Companion Guide to Video August 2012

www.fhwa.dot.gov/federal-aidessentials

Finance

Internal Control

Internal Control Regulations and Requirements

When the public entrusts its funds to the care of 

your organization, you are responsible for 

ensuring the proper use of these funds by taking 

all necessary steps to prevent fraud, waste and 

abuse.

 

Your organization’s internal controls –– those 

processes and procedures that safeguard 

assets and achieve your organizational goals ––

will help you comply with Federal regulations 

while remaining fiscally diligent. Responsibility 

for the success of your internal controls belongs 

to everyone in the organization –– from top to 

bottom.

The Federal government acknowledged the 

value of internal controls when it first set up a 

mandatory regulatory framework and instituted 

compliance audits for any recipient of Federal 

funds. The Federal regulations and guidelines 

are consistent with the nationally accepted 

framework of the Committee of Sponsoring 

Organizations, or COSO.

The Federal government does not prescribe a

single internal control program, but it does 

provide guidance that is specifically designed to 

help agencies comply with Federal regulations. 

Here are some of the general categories.

To see how the guidelines might apply, let’s look 

at an example related to activities allowed or unallowed. 

If your organization expects to be reimbursed for 

materials, or any other project expenditure, your 

State department of transportation, or State 

DOT, as the oversight agency must first 

authorize the project work activity. No local 

public agency, or LPA, wants to pick up the tab 

for unallowable expenses, so your organization 

needs internal controls to be in place that 

ensures proper project authorization before any 

procurements are initiated or work begins. 

Let’s look at real property acquisition and 

relocation assistance. 

As an internal control activity, prior to your 

employees acquiring real property or handling 

relocation assistance, they are trained in the 

requirements of the Uniform Relocation 

Assistance and Real Property Acquisition 

Policies Act as amended.

Agencies must ensure proper use of Federal funds by taking all 

necessary steps to prevent fraud, waste, and abuse
Federal-aid Essentials for Local Public Agencies

The foundation of any effective internal control 

program is documentation and managerial 

oversight. If your organization doesn’t have 

written procedural manuals or desktop 

instructions, it becomes difficult to demonstrate 

that it is following Federal requirements. The same 

is true for managerial oversight. If no one is 

responsible for implementing and monitoring 

internal controls, it is reasonable to question 

whether any are being followed.

Compliance auditors will place considerable 

emphasis on the quality of your documentation 

and overall control environment. 

Internal control is not the function of a few 

employees in your organization, but the 

responsibility of everyone. In executing effective 

internal controls, your organization should 

consider answers to the following key questions:

• What role do you have in ensuring that 

transactions are properly executed and 

recorded?

• What role do you have in ensuring that 

organizational assets are safeguarded? 

• Are you using written procedures that are up 

to date and readily available? 

• As a leader, are you modeling the types of 

behaviors that will lead to effective internal 

control? 

Your agency and staff are responsible for 

understanding and implementing Internal Control.

Your agency will benefit from implementing 

internal controls that allow for effective and 

efficient operations, increase the reliability of 

financial reporting, and ensure compliance with 

applicable laws and regulations. For more 

information about Internal Control, contact your 

State DOT.
Federal-aid Essentials for Local Public Agencies

The content of this 

document is not a 

substitute for 

information obtained 

from State departments 

of transportation, 

appropriate FHWA 

Division Offices, and 

applicable laws. 

Scenarios have been 

simplified for emphasis 

and do not necessarily 

reflect the actual range of 

requirements applicable 

to the scenario or this 

topic. This document 

was created under 

contract number 

DTFH61-11-D-00025 by 

the Federal Highway 

Administration, U.S. 

Department of 

Transportation, and is 

offered to the public to 

heighten and focus 

awareness of Federal-aid 

requirements within the 

local public agencies 

community and 

reinforces the 

importance of these 

necessary policies, 

procedures, and 

practices.

This companion resource 

is the script content for 

the video production of 

the same name. 

Additional Resources 

• Assistance for non-Federal entities and their auditors to comply with OMB 

internal control requirements

http://www.whitehouse.gov/sites/default/files/omb/circulars/a133_complianc

e/08/pt6.pdf

• Guidance for Federal agencies in managing grants and cooperative 

agreements 

http://www.whitehouse.gov/omb/circulars_a102/

• Standards for obtaining consistency among Federal agencies for audit of 

States, local governments, and non-profits expending Federal funds

http://www.whitehouse.gov/sites/default/files/omb/circulars/a133/a133.html

• Rules for administrating U.S. DOT grants to States and local governments

http://www.ecfr.gov/cgi/t/text/textidx?c=ecfr&sid=60747ff7a176cb9fb0c30f83c9b4564f&rgn=div5&view=text&

node=49:1.0.1.1.12&idno=49

• Rules for administration of U.S. DOT-awarded grants to non-profits, 

hospitals, institutions of higher education, and local governments

http://www.ecfr.gov/cgi/t/text/textidx?c=ecfr&sid=60747ff7a176cb9fb0c30f83c9b4564f&rgn=div5&view=text&

node=49:1.0.1.1.13&idno=49

• Guidance on subawards made by State and local governments to 

"covered" organizations identified within the document

http://www.whitehouse.gov/omb/circulars_a110/