1 Federal Highway Administration Resource Center Finance Services Team Review of Financial...

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Federal Highway AdministrationResource CenterFinance Services Team

Review ofFinancial Management Systems

Implemented by a State DOT(as of February 25, 2010)

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Agenda

2. Scope & Methodology2. Scope & Methodology

3. Developing Test Scripts3. Developing Test Scripts

4. Performing the Review 4. Performing the Review

1. Purpose of System Reviews1. Purpose of System Reviews

5. Overview5. Overview

Demonstrate System Abilities Provide Reasonable Assurance Comprehensive Internal Controls

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Why and specific Authorities

• SAFETEA-LU SEC. 1904 Financial Integrity

• 49 CFR § 18.20 (c) Standards for financial management systems

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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

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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:

1) Permit preparation of required reports

2) Provide for a complete audit trail to expenditures

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Purpose of Review con’t

49 CFR § 18.20 outlines the Standards for financial management systems:

B. Meet standards required for:1) Accurate, current, and complete

Financial Reporting2) Adequate Accounting Records3) Effective Internal Controls4) Budget Controls

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Purpose of Review con’t

49 CFR § 18.20 outlines the Standards for financial management systems:

B. Meet standards required for:

5) Implement applicable Cost Principles

6) Be supported by Source Documentation

7) Cash Management

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Purpose of Review con’t

Rules and Procedures for Efficient

Federal-State Funds Transfers

31 CFR Part 205

Implements theCash Management Improvement Act of 1990

(CMIA)

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Purpose of Review con’t

Applicability Discussion of 23 U.S.C. § 302

“… State transportation department which shall …, and be suitably equipped and organized to discharge to the satisfaction of the Secretary the duties required by this title.”

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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.

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Preventing:

• Fraud, waste, abuse and mismanagement;

• Program deficiencies and weaknesses; and

• Bad press

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System Review

Scope, Methodology & Test Scripts

System Review

Scope, Methodology & Test Scripts

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Review Scope

The review will cover a comprehensive testing of thesystem capabilities to satisfy the primary elements of theFederal-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

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Methodology

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

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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.

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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

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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

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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.

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Test Scripts

The State will demonstrate the system

capabilities by completing a test Script

that covers the following

elements/capabilities:

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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

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Test Script

• State should begin test script with an overview of their system

- 4 System security

- 5 System disaster recovery

- 6 System change process

- 7 System documentation

- 8 User access / maintenance

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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

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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

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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)

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Test Script

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

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Test Script

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

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Test Script

Federal-aid projects:• 20, 23, 24, 27 Project 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

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Test Script

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

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Test Script

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

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Test Script

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

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Test Script

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

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Test Script

• 30, 39,53 Ability 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

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Test Script

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

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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

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Test Script

Billing Transactions:• 29, 37, 50 Federal-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.)

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Test Script

Billing Transactions:

• 36, 43 Federal-aid project ability to process and bill purchase orders and consultant agreements

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Test Script

Billing Transactions:

• 35 Federal-aid project ability to process and bill right-of-way acquisitions

• 34, 40, 41 Federal-aid project ability to process and bill utilities transactions

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Test Script

Billing Transactions:

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

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Test Script

Billing Transactions:

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

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Test Script

Billing Transactions:• 44 Federal-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)

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Test Script

Billing Transactions:

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

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Test Script

Billing Transactions:

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

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Test Script

Billing Transactions:

• 39 Federal-aid project ability to process a credit billing transaction

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Test Script

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

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Test Script

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

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Test Script

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

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Test Script

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

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Test Script

57 The ability to properly bill FHWA, including:

58 Testing of clearance pattern 58 RASPS interface 59 Audit trail back to support

documents

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Test Script

33 The ability to properly bill FHWA, including:

A Costs attributable to each

activity B Costs attributable to each

program code

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Test Script

The ability to properly bill FHWA, including:

54, 56 Proper distribution of expenditures at the right participation ratio in dollars and cents

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Test Script

41 The ability to properly bill FHWA, including:

Not to exceed amounts authorized on the project by program code, etc.

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Test Script - Reports

Adequacy of report capabilities (accurate extraction of data in a readable format with export capability), some billing report examples are listed:

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Test Script - Reports

61, 73 Detailed Bill Report is Mandatory

It must support and total the RASPS bill batch

It could also have the option to be run on another set of criteria such as for the life of a project, a date range of all billings, or a date range of billings associated with a project.

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Test Script - Reports

73 Detailed Bill Report is Mandatory

It includes: For each project and program code combination

a list of source documents/transactions Federal Participation Ratio for each

project/program code combination (if system computes billing at this level)

Amount Billed for each project/program code combination (if system computes billing at this level)

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Test Script - Reports

73 Detailed Bill Report is Mandatory

For each transaction include: Source transaction reference (Transaction ID traceable to source

document) Man-hours and Equipment Utilization Unit Quantities for associated

payroll and equipment transactions State defined code that indicates type of expenditure (optional but

highly recommended) Transaction Date Expenditure Date Expenditure Amount Federal Participation Ratio Applied (if system computes billing at the

transactional level) Amount Billed (if system computes billing at the transactional level)

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Test Script - Reports

Detailed Bill Report is Mandatory

It includes (con’t): For each project and program code combination

a list of source documents/transactions Federal Participation Ratio for each

project/program code combination (if system computes billing at this level)

Amount Billed for each project/program code combination (if system computes billing at this level)

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Test Script - Reports

55 Detailed Bill Report is Mandatory

It includes (con’t): Summary total amounts for each project

and program code combination Summary total amounts for each project A grand total billed amount for all project

and program codes, i.e. entire bill

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Test Script - Reports

new4 Summary bill report for a RASPS batch byproject and federal program code. For each projectand associated federal program code billed list the:

Federal funds authorization amount to date Federal participation/matching ratio Cumulative expended amount Cumulative billed amount Previous billed amount Current billed amount At the end of report include a summary/total of current

billed amount

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Test Script - Reports

• 73 Report to monitor accrued unbilled

• 71 Report to monitor 10 year PE time limitation

• 71 Report to monitor 20 year ROW time limitation

• 72 Report to monitor inactive projects

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Test Script - Misc

• 4, 8 Adequacy of Internal and Security Controls – access rights/limitations, segregation of duties, controls over data entry, etc.

• 7 Adequacy of System Documentation

• 9 Adequacy of Training and User Support

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Test Script – Minimum Criteria

Discuss Minimum Criteria for Test Script Handout

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Sample Schedule

Discuss Sample Schedule Handout

- A new system review in a test environment typically takes 4 full workdays

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Performing the Review

• Verify that the DOT is ready – a system fully developed, test script fully planned (dry-run), and test environment setup/refreshed

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Performing the Review

• Entrance conference with key personnel

- Review purpose, scope, methodology

- Go over any necessary logistics

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Performing the Review

During the review everyone will need to:

• Be flexible

• Be patient

• Be supportive

• Be open

• Ask questions to seek understanding

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Performing the Review

Have a printer available and MS Word (or other program) to:

• Document results of each test

- including screen shots of transactions and events

- evidence of results

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Performing the Review

• Keep track of each project created and applicable transactions, modifications, and billings

- project numbers (federal and state) - program codes - participating percentages - authorization dates - transaction details: type, id

number/reference, amount, vendor, etc

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Performing the Review

• If we encounter problems

- assess situation

- modify test if necessary

- understand the problem

- jointly make a decision (DOT & FHWA)

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Performing the Review

• Exit conference (out-brief) with key personnel

- may be preliminary with a follow-on out-brief

- identify key issues and expectations

- discuss follow-up plan (next steps)

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Performing the Review

• Prepare report ……..

• Follow-up work …….

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Community of Practice

State DOT Financial Systems Exchange

http://knowledge.fhwa.dot.gov/cops/finsys.nsf/home

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Technical Assistance

Contacts

Dana Hafenstine, 720-963-3217, dana.hafenstine@dot.gov

Robert Clark, 410-962-0104, robert.clark@dot.gov

Susan Kurtz, 512-536-5978,

susan.kurtz@dot.gov

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Overview

• Purpose

• Scope and Methodology

• Test Script Development

• Performing the Review

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Overview

QUESTIONS

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