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Texas Performance Review 
Capital Metro 
Chapter 3
 
Financial Accountability


Financial accountability is perhaps the foremost responsibility facing any publicly funded institution, and Capital Metro's inability to provide such accountability is among its most glaring failures. Capital Metro has been entrusted with substantial funding and has repeatedly demonstrated that it cannot or will not ensure that this money is used responsibly.

In fiscal 1998, Capital Metro expects to take in at least $127.3 million and as of last fall had savings and investments of nearly $92 million. Capital Metro has been able to set aside $35 million, including a full quarter of its sales tax revenue, for fiscal 1998.
The very fact that Capital Metro can set aside millions for future purposes and still maintain its operations suggests that the authority has had little incentive to economize and establish strict cost controls. In fact, TPR found that Capital Metro has spent taxpayer funds with very little regard for efficiency and appropriateness. Questionable expenditures include a $25,000 employee "Casino Christmas party" and a $13,000 employee picnic. TPR recommends that expenditures of this type be eliminated immediately. TPR also found that employee travel costs are excessive. Capital Metro should reduce its travel and training expenditures while establishing mechanisms to control these expenses, such as the adoption of Texas state government travel reimbursement rates, which are well below Capital Metro's current rates.

TPR found that excessive cellular telephone costs were common; one former employee with no field duties ran up a $1,200 cellular telephone bill in a single month, while in Austin and other cities and states. The average monthly charge has been nearly $900 per cellular phone. TPR recommends that the authority immediately cancel all cellular phone service contracts and set goals to reduce total long-distance costs by 20 percent.

Capital Metro tickets and passes are sold in grocery stores and other retail outlets. Most outlets receive a 20 percent discount off the already reduced cost of the tickets and passes, the highest discount granted by any Texas transit authority. TPR recommends that these discounts be reduced. In addition, Capital Metro currently pays 18 stores $300 per year each to allow its bus drivers to use their public restroom facilities, and is planning to pay for bathroom access at another 43 locations. TPR recommends that the authority stop paying for a free public service, particularly since the stores have not asked to be paid.

Still other problems identified by TPR include thousands of dollars' worth of fixed assets that Capital Metro cannot locate in its inventory, a problem worsened by a lack of measures to make employees accountable for property assigned to them. TPR's recommendations in this area would improve Capital Metro's tracking and storage of valuable fixed assets. The authority also should improve its returns on short-term investments of its funds and should ensure that its investment policy complies with the Public Funds Investment Act.

The recommendations in this chapter would save Capital Metro more than $358,000 in the first year and more than $1.9 million over the next five years.

PROPOSAL 10

Eliminate expenditures of public funds for food and entertainment.


Background

Capital Metro has routinely used taxpayer funds to pay for food, parties, and presents for its employees. In fiscal 1997, the authority spent nearly $118,000 for such purposes. Given that nine-tenths of Capital Metro's revenues come directly from sales taxes paid by Austin-area residents, expenditures for food and parties are highly questionable at best, and at worst an insult to taxpayers.

These purchases are approved in the budget primarily under "Local Meetings," an account intended to fund employee meetings held in Austin.1 According to Capital Metro's accountants, such expenditures are approved by departmental managers, and any invoices with departmental approval are paid automatically. Yet many of these expenditures may violate state law, and in any case indicate excessive and imprudent spending.

Other Texas transits' practices

TPR contacted the transit authorities of Dallas, Houston, and San Antonio, and found that none of them routinely pay for parties for their employees. They have holiday and other parties for employees and their families, but the employees pay for them; transit funding is not used to pay for such functions. In Dallas, employees often pay $20 to $35 each to attend such functions, while both Houston and San Antonio have employee funds, called the "Metro Team" in Houston and the "Transit Club" in San Antonio, which pay for such activities with employee contributions, portions of the profits from vending machines, and money raised from other activities. Each of the transits indicated that they provide food for certain employee recognition events, but generally not for meetings or other events.2

State requirements

Three sections of the Texas Constitution generally prohibit expenditures of public funds for private purposes. Two sections prohibit the payment of public money to any individual. In 1965, the state attorney general interpreted one section by stating that food, coffee, cream, sugar, and similar items cannot be purchased for consumption by a state agency's employees or visitors.3 The Texas Constitution applies this prohibition to counties, cities, towns, and other political corporations or subdivisions of the state-a category that includes Capital Metro. These entities may not grant public money or provide anything of value to any individual, association, or corporation.4 The attorney general specifically ruled in 1996 that this second section applies to transit authorities. In addition, another section of the Texas Constitution prohibits taxes from being levied for a private purpose.5 Capital Metro is funded by sales taxes and must use its tax revenues for public purposes.

Food and parties

In fiscal 1997, Capital Metro spent nearly $84,000 for employee meetings and parties. For example, Capital Metro held its 1996 Christmas party at a local hotel and bought dinner for 650 employees at a cost of $28.50 per plate. The food cost alone was nearly $19,000, with other expenses of nearly $7,000 for a "casino theme" at the party and various service charges, for a total of about $25,000 for a single party. Similarly, the 1997 annual employee picnic was held at a ranch at a cost of $15.95 per person for 800 employees, with food costs alone of nearly $13,000. Other picnic amenities costing more than $300 included two face-painters for children, cotton candy, three domino tables, and a haystack.

Employee meetings often feature breakfast or lunch and food and drinks during breaks. Some were held at restaurants, such as the authority's "Operator of the Month" luncheons. TPR reviewed invoices and found up to 20 employees attend these luncheons monthly. Offerings including steaks, shrimp, salmon, and dessert are common. Capital Metro indicated that these monthly luncheons usually are attended by eight bus drivers, the general manager, and the fixed-route superintendent; again, however, authority records indicate a higher attendance at these functions. The locations usually are chosen by the drivers.6

In addition, nearly $7,500 was spent on bottled water provided to employees from two companies, Sierra and Ozarka. The purchases included both five-gallon and individual-sized 16.9 ounce bottles. The use of two companies, moreover, increases the cost, since the quantity volume is divided between the two firms. Upon questioning from TPR, Capital Metro recently entered into a contract with one company for five-gallon water bottles. The attorney general's opinion still seems to suggest that this expenditure is illegal.

Other expenditures

Capital Metro spends funds on other personal items for its employees as well. In fiscal 1997, Capital Metro spent nearly $8,000 on items such as shirts and caps for employees. The authority's records indicate that more than 700 shirts were purchased in fiscal 1997, ranging in price from around $5 each to more than $40 each.

Other questionable 1997 Capital Metro purchases included nearly $2,000 for trophies and gift certificates for employees; more than $1,300 for picture framing; $1,000 to lease plants, $800 to a private company to write one employee's resume and biography; and $225 for a mariachi band for a Diez y Seis celebration. A sample review of Capital Metro's petty cash records also found purchases of movie tickets and flowers.

Recommendations

A. The board should immediately establish a policy that prohibits spending for food, parties, and similar items.

This policy should guide Capital Metro's managers on the level of accountability the board expects concerning the use of taxpayer funds. The policy also should send a message to employees that Capital Metro's careless ethical environment has come to an end and will no longer be tolerated.

B. In conformity with this policy, the general manager should eliminate payments for food and parties and curtail other expenditures for employees to save money and restore public credibility.

Accounts Payable and the Petty Cash account should pay only those expenditures that are consistent with the policy established in Recommendation A.

Fiscal impact

If Capital Metro eliminates these types of payments, it would save $118,000 annually, based on fiscal 1997 spending patterns, and $590,000 over five years.

Fiscal Year Savings
1999 $118,000
2000 118,000
2001 118,000
2002 118,000
2003 118,000


PROPOSAL 11

Reduce Capital Metro's cost of travel and implement stronger controls over spending on training and travel.


Background

Capital Metro employees travel all over the country at taxpayer expense to attend meetings, conferences and training events. Indeed, some employees seem to spend relatively little time in their offices.

TPR's review found that 76 Capital Metro employees traveled out of Texas in fiscal 1997; 42 made just one trip, while 34 other employees each took more than one trip, up to 12 for the former manager of Contracts and Procurement. Nearly 60 percent of the authority's funding for out-of-state travel in fiscal 1997 was used by managers or supervisors, many of whom have since been fired or quit. Travel and training can improve job performance, but this goal is ill-served when administrators spend most of the money available for this purpose, leaving little for average front-line employees to use in expanding their knowledge and skills.

For example, the former manager of Contracts and Procurement's 12 trips in fiscal 1997 cost local taxpayers more than $25,000. One of these trips, made in April 1997, involved a week at the University of California at Los Angeles to study purchasing management at a cost of more than $4,000. In the following month, he went to Harvard University in Cambridge, Massachusetts to learn about "strategic public-sector negotiations," a trip that cost more than $5,000. In the same year, he also attended a conference on purchasing in Washington, D.C. for $2,500 and a rapid transit conference in Atlanta, Georgia for $2,400.

Training to improve job skills is necessary and important, but these costs and time commitments seem both unwise and questionable, especially given the problems that the Contracts and Procurement Department was experiencing at that time (see Chapter 6 on procurement issues). Perhaps these problems could have been avoided if the manager had been in town more often to manage his department, and hadn't used most of his department's training funds for himself.

The former general manager also traveled extensively, attending five out-of-state conferences in fiscal 1997 at a total cost to taxpayers of nearly $11,000. The most expensive trip, a March 1997 legislative conference in Washington, D.C., cost more than $3,000. These trips were indeed related to the general manager's job, but five in one year for nearly $11,000 appears questionable, especially since two to three other employees typically accompanied the general manager on these trips (the above costs are for the general manager only).

The Customer Service manager often travels, too. In fiscal 1997, this employee attended four conferences at a cost to taxpayers of more than $7,000, an average of $1,800 per trip. These trips were job-related but again, four in one year for more than $7,000 appears excessive.

Other questionable travel excursions occurred in calendar 1995 where four separate trips to Orlando, Florida, were taken by nine employees to participate in a four-day course called "the Disney approach to creative leadership" at Disney University. In fact, one employee went twice, once in March and again in October, at a cost to the taxpayers of nearly $6,000 for both trips. Capital Metro has spent more than $30,000 on the Disney course alone. Other high-cost trips included an October 1996 trip by two employees to the University of Michigan to learn about transit labor-contract negotiation and administration, at a total cost of more than $9,500.

Inefficient travel practices

Other Capital Metro travel practices display a similar disregard for cost-effectiveness or efficiency in the use of taxpayer dollars. For example, nine employees and one board member attended the May 1997 American Public Transit Association (APTA) bus operations, technology, and management conference in Miami, Florida at a registration cost of $595 per person and a total cost to Capital Metro of nearly $16,000. A more prudent course would have been to send fewer employees who then could share the materials and information learned at the conference.

Similarly, Capital Metro sent six employees to California for an October 1996 class on compressed natural gas technology at an average cost of more than $1,600 each and a total cost of nearly $10,000. Again, fewer employees could have attended and shared what they learned with other employees.

Still other examples include a March 1997 San Diego, California transit trainer's workshop. Six staff members went at a cost of nearly $1,200 each, for a total cost to Capital Metro of nearly $7,000. Capital Metro also paid for four people to attend a Washington, D.C. APTA legislative conference at nearly $3,000 each and a total cost of nearly $11,500. In June 1997, the authority sent five people to a Washington, D.C. APTA rapid transit conference at a total cost of nearly $10,000, an average of nearly $2,000 per person. In fact, trips to Washington, D.C. are quite common; in fiscal 1997, Capital Metro paid for 14 trips to the nation's capital, at a total cost to taxpayers of more than $42,000.

Travel and training budget

Capital Metro budgeted $241,548 for travel and training in fiscal 1998, less than its $282,686 in actual spending for fiscal 1997. Travel and training is budgeted together at the department level, although not all travel is for training purposes, and not all training requires travel. Travel and training expenses then are added together and lumped into the "Other" category in the authority's overall budget.

In the expenditures reviewed by TPR, the majority of local (Austin-area) training was paid from the authority's Local Meetings budget category, so Capital Metro's overall training expenditures cannot be totaled. Moreover, the authority's accountants cannot always separate travel from training expenditures in the overall budget figures. To analyze the authority's spending patterns, TPR reviewed a random sample of actual travel and training expenditures and associated descriptions from the fiscal 1997 expenditure report to determine which expenditures were for travel and which ones concerned training or conferences.

Travel expenditures

In all, Capital Metro employees visited 21 states, Washington D.C., and Canada (Ontario and Winnipeg) in fiscal 1997 (Exhibit 7). The 76 employees who traveled visited California (Anaheim, Los Angeles, Monterey, Orange County, Palm Desert, Palm Springs, Riverside, San Diego, and San Francisco), Michigan (Ann Arbor and Detroit), Georgia, Maryland, Massachusetts (Cambridge and Hyannis), Illinois, Minnesota, North Dakota (Grand Forks and Fargo), Colorado (Denver and Lakewood), Florida (Ft. Lauderdale, Jacksonville, Miami, and Orlando), Nevada (Las Vegas), Tennessee, Louisiana (New Orleans), New Jersey, Nebraska, Pennsylvania, Arizona, New Mexico, Washington (Seattle and Tacoma), Missouri, and Kansas.

EXHIBIT 7
Employee Travel Expenditures




TPR reviewed the descriptions provided for these trips and determined that 52 percent of the expenditures ($146,000) went for conferences, seminars, or other training; 43 percent ($123,000) was for travel in conjunction with bus purchases and other meetings, including multiple trips to Canada and other locations; and 5 percent ($13,000) was for travel to "bus roadeo" events, skills competitions between operators and mechanics from other transit systems.

Meals and lodging

TPR reviewed a random sample of Capital Metro's travel expense reports from fiscal 1996 and 1997 to analyze reported meal and lodging expenditures and compare them against the rates allowed for Texas state government employees.

For in-state travel, fiscal 1998 state government reimbursement rates are $25 per day for meals and $70 for lodging. For out-of-state travel, Texas follows the rates established by the federal government for its employees, which provide maximum meal and lodging reimbursement rates for each major city in the U.S. Capital Metro does not follow state policy, however, instead relying on food and lodging rates published on the website of a private company, UU Com, Inc.7

In examining Capital Metro's records, TPR found markedly different rates paid on different trips, even to the same location. For example, of five different employee trips to Dallas in TPR's fiscal 1996 sample, daily food allowances ranged from $30 to $50, all higher than the current state per diem of $25. Interestingly, UU Com's 1998 meal rate for Dallas is $42; apparently Capital Metro violated its own policy by allowing reimbursements above that level. (TPR could not determine what UU Com's rate was for Dallas in 1996, but it was unlikely to be higher than the 1998 rate.)

TPR found similar inconsistencies in hotel expenditures. For the Dallas trips in TPR's samples, hotel rates ranged from a low of $84 to a high of $131. The state rate for all Texas cities in fiscal 1996 and 1997 was $55; the Texas Legislature increased this to $70 for fiscal 1998. Capital Metro's policy, following UU Com's 1998 rate, allows $94 for lodging in Dallas. Again, though, Capital Metro violated its own travel policy by paying for lodging above $94.

TPR found that, for the samples reviewed, Capital Metro would have saved about $3,400 by using the state food per diem as a baseline and about $12,800 by following the state maximum for hotel lodging. TPR also reviewed a separate random sample of fiscal 1997 travel expense reports for out-of-state travel and found that Capital Metro would have saved more than $5,000 by following state guidelines for meals and lodging.

Mileage

Capital Metro follows the maximum reimbursement rate established annually by the Internal Revenue Service (IRS) for deductible mileage, which is 32.5 cents per mile for fiscal 1998. This exceeds the state's 28-cent mileage reimbursement rate for the use of personal vehicles. Capital Metro employees were reimbursed from 30 to 31 cents per mile in fiscal 1996 and 32 cents in fiscal 1997.

Oversight of travel spending

As the above data indicate, Capital Metro does not systematically review its travel expenditures to guarantee that reimbursements do not exceed authorized rates. The authority's travel policy states that expense reports must be approved by the employee's immediate manager and that the approved expense report must be filed with Accounts Payable within five working days of the employee's return.8 Accounts Payable is responsible for paying the approved expense report, but no one reviews documentation to ensure that reimbursements do not exceed authorized rates, or include a justification for any excess.

TPR also found that most travel claims reviewed contained little documentation; expense reports often lacked receipts, for instance, as proof of the amount of expenditure. However, Capital Metro's present travel policy does not require receipts for food and lodging, but only for other expenses such as telephone calls, car rentals, and taxi fares. State policy requires receipts for lodging and miscellaneous expenses other than food.

In addition, the authority's reimbursement process, as complicated by some employees' frequent travel and a policy allowing for travel advances, is prone to lengthy delays. TPR found numerous instances in which Capital Metro accounting staff were attempting to reconcile travel and training records to determine amounts owed to and by the authority, months and sometimes up to two years later.

Recommendations

A. The board should reduce the authority's budget for travel and for training by 20 percent in fiscal 1999.

Travel and training are included in the miscellaneous "other" expense category in the budget. Given Capital Metro's patently inefficient use of travel and training funds, its spending for these purposes should be reduced until the authority can demonstrate more accountability for taxpayer funds. This should occur before the budgeting cycle for fiscal 1999, which begins October 1, 1998.

B. The chief financial officer should ensure that each department budgets separately for travel and for training. Both travel and training should appear as separate items in the authority budget and should not be combined within the "other" budget category.

The revised training budget should include both events in the Austin area and training events outside of Austin.

This recommendation should provide more accountability for actual amounts spent in these areas. This change should occur before the fiscal 1999 budgeting cycle.

C. The chief financial officer should amend the authority's travel policies and procedures to ensure that travel and training funds are distributed as equitably as possible among all the employees in each department.

Such a policy would help to ensure that all employees receive an opportunity to improve their job skills through travel or training events.

D. The chief financial officer should amend the authority's travel policies and procedures to establish reasonable limits on the number of employees that may travel to the same training or travel event.

The policy should specify that a limited number of employees should attend the same event, in order to spread training and travel funds among more events. Those employees that attend should be asked to share information gathered with others who may be interested.

E. The board should direct the authority to adopt Texas state government's maximum reimbursement rates and documentation requirements for employee food and lodging travel expenditures.

The board policy should specify that employees who exceed the state limits for food and lodging will not be reimbursed for the excess. For fiscal 1998, Texas' out-of-state travel rates are the same as the federal government's; should this change in future years, Capital Metro should follow the established state rates. The board also should require employees to retain certain travel receipts, such as lodging receipts, as required by state agencies.

These policies should be adopted before October 1, 1998.

F. The chief financial officer should require the Finance Department to review each travel expense report before payment to ensure that the requested reimbursement does not exceed maximum rates.

This review would ensure that Capital Metro's employees are reimbursed at the appropriate levels. For employees who submit expense reports that exceed the maximum rates, Finance should reimburse them only up to the maximum allowed by the State of Texas. Should Capital Metro find it difficult to operate within these travel restrictions, the board could amend its policy at some later date to give managers greater flexibility in this area. No such step should be taken, however, unless the general manager has specifically determined and proved to the board that the authority cannot operate efficiently within the state guidelines.

G. The general manager should establish a policy that all employee travel shall be conducted on a reimbursable basis, excluding airfare or other items that would represent an undue financial hardship on employees.

This would eliminate the use of travel advances and prevent prolonged disputes over responsibility for expenses. The policy should allow managers to pay for certain expensive items directly if the employee can prove that waiting for reimbursement would cause an undue financial hardship. Airfare should be paid directly by Capital Metro since it should be obvious whether the flight is related to authority business. The authority also should continue to pay directly for training registrations and materials, again because it can easily determine whether the training is related to business.

Fiscal impact

Capital Metro's fiscal 1998 travel and training budget is $241,548. A 20 percent reduction in the travel and training budget would produce savings of about $48,300. Capital Metro could accomplish these reductions by adopting state travel rates for meals and lodging and using travel and training funds more efficiently.

TPR's review of selected random travel expense reports from fiscal 1996 and 1997 found that state rates would have saved Capital Metro $3,400 on meals and $12,800 on lodging, over two years. A separate sampling of out-of-state travel for fiscal 1997 found that state and federal rates would have saved Capital Metro more than $5,000. All these savings spring from a selected sample, and the total amount of savings should be considerably higher.

Fiscal Year Savings
1999 $48,300
2000 48,300
2001 48,300
2002 48,300
2003 48,300

PROPOSAL 12

Establish controls to reduce the cost and abuse of cellular phones and long-distance phone service.


Background

Capital Metro spent nearly $200,000 on phone service in fiscal 1997. Cellular phone service accounted for about 30 percent or $60,000 of that amount, while the remaining 70 percent or $140,000 was for local and long-distance calls. Until recently, Capital Metro owned 32 cellular telephones and obtained cellular service with two different vendors; it was not consolidating its usage to get a better price. Capital Metro also used two vendors for its toll-free phone lines.

Since April 1998, cellular phone service has been managed by the Contracts and Procurement Department, while long-distance service is the responsibility of the Information Systems Department.

TPR's study of Capital Metro's phone usage yielded some particularly egregious examples of financial abuse. Upon repeated questioning from TPR about cellular phones and long-distance phone service, Capital Metro has changed some of its practices. As of July 1998, Capital Metro owns just 19 cellular telephones and is obtaining cellular service through a state contract from the General Services Commission (GSC).

Cellular phones

Capital Metro's policy for cellular phone and pager use states that only those employees whose duties require them to conduct business away from headquarters for more than half of the time should be issued a pager or a cellular telephone. The policy also states that, except under unusual circumstances, no employee will be issued both a cellular telephone and a pager.9 TPR reviewed the cellular phone and pager lists from April 1997 and found that 11 employees had both phones and pagers.

The April 1997 cellular phone list provided to TPR was outdated, but apparently was the only one Capital Metro could provide. TPR reviewed the list and found that many of the cellular phones were provided to employees who typically work at headquarters rather than in the field. For example, four of the phones were distributed to employees of the Finance Department. Upon repeated questions from TPR, Capital Metro finally provided an updated cellular phone list in July 1998.

More importantly, Capital Metro has made little or no effort to control the use of its cellular phones. The former manager of Contracts and Procurement, for instance, ran up a cellular telephone bill of more than $1,200 in one month of 1997. TPR reviewed a sample of Capital Metro's fiscal 1997 cellular telephone bills and found calls made to and received from a number of other cities and states. Many of these calls were to Capital Metro, but the employees often failed to use the authority's toll-free number that was specifically established for their use while traveling outside of Austin.

TPR's review of cellular telephone bills also showed that Capital Metro paid for various additional services on some of its cellular accounts. For example, some accounts had additional monthly charges of $6.99 for voice mail, $1.99 for detailed billing, and $4.95 for "basic mobile security." These additional services appear to be unnecessary. TPR's review of the July 1998 cellular service contract indicated that additional services still are being paid for by Capital Metro, including voice mail, caller identification, and message waiting indicator.

In the past, one of Capital Metro's cellular providers had a $35 "minimum bill charge;" some of the bills reviewed by TPR included this fee because the phone was used very little, raising the question of whether the employees should have been issued phones in the first place.

Personal use of Capital Metro cellular phones is common. The fiscal 1997 sample of phone records reviewed by TPR included a reimbursement from one employee for nearly $250 in personal cellular calls, while another employee reimbursed Capital Metro $80 for a 62-minute call to his home from Las Vegas. However, it is important to understand that Capital Metro has no way of determining whether its cellular phones are being used for personal business; it can be reimbursed only for the personal calls that employees admit to making. Capital Metro's cellular telephone policy "discourages" personal use, and states that if a phone is used for a personal call, the employee should report that use within 10 working days after receiving a copy of his or her monthly billing, and should reimburse Capital Metro within five working days after reporting the call.10 In other words, the cellular phone policy is an honor system.

Capital Metro's cellular policy requires employees to sign an agreement stating that they have read and will follow the policy. These agreements are supposed to be placed in each employee's personnel file. However, at this writing none of these agreements for Capital Metro's cellular phones have been signed, although the policy has been in effect since January 1998.

Moreover, when employees do reimburse Capital Metro for the cost of calls, they seldom pay the associated fees and taxes. Capital Metro's policy requires that the cost of personal calls should include applicable taxes and fees. Finally, the bills reviewed by TPR included many questionable, unreimbursed calls made to areas surrounding Austin that are not served by Capital Metro. For example, calls were made to Copperas Cove and Wimberley, but it is unclear why these calls were made.

Internal Audit report on cellular phones

TPR's findings mirror those of Capital Metro's internal auditors, who reviewed cellular telephone usage in 1997. One finding noted that monthly bills were not properly reviewed before payment; Internal Audit found that only five employees were reviewing their bills and paying for personal calls. Internal Audit subsequently requested payment for personal calls made by 27 employees, who reimbursed Capital Metro for nearly $1,500 as a result of the inquiry. Internal Audit also found that cellular telephone bills were grossly excessive, with an average monthly charge of nearly $900 per telephone for a six-month period in 1996. Their recommendation was to use regular communication methods whenever possible, to control costs. The authority's response was a January 1998 policy saying that managers should "encourage employees to utilize regular means of communication in order to keep costs down."

Long-distance telephone usage

Capital Metro has assigned 150 telephone numbers to its employees (it should be remembered that many employees are bus operators and do not have assigned phone numbers). In addition, Capital Metro has three toll-free phone numbers and one toll-free modem line. One toll-free number was established for bus operators to call in to receive their routes and schedules, and to report if they are sick or otherwise unable to work. This phone line accounts for an average of $300 per month in calls, at a cost of 31 cents per minute, with a $5 monthly service charge. Another toll-free number is for employees calling the office while on out-of-town business; this number rings at the main receptionist area. This line averages about $200 per month, for 31 cents per minute, with a $5 monthly service charge. The third allows customers to call for routing and schedule information. This phone line averages about $200 per month. The toll-free modem line allows employees to call into office computers from their personal computers or from laptops while traveling. This line costs the authority an average of about $100 per month, at a cost of 28 cents per minute, with a $20 monthly service charge.

The numbers were set up separately, under different plans, rates, and vendors. Three of the toll-free lines are serviced by AT&T and one by Southwestern Bell; this reduces the volume discounts available to Capital Metro through combined billing. According to AT&T, Capital Metro could combine all of its toll-free lines into one AT&T account to receive a rate of 14.5 cents per minute, about half the rate the authority pays now. Moreover, a consolidated call volume may make Capital Metro eligible for even lower rates. All Capital Metro has to do to combine the accounts and receive the lower per-minute rate is to ask AT&T to do so. In fact, AT&T quoted a lower rate for Capital Metro as soon as it was asked by TPR.11

Capital Metro averages about $600 per month in billings from AT&T for the three toll-free lines, while the Southwestern Bell billings average about $200 per month. As this report went to press, Capital Metro indicated that it has established an interlocal agreement with GSC for long-distance service, effective in July 1998.

Except for its customer information line, the toll-free numbers are intended for employee use only. TPR noted that Capital Metro business cards do not list a toll-free number. However, TPR reviewed a sample of toll-free phone bills and found numerous calls from other cities and states on the lines intended for employee use. It appears that people other than Capital Metro employees have been given the toll-free number to allow them to call Capital Metro employees for free; Capital Metro's internal auditor found this to be the case.

Capital Metro's telecommunications system cannot track long-distance telephone calls from a specific phone or user. According to Capital Metro, all phone numbers are connected to one identification number at the phone company, and calls cannot be linked with specific phone numbers. In fact, Capital Metro told TPR that the authority obtained an affidavit from its phone company that proved it could not track calls to a specific phone, when faced with a lawsuit that included a request for phone records. Therefore, the authority cannot hold employees accountable for long-distance calls made from their office telephones, as it has no phone logs or other documentation about phone usage. Numerous Capital Metro employees told TPR of personal long-distance calls made from Capital Metro telephones.

Capital Metro indicated that its fiscal 1999 budget will include funding for "calling-accounting" software that can capture calls made from each phone number.12 Capital Metro indicated that its July 1998 interlocal agreement with the GSC should allow calls placed from employees' phones to be traced to their individual phone numbers, although the system was not in place at this writing.

TPR also learned that Capital Metro is charged $5 each month for phone numbers that do not make at least $5 in long-distance calls. TPR noted that some phone numbers are listed on phone bills that did not meet this minimum. Capital Metro does not conduct even routine audits of its phone usage to determine if certain lines should be eliminated.

Internal audit of toll-free calls

In October 1997, Capital Metro's Internal Audit Department reviewed three months' worth of 1997 bills for the toll-free number established to allow employees to call the office while out of town. Internal Audit found that Capital Metro had no mechanism for preventing abuse of this number; nothing was in place to prevent employees from providing the number to friends and relatives.

Internal Audit found that many calls to the toll-free number were from other states. These included calls to Capital Metro employees from friends and relatives as well as hotels and a North Carolina doctor's clinic. Calls on the toll-free line normally are recorded and kept for 30 days, and then taped over. During its review, Internal Audit examined these recordings and found a number of obviously personal calls.

The Internal Audit report also found that Capital Metro had no written policy on the usage of toll-free numbers and recommended that such a policy be established by October 1997. However, TPR found no such policy in place as of May 1998. In response to questions from TPR, Capital Metro has said it will establish a policy "soon."13

Recommendations

A. The general manager should immediately require all cellular telephones to be returned to the Contracts and Procurement Department and should immediately cancel its cellular service contracts.

The board should decide whether the authority needs cellular phones at all, and if it determines that they are needed, the board should revise the existing cellular phone policy to strengthen controls over their use and ensure that no personal calls are allowed.

B. The general manager should establish a policy regarding the authority's toll-free telephone lines stating that Capital Metro employees must not provide the toll-free numbers to anyone outside of Capital Metro and must not receive personal calls on them. Employees who disobey this policy should receive appropriate disciplinary action.

Such a policy should ensure accountability for use of the toll-free phone lines.

C. Capital Metro should set goals to reduce its total costs for long-distance calls by 20 percent.

Fiscal impact

Recommendation A, the elimination of cellular telephones, would save $60,000 annually. Recommendation C should allow Capital Metro to reduce its $140,000 long distance telephone bills by 20 percent, for an annual savings of $28,000.

The total annual savings from all recommendations would be $88,000.

Fiscal Year Savings
1999 $88,000
2000 88,000
2001 88,000
2002 88,000
2003 88,000

PROPOSAL 13

Improve revenue collections for bus tickets and passes.


Background

Capital Metro offers seven different types of tickets and passes for prepurchase. Each year, Capital Metro makes about 72,000 ticket booklets and 192,000 monthly passes available.14 The majority of these tickets and passes are sold through 53 Austin outlets, mostly in local grocery stores; Capital Metro also sells tickets and passes at its downtown and headquarters locations. As of December 1997, the outlets included 19 HEB stores, 12 Albertson's, 13 Randall's, one Fiesta grocery store, the UT Co-op, six check-cashing stores, and a Cutrer's City Market. Tickets and passes also are provided for sale through the City of Austin's employee benefits department for city employees and to participants in the Creative Rapid Learning Center.15

Eight other stores have expressed interest in selling tickets and passes, but Capital Metro has not added these stores as outlets because they are in areas already served by other stores.16 TPR noted, however, that Capital Metro has no established policies or procedures for determining which locations should become vendors.

Tickets and passes are priced at about one-half or less of their face value or estimated minimum value. Capital Metro's board implemented a 50 percent discount on prepaid tickets and passes in January 1991 to encourage their use.17

Tickets and passes

Ticket booklets offer prepurchased bus rides with no expiration date. Two different types of ticket booklets are available, a 20-ride ticket book and a Special Transit Service (STS) 10-ride ticket book, which offers sedan service on demand to those who are disabled or otherwise unable to ride the regular bus. Passes, which offer monthly unlimited bus rides, carry an expiration date. Three types of passes are available for adult riders and two are available for students.

Capital Metro's adult fares are lower than those of all Texas transit systems other than Corpus Christi's, which has the same 50-cent adult fare as Capital Metro.18 In addition, a comparative analysis of Capital Metro and 18 similar transit systems around the U.S. found that Capital Metro's 50-cent adult fares are lower than all but one of the 18.19 Given these already low fares, Capital Metro's ticket books and passes, which are offered at less than half of face value, constitute a real bargain.

Capital Metro sold nearly 154,000 ticket books and passes in fiscal 1997 and raised more than $1.1 million from these sales. However, had Capital Metro charged the full price for these tickets and passes, it would have collected much more.

TPR compared Capital Metro's monthly fixed-route adult pass to those of 15 other transit authorities with a similar pass and found that Capital Metro's, at $10, was the cheapest of all; the next-cheapest pass cost more than twice as much. With a minimum estimated value of $22, each Capital Metro monthly adult pass represents $12 in foregone revenue.

TPR also calculated the minimum estimated values of monthly unlimited adult passes for 15 other transit systems with a similar pass and found that all but two lose money by selling passes, meaning that the transit would make more money if the rider had paid the regular adult fare rather than buying a pass.20 However, it must be kept in mind that ridership may change as a result of changes in the fare structure.

Transfers

Transfers are another type of ticket giving the bearer permission to board more than one bus, as long as the transfer passenger is continuing travel in the same direction until a final destination is reached. Transfer tickets are issued by the driver upon the rider's request. Transfers cannot be used for return trip travel on the route from which they are issued.

Transfer slips come in pads of paper with preprinted dates; to create a transfer slip, drivers punch a hole on the slip indicating the appropriate route number and inbound/outbound information, and use a paper cutter to designate the latest time at which the transfer can be used. Once issued, transfer slips must be shown to each bus driver when boarding.

Capital Metro spends more than $36,000 a year to purchase paper transfer slips.21 The authority presently has an ongoing two-year contract with a printing company for 34 million paper transfer tickets. Capital Metro could not provide data on the actual number of transfer slips distributed or used in fiscal 1997, but if half the slips called for in the contract were distributed, more than 17 million transfer tickets were available in that year. Because the transfer slips are printed with a date, each is only good for one day. If not used, the slips are destroyed.

Drivers told TPR, however, that they seldom inspect transfer slips simply because they have no time. Transfers often are crumpled, torn, and hard to read at night. Some drivers claim passengers "ride the bus all day with the same transfer, and some maybe even all week."22

Capital Metro's farebox data shows that it carried about 5.3 million transfer and Ozone Day passengers in fiscal 1997 (transfers could not be separated from Ozone Day passengers because they are recorded on the same farebox key). Even if most of these 5.3 million passengers were transfer passengers, it appears that literally millions of transfer tickets either were provided to passengers who did not use them or were destroyed. During TPR's study of Capital Metro, the authority developed proposed alternatives to the current transfer ticket policy, to be presented to the Finance committee of the Capital Metro board in July 1998.

Transfers in other authorities

TPR surveyed several other Texas transit authorities on their transfer systems. Corpus Christi has color-coded transfer tickets and uses a different color for each day of the week. The color that will be used for each day's transfer ticket, moreover, changes from week to week. Corpus Christi's transfers are good for two hours.

Fort Worth uses paper pads. The bus operator stamps the date on the ticket, which is only good for one day, but blank transfer tickets are always valid and are not destroyed. Fort Worth's transfers are good for one hour.

Dallas uses daily dated transfers similar to Capital Metro's but is considering a system of electronic day passes because of the potential for abuse of its current slips. Their transfers are good for all day.

Oops tickets

Oops tickets are another type of ticket allowing the passenger to ride a bus for free. They are provided to passengers by bus operator supervisors if Capital Metro makes a mistake such as passing by a waiting passenger, or to the passengers of a bus that is in an accident or otherwise detained. Capital Metro does not account for Oops tickets and does not know how many have been issued.23

TPR's review of one month of daily cash count reports (reports showing how much money and how many tickets are collected on all buses in one day), found that an average of 55 Oops tickets were submitted each day. Assuming that this number of tickets was submitted every day of the year (55 x 365 days), the authority would receive more than 20,000 tickets annually.

Upon further questioning from TPR, Capital Metro investigated the circumstances surrounding its Oops tickets and became concerned that these tickets, with an actual value of 50 cents each, were not being controlled. The authority then collected all unused Oops tickets and inventoried them, and has since suspended the issuance of more Oops tickets until it can establish adequate controls for the program.24

Ticket and pass outlets

Capital Metro contracts annually with its outlets for pass and ticket booklet sales. These contracts state that a predetermined number of bus tickets and passes will be provided to each outlet location by the 20th day of each month, for sale in the following month.25 Capital Metro requires that each outlet receive at least five each of the seven types of tickets and passes available, so each location receives at least 35 items each month.26

In January 1991, Capital Metro began offering its ticket outlets financial incentives in the form of discounts based on selling performance (Exhibit 8).27

EXHIBIT 8
Capital Metro
Ticket/Pass Vendor Incentives


Quantity Sold Discount
10-50 10%
51-75 15%
>75 20%
Source: Capital Metro.

Capital Metro bills each outlet monthly for the total tickets and passes sold less the appropriate sales discount. An additional 1 percent discount is available if payment is received within 15 days of the invoice, for a total maximum discount of 21 percent. The outlets pay Capital Metro the same price for the tickets and passes that passengers pay for them, less the applicable discounts, which already are at less than half-price. Therefore, the outlets often receive tickets and passes at 70 percent off their face or estimated value.

TPR reviewed fiscal 1997 sales and discount figures and found that more than half of Capital Metro's outlets receive the maximum 20 percent discount. In effect, Capital Metro paid a total of nearly $139,000 in sales discounts in fiscal 1997. Only four outlets in the material TPR reviewed failed to sell enough tickets and passes to earn the minimum 10 percent discount.

Stores continue as outlets regardless of their selling performance, however, because Capital Metro does not evaluate their performance to determine their success. Capital Metro can terminate the contract if an outlet fails to pay its monthly sales invoice within 60 days.28

HEB grocery stores are the largest seller of Capital Metro tickets and passes. TPR interviewed HEB and the corporation indicated that it does not attempt to "market" bus tickets and passes in any way; it provides them only as a service to its customers. Most of the other types of tickets and similar items that HEB sells as a customer convenience, moreover, are provided to the stores at a flat reduced price regardless of the number sold.29

Incentives in other authorities

TPR surveyed the other five major Texas transit authorities regarding the sales of tickets and passes, as well as financial incentives provided to those who sell them. San Antonio indicated that most of its tickets and passes are sold through its own VIA ticket outlets; only one type of pass, the monthly pass, is sold through grocery stores and businesses. No price reductions are offered to any of VIA's outlets. Corpus Christi's tickets and passes are sold only through its own administrative office, so no discounts are involved. Fort Worth sells its tickets and passes in grocery stores, libraries, and businesses, and does not offer discounts to any of its outlets, although outlets may add a surcharge to the cost of the tickets or passes.

Dallas Area Rapid Transit (DART) indicated that most of its tickets and passes are sold through two DART "stores" as well as through 89 other outlets, mostly grocery stores. DART provides a flat 3 percent commission to its outlets regardless of the quantity sold, but reduces the commission to 2 percent for outlets that choose to return their supply of unexpired tickets each month to facilitate the store's inventory control, rather than keeping them. Houston's transit system sells tickets and passes in grocery stores and in its own RideStores and offers discounts ranging from 2 percent to 10 percent.

In summary, Capital Metro's maximum 20 percent discount for ticket and pass outlets is the highest offered by any Texas transit authority. Furthermore, Capital Metro told TPR that many other transit systems across the nation provide no discounts or commissions whatsoever to outlets that sell their tickets and passes.

Delivery of tickets and passes

Capital Metro's tickets and passes have serial numbers printed on them. Each month, Capital Metro determines the quantity of tickets and passes that will be delivered, and by the 20th day of the month a distribution aide hand-delivers tickets and passes to each outlet location and retrieves tickets and passes that were not sold in the prior month. This is a full-time activity for one person. The serial numbers are intended to provide for more accurate accounting of tickets and passes. The distribution aide manually completes a distribution record monthly for each outlet that summarizes the serial numbers for each type of ticket and pass that was consigned to and sold by the outlet, as well as the serial numbers for the tickets and passes being delivered.

Capital Metro's process is manual, time-consuming, and unnecessary both for Capital Metro staff and outlet personnel. The process requires store personnel to be available when the Capital Metro distribution aide arrives at their store, and to manually count each type of ticket and pass that the aide picks up. The store personnel also have to account for the new tickets and passes. Because the number of tickets and passes in the store's inventory has changed, the store personnel then must update their inventory records to reflect the new quantity of tickets and passes. This process is then repeated monthly.

According to Capital Metro staff, Capital Metro is unusual among transit systems in the way it distributes tickets and passes to outlets; most do not hand-deliver tickets and passes to outlets, instead choosing to mail them.30

Unused tickets and passes

Once tickets and passes are retrieved from the stores, they are stored in the revenue room vault until the tickets are given away or sold to nonprofit organizations and the passes are destroyed. Capital Metro maintains a monthly ticket and pass inventory that shows the quantity available for each type of ticket and pass. Expired passes are thrown away with the trash.

TPR compared the annual quantity of available tickets and passes with the actual number sold in fiscal 1997. Of 72,000 ticket booklets available, 62,000 were sold; the remaining 10,000 booklets were given or sold at a reduced price to nonprofit organizations. Similarly, 192,000 monthly passes were available for sale, but only 91,600 were sold in fiscal 1997, leaving more than 100,000 that apparently were thrown away.

TPR requested a summary of passes destroyed in fiscal 1997, but this information was unavailable.31 Capital Metro only documents the date on which passes are destroyed, along with the month and year of the pass, and no other information. For example, February 1996 passes were destroyed in January 1997, so they sat in the vault for 11 months until the revenue room staff decided to put them in the trash. Capital Metro's policies and procedures state that the type and serial number of each pass should be recorded and a memo be prepared verifying the destruction of the passes by serial number, type, and month.32 Once again, however, Capital Metro is not following its own procedures.

Restroom facilities

Capital Metro plans to pay 61 stores a total of $18,300 per year to allow its bus drivers to use their public restroom facilities. These authorized "comfort stops" are in convenience stores, restaurants, grocery stores, malls, and retail stores. Four of the 61 locations are in stores that already receive a commission from Capital Metro for selling tickets and passes, while the others do not conduct business with Capital Metro in any other way. These businesses were selected by a route supervisor.

As of this writing, 18 of the 61 locations each are being paid $75 per quarter or $300 per year for restroom usage. The authority has contracts in place for each of the 18 locations and is planning to form contracts and initiate payments with most of the others. Capital Metro indicated that they plan to pay the stores unless they indicate that they do not want to be paid. Before the establishment of formal contracts and payments, Capital Metro had informal agreements to allow their bus drivers to use the stores' restrooms, and continues to have such informal agreements with the other 43 stores. Capital Metro told TPR that $75 per quarter "is a nominal amount to compensate the businesses for extra cleaning supplies so that the bus drivers have a guaranteed rest stop. Upper management thought payment to these businesses would breed better public relations."33 Capital Metro has firmly indicated that payments are necessary to ensure guaranteed access for its bus drivers.

TPR contacted one grocery store chain regarding these comfort stops and was told that Capital Metro contacted the company and asked to pay for the use of its public restrooms. The vendor noted that it is very unusual for anyone to ask to pay for something that is free to everyone.34

Recommendations

A. Capital Metro should develop selection criteria for vendors to serve as outlets, including a required average minimum level of monthly sales.

Criteria and guidelines for determining who should be selected as a Capital Metro outlet should be in place so the authority can be assured that it is choosing the best places for ticket and pass sales. One of these criteria should be that outlets must meet a minimum level of monthly sales.

Administrative costs involved in servicing an outlet, including delivery, counting, sorting and billing, may outweigh the revenue received from outlets that sell less than 10 items per month, for example. In its review of Capital Metro's records, TPR found four outlets that averaged less than 10 items sold monthly throughout fiscal 1997.

B. Capital Metro should stop using dated passes and instead employ blank passes with stickers carrying the appropriate month and year, to eliminate the waste of expired passes.

Blank passes then could be used all year, with a sticker applied for each month the pass may be used. This would eliminate the authority's need to discard more than 100,000 passes each year.

After the new passes and stickers become available, Capital Metro's chief financial officer should require outlets to maintain stocks of ticket booklets and blank passes, as well as month and year stickers. Additions to initial supplies of tickets and pass stickers should be made only upon the outlet's request.

C. Capital Metro should mail tickets and passes to its outlets rather than deliver them. The distribution aide position should be eliminated.

After implementation of Recommendation B, monthly delivery of tickets and passes would not be necessary, as outlets would keep their initial supply of tickets, passes, and stickers and obtain additional ones as needed through the mail. Outlets should be billed for their ticket and pass supply and allowed to keep the revenue generated from their sale.

D. Capital Metro's board should reduce sales discounts to outlets selling its tickets and passes.

Capital Metro should amend its outlet contracts to reduce the maximum sales discount allowed. Two other Texas transit systems provide discounts, but neither approach the 20 percent maximum Capital Metro provides.

E. Capital Metro should stop paying for the use of free public restroom facilities by its drivers.

F. The chief operating officer should reduce the number of transfer tickets that Capital Metro orders and should consider purchasing colored or lettered transfer slips instead of daily dated transfers, to reduce the number of transfer tickets needed and to establish better controls over the transfer system.

Transfer tickets are destroyed simply because they are dated. Other transit systems use a revolving supply of colored or lettered transfers to eliminate waste and allow bus operators to determine more quickly whether transfers are valid.

G. The chief operating officer should review the issuance of free "Oops" tickets and establish controls over their distribution.

Oops tickets are good for one bus ride, but are not controlled and monitored to ensure that they are used for their intended purpose. Recognizing this, Capital Metro has halted distribution of these tickets, pending the development of a control process for them. Capital Metro should know how many are available and to whom and for what reason they are distributed. Because they typically are distributed when something has gone wrong, the authority should have a report of what went wrong, so that it can develop solutions to prevent the problem from reoccurring. This "Oops" report should be maintained by the bus operators' supervisor and should be provided monthly to the general manager and chief operations officer to allow them to evaluate the problems that warrant providing "Oops" tickets, and consider potential changes in policy or service in response.

Fiscal impact

Recommendation A, establishing criteria for vendor selection, such as requiring outlets to maintain a minimum average monthly level of sales, should not have a fiscal impact as the present backlog of potential vendors suggests that other outlets would replace low-volume ones.

Recommendation B would require Capital Metro to revise its passes. TPR assumes that the cost to print a lower number of plain passes and month and year stickers would be less than the cost of purchasing dated passes which are then destroyed. However, the amount of savings cannot be estimated.

Recommendation C would eliminate the distribution aide position, which has an annual salary of $19,328, with benefits of 40 percent ($7,731), for a total of $27,059. The mailing costs for distributing passes are estimated at $10 per month x 53 outlets = $530; x 12 months = $6,360. The $10 estimated mailing costs are based on the U.S. Postal Service's priority mail service, which allows up to five pounds of mail to be sent for $6, with the rate changing after five pounds based on the distance between the sending and receiving zip codes. Although the number of pounds that would be mailed could not be estimated, TPR assumed it would be more than five pounds but would not exceed $10 per month. The net savings, then, would be about $20,700 annually.

If sales discounts are cut in half (Recommendation D), Capital Metro would save $69,500 annually, assuming the level of sales remains the same as in fiscal 1997. The estimate assumes a $34,800 savings in the first year due to the need to phase this measure in.

Recommendation E would eliminate payments for restroom usage, saving Capital Metro $18,300 per year.

Recommendation F should reduce the number of transfer tickets Capital Metro requires. TPR found evidence that millions of transfer tickets were not needed in fiscal 1997. Capital Metro purchased 34 million transfer tickets in its most recent two-year contract, but cannot determine exactly how many transfer tickets are used in a year. For the purposes of this estimate, TPR assumes that half of the tickets, 17 million, were available for use in one year of the contract.

Capital Metro's farebox data showed that about 5.3 million passengers were transfer or Ozone Day passengers. TPR's estimate assumes that half of the 5.3 million passengers were transfer passengers and the other half were Ozone Day passengers (2.65 million of each type.) The above assumptions imply that Capital Metro did not need and discarded nearly 14.4 million tickets in a single year (17 million - 2.65 million). Transfer tickets cost Capital Metro two-tenths of one cent each (.00206 of a dollar). Adopting a system that eliminates the need for such waste thus would produce a savings of nearly $30,000 annually (14,350,000 transfer tickets x $0.00206).

The other recommendations would not have a fiscal impact.

The estimated annual savings for all recommendations in this proposal is $103,800 for the first year and $138,500 for subsequent years.

Fiscal Year Savings Changes in FTEs
1999 $103,800 -1
2000 138,500 -1
2001 138,500 -1
2002 138,500 -1
2003 138,500 -1

PROPOSAL 14

Improve control of fixed assets and surplus property.


Background

As of March 31, 1998, Capital Metro owned nearly $112 million in fixed assets, including equipment, vehicles, and other property.35 As purchases of new items are made, these items are added to the authority's fixed-asset system. The Finance Department's procedures require that the fixed-assets staff accountant be notified of any capital purchases as they are delivered, via e-mail, voice mail, or personal contact.36 All new items receive an inventory tag and identification number. However, Capital Metro employees are not held accountable for items assigned to them. The authority was unable to locate nearly $79,000 in fixed assets during its most recent (fiscal 1996) physical inventory, including notebook computers, software, a cellular phone, a video camera, a videotape recorder, and desks and chairs.37

No employee accountability

Most state agencies, including the Comptroller's office, require employees to sign a form as evidence that they have been assigned state property. The Comptroller's form says: "By signing above, I understand that I am assuming financial liability for loss or damage of this (these) item(s) if the loss or damage results from my negligence, intentional act, or failure to exercise reasonable care, safeguard, maintain, and service it (them), AND that it is my responsibility to obtain a signature when the item(s) leave(s) my care or area."38 Capital Metro lacks a similar procedure.

A December 1997 Internal Audit review of Capital Metro's fixed assets recommended that "asset locations be more specific and traceable to an employee who also will be responsible for any loss or damage to the asset."39 The Finance Department indicated in a January 1998 memo that it would implement a new process to ensure that each employee is responsible for the assets in his or her area.40 However, this process was not implemented as of June 1998.

Inventory timing

Every two years, Capital Metro conducts a physical inventory of its assets, as required by federal law.41 State agencies are required to complete a physical inventory every year.42 Although Capital Metro is not subject to this requirement, an annual inventory provides for greater accountability concerning property, since the longer timespan usually involves more employee changes and changes in the locations of property. A two-year gap between inventories makes missing items much harder to locate.

Surplus property

Fixed assets that are no longer needed are set aside until enough items accumulate for Capital Metro to hold an auction. Three auctions were held in 1996 and 1997 that removed more than $3.5 million in fixed assets from the inventory.43 The Finance Department requires its staff to approve the removal of assets from the fixed-assets system before they are offered at auction.44 Capital Metro employees are allowed to purchase surplus property at these auctions. Although state law is silent on the matter, state agencies have an ethical standard of conduct that prohibits their own employees from purchasing their agency's surplus property. For example, the Comptroller's office policy states that "employees and members of their immediate families are prohibited from directly or indirectly purchasing any property placed for sale by the General Services Commission which has been declared excess property by the Comptroller of Public Accounts and delivered to the General Services Commission for public sale."45

Other Transit Authorities

TPR surveyed other Texas transit systems regarding their policies on employee purchases of surplus property. Houston Metro allows employees to buy surplus property. Employees of DART in Dallas can acquire DART property as long as they are not involved in the decision that deemed the property obsolete, surplus, or useless. However, VIA in San Antonio does not allow any sale of surplus property to its employees.

Loose Storage

Capital Metro rents a 45-foot storage trailer for $110 a month to store property until it is auctioned. The trailer is parked at Capital Metro headquarters, where it is exposed to temperature extremes that can be damaging to computers and other items. As of April 1998, the trailer contained computers, printers, typewriters, file cabinets, and desks as well as other items.46

The trailer has two locks on it, but Capital Metro reports that both locks have been cut off more than once. Capital Metro staff also told TPR that employees sometimes place items outside by the locked trailer, exposed to the sun and rain. The authority has few controls over access to the trailer. The keys to the trailer are maintained by Accounting, but the cut locks imply that this safeguard has not prevented unauthorized persons from entering it. Moreover, the authority does not keep accurate records of items stored in the trailer; in preparation for one of the 1997 auctions, two employees had to inventory all the items in the trailer because no other record of its contents existed.47

Capital Metro told TPR that their building has little storage space and they are forced to use the storage trailer.

Recommendations

A. The general manager should immediately require all employees to sign accountability forms listing the property under their control. Employees should be held liable for items that cannot be located during inventories.

The form should contain, at minimum, a description of the item, an inventory number, and a statement making it clear that the employee assumes financial liability for the item.

B. The chief financial officer should ensure that an annual inventory is conducted for all property owned by Capital Metro.

Although the federal law requires an inventory every two years, state law requires an inventory every year. An annual inventory would be far more effective in locating missing items.

C. The chief financial officer should improve the security of its surplus property and find a better storage location for it, particularly the weather-sensitive equipment.

Capital Metro should find a more secure location for its surplus property. The storage trailer costs the authority $1,320 a year, yet it appears to be an ineffective and potentially damaging way to store property that eventually will be auctioned.

D. Capital Metro's board should establish a policy stating that Capital Metro and StarTran employees are prohibited from purchasing the authority's surplus property at auction.

Such a policy would encourage ethical conduct among employees.

Fiscal impact

These recommendations should be implemented with existing resources.

PROPOSAL 15

Improve investment management policies and practices.


Background

Capital Metro does an adequate job of managing its cash and investments. The funds are managed by Capital Metro staff, in investments authorized by the Public Funds Investment Act.48 As stated in Capital Metro's investment policy, only the general manager and chief financial officer (CFO) are authorized to make investment transactions.49 However, due to Capital Metro's present lack of a permanent general manager or, until recently, a CFO, the interim solution has been for investments to be handled by the acting general manager and the manager of the Facilities Design and Construction Department.

The authority's entire investment portfolio is worth nearly $92 million.50 Capital Metro classifies about half of these investments as "short-term" and the other half as "long-term."51 The short-term investments are invested mostly in overnight repurchase agreements through a contract with Capital Metro's depository bank. (A repurchase agreement is an arrangement between two entities in which one agrees to buy securities from the other and to sell them back on a specific date at a higher price that includes interest.) The repurchase agreements are worth $31.6 million.52

Two other short-term investment options available to Capital Metro could be used to increase the return on this portion of its portfolio. Local government investment pools (LGIPs), such as Texpool, and money market mutual funds (MMFs) are allowed under the Public Funds Investment Act.53 By pooling the resources of multiple investors, these funds allow for higher yields than those of other short-term investments, while offering the ability to withdraw funds on the day requested. In addition, because of the competitive nature of the business, this type of service is available at a relatively low cost. Most funds typically charge institutional accounts between 5.5 and 50 basis points (a basis point is one one-hundredth of one percent).

In February 1998, Capital Metro issued a request for proposals for an investment manager to handle its long-term investments. This manager will invest in fixed-income securities authorized by the Public Funds Investment Act. Capital Metro expects an active manager to achieve a higher rate of return on this portion of its investments. The evaluation of the investment manager proposals was completed in June 1998 and a recommendation for an investment manager was presented to the board. The board was expected to take action on this.

Investment policy

Capital Metro's investment policy does not conform to all the requirements of the Public Funds Investment Act. The authority's policy, for instance, does not state the legal authority giving Capital Metro the right to invest funds, and fails to provide a detailed description of authorized investments or a list of unauthorized investments. In addition, the policy does not state the requirements for becoming authorized as a broker/dealer to conduct investment transactions with Capital Metro.

The 1997 KPMG Peat Marwick LLP performance review addressed other problems with Capital Metro's investment policy, and TPR agrees with KPMG's assessment; but Capital Metro has yet to act on the resultant recommendations. KPMG proposed that Capital Metro establish policies regarding staff quality (in terms of education and training) and portfolio diversification.

Recommendations

A. Capital Metro should consider using a local government investment pool and/or money market mutual funds for its short-term investments.

LGIPs and MMFs could easily enhance the return of Capital Metro's short-term funds. The authority's decision to hire an external manager for its long-term investments is prudent; Capital Metro could use LGIPs or MMFs entirely or in combination with an external manager for long-term, higher-yield investments.

B. Capital Metro should update its investment policy to comply with Chapter 2256.005 of the Public Funds Investment Act.

The following items should be added for full compliance:
  • State the legal authority or statute giving Capital Metro the right to invest funds.
  • Mention diversification as a primary goal of the portfolio, along with safety, liquidity and return.
  • Require those responsible for investing funds to file an annual financial disclosure statement.
  • Provide a more thorough listing of authorized investments to include maturity maximums and allowable percentage of entire portfolio.
  • Provide a list of unauthorized investments, such as inverse floaters, mortgage-backed securities, principal-only strips, and interest-only strips.
  • Briefly list the requirements to become an approved broker/dealer for Capital Metro.
  • Expand authority to invest to include the general manager, chief financial officer, and a designated investment officer.
  • Fiscal impact

    Although increased investment returns are a likely result of these recommendations, the amount of the increase cannot be estimated.


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