Executive Summary: Internal Audit Report # Non-Revenue Vehicle Audit Report August 24, 2009

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1 Executive Summary: Internal Audit Report # Non-Revenue Vehicle Audit Report Organization Impact: Overall Conclusions: Is the operation and fuel use of NRVs properly monitored and authorized for only valid business purposes? Authority-wide policies and procedures and controls are not in place to ensure that non-revenue vehicles (NRVs) are issued and used for only valid, business purposes. In general, documentation of specific vehicle usage is not consistently recorded or retained and fails to properly verify the business purpose for use of vehicles. This condition applies to both department-issued and pool vehicles. A written policy prohibiting personal use of company vehicles for take-home vehicles does not exist. Absent such a policy, the value of vehicle usage is taxable as wages to employees who commute to and from work in Authority-owned vehicles. Currently there are four employees who are authorized to take a vehicle home. In each case, their taxable benefit has been properly assessed according to IRS requirements. 1 However, one of these authorized employees lacks a valid business purpose for this benefit, and this vehicle was returned to the vehicle fleet pool on August 15, For the remaining three employees, enhanced trip logs will be required so that the continued need for a takehome assignment can be reassessed periodically. In addition to use of vehicles, the audit also reviewed controls over fuel usage for non-revenue vehicles. Purchases on fuel cards issued to the Rail Department and contractors cost Capital Metro approximately $250,000 in the April 1, 2008, to March 31, 2009 period. The current rail contract provides that Capital Metro will purchase all fuel for rail support vehicles as well as for the rail vehicles. However, because monitoring is performed by individuals lacking direct knowledge of personnel and activities, fuel usage is not restricted to only authorized vehicles fulfilling valid business purposes. Furthermore, evidence exists that personal access codes and/or cards have been shared or compromised as multiple fuel purchases in separate locations have been authorized using the same access code. This condition is being evaluated further by Internal Audit. To address these conditions, the Rail Department Business Manager has required the department employees and rail contractors to justify the need for all issued fuel cards and user accounts. Excess 1 One of the four was not correctly assessed a taxable benefit but, upon notification by Internal Audit, was subsequently corrected by the Payroll Department.

2 or unnecessary cards and accounts will be cancelled. Beginning September 30, 2009, fuel card usage will be monitored by the Rail Department to ensure that cards correctly correspond to approved vehicles, PIN number accounts are assigned to only active employees, and fuel usage is reasonable according to trip logs now required for designated vehicles. Are adequate controls in place to ensure the safe operation of NRV? Although training and guidance is provided to ensure the safe operation of revenue vehicles, this standard has not been extended to address non-revenue vehicle operations. Employees have not been instructed or provided any guidance on safe and efficient operation of NRV s. In addition, accident reporting procedures have not been communicated. Unsafe practices such as mobile phone use during NRV operation has been directly observed by auditors, and other concerns regarding vehicle operation were raised by personnel, such as aggressive driving and vehicles left idling unattended. To improve the safety and efficiency of NRV drivers, operating standards will be developed and distributed to custodians for storage in each non-revenue vehicle. These standards will cover, among other issues, accident response and reporting requirements, prohibition of personal communications devices while driving, and efficient and environmentally-friendly operation of Capital Metro assets including restrictions over idling when finalized. Prior to being granted use of the NRV, employees will be required to sign an agreement to abide by the developed standards. Are employees properly qualified prior to operating Authority non-revenue vehicles on company business? Capital Metro reserves the right to check the driving records of employees both before and during employment at Capital Metro or StarTran, Inc. In practice, driving record histories are included in the standard screening for all employees at hiring, regardless of position. To mitigate risks associated with non-revenue vehicle operation 2 a Do Not Drive policy will be implemented by November 15, 2009 which will prevent individuals who do not meet pre-defined standards from operating a non-revenue vehicle. Is the non-revenue vehicle fleet of appropriate size and composition? Are non-revenue vehicles properly maintained in order to ensure the safety and security of personnel using the vehicle? Based upon a review of available mileage records for 84 NRV vehicles, the current non-revenue fleet size is not justified by its usage and could be reduced by 29 vehicles. This assessment is based upon standards outlined by the Office of Vehicle Fleet Management in the Texas Building and Procurement Commission. 3 In these standards, fleet size determination is primarily a function of annual mileage and provides that in most situations, cars or light trucks that are driven less than 2 Issue was originally raised during the Human Resources Recruitment, Selection and Hiring Audit, #06-14, issued December 13, 2006 but has not yet been implemented. 3 The Office of Vehicle Fleet Management in the Texas Building and Procurement Commission developed a State Vehicle Fleet Management Plan to provide guidance to state agencies in developing a fleet management plan with detailed recommendations for improving the administration and operation of the state s vehicle fleet. This best practice template was used by Internal Audit when reviewing the NRV fleet. Capital Metro Non-Revenue Vehicle Audit #09-05 Page 2 of 5

3 11,000 miles per year should be evaluated against the minimum use criterion. Underused vehicles should either be reassigned to areas in which they can be used more effectively or sold. Reducing the non-revenue fleet size by 29 vehicles would generate estimated revenues of $89,648 based upon an average yield from previous sales of $3,091 per vehicle. There would also be a savings associated with reduced capital, maintenance, and storage costs. Capital Metro currently does not have a fleet management plan to govern the acquisition, use, and disposition of non-revenue fleet vehicles. Without such a plan, the Authority also cannot objectively determine if the composition of the fleet (e.g., SUVs and trucks vs. sedans) is appropriate to efficiently and effectively meet business needs. Also, absent a formal plan, asset controls and accounting may be compromised. For example, during the audit, disposition records for 13 vehicles (i.e., sale following retirement) could not be located. Retaining records regarding the final disposition of Authority-owned assets is critical to ensuring that assets are not improperly converted for personal use. The Capital Metro NRV fleet has been maintained as scheduled based on a criterion of performing preventative maintenance inspections (PMI s) every 3,000 miles. However, this mileage-based criterion is not adjusted for a subset of vehicles that are only used sporadically. To address preventative maintenance and previous fleet issues, the Capital Metro Assistant Director of Operations will develop a non-revenue fleet management plan by October 30, This fleet management plan will define roles and responsibilities for all management aspects of the NRV fleet including criteria for assessing needs and determining fleet quantity and composition, criteria for assigning department vehicles, and proper documentation standards for acquisition and disposal of fleet vehicles. This fleet management plan will also distribute responsibilities for certain aspects of fleet management among StarTran Vehicle Maintenance Department, Safety & Security, and other units as appropriate. Has accountability and/or custodianship for the non-revenue fleet been assigned? Are sufficient controls in place to limit access to fleet vehicles to only authorized personnel? Although custody assignments for departmental vehicles were accurate, disagreements between acknowledged responsibilities and records for pool vehicles led to two vehicles which could not initially be located, but were later found, during the audit. Sufficient controls to limit access to NRVs do not exist. For example, one department was unaware of its key inventory, whereas others do not store their keys in a secure location. Policies and procedures for ensuring that use of NRV s is limited to those with a valid business need are being developed to correct these conditions. Audit Highlights Major Issues and Action Plans: This executive summary includes only the most significant audit issues. All audit issues and corrective action plans are included in the detailed audit report. For additional information, refer to the corresponding recommendation in the detailed audit report. Capital Metro Non-Revenue Vehicle Audit #09-05 Page 3 of 5

4 1. Develop a non-revenue fleet management plan. Capital Metro does not have a fleet management plan governing the acquisition, use, and disposition of non-revenue fleet vehicles. The Texas State Office of Vehicle Fleet Management developed a State Vehicle Fleet Management Plan which has detailed guidance for developing a fleet management plan. This best practice template was used by Internal Audit when evaluating the Authority s NRV fleet management processes and controls. Using the State s guidance, analysis of available mileage records for 84 vehicles shows that the current nonrevenue fleet size is not justified by its usage and could be reduced by 29 vehicles. 4 The Assistant Director of Operations will develop a non-revenue fleet management plan by October 30, This fleet management plan will define roles and responsibilities for all aspects of managing the NRV fleet including assessing needs and determining vehicle fleet quantity and composition, developing criteria for assigning department vehicles, and determining standards for acquisition and disposal of fleet vehicles. 2. Verify that fuel purchased for contractor-operated NRV s and personal vehicles is restricted to valid business purposes. Fuel cards are issued to Capital Metro staff and contractors to fuel personal and contractorowned vehicles used while conducting Authority business related to rail construction and operations. From April 1, 2008 through March 30, 2009, the audit review period, fuel card usage for the Rail Department and its contractors amounted to $251, Each approved user of a fleet fuel card is issued a personal access code (i.e., PIN number) which can be used for any issued fuel card. Evidence exists that personal access codes used to authorize fuel purchases have been shared or compromised as multiple simultaneous purchases in separate locations have been authorized using the same access code. Further, because monitoring is performed by individuals lacking direct knowledge of personnel and activities, fuel usage is not restricted to only authorized vehicles fulfilling valid business purposes. To correct this, the rail contractors have been required to justify the need for all issued fuel cards and user accounts. Excess or unnecessary cards will be cancelled. Also, fuel card usage will be monitored by the Rail Department Business Manager to ensure that cards correctly correspond to approved vehicles, pin number accounts are assigned to only active employees, and fuel usage is reasonable. 3. Restrict use of NRV fleet for appropriate business purposes. Track and monitor NRV usage. Comply with regulations for take-home vehicles. Non-revenue fleet vehicles are intended to support Authority business functions. However, there are insufficient controls in place to restrict use of these vehicles to valid business purposes. 5 For example, documentation of specific usage of vehicles that are assigned to 4 Thirty-two (32) of the vehicles met benchmark mileage criteria (11,000 miles per vehicle/year). Accumulated mileage 251,543 (driven by the remaining 52 vehicles) divided by 11,000 = vehicles. This figure is then used to adjust the fleet size, e.g., 52-23=29 vehicles justified by mileage. 5 Twenty sample vehicles were judgmentally selected for audit testing. However after reviewing six vehicles (which represented the practices of three different departments), sufficient evidence existed to indicate that effective controls to restrict vehicle use to valid business purposes were not in place. Capital Metro Non-Revenue Vehicle Audit #09-05 Page 4 of 5

5 departments is not consistently recorded or retained. Also, pool vehicles are released to employees without ascertaining whether there is a valid business purpose for using the vehicle. To address this, the Assistant Director of Operations will develop a procedure for tracking usage of long-term departmental vehicles and issuing short-term pool vehicles. Users of non-revenue vehicles will be required to provide trip logs to account for vehicle usage. Lastly, there are currently three employees in the Safety & Security Department who are permitted to take home vehicles to fulfill job responsibilities in emergency situations. Additionally, a non-revenue vehicle had been assigned to an executive employee who used it primarily for personal travel, including commuting to and from work. This take-home privilege has been discontinued, and the assigned vehicle was returned to the vehicle fleet pool. In the future, the Chief Operating Officer will annually assess continued need for take-home vehicle assignments and discontinue assignments whenever a business need cannot be supported. ACCEPTED: Signature on File John Cowman Chair, Planning, Finance & Audit Committee Signature on File Fred M. Gilliam President/CEO cc: Capital Metro Board of Directors Kerri Butcher, Interim Chief Counsel Doug Allen, EVP & Chief Development Officer Randall Hume, EVP Finance and Administration Elaine Timbes, EVP Performance and Quality Andrea Lofye, Interim Chief Operating Officer Terry Garcia Crews, General Manager, StarTran, Inc. Carl Woodby, Director, Maintenance Dottie Watkins, Director, Transportation Mark Ostertag, Director, Safety and Security Donna Simmons, Director, Human Resources Bill LeJeune, Director, Rail Operations Scott Phebus, Assistant Director, Operations Performance and Analysis Kevin Timmins, Business Manager, Freight Rail Operations Mike Nyren, Risk Manager Capital Metro Leadership Team Capital Metro Non-Revenue Vehicle Audit #09-05 Page 5 of 5