FEDERAL-AID 

HIGHWAYS

Federal Highway 

Administration Could 

Further Mitigate 

Locally Administered 

Project Risks

Report to the Ranking Member, 

Subcommittee on Oversight, 

Committee on Environment and Public 

Works, U.S. Senate

January 2014

GAO-14-113

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-113, a report to the 

Ranking Member, Subcommittee on 

Oversight, Committee on Environment and 

Public Works, U.S. Senate

January 2014

FEDERAL-AID HIGHWAYS

Federal Highway Administration Could Further 

Mitigate Locally Administered Project Risks

Why GAO Did This Study

FHWA provides funding to states to 

build and maintain the nation’s 

roadways and bridges. States may 

then make federal funding available to 

a local public agency, such as a city or 

a county, to administer projects. FHWA 

estimates that 7,000 local public 

agencies administer such projects. 

FHWA has identified locally 

administered projects as an agencywide, high-risk oversight area. GAO 

was asked to review FHWA’s oversight 

of locally administered projects. GAO 

examined: (1) what is known about 

federal-aid projects local agencies 

administer; (2) what risks are 

presented by local agencies 

administering federal-aid projects and 

what is being done to mitigate risks; 

and (3) what challenges local agencies 

report in administering federal-aid 

projects. GAO conducted site visits to 

three states based on federal 

obligations and other factors. GAO 

analyzed FHWA obligation data, 

reviewed relevant documentation, and 

interviewed FHWA, state, and local 

agency officials.

What GAO Recommends

GAO recommends that FHWA (1) 

collect data about which local public 

agencies are administering federal-aid 

projects, (2) collect information from 

state DOTs on local agencies’ 

capabilities, (3) identify and disseminate 

minimum and uniform criteria for 

qualifying local agencies, and (4) 

explore administrative flexibilities and 

potential dollar thresholds under which it 

may not be cost effective for local 

agencies to administer federal-aid 

projects. The Department of 

Transportation did not take a position on 

GAO’s recommendations.

What GAO Found

Newly available data from the Federal Highway Administration (FHWA) show the 

extent and some characteristics of locally administered projects, but other key 

data are not being collected. From July 2012 to June 2013, local agencies 

administered about 12 percent or $3.8 billion of the $31 billion in federal-aid 

funding obligated during that period. The federal share was less than $250,000

for over half of the projects. However, FHWA neither collects information on 

which local agencies are administering federal-aid projects nor the capabilities of 

those agencies—information that would allow FHWA to identify the extent and 

magnitude of its risks and more effectively target its oversight of the states. 

Project administration by local agencies presents three risks: 

• Noncompliance with federal requirements is a well-documented risk area and 

GAO’s analysis, derived from multiple sources, revealed a range of concerns 

including quality of construction and inadequate contract administration. FHWA 

has made efforts to mitigate this risk by providing training and guidance, 

among other things. While state departments of transportation (state DOTs) 

are required to determine whether local agencies have adequate systems and 

controls to properly manage federal funds, FHWA has not provided clear 

direction on how to implement this requirement. FHWA promotes, but does not 

require, a mechanism such as a certification program. FHWA has not 

developed minimum and uniform qualification criteria for state DOTs to use to 

assure local agencies are qualified to administer federal projects. Without such 

criteria, the effectiveness of existing or developing mechanisms may be limited. 

• The risk of ineffective oversight stems from a diffused oversight structure for 

locally administered projects. FHWA is accountable for ensuring federal funds 

are used efficiently and effectively. States are responsible for ensuring that 

projects are properly administered and local agencies have adequate systems 

to undertake federal-aid projects and sufficient controls to properly manage 

project funds. GAO’s review identified deficiencies in some state DOTs’ 

oversight practices, and FHWA is developing a tool to assess the quality of 

state DOT oversight. FHWA expects to finalize this tool by mid-2014. 

• Inefficient use of federal funds can occur when the cost of complying with federal 

requirements is high relative to a project’s cost. While FHWA has taken steps to 

improve the efficiency of federal-aid projects, it has not explored or issued 

guidance targeted to local agencies on how they can maximize administrative 

flexibilities, despite internal and external recommendations to do so. Some local 

agency officials GAO interviewed stated they do not pursue federal funding for 

projects under certain dollar thresholds because the cost involved outweighs the 

benefits; however, others choose to do so due to a lack of funding alternatives. 

FHWA has not examined potential thresholds at which federal funds may no 

longer be cost-effective, but it is well-positioned to undertake such an analysis. 

Many of the local officials GAO interviewed reported a variety of challenges 

experienced when administering federal-aid projects. For example, they noted 

significant time, effort, and costs to administer federal-aid projects. However, 

local agency officials believe that the benefits of federal funding for local 

infrastructure outweigh the challenges of complying with federal requirements.

View GAO-14-113. For more information, 

contact Lori Rectanus at (202) 512-2834 or 

rectanusl@gao.gov.
Page i GAO-14-113 Federal-Aid Highways

Letter 1

Background 4

Newly Collected Data Show the Extent and Characteristics of 

Projects Administered by Local Agencies, but Information about 

Local Agencies Is Not Collected 10

Project Administration by Local Public Agencies Presents Risks, 

and FHWA and States Have Made Efforts to Mitigate These 

Risks 16

Local Agencies Report Challenges to Administering Federal-Aid 

Highway Projects 29

Conclusions 33

Recommendations for Executive Action 35

Agency Comments 35

Appendix I Objectives, Scope, and Methodology 36

Appendix II State Designation of Federal-Aid Highway Funds to Projects 

Administered by Local Public Agencies 40

Appendix III List of 16 Local Public Agencies Interviewed during Site Visits 42

Appendix IV GAO Contact and Staff Acknowledgments 43

Table

Table 1: List of 16 Local Public Agencies Interviewed during Site 

Visits42

Figures

Figure 1: Distribution of Obligated Federal-Aid Highway Program 

Funds Administered by Local Public Agencies by 

Improvement Type, July 1, 2012, to June 30, 2013 11

Contents
Page ii GAO-14-113 Federal-Aid Highways

Figure 2: Percentages of Federal-Aid Highway Projects That Are 

Locally and State Administered by Dollar Threshold, July 

1, 2012, to June 30, 2013 13

Figure 3: Percentages of Federal-Aid Highway Funds 

Administered by Local Public Agencies, by State, July 1, 

2012, to June 30, 2013 14

Figure 4: Diffused Oversight of Locally Administered Federal-Aid 

Highway Projects 22

Figure 5: A Comparison of a Locally Funded Project and a 

Federal-Aid Highway Project in Highlands County, Florida 32

Figure 6: Federal-Aid Highway Funds (in Millions) for Locally 

Administered Projects, by State, July 1, 2012, to June 30, 

2013 40

Figure 7: Average Amount of Federal-Aid Highway Funds for 

Locally Administered Projects (in Thousands), by State, 

July 1, 2012, to June 30, 2013 41

Abbreviations 

DOT U.S. Department of Transportation

FHWA Federal Highway Administration

FMIS Fiscal Management Information System

ISTEA Intermodal Surface Transportation Efficiency 

Act of 1991

KDOT Kansas Department of Transportation

MAP-21 Moving Ahead for Progress in the 21st Century Act

MPO metropolitan planning organization 

NACE National Association of County Engineers

NHS National Highway System

NRT National Review Team

OIG Office of Inspector General

Recovery Act American Recovery and Reinvestment Act of 2009

State DOT State Department of Transportation

TRB Transportation Research Board

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Page 1 GAO-14-113 Federal-Aid Highways 

441 G St. N.W.

Washington, DC 20548

January 16, 2014

The Honorable James M. Inhofe

Ranking Member

Subcommittee on Oversight

Committee on Environment and Public Works

United States Senate

Dear Mr. Inhofe:

According to the U.S. Department of Transportation‟s (DOT) Federal 

Highway Administration (FHWA), the vast majority of the nation‟s 

roadway network (75 percent, or roughly 2.9 of 3.9 million total miles) is 

owned and operated by local public agencies, such as counties, cities, 

and towns, across the United States. Local public agencies build and 

maintain roads within their jurisdictions using a variety of funding sources, 

including the federal-aid highway program, which provides federal funding 

to help construct, maintain, and operate the nation‟s roadway network.

FHWA estimates that 7,000 local public agencies across the country 

administer billions of dollars annually for federal-aid projects.

FHWA is accountable for ensuring that the federal-aid highway program 

is delivered effectively, efficiently, and in compliance with established 

federal law. FHWA conducts oversight of state departments of 

transportation (state DOT)1to ensure that projects comply with federal 

statutes and regulations, including regulations governing property 

acquisition, contracting, and civil rights matters, among others. While 

states primarily administer the federal-aid highway program through their 

state DOTs, state DOTs may designate funding for projects to be 

administered by a “subrecipient,” such as a local public agency. Locally 

administered projects are projects in which a state DOT has given 

approval to a local public agency to administer a federal-aid project in its 

entirety or to administer only a phase of a project, such as design, 

property acquisition, or construction. States‟ designation of funding for 

local projects does not relieve the state of its responsibility to assure that 

federal funds are spent properly. When local public agencies administer 

 

1For the purposes of this report, we will be referring to all transportation agencies in the 50 

U.S. states and the District of Columbia and Puerto Rico as state DOTs. In total, there are 

52 state DOTs.
Page 2 GAO-14-113 Federal-Aid Highways 

projects, the state DOT is responsible for ensuring that those agencies 

have adequate systems and sufficient controls in place to manage 

funding and deliver projects in accordance with federal requirements. This 

includes the responsibility for ensuring that federal regulations are met.2

FHWA relies on its division offices in each state to oversee state DOTs‟

management of projects funded through the federal-aid highway program, 

including locally administered projects.

FHWA and others have consistently identified locally administered 

projects as a high-risk oversight area. FHWA identified locally 

administered projects as an agency-wide risk area, and in 2012, 36 

FHWA division offices identified risks related to locally administered 

projects as their most pressing risk areas. In 2011, the DOT Office of 

Inspector General (OIG) noted continued concerns with locally 

administered projects. While FHWA, states, and local agencies have 

identified benefits in having local agencies administer federal-aid projects, 

such as being able to focus on local needs, local agencies reported they 

also expend considerable time and resources complying with federal 

requirements. Further, as we have reported, FHWA and state DOTs 

expend considerable time and resources overseeing, educating, and 

building the capacity of local agencies.3

You asked us to review FHWA‟s oversight of locally administered 

projects. We examined: (1) What is known about federal-aid highway 

projects that local agencies administer; (2) What risks are presented by 

local agencies administering federal-aid highway projects and what is 

being done to mitigate those risks; and (3) What challenges local 

agencies report in administering federal-aid highway projects.

To answer these questions, we reviewed and analyzed relevant statutes 

pertaining to the federal-aid highway program. To obtain information on 

what is known about federal-aid highway projects that local agencies 

administer, we analyzed information in FHWA‟s Fiscal Management 

Information System (FMIS). To collect data on locally administered 

projects, FHWA made a change to a required project oversight data field 

in FMIS by adding options for locally administered projects. Because 

 

2

23 U.S.C. § 106(g)(4).

3GAO, Highway Infrastructure: Federal-State Partnership Produces Benefits and Poses 

Oversight Risks, GAO-12-474 (Washington, D.C.: Apr. 26, 2012). 
Page 3 GAO-14-113 Federal-Aid Highways 

FHWA only began collecting data on locally administered projects in May 

2012, we used a 1-year snapshot of federal obligations to states for all 

FHWA approved projects from July 1, 2012, to June 30, 2013. We 

assessed the reliability of data from FMIS by (1) performing electronic

testing of required data elements, (2) reviewing existing information about 

the data and the system that produced them, and (3) interviewing agency 

officials knowledgeable about the data. We determined that the data were 

sufficiently reliable for the purposes of reporting federal obligations to the 

states for locally administered projects since May 2012.

To obtain information on the risks presented by local agencies 

administering federal-aid highway projects and what is being done to 

mitigate them, we reviewed, analyzed, and synthesized the results of our 

prior work and reports by FHWA and outside parties, such as the DOT 

OIG and the Transportation Research Board (TRB). We also conducted 

three site visits in California, Florida, and New Jersey. These states were 

selected based on a range of criteria, including FHWA risk assessment 

reports, federal funding designated for locally administered projects, 

geographic dispersion, and state size. During our site visits, we 

interviewed officials from FHWA, state DOTs, metropolitan planning 

organizations (MPO), and local public agencies. We selected local 

agencies based on geographic area; local agency size and type (e.g., 

county, city); and diversity of project improvement types (e.g., road 

improvements, sidewalks). Although information obtained from our site 

visits is not generalizable to all states and localities, the site visits 

provided context for understanding the risks associated with locally 

administered projects. Lastly, we analyzed available results from states‟

Single Audit4findings from the last three fiscal years (2010 through 2012) 

to independently identify areas of risk posed by local agencies 

administering federal-aid projects. To determine what is being done to 

mitigate risks presented by local agencies administering federal-aid 

highway projects, we also reviewed relevant documentation, such as 

FHWA annual reports about locally administered projects and state DOT 

agreements with FHWA division offices.

 

4A Single Audit is a required audit of states, local governments, and nonprofit entities that 

expend at least $500,000 per year in federal awards. Single Audits include determinations 

on whether the audited entity met the compliance requirements listed in the Office of 

Management and Budget‟s Circular No. A-133 Compliance Supplement for each major 

program. There are 14 types of compliance requirements which include allowable costs 

and cost principles, activities allowed or disallowed, and subrecipient monitoring. 31 

U.S.C. ch. 75; OMB Cir. A-133; 49 C.F.R. § 18.26. 
Page 4 GAO-14-113 Federal-Aid Highways 

To obtain information on what challenges local agencies report in 

administering federal-aid highway projects, we interviewed officials from 

local public agencies in California, Florida, and New Jersey during our 

site visits, and also conducted three discussion groups that collectively 

included over 50 local agency officials from 19 states. See appendix I for 

more details on our scope and methodology.

We conducted this performance audit from December 2012 to January 

2014 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

FHWA provides about $40 billion a year to states to build and maintain 

the nation‟s roadway and bridge infrastructure, distributed through 

multiple formula and grant programs collectively known as the federal-aid 

highway program. The program is financed through the Highway Trust 

Fund, a dedicated source of federal revenue principally derived from 

motor fuel and other truck-related taxes. Federal-aid highway funds are 

apportioned to the states,5 which along with their metropolitan planning 

organizations (MPO),6 are primarily responsible for selecting projects and 

administering federal-aid projects through their state DOTs. FHWA 

oversees the federal-aid program, primarily through its 52 division offices 

located in each state, the District of Columbia, and Puerto Rico. FHWA 

division offices have 10 to 61 staff each, depending on the size of the 

state‟s highway program and other factors. As of February 2012, FHWA 

had 2,960 staff—1,962 in the field and 998 at FHWA headquarters. 

FHWA advances the federal-aid highway program by engaging in a range 

of activities to encourage the effective and efficient use of federal-aid 

 

5

23 U.S.C. § 104(c). 

6An MPO is designated for urbanized areas as provided in 23 U.S.C. § 134(d) for the 

purpose, among other things, of developing a transportation plan for its metropolitan 

planning area as well as, in cooperation with the state, a metropolitan transportation 

improvement program, including a priority list of projects proposed to be funded through 

the federal-aid program. States in turn develop statewide transportation plans and 

statewide transportation improvement programs in coordination with MPOs and regional 

planning organizations. 23 U.S.C. § 135.

Background
Page 5 GAO-14-113 Federal-Aid Highways 

highway funding. To accomplish this, FHWA works with states to identify 

issues, develop and advocate solutions, and provide technical assistance 

and training to state DOTs.

While FHWA oversees the federal-aid highway program, its role in 

overseeing and approving the design and construction of federal-aid 

projects varies. Historically, FHWA (1) prescribed design and construction 

standards, (2) approved design plans and estimates, (3) approved the 

selection of the contract awardee, (4) periodically inspected the progress 

of construction, and (5) rendered final acceptance on projects when they 

were completed. However, under current law, relatively few projects are 

subject to this level of FHWA oversight.7Instead, states oversee the 

design and construction of most federal-aid projects; for example, states 

oversee all projects that are not on the National Highway System (NHS).8

Exceptions allow FHWA or the state to determine that state oversight is 

not appropriate,9 and FHWA retains authority to assume oversight of the 

design and construction of any project based on an assessment of risk. 

Regardless of which party has responsibility for project oversight, FHWA 

remains accountable for ensuring that federal funds are used efficiently 

and effectively. Specifically, FHWA is responsible for assuring that states‟

systems meet minimum requirements for financial integrity and effective 

project delivery.10 FHWA‟s current stewardship policy asserts that 

although states have assumed approval authority for the design and 

construction of federal projects, FHWA remains accountable for ensuring 

that the federal-aid highway program is both efficient and effective, and 

administered consistent with applicable statutes, regulations, and policies.

FHWA accomplishes this through its division offices, by conducting 

 

7Section 106(g)(4) of title 23, United States Code, provides that it is the responsibility of 

the states to determine whether their subrecipients have adequate project delivery 

systems and sufficient controls to manage federal funds. FHWA is to review and oversee 

the states‟ monitoring of subrecipients. Before 1991, FHWA had a more direct role in 

overseeing locally administered projects; however, the Intermodal Surface Transportation 

Efficiency Act of 1991 (ISTEA) and subsequent legislation changed FHWA‟s role in 

overseeing these types of projects. 

8The National Highway System (NHS) consists of approximately 220,000 miles of the 

nearly 1-million miles of roadways eligible for federal-aid. It includes the 47,000-mile 

Interstate Highway System as well as other roadways, arterials, and connectors important 

to U.S. strategic defense policy, and connects to major intermodal facilities, such as 

airports or transit hubs. 

9

23 U.S.C. § 106(c). 

1023 U.S.C. § 106(g)(1)-(3).
Page 6 GAO-14-113 Federal-Aid Highways 

oversight of federally funded projects and reviewing state DOTs‟ capacity 

and systems used to administer approved projects. FHWA headquarters 

and its division offices annually identify both agency-wide and state 

specific risk areas, and develop oversight plans designed to target its 

oversight to the areas of highest risk.

While state DOTs are the recipients of federal funds and administer and 

oversee many of the projects funded by the federal-aid highway program, 

states sometimes allow local public agencies, such as towns, cities, and 

counties, to administer federally funded projects. In these instances, 

states continue to be responsible for assuring that federal funds are spent 

properly and are required to assure that the local public agency 

(sometimes referred to as a subrecipient) has adequate project delivery 

systems to perform the project it is undertaking and sufficient accounting 

controls to properly manage project funding. States allow local public 

agencies to administer an entire federal-aid project, or a phase of a 

project such as design, property acquisition, or construction. While the 

extent of local involvement is determined between the state and the local 

public agency, allowing the local public agency to act on the state‟s behalf 

under the terms of an agreement between them, federal funds are 

obligated only when FHWA enters into a project agreement with the state 

DOT.11 Based on the local public agency‟s agreement with the state, that 

agency may then enter into contracts to implement all or various phases 

of a project. As work is completed, state DOT personnel review and 

approve reimbursement requests submitted by the local agency for 

conformance with the state‟s requirements and payments to the local 

agency.

State DOTs are responsible for ensuring that federal-aid funds 

administered by local public agencies are expended according to 

applicable federal statutes and regulations. This requires, for example, 

that:

 

11A locally administered project is submitted into FHWA‟s Fiscal Management Information 

System (FMIS) by state DOT personnel who are responsible for the detailed review of 

project documentation to ensure that it is: (a) consistent with the approved state 

transportation improvement plan, (b) supports the project cost estimate, (c) demonstrates 

compliance with FHWA regulations, and (d) meets the state‟s requirements. Once 

submitted into FMIS, the project is reviewed and may be authorized by FHWA.
Page 7 GAO-14-113 Federal-Aid Highways 

 projects go through an environmental review process, established 

under the National Environmental Policy Act of 1969;12

 highway contractors pay their employees at least the prevailing 

wage;13

 small businesses owned and controlled by socially and economically 

disadvantaged individuals have the opportunity to compete for certain 

contracts for which DOT provides financial assistance;14

 projects incorporate American-made iron and steel to comply with the 

Buy America Act;15

 projects adhere to the Uniform Relocation Assistance and Real 

Property Acquisition Policies Act of 1970;16

 projects adhere to applicable federal design and construction 

standards for roadways on the NHS and state design and construction 

standards for roadways that are not on the NHS;17 and

 projects adhere to applicable federal requirements regarding the 

advertisement of competitive bids, awarding of contracts, and 

construction administration.18

These federal requirements are intended, for example, to protect the 

environment, enable highway workers to earn a prevailing wage, assist 

members of disadvantaged populations to compete for federally funded 

contracts, and help the American iron and steel industry compete in the 

global economy. As we have reported, states have sometimes sought to 

use nonfederal funds for projects to avoid the costs or delays involved in 

 

12Pub. L. No. 91-190, Jan. 1, 1970, 83 Stat. 852, codified as amended at 42 U.S.C. ch.55. 

1323 U.S.C. § 113. 

1423 U.S.C. § 140; 23 C.F.R. part 230; 49 C.F.R. part 26.

1523 U.S.C. § 313.

16Pub. L. No. 91-646, 84 Stat. 1894 (1971), codified as amended at 42 U.S.C. ch. 61.

1723 C.F.R. part 625.

1823 C.F.R. parts 633 and 635.
Page 8 GAO-14-113 Federal-Aid Highways 

complying with federal requirements. We have also reported that these 

federal requirements have costs and provide benefits, but the costs and 

benefits have generally not been quantified.19

According to FHWA officials, state DOTs‟ use of local public agencies to 

administer federal-aid projects has grown over time, although precise 

data are not available. The Intermodal Surface Transportation Efficiency 

Act of 1991 (ISTEA) authorized a wide range of transportation 

enhancement activities, including highway beautification, historic 

preservation, and the establishment of bicycle and pedestrian trails.20

These non-traditional transportation projects were generally administered 

by local public agencies. Other programs enacted in subsequent 

transportation acts—such as Safe Routes to Schools, a federally funded 

program to build sidewalks and other projects—were also often 

administered by local public agencies.21 Under the American Recovery 

and Reinvestment Act of 2009 (Recovery Act),22 30 percent of highway 

infrastructure funding (approximately $8 billion) was required to be 

suballocated, primarily based on population, for regional, metropolitan, or 

 

19GAO, Federal-Aid Highways: Federal Requirements for Highways May Influence 

Funding Decisions and Create Challenges, but Benefits and Costs Are Not Tracked, 

GAO-09-36 (Washington, D.C.: Dec. 12, 2008).

20ISTEA, Pub. L. No. 102-240, § 1007(c), 105 Stat. 1914, listed these as making 

“provision of facilities for pedestrians and bicycles, acquisition of scenic easements and 

scenic or historic sites, scenic or historic highway programs, landscaping and other scenic 

beautification, historic preservation, rehabilitation and operation of historic transportation 

buildings, structures, or facilities (including historic railroad facilities and canals), 

preservation of abandoned railway corridors (including the conversion and use thereof for 

pedestrian or bicycle trails), control and removal of outdoor advertising, archaeological 

planning and research, and mitigation of water pollution due to highway runoff.” 

21Since enactment of the Moving Ahead for Progress in the 21st Century Act (MAP-21), 

Pub. L No. 112-141, 126 Stat. 405 (2012), the current surface transportation authorization 

act, states have authority to use federal funding for such projects, if they choose, through 

the Transportation Alternatives Program, including on- and off-road pedestrian and bicycle 

facilities; recreational trail program projects; and Safe Routes to School projects; among 

others. 23 U.S.C. §§ 101(a)(29), 213, 133(b)(11). Projects funded under the 

Transportation Alternatives Program are also eligible under the Surface Transportation 

Program.

22Pub. L. No. 111-5, 123 Stat. 115 (2009). 
Page 9 GAO-14-113 Federal-Aid Highways 

local use. As a result, the number of projects administered by local public 

agencies increased.23

Funding the nation‟s surface transportation system has been on GAO‟s 

High-Risk List since 2007. As we most recently reported in 2013, the 

system is under growing strain as the cost to repair and upgrade it to 

meet current and future demands is estimated in the hundreds of billions 

of dollars at a time when traditional funding sources are eroding. 

Moreover, spending for surface transportation programs has not 

commensurately improved system performance because many programs 

do not effectively address key challenges (such as freight mobility), 

federal goals and roles are unclear, programs lack links to performance, 

and some programs do not use the best tools and approaches to ensure 

effective investment decisions. As we reported in 2013, there has been 

progress in clarifying federal goals and roles and linking federal programs 

to performance and establishing a framework to address key challenges 

in the area of freight mobility. However, successfully implementing a more 

goal-oriented, performance-based approach to highways may require a 

clearer definition of the federal role and FHWA‟s responsibilities. The 

responsibility for funding some programs or activities, including areas 

where national interests may be less evident or where FHWA expends 

considerable time and resources yet exercise little effective control, may 

better be devolved to state and local governments if they are better suited 

to perform them. In prior work, we identified locally administered projects 

as one such potential activity because it is an area where national 

interests may be less evident and where FHWA expends considerable 

time and resources yet exercises little effective control.24 For this and 

other reasons, funding surface transportation remains on GAO‟s High 

Risk List.25

 

23DOT OIG, Federal Highway Administration’s Oversight of Federal-Aid and Recovery Act 

Projects Administered by Local Public Agencies Needs Strengthening (Washington, D.C.:

July 15, 2011). 

24GAO-12-474.

25GAO, High-Risk Series: An Update, GAO-13-283 (Washington, D.C.: Feb. 14, 2013).
Page 10 GAO-14-113 Federal-Aid Highways 

Newly available data show the extent to which local agencies administer 

federal-aid projects as well as some characteristics of those projects.

FHWA started to collect data on locally administered projects using its 

Fiscal Management Information System (FMIS) in May 2012.26 Prior to 

2012, FHWA did not know the amount of federal funds states were 

designating for projects administered by local public agencies.27

Our analysis of FMIS data from July 1, 2012, to June 30, 2013, shows 

that local public agencies administered about 12 percent or $3.8 billion of 

$31 billion federal-aid highway program obligations.28 Local agencies 

 

26FMIS is FHWA‟s major financial information system for tracking federal-aid highway

projects on a project-by-project basis. It contains data related to all projects financed with 

federal-aid highway funding. To collect data on locally administered projects, FHWA made 

a change to a required project oversight data field in FMIS by adding options for locally 

administered projects. 

27In the past, little was known about locally administered projects because FHWA did not 

collect national data and the only available data on locally administered projects came 

from internal FHWA data calls. FHWA headquarters staff previously estimated total annual 

obligations to states that were designated for locally administered projects by emailing 

data requests to each of the 52 division offices, which, in turn, requested data from state 

DOTs.

28FHWA began collecting data on locally administered projects in May 2012; therefore, 

only a 1-year snapshot of data was available for analysis at the time of our review. As 

such, we are unable to project the 1-year data to previous or future years or determine 

trends based on available data. Our data snapshot is based on active projects authorized 

from July 1, 2012, to June 30, 2013, for which federal funds were obligated. Federal-aid 

funds are obligated when FHWA officials approve projects.

Newly Collected Data 

Show the Extent and 

Characteristics of 

Projects Administered 

by Local Agencies, 

but Information about 

Local Agencies Is Not 

Collected

FHWA Data Show the 

Extent and Characteristics 

of Projects Administered 

by Local Agencies
Page 11 GAO-14-113 Federal-Aid Highways 

administered an even larger share, when measured as a percentage, of 

projects—about 26 percent of all projects during this time period. Our 

analysis also shows that local agencies‟ use of federal funds included 

project development activities (e.g., project design, right-of-way and 

utilities relocation, and construction inspection and engineering) and 

various types of infrastructure improvements (e.g., bridges, roads, safety, 

sidewalks, and bicycle trails). (See fig. 1.)

Figure 1: Distribution of Obligated Federal-Aid Highway Program Funds Administered by Local Public Agencies by 

Improvement Type, July 1, 2012, to June 30, 2013

Additionally, our analysis of FMIS data shows that 91 percent of funding 

for federal-aid projects administered by local public agencies was 

designated for projects on roads off the NHS, while 9 percent of funding 

was designated for projects on the NHS, including the Interstate. This is 

notably different from the distribution of federal funds across all federal-
Page 12 GAO-14-113 Federal-Aid Highways 

aid projects, where less than 50 percent of federal funding has gone to 

projects off the NHS.29

According to our analysis, federal funding designated for locally 

administered projects ranged from under $5,000 to $57 million per

project. However, federal funding designated for most locally 

administered projects (54 percent) was under $250,000 per project, and 

only a small portion of projects (2 percent) received federal funding of $5 

million or more. (See fig. 2.) On average, federal funding designated for 

locally administered projects was less than the amount of federal-aid 

funding obligated for state-administered federal-aid projects. Specifically, 

the average federal funding designated for locally administered projects 

was $622,402, while the average obligated for state-administered projects 

was $1.56 million. (See fig. 2.)

 

29According to FHWA‟s national highway statistics, in fiscal year 2011, about 47 percent of 

federal-aid funding went to projects off the NHS. The data are similar for fiscal years 2010 

and 2009 where about 46 and 47 percent of federal-aid funding, respectively, went to 

projects off the NHS. As of October 2013, national highway statistics data for fiscal year 

2012 were not publicly available.
Page 13 GAO-14-113 Federal-Aid Highways 

Figure 2: Percentages of Federal-Aid Highway Projects That Are Locally and State 

Administered by Dollar Threshold, July 1, 2012, to June 30, 2013

Note: Percentages may not sum to 100 because of rounding.

The extent to which states designated federal-aid funding to projects 

administered by local public agencies varied significantly across states, 

as each state approaches the administration of its programs differently 

and in accordance with its unique circumstances. While 5 states, the 

District of Columbia, and Puerto Rico, did not designate any federal 

funding for projects administered by local agencies, the remaining 45 

states designated from less than 1 percent (Alabama and Massachusetts) 

to 55 percent (Missouri) of the federal-aid funding apportioned to them. 

(See fig. 3.)
Page 14 GAO-14-113 Federal-Aid Highways 

Figure 3: Percentages of Federal-Aid Highway Funds Administered by Local Public Agencies, by State, July 1, 2012, to June 

30, 2013

For additional information on state designation of federal-aid funds to 

projects administered by local public agencies, see appendix II.
Page 15 GAO-14-113 Federal-Aid Highways 

FHWA is not collecting information on the local public agencies and the 

federal-aid projects they administer, resulting in a limited view of locally 

administered projects at the national level. Internal control standards state 

that access to relevant, reliable, and timely information is important for an 

agency‟s internal controls and to meet its objectives. Program managers 

need both operational and financial data to determine whether they are 

meeting their agencies‟ strategic and annual performance plans and 

meeting their goals for accountability for effective and efficient use of 

resources. For example, operating information is also needed to 

determine whether the agency is complying with applicable law.30

FHWA does not collect data on which specific local public agencies 

administer federal-aid projects and it does not know how many different 

agencies administer projects at any given time. As such, FHWA 

headquarters or division office officials lack critical information about local 

agencies and the projects they administer, such as:

 the name of the local public agency administering the project,

 the city or county where the project is located,

 how many other projects the local public agency may also be 

administering, and

 how many local public agencies are administering federal-aid projects 

within a state or across the nation.

FHWA officials told us that they do not have plans to collect more 

information about local public agencies because they have not identified a 

need for such information. FHWA officials told us that if needed, they 

could ask state DOTs for this information. To collect information related to 

local public agency projects, FHWA headquarters has made ad-hoc data 

requests to division offices, which, in turn, requested data from their state 

DOTs. However, according to FHWA officials, the response rate to these 

requests has been inconsistent, where some division offices provided 

information, but others did not. Additionally, during our review, we 

experienced difficulties identifying local agencies for two of our three site 

visits because an FHWA division office and a state DOT could not easily 

 

30GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999).

FHWA Is Not Collecting 

Information on 

Participating Local 

Agencies and Their 

Capabilities
Page 16 GAO-14-113 Federal-Aid Highways 

identify and provide information on which local public agencies were 

administering federal-aid projects. Ad-hoc data requests and the 

challenges we experienced highlight concerns with FHWA‟s approach to 

collecting data on local public agencies.

Further, federal law requires state DOTs to ensure that local agencies, as 

subrecipients of federal funding, are capable of administering project 

funds by having adequate project delivery systems and accounting 

controls to properly manage project funds.31 However, FHWA is lacking 

information on which local public agencies are administering federal-aid 

funds, and it is not able to know whether these agencies are capable of 

administering federal-aid funds. The absence of timely and reliable 

information about the specific local agencies administering federal-aid 

projects and their capabilities results in a limited view of locally 

administered projects at the national level and may inhibit FHWA‟s ability 

to (1) identify risks, (2) assess the magnitude of the risks, (3) target its 

oversight of state DOTs, and (4) develop mitigation strategies to ensure 

compliance with federal requirements. Collecting data about which local 

public agencies are administering federal-aid projects would be relatively 

simple and inexpensive, and would only require adding a mandatory field 

in FMIS to identify the local public agency administering the project.

Although FHWA would need to develop a reliable and ongoing data 

collection process in order to obtain data from state DOTs on the 

capabilities of local public agencies, doing so may position the agency to 

better identify and mitigate risks.

We identified three risks posed by local public agencies administering 

federal-aid projects: (1) noncompliance with federal requirements, (2) 

ineffective oversight, and (3) inefficient use of federal funds. FHWA and 

state DOTs have made efforts to address these risks.

 

3123 U.S.C. § 106(g)(4).

Project Administration 

by Local Public 

Agencies Presents 

Risks, and FHWA and 

States Have Made 

Efforts to Mitigate 

These Risks
Page 17 GAO-14-113 Federal-Aid Highways 

FHWA has, through its risk assessment process, consistently identified 

locally administered projects as an agency-wide high-risk area. As 

recently as 2012, 36 division offices identified risks related to locally 

administered projects as their most pressing risk areas. FHWA officials 

stated their concern that if local public agencies do not possess adequate 

controls and procedures to administer project funds to federal standards, 

there could be increased opportunities for noncompliance with federal 

requirements. Further, noncompliance with federal requirements by local 

public agencies is a well-documented risk area and our analysis, derived 

from multiple sources, revealed a range of noncompliance risks.32 The 

main areas of risk for noncompliance included:

 Inadequate quality of design and construction. Some local agencies 

have experienced difficulties due to inadequate quality of project 

design and construction. In particular, according to FHWA‟s 

documents, some local agencies used outdated design standards and 

did not conduct substantive reviews of project design packages, rarely 

checking design quality. Our review of FHWA and other reports 

showed a lack of proper inspections and insufficient quality assurance 

procedures during the construction phase. For example, 

documentation obtained during our audit showed that on a project to 

construct curb ramps for a sidewalk, a local public agency did not 

inspect the quality of its contractor‟s workmanship and lacked needed 

measuring tools to assure compliance with the Americans with 

 

32These sources included FHWA documents such as the 2006-2009 Local Public Agency 

annual reports and the National Review Team (NRT) assessments of Recovery Act 

projects; the 2011 DOT OIG report; prior GAO reports; and our interviews with FHWA 

officials in headquarters and division offices. The sources‟ conclusions were based on 

select locally administered projects or a broad national perspective, making it difficult to 

determine the extent of the risks and the degree to which issues identified in earlier years 

have been systematically addressed. However, reviews conducted as recently as 2012, 

as well as our audit work, indicate continued concerns with local agencies‟ noncompliance 

with federal requirements.

Despite Efforts to Mitigate 

Noncompliance, FHWA 

Has Not Taken Action to 

Ensure Local Agencies‟

Capabilities

Risks of Noncompliance
Page 18 GAO-14-113 Federal-Aid Highways 

Disabilities Act.33 Inadequate project design and construction may 

result in risks to road infrastructure, its safety and durability.

 Inadequate contract and project administration. Our review of FHWA 

and other reports showed that many areas of contract and project 

administration on locally administered projects presented 

noncompliance risks. This includes noncompliance with federal 

requirements related to consultant procurement, materials selection, 

civil rights, payroll, and documentation, among others. For example, 

documents obtained during our site visits showed that a local public 

agency had incurred almost $171,000 in ineligible cost overruns on a 

project to upgrade pedestrian crosswalks by not obtaining an 

approved change order for increased materials quantities. Also, some 

local agencies have not maintained adequate records to account for 

the decisions and actions that have taken place on federal-aid 

projects. Some examples from FHWA reports include poor or 

incomplete documentation of environmental reviews, permits, change 

orders, construction records, material test reports, and certified 

payrolls, among others. Lack of proper documentation provides 

limited assurance that project decisions and actions meet federal 

requirements.

Noncompliance with federal requirements by local public agencies may 

be attributed to limited staff resources and knowledge of federal 

requirements along with inadequate internal controls. Our review of 

FHWA and other reports showed that high staff turnover and the 

infrequency with which some local agencies receive federal funding can 

contribute to limited staffing capabilities. For example, if a local agency 

has not administered a federal-aid project in several years, it may no 

longer have staff who are familiar with federal-aid requirements, hindering 

the agency‟s ability to meet the requirements. Further, according to our 

analysis, some local agency officials have limited knowledge of federalaid program requirements and need training, particularly in the areas of 

construction contract administration, procurement, and right-of-way 

acquisition. Improper right-of-way acquisition, for example, can result in 

inadequate compensation of property owners displaced by a federal-aid 

project from their residences, businesses or farms. Also, inadequate 

internal controls and procedures—which include a lack of documentation 

and a lack of financial controls and billing procedures—may reflect local 

 

33Pub. L. No. 101-336, 104 Stat. 327 (1990), codified as amended at 42 U.S.C. ch. 126.
Page 19 GAO-14-113 Federal-Aid Highways 

agencies‟ limited capabilities to administer federal-aid projects and raise 

questions about how well federal funds can be administered in 

accordance with federal law.

Since 2006, FHWA has made efforts to mitigate the risk of 

noncompliance with federal requirements. For example, in 2007, FHWA 

created a dedicated position within its headquarters to coordinate the 

agency‟s efforts on locally administered projects. In addition, FHWA 

developed a website, Federal-aid Essentials for Local Public Agencies, to 

help local agencies better understand federal-aid requirements.34 Also, in 

February 2012, FHWA disseminated guidance to its division offices to 

address seven project activities identified by the DOT OIG as having high 

incidences of noncompliance.35 For example, FHWA recommended that 

division offices work with state DOTs to agree on methods for validating 

costs of negotiated contract change orders. FHWA division offices have 

also developed training. For example, New Jersey FHWA division office 

officials conducted 22 training sessions for state DOT officials on how to 

comply with provisions in the Americans with Disabilities Act, and 

eventually expanded the audience to include local public agency officials, 

consultants, and MPO staff. In California, FHWA division office and state 

DOT officials have jointly conducted traveling “roadshows”—informational 

sessions for state DOT and local agency officials on federal-aid highway 

program requirements.

State DOTs also have made efforts to mitigate the risk of noncompliance. 

For example, almost all of the 46 state DOTs responding to a 

Transportation Research Board (TRB) survey reported that they have 

developed manuals to guide local agencies through federal-aid project 

 

34The training modules developed for this website address a variety of topics, including an 

overview of the requirements that must be met when federal-aid funding is used for 

projects, including civil rights, right-of-way acquisition, and assessing environmental 

impacts. 

35DOT OIG, Federal Highway Administration’s Oversight of Federal-Aid and Recovery Act 

Projects Administered by Local Public Agencies Needs Strengthening (Washington, D.C.: 

July 15, 2011). The DOT OIG identified the following activities as having a significant 

number of recurring noncompliance issues: (1) change orders and claims; (2) project 

bidding/contractor selection/unbalanced bid analysis; (3) utility agreements and 

reimbursements; (4) consultant selection and billings; (5) construction pay quantities and 

progress payments; (6) project reporting and tracking; and (7) quality assurance 

procedures. 

FHWA and State DOT Efforts
Page 20 GAO-14-113 Federal-Aid Highways 

requirements.36 According to TRB survey results, 15 state DOTs 

administer local agency certification programs, which aim to reduce the 

risk of noncompliance by ensuring that local agencies are qualified to 

manage federal-aid funded projects. According to TRB, these certification 

programs vary across states, but may include state DOT officials taking 

one or more of the following steps: (1) determining whether local 

agencies have sufficient staff and resources to administer federal-aid 

funded projects through document reviews or interviews; (2) training local 

officials on federal requirements; (3) executing agreements documenting 

local agencies‟ roles, responsibilities, and expectations; and (4) helping 

local agencies develop internal processes to comply with federal 

requirements and implement best practices.37

Even with these efforts and a federal statute requiring state DOTs to 

determine whether the local public agency has (1) adequate project 

delivery systems to perform the tasks it is undertaking, and (2) sufficient 

accounting controls to properly manage federal funds,38 FHWA has not 

provided clear guidance on how state DOTs should implement this 

statute. FHWA officials have promoted local agency certification 

programs as a best practice and mechanism for ensuring that local 

agencies have adequate systems and sufficient controls in place to 

administer federally funded programs. However, state DOTs are not 

required to develop such mechanisms, and most state DOTs have not 

done so. In addition, FHWA has reported that existing state DOT 

certification programs for locally administered projects would benefit from 

qualification criteria to assure that local agencies are qualified to 

administer projects. According to FHWA, qualification criteria could 

include previous project experience, staff knowledge of federal 

requirements, and documented project-administration processes. Such 

criteria can mitigate the risk of noncompliance and minimize staff 

resources necessary for state DOTs to fulfill their responsibilities for 

locally administered projects.39 In addition, internal control standards state 

 

36TRB, Practices and Performance Measures for Local Public Agency Federally Funded 

Highway Projects, NCHRP Synthesis 442 (Washington, D.C.: 2013).

37TRB, Practices and Performance Measures for Local Public Agency Federally Funded 

Highway Projects, NCHRP Synthesis 442 (Washington, D.C.: 2013).

3823 U.S.C. § 106(g)(4).

39FHWA, Good Practices for the Oversight of Federal-aid Projects Administered by Local 

Public Agencies, n.d.
Page 21 GAO-14-113 Federal-Aid Highways 

that managers should develop detailed policies and procedures to help 

responsible parties implement their assigned responsibilities.40 However, 

FHWA has not developed minimum and uniform qualification criteria for 

state DOTs. Without such criteria, FHWA lacks assurance that existing 

mechanisms or those developed in the future, such as certification 

programs, are consistently effective in assuring that local agencies are 

qualified to manage federal-aid projects. 

Our review of others‟ work and our interviews with federal and state 

officials indicate that existing mechanisms are not consistently effective.

For example, two state DOTs surveyed by TRB reported that their 

certification programs had not improved local public agencies‟ compliance 

with federal-aid project requirements. In addition, FHWA New Jersey 

division officials questioned the effectiveness of New Jersey DOT‟s new 

mechanism, which went into effect in October 2012, in part, because it 

relies on local agencies to self-certify that they meet federal requirements 

and because New Jersey DOT has not conducted oversight reviews to 

ensure that the process is meeting its intended goal. State DOT officials 

in Florida also questioned the effectiveness of its certification program 

because it involves a large measure of self-certification.

Oversight of locally administered projects is diffused, presenting a risk of 

ineffective oversight of these projects. While one party is accountable, 

another party is responsible. Specifically, FHWA is accountable for 

ensuring that federal funding is used efficiently, effectively, and consistent

with applicable statutes and regulations. States are responsible for 

ensuring that projects are properly administered and that the local public 

agencies they designate to act for them have adequate project delivery 

systems to undertake federal-aid projects and sufficient accounting 

 

40GAO, Standards for Internal Control in the Federal Government: 2013 Exposure Draft, 

GAO-13-830SP (Washington, D.C.: September 2013).

FHWA Has Made Efforts 

to Mitigate the Risk of 

Ineffective Oversight, but 

the Effectiveness of These 

Efforts Remains Unclear

Risk of Ineffective Oversight
Page 22 GAO-14-113 Federal-Aid Highways 

controls to properly manage project funding. FHWA, by law, exercises 

little effective control over locally administered projects. Collectively, 

those projects are administered by an estimated 7,000 local public 

agencies. Fifty two FHWA division offices oversee funding for 52 state 

DOTs, which vary in staffing levels and approaches to oversight. FHWA 

relies on each state DOT to ensure that potentially hundreds of local 

public agencies in each state are complying with federal requirements. 

(See fig. 4.)

Figure 4: Diffused Oversight of Locally Administered Federal-Aid Highway Projects

Our review of FHWA and other reports identified deficiencies in some 

state DOT oversight practices of locally administered projects. For 

example, from 2009 to 2011, FHWA‟s National Review Team (NRT) 

found inadequate monitoring and oversight by state DOTs of locally 

administered projects funded through the Recovery Act and made 

recommendations that 19 state DOTs needed to develop, update, or 

revise their guidance for local agencies. As of December 2012, 15 states 

had addressed NRT‟s recommendations. Further, our review of statewide 
Page 23 GAO-14-113 Federal-Aid Highways 

Single Audits41 for the last 3 fiscal years showed that between 31 and 38 

percent of reporting states had deficiencies related to insufficient 

monitoring of subrecipients, a category that generally includes local public 

agencies.42 For example, one state DOT reimbursed program expenses 

without verifying that corrective actions to address deficiencies were 

taken by subrecipients and another state DOT monitored subrecipient 

awards only after projects reached the construction phase.

Inadequate oversight practices by state DOTs may be related to the level 

of resources state DOTs must provide to oversee locally administered 

projects. State DOT officials have reported that oversight of local public 

agencies is not reimbursed through the federal-aid highway program, and 

they expend significant resources overseeing locally administered 

projects. The officials added that this effort can be burdensome.43 States 

have constrained resources and this could pose challenges for state 

DOTs to ensure effective oversight of locally administered projects.

States have faced fiscal challenges since the recent recession and are 

expected to face deficits both in the near and long term.44 According to a 

2012 TRB report, at least 16 state DOTs were reported to have 

undergone hiring freezes or temporary employee furloughs.45

Because FHWA apportions federal-aid highway funds to states and state 

DOTs administer the federal-aid program, FHWA has limited or no 

communication directly with local agency officials. Our interviews with 

local agency officials and FHWA‟s own findings show either no interaction 

 

41A Single Audit is a required audit of states, local governments, and nonprofit entities that 

expend at least $500,000 per year in federal awards. Single Audits include determinations 

on whether the audited entity met the compliance requirements listed in the Office of 

Management and Budget‟s Circular No. A-133 Compliance Supplement for each major 

program. There are 14 types of compliance requirements which include allowable 

costs/cost principles, activities allowed or disallowed, and subrecipient monitoring. 31 

U.S.C. ch. 75; OMB Cir. A-133; 49 C.F.R. § 18.26.

42The number of Single Audit reporting states for the three fiscal years we reviewed varied 

by year. Additional details about our review can be found in appendix I.

43According to FHWA, the exact time and staff resources state DOT as well as FHWA 

division officials spend on oversight of locally administered projects is not tracked.

44GAO, State and Local Governments’ Fiscal Outlook, April 2013 Update, GAO-13-546SP

(Washington, D.C.: April 2013). 

45TRB, Selected State DOT Cost Reduction Initiatives for the Administration of State 

Public Transportation Programs (Washington, D.C.: December 2012).
Page 24 GAO-14-113 Federal-Aid Highways 

between FHWA‟s division office and local agency officials or limited 

communication based on occasional audits or spot checks. This limited 

communication can pose challenges when project questions or issues 

need to be resolved in a timely manner. For example, a local agency 

official told us that it can take weeks or months to clarify information or 

receive answers from the FHWA division office because the state DOT is 

relaying the information from FHWA to the local public agency and the 

information may get misinterpreted or misunderstood as it is passed 

down. This lack of communication can further exacerbate the diffused 

oversight of locally administered projects.

FHWA has undertaken efforts that may mitigate the risk of ineffective 

oversight. Specifically, FHWA is developing a new tool to assess state 

DOTs‟ oversight of locally administered projects. According to FHWA, this 

tool will respond to the DOT OIG‟s 2011 recommendation that FHWA 

establish uniform procedures and criteria to assess the ability of state 

DOTs to ensure that local public agencies meet federal requirements.

FHWA plans for division offices to use this tool, comprised of 

standardized questions and methodology, to determine or assess the 

condition, strengths, and weaknesses of states‟ oversight of local agency 

programs. The information collected using this tool is intended to help 

division offices identify where to target and enhance their oversight of 

locally administered projects and state DOTs. FHWA expects to finalize 

the assessment tool by mid-2014. Because this tool is still being 

developed, it was not available for our review, and it remains unclear how 

effective it will be at improving the oversight or performance of locally 

administered projects.

Additional options for mitigating the risk of ineffective oversight are 

available. One option would be for states to opt not to designate federal 

funding for local agencies‟ projects in cases where a local public agency‟s 

capability is in question. This already occurs as some states do not 

designate federal funding to local agencies while others designate 

funding only for certain activities.

FHWA Efforts
Page 25 GAO-14-113 Federal-Aid Highways 

The cost of complying with federal requirements on a lower-cost project 

can be high relative to the remaining cost of constructing the project, and 

such projects may pose a risk of inefficient use of federal funds.

According to our analysis of the 1-year snapshot of FMIS data, 54 percent 

of federal funding was designated for locally administered projects under 

$250,000. While specific data on the cost of complying with federal 

requirements are generally not available,46 local public agency officials 

consistently told us that—because federal requirements apply to all 

projects regardless of scope and size—the amount of effort and costs for 

meeting federal requirements involved on lower-cost projects is 

disproportionate to the remaining project costs. According to a local 

agency official with whom we spoke, sometimes construction inspection 

activities on a project can be 30 percent of the overall project cost. Local 

agency and state DOT officials with whom we spoke stated that some 

local agencies no longer pursue federal funding for projects under certain 

dollar thresholds—citing figures between $50,000 and $200,000—

because the cost involved outweighs the benefits.

Additionally, inefficiencies may arise because of the time required for 

local public agencies to get projects initiated, submit an invoice to the 

state DOT, and close out a project. By introducing an additional 

government entity into the decision-making and implementation of 

federal-aid projects, time frames for processing and submitting invoices 

can get extended.47 Additionally, after federal funds are designated for 

 

46GAO-09-36.

47Longer project time frames may lead to inefficiencies through increased project cost as 

the cost of property, materials, and labor may go up.

FHWA and State DOTs 

Have Made Efforts to 

Mitigate the Risk of 

Inefficient Use of Federal 

Funds, but FHWA Has Not 

Fully Examined 

Opportunities to Make 

Local Projects More 

Efficient

Risk of Inefficient Use of 

Federal Funds
Page 26 GAO-14-113 Federal-Aid Highways 

locally administered projects, there is a risk that they may not be used 

efficiently if they become inactive and cannot be deobligated and used for 

other projects.48 These unexpended balances are a challenge across all 

federal-aid projects, but our prior work49 and information collected during 

our site visits confirmed that inactive projects are a particular challenge 

for locally administered projects.50

FHWA officials have made efforts to mitigate the risk of inefficient use of 

federal funds since FHWA remains accountable for ensuring that federal 

funding is used efficiently. For example, FHWA has issued guidance on 

existing administrative flexibilities in the areas of contracting and using 

consultant services. FHWA officials also said that they expect locally 

administered projects will benefit from ongoing efforts to streamline the 

National Environmental Policy Act environmental review process and 

right-of-way procedures. In addition, FHWA‟s current Strategic 

Implementation Plan includes a national performance goal and 

associated national initiatives aimed at improving the efficiency of all 

federal-aid projects, including those administered by local agencies. One 

of these initiatives will involve identifying and promoting flexibility in 

interpreting rules and guidance to reduce project delivery times.51 FHWA 

officials also issued guidance in 2011 recommending that state DOT and 

division office officials agree on a broad set of performance measures to 

evaluate efficiency improvement efforts, and include these measures in 

their Stewardship and Oversight Agreements.52 FHWA officials provided 

 

48Inactive projects are state and local construction projects to which federal funds have 

been obligated, but which have not had any expenditures over a 1-year period or for which 

funds are available but are unlikely to be obligated by FHWA within 1 year, as certified by 

the state. Federal funds would only become available for other projects if they were first

deobligated by FHWA. 

49GAO, Highway Emergency Relief: Strengthened Oversight of Project Eligibility 

Decisions Needed, GAO-12-45 (Washington, D.C.: Nov. 8, 2011).

50In 2008, FHWA established a Financial Integrity Review and Evaluation program 

requiring division offices to conduct a quarterly review of inactive projects and determine 

the validity of the amount obligated for each project. 

51FHWA, 2014 Strategic Implementation Plan: A Plan for Accomplishing the FHWA 

Strategic Goals and Objectives from June 2013 to May 2014 (Washington, D.C.: April 

2013).

52Each state‟s DOT and the FHWA division office in that state have a federal-aid program 

Stewardship and Oversight Agreement in place which documents the expectations and 

roles and responsibilities of the state and FHWA in implementing the federal-aid highway 

program. 

FHWA and State DOT Efforts
Page 27 GAO-14-113 Federal-Aid Highways 

examples of measures that division office and state DOT officials could 

use to evaluate their progress, such as “percentage of projects completed 

on time.”

Some state DOTs also have taken actions to mitigate the risk of inefficient 

use of federal funds on locally administered projects by attempting to 

maximize available administrative flexibilities. State DOTs responding to a 

2011 TRB survey have indicated that a variety of administrative 

flexibilities can result in significant time savings for project delivery.53

These include, among others, allowing local agencies to bundle several 

projects into a single, broader environmental document to save time and 

money during the environmental review process, and streamlining 

documentation requirements. In addition, several state DOTs have used 

alternative funding techniques, such as using state funding to fund local 

projects while reserving federal funding for statewide projects, which can 

potentially improve the efficiency of federal funding.

The Kansas Department of Transportation (KDOT) has reported that it 

has improved the efficiency of its local program by establishing a federalfunding exchange program.54 KDOT proposes a division of its federal-aid 

apportionment to counties and cities based on formulas established by 

the state. Under the federal-funding exchange program, local agencies 

have the option of exchanging their proposed allocation of federal funds 

for state funds, which may be used on a larger variety of project types 

and can be developed following local procedures. KDOT then uses the 

federal apportionment for projects on the state highway system. The 

current exchange rate provides that a local agency will receive 90 cents 

of state funds for every federal dollar it exchanges with the state. For 

example, if a local agency is allocated $100,000 in federal funding, local 

officials could exchange these funds with KDOT. In return, they would 

receive $90,000 in state funding.

According to KDOT, the program has allowed KDOT to: (1) continue 

funding locally administered projects; (2) direct the administration of more 

federal dollars to state officials, who are generally more knowledgeable 

 

53TRB, Effective Delivery of Small-Scale Federal-Aid Projects, NCHRP Synthesis 414 

(Washington, D.C.: 2011). 

54The terms “funding exchange” and “funding swap” are commonly used to describe 

programs that allow state officials to use state-aid to fund local projects and reserve 

federal funding for statewide projects. 
Page 28 GAO-14-113 Federal-Aid Highways 

about federal requirements than local agency officials; (3) reduce costs by 

reducing the size of its local programs staff, since KDOT no longer 

oversees as many locally administered projects; and (4) improve more 

roadway miles and bridges throughout the state, since state-funded 

projects are less expensive for local agencies to administer. In fiscal year 

2011, KDOT reported that the state improved 180 more roadway miles 

and one more bridge than the year before, when the funding exchange 

program was not yet operational. State DOTs are allowed to develop 

federal-funding exchange programs, and other state DOTs have 

expressed interest in developing such programs for local agencies in their 

states.

Although FHWA has issued guidance on administrative flexibilities, such 

as for contracting and using consultant services for federal-aid projects, it 

has not explored or issued guidance targeted to local agencies on how 

they can maximize administrative flexibilities, despite internal and external 

recommendations to do so. In 2006, FHWA‟s Program Improvement 

Team recommended that FHWA work with state DOTs to take advantage 

of existing flexibilities to minimize regulatory burdens on local projects, 

such as pursuing federal-funding exchange programs, developing 

alternative design standards for projects off the NHS, and using 

contracting flexibilities available through special experimental processes.

In addition, in 2009, the National Association of County Engineers 

(NACE) recommended that, to assist local agencies administering 

federal-aid projects, FHWA provide consistent regulatory interpretations 

and firm guidance to FHWA division offices about streamlining federal-aid 

programs. In 2010, FHWA officials evaluated options for responding to 

NACE‟s position statement, but did not to further examine or take a 

position on these options. 

Some stakeholder organizations have suggested addressing the costs of 

complying with federal requirements on lower-cost projects by 

establishing a threshold for projects below which federal regulations 

would not apply. For example, NACE suggested in 2009 that pursuing 

federal dollars under a certain dollar value for locally administered 

projects is not cost-effective, and in 2013, it recommended that projects 

receiving less than $5 million in federal funds be excluded from federal 

requirements. The American Public Works Association made a similar 

proposal in 2013 and suggested setting the threshold at $5 million or 25 

percent, whichever is greater, of a project‟s total funding from federal 

sources. In response to NACE and the American Public Works 

Association‟s suggestions, FHWA officials evaluated the option of 

establishing a pilot Local Projects Program that could waive certain 
Page 29 GAO-14-113 Federal-Aid Highways 

federal requirements for projects under a certain dollar threshold. 

Establishing thresholds for relaxing or waiving federal requirements on 

locally administered projects would require legislative action. Additional 

options for addressing the cost to local agencies of complying with federal 

requirements also exist. For example, states could (a) assume 

responsibility for funding all lower-cost projects, as state funds are not 

subject to federal requirements, or, (b) as discussed earlier, assume 

responsibility for administering such projects.

According to FHWA, it has not issued guidance about maximizing 

administrative flexibilities targeted to local agencies because such 

guidance likely would not be applicable across all states due to 

differences among state DOTs and wide differences in local agency 

participation in federal-aid projects across states. Further, FHWA does 

not plan to examine potential thresholds or take a position on such 

thresholds. Internal control standards state that managers are responsible 

for mitigating risks to ensure accountability of federal funds.55 Without 

guidance about maximizing administrative flexibilities or examining 

potential dollar thresholds, federal funds may be used inefficiently. 

Because of FHWA‟s role in advancing the federal-aid highway program, 

including working with states to identify issues, develop and advocate 

solutions, and provide technical assistance and training to state DOTs, 

FHWA is well-positioned to explore opportunities to make the 

administration of federal-aid projects by local public agencies more 

efficient.

Many local public agency officials we interviewed reported challenges 

they experience administering federal-aid projects and complying with 

federal requirements. These challenges are a concern to local agencies 

because they may bear partial or full project costs in the event that their 

activities are determined to be ineligible for federal funding due to 

noncompliance with federal requirements.

Local public agency officials reported challenges posed by specific 

federal requirements in certain contexts. For example, local agency 

officials reported challenges when local policies or state laws regarding 

procurement requirements conflict with federal law. In one case identified 

during our site visit, a county policy required local public agencies to give 

 

55GAO/AIMD-00-21.3.1. 

Local Agencies 

Report Challenges to 

Administering 

Federal-Aid Highway 

Projects
Page 30 GAO-14-113 Federal-Aid Highways 

preference to local consultants, while, in contrast, federal requirements 

called for open competition without such a restriction. While federal law 

governs in such cases, the project could not proceed until the county 

board members came to an agreement to override the local policy.

Another federal requirement with which local agencies have experienced 

challenges is Buy America.56 In situations when Buy America provisions 

apply to materials supplied by utility companies, such as for iron rings on 

raised manhole covers on road resurfacing projects, local public agency 

officials told us that they have experienced difficulties working with utility 

companies. Utility companies must provide documentation that the source 

of iron was American, but they have little incentive to do so because their 

cost for the utility work and materials is not reimbursed as part of a 

federal-aid project. Local public agency officials told us that utility 

companies have been reluctant to share their manufacturing sources, 

creating potential compliance issues for local agencies as well as project 

delays.

Local agency officials also reported that state DOTs may place 

requirements on local agencies beyond federal requirements for federalaid projects, creating additional challenges. State DOTs oversee locally 

administered projects on roads off the NHS57 on which some federal 

requirements, such as design and construction standards, do not apply.

In such cases, state DOTs place their own requirements on locally 

administered projects. According to FHWA officials, state DOT 

requirements are often similar to, if not the same as, federal requirements 

because state officials do not want to follow two different sets of parallel 

processes. Additionally, so long as federal law does not require 

otherwise, state DOTs may develop their own policies, forms, and 

checklists for local agencies to follow when administering federal-aid 

projects. For example, officials from one local public agency told us that in 

order to acquire property for a project, the agency must enlist a statecertified real estate broker, a process that adds time and cost to the 

project. Similarly, one state DOT‟s policy does not allow contingencies or 

change orders on locally administered projects. As a result, local 

 

56Buy America requires all manufacturing processes for iron and steel products and their 

coatings to take place domestically on construction projects funded through the federal-aid 

highway program. 23 U.S.C. § 313.

57According to our analysis of a 1-year snapshot FMIS data, 91 percent of locally 

administered projects were off the NHS.
Page 31 GAO-14-113 Federal-Aid Highways 

agencies must cover any project cost increases from change orders with 

their own funds.

Local agency officials consistently told us that federal-aid projects cost 

more and take longer than comparable locally or state-funded projects 

because of compliance with federal requirements. Officials from one local 

agency with whom we spoke identified two projects that were comparable 

in scope, but one was locally funded and the other was funded through 

federal-aid highway funds, and the two projects had significant 

differences in project duration and cost. In 2009, officials in Highlands 

County, Florida, began administering the two similar projects—one locally 

funded sidewalk on Sun „N Lakes Boulevard in Lake Placid and one 

sidewalk funded with federal-aid highway funds on Sun „N Lake 

Boulevard in Sebring—in residential communities about 20 miles from 

each other. While these two projects are very similar, the federal-aid 

project took three times as long and cost more than double that of the 

locally funded project. (See fig. 5.) We corroborated the time and cost 

information by examining project time records and contract 

documentation, but did not independently verify all causes that may have 

contributed to those time and cost differences between the two projects.
Page 32 GAO-14-113 Federal-Aid Highways 

Figure 5: A Comparison of a Locally Funded Project and a Federal-Aid Highway Project in Highlands County, Florida

The two projects showed two main areas of cost differences: (1) labor 

costs by county engineers to design, manage, and oversee the projects, 

and (2) construction cost, including unit prices for construction materials.

On the locally funded project, the county labor cost was $11,684 for 312 

hours of employee time while on the federal-aid project the cost was 

$54,333 for 1,536 hours of employee time for the same group of 

employees. According to Highlands County officials, the additional time 

on the federal-aid project reflects the additional documentation 

preparation, reviews, and compliance associated with federal 

requirements. Similarly, a comparison of unit prices between the two 

projects identified higher unit prices on the federal-aid project. For 

example, the unit price for a 4-inch concrete sidewalk was $13.25 per foot 

on the local project and $17.10 per foot on the federal-aid project.
Page 33 GAO-14-113 Federal-Aid Highways 

According to Highlands County officials, contractors charge more on 

federal-aid projects because of greater documentation requirements.

Despite the noted challenges, local public agency officials told us that the 

benefits of federal funding for local infrastructure outweigh the challenges.

Federal funding is important to local agencies because they may not have 

sufficient funds to implement needed infrastructure improvements. For 

example, officials from one local agency told us that they could only 

construct one mile of sidewalk per year with their own funds, but with 

federal funding the local agency was able to build 17 miles of sidewalk in 

a year. Local agency officials we interviewed consistently told us that 

without federal funding their projects would be deferred and some would 

likely never get done. Federal funding is particularly important for local 

agencies in states that do not provide funding for local roads. In these 

states, federal funding is typically one of the only outside sources of 

funding available to local agencies. Additionally, local agency officials told 

us that because they are familiar with the needs of their communities and 

because they are accountable to the people the projects are meant to 

serve, they are in the best position to administer these projects and to 

deliver them efficiently. Specifically, local agencies are incentivized to get 

projects built quickly and to minimize disruptions and complaints that 

roadway construction may cause for the local community.

Local public agencies have become prominent players in the federal-aid 

highway program because congressional policy and funding decisions, 

such as those encouraging safe routes to schools, have precipitated 

greater local agency involvement and because locally administered 

projects provide benefits to and address the needs of local communities 

and the states. However, the administration of federally funded projects 

by local public agencies presents risks. FHWA is accountable for the 

efficient and effective use of federal funds, and for ensuring that states 

fulfill their responsibilities to determine whether local public agencies have 

adequate project delivery systems and sufficient accounting controls to 

properly manage federal funds. FHWA has taken numerous actions to 

more effectively meet its responsibilities in recent years including 

collecting additional information on locally administered projects.

However, it needs information it does not currently have, such as which 

local agencies are administering projects and the capabilities of those 

agencies. Collecting data about which local agencies are administering 

projects would be relatively simple and inexpensive and could be readily 

accomplished through FHWA‟s FMIS system. Information on local agency 

capabilities should be available from state DOTs; however, FHWA would 

Conclusions
Page 34 GAO-14-113 Federal-Aid Highways 

need to develop a reliable and ongoing data collection process. Collecting 

this data and information on an ongoing basis and at the national level 

would allow FHWA to identify and assess the extent and magnitude of 

risks and more effectively target its oversight over the states in what has 

consistently been identified as an agency-wide, high-risk area.

FHWA and states have taken numerous actions and expended 

considerable resources to mitigate noncompliance and to improve 

oversight of locally administered projects. These include ongoing efforts 

by FHWA to assure states fulfill their responsibilities for ensuring local

public agencies have adequate project delivery systems and sufficient 

accounting controls to properly manage federally funded projects. The 

effectiveness of these ongoing efforts has yet to be determined; however, 

FHWA can take reasonable steps to help improve states‟ efforts by

providing state DOTs with a set of minimum and uniform qualification 

criteria to determine whether local agencies are capable and equipped.

Such minimum and uniform criteria could help ensure that: (a) the law is 

being consistently applied, (b) the certification programs in place are 

equally effective, and (c) federal funds are used in accordance with 

federal requirements.

Additionally, guidance from FHWA about administrative flexibilities 

targeted to local public agencies could help improve the efficiency of 

locally administered projects. Some local public agencies, due to a lack of 

funding alternatives, choose to undertake federal projects that may not be 

cost-effective because, for example, the cost of complying with federal 

requirements can be high relative to the remaining cost of constructing 

the project. There may be opportunities to explore potential dollar 

thresholds at which the cost of complying with federal requirements for 

local agencies may be too high compared to project costs. Some 

organizations have suggested relaxing or eliminating federal 

requirements for lower-cost projects; additional options, such as states 

assuming responsibility for lower-cost projects, also exist. FHWA is wellpositioned to undertake an analysis of potential dollar thresholds under 

which the use of federal funds may no longer be cost-effective. Such an 

analysis could help inform future congressional decisions regarding 

funding and the administration of locally administered projects.
Page 35 GAO-14-113 Federal-Aid Highways 

We recommend that the Secretary of Transportation direct the FHWA 

Administrator to take the following four actions:

1. Collect data, on an ongoing basis, about which local public agencies 

are administering federal-aid projects.

2. Collect information, on an ongoing basis, from state DOTs on local 

public agencies‟ capabilities.

3. Identify and disseminate minimum and uniform qualification criteria for 

state DOTs to determine whether local public agencies are capable 

and equipped to administer federal-aid projects.

4. Explore opportunities to make administration of federal-aid projects by 

local public agencies more efficient by examining: (a) the 

circumstances in which issuing guidance on administrative flexibilities

targeted at local agencies would be appropriate, and (b) a potential 

dollar threshold under which the use of federal funds may no longer 

be cost-effective.

We provided a draft of this report to DOT for review and comment. DOT 

did not take a position on our recommendations, but generally agreed 

with the facts presented. DOT provided technical comments, which we 

incorporated as appropriate.

We are sending copies of this report to the appropriate congressional 

committees and the Secretary of Transportation. In addition, the report is 

available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (202) 512-2834 or rectanusl@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made major contributions to 

this report are listed in appendix IV.

Sincerely yours,

Lori Rectanus

Acting Director, Physical Infrastructure Issues

Recommendations for 

Executive Action

Agency Comments
Appendix I: Objectives, Scope, and 

Methodology

Page 36 GAO-14-113 Federal-Aid Highways 

This report focuses on the Federal Highway Administration‟s (FHWA) 

oversight of federal-aid highway projects administered by local public 

agencies, such as counties, cities, and towns. Specifically, the objectives 

of this report were to examine: (1) What is known about federal-aid 

highway projects that local agencies administer? (2) What risks are 

presented by local agencies administering federal-aid highway projects 

and what is being done to mitigate those risks? (3) What challenges local 

agencies report in administering federal-aid highway projects?

To answer these questions, we reviewed and analyzed relevant statutes 

pertaining to the federal-aid highway program. To obtain information on 

what is known about federal-aid highway projects that local agencies 

administer, we obtained access to and analyzed FHWA‟s Financial 

Management Information System (FMIS) data. To collect data on locally 

administered projects, FHWA made a change to a required project 

oversight data field in FMIS by adding options for locally administered 

projects. Because FHWA began collecting data on locally administered 

projects in FMIS starting in May 2012, we used a 1-year snapshot of 

federal obligations to states for all FHWA-approved projects from July 1, 

2012, to June 30, 2013. We used data on active projects for which federal 

funds were obligated. FHWA officials reviewed our methodology for 

gathering data from FMIS to assure that our data queries were accurate. 

To assess the reliability of data collected in FMIS, we reviewed available 

documentation and interviewed FHWA officials on the procedures used 

by FHWA and state departments of transportation (state DOT) to enter 

and verify financial information entered into FMIS. We also conducted 

electronic testing for duplicate entries and missing values in the data we 

extracted from FMIS. We found the FMIS data elements we used in our 

report to be sufficiently reliable for the purposes of reporting federal 

obligations to states for locally administered projects since May 2012.

To obtain information on the risks presented by local agencies 

administering federal-aid projects, we reviewed reports by FHWA and 

others on risks posed by locally administered projects. Specifically, we 

reviewed FHWA‟s annual reports about locally administered projects, the 

National Review Team‟s (NRT) assessments of American Recovery and 

Reinvestment Act of 2009 (Recovery Act)

1 projects administered by local 

 

1American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, 123 Stat. 115 

(2009). 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 37 GAO-14-113 Federal-Aid Highways 

agencies,2 and FHWA‟s national Risk Register.3 We also reviewed 

external reports by the U.S. Department of Transportation‟s Office of 

Inspector General (DOT OIG),

4

the Transportation Research Board 

(TRB),5 as well as our own work in this area.6 We read, analyzed, and 

synthesized these documents to identify key areas of risk. Further, we 

conducted three site visits to California, Florida, and New Jersey. We 

interviewed officials at the FHWA, metropolitan planning organizations 

(MPO), state DOTs, and local agencies to understand the risks presented 

to FHWA when local agencies administer federal-aid projects, as well as 

the challenges faced by local agencies when administering these 

projects. Although information from our site visits is not generalizable to 

all states and localities, this information provides context to our 

understanding of the risks and challenges associated with locally 

administered projects. We selected these states based on various criteria, 

including FHWA risk assessment reports, 2010 and 2011 statewide 

Single Audit7results, number of local agencies in a state administering 

federal-aid projects as identified in a 2009 FHWA data call, federal 

obligations for locally administered projects, geographic dispersion, and 

state size. Within each state, to obtain a diverse range of perspectives 

from local agency officials, we selected and conducted site visits to local 

agencies based on geographic area; local agency size and type (e.g., 

 

2

Id. authorized and funded under Div. A, Title XII, Highway Infrastructure Investment. 

3FHWA division offices conduct annual assessments of their states to identify the greatest 

risks and vulnerabilities, and FHWA headquarters combines risk information into a 

national Risk Register and uses this information to identify common risk areas across the 

nation.

4DOT OIG, Federal Highway Administration’s Oversight Of Federal-Aid And Recovery Act 

Projects Administered By Local Public Agencies Needs Strengthening (Washington, D.C.: 

July 15, 2011).

5TRB, Effective Delivery of Small-Scale Federal-Aid Projects, NCHRP Synthesis 414 

(Washington, D.C.: 2011).

6GAO, Recovery Act: Funds Continue to Provide Fiscal Relief to States and Localities, 

While Accountability and Reporting Challenges Need to Be Fully Addressed, 

GAO-09-1016 (Washington, D.C.: September 23, 2009); GAO, Recovery Act: Status of 

States’ and Localities’ Use of Funds and Efforts to Ensure Accountability,

GAO-10-231(Washington, D.C.: December 10, 2009); GAO-12-45; and GAO-12-474.

7A Single Audit is a required audit of states, local governments, and nonprofit entities that 

expend at least $500,000 per year in federal awards. 31 U.S.C. ch. 75; OMB Cir. A-133; 

49 C.F.R. § 18.26. At the time we were selecting our states for our site visits, the 2012 

Single Audit results were not yet available. 
Appendix I: Objectives, Scope, and 

Methodology

Page 38 GAO-14-113 Federal-Aid Highways 

county, city, town, borough); and diversity of improvement types (e.g., 

road and bridge improvements, sidewalks, safety, etc.). To see a list of 

the 16 local agencies we spoke with during our three site visits, see 

appendix III.

To obtain an independent view of the risks presented by local agencies 

administering federal-aid projects, we examined the results of the 2010 

through 2012 statewide Single Audits. For 2010, we used analysis from 

our previously published work.8 For 2011, 46 states reported their results 

in the Federal Audit Clearinghouse as of June 30, 2013.9 For 2012, 45 

states reported their results in the Federal Audit Clearinghouse as of 

September 30, 2013.10 To determine relevant findings to our work, we 

identified audit records for FHWA funding categories with subrecipient 

monitoring audit findings.11 We also examined full-text Single Audit 

reports to determine issues associated with subrecipient monitoring.

To obtain information on what is being done to mitigate risks presented by 

local agencies administering federal-aid highway projects, we interviewed 

federal and state officials during our three site visits and reviewed 

relevant documentation, such as FHWA annual reports about locally 

administered projects and state DOT agreements with FHWA division 

offices. To identify criteria for mitigating these risks, we reviewed relevant 

sections of U.S. Code, FHWA documents, state DOT documents, and 

reports by DOT OIG, GAO, and the TRB.

 

8GAO-12-474.

9Four states (Hawaii, Michigan, New Mexico, and North Dakota), the District of Columbia, 

and Puerto Rico do not have or did not submit statewide Single Audits as of June 30, 

2013.

10Six states (Hawaii, Michigan, Montana, New Mexico, South Carolina, and Wyoming) and 

Puerto Rico do not have or did not submit statewide Single Audits as of September 30, 

2013. 

11Single Audits include determinations on whether the audited entity met the compliance 

requirements listed in the Office of Management and Budget‟s Circular No. A-133

Compliance Supplement for each major program. There are 14 types of compliance 

requirements: Activities allowed or disallowed; Allowable costs/cost principles; Cash 

management; Prevailing Wage Requirements; Eligibility; Equipment and real property 

management; Matching, level of effort, earmarking; Period of availability of Federal funds; 

Procurement and suspension and debarment; Program income; Real property acquisition 

and relocation assistance; Reporting; Subrecipient monitoring; Special tests and 

provisions, and Other. 
Appendix I: Objectives, Scope, and 

Methodology

Page 39 GAO-14-113 Federal-Aid Highways 

To obtain information on the challenges local agencies report in 

administering federal-aid highway projects, in addition with the 

information gathered during our site visits, we also worked in conjunction 

with the National Association of County Engineers (NACE), a professional 

association, to get input from local public agency officials on their 

experiences with federal-aid projects. We conducted three discussion 

groups that collectively included over 50 local agency officials from 19 

states at NACE‟s annual conference to obtain perspectives of local 

agency officials on the benefits and challenges of locally administered 

projects. We also received written responses from discussion group 

participants about the effectiveness and the types of resources, guidance, 

and technical assistance their local agencies receive from FHWA and 

state DOTs. Lastly, although not generalizable to all locally administered 

projects, we present a case example to help illustrate and contrast 

differences between two similar projects. Officials from one local agency 

with whom we spoke identified two projects that were comparable in 

scope, but one was locally funded and the other was funded through 

federal-aid highway funds, and the two projects had significant 

differences in project duration and cost. These types of differences were 

consistently reported to us by local officials about locally or state-funded 

projects and federal-aid projects. We corroborated this testimonial 

evidence by examining project time records and contract documentation, 

but we did not independently verify all causes that may have contributed 

to time and cost differences between the projects.

We conducted this performance audit from December 2012 to January 

2014 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: State Designation of Federal-Aid 

Highway Funds to Projects Administered by 

Local Public Agencies

Page 40 GAO-14-113 Federal-Aid Highways 

Our analysis of FHWA FMIS data from July 1, 2012, to June 30, 2013, 

showed that state designation of federal-aid funds to projects 

administered by local public agencies varied across states. While 5 

states, the District of Columbia, and Puerto Rico, did not designate any 

federal funds to local public agencies, 10 states designated over $100 

million during the 1-year time period, with California designating the 

highest amount of $976.9 million. (See fig. 6.)

Figure 6: Federal-Aid Highway Funds (in Millions) for Locally Administered Projects, by State, July 1, 2012, to June 30, 2013

Appendix II: State Designation of FederalAid Highway Funds to Projects Administered 

by Local Public Agencies
Appendix II: State Designation of Federal-Aid 

Highway Funds to Projects Administered by 

Local Public Agencies

Page 41 GAO-14-113 Federal-Aid Highways 

According to our analysis, federal funding for projects administered by 

local public agencies ranged from under $5,000 to $57 million per project, 

and the average amount of federal funds for locally administered projects 

was $622,402. The average amount of federal funds for locally 

administered projects varied significantly across states. (See fig. 7.)

Figure 7: Average Amount of Federal-Aid Highway Funds for Locally Administered Projects (in Thousands), by State, July 1, 

2012, to June 30, 2013
Appendix III: List of 16 Local Public Agencies 

Interviewed during Site Visits

Page 42 GAO-14-113 Federal-Aid Highways 

Table 1: List of 16 Local Public Agencies Interviewed during Site Visits

State Local public agency

CA City of Bell Gardens

CA City of Los Angeles

CA City of Santa Fe Springs

CA City of West Sacramento

CA Los Angeles County

CA Yolo County

FL Blueprint 2000

FL City of Orlando

FL Leon County

FL Orlando-Orange County Expressway

FL Volusia County

NJ Burlington County

NJ City of South Amboy

NJ Haddonfield Borough

NJ Middlesex County

NJ Monmouth County

Source: GAO.

Appendix III: List of 16 Local Public Agencies 

Interviewed during Site Visits
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 43 GAO-14-113 Federal-Aid Highways 

Lori Rectanus, (202) 512-2834, rectanusl@gao.gov

In addition to the individual named above, other key contributors to this 

report were Steve Cohen, Assistant Director; Melissa Bodeau; Irina 

Carnevale; Melinda Cordero; Colin Fallon; Bert Japikse; Catherine Kim; 

Mary Koenen; Hannah Laufe; Leslie Locke; Joshua Ormond; and Terry 

Richardson.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(545096)
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