Report Revealing Metro Rail Accounting Errors Divides RTD Directors

Directors of the Southern California Rapid Transit District are divided in their interpretations of an audit report that revealed millions of dollars in Metro Rail funds had not been accurately accounted for by the district’s bookkeepers and managers.

At a meeting Thursday, some of the 11 board members saw this as a relatively minor problem already being corrected. Others described the audit as an embarrassment because discrepancies in the books were so large and because their revelation came when the district’s management of the $1.3-billion first phase of the Metro Rail project is under fire.

The report by the Arthur Young accounting firm was ordered by the district’s inspector general after Metro Rail tunneling contractors complained that they weren’t being paid on time.

The Young auditors reported to transit district officials as long as a year ago that Metro Rail financial tracking systems were full of inaccuracies, discrepancies and misinformation. The directors learned of the report only after The Times asked for a copy a week ago, and that concerned several of them more than the contents themselves.

More Accounting Errors

“I don’t like surprises,” said board President Gordana Swanson. She expressed confidence in the RTD accountants, saying the problems are being rectified.

Nonetheless, there was more news of sloppy reporting Thursday. Accounting errors of as much as $20.7 million have been found in the district financial tracking systems for Metro Rail, the RTD’s top finance officer told the board.

Three RTD departments keep their books by using two computer systems, and while the various accounts theoretically should balance, Comptroller-Treasurer Thomas Rubin said they varied by as much as $113 million a year ago. He said the systems are now within $6 million of balancing.

Rubin, who heads a task force set up to investigate the Young audit’s findings and make remedies, assured the directors that no funds are missing. He said no time has been lost building the subway and no costs have gone up because of these problems.

“It is messy when you have . . . accounting systems that don’t match up,” Rubin, who was hired in June, said in an interview.

Rubin said the $20.7-million discrepancy “was a mistake. . . . For some reason the accounting department misplaced about $20 million worth of funding.”

The money has since been properly accounted for, he said.

The Young report comes when the RTD’s management of the first phase of the Metro Rail Project is being criticized by the Los Angeles County Transportation Commission. A commission audit reported that the first 4.4 miles of the project being built by RTD are running $135 million over budget and nearly two years behind schedule.

“This (Young audit) points up the mismanagement in the RTD . . . (and) shows what can happen when people are not accountable,” said Assemblyman Richard Katz (D-Sylmar). Katz has been leading legislative efforts to dissolve the RTD into the Los Angeles Transportation Commission to form a single super-transportation agency for the region.

According to the Young audit, Metro Rail accountants have “inaccurately reported” how much money was spent and how much was still owed in the complex construction project. There is no indication of anything illegal in the report. Rather, the audit indicates that the accounting problems have their roots in the tangled lines of authority and the failure of the computer systems to keep track of who is spending what, how much and when.

Board Not Given Report

The audit was ordered early last year by Inspector General Ernesto Fuentes. A final document was given to district officials in November, 1988, but, Fuentes said, RTD Executive Director Alan Pegg did not accept the final version until it included more district response to the criticisms. The final version was accepted by Fuentes in May but was not given to the board.

Board member Larry Gonzales was disturbed by the audit. “If we can’t get control of our own spending practices, what good are we? . . . This report and others are raising a great deal of question relative to our credibility.”

Board President Swanson, however, said the audit was not troubling and maintained that there was no reason for the board to be involved in what she called “internal management” procedure.

Director Marvin L. Holen put a series of gentle questions to the comptroller-treasurer, apparently to dispel any fear that the district’s accounting had failed.

“So there was no boondoggle, no losses, no problem with respect . . . to the books, is that correct?” he asked Rubin finally.

“Yes sir,” Rubin said. “It is (correct).”