1. Key Lessons that Grant Recipients and Grantors
Can Learn from IG Audits and Investigations
AUDITORAUDITOR
N G M A C O N F E R E N C E | A P R I L 2 2 , 2 0 1 5

2. Fara Damelin
Director, Office of Investigations Legal Division
National Science Foundation
Office of Inspector General
2N G M A C O N F E R E N C E | A P R I L 2 2 , 2 0 1 5

3. NSF Office of Inspector General
Office of Investigations
Hot Topics
NGMA Conference
April 22, 2015
Fara Damelin
Director, Office of Investigations Legal Division
3

4. BACKGROUND:
NSF OIG INVESTIGATIONS
• Who Are We?
o Special agents (Federal Law Enforcement Officers)
o Investigative Scientists
o Investigative Attorneys
o Analysts
• How are investigations initiated?
o Reactive
o Proactive
• What types of Investigations?
o Civil/Criminal
o Administrative
4

5. What Types of Issues do we Investigate?
CIVIL/CRIMINAL
• Theft/embezzlement
• Financial mismanagement
• Misuse of grant funds
• Conflicts of Interests
• False statements/False Claims
o Often certified
ADMINISTRATIVE
• Research Misconduct: Plagiarism, Fabrication,
Falsification
• Conflicts of Interests
• Merit review violations
5

6. Possible Outcomes of Investigations
• Civil Action
• Civil False Claims Act (Treble damages)
• Criminal Action (Prosecution)
• Criminal False Claims/False Statements
• Theft/Embezzlement
• Mail/Wire Fraud
• Conspiracy and Obstruction
• Administrative Action
• Suspension/termination of current NSF awards
• Government-wide suspension/debarment
• Program Fraud Civil Remedies Act
6

7. How Do Grantees Get In Trouble?
• Mismanagement of Federal Funds
• Failure to Train Personnel in Federal Grant
Requirements
• Lack of Procedures and Processes to Hold
Personnel Accountable
• Not Knowing What Their Employees Are Involved In
7

8. Top 10 (or 11) Things You Don’t Want To Say To
An OIG Investigator
1. Do you think I have time to read all of your rules?
2. We don’t actually have any written policies about the expenditure of
federal grant funds.
3. Sorry, I can’t get you the records; they are being archived in a dangerous
building.
4. Wow..Really? Entertainment can’t be charged to federal awards?
5. If I have to go back and create cost share records now, that’s what I’ll do!
6. I had no idea our records were such a mess.
7. I probably threw out the COI disclosure form…I throw out anything that
looks bureaucratic.
8. Chicken Dinner Analogy: which goes…
9. I signed the purchase requisition because I saw that everyone else signed
too…. Besides, I couldn’t tell what was actually being purchased.
10. No, I haven’t received any formal training about federal grants
management. BUT I have received “on the job” training.
11. But what are you complaining about…we did the work!
8

9. NSF Award Budget includes the purchase of Engineering
Equipment, but High End Cameras purchased instead:
Agilent Technologies
Signal Analyzer
$67,970
Dodd Camera and Video
Sinar P3 Camera + accessories
$44,346

10. Subcontracts
• Do you require that the prime contract/grant be
provided?
• Who is the PI on the Prime?
• Who is the PI on the Subcontract?
• What is the relationship?
• Are you being paid?
• If not, are you reporting that?
10

11. Outside Commitments
and Dealings
• What are your Conflict of Commitment Reporting
Requirements?
o Do you have mandatory reporting requirements? Affirmative reporting even if
nothing to report?
o What happens if employees don’t file mandatory reports? Consequences?
• Do any of your PI’s have dual appointments as tenured
faculty at two institutions at the same time?
o Multiple investigations involved this scheme
o Dual employment not reported to universities
o Dual employment not on resumes submitted with federal grant proposals
• Are any of your personnel subcontracting out to family
members or using company vendors that they own, or
are owned by their immediate family members?
11

12. Who is Signing Off on
What, and Why?
• Fraud happens
• “I signed off on it because Joe did,” is not going to
prevent or catch fraud
• Multiple Investigations reveal a lack of true scrutiny
for purchases made with grant funds and lack of
training
• Similar issues posed with financial reporting to
agencies
o There are certifications
o Who is ensuring the accuracy of what is being reported, and what funds
are being drawn down?
12

13. Cost Transfers and
Financial Reports
• What are your current policies?
• Are they being followed?
• Do you have source documentation to support your
expenditures charged to federal awards, to include
time and effort?
• Who is responsible for the accuracy of reports
made to the federal government?
13

14. What Are You Reporting Out to the Govt?
And How Accurate Is It?
o Investigation of a Cooperative agreement, totaling $2,494,078
o Initial response: $2,201,728
o During site visit: $2,533,078
o Response to IG subpoena: $2,494,078
14

15. HOW TO AVOID TROUBLE:
• Read and know the applicable grant conditions, rules
and regulations when receiving federal grant funds:
• Provide and Document Training (Mandatory)
• Maintain (during, not after the fact) adequate
documentation to support all expenditures
• Ensure your financial reporting matches your financial
records
• Do not expend award funds post-expiration or for
purposes unrelated to the award (COST TRANSFERS)
• Do not provide inaccurate information or false
certifications to Grantee institution or Federal Agency
• Know and be able to document how you spent federal
funds (including program income and cost share)
15

16. HOT OFF THE PRESS: RECENT CASES
• University/Small Business PI s Convicted and
Sentenced
• Grantees Settle Civil Cases with Federal
Government and enter into Mandatory
Compliance Plans
o Universities
o Non-Profits Organizations
o For Profit Companies
• University PIs Suspended and Debarred
o Government-Wide
o For a number of years
16

17. Compliance Program
A SYSTEM OF RESPONSIBLE ADMINISTRATIVE, FINANCIAL AND
RESEARCH MANAGEMENT AND OVERSIGHT, CREATING AN
ENVIRONMENT IN WHICH EMPLOYEES CAN OPERATE WITH
INTEGRITY
• Demonstrates commitment to ethical conduct
• Ensures Accountability
• Minimizes or detects criminal conduct
• Encourages reporting
• Creates awareness through training
• Prevents improper expenditures; improves grant administration
• May help avoid the filing of legal actions
• Mitigation, e.g., may reduce penalty or administrative actions
17

18. Elements of an Effective Compliance Program
1. Reasonable Compliance Standards and Procedures
2. Specific High-Level Personnel Responsible
3. Due Care in Assignments with Substantial Discretionary
Authority
4. Effective Communication of Standards and Procedures
5. Establish Monitoring and Auditing Systems and Reporting
Systems (whistleblowing without fear of retaliation)
6. Consistent Enforcement of Standards
7. Respond Appropriately to the Offense (reporting to law
enforcement, modify program, prevention)
* Federal Sentencing Guidelines U.S.S.G. 8B2.5(f) & 8D1.4(c)(1) (11/1/04)
18

19. Contact Information
• Anonymous Communications:
• Hotline:1-800-428-2189 OR www.nsf.gov (click on IG Hotline)
Confidential Communications
E-mail: oig@nsf.gov
Mail: NSF—ATTN: OIG HOTLINE
4201 Wilson Boulevard; II-705
Arlington, VA. 22230
• Fara Damelin, Director, Office of Investigations Legal Division,
OIG/NSF
• fdamelin@nsf.gov
• 703/292-8873
19

20. 20
Elise Woods
Special Agent-in-Charge, Headquarters Operations
Department of Transportation
Office of Inspector General
N G M A C O N F E R E N C E | A P R I L 2 2 , 2 0 1 5 20

21. 21
U.S. Department of Transportation
Office of Inspector General
Elise Woods
Special Agent-in-Charge
USDOT-OIG
Headquarters Operations
Washington, DC
National Grants
Management Association

22. www.oig.dot.gov
22
Investigative Priorities:
Grant & Procurement Fraud
• Bribery, Kickbacks, and Corruption
• Bid-rigging and Collusion
• Conflict of Interest
• False Statements and Claims
• Product Substitution
• Quality Control Testing Fraud
• Labor, Time, and Materials Overcharging
• Disadvantaged Business Enterprise Fraud

23. www.oig.dot.gov
23
Materials Overcharging
Dishonest contractors think you aren’t checking the bills…
• A contractor misrepresents how much construction material
was actually used on the job and then is paid for excess
material to increase job profit
 Discrepancies between contractor-provided quality documentation and observed
data, including yield calculations
 Refusal or inability to provide supporting documentation
 Truck weight tickets or plant production records with altered or missing
information
 Unusually high volume of purchases from one vendor
 Invoiced good cannot be located in inventory or accounted for
 No receiving report for invoiced goods

24. www.oig.dot.gov
PA Landers, Inc.
Materials Overcharging
 A Plymouth, MA based road construction contractor
 PA Landers – the company
 Preston Landers – the owner
 Gregory Keelan- former vice president
 All three were convicted in 2007 for false claims by
providing fake and inflated asphalt tickets on
federally funded contracts
24

25. www.oig.dot.gov
PA Landers, Inc. (cont.)
 Company- fined $3 million dollars and
ordered to pay restitution of $332,686 to
Massachusetts
 Preston Landers –ordered to serve 42
months in prison, pay $150,000 fine and
restitution of $332,686
 Gregory Keelan-ordered to serve 30 months
in prison, pay a fine of $10,000 and
restitution of $332,686
25

26. www.oig.dot.gov
Asphalt
Shipped
Private Jobs
Asphalt
Produced
Plant
Production
Report
shows 1,380
tons more
asphalt
shipped
(5,692) than
produced
(4,310) on
this day
26
PA Landers, Inc. (cont.)

27. www.oig.dot.gov
• Contractor on the airport terminal
expansion project in Reading, PA
funded by the FAA
• Created and submitted fraudulent
invoices to the Airport Authority,
which inflated the number of billable
hours worked by employees.
• Fraudulent billings totaled $317k
• Convicted after a 2-week federal
jury trial.
• Sentenced to 3 years in prison and
$317k in restitution.
Vitillo Engineering - Reading PA
Airport Improvement Program Fraud
27

28. www.oig.dot.gov
28
Altered Time Card – Created at Vitillo’s direction
31.5 hours added to the FAA Project
Original Time Card – filled out by employee
Shows no time billed to the FAA Project
Vitillo Engineering (cont.)
 Another Vitillo employee testified at trial that she was on jury duty one week,
which she accurately recorded on her original timecard
 Vitillo altered her timecard and charged her jury duty time to the FAA Project

29. www.oig.dot.gov
29
Vitillo’s internal copy
The original total is $7,487.14
Invoice submitted to the Reading
Aiport Authority with inflated hours
Vitillo directed his Project Mgr to
keep track of actual vs. billed hrs Bill inflated to over $35,000
Vitillo Engineering (cont.)

30. www.oig.dot.gov
30
Disadvantaged Business Enterprise Fraud
Are they really meeting ALL the contract goals?
• A contractor misrepresents who performs the contract work
in order to increase job profit while appearing to be in
compliance with contract goals for involvement of minority-or
women-owned businesses
 DBE owner lacking background, expertise, or equipment to perform
subcontract work
 Employees shuttling back and forth between prime contractor and DBE-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 DBE-owned business
 Prime contractor facilitated purchase of DBE-owned business

31. www.oig.dot.gov
Marikina / Schuylkill Products
31
• Scheme caused $136M in fraudulent DBE credit
to be awarded towards DBE goals
• Largest DBE Fraud in US History

32. www.oig.dot.gov
Marikina / Schuylkill Products
(cont.)
 SPI, a non-DBE concrete bridge beam manufacturer,
set up a Connecticut based DBE to operate as a pass
through DBE in Pennsylvania
 SPI used their non-DBE subsidiary, CDS Engineering,
to perform all of Marikina’s DBE work
 SPI/CDS ran 339 DBE projects through Marikina for
15 years in Pennsylvania alone:
– 336 highway projects totaling $119.4M in fraud
– 3 transit projects totaling $16.4M in fraud
32

33. www.oig.dot.gov
Marikina / Schuylkill Products
(cont.)
 SPI and CDS employees actually performed,
managed, controlled, and supervised the beam
installations on Marikina DBE projects
 SPI and CDS employees pretended to be Marikina
employees by:
– Using Marikina business cards, email addresses,
stationary, and signature stamps
– Using Marikina magnetic placards to cover up SPI logos
on SPI company vehicles
– Using dedicated cell phones for SPI employees to use
when posing as Marikina employees
– Changing the fax header on an SPI fax machine to make it
appear faxes were originating from Marikina
– Setting up a phony business location in PA
33

34. www.oig.dot.gov
Early in the scheme SPI used
Marikina magnetic signs on
SPI trucks
Later – SPI stenciled
Marikina’s name on SPI trucks
Marikina / Schuylkill Products
(cont.)
34

35. www.oig.dot.gov
Do DBEs lie in order to get certified?
 Marikina’s Vice-president testified at trial
 Asked if Marikina lied to PENNDOT in
obtaining DBE certification in PA?
 Her response: “We lie big time!”
35
Marikina / Schuylkill Products
(cont.)

36. www.oig.dot.gov
Prosecution and Administrative Results
 Dennis Campbell, SPI Vice-president – (2 years in prison)
– Charged with Conspiracy – PLED GUILTY
 Romeo Cruz, owner of Marikina – (3 years in prison)
– Charged with Conspiracy and Tax Fraud – PLED GUILTY
 Tim Hubler, SPI/CDS Vice-president – (3 years in prison)
– Charged with Conspiracy and Tax Fraud – PLED GUILTY
 Ernie Fink, co-owner of SPI & CDS – (4 years in prison)
– Charged with Conspiracy – PLED GUILTY
 Joe Nagle, co-owner of SPI & CDS – (7 years in prison)
– Charged with Conspiracy, Mail Fraud, Wire Fraud, & Money
Laundering - CONVICTED AFTER A 4-WEEK TRIAL
 All individuals and companies debarred by FHWA & PENNDOT36
Marikina / Schuylkill Products
(cont.)

37. www.oig.dot.gov
Research & Development Fraud
 On July 23, 2014, the Assistant Division
Administrator of the Federal Highway
Administration (FHWA), New Jersey Division,
was arrested and charged with making false
statements and mail fraud.
 According to the criminal complaint, the
defendant is accused of using a straw
company to obtain FHWA grant funds, which
he oversaw as a public official.
37

38. www.oig.dot.gov
Research & Development Fraud
(cont.)
 The funds were part of federal research
grants awarded to the Rutgers University
Center for Advanced Infrastructure and
Transportation and the New Jersey Institute
of Technology.
 Note: Criminal Complaints are only
accusations by the Government. All
defendants are presumed innocent unless
and until proven guilty.
38

39. 39
Assistant Inspector General for Audit
National Science Foundation
Office of Inspector General
N G M A C O N F E R E N C E | A P R I L 2 2 , 2 0 1 5
Brett M. Baker
39

40. NGMA CONFERENCE
APRIL 22, 2015
NSF OIG Audit Update
40

41. U.S. Financial Assistance Overview
 $600 billion in awards
 88,000 awardees and 26 Federal grant making agencies
 Project and research, block, and formula
 Outcomes are designed to promote public good
 Challenges
 Limited visibility of how Federal funds are spent by awardees
 Support for funding requests much less than for contracts
 American Recovery and Reinvestment Act (2009)
 $840 billion of assistance to stimulate the economy
 ARRA spending still being tested in audit work
 Greater accountability and transparency over spending than ever
41

42. Grants Differ From Contracts
GRANTS
Promote services for the
Public Good
 Merit review (competitive)
 Multiple awardees
 Award budget
 No government ownership
 Grant payments
 Summary drawdowns
 No invoices for claims
 Expenditures not easily visible
 Salary percentages
CONTRACTS
Specified deliverables
(Goods and Services)
 Competitive process
 One awardee
 Contract Price
 Government ownership
 Contract payments
 Itemized payment requests
 Invoices to support claims
 Detailed costs
 Salary hourly rates
42

43. Framework for Grant Oversight
 Data analytics-driven, risk-based methodology to
improve oversight
 Identify institutions that may not use Federal funds properly
 Techniques to surface questionable expenditures
 Life cycle approach to oversight
 Mapping of end-to-end process to identify controls
 100% review of key financial and program information
 Focus attention to award and expenditure anomalies
 Complements traditional oversight approaches
 Techniques to review process and transactions are similar
 Transactions of questionable activities are targeted
 Recipients and Agency Officials can use data analytics
 Identify high risk activities through continuous monitoring
43

44. End to End Process for Grant Oversight
•Funding Over Time
•Conflict of Interest
•False Statements
•False Certifications
•Duplicate Funding
• Inflated Budgets
•Candidate
Suspended/Debarred
•Unallowable, Unallocable, Unreasonable Costs
•Inadequate Documentation
•General Ledger Differs from Draw Amount
•Burn Rate
•No /Late/Inadequate Reports
•Sub-awards, Consultants, Contracts
•Duplicate Payments
•Excess Cash on Hand/Cost transfers
•Unreported Program Income
•
•No /Late Final
Reports
•Cost Transfers
•Spend-out
• Financial
Adjustments
• Unmet Cost
Share
PRE-AWARD RISKS ACTIVE AWARD RISKS
AWARD END
RISKS
Dr. Brett M. Baker, 2010
44

45. Risk Assessment and Identification of
Questionable Transactions
Agency Award Data
Project reporting
Cash draw downs
External Data
Single Audits
SAM (CCR, EPLS)
Data Analytics
Continuous monitoring of
grant awards
Awardee Data
General ledger
Subaward data
Phase I
Identify High Risk Institutions
Data Analytics
Apply risk indicators to GL.
Compare to Agency data
Agency Award Data
Project reporting
Cash draw downs
External Data
Single Audits
SAM (CCR, EPLS)
Phase II
Identify Questionable Expenditures
Review
Questionable
Transactions
Dr. Brett Baker (2012)
45

46. Identification of Higher Risk Institutions and Transactions
Dr. Brett Baker
AIGA. NSF-OIG46

47. Anomalous Drawdown Patterns
Normal drawdown pattern
Extinguishing
Remaining
Grant funds
(before expiration)
Grant
Expiration
Extinguishing
Remaining
Grant funds
(after expiration)
Grant
Award
Start up
costs
$$
Drawdown
Spike
Dr. Brett Baker
AIGA. NSF-OIG
47

48. Burn Rate – Actual vs Expected
Award Amount
($K)
Expended
($K)
% Expend Award
Days
Days
Active
% Total
Days
Delta
1 10,000 9,000 90% 1095 769 70% 1.29
2 5,000 4,000 80% 1095 524 48% 1.67
3 2,000 1,500 75% 1095 404 37% 2.03
4 1,000 995 99% 365 200 55% 1.81
5 20,000 12,000 60% 1826 500 27% 2.22
6 10,000 5,000 50% 1826 1600 88% 0.57
Awardee
Totals
48,000 32,495 68% 7,302 3,997 55% 1.24
Actual Expected
1.00 would be normal
48

49. Example: Equipment Charges Incurred
Immediately Before Grant Expiration Date
GRANT ID OBJECT DESCRIPTION
GRANT
EXPIRATION
DATE
TRANSACTION
DATE
LEDGER
POST DATE
FINANCIAL
AMOUNT
XXXXX42 CONSTRUCTION AND ACQUISITION 09/30/2009 09/30/2009 10/06/2009 51,851.22
GRANT ID OBJECT DESCRIPTION
GRANT
EXPIRATION
DATE
TRANSACTION
DATE
LEDGER
POST DATE
FINANCIAL
AMOUNT
XXXXX27 INVENTORIAL EQUIPMENT 07/31/2010 06/04/2010 08/11/2010 31,621.56
GRANT ID OBJECT DESCRIPTION
GRANT
EXPIRATION
DATE
TRANSACTION
DATE
LEDGER
POST DATE
FINANCIAL
AMOUNT
XXXXX77 INVENTORIAL EQUIPMENT 08/31/2009 07/16/2009 09/10/2009 23,163.75
106,636.53TOTAL
Same day as expiration
57 days before expiration
46 days before expiration
49

50. Travel Related to Award?
NSF_OIG_Transaction Expiration Date Transaction Date Expense Type Amount
GL Trans-030745 09/25/2007 08/31/2007 TRAVEL-IN-STATE 73,519
GL Trans-099671 06/11/2010 06/01/2010 TRAVEL - FOREIGN 41,474
GL Trans-084844 11/02/2010 10/31/2010 TRAVEL - OUT-OF-STATE 37,516
GL Trans-045792 02/09/2010 02/01/2010 TRAVEL-IN-STATE 28,905
GL Trans-117607 06/11/2010 07/15/2010 TRAVEL - FOREIGN 27,262
GL Trans-126299 08/19/2010 09/30/2010 TRAVEL-IN-STATE 20,975
Just after award expiration
Just before award expiration
50

51. Questions?
Dr. Brett M. Baker
Assistant Inspector General for Audit
National Science Foundation
Office of Inspector General
Phone: 703-292-7100
51

52. 52
Assistant Inspector General for
Acquisition and Procurement Audits
Department of Transportation
Office of Inspector General
N G M A C O N F E R E N C E | A P R I L 2 2 , 2 0 1 5
Mary Kay Langan-Feirson
52

53. How To Achieve a Clean Audit
of Your Grant Program
U.S. Department of Transportation
Office of Inspector General
Office of Acquisition and Procurement Audits (JA-60)
53

54. Types of Audits
Audits have different objectives and will require different types of
interaction from the organization being audited. Common audit types
include:
54
Single Audit Act
•Annual review of financial
statements, schedule of
expenditures of Federal
awards, internal controls,
compliance, and audit
follow up
•Circular A-133 Compliance
Supplement covers
compliance and agency
programs requirement
testing
Programmatic
•Provide analysis to improve
program performance and
operations, reduce costs,,
and contribute to public
accountability.
•Usually focuses on program
effectiveness, economy, and
efficiency; internal control;
compliance; and
prospective analysis
(analysis of events that may
occur in the future.)
Grant-Specific
•Review of grants, including
deliverables, controls, and
claimed costs
•May highlight issues as
diverse as safety or
contracting.

55. Key Factors That Contribute to a Clean Audit
55
• General, programmatic, and grant-specific requirements can all be audited.
Knowing your grant requirements.
• Effective processes and controls can help you comply with and meet the
intent of all requirements.
Using good business processes and controls.
• Organized and retrievable records will go a long way toward a smooth audit.
Maintaining documentation.
• Meeting grant goals and completing required facilities, products, studies, or
reports can positively impact an audit’s conclusions.
Achieving grant requirements.

56. Knowing Your Grant Requirements
56
General
• 2 CFR – Outlines
responsibilities for
Federal granting
agencies and grant
recipients
• Single Audit Act –
Circular A-133
Programmatic
• Legislative
requirements –
23 USC Chapter 1 ,
The American
Recovery and
Reinvestment Act of
2009, Disaster Relief
Appropriations Act
of 2013
• Implementing
regulations –
23 CFR 635, 49 CFR
26
Grant-Specific
• Deliverables
• Standard terms and
conditions
• Agency Policies or
Circulars
• Socio-economic and
other objectives –
Disadvantages
Business Enterprise
(DBE) participation,
Buy American Act
requirements

57. Audits can specifically target
business processes and internal
controls for
• Program Management
• Financial Management
• Procurement
• Subrecipient Monitoring and
Management
57
Using Good Business Processes and Controls

58. Audit Example: Improper Payments
ARRA Lessons Learned—Opportunities Exist for FAA to Further Improve its Oversight of Airport
Grant Payments (4/18/14)
Why we did this audit - The American Recovery and Reinvestment Act (ARRA) provided funding for
infrastructure investments, including $1.1 billion for FAA’s Airport Improvement Program (AIP) grants,
and required Federal agencies to hold grantees accountable for these expenditures.
What we looked at - Whether FAA’s oversight of ARRA grantees was sufficient to (1) prevent or detect
improper payments and (2) ensure funds were used in accordance with ARRA requirements. We
reviewed sampled grant reimbursement requests and contractor payments at 19 of 292 randomly
selected airports, comparing contractor payments with supporting documents, evaluating the sampled
payments for accuracy, and ensuring the payments were for approved purposes.
What we found - FAA’s oversight process was not sufficient to prevent more than $1.4 million in
improper payments. For example, San Francisco International Airport officials improperly billed ARRA
for over $832,000 for unapproved taxiway and drainage work, as well as ineligible survey equipment.
In response, FAA recovered $2.2 million in improper payments, conducted its own systemic review of 5
years of prior grants to San Francisco International which identified millions in additional ineligible
work, and revised its grant procedures to increase airport oversight.
How to Achieve a Clean audit - Effectively vet tasks prior to performance (including obtaining agency
approval) to ensure funds are used in accordance with grant program and special (ARRA )
requirements.
58

59. Audit Example: Fraud on Cooperative
Agreements With Universities
Report on Audit of Actions to Prevent Fraud on Cooperative Agreements with Universities
(9/30/05)
Why we did this audit - A University running a research center under DOT cooperative agreements
notified FHWA of financial misconduct by the Center’s principal investigator (PI) that resulted in
overcharges and unsupported billings to the agreements.
What we looked at - A multidisciplinary investigation team of DOTOIG criminal investigators, auditors,
and attorneys uncovered evidence that the PI defrauded the Government using schemes that included
paying himself, his relatives, and his friends by submitting unsupported invoices containing fictitious and
inflated expenses for labor, student support services, equipment, and consulting services.
What we found - The University billed the Government about $1.6 million for inflated or fictitious labor,
equipment, and other charges submitted by its PI. The PI was arrested and subsequently pled guilty to
theft from programs receiving Federal funds, 18 USC § 666. He was sentenced to over 3 years in prison
and ordered to pay over $872,000 in restitution. These fraudulent activities occurred and continued for a
period of 5 years without being detected for two reasons. First, the university lacked basic controls to
prevent or detect fraud, and second, FHWA rubber stamped approvals on payment requests.
How to Achieve a Clean audit - Implement controls such as separation of duties such as authorization
and payment, verification of receipt of goods and services prior to payment, verification of enrollment
prior to payment of student stipends
59

60. Lessons Learned From ARRA: Improved FHWA Oversight Can Enhance States’ Use Of Federal-Aid Funds
(4/5/12)
Why we did this audit – ARRA added roughly $27 billion to the Federal Highway Administration’s (FHWA)
budget—a 67 percent, one-time increase for State highway construction and improvement projects. It also
mandated that funds be obligated in 19 months , required enhanced oversight, and emphasized the use of
competitive procedures. We performed this audit to (1) examine the competition for State DOT awarded ARRA
contracts and evaluate FHWA policies and guidance for oversight of State DOT contracting practices.
What we looked at - State DOT procurement and FHWA oversight practices, examining contract files for 59
randomly selected ARRA projects.
What we found - One-fifth of State DOT ARRA contracts were awarded with 1 or 2 bids. Based on our
sample, prices for contracts with 1 or 2 bids were, on average, 11 percent higher than prices for those with 3
bids. We projected that the average price difference between contracts with 1 or 2 bids versus 3 bids was at
least $179 million dollars. State practices and results varied widely – 3 of the 9 states we reviewed in detail
received 3 or more bids for 95 % of their contracts, 3 received 3 or more bids for 90 to 95 %, but the remaining 3
received 3 or more bids for only 50 – 82 %.
How to Achieve a Clean audit - Use good procurement practices to maximize competition, achieve effective
competition, or document reasons why it could not be obtained.
Audit Example: Grantee Procurement
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61. Written support for all facets of
performance will facilitate an audit.
Key documentation include:
• Rationale and approvals for
program decisions
• Expenditure support, showing
costs are allowable, allocable,
and reasonable
• Project monitoring and progress
reports
• Contract award, change order,
and administration
documentation
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Maintaining documentation

62. Audit Example: Insufficient Financial Controls
MWAA’s Financial Management To Ensure Eligibility of Expenses on FTA’s Dulles Rail Project
Grant (1/16/14)
Why we did this audit – This was an outgrowth of a congressional requested audit that identified
weaknesses in the Metropolitan Washington Airport Authority's (MWAA) internal controls that led to
questionable procurement practices, mismanagement, and a lack of overall accountability.
What we looked at – whether MWAA had controls in place to ensure FTA funds for the Dulles Rail
Project Phase 1 were spent on eligible expenditures. We reviewed a statistical sample of 6 of 37 FTA
Dulles rail project disbursements, consisting of 283 transactions—such as payroll expenses, travel
reimbursements, and contract expenses—totaling $281 million ($104.5 million reimbursed by FTA.)
What we found - MWAA lacked adequate controls to ensure that expenses claimed for funding on
FTA’s grant were eligible for reimbursement. MWAA lacked sufficient documentation to support
expenses reimbursed with $36 million in FTA grant funds, from which we projected that MWAA
received $139 million for unsupported transactions (about 36 percent of the total $384 million
disbursements during the period). Also, MWAA received a total of $119,000 in FTA grant funding for
unallowable costs, such as payments to lobbyists, from which we project that MWAA received
$350,000 in Federal grant funds for unallowable transactions. The audit resulted in FTA placing the
recipient on “restricted” drawdowns.
How to Get a Clean Audit – Maintain effectively organized records of costs claimed.
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63. Achieving the grant’s goals and
delivering agreed-to projects,
goods, or services will be
important to ensuring a clean
audit.
Goals and requirements can
include:
• Facilities, products, and
studies
• Socio-economic requirements
• Reports and deliverables
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Achieving grant requirements

64. Audit Example: Inadequately Tested
Train Track Support
Actions Needed To Improve FTA’s Oversight of the Dulles Corridor Metrorail Project’s
Phase 1 (7/26/12)
Why we did this audit – In September 2008, a credible source contacted us asserting testing was
not sufficient to ascertain whether eleven pier foundations and underlying steel piles that were
built 30 years ago would support a portion of the project’s new guiderail. In October 2009, our
office issued a management advisory to FTA expressing concern about the safety of using 11 pier
foundations to support part of the project’s guideway. These foundations are composed of 30-
year-old steel piles topped with a concrete cap.
What we looked at – whether (1) FTA’s oversight of the process to test the 30-year-old
foundations was sufficient to resolve safety concerns and (2) FTA’s oversight activities effectively
addressed significant project schedule, cost, and funding risks. We interviewed officials from FTA,
their oversight consultant, the grantee, their design-build contractor. In consultation with our
engineers, we assessed key documents, including results of the foundation tests, assessments of
the testing process, and monthly project reports.
What we found – FTA had yet to take sufficient follow-up actions to resolve issues with the
foundations’ ability to withstand lateral loads (horizontal forces that push from the side) and to
obtain assurance that the structure would meet the 50-year service life specified in FTA guidance.
How to Get a Clean Audit – Use good quality assurance/ quality control procedures.
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65. Audit Example: DBE Program
Weaknesses in the Department’s Disadvantaged Business Enterprise Program
Limit Achievement of Its Objectives (4/23/13)
Why we did this audit – This self-initiated audit was sparked through audit and investigative
coordination because OIG investigators experienced a spike in their DBE fraud caseload. DOT
distributed an average of over $3 billion per year in 2009 and 2010 for this nationwide program
while DBE fraud and abuse cases increased significantly, making up nearly 25 percent of OIG
active investigations for procurement and grant fraud in fiscal year 2010.
What we looked at – whether DOT (1) provides adequate program management, (2) Operating
Administrations and recipients sufficiently oversee and implement the program, and (3) achieves
its program objective to help develop DBEs to succeed in the marketplace. We visited or surveyed
15 States with a statistical sample of 121 DBE firms working on active federally funded projects
and interviewed Department, OAs, and State recipients representatives.
What we found - The Department does not provide effective program management; OAs and
recipients do not adequately oversee or implement the program; and the Department has limited
success in achieving its program objective to develop DBEs to succeed in the marketplace.
How to get a Clean Audit - Recipients need to have stronger certification and compliance
practices to allow for sufficient oversight of DBE firms working on federally funded projects.
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66. We’re going to parachute in and do a surprise audit,
but I want to keep the whole thing low key.
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