Metro Reports Cite Accounting and Security Gaps
Problems Include Management of Federal Fund and Tracking of Farecards

By Lena H. Sun
Washington Post Staff Writer
Sunday, March 22, 2009

Metro is asking state and local governments for more funding to help close its budget gap, but two reports raise concerns about how the agency monitors spending and fraud.

The reports, by Metro's inspector general, highlight weaknesses in the agency's handling of federal funds and tracking of Farecard inventory. They also found sloppy accounting, a lack of internal controls and poor oversight.

In some cases, there were inadequate physical safeguards for cash and Farecards. For example, security cameras at two Metro sales offices remained broken for two years. Supervisors said they alerted sales office managers, but no action was taken. After sales office workers found cash and Farecards missing, requests for action were not acted upon or investigated, according to Inspector General Helen Lew.

As Metro and its board consider reducing service, seeking larger contributions from jurisdictions served by the agency and using federal stimulus money to close a $29 million deficit in next year's budget, some riders and officials have questioned how the agency manages its funds. The agency is slated to receive about $200 million in stimulus money.

"Shouldn't the people in charge of the money be in charge of the money?" asked Ben Ross, spokesman for Transit First!, a riders' group. "That's the kind of sloppiness that led to the problem with money being stolen from the parking garages," he said. In 2004, Metro discovered that $500,000 to $1 million a year was going missing from parking facilities because managers ignored problems of clerks stealing parking fees. The scandal prompted Metro to switch to a cashless parking system.

"The bottom line is more accountability and transparency is demanded of every public agency," said Maryland Transportation Secretary John D. Porcari. "I look forward to following up on some of these issues with the general manager and others."

Fairfax County Supervisor Jeff McKay, a Metro board member, called the issues raised in the reports "very disturbing."

"Contemplating giving more money to an agency that has flaws like this is a tough pill for a lot of my colleagues," McKay said, noting that the county is facing its own budget crisis. The reports demonstrate "that we haven't really sifted through a lot of years of corruption and lax oversight at Metro," he said. "It makes you wonder where the bottom is."

Metro officials said they have instituted new internal controls and procedures. In the past six months, top finance personnel have been replaced. Over the past two years, the agency has eliminated 500 positions, creating "major efficiencies everywhere we can," said General Manager John B. Catoe. He said that the agency needs to improve oversight of accounting and financial functions, as well as customer service, and that he would be "making changes."

With about 10,000 employees, Metro is a "huge ship to flip over completely," he said. "We're not perfect, but we're getting there."

Metro has also failed to track how federal funds are spent, the audit found. The agency has received about $2.2 billion in federal grants over the past 10 years, primarily from the Federal Transit Administration and the Department of Homeland Security. The funds are for capital projects, such as overhauling buses and rail cars, and they can be spent only for those specific purposes.

But in several instances, the inspector general found, the accounting was inaccurate. For example, Metro spent $46,000 to buy two police motorcycles with money for preventive rail maintenance. Metrobus managers spent $264,000 on 50 laptop computers under a line item for 40-foot hybrid electric buses. (The laptops were to be installed in supervisors' vehicles to help them track bus locations.)

"We found that the grants management process is decentralized and lacks adequate oversight and monitoring to ensure that items charged to federally funded grants are properly categorized and are allowable," one of the reports says.

Metro officials said they have addressed most of the problems outlined in the reports. They noted that the errors represent "a minuscule fraction of the tens of millions of federal dollars we spend responsibly every year," Metro spokeswoman Candace Smith said.

After the audit, the manager of the federal grants program was fired, officials said. And when a new chief financial officer took over six months ago, the treasurer was reassigned and a replacement hired. The chief functions of the grants program were consolidated under the new treasurer.

Chief Financial Officer Carol Kissal said her office is overhauling how grants are managed and will put procedures and policies in place by the end of June. Metro also is instituting new requirements for electronically tracking funds. By July, the public will be able to see a comprehensive list of capital projects, including stimulus projects, on Metro's Web site and be able to track monthly spending, Smith said.

In the handling of Farecards, the inspector general's staff found that people were obtaining expired Farecards -- with no value -- and redeeming them at sales offices for new ones, in violation of Metro policy. The report does not estimate how much revenue Metro has lost as a result. Agency officials said it was insignificant.

Metro takes in about $581 million a year from fare sales.

Non-Metro personnel are not supposed to have access to used Farecards. Used cards are collected by the vending machine when a customer adds value to a card and gets a new one. The machine marks the used ones to show they have no value and should be destroyed, and members of Metro's treasury staff are supposed to shred them. But after problems with the shredder, the cards were instead dumped in the trash, the audit found.

Somehow, those used cards made their way back into the system. Although treasury personnel knew that redeemed Farecards were being reused, "no action was taken to implement more effective procedures, equipment or controls to ensure that all redeemed Farecards are properly destroyed" until the inspector general's audit.

Metro officials said they plan to buy a new shredder. They have also retrained sales clerks not to accept the clearly-marked expired Farecards.

The inspector general's staff also found a net shortage of Farecards totaling $14,486 at three sales offices last summer. The report notes that there were smaller shortages in previous years but that managers failed to "adequately investigate or determine the circumstances surrounding these shortages."

No one regularly counts the Farecards and reconciles the numbers against a central inventory, the audit found.

The more serious issue is that management of fare sales is spread over four offices, "with no one official accountable for policy, procedures and oversight," according to the report.

Metro officials blamed most of the shortages on fraud by a former supervisor who was sentenced to three years in prison last year for stealing more than $560,000 in cash from the sale of Farecards and bus tokens. According to court documents, the employee stole the money from 2001 until she was fired in October 2007. She forged end-of-the-day accounting sheets of the 10 to 15 clerks she supervised at three sales offices to cover up her deception.

Acting on the inspector general's recommendation, officials revised procedures and controls over fare sales "to provide faster detection of irregularities as well as clearer accountability and reporting procedures," spokeswoman Lisa Farbstein said.

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