AGENDA Audits and Investigations Committee December 1, :00 a.m. V. Information Item A. Financial Management Overview Update (E.

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1 AGENDA Audits and Investigations Committee December 1, :00 a.m. I. Approval of Agenda II. III. IV. Certification of Executive Sessions A. November 3, 2016 B. December 1, 2016 Approval of Minutes A. October 27, 2016 Public Session B. November 3, 2016 Executive Session Action Item A. Office of Inspector General s 2017 Annual Plan (H. Lew) V. Information Item A. Financial Management Overview Update (E. Sullivan) VI. Adjournment Washington Metropolitan Area Transit Authority 600 Fifth Street, NW Washington, DC / By Metrorail: Judiciary Square---Red Line Gallery Place-Chinatown--- Red, Green and Yellow Lines By Metrobus: Routes D1, D3, D6, P6, 70, 71, 80, X2 A District of Columbia, Maryland and Virginia Transit Partnership Public

2 Minutes Audits and Investigations Committee October 27, 2016 Ms. Porter called the meeting to order at 10:50 a.m. Present were: Committee Members Jim Corcoran Chair Kathryn Porter - Vice Chair Anthony Costa Corbett Price Other Members Present Jack Evans Keturah Harley Michael Goldman Catherine Hudgins Tom Bulger Christian Dorsey Malcolm Augustine Leif Dormsjo Paul Smedberg Robert Lauby Approval of Agenda The agenda was approved as presented. Approval of Minutes The minutes of the October 13, 2016 Audits and Investigations Committee meeting and the October 13, 2016 Audits and Investigations Committee Executive Sessions were approved as submitted. Information Item A. Board Audit Awareness Training Elizabeth Sullivan, Chief of the Office of Internal Compliance and Inspector General Helen Lew conducted the Board s annual Audit Awareness Training. The training provided an overview of internal controls and the Committee of Sponsoring Organizations Internal Control Integrated Framework. The training also highlighted the Board s roles and responsibilities for organizational monitoring and oversight. The meeting was adjourned at 11:37 a.m.

3 Washington Metropolitan Area Transit Authority Board Action/Information Summary Action Information MEAD Number: Resolution: Yes No TITLE: Office of Inspector General's Annual Plan 2017 PRESENTATION SUMMARY: The Office of Inspector General (OIG) Annual Plan 2017 sets the audit and evaluation priorities based on risk for the calendar year. The Annual Plan is presented to the Audits and Investigations Committee for acceptance. PURPOSE: The Audits and Investigations Committee to accept the Annual Plan 2017 submitted by OIG. DESCRIPTION: Key Highlights: OIG's Annual Plan 2017 is based on a high level, judgmental Audit Risk Assessment. The Annual Plan is tied to WMATA's mission and strategic goals. Background and History: Board Resolution established the Office of Inspector General to supervise and conduct independent and objective audits, evaluations, investigations, and other activities of the Washington Metropolitan Area Transit Authority's (WMATA) programs and operations to promote economy, efficiency, and effectiveness, as well as to prevent and detect fraud, waste, and abuse in such programs and operations. In accordance to the Inspector General's (IG) position description, an annual plan is prepared by the IG for review and acceptance by the Board of Directors or its designee. Discussion: The Annual Plan outlines the work OIG proposes to conduct/perform in its two components Audit Services and Investigation Services during the calendar year. One key purpose of the Annual Plan is to set the audit and evaluation priorities, based on an audit risk assessment of WMATA's programs, operations, and activities. A risk factor is an observable or measurable Page 3 of 18

4 indicator of conditions or events that could adversely affect an organization. It can identify inherent risk, such as a complicated or large organizational structure or an organizational vulnerability, such as inadequate internal controls. The Annual Plan 2017 contains 17 jobs 4 carryovers from 2016 and 13 new jobs. These jobs cover a wide range of subject areas, such as Contracting Officer Technical Representatives, Payroll Operations, Tunnel Inspection Program, Asset Management, Security over Public Accessible Web Applications and Cybersecurity over Rail Industrial Control Systems. All 17 jobs are tied to one or more of WMATA's strategic goals. In addition to audits and evaluations, Audit Services performs contract pricing attestations, pre awards, and Buy America Act requirement engagements; oversees the external audits on the financial statement/single Audit; and follows up on status of implementing outstanding OIG recommendations identified in previous audits and evaluations. OIG's Investigation Services manages the OIG Hotline and investigates allegations of fraud, waste, abuse and other wrongdoing affecting WMATA operations, including investigations of whistleblower retaliation complaints. FUNDING IMPACT: The funding of the annual plan is included in the Board approved budget. Project Manager: Stephen Dingbaum, Assistant Inspector General for Audits Project Office of Inspector General Department/Office: TIMELINE: Anticipated actions after presentation Implementation of audits, evaluations investigations and other components of OIG's Annual Plan RECOMMENDATION: Audits and Investigations Committee accept the Annual Plan Page 4 of 18

5 Washington Metropolitan Area Transit Authority Board Action/Information Summary Action Information MEAD Number: Resolution: Yes No TITLE: Financial Management Oversight (FMO) Progress PRESENTATION SUMMARY: Staff will inform the Board on progress to complete the Federal Transit Administration s Financial Management Oversight (FMO) Testing and Validation Plan through November 2016 and will also provide information on the scheduled FTA Triennial Review. PURPOSE: Provide an update to the Audits and Investigations Committee on WMATA's progress addressing deliverable expectations of the FTA s Financial Management Oversight (FMO) Testing and Validation Plan dated September 30, 2015, and updated May 23, Staff will also brief the Board on the scheduled FTA Triennial Review. DESCRIPTION: Key Highlights: As of November 2016, WMATA continues to work with FTA to complete its FMO testing and validation procedures. All action items have been completed by the FTA defined due dates, and FTA s validation will continue through December It s anticipated that FTA will make a decision about the removal of the ECHO restriction for all grants awarded after July 1, 2015 by the end of calendar year WMATA received notification on October 11, 2016 of the upcoming FTA Triennial Review scheduled for FY2017. Background and History: Financial Management Oversight (FMO) The FTA's June 10, 2014 FMO Report identified a total of nine findings, of which three were material weaknesses and six were significant deficiencies. An additional five advisory comments were also identified. A total of 45 FTA recommendations for addressing the findings and comments were included in the FMO Report. WMATA submitted 65 Corrective Action Plans (CAPs) in response to the 45 recommendations. Starting with FTA s FMO Testing and Validation Plan dated September 30, 2015, WMATA transitioned into the validation and closeout stage of the findings noted in the June 10, 2014 FMO Report. Page 5 of 18

6 FTA's FMO Testing and Validation Plan is comprised of 20 action items divided into 3 categories: Category A includes ten action items required for removal of ECHO restriction for all grants awarded after July 1, 2015 Category B includes three action items required for removal of ECHO restriction for all grants awarded prior to July 1, 2015 Category C includes seven action items required to address for FMO closeout but not conditional for ECHO restriction removal FTA updated the FMO Testing and Validation Plan on May 23, 2016, primarily to account for the implementation of WMATA s new Funds Management System which took place on July 1, The updated plan introduced the Snapshot Test, which was designed to assess three of the 20 action items from the original Testing and Validation Plan dated September 30, Discussion: As of November 2016, WMATA has submitted materials for 18 of the 20 Testing and Validation required action items, and two items are not yet due. Of the 18 items submitted, FTA has deemed eight closed and ten items are undergoing FTA review. Of the ten action items undergoing FTA review, six have an impact on FTA s pending decision regarding the removal of ECHO restriction for new grants by the end of this calendar year. The table below provides a summary and status of the six items under FTA review with an impact on the calendar year end ECHO decision: Item Required Action Status A3 1) Ensure only allowable costs are reported in the FFRs Validation scheduled to conclude on or before December 9 th. 2) Train staff on reviewing invoices for allowable costs. Closed A4 A5 A8 A9 Ensure the approval process for preparation of FFRs is documented, that FFRs are reviewed by someone other than the preparer, and indirect costs are properly reported on the FFRs for applicable grants. Ensure full and open competition practices are followed in procuring products and services. Ensure procedures for determining whether procurements will be funded using Federal or local sources are properly utilized. Ensure all components of procurement files are assembled timely and procurement file checklists are used. Ensure that only procurements properly suited for the Job Order Contracts (JOC) contracting mechanism are competed within the pool of JOC contractors. Ensure expenditures are charged to Federal grants in accordance with approved budgets. Validation scheduled to conclude on or before December 9 th. Validation scheduled to conclude on or before December 9 th. Validation scheduled to conclude on or before December 9 th. Validation scheduled to conclude on or Page 6 of 18

7 A10 Ensure draw down of FTA funds is only made on the Federal share of expenditures incurred. before December 9 th. Validation scheduled to conclude on or before December 9 th. Scheduled FTA Triennial Review FY2017 WMATA received notification on October 11, 2016 of the upcoming FTA Triennial Review. The Triennial Review is one of the FTA s management tools for examining grantee performance and adherence to current FTA requirements and policies. Mandated by Congress in 1982, the Triennial Review occurs once every three years. It examines how recipients of Urbanized Area Formula Program funds meet statutory and administrative requirements. In addition to the October 11, 2016 notification letter, FTA also provided WMATA with a Grantee Information Request (GIR) package due back to FTA on December 16, Based on ongoing discussions with the FTA, WMATA expects FTA s site visit on March 20, The details of the 17 areas and basic requirements examined by FTA as part of the Triennial Review are included in Appendix A. Internal Compliance Activities Audit Readiness Reviews In preparation for the upcoming FTA review, Internal Compliance will conduct audit readiness reviews within the areas of Financial Management and Capacity, Title VI, and Drug Free Workplace and Drug and Alcohol Program due to findings noted in the last Triennial Review conducted by FTA in Internal Compliance will also conduct audit readiness reviews within the Procurement and Disadvantaged Business Enterprise (DBE) areas due to the greater potential for Enhanced Review Modules (ERMs). Actual areas that will undergo ERMs are determined by risk factors identified and considered by FTA. FUNDING IMPACT: No funding impact information item only. Project Manager: Elizabeth Sullivan Project Internal Compliance Department/Office: TIMELINE: Previous Actions Anticipated actions after presentation May 2016 Q3 FY2016 FMO Update February 2017 Q2 FY2017 FMO Update Page 7 of 18

8 Washington Metropolitan Area Transit Authority Financial Management Oversight (FMO) Progress Report Audits and Investigations Committee December 1, 2016 Page 8 of 18

9 Purpose Report on FTA FMO Testing and Validation Plan progress Provide an overview of the scheduled FTA Triennial Review and audit readiness plan Page 9 of 18

10 FTA FMO Testing & Validation Closed FTA Testing In-Progress Future Due Date Completed all action items by FTA defined due dates Six of 10 items now under FTA review; will decide ECHO restriction removal for new grants Submitted responses for the two items due in December Page 10 of 18

11 FTA FMO Testing & Validation Category A - Removal of ECHO restriction for all grants awarded after July 1, 2015 Ten (10) action items required Four (4) closed Category B - Removal of ECHO restriction for all grants awarded prior to July 1, 2015 Three (3) action items required Two (2) closed Category C - Formally closeout FMO but not conditional for ECHO restriction removal Seven (7) action items required Two (2) closed Page 11 of 18

12 FTA Triennial Review Process Financial Management and Capacity 17 Review Areas Disadvantaged Business Enterprise (DBE) Charter Bus Technical Capacity Legal School Bus Maintenance Americans with Disabilities ACT (ADA) Title VI Procurement Satisfactory Continuing Control Planning/Program of Projects Public Comment on Fare Increases and Major Service Reductions Half Fare Security Drug Free Workplace and Drug and Alcohol Program Equal Employment Opportunity Page 12 of 18

13 FTA Triennial Review Timeline Pre- Review 1 Initiated, notification received 10/11/2016 Scoping ERM 3 TBD by FTA Findings Summary 5 TBD by FTA Final Report 7 TBD by FTA In progress by WMATA, due to FTA on 12/16/2016 Tentatively scheduled for 3/20/2017 TBD by FTA TBD by FTA GIR 2 Site Visit 4 Draft Report 6 Corrective Actions 8 Page 13 of 18

14 FTA Triennial Review Plan Office of Accounting serves as lead Conducted kick off meeting October 26, 2016 Requested materials due December 16, 2016 Internal Compliance Conduct audit readiness reviews, primarily focused on prior Triennial Review deficiencies Conduct quality reviews of FTA deliverables Page 14 of 18

15 Financial Management and Capacity Title VI Audit Readiness Reviews Focus Areas Drug Free Workplace and Drug and Alcohol Program Procurement Disadvantaged Business Enterprise (DBE) Page 15 of 18

16 Appendix A Triennial Review - 17 Areas of Review and Basic Requirements 1. Financial Management and Capacity The grantee must demonstrate the ability to match and manage Federal Transit Administration (FTA) grant funds, cover cost increases and operating deficits, cover maintenance and operational costs for FTA-funded facilities and equipment, and conduct and respond to applicable audits. 2. Technical Capacity The grantee must be able to implement Federal Transit Administration (FTA)- funded projects in accordance with the grant application, FTA Master Agreement, and all applicable laws and regulations, using sound management practices. 3. Maintenance Grantees and subrecipients must keep federally funded vehicles, equipment, and facilities in good operating condition. Grantees and subrecipients must keep Americans with Disabilities Act (ADA) accessibility features on all vehicles, equipment, and facilities in good operating order. 4. Americans with Disabilities ACT (ADA) Titles II and III of the Americans with Disabilities Act of 1990 (ADA) provide that no entity shall discriminate against an individual with a disability in connection with the provision of transportation service. The law sets forth specific requirements for vehicle and facility accessibility and the provision of service, including complementary paratransit service. 5. Title VI The grantee must ensure that no person shall, on the grounds of race, color, or national origin, be excluded from participating in, or be denied the benefits of, or be subject to discrimination under any program or activity receiving Federal financial assistance without regard to whether specific projects or services are federally funded. The grantee must ensure that all transit services and related benefits are distributed in an equitable manner. 6. Procurement Grantees use their own procurement procedures that reflect applicable state and local laws and regulations, provided that the process ensures competitive Page 16 of 18

17 procurement and the procedures conform to applicable Federal law, including 49 CFR Part 18, (repealed effective December 26, 2014), 2 CFR Part 1201, incorporating 2 CFR Part 200 (specifically Sections ), and Federal Transit Administration (FTA) Circular F, Third Party Contracting Guidance. 7. Disadvantaged Business Enterprise (DBE) The grantee must comply with 49 CFR Part 26 to ensure nondiscrimination in the award and administration of US Department of Transportation (US DOT)-assisted contracts. 8. Legal The grantee must be eligible and authorized under state and local law to request, receive, and dispense Federal Transit Administration (FTA) funds and to execute and administer FTA-funded projects. 9. Satisfactory Continuing Control The grantee must ensure that Federal Transit Administration (FTA)-funded property will remain available to be used for its originally authorized purpose throughout its useful life until disposition. 10. Planning/Program of Projects The grantee must participate in the transportation planning process in accordance with Federal Transit Administration (FTA) requirements, Fixing America s Surface Transportation (FAST) Act, and the metropolitan and statewide planning regulations. Each recipient of a Section 5307 grant shall develop, publish, afford an opportunity for a public hearing on, and submit for approval, a program of projects (POP). 11. Public Comment on Fare Increases and Major Service Reductions Section 5307 grantees are expected to have a written, locally developed process for soliciting and considering public comment before raising a fare or carrying out a major transportation service reduction. 12. Half Fare For fixed-route service supported with Section 5307 assistance, fares charged seniors, persons with disabilities or an individual presenting a Medicare card during off peak hours will not be more than one half the peak hour fares. Page 17 of 18

18 13. Charter Bus Grantees are prohibited from using federally funded equipment and facilities to provide charter service if a registered private charter operator expresses interest in providing the service. Grantees are allowed to operate community based charter services excepted under the regulations. 14. School Bus Grantees are prohibited from providing exclusive school bus service unless the service qualifies and is approved by the Federal Transit Administration (FTA) Administrator under an allowable exemption. Federally funded equipment or facilities cannot be used to provide exclusive school bus service. School tripper service that operates and looks like all other regular service is allowed. 15. Security As recipients of Section 5307 funds, grantees must annually certify that they are spending at least one percent of such funds for transit security projects or that such expenditures for security systems are not necessary. 16. Drug Free Workplace and Drug and Alcohol Program Grantees are required to maintain a drug-free workplace for all grant-related employees and to have an ongoing drug-free awareness program. Grantees receiving Section 5307, 5309, 5311, or 5339 funds that have safety-sensitive employees must have a drug and alcohol testing program in place for such employees. 17. Equal Employment Opportunity The grantee must ensure that no person in the United States shall on the grounds of race, color, religion, national origin, sex, age, or disability be excluded from participating in, or denied the benefits of, or be subject to discrimination in employment under any project, program, or activity receiving Federal financial assistance under the Federal transit laws. Page 18 of 18