type: other

jurisdiction: US

text: b' Office of Inspector General\n Audit Report\n\n\nQUALITY CONTROL REVIEW OF AUDITED\nCONSOLIDATED FINANCIAL STATEMENTS\n FOR FISCAL YEARS 2012 AND 2011\n Department of Transportation\n\n Report Number: QC-2013-020\n Date Issued: November 15, 2012\n\x0c U.S. Department of\n Memorandum\n Transportation\n Office of the Secretary\n of Transportation\n Office of Inspector General\n\n\nSubject: ACTION: Quality Control Review of Audited Date: November 15, 2012\n Consolidated Financial Statements for Fiscal Years\n 2012 and 2011, Department of Transportation\n Report Number: QC-2013-020\n\n From: Calvin L. Scovel III Reply to\n Attn. of: JA-20\n Inspector General\n\n To: The Secretary\n\n I respectfully submit our report on the quality control review (QCR) of the\n Department of Transportation\xe2\x80\x99s (DOT) audited consolidated financial statements\n for fiscal years 2012 and 2011.\n\n The audit of DOT\xe2\x80\x99s consolidated financial statements as of and for the year ended\n September 30, 2012, was completed by KPMG LLP (see Attachment) under\n contract to the Office of Inspector General. The contract required the audit to be\n performed in accordance with generally accepted Government auditing standards\n and Office of Management and Budget Bulletin 07-04, \xe2\x80\x9cAudit Requirements for\n Federal Financial Statements,\xe2\x80\x9d as amended.\n\n KPMG LLP concluded that the consolidated financial statements present fairly, in\n all material respects, DOT\xe2\x80\x99s financial position as of September 30, 2012, and its\n net costs, changes in net position, and budgetary resources for the year ended,\n in conformity with U.S. generally accepted accounting principles.\n Clifton Gunderson LLP, under contract to the Office of Inspector General, audited\n DOT\xe2\x80\x99s fiscal year 2011 consolidated financial statements, and expressed an\n unqualified opinion on those statements. 1\n\n DOT substantially corrected two of three significant deficiencies in internal\n control reported in Clifton Gunderson LLP\xe2\x80\x99s fiscal year 2011 audit report, but the\n remaining significant deficiency in internal control is now a material weakness.\n\n 1\n Quality Control Review of Audited Consolidated Financial Statements for Fiscal Years 2011 and 2010,\n Department of Transportation, Report Number QC-2012-009, November 15, 2011. OIG reports and\n testimony can be found on our Web site at: www.oig.dot.gov.\n\x0c 2\n\n\n\nKPMG LLP\xe2\x80\x99s Fiscal Year 2012 Audit Report\n\nKPMG LLP reported one material weakness and two significant deficiencies in\ninternal control over financial reporting. In addition, KPMG LLP reported two\ninstances of noncompliance with laws and regulations.\n\nMaterial Weakness\n\nLack of Sufficient Controls over Undelivered Orders \xe2\x80\x93 KPMG LLP determined\nthat DOT had a potential material misstatement in Undelivered Orders (UDO) as\nof March 31, 2012. Improperly designed internal controls contributed to this\nmisstatement. To address KPMG LLP\xe2\x80\x99s finding, DOT conducted a review of\nUDOs and found over $2 billion that needed to be deobligated. DOT performed\nthe necessary deobligations to correct its financial data. However, until DOT\ncorrects the existing control deficiencies, there is a risk that material misstatements\nmay occur and remain undetected.\n\nSignificant Deficiencies\n\n 1. Lack of Sufficient Controls over Grant Accruals \xe2\x80\x93 The Federal Aviation\n Administration, Federal Highway Administration (FHWA), and Federal\n Railroad Administration have weaknesses in the methodologies used to\n estimate grant accruals. As a result, the grant accruals are potentially\n understated.\n\n 2. Lack of Sufficient Controls over Financial Statement Preparation and\n Review \xe2\x80\x93 DOT\xe2\x80\x99s interim financial statements as of and for the period ended\n June 30, 2012, had numerous material errors due to deficiencies in the\n preparation and review processes. In addition, the fiscal year 2012\n consolidated financial statements had errors in several note disclosures.\n Until the processes are corrected, there is a risk that misstatements will\n occur and remain undetected.\n\nInstances of Noncompliance with Laws and Regulations\n\n 1. Noncompliance with the Federal Financial Management Improvement\n Act of 1996 \xe2\x80\x93 DOT has a material weakness related to controls over UDOs\n that affects DOT\xe2\x80\x99s ability to prepare financial statements in accordance\n with Federal accounting standards.\n\n 2. Noncompliance with the Anti-Deficiency Act \xe2\x80\x93 Over the past decade, the\n U.S. Merchant Marine Academy, the Federal Motor Carrier Safety\n\x0c 3\n\n\n Administration (FMCSA), and FHWA committed anti-deficiency\n violations. For example, FMCSA issued grant awards in excess of available\n funding by approximately $26 million.\n\nWe performed a QCR of KPMG LLP\xe2\x80\x99s report and related documentation. Our\nQCR, as differentiated from an audit performed in accordance with generally\naccepted Government auditing standards, was not intended for us to express, and\nwe do not express, an opinion on DOT\xe2\x80\x99s financial statements or conclusions about\nthe effectiveness of internal controls or compliance with laws and regulations.\nKPMG LLP is responsible for its report dated November 15, 2012, and the\nconclusions expressed in that report. However, our QCR disclosed no instances in\nwhich KPMG LLP did not comply, in all material respects, with generally\naccepted Government auditing standards.\n\nKPMG LLP made 19 recommendations to strengthen DOT\xe2\x80\x99s financial,\naccounting, and system controls. DOT officials concurred with KPMG LLP\xe2\x80\x99s\nfindings on the material weakness, significant deficiencies and instances of\nnoncompliance with laws and regulations. The Department also committed to\nsubmitting to OIG, by December 31, 2012, a detailed action plan to address the\nfindings contained in the audit report. In accordance with DOT Order 8000.1C, the\ncorrective actions taken in response to the findings are subject to follow up.\n\nWe appreciate the cooperation and assistance of DOT representatives and\nKPMG LLP. If we can answer any questions, please call me at 202-366-1959, or\nLou E. Dixon, Principal Assistant Inspector General for Auditing and Evaluation,\nat 202-366-1427.\n\n\nAttachment\n\n #\n\x0c KPMG LLP\n Suite 12000\n 1801 K Street, NW\n Washington, DC 20006\n\n\n\n\n Independent Auditors\xe2\x80\x99 Report\n\n\nSecretary and Inspector General\nU.S. Department of Transportation:\n\nWe have audited the accompanying consolidated balance sheet of the U.S. Department of Transportation\n(DOT) as of September 30, 2012, and the related consolidated statements of net cost, and changes in net\nposition, and the combined statement of budgetary resources (hereinafter referred to as \xe2\x80\x9cconsolidated\nfinancial statements\xe2\x80\x9d) for the year then ended. The objective of our audit was to express an opinion on the\nfair presentation of these consolidated financial statements. In connection with our fiscal year 2012 audit,\nwe also considered the DOT\xe2\x80\x99s internal control over financial reporting and tested the DOT\xe2\x80\x99s compliance\nwith certain provisions of applicable laws, regulations, contracts, and grant agreements that could have a\ndirect and material effect on these consolidated financial statements. The consolidated financial statements\nof the DOT as of September 30, 2011, and for the year then ended were audited by other auditors. Those\nauditors expressed an unqualified opinion on the fiscal year 2011 consolidated financial statements in their\nreport dated November 11, 2011.\n\nSummary\nAs stated in our opinion on the consolidated financial statements, we concluded that the DOT\xe2\x80\x99s\nconsolidated financial statements as of and for the year ended September 30, 2012, are presented fairly, in\nall material respects, in conformity with U.S. generally accepted accounting principles.\n\nAs discussed in our opinion on the consolidated financial statements, the DOT changed its presentation for\nreporting the Combined Statement of Budgetary Resources in fiscal year 2012, based on new reporting\nrequirements under Office of Management and Budget (OMB) Circular No. A-136, Financial Reporting\nRequirements. As a result, certain balances on the DOT\xe2\x80\x99s Combined Statement of Budgetary Resources\nfor fiscal year 2011 have been reclassified to conform to the current year presentation.\n\nAs discussed in our opinion on the consolidated financial statements, the consolidated financial statements\nreflect actual excise tax revenues deposited in the Highway Trust Fund and the Airport and Airway Trust\nFund through June 30, 2012, and excise tax receipts estimated by the Department of Treasury\xe2\x80\x99s Office of\nTax Analysis for the quarter ended September 30, 2012.\n\nOur consideration of internal control over financial reporting resulted in identifying certain deficiencies\nthat we consider to be a material weakness, and other deficiencies that we consider to be significant\ndeficiencies, as defined in the Internal Control Over Financial Reporting section of this report, as follows:\n\n A. Exhibit I \xe2\x80\x93 Lack of Sufficient Controls over Undelivered Orders\n\n B. Exhibit II \xe2\x80\x93 Lack of Sufficient Controls over Grant Accruals\n\n C. Exhibit II \xe2\x80\x93 Lack of Sufficient Controls over Financial Statement Preparation and Review\n\n\n\n KPMG LLP is a Delaware limited liability partnership,\n the U.S. member firm of KPMG International Cooperative\n (\xe2\x80\x9cKPMG International\xe2\x80\x9d), a Swiss entity.\n\x0cU.S. Department of Transportation\nNovember 15, 2012\nPage 2 of 5\n\n\n\n\nThe results of our tests of compliance with certain provisions of laws, regulations, contracts, and grant\nagreements disclosed the following instances of noncompliance and other matter that are required to be\nreported under Government Auditing Standards, issued by the Comptroller General of the United States,\nand OMB Bulletin No. 07-04, Audit Requirements for Federal Financial Statements, as amended:\n\n D. Exhibit III \xe2\x80\x93 Noncompliance with the Federal Financial Management Improvement Act of 1996\n\n E. Exhibit III \xe2\x80\x93 Noncompliance with the Anti-Deficiency Act\n\nWe also reported an other matter related to potential compliance with the Anti-Deficiency Act in Exhibit III.\n\nThe following sections discuss our opinion on the DOT\xe2\x80\x99s consolidated financial statements; our\nconsideration of the DOT\xe2\x80\x99s internal control over financial reporting; our tests of the DOT\xe2\x80\x99s compliance\nwith certain provisions of applicable laws, regulations, contracts, and grant agreements, and other matter;\nand management\xe2\x80\x99s and our responsibilities.\n\nOpinion on the Financial Statements\nWe have audited the accompanying consolidated balance sheet of the U.S. Department of Transportation\n(DOT) as of September 30, 2012 and the related consolidated statements of net cost, and changes in net\nposition, and the combined statement of budgetary resources for the year then ended.\n\nIn our opinion, the consolidated financial statements referred to above present fairly, in all material\nrespects, the financial position of the DOT as of September 30, 2012 and its net costs, changes in net\nposition, and budgetary resources for the year then ended, in conformity with U.S. generally accepted\naccounting principles. The consolidated financial statements of the DOT as of September 30, 2011, and for\nthe year then ended were audited by other auditors. Those auditors expressed an unqualified opinion on the\nfiscal year 2011 consolidated financial statements in their report dated November 11, 2011.\n\nAs discussed in Note 1 to the consolidated financial statements, the DOT changed its presentation for\nreporting the Combined Statement of Budgetary Resources in fiscal year 2012, based on new reporting\nrequirements under OMB Circular No. A-136, Financial Reporting Requirements. As a result, certain\nbalances on the DOT\xe2\x80\x99s Combined Statement of Budgetary Resources for fiscal year 2011 have been\nreclassified to conform to the current year presentation.\n\nAs discussed in Notes 1 and 20, the consolidated financial statements reflect actual excise tax revenues\ndeposited in the Highway Trust Fund and the Airport and Airway Trust Fund through June 30, 2012, and\nexcise tax receipts estimated by the Department of Treasury\xe2\x80\x99s Office of Tax Analysis for the quarter ended\nSeptember 30, 2012.\n\nU.S. generally accepted accounting principles require that the information in the Management\xe2\x80\x99s Discussion\nand Analysis, Required Supplementary Information, and Required Supplementary Stewardship\nInformation sections be presented to supplement the basic financial statements. Such information, although\nnot a part of the basic financial statements, is required by the Federal Accounting Standards Advisory\nBoard who considers it to be an essential part of financial reporting for placing the basic financial\nstatements in an appropriate operational, economic, or historical context. We have applied certain limited\nprocedures to the required supplementary information in accordance with auditing standards generally\naccepted in the United States of America, which consisted of inquiries of management about the methods\n\x0cU.S. Department of Transportation\nNovember 15, 2012\nPage 3 of 5\n\n\n\n\nof preparing the information and comparing the information for consistency with management\xe2\x80\x99s responses\nto our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the\nbasic financial statements. We do not express an opinion or provide any assurance on the information\nbecause the limited procedures do not provide us with sufficient evidence to express an opinion or provide\nany assurance.\n\nOur audit was conducted for the purpose of forming an opinion on the basic financial statements as a\nwhole. The information in the Other Accompanying Information, Forward, and Message from the\nSecretary sections as listed in the Table of Contents of the DOT Agency Financial Report are presented for\nthe purposes of additional analysis and are not a required part of the basic financial statements. Such\ninformation has not been subjected to the auditing procedures applied in the audit of the basic financial\nstatements, and accordingly, we do not express an opinion or provide any assurance on them.\n\nInternal Control Over Financial Reporting\nOur consideration of the internal control over financial reporting was for the limited purpose described in\nthe Responsibilities section of this report and was not designed to identify all deficiencies in internal\ncontrol over financial reporting that might be significant deficiencies or material weaknesses and therefore,\nthere can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been\nidentified. However, in our fiscal year 2012 audit, we identified certain deficiencies in internal control over\nfinancial reporting that we consider to be a material weakness and other deficiencies that we consider to be\nsignificant deficiencies.\n\nA deficiency in internal control exists when the design or operation of a control does not allow\nmanagement or employees, in the normal course of performing their assigned functions, to prevent, or\ndetect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of\ndeficiencies, in internal control such that there is a reasonable possibility that a material misstatement of\nthe entity\xe2\x80\x99s financial statements will not be prevented, or detected and corrected on a timely basis. We\nconsider the deficiency described in Exhibit I to be a material weakness.\n\nA significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less\nsevere than a material weakness, yet important enough to merit attention by those charged with\ngovernance. We consider the deficiencies described in Exhibit II to be significant deficiencies.\n\nExhibit IV presents the status of prior year significant deficiencies and instances of non-compliance.\n\nWe noted certain additional matters that we have reported to management of the DOT in a separate letter\ndated November 15, 2012.\n\nCompliance and Other Matters\nThe results of certain of our tests of compliance as described in the Responsibilities section of this report,\nexclusive of those referred to in the Federal Financial Management Improvement Act of 1996 (FFMIA),\ndisclosed two instances of noncompliance or other matters that are required to be reported herein under\nGovernment Auditing Standards or OMB Bulletin No. 07-04, and are described in Exhibit III.\n\x0cU.S. Department of Transportation\nNovember 15, 2012\nPage 4 of 5\n\n\n\n\nThe results of our other tests of compliance as described in the Responsibilities section of this report,\nexclusive of those referred to in FFMIA, disclosed no instances of noncompliance or other matters that are\nrequired to be reported herein under Government Auditing Standards or OMB Bulletin No. 07-04.\n\nThe results of our tests of FFMIA disclosed instances, described in Exhibit III, where the DOT\xe2\x80\x99s financial\nmanagement systems did not substantially comply with applicable Federal accounting standards.\n\nThe results of our tests of FFMIA disclosed no instances in which the DOT\xe2\x80\x99s financial management\nsystems did not substantially comply with (1) Federal financial management systems requirements and (2)\nthe United States Government Standard General Ledger at the transaction level.\n\n *******\n\nResponsibilities\nManagement\xe2\x80\x99s Responsibilities. Management is responsible for the consolidated financial statements;\nestablishing and maintaining effective internal control over financial reporting; and complying with laws,\nregulations, contracts, and grant agreements applicable to the DOT.\n\nAuditors\xe2\x80\x99 Responsibilities. Our responsibility is to express an opinion on the fiscal year 2012\nconsolidated financial statements of the DOT based on our audit. We conducted our audit in accordance\nwith auditing standards generally accepted in the United States of America; the standards applicable to\nfinancial audits contained in Government Auditing Standards, issued by the Comptroller General of the\nUnited States; and OMB Bulletin No. 07-04. Those standards and OMB Bulletin No. 07-04 require that we\nplan and perform the audits to obtain reasonable assurance about whether the consolidated financial\nstatements are free of material misstatement. An audit includes consideration of internal control over\nfinancial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but\nnot for the purpose of expressing an opinion on the effectiveness of the DOT\xe2\x80\x99s internal control over\nfinancial reporting. Accordingly, we express no such opinion.\n\nAn audit also includes:\n\n\xe2\x80\xa2 Examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated\n financial statements;\n\xe2\x80\xa2 Assessing the accounting principles used and significant estimates made by management; and\n\xe2\x80\xa2 Evaluating the overall consolidated financial statement presentation.\nWe believe that our audit provides a reasonable basis for our opinion.\n\nIn planning and performing our fiscal year 2012 audit, we considered the DOT\xe2\x80\x99s internal control over\nfinancial reporting by obtaining an understanding of the DOT\xe2\x80\x99s internal control, determining whether\ninternal controls had been placed in operation, assessing control risk, and performing tests of controls as a\nbasis for designing our auditing procedures for the purpose of expressing our opinion on the consolidated\nfinancial statements, but not for the purpose of expressing an opinion on the effectiveness of the DOT\xe2\x80\x99s\ninternal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of\nthe DOT\xe2\x80\x99s internal control over financial reporting. We did not test all controls relevant to operating\nobjectives as broadly defined by the Federal Managers\xe2\x80\x99 Financial Integrity Act of 1982.\n\x0cU.S. Department of Transportation\nNovember 15, 2012\nPage 5 of 5\n\n\n\n\nAs part of obtaining reasonable assurance about whether the DOT\xe2\x80\x99s fiscal year 2012 consolidated financial\nstatements are free of material misstatement, we performed tests of the DOT\xe2\x80\x99s compliance with certain\nprovisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a\ndirect and material effect on the determination of the consolidated financial statement amounts, and certain\nprovisions of other laws and regulations specified in OMB Bulletin No. 07-04, including the provisions\nreferred to in Section 803(a) of FFMIA. We limited our tests of compliance to the provisions described in\nthe preceding sentence, and we did not test compliance with all laws, regulations, contracts, and grant\nagreements applicable to the DOT. However, providing an opinion on compliance with laws, regulations,\ncontracts, and grant agreements was not an objective of our audit and, accordingly, we do not express such\nan opinion.\n\n ______________________________\n\nThe DOT\xe2\x80\x99s written response to the findings identified in our audit and presented herein was not subjected\nto the auditing procedures applied in the audit of the DOT\xe2\x80\x99s consolidated financial statements and,\naccordingly, we express no opinion on it.\n\nThis report is intended solely for the information and use of the DOT\xe2\x80\x99s management, the DOT\xe2\x80\x99s Office of\nInspector General, OMB, the U.S. Government Accountability Office, and the U.S. Congress and is not\nintended to be and should not be used by anyone other than these specified parties.\n\n\n\n\nNovember 15, 2012\n\x0cU.S. Department of Transportation\nIndependent Auditors\xe2\x80\x99 Report\nInternal Control over Financial Reporting EXHIBIT I\n MATERIAL WEAKNESS\n______________________________________________________________________________________\n\nA. Lack of Sufficient Controls over Undelivered Orders\n\nCriteria\n\nUS Code Title 31 Section 1501 states that an amount shall be recorded as an obligation of the United States\nGovernment only when supported by documentary evidence of a binding agreement between an agency\nand another person (including an agency) that is (a) in writing, in a way and form, and (b) for a purpose\nauthorized by law, and executed before the end of the period of availability.\nUS Code Title 31 Section 1554 states that the head of each agency shall establish internal controls to assure\nthat an adequate review of obligated balances is performed to support the certification required by section\n1108 (c) of this title.\nThe United States Standard General Ledger Supplement No. S2 Treasury Financial Manager defines an\nUndelivered Order (Obligation) as the amount of goods and/or services ordered, which have not been\nactually or constructively received and for which amounts have not been prepaid or advanced. This\nincludes amounts specified in other contracts or agreements such as grants, program subsidies, undisbursed\nloans and claims, and similar events for which an advance or prepayment has not occurred.\nStatement of Federal Financial Accounting Concepts (SFFAC) No 1, Objective of Federal Financial\nReporting Issued by the Federal Financial Accounting Standards Advisory Board (FASAB), Federal\nfinancial reporting should assist report users in understanding whether financial management systems and\ninternal accounting and administrative controls are adequate to ensure that transactions are executed in\naccordance with budgetary and financial laws and other requirements, consistent with the purpose\nauthorized, and are recorded in accordance with federal accounting standards.\nThe Standards for Internal Control in the Federal Government (Standards) issued by the Government\nAccountability Office states that transactions should be promptly recorded to maintain their relevance and\nvalue to management in controlling operations and making decisions. This applies to the entire process or\nlife cycle of a transaction or event from the initiation and authorization through its final classification in\nsummary records. In addition, control activities help to ensure that all transactions are completely and\naccurately recorded.\n\nBackground\n\nIn carrying out its mission, the DOT incurs obligations by entering into contracts or agreements for the\npurchase of goods and services from other Federal agencies and the public, and for the execution of grant\nagreements with state and local governments and other grantees. These obligations are recorded as\nundelivered orders in the DOT consolidated financial statements on the statement of budgetary resources.\n\nOnce an obligation is satisfied and/or no longer required, funds are required to be de-obligated, which\nreduces the balance of undelivered orders and potentially releases the funds for other uses. As of\nSeptember 30, 2012, the DOT reported $86.5 billion in obligations, which included an adjustment in the\namount of $1.4 billion that was not properly supported by a new contract, grant agreement, or underlying\nfinancial event.\n\x0cU.S. Department of Transportation\nIndependent Auditors\xe2\x80\x99 Report\nInternal Control over Financial Reporting EXHIBIT I\n MATERIAL WEAKNESS\n______________________________________________________________________________________\n\nCondition\n\nWe noted a control deficiency in the monitoring of grant and non-grant undelivered orders, particularly\nthose obligations that were aged over one year and had no recent activity (aged undelivered orders).\nSpecifically, we noted that DOT has inadequate policies and/or does not consistently apply its policy of\ntimely review and de-obligation of open obligations. The following conditions were identified during our\naudit:\n\n 1. As of March 31, 2012:\n\n \xe2\x80\xa2 During our review of a statistical sample of 235 items, totaling $1.3 billion from a total of $7.5\n billion of aged grant related undelivered orders, we noted that for 75 items, totaling $109\n million, the related grant agreements\xe2\x80\x99 period of performance had either ended and/or the project\n funded by the grant was completed; however, the unused obligations for these items were not\n properly de-obligated by management.\n\n \xe2\x80\xa2 In addition, during our review a statistical sample of 25 items, totaling $433 million from a\n total of $816 million of aged non-grant related undelivered orders, we noted that for 13 items,\n totaling $1.5 million, the related contracts/agreements had ended; however, the unused balances\n for these items were not properly de-obligated by management.\n\n\nBased on these reviews, we determined that a potentially material amount of undelivered orders were\nreported as of March 31, 2012, which should have been deobligated. Subsequently, and as a result of our\nreview, DOT conducted a review of aged grant related undelivered orders as of March 31, 2012 and de-\nobligated approximately $2.1 billion of grant agreements.\n\n\n 2. As of August 31, 2012:\n\n \xe2\x80\xa2 During our review of a statistical sample of 232 items, totaling $2.3 billion from a total of $7.7\n billion of aged grant related undelivered orders, we noted that for 15 items, totaling $39.3\n million, the related grant agreements\xe2\x80\x99 period of performance had either ended and/or the project\n funded by the grant was completed; however, the unused obligations for these items were not\n properly de-obligated by management.\nCause\nExisting controls for the review and monitoring of grant and non-grant related undelivered orders to\ndetermine if the obligation is still valid are not adequately designed, at the appropriate level of precision, to\ntimely identify all unused obligation balances that may, in the aggregate, be material to the consolidated\nfinancial statements taken as a whole.\nSpecifically, under the DOT\xe2\x80\x99s Federal Highway Administration\xe2\x80\x99s (FHWA) existing process, the Financial\nIntegrity Review and Evaluation (FIRE) program, grants with unexpended obligation balances of $50,000\nto $500,000 are not included in the review until the grant has been inactive for 24 months and grants with\nunexpended obligation balances of less than $50,000 are not included in the review until the grant has been\n\x0cU.S. Department of Transportation\nIndependent Auditors\xe2\x80\x99 Report\nInternal Control over Financial Reporting EXHIBIT I\n MATERIAL WEAKNESS\n______________________________________________________________________________________\n\ninactive for 36 months. In addition, the personnel executing the existing review process do not always\nproperly identify amounts that should be de-obligated.\nThe DOT\xe2\x80\x99s Federal Transit Administration\xe2\x80\x99s (FTA) existing process to annually review and de-obligate\nfunds is not appropriately designed to timely identify unused obligation balances as the review only\nincludes grants that were originally obligated more than 5 years ago with no activity within 18 months.\n\nEffect\n\nUndelivered orders were potentially overstated as of September 30, 2012 by approximately $319.2 million\nand $131.3 million for grant and non-grant related undelivered orders, respectively. Furthermore, the lack\nof adequate processes to review undelivered orders increases the risk that material misstatements may\noccur and not be detected.\nRecommendations\n\nWe recommend that DOT perform the following:\n\n 1. Develop a department-wide requirement for the periodic operating administration certification of\n the open obligation balance that is inactive for twelve or more months;\n 2. Develop and provide training department-wide related to grants management, including the\n monitoring and close-out process;\n 3. Revise the FHWA FIRE program and the FTA review process to require more timely identification\n and de-obligation of aged grant obligations; and\n 4. Implement a review process that requires all other DOT operating administrations to analyze and\n monitor grant and non-grant related undelivered orders to ensure that the undelivered orders\n represent goods and services ordered, but not yet received prior to the end of the reporting period,\n or potential amounts yet to be claimed under the grant agreement.\n\x0cU.S. Department of Transportation\nIndependent Auditors\xe2\x80\x99 Report\nInternal Control over Financial Reporting EXHIBIT II\n SIGNFICIANT DEFICIENCIES\n______________________________________________________________________________________\n\nB. Lack of Sufficient Controls over Grant Accruals\n\nCriteria\n\nStatement of Federal Accounting Standards (SFFAS) No. 5, Accounting for Liabilities of the Federal\nGovernment, Issued by the Federal Accounting Standards Advisory Board (FASAB) states, a liability for\nfederal accounting purposes is a probable future outflow or other sacrifice of resources as a result of past\ntransactions or events. General purpose federal financial reports should recognize probable and measurable\nfuture outflows or other sacrifices of resources arising from (1) past exchange transactions, (2)\ngovernment-related events, (3) government-acknowledged events, or (4) nonexchange transactions that,\naccording to current law and applicable policy, are unpaid amounts due as of the reporting date.\n\nFASAB Technical Release 12: Accrual Estimate for Grant Programs states agencies must accumulate\nsufficient relevant and reliable data on which to base accrual estimates. Each agency should prepare grant\naccrual estimates based upon the best available data at the time the estimates are made. As part of the\nagencies\xe2\x80\x99 internal control procedures to ensure that grant accrual estimates for the basic financial\nstatements were reasonable, agencies should validate grant accrual estimates by comparing the estimates\nwith subsequent grantee reporting.\nThe DOT Financial Management Policies Manual requires that estimated accruals be carefully analyzed\nand compared with subsequent actual amounts to ensure that the accrual estimation process is continuously\nrefined to improve accuracy. Further, the DOT Financial Management Policies Manual requires that\naccruals be as accurate as possible based on actual events.\n\nBackground\n\nAt fiscal year-end, the DOT calculates and records an estimated liability for amounts owed to its grantees\nfor costs incurred under grant agreements (including any subcontractor costs), but not yet billed to or\nreimbursed by the DOT. Seventy-eight percent of the DOT\xe2\x80\x99s grant accrual balance as of September 30,\n2012 is comprised of grant accruals related to the Federal Highway Administration (FHWA), the Federal\nAviation Administration (FAA), Office of the Secretary (OST), and the Federal Railroad Administration\n(FRA). As the grants related to each of these operating administrations are vastly different in nature, each\noperating administration develops a unique grant accrual methodology.\n\nCondition\n\nDuring our review of the estimation methodology for the DOT\xe2\x80\x99s grant accruals, we noted the following\nweaknesses in the grant accrual estimation methodology for FHWA (including OST), FAA, and FRA:\n\nFederal Highway Administration and Office of the Secretary\nDuring our review of the estimation process for FHWA\xe2\x80\x99s grant accrual, we noted that while FHWA is\nresponsible for managing certain grants on behalf of the DOT\xe2\x80\x99s OST, such as portions of the TIGER\nGrants Program, FHWA did not properly include these grants in the grant accrual calculation provided to\nOST for recording at period-end. In addition, we noted that FHWA had not performed an assessment to\n\x0cU.S. Department of Transportation\nIndependent Auditors\xe2\x80\x99 Report\nInternal Control over Financial Reporting EXHIBIT II\n SIGNFICIANT DEFICIENCIES\n______________________________________________________________________________________\n\ndetermine if a grant accrual was necessary for three of its grant programs with significant expense activity\nduring fiscal year 2012.\n\nFederal Aviation Administation\nDuring our review of the estimation process for FAA\xe2\x80\x99s grant accrual, we noted that FAA had not\nperformed an adequate retrospective review or look back analysis to validate the methodology used to\ncalculate its grant accrual as of September 30, 2011, as required by generally accepted accounting\nprinciples and the DOT Financial Management Policies Manual. In addition, we noted that there was not a\nprocess in place to accumulate sufficient relevant and reliable data from grantees as a basis for preparing\ngrant accrual estimates.\nFederal Railroad Administration\nDuring our review of the estimation process for FRA\xe2\x80\x99s grant accrual as of March 31, 2012, we noted that\nFRA had not performed a retrospective review or look back analysis to validate the methodology used to\ncalculate its grant accrual as of September 30, 2011, as required by generally accepted accounting\nprinciples and the DOT Financial Management Policies Manual. In addition, we noted that FRA does not\nhave a process in place to ensure that a complete population of grantees was included in its accrual\ncalculation. Specifically, we noted that thirteen treasury fund symbols, which consisted of 226 grantees,\nwith significant outstanding grant-related obligations, were omitted from the calculation.\n\nFRA management subsequently updated its grant accrual methodology as of June 30, 2012 to include a\nretrospective review of the prior period accrual, however it does not include a process to ensure the\ncompleteness of the population of grantees used in the accrual calculation. Specifically, we noted that\nseven grantees were omitted from its grant accrual calculation as of June 30, 2012. In addition, we noted\nthat data used to capture the incurred, but not yet billed costs, for nine of the twenty-five grantees selected\nfor review was not based on current, relevant data as these grantees had not submitted current financial\nreports. Lastly, we noted that FRA did not perform an analysis to estimate the costs incurred by the\ngrantees, but not yet submitted for payment.\n\nCause\n\nFederal Highway Administration\nThere are not adequate controls in place at FHWA to ensure that all significant grantees and/or overall\ngrant programs are properly included in the grant accrual estimate methodology.\nFederal Aviation Administation\nThere are not adequate controls in place at FAA to require a retrospective review or look back analysis to\nvalidate its grant accrual methodology. In addition, FAA does not have a process in place to accumulate\nsufficient relevant and reliable data from its grantees that can be used as a basis for preparing future grant\naccruals.\nFederal Railroad Administration\nThere are not adequate controls in place at FRA to require a retrospective review or look back analysis to\nvalidate its grant accrual methodology. In addition, the grant accrual methodology does not include the\n\x0cU.S. Department of Transportation\nIndependent Auditors\xe2\x80\x99 Report\nInternal Control over Financial Reporting EXHIBIT II\n SIGNFICIANT DEFICIENCIES\n______________________________________________________________________________________\n\ncosts incurred by the grantees, but not yet submitted for payment as of period-end. Lastly, the controls in\nplace at FRA are not adequate to ensure that all significant grantees are included in the grant accrual\ncalculation.\n\nEffect\n\nThe grant accrual is potentially understated in DOT\xe2\x80\x99s interim financial statements submitted to the Office\nof Management and Budget (OMB) and on the consolidated financial statements as of September 30, 2012.\n\nRecommendations\n\nWe recommend that FHWA (in coordination with OST, where applicable):\n\n1. Determine the appropriate grant accrual for the related FHWA TIGER grant programs; and\n2. Perform a quarterly evaluation for applicable grant programs to determine if an accrual is required.\n\nWe recommend that FRA:\n\n1. Perform the required retrospective review or look back analysis to validate its grant accrual\n methodology in accordance with generally accepted accounting principles and the DOT Financial\n Management Policies Manual;\n2. Update its grant accrual methodology to include a thorough supervisory review to ensure all significant\n grant activity is properly included in the estimate and include an analysis for the costs incurred by the\n grantee, but not yet submitted for payment; and\n3. Establish additional procedures to obtain current and relevant data for grants with outdated grantee\n reporting.\n\nWe recommend that FAA:\n\n1. Perform the required retrospective review or look back analysis to validate its grant accrual\n methodology in accordance with generally accepted accounting principles and the DOT Financial\n Management Policies Manual; and\n2. Develop a process to accumulate relevant and reliable data from grantees to use in estimating its grant\n accrual.\n\x0cU.S. Department of Transportation\nIndependent Auditors\xe2\x80\x99 Report\nInternal Control over Financial Reporting EXHIBIT II\n SIGNFICIANT DEFICIENCIES\n______________________________________________________________________________________\n\nC. Lack of Sufficient Controls over Financial Statement Preparation and Review\n\nCriteria\n\nThe Federal Managers\xe2\x80\x99 Financial Integrity Act of 1982 (FMFIA) requires that agencies establish internal\ncontrols according to standards prescribed by the Comptroller General. These standards are established in\nthe GAO\xe2\x80\x99s Standards for Internal Control in the Federal Government (Standards). The GAO defines\ninternal control as an integral component of an organization\xe2\x80\x99s management that provides reasonable\nassurance that the following objectives are achieved: effectiveness and efficiency of operations, reliability\nof financial reporting, and compliance with applicable laws and regulations.\n\nThe GAO Standards identify the control environment as one of the five key elements of control, which\nemphasizes the importance of conscientiousness in management\xe2\x80\x99s operating philosophy and commitment\nto internal control. These standards cover controls such as human capital practices, supervisory reviews,\npolicies, procedures, monitoring, and segregation of duties.\n\nBackground\n\nFinancial reporting in the federal environment is a complicated and evolving process. In addition, the\ncomplex and varied operations of the DOT and its 13 operating administrations makes consolidated\nreporting, under standards issued by the Federal Accounting Standards Advisory Board (FASAB) and\nOMB, a challenge for the DOT.\n\nCondition\n\nDuring our fiscal year 2012 audit, we noted several areas for improvement in the DOT\xe2\x80\x99s consolidated\nfinancial statement preparation and review. Specifically, through our review of the DOT\xe2\x80\x99s interim\nconsolidated financial statements as of and for the period ended June 30, 2012, we noted numerous\nmaterial misclassifications in the notes to the financial statements. The misclassifications occurred within\nthe following note disclosures:\n\n \xe2\x80\xa2 Fund Balance with Treasury;\n \xe2\x80\xa2 Property, Plant & Equipment;\n \xe2\x80\xa2 Liabilities Not Covered by Budgetary Resources;\n \xe2\x80\xa2 Other Liabilities;\n \xe2\x80\xa2 Earmarked Funds; and\n \xe2\x80\xa2 Reconciliation of Net Cost to Budget.\n\nIn addition, through our review of the DOT\xe2\x80\x99s consolidated financial statements as of and for the year ended\nSeptember 30, 2012, we noted additional misclassifications in the following note disclosures, which were\nsubsequently corrected:\n\n \xe2\x80\xa2 Earmarked Funds;\n \xe2\x80\xa2 Commitments and Contingencies;\n \xe2\x80\xa2 Combined Statement of Budgetary Resources \xe2\x80\x93 Available Contract Authority at Year-end;\n\x0cU.S. Department of Transportation\nIndependent Auditors\xe2\x80\x99 Report\nInternal Control over Financial Reporting EXHIBIT II\n SIGNFICIANT DEFICIENCIES\n______________________________________________________________________________________\n\n \xe2\x80\xa2 Reconciliation of Net Cost to Budget; and\n \xe2\x80\xa2 Fiduciary Activities.\n\nCause\n\nExisting controls related to the DOT operating administration preparation and the consolidated review of\nthe financial statements and notes are not adequately designed, at the appropriate level of precision, to\nprevent a misstatement in the financial statements or notes.\n\nEffect\n\nMisstatements and/or misclassifications may occur and not be detected in the consolidated financial\nstatements and notes.\n\nRecommendations\n\nWe recommend that DOT:\n\n 1. Develop financial statement and note disclosure preparation guidance for the operating\n administrations to ensure consistency across the Department;\n 2. Provide training, where necessary, to the operating administrations to ensure the financial\n statement and note disclosure guidance is implemented department-wide and to ensure the\n operating administrations understand the requirements of each line item on the financial statements\n and notes;\n 3. Develop a financial statement (including notes) review checklist (that includes a review of account\n mapping) to be completed by the operating administrations prior to submission of their financial\n statements and to be completed by the DOT after consolidation; and\n 4. Automate footnotes, where applicable, to ensure consistency across the Department.\n\x0cU.S. Department of Transportation\nIndependent Auditors\xe2\x80\x99 Report\nCompliance and Other Matters EXHIBIT III\n INSTANCES OF NONCOMPLIANCE\n______________________________________________________________________________________\n\n\nD. Noncompliance with the Federal Financial Management Improvement Act of 1996 (FFMIA)\n\nCriteria\nThe Federal Financial Improvement Management Act of 1996, Section 803(a) states that Federal financial\nmanagement systems comply with (1) Federal accounting standards, (2) Federal system requirements, and\n(3) the United States Government Standard General Ledger at the transaction level. FFMIA emphasizes\nthe need for agencies to have systems that can generate timely, reliable, and useful information with which\nto make informed decisions to ensure ongoing accountability.\nCondition\nThe DOT is required to prepare its financial statements in accordance with applicable Federal accounting\nstandards. As discussed in the Internal Control over Financial Reporting section of this report, we identified\na material weakness related to controls over undelivered orders that affected the DOT\xe2\x80\x99s ability to prepare\nits financial statements in accordance with Federal accounting standards.\nCause\nThere are not adequate policies and procedures over undelivered orders to establish and maintain financial\nmanagement systems that comply with Federal accounting standards.\nEffect\nThe DOT\xe2\x80\x99s financial management systems did not substantially comply with the applicable Federal\naccounting standards.\nRecommendation\nWe recommend that the DOT improve its internal controls over undelivered orders, as noted above, to\nensure that DOT\xe2\x80\x99s financial management systems comply with the Federal accounting standards.\n\n\nE. Noncompliance with the Anti-Deficiency Act\n\nCriteria\nTitle 31 U.S. Code (U.S.C.) Section 1517 states that an officer or an employee of the United States\nGovernment may not make or authorize an expenditure or obligation exceeding an apportionment or an\namount permitted by regulations as specified by Title 31 U.S.C. Section 1514.\n\nCondition\nKnown Anti-Deficiency Act Violations:\nMaritime Administration (MARAD)\nDuring fiscal years 2003 through 2008, the U.S. Merchant Marine Academy, a component of MARAD,\ncommitted Anti-Deficiency Act violations totaling approximately $5 million, as a result of charging user\nfees above the amounts allowable under the U.S.C and using these fees to pay for the Academy\xe2\x80\x99s\noperations. The DOT reported this violation to the Office of Management and Budget (OMB), the\nPresident, U.S. Senate, and U.S. Congress on July 6, 2012.\n\x0cU.S. Department of Transportation\nIndependent Auditors\xe2\x80\x99 Report\nCompliance and Other Matters EXHIBIT III\n INSTANCES OF NONCOMPLIANCE\n______________________________________________________________________________________\n\nFederal Motor Carrier Safety Administration (FMCSA)\nDuring the fiscal years 2005 through 2010, the FMCSA committed Anti-Deficiency Act violations totaling\n$25.6 million, as a result of issuing grant awards within the Commercial Vehicle Systems and Networks\n(CVISN) that exceeded available funding for this program, as well as reprogramming of funds within the\nCVISN, Performance Information Systems Management (PRISM), and Safety Improvement Program\n(SaDIP) grant programs, which resulted in grant awards exceeding the available funding. As of the date of\nour report, the DOT has drafted the final Anti-Deficiency Act report for OMB, the President, U.S. Senate,\nand U.S. Congress confirming the actual Anti-Deficiency Act violations by the FMCSA.\nFederal Highway Administration (FHWA)\n\nDuring fiscal year 2010, the FHWA committed Anti-Deficiency Act violations totaling $11.5 million, as a\nresult of entering obligations in the American Reinvestment and Recovery Act (ARRA) appropriation(s)\nwithin the Tiger Grants Program ($10M), Refuge Roads Program ($1.0M), and the Puerto Rico Highway\nProgram ($465K) that exceeded the amount apportioned in those program categories. As of the date of our\nreport, the DOT has not yet drafted the final Anti-Deficiency Act report for OMB, the President, U.S.\nSenate, and U.S. Congress confirming the actual Anti-Deficiency Act violations by the FHWA.\n\nPotential Anti-Deficiency Act Violations:\nFMCSA\nDuring fiscal years 2005 through 2010, the FMSCA may have committed further Anti-Deficiency Act\nviolations in relation to grant awards under the CVISN program.\nCause\nAt the time when the violations occurred, there were not sufficient controls in place to require an\nappropriate level of oversight over fund status monitoring to prevent Anti-Deficiency Act violations.\nEffect\nThe DOT is not in compliance with the Anti-Deficiency Act.\nRecommendations\n\nWe recommend that DOT:\n\n 1. Report the known violations, in accordance with the Anti-Deficiency Act and the applicable\n implementation guidance;\n 2. Complete the investigation into potential additional Anti-Deficiency Act violations at the FMCSA;\n and\n 3. Implement appropriate policies and procedures to prevent future violations.\n\x0cU.S. Department of Transportation\nIndependent Auditors\xe2\x80\x99 Report\nStatus of Prior Year Deficiencies EXHIBIT IV\n\n______________________________________________________________________________________\n\n Prior Year As Reported as of Status as of\n Condition\n September 30, 2011 September 30, 2012\n Control Deficiencies\n Financial and Fund Significant Deficiency: The DOT has No longer considered a\n Status Monitoring weaknesses in the following areas: Significant Deficiency.\n and Reporting\n \xe2\x80\xa2 Over-reliance of journal entries;\n \xe2\x80\xa2 Implementation of Managerial Cost\n Accounting; and\n \xe2\x80\xa2 Fund Status Monitoring and\n Reporting\n\n\n Undelivered Orders Significant Deficiency: The DOT has Elevated to a Material\n weaknesses in the management and Weakness (Exhibit I).\n monitoring of inactive obligations.\n Implementation of Significant Deficiency: The DOT (Federal No longer considered a\n GrantSolutions Railroads Administration and Federal Motor Significant Deficiency.\n Grants Management Carrier Safety Administration) has\n System weaknesses in the implementation of\n GrantSolutions.\n Compliance and Other Matters\n Anti-Deficiency Act Instance of Non-Compliance: The DOT Repeated as actual or\n management reported potential ADA matters potential non-compliance\n in FY 2011. violations (Exhibit III).\n Federal Managers\xe2\x80\x99 Instance of Non-Compliance: The DOT has No longer considered an\n Financial Integrity weaknesses in its processes and procedures instance of Non-\n Act (FMFIA) for reporting material weaknesses in its Compliance.\n FMFIA assurance statement as related to the\n effectiveness of the DOT\xe2\x80\x99s information\n security program and its compliance with\n FISMA requirements.\n\x0c U S Department of Assistant Secretary 1200 New Jersey Avenue, So\n s\n a\n e\n th\n u\n Transportation for Budget and Programs Washington, DC 20590\n and Chief Financial Officer\n Office of the Secretary\n of Transportation\n\n\n\n\n November 15, 2012\n\n Me m o r a n d u m t o : Calvin L Scovell thethird\n Inspector General, U S D OT\n\n M Hannah Padilla\n Partner, KP M G LLP\n\n Fr o m : Christopher P Bertram\n\n Su b j e c t : Management\xe2\x80\x99s Response to the Audit Report on the\n Consolidated Financial Statements for Fiscal Year (F Y)\n 2012\n\n\n The Department of Transportation (DOT) is pleased to respond to the unqualified audit\n report on our Consolidated Financial Statements for FY 2012. We take great pride in our\n ability to sustain strong and vigilant financial management, as demonstrated in our\n achievement of an unqualified audit opinion.\n\n We concur with the one material weakness and two significant deficiencies contained in\n your report on internal controls over financial reporting, and with two instances of non\xc2\xad\n compliance found in certain provisions of selected laws and regulations that you\n reviewed. We concur with all recommendations. Corrective actions have already begun\n to address these issues. The Department plans to submit a detailed action plan along with\n estimated completion dates of the actions to the Inspector General no later than\n December 31, 2012, to address the findings contained in your report.\n\n We appreciate the professionalism and cooperation exhibited by your office during the\n audit. Our combined efforts and teamwork made the difference in successfully meeting\n the objectives o f the financial audit process. Please refer any questions to David J\n Rivait, Deputy Chief Financial Officer.\n\n\n\n\n53 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cAGENCY\nFINANCIAL\nREPORT\nFISCAL YEAR 2012\n\x0cTABLE OF CONTENTS\n\xef\xbf\xbd\n\n\n 3 FOREWORD\n 5 MESSAGE FROM THE SECRETARY\n 11 MANAGEMENT\xe2\x80\x99S DISCUSSION AND ANALYSIS\n 12 DOT Mission and Values\n 13 Organizational Chart\n 14 Overview Legislative Authority\n 16 Performance Highlights\n 17 Performance Summary Tables\n 22 Financial Highlights\n 24 FY2012 FMFIA Assurance Letter to the President\n 27 System, Controls, and Legal Compliance\n 27 Federal Manager\xe2\x80\x99s Financial Integrity Act (FMFIA)\n 28 Federal Financial Management Improvement Act (FFMIA)\n 28 FISMA Compliance: Corrective Action Summary\n 29 SSAE-16 Review on DOT\xe2\x80\x99s Financial Management System\n 30 Implementation of eInvoicing for Grants\n 30 Inspector General\xe2\x80\x99s FY 2012 Top Management Challenges\n\n 31 FINANCIAL REPORT\n 32 Message from the Chief Financial Officer\n 34 Office of Inspector General Quality Control Review\n 37 Independent Audit Report\n 54 Principal Statements\n 59 Notes to Principal Statements\n 96 Required Supplementary Information (RSI)\n 101 Required Supplementary Stewardship Information (RSSI)\n\n 106 OTHER ACCOMPANYING INFORMATION\n 107 Schedule of Spending\n 108 Net Cost by DOT Goal\n 109 Summary of Financial Statement Audit and Management Assurances\n 110 Inspector General\xe2\x80\x99s 2013 Top Management Challenges\n 132 Improper Payments Information Act (IPIA) Reporting (As Amended by IPERA)\n\n\n\n\n Cover Image Courtesy of Presidio Parkway\n\n\n\n\n 2 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cFOREWORD\n\xef\xbf\xbd\n\x0cFOREWORD\n\xef\xbf\xbd\nThe United States Department of Transportation\xe2\x80\x99s (DOT or Department)\nAgency Financial Report (AFR) for fiscal year (FY) 2012 provides an\noverview of the Department\xe2\x80\x99s financial performance and results to\nCongress, the President, and the American people.\n\n\n\n\n THE REPORT DETAILS INFORMATION about our stewardship ANNUAL PERFORMANCE REPORT (APR)\n of the financial resources entrusted to us. Additionally, the [AVAILABLE FEBRUARY 2013]\n report provides information about our performance as an organi- The APR will be produced in conjunction with the FY 2013\n zation, our achievements, initiatives, and challenges. President\xe2\x80\x99s Budget Request and will provide the detailed per-\n formance information and descriptions of results by each key\n The AFR is the first in a series of reports required under the performance measure.\n Office of Management and Budget\xe2\x80\x99s Program for Alternative\n Approaches to Performance and Accountability Reporting. This The FY 2012 summary of performance information will be\n is the third year that the Department has prepared an AFR. The found on page 16 of the AFR.\n report provides readers with an overview of the Department\xe2\x80\x99s\n highest priorities, as well as our strengths and challenges. The APR report satisfies the reporting requirements of the\n following major legislation:\n The Department\xe2\x80\x99s FY 2012 annual reporting includes\n the following two components: \xe2\x96\xb6\t Reports Consolidation Act of 2000;\n\n AGENCY FINANCIAL REPORT (AFR) \xe2\x96\xb6\t Government Performance and Results Act of 1993;\n The following AFR report is organized into two major sections:\n The Management\xe2\x80\x99s Discussion and Analysis section provides \xe2\x96\xb6\t Chief Financial Officers Act of 1990;\n executive\xe2\x80\x93level information on the Department\xe2\x80\x99s history, mis-\n sion, organization, key activities, analysis of financial statements, \xe2\x96\xb6\t Government Management Reform Act of 1994;\n systems, controls and legal compliance, accomplishments for the\n fiscal year, and management and performance challenges facing \xe2\x96\xb6\t Federal Managers\xe2\x80\x99 Financial Integrity Act of 1982;\n the Department.\n \xe2\x96\xb6\t Federal Financial Management Improvement Act of \n\n The Financial Details section provides a Message From the 1996; and\n\t\n Chief Financial Officer, consolidated and combined financial\n statements, the Department\xe2\x80\x99s notes to the financial statements, \xe2\x96\xb6 Improper Payments Information Act of 2002.\n and the Report of the Independent Auditors.\n The reports will be available on the Department\xe2\x80\x99s website at:\n The Other Accompanying Information section provides Improper http://www.dot.gov/budget.\n Payments Information Act reporting details and other statutory\n reporting requirements including a new OMB requirement, the\n Schedule of Spending (SOS). The SOS presents an overview\n of how and where agencies are spending their money.\n\n\n\n\n 4 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cMESSAGE FROM THE SECRETARY\n\xef\xbf\xbd\n\x0cMESSAGE FROM THE SECRETARY\n\xef\xbf\xbd\nI am pleased to present the U.S. Department of Transportation\xe2\x80\x99s (DOT)\nannual Financial Report. Consistent with all statutory requirements,\nthis material provides reliable and complete information on DOT\xe2\x80\x99s\nfinancial operations and performance for the fiscal year that ended\nSeptember 30, 2012.\n\n\n\n\n OVERVIEW OF FY 2012 FINANCIAL RESULTS\n This report is presented together with our annual Performance Report that will be released in 2013.\n As we have for the past several years, I am very pleased that DOT again received an unqualified\n audit opinion on its financial statements.\n\n Of note during 2012, DOT made significant progress in addressing an internal control weakness\n related to adequate monitoring of Undelivered Orders (UDOs). The UDOs are budget obligations\n that have not yet been fully liquidated by making a payment. The Department undertook major\n steps during the fourth quarter to review these transactions, confirm the validity of outstanding\n obligations, and correct balances that needed adjustment. In addition, to ensure the reliability of\n UDO reporting in the future, new Department-wide guidance concerning the periodic review of\nRAY LaHOOD these balances will be implemented in early 2013.\n\n Supported by the Department\xe2\x80\x99s successful financial performance, we made significant progress\n toward our strategic goals and objectives during 2012. Looking forward to the coming year, the\n Department will continue to lead in promoting safety and critical transportation investments that\n will strengthen our nation and help the economic recovery move forward.\n\n STRATEGIC GOALS - In a time of great challenge and opportunity, the traveling public is calling\n for investment in all modes of transportation, and for policies that bring affordable housing closer\n to good schools and quality jobs. People from across the political spectrum recognize that our trans-\n portation system must become safer, more efficient, more outcome-based, more cost-effective, and\n more environmentally sustainable. To respond to these challenges, DOT\xe2\x80\x99s financial resources and\n programs have been carefully structured around the following five strategic goals:\n\n \xe2\x96\xb6\t SAFETY - Improving transportation safety is DOT\xe2\x80\x99s top priority. Our goal is to bring a Depart-\n ment-wide focus on reducing transportation-related fatalities and injuries. Our key initiatives\n include: roadway safety for all users; combating distracted driving and other dangerous behav-\n iors; pursuing a more effective Federal role in transit safety; and addressing the most serious\n safety risks in other surface transportation modes and in aviation.\n\n \xe2\x96\xb6\t STATE OF GOOD REPAIR - Recent reports on the condition of key facilities-highways, bridges,\n transit systems, passenger rail and airport runways-reveal that many fall short of a state of\n good repair and thus compromise the safety, capacity, and efficiency of the U.S. transporta-\n tion system. The DOT programs bring a strong emphasis on improving the condition of our\n infrastructure. The DOT encourages its government and industry partners to make optimal use\n of existing capacity, minimize life-cycle costs, and apply sound asset management principles\n throughout the system.\n\n\n\n6 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cMESSAGE FROM THE SECRETARY\n\xef\xbf\xbd\n \xe2\x96\xb6\t ECONOMIC COMPETITIVENESS - With demand for both freight and passenger transportation\n expected to more than double by 2050, our goal is to support the U.S. economy by fostering\n smart, strategic investments that will serve the traveling public and facilitate freight movement.\n Our central strategies for achieving maximum economic returns on our policies and invest-\n ments include leading the development of intercity, high-speed passenger rail and a competi-\n tive air transportation system; increasing travel time reliability in freight-significant highway\n corridors; improving the performance of freight rail and maritime networks; advancing\n transportation interests in targeted markets around the world; and expanding opportunities\n in the transportation sector for small businesses.\n\n \xe2\x96\xb6\t LIVABLE COMMUNITIES - These are places where coordinated transportation, housing, and\n commercial development give people access to affordable and environmentally sustainable\n transportation. Our emphasis is a transformational policy shift for the Department. Over the\n last 50 years, transportation spending has often been poorly coordinated with other infrastructure\n investments resulting in auto-dependent residential communities where access to job\n opportunities and key amenities is inadequate and expensive. Now, we will pursue coordinated,\n place-based policies and investments that increase transportation choices and access to public\n transportation services for all Americans.\n\n \xe2\x96\xb6\t ENVIRONMENTAL SUSTAINABILITY - Transportation is crucial to our economy and our\n quality of life, but building, operating, and maintaining transportation systems clearly have\n significant environmental impacts on our air, water, and natural ecosystems. The transportation\n sector is a significant source of greenhouse gas (GHG) emissions, accounting for 33 percent\n of total U.S. GHG emissions in 2009. The Department\xe2\x80\x99s programs address these challenges\n through strategies such as fuel economy standards for cars and trucks, more environmentally\n sound construction and operational practices, and by expanding opportunities for shifting\n freight from less fuel-efficient modes to more fuel-efficient modes.\n\nINFRASTRUCTURE INVESTMENTS AND MAP-21\nIn July, President Obama signed into law the Moving Ahead for Progress in the 21st Century Act\n(MAP-21). The MAP-21 provides needed funds and represents a milestone for the U.S. economy.\nThis is the first multi-year transportation authorization enacted since 2005. It funds surface transpor-\ntation programs at over $105 billion for FY 2013 and FY 2014, and this legislation transforms the\nframework for investments to guide the growth and development of the country\xe2\x80\x99s vital transporta-\ntion infrastructure.\n\nThis bipartisan Act will create jobs. It builds on our aggressive safety efforts, including our fight\nagainst distracted driving and our push to improve transit and motor carrier safety. This law also\nprovides States and communities with 2 years of steady funding to build the roads, bridges, and\ntransit systems they need.\n\nWhile MAP-21 provides predictability in transportation funding in the near future, 2 years will\npass quickly. We need to begin work on a 6-year bill to provide the long-term stability needed for\ntransportation programs. After 56 years of steady funding increases fueled by Federal gas taxes, the\nHighway Trust Fund now faces shortfalls. A long-term surface transportation reauthorization bill\nwith increased resources is urgently required to spur economic growth.\n\nHIGHLIGHTS OF KEY INITIATIVES IN 2012\nOur transportation infrastructure, much of which was built decades ago, is aging and in need of repair.\nThe growing U.S. population, particularly in metropolitan areas, increasingly demands varied,\naccessible, affordable, and environmentally sustainable transportation options. Programs authorized\n\n\n\n7 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cMESSAGE FROM THE SECRETARY\n\xef\xbf\xbd\n\nunder MAP-21 are a good start to achieving this new vision. The Department\xe2\x80\x99s key initiatives,\nformulated to support our strategic goals, have furthered these efforts in 2012 and will continue\non this path in 2013.\n\nINNOVATIVE FINANCING\nThe Transportation Infrastructure Financing and Innovation Act (TIFIA) program provides Federal\ncredit assistance to eligible surface transportation projects. The TIFIA program includes Federal\ncredit assistance in the form of direct loans, loan guarantees, and standby lines of credit to finance\nsurface transportation projects of national and regional significance. The TIFIA credit assistance\nprovides improved access to capital markets, flexible repayment terms, and potentially more favor-\nable interest rates than can be found in private capital markets for similar instruments. The TIFIA\nprogram can help advance qualified, large-scale projects that otherwise might be delayed or deferred\nbecause of size, complexity, or uncertainty over the timing of revenues. Many surface transportation\nprojects-highway, transit, railroad, intermodal freight, and port access-are eligible for assistance.\n\nSince its launch, TIFIA has helped projects turn about $9 billion in DOT assistance into $36 billion\nin infrastructure investment across America. Now, MAP-21 has transformed TIFIA into the largest\ntransportation infrastructure loan program in history. Under MAP-21, DOT can extend $1.7 billion\nin capital for TIFIA. But each dollar of Federal funds can actually provide approximately $10\nbillion in TIFIA credit assistance, meaning $17 billion in loans. Projects can then use this credit to\nleverage an additional $20 to $30 billion in investment from other sources. This means that, alto-\ngether, the expanded loan program could result in up to $50 billion in public and private investment\nin critical transportation infrastructure needs from coast to coast.\n\nFUEL ECONOMY STANDARDS\nIn August 2012, the Administration finalized groundbreaking standards that will increase fuel\neconomy to the equivalent of 54.5 miles per gallon for cars and light-duty trucks by Model Year\n2025. When combined with previous standards set by this Administration, this move will nearly\ndouble the fuel efficiency of those vehicles compared to new vehicles currently on our roads. In\ntotal, the Administration\xe2\x80\x99s national program to improve fuel economy and reduce greenhouse gas\nemissions will reduce U.S. oil consumption by 12 billion barrels.\n\nThese fuel standards represent the single most important step we have ever taken to reduce our\ndependence on foreign oil and will strengthen our Nation\xe2\x80\x99s energy security. This historic agreement\nbuilds on the progress we have already made to save families money at the pump and cut our oil\nconsumption. It is great news for middle class families, and it will help create an economy built to\nlast.\n\nNEXTGEN\nThe NextGen is an umbrella term for the ongoing transformation of the National Airspace System.\nAt its most basic level, NextGen represents an evolution from a ground-based system of air traffic\ncontrol to a satellite-based system of air traffic management. This evolution is vital to meeting\nfuture demand, and to avoiding gridlock in the sky and at our nation\xe2\x80\x99s airports.\n\nThe NextGen will open America\xe2\x80\x99s skies to continued growth and increased safety while reducing\naviation\xe2\x80\x99s environmental impact. We will realize these goals through the development of aviation-\nspecific applications for existing, widely-used technologies, such as the Global Positioning System,\nand technological innovation in areas such as weather forecasting, data networking, and digital\ncommunications. Hand-in-hand with state-of-the-art technology will be new airport infrastructure\n\n\n\n8 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cMESSAGE FROM THE SECRETARY\n\xef\xbf\xbd\n\nand new procedures, including the shift of certain decision-making responsibility from the ground\nto the cockpit.\n\nThe NextGen will be a better way of doing business. Travel will be more predictable because there\nwill be fewer delays, less time sitting on the ground and holding in the air, with more flexibility to\nget around weather problems. Also, these improvements will reduce aviation\xe2\x80\x99s impact on the envi-\nronment. Flying will be quieter, cleaner, and more fuel-efficient. We will use alternative fuels, new\nequipment, and operational procedures, which will lessen our impact on the climate. In addition,\nmore precise flight paths will help us limit the amount of noise that communities experience. Fur-\nther, with NextGen we will be even more proactive about preventing accidents with new technology\nthat will help us to predict risks and resolve hazards.\n\nDISTRACTED DRIVING\nIn our current era of advancing technology and access to smartphones, many think they can use\nthese devices while driving, but the consequences can be dire. When someone takes his or her focus\noff the road-even if just for a moment-he or she puts the lives of all those around them in danger.\nDistracted driving is unsafe, irresponsible, and-in a split second-it can be devastating. Distracted\ndriving is any activity that could divert a person\xe2\x80\x99s attention away from the primary task of driv-\ning. All distractions endanger driver, passenger, and bystander safety. These types of distractions\ninclude: texting, using a cell phone or smartphone, eating and drinking, talking to passengers, or\nusing a navigation system. Because text messaging requires visual, manual, and cognitive attention\nfrom the driver, though, it is by far the most alarming distraction. Sending or receiving a text takes\na driver\xe2\x80\x99s eyes from the road for an average of 4.6 seconds, the equivalent-at 55 mph-of driving\nthe length of an entire football field blind. Text messaging creates a crash risk 23 times worse than\ndriving while not distracted.\n\nIn 2010, 3,092 people were killed in crashes involving a distracted driver, and an estimated\nadditional 416,000 were injured in motor vehicle crashes involving a distracted driver. The best way\nto end distracted driving is to educate all Americans about the danger it poses, and DOT will remain\nat the forefront of a campaign to inform the public about this hazard.\n\nHIGH SPEED RAIL\nThe Administration has placed a new emphasis on building high-speed and intercity passenger\nrail to connect communities and economic centers across the country. A fully developed passenger\nrail system will complement highway, aviation and public transit systems. With the successful\ncompletion of the original phases of the Northeast Corridor (NEC) Improvement Project offering\nAmtrak\xe2\x80\x99s maximum 150 miles per hour (mph) Acela train service between Washington, New York,\nand Boston, efforts to develop high-speed intercity passenger rail service have expanded beyond\nNEC. However, just as the Interstate Highway System took 50 years to complete, the true potential\nof a fully integrated high-speed intercity passenger rail network will not be achieved or realized\novernight.\n\nThe DOT is working with States to plan and develop high-speed and intercity passenger rail corridors\nthat range from upgrades to existing services to entirely new rail lines exclusively devoted to 150\nto 220 mph trains. Today, over 30 States are at work building this bold vision for 21st century rail.\nOur partners are moving forward with more than 150 high-speed and higher performing passenger\nrail projects. In 2012 alone, nearly $3 billion in Federal investments are scheduled to be underway\nor complete. Implementing these corridor projects and programs will serve as a catalyst to promote\neconomic expansion (including new manufacturing jobs), create new choices for travelers\n\n\n\n9 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cMESSAGE FROM THE SECRETARY\n\xef\xbf\xbd\n\nin addition to flying or driving, reduce national dependence on oil, and foster livable urban and\nrural communities.\n\nOnce track is laid and stations are constructed, high-speed rail will spur economic development. It\nwill generate quality jobs at small business all along its corridors. Our highways and airports simply\ncannot handle the substantial growth forecast over the next several decades. A new, modem, high-\nspeed rail network must be an important part of the solution.\n\nLOOKING AHEAD\nThis year has seen many achievements to improve our country\xe2\x80\x99s transportation systems. As we\ncontinue to move ahead in 2013, we look forward to working with the Congress and our public\nand private sector stakeholders to rebuild and strengthen America\xe2\x80\x99s roads, transit systems, airways,\nand waterways, creating the means by which we connect with one another, grow our economy, and\npursue our dreams.\n\n\n\n\nRAY LaHOOD\n\n\n\n\n10 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cMANAGEMENT\xe2\x80\x99S DISCUSSION\nAND ANALYSIS\n\x0cMANAGEMENT\xe2\x80\x99S DISCUSSION AND ANALYSIS\n\xef\xbf\xbd\n\nDOT MISSION AND VALUES ORGANIZATION\n\nMISSION Established in 1967, DOT sets Federal transportation policy and\nThe Department\xe2\x80\x99s mission is to serve the United States by ensuring works with State, local, and private-sector partners to promote\na fast, safe, efficient, accessible, and convenient transportation a safe, secure, efficient, and interconnected National transporta-\nsystem that meets our vital national interests and enhances the tion system of roads, railways, pipelines, airways, and seaways.\nquality of life of the American people, today and into the future. DOT\xe2\x80\x99s overall objective of creating a safer, simpler, and smarter\n transportation system is the guiding principle as the Department\nVALUES moves forward to achieve specific goals.\nPROFESSIONALISM As accountable public servants, DOT\nemployees exemplify the highest standards of excellence, HOW DOT IS ORGANIZED\nintegrity, and respect in the work environment. DOT employs more than 57,000 people in the Office of the\n Secretary (OST) and through twelve Operating Administrations\nTEAMWORK DOT employees support each other, respect (OAs) and bureaus, each with its own management and\ndifferences in people and ideas, and work together in ONE organizational structure.\nDOT fashion.\n The Office of the Secretary provides overall leadership and\nCUSTOMER FOCUS DOT employees strive to understand and management direction, administers aviation economic and\nmeet the needs of the Department\xe2\x80\x99s customers through service, consumer protection programs, and provides administrative\ninnovation, and creativity. We are dedicated to delivering results support. The Office of Inspector General (OIG) and the Surface\nthat matter to the American people. Transportation Board (STB), while formally part of DOT, are\n independent by law.\n\n\n\n\n12 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cORGANIZATIONAL CHART\n\xef\xbf\xbd\n\n\n\n\n SECRETARY/\n DEPUTY\n SECRETARY\n\n\n\n ASSISTANT\n SECRETARY FOR\n TRANSPORTATION\n POLICY\n UNDERSECRETARY\n FOR POLICY ASSISTANT\n SECRETARY\n FOR AVIATION AND\n INTERNATIONAL\n AFFAIRS\n\n\n\n\n ASSISTANT OFFICE OF DRUG\n ASSISTANT OFFICE OF THE CHIEF\n BOARD OF SECRETARY FOR BUDGET OFFICE OF CIVIL & ALCOHOL EXECUTIVE\n SECRETARY FOR INFORMATION\n CONTRACT APPEALS AND PROGRAMS & CHIEF RIGHTS POLICY & SECRETARIAT\n ADMINISTRATION OFFICER\n FINANCIAL OFFICER COMPLIANCE\n\n\n\n\n ASSISTANT OFFICE OF SMALL\n OFFICE OF\n SECRETARY FOR OFFICE OF PUBLIC & DISADVANTAGED\n GENERAL COUNSEL INTELLIGENCE\n GOVERNMENTAL AFFAIRS BUSINESS\n AND SECURITY\n AFFAIRS UTILIZATION\n\n\n\n\n FEDERAL MOTOR\n FEDERAL AVIATION FEDERAL HIGHWAY FEDERAL RAILROAD FEDERAL TRANSIT MARITIME\n CARRIER SAFETY\n ADMINISTRATION ADMINISTRATION ADMINISTRATION ADMINISTRATION ADMINISTRATION\n ADMINISTRATION\n\n\n\n\n PIPELINE AND RESEARCH AND SAINT LAWRENCE\n NATIONAL HIGHWAY OFFICE OF SURFACE\n HAZARDOUS INNOVATIVE SEAWAY\n TRAFFIC SAFETY INSPECTOR TRANSPORTATION\n MATERIALS SAFETY TECHNOLOGY DEVELOPMENT\n ADMINISTRATION GENERAL BOARD\n ADMINISTRATION ADMINISTRATION CORPORATION\n\n\n\n\n13 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n \xef\xbf\xbd\n\x0cOVERVIEW LEGISLATIVE AUTHORITY OPERATING ADMINISTRATIONS AND\n INDEPENDENT ORGANIZATIONS\nThe Secretary of Transportation, under the direction of the\nPresident, exercises leadership in transportation matters. Section OFFICE OF THE SECRETARY (OST)\n101 of Title 49 United States Code describes the United States The Office of the Secretary oversees the formulation of national\nDepartment of Transportation purposes as follows: transportation policy and promotes intermodal transportation.\n Other responsibilities include negotiation and implementation\nA.\t\xef\xbf\xbd \xe2\x80\x9cThe national objectives of general welfare, economic of international transportation agreements, assuring the fitness of\n growth and stability, and security of the United States U.S. airlines, enforcing airline consumer protection regulations,\n require the development of transportation policies and pro- issuance of regulations to prevent alcohol and illegal drug misuse\n grams that contribute to providing fast, safe, efficient, and in transportation systems, and preparing transportation legisla-\n convenient transportation at the lowest cost consistent with tion.\n those and other national objectives, including the efficient\n use and conservation of the resources of the United States. FEDERAL AVIATION ADMINISTRATION (FAA)\n The Federal Aviation Administration\xe2\x80\x99s mission is to provide the\nB.\t\xef\xbf\xbd A Department of Transportation is necessary in the public\n safest, most efficient aerospace system in the world.\n interest and to\xe2\x80\x94\n\n 1.\t\xef\xbf\xbd ensure the coordinated and effective \n FEDERAL HIGHWAY ADMINISTRATION (FHWA)\n administration of the transportation programs \n The mission of the Federal Highway Administration (FHWA) is\n of the United States Government;\n\t to improve mobility on our Nation\xe2\x80\x99s highways through national\n leadership, innovation, and program delivery.\n 2.\t\xef\xbf\xbd make easier the development and improvement of\n coordinated transportation service to be provided\n FEDERAL MOTOR CARRIER SAFETY\n by private enterprise to the greatest extent feasible;\n ADMINISTRATION (FMCSA)\n 3.\t\xef\xbf\xbd encourage cooperation of Federal, State, and local The Federal Motor Carrier Safety Administration\xe2\x80\x99s primary\n governments, carriers, labor, and other interested mission is to reduce crashes, injuries, and fatalities involving\n persons to achieve transportation objectives; large trucks and buses.\n 4.\t\xef\xbf\xbd stimulate technological advances in transportation,\n FEDERAL RAILROAD ADMINISTRATION (FRA)\n through research and development or otherwise;\n The mission of the Federal Railroad Administration is to enable\n 5.\t\xef\xbf\xbd provide general leadership in identifying and solving the safe, reliable, and efficient transportation of people and goods\n transportation problems; and for a strong America, now and in the future.\n 6.\t\xef\xbf\xbd develop and recommend to the President and Congress\n FEDERAL TRANSIT ADMINISTRATION (FTA)\n transportation policies and programs to achieve trans-\n The Federal Transit Administration\xe2\x80\x99s mission is to improve\n portation objectives considering the needs of the public,\n public transportation for passengers and America\xe2\x80\x99s communities.\n users, carriers, industry, labor, and national defense.\xe2\x80\x9d\n\n MARITIME ADMINISTRATION (MARAD)\n The Maritime Administration\xe2\x80\x99s mission is to improve and\n strengthen the U.S. marine transportation system to meet the\n economic, environmental, and security needs of the Nation.\n\n NATIONAL HIGHWAY TRAFFIC SAFETY\n ADMINISTRATION (NHTSA)\n The National Highway Traffic Safety Administration\xe2\x80\x99s mission is\n to save lives, prevent injuries, and reduce economic costs due to\n road traffic crashes, through education, research, safety standards,\n and enforcement activity.\n\n\n\n\n14 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cOFFICE OF INSPECTOR GENERAL (OIG)\nThe Inspector General Act of 1978, as amended, established\nthe Office of Inspector General as an independent and objective\norganization within the DOT. The OIG is committed to fulfilling\nits statutory responsibilities and supporting members of Con-\ngress, the Secretary, senior Department officials, and the public\nin achieving a safe, efficient, and effective transportation system.\n\nPIPELINE AND HAZARDOUS MATERIALS SAFETY\nADMINISTRATION (PHMSA)\nPHMSA\xe2\x80\x99s mission is to protect people and the environment\nfrom the risks inherent in transportation of hazardous materials\nby pipeline and other modes of transportation.\n\nRESEARCH AND INNOVATIVE TECHNOLOGY\nADMINISTRATION (RITA)\nThe Research and Innovative Technology Administration works\nto advance DOT priorities for innovation and research in transporta-\ntion technologies and concepts.\n\nSAINT LAWRENCE SEAWAY DEVELOPMENT\nCORPORATION (SLSDC)\nThe Saint Lawrence Seaway Development Corporation\xe2\x80\x99s mission is\nto serve the marine transportation industries by providing a safe,\nsecure, reliable, efficient, and competitive deep draft international\nwaterway, in cooperation with the Canadian St. Lawrence\nSeaway Management Corporation.\n\nSURFACE TRANSPORTATION BOARD (STB)\nThe Surface Transportation Board is charged with promoting\nsubstantive and procedural regulatory reform in the economic\nregulation of surface transportation, and with providing an\nefficient and effective forum for the resolution of disputes\nand the facilitation of appropriate business transactions.\n\n\n\n\n15 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cPERFORMANCE HIGHLIGHTS ECONOMIC COMPETITIVENESS\n DOT has established a goal to support the U.S. economy by fos-\nThis is the first year that the Department of Transportation will tering smart, strategic investments that serve the traveling public\nreport against \xe2\x80\x9cTransportation for a New Generation,\xe2\x80\x9d DOT\xe2\x80\x99s and facilitate freight movement. The Department\xe2\x80\x99s central strate-\nStrategic Plan for Fiscal Years 2012 \xe2\x80\x93 2016. Under this Strate- gies for achieving maximum economic returns on its policies and\ngic Plan, the Department continues to track many of the mea- investments include leading the development of intercity, high-\nsures found in the previous plan, but as the agency builds upon speed passenger rail and a competitive air transportation system;\nprogress in improving transportation and develops new strategic increasing travel time reliability in freight-significant highway\npriorities, some new measures were developed. corridors; improving the performance of freight rail and maritime\n networks; advancing transportation interests in targeted markets\nAn overview of the Department\xe2\x80\x99s strategic goals is provided around the world; and expanding opportunities in the transporta-\nbelow, and a complete analysis of DOT\xe2\x80\x99s successes and challenges tion sector for small businesses. In FY 2012, preliminary results\nrelated to FY 2012 performance targets will be included in show that the Department met or exceeded all 18 targets for the\nthe Annual Performance Report. A brief discussion of the economic competitiveness goals.\nDepartment\xe2\x80\x99s results by strategic goal follows.\n LIVABLE COMMUNITIES\nSAFETY Fostering livable communities \xe2\x80\x93 places where coordinated trans-\nImproving transportation safety remains DOT\xe2\x80\x99s top priority. The portation, housing, and commercial development gives people\nDepartment tracks the safe movement of Americans and products access to affordable and environmentally sustainable transpor-\non the highways, in the air, on transit systems, on railroads, and tation \xe2\x80\x93 is a transformational policy shift for DOT. Through the\nthrough pipelines. The Department has estimated or final 2012 principles established in the livable communities strategic goal,\nresults for 11 of the 13 safety goals that will be included in the the Department will pursue coordinated, place-based policies\nAnnual Performance Report. Preliminary performance measure and investments that increase transportation choices and access\nresults show that the Department is on target or exceeding the to public transportation services for all Americans. Based on pre-\ntarget for all but one of the goals. DOT does not anticipate liminary data, DOT met or exceeded FY 2012 targets for five of\nachieving its FY 2012 target for the number of fatal general six livable communities goals. The Department is awaiting final\naviation (GA) accidents per 100,000 flight hours, because the data for the two remaining goals and results will be discussed in\nnumber of fatal GA accidents continues to decline more slowly the Annual Performance Report released in early 2013.\nthan anticipated. Most of the fatalities occurred in the area of\nexperimental aircraft, which are predominately amateur-built. ENVIRONMENTAL SUSTAINABILITY\nThese aircraft accounted for approximately 28 percent of GA While the transportation sector is a significant source of green-\nfatal accidents while contributing to slightly less than 4 percent house gas (GHG) emissions, the Department is working to ad-\nof GA flying hours. FAA continues to pursue multiple avenues dress and mitigate this challenge through strategies such as fuel\nfor addressing this issue. economy standards for cars and trucks, more environmentally\n sound construction and operational practices, and by expanding\nSTATE OF GOOD REPAIR opportunities for shifting freight from less fuel-efficient modes to\nRecent reports on the condition of key facilities \xe2\x80\x93 highways, more fuel-efficient modes. A full discussion of the Department\xe2\x80\x99s\nbridges, transit systems, passenger rail, and airport runways FY 2012 environmental sustainability goals will be included in\n\xe2\x80\x93 reveal that many fall short of a state of good repair and thus the Annual Performance Report.\ncompromise the safety, capacity, and efficiency of the U.S.\ntransportation system. DOT\xe2\x80\x99s role in achieving a state of good\nrepair is through strong programmatic emphasis and new resources\naimed at improving the condition of our infrastructure. DOT\nalso encourages its government and industry partners to make\noptimal use of existing capacity, minimize life-cycle costs, and\napply sound asset management principles throughout the system.\nIn FY 2012, preliminary results show that the Department met or\nexceeded the target for each of the state of good repair goals for\nwhich data is currently available. The Department will work to\nfinalize results for all state of good repair performance measures\nprior to the release of the Annual Performance Report.\n\n\n\n\n16 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cPERFORMANCE SUMMARY TABLES\n\xef\xbf\xbd\n SAFETY PERFORMANCE SUMMARY\n\n\n 2012 2012\n PERFORMANCE MEASURE 2007 2008 2009 2010 2011 TARGET ACTUAL MET/NOT MET\n Highway fatality rate per 100 million vehicle-miles 1.36 1.26 1.15 1.11 1.09* 1.05 N/A Potentially Met\n traveled (VMT). (NHTSA, FHWA, FMCSA) (2011)\n\n\n Passenger vehicle occupant fatality rate per 100 1.08 0.97 0.89 0.84 0.83\xe2\x80\x930.89* 0.85 0.83\xe2\x80\x930.89* Potentially Met\n million VMT. (NHTSA, FHWA, FMCSA)\n\n Motorcyclist rider fatality rate per 100,000 72.48 68.52 56.36 54.82 56-58* 63 56-58* Potentially Met\n motorcycle registrations. (NHTSA, FHWA, FMCSA)\n\n Non-occupant (pedestrian and bicycle) fatality rate 0.18 0.18 0.17 0.17 0.16\xe2\x80\x930.17* 0.16 0.16\xe2\x80\x930.17* Potentially Met\n per 100 million VMT. (NHTSA, FHWA, FMCSA)\n\n Large truck and bus fatality rate per 100 million 0.169 0.155 0.123 0.131 0.117\xe2\x80\x930.134* 0.117 0.110\xe2\x80\x930.127* Potentially Met\n total VMT. (NHTSA, FHWA, FMCSA)\n\n Number of commercial air carrier fatalities per 100 N/A 0.4 6.7 0.3 0.0* 7.6 0.0* Potentially Met\n million persons onboard. (FAA)\n\n Number of fatal general aviation accidents per N/A N/A 1.16 1.10 1.13* 1.07 1.10* Potentially Not Met\n 100,000 flight hours. (FAA)\n\n Category A&B runway incursions per million 0.393 0.427 0.227 0.117 0.138 0.395 0.356 Met\n operations. (FAA)\n\n Pipeline incidents involving death or major injury. 47 40 49 39 39 43 32* Potentially Met\n (PHMSA)\n Hazardous materials incidents involving death or 36 24 29 19 33 34 33* Potentially Met\n major injury. (PHMSA)\n\n Transit fatalities per 100 million passenger-miles N/A N/A N/A .533 .547 .543 N/A Met (2011)\n traveled. (FTA) (r)\n\n Rail-related accidents and incidents per million 17.298 16.904 16.874 16.634 15.890 16.300 14.351* Potentially Met\n train-miles. (FRA)\xe2\x80\xa0\n\n Cumulative number of States and localities that N/A N/A 15 22 26 26 27 Met\n adopt roadway designs that accommodate all road\n users (complete streets). (OST)\n\n (r) Revised Performance Measure; * Preliminary Estimate; \xe2\x80\xa0 Actual results might differ from previous reports and are subject to change, due to subsequently obtained\n information. FY 2012 actuals are based on 9 months of preliminary data.\n\n\n\n\n17 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c STATE OF GOOD REPAIR PERFORMANCE SUMMARY\n\n\n 2012 2012\n PERFORMANCE MEASURE 2007 2008 2009 2010 2011 TARGET ACTUAL MET/ NOT MET\n Percent of travel on the National Highway 57 56 57 58 58 56.0 N/A** ---\n System (NHS) roads with pavement\n performance standards rated \xe2\x80\x9cgood.\xe2\x80\x9d\n (FHWA)\n\n Percent of deck area (i.e., the roadway 8.4 8.2 8.2 8.3 7.8 7.8 7.1* Potentially Met\n surface of a bridge) on NHS bridges rated (r) (r) (r) (r)\n structurally deficient. (FHWA)\n\n Backlog of transit capital assets in need of N/A N/A N/A $77.7 N/A^ $77.6 N/A^ ---\n replacement or refurbishment (as defined Billion Billion\n by an estimated condition rating of 2.5 or\n lower). (FTA)\n Percent of runway pavement in excellent, 96.6% 96.9% 97.0% 97.2% 97.4% 93.0% 97.5% Met\n good, or fair condition for paved runways\n in the National Plan of Integrated Airport\n Systems. (FAA)\n (r) Revised; * Preliminary Estimate; ^ 2011 and 2012 Actuals Available Following Release of Conditions and Performance Report ** Results currently unavailable;will be\n reported in the Annual Performance Report;\n\n\n\n\n18 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cECONOMIC COMPETITIVENESS PERFORMANCE SUMMARY\n\n\n 2012 2012\nPERFORMANCE MEASURE 2007 2008 2009 2010 2011 TARGET ACTUAL MET /NOT MET\nTravel time reliability in urban areas as measured 1.24(r) 1.21(r) 1.19(r) 1.21 1.21 1.21 1.21* Potentially Met\nby the Travel Time Index. (FHWA)\nTravel time reliability in freight significant 15.0 14.4 13.8 13.7 13.8 15.0 13.2* Potentially Met\ncorridors. (FHWA)\nNumber of corridor programs that will achieve N/A N/A N/A N/A 3 1 1 Met\ninitial construction. (FRA)\nNumber of individual construction projects that N/A N/A N/A N/A 8 14 19 Met\nwill achieve initial construction. (FRA)\nAverage daily airport arrival and departure 102,545 103,222 101,691 101,668 87,338 86,835 88,591* Potentially Met\ncapacity at Core Airports. (FAA)\nPercent of operational availability for the 99.83% 99.82% 99.78% 99.79% 99.72% 99.70% 99.80% Met\nreportable facilities that support Core Airports.\n(FAA)\nInitial operating capability on ERAM at continental N/A N/A N/A N/A 2 7 7 Met\nU.S. En Route centers. (FAA)\nPercent of time the U.S. portion of the St. 99.4% 98.8% 99.4% 99.8% 99.0% 99.0% 99.7% Met\nLawrence Seaway system and locks are\navailable. (SLSDC)\nShips available to meet DOD\xe2\x80\x99s requirements for 60 60 59 60 60 60 60 Met\ncommercial sealift capacity (as measured by the\nnumber of ships contractually enrolled in the\nmaritime security program). (MARAD)\nOperating days in U.S. foreign commerce and N/A N/A N/A 21,436 21,557 19,200 21,593 Met\navailable to meet DOD\xe2\x80\x99s requirements (as\nmeasured by the number of ship operating days\nthat ships enrolled in the MSP were actually\noperating in U.S. foreign commerce). (MARAD)\nNumber of Twenty Foot Equivalent (TEU) N/A N/A N/A N/A 1,061 3,500 8,221 Met\ncontainers transported across America\xe2\x80\x99s Marine\nHighway corridors. (MARAD)\nNumber of U.S. Merchant Marine Academy 210 219 198 198 205 210 219 Met\n(USMMA) graduates. (MARAD)\nNumber of State Maritime Academy graduates. N/A N/A N/A 575 545 592 607* Potentially Met\n(MARAD)\nPercent of NAS on-time arrivals at Core Airports. 86.96% 87.29% 88.98% 90.55% 90.41% 88.00% 92.50% Met\n(FAA)\nReview air carriers to ensure they meet the N/A N/A 22 20 26 18 27 Met\nrequisite standards for obtaining or retaining\neconomic authority to operate. (OST)\nReach new or expanded bilateral and multilateral 3 4 4 7 4 3 4 Met\nagreements to remove market-distorting barriers\nto trade in transportation. (OST)\nPercent of total dollar value of DOT direct 19.30% 16.19% 13.36% 14.00% 19.50% 15.00% 19.50%* Potentially Met\ncontracts awarded to small, disadvantaged\nbusinesses. (OST)\nPercent of total dollar value of DOT direct 10.40% 8.12% 10.94% 8.00% 11.10% 6.00% 10.40%* Met\ncontracts awarded to women-owned businesses.\n(OST)\n(r) Revised; * Preliminary Estimate\n\n\n\n\n19 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c LIVABLE COMMUNITIES PERFORMANCE SUMMARY\n\n\n 2012 2012 MET/ NOT\n PERFORMANCE MEASURE 2007 2008 2009 2010 2011 TARGET ACTUAL MET\n States with policies that improve N/A N/A N/A 21 24 26 26 Met\n transportation choices for walking\n and bicycling. (FHWA)\n States that have developed an N/A N/A N/A N/A 13 12 17 Met\n Americans with Disabilities Act (ADA)\n transition plan that is current and\n includes the public rights-of-ways.\n (FHWA)\n Number of calendar year transit 9.9 10.3 9.9 9.9 10.1 10.1 10.3 Potentially\n boardings reported by urbanized area Billion Billion Billion Billion Billion Billion Billion# Met\n transit providers. (FTA)\n Number of transit boardings reported 118 128 131 138 144 144 TBD^ Met\n by rural area transit providers. (FTA) Million Million Million Million Million Million (2011)\n Transit \xe2\x80\x9cmarket share\xe2\x80\x9d among N/A N/A N/A 0 1 4 TBD^ Not Met\n commuters to work in the 50 most- (2011)**\n populous urbanized areas. (FTA)\n Number of key rail stations verified N/A N/A N/A 513 522 531 567* Potentially Met\n as accessible and fully compliant.\n (FTA)\n Number of intercity rail passenger- 5.65 6.16 5.90 6.33 6.53 6.60 6.80 Met\n miles traveled. (FRA) Billion Billion Billion Billion Billion Billion Billion\n Percent of intercity passenger N/A N/A N/A N/A N/A 2% 0% Not Met\n rail stations that comply with the\n requirements of the ADA. (FRA)\n * Preliminary Estimate; # Projection from Trends; ^ 2012 Actual Available Late 2013;\n ** 2011 Interim Target Developed Prior to 2012-2016 Strategic Plan Release\n\n\n\n\n20 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c ENVIRONMENTAL SUSTAINABILITY PERFORMANCE SUMMARY\n\n\n 2012 MET/ NOT\n PERFORMANCE MEASURE 2007 2008 2009 2010 2011 TARGET ACTUAL MET\n NAS energy efficiency (measured by fuel (13.87%) (13.52%) (14.03%) (15.25%) (14.50%) (14.00%) (14.76%) Met\n burned per miles flown). (FAA)\n U.S. population exposed to significant N/A 383,465 291,768 317,596 315,293 386,000 319,901 Met\n aircraft noise around airports. (FAA)\n Hazardous liquid pipeline spills with 97 128 111 88 99 99 114* Potentially\n environmental consequences. (PHMSA) Not Met\n Percent reduction of vehicle fleet 11% 8% 14% 5% 4.9% 14% TBD** ---\n petroleum use. (OST)\n Percent improvement in water efficiency. N/A 2% 3.3% (1.2%) (9.7%) 10% TBD** ---\n (OST)\n Percent recycling and waste diversion. N/A N/A N/A ## ## 6% TBD** ---\n (OST)\n Percent of all applicable contracts that N/A N/A N/A ## 95% 95% TBD** ---\n meet sustainability requirements. (OST)\n Percent reduction in green-house gas N/A N/A N/A 7.9% 15.4% 4% TBD** ---\n emissions from facilities and fleets. (OST)\n Percent reduction in green-house gas N/A N/A N/A (4.7%) 0.1% 2% TBD** ---\n emissions from employee business travel\n and commuting. (OST)\n Compliance with the April 2010 court- N/A N/A N/A 11 15 2 10 Met\n ordered consent decree for removal of\n Suisun Bay Reserve Fleet non-retention\n ships on an annual basis. (MARAD)\n\n Percent of alternative-fuel and hybrid 39% 42% 43% 44% 45%* 46% TBD^ Met\n vehicles in the transit revenue service (2011)\n fleet. (FTA)\n * Preliminary Estimate; ** Results available in Jan. 2013 and reported in Annual Performance Report; ## Data unavailable; ^ 2012 Actual Available Late 2013\n\n\n\n\n21 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c The Department\xe2\x80\x99s assets reflected in the Consolidated Balance\nFINANCIAL HIGHLIGHTS Sheet are summarized in the following table.\n\nDOT has chosen to produce an Agency Financial Report (AFR)\nand an Agency Performance Report (APR) for FY 2012. The ASSETS BY TYPE\nDOT will include its FY 2012 APR with its Congressional DOLLARS IN\nBudget Justification and will post it on DOT\xe2\x80\x99s website at THOUSANDS\n 2012 % 2011 %\n\nwww.dot.gov by February 15, 2013. Fund Balance with $33,356,274 43.8 $39,761,625 46.4\n Treasury\nThe financial statements and financial data presented in this Investments 22,330,652 29.4 26,682,058 31.1\nReport have been prepared from the accounting books and\n General Property, 14,030,366 18.4 13,740,507 16.0\nrecords of the U.S. Department of Transportation in conformity\n Plant & Equipment\nwith generally accepted accounting principles (GAAP). GAAP\n Direct Loans and 5,022,807 6.6 4,187,635 4.9\nfor Federal entities are the standards and other authoritative Guarantees, Net\npronouncements prescribed by the Federal Accounting Stan-\n Inventory and Related 857,891 1.1 845,833 1.0\ndards Advisory Board (FASAB). Department management is Property, Net\nresponsible for the integrity and fair presentation of the financial\n Accounts Receivable 271,457 .4 266,388 .3\ninformation in these statements.\n Cash and Other 239,348 .3 247,528 .3\nThe American Recovery and Reinvestment Act of 2009 (ARRA Assets\nor the Recovery Act) continues to have a significant, although Total Assets $76,108,795 100.0 $85,731,574 100.0\nreduced, impact on the Department\xe2\x80\x99s financial statements when\ncomparing FY 2012 amounts to FY 2011 amounts for certain LIABILITIES The Department\xe2\x80\x99s Consolidated Balance Sheet\nfinancial statement line items. Of the $48.1 billion in appropri- reported total liabilities of $18 billion at the end of FY 2012, as\nations provided by ARRA in FY 2009, the Department obligat- summarized in the table below. This represents a modest decrease\ned $47.6 billion, or 99 percent of the available funding, as of from the previous year\xe2\x80\x99s total liabilities of $18.4 billion. The\nSeptember 30, 2012, with $8 billion obligated in FY 2011 and largest decrease was in the Accounts Payable line item as\na remaining $46 million obligated in FY 2012. The Department disbursements for ARRA programs continue to decline.\nhad disbursed $37 billion as of September 30, 2012, with $11.3\nbillion disbursed in FY 2011 and $5.3 billion disbursed in FY LIABILITIES BY TYPE\n2012.\n DOLLARS IN 2012 % 2011 %\n THOUSANDS\nBoth the Airport and Airway Trust Fund (AATF) and the\n Grant Accrual $6,315,689 35 $6,560,755 35.7\nHighway Trust Fund (HTF) were granted extensions of authority\nto collect excise taxes and to make expenditures in FY 2012. Debt 5,193,598 28.8 4,342,866 23.6\nIn February, the FAA Modernization and Reform Act of 2012,\n Other Liabilities 3,660,118 20.3 4,051,687 22.1\nPublic Law (P.L.) 112-95, extended AATF authority through\nSeptember 30, 2015. In July, Moving Ahead for Progress in the Federal Employee 1,019,076 5.6 978,918 5.3\n Benefits Payable\n21st Century (MAP-21), P.L. 112-141, infused the HTF with $2.4\nbillion in FY 2012 and extended its authority through September Environmental and 1,010,818 5.6 1,068,076 5.8\n Disposal Liabilities\n30, 2014.\n Accounts Payable 643,997 3.6 1,208,245 6.6\n\nOVERVIEW OF FINANCIAL POSITION Loan Guarantees 192,829 1.1 158,425 .9\nASSETS The Consolidated Balance Sheet reports a decrease\nin total assets to $76.1 billion at the end of FY 2012, compared Total Liabilities $18,036,125 100.0 $18,368,972 100.0\nwith $85.7 billion at the end of FY 2011. The Fund Balance with\nTreasury line item decreased by $6.4 billion as ARRA funding NET POSITION The Department\xe2\x80\x99s Consolidated Balance Sheet\nprovided in FY 2009 continued to be disbursed in FY 2012. and Consolidated Statement of Changes in Net Position report a\nInvestments decreased by $4.4 billion, as greater drawdowns Net Position of $58 billion at the end of FY 2012, a 13.8 percent\ndecreased the HTF investment balance by $6.3 billion, offset by decrease from the $67.4 billion from the previous fiscal year. The\nan increase in the AATF investment balance of $1.9 billion from decline is mainly attributable to a return to pre-ARRA funding\nexcise tax collections. levels. Net Position is the sum of Unexpended Appropriations\n and Cumulative Results of Operations.\n\n\n\n\n22 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNET COSTS The Department\xe2\x80\x99s total net cost of operations for\n RESOURCES\nFY 2012 was $77 billion. Surface and air costs represent 98.4\npercent of the Department\xe2\x80\x99s net cost of operations. Surface DOLLARS IN 2012 2011 (DECREASE)\ntransportation program costs represent the largest investment THOUSANDS\nfor the Department at 77.6 percent of the Department\xe2\x80\x99s net cost\n Total Budgetary\nof operations. Air transportation is the next largest investment $134,107,279 $140,800,746 %(4.8)\n Resources\nfor the Department at 20.8 percent of total net cost of operations.\n Obligations Incurred 86,554,746 90,313,537 %(4.2)\n\n NET COSTS Net Outlays 75,973,821 78,551,159 %(3.3)\n\n DOLLARS IN\n THOUSANDS 2012 % 2011 % HERITAGE ASSETS AND STEWARDSHIP\n LAND INFORMATION\n Surface Transportation $59,762,698 77.6 $60,319,117 77.2\n Heritage assets are property, plant, and equipment that are unique\n Air Transportation 16,004,333 20.8 16,544,662 21.2 for one or more of the following reasons: historical or natural\n Maritime Transportation 493,519 .6 484,393 .6\n significance; cultural, educational, or artistic importance; or\n significant architectural characteristics.\n Cross-Cutting Programs 391,458 .5 347,273 .5\n Stewardship land is land and land rights owned by the Federal\n Costs Not Assigned to 384,545 .5 417,558 .5\n Programs Government but not acquired for or in connection with items of\n general property, plant, and equipment.\nNet Cost of Operations $77,036,553 100.0 $78,113,003 100.0\n\n The Department\xe2\x80\x99s heritage assets consist of artifacts, museum\nRESOURCES and other collections, and buildings and structures. The artifacts\nBUDGETARY RESOURCES The Combined Statement of and museum and other collections are those of the Maritime\nBudgetary Resources provides information on how budgetary Administration. Buildings and structures include Union Station\nresources were made available to the Department for the year (rail station) in Washington, D.C., which is titled to the Federal\nand their status at fiscal year-end. For the 2012 fiscal year, the Railroad Administration.\nDepartment had total budgetary resources of $134.1 billion,\nwhich represents a 4.8 percent decline from FY 2011 levels of The Department holds transportation investments (stewardship\n$140.8 billion. Budget Authority of $134.1 billion consisted of land) through grant programs, such as the Federal aid highways,\n$51.5 billion in unobligated authority carried over from prior mass transit capital investment assistance, and airport planning\nyears, $19.7 billion in appropriations, $54.9 billion in borrowing and development programs.\nand contract authority, and $8 billion in spending authority from\noffsetting collections. The Department\xe2\x80\x99s FY 2012 obligations Financial information for heritage assets and stewardship land\nincurred totaled $86.6 billion compared with FY 2011 obligations is presented in the Financial Report section of this report in the\nincurred of $90.3 billion. Notes to the Financial Statements and Required Supplementary\n Information.\nNet Outlays reflect the actual cash disbursed against previously\nestablished obligations. For FY 2012, the Department had net LIMITATIONS OF THE FINANCIAL STATEMENTS\noutlays of $76 billion, compared to FY 2011 levels of $78.6 The principal financial statements have been prepared to\nbillion, a decrease of 3.3 percent. As expected, disbursements report the financial position and results of operations of the U.S.\nhave decreased as the Recovery Act program nears completion Department of Transportation, pursuant to the requirements of 31\n(i.e. as lower levels of obligations from FY 2012 and FY 2011 are U.S.C. 3515 (b).\nliquidated).\n These statements have been prepared from the books and records\n of the U.S. Department of Transportation in accordance with\n GAAP for Federal entities and in formats prescribed by OMB.\n The statements are in addition to the financial reports used to\n monitor and control budgetary resources, which are prepared\n from the same books and records.\n\n The statements should be read with the realization that they\n are for a component of the U.S. Government.\n\n\n\n\n23 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cFY2012 FMFIA ASSURANCE LETTER TO THE PRESIDENT\nTHE FOLLOWING IS TEXT OF THE SECRETARY\xe2\x80\x99S LETTER TO THE PRESIDENT\n\nI am pleased to report on the effectiveness of the internal controls and financial management\nsystems for the U.S. Department of Transportation (DOT) during Fiscal Year (FY) 2012. This report\nis based on our successful implementation of the Federal Managers\xe2\x80\x99 Financial Integrity Act of 1982\n(FMFIA); Office of Management and Budget (OMB) Circular A-123; Management\xe2\x80\x99s Responsibility\nfor Internal Control; and OMB Office of Federal Procurement Policy\xe2\x80\x99s Acquisition Assessment.\n\nThe FMFIA holds Federal managers accountable for establishing and maintaining effective internal\ncontrols and financial systems. All DOT organizations are subject to Sections 2 and 4 of FMFIA,\nexcept the Saint Lawrence Seaway Development Corporation, which reports separately under the\nGovernment Corporations Control Act.\n\nThe DOT is able to provide reasonable assurance that the internal controls and financial manage-\nment systems in effect during the period of October 1, 2011, through September 30, 2012, met the\nobjectives of both Sections 2 and 4 of the FMFIA, except for two material weaknesses. One weak-\nness is related to compliance with the Federal Information Security Management Act (FISMA), and\na second weakness involves improper controls over the review and monitoring of grant \xe2\x80\x9cUndeliv-\nered Orders\xe2\x80\x9d (UDOs). The UDOs are budget obligations that have not yet been fully liquidated by\nmaking a payment. Closely associated with this UDO issue, we also are citing a non-conformance\nwith accounting standards for reporting grant UDO balances. During FY 2012, DOT conducted its\nassessment of internal controls and compliance with applicable laws and regulations in accordance\nwith OMB Circular A-123.\n\nFISMA COMPLIANCE\nIn late 2011, the Office of Inspector General (OIG) issued a report on DOT\xe2\x80\x99s compliance with\nFISMA. The purpose of this review was to determine the effectiveness of DOT\xe2\x80\x99s security program\nand practices in the areas of policies and procedures, enterprise-level information security controls,\nmanagement of information security weaknesses, and system-level security controls. As a result\nof this review, OIG made 5 specific recommendations, in addition to the recommendations that\nremained open from previous OIG FISMA reports.\n\nAs part of our commitment to resolve these deficiencies, DOT made improvements during 2012\nthrough the issuance of new cybersecurity guidance for the majority of its components, and new cy-\nbersecurity policy specifically for the Office of the Secretary (OST). The DOT also made progress\non Administration cybersecurity priority goals, deploying continuous monitoring capabilities across\n66 percent of agency assets, consolidating 91 percent of its internet bandwidth through secured\ninternet connections, and enabling use of Personal Identity Verification (PIV) Cards for secure\nnetwork login for more than 70 percent of non-FAA personnel. Senior management and the Depart-\nment\xe2\x80\x99s Chief Information Officer (CIO) have been monitoring these corrective actions.\n\nAlthough progress has been made since 2011 to resolve outstanding FISMA matters, many of these\nconditions substantially existed during 2012, with corrective actions still in progress. We expect\nthat the OIG\xe2\x80\x99s report on FISMA for 2012 will reach a similar conclusion. As a consequence, DOT\xe2\x80\x99s\ncompliance with FISMA during 2012 again constituted a material weakness in internal control\nunder Section 2 of FMFIA. To remediate further the Department\xe2\x80\x99s cybersecurity program issues in\nthe coming year, DOT\xe2\x80\x99s corrective action plan contemplates additional progress in the following\ncritical areas:\n\n \xe2\x96\xb6\t Improving contingency planning and testing;\n\n \xe2\x96\xb6\t Improving the oversight of component-level security programs and weaknesses;\n\n \xe2\x96\xb6\t Further implementation of a continuous monitoring strategy and program across the \n\n Department; and \n\n\n \xe2\x96\xb6\t Substantial progress in closing remaining open audit recommendations.\n\n\n24 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cOMB CIRCULAR A-123, APPENDIX A INTERNAL CONTROL PROGRAM\nDuring FY 2012, DOT conducted an assessment of the effectiveness of internal controls over finan-\ncial reporting, including safeguarding of assets and compliance with applicable laws and regulations\nin accordance with the requirements of OMB Circular A-123, Appendix A. During FY 2012, DOT\nassessed and tested controls over key identified business processes, including Budget; Inventory\nManagement; Human Resources, Time and Attendance; Property Plant and Equipment; and Grants\nManagement. The DOT used a risk-based approach to determine other material business processes\nthat should be included in the testing.\n\nThe major OMB Circular A-123, Appendix A activities in FY 2012 included evaluating entity level,\nprocess level, and in-depth testing at the transaction level of internal controls over financial report-\ning for the 5 identified business processes. All deficiencies were communicated to senior manage-\nment and mitigated using existing remediation procedures.\n\nThe DOT confirmed a material weakness in internal controls related to grant UDOs. Existing con-\ntrols for the review and monitoring of grant UDOs needs to be strengthened to determine accurately\nif balances are still valid. Specifically, DOT determined that Federal Highway Administration\xe2\x80\x99s\n(FHWA) Financial Integrity Review and Evaluation tier review was not appropriately designed or\noperating effectively to timely identify unused obligation balances. The DOT also concluded that\nthe Federal Transit Administration\xe2\x80\x99s (FTA) review was not appropriately designed to timely identify\nunused obligation balances, as the annual review only included grants that were originally obligated\nmore than 5 years ago and had not recorded a disbursement within 18 months. Therefore, the DOT\nis reporting a material weakness in internal control under Section 2 of FMFIA.\n\nThe DOT is in the process of implementing corrective actions to mitigate this internal control\nweakness related to UDOs. Corrective actions include:\n\n \xe2\x96\xb6\t In the fourth quarter of 2012, a clean-up effort was conducted which greatly reduced inactive\n UDOs across the Department;\n\n \xe2\x96\xb6\t DOT initiated a training effort for key Agency staff on contract and grant closeout procedures.\n This should help ensure that UDO balances are reviewed timely and are accurately reflected in\n the Department\xe2\x80\x99s accounting records; and\n\n \xe2\x96\xb6\t A Department-wide order is being developed, requiring all DOT components to conduct \n\n a quarterly review of UDOs. This guidance is expected to be issued by the second quarter \n\n of 2013.\n\t\n\nBased on the overall results of this Circular A-123 evaluation, DOT can provide reasonable\nassurance that its internal control over financial reporting was operating effectively, except for the\nmaterial weakness related to grant UDOs noted above.\n\n\nFEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT (FFMIA)\nThe FFMIA states that each Agency shall implement and maintain financial management systems\nthat comply substantially with Federal financial management systems requirements, applicable\nFederal accounting standards, and the United States Government Standard General Ledger at the\ntransaction level.\n\nDuring FY 2012, DOT identified a non-conformance with Title 31, United States Code, Sections\n1501 and 1554, and The Standards for Internal Control in the Federal Government, issued by the\nGovernment Accountability Office. These issues are related to grant UDOs within FHWA and FTA.\nTherefore, DOT is reporting a non-conformance under Section 4 of FMFIA. The DOT is in the\nprocess of implementing several actions to correct this non-conformance with established account-\ning standards. These remediation activities are highlighted in our discussion of UDOs under the\nCircular A-123, Appendix A section of this correspondence.\n\n\n\n\n25 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cFMFIA INTERNAL CONTROL PROGRAM\nFor FY 2012, DOT utilized its standardized and consistent FMFIA Internal Control Program\napproach for managing control and compliance activities. The DOT identified and documented\nmeaningful Components and Assessable Units (AU). Inherent risk assessments were conducted\nto classify and prioritize each AU. Management Control Reviews, leveraging the 5 standards of\ninternal controls, as prescribed by the Committee of Sponsoring Organizations of the Treadway\nCommission and the U.S. Government Accountability Office, were conducted to identify, assess,\ndocument, and communicate key management and programmatic internal controls and related risks\nor weaknesses.\n\nOMB A-123 ACQUISITION ASSESSMENT\nIn accordance with guidance from the Office of Federal Procurement Policy and OMB Circular\nA-123, DOT developed a 3-year assessment reporting cycle of the DOT\xe2\x80\x99s acquisition offices and\nprograms, and in FY 2012, DOT is conducting an entity level top-down assessment for OST, the Pipeline\nand Hazardous Materials Safety Administration, and the Saint Lawrence Seaway Development Corpora-\ntion. As of September 30, DOT has not identified any material weaknesses during this review.\n\nAs a result of our FMFIA reviews in FY 2012, I conclude that the Department has made substantial\nprogress in enhancing its internal controls and financial management program. Additional enhance-\nments are planned and underway in FY 2013.\n\nSincerely yours,\n\n\n\n\nRAY LaHOOD\n\n\n\n\n26 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c to the DOT\xe2\x80\x99s Office of Financial Management. Any identified\nSYSTEM, CONTROLS, AND LEGAL FMFIA material weaknesses and material non-conformances\nCOMPLIANCE are also reported, as well as milestones established to resolve\n the challenges and/or accomplishments achieved. Specific\nFEDERAL MANAGER\xe2\x80\x99S FINANCIAL INTEGRITY ACT (FMFIA)\n guidance for completing the self-assessment and end of fiscal\nThe FMFIA requires agencies to conduct an annual evaluation of\n year assurance statement and reporting on deficiencies is issued\nits internal controls and financial management systems and report\n annually by the DOT\xe2\x80\x99s Office of Financial Management.\nthe results to the President and Congress. The agency then pre-\npares an annual Statement of Assurance based on its assessment\n CRITERIA FOR REPORTING MATERIAL WEAKNESSES AND\nof the effectiveness of its controls.\n NON-CONFORMANCES\n A material weakness under the FMFIA must fall into one or more\nThe Secretary of Transportation provided the President and Congress\n of the categories below plus merit the attention of the Executive\na Statement of Assurance for the fiscal year ended September 30,\n Office of the President and/or the relevant Congressional over-\n2012, stating that the Department of Transportation (DOT) is able\n sight committees.\nto provide reasonable assurance that its controls and systems met\nthe objectives of the FMFIA, except for two material weaknesses\n CRITERIA FOR REPORTING A MATERIAL WEAKNESS\nand one material non-conformance. One weakness is related to\ncompliance with the Federal Information Security Management Act\n \xe2\x96\xb6\t Significant weakness of the safeguards (controls) against\n(FISMA), and a second weakness involves improper controls over\n waste, loss, unauthorized use or misappropriation of funds,\nthe review and monitoring of grant \xe2\x80\x9cUndelivered Orders\xe2\x80\x9d (UDOs).\n property, or other assets;\nUDOs are budget obligations that have not yet been fully liquidated\nby making a payment. Closely associated with this UDO issue, we \xe2\x96\xb6\t Violates statutory authority, or results in a conflict \n\nalso are citing a non-conformance with accounting standards for of interest; \n\nreporting grant UDO balances.\n \xe2\x96\xb6\t Deprives the public of significant services, or seriously \n\n affects safety or the environment; \n\nAs a subset of the FMFIA Statement of Assurance, the DOT is\nrequired to report on the effectiveness of internal control over \xe2\x96\xb6\t Impairs significantly the fulfillment of the agency\xe2\x80\x99s \n\nfinancial reporting, which includes safeguarding of assets and mission; and \n\ncompliance with applicable laws and regulations, in accordance with\n \xe2\x96\xb6\t Would result in significant adverse effects on the credibility\nthe requirements of Appendix A of OMB Circular A-123. A separate\n of the agency.\ndiscussion on Appendix A follows at the end of this section.\n A material non-conformance under the FMFIA must fall into\nFMFIA ANNUAL ASSURANCE PROCESS one or more of the categories below plus merit the attention of\nThe FMFIA review is an agency self-assessment of the adequacy the Executive Office of the President or the relevant Congressional\nof financial controls in all areas of the Department\xe2\x80\x99s operations \xe2\x80\x93 oversight committees.\nprogram, administrative, and financial management.\n CRITERIA FOR REPORTING A MATERIAL NON-CONFORMANCE\nOBJECTIVES OF CONTROL MECHANISMS\n \xe2\x96\xb6\t Prevent the primary accounting system from centrally\n \xe2\x96\xb6\t Financial and other resources are safeguarded from \n controlling financial transactions and resource balances; and\n unauthorized use or disposition;\n\t\n \xe2\x96\xb6\t Prevent compliance of the primary accounting system, \n\n \xe2\x96\xb6\t Transactions are executed in accordance with authorizations; subsidiary system, or program system under the Office \n\n of Management and Budget Circular A-127. \n\n \xe2\x96\xb6\t Records and reports are reliable;\n\n \xe2\x96\xb6\t Applicable laws, regulations, and policies are observed;\n FY 2012 FMFIA MATERIAL WEAKNESSES\n \xe2\x96\xb6\t Resources are efficiently and effectively managed; and STATUS OF INTERNAL CONTROLS (FMFIA SECTION 2)\n The DOT is reporting two material weaknesses in FY 2012. One\n \xe2\x96\xb6\t Financial systems conform to government-wide standards.\n weakness is related to compliance with the Federal Information\nManagers within the DOT, being in the best position to under- Security Management Act (FISMA). The FISMA non-compli-\nstand the nature of the problems they face, establish appropri- ance material weakness was also reported in FY 2010 and FY\nate control mechanisms to ensure Departmental resources are 2011. Senior management and the DOT\xe2\x80\x99s Chief Information\nsufficiently protected from fraud, waste, and abuse, and to meet Officer have been collaborating and monitoring corrective\nthe intent and requirements of the FMFIA. The head of each Op- actions. Although progress was made in FY 2011 and FY 2012,\nerating Administration (OA) and Departmental office submits an the same conditions substantially existed during FY 2012, with\nannual statement of assurance representing the overall adequacy many corrective actions in progress.\nand effectiveness of management controls within the organization\n\n\n27 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cA second weakness involves improper controls over the review Security Management Act (FISMA) report on the effectiveness\nand monitoring of grant UDOs. The DOT is in the process of of the Department\xe2\x80\x99s security program.\nimplementing corrective actions to mitigate this internal control\nweakness related to UDOs. The FFMIA requires that agencies\xe2\x80\x99 financial management\n systems routinely provide reliable and timely financial informa-\n tion for managing day-to-day operations as well as to produce\nSTATUS OF FINANCIAL MANAGEMENT SYSTEMS\n reliable financial statements, maintain effective internal control,\n(FMFIA, SECTION 4)\n and comply with legal and regulatory requirements. Under\nThe DOT is reporting one material non-conformance with\n FFMIA, financial management systems must substantially\naccounting standards related to the reporting of grant UDO\n comply with three requirements: Federal financial management\nbalances. The DOT is in the process of implementing several\n system requirements, applicable Federal accounting standards,\nactions to correct this non-conformance with established\n and the U.S. Government Standard General Ledger (SGL) at the\naccounting standards.\n transaction level. In addition, CFO Act agencies must determine\n annually whether their systems meet these requirements. This\nAPPENDIX A, INTERNAL CONTROLS OVER FINANCIAL\n determination is to be made no later than 120 days after the ear-\nREPORTING\n lier of (a) the date of receipt of the agency-wide audited financial\nAppendix A of OMB Circular A-123 emphasizes management\xe2\x80\x99s\n statement, or (b) the last day of the fiscal year following the year\nresponsibility for establishing and maintaining effective internal\n covered by such statement.\ncontrol over financial reporting. Appendix A requires agencies\nto maintain documentation of the controls in place and of the\n Management conducted its assessment of the effectiveness of\nassessment process and methodology management used to sup-\n internal controls over financial systems and compliance with\nport its assertion as to the effectiveness of internal control over\n applicable laws and regulations in accordance with the Federal\nfinancial reporting. Agencies are also required to test the controls\n Managers\xe2\x80\x99 Financial Integrity Act of 1982 (FMFIA) guidance,\nin place as part of the overall FMFIA assessment process. The\n and the requirements of OMB Circular A-123, Management\xe2\x80\x99s\nassurance statement related to the assessment performed under\n Responsibility for Internal Control and Circular A-127, Financial\nAppendix A acts as a subset of the Overall Statement of Assur-\n Management Systems.\nance reported pursuant to Section 2 of the FMFIA legislation.\nManagement\xe2\x80\x99s assurance statement, as it relates to Appendix A,\n The DOT is able to provide reasonable assurance that the internal\nis based on the controls in place as of June 30.\n controls and financial management systems in effect during FY\n 2012 met the objectives of both Sections 2 and 4 of the FMFIA,\nThe DOT performed in-depth testing of the controls over six\n except for two material weaknesses and one material non-con-\nfocus area business processes for each OA including Budget;\n formance. One weakness is related to compliance with FISMA,\nInventory Management; Human Resources, Time and Atten-\n and a second weakness involves improper controls over the\ndance; Property Plant and Equipment; and Grants Management.\n review and monitoring of grant UDOs. Closely associated with\nAdditional testing of high-risk key controls from the remaining\n this UDO issue, the DOT is also citing a non-conformance with\nnine non-focus area business processes was performed for\n accounting standards for reporting grant UDO balances.\nOAs whose transactions are material to the Department-wide\nfinancial statements.\n FEDERAL INFORMATION SECURITY\nFEDERAL FINANCIAL MANAGEMENT IMPROVEMENT MANAGEMENT ACT (FISMA)\nACT (FFMIA) The Federal Information Security Management Act (FISMA)\nThe Secretary has determined that our financial management requires federal agencies to identify and provide security protection\nsystems were in compliance with the Federal Financial Man- commensurate with the risk and magnitude of potential harm\nagement Improvement Act of 1996 (FFMIA) for FY 2012, with resulting from the loss, misuse of, unauthorized access to, disclosure\nthe exception of one material non-conformance with accounting of, disruption to, or modification of information collected to\nstandards for reporting grant \xe2\x80\x9cUndelivered Orders\xe2\x80\x9d (UDO) bal- maintained by or on behalf of the agency. FISMA also requires\nances. UDOs are budget obligations that have not yet been fully that each agency report annually on the adequacy and effective-\nliquidated by making a payment. In making this determination, ness of information security policies, procedures, and practices,\nmanagement considered all the information available, including and on FISMA compliance. OMB further requires that agency\nindependent auditor reports on the Department\xe2\x80\x99s internal controls heads submit a signed letter that provides a comprehensive over-\nand compliance with selected provisions of laws and regulations. view of these areas. This report and signed letter were delivered\nAlso considered were the results of management\xe2\x80\x99s assessment of to OMB November 15, 2012. In addition, FISMA requires that\nits internal controls and financial management systems reviews, agencies have an independent evaluation performed of agency\nincluding the Inspector General\xe2\x80\x99s most recent Federal Information information security programs and practices. At the Department\n\n\n\n\n28 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cof Transportation (DOT), this annual evaluation is performed by Administration employees at the Mike Monroney Aeronautical\nthe Office of the Inspector General (OIG). This year\xe2\x80\x99s (FY 2012) Center in Oklahoma City, OK, under the overall direction of the\nannual FISMA report will be finalized no later than November DOT Chief Financial Officer.\n15, as now required by the Department of Homeland Security.\n ESC is one of four Federal Shared Service Providers designated\nThe DOT has 13 Operating Administrations that for FY 2012 by the Office of Management and Budget to provide financial\noperated a total of 431 information systems, an increase of 12 management systems and services to other government agen-\nsystems over the FY 2011 adjusted inventory, of which 283 belong cies. ESC supports other Federal entities, including the National\nto the Federal Aviation Administration (FAA). The FAA\xe2\x80\x99s Endowment for the Arts, the Commodity and Futures Trading\nair traffic control system has been designated by the President as Commission, the Institute of Museum and Library Services, the\npart of the critical national infrastructure. Other systems owned National Credit Union Association, the Securities and Exchange\nby the Department include safety-sensitive surface transportation Commission, the Consumer Product Safety Commission, and the\nsystems and financial systems that are used to manage and dis- Government Accountability Office. The Office of Management\nburse more than $78 billion in federal funds each year. and Budget requires Shared Service Providers to provide client\n agencies with an independent audit report in accordance with\nDOT\xe2\x80\x99s cybersecurity program continues to have significant the American Institute of Certified Public Accountants (AICPA)\ndeficiencies in its enterprise and systems controls. Specifically, SSAE-16.\nDOT still needs to make progress in critical areas, such as:\nimproving contingency planning and testing; improving the This year\xe2\x80\x99s SSAE-16 audit of Delphi was conducted by KPMG\noversight of component-level security programs and weaknesses; LLP. KPMG concluded that management presented its descrip-\nand continued implementation of a continuous monitoring tion of ESC controls fairly in all material respects, and that the\nstrategy and program across the Department. Also required controls, as described, were suitably designed and operating\nis continued progress on remaining open recommendations. effectively for all stated control objectives with the exception\n of controls surrounding the management of job processing errors.\nAs part of its commitment to resolve these deficiencies, DOT\nmade improvements during 2012 through the issuance of new ESC is in the process of implementing procedures to review,\ncybersecurity guidance for the majority of its components, and track, and remediate job processing errors identified in Delphi.\nnew cybersecurity policy specifically for OST. DOT also made Implementation will be completed in FY 2013.\nprogress on Administration Cybersecurity priority goals, deploy-\ning continuous monitoring capabilities across 66% of agency\nassets, consolidating 91% of its Internet bandwidth through\nsecured Internet connections, and enabling use of PIV Cards for\nsecure network login for more than 70% of non-FAA personnel.\nDOT has also submitted evidence and requested closure of 25\nopen audit recommendations. The full FY 2012 FISMA report is\nanticipated to be available in early December 2012 and can be\nfound at www.oig.dot.gov.\n\nSSAE-16 REVIEW ON DOT\xe2\x80\x99S FINANCIAL\nMANAGEMENT SYSTEM\nThe Statements on Standards for Attestation Engagements\n(SSAE) 16 report summarized the results of a review of general,\napplication, and operational controls over the DOT Enterprise\nServices Center (ESC). The ESC performs services including\naccounting; financial management; systems and implementation;\nmedia solutions; telecommunications; and data center services\nfor DOT and other Federal organizations.\n\nThis is the second year that a SSAE-16 audit has been conduct-\ned on DOT\xe2\x80\x99s Delphi financial system. A Statement on Auditing\nStandards (SAS) 70 audit was completed for the previous six\nyears. Effective for reports dated after June 15, 2011, SAS-70\nwas replaced with the new standard SSAE-16.\n\nDelphi is hosted, operated, and maintained by Federal Aviation\n\n\n\n\n29 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c In selecting the challenges for each year\xe2\x80\x99s list, the OIG continual-\nIMPLEMENTATION OF eINVOICING ly focuses on the Department\xe2\x80\x99s key goals to improve transporta-\nFOR GRANTS tion safety, capacity, and efficiency. In addition to the OIG\xe2\x80\x99s\n vigilant oversight of DOT programs, budgetary issues, and\nDOT\xe2\x80\x99S ELECTRONIC INVOICING INITIATIVE\n progress milestones, it also draws from several dynamic factors\nThe Department is undergoing an effort to modernize and\n to identify key challenges. These include new initiatives, coop-\nstreamline financial management policies, processes, reports,\n erative goals with other Federal departments, recent changes in\nand systems to better meet its mission and goals. The first ob-\n the Nation\xe2\x80\x99s transportation environment and industry, as well as\njective of the effort is to implement electronic invoicing across\n global issues that could have implications for the United States\xe2\x80\x99\nthe Department. The goal of the electronic invoicing initiative\n traveling public. As such, the challenges included on the OIG\xe2\x80\x99s\nis to eliminate, as much as possible, paper invoice submissions\n list vary each year to reflect the most relevant issues and provide\nby allowing users to submit invoices electronically through an\n the most useful and effective oversight to DOT agencies.\nonline portal.\n For FY 2012, the OIG identified the following nine significant\nThe DOT selected Oracle\xe2\x80\x99s iSupplier module, labeled the Delphi\n challenges:\neInvoicing system, as the DOT\xe2\x80\x99s new payment processing sys-\ntem. Key benefits of this initiative include:\n \xe2\x96\xb6\t Enhancing the Department\xe2\x80\x99s Oversight of Highway, Bridge,\n and Transit Safety;\n \xe2\x96\xb6\t A standard process for grant recipients to submit invoices to\n the Department; \xe2\x96\xb6\t Ensuring Effective Oversight on Key Initiatives That Can\n Improve Aviation Safety;\n \xe2\x96\xb6\t Improved funds control;\n \xe2\x96\xb6\t Ensuring Effective Oversight of Hazardous Liquid and \n\n \xe2\x96\xb6\t The ability to review and approve payment requests electronically;\n Natural Gas Pipeline Safety; \n\n \xe2\x96\xb6\t A decrease in payment request review and processing time;\n \xe2\x96\xb6\t Ensuring Effective Oversight of American Recovery \n\n \xe2\x96\xb6\t The ability to view the status of all payment requests in \n and Reinvestment Act (ARRA) Projects and Applying \n\n real-time;\n\t Related Lessons Learned To Improve DOT\xe2\x80\x99s \n\n Infrastructure Programs;\n\t\n \xe2\x96\xb6\t A decrease in the volume of payment requests mailed, \n\n faxed, or e-mailed by grantees and vendors; and\n\t \xe2\x96\xb6\t Managing the Next Generation Air Transportation System\n Advancement While Controlling Costs;\n \xe2\x96\xb6\t An improvement to the accuracy, timeliness, and transpar-\n ency of transactions processed through the financial system. \xe2\x96\xb6\t Managing DOT Acquisitions in a More Strategic Manner\n To Maximize Limited Resources and Achieve Better\n Mission Results;\nThe first phase of the Delphi eInvoicing deployment began in FY\n2012 with the rollout of Delphi eInvoicing to the Department\xe2\x80\x99s \xe2\x96\xb6\t Improving the Department\xe2\x80\x99s Cyber Security;\ngrantee community. The primary stakeholders include Grantees/\n \xe2\x96\xb6\t Defining Clear Goals To Guide the Federal Railroad \n\nSponsors, DOT Grant Managers, and DOT Program Managers.\n Administration in Its Transformation; and\n\t\nThe Department is scheduled to complete the initial deployment\nof the Delphi eInvoicing system to grant recipients in November \xe2\x96\xb6\t Utilizing Department Credit Programs To Leverage Limited\n2012. By offering this solution to grant recipients, the Department Federal Transportation Infrastructure Resources.\nestimates that approximately 900 invoices will be submitted\n The management challenges will be further discussed in the DOT\nelectronically per month, eliminating the need for grantees\n Annual Performance Report to be issued in February 2013, which\nto mail, e-mail, or fax invoices.\n will be located on DOT\xe2\x80\x99s website, http://www.dot.gov/budget.\n\nINSPECTOR GENERAL\xe2\x80\x99S FY 2012 TOP The significant challenges identified by the OIG for FY 2013\nMANAGEMENT CHALLENGES will be discussed in the Other Accompanying Information setion\n of this report.\nDEPARTMENT OF TRANSPORTATION OFFICE OF\nINSPECTOR GENERAL APPROACH\nThe Office of Inspector General (OIG) issues an annual report\non the Department of Transportation\xe2\x80\x99s top management challenges\nto provide a forward-looking assessment for the coming fiscal\nyear. The Reports Consolidation Act of 2000 requires the OIG\nto identify and summarize the most significant management\nchallenges facing the Department in FY 2012.\n\n\n\n30 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cFINANCIAL REPORT\n\xef\xbf\xbd\n\x0cMESSAGE FROM THE CHIEF FINANCIAL OFFICER\n\xef\xbf\xbd\n\n I am pleased to issue the Department of Transportation\xe2\x80\x99s (DOT) Fiscal Year 2012 Agency Financial\n Report (AFR). In addition to this information, DOT is preparing our Annual Performance Report,\n which will be published in February 2013. For the accompanying AFR, we highlight our progress\n during 2012 on several fronts. We had a positive year, with notable achievements in many areas,\n including efforts to modernize our financial systems, a successful financial audit, and continuing\n success in limiting improper payments.\n\n\n FINANCIAL SYSTEMS MODERNIZATION\n DOT furthered its efforts to modernize and streamline financial management policies, processes,\n reports, and systems to meet its mission and goals. During 2012, we implemented an electronic\n invoicing portal and began deploying it to DOT grant recipients. The goals of this initiative are to:\nCHRISTOPHER P. BERTRAM\n \xe2\x96\xb6\t Provide a standard process for grant recipients to submit invoices to the Department;\n\n \xe2\x96\xb6\t Eliminate as much as possible paper invoice submissions by allowing grantees to submit \n\n invoices electronically through an online portal; and\n\t\n\n \xe2\x96\xb6\t Offer the ability to view the status of all invoices in real time, which improves transparency.\n\n\n Initial deployment of the Delphi eInvoicing system to grantees will be completed in November\n 2012. By offering this solution to grant recipients, the Department estimates approximately 900\n invoices will be submitted electronically per month, eliminating the need for grantees to mail,\n e-mail, or fax invoices.\n\n In addition to the electronic invoicing initiative, the Department also completed an assessment to\n determine whether it is feasible to upgrade the Department\xe2\x80\x99s core accounting system, Delphi, to the\n next release of Oracle Federal Financials. The assessment provided the Department with informa-\n tion necessary to consider the resource and logistical requirements for a possible systems upgrade.\n Plans are being formulated for an upgrade, and we are preparing a business case analysis detailing\n the timeline and associated costs.\n\n ANNUAL FINANCIAL AUDIT\n During 2012, we continued our emphasis on improved financial management, which contributed\n substantially to another unqualified audit opinion \xe2\x80\x93 DOT\xe2\x80\x99s eleventh in the last twelve years. The\n Department had a material weakness associated with the oversight and proper recording of Undeliv-\n ered Orders (UDOs), which are budget obligations that have not yet been fully liquidated by making\n a payment. We are already taking corrective actions to resolve this issue, which includesthe devel-\n opment of a Departmental Order requiring the periodic review of UDO balances. In addition to this\n step, supplemental training opportunities for Departmental personnel related to grants monitoring\n and closeout was completed this fall. Overall in 2012, our annual financial audit provided a useful\n independent review of our processes and system of controls. It highlighted some issues, including\n UDOs and grants management, that will be a continuing focus for management in 2013. Consider-\n ation of these important annual audit results remains an important component of our efforts\n to continually strengthen our safeguards and stewardship of taxpayer dollars.\n\n IMPROPER PAYMENTS\n During 2012, we worked with our Operating Administrations to maintain low rates of improper\n payments. We tested for improper payments in our largest grant programs, which include the\n Airport Improvement Program, the Federal-Aid Highway Construction and Planning Program,\n the Federal Transit Administration\xe2\x80\x99s (FTA) Capital Investment Grants, and FTA\xe2\x80\x99s Formula and\n Bus Grants. In addition, DOT proactively expanded the scope of this review to the Federal Railroad\n Administration\xe2\x80\x99s High Speed Rail Program. Together, these five programs represent more than\n 90 percent of DOT\xe2\x80\x99s grants. Our analysis found that estimated improper payment rates for these\n\n\n\n32 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cprograms did not exceed 1 percent, which falls below the Office of Management and Budget\xe2\x80\x99s 2.5\npercent criterion of what would constitute \xe2\x80\x9csignificant improper payments.\xe2\x80\x9d However, the estimated\nimproper payments for the Federal-aid Highway Constructions and Planning Program was $103\nmillion, which meets the OMB\xe2\x80\x99s criterion for \xe2\x80\x9csignificant improper payments (greater than $100\nmillion, regardless of error rate).\xe2\x80\x9d Moreover, the payments cited as improper during testing were\nnon-systemic improper payments, resulting from administrative or documentation errors, which\nwere mistakes having a low impact.\n\nINTERNAL CONTROLS\nRisk management includes monitoring our performance through indicators such as changes in the\namount and rate of improper payments, and by assessing the rate and degree of progress we make\nin addressing internal control challenges. Some of these areas are brought to management\xe2\x80\x99s atten-\ntion through important oversight activities, such as audits by the Department\xe2\x80\x99s Office of Inspector\nGeneral and our annual external financial statement audit conducted by independent public accoun-\ntants. In 2012, we continued to manage a sound internal controls program for the Department that\nfocused on proactively identifying risks and improving our system of internal controls to meet these\nchallenges.\n\nIn the coming year, we expect additional progress in modernizing our financial systems. We will\nbuild on our accomplishments, and maintain a strong program that supports the Department\xe2\x80\x99s\nstrategic goals and critical investments.\n\nSincerely,\n\n\n\n\nCHRISTOPHER P. BERTRAM\n\n\n\n\n33 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c(pages 34 through 53 intentionally left blank)\n\x0cPRINCIPAL STATEMENTS\n\xef\xbf\xbd\n\nCONSOLIDATED BALANCE SHEETS As of September 30:\n DOLLARS IN THOUSANDS 2012 2011\n\n ASSETS\n Intragovernmental:\n Fund balance with Treasury (Note 2) $33,356,274 $39,761,625\n Investments, net (Note 3) 22,330,652 26,682,058\n Accounts receivable (Note 4) 116,550 97,516\n Other (Note 5) 164,634 123,152\n Total intragovernmental 55,968,110 66,664,351\n Cash 8 34,289\n Accounts receivable, net (Note 4) 154,907 168,872\n Direct loan and loan guarantees, net (Note 6) 5,022,807 4,187,635\n Inventory and related property, net (Note 7) 857,891 845,833\n General property, plant and equipment, net (Note 8) 14,030,366 13,740,507\n Other (Note 5) 74,706 90,087\n Total assets $76,108,795 $85,731,574\n\n\n Stewardship property, plant and equipment (Note 9)\n\n\n LIABILITIES (NOTE 10)\n Intragovernmental:\n Accounts payable $9,823 $21,451\n Debt (Note 11) 5,193,598 4,342,866\n Other (Note 15) 2,287,336 2,561,301\n Total intragovernmental 7,490,757 6,925,618\n Accounts payable 634,174 1,186,794\n Loan guarantee liability (Note 6) 192,829 158,425\n Federal employee benefits payable (Note 12) 1,019,076 978,918\n Environmental and disposal liabilities (Note 13) 1,010,818 1,068,076\n Grant accrual (Note 14) 6,315,689 6,560,755\n Other (Note 15) 1,372,782 1,490,386\n Total liabilities $18,036,125 $18,368,972\n\n\n Commitments and contingencies (Note 17)\n\n\n\n NET POSITION\n Unexpended appropriations - earmarked funds (Note 18) $1,108,929 $1,127,600\n Unexpended appropriations - other funds 21,652,656 25,654,071\n Cumulative results of operations - earmarked funds (Note 18) 25,768,480 30,832,675\n Cumulative results of operations - other funds 9,542,605 9,748,256\n Total net position 58,072,670 67,362,602\n Total liabilities and net position $76,108,795 $85,371,574\n\n\n\n\n THE ACCOMPANYING NOTES ARE AN INTEGRAL\n PART OF THESE FINANCIAL STATEMENTS\n\n\n54 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cPRINCIPAL STATEMENTS, CONT\xe2\x80\x99D\n\n\nCONSOLIDATED STATEMENTS For the Periods Ended\nOF NET COST September 30\n DOLLARS IN THOUSANDS 2012 2011\nProgram Costs (Note 19):\n\n SURFACE TRANSPORTATION\nGross costs $60,988,807 $61,126,121\nLess: earned revenue 1,226,109 807,004\nNet program costs 59,762,698 60,319,117\n\n AIR TRANSPORTATION\nGross costs 16,632,500 17,214,141\nLess: earned revenue 628,167 669,479\nNet program costs 16,004,333 16,544,662\n\n MARITIME TRANSPORTATION\nGross costs 886,118 863,357\nLess: earned revenue 392,599 378,964\nNet program costs 493,519 484,393\n\n CROSS-CUTTING PROGRAMS\nGross costs 647,327 738,477\nLess: earned revenue 255,869 391,204\nNet program costs 391,458 347,273\n\n\nCosts not assigned to programs 396,058 421,434\nLess earned revenues not attributed to programs 11,513 3,876\nNet cost of operations $77,036,553 $78,113,003\n\n\n\n\n THE ACCOMPANYING NOTES ARE AN INTEGRAL\n PART OF THESE FINANCIAL STATEMENTS\n\n\n55 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cPRINCIPAL STATEMENTS, CONT\xe2\x80\x99D\n\nCONSOLIDATED STATEMENTS OF CHANGES IN NET POSITION For the Periods Ended September 30\n\n\n EARMARKED ALL OTHER 2012 EARMARKED ALL OTHER 2011\n DOLLARS IN THOUSANDS FUNDS FUNDS TOTAL FUNDS FUNDS TOTAL\n\n\nCUMULATIVE RESULTS OF OPERATIONS\nBeginning balance $30,832,675 $9,748,256 $40,580,931 $37,822,289 $10,455,592 $48,277,881\n\nBUDGETARY FINANCING SOURCES\nAppropriations used 4,565,650 10,945,160 15,510,810 5,037,496 15,964,657 21,002,153\nNon-exchange revenue (Note 20) 52,969,165 87,411 53,056,576 48,691,798 109,444 48,801,242\nDonations/forfeitures of cash/cash\n 1,224 - 1,224 1,212 - 1,212\nequivalents\nTransfers-in/(out) without\n 2,451,721 5,395 2,457,116 58,921 5,196 64,117\nreimbursement\nOther - (2,160) (2,160) - - -\n\nOTHER FINANCING SOURCES (NON-EXCHANGE)\nDonations and Forfeitures of Property - 158,117 158,117 - - -\nTransfers-in/(out) without\n (924,602) 1,020,788 96,186 (782,441) 788,803 6,362\nreimbursement\nImputed financing 528,664 113,118 641,782 698,858 119,923 818,781\nOther (6,684) (146,260) (152,944) (31,059) (246,755) (277,814)\nTotal financing sources 59,585,138 12,181,569 71,766,707 53,674,785 16,741,268 70,416,053\nNet cost of operations 64,649,333 12,387,220 77,036,553 60,664,399 17,448,604 78,113,003\nNet change (5,064,195) (205,651) (5,269,846) (6,989,614) (707,336) (7,696,950)\nCumulative Results of Operations 25,768,480 9,542,605 35,311,085 30,832,675 9,748,256 40,580,931\n\nUNEXPENDED APPROPRIATIONS\nBeginning balance 1,127,600 25,654,071 26,781,671 1,211,520 37,001,417 38,212,937\n\nBUDGETARY FINANCING SOURCES\nAppropriations received (Note 1U) 4,592,701 7,017,825 11,610,526 5,021,360 5,299,664 10,321,024\nAppropriations transferred-in/(out) 14,819 5,070 19,889 9,240 20,265 29,505\nOther adjustments (60,541) (79,150) (139,691) (77,024) (702,618) (779,642)\nAppropriations used (4,565,650) (10,945,160) (15,510,810) (5,037,496) (15,964,657) (21,002,153)\nTotal budgetary financing sources (18,671) (4,001,415) (4,020,086) (83,920) (11,347,346) (11,431,266)\nTotal unexpended appropriations 1,108,929 21,652,656 22,761,585 1,127,600 25,654,071 26,781,671\nNet position $26,877,409 $31,195,261 $58,072,670 $31,960,275 $35,402,327 $67,362,602\n\n\n\n\n THE ACCOMPANYING NOTES ARE AN INTEGRAL\n PART OF THESE FINANCIAL STATEMENTS\n\n\n56 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cPRINCIPAL STATEMENTS, CONT\xe2\x80\x99D\n\nCOMBINED STATEMENTS OF BUDGETARY RESOURCES For the Periods Ended September 30\n DOLLARS IN THOUSANDS 2012 2011\n\n\n NON-BUDGETARY NON-BUDGETARY\n CREDIT REFORM CREDIT REFORM\n FINANCING FINANCING\nBUDGETARY RESOURCES (NOTE 21) BUDGETARY ACCOUNTS BUDGETARY ACCOUNTS\nUnobligated balance, brought forward, October 1 $50,244,231 $242,978 $60,471,640 $226,795\nRecoveries of prior year unpaid obligations 1,199,749 17 1,005,484 198\nOther changes in unobligated balance (156,094) - (125,917) -\nUnobligated balance from prior year budget\n 51,287,886 242,995 61,351,207 226,993\nauthority, net\nAppropriations (Note 1U) 19,743,813 - 17,323,090 -\nBorrowing authority - 1,734,768 175,000 1,181,282\nContract authority 53,108,963 - 53,306,399 -\nSpending authority from offsetting collections 7,754,699 234,155 7,116,258 120,517\nTotal budgetary resources $131,895,361 $2,211,918 $139,271,954 $1,528,792\n\n\nStatus of Budgetary Resources:\nObligations incurred $84,627,858 $1,926,888 $89,027,723 $1,285,814\nUnobligated balance, end of year:\n Apportioned 29,066,936 105,393 33,552,539 39,047\n Exempt from apportionment 352,571 - 317,713 -\n Unapportioned 17,847,996 179,637 16,373,979 203,931\nTotal unobligated balance, end of year 47,267,503 285,030 50,244,231 242,978\nTotal budgetary resources $131,895,361 $2,211,918 $139,271,954 $1,528,792\n\n\n\n\n THE ACCOMPANYING NOTES ARE AN INTEGRAL\n PART OF THESE FINANCIAL STATEMENTS\n\n\n57 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cPRINCIPAL STATEMENTS, CONT\xe2\x80\x99D\n\n\nCOMBINED STATEMENTS OF BUDGETARY RESOURCES, Continued For the Periods Ended September 30\n DOLLARS IN THOUSANDS 2012 2011\n\n\n NON-BUDGETARY NON-BUDGETARY\n CREDIT REFORM CREDIT REFORM\n FINANCING FINANCING\nCHANGE IN OBLIGATED BALANCES BUDGETARY ACCOUNTS BUDGETARY ACCOUNTS\nUnpaid obligations, brought forward, October 1\n $114,089,855 $3,815,207 $110,640,417 $4,194,500\n(gross)\n\nUncollected customer payments from Federal\n\n (1,192,857) (238,553) (1,102,192) (325,263)\nsources, brought forward, October 1\nObligated balance, start of year (net) 112,896,998 3,576,654 109,538,225 3,869,237\nObligations incurred 84,627,858 1,926,888 89,027,723 1,285,814\nOutlays (gross) (85,585,176) (1,320,846) (84,595,015) (1,664,909)\nChange in uncollected customer payments from\n (56,265) 15,847 (90,665) 86,710\nFederal sources\nActual transfers, unpaid obligations 10,000 - 22,214 -\nRecoveries of prior year unpaid obligations (1,199,749) (17) (1,005,484) (198)\nObligated balance, end of year\n Unpaid obligations, end of year (gross) 111,942,788 4,421,232 114,089,855 3,815,207\n Uncollected customer payments from Federal\n (1,249,122) (222,706) (1,192,857) (238,553)\n sources, end of year\nObligated balance, end of year (net) $110,693,666 $4,198,526 $112,896,998 $3,576,654\n\n\nBudget and Authority and Outlays, Net:\nBudget authority, gross $80,607,475 $1,968,923 $77,920,747 $1,301,799\nActual offsetting collections (7,726,408) (466,819) (7,043,681) (382,466)\nChange in uncollected customer payments from\n (56,265) 15,847 (90,665) 86,710\nFederal sources\nBudget authority, net $72,824,802 $1,517,951 $70,786,401 $1,006,043\n\n\nOutlays, gross $85,585,176 $1,320,846 $84,595,015 $1,664,909\nActual offsetting collections (7,726,408) (466,819) (7,043,681) (382,466)\nOutlays, net 77,858,768 854,027 77,551,334 1,282,443\n\nDistributed offsetting receipts (2,738,974) - (282,618) -\nAgency outlays, net $75,119,794 $854,027 $77,268,716 $1,282,443\n\n\n\n\n THE ACCOMPANYING NOTES ARE AN INTEGRAL\n PART OF THESE FINANCIAL STATEMENTS\n\n\n58 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTES TO THE PRINCIPAL STATEMENTS\n\xef\xbf\xbd\n The U.S. Saint Lawrence Seaway Development Corporation\nNOTE 1. SUMMARY OF SIGNIFICANT (SLSDC) is a wholly-owned government corporation and an\nACCOUNTING POLICIES Operating Administration of the Department. However, SLSDC\xe2\x80\x99s\n financial data is not included in the DOT consolidated financial\nA. REPORTING ENTITY statements as it is subject to separate reporting requirements un-\nThe United States (U.S.) Department of Transportation (DOT der the Government Corporation Control Act and the dollar value\nor Department) serves as the strategic focal point in the Federal of its activities is not material to that of the Department taken\nGovernment\xe2\x80\x99s national transportation plan. It partners with cities as a whole. Condensed information about SLSDC\xe2\x80\x99s financial\nand States to meet local and national transportation needs by pro- position is presented in Note 23.\nviding financial and technical assistance, ensuring the safety of\nall transportation modes; protecting the interests of the American B. BASIS OF PRESENTATION\ntraveling public; promoting international transportation treaties; The consolidated financial statements have been prepared to re-\nand conducting planning and research for the future. port the Department\xe2\x80\x99s financial position and results of operations\n as required by the Chief Financial Officers Act of 1990 (CFO\nThe Department comprises the Office of the Secretary and the Act) and Title IV of the Government Management Reform Act of\nDOT Operating Administrations, each having its own man- 1994 (GMRA). The statements have been prepared from the DOT\nagement team and organizational structure. Collectively, they books and records in accordance with Office of Management\nprovide services and oversight to ensure that the best possible and Budget (OMB) form and content requirements for entity\ntransportation system serves the American public. The Department\xe2\x80\x99s financial statements and DOT\xe2\x80\x99s accounting policies and proce-\nconsolidated financial statements present the financial data for dures. Material intra-departmental transactions and balances have\nvarious trust funds, revolving funds, appropriations, and special been eliminated from the principal statements for presentation\nfunds of the following organizations (referred to as Operating on a consolidated basis, except for the Statement of Budgetary\nAdministrations): Resources, which is presented on a combined basis in accordance\n with OMB Circular A-136, Financial Reporting Requirements,\n \xe2\x96\xb6\t Office of The Secretary (OST) \n as revised, and as such, intra-entity transactions have not been\n [includes OST Working Capital Fund]\n\t eliminated. Unless otherwise noted, all dollar amounts are pre-\n sented in thousands.\n \xe2\x96\xb6\t Federal Aviation Administration (FAA)\n\n \xe2\x96\xb6\t Federal Highway Administration (FHWA) The Consolidated Balance Sheets present agency assets, liabilities,\n and net position (which equals total assets minus total liabilities)\n \xe2\x96\xb6\t Federal Motor Carrier Safety Administration (FMCSA)\n as of the reporting dates. Agency assets substantially consist of\n \xe2\x96\xb6\t Federal Railroad Administration (FRA) entity assets (those which are available for use by the agency).\n Non-entity assets (those which are managed by the agency but not\n \xe2\x96\xb6\t Federal Transit Administration (FTA)\n available for use in its operations) are immaterial. Agency liabilities\n \xe2\x96\xb6\t Maritime Administration (MARAD) include both those covered by budgetary resources (funded) and\n those not covered by budgetary resources (unfunded).\n \xe2\x96\xb6\t National Highway Traffic Safety Administration\n\t\n (NHTSA)\n\t\n The Consolidated Statements of Net Cost present the gross costs\n \xe2\x96\xb6\t Office of Inspector General (OIG) of programs less earned revenue, to arrive at the net cost of\n operations for both the programs and the agency as a whole for\n \xe2\x96\xb6\t Pipeline and Hazardous Materials Safety Administration\n the reporting periods.\n (PHMSA)\n\n \xe2\x96\xb6\t Research and Innovative Technology Administration \n The Consolidated Statements of Changes in Net Position report\n (RITA) [includes Volpe National Transportation System \n beginning balances, budgetary and other financing sources, and\n Center]\n\t net cost of operations, to arrive at ending balances.\n\n \xe2\x96\xb6\t Surface Transportation Board (STB)\n The Combined Statements of Budgetary Resources provide infor-\n mation about how budgetary resources were made available, as well\n as their status at the end of the reporting periods. Recognition and\n measurement of budgetary information reported on these state-\n\n\n\n59 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cments is based on budget terminology, definitions, and guidance D. BASIS OF ACCOUNTING\npresented in OMB Circular A-11, Preparation, Submission, and The Department is required to be in substantial compliance with\nExecution of the Budget, dated August 2012. all applicable accounting principles and standards developed\n and issued by the Federal Accounting Standards Advisory Board\nA Statement of Custodial Activity is not presented since DOT (FASAB), which is recognized by the American Institute of\ncustodial activity is incidental to Departmental operations and is Certified Public Accountants (AICPA) as the entity to establish\nnot considered material to the consolidated financial statements generally accepted accounting principles (GAAP) for the Federal\ntaken as a whole. Government. The Federal Financial Management Improve-\n ment Act (FFMIA) of 1996 requires the Department to comply\nIntragovernmental transactions and balances result from substantially with (1) Federal financial management systems\nexchange transactions made between DOT and other Federal requirements, (2) applicable Federal accounting standards, and\nGovernment entities while those classified as \xe2\x80\x9cwith the public\xe2\x80\x9d (3) the U.S. Government Standard General Ledger requirements\nresult from exchange transactions between DOT and non-Federal at the transaction level.\nentities. For example, if DOT purchases goods or services from\nthe public and sells them to another Federal entity, the costs Transactions are recorded on an accrual and a budgetary account-\nwould be classified as \xe2\x80\x9cwith the public,\xe2\x80\x9d but the related revenues ing basis. Under the accrual method, revenues are recognized\nwould be classified as \xe2\x80\x9cintragovernmental.\xe2\x80\x9d This could occur, for when earned, and expenses are recognized when a liability is\nexample, when DOT provides goods or services to another Fed- incurred without regard to receipt or payment of cash. Budget-\neral Government entity on a reimbursable basis. The purpose of ary accounting facilitates compliance with legal constraints and\nthis classification is to enable the Federal Government to prepare controls over the use of Federal funds.\nconsolidated financial statements, and not to match public and in-\ntragovernmental revenue with costs that are incurred to produce E. FUNDS WITH THE U.S. TREASURY AND CASH\npublic and intragovernmental revenue. DOT does not generally maintain cash in commercial bank\n accounts. Cash receipts and disbursements are processed by the\nDOT accounts for earmarked funds separately from other funds. U.S. Treasury. The funds with the U.S. Treasury are appropriated,\n revolving, and trust funds that are available to pay liabilities and\nC. BUDGETS AND BUDGETARY ACCOUNTING finance authorized purchases. Lockboxes have been established\nDOT follows standard Federal budgetary accounting policies with financial institutions to collect certain payments, and these\nand practices in accordance with OMB Circular A-11. Budgetary funds are transferred directly to the U.S. Treasury on a daily\naccounting facilitates compliance with legal constraints and (business day) basis. DOT does not maintain any balances of\ncontrols over the use of Federal funds. Each year, the U.S. foreign currencies.\nCongress (Congress) provides budget authority, primarily in the\nform of appropriations, to the DOT Operating Administrations to F. INVESTMENTS IN U.S. GOVERNMENT SECURITIES\nincur obligations in support of agency programs. For fiscal year Investments that consist of U.S. Government Securities are\nFY 2012 and FY 2011, the Department was accountable for trust reported at cost, and adjusted for amortized cost net of premiums\nfund appropriations, general fund appropriations, revolving fund or discounts. Premiums or discounts are amortized into interest\nactivity, borrowing authority, and contract authority. DOT recog- income over the term of the investment using the interest method.\nnizes budgetary resources as assets when cash (funds held by the The Department also has the intent to hold investments to matu-\nU.S. Treasury) is made available through warrants and trust fund rity. Investments, redemptions, and reinvestments are controlled\ntransfers. and processed by the U.S. Treasury. The market value is calculat-\n ed by multiplying the total number of shares by the market price\nPrograms are financed from authorizations enacted in authorizing on the last day of the fiscal year.\nlegislation and codified in Title 23 of the United States Code\n(U.S.C.). The DOT receives its budget authority in the form of G. RECEIVABLES\ndirect appropriations, borrowing authority, contract authority, ACCOUNTS RECEIVABLE\nand spending authority from offsetting collections. Contract Accounts receivable consist of amounts owed to the Department\nauthority permits programs to incur obligations in advance of an by other Federal agencies and the public. Federal accounts\nappropriation, offsetting collections or receipts. Subsequently, receivable are generally the result of the provision of goods and\nCongress provides an appropriation for the liquidation of the services to other Federal agencies and, with the exception of\ncontract authority to allow payments to be made for the obliga- occasional billing disputes, are considered to be fully collectible.\ntions incurred. Funds apportioned by statute under Titles 23 and Public accounts receivable are generally the result of the provi-\n49 of the U.S.C., Subtitle III, by the Secretary of Transportation sion of goods and services or the levy of fines and penalties from\nfor activities in advance of the liquidation of appropriations are the Department\xe2\x80\x99s regulatory activities. Amounts due from the\navailable for a specific time period. public are presented, net of an allowance for loss on uncollect-\n ible accounts, which is based on historical collection experience\n and/or an analysis of the individual receivables.\n\n\n60 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cLOANS RECEIVABLE K. LIABILITIES\nLoans are accounted for as receivables after funds have been Liabilities represent amounts expected to be paid as the result\ndisbursed. For loans obligated prior to October 1, 1991, loan of a transaction or event that has already occurred. Liabilities\nprincipal, interest, and penalties receivable are reduced by an covered by budgetary resources are liabilities incurred, which are\nallowance for estimated uncollectible amounts. The allowance covered by realized budgetary resources as of the balance sheet\nis estimated based on past experience, present market conditions, date. Available budgetary resources include new budget authority,\nand an analysis of outstanding balances. Loans obligated after spending authority from offsetting collections, recoveries of un-\nSeptember 30, 1991, are reduced by an allowance equal to the expired budget authority through downward adjustments of prior\npresent value of the subsidy costs (resulting from the interest rate year obligations, unobligated balances of budgetary resources at\ndifferential between the loans and U.S. Treasury borrowing, the beginning of the year or net transfers of prior year balanc-\nthe estimated delinquencies and defaults net of recoveries, the es during the year, and permanent indefinite appropriations or\noffset from fees, and other estimated cash flows) associated borrowing authority. Unfunded liabilities are not considered to\nwith these loans. be covered by such budgetary resources. An example of an un-\n funded liability is actuarial liabilities for future Federal Employ-\nH. INVENTORY AND RELATED OPERATING MATERIALS ees\xe2\x80\x99 Compensation Act payments. The Government, acting in\nAND SUPPLIES its sovereign capacity, can abrogate liabilities arising from other\nInventory primarily consists of supplies that are for sale or used than contracts.\nin the production of goods for sale. Operating materials and sup-\nplies primarily consist of unissued supplies that will be consumed L. CONTINGENCIES\nin future operations. Valuation methods for supplies on hand at The criteria for recognizing contingencies for claims are (1) a\nyear-end include historical cost, last acquisition price, standard past event or exchange transaction has occurred as of the date of\nprice/specific identification, standard repair cost, weighted aver- the statements; (2) a future outflow or other sacrifice of resources\nage, and moving weighted average. Expenditures or expenses are is probable; and (3) the future outflow or sacrifice of resources\nrecorded when the materials and supplies are consumed or sold. is measurable (reasonably estimable). DOT recognizes material\nAdjustments for the proper valuation of reparable, excess, obso- contingent liabilities in the form of claims, legal actions, admin-\nlete, and unserviceable items are made to appropriate allowance istrative proceedings, and environmental suits that have been\naccounts. brought to the attention of legal counsel, some of which will be\n paid from the Judgment Fund administered by the U.S. Depart-\nI. PROPERTY AND EQUIPMENT ment of the Treasury (Treasury).\nDOT organizations have varying methods of determining the\nvalue of general purpose property and equipment and how it M. ANNUAL, SICK, AND OTHER LEAVE\nis depreciated. DOT currently has a capitalization threshold Annual leave is accrued as it is earned, and the accrual is reduced\nof $200,000 for structures and facilities and for internal use as leave is taken. The balance in the accrued annual leave ac-\nsoftware, and $25,000 for other property, plant and equipment. count is adjusted to reflect the latest pay rates and unused hours\nCapitalization at lesser amounts is permitted. of leave. Liabilities associated with other types of vested leave,\nConstruction in progress is valued at direct (actual) costs plus including compensatory, credit hours, restored leave, and sick\napplied overhead and other indirect costs as accumulated by the leave in certain circumstances, are accrued based on latest pay\nregional project material system. The system accumulates costs rates and unused hours of leave. Sick leave is generally nonvest-\nby project number assigned to the equipment or facility being ed, except for sick leave balances at retirement under the terms\nconstructed. The straight line method is generally used to of certain union agreements, including the National Air Traffic\ndepreciate capitalized assets. Controllers Association (NATCA) agreement, Article 25, Section\n 13. Funding will be obtained from future financing sources to the\nDOT\xe2\x80\x99s heritage assets, consisting of Union Station in Washing- extent that current or prior year appropriations are not available\nton, DC, the Nuclear Ship Savannah, and collections of maritime to fund annual and other types of vested leave earned and not\nartifacts, are considered priceless and are not capitalized in the taken. Nonvested leave is expensed when used.\nConsolidated Balance Sheets (see Note 9).\n N. RETIREMENT PLAN\nJ. ADVANCES AND PREPAYMENTS For DOT employees who participate in the Civil Service Retire-\nPayments in advance of the receipt of goods and services are ment System (CSRS), DOT contributes a matching contribution\nrecorded as prepaid charges at the time of prepayment and recog- equal to 7 percent of pay. On January 1, 1987, Federal Employee\nnized as expenses or capitalized, as appropriate, when the related Retirement System (FERS) went into effect pursuant to Public\ngoods and services are received. Law (P.L.) 99-335. Most employees hired after December 31,\n 1983, are automatically covered by FERS and Social Security.\n Employees hired prior to January 1, 1984, could elect to either\n join FERS and Social Security or remain in CSRS. A primary\n\n\n\n61 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cfeature of FERS is that it offers a savings plan to which DOT ance with applicable environmental standards. The asset disposal\nautomatically contributes 1 percent of pay and matches any em- liability includes both the cost to remove and dismantle an asset\nployee contribution up to an additional 4 percent of pay. For most when that asset is no longer in service and the estimated cost that\nemployees hired since December 31, 1983, DOT also contributes will be incurred to remove, contain, and/or dispose of hazardous\nthe employer\xe2\x80\x99s matching share for Social Security. materials. DOT estimates the environmental remediation and\n asset disposal costs at the time a DOT-owned asset is placed\nEmploying agencies are required to recognize pensions and other in service.\npost-retirement benefits during the employees\xe2\x80\x99 active years of\nservice. Reporting the assets and liabilities associated with such Estimating the Department\xe2\x80\x99s environmental remediation liability\nbenefit plans is the responsibility of the administering agency, the requires making assumptions about future activities and is\nOffice of Personnel Management (OPM). Therefore, DOT does inherently uncertain. Costs for estimates of environmental and\nnot report CSRS or FERS assets, accumulated plan benefits, or disposal liabilities are not adjusted for inflation and are subject to\nunfunded liabilities, if any, applicable to employees. revision as a result of changes in technology and environmental\n laws and regulations.\nO. FEDERAL EMPLOYEES HEALTH BENEFIT\n(FEHB) PROGRAM S. USE OF ESTIMATES\nMost Department employees are enrolled in the FEHB Program, The preparation of the principal financial statements in confor-\nwhich provides current and post-retirement health benefits. OPM mity with GAAP requires management to make certain esti-\nadministers this program and is responsible for the reporting of mates and assumptions that affect the reported amount of assets,\nliabilities. OPM contributes the \xe2\x80\x98employer\xe2\x80\x99 share for retirees via liabilities, and contingent liability disclosures as of the date of\nan appropriation and the retirees contribute their portion of the the financial statements and the reported amounts of revenue and\nbenefit directly to OPM. OPM calculates the U.S. Government\xe2\x80\x99s expenses during the reporting period. Actual results may differ\nservice cost for covered employees each fiscal year. The Depart- from these estimates.\nment has recognized the employer cost of these post-retirement\nbenefits for covered employees as an imputed cost. Significant estimates underlying the accompanying financial\n statements include the allocation of trust fund receipts by Trea-\nP. FEDERAL EMPLOYEES GROUP LIFE INSURANCE sury\xe2\x80\x99s Office of Tax Analysis (OTA), accruals of accounts and\n(FEGLI) PROGRAM grants payable (including American Recovery and Reinvestment\nMost Department employees are entitled to participate in the Act funds), accrued workers\xe2\x80\x99 compensation, and accrued legal,\nFEGLI Program. Participating employees can obtain basic term contingent, environmental, and disposal liabilities. Additionally,\nlife insurance where the employee pays two-thirds of the cost the Federal Credit Reform Act of 1990 (FCRA) requires the De-\nand the Department pays one-third of the cost. OPM administers partment to use estimates in determining the reported amount of\nthis program and is responsible for the reporting of liabilities. direct loan and loan guarantees, the loan guarantee liability, and\nOPM calculates the U.S. Government\xe2\x80\x99s service cost for the the loan subsidy costs associated with future loan performance.\npost-retirement portion of the basic life coverage each fiscal year.\nBecause OPM fully allocates the Department\xe2\x80\x99s contributions for T. ALLOCATION TRANSFERS\nbasic life coverage to the pre-retirement portion of coverage, the DOT is a party to allocation transfers with other Federal agencies\nDepartment has recognized the entire service cost of the post-re- as both a transferring (parent) entity and a recipient (child) entity.\ntirement portion of basic life coverage as an imputed cost. Allocation transfers are legal delegations by one Federal agency\n of its authority to obligate budget authority and outlay funds\nQ. FEDERAL EMPLOYEE COMPENSATION ACT BENEFITS to another Federal agency. A separate fund account (allocation\nA liability is recorded for actual and estimated future payments to account) is created in the U.S. Treasury as a subset of the parent\nbe made for workers\xe2\x80\x99 compensation pursuant to the Federal Em- fund account for tracking and reporting purposes. All allocation\nployees\xe2\x80\x99 Compensation Act (FECA). The actual costs incurred transfers of balances are credited to this account, and subsequent\nare reflected as a liability because DOT will reimburse the U.S. obligations and outlays incurred by the receiving entity (child)\nDepartment of Labor (DOL) two years after the actual payment are charged to this allocation account as the delegated activity\nof expenses. Future revenues will be used to reimburse DOL. is executed on the parent entity\xe2\x80\x99s behalf. Generally, all financial\nThe liability consists of (1) the net present value of estimated fu- activity related to these allocation transfers (e.g., budget authori-\nture payments calculated by the DOL, and (2) the unreimbursed ty, obligations, outlays) is reported in the financial statements of\ncost paid by DOL for compensation to recipients under FECA. the parent entity, from which the underlying legislative authority,\n appropriations, and budget apportionments are derived.\nR. ENVIRONMENTAL AND DISPOSAL LIABILITIES\nDOT recognizes two types of environmental liabilities: unfunded DOT allocates funds, as the parent agency, to the following non-\nenvironmental remediation and unfunded asset disposal liability. DOT Federal agencies in accordance with applicable public laws\nThe liability for environmental remediation is an estimate of and statutes: U.S. Bureau of Indian Affairs, U.S. Bureau of Rec-\ncosts necessary to bring a known contaminated site into compli- lamation, U.S. Forest Service, U.S. National Park Service, U.S.\n\n\n62 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cBureau of Land Management, U.S. Fish and Wildlife Service, On July 22, 2011, FAA\xe2\x80\x99s authorization to collect excise taxes\nU.S. Department of the Army, Appalachian Regional Commis- expired as Congress did not approve an extension to the existing\nsion, Tennessee Valley Authority, U.S. Army Corps of Engineers, authorization or pass a longer term reauthorization bill. This\nInternal Revenue Service, U.S. Department of Housing and resulted in a loss of revenues for the AATF in the approximate\nUrban Development, Denali Commission, U.S. Department of amount of $419 million. A new short-term extension was passed\nNavy, and the U.S. Department of Energy. by Congress and signed by the U.S. President (President) on\n August 5, 2011, reauthorizing FAA to again collect excise tax\nDOT receives allocations of funds, as the child agency, from the revenue through September 15, 2011.\nfollowing non-DOT Federal agencies in accordance with appli-\ncable laws and statutes: U.S. Department of Agriculture, U.S. On September 16, 2011, the President signed the U.S. House\nDepartment of the Interior, U.S. Department of the Navy, U.S. of Representatives (H.R.) 2887, P.L. 112-30, the Surface and\nDepartment of the Army, U.S. Department of the Air Force, and Air Transportation Extension Act of 2011, provided the HTF\nthe U.S. Department of Defense. with a temporary extension of authority to collect excise taxes\n and to make expenditures through March 31, 2012 and provid-\nU. REVENUES AND OTHER FINANCING SOURCES ed the AATF with a temporary extension of authority through\nEARMARKED EXCISE TAX REVENUES (NON-EXCHANGE) January 31, 2012. The Surface Transportation Extension Act of\nDOT receives funding needed to support its programs through 2012 granted the HTF another temporary extension of authority\nnon-exchange earmarked excise tax revenues related to the through June 30, 2012. Effective February 18, 2012, the FAA\nHighway Trust Fund (HTF) and the Airport and Airway Trust Modernization and Reform Act of 2012, P.L. 112-95, extended\nFund (AATF). AATF authority to collect excise taxes and make expenditures\n through September 30, 2015.\nExcise taxes collected are initially deposited to the general\nfund of the U.S. Treasury. The Internal Revenue Service (IRS) On July 6, 2012, the President signed into law P.L. 112-141,\ndoes not receive sufficient information at the time the taxes are Moving Ahead for Progress in the 21st Century (MAP-21),\ncollected to determine how these payments should be distributed which extended the preceding law, the Safe, Accountable, Flex-\nto specific earmarked funds. Therefore, the U.S. Treasury makes ible, Efficient Transportation Equity Act: A Legacy for Users,\ninitial semi-monthly distributions to earmarked funds based on through September 30, 2012, and provided new authorization for\nestimates prepared by Treasury OTA. These estimates are based surface transportation from October 1, 2012, through September\non historical excise tax data applied to current excise tax receipts. 30, 2014. The law infused $2.4 billion into the HTF from the\nWhen actual tax receipt amounts are certified by the IRS, gen- Leaking Underground Storage Tank (LUST) trust fund in FY\nerally four months after each quarter-end, adjustments are made 2012, and provides another $6.2 billion in FY 2013 and $12.6\nto the estimated receipt/revenue amounts previously provided billion in FY 2014 from the general fund. The new and existing\nby OTA, at which time the difference is transferred by the U.S. programs in MAP-21 create a streamlined, performance-based,\nTreasury to the HTF and AATF accounts. and multimodal program to address the many challenges facing\n the U.S. transportation system.\nThe DOT September 30, 2012 financial statements reflect excise\ntaxes certified by the IRS through June 30, 2012 and excise taxes On September 28, 2012, the President signed the Continuing\nestimated by OTA for the period July 1, 2012 to September 30, Appropriations Resolution, 2013, P.L. 112-175, to continue\n2012 as specified by FASAB Statement of Federal Financial government operations through March 27, 2013, predominantly\nAccounting Standard (SFFAS) Number 7, Accounting for at FY 2012 spending levels.\nRevenue and Other Financing Sources. Actual tax collections\ndata for the quarter ended September 30, 2012 will not be AMERICAN RECOVERY AND REINVESTMENT ACT\navailable from the IRS until January 2013. On February 17, 2009, the President signed into law the American\n Recovery and Reinvestment Act (ARRA), which designated over\nAPPROPRIATIONS (FINANCING SOURCE) $48 billion to the DOT operating administrations. The funding\nDOT receives annual, multi-year, and no-year appropriations. was provided to FHWA, FAA, FTA, FRA, OST, and MARAD.\nAppropriations are recognized as revenues when related program These funds were designated to invest in transportation\nand administrative expenses are incurred. Additional amounts are infrastructure, including transit capital assistance, high speed\nobtained from offsetting collections and user fees (e.g., overflight rail, pavement improvements, and bridge repair, as well as to\nfees and registry certification fees) and through reimbursable agree- preserve and create jobs, and promote economic recovery that\nments for services performed for domestic and foreign governmental will provide long-term economic benefits. In the final stages\nentities. Additional revenue is received from gifts of donors, sales of of the program as of September 30, 2012, the Department had\ngoods and services to other agencies and the public, the collection of obligated $47.6 billion and disbursed $37 billion.\nfees and fines, interest/dividends on invested funds, loans, and cash\ndisbursements to banks. Interest income is recognized as revenue on\nthe accrual basis rather than when received.\n\n\n63 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cV. FIDUCIARY ACTIVITIES United States Government or the Department. The nine members\nFiduciary assets and liabilities are not assets and liabilities of the of Amtrak\xe2\x80\x99s Board of Directors are appointed by the President of\nDepartment and, as such are not recognized on the balance sheet. the United States and are subject to confirmation by the United\nIn accordance with the provisions of FASAB SFFAS Number 31, States Senate. Once appointed, Board Members, as a whole, act\nAccounting for Fiduciary Activities, this activity is reported sepa- independently without the consent of the United States Govern-\nrately in a note disclosure. The Maritime Administration Title XI ment or any of its officers to set Amtrak policy, determine its\nEscrow Fund contains fiduciary activity as detailed in Note 24 to budget and decide operational issues. The Secretary of Trans-\nthe Consolidated Financial Statements. portation is statutorily appointed to the nine-member Board.\n Traditionally, the Secretary of Transportation has designated the\nW. RELATED PARTIES FRA Administrator to represent the Secretary at Board meetings\nThe Secretary of Transportation has possession of two long-term (See Note 17).\nnotes with the National Railroad Passenger Service Corporation\n(more commonly referred to as Amtrak). The first note is for $4 X. RECLASSIFICATIONS\nbillion and matures in 2975 and; the second note is for $1.1 bil- In FY 2012, changes to the presentation of the Combined\nlion and matures in 2082 with renewable 99 year terms. Interest Statements of Budgetary Resources were made in accordance\nis not accruing on these notes as long as the current financial with guidance provided in OMB Circular A-136 and as such,\nstructure of Amtrak remains unchanged. If the financial structure activity and balances reported on the FY 2011 Combined Statement\nof Amtrak changes, both principal and accrued interest are due of Budgetary Resources have been reclassified to conform to\nand payable. The Department does not record the notes in its the presentation in the current year. Certain other prior year\nfinancial statements since the present value of the notes, dis- amounts have also been reclassified to conform with the\ncounted according to rates published in OMB M-11-12 Appendix current year presentation.\nC, Discount Rates for Cost-Effectiveness, Lease Purchase, and\nRelated Analyses, with maturity dates of 2975 and 2082, was\nimmaterial at September 30, 2012.\n\nIn addition, the Secretary of Transportation has possession of all\nthe preferred stock shares (109,396,994) of Amtrak. Congress,\nthrough the Department, has continued to fund Amtrak since\napproximately 1972; originally through grants, then, beginning in\n1981, through the purchase of preferred stock, and then, through\ngrants again after 1997. The Amtrak Reform and Accountabil-\nity Act of 1997 changed the structure of the preferred stock by\nrescinding the voting rights with respect to the election of the\nBoard of Directors and by eliminating the preferred stock\xe2\x80\x99s\nliquidation preference over the common stock. The Act also\neliminated further issuance of preferred stock to the Department.\nThe Department does not record the Amtrak preferred stock in\nits financial statements because, under the Corporation\xe2\x80\x99s current\nfinancial structure, the preferred shares do not have a liquidation\npreference over the common shares, the preferred shares do not\nhave any voting rights, and dividends are neither declared\nnor in arrears.\n\nAmtrak is not a department, agency, or instrumentality of the\n\n\n\n\n64 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 2. FUND BALANCE WITH TREASURY \n\n Fund Balances with Treasury at September 30\n 2012 2011\n\n FUND BALANCES\nTrust Funds $6,243,944 $7,142,146\nRevolving Funds 1,116,895 747,954\nGeneral Funds 25,635,140 31,455,847\nOther Fund Types 360,295 415,678\nTotal $33,356,274 $39,761,625\n\n\n STATUS OF FUND BALANCE\n WITH TREASURY\nUnobligated balance:\n Available $14,384,053 $16,979,464\n Unavailable 2,750,400 2,313,572\nObligated balance not yet disbursed 15,608,159 20,360,093\nNon-Budgetary Fund Balance with 613,662 108,496\nTreasury\nTotal $33,356,274 $39,761,625\n\n\n\nFund Balances with Treasury are the aggregate amounts of the\nDepartment\xe2\x80\x99s accounts with Treasury for which the Depart-\nment is authorized to make expenditures and pay liabilities.\nOther Fund Types include uncleared suspense accounts, which\ntemporarily hold collections pending clearance to the applica-\nble account, and deposit funds, which are established to record\namounts held temporarily until ownership is determined.\n\nThe U.S. Treasury processes cash receipts and disbursements.\nDOT receives appropriations as budget authority, which permits\nit to incur obligations and make outlays (payments). In addition,\nDOT also receives contract authority to permit the incurrence of\nobligations in advance of an appropriation. The contract authority\nis subsequently replaced with the appropriation or the spend-\ning authority from offsetting collections to first cover and then\nliquidate the obligations. As a result, DOT does not have typical\nFund Balance with Treasury amounts as funds remain invested\nin securities until needed to make payments. These investments\nand contract authority amounts offset the Obligated balance not\nyet disbursed, therefore the unobligated and obligated balances\npresented above may not equal related amounts reported on the\nCombined Statements of Budgetary Resources.\n\n\n\n\n65 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 3. INVESTMENTS:\n\xef\xbf\xbd\n COST AMORTIZED DISCOUNT INVESTMENTS (NET) MARKET VALUE\n\n\n INTRAGOVERNMENTAL SECURITIES: Investments as of September 30, 2012\nMarketable $28,735 $179 $28,914 $28,950\nNon-Marketable Par Value 20,395,163 - 20,395,163 20,395,163\nNon-Marketable Market-Based 1,818,209 28,377 1,846,586 1,860,331\nSubtotal 22,242,107 28,556 22,270,663 22,284,444\nAccrued Interest Receivable 59,989 - 59,989\nTotal Intragovernmental Securities $22,302,096 $28,556 $22,330,652 $22,284,444\n\n\n INTRAGOVERNMENTAL SECURITIES: Investments as of September 30, 2011\nMarketable $44,121 $116 $44,237 $44,359\nNon-Marketable Par Value 24,942,797 - 24,942,797 24,942,797\nNon-Marketable Market-Based 1,630,564 11,685 1,642,249 1,669,632\nSubtotal 26,617,482 11,801 26,629,283 26,656,788\nAccrued Interest Receivable 52,775 - 52,775\nTotal Intragovernmental Securities $26,670,257 $11,801 $26,682,058 $26,656,788\n\n\n\n\nInvestments include non-marketable par value and market-based Treasury securities are an asset of DOT and a liability of the\nTreasury securities and marketable securities issued by the U.S. Treasury. Because the DOT and the U.S. Treasury are both\nTreasury and other Federal entities. Non-marketable par value a part of the Government, these assets and liabilities offset each\nTreasury securities are issued by the Bureau of Public Debt to other from the standpoint of the Government as a whole. For\nFederal accounts and are purchased and redeemed at par exclu- this reason, they do not represent an asset or liability in the U.S.\nsively through Treasury\xe2\x80\x99s Federal Investment Branch. Non-mar- Government-wide financial statements.\nketable market-based Treasury securities are also issued by the\nBureau of Public Debt to Federal accounts. They are not traded\non any securities exchange, but mirror the prices of particular\nTreasury securities trading in the Government securities market.\nMarketable Federal securities can be bought and sold on the open\nmarket. The premiums and discounts are amortized over the life\nof the non-marketable market-based and marketable securities\nusing the interest method.\n\nThe Federal Government does not set aside assets to pay future\nbenefits or other expenditures associated with earmarked funds.\nThe cash receipts collected from the public for an earmarked fund\nare deposited in the U.S. Treasury, which uses the cash for Gov-\nernment purposes. Non-Marketable par value Treasury securities\nare issued to DOT as evidence of these receipts. These securities\nprovide DOT with authority to draw upon the U.S. Treasury to\nmake future expenditures. When DOT requires redemption of\nthese securities to make expenditures, the Government finances\nthose expenditures out of accumulated cash balances by raising\ntaxes or other receipts, by borrowing from the public or repaying\nless debt, or by curtailing other expenditures. This is the same\nway that the Government finances all other expenditures.\n\n\n\n\n66 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L R E P O R T 2012\n\x0cNOTE 4. ACCOUNTS RECEIVABLE\n\xef\xbf\xbd\n ALLOWANCE FOR\n GROSS AMOUNT DUE UNCOLLECTIBLE AMOUNTS NET AMOUNT DUE\n Accounts Receivable at September 30, 2012\n INTRAGOVERNMENTAL\nAccounts Receivable $116,545 $- $116,545\n\nAccrued Interest 5 - 5\n\nTotal Intragovernmental 116,550 - 116,550\n\n\n PUBLIC\nAccounts Receivable 174,794 (22,205) 152,589\n\nAccrued Interest 2,395 (77) 2,318\n\nTotal Public 177,189 (22,282) 154,907\n\n\nTotal Receivables $293,739 $(22,282) $271,457\n\n\n Accounts Receivable at September 30, 2011\n\n INTRAGOVERNMENTAL\nAccounts Receivable $97,511 $- $97,511\n\nAccrued Interest 5 - 5\n\nTotal Intragovernmental 97,516 - 97,516\n\n\n PUBLIC\nAccounts Receivable 193,439 (24,745) 168,694\n\nAccrued Interest 444 (266) 178\n\nTotal Public 193,883 (25,011) 168,872\nTotal Receivables $291,399 $(25,011) $266,388\n\n\n\n\n Other assets consist of the following at September 30\nNOTE 5. OTHER ASSETS 2012 2011\nIntragovernmental Other Assets are comprised of advance INTRAGOVERNMENTAL\npayments to other Federal Government entities for agency Advances and Prepayments $164,634 $123,152\nexpenses not yet incurred and for goods and services not yet Total Intragovernmental other assets $164,634 $123,152\nreceived and undistributed assets and payments for which DOT\nis awaiting documentation. Public Other Assets are comprised PUBLIC\nof advances to States, employees, and contractors. Advances to States for Right of Way $19,363 $43,956\n Other Advances and Prepayments 54,784 46,031\n Other 559 100\n Total Public other assets $74,706 $90,087\n\n\n\n\n67 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 6. DIRECT LOANS AND DOT administers the following direct loan and/or loan\nLOAN GUARANTEES, NON-FEDERAL guarantee programs:\nBORROWERS\n \xe2\x96\xb6\t The Railroad Rehabilitation Improvement Program is used\nThe Federal Credit Reform Act of 1990 divides direct loans and to acquire, improve, or rehabilitate intermodal or rail equip-\nloan guarantees into two groups: ment or facilities, including track, components of tract,\n bridges, yards, buildings, and shops; refinance outstanding\n \xe2\x96\xb6\t Pre-1992 - Direct loan obligations or loan guarantee com- debt incurred; and develop or establish new intermodal or\n mitments made prior to FY 1992 and the resulting direct railroad facilities.\n loans or loan guarantees; and\n \xe2\x96\xb6\t The Transportation Infrastructure Finance and Innova-\n \xe2\x96\xb6\t Post-1991 - Direct loan obligations or loan guarantee com- tion Act (TIFIA) Loan Program provides Federal credit\n mitments made after FY 1991 and the resulting direct loans assistance for major transportation investments of critical\n or loan guarantees. national importance such as highway, transit, passenger\n rail, certain freight facilities, and certain port projects with\nThe Act, as amended, governs direct loan obligations and loan\n regional and national benefits. The TIFIA credit program\nguarantee commitments made after FY 1991, and the resulting\n is designed to fill market gaps and leverages substantial\ndirect loans and loan guarantees. Consistent with the Act, State-\n private co-investment by providing supplemental and sub-\nment of Federal Financial Accounting Standards 2, Accounting\n ordinate capital.\nfor Direct Loans and Loan Guarantees, requires Federal agencies\nto recognize the present value of the subsidy costs (which arises \xe2\x96\xb6\t The Federal Ship Financing Fund (Title XI) offers loan\nfrom interest rate differentials, interest supplements, defaults [net guarantees to qualified ship owners and shipyards. Approved\nof recoveries], fee offsets, and other cash flows) as a cost in the applicants are provided the benefit of long-term financing\nyear the direct or guaranteed loan is disbursed. Direct loans are at stable interest rates.\nreported net of an allowance for subsidy at present value, and\n \xe2\x96\xb6\t The OST Minority Business Resource Center Guaranteed\nloan guarantee liabilities are reported at present value. Foreclosed\n Loan Program helps small businesses gain access to the\nproperty is valued at the net realizable value. The value of assets\n financing needed to participate in transportation-related\nfor direct loans and defaulted guaranteed loans is not the same as\n contracts.\nthe proceeds that would be expected from the sale of the loans.\nDOT has calculated the allowance for pre-1992 loans using the An analysis of loans receivable, allowance for subsidy costs,\nallowance for loss method. liability for loan guarantees, foreclosed property, modifications,\n and re-estimates associated with direct loans and loan guarantees\nInterest on the loans is accrued based on the terms of the loan is provided in the following sections:\nagreement. DOT does not accrue interest on non-performing\nloans that have filed for bankruptcy protection. DOT manage-\nment considers administrative costs to be insignificant.\n\nDIRECT LOANS\n OBLIGATED\n PRIOR TO FY 1992\n (ALLOWANCE FOR 2012 LOANS INTEREST ALLOWANCE FOR VALUE OF ASSETS RELATED\n LOSS METHOD) RECEIVABLE, GROSS RECEIVABLE LOAN LOSSES TO DIRECT LOANS, NET\n\n DIRECT LOAN PROGRAMS\n $151 $- $-\t $151\n(1) Railroad Rehabilitation\n Improvement Program\n\n ALLOWANCE FOR\n OBLIGATED AFTER 2012 LOANS INTEREST SUBSIDY COST VALUE OF ASSETS RELATED\n FY 1991 RECEIVABLE, GROSS RECEIVABLE (PRESENT VALUE) TO DIRECT LOANS, NET\n\n DIRECT LOAN PROGRAMS\n(1) Railroad Rehabilitation $710,932 $1,512 $(47,219) $665,225\n Improvement Program\n(2) TIFIA Loans 4,696,784 - (350,654) 4,346,130\nTotal $5,407,716 $1,512 $(397,873) $5,011,355\n\n\n\n\n68 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L R E P O R T 2012\n\x0cNOTE 6, CONT\xe2\x80\x99D\n\n\nDIRECT LOANS\n OBLIGATED\n PRIOR TO FY 1992\n (ALLOWANCE FOR 2011 LOANS INTEREST ALLOWANCE FOR VALUE OF ASSETS RELATED\n LOSS METHOD) RECEIVABLE, GROSS RECEIVABLE LOAN LOSSES TO DIRECT LOANS, NET\n DIRECT LOAN PROGRAMS\n $265 $- $- $265\n(1) Railroad Rehabilitation\n Improvement Program\n\n ALLOWANCE FOR\n OBLIGATED AFTER 2011 LOANS INTEREST SUBSIDY COSTS VALUE OF ASSETS RELATED\n FY 1991 RECEIVABLE, GROSS RECEIVABLE (PRESENT VALUE) TO DIRECT LOANS, NET\n DIRECT LOAN PROGRAMS\n(1) Railroad Rehabilitation $506,159 $696 $(12,271) $494,584\n Improvement Program\n(2) TIFIA Loans 3,931,737 - (310,086) 3,621,651\nTotal $4,437,896 $696 $(322,357) $4,116,235\n\n\n\n\nTOTAL AMOUNT OF DIRECT LOANS DISBURSED (POST-1991)\n 2012 2011\n DIRECT LOAN PROGRAMS\n(1) Railroad Rehabilitation $285,694 $108,031\n Improvement Program\n(2) TIFIA Loans 643,609 1,309,906\nTotal $929,303 $1,417,937\n\n\n\n\nSUBSIDY EXPENSE FOR DIRECT LOANS BY PROGRAM AND COMPONENT\n\xef\xbf\xbd\nSUBSIDY EXPENSE FOR NEW DIRECT LOANS DISBURSED\n\n 2012 INTEREST FEES AND OTHER OTHER SUBSIDY\n DIFFERENTIAL DEFAULTS COLLECTIONS COSTS TOTAL\n\n DIRECT LOAN PROGRAMS\n\n(1) Railroad Rehabilitation $- $13,969 $(13,969) $- $-\n Improvement Program\n\n(2) TIFIA Loans - 68,491 - - 68,491\n\nTotal $- $82,460 $(13,969) $- $ 68,491\n\n\n 2011 INTEREST FEES AND OTHER OTHER SUBSIDY\n DIFFERENTIAL DEFAULTS COLLECTIONS COSTS TOTAL\n DIRECT LOAN PROGRAMS\n\n(1) Railroad Rehabilitation $- $8,625 $(8,625) $- $-\n Improvement Program\n\n(2) TIFIA Loans - 98,913 - - 98,913\n\nTotal $- $107,538 $(8,625) $- $ 98,913\n\n\n\n\n69 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 6, CONT\xe2\x80\x99D\n\n\nMODIFICATIONS AND RE-ESTIMATES\n INTEREST\n 2012 TOTAL RATE TECHNICAL TOTAL\n MODIFICATIONS RE-ESTIMATES RE-ESTIMATES RE-ESTIMATES\n DIRECT LOAN PROGRAMS\n\n(1) Railroad Rehabilitation $- $27,177 $(6,198) $20,979\n Improvement Program\n\n(2) TIFIA Loans - - (36,886) (36,886)\nTotal $- $27,177 $(43,084) $(15,907)\n\n INTEREST\n 2011 TOTAL RATE TECHNICAL TOTAL\n MODIFICATIONS RE-ESTIMATES RE-ESTIMATES RE-ESTIMATES\n DIRECT LOAN PROGRAMS\n\n(1) Railroad Rehabilitation $- $- $1,128 $1,128\n Improvement Program\n\n(2) TIFIA Loans - - 1,004 1,004\n\nTotal $- $- $2,132 $2,132\n\n\n\nTOTAL DIRECT LOAN SUBSIDY EXPENSE\n 2012 2011\n DIRECT LOAN PROGRAMS\n(1) Railroad Rehabilitation $20,979 $1,128\n Improvement Program\n(2) TIFIA Loans 31,605 99,917\nTotal $52,584 $101,045\n\n\n\nBUDGET SUBSIDY RATES FOR DIRECT LOANS FOR THE CURRENT YEAR COHORT\n\n 2012 INTEREST FEES AND OTHER\n DIFFERENTIAL DEFAULTS COLLECTIONS OTHER TOTAL\n DIRECT LOAN PROGRAMS\n\n(1) Railroad Rehabilitation 0.00% 0.89% -0.89% 0.00% 0.00%\n Improvement Program\n\n(2) TIFIA Loans 0.07% 8.76% 0.00% 0.00% 8.83%\nTotal 0.07% 9.65% -0.89% 0.00% 8.83%\n\n\n\nThe subsidy rates disclosed pertain only to the current year\xe2\x80\x99s cohorts. These rates cannot be applied to the direct loans disbursed\nduring the current reporting year to yield the subsidy expense. The subsidy expense for new loans reported in the current year could\nresult from disbursements of loans from both current year cohorts and prior year(s) cohorts. The subsidy expense reported in the cur-\nrent year also includes modifications and re-estimates.\n\n\n\n\n70 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 6, CONT\xe2\x80\x99D\n\n\nSCHEDULE FOR RECONCILING SUBSIDY COST ALLOWANCE BALANCES (POST 1991 DIRECT LOANS)\n 2012 2011\n\n BEGINNING BALANCE, CHANGES, AND ENDING BALANCE\nBeginning balance of the subsidy cost allowance $322,357 $222,072\nAdd: subsidy expense for direct loans disbursed during the reporting years by component:\n Default costs (net of recoveries) 82,460 107,538\n Fees and other collections (13,969) (8,625)\nTotal of the above subsidy expense components $68,491 $98,913\nAdjustments:\n Subsidy allowance amortization 8,963 (9,385)\n Other 13,969 8,625\nEnding balance of the subsidy cost allowance before re-estimates 413,780 320,225\nAdd or subtract subsidy re-estimates by component:\n Interest rate re-estimate 27,177 -\n Technical/default re-estimate (43,084) 2,132\n Total of the above reestimate components (15,907) 2,132\nEnding balance of the subsidy cost allowance $397,873 $322,357\n\n\nThe economic assumptions of the TIFIA upward and downward The Railroad Rehabilitation Improvement Program\xe2\x80\x99s upward\nre-estimates were the result of a reassessment of risk levels as reestimate was a result of an update for change in the discount\nwell as estimated changes in future cash flows on loans. rate between time of loan obligation and disbursement and an\n update for actual cash flows and changes in technical assumptions.\n\n\n\nDEFAULTED GUARANTEED LOANS FROM POST-1991 GUARANTEES\n 2012 DEFAULTED VALUE OF ASSETS\n GUARANTEED RELATED TO DEFAULT\n LOANS GUARANTEED\n RECEIVABLE, INTEREST FORECLOSED ALLOWANCE FOR LOANS RECEIVABLE,\n GROSS RECEIVABLE PROPERTY SUBSIDY NET\n\nLOAN GUARANTEE PROGRAMS\n(3) Federal Ship Financing $97,312 $2,061 $6,500 $(94,572) $11,301\n Fund (Title XI)\n\n 2011 DEFAULTED VALUE OF ASSETS\n GUARANTEED RELATED TO DEFAULT\n LOANS GUARANTEED\n RECEIVABLE, INTEREST FORECLOSED ALLOWANCE FOR LOANS RECEIVABLE,\n GROSS RECEIVABLE PROPERTY SUBSIDY NET\n\nLOAN GUARANTEE PROGRAMS\n(3) Federal Ship Financing\n $212,071 $8,797 $60,100 $(209,833) $71,135\n Fund (Title XI)\n\n\n\n\n71 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 6, CONT\xe2\x80\x99D\n\nGUARANTEED LOANS OUTSTANDING\n 2012 OUTSTANDING AMOUNT OF\n PRINCIPAL OF OUTSTANDING\n GUARANTEED PRINCIPAL\n LOANS, FACE VALUE GUARANTEED\n LOAN GUARANTEE PROGRAMS\n(3) Federal Ship Financing $1,966,363 $1,966,363\n Fund (Title XI)\n(4) OST Minority Business 5,749 4,312\n Resource Center\nTotal\t $1,972,112 $1,970,675\n\n\n 2012 OUTSTANDING AMOUNT OF\n PRINCIPAL OF OUTSTANDING\n GUARANTEED PRINCIPAL\n LOANS, FACE VALUE GUARANTEED\n\nNEW GUARANTEED LOANS DISBURSED\n\n LOAN GUARANTEE PROGRAMS\n\n(3) Fed Ship Financing Fund $593,976 $593,976\n (Title XI)\n(4) OST Minority Business 3,449 2,586\n Resource Center\nTotal\t $597,425 $596,562\n\n\n\n 2011 OUTSTANDING AMOUNT OF\n PRINCIPAL OF OUTSTANDING\n GUARANTEED PRINCIPAL\n LOANS, FACE VALUE GUARANTEED\n LOAN GUARANTEE PROGRAMS\n(3) Fed Ship Financing Fund $- $-\n (Title XI)\n(4) OST Minority Business 3,130 2,348\n Resource Center\nTotal\t $3,130 $2,348\n\n\n\n\n 2012 LIABILITIES FOR POST-1991\n GUARANTEES, PRESENT VALUE\n\n LIABILITY FOR LOAN GUARANTEES \n\n (PRESENT VALUE METHOD POST-1991 GUARANTEES):\n\xef\xbf\xbd\n(3) F\t ed Ship Financing Fund $192,382\n (Title XI)\n(4) \tOST Minority Business 447\n Resource Center\nTotal\t $192,829\n\n\n\n\n72 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 6, CONT\xe2\x80\x99D\nSUBSIDY EXPENSE FOR LOAN GUARANTEES BY PROGRAM AND COMPONENT\n\nSUBSIDY EXPENSE FOR NEW LOAN GUARANTEES DISBURSED\n\n 2012 INTEREST FEES AND OTHER\n SUPPLEMENTS DEFAULTS COLLECTIONS OTHER TOTAL\n LOAN GUARANTEE PROGRAMS\n $- $48,520 $(34,732) $- $13,788\n(3) Federal Ship Financing Fund (Title XI)\n\n(4) OST Minority Business Resource Center - 77 - - 77\n\nTotal $- $48,597 $(34,732) $- $13,865\n\n\n 2011 INTEREST FEES AND OTHER\n SUPPLEMENTS DEFAULTS COLLECTIONS OTHER TOTAL\n LOAN GUARANTEE PROGRAMS\n(4) OST Minority Business Resource Center $- $86 $- $- $86\nTotal $- $86 $- $- $86\n\n\n\nMODIFICATIONS AND RE-ESTIMATES\n 2012 TOTAL INTEREST RATE TECHNICAL\n MODIFICATIONS RE-ESTIMATES RE-ESTIMATES TOTAL RE-ESTIMATES\n LOAN GUARANTEE PROGRAMS\n(3) Federal Ship Financing Fund (Title XI) $- $- $(38,769) $(38,769)\n(4) OST Minority Business Resource Center - - 278 278\n\nTotal $- $- $(38,491) $(38,491)\n\n\n 2011 TOTAL INTEREST RATE TECHNICAL\n MODIFICATIONS RE-ESTIMATES RE-ESTIMATES TOTAL RE-ESTIMATES\n\n LOAN GUARANTEE PROGRAMS\n(3) Federal Ship Financing Fund (Title XI) $- $- $2,318 $2,318\n(4) OST Minority Business Resource Center - - (87) (87)\nTotal $- $- $2,231 $2,231\n\n\n\nTOTAL LOAN GUARANTEE SUBSIDY EXPENSE\n 2012 2011\n\n LOAN GUARANTEE PROGRAMS\n(3) Federal Ship Financing Fund (Title XI) $(24,981) $2,318\n(4) OST Minority Business Resource Center 355 (1)\nTotal $(24,626) $2,317\n\n\n\n\n73 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L R E P O R T 2012\n\x0cNOTE 6, CONT\xe2\x80\x99D\n\n\nBUDGET SUBSIDY RATES FOR LOAN GUARANTEES FOR THE CURRENT YEAR COHORT\n 2012 INTEREST FEES AND OTHER\n SUPPLEMENTS DEFAULTS COLLECTIONS OTHER TOTAL\n LOAN GUARANTEE PROGRAMS\n(3) Federal Ship Financing 0.00% 12.15% -4.89% 0.00% 7.26%\n Fund (Title XI)\n(4) OST Minority Business 0.00% 1.79% 0.00% 0.00% 1.79%\n Resource Center\nTotal 0.00% 13.94% -4.89% 0.00% 9.05%\n\n\n\nThe subsidy rates disclosed pertain only to the current year\xe2\x80\x99s cohorts. These rates cannot be applied to the guarantees of loans dis-\nbursed during the current reporting year to yield the subsidy expense. The subsidy expense for new loan guarantees reported in the\ncurrent year could result from disbursements of loans from both current year cohorts and prior year(s) cohorts. The subsidy expense\nreported in the current year also includes modifications and re-estimates.\n\n\n\nSCHEDULE FOR RECONCILING LOAN GUARANTEE LIABILITY BALANCES (POST-1991 LOAN GUARANTEES)\n 2012 2011\n\n BEGINNING BALANCE, CHANGES, AND ENDING BALANCE\nBeginning Balance of the loan guarantee liability $158,425 $237,739\nAdd: subsidy expense for guaranteed loans disbursed during the\nreporting years by component:\n Default costs (net of recoveries) 48,597 86\n Fees and other collections (34,732) -\n Total of the above subsidy expense components 13,865 86\nAdjustments:\n Fees Received 53,418 1,035\n Foreclosed Property and Loans Acquired 39,456 (212,214)\n Interest accumulation on the liability balance (6,756) 125,494\n Other (27,088) 4,054\nEnding balance of the loan guarantee liability before re-estimates 231,320 156,194\nAdd or subtract subsidy re-estimates by component:\n Technical/default reestimate (38,491) 2,231\n Total of the above reestimate components (38,491) 2,231\nEnding balance of the loan guarantee liability $192,829 $158,425\n\n\nIn January 2012, MARAD transferred two vessels prevously acquired through foreclosure proceedings to the U.S. Department of the\nNavy for $35 million. MARAD retains one vessel in its inventory of foreclosed property.\n\nThe lingering downturn in the economy has led to volatility in financial markets which could affect loan repayments under direct and\nloan guarantee programs. Under the Federal Credit Reform Act, upward re-estimates are automatically covered by permanent indefinite\nbudget authority, which ensures DOT will have sufficient resources to cover any losses incurred in its existing portfolio without further\naction by Congress. DOT continues to evaluate the risks to affected markets in light of evolving economic conditions, but the impact\nof such risks on DOT\xe2\x80\x99s loan and loan guarantee portfolio reserves, if any, cannot be fully known at this time. The sufficiency of DOT\xe2\x80\x99s\nportfolio reserves at September 30, 2012, will largely depend on future economic and market conditions and could differ from current estimates.\n\n\n\n\n74 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 7. INVENTORY AND RELATED PROPERTY\n\xef\xbf\xbd\n Inventory and Related Property as of September 30, 2012\n ALLOWANCE\n COST FOR LOSS NET\n INVENTORY\nInventory Held for Current Sale $93,855 $- $93,855\nExcess, Obsolete, and Unserviceable Inventory 8,956 (8,956) -\nInventory Held for Repair 582,567 (135,234) 447,333\nOther 51,030 (10,591) 40,439\nTotal Inventory $736,408 $(154,781) $581,627\n\n\n OPERATING MATERIALS AND SUPPLIES\nItems Held for Use $233,293 $(1,075) $232,218\nItems Held in Reserve for Future Use 29,664 - 29,664\nExcess, Obsolete and Unserviceable Items 1,888 (1,043) 845\nItems Held for Repair 25,730 (12,193) 13,537\nTotal Operating Materials & Supplies $290,575 $(14,311) $276,264\nTotal Inventory and Related Property $857,891\n\n\n Inventory and Related Property as of September 30, 2011\n ALLOWANCE\n COST FOR LOSS NET\n INVENTORY\nInventory Held for Current Sale $101,934 $- $101,934\nExcess, Obsolete, and Unserviceable Inventory 13,766 (13,766) -\nInventory Held for Repair 550,604 (119,266) 431,338\nOther 40,712 (10,590) 30,122\nTotal Inventory $707,016 $(143,622) $563,394\n\n\n OPERATING MATERIALS AND SUPPLIES\nItems Held for Use $238,612 $(1,840) $236,772\nItems Held in Reserve for Future Use 30,212 - 30,212\nExcess, Obsolete, and Unserviceable Items 325 (325) -\nItems Held for Repair 28,492 (13,037) 15,455\nTotal Operating Materials & Supplies $297,641 $(15,202) $282,439\nTotal Inventory and Related Property $845,833\n\nInventory consists of supplies and materials used to support FAA National Airspace System (NAS) located at the Mike Monroney\nAeronautical Center in Oklahoma City.\n\nPrimarily, operating supplies and materials consist of unissued materials and supplies that will be used in repair and maintenance of\nvarious activities within FAA and to support the training vessels and day-to-day operations at the U.S. Merchant Marine Academy.\n\n\n\n\n75 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 8. GENERAL PROPERTY, PLANT AND EQUIPMENT, NET\n\xef\xbf\xbd\n General Property, Plant and Equipment at September 30, 2012\n ACCUMULATED\n ACQUISITION DEPRECIATION\n MAJOR CLASSES SERVICE LIFE VALUE AMORTIZATION BOOK VALUE\nLand and Improvements 10-40 $102,717 $(2,251) $100,466\nBuildings and Structures 20-40 6,213,974 (3,418,667) 2,795,307\nFurniture and Fixtures 7-10 3,199 (1,619) 1,580\nEquipment 5-15 17,460,914 (10,712,215) 6,748,699\nADP Software 3-10 722,683 (539,726) 182,957\nAssets Under Capital Lease 6-10 127,661 (49,902) 77,759\nLeasehold Improvements 3 147,821 (84,400) 63,421\nAircraft 20 407,579 (327,059) 80,520\nShips and Vessels 15-25 1,945,001 (1,753,241) 191,760\nSmall Boats 10-18 27,701 (22,131) 5,570\nConstruction-in-Progress NA 3,780,846 - 3,780,846\nOther Miscellaneous Property NA 7,202 (5,721) 1,481\nTotal $30,947,298 $(16,916,932) $14,030,366\n\n\n General Property, Plant and Equipment at September 30, 2011\n ACCUMULATED\n ACQUISITION DEPRECIATION\n MAJOR CLASSES SERVICE LIFE VALUE AMORTIZATION BOOK VALUE\nLand and Improvements 10-40 $102,630 $(1,997) $100,633\nBuildings and Structures 20-40 5,844,963 (3,167,777) 2,677,186\nFurniture and Fixtures 7-10 71,881 (68,900) 2,981\nEquipment 5-15 16,848,561 (9,979,207) 6,869,354\nADP Software 3-10 649,129 (412,916) 236,213\nAssets Under Capital Lease 6-10 184,777 (90,139) 94,638\nLeasehold Improvements 3 135,623 (71,136) 64,487\nAircraft 20 407,579 (314,378) 93,201\nShips and Vessels 15-25 1,949,078 (1,716,857) 232,221\nSmall Boats 10-18 23,980 (17,082) 6,898\nConstruction-in-Progress NA 3,361,052 - 3,361,052\nOther Miscellaneous Property NA 8,664 (7,021) 1,643\nTotal $29,587,917 $(15,847,410) $13,740,507\n\nThe FAA is currently developing and testing the En Route Automation Modernization (ERAM) system to upgrade the management\nof air traffic in the en route airspace and to enable the implementation of certain NextGen capabilities. As of September 30, 2012,\nconstruction in progress includes $2.11 billion related to the ERAM system.\n\nWhile the deployment schedule for ERAM is not finalized and will depend upon results of continued testing of the system, FAA ex-\npects to deploy the ERAM system at 20 air route traffic control centers over the next several years. When fully deployed and\noperational, the ERAM system will replace three legacy air traffic systems currently being depreciated over service lives ranging\nfrom 5 to 20 years.\n\nThe net acquisition cost of the three air traffic legacy systems in use at September 30, 2012, and September 30, 2011, was unchanged\nat $2.14 billion with a net book value of $634 million and $745 million, respectively. Depreciation on these air traffic legacy systems\nwas $111 million and $121 million in FY 2012 and 2011, respectively. As the ERAM deployment schedule becomes more certain,\nFAA will re-evaluate the remaining service lives of the legacy air traffic systems and their estimated value at disposal. Adjustments\nwill then be made to the DOT accounting records in accordance with applicable accounting standards.\n\n\n\n76 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 9. STEWARDSHIP PROPERTY, Washington\xe2\x80\x99s Union Station is an elegant and unique turn-of-the-\nPLANT AND EQUIPMENT century rail station in which a wide variety of elaborate, artistic\n workmanship characteristic of the period is found. Union Station\nPERSONAL PROPERTY HERITAGE ASSETS is listed on the National Register of Historic Places. The station\nImplied within the Maritime Administration\xe2\x80\x99s mission is the consists of the renovated original building and a parking garage,\npromotion of the nation\xe2\x80\x99s rich maritime heritage. One aspect which was added by the National Park Service.\nof this entails the collection, maintenance, and distribution of\nmaritime artifacts removed from agency-owned ships prior to The Nuclear Ship Savannah is the world\xe2\x80\x99s first nuclear-powered\ntheir disposal. As ships are assigned to a non-retention status, merchant ship. It was constructed as a joint project of the Mari-\nartifact items are collected, inventoried, photographed, and time Administration and the Atomic Energy Commission (AEC)\nrelocated to secure shore-side storage facilities. This resulting as a signature element of President Eisenhower\xe2\x80\x99s \xe2\x80\x9cAtoms for\ninventory is made available on a long-term loan basis to qualified Peace\xe2\x80\x9d program. In 1965, the AEC issued a commercial operat-\norganizations for public display purposes. ing license and ended its participation in the joint program. The\n ship remains licensed and regulated by the U.S. Nuclear Regu-\nMARAD artifacts and other collections are generally on loan latory Commission (NRC) (successor to the AEC). The Nuclear\nto single purpose memorialization and remembrance groups, Ship Savannah is listed on the National Register of Historic\nsuch as AMVets and preservation societies. MARAD maintains Places. The ship is a boldly-styled passenger/cargo vessel\na web-based inventory system that manages the artifact loan powered by a nuclear reactor.\nprocess. The program also supports required National Historical\nPreservation Act processing prior to vessel disposal. Funding for Actions taken by the Maritime Administration since FY 2006\nthe maintenance of heritage items is typically the responsibility have stabilized the ship and rehabilitated portions of its interior\nof the organization requesting the loan of a heritage asset. The for work-day occupancy by staff and crew. The ship is currently\nartifacts and other collections are composed of ships\xe2\x80\x99 operating located in Baltimore, MD, where it is being prepared for\nequipment obtained from obsolete ships. The ships are inoper- continued \xe2\x80\x9cSAFSTOR\xe2\x80\x9d (the NRC method of preparing nuclear\native and in need of preservation and restoration. As all items facilities for storage and decontamination) retention under the\nare durable and restorable, disposal is not a consideration. The provisions of its NRC license.\nartifacts and other collections are removed from inventory when\ndestroyed while on loan. The table below shows the number The Maritme Administration also has twelve buildings that\nof physical units added and withdrawn at September 30, 2012. encircle the central quadrangle of the U.S. Merchant Marine\n Academy and the William S. Barstow house, which are eligible\nREAL PROPERTY HERITAGE ASSETS for listing on the National Register of Historic Places.\nWashington\xe2\x80\x99s Union Station support DOT\xe2\x80\x99s mobility mission,\nfacilitating the movement of intercity and commuter rail passengers\nthrough the Washington DC metropolitan area. The Federal\nRailroad Administration (FRA) has an oversight role in the\nmanagement of Washington\xe2\x80\x99s Union Station. FRA received title\nthrough legislation, and sublets the property to Union Station\nVenture Limited which manages the property.\n\n\nHERITAGE ASSETS\n UNITS AS OF 9/30/2011 ADDITIONS WITHDRAWALS UNITS AS OF 9/30/12\n\n PERSONAL PROPERTY\nArtifacts 584 131 (15) 700\nOther Collections 11,091 2,037 (6,288) 6,840\n\n\n\n TOTAL PERSONAL PROPERTY\nHeritage Assets 11,675 2,168 (6,303) 7,540\n\n\n\n\n77 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c Liabilities Not Covered by\nNOTE 10. LIABILITIES NOT COVERED BY Budgetary Resources at September 30\nBUDGETARY RESOURCES\n 2012 2011\nLiabilities Not Covered by Budgetary Resources are those INTRAGOVERNMENTAL\nliabilities that Congressional action is needed before budgetary Other Liabilities $628,524 $545,975\nresources can be provided. Intragovernmental Liabilities are Total Intragovernmental 628,524 545,975\nthose liabilities that are with other governmental entities.\n Federal Employee Benefits Payable 1,019,076 978,918\n Environmental and Disposal 1,010,818 1,068,076\n Liabilities (Note 13)\n\n Other Liabilities 752,946\n 811,775\n Total Liabilities Not Covered by 3,411,364 3,404,744\n Budgetary Resources\n\n Total Liabilities Covered by 14,624,761\n 14,964,228\n Budgetary Resources\n Total Liabilities $18,036,125 $18,368,972\n\n\n\n\nNOTE 11. DEBT\n\xef\xbf\xbd\n Debt activities during fiscal year ended September 30\n 2011\n BEGINNING 2011 NET 2011 ENDING 2012 NET 2012 ENDING\n BALANCE BORROWING BALANCE BORROWING BALANCE\n\n INTRAGOVERNMENTAL DEBT\n Debt to the Treasury $3,075,730 $1,265,899 4,341,629 $851,033 $5,192,662\n Debt to the Federal Financing Bank 1,709 (472) 1,237 (301) 936\nTotal Intragovernmental Debt $3,077,439 $1,265,427 $4,342,866 $850,732 $5,193,598\n\n\nIn accordance with Credit Reform Accounting, DOT borrows from the U.S. Treasury when cash is needed in its financing accounts.\nBorrowings are needed to transfer the credit subsidy related to downward re-estimates from the financing account to the receipt\naccount or when available cash is less than claim payments.\n\nDuring fiscal year 2012, DOT\xe2\x80\x99s U.S. Treasury borrowings carried interest rates ranging from .13 percent to 7.19 percent. The maturity\ndates for these borrowings occur from October 2012 to September 2051. Loans may be repaid in whole or in part without penalty at\nany time. The borrowing from the Federal Financing Bank has an interest rate of 6.4% and matures in May 2015. Borrowings from\nthe U.S. Treasury and the Federal Financing Bank are considered covered by budgetary resources as no congressional action is\nnecessary to pay the debt.\n\n\n\n\n78 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 12. FEDERAL EMPLOYEE NOTE 13. ENVIRONMENTAL AND\nBENEFITS PAYABLE DISPOSAL LIABILITIES\n 2012 2011 2012 2011\nExpected Future Liability for FECA $1,019,076 $978,918 PUBLIC\n Environmental Remediation $613,448 $597,629\nFEDERAL EMPLOYEES COMPENSATION ACT (FECA)\n Asset Disposal 397,370 470,447\nThe FECA provides income and medical cost protection to\n Total Public $1,010,818 $1,068,076\ncovered Federal civilian employees injured on the job, to\nemployees who have incurred work-related occupational\ndiseases, and to beneficiaries of employees whose deaths are ENVIRONMENTAL REMEDIATION\nattributable to job-related injuries or occupational diseases. The Environmental remediation generally occurs under the Resource\nFECA program is administered by the U.S. Department of Labor Conservation and Recovery Act of 1976 (RCRA), the Compre-\n(DOL), which pays valid claims and subsequently seeks hensive Environmental Response, Compensation and Liability\nreimbursement from DOT for these paid claims. Act of 1980 (CERCLA or Superfund), or the Toxic Substances\nThe FECA liability consists of two components. The first Control Act (TSCA). Environmental remediation includes the\ncomponent is based on actual claims paid by DOL but not yet fuel storage tank program, fuels, solvents, industrial, and chem-\nreimbursed by DOT. DOT reimburses DOL for the amount of the icals, and other environmental cleanup activities associated with\nactual claims as funds are appropriated for this purpose. There normal operations or the result of an accident. Estimating the\nis generally a two-year lag between payment by DOL and reim- Department\xe2\x80\x99s cost estimates for environmental cleanup and asset\nbursement by DOT. As a result, DOT recognizes a liability for disposal liabilities requires making assumptions about future\nthe actual claims paid by DOL and to be reimbursed by DOT. activities and is inherently uncertain. These liabilities are\n not adjusted for inflation and are subject to revision as a result\nThe second component is the estimated liability for future benefit of changes in technology and environmental laws and regulations.\npayments as a result of past events. This liability includes death,\ndisability, medical, and miscellaneous costs. DOL determines As of September 30, 2012 and 2011, DOT\xe2\x80\x99s environmental\nthis component annually, as of September 30, using a method remediation liability primarily includes the removal of contaminants\nthat considers historical benefit payment patterns, wage infla- on the Nuclear Ship Savannah and remediation at various sites\ntion factors, medical inflation factors, and other variables. DOT managed by the FAA and MARAD. In addition to the amount\nrecognizes an unfunded liability to DOL for these estimated recorded and disclosed, there is a foreseeable environmental\nfuture payments. The projected annual benefit payments are liability related to a site with MARAD and numerous other\ndiscounted to present value using OMB\xe2\x80\x99s economic assumptions external parties, where the loss is probable and the estimate\nfor 10-year Treasury notes and bonds. To provide for the effects cannot be determined. There were no amounts recorded\nof inflation on the liability, wage inflation factors (i.e., cost of related to the MARAD site.\nliving adjustments) and medical inflation factors (i.e., consumer\nprice index medical adjustments) are applied to the calculation ASSET DISPOSAL\nof projected future benefit payments. These factors are also used The National Maritime Heritage Act requires that MARAD\nto adjust historical benefit payments to current-year constant dispose of certain merchant vessels owned by the U.S. Government,\ndollars. A discounting formula is used to recognize the timing of including non-retention ships in the Fleet. Residual fuel, asbes-\nbenefit payments as 13 payments per year rather than an annual tos, and solid polychlorinated biphenyls (PCB) sometimes exist\nlump sum. onboard MARAD\xe2\x80\x99s non-retention ships. Non-retention ships are\n those MARAD vessels that no longer have a useful application and\nIn addition, Other Liabilities (Note 15) includes $221,841 are pending disposition. The asset disposal liability at September\nand $223,842 at September 30, 2012 and 2011, respectively, for 30, 2012, includes the estimated cost of disposing 121 ships. In\nintragovernmental FECA liabilities representing amounts billed addition, FAA records an asset disposal liability upon the decom-\nto DOT by the DOL for FECA payments made on DOT\xe2\x80\x99s behalf. missioning of an asset to cover preparatory costs required to meet\n regulatory standards allowing for the safe disposition of the asset.\n\n\n\n\n79 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 14. GRANT ACCRUAL\nThe grant accrual consists of an estimate of grantee expenses\nincurred but not yet paid by DOT. Grantees primarily include\nstate and local governments and transit authorities.\n\n Grant accruals by DOT Operating Administrations\n at September 30\n 2012 2011\nFederal Highway Administration $4,193,169 $4,456,561\nFederal Transit Administration 1,297,590 1,331,012\nFederal Aviation Administration 640,646 653,432\nOther 184,284 119,750\nTotal Grant Accrual $6,315,689 $6,560,755\n\n\n\nNOTE 15. OTHER LIABILITIES\n\xef\xbf\xbd\n Other Liabilities as of September 30, 2012\n NON-CURRENT CURRENT TOTAL\n INTRAGOVERNMENTAL\nAdvances and Prepayments $256,725 $1,296,796 $1,553,521\nAccrued Pay and Benefits - 135,401 135,401\nFECA Billings (Note 12) 123,890 97,951 221,841\nUncleared Disbursements and Collections - 2,868 2,868\nOther Accrued Liabilities 24,410 349,295 373,705\nTotal Intragovernmental $405,025 $1,882,311 $2,287,336\n\n\n PUBLIC\nOther Accrued Unbilled Payments $- $27,815 $27,815\nAdvances and Prepayments - 138,837 138,837\nAccrued Pay and Benefits 65,264 951,914 1,017,178\nDeferred Credits - 47,821 47,821\nLegal Claims (Note17) - 34,634 34,634\nCapital Leases (Note 16) 73,452 9,490 82,942\nOther Custodial Liability - 1,179 1,179\nOther Accrued Liabilities - 22,376 22,376\nTotal Public $138,716 $1,234,066 $1,372,782\n\n\nThe Federal Transit Administration (FTA) received $2.75 billion from Federal Emergency Management Agency (FEMA) in FY 2003\nto rebuild parts of the transit system that were destroyed during the World Trade Center attacks on September 11, 2001. The $257\nmillion of Non Current Intragovernmental Governmental Advances and Prepayments is the remaining portion and expected to be\npaid out as the project progresses. The current portion of the advances and prepayments for this same project is approximately $914 million.\n\n\n\n\n80 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 15, CONT\xe2\x80\x99D\n\n Other Liabilities as of September 30, 2011\n NON-CURRENT CURRENT TOTAL\n INTRAGOVERNMENTAL\nAdvances and Prepayments $1,165,850 $740,608 $1,906,458\nAccrued Pay and Benefits - 101,372 101,372\nFECA Billings (Note 12) 124,687 99,155 223,842\nUncleared Disbursements and Collections - 119 119\nOther Accrued Liabilities 43,754 285,756 329,510\nTotal Intragovernmental $1,334,291 $1,227,010 $2,561,301\n\n\n PUBLIC\nOther Accrued Unbilled Payments $- $53,487 $53,487\nAdvances and Prepayments - 144,630 144,630\nAccrued Pay and Benefits 115,706 884,199 999,905\nDeferred Credits - 2,221 2,221\nLegal Claims (Note 17) - 66,537 66,537\nCapital Leases (Note 16) 84,933 21,379 106,312\nOther Custodial Liability - 40,144 40,144\nOther Accrued Liabilities 13,769 63,381 77,150\nTotal Public $214,408 $1,275,978 $1,490,386\n\n\n\n\n81 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 16. LEASES NOTE 17. COMMITMENTS AND\n CONTINGENCIES\nENTITY AS LESSEE: Capital Leases at September 30\n 2012 2011 LEGAL CLAIMS\n As of September 30, 2012 and 2011, DOT\xe2\x80\x99s contingent liabil-\nSUMMARY OF ASSETS UNDER CAPITAL ities, in excess of amounts accrued (Note 15), for asserted and\nLEASE BY CATEGORY pending legal claims with a reasonably possible of loss were\nLand, Buildings & Machinery $126,629 $184,777 estimated at $117.7 million and $86.6 million, respectively. DOT\nSoftware 1,032 - does not have material amounts of known unasserted claims. As\nAccumulated Amortization (49,902) (90,139) of September 30, 2012 and 2011, DOT\xe2\x80\x99s contingent liabilities\nNet Assets Under Capital Lease $77,759 $94,638 for asserted and pending legal claims with a probable loss were\n estimated at $35 million and $67 million, respectively.\nFUTURE PAYMENTS DUE\n GRANT PROGRAMS\n FISCAL YEAR\n FHWA pre-authorizes states to establish construction budgets\n2013 $9,046 without having received appropriations from Congress for such\n2014 8,906 projects. FHWA does not guarantee the ultimate funding to the\n2015 8,867 states for these \xe2\x80\x9cAdvance Construction\xe2\x80\x9d projects and, accordingly,\n2016 8,639 does not obligate any funds for these projects. When funding\n becomes available to FHWA, the states can then apply for\n2017 8,640\n reimbursement of costs that they have incurred on such projects,\n2018+ 70,601\n at which time FHWA can accept or reject such requests. For\nTotal Future Lease Payments $114,699 the fiscal year ended September 30, 2012 and 2011, FHWA has\n pre-authorized $44.3 billion and $41.4 billion, respectively, under\nLess: Imputed Interest 31,757 these arrangements. These commitments have not been recognized\nNet Capital Lease Liability $82,942 in the DOT consolidated financial statements at September 30,\n 2012 and 2011.\nThe capital lease payments disclosed above primarily relate to\nFAA and are authorized to be funded annually as codified in FTA executes Full Funding Grant Agreements (FFGAs) under\nthe United States Code - Title 49 - Section 40110(c)(1) which its Capital Investment Program (New Starts) authorizing transit\naddresses general procurement authority. The remaining principal authorities to establish project budgets and incur costs with their\npayments are recorded as unfunded lease liabilities. The imputed own funds in advance of Congress appropriating New Starts\ninterest is funded and expensed annually. funds to the project. As of September 30, 2012, and September\n 30, 2011, FTA had approximately $1.96 billion and $1.6 billion\nOPERATING LEASES: FUTURE PAYMENTS DUE respectively, in funding commitments under FFGAs, which\n Congress had not yet appropriated. Congress must first provide\n LAND,\n BUILDINGS, the budget authority (appropriations) to allow FTA to incur\n MACHINERY obligations for these programs. Until Congress appropriates\n FISCAL YEAR & OTHER\n funds, FTA is not liable to grantees for any costs incurred.\n2013 $278,773 There is no liability related to these commitments reflected in\n2014 216,915 the DOT consolidated financial statements at September 30,\n2015 195,301 2012 and 2011.\n2016 173,854\n2017 160,182\n FAA\xe2\x80\x99s Airport Improvement Program provides grants for the\n planning and development of public-use airports that are included\n2018+ 585,643\n in the National Plan of Integrated Airport Systems. Eligible proj-\nTotal Future Lease Payments $1,610,668 ects generally include improvements related to enhancing airport\n safety, capacity, security, and environmental concerns. FAA\xe2\x80\x99s\nOperating lease expenses incurred were $325.2 million and\n share of eligible costs for large and medium primary hub airports\n$294.9 million for the years ended September 30, 2012 and\n is 75 percent with the exception of noise program implemen-\n2011, respectively, including General Services Administration\n tation, which is 80 percent of the eligible costs. For remaining\n(GSA) leases that have a short termination privilege; however,\n airports (small primary, reliever, and general aviation airports)\nDOT intends to remain in the leases. Estimates of the lease ter-\n FAA\xe2\x80\x99s share is 95 percent of the eligible costs.\nmination dates are subjective, and any projection of future lease\npayments would be arbitrary.\n\n\n\n\n82 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cFAA has authority under 49 U.S.C. 47110(e) to issue letters liability and vessel\xe2\x80\x99s crew. The Department of Defense has fully\nof intent to enter into Airport Improvement Program grant indemnified MARAD for any losses arising out of the non-pre-\nagreements. FAA records an obligation when a grant is awarded. mium insurance. There have been no losses and no claims are\nAs of September 30, 2012, FAA had letters of intent extending outstanding for this non-premium insurance. There is approximately\nthrough FY 2028 totaling $7.4 billion. As of September 30, 2012, $47 million in the Marine War Risk Insurance fund to reimburse\nFAA had obligated $5.8 billion of this total amount, leaving $1.6 operators that may be covered by premium insurance in future\nbillion unobligated. As of September 30, 2011, FAA had letters periods. MARAD has not issued premium War Risk Insurance\nof intent extending through FY 2026 totaling $7.5 billion. As of in approximately 20 years. MARAD would have to request\nSeptember 30, 2011, FAA had obligated $5.5 billion of this total Presidential authority to write any premium insurance, and no\namount, leaving $2 billion unobligated. such request is pending at this time.\n\nAVIATION INSURANCE PROGRAM ENVIRONMENTAL LIABILITIES\nFAA is authorized to issue hull and liability insurance under the As of September 30, 2012, FAA has estimated contingent liabili-\nAviation Insurance Program for air carrier operations for which ties, categorized as reasonably possible of $190.2 million related\ncommercial insurance is not available on reasonable terms and to environmental remediation. Contingency costs are defined\nwhen continuation of U.S. flag commercial air service is necessary for environmental liabilities as those costs that may result from\nin the interest of air commerce, national security, and the foreign incomplete design, unforeseen and unpredictable conditions, or\npolicy of the United States. FAA may issue non-premium insurance uncertainties within a defined project scope.\nand premium insurance for which a risk-based premium is\ncharged to the air carrier, to the extent practical. NATIONAL RAILROAD PASSENGER SERVICE\n CORPORATION (AMTRAK)\nDuring FY 2012, FAA provided premium war-risk insurance The United States and the Department are not at risk if Amtrak\nto 53 airlines. For these airlines, combined hull and liability fails and they do not guarantee the indebtedness of Amtrak,\nper occurrence coverage limits range from $100 million to $4 whose debt is secured primarily by assets of the corporation.\nbillion. FAA also provided non-premium war-risk insurance to Amtrak has been operating with an accumulated deficit and is\n37 carriers with 2,387 aircraft for Department of Defense charter dependent upon appropriations from Congress to continue opera-\noperations for Central Command. tions. Amtrak has been receiving federal funds from Congress\n through the Department since approximately 1972. For FY 2012\nAs of September 30, 2012, there are pending aviation insurance and FY 2011, the Department issued grants to Amtrak for $1.7\nclaims in the amount of $10 million. There is approximately $1.8 billion and $2 billion, respectively. These grants were for both\nbillion available in the Aviation Insurance Revolving Fund to pay operating and capital improvements. Refer to Note 1W\nclaims to carriers covered by premium insurance. If premium (Significant Accounting Policies) for additional information.\ninsurance claims should exceed that amount, additional funding\ncould be appropriated from the General Fund. The Department of HURRICANE SANDY DISASTER RELIEF\nDefense and State Department have agreed to pay claims to the In October 2012, Hurricane Sandy significantly impacted certain\ncarriers covered by non-premium insurance. areas within the northeastern United States. Currently, DOT, in\n conjunction with other federal entities, is assessing the estimated\nMARINE WAR RISK INSURANCE PROGRAM financial impact of the affected areas. DOT is expecting states\nMARAD is authorized to issue hull and liability insurance under impacted by Hurricane Sandy to apply for emergency relief in the\nthe Marine War Risk Insurance Program for vessel operations for near future, however; the amounts are unknown as of the date of\nwhich commercial insurance is not available on reasonable terms this report.\nand conditions, when the vessel is considered to be in the interest\nof national defense or national economy of the United States. Additional commitments are discussed in Note 6,\nMARAD may issue (1) premium based insurance for which a Direct Loans and Loan Guarantees, Non-Federal\nrisk based premium is charged and (2) non-premium insurance Borrowers, and Note 16, Leases.\nfor vessels under charter operations for the Military Sealift\nCommand.\n\nDuring FY 2012, MARAD wrote non-premium war risk insurance\nwith a total coverage of $448.5 million for six companies on\nsix vessels and the coverage ranges from $64 million to $83\nmillion to cover hull liability and vessel\xe2\x80\x99s crew. During FY 2011,\nMARAD wrote non-premium war risk insurance with a total cov-\nerage of $448.5 million for six companies on six vessels and the\ncoverage ranges from $52 million to $84.5 million to cover hull\n\n\n\n83 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 18. EARMARKED FUNDS\t\xef\xbf\xbd OTHER EARMARKS:\nDOT administers certain earmarked funds, which are specifically \xe2\x96\xb6\t Aviation Insurance Revolving Fund\nidentified revenues, often supplemented by other financing sourc-\n \xe2\x96\xb6\t Pipeline Safety\nes, that remain available over time. Descriptions of the significant\nearmarked funds are as follows: \xe2\x96\xb6\t Emergency Preparedness Grant\n\n \xe2\x96\xb6\t Aviation User Fees\nHIGHWAY TRUST FUND\nThe Highway Trust Fund (HTF) comprises the Highway Corpus \xe2\x96\xb6\t Aviation Operations\nTrust Fund and certain accounts of the Federal Highway Admin-\n \xe2\x96\xb6\t Grants-in-Aid for Airports\nistration, Federal Motor Carrier Safety Administration, Federal\nTransit Administration, Federal Railroad Administration, and the \xe2\x96\xb6\t Aviation Facilities and Equipment\nNational Highway Traffic Safety Administration. The HTF was\n \xe2\x96\xb6\t Aviation Research, Engineering and Development\ncreated in 1956 by the Highway Revenue Act of 1956 with the\nmain objective of funding the construction of the Dwight D. \xe2\x96\xb6\t Essential Air Service and Rural Airport Improvement Fund\nEisenhower System of Interstate and Defense Highways. Over\n \xe2\x96\xb6\t University Transportation Centers\nthe years, the use of the fund has been expanded to include mass\ntransit and other surface transportation programs such as high- \xe2\x96\xb6\t Contributions for Highway Research Program\nway safety and motor carrier safety programs.\n \xe2\x96\xb6\t Cooperative Work, Forest Highways\nOverall, there are 76 separate treasury symbols in the HTF.\n \xe2\x96\xb6\t Safety of Cross-Border Trucking Between the United States\nHTF\xe2\x80\x99s programs and activities are primarily financed from excise and Mexico\ntaxes collected on specific motor fuels, truck taxes, and fines and\n \xe2\x96\xb6\t Payment to Air Carriers\npenalties. The Highway Revenue Act of 1982 established two\naccounts within the HTF, the Highway Account and the Mass \xe2\x96\xb6\t Right of Way Revolving Fund Program Account\nTransit Account.\n \xe2\x96\xb6\t Alaska Pipeline Task Force, Oil Spill Liability Trust Fund\n\nAIRPORT AND AIRWAY TRUST FUND \xe2\x96\xb6\t Right-of-Way Revolving Fund Trust Fund\nThe Airport and Airway Trust Fund (AATF) was authorized by\n \xe2\x96\xb6\t Technical Assistance, United States Dollars Advanced from\nthe Airport and Airway Revenue Act of 1970 to provide funding\n Foreign Governments\nfor the Federal commitment to the nation\xe2\x80\x99s aviation system.\n \xe2\x96\xb6\t Gifts and Bequests, Maritime Administration\nFunding currently comes from several aviation, related excise\n \xe2\x96\xb6\t Special Studies, Services and Projects\ntax collections from passenger tickets, passenger flight segments,\ninternational arrivals/departures, cargo waybills, and aviation fuels. \xe2\x96\xb6\t Gifts and Bequests, DOT Office of the Secretary\n\n \xe2\x96\xb6\t Equipment, Supplies, etc., for Cooperating Countries\nMASS TRANSIT ACCOUNT\nIn FY 2005 and prior, FTA\xe2\x80\x99s formula and bus grant programs\nwere funded 80 percent by certain excise tax revenues and 20\npercent from the Treasury general receipts account. These funds For the years ended September 30, 2012 and 2011, respectively,\nare considered earmarks but not reported as part of the HTF. earmarked funds are summarized in the following charts.\n Intra-agency transactions have not been eliminated in the\nSafe, Accountable, Flexible, Efficient Transportation Equity amounts presented.\nAct: A Legacy for Users (SAFETEA-LU) legislation (PL 109-\n59) changed the way FTA programs are funded. Beginning in\nFY 2006, the FTA formula and bus grant programs are funded\n100 percent by the HTF. On July 6, 2012, the President signed\nPL112-141 Moving Ahead Progress in the 21st Century (MAP-21),\nwhich provides current SAFETEA-LU programs and funding\nthrough September 30, 2012.\n\nThe following is a list of other earmarked funds for which the\nDOT has program management responsibility:\n\n\n\n\n84 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 18, CONT\xe2\x80\x99D\n\n\n Balance Sheet as of September 30, 2012\n FY 2012\n AIRPORT OTHER TOTAL\n HIGHWAY & AIRWAY MASS EARMARKED EARMARKED\n TRUST FUND TRUST FUND TRANSIT FUNDS FUNDS\n ASSETS\nFund Balance with Treasury $4,954,662 $442,965 $546,897 $2,596,036 $8,540,560\nInvestments, Net 9,970,201 10,473,786 - 1,886,665 22,330,652\nAccounts Receivable, Net 17,391 - 809 4,660,338 4,678,538\nProperty, Plant & Equipment 162,686 - - 3,721,693 3,884,379\nOther 271,608 - 766 285,616 557,990\nTotal Assets $15,376,548 $10,916,751 $548,472 $13,150,348 $39,992,119\n\n\n LIABILITIES AND NET POSITION\nAccounts Payable $88,441 $4,532,545 $- $416,722 $5,037,708\nFECA Liabilities 27,943 - - 1,152,896 1,180,839\nGrants Accrual 4,976,013 - 20,067 640,646 5,636,726\nOther Liabilities 215,117 - 1,445 1,042,875 1,259,437\nUnexpended Appropriations - - 38,446 1,070,483 1,108,929\nCumulative Results of Operations 10,069,034 6,384,206 488,514 8,826,726 25,768,480\nTotal Liabilities and Net Position $15,376,548 $10,916,751 $548,472 $13,150,348 $39,992,119\n\n\n STATEMENT OF NET COST FOR THE PERIOD ENDED SEPTEMBER 30, 2012\nProgram Costs $49,731,576 $- $164,208 $15,327,141 $65,222,925\nLess: Earned Revenue 131,146 - - 638,791 769,937\nNet Program Costs 49,600,430 - 164,208 14,688,350 64,452,988\n\nCosts Not Attributable to Programs - - - 196,345 196,345\n\nNet Cost of Operations $49,600,430 $- $164,208 $14,884,695 $64,649,333\n\n\n STATEMENT OF CHANGES IN NET POSITION FOR THE PERIOD ENDED SEPTEMBER 30, 2012\nBeginning Net Position $16,964,550 $5,092,201 $690,431 $9,213,093 $31,960,275\nBudgetary Financing Sources 42,646,717 1,292,005 737 16,029,630 59,969,089\nOther Financing Sources 58,197 - - (460,819) (402,622)\nNet Cost of Operations 49,600,430 - 164,208 14,884,695 64,649,333\nChange in Net Position (6,895,516) 1,292,005 (163,471) 684,116 (5,082,866)\nNet Position End of Period $10,069,034 $6,384,206 $526,960 $9,897,209 $26,877,409\n\n\n\n\n85 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 18, CONT\xe2\x80\x99D\n\n\n Balance Sheet as of September 30, 2011\n FY 2011\n AIRPORT OTHER TOTAL\n HIGHWAY & AIRWAY MASS EARMARKED EARMARKED\n TRUST FUND TRUST FUND TRANSIT FUNDS FUNDS\n ASSETS\nFund Balance with Treasury $5,335,210 $921,692 $717,292 $2,729,655 $9,703,849\nInvestments, Net 16,301,908 8,685,715 - 1,694,435 26,682,058\nAccounts Receivable, Net 31,287 - 1,593 4,616,109 4,648,989\nProperty, Plant & Equipment 154,188 - - 3,244,084 3,398,272\nOther 313,046 - 883 309,701 623,630\nTotal Assets $22,135,639 $9,607,407 $719,768 $12,593,984 $45,056,798\n\n\n LIABILITIES AND NET POSITION\nAccounts Payable $207,813 $4,515,206 $1,444 $520,215 5,244,678\nFECA Liabilities 25,761 - - 1,122,378 1,148,139\nGrants Accrual 4,747,416 - 27,893 663,812 5,439,121\nOther Liabilities 190,099 - - 1,074,486 1,264,585\nUnexpended Appropriation - - 45,100 1,082,500 1,127,600\nCumulative Results of Operations 16,964,550 5,092,201 645,331 8,130,593 30,832,675\nTotal Liabilities and Net Position $22,135,639 $9,607,407 $719,768 $12,593,984 $45,056,798\n\n\n STATEMENT OF NET COST FOR THE PERIOD ENDED SEPTEMBER 30, 2011\nProgram Costs $45,216,344 $- $194,847 $15,748,110 $61,159,301\n\nLess Earned Revenue 121,766 - - 574,584 696,350\n\nNet Program Costs 45,094,578 - 194,847 15,173,526 60,462,951\n\nCosts Not Attributable to Programs - - - 201,448 201,448\n\nNet Cost of Operations $45,094,578 $- $194,847 $15,374,974 $60,664,399\n\n\n STATEMENT OF CHANGES IN NET POSITION FOR THE PERIOD ENDED SEPTEMBER 30, 2011\nBeginning Net Position $25,088,216 $4,473,264 $885,278 $8,587,051 $39,033,809\nBudgetary Financing Sources 36,949,333 618,937 - 16,137,237 53,705,507\nOther Financing Sources 21,579 - - (136,221) (114,642)\nNet Cost of Operations 45,094,578 - 194,847 15,374,974 60,664,399\nChange in Net Position (8,123,666) 618,937 (194,847) 626,042 (7,073,534)\nNet Position End of Period $16,964,550 $5,092,201 $690,431 $9,213,093 $31,960,275\n\n\n\n\n86 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 19. INTRAGOVERNMENTAL COSTS AND EXCHANGE REVENUES\n\xef\xbf\xbd\n For the period ended September 30, 2012\n INTRA-GOVERNMENTAL WITH THE PUBLIC TOTAL\n\nSURFACE TRANSPORTATION\nFederal-Aid Highway Program:\n Gross Costs $159,178 $39,992,665 $40,151,843\n Less: Earned Revenue 35,555 50,769 86,324\n Net Program Costs 123,623 39,941,896 40,065,519\nMass Transit Program\n Gross Costs 37,034 12,032,237 12,069,271\n Less: Earned Revenue 366,209 640 366,849\n Net Program Costs (329,175) 12,031,597 11,702,422\nOther Surface Transportation Programs:\n Gross Costs 402,540 8,365,153 8,767,693\n Less: Earned Revenue 376,458 396,478 772,936\n Net Program Costs 26,082 7,968,675 7,994,757\nTotal Surface Transportation Program Costs (179,470) 59,942,168 59,762,698\n\n\nAIR TRANSPORTATION\nGross Costs 2,605,520 14,026,980 16,632,500\nLess: Earned Revenue 258,871 369,296 628,167\nNet Program Costs 2,346,649 13,657,684 16,004,333\n\nMARITIME TRANSPORTATION\nGross Costs 174,211 711,907 886,118\nLess: Earned Revenue 352,093 40,506 392,599\nNet Program Costs (177,882) 671,401 493,519\n\nCROSS-CUTTING PROGRAMS\nGross Costs 56,674 590,653 647,327\nLess: Earned Revenue 251,386 4,483 255,869\nNet Program Costs (194,712) 586,170 391,458\n\n\nCosts not assigned to programs 49,566 346,492 396,058\nLess: Earned Revenues not attributed to programs 15,755 (4,242) 11,513\nNet Cost of Operations $1,828,396 $75,208,157 $77,036,553\n\n\n\n\n87 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 19, CONT\xe2\x80\x99D\n\n\n For the Period Ended September 30, 2011\n INTRA-GOVERNMENTAL WITH THE PUBLIC TOTAL\n\nSURFACE TRANSPORTATION\nFederal-Aid Highway Program\n Gross Costs $205,979 $36,529,322 $36,735,301\n Less: Earned Revenue 33,814 49,587 83,401\n Net Program Costs 172,165 36,479,735 36,651,900\nMass Transit Program\n Gross Costs 54,811 11,998,065 12,052,876\n Less: Earned Revenue 331,763 44,372 376,135\n Net Program Costs (276,952) 11,953,693 11,676,741\nOther Surface Transportation Programs\n Gross Costs 348,097 11,989,847 12,337,944\n Less: Earned Revenue 170,455 177,013 347,468\n Net Program Costs 177,642 11,812,834 11,990,476\nTotal Surface Transportation Program Costs 72,855 60,246,262 60,319,117\n\nAIR TRANSPORTATION\nGross Costs 2,736,750 14,477,391\n 17,214,141\nLess: Earned Revenue 253,538 415,941\n 669,479\nNet Program Costs 2,483,212 14,061,450 16,544,662\n\nMARITIME TRANSPORTATION\nGross Costs 91,010 772,347\n 863,357\nLess: Earned Revenue 353,465 25,499\n 378,964\nNet Program Costs (262,455) 746,848 484,393\n\nCROSS-CUTTING PROGRAMS\nGross Costs 45,001 693,476\n 738,477\nLess: Earned Revenue 383,278 7,926\n 391,204\nNet Program Costs (338,277) 685,550 347,273\n\n\nCost not assigned to a program 77,477 343,957 421,434\nLess: Earned Revenues not attributed to programs - 3,876 3,876\nNet Cost of Operations $2,032,812 $76,080,191 $78,113,003\n\n\n\n\n88 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L R E P O R T 2012\n\x0c NON-EXCHANGE REVENUE\nNOTE 20. EXCISE TAXES AND OTHER\n 2012 2011\nNON-EXCHANGE REVENUE\n HIGHWAY TRUST FUND\nThe Internal Revenue Service (IRS) collects various excise taxes Excise Taxes and Other Non-Exchange\nthat are deposited in the Highway Trust Fund (HTF) and Airport Revenue\nand Airway Trust Fund (AATF). Treasury\xe2\x80\x99s Office of Tax Analysis Gasoline $25,529,900 $24,986,425\n(OTA) estimates the amount collected/revenue recognized Diesel and Special Motor Fuels 9,796,891 9,801,522\nmonthly, and adjusts the estimates to reflect actual collections\n Trucks 5,994,309 3,226,317\nquarterly. The IRS submits certificates of actual tax collections\nto DOT three months after the quarter-end and, accordingly, Investment Income 7,228 15,812\nthe DOT financial statements include actual excise tax revenue Fines and Penalties 22,103 18,170\ncertified through June 30, 2012, and excise tax revenue estimates Total Taxes 41,350,431 38,048,246\nfor the quarter ended September 30, 2012. As a result, total taxes\nrecognized in the DOT FY 2012 financial statement include the Less: Transfers (1,174,706) (1,125,811)\nOTA estimate of $13.3 billion for the quarter ended September\n Net Highway Trust Fund Excise Taxes 40,175,725 36,922,435\n30, 2012, and the actual amounts certified through June 30, 2012\nof $37.4 billion. The total taxes recognized for the fiscal years\nended September 30, 2011 and 2010 include OTA estimates Other Non-Exchange Revenue 97 173\nwhich are certified by the IRS in January of the subsequent Net Highway Trust Fund Excise Taxes & Other 40,175,822 36,922,608\nfiscal years, as follows: Non-Exchange Revenue\n\n SEPT 30, 2011 SEPT 30, 2010 FEDERAL AVIATION ADMINISTRATION\nActual $12,923,016 $13,067,434 Excise Taxes and Other Non-Exchange Revenue\nEstimate 11,618,526 11,578,829 Passenger Ticket 8,711,445 8,084,593\nUnder (Over) accrual $1,304,490 $1,488,605 International Departure 2,728,594 2,508,289\n Fuel (Air) 622,794 530,572\nFor the years ended September 30, 2012 and 2011, Waybill 491,845 426,703\nrespectively, excise taxes and associated nonexchange Investment Income 244,912 223,011\nrevenue, which are reported on the Statement of Changes Tax Refunds and Credits (22,464) (8,432)\nin Net Position, were as follows: Other 24,460 21,917\n\n Net Federal Aviation Administration Excise 12,801,586 11,786,653\n Taxes & Other Non-Exchange Revenue\n Other Miscellaneous Net Non Exchange\n 79,168 91,981\n Revenue\n\n Total Non-Exchange Revenue $53,056,576 $48,801,242\n\n\n\n\n89 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 21. COMBINED STATEMENT OF BUDGETARY RESOURCES\nThe amount of direct and reimbursable obligations incurred against amounts apportioned under Category A, B, and Exempt From\nApportionment, as defined in OMB Circular A-11, Part 4, Instructions on Budget Execution, are as follows:\n\n 2012 2011\n DIRECT REIMBURSABLE TOTAL DIRECT REIMBURSABLE TOTAL\nCategory A $6,706,233 $800,786 $7,507,019 $6,111,514 $496,567 $6,608,081\nCategory B 76,800,423 1,923,743 78,724,166 82,022,600 1,341,001 83,363,601\nExempt from apportionment 48,735 274,826 323,561 78,797 263,058 341,855\nTotal $83,555,391 $2,999,355 $86,554,746 $88,212,911 $2,100,626 $90,313,537\n\n\n\n\n 2012 2011 EXISTENCE, PURPOSE, AND AVAILABILITY OF\n PERMANENT INDEFINITE APPROPRIATIONS\nAvailable Contract Authority at year-end $23,391,628 $26,852,717\n DOT has permanent indefinite budgetary authority for use in\nAvailable Borrowing Authority at year-end $1,734,768 $1,356,282\n their credit programs, that is provided from and more details are\nUndelivered Orders at year-end $108,814,519 $109,518,183 available in the Federal Credit Reform Act of 1990. This funding\n is available for re-estimates and interest on re-estimates. DOT\xe2\x80\x99s\nThe amounts reported for undelivered orders only include credit programs are explained in detail in Note 6.\nbalances obligated for goods and services not delivered and\ndoes not include prepayments. UNOBLIGATED BUDGETARY RESOURCES\n Unobligated balances of budgetary resources for unexpired\nTERMS OF BORROWING AUTHORITY USED accounts are available in subsequent years until expiration, upon\nUnder the provisions of the Federal Credit Reform Act of 1990, receipt of an apportionment from OMB. Unobligated balances\nDOT direct loan and loan guarantee programs are authorized to of expired accounts are not available. Unobligated balances of\nborrow funds from Treasury to support its credit programs. All budgetary resources that are unapportioned primarily represent\nloan drawdowns are dated October 1 of the applicable fiscal year. contract authority which has no limitation and are not available\nInterest is payable at the end of each fiscal year based on activity for obligation.\nfor that fiscal year. Principal can be repaid at any time funds\nbecome available. Repayment is effectuated by a combination\nof loan recoveries and upward re-estimates.\n\n\n\n\n90 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 21, CONT\xe2\x80\x99D\n\n\nSTATEMENT OF BUDGETARY RESOURCES VS BUDGET OF THE UNITED STATES GOVERNMENT\nThe reconciliation for the year ended September 30, 2011, is presented below. The reconciliation for the fiscal year ended September\n30, 2012, is not presented, because the submission of the Budget of the United States (Budget) for FY 2014, which presents the exe-\ncution of the FY 2012 budget, occurs after publication of these financial statements. The U.S. Department of Transportation Budget\nAppendix can be found on the OMB website (http://www.gpoaccess.gov/usbudget) and will be available in early February 2013.\n\n\n DISTRIBUTED\n BUDGETARY OBLIGATIONS OFFSETTING\n DOLLARS IN MILLIONS RESOURCES INCURRED RECEIPTS NET OUTLAYS\nCombined Statement of Budgetary Resources $140,801 $90,314 $(283) $78,551\n Funds not Reported in the Budget\n Expired Funds (511) - - -\n Undelivered Orders Adjustment (1,500) (100)\nDistributed Offsetting Receipts - - 283 279\nOther (5) (6) - 2\nBudget of the United States Government $138,785 $90,208 $- $78,832\n\n\n\nOther differences represent financial statement adjustments, timing differences and other immaterial differences between amounts\nreported in the Department\xe2\x80\x99s Statement of Budgetary Resources and the Budget of the United States.\n\nThe Undelivered Orders Adjustment of $1.5 billion is caused by a reversal of an adjustment recorded at the end of FY 2010.\n\n\n\n\n91 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 22. RECONCILIATION OF NET COST OF OPERATIONS TO BUDGET\nThe objective of this information is to provide an explanation of the differences between budgetary and financial (proprietary)\naccounting. This is accomplished by means of a reconciliation of budgetary obligations and non-budgetary resources available to the\nreporting entity with its net cost of operations.\n\n\n 2012 2011\n\nRESOURCES USED TO FINANCE ACTIVITIES\nBudgetary Resources Obligated\n Obligations Incurred $86,554,746 $90,313,537\n Less: Spending Authority from Offsetting Collections, Recoveries and Other Changes to\n 9,200,514 8,436,394\n Obligated Balances\n Obligations Net of Offsetting Collections and Recoveries\n\xc2\xa9 77,354,232 81,877,143\n Less: Distributed Offsetting Receipts\n\xc2\xa9 (2,738,974) (282,618)\n Net Obligations 74,615,258 81,594,525\nOther Resources\n Donations and Forfeitures of Property 158,117 -\n Transfers In/Out Without Reimbursement 96,186 (8,872)\n Imputed Financing From Costs Absorbed by Others 641,782 818,781\n Other (152,944) (277,814)\n Net Other Resources Used to Finance Activities 743,141 532,095\nTotal Resources Used to Finance Activities $75,358,399 $82,126,620\n\nRESOURCES USED TO FINANCE ITEMS NOT PART OF THE NET COST OF OPERATIONS\nChange in Budgetary Resources Obligated for Goods, Services and Benefits Ordered but not yet\n $(735,543) $2,694,348\nProvided\nResources That Fund Expenses Recognized in Prior Periods 263,392 188,689\nCredit Program Collections That Increase Liabilities for Loan Guarantees or Allowances for\n (466,944) (395,673)\nSubsidy\nOther/Change in Unfilled Customer Orders 508,098 23,189\nSpecial Transfers from the U. S. Treasury (2,471,408) -\nAnticipated Resources not yet realized - 135,321\nResources That Finance the Acquisition of Assets 3,059,374 2,984,042\nOther Resources or Adjustments to Net Obligated Resources That Do Not Affect Net Cost of\n (168,516) (28,227)\nOperations\nTotal Resources Used to Finance Items Not Part of the Net Cost Of Operations (11,547) 5,601,689\n $75,369,946 $76,524,931\n\n\n\n\n92 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 22, CONT\xe2\x80\x99D\n\n\n\nNOTE 22 (CONT.)\n 2012 2011\n\n COMPONENTS OF THE NET COST OF OPERATIONS THAT WILL NOT REQUIRE OR GENERATE RESOURCES\n IN THE CURRENT PERIOD\nComponents Requiring or Generating Resources in Future Periods:\n Increase in Annual Leave Liability $99,959 $36,563\n Increase in Environment and Disposal Liability 53,010 3,332\n Upward/Downward Re-estimates of Credit Subsidy Expense 6,257 (83,330)\n Change in exchange revenue receivable from the public (1,005) (96,607)\n Change in Other Liabilities 160,217 166,462\nTotal Components of Net Cost of Operations That Will 318,438 26,420\nRequire or Generate Resources in Future Periods\n COMPONENTS NOT REQUIRING OR GENERATING RESOURCES\nDepreciation and Amortization 1,217,178 1,122,529\nRevaluation of Assets or Liabilities 7,907 62,585\nOther Expenses and Adjustments not Otherwise Classified Above 123,085 376,538\nTotal Components of Net Cost of Operations That Will Not Require or Generate Resources 1,348,170 1,561,652\nTotal Components of Net Cost of Operations That Will Not Require or Generate Resources in the\n 1,666,608 1,588,072\nCurrent Period\nNet Cost of Operations $77,036,553 $78,113,003\n\n\n\n\n93 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 23. REPORTING ON DOT AFFILIATED MARAD NON-APPROPRIATED FUND\nACTIVITIES INSTRUMENTALITY (NAFI)\n The Non-Appropriated Fund Instrumentalities (NAFI) operate\nSAINT LAWRENCE SEAWAY DEVELOPMENT using their own funds generated from the proceeds received\nCORPORATION from various non-governmental sources, rather than appropriated\nThe U.S. Saint Lawrence Seaway Development Corporation funds. At DOT, NAFI\xe2\x80\x99s operate as a separate fiscal entity under\n(SLSDC), a wholly owned Government corporation and operating MARAD to provide or assist the U.S. Merchant Marine Academy\nadministration of the Department, is responsible for the operation in providing programs and services for students, personnel, and\nand maintenance of the U.S. portion of the St. Lawrence Seaway. authorized civilians from sources other than Congressional\nThis responsibility includes maintaining and operating two U.S. appropriations. Although considered Governmental, NAFI cash\nlocks, controlling vessel traffic, and promoting trade develop- balances and operating expenses are separate and distinct from\nment activities on the seaway. those recorded in the books of the Federal Government. For the\n fiscal years September 30, 2012, and September 30, 2011, NAFI\nNOTE 23 CONDENSED INFORMATION operating revenues and proceeds from midshipmen fees included\n 2012 2011 $6.7 million and $7.6 million, respectively.\nCash and Short-Term Time Deposits $37,410 $33,164\nLong-Term Time Deposits 2,036 1,836\nAccounts Receivable 172 459\nInventories 277 274\nOther Current Assets 11 26\nProperty, Plant and Equipment 90,734 84,784\nDeferred Charges 4,588 4,242\nOther Assets 727 514\nTotal Assets $135,955 $125,299\n\n\nCurrent Liabilities $4,628 $6,904\nActuarial Liabilities 4,588 4,242\nTotal Liabilities $9,216 $11,146\n\n\nInvested Capital $105,879 $99,921\nCumulative Results of Operations 20,860 14,232\nTotal Net Position 126,739 114,153\nTotal Liabilities and Net Position $135,955 $125,299\n\n\nOperating Revenues $25,249 $22,319\nOperating Expenses 21,552 29,987\nOperating Income (loss) 3,697 (7,668)\nOther Financing Sources 2,931 2,781\nOperating revenues and other financing\n 6,628 (4,887)\nsources over (under) operating expenses\nBeginning cumulative results of operations\n 14,232 19,119\n(deficit)\nEnding cumulative results of operations\n $20,860 $14,232\n(deficit)\n\n\n\n\n94 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cNOTE 24. FIDUCIARY ACTIVITIES\nThe Title XI Escrow Fund was authorized pursuant to the Merchant Marine Act of 1936, as amended. The fund was originally \n\nestablished to hold guaranteed loan proceeds pending construction of MARAD approved and financed vessels.\n\t\n\nThe Act was recently amended to allow the deposit of additional cash security items such as reserve funds or debt reserve funds. \n\nIndividual shipowners provide funds to serve as security on MARAD guaranteed loans. Funds deposited and invested by MARAD \n\nremain the property of individual shipowners. In the event of default, MARAD will use the escrow funds to offset \n\nthe shipowners\xe2\x80\x99 debt to the Government.\n\t\n\nFund investments are limited to U.S. Government securities purchased by MARAD through the Treasury.\n\t\n\n\nSCHEDULE OF FIDUCIARY ACTIVITY For the year ended September 30\n 2012 2011\nFiduciary Net Assets, beginning of year $18,845 $28,194\nContributions 596,976 -\nInvestment earnings 242 60\nDisbursements to and on behalf of beneficiaries (258,957) (9,409)\nIncreases/(Decreases) in fiduciary net assets 338,261 (9,349)\nFiduciary net assets, end of year $357,106 $18,845\n\n\nFIDUCIARY NET ASSETS As of September 30\n 2012 2011\nFiduciary Fund Balance with Treasury $291 $286\nInvestments in Treasury Securities 353,815 18,559\nTotal Fiduciary Net Assets $354,106 $18,845\n\n\n\n\n95 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cREQUIRED SUPPLEMENTARY INFORMATION (RSI)\n\xef\xbf\xbd\n\nDEFERRED MAINTENANCE (Unaudited)\n 2012 COST TO 2011 COST TO\n RETURN TO RETURN TO\n DOT METHOD OF ASSET ACCEPTABLE ACCEPTABLE\n ENTITY MAJOR CLASS OF ASSET MEASUREMENT CONDITION* CONDITION** CONDITION**\nFAA Buildings Condition Assessment Survey 4&5 $56,166 $61,607\n Other Structures and Facilities Condition Assessment Survey 4&5 243,295 229,240\n Vessels, Ready Reserve Force (Various\nMARAD Condition Assessment Survey 2 12,521 9,753\n Locations)\n Real Property, Buildings (Anchorage) Condition Assessment Survey 3 - 150\n Real Property, Structure U.S. Merchant\n Condition Assessment Survey 2&3 16,110 20,062\n Marine Academy, NY\n Real Property, Structure U.S. Merchant\n Condition Assessment Survey 4&5 64,750 60,750\n Marine Academy, NY\n Other (Fleet Craft) Condition Assessment Survey 3 11,350 3,254\nTotal $404,192 $384,816\n\n\n\n *ASSET CONDITION RATING SCALE **ACCEPTABLE CONDITION IS\n1 Excellent FAA Buildings 3 Fair\n2 Good FAA Other Structures and Facilities 3 Fair\n3 Fair MARAD Vessels, Ready Reserve Force 1 Excellent Ships are seaworthy and ready for mission\n assignments within prescribed time limits.\n4 Poor\n MARAD Real Property, Buildings 3 Fair Buildings are safe and habitable.\n5 Very Poor\n\n MARAD Real Property, Structures 3 Fair Adequate water depth, shore power, and mooring\n capabilities.\n\n\n 4 Poor Structure needs major repairs. The majority of the\n components are marginally functional or jeopardized.\n\n\n 5 Very Poor Age and/or condition is such that the item should\n be replaced or undergo major renovation. Structure is not safe\n and is inhabitable.\n\n\n\nDeferred Maintenance is maintenance that was not performed when it should have been or was scheduled to be performed and delayed\nuntil a future period. Maintenance is keeping fixed assets in acceptable condition, and includes preventative maintenance, normal\nrepairs, replacement of parts and structural components, and other activities needed to preserve assets in a condition to provide\nacceptable service and to achieve expected useful lives.\n\n\n\n\n96 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cRSI, CONT\xe2\x80\x99D\n\n\n\n For the Period Ended\nCombining Statements of Budgetary Resources By Major Account (Unaudited) September 30, 2012\n FEDERAL-\n Dollars in Thousands AID FAA FTA MARAD ALL OTHER TOTAL\n\n BUDGETARY RESOURCES\nUnobligated balance brought forward, Oct. 1 $30,728,090 $3,556,211 $10,777,895 $640,840 $4,784,173 $50,487,209\nRecoveries of prior year unpaid obligations - 413,890 205,555 57,652 522,669 1,199,766\nOther changes in unobligated balance - (116,841) (7,127) (1,427) (30,699) (156,094)\nUnobligated balance from prior year budget 30,728,090 3,853,260 10,976,323 697,065 5,276,143 51,530,881\nauthority, net\nAppropriations 7,382 12,552,370 2,179,126 362,520 4,642,415 19,743,813\nBorrowing authority - - - 18,000 1,716,768 1,734,768\nContract authority 38,657,065 3,350,000 9,889,067 - 1,212,831 53,108,963\nSpending authority from offsetting collections 192,112 5,969,879 21,118 493,685 1,312,060 7,988,854\nTotal budgetary resources $69,584,649 $25,725,509 $23,065,634 $1,571,270 $14,160,217 $134,107,279\n\n\n\n STATUS OF BUDGETARY RESOURCES\nObligations incurred $39,566,993 $22,205,831 $13,010,518 $984,588 $10,786,816 $86,554,746\nUnobligated balance, end of year:\n Apportioned 14,877,106 1,430,914 10,011,591 304,785 2,547,933 29,172,329\n Exempt from apportionment - - - 3,812 348,759 352,571\n Unapportioned 15,140,550 2,088,764 43,525 278,085 476,709 18,027,633\nTotal unobligated balance, end of year 30,017,656 3,519,678 10,055,116 586,682 3,373,401 47,552,533\nTotal budgetary resources $69,584,649 $25,725,509 $23,065,634 $1,571,270 $14,160,217 $134,107,279\n\n\n\n\n97 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L R E P O R T 2012\n\x0cRSI, CONT\xe2\x80\x99D\n\nREQUIRED SUPPLEMENTARY INFORMATION COMBINING STATEMENTS OF BUDGETARY For the Period Ended \n\nRESOURCES BY MAJOR ACCOUNT (Unaudited) September 30, 2012\n\xef\xbf\xbd\n FEDERAL-\n DOLLARS IN THOUSANDS AID FAA FTA MARAD ALL OTHER TOTAL\n\n CHANGE IN OBLIGATED BALANCES\nUnpaid obligations, brought forward, October 1 (gross) $68,014,555 $9,243,110 $18,716,473 $383,813 $21,547,111 $117,905,062\nUncollected customer payments from Federal sources,\n (430,928) (288,053) (58,900) (155,567) (497,962) (1,431,410)\nbrought forward, October 1\nObligated balance, start of year (net) 67,583,627 8,955,057 18,657,573 228,246 21,049,149 116,473,652\nObligations incurred 39,566,993 22,205,831 13,010,518 984,588 10,786,816 86,554,746\nOutlays (gross) (40,119,771) (21,766,301) (12,291,099) (932,409) (11,796,442) (86,906,022)\nChange in uncollected customer payments from\n (90,231) (42,652) 737 31,885 59,843 (40,418)\nFederal sources\nActual transfers, unpaid obligations (net) (+ or -) - - - - 10,000 10,000\nRecoveries of prior year unpaid obligations - (413,890) (205,555) (57,652) (522,669) (1,199,766)\nObligated balance, end of year\n Unpaid obligations, end of year (gross) 67,461,777 9,268,750 19,230,337 378,340 20,024,816 116,364,020\n Uncollected customer payments from Federal\n (521,159) (330,705) (58,163) (123,682) (438,119) (1,471,828)\n sources, end of year\nObligated balance, end of year (net) $66,940,618 $8,938,045 $19,172,174 $254,658 $19,586,697 $114,892,192\n\n\n BUDGET AND AUTHORITY AND OUTLAYS, NET\nBudget authority, gross $38,856,559 $21,872,249 $12,089,311 $874,205 $8,884,074 $82,576,398\nActual offsetting collections (101,881) (5,927,228) (21,854) (610,572) (1,531,692) (8,193,227)\nChange in uncollected customer payments from\n (90,231) (42,652) 737 31,885 59,843 (40,418)\nFederal sources\nBudget authority, net $38,664,447 $15,902,369 $12,068,194 $295,518 $7,412,225 $74,342,753\n\n\nOutlays, gross $40,119,771 $21,766,301 $12,291,099 $932,409 $11,796,442 $86,906,022\nActual offsetting collections (101,881) (5,927,228) (21,854) (610,572) (1,531,692) (8,193,227)\nOutlays, net 40,017,890 15,839,073 12,269,245 321,837 10,264,750 78,712,795\n\nDistributed offsetting receipts - (11,559) (773) (54,533) (2,672,109) (2,738,974)\n\nAgency outlays, net $40,017,890 $15,827,514 $12,268,472 $267,304 $7,592,641 $75,973,821\n\n\n\n\n98 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cRSI, CONT\xe2\x80\x99D\n\n\nREQUIRED SUPPLEMENTARY INFORMATION COMBINING STATEMENTS OF BUDGETARY RE- For the Period Ended \n\nSOURCES BY MAJOR ACCOUNT (Unaudited) September 30, 2011\n\xef\xbf\xbd\n FEDERAL-\n DOLLARS IN THOUSANDS AID FAA FTA MARAD ALL OTHER TOTAL\n\n\n BUDGETARY RESOURCES\nUnobligated balance brought forward, October 1 $32,525,358 $3,321,905 $10,500,855 $477,984 $13,872,333 $60,698,435\nRecoveries of prior year unpaid obligations - 486,422 85,560 31,774 401,926 1,005,682\nOther changes in unobligated balance 12,368 (66,041) (2,443) (1,915) (67,886) (125,917)\nUnobligated balance from prior year budget authority, net 32,537,726 3,742,286 10,583,972 507,843 14,206,373 61,578,200\nAppropriations (1,178,819) 12,416,672 2,860,387 471,490 2,753,360 17,323,090\nBorrowing authority - - - 195,000 1,161,282 1,356,282\nContract authority 40,217,002 3,515,000 8,360,565 - 1,213,832 53,306,399\nSpending authority from offsetting collections 202,546 5,427,894 3,324 499,512 1,103,499 7,236,775\nTotal budgetary resources $71,778,455 $25,101,852 $21,808,248 $1,673,845 20,438,346 140,800,746\n\n\n STATUS OF BUDGETARY RESOURCES\nObligations incurred $41,050,365 $21,545,641 $11,030,353 $1,033,005 $15,654,173 $90,313,537\nUnobligated balance, end of year:\n Apportioned 16,655,280 1,670,513 10,752,663 372,656 4,140,474 33,591,586\n Exempt from apportionment - - - 15,435 302,278 317,713\n Unapportioned 14,072,810 1,885,698 25,232 252,749 341,421 16,577,910\nTotal unobligated balance, end of year 30,728,090 3,556,211 10,777,895 640,840 4,784,173 50,487,209\nTotal budgetary resources $71,778,455 $25,101,852 $21,808,248 $1,673,845 $20,438,346 $140,800,746\n\n\n\n\n99 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L R E P O R T 2012\n\x0cRSI, CONT\xe2\x80\x99D\n\n\n\nREQUIRED SUPPLEMENTARY INFORMATION COMBINING STATEMENTS OF BUDGETARY For the Period Ended \n\nRESOURCES BY MAJOR ACCOUNT (Unaudited) September 30, 2011\n\xef\xbf\xbd\n FEDERAL-\n DOLLARS IN THOUSANDS AID FAA FTA MARAD ALL OTHER TOTAL\n\n CHANGE IN OBLIGATED BALANCES\nUnpaid obligations, brought forward, October 1 (gross) $63,206,294 $9,285,955 $19,715,003 $369,261 $22,258,404 $114,834,917\nUncollected customer payments from Federal sources, (334,747) (342,944) (66,614) (73,274) (609,876) (1,427,455)\nbrought forward, October 1\nObligated balance, start of year (net) 62,871,547 8,943,011 19,648,389 295,987 21,648,528 113,407,462\nObligations incurred 41,050,365 21,545,641 11,030,353 1,033,005 15,654,173 90,313,537\nOutlays (gross) (36,242,104) (21,102,064) (11,943,323) (986,679) (15,985,754) (86,259,924)\nChange in uncollected customer payments from Federal (96,181) 54,891 7,714 (82,293) 111,914 (3,955)\nsources\nActual transfers, unpaid obligations (net) (+ or -) - - - - 22,214 22,214\nRecoveries of prior year unpaid obligations - (486,422) (85,560) (31,774) (401,926) (1,005,682)\nObligated balance, end of year\n Unpaid obligations, end of year (gross) 68,014,555 9,243,110 18,716,473 383,813 21,547,111 117,905,062\n Uncollected customer payments from Federal sources, (430,928) (288,053) (58,900) (155,567) (497,962) (1,431,410)\n end of year\nObligated balance, end of year (net) $67,583,627 $8,955,057 $18,657,573 $228,246 $21,049,149 $116,473,652\n\n\n BUDGET AND AUTHORITY AND OUTLAYS, NET\nBudget authority, gross $39,240,728 $21,359,566 $11,224,275 $1,166,003 $6,231,974 $79,222,546\nActual offsetting collections (106,364) (5,482,785) (11,037) (501,611) (1,324,350) (7,426,147)\nChange in uncollected customer payments from Federal (96,181) 54,891 7,714 (82,293) 111,914 (3,955)\nsources\nAnticipated offsetting collections - - - - - -\nBudget authority, net $39,038,183 $15,931,672 $11,220,952 $582,099 $5,019,538 $71,792,444\n\n\nOutlays, gross $36,242,104 $21,102,064 $11,943,323 $986,679 $15,985,754 $86,259,924\nActual offsetting collections (106,364) (5,482,785) (11,037) (501,611) (1,324,350) (7,426,147)\nOutlays, net 36,135,740 15,619,279 11,932,286 485,068 14,661,404 78,833,777\nDistributed offsetting receipts - (10,742) 43,322 (41,841) (273,357) (282,618)\nAgency outlays, net $36,135,740 $15,608,537 $11,975,608 $443,227 $14,388,047 $78,551,159\n\n\n\n\n100 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cREQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (RSSI)\n\xef\xbf\xbd\nNON-FEDERAL PHYSICAL PROPERTY: ANNUAL STEWARDSHIP INFORMATION\nTransportation Investments (Unaudited) As of September 30\n DOLLARS IN THOUSANDS FY 2008 FY 2009 FY 2010 FY 2011 FY 2012\n SURFACE TRANSPORTATION\nFederal Highway Administration\n Federal Aid Highways (HTF) $34,470,595 $37,860,105 $29,649,943 $34,556,573 $39,048,865\n Other Highway Trust Fund Programs 481,762 216,263 155,061 148,271 99,127\n General Fund Programs 31,740 3,228,009 11,616,036 7,906,180 3,203,055\n Appalachian Development System 185,316 321,480 90,091 243,853 288,473\n Federal Motor Carrier 144,455 837 - - (15,998)\n Total Federal Highway Administration $35,313,868 $41,626,694 $41,511,131 $42,854,877 $42,623,522\nFederal Transit Administration\n Discretionary Grants $27,174 $16,424 $17,171 $25,068 $12,682\n Formula Grants 1,329,811 743,604 428,696 220,047 171,134\n Capital Investment Grants 2,473,141 2,175,758 1,930,185 1,924,741 2,439,812\n Washington Metro Area Transit Authority 46 33 - 110,321 91,153\n Interstate Transfer Grants 360 316 - - -\n Formula and Bus Grants 5,968,651 7,264,278 7,345,804 7,182,145 8,197,321\nTotal Federal Transit Administration 9,799,183 10,200,413 9,721,856 9,462,322 10,912,102\nTotal Surface Transportation Nonfederal Physical $45,113,051 $51,827,107 $51,232,987 $52,317,199 $53,535,624\nProperty Investments\n\n\n AIR TRANSPORTATION FY 2008 FY 2009 FY 2010 FY 2011 FY 2012\nFederal Aviation Administration\n Airport Improvement Program $3,753,840 $4,034,970 $4,015,463 $3,388,712 $3,139,685\nTotal Air Transportation Nonfederal Physical\n $3,753,840 $4,034,970 $4,015,463 $3,388,712 $3,139,685\nProperty Investments\nTotal Nonfederal Physical Property Investments $48,866,891 $55,862,077 $55,248,450 $55,705,911 $56,675,309\n\n\n\nThe Federal Highway Administration reimburses States for con- Capital investment grants, which replaced discretionary grants\nstruction costs on projects related to the Federal Highway System in FY 1999, provide capital assistance to finance acquisition,\nof roads. The main programs in which the States participate construction, reconstruction, and improvement of facilities and\nare the National Highway System, Interstate Systems, Surface equipment. Capital investment grants fund the categories of new\nTransportation, and Congestion Mitigation/Air Quality Improve- starts, fixed guideway modernization, and bus and bus-related\nment programs. The States\xe2\x80\x99 contribution is 10 percent for the facilities.\nInterstate System and 20 percent for most other programs.\n The Washington Metropolitan Area Transit Authority provides\nThe Federal Transit Administration provides grants to State and funding to support the construction of the Washington Metrorail\nlocal transit authorities and agencies. System.\n\nFormula grants provide capital assistance to urban and nonurban Interstate Transfer Grants provided Federal financing from FY\nareas and may be used for a wide variety of mass transit purposes, 1976 through FY 1995 to allow States and localities to fund tran-\nincluding planning, construction of facilities, and purchases sit capital projects substituted for previously withdrawn segments\nof buses and railcars. Funding also includes providing trans- of the Interstate Highway System.\nportation to meet the special needs of elderly individuals and\nindividuals with disabilities. The Federal Aviation Administration (FAA) makes project \n\n grants for airport planning and development under the Airport \n\n\n\n\n\n101 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cRSSI, CONT\xe2\x80\x99D\n\nImprovement Program (AIP) to maintain a safe and efficient\nnationwide system of public-use airports that meet both present\nand future needs of civil aeronautics. FAA works to improve the\ninfrastructure of the nation\xe2\x80\x99s airports, in cooperation with airport\nauthorities, local and State governments, and metropolitan\nplanning authorities.\n\n\nHUMAN CAPITAL INVESTMENT EXPENSES\nANNUAL STEWARDSHIP INFORMATION (Unaudited) As of September 30\n DOLLARS IN THOUSANDS FY 2008 FY 2009 FY 2010 FY 2011 FY 2012\n\nSURFACE TRANSPORTATION\nFederal Highway Administration\n National Highway Institute Training $1,205 $375 $109 $133 $508\nFederal Motor Carrier Safety Administration\n California Highway Patrol 722 - - - -\n Safety Grants 426 1,230 845 636 1,342\n Idaho Video 302 399 9 - -\n Kentucky IT Conference - - - - -\n Massachusetts Training Academy - - - - -\n Minnesota Crash Investigation - - - - -\n New York Crash Reconstruction 180 - - - -\n Tennessee Crash Investigation 167 - - - -\nFederal Transit Administration\n National Transit Institute Training 4,577 3,440 3,886 3,246 3,550\nNational Highway Safety Administration\n Section 403 Highway Safety Programs 171,836 143,639 138,221 123,340 118,169\n Highway Traffic Safety Grants 485,721 566,790 565,787 576,063 514,816\nPipeline and Hazardous Materials Safety Administration\n Hazardous Materials (Hazmat) Training 13,263 13,263 13,153 16,974 17,808\nTotal Surface Transportation Human 678,399 729,136 722,010 720,392 656,193\nCapital Investments\n\nMARITIME TRANSPORTATION\nMaritime Administration\n State Maritime Academies Training(1) 9,406 11,041 10,810 11,459 13,746\n Additional Maritime Training 800 1,751 2,365 2,146 -\nTotal Maritime Transportation Human\n 10,206 12,792 13,175 13,605 13,746\nCapital Investments\nTotal Human Capital Investments $688,605 $741,928 $735,185 $733,997 $669,939\n\n(1) Does not include funding for the Student Incentive Payment (SIP) program which produces graduates who are obligated to serve in a reserve component of the United States armed forces.\nDoes not include funding for maintenance and repair (M&R).\n\n\n\n\n102 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cRSSI, CONT\xe2\x80\x99D\n\nThe National Highway Institute develops and conducts various The National Transit Institute of the Federal Transit Administration\ntraining courses for all aspects of Federal Highway Administration. develops and offers training courses to improve transit planning\nStudents are typically from the State and local police, State and operations. Technology courses cover such topics as alternative\nhighway departments, public safety and motor vehicle employees, fuels, turnkey project delivery systems, communications-based train\nand U.S. citizens and foreign nationals engaged in highway work controls, and integration of advanced technologies.\nof interest to the Federal Government. Types of courses given\nand developed are modern developments, technique, management, The National Highway Traffic Safety Administration (NHTSA)\nplanning, environmental factors, engineering, safety, construction, programs authorized under the Highway Trust Fund provide\nand maintenance. resources to State and local governments, private partners, and\n the public, to effect changes in driving behavior on the nation\xe2\x80\x99s\nThe California Highway Patrol educates the trucking industry for highways to increase safety belt usage and reduce impaired\nthe Federal Motor Carrier Safety Administration about Federal driving. NHTSA provides technical assistance to all States on the\nand State commercial motor vehicle/carrier inspection procedures, and full range of components of the impaired driving system as well as\nto increase CMV driver awareness. The Idaho Video Program conducting demonstrations, training, and public information/edu-\ndevelops video training material utilized by the FMCSA National cation on safety belt usage.\nTraining Center for the purpose of training State and local law\nenforcement personnel. The Massachusetts Training Academy The Pipeline and Hazardous Materials Safety Administration\nprovides training to State law enforcement personnel located administers Hazardous Material Training (Hazmat). The purpose\nin the northeast region of Massachusetts. The Minnesota Crash of Hazmat Training is to train State and local emergency\nInvestigation program provides training and develops processes personnel on the handling of hazardous materials in the\nand protocols for commercial motor vehicle crash investigations. event of a hazardous material spill or storage problem.\n\n\n\n\n103 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cRSSI, CONT\xe2\x80\x99D\n\n\nRESEARCH AND DEVELOPMENT INVESTMENTS\nANNUAL STEWARDSHIP INFORMATION (Unaudited) As of September 30\n DOLLARS IN THOUSANDS FY 2008 FY 2009 FY 2010 FY 2011 FY 2012\n\nSURFACE TRANSPORTATION\nFederal Highway Administration\n Intelligent Transportation Systems $128,931 $111,219 $129,993 $98,694 $100,467\n Other Applied Research and Development 63,906 28,259 159,389 244,156 12,042\nFederal Railroad Administration\n Railroad Research and Development Program 2,259 3,349 5,647 6,027 13,742\nFederal Transit Administration\n Applied Research and Development\n Transit Planning and Research 6,076 6,914 7,228 13,751 21,700\nPipeline and Hazardous Materials Safety Administration\nApplied Research and Development\n Development Research and Development\n Pipeline Safety\n Applied Research and Development Pipeline Safety 12,762 9,198 7,362 2,365 8,073\n Applied Research and Development\n 1,084 1,593 1,622 2,855 1,636\n Hazardous Materials\nResearch and Innovative Technology Administration\nApplied Research and Development\n\n Research and Technology 1,036 1,936 6,137 6,134 5,792\nTotal Surface Transportation Research $216,054 $162,468 $317,378 $373,982 $163,452\nand Development Investments\n\n AIR TRANSPORTATION\nFederal Aviation Administration\n R\n Research\n esearc\n arch aan\n and\n nd Dev\n Deve\n Development\n elopme\n pmennt PPl\n Plant\n lant $3,498 $3,381 $5,590 $5,848 $18,974\n Applied Research 88,114 95,764 103,042 129,954 133,932\n Development 814 1,102 2,008 2,238 1,311\n Administration 33,519 35,055\n 35,05\n 5,055 36,723 335,875\n 5,8875\n 5, 37,482\nTotal Air Transportation Research\n 125,945 135,302 147,363 173,915 191,699\nand Development Investments\nTotal Research and Development Investments $341,999 $297,770 $464,741 $547,897 $355,151\n\n\n\n\n104 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cRSSI, CONT\xe2\x80\x99D\n\nThe Federal Highway Administration\xe2\x80\x99s research and development in the transportation of freight, intercity passengers, commuters,\nprograms are earmarks in the appropriations bills for the fiscal and to railroad employees and their labor organizations. FRA-\nyear. Typically, these programs are related to safety, pavements, owned facilities provide the infrastructure necessary to conduct\nstructures, and environment. Intelligent Transportation Systems experiments and test theories, concepts, and new technologies in\nwere created to promote automated highways and vehicles to support of the R&D program.\nenhance the national highway system. The output is in accordance\nwith the specifications within the appropriations act. The Pipeline and Hazardous Materials Safety Administration\n funds research and development activities for the following\nThe Federal Transit Administration supports research and organizations and activities.\ndevelopment in the following program areas:\n The Office of Pipeline Safety is involved in research and\nResearch and development in Transit Planning and Research development in information systems, risk assessment, mapping,\nsupports two major areas: the National Research Program and and non-destructive evaluation.\nthe Transit Cooperative Research Program. The National\nResearch Program funds the research and development of The Office of Hazardous Materials is involved in research,\ninnovative transit technologies such as safety-enhancing commuter development, and analysis in regulation compliance, safety,\nrail control systems, hybrid electric buses, and fuel cell and and information systems.\nbattery-powered propulsion systems. The Transit Cooperative\nResearch Program focuses on issues significant to the transit The Research and Innovative Technology Administration\xe2\x80\x99s key\nindustry with emphasis on local problem-solving research. mandate is to coordinate research across DOT to maximize\n and leverage the taxpayers\xe2\x80\x99 $1.2 billion annual investment in\nTransit University Transportation Centers, combined with funds research, development, and technology (RD&T) activities.\nfrom the Highway Trust Fund, provide continued support for\nresearch, education, and technology transfer. The Federal Aviation Administration (FAA) conducts research\n and provides the essential air traffic control infrastructure to meet\nCapital investment grants, which replaced discretionary grants increasing demands for higher levels of system safety, security,\nin FY 1999, provide capital assistance to finance acquisition, capacity, and efficiency. Research priorities include aircraft\nconstruction, reconstruction, and improvement of facilities and structures and materials; fire and cabin safety; crash injury-\nequipment. Capital investment grants fund the categories of protection; explosive detection systems; improved ground and\nnew starts, fixed guideway modernization, and bus and bus- in-flight de-icing operations; better tools to predict and warn of\nrelated activities. weather hazards, turbulence, and wake vortices; aviation medicine,\n and human factors.\nThe Federal Railroad Administration (FRA) research and\ndevelopment projects contribute vital inputs to its safety\nregulatory processes, to railroad suppliers, to railroads involved\n\n\n\n\n105 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cOTHER ACCOMPANYING\nINFORMATION\n\x0cSCHEDULE OF SPENDING (Unaudited)\n For the Period Ended\nSCHEDULE OF SPENDING September 30, 2012\n NON-BUDGETARY CREDIT\n DOLLARS IN THOUSANDS BUDGETARY REFORM FINANCING ACCOUNTS\n\nWHAT MONEY IS AVAILABLE TO SPEND?\nTotal Resources $131,895,361 $2,211,918\nLess Amount Available but Not Agreed to be Spent 29,419,507 105,393\nLess Amount Not Available to be Spent 17,847,996 179,637\nTotal Amounts Agreed to be Spent $84,627,858 $1,926,888\n\n\nHOW WAS THE MONEY SPENT?\nSurface Transportation\n 1. Personnel Compensation and Benefits $932,121 $-\n 2. Contractual Services and Supplies 2,321,876 -\n 3. Acquisition of Assets 123,219 1,224,077\n 4. Grants and Fixed Charges 57,595,464 35,622\n 5. Other 52,965 -\nAir Transportation\n 1. Personnel Compensation and Benefits 7,534,257 -\n 2. Contractual Services and Supplies 5,639,734 -\n 3. Acquisition of Assets 479,138 -\n 4. Grants and Fixed Charges 3,053,590 -\n 5. Other 5,059,582 -\nMaritime Transportation\n 1. Personnel Compensation and Benefits 98,429 50\n 2. Contractual Services and Supplies 470,488 1,494\n 3. Acquisition of Assets 11,662 -\n 4. Grants and Fixed Charges 291,514 59,533\n 5. Other (760) -\nCross-Cut Transportation\n 1. Personnel Compensation and Benefits 153,075 -\n 2. Contractual Services and Supplies 570,045 -\n 3. Acquisition of Assets 18,787 -\n 4. Grants and Fixed Charges 2 -\n 5. Other (46,516) -\nNot Assigned\n 1. Personnel Compensation and Benefits 140,425 -\n 2. Contractual Services and Supplies 82,978 -\n 3. Acquisition of Assets 6,048 -\n 4. Grants and Fixed Charges 203,905 71\n 5. Other 793,147 -\nTotal Spending $85,585,176 $1,320,846\nAmounts Remaining to be Spent $(957,318) $606,042\nTotal Amounts Agreed to Be Spent $84,627,858 $1,926,888\n\n\n\n\n107 U. S. DEP AR TME NT OF TR A NS P OR TATIO N\n\x0cNET COST BY DOT GOAL\nThe Schedule of Net Cost by Strategic Goal reports the DOT operational net cost to reflect the net cost of operations by each of the\nDepartment\xe2\x80\x99s six goals in its FY 2012 Budget submission to provide the linkage between cost and performance as related to each\ngoal. DOT programs are generally complex and incorporate significant projects within multiple Operating Administrations (OA)\nand organizations within the OAs. These projects are linked to multiple organizational and department\xe2\x80\x93wide strategic goals. This\ncomplexity makes it difficult to track the costs related to the department-wide strategic goals. Additionally, in order to determine\nthe costs by strategic goals, OAs would need to analyze each project and determine allocation of costs to appropriate strategic goals.\n\n\n For the Year Ended\nSCHEDULE OF NET COST BY STRATEGIC GOAL (DOLLARS IN THOUSANDS) Unaudited September 30, 2012\n STATE\n STRATEGIC OF GOOD LIVABLE ENVIRONMENTAL ECONOMIC ORGANIZATION\n GOAL AREAS SAFETY REPAIR COMMUNITIES SUSTAINABILITY COMPETITIVENESS EXCELLENCE TOTAL\n\nSURFACE TRANSPORTATION\nFederal Highway\n $12,501,186 $17,190,423 $4,318,248 $5,617,651 $5,051,364 $16,097 $44,694,969\nAdministration\nFederal Transit\n 122,320 5,627,770 2,025,648 68,489 3,819,324 70,279 11,733,831\nAdministration\nFederal Railroad\n 273,344 283,593 403,060 353,128 599,014 85,284 1,997,423\nAdministration\nFederal Motor Carrier\n 502,431 - - - 2,963 14,743 520,137\nSafety Administration\nNational Highway Safety\n 705,512 - - 61,349 - 6,728 773,589\nAdministration\nPipeline and Hazardous\nMaterials Safety 112 - - - - - 112\nAdministration\nResearch and\nInnovative Technology 8,518 406 355 1,821 329 3,014 14,444\nAdministration\nSurface Transportation\n - - - - - 28,192 28,192\nBoard\nSubtotal 14,113,423 23,102,192 6,747,311 6,102,438 9,472,995 224,337 59,762,698\n\n\n\nAIR TRANSPORTATION\nFederal Aviation\n 7,812,879 1,581,208 - 551,990 4,439,756 1,618,500 16,004,333\nAdministration\nSubtotal 7,812,879 1,581,208 - 551,990 4,439,756 1,618,500 16,004,333\n\n\n\nMARITIME TRANSPORTATION\nMaritime Administration - - - 29,527 422,164 41,827 493,519\nSubtotal - - - 29,527 422,164 41,827 493,519\n\n\n\nOTHER PROGRAMS:\nOffice of the Secretary 117,890 117,135 169,846 118,412 123,316 38,452 685,052\nVolpe National\nTransportation System 2,193 105 91 469 85 776 3,718\nCenter\nOffice of Inspector\n - - - - - 87,234 87,234\nGeneral\nSubtotal 120,083 117,240 169,938 118,881 123,400 126,462 776,003\nTotal Net Cost $22,046,386 $24,800,640 $6,917,249 $6,802,835 $14,458,315 $2,011,126 $77,036,553\n\n\n\n\n108 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cSUMMARY OF FINANCIAL STATEMENT AUDIT AND MANAGEMENT ASSURANCES\n\xef\xbf\xbd\nTABLE 1. SUMMARY OF FINANCIAL STATEMENT AUDIT\n\n SUMMARY OF FINANCIAL STATEMENT AUDIT\nAudit Opinion UNQUALIFIED\n\nRestatement NO\n\n\n BEGINNING ENDING\n MATERIAL WEAKNESSES BALANCE NEW RESOLVED CONSOLIDATED REASSESSED BALANCE\n 0 0\nLack of Sufficient Controls over 1 1\nUndelivered Orders\nTotal 0 1 0 0 0 1\n\n\nTABLE 2. SUMMARY OF MANAGEMENT ASSURANCES\n\xef\xbf\xbd\n\n EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING (FMFIA, SECTION 2)\n\xef\xbf\xbd\nStatement of Assurance QUALIFIED\n BEGINNING ENDING\n MATERIAL WEAKNESSES BALANCE NEW RESOLVED CONSOLIDATED REASSESSED BALANCE\nLack of Sufficient Controls over 0 1 1\nUndelivered Orders\nTotal Material Weaknesses 0 1 1\n\n\n\n EFFECTIVENESS OF INTERNAL CONTROL OVER OPERATIONS (FMFIA, SECTION 2)\nStatement of Assurance QUALIFIED\n BEGINNING ENDING\n MATERIAL WEAKNESSES BALANCE NEW RESOLVED CONSOLIDATED REASSESSED BALANCE\nFISMA Noncompliance 1 1\nTotal Material Weaknesses 1 1\n\n\n\n CONFORMANCE WITH FINANCIAL MANAGEMENT SYSTEM REQUIREMENTS (FMFIA, SECTION 4)\nStatement of Assurance QUALIFIED\n BEGINNING ENDING\n NON-CONFORMANCES BALANCE NEW RESOLVED CONSOLIDATED REASSESSED BALANCE\nTotal Non-Conformances 0 1 1\n\n\n\n CONFORMANCE WITH FEDERAL FINANCIAL MANAGEMENT \n\n IMPROVEMENT ACT (FFMIA)\n\xef\xbf\xbd\n AGENCY AUDITOR\nOverall Substantial Compliance Yes Yes\n1. System Requirements Yes Yes\n2. Accounting Standards No No\n3. USSGL at Transaction Level Yes Yes\n\n\n\n\n109 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cOFFICE OF INSPECTOR GENERAL\xe2\x80\x99S TOP MANAGEMENT CHALLENGES\nFOR FISCAL YEAR 2013\n\nMEMORANDUM\n\n\n\n\nOFFICE OF THE SECRETARY\nOF TRANSPORTATION\n\nSubject:\t\xef\xbf\xbd INFORMATION: DOT\xe2\x80\x99s Fiscal Year 2013 Date: November 15, 2012\n Top Management Challenges\n Reply to Attn. of: J-1\n Department of Transportation\n\xef\xbf\xbd\n Report Number PT-2013-011\n\xef\xbf\xbd\n\nFrom: \t Calvin L. Scovel III\n Inspector General\n\nTo:\t\xef\xbf\xbd The Secretary\n Deputy Secretary\n\n\n\nAs required by law, we have identified the Department of Transportation\xe2\x80\x99s (DOT) top management\nchallenges for fiscal year 2013. A safe and well-managed transportation system is key for the U.S.\neconomy and the quality of life for the traveling public. To maintain and modernize all modes of\ntransportation, the Department spends over $70 billion annually on a wide range of programs.\nConsequently, it is critical for the Department to carry out its mission within a framework of\nrigorous stewardship of taxpayer funds, and we continue to support the Department\xe2\x80\x99s efforts\nthrough our audits and investigations.\n\nGlobal and domestic travel are projected to significantly increase the demand on our transportation\nsystem, and the Department faces considerable challenges in improving the Nation\xe2\x80\x99s surface\ninfrastructure and airspace. A key issue is the Next Generation Air Transportation System\xe2\x80\x94a\nmultibillion-dollar effort to modernize the U.S. air traffic control system. The Department is\nworking diligently to address numerous challenges we have identified over the years with this\nhighly complex undertaking. However, much work remains to move from planning to implementa-\ntion, tighten cost and schedule controls, and better define benefits and an end state for users.\n\nIt is also critical that the Department take every opportunity to make efficient use of funds through\nimproved acquisition and grant management\xe2\x80\x94an ongoing challenge with multi-modal impact. This\npast year, our work also highlighted the need for the Department to better safeguard its investments\nin key assets to support or expand transportation. These challenges include enforcing reforms to\nbusiness practices, closely overseeing financing plans, and protecting critical information systems.\n\nImproving air and surface safety continues to be the Department\xe2\x80\x99s overarching priority. This past\nyear, the Department has made important progress toward meeting new airline safety regulations to\nadvance voluntary safety programs at air carriers and improve pilot rest requirements. To maintain\nthe Nation\xe2\x80\x99s excellent aviation safety record, the Department must address a number of challenges.\nThese include maximizing existing data to identify trends and root causes of safety issues, enhanc-\ning risk-based oversight at carriers and repair stations, and mitigating air traffic controller fatigue.\n\n\n\n\n110 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cIn terms of surface safety, fatalities on the Nation\xe2\x80\x99s highways have generally declined over the last\nseveral years; however, the safety of the Nation\xe2\x80\x99s highways, railroads, and pipelines remains an\nongoing concern. The Department must implement a number of safety requirements enacted in\n2012 to identify defective vehicles, better protect motor coach passengers, enhance mass transit\nsafety, and develop a national tunnel inspection program.\n\nWe continue to build a body of work to assist the Department with its critical mission; improve the\nmanagement and execution of programs; and protect the Department\xe2\x80\x99s resources from fraud, waste,\nabuse, and violations of law. We considered several criteria in identifying the following nine\nchallenges, including their impact on safety, documented vulnerabilities, large dollar implications,\nand the ability of the Department to effect change in these areas:\n\n \xe2\x96\xb6 Ensuring the Next Generation Air Transportation System Advances Safety and Air Travel\n\n \xe2\x96\xb6 Enhancing FAA\xe2\x80\x99s Oversight and Use of Data To Identify and Mitigate Safety Risks\n\n \xe2\x96\xb6 Overseeing Administration of Key Transportation Assets To Ensure Their Success and \n\n Sustainability\n\t\n\n \xe2\x96\xb6 Strengthening Existing Surface Safety Programs and Effectively Implementing New Safety\n Requirements\n\n \xe2\x96\xb6 Maximizing Surface Infrastructure Investments With Effective Program Oversight and \n\n Execution of New Legislative Requirements\n\t\n\n \xe2\x96\xb6 Adequately Overseeing Administration of High Speed Intercity Passenger Rail Grant Funds\n\n \xe2\x96\xb6 Strengthening Financial Management Over Grants To Better Use Funds, Create Jobs, and\n Improve Infrastructure\n\n \xe2\x96\xb6 Ensuring Effective Management of DOT\xe2\x80\x99s Acquisitions To Maximize Value and Program\n Performance\n\n \xe2\x96\xb6 Managing and Securing Information Systems To Efficiently Modernize Technology \n\n Infrastructure and Protect Sensitive Data From Compromise\n\t\n\nWe are committed to keeping decision makers informed of issues identified through our audits and\ninvestigations. We appreciate the Department\xe2\x80\x99s commitment to taking prompt corrective action in\nresponse to our findings and recommendations. This report and the Department\xe2\x80\x99s response will be\nincluded in the Department\xe2\x80\x99s Annual Financial Report, as required by law. The Department\xe2\x80\x99s\nresponse is included in its entirety in the appendix to this report. If you have any questions\nregarding this report, please contact me at (202) 366-1959. You may also contact Lou E. Dixon,\nPrincipal Assistant Inspector General for Audits and Evaluation, at (202) 366-1427.\n\n #\n\n cc: DOT Audit Liaison, M-1\n\n\n\n\n111 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cTABLE OF CONTENTS\n\n\n 113 Ensuring the Next Generation Air Transportation System\n Advances Safety and Air Travel\n\n\n 115 Enhancing FAA\xe2\x80\x99s Oversight and Use of Data To Identify\n and Mitigate Safety Risks\n\n\n 117 Overseeing Administration of Key Transportation Assets\n To Ensure Their Success and Sustainability\n\n\n 119 Strengthening Existing Surface Safety Programs and Effectively\n Implementing New Safety Requirements\n\n\n 121 Maximizing Surface Infrastructure Investments With Effective Program\n Oversight and Execution of New Legislative Requirements\n\n\n 122 Adequately Overseeing Administration of High Speed Intercity Passenger\n Rail Grant Funds\n\n\n 123 Strengthening Financial Management Over Grants To Better Use Funds,\n Create Jobs, and Improve Infrastructure\n\n\n 125 Ensuring Effective Management of DOT\xe2\x80\x99s Acquisitions To Maximize Value\n and Program Performance\n\n\n 127 Managing and Securing Information Systems To Efficiently Modernize\n Technology Infrastructure and Protect Sensitive Data From Compromise\n\n\n 129 Comparison of Fiscal Years 2013 and 2012 Top Management Challenges\n\n\n 130 Appendix. Department Response\n\n\n\n\n 112 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c half of all active commercial aircraft are currently equipped to fly\nCHAPTER 1 advanced procedures, and representatives from air carriers who\n are equipped stated that FAA\xe2\x80\xbas approach offers little operational\nENSURING THE NEXT GENERATION AIR\n and financial benefits to airlines. In addition, FAA has not yet\nTRANSPORTATION SYSTEM ADVANCES SAFETY\n integrated efforts from other related initiatives, such as better\nAND AIR TRAVEL\n managing airport surface operations, into the metroplex initiative.\nThe National Airspace System (NAS) handles almost 50,000\n As a result, airspace users are concerned about the pace and\nflights per day and more than 700 million passengers per year.\n execution of the metroplex effort, as well as the lack of clearly\nAir travel is expected to nearly double over the next 2 decades,\n defined expected benefits, and remain reluctant to equip with new\nand the Federal Aviation Administration (FAA) has been working\n avionics.\nfor 8 years to develop the Next Generation Air Transportation\nSystem (NextGen). NextGen is intended to modernize aging\n FAA also has not yet resolved various barriers to its metroplex\nequipment, systems, and facilities and improve airspace\n effort\xe2\x80\x94which have slowed other NextGen initiatives. These\nefficiency. While FAA has made some progress toward improved\n include working across diverse Agency lines of business,\nair traffic management, our work continues to find longstanding\n updating policies, streamlining the process for implementing new\nproblems with cost increases, schedule slips, and performance\n flight procedures, applying environmental regulations, upgrading\nshortfalls with key FAA modernization projects\xe2\x80\x94challenges that\n controller automation tools, and training controllers on new\nhave been exacerbated by the fiscally constrained Federal\n advanced procedures. FAA is working to address our August\nenvironment.\n 2012 recommendations to effectively implement the task force\xe2\x80\x99s\n recommendations and resolve these barriers in a timely manner.\nKEY CHALLENGES\n \xe2\x96\xb6 Realizing benefits from NextGen capabilities at congested\n MITIGATING RISKS THAT DELAYS WITH THE EN ROUTE\n airports in the near term\n AUTOMATION MODERNIZATION PROGRAM POSE TO\n \xe2\x96\xb6 Mitigating risks that delays with the En Route Automation CRITICAL NEXTGEN INITIATIVES Increasing airspace capacity\n Modernization program pose to critical NextGen initiatives and reducing flight delays depend on the successful implementa-\n tion of the En Route Automation Modernization program\n \xe2\x96\xb6 Making decisions on facility consolidation and \n\n (ERAM)\xe2\x80\x94a $2.1 billion system to replace hardware and\n modernization\n\t\n software at FAA\xe2\x80\x99s facilities that manage high-altitude traffic. FAA\n \xe2\x96\xb6 Completing an integrated master schedule for NextGen originally planned to complete ERAM by the end of 2010.\n transformational programs However, software problems have impacted the system\xe2\x80\x99s ability\n to safely manage and separate aircraft and raised questions as to\n \xe2\x96\xb6 Achieving expected outcomes from reorganization to \n\n what capabilities ERAM will ultimately deliver. FAA rebaselined\n improve NextGen management\n\t\n the program in 2011, which pushed its expected completion to\n \xe2\x96\xb6 Integrating Unmanned Aircraft Systems in the National 2014 and increased cost estimates by $330 million. FAA is taking\n Airspace System steps to get ERAM on track and is using the system on a\n full-time basis at several sites\xe2\x80\x94a significant step forward given\nREALIZING BENEFITS FROM NEXTGEN CAPABILITIES AT the extensive software problems during testing at the two initial\nCONGESTED AIRPORTS IN THE NEAR TERM In response to sites. Recent progress at those two sites has allowed FAA to\nrecommendations by a Government-industry task force in 2009, phase out their legacy air traffic control systems. However, other\nFAA launched its \xe2\x80\x9cmetroplex\xe2\x80\x9d initiative\xe2\x80\x94a 7-year effort to facilities continue to identify software problems, and FAA will\nimprove the flow of traffic and efficiency at congested airports in likely encounter these and other issues when it implements\n13 major metropolitan areas. FAA completed initial studies to ERAM at some of the Nation\xe2\x80\x99s busiest facilities. If software\nidentify and recommend airspace and procedure improvements at problems persist, the program\xe2\x80\x99s cost growth could exceed $500\n7 of the 13 metroplex locations and is performing design work at million, and delays could stretch out to 2016. Prolonged delays\n6. However, FAA continues to face challenges with shifting from with ERAM will directly impact the overall cost and pace of\nplanning to implementation. The expected completion date for all NextGen. Without ERAM, the benefits of several other programs,\nmetroplex sites is now 15 months later than FAA planned. such as a new satellite-based surveillance system and data\nFurther, industry representatives are concerned that the effort communications for controllers and pilots, will not be possible.\nmay not deliver all desired benefits since FAA has focused on\nlimited airspace and procedure improvements rather than MAKING DECISIONS ON FACILITY CONSOLIDATION AND\nmaximizing new technologies and advanced procedures, as MODERNIZATION FAA has not made key decisions on the\nrecommended by the task force. According to FAA officials, the number and locations of air traffic facilities needed to support\nAgency has taken this approach to avoid potentially extensive NextGen or on the level of automation that can be realistically\nenvironmental reviews and accommodate all airspace users, not and safely achieved to manage traffic. In November 2011, FAA\njust those equipped to fly advanced procedures. However, nearly formalized an initial plan for consolidating en route centers and\n\n\n\n\n113 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cTerminal Radar Approach Control facilities (TRACON)1 into nounced a major reorganization in 2011 to better position\nlarge, integrated facilities in six geographic segments across the NextGen for success. FAA elevated the former NextGen\ncountry. Since then, the Agency has focused on plans in the New office\xe2\x80\x94creating an Assistant Administrator for NextGen who\nYork area but has delayed a final decision until May 2013 on reports directly to the FAA Deputy Administrator\xe2\x80\x94and estab-\nwhere to build the integrated facility. Ultimately, successfully lished a new Program Management Office. This new office will\nimplementing FAA\xe2\x80\x99s plans will require the Agency to address also work to bridge the gap between strategic requirements and\nchallenges with cost estimates, funding sources, and workforce program implementation. FAA is still in the early stages of this\nissues. reorganization, and work remains to establish best practices and\n institutionalize changes.\nConsolidation will likely be a long-term challenge for FAA, as its\nNextGen modernization plans were based on the traditional INTEGRATING UNMANNED AIRCRAFT SYSTEMS IN THE\nfacility set-up of en route centers and TRACONs\xe2\x80\x94not integrated NATIONAL AIRSPACE SYSTEM The application of Unmanned\nfacilities. Integrating facilities will also require cost and schedule Aircraft Systems (UAS)3 in the United States for research, law\nchanges to modernization programs that already have established enforcement, private sector, and State government needs\nbaselines. The Terminal Automation Modernization and continues to grow. FAA predicts there will be roughly 10,000\nReplacement program alone involves about $1 billion through active commercial UAS in 5 years, with industry investing over\n2018 to replace aging displays and processors that controllers $89.1 billion in UAS technology over the next 10 years. The FAA\nrely on to manage takeoffs and landings, the most critical phases Modernization and Reform Act of 20124 requires the Secretary of\nof flight. FAA recently approved plans to begin transitioning to a Transportation to develop a comprehensive plan that will safely\nnew terminal automation system at 11 large TRACON facilities and fully integrate UAS into the NAS no later than September 30,\nthrough 2017. However, the Agency has yet to determine 2015. The law also requires FAA to establish a program to\nwhether its consolidation efforts will impact these facilities. integrate UAS into the NAS at six test ranges by late summer\n 2012, but FAA has not completed this requirement. This will be a\nCOMPLETING AN INTEGRATED MASTER SCHEDULE FOR challenge for FAA as, historically, UAS have mainly supported\nNEXTGEN TRANSFORMATIONAL PROGRAMS FAA has not military and security operations overseas, and FAA has approved\nestablished total program costs, schedules, or performance operations in the United States on a limited, case-by-case basis.\nbaselines for any of the NextGen six transformational programs.2 Additionally, according to FAA officials, concerns over individu-\nRather, the Agency plans to approve these programs in shorter, al privacy (e.g., collecting information for commercial and law\ndiscrete segments to minimize risks in the short term. However, enforcement purposes) have contributed to delays in implement-\nas requirements continue to evolve, programs are left with no ing the law\xe2\x80\x99s requirements, such as issuing a rulemaking to allow\nclear end-state, and decision makers lack sufficient information use of small UAS. With increased usage of UAS comes increased\nto assess progress. Further, FAA has not completed an integrated risk to the NAS. While UAS capabilities have improved, their\nmaster schedule for deploying the transformational programs in ability to detect, sense, and avoid other air traffic is limited. FAA\nresponse to our April 2012 recommendation. Due to these must continue to work with other Federal agencies and the\nprograms\xe2\x80\x99 complex interdependencies, it will therefore be aerospace industry to address challenges such as certification\ndifficult to fully address operational, technical, and programmatic standards and privacy concerns. Given the growing interest and\nchallenges without a master schedule. While FAA is beginning to unresolved safety issues associated with UAS flights, FAA and\ncapture the critical activities required to deliver the six programs\xe2\x80\x99 DOT will need to act quickly to safely integrate them into the\noperational capabilities, the Agency is still working to identify NAS and align those changes carefully with NextGen implemen-\nwhat type of data it needs, such as key system dependencies, to tation.\ncomplete the master schedule.\n RELATED PRODUCTS The following related documents can be\nACHIEVING EXPECTED OUTCOMES FROM REORGANIZA- found on the OIG Web site at http://www.oig.dot.gov.\nTION TO IMPROVE NEXTGEN MANAGEMENT Many of FAA\xe2\x80\x99s\n \xe2\x96\xb6 Challenges With Implementing Near-Term NextGen\ndifficulties with implementing NextGen stem from underlying\n Capabilities at Congested Airports Could Delay Benefits,\nmanagement challenges, such as assigning responsibility,\n August 1, 2012\naccountability, and authority. In 2011, FAA commissioned an\ninternal study to examine how the Agency\xe2\x80\x99s internal structure,\nprocesses, and management culture could be improved to support\nNextGen. Based on the study\xe2\x80\x99s recommendations, FAA an-\n\n1\t En route centers guide airplanes flying at high altitudes through large sections 3\t An Unmanned Aircraft System (UAS) is comprised of a pilotless aircraft, satellite\n of airspace, while TRACONs guide aircraft as they approach or leave airspace or radio link, and ground control station where an operator controls the\n within 40 miles of an airport. movements of the aircraft. UAS aircraft range in size from those with a\n2 These six programs are Automatic Dependent Surveillance Broadcast (ADS-B), wingspan as large as a Boeing 737 to smaller than a radio-controlled model\n System Wide Information Management (SWIM), Data Communications airplane. UAS can serve diverse purposes, such as conducting military\n (DataComm), NextGen Network Enabled Weather (NNEW), NAS Voice System operations, enhancing border security, and monitoring forest fires.\n (NVS), and Collaborative Air Traffic Management Technologies (CATM-T). 4\t FAA Modernization and Reform Act of 2012, Pub. L. No. 112-95 (2012).\n\n\n\n\n114 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c \xe2\x96\xb6 The Success of FAA\xe2\x80\x99s Long-Term Plan for Air Traffic fiscal year 2011 (from 37 to 55, respectively). What remains\n Facility Realignments and Consolidations Depends on unclear is whether reported increases are due to more errors\n Addressing Key Technical, Financial, and Workforce being committed, improved reporting, or both. FAA attributes the\n Challenges, July 17, 2012 increase between fiscal years 2009 and 2010 to increased\n reporting through programs such as the Air Traffic Safety Action\n \xe2\x96\xb6 Status of Transformational Programs and Risks to Achieving\n Program (ATSAP)7 and greater use of automated reporting tools.\n NextGen Goals, April 23, 2012\n However, FAA facilities that manage high-altitude traffic (Air\n \xe2\x96\xb6 The Federal Aviation Administration\xe2\x80\x99s Progress and Route Traffic Control Centers) had a 39-percent spike in\n Challenges in Developing and Transitioning to the Next operational errors during that time. These centers have had an\n Generation Air Transportation System, October 5, 2011 automated system8 in place for years to detect and investigate\n each reported error, which suggests that at least a portion of the\n increase is likely due to actual errors occurring.\n\nFOR MORE INFORMATION ON THE ISSUES IDENTIFIED IN\n To identify root causes of safety problems and mitigate their risk,\nTHIS CHAPTER, PLEASE CONTACT JEFFREY B. GUZZETTI,\n FAA needs to fine-tune its approach to how it collects, verifies,\nASSISTANT INSPECTOR GENERAL FOR AVIATION AND\n and uses safety data. In July 2012, we identified control and\nSPECIAL PROGRAM AUDITS, AT (202) 366-0500.\n oversight weaknesses in how FAA reports and investigates\n operational errors associated with ATSAP. FAA fully deployed\n ATSAP at all air traffic control facilities in 2010. However, to\nCHAPTER 2 realize ATSAP\xe2\x80\x99s full potential, FAA must close program gaps,\n such as a lack of formal processes to review committee decisions\nENHANCING FAA\xe2\x80\x99S OVERSIGHT AND USE OF DATA TO on errors, and enforce key ATSAP guidelines and requirements.\nIDENTIFY AND MITIGATE SAFETY RISKS Failure to address these and other deficiencies not only under-\nThe U.S. air transportation system continues to be among the mines efforts to improve safety in the National Airspace System\nsafest in the world, due in part to the efforts of the Federal but also may lead to the perception that ATSAP is an amnesty\nAviation Administration (FAA) and the aviation industry. To help program that automatically accepts reports of serious incidents,\nsustain that record, it will be important to constantly improve regardless of whether they qualify.\nhow key data are reported, analyzed, and used to enhance safety,\noversight, and efficiency. Our audit work shows a number of In January 2012, FAA issued new policies and procedures for\nareas where FAA can make improvements to bolster these and collecting, investigating, and reporting separation losses, but\nother oversight efforts. their effectiveness is limited by incomplete data and implementa-\n tion challenges. Specifically, FAA lacks an accurate baseline on\nKEY CHALLENGES the number of separation losses due to its limited use and review\n \xe2\x96\xb6 Identifying trends in operational errors and determining of the Traffic Analysis and Review Program9 data, gaps in\n their root causes ATSAP reporting,10 and inconsistent classification of separation\n losses. Moreover, FAA\xe2\x80\x99s new policies transfer the function of\n \xe2\x96\xb6 Advancing oversight by implementing the Airline Safety Act\n investigating operational errors from the facilities where they\n of 2010\n occur to the three Air Traffic Organization Service Areas. Facility\n \xe2\x96\xb6 Providing more rigorous risk-based oversight of repair \n managers raised concerns about whether the Service Areas have\n stations and identifying inspector staffing requirements\n\t enough staff and knowledge of local flight procedures to\n successfully carry out this responsibility. Finally, the mitigation\n \xe2\x96\xb6 Identifying the effects of air traffic controller scheduling on\n strategy for operational errors included in the new policies lacks\n safety, cost efficiency, and controller performance\n previously identified causal factors, trends, and follow-up actions\n to address them\xe2\x80\x94all considered to be key elements for mitigat-\nIDENTIFYING TRENDS IN OPERATIONAL ERRORS AND\n ing the highest safety risks.\nDETERMINING THEIR ROOT CAUSES FAA must make better\nuse of data on operational errors5 to investigate incidents,\n ADVANCING OVERSIGHT BY IMPLEMENTING THE AIRLINE\nidentify trends, and mitigate their risks. Reported operational\n SAFETY ACT OF 2010 The fatal Colgan Air crash in 2009\nerrors increased by 53 percent (1,234 to 1,887) between fiscal\nyears 2009 and 2010. This number remained relatively 7 ATSAP is a voluntary non-punitive reporting program to encourage FAA air\n traffic employees to report safety events and safety concerns, with the intent of\nunchanged between fiscal years 2010 and 2011 (rising to 1,895), capturing all events that might lead to a breakdown in safety.\nbut the most serious reported errors6 continued to increase. FAA 8 The Operational Error Detection Program (OEDP) at air route traffic control\nreports that these rose by 49 percent from fiscal year 2009 to centers automatically generates an alert when a potential loss of separation is\n detected.\n5 Losses of standard separation between aircraft due to air traffic controller error. 9 TARP is an automated system that detects losses of separation that occur in\n6 Before fiscal year 2011, FAA tracked operational errors in terms of an A, B, C terminal airspace.\n severity rating\xe2\x94\x80-with A being the highest or \xe2\x80\x9csevere\xe2\x80\x9d risk and C the lowest. An \xe2\x80\x9cA\xe2\x80\x9d 10 Due to ATSAP provisions designed to protect controller confidentiality, much of\n rating meant that less than 34 percent of separation standards were met. the ATSAP data that FAA collects are not validated.\n\n\n\n\n115 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0chighlighted the need for improvements in pilot training, hiring IDENTIFYING THE EFFECTS OF AIR TRAFFIC CONTROL-\nand qualification programs as well as consistent safety standards LER SCHEDULING ON SAFETY, COST EFFICIENCY, AND\nbetween carriers. Congress and FAA took swift action following CONTROLLER PERFORMANCE A series of high-profile\nthe crash to address these issues, culminating in the August 2010 incidents in early 2011 involving controllers who were sleeping\npassage of the Airline Safety and FAA Extension Act.11 FAA has on duty sparked public concern about controller fatigue. As a\nmade important progress on many of the Act\xe2\x80\x99s requirements, result, in April 2011, FAA instituted a series of policy changes,\nsuch as advancing voluntary safety programs, improving pilot including placing an additional air traffic controller on the\nrest requirements, and establishing better processes for managing midnight shift at certain facilities and mandating a minimum of 9\nsafety risks. Despite this progress, FAA has not met the Act\xe2\x80\x99s hours off between evening and day shifts. As directed by the FAA\ntimelines for raising pilot training standards, implementing Modernization and Reform Act of 2012,12 we are assessing these\nmentoring programs, or providing enhanced leadership skills to new controller scheduling practices. The Act mandated that our\ncaptains. FAA also missed the Act\xe2\x80\x99s deadline to substantially assessment include an analysis of how air traffic controller sched-\nraise airline pilot qualifications by August 2012. Effectively ules are determined, how safety was considered when schedules\nimplementing this new rule will require FAA to ensure carriers are developed, the cost effectiveness of scheduling practices, and\nare ready to transition to the Act\xe2\x80\x99s enhanced pilot qualification how scheduling practices impact air traffic controller perfor-\nrequirements before August 2013, when they automatically take mance. The implementation of this new policy is an important\neffect. FAA also faces challenges in establishing a pilot records watch item for DOT, FAA, and Congress.\ndatabase\xe2\x80\x94an important component to enhance the air carrier\nscreening process for pilot applicants. In addition, FAA has yet to RELATED PRODUCTS The following related documents can be\nprovide sufficient guidance and assistance to industry\xe2\x80\x94especial- found on the OIG Web site at http://www.oig.dot.gov.\nly smaller carriers\xe2\x80\x94in developing and managing new safety\n \xe2\x96\xb6 Long Term Success of ATSAP Will Require Improvements\nprograms.\n in Oversight, Accountability, and Transparency, July 19,\n 2012\nPROVIDING MORE RIGOROUS RISK-BASED OVERSIGHT OF\nREPAIR STATIONS AND IDENTIFYING INSPECTOR STAFF- \xe2\x96\xb6 The State of Aviation Safety and FAA\xe2\x80\x99s Oversight of the\nING REQUIREMENTS Major air carriers increased spending on National Airspace System, April 25, 2012\ncontracts for aircraft maintenance by more than $1.7 billion over\n \xe2\x96\xb6 Progress and Challenges in Responding to Key Provisions\nthe past decade. This trend is expected to grow as carriers\n of the Airline Safety Act, March 20, 2012\ncontinue to shift away from in-house maintenance to save costs.\nIn 2007, FAA implemented a risk-based oversight system to help \xe2\x96\xb6 Progress and Challenges With FAA\xe2\x80\x99s Call to Action for \n\ninspectors target surveillance to repair facilities with higher risks. Airline Safety, February 4, 2010\n\t\nHowever, our ongoing work shows that this system does not\n \xe2\x96\xb6 Air Carriers\xe2\x80\x99 Outsourcing of Aircraft Maintenance, \n\ninclude accurate or timely risk assessments of foreign and\n September 30, 2008\n\t\ndomestic repair stations. In addition, FAA has yet to provide\ninspectors with comprehensive data needed for analytical \xe2\x96\xb6 Review of Air Carriers\xe2\x80\x99 Use of Aircraft Repair Stations, July\nreviews of repair station performance. Instead, FAA inspectors 8, 2003\ntypically rely on their personal knowledge of repair stations to\nconduct oversight, rather than using comprehensive and\nstandardized procedures for conducting and communicating the\n FOR MORE INFORMATION ON THE ISSUES IDENTIFIED IN\nresults of inspections. As a result of these weaknesses, FAA\xe2\x80\x99s\n THIS CHAPTER, PLEASE CONTACT JEFFREY B. GUZZETTI,\noversight lacks the rigor needed to identify deficiencies and\n ASSISTANT INSPECTOR GENERAL FOR AVIATION AND\nverify corrective actions.\n SPECIAL PROGRAM AUDITS, AT (202) 366-0500.\nAt the same time, FAA has not developed a reliable process for\nplacing inspectors where they are most needed. A 2006 National\nResearch Council study conducted at the direction of Congress\nconcluded that FAA\xe2\x80\x99s methodology for allocating its 4,300 aviation\nsafety inspectors was ineffective and recommended that FAA\ndevelop a new approach. In response, FAA completed a new staffing\nmodel in October 2009. Our ongoing work shows that FAA\xe2\x80\x99s model\ndoes not effectively project staffing needs due largely to incomplete\nand inaccurate data. While FAA has reported the results of the model\nfive times since 2009, the Agency has not fully relied on the model\nresults when requesting additional inspectors during the annual\nbudget process. FAA must further refine this tool so that it more\neffectively allocates inspector resources.\n11\t Airline Safety and Federal Aviation Administration Extension Act of 2010, Pub. L.\n No. 111-216 (2010). 12 FAA Modernization and Reform Act, Pub. L. No. 112-95 (2012).\n\n116 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c Board members and their guests spent $4,800 on meals during a\nCHAPTER 3 trip to Hawaii for a conference.\n\nOVERSEEING ADMINISTRATION OF KEY\n Similarly, MWAA\xe2\x80\x99s contracting policies and practices do not\nTRANSPORTATION ASSETS TO ENSURE THEIR SUCCESS\n ensure compliance with laws and MWAA\xe2\x80\x99s procedures, resulting\nAND SUSTAINABILITY\n in contracts that are not subject to full and open competition and\nThe Department owns or invests in several key transportation\n may not represent best value. For example, MWAA\xe2\x80\x99s Board of\nassets. These include the Metropolitan Washington Airports\n Directors authorized categorical exceptions to full and open\nAuthority (MWAA), which operates the region\xe2\x80\x99s two largest\n competition for items such as legal services, urgent need, or\nairports13\xe2\x80\x94Ronald Reagan Washington National and Dulles\n financial services.15 MWAA awarded almost two-thirds (64\nInternational\xe2\x80\x94and is also responsible for a massive public\n percent) of its 190 contracts that exceeded $200,000 with less\ntransportation expansion; Union Station, the main multi-modal\n than full and open competition during the period of our review.16\ntransportation hub in Washington, DC; and the United States\n Of these, 117 contracts were awarded using categorical excep-\nMerchant Marine Academy (the Academy) in New York. We\n tions, which amounted to more than $220 million.\nhave recent and ongoing work evaluating DOT\xe2\x80\x99s management\npractices for these critical assets due to recent concerns raised by\n In response to our letter, the Secretary, the Governors of\nCongress or other stakeholders to our office. Our audits highlight\n Maryland and Virginia, and the Mayor of the District of\nthe need for the Department to improve its oversight of these\n Columbia issued a letter to MWAA\xe2\x80\x99s Chairman and Board\nassets to ensure their success and sustainability.\n members17 mandating immediate reform to MWAA\xe2\x80\x99s business\n practices. Reforms include tightening Board travel procedures to\nKEY CHALLENGES\n eliminate wasteful spending, strengthening MWAA\xe2\x80\x99s ethics code\n \xe2\x96\xb6 Enforcing reforms to MWAA\xe2\x80\x99s operating and contracting\n to guard against conflicts of interest and provide annual ethics\n practices\n training to Board members and employees, and terminating all\n \xe2\x96\xb6 Overseeing the management of Washington, DC\xe2\x80\x99s Union existing contracts with former Board members that were not\n Station competitively bid. In addition, the Secretary appointed an\n Accountability Officer to ensure those reforms would be\n \xe2\x96\xb6 Protecting the Academy\xe2\x80\x99s sensitive information and systems\n instituted immediately. As stated in our November 2012 report,\n while MWAA has taken positive steps to correct the deficiencies\nENFORCING REFORMS TO MWAA\xe2\x80\x99S OPERATING AND\n we identified\xe2\x80\x94including revising its travel and ethics policies\nCONTRACTING PRACTICES MWAA operates two major\n and suspending contracts with former Board members\xe2\x80\x94signifi-\nfederally owned airports and is also responsible for designing,\n cant weaknesses remain that leave the Authority vulnerable to\nconstructing, and partially financing the Dulles Corridor\n criticism for its contracting practices and management oversight.\nMetrorail Project\xe2\x80\x94a two-phased, multibillion-dollar effort to\n Our work found, among other things, that the Authority\xe2\x80\x99s\nexpand DC Metrorail service in Northern Virginia and provide\n existing ethics-related procedures18 have been insufficient to\neasier access to Dulles Airport.14 Therefore, MWAA\xe2\x80\x99s decisions\n detect violations of anti-nepotism and gift provisions. For\ngreatly impact the DC region and its residents. Since its creation,\n example, one senior official indirectly supervised family\nMWAA and its Board of Directors have made substantial\n members despite the code\xe2\x80\x99s explicit provision prohibiting such\nimprovements to the region\xe2\x80\x99s airports. Yet, MWAA has recently\n relationships. Another senior official regularly accepted\nbeen the subject of controversy and debate regarding its policies,\n inappropriate gifts from an MWAA contractor\xe2\x80\x94including Super\ncontracting practices, and governance issues. In a May 2012\n Bowl tickets, travel, and accommodations worth almost $5,000.\nletter to Congressmen Wolf and Latham, we raised concerns that\n Enhanced policies, strong internal controls, and robust oversight\nMWAA\xe2\x80\x99s accountability to Congress, stakeholders, and the\n in the areas of procurement,19 ethics, hiring and compensation,\npublic\xe2\x80\x94as well as compliance with the Act transferring\n and transparency will be critical to maintain and improve the\noperation of the airports\xe2\x80\x94has been limited by weaknesses in its\ninternal policies and oversight of those policies. In particular, 15 The six categorical exceptions established in section 1.2 of MWAA\xe2\x80\x99s Contracting\npolicies and procedures for Board travel, ethics, and transparency Manual include (1) limited competition for urgent needs; legal, financial, audit,\n or legislative representation professional services; and local business set\nwere found to be insufficient to ensure fiduciary and ethical\n asides; (2) airport security controlled distribution RFP; (3) utility supplies and\nresponsibility in the Board\xe2\x80\x99s expenses and activities. For services; (4) Government purchasing agreements; (5) airline tenant procured\nexample, MWAA\xe2\x80\x99s policy does not provide suggested limits or projects; and (6) proprietary equipment and software. Use of these exceptions\n requires no further Board approval.\nthresholds for business-related Board travel expenses, such as\n 16 We reviewed contracts awarded between January 2009 and June 2011.\nfood, beverages, and flights. We identified one instance in which 17 Letter to Michael A. Curto, Chairman and Members of the Board of Directors,\n Metropolitan Washington Airports Authority, August 14, 2012.\n13 MWAA operates these airports, their access highways, and other related 18 MWAA recently approved a new employee code of ethics that will go into effect\n facilities under the terms of a lease agreement with DOT authorized by the on January 1, 2013.\n Metropolitan Washington Airports Act of 1986 (Pub. L. No. 99-591) and an 19 Based on FTA\xe2\x80\x99s Procurement System Review, MWAA\xe2\x80\x99s Board of Directors\n interstate compact between the Commonwealth of Virginia and the District of recently adopted changes to its Procurement Manual to be in line with FTA\n Columbia. procurement requirements. However, we have not reviewed MWAA\xe2\x80\x99s\n14 This Project entails adding a 23-mile extension to DC\xe2\x80\x99s Metrorail system. This implementation of these FTA-required changes because they are so recent.\n extension, to be known as the \xe2\x80\x9cSilver Line,\xe2\x80\x9d will connect the Metrorail system to Also, our audit review and findings are broader than the FTA grant rules and\n the Washington Dulles International Airport and Loudon County, Virginia. apply to MWAA contract policies and practices for all of its contracts.\n\n\n117 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cAuthority\xe2\x80\x99s operations and restore public trust in the soundness of Federal law and DOT policy require the Academy to implement\nits current and future activities. The Department will also need to security controls to protect the information and systems.22\nconsider devising and adopting enforcement mechanisms to\nensure that the remaining weaknesses we identified are addressed. In our May 2012 audit, we reported that the Academy\xe2\x80\x99s security\n controls were insufficient to protect its Web site and LAN from\nOVERSEEING THE MANAGEMENT OF WASHINGTON, DC\xe2\x80\x99S compromise, as the Academy had not implemented Federal and\nUNION STATION Washington\xe2\x80\x99s historic Union Station, built over DOT security requirements. For example, the Academy\xe2\x80\x99s\na century ago, provides rail, bus, and Metro access into the heart databases containing PII had poor user access controls. As a\nof the city and is a major tourist destination. In 1983, after years result, the Academy ran the risk of intruders gaining unautho-\nof neglect, the Department created the non-profit Union Station rized access to a large amount of sensitive information stored in\nRedevelopment Corporation (USRC) to oversee and complete its system without detection or response from the Academy. We\nfacility rehabilitation.20 While DOT\xe2\x80\x99s Federal Railroad Adminis- also identified a need for increased accountability and culture\ntration (FRA) owns the Station, USRC is charged with managing change as it pertains to information security. For example, we\nand protecting Federal interests in the property. For the past 25 noted that the Academy did not enforce controls over student\nyears, USRC has successfully funded basic maintenance and laptops connected to its LAN and did not discipline students for\nimprovements with revenue from the Station\xe2\x80\x99s parking facilities using the LAN in ways that increased security risks, such as\nand leased space. However, Union Station and USRC now face accessing adult content. The Department will need to increase\nfinancial challenges that may exceed USRC\xe2\x80\x99s ability to self-fi- oversight of MARAD and the Academy to protect their informa-\nnance and require the Department\xe2\x80\x99s intervention. These challeng- tion and systems.\nes include projecting expected outlays and developing a\nfinancing plan to ensure payment of the following: RELATED PRODUCTS The following related documents can be\n found on the OIG Web site at http://www.oig.dot.gov.\n \xe2\x96\xb6 DC Possessory Interest Taxes totaling approximately $9\n million in back taxes and almost $1 million annually \xe2\x96\xb6 MWAA\xe2\x80\x99s Weak Policies and Procedures Have Led to\n thereafter Questionable Procurement Practices, Mismanagement, and\n a Lack of Overall Accountability, November 1, 2012\n \xe2\x96\xb6 outstanding debt from financing a garage expansion project\n totaling $29 million \xe2\x96\xb6 The U.S. Merchant Marine Academy\xe2\x80\x99s Security Controls\n Were Not Sufficient To Protect Sensitive Data from\n \xe2\x96\xb6 damages from the August 2011 earthquake currently \n\n Unauthorized Access, May 30, 2012\n estimated between $10 million and $12 million\n\t\n \xe2\x96\xb6 Interim Response Letter to Congressmen Wolf and Latham\n \xe2\x96\xb6\t planned repairs and improvements through 2016 estimated\n Regarding MWAA, May 15, 2012\n at $40 million or more\n\n \xe2\x96\xb6 other structural issues and safety and security upgrades \n\n under consideration\n\t\n FOR MORE INFORMATION ON THE ISSUES IDENTIFIED IN\n THIS CHAPTER, PLEASE CONTACT LOUIS C. KING,\nUSRC and FRA need to take a thorough look at the condition\n ASSISTANT INSPECTOR GENERAL FOR FINANCIAL AND\nand emerging needs of Union Station; develop a comprehensive\n INFORMATION TECHNOLOGY AUDITS, AT (202) 366-1407;\nmaster plan that includes the needed repairs, upgrades, and\n JEFFREY B. GUZZETTI, ASSISTANT INSPECTOR GENERAL\nimprovements; and develop funding streams for these require-\n FOR AVIATION AND SPECIAL PROGRAM AUDITS, AT (202)\nments before the facility deteriorates or becomes a safety\n 366-0500; OR MARY KAY LANGAN-FEIRSON, ASSISTANT\nconcern.\n INSPECTOR GENERAL FOR ACQUISITION AND\n PROCUREMENT AUDITS, AT (202) 366-5225.\nPROTECTING THE ACADEMY\xe2\x80\x99S SENSITIVE INFORMATION\nAND SYSTEMS The Academy\xe2\x80\x94operated by the Department\xe2\x80\x99s\nMaritime Administration (MARAD)\xe2\x80\x94is responsible for training\nshipboard officers for the U.S. Merchant Marine. As an institu-\ntion of higher education, the Academy possesses sensitive\ninformation, including personally identifiable information (PII).21\nFor example, the Academy uses a local area network (LAN) and\nWeb site for several purposes, including the acceptance of\nstudent applications and maintenance of student grade records.\n\n20 Total rehabilitation costs were approximately $200 million.\n\n21 PII is any information about an individual maintained by an agency, including, but \n\n not limited to, education, financial transactions, medical history, and criminal or\n employment history and information that can be used to distinguish or trace an 22 As required by the Federal Information Security Management Act of 2002 and\n individual\xe2\x80\x99s identity, such as their name, and social security number. the Departmental Cybersecurity Policy, DOT Order 1351.37, July 7, 2011.\n\n\n\n\n118 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c manufacturers to affix guidance on passenger motor vehicles on\nCHAPTER 4 how to submit defect complaints to NHTSA.\n\nSTRENGTHENING EXISTING SURFACE SAFETY\n ENHANCING MOTOR CARRIER SAFETY OVERSIGHT Large\nPROGRAMS AND EFFECTIVELY IMPLEMENTING NEW\n truck and bus crashes and fatalities have increased and therefore\nSAFETY REQUIREMENTS\n remain a key safety issue.25 Over the past year, the Federal Motor\nThe Department\xe2\x80\x99s top priority is to make our transportation\n Carrier Safety Administration (FMCSA) took actions to remove\nsystem safer. While fatalities on the Nation\xe2\x80\x99s highways have\n unsafe commercial drivers and carriers, including motor coach\ndeclined by over 25 percent since 2005,23 the safety of highways,\n companies. FMCSA also implemented a more stringent safety\nrailroads, and pipelines remains an ongoing concern. The\n assurance process that new entrants must complete. However, it\nDepartment faces a significant challenge to continually improve\n has yet to address two action items raised by our office and the\nand oversee the Nation\xe2\x80\x99s surface transportation systems that are\n National Transportation Safety Board (NTSB): (1) implement\ncritically important to efficiently move people and energy\n promised checks on whether U.S.-based commercial vehicles\nsources, promote interstate commerce, and grow the U.S.\n display proof of compliance with manufacturing standards and\neconomy. A key component of departmental oversight will be\n (2) issue a new regulation tightening controls over the leasing of\nimplementation of new safety requirements enacted in the\n buses. FMCSA should also collaborate with NHTSA on new\nMoving Ahead for Progress in the 21st Century Act of 2012\n MAP-21 provisions to strengthen motor coach safety and carry\n(MAP-21).24\n out MAP-21 provisions on safety reviews, commercial driver\xe2\x80\x99s\n license endorsements, and inspections.\nKEY CHALLENGES\n \xe2\x96\xb6 Following through on initiatives to improve the National\n MAP-21 also provided FMCSA with a critical new oversight tool\n Highway Traffic Safety Administration\xe2\x80\x99s oversight of\n by allowing it to revoke the registration of reincarnated carri-\n vehicle safety defects\n ers26\xe2\x80\x94a safety concern we reported in April 2012. FMCSA\n \xe2\x96\xb6 Enhancing motor carrier safety oversight revised its vetting process to identify reincarnated carriers\n applying for authority to transport passengers and household\n \xe2\x96\xb6 Implementing new rail transit safety oversight requirements\n goods. However, before FMCSA expands the vetting process to\n \xe2\x96\xb6 Developing a new national tunnel safety program all new motor carrier applicants, it will need to implement a\n risk-based approach to best target its limited vetting resources.\n \xe2\x96\xb6 Effectively addressing expanded railroad safety oversight\n FMCSA must also effectively implement its newly updated\n responsibilities\n policies on placing reincarnated carriers out of service and\n \xe2\x96\xb6 Providing more rigorous oversight of pipeline safety \n reviewing and approving applications for operating authority.\n programs\n\t\n IMPLEMENTING NEW RAIL TRANSIT SAFETY OVERSIGHT\nFOLLOWING THROUGH ON INITIATIVES TO IMPROVE THE REQUIREMENTS MAP-21 enhanced the Federal Transit\nNATIONAL HIGHWAY TRAFFIC SAFETY Administration\xe2\x80\x99s (FTA) authority to oversee the safety of the\nADMINISTRATION\xe2\x80\x99S OVERSIGHT OF VEHICLE SAFETY Nation\xe2\x80\x99s public transportation systems. By October 1, 2013, FTA\nDEFECTS Vehicle defects, particularly unintended acceleration, must initially determine whether to certify that each State that\nhave brought significant public, media, and congressional has a State Safety Oversight agency has a State safety oversight\nattention to the National Highway Traffic Safety Administration\xe2\x80\x99s plan in compliance with MAP-21 requirements. This will require\n(NHTSA) oversight of vehicle safety. Our 2011 audit work found FTA to establish safety performance criteria, vehicle safety\nthe need for process improvements within NHTSA\xe2\x80\x99s Office of performance standards, safety certification training for covered\nDefects Investigation, particularly with establishing standard personnel, and plans for each transit agency to reduce safety\noperating procedures for storing investigative records and risks.\ndocumenting evidence. NHTSA also needs to assess its work-\nforce to determine if it has enough staff and expertise to operate FTA will face significant challenges in carrying out these new\neffectively. A key component of these efforts should be a formal requirements. As our prior work shows, FTA should obtain\ntraining program for investigative staff to keep them apprised of sufficient data on attributes such as fatalities, injuries, and transit\ndefect identification processes and new technologies that could assets. It should also work expeditiously to establish rail\nimpact their work. NHTSA must also take specific steps to meet transit-specific goals and performance measures to assess the\nMAP-21 requirements, which include publishing motor vehicle impact of its new safety efforts. Additionally, FTA should issue\nsafety recall information and developing regulations that direct timely guidance to State Safety Oversight agencies, prioritize the\n23\t Based on September 2012 NHTSA data on actual or projected fatalities through greatest safety risks for any rulemakings, enlist leadership\n 2011. NHTSA also reported that its statistical projection of traffic fatalities for\n the first half of 2012 shows an estimated 9-percent increase in fatalities over 25\t From 2009 to 2011, large truck and bus crashes increased by 8.4 percent and\n the number projected to have occurred in the first half of 2011. associated fatalities increased by 5.7 percent.\n24\t Moving Ahead for Progress in the 21st Century, Pub. L. No. 112-141 (July 2012), 26\t Motor carriers that attempt to operate as a different entity in an effort to evade\n \xc2\xa732701-32711. enforcement action, out-of-service orders, or both.\n\n\n\n\n119 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0ccommitment to expedite these rulemakings, and periodically manuals for the new RSIA regulations before its inspectors\nreview and revise regulations. initiated oversight activities for those regulations.\n\nDEVELOPING A NEW NATIONAL TUNNEL SAFETY PRO- PROVIDING MORE RIGOROUS OVERSIGHT OF PIPELINE\nGRAM The Federal Highway Administration (FHWA) must meet SAFETY PROGRAMS Several tragic pipeline accidents over the\nnew MAP-21 requirements to establish a national tunnel past few years have highlighted the need for the Pipeline and\ninspection program and a tunnel inventory. This program would Hazardous Materials Safety Administration (PHMSA) to\nmirror the national bridge inspection program and bridge enhance its oversight of pipeline operators. Of particular concern\ninventory and would require States to inspect and periodically are operators\xe2\x80\x99 integrity management programs, intended to\nreport on the condition of the Nation\xe2\x80\x99s tunnels. FHWA has begun reduce the likelihood and severity of pipeline accidents in highly\ndeveloping tunnel inspection standards, which were included in a populated or otherwise sensitive areas (known as High Conse-\nproposed rule issued in 2010.27 FHWA also developed guidance quence Areas).29\nfor tunnel design, construction, rehabilitation, and inspection that\nmay be adopted as standards. NTSB and our office have reported on weaknesses in this aspect\n of PHMSA oversight. In its investigation of the 2010 San Bruno,\nTo fully implement the MAP-21 provisions and promote CA, pipeline explosion,30 NTSB questioned the operator\xe2\x80\x99s\nconsistent application of tunnel safety standards, FHWA must implementation of its integrity management programs. NTSB\ntake a number of steps. These include issuing regulations that raised concerns as to the effectiveness of inspection protocols\nclearly specify what constitutes a tunnel, ensuring its baseline PHMSA used to assess operators\xe2\x80\x99 compliance with their\ninventory of highway tunnels is accurate, and establishing a performance-based safety programs. NTSB recommended that\nprocess to assess inspection data. Finally, tunnel inspections may the Secretary perform a top-to-bottom review of PHMSA\xe2\x80\x99s\ndemand specialized engineering skills not readily available in processes and procedures used to oversee operators\xe2\x80\x99 integrity\nFHWA and State DOT offices. Therefore, it will be critical for management program compliance. In response, the Secretary and\nFHWA to develop a training and certification program to help PHMSA agreed that PHMSA\xe2\x80\x99s Senior Policy Advisor would\nFHWA and State DOT offices recruit and train the staff needed to conduct this review, which is now underway.\nimplement new tunnel safety standards.\n In June 2012, we similarly reported vulnerabilities in PHMSA\xe2\x80\x99s\nEFFECTIVELY ADDRESSING EXPANDED RAILROAD oversight and enforcement of operators\xe2\x80\x99 compliance with their\nSAFETY OVERSIGHT RESPONSIBILITIES The Federal integrity management programs, specifically in regard to\nRailroad Administration (FRA) faces an ongoing challenge in hazardous liquid pipelines. While PHMSA has several efforts\ncarrying out its expanded regulatory role under the Rail Safety underway to enhance its integrity management inspection\nImprovement Act of 2008 (RSIA).28 Congress passed RSIA after program, the Agency faces challenges that impact its oversight.\nseveral high-profile railroad accidents between 2002 and 2008 These include managing a growing backlog of inspections,\nand projections of rail traffic increases that could result in higher identifying integrity management weaknesses through field\naccident rates over the next 10 years. RSIA was the first inspections and onsite accident investigations, and transitioning\nreauthorization of the Federal Rail Safety program since 1994. to a new risk-based inspection program. In addition, PHMSA\xe2\x80\x99s\n integrity management requirements for operators\xe2\x80\x99 facilities (such\nRSIA requires FRA to undertake a variety of actions, ranging as valves, pump and meter stations, and storage tanks) have not\nfrom development of a long-term safety strategy to completion of kept pace with recent technological advances that would enhance\nscientific studies. The largest subset of these requirements directs oversight at such facilities. Finally, the Agency has not yet\nFRA to develop 17 new safety regulations for the railroad resolved key data management deficiencies, such as insufficient\nindustry. These new regulations govern a wide variety of areas, quality checks for pipeline data, or established meaningful\nsuch as hours of service requirements for railroad workers, performance measures for its integrity management program.\nautomated collision-prevention technology, standards for track\ninspections, and safety at highway-rail grade crossings. As of RELATED PRODUCTS The following related documents can be\nJuly 1, 2012, FRA had completed 9 of the 17 regulations required found on the OIG Web site at http://www.oig.dot.gov.\nby RSIA. In addition to completing these, FRA faces the\n \xe2\x96\xb6 Hazardous Liquid Pipeline Operators\xe2\x80\x99 Integrity \n\nchallenge of developing guidance for its oversight staff to\n Management Programs Need More Rigorous PHMSA\n\t\noversee industry compliance with the new safety regulations.\n Oversight, June 18, 2012\n\t\nFRA publishes compliance manuals to provide guidance to its\ninspectors and the railroad industry on the application of safety\nregulations. However, the Agency failed to finalize compliance 29 High Consequence Areas include unusually sensitive areas (defined as drinking\n water or ecological resource areas), urbanized and other populated places, and\n27 FHWA plans to issue a supplemental proposed rule in 2013 incorporating commercially navigable waterways.\n MAP-21 changes. 30 On September 9, 2010, a 54-year old gas pipeline exploded in San Bruno, CA,\n28 Pub. L. No. 110-432 (2008). killing 8 people and destroying 38 homes.\n\n\n\n\n120 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c \xe2\x96\xb6 Timely and Targeted FMCSA Action Is Needed To Fully STRENGTHENING EXISTING HIGHWAY AND TRANSIT\n Address National Transportation Safety Board PROJECT OVERSIGHT MECHANISMS FHWA and FTA have\n Recommendations for Improving Passenger Carrier taken actions to improve oversight of highway and transit\n Oversight, April 17, 2012 projects. These include adopting processes from FHWA\xe2\x80\x99s\n National Review Teams\xe2\x80\x94an innovation of the American\n \xe2\x96\xb6 Challenges to Improving Oversight of Rail Transit Safety\n Recovery and Reinvestment Act (ARRA)31\xe2\x80\x94for future assess-\n and Implementing an Enhanced Federal Role, January 31,\n ments across FHWA Division offices and reviewing FTA\xe2\x80\x99s\n 2012\n regional oversight practices. However, both agencies remain\n \xe2\x96\xb6 Process Improvements Are Needed for Identifying and challenged to ensure projects meet Federal requirements and\n Addressing Vehicle Safety Defects, October 6, 2011 maximize the return on Federal dollars.\n\n \xe2\x96\xb6 Statement for the Record: FMCSA Is Strengthening Motor\n For highway and bridge investments, States assume much of the\n Carrier Safety Oversight but Further Action and Attention\n oversight responsibility for about $40 billion in annual Feder-\n Are Needed, July 21, 2011\n al-aid, but FHWA is ultimately responsible for making sure that\n \xe2\x96\xb6 Letter to Chairmen Rockefeller and Pryor Regarding projects meet Federal requirements. However, our work has\n Whether Former NHTSA Employees Exerted Undue found a number of areas where FHWA can do more to hold\n Influence on Safety Defect Investigations, April 4, 2011 States accountable. First, FHWA must follow through on\n promised actions to correct States\xe2\x80\x99 insufficient oversight of local\n public agency (LPA) programs\xe2\x80\x94federally funded projects\n managed by cities, counties, and other local entities. For example,\nFOR MORE INFORMATION ON THE ISSUES IDENTIFIED IN\n more uniform FHWA assessments of LPA deficiencies would\nTHIS CHAPTER, PLEASE CONTACT JOSEPH W. COM\xc3\x89,\n help curb persistent risks, such as noncompliance with Federal\nASSISTANT INSPECTOR GENERAL FOR HIGHWAY AND\n labor requirements and improper processing of contract changes.\nTRANSIT AUDITS, AT (202) 366-5630; JEFFREY B.\n Second, FHWA\xe2\x80\x99s Division Offices can more clearly define\nGUZZETTI, ASSISTANT INSPECTOR GENERAL FOR\n Federal and State oversight roles and responsibilities and identify\nAVIATION AND SPECIAL PROGRAM AUDITS, AT (202)\n program risks and priorities within the Stewardship and\n366-0500; OR MITCH BEHM, ASSISTANT INSPECTOR\n Oversight Agreements they have with States. Finally, FHWA will\nGENERAL FOR RAIL, MARITIME, AND ECONOMIC\n be challenged to ensure States effectively implement new\nANALYSIS, AT (202) 366-9970.\n regulations on performing value engineering studies during a\n project\xe2\x80\x99s planning or design phase to improve project perfor-\n mance, cost, and quality.\nCHAPTER 5\n FHWA must also continue to exercise proper stewardship of\nMAXIMIZING SURFACE INFRASTRUCTURE INVESTMENTS\n ARRA funds, which provided over $27 billion for highway\nWITH EFFECTIVE PROGRAM OVERSIGHT AND EXECUTION\n infrastructure projects in 2009 and established tight time frames\nOF NEW LEGISLATIVE REQUIREMENTS\n for using these funds. Last year, the Office of Management and\nThe Federal Highway Administration (FHWA) and the Federal\n Budget (OMB) directed Federal agencies to expedite use of\nTransit Administration (FTA) face challenges in overseeing the\n ARRA funds to advance ARRA\xe2\x80\x99s major goal of stimulating\nbillions in Federal funds provided annually to construct and\n economic activity well before the final deadline of September 30,\nmaintain the Nation\xe2\x80\x99s vast network of roadways and transit\n 2015. As of July 1, 2012, the bulk of FHWA\xe2\x80\x99s ARRA funds have\nsystems. In addition, both agencies must implement new\n been spent, but the remaining portion of the approximately $2\ninitiatives enacted in the Moving Ahead for Progress in the 21st\n billion (7.6 percent of ARRA highway funds) may be returned to\nCentury (MAP-21) Act of 2012\xe2\x80\x94the first surface transportation\n the Treasury if not spent in time.\nauthorization since 2005. MAP-21 places priority on accelerating\nproject delivery and employing performance-based investment\n FTA has oversight responsibility for approximately $10 billion it\nmanagement. Implementing MAP-21 will require FHWA and\n provides annually to more than 1,300 States and localities,\nFTA to make fundamental changes in the way they currently do\n including a large portfolio of major infrastructure projects across\nbusiness.\n the country. Our work, done at FTA\xe2\x80\x99s request, has identified areas\n where FTA can improve its oversight tools\xe2\x80\x94which rely heavily\nKEY CHALLENGES\n on contractors\xe2\x80\x94to maximize the return on investment. For exam-\n \xe2\x96\xb6 Strengthening existing highway and transit project oversight\n ple, FTA Headquarters must provide its regional offices and\n mechanisms\n oversight contractors with enhanced guidance to ensure they\n \xe2\x96\xb6 Expediting and reforming highway and transit project \n consistently identify and accurately track deficiencies found\n delivery\n\t during key audits of FTA grantees. Additionally, after our\n assessment of the Dulles Corridor Metrorail Project, FTA\n \xe2\x96\xb6 Transitioning to a system of performance-based and \n\n data-driven surface transportation investments\n\t 31 American Recovery and Reinvestment Act, Pub. L. No. 111-5 (2009).\n\n\n\n121 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0crecognized that issues we identified merited an internal review of Strengthening, July 15, 2011\nits project management oversight contractor processes. Timely\nimplementation of these reforms is essential to ensure transit\nfunds are appropriately spent.\n FOR MORE INFORMATION ON THE ISSUES IDENTIFIED IN\n THIS CHAPTER, PLEASE CONTACT JOSEPH W. COM\xc3\x89,\nEXPEDITING AND REFORMING HIGHWAY AND TRANSIT\n ASSISTANT INSPECTOR GENERAL FOR HIGHWAY AND\nPROJECT DELIVERY A key challenge for DOT is to meet new\n TRANSIT AUDITS, AT (202) 366-5630.\nMAP-21 requirements to expedite and reform highway and\ntransit projects. Reducing project delivery time has become a\nnational priority, as a typical highway project takes an average of\n13 years to complete. In addition to tying up resources, long\n CHAPTER 6\nproject delivery times delay opportunities to reduce highway\n ADEQUATELY OVERSEEING ADMINISTRATION OF HIGH\ncongestion and improve traffic safety. MAP-21 incorporates a\n SPEED INTERCITY PASSENGER RAIL GRANT FUNDS\nspecific set of initiatives, such as broadening States\xe2\x80\x99 ability to\n The Passenger Rail Investment and Improvement Act of 200832\nacquire or preserve the property needed for a project before\n (PRIIA) directed the Federal Railroad Administration (FRA) to\ncompletion of lengthy environmental impact reviews. To meet\n establish a grant program to fund various types of intercity\nMAP-21 requirements, it will be essential that DOT build on its\n passenger rail improvements. FRA has awarded and obligated\nagencies\xe2\x80\x99 existing initiatives, such as FHWA\xe2\x80\x99s \xe2\x80\x9cEvery Day\n over 95 percent of $10.1 billion in grant funds\xe2\x80\x94$8 billion of\nCounts.\xe2\x80\x9d This initiative focuses on identifying proven project\n which was appropriated by the American Recovery and\ndelivery processes and market-ready technologies, and encourag-\n Reinvestment Act of 2009 (ARRA)\xe2\x80\x94to develop and implement\ning widespread use among States.\n the High Speed Intercity Passenger Rail Program (HSIPR).\n While FRA has developed parameters for funding grants, it has\nTRANSITIONING TO A SYSTEM OF PERFORMANCE-BASED\n only disbursed 8 percent of funds to date due to a number of\nAND DATA-DRIVEN SURFACE TRANSPORTATION INVEST-\n challenges. As more HSIPR grantees move to begin project\nMENTS MAP-21 requires DOT to move toward more perfor-\n construction, FRA will need to provide clear program guidance,\nmance-based investment management of its highway and transit\n comprehensive training, and cohesive program goals and\nprograms. Accordingly, DOT must establish new rules and\n performance measures.\nperformance standards, link performance data collection to\nproject selection and funding processes, and modify oversight\n KEY CHALLENGES\nmechanisms. DOT will be challenged to put performance\n \xe2\x96\xb6 Approving completed stakeholder agreements to disburse\nmanagement into actual practice, as demonstrated by its\n obligated HSIPR funds\ndifficulties deploying a performance-based program for its\nmulti-modal Transportation Investment Generating Economic \xe2\x96\xb6 Addressing staffing needs to provide effective HSIPR \n\nRecovery (TIGER) discretionary grant program. Since 2009, Program oversight\n\t\n\t\nDOT has worked to require each TIGER grantee to develop and\n \xe2\x96\xb6 Overseeing HSIPR Program progress with comprehensive\nreport on outcome-based performance measures. However, DOT\n goals, performance measures, and monitoring\nhas yet to develop the methods to make meaningful comparisons\nacross diverse transportation modes and assess project impacts.\n APPROVING COMPLETED STAKEHOLDER AGREEMENTS\n TO DISBURSE OBLIGATED HSIPR FUNDS FRA issued interim\nRELATED PRODUCTS The following related documents can be\n HSIPR guidance for grantees and freight companies to outline\nfound on the OIG Web site at http://www.oig.dot.gov.\n the terms and conditions they must agree on before receiving any\n \xe2\x96\xb6 Improvements to Stewardship and Oversight Agreements Federal funds. These agreements cover passenger rail service\n Are Needed To Enhance Federal-Aid Highway Program improvements, construction, and maintenance responsibilities.\n Management, October 1, 2012 FRA approved completed agreements related to service improve-\n ments prior to obligation of project funds. Many agreements\n \xe2\x96\xb6 DOT Established Timely Controls for the TIGER\n related to construction and maintenance responsibilities are\n Discretionary Grant Program, but Opportunities Exist To\n incomplete because stakeholders cannot agree on required terms,\n Strengthen Oversight, September 20, 2012\n and FRA\xe2\x80\x99s interim guidance does not specify how these terms\n \xe2\x96\xb6 Improvements Needed in FTA\xe2\x80\x99s Grant Oversight Program, should be addressed. This has required FRA to be more involved\n August 2, 2012 in negotiating the agreements to clarify its expectations and\n address disputes among stakeholders, resulting in a more time\n \xe2\x96\xb6 Actions Needed To Improve FTA\xe2\x80\x99s Oversight of the Dulles\n consuming process. If delays with projects\xe2\x80\x99 agreements continue,\n Corridor Metrorail Project\xe2\x80\x99s Phase 1, July 26, 2012\n obligated funds will sit idle instead of being freed up for projects\n \xe2\x96\xb6 FHWA\xe2\x80\x99s Oversight of Federal-Aid and Recovery Act with completed agreements. As the HSIPR Program progresses,\n Projects Administered by Local Public Agencies Needs\n 32 P.L. No. 110-432, Div. B.\n\n\n\n\n122 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cFRA will need finalized guidance that provides clear direction to found on the OIG Web site at http://www.oig.dot.gov.\ngrantees on completing required agreements and to applicants on\n \xe2\x96\xb6 FRA\xe2\x80\x99s Requirements for High Speed Rail Stakeholder\ndeveloping project grant applications to enable proper evalua-\n Agreements Mitigated Risk but Delayed Some Projects\xe2\x80\x99\ntions of project viability. FRA plans to issue a Notice of Proposed\n Benefits, November 1, 2012\nRulemaking to finalize the guidance within 4 months of receiving\nnew appropriated funds from Congress for the HSIPR program. \xe2\x96\xb6 Completing a Grants Management Framework Can Enhance\n FRA\xe2\x80\x99s Administration of the HSIPR Program, September 11,\nADDRESSING STAFFING NEEDS TO PROVIDE EFFECTIVE 2012\nHSIPR PROGRAM OVERSIGHT FRA has not fully addressed\n \xe2\x96\xb6 FRA Has Made Progress in Implementing PRIIA\n\t \n\t\nHSIPR Program staffing and training needs. To date, FRA has\n Responsibilities, but Challenges for Long-Term HSIPR \n\nfilled 91 percent of the staff positions allocated for its division\n Remain, March 6, 2012\n\t \n\t\nprimarily responsible for HSIPR. The Agency recognizes its need\nto fill remaining vacancies, but it has experienced difficulty in\nrecruiting qualified candidates for specialized roles, such as grant\nmanagers. Effective integration of personnel into these key FOR MORE INFORMATION ON THE ISSUES IDENTIFIED IN\npositions is critical to build the Agency\xe2\x80\x99s expertise to adequately THIS CHAPTER, PLEASE CONTACT MITCH BEHM,\nmanage the growing HSIPR program. FRA\xe2\x80\x99s recently completed ASSISTANT INSPECTOR GENERAL FOR RAIL, MARITIME,\nGrants Management Manual includes Program policies that will AND ECONOMIC ANALYSIS, AT (202) 366-9970.\nbe the basis for a full training curriculum, which will focus on\ngrant management practices for project-based staff. The Agency\nplans to issue the curriculum by December 2012. CHAPTER 7\nOVERSEEING HSIPR PROGRAM PROGRESS WITH COM- STRENGTHENING FINANCIAL MANAGEMENT OVER\nPREHENSIVE GOALS, PERFORMANCE MEASURES, AND GRANTS TO BETTER USE FUNDS, CREATE JOBS, AND\nMONITORING FRA\xe2\x80\x99s HSIPR program lacks clear goals and IMPROVE INFRASTRUCTURE\nmeaningful performance measures needed for decision makers to Over the past 5 years, the Department has successfully main-\nunderstand FRA\xe2\x80\x99s expectations for the Program and FRA\xe2\x80\x99s tained a clean opinion on its financial statements\xe2\x80\x94a commend-\nprogress in achieving them. For example, one HSIPR goal is to able step towards good financial management. However, DOT\nupgrade existing intercity passenger rail corridors to improve could do more to maximize the return on investment for its\nreliability, speed, and frequency of existing services. However, grants, many of which are used to create jobs and improve\nthe goal does not include measures that indicate progress, such as transportation infrastructure. Our audit work has identified\nanticipated trip time improvements, additional trains, and financial management weaknesses that allow available grant\nridership gains. In addition, many goals are inconsistent across funds to remain committed to projects where they are no longer\nFRA\xe2\x80\x99s planning documents, and some cannot be reconciled. It is needed, permit improper payments, and limit the benefits of\ntherefore difficult for FRA to effectively set priorities and plan single audits33 in improving controls over grant spending. Until it\nbest use of resources. A key step to better define HSIPR program addresses these weaknesses, DOT will be unable to make the\ngoals\xe2\x80\x94and what their outcomes should be\xe2\x80\x94is completion of the most of its increasingly limited grant resources.\ncongressionally mandated National Rail Plan (NRP). The NRP is\nintended to help States determine how to integrate interstate rail KEY CHALLENGES\nplanning and address national transportation needs through high \xe2\x96\xb6 Identifying idle grant funds that can be used for transporta-\nspeed rail corridors. Therefore, once complete, the NRP could tion projects\ngreatly aid FRA\xe2\x80\x99s efforts to make HSIPR goals more cohesive at\n \xe2\x96\xb6 Enhancing controls to reduce and recover improper \n\nthe State and national levels. To date, however, FRA has been\n payments\n\t\n \n\t\nslow in implementing the NRP due largely to its focus on\nobligating funds to grantees. \xe2\x96\xb6 Making better use of single audit findings to improve \n\n grantees\xe2\x80\x99 financial management practices\n\t\n \n\t\nFRA also faces challenges with aspects of HSIPR program\nmonitoring. In March 2012, FRA finalized its monitoring plan, IDENTIFYING IDLE GRANT FUNDS THAT CAN BE USED\nwhich defines timeframes and personnel responsibilities for FOR TRANSPORTATION PROJECTS For the past 4 years, the\ncompleting scheduled reviews of HSIPR grantees\xe2\x80\x99 compliance Department\xe2\x80\x99s financial statement auditors have recommended\nwith grant terms. However, FRA still lacks an effective tool to that DOT strengthen internal controls, de-obligate and close out\nhelp grant managers accurately track and manage grantees\xe2\x80\x99 33 All non-Federal entities that expend $500,000 or more of Federal awards in a\ncompliance with key documentation requirements, such as those year are required to obtain an annual audit in accordance with the Single Audit\n Act Amendments of 1996 and OMB Circular A-133. OIG performs quality control\nfor ARRA reporting and certification.\n reviews of selected Single Audits covering expenditures of DOT funds in order to\n determine (1) the adequacy of the independent auditors\xe2\x80\x99 work, (2) whether the\nRELATED PRODUCTS The following related documents can be work complied with relevant auditing standards, and (3) the extent to which we\n can rely on the auditors\xe2\x80\x99 work.\n\n\n\n123 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cinactive funds from completed projects in a timely manner, and payments. In October 2012, FAA began implementing a\nmake them available for other priority projects. In particular, new risk-based grant oversight process. FAA anticipates this\nthe financial statement reports and our audit work have identified process will take at least 3 years to complete.\na significant deficiency in DOT\xe2\x80\x99s internal controls over\n \xe2\x96\xb6 In 2011, during our audit of FAA\xe2\x80\x99s American Recovery and\nUndelivered Orders (UDO).34 For example, our tests of inactive35\n Reinvestment Act (ARRA) grants, FAA agreed to recover\ngrant UDOs on record as of March 31, 2012, disclosed an\n $2.1 million from the San Francisco International Airport\nestimated $1.2 billion in UDOs that the Department can\n for construction that was not authorized in the grant\nde-obligate. Most of these obligations were identified within\n agreement.\nthe Federal Highway Administration (FHWA) and Federal\nTransit Administration (FTA) grant programs. Further, FHWA\n Improvements to DOT\xe2\x80\x99s payment recapture program38 would\nand FTA policies and procedures for monitoring grant obligations\n help it detect and recover improper payments. In particular, DOT\nuse thresholds (e.g., age of obligation) that do not enable timely\n needs to increase its coverage of payments included in this\nidentification of unneeded obligations. We also found many\n program and implement follow-up actions. To illustrate, in 2011,\ncases where personnel did not evaluate obligations that met the\n DOT tested only $26 billion of its reported net costs of $78\npolicy thresholds.\n billion. Although the recapture program identified improper\n payments totaling $266,000 that year, no changes were made to\nOn July 11, 2012, the DOT Chief Financial Officer directed all\n correct their causes. DOT plans to implement additional\nOperating Administrations to immediately begin a 60-day,\n procedures to improve its next payment recapture audit.\nresource-intensive remediation effort to identify and de-obligate\nunneeded UDOs where possible or quantify unneeded UDOs for\n MAKING BETTER USE OF SINGLE AUDIT FINDINGS TO\nfuture corrective action. While this is a positive step, it serves\n IMPROVE GRANTEES\xe2\x80\x99 FINANCIAL MANAGEMENT PRAC-\nonly as a short-term solution to correct the financial statements as\n TICES DOT faces challenges in making better use of single audit\nof September 30, 2012. To create a permanent solution to this\n findings to improve its grantees\xe2\x80\x99 financial management practices.\npersistent problem, the Department will have to revisit its\n One reason is the increased volume of single audit findings\npolicies and procedures for monitoring grant obligations, identify\n associated with the infusion of ARRA funds into the grant\npotential training needs for personnel who monitor grants, and\n management pool. To illustrate, in fiscal year 2010, we issued 89\nenforce compliance with internal controls to enable timelier\n action memoranda conveying deficiencies in grantees\xe2\x80\x99 proce-\nidentification and resolution of unneeded obligations. To avoid\n dures or operations to oversee grant funds. In fiscal years 2011\nthe need for another short-term, resource-intensive remediation\n and 2012, this number grew to more than 125 action memoran-\neffort, the Department must also continually monitor Operating\n da.39 Single audit findings identified in these action memoranda\nAdministrations\xe2\x80\x99 efforts to reprogram unneeded obligations to\n included deficiencies such as improper reporting of ARRA funds\nprojects that will benefit job creation and infrastructure development.\n spent and inadequate monitoring of subrecipients. In addition to\n procedure and oversight deficiencies, action memoranda also\nENHANCING CONTROLS TO REDUCE AND RECOVER\n contained over $27.7 million in questioned costs during fiscal\nIMPROPER PAYMENTS Reduction and recovery of improper\n year 2012 alone.\npayments are longstanding challenges for DOT. The 2010\nImproper Payments and Elimination and Recovery Act (IPER-\n Another impediment to DOT\xe2\x80\x99s use of single audit findings is\nA)36 encourages the elimination of payment error, waste, fraud,\n ineffective tracking systems intended to identify grantees with\nand abuse in Federal programs. Annually, DOT programs\n unresolved findings and problematic single audit histories. We\nprovide more than $60 billion in grants to over 3,300 grantees.\n found this to be the case at FHWA, FAA, and the National\nWhile DOT has identified significant improper payments37 in\n Highway Traffic Safety Administration; the Federal Railroad\nFHWA\xe2\x80\x99s Federal-Aid Highway Program totaling an estimated\n Administration did not have a tracking system. In addition, DOT\n$450 million, we continue to find additional recoverable\n policy did not establish criteria for tracking such grantees or\nimproper payments that DOT did not identify. For example:\n prescribing actions when appropriate. As a result, it was difficult\n \xe2\x96\xb6 In 2010, we reported that the Federal Aviation for DOT to take suitable actions (e.g., withholding payments)\n Administration\xe2\x80\x99s (FAA) risk-based grant oversight for its against these grantees, which are necessary to help keep grant\n Airport Improvement Program (AIP) was not sufficient to funds out of the wrong hands.\n prevent or detect improper payments. We estimate that there\n are more than $31 million in recoverable improper RELATED PRODUCTS The following related documents can be\n34 UDOs represent goods or services ordered, which have not been received prior found on the OIG Web site at http://www.oig.dot.gov.\n to the end of the reporting period. Grant UDOs represent funding obligated\n through grantee agreements that have not been disbursed prior to the end of the \xe2\x96\xb6 DOT\xe2\x80\x99s Improper Payment Reporting Generally Complies\n reporting period. 38 A payment recapture program consists of the review of financial records to\n35 Our testing focused on grants that had been inactive for at least a year.\n identify overpayments that can be recovered.\n36 Public Law Number 111-204 (2010).\n 39 For fiscal year 2012, 122 action memoranda have been issued as of July 31, 2012.\n37 IPERA\xe2\x80\x99s term \xe2\x80\x98significant\xe2\x80\x99 means that improper payments in the program or \n The National Single Audit Program Office projects at least seven more before\n activity in the preceding fiscal year may have exceeded $100,000,000. fiscal year-end.\n\n\n\n\n124 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c with IPERA, March 15, 2012 provides limited acquisition oversight, with reviews of only two\n FAA IT programs over the last 2 years. While FAA\xe2\x80\x99s Joint\n \xe2\x96\xb6 DOT Needs To Improve Its Tracking and Monitoring of All\n Resources Council (JRC) is charged with ensuring the Agency\xe2\x80\x99s\n Single Audit Findings in Order To Effectively Manage\n investments and acquisitions fulfill program priorities and\n Grants, December 28, 2011\n maximize resources, FAA does not always follow its approval\n \xe2\x96\xb6 Improper Payments Identified in FAA\xe2\x80\x99s Airport and oversight processes. For example, the JRC has not consis-\n Improvement Program, December 1, 2010 tently held program offices accountable for submitting critical\n investment information prior to JRC decisions, which jeopar-\n dizes the success of billion-dollar investments.\n\nFOR MORE INFORMATION ON THE ISSUES IDENTIFIED IN\n Another ongoing challenge is that DOT\xe2\x80\x99s acquisition leaders and\nTHIS CHAPTER, PLEASE CONTACT LOUIS C. KING,\n contracting officers lack sufficient input and authority into\nASSISTANT INSPECTOR GENERAL FOR FINANCIAL AND\n program planning and decision making to help ensure the billions\nINFORMATION TECHNOLOGY AUDITS, AT (202) 366-1407.\n of dollars DOT spends on contracting annually are cost effective\n and support program results. In 2011 we reported that DOT\xe2\x80\x99s\n Office of the Senior Procurement Executive (OSPE) was not\nCHAPTER 8 included in top-level management decisions and that the\n procurement structure did not play a strategic role in supporting\nENSURING EFFECTIVE MANAGEMENT OF DOT\xe2\x80\x99S\n DOT\xe2\x80\x99s missions. However, OSPE recently updated its strategic\nACQUISITIONS TO MAXIMIZE VALUE AND PROGRAM\n plan covering fiscal years 2013 through 2016 and reports that it\nPERFORMANCE\n now provides policy and operational support to parts of DOT\nIn fiscal year 2011, DOT obligated approximately $68 billion on\n responsible for carrying out the Department\xe2\x80\x99s mission. OSPE\ncontracts and grants.40 Minimizing waste and abuse through\n will need to work diligently to implement its strategic goals and\nacquisition management is an ongoing challenge for DOT and\n recent revisions to its strategic plan to ensure that acquisition\nparticularly critical given current budget limitations and recent\n management is fully integrated into its decision making.\nOffice of Management and Budget (OMB) and congressional\n Organizational weaknesses within various Operating Administra-\ninitiatives emphasizing more accountability in Federal contract-\n tions\xe2\x80\x99 acquisition functions similarly limit their strategic roles in\ning. Our audits have found weaknesses in DOT\xe2\x80\x99s acquisition\n achieving program results. For example, in 2010 we reported that\nplanning and oversight, resulting in missed opportunities to\n the Federal Motor Carrier Safety Administration relegated its\nimprove program performance and save taxpayer dollars.\n acquisition function to an administrative support role rather than\n a partner for implementing the Agency\xe2\x80\x99s mission. As a result, the\nKEY CHALLENGES\n Agency did not maximize competition when awarding contracts\n \xe2\x96\xb6 Increasing Departmentwide management attention on the\n and had inadequate contract oversight. FMCSA has begun to\n importance of acquisitions and governance\n focus attention on its acquisition function in response to our\n \xe2\x96\xb6 Strengthening DOT\xe2\x80\x99s acquisition planning, oversight, and recommendations, but sustained efforts will be needed to fully\n workforce address them.\n\n \xe2\x96\xb6 Improving management oversight of recipients\xe2\x80\x99 contract\n STRENGTHENING DOT\xe2\x80\x99S ACQUISITION PLANNING,\n practices to ensure program integrity and the efficient use of\n CONTRACT OVERSIGHT, AND WORKFORCE Ineffective\n limited funds\n acquisition planning and oversight make DOT\xe2\x80\x99s contract\n spending less cost effective and undermine the success of DOT\xe2\x80\x99s\nINCREASING DEPARTMENTWIDE MANAGEMENT\n acquisitions. Our work has continually identified such weakness-\nATTENTION ON THE IMPORTANCE OF ACQUISITIONS AND\n es within some of DOT\xe2\x80\x99s most critical\xe2\x80\x94and costly\xe2\x80\x94acquisitions.\nGOVERNANCE To effectively safeguard taxpayer dollars and\n For example:\nmeet OMB requirements, DOT must strengthen its processes for\napproving and overseeing major acquisitions, such as its $2.2 \xe2\x96\xb6 Systems Engineering 2020 (SE-2020): FAA\xe2\x80\x99s SE-2020\nbillion information technology (IT) investment portfolio. While contracts, with a cumulative maximum value of $7.3 billion,\nDOT has developed a proposal for an IT acquisition and are the largest awards in FAA\xe2\x80\x99s history and are intended to\ninvestment governance structure, it still lacks a Departmentwide help it develop the Next Generation Air Transportation\nimplementation plan. Institutionalizing IT procurement reform System (NextGen). However, FAA lacked clear require-\nacross DOT will remain a significant challenge given the ments for ensuring fair and reasonable labor rates. FAA\nlongstanding oversight, statutory, and organizational barriers our awarded the contracts using the contractors\xe2\x80\x99 proposed labor\nwork has identified. For example, even though the Federal rates, which were 29 percent lower than FAA\xe2\x80\x99s estimated\nAviation Administration\xe2\x80\x99s (FAA) IT investments account for 94 rates, without submitting a required explanation for these\npercent ($2.07 billion) of DOT\xe2\x80\x99s investment portfolio, DOT significant differences. FAA also included 18 million more\n labor hours than needed in the contracts\xe2\x80\x99 ceilings. As a\n40 DOT\xe2\x80\x99s fiscal year 2012 data were not available at the time of this report.\n\n\n\n\n125 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c result, the contract values are overstated by as much as $2 IMPROVING MANAGEMENT OVERSIGHT OF RECIPIENTS\xe2\x80\x99\n billion. FAA is taking action to address our recommenda- CONTRACT PRACTICES TO ENSURE PROGRAM INTEGRITY\n tions to strengthen its SE2020 program and contract AND THE EFFICIENT USE OF LIMITED FUNDS Our work\n management. While FAA is in the early stages of using its continues to identify the need for more vigilant DOT oversight of\n SE-2020 contracts, it must continually focus on improving taxpayer dollars distributed through the Department\xe2\x80\x99s grant\n its contracting to manage and monitor future SE-2020 programs, including over $48 billion in American Recovery and\n performance\xe2\x80\x94especially given the billions of dollars the Reinvestment Act (ARRA) funds. Within DOT, the Federal High-\n Agency may yet award. way Administration (FHWA) is responsible for the largest share\n of grants, including $27 billion in ARRA funds for highway\n \xe2\x96\xb6 En Route Automation Modernization (ERAM): FAA will\n projects. In 2012, we reported that FHWA\xe2\x80\x99s oversight does not\n be challenged to resolve shortcomings in the ERAM\n ensure that State Departments of Transportation (State DOT)\n contract structure and execution to effectively manage costs\n effectively obtain competition prior to awarding contracts.\n and achieve desired program outcomes. The ERAM contract\n FHWA\xe2\x80\x99s guidance to State DOTs promoting competition is\n follows a traditional, large-scale approach with contract\n optional and therefore unenforceable. FHWA also lacks sound\n tasks that span several years instead of a modular approach,\n performance measures and monitoring tools to evaluate State\n which would divide the contract into manageable segments\n DOT contract competition and award activity. Our review found\n for better control. As a result, it is difficult for FAA to track\n that even minimal increases in the number of bids could\n individual factors driving cost overruns. In addition, FAA\n significantly impact contract prices. Specifically, 19 percent of\n did not effectively use two cost management tools. First,\n the 8,365 ARRA contracts that State DOTs awarded through\n FAA\xe2\x80\x99s use of contract incentives did not motivate the\n March 31, 2010, received only 1 or 2 bids\xe2\x80\x94and their prices were\n contractor to manage costs because, when requirements\n on average 11 percent higher than those with 3 bids.42 When\n grew, FAA simply increased the targeted ceiling for the\n projected over all FHWA ARRA funds, the average price\n contractor. At the time of our review, FAA had paid the\n difference between contracts with 1 or 2 bids and those with 3\n contractor over $150 million of the total available cost\n bids was at least $179 million.43 Although FHWA\xe2\x80\x99s ARRA funds\n incentives even though ERAM was as much as $500 million\n have already been awarded, the Agency needs to leverage the\n over budget. Second, FAA did not correctly implement\n lessons learned from its oversight of ARRA contracts to foster\n earned value management (EVM)41 to forecast performance\n better competition and maximize States\xe2\x80\x99 use of Federal-aid funds\n trends and identify problems early on. As a result, the EVM\n for future contracts.\n system did not detect significant schedule and cost variances,\n which started when ERAM experienced software problems\n DOT also faces challenges in administering its Disadvantaged\n at the initial test site.\n Business Enterprises (DBE) program. The DBE program is\n intended to help socially and economically disadvantaged\nFAA is beginning to address our recommendations on revising\n individuals who own or control small businesses to participate in\nthe contract structure for ERAM. It will now separately track\n contracting opportunities under DOT financial assistance\ncosts for new software releases to better control spending. It will\n programs. DOT, through its recipients, distributed $4.4 billion to\nalso establish five separate performance targets for each release,\n DBEs in fiscal year 2011. Our investigations have seen an\neach with mandatory award criteria to encourage improved\n increase in DBE fraud and abuse cases, which now represent 29\nperformance. FAA also recently agreed to restructure its EVM\n percent of our active procurement and grant fraud investigations.\nsystem to better align with program milestones and account and\n For example, in April 2012, the president of a Pennsylva-\nreport on some authorized work.\n nia-based bridge beam manufacturer was convicted of fraud and\n money laundering in conjunction with a $136 million DBE fraud\nA key component of addressing challenges with DOT\xe2\x80\x99s acquisi-\n scheme, the largest reported DBE fraud scheme in the Nation\xe2\x80\x99s\ntion processes will be strengthening the workforce DOT relies on\n history. Our audit work shows that the Department needs to\nto negotiate and administer its contracts. FAA\xe2\x80\x99s acquisition\n improve its management, recipient communication, and training\nworkforce is of particular concern as its billion-dollar NextGen\n for the DBE program. DOT has not issued standardized guidance\nprogram significantly increased the Agency\xe2\x80\x99s acquisition\n or provided sufficient training to States responsible for imple-\nworkload and will require more resources and new skills to\n menting the DBE program. It also has a fragmented management\nensure sound acquisition management. For example, in review-\n approach; no single DOT entity is accountable for overall\ning SE-2020 contracts, we found that FAA did not require its\n program management. Instead, limited aspects of program\noversight staff to receive training in contractor surveillance\n management are assigned to three separate DOT offices. As a\nmethods or use oversight plans, resulting in oversight plans that\n result, Operating Administrations\xe2\x80\x99 oversight of recipients\xe2\x80\x99 DBE\ndid not detail how to assess the contractor\xe2\x80\x99s work.\n 42\t Based on responses to our survey of 52 FHWA Division Offices for States that\n received ARRA funds.\n41\t Earned Value Management is a project management planning, monitoring, and 43 \t This difference should not be construed as potential savings. Rather, it highlights\n control technique that integrates scope, schedule, and resources in such a way the importance of increasing competition because our results show that even\n as to provide for the objective measurement of project performance and minimal increases in the number of bids could have a significant impact on\n progress. contract prices. Our projection has a 90-percent confidence level.\n\n\n\n\n126 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cprograms is neither consistent nor comprehensive, leaving \xe2\x96\xb6 FAA Policies and Plans Are Insufficient To Ensure an\nweaknesses in DBE practices unaddressed. For example, during Adequate and Effective Acquisition Workforce, August 3,\nour review, 14 of 15 randomly selected States reported the 2011\nDepartment had not provided them with comprehensive,\n \xe2\x96\xb6 Weaknesses in the Office of the Secretary\xe2\x80\x99s Acquisition\nstandardized guidance on DBE regulations. Areas of concern\n Function Limit Its Capacity To Support DOT\xe2\x80\x99s Mission,\nincluded how to verify a DBE owner\xe2\x80\x99s personal net worth, which\n May 25, 2011\ncould allow unqualified DBEs to be certified. We found that two\nfirms certified in a State failed to meet DBE eligibility require- \xe2\x96\xb6 Federal Motor Carrier Safety Administration Lacks Core\nments in fiscal year 2009, but they collectively received over Elements for a Successful Acquisition Function, August 24,\n$5.4 million in DBE awards and payments that year. 2010\n\n \xe2\x96\xb6 Weaknesses in DOT\xe2\x80\x99s Suspension and Debarment Program\nDOT\xe2\x80\x99s responsibility for billions of dollars in contract awards\n Limit Its Protection of Government Funds, March 18, 2010\nand ARRA funds heightens the importance of protecting those\nfunds from individuals with a record of wrongdoing and abuse. \xe2\x96\xb6 DOT\xe2\x80\x99s Suspension and Debarment Program Does Not\nIn 2010 we reported and testified to Congress that DOT could not Safeguard Against Awards to Improper Parties, January 7,\neffectively prevent contract and grant awards to improper parties 2010\ndue to delays in its suspension and debarment (S&D) decisions\nand reporting. DOT and FAA are revising their policies to require\ntimely action on S&D decisions. However, DOT can do more to\n FOR MORE INFORMATION ON THE ISSUES IDENTIFIED IN\nleverage the protections of its S&D program. For example, our\n THIS CHAPTER, PLEASE CONTACT MARY KAY LANGAN-\n2012 audit of FHWA\xe2\x80\x99s oversight of State contracting practices for\n FEIRSON, ASSISTANT INSPECTOR GENERAL FOR\nARRA-funded projects found that FHWA Division Offices\n ACQUISITION AND PROCUREMENT AUDITS, AT (202)\nneeded better controls to prevent States\xe2\x80\x99 awards to improper\n 366-5225 OR TIMOTHY BARRY, PRINCIPAL ASSISTANT\nparties. These include written confirmation from State DOTs that\n INSPECTOR GENERAL FOR INVESTIGATIONS, AT (202)\nthey checked the suspension and debarment database before\n 366-1967.\ngranting an award.\n\nFinally, our investigations continue to identify the need for more\nvigilant oversight to detect and prevent procurement and grant\n CHAPTER 9\nfraud, waste, and abuse within DOT and among its fund\n MANAGING AND SECURING INFORMATION SYSTEMS TO\nrecipients. Grant and procurement fraud cases currently comprise\n EFFICIENTLY MODERNIZE TECHNOLOGY\nabout 50 percent of our active investigations. Between October\n INFRASTRUCTURE AND PROTECT SENSITIVE DATA FROM\n2011 and August 2012, procurement and grant fraud investiga-\n COMPROMISE\ntions resulted in 49 indictments, 19 convictions, and $24 million\n DOT faces the ongoing challenge of modernizing its systems to\nin fines and other recoveries. Our investigations also pointed to\n keep pace with new technologies that change how DOT entities\nDOT\xe2\x80\x99s challenges in ensuring that its grantees\xe2\x80\x99 contractors\xe2\x80\x99\n conduct business and create complex information security issues.\nexpenses are proper. For example, in November 2011, the former\n Departmental operations rely on more than 400 information\nchief executive officer of EV Worldwide LLC was ordered to pay\n systems\xe2\x80\x94nearly two-thirds of which belong to the Federal\n$4.25 million to the Federal Transit Administration as a result of\n Aviation Administration (FAA). However, DOT currently lacks a\nhis participation in a scheme to submit fraudulent invoices for\n blueprint, known as an enterprise architecture (EA), to effec-\nineligible and questionable expenses on a transit authority project.\n tively guide changes to its infrastructure. Security is a top priority\n since breaches by computer hackers have placed a number of\nRELATED PRODUCTS The following related documents can be\n major entities at risk and have exposed individuals\xe2\x80\x99 personal\nfound on the OIG Web site at http://www.oig.dot.gov.\n information to unauthorized access. In 2010 and 2011, the\n \xe2\x96\xb6 Weaknesses in Program and Contract Management \n Department declared the deficiencies in its information security\n Contribute To ERAM Delays and Put Other NextGen \n program to be a material weakness.\n Initiatives at Risk, September 13, 2012\n\t\n KEY CHALLENGES\n \xe2\x96\xb6 Lessons Learned From ARRA: Improved FHWA Oversight\n \xe2\x96\xb6 Creating an effective Departmentwide EA program\n Can Enhance States\xe2\x80\x99 Use of Federal-Aid Funds, April 5,\n 2012 \xe2\x96\xb6 Establishing a robust information security program\n\n \xe2\x96\xb6 FAA\xe2\x80\x99s Contracting Practices Are Insufficient To Effectively \xe2\x96\xb6 Protecting sensitive information\n Manage Its Systems Engineering 2020 Contracts, March 28,\n 2012 CREATING AN EFFECTIVE DEPARTMENTWIDE EA\n PROGRAM Creating a functional EA will remain a major\n\n\n\n\n127 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cchallenge for the Department in the years to come. An agency\xe2\x80\x99s confidentiality, availability, and integrity of information, of\nEA program is necessary to help management understand its which PII is a critical piece. As such, almost any weakness in\ncurrent technology infrastructure, define how future infrastruc- security controls on systems containing PII increases the risk that\nture should accomplish its mission, and develop a transition plan. sensitive data could be exposed, which would be detrimental to\nDespite its $48 million investment and years of effort towards the Department\xe2\x80\x99s mission and credibility.\ncreating an EA, DOT still lacks adequate EA policy and\nprocedures, direction in the selection of EA development tools, In fiscal year 2011, the Department provided plans for reducing\nperformance measures, and an approved plan to build a PII and the use of Social Security numbers and for establishing\nDepartmentwide EA. Absent this blueprint, the Department faces the required privacy protections. Although the Department is\nsignificant challenges in maximizing its returns on IT invest- committed to providing privacy protections by securing PII, the\nments through cost savings, reduced duplicative systems, aligned associated reductions in the volume of PII will not be complete\ninformation technology and mission, and effective information until 2013. Vigilant follow through is critical, given some of the\nsecurity spending\xe2\x80\x94all critical elements in an environment of weaknesses our work has identified. For example, our ongoing\ndwindling resources. review of the Civil Aviation Registry, which contains PII of\n airmen and aircraft owners, found that PII data were not\nESTABLISHING A ROBUST INFORMATION SECURITY adequately protected from compromise. We identified numerous\nPROGRAM Last year, we reported that the Department\xe2\x80\x99s deficiencies in the configuration of the Registry system\xe2\x80\x99s\ninformation security program did not meet key Office of software that render it vulnerable to attacks that can lead to\nManagement and Budget (OMB) and Federal Information unauthorized access. According to FAA, the upgrades to correct\nSecurity Management Act (FISMA) requirements to protect these vulnerabilities are slated for implementation during fiscal\nagency information and systems. As a result, in 2011, DOT again year 2013.\ndeclared its information security deficiencies a material weakness\nin its annual assurance statement, as required by the Federal RELATED PRODUCTS The following related documents can be\nManagers\xe2\x80\x99 Financial Integrity Act.44 DOT has made limited found on the OIG Web site at http://www.oig.dot.gov.\nprogress in fiscal year 2012 toward correcting weaknesses in key\n \xe2\x96\xb6 The U.S. Merchant Marine Academy\xe2\x80\x99s Security Controls\ncontrol areas.\n Were Not Sufficient To Protect Sensitive Data from\n Unauthorized Access, May 30, 2012\nThe Department\xe2\x80\x99s Office of the Chief Information Officer\n(OCIO), the modal Administrators, and their CIOs are collective- \xe2\x96\xb6 DOT Does Not Have an Effective Enterprise Architecture\nly responsible for implementing and maintaining a robust Program for Management of Information Technology\ncomputer security program. Our work has found that OCIO Changes, April 17, 2012\ncould do more to guide and oversee Operating Administrations in\n \xe2\x96\xb6 FISMA 2011: Persistent Weaknesses in DOT\xe2\x80\x99s Controls\nbuilding and sustaining strong information security practices. For\n Challenge the Protection and Security of Its Information\nexample, OCIO has yet to issue Departmentwide procedural\n Systems, November 14, 2011\nguidance or improve quality assurance reviews of modal cyber\nsecurity efforts. The Department recently deployed an automated\nsoftware tool that, when fully implemented, will monitor the\ncyber security status of a limited number of information FOR MORE INFORMATION ON THE ISSUES IDENTIFIED IN\ntechnology devices (e.g., desktop computers). However, DOT THIS CHAPTER, PLEASE CONTACT LOUIS C. KING,\nhas not provided a plan to address the remaining devices. In addi- ASSISTANT INSPECTOR GENERAL FOR FINANCIAL AND\ntion, our work continues to identify mode-specific security INFORMATION TECHNOLOGY AUDITS, AT (202) 366-1407\ndeficiencies. For example, our ongoing work on air traffic control\nsystems has identified weaknesses in access controls and incident\nreporting that FAA needs to remediate. To build a strong\ninformation security program, the Department and the Operating\nAdministrations must work together to continue addressing these\ndeficiencies in a sustainable and flexible manner so that DOT can\nquickly adapt to and avert new cyber threats.\n\nPROTECTING SENSITIVE INFORMATION To safeguard against\nthe breach of personally identifiable information (PII), OMB\nrequires agencies to reduce the volume of information collected\nand maintained, restrict access, and implement other security\ncontrols (e.g., encryption) to prevent unauthorized access. The\nmain goal of information security management is to protect the\n\n44 Federal Managers\xe2\x80\x99 Financial Integrity Act, Pub. L. No. 97\xe2\x80\x93255 (1982).\n\n\n\n128 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cEXHIBIT\n\xef\xbf\xbd\n\nCOMPARISON OF FISCAL YEAR 2013 AND 2012 TOP MANAGEMENT CHALLENGES\n\n FISCAL YEAR 2013 CHALLENGES\t\xef\xbf\xbd FISCAL YEAR 2012 CHALLENGES\n\n\n \xe2\x96\xb6\t Ensuring the Next Generation Air Transportation System Advances Safety and \xe2\x96\xb6\t Managing the Next Generation Air Transportation System Advancement While\n Air Travel Controlling Costs\n\n \xe2\x96\xb6 Enhancing FAA\xe2\x80\x99s Oversight and Use of Data To Identify and Mitigate Safety Risks \xe2\x96\xb6 Ensuring Effective Oversight on Key Initiatives That Can Improve Aviation Safety\n\n \xe2\x96\xb6\t Overseeing Administration of Key Transportation Assets To Ensure Their\n Success and Sustainability\n\n \xe2\x96\xb6 Strengthening Existing Surface Safety Programs and Effectively Implementing \xe2\x96\xb6 Enhancing DOT\xe2\x80\x99s Oversight of Highway, Bridge and Transit Safety\n New Safety Requirements \xe2\x96\xb6 Ensuring Effective Oversight of Hazardous Liquid and Natural Gas Pipeline\n Safety\n\n \xe2\x96\xb6 Maximizing Surface Infrastructure Investments With Effective Program \xe2\x96\xb6 Ensuring Effective Oversight of ARRA Projects and Applying Related Lessons\n Oversight and Execution of New Legislative Requirements Learned To Improve DOT\xe2\x80\x99s Infrastructure Programs\n\n \xe2\x96\xb6\t Adequately Overseeing Administration of High Speed Intercity Passenger Rail \xe2\x96\xb6 Defining Clear Goals To Guide the Federal Railroad Administration in Its\n Grant Funds Transformation\n\n \xe2\x96\xb6\t Strengthening Financial Management Over Grants To Better Use Funds, Create\n Jobs, and Improve Infrastructure\n\n \xe2\x96\xb6 Ensuring Effective Management of DOT\xe2\x80\x99s Acquisitions To Maximize Value and \xe2\x96\xb6\t Managing DOT Acquisitions in a Smarter and More Strategic Manner To\n Program Performance Maximize Limited Resources and Achieve Better Mission Results\n\n \xe2\x96\xb6 Managing and Securing Information Systems To Efficiently Modernize \xe2\x96\xb6 Improving the Department\xe2\x80\x99s Cyber Security\n Technology Infrastructure and Protect Sensitive Data From Compromise\n\n \xe2\x96\xb6\t Utilizing Department Credit Programs To Leverage Limited Federal\n Transportation Infrastructure Resources\n\n\n\n\n129 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cAPPENDIX. DEPARTMENT RESPONSE\n\nMEMORANDUM\n\n\n\n\nOFFICE OF THE SECRETARY\nOF TRANSPORTATION\n\nSubject:\t\xef\xbf\xbd ACTION: Management Comments on OIG Draft Report Date: November 9, 2012\n on Top Management Challenges\n\nFrom: \t Christopher P. Bertram\n Assistant Secretary for Budget and Programs,\n and Chief Financial Officer\n\nTo:\t\xef\xbf\xbd Calvin L. Scovel, III\n Inspector General\n\n\n\nThe Department is fully engaged in each of the issues enumerated in the OIG report and has actions underway throughout the\norganization to effectively address these and the myriad other policy and programmatic responsibilities of the Department. Notably,\nthe Department is aggressively addressing the challenges of implementing the recently enacted P.L. 112-141, the Moving Ahead for\nProgress in the 21st Century Act (MAP-21). MAP-21 introduces substantial new programs and responsibilities for the Department of\nTransportation. For example, it enables the Federal Transit Administration to, for the first time, create a nationwide framework for\nenhanced rail transit safety. MAP-21 also creates a streamlined, performance-based, and multimodal approach for investing in surface\ntransportation infrastructure. Enhanced performance management requirements will transform Federal highway programs and enable\nmore efficient Federal investment in transportation by focusing on national transportation goals, increase accountability and transpar-\nency for Federal highway programs, and improve transportation investment decision making. In addition, the new law vastly expands\nthe use of innovative financing through the TIFIA program which leverages Federal investment in transportation, by attracting private\nand other non-Federal co-investment in critical improvements to the Nation\xe2\x80\x99s surface transportation system.\n\nMost of the remaining challenges enumerated in the OIG report are familiar recurring issues. For example, Air Traffic Modernization\nis a continuous effort to maintain and improve the Nation\xe2\x80\x99s exceptionally strong aviation safety record through the judicious applica-\ntion of state-of-the- art technology. As technology continues to change and enable improved capabilities, the Department has har-\nnessed these capabilities to enhance safety with considerable success over the last few decades. The Department has carefully\nstructured new programs to serve continued growth in the Nation\xe2\x80\x99s economy and provide additional good paying jobs. For example,\nour efforts in high speed intercity passenger rail are already making a difference throughout the nation and will continue to do so for\nyears to come thanks to careful planning, a performance-oriented, data-driven selection process, and carefully structured oversight.\n\nBeyond the familiar recurring issues in the management challenges report we note the section on key transportation assets. There are\nseveral points in this regard that merit particular attention, notably: our efforts to ensure the Metropolitan Washington Airport\nAuthority (MWAA) is run in a manner commensurate with the public trust; efforts to ensure that Union Station is run in a manner\nconsistent with its role as a vital transportation hub and landmark within the City of the District of Columbia; and our work to ensure\nthat investment in the Nation\xe2\x80\x99s Merchant Marine Academy is well planned, prioritized, and executed to serve the needs of its students,\nand the nation.\n\nThe Department took swift action to the full extent of its statutory authority, to address the deeply troubling issues that have come to\nlight with regard to the personnel, contracting, and business practices at MWAA. DOT has been working with MWAA to ensure it acts\nquickly to adopt policies and procedures that establish a strong and appropriate framework guiding the actions of its officers and staff.\nThe Department has taken the extraordinary measure of appointing a Federal Accountability Officer to provide guidance to MWAA as\nit revises its policies and procedures, bringing them in line with Federal agency best practices. As this work continues, it is vitally\n\n\n\n\n130 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cimportant that strong oversight and internal controls are established to ensure MWAA adheres to its new policies. As established by\nstatute, MWAA is a public entity with considerable autonomy. While the Department will continue to hold MWAA accountable in its\nmanagement and operation of vitally important Federal assets, it is primarily incumbent on MWAA to institute the reforms needed to\nregain the public\xe2\x80\x99s trust.\n\nAt Union Station, the Department is exercising its authority on the Board of Directors of the Union Station Redevelopment Corpora-\ntion (USRC) to provide strong and effective leadership and to take the actions necessary to protect this iconic structure, while\ncarefully planning its role as an intermodal transportation hub. The Department is fully engaged in activities to ensure that the Board\nis led by highly qualified individuals with the vision and authority necessary to provide effective management of this important\ntransportation asset. We are also working to ensure that appropriate policies and procedures are in place to ensure the organization\nfunctions effectively. Detailed analysis is ongoing with regard to cost centers to ensure that every dollar is well and constructively\nspent. The Department is working with the Board of Directors and actively monitoring progress as the newly appointed President of\nthe USRC continues to sort through issues, obtain stakeholder input and identify priorities.\n\nThe Department has implemented comprehensive and detailed processes to help ensure the United States Merchant Marine Academy\ncan continue training a dependable cadre of highly capable merchant mariners to serve the country in times of war and helping to\nmaintain a viable U.S. maritime industry in times of peace. Specifically, the Department has put in place a capital investment process\nthat provides a data driven approach to identifying and prioritizing investments in the Academy. This process is led by an executive\ncommittee, with representatives from the Office of the Secretary, the Maritime Administration, and the Academy.\n\nFinally, the Department continues to ensure that it provides strong and effective financial management. In particular, the Department\nmade progress this year in addressing a new challenge identified by the OIG to strengthen financial management over grants in order\nto better use funds. Late in FY 2012, Operating Administrations (OAs) undertook a major effort to review, verify, and correct as neces-\nsary outstanding grant obligations for significant projects. These balances are categorized as \xe2\x80\x9cUndelivered Orders\xe2\x80\x9d (UDOs) for these\nprograms in our annual Statement of Budgetary Resources. Further, we have completed intensive day-long training sessions for key\nOA grants and acquisitions staff in proper grant close-out procedures, which will greatly improve the financial management of these\ncritical programs. Also, we have developed a new Departmental Order that will be issued shortly governing the quarterly review of all\nUDO balances, with a primary emphasis on outstanding grant obligations. This too will strengthen our financial management of grants\nthroughout the Department.\n\nWith prospects for continued operation in an increasingly resource constrained environment, the Department is looking for new\napproaches to facilitate effective programmatic performance. This will require new perspectives beyond the traditional approaches\nthat call for adding new oversight, additional programs, or increased spending to address problems. The Department intends to explore\nnew approaches that make better use of technology and use more efficient processes to function effectively in an era of diminishing\nresource availability. We look to the Office of Inspector General as a partner in this endeavor, by keeping this imperative in mind in\naddressing issues, making recommendations for management action, and conducting its interactions with us in an effective and\nefficient manner.\n\n\n\n\n131 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0c FWHA FEDERAL-AID HIGHWAY PROGRAM. This program con-\nIMPROPER PAYMENTS INFORMATION ACT sists of numerous AU internal control risk averages with \xe2\x80\x9clow\xe2\x80\x9d\n(IPIA) (AS AMENDED BY IPERA) or \xe2\x80\x9cmedium\xe2\x80\x9d risk ratings, and the prior year\xe2\x80\x99s improper payment\nREPORTING DETAILS point estimate percentage was below the 2.5% threshold. How-\n ever, the size of the Federal-Aid Highway Program resulted in\nRISK ASSESSMENT\n prior year improper payment estimates in excess of $100 million.\nAs part of the FY 2012 Improper Payments Review, a risk\n This \xe2\x80\x9csignificant\xe2\x80\x9d rate of improper payments ($10 million and 2.5\nassessment was conducted by the Department of Transportation\n percent of total program payments or $100 million, regardless\n(DOT) in accordance with the requirements of the Improper\n of error rate) results in the requirement of a FY 2012 individual\nPayments Elimination and Recovery Act (IPERA) of 2010 and\n improper payment estimate.\nOMB Circular A-123, Appendix C. This Programmatic Improper\nPayment Risk Assessment was used to determine which DOT\n FAA AIRPORT IMPROVEMENT PROGRAM. This program con-\nPrograms required a statistically valid extrapolated improper\n sisted of \xe2\x80\x9clow\xe2\x80\x9d or \xe2\x80\x9cmedium\xe2\x80\x9d risk ratings, and the prior year\xe2\x80\x99s\npayment estimate.\n improper payment point estimate percentage was below the\n 2.5% threshold. However, DOT determined that the volume\nDOT\xe2\x80\x99s Programmatic Improper Payment Risk Assessment lever-\n of payments made annually, approximately $4 billion for\nages Departmental Assessable Unit (AU) Risk Profiles compiled\n FAA AIP, coupled with the fact that Federal funds within these\nas part of ongoing compliance with the Federal Managers Finan-\n programs are further administered outside the agency by local\ncial Integrity Act (FMFIA) of 1982.\n governments or airport sponsors, necessitated an individual\n improper payment estimate.\nDOT incorporated the improper payment risk factors outlined in\nPart I of OMB Circular A-123, Appendix C, and the following FTA FORMULA GRANTS AND CAPITAL INVESTMENT GRANTS\ncriteria, in combination with AU Risk Profiles, weighed heavily PROGRAMS. These programs\xe2\x80\x99 AU risk were identified as a \xe2\x80\x9chigh\xe2\x80\x9d\nin determining which Programs required extrapolated estimates: level of internal control risk due to the combination of a high\n volume of payments and externally administered payments.\n \xe2\x96\xb6\t Whether the program or activity reviewed is new to \n This combination resulted in the need to develop individual\n the agency\n\t improper payment estimates.\n \xe2\x96\xb6\t The volume of payments made annually\n FRA HIGH-SPEED INTERCITY PASSENGER RAIL. This program\xe2\x80\x99s\n \xe2\x96\xb6\t Whether payments or payment decisions are made outside AU risk was identified as a \xe2\x80\x9chigh\xe2\x80\x9d level of internal control risk\n of the agency, for example, by a State or local government, since this is a new program to the DOT, and the dollar amount\n or a regional Federal office of funds appropriated to the program, in excess of $10 billion,\n \xe2\x96\xb6\t Results from prior improper payment work represents a significant portion of DOT grant funds.\n\n The Department\xe2\x80\x99s AU Risk Profiles rate the various areas of in- Separately, AU Risk Profiles identified six programs as possess-\n ternal control either \xe2\x80\x9chigh,\xe2\x80\x9d \xe2\x80\x9cmedium,\xe2\x80\x9d or \xe2\x80\x9clow.\xe2\x80\x9d After assigning ing a \xe2\x80\x9chigh\xe2\x80\x9d level of internal control risk. However, the total\n numerical values to the \xe2\x80\x9chigh,\xe2\x80\x9d \xe2\x80\x9cmedium,\xe2\x80\x9d and \xe2\x80\x9clow\xe2\x80\x9d risk ratings, outlays for these six programs amounted to less than $50 million.\n DOT determined that programs with AU Risk Profiles that At a total outlay amount of $50 million, the identified programs\n reported average internal control risk ratings of \xe2\x80\x9clow\xe2\x80\x9d or would need to report an average minimum improper payment\n\xe2\x80\x9cmedium\xe2\x80\x9d did not warrant additional review except for the rate of 20% to achieve a nominal value of improper payments\n following programs: deemed \xe2\x80\x9csignificant\xe2\x80\x9d by OMB.\n\n \xe2\x96\xb6\t Federal Highway Administration (FHWA) Federal-Aid \n Further, roughly 13% of the cumulative $50 million represent\n Highway Program\n\t Federal salary payments which are exempt from improper\n \xe2\x96\xb6\t Federal Aviation Administration (FAA) Airport Improve- payment review. In comparison to improper payment rates across\n ment Program (AIP) the Federal government, DOT determined that a 20% improper\n payment rate is highly unlikely and that these programs do not\n \xe2\x96\xb6\t Federal Transit Administration (FTA) Capital Investment require individual improper payment estimates.\n Grants (CIG) Program\n\n \xe2\x96\xb6\t Federal Transit Administration (FTA) Formula Grants (FG)\n STATISTICAL SAMPLING\n Program\n In an effort to adhere to the IPERA requirements, DOT\n \xe2\x96\xb6\t Federal Rail Administration (FRA) High-Speed Intercity engaged a contractor to develop nationwide sampling plans,\n Passenger Rail (HSIPR) Program test sampled invoice line items for improprieties, and extrapolate\n nationwide improper payments estimates for the DOT\xe2\x80\x99s major\n grant programs.\n\n\n\n132 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cIn direct response to the Office of the Inspector General\xe2\x80\x99s (OIG) While this sample provides an improper payment estimate for the\nrecommendations, DOT obtained the data extracts from a single Airport Improvement Program as a whole, this sample does not\nsource, DOT\xe2\x80\x99s financial system of record, Delphi. Additionally, support an estimate for individual states or airport sponsors.\nto ensure both sample validity and the accuracy of extrapolated\nprogrammatic improper payment estimates, the DOT collabo- Testing yielded 4 improper payments within the sample totaling\nrated closely with OIG\xe2\x80\x99s IPERA statistician to develop sampling $839.74 The projection of known improper payments to the\nand extrapolation methodologies mutually agreed upon by population of program payments for the twelve-month period\nboth parties. results in an improper payment estimate of $2.2 million +/- $3.4\n million at the 90% confidence interval. The estimated improper\nThe reviewed grant program samples are of sufficient size to payment rate is 0.06% +/- 0.1% at the 90% confidence interval.\nyield an estimate with a minimum 90 percent confidence interval This projection does not meet IPERA\xe2\x80\x99s definition of significant\nwithin 2.5 percentage points above and below the estimated improper payments ($10 million and 2.5 percent of total program\npercentage of erroneous payments, as prescribed by OMB. payments or $100 million, regardless of error rate).\nThe following sections discuss the results of these efforts.\n FTA FORMULA GRANTS PROGRAM. FTA executed the nation-\nFHWA FEDERAL-AID HIGHWAY PROGRAM. DOT developed and wide testing program using contractor personnel. The sample\nexecuted a sampling methodology and test plan to review project of tested line items originated from Federal disbursements to\npayments and estimate the dollar amount of the Federal-aid grantees within the twelve-month period April 1, 2011 through\nHighway Planning and Construction Grant Program\xe2\x80\x99s improper March 31, 2012.\npayments. FHWA executed the nationwide testing program using\nFHWA division office personnel and included a secondary review The IPERA sampling methodology involved a risk-based,\nby a contractor. The sample of tested line items originated from multi-staged statistical approach that included the selection of 39\nFederal disbursements to grantees within the twelve-month Federal disbursements totaling $310.0 million and 73 line items\nperiod April 1, 2011 through March 31, 2012. from supporting invoices totaling $23.0 million. DOT designed\n the sample to extrapolate a nationwide estimate of improper\nThe IPERA sampling methodology involved a risk-based, payments. While this sample provides an improper payment\nmulti-staged statistical approach that included the selection of 82 estimate for the Formula Grants Program as a whole, this\nFederal disbursements totaling $230.7 million and 146 line items sample does not support an estimate for individual states\nfrom supporting invoices totaling $184.8 million. DOT designed or transit agencies.\nthe sample to extrapolate a nationwide estimate of improper\npayments. While this sample provides an improper payment Testing yielded 3 improper payments within the sample totaling\nestimate for the Federal-Aid Highway Program as a whole, $630.07. The projection of known improper payments to the popula-\nthis sample does not support an estimate for individual States tion of program payments for the twelve-month period results in\nor territory grantees. an improper payment estimate of $38.1 million +/- $50.2 million\n at the 90% confidence interval. Likewise, the estimated improper\nTesting yielded 3 improper payments within the sample totaling payment rate is 0.44% +/- 0.58% at the 90% confidence interval.\n$8,241.80. The projection of known improper payments to the This projection does not meet IPERA\xe2\x80\x99s definition of significant\npopulation of program payments for the twelve-month period improper payments ($10 million and 2.5 percent of total program\nresults in an improper payment estimate of $103.2 million +/- payments or $100 million, regardless of error rate).\n$129.1 million at the 90% confidence interval. The estimated\nimproper payment rate is 0. 22% +/- 0.28% at the 90% confidence FTA CAPITAL INVESTMENT GRANTS PROGRAM. FTA executed\ninterval. This projection meets IPERA\xe2\x80\x99s definition of significant the nationwide testing program using contractor personnel. The\nimproper payments ($10 million and 2.5 percent of total program sample of tested line items originated from Federal disburse-\npayments or $100 million, regardless of error rate). ments to grantees within the twelve-month period April 1, 2011\n through March 31, 2012.\nFAA AIRPORT IMPROVEMENT PROGRAM. FAA executed the\nnationwide testing program using contractor personnel. The The IPERA sampling methodology involved a risk-based multi-\nsample of tested line items originated from Federal disbursements staged statistical approach that included the selection of 33\nto grantees within the twelve-month period April 1, 2011 through Federal disbursements totaling $431.0 million and 64 line items\nMarch 31, 2012. from supporting invoices totaling $40.5 million. DOT designed\n the sample to extrapolate a nationwide estimate of improper\nThe IPERA sampling methodology involved a multi-staged payments. While this sample provides an improper payment\nstatistical approach that included the selection of 73 Federal dis- estimate for the Capital Investment Grants Program as a whole,\nbursements totaling $112.8 million and 142 line items from sup- this sample does not support an estimate for individual states or\nporting invoices totaling $11.3 million. DOT designed the sample transit agencies.\nto extrapolate a nationwide estimate of improper payments.\n\n\n133 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cTesting yielded no improper payments in the sample. This pro- FTA CAPITAL INVESTMENT GRANTS PROGRAM. Despite\njection does not meet IPERA\xe2\x80\x99s definition of significant improper the lack of identified errors, FTA, in coordination with DOT\xe2\x80\x99s\npayments ($10 million and 2.5 percent of total program pay- Office of Financial Management, will update and distribute a\nments or $100 million, regardless of error rate). Best Practices Guide for grantees in an effort to maintain its low\n programmatic improper payment rate. Additionally, FTA will ad-\nFRA HIGH-SPEED INTERCITY PASSENGER RAIL: FRA executed vise grantees regarding the importance of proper documentation\nthe nationwide testing program using contractor personnel. The maintenance for programmatic reviews and audits.\nsample of tested line items originated from Federal disburse-\nments to grantees within the twelve-month period April 1, 2011 FAA AIRPORT IMPROVEMENT PROGRAM. Reported improp-\nthrough March 31, 2012. er payments resulted from non-systemic administrative, and\n documentation errors. FAA, in coordination with DOT\xe2\x80\x99s Office\nThe IPERA sampling methodology involved a multi-staged of Financial Management, will update and distribute a Best Prac-\nstatistical approach that included the selection of 19 Federal tices Guide for grantees in an effort to work towards a reduced\ndisbursements totaling $249.6 million and 38 line items from programmatic improper payment rate. Additionally, FAA will\nsupporting invoices totaling $766,813. DOT designed the sample advise grantees regarding the importance of proper documenta-\nto extrapolate a nationwide estimate of improper payments. tion maintenance for programmatic reviews and audits.\nWhile this sample provides an improper payment estimate for\nthe HSIPR program as a whole, this sample does not support an FRA HIGH-SPEED INTERCITY PASSENGER RAIL. The identified\nestimate for the railroad authorities. improper payments, from one grantee, were the result of missing\n information from the vendor contract \xe2\x80\x93 a non-systemic admin-\nTesting yielded 3 improper payments within the sample totaling istrative oversight. FRA, in coordination with DOT\xe2\x80\x99s Office of\n$839.43 The projection of known improper payments to the Financial Management, will update and distribute a Best Prac-\npopulation of program payments for the twelve-month period tices Guide for grantees in an effort to work towards a reduced\nresults in an improper payment estimate of $4.3 million +/- $6.8 programmatic improper payment rate. Additionally, FRA will\nmillion at the 90% confidence interval. The estimated improper advise grantees regarding the importance of thorough contract\npayment rate is 0.96% +/- 1.51% at the 90% confidence interval. reviews and audits.\nThis projection does not meet IPERA\xe2\x80\x99s definition of significant\nimproper payments ($10 million and 2.5 percent of total program B. FUND STEWARDSHIP. Although DOT identifies its five\npayments or $100 million, regardless of error rate). largest grant programs as susceptible to significant improper\n payment rates, none of these five programs reported significant\nCORRECTIVE ACTIONS rates of improper payments, as defined by OMB, in FY 2011 or\nA. FHWA FEDERAL-AID HIGHWAY PROGRAM. Reported improp- FY 2012. In order to maintain these low rates of improper payments,\ner payments resulted from non-systemic administrative, clerical, DOT\xe2\x80\x99s Operating Administrations stress the importance of proper\nand documentation errors. FHWA, in coordination with DOT\xe2\x80\x99s fund stewardship with its Grant recipients via various Grantee\nOffice of Financial Management, will update and distribute a review programs.\nBest Practices Guide for grantees in an effort to work towards\na reduced programmatic improper payment rate. Furthermore, FHWA. Under its FIRE program, FHWA subjects states and\nFHWA will continue to review for improper payments within its territories not selected as part of the IPERA sample to a similar\nFinancial Integrity Review and Evaluations (FIRE) Program to billing review process. The FIRE program also incorporates\nreview grantees not selected within the IPERA sample, and test reviews regarding various topics such as inactive projects, grant\nfor improper payments annually. Additionally, FHWA will advise administration at the local level, and procurement at the local\ngrantees regarding the importance of proper documentation level using Federal funds.\nmaintenance for programmatic reviews and audits.\n FTA. The State Management Reviews and Triennial Reviews\nFTA FORMULA GRANTS PROGRAM. Reported improper are utilized to ensure proper compliance with Federal Grant\npayments resulted from misunderstanding of the grant regulations. In addition to stressing proper financial oversight,\nagreement requirements. FTA, in coordination with DOT\xe2\x80\x99s FTA Grantee reviews delve into various topics such as legal\nOffice of Financial Management, will update and distribute a compliance, technical compliance, and procurement processes at\nBest Practices Guide, including suggestions for grant agreement the State and local level.\ncompliance. Additionally, FTA will advise grantees regarding the\nimportance of proper documentation maintenance for program- FAA. Through a grant and sponsor oversight process, continuous\nmatic reviews/audits, and will continue to review grantee throughout the duration of the grant, FAA promotes proper fund\ncompliance with statutory/administrative requirements via stewardship. FAA receives quarterly reports on each grant to\nits Triennial Review process. assess sponsor performance under every grant agreement. On a\n broader level, FAA utilizes a risk-based approach that increases\n\n\n\n134 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cthe level of review of sponsor documentation depending on the\nrisk level of the Grantee and their prior performance.\n\nFRA. Under a comprehensive risk-based oversight program,\nFRA conducts routine monitoring, including periodic reviews\napplicable to projects as part of the management and admin-\nistration of the High-Speed Intercity Passenger Rail (HSIPR)\nProgram. The routine monitoring activities center on recipient\ncompliance with the FRA agreement, as well as the approved\nbudget, schedule and fund stewardship. Routine monitoring\nhighlights potential areas of concern and opportunities for\ntraining and technical assistance.\n\nIMPROPER PAYMENT REPORTING\n\n\nTABLE 1A, IMPROPER PAYMENT REDUCTION OUTLOOK\n PY OUTLAYS PY IP$ CY OUTLAYS CY IP$ CY+1 EST. CY+1\n PROGRAM ($M) PY IP% ($M) ($M) CY IP% ($M) OUTLAYS ($M) IP%\n $48,142 0.94% $450.3 $45,897 0.22% $103.2 $42,465 .25%\nFHWA Highway Planning /\nConstruction\n\nFAA Airport Improvement $3,906 0.89% $34.6 $3,459 0.064% $2.2 $3,619 .50%\nProgram\nFTA Capital Investment Grants $2,421 0.00% $0.0 $2,369 0.00% $0.0 $2,062 .50%\nFTA Formula Grants Program $8,938 0.00% $0.0 $8,594 0.44% $38.1 $9,237 .25%\nFRA HSIPR N/A N/A N/A $452.2 0.96% $4.3 $1,768 .75%\n\n\n\n\nTABLE 1A, IMPROPER PAYMENT REDUCTION OUTLOOK, CONTINUED\n CY+2 EST. CY+3 EST.\n CY+1 IP$ OUTLAYS CY+2 CY+2 IP$ OUTLAYS CY+3\n PROGRAM ($M) ($M) IP% ($M) ($M) IP% CY+3 IP$ ($M)\n $106.2 $43,732 .25% $109.3 $44,552 .25% $111.4\nFHWA Highway Planning /\nConstruction\n\nFAA Airport Improvement $18.1 $3,446 .50% $17.2 $3,412 .50% $17.1\nProgram\nFTA Capital Investment Grants $10.3 $2,140 .50% $10.7 $2,201 .50% $11\nFTA Formula Grants Program $23.1 $9,063 .25% $22.7 $8,864 .25% $22.2\nFRA HSIPR $13.3 $1,665 .75% $12.5 $1,594 .75% $12\n\n\n\n\n135 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cTABLE 1B, EXTRAPOLATED FAA AND FRA OVERPAYMENT /\nUNDERPAYMENT PROGRAMMATIC ESTIMATE\n IMPROPER IMPROPER\n PAYMENT $ (M) PAYMENT %\nFAA Overpayment Estimate $2.16 0.06%\nFAA Underpayment Estimate $0.04 0.001%\nFAA Total Point Estimate $2.20 0.06%\n\n\nFRA Overpayment Estimate $1.56 0.34%\nFRA Underpayment Estimate $2.79 0.62%\nFRA Total Point Estimate $4.35 0.96%\n\n\nRECAPTURE OF IMPROPER PAYMENTS REPORTING.\nDOT contracted with a Recovery Audit firm to conduct the\nannual recovery audit. The contractor worked to both recover\nidentified Departmental overpayments, and identify opportunities\nfor Departmental payment process improvements. The contractor,\nworking closely with DOT\xe2\x80\x99s internal shared service provider,\ndid not identify any systemic payment process weaknesses.\nOverpayments resulted from individual cases of duplicate\npayments due to human input errors, sales tax billing errors,\nopen credit on statements, and other miscellaneous overpayments.\n\n\n\n\nTABLE 2. PAYMENT RECAPTURE AUDIT REPORTING\n PROGRAM OR ACTIVITY DOT TOTAL\n\nType of Payment Contracts and Grants\nAmount Subject to Review for CY Reporting $113.7 Billion\nActual Amount Reviewed and Reported (CY) $113.7 Billion\nAmount Identified for Recovery (CY) $536,840\nAmount Recovered (CY) $395,086\n% of Amount Recovered out 73.6%\nof Amount Identified (CY)\nAmount Outstanding (CY) $141,754\n% of Amount Outstanding out 26.4%\nof Amount Identified (CY)\nAmount Not Collectable (CY) $0\n% of Amount Not Collectable out 0.0%\nof Amount Identified (CY)\nAmounts Identified for Recovery (PY) $266,403\nAmount Recovered (PY) $235,749\nCumulative Amounts Identified $803,243\nfor Recovery (CY + PY)\n\nCumulative Amounts Recovered (CY + PY)\n $630,835\nCumulative Amounts Outstanding (CY + PY)\n $172,408\nCumulative Amounts Not Collectable (CY + PY)\n $0\n\n\n\n\n136 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cTABLE 3, PAYMENT RECAPTURE AUDIT TARGETS\n CY RECOVERY\n RATE (AMOUNT CY+3\n RECOVERED CY+2 RECOVERY\n TYPE OF CY AMOUNT CY AMOUNT / AMOUNT CY+1 RECOVERY RECOVERY RATE\n PAYMENT IDENTIFIED RECOVERED IDENTIFIED) RATE TARGET RATE TARGET TARGET\nContract $536,840 $395,086 73.6% 90.0% 90.0% 90.0%\n\n\n\n\nTABLE 4, AGING OF OUTSTANDING OVERPAYMENTS\n TYPE OF CY AMOUNT OUTSTANDING CY AMOUNT OUTSTANDING CY AMOUNT OUTSTANDING\n PAYMENT (0 \xe2\x80\x93 6 MONTHS) (6 MONTHS TO 1 YEAR) (OVER 1 YEAR)\nN/A $141,754 N/A N/A\n\n\n\n\nTABLE 5, DISPOSITION OF RECAPTURED FUNDS\n AGENCY FINANCIAL\n EXPENSES TO PAYMENT MANAGEMENT OFFICE OF\n TYPE OF ADMINISTER RECAPTURE IMPROVEMENT ORIGINAL INSPECTOR RETURNED TO\n PAYMENT THE PROGRAM AUDITOR FEES ACTIVITIES PURPOSE GENERAL TREASURY\nContract N/A $0 N/A $395,086 N/A $0\n\n\n\n\nTABLE 6, OVERPAYMENTS RECAPTURED OUTSIDE OF PAYMENT RECAPTURE AUDITS\n CUMULATIVE CUMULATIVE\n AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT\n IDENTIFIED RECOVERED IDENTIFIED RECOVERED IDENTIFIED RECOVERED\n AGENCY SOURCE (CY) (CY) (PY) (PY) (CY+PY) (CY+PY)\nPost-Payment Review $10,550 $0 $140,607 $0 $151,157 $0\n\n\n\n\nTABLE 3 NOTES. DOT\xe2\x80\x99s Recovery Auditor completed its ACCOUNTABILITY. DOT has implemented various Grantee\nidentification of overpayments in November 2012. Recovery of review programs, as highlighted in PART III of this IPERA\noverpayments occurs throughout the audit process and will Reporting Details Section, to hold States and local agencies\ncontinue into 2013. DOT expects the current recovery rate of accountable for improper payments. All review programs stress\n74% to increase and mirror past recovery rates of 85 to 90%. the importance of reducing and recapturing improper payments,\n and focus on improper payments is now an ongoing concern, and\nTABLE 6 NOTES. Overpayments identified during DOT\xe2\x80\x99s Post not just an annual review exercise.\nPayment Review were identified during the audit process ending\nin November 2012. DOT is in the process of continuing with the DOT\xe2\x80\x99s various Operating Administrations use a vast network of\nrecovery of these payments. regional offices to ensure that DOT maintains regular com-\n munication with Grantees as well as State and local officials.\n Operating Administrations ensure that Grantees understand the\n purpose of Grant reviews during each step of the review process.\n This constant communication, along with the aid of Grantee staff,\n has allowed DOT to not only maintain a low rate of improper\n payments, but also achieve success in recapturing payments\n identified as both improper and recoverable.\n\n AGENCY INFORMATION SYSTEMS AND OTHER INFRASTRUCTURE.\n DOT currently possesses the internal controls, human capital, and\n information systems necessary to maintain improper payments\n levels at the targeted programmatic rates.\n\n\n\n\n137 U. S. DEP AR TME NT OF TR A NS P OR TATIO N A GE N C Y F I N A N C I A L RE P O RT 2012\n\x0cOffice of the Secretary of Transportation\nAssistant Secretary for Budget &\nProgram Performance\n1200 New Jersey Avenue, SE\nWashington DC 20590\n\x0c'