Finance & Administration Committee

Information Item IV-A

April 9, 2015

Financial Status Update and

FMO Progress Report

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Washington Metropolitan Area Transit Authority

Board Action/Information Summary

TITLE:

Financial Status Update and FMO Progress Report

PRESENTATION SUMMARY:

Staff will update the Committee on WMATA's overall financial status and on the status of WMATA's Corrective Action Plan (CAP) responses to the Federal Transit Administration's (FTA) Financial Management Oversight (FMO) report. In addition, staff will provide an overviewof the functions and activities of the Internal Compliance Office.

PURPOSE:

Provide an update the Committee on WMATA's overall financial status and on the status of WMATA's Corrective Action Plan (CAP) responses to the Federal Transit Administration's(FTA) Financial Management Oversight (FMO) report. In addition, staff will provide an overview of the functions and activities of the Internal Compliance Office.

DESCRIPTION:

Key Highlights:

Since last month's report:WMATA's FFY2014 PRIIA grant application for $148.5 million was certified by the Department of Labor on March 11. The final grant award is pending the FTA Administrator’s final approval of the program of projects. When awarded, this will bring the total value of grants awarded since January to $733 million.$7 million of federal grant reimbursement funds were successfully drawn.Moody's downgraded WMATA's debt rating one notch from Aa3 to A1.

WMATA committed to 65 CAP items in response to FTA’s FMO findings andadvisory comments. To date, documentation has been submitted for 62 of 65CAPs. Two Material Weakness CAP submissions, originally due September 8,2014, have been extended to June 30, 2015, and the final Advisory Comment CAPhas a committed due date of June 30, 2015.WMATA's Office of Internal Compliance was established and is responsible formonitoring compliance with CAPs.

Background and History:

The FMO report of June 10, 2014, identified nine separate findings, including threematerial weaknesses and six significant deficiencies. An additional five advisory

Action Information MEAD Number:201454

Resolution:Yes No

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comments were also identified. A total of 45 recommendations from FTA for addressingthe findings and comments were included in the FMO report.

Discussion:

Since last month's report, the following notable actions have occurred that impact WMATA's overall financial status:

WMATA's FFY2014 PRIIA grant application for $148.5 million was certified by theDepartment of Labor on March 11. The final grant award is pending the FTAAdministrator’s final approval of the program of projects. When awarded, this will bring the total value of grants awarded since January to $733 million.$7 million of federal grant reimbursement funds were successfully drawn.Moody's downgraded WMATA's debt rating one notch from Aa3 to A1.

The FMO Dashboard contains the status as of March 31, 2015 of the 65 CAP items byfinding level, the status of FMO-related training in key areas, a chart illustrating thequality and acceptance level of recent drawdown packages, and a summary of thenumber of FTA recommendations fulfilled based upon CAP submissions. WMATA continues to maintain a cumulative success rate of 98 percent for federal grant reimbursement requests.

Overview of the Internal Compliance ProcessWMATA’s Office of Internal Compliance is responsible for assessing, reviewing, and monitoring WMATA’s adherence to financial management controls and related policies and procedures.

The Office of Internal Compliance (OIC) conducts objective assessments and reviews to monitor WMATA’s adherence to financial management controls and related policies and procedures, with a primary focus on compliance with applicable federal regulations necessary to preserve WMATA’s federal grant eligibility. Reviews are designed to evaluate the design and operating effectiveness of financial management controls, whichincludes internal controls over compliance with applicable regulations and internal policies and procedures.

The OIC fosters a greater awareness of risk management and internal controls by providing related guidance and training.The OIC partners with departments with financial management control responsibility across WMATA to review and evaluate the efficiency and effectiveness of business processes and assists with the implementation of “bestpractices”.

The evaluation of the system of internal controls over financial management is completed using a top-down risk based approach. A top-down risk based approach begins with an understanding of the overall risk of compliance and risks to financial management operations. With clearly defined compliance and financial management objectives, the Office of Internal Compliance is able to identify and assess the risks to meeting these objectives and the level of risk presented by each area of financial management operations. A focus is then placed on entity-level controls and the controlswithin each department and business functions responsible for financial management processes and related controls.

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The objective of this approach is to direct higher level of focus to business units and functions that present a higher level of compliance risk to WMATA.

With reasonable understanding of the overall risk of compliance at the entity and the individual business process level, the OIC selects for testing those controls that sufficiently address the assessed risk of compliance. Controls are evaluated as part of individually scheduled reviews defined in an annual Compliance Review Workplan.

The nature, timing, and extent of reviews (test work) completed are in alignment with the related risk level. Reviews are designed to evaluate the design and operating effectiveness of WMATA’s internal controls over compliance with applicable regulations and internal policies and procedures, and to provide reasonable assurance that the risks have been reduced to an acceptable level.

The result of compliance reviews and testing completed are summarized and reported for appropriate resolution. Management will be required to provide a timely corrective action plan for all deficiencies noted. The Office of Internal Compliance will manage all deficiencies identified through resolution with CAP follow up reviews as applicable.

With a primary focus on FMO CAP Follow up, the Office of Internal Compliance developed a work plan which includes a total of 18 scheduled reviews through June 30, 2015.The office of Internal Compliance has completed 3 of the scheduled reviews, 9 are now in progress, and 5 reviews have a future start date.

The initial risk assessment scheduled for completion as of June 30, 2015, will be used to develop a full annual compliance review work plan starting with fiscal year 2016 (July 1, 2015 - June 30, 2016).

FUNDING IMPACT:

TIMELINE:

RECOMMENDATION:

No action required - information item only.

Information item only, no impact on funding.Project Manager: J. Blair Fishburn

ProjectDepartment/Office: CFO

Previous Actions July 2014 through March 2015 - Monthly presentations to FA Committee on FMO status of FTA submissions and CAP items.

Anticipated actions afterpresentation

May 2015 and forward - completion of remaining three CAP items and long-term compliance monitoring.

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Financial Status Update andFMO Progress Report

Finance & Administration CommitteeApril 9, 2015

Washington Metropolitan Area Transit Authority

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Purpose

• Provide update on WMATA financial status• Provide monthly progress report on FMO

Corrective Action Plans (CAPs), FTA feedback and follow-ups

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Financial Update Since Last Month

• FFY2014 PRIIA grant application for $148.5 million certified by Department of Labor:– Grant award is pending FTA Administrator’s

final approval of program of projects– Will bring total value of grants awarded since

January to $733 million

• Grant reimbursement draws of $7 million• Moody’s debt rating downgrade of one

notch (from Aa3 to A1)

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FMO Dashboard as of 03/31/2015

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FMO Dashboard –CAPs Status by Finding

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FMO Dashboard – Reimbursement Request Success Rates

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FMO Dashboard –Compliance Training

475

300

200

448

267

171

0 100 200 300 400 500

Procurement

Grants Management

Asset Management

No. Trained Staff Training Estimate

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FMO Dashboard – Completionof FMO Recommendations

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FMO Summary Timeline

Final FMO Report

received from FTA

June 10, 2014

June 30 –Sept. 30

62 CAP items

submitted to FTA

30-, 60- & 90-day CAP follow-ups received from FTA

Oct. 1 –Oct. 22

Extension dates

submitted to FTA for

two 90-Day CAP Items

Oct. 31

Nov. 5

90-day CAP follow-ups submitted

to FTA

30-, 60- & 90-day CAP follow-ups received from FTA

Dec. 10 -Dec. 22

Dec. 23 –Jan. 30

30-day & 90-day

CAP follow-ups submitted

to FTA

Oct. 15

30- & 60-day CAP

follow-ups submitted

to FTA

90-day CAP follow-ups received from FTA

Feb. 25

March 20

90-day CAP follow-ups submitted

to FTA

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• WMATA submitted follow-up responses to FTA on March 20 relating to FMS Access Controls

• WMATA’s Office of Internal Compliance has initiated FMO CAP Self-Assessment Reviews:– Budget Controls– Cash & Grants Management– Federal Financial Reporting– Procurement & Job Order Contracts

Update

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Internal Compliance Process Overview

• Established Fall 2014• Director joined WMATA on January 26, 2015

• Monitors adherence to financial management controls• Fosters awareness of risk management and internal

controls by providing related guidance and training• Partners with WMATA’s departments to improve

business process efficiency and effectiveness

WMATA’s Office of Internal Compliance

Responsibilities

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Internal Compliance Process Overview (cont.)

Approach and Methodology

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Risk-Based Review Process

• Risks assessed on impact and probability of occurrence • Overall risk rating assigned to each area• Initial risk assessment to be completed by June 30, 2015

Internal Compliance Process Overview (cont.)

Insignificant Minor Moderate Significant Major

Low Moderate Elevated High High

Low Low Moderate Elevated High

Low Low Moderate Elevated Elevated

Insignificant Low Low Moderate Moderate

Insignificant Insignificant Low Moderate Moderate

Prob

ability

What is the

 likelih

ood of risk 

occurren

ce?  

ImpactWhat is the potential impact or consequence?

 Rare

Almost Certain

Likely

Possible

Unlikely

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• Policy Reviews• Risk and Control Reviews • Control Validations • Control Certifications

Results and Corrective Action Plans (CAPs)• Results are analyzed, summarized, and reported • Management required to provide timely corrective

action plans • Deficiencies managed through resolution

Nature of Reviews

Internal Compliance Process Overview (cont.)

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Summary of Review Activity

Financial Management Areas 

FY Q2 Reviews (Oct‐Dec 2014)

FY Q3 Reviews(Jan‐Mar 2015)

FY Q4 Reviews (Apr‐Jun 2015)

FY 2015

Planned In Progress Completed Planned In Progress Planned Planned Total

Procurement Controls  2 1 1 5 4 1 8

Grant Management Controls 2 0 2 3 3 0 4

Financial Management Controls  0 0 0 2 2 3 6

Totals  4 1 3 10 9 4 18

Plans – Next 6 Months • Complete risk assessment and FY2016 work plan• Compliance and internal control awareness and

accountability • Follow-up activities from completed reviews

Internal Compliance Process Overview (cont.)

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• Achieve progress milestones and participate in monthly FTA Region III reviews

• WMATA’s Office of Internal Compliance will continue follow-up reviews of FMO CAPs

Next Steps

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