Federal Reports

Our Objective(s)

To assess the Federal Railroad Administration's (FRA) (1) internal controls related to recording and monitoring of its accountable personal property (APP) records and (2) the accuracy and completeness of FRA's APP records. 

Why This Audit?

We have previously identified issues in the Department of Transportation's (DOT) Operating Administration property management, including incomplete or inaccurate inventory information. Specifically, our prior work found that FRA had not capitalized any of its eligible equipment worth up to $53 million. Effective APP management is crucial to facilitating accurate and complete Federal financial reports. 

What We Found

FRA's policies and procedures for recording and monitoring accountable personal property are outdated and ineffective. 

• FRA Order 4601.1E, Personal Property Management, which established policies and procedures for APP management, had not been updated since it was published in 1993 as of the end of fiscal year 2023. 
• The Order does not comply with the Federal Personal Property Management Act of 2018 because it does not meet its requirements for APP inventories. It also does not provide clear and complete guidance for accurate property management using the FRA Asset and Space Management (FASM) system. 

FRA's records for APP are incomplete and inaccurate.

• FRA does not record all APP timely and accurately. Of the 1,002 assets associated with FRA's Automated Track Inspection Program, FRA did not record 250 of these assets in FASM within a year of the system's inception and did not always correctly record asset location. 
• FRA's FASM contains inaccurate records for 21.82 percent of the 13,190 items in our APP universe, and 2.68 percent of the assets in the universe did not have a recorded acquisition date. FASM also does not contain acquisition documentation for 99.6 percent of the 13,190 APP items in our universe with a total value of over $50 million. 
• FRA's FASM does not meet Federal Financial Management System Requirements for a property management system. Specifically, the system cannot generate an audit trail, and it does not allow the calculation of the data necessary to support FRA's financial accounts. 
• FRA does not always remove its disposed-of APP assets from active asset tracking. Of 681 assets for which FRA provided disposal documentation, 69 percent were not marked as disposed in FASM. 

Recommendations

We made 8 recommendations to improve FRA's management of APP.

We found that the photovoltaic systems (PV) and water tanks installed in participant’s homes had deficiencies.  Such deficiencies included inverters and batteries with signs of rust; water intrusion that could lead to electrical shorts; electrical conduits that were degrading due to direct exposure to the sun; electrical conduits with water; and water tanks that were leaking, overflowing, or both.  Based on statistical projections, at least 57 percent of installations had at least one deficiency.  In addition, we noted that almost 33 percent of inverters and battery storage systems were not installed in accordance with the installer agreements and manufacturers’ specifications.  The contractors who installed the batteries and inverters exposed them to the elements and direct sunlight, contrary to the terms of the agreements and manufacturer specifications.  In addition, we determined that PRDOH’s installation oversight was inadequate.  PRDOH disregarded its own contract terms and the equipment manufacturers’ guidelines, which required the equipment to be protected from direct sunlight and the elements.  Although quality control inspections were performed, the inspections did not identify that the installations were improperly completed.  PRDOH’s actions could lead to manufacturers voiding equipment warranties, equipment lasting less than the required timeframe, and malfunction of improperly installed equipment.  Further, PRDOH spent more than $19 million on installation services that do not comply with the agreements and manufacturers’ specifications.

We also found that PRDOH did not provide adequate support to justify its contract amendments with installers to perform additional subtasks.  PRDOH provided a memorandum to support its contract amendment, which cited that 99 percent of repair cases needed corrections to electrical components to install the PV system.  However, PRDOH could provide support for only 2 percent of the repair cases, which significantly contradicts the 99 percent figure.  This condition occurred because PRDOH’s original scope of work and contract was vague and did not specifically list the preliminary electrical work and three subtasks that PRDOH’s installers completed as part of the installations.  By making these contract amendments, rather than clearly including the work in the original scope of work and contracts, PRDOH lost bargaining power and likely spent more than was necessary. As a result, PRDOH did not assist as many disaster recovery program participants as it could have without the costly $31 million contract amendments. Finally, we also found that the methodology PRDOH used when calculating household income for eligibility purposes of the CEWRI program led to inconsistent eligibility determinations among program participants with similar income amounts.  This occurred because PRDOH incorrectly interpreted and applied the IRS 1040 methodology when determining the participant’s household income.  As a result, PRDOH could not ensure that it adequately or appropriately distributed disaster recovery funds among low- and moderate-income program participants to whom the program is meant to benefit.

We recommend that the Director of the Office of Disaster Recovery instruct PRDOH to (1) remediate all outside installations that are directly exposed to sunlight and the elements or repay HUD more than $19 million from non-Federal funds, (2) submit supporting documentation so HUD can evaluate the basis of the contract amendments and determine the eligibility of more than $31 million in disaster recovery funds, (3) structure future contracts to ensure the scope of work is clearly defined so that all parties understand the agreement, and (4) re-evaluate the methodology used to determine income eligibility to ensure a consistent application that improves the outcomes of the program.

This audit was performed by the independent public accounting firm of KPMG LLP (KPMG) on behalf of the Department of Energy’s Office of Inspector General. KPMG audited the combined balance sheets of the Department’s Southwestern Federal Power Systems (SWFPS) as of September 30, 2024, and 2023, and the related combined statements of changes in capitalization, revenues and expenses, and cash flows for the years then ended, and the related notes to the combined financial statements.

The audit’s objective was to obtain reasonable assurance about whether the financial statements, as a whole, were free from material misstatement due to fraud or error and to issue an auditors’ report that included an opinion.

KPMG performed the audit in accordance with generally accepted government auditing standards.

KPMG concluded that the financial statements presented fairly, in all material respects, the financial position of SWFPS as of September 30, 2024, and 2023, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles. KPMG also considered SWFPS’ internal control over financial reporting as part of its review and identified certain deficiencies in internal control that they considered to be a material weakness concerning post-retirement benefit expenses and workers’ compensation liability. In addition to the material weakness, KPMG also identified a significant deficiency over entity-level controls. KPMG tested for compliance with certain provisions of laws, regulations, contracts, and grant agreements that could have a direct material effect on the financial statements. The results of the auditors’ review disclosed no instances of noncompliance or other matters required to be reported under Government Auditing Standards, applicable Office of Management and Budget guidance, or the Federal Financial Management Improvement Act of 1996.

The Office of Inspector General issued Notices of Findings and Recommendations to management throughout the audit. All findings and recommendations will be detailed in a separate management letter that will be provided to Southwestern Power Administration. There are no formal recommendations that need to be tracked in the Departmental Audit Report Tracking System; therefore, an additional response is not required.

The Office of Inspector General engaged the independent public accounting firm of KPMG LLP (KPMG) to conduct the fiscal year 2024 combined financial statements audit of the Southwestern Federal Power System (SWFPS), subject to our review. As part of this audit, KPMG considered SWFPS’ internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing its opinion on the financial statements but not for the purpose of expressing an opinion on the effectiveness of SWFPS’ internal control.

KPMG performed the audit in accordance with generally accepted government auditing standards.

During the audit, KPMG identified certain deficiencies in SWFPS’ internal control related to entity level controls, post-retirement benefits, workers’ compensation, personal protective equipment, and operation and maintenance expenses that are included in the attached management letter.  

The attached letter contains 5 findings and 17 recommendations that were issued to Southwestern Power Administration during The Southwestern Federal Power System’s Fiscal Year 2024 Combined Financial Statements Audit. Management concurred with the findings and recommendations and had taken or planned to take corrective actions. Management’s responses are included with each finding.

We found that since 2016 the company has made targeted improvements to the processes and data it uses to manage its state-of-good-repair (SOGR) work, and other improvement initiatives are underway. Despite these efforts, the company’s infrastructure asset management capabilities have not advanced significantly because it has not yet taken some foundational steps, including fully establishing a governance framework and strengthening its SOGR infrastructure asset data. Until it addresses these issues, it cannot reasonably demonstrate how the federal funds it receives will reduce its SOGR backlog or the timeline to eliminate it.

We recommended that the company fully establish a governance framework for infrastructure asset management that includes specific objectives and performance metrics, as well as defined activities and resources needed to achieve a state of good repair. Further, we recommended that the company better communicate roles and responsibilities of staff and departments involved in SOGR work. We also recommended advancing ongoing data improvement efforts and developing additional controls to help maintain a complete, accurate inventory.

We found that UCRC misclassified its agreements and did not verify whether subcontractors were on an exclusions list prior to awarding funds. 

We found that BOR complied with required laws and regulations when awarding drought mitigation funds but there are opportunities for improvement.