$1.28 Million in Lost Items ‘Stored’ There : RTD Ghost Story: a Phantom Warehouse

The financially troubled Southern California Rapid Transit District has created a phantom warehouse to “store” more than $1 million in lost, stolen or misplaced bus parts, RTD employees have told The Times.

The dummy warehouse, as some RTD employees also call it, was devised nearly a year ago and exists only in the RTD’s computers--a kind of accounting limbo for lost materials that at other transit agencies are promptly acknowledged and written off as losses. RTD workers charged that the ghost warehouse, labeled “SD14,” is symptomatic of management efforts to hide mistakes with little regard for public cost.

“It makes (RTD middle managers) look good to higher ups. . . . You’re not losing as much money on paper,” said one warehouse employee familiar with the system.

John Richeson, RTD’s assistant general manager, the district’s overseer of inventory, said he learned of the non-existent warehouse only last week as a result of inquiries by The Times. However, he defended the bookkeeping maneuver as a good idea for handling “inventory that is not in the location it is supposed to be.”

RTD managers acknowledged that the non-existent warehouse is an unusual bookkeeping procedure, but they insisted that it is neither improper nor deceptive. Richeson said that to characterize the district as hiding its inability to control inventory is “not the proper interpretation.”

The list of missing parts in the phantom warehouse has grown from zero nearly a year ago to more than 500,000 items worth $1.28 million as of last week, the equivalent of about 6% of the RTD’s $22.2 million in bus and office supplies on hand. RTD officials said that hunting down the missing supplies and trying to determine how much has been stolen and how much has been misplaced has been a low priority because the search would be too expensive and time consuming.

“The dollar value certainly is not substantial in terms of the overall inventory or the overall volume of things we are doing,” Richeson said.

However, The fuzzy status of materials moved to the non-existent stock area creates other problems. It is now more difficult for transit police investigators to know quickly when parts are truly missing and possibly stolen, said RTD Police Chief James Burgess.

“That’s one of the problems we do encounter with this system,” he said.

One investigation of stolen bus parts is under way by transit police, and there have been several past instances of pilferage traced to employees that have resulted in prosecutions and dismissals. An investigation a few years ago found that employees were stealing heavy-duty bus hydraulic systems for use in customizing suspension systems on “low-rider” cars, Burgess said.

Officials contend that most of the missing material should turn up during the move to a new, much-delayed $87-million maintenance and warehouse facility this spring.

RTD managers inserted the phantom warehouse into the district records after a systemwide inventory of bus parts was taken last April. The inventory supposedly produced a complete tally of RTD bus and office supplies, from which accurate computer records of parts on hand were produced for the first time.

However, several sources familiar with warehouse operations said the inventory served mainly to reveal the lax controls on parts and supplies.

“It was a complete disaster,” said one, explaining that a lot of material listed in inventories could not be found.

In other instances, RTD officials acknowledged, inventories that were on hand may have been overvalued.

“The inventory was meaningless,” said another source who participated in the inventory.

Calculated Losses

RTD officials claimed that the value of the missing parts they found in the course of conducting the inventory was $1 million greater than the calculated losses. However, officials said in interviews with The Times that they were unable to explain how they arrived at that figure, saying no supporting records were kept of the intensive, four-day inventory check.

Almost immediately after the inventory adjustments were made to the books, parts began disappearing again, causing new problems.

A computer system that is supposed to automatically replenish parts when they are needed began refusing to place some orders. Since disappearing parts were not being removed from inventory lists, the computer showed the district had those parts on hand. But stock clerks checking the shelves were unable to find them.

Faced with a parts-purchasing bottleneck that could sideline badly needed buses, district employees began making expensive rush orders for special overnight deliveries from manufacturers.

Partly in response to this new set of inventory problems, RTD management placed the phantom warehouse on its books. They listed it as SD14, the kind of computer label used to designate an actual warehouse at a specific location. SD14 was inserted in a column of real warehouse listings, with nothing other than its number to set it apart, for example, from SD10, the computer designation for a storeroom at a bus yard near downtown Los Angeles.

Electronically ‘Shipped’

Wayward parts were thereafter electronically “shipped” to the new warehouse, freeing the central computer system to reorder parts to keep the system’s 2,800 buses running.

In addition, the fake storage area has eased the pressure on managers to account for missing parts. In the past year, they no longer have had to “write off” all the parts they could not find and were able to minimize unexplained losses in their budgets.

RTD officials insist that the chief purpose of the phantom warehouse was to ensure that a detailed investigation of missing materials could be made. Maynard Walters, RTD director of purchasing who authorized creation of the ghost storage depot, recalled telling his staff, “I don’t want it (written off as a loss). I want it put in an account and held there so I can have a report on why it’s not there.”

However, after 11 months, officials say they have not had the manpower to track down all the errant parts and supplies assigned to SD14.

“We have a certain amount of personnel that we can spend finding all of these things. . . ,” said James Connolly, the RTD’s materials manager, who set up the fictitious warehouse.

Gradually, SD14 grew until it had three or four times the parts and inventory value of other satellite stockrooms.

Arguments Erupted

So real did SD14 appear, that for months, warehouse clerks and mechanics unsuccessfully tried to retrieve needed parts from it--and even got into arguments with higher-ups over why supplies stored there could not be delivered.

“I couldn’t figure out what it was,” one RTD warehouse worker said. “I’d look on the computer screen (for parts). It would say nobody has them but SD14. I’d say why can’t we get them from SD14. (Eventually, I was told) SD14 doesn’t exist.”

As time went on, the phantom storehouse became a running joke among warehouse workers. The instant any part was misplaced, someone would suggest, “look in SD14,” employees said.

In the background of the RTD’s unusual bookkeeping practices are longstanding inventory control problems created by lack of space at the RTD’s main warehouse, dubbed South Park. The Avalon Boulevard facility in South-Central Los Angeles long ago ran out of room for new parts. Workers have been forced to store parts in corners, on the floor, outside--wherever there is room.

“You’re talking about people, based on memory, trying to remember where (a part) was,” said one former warehouse employee.

“The current system at South Park is not very efficient,” said RTD’s Richeson, who insists that everything possible has been done to control materials there.

Aggressive Policies

Transit systems in Washington and New York appear to have more aggressive policies on tracking changes in parts inventories. Washington officials say they are constantly doing random inventories at all of their warehouses. Missing parts are written off quickly--and added back on the books later if found--to keep records on parts clean, an official said. When a part is listed in the Washington system’s computer, “we need to make sure we can go out and put our hands on (it),” said Beverly Silverberg, a district spokeswoman.

RTD middle managers are responsible for reviewing warehouse records and say they watch for large fluctuations in parts counts. But in New York, top management officials say they closely scrutinize warehouse reports for even small inventory variations. Russ Broshous, vice president for materiels of the Metropolitan Transit Authority, said he watches records “like a hawk” because even low-level stock handlers can wipe out “the inventory in small doses.”

RTD officials insist that their difficulties in keeping track of materials will be largely left behind with the move next month to the new warehouse and maintenance facility near downtown’s Union Station. A complete inventory will be taken during the move and records adjusted accordingly, officials said.

New Facility

As part of a sophisticated parts-tracking system at the new facility, computer-guided robots will store and retrieve all parts, keeping an accurate, running inventory as they go, RTD officials contend.

“It’s just like night and day in terms of the ability to control things,” Richeson said.

Other RTD employees are less confident. They point to management shake-ups and earlier highly touted state-of-the-art systems that have not solved inventory control problems.

One RTD worker, referring to the new high-tech warehouse, said, “There’ll be problems there we haven’t even anticipated, that will be magnified tenfold.”