Federal Highway Administration Resource Center Finance Services Team

Federal Highway AdministrationResource CenterFinance Services Team Review of Financial Management Systems Implemented by a State DOT (as of February 25, 2010)

Agenda 1. Purpose of System Reviews 2. Scope & Methodology 3. Developing Test Scripts • Demonstrate System Abilities • Provide Reasonable Assurance • Comprehensive Internal Controls 4. Performing the Review 5. Overview

Why and specific Authorities • SAFETEA-LU SEC. 1904 Financial Integrity • 49 CFR § 18.20 (c) Standards for financial management systems

Purpose of Review The purpose of this review is to determine that the State Transportation Department’s financial management/project delivery system supports the functionalities of the FHWA Federal-aid Highway Program (FAHP) required under: • SAFETEA-LU • Title 23 U.S.C. • 23 CFR • 49 CFR • 2 CFR 225 (aka OMB A-87) • Title 31 U.S.C. (includes 31 CFR 205 CMIA) • Other applicable OMB Circulars

Purpose of Review con’t 49 CFR § 18.20 outlines the Standards for financial management systems: A. Fiscal control and accounting procedures must be sufficient to: • Permit preparation of required reports • Provide for a complete audit trail to expenditures

Purpose of Review con’t 49 CFR § 18.20 outlines the Standards for financial management systems: B. Meet standards required for: • Accurate, current, and complete Financial Reporting • Adequate Accounting Records • Effective Internal Controls • Budget Controls

Purpose of Review con’t 49 CFR § 18.20 outlines the Standards for financial management systems: B. Meet standards required for: • Implement applicable Cost Principles • Be supported by Source Documentation • Cash Management

Purpose of Review con’t Rules and Procedures for Efficient Federal-State Funds Transfers 31 CFR Part 205 Implements the Cash Management Improvement Act of 1990 (CMIA)

Purpose of Review con’t Applicability Discussion of 23 U.S.C. § 302 “… State transportation department which shall …, andbe suitably equippedand organized to discharge to the satisfaction of the Secretary the duties required by this title.”

Promoting: • Effectiveness and efficiency of operations, • Desired program results or objectives, • Compliance with laws and regulations, • Safeguarding of resources, and • Maintenance of reliable data for sound decision making.

Preventing: • Fraud, waste, abuse and mismanagement; • Program deficiencies and weaknesses; and • Bad press

System Review Scope, Methodology & Test Scripts

Review Scope The review will cover a comprehensive testing of the system capabilities to satisfy the primary elements of the Federal-Aid Highway Program (FAHP) OMB A-110 (2 CFR, Part 215). • Plan/track federal-aid projects from conception to completion • Sufficiency of accounting controls • Ability to bill FHWA • Implementation of generally accepted accounting principles

Methodology 3 Different approaches depending on the availability of a system test environment and its available functionality

Methodology Method 1: New System or a legacy system with a fully functional system test environment • Utilize the test environment *Test environment must include all interfaced systems and those interfaces must be functional.

Methodology Method 2: New System or a legacy system with a partially functioning system test environment • Utilize the test environment • Supplement with production demo or review of production system outputs

Methodology Method 3: Legacy system without a functional system test environment • Demo production data in production environment • Demo test data in a production environment (as a last resort) • Review of production system outputs

Development of Test Script • Each State system is unique, therefore the State should develop a test script and schedule that is fitting to their system. • A hardcopy and electronic copy of the test script and schedule will be provided to FHWA prior to the review. • FHWA will be flexible in accommodating the State throughout the review period.

Test Scripts The State will demonstrate the system capabilities by completing a test Script that covers the following elements/capabilities:

Test Script • State should begin test script with an overview of their system - 1 Diagram of systems with integration and interface points - 2 Customizations if using a COTS - 3 Accounting Code Structure - 10 CMIA Clearance Pattern - 9 Personnel Training and User Help

Test Script • State should begin test script with an overview of their system - 4System security - 5System disaster recovery - 6System change process - 7System documentation - 8 User access / maintenance

Test Script • State should begin test script with an overview of their system • 11(N/A) Identify if applying an indirect cost rate • 12 Identify if applying a payroll additive rate or applying actual benefits • 13 Identify if applying equipment utilization rates

Test Script • State should begin test script with an overview of their system • 14 Identify if performing an interface with (or from) FMIS • 15 Identify GASB34 Methodology: Depreciation or Modified Approach • 16 Data migration and reconciliation

Test Script • State should begin test script with an overview of their system - 17 Any other information necessary to establish a general understanding of system functionality (set the ground work for test script)

Test Script • 18 State Transportation Improvement Plan (STIP) generation and modification

Test Script • 18Federal-aid funds management, budget planning, commitment control

Test Script Federal-aid projects: • 20, 23, 24, 27Project Creation • 19 (extra: 20–23) Funding limits by program code • 25 Funding limits by activity (PE, CE, Const, etc.) and improvement type • 25 Matching ratio functionalities • 25 Funds distribution to facilitate billing computations

Test Script • 32Federal-aid project modification ability: increase/decrease federal aid funds, add activity(s)

Test Script • 60Interface electronically with FMIS (if performing by EDS)

Test Script • 11 (N/A) Indirect cost rate application to projects/billing, as applicable

Test Script • 42Ability to prevent billing of costs incurred prior to the Federal-aid project eligibility date for obligation/expenditure by activity (PE, CE, Const, etc.)

Test Script • 30, 39,53Ability to classify project expenditures on Federal-aid projects as participating and non-participating costs and prevention of billing non-participating costs to federal-aid funds

Test Script • 62Federal-aid project handling of advanced construction (set-up, eligibility date, accrual of eligible accounts receivable, conversion, and billing accrued transactions)

Test Script • 41, 65 Ability of system to maintain integrity of transaction data while in unbilled status, either due to advanced construction usage, or for project cost overruns

Test Script Billing Transactions: • 29, 37, 50Federal-aid project ability to process and bill time and labor (both maintenance and non-maintenance labor hours) and fringe: including burden rate development and application, also to specific activities (PE, CE, etc.)

Test Script Billing Transactions: • 36, 43Federal-aid project ability to process and bill purchase orders and consultant agreements

Test Script Billing Transactions: • 35Federal-aid project ability to process and bill right-of-way acquisitions • 34, 40, 41 Federal-aid project ability to process and bill utilities transactions

Test Script Billing Transactions: • 33, 39, 41Federal-aid project ability to process and bill construction contracts (including interface of data between contract bid/letting and progress payment systems)

Test Script Billing Transactions: • 37, 38Federal-aid project ability to process and bill equipment use and time, including equipment use rate development and application

Test Script Billing Transactions: • 44Federal-aid project ability to process and bill use of materials/inventory (cattle guard, culvert, fence, guardrail, etc.), including utilization of applicable rate application (usually FIFO or average costing)

Test Script Billing Transactions: • 39Federal-aid project ability to process and bill materials testing costs, generally via materials testing rate application – as applicable

Test Script Billing Transactions: • 28Federal-aid project ability to process and bill purchase of capital assets, and track/identify capital assets purchased with federal funds on inventory

Test Script Billing Transactions: • 39Federal-aid project ability to process a credit billing transaction

Test Script • 43Federal-aid project ability to properly account for in-kind contributions and donations on local projects

Test Script • 70Federal-aid project ability to properly account for toll and bridge credits, as applicable

Test Script • 68Federal-aid project ability to activate and deactivate (close) a project activity (PE, CE, Const, etc.) or entire project

Test Script • 31Federal-aid project ability to account for all fund sources on a project (federal, state, local, private, and other federal) throughout project life

Test Script 57The ability to properly bill FHWA, including: • 58 Testing of clearance pattern • 58RASPS interface • 59 Audit trail back to support documents

Test Script 33The ability to properly bill FHWA, including: • A Costs attributable to each activity • B Costs attributable to each program code

Test Script The ability to properly bill FHWA, including: • 54, 56Proper distribution of expenditures at the right participation ratio in dollars and cents

Federal Highway Administration Resource Center Finance Services Team