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September 02, 2015 Article 3 min read
The Michigan Department of Transportation recently published some changes in the manner in which Act 51 is handled. Earlier this year, MDOT announced that, in order to comply with Public Act 298 of 2012, additional audit testing will need to be performed in order to assure that Act 51 funds are spent in accordance with state law. 

All audit periods starting Oct. 1, 2015, and after will be impacted. MDOT is requesting that local agencies engage their auditor to conduct something called a “performance audit,” which will provide assurance to MDOT on whether each local agency has expended Act 51 funds in compliance with the law. This testing will be performed at the time your financial statement audit is done. This provision has always been part of PA 298 but it was not immediately implemented.
 
We’d like to help you in advance of these audits by providing you some reminders of what Act 51 requires and by giving you some insight into what auditors will be looking at when doing these performance audits.
Act 51 created special funds into which specific transportation taxes are deposited and further prescribed how those revenues are to be distributed and the purposes for which they can be spent. Act 5, as amended (MCL 247.651-247.675 of the Michigan Compiled Laws) restricts the use of Act 51 funds to road maintenance, road construction, snow removal, and local road construction projects (generally).

In preparation for this performance audit, there are a number of questions you may want to ask yourself. Here is a short list of some of them:
  • Was the Act 51 report filed timely? It is due 120 days after the fiscal year end.
  • Were all of your Act 51 expenditures allowable in accordance with the provisions of the Act?  Act 51 is very specific on what qualifies as an allowable expenditure. This can be an extremely tricky area; documenting the reason Act 51 funds were used on expenditures that aren’t obviously allowable will be critical to getting through the performance audit without any hiccups. 
  • Does my government have support behind all of the expenditures that I charged to Act 51?  Without support behind an expenditure charged to Act 51, it will be very difficult to prove that the disbursement was for a purpose allowable under the Act.
  • Did my government adhere to the 10 percent limit for administrative expenses? While administrative expenses are allowed to be charged under the Act, there is a limit.
  • Did I appropriately record interest earned on major and local street dollars? Did I ensure that this interest earned on major street and local street funds was credited to the appropriate fund?
  • Did I ensure transfers from major streets to local streets were in compliance with Act 51? When transferring more than 50 percent, does my government have an MDOT-approved asset management plan?
  • Have I provided a 50 percent match from locally raised sources when I’ve used MTF funds for local street construction?
  • Non-motorized expenditures:
    • Did I prepare and submit a 5-year program for the improvement of qualified non-motorized facilities?
    • Did I spend the required amount of Act 51 funds for non-motorized transportation services and facilities?
In doing these performance audits, auditors will be testing samples and requesting backup. Be prepared for these additional requests!

Finally, auditors will also be looking at your internal controls surrounding how you comply with the Act 51 rules. It would be a good exercise for you to ask yourself what controls are in place surrounding compliance with Act 51 and whether certain controls need to be enhanced. Now is the time to make changes – before the performance audit period begins! Any significant deficiencies or material weaknesses in controls surrounding Act 51 compliance will become a finding from the audit.

We all want this process to go smoothly. A little preparation now will go a long way toward ensuring a clean audit in the future!