AMERICAN RECOVERY AND 

REINVESTMENT ACT OF 2009: 

OVERSIGHT CHALLENGES 

FACING THE DEPARTMENT OF 

TRANSPORTATION 

Department of Transportation 

Report Number: MH-2009-046 

Date Issued: March 31, 2009 
U.S. Department of 

Memorandum

Transportation 

Office of the Secretary 

of Transportation 

Office of Inspector General 

Subject: ACTION: American Recovery and Reinvestment 

Act of 2009: Oversight Challenges Facing the 

Department of Transportation 

Report Number MH-2009-046 

Date: March 31, 2009 

From: Calvin L. Scovel III 

Inspector General 

Reply to 

Attn. of: J-1 

To: All Secretarial Officers 

Heads of All Operating Administrations 

On February 17, 2009, the President signed into law the American Recovery and 

Reinvestment Act (ARRA), which designated over $48 billion to the Department 

of Transportation (DOT).1

 This audit report represents the second product in the 

Office of Inspector General’s (OIG) review of DOT’s implementation of ARRA.2

 

The objective of this audit was to highlight key DOT oversight challenges—based 

on prior OIG reports and other agencies’ relevant audit work—and identify actions 

DOT should take now in support of ARRA requirements. 

According to the Secretary of Transportation, ARRA represents “the largest 

investment in America’s roads, bridges, transit lines, and rail systems since the 

creation of the interstate highway system.” Key provisions of ARRA are 

preserving and creating jobs, promoting economic recovery, and investing in 

transportation infrastructure that will provide long-term economic benefits. In 

addition to providing funding for a number of existing DOT programs, ARRA 

directs DOT to create several new programs and establishes tight time frames for 

distributing and expending funds and for reporting results (for example, the 

number of jobs created). 

The vast majority of ARRA funding goes to the Federal Highway Administration 

(FHWA), the Federal Railroad Administration (FRA), and the Federal Transit 

Administration (FTA) for the construction and/or maintenance of highway, road, 

bridge, transit, and rail projects. The remaining ARRA funds are distributed 

 

1

 Public Law 111-5, February 17, 2009. 

2

 OIG Testimony CC-2009-045, “Top Management Challenges Facing the Department of Transportation,” March 10, 

2009. OIG reports and testimonies are available on our website: www.oig.dot.gov.
2

among the Office of the Secretary of Transportation (OST), the Federal Aviation 

Administration (FAA), the Maritime 

Administration (MARAD), and OIG. 

Table 1 shows the distribution of ARRA 

funding within DOT. 

Both the President and Congress have 

emphasized the need for accountability, 

efficiency, and transparency in the 

allocation and expenditure of ARRA 

funds. Accordingly, the Office of 

Management and Budget (OMB) has 

called on Federal agencies to: (1) award 

and distribute funds in a prompt, fair, and 

reasonable manner; (2) ensure the 

recipients and uses of the funds are 

transparent to the public, and the resulting 

benefits are reported clearly, accurately, 

and promptly; (3) ensure funds are used 

for authorized purposes and to mitigate instances of fraud, waste, and abuse; 

(4) avoid unnecessary project delays and cost overruns; and (5) achieve specific 

program outcomes and improve results on economic indicators.3

Table 1. Distribution of ARRA 

Funds Within DOT 

DOT 

Component

Stimulus 

Funds 

(millions) 

Percent of 

Total* 

FHWA $27,500 57.15% 

FRA $9,300 19.33% 

FTA $8,400 17.46% 

OST $1,500 3.12% 

FAA $1,300 2.70% 

MARAD $100 0.21% 

OIG $20 0.04% 

Total $48,120 100.00% 

 Source: ARRA. 

 * Percents do not add up due to rounding. 

To achieve these goals, DOT’s leadership has been proactive on several fronts, 

including the establishment of the DOT-wide Transportation Investment 

Generating Economic Recovery (TIGER) team to coordinate the Department’s 

role and ensure accountability. DOT’s Operating Administrations are also 

working with senior Department officials in developing methods for tracking and 

reporting expenditures, job creation, and results; working with potential grantees 

to quickly identify and process proposals; and considering strategies for 

strengthening their existing oversight processes. OIG supports DOT in its 

oversight initiatives and has developed an audit strategy in response to the new 

challenges presented by ARRA. 

Exhibit A presents our scope and methodology. We discussed our work and 

recommendations with DOT representatives, including the TIGER team, and 

appreciate their courtesies and cooperation during this audit. Exhibit B is a list of 

the relevant reports and testimonies issued by OIG. Exhibit C provides additional 

information on the specific DOT programs that received funding in ARRA and the 

statutory deadlines for spending the money. 

 

3

 OMB “Initial Implementing Guidance for the American Recovery and Reinvestment Act of 2009,” 

February 18, 2009. 
3

RESULTS: OVERSIGHT CHALLENGES FACING DOT 

Based on our analysis of ongoing and prior audit work and observations of DOT’s 

efforts to implement ARRA, we see three major oversight challenges facing DOT: 

1. Ensuring that DOT’s grantees properly spend ARRA funds; 

2. Implementing new accountability requirements and programs mandated 

by ARRA; and 

3. Combating fraud, waste, and abuse. 

The challenges and 10 focus areas associated with them are shown in table 2. 

Table 2. Major ARRA Challenges and Related Focus Areas for DOT 

Challenges Focus Areas 

1. Ensuring that DOT’s grantees properly 

spend ARRA funds 

- Acquire sufficient personnel with relevant 

expertise to oversee grantees. 

- Adhere to existing Federal requirements 

for programs funded under ARRA. 

- Evaluate the credibility and completeness 

of cost and schedule estimates. 

- Oversee grantees’ contracting management 

activities and ensure selection of 

appropriate contract types. 

- Address internal control weaknesses and 

identify unused funds for use elsewhere. 

2. Implementing new accountability 

requirements and programs mandated by 

ARRA 

- Implement new ARRA tracking and 

reporting requirements that are designed to 

promote accountability and transparency. 

- Develop comprehensive plans and sound 

criteria for the new discretionary grant and 

passenger rail programs within statutory 

deadlines. 

- Develop appropriate oversight strategies 

for the new discretionary grant and 

passenger rail programs. 

3. Combating fraud, waste, and abuse - Enhance understanding among DOT staff, 

grantees, and their contractors on how to 

recognize, prevent, and report potential 

fraud to the appropriate authorities. 

- Take timely and effective action to suspend 

and/or debar individuals or firms that have 

defrauded the Department so they do not 

receive Federal contracts in the future. 
4

ENSURING THAT DOT’S GRANTEES PROPERLY SPEND ARRA 

FUNDS 

The large amounts of funding that DOT is responsible for under ARRA and the 

accelerated time frames to use those funds will place great demands on DOT’s 

workforce, oversight processes, business practices, and financial management 

systems. Accordingly, to meet these demands and provide effective oversight, 

DOT will need to: 

• acquire sufficient personnel with relevant expertise to oversee grantees, 

• adhere to existing Federal requirements for programs funded under 

ARRA, 

• evaluate the credibility and completeness of cost and schedule 

estimates, 

• oversee grantees’ contracting management activities and ensure 

selection of appropriate contract types, and 

• address internal control weaknesses and identify unused funds for use 

on other eligible projects. 

Acquire Sufficient Staff With Relevant Expertise 

DOT must ensure that it has sufficient personnel with relevant expertise to meet 

the increased workload, new requirements, and accelerated time frames associated 

with recovery spending. A sufficient and trained workforce is key to holding 

grantees accountable for contract actions and realistic cost and schedule estimates, 

and ensuring that state or local recipients can effectively manage their projects and 

the risks associated with the recovery program. 

DOT officials expressed concerns about their ability to provide sufficient 

oversight with limited time and staff, particularly in regional and division offices, 

and noted actions under consideration. Some Operating Administrations are 

considering detailing staff from each of their Headquarters to their regional and 

division offices and rehiring retired Federal employees (often referred to as 

“rehired annuitants”) on a temporary basis. DOT officials informed us that, earlier 

this month, the Office of Personnel Management granted DOT direct-hire 

authority and delegated to it dual compensation waiver authority. These hiring 

flexibilities should help enable DOT meet critical hiring needs. The key will be to 

utilize these flexibilities effectively to augment other staffing actions. 

These temporary efforts are laudable; but the difficult tasks will be to implement 

them promptly, evaluate their workability, and make any course corrections, as 

needed. Additional options may also merit consideration in addressing the 
5

increased workload. One is to use private consultants to supplement—but not 

substitute for—DOT staff, such as FTA’s use of project management oversight 

contractors (PMOCs).4

 As we previously reported, the PMOC approach can 

provide early warnings of cost, schedule, and quality problems, but does not 

preclude them. Follow-through by DOT staff is critical to the success of this 

approach. For example, on FTA’s Lower Manhattan Recovery Projects (totaling 

$4.55 billion), the PMOCs identified key risks early on that were not sufficiently 

addressed, such as the insufficient management and technical capabilities 

exhibited by some grantees.5

 These issues contributed to significant cost increases 

and schedule delays and an inability to stay within an overall Federal funding cap. 

In the past year, FTA has enhanced its oversight of these projects and is working 

with grantees to address issues the PMOCs identified. 

However, a key requirement for evaluating staffing shortfalls for ARRA work and 

other DOT demands is good information on DOT’s workforce, including up-todate plans. Our work has shown that more needs to be done in certain key areas. 

For example, DOT continues to face challenges in developing a comprehensive 

strategic plan for its entire acquisition workforce that oversees the direct award 

and administration of DOT contracts. DOT officials said they are having 

difficulty determining the total number of key acquisition workforce positions, 

such as contracting officer technical representatives and program managers. This 

is a result of the lack of critical information on these positions, including 

workforce size, knowledge and skills requirements, and attrition and retirement 

rates. Without such data, DOT is unable to identify employment trends and assess 

the current condition of the acquisition workforce, which are needed to determine 

the ideal composition, skill mix, and talent for its future. 

In February 2009, DOT officials compiled a succession plan for the acquisition 

workforce. It includes a competency assessment for the entire acquisition 

workforce, some retirement information, hiring plans, and training strategies for 

contracting positions. As the Operating Administrations design strategies to 

address weaknesses identified in the plan, they will need to consider the impact of 

ARRA on the acquisition workforce. We plan to evaluate the adequacy of DOT’s 

workforce as part of our future audit work evaluating the effectiveness of the 

Department’s oversight of ARRA projects. 

 

4

 A project management oversight contractor is retained by FTA to evaluate a grantee’s technical capacity 

to build, operate, and maintain a project and to monitor the grantee’s implementation of a project. This 

is done in accordance with FTA guidance. 5

 OIG Report Number MH-2008-086, “Baseline Report on the Lower Manhattan Recovery Projects,” 

September 26, 2008. 
6

Adhere to Existing Federal Requirements for Programs Funded Under 

ARRA 

DOT must avoid waiving or expediting existing requirements for the programs 

funded in ARRA and make sure that any required programmatic, financial, or 

engineering reviews are conducted in a rigorous and systematic manner. We have 

learned that when DOT’s processes and procedures are short cut or bypassed, the 

potential for inefficient spending increases. Accordingly, DOT needs to carefully 

follow requirements in these areas by: (1) ensuring that planning requirements are 

met, including proper accounting for projects in a Statewide Transportation 

Improvement Program (STIP) and (2) following policies and procedures for the 

grant programs that received ARRA funding. These requirements exist to increase 

the likelihood that funds will be effectively planned and spent. As Secretary 

LaHood stated, DOT has committed to do things “by the book” by following 

established policies and procedures. 

Follow Project Planning Requirements 

The Federal Government has a number of key planning requirements, including 

reviews related to environmental, financial, and project management issues, which 

must be met before projects can receive Federal funding. DOT will need to ensure 

that any ARRA projects meet them, even though the Department will be under 

great pressure to get shovels in the ground. Particular attention must be focused 

on reviews of required STIPs for highway and transit projects, as well as Airport 

Improvement Program (AIP) grant applications for aviation projects. 

Review of STIPs for highway and transit projects. STIPs lay out how states 

intend to use taxpayers’ money to meet their transportation needs, and they are to 

identify which projects will be funded and the cost and funding sources for those 

projects. DOT requires that STIPs be fiscally realistic and present truthful and 

credible information. Having a realistic STIP is critical for transportation and 

budget planning purposes. 

DOT must make sure that FHWA and FTA ARRA-funded projects are included in 

a STIP; and that they review each state’s STIP for fiscal constraint and compliance 

with statutory requirements, particularly in light of the deteriorating budget 

situation that state and local governments are experiencing. Further, states must 

also ensure that the STIPs they submit to DOT have all the required assurances 

and certifications at the state level. Going forward, we will be assessing states’ 

compliance with the STIP process as part of our planned audit work. 

AIP grant planning. FAA must ensure that all ARRA-funded aviation 

construction projects go through its AIP planning and programming processes. By 

doing so, FAA and its airport sponsors will be assured that only shovel-ready, 
7

high-priority construction projects are approved for ARRA funding. FAA’s 

processes include developing airport layout plans, assessing environmental 

impacts, completing preliminary designs, and determining project costs based on 

bids. Because these processes normally take several years to complete, FAA plans 

to fund only those projects that have already been through its grant review process 

and are ready to move to the construction phase. FAA must follow through on 

these plans and not circumvent any established AIP procedures as it evaluates AIP 

grant applications. 

Follow Grant Policies and Procedures 

Once projects are approved, DOT’s Operating Administrations must ensure 

adherence to existing oversight requirements related to the grant programs 

receiving ARRA funds, including FHWA’s Surface Transportation Program, 

FTA’s Urbanized Area Formula Program, and FAA’s AIP. Failure to follow 

existing Federal requirements could result in inefficient expenditure of scarce tax 

payer dollars. 

FAA’s experience in awarding airport grants in the aftermath of Hurricanes 

Katrina and Rita is an example of what can happen when speed trumps sound 

business practices. FAA expedited the award of 10 airport grants totaling 

$40.5 million under AIP, without completing steps in its grant award process. 

After bypassing controls to prevent duplicate payments and basing grant awards 

on bids rather than estimates, FAA issued grants for work that was later 

determined to be unneeded. Ultimately, FAA withdrew 7 of the 10 grants until 

oversight was improved and bids for hurricane-related projects were obtained.6

 

Having learned important lessons through these hurricane relief efforts, FAA 

officials told us they intend to follow all AIP grant policies and procedures during 

implementation of ARRA. Additionally, FAA issued new ARRA grant guidance 

this month. In our discussions with FHWA and FTA, they also assured us they 

will not undermine any established policies and procedures in the rush to approve 

ARRA-funded projects. 

Evaluate the Credibility and Completeness of Cost and Schedule 

Estimates 

DOT must target its oversight efforts at ensuring that cost and schedule estimates 

are examined and deemed credible and complete, particularly the risks posed by 

larger and more complicated projects. Cost estimates that are too high could lead 

to excess and idle funds, while estimates that are too low could force grantees to 

 

6

 OIG Report Number AV-2007-014, “Oversight of Airport Improvement Program Hurricane Grants,” 

December 13, 2006. 
8

find other sources of funding to cover overruns. Having realistic estimates and 

staying on-time and on-budget are even more critical now, considering the tight 

fiscal environment in which state and local governments are operating. 

Our prior audit work points to the need for an early and more rigorous evaluation 

of cost and schedule estimates for ARRA projects. We have seen projects where 

earlier and more rigorous evaluation of estimates would have been beneficial. For 

example, in 2008, after assessing cost estimates for the Dulles Corridor Metrorail 

Project,7

 two independent consultants for FTA determined that the project sponsor 

underestimated the impact of schedule delays. These delays, in turn, increased the 

overall cost estimate for this project to almost $3 billion—doubling an earlier 

estimate. Earlier scrutiny of the impact of schedule delays on cost estimates might 

have helped FTA avoid this situation and provide decisionmakers with more 

realistic information up front. 

Oversee Grantees’ Contracting Management Activities 

To manage its portion of the economic recovery program, DOT and its grantees 

must ensure that effective contracting and financial practices are in place to make 

sound decisions under the tight time frames and quick roll out of the program. 

Actions needed are: (1) specifying contract requirements early, maximizing 

competition, and using appropriate contract types and (2) preventing unallowable 

costs, improper payments, and excessive overhead charges during contract 

execution. 

The magnitude and the accelerated pace for spending ARRA dollars could 

exacerbate contract award problems we previously identified, such as use of 

inappropriate contract types, inadequate competition, and failure to ensure contract 

prices are fair and reasonable. Audits of DOT and state contracts used to respond 

to the Hurricane Katrina emergency found instances in which DOT money was 

spent inefficiently because grantees used risky contracting methods in spending 

Federal funds, such as sole-sourced contracts, which resulted in significantly 

higher costs.8

 For example, we found a state Department of Transportation 

awarded two sole-sourced contracts without assurance of fair and reasonable 

prices, which resulted in the state paying about $1.7 million more than necessary 

for bridge repairs. 

DOT is taking steps to avoid a repeat of the problems it experienced in response to 

Hurricane Katrina. For example, it is stepping up its oversight of ARRA funding 

through outreach to grantees and posting frequently asked questions on the 

 

7

 OIG Report Number MH-2007-060, “Baseline Report on Major Project Monitoring of the Dulles Corridor Metrorail 

Project,” July 27, 2007. 8

 OIG Report Number MH-2006-065, “Audit of the Mississippi Department of Transportation’s Award of Selected 

Hurricane Katrina Emergency Repair Contracts,” September 6, 2006. 
9

websites of DOT’s Operating Administrations; and it has implemented a “help 

desk” email site. Further, DOT’s Office of the Senior Procurement Executive 

(OSPE) revised its Financial Assistance Guidance Manual in March 2009 to 

reflect the increased demands posed by ARRA. The manual sets a standardized 

process for grant processing and management. It will be important to widely 

disseminate this information down to the local grantee level, particularly to those 

grantees that have little or no experience in managing Federal dollars. 

Address Internal Control Weaknesses and Identify Unused Funds for 

Use on Other Eligible Projects 

DOT needs to identify and mitigate any internal control9

 weaknesses to be assured 

that ARRA funding is spent in an efficient and effective manner, and in 

accordance with Federal laws and regulations. OMB is requiring agencies to 

immediately assess risk and develop mitigation strategies to prevent internal 

control weaknesses in areas such as ensuring the prompt award and expenditure of 

ARRA dollars and minimizing improper payments. Our prior audit work shows 

that DOT has experienced problems in some of these areas. To comply with 

OMB’s requirements and provide effective oversight of ARRA funding, DOT 

must: ensure that its risk mitigation plans address internal control weaknesses and 

actions to prevent them from recurring; identify unused funds promptly and take 

timely action to free them up for use on other projects; and detect and prevent 

improper payments. 

Develop Risk Mitigation Plans That Address Internal Control Weaknesses 

DOT and its Operating Administrations need to work with their grantees to correct 

internal control weaknesses that auditors have identified during DOT’s financial 

statement audits and Single Audit Act reviews.10 It is critical that DOT use the 

OMB-required risk assessment process as a way to identify strategies to prevent 

similar issues with ARRA funds. Taking action to prevent internal control lapses 

is particularly important for FHWA, which received more than half of DOT’s total 

funding allocation under ARRA. DOT’s Single Audit Act reviews related to 

FHWA grantees identified internal control weaknesses and instances of 

noncompliance with grant requirements at state DOTs across the country. For 

example, in the past year and a half, auditors issued qualified opinions on eight 

state DOTs’ administration of Federal-aid grants because of problems identified 

during the Single Audit Act reviews. 

 

9

 Internal controls provide reasonable assurance of the effectiveness and efficiency of an agency’s use of financial 

resources, the reliability of financial reporting, and compliance with applicable laws and regulations. 10 The Single Audit Act requires state or local grantees to maintain a system of internal control over all Federal 

programs in order to demonstrate compliance with pertinent laws and regulations. Single Audit Act reviews are 

conducted to determine whether grantees are complying with these requirements. 
10

DOT has been identifying internal control risks and developing a consistent risk 

management tool to ensure the successful implementation of ARRA. For 

example, FHWA Headquarters recently issued a memorandum directing its 52 

Division Offices to implement a risk management program to identify primary 

risks in successfully implementing ARRA. First, FHWA directed its Division 

Offices to assess risks, prioritize them, and report the assessments to Headquarters. 

Second, the memorandum directed Division Offices to develop a risk management 

plan that involves “visual monitoring” of items, such as state financial transactions 

and consultant procurement and administration, enhanced financial oversight of 

states, and communications and outreach to assist states in mitigating risks. These 

are good first steps, but FHWA needs to make sure these efforts are conducted 

consistently and effectively across its 52 Division Offices, which are located in 

every state, the District of Columbia, and Puerto Rico. 

Providing consistent oversight across field locations has presented a challenge in 

the past, particularly at FHWA. Our prior audit work indicates that FHWA had 

not always ensured consistency in oversight activities among its Division Offices. 

For example, our 2009 report on FHWA’s oversight of the National Bridge 

Inspection Program showed that bridge engineers in the 10 states we reviewed did 

not perform Headquarters-recommended risk assessments of bridge conditions in a 

consistent or systematic manner.11 This inhibited FHWA’s ability to assess 

bridge-related risks nationwide, prioritize them, and target those higher priority 

risks for remediation in coordination with states. 

Identify Unused Funds Promptly 

To maximize the impact of ARRA funds on the economy, DOT must improve its 

controls for identifying unused funds in its financial management systems and 

taking appropriate action to release them on completed, canceled, and reducedscope projects. Without sufficient controls, it is possible for unused funds to 

remain idle for long periods of time. This could prevent other worthy projects 

from receiving Federal funds and potentially undermine ARRA’s ability to 

stimulate the U.S. economy by spurring construction activity across the country. 

In particular, DOT needs to ensure that it is addressing control weaknesses we 

have identified in the past regarding unused funds. For example, FHWA 

implemented the Financial Integrity Review and Evaluation (FIRE) in fiscal year 

(FY) 2005 to improve oversight of Federal highway funds, including its ability to 

identify idle funds that could be freed up for use elsewhere. FIRE has improved 

FHWA’s stewardship of Federal funds, but problems related to idle funds persist. 

This is evidenced by the fact that, in FY 2008, auditors again found idle funds at 

 

11 OIG Report Number MH-2009-013, “National Bridge Inspection Program: Assessment of FHWA’s Implementation 

of Data-Driven, Risk-Based Oversight,” January 12, 2009. 
11

FHWA estimated at about $300 million. Similarly, we found that in 2007 FAA 

allowed numerous AIP grants to remain inactive and obligations to remain on 

closed grants, both for excessive periods of time.12 These examples indicate that 

further management attention is needed to make sure that DOT’s controls are 

effective at identifying unused funds that could be freed up for use on other 

eligible projects. 

Detect and Prevent Improper Payments 

In its guidance on implementing ARRA, OMB emphasized the need for Federal 

agencies, including DOT, to prevent improper payments. Improper payments are 

those made to an ineligible recipient or for an ineligible service, duplicate 

payments, and payments for services not received. Avoiding improper payments 

presents a challenge to DOT. 

For example, during our review of controls over DOT’s contract for Hurricane 

Katrina emergency disaster relief transportation, we found that an FAA 

contracting officer routinely authorized invoices for payment without any 

documentation from the contractor showing that the services had actually been 

provided.13 In one instance, this lack of controls resulted in a $33 million 

overpayment to the contractor for emergency bus transportation services and 

chartered aircraft services, which was later recovered. 

At FHWA, we have identified oversight weaknesses that led to improper 

payments, which must be avoided in the ARRA program. For example, in a recent 

audit of deficiencies in FHWA’s oversight of design and engineering (D&E) 

firms’ indirect costs claimed on Federal–aid grants, we reported that Federal funds 

were used to reimburse unallowable costs totaling nearly $16 million.14 This 

occurred in part due to ineffective oversight by FHWA, state departments of 

transportation, and the certified public accounting firms hired by the D&E firms. 

IMPLEMENTING NEW ACCOUNTABILITY REQUIREMENTS AND 

PROGRAMS MANDATED BY ARRA 

In addition to increasing the funding levels of existing programs, ARRA placed 

additional challenges on DOT by (1) mandating several new reporting 

requirements that are designed to enhance accountability and transparency and 

 

12 OIG Report Number AV-2007-073, “FAA’s Oversight of Inactive Airport Improvement Program Grant 

Obligations,” September 13, 2007. 13 OIG Report Number AV-2006-032, “Report on Internal Controls Over the Emergency Disaster Relief Services 

Contract,” January 20, 2006. 14 OIG Report Number ZA-2009-033, “Oversight of Design and Engineering Firms’ Indirect Costs Claimed on 

Federal-Aid Grants,” February 5, 2009. 
12

(2) creating two new large programs that provide for $1.5 billion in supplementary 

discretionary grants to improve the Nation’s transportation infrastructure and 

$8 billion in grants for high-speed rail corridors and intercity passenger rail 

service.15 To meet these new demands, DOT will need to: 

• implement new ARRA tracking and reporting requirements that are 

designed to promote accountability and transparency, 

• develop comprehensive plans and sound criteria for the new discretionary 

grant and passenger rail programs created by ARRA, and 

• develop appropriate oversight strategies for the new programs created by 

ARRA by drawing lessons learned from DOT’s Operating 

Administrations. 

Implement New Tracking and Reporting Requirements Designed To 

Promote Accountability and Transparency 

To meet ARRA requirements, DOT must ensure that its financial management 

systems are able to track ARRA spending and produce reliable information to 

report on results in a meaningful way. These new requirements are spelled out in 

OMB’s February 2009 implementation guidance. To carry out these requirements, 

DOT must ensure that its financial management systems are able to clearly and 

reliably track recovery funds separately from other program funds. Beginning in 

February 2009, OMB directed DOT and other agencies to distinguish ARRA 

funds from non-ARRA funds in all agency financial systems, business systems, 

and reporting systems. Further, OMB’s guidance requires agencies to submit 

regular reports and the information to generate these reports will come largely 

from DOT’s financial management systems. We met with officials in DOT’s 

Operating Administrations to discuss these issues and they informed us they have 

been working to modify their financial management systems to meet the new 

ARRA-related requirements. The key will be following through with these plans 

and making any needed adjustments to DOT’s financial management systems as 

ARRA is implemented. 

DOT will need to stay focused on ensuring that its financial management systems 

are programmed to enable officials to meet ARRA requirements related to the 

tracking of funds. It will also need to report on the impact of the ARRA 

investment promptly (such as the number of jobs created) and provide meaningful 

information in these required reports. For example, beginning on May 8, 2009, 

current OMB guidance would require DOT to provide monthly financial reports 

citing obligations, expenditures, and other financial data by Treasury Account, 

 

15 ARRA stipulates that the discretionary grant program can be used for a variety of projects, including highway, 

bridge, public transportation, passenger and freight rail, or port infrastructure projects. 
13

vendor, and award number, and information on allocations of mandatory and 

entitlement programs by state or other appropriate geographical unit. 

DOT also needs to aggressively enforce the new reporting requirements and 

ensure that grantees are reporting accurate and complete information. Further, 

DOT would face an even greater challenge if OMB decides to expand current 

contractor reporting requirements, which is under consideration. 

Obtaining accurate information from DOT grantees has been an issue in the safety 

arena. For example, we previously reported on inaccuracies in FRA’s national 

grade crossing inventory database16 and significant weaknesses in the data 

reported by states and motor carriers to the Motor Carrier Safety Status 

Measurement System.17 Some ARRA information will be available publicly on 

www.recovery.gov18 and, therefore, must meet DOT and OMB data quality 

requirements. This underscores the need to make sure DOT’s financial systems 

are reporting reliable and complete information. Actions taken in the past to 

promote complete state reporting of data in the safety arena have included public 

disclosure of states with reporting problems by means of a data quality map, and 

individual state reviews to assess data quality issues.19 

Our prior audit work highlights the need for DOT to focus attention on meeting 

the new tracking and reporting requirements. In the past, DOT has not always 

been able to use its financial management systems to ensure accountability for 

Federal dollars or report on results. For example, in the wake of the 2007 collapse 

of the I-35W bridge in Minnesota, we testified that FHWA must improve 

accountability by enhancing its ability to track states’ use of Highway Bridge 

Program funding.20 FHWA was unable to determine how much of this funding 

was actually spent on structurally deficient bridges, because its financial 

management system did not differentiate between spending on structurally 

deficient bridges and other bridge-related expenditures. This inhibited FHWA’s 

ability to assess the impact of Federal dollars on bridge conditions.

 

16 OIG Report Number MH-2004-065, “Audit of the Highway Rail-Grade Crossing Safety Program,” June 16, 2004. 17 OIG Report Number MH-2004-034, “Improvements Needed in the Motor Carrier Safety Status Measurement 

System,” February 13, 2004 18 The Administration created a website, www.recovery.gov, to provide information to the public on the planning and 

implementation of ARRA. 19 OIG Correspondence Control No. 2006-041, Correspondence to Representative Petri Regarding SafeStat Data 

Quality, May 7, 2007. 20 OIG Testimony CC-2007-095, “Federal Highway Administration’s Oversight of Structurally Deficient Bridges,” 

September 5, 2007. 
14

Develop Comprehensive Plans and Sound Criteria for OST’s 

Discretionary Grant Program and FRA’s Passenger Rail Program 

To design these new programs, DOT will need to accomplish a variety of tasks in 

a short time. First, it must develop a comprehensive plan for each program, 

including goals and objectives, to ensure that the capital improvements are 

integrated into a national system. Second, it must develop criteria and a 

transparent process for selecting projects within the time frames Congress 

specified. Third, it must issue clear guidance for program implementation. 

DOT is planning for these programs, but meeting statutory deadlines will be 

difficult due to the number of tasks that must be completed in short time frames. 

Although DOT does not face the same deadlines for spending the money that 

ARRA mandated for existing programs, it is still required to quickly produce 

planning documentation and guidance. ARRA directs OST to publish criteria for 

its grant program within 90 days of ARRA enactment, accept applications for 

grants within 180 days after the criteria are published, and announce all projects 

selected within 1 year of ARRA enactment. Further, ARRA requires FRA to 

produce a strategic plan for the passenger rail program within 60 days of ARRA 

enactment and interim implementation guidance to applicants within 120 days. 

OST’s New Discretionary Grant Program 

To meet these deadlines, the Secretary established a working group within OST to 

develop criteria for the discretionary grant program and determine the best 

administrative structure. OST also has a task force providing advice, consisting of 

staff from the Operating Administrations. According to DOT officials, a central 

issue for the group is determining the most appropriate place to administer the 

grants—within OST or the Operating Administration that would normally be 

responsible for a particular type of project. For example, OST could delegate 

administrative responsibility for a bridge replacement project to FHWA. If the 

Secretary decides to delegate authority over projects to the Operating 

Administrations, the Department would need to decide how this delegation of 

authority would work within the established goals and requirements of ARRA. 

FRA’s New Passenger Rail Program 

DOT has not previously implemented the large-scale high-speed passenger rail 

program called for in the ARRA. It lacks recent experience overseeing the design 

and construction of a new high-speed rail system—in particular a new, stand-alone 

high-speed rail system. FRA has allocated staff to plan the high-speed rail and 

intercity rail service program, determine how to allocate the funds among the three 
15

eligible purposes,21 and develop program guidance within the statutory time 

frames. Because FRA is a small agency that had few grant programs before 

ARRA was passed, it is critical for FRA staff to leverage the in-house expertise 

throughout DOT and determine what additional resources it may need. According 

to FRA officials, they have consulted with other Operating Administrations for 

advice and are considering a variety of options to overcome staffing shortfalls and 

insufficient expertise, such as borrowing staff from FTA or FHWA and hiring 

consultants. 

To design and implement this program, FRA will need to develop strategies to 

address several tough issues prior to implementation. Those key issues include: 

• Ensuring that grantees obtain enforceable and meaningful capital 

investment agreements with private freight railroads so that users of 

intercity passenger rail receive benefits from these investments. 

• Establishing sufficient controls to be assured that Federal investments do 

not simply supplant investments the freight railroads already planned to 

undertake on their rail lines. 

• Integrating the capital improvements and associated service 

enhancements into a national intercity rail system that is tied to an overall 

strategic plan. 

• Acquiring the financial and economic modeling expertise needed to 

evaluate a project’s financing plans and revenue and ridership projections. 

This is important because most grantees will likely finance their projects 

through a mix of self-generated revenues (such as through the farebox), 

and Federal, state, and private investments. Equally important is 

conducting appropriate analysis of the viability of a high-speed rail 

project’s long-term operating plan to ensure adequate resources are 

identified up-front that would allow these systems to continue operating 

over the long run. 

Develop Appropriate Oversight Strategies for New Programs by 

Drawing Lessons From DOT’s Operating Administrations 

Not all of the challenges facing FRA and OST are unique. Like the other DOT 

Operating Administrations receiving ARRA funds, they will need to eventually 

focus on deploying sufficient staff to implement these new programs and provide 

oversight to construction projects to ensure they are properly managed by 

grantees. However, the oversight challenges facing FRA and OST are exacerbated 

by the fact that they have limited experience managing large grant programs. 

 

21 According to FRA, the $8 billion can be used for three programs: (1) high-speed corridor program, (2) intercity 

passenger rail service grants, and (3) congestion grants. 
16

Because both FRA and OST have some time before projects will be under 

construction, they need to use this period to evaluate the experiences of other 

Operating Administrations for lessons learned on what has worked well in the 

past. Then, they will need to decide what type and level of oversight to provide to 

projects. For example, FRA and OST could use a data-driven, risk-based 

approach to target their oversight efforts at projects that pose the highest risk due 

to certain factors, such as those projects with the largest dollar amounts committed 

or grantees with less experience in managing Federal grants. Along these lines, 

FHWA is implementing a data-driven, risk-based approach to overseeing the 

National Bridge Inspection Program, based on our recommendations. 

Similarly, FRA and OST could learn from FTA’s experience in standing up its 

Lower Manhattan Recovery Projects program. FTA created a separate Recovery 

Office to oversee the $4.55 billion Federal investment.22 This office included 

reassigned FTA staff and consultants to help provide oversight and advice on 

engineering, financial, environmental, security, and other issues. An approach like 

this could enable FRA and OST to quickly implement their new programs. 

COMBATING FRAUD, WASTE, AND ABUSE 

DOT needs to tailor its counter-fraud efforts to adapt to the increase in capital 

funding associated with the recovery program and the expected surge in 

construction activity throughout the country. OMB’s ARRA implementation 

guidance directs Federal agencies to be aggressive in preventing fraud, waste, and 

abuse. Accordingly, DOT will need to: 

• enhance understanding among DOT staff, grantees, and their contractors 

on how to detect, prevent, and report potential fraud and 

• take timely and effective action to suspend and/or debar individuals or 

firms that have defrauded DOT so they do not receive future Federal 

contracts. 

Enhance Understanding Among DOT Staff, Grantees, and Their 

Contractors on How To Detect, Prevent, and Report Potential Fraud 

DOT must target its outreach efforts at deterring fraud schemes that have occurred 

on past DOT projects and could occur on projects that receive funding under the 

recovery program. They include false claims for materials and labor, bribes 

related to contracts for materials or labor, product substitution, and disadvantaged 

business enterprises fraud. Table 3 on the next page presents a list of common 

 

22 OIG Testimony CC-2006-056, “Lower Manhattan Reconstruction Lessons Learned from Large Transportation 

Projects,” July 13, 2006. 
17

fraud schemes that must be prevented under ARRA. DOT will need to make sure 

that state and local grantees, and their contractors, understand how to detect, deter, 

and report these types of transportation-related fraud to the appropriate authorities. 

An important way to deter fraud is for DOT staff and grantees to be aware of 

certain “red flag” indicators typically associated with fraud schemes. For 

example, any mismarking or mislabeling on products and materials might indicate 

product substitution fraud. The best way to make individuals aware of these 

indicators is to conduct systematic fraud prevention education in the field. A 

description of fraud indicators is presented in exhibit D. 

Table 3. Common Fraud Schemes Found on DOT-Funded Projects 

Fraud Scheme Description 

Bid Rigging and Collusion Contractors misrepresent that they are 

competing against each other when they 

actually agree to cooperate on the winning bid 

to increase job profit. 

Materials Overcharging A contractor misrepresents how much 

construction material was used on a job and is 

paid for excess material to increase job profit. 

Time Overcharging A consultant misrepresents the distribution of 

employee labor to charge for more work hours, 

or a higher overhead rate to increase profit. 

Product Substitution A contractor misrepresents the product used in 

order to reduce costs for construction materials. 

Disadvantaged Business Enterprises Fraud A contractor misrepresents who performed the 

work in order to appear to be in compliance 

with contract goals for involvement of 

minority/women-owned businesses. 

Quality-Control Testing Fraud A contractor misrepresents the results of 

quality control tests to earn contract incentives 

falsely or to avoid production shutdown in 

order to increase profits or limit costs. 

Bribery A contractor compensates a government 

official in order to obtain contracts or permit 

overcharges. 

Kickbacks A contractor or subcontractor misrepresents the 

cost of performing work by secretly paying a 

fee for being awarded the contract and, 

therefore, inflating the cost to the government. 

Conflicts of Interest A contracting or oversight official has an 

undisclosed financial interest in a contractor or 

consultant, resulting in improper contract 

award or inflated costs. 

Source: DOT OIG. 
18

DOT has taken action to strengthen its fraud awareness and outreach efforts to 

more aggressively combat fraud, but continued vigilance and follow-through at all 

levels of the Department are needed to be assured that ARRA dollars are spent 

appropriately. DOT is taking action on fraud prevention in two key areas. First, 

DOT and the Operating Administrations receiving ARRA funds will need to 

increase outreach efforts to recipients of Federal grants and contracts to ensure 

they have meaningful ethics programs and sound internal controls to recognize, 

prevent, and report fraud. OIG has been working constructively with DOT 

officials to assist them in their counter-fraud outreach efforts. For example, earlier 

this month, the Secretary of Transportation and the Inspector General hosted a 

webcast to DOT staff that focused on how to prevent fraud, waste, and abuse 

involving common fraud schemes. Our special agents have also been and will 

continue providing fraud awareness briefings to DOT staff and grantees at the 

state and local levels throughout the Nation. 

Second, DOT must continue to follow through to fully implement its ethics 

program. Last year, we reported that DOT needed to develop and maintain a 

robust ethics program to promote integrity across transportation programs. In 

response, in June 2008, the Department instituted an enhanced annual ethics 

training program for all acquisition and grants management personnel 

Department-wide. The implementation of ARRA underscores the need to follow 

through and fully implement this important annual training requirement. 

Take Timely and Effective Action To Suspend and/or Debar 

Individuals or Firms That Have Defrauded DOT so They Do Not 

Receive Future Federal Contracts 

DOT will need to ensure timely and effective action is taken on suspension and 

debarment cases against those individuals or firms that have defrauded the 

Department. Federal regulations prohibit firms and individuals without 

satisfactory records of integrity and business ethics from receiving Federal 

contracts or assistance agreements. DOT revised its policy in June 2005, in part, 

to improve timely decisionmaking of suspension and debarment actions. 

However, our ongoing work shows that the Department needs to improve the 

policy—and its implementation—to provide for more timely processing and 

reporting of suspension and debarment actions. 

Our work has shown that the Operating Administrations do not consistently take 

suspension and debarment actions in a timely manner, even though the DOT order 

requires such decisions be made within 45 days. Taking action to address these 

deficiencies is critical as DOT embarks on the implementation of ARRA. For 

example, over half of the 45 actions we reviewed (56 percent) were not processed 

within the required 45 days. For 19 of these actions, the Operating 
19

Administrations took from 10 days to more than 2 1⁄2 years longer than the 45-day 

standard to render final decisions. The remaining six debarment actions we 

reviewed are still awaiting a decision from the debarring officials, which currently 

takes between 165 and 945 days. 

Further, in February 2009, the Government Accountability Office (GAO) testified 

that it had confirmed allegations that businesses and individuals suspended or 

debarred for egregious offenses were continuing to receive Federal contracts.23 

Our work did not find any DOT contracts or assistance agreements awarded to 

suspended or debarred firms or individuals. However, deficiencies in DOT’s 

suspension and debarment policy and implementation leave DOT, as well as other 

Federal agencies, vulnerable to doing business with fraudulent or unethical firms 

or individuals. This risk will increase significantly under the recovery program. 

CONCLUSIONS AND RECOMMENDATIONS 

The significant increase in funding for transportation projects associated with 

ARRA adds new challenges on top of the longstanding ones we have highlighted 

in past reports to the Secretary of Transportation and Congress. At the same time, 

ARRA presents an opportunity for DOT to make needed or neglected investments 

in the repair, rehabilitation, and modernization of our aging transportation 

infrastructure; to fund projects to reduce congestion; and to improve the safety of 

our Nation’s transportation system. 

We recognize the TIGER team-led efforts that the Department has underway to 

successfully implement the ARRA program. To assist in these efforts, our report 

condensed the challenges into 10 areas where DOT must exhibit sustained and 

effective actions and oversight. To that end, our future audit work will use a riskbased strategy, carried out in coordination with the Government Accountability 

Office, to evaluate DOT’s management of the ARRA programs and its oversight 

over grantees and contractors receiving recovery funding. 

To ensure sufficient consideration of the potential risks discussed in this report, we 

recommend that the Secretary of Transportation, through the DOT TIGER team, 

develop an oversight implementation plan that outlines the key actions DOT 

already has underway or will take to: 

• Acquire sufficient personnel with relevant expertise to oversee grantees; 

 

23 GAO Testimony GAO-09-419T, “Excluded Parties List System: Suspended and Debarred Businesses and 

Individuals Improperly Receive Federal Funds,” February 26, 2009. 
20

• Adhere to existing Federal requirements for programs funded under 

ARRA; 

• Evaluate the credibility and completeness of cost and schedule 

estimates; 

• Oversee grantees’ contracting management activities and ensure 

selection of appropriate contract types; 

• Address internal control weaknesses and identify unused funds for use 

on other eligible projects; 

• Implement new ARRA tracking and reporting requirements that are 

designed to promote accountability and transparency; 

• Develop comprehensive plans and sound criteria for the new 

discretionary grant and passenger rail programs created by ARRA; 

• Develop appropriate oversight strategies for the new programs created 

by ARRA by drawing lessons from DOT’s Operating Administrations; 

• Enhance understanding among DOT staff, grantees, and their 

contractors on how to recognize, prevent, and report potential fraud; and 

• Take timely and effective action to suspend and/or debar individuals or 

firms that have defrauded the Department so they do not receive Federal 

contracts in the future. 

In addition, the plan should prioritize the greatest risks for DOT and address open 

OIG recommendations from prior audit reports that have relevance to the 

implementation of ARRA. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

We provided a draft of this report to DOT for review and comment on March 18, 

2009. DOT provided us its formal comments on March 26, 2009, which we 

incorporated into this report, as appropriate. DOT’s complete comments are 

included as the appendix to this report. DOT also provided informal technical 

clarifications, which we incorporated into this report, as appropriate. In its formal 

comments, DOT agreed that vigilant oversight of ARRA funding is critical to the 

successful implementation of ARRA and described some of the efforts it has 

underway, including the work of the DOT TIGER team. We have included 

highlights of DOT’s key efforts in our report and recognize the ongoing 
21

commitment and actions of the Department’s leadership to ensuring the efficient 

and effective use of ARRA funds. DOT also concurred with our recommendation 

and agreed to provide us with a document outlining actions taken and planned to 

address our 10 focus areas. 

ACTIONS REQUIRED 

We consider DOT’s planned actions to be reasonable. However, in accordance 

with Department of Transportation Order 8000.1C, we request that DOT provide 

us with the plan called for in our recommendation within 30 days of the date of 

this report. 

If you have any questions, please call me at (202) 366-1959, or Ann CalvaresiBarr, Principal Assistant Inspector General for Auditing and Evaluation at 

(202) 366-1427. 

# 

cc: Members of the DOT TIGER team 
22

EXHIBIT A. SCOPE AND METHODOLOGY 

The objective of this audit was to highlight key ARRA oversight challenges—

based on prior OIG reports and other agencies’ relevant audit work—and identify 

actions DOT should take now in support of ARRA requirements. To address our 

audit objective, we conducted a comprehensive review of our prior work on 

relevant surface transportation and aviation oversight issues, including: work on 

major highway and transit projects, Hurricanes Katrina and Rita recovery projects, 

and AIP grant oversight projects. We also reviewed the relevant work of other 

organizations that have reported on transportation-related oversight issues, 

including GAO. 

Specifically, we: 

• reviewed the existing body of OIG, GAO, and others’ work (for 

example, Single Audits) to identify past challenges that are likely to 

apply to projects funded under ARRA. 

• held discussions with OST, FHWA, FRA, FTA, FAA, and MARAD 

officials; DOT’s TIGER Team; and representatives of surface 

transportation groups and an aviation constituency group to identify 

what they believe are the oversight challenges to the economic 

stimulus projects and obtain information on DOT’s preliminary efforts 

to prepare for the implementation of ARRA. 

• identified and analyzed internal DOT Operating Administration 

reports to identify challenges previously known within DOT. 

• coordinated with OIG’s investigative offices to identify other work 

that was relevant to oversight challenges facing DOT. 

We conducted this performance audit from January through March 2009 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. 

Exhibit A. Scope and Methodology 
23

EXHIBIT B. RELEVANT OIG REPORTS AND TESTIMONIES 

OIG Testimony Number CC-2009-045, “Top Management Challenges Facing the 

Department of Transportation,” March 10, 2009. 

OIG Report Number ZA-2009-033, “Oversight of Design and Engineering Firms’ 

Indirect Costs Claimed on Federal-Aid Grants,” February 5, 2009. 

OIG Report Number MH-2009-013, “National Bridge Inspection Program: 

Assessment of FHWA’s Implementation of Data–Driven, Risk–Based Oversight,” 

January 12, 2009. 

OIG Report Number AV-2009-012, “FAA’s Management and Maintenance of Air 

Traffic Control Facilities,” December 15, 2008. 

OIG Report Number PT-2009-005, “FY 2009 Top Management Challenges,” 

November 17, 2008. 

OIG Report Number MH-2008-086, “Baseline Report on the Lower Manhattan 

Recovery Projects,” September 26, 2008.

OIG Report Number AV-2008-002, “Prioritization of Airport Improvement 

Program Funding,” October 26, 2007. 

OIG Report Number CR-2007-079, “Growth in Highway Construction and 

Maintenance Costs,” September 26, 2007. 

OIG Report Number AV-2007-073, “FAA’s Oversight of Inactive Airport 

Improvement Program Grant Obligations,” September 13, 2007. 

OIG Report Number AV-2007-066, “Review of Congressional Earmarks Within 

Department of Transportation Programs,” September 7, 2007. 

OIG Testimony Number CC-2007-095, “Federal Highway Administration’s 

Oversight of Structurally Deficient Bridges,” September 5, 2007. 

OIG Report Number MH-2007-060, “Baseline Report on Major Project 

Monitoring of the Dulles Corridor Metrorail Project,” July 27, 2007. 

OIG Report Number AV-2007-014, “Oversight of Airport Improvement Program 

Hurricane Grants,” December 13, 2006. 

Exhibit B. Relevant OIG Reports and Testimonies 
24

Exhibit B. Relevant OIG Reports and Testimonies 

OIG Report Number MH-2006-065, “Audit of the Mississippi Department of 

Transportation’s Award of Selected Hurricane Katrina Emergency Repair 

Contracts,” September 6, 2006. 

OIG Testimony Number CC-2006-056, Before the Committee on Homeland 

Security Subcommittee on Management, Integration, and Oversight, U. S. House 

of Representatives, “Lower Manhattan Reconstruction: Lessons Learned from 

Large Transportation Projects,” July 13, 2006. 

OIG Report Number AV-2006-051, “Internal Controls over Payments for 

Emergency Disaster Relief Transportation Services,” June 30, 2006. 

OIG Report Number AV-2006-032, “Internal Controls over the Emergency 

Disaster Relief Transportation Services Contract,” January 20, 2006. 

OIG Report Number FI-2006-011, “Inactive Obligations,” November 14, 2005. 

OIG Report Number AV-2005-062, “Safety Oversight of an Air Carrier Industry 

in Transition,” June 3, 2005. 

OIG Report Number MH-2005-046, “FHWA Needs to Capture Basic Aggregate 

Cost and Schedule Data to Improve Its Oversight of Federal-Aid Funds,” 

February 15, 2005.

OIG Report Number FI-2005-044, “FAA Inactive Obligations,” January 31, 2005. 

OIG Report Number MH-2005-012, “Managing Risk in the Federal-Aid Highway 

Program,” November 19, 2004. 

OIG Report Number MH-2004-098, “Audit of the Tren Urbano Rail Transit 

Project,” September 29, 2004.

OIG Report Number AV-2004-094, “FAA's Administration and Oversight of 

Regionally Issued Contracts,” September 28, 2004. 

OIG Report Number IN-2003-003, “Audit of the Springfield Interchange Project,” 

November 22, 2002. 

OIG Report Number FI-2002-092, “Oversight of Cost-Reimbursable Contracts,” 

May 8, 2002.
25

EXHIBIT C. ARRA ALLOCATION AND EXPENDITURE 

DEADLINES AND REDISTRIBUTION REQUIREMENTS 

Funding Type Amount Available 

Through Deadlines 

FAA Infrastructure $200 million 9/30/2010 NA 

FAA Airport 

Improvement Program 

$1.1 billion 9/30/2010 • 50% of total to be awarded within 120 

days of enactment 

• 100% of total within 1 year of enactment 

FHWA Infrastructure $27.5 billion 9/30/2010 • 50% of total to be obligated within 120 

days from the apportionment or forfeit the 

unobligated portion of that 50% to 

redistribution process 

• 100% of remainder within 1 year from the 

apportionment or forfeit 100% of 

unobligated funds to redistribution 

process 

FRA Rail $8 billion 9/30/2012 NA 

FRA Amtrak $1.3 billion 9/30/2010 NA 

FTA Transit Capital 

Assistance 

$6.9 billion 9/30/2010 • 50% of total to be obligated within 180 

days from the apportionment or forfeit the 

unobligated portion of that 50% to 

redistribution process 

• 100% of remainder within 1 year from the 

apportionment or forfeit 100% of 

unobligated funds to redistribution 

process 

FTA Transit Capital 

Investment Grants 

$750 million 9/30/2010 Priority for projects currently in construction 

or projects that can obligate funds within 150 

days of enactment of Act 

FTA Fixed Guideway 

Infrastructure 

Investment 

$750 million 9/30/2010 • 50% of total to be obligated within 180 

days from the apportionment or forfeit the 

unobligated portion of that 50% to 

redistribution process 

• 100% of remainder within 1 year from the 

apportionment or forfeit 100% of 

unobligated funds to redistribution 

process 

MARAD $100 million 9/30/2010 100% of total to be obligated within 180 days 

of the date of distribution 

OST Discretionary $1.5 billion 9/30/2011 NA 

OIG $20 million 9/30/2013 NA 

Exhibit C. ARRA Allocation and Expenditure Deadlines and 

Redistribution Requirements 
26

EXHIBIT D. “RED FLAG” INDICATORS FOR COMMON FRAUD 

SCHEMES AND HOW TO REPORT SUSPECTED FRAUD 

The following are brief descriptions of selected fraud schemes commonly seen on 

transportation projects, along with sample “Red Flag” indicators for each scheme. 

It is important to note that the presence of one or more indicators does not prove 

fraud, nor are the indicators shown all inclusive for each of the schemes described. 

Bid Rigging and Collusion 

In bid rigging and collusion schemes, contractors misrepresent the competition 

against each other when, in fact, they agree to cooperate on the winning bid to 

increase job profit. Watch for: 

• Unusual bid patterns: too close, too high, rounded numbers, or identical 

winning margins or percentages. 

• Different contractors making identical errors in contract bids. 

• Bid prices dropping when a new bidder enters the competition. 

• Rotation of winning bidders by job, type of work, or geographic area. 

• Losing bidders hired as subcontractors. 

• Apparent connections between bidders: common addresses, personnel, or 

phone numbers. 

• Losing bidders submitting identical line item bid amounts on nonstandard 

items. 

Materials Overcharging 

In materials overcharging schemes, a contractor misrepresents how much 

construction material was used on the job and is then paid for excess material to 

increase job profit. Watch for: 

• Discrepancies between contractor-provided quantity documentation and 

observed data, including yield calculations. 

• Refusal or inability to provide supporting documentation. 

• Contractor consistently loading job materials into equipment away from 

inspector oversight. 

• Truck weight tickets or plant production records with altered or missing 

information. 

• Photocopies of quantity documentation where originals are expected. 

Exhibit D. “Red Flag” Indicators for Common Fraud Schemes and 

How To Report Suspected Fraud 
27

• Irregularities in color or content of weight slips or other contractor 

documents used to calculate pay quantities. 

Time Overcharging 

In a time overcharging scheme, a consultant misrepresents the distribution of 

employee labor on jobs in order to charge for more work hours or a higher 

overhead rate, to increase profit. Watch for: 

• Unauthorized alterations to time cards and other source records. 

• Billed hours and dollars consistently at or near budgeted amounts. 

• Time cards filled out by supervisors, not by employees. 

• Photocopies of timecards where originals are expected. 

• Inconsistencies between a consultant’s labor distribution records and 

employee timecards. 

Product Substitution 

In product substitution schemes, a contractor misrepresents the product used in 

order to reduce costs for construction materials. Watch for: 

• Any mismarking or mislabeling of products and materials. 

• Contractor restricting or avoiding inspection of goods or service upon 

delivery. 

• Contractor refusing to provide supporting documentation regarding 

production or manufacturing. 

• Photocopies of necessary certification, delivery, and production records 

where originals are expected. 

• Irregularities in signatures, dates, or quantities on delivery documents. 

• High rate of rejections, returns, or failures. 

• Test records reflect no failures or a high failure rate but contract is on 

time and profitable. 

• Unsigned certifications. 

Disadvantaged Business Enterprises (DBE) Fraud 

In disadvantaged business enterprises schemes, a contractor misrepresents who 

performed contract work in order to appear to be in compliance with contract 

goals for involvement of minority or women-owned businesses. Watch for: 

• Minority owner lacking background, expertise, or equipment to perform 

subcontract work. 

Exhibit D. “Red Flag” Indicators for Common Fraud Schemes and 

How To Report Suspected Fraud 
28

• Employees shuttling back and forth between prime contractor and 

minority-owned business payrolls. 

• Business names on equipment and vehicles covered with paint or 

magnetic signs. 

• Orders and payment for necessary supplies made by individuals not 

employed by minority-owned business. 

• Prime contractor facilitated purchase of minority-owned business. 

• Minority-owned business owner never present at job site. 

• Prime contractor always uses the same minority-owned business. 

Quality-Control Testing Fraud 

In quality-control testing schemes, a contractor misrepresents the results of quality 

control (QC) tests to falsely earn contract incentives or to avoid production 

shutdown in order to increase profits or limit costs. Watch for: 

• Contractor employees regularly taking or labeling QC samples away from 

inspector oversight. 

• Contractor insisting on transporting QC samples from the construction 

site to the lab. 

• Contractor not maintaining QC samples for later quality assurance (QA) 

testing. 

• Contractor challenging results, or attempting to intimidate QA inspectors 

who obtain conflicting results. 

• Photocopies of QC test results where originals are expected. 

• Alterations or missing signatures on QC test results. 

Bribery 

In bribery schemes, a contractor compensates a government official to obtain a 

contract or permit contract overcharges. Watch for: 

• Other government inspectors at the job site noticing a pattern of 

preferential contractor treatment. 

• Government official having a lifestyle exceeding his/her salary. 

• Contract change orders lacking sufficient justification. 

• Oversight officials socializing with or having business relationships with 

contractors or their families. 

Exhibit D. “Red Flag” Indicators for Common Fraud Schemes and 

How To Report Suspected Fraud 
29

Kickbacks 

In kickback schemes, a contractor or subcontractor misrepresents the cost of 

performing work by secretly paying a fee for being awarded the contract and 

therefore inflating job costs to the government. Watch for: 

• Unexplained or unreasonable limitations on the number of potential 

subcontractors contracted for bid or offer. 

• Continuing awards to subcontractors with poor performance records. 

• Non-award of subcontract to lowest bidder. 

• “No-value-added” technical specifications that dictate contract awards to 

particular companies. 

Conflicts of Interest 

In conflict of interest schemes, a contracting or oversight official has an 

undisclosed financial interest in a contractor or consultant, resulting in improper 

contract award or inflated costs. Watch for: 

• Unexplained or unusual favoritism shown to a particular contractor or 

consultant. 

• Government official disclosing confidential bid information to a 

contractor or assisting the contractor in preparing the bid. 

• Employee having discussions about employment with a current or 

prospective contractor or consultant. 

• Close socialization with and acceptance of inappropriate gifts, travel, or 

entertainment from a contractor. 

• Vendor or consultant address is incomplete or matching employee’s 

address. 

• Government official leasing or renting equipment to a contractor for 

performing contract work. 

Reporting Concerns About Fraud, Waste, or Abuse 

OIG maintains a Hotline to report allegations of fraud, waste, and abuse in DOT 

programs or operations. Allegations may be reported by DOT employees, 

contractors, or the public. The OIG Hotline is available 24 hours a day, 7 days a 

week. Individuals who contact the Hotline, via telephone or letter, are not 

required to identify themselves. However, persons who report allegations are 

encouraged to identify themselves in the event additional questions arise as the 

OIG evaluates or pursues their allegations. 

Exhibit D. “Red Flag” Indicators for Common Fraud Schemes and 

How To Report Suspected Fraud 
30

Exhibit D. “Red Flag” Indicators for Common Fraud Schemes and 

How To Report Suspected Fraud 

Report suspicions and allegations of fraud, waste, and abuse to OIG by using one 

of the following methods: 

• Online complaint form: www.oig.dot.gov/hotlineform.jsp

• Telephone: (800) 424-9071 

• Fax: (540) 373-2090 

• E-mail: hotline@oig.dot.gov 

• Mail: DOT Inspector General 

P.O. Box 708 

Fredericksburg, VA 22404-0708 
31

APPENDIX. MANAGEMENT COMMENTS 

 1200 New Jersey Ave., S.E. 

U.S. Department of Washington, DC 20590

Transportation 

Office of the Secretary 

Of Transportation 

March 26, 2009 

MEMORANDUM TO: Calvin L. Scovel, III Joel Szabat 

Inspector General Deputy Assistant Secretary 

for Transportation Policy 

FROM: Lana Hurdle 

Acting Assistant Secretary 

for Budget and Programs 

Linda J. Washington 

Assistant Secretary for 

Administration 

SUBJECT: Departmental Comments on Office of Inspector General (OIG) 

Draft Report, “American Recovery and Reinvestment Act of 

2009: Oversight Challenges Facing the Department of 

Transportation” 

The Department of Transportation is committed to performing an outstanding job 

implementing the President’s initiative to enhance economic growth through the American 

Recovery and Reinvestment Act (ARRA). This commitment to excellence started well in 

advance of the Act being signed into law. In January, the Department assembled a leadership 

team to provide oversight and serve as a conduit for coordinated and consistent intermodal 

implementation of the Act. Under the auspices of this overall Transportation Investment 

Generating Economic Recovery (TIGER) Team, the leadership created a dynamic forum for 

exchanging information and provided guidance for consistent action throughout the 

Department. The benefits of the Department’s fast response in anticipation of ARRA are 

already becoming apparent. For example, these efforts positioned DOT to rapidly obtain 

direct hire and rehired annuitant authority from OPM. Further, a DOT risk management tool 

was developed early to strengthen internal DOT controls and the tool was subsequently 

adopted verbatim by OMB for government-wide application. In addition, the TIGER Team is 

using leading edge, web-based interactive technology to enable expedited information 

Appendix. Management Comments 
32

Appendix. Management Comments 

sharing and data tracking. For example, it developed a web-based interactive master planning 

document that tracks progress and assigns responsibility for each of the Department’s major 

actions. We also created a web-based capability for tracking action and responsibility on 

recommendations made by the OIG and the Government Accountability Office (GAO) 

pertaining to ARRA implementation. 

In addition to the overall perspective provided by the TIGER Team, it also created the 

capabilities to provide detailed guidance and leadership in key areas affecting ARRA 

implementation. Individual stewardship groups were established to gather expertise from 

across the Department to address common issues and identify coordinated and appropriate 

actions. These groups provide leadership in the areas of financial stewardship, data 

collection, procurement, and grant management, job measurement, information technology 

and communication. Finally, an Accountability Stewardship group has been established with 

the participation of TIGER leadership, the OIG and GAO. The purpose of this group is to 

achieve the type of transparency envisioned by ARRA, and provide an efficient forum for 

sharing information between management and the audit entities. 

We appreciate the information provided in the OIG’s draft report and will provide detailed 

information to the OIG on actions taken and planned in each of the ten emphasis areas 

identified in the report. We intend to provide this information within 30 days of the final 

report’s issuance. Finally, please note that we shared with your staff, a separate listing of 

technical and specific comments from throughout DOT to correct errors in your report and 

for your consideration in finalizing the report. Please contact Martin Gertel at (202) 366-5145 

with any questions or if you require further information.