HIGHWAYS DIVISION DEPARTMENT OF TRANSPORTATION STATE OF HAWAIIState Government

Condition During our audit, we examined a non-statistical sample of seven subawards and found that the required subaward information was not reported in the Federal Funding Accountability and Transparency Act Subaward Reporting System (?FSRS?) as required under the Federal Funding Accountability and Transparency Act (?FFATA?). Criteria Under FFATA, which is codified in 2 CFR ?170, recipients of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to FSRS, including the following subaward information: - Subawardee name - Subawardee DUNS number - Amount of subaward - Subaward obligation/action date - Subaward number - Subaward project description Effect Failure to fully report required subaward information in FSRS may result in noncompliance with FFATA reporting requirements and limits the transparency of the use of federal funds awarded. Cause and View of Responsible Officials The Highway Safety Section did not have adequate time to perform the reporting of applicable fiscal year 2022 subawards due to the limited time elapsing between the implementation of a corrective action plan in response to the similar fiscal year 2021 Single Audit finding for another federal program and the end of the current fiscal year. Program personnel plan to utilize their FSRS access to perform the necessary subaward reporting as required by FFATA in a timely manner going forward. Recommendation All personnel involved in the administration of a program for which federal funds are expended should receive adequate training about federal compliance requirements related to such program. In addition, an individual should be assigned the responsibility to monitor compliance with all related federal requirements for programs involving the expenditure of federal funds. Finally, the Highways Division should make a conscious effort to meet the reporting deadline as set in their new policies and procedures.

Condition During our audit, we examined a non-statistical sample of six subawards and found that the most recent Single Audit reports for the three subrecipients required to obtain Single Audits were not reviewed by program personnel. Criteria Per 2 CFR Section 200.332(d), a pass-through entity is required to monitor the activities of the subrecipient as necessary to ensure the subaward is used for authorized purposes, in compliance with Federal statutes, regulations, and the terms and conditions of the subaward. Monitoring must include a review of financial performance reports, following up with the subrecipient to ensure timely and appropriate action on all deficiencies, issuing management decision for applicable audit findings, resolving audit findings, and verifying that each subrecipient is audited as required by 2 CFR 200, Subpart F. Effect Failure to review the subrecipients? Single Audit reports may result in failure by the subrecipient to take timely and appropriate action to resolve deficiencies detected through the audit. Cause and View of Responsible Officials The Highway Safety Division did not have the capacity to perform the review of applicable subrecipients? Single Audit reports due to significant personnel changes throughout the year. Program personnel plan to assign the review of the Single Audit Reports to specific personnel so that the necessary procedures are performed in a timely manner going forward. Recommendation All personnel involved in the administration of a program for which federal funds are expended should receive adequate training about federal compliance requirements related to such program. In addition, an individual should be assigned the responsibility to monitor compliance with all related federal requirements for programs involving the expenditure of federal funds. Finally, the Highways Division should make a conscious effort to meet the compliance requirement as the Single Audit Reports become available for review through the Federal Audit Clearinghouse.

Condition Two of 32 disbursements to subrecipients were made more than 45 days after advances were received from NHTSA. Criteria Per 31 CFR ?205.11, ?A State and a Federal Program Agency must minimize the time elapsing between the transfer of funds from the United States Treasury and the State?s payout of funds for Federal assistance program purposes, whether the transfer occurs before or after the payout of funds. Disbursements should be made as soon as administratively possible.? Per 2 CFR ?200.305, pass-through entities must make payment within 30 calendar days after receipt of the billing by a subrecipient, unless the pass-through entity reasonably belies the request is improper. Effect There were two disbursements not made in accordance with federal requirements. Failure to comply with federal requirements may result in NHTSA no longer allowing the Division to obtain advances but require use of the reimbursement method. Cause and View of Responsible Officials The Division follows the guidance in the NHTSA GTS User?s Manual. However, due to oversight, the two subrecipient disbursements in question were not processed until 72 days after receipt of the federal funds advanced. Recommendation We recommend that the Division management reiterate to program personnel the policies and guidelines established in the NHTSA GTS User?s Manual, including processing and disbursing advances.

Condition The program passes through federal funding to the counties in the state of Hawaii. However, for all fiscal year 2021 subawards, required subaward information was not fully reported in the Federal Funding Accountability and Transparency Act Subaward Reporting System (?FSRS?) as required under the Federal Funding Accountability and Transparency Act (?FFATA?). Criteria Per FFATA, which codified in 2 CFR ?170, recipients of grants or cooperative agreements are required to report first-tier subawards of $30,000 or more to FSRS, including the following subaward information: ? Subawardee name ? Subawardee DUNS number ? Amount of subaward ? Subaward obligation/action date ? Subaward number ? Subaward project description Effect Failure to fully report required subaward information in FSRS may result in noncompliance with FFATA reporting requirements and limits the transparency of the use of federal funds awarded. Cause and View of Responsible Officials Division personnel overseeing this program thought another office within the Division performed the necessary subaward reporting. Program personnel plan to request access to FSRS and perform the necessary subaward reporting going forward. Recommendation We recommend that the Division management reiterate federal requirements, including FFATA subaward reporting requirements, to all Division personnel working on federally funded programs. We recommend program personnel to obtain access to FSRS and perform the necessary subaward reporting.

Significant Deficiency Finding No. 2020-002 Reimbursement of Unallowable Costs U.S. Department of Transportation U.S. Federal Highway Administration Highway Planning and Construction Cluster CFDA No. 20.205 Criteria In accordance with 2 CFR section 200.53, (a) improper payment means any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements; and (b) improper payment includes any payment to an ineligible party, any payment for an ineligible good or service, any duplicate payment, any payment for a good or service not received, any payment that does not account for credit for applicable discounts, and any payment where insufficient or lack of documentation prevents a reviewer from discerning whether a payment was proper. Condition During our audit, we identified two duplicate payments totaling $442,695 whereby the Highways Division incorrectly requested reimbursements from the federal government for expenditures previously billed and for which the Highways Division already received payment. Questioned Costs Questioned costs identified were $442,695. Cause The Highways Division HWYAC system was completely inoperable from early December 2019 through February 2020, and June 2020, requiring the Highways Division to manually compile federal expenditure reports to prepare federal reimbursement requests during this time (refer to Finding No. 2020-001). When HWYAC became operable, there was a lack of effective internal controls to identify previously reimbursed expenditures to prevent duplicate reimbursements of manually billed transactions. Effect The Highways Division incorrectly requested and received $442,695 in federal reimbursements. Recommendation We recommend that the Highways Division improve the process and strengthen controls to prevent duplicate requests for reimbursement from the federal government. The Highways Division should return the $442,695 in excess federal funds received, plus any interest owed to the federal government, or reduce future claims by that amount as directed by federal guidance.

Finding No. 2020-003 Subrecipient Monitoring U.S. Department of Transportation U.S. Federal Highway Administration Highway Planning and Construction Cluster CFDA No. 20.205 Criteria In accordance with 2 CFR section 200.331(d) through (f), all pass-through entities must monitor the activities of the subrecipient as necessary to ensure that the subaward is used for authorized purposes, complies with the terms and conditions of the subaward, and achieves performance goals. This monitoring includes following-up and ensuring that the subrecipient takes timely and appropriate action on all deficiencies pertaining to the Federal award provided to the subrecipient from the pass-through entity detected through audits, on-site reviews, and other means. Condition For certain Highways Division capital projects, the Highways Division provides a portion of its federal awards to subrecipients such as the local counties in the State of Hawaii. Accordingly, the Highways Division is subject to subrecipient monitoring requirements applicable to federal awards. We noted that the annual subrecipient on-site monitoring reviews were not performed during the year ended June 30, 2020. In addition, we noted that one out of four subrecipient single audit reports received included a finding related to direct funding from the Highways Division for the Highway Planning and Construction grant. We noted that this finding was not followed up on and a management decision letter was not issued by the Highways Division to the subrecipient. Cause Management indicated that the on-site monitoring reviews of ongoing projects were not performed due to the suspension of inter-island travel caused by the COVID-19 pandemic. Although the Highways Division did perform annual reviews of subrecipients? single audit reports, the federal award finding was not identified due to oversight. Effect The Highways Division was not in compliance with subrecipient monitoring requirements of the Uniform Guidance dictating that on-site reviews be performed and that appropriate follow-up procedures be performed on findings identified in the subrecipients? single audit reports. Recommendation We recommend that the Highways Division adhere to its subrecipient monitoring policy and develop alternative procedures to conduct compliance audits while on-site reviews are suspended during the pandemic. We also recommend that the Highways Division carefully review subrecipient audit reports and follow up on any identified noncompliance deficiencies to ensure that the subrecipient takes timely and appropriate action on all deficiencies reported.

Finding No. 2020-004 Subrecipient Cash Management U.S. Department of Transportation U.S. Federal Highway Administration Highway Planning and Construction Cluster CFDA No. 20.205 Criteria In accordance with the Cash Management Improvement Act Agreement between The State of Hawaii and The Secretary of the Treasury, United States Department of the Treasury (the Treasury State Agreement), the time period from the date Federal funds are received and credited to the State?s account and the date those funds are expended from the State?s account shall be no more than 8 days. Condition During our audit, we noted that the Highways Division requested federal reimbursements from U.S. Federal Highway Administration (FHWA) for subrecipient expenditures prior to remitting payments to subrecipients. We noted that for 11 of the 28 requests for reimbursement during the year ended June 30, 2020, payments to subrecipients were made more than 8 days after reimbursements were received from FHWA, ranging from 10 days to 64 days. These payments to subrecipients aggregated to $15.9 million. Cause Upon receipt of federal reimbursement from FHWA for subrecipient expenditures, the fiscal office prepares a TDR to transfer funds to the Highways Division cash in State Treasury account in FAMIS. This process usually takes eight days to post. Once the funds are posted in FAMIS, subrecipient payments begin to be processed. Staffing issues, including the extended leave of absences, retirements, staff turnover, and vacancies within the fiscal office, has contributed to the delay in processing payments. Effect The Highways Division did not comply with the cash management requirements to minimize the time elapsing between the receipt of funds from FHWA and their disbursement to subrecipients. Repeated failure to request funds in accordance with the Treasury State Agreement could result in the denial of requested federal reimbursements from FHWA prior to remitting payments to subrecipients. Recommendation We recommend that the Highways Division adhere to established policies and procedures to ensure compliance with the Treasury State Agreement. Specifically, the time period from the date federal funds are received and credited to the Highways Division?s account and the date those funds are expended from the Highways Division?s account should not exceed 8 days as stipulated in the Treasury State Agreement.

Finding 2019-002 Davis-Bacon Act U.S. Federal Highways Administration Highway Planning and Construction Cluster CFDA No. 20.205 Criteria The Highways Division must ensure that contractors and subcontractors working on construction projects funded with Federal financial assistance comply with the provisions of the Davis-Bacon Act (the Act) and the U.S. Department of Labor regulations. Specifically, contractors and subcontractors must submit weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance (certified payroll reports), evidencing that their employees were paid wages not less than those established for locality of the project (i.e., prevailing wage rates). Condition Certain Highways Division construction projects are subject to the provisions of the Act. In order to monitor compliance with these provisions, the Highways Division has developed policies and procedures requiring contractors and subcontractors to submit weekly certified payroll reports within 7 calendar days after the pay checks are disbursed. Upon receipt of the certified payroll reports, the Highways Division will date and time stamp the reports, and forward the reports to the respective project engineer for his or her review to determine compliance with the Act. During our audit, we selected and tested a sample of 40 certified payroll reports. We noted that 28 of the certified payroll reports were received after the 7-day deadline. We also noted that although the Highways Division?s certified payroll reports contained evidence of review, there was no consistent method followed to document who the reviewer was and/or the date that the review was performed. Cause The Highways Division did not adhere to its internal policies and procedures requiring project engineers to obtain and review certified payroll reports on a timely basis to determine that contractors and subcontractors are paying their employees the prevailing wage rates. We also noted that each district office has different procedures in place to document compliance with provisions of the Act. Effect The Highways Division did not comply with the provisions of the Act requiring the timely receipt of certified payroll reports submitted by contractors and subcontractors to determine that their employees are paid prevailing wage rates. Recommendation We recommend that the Highways Division adhere to its internal policy requiring project engineers to obtain and review certified payroll reports on a timely basis (i.e., within 7 days after the pay checks are disbursed) to determine that the contractor or subcontractor is complying with the prevailing wage rate requirement. Additionally, we recommend that the Highways Division develop standardized procedures to document the date and time of receipt of the certified payroll reports, as well as the review and approval of those certified payroll reports by project engineers.

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