and objective organization within 

the DOT. The OIG’s mission is to promote economy, effectiveness, and efficiency and to 

prevent and detect fraud, waste, and abuse in DOT operations and programs by conducting and supervising independent and objective audits and investigations.

Pipeline and Hazardous Materials Safety Administration. The Pipeline and Hazardous 

Materials Safety Administration (PHMSA) is dedicated to safety and security by working 

toward the elimination of transportation-related deaths and injuries in hazardous materials and pipeline transportation, and by promoting transportation solutions that enhance 

communities and protect the natural environment.

Research and Innovative Technology Administration. The Research and Innovative Technology Administration (RITA) is dedicated solely to the advancement of DOT priorities 

for innovation and research in transportation technologies and concepts. Innovations that 

will improve our mobility, promote economic growth, and ultimately deliver a better integrated transportation system.

Saint Lawrence Seaway Development Corporation. The U.S. Saint Lawrence Seaway 

Development Corporation (SLSDC), a wholly owned government corporation and an OA 

of DOT, is responsible for the operations and maintenance of the U.S. portion of the St. 

Lawrence Seaway between Montreal and Lake Erie.

Surface Transportation Board. The Surface Transportation Board (STB) is charged with 

promoting substantive and procedural regulatory reform in the economic regulation of 

surface transportation, and with providing an efficient and effective forum for the resolution of disputes and the facilitation of appropriate business transactions.
Agency Financial Report FY 2010

15

Performance highlights

The Department of Transportation (DOT) achieved an historic milestone this year: traffic fatalities in the U.S. have fallen to an historic 60-year low. Highway fatalities for 2009 (the latest data 

available) fell 10% from the previous year to a total of 33,808. Not since 1950, when our roads 

carried far less traffic, have traffic fatalities been this low. 

The Department met nearly 80% of its performance targets for the year. Like every government agency, however, there are areas that we can improve upon. A brief discussion of our 

results by strategic objective follows.

Safety

DOT tracks the safety of Americans on the highways, in the air, on transit systems, and on railroads. In FY 2010 we met 9 out of 10 safety goals. Fatalities in general aviation, particularly 

from amateur-built aircraft, however, did not decline as quickly as anticipated. To address this 

issue, FAA has established a Flight Standardization Board for Experimental Amateur-built Aircraft.

Reduced Congestion

One of DOT’s strategic objectives is to reduce congestion across the modes of transportation. 

We do this in a variety of ways, from providing funds that keep our highways in a state of good 

repair, managing air traffic efficiently, and encouraging the use of mass transit in order to reduce traffic on roadways. For the first time in many years, the Department saw a contraction 

this year in the number of people across the country using mass transit. Ridership fell for several reasons: a general decline in the economy, relatively high unemployment, and a decline in 

state and local tax revenues used to support transit. Ridership levels, however, are expected to 

improve as the economy advances and transit agencies begin to restore services and routes cut 

during the recession. 

Global Connectivity

DOT contributes to the economy and American businesses’ connection with markets across the 

world by moving products, goods and vehicles with as little delay as possible. In FY 2010, the St. 

Lawrence Seaway, which is a vital waterway between the upper Midwest and global markets, 

was open 99.8% of the shipping season. On the roadways, we continue to make progress in limiting delays at border crossings and improving the flow of traffic in freight corridors.
16

Environmental Stewardship

The transportation system has a significant impact on the environment and DOT mitigates 

that impact whenever possible. For the third year in a row, there were no violations of air 

pollution standards in major metropolitan areas. Streamlining the process for completing environmental impact statements, however, continues to be a challenge.

Security, Preparedness and Response

While the Department of Homeland Security has primary responsibility for the security 

of the transportation system, DOT must ensure it is prepared to continue operating during a crisis. To this end, DOT tracks the readiness of key staff and member agencies. 

DOT has a role in supporting the Department of Defense during military mobilization. 

For the third year in a row we have exceeded the readiness requirements for shipping 

capacity and commercial ports.

Organizational Excellence

Mindful of the need to wisely use taxpayer money, DOT tracks the cost and scheduling 

associated with major system purchases and major infrastructure projects. Although we 

did not make our cost and schedule targets for major infrastructure projects as a whole, 

we are seeing improvements within individual projects. DOT agencies will continue to 

review the finance plans, project management plans, and cost estimates that are required 

for each major project, and will continue to offer training to engineering and financial 

management staff on these specific responsibilities.
Agency Financial Report FY 2010

17

performance summary tables

safety performance summary

Performance Measure 2004 2005 2006 2007 2008 2009

2010 

Actual

2010 

Target

Met/ 

Not Met 

Passenger vehicle occupant 

highway fatality rate per 100 

million passenger vehiclemiles traveled (VMT).

 1.17 1.15 1.10 1.04 1.03 .98 – 

1.04#

 .87# .99 Met

Large truck and bus fatality 

rate per 100 million total 

VMT.

 N/A 0.185 0.177 0.169 0.155 0.140 – 

0.154#

 .108 - 

.119#

.164 Met

Motorcyclist fatality rate 

per 100,000 motorcycle 

registrations.

 69.83 73.48 72.42 72.48 71.30 73.75 – 

74.96#

 65# 78 Met

Non-occupant fatality rate 

per 100 million VMT

 0.19 0.20 0.19 0.18 0.18 0.18 - 

0.19#

.16# .19 Met

Number of commercial air 

carrier fatalities per 100 

million persons onboard

 N/A N/A N/A N/A 0.4 6.8* 0.3* 8.1 Met

Fatal Accidents per 100,000 

Flight Hours in General 

Aviation

 N/A N/A N/A N/A N/A 1.17* 1.17# 1.10 Not Met

Rail-related accidents and 

incidents per million trainmiles

19.03r 18.09r 17.59r 17.36r 16.88r 16.71r 15.90* 16.40 Met

Transit fatalities per 100 

million passenger-miles 

traveled

 0.467 0.428 0.389 0.437 0.332 0.243* 0.188 0. 458 Met

Number of serious incidents 

for natural gas and 

hazardous liquid pipelines

 48 41 35 47 41 50 38# 30-43 Met

Number of serious hazardous 

materials transportation 

incidents

 35 49 32 36 23 29 16# 22-36 Met

(r) Revised; * Preliminary estimate; # Projection from trends; Met; Not Met
18

reduced congestion summary

Performance Measure 2004 2005 2006 2007 2008 2009

2010 

Actual

2010 

Target

Met/ 

Not Met 

Percentage of travel on the 

National Highway System 

(NHS) meeting pavement 

performance standards for 

"good" rated ride.

 52 52 54 57 56 57 Data 

Available 

December 

2010

 58 TBD

Percentage of deck area on 

National Highway System 

(NHS) bridges rated as 

deficient, adjusted for 

average daily traffic.

 32.0 29.9 29.2 29.7 29.5 29.2 28.7 28.9 Met

Percentage of total annual 

urban area travel occurring in 

congested conditions

 28.6 28.6 28.4 27.8 26.3 26.6# 26.8# 27.1 Met

Average percent change in 

transit boardings per transit 

market (150 largest transit 

agencies)

 0.7 1.9 2.1 2.5 4.3 2.2 -2.9 2.0 Not Met

Percent of bus fleets 

compliant with the Americans 

with Disabilities Act (ADA)

 96 96 97 98 98 98 98 98 Met

Percent of key rail stations 

compliant with the ADA.

 82 91 92 93 95 95 95.2 94.5 Met

Percent of all flights arriving 

within 15 minutes of schedule 

at the 35 Operational 

Evolution Partnership airports 

due to National Airspace 

System related delays.

 79.07 88.44 88.36 86.96 87.29 88.98(r) 90.56# 88.00% Met

(r) Revised; * Preliminary estimate; # Projection from trends; Met; Not Met
Agency Financial Report FY 2010

19

global connectivity performance summary

Performance Measure 2004 2005 2006 2007 2008 2009

2010 

Actual

2010 

Target

Met/ 

Not Met 

Percent of days in the 

shipping season that the U.S. 

portion of the St. Lawrence 

Seaway system is available.

99.1 99.7 99.0 99.4 98.8 99.4 99.8 99.0 Met

Number of freight corridors 

with an annual decrease 

in the average buffer index 

rating.

N/A N/A 3 5 21 19 14 13# Met

Number of National Highway 

System border crossings with 

a decrease in unexpected 

delay.

N/A N/A N/A 4 3 3 5 5 Met

Percent share of the total 

dollar value of DOT direct 

contracts that are awarded to 

women-owned businesses.

 3.8 6.6 8.4 10.4 7.0 9.0 8.0* 5.1 Met

Percent share of the total 

dollar value of DOT direct 

contracts that are awarded 

to small disadvantaged 

businesses.

 15.6 12.7 16.2 18 16 15.5 14.57* 14.5 Met

(r) Revised; * Preliminary estimate; # Projection from trends; Met; Not Met
20

environmental stewardship performance summary

Performance Measure 2004 2005 2006 2007 2008 2009

2010 

Actual

2010 

Target

Met/ 

Not Met 

Number of areas in 

conformity lapse

6.3 5.8 1.3 0.0 0.0 0.0 0 3 Met

Number of hazardous 

liquid pipeline spills with 

environmental consequences

 138 127 106 97 128 110 93# 89-108 Met

Number of Exemplary 

Human Environmental 

Initiatives undertaken

N/A N/A N/A N/A 11 16 10 10 Met

Median time in months to 

complete environmental 

impact statements for DOT 

funded infrastructure projects

N/A 56 57 67 63.5 79.3 63.9 48 Not Met

(r) Revised; * Preliminary estimate; # Projection from trends; Met; Not Met
Agency Financial Report FY 2010

21

security performance summary

Performance Measure 2004 2005 2006 2007 2008 2009

2010 

Actual

2010 

Target

Met/ 

Not Met 

Percentage of DoD-required 

shipping capacity complete 

with crews available within 

mobilization timelines.

 94 95 93 97 97 96* 96 94 Met

Percentage of DoDdesignated commercial 

ports available for military 

use within DoD established 

readiness timelines.

 93 87 100 100 100 100* 100 93 Met

Percent of DOT personnel 

with emergency management 

responsibilities who are 

prepared to respond to 

disasters and emergencies.

 N/A N/A N/A N/A N/A 100 100 100 Met

Percent of DOT agencies 

meeting annual response 

requirements.

 N/A N/A N/A N/A N/A 96 96 100 Not Met

(r) Revised; * Preliminary estimate; # Projection from trends; Met; Not Met
22

organizational excellence performance summary

Performance Measure 2004 2005 2006 2007 2008 2009

2010 

Actual

2010 

Target

Met/ 

Not Met 

Percent of major federally 

funded transportation 

infrastructure projects 

with less than 2 percent 

annual growth in the project 

completion milestone as 

reported in the finance plan.

73 89 89 89 79 78 84 90 Not Met

Percent of finance plan cost 

estimated for major federally 

funded transportation 

infrastructure projects with 

less than 2 percent annual 

growth in project completion 

cost. 

75 81 84 83 82 84 84 90 Not Met

For major DOT aviation 

systems, percentage of cost 

goals established in the 

acquisitions project baselines 

that are met.

 100 97.00 100 100 96.08 100 97.06 90 Met

For major DOT aviation 

systems, percentage of 

scheduled milestones 

established in acquisition 

project baselines that are 

met.

 91.50 92.00 97.44 97.00 93.88 93.75 90.74 90 Met

(r) Revised; * Preliminary estimate; # Projection from trends; Met; Not Met
Agency Financial Report FY 2010

23

Financial Highlights

The presentation of the financial statements represents the Department’s cumulative 

efforts to improve financial management and to provide accurate and reliable financial information that is useful for assessing performance. Department management 

is responsible for the integrity and fair presentation of the financial information presented in these statements.

The financial statements and financial data presented in this Report have been prepared 

from the accounting books and records of the Department of Transportation in conformity with generally accepted accounting principles (GAAP). GAAP for Federal entities are the standards prescribed by the Federal Accounting Standards Advisory Board 

(FASAB).

The Hiring Incentives to Restore Employment (HIRE) Act of 2010, the American Recovery and Reinvestment Act of 2009 (ARRA or the Recovery Act) and the Car Allowance 

Rebate System (CARS) program of 2009 have each had a significant impact on the financial statements of the Department and caused significant fluctuations when comparing 

FY 2010 to FY 2009 amounts for certain financial statement line items. The HIRE transferred $19.5 billion from the General Fund to the Highway Trust Fund, which is primarily reflected in increased Investments. ARRA provided the Department an additional 

$48 billion in appropriations in FY 2009, of which $39.6 billion has been obligated and 

$20.5 billion has been disbursed as of September 30, 2010. The Department received 

and disbursed an additional $3 billion for the CARS program in FY 2009.

Overview of Financial Position

Assets

Overall, the Consolidated Balance Sheet shows Department total assets of $103.8 billion at 

the end of FY 2010 have remained relatively level with FY 2009. The Fund Balance with 

Treasury line item decreased by $10.2 billion as ARRA funding provided in FY 2009 continued to be spent down in FY 2010. Conversely, Investments increased by $12.4 billion as 

a result of new funding provided by HIRE.

The Department’s assets reflected in the Consolidated Balance Sheet are summarized in 

the following table.
24

Assets by Type

Dollars in Thousands 2010 % 2009 %

Fund Balance with Treasury $52,504,709 50.6 $62,685,783 61.7

Investments 33,050,889 31.9 20,684,481 20.4

General Property, Plant & Equipment 13,907,474 13.4 14,439,603 14.2

Inventory and Related Property, Net 823,603 0.8 797,310 0.8

Direct Loans and Guarantees, Net 2,892,100 2.8 2,219,298 2.2

Accounts Receivable 244,316 0.2 384,754 0.4

Cash and Other Assets 329,250 0.3 294,830 0.3

Total Assets $103,752,340 100.0 $101,506,059 100.0

Liabilities

The Department’s Consolidated Balance Sheet reported total liabilities of $17.3 billion at 

the end of FY 2010, as summarized in the table below. This represents a slight 2 percent 

increase from the previous year’s total liabilities of $16.9 billion. The largest increase 

was on the line item Debt and was the result of additional loans made through the Transportation Infrastructure Finance and Innovation Act (TIFIA) program.

Liabilities by Type

Dollars in Thousands 2010 % 2009 %

Grant Accrual $6,965,999 40.4 $6,769,814 40.0

Other Liabilities 4,159,702 24.1 4,444,553 26.3

Accounts Payable 1,717,081 10.0 1,732,169 10.2

Environmental and Disposal Liabilities 1,103,562 6.3 1,195,249 7.1

Debt 3,077,439 17.8 2,478,348 14.6

Loan Guarantees 237,739 1.4 310,710 1.8

Total Liabilities $17,261,522 100.0 $16,930,842 100.0
Agency Financial Report FY 2010

25

Net Position

The Department’s Consolidated Balance Sheet and Consolidated Statement of Changes in 

Net Position report a Net Position of $86.5 billion at the end of FY 2010, a modest 2.3 percent increase from the $84.6 billion from the previous fiscal year. Net Position is the sum 

of Unexpended Appropriations and Cumulative Results of Operations.

Results of Operations

The results of operations are reported in the Consolidated Statement of Net Cost and the 

Consolidated Statement of Changes in Net Position.

Net Costs

The Department’s total net cost of operations for FY 2010 was $78.8 billion.

net costs

Dollars in Thousands 2010 % 2009 %

Surface Transportation $60,769,477 77.1 $57,597,654 76.4

Air Transportation 16,775,815 21.3 16,288,922 21.6

Maritime Transportation 568,602 0.7 728,687 1.0

Costs Not Assigned to Programs 394,503 0.5 366,041 0.5

Less Earned Revenues Not Attributed to Programs 471 0.001 10,708 0.001

Cross-Cutting Programs 336,506 0.4 327,208 0.4

Net Cost of Operations $78,844,429 100.00 $75,297,804 100.00

Surface and air costs represent 98.4 percent of the Department’s net cost of operations. 

Surface transportation program costs represent the largest investment for the Department at 77.1 percent of the Department’s net cost of operations. Air transportation is the 

next largest investment for the Department at 21.3 percent of total net cost of operations. 

The increases in Net Cost are attributed to the Surface and Air Programs.
26

Resources

Budgetary Resources

The Combined Statement of Budgetary Resources provides information on how budgetary resources were made available to the Department for the year and their status at fiscal year-end. For the 2010 fiscal year, the Department had total budgetary resources of 

$174.5 billion, which remained on par with FY 2009 levels of $175.6 billion.

Resources

Dollars in Thousands 2010 2009 % Change 

Total Budgetary Resources $174,546,066 $175,644,291 (0.6)

Obligations Incurred $113,847,631 $117,386,471 (3.0)

Net Outlays $97,943,743 $80,881,011 21.1

Budget Authority of $164.9 billion consisted of $97.4 billion in appropriations received 

and $67.5 billion in borrowing and contract authority. The Department’s FY 2010 obligations incurred of $113.8 billion were slightly less than FY 2009 obligations incurred of 

$117.3 billion.

Outlays reflect the actual cash disbursed against previously established obligations. For 

FY 2010, the Department had net outlays of $97.9 billion, compared to FY 2009 levels of 

$80.9 billion, an increase of 21.1 percent. As expected, disbursements have increased as 

the Recovery Act program matures (i.e. as higher levels of obligations from FY 2010 and 

FY 2009 are liquidated).

Heritage Assets and Stewardship Land Information

Heritage assets are property, plant and equipment that are unique for one or more of 

the following reasons: historical or natural significance; cultural, educational, or artistic 

importance; or significant architectural characteristics.

Stewardship Land is land and land rights owned by the Federal Government but not 

acquired for or in connection with items of general property, plant and equipment.

The Department’s Heritage assets consist of artifacts, museum and other collections, and 

buildings and structures. The artifacts and museum and other collections are those of the 

Maritime Administration. Buildings and structures include Union Station (rail station) in 

Washington, D.C., which is titled to the Federal Railroad Administration.
Agency Financial Report FY 2010

27

The Department holds transportation investments (Stewardship Land) through grant programs, such as the Federal aid highways, mass transit capital investment assistance, and 

airport planning and development programs.

Financial information for Heritage assets and Stewardship Land is presented under 

the Financial Report section of this report in the Notes to the Financial Statements and 

Required Supplementary Information.

Limitations of the Financial Statements

The principal financial statements have been prepared to report the financial position and 

results of operations of the Department of Transportation, pursuant to the requirements 

of 31 U.S.C. 3515 (b).

These statements have been prepared from the books and records of the Department of 

Transportation in accordance with GAAP for Federal entities and in formats prescribed 

by OMB. The statements are in addition to the financial reports used to monitor and control budgetary resources, which are prepared from the same books and records.

The statements should be read with the realization that they are for a component of the 

U.S. Government.
28

Systems, Controls, and Legal Compliance

Federal Managers’ Financial Integrity Act (FMFIA)

The FMFIA requires agencies to conduct an annual evaluation of its management controls and financial systems and report the results to the President and Congress. The Secretary of Transportation then prepares an annual Statement of Assurance based on these 

internal evaluations.

As a subset of the FMFIA Statement of Assurance, DOT is required to report on the 

effectiveness of internal control over financial reporting, which includes safeguarding 

of assets and compliance with applicable laws and regulations, in accordance with the 

requirements of Appendix A of OMB Circular A-123. A separate discussion on Appendix 

A is located at the end of this section.

The Secretary of Transportation has provided the President and Congress a qualified Statement of Assurance for FY 2010, based on FISMA results. The Department evaluated its 

management control systems and financial management systems for the fiscal year ending 

September 30, 2010. Aside from FISMA results, this evaluation provided reasonable assurance and formed the basis of the Secretary’s Statement of Assurance that the objectives of 

the FMFIA were achieved in FY 2010.

FMFIA Annual Assurance Process

The FMFIA review is an agency self-assessment of the adequacy of financial controls 

in all areas of the Department’s operations – program, administrative, and financial 

management.

Objectives of Control Mechanisms

1. Financial and other resources are safeguarded from unauthorized use or disposition.

2. Transactions are executed in accordance with authorizations.

3. Records and reports are reliable.

4. Applicable laws, regulations, and policies are observed.

5. Resources are efficiently and effectively managed.

6. Financial systems conform to government-wide standards.

Managers within the Department, being in the best position to know and understand the 

nature of the problems they face, establish appropriate control mechanisms to ensure 
Agency Financial Report FY 2010

29

Departmental resources are sufficiently protected from fraud, waste, and abuse, and to 

meet the intent and requirements of the FMFIA. The head of each Operating Administration and Departmental office submits an annual statement of assurance representing 

the overall adequacy and effectiveness of management controls within the organization 

to the Department’s Office of Financial Management. FMFIA material weaknesses and 

material nonconformances are also reported, citing milestones and/or accomplishments. 

Specific guidance for completing the end of fiscal year assurance statement and reporting on material deficiencies is issued annually by the Department’s Office of Financial 

Management.

Criteria for Reporting Material Weaknesses and 

Nonconformances

A material weakness under FMFIA must fall into one or more of the categories below plus 

merit the attention of the Executive Office of the President and/or the relevant Congressional oversight committees.

Criteria for Reporting a Material Weakness

1. Significant weakness of the safeguards (controls) against waste, loss, unauthorized use 

or misappropriation of funds, property, or other assets.

2. Violates statutory authority, or results in a conflict of interest.

3. Deprives the public of significant services, or seriously affects safety or the 

environment.

4. Impairs significantly the fulfillment of the agency’s mission.

5. Would result in significant adverse effects on the credibility of the agency.

A material nonconformance under FMFIA must fall into one or more of the categories 

below plus merit the attention of the Executive Office of the President or the relevant 

Congressional oversight committees.

Criteria for Reporting a Material Nonconformance

1. Prevent the primary accounting system from centrally controlling financial transactions and resource balances.

2. Prevent compliance of the primary accounting system, subsidiary system, or program 

system under the Office of Management and Budget Circular A-127.
30

Summary of FY 2010 FMFIA Material Weaknesses

Status of Internal Controls (FMFIA Section 2)

The DOT is reporting one material weakness in FY 2010, based on the FY 2009 Federal 

Information Security Management Act (FISMA) report (the FY 2010 report has not yet 

been finalized), due to non-compliance with FISMA standards and OMB requirements for 

information security program and enterprise-level controls.

Status of Financial Management Systems (FMFIA, Section 4)

The DOT is reporting no material weaknesses for FY 2010.

Appendix A, Internal Controls Over Financial Reporting

Appendix A of OMB Circular A-123 emphasizes management’s responsibility for establishing and maintaining effective internal control over financial reporting. Appendix A 

requires agencies to maintain documentation of the controls in place and of the assessment process and methodology management used to support its assertion as to the effectiveness of internal control over financial reporting. Agencies are also required to test 

the controls in place as part of the overall FMFIA assessment process. The assurance 

statement related to the assessment performed under Appendix A acts as a subset of the 

Overall Statement of Assurance reported pursuant to Section 2 of the FMFIA legislation. 

Management’s assurance statement as it relates to Appendix A is based on the controls 

in place as of June 30. The assurance statement is located in the following section of this 

report.

DOT is reporting a qualified assurance statement on internal controls over financial 

reporting based on the Department's compliance with FISMA standards. DOT performed 

in-depth testing of the controls over six focus area business processes for each Operating Administration (OA) including Cost Accounting, Credit Reform and Loans, Financial 

Reporting, Revenue and Receivables, Environmental Liabilities and Grants Management. 

Additional testing of high-risk key controls from the remaining eight non-focus area business processes was performed for OAs whose transactions are material to the Department-wide financial statements.
Agency Financial Report FY 2010

31

Management Assurances – OMB Circular A-123

the secretary of transportation

washington, d.c. 20590

November 8, 2010

The President

The White House

Washington, DC 20500

Dear Mr. President:

I am pleased to report on the effectiveness of the internal controls and financial management systems for the U.S. Department of Transportation (DOT) during Fiscal Year (FY) 

2010. This report is based on our successful implementation under the Federal Managers’ Financial Integrity Act of 1982 (FMFIA); Office of Management and Budget (OMB) 

Circular A-123; Management’s Responsibility for Internal Control; OMB Office of Federal 

Procurement Policy’s (OFPP) Acquisition Assessment; and the 2009 American Recovery 

and Reinvestment Act (ARRA).

The FMFIA holds Federal managers accountable for establishing and maintaining effective internal controls and financial systems. All DOT organizations are subject to Sections 2 and 4 of the FMFIA, except the Saint Lawrence Seaway Development Corporation, 

which reports separately under the Government Corporations Control Act.

With the exception noted for compliance with the Federal Information Security Management Act (FISMA), DOT is able to provide reasonable assurance that the internal controls 

and financial management systems in effect during the period of October 1, 2009 through 

September 30, 2010 met the objectives of both Sections 2 and 4 of the FMFIA. During FY 

2010, DOT conducted its assessment of internal controls and compliance with applicable 

laws and regulations in accordance with OMB Circular A-123.

FISMA Compliance

In late 2009, the Inspector General (IG) issued a report on DOT’s compliance with FISMA. 

The purpose of this review was to determine the effectiveness of DOT’s security program 

and practices in the areas of policies and procedures, enterprise-level information security controls, management of information security weaknesses, and system-level security 

controls. As a result of this review, the IG made 27 specific recommendations. During the 
32

year, corrective actions were underway, but at September 30, 2010, many of these actions 

had not been completed. As a consequence, the Department’s compliance with FISMA 

during 2010 constituted a material weakness in internal controls. A corrective action 

plan to complete all outstanding FISMA recommendations is being developed and will be 

implemented.

FMFIA Internal Control Program

For FY 2010, DOT enhanced its standardized and consistent FMFIA Internal Control Program approach for managing control and compliance activities. The DOT identified and 

documented meaningful Components and Assessable Units (AU). Inherent risk assessments were conducted to classify and prioritize each AU. Management Control Reviews, 

leveraging the five standards of internal controls, as prescribed by the Committee of 

Sponsoring Organizations of the Treadway Commission and the U.S. Government Accountability Office, were conducted to identify, assess, document, and communicate key 

management and programmatic internal controls and related risks or weaknesses.

OMB Circular A-123, Appendix A Internal Control Program

During FY 2010, DOT conducted an assessment of the effectiveness of internal controls 

over financial reporting, including safeguarding of assets and compliance with applicable 

laws and regulations in accordance with the requirements of OMB Circular A-123, Appendix A. During FY 2010, DOT assessed and tested controls over key identified business 

processes, including Cost Accounting, Credit Reform and Loans, Environmental Liabilities, Financial Reporting, Grants Management, and Revenue and Receivables.

The major OMB Circular A-123, Appendix A activities in FY 2010 included evaluating entity level, process level, and in-depth testing at the transaction level of internal controls 

over financial reporting for the five identified business processes. All deficiencies were 

communicated to senior management and mitigated using existing remediation procedures.

OMB A-123 Acquisition Assessment

In accordance with guidance from the Office of Federal Procurement Policy and OMB 

Circular A-123, the DOT Office of Senior Procurement Executive (OSPE) developed a 

three year assessment reporting cycle of the DOT’s acquisition offices and programs, and 

in FY 2010, OSPE conducted an entity level top-down assessment of 30 percent of component acquisition offices of the Operating Administrations.
Agency Financial Report FY 2010

33

American Recovery and Reinvestment Act (ARRA)

The ARRA was signed into law on February 17, 2009. To ensure that ARRA funds are 

in compliance and meet the objectives of the program, and to ensure that this spending 

meets unprecedented standards for transparency and accountability, DOT management 

devised robust risk mitigation strategies for this program. Additionally, DOT management updated key business process documentation and conducted subsequent testing of 

ARRA transactions as part of OMB A-123 assessment activities to reflect new or modified 

business processes.

As a result of our FMFIA reviews in FY 2010, I conclude that the Department has made 

substantial progress in enhancing its internal controls and financial management program. Additional enhancements are planned and underway in FY 2011.

 Respectfully,

 Ray LaHood
34

FFMIA OF 1996 FINANCIAL 

MANAGEMENT SYSTEMS STRATEGY

The Secretary has determined that our financial management systems were in substantial compliance with the Federal Financial Management Improvement Act for FY2010. 

In making this determination, he considered all the information available, including the 

auditor’s opinion on our FY 2010 financial statements, the report on management’s assertion about the effectiveness of internal controls, and the report on compliance with laws 

and regulations. He also considered the results of the management control reviews and 

financial management systems reviews conducted by the agency and its independent 

contractors. 

The Federal Financial Management Improvement Act of 1996 (FFMIA) requires that 

agencies’ financial management systems routinely provide reliable and timely financial 

information for managing day-to-day operations as well as to produce reliable financial 

statements, maintain effective internal control, and comply with legal and regulatory 

requirements. Under FFMIA, financial management systems must substantially comply 

with three requirements: Federal financial management system requirements, applicable 

Federal accounting standards, and the U.S. Government Standard General Ledger (SGL) 

at the transaction level. In addition, CFO Act agencies must determine annually whether 

their systems meet these requirements. This determination is to be made no later than 120 

days after the earlier of (a) the date of receipt of the agency-wide audited financial statement, or (b) the last day of the fiscal year following the year covered by such statement. 

Management conducted its assessment of the effectiveness of internal controls over financial systems and compliance with applicable laws and regulations in accordance with 

FMFIA guidance, OMB Circular A-127, Financial Management Systems, results of OIG 

and GAO audit reports, annual financial statement audits, the Department’s annual Federal Information Security Management Act (FISMA) Report, and other relevant information. Based on the results of DOT’s internal control assessment, one material weaknesses 

was identified in 2010 based on FISMA results. 

The Department of Transportation (DOT) uses Oracle Federal Financials software as 

its agency-wide financial management and accounting system of record (called Delphi). 

DOT was the first cabinet agency to migrate all of its Operating Administrations (OAs) to 

a Financial Systems Integration Office (FSIO)-certified, commercial off-the-shelf based 

financial system. The Oracle system provides real time access to accounting information 

and fund availability. The consolidation of accounting activities using one financial sys-
Agency Financial Report FY 2010

35

tem improves internal controls, reduces redundant processes, improves communications, 

gains efficiencies, as well as provides monitoring and control of Federal accounting standards and financial policies.

DOT continues to make progress on the financial management modernization initiative 

to upgrade its current financial management system software from Oracle Release 11i 

to Oracle Release 12. In order to take advantage of the enhanced functionality offered in 

Release 12, DOT’s Office of Financial Management, in partnership with the Departmental 

financial community, has decided to use this opportunity to upgrade the system software and to achieve business process improvements and standardizations as well. This 

multiple-year, Department-wide program has been established to maximize the capabilities of the upgrade and to efficiently and effectively meet internal and external requirements, such as transparency and government-wide accounting structure requirements. 

This program is led by the Office of the Assistant Secretary for Budget and Programs/

CFO, includes participation and support from each Operating Administration (OA) and 

includes Department-wide executive sponsorship. 

In FY 2010, DOT began executing a plan to upgrade Delphi’s servers, operating system 

and database to Intel servers running on a Linux platform which will support the Oracle 

11g database. The Oracle 11g database is a requirement for Oracle Federal Financials 

Release 12; however, certain benefits of the upgrades will be realized before the Release 12 

implementation is completed. The new servers will improve Delphi’s response times for 

reports and workflows. Nightly, monthly and year-end processing times will be decreased 

as well. Additionally, the upgraded system will support clustered computers which allow 

the Department to run multiple computers on the database. The clustered computers will 

allow operations to continue if one of the computers in the cluster experiences problems 

and will also allow additional computers to be added to increase capacity as needed.

In FY 2010, DOT began executing a plan to improve the timeliness of the Delphi instance 

management process. Completing the full Delphi backup cycle to apply major upgrades or 

accomplish routine backups currently takes approximately between 14 and 16 hours. The 

Department is moving to NetApp storage appliances that will reduce the backup cycle to 

less than 4 hours. This will help reduce system down time due to patches, enhancements 

and upgrades and will also make the system available to end users much faster during 

critical times such as month and year end.
36

FEDERAL INFORMATION SECURITY MANAGEMENT ACT

The Federal Information Security Management Act (FISMA) requires federal agencies 

to identify and provide security protection commensurate with the risk and magnitude 

of potential harm resulting from the loss, misuse of, unauthorized access to, disclosure 

of, disruption to, or modification of information collected to maintained by or on behalf 

of the an agency. FISMA requires that Inspectors General evaluate agency information 

security programs and practices. The DOT FISMA report for FY 2010 will not be finalized 

until after November 15. 

The DOT has 13 Operating Administrations that for Fiscal Year 2010 supported a total 

of 465 information systems, of which 291 belong to the Federal Aviation Administration 

(FAA). The FAA air traffic control system has been designated by the president as part 

of the critical national infrastructure. Other systems owned by the Department include 

safety-sensitive surface transportation systems and financial systems that are used to 

manage and disburse over $77 billion in federal funds each year.

Last year, the DOT OIG reported that the DOT’s information security program did not 

meet Federal IT security standards and made 27 specific recommendations to improve 

DOT’s controls. At September 30, corrective actions associated with many of these recommendations remain incomplete. However, DOT has made improvements this year by 

issuing a security policy that addresses all of National Institute of Standards and Technology (NIST) information security control areas. Also, DOT significantly improved its 

common operating environment’s compliance with Federal Desktop Core Configuration 

(FDCC) which complies with an OMB mandate that requires all federal agencies standardize their desktop and laptops computers configuration settings.

DOT still needs to make progress in other critical areas, e.g., that all operating and database systems have security baseline configurations. Also required is the need for better 

identification and prioritization of DOT’s security weaknesses. Additionally, DOT needs 

to ensure that all systems and their interfaces have proper certification and accreditation 

and system recovery controls in the event of a disruption. Completion of protections for 

sensitive privacy information is the last remaining critical area.

The full FY 2010 FISMA report will be available in early December 2010 and can be found 

at www.oig.dot.gov.
Agency Financial Report FY 2010

37

SAS-70 REVIEW ON DOT’S FINANCIAL 

MANAGEMENT SYSTEM

The Statement on Auditing Standards (SAS) 70 report summarized the results of a review 

of general, application, and operational controls over the DOT Enterprise Services Center 

(ESC). The ESC performs services including accounting; financial management; systems 

and implementation; media solutions; telecommunications; and data center services for 

DOT and other Federal organizations.

This is the sixth year that a SAS-70 audit has been conducted on DOT’s Delphi financial 

system. Delphi is hosted, operated and maintained by Federal Aviation Administration 

employees at the Mike Monroney Aeronautical Center in Oklahoma City, OK, under the 

overall direction of the DOT Chief Financial Officer.

ESC is one of four Federal Shared Service Providers designated by the Office of Management and Budget to provide financial management systems and services to other government agencies. ESC supports other Federal entities, including the National Endowment 

for the Arts, the Commodity and Futures Trading Commission, The Institute of Museum 

and Library Services, The National Credit Union Association, The Consumer Product 

Safety Commission and the Government Accountability Office. The Office of Management and Budget requires Shared Service Providers to provide client agencies with an 

independent audit report in accordance with the American Institute of Certified Public 

Accountants (AICPA) SAS-70.

This year’s SAS-70 audit of Delphi was conducted by Clifton Gunderson, LLP of Calverton, MD. Clifton Gunderson concluded that management presented its description of ESC 

controls fairly in all material respects, and that the controls, as described, were suitably 

designed for all stated control objectives. 

Clifton Gunderson made additional recommendations to DOT management for improving access controls. We agree that implementing these recommendations will further 

enhance controls over ESC operations. In accordance with DOT Order 8000.1C, the corrective actions taken in response to Clifton Gunderson’s recommendations are subject to 

audit follow-up. Clifton Gunderson performed additional testing and provided a follow-up 

management letter to OIG on September 30, 2010, reporting no significant changes to the 

control environment between July 1, 2010, and September 30, 2010. 
38

Effective for reports dated after June 15, 2011, SAS-70 will be replaced the new standard 

Standards for Attestation Engagements (SSAE) 16. More information can be found at 

http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SSAE.aspx
Agency Financial Report FY 2010

39

DOT’S FINANCIAL MANAGEMENT

systems improvements

The Department of Transportation (DOT) continues to forge ahead with a major financial management improvement and modernization effort. This multi-year project, begun 

in FY 2009, supports the Organizational Excellence strategic goal by transforming and 

streamlining financial management policies, processes, and systems in an effort to better 

meet the growing and dynamic mission of the Department in this decade and beyond.

This collaborative effort focuses on three primary goals:

•	 Comprehensive business process reengineering to improve standardization and 

consistency across the Department.

•	 Improving financial data management, including standardization of our accounting classification structure, introduction of business intelligence capabilities, 

and improved reporting.

•	 Modernizing DOT’s financial management system to better meet financial system standards, transparency requirements, and improved functionality provided by the next Oracle Core Financials release.

This initiative is led by the Office of the Assistant Secretary for Budget and Programs/ 

CFO and includes full participation and support from each Operating Administration (OA) 

to ensure success of the project. The effort has been structured around “waves” which 

consist of major targeted solution milestones. As such, the initiative will attain tangible 

modernization throughout the project, rather than at the end of the project lifecycle, as 

many projects do. FY 2010 and prior years form the foundation for the effort, with an 

emphasis on long-term strategic planning. FY 2011 and FY 2012 will focus on realizing strategic planning efforts with the acquisitions of major system applications, analytics (business intelligence), reporting, and hardware components. During this period the 

project will also implement the first three solution waves: grants payment solution, vendor payment solution, and business intelligence/financial analytics.

DOT has coupled financial management modernization with the transition to Oracle Core 

Financials Release 12 because the Department has learned through past experience that 

process improvement and standardization exercises achieve optimal results when done 

ahead of a major system release. The initiative is a paramount priority for DOT because 

it will provide a financial management infrastructure (procedures, systems, and reporting 

capabilities) that will assist the Department in more effectively and efficiently meeting 
40

internal and external requirements, such as transparency and government-wide accounting structure requirements. Additionally, cleaning up aging, non-standard or ineffective 

processes establishes a better internal control environment, reduces audit findings, limits 

timely reconciliations, and eradicates the need for costly “work-arounds.” 

This project uses a collaborative approach to defining and establishing global process and 

system standardization, with the expectation that optimal standardization will reduce the 

number and redundancy of ancillary systems and processes.
Agency Financial Report FY 2010

41

INSPECTOR GENERAL’S FY 2010 TOP

MANAGEMENT CHALLENGES

DEPARTMENT OF TRANSPORTATION OFFICE OF INSPECTOR

GENERAL APPROACH

The Office of Inspector General (OIG) issues its annual report on the Department 

of Transportation’s top management challenges to provide a forward-looking assessment for the coming fiscal year. The purpose of the report is to aid Department of 

Transportation (DOT) agencies in focusing attention on and mapping work strategies 

for the most significant management and performance issues facing the Department. 

In selecting the challenges for each year’s list, the OIG continually focuses on the 

Department’s key strategic goals to improve transportation safety, capacity, and 

efficiency. In addition to the OIG’s vigilant oversight of DOT programs, budgetary issues, and progress milestones, it also draws from several dynamic factors to 

identify key challenges. These include new initiatives, cooperative goals with other 

Federal departments, recent changes in the Nation’s transportation environment and 

industry, as well as global issues that could have implications for the United States’ 

traveling public. As such, the challenges included on the OIG’s list vary each year to 

reflect the most relevant issues and provide the most useful and effective oversight 

to DOT agencies. 

As required by OMB Circular A-136, the OIG’s report briefly assesses DOT’s progress 

in addressing the challenges identified. To track management challenges identified 

from year to year, the OIG provides an exhibit to the report that compares the current 

list of management challenges with the list published the previous fiscal year. In addition, the OIG may refine the scope of the management challenge from year to year 

based on program developments, external factors, or other information that becomes 

available.

The OIG has not reviewed all of the actions included in this summary.
42

AFR 2010 Management Challenges

1.  Maximizing the Department's Economic Recovery Investments

Issue: Implementing the Office of the Secretary's (OST) $1.5 Billion Dollar TIGER 

Discretionary Grants Program

I. Why is this an issue?

A new discretionary grants program under the American Recovery and Reinvestment 

Act of 2009 (ARRA) includes $1.5 billion under the Office of the Secretary (OST). Implementing the program was identified due to a concern over the adequacy of available management resources. To better ensure this program meets its objective, OST was required 

to develop comprehensive and sound program plans and criteria.

II. Actions taken to date

The Office of Policy within OST is primarily responsible for providing policy direction 

related to the implementation of infrastructure grant programs, credit programs and 

regulations that impact infrastructure development and operation. The Office of Infrastructure Finance and Innovation plays the lead role in the implementation, management 

and administration of the TIGER Discretionary Grant Program. For the application review and selection process, staff was supplemented by over 70 experts drawn from the 

Department’s operating administrations (OAs). Additionally, the Office of Infrastructure 

Finance and Innovation has partnered with the Federal Highway Administration (FHWA), 

the Federal Transit Administration (FTA), the Federal Railroad Administration (FRA), 

Federal Aviation Administration (FAA) and the Maritime Administration (MARAD), to 

utilize existing grant management staff and resources to appropriately administer the 

grants and supplement OST grant administration responsibilities.

The OST developed and published project selection criteria and a solicitation for applications. The criteria for TIGER were published in the Federal Register on June, 17, 2009. 

The criteria are merit-based and address statutory requirements. The OST leads a Department-wide task force charged with evaluating applications and making funding recommendations. The evaluations teams comprised of technical and professional experts 

from OST and the Department’s relevant operating administrations (OAs).

III. Actions remaining and expected completion date

Each project has been assigned to the most appropriate Operating Administration to secure the grant agreement and provide oversight. The OST Office of Policy also concurs 

on the grant agreement, and will continue to provide guidance on performance measures.
Agency Financial Report FY 2010

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IV. Results or expected results

Successful execution of all project grant agreements.

Issue: Enhancing Oversight of ARRA Spending on Existing and New Programs

I. Why is this an issue?

Enhanced oversight of ARRA spending is necessary to ensure the adequacy of available 

management resources to administer spending activities.

II. Actions taken to date

In addition to partnering with the FHWA, FTA, FRA, FAA and MARAD, to utilize existing 

grant management staff and resources, the Office of Infrastructure Finance and Innovation within OST has developed a programmatic structure that is designed to enhance the 

oversight of ARRA spending activities. The structure includes: (1) Regular reporting 

requirements from the grantees to the Operation Administrations and from the Operating 

Administrations to OST; (2) Clear procedures for escalation of issues; and (3) Promoting 

consistency across relevant Operating Administrations in the management of projects.

III. Actions remaining and expected completion date

The Office of Infrastructure Finance and Innovation, has done the following: (1) Promptly 

reconciled grantee reported data with internal records; (2) Ensured that the grantee’s 

performance is adequate and properly reported; (3) Worked closely with each of the relevant modal administrations to ensure that the TIGER grants are administered properly; 

(4) Analyzed and compare the performance of the TIGER program(s) with each appropriation as well as against similar discretionary grant programs.

IV. Results or expected results

Continued reporting and adherence to procedures under the programmatic structure.

Issue: Reporting Accurate and Consistent Job Creation Data

I. Why is this an issue?

Reporting accurate and consistent job creation data on the Department’s ARRA program 

was identified as an issue because the Department did not have a functional system in 

place designed to capture and report job creation data.
44

II. Actions taken to date

To coordinate the Department’s role in ARRA, the Secretary created a team at DOT. The 

team ensures that economic recovery act funding is rapidly made available for transportation infrastructure projects and that project spending is monitored and transparent. The team, known as the Transportation Investment Generating Economic Recovery 

(TIGER) team, is composed of officials from across the Department’s Operating Administrations and offices. Early in 2009, the TIGER Team provided guidance to all of the relevant operating administrations – FHWA, FTA, FRA, FAA and MARAD -- on how grantees 

are required to report the number of paid jobs created by prime recipients, subprime 

recipients, and vendors (where applicable) as required under Section 1512 of ARRA. The 

grantees were directed to calculate and report created jobs as “Full-Time Equivalents 

(FTE)” to http://www.federalreporting.gov. All operating administrations closely monitored the jobs reporting by the recipients to ensure that the data was accurate.

According to data from the Recovery Accountability and Transparency Board, the responsible entity for recipient reports monitoring, DOT has one of the best records for recipient reporting government-wide. DOT has the second largest number of grantees and 

one of the lowest instances of non-reporting or reporting errors. The TIGER team has 

monitored and will continue to monitor the collection of jobs data for all ARRA projects 

administered by the Operating Administrations, as well as for the TIGER Discretionary 

Grant Program administered by OST.

Department-wide guidance was revised to comply with Office of Management and Budget standards once they were developed for all agencies. The TIGER Team also provided 

guidance for job reporting under Section 1201 of ARRA, and directed grantees to report 

direct job-hours for each ARRA grantee. The Department would then use data on direct 

jobs and expenditures to estimate indirect jobs and total employment, as required by Section 1201 of ARRA.

III. Actions remaining and expected completion date

OST will work closely with each of the relevant modal administrations to ensure that 

accurate and consistent job creation data are collected, analyzed, and reported for TIGER 

grants.

IV. Results or expected results

Successful execution of all Recovery Act projects with accurate and complete job 

reporting.
Agency Financial Report FY 2010

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2.  Enhancing Surface Safety Programs to Reduce Injuries and Fatalities While 

Defining a New Federal Role in Transit Safety

Issue: Promoting Meaningful Performance Indicators to Consistently Measure 

States' Progress in Improving Safety

I. Why is this an issue?

States and the Federal Government spend large sums of money on highway safety programs and activities. As a data driven organization, the National Highway Traffic Safety 

Administration (NHTSA) should ensure that states spend money wisely, with a focus on 

key issues and a positive impact on reducing the number and severity of crashes.

II. Actions taken to date

All states have included core performance measures in their 2010 Highway Safety Plans 

(HSPs), which outline programs the states will implement and show how they will spend 

Federal funds. NHTSA and the Governors Highway Safety Association (GHSA) have 

developed additional attitude and awareness performance measures. NHTSA also convened a working group which developed a consensus speed monitoring performance measure. Additionally, in July 2009, NHTSA’s National Center for Statistics and Analysis 

(NCSA) made fatal crash maps available to the public; these maps use 2007-2009 Fatality 

Analysis Reporting System (FARS) data to show fatal crash locations within a state via 

a Google Earth plug-in download. The crash-location maps serve as an extension to the 

county maps that the State Traffic Safety Information website already delivers.

III. Actions remaining and expected completion date

NHTSA is reviewing the HSPs to assure that they include the requisite performance 

measures, and continues to work with GHSA on developing guidelines and implementation material for the measures. NHTSA is considering drafting additional developmental 

measures for enforcement activities.

IV. Results or expected results

During FY 2010, states began to use core performance measures in designing their FY 

2010 safety programs. NHTSA and the States will use these data, collected during FY 

2010 and out years, to measure the impact of their safety programs, to evaluate safety 

problems, and to make appropriate modifications to their programs. In future years, 

States will collect improved speed and injury data, as well as new performance measures 

(including law enforcement measures, and attitude and awareness surveys). As more 

years of data become available, States will be able to evaluate the long-term impact of 

their programs, determine changes in the magnitude of specific safety problems, and 
46

adapt their programs to address the most significant issues. Furthermore, as States measure and report on performance measures, NHTSA will work collaboratively with them 

to ensure that States meet or exceed their targets. This will include using demonstration 

projects, technical assistance, and sharing best practices.

Issue: Targeting Unsafe Motor Carriers and Commercial Drivers for Enforcement 

and Enhancing the Commercial Driver's License (CDL) Program

I. Why is this an issue?

Approximately 1 in 8 overall fatalities in 2008 were related to crashes involving large 

trucks or buses. The Department must take stringent action against repeat violators of 

safety regulations, improve its enforcement and data systems, and identify and stop Commercial Drivers License (CDL) holders who are not properly licensed.

II. Actions taken to date

The Agency addressed 73 percent of the total number of recommendations (26) issued 

by the OIG that pertain to this top management challenge. In FY 2010, the Federal Motor Carrier Safety Administration (FMCSA) closed or requested closure on 12 of the 19 

remaining open recommendations pertaining to the OIG’s 2010 Top Management Challenges report. FMCSA has several initiatives underway to address the remaining issues 

identified by the OIG and has taken vigorous action in FY 2010 to target unsafe motor carriers and commercial drivers for enforcement and to enhance the CDL program. FMCSA 

is committed to resolving and implementing open audit recommendations issued by the 

OIG. 

The OIG recommended that FMCSA take stringent enforcement action against carriers 

that repeatedly violate safety regulations and improve enforcement and data systems 

used to oversee the motor carrier industry and commercial motor vehicle drivers. With 

regards to the OIG recommendation to satisfy the Motor Carrier Safety Improvement 

Act of 1999 (MCSIA) enforcement requirements and close loopholes for repeat violators, 

FMCSA closed six of seven recommendations highlighted by the publishing of a very 

stringent enforcement policy on March 30, 2009, which changed how the Administration 

assessed maximum fines under section 222 of MCSIA and strengthened the criteria for 

taking enforcement action against repeat violators. 

FMCSA is also establishing quality control procedures to ensure states are reporting 

Mexican-domiciled Commercial Motor Vehicle (CMV) driver convictions occurring in 

the United States. This data ensures that the appropriate action is taken against Mexican drivers convicted of disqualifying offenses. Additionally, in response to the OIG’s 

2009 report, Audit of the Data Integrity of the Commercial Driver's License Information 
Agency Financial Report FY 2010

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System (CDLIS), FMCSA issued in the Federal Register (July 2, 2010) guidance to state 

driver licensing agencies (SDLAs) in support of their efforts to comply with the Federal 

Commercial Driver's license (CDL) regulations including timely reporting and posting of 

convictions for traffic offenses. Regarding data security, FMCSA provided grant funds 

to the States in FY 2010 to implement a new modernized CDLIS, and closed a comprehensive OIG recommendation requiring improved CDLIS information technology security 

standards. 

A program initiated in FY 2010 to ensure that unsafe motor carriers are placed out-ofservice and not re-issued authority under new identities includes a robust New Applicant 

Screening program. The program detects prior unsafe carriers that disband operations 

before they can reincarnate as new entities in an attempt to avoid their previous safety 

records. FMCSA also launched a Pre-Employment Screening program in FY 2010, which 

allows companies to access driver inspection and crash records as part of the hiring process. This program gives companies tools to make informed hiring decisions, which lead 

to hiring the safest drivers. 

In FY 2010, FMCSA also issued a final rule on Electronic On-Board Recorders (EOBRs) 

that significantly contributes to targeting unsafe motor carriers. The final rule on EOBRs 

requires carriers with serious patterns of hours of service violations to install EOBRs. 

The Administration is also proposing stronger CDL standards and testing requirements 

and anticipates issuing a final rule that will establish revisions to the CDL knowledge and 

skills testing standards, implement fraud detection and prevention initiatives at SDLAs, 

and establish new minimum Federal standards for commercial learners permits. 

FMCSA also strengthened the New Entrant Safety Assurance program to identify startup truck and bus companies deficient in key areas that must be addressed in order to continue operations. By the end of calendar year 2010, FMCSA will implement Comprehensive Safety Analysis (CSA) 2010 by replacing the Administration’s current motor carrier 

measurement system, SAFESTAT, with the CSA 2010 Safety Measurement System. Other 

initiatives to remove truly unfit and unsafe drivers and carriers from the Nation’s roads 

include virtual weigh and inspection stations at the roadside and tools like infrared brake 

warning detection.

III. Actions remaining and expected completion date

In FY 2011, the Administration anticipates developing and implementing a revised policy 

on the census updating requirement; fully executing CDLIS modernization and resolving information technology security and data issues; issuing proposed rules on carrier 

safety fitness determination and the Driver Positive Controlled Substances and Alcohol 

Test Results Database; and, issuing final rules on restricting the use of cellular phones, 
48

CDL testing and commercial learner's permit standards, and minimum training requirements for entry level commercial motor vehicle operations.

IV. Results or expected results

The safety initiatives implemented in FY 2010 and planned for FY 2011 will improve 

safety and increase efficiency. These initiatives contribute to the Department of Transportation’s overall safety strategic goal and performance target to reduce highway fatalities and support critical motor carrier program activities that will reduce crashes, save 

lives, and prevent injuries on the Nation's highways.

Issue: Defining a New Federal Role in Transit Safety

I. Why is this an issue?

Historically, rail transit is a safe mode of public transportation. However, recent accidents 

at major rail transit systems have caused nationwide concern regarding rail transit safety. 

Secretary LaHood reviewed the existing legal authorities and believes that the current Federal oversight role for rail transit safety should be reformed. The current State Safety 

Oversight (SSO) structure (with few exceptions) lacks sufficient authority to provide a uniform approach to transit system safety. A multi-modal safety work group chaired by the 

Deputy Secretary recommended a number of reforms to improve public transportation 

safety, including submitting a legislative proposal to Congress to enhance the Federal Transit Administration’s (FTA) oversight of rail transit safety.

II. Actions taken to date

FTA convened the initial Transit Rail Safety Advisory Committee (TRACS) meeting September 9-10, 2010. The initial focus for TRACs will be recommendations to implement/ 

improve the safety management systems of rail transit systems and improve organization 

models for SSO agencies. FTA has increased funding for the SSO program and the Bus 

Safety program to include additional capacity to support an expanded role based on the 

proposal and to provide additional bus regulatory oversight. FTA increased the number 

of SSO agency program managers that are certified by the Transportation Safety Institute 

and decreased the average time to complete SSO agency audit findings.

III. Actions remaining and expected completion date

FTA will integrate safety and security into the New Starts project development phase 

through more effective use of the Safety and Security Readiness Review process. FTA 

has worked with transit systems to increase the number of chief safety officers reporting directly to transit agency general managers. FTA continues to provide financial support to the American Public Transportation Association (APTA) in developing voluntary 
Agency Financial Report FY 2010

49

industry consensus safety, security and emergency management standards. FTA has also 

provided funding to research rail car crash performance to support the development of 

future rail car design standards.

Regarding training, FTA is developing a course for rail safety to provide SSO managers, 

transit personnel and rail safety inspectors with the knowledge of rail transit systems 

and how safety design, inspections and standards contribute to overall system safety. 

It is also developing a Training Curriculum for Rail Safety Inspectors that will result in 

certification. FTA is delivering eight (8) two-day training sessions on track inspection at 

selected rail transit agencies that will provide instruction on track worker and maintenance safety. This training was developed as a result of recent increases in track worker 

fatalities. FTA is developing a Safety and Security Strategic Training Plan to promote 

development and improvement of transportation safety and security, technology management, and operational procedures for educational and training programs that are responsive to modal and intermodal requirements.

TRACS is currently working to provide recommendations for transit systems to implement the best safety planning model, to include but not limited to, Safety Management System (SMS) principles and how those principles might be incorporated into transit safety 

plans to enhance rail transit safety. It will also provide recommendations for the best 

State oversight agency organization model, to include identifying the ideal state safety 

partner and identify the challenges that may be faced in implementing this model along 

with potential ways the challenges may be overcome. Each of the TRACS recommendations has a projected delivery date of May 2011.

FTA has begun the initial phase of program/project planning to implement elements of 

the proposed transit rail safety legislation. The initial phase will identify program objectives, resource allocation, and implementation milestones. The initial plans are scheduled for delivery in December 2010.

FTA continues to pursue legislation to strengthen its safety oversight function.

IV. Results or expected results

FTA is projecting improvement in safety based on several actions taken in FY 2010. 

The increase in number of Transportation Safety Institute certified SSO agency staff will 

provide enhanced technical capacity and consistent program capabilities of SSO program 

management by increasing the number of SSO program managers trained in broad-based 

knowledge of safety and security principles applicable to transit safety, operations and 

management. The decrease in the number of days to close out audit findings by 5% of the 
50

2009 average of 219.8 days is a responsive risk reduction process and a tangible means 

to emphasize commitment to an organizational safety culture. The increase in the number of rail transit agency chief safety officers reporting directly to general managers is 

anticipated to improve system safety through enhanced senior management leadership 

and strengthened inter-departmental coordination. The training initiatives underway for 

transit system employees were developed to promote and improve transportation safety 

and security, technology management, and operational procedures and should lead to 

increased safety and security awareness.
Agency Financial Report FY 2010

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3. Maximizing Federal Surface Infrastructure Investments by Helping States Better 

Allocate Resources and Providing Effective Oversight

Issue: Developing Improved Tools and Techniques to Help States Better Allocate 

Scarce Resources and Providing Effective Oversight of Federal Investments

I. Why is this an issue?

According to a 2009 report from the American Society of Civil Engineers, one-third of 

the Nation’s major roads are in poor or mediocre condition and more than one-quarter 

of our bridges are deficient. Maximizing federal investment in surface transportation 

infrastructure is particularly challenging because the majority of the federally-assisted 

highway programs are administered by States, which have broad flexibility in deciding 

how to use their funds, which projects to pick, and how to implement them.

The Department faces the following key challenges:

•	 Developing improved tools and techniques to help states better allocate scarce 

resources; and

•	 Providing effective oversight of Federal investments through better use of data, 

management tools, and performance measures

II. Actions taken to date

During FY 2010, FHWA developed a Bridge Management Systems (BMS) questionnaire 

that was used by the FHWA Division Office Bridge Engineers in coordination with their 

State DOT counterparts to assess the state-of-practice. Based on the questionnaire 

responses, preliminary results show that 40 States are using their BMS to store bridge 

information.

Also in FY 2010, FHWA initiated a process to include more detailed project information 

within bridge projects in the Fiscal Management Information System (FMIS). FHWA 

drafted detailed criteria that include more than 20 specific metrics linked to the National 

Bridge Inspection Standards (NBIS) regulatory provisions, such as inspection frequency 

and inspector qualifications, with defined risk tolerance levels for compliance, substantial compliance, and non-compliance determinations. Application of the defined criteria 

will improve the consistency in determining compliance with the NBIS. In May, FHWA 

concluded a pilot evaluation of these criteria and procedures in 12 division offices. The 

results of the pilot test were evaluated with regard to effectiveness and resource impact. 

The schedule calls for full implementation in 2011.
52

FTA is in the process of publishing a notice of proposed rulemaking (NPRM) on project 

management in the Federal Register for comment. The NPRM will codify FTA’s expectations for grantee core project management principles, FTA’s risk assessment approach, 

and enhanced oversight for major capital projects of particular size and complexity. FTA 

is updating the Project and Construction Management Guidelines, which is a general guidance manual for implementation of New Starts projects. The updated version emphasizes 

project management principles and risk management concepts. The updated Guidelines 

will be published by the end of calendar year 2010.

FTA has revised and enhanced its Project Management Oversight Operating Procedures 

with a special focus on risk management so as to provide better guidance to its staff and 

oversight contractors in risk assessment and other reviews. FTA developed a new project management course which teaches project sponsors the principles of successful project management. In FY 2010, FTA offered 24 project management courses around the 

country. The agency initiated an annual conference (New Starts Engineering Workshop) 

where sponsors of New Starts projects get together to share, among other things, best 

practices in managing projects successfully with a focus on addressing project scope, 

schedule, cost and risk.

FTA developed and published a historical database of light and heavy rail project capital 

costs. This database provides project sponsors with enhanced cost data that supports 

cost estimation early in project development. This date establishes more reasonable 

conceptual estimates that will help inform local decision-making and subsequent project 

development activities.

III. Actions remaining and expected completion date

A bridge management technical assistance plan will be developed once the evaluation of 

the questionnaire results is completed and a report issued. Based on this plan, the FHWA 

will provide technical assistance and training to each state.

In FY 2011, FHWA will implement new NBIS compliance processes in all 52 States. In 

FY 2012, further enhancements to FMIS will be made to collect additional bridge project 

data. After reauthorization, FHWA will work with States to set performances goals and 

measures for bridge condition.

FTA will prepare internal standard regional office operating procedures for management 

of Full Funding Grant Agreements to ensure more active FTA identification and resolution of project scope, schedule, and budget issues during project construction. Finally, 

FTA will initiate a top-down review of its overall oversight program, intended to address 

a range of oversight policy, procedural, and management issues to ensure greater grantee 
Agency Financial Report FY 2010

53

compliance with Federal requirements and the delivery of more efficient and coordinated 

oversight activities.

IV. Results or expected results

Improvements in future year’s condition data are anticipated as a result of bridge investments under the American Recovery and Reinvestment Act of 2009, lower bridge construction unit costs in 2009 and 2010, and the use of the additional $1 billion in dedicated 

Highway Bridge Program obligation limitation.

FHWA will provide targeted technical assistance to States, based on their current BMS 

use. Making progress among the States will take time and will require commitment by 

the leadership of the 52 State DOTs. 

FTA expects that the steps it is taking to address this management challenge will improve 

management of capital projects by project sponsors, improve guidance and tools for FTA 

and its oversight contractors to provide more responsive and focus oversight of high-risk 

projects. FTA also expects an increase in the number of projects delivered on time and 

on budget. In the long-term, it is FTA’s expectation that the culture of effective project management will improve significantly in the transit industry, ultimately resulting in 

improvements in project adherence to baseline scope, schedules, and budget.
54

4. Addressing Human Factors and Strengthening the Regulatory and Oversight 

Framework for Aviation Safety

Issue: Increasing Efforts to Address Human Factors

I. Why is this an issue?

Human factors in aviation can affect the safety of users of the National Airspace System (NAS). For example, the effects of fatigue negatively impact human performance 

through impaired reasoning, attention lapses, and reduced situational awareness. Fatigue 

can affect both pilots and air traffic controllers.

II. Actions taken to date

In 2010, the Department established an Air Traffic Organization (ATO) Fatigue Risk 

Management (FRM) program office to address fatigue in air traffic safety by identifying 

fatigue causes and mitigating its risks. The primary focus of the FRM program office is to 

build the foundation of an adaptive, evolving Fatigue Risk Management System (FRMS) 

to promote safety in the National Airspace System (NAS) and enhance the safety and 

well-being of employees.

In June 2010, FAA developed an initial communication, education, and training plan to 

increase fatigue awareness for operational employees and management. It also developed 

an initial report to implement programs to increase content of fatigue risk event information. In collaboration with the National Air Traffic Controllers Association (NATCA), FAA 

formed a workgroup to address air traffic controller workplace fatigue, and developed 

collection methodologies to capture and analyze fatigue data from reported air traffic 

events.

FAA collaborated with its internal stakeholders and NATCA to develop an initial draft of 

the Fatigue Risk Management System (FRMS) concept. The FRMS will include a broad 

range of fatigue risk mitigations, such as scheduling, training and education, methods for 

reporting fatigue, and strategic communications activities.

In September 2010 FAA published a pilot flight and duty time and rest requirements (FDR) 

notice of proposed rulemaking. FAA use science and information on fatigue, as well as 

international standards, to develop the proposed rule.

III. Actions remaining and expected completion date

In FY 2011, FAA and NATCA will deliver an initial recommendation for potential policy 

and procedural changes that address air traffic controller (ATC) fatigue, as well as the 
Agency Financial Report FY 2010

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jointly-designed FRMS. FAA will also identify causes of ATC fatigue, associated hazards 

and risks, and appropriate mitigations to reduce fatigue risk in the NAS.

IV. Results or expected results

The FAA has made substantial progress towards addressing fatigue. FRMS will bring 

about a sustained focus on fatigue safety through a top-to-bottom approach that incorporates and rests upon fatigue science. The FRMS will also leverage all appropriate 

fatigue risk mitigation best practices to develop and implement effective improvements 

in fatigue safety. The results of the Final Rule on pilot flight and duty, and rest requirements will be consistency and standardization in guidance that addresses fatigue, a critical factor in aviation safety. This will mitigate the risks of fatigue and provide the traveling public with reliably-rested flight crews.

Issue: Providing an Equivalent Level of Safety for Passengers Flying On-Demand 

Carriers by Strengthening FAA Regulations and Oversight

I. Why is this an issue?

FAA has regulatory and statutory authority to provide oversight on air carriers’ safety 

standards. Through our surveillance activities, we are responsible for ensuring that air 

operators and air agencies provide service with the highest level of safety to the traveling 

public. FAA is developing a risk-based oversight approach for on-demand operators but 

it will not be implemented for 4 years.

II. Actions taken to date

In FY 2010, FAA revised internal guidance material to strengthen our oversight of ondemand operators. FAA updated and published the following orders and notice that 

require principal inspectors to use the Safety Performance Analysis System (SPAS) Surveillance Priority Index (SPI) for work program planning and updating their work.

•	 August 12, 2010, published FAA Order 1800.56 (National Flight Standards Work 

Program Guidelines)

•	 August 12, 2010, published FAA Order 8900.1 (Volume 6, Chapter 2, Section 1 – 

General Policies and Procedures for Parts 121, 135, and 91 Subpart K Surveillance)

•	 August 12, 2010, published Notice 8900.132 (Work program Development for 14 

CFR Part 135 Certificate Holders).

The FAA is currently considering how best to implement Safety Management System 

(SMS) for on-demand air carriers. Flight Standards is sponsoring a set of SMS Pilot Projects, through which operators can develop a safety management system that conforms 
56

to International Civil Aviation Organization’s requirements using the guidance published 

in FAA Advisory Circular (AC) 120-92A. SMS enhances the operators’ safety by applying risk management and safety assurance processes to their operational systems. Ondemand operators of all types, from international jet operators to air tour helicopter operators are participating. One subset of the community that has become especially active 

is the Helicopter Emergency Medical Service (HEMS) industry. In another segment, an 

air tour CEO recently stated that "This [SMS] is the best investment that any aviation 

company can make." The pilot projects are also conducted in close coordination with each 

operator's FAA certificate management team. Currently, for on-demand operators, the 

SMS Pilot Project has 53 current participants, 18 of whom joined in FY 2010.

FAA also continued its longer-term strategy to develop and deploy over the next four years 

a new risk-based oversight approach for on-demand operations as defined by the multiyear Systems Approach to Safety Oversight (SASO) Project Management Plan. SPAS is a 

major tool for managing a risk-based work program and provides a foundation for a datadriven approach to safety oversight. Mandatory use of the Safety Performance Analysis 

System Surveillance Priority Index tool aids principal inspectors in using resources more 

effectively by focusing surveillance on higher priority risks. Inspectors can use information from the Surveillance and Evaluation Program Data Package of each certificate 

holder to identify areas of risk within the certificate holder's operations. These tools help 

inspectors prioritize surveillance and focus attention where it is most needed. 

Information technology requirements and automation requirements were developed in 

FY 2010. The functionality of the Safety Assurance System (SAS) was demonstrated with 

a prototype.

The change management and communications strategies for transition to SAS were established and implemented.

III. Actions remaining and expected completion date

FAA will continue the implementation of change management and communications strategies for the transition to SAS. Wave 1 of the SAS software will be developed by September 30, 2011.

IV. Results or expected results

By the end of FY 2013, deployment of SASO will allow FAA inspectors to provide strengthened, risk-based, and standardized oversight to on-demand carriers. Prior to the deployment of the SAS (2013), the SPAS SPI, the SEP data packages, and the SMS guidance material and pilot project will provide strengthened, risk-based, and standardized oversight of 

on-demand air carriers.
Agency Financial Report FY 2010

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Issue: Maintaining Momentum in Joint FAA/Industry Efforts to Improve Runway 

Safety

I. Why is this an issue?

FAA experiences almost 1,000 runway incursions per year, and each one has the potential 

to result in a collision. The majority of runway incursions (approximately 65 percent) 

occur when a pilot violates a regulation or fails to adhere to an air traffic controller’s 

instruction. FAA must find near-term solutions to reduce runway incursions and fully vet 

and set milestones for the plan’s mid- and long-term initiatives.

II. Actions taken to date

In June 2010, FAA published the Runway Safety Call to Action Mid-Term and Long-Term 

Initiatives Action Plan. This plan addresses the status of FAA activities, schedules, and 

milestones required to implement mid-and long-term initiatives. 

FAA’s Root Cause Analysis Team (RCAT), chartered by the Runway Safety Council (RSC), 

reviewed serious runway incursions at seven airports. Full root cause analyses were 

conducted at four of the seven airports. Formal prioritized recommendations were presented to the RSC for one airport and initial recommendations for three, as well as event 

review results for three airports.

In December 2009, FAA convened the first-ever FAA International Runway Safety Summit. It conducted nine trade shows and safety conferences that were held throughout 

the continental United States. At one event alone over 43,000 runway safety publications 

were distributed. This event raised runway safety awareness globally, improving safety 

for the flying public, including U.S. citizens traveling abroad.

On June 30, 2010, the FAA instituted an Explicit Taxi Instruction Campaign which implemented new phraseology that will reduce runway incursion risks. Under the new procedure, pilots are required to receive explicit instructions before crossing or taxiing onto a 

runway.

In 2010 FAA introduced a “Line Up and Wait” Campaign, another significant phraseology 

change, adopting the international terminology “Line up and wait” in place of the current 

U.S. phrase “Taxi into position and old”. The terminology change will reduce runway 

incursion risks by establishing a common international standard for this critical air traffic control instruction.
58

III. Actions remaining and expected completion date

FAA plans to modernize the Notice to Airmen (NOTAM) system to provide current and 

relevant information to pilots which could prevent runway incursions. NOTAM digitization and dissemination trials are currently running at six airports.

FAA is also developing an “off the shelf” Low Cost Surveillance System (LCGS) for use at 

smaller airports in order to provide some of the surveillance and conflict alerting capabilities of Airport Surface Detection Equipment – Model X (ASDE-X). LCGS will improve 

controller surface situational awareness. LCGS is in a two-year test period.

IV. Results or expected results

FAA continues its ongoing outreach, education, and awareness programs to affected 

groups through mass electronic mail communications, training animations, and a new 

webpage. Runway safety remains one of our top priorities and we remain committed to 

mitigating the risks of runway incursions.

As each mid-and long-term item in the action plan is implemented both the number and 

severity of runway incursions is expected to be reduced.

The recommendations concerning root causes of runway incursions identified by the 

RCAT were accepted by the Runway Safety Council. The Council assigned a lead organization for each recommendation and is currently tracking the implementation progress 

for each as well as the effectiveness of the recommendation once implemented.

The International Runway Safety Summit was very successful, attracting over 500 people 

from almost 20 countries. This has resulted in the FAA presenting a Runway Safety working paper at the International Civil Aviation Organization’s (ICAO) High Level Safety 

Conference. The paper was accepted and ICAO and several states submitted Runway 

Safety working papers to ICAO’s 37th Assembly. This has resulted in ICAO, with FAA 

support, planning a Global Runway Safety Symposium in May 2011. A second International Runway Safety Summit tentatively will be hosted by EuroControl in 2013.

In addition to the two major fly-in events, FAA participated in over 600 functions where 

it interacted with pilots and vehicle drivers and distributed safety information. In this 

way, FAA expects to increase awareness and knowledge of best practices and procedures, 

resulting in fewer runway incursions.

While it is too soon to evaluate the effect of explicit taxi instructions or the phraseology 

change to “Line up and wait”, we expect these changes to also reduce the number of runway incursions.
Agency Financial Report FY 2010

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Modernizing the NOTAM system will provide current and relevant safety information 

to pilots concerning airport information that will help them avoid runway incursion 

situations.

The LCGS systems are operational at two airports and are scheduled to be installed at 

three additional airports. These systems will provide the basis for a thorough evaluation 

of this technology. If adopted, these systems will improve the situational awareness of 

controllers and provide a tool which can be used to prevent runway incursions.
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5. Moving Toward the Next Generation Air Transportation System and Improving 

Performance of the National Airspace System 

Issue: Taking Actions to Deliver NextGen Benefits in the Near- and Mid-Term

I. Why is this an issue?

The FAA’s Next Generation Air Transportation System (NextGen) is a complex, multiprogram undertaking encompassing a portfolio of investments designed to deliver new 

capabilities to the National Airspace System (NAS) over the next five to ten years. It 

is a high-risk effort involving billion-dollar investments from both the government and 

the airline industry. NextGen’s challenges are multi-dimensional, involving research 

and development, complex software development and integration for existing and new 

systems, workforce changes, and policy decision-making. The integration of new systems, technologies and capabilities impact the workforce and how FAA conducts the air 

traffic control operation. A key challenge for the Department and FAA involves setting 

realistic expectations for what NextGen can deliver in the near and mid-term.

II. Actions taken to date

The NextGen Implementation Plan (published annually) summarizes NextGen goals and 

objectives and provides details on the planned activities required to achieve the desired 

near and mid-term operational improvements and associated benefits. NextGen implementation projects have been managed and tracked against the planned annual activities 

and milestones contained in the NextGen Implementation Plan. Moving forward, FAA 

has continued to integrate RTCA Task Force recommendations into the agency’s NextGen 

planning and implementation activities. Diverse and competing interests of the stakeholders have further reinforced the need for continued government/industry collaboration. As a result, FAA directed RTCA to create a new advisory committee for NextGen. 

The newly-created NextGen Advisory Committee includes senior industry participants 

who speak for safety, airport, environmental, global harmonization, and air traffic interests.

The FAA published an updated Enterprise Architecture (EA) in early 2010 that reflects updates to the infrastructure roadmaps such as: Aircraft, Air-Ground, Automation, Weather, 

Communication, Navigation, Surveillance, Airspace & Procedures, Enterprise Services, 

Facilities, Human Systems Integration, and Information Systems Security. The NAS EA 

provides the technical roadmaps for NextGen, and FAA has worked to ensure there are 

links within the EA from the mid-term through the long-term.

In FY 2010, in conjunction with the National Academy of Public Administration (NAPA) 

findings and recommendations, FAA developed and implemented an acquisition work-
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force plan to ensure the hiring, development, certification and retention of a workforce 

with enhanced competencies and skills to successfully implement NextGen. The plan 

contains descriptions of the acquisition workforce, challenges, workforce planning process, current views of the workforce and future demand, staffing/hiring plans, and strategies to address workforce gaps/needs.

III. Actions remaining and expected completion date

FAA will test the Aeronautical Information Management portion of the Special Use Airspace Automated Data Exchange capability for System Wide Information Management 

by December 2010. Prior to first production sites, terminal separation services will be 

provided (ADS-B to ADS-B and ADS-B to Radar) for Common Automated Radar Terminal 

System (Initial Operating Capability (IOC) April 30, 2011).

FAA will provide initial operating capability for En Route separation services with ADS-B 

integrated into En Route Automation Modernization (ERAM) by April 2011 and En Route 

separation services with ADS-B integrated into Advanced Technologies and Oceanic Procedures (ATOP) August 2011. Terminal separation services prior to first production sites 

(ADS-B to ADS-B and ADS-B to Radar) for STARS will have initial operating capability 

by June 2011.

By the end of FY 2011, FAA will calculate impacts of NAS system performance on passenger exposure in all phases of flight, including delays, using a national flow model for 

major airports and execute its acquisition workforce plan.

IV. Results or expected results

The FAA will continue to focus on the integration across agency processes, systems and 

personnel. Under the construct of FAA’s portfolio management framework, FAA will conduct detailed integrated program planning to effectively manage NextGen.

Issue: Maximizing the Benefits of Performance-Based Navigation in the National 

Airspace System and Keeping Airspace Redesign Projects on Track

I. Why is this an issue?

As air travel continues to be a way of life, increasing demands are made on airspace 

capacity. Although FAA is maximizing the efficiency and safety of our national airspace 

system (NAS) through performance-based navigation (PBN) and airspace redesign, there 

is a need to streamline and expedite the implementation processes. Increased awareness and better project management are two key areas that will help achieve the goals of 

developing integrated, benefit-focused projects.
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II. Actions taken to date

FAA has continued to refine the Integrated Airspace and Procedures concept. It has promoted awareness by reaching out to stakeholders to ensure that they understand the full 

benefits of implementing area navigation (RNAV) and required navigation performance 

(RNP) initiatives. The goal is to ensure that the system works for everyone, including air 

traffic controllers, pilots, airports, and the community. To increase awareness amongst 

the aviation community, in June 2010, FAA initiated a plan to develop material for briefing 

industry and air traffic controllers. 

Industry, through RTCA Task Force 5, recommended that RNAV operations that focus on 

benefits should be increased and optimized; that a structured and systematic approach to 

PBN implementation is essential; that environmental concerns and fuel-savings considerations must be a focus; that teams to study the Metroplex issues should be implemented 

immediately; and that industry should continue to be involved. The primary goal is to produce measurable benefits in reduced flight time & fuel burn by utilizing airspace redesign 

and performance-based navigation. The team also hopes to deconflict airports in the same 

Metroplex such as Washington Dulles, Washington National, and Baltimore-Washington 

International as well as the smaller airports. Anticipated reduction in controller workload 

will lead to reduced congestion and improved airport and airspace capacity. 

To pursue the integrated airspace and procedures concept, FAA held prototype activities, 

including kick-off meetings, and planning discussions with facilities in Denver in February 2010. On April 19-23, 2010, a design meeting was held with all parties and the initial 

integrated procedures design was completed in August 2010. Environmental review and 

human-in-the-loop simulations will further determine refinements to the initial designs. 

To improve project management and project tracking mechanisms, FAA initiated development of two databases to track PBN procedures. The first database, the PBN Project Tracking Tool, is a web-based tool that provides a tracking mechanism to expedite the development, review, and implementation of PBN procedures and routes throughout the lifecycle 

of the PBN project. Additionally, it was developed to align with the new FAA order governing the process for developing and implementing PBN procedures and routes. It provides 

project management functionality for PBN working group members, along with transparency for those interested in the progress of PBN projects. The PBN Project Tracking Tool 

is designed to be used by all parties involved with developing PBN procedures and routes. 

It includes features that are important for compliance with the Safety Management System. 

The PBN Project Tracking Tool is currently in the initial testing phase. FAA is also developing a new order on the process for development and implementation of PBN procedures 
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and routes. The second database that was developed in May 2010 is an interim solution to 

project tracking. It helps track individual procedures and report on procedure counts for 

our Flight Plan goals.

III. Actions remaining and expected completion date

FAA will approve the new PBN order and release the online procedures tracking database by December 2011. It will also complete the final deliverable DVD briefing material 

to FAA’s Technical Training Organization by July 2011 and update guidance material as 

needed.

IV. Results or expected results

The expected result is to have an expedited and integrated process for PBN design and 

implementation. Air traffic controllers and other stakeholders will have a greater understanding of RNAV and RNP, enhancing wider acceptance and technical knowledge.

In FY 2011, FAA will continue to produce PBN routes and procedures at a similar rate 

as in FY 2010. These procedures and routes will be focused and mainly implemented 

in Metroplex areas. The FAA’s efforts to deconflict arrival and departure traffic around 

multiple airports in congested metropolitan areas will move RNAV/RNP airspace and procedure design away from individual overlays into an Integrated Airspace and Procedures 

approach. The agency is also focusing on city pair networks, deconflicting and optimization of procedures serving airports in close proximity.

FAA initiated two databases to increase efficiency in tracking the progress and status 

of all PBN procedures. This web-based tool will help expedite PBN procedures, aids 

in Safety Management Systems compliance and expedites coordination with FAA’s new 

more efficient 5 phase development and implementation of PBN procedures and routes.

Issue: Improving Programs for Developing the Next Generation of Air Traffic 

Controllers

I. Why is this an issue?

Over the next decade, FAA plans to hire and train nearly 11,000 new air traffic controllers to 

replace those who are close to retirement. Ensuring that these controllers are properly trained 

and certified at FAA’s more than 300 air traffic control facilities requires effective national 

oversight and accurate metrics for measuring progress of new controllers in training.

II. Actions taken to date

FAA published a report that outlines training failure information by year, type of hire, 

what stage of training the student failed and completion time. FAA also published a com-
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parison study that provides information on transfers, as well as whether or not the transferred controllers were successful or unsuccessful in their new facility. This study made 

multiple comparisons between en route and terminal air traffic control facilities as well 

as a comparison of the results of transfers from en route-to-en route facilities, en routeto-terminal facilities, terminal-to-terminal facilities, and terminal-to-en route facilities. 

The FAA has been analyzing and reporting the time it takes to become a Certified Professional Controller, the number of training failures, and the number of training delays. 

Enhancements of the methods used for analyzing and reporting on relevant training data 

continue. A periodic review of these specific indicators has continued through the end of 

the fiscal year and will continue into subsequent fiscal years.

FAA initiatives to analyze training hours and costs are based on contractor provided 

invoice data. This ongoing review of training hours and costs has allowed FAA to better monitor training/recruit trends. Also, FAA developed tools to predict contract costing trends for the Air Traffic Control Optimum Training Solution (ATCOTS) contract by 

May 1, 2010. These tools analyze training hours and weekly invoice data provided by the 

contractor. In addition, FAA has developed contractor utilization surveillance tools to 

monitor hours billed for supplemental field training. A program-wide online tool will be 

deployed in November 2010. As a result of prior recommendations, FAA has aggressively 

filled multiple ATCOTS program management positions, including Executive Lead, Communications Lead, Management Analyst, and Business Manager. Additionally, contract 

support vehicles have been utilized to provide contractor support for the Contracting 

Officer, Program Manager, and Quality Lead. New award fee metrics and goals were 

established to include individual competency, organizational competency, cost awareness, and customer satisfaction.

III. Actions remaining and expected completion date

Because of the boost in hiring activities since 2006, new air traffic controllers are increasingly brought on with no prior experience. The En Route facilities have established training programs which are able to handle and have been effective handling any type of controller new hire. However, some of the larger terminal facilities have been challenged in 

meeting the training demand. But since 2007 - and especially in the past year – the FAA 

has launched several initiatives to update its training methodologies and lesson plans to 

fit the profile of those who are being hired. The FAA continues to modify its training curriculum to improve its effectiveness for training today’s workforce. In addition, periodic 

review of the stated key performance indicators, measures, and metrics, will continue to 

assist in determining where additional effort can be targeted, continuously improving the 

training system, including areas applicable to new hires from the general public.
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An ATCOTS program-wide online tool to analyze contractor training hours and weekly 

costs will be deployed in November 2010.

IV. Results or expected results

The Technical Training Office is positioned to analyze training related data more efficiently with the data sets newly available on a regular basis, allowing for more substantial efforts towards root-cause analysis going into FY 2011. As the metrics and measures 

mature over the course of the next year, the office will be able to use them to strategically 

target training support and oversight efforts through weekly tasks, quarterly initiatives, 

and an annual workplan.

The ATCOTS program office successfully executed the second contract year and remained 

within the initial and supplemental funding allocation.

By revamping the award fee structure, the FAA now motivates the contractor to perform 

with added focus in specific program areas. This has resulted in the contractor aligning 

its initiatives to the FAA’s vision for the Technical Training organization and provides a 

better structure to inform stakeholders on contractor contributions.

By increasing staffing at the FAA ATCOTS Program Office, the Government has improved 

its capability to support a performance-based, cost-plus contract of this magnitude, scope 

and complexity. It has built tools to improve day-to-day monitoring of the contract, processes for two-way communications to the field, and an organization structure to improve 

Program Office efficiency. The program stood up a quality assurance team that now analyzes contractor activities, and established a joint Risk and Opportunity Management 

Board to guide excellence and efficiency. The FAA participates in the contractor’s quality 

assurance site visits and audits and manages its own instructor evaluation and voucher 

review programs. To augment existing voucher review processes, the FAA secured thirdparty audit assistance providing dedicated analyses to ensure direct and indirect costs 

paid under the ATCOTS contract are allowable and appropriate. The ATCOTS Program 

Office believes increased scrutiny of quality, cost and price performance could net additional savings that could be redirected to funding training development and delivery.

Once the FAA deploys the first phase of the contractor utilization surveillance tool, 

expected in November 2010, training managers in the field will be able to forecast and 

reallocate resources while remaining under established budget. This provides added 

flexibility for frontline training managers to move resources where they need them without having to go through a lengthy approval process that previously required action from 

both the FAA and contractor program managers.
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6.  Improving Contract Management and Oversight

Issue: Recent Government-wide Efforts to Stimulate the Economy and Reduce 

Spending Heighten the Need for DOT to Address Weaknesses in Contract Planning, Administration and Oversight

I. Why is this an issue?

For the past several years, the Department has had a weakness in its suspension and 

debarment (S&D) program and internal processes. Significant time delays were occurring for entering Operating Administrations (OAs) S&D decisions into General Services 

Administration Excluded Party Listing System.

These weaknesses increase the risk that the Department and other Federal agencies may 

award contracts and grants to irresponsible and/or fraudulent parties. DOT faces the following challenges:

•	 Strengthening DOT's suspension and debarment program to effectively safeguard against awards to improper parties; and 

•	 Maintaining high ethical standards among DOT employees and fund recipients

II. Actions taken to date

In FY 2010, the Department revised and issued an updated S&D order (5200.E) which 

clearly defines expectations, processes, timeframes, and responsibilities of the OAs, 

Office of the Senior Procurement Executive (OSPE), the Office of the Inspector General 

(OIG), and the Office of General Counsel (OGC). It has also modified and enhanced the 

utility of the S&D reporting tool to increase tracking and management oversight capabilities. DOT has trained the OAs on the enhanced utility of the S&D tracking and reporting 

tool. It will continue the direct and formal line of communication with the OIG to ensure 

that the OSPE receives timely and accurate information regarding S&D activity throughout the Department. Finally, the Department has maintained intra-agency S&D quarterly 

meetings to share best practices, and updated the OAs on current internal and external 

developments or issues.

DOT continues to conduct reviews of completed and current Cost Plus Award Fee (CPAF) 

contracts, and de-obligate unused funds where legally acceptable, practicable and 

appropriate.

DOT continues to reduce the use of CPAF contracts with only 59 CPAF contracts in FY 

2010, which is less than 1% of DOT’s contracting activities. DOT had 197 CPAF contracts 

in FY 2009.
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The SPE in conjunction with the modes is developing a Cost Plus Award Fee (CPAF) 

Guidebook incorporating planning, implementation and administration of CPAF contracts, based on guidance available from best practice agencies. The guidebook will be 

completed by July 1, 2011.

The Office of the Senior Procurement Executive and the OIG provided supplemental ethics training to the Operating Administration’s contract and grant personnel. The training 

used interactive case studies that addressed a wide range of ethical concerns specific 

to contract and grant personnel. The Senior Procurement Executive issued a policy on 

01/07/2009 APL-2009-01, Preventing Fraud in Contracting, which amplifies the requirement for contractor codes of ethics and conduct and internal controls systems.

The Operating Administrations are currently doing monthly site visits on American Reinvestment and Recovery Act (ARRA) grants. This ensures that internal controls systems 

are in place and assist in detecting fraud waste and abuse. Non-ARRA contracts are currently being reviewed randomly. The Department has incorporated the Financial Assistance Guidance Manual into TIGER grants to ensure that sound internal controls are in 

place to prevent and assist in detecting fraud. The Department‘s risk assessment office 

set up an internal control work group to assist in developing tighter internal controls for 

ARRA grants.

III. Actions remaining and expected completion date

The Office of the Senior Procurement Executive has completed the recommended OIG 

actions to strengthen internal controls, oversight, and transparency into the overall S&D 

process and program.

Outreach, training, site visits and risk assessments will continue for ARRA. This is an 

ongoing effort.

IV. Results or expected results

The new S&D Order 5200.E has clearly identified and clarified the roles and responsibilities of the OGC, OIG, OA’s, and OSPE. The enhanced S&D reporting tool will be an excellent resource for management’s use when inquiring about the status of S&D actions for an 

individual OA or for the Department as a whole. All S&D liaisons and officials have been 

trained on the reporting tool’s utility and have attended workshops designed to explain 

the expectations and updates contained in the S&D Order 5200.E. It is anticipated that 

these enhancements will serve as a strong deterrent for effectively safeguarding the 

Department against contractor and grantee fraud, waste, and abuse. 
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The DOT Cost Plus Award Fee (CPAF) Guidebook will incorporate planning, implementation, and administration of CPAF contracts. The guidebook will provide the appropriate training to DOT program managers and contracting personnel involved in the use of 

CPAF contracts. This training will highlight proper CPAF award and administration and 

will result in increased knowledge and application and institution of an annual training 

requirement. 

The supplemental training was received by approximately 500 employees. Based on the 

results of the survey, employees suggested that they now have a better understanding of 

Government ethics. The risk assessment and the monthly site visits have ensured proper 

oversight and have dovetailed into preliminary ethical issues and the Office of the Senior 

Procurement Executive has been able address the issue prior to escalation. This also 

allows the Government to spot glaring anomalies and mistakes. At this time, the Office is 

unable to pinpoint any issues directly.
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7.  Enhancing the Ability to Combat Cyber Attacks and Improving the Governance 

of Information Technology Resources

Issue: Given the Scope and Complexity of DOT Systems, it is Critical that DOT 

Effectively Manage and Secure its Information Technology Resources

I. Why is this an issue?

DOT’s financial systems manage and disburse over $50 billion in Federal funds each year. 

At the same time, DOT’s information technology (IT) budget covers more than 400 information systems across its 13 Operating Administrations – nearly two-thirds of which belong to 

the Federal Aviation Administration (FAA).

DOT faces the following management challenges:

•	 Establishing a robust information security program to support the Department's 

missions

•	 Increasing security protection and resilience of the air traffic control system to 

reduce the risks of cyber attacks

II. Actions taken to date

The Department’s Office of the Chief Information Officer (OCIO) led the development of 

a Comprehensive DOT Strategy Plan. The plan focused on areas such as training, consolidation and integration, remediation, upgrades, governance, and infrastructure protection.

To influence the Operating Administrations (OAs), OCIO has established three control 

boards (Technology Control Board, Governance & Investment Board and the Cybersecurity & Privacy Board). All of the OAs contributed to the Cybersecurity Strategic Plan 

focus areas by having representatives work towards the DOT mission. By involving the 

OAs the Department is collaborating towards a joint solution. The Department has begun 

to issue PIV cards. Additionally the Departmental OCIO representatives have educated 

the OAs on the importance of PIV cards and credentialing. The OCIO developed action 

plans to remediate and mitigate known vulnerabilities by assigning team leads to oversee 

compliance.

FAA has resolved eighty percent of its web application security issues identified in the FY 

2010 DOT Top Management Challenges. Compliance checks for all items were completed 

ahead of schedule. Meticulous tracking has been performed to document the successful 

resolution of identified issues. Completion has been slightly delayed due to Traffic Flow 

Management web asset consolidation at the William J. Hughes Technical Center, which 

will yield increased security benefits.
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III. Actions remaining and expected completion date

The DOT Cybersecurity Strategic Plan is complete; plans of action are on-going initiatives that focus on people, process and technology.

IV. Results or expected results

The DOT CIO strategically developed a plan with mission, vision, goals and action objectives that included collaborative efforts with other Federal agencies and industry partners. The DOT CIO and executives developed a budget plan that concentrated on revamping the infrastructure of DOT to enhance the cyber security efforts. The OCIO conducted 

several briefings within DOT as well as to the Senate and House Appropriations Committees to present the challenges DOT faces in cybersecurity.
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8. Developing a Funding Framework for the Next Surface Transportation 

Reauthorization

Issue: The Next Surface Transportation Reauthorization Will Need to Provide a 

Comprehensive Funding Framework for Addressing Infrastructure Needs

I. Why is this an issue?

The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users 

(SAFETEA-LU), the current authorization law, expired at the end of FY 2009 and since then 

has been operating under an extension.

DOT faces the following management challenges:

•	 Ensuring the short-term solvency of the Highway Trust Fund (HTF);

•	 Assessing the annual federal funding needed to preserve and enhance surface 

transportation infrastructure; and

•	 Developing a comprehensive funding framework for the future

II. Actions taken to date

Throughout FY 2010 DOT released weekly cash balance tables for both the Highway 

Account and the Mass Transit Accounts. Both accounts maintained cash balances that 

were sufficient for prudent financial management.

DOT maintained outlay projection models for both the Highways and Transit programs 

to determine how current spending compares to projections. In FY 2010, both FHWA 

and FTA continued to assess the results of the most recent FY 2008 Conditions and Performance (C&P) Report. The Federal Transit Agency followed up the C&P Report with a 

special report on Maintaining a State of Good Repair at transit agencies nationwide. 

Additionally in FY 2010, DOT conducted outreach events throughout the nation to gather 

input from stakeholders to develop proposals for the next reauthorization legislation.

III. Actions remaining and expected completion date

Work is ongoing to develop a reauthorization proposal.

IV. Results or expected results

Regular cash balance reporting has maintained a transparent chain of communications 

with Congress. The Department is on track to release a reauthorization proposal.
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9. Strengthening the Department's Acquisition Workforce

Issue: Addressing Acquisition Workforce Retention and Recruitment Concerns

I. Why is this an issue?

Since 2001, human capital management has been identified as a Government-wide highrisk area. With the expanding and increasingly complex acquisition workload, addressing 

this risk is critical. About 46 percent of contracting specialists are eligible for retirement 

in less than 5 years. DOT needs to do more to ensure it has the needed size and skill levels to support its mission, especially given its need to oversee billions of dollars in ARRA 

funds.

II. Actions taken to date

DOT staff volunteered to participate in a government-wide New Hire Immersion Program Focus Group. The purpose of the focus group was to design a course which could be 

used to quickly train newly hired mid-level (GS9/12 or equivalent) acquisition individuals.

The Intermodal DOT Acquisition Workforce Working Group surveyed DOT Acquisition 

Directors to get input on rotational exchange and intern programs, designed an acquisition brochure to be distributed at job fairs and career days, conducted a networking 

Brown Bag where Acquisition Directors networked with new acquisition professionals 

and colleagues, and drafted requirements for a DOT Rotational Exchange program.

III. Actions remaining and expected completion date

DOT will finalize Rotational Exchange program requirements and implement them by FY 

2011. It will also design and implement an intern program in FY 2012. 

Based on input from the focus group participants, the Department will develop a final 

report of the program with specifications including contents, structure and schedule. The 

final report will be used to develop course materials and select instructors; ensuring that 

the report is aligned with the acquisition community’s vision.

IV. Results or expected results

The above results will increase employee recruitment, engagement and retention.
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Issue: Ensuring a Sufficient and Competent Acquisition Workforce to Meet Mission 

Needs

I. Why is this an issue?

Since 2001, human capital management has been identified as a Government-wide highrisk area. With the expanding and increasingly complex acquisition workload, addressing 

this risk is critical. About 46 percent of contracting specialists are eligible for retirement 

in less than 5 years. DOT needs to do more to ensure it has the needed size and skill levels 

to support its mission, especially given its need to oversee billions of dollars in Recovery 

Act funds.

FAA faces the same challenges confronting many Federal agencies and acquisition organizations. The number and complexity of acquisitions across the Federal Government 

have increased significantly at the time when retirement eligibility is on the rise. These 

combined factors are resulting in an ever-increasing competition for acquisition talent. 

Currently, about 15 percent of FAA’s core acquisition workforce is eligible to retire with 

a cumulative eligibility of 32 percent by FY 2014. As increasing numbers of acquisition 

employees retire, FAA’s pipeline could shrink. To combat this, FAA has a concerted focus 

on bringing in and developing new talent.

II. Actions taken to date

In FY 2010, DOT conducted the 2010 Acquisition Workforce Competency Survey. It issued 

DOT DASH reiterating that all Contracting Officer Technical Representatives (COTRs) 

must meet the Federal Acquisition Circular (FAC) COTR training requirements to achieve 

certification. It also issued FAC-COTR Certifications.

In FY 2010, FAA created the centralized Acquisition Career Management Group under 

the FAA Acquisition Executive. This group had its primary staffing in place by December 

2009. The group’s focus is workforce planning, workforce development, and the implementation of certification programs specifically designed for the acquisition workforce. 

The change in organizational infrastructure emphasizes the critical importance of the 

agency’s acquisition workforce to mission accomplishment and transition to the NextGen 

air traffic control system.

On March 31, 2010, FAA published the Acquisition Career Program Guide under the 

Acquisition Management System (AMS) policy to further recognize the need for workforce competency. This Guide establishes core requirements related to competencies, 

training, experience, and certification for multiple acquisition workforce disciplines.
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FAA’s 2010 Acquisition Workforce Plan provides a profile section for each acquisitionrelated discipline to provide information about the community, critical competency 

requirements, training and certification programs, and other workforce-related initiatives. Additionally, FAA carried out reviews of the National Acquisition Evaluation Program (NAEP) in July, 2010. The findings are being used to identify performance gaps 

within the acquisition workforce. Current training programs and policies are being modified as needed. Areas of review included defining and estimating FAA requirements, making better use of performance-based acquisition, evaluation of proposals and negotiations, 

Contracting Officer Technical Representative (COTR) communications and management, 

and administration life-cycle logistics and contracts by program offices.

III. Actions remaining and expected completion date

DOT expects to update the COTR Program Guidance by the 2nd quarter of FY 2011. This 

will enable COTRs to go to one source to get information regarding the FAC-COTR Certification program. Changes have been made since the initial guidance in 2007 in the form 

of DOT DASHs and the guidance needs to be updated to reflect these changes. DOT will 

also update the Transportation Acquisition Manual and Transportation Acquisition Regulations by year end FY 2011 to incorporate required changes made since the last update 

for DOT-Wide source of information.

FAA has completed all tasks related to this management challenge.

IV. Results or expected results

DOT has a good understanding of its acquisition workforce’s competency through the 

2010 Acquisition Workforce Competency Survey. It provides clearer guidance to COTRs 

by clarifying the FAC-COTR requirements for certification. DOT reviewed and approved 

454 FAC-COTR certifications and issued seven FAC-Cases DASH Policy Documents.

FAA expects to have the staffing and skill mix to successfully manage NextGen and other 

major acquisition programs now and into the future. Through the introduction of the 

Acquisition Career Management Group, documented plans and standards, and proper 

oversight, FAA will be able to estimate and implement training and support where most 

needed to effectively achieve its mission.
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10. Successfully Implementing the Newly Created Multi-Billion Dollar High-Speed 

Intercity Passenger Rail Program

Issue: Designing and Implementing the HSIPR Program from the Ground Up

I. Why is this an issue?

The High-Speed Intercity Passenger Rail (HSIPR) Program required the Federal Railroad Administration’s (FRA) to undergo organizational transformation, from an agency 

focused primarily on rail safety issues to a grant-making agency in a relatively short 

timeframe.

II. Actions taken to date

The HSIPR Program has made significant progress to date in meeting deadlines and obligating funds for both the Recovery Act and the FY 2009 and FY 2010 Appropriations. 

From a pool of 259 submissions, FRA has reviewed and selected 82 Recovery Act and FY 

2009 high-speed rail applications for funding. FRA has obligated $579 million for Recovery Act projects and $9.2 million for FY 2009 Appropriations Act projects.

In addition, FRA has restructured its organization to more effectively manage the program. The Office of Passenger & Freight Programs was reorganized into six divisions to 

align with the functional responsibilities of administering the new HSIPR Program. FRA 

hired 11 new staff and filled other vacancies internally to support the HSIPR Program. 

Additionally, FRA has assigned a “customer support lead” to serve as FRA’s primary contact for each State, supported by teams of subject matter experts.

III. Actions remaining and expected completion date

In addition to administering both current and future grants, FRA has identified three key 

areas essential to the implementation of the HSIPR Program. FRA will continue to hire 

additional HSIPR Program staff to fill the positions provided for in FY 2010 and future 

appropriations by the end of FY 2012. It will also develop final guidance to govern the program, rather than issuing interim guidance with each application solicitation – Advanced 

Notice of Proposed Rulemaking (ANPRM) targeted for FY 2011. Finally, FRA will continue to provide robust technical assistance to States (and other stakeholders) in developing and implementing their proposals.
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IV. Results or expected results

Administratively, FRA’s staffing increases will allow the agency to provide greater technical support to States, as well as improve the overall efficiency of the program’s management. Developing final guidance for the program will provide States, railroads, Congress, 

and other stakeholders with greater clarity on the program's policies and organizational 

structure, as well as provide a consistent and predictable framework that allows for sound 

planning and investment decisions.

Issue: Establishing Policies and Procedures for the Program's Grant Lifecycle Process and Oversight Activities

I. Why is this an issue?

In order to meet the intent of the ARRA to promptly award funds and produce economic 

stimulus, FRA has operated under a series of interim measures in implementing the new 

HSIPR Program. While this approach has enabled the agency to stand up the program in 

a short timeframe greater standardization and documentation of procedures are necessary to ensure the program’s long-term success.

II. Actions taken to date

During FY 2010, FRA developed and documented standardized grant management procedures in a new Grant Management Manual. It also drafted new interim program guidance for FY 2010 high-speed rail applications. FRA conducted significant outreach with 

States and other stakeholders to provide technical assistance in developing high-speed 

rail proposals, completing required application/award documentation, and complying 

with Recovery Act reporting requirements.

III. Actions remaining and expected completion date

FRA will need to provide training to grant managers on the application of the Grant Management Manual. This is expected in mid-FY 2011. FRA will also develop and begin 

implementing a robust oversight and monitoring program, consisting of programmatic, 

financial, and administrative reviews of grantee-submitted reports and documentation 

and grantee/project site visits conducted by FRA staff and project management oversight 

contractors by the end of FY 2011. FRA will also develop final guidance to govern the 

program that documents application evaluation and selection criteria and methodologies, 

reporting and oversight conditions, and requirements for supporting application/award 

documentation. The Advanced Notice of Proposed Rulemaking (ANPRM) is targeted for 

FY 2011.
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IV. Results or expected results

In FY 2011, FRA intends to develop and implement policy changes that will affect both 

internal program administration and external stakeholder activities. By documenting 

standardized grant management procedures, FRA staff will be able to apply a consistent 

approach to grant administration and management. Developing final guidance for the 

program will provide States, railroads, Congress, and other stakeholders with greater 

clarity on the program's policies and organizational structure, as well as provide a consistent and predictable framework that allows for sound planning and investment decisions.

Financial Report

Financial Report

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MESSAGE FROM THE CHIEF FINANCIAL OFFICER

I am pleased to issue the Department of Transportation’s (DOT) Fiscal Year 2010 Agency Financial Report 

(AFR). This is the first year we have produced the 

AFR. The Annual Performance Report and the Citizens Report, a short summary of our activities, will be 

published in February 2011. This new and streamlined 

three-part format is a helpful reporting improvement 

for the benefit of the Congress and the public. For the 

accompanying AFR, we highlight our activities during 

2010 on several fronts. We had a positive year, with 

notable achievements in many areas, including reducing improper payments, a successful financial audit, 

continuing efforts to modernize our financial systems, 

and implementation of the Recovery Act, among others. 

Improper Payments

DOT has made significant progress in the area of improper payments. During 2010, we 

tested our largest grant programs, which include the Airport Improvement Program, the 

Federal-Aid Highway Construction and Planning Program, the Federal Transit Administration’s (FTA) Capital Investment Grants, and FTA’s Formula and Bus Grants. Together, 

these four programs represent over 90 percent of DOT’s grants. Our analysis found that 

estimated improper payment rates for these programs did not exceed 1.5 percent, which 

falls below OMB’s 2.5 percent threshold of “significant improper payments.” Moreover, 

the payments cited as improper during testing were non-systemic improper payments, 

resulting from administrative or documentation errors, which were mistakes having a 

low-impact.

Annual Financial Audit

During 2010 we continued our emphasis on improved financial management, which contributed substantially to another unqualified audit opinion – DOT’s ninth in the last ten 

years. For the third year in a row, we had no material weaknesses. The audit provides a 

useful review of our financial processes, and through this annual exercise, we continually 

strengthen our internal controls and become better stewards of taxpayer dollars.
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Financial Systems Modernization

DOT continued to forge ahead with a major financial management improvement and modernization effort in 2010. Our recent focus formed the foundation for this program, with 

an emphasis on long-term strategic planning. In the coming years, this initiative will 

center on major system applications, improved financial reporting, and hardware components. During this period we also plan to address some related business process improvements, including such key activities as grant payments, vendor payments, and tools for 

better financial analysis.

Recovery Act Implementation

In 2010 we made excellent progress in implementing the American Recovery and Reinvestment Act (ARRA). Funding was designated to invest in transportation infrastructure, 

including transit capital assistance, high speed rail, pavement improvements and bridge 

repair, as well as to preserve and create jobs, and promote economic recovery. As of 

September 30, 2010 the second year of the ARRA program, the Department had obligated 

$39.6 billion and disbursed $20.5 billion.

Extension of the Highway Trust Fund (HTF)

In March 2010, the President signed the Hiring Incentives to Restore Employment (HIRE) 

Act. The Act extends authority to make expenditures from the HTF through December 

31, 2010, and provides additional revenues to the HTF by restoring interest foregone since 

the fund stopped earning interest on its balances several years ago. The Act transferred 

$14.7 billion to the Highway Account and $4.8 billion to the Mass Transit Account from the 

General Fund. Going forward, the trust fund will resume earning interest on its invested 

balances. Also, refunds and credits of fuel taxes paid on fuel used for exempt purposes 

will be paid by the General Fund instead of the Highway Trust Fund. DOT worked diligently during 2010 on implementing this key legislation in order to maintain funding for 

critical transportation programs.

Looking ahead, we will build on our financial management accomplishments, and our critical financial systems and programs will continue to support our Department’s strategic 

goals of Safety, State of Good Repair, Economic Competitiveness, Livable Communities, 

Environmental Sustainability and Organizational Excellence.

Christopher Bertram

Assistant Secretary for Budget and Programs, and Chief Financial Officer
Financial Report

83

OFFICE OF INSPECTOR GENERAL

QUALITY CONTROL REVIEW
84

U.S. Department of

Memorandum

Transportation

Office of the Secretary

of Transportation

Office of Inspector General

Subject: ACTION: Quality Control Review of Audited

Consolidated Financial Statements for Fiscal Years

2010 and 2009, Department of Transportation

Report Number: QC-2011-021

Date: November 15, 2010

From: Calvin L. Scovel III

Inspector General

Reply to 

Attn. of: JA–20

To: The Secretary

I respectfully submit our report on the Quality Control Review of the Department

of Transportation’s (DOT) audited Consolidated Financial Statements for Fiscal 

Years (FY) 2010 and 2009.

The audit of DOT’s Consolidated Financial Statements as of and for the years

ended September 30, 2010, and September 30, 2009, was completed by Clifton 

Gunderson LLP (Clifton Gunderson), of Calverton, Maryland (see Attachment),

under contract to the Office of Inspector General (OIG). We performed a quality 

control review of the audit work to ensure that it complied with applicable 

standards. These standards include the Chief Financial Officers Act, as amended; 

generally accepted government auditing standards prescribed by the Comptroller 

General of the United States; and Office of Management and Budget Bulletin

07-04, “Audit Requirements for Federal Financial Statements,” as amended. 

Clifton Gunderson concluded that the consolidated financial statements present 

fairly, in all material respects, DOT's financial position as of September 30, 2010,

and September 30, 2009, and its net costs, changes in net position, and budgetary 

resources, for the years then ended.

We congratulate DOT for obtaining clean audit opinions with no material 

weaknesses for 3 consecutive years. Your senior leadership team, including the

Chief Financial Officer and Modal Administrators, should be commended for its

commitment to improving DOT financial management.
Financial Report

85

DOT substantially corrected two of the five significant deficiencies in internal 

control reported in Clifton Gunderson's FY 2009 audit report, but the remaining 

three significant deficiencies in internal control are again included in this year's 

report. In addition, there are two new significant deficiencies in internal control 

presented for FY 2010. 

Clifton Gunderson FY 2010 Audit Report 

Clifton Gunderson reported five significant deficiencies in internal control and 

four potential instances of reportable noncompliance with laws and regulations. 

Significant Deficiencies 

1. Financial Accounting, Reporting and Analysis - DOT must continue to 

reduce the use of journal entries and properly record reclassification and 

adjustment transactions in the Delphi general ledger system. Furthermore, 

DOT Operating Administrations (OAs) should follow a formalized 

systematic fund control process throughout the year to monitor fund status. 

2. Undelivered Orders - DOT needs to strengthen controls for monitoring 

inactive obligations and de-obligate an estimated $1.5 billion no longer 

needed as of September 30, 2010. These funds could potentially be made 

available for other DOT requirements. 

3. Grant Accruals - The Federal Highway Administration (FHWA) needs to 

enhance its review and analysis of grant accruals in order to more reliably

measure the cost of grants programs and outstanding liabilities. 

4. Implementation of GrantSolutions Grants Management System - The 

Federal Railroad Administration (FRA) needs to improve the effectiveness 

and functionality of its grants management processes and systems in order 

to strengthen controls and safeguard obligations. 

5. Controls over Financial Systems and Applications - DOT's Enterprise 

Services Center must migrate the Department's accounting application to a

new operation system supported by the database vendor, develop a lifecycle 

plan, and enhance communications with the Department and its OAs.

Furthermore, DOT needs to implement effective security controls to protect 

its financial information from unauthorized access, modification, and 

disclosure throughout the year. 
86

Noncompliance with Laws and Regulations 

Anti-Deficiency Act - DOT management needs to complete its assessment 

of four potential violations of the Anti-Deficiency Act reported at the 

Maritime Administration, the Federal Motor Carrier Safety Administration, 

and FHWA (two potential violations), and report confirmed violations as 

required by law. These OAs should also enhance their internal control 

systems for monitoring fund balances. 

Clifton Gunderson made 30 recommendations to strengthen financial, accounting, 

and system controls. We agree with all, and therefore, are making no additional 

recommendations. DOT officials concurred with Clifton Gunderson's findings on 

the significant deficiencies and potential instances of noncompliance. The 

Department also committed to submitting to OIG, no later than 

December 31, 2010, a detailed action plan to address the findings contained in the 

audit report. In accordance with DOT Order 8000.1C, the corrective actions taken 

in response to the findings are subject to follow up. Accordingly, please provide 

us with quarterly progress reports on the actions taken to reduce the approximately 

$1.5 billion in unneeded obligations discussed in Clifton Gunderson's

"Undelivered Orders" significant deficiency. 

Our review disclosed no instances in which Clifton Gunderson did not comply, in 

all material respects, with applicable auditing standards. 

We appreciate the cooperation and assistance of DOT and Clifton Gunderson

representatives. If we can answer any questions, please call me at (202) 366-1959; 

Lou Dixon, Principal Assistant Inspector General for Auditing and Evaluation, at 

(202) 366-1427; or Earl Hedges, Acting Assistant Inspector General for Financial 

and Information Technology Audits, at (410) 962-1729.

Attachment 

#
Financial Report

87

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    







 

Independent Auditor’s Report

Secretary and Inspector General, 

U.S. Department of Transportation 

In our audit of the U.S. Department of Transportation (DOT) for fiscal year (FY) 2010, we found: 

• The consolidated balance sheets of DOT as of September 30, 2010 and 2009, and the 

related consolidated statements of net cost and changes in net position, and the 

combined statements of budgetary resources for the years then ended (hereinafter 

referred to as “consolidated financial statements”) are presented fairly, in all material 

respects, in conformity with accounting principles generally accepted in the United 

States of America; 

• No material weaknesses in internal control over financial reporting (including 

safeguarding assets) and compliance with laws and regulations, although internal control 

could be improved; 

• Progress has been made in FY 2010 on the five control deficiency conditions noted in 

the FY 2009 auditor’s report; however, certain matters relating to these conditions 

continue to exist and are reported herein as significant deficiencies. In addition, two new 

significant deficiencies were indentified during our FY 2010 audit; and 

• Four instances of reportable potential noncompliance with laws and regulations we 

tested. 

The following sections discuss in more detail: (1) these conclusions, (2) our conclusions on 

Management’s Discussion and Analysis (MD&A) and other supplementary information, (3) our 

audit objectives, scope and methodology, and (4) agency comments and our evaluation. 

OPINION ON FINANCIAL STATEMENTS

In our opinion, the accompanying consolidated financial statements including the accompanying 

notes present fairly, in all material respects, in conformity with accounting principles generally 

accepted in the United States, DOT’s assets, liabilities, and net position as of September 30, 

2010 and 2009, and net costs, changes in net position, and budgetary resources for the years 

then ended. 

As discussed in Note 1U, Summary of Significant Accounting Policies, and Note 20, Excise 

Taxes and Other Non-Exchange Revenue, the accompanying financial statements reflect actual 

excise tax revenues collected through June 30, 2010, and excise tax revenues estimated by the 

Department of Treasury’s Office of Tax Analysis for the quarters ended September 30, 2010. 

As discussed in Note 1U, Summary of Significant Accounting Policies, the Hiring Incentives to 

Restore Employment (HIRE) Act of 2010 extended authority to make expenditures from the 

Highway Trust Fund through December 31, 2010. DOT has been developing several 

reauthorization proposals subject to OMB and Congressional approval. A timely extension of 

the Highway Trust Fund by December 31, 2010 is expected by DOT. 
88

CONSIDERATION OF INTERNAL CONTROL

In planning and performing our audit, we considered DOT’s internal control over financial 

reporting as a basis for designing our auditing procedures and to comply with the Office of 

Management and Budget (OMB) audit guidance for the purpose of expressing our opinion on 

the financial statements, but not for the purpose of expressing an opinion on the effectiveness of 

the entity’s internal control over financial reporting and compliance or on management’s 

assertion on internal control included in the MD&A. Accordingly, we do not express an opinion 

on the effectiveness of the entity’s internal control over financial reporting or on management’s 

assertion on internal control included in the MD&A. 

Our consideration of internal control over financial reporting was for the limited purpose 

described in the preceding paragraph and would not necessarily identify all deficiencies in 

internal control over financial reporting that might be significant deficiencies or material 

weaknesses. However, as discussed below, we identified certain deficiencies in internal control 

over financial reporting that we consider to be significant deficiencies. 

A control deficiency exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to 

prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or a 

combination of deficiencies, in internal control such that there is a reasonable possibility that a 

material misstatement of the entity’s financial statements will not be prevented, or detected and 

corrected on a timely basis. 

A significant deficiency is a deficiency or a combination of deficiencies in internal control that is 

less severe than a material weakness, yet important enough to merit attention by those charged 

with governance. We consider the deficiencies summarized below, and described in Exhibit I, to 

be significant deficiencies in internal control over financial reporting. 

Exhibit I 

1) Financial Accounting, Reporting and Analysis; 

2) Undelivered Orders; 

3) Grant Accruals; 

4) Implementation of GrantSolutions Grants Management System; and 

5) Controls over Financial Systems and Applications 

Our consideration of internal control over financial reporting was for the limited purpose 

described in the first paragraph of this section and would not necessarily disclose all significant 

deficiencies that are also considered to be material weaknesses. However, we do not believe 

that the significant deficiencies described in Exhibit I are material weaknesses. 

We also noted certain other nonreportable matters involving internal control and its operation 

that we will communicate in a separate management letter to DOT management. 
Financial Report

89

SYSTEMS’ COMPLIANCE WITH FFMIA REQUIREMENTS

Under the Federal Financial Management Improvement Act of 1996 (FFMIA), we are required to 

report whether the financial management systems used by DOT substantially comply with the 

Federal financial management systems requirements, applicable Federal accounting standards, 

and the United States Standard General Ledger (SGL) at the transaction level. To meet this 

requirement, we performed tests of compliance with FFMIA Section 803(a) requirements. 

The objective of our audit was not to provide an opinion on compliance with FFMIA. 

Accordingly, we do not express such an opinion. However, our work disclosed no instances in 

which DOT’s financial management systems did not substantially comply with Federal financial 

management systems requirements, Federal accounting standards, or the SGL at the 

transaction level. 

COMPLIANCE WITH LAWS AND REGULATIONS

Except for potential violations of the Anti-Deficiency Act described in Exhibit II, our tests of 

DOT’s compliance with selected provisions of laws and regulations for FY 2010, disclosed no 

other instances of noncompliance that would be reportable under United States generally 

accepted government auditing standards or OMB audit guidance. However, the objective of our 

audit was not to provide an opinion on overall compliance with laws and regulations. 

Accordingly, we do not express such an opinion. 

STATUS OF PRIOR YEAR’S CONTROL DEFICIENCIES AND NONCOMPLIANCE ISSUES

As required by United States generally accepted government auditing standards and OMB 

Bulletin No. 07-04, as amended, we have reviewed the status of DOT’s corrective actions with 

respect to the findings and recommendations included in the prior year’s Independent Auditor’s 

Report dated November 14, 2009. Exhibit III provides a discussion on the status of prior year 

findings and recommendations. 

DOT has made progress in FY 2010 on the five internal control deficiency conditions noted in 

the FY 2009 auditor’s report; two of which are no longer considered Significant Deficiencies for 

purposes of this report. However, certain matters relating to these conditions continue to exist 

and further improvement is needed. These conditions are reported in Exhibit I as follows: 

1) Financial Accounting, Reporting and Analysis; 

2) Undelivered Orders; and 

3) Grant Accruals. 

With respect to laws and regulations compliance issues reported in FY 2009, the potential AntiDeficiency Act violation associated with the U.S. Merchant Marine Academy continues to remain 

unresolved since FY 2007 and is described in more detail in Exhibit II. 

CONSISTENCY OF OTHER INFORMATION

DOT MD&A and other required supplementary information (including stewardship information) is 

not a required part of the financial statements but is supplementary information required by 

accounting principles generally accepted in the United States of America. We have applied 

certain limited procedures, which consisted principally of inquiries of management regarding the 
90

methods of measurement and presentation of the required supplementary information. 

However, we did not audit the information and express no opinion on it. 

Other information, exclusive of the MD&A and the Financial Report sections of the FY 2010 

Agency Financial Report, is presented for additional analysis and is not a required part of the 

financial statements. Such information has not been subjected to the auditing procedures 

applied in the audit of the financial statements and, accordingly, we express no opinion on them. 

OBJECTIVES, SCOPE AND METHODOLOGY

DOT management is responsible for (1) preparing the financial statements in conformity with 

accounting principles generally accepted in the United States, (2) establishing, maintaining, and 

assessing internal control to provide reasonable assurance that the broad control objectives of 

the Federal Managers’ Financial Integrity Act (FMFIA), are met, (3) ensuring that DOT’s 

financial management systems substantially comply with FFMIA requirements, and (4) 

complying with other applicable laws and regulations. 

We are responsible for obtaining reasonable assurance about whether the financial statements 

are presented fairly, in all material respects, in conformity with accounting principles generally 

accepted in the United States. We are also responsible for: (1) obtaining a sufficient 

understanding of internal control over financial reporting and compliance to plan the audit, (2) 

testing whether DOT’s financial management systems substantially comply with the three 

FFMIA requirements, (3) testing compliance with selected provisions of laws and regulations 

that have a direct and material effect on the financial statements and laws for which OMB audit 

guidance requires testing, and (4) performing limited procedures with respect to certain other 

information appearing in the Agency Financial Report. 

In order to fulfill these responsibilities, we (1) examined, on a test basis, evidence supporting the 

amounts and disclosures in the financial statements, (2) assessed the accounting principles 

used and significant estimates made by management, (3) evaluated the overall presentation of 

the financial statements, (4) obtained an understanding of DOT and its operations, including its 

internal control related to financial reporting (including safeguarding of assets), and compliance 

with laws and regulations (including execution of transactions in accordance with budget 

authority), (5) tested relevant internal controls over financial reporting, and compliance, and 

evaluated the design and operating effectiveness of internal control, (6) considered the design 

of the process for evaluating and reporting on internal control and financial management 

systems under FMFIA, (7) tested whether DOT’s financial management systems substantially 

complied with the three FFMIA requirements, and (8) tested compliance with selected 

provisions of certain laws and regulations. 

We did not evaluate all internal controls relevant to operating objectives as broadly defined by 

the FMFIA, such as those controls relevant to preparing statistical reports and ensuring efficient 

operations. We limited our internal control testing to controls over financial reporting and 

compliance. Because of inherent limitations in internal control, misstatements due to error or 

fraud, losses, or noncompliance may nevertheless occur and not be detected. We also caution 

that projecting our evaluation to future periods is subject to risk that controls may become 

inadequate because of changes in conditions or that the degree of compliance with controls 

may deteriorate. In addition, we caution that our internal control testing may not be sufficient for 

other purposes. 
Financial Report

91

We did not test compliance with all laws and regulations applicable to DOT. We limited our tests 

of compliance to selected provisions of laws and regulations that have a direct and material 

effect on the financial statements and those required by OMB audit guidance that we deemed 

applicable to DOT’s financial statements for the fiscal year ended September 30, 2010. We 

caution that noncompliance with laws and regulations may occur and not be detected by these 

tests and that such testing may not be sufficient for other purposes. 

We performed our audits in accordance with auditing standards generally accepted in the 

United States; the standards applicable to the financial audits contained in Government Auditing 

Standards, issued by the Comptroller General of the United States; and OMB guidance. We 

believe that our audits provide a reasonable basis for our opinion. 

AGENCY COMMENTS AND OUR EVALUATION

In commenting on a draft of this report (Exhibit IV), DOT concurred with the facts and 

conclusions in our report. We did not audit DOT's response and, accordingly, we express no 

opinion on it. 

********************************* 

This report is intended solely for the information and use of DOT management, DOT’s Office of 

Inspector General, OMB, the Government Accountability Office, and the U.S. Congress, and is 

not intended to be, and should not be, used by anyone other than these specified parties. 



Calverton, Maryland 

November 12, 2010 
92

EXHIBIT I 

DEPARTMENT OF TRANSPORTATION 

INDEPENDENT AUDITOR’S REPORT 

SIGNIFICANT DEFICIENCIES 

September 30, 2010 

1. Financial Accounting, Reporting & Analysis 

Conditions: 

Although DOT management has improved its accounting and financial reporting processes 

over the past year, certain conditions noted in the prior year continue to exist. The following 

deficiencies still exist in the DOT’s internal controls relating to its financial reporting accounting, 

reporting and analysis. 

a) Over Reliance and Use of Journal Entries, Use of Object Class 00000 and Null 

Undelivered Orders

Even though DOT has made improvements in this area this year, the problem continues to 

be substantial and needs more focused attention to ensure reliability of the financial 

reporting process used by DOT both during the year and at year end. 

DOT and its Operating Administrations (OAs) recorded over 8,600 journal entries (JEs) 

totaling an absolute value of approximately $606 billion during FY 2010. Of the 

approximately 8,600 JEs used to record transactions, approximately $459 billion in absolute 

value were period end entries, parent-child reporting entries, and trust fund accounting 

entries. These entries were made as part of the normal period end accrual entries or 

because of the general ledger system limitations, for which the use of the JEs is considered 

necessary. However, many of the JEs in the absolute value of approximately $147 billion 

appeared to relate to reclassifications and adjustments transactions as a result of entries 

not being properly recorded in the general ledger system initially. Many of these JEs could 

have been avoided by processing DOT’s normal transactions through its general ledger 

system, Delphi, modules such as the Budget Execution Module (BEM) or by using Delphi’s 

standard transaction codes. In addition, DOT recorded approximately $2 billion in absolute 

value of activity and a net balance of $982 million to the 00000 object class code. 

Furthermore, an absolute value of approximately $1.9 billion of the undelivered order (UDO) 

balance contained null UDO transactions. The Department describes the object class 

00000 as not applicable. Null UDOs are transactions recorded in the general ledger without 

a specific purchase order number. 

DOT, in its effort to achieve standardization of the OAs’ use of the JEs, issued a JE policy 

in May 2010, and DOT, as a whole, has made progress in this area from the prior year. 

However, more work is still needed to improve in this area. The volume and amount of 

these adjustments suggest that financial system limitations continue to impede DOT’s 

ability to record certain activities within their Delphi system at the transactional level so that 

all financial events are properly captured at the time when the transactions occur. This 

manually intensive process has a high risk of error, is time consuming, and utilizes 

resources that could be spent on other financial reporting matters. 
Financial Report

93

b) Fund Status Reporting Throughout the Year and at Year-end

DOT’s OAs did not follow a formalized systematic fund control reporting and monitoring 

process throughout the year for their status of funds. Each OA used various tools and 

resources to monitor their status of funds throughout the year and at year-end. These tools 

and resources consist of various Delphi web based reports or Excel spreadsheets that may 

or may not provide the necessary budgetary data to monitor the OAs’ fund status and are 

manually intensive to produce. Much of the financial data included on the Delphi web based 

reports is limited in nature due to the fact that the information included is as of the report 

run date instead of a period of time such as at year-end. Certain Delphi web based reports 

did not include financial data at the allotment level, which is the level at which DOT applies 

funds control. In addition, the OA personnel responsible for monitoring the status of funds 

varied amongst OA division offices and level of employees. Such inconsistency in fund 

control monitoring processes increases the risk that anti-deficiency violations may have 

occurred and not prevented or detected at the OA level and ultimately reported to DOT in a 

timely manner. Consequently, DOT management was in the process of evaluating the 

status of four potential anti-deficiency matters related to Federal Highway Administration 

(FHWA), Maritime Administration (MARAD) and Federal Motor Carrier Safety 

Administration (FMCSA) at September 30, 2010 as discussed in Exhibit II. 

Recommendations: We commend DOT management for the efforts and improvements they 

have made in its internal controls, application of accounting principles, and monitoring 

processes over the past year. However, as evidenced by the conditions noted above, 

continued diligence in this area is needed to further advance the progress made to date. 

Accordingly, we recommend that DOT management: 

1) Over Reliance and Use of Journal Entries

a) Revise its financial reporting processes so that the majority of the journal entries are not 

recorded manually. Adjusting journal entries should be used for limited transactions (i.e. 

quarterly accruals, unusual one-time entries, etc.) In addition, DOT should refine the 

Departmental JE policy issued in May 2010 to include guidance for budgetary entries. 

b) Perform a pro forma analysis to ensure that post closing effects are considered prior to 

recording significant adjustments (excluding the routine adjustments such as the 

quarterly or yearend accruals entries) into the general ledger system. For budgetary 

entries, financial management should review the entries with the budget officials to 

ensure both are in agreement prior to recording them. 

c) Continue with financial management modernization efforts to define and re-engineer 

business processes which aid in the design and configuration of its next upgrade to 

Oracle R12. R12 should be configured as a fully integrated financial management 

system allowing for the use of event driven rules (based on Treasury Transaction 

codes) in the subsidiary modules. In addition, as part of the Oracle R12 upgrade, 

management should ensure consistent and standardized data elements and data fields 

can be utilized to process and record transactions to achieve the greatest efficiency and 

consistency in its financial reporting for future years. 

d) Incorporate the elements of the FSIO Core Financial System Requirements Exposure 

Draft dated February 2010 and the applicable requirements schedule such as the 

General Ledger Requirement schedule. Upon implementation of the Oracle R12 

update, management should ensure that each requirement included in the General 

Ledger Requirement schedule is met. 

e) Perform a quarterly review to verify whether the use of the 00000 object class is 

consistent with pre-established policy. If the use is not consistent with policy, the OAs 

should promptly reclassify amounts to the proper object class. 
94

f) Continue to research the underlying cause of the null UDO activity. The activity 

recorded in the general ledger should be identified and corrected with a specific 

document number reported in the Delphi subsidiary system to properly account for the 

open obligations. 

g) Provide training or periodic reminders to users of the Delphi system to ensure that 

transactions continue to be processed in accordance with Departmental or OA policies 

and procedures. 

2) Fund Status Reporting

a) Develop and implement a process to monitor the status of funds which includes 

formalizing policies and procedures at the Department level. Accordingly, the 

information should be disseminated to each OA to ensure that a systematic process is 

used to monitor the status of funds. The policies at a minimum should include the 

following: 

• OA division/office including the level of the staff responsible for monitoring the status 

of funds. 

• The frequency of the review of the status of funds 

• The financial system and the documentation (i.e. reports) that should be used to 

track and/or monitor the status of funds. 

b) Review the current Core Financial System Requirements Exposure Draft released on 

February 22, 2010 and the applicable functional and subfunctional design specifications 

such as the Funds Management Requirements. Upon implementation of the Oracle R12 

upgrade, management should ensure that the functional and subfunctional 

requirements for Funds Management have been met. 

2. Undelivered Orders 

Conditions: 

DOT obligates its budgetary resources when it enters into a binding legal agreement such as a 

grant or a contract with a third party. At the end of the grant or contract period, any previously 

obligated but not disbursed amounts (also known as undelivered orders, UDO) associated with 

completed or cancelled projects should be de-obligated enabling the unused funds to 

potentially become available for other agency program needs. When the unneeded obligations 

continue to remain on DOT’s books, they are considered to be inactive invalid obligations. DOT 

reported approximately $106.6 billion of UDO at September 30, 2010. Of that amount, 

approximately $4.1 billion was related to contracts and $4.8 billion was related to grants with no 

activity for longer than 12 months. It is critical that DOT OAs continue to improve upon their 

management and monitoring of inactive obligations to ensure the status of the budgetary 

resources is reported accurately and represent valid obligations of the DOT. The following 

deficiencies still existed in the DOT’s internal controls relating to the UDOs during FY 2010: 

a) During our statistically based sample testing of the UDO balances at September 30, 2010, 

we noted 29 instances out of 60 items tested where the UDO balance should have been 

de-obligated because the project was completed or the amount recorded could not be 

substantiated by management. The projected value of the error to the entire UDO 

population was estimated to be an overstatement of approximately $1.5 billion. DOT 

recorded an adjustment in that amount to its Statements of Budgetary Resources at 

September 30, 2010. 
Financial Report

95

b) During our site visits with FHWA and FTA Divisional or Regional offices in FY 2010, we 

found that certain of those Divisional or Regional offices did not properly monitor the 

inactive projects and liquidate the unused obligations in a timely manner. Some projects 

had remained inactive or had been completed with unused obligations carried forward into 

the current fiscal year. Those projects’ period of inactivity ranged from one year to more 

than ten years. 

Recommendations: The projected error in the UDO balance at September 30, 2010 continued 

to be substantial, and the reasons for the extent of these errors need focused attention to avoid 

an escalation of the problem in FY 2011. We recommend that DOT take the following actions to 

immediately reduce the error in the UDO balance and resolve the risk of significant error in the 

future: 

1) Standardize the inactive UDO review process throughout DOT by providing data 

download of inactive UDOs on a quarterly basis to the OA management and require the 

OAs to report the status of these inactive UDOs to DOT management. Internal review of 

the inactive UDOs should focus on the inactive projects and contracts and should be 

incorporated into DOT’s A-123 Appendix A implementation efforts. One technique could 

include a review of support documentation obtained by using a stratified sampling 

method. Timely follow up of areas with a higher degree of invalid obligations should be 

performed to ensure better compliance. 

2) Monitor the field offices’ quarterly inactive project reviews, particularly on stagnant 

projects, to ensure that inactive obligations are liquidated in a timely manner throughout 

the year. 

3) Update the policies and procedures to include specific procedures for the timely 

monitoring and liquidating of inactive obligations. The qualifier “timely” should be 

clarified in the guidance to ensure consistent implementation of the requirements. 

4) Implement policies and procedures which require the OAs to more diligently follow-up 

with their contracting officers, project managers or grantees to identify and de-obligate 

unneeded obligations in a timely manner. 

3. Grant Accruals 

Conditions: 

DOT reported approximately $61 billion of grants related expenditures in FY 2010. At 

September 30, 2010, DOT estimated a grant accrued liability of approximately $7 billion for 

expenditures incurred by its grantees but not yet reimbursed by DOT. Of the $7 billion reported 

by DOT, approximately $5 billion were related to FHWA’s grant programs. FHWA management 

did not perform a trend analysis of its grant accrual estimates in FY 2010. The unresolved 

significant differences between the estimate and actual noted in FY 2009 ranged from a 

negative $667 million to a positive $404 million, representing a percentage difference range of 

negative 17% to a positive 16%. In addition, FHWA management did not perform an adequate 

review of its June 30, 2010 grant accrual calculation resulting in the interim financial statements 

being understated by approximately $203 million. The lack of adequate review and analysis for 

the FY 2010 accrued amount coupled with the unresolved significant differences affects 

FHWA’s ability to reliably measure the full cost of its grant programs and the liability it had 

outstanding with its grantees for costs incurred but not yet reimbursed at September 30, 2010. 
96

Although the Federal Financial Accounting Technical Release (TR) No. 12, Accrual Estimates 

for Grant Programs, does not become effective until the periods beginning after September 30, 

2010, the earlier implementation of the guidance is encouraged. TR No. 12 requires federal 

agencies with significant grant programs to implement adequate and effective internal control 

procedures to ensure that grant accrual estimates are based on historical transactions and that 

a trend analysis of grant accrual estimates from year to year be completed. Also, investigations 

of unusual fluctuations should be performed and the related results should be documented. 

Due to the lack of available resources, FHWA was unable to perform the grant accrual trend 

analysis to support the reliability of its grant accrual methodology in FY 2010. 

Recommendations: 

We recommend that DOT management ensure FHWA: 

1) Proactively assess resource constraints well in advance to ensure that the proper 

attention is given to significant financial management issues such as the validation of 

the grant accrual estimate. In addition, FHWA management should enhance its 

oversight and review of the grant accrual calculation to ensure that the amount is 

properly reported in the financial statements and footnotes. 

2) Perform the grant accrual look back analysis on a quarterly basis throughout the fiscal 

year. Consistent with our prior year recommendation, the application of these methods 

used to perform the look back analysis should result in providing sufficient evidence to 

explain unusual variances or support to update the current grant accrual methodology. 

Such periodic assessment of the adequacy of the grant accrual methodology should be 

documented and supported by data analysis. The estimated liability amount is subject 

to risk that actual subsequent disbursement amount may be significantly different than 

management’s estimate. When this occurs, management should further analyze the 

drivers/factors for such an unexpected occurrence to ensure the validity and 

reasonableness of the estimation methodology. 

3) Implement the FASAB TR No. 12 for grant accrual estimates, consider the prior year 

recommendation, and assess the reliability and reasonableness of its current grant 

accrual methodology by performing the following: 

a) Survey sufficient number of grantees due to the waiver of the Paper Reduction 

Act and update the grant accrual methodology based on the most current and 

relevant information. Consider reviewing the survey results with the relevant 

program officials at FHWA to ensure consistency and reliability of information 

received from the grantees. 

b) Consider using results of the audited grantee information like the accrual 

amounts reported by its state grantees in their audits and adjust for any 

programmatic changes that occurred at the grantee level to determine whether 

the survey information included by the grantee is materially correct or supported. 

Additionally, the audited information may be used as another tool to validate its 

grant accrual methodology. 

c) Assess whether an adjustment to the current methodology is warranted based 

on the various analyses performed by management. 
Financial Report

97

4. Implementation of GrantSolutions Grants Management System 

Conditions: 

Federal Railroad Administration (FRA) received over $9 billion in funding under the American 

Recovery and Reinvestment Act of 2009 (Recovery Act). In addition, FRA, with its key role in 

providing the Federal government’s support of the nation’s rail transportation activities, receives 

increased annual appropriations from Congress from approximately $1.8 billion in FY 2009 to 

over $4 billion in FY 2010. As of September 30, 2010, FRA reported approximately over $9.9 

billion of unobligated funds. Though funds have not been obligated, the majority of the amount 

is appropriated for specific grants programs. In order to strengthen and streamline its controls 

surrounding the grants management process, FRA implemented the GrantSolutions grants 

management system and processed one grant in FY 2009. Starting in FY 2010, all new grant 

awards were processed and obligated through GrantSolutions except for the Amtrak grants. 

FRA’s partial implementation of an automated grant management system is a significant 

improvement over the manual process previously used. However, we identified several areas 

for improvements to enhance the effectiveness of the grant management process including the 

functionality of the grants management systems. 

a) Lack of Grant Award Obligations Interface with Delphi 

The GrantSolutions system does not interface with the Delphi general ledger system. The 

lack of an interface requires DOT personnel to manually input obligation data into each of 

the aforementioned systems separately. This duplication and manual intensive process 

increases managements’ susceptibility to risks that errors will occur and not be prevented 

nor detected in a timely manner. FRA informed us that they are actively working with the 

Enterprise Service Center (ESC) and the service provider for GrantSolutions to develop, 

test, and deploy an interface between Delphi and GrantSolutions. The non-integration of 

GrantSolutions with Delphi creates redundancy and inefficiency that increases the risks that 

grant awards are not recorded in the general ledger system accurately or in a timely 

manner. 

b) Lack of Commitment Accounting Implementation 

FRA does not use commitment accounting to reserve grant funds that have been approved 

for award. By not implementing commitment accounting, coupled by the manual obligation 

recording process, there is an increase risk that funds intended for that grant may no longer 

be available for obligation. 

c) Amtrak and Prior Years Awarded Active Grants not Recorded in GrantSolutions 

FRA does not use GrantSolutions to process and obligate grants recorded in Delphi 

awarded to Amtrak, which amounts to billions of dollars annually. The Amtrak grant awards 

are manually processed and obligated. In addition, FRA has not migrated any currently 

active grants awarded in prior years into GrantSolutions, but instead records all subsequent 

amendments issued in FY 2010 to those active grants as new awards within 

GrantSolutions. As a result, the original grant is administratively closed-out upon completion 

of the period of performance, and management has to consult both hard copy files and 

GrantSolutions to monitor and determine the status of some active projects. This is not an 

efficient process. When all grants are not recorded in a single grant management system, 

management cannot readily determine the completeness and accuracy of the grant 

activities including grant obligations and expenditures. This may result in errors in the 

financial records and ultimately in the financial statement and related footnotes. In addition, 

inaccurate reporting to third parties such as OMB may be impacted. 
98

d) Complete Reconciliation of Cumulative Balances between GrantSolutions and Delphi

Not Performed

FRA does not perform periodic reconciliations between the grant obligations amounts 

recorded in GrantSolutions to the obligation amounts recorded in Delphi. FRA management 

stated at the time the grant amount is obligated and recorded in Delphi, a manual review is 

performed to verify that amount agrees to GrantSolutions. A periodic reconciliation between 

the two systems would ensure that the grants awarded through GrantSolutions are 

recorded in Delphi and that the amounts obligated are the same in both systems. Also, a 

periodic reconciliation would indentify any funding changes that were made in 

GrantSolutions and not made in Delphi and vice-versa. Not performing periodic cumulative 

reconciliations between GrantSolutions and Delphi increases the risk that all activities are 

not accurately reflected in the financial records and ultimately in the financial statements. 

e) Grant Disbursement Data not Recorded in GrantSolutions

FRA does not record the grant disbursements within GrantSolutions. Instead, FRA’s 

grantees submit Requests for Advance or Reimbursement (SF-270) directly to the ESC in 

Oklahoma City, for subsequent recording into Delphi. The ESC personnel process the SF270 in MarkView and forward the request to the appropriate Grant Manager and/or COTR 

for review and approval. Once approved, the Grant Manager or COTR subsequently 

updates FRA’s administrative records to track the fund status of the grant obligation by 

updating a manual tracking spreadsheet and filing hard copies of the requests for 

reimbursement in the official grant file. As a result, FRA uses two separate systems to track 

the obligations and expenditures, which makes the grant post award monitoring manually 

intensive, inefficient, and prone to human errors. FRA informed us that they are planning to 

migrate to DOT’s new grant payment system, iSupplier, for processing disbursements. This 

new system will directly interface with Delphi and subsequently, to GrantSolutions. 

f) Federal Financial and Grant Progress Reports Not Accomplished through 

GrantSolutions

FRA does not require its grantees to submit their Federal Financial Reports (SF-425) and 

Progress Reports through the GrantSolutions system. Currently, all financial and progress 

reports are submitted to FRA either through the mail or as email attachments. This process 

requires extra time for staff to download the reports from email accounts, scan the hard 

copies, and then upload them into GrantSolutions. As a result, the current grant post award 

monitoring process is manually intensive, inefficient, and prone to delays and human error. 

FRA confirmed that they will be testing the SF-425 submission functionality in 

GrantSolutions and anticipate the full implementation of the electronic submission of the 

SF-425 and progress reports in FY 2011. 

g) Lack of Utilization of Electronic Signatures in GrantSolutions

In addition to requiring grantees to electronically accept grant awards through 

GrantSolutions, FRA requires grantees to print the grant document, sign it, and then return 

the hard copy to FRA. Once FRA receives the signed grant document, it is signed by the 

FRA Administrator and sent to the ESC for recording the obligation. This administrative 

process can result in significant delay between the time the grant is approved for funding by 

the FRA Administrator and when the obligation is actually recorded in Delphi. FRA’s 

manually intensive grants management process heightens the susceptibility of risk of errors 

being recorded without being detected. Also, there is an increased risk of not recording 

obligations in a timely manner. 
Financial Report

99

h) Lack of SAS 70 Review for GrantSolutions

FRA has not obtained nor reviewed the latest SAS 70 report that was performed on the 

GrantSolutions system operated by the Department of Health and Human Services. The 

review of the SAS 70 will assist FRA in implementing the necessary user controls and in 

assessing and evaluating certain control risks relating to their utilization of the 

GrantSolutions as their grants management system. 

i) Finalization and Implementation of the Grants Manual

FRA does not have a grant reference manual for use by grant management and program 

personnel as a day-to-day operational tool to properly process and actively manage and 

monitor their grant awards. FRA provided a draft copy of a financial guide they are currently 

drafting and stated that they anticipate publishing an FRA financial guide in FY 2011. 

Incomplete or inadequate grants management policies and procedures increase 

management susceptibility to programmatic/operational and financial risk including 

redundancy, inefficiency, waste, fraud and abuse of budgetary and human capital 

resources. 

Recommendations: 

We recommend that DOT management ensure FRA: 

1) Implement GrantSolutions capabilities and functionalities that include the integration 

with the DOT Delphi accounting system or other planned disbursement system such as 

iSupplier. In addition, management should update the system functionality to include 

grantee financial and progress reporting submission directly into GrantSolutions. A 

complete reconciliation between the GrantSolutions and Delphi should be performed on 

a monthly basis. Any identified differences should be resolved within 60 days at 

minimum. 

2) Consider the implementation and use of commitment accounting to strengthen fund 

controls. Funds should be reserved at the time the grant is recommended for funding. 

Grant obligations should occur at the time the grant agreement is electronically 

approved by the FRA Administrator. 

3) Record all active grants in GrantSolutions. This includes grants awarded to Amtrak and 

any open prior year grants for which only amendments have been processed through 

GrantSolutions. 

4) Identify, assess, and evaluate specific programmatic/operational and financial risk 

within its grants management process, including the implementation of a grantee risk 

assessment process to be performed annually to determine whether additional 

oversight efforts are necessary to mitigate the grantee risks that could result in 

questioned costs. Management should subsequently implement control activities to 

address such risks. Control activities should include the development of the grant 

reference manual that incorporates the operational, programmatic and financial 

management requirements, and also include management review of the applicable SAS 

70 report and consideration of the SAS 70 report results. 
100

5. Controls over Financial Systems and Applications 

Background and Control Deficiency Assessment Criteria:

The information systems relevant to financial reporting objectives include automated and/or 

manual controls over records established to initiate, authorize, record, process, and report 

entity transactions. These controls also include the processing and maintenance of information 

in the general ledger accounting system, for the accountability and reporting of budgetary and 

proprietary accounting information, the related assets, liabilities, and equity. The quality of this 

information affects management's ability to make appropriate decisions in controlling the 

entity's activities and to prepare reliable financial reports. 

The extent and nature of these risks is dependent upon the effective implementation of internal 

controls to ensure the integrity of information processed and maintained. For example, multiple 

users, either external or internal, may access a common database of information that affects 

financial reporting. In such circumstances, a lack of control at a single user entry point might 

compromise the security of the entire database, potentially resulting in improper changes to or 

destruction of data. When IT personnel or users are given, or can gain, access privileges 

beyond those necessary to perform their assigned duties, a breakdown in segregation of duties 

can occur. This could result in unauthorized transactions or changes to programs or data that 

affect the integrity of data used to produce the financial statements. 

Monitoring of internal controls is a key control process to determine appropriateness of the 

design of controls, the effectiveness of the controls, and the need for corrective actions, and 

whether additional safe guards and/or enhancements should be made to the internal controls 

as they mature. Monitoring is done to ensure that controls continue to operate effectively. For 

example, if the timeliness of software patching and upgrades are not monitored, the software 

may be vulnerable to unauthorized access, modification, disclosure, loss or impairment. 

Monitoring of controls is accomplished through ongoing monitoring activities, independent 

evaluations, or a combination of both. 

Conditions: 

The DOT’s ESC provides financial transactions processing and reporting services to DOT. The 

ESC has provided DOT with the Statement on Auditing Standards (SAS) No. 70, Service 

Organizations, Report on Controls Placed in Operation and Tests of Operating Effectiveness of 

the general, applications and operational controls related to the ESC for the nine-month period 

ended June 30, 2010. The Independent Service Auditor (ISA) qualified its opinion on the 

operating effectiveness of controls. The ISA found that ESC's configuration management 

controls did not operate effectively and impacted the Center's access controls. Specifically, the 

DOT’s general ledger system, Delphi, resides on an operating system for which the database 

vendor stopped providing security patches and those security patches that were applied were 

not applied timely. This poses additional control risks to DOT, that its general ledger system’s 

database cannot be updated to protect against known security vulnerabilities. ESC did not 

adequately consider the security of the Delphi application in the system development life cycle 

to appropriately plan and migrate Delphi to an operating system that will be supported by the 

database vendor. 

DOT was not alerted to the security life cycle risks posed by the impending obsolescence of the 

Delphi operating system. ESC’s monitoring and risk mitigation process was not effective in 

ferreting out risk implications of the impending software obsolescence. Although, ESC 

management presented a policy for evaluating individual patches, assessing the suitability to 
Financial Report

101

ESC’s environment, level of threat, compensating controls and risk, the ISA found no evidence 

of compliance with this policy. This deficiency prevented DOT from evaluating the impact of this 

weakness in a timely manner, and ultimately implementing effective security controls to protect 

its information from unauthorized access, modification, and disclosure prior to it being alerted of 

the aforementioned security life cycle risks. 

Recommendations: We provide the following recommendations to the respective DOT and 

OA management: 

1) ESC 

a) Promptly migrate the Delphi application to an operating system supported by the 

database vendor. 

b) Develop and implement a system development life cycle process to plan for the 

deployment and retirement of information technology resources. 

c) Enhance the communication process with DOT and its OAs to ensure 

information life cycle issues are adequately addressed and planned for in a 

timely manner. 

2) DOT management should request an action plan from ESC to resolve these matters, 

and request periodic reports from ESC on the status of the implementation of the above 

recommendations and apprise its OAs of the status of such action plan. 

3) DOT and its OAs’ management should continue to assess the impact that these 

findings have on its financial operations, and continue to focus its efforts on reducing 

the risk of errors in its financial statements through the use of compensating controls 

until this matter is resolved. 
102

EXHIBIT II 

DEPARTMENT OF TRANSPORTATION 

INDEPENDENT AUDITOR’S REPORT 

NONCOMPLIANCE WITH LAWS AND REGULATIONS 

September 30, 2010 

1. Anti-Deficiency Act 

Conditions: 

a) Maritime Administration (MARAD) 

In FY 2009 the Secretary of the Department of Transportation reported Anti-Deficiency 

Act (ADA) violations related to MARAD’s United States Merchant Marine Academy 

(Academy). In addition to the actual violations reported to the President, the President of 

the Senate, the Speaker of the House of Representatives, Office of Management and 

Budget (OMB) Director and the Acting Comptroller General, the Government 

Accountability Office (GAO) issued an audit report titled “Internal Control Weaknesses 

Resulted in Improper Sources and Uses of Funds; Some Corrective Actions Are Under 

Way” in August 2009. The GAO audit report identified additional potential ADA issues for 

midshipmen fee transactions that occurred during calendar years 2006 and 2007 related 

to the following: 

• fees collected and uses of fees unrelated to goods and services provided to all 

midshipmen, 

• fees collected that exceeded the actual expenses to the Academy for the goods 

or services provided, and 

• the use of accumulated excess midshipmen fees for improper and questionable 

purposes. 

b) Federal Motor Carrier Safety Administration (FMCSA)

During FY 2010, FMCSA identified potential ADA violations related to the following: 

• Reprogramming and obligation of funds across Programs, Projects, or Activities 

without an approved SF-132 reapportionment from OMB in FY 2008. Specifically, 

it reprogrammed funds from Commercial Vehicle Information Systems and 

Networks (CVISN) Grant program to the Safety Data Improvement Grants 

program (SaDIP) in the amount of $0.3 million and to the New Entrant Grant 

program in the amount of $3.2 million. 

• A Motor Carrier Safety Assistance Program grant to the State of New Jersey in 

the amount of $30,000. 

• Deficiencies in the CVISN grant program. The deficiencies indicated that a 

number of States might have received grant awards that exceeded the statutory 

amount caps or received grant awards for which they were not eligible. 

c) Federal Highway Administration (FHWA)

During FY 2010, FHWA reported that FY 2010 obligations in the American Reinvestment 

and Recovery Act (ARRA) appropriation account for the Refuge Roads program may be 

in excess of the amount apportioned under Category B of the Apportionment and 

Reapportionment Schedule (SF-132) approved by OMB on April 28, 2010. FHWA is 

currently analyzing the actual obligations for the program to make a proper 

determination as to whether an ADA violation actually occurred prior to the September 

apportionment. 
Financial Report

103

d) Federal Highway Administration (FHWA)

FHWA reported that one project obligated for the Transportation Investment Generating 

Economic Recovery (TIGER) discretionary grant program during FY 2010 was made 

prior to the allotment advice was provided by DOT’s Office of the Secretary (OST) to 

FHWA. FHWA obligated the funds on July 16, 2010 while the allotment advice from OST 

was not provided until August 12, 2010. 

As of the date of our report, the DOT management had not completed their assessment of 

these potential violations. 

Recommendations: MARAD, FMCSA and FHWA management have taken several 

corrective actions to address internal controls related to those potential anti-deficiency 

matters in FY 2010. However, we recommend that DOT management ensure the relevant 

OAs: 

MARAD

1) Continue to implement and monitor the implementation of the recommendations 

made by GAO in the aforementioned GAO report. 

2) Determine whether sufficient appropriations remain available to be charged the 

official Academy expenses and report ADA violations accordingly if sufficient 

appropriations are not available to cover those expenses. 

3) Establish a formalized and documented process to reimburse midshipmen for 

overcharged fees. 

FMCSA

FMCSA’s potential ADA issues indicate internal control weaknesses in the fund control and 

grants management areas. Management has taken steps to improve upon its fund control 

monitoring procedures and is in the process of implementing an OMB endorsed automated 

grants management system to capture the grant transactions through their lifecycle from 

grant application receipt to grant closeout. This automation will increase the accuracy and 

accountability of the grant management process. The system will also interface with Delphi 

to improve upon the grant reconciliation process. We provided recommendations related to 

DOT’s fund controls and fund status reporting and FRA’s grant management system 

implementation in item # 1and #5 of Exhibit I above for FMCSA’s implementation. We further 

recommend the following to address the potential ADA matters: 

1) Determine whether ADA violations occurred and report ADA violations accordingly 

as required by law. 

2) Establish comprehensive risk-based internal control systems for fund control and 

grants management that address the core issues identified. In addition, internal 

review of the fund controls and grant reconciliation processes should be incorporated 

into DOT’s A-123 Appendix A implementation efforts. 

FHWA

1) Determine whether ADA violations occurred and report ADA violations accordingly 

as required by law. 

2) Evaluate the cause for the over-obligations and establish a comprehensive internal 

control system for monitoring funds control on a real-time basis when an obligation is 

recorded. Delphi absolute fund control edit checks should be in place to stop the 

over obligation from occurring. 
104

EXHIBIT III 

DEPARTMENT OF TRANSPORTATION 

INDEPENDENT AUDITOR’S REPORT 

STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS 

September 30, 2010 

Prior Year Condition Status As Reported at September 30, 2009 

Status as of 

September 30, 2010 

Control Deficiencies 

1. Financial 

Accounting, Reporting 

& Analysis 

Significant Deficiency: The DOT has 

weaknesses in the following: 

• Reliance and use of journal entries 

• Accounting and reporting for Property, 

Plant and Equipment (PP&E), 

including the Construction in Progress 

assets 

• Timely follow-up of identified Amtrak 

financial reporting issue 

Issues related to FAA 

and MARAD PP&E 

accounting, and 

Amtrak financial 

reporting have been 

resolved in FY 2010. 

The use of journal 

entry issue is included 

as part of Significant 

Deficiency number 1 in 

Exhibit I. 

2. Undelivered Orders 

(UDO) 

Significant Deficiency: 

• Various testing errors resulting in 

actual and projected errors of 

approximately $800 million in UDO at 

September 30, 2009. 

• Null UDOs in the absolute value of 

$2.1 billion and net value of $420 

million at September 30, 2009. 

• Untimely liquidation of inactive 

projects identified during our FY 09 

site visits by FHWA and FTA 

Divisional or Regional offices 

Repeated as a 

Significant Deficiency 

number 2 and included 

in Exhibit I. 

3. Grant Accruals Significant Deficiency: Certain OAs (FHWA 

and FTA) did not receive sufficient 

information or perform the look back analysis 

to either evaluate the accuracy and reliability 

of the accrual estimate as of September 30, 

2009 or update their estimates for FY 2009. 

Repeated as a 

Significant Deficiency 

number 3 for FHWA in 

Exhibit I. Remaining 

issues for FTA are 

downgraded to a 

Management Letter 

deficiency. 

4. Financial 

Management 

Oversight by MARAD 

Significant Deficiency: MARAD has 

weaknesses in the following areas: 

• Incorrect reporting of Navy transferred 

ships 

• Environmental liability calculation – 

ship disposal costs 

• Environmental liability calculation –

Substantial 

improvements have 

been made, and the 

remaining issues 

relating to the 

environmental 

remediation costs have 
Financial Report

105

Prior Year Condition Status As Reported at September 30, 2009 

Status as of 

September 30, 2010 

environmental remediation costs 

• Ships not in use 

been downgraded to a 

Management Letter 

deficiency. 

5. Information 

Technology Controls 

over Financial 

Systems and 

Applications 

Significant Deficiency: DOT had 

weaknesses in four systems area: 1) FHWA 

systems of FMIS and UPACS; 2) FTA 

systems of TEAM, ECHO and DOTS; and 

3) NHTSA system of CARS 

Issues related to 

FHWA & FTA are 

downgraded to 

Management Letter 

deficiencies. The issue 

for NHTSA has been 

resolved in FY 2010. 

Compliance and Other 

Matters 

1. Noncompliance with 

the Anti-Deficiency Act 

(ADA) 

MARAD management reported four ADA 

matters in FY 09. In addition, GAO identified 

other potential violations at the U.S. Merchant 

Marine Academy. 

Repeated as a 

potential noncompliance violation 

and included in Exhibit 

II. 
106

EXHIBIT IV 

DEPARTMENT OF TRANSPORTATION 

MANAGEMENT’S RESPONSE TO FY 2010 

INDEPENDENT AUDITOR’S REPORT 

November 12, 2010 
Financial Report

107
108
Financial Report

109

Principal Statements
110

U.S. Department of Transportation

Consolidated Balance Sheets

As of September 30, 2010 and 2009

(Dollars in Thousands)

Assets 2010 2009

Intragovernmental:

Fund balance with Treasury (Note 2) $ 52,504,709 $ 62,685,783

Investments, net (Note 3) 33,050,889 20,684,481

Accounts receivable (Note 4) 163,114 285,748

Other (Note 5) 123,418 38,450

Total intragovernmental 85,842,130 83,694,462

Cash 41,882 250

Accounts receivable, net (Note 4) 81,201 99,006

Direct loan and loan guarantees, net (Note 6) 2,892,100 2,219,298

Inventory and related property, net (Note 7) 823,603 797,310

General property, plant and equipment, net (Note 8) 13,907,474 14,439,603

Other (Note 5) 163,950 256,130

Total assets $ 103,752,340 $ 101,506,059

Stewardship property, plant and equipment (Note 9)

Liabilities (Note 10)

Intragovernmental:

Accounts payable $ 38,023 $ 20,503

Debt (Note 11) 3,077,439 2,478,348

Other (Note 15) 2,717,013 3,092,982

Total intragovernmental 5,832,475 5,591,833

Accounts payable 700,042 736,223

Loan guarantee liability (Note 6) 237,739 310,710

Federal employee benefits payable (Note 12) 979,016 975,442

Environmental and disposal liabilities (Note 13) 1,103,562 1,195,249

Grant accrual (Note 14) 6,965,999 6,769,814

Other (Note 15) 1,442,689 1,351,571

Total liabilities 17,261,522 16,930,842

Commitments and contingencies (Note 17) 

Net position (Note 18)

Unexpended appropriations - earmarked funds 1,211,520 1,212,951

Unexpended appropriations - other funds 37,001,417 50,425,385

Cumulative results of operations - earmarked funds 37,822,289 22,481,668

Cumulative results of operations - other funds 10,455,592 10,455,213

Total net position 86,490,818 84,575,217

Total liabilities and net position $ 103,752,340 $ 101,506,059

The accompanying notes are an integral part of these financial statements.
Financial Report

111

U.S. Department of Transportation

Consolidated Statements of Net Cost

For the Periods Ended September 30, 2010 and 2009

(Dollars in Thousands)

Program Costs (Note 19): 2010 2009

Surface Transportation:

Gross costs $ 61,555,071 $ 58,120,836

Less: earned revenue 785,594 523,182

Net program costs 60,769,477 57,597,654

Air Transportation:

Gross costs 17,266,745 16,868,905

Less: earned revenue 490,930 579,983

Net program costs 16,775,815 16,288,922

Maritime Transportation:

Gross costs 1,094,863 1,113,672

Less: earned revenue 526,261 384,985

Net program costs 568,602 728,687

Cross-Cutting Programs:

Gross costs 717,840 648,325

Less: earned revenue 381,337 321,117

Net program costs 336,503 327,208

Costs not assigned to programs 394,503 366,041

Less earned revenues not

 attributed to programs 471 10,708

Net cost of operations $ 78,844,429 $ 75,297,804

The accompanying notes are an integral part of these financial statements.
112

U.S. Department of Transportation

Consolidated Statements of Changes in Net Position

For the Periods Ended September 30, 2010 and 2009

(Dollars in Thousands)

2010 2009

Earmarked Funds All Other Funds Total Earmarked Funds All Other Funds Total

Cumulative Results of Operations:

Beginning balance $ 22,481,668 $ 10,455,213 $ 32,936,881 $ 25,944,043 $ 11,953,114 $ 37,897,157

Budgetary Financing Sources:

Appropriations used 5,376,150 42,319,961 47,696,111 3,574,704 20,240,117 23,814,821

Non-exchange revenue (Note 20) 45,854,087 63,241 45,917,328 45,875,842 3,829 45,879,671

Donations/forfeitures of cash/cash equivalents 491 452 943 1,102 - 1,102

Transfers-in/(out) without reimbursement (Note 18) 19,477,151 (19,490,004) (12,853) 7,178,707 (6,970,844) 207,863

Other Financing Sources (Non-Exchange):

Transfers-in/(out) without reimbursement (1,603,241) 1,603,235 (6) (517,922) 364,291 (153,631)

Imputed financing 584,475 120,252 704,727 649,662 106,563 756,225

Other (671) (120,150) (120,821) (237,241) 68,718 (168,523)

Total financing sources 69,688,442 24,496,987 94,185,429 56,524,854 13,812,674 70,337,528

Net cost of operations 54,347,821 24,496,608 78,844,429 59,987,229 15,310,575 75,297,804

Net change 15,340,621 379 15,341,000 (3,462,375) (1,497,901) (4,960,276)

Cumulative Results of Operations 37,822,289 10,455,592 48,277,881 22,481,668 10,455,213 32,936,881

Unexpended Appropriations:

Beginning balance 1,212,951 50,425,385 51,638,336 1,010,409 7,643,564 8,653,973

Budgetary Financing Sources:

 Appropriations received (Note 1U) 5,437,001 28,891,819 34,328,820 3,879,582 61,003,496 64,883,078

 Appropriations transferred-in/(out) 3,608 74,108 77,716 4,916 2,022,133 2,027,049

 Other adjustments (65,890) (69,934) (135,824) (107,252) (9,657) (116,909)

 Appropriations used (5,376,150) (42,319,961) (47,696,111) (3,574,704) (20,234,151) (23,808,855)

 Total budgetary financing sources (1,431) (13,423,968) (13,425,399) 202,542 42,781,821 42,984,363

Total unexpended appropriations 1,211,520 37,001,417 38,212,937 1,212,951 50,425,385 51,638,336

Net position $ 39,033,809 $ 47,457,009 $ 86,490,818 $ 23,694,619 $ 60,880,598 $ 84,575,217

The accompanying notes are an integral part of these financial statements.
Financial Report

113

U.S. Department of Transportation

Combined Statements of Budgetary Resources

For the Periods Ended September 30, 2010 and 2009

(Dollars in Thousands)

2010 2009

Non-Budgetary Non-Budgetary

Credit Reform Credit Reform

Budgetary Resources (Note 21): Budgetary Financing Accounts Budgetary Financing Accounts

Unobligated balance, brought forward, October 1 $ 57,993,684 $ 264,137 $ 45,806,953 $ 240,230

Recoveries of prior year unpaid obligations 3,487,556 47,428 713,588 12,240

Budget authority:

 Appropriations received (Note 1U) 97,406,343 - 128,142,339 -

 Borrowing authority 127,363 2,476,284 175,000 1,383,169

 Contract authority 64,909,999 - 56,717,041 -

 Spending authority from offsetting collections

 Earned

 Collected 3,057,377 400,675 2,435,351 202,488

 Change in receivables from Federal sources (86,639) - 11,725 -

 Change in unfilled customer orders

 Advance received (536,194) - (25,133) -

 Without advance from Federal sources (312,631) 108,377 49,115 47,617

 Expenditure transfers from trust funds 4,028,917 - 5,284,320 -

 Subtotal 168,594,535 2,985,336 192,789,758 1,633,274

Nonexpenditure transfers, net 51,617 - 2,003,700 -

Temporarily not available pursuant to Public Law (5,007) - (2,251) -

Permanently not available (58,581,302) (291,918) (67,481,807) (71,393)

Total budgetary resources $ 171,541,083 $ 3,004,983 $ 173,829,941 $ 1,814,351

Status of Budgetary Resources:

Obligations incurred:

 Direct $ 108,981,763 $ 2,778,188 $ 113,733,058 $ 1,550,214

 Reimbursable 2,087,680 - 2,103,199 -

 Subtotal 111,069,443 2,778,188 115,836,257 1,550,214

Unobligated balance:

 Apportioned 42,144,037 11,356 49,012,606 8,947

 Exempt from apportionment 319,222 - 276,374 -

 Subtotal 42,463,259 11,356 49,288,980 8,947

Unobligated balance not available 18,008,381 215,439 8,704,704 255,190

Total status of budgetary resources $ 171,541,083 $ 3,004,983 $ 173,829,941 $ 1,814,351

The accompanying notes are an integral part of these financial statements.
114

U.S. Department of Transportation

Combined Statements of Budgetary Resources

For the Periods Ended September 30, 2010 and 2009

(Dollars in Thousands)

2010 2009

Non-Budgetary Non-Budgetary

Credit Reform Credit Reform

Change in Obligated Balances: Budgetary Financing Accounts Budgetary Financing Accounts

Obligated balance, net:

 Unpaid obligations, brought forward, October 1 $ 107,086,559 $ 2,519,805 $ 80,075,300 $ 1,850,080

 Uncollected customer payments from Federal sources,

 brought forward, October 1 (1,512,864) (216,886) (1,444,636) (169,268)

 Total unpaid obligated balance, net 105,573,695 2,302,919 78,630,664 1,680,812

Obligations incurred 111,069,443 2,778,188 115,836,257 1,550,214

Gross outlays (104,054,373) (1,056,065) (88,136,410) (868,249)

Obligated balance transferred, net

Unpaid obligations 26,344 - 25,000 -

Recoveries of prior year unpaid obligations, actual (3,487,556) (47,428) (713,588) (12,240)

Change in uncollected customer payments from Federal sources 410,672 (108,377) (68,228) (47,618)

Obligated balance, net, end of period:

 Unpaid obligations 110,640,417 4,194,500 107,086,559 2,519,805

 Uncollected customer payments from Federal sources (1,102,192) (325,263) (1,512,864) (216,886)

 Total unpaid obligated balance, net, end of period $ 109,538,225 $ 3,869,237 $ 105,573,695 $ 2,302,919

Net Outlays:

Net Outlays

 Gross outlays $ 104,054,373 $ 1,056,065 $ 88,136,410 $ 868,249

 Offsetting collections (6,546,842) (400,675) (7,692,821) (202,488)

 Distributed offsetting receipts (219,178) - (188,979) (39,360)

 Net outlays $ 97,288,353 $ 655,390 $ 80,254,610 $ 626,401

The accompanying notes are an integral part of these financial statements.
Financial Report

115

notes to Principal Statements
116

Notes to the Financial Statements

Note 1. Summary of Significant Accounting Policies:

A. Reporting Entity:

The Department of Transportation (DOT or Department) serves as the focal point in the Federal Government's coordinated national

transportation policy. It is responsible for helping cities and States meet their local transportation needs through financial and technical

assistance, ensuring the safety of all forms of transportation; protecting the interests of consumers; promoting international transportation

agreements; and conducting planning and research for the future.

The Department is comprised of the Office of the Secretary and the DOT Operating Administrations, each having its own management and

organizational structure, and collectively provides the necessary services and oversight to ensure the best transportation system possible.

The Department's consolidated financial statements present the financial data for various trust funds, revolving funds, appropriations and

special funds, of the following organizations: 

Office of The Secretary (OST) [includes OST Working Capital Fund]

Federal Aviation Administration (FAA)

Federal Highway Administration (FHWA)

Federal Motor Carrier Safety Administration (FMCSA)

Federal Railroad Administration (FRA)

Federal Transit Administration (FTA) 

Maritime Administration (MARAD)

National Highway Traffic Safety Administration (NHTSA)

Office of Inspector General (OIG)

Pipeline and Hazardous Materials Safety Administration (PHMSA)

Research and Innovative Technology Administration (RITA) [includes Volpe National Transportation System Center]

Surface Transportation Board (STB)

The Saint Lawrence Seaway Development Corporation (SLSDC) is also a DOT entity. However, since it is subject to separate reporting

under the Government Corporation Control Act and the dollar value of its activities is not material to that of the Department, SLSDC’s

financial data is not included in the DOT consolidated financial statements. However, condensed information about SLSDC’s financial

position is presented in Note 24.

B. Basis of Presentation:

The consolidated financial statements have been prepared to report the Department's financial position and its results of operations as

required by the Chief Financial Officers Act of 1990 (CFO Act) and Title IV of the Government Management Reform Act of 1994

(GMRA). The statements have been prepared from the DOT books and records in accordance with Office of Management and Budget

(OMB) form and content requirements for entity financial statements and DOT’s accounting policies and procedures. Unless otherwise

noted, all dollar amounts are presented in thousands.

The Consolidated Balance Sheets present agency assets and liabilities, and the resulting net position (which is the difference between the

two amounts). Agency assets substantially include entity assets (those which are available for use by the agency). Non-entity assets (those

which are managed by the agency but not available for use in its operations) are immaterial. Agency liabilities include both those covered

by budgetary resources (funded) and those not covered by budgetary resources (unfunded).

The Consolidated Statements of Net Cost present the gross costs of programs less earned revenue to arrive at the net cost of operations for

both the programs and the agency as a whole.

The Consolidated Statements of Changes in Net Position report beginning balances, budgetary and other financing sources, and net cost of

operations, to arrive at ending balances.

The Combined Statements of Budgetary Resources provide information about how budgetary resources were made available as well as their

status at the end of the period. Recognition and measurement of budgetary information reported on this statement is based on budget

terminology, definitions, and guidance in OMB Circular No. A-11, “Preparation, Submission, and Execution of the Budget,” dated July

2010. 
Financial Report

117

Notes to the Financial Statements

Since DOT custodial activity is incidental to Departmental operations and is not considered material to the consolidated financial statements

taken as a whole, a Statement of Custodial Activity has not been prepared. However, sources and dispositions of collections have been

disclosed in Note 22 to the consolidated financial statements.

The Department is required to be in substantial compliance with all applicable accounting principles and standards established, issued, and

implemented by the Federal Accounting Standards Advisory Board (FASAB), which is recognized by the American Institute of Certified

Public Accountants (AICPA) as the entity to establish Generally Accepted Accounting Principles (GAAP) for the Federal Government.

The Federal Financial Management Improvement Act (FFMIA) of 1996 requires the Department to comply substantially with (1) Federal

financial management systems requirements, (2) applicable Federal accounting standards, and (3) the U.S. Government Standard General

Ledger requirements at the transaction level. 

C. Budgets and Budgetary Accounting:

DOT follows standard Federal budgetary accounting policies and practices in accordance with OMB Circular No. A-11, “Preparation,

Submission, and Execution of the Budget,” dated July 2010. Budgetary accounting facilitates compliance with legal constraints and

controls over the use of Federal funds. Each year, Congress provides appropriations to each Operating Administration within DOT to incur

obligations in support of agency programs. For FY 2010 and FY 2009, the Department was accountable for trust fund appropriations,

general fund appropriations, revolving fund activity and borrowing authority. DOT recognizes budgetary resources as assets when cash

(funds held by Treasury) is made available through warrants and trust fund transfers.

Programs are financed from authorizations enacted in authorizing legislation and codified in Title 23 of the United States Code (U.S.C.).

The DOT receives its budget authority in the form of contract authority and direct appropriations. Contract authority permits programs to

incur obligations in advance of an appropriation, offsetting collections, or receipts. Subsequently, Congress provides an appropriation for

the liquidation of the contract authority to allow payments to be made for the obligations incurred. Funds apportioned by statute under

Titles 23 and 49 of the U.S.C., Subtitle III by the Secretary of Transportation for activities in advance of the liquidation of appropriations

are available for a specific time period. 

D. Basis of Accounting:

Transactions are generally recorded on both an accrual accounting basis and a budgetary basis. Under the accrual method, revenues are

recognized when earned, and expenses are recognized when a liability is incurred, without regard to receipt or payment of cash. Budgetary

accounting facilitates compliance with legal constraints and controls over the use of Federal funds. All material intra-departmental

transactions and balances have been eliminated for presentation on a consolidated basis. However, the Statement of Budgetary Resources is

presented on a combined basis, in accordance with OMB Circular A-136.

Intragovernmental transactions and balances result from exchange transactions made between DOT and another Federal government

reporting entity, while those classified as "with the public" result from exchange transactions between DOT and non-federal entities. For

example, if DOT purchases goods or services from the public and sells them to another Federal entity, the costs would be classified as "with

the public," but the related revenues would be classified as "intragovernmental." This could occur, for example, when DOT provides goods

or services to another Federal government entity on a reimbursable basis. The purpose of this classification is to enable the Federal

government to prepare consolidated financial statements, and not to match public and intragovernmental revenue with costs that are incurred

to produce public and intragovernmental revenue. 

DOT accounts for earmarked funds separately from other funds. 

E. Funds with the U.S. Treasury and Cash:

DOT does not generally maintain cash in commercial bank accounts. Cash receipts and disbursements are processed by the U.S. Treasury.

The funds with the U.S. Treasury are appropriated, revolving, and trust funds that are available to pay current liabilities and finance

authorized purchases. Lockboxes have been established with financial institutions to collect certain payments, and these funds are

transferred directly to Treasury on a daily (business day) basis. DOT does not maintain any balances of foreign currencies. 
118

Notes to the Financial Statements

F. Investments in U.S. Government Securities:

Investments that consist of U.S. Government Securities are reported at cost and adjusted for amortized cost net of premiums or discounts.

Premiums or discounts are amortized into interest income over the term of the investment using the interest or straight-line method. The

Department’s intent is to hold investments to maturity. Investments, redemptions, and reinvestments are controlled and processed by the

Department of the Treasury. The market value is calculated by multiplying the total number of shares by the market price on the last day of

the fiscal year.

G. Receivables:

Accounts receivable consist of amounts owed to the Department by other Federal agencies and the public. Federal accounts receivable are

generally the result of the provision of goods and services to other Federal agencies and, with the exception of occasional billing disputes,

are considered to be fully collectible. Public accounts receivable are generally the result of the provision of goods and services or the levy of

fines and penalties from the Department’s regulatory activities. Amounts due from the public are presented net of an allowance for loss on

uncollectible accounts, which is based on historical collection experience and/or an analysis of the individual receivables. 

Loans are accounted for as receivables after funds have been disbursed. For loans obligated prior to October 1, 1991, loan principal,

interest, and penalties receivable are reduced by an allowance for estimated uncollectible amounts. The allowance is estimated based on past

experience, present market conditions, and an analysis of outstanding balances. Loans obligated after September 30, 1991, are reduced by

an allowance equal to the present value of the subsidy costs (resulting from the interest rate differential between the loans and Treasury

borrowing, the estimated delinquencies and defaults net of recoveries, the offset from fees, and other estimated cash flows) associated with

these loans.

H. Inventory and Related Operating Materials and Supplies:

Inventory primarily consists of supplies that are for sale or used in the production of goods for sale. Operating materials and supplies

primarily consist of unissued supplies that will be consumed in future operations. Valuation methods for supplies on hand at year-end

include historical cost, last acquisition price, standard price/specific identification, standard repair cost, weighted average, and moving

weighted average. Expenditures or expenses are recorded when the materials and supplies are consumed or sold. Adjustments for the

proper valuation of reparable, excess, obsolete, and unserviceable items are made to appropriate allowance accounts.

I. Property and Equipment:

DOT agencies have varying methods of determining the value of general purpose property and equipment and how it is depreciated. DOT

currently has a capitalization threshold of $200,000 for structures and facilities and for internal use software, and $25,000 for other

property, plant and equipment. Capitalization at lesser amounts is permitted. Construction in progress is valued at direct (actual) costs plus

applied overhead and other indirect costs as accumulated by the regional project material system. The system accumulates costs by project

number assigned to the equipment or facility being constructed. The straight line method is generally used to depreciate capitalized assets.

DOT's heritage assets, consisting of Union Station in Washington, DC, the Nuclear Ship Savannah and collections of maritime artifacts, are

considered priceless and are not capitalized in the Consolidated Balance Sheets (See Note 9).

J. Prepaid and Deferred Charges:

Payments in advance of the receipt of goods and services are recorded as prepaid charges at the time of prepayment and recognized as

expenses or capitalized, as appropriate, when the related goods and services are received.
Financial Report

119

Notes to the Financial Statements

K. Liabilities:

Liabilities represent amounts expected to be paid as the result of a transaction or event that has already occurred. Liabilities covered by

budgetary resources are liabilities incurred which are covered by realized budgetary resources as of the balance sheet date. Available

budgetary resources include new budget authority, spending authority from offsetting collections, recoveries of unexpired budget authority

through downward adjustments of prior year obligations, unobligated balances of budgetary resources at the beginning of the year or net

transfers of prior year balances during the year, and permanent indefinite appropriations or borrowing authority. Unfunded liabilities are not

considered to be covered by such budgetary resources. An example of an unfunded liability is actuarial liabilities for future Federal

Employees’ Compensation Act payments. The Government, acting in its sovereign capacity, can abrogate liabilities arising from other than

contracts.

L. Contingencies:

The criteria for recognizing contingencies for claims are (1) a past event or exchange transaction has occurred as of the date of the

statements; (2) a future outflow or other sacrifice of resources is probable; and (3) the future outflow or sacrifice of resources is measurable

(reasonably estimatable). DOT recognizes material contingent liabilities in the form of claims, legal actions, administrative proceedings and

environmental suits that have been brought to the attention of legal counsel, some of which will be paid by the Treasury Judgment Fund. It

is the opinion of management and legal counsel that the ultimate resolution of these proceedings, actions and claims, will not materially

affect the financial position or results of operations. 

M. Annual, Sick, and Other Leave:

Annual leave is accrued as it is earned, and the accrual is reduced as leave is taken. For each bi-weekly pay period, the balance in the

accrued annual leave account is adjusted to reflect the latest pay rates and unused hours of leave. Liabilities associated with other types of

vested leave, including compensatory, credit hours, restored leave, and sick leave in certain circumstances, are accrued based on latest pay

rates and unused hours of leave. Sick leave is generally nonvested, except for sick leave balances at retirement under the terms of certain

union agreements, including the National Air Traffic Controllers Association (NATCA) agreement, Article 25, Section 13. Funding will be

obtained from future financing sources to the extent that current or prior year appropriations are not available to fund annual and other types

of vested leave earned and not taken. Nonvested leave is expensed when used.

N. Retirement Plan:

For DOT employees who participate in the Civil Service Retirement System (CSRS), DOT contributes a matching contribution equal to 7

percent of pay. On January 1, 1987, FERS went into effect pursuant to Public Law (P.L.) 99-335. Most employees hired after December

31, 1983, are automatically covered by FERS and Social Security. Employees hired prior to January 1, 1984, could elect to either join

FERS and Social Security or remain in CSRS. A primary feature of FERS is that it offers a savings plan to which DOT automatically

contributes 1 percent of pay and matches any employee contribution up to an additional 4 percent of pay. For most employees hired since

December 31, 1983, DOT also contributes the employer’s matching share for Social Security.

Employing agencies are required to recognize pensions and other post retirement benefits during the employees’ active years of service.

Reporting the assets and liabilities associated with such benefit plans is the responsibility of the administering agency, the Office of

Personnel Management (OPM). Therefore, DOT does not report CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities,

if any, applicable to employees. 

O. Federal Employees Health Benefit (FEHB) Program:

Most Department employees are enrolled in the FEHB Program, which provides post-retirement health benefits. OPM administers this

program and is responsible for the reporting of liabilities. Employer agencies and covered employees are not required to make any

contributions for post-retirement health benefits. OPM calculates the U.S. Government's service cost for covered employees each fiscal

year. The Department has recognized the entire service cost of these post-retirement benefits for covered employees as an imputed cost and

an imputed financing source.
120

Notes to the Financial Statements

P. Federal Employees Group Life Insurance (FEGLI) Program:

Most Department employees are entitled to participate in the FEGLI Program. Participating employees can obtain basic term life insurance

where the employee pays two-thirds of the cost and the Department pays one-third of the cost. OPM administers this program and is

responsible for the reporting of liabilities. OPM calculates the U.S. Government's service cost for the post-retirement portion of the basic

life coverage each fiscal year. Because OPM fully allocates the Department's contributions for basic life coverage to the pre-retirement

portion of coverage, the Department has recognized the entire service cost of the post-retirement portion of basic life coverage as an imputed

cost and an imputed financing source.

Q. Federal Employee Compensation Benefits (FECA):

A liability is recorded for actual and estimated future payments to be made for workers' compensation pursuant to the Federal Employees'

Compensation Act (FECA). The actual costs incurred are reflected as a liability because DOT will reimburse the Department of Labor

(DOL) two years after the actual payment of expenses. Future revenues will be used to reimburse DOL. The liability consists of (1) the net

present value of estimated future payments calculated by the DOL, and (2) the unreimbursed cost paid by DOL for compensation to

recipients under FECA.

R. Environmental and Disposal Liabilities:

DOT recognizes two types of environmental liabilities: unfunded environmental remediation and unfunded asset disposal liability. The

liability for environmental remediation is an estimate of costs necessary to bring a known contaminated site into compliance with applicable

environmental standards. The asset disposal liability includes both the cost to remove and dismantle an asset when that asset is no longer in

service and the estimated cost that will be incurred to remove, contain, and/or dispose of hazardous materials. DOT estimates the

environmental remediation and asset disposal costs at the time a DOT-owned asset is placed in service. 

Estimating the Department's environmental remediation liability requires making assumptions about future activities and is inherently

uncertain. Costs for estimates of environmental and disposal liabilities are not adjusted for inflation and are subject to revision as a result of

changes in technology and environmental laws and regulations.

S. Use of Estimates:

Management has made certain estimates and assumptions when reporting assets, liabilities, revenue, and expenses. Actual results could

differ from these estimates. Significant estimates underlying the accompanying financial statements include the allocation of trust fund

receipts by Treasury’s Office of Tax Analysis (OTA), accruals of accounts and grants payable (including American Recovery and

Reinvestment Act funds), accrued workers’ compensation, and accrued legal, contingent, environmental and disposal liabilities. 

T. Allocation Transfers:

DOT is a party to allocation transfers with other federal agencies as a transferring (parent) entity. Allocation transfers are legal delegations

by one department of its authority to obligate budget authority and outlay funds to another department. A separate fund account (allocation

account) is created in the U.S. Treasury as a subset of the parent fund account for tracking and reporting purposes. All allocation transfers

of balances are credited to this account and subsequent obligations and outlays incurred by the receiving entity (child) are charged to this

allocation account as the delegated activity is executed on the parent entity's behalf. Generally, all financial activity related to these

allocation transfers (e.g. budget authority, obligations, outlays) is reported in the financial statements of the parent entity, from which the

underlying legislative authority, appropriations and budget apportionments are derived. 

DOT allocates funds, as the parent, to the following non-DOT Federal agencies in accordance with applicable public laws and statutes:

Bureau of Indian Affairs, Bureau of Reclamation, U.S. Forest Service, National Park Service, Bureau of Land Management, Fish and

Wildlife Service, Department of the Army, Appalachian Regional Commission, Tennessee Valley Authority, U.S. Army Corps of

Engineers, Internal Revenue Service, Department of Housing and Urban Development, Denali Commission, Department of Navy, and

Department of Energy. 
Financial Report

121

Notes to the Financial Statements

U. Revenues and Other Financing Sources:

Earmarked Excise Tax Revenues (Nonexchange):

DOT receives funding needed to support its programs through non-exchange earmarked excise tax revenues related to the Highway Trust

Fund (HTF) and the Airport and Airway Trust Fund (AATF). 

Excise taxes collected are initially deposited to the general fund of the U.S. Treasury. The IRS does not receive sufficient information at the

time the taxes are collected to determine how these payments should be distributed to specific earmarked funds. Therefore, the U.S.

Treasury makes initial semi-monthly distributions to earmarked funds based on estimates prepared by OTA. These estimates are based on

historical excise tax data applied to current excise tax receipts. When actual amounts are certified by the IRS, generally four months after

each quarter-end, adjustments are made to the estimated amounts and the difference is adjusted as a transfer of resources to the HTF and

AATF accounts. 

The DOT September 30, 2010 financial statements reflect excise taxes certified by the IRS through June 30, 2010 and excise taxes estimated 

by OTA for the period July 1, 2010 to September 30, 2010 as specified by SFFAS Number 7, Accounting for Revenue and Other

Financing Sources. Actual tax collections data for the quarter ended September 30, 2010 will not be available from the IRS until January

2011. Management does not believe that the actual tax collections for the quarter ended September 30, 2010 will be materially different

than the OTA estimate, which would be recorded in the DOT's accounting system.

Appropriations (Financing Source): 

DOT receives annual, multi-year and no-year appropriations. Appropriations are recognized as revenues when related program and

administrative expenses are incurred. Additional amounts are obtained from offsetting collections and user fees (e.g., landing and registry

fees) and through reimbursable agreements for services performed for domestic and foreign governmental entities. Additional revenue is

received from gifts of donors, sales of goods and services to other agencies and the public, the collection of fees and fines, interest/dividends

on invested funds, loans and cash disbursements to banks. Interest income is recognized as revenue on the accrual basis rather than when

received.

On March 18, 2010, the President signed H.R. 2847, the Hiring Incentives to Restore Employment (HIRE) Act. The Act extends authority 

to make expenditures from the HTF through December 31, 2010 and; provides additional revenues to the HTF by restoring interest foregone 

since the HTF stopped earning interest on its balances after FY 1998, transferring $14.7 billion to the Highway Account and $4.8 billion to 

the Mass Transit Account from the General Fund. Going forward, the HTF will resume earning interest on its invested balances. Also 

refunds and credits of fuel taxes paid on fuel used for exempt purposes will be paid by the General Fund instead of the Highway Trust Fund. 

(These amounts are reflected in notes 3 and 18). 

With the HTF authorization to make expenditures expiring in December 2010, DOT has been developing several reauthorization proposals 

subject to OMB and Congressional approval. DOT anticipates that there will be a timely extension.

American Recovery and Reinvestment Act: 

On February 17, 2009, the President signed into law the American Recovery and Reinvestment Act (ARRA), which designated over $48

billion to the DOT operating administrations. The funding was provided to Federal Highway Administration, the Federal Aviation

Administration, the Federal Transit Administration, the Federal Rail Administration, the Office of Secretary Administration and the

Maritime Administration. These funds were designated to invest in transportation infrastructure, including transit capital assistance, high

speed rail, pavement improvements and bridge repair, as well as to preserve and create jobs, and promote economic recovery that will

provide long term economic benefits. As of September 30, 2010, the Department had obligated $39.6 billion and disbursed $20.5 billion. 

V. Fiduciary Activities:

Fiduciary assets and liabilities are not assets and liabilities of the Department and as such are not recognized on the balance sheet. In

accordance with the provisions of the Federal Accounting Standards Advisory Board's Statement of Federal Financial Accounting Standards 

(SFFAS) No. 31, Accounting for Fiduciary Activities, this activity is reported separately in a note disclosure. This requirement is effective

for reporting periods beginning on or after October 1, 2008. The Maritime Administration Title XI Escrow Fund contains fiduciary activity

(See Note 25 for specific required disclosures). 
122

Notes to the Financial Statements

W. Related Parties

The Secretary of Transportation has possession of two long term notes with the National Railroad Passenger Service Corporation (more 

commonly referred to as Amtrak). The first note is for $4 billion and matures in 2975 and; the second note is for $1.1 billion and matures in 

2082 with renewable 99 year terms. Interest is not accruing on these notes as long as the current financial structure of Amtrak remains 

unchanged. If the financial structure of Amtrak changes, both principal and accrued interest are due and payable. The Department does not 

record the notes in its financial statements due to the present value of the notes was immaterial at September 30, 2010 discounted according 

to rates published in OMB M-10-07 Appendix C and the maturity dates of 2975 and 2082.

In addition, the Secretary of Transportation has possession of all the preferred stock shares (109,396,994) of Amtrak. Congress through the

Department continues to fund Amtrak since 1981; originally through the purchase of preferred stock, notes receivable and then through

grants after 1997. The Amtrak Reform and Accountability Act of 1997 changed the structure of the preferred stock by rescinding the voting

rights and eliminating the preferred stock's liquidation over the common stock. The Act also eliminated further issuance of preferred stock

to the Department. The Department does not record the Amtrak stock in its financial statements because it is not publicly traded and no fair

market value can be placed on it.

Amtrak is not a department, agency or instrumentality of the United States Government or the Department. The nine members of Amtrak’s

Board of Directors are appointed by the President of the United States and are subject to confirmation by the United States Senate. Once

appointed, Board Members, as a whole, act independently without the consent of the United States government or any of its officers to set

Amtrak policy, determine its budget and decide operational issues. The Secretary of Transportation is statutorily appointed to the nine

member Board. Traditionally, the Secretary of Transportation has designated the Administrator of the Federal Rail Administration to

represent the Secretary at Board meetings (See Note 17).
Financial Report

123

Note 2. Fund Balance with Treasury:

2010 2009

Fund Balances:

 Trust Funds $ 7,337,993 $ 3,669,004

 Revolving Funds 709,663 764,682

 General Funds 44,077,582 57,900,427

 Other Fund Types 379,471 351,670

 Total $ 52,504,709 $ 62,685,783

Status of Fund Balance with Treasury:

 Unobligated balance:

 Available $ 25,560,214 $ 30,866,347

 Unavailable 2,474,563 2,294,653

 Obligated balance not yet disbursed 24,378,245 29,473,421

 Non-Budgetary Fund Balance with Treasury 91,687 51,362

 Total $ 52,504,709 $ 62,685,783

Fund Balances with Treasury are the aggregate amounts of the entity's accounts with Treasury for which

the entity is authorized to make expenditures and pay liabilities. Other Fund Types include uncleared

suspense accounts, which temporarily hold collections pending clearance to the applicable account, and

deposit funds, which are established to record amounts held temporarily until ownership is determined.

Notes to the Financial Statements

The U.S. Treasury processes cash receipts and disbursements. DOT receives appropriations as budget

authority, which permits it to incur obligations and make outlays (payments). In addition, DOT also

receives contract authority to permit the incurrence of obligations in advance of an appropriation. The

contract authority is subsequently replaced with the appropriation or the spending authority from

offsetting collections to first cover and then liquidate the obligations. As a result, DOT does not have

typical Fund Balance with Treasury amounts as funds remain invested in securities until needed to

make payments.
124

Note 3. Investments:

Amortized Market

(Premium) Investments Value

Cost Discount (Net) Disclosure

Intragovernmental Securities: 

 Marketable $ 44,258 $ 351 $ 44,609 $ 44,825

 Non-Marketable Par Value 31,499,950 - 31,499,950 31,499,950

 Non-Marketable Market-Based 1,451,884 11,176 1,463,060 1,506,521

 Subtotal 32,996,092 11,527 33,007,619 33,051,296

 Accrued Interest 43,270 - 43,270

Total Intragovernmental Securities $ 33,039,362 $ 11,527 $ 33,050,889 $ 33,051,296

Amortized Market

(Premium) Investments Value

Cost Discount (Net) Disclosure

Intragovernmental Securities: 

 Marketable $ 29,405 $ 122 $ 29,527 $ 29,803

 Non-Marketable Par Value 19,313,905 - 19,313,905 19,313,905

 Non-Marketable Market-Based 1,289,850 (6,770) 1,283,080 1,317,582

 Subtotal 20,633,160 (6,648) 20,626,512 20,661,290

 Accrued Interest 57,969 - 57,969

Total Intragovernmental Securities $ 20,691,129 $ (6,648) $ 20,684,481 $ 20,661,290

Notes to the Financial Statements

As of September 30, 2009

As of September 30, 2010
Financial Report

125

Investments include non-marketable par value and market-based Treasury securities and marketable securities issued

by the Treasury and other Federal entities. Non-marketable par value Treasury securities are issued by the Bureau of

Public Debt to Federal accounts and are purchased and redeemed at par exclusively through Treasury's Federal

Investment Branch. Non-marketable market-based Treasury securities are also issued by the Bureau of Public Debt

to Federal accounts. They are not traded on any securities exchange, but mirror the prices of particular Treasury

securities trading in the Government securities market. Marketable Federal securities can be bought and sold on the

open market. The premiums and discounts are amortized over the life of the non-marketable market-based and

marketable securities using the interest method. 

The Federal Government does not set aside assets to pay future benefits or other expenditures associated with

earmarked funds. The cash receipts collected from the public for an earmarked fund are deposited in the U.S.

Treasury, which uses the cash for Government purposes. Non-Marketable par value Treasury securities are issued to

DOT as evidence of these receipts. These securities provide DOT with authority to draw upon the U.S. Treasury to

make future expenditures. When DOT requires redemption of these securities to make expenditures, the Government

finances those expenditures out of accumulated cash balances by raising taxes or other receipts, by borrowing from

the public or repaying less debt, or by curtailing other expenditures. This is the same way that the Government

finances all other expenditures. 

Treasury securities are an asset of DOT and a liability of the U.S. Treasury. Because the DOT and the U.S. Treasury

are both a part of the Government, these assets and liabilities offset each other from the standpoint of the Government

as a whole. For this reason, they do not represent an asset or liability in the U.S. Government-wide financial

statements.
126

Note 4. Accounts Receivable:

Gross Allowance for

Amount Uncollectible Net Amount

Due Amounts Due

As of September 30, 2010

Intragovernmental:

 Accounts Receivable $ 163,109 $ - $ 163,109

 Accrued Interest 5 - 5

Total Intragovernmental 163,114 - 163,114

Public:

 Accounts Receivable 102,713 (21,696) 81,017

 Accrued Interest 405 (221) 184

 Total Public 103,118 (21,917) 81,201

Total Receivables $ 266,232 $ (21,917) $ 244,315

Gross Allowance for

Amount Uncollectible Net Amount

Due Amounts Due

As of September 30, 2009

Intragovernmental:

 Accounts Receivable $ 285,717 $ - $ 285,717

 Accrued Interest 31 - 31

Total Intragovernmental $ 285,748 $ - $ 285,748

Public:

 Accounts Receivable 123,909 (25,405) 98,504

 Accrued Interest 909 (407) 502

Total Public 124,818 (25,812) 99,006

Total Receivables $ 410,566 $ (25,812) $ 384,754

Notes to the Financial Statements
Financial Report

127

Note 5. Other Assets:

2010 2009

Intragovernmental:

 Advances and Prepayments $ 123,418 $ 38,450

Total Intragovernmental $ 123,418 $ 38,450

Public:

 Advances to States for Right of Way $ 59,188 $ 101,084

 Other Advances and Prepayments 104,473 154,778

 Other 289 268

Total Public $ 163,950 $ 256,130

Intragovernmental Other Assets are comprised of advance payments to other Federal Government

entities for agency expenses not yet incurred and for goods and services not yet received and

undistributed assets and payments for which DOT is awaiting documentation. Public Other Assets

are comprised of advances to States, employees and contractors.

 Notes to the Financial Statements
128

Note 6. Direct Loans and Loan Guarantees, Non-Federal Borrowers:

 guarantees, and

 railroad facilities.

Direct Loans 

Value of

2010 Assets

 Obligated Prior to FY 1992 (Allowance for Loss Method) Loans Allowance Related to

Receivable, Interest for Loan Direct Loans,

Direct Loan Programs Gross Receivable Losses Net

(1) Railroad Rehabilitation Improvement Program $ 3,729 $ - $ - $ 3,729

Value of

2010 Assets

 Obligated After FY 1991 Loans Allowance for Related to

Receivable, Interest Subsidy Cost Direct Loans,

Direct Loan Programs Gross Receivable (Present Value) Net

(1) Railroad Rehabilitation Improvement Program $ 411,746 $ 1,105 $ (2,518) $ 410,333

(2) TIFIA Loans 2,527,782 - (219,554) 2,308,228

 Total $ 2,939,528 $ 1,105 $ (222,072) $ 2,718,561

Value of

2009 Assets

 Obligated Prior to FY 1992 (Allowance for Loss Method) Loans Allowance Related to

Receivable, Interest for Loan Direct Loans,

Direct Loan Programs Gross Receivable Losses Net

(1) Railroad Rehabilitation Improvement Program $ 7,053 $ - $ - $ 7,053

Value of

2009 Assets

 Obligated After FY 1991 Loans Allowance for Related to

Receivable, Interest Subsidy Cost Direct Loans,

Direct Loan Programs Gross Receivable (Present Value) Net

(1) Railroad Rehabilitation Improvement Program $ 377,437 $ 634 $ (3,729) $ 374,342

(2) TIFIA Loans 1,879,727 - (89,770) 1,789,957

 Total $ 2,257,164 $ 634 $ (93,499) $ 2,164,299

 long term financing at stable interest rates to the approved applicants.

An analysis of loans receivable, allowance for subsidy costs, liability for loan guarantees, foreclosed property, modifications and reestimates associated

with direct loans and loan guarantees is provided in the following sections:

The Federal Credit Reform Act of 1990 divides direct loans and loan guarantees into two groups: 

 (1) Pre-1992 - the direct loan obligations or loan guarantee commitments made prior to FY 1992 and the resulting direct loans or loan 

 (2) Post-1991 - the direct loan obligations or loan guarantee commitments made after FY 1991 and the resulting direct loans or loan guarantees.

The Act provides that, for direct loan obligations or loan guarantee commitments made after FY 1991, the present value of subsequent subsidy costs

(which arises from interest rate differentials, interest subsidies, delinquencies and defaults, fee offsets, and other cash flows) be recognized in the year the

direct or guaranteed loan is disbursed. Direct loans are reported net of an allowance for subsidy at present value, and loan guarantee liabilities are reported

at present value. Foreclosed property is valued at the net realizable value. Loans receivable, net, or their value of assets related to direct loans, is not the

same as the proceeds that would be expected to be received from selling the loans. DOT has calculated the allowance for pre-1992 loans using the

allowance for loss method.

 in transportation-related contracts. 

DOT administers the following direct loan and/or loan guarantee programs:

 (4) The OST Minority Business Resource Center Guaranteed Loan Program helps small businesses gain access to the financing needed to participate

 (1) The Railroad Rehabilitation Improvement Program is used to acquire, improve, or rehabilitate intermodal or rail equipment or facilities, including

 (2) The Transportation Infrastructure Finance Innovation Act (TIFIA) Loan Program provides Federal credit assistance to major transportation 

 (3) The Federal Ship Financing Fund (Title XI) offers loan guarantees to qualified ship owners and shipyards. The guarantee provides the benefit of 

Notes to the Financial Statements

 track, components of tract, bridges, yards, buildings, and shops; refinance outstanding debt incurred; and develop or establish new intermodal or 

 investments of critical national importance such as highway, transit, passenger rail, certain freight facilities, and certain port projects with regional

 and national benefits. The TIFIA credit program is designed to fill market gaps and leverages substantial private co-investment by providing

 supplemental and subordinate capital.
Financial Report

129

Note 6. Direct Loans and Loan Guarantees, Non-Federal Borrowers: (Cont.)

Total Amount of Direct Loans Disbursed (Post-1991)

Direct Loan Programs 2010 2009

(1) Railroad Rehabilitation Improvement Program $ 42,575 $ 96,344

(2) TIFIA Loans 564,988 317,164

 Total $ 607,563 $ 413,508

Subsidy Expense for Direct Loans by Program and Component

Subsidy Expense for New Direct Loans Disbursed

2010

Interest Fees and Other Other

Direct Loan Programs Differential Defaults Collections Subsidy Costs Total

(1) Railroad Rehabilitation Improvement Program $ - $ 1,388 $ (1,388) $ - $ -

(2) TIFIA Loans - 85,140 (30,980) - 54,160

 Total $ - $ 86,528 $ (32,368) $ - $ 54,160

2009

Interest Fees and Other Other

Direct Loan Programs Differential Defaults Collections Subsidy Costs Total

(1) Railroad Rehabilitation Improvement Program $ - $ 2,297 $ (2,297) $ - $ -

(2) TIFIA Loans - 49,078 - - 49,078

 Total $ - $ 51,375 $ (2,297) $ - $ 49,078

Modifications and Re-estimates

2010

Total Interest Rate Technical Total

Direct Loan Programs Modifications Re-estimates Re-estimates Re-estimates

(1) Railroad Rehabilitation Improvement Program $ - $ - $ (728) $ (728)

(2) TIFIA Loans - - 36,346 36,346

 Total $ - $ - $ 35,618 $ 35,618

2009

Total Interest Rate Technical Total

Direct Loan Programs Modifications Re-estimates Re-estimates Re-estimates

(1) Railroad Rehabilitation Improvement Program $ - $ - $ 986 $ 986

(2) TIFIA Loans - - (111,685) (111,685)

 Total $ - $ - $ (110,699) $ (110,699)

Total Direct Loan Subsidy Expense

Direct Loan Programs 2010 2009

(1) Railroad Rehabilitation Improvement Program $ (728) $ 986

(2) TIFIA Loans 90,506 (62,607)

 Total $ 89,778 $ (61,621)

Budget Subsidy Rates for Direct Loans for the Current Year Cohort

2010

Interest Fees and Other

Direct Loan Programs Differential Defaults Collections Other Total

(1) Railroad Rehabilitation Improvement Program -0.32% 1.54% -1.22% 0.00% 0.00%

(2) TIFIA Loans 0.40% 12.27% 0.00% 0.00% 12.67%

 Total 0.08% 13.81% -1.22% 0.00% 12.67%

The subsidy rates disclosed pertain only to the current year's cohorts. These rates cannot be applied to the direct loans disbursed during the current 

reporting year to yield the subsidy expense. The subsidy expense for new loans reported in the current year could result from disbursements of loans 

from both current year cohorts and prior year(s) cohorts. The subsidy expense reported in the current year also includes modifications and reestimates.

Notes to the Financial Statements
130

Note 6. Direct Loans and Loan Guarantees, Non-Federal Borrowers: (Cont.)

Schedule for Reconciling Subsidy Cost Allowance Balances (Post-1991 Direct Loans)

 Beginning Balance, Changes, and Ending Balance 2010 2009

$ 93,499 $ 161,124

 Default costs (net of recoveries) 86,528 51,375

 Fees and other collections (32,368) (2,297)

 Total of the above subsidy expense components 54,160 49,078

Adjustments:

 Subsidy allowance amortization 6,427 (8,301)

 Other 32,368 2,297

Ending balance of the subsidy cost allowance before reestimates 186,454 204,198

Add or subtract subsidy reestimates by component:

 Technical/default reestimate 35,618 (110,699)

 Total of the above reestimate components 35,618 (110,699)

Ending balance of the subsidy cost allowance $ 222,072 $ 93,499

Notes to the Financial Statements

Beginning balance of the subsidy cost allowance

Add: subsidy expense for direct loans disbursed during the reporting years by component:
Financial Report

131

Note 6. Direct Loans and Loan Guarantees, Non-Federal Borrowers: (Cont.)

Defaulted Guaranteed Loans from Post-1991 Guarantees

Value of

2010 Assets

Defaulted Related to

Guaranteed Default

Loans Guaranteed

Receivable, Interest Foreclosed Allowance Loans

Loan Guarantee Programs Gross Receivable Property for Subsidy Receivable, Net

(3) Federal Ship Financing Fund (Title XI) $ 258,383 $ 10,757 $ 28,110 $ (127,440) $ 169,810

Value of

2009 Assets

Defaulted Related to

Guaranteed Default

Loans Guaranteed

Receivable, Interest Foreclosed Allowance Loans

Loan Guarantee Programs Gross Receivable Property for Subsidy Receivable, Net

(3) Federal Ship Financing Fund (Title XI) $ 68,945 $ 1,974 $ 28,110 $ (51,083) $ 47,946

Guaranteed Loans Outstanding

Outstanding Principal

of Guaranteed Loans, Amount of Outstanding

Loan Guarantee Programs Face Value Principal Guaranteed

(3) Federal Ship Financing Fund (Title XI) $ 2,028,217 $ 2,028,217

(4) OST Minority Business Resource Center 2,964 2,223

 Total $ 2,031,181 $ 2,030,440

New Guaranteed Loans Disbursed 2010

Outstanding Principal

of Guaranteed Loans, Amount of Outstanding

Loan Guarantee Programs Face Value Principal Guaranteed

(3) Fed Ship Financing Fund (Title XI) $ 22,544 $ 22,544

(4) OST Minority Business Resource Center 2,214 1,661

 Total $ 24,758 $ 24,205

2009

Outstanding Principal

of Guaranteed Loans, Amount of Outstanding

Loan Guarantee Programs Face Value Principal Guaranteed

(3) Fed Ship Financing Fund (Title XI) $ 269,230 $ 269,230

(4) OST Minority Business Resource Center 3,150 2,362

 Total $ 272,380 $ 271,592

Liability for Loan Guarantees (Present Value Method Post-1991 Guarantees):

2010

Liabilities for 

Post-1991

Loan Guarantee Programs

Guarantees, 

Present Value

(3) Federal Ship Financing Fund (Title XI) $ 237,649

(4) OST Minority Business Resource Center 90

 Total $ 237,739

Notes to the Financial Statements
132

Note 6. Direct Loans and Loan Guarantees, Non-Federal Borrowers: (Cont.)

Subsidy Expense for Loan Guarantees by Program and Component

Subsidy Expense for New Loan Guarantees Disbursed

2010

Loan Guarantee Programs

Interest 

Supplements Defaults

Fees and Other 

Collections Other Total

(3) Federal Ship Financing Fund (Title XI) $ - $ 1,400 $ (1,037) $ - $ 363

(4) OST Minority Business Resource Center - 41 - - 41

 Total $ - $ 1,441 $ (1,037) $ - $ 404

2009

Loan Guarantee Programs

Interest 

Supplements Defaults

Fees and Other 

Collections Other Total

(3) Federal Ship Financing Fund (Title XI) $ - $ 31,257 $ (15,669) $ - $ 15,588

(4) OST Minority Business Resource Center - 58 - - 58

 Total $ - $ 31,315 $ (15,669) $ - $ 15,646

Modifications and Re-estimates

2010

Total Interest Rate Technical Total

Loan Guarantee Programs Modifications Re-estimates Re-estimates Re-estimates

(3) Federal Ship Financing Fund (Title XI) $ - $ - $ 31,909 $ 31,909

(4) OST Minority Business Resource Center - - (71) (71)

 Total $ - $ - $ 31,838 $ 31,838

2009

Total Interest Rate Technical Total

Loan Guarantee Programs Modifications Re-estimates Re-estimates Re-estimates

(3) Federal Ship Financing Fund (Title XI) $ - $ - $ 51,761 $ 51,761

(4) OST Minority Business Resource Center - - (65) (65)

 Total $ - $ - $ 51,696 $ 51,696

Total Loan Guarantee Subsidy Expense

Loan Guarantee Programs 2010 2009

(3) Federal Ship Financing Fund (Title XI) $ 32,272 $ 67,349

(4) OST Minority Business Resource Center (30) (7)

 Total $ 32,242 $ 67,342

Budget Subsidy Rates for Loan Guarantees for the Current Year Cohort

2010

Loan Guarantee Programs Interest Fees and Other

Supplements Defaults Collections Other Total

(3) Federal Ship Financing Fund (Title XI) 0.00% 12.28% -4.89% 0.00% 7.39%

(4) OST Minority Business Resource Center 0.00% 1.86% 0.00% 0.00% 1.86%

 Total 0.00% 14.14% -4.89% 0.00% 9.25%

The subsidy rates disclosed pertain only to the current year's cohorts. These rates cannot be applied to the guarantees of loans disbursed during the 

current reporting year to yield the subsidy expense. The subsidy expense for new loan guarantees reported in the current year could result from 

disbursements of loans from both current year cohorts and prior year(s) cohorts. The subsidy expense reported in the current year also includes 

modifications and re-estimates.

Notes to the Financial Statements
Financial Report

133

Note 6. Direct Loans and Loan Guarantees, Non-Federal Borrowers: (Cont.)

Schedule for Reconciling Loan Guarantee Liability Balances (Post-1991 Loan Guarantees)

 Beginning Balance, Changes, and Ending Balance 2010 2009

Beginning Balance of the loan guarantee liability $ 310,710 $ 258,050

Add: subsidy expense for guaranteed loans disbursed during the 

 reporting years by component: 

 Default costs (net of recoveries) 1,441 31,315

 Fees and other collections (1,037) (15,669)

 Total of the above subsidy expense components 404 15,646

Adjustments:

 Fees Received 7,147 16,541

 Foreclosed Property and Loans Acquired 113,080 9,875

 Claim Payments to Lenders (222,967) (52,837)

 Interest accumulation on the liability balance (10,894) 13,752

 Other 8,421 (2,013)

Ending balance of the loan guarantee liability before reestimates 205,901 259,014

Add or subtract subsidy reestimates by component:

 Technical/default reestimate 31,838 51,696

 Total of the above reestimate components 31,838 51,696

Ending balance of the loan guarantee liability $ 237,739 $ 310,710

The upward reestimate on the Federal Ship Financing Fund (Title XI) reflects two loan defaults in FY 2010 and a reassessment of risk levels on

outstanding loans. The two loan defaults totaling $226 million significantly increased the Federal Ship Financing Fund defaulted guaranteed loans

receivable balance in FY 2010. The economic assumptions of the TIFIA upward and downward re-estimates were the result of a reassessment of risk

levels as well as estimated changes in future cash flows on loans. The Railroad Rehabilitation Improvement Program's upward reestimate was a

result of an update for change in the discount rate between time of loan obligation and disbursement and an update for actual cash flows and changes

in technical assumptions. 

Interest on the loans is accrued based on the terms of the loan agreement. DOT does not accrue interest on non-performing loans that have filed for

bankruptcy protection. DOT management considers administrative costs to be insignificant.

Notes to the Financial Statements

The downturn in economy has led to volatility in financial markets which could affect loan repayments under direct and loan guarantee programs. 

Under the Federal Credit Reform Act, upward reestimates are automatically covered by permanent indefinite budget authority, which ensures DOT 

will have sufficient resources to cover any losses incurred in its existing portfolio without further action by Congress. DOT continues to evaluate the 

risks to affected markets in light of evolving economic conditions, but the impact of such risks on DOT’s loan and loan guarantee portfolio reserves, 

if any, cannot be fully known at this time. The sufficiency of DOT’s portfolio reserves at September 30, 2010 will largely depend on future economic 

and market conditions and could differ from current estimates.
134

Note 7. Inventory and Related Property:

As of September 30, 2010

Allowance

Cost for Loss Net

Inventory:

 Inventory Held for Current Sale $ 101,772 - $ 101,772

 Excess, Obsolete and Unserviceable Inventory 12,678 (12,678) -

 Inventory Held for Repair 518,277 (112,840) 405,437

 Other 47,166 (10,798) 36,368

Total Inventory $ 679,893 (136,316) $ 543,577

Operating Materials and Supplies:

 Items Held for Use $ 232,835 (1,907) $ 230,928

 Items Held in Reserve for Future Use 30,429 - 30,429

 Excess, Obsolete and Unserviceable Items 629 (629) -

 Items Held for Repair 34,954 (16,285) 18,669

Total Operating Materials & Supplies $ 298,847 (18,821) $ 280,026

Total Inventory and Related Property $ 823,603

As of September 30, 2009

Allowance

Cost for Loss Net

Inventory:

 Inventory Held for Current Sale $ 96,485 (84) $ 96,401

 Excess, Obsolete and Unserviceable Inventory 4,984 (4,984) -

 Inventory Held for Repair 493,356 (99,909) 393,447

 Other 23,410 (10,591) 12,819

Total Inventory $ 618,235 (115,568) $ 502,667

Operating Materials and Supplies:

 Items Held for Use $ 184,334 (1,881) $ 182,453

 Items Held in Reserve for Future Use 90,797 (165) 90,632

 Excess, Obsolete and Unserviceable Items 411 (411) -

 Items Held for Repair 40,764 (19,206) 21,558

Total Operating Materials & Supplies $ 316,306 (21,663) $ 294,643

Total Inventory and Related Property $ 797,310

Notes to the Financial Statements
Financial Report

135

Note 8. General Property, Plant and Equipment:

As of September 30, 2010

Service Acquisition Accumulated

Major Classes Life Value Depreciation Book Value

 Land and Improvements 30 $ 190,310 $ (20,376) $ 169,934

 Buildings and Structures 15-40 5,386,086 (2,981,314) 2,404,772

 Furniture and Fixtures 15-20 77,208 (72,487) 4,721

 Equipment 15-20 17,778,627 (10,275,214) 7,503,413

 ADP Software 15-20 577,430 (294,756) 282,674

 Assets Under Capital Lease 6-10 204,580 (104,678) 99,902

 Leasehold Improvements 40 125,230 (61,793) 63,437

 Aircraft 40 401,353 (324,251) 77,102

 Ships and Vessels 11-20 1,950,592 (1,662,816) 287,776

 Small Boats 20 26,768 (18,761) 8,007

 Construction in Progress 2,950,694 - 2,950,694

 Property Not in Use 65,718 (64,823) 895

 Other Misc. Property 60,218 (6,071) 54,147

 Total $ 29,794,814 $ (15,887,340) $ 13,907,474

As of September 30, 2009

Service Acquisition Accumulated

Major Classes Life Value Depreciation Book Value

 Land and Improvements 30 $ 102,799 $ (1,355) $ 101,444

 Buildings and Structures 15-40 5,224,590 (2,813,668) 2,410,922

 Furniture and Fixtures 15-20 68,760 (67,320) 1,440

 Equipment 15-20 18,948,598 (10,580,619) 8,367,979

 ADP Software 15-20 365,618 (280,080) 85,538

 Assets Under Capital Lease 6-10 204,485 (96,036) 108,449

 Leasehold Improvements 40 117,595 (52,435) 65,160

 Aircraft 40 397,341 (328,503) 68,838

 Ships and Vessels 11-20 1,911,639 (1,561,562) 350,077

 Small Boats 20 23,032 (19,044) 3,988

 Construction in Progress 2,849,639 - 2,849,639

 Property Not in Use 176,282 (150,153) 26,129

 Total $ 30,390,378 $ (15,950,775) $ 14,439,603

Notes to the Financial Statements
136

FAA conducted an in depth review and validation of its personal property assets in FY2010. The

review included a statistical sampling and validation of many personal property assets across the

United States and Canada to confirm the asset’s existence. As a result of the review, FAA adjusted

its property records in FY 2010 for assets previously retired but not recorded in the appropriate

year’s financial statements. The adjustments made to FAA’s accounting records were not material to

FAA’s FY 2010 or prior year financial statements.

The net acquisition cost of the three air traffic legacy systems currently in use at September 30, 2010

is $2.1 billion with a net book value of $810 million. Depreciation on these air traffic legacy

systems was $136 million and $134 million in FY 2010 and 2009, respectively. As the ERAM

deployment schedule becomes more certain, FAA will re-evaluate the remaining service lives of the

legacy air traffic systems and its estimated value at disposal. Adjustments will then be made to FAA

accounting records in accordance with applicable accounting standards.

While the deployment schedule for ERAM is not finalized and will depend upon results of

continued testing of the system, FAA expects to deploy the ERAM system at 20 air route traffic

control centers over the next several years. When fully deployed and operational, the ERAM system

will replace three legacy air traffic systems currently being depreciated over service lives ranging

from 5-20 years.

The FAA is currently developing and testing the En Route Automation Modernization (ERAM)

system to upgrade the management of air traffic in the en route space and enable the implementation

of NextGen capabilities. As of September 30, 2010, construction in progress includes $1.7 billion

related to the ERAM system.

Notes to the Financial Statements
Financial Report

137

Note 9. Stewardship Property, Plant and Equipment:

Personal Property Heritage Assets

Real Property Heritage Assets

Actions taken by the Maritime Administration since FY 2006 have stabilized the ship and rehabilitated portions of its 

interior for work-day occupancy by staff and crew. The ship is currently located in Baltimore, MD, where it is being 

prepared for continued "SAFSTOR" (The NRC method of preparing nuclear facilities for storage and 

decontamination) retention under the provisions of its NRC license.

Washington's Union Station support's DOT's mobility mission, facilitating the movement of intercity and commuter

rail passengers through the Washington DC metropolitan area. The Federal Railroad Administration (FRA) has an

oversight role in the management of Washington's Union Station. FRA received title through legislation, and sublets

the property to Union Station Venture Limited which manages the property.

Washington's Union Station is an elegant and unique turn-of-the-century rail station in which a wide variety of

elaborate, artistic workmanship characteristic of the period is found. Union Station is listed on the National Register

of Historic Places. The station consists of the renovated original building and a parking garage, which was added by

the National Park Service. 

Notes to the Financial Statements

Implied within the Maritime Administration's mission is the promotion of the nation's rich maritime heritage. One

aspect of this entails the collection, maintenance and distribution of maritime artifacts removed from agency-owned

ships prior to their disposal. As ships are assigned to a non-retention status, artifact items are collected, inventoried,

photographed and relocated to secure shore-side storage facilities. This resulting inventory is made available on a longterm loan basis to qualified organizations for public display purposes.

MARAD artifacts and other collections are generally on loan to single purpose memorialization and remembrance

groups, such as AMVets and preservation societies. MARAD maintains a web-based inventory system that manages

the artifact loan process. The program also supports required National Historical Preservation Act processing prior to

vessel disposal. Funding for the maintenance of heritage items is typically the responsibility of the organization

requesting the loan. The artifacts and other collections are composed of ships' operating equipment obtained from

obsolete ships. The ships are inoperative and in need of preservation and restoration. As all items are durable and

restorable, disposal is not a consideration. The artifacts and other collections are removed from inventory when

destroyed while on loan. A total of 11,791 units of artifacts and other collections were collected as of September 30,

2010 and 646 units were collected as of September 30, 2009. This upward adjustment in FY 2010 is attributed to

capturing the individual assets at the United States Merchant Marine Academy that were not previously reported. For

the FY 2010 and 2009 there were 80 and 24, respectively, artifacts and other collections withdrawn from the items in

storage. 

The Nuclear Ship Savannah is the world's first nuclear-powered merchant ship. It was constructed as a joint project of 

the Maritime Administration and the Atomic Energy Commission (AEC) as a signature element of President 

Eisenhower's "Atoms for Peace" program. In 1965, the AEC issued a commercial operating license and ended its 

participation in the joint program. The ship remains licensed and regulated by the U.S. Nuclear Regulatory 

Commission (successor to the AEC). The Nuclear Ship Savannah is listed on the National Register of Historic Places. 

The ship is a boldly-styled passenger/cargo vessel powered by a nuclear reactor. 
138

Note 10. Liabilities Not Covered by Budgetary Resources:

2010 2009

Intragovernmental:

 Other Liabilities $ 368,316 $ 345,840

 Total Intragovernmental 368,316 345,840

 Federal Employee Benefits Payable 979,016 975,442

 Environmental and Disposal Liabilities (Note 13) 1,103,562 1,195,249

 Other Liabilities 842,958 809,252

 Total Liabilities Not Covered by Budgetary Resources 3,293,852 3,325,783

 Total Liabilities Covered by Budgetary Resources 13,967,670 13,605,059

 Total Liabilities $ 17,261,522 $ 16,930,842

Notes to the Financial Statements
Financial Report

139

Note 11. Debt:

2009 2009 2009 2010 2010

Beginning Net Ending Net Ending

Balance Borrowing Balance Borrowing Balance

Intragovernmental Debt:

 Debt to the Treasury $ 1,760,761 $ 715,612 $ 2,476,373 $ 599,357 $ 3,075,730

 Debt to the Federal Financing Bank 2,224 (249) 1,975 (266) 1,709

Total Intragovernmental Debt $ 1,762,985 $ 715,363 $ 2,478,348 $ 599,091 $ 3,077,439

Notes to the Financial Statements
140

Note 12. Federal Employee Benefits Payable:

2010 2009

 Intragovernmental Liability for FECA (Note 15) $ 226,974 $ 227,241

 Expected Future Liability for FECA 979,016 975,442

 Total Federal Employee Benefits Payable $ 1,205,990 $ 1,202,683

The Department of Labor calculates the FECA liability for DOT as a whole. FECA liabilities include

the expected liability for death, disability, medical and miscellaneous costs for approved compensation

cases, plus a component for incurred but not reported claims. The estimated liability is not covered by

budgetary resources and thus will require future appropriated funding. 

Notes to the Financial Statements

The intragovernmental FECA liability represents amounts billed to DOT by the DOL for FECA

payments made on DOT's behalf. Funding for the liability will be provided by future appropriations.

The intragovernmental amount is not an actuarial liability.
Financial Report

141

Note 13. Environmental and Disposal Liabilities:

September 30, 2010 September 30, 2009

Public:

 Environmental Remediation $ 623,799 $ 737,421

 Asset Disposal 479,763 457,828

 Total Public $ 1,103,562 $ 1,195,249

Notes to the Financial Statements

The National Maritime Heritage Act requires that MARAD dispose of certain merchant vessels owned by the

U.S. government, including non-retention ships in the Fleet. Residual fuel, asbestos, and solid polychlorinated

biphenyls (PCB) sometimes exist onboard MARAD's non-retention ships. The asset disposal liability at

September 30, 2010 includes the estimated cost of disposing 159 ships. In addition, FAA records an asset

disposal liability upon the decommissioning of an asset to cover preparatory costs required to meet regulatory

standards allowing for the safe disposition of the asset.

Environmental remediation generally occurs under the Resource Conservation and Recovery Act of 1976

(RCRA), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or

Superfund), or the Toxic Substances Control Act (TSCA). Environmental remediation includes the fuel storage

tank program, fuels, solvents, industrial, and chemicals, and other environmental cleanup activities associated

with normal operations or the result of an accident. Cost estimates for environmental cleanup and asset

disposal liabilities are not adjusted for inflation and are subject to revision as a result of changes in technology

and environmental laws and regulations.

As of September 30, 2010 and 2009, DOT's environmental remediation liability primarily includes the removal

of contaminants on the Nuclear Ship Savannah, containment of exfoliating ship paint for the non-retention

ships in the National Defense Reserve Fleet (Fleet), and remediation at various sites managed by the FAA and

MARAD.

In addition, there is a foreseeable environmental liability related to a site with MARAD and numerous other

external parties, where the loss is probable and the estimate cannot be determined.
142

Note 14. Grant Accrual:

2010 2009

Federal Highway Administration $ 5,024,636 $ 4,240,468

Federal Transit Administration 1,300,083 1,662,252

Federal Aviation Administration 557,486 775,734

Other 83,794 91,360

Total Grant Accrual $ 6,965,999 $ 6,769,814

Grant accruals by Operating Administration at September 30, 2010 and 2009 are summarized as 

follows:

The grant accrual consists of an estimate of grantee expenses incurred but not yet paid by DOT.

Grantees primarily include state and local governments and transit authorities.

Notes to the Financial Statements
Financial Report

143

Note 15. Other Liabilities:

September 30, 2010:

Non-Current Current Total

Intragovernmental: 

 Advances and Prepayments $ 1,422,192 $ 749,761 $ 2,171,953

 Accrued Pay and Benefits - 100,395 100,395

 FECA Billings (Note 12) 126,010 100,964 226,974

 Uncleared Disbursements and Collections - 142 142

 Other Accrued Liabilities 245 217,304 217,549

Total Intragovernmental $ 1,548,447 $ 1,168,566 $ 2,717,013

Public:

 Other Accrued Unbilled Payments $ - $ 56,623 $ 56,623

 Advances and Prepayments - 112,456 112,456

 Accrued Pay and Benefits 107,317 835,090 942,407

 Deferred Credits - 37,670 37,670

 Legal Claims - 87,252 87,252

 Capital Leases 85,452 21,506 106,958

 Other Custodial Liability - 38,400 38,400

 Other Accrued Liabilities 57,633 3,290 60,923

Total Public $ 250,402 $ 1,192,287 $ 1,442,689

Notes to the Financial Statements

The $1.42 billion in the Non-Current Intragovernmental Advances and Prepayments for FY 2010 is

recorded by the Federal Transit Administration and is the remaining advance from the Federal Emergency

Management Agency (FEMA) for the construction of Lower Manhattan area in New York. The current

portion of the advances and prepayments for this same project is approximately $442.2 million.
144

Notes to the Financial Statements

Note 15. Other Liabilities: (Cont.)

As of September 30, 2009:

Non-Current Current Total

Intragovernmental: 

 Advances and Prepayments $ 2,293,739 $ 334,334 $ 2,628,073

 Accrued Pay and Benefits 36,878 90,594 127,472

 FECA Billings (Note 12) 129,994 97,247 227,241

 Uncleared Disbursements and Collections - 156 156

 Other Accrued Liabilities 37,123 72,917 110,040

Total Intragovernmental $ 2,497,734 $ 595,248 $ 3,092,982

Public:

 Other Accrued Unbilled Payments $ - $ 44,573 $ 44,573

 Advances and Prepayments - 132,272 132,272

 Accrued Pay and Benefits 109,053 729,507 838,560

 Deferred Credits - 53,612 53,612

 Uncleared Disbursements and Collections - 50 50

 Legal Claims 10,004 41,374 51,378

 Capital Leases 92,548 23,292 115,840

 Other Custodial Liability - 32,028 32,028

 Other Accrued Liabilities 80,989 2,269 83,258

Total Public $ 292,594 $ 1,058,977 $ 1,351,571

The $1.42 billion in the Non-Current Intragovernmental Advances and Prepayments for FY 2010 is

recorded by the Federal Transit Administration and is the remaining advance from the Federal Emergency

Management Agency (FEMA) for the construction of Lower Manhattan area in New York. The current

portion of the advances and prepayments for this same project is approximately $442.2 million.
Financial Report

145

Note 16. Leases:

ENTITY AS LESSEE:

Capital Leases: 

2010 2009

 Land, Buildings & Machinery $ 204,580 $ 204,485

 Accumulated Amortization (104,678) (96,036)

$ 99,902 $ 108,449

Future Payments Due:

Fiscal Year

Year 1 (2011) $ 14,127

Year 2 (2012) 10,948

Year 3 (2013) 8,340

Year 4 (2014) 8,042

Year 5 (2015) 7,808

After 5 Years (2016+) 82,100

Total Future Lease Payments $ 131,365

Less: Imputed Interest 24,407

Net Capital Lease Liability $ 106,958

Operating Leases:

Future Payments Due:

Land, Buildings,

Machinery &

Fiscal Year Other

Year 1 (2011) $ 234,400

Year 2 (2012) 213,026

Year 3 (2013) 164,188

Year 4 (2014) 141,149

Year 5 (2015) 129,242

After 5 Years (2016+) 628,352

Total Future Lease Payments $ 1,510,357

Notes to the Financial Statements

 Summary of Assets Under Capital Lease by Category: 

 Net Assets Under Capital Lease

The capital lease payments disclosed above relate to FAA and are authorized to be funded annually as codified 

in the United States Code - Title 49 - Section 40110(c)(1) which addresses general procurement authority. The 

remaining principal payments are recorded as unfunded lease liabilities. The imputed interest is funded and 

expensed annually.

Operating lease expense incurred during the years ended September 30, 2010 and 2009 was $282.8 million and 

$297 million, respectively, including General Services Administration (GSA) leases that have a short 

termination privilege; however, DOT intends to remain in the leases. Estimates of the lease termination dates 

are subjective, and any projection of future lease payments would be arbitrary.
146

Note 17. Commitments and Contingencies 

Legal Claims:

Grant Programs:

Contract Options and Negotiations:

In October 2010, the Governor of New Jersey cancelled a major project with FTA, the Access to Regions'

Core (ARC) Tunnel. The amount obligated to date was $350 million and payments made were $233

million. FTA management and the State Governor are in the process of determining the amount New

Jersey Transit may owe FTA.

As of September 30, 2010 and 2009, DOT's contingent liabilities, in excess of amounts accrued, for

asserted and pending legal claims reasonably possible of loss were estimated at $92.1 million and $96.9

million, respectively. DOT does not have material amounts of known unasserted claims.

FAA has authority under 49 U.S.C. 47110(e) to issue letters of intent to enter into Airport Improvement

Program grant agreements. FAA records an obligation when a grant is awarded. Through September 30,

2010, FAA issued letters of intent covering FY 1988 through FY 2026 totaling $6.5 billion. As of

September 30, 2010, FAA had obligated $5.2 billion of this total amount leaving $1.3 billion unobligated.

Through September 30, 2009, FAA issued letters of intent covering FY 1988 through FY 2020 totaling

$5.9 billion. As of September 30, 2009, FAA had obligated $4.9 billion of this total amount, leaving $1.0

billion unobligated. 

FHWA pre-authorizes states to establish construction budgets without having received appropriations

from Congress for such projects. FHWA does not guarantee the ultimate funding to the states for these

“Advance Construction” projects and, accordingly, does not obligate any funds for these projects. When

funding becomes available to FHWA, the states can then apply for reimbursement of costs that they have

incurred on such projects, at which time FHWA can accept or reject such requests. For the fiscal year

ended September 30, 2010 and 2009 FHWA has pre-authorized $40.2 billion and $41 billion,

respectively, under these arrangements. These commitments have not been recognized in the DOT

consolidated financial statements at September 30, 2010 and 2009.

FAA's Airport Improvement Program provides grants for the planning and development of public-use

airports that are included in the National Plan of Integrated Airport Systems. Eligible projects generally

include improvements related to enhancing airport safety, capacity, security and environmental concerns.

FAA's share of eligible costs for large and medium primary hub airports is 75 percent with the exception

of noise program implementation, which is 80 percent of the eligible costs. For remaining airports (small

primary, reliever, and general aviation airports), FAA's share is 95 percent of the eligible costs.

Notes to the Financial Statements

FTA executes Full Funding Grant Agreements (FFGAs) under its Capital Investment program (New

Starts) authorizing transit authorities to establish project budgets and incur costs with their own funds in

advance of Congress appropriating New Starts funds to the project. As of September 30, 2010 and

September 30, 2009, FTA had approximately $1.87 billion and $4.2 billion respectively, in funding

commitments under FFGAs, which Congress had not yet appropriated. Congress must first provide the

budget authority (appropriations) to allow FTA to incur obligations for these programs. Until Congress

appropriates funds, FTA is not liable to grantees for any costs incurred. There is no liability related to

these commitments reflected in the DOT consolidated financial statements at September 30, 2010 and

2009.

As of September 30, 2010, FAA had contract options of $10.2 billion. These contract options give FAA

the unilateral right to purchase additional equipment or services or to extend the contract terms.

Exercising this right would require the obligation of funds in future years.
Financial Report

147

Note 17. Commitments and Contingencies: (Cont.)

Aviation Insurance Program:

Aviation Insurance Program Continued:

Environmental Liabilities:

National Railroad Passenger Service Corporation (Amtrak)

FAA is authorized to issue hull and liability insurance under the Aviation Insurance Program for air

carrier operations for which commercial insurance is not available on reasonable terms and when

continuation of U.S. flag commercial air service is necessary in the interest of air commerce, national

security, and U.S. foreign policy. FAA may issue (1) non-premium insurance, and (2) premium insurance

for which a risk-based premium is charged to the air carrier, to the extent practical. 

The United States and the Department are not at risk if Amtrak fails and they do not guarantee the

indebtedness of Amtrak, whose debt is secured primarily by assets of the corporation. Amtrak has been

operating with an accumulated deficit and is dependent upon appropriations from Congress to continue

operations. Amtrak has been receiving federal funds from Congress through the Department since 1981.

For FY 2010 and FY 2009, the Department issued grants to Amtrak for $2.2 billion and $1.5 billion,

respectively. These grants were for both operating and capital improvements. Refer to Note 1W

(Significant Accounting Policies) for additional disclosure.

As of September 30, 2010, there are no pending aviation insurance claims. There is approximately $1.5

billion available in the Aviation Insurance Revolving Fund to pay claims to carriers covered by premium

insurance. If premium insurance claims should exceed that amount, additional funding could be

appropriated from the General Fund. The Department of Defense and State Department have agreed to

pay claims to the carriers covered by non-premium insurance.

As of September 30, 2010, FAA has estimated contingent liabilities, categorized as reasonably possible of

$158 million related to environmental remediation. Contingency costs are defined for environmental

liabilities as those costs that may result from incomplete design, unforeseen and unpredictable conditions

or uncertainties within a defined project scope.

Notes to the Financial Statements

During FY 2010, FAA provided premium war-risk insurance to 61 airlines. For these airlines, combined

hull and liability per occurrence coverage limits range from $100 million to $4 billion. FAA also

provided non-premium war-risk insurance to 33 carriers with 1,577 aircraft for Department of Defense

charter operations for Central Command.
148

Note 18. Earmarked Funds: 

Highway Trust Fund

Airport and Airway Trust Fund

Notes to the Financial Statements

The Highway Trust Fund (HTF) is comprised of the Highway Corpus Trust Fund and certain

accounts of the Federal Highway Administration, Federal Motor Carrier Safety Administration,

Federal Transit Administration, Federal Railroad Administration and the National Highway

Traffic Safety Administration. The HTF was created in 1956 by the Highway Revenue Act of

1956 with the main objective of funding the construction of the Dwight D. Eisenhower System of

Interstate and Defense Highways. Over the years, the use of the fund has been expanded to

include mass transit and other surface transportation programs such as highway safety and motor

carrier safety programs. Overall, there are 73 separate treasury symbols in the HTF. 

DOT administers certain earmarked funds, which are specifically identified revenues, often

supplemented by other financing sources, that remain available over time. No new legislation

was enacted as of September 30, 2010 that significantly changed the purpose of the earmarked

funds or redirected a material portion of the accumulated balance. Descriptions of the significant

earmarked funds are as follows:

HTF's programs and activities are primarily financed from excise taxes collected on specific

motor fuels, truck taxes, and fines and penalties. The Highway Revenue Act of 1982 established

two accounts within the HTF, the Highway Account and the Mass Transit Account. During FY

2010, $14.7 and $4.8 billion was transferred from the General Fund to the Highway and Mass

Transit Accounts restoring foregone interest earned since 1998. In August 2009 and September

2008, Congress appropriated $7 billion and $8 billion respectively for transfer from the Treasury

General Fund to the HTF Highway Account to alleviate the cash shortfall created by increases in

fuel prices, and corresponding declines in gas tax revenues. 

Funding currently comes from several aviation related excise tax collections from passenger 

tickets, passenger flight segments, international arrivals/departures, cargo waybills and aviation 

fuels. 

The Airport and Airway Trust Fund (AATF) was authorized by the Airport and Airway Revenue

Act of 1970 to provide funding for the Federal commitment to the nation's aviation system and

typically includes annual funding for four distinct areas within FAA: Operations; Grant in Aid for

Airports; Facilities and Equipment; and Research, Engineering and Development. 
Financial Report

149

Note 18. Earmarked Funds: (Cont.)

Mass Transit Account

Other Earmarked Funds

Aviation Insurance Revolving Fund

Equipment, Supplies, etc., for Cooperating Countries

Gifts and Bequests, Maritime Administration

Special Studies, Services and Projects

Gifts and Bequests, DOT Office of the Secretary

Right-of-Way Revolving Fund Trust Fund

Technical Assistance, United States Dollars Advanced from Foreign Governments

Aviation User Fees

Essential Air Service and Rural Airport Improvement Fund

Pipeline Safety

Emergency Preparedness Grant

University Transportation Centers

Contributions for Highway Research Program

Cooperative Work, Forest Highways

Notes to the Financial Statements

Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users

(SAFETEA-LU) legislation (PL 109-59) changed the way FTA programs are funded. Beginning

in FY 2006, the FTA formula and bus grant programs are funded 100 percent by the HTF. 

In FY 2005 and prior, FTA's formula and bus grant programs were funded 80 percent by certain

earmarked excise tax revenues and 20 percent from the Treasury general receipts account. These

funds are considered earmarked but not reported as part of the HTF. 

Safety of Cross-Border Trucking Between the United States and Mexico

The following is a list of other earmarked funds for which the DOT has program management

responsibility:

Payment to Air Carriers

Right of Way Revolving Fund Program Account

Alaska Pipeline Task Force, Oil Spill Liability Trust Fund
150

Note 18. Earmarked Funds: 

FY 2010

Highway Airport & Airway Mass Other Total

Trust Fund Trust Fund Transit Earmarked Funds Earmarked

Balance Sheet as of September 30, 2010

Assets

Fund Balance with Treasury $ 4,776,346 $ 881,730 $ 937,341 $ 3,401,502 $ 9,996,919

Investments, Net 24,454,591 7,078,432 - 1,517,866 33,050,889

Accounts Receivable, Net 7,938 - 809 3,606,105 3,614,852

Property, Plant & Equipment 141,781 - - 2,799,969 2,941,750

Other 318,973 - 784 407,921 727,678

 Total Assets $ 29,699,629 $ 7,960,162 $ 938,934 $ 11,733,363 $ 50,332,088

Liabilities and Net Position

Accounts Payable $ 53,446 $ 3,486,898 $ 508 $ 437,381 $ 3,978,233

FECA Liabilities 21,634 - - 1,120,795 1,142,429

Grants Accrual 4,264,344 - 50,324 576,428 4,891,096

Other Liabilities 271,989 - 2,824 1,011,708 1,286,521

Unexpended Appropriations - - 48,480 1,163,040 1,211,520

Cumulative Results of Operations 25,088,216 4,473,264 836,798 7,424,011 37,822,289

 Total Liabilities and Net Position $ 29,699,629 $ 7,960,162 $ 938,934 $ 11,733,363 $ 50,332,088

Statement of Net Cost For the Period

Ended September 30, 2010

Program Costs $ 39,429,077 $ 10,220,422 $ 391,035 $ 4,890,588 $ 54,931,122

Less Earned Revenue 266,331 - - 483,528 749,859

Net Program Costs 39,162,746 10,220,422 391,035 4,407,060 54,181,263

Costs Not Attributable to Programs - - - 166,558 166,558

Net Cost of Operations $ 39,162,746 $ 10,220,422 $ 391,035 $ 4,573,618 $ 54,347,821

Statement of Changes in Net Position

For the Period September 30, 2010

Beginning Net Position $ 9,733,737 $ 3,899,318 $ 1,276,046 $ 8,785,518 $ 23,694,619

Budgetary Financing Sources 54,473,665 10,794,368 267 5,438,148 70,706,448

Other Financing Sources 43,560 - - (1,062,997) (1,019,437)

Net Cost of Operations 39,162,746 10,220,422 391,035 4,573,618 54,347,821

Change in Net Position 15,354,479 573,946 (390,768) (198,467) 15,339,190

Net Position End of Period $ 25,088,216 $ 4,473,264 $ 885,278 $ 8,587,051 $ 39,033,809

Notes to the Financial Statements
Financial Report

151

Notes to the Financial Statements

Note 18. Earmarked Funds: (Cont.)

FY 2009

Highway Airport & Airway Mass Other Total

Trust Fund Trust Fund Transit Earmarked Funds Earmarked

Balance Sheet as September 30, 2009

Assets

Fund Balance with Treasury $ 2,607,082 $ (204,227) $ 1,385,079 $ 3,084,552 $ 6,872,486

Investments, Net 11,484,437 7,829,468 - 1,370,576 20,684,481

Accounts Receivable, Net 46,311 - 6,949 3,966,432 4,019,692

Property, Plant & Equipment 121,162 - - 3,831 124,993

Other 383,634 46,290 957 3,591,674 4,022,555

 Total Assets $ 14,642,626 $ 7,671,531 $ 1,392,985 $ 12,017,065 $ 35,724,207

Liabilities and Net Position

Accounts Payable $ 130,897 $ 3,772,213 $ 401 $ 452,581 4,356,092

FECA Liabilities 22,848 - - 1,112,446 1,135,294

Grants Accrual 4,501,677 - 113,714 683,946 5,299,337

Other Liabilities 253,467 - 2,824 982,574 1,238,865

Unexpended Appropriation - - 41,793 1,171,158 1,212,951

Cumulative Results of Operations 9,733,737 3,899,318 1,234,253 7,614,360 22,481,668

 Total Liabilities and Net Position $ 14,642,626 $ 7,671,531 $ 1,392,985 $ 12,017,065 $ 35,724,207

Statement of Net Cost For the Period

Ended September 30, 2009

Program Costs $ 44,758,237 $ 11,783,177 $ 747,099 $ 3,190,332 $ 60,478,845

Less Earned Revenue 92,806 - 5,332 531,178 629,316

Net Program Costs 44,665,431 11,783,177 741,767 2,659,154 59,849,529

Costs Not Attributable to Programs - - - 137,700 137,700

Net Cost of Operations $ 44,665,431 $ 11,783,177 $ 741,767 $ 2,796,854 $ 59,987,229

Statement of Changes in Net Position

For the Period Ended September 30, 2009

Beginning Net Position $ 12,435,464 $ 4,822,612 $ 2,017,018 $ 7,679,358 $ 26,954,452

Budgetary Financing Sources 42,150,918 10,859,883 795 3,821,301 56,832,897

Other Financing Sources (187,214) - - 81,713 (105,501)

Net Cost of Operations 44,665,431 11,783,177 741,767 2,796,854 59,987,229

Change in Net Position (2,701,727) (923,294) (740,972) 1,106,160 (3,259,833)

Net Position End of Period $ 9,733,737 $ 3,899,318 $ 1,276,046 $ 8,785,518 $ 23,694,619
152

Note 19. Intragovernmental Costs and Exchange Revenues:

IntragovernmentalWith the 

Public Total

Surface Transportation:

Federal-Aid Highway Program:

Gross Costs $ 107,913 $ 30,575,531 $ 30,683,444

Less Earned Revenue 32,019 49,913 81,932

Net Program Costs 75,894 30,525,618 30,601,512

Mass Transit Program

Gross Costs 31,795 12,565,530 12,597,325

Less Earned Revenue 416,483 1,549 418,032

Net Program Costs (384,688) 12,563,981 12,179,293

Other Surface Transportation Programs:

Gross Costs 312,499 17,961,803 18,274,302

Less Earned Revenue 85,003 200,627 285,630

Net Program Costs 227,496 17,761,176 17,988,672

Total Surface Transportation Program Costs (81,298) 60,850,775 60,769,477

Air Transportation:

Gross Costs 2,572,942 14,693,803 17,266,745

Less Earned Revenue 182,693 308,237 490,930

Net Program Costs 2,390,249 14,385,566 16,775,815

Maritime Transportation:

Gross Costs 278,417 816,446 1,094,863

Less Earned Revenue 464,143 62,118 526,261

Net Program Costs (185,726) 754,328 568,602

Cross-Cutting Programs:

Gross Costs 44,715 673,125 717,840

Less Earned Revenue 376,785 4,552 381,337

Net Program Costs (332,070) 668,573 336,503

Costs not assigned to programs 72,511 321,992 394,503

Less: Earned Revenues not attributed to programs 471 - 471

Net Cost of Operations $ 1,863,195 $ 76,981,234 $ 78,844,429

Notes to the Financial Statements

For the Period Ended September 30, 2010
Financial Report

153

Note 19. Intragovernmental Costs and Exchange Revenues: (Cont.)

IntragovernmentalWith the 

Public Total

Surface Transportation:

Federal-Aid Highway Program:

Gross Costs $ 105,064 $ 35,789,451 $ 35,894,515

Less Earned Revenue 32,448 39,807 72,255

Net Program Costs 72,616 35,749,644 35,822,260

Mass Transit Program

Gross Costs 36,332 11,585,418 11,621,750

Less Earned Revenue 269,677 920 270,597

Net Program Costs (233,345) 11,584,498 11,351,153

Other Surface Transportation Programs:

Gross Costs 265,763 10,338,808 10,604,571

Less Earned Revenue 21,332 158,998 180,330

Net Program Costs 244,431 10,179,810 10,424,241

Total Surface Transportation Program Costs 83,702 57,513,952 57,597,654

Air Transportation:

Gross Costs 2,440,109 14,428,796 16,868,905

Less Earned Revenue 244,329 335,654 579,983

Net Program Costs 2,195,780 14,093,142 16,288,922

Maritime Transportation:

Gross Costs 61,761 1,051,911 1,113,672

Less Earned Revenue 378,111 6,874 384,985

Net Program Costs (316,350) 1,045,037 728,687

Cross-Cutting Programs:

Gross Costs 39,448 608,877 648,325

Less Earned Revenue 316,241 4,876 321,117

Net Program Costs (276,793) 604,001 327,208

Cost not assigned to a program 85,041 281,000 366,041

Less: Earned Revenues not attributed to programs 15,640 (4,932) 10,708

Net Cost of Operations $ 1,755,740 $ 73,542,064 $ 75,297,804

Surface Transportation Program costs includes those operating costs incurred by the Operating Administrations authorized by SAFETEA-LU 

(FHWA, NHTSA, FMCSA, FRA and FTA), to promote safety and mobility of the nation's highways and railroads and among the nation's drivers 

and auto manufacturers.

Air Transportation Program costs include those operating costs incurred to promote aviation safety and mobility by building, maintaining, and 

operating the Nation's air traffic control system; overseeing commercial and general aviation safety through regulation and inspection; and 

providing assistance to improve the capacity and safety of our airports.

Maritime Transportation Program Costs include those operating costs incurred to promote the development and maintenance of a U.S. merchant 

marine that is sufficient to carry the Nation's domestic waterborne commerce, a substantial portion of which is trade with other nations, and to 

serve as a naval and military auxiliary in time of war and national emergency.

Cross-cutting Program costs include those operating costs incurred to provide goods and services on a reimbursable basis for those Operating 

Administrations whose mission is primarily cross modal.

Notes to the Financial Statements

For the Period Ended September 30, 2009
154

Note 20. Excise Taxes and Other Non-Exchange Revenue:

9/30/2009 9/30/2008

Actual 12,437,337 12,861,000

 12,408,576 13,047,000

 Under (Over) accrual 28,761 (186,000)

 Quarter Ended

12/31/09 3/31/2010 6/30/2010

Actual 11,491,000 11,061,360 12,334,798

Estimate 11,993,000 10,896,563 12,519,765

 Under (Over) accrual (502,000) 164,797 (184,967)

Highway Trust Fund

Excise Taxes and Other Non-Exchange Revenue 2010 2009

 Gasoline $ 24,836,919 $ 24,626,848

 Diesel and Special Motor Fuels 9,135,819 9,323,118

 Trucks 2,767,199 3,166,825

 Investment Income 17,325 -

 Fines and Penalties 24,918 25,586

 Total Taxes 36,782,180 37,142,377

 Less: Transfers (1,203,149) (1,135,367)

 Gross Taxes 35,579,031 36,007,010

 Less: Refunds of Taxes (569,069) (1,045,767)

 Total Excise Taxes 35,009,962 34,961,243

 Other Non-Exchange Revenue 161 1,151

Net Highway Trust Fund Excise Taxes & Other 

 Non-Exchange Revenue 35,010,123 34,962,394

Federal Aviation Administration

 Passenger Ticket 7,261,070 7,465,647

 International Departure 2,324,017 2,187,182

 Fuel (Air) 651,475 556,570

 Waybill 395,119 469,881

 Investment Income 181,415 281,994

 Tax Refunds and Credits (18,728) (110,034)

 Other 35,379 34,532

 Non-Exchange Revenue 10,829,747 10,885,772

Other Miscellaneous Net Non Exchange Revenue 77,458 31,505

Total Non-Exchange Revenue $ 45,917,328 $ 45,879,671

Excise Taxes and Other Non-Exchange Revenue:

Net Federal Aviation Administration Excise Taxes & Other 

Notes to the Financial Statements

Non-Exchange Revenue:

The Internal Revenue Service (IRS) collects various excise taxes that are deposited in the HTF and AATF. 

Monthly, the United States Treasury, Office of Tax Analysis (OTA) estimates the amount collected/revenue 

recognized, and adjusts the estimates to reflect actual collections quarterly. The IRS submits certificates of 

actual tax collections to DOT three months after the quarter-end and, accordingly the DOT financial 

statements are adjusted to reflect such actual amounts at that time. Total taxes recognized for the year ended 

September 30, 2009 and 2008 includes OTA estimates as follows:

Estimate

These differences were reflected as an adjustment in the DOT subsequent year's financial statements. During 

FY 2010, DOT continued to experience differences between its estimated and actual excise tax collections as 

follows:

For the years ended September 30, 2010 and 2009, respectively, excise taxes and associated nonexchange 

revenue, which are reported on the Statement of Changes in Net Position, were as follows:

Excise taxes estimated by OTA in the 1st, 2nd and 3rd quarters of FY 2010 fluctuated with the certified as 

actual by the IRS by $502 million, ($164) million and $184 million, respectively. Total taxes recognized in 

DOT FY 2010 financial statement included the OTA estimate of $11.5 billion the for quarter ended September 

30, 2010. 
Financial Report

155

Note 21. Combined Statement of Budgetary Resources:

2010 2009

Direct Reimbursable Total Direct Reimbursable Total

 Category A $ 7,192,018 $ 836,297 $ 8,028,315 $ 8,185,100 $ 992,716 $ 9,177,816

 Category B 104,494,200 1,000,490 105,494,690 107,055,097 1,110,483 108,165,580

 Exempt from apportionment 73,733 250,893 324,626 43,075 - 43,075

 Total $ 111,759,951 $ 2,087,680 $ 113,847,631 $ 115,283,272 $ 2,103,199 $ 117,386,471

2010 2009

Available Contract Authority at year-end $ 26,432,116 $ 28,959,336

Available Borrowing Authority at year-end $ 2,603,647 $ 335,573

Undelivered Orders at year-end $ 106,634,884 $ 101,592,347

Unobligated Budgetary Resources:

Statement of Budgetary Resources vs Budget of the United States Government:

 (Dollars in millions)

Budgetary 

Resources

Obligations 

Incurred

Distributed 

Offsetting 

Receipts Net Outlays

Combined Statement of Budgetary Resources $ 175,644 $ 117,386 $ (228) $ 80,881

Funds not Reported in the Budget

 Expired Funds (350) (87) - -

 Recovered subsidy costs (17)

 Distributed Offsetting Receipts - - 228 225

Other 1 (4) - (4)

Budget of the United States Government $ 175,278 $ 117,295 $ - $ 81,102

DOT has permanent indefinite appropriations for the Facilities and Equipment, Grants in Aid and Research, Development and Engineering appropriations to

fully fund special projects that were on-going and spanned several years.

Unobligated balances of budgetary resources for unexpired accounts are available in subsequent years until expiration, upon receipt of an apportionment from

OMB. Unobligated balances of expired accounts are not available.

The reconciliation for the year ended September 30, 2009 is presented below. The reconciliation for the fiscal year ended September 30, 2010 is not presented, 

because the submission of the Budget of the United States (Budget) for FY 2012, which presents the execution of the FY 2010 budget, occurs after publication 

of these financial statements. The Department of Transportation Budget Appendix can be found on the OMB website (http://www.gpoaccess.gov/usbudget) and 

will be available in early February 2011.

Other differences represent financial statement adjustments, timing differences and other immaterial differences between amounts reported in the Department's 

Statement of Budgetary Resources and the Budget of the United States.

Notes to the Financial Statements

Existence, Purpose, and Availability of Permanent Indefinite Appropriations:

Terms of Borrowing Authority Used:

The amounts reported for undelivered orders only include balances obligated for goods and services not delivered and does not include prepayments.

The information presented in the DOT’s Statement of Budgetary Resources reconciles with information submitted in its year-end Reports on Budget Execution 

and Budgetary Resources (SF-133s) with one material difference. The difference is caused by the reversal of a $767 million adjustment recorded at the end of FY 

2009, for which DOT consulted with OMB on its reporting of the FY 2010 Report on Budget Execution and Budgetary Resources (SF 133). In FY 2011, the 

$767 million will be a reconciling item in the reconciliation of the Statement of Budgetary Resources to the President's Budget due to the timing of the release of 

the information. 

Under the provisions of the Federal Credit Reform Act of 1990, DOT direct loan and loan guarantee programs are authorized to borrow funds from Treasury to 

support its credit programs. All loan draw downs are dated October 1 of the applicable fiscal year. Interest is payable at the end of each fiscal year based on 

activity for that fiscal year. Principal can be repaid at any time funds become available. Repayment is effectuated by a combination of loan recoveries and 

upward re-estimates. 

The amount of direct and reimbursable obligations incurred against amounts apportioned under Category A, B and Exempt from apportionment, as defined in 

OMB Circular No. A-11, Part 4, Instructions on Budget Execution, are as follows: 
156

Note 22. Incidental Custodial Collections:

Revenue Activity:

Sources of Cash Collections: 2010 2009

 Miscellaneous Receipts $ 19,068 $ 26,184

 Fines, Penalties and Forfeitures - 6,136

Total Cash Collections 19,068 32,320

Total Custodial Revenue 19,068 32,320

Disposition of Collections:

 Transferred to Treasury's General Fund 19,068 32,320

Net Custodial Activity $ - $ -

Notes to the Financial Statements
Financial Report

157

2010 2009

Resources Used to Finance Activities:

 Budgetary Resources Obligated

 Obligations Incurred $ 113,847,631 $ 117,386,471

Less: Spending Authority from Offsetting Collections and 

Recoveries 10,194,866 8,731,311

 Obligations Net of Offsetting Collections and Recoveries 103,652,765 108,655,160

 Less: Distributed Offsetting Receipts (219,178) (228,339)

 Net Obligations 103,433,587 108,426,821

 Other Resources

 Donations and Forfeitures of Property - -

 Transfers In/Out Without Reimbursement (6) (153,631)

 Imputed Financing From Costs Absorbed by Others 704,727 756,225

 Other (120,821) (168,523)

 Net Other Resources Used to Finance Activities 583,900 434,071

Total Resources Used to Finance Activities 104,017,487 108,860,892

Resources Used to Finance Items Not Part of the Net Cost of 

Operations:

Change in Budgetary Resources Obligated for Goods, Services 

and Benefits Ordered but not yet Provided 4,921,176 26,709,777

 Resources That Fund Expenses Recognized in Prior Periods 231,453 238,485

Credit Program Collections That Increase Liabilities for Loan 

Guarantees or Allowances for Subsidy (404,267) (209,856)

Other/Change in Unfilled Customer Orders 645,292 (75,777)

Anticipated Resources not yet realized (18,602) -

Resources That Finance the Acquisition of Assets 2,142,542 1,712,741

Other Resources or Adjustments to Net Obligated Resources 

That Do Not Affect Net Cost of Operations 19,403,513 6,999,368

Total Resources Used to Finance Items Not Part of the Net Cost 

Of Operations 26,921,107 35,374,738

Total Resources Used to Finance the Net Cost of Operations $ 77,096,380 $ 73,486,154

Notes to the Financial Statements

Note 23. Reconciliation of Net Cost of Operations to Budget:
158

2010 2009

Components of the Net Cost of Operations that will not Require 

or Generate Resources in the Current Period:

Components Requiring or Generating Resources in Future 

Periods:

 Increase in Annual Leave Liability $ 6,461 $ 14,084

 Increase in Environment and Disposal Liability - 366,360

Upward/Downward Reestimates of Credit Subsidy Expense (43,394) (58,536)

 Increase in exchange revenue receivable from the public 4,228 (23,370)

 Change in Other Liabilities 174,084 56,513

Total Components of Net Cost of Operations That Will Require or 

Generate Resources in Future Periods 141,379 355,051

Components Not Requiring or Generating Resources:

 Depreciation and Amortization 1,173,561 1,209,740

 Revaluation of Assets or Liabilities 291,694 12,924

Other Expenses and Adjustments not Otherwise Classified 

Above 141,415 233,935

Total Components of Net Cost of Operations That Will Not 

Require or Generate Resources 1,606,670 1,456,599

Total Components of Net Cost of Operations That Will Not 

Require or Generate Resources in the Current Period 1,748,049 1,811,650

Net Cost of Operations $ 78,844,429 $ 75,297,804

Note 23. Reconciliation of Net Cost of Operations to Budget: (Cont.)

Notes to the Financial Statements
Financial Report

159

Note 24. Reporting on DOT Affiliated Activities

Saint Lawrence Seaway Development Corporation

Condensed Information:

2010 2009

Cash and Short-Term Time Deposits $ 34,283 $ 28,529

Long-Term Time Deposits 2,839 1,271

Accounts Receivable 86 113

Inventories 266 267

Other Current Assets 1 27

Property, Plant and Equipment 75,687 73,533

Deferred Charges 3,546 3,457

Other Assets 600 622

Total Assets $ 117,308 $ 107,819

Current Liabilities $ 3,825 $ 3,465

Actuarial Liabilities 3,546 3,457

Total Liabilities 7,371 6,922

Invested Capital 90,818 88,661

Cumulative Results of Operations 19,119 12,236

Total Net Position 109,937 100,897

Total Liabilities and Net Position $ 117,308 $ 107,819

Operating Revenues $ 29,375 $ 30,639

Operating Expenses 25,226 22,652

Operating Income (loss) 4,149 7,987

Other Financing Sources 2,734 2,768

Operating revenues and other financing sources over 

(under) operating expenses 6,883 10,755

Beginning cumulative results of operations (deficit) 12,236 1,481

Ending cumulative results of operations (deficit) $ 19,119 $ 12,236

MARAD Non-Appropriated Fund Instrumentality (NAFI)

Notes to the Financial Statements

The Non-Appropriated Fund Instrumentality (NAFI) operate using their own funds generated

from the proceeds received from various non-governmental sources, rather than appropriated

funds. At DOT, NAFI's operate as a separate fiscal entity under MARAD to provide or assist

the U.S. Merchant Marine Academy in providing programs and services for students, personnel

and authorized civilians from sources other than Congressional appropriations. Although

considered Governmental, NAFI cash balances and operating expenses are separate and distinct

from those recorded in the books of the Federal Government. For the fiscal years September

30, 2010 and September 30, 2009, NAFI operating revenues and proceeds from midshipmen

fees totaled $10 million and $13 million respectively.

The U.S. Saint Lawrence Seaway Development Corporation (SLSDC), a wholly owned 

Government corporation and operating administration of the Department, is responsible for the 

operation and maintenance of the U.S. portion of the St. Lawrence Seaway. This responsibility 

includes maintaining and operating two U.S. locks, controlling vessel traffic and promoting trade 

development activities on the seaway.
160

Note 25. Fiduciary Activities

Schedule of Fiduciary Activity

For the quarter ended September 30, 2010 and 2009

2010 2009

Fiduciary Net Assets, beginning of year $ 141,756 $ 28,396

Contributions - 113,360

Disbursements to and on behalf of beneficiaries (113,562) -

Increases/(Decreases) in fiduciary net assets (113,562) 113,360

Fiduciary net assets, end of year $ 28,194 $ 141,756

Fiduciary Net Assets

As of September 30, 2010 and 2009

Fiduciary Assets

Fiduciary Fund Balance with Treasury $ 295 $ 75

Investments in Treasury Securities 27,899 141,681

Total Fiduciary Net Assets 28,194 141,756

Notes to the Financial Statements

The Title XI Escrow Fund was authorized pursuant to the Merchant Marine Act of 1936, as 

amended. The fund was originally established to hold guaranteed loan proceeds pending 

construction of MARAD approved and financed vessels.

The Act was recently amended to allow the deposit of additional cash security items such as 

reserve funds or debt reserve funds. Individual shipowners provide funds to serve as security 

on MARAD guaranteed loans. Funds deposited and invested by MARAD remain the property 

of individual shipowners. In the event of default, MARAD will use the escrow funds to offset 

the shipowners' debt to the Government.

Fund investments are limited to U.S. Government securities purchased by MARAD through 

the Treasury.
Financial Report

161

required supplementary information
162

Deferred Maintenance:

2010 2009

 DOT Asset Cost to Return to Cost to Return to

Entity Major Class of Asset Method of Measurement Condition* Acceptable Condition** Acceptable Condition**

FAA Buildings Condition Assessment 4 & 5 $ 74,155 $ 111,298

 Survey

Other Structures and Condition Assessment 4 & 5 194,000 151,000

 Facilities Survey

MARAD Vessels, Ready Reserve Condition Assessment 3 9,191 6,285

 Force (Various Locations) Survey

Real Property, Buildings Condition Assessment 4 7,672 40

(Anchorage) Survey

Other (Fleet Craft) Condition Assessment 2&3 - 350

 Survey

Other (Pier and Berthing Estimate 2 - 35

Surveys and Studies)

Other (Heritage Assets) Condition Assessment 3&4 - 200

Total $ 285,018 $ 269,208

*Asset Condition Rating Scale: **Acceptable Condition is:

 1 - Excellent FAA Buildings 3 - Fair 

 2 - Good FAA Other Structures and Facilities 3 - Fair 

 3 - Fair MARAD Vessels, Ready Reserve 1 - Excellent - Ships are seaworthy and ready for 

 4 - Poor Force mission assignments within prescribed time

 5 - Very Poor limits.

 MARAD Real Property, Buildings 3 - Fair - Buildings are safe and inhabitable.

 MARAD Real Property, Structures 3 - Fair - Adequate water depth, shore power, and

 mooring capabilities.

 MARAD Heritage Assets 3 - Fair 

Deferred Maintenance is maintenance that was not performed when it should have been or was scheduled to be performed and delayed 

until a future period. Maintenance is keeping fixed assets in acceptable condition, and includes preventative maintenance, normal 

repairs, replacement of parts and structural components, and other activities needed to preserve assets in a condition to provide 

acceptable service and to achieve expected useful lives.
Financial Report

163

U.S. Department of Transportation

Required Supplementary Information 

Combining Statements of Budgetary Resources By Major Account

For the Period Ended September 30, 2010

(Dollars in Thousands)

Budgetary Resources: Federal-Aid FAA FTA MARAD All Other TOTAL

Unobligated balance, brought forward, October 1 $ 25,819,161 $ 3,598,143 $ 8,953,472 $ 543,188 $ 19,343,857 $ 58,257,821

Recoveries of prior year unpaid obligations - 425,738 542,305 20,483 2,546,458 3,534,984

Budget authority:

 Appropriations received 41,943,123 15,526,737 11,789,581 610,268 27,536,634 97,406,343

 Borrowing authority - - - 319,363 2,284,284 2,603,647

 Contract authority 51,750,152 3,515,000 8,360,565 - 1,284,282 64,909,999

 Spending authority from offsetting collections

 Earned

 Collected 247,666 916,686 436,306 524,404 1,332,990 3,458,052

 Change in receivables from Federal sources (11,188) (92,865) (7,760) 18,741 6,433 (86,639)

 Change in unfilled customer orders

 Advance received 1,785 (817) (410,065) (25,287) (101,810) (536,194)

 Without advance from Federal sources (165,864) (27,370) (10,375) (98,578) 97,933 (204,254)

 Expenditure transfers from trust funds - 4,000,000 - 487 28,430 4,028,917

 Subtotal 93,765,674 23,837,371 20,158,252 1,349,398 32,469,176 171,579,871

Nonexpenditure transfers, net (1,406,637) (48,627) 1,561,151 50,000 (104,270) 51,617

Temporarily not available pursuant to Public Law - - - - (5,007) (5,007)

Permanently not available (44,046,000) (3,521,002) (9,401,608) (221,502) (1,683,108) (58,873,220)

Total budgetary resources $ 74,132,198 $ 24,291,623 $ 21,813,572 $ 1,741,567 $ 52,567,106 $ 174,546,066

Status of Budgetary Resources:

Obligations incurred: 

 Direct $ 41,536,569 20,218,239 $ 11,308,034 895,647 $ 37,801,462 $ 111,759,951

 Reimbursable 70,271 751,479 4,683 367,936 893,311 2,087,680

 Subtotal 41,606,840 20,969,718 11,312,717 1,263,583 38,694,773 113,847,631

Unobligated balance:

 Apportioned 16,881,341 1,704,024 10,015,855 231,710 13,322,463 42,155,393

 Exempt from apportionment - - - 15,526 303,696 319,222

 Subtotal 16,881,341 1,704,024 10,015,855 247,236 13,626,159 42,474,615

Unobligated balance not available 15,644,017 1,617,881 485,000 230,748 246,174 18,223,820

Total status of budgetary resources $ 74,132,198 $ 24,291,623 $ 21,813,572 $ 1,741,567 $ 52,567,106 $ 174,546,066
164

U.S. Department of Transportation

Required Supplementary Information 

Combining Statements of Budgetary Resources By Major Account

For the Period Ended September 30, 2010

(Dollars in Thousands)

Change in Obligated Balances: Federal-Aid FAA FTA MARAD All Other TOTAL

Obligated balance, net:

 Unpaid obligations, brought forward, October 1 $ 52,631,073 $ 9,680,164 $ 22,058,387 $ 402,202 $ 24,834,538 $ 109,606,364

 Uncollected customer payments from Federal sources,

 brought forward, October 1 (516,259) (463,179) (84,750) (153,110) (512,452) (1,729,750)

 Total unpaid obligated balance, net 52,114,814 9,216,985 21,973,637 249,092 24,322,086 107,876,614

Obligations incurred 41,606,840 20,969,718 11,312,717 1,263,583 38,694,773 113,847,631

Gross outlays (31,031,619) (20,938,189) (13,113,796) (1,276,041) (38,750,793) (105,110,438)

Obligated balance, transferred, net

Unpaid obligations - - - - 26,344 26,344

Recoveries of prior year unpaid obligations, actual - (425,738) (542,305) (20,483) (2,546,458) (3,534,984)

Change in uncollected customer payments from Federal sources 181,512 120,235 18,136 79,836 (97,424) 302,295

Obligated balance, net, end of period:

 Unpaid obligations 64,706,294 9,285,955 19,715,003 369,261 22,258,404 116,334,917

 Uncollected customer payments from Federal sources (334,747) (342,944) (66,614) (73,274) (609,876) (1,427,455)

 Total unpaid obligated balance, net, end of period $ 64,371,547 $ 8,943,011 $ 19,648,389 $ 295,987 $ 21,648,528 $ 114,907,462

Net Outlays:

Net Outlays

 Gross Outlays $ 31,031,619 $ 20,938,189 $ 13,113,796 $ 1,276,041 $ 38,750,793 $ 105,110,438

 Offsetting collections (253,414) (4,915,870) (26,241) (499,604) (1,252,388) (6,947,517)

 Distributed offsetting receipts - (12,776) 93 (85,402) (121,093) (219,178)

 Net outlays $ 30,778,205 $ 16,009,543 $ 13,087,648 $ 691,035 $ 37,377,312 $ 97,943,743
Financial Report

165

U.S. Department of Transportation

Required Supplementary Information 

Combining Statements of Budgetary Resources By Major Account

For the Year Ended September 30, 2009

(Dollars in Thousands)

Budgetary Resources: Federal-Aid FAA FTA MARAD All Other TOTAL

Unobligated balance, brought forward, October 1 $ 35,439,498 $ 2,822,280 $ 4,456,802 $ 499,971 $ 2,828,632 $ 46,047,183

Recoveries of prior year unpaid obligations - 385,377 37,871 59,833 242,747 725,828

Budget authority:

 Appropriations received 41,440,266 16,830,694 19,040,663 599,202 50,231,514 128,142,339

 Borrowing authority - - - 209,000 1,349,169 1,558,169

 Contract authority 43,186,476 3,900,000 8,360,565 - 1,270,000 56,717,041

 Spending authority from offsetting collections

 Earned

 Collected 86,112 829,788 280,061 494,245 947,633 2,637,839

 Change in receivables from Federal sources 1,573 70,202 3,228 (21,834) (41,444) 11,725

 Change in unfilled customer orders

 Advance received 7,667 66,512 (260,677) 45,174 116,191 (25,133)

 Without advance from Federal sources 76,146 (39,911) (18,828) 30,188 49,137 96,732

 Expenditure transfers from trust funds - 5,238,005 25 15,956 30,334 5,284,320

 Subtotal 84,798,240 26,895,290 27,405,037 1,371,931 53,952,534 194,423,032

Nonexpenditure transfers, net (977,819) (46,300) 1,265,065 - 1,762,754 2,003,700

Temporarily not available pursuant to Public Law - (2,251) (2,251)

Permanently not available (53,342,158) (3,744,234) (8,770,000) (234,066) (1,462,742) (67,553,200)

Total budgetary resources $ 65,917,761 $ 26,312,413 $ 24,394,775 $ 1,697,669 $ 57,321,674 $ 175,644,292

Status of Budgetary Resources:

Obligations incurred: 

 Direct $ 40,049,960 $ 21,971,269 $ 15,420,778 $ 787,413 $ 37,053,852 $ 115,283,272

 Reimbursable 48,640 743,001 20,525 367,068 923,965 2,103,199

 Subtotal 40,098,600 22,714,270 15,441,303 1,154,481 37,977,817 117,386,471

Unobligated balance:

 Apportioned 19,186,099 1,707,455 8,946,604 247,783 18,933,612 49,021,554

 Exempt from apportionment - - - 2,027 274,347 276,374

 Subtotal 19,186,099 1,707,455 8,946,604 249,810 19,207,959 49,297,928

Unobligated balance not available 6,633,062 1,890,688 6,868 293,378 135,898 8,959,894

Total status of budgetary resources $ 65,917,761 $ 26,312,413 $ 24,394,775 $ 1,697,669 $ 57,321,674 $ 175,644,292
166

U.S. Department of Transportation

Required Supplementary Information 

Combining Statements of Budgetary Resources By Major Account

For the Year Ended September 30, 2009

(Dollars in Thousands)

Change in Obligated Balances: Federal-Aid FAA FTA MARAD All Other TOTAL

Obligated balance, net:

 Unpaid obligations, brought forward, October 1 $ 48,973,366 8,904,431 18,025,560 369,343 5,652,680 $ 81,925,380

 Uncollected customer payments from Federal sources,

 brought forward, October 1 (438,541) (432,888) (100,351) (144,756) (497,368) (1,613,904)

 Total unpaid obligated balance, net 48,534,825 8,471,543 17,925,209 224,587 5,155,312 80,311,476

Obligations incurred 40,098,600 22,714,270 15,441,303 1,154,481 37,977,817 117,386,471

Gross outlays (36,440,893) (21,553,160) (11,370,605) (1,061,789) (18,578,212) (89,004,659)

Unpaid obligations - - - - 25,000 25,000

Recoveries of prior year unpaid obligations, actual - (385,377) (37,871) (59,833) (242,747) (725,828)

Change in uncollected customer payments from Federal sources (77,718) (30,291) 15,601 (8,354) (15,084) (115,846)

Obligated balance, net, end of period:

 Unpaid obligations 52,631,073 9,680,164 22,058,387 402,202 24,834,538 109,606,364

 Uncollected customer payments from Federal sources (516,259) (463,179) (84,750) (153,110) (512,452) (1,729,750)

 Total unpaid obligated balance, net, end of period $ 52,114,814 $ 9,216,985 $ 21,973,637 $ 249,092 $ 24,322,086 $ 107,876,614

Net Outlays:

Net Outlays

 Gross Outlays $ 36,440,893 $ 21,553,160 $ 11,370,605 $ 1,061,789 18,578,212 $ 89,004,659

 Offsetting collections (93,779) (6,134,305) (19,409) (555,375) (1,092,441) (7,895,309)

 Distributed offsetting receipts - (49,703) (568) (39,806) (138,262) (228,339)

 Net outlays $ 36,347,114 $ 15,369,152 $ 11,350,628 $ 466,608 $ 17,347,509 $ 80,881,011
Financial Report

167

required supplementary

stewardship information
168

Surface Transportation: FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Federal Highway Administration 

 Federal Aid Highways (HTF) $ 32,190,231 $ 32,800,748 $ 34,470,595 $ 37,618,049 $ 29,649,943

 Other Highway Trust Fund Programs 452,022 366,672 481,762 136,002 155,061

 General Fund Programs 14,240 51,119 31,740 3,228,008 11,616,036

 Appalachian Development System 366,816 329,161 185,316 321,480 90,091

 Federal Motor Carrier 117,004 196,967 144,455 837 -

 Total Federal Highway Administration 33,140,313 33,744,667 35,313,868 41,304,376 41,511,131

Federal Transit Administration

 Discretionary Grants $ 91,961 $ 11,719 $ 27,174 $ 16,424 $ 17,171

 Formula Grants 3,376,068 2,086,876 1,329,811 743,604 428,696

 Capital Investment Grants 3,073,294 2,662,845 2,473,141 2,175,758 1,930,185

 Washington Metro Area Transit Authority 4,255 28,430 46 33 -

 Interstate Transfer Grants 206 1,774 360 316 -

 Formula and Bus Grants 1,862,772 4,193,989 5,968,651 7,264,278 7,345,804

 Total Federal Transit Administration 8,408,556 8,985,633 9,799,183 10,200,413 9,721,856

Total Surface Transportation Nonfederal

 Physical Property Investments $ 41,548,869 $ 42,730,300 $ 45,113,051 $ 51,504,789 $ 51,232,987

NON-FEDERAL PHYSICAL PROPERTY

ANNUAL STEWARDSHIP INFORMATION, September 30, 2010

(Dollars in thousands)

TRANSPORTATION INVESTMENTS
Financial Report

169

NON-FEDERAL PHYSICAL PROPERTY

ANNUAL STEWARDSHIP INFORMATION, September 30, 2010

(Dollars in thousands)

TRANSPORTATION INVESTMENTS

Air Transportation: FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Federal Aviation Administration

Airport Improvement Program $ 3,852,141 $ 3,923,719 $ 3,753,840 $ 4,034,970 $ 4,015,463

Total Air Transportation Nonfederal 

 Physical Property Investments $ 3,852,141 $ 3,923,719 $ 3,753,840 $ 4,034,970 $ 4,015,463

Total Nonfederal Physical Property

 Investments $ 45,401,010 $ 46,654,019 $ 48,866,891 $ 55,539,759 $ 55,248,450

The Federal Aviation Administration (FAA) makes project grants for airport planning and development under the Airport Improvement

Program (AIP) to maintain a safe and efficient nationwide system of public-use airports that meet both present and future needs of civil

aeronautics. FAA works to improve the infrastructure of the nation’s airports, in cooperation with airport authorities, local and State

governments, and metropolitan planning authorities. 

The Federal Transit Administration provides grants to State and local transit authorities and agencies. 

The Federal Highway Administration reimburses States for construction costs on projects related to the Federal Highway System of roads.

The main programs in which the States participate are the National Highway System, Interstate Systems, Surface Transportation, and

Congestion Mitigation/Air Quality Improvement programs. The States’ contribution is ten percent for the Interstate System and twenty

percent for most other programs.

Formula grants provide capital assistance to urban and nonurban areas and may be used for a wide variety of mass transit purposes, including

planning, construction of facilities, and purchases of buses and railcars. Funding also includes providing transportation to meet the special

needs of elderly individuals and individuals with disabilities.

Capital investment grants, which replaced discretionary grants in FY 1999, provide capital assistance to finance acquisition, construction,

reconstruction, and improvement of facilities and equipment. Capital investment grants fund the categories of new starts, fixed guideway

modernization, and bus and bus-related facilities.

Interstate Transfer Grants provided Federal financing from FY 1976 through FY 1995 to allow States and localities to fund transit capital

projects substituted for previously withdrawn segments of the Interstate Highway System.

The Washington Metropolitan Area Transit Authority provides funding to support the construction of the Washington Metrorail System.
170

Surface Transportation: FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Federal Highway Administration 

 National Highway Institute Training $ 14,123 $ 4,083 $ 1,205 $ 375 $ 109

Federal Motor Carrier Safety Administration 

 California Highway Patrol - 127 722

 Safety Grants - 748 426 1,230 845

 Idaho Video - - 302 399 9

 Kentucky IT Conference 175 - - - -

 Massachusetts Training Academy - 172 - - -

 Minnesota Crash Investigation 1 - - - -

 New York Crash Reconstruction - 36 180 - -

 Tennessee Crash Investigation - 165 167 - -

Federal Transit Administration

 National Transit Institute Training(1) 3,961 3,879 4,577 3,440 3,886

National Highway Safety Administration 

 Section 403 Highway Safety Programs 221,523 235,382 162,038 143,639 138,221

 Highway Traffic Safety Grants 279,244 416,241 485,721 566,790 565,787

Pipeline and Hazardous Materials Safety

 Administration

 Hazardous Materials (Hazmat) Training 7,800 7,798 13,263 13,263 13,153

Total Surface Transportation Human

 Capital Investments 526,827 668,631 668,601 729,136 722,010

(Dollars in thousands)

 ANNUAL STEWARDSHIP INFORMATION, September 30, 2010

HUMAN CAPITAL INVESTMENT EXPENSES
Financial Report

171

Maritime Transportation: FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Maritime Administration

 State Maritime Academies Training(1) 7,528 8,978 9,406 11,041 10,810

 Additional Maritime Training 134 555 800 1,751 2,365

Total Maritime Transportation Human

 Capital Investments 7,662 9,533 10,206 12,792 13,175

Total Human Capital Investments $ 534,489 $ 678,164 $ 678,807 $ 741,928 $ 735,185

(1) Does not include funding for the Student Incentive Payment (SIP) program which produces graduates who are obligated to serve in a reserve

component of the United States armed forces. Does not include funding for maintenance and repair (M&R).

The Pipeline and Hazardous Materials Safety Administration administers Hazardous Material Training (Hazmat). The

purpose of Hazmat Training is to train State and local emergency personnel on the handling of hazardous materials in the

event of a hazardous material spill or storage problem.

The National Highway Institute develops and conducts various training courses for all aspects of Federal Highway

Administration. Students are typically from the State and local police, State highway departments, public safety and motor

vehicle employees, and U.S. citizens and foreign nationals engaged in highway work of interest to the Federal

Government. Types of courses given and developed are modern developments, technique, management, planning,

environmental factors, engineering, safety, construction, and maintenance. 

The California Highway Patrol educates the trucking industry for the Federal Motor Carrier Safety Administration about

Federal and State commercial motor vehicle/carrier inspection procedures, and to increase CMV driver awareness. The

Idaho Video Program develops video training material utilized by the FMCSA National Training Center for the purpose of

training State and Local law enforcement personnel. The Massachusetts Training Academy provides training to State law

enforcement personnel located in the northeast region of Massachusetts. The Minnesota Crash Investigation program

provides training and develops processes and protocols for commercial motor vehicle crash investigations.

The National Transit Institute of the Federal Transit Administration develops and offers training courses to improve transit

planning and operations. Technology courses cover such topics as alternative fuels, turnkey project delivery systems,

communications-based train controls, and integration of advanced technologies.

The National Highway Safety Administration's programs authorized under the Highway Trust Fund provide resources to

State and Local governments, private partners, and the public, to effect changes in driving behavior on the nation’s

highways to increase safety belt usage and reduce impaired driving. NHTSA provides technical assistance to all states on

the full range of components of the impaired driving system as well as conducting demonstrations, training and public

information/education on safety belt usage. 
172

Surface Transportation: FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Federal Highway Administration 

 Intelligent Transportation Systems $ 129,219 $ 152,799 $ 128,931 $ 111,219 $ 129,993

 Other Applied Research and Development 105,336 74,942 63,906 28,259 159,389

Federal Railroad Administration 

 Railroad Research and Development Program $ 11,681 $ 5,551 $ 3,049 $ 3,349 $ 5,647

Federal Transit Administration

Applied Research and Development

 Transit Planning and Research $ 6,543 $ 3,144 $ 6,076 $ 6,914 $ 7,228

Pipeline and Hazardous Materials Safety Administration

Applied Research and Development

 Development Research and Development Pipeline Safety

 Applied Research and Development Pipeline Safety $ 12,953 $ 5,494 $ 12,762 $ 9,198 $ 7,362

 Applied Research and Development Hazardous Materials 2,225 1,072 1,084 1,593 1,622

Research and Innovative Technology Administration

Applied Research and Development

 Research and Technology $ 1,110 $ 1,036 $ 1,036 $ 1,936 $ 10,737

Total Surface Transportation Research and 

 Development Investments $ 269,067 $ 244,038 $ 216,844 $ 162,468 $ 321,978

Air Transportation: FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Federal Aviation Administration

 Research and Development Plant $ 3,821 $ 4,217 $ 3,498 $ 3,381 $ 5,590

 Applied Research 106,390 102,782 88,114 95,764 103,042

 Development 587 844 814 1,102 2,008

 Administration 30,566 32,050 33,519 35,055 36,723

Total Air Transportation Research and

 Development Investments $ 141,364 $ 139,893 $ 125,945 $ 135,302 $ 147,363

Total Research and Development 

 Investments $ 410,431 $ 383,931 $ 342,789 $ 297,770 $ 469,341

RESEARCH AND DEVELOPMENT INVESTMENTS

ANNUAL STEWARDSHIP INFORMATION, September 30, 2010

 (Dollars in thousands)
Financial Report

173

Research and development in Transit Planning and Research supports two major areas: the National Research Program and the Transit Cooperative

Research Program. The National Research Program funds the research and development of innovative transit technologies such as safety-enhancing 

commuter rail control systems, hybrid electric buses, and fuel cell and battery-powered propulsion systems. The Transit Cooperative Research

Program focuses on issues significant to the transit industry with emphasis on local problem-solving research. 

Transit University Transportation Centers, combined with funds from the Highway Trust Fund, provide continued support for research, education,

and technology transfer.

Capital investment grants, which replaced discretionary grants in FY 1999, provide capital assistance to finance acquisition, construction,

reconstruction, and improvement of facilities and equipment. Capital investment grants fund the categories of new starts, fixed guideway

modernization, and bus and bus-related activities. 

The Federal Transit Administration supports research and development in the following program areas: 

The Federal Highway Administration’s research and development programs are earmarks in the appropriations bills for the fiscal year. Typically

these programs are related to safety, pavements, structures, and environment. Intelligent Transportation Systems were created to promote automated

highways and vehicles to enhance the national highway system. The output is in accordance with the specifications within the appropriations act.

The Office of the Secretary's Office of Emergency Transportation is involved in research and development of mapping software for the Crisis

Management Center, transportation policy, and outreach efforts. 

The Research and Innovative Technology Administration's key mandate is to coordinate research across DOT to maximize and leverage the

taxpayers' $1.2 billion annual investment in research, development and technology (RD&T) activities.

The Federal Aviation Administration (FAA) conducts research and provides the essential air traffic control infrastructure to meet increasing

demands for higher levels of system safety, security, capacity, and efficiency. Research priorities include aircraft structures and materials; fire and

cabin safety; crash injury-protection; explosive detection systems; improved ground and in-flight de-icing operations; better tools to predict and

warn of weather hazards, turbulence and wake vortices; aviation medicine, and human factors.

The Pipeline and Hazardous Materials Safety Administration funds research and development activities for the following organizations and

activities.

The Office of Pipeline Safety is involved in research and development in information systems, risk assessment, mapping, and non-destructive

evaluation.

The Office of Hazardous Materials is involved in research, development, and analysis in regulation compliance, safety, and information systems.

Other Accompanying 

Information

Other Accompanying Information

177

summary of financial statement audit and 

management assurances
178

Table 1. Summary of Financial Statement Audit

Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance

0 0

0 0 0 0 0 0

Table 2. Summary of Management Assurances

Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance

0 0

Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance

0 1 1

0 1 1

Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance

0 0

Material Weaknesses

None

Effectiveness of Internal Control over Financial Reporting (FMFIA, Section 2)

Statement of Assurance Unqualified

Material Weaknesses

Summary of Financial Statement Audit

Audit Opinion Unqualified

Restatement No

Total

Statement of Assurance Unqualified

Material Weaknesses

Total Material Weaknesses

Effectiveness of Internal Control over Operations (FMFIA, Section 2)

Statement of Assurance Unqualified

Non-Conformances

FISMA Noncompliance

Total Material Weaknesses

Conformance with Financial Management System Requirements (FMFIA, Section 4)

2. Accounting Standards

3. USSGL at Transaction Level

Overall Substantial Compliance

Total Non-Conformances

Conformance with Federal Financial Management Improvement Act (FFMIA)

1. System Requirements

Yes

Yes Yes

Agency Auditor

Yes

Yes

Yes

Yes

Yes
Other Accompanying Information

179

inspector general's fy 2011 top 

management challenges
180

TOP MANAGEMENT CHALLENGES

Department of Transportation

Report Number: PT-2011-010

Date Issued: November 15, 2010
Other Accompanying Information

181

2011 Top Management Challenges, Department of Transportation

U.S. Department of

Memorandum

Transportation

Office of the Secretary

of Transportation

Office of Inspector General

Subject: INFORMATION: DOT’s Fiscal Year 2011 

Top Management Challenges 

Department of Transportation

Report Number PT-2011-010

Date: November 15, 2010

From: Calvin L. Scovel III

Inspector General 

Reply to 

Attn. of: J-1

To: The Secretary

Deputy Secretary

As required by law, we have identified the Department of Transportation’s (DOT) top 

management challenges for fiscal year 2011. The Nation’s economy and the quality 

of life for all Americans rely heavily on a safe and vital transportation system. The 

Department spends approximately $79 billion annually on a wide range of programs 

and initiatives to meet this objective, and we continue to support its efforts through 

our audits and investigations.

Improving safety across all modes of transportation remains DOT’s overarching goal. 

Significant challenges remain for policymakers as they seek to continue enhancing 

safety in the air and on the ground. This includes advancing new regulations for pilot 

training and rest requirements, strengthening the process for granting special permits 

and approvals for transporting hazardous materials, and ensuring pipeline operators 

identify and repair defects in oil and gas pipelines in a timely manner. Longstanding 

concerns that demand sustained attention include establishing realistic plans for the 

Next Generation Air Transportation System, securing viable financing for future 

surface transportation infrastructure investments, bolstering Federal oversight of 

transit safety, and addressing the Nation’s aging surface infrastructure. At the same 

time, DOT must continue to improve contract management and safeguard its complex 

information and technology systems from cyber threats. 

Budget constraints and uncertain financial markets exacerbate these challenges. With 

the passage of the American Recovery and Reinvestment Act of 2009 and the 

Consumer Assistance To Recycle and Save (CARS) Program, DOT was tasked with 

rapidly disbursing billions of dollars to thousands of transportation projects and to 

consumers who were encouraged to trade in their vehicles for new, more fuel-efficient 
182

2011 Top Management Challenges, Department of Transportation ii

vehicles. Thus far, DOT has obligated almost $41 billion in Recovery Act funds. The 

commitment of the Secretary and his staff to the success of DOT’s initiatives is 

evidenced by their response to our ARRA reports and advisories and the prompt 

implementation of the CARS Program.

We continue to build a body of work to assist DOT with its critical mission; improve 

the management and execution of programs; and protect its resources from fraud, 

waste, abuse, and violations of law. We considered several criteria in identifying the 

following nine challenges, including their impact on safety, documented 

vulnerabilities, large dollar implications, and DOT’s ability to effect change in these 

areas:

• Ensuring Transparency and Accountability in the Department’s Recovery Act 

Programs 

• Maintaining Momentum in the Department’s Oversight of Highway, Motor 

Vehicle, Hazardous Materials, and Transit Safety 

• Maintaining Momentum in Addressing Human Factors and Improving Safety 

Oversight of the Aviation Industry 

• Improving the Department’s Oversight of Highway, Transit, and Pipeline 

Infrastructure 

• Identifying Sufficient Funding Sources To Support Future Federal Investment in 

Surface Transportation Infrastructure

• Transforming the Federal Railroad Administration To Address Significantly 

Expanded Oversight Responsibilities

• Advancing the Next Generation Air Transportation System While Ensuring the 

Safe and Efficient Operation of the National Airspace System

• Implementing Processes To Improve the Department’s Acquisitions and Contract 

Management

• Improving the Department’s Cyber Security 

Given the fiscal pressures facing the Federal Government, strong leadership and 

careful stewardship of taxpayer dollars are critical to successfully addressing DOT’s

top challenges. Trade-offs among diverse programs will likely be required, but there 

are important opportunities to minimize these trade-offs by setting priorities and 

establishing sound management policies, practices, and procedures. 
Other Accompanying Information

183

2011 Top Management Challenges, Department of Transportation iii

We are committed to keeping decision makers informed of emerging and 

longstanding issues identified through our audits and investigations. We appreciate 

DOT’s responsiveness to our findings and recommendations and the commitment to 

taking prompt corrective action. 

This report and DOT’s response will be included in the Department’s Performance 

and Accountability Report, as required by law. DOT’s response is included in its 

entirety in the appendix to this report. 

If you have any questions regarding the issues presented in this report, please contact 

me at (202) 366-1959. You may also contact Lou E. Dixon, Principal Assistant 

Inspector General for Auditing and Evaluation, at (202) 366-1427. 

#
184

Table of Contents

Ensuring Transparency and Accountability in the Department’s Recovery Act Programs ...... 1

Maintaining Momentum in the Department’s Oversight of Highway, Motor Vehicle, 

Hazardous Materials, and Transit Safety.................................................................................. 5

Maintaining Momentum in Addressing Human Factors and Improving Safety Oversight of 

the Aviation Industry .............................................................................................................. 10

Improving the Department’s Oversight of Highway, Transit, and Pipeline Infrastructure .... 14

Identifying Sufficient Funding Sources To Support Future Federal Investment in Surface 

Transportation Infrastructure................................................................................................. 18

Transforming the Federal Railroad Administration To Address Significantly Expanded 

Oversight Responsibilities....................................................................................................... 22

Advancing the Next Generation Air Transportation System While Ensuring the Safe and 

Efficient Operation of the National Airspace System............................................................. 27

Implementing Processes To Improve the Department’s Acquisitions and Contract 

Management........................................................................................................................... 33

Improving the Department’s Cyber Security .......................................................................... 40

Comparison of Fiscal Year 2011 and 2010 Top Management Challenges.............................. 45

Appendix: Department Response.......................................................................................... 46
Other Accompanying Information

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CHAPTER 1

2011 Top Management Challenges, Department of Transportation 1

Ensuring Transparency and 

Accountability in the Department’s

Recovery Act Programs

Source: Federal Highway Administration

Since February 2009, the Department and its Operating Administrations have obligated 

nearly $40 billion American Recovery and Reinvestment Act (ARRA) funds for more than 

14,600 highway, bridge, transit, shipyard, airport, and rail projects across the Nation. In 

February 2010, the Office of the Secretary of Transportation (OST) awarded Transportation 

Investment Generating Economic Recovery (TIGER) discretionary grants to 51 recipients for 

multimodal surface transportation projects. Now the Department and its Operating 

Administrations will need to address a number of challenges associated with ensuring those 

funds are spent effectively.

Key Challenges

• Overseeing ARRA projects and expenditures

• Executing OST’s TIGER discretionary grants program

• Collecting quality data from award recipients
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Ensuring Transparency and Accountability in the 

Department’s Recovery Act Programs

2011 Top Management Challenges, Department of Transportation 2

Overseeing ARRA Projects and Expenditures The Department must ensure

adequate oversight and accountability to meet ARRA goals. Our June ARRA Advisory 

reported that the Federal Highway Administration (FHWA) did not ensure states conducted 

federally required “value engineering” studies1 on highway and bridge projects prior to 

contract award. Further, the Government Accountability Office (GAO) recently reported 

that staffing shortages may limit states’ ability to properly implement and manage ARRA 

programs.2

 With limited staff, it is critical that the Department identify high-risk areas and 

target its resources accordingly. Additionally, the Office of Management and Budget (OMB) 

directed agencies to use single audit reports to identify high-risk grantees, ensure resolution 

of audit findings, and consider additional monitoring and inspections of these grantees.

3

Management attention is also needed to protect ARRA funds from fraud, waste, and abuse. 

As of September 2010, we have 50 criminal investigations open for alleged crimes such as 

false statements, false claims, prevailing wage violations, disadvantaged business enterprise

(DBE) fraud, and bid rigging. DBE fraud accounts for more than 30 percent of our ARRArelated investigations, compared to 10 percent for our non-ARRA investigations. 

Underbidding on ARRA-funded transportation projects is also a concern. Many winning bids 

are 20 to 30 percent below engineer’s estimate, increasing the risk that some contractors 

 

This is consistent with our August 2009 ARRA Advisory that proposed to FAA that it enhance 

its risk-based approach to ensuring new ARRA grant recipients, that historically have not 

administered funds effectively, receive increased oversight. FHWA’s national review teams 

(NRT) also have the potential to enhance oversight of ARRA funds. Through NRT 

assessments of state ARRA management processes and compliance with Federal 

requirements, FHWA aims to identify problems needing corrective action as well as national 

trends and potential new risks. However, FHWA needs to follow through and implement 

the corrective actions identified by the NRTs to effectively use this new oversight tool. 

Finally, vigilant oversight is needed to ensure that ARRA recipients meet ARRA’s goal to 

complete projects within 3 years because nearly 2 years after ARRA was enacted, a 

significant number of projects have yet to begin, including approximately 1,400 highway 

projects.

 1 Value engineering studies are objective reviews of reasonable design alternatives. Bridges and highways with costs 

equal to or above $20 million and $25 million, respectively, are required to have value engineering studies. 2 GAO, State and Local Governments: Fiscal Pressures Could Have Implications for Future Delivery of Intergovernmental 

Programs, GAO-10-899, July 2010. 3 OMB Memorandum, “Updated Guidance on the American Recovery and Reinvestment Act,” March 22, 2010.
Other Accompanying Information

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Ensuring Transparency and Accountability in the 

Department’s Recovery Act Programs

2011 Top Management Challenges, Department of Transportation 3

may attempt to make up the difference by submitting false claims or committing another 

form of fraud.

Executing OST’s TIGER Discretionary Grants Program In February 2010, OST 

awarded $1.5 billion in TIGER discretionary grants to 51 recipients for multimodal surface 

transportation projects. As OST moves from grant selection and award into TIGER program 

execution, it must provide the enhanced oversight that ARRA and OMB require. Yet, OST 

does not have direct experience administering grant programs and overseeing capital 

investments in surface transportation infrastructure. OST is leveraging oversight expertise 

within the Department by delegating grant oversight to the Operating Administrations. 

However, OST must provide stewardship by clearly defining its role and oversight strategy—

including the levels of authority and accountability it will retain—and allocate adequate 

resources and expertise to ensure that TIGER program goals are achieved and ARRA funds 

are spent wisely.

Collecting Quality Data From Award Recipients On behalf of the Recovery 

Accountability and Transparency Board, we assessed the Department’s and six other 

agencies’ oversight of ARRA recipient data. Each agency identified inaccuracies in recipient 

data in significant areas, including award type, date, and amount or the number of jobs 

created. Several factors contributed to these errors, including misinterpretation of 

guidance and technical challenges. While surveyed agencies have taken steps to address 

these problems, continued vigilance will be needed to meet the level of accountability 

called for in ARRA.

Related Products The following related reports and testimonies can be found on the 

OIG website at http://www.oig.dot.gov.

• Letter to Ranking Member Issa on DOT’s Use of ARRA Signage, August 17, 2010

• ARRA Advisory: FAA’s Process for Awarding ARRA Airport Improvement Program Grants, 

August 6, 2009

• ARRA Advisory: FHWA’s Oversight of the Use of Value Engineering Studies on ARRA 

Highway and Bridge Projects, June 28, 2010
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Ensuring Transparency and Accountability in the 

Department’s Recovery Act Programs

2011 Top Management Challenges, Department of Transportation 4

• Federal Railroad Administration Faces Challenges in Carrying Out Expanded Role, 

April 29, 2010

• Weaknesses in DOT’s Suspension and Debarment Program Limit Its Protection of 

Government Funds, March 18, 2010

• Recovery Act Data Quality: Errors in Recipients’ Reports Obscure Transparency, 

February 23, 2010

• Letter to Senator Mark Pryor on DOT OIG’s Recovery Act Oversight Activities, 

February 19, 2010

• Final Report on DOT’s Suspension and Debarment Program, January 7, 2010

• Final Report on DOT’s Implementation of the American Recovery and Reinvestment Act: 

Continued Management Attention Is Needed To Address Oversight Vulnerabilities, 

November 30, 2009

For more information on the issues identified in this chapter, please contact 

Madeline Chulumovich, Chief of Staff, at (202) 366-1959 or Joseph W. Comé, 

Assistant Inspector General for Highway and Transit Audits, at (202)-366-

5630.
Other Accompanying Information

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CHAPTER 2

2011 Top Management Challenges, Department of Transportation 5

Maintaining Momentum in the

Department’s Oversight of Highway, 

Motor Vehicle, Hazardous Materials, and 

Transit Safety

Source: Julie Nixon, John A. Volpe National Transportation Systems Center

Over the last 5 years, fatalities and injuries related to motor vehicle crashes declined by 

22.3 percent and 18.5 percent, respectively. This decline is noteworthy; now, the 

Department must tackle persistent challenges to maintain this trend and address 

longstanding concerns with vehicle, motor carrier, pipeline, and transit safety concerns.

Key Challenges

• Addressing motor vehicle safety defects

• Strengthening motor carrier enforcement programs and commercial driver’s license 

(CDL) standards

• Strengthening the Pipeline and Hazardous Materials Safety Administration’s (PHMSA)

special permits and approvals program to achieve its safety mission

• Addressing potential issues if Congress enhances Federal oversight authority for transit 

safety
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Maintaining Momentum in the Department’s Oversight of 

Highway, Motor Vehicle, Hazardous Materials, and Transit 

Safety

2011 Top Management Challenges, Department of Transportation 6

Addressing Motor Vehicle Safety Defects The National Highway Traffic Safety 

Administration (NHTSA) conducts tests, inspections, and investigations to identify motor 

vehicles and equipment that contain safety-related defects and ensure the public is notified 

so defects can be corrected. In 2002 and 2004, we reported that NHTSA had weaknesses in 

its defect investigation systems and processes, including a lack of reliable early warning 

reporting information.4

In 2010, NHTSA’s defects investigation program came under increased media and 

congressional scrutiny due to complaints of sudden unintended acceleration and crashes 

involving Toyota Motor Corporation vehicles. For example, in August 2009, a Lexus sped 

out of control and crashed, killing its driver and three passengers. NHTSA’s investigations of 

the complaints resulted in 3 Toyota recalls, affecting 8 million vehicles. NHTSA also enlisted 

the National Aeronautics and Space Administration and the National Academy of Sciences 

to investigate the sudden unintended acceleration issue. We are currently determining 

whether there are lessons learned from Toyota recalls as well as any improvements needed 

in NHTSA’s processes, procedures, and recourses for investigating safety defects. This work 

is based in part on a request from the Secretary of Transportation and Members of 

Congress. 

In response, NHTSA revised its defect assessment processes and 

established an Early Warning Division to analyze manufacturer data for identifying potential 

safety-related defects.

Strengthening Motor Carrier Enforcement Programs and CDL Standards

From 2008 to 2009, the number of fatalities related to crashes involving large trucks or 

buses dropped by 20 percent.

5

 4 OIG Report Number MH-2002-071, “Review of the Office of Defects Investigation, National Highway Traffic Safety 

Administration," January 3, 2002, and OIG Report Number MH-2004-088, “Report on Follow-Up Audit of the National 

Highway Traffic Safety Administration’s Office of Defects Investigation,” September 23, 2004. 

 To ensure this trend continues, the Federal Motor Carrier 

Safety Administration (FMCSA) must follow through on previous commitments, maintain its 

efforts to enforce safety regulations, and remove motor carriers and drivers who do not 

comply. FMCSA has begun several initiatives to ensure new and existing operators in the 

motor carrier industry operate safely. For example, the Agency implemented a more 

stringent safety assurance process that new entrants must complete before receiving 

permanent operating authority as well as a new vetting process for passenger and 

household goods carriers to prevent unsafe carriers from continuing operations under a 

5 Motor Carrier Safety Progress Report, Federal Motor Carrier Safety Administration, as of June 30, 2010.
Other Accompanying Information

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CHAPTER 2

Maintaining Momentum in the Department’s Oversight of 

Highway, Motor Vehicle, Hazardous Materials, and Transit 

Safety

2011 Top Management Challenges, Department of Transportation 7

new identity. FMCSA still needs to expand this vetting process to all new entrant applicants 

in the motor carrier industry. In 2011, FMCSA plans to fully implement its Comprehensive 

Safety Analysis 2010 (CSA 2010) model, which is designed to identify high-risk carriers with 

safety issues that could reasonably lead to crashes. CSA 2010 will rely heavily on crash, 

inspection, and census data. 

While FMCSA has made progress in improving crash and inspection data, it has yet to 

implement a longstanding Office of Inspector General recommendation to improve carrier 

census data reporting,6

Going forward, the Department must complete ongoing efforts and resolve issues related to 

finalizing CDL standards to improve the safety of the motor carrier industry operating large 

trucks and buses on our Nation’s highways.

which would improve its ability to rank the safety performance of 

motor carriers and target inspection and enforcement activities. Other areas that require 

action include improving knowledge and skills testing standards for CDLs, new minimum 

standards for states to issue commercial drivers’ permits, and CDL fraud prevention efforts. 

Delays in implementing these recommendations are largely due to the complexity of 

coordinating with states and other stakeholders. Taking timely action to implement fraud 

prevention efforts is especially important as Office of Inspector General investigations have 

uncovered various schemes by individuals to circumvent FMCSA standards for issuing 

commercial drivers’ licenses. For example, a Louisiana-registered third-party CDL tester 

admitted that he conspired and fraudulently conducted approximately 250 CDL skills tests 

for $200 per test. The tester was sentenced to 5 years probation and ordered to make 

restitution of over $7,300. Additionally, the Louisiana Department of Public Safety, Office of 

Motor Vehicles recalled and retested all CDL drivers tested by this individual.

 6 Census data are to be provided by motor carriers on the number of drivers they employ and commercial 

vehicles (power units) they own or lease.
192

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Maintaining Momentum in the Department’s Oversight of 

Highway, Motor Vehicle, Hazardous Materials, and Transit 

Safety

2011 Top Management Challenges, Department of Transportation 8

Strengthening PHMSA’s Special Permits and Approvals Program To

Achieve Its Safety Mission PHMSA regulates up to 1 million movements of 

hazardous materials a day. Many of these materials are transported under special permits 

and approvals that allow relief from the Hazardous Materials Regulations under certain 

conditions.

7

PHMSA has established action plans to address the safety concerns we identified. To 

successfully implement these plans, PHMSA must proactively identify safety risks, work with 

partner safety agencies to resolve safety and operational matters, and set targeted 

oversight priorities.

 Our work has pointed to longstanding concerns about PHMSA’s process for 

assessing risks and granting special permits and approvals as well as its fundamental 

operating procedures for promoting the safe movement of hazardous materials. In 1 case, 

PHMSA granted a special permit to a company that had 53 incidents within 10 years—12 of 

which were serious—and 22 violations issued by PHMSA’s or FMCSA’s enforcement office.

Also of concern is PHMSA’s practice of granting special permits to trade associations—

effectively giving “blanket authorization” to thousands of member companies without any 

assessment of their safety histories or need for the permit. 

Addressing Potential Issues if Congress Enhances Federal Oversight 

Authority for Transit Safety In 2009, 3 rail-to-rail crashes in different cities killed 

9 people and injured 159 others; in separate incidents, 3 transit employees were killed 

while working on rail tracks. While transit remains a relatively safe mode of travel, these

recent rail incidents brought renewed attention to transit safety. 

In December 2009, the Department proposed legislation that would shift its role from 

providing guidance for state-managed oversight programs to directly overseeing transit 

safety. An enhanced Federal role may create significant challenges for the Department, 

including (1) collecting data necessary to conduct effective transit safety oversight, 

(2) establishing standards to improve transit safety among a diverse set of systems across 

the country, and (3) conducting enhanced transit safety oversight and enforcement. The 

Secretary has established the Transit Rail Advisory Committee for Safety (TRACS)—a Federal 

 7 Special permits authorize a holder to vary from specific provisions of the Hazardous Materials Regulations; identify the 

section(s) from which relief is provided; and include provisions, conditions, and terms that must be followed in order for 

the special permit to be valid. An approval means written consent from PHMSA’s Associate Administrator to perform a 

function that requires prior consent under the Hazardous Materials Regulations. 
Other Accompanying Information

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Maintaining Momentum in the Department’s Oversight of 

Highway, Motor Vehicle, Hazardous Materials, and Transit 

Safety

2011 Top Management Challenges, Department of Transportation 9

advisory committee comprised of rail safety experts from transit agencies, state safety 

oversight agencies, labor unions, and other key constituencies—which could provide an 

important forum for addressing the challenges associated with enhanced oversight.

Related Products The following related reports and testimonies can be found on the 

OIG website at http://www.oig.dot.gov.

• Actions Taken and Needed To Improve Management and Oversight of PHMSA’s 

Hazardous Materials Special Permits and Approvals Program, April 22, 2010

• New Approaches Needed in Managing PHMSA’s Special Permits and Approvals Program, 

March 4, 2010

• PHMSA’s Process for Granting Special Permits and Approvals for Transporting Hazardous 

Materials Raises Safety Concerns, September 10, 2009

• Audit of the Data Integrity of the Commercial Driver’s License Information System, 

July 30, 2009

• Use of Income Derived from the Commercial Driver’s License Information System for 

Modernization, July 10, 2008

• Best Practices for Improving Oversight of State Highway Safety Programs, 

March 25, 2008

• Effectiveness of Federal Drunk Driving Programs, October 25, 2007

• Audit of the National Highway Traffic Safety Administration’s Alcohol-Impaired Driving 

Traffic Safety Program, March 5, 2007

• Follow-Up Audit on National Highway Traffic Safety Administration’s Office of Defects 

Investigation, September 23, 2004

• Review of the National Highway Traffic Safety Administration’s Office of Defects 

Investigation, January 3, 2002

For more information on the issues identified in this chapter, please contact 

Joseph W. Comé, Assistant Inspector General for Highway and Transit Audits, 

at (202) 366-5630 or Jeffrey B. Guzzetti, Assistant Inspector General for 

Aviation and Special Program Audits, at (202) 366-0500.
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2011 Top Management Challenges, Department of Transportation 10

Maintaining Momentum in Addressing 

Human Factors and Improving Safety 

Oversight of the Aviation Industry 

The aviation industry continues to experience one of the safest periods in its history due to 

both Federal Aviation Administration (FAA) and industry efforts to advance safety. 

However, the crash of Colgan Air flight 3407 in February 2009 confirmed the need for 

constant vigilance. 

Key Challenges

• Advancing industry and Government efforts to address pilot training and fatigue issues

• Enhancing risk-based oversight of Part 121 air carriers8

• Ensuring FAA provides effective oversight of mainline and regional air carriers operating 

under domestic code share agreements 

and foreign and domestic repair 

stations

 8 14 CFR Part 121 governs the operations of large, scheduled commercial passenger and cargo carriers.
Other Accompanying Information

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Advancing Industry and Government Efforts To Address Pilot Training 

and Fatigue Issues According to the National Transportation Safety Board (NTSB),

pilot fatigue has been associated with air carrier accidents resulting in 250 fatalities over the 

last 16 years. Although NTSB has identified this issue as an area of concern for all air 

carriers, it is particularly critical for regional carriers. NTSB has cited pilot performance and 

fatigue as findings in four of the last six fatal accidents involving regional carriers, including 

the fatal crash of Colgan Air flight 3407 in February 2009. Under the FAA Administrator’s 

leadership, FAA took swift action by creating the Call to Action plan to refocus and 

accelerate air carriers’ safety efforts. The plan consists of 10 short- and mid-term initiatives 

to enhance pilot performance and training, increase air carrier participation in voluntary 

safety programs, and expand pilot records review. FAA also set goals to develop new safety 

oversight guidance for its inspectors, conduct regional safety forums, develop programs 

addressing pilot professionalism, and establish new rules on pilot fatigue and training.

FAA has issued two Notices of Proposed Rule Making to address pilot fatigue and training. 

The first rule would require airlines to enhance FAA-required pilot training programs, 

including training on hazards, such as loss of control, and recovery from approach to stalls. 

The rule also calls for enhanced training for flight attendants and dispatchers. The second

proposed rule would require a single set of scientifically based flight, duty, and rest

requirements for all Part 121 carriers. However, this proposed rule does not address NTSB’s

recommendation to require air carriers to address fatigue risks associated with pilot 

commuting—a key finding NTSB identified in its investigation into the Colgan accident.

Maintaining positive momentum on these rulemakings will be an important watch item for 

the Department, industry, and Congress. 

Enhancing Risk-Based Oversight of Part 121 Air Carriers and Foreign 

and Domestic Repair Stations FAA has made noteworthy progress in improving 

safety oversight, such as clarifying guidance for inspectors who monitor air carriers. 

However, we continue to find weaknesses in FAA’s Air Transportation Oversight System 

(ATOS)—a systematic approach for identifying high-risk safety areas and targeting 

inspections to those areas. Specifically, FAA’s oversight of ATOS inspections has been 

ineffective at the national level, in large part because FAA does not track unassigned 

inspections or fully use collected inspection data. 
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At the same time, we have repeatedly highlighted weaknesses since 2003 in FAA’s oversight 

of aircraft maintenance and called for safety enhancements. While FAA has made a number 

of procedural changes to improve its oversight of repair stations, it has not addressed our 

most significant and longstanding recommendations to identify facilities performing safetycritical repairs and target its surveillance accordingly. Given air carriers’ increasing reliance 

on repair stations, it is imperative that FAA provide more rigorous oversight of this industry. 

Ensuring FAA Provides Effective Oversight of Mainline and Regional Air 

Carriers Operating Under Domestic Code Share Agreements Mainline and 

regional air carriers have increasingly turned to domestic code share agreements—a 

marketing arrangement in which one air carrier sells and issues tickets for the flight of 

another carrier as if it were operating the flight itself. Through these arrangements, 

passengers receive lower fares and more seamless air travel, regional carriers benefit from 

joint promotion and advertising, and mainline carriers gain access to additional and smaller 

aircraft with no ownership stake for bringing passengers to their hub.

Domestic code share agreements are an integral part of the aviation system. While they

can help mainline and regional carriers expand their markets and increase revenue, they 

also present challenges. For example, we have identified differences between the hiring, 

training, professionalism, and safety programs of most regional and mainline carriers.

While FAA initiated a Call to Action for airline safety to encourage mainline and regional 

carriers to reconcile these differences, progress has been mixed. FAA and the Department 

must make oversight of the operators involved in these arrangements a top priority to 

ensure the safety of passengers who depend on those flights. This is particularly critical 

given that since 2003, seven commercial airline accidents have involved regional air carriers.
Other Accompanying Information

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Related Products The following related reports and testimonies can be found on the 

OIG website at http://www.oig.dot.gov.

• FAA’s Process for Reviewing Air Transportation Oversight System (ATOS) Inspection 

Data, March 19, 2010

• Progress and Challenges with FAA’s Call to Action for Airline Safety, February 4, 2010

• Letter to Senator Claire McCaskill Regarding FAA’s Progress in Implementing Past OIG 

Recommendations To Improve Oversight of Outsourced Maintenance, January 11, 2010

• The Federal Aviation Administration’s Role in Safety Oversight of Air Carriers, 

June 10, 2009

• Review of FAA’s Oversight of Airlines and Use of Regulatory Partnership Programs, 

June 30, 2008

For more information on the issues identified in this chapter, please contact

Jeffrey B. Guzzetti, Assistant Inspector General for Aviation and Special

Program Audits, at (202) 366-0500.
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Improving the Department’s Oversight of 

Highway, Transit, and Pipeline 

Infrastructure

Source: U.S. Department of Transportation

The Department faces significant challenges in overseeing highway, transit, and pipeline 

infrastructures, especially given current fiscal constraints. According to the American 

Society of Civil Engineers, $186 billion is needed each year to substantially improve the 

Nation’s roads that are in poor or mediocre condition—well above the $70 billion spent 

annually on highway improvements.9 At the same time, the Department projects shortfalls 

in the Highway Trust Fund, which provides most of the funding for highway and transit 

programs.10

Key Challenges

Recent gas pipeline ruptures also point to a need for program improvements to 

identify and repair defective pipes and ensure public safety.

• Tracking and monitoring states’ and localities’ use of Federal funds

• Ensuring infrastructure safety and protecting federally funded highway and transit 

projects from fraud

• Ensuring pipeline operators identify and repair defects in oil and gas pipelines in a timely 

manner

 9 American Society of Civil Engineers, “2009 Report Card for America's Infrastructure,” 2009. 10 See chapter 5 for a discussion of Highway Trust Fund issues.
Other Accompanying Information

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Tracking and Monitoring States’ and Localities’ Use of Federal Funds

With the Nation’s highway and transit infrastructure needs increasing faster than funding 

resources, the Department must maximize the return on its surface transportation 

investments. The Federal Highway Administration’s (FHWA) Fiscal Management 

Information System (FMIS) lacks sufficient detail on states’ use of Highway Bridge Program 

(HBP) funds.

11

The Department’s large portfolio of transit infrastructure projects also demands rigorous 

oversight to ensure projects stay on schedule and within budget. While the Federal Transit 

Administration (FTA) has required sponsors of major projects to develop project 

management, project execution, and financial plans, it has not always fully used these plans 

to monitor project progress. For example, FTA approved an early systems work agreement 

last year to expedite the Access to the Region’s Core (ARC) project

For example, Michigan used almost $3 million in HBP funds on a project that 

involved multiple bridges, but FHWA could not use FMIS to determine how much Federal 

funding went toward improving the condition of the project’s structurally deficient bridges. 

Expanding FMIS’s capabilities would allow FHWA to better assess the effectiveness of 

current programs and enable it to stretch every available infrastructure dollar.

12

Ensuring Infrastructure Safety and Protecting Federally Funded Highway and Transit 

Projects From Fraud The 2007 bridge collapse in Minnesota highlighted the need for FHWA 

to focus on the safety of the Nation’s surface transportation infrastructure. According to 

FHWA, about one-quarter of the Nation’s more than 600,000 bridges have major 

deterioration, cracks in their structural components, or other deficiencies.

in New York and New 

Jersey, and awarded $130 million in ARRA funds for project activities. However, FTA had 

not received a final project management plan, project execution sub-plans, a master 

schedule, or a financial plan that described strategies for mitigating risks. The lack of 

finalized plans has hindered FTA’s oversight of the project sponsor’s efforts to mitigate risks 

that could increase costs or cause schedule delays. 

13

 11 HBP is the primary Federal program that funds the replacement and rehabilitation of bridges nationwide.

 Our work has 

identified weaknesses in FHWA’s enforcement of National Bridge Inspection Standards and 

called for sustained management attention to ensure that planned improvements in the 

12 ARC involves the construction of a 9-mile commuter rail line between Secaucus, New Jersey, and Manhattan, New York. 

It includes construction of two tunnels under the Hudson River. The estimated cost is $9.23 billion. 13 This estimate is based on 2009 data.
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inspection oversight program are implemented. Given the potentially catastrophic risks of 

not properly inspecting bridges, FHWA must determine with greater consistency whether 

states complied with the National Bridge Inspection Standards and define procedural steps 

for enforcing compliance.

Enhanced FHWA oversight is also needed for new highway projects to ensure they comply 

with all relevant standards and requirements. After the Central Artery/Tunnel (CA/T) 

Project in Boston was declared substantially complete in January 2006, 26 tons of 

improperly secured concrete ceiling panels fell in one of the project’s tunnels and killed a 

motorist in July of that year. While the Commonwealth of Massachusetts initiated a “Stem 

to Stern” safety review that included the CA/T Project, FHWA did not always follow its 

protocols for conducting independent field verifications to assess the Commonwealth’s 

progress in resolving safety risks.

With the number of highway and transit projects receiving Federal assistance, it is 

imperative that the Department and Operating Administrations aggressively combat fraud, 

waste, and abuse. Fraud awareness education and vigilant oversight are needed to identify 

and prevent common fraud schemes, such as bid rigging, price fixing, product substitution, 

bribery and kickbacks, conflicts of interest, false statements and false claims, labor and 

materials overbilling, and disadvantaged business enterprise fraud. Of particular concern 

are schemes that compromise safety. For example, a Utah corporation specializing in the 

installation of highway safety devices was sentenced to 36 months of probation, ordered to 

pay a fine of $10,000, and $31,485.45 in restitution for falsifying certificates of compliance 

related to the installation of highway crash cushions of a FHWA-funded project. The 

company admitted to submitting false certificates even though it knew that the installation 

of these devices did not meet contract specifications. 

Ensuring Pipeline Operators Identify and Repair Defects in Oil and Gas 

Pipelines in a Timely Manner The Nation’s aging oil and gas pipelines are vulnerable 

to ruptures caused by corrosion and pipe defects. Federal regulations require pipeline 

operators to maintain integrity management programs, which are regulated and inspected 

by the Pipeline and Hazardous Materials Safety Administration (PHMSA) or its state 

partners. However, recent pipeline ruptures—including the explosion of a 54-year old gas 

pipeline in California that killed 8 people and destroyed 37 homes—call into question the 

effectiveness of operator programs as well as Federal and state oversight. For example, in 
Other Accompanying Information

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July 2010, a 41-year-old Enbridge Energy interstate pipeline in Michigan leaked more than 

800,000 gallons of oil. Although the company had reported nearly 330 integrity threats 

(including defects) on this pipeline segment, Enbridge’s remediation plan requested a 30-

month extension to complete needed repairs. However, the rupture occurred before

PHMSA responded to this request. Going forward, PHMSA and its state partners need to 

closely scrutinize pipeline operator integrity management programs to ensure that defects 

are identified and repaired before catastrophic ruptures occur.

Related Products The following related reports and testimonies can be found on the 

OIG website at http://www.oig.dot.gov.

• Actions Needed To Mitigate Risks Associated with the Access to the Region’s Core 

Project, May 17, 2010

• The Commonwealth of Massachusetts’s Safety Review of the Central Artery/Tunnel 

Project Was Comprehensive, but FHWA’s Oversight Approach Has Shortcomings, 

April 20, 2010

• Assessment of FHWA Oversight of the Highway Bridge Program and the National Bridge 

Inspection Program, January 14, 2010

• DOT’s Implementation of the American Recovery and Reinvestment Act: Continued 

Management Attention Is Needed To Address Oversight Vulnerabilities, 

November 30, 2009

For more information on the issues identified in this chapter, please contact 

Joseph W. Comé, Assistant Inspector General for Highway and Transit Audits, 

at (202) 366-5630 or Jeffrey B. Guzzetti, Assistant Inspector General for 

Aviation and Special Program Audits, at (202) 366-0500.
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Identifying Sufficient Funding Sources 

To Support Future Federal Investment in

Surface Transportation Infrastructure

Source: Federal Highway Administration

The Department has worked with Congress to maintain the Highway Trust Fund’s (HTF) 

solvency, but the current short-term fixes are unsustainable and make future cash shortfalls 

inevitable. The Safe, Accountable, Flexible, Efficient, Transportation Equity Act: A Legacy for 

Users (SAFETEA-LU) of 2005—the most recent surface transportation authorization act—

was due to expire at the end of fiscal year 2009 but continues to operate under a series of 

short-term extensions. Most recently, the Hiring Incentives To Restore Employment Act 

extended SAFETEA-LU through December 2010 and transferred $19.5 billion from the 

General Fund to preempt foreseeable cash shortfalls in the HTF.

Key Challenges

• Replacing short-term fixes for HTF solvency with long-term solutions

• Achieving consensus among stakeholders on Federal infrastructure needs, spending 

levels, and a funding framework for the next surface transportation reauthorization
Other Accompanying Information

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Infrastructure

2011 Top Management Challenges, Department of Transportation 19

Replacing Short-Term Fixes for HTF Solvency With Long-Term Solutions

Historically, cash receipts into HTF’s Highway and Mass Transit Accounts exceeded outlays, 

leading to a surplus that peaked at $31.1 billion at the end of fiscal year 2000 (see figure

5.1). However, with the enactment of the Transportation Equity Act for the 21st Century 

(TEA-21) in 1998, outlays began to outpace receipts, eroding the surplus. SAFETEA-LU 

further eroded the surplus by increasing contract authority over TEA-21 levels without an 

associated increase in funding. High fuel prices and a lagging economy resulted in an 

unforeseen decline in vehicle miles travelled (VMT) and a more rapid decline in the Highway 

Account balance than anticipated. Prior to receiving the $4.8 billion cash infusion into the 

Mass Transit Account earlier this year, the Federal Transit Administration projected that the 

account would experience a shortfall in fiscal year 2011.

Figure 5.1. Historical Cash Balances in Highway and Mass Transit Accounts, Fiscal Years 

1995 through 2010, in Billions of Dollars

Source: Federal Highway Administration, Federal Transit Administration

Note: In 1999, $8 billion was transferred from the Highway Account to the General Fund. Fiscal year 2010 amounts are 

preliminary and subject to adjustment.

Without cash infusions from the General Fund, the Federal Highway Administration would 

have been forced to reduce or suspend disbursements to states for eligible surface 

transportation expenses. 
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Achieving Consensus Among Stakeholders on Federal Infrastructure 

Needs, Spending Levels, and a Funding Framework for the Next Surface 

Transportation Reauthorization Citing the critical role surface transportation 

infrastructure plays in the Nation’s quality of life and economic productivity, the House 

Transportation and Infrastructure Committee unveiled legislation in June 2009 that 

proposed $500 billion in funding to support state surface transportation programs over 

6 years. This proposed spending level is significantly higher than the $244 billion authorized 

by SAFETEA-LU over a 5-year period. Of this amount, $450 billion is proposed for highway, 

public transportation, and safety programs and $50 billion for high speed rail. 

The Administration recently issued its framework for the next surface transportation 

authorization bill. The plan envisions 150,000 miles of roads rebuilt, 4,000 miles of rail 

constructed and maintained, and 150 miles of runway rehabilitated or reconstructed over 

the next 6 years. However, the Department has yet to define the spending levels needed to 

meet the Nation’s surface transportation infrastructure requirements.

Yet, the current funding mechanismwhich relies heavily on excise taxes on fuel and the 

sales of trucks and tiresdoes not generate the cash receipts needed to meet current 

outlays, let alone the larger outlays proposed in the next authorization. Further, given the 

current economic environment, the Administration opposes an increase in fuel tax rates or 

the establishment of a VMT-based fee, both of which Congress has discussed as methods of 

increasing the HTF’s cash receipts. The next authorization must establish a funding 

framework that aligns proposed spending levels with the HTF’s cash receipts. Without this 

alignment, the HTF will continue to experience shortfalls and risk reducing state and local 

investments in surface transportation infrastructure projects.

The solution to ending the HTF’s funding gap is neither obvious nor imminent. As the 

Department and congressional and other stakeholders evaluate alternative funding 

mechanisms and enact the next surface transportation authorization, the Department must

also work with Congress to ensure the HTF is adequately funded during any extensions of 

SAFETEA-LU. Failure to do so could significantly impact the solvency of the Highway and 

Mass Transit Accounts and their ability to continue reimbursements to states and transit 

authorities for eligible highway and transit expenses.
Other Accompanying Information

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Related Products The following related reports and testimonies can be found on the 

OIG website at http://www.oig.dot.gov.

• Letter to Senate Budget Committee Ranking Member Gregg Regarding DOT’s 

Projections of Highway Trust Fund Solvency, June 24, 2009

• Growth in Highway Construction and Maintenance Costs, September 26, 2007

For more information on the issues identified in this chapter, please contact

Mitch Behm, Assistant Inspector General for Rail, Maritime, and Economic 

Analysis, at (202)-366-9970.
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Transforming the Federal Railroad 

Administration To Address Significantly 

Expanded Oversight Responsibilities

Source: Federal Railroad Administration

The 2008 Railroad Safety Improvement Act (RSIA) and Passenger Railroad Investment and 

Improvement Act (PRIIA)—two of the most comprehensive pieces of railroad legislation in 

30 years—dramatically realigned and expanded the Federal Railroad Administration’s (FRA) 

roles and responsibilities. In addition, the American Recovery and Reinvestment Act (ARRA) 

infused an unprecedented amount of new capital into these new passenger rail programs 

and drastically accelerated timeframes for implementation.

Key Challenges

• Providing sufficient oversight of the implementation and management of the High 

Speed Intercity Passenger Rail (HSIPR) Program

• Addressing new PRIIA requirements to enhance passenger rail 

• Ensuring the safe and secure movement of people and goods while undertaking 

increased passenger rail responsibilities

• Balancing an increased and diversified workload with the continuing need to oversee 

Amtrak operations
Other Accompanying Information

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Providing Sufficient Oversight of the Implementation and Management 

of the HSIPR Program Historically, FRA’s responsibilities have focused on promoting 

and overseeing railroad safety and providing grants and loans. The new HSIPR program—

authorized under PRIIA—greatly expanded the Agency’s responsibilities to include

distributing $10.5 billion in grants for passenger rail-related projects in a compressed 

timeframe. To manage its expanded grants solicitation and award process, FRA requested 

and received 27 additional staff resources in its fiscal year 2010 budget. The Agency also 

requested 31 staff positions to support its additional requirements in fiscal year 2011. 

Although FRA has not fully positioned itself to address the challenges it faces with 

implementing the HSIPR program, it has moved forward with soliciting, accepting, and 

awarding grants for states’ high-speed rail projects.

Securing these grants could be a significant challenge for states. According to FRA interim 

guidance, funding will not be disbursed until states finalize agreements with freight

railroads that specify the passenger rail service improvements the projects are designed to 

achieve. The freight railroads have, however, voiced concerns about certain service 

outcome requirements in these agreements; specifically, that the requirements would be 

unduly burdensome to their operations. Chief among these service outcome requirements 

are rigid on-time performance metrics that require the freight railroad to incur any and all 

expenses necessary to ensure the passenger rail service operating on the freight tracks runs 

according to schedule.

Addressing New PRIIA Requirements To Enhance Passenger Rail PRIIA 

tasked FRA with numerous other responsibilities, including initiatives to improve or 

establish intercity passenger rail service; design a long-range national rail plan that 

promotes an integrated, efficient, and optimized national rail system; and develop metrics 

for passenger rail service quality. These responsibilities require FRA to perform a variety of 

tasks and coordinate with a number of public and private entities. For example, in 

developing a national rail plan, FRA must work with the rail industry and other stakeholders

to address interconnectivity with other modes of transportation, identify rail projects of 

national significance, and consider sustainable funding options. To develop the final metrics 

for assessing passenger rail service quality, FRA teamed with rail industry entities, including 

Amtrak management and labor, the Surface Transportation Board, the freight railroads, 

state rail departments, and non-profit rail passenger organizations. Yet, to ensure railroads 

adhere to these metrics, which were effective beginning May 2010, FRA must collaborate 
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with passenger rail service providers to identify a standardized mechanism for collecting 

and reporting train performance data. 

All of these new tasks and requirements must be balanced against FRA’s traditional 

responsibilities to administer its existing grant and loan programs: the Rail Line Relocation 

discretionary grant program, the Railroad Rehabilitation and Improvement Financing loan 

program, and the Amtrak grant program. These programs alone accounted for 37 percent 

of FRA’s $4.4 billion fiscal year 2010 budget.

Ensuring the Safe and Secure Movement of People and Goods While

Undertaking Increased Passenger Rail Responsibilities Recent railroad 

legislation also expanded FRA’s traditional safety role. Specifically, RSIA requires FRA to 

develop a long-term strategy for improving railroad safety, which includes an annual plan to 

address the following six goals:

• Reduce the number and rates of accidents, incidents, injuries, and fatalities involving 

railroads caused by train collisions, derailments, and human factors.

• Improve the consistency and effectiveness of enforcement and compliance programs.

• Improve the identification of high-risk highway-rail grade crossings and strengthen 

enforcement and other methods to increase grade crossing safety.

• Improve research efforts to enhance and promote railroad safety and performance.

• Prevent railroad trespasser accidents, incidents, injuries, and fatalities.

• Improve the safety of railroad bridges, tunnels, and related infrastructure to prevent 

accidents, incidents, injuries, and fatalities caused by catastrophic failures and other 

bridge and tunnel failures.

RSIA further requires FRA to establish a discretionary grant program, with authorized 

funding of $50 million per year for fiscal years 2009 through 2013, to support the 

development and deployment of positive train control (PTC) technologies.

14

 14 “Positive train control” means a system designed to prevent collisions between trains, overspeed derailments 

(derailments caused when a train exceeds speed limits), incursions into established work zone limits, and the movement 

of a train through an improperly positioned switch.

While these 

technologies may help FRA achieve RSIA’s safety goals, FRA has noted some concern on the 
Other Accompanying Information

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part of freight railroads that investing in PTC will divert capital from near-term capacity 

enhancements and lead to delays that cause more freight to shift onto already congested 

highways. Such concerns place an even heavier burden on FRA to balance interests of 

freight rail companies with the renewed focus and investment in the expansion of 

passenger rail service throughout the United States.

Balancing an Increased and Diversified Workload with the Continuing 

Need To Oversee Amtrak Operations In addition to its new and expanded 

responsibilities, FRA must remain vigilant in its traditional role of overseeing Amtrak’s 

operations and disbursing Amtrak’s annual grant funds.15 This oversight role is reinforced in 

several provisions of PRIIA. For example, PRIIA requires FRA to produce quarterly reports 

on the performance and service quality of intercity passenger train operations, including 

Amtrak’s cost recovery, ridership, on-time performance and minutes of delay, causes of 

delay, on-board services, stations, facilities, equipment, and other services. Similarly, FRA 

must oversee Amtrak’s compliance with applicable sections of the Americans with 

Disabilities Act of 1990 and the Rehabilitation Act of 1974 to ensure that Amtrak’s services 

and facilities are accessible to individuals with disabilities to the extent required by law.16

PRIIA not only expanded FRA’s responsibilities but also added significantly to Amtrak’s 

workload. For example, PRIIA requires Amtrak to implement a new cost accounting system 

and spearhead a committee of various stakeholders to design and develop specifications for 

a next generation train equipment pool. As Amtrak undertakes these new initiatives, FRA 

will need to enhance its Amtrak oversight capabilities.

Related Products The following related reports and testimonies can be found on the 

OIG website at http://www.oig.dot.gov.

• Amtrak Cascades and Coast Starlight Routes: Implementation of New Metrics and 

Standards Is Key To Improving On-Time Performance, September 23, 2010

• Semiannual Report on Amtrak’s Financial and Operating Performance and Savings From 

Reform, May 17, 2010

 15 These grant funds totaled nearly $1.6 billion in fiscal year 2010. 16 Amtrak was mandated to comply with requirements under the Americans with Disabilities Act of 1990 (ADA) by 

July 26, 2010. Amtrak is not yet in full compliance but has recently submitted an ADA compliance plan to Congress 

requesting additional funding and an extension of the ADA deadline. 
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• “Federal Railroad Administration Faces Challenges in Carrying Out Expanded Role,”

statement of Ann Calvaresi Barr, Deputy Inspector General, U.S. Department of 

Transportation before the Committee on Appropriations Subcommittee on 

Transportation, Housing and Urban Development, and Related Agencies, United States 

Senate, April 29, 2010

• DOT’s Implementation of the American Recovery and Reinvestment Act: Continued 

Management Attention Is Needed To Address Oversight Vulnerabilities, 

November 30, 2009

• American Recovery and Reinvestment Act of 2009: Oversight Challenges Facing the 

Department of Transportation, March 31, 2009

For more information on the issues identified in this chapter, please contact

Mitch Behm, Assistant Inspector General for Rail, Maritime, and Economic

Analysis, at (202)-366-9970.
Other Accompanying Information

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Advancing the Next Generation Air 

Transportation System While Ensuring 

the Safe and Efficient Operation of the 

National Airspace System

Source: Federal Aviation Administration

The Federal Aviation Administration (FAA) estimates there are around 7,000 aircraft in the 

air over the United States at any given time. To better manage this capacity, FAA is 

developing the Next Generation Air Transportation System (NextGen)—a satellite-based air 

traffic control system intended to replace the current ground-based system. At the same 

time, FAA must operate and sustain the existing National Airspace System (NAS).

Key Challenges

• Establishing realistic plans and setting expectations for NextGen

• Addressing problems with ongoing modernization projects that are essential to 

NextGen’s success
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• Maximizing the delivery and implementation of new performance-based navigation 

initiatives that can enhance capacity and reduce delays

• Ensuring a sufficient number of certified professional controllers at facilities that are 

critical to the NAS 

Establishing Realistic Plans and Setting Expectations for NextGen

NextGen is vital to revolutionizing our aviation system and the Nation’s long-term economic 

growth. Yet, the Department and FAA have struggled with setting expectations for what can 

reasonably be achieved in the near, mid, and long term. FAA plans to spend almost 

$9 billion between fiscal years 2008 and 2015 specifically on NextGen-related programs, 

which include a new satellite-based surveillance system and an information sharing system

(see figure 7.1). 

Figure 7.1. FAA Capital Funding for Fiscal Years 2008 through 2015, in Millions of Dollars

Source: FAA 

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2008 2009 2010 2011 2012 2013 2014 2015

Remaining Facilities & Equipment NextGen Funding
Other Accompanying Information

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National Airspace System

2011 Top Management Challenges, Department of Transportation 29

Last September, a government-industry task force made a series of recommendations for 

advancing NextGen in the midterm.17

In June 2010, we reported that FAA had made progress in developing a vision for NextGen 

in the midterm but that it still needed to make a number of critical decisions to keep 

NextGen on track. Specifically, FAA has not decided how to allocate new capabilities for 

controllers among various automation systems or to what extent FAA facilities can be 

realigned, co-located, or consolidated due to new technology. Much work also remains to 

refine requirements and costs and establish metrics for measuring progress. These 

decisions will materially affect the cost of NextGen. In addition, FAA has not fully leveraged 

other Federal agencies’ existing research and development programs, including research at 

the Department of Defense that could significantly reduce NextGen development costs. 

These included leveraging equipment already on 

aircraft, enhancing information sharing among FAA and airspace users, and reducing delays. 

FAA is incorporating the task force’s recommendations into its plans, but it has not yet 

established detailed milestones to complete initiatives at high-activity locations that affect 

delays nationwide, like New York. Earlier this year, the task force identified 20 gaps 

between its recommendations and FAA’s plans. Many of these relate to differences in 

milestones and locations as well as the need for FAA to develop more specific plans. In 

addition, while FAA has endorsed the recommendations, it still faces several barriers with 

respect to organizational culture, unresolved policy issues, and controller training that could 

impede implementation and expected benefits. 

Addressing Problems with Ongoing Modernization Projects That Are 

Essential to NextGen’s Success Central to achieving NextGen’s goals is the 

successful implementation of ongoing modernization projects that will provide platforms 

for new NextGen capabilities. Of particular concern are problems with the $2.1 billion En 

Route Automation Modernization (ERAM) program, which is intended to replace hardware 

and software at facilities that manage high-altitude traffic. FAA originally planned to deploy 

ERAM to 20 en route facilities by the end of 2010. However, during testing at ERAM’s initial 

operating site, FAA encountered significant software-related problems, including radar 

processing failures and handing off traffic between controllers. As a result, FAA stopped 

ERAM testing in March 2010 to reexamine plans and develop corrective actions. FAA is 

working with its contractor to address the more than 200 problems identified so far and to 

 17 NextGen Mid-Term Implementation Task Force Report, September 9, 2009.
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2011 Top Management Challenges, Department of Transportation 30

improve system stability. The cost and schedule to complete ERAM are uncertain, but 

delays could be 2 years or longer. Delays with ERAM have serious consequences—FAA will 

have to maintain aging systems longer, limit capacity enhancing improvements in the highaltitude environment, and provide refresher training for controllers and maintenance 

technicians who must be certified on two different systems. Prolonged problems with 

ERAM could also have a cascading effect on implementing NextGen now and in the future, 

including key systems such as the Automatic Dependent Surveillance-Broadcast (ADS-B)18

and Data Communications.19

Maximizing the Delivery and Implementation of New Performance-Based 

Navigation Initiatives That Can Enhance Capacity and Reduce Delays A 

fundamental building block of FAA’s NextGen efforts is establishing new performance-based 

navigation routes and procedures, using Area Navigation (RNAV) and Required Navigation 

Performance (RNP) specifications.

 

20

However, FAA has not widely implemented efficient RNP procedures, clarified the role of 

non-government third parties in developing RNAV/RNP procedures, or developed metrics to 

measure expected benefits. For example, FAA does not plan to rely on its two qualified 

third-party vendors to design and implement public RNP procedures, but airline officials 

stated that third parties may be needed to provide technical expertise for developing more 

efficient RNP procedures. FAA has instead focused on producing a targeted number of 

procedures—most of which are overlays of existing routes that do not provide shorter paths 

to alleviate airspace congestion or are incompatible with existing air traffic policies at 

airports with parallel runways. As a result, airlines that are equipped and approved for RNP 

are not widely using FAA’s RNP procedures.

 The potential benefits of RNAV and RNP are significant 

and include shorter, more direct flight paths; improved airport arrival and departure 

efficiency; enhanced controller productivity; fuel savings; and reduced aircraft noise and 

carbon emissions. 

 18 ADS-B offers surveillance, like radar, but with more precision. ADS-B provides air traffic controllers and pilots with more 

accurate information to help keep aircraft safely separated in the sky and on runways. 19 Data Communications will provide comprehensive data connectivity, including ground automation message generation 

and receipt, message routing and transmission, and aircraft avionics requirements. 20 RNAV is a method of navigation in which aircraft use avionics, such as Global Positioning Systems, to fly any desired 

flight path without the limitations imposed by ground-based navigation systems. RNP is a form of RNAV that adds onboard monitoring and alerting capabilities for pilots, thus allowing aircraft to fly more precise flight paths.
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Since we reported last year, FAA has stated that it will adjust its goals to focus on 

implementing beneficial procedures rather than producing a targeted number of 

procedures. In response to the recommendations of a joint government-industry task 

force, FAA is also creating joint agency-industry teams tasked with deploying enhanced 

procedures at delay-plagued airports in metropolitan areas, but this effort is in the early 

stages. FAA’s key challenges to realizing the benefits of new procedures include integrating 

new routes with airspace redesign efforts, streamlining its procedure development process, 

modifying the equipment that controllers rely on to manage traffic, and properly training air 

traffic controllers and pilots on procedures before implementing them. 

Ensuring a Sufficient Number of Certified Professional Controllers at 

Critical Facilities FAA estimates that it will need to hire and train nearly 11,000 new air 

traffic controllers by fiscal year 2019 to replace controllers hired after the 1981 strike who 

are now eligible to retire. Because of the surge in attrition, FAA must assign newly hired 

controllers to complex air traffic control facilities, such as the Southern California Terminal 

Radar Approach Control, the Atlanta Terminal Radar Approach Control, the Chicago O’Hare 

Airport Traffic Control Tower, and facilities controlling the New York area airspace. In fiscal 

year 2009, 61 percent of all newly hired controllers were placed at Level 10 through 

12 facilities, which are the busiest and most complex in the Nation and critical to NAS 

operations. In addition, 26 percent of FAA’s controller workforce is currently in training—

compared to 15 percent in 2004—creating the potential for fewer certified controllers in 

the workforce to control air traffic while providing on-the-job training for new controllers. 

While FAA has ongoing actions or plans to improve controller training and placement, the 

Agency will need to minimize the risks that less experienced controllers impose on the most 

critical facilities in the NAS. Key challenges will be ensuring adequate staffing, training 

resources, and other support to maintain continuity of facility operations.
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Related Products The following related reports and testimonies can be found on the 

OIG website at http://www.oig.dot.gov.

• Timely Actions Needed To Advance the Next Generation Air Transportation System, 

June 16, 2010

• Challenges in Meeting FAA’s Long-Term Goals for the Next Generation Air 

Transportation System, April 21, 2010

• Actions Needed To Meet Expectations for the Next Generation Air Transportation 

System in the Midterm, October 28, 2009

• Challenges in Implementing Performance-Based Navigation in the U.S. Air 

Transportation System, July 29, 2009

• Training Failures Among Newly Hired Air Traffic Controllers, June 8, 2009

• Progress and Remaining Challenges in Reducing Flight Delays and Improving Airline 

Customer Service, May 20, 2009

• Aviation Industry Performance: A Review of the Aviation Industry in 2008, May 6, 2009

• Controller Staffing at Key California Air Traffic Control Facilities, April 23, 2009

• Federal Aviation Administration: Actions Needed To Achieve Mid-Term NextGen Goals, 

March 18, 2009

• Key Issues for Reauthorizing the Federal Aviation Administration, February 11, 2009

• FAA Faces Significant Risks in Implementing the Automatic Dependent SurveillanceBroadcast Program and Realizing Benefits, October 12, 2010

For more information on the issues identified in this chapter, please contact

Jeffrey B. Guzzetti, Assistant Inspector General for Aviation and Special 

Program Audits, at (202)-366-0500.
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Implementing Processes To Improve the 

Department’s Acquisitions and Contract 

Management

Used with permission from MIcrosoft

In fiscal year 2010, the Department obligated approximately $5.8 billion21 on contracts for 

goods and services, including information technology services, training, road maintenance, 

and professional services to plan and implement key NextGen systems. Additionally, more 

than $60 billion was budgeted for grants to states, transit agencies, and other partners to 

help meet departmental strategic goals. To ensure it maximizes these dollars, the 

Department needs to strengthen its acquisition and contract management practices. While 

it has made some progress in this area, such as completing oversight reviews of the Federal 

Aviation Administration’s (FAA) compliance with its acquisition policy guidance,

22 our audits 

continue to find weaknesses in how the Department plans, administers, and oversees its 

contracts.

 21 Based on data from the Federal Procurement Data System-Next Generation provided by DOT. 22 Completed regularly by FAA’s National Acquisition Evaluation Program Team.
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Key Challenges

• Strengthening processes to govern the appropriate use of non-competitive or risky 

contracts and maximize use of competition

• Strengthening the acquisition function and workforce to provide leadership for the 

Department’s acquisitions

• Maintaining programs to help ensure high ethical standards among the Department’s

contractors and employees

Strengthening Processes To Govern the Appropriate Use of NonCompetitive or Risky Contracts and Maximize Use of Competition Recent 

Office of Management and Budget (OMB) contracting initiatives underscore agency use of 

competition and fixed-price contracts and require agencies to perform effective price 

analysis to mitigate risks for noncompetitive contract awards.23 However, the Department

annually awards over $1.8 billion using sole-source, cost-reimbursable, time-and-materials,

and labor hours contracts, which represent the greatest risk to the Government because 

they are inefficient and subject to misuse. The Department was required to reduce the 

amount obligated for new awards of these contracts by more than 10 percent in fiscal year 

2010.

24

In fiscal year 2009, FAA obligated $541 million on more than 16,500 noncompetitive 

contract actions.

However, our recent work on contracting at FAA and the Federal Motor Carrier 

Safety Administration (FMCSA) and award fee contracts illustrates that the Department

needs to further improve its controls over high-risk contracts.

25

 23 OMB Memorandum, Increasing Competition and Structuring Contracts for Best Results, October 27, 2009.

 Our ongoing review of FAA’s processes for awarding these sole-source 

contracts revealed that acquisition planning was inadequate and responsible officials were 

not sufficiently trained to perform price analyses. As a result, program and contracting 

officials took shortcuts when completing price analyses to meet compressed timeframes. 

Improved planning, training, and documentation are essential to ensure that prices are fair 

and reasonable for these contracts.

24 DOT did not provide us with the analysis to show if it met the 10-percent reduction required by OMB for these contracts 

in fiscal year 2010. 25 These include actions for awards of new contracts, modifications, task orders, and delivery orders. Not all of these 

contract actions required competitive awards, but when the action exceeds $10,000 FAA requires price analysis to 

ensure the Government receives the best value for dollars spent.
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FMCSA spends about 40 percent of its procurement dollars on high-risk time-and-materials 

contracts—compared to 5 percent Government-wide. In August 2010, we reported that 

FMCSA’s contract pre-award processes leave it vulnerable to using ineffective business 

arrangements and ultimately hinder its ability to maximize competition.26

Weaknesses in the Department’s use of cost-plus-award-fee (CPAF) contracts further put its

contract dollars at risk. CPAF contracts can encourage excellence by providing financial 

incentives based on performance, but they require effective monitoring to ensure contract 

dollars are spent wisely and award fees are justified. In August 2010, however, we reported 

that Operating Administrations did not use measurable evaluation criteria or payment 

structures to motivate exceptional performance. Ultimately, Operating Administrations 

consistently gave contractors high ratings and substantial award fees, despite lacking 

adequate support for their actual performance, as measured by award-fee evaluation 

criteria and directed by OMB.

For example, 

FMCSA does not prepare required acquisition plans, follow its recommended procurement 

lead times for planning and awarding contracts, or perform adequate market research to 

identify qualified vendors. While FMCSA concurred with our recommendations to follow 

sound procurement practices and maximize competition, FMCSA must fully implement

planned actions to ensure it reduces its reliance on high-risk contracts and receives the best 

value for its procurement dollars. 

27 These award fees totaled about 92 percent of the awards 

for the rating periods we reviewed. Based on our audit sample, we estimated that more

than $140 million was paid in award fees without proper justification.28 To improve its use 

of award fee contracts at operating administrations, the Department is developing a 

guidebook incorporating best practices for planning, implementing, and administering CPAF 

contracts and training contracting and program personnel.

29

 26 OIG Report Number ZA-2010-093, “Federal Motor Carrier Safety Administration Lacks Core Elements for a Successful 

Acquisition Function,” August 24, 2010. 

Effective implementation of 

Office of the Secretary (OST) and FAA measures will be critical to ensuring the Department

does not pay improper award fees to contractors.

27 OIG Report Number ZA-2010-092, “Improvements in Cost-Plus-Award-Fee Processes Are Needed To Ensure Millions 

Paid in Fees Are Justified,” August 25, 2010. 28 We audited the performance periods for award fee contracts as of December 31, 2007. Our estimate was based on 

extrapolating our contract sample to the universe of DOT’s 41 CPAF contracts. 29 FAA issued separate award fee guidance in September 2007.
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Strengthening the Acquisition Function and Workforce To Provide 

Leadership for the Department’s Acquisitions To maintain an effective 

acquisition function, OMB provided agencies with standard guidance that emphasizes

organizational alignment and leadership, policies and procedures, a workforce of the 

appropriate size and needed skills, and information management and stewardship.30 

However, key acquisition leadership positions within OST have been vacant or filled as 

collateral duties, and a strategic vision is needed to guide acquisition operations 

successfully throughout the Department. Also, OST’s Senior Procurement Executive (SPE) 

does not report directly to the Chief Acquisition Officer (CAO), contrary to legislative

requirements31

OST has begun steps to strengthen its acquisition function. However, until OST fully 

commits to needed reform, it will be limited in its ability to provide clear direction and 

vision to acquisitions across the Department. Strong acquisition direction is essential to 

ensure the billions of dollars the Department spends on contracting each year are used in 

the most efficient and effective manner and help accomplish the Department’s mission.

and the intent of OMB guidance. Because the SPE does not have a direct 

line of communication with the CAO and is not formally part of the Department’s top-level 

management discussions and meetings, the SPE’s ability to elevate acquisition issues and 

position the acquisition function to play a strategic role is diminished. For example, OST is 

not sufficiently performing critical oversight of acquisitions at Operating Administrations.

OST also lacks a comprehensive set of updated policies to effectively manage its 

acquisitions. The Department’s Transportation Acquisition Regulations and Transportation 

Acquisition Manuals, maintained by OST, were last updated in 2005 and 2006, respectively. 

Finally, OST lacks the basic internal controls needed to minimize the risk of unauthorized 

users accessing and manipulating the Department’s procurement data. The lack of internal 

controls compromises the data’s integrity, security, and usefulness in forming management 

decisions and ultimately exposes the Department to fraud, waste, and abuse. 

In addition to lacking an effective acquisition function, the Department is challenged to 

maintain an acquisition workforce that can effectively oversee its expanding and complex 

contracts for goods and services. Retention and recruitment concerns, as well as the need 

to ensure a competent workforce, pose risks to the Department’s ability to meet its 

 30 OMB Memorandum, Conducting Acquisition Assessments under OMB Circular A-123, May 21, 2008. 31 Service Acquisition Reform Act of 2003 (Pub. L. No. 108-136 § 1421(c).
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acquisition workload demands.32 Between fiscal years 2008 and 2018, the percentage of 

employees in the Department’s contracting series eligible to retire will more than triple to 

63 percent—a rate about 10 percent higher than the average for civilian agencies. 

According to FAA, its acquisition workforce is currently 6 percent understaffed, and this 

shortage could grow to 26 percent by 2014. Despite these concerns, the Department has 

yet to develop adequate plans to address this challenge. For example, the Department’s

2009 Strategic Acquisition Workforce Succession Plan is based on survey responses from 

less than half of its workforce. In addition, Operating Administrations have not made 

sufficient progress in implementing the specific strategies and goals in the Department’s

first Acquisition Workforce Strategic Human Capital Plan, issued in April 2010, for increasing 

the capacity and capability of the acquisition workforce through fiscal year 2014.

33

Maintaining Programs To Help Ensure High Ethical Standards Among 

the Department’s Contractors and Employees Our audits and investigations 

have identified the need for more vigilant oversight to detect and prevent procurement 

fraud, waste, and abuse within the Department and among its fund recipients. The 

Department’s oversight of over $40 billion in Recovery Act funds heightens the importance 

of safeguarding against awarding funds to those with a record of wrongdoing and abuse. 

This 

year, FAA—whose procurement function is autonomous from the Department’s—updated 

its 2009 Acquisition Workforce Plan to project workforce needs through 2014 and broaden 

the definition of acquisition workforce. 

Contract and grant fraud cases currently comprise about 42 percent of active Office of 

Inspector General investigations. Between June 2009 and September 17, 2010, contract 

grant fraud cases resulted in 27 indictments, 34 convictions, and $72 million in recoveries.

For example, an airport owner and recipient of FAA Airport Improvement Program grants 

was sentenced to 2 years probation for diverting approximately $375,000 in grant funds—

provided by FAA to pay contractors who completed airport improvements—for his personal 

use. Similarly, a Chicago engineering firm owner was sentenced to 41 months in prison and

ordered to pay $10 million in restitution for overstating overhead expenses on various 

engineering and architectural projects. The overpayments were due to invalid charges on 

 32 OIG Report Number PT-2010-008, “DOT's Fiscal Year 2010 Top Management Challenges,” November 16, 2009. 33 DOT’s plan was in response to an October 27, 2009, Office of Federal Procurement Policy requirement that civilian 

agencies develop an annual acquisition human capital plan.
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projects funded by the Federal Transit Administration, the Federal Highway Administration,

and FAA.

In January 2010, we reported that the Department’s ability to safeguard against awarding 

contracts and grants to improper parties was limited by delays in its suspension and 

debarment (S&D) decisions and reporting, as well as deficiencies in its policies, procedures, 

and internal controls.34 In response to our recommendations, OST and FAA revised their 

S&D policies to require timely action on S&D decisions and accurate and timely reports on 

these cases. However, neither OST nor FAA has fully implemented the reporting system 

and corresponding internal controls used to collect and manage S&D information across the 

Department. Until the Department fully implements these improvements to its S&D 

Program, it will have incomplete information on its S&D caseloads and risk awarding 

contracts and grants to parties that have been suspended or debarred.

 34 OIG Report Number ZA-2010-034, “DOT's Suspension and Debarment Program Does Not Safeguard Against Awards to 

Improper Parties,” January 7, 2010. 
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Related Products The following related reports, testimonies, and advisories can be 

found on the OIG website at http://www.oig.dot.gov. 

• Improvements in Cost-Plus-Award-Fee Processes Are Needed To Ensure Millions Paid in 

Fees Are Justified, August 25, 2010

• Federal Motor Carrier Safety Administration Lacks Core Elements for a Successful 

Acquisition Function, August 24, 2010.

• Weaknesses in DOT’s Suspension and Debarment Program Limit Its Protection of 

Government Funds, March 18, 2010

• DOT’s Suspension and Debarment Program Does Not Safeguard Against Awards to 

Improper Parties, January 7, 2010

• ARRA Advisory–DOT’s Suspension and Debarment Program, May 18, 2009

For more information on the issues identified in this chapter, please contact

Tony Wysocki, Acting Assistant Inspector General for Acquisition and 

Procurement Audits, at (202)-493-0223 or Timothy Barry, Principal Assistant 

Inspector General for Investigations, at (202) 366-1967.
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Improving the Department’s Cyber 

Security 

Source: freepixels.com

As part of its Accountable Government Initiative, the Administration seeks to enhance 

Federal cyber security35

Key Challenges

while closing information technology (IT) gaps between the 

Government and private sector. With new cyber threats constantly arising, automated 

tools are essential to continuously monitor security-related information. With more than

400 systems—nearly two-thirds of which belong to the Federal Aviation Administration 

(FAA)—and an approximately $3 billion annual technology investment, the Department is

working to incorporate new technologies and meet the Administration’s cyber security 

goals.

• Establishing a robust information security program

• Strengthening air traffic control system protections

• Increasing protection of personally identifiable information (PII)

 35 Cyber security is the branch of security that pertains to computers and networks, including the Internet.
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Establishing a Robust Information Security Program The Federal Information 

Security Management Act (FISMA) of 2002 requires agencies to establish an information 

security program to protect agency information and systems. Last year, we reported that 

the Department’s information security program was not as effective as it should be and did 

not meet key FISMA and Office of Management and Budget (OMB) requirements.36

First, security deficiencies still exist in key control areas, including management of 

information, system authorization, configuration management, and contingency planning. 

For example, we determined that the Department’s Recovery Act websites made user

information and departmental systems vulnerable to attack. To build an information 

security program that adequately protects against cyber threats, the Department needs to 

address security deficiencies in a sustainable and flexible manner so it can quickly adapt to

and avert new threats.

 With 

limited progress during fiscal year 2010, several challenges remain.

Second, the Department’s Office of the Chief Information Officer (OCIO) could do more to 

guide and oversee the Operating Administrations in building and sustaining strong 

information security practices. In 2009, OCIO issued its Department-wide information 

security policy—the first step in building an information security program. The next step 

for OCIO is to enhance this policy and develop Department-wide procedural guidance. In 

addition, OCIO needs to conduct quality assurance reviews of modal cyber security efforts 

and assess the use of technology to facilitate timely management of the Department’s

cyber security. At present, the Department does not have central, automated systems to 

enable the timely assessment of its information security program. Until the OCIO can better 

guide and oversee Operating Administrations’ information security, the Department cannot 

ensure that policy is properly implemented or deploy automated tools to quickly and 

continuously monitor its cyber security posture.

Finally, the Department has yet to meet OMB’s requirement for issuing Personal Identity 

Verification (PIV) cards to employees and contractors—a key Government-wide initiative to 

secure Federal information and information systems. OCIO and the Assistant Secretary of 

 36 OIG Report Number FI-2010-023, “Audit of DOT’s Information Security Program and Practices,” November 18, 2009.
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Administration share the responsibility of managing PIV card issuance. More than a year 

after OMB’s October 2008 deadline, less than 30 percent of the Department’s

approximately 112,000 employees and contractors had a PIV card. The Department has yet 

to develop an actionable plan to complete issuance of PIV cards to its remaining employees 

and contractors. In addition, the Department needs a better process for securing the 

information systems used to store, process, and transmit personally identifiable 

information. Until it takes action to address these weaknesses, the Department not only 

risks issuing PIV cards to non-DOT employees and contractors, it cannot secure personal 

information such as Social Security numbers (SSN).

Strengthening Air Traffic Control System Protections FAA’s planned Next 

Generation Air Transportation System (NextGen) system relies on a number of new 

technologies to achieve its goals. The Automatic Dependent Surveillance-Broadcast 

(ADS-B), a key NextGen system, uses satellite-based surveillance to more precisely track the 

location of aircraft.37

As FAA develops NextGen, it must continue to protect its current ATC systems, which are 

located at hundreds of operational facilities, such as en route centers, Terminal Radar 

Approach Control (TRACON) facilities, and airport control towers. Yet, FAA has not 

established adequate Intrusion Detection System (IDS) capabilities to monitor and detect 

potential cyber security incidents at key ATC facilities. Instead, FAA relies on the 

Department’s Cyber Security Management Center to monitor cyber incidents only for 

administrative systems, such as email at these facilities. To collect critical information for 

 While ADS-B offers many benefits over traditional ground-based radar 

systems, some aspects are vulnerable to certain types of cyber attack. Also, as part of the 

transition to NextGen, FAA is increasingly relying on the use of Internet Protocol (IP)-based 

commercial products and web applications rather than proprietary software. While this 

strategy will enable FAA to efficiently facilitate air traffic control services, it poses a higher 

security risk due to the vulnerabilities inherent in using commercial IP-based products. In 

addition, FAA is outsourcing more of its operations to contractors. ADS-B is the first 

operational Air Traffic Control (ATC) system to be owned and operated by a contractor. 

Because FAA only owns the data, not the system, it could have little control over security 

challenges encountered with ADS-B.

 37 See chapter 7 for a discussion of NextGen.
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security analyses, FAA needs to install IDS sensors at key locations.

38

Increasing Protection of Personally Identifiable Information To minimize the 

risks associated with the unauthorized disclosure of PII, OMB required agencies to eliminate 

the unneeded use of SSNs by November 2009. In fiscal year 2010, the Department 

stabilized its inventory of systems containing PII, provided advanced training sessions for 

modal privacy personnel, and continued its analysis to reduce the use of SSNs in PII systems.

Despite this progress, PII remains vulnerable to misuse. The Department has preliminarily 

identified 70 systems that need to be evaluated for SSN elimination but does not plan to 

complete the elimination until 2013. To protect the public’s privacy and comply with OMB 

requirements, the Department must assign a priority to meet the OMB mandate of 

eliminating unneeded use of SSNs in a timelier manner. 

During the past year, 

FAA has taken steps to identify key ATC facilities that need IDS monitoring and has begun 

deploying IDS at certain TRACON facilities. However, without comprehensive NAS-wide IDS 

capabilities, FAA cannot effectively monitor ATC systems for possible cyber attacks or take 

timely action to stop them. FAA management is developing an implementation strategy to 

address this issue but has not developed or identified a timetable for deploying IDS beyond 

the specified TRACON facilities. 

Our review of the Airmen Medical Support Systems (MSS) found that airmen’s PII was not 

properly secured to prevent unauthorized access due to serious security lapses in FAA’s 

management of user access to the system.39

 38 Sensors are a combination of hardware and software that serve as the “eyes and ears” of the IDS. Ideally, they are 

placed at key network locations (e.g., Internet access points) to detect threats such as viruses.

For example, medical examiners’ former staff 

continued to have access to MSS. At the same time, FAA has not fully implemented security 

controls required by OMB and the Department to protect PII. In addition, FAA has not 

ensured secure configuration of MSS computers in accordance with the Department’s 

baseline standards to reduce the risk of unauthorized access and corruption. We found 

vulnerabilities on MSS computers, such as the configuration allowing intruders to install 

malicious codes on FAA user computers. These weaknesses make airmen’s PII vulnerable to 

unauthorized access and use and potential falsification of medical certificates that could 

lead to unfit airmen being medically certified to fly. During our review, FAA took immediate 

39 OIG Report Number FI-2010-069, “Information Security and Privacy Controls over the Airmen Medical Support Systems,” 

June 18, 2010.
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action to enhance security protection by working with doctors to remove thousands of 

separated medical staff’s access to MSS and retracting millions of PII records from the 

contractor’s site. However, additional improvements are needed to adequately secure PII 

data from unauthorized use.

Related Products The following related reports and testimonies can be found on the 

OIG website at http://www.oig.dot.gov.

• Review of FAA’s Progress in Enhancing Air Traffic Control Systems Security, 

November 2, 2009

• Final Report on the Department of Transportation’s Information Security Program and 

Practices, November 18, 2009

• Information Security and Privacy Controls Over the Airmen Medical Support Systems, 

June 18, 2010

For more information on the issues identified in this chapter, please contact

Earl Hedges, Acting Assistant Inspector General for Financial and Information 

Technology Audits, at (410)-962-3612.
Other Accompanying Information

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EXHIBIT

2011 Top Management Challenges, Department of Transportation 45

Comparison of Fiscal Year 2011 and 

2010 Top Management Challenges

Fiscal Year 2011 Challenges Fiscal Year 2010 Challenges

• Ensuring Transparency and Accountability in 

the Department’s Recovery Act Programs 

• Maximizing the Department’s Economic 

Recovery Investments

• Maintaining Momentum in the 

Department’s Oversight of Highway, Motor 

Vehicle, Hazardous Materials, and Transit 

Safety 

• Enhancing Surface Safety Programs To 

Reduce Injuries and Fatalities While Defining 

a New Federal Role in Transit Safety

• Maintaining Momentum in Addressing 

Human Factors and Improving Safety 

Oversight of the Aviation Industry 

• Addressing Human Factors and Strengthening 

the Regulatory Oversight Framework for 

Aviation Safety

• Improving the Department’s Oversight of 

Highway, Transit, and Pipeline 

Infrastructure 

• Maximizing Federal Surface Infrastructure 

Investments by Helping States Better Allocate 

Resources and Providing Effective Oversight 

• Identifying Sufficient Funding Sources to 

Support Future Federal Investment in 

Surface Transportation Infrastructure

• Developing a Funding Framework for the 

Next Surface Transportation Reauthorization

• Transforming the Federal Railroad 

Administration to Address Significantly 

Expanded Oversight Responsibilities

• Successfully Implementing the Newly Created 

Multi-Billion Dollar High-Speed Intercity 

Passenger Rail Program

• Advancing the Next Generation Air 

Transportation System While Ensuring the 

Safe and Efficient Operation of the National 

Airspace System

• Moving Toward the Next Generation Air 

Transportation System and Improving 

Performance of the National Airspace System

• Implementing Processes To Improve the 

Department’s Acquisitions and Contract 

Management

• Improving Contract Management and 

Oversight

• Strengthening the Department’s Acquisition 

Workforce

• Improving the Department’s Cyber Security • Enhancing the Ability To Combat Cyber 

Attacks and Improving the Governance of 

Information Technology Resources
230

2011 Top Management Challenges, Department of Transportation 46

APPENDIX. DEPARTMENT RESPONSE

Memorandum 

U.S. Department of

Transportation

Office of the Secretary

of Transportation

Subject: ACTION: Response to Office of Inspector General (OIG) 

draft report, “Top Management Challenges for Fiscal Year 

2011”

Date: November 3, 2010

From: Christopher Bertram 

Assistant Secretary for Budget and Programs, and

Chief Financial Officer

Reply to

Attn. of:

To: Calvin L. Scovel III

Inspector General

Throughout FY 2010, the Department of Transportation (DOT) has maintained its longstanding record of excellence in delivering a world-class transportation system for our 

Nation. Many of our recent accomplishments demonstrate the Department’s continued 

commitment to ensuring safe and reliable transportation for today, while at the same time 

planning for the transportation needs of tomorrow. The Department continues to promote 

intermodal solutions utilizing the best that each transportation mode has to offer for solving 

current transportation challenges, as well as an even more holistic or systems approach that 

builds transportation efficiency into communities from the start. This new systematic focus 

encourages livable communities by incorporating consideration of the important role that 

transportation plays into development decision-making to help make neighborhoods safe, 

accessible and efficient.

Transportation Safety is the Department’s First Priority

The Department’s commitment to maintaining and further improving transportation safety in 

all modes is unequivocal. The results of our safety culture continue to be demonstrated in 

recent metrics. Working together with state and local authorities, we have achieved further 

reductions in the annual highway fatality rates. This includes reductions in motorcycle 

fatalities which had been steadily rising. We raised public awareness around the Nation 

about the dangers posed by distracted driving from the unsafe use of cell phones, texting, and 

the use of other electronic devices. The Secretary personally highlighted the risks associated 

with distracted driving at events throughout the country and hosted a Distracted Driving 

Summit here at the Department to focus on this important issue. The Secretary also moved 
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2011 Top Management Challenges, Department of Transportation 47

forward with a bold initiative to extend the Department’s safety culture to the transit systems 

millions of people depend on each day to travel to and from work. After a recent string of 

safety failures across the Nation, the Secretary determined that it is time for the Federal 

Transit Administration to take a stronger, more proactive role in transit safety, and has been 

working with the Congress to bring an increased Federal focus on transit safety. 

The Department’s combined efforts through each of its operating administrations continue to 

advance transportation safety through improvements in systems, processes, and oversight. 

Through the Pipeline and Hazardous Materials Administration, the Department has 

significantly improved its oversight of hazardous materials transportation over the past year, 

with the application of improved procedures, better interaction with organizations throughout 

the Department, and increased management focus on the issues. The National Highway 

Traffic Safety Administration demonstrated its commitment to ensuring vehicle safety 

through its introduction of new and tougher vehicle safety rating systems, its enforcement of 

vehicle recall requirements, and its use of new and creative ways to inform the public. Its 

continued emphasis on proven public information campaigns, such as “Click it or Ticket,” 

combined with targeted enforcement activities led to further improvement in the rate of seat 

belt use across the country, which is saving lives today. The Federal Aviation 

Administration (FAA) has demonstrated continued success in its use of safety data to better 

focus safety inspections and affect appropriate actions by air carriers to continue achieving a 

strong safety record, even through difficult economic times. As a result of these and other 

actions throughout the Department, we continue to make significant strides in achieving our 

safety goals. 

DOT Recovery Act Implementation Generates Tens of Thousands of Jobs with More 

than 15,000 Infrastructure Projects

FY 2010 marks the second year of the Department’s implementation of the American 

Recovery and Reinvestment Act of 2009 (Recovery Act) and the Department’s programs 

continue to generate worthwhile jobs with careful investments in useful transportation 

infrastructure. The $48.1 billion appropriated to DOT has been used to support more than 

15,000 infrastructure projects. This investment has improved the safety and efficiency of the 

Nation’s system of highways, transit, ports, and airports. Just as important, these projects 

generated tens of thousands of jobs in transportation and related sectors, during a difficult 

economic environment. 

In addition to enhanced funding for the Department’s traditional programs, the Recovery Act 

included $1.5 billion for the Secretary’s Discretionary Grant program known as TIGER 

Grants, and $8 billion to begin addressing the President’s vision for a world class high speed 

intercity passenger rail system for America. The TIGER Grant program focused on projects 

that apply intermodal solutions and innovative strategies to address demonstrated 

transportation needs. Early in 2010, the Secretary selected 51 projects nationwide that 

promote greater mobility, a cleaner environment and more livable communities. Through the 

Federal Railroad Administration (FRA), the Department has devoted significant time and 
232

2011 Top Management Challenges, Department of Transportation 48

resources over the past year for successful implementation of the new High Speed rail 

initiatives. These efforts require nothing less than building an entirely new program 

including identifying programmatic requirements, identifying and obtaining necessary 

resources, and creating oversight structures, while implementing the program with 

unprecedented speed. Using a truly intermodal approach, FRA identified best practices from 

operating administrations throughout the Department and is modeling the program based-on

best practices from the Department’s established grant programs.

Implementing the Recovery Act also generated unanticipated benefits, including new 

business processes, increased focus on new measures of results, and ever growing 

expectations for expeditious program implementation with unprecedented transparency to the 

public. We identified new ways to collect, analyze, and convey data. As we implemented 

the Recovery Act, our innovative staff created capabilities that bring nationwide 

transportation data to a level of granularity that is meaningful and accessible to local 

communities. For the first time, the public can log onto the internet and with a few clicks of 

a mouse, gain a clear sense of what the Recovery Act meant to their community, their state 

and the Nation. We developed new training methods that helped the transportation 

community understand and comply with the Recovery Act’s requirements. We developed 

new programs, like the TIGER program from the ground up, based on virtual teams and 

existing resources that can be quickly assembled, utilized, and then deconstructed, to get 

things done quickly and expertly, with a minimum cost to the taxpayer. We will continue to 

assess and analyze the lessons from Recovery Act implementation to determine how they can 

be applied to increase the efficiency and effectiveness of the Department’s future endeavors. 

Preparing for the Next Generation of Air Travel 

FAA continues its efforts to effect a major change in the management of the Nation’s 

airspace with its NextGen initiative. NextGen is intended to replace aging radar-based air 

traffic management systems with a new state-of-the-art satellite-based technology that holds 

the potential to improve system performance, address airspace congestion, and provide the 

airline community with significant operational benefits. Implementing this “system of 

systems” into an integrated air traffic management tool is a major undertaking and one of the 

Department’s highest priorities. Ensuring that each NextGen segment moves forward in a 

synchronized way and effectively addresses the interdependencies among the various 

systems presents an enormous technical challenge to the Department. We must also keep in 

mind, that as the development and implementation of NextGen proceeds, FAA must also 

ensure that today’s airspace continues to meet operational goals, such as reducing tarmac 

delays, increasing on-time arrivals, and maintaining strong safety performance throughout 

the National Airspace System. 

Planning for the Surface Transportation Needs of the Future 

The Department’s surface transportation programs are due to be authorized by Congress. 

Throughout FY 2010, we have been working to delineate the Administration’s priorities for 
Other Accompanying Information

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2011 Top Management Challenges, Department of Transportation 49

surface authorization and reflect the President’s vision for meaningful investment in 

transportation infrastructure to facilitate economic growth, enhance safety, and improve the 

environment. In identifying these priorities we continue to build on a focus of intermodal 

solutions and enhancing the systems approach for improving livability with effective 

transportation solutions. We look forward to working with the Congress to explore the 

potential for new and better ways to fund transportation infrastructure investment, including 

innovative financing tools that will further leverage limited Federal resources and maximize 

our return on investments for the public. 

Overall, the nature of the Department’s mission with its focus on transportation safety and 

guiding wise investments in transportation infrastructure leads to a continuous cycle of 

management challenges. Even as progress is achieved, new challenges arise. For example 

advances in automotive electronics led to new advances in safety such as advanced vehicle 

stability control that is saving lives today. At the same time, we recognize that advanced 

electronics also lead to new challenges that resulted in the Secretary’s initiative to reduce 

distracted driving. Nonetheless, the Department has established a clear record of 

accomplishment throughout the operating administrations and in the Office of the Secretary 

over the past year. As we begin FY 2011, we will once again bring to bear the talent, energy 

and commitment of the Department to help Transportation meet its goals. Thank you for 

sharing the Office of Inspector General’s perspectives on the challenges facing the 

Department. This information will be helpful in planning for FY 2011 and beyond. 

 

 
IMPROPER PAYMENTS INFORMATION ACT OF 2002

In FY 2010, the Department fully implemented the Improper Payments Information Act 

of 2002 (IPIA), which requires that agencies (1) review and identify programs susceptible to significant improper payments, (2) report to Congress the amount, and causes of, 

improper payments, and (3) develop approaches for reducing improper payments. 

As part of the IPIA review, the Department successfully examined the following grant 

programs:

•	 Federal Highway Administration (FHWA) Federal-aid Highway Program

•	 Federal Aviation Administration (FAA) Airport Improvement Program

•	 Federal Transit Administration (FTA) Formula Grants Program

•	 Federal Transit Administration Capital Investment Grants Program 

In an effort to adhere to IPIA requirements, the Department engaged Deloitte & Touche, 

LLP to develop nationwide sampling plans, test sampled invoice line items for improprieties, and extrapolate nationwide improper payments estimates for the Department’s 

major grant programs.

Relative to FY 2009, and in direct response to the Office of the Inspector General’s (OIG) 

recommendations, the Department obtained all data extracts from a single source, DOT’s 

financial system of record. Additionally, to ensure both sample validity and the accuracy 

of extrapolated programmatic improper payment estimates, the Department collaborated 

closely with OIG’s IPIA statistician to develop sampling and extrapolation methodologies 

mutually agreed upon by both parties. 

Regarding transaction testing, the Department designed all test plans, specific to each 

Operating Administration, to scrutinize a range of administrative and contractual elements related to each invoice line item. Testing of administrative elements includes 

determining whether grantees properly approved payments, billed at the correct Federal 

participation rate, and determining whether billings and payments are mathematically 

accurate. Testing of contractual elements includes determining whether payments are in 

accordance with contract rates/prices for specified materials and whether material quality tests indicate materials’ compliance with contractual requirements.

Samples for all reviewed grant programs are of sufficient size to yield an estimate with 

a minimum 90 percent confidence interval within 2.5 percentage points above and below 

234
Other Accompanying Information

235

the estimated percentage of erroneous payments, as prescribed by OMB. The following 

sections discuss the results of these efforts.

FHWA Federal-aid Highway Program

The Department developed and executed a sampling methodology and test plan to review 

project payments and estimate the dollar amount of the Federal-aid Highway Planning and 

Construction Grant Program’s improper payments. FHWA executed the nationwide testing program using FHWA division office personnel. The sample of tested line items originated from Federal disbursements to grantees within the twelve-month period April 1, 2009 

through March 31, 2010.

The IPIA sampling methodology involved a risk-based multi-staged statistical approach 

that included the selection of 141 Federal disbursements totaling $582,923,902.62 and 282 

line items from supporting invoices totaling $648,647,751.17. As in FY 2009, the Department 

designed the FY 2009 sample to extrapolate a nationwide estimate of improper payments 

and this sample does not support an estimate for individual states or territory grantees. 

FHWA subjects states and territories not selected as part of the IPIA sample to a similar 

sampling and testing process under FHWA’s annual Financial Integrity Review and Evaluation (FIRE) program.

After accounting for duplicate line items, improper payments totaling $550,740.15 were 

found in the sample of 240 tested items. The projection of known improper payments to the 

population of program payments for the twelve-month period results in an improper payment estimate of $616,796,231.70 +/- $504,847,189.67. The estimated improper payment rate 

is 1.40% +/- 1.14%. This projection does not meet OMB’s definition of significant improper 

payments ($10 million and 2.5 percent of total program payments).

Reported improper payments resulted from non-systemic administrative, clerical, and documentation errors. FHWA, in coordination with DOT’s Office of Financial Management, will 

develop and distribute a Best Practices Guide for grantees in an effort to work towards 

a reduced programmatic improper payment rate. Furthermore, FHWA will continue to 

review for improper payments within its FIRE Program which ensures all grantees, including grantees not selected within the IPIA sample, test for improper payments annually. 

Additionally, FHWA will advise grantees regarding the importance of proper documentation maintenance for programmatic reviews and audits. 

FTA Formula Grants Program

FTA executed the nationwide testing program using contractor personnel. The sample of 

tested line items originated from Federal disbursements to grantees within the twelvemonth period April 1, 2009 through March 31, 2010.
236

The IPIA sampling methodology involved a risk-based multi-staged statistical approach 

that included the selection of 53 Federal disbursements totaling $590,953,605.00, and 106 

line items from supporting invoices totaling $532,108,823.28. As in FY 2009, the Department designed the FY 2010 sample to extrapolate a nationwide estimate of improper 

payments and this sample does not support an estimate for individual states or transit 

agencies.

After accounting for duplicate line items, one improper payment with a value of $3,803.00 

was found in the sample of 90 tested items. The projection of known improper payments 

to the population of program payments for the twelve-month period results in an improper 

payment estimate of $14,289,025.31 +/- $16,431,730.77. The estimated improper payment 

rate is 0.16% +/- 0.19%. This projection does not meet OMB’s definition of significant 

improper payments ($10 million and 2.5 percent of total program payments).

The cited improper payment resulted from a non-systemic administrative error. FTA, in 

coordination with DOT’s Office of Financial Management, will develop and distribute a 

Best Practices Guide for grantees in an effort to work towards a reduced programmatic 

improper payment rate. Additionally, FTA will advise grantees regarding the importance 

of proper documentation maintenance for programmatic reviews and audits. 

FTA Capital Investment Grants Program

FTA executed the nationwide testing program using contractor personnel. The sample of 

tested line items originated from Federal disbursements to grantees within the twelvemonth period April 1, 2009 through March 31, 2010.

The IPIA sampling methodology involved a risk-based multi-staged statistical approach 

that included the selection of 53 Federal disbursements totaling $1,284,256,775.57 and 106 

line items from supporting invoices totaling $288,016,902.57. As in FY 2009, the Department designed the FY 2010 sample to extrapolate a nationwide estimate of improper 

payments and this sample does not support an estimate for individual states or transit 

agencies.

After accounting for duplicate line items, testing yielded no improper payments within 

the sample of 78 tested items. The projection of known improper payments to the population of program payments for the twelve-month period results in an improper payment estimate of $0.00 + $70,537,743.33. The estimated improper payment rate is 0.00% + 

2.17%. This projection does not meet OMB’s definition of significant improper payments 

($10 million and 2.5 percent of total program payments).
Other Accompanying Information

237

Despite the lack of cited improper payments, FTA, in coordination with DOT’s Office 

of Financial Management, will develop and distribute a Best Practices Guide (compiled 

from best practices identified within the Department’s largest grant programs). Additionally, FTA will advise grantees regarding the importance of proper documentation maintenance for programmatic reviews and audits. 

FAA Airport Improvement Program (AIP)

FAA executed the nationwide testing program using contractor personnel. The sample of 

tested line items originated from Federal disbursements to grantees within the twelvemonth period April 1, 2009 through March 31, 2010.

The IPIA sampling methodology involved a multi-staged statistical approach that 

included the selection of 120 Federal disbursements totaling $190,184,028.22 and 240 line 

items from supporting invoices totaling $102,303,139.08. As in FY 2009, the Department 

designed the FY 2010 sample to extrapolate a nationwide estimate of improper payments 

and this sample does not support an estimate for individual states or airport sponsors.

After accounting for duplicate line items, improper payments totaling $1,312.10 were 

found in the sample of 219 tested items. The projection of known improper payments to 

the population of program payments for the twelve-month period results in an improper 

payment estimate of $1,313,317.36 +/- $1,425,670.47. The estimated improper payment rate 

is 0.03% +/- 0.04%. This projection does not meet OMB’s definition of significant improper 

payments ($10 million and 2.5 percent of total program payments).

Reported improper payments resulted from non-systemic administrative, clerical, and 

documentation errors. FAA, in coordination with DOT’s Office of Financial Management, will develop and distribute a Best Practices Guide for grantees in an effort to work 

towards a reduced programmatic improper payment rate. Additionally, FAA will advise 

grantees regarding the importance of proper documentation maintenance for programmatic reviews and audits.
238

Program

PY 

Outlays 

(M)

PY 

IP%

PY 

IP $ 

(M)

CY 

Outlays 

(M)

CY 

IP%

CY IP 

$ (M)

CY+1 

Est. 

Outlays 

(M)

CY+1 

IP%

CY+1 

IP $ 

(M)

CY+2 

Est. 

Outlays 

(M)

CY+2 

IP%

CY+2 

IP $ 

(M)

CY+3 

Est. 

Outlays 

(M)

CY+3 

IP%

CY+3 

IP $ 

(M)

FAA Airport 

Improvement 

Program

N/A N/A N/A $4024 0.03% $1.3 $3606 0.5% $18.0 $3297 0.5% $16.5 $2731 0.5% $13.7

FHWA 

Highway 

Planning / 

Construction

N/A N/A N/A $44187 1.40% $616.8 $48010 1.0% $480.1 $45238 1.0% $452.4 $45087 1.0% $450.9

FTA Capital 

Investment 

Grants 

Program

N/A N/A N/A $3251 0.00% $0.0 $2424 0.5% $12.1 $2200 0.5% $11.0 $2199 0.5% $11.0

FTA 

Formula 

Grants 

Program

N/A N/A N/A $8868 0.16% $14.3 $9168 0.5% $45.8 $8777 0.5% $43.9 $9038 0.5% $45.2

Recovery Audit

DOT’s Recovery Auditor, Horn and Associates, worked to both recover identified departmental overpayments, and identify departmental payment process weaknesses. DOT 

granted Horn and Associates full access to the Department’s financial system in order for 

Horn and Associates to efficiently review payment records.

The Recovery Auditor did not uncover or identify any departmental systemic payment 

process weakness as overpayments resulted from individual cases of duplicate payments, 

prompt payment interest payment errors, sales tax on utility billings, and open credits on 

statements.

Agency 

Component

Amount Subject 

to Review for 

CY Reporting

Actual Amount 

Reviewed and 

Reported CY

Amounts 

Identified 

For 

Recovery 

CY

Amounts 

Recovered 

CY

Amounts 

Identified 

for 

Recovery 

PY

Amounts 

Recovered 

PY

Cumulative 

Amounts 

Identified for 

Recovery 

(CY +PY)

Cumulative 

Amounts 

Recovered 

(CY +PY)

TOTAL 18,544,293,726 18,544,293,726 961,178 913,119 305,680 299,568 1,266,858 1,212,687

π

U.S. Department of Transportation

Office of the Secretary of Transportation

Assistant Secretary for Budget & Program Performance

1200 New Jersey Avenue, SE

Washington DC 20590