Washington Metropolitan Area Transit Authority:

Steps Taken to Address Financial Management and Safety Recommendations, but Financial Management Internal Controls Need Strengthening

GAO-15-640R: Published: Jul 15, 2015. Publicly Released: Jul 15, 2015.

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What GAO Found

The Federal Transit Administration’s (FTA) June 2014 financial management oversight review of the Washington Metropolitan Area Transit Authority (WMATA) identified material weaknesses and significant deficiencies in internal control, concluded that WMATA did not maintain effective internal control over its compliance with FTA’s financial management system requirements, and included 38 recommendations that FTA requires WMATA to address. According to FTA’s assessment, WMATA has taken positive steps toward addressing these recommendations and is on track to address all 38 recommendations by June 30, 2015. However, FTA does not plan to close its recommendations to WMATA until it can verify that WMATA’s corrective actions have been implemented and are functioning—a process FTA officials estimate will start in 2016.

Since 2008, the National Transportation Safety Board (NTSB) has issued 29 safety recommendations to WMATA and, as of June 2015, eight of these recommendations are currently open. The open safety recommendations—which stem from four accidents, three involving WMATA, were issued to WMATA from January 2008 through June 2015—require, among other things, that WMATA replace its original, 1000-series railcars; install onboard event recorders in the lead car of each train-set; and install technology that will automatically alert wayside workers of approaching trains. NTSB officials told GAO that WMATA has been generally timely in implementing its recommendations. WMATA officials told us they are taking steps toward addressing the remaining recommendations but likely will not close the remaining recommendations until 2018 because the recommendations require significant resources to address. For example, according to WMATA officials, replacing the 1000-series railcars will cost the agency almost $700 million over 9 years.

While FTA stated WMATA has taken positive steps toward addressing FTA’s recommendations, strengthening WMATA’s risk assessment and monitoring components of internal control could better position WMATA toward having effective internal control over its financial management objectives. Internal control guidance from the Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides a generally accepted framework for internal control and specifies that an entity should assess the risk of an event occurring that would prevent it from achieving its objectives. COSO also specifies that an entity’s monitoring activities can better achieve maximum results when these activities evaluate all components of internal control. GAO found that WMATA (1) has not established a policy and related procedures for conducting periodic assessments of its financial management-related risks, and (2) does not currently monitor the achievement of its financial management internal control objectives in a manner to achieve maximum results. Strengthening WMATA’s risk assessment and monitoring components of internal control could better position WMATA toward having a more effective internal control system. Left unaddressed, WMATA increases the risk that the deficiencies identified in FTA’s June 2014 oversight report will continue to exist or resurface in the future and that a material misstatement of WMATA’s internal and external reporting will not be prevented, or detected and corrected, on a timely basis.

Why GAO Did This Study

WMATA’s public rail transit and bus systems are vital to meeting the transportation needs of the national capital region. Over the last decade, WMATA has also faced financial challenges maintaining the system’s infrastructure, and several fatal accidents have occurred on WMATA’s rail transit system. In June 2014, FTA provided WMATA with the results of its review of WMATA’s compliance with federal financial management system requirements. Furthermore, in recent years NTSB has made a number of recommendations to WMATA aimed at improving the safety of its rail transit system.

The House committee report accompanying the Departments of Transportation, Housing and Urban Development, and Related Agencies Appropriations Bill for fiscal year 2015 included a provision for GAO to review WMATA’s progress responding to FTA’s and NTSB’s recommendations. This report discusses (1) WMATA’s progress responding to FTA’s June 2014 financial management recommendations, (2) WMATA’s progress responding to NTSB’s recent safety recommendations, and (3) to what extent WMATA’s financial management controls incorporate the risk assessment and monitoring components of internal control.

GAO reviewed the recommendations FTA and NTSB made to WMATA and related documentation, such as WMATA’s status reports and correspondence with FTA and NTSB regarding these recommendations. GAO evaluated the nature of the internal control deficiencies FTA identified using the internal control framework published by COSO. GAO also interviewed WMATA, FTA, and NTSB officials.

What GAO Recommends

GAO recommends WMATA develop and implement policies and related procedures for assessing its financial management-related risks and monitoring the design and operating effectiveness of all components of internal control related to financial management. WMATA concurred with the recommendations and intends to take action to address them.

For more information, contact Mark Goldstein at 202-512-2834 or goldsteinm@gao.gov

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Accomplishment summary: Over the last decade, the Washington Metropolitan Area Transit Authority (WMATA) has among other things faced financial challenges maintaining the system's infrastructure. In June 2014, the Federal Transit Administration (FTA) identified material weaknesses and significant deficiencies in internal control within WMATA's financial management systems. FTA concluded that WMATA did not maintain effective internal control over its compliance with FTA's financial management system requirements. As a result, FTA restricted WMATA's ability to draw down federal grant funds without prior FTA approval until further notice. In 2015, GAO reported instances where some of the deficiencies that FTA found were recurring. Although WMATA had taken corrective actions, these actions did not prompt an assessment of the design, implementation, and operating effectiveness of controls necessary to achieve its financial management objectives. Specifically, WMATA had not established policies and procedures for assessing its financial management-related risks. The Committee of Sponsoring Organizations of the Treadway Commission's internal control guidance specifies that an entity should assess the risk of an internal and external event's occurring that would prevent it from achieving its objectives. Without establishing policies and procedures for assessing risks, there was an increased likelihood that WMATA would not identify or manage its risks associated with achieving its objectives concerning federal financial reporting. This therefore increased the likelihood that deficiencies identified in previous reviews would continue to exist or resurface in the future and that a material misstatement of WMATA's internal and external reporting would not be prevented, or detected and corrected, on a timely basis. As result, GAO recommended that WMATA develop and implement a policy and related procedures for assessing WMATA's financial management-related risks. In 2017 GAO confirmed that WMATA has taken steps to implement this recommendation. First, in October 2015, WMATA's Interim General Manager and Chief Executive Officer approved a policy establishing standards for the management and periodic evaluation of the system of internal controls over financial management operations at WMATA. Among other things, this policy outlines standards for the management and periodic assessment of financial management-related risks across WMATA, and it assigns responsibilities for identifying, assessing, monitoring and responding to financial management-related risks. Second, in June 2016, WMATA's Office of Internal Control and Compliance, which is responsible for monitoring WMATA's adherence to federal requirements necessary to preserve WMATA's federal grant eligibility, issued a manual that includes procedures for assessing its financial management related risks. WMATA's procedures manual requires that a risk assessment be conducted at least annually, and, in support of this requirement, WMATA identified when assessments will be conducted for 2017. WMATA also established a requirement that financial management risks be reported to its Board. By taking these steps, WMATA is in a better position to maintain effective internal control over its compliance with requirements necessary to preserve its federal grant eligibility and therefore prevent, identify, or detect material misstatements related to its federal reporting requirements.

    Recommendation: To strengthen the Washington Metropolitan Area Transit Authority's (WMATA) risk assessment and monitoring components of internal control, WMATA's board of directors, working with the General Manager and Chief Executive Officer of WMATA, should direct the appropriate WMATA officials to develop and implement a policy and related procedures for assessing WMATA's financial management-related risks.

    Agency Affected: Washington Metropolitan Area Transit Authority

  2. Status: Closed - Implemented

    Comments: Over the last decade, the Washington Metropolitan Area Transit Authority (WMATA) has among other things faced financial challenges maintaining the system's infrastructure. In June 2014, the Federal Transit Administration (FTA) identified material weaknesses and significant deficiencies in internal control within WMATA's financial management systems. FTA concluded that WMATA did not maintain effective internal control over its compliance with FTA's financial management system requirements. As a result, FTA restricted WMATA's ability to draw down federal grant funds without prior FTA approval until further notice. In 2015, GAO reported instances where some of the deficiencies that FTA found were recurring. Although WMATA had taken corrective actions, these actions did not prompt an assessment of the design, implementation, and operating effectiveness of controls necessary to achieve its financial management objectives. Specifically, WMATA was not monitoring the achievement of its financial management internal control objectives in a manner to achieve maximum results. The Committee of Sponsoring Organizations of the Treadway Commission's internal control guidance specifies that an entity's monitoring activities can better achieve maximum results when these activities evaluate all components of internal control. At the time of GAO's review, WMATA established an Office of Internal Compliance to monitor WMATA's adherence to financial management controls and related policies and procedures, with a primary focus on compliance with applicable federal regulations. However, the office's focus was largely on entity-level controls (e.g., approval of time charges related to federal grants) and was not designed to cover all the five components of internal control. Contributing to this deficiency was that WMATA had not established a policy or procedures that clearly delineated senior management responsibilities and processes for assessing or monitoring the effectiveness of the five components of internal control related to its financial management activities over time. By not having a policy that clearly delineated these responsibilities or procedures for ensuring evaluations include all five components of internal control, there was increased risk that WMATA management would be unable to timely detect and correct financial-related weaknesses and other control deficiencies or identify needed changes in internal control due to changes in the entity and its environment. Therefore, GAO recommended that WMATA develop and implement a policy and related written procedures for its Office of Internal Compliance to monitor the design and operating effectiveness of the five components of internal control related to financial management. In 2017 GAO confirmed that WMATA has taken steps to implement this recommendation. First, in October 2015 WMATA's Interim General Manager and Chief Executive Officer approved a policy establishing standards for the management and periodic evaluation of the system of internal controls over financial management operations at WMATA. Among other things, this policy outlines standards for the management and periodic assessment of financial management-related risks across WMATA, and it assigns responsibilities for identifying, assessing, monitoring and responding to financial management-related risks. Second, in June 2016 WMATA's Office of Internal Control and Compliance issued a manual that includes procedures for assessing the effectiveness of the five components of internal control related to financial management. By taking these steps, WMATA is in a better position to maintain effective internal control over its compliance with requirements necessary to preserve its federal grant eligibility and therefore prevent, identify, or detect material misstatements related to its federal reporting requirements.

    Recommendation: To strengthen the WMATA's risk assessment and monitoring components of internal control, WMATA's board of directors, working with the General Manager and Chief Executive Officer of WMATA, should direct the appropriate WMATA officials to develop and implement a policy and related written procedures for the Office of Internal Compliance to monitor the design and operating effectiveness of the five components of internal control related to financial management.

    Agency Affected: Washington Metropolitan Area Transit Authority

 

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