MASSACHUSETTS:TransCore slammed by Turnpike reviewers

The review makes no criticism at all of the front-end RFID equipment. But it paints a picture of the business side of the operations as badly managed and staffed, the accounting software as inadequate, and lacking in basic procedures to secure revenues from both inside thievery and outside violations.

A bunch of engineers playing book-keeper, was the picture presented, when one good CPA was needed.

Specifically, the KPMG review said the TransCore Accounts Processing Center (APC) located in Auburn MA had been unable to reconcile its accounts with the toll system data, with the Pike’s general ledger, or with its bank accounts. Reports and controls between lane activity and cash collections were inadequate. The system was unable to determine account receivables balances, the age of receivables, or the amount written off. The report also faulted the violation systems, saying the lack of followup against violators was costing the turnpike revenue and threatened an escalation of losses as motorists realize the lack of enforcement.

The Turnpike had failed to get legislative support for an effective violation prosecution system, the report noted. One in fifteen ET transactions were violations with revenue lost of $2.5m to $3m/year.

“Public knowledge of the Authority’s inability to enforce (against) toll violations could result in a higher incidence of violations, and/or could reflect negatively on the Authority and the ETC project,” said KPMG. It suggested violators could meanwhile be sent a ‘warning’ plus an application to join the ET service.

KPMG faulted the lack of any documentation of correct procedures at the accounts center, though this is being addressed with a draft called APC Policies and Procedures. It complained that management roles were poorly defined, and no individual could be held accountable for problems in the accounts and data reports. Worst was the lack of any chief financial officer at the APC.

The turnpike had requested toll revenue reporting by the 5th of the following month and other financial reporting by the 15th but: “TransCore has yet to meet these deadlines.” It criticized Transcore for delays of up to two months in billing major accounts, excessive receivable accounts, repeat rejections of credit card numbers and rejection fees, incorrect postings to accounts and lack of enforcement of rules about surety bond coverage.

KPMG suggested the Turnpike consider paying TransCore fees based on revenue collected rather than number of transactions including violations. It said that TransCore had no error detection procedures so mistakes were only found if the Turnpike found them.

The reviewer was harsh in comments about the quality of staff employed by TransCore at the accounts center, saying they were often “unqualified temporary” personnel who did not understand the accounting tasks they were given, adding: “Numerous errors have been noted in the transactions performed by these temporary personnel in such areas as the entry of applications and the daily reconciliation process.” It suggested less use of temporaries and training programs for staff.

“There appears (sic) to be very few TransCore employees who have a strong understanding of accounting,” wrote KPMG, resulting in failure to attain accounts reconciliation. As a result the Turnpike “has no assurance that all cash is getting deposited in the bank or that revenue is being recorded properly.” It suggested TransCore hire qualified bookkeepers and a fulltime accountant.

“Turnover of temporary APC staff has been extremely high,” and as a result job functions of staff keep changing, and jobs do not get completed. The Turnpike itself did not have a chief financial officer or an accounting director most of this year, KPMG notes. This put in jeopardy meeting bond covenant audit requirements.

Normally accounting departments have separate persons responsible for depositing cash and doing cash accounts in order to complicate larceny. At TransCore’s APC a single person did both jobs, risking false cash reports and misappropriation of funds.

TransCore’s system was criticized as having unnecessarily cumbersome features. Example: if an error was made in setting up an account, the whole account had to be closed out and a new one established, creating difficult to reconcile debits and credits in the accounts. The input screens lacked any checks on inconsistent and wrong entries by entry clerks.

TransCore’s ARCS accounting system was criticized for a cumbersome system for closing a transponder account in which three unlinked entries have to be made, and reconciliation was made ore difficult. KPMG calls it “very complicated and time-consuming.”

KPMG reviewers found some major customers had not been billed over an extended period, including the US Postal Service. In case of electronic billing TransCore sometimes lost copies of the billing. And the billing was not integrated with the accounts receivable system, so it was problematic whether the accounts center could get accurate account balances. A cash account was being improperly credited with cash before claims for that cash were even submitted to the banking clearing house (ACH) system. TransCore had no procedures for logging incoming checks to help track them and ensure they get properly applied, making misappropriation a greater risk.

Repeated submission of rejected credit cards led to an unnecessary $100k in bank charges, KPMG says. The system also was found to be failing to accumulate toll charges against deplenished accounts – this KPMG suggests was not TransCore’s fault, but was Mass Pike policy, which KPMG says is “a clear loss of revenue.” And it might have added, an invitation to motorists not to replenish their accounts!

The accounting system (ARCS) used by TransCore had categories different from the Turnpike’s accounting resulting in ‘one-sided entries’ and an inability to get balances that reflect transactions processed. Receipts got misclassified. The APC accounts needed to be linked to the Oracle accounting module of the Turnpike, or otherwise gotten to work with other Turnpike accounts, KPMG said.

“Presently the (Turnpike) authority cannot rely on the financial information presented to by TransCore,” KPMG said in one damning little sentence. It said a monthly spreadsheet which attempts to reconcile cash and the accounts is completed late, contains errors and ultimately fails to achieve reconciliation. In one month cited there was a ‘variance’ of $33k unexplained. TransCore personnel work not from their own accounts each month but from the beginning bank balance, so making the monthly variances ‘disappear.’ The TransCore accounting system failed to link bank clearing house transactions and credit card chargebacks to the original transactions, making it an extremely laborious process to check their validity. KPMG said this lack of a convenient link would make it difficult to detect fraudulent activity by employees. In addition there was no link between payments into commercial accounts and the oldest outstanding balance file. Clerks were aware of this and were supposed to do it manually, but the system should do it automatically.

Tag file exchange poor

KPMG said the exchange of valid tag and transactions files between the Mass Pike and sister E-ZPass agencies was not been working well, and the Turnpike had been unable to collect funds owing from other toll agencies in a timely and certain fashion because of the inadequacies of TransCore’s systems. Toll lane data from the TransCore host computer and the accounts system are generally unable to be reconciled. In one month cited there was a $21k unexplained difference KPMG does not say if this was a typical or an extreme month.

Other losses of revenue seem to be a matter of Turnpike policy. There were no penalties or interest charges on unpaid accounts. KPMG estimates Turnpike revenue could be improved to the tune of $414k/year by charging interest on unpaid accounts. A volume discount scheme for commercial accounts was found to be not monitored properly with unwarranted volume discounts possible.

The toll system host server at Weston MA and the accounts systems at Auburn MA were both designed to use an Oracle automatic replication feature, which would regularly backup critical data from each system at the other location in case a disaster like a fire or a storm should destroy equipment and data at one center. However KPMG reported the replication feature was not working. So if there were a disaster at the Turnpike’s host, or at the accounts processing center, they would lose a complete data set.

BACKGROUND: The report is called the “FAST LANE Transcore System Integration Review” and it was commissioned by the former head of the Turnpike James Kerasiotes over a year ago. He was fired by the state governor in April this year after federal officials and state investigators found he had suppressed news of vast cost overruns on the Turnpike’s Central Artery/Tunnel (‘Big Dig’) project. His successor Andrew Natsios was in charge of the investigation of the CA/T irregularities.

Most of the KPMG field work of visiting TransCore’s Turnpike operations was conducted in December 1999 and January this year. A draft report was dated Jan 31, 2000 and the final report transmitted July 17, and released to the press September 10. KPMG is a leading international management, accounting and auditing firm. Much of the report consists of a 4-column spreadsheet which includes observation, impact, recommendation and rating columns, and 35 issues in rows. Seven KPMG staff are listed as the team that performed the review, led by Deborah Smallwood, principal, information risk management.

Correspondence with the report said its job was to “perform a high level controls review of the Transcore operations and systems” in the ET project “in order to identify information technology and business process issues that potentially translate to audit and business risks.”

The only report we had heard of other major problems in TransCore accounting systems was at the Dulles Toll Road in the early days of electronic tolling over

three years ago. A VDOT official complained then that the TransCore system was not producing auditable, reconcilable data. However after a period of time TransCore apparently made improvements and VDOT was satisfied.

One serious problem between TransCore and the Mass Pike has been the lack of any detailed operations contract. TransCore has been working on a vague general contract to perform ET operations, pending negotiation of details. Some say that without the security of a proper longterm contract TransCore has been reluctant to invest the effort to upgrade the accounts system and staff. The Turnpike has also been in considerable turmoil the past two years over the Central Artery project, and the near clean-sweep of staff with the dismissal of Kerasiotes, so TransCore has probably had trouble getting direction from its client.

LATE RESPONSE: “Although the review appropriately highlights certain inefficiencies and deficiencies present at the time of the report, it presents, in our opinion, a skewed view of the program with numerous factual misrepresentations. The review is also dated, reflecting a snapshot of the program as of late 1999. Since that time, most of the substantive issues raised in the review have been addressed, and the FASTLANE (or ET) program has matured into a very successful and popular initiative... (T)here are no instances cited in the review where the integrity of the patrons’ accounts or of the FAST LANE program itself was compromised.”

The kinds of employees hired by TransCore and its staffing plan were “industry practice” and the staff had the qualifications needed, in the judgment of TransCore.

Apparently TransCore has refined the financial reporting since KPMG wrote its bombshell report and these improvements have “addressed many of the KMPG concerns.” The turnpike’s requirements, also, have “evolved” over time.

The same has been true of a violation recording and prosecutions system (VES). Such a system was not in the original RFP so TransCore did not provide it. The Turnpike lacked the legal authority to operate a system at that time. This year it got that authority and has contracted with TransCore since then to build a VES, which should become operational around the end of this year.

The KPMG report was “initially useful in identifying areas for program improvement” but by now represents “an outdated view,” according to TransCore.

The BOSTON HERALD reported when the KPMG report emerged that a state DOT official said: “There was disagreement internally as to who was at fault for this... There was no real sense that everything was in place properly. Basically, it’s a crap shoot as to whether or not the (toll) money is collected.’’

No CFO at the pike

The newspaper said that turnpike officials concede a major problem was the failure to replace James Rooney, chief financial officer in the early days of FAST LANE. He departed July 1999 at the very time audit problems were emerging. There is no suggestion anywhere that money was being stolen, just that accounting systems were not fully working.

Joseph Landolfi chief of staff at the turnpike said the system was “missing some guts” in its backroom operations. But the KPMG report was not valid as an indictment of the whole system, he said.

The ET system does over 200k transactions/day with about 400k transponders on issue, and is very popular with motorists. It has greatly reduced waits at toll plazas and is saving on toll collector costs. However massive troubles with the CA/T project (Big Dig) have not been conducive to good management of the introduction of ET.

(Contacts Bob Bliss Mass Pike 617 248 2823, Claudia Wiegand, TransCore 703 821 5791, Deborah Smallwood, KPMG 617 968 1000)