with the approved plans and specifications. Following the passage of the 1956 Highway Act, financial audit was also made of the costs of any railroad or utility changes that were involved in the project. This audit was made at the accounting offices of the railroad and utility companies.
As the size of the Federal-aid program, and the resulting audit workload, increased over the years, the organizational arrangement for accomplishing the audit necessarily changed. Originally all external audit was performed by auditors attached to the Washington headquarters, and they traveled out of Washington to make the audits. In the next evolutionary stage, the very small group of auditors were headquartered at various geographically strategic locations in the field to reduce travel costs—however, they still reported to the Washington headquarters. At the next stage, at least one auditor was placed in each regional office. At the end of World War II, as a part of the major reorganization for the greatly expanded postwar highway program, the audit function was decentralized to the district offices which were established in each State. During this evolutionary period, there was no significant change in the concept or form of the audit.
The external financial audit program experienced many progressive changes over the years to keep the Bureau’s audit program consistent iwth the latest and most sophisticated audit concepts and procedures as they were developed.
It was not until 1954 that the Regional Enigneers, for the first time, were delegated authority to approve payment of final construction vouchers, and those only if they did not include any costs for rights-of-way or railroad or utility work. This was a significant step because it involved making the final evaluation and decision on audit findings.
In 1961 the current billing and concurrent audit procedure was developed and authorized. This concept permitted those States using electronic data processing equipment to make a single consolidated monthly claim for reimbursement of the Federal share of all project earnings. Under this procedure, BPR auditors utilized a “system audit” or concurrent audit concept in lieu of a voucher and record audit. It constituted an audit of the State’s total accounting system, including the flow of source data and the State’s own auditing processes rather than an audit of individual projects. Under the new system, the final audit was essentially complete when the final voucher was received and only a minimum of additional review was required.
In 1968 operational auditing was initiated to further supplant the traditional audit procedures. Operational auditing is a continuing and comprehensive audit of the administrative, accounting, and operational procedures and controls employed by the State in the administration of the Federal-aid program. It allowed the auditor to express an opinion on costs claimed as representations of the system rather than having to use claims as the medium through which audits were conducted.
In 1971 a single audit concept was authorized where the State agreed to perform an independent audit of the Federal program. The FHWA auditors reviewed and accepted the State-performed audits.
In 1974, as a condition of receiving funds, the States were asked to perform an internal financial audit of all Federal-related activities at least biennially. If the reports and work papers were available for review, if audit standards under which the work was done were adequate, and if they otherwise met Federal requirements, FHWA auditors were directed to use and rely on it in lieu of Federal audits.
The professional development and continuous improvement of the external financial audit activities of FHWA were possible only because the States’ financial management and audit activities kept pace with FHWA’s objectives. This required a great deal of Federal–State cooperation and responsive professional leadership on both sides.
As mentioned earlier, the Budget and Accounting audit programs in the agencies and departments. Accordingly, in 1953 BPE established an internal review office in the Audits and Accounts Division of the Washington headquarters.
At first the new internal review activities were mainly confined to the administrative areas of program management, but the office provided a staff capability to evaluate and recommend action on the General Accounting Office comprehensive audit reports of elements of the highway program.
Following enactment of the 1956 Federal-Aid Highway Act, the internal review program was broadened and a project examination office was created in 1957, which included the internal review functions.
The new project examination office was given broad and independent responsibility to review program and project administration at all levels of the Bureau and in the State highway departments. The reviews were to be made by four-man teams consisting of a professional investigator who was in charge of the team, an engineer, a right-of-way specialist, and a fiscal or administrative auditor. An intensive and highly selective recruiting effort was put forth to obtain well-qualified professional civil and criminal investigators, a skill until then not utilized in BPR. The emphasis on investigative talent was two fold: (1) It was anticipated that the large sums of money that would be involved in the construction of the Interstate System, in combination with the greatly expanded highway program in general, would require close vigilance to prevent scattered incidents of irregularities, collusion, bribery, etc.; and (2) it was believed that professional investigators would be particularly skilled in the plan- ning and conduct of investigative reviews, while the subject matter specialists would provide the required program evaluation and compliance expertise.
The creation of the project examination office proved most timely. Problems of irregularities involving highway department employees, contractors, and others did in fact develop and, in many instances, were first identified by the project examination reviews. Unfavorable publicity which followed these incidents resulted in congressional interest and the creation in 1959 of a Special Investigative Subcommittee on the Federal-Aid Highway Program under the House Public Works Committee. The Subcommittee was under the chairmanship of the Honorable John A. Blatnik of Minnesota and became commonly known as the Blatnik Committee. A well-qualified and ex-
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