POLICY HIGHLIGHTER

Volume 14, Number 9
April 12, 2004

Ferries defiant to state auditor's findings

The Department of Transportation (DOT) had five audit findings in the state auditor's (SAO) 2003 Statewide Accountability Report, three of which were against the Washington State Ferries (WSF) division. True to history, WSF officials deny many of the problems identified even exist.

Below is a sampling of SAO's comments and WSF's responses concerning the audit findings:

1) WSF does not have adequate controls over ticket sales and revenue collection (3-41). Ongoing repeat finding (dating back to 1986).

SAO: Our audit revealed that controls over revenue collections at ferry terminals do not provide reasonable assurances that public funds are safeguarded . . . [WSF's] inadequate internal controls increase the risk that the loss or misappropriation of public money may not be detected in a timely manner, if at all, and in fact, allowed a misappropriation to occur. Further, when management does not report to us known or suspected losses of funds, it hampers our ability to conduct our audit.

WSF: [WSF] does not concur with this finding. Management has balanced considerations of cost, benefit, and risk, and believes the current system of internal controls is adequate given the existing point-of-sale receipting system. The fact that no significant employee theft losses have been discovered in the eighteen years the auditors have reported this condition underscores this assessment.

SAO: As first reported in 1986, our concern with [WSF] revenue collection system is that it does not adequately prevent nor would it adequately detect unrecorded sales that could then be misappropriated. The inability of the system to adequately detect unrecorded sales severely hampers the ability to discover misappropriation. Therefore, we disagree with the statement of [WSF] management that the lack of discovery of a significant employee misappropriation in the last 18 years supports an assessment that additional controls are not needed. Further, if a misappropriation were discovered, the system would be inadequate to determine its magnitude. We reaffirm our finding and will review any new procedures and their effectiveness in our next audit.

2) WSF made travel payments to employees in excess of contract amounts and lacked adequate controls over travel payments (3-42). Repeat finding.

SAO: [WSF] has not documented, in writing, its interpretations of the union contract or other practices it considers binding relating to travel pay. Therefore, we found a lack of clear and consistent guidance to aid employees in submitting and approving travel claims . . . Employees are being paid in excess of contact limits for travel. Further, [WSF] is more likely to apply travel rules inconsistently as long as those rules are not all in writing.

WSF: [WSF] does not concur with the condition noted regarding payments to employees in excess of written contract terms. Ferries management believes the auditors are inappropriately questioning the well-established principles of past practice as a basis of rules governing matters not included in the written contract and the right of the agency to interpret and apply those principles in determining rights and benefits under the contract. Further, the auditor appears to be inappropriately questioning whether WSF negotiated well. WSF also disagrees with the recommendation that this and other unwritten, yet binding compensation practices be summarized in writing, as this could constitute and improper unilateral action.

SAO: We reaffirm our finding and will review any new procedures and their effectiveness in our next audit. In addition, we would like to make clear that we weren't satisfied as to whether the employee was properly compensated, for every timesheet tested for which the detail was inadequate.

3) WSF is not following state purchasing guidelines when buying from vendors deemed a sole source (3-30).

SAO: [WSF] did not comply with the guidelines for sole source purchasing. [WSF] did not adequately document its justification for using sole source purchasing authority, and in some cases purchased goods from a vendor deemed a sole source when those purchases should have been competitively bid. We also found lack of adequate documentation justifying sole source purchases during our fiscal year 2001 audit. We communicated that in a letter to the Secretary of Transportation dated December 14, 2001.

WSF: [SAO] has misrepresented this condition by not describing the sampling method and its relationship to the population tested . . . auditors have overstated the significance of the condition.

SAO: We disagree with [WSF] statement that the condition has been misrepresented. [WSF] has a significant weakness in controls with both the lack of adequate documentation for sole source purchases and for failing to competitively bid purchases where this was required . . . We reaffirm our finding and will review any new procedures and their effectiveness in our next audit.

WSF's responses to 2002 audit findings
WSF's audit responses this year indicate a change in strategy by the division to address repeat findings. Last year's WSF responses to the 2002 Statewide Accountability Report findings were more of a non-response, using the same comments for each finding issued. This year WSF has gone on the offensive denying that problems exist though the same audit findings have been issued for nearly two decades without being resolved.

EFF recommendations
As evident by WSF's defiant responses to this year's audit findings, division management refuses to acknowledge that problems exist. This makes it unlikely that corrective action will occur from within the organization. Because of this, the legislature must hold WSF management accountable for the continued failed audits experienced under their leadership. The legislature should consider holding public hearings on the audit findings. WSF should be required to explain its responses and repeat findings and why corrective action hasn't been taken.

Prepared by: Jason Mercier | Budget Research Analyst | 360-956-3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org