Created in 1967, the Department of Transportation (DOT) is responsible for shaping and administering policies to protect and enhance the safety, adequacy, and efficiency of the Nation's transportation system and services. Transportation is a strategic investment essential to strengthening the American economy. America needs a fully integrated domestic transportation system as well as safe and efficient connections to the rest of the world. DOT's management has defined its mission, vision, and strategic goals to help guide the Department towards more streamlined and economical operations, while focusing on systems and processes that help fully integrate the domestic transportation system.
Serve the United States by ensuring a safe transportation system that furthers our vital National interests and enhances the quality of life of the American people.
A visionary and vigilant Department of Transportation leading the way to transportation excellence and innovation in the 21st Century.
Safety-Promote public health and safety by working toward the elimination of transportation-related deaths and injuries.
Mobility-Shape an accessible, affordable, reliable transportation system for all people, goods, and regions.
Economic Growth-Support a transportation system that sustains America's economic growth.
Environment-Protect and enhance communities and the natural environment affected by transportation.
Security-Ensure the security of the transportation system for the movement of people and goods, and support the Homeland and National Security Strategies.
Organizational Excellence-Advance the Department's ability to manage for results and achieve the goals of the President's Management Agenda.
DOT employs almost 60,000 people across the country and is organized into 12 Operating Administrations (OAs) and the Office of the Inspector General. Each OA is responsible for a mode of transportation or an intermodal aspect of the transportation system. The Department also has an Office of Inspector General that works within the Department of Transportation to promote effectiveness and head off, or stop, waste, fraud, and abuse in Departmental programs. A full description of all Departmental agencies may be found on the Web at www.dot.gov.
The Department's strategic vision for enhancing the integration of financial and performance information includes improving decisions linking program cost and performance; enhancing the tools available to analyze and make management decisions based on cost and performance information; and implementing a standardized managerial cost accounting system. DOT is achieving financial and performance integration by several methods:
Managerial cost accounting identifies, tracks, and analyzes the total cost attributable to a particular task, job, or program. The purpose of managerial cost accounting is to provide program managers the cost information required to accurately report program efficiency and development of a program's future budget.
Marginal cost of performance focuses on determining how much additional funding agencies will require to improve program performance. Marginal cost of performance requires accurate cost accounting and performance data.
DOT's Office of Financial Management (OFM) is creating information presentation and analysis in an easy-to-use format for all levels of DOT management to use for on-going decision-making. This automated Dashboard will give program managers the ability to monitor both performance and spending regularly against established metrics.
The integration of financial and performance information will help DOT program managers at all management levels make better cost/performance resource decisions. This strategy will improve resource allocation by strategic goal and maximize the safety of the Nation's transportation system-DOT's top priority-and the number of lives saved.
The Department links costs (i.e., accruals plus outlays) to strategic performance areas at a finer-grained level of detail for performance categories in 2004. Detailed tables showing performance measures linked to costs within DOT are located in Appendix D of this report.
Furthermore, the Department has encouraged its individual Operating Administrations to refine their unique program management tools. For example, the Department is using safety data from DOT's National Highway Traffic Safety Administration and the Federal Aviation Administration's Air Traffic Organization (ATO) to link performance to financial information. ATO has developed a comprehensive financial/cost picture of service units to identify opportunities to control costs and increase operational efficiency. This analysis identifies the primary cost drivers at each facility. Executives and managers will use the information to find best practices to emulate, to identify which facilities are most efficient and which are underutilized, and to concentrate their efforts where costs appear to be out-of-line.
This analysis will help DOT and FAA demonstrate why some air traffic control centers had higher costs than others. With this information, FAA's managers can easily compare the centers with the highest proportional labor costs (e.g., Indianapolis, Chicago, Cleveland, Atlanta) with those with the highest infrastructure costs (e.g., Anchorage, Oakland), and develop action plans based on cost drivers, resulting in improved air safety services at less cost to the taxpayer.|
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Secretary Norman Y. Mineta is committed to ensuring that our transportation system remains safe, secure, and efficient and that it serves as the engine that drives our Nation's economy. Because economic activity and global trade are surging under the President's policies, our roads, railways, pipelines, public transit systems, airways, and waterways are experiencing unprecedented increases in demand.
This Administration is working to ensure that our transportation system has the capacity to accommodate the needs of a growing and prosperous America. Below we present the highlights of our Fiscal Year 2004 results in our five strategic areas: safety, mobility, economic growth, environment, and security. We also present our internal organizational achievements that enhance DOT's performance as a results-driven Federal agency.
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Working together to achieve our safety goal has paid off in significant results. The highway fatality rate reported in FY 2004 was the lowest since record keeping began 29 years ago. The fatality rate per 100 million vehicle miles traveled declined to 1.48, the first time below 1.50. The total number of fatalities also declined, reversing a six-year trend, to 42,643 fatalities. The number of crash-related injuries dropped to a historic low. A reduction in the large truck-involved fatality rate for the sixth consecutive year contributed to an estimated 1,291 lives saved in 2003. Safety belt use reached an historic high of 80 percent in 2004. In addition, all 50 States, the District of Columbia, and Puerto Rico have contributed to highway safety by lowering the legal threshold for impaired driving to 0.08 blood alcohol concentration.
In aviation, DOT achieved the lowest airline fatal accident rate in the history of aviation and has also had success reducing general aviation accidents and particularly accidents in Alaska, a challenging environment for airplanes. DOT reduced the number of serious runway incursions and the number of serious operational errors, where airplanes get too close to obstacles or other aircraft for the ten-month period October 2003-August 2004.
Total rail-related accidents/incidents declined 3.6 percent compared with the same period for 2002-2003; total rail-related casualties (deaths and injuries) fell 5.1 percent over 2002-2003; railroad employee casualties dropped 5.1 percent over 2002-2003; and railroad trespasser fatalities fell 2.2 percent over 2002-2003.
Safety improved in transit as well. In FY 2004, transit fatalities dropped from 0.473 to 0.359 per 100 million passenger miles traveled. Through capital investment programs, older bus and rail vehicles were replaced with newer, safer vehicles and improvements were made in track and transit facility conditions.
In pipeline safety, DOT is implementing a Final Rule on Pipeline Integrity Management for Gas Pipelines in High Consequence Areas. This rule requires operators of natural gas pipelines to conduct accelerated testing, repair and reporting on the integrity of their pipelines where a failure would have the highest impact. DOT completed inspections of all large hazardous liquid pipelines using the new higher integrity management standards and observed operators repairing over 20,000 defects.
In maritime safety, ocean carriers using the St. Lawrence Seaway saved more than $500,000 in operating costs during the FY 2004 season largely because DOT met its performance goal of conducting safety inspections of 100 percent of all ocean vessels in Montreal (208 total inspections).
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DOT's impressive safety performance results from targeting unsafe practices for improvement, partnering with an ever-widening group of stakeholders to leverage our resources, and fostering the use of Web-enabled and other technologies to achieve safer transportation.
DOT awarded AMBER Alert planning grants to 41 States to expand the universe of State and local transportation agencies in AMBER Alert programs. The AMBER program is a voluntary partnership between law enforcement agencies and broadcasters to activate an urgent bulletin on child-abduction cases. DOT awarded 16 States implementation assistance grants to help fund the transportation aspects of existing AMBER alert programs.
Historically, the mobility that transportation provides has helped define us as a people and as a Nation. Our ability to travel from place to place allows us to connect with other people, work, school, and marketplaces throughout the United States and around the world. In partnerships with the States and private transportation providers, we have made continuous improvements in mobility as stated in our strategic goal: Shape an accessible, affordable, reliable transportation system for all people, goods, and regions. Highlights of our results are presented below.
To provide a statistical framework for analyzing mobility in the United States, DOT launched a new economic indicator, the Transportation Services Index. This Index measures monthly changes in the freight and passenger travel output of services provided by transportation industries, including railroad, air, truck, and inland waterways transportation, pipeline transportation, and local mass transit.
As commercial and general aviation climb back to pre-9/11 levels, DOT has taken several significant actions to address capacity issues. DOT implemented the Growth Without Gridlock program to reduce delays and congestion; moving away from the first-come-first-served model of air traffic to issuing revised flight plans or rerouting some aircraft away from problem areas. DOT began imposing minor delays on the ground to avert massive delays across the Nation, a concept called delay triggering and implemented the Reduced Vertical Separation Minimum. This will significantly increase the routes and altitudes available to aircraft, saving time and fuel.
Continuing to deregulate where appropriate, DOT published its final rule on computer reservations systems ending twenty years of Federal regulation on the grounds that the U.S. airlines no longer control any system and that the Internet has given airlines and travel agents alternative sources of information and booking capabilities.
Mobility and accessible transportation go hand in hand. As baby boomers age, we must take steps now to ensure their mobility and access to transportation. Therefore, it is significant that DOT met the bus performance target for compliance with the Americans with Disabilities Act (ADA). The bus fleet continues to become more accessible as older vehicles are replaced with those that are lift-equipped or have low floors.
DOT also met the performance target for employment sites made accessible by Job Access and Reverse Commute (JARC) transportation services. This program successfully meets the transportation needs of low-income individuals seeking transportation to jobs and community services. In each community that received a grant, JARC transportation services have reached new employment sites, making jobs, employers, job training, and childcare accessible for the program's target populations.
Supporting economic growth is a fundamental purpose of our transportation network. Transportation facilitates distribution and creates economic value for the producer. Our strategic goal, support a transportation system that sustains America's economic growth, concerns the efficiency of transportation, an important part of our competitive edge in global trade.
DOT negotiated several agreements which opened international air travel to market forces, meeting our performance target to provide competitive air service to 63.1 million passengers.
DOT initiated a landmark aviation agreement with China that will greatly expand opportunities for U.S.-China air services over a six-year period. The agreement allows nearly a five-fold increase in the number of weekly flights that may be operated and permits each country to name five more airlines to enter the market over the next six years. The agreement also expands route opportunities, permits virtually unlimited rights at cargo hub points established after 2007, and opens new opportunities for code sharing and charters.
The first comprehensive bilateral aviation agreement with Vietnam affords carriers of each Nation significant opportunities to begin direct services for the first time. Under the agreement, United Airlines intends to begin passenger service to Vietnam later this year over a San Francisco-Hong Kong-Ho Chi Minh City routing.
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To improve the capability of the Nation's transportation system to move current and future levels of freight traffic safely and efficiently, DOT implemented a National Freight Action Agenda containing far-reaching provisions. For example, a Freight Analysis Framework was used to develop the freight-related portions of proposed Safe, Accountable, Flexible, and Efficient Transportation Equity Act (SAFETEA) legislation and to explore options to re-route traffic on the transportation network in the event of the loss of major transportation infrastructure; a Freight Professional Development program was established consisting of training, technical assistance tools, university-based programs, and a freight resource library; and DOT began outreach to publicize this effort and to inform stakeholders on the progress of the Administration's freight programs.
In maritime navigation, DOT reported that the maximum allowable draft in the Welland Canal portion of the St. Lawrence Seaway increased to 26 feet and six inches in the 2004 navigation season for all inland vessels and ocean vessels equipped with bow thrusters. This depth was effective from Lake Ontario to Montreal. Each additional inch of sailing draft allows vessels to carry, on average, an additional 100 metric tons of cargo, increasing the efficiency of the Seaway. The St. Lawrence Seaway Development Corporation met its performance target of 99 percent of days in the shipping season the U.S. portion of the Seaway is available.
Work continued to improve the pavement condition on the Nation's highways. The goal is to reach a target of 95 percent of vehicle miles traveled on NHS pavements with an acceptable ride quality by 2008. The projected value for 2004 was 90.8 percent, primarily because a small number of states with significant total vehicles-miles travel (VMT) continue to report deteriorating pavement conditions. The travel on the NHS on facilities rated in good condition continues to show steady improvement also.
The percent of travel Nation-wide that is under congested conditions was 30.8 percent in CY 2003 and is projected to be 30.9 percent in CY 2004. The CY 2003 result was only 0.3 percent higher than in CY 2002 and below the anticipated increase for the second straight year. The results for the CY 2002-03 period suggest that the overall rate of growth in traffic congestion Nation-wide is slowing, and is much less than recently-projected annual increases.
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While transportation ties us together as a Nation, it can also produce unwanted side effects such as air and water pollution, the loss of ecosystems and disruption of communities. Americans want solutions to transportation problems that are consistent with sound environmental planning. DOT is committed to avoiding or mitigating the adverse environmental effects that can accompany transportation as stated in our strategic goal: Protect and enhance communities and the natural environment affected by transportation. Highlights of our results in the environmental area follow.
The establishment of Executive Order (EO) 13274: Environmental Stewardship and Transportation Infrastructure Project Reviews, signed on September 18, 2002 by President George W. Bush, advanced DOT's commitment to enhancing the nation's transportation infrastructure while remaining good stewards of the environment. Secretary Norman Y. Mineta designated thirteen projects as priorities to receive accelerated environmental review this past year. One project designated was the post-9/11 transit recovery projects in Lower Manhattan.
As the lead agency, DOT is using an environmental management strategy to ensure environmental stewardship, while streamlining environmental reviews. Local sponsors have agreed to use uniform approaches for evaluating environmental effects and to use environmentally friendly design elements, construction techniques, and operating procedures to lower adverse environmental impacts.
Once again, DOT exceeded its target of protecting at least 1.5 acres of wetlands for every acre affected by Federal-aid highway projects with a ratio of 2.1 to 1 in FY 2004. Federal-aid projects Nation-wide provided 1,761 acres of compensatory mitigation. A leader in expanding the use of wetland banking and sponsoring wetland research, DOT is proud of its seven year track record of exceeding the target. In a demonstration of commitment to environmental stewardship and ecosystem conservation, DOT recognized seven new Exemplary Ecosystem Initiatives, exceeding its target of designating two additional projects in the year.
During FY 2004, on average, a high percentage of nonattainment and maintenance areas met their emissions budget goals and the transportation emissions conformity requirements of the Clean Air Act. The average number of areas in a conformity lapse at any given time was at or below six out of a total of approximately 130 designated areas, or less than five percent of the total.
DOT achieved a 14 percent decrease in the number of people exposed to significant aviation noise from the FY 2000-2002 average. DOT removed 15 obsolete ships that posed potential environmental hazards at its three fleet sites.
President Bush has directed DOT and the Department of Homeland Security to work together to design a world-class transportation security system that will prevent terrorists from ever again using transportation as a weapon against us. Our transportation system must also remain a vital link for mobilizing our armed forces for military contingencies and for supporting civilian emergency response. Examples of our achievements under our strategic goal, ensure the security of the transportation system for the movement of people and goods, and support the National Security Strategy, are described below.
DOT has certified and accredited over 96 percent of its information technology (IT) systems and plans to complete these activities for the remaining four percent in FY 2005. This provides management with an acceptable level of assurance that all systems either meet a minimum level of baseline requirements or have plans of action and milestones to mitigate any remaining risks. A continuous vulnerability scanning program has been implemented Department-wide.
DOT provided sealift capacity to the Department of Defense (DoD) in support of Operation Iraqi Freedom (OIF), the redeployment phase of the war using 21 Ready Reserve Force (RRF) vessels.
DOT managed port security training for over 200 port personnel throughout the Western Hemisphere through the DOT/Organization of American States-sponsored port security training program. DOT also achieved a performance target of 94 percent availability for DoD-required shipping capacity and 93 percent availability among strategic ports, a seven percent increase in port availability over last year's performance. The port is expected to be able to make its facilities available to the military within 48 hours of notification.
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Secretary Norman Y. Mineta understands that a culture of foresight and continuous improvement is essential in our ability to achieve our strategic goals. We have put this into practice as evidenced by DOT's achieving first place among 24 Federal agencies in terms of having the highest President's Management Agenda (PMA) rating (DOT was the only agency that achieved four greens on the PMA Scorecard). Similarly, DOT's Performance and Accountability Report for FY 2003 achieved a tie with the Department of Labor for first place as the best in government, according to an independent assessment.
DOT's Inspector General released the annual report on the Department's consolidated financial statements, for which DOT received an unqualified or clean audit opinion for the fourth consecutive year. Consolidated financial statements show how the Department is accountable for its total budgetary resources of $128 billion provided by American taxpayers for Federal transportation activities. Individual audits were also conducted for the FAA and the Highway Trust Fund, which both received unqualified opinions.
DOT secured enactment of Vision 100, the four-year reauthorization of the FAA. Key provisions include:
DOT began using a quantitative risk assessment tool to ensure that New Starts transit projects meet cost, schedule and transportation benefit expectations. This tool tracks the success of mitigation measures and assesses trends with respect to project execution, so that any necessary intervention measures can be taken as early as possible.
DOT issued guidance for required financial plans for mega-projects, which are projects at the $1.0 billion dollar and larger level. DOT requires annual updates to track significant cost and schedule deviations from the initial financial plan, and mitigating actions taken to adjust for those deviations. DOT approves the financial plans or their annual updates for all mega-projects.
DOT's Five-Year Financial Management Plan for FY 2005-2009 discusses DOT's vision for improving financial management, improvements in DOT's financial affairs in FY 2004, and goals for improving financial management in DOT during 2005-2009. Specific implementation strategies for these efforts are provided in the full text of the DOT Five-Year Financial Management Plan 2005-2009 residing in the DOT Office of Financial Management.
The DOT vision for improving financial management is to develop and implement best practices in financial management for our internal and external customers and stakeholders and to achieve the goals of the President's Management Agenda. We will provide DOT managers with a Dashboard of easy-to-access financial information and program performance metrics for day-to-day decision-making, integrate budget and performance information, consolidate and integrate financial systems, and keep the public informed via the Chief Financial Officer's Web page at http://www.dot.gov/cfo/budgperf.htm.
Based on DOT's experience in implementing a new, state-of-the-art, commercial off-the-shelf financial management system (using Oracle Federal Financials), DOT will compete to be designated by the Office of Management and Budget (OMB) as a Center of Excellence for Financial Management, Grants Management and Human Resources under OMB's Lines of Business (LOB) Initiative.
Key elements of DOT's vision for financial management include: disseminating accurate, timely, and useful information and reports; developing and implementing the Delphi Dashboard to provide DOT managers with financial and performance information for day-to-day decision-making; replacing expensive legacy financial systems with modern cost-effective systems; consolidating, integrating or interfacing all financial and financial-related systems and avoiding duplicate or manual data entry; consolidating financial functions and accounting operations; and reducing the costs of financial operations and systems.
Integrating budget and performance information ensures that senior DOT decisionmakers have the information to decide where to use their resources most efficiently and effectively. Ensuring that resources are used properly and accounted for, consistent with sound financial management principles, is critical to meeting performance goals. At DOT, we recognize that performance budgeting is the first step to improved performance, but actual performance achievement also depends on maintaining proper internal controls and solid financial management systems that provide accurate and timely data. Recent improvements to our financial systems now enable DOT to provide improved cost accounting models and accountability tools that provide reliable data for monitoring performance.
Key elements of this effort include implementing managerial cost accounting across all OAs; strengthening the relationship between the marginal cost of performance, managerial cost accounting, and related financial management initiatives; and enhancing the ability to roll up cost and performance information Department-wide for presentation in the annual Performance and Accountability Report and budget justifications.
DOT significantly improved its financial management programs and systems during FY 2004. Major accomplishments in the area of financial statements and audits include receiving unqualified audit opinions on the DOT financial audits for FY 2003 and FY 2004 (DOT also received clean opinions for FY 2002 and FY 2001) and resolving two material weaknesses identified in the FY 2003 audit.
In the area of financial management policies, procedures and performance metrics, DOT has developed, updated, and issued comprehensive Financial Management Polices, and tracked and reported monthly to OMB on DOT's progress on the financial performance indicators identified by OMB.
DOT began improvements in the management of reimbursable agreements and intragovernmental eliminations throughout the Department, including developing and implementing a Web Portal for the OAs to exchange information about reimbursable agreements to support eliminations within DOT.
The Department developed plans for and began centralizing DOT Accounting Operations at the FAA Aeronautical Center in Oklahoma City for all remaining OAs, including supporting FAA in centralizing their own nine accounting offices to Oklahoma City. It also developed and began implementing new Chief Financial Officer (CFO) structures and positions within the remaining OAs.
In the area of financial systems, DOT completed implementing the Department-wide Delphi financial management system in November 2003. DOT is the first Cabinet-level agency to have all its OAs converted from a legacy accounting system to a new, state-of-the-art, Web-enabled, Treasury-compliant, commercial-off-the-shelf financial management system running on a single instance of the software.
The Department successfully marketed Delphi to the National Endowment for the Arts and worked with them to set up and configure their accounting system in Delphi, which they will start using in October 2005; upgraded Delphi to the newest release of the Oracle Federal Financials application software (release 11.5.9) in May 2004 and upgraded the back-end database to the Oracle 9i database in August 2004; launched a pilot program using Oracle Daily Business Intelligence (DBI), Oracle Balanced Scorecard, and Oracle Web Portal to present key financial information and performance metrics to DOT managers for day-to-day decision-making; developed, tested, validated and implemented a new Financial Statement Solution (FSS) in Delphi that produces financial statements directly from the core financial system; and reduced the time required for the Delphi month-end close process from three days to overnight.
In addition, DOT expanded to additional OAs the use of the Invoice Imaging and Workflow system based on MarkView software from 170 Systems, Inc., which is tightly integrated with Delphi, and completed implementation of managerial cost accounting for the Office of the Secretary of Transportation's (OST) Working Capital Fund (WCF), including costing and automated billing for reimbursable services.
DOT implemented Phase One of the Consolidated Automated System for Time and Labor Entry (CASTLE), which provides easy-to-use Web-enabled Time and Attendance (T&A) data entry. With the implementation of Phase Two in FY 2005, CASTLE will also provide for entry of labor distribution information on the same screen as the T&A data. CASTLE will be interfaced with Delphi in support of managerial cost accounting.
DOT continues to work to replace DOT's payroll and HR systems with the Federal Personnel and Payroll System (FPPS) of the Department of Interior's National Business Center in Denver, Colorado, as mandated by OMB under the e-Payroll initiative.
The Department completed implementation of the Purchase Request Information System (PRISM) procurement management system in FAA that is integrated with the Delphi financial management system.
In its travel management, DOT reduced its travel credit card delinquency rate from 13 percent to one percent in FY 2004, and worked with GSA to select a new e-Travel system for DOT and government-wide, including hosting both the pilot testing and the Independent Validation and Verification (IV&V) at DOT for all three systems awarded by GSA. DOT has selected GovTrip, Northrop Grumman's e-Travel Service, and started implementation throughout the Department.
DOT will complete its work towards consolidating and integrating its financial and financial-related systems to enhance performance and eliminate redundant systems. This ongoing effort, assigned to the DOT CFO by the DOT Investment Review Board (IRB) under the guidance of the DOT Chief Information Officer (CIO), addresses grants management, travel, procurement management, payment, credit card management, time and attendance and labor distribution reporting, accounting, budget, property management/inventory, and financial information reporting.
DOT's goal is to have a single commercially-supported procurement management system (or at most two) integrated with Delphi (Oracle Federal Financials). The integration with Delphi is critical to ensure data integrity, to eliminate duplicate manual data entry, to facilitate reengineering and streamlining DOT business processes, to avoid unnecessary data reconciliations, and to support the full implementation of managerial cost accounting throughout all DOT organizations. This integration will also further enable DOT to eliminate redundant systems.
DOT plans to continue to improve financial management reporting through greater use of the Delphi data warehouse and by expanding the use of Daily Business Intelligence, Balanced Scorecard, and Web Portal to present financial and performance information to all organizations, programs, and managers throughout DOT on the Delphi Dashboard.
DOT will conduct a series of coordinated reviews to enhance financial business processes and systems (including conduct a functional review of Delphi and implement system and business process improvements), continue to streamline and re-engineer accounting and financial management business processes throughout DOT, and complete a series of internal control reviews for DOT accounting and financial management systems and operations.
Other major initiatives for the Department for the next few years include completing migration of DOT's payroll and human resources functions and systems to the Department of Interior's system; completing implementation of a labor distribution system within DOT in support of managerial cost accounting; continual review and improvement of the reimbursable agreement management process in support of intergovernmental eliminations; development and implementation of an innovative Improper Payment research initiative to test an approach for satisfying the requirements of the Improper Payments Information Act (IPIA); expansion of managerial cost accounting throughout the Department; expanding the use of Electronic Data Interchange (EDI) for vendor information; complete implementation of the new GovTrip travel management and reservation system throughout DOT; and the implementation of a new purchase credit card for DOT interfaced with Delphi in support of improving financial management controls on purchase credit cards.
The principal financial statements in the Financial Management and Analysis section of this report summarize the Department's financial position, net cost of operations, and changes in net position; provide information on budgetary resources and financing; and present the sources of disposition of custodial revenues for FY 2004 and FY 2003. Highlights of the financial information presented in the principal financial statements are discussed in this section.
An unqualified audit opinion indicates that the agency's information is reliable. The Office of the Inspector General (OIG) has rendered an unqualified opinion on DOT's FY 2004 financial information. DOT had two continuing and two new material weaknesses addressed in its related audit, resulting in a total of four material weaknesses for FY 2004. The Department continues efforts to improve its compliance with the requirements of the Federal Managers’ Financial Integrity Act (FMFIA). Additionally, DOT's management takes responsibility for the objectivity and integrity of the financial information presented in the financial statements contained in this report.
The net cost of DOT operations for FY 2004 was $54 billion ($58 billion in FY 2003), as reflected in the Consolidated Statement of Net Cost as of September 30, 2004. This figure was a decrease of about 7 percent compared to the FY 2003 cost of operations.
Of the $54 billion in FY 2004 for DOT's net cost of operations, 76 percent (70 percent in FY 2003) was from surface transportation, 23 percent (21 percent in FY 2003) from air transportation, 0.4 percent (1 percent in FY 2003) from maritime transportation, about 0 percent (0 percent in FY 2003) from crosscutting programs, and 0.6 percent (0.6 percent in FY 2003) from costs not assigned to any particular program.
For surface transportation, a large amount of the net cost was identified in connection with the Highway Trust Fund ($31 billion). The majority of air transportation cost was from FAA ($12 billion).
Program costs generally experienced increase in FY 2004 compared to FY 2003 in surface, air, maritime, and cross-cutting programs. From FY 2003 to FY 2004, Surface Transportation cost experienced an increase of about $873 million, Air Transportation increased by $195 million, and Maritime Transportation decreased by about $602 million (FY 2003 restated).
The Department of Treasury is requiring that all agencies confirm and reconcile intragovernmental transactions with their trading partners, including transactions occurring within DOT or outside DOT. This includes fiduciary (investment/borrowing with Treasury, DOL Federal Employees' Compensation Act liabilities, OPM employee benefits) and non-fiduciary (that is buy/sell goods and services, reimbursables, transfers) intragovernmental transactions. Fiduciary confirmation/reconciliations are done through the web-based confirmation system (IFCS). Non-fiduciary confirmations are done manually. Treasury strongly recommends the use of confirmation forms to confirm/reconcile non-fiduciary intragovernmental balances. DOT is requiring its Operating Administrations to report intragovernmental balances in their Treasury FACTS I reports and financial statements, which must be in agreement.
Treasury is also requiring CFO representations for the confirmation/reconciliation of intragovernmental activity and balances. These representations will provide assurances for the intragovernmental balances included in the financial statements. Additionally, the OAs will be required to submit representations using a standard form.
Total assets for DOT are $68 billion for FY 2004 ($71 billion for FY 2003). The decrease in total assets in FY 2004 is largely attributable to a reduction in investments by $4 billion. Total intragovernmental assets for DOT are $51 billion in FY 2004 ($55 billion in FY 2003). A large portion of this funding came from investments ($21 billion) and fund balance with Treasury ($30 billion).
Total liabilities for FY 2004 are $13 billion. Total intragovernmental liabilities experienced a decrease from $5.2 billion in FY 2003 (restated) to $4.9 billion in FY 2004. DOT's net position was $55 billion in FY 2004 ($58 billion in FY 2003).
The principal financial statements have been prepared to report DOT's financial position and results of operations, pursuant to the requirements of 31 USC 3515(b). The statements have been prepared from DOT's records in accordance with the generally accepted accounting principles for Federal entities and the formats prescribed by the Office of Management and Budget. They are additional to the financial reports used to monitor and control DOT's budgetary resources, which are prepared from the same books and records.
The statements should be read with the realization that they are for a component of the U.S. Government, a sovereign entity. One implication of this is that liabilities cannot be liquidated without legislation that provides the resources to do so.
The Department is committed to management excellence and recognizes the importance of strong financial management, financial systems, and internal controls to ensure accountability, integrity, and reliability. Each Operation Administration's (OA) Administrator submits an annual statement of assurance to the Office of the Secretary, on the overall assurance of management controls.
During the fiscal year that ended September 30, 2004, DOT continued its efforts to ensure that the Department has an efficient and effective system of financial programs and administrative controls. When specific internal control weaknesses were identified, the process of developing and implementing corrective action was put into action immediately.
During FY 2004, in accordance with the requirements of the Federal Managers' Financial Integrity Act (FMFIA) and using the guidelines of the Department and of OMB, the Department reviewed our management control system. The objectives of our management control system are to provide assurance that the following occur:
The efficiency of the Department's operations is continually evaluated using information obtained from reviews conducted by the GAO, OIG, specifically-requested studies, and observations of daily operations. These reviews ensure that our systems and controls comply with the standards established by FMFIA. Managers throughout the Department are responsible for ensuring that effective controls are implemented in their areas of responsibility. Individual assurance statements from the Administrator of each OA serve as a primary basis for the Department's assurance that our management controls are adequate. The assurance statements are based upon an evaluation of progress made in correcting any previously-reported problems; new problems identified by the GAO, OIG, and other management reports; and the management environment within each OA.
DOT has five material weaknesses, three for Section 2 and two for Section 4. Three of the material weaknesses are carried over from FY 2003 and two are new. The three Section 2 material weaknesses are:
Last year we reported that Highway Trust Fund Agencies lacked the financial management procedures needed to generate reliable financial statements, and this deficiency also exists this year. As a result, the financial statements that FHWA submitted for audit contained several large, multi-billion dollar errors and omissions.
FHWA and the Federal Transit Administration (FTA) must do more to ensure that grant funds are protected from fraud, waste, and abuse. In FY 2004, FHWA did not provide financial oversight on 41 of the 45 highway grant projects (valued at $113 million) reviewed by the Office of the Inspector General (OIG). FHWA plans to begin reviewing State payment processes and testing a sample of payments during FY 2005.
Last year we reported that DOT did not fully reconcile its transactions within DOT and with other Federal agencies. To prepare DOT’s financial statements, transactions among DOT’s Operating Administrations must be tracked and eliminated to avoid overstating DOT’s financial statement results. During FY 2004, DOT did not adequately track these transactions, which required management to perform extensive manual adjustments to prepare DOT’s consolidated financial statements. Similarly, Federal agencies’ inability to account for and eliminate transactions with other agencies is a major impediment to a clean audit opinion on the Consolidated Financial Report on the United States. DOT has begun taking steps to better account for these transactions, but at the end of September 2004, it still had not identified the other agencies associated with about half of the $55 billion of intragovernmental transactions processed in FY 2004 and reported to Treasury.
FISMA requires Federal agencies to identify and provide security protections commensurate with the risk and magnitude of harm resulting from the loss of, misuse of, unauthorized access to, or modification of information collected or maintained by or on behalf of an agency. Because DOT maintains one of the largest portfolios of information technology (IT) investments of Federal civilian agencies, it is critical that DOT protect its systems and sensitive data. In FY 2004, DOT's information technology budget totaled about $2.7 billion.
DOT has 12 Operating Administrations (OA) and the Office of Inspector General with 485 computer systems. DOT is also responsible for operating the air traffic control system, which has been designated as part of the Nation's critical infrastructure by the President (Homeland Security Presidential Directive 7, December 2003). DOT systems include safety-sensitive air traffic control and surface transportation systems, as well as financial systems that disburse over $50 billion in Federal funds each year.
For the last three years, DOT has reported its information security program as a material internal control weakness under the Federal Managers' Financial Integrity Act (FMFIA). A material internal control weakness is a significant deficiency in an agency's overall information systems security program or management control structure, or within one or more information systems that (1) significantly restricts the capability of the agency to carry out its mission, or (2) compromises the security of its information, information systems, personnel, or other resources, operations, or assets. The risk is great enough that the agency head and outside agencies must be notified and immediate or near-immediate corrective action must be taken. (OMB Guidance on FY 2004 Reporting Instructions for the Federal Information Security Management Act, M0425, August 23, 2004.)
During FY 2004, DOT made a concerted effort to correct weaknesses identified in previous years. The most noteworthy improvements DOT has made since we began the annual information security review in FY 2001 include:
Although DOT has made significant progress, there are some remaining issues such as the CIO office and OAs needing better coordination of IT budget requests in order to more effectively use IT funds, the quality of security certification reviews needing improvement, and DOT's air traffic control system security needing enhancement.
Last year, DOT reported its information security program as a material weakness. The Inspector General’s audit of FISMA (dated October 1, 2004) recognized noteworthy improvements in DOT’s IT security. In recognition of this progress, the IT security material weakness from the FY 2003 financial audit has been downgraded to a reportable condition in the FY 2004 financial audit. No recommendations in the FY 2004 FISMA audit related solely to financial systems. The most noteworthy improvements made during FY 2004 include increased oversight of IT investment management and security controls, strengthened protection of DOT's network infrastructure against attacks, and enhanced security protection of individual computer systems. Continued action is needed to improve security certification reviews, configure computers according to security standards, and develop and test system contingency and continuity plans.
As identified by the Office of the Inspector General, for FISMA improvements, DOT needs better cost estimates for information technology (IT) investments, define project management and budget responsibilities for IT consolidation initiatives, review of IT investment projects, complete vulnerability checks, complete Security Certification Reviews, and assure system contingency and continuity planning.
Nonconformances (Section 4) in internal controls represent significant deficiencies in the design or operation of internal controls that could adversely affect the DOT consolidated financial statements. The two material nonconformances are:
Last year, the Department reported that important security controls over the Delphi financial management system needed to be improved. In FY 2004, important security measures had not been implemented, system changes were not properly tested, and contingency planning was not adequate. DOT has made significant progress to correct these problems, but for most of FY 2004 the vulnerabilities continued to exist. These deficiencies increase the risk that erroneous financial transactions could occur, either intentionally or inadvertently, resulting in material misstatements on financial statements without being detected in a timely manner by management.
DOT reported again this year that the Department was not in compliance with FFMIA. For FY 2004 this noncompliance consists of three issues: preparation of financial statements, use of a Standard General Ledger (credit reform/loans), and Federal Accounting Standards (cost accounting).
The status column in the following table indicates where DOT progress is in meeting the President's Management Agenda (PMA). Agencies in the Federal Government receive a green rating by reaching the required score. Agencies must maintain achievements between evaluations to maintain a green.
Green - Indicates that the agency has met all of OMB's core criteria for the initiative.
Yellow - Indicates achievement of some but not all of OMB's core criteria for the initiative and that the agency has no red conditions.
Red - Indicates that at least one of the conditions identified by OMB for that initiative is in need of correction.
The progress column measures the rate at which DOT is moving toward green. Agencies get a green rating when implementation is advancing according to plan.In 2004, the Department of Transportation (DOT) engaged KPMG, LLP to conduct an improper payments review of FY 2003 payments for ten identified programs for compliance with the Improper Payments Information Act of 2002 (IPIA). The objectives of the review were to (1) assess and report the amount and causes of improper payments, (2) to give us a methodology to use for remaining DOT programs, and (3) to identify action plans for reducing improper payments for each program identified as having significant improper payments. Based on the Office of Management and Budget guidance, improper payments are considered significant if the annual improper payments in a program exceed both 2.5 percent of program payments and $10 million.
KPMG statistically reviewed the following ten programs identified by Operating Administration (OA):
For the ten completed programs, KPMG did not find significant improper payments exceeding both 2.5% of program payments and $10 million, which would require reporting for the IPIA. However, KPMG's scope was limited in three ways. First, there was an inadvertent sample population reduction in the FHWA Federal Aid program based on the extract requirements provided by FHWA. DOT and KPMG will work to identify the missing population amounts and review the additional program. Second, FAA was not able to provide sufficient data or answers to outstanding questions for the FAA Operations and FAA Facilities and Equipment programs on time. Therefore, the items with outstanding data were considered and projected as questionable transactions.
The third limitation was due to limited grant data being available for grants processed electronically based on the requirements of the Federal Financial Assistance Management Improvement Act of 1999 (PL 106-107). PL 106-107 streamlines the payment process for grants. As a result, documentation was not available to permit KPMG to test whether the payment was calculated correctly, whether discounts and credits were properly taken and if all costs were allowable. In other words, information was available to track the flow of funds from the Federal Treasury to the first-tier grant recipients, which are State Departments of Transportation in the case of the Federal Aid Highways program. However, information was not available to determine how federal highway funds are allocated to subgrantees and if funds are used for eligible purposes under the program. For example, KPMG was able to test electronically processed grants for eligibility, award and payment approval, incurrence of cost during the funding period, payment within the award or other funding limitations and that payment was sent to the proper recipient. It should be noted that all Federal agencies that electronically process grant payments in compliance with PL 106-107 would encounter this same limitation.
To resolve the issue of limited data in support of grant payments made in compliance with PL 106-107, DOT has devised an innovative research and development (R&D) strategy. This strategy involves using a proof of concept project to test the feasibility of using the Single Audit process to provide the information needed to determine if grant payments made in compliance with PL 106-107 meet the improper payment estimation and remediation requirements of the IPIA. This proposal has been approved by OMB, and with OMB's concurrence, DOT has executed a contract with a consultant to begin the process of this proof of concept effort.
To ensure full compliance with both the letter and the spirit of IPIA, DOT has conducted an improper payment risk assessment on all DOT programs including those that clearly would not meet the OMB reporting thresholds. DOT's initial risk assessment methodology (developed by KPMG) was used by DOT to review all remaining DOT programs not included in KPMG's review of the top ten DOT programs. This clearly will meet the legislative requirement to review all programs and activities. Furthermore, to ensure senior management review, DOT has required that all Operating Administration CFOs review and sign their program risk assessments. To date, none of the remaining DOT programs received a high-risk assessment.
DOT also has a Department-wide recovery audit program well underway since 2002. During 2004, recovery audits were expanded to include all financial transactions more than one year old. While audit recoveries have not been significant, the recovery auditor has had full access to DOT financial records and cooperation by the OA's has been outstanding.
DOT's annual goal is to refine its internal process and procedures for IPIA measurement, to review means to automate the collection and sampling strategies used in the first IPIA assessment and to execute the R&D project strategy to allow us to further improve and measure improper payments at the grant level.
