MTA Audit Finds $9.7 Million Amid Faulty Accounting; Risk of Loss Cited

Perhaps when you’re a multibillion-dollar agency, it’s easy to lose track of a few million dollars here and there.

Such may be the case at the giant Metropolitan Transportation Authority, where auditors have stumbled across $9.7 million that was never properly recorded on the books.

According to an MTA inspector general’s audit released Tuesday, the poor record keeping had the effect of “incorrectly presenting MTA’s financial position” for several years.

Separately, Julian Burke, the MTA’s interim chief executive officer, has hired KPMG Peat Marwick to get to the bottom of the county transit agency’s finances.

Without such assistance, Burke said, he has been unable to determine the MTA’s precise financial condition, including the extent of its budget deficit.

MTA board member and county Supervisor Zev Yaroslavsky called the inspector general’s audit an example of the “lack of fidelity to the taxpayers” practiced by the transit bureaucracy.

“What else have they not accounted for?” he asked. The audit concluded that “unrecorded assets . . . are extremely vulnerable to fraud and embezzlement.”

It also found that the faulty accounting posed a risk that money owed the agency would go uncollected.

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The report cited a case in which an MTA staffer called a company asking why it sent the agency a $350,000 check, unaware that the money was the second installment of a 1994 legal settlement totaling $8.6 million.

“When they received the $350,000 check, nobody knew anything about it,” an auditor said.

Although the MTA’s legal department was aware of the settlement, the accounting department initially was not informed--and even after it was told, it failed to record the “account receivable.”

If the company had not made the payment, “no one at MTA would have missed the funds,” the audit said.

In another case, the California Department of Transportation was not billed for most of the nearly $1 million it owed for freeway towing services provided after the 1994 Northridge earthquake and during construction of the Harbor Freeway transitway in 1995, the audit said. The MTA is now seeking the money.

“If we hadn’t intervened, that money would never have been collected,” one of the auditors said.

Auditors said they discovered the bookkeeping omissions while conducting unrelated reviews of MTA programs and have no idea how extensive the problem is.

The report said that auditors have been warning the MTA for years about accounting weaknesses but that “corrective action promised by management has not occurred.”

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MTA officials said that they have taken steps to improve their financial operations and that the examples cited in the audit “are not representative of the mainstream transactions.”

The audit follows a critical review of the agency’s $2.8-billion budget by Mayor Richard Riordan’s office, which found that incomplete information and optimistic assumptions have kept the MTA board from making informed decisions about transit projects.