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Audit Stewardship and Oversight of Large and Innovatively Funded Projects in Europe

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U.S. Department of Transportation Federal Highway Administration

In cooperation with:

FHWA-PL-07-001

Notice

The Federal Highway Administration provides high-quality information to serve Government, industry, and the public in a manner that promotes public understanding. Standards and policies are used to ensure and maximize the quality, objectivity, utility, and integrity of its information. FHWA periodically reviews quality issues and adjusts its programs and processes to ensure continuous quality improvement.

Technical Report Documentation Page

  1. Report No.: FHWA-PL-07-001
  2. Government Accession No.:
  3. Recipient's Catalog No.:
  4. Title and Subtitle: Audit Stewardship and Oversight of Large and Innovatively Funded Projects in Europe
  5. Report Date: March 2007
  6. Performing Organization Code:
  7. Author(s): John P. Jeffers, C. Lamar McDavid, John V. Broadhurst, Karen R. Grosskopf, Jerry J. Jones, Edward G. Kamnikar, Judith A. Kamnikar, Jennifer R. Mayer, Carolyn Rosti, Betsy Scott, James H. Shumock, Owen Whitworth
  8. Performing Organization Report No.:
  9. Performing Organization Name and Address:
    American Trade Initiatives
    P.O. Box 8228
    Alexandria, VA 22306-8228
  10. Work Unit No. (TRAIS):
  11. Contract or Grant No.: DTFH61-99-C-005
  12. Sponsoring Agency Name and Address:
    Office of International Programs
    Office of Policy
    Federal Highway Administration
    U.S. Department of Transportation
    American Association of State Highway and Transportation Officials
  13. Type of Report and Period Covered:
  14. Sponsoring Agency Code:
  15. Supplementary Notes: FHWA COTR: Hana Maier, Office of International Programs
  16. Abstract:

    As transportation agencies undertake nontraditional, innovatively financed infrastructure projects, a concern among State and Federal managers is the effectiveness of the audit stewardship and oversight for these projects. The Federal Highway Administration, American Association of State Highway and Transportation Officials, and National Cooperative Highway Research Program sponsored a scanning study to document best practices used in England, France, Ireland, Portugal, and Spain in the stewardship and oversight of large, innovatively funded projects.

    The scan team observed that the terms of public-private partnership contracts have evolved as the European countries have gained experience in their use, and business models and evaluations have become an integral part of project selection and monitoring. To be effective, public sector project auditors in Europe need a range of skills, such as value engineering, business modeling, capital budgeting, and performance auditing.

    The team's recommendations for U.S. implementation include developing a Web site on audit stewardship and oversight best practices. The team also recommends that FHWA and AASHTO provide consultation and training for auditors and other financial managers involved in major or innovative procurement contracts, including development of a project planning model and an audit procedures manual.

  17. Key Words: audit, design-build-operate-maintain contract, innovative finance, oversight, public-private partnership, stewardship, tolling
  18. Distribution Statement: No restrictions. This document is available to the public from the: Office of International Programs, FHWA-HPIP, Room 3325, U.S. Department of Transportation, Washington, DC 20590
    international@fhwa.dot.gov
    www.international.fhwa.dot.gov
  19. Security Classify. (of this report): Unclassified
  20. Security Classify. (of this page): Unclassified
  21. No. of Pages: 56
  22. Price: Free

Form DOT F 1700.7 (8-72)

Reproduction of completed page authorized

Prepared by the International Scanning Study Team:

John P. Jeffers (co-chair), FHWA
C. Lamar McDavid (co-chair), Alabama DOT
John V. Broadhurst, FHWA
Karen R. Grosskopf, FHWA
Jerry J. Jones, Michigan DOT
Edward G. Kamnikar (co-report facilitator), Troy University Montgomery
Judith A. Kamnikar (co-report facilitator), Auburn University Montgomery
Jennifer R. Mayer, FHWA
Carolyn Rosti, Idaho DOT
Betsy Scott, HNTB Corp.
James H. Shumock, Thompson Engineering, Inc.
Owen Whitworth, Texas DOT

for

Federal Highway Administration U.S. Department of Transportation
American Association of State Highway and Transportation Officials
National Cooperative Highway Research Program

March 2007

Acknowledgments

The scan team members give a special thanks to the host organizations from England, France, Ireland, Portugal, and Spain that included the following:

All international hosts gave graciously of their time, produced and delivered a myriad of documents, patiently answered our many questions, and professionally presented their organizations and transportation information with well-prepared multimedia programs. To summarize the scan team's expressions and observations, all international host hospitality and programs exceeded the team's expectations.

The team also thanks the Federal Highway Administration Office of International Programs, the National Cooperative Highway Research Program, and the American Association of State Highway and Transportation Officials for their encouragement, guidance, and support and American Trade Initiatives, Inc. for its organization and support in the planning and execution of this scanning study.

International Technology Scanning Program

The International Technology Scanning Program, sponsored by the Federal Highway Administration (FHWA), the American Association of State Highway and Transportation Officials (AASHTO), and the National Cooperative Highway Research Program (NCHRP), accesses and evaluates innovative foreign technologies and practices that could significantly benefit U.S. highway transportation systems. This approach allows for advanced technology to be adapted and put into practice much more efficiently without spending scarce research funds to re-create advances already developed by other countries.

FHWA and AASHTO, with recommendations from NCHRP, jointly determine priority topics for teams of U.S. experts to study. Teams in the specific areas being investigated are formed and sent to countries where significant advances and innovations have been made in technology, management practices, organizational structure, program delivery, and financing. Scan teams usually include representatives from FHWA, State departments of transportation, local governments, transportation trade and research groups, the private sector, and academia.

After a scan is completed, team members evaluate findings and develop comprehensive reports, including recommendations for further research and pilot projects to verify the value of adapting innovations for U.S. use. Scan reports, as well as the results of pilot programs and research, are circulated throughout the country to State and local transportation officials and the private sector. Since 1990, about 70 international scans have been organized on topics such as pavements, bridge construction and maintenance, contracting, intermodal transport, organizational management, winter road maintenance, safety, intelligent transportation systems, planning, and policy.

The International Technology Scanning Program has resulted in significant improvements and savings in road program technologies and practices throughout the United States. In some cases, scan studies have facilitated joint research and technology-sharing projects with international counterparts, further conserving resources and advancing the state of the art. Scan studies have also exposed transportation professionals to remarkable advancements and inspired implementation of hundreds of innovations. The result: large savings of research dollars and time, as well as significant improvements in the Nation's transportation system.

Scan reports can be obtained through FHWA free of charge by e-mailing international@fhwa.dot.gov. Scan reports are also available electronically and can be accessed on the FHWA Office of International Programs Web Site at www.international.fhwa.dot.gov.

International Technology Exchange Reports

International Technology Scanning Program: Bringing Global Innovations to U.S. Highways

Safety

Planning and Environment

Policy and Information

Operations

Infrastructure-General

Infrastructure-Pavements

Infrastructure-Bridges


Abbreviations and Acronyms

AASHTO
American Association of State Highway and Transportation Officials
ACEC
American Council of Engineering Companies
AGA
Association of Government Accountants
AICPA
American Institute of Certified Public Accountants
AAA
American Accounting Association
ARTBA
American Road and Transportation Builders Association
BV
best value
CAT
Capability Assessment Toolkit
CEVP
Cost Estimate Validation Process
CM
construction management
CPR
corporate performance rating
CPSS
Consultant Performance and Selection System
DA
department agent
DB
design-build
DBB
design-bid-build
DBFO
design-build-finance-operate
DBM
design-build-maintain
DBOM
design-build-operate-maintain
DOT
department of transportation
ECI
early contractor involvement
EIB
European Investment Bank
EOI
expression of interest
ER
employer's representative
EU
European Union
EUROSAI
European Organization of Supreme Audit Institutions
FAF
Financial Accounting Foundation
FASAB
Federal Accounting Standards Advisory Board
FASB
Financial Accounting Standards Board
FHWA
Federal Highway Administration
GAAP
generally accepted accounting principles
GAAS
generally accepted auditing standards
GAGAS
generally accepted government auditing standards
GAO
Government Accountability Office
GASB
Governmental Accounting Standards Board
HA
Highways Agency (United Kingdom)
HARM
Highways Agency Risk Management
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IASC
International Accounting Standards Committee
IFAC
International Federation of Accountants
IIA
Institute of Internal Auditors
IIAS
International Internal Auditing Standards
INTOSAI
International Organization of Supreme Audit Institutions
IRR
internal rate of return
ISA
International Standards on Auditing
ISO
International Organization for Standardization
KPI
key performance indicator
MAC
managing agent contractor
NCHRP
National Cooperative Highway Research Program
NHI
National Highway Institute
NPV
net present value
PCAOB
Public Companies Accounting Oversight Board
PFI
private finance initiative
PM
project manager
PPC
public-private comparator
PPP
public-private partnership
RFP
request for proposals
SAIs
supreme audit institutions
SEA
service efforts and accomplishment reporting
SIB
state infrastructure banks
STIP
scan technology implementation plan
TRB
Transportation Research Board
U.S. DOT
U.S. Department of Transportation
VFM
value for money

Executive Summary

The process and methodology for the delivery of large highway projects remained basically unchanged for the second half of the 20th century. However, increasing demands for quality transportation systems, rising costs of construction, and a relatively flat revenue stream to finance these projects led the Federal Highway Administration (FHWA) and State departments of transportation (DOTs) to look for new and innovative financing methodologies. As a result, the 21st century seemed to initiate an era of new and innovative ways of financing U.S. highway transportation needs. New methods of financing were proposed and implemented by the U.S. Congress along with private sector initiatives such as private ownership and financing of public highway infrastructure projects.

A concern among State and Federal managers is a loss of effective audit oversight and stewardship on large and nontraditional road transportation contracts. Under the auspices of FHWA's International Technology Scanning Program, the Transportation Research Board's (TRB) National Cooperative Highway Research Program (Panel 20-36), and the American Association of State Highway Transportation Officials (AASHTO), a scan team of 12 audit and financial management specialists from the Federal and State governments, the private sector, and academia visited Europe to search for best practices on audit stewardship and oversight.

During May 2006, the international technology scan team visited five European countries that have extensive experience in highway construction of large and innovatively funded projects, including public-private partnerships. Government officials from audit agencies and road transport agencies in England, France, Ireland, Portugal, and Spain welcomed the U.S. team and presented information on their:

  1. Audit practices, both independent and internal.
  2. Stewardship of the government's assets.
  3. Oversight of large road projects, many of which were accomplished through public-private partnerships (PPP).
  4. Use of tolls and concession contracts to meet service needs of multiple constituencies.

The team returned with several recommendations that have the potential to improve audit stewardship and oversight of large road projects in the United States. This summary provides a brief description of the findings and recommendations of the team. Details on the observations, findings, and recommendations are in Chapters 1, 2, and 3 of this report.

Overview

The following definitions were used for this international technology scan:

As part of its stewardship role, FHWA uses the International Technology Scanning Program to identify best practices of foreign governments that are transferable to the United States. The International Technology Scanning Program focuses on meeting the growing demands of FHWA partners at the Federal, State, and local levels for access to information on state-of-the-art technology and best practices used worldwide. This is the first scan that addresses audit stewardship and oversight. Team members gained valuable insights into audit practices during their visits with European independent and internal auditors.

General Observations About Audit Stewardship and Oversight

Responsibility for the independent audit function in the host countries rests primarily with each central government. This is similar to the U.S. model in which each State uses its own audit agency to conduct the independent (financial statement) audit function rather than a national audit agency. The responsibility for the internal audit function is also similar to the United States in that it generally resides in each agency and/or ministry. Promulgated auditing standards guide the audit practices in each host country. These governmental auditing standards are in place to ensure that governments maintain accountability to their citizenry and other constituencies. The European Union and the United States have similar audit standards.

Findings and Recommendations

The team members examined audit programs and practices employed by the host European countries that provided oversight of large and innovatively funded projects. It became obvious during the scanning study that the European community has extensive experience with nontraditional vehicles for delivering road infrastructure assets. It was also clear that the process of maintaining road infrastructure assets necessary to address European Union goals and objectives has impacted these countries and road infrastructure delivery contracts continue to be an evolving process. This is clearly demonstrated by the differences between the terms of initial PPP contracts and those now being issued. The increasing use and robustness of business models and evaluations and the sophisticated oversight processes conducted throughout the project life cycle were not as evident in initial PPP tenders. Today, they are visible and integral parts of project selection and monitoring. A summary of the team findings and recommendations is presented under the categories of audit stewardship, audit oversight, and general audit issues.

Audit Stewardship Findings and Recommendations
Audit Oversight Findings and Recommendations
General Audit Issues Findings and Recommendations

Implementation Strategies, Dissemination, and Recommendations

The scan team identified several strategies for disseminating and fostering the results of this scan. The following summarizes the implementation strategies:

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