[Senate Hearing 110-75]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 110-75
 
                 TRANSIT BENEFITS: HOW SOME FEDERAL EM-
                PLOYEES ARE TAKING UNCLE SAM FOR A RIDE

=======================================================================


                                HEARING

                               before the

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 24, 2007

                               __________

        Available via http://www.access.gpo.gov/congress/senate

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs



                     U.S. GOVERNMENT PRINTING OFFICE

35-528 PDF                 WASHINGTON DC:  2007
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Washington, DC 20402-0001



        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas              NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri           JOHN WARNER, Virginia
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk


                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                     CARL LEVIN, Michigan, Chairman
THOMAS R. CARPER, Delaware           NORM COLEMAN, Minnesota
MARK L. PRYOR, Arkansas              TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri           JOHN WARNER, Virginia
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

            Elise J. Bean, Staff Director and Chief Counsel
                       Zachary I. Schram, Counsel
  Mark L. Greenblatt, Staff Director and Chief Counsel to the Minority
          C. Jay Jennings, Senior Investigator to the Minority
                     Mary D. Robertson, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Levin................................................     1
    Senator Coleman..............................................     3

                               WITNESSES
                        Tuesday, April 24, 2007

Gregory D. Kutz, Managing Director, Forensic Audits and Special 
  Investigations Unit, U.S. Government Accountability Office, 
  accompanied by John J. Ryan, Assistant Director, Forensic 
  Audits and Special Investiations Unit, U.S. Government 
  Accountability Office..........................................     6
Linda J. Washington, Deputy Assistant Secretary for 
  Administration, U.S. Department of Transportation..............    17
Michael L. Rhodes, Deputy Director, Administration and 
  Management, Director, Washington Headquarters Services, U.S. 
  Department of Defense..........................................    18
Hon. Calvin L. Scovel, III, Inspector General, U.S. Department of 
  Transportation.................................................    20
Thomas F. Gimble, Acting Inspector General, U.S. Department of 
  Defense........................................................    22

                     Alphabetical List of Witnesses

Gimble, Thomas F.:
    Testimony....................................................    22
    Prepared statement...........................................    90
Kutz, Gregory D.:
    Testimony....................................................     6
    Prepared statement of Mr. Kutz and Mr. Ryan..................    35
Rhodes, Michael L.:
    Testimony....................................................    18
    Prepared statement...........................................    73
Ryan, John J.:
    Testimony....................................................     6
    Prepared statement of Mr. Kutz and Mr. Ryan..................    35
Scovel, Hon. Calvin L. III:
    Testimony....................................................    20
    Prepared statement...........................................    80
Washington, Linda J.:
    Testimony....................................................    17
    Prepared statement with attachments..........................    63

                                EXHIBITS

 1. GExcerpts from eBay auction selling Metrochecks..............    97

 2a  GGeneral Services Administration Public transportation 
  Benefit Program Application....................................    98

 2b  GU.S. Department of Defense Public Transportation Benefit 
  Program Application............................................   100

 2c  GU.S. Department of Transportation National Capitol Region 
  Public Transit Benefit Program Application.....................   101

 3. GGAO Chart, Example of Metrochek and Warning Statement 
  Excerpts.......................................................   102

 4. GGAO Chart, Excerpts from Department of Commerce Transit 
  Benefits Application...........................................   103

 5. GResponses to supplemental questions for the record submitted 
  to The Honorable Calvin L. Scovell III, Inspector General, U.S. 
  Department of Transportation...................................   104

 6. GResponses to supplemental questions for the record submitted 
  to Linda J. Washington, Acting Assistant Secretary for 
  Administration, U.S. Department of Transportation..............   108

 7. GResponses to supplemental questions for the record submitted 
  to Thomas F. Gimble, Acting Inspector General, U.S. Department 
  of Defense.....................................................   111

 8. GResponses to supplemental questions for the record submitted 
  to Michael L. Rhodes, Deputy Director, Administration and 
  Management, Director, Washington Headquarters Services, U.S. 
  Department of Defense..........................................   116

 9. GResponses to supplemental questions for the record submitted 
  to Gregory D. Kutz, Managing Director, Forensic Audits and 
  Special Investigations Unit, U.S. Department Accountability 
  Office.........................................................   120


                   TRANSIT BENEFITS: HOW SOME FEDERAL



                     EMPLOYEES ARE TAKING UNCLE SAM



                               FOR A RIDE

                              ----------                              


                        TUESDAY, APRIL 24, 2007

                                     U.S. Senate,  
              Permanent Subcommittee on Investigations,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:39 p.m., in 
room 342, Dirksen Senate Office Building, Hon. Carl Levin, 
Chairman of the Subcommittee, presiding.
    Present: Senators Levin and Coleman.
    Staff Present: Elise J. Bean, Staff Director and Chief 
Counsel; Mary D. Robertson, Chief Clerk; Zackary I. Schram, 
Counsel; Mark L. Greenblatt, Staff Director and Chief Counsel 
to the Minority; Mark D. Nelson, Deputy Chief Counsel to the 
Minority; Jay Jennings, Senior Investigator to the Minority; 
Ruth Perez, Detailee, IRS; Clifford C. Stoddard, Jr., Counsel 
to the Minority; Timothy R. Terry, Counsel to the Minority; 
Emily T. Germain, Staff Assistant to the Minority; and Thomas 
Richards (Senator Akaka).

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. The Subcommittee this afternoon looks at the 
Federal Transit Benefit Program. This fairly little known 
program, I would say, was established less than 10 years ago. 
It was designed to encourage Federal employees to use public 
transportation for the purposes of reducing road congestion, 
air pollution, gasoline consumption, and our dependence on 
foreign oil. Nationwide, the program encourages nearly 300,000 
Federal employees to commute to work using mass transit 
systems. More than half of these employees work in our Nation's 
capitol.
    The program is not free, however. Last year it cost about 
$250 million and there is evidence that tens of millions of 
those dollars in benefits are the subject of waste, fraud, or 
abuse.
    The program works like this. Each employee who wants 
transit benefits submits an application to their agency and 
certifies that they are a Federal employee, that they will use 
the subsidy for their daily commute on public transportation to 
and from work, that the amount of the benefit will not exceed 
their commuting costs, and that they will not transfer the 
benefit to anyone else. Their agency is supposed to verify the 
information and then supply the transit subsidy. The maximum 
benefit is $110 per month.
    In the National Capital Region, for example, employees 
receive vouchers called Metrocheks that can be used to purchase 
farecards for local transit systems. Each Metrochek states that 
it is non-transferable.
    Last year Senator Coleman, who was then the Chairman of the 
Subcommittee, asked the Government Accountability Office (GAO) 
to investigate possible misuse of these transit benefits. The 
GAO has found that some Federal employees were abusing the 
program by selling their transit benefits on the Internet or 
falsely claiming excess benefits, distributing benefits to 
friends and family, or by receiving benefits while on extended 
leave or after leaving the Federal workforce.
    The GAO identified one employee at the Department of 
Defense, for example, who sold his transit benefits on eBay 
taking in $6,000 over several years. The GAO found another 
individual who received $4,000 worth of transit benefits from 
the Department of Commerce after she had left the agency. The 
GAO has found other examples of Federal employees who gave 
their transit benefits to friends or family, apparently unaware 
that they are not allowed to transfer their benefits. The GAO 
estimates overall the waste and fraud in the Federal Transit 
Benefit Program amounts to tens of millions of dollars a year.
    The program is marked by weak internal controls over the 
distribution of transit benefits. For more than 4 years, agency 
audits have been identifying this problem. A 2005 inspection of 
the Transit Benefit Program by the Naval Audit Service, for 
example, found ``important internal control weaknesses that 
made the Department of the Navy vulnerable to increased waste, 
fraud, and abuse and expenditure of dollars.''
    A 2004 audit by the Inspector General of the National 
Archives wrote that the agency ``lacked adequate internal 
controls to validate that the employees were not abusing the 
program.''
    Six agency audits in 4 years have urged the establishment 
of stronger controls but they have not been implemented. In 
some cases, agencies are apparently confused as to their 
responsibilities to prevent misuse of the benefits. Over 100 
Federal agencies have entered into contracts with the 
Department of Transportation to help administer the Transit 
Benefit Program. In the National Capital Region, depending on 
an agency's contract with the Department of Transportation, DOT 
either distributes Metrocheks directly to qualified and 
registered employees or provides an agency with Metrocheks for 
further distribution to their employees.
    Apparently some agencies thought that the Department of 
Transportation was also responsible for conducting oversight of 
the program to prevent abuse. The Department of Defense, for 
example, which is the largest user of transit benefits and 
contracts with the Department of Transportation, told the 
Subcommittee that it thought the Department of Transportation 
was overseeing the program as well as administering it.
    DOT told the Subcommittee, however, that oversight was not 
part of its contract with the DOD. Today we will hear from both 
agencies and hopefully resolve that issue.
    The problems identified today are ones that can and should 
be promptly solved. Commonsense solutions to curb the waste, 
fraud, and abuse include stronger internal controls and better 
agency oversight. For instance, program administrators should 
verify that beneficiaries are still on the agency payroll and 
not simultaneously receiving parking permits. Another easy 
improvement would be for the government to standardize across 
agencies the application process and internal controls to use 
to monitor the distribution of benefits.
    One lead agency could also provide a website with 
comprehensive information on the Federal Transit Benefit 
Program. Education should be emphasized. Every employee 
enrolled in the program should be clearly informed that the 
transit benefits are not transferable and should not exceed the 
cost--and may not exceed the cost of their daily commute.
    Like many programs with a good purpose, steps need to be 
taken to prevent waste and abuse in this program's operations. 
If significant waste and abuse are allowed to continue then the 
program itself is not sustainable.
    I want to commend Senator Coleman for initiating this 
investigation into the Federal Transit Benefit Program and for 
working with the agencies involved to identify the problems and 
possible solutions.
    Senator Coleman.

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. Thank you, Mr. Chairman, and let me start 
by thanking you for your active participation in our bipartisan 
effort to combat waste, fraud, and abuse and assure that 
American tax dollars are spent wisely.
    As you have noted, today we turn our attention to the 
Federal Transit Benefit Program. As you said, this is a program 
with good purpose. It is designed to reduce air pollution and 
traffic congestion by providing Federal employees with an 
incentive to commute using mass transit rather than driving.
    The Federal Government spends $250 million each year on the 
program and the concept is simple. Eligible employees get 
subsidies that can be used in their local transit systems to 
offset commuting expenses. The subsidies are tax-free and do 
not cost the employee a dime. In exchange the employees must 
certify that they will use the cards only to commute by mass 
transit and will not transfer or sell the cards to anyone else. 
In addition, employees may not receive more in these tax-free 
benefits than they actually spend commuting. This is, after 
all, a subsidy rather than a handout.
    What I have are some exhibits just to show the application 
forms that employees must submit to request the benefits.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 2a, 2b, and 2c which appears in the Appendix on 
page 99-101.
---------------------------------------------------------------------------
    It is a good thing I had my Lasik vision over here because 
I think I can see that. [Laughter.]
    But they do require in clear language, there is a line I 
certify I am employed by the U.S. Department of Transportation. 
I certify that I am eligible. I certify, etc., a series of 
certifications here. That they are employees, that their 
requested subsidy does not exceed their actual commuting 
expenses, and that they will not give, sell, or transfer the 
benefits to anyone else. Employees sign these certifications 
under penalty of perjury.
    Unfortunately, these explicit certifications are not enough 
to prevent waste and abuse in the program. Our investigation, 
along with the hard work of the Government Accountability 
Office, has revealed rampant fraud, waste, and abuse in this 
program, costing the American tax payer tens of millions of 
dollars every year.
    It is interesting, previous PSI investigations specifically 
uncovered fraud amounting to the hundreds of millions, cases 
where individuals owe millions back to the government. We have 
done that with contractors who have not paid their Federal 
taxes. We dealt with the Chairman's efforts on offshore tax 
shelters, lots of dollars.
    So when you look at something like this, the maximum 
benefit of $110 a month, you may ask why are we looking at 
this? There is an old adage that I heard once from a family in 
retail, small business, that says watch the pennies and the 
dollars will take care of themselves. In this case, we have not 
been watching the pennies and millions of American tax dollars 
are ultimately being lost.
    The Chairman has already described some particularly 
egregious cases of fraud and abuse, including Federal employees 
who brazenly sell their transportation subsidies on the 
Internet using sites like eBay. In just 3 days GAO contacted 20 
individuals who were selling Metrocheks on eBay. Every single 
one of them was a Federal employee.
    A couple of other examples in addition to the ones the 
Chairman has articulated, in one a relatively senior IRS 
employee received transit benefits since February 2004. This 
employee also, however, received parking benefits from the IRS 
and drove to work. As a result, he sold his Metrocheks for 
nearly $1,000 on eBay. When GAO investigated this seller, they 
discovered that he had also stolen numerous computers and 
computer parts from the IRS and sold them on eBay, as well. The 
employee has been placed on administrative leave indefinitely 
without pay.
    Moreover, our investigation uncovered a seller who admitted 
he was selling his transit benefits in order to pay for his 
parking. His eBay auction e-mail is presented in an exhibit.\1\ 
When asked how he obtained the farecards, he said ``Oh, I got 
the cards from the government.'' He then went one step further 
and said, ``I sold the cards to pay for my parking.''
---------------------------------------------------------------------------
    \1\ See Exhibit No. 1 which appears in the Appendix on page 97.
---------------------------------------------------------------------------
    These Federal employees are taking Uncle Sam for a ride. 
Unfortunately, the problems uncovered by GAO in our 
investigations are not limited to these examples. GAO examined 
only one very narrow category of fraud, recipients who obtained 
the maximum benefits even though they are entitled to a lesser 
amount. They found that 25 percent of all distributions in 
Washington, DC alone were abusive.
    This program is nationwide. It is not just in Washington. 
But we focused here, in our investigation, on a very narrow 
part of the entire program in one geographic locality.
    In the Department of Defense, the rate of fraud and waste 
related to this one narrow category reached 35 percent in just 
the DC area. Thirty percent of distributions of both the 
Department of Treasury and the Coast Guard were similarly 
improper. Common sense dictates this pattern of fraud would 
extend beyond the narrow scope of this investigation.
    The obvious question is how did this happen? The answer is 
disturbing. No one is minding the store. No governmental entity 
actually oversees the program in terms of dealing with concerns 
about waste, fraud, and abuse. This is worth repeating. Despite 
the fact that this program disburses roughly $250 million each 
year and nearly 300,000 Federal employees receive the benefits, 
no agency is tasked with managing the program. No agency is 
tasked with ensuring that the program runs efficiently. No 
agency is tasked with preventing waste, fraud, and abuse.
    The Department of Transportation administers the program 
for 75 percent of Federal agencies but views its role as a mere 
administrative conduit between the agencies and local transit 
systems. Individual agencies, which are perhaps in the best 
position to verify individual subsidies, do little to certify 
whether its employees are eligible for the program or validate 
the amount of benefits claimed. Inspectors General in most 
agencies do nothing to audit these programs to uncover waste 
and fraud. In fact, although more than 100 Federal entities 
participate in this program, we could only identify six 
Inspectors General that reviewed the program in any way.
    It is not a case of someone being asleep at the switch. It 
is a case of no one being at the switch at all. For far too 
many Federal employees, this program is free money.
    Americans expect their government to use their tax dollars 
wisely. As a direct result of poor government oversight, tens 
of millions of dollars of waste, fraud, and abuse went 
undetected. While tens of millions of dollars in context of our 
billion-dollar budgets may seem like a drop in the bucket, no 
degree of government waste, fraud, and abuse is acceptable. We 
have a solemn obligation to ensure that every single text 
dollar is spent wisely.
    I do not believe that the government is inherently 
inefficient. To the contrary, I believe government can work 
well. The silver lining today is that the fixes should be 
simple. The Chairman himself talked about what we called common 
sense solutions. It seems obvious. Before enrolling employees 
in this program, agencies should check that the employees are, 
in fact, employed there. We have some instance where folks were 
receiving benefits and are not employed by the agency, in some 
instances having left the agency for a number of years but 
still receiving benefits each and every month. When an employee 
leaves the agency or is on extended absence, the agencies that 
administer the transit benefit should be notified. Agencies 
should confirm that their employees are not receiving parking 
passes and transit benefits at the same time. There should be 
an effort to confirm employees' commuting expenses, such as 
requiring applicants to present records to establish their 
commuting expenses or using employees' addresses to estimate 
reasonable commuting costs. Supervisors could be required to 
approve applications.
    Clearly, as the Chairman indicated, employees should be 
better educated on the proper uses of transit benefits and the 
penalties for violating the rules should be made clear. 
Inspectors General should be encouraged to conduct audits of 
the program to prevent waste and fraud. And most importantly, 
there should be greater clarity on precisely which agency or 
agencies are responsible for running this program.
    All in all, these fixes seem relatively easy. I look 
forward to the witnesses' testimony today to examine how we can 
tighten this noble program to ensure that we are still 
encouraging our employees to take mass transit on the one hand, 
but at the same time preventing the waste of American tax 
dollars on the other.
    In closing, I should mention my sincere appreciation for 
the hard work of GAO's Forensic Audit and Special 
Investigations Unit which has consistently provided this 
Subcommittee with invaluable assistance. I look forward to 
hearing their testimony today.
    Thank you, Mr. Chairman.
    Senator Levin. Thank you so much, Senator Coleman.
    Let me now welcome our first panel and would ask them to 
stand. All the witnesses before this Subcommittee are sworn in, 
as our witnesses know.
    Our first panel is made up of Gregory Kutz, Managing 
Director of the Forensic Audits and Special Investigations Unit 
at the Government Accountability Office and Special Agent John 
Ryan, an Assistant Director with the Forensic Audits and 
Special Investigations Unit.
    We welcome you back. You have been here before, both of 
you, and you are welcome and we appreciate your good work, as 
Senator Coleman has said.
    Let me now administer the oath.
    Do you swear that the testimony that you will give before 
this Subcommittee will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Kutz. I do.
    Mr. Ryan. I do.
    Senator Levin. We will be using a timing system today. We 
would ask that your oral testimony be no more than 10 minutes. 
Approximately a minute before the red light comes on, you will 
see the light change from green to yellow, giving you an 
opportunity to conclude your remarks. Your written testimony 
will be printed in the record in its entirety.
    And we again appreciate the work that you do, not just on 
this project but on the other projects that the GAO is involved 
with. We understand, Mr. Kutz, that you are going to be 
presenting the GAO's testimony. We would ask you to proceed.

 TESTIMONY OF GREGORY D. KUTZ,\1\ MANAGING DIRECTOR, FORENSIC 
    AUDITS AND SPECIAL INVESTIGATIONS UNIT, U.S. GOVERNMENT 
 ACCOUNTABILITY OFFICE, ACCOMPANIED BY JOHN J. RYAN, ASSISTANT 
DIRECTOR, FORENSIC AUDITS AND SPECIAL INVESTIGATIONS UNIT, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Kutz. Mr. Chairman and Senator Coleman, thank you for 
the opportunity to discuss Federal transit benefits. Federal 
agencies are required to provide employees with tax-free 
transit passes to cover commuting expenses. More than 120,000 
Federal employees in the National Capital Region claim over 
$140 million of benefits annually.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Kutz and Mr. Ryan appears in the 
Appendix on page 35.
---------------------------------------------------------------------------
    The bottom line of my testimony is that we found 
substantial fraud and abuse by Federal employees here in the 
National Capital Region.
    My testimony has two parts. First, the results of our 
investigation; and second, the magnitude of fraud and abuse.
    First, our investigations resulted from cases that we 
identified from three different sources. First, the Internet 
auction site eBay. Second, Craigslist, a website that is very 
popular that items are sold on. And third, we used data mining 
to identify fraud and abuse.
    I have in my hand a paper Metrochek, which is also shown on 
the poster board. Hopefully you will not need your Lasik to see 
the wording on this.
    Metrocheks are issued with a warning that they are to be 
used only by the individual that they are issued to and that 
resale is illegal.
    Transit passes are issued to Federal employees either in 
the form of these paper Metrocheks or debit cards called 
SmarTrip cards. SmarTrip cards now also carry warnings similar 
to paper Metrocheks.
    The next poster board shows an application from a fraud 
case that we investigated which is similar to applications used 
by many Federal agencies. Note that this employee certified 
that she would use the Metrocheks to commute to work and would 
not transfer them to anyone else. Also note the Title 18 
Section 1001 warning for false, fictitious, or fraudulent 
statements.
    For eBay, we investigated 20 of 58 individuals selling 
Metrocheks during several days in late 2006. We investigated 
these 20 because we knew for certain that they were Federal 
employees. These individuals worked for the Departments of 
Commerce, Defense, Homeland Security, State, Transportation, 
and Treasury. We found in all 20 eBay cases fraud and false 
statements made by Federal employees. Examples include an IRS 
IT specialist with free parking that drove to work; an attorney 
at Transportation that accumulated excess benefits while on 
maternity leave; a specialist at Transportation that admitted 
to slugging or carpooling with another driver, thus incurring 
no commuting expenses; and a husband and wife team from the 
Department of Defense that sold $6,000 of Metrocheks on eBay. 
Note that even though our investigators interviewed these two, 
they continued to sell their benefits, moving now to 
Craigslist.
    We question the suitability of any of our case studies to 
hold security clearances. You might say, Mr. Kutz, is this not 
a bit harsh? My answer is no. My evidence is the IRS IT 
specialist that I mentioned and Senator Coleman mentioned. In 
addition to transit benefit fraud, he confessed to selling 
stolen government property. Specifically, he sold several dozen 
IRS computers on eBay between November 2004 and September of 
2006.
    We also executed three undercover buys from Federal workers 
selling Metrocheks on Craigslist. These individuals worked at 
Air Force, Commerce and State.
    Based on our data mining we found additional transit 
benefit fraud including individuals admitting that they 
deliberately falsified their applications, several dozen 
individuals receiving benefits that did not work for the 
Federal Government, former Federal employees continuing to 
receive benefits after leaving the government. For example, the 
Commerce Department sent $65 a month to an individual that left 
the government in 2001. They did not stop mailing her benefits 
until she moved in 2006.
    Another Commerce employee picking up $300 of transit 
benefits on July 3, 2006 and then left the government on July 
5, 2006.
    Excess benefits were used for personal travel, sold to 
government contractors, and given to friends and family.
    This all leads up to my second point. How many dollars of 
fraud and abuse are there in this program? Based on our 
analysis of limited data, we believe that the number is at 
least $17 million annually for seven large agencies. Note that 
this is a conservative number as it excludes a substantial 
portion of this program and many of the types of fraud that I 
have just discussed.
    In conclusion, I believe that the vast majority of Federal 
employees are honest and do not abuse the Federal Transit 
Benefit Program. However, our work has shown that thousands of 
Federal workers here in the Washington, DC area have taken 
advantage of the opportunity to commit fraud. How has this been 
allowed to happen? Because of ineffective management oversight 
and internal controls at Federal agencies.
    Mr. Chairman, this ends my statement. Special Agent Ryan 
and I look forward to your questions.
    Senator Levin. Thank you very much, Mr. Kutz.
    In your testimony at the top of page 20, you indicated that 
you looked at one agency and looked at the benefits that were 
claimed and found that $1 million of the transit benefits of 
the individuals out of $4 million claimed by the 4,000 
individuals were potentially fraudulent. That is a 25 percent 
rate. I think that was at seven agencies. I misspoke.
    Mr. Kutz. That is correct.
    Senator Levin. Extrapolate that. If that were true for all 
of the agencies here and for all of the employees here. Is that 
where you get the $17 million figure?
    Mr. Kutz. Yes. We extrapolated that for the seven agencies 
which represent about $70 million of program. So that is about 
half of the total program.
    One other point is that the $140 million and the $250 
million total for the program, that is the part that the 
Department of Transportation has records on. Keep in mind the 
program is bigger than that because there are other agencies 
that administer their own programs and get their benefits 
directly from WMATA or their transit programs across the 
country.
    Senator Levin. So the $250 million is not the total cost of 
the Federal employee program?
    Mr. Kutz. That is correct, it is bigger.
    Senator Levin. What would be the estimate of that?
    Mr. Kutz. We have no idea. We just do not have any other 
records. So that is the part that the Department of 
Transportation administers. So the $17 million is low end here. 
If you extrapolate that, we are talking about $20 million or 
$30 million or more.
    Senator Levin. Out of the $250 million, but $250 million is 
only part of the Federal program?
    Mr. Kutz. Right.
    Senator Levin. And that does not get into the private 
program. The private sector has a program, as well.
    Mr. Kutz. No, there are other Federal agencies that 
administer their own programs outside of----
    Senator Levin. I understand.
    Mr. Kutz. Yes, the private sector also has programs.
    Senator Levin. What I am saying is that the $250 million is 
only part of the Federal program.
    Mr. Kutz. That is correct.
    Senator Levin. On top of the Federal program the private 
employers have their own program.
    Mr. Kutz. Yes. And we came across a lot of private sector 
employees selling their benefits. We could have gone after 
them, too, but that was not the scope of this job.
    Senator Levin. That was not the scope. Do we know how much 
the private sector benefit total cost is to the Treasury?
    Mr. Kutz. No.
    Senator Levin. And the cost to the Treasury is that the 
benefit is not part of taxable income; is that correct?
    Mr. Kutz. That is correct.
    Senator Levin. So there is a cost to the Treasury, but you 
do not know what it is?
    Mr. Kutz. We do not know what percentage of companies 
participate in the tax-free transit program.
    Senator Levin. We asked the--let me see if I got this 
right, because it just came in. I think we got a figure from 
the President's 2008 budget and this, I think, was a CRS figure 
which we just got.
    If I am reading this right, the value--and this is our own 
notes, so I am not reading something from CRS but this is what 
CRS estimates. The value of Federal income tax revenues 
foregone as a result of combined Federal and private Transit 
Benefit Programs was estimated in the President's 2008 budget 
analytical perspectives as $710 million.
    Mr. Kutz. That is a lot of money.
    Senator Levin. In 2009, $790 million; 2010, $880 million; 
2011, $960 million; and 2012, $1.3 billion. So we are talking 
here about a significant amount of money. If there is anything 
close to a 25 percent rate of abuse, if that figure can be used 
for the rest of the Federal program and for the private 
program, and if the total cost of all of the programs is $710 
million in fiscal year 2008, you are talking about perhaps $150 
million to $200 million of waste in 2008.
    Now that involves some estimates and extrapolations but 
that is a very significant problem. We have either got to cure 
this problem, it seems to me, or forget the program. The 
question is what will it take to cure the problem? You have 
given us some of the recommendations on how to cure the 
problem.
    But one way it seems to me, Senator Coleman and I both 
listed a number of ways of making sure this program is used for 
the purpose intended, would be to make it clear that it is 
illegal. It does not say anywhere in a law directly, does it, 
that this is illegal to transfer these benefits? Are we not 
relying on an act which says that a false statement to the 
Federal Government will subject you to a crime? But is there 
anything in the law that specifically says it is illegal to 
transfer this benefit?
    Mr. Ryan. I think what we have to do, Senator, is on the 
Metro transit it has that statement. What that statement 
directly ties into is the application. The application 
specifically states that they are not supposed to sell or 
transfer. By selling or transferring, they basically have 
violated Title 18, 1001.
    Senator Levin. That is the false statement?
    Mr. Ryan. That is the false statement. Also, the pure fact 
that they sell them, they are converting that into a personal 
use under title 18, 641.
    Senator Levin. Both indirect.
    Mr. Ryan. Yes, both indirect.
    Senator Levin. Neither one violates a statement which says 
it shall be a crime for anybody to take a card and to transfer 
it to anybody else. That is not, in and of itself, a crime; is 
that correct?
    Mr. Ryan. I would believe that you are correct. I think it 
is the certification that they are making on their application 
which is Title 1001, filing of the false statement.
    Senator Levin. One way or another, if this program is going 
to continue, since there is obviously a lot of abuse here just 
from your own estimate, it has got to be corrected. There is no 
use having a program where anywhere close to 25 percent is 
abuse. That is not a program we can sustain or should sustain. 
So we have either got to--assuming that figure is anywhere 
close, and admittedly that is based on estimates and so forth, 
there has either got to be some commonsense way of ending the 
abuse in this program or, as far as I am concerned, we ought to 
forget the program.
    What percentage of Federal employees use this program?
    Mr. Kutz. We do not know.
    Senator Levin. Give us an estimate. How many in the DC 
area?
    Mr. Kutz. There was 120,000 that used it, so I do not know 
how many there are in the DC area. We can respond for the 
record to that.
    Senator Levin. I would appreciate that. Is it fair to say 
that there is probably a greater percentage in the DC area that 
use the program than in any other area? Would that be a safe 
statement that there is probably a greater percentage of 
Federal employees in the DC area that use this program than 
would be true in any other area that you can think of?
    Mr. Kutz. Certainly this is the biggest part of the 
program, $140 million out of $250 million managed by the 
Department of Transportation. So presumably, your conclusion 
would be correct.
    Senator Levin. Then the question becomes what percentage of 
Federal employees in this area, compared to other areas, use 
this program? And there it would seem to me that a larger 
percentage of employees here, given the mass transit system we 
have in this city, would be using this system than would be 
true in any other city except perhaps New York or Chicago or 
Los Angeles, someplace that has a comparable mass transit 
system. I would think that common sense would tell us that.
    Maybe you could give us some statistics for the record on 
that.
    Mr. Kutz. We can do that.
    Senator Levin. The final statistic, which is also 
intriguing to me, gets to the question of what percentage of 
Federal employees would take mass transit anyway, without the 
subsidy? Somewhere in my notes here is a figure--it is either 
your estimate or somebody's estimate--that 10 percent of the 
people who use this subsidy would be driving by themselves. Is 
that a figure that has come across----
    Mr. Kutz. We are not aware of that.
    Senator Levin. You do not know where that figure comes 
from? I am not sure where it comes from either. Maybe our 
second panel has that figure.
    But is there anyway of you estimating--it is a CRS 
evaluation. So it is CRS evaluation of April 18, 2007. That is 
fairly recent.
    Mr. Kutz. Pretty fresh, yes.
    Senator Levin. It says here that according to a survey done 
as part of that evaluation--and I will get to that in a moment 
if I can figure out what they are referring to--11 percent of 
the participants in the program had switched to transit from 
commuting in single occupancy vehicles.
    Now we are getting down to a pretty small benefit ratio 
here. My hunch is a fairly small percentage of Federal 
employees use this.
    According to this survey, which was done I think for the 
Department of Transportation--and we will ask them in a 
moment--only 11 percent of the participants had switched to 
transit from commuting in a single occupancy vehicle.
    At this point if we are going to be spending $1 billion to 
help a fairly small percentage of Federal employees switch from 
single occupancy vehicle to mass transit, and in any event a 
fairly small percentage of Federal employees period, and if 
there is a lot of abuse going on in this program it seems to me 
there is a heavy burden on people who support this program to 
either clean it up or I do not see how we sustain it. That is 
my bottom line.
    Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman.
    Gentlemen, some discussion--and by the way, in essence this 
is free money. In other words, you have the pass, you do not 
need it to cover any of your costs in the cases that you have 
examined. You can convert it into cash simply by going on eBay 
or Craigslist and people give you cash for it, or checks or 
cash. I presume your investigation did not go this far but 
would you venture what the odds are that any of the folks you 
investigated are paying taxes or declaring? Did you look at 
that?
    Mr. Kutz. We did look at that, actually, and none of the 
ones that would answer the question had declared it as taxable 
income but it is taxable income.
    Senator Coleman. One of the things in the GAO report you 
had a chart or comparison of written transit benefit controls 
on page 17. The chart shows the Departments of Transportation, 
Commerce, Patent and Trademark Office, Treasury, Internal 
Revenue, State, Defense, Homeland Security, and Coast Guard. 
What you have is a series of checks as to what is required on 
the application, on the verification, and the implementation.
    It is fair to say that there is a great deal of 
inconsistency among the agencies as to what they require so 
that all of them, by the way, give the false statement warning. 
I think that is the only one that I see--that and the 
certification statement. Those are the two uniform 
requirements.
    But everything from home address to work address to 
commuting cost breakdown to verification of commuting cost to 
eligibility verified by approving official. That is not 
uniform. Not each and every agency requires those particular 
steps; is that correct?
    Mr. Kutz. Yes.
    Senator Coleman. In terms of implementation, applicants 
checked against parking benefits record, only three of the nine 
agencies that you looked at required that.
    And then, in terms of removal from Transit Benefits Program 
including an exit procedure--in other words, you are leaving 
and if you have this benefit we are going to stop it--actually 
only two of the nine, Department of Transportation and the 
Internal Revenue Service, do that. Is that correct?
    Mr. Kutz. Yes.
    Senator Coleman. One of the obvious changes would be if 
folks are leaving or go on extended leave, you know you are 
giving this benefit. If you deal with that, you remove that--
what did you have, at least two instances of folks getting paid 
for what, a period of about 4 years, even though they were no 
longer employed by the agency.
    Mr. Kutz. We had cases just like that, yes. The Commerce 
Department example I mentioned in my opening statement.
    Senator Coleman. Of these program controls would you list--
do you have a sense of what are the key ones that each and 
every agency should implement in order to prevent waste, fraud, 
and abuse in the program?
    Mr. Kutz. I think both of you mentioned in your opening 
statements just making sure that someone works at your agency, 
that they have not left your agency, that they are not parking 
in the basement or in the free parking lot. Those are just very 
basic things and I do not think it would cost much. You also 
have to consider cost/benefit in doing fraud prevention 
controls but certainly there are some very easy things that 
could be done.
    I think your line of questioning also leads to another 
potential solution, some sort of standardized government 
policies and procedures that could be used so you would not see 
these checkboxes here, such inconsistent application across the 
government.
    Senator Coleman. I think why we end up with these 
inconsistencies is the lack of clarity of who is responsible 
for dealing with the issue of fraud, dealing with the issue of 
verification. Who is responsible? Is it specified anywhere as 
to whether the Department of Transportation or another agency 
is specifically responsible for verifying whether the employees 
are using this program properly or not? Is there anywhere where 
it identifies the agency that is responsible for oversight of 
this program?
    Mr. Kutz. I do not think so. And I think that the reality 
is the Department of Transportation provides certain services 
but internal controls is not one of them. And so the 
responsibility falls upon the agencies whose budget is getting 
hit by these charges.
    Senator Coleman. Did you raise that question with agencies, 
as to who was responsible?
    Mr. Kutz. Yes, and I think that they would believe that 
they are. There may be some confusion with the Departments of 
Defense and Transportation.
    Senator Coleman. When you say there may be some confusion, 
what does that mean?
    Mr. Ryan. When we started the work, we actually went to the 
Department of Defense and spoke to them. And there was concern 
on their part that they were paying a large fee to have the 
Departmentof Transportation come in and distribute these 
benefits. It was their impression that the Department of 
Transportation was more involved in the overseeing of the 
program than actually the Department of Defense. And that is an 
issue that----
    Senator Coleman. Transportation--you said Transportation 
was more involved than----
    Mr. Ryan. The Department of Defense thought the Department 
of Transportation was more involved in the process and they 
really were not.
    Senator Coleman. Do you know if that has been clarified?
    Mr. Ryan. I think that the second panel can handle that.
    Senator Coleman. Which government agency then would be the 
best to provide oversight? Is the agency where the employee's 
work? Is that your testimony.
    Mr. Kutz. I think OMB is the place that could help set 
policy, possibly. But the actual agencies themselves are going 
to have to implement, is our view.
    Senator Coleman. Was the lack of implementation simply 
because it is a small benefit per employee? I am trying to 
understand how we get a point where if you look at a program, 
that ultimately if you look at the sum total that it is 
significant dollars according to the figures the Chairman 
indicated, perhaps a billion-dollar program in the next 5 
years. But were you able to get a sense of why there has not 
been oversight?
    Mr. Kutz. Not really. Some of the IGs, and some of them 
coming up to the table here, have done oversight and reported 
to their management that there are problems. So it is not 
really surprising. We actually raised, in a predecessor program 
to this, in 1993 certain issues about controls with respect to 
a predecessor program that was optional. This program is 
required, that program was optional.
    I think you said it well, that there was no one at the 
switch. It was not that people were asleep at the switch. There 
was really no one looking at fraud, waste, and abuse in this 
except us and IGs. So it is really a lack of management 
oversight.
    Senator Coleman. Is that a cost issue? You talked about 
cost/benefit analysis. To do the oversight here, is this 
costly? Perhaps more costly than the benefit?
    Mr. Kutz. No, not at all. I think there is certainly some 
cost to oversight but we are not talking about elaborate types 
of controls here. We are talking about making sure the people 
actually work at your agency. I do not see how that can be more 
than a short exercise. But we had agencies, surprisingly, that 
took months to tell us they could not figure out who the people 
were that they were paying. That, to me, is not a good thing.
    Senator Coleman. So again, we are looking for solutions 
here. If OMB were to grab the bull by the horns here and say 
for this program we are going to perhaps recommend or require 
agencies to do A, B, C, and D, some sense of uniformity, that 
would go a long way to providing what I am hearing, what I 
believe to be after reviewing your report, pretty simple steps 
that in the end could prevent at least $17 million a year in 
waste and probably a lot more than that if one looks at all the 
figures.
    Mr. Kutz. Yes, I think that is part of the solution. If I 
could just mention one more thing along Senator Levin's line of 
questioning, is that also the people that are caught cheating 
here, there has to be consequences for them or people are not 
going to believe--first of all, there is the risk of detection. 
If there is no risk of detection, people are going to try to 
get away with it. But once people are actually detected, 
something has to happen here, whether it is their security 
clearances are revoked or they are suspended from work for a 
month without pay, or are terminated. Something has to happen.
    Now certainly the IRS case I mentioned, the stolen 
computers, that individual has been indicted. Not necessarily 
for what we found in the transit but for what we found on the 
computers.
    But it really is a matter of can we trust these people and 
should there be severe consequences? And those should be 
published, also. People should be told that people were caught 
cheating in the program, there are certain consequences for 
those people, and therefore people will maybe think twice about 
doing this.
    Senator Coleman. Are you aware of any government-wide 
policy guideline that addresses the appropriate disciplinary 
actions for employees inappropriately receiving or selling 
transit benefits?
    MR. Kutz. No, and this is something that we have seen in 
other programs, too. All of the issues we had with travel 
cards, purchase cards, and other things like that, oftentimes 
people that are involved with small frauds, the U.S. attorneys 
will not take the cases. Nothing ever happens to them.
    Senator Coleman. Are you aware of any agency that perhaps 
has a model of administrative disciplinary action for 
inappropriately receiving or selling transit benefits?
    Mr. Kutz. No.
    Senator Coleman. So there is no model out there?
    Mr. Kutz. Not that we are aware of.
    Senator Coleman. There is not a single agency that says we 
know this is a problem, we want to deal with the problem, we 
are going to provide for certain penalties for those who are 
found doing these kind of illegal things? No clear statement of 
actions, consequences for this kind of action?
    Mr. Kutz. Not that we are aware of. You may ask the second 
panel if the Departments of Transportation or Defense have that 
but we are not aware of anything that specific.
    Senator Coleman. Thank you. Here is just a last thought. I 
remember, I was a prosecutor for many years and I remember when 
Mayor Giuliani was Mayor of New York. One of the things that he 
did is early on he kind of jumped in and got folks to--forced 
folks who were going through turnstiles and not paying, to pay. 
And it was not a lot of money.
    But by doing that it did kind of set a standard. And what I 
am hearing from you is if we make it clear that this kind of 
conduct is illegal, violates specific conditions that you have 
agreed to, that if you make that clear and you act on it, then 
down the road you can prevent a lot of other worse things from 
happening. Is that a fair statement?
    Mr. Kutz. Yes, we would agree with that.
    Senator Coleman. And in addition, save the government a lot 
of money.
    Mr. Kutz. Yes.
    Senator Coleman. Thank you. Thank you, Mr. Chairman.
    Senator Levin. This Transit Benefit Program exists in the 
private sector, as well; correct?
    Mr. Kutz. Yes.
    Senator Levin. But that was not part of your job?
    Mr. Kutz. No, but it came up a lot. There were a lot of 
cases but we intentionally tried to limit. So we really cannot 
speak much to what happens outside the Federal Government.
    Senator Levin. In the private sector program, the farecards 
to the employee are deductible as an expense to the employer; 
is that right?
    Mr. Kutz. I believe it would be, yes.
    Senator Levin. But it is not income to the employee?
    Mr. Kutz. It depends on how their program is set up. If 
they follow the Federal program that would be the case. I 
believe that there are some that would do that. Whether they 
all do it that way or not, we do not know.
    Senator Levin. What other way is there?
    Mr. Kutz. There could be a way where you could just use 
tax-free dollars to buy them versus actually get them for free. 
So there is a number of possible ways that you could do it and 
I believe that those are multiple types of programs out there.
    Senator Levin. If it is the way I describe, where the 
employer hands out the benefit in the form of farecards--
    Mr. Kutz. That would be deductible as an expense for the 
employer, that is a legitimate expense, yes.
    Senator Levin. But it is not income to the employee?
    Mr. Kutz. Because I believe that the law that was passed 
would apply to private sector people, also.
    Senator Levin. Can you check with the IRS and ask them what 
they know about this deduction? How common is it? What is the 
estimated cost? Just try to give us a feel for that and as to 
whether or not they feel that, in fact, there is abuse? Can 
they tell anything about the employees' use of that benefit? 
How many employees would use that benefit properly? How many 
evade paying tax if they sell it? Is it illegal to sell a 
privately dispensed benefit if they, for instance, include the 
income in their tax return? Would the employee be violating any 
law?
    Mr. Kutz. We can research that and get back to your staff 
on that, if you would like us to, yes.
    Senator Levin. That would be great. Thank you.
    Senator Coleman. If I could follow up on that because I was 
trying to figure out--I went on eBay and looked at a bunch of 
these actions. But it would appear that in order to make any 
money on eBay, if you use this program the way, Mr. Kutz, you 
describe with tax-free dollars and the employer has already 
paid for it, the only benefit the non-government employee has 
is the tax savings. So it would seem to be improbable that 
somebody could sell $100 worth of Metro cards for $65 since 
they do not have a $35 or even a $25 tax benefit. They would 
have to be in a pretty high--it just does not work out.
    So either all of the individuals or most on eBay are 
Federal employees or there are employees then who have to do 
this like the Federal program. Otherwise, there would be no 
benefit for the individual if they paid dollars and the only 
benefit they are getting is pre-tax, then they could not sell 
it at a 25 percent or 35 percent discount. Is my math correct?
    Mr. Kutz. Your math is correct because the highest 
incremental tax rate is in the 30s. So if people are getting 70 
cents, 75 cents on the dollar, it would make no sense to buy 
them and then sell them.
    Senator Coleman. Like the Chairman, I would be interested 
to look on the private side to see what the scope of this is 
and whether there are additional tax issues here.
    Thank you, Mr. Chairman.
    Senator Levin. Thank you so much. We will excuse our first 
panel with our thanks and call our second panel.
    Let me now welcome our second panel of witnesses. We have 
with us Calvin Scovel, the Inspector General with the 
Department of Transportation; Linda Washington, the Deputy 
Assistant Secretary for Administration at the U.S. Department 
of Transportation; Thomas Gimble, the Acting Inspector General 
at the Department of Defense; and Michael Rhodes, the Deputy 
Director of Administration and Management and Director of 
Washington Headquarters Services at the Department of Defense.
    As I mentioned for our first panel, Rule 6 of this 
Subcommittee requires that all witnesses who testify before the 
Subcommittee are required to be sworn. So at this time I would 
ask all of you to please stand and raise your right hand.
    Do you swear that the testimony you will give before this 
Subcommittee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Mr. Scovel. I do.
    Ms. Washington. I do.
    Mr. Gimble. I do.
    Mr. Rhodes. I do.
    Senator Levin. The same timing system will be used here but 
because we have a larger panel, we would ask you to limit your 
oral testimony to no more than 5 minutes and we will have that 
same yellow light come on that will give you some warning.
    Ms. Washington, we are going to have you go first, followed 
by Mr. Rhodes, then Mr. Scovel, and then Mr. Gimble. And then 
we will turn to our questions. Ms. Washington.

TESTIMONY OF LINDA J. WASHINGTON,\1\ DEPUTY ASSISTANT SECRETARY 
     FOR ADMINISTRATION, U.S. DEPARTMENT OF TRANSPORTATION

    Ms. Washington. Thank you, Mr. Chairman, Ranking Member 
Coleman, and Members of the Subcommittee for the opportunity to 
testify on the Department of Transportation's role in 
implementing the Federal Transit Benefit Program. My statement 
today will address both the Department's own participation in 
the Transit Benefit Program and its role as the home agency for 
TRANServe, the organizations used by 108 Federal entities 
nationwide to distribute transit benefit fare media.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Washington with attachments 
appears in the Appendix on page 63.
---------------------------------------------------------------------------
    The Transit Benefit Program is a proven means to help 
increase the use of mass transit in line with DOT's strategic 
objective of reducing congestion. Estimates indicate there are 
163,000 participants in the National Capital Region accounting 
for nearly half of the Federal workforce in the area. The 
Transit Benefit Program's importance is particularly evident 
when considering specific transportation alternatives in the 
National Capital Region.
    For example, the Virginia Railway Express (VRE), a growing 
commuter railroad serving the National Capital Region, relies 
on transit benefits for about 65 percent of its revenue, with 
fiscal year 2006 average daily ridership of nearly 15,000 
people. Federal employee's transit benefits used on the VRE 
alone are responsible for removing a significant number of 
motor vehicles off of the highly congested I-95 and I-66 
corridors in Virginia.
    TRANServe has evolved over the years to offer transit 
benefit distribution services nationwide to organizations 
throughout the Federal Government. It now distributes over $200 
million in fare media annually, servicing over 230,000 
participants nationwide. TRANServe enters into a customer 
agreement with each of the Federal entities it services, 
specifying that TRANServe will obtain and distribute transit 
fare media while it is the customer agency's responsibility to 
verify the eligibility of its employees to receive the transit 
benefits.
    Participating agencies are responsible for identifying 
eligible employees, determining the amount of eligibility, and 
overseeing the participation of their employees in the Transit 
Benefit Program. TRANServe recognizes that the fare media it 
distributes is actually cash equivalent and has an extensive 
system of internal controls to provide oversight for inventory 
and distribution management. Its internal controls have been 
tested and strengthened through the years with the help of 
independent auditors and security experts.
    Recently TRANServe hired an internal controls officer 
specifically responsible for monitoring the organization's 
internal controls and sharing best practices with customer 
agencies.
    Each time a transit benefit recipient receives his or her 
fair media, he or she must sign for it. On the form there is an 
explanation of general requirements for continued participation 
in the program and recipient responsibility.
    In August 2006, TRANServe began distributing to DOT 
recipients a plain language reminder highlighting requirements 
that they must not be on a parking permit, the benefit is only 
for commuting to and from work, the amount does not exceed 
actual cost, and that it is a violation of law to provide false 
or fraudulent information to obtain transit benefits or to 
transfer or sell transit benefits.
    Last year DOT initiated the first of what is now an annual 
recertification requirement to maintain current accurate 
information on transit benefit recipient commuting costs. In 
addition, by July 2007 DOT will require its National Capital 
Region employees using the Metro system to transition to Smart 
Benefits which will reduce program cost and further improve 
internal controls.
    Mr. Chairman, we recognize that it is in the best interest 
of the Federal Government, the taxpayer, and commuters, in 
general, to make the Transit Benefit Program work as 
effectively as possible. We have initially identified areas for 
improvement including participant education and administrative 
remedies. For example, TRANServe is developing an electronic 
learning package that will be pilot tested with DOT employees. 
It will reemphasize recipient responsibilities, identify 
prohibited practices, and enumerate the potential penalties for 
inappropriate actions. We are working to incorporate this 
tutorial into DOT's online annual recertification process and 
will be required to be completed each year before 
recertification can occur.
    We believe that the vast majority of Federal employees who 
participate in the program do so honestly, responsibly, and 
with integrity. However, we recognize that there may be 
individuals who are intent on using the system for personal 
gain at taxpayers' expense. DOT is prepared to deal with such 
individuals. I have already met with our Office of Human 
Resources and our Office of General Counsel to discuss 
appropriate administrative penalties for proven instances of 
misuse, and I have instructed them to act swiftly and 
decisively.
    In conclusion, the Federal Transit Benefit Program is an 
important tool to help address congestion, air pollution, and 
save fuel. DOT is prepared to deal with any of its employees 
again who are misusing the program, and we stand ready to work 
with your Subcommittee to take all appropriate measures within 
our authority to make this program work as intended for the 
American people.
    I would be happy to answer any of your questions.
    Senator Levin. Thank you so much. Mr. Rhodes, you are next.

      TESTIMONY OF MICHAEL L. RHODES,\1\ DEPUTY DIRECTOR, 
      ADMINISTRATION AND MANAGEMENT, DIRECTOR, WASHINGTON 
       HEADQUARTERS SERVICES, U.S. DEPARTMENT OF DEFENSE

    Mr. Rhodes. Mr. Chairman, Senator Coleman, thank you for 
the opportunity to discuss transit benefits for Department of 
Defense personnel in the National Capital Region.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Rhodes appears in the Appendix on 
page 73.
---------------------------------------------------------------------------
    My organization, Washington Headquarters Services, provides 
a broad range of administrative, infrastructure and support 
services, and programs for defense personnel and organizations 
in the National Capital Region.
    Washington Headquarters Services has overall responsibility 
for administering the Transit Benefit Program in the National 
Capital Region. We execute this responsibility with and through 
the multiple military components and organizations in the area. 
We, and the approximately 40 designated points of contacts for 
these organizations, all have specific roles and 
responsibilities concerning implementation of the program.
    The Department of Defense program in the National Capital 
Region has 34,000 participants. They average approximately $83 
per month in subsidy benefit per participant. In fiscal year 
2006, the Department of Defense program was $35.9 million in 
expenditures in the National Capital Region.
    To effectively execute this program we established a 
partnership agreement with the Department of Transportation. 
They provide an efficient means of implementing important 
administrative and logistical functions. Of note among these 
are acquisition and distribution of the fare media, maintaining 
the database of program participants, and providing detailed 
reports for validation and reconciliation by our components and 
organizations.
    If I can just highlight a few steps in our process, when a 
program application is completed, but before it is forwarded to 
the Department of Transportation for inclusion in their program 
database, we first search our Pentagon Force Protection Agency 
parking roster to ensure the applicant does not have a parking 
permit. As an ongoing safeguard, our Force Protection Agency 
parking office also retains an up-to-date database from the 
Department of Transportation which lists those who are 
participating in the program. And this is referenced every time 
someone applies for a parking permit to ensure they are not 
also enrolled in the transit subsidy program.
    Another aspect of the transit subsidy program that you both 
mentioned in your opening comments is the self-certification. 
And this, as you stated, is where the employee attests to their 
eligibility, to the fact that they will only use the benefit 
for specified and authorized purposes, and that the amount that 
they received does not exceed their costs. In addition, it has 
a warning statement that describes the punishment involved for 
false or fraudulent certification.
    I wanted to highlight that in addition to this 
certification, each time an individual receives their transit 
benefit on a quarterly basis they sign a roster that restates 
their self-certification. Further, at the time they receive 
their benefit, the individual participant must present their 
Department of Defense identification to confirm their identity 
and their employment status.
    I would also highlight that the Department of 
Transportation provides detailed reports of participants and 
these are instrumental. These are instrumental in allowing 
reconciliation by the military departments and Defense 
components. We receive these reports monthly and the individual 
components reconcile those with their employment and payroll 
records to ensure currency. In addition, they go through other 
steps to confirm appropriate program and eligibility issues and 
then they use this reconciliation process to pay the cost of 
their employees' participation.
    Last, I would mention that in 2003 the Department of 
Defense Inspector General conducted an audit and at that time 
they did identify a need to strengthen our reconciliation 
procedures for a few of the components. Subsequently, we worked 
with those components to modify the report that they receive in 
a manner that enhanced their ability to implement 
reconciliations.
    We look forward to the information from the GAO 
investigation report to determine if there are weaknesses 
applicable to our Department of Defense National Capital Region 
program. We are always looking for sound and effective 
improvements. This program is an important benefit to a 
significant number of our personnel but at the same time we 
want to ensure we are prudent stewards of the resources 
entrusted to us.
    I look forward to your questions.
    Senator Levin. Thank you, Mr. Rhodes. Next will be Mr. 
Scovel.

TESTIMONY OF HON. CALVIN L. SCOVEL, III,\1\ INSPECTOR GENERAL, 
               U.S. DEPARTMENT OF TRANSPORTATION

    Mr. Scovel. Chairman Levin, Ranking Member Coleman, Members 
of the Subcommittee, I am pleased to be here today to testify 
on opportunities to improve internal controls over the Federal 
Transit Benefit Program. Of foremost concern of all 
participating agencies is to maintain the integrity of this 
important program and to ensure that it remains free of 
employee fraud and abuse.
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    \1\ The prepared statement of Mr. Scovel appears in the Appendix on 
page 80.
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    The GAO's current work found weaknesses in Transit Benefit 
Programs at several agencies that make the program susceptible 
to employee abuse or fraud. Those findings underscore the need 
to review and improve internal controls at all agencies 
participating in the program. Today, the DOT Transit Office 
facilitates the distribution of about $200 million in annual 
benefits for 108 Federal organizations to provide transit 
incentives to over 230,000 Federal employees nationwide.
    An important point is that while DOT provides support for 
other agencies, it does not manage their Transit Benefit 
Programs. Each agency is responsible for ensuring the integrity 
of its own program and establishing appropriate internal 
controls. We see the role of the Inspectors General in the 
Federal Transit Benefit Program as one of oversight to ensure 
that internal controls are sufficient and that they are adhered 
to.
    Today, I would like to discuss two points regarding the 
Federal Transit Benefit Program. First, the strengths and 
weaknesses of DOT's internal controls over the program. DOT has 
implemented internal controls designed to prevent potential 
fraud or abuse within the program. For example, DOT has 
established a series of initial controls to ensure that 
employees are eligible to receive benefits. These include 
completing an application that includes information about an 
employee's city of residence, work location, mode of 
transportation, and commuting costs. A significant weakness in 
the current process is that DOT has no uniform process to check 
the accuracy of information provided on an employee's transit 
benefit application. Instead, DOT employee applications are 
approved by a transit coordinator who is responsible for 
approving benefits for an entire agency.
    We think involving supervisors in the application process 
could help prevent cases where employees misrepresent their 
commuting methods or distance and obtain more transit benefits 
than they are eligible to receive. Supervisors are in a better 
position to know information about employees such as their home 
location, commuting methods, and schedule. Our investigations 
over the last several years have uncovered several cases of 
this type of abuse and we are currently working several other 
cases recently referred to us by GAO.
    DOT also recently established a new internal control to 
check that employees remain eligible for the amount of benefits 
that they were originally authorized to receive. Last month DOT 
began requiring DOT employees to recertify annually their 
eligibility for transit benefits. Participants are required to 
update and verify such items as their mode of transit and 
monthly commuting costs.
    However, other than employee's self-certification, no 
procedure requires employees to update personal information for 
changes when they occur. Changes such as commuting method or 
work schedule affect the amount of benefits an employee is 
eligible to receive. In our opinion, DOT should require 
employees to update their information and recertify whenever 
meaningful changes in their commuting methods or schedules 
occur. Requiring an employee's supervisor to review and approve 
this information, too, will help improve this aspect of the 
process.
    Second, opportunities to improve internal controls over the 
program throughout the Federal Government. Our work at DOT has 
identified areas where the Department, as well as other Federal 
agencies, can proactively improve controls over their programs. 
We see five specific actions that should be taken.
    One, include the program in agencies' assessments of their 
internal controls during the A-123 process. OMB Circular A-123 
requires Federal managers to assess the adequacy of internal 
controls of their programs to include the government purchase 
and travel card programs. In DOT's case, the Department 
includes controls over safeguarding paper fare media as part of 
its A-123 process but it does not include an assessment of 
other aspects of its Transit Benefit Program, such as the 
application and distribution processes. Including an assessment 
of the internal controls over the program in the A-123 process 
could be an effective means for proactively preventing fraud or 
abuse.
    Two, require employees to recertify annually their 
eligibility. As I just mentioned, DOT recently initiated an 
online process to require its employees in the Washington area 
to update and recertify their enrollment information annually. 
All Federal agencies that have not already done so should 
implement a similar recertification requirement to ensure the 
accuracy of program data and to clearly communicate the 
responsibilities of program participants.
    Mr. Chairman, I am nearly out of time. If I may ask for 
another minute to 2 minutes, I will wrap up.
    Senator Levin. Sure thing.
    Mr. Scovel. Thank you.
    Three, review and apply appropriate lessons learned in 
other government programs. For example, in 2002 OMB made 
significant government-wide improvements to both the government 
purchase card program and the travel card program. Those 
programs are also susceptible to fraud and abuse by employees 
and OMB directed agencies to evaluate their internal controls 
and develop remedial action plans. In both cases, well 
developed training programs were key to reducing the risk of 
fraud and abuse.
    For example, all Federal employees must complete a training 
course before they are authorized to use government purchase 
cards. We think similar trainings should be established for the 
Transit Benefit Program.
    Four, develop and enforce consistent administrative 
policies. While potential criminal and civil penalties could 
result from transit benefit fraud, this type of fraud is 
unlikely to be prosecuted. For this reason, it is important 
that management pursue appropriate disciplinary action. 
However, there are no required or recommended disciplinary 
actions for transit benefit fraud. The development of uniform 
recommended penalties including suspension or debarment from 
the program and consistent enforcement of those penalties will 
be important steps to prevent this type of abuse.
    Five, mandate the use of electronic fare media or SmarTrip 
cards. These are rechargeable fare cards that have benefit 
amounts electronically loaded each month. SmarTrip cards reduce 
the potential for fraud and abuse because it is more difficult 
to sell or transfer benefits compared to paper fare media.
    Let me close, Mr. Chairman, by noting that each of these 
actions do not require mandates from OMB or legislation and 
could be taken by agencies today to improve internal controls 
over their programs.
    That concludes my statement, Mr. Chairman, and I would be 
happy to address any questions you or other Members of the 
Subcommittee may have.
    Senator Levin. Thanks so much. Mr. Gimble.

  TESTIMONY OF THOMAS F. GIMBLE,\1\ ACTING INSPECTOR GENERAL, 
                   U.S. DEPARTMENT OF DEFENSE

    Mr. Gimble. Mr. Chairman, Ranking Member Coleman, thank you 
for the opportunity to appear before the Subcommittee today to 
discuss the Department of Defense (DOD) National Capital Region 
Transit Subsidy Program. The DOD Transit Subsidy Program was 
established in fiscal year 2000 and paid out about $35.9 
million in benefits in fiscal year 2006. The work performed by 
the DOD Inspector General (IG) and the Government 
Accountability Office (GAO) indicates that the program does not 
yet have the internal controls needed to limit the 
susceptibility of transit benefits to fraud, waste, and abuse. 
My testimony this afternoon will describe the work my office is 
performing to assess the effectiveness of internal controls for 
the program.
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    \1\ The prepared statement of Mr. Gimble appears in the Appendix on 
page 90.
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    The DOD Inspector General became aware of the potential 
abuse of the DOD program through the complaints received 
through our hotline and these allegations involved employees 
transferring Metrocheks to friends or selling them through the 
Internet or to coworkers.
    In response to a hotline complaint received in January 
2003, we conducted an audit on allegations concerning controls 
over DOD transit subsidies within the National Capital Region. 
The final report was issued on October 14, 2003. We 
substantiated allegations that there was no verification of 
applicants' employment and that DOD employees could be selling 
or giving away their transit subsidies.
    The audit partially substantiated the allegations that 
controls had not been established to ensure employees do not 
receive transit subsidies while receiving subsidized parking 
and that the billing information received from the Department 
of Transportation (DOT) did not include sufficient detail to 
facilitate the reconciliation of the quarterly DOD billings.
    We recommended that the military departments and the 
Defense Logistics Agency (DLA) develop procedures to require 
the reconciliation of all transit subsidy billings received 
from DOT and that DLA develop a policy to check transit subsidy 
applications against its parking permit roster.
    In early 2005, during the regular meetings between GAO and 
the DOD IG, we discussed allegations of abuses in the Transit 
Benefit Program that included the sale of Metrocheks on eBay. 
In February of 2006, we announced a data mining review to 
research this issue for DOD within the National Capital Region. 
We performed tests to determine whether DOD program enrollment 
data and disbursement data substantiated the individual's 
eligibility for the Metrochek program and that the amount of 
the benefit was received by the individual. We identified the 
following potential issues: That employees were receiving 
Metrocheks while using subsidized parking; over reliance on the 
honor system where employees self-certify and submit the 
program application without review; individuals were receiving 
benefits in excess of the monthly costs; individuals outside 
the National Capital Region were receiving the benefits; and 
there was insufficient data to validate the benefits for over 
28 percent of the active participants.
    We continue to coordinate and share information with GAO, 
which has been conducting an investigation into the Transit 
Benefit Programs in the National Capital Region.
    Based on the data mining review we conducted and 
investigative work by GAO, we announced an audit in November 
2006 of the internal controls of the DOD Transit Subsidy 
Program within the National Capital Region. Specifically, we 
are reviewing internal control activities over the transit 
subsidy application process, including the initial enrollment, 
status changes, and de-enrollment from the program, management 
of the enrollment database and retention of the supporting 
documentation to comply with audit requirements.
    We have also performed analysis to test the accuracy and 
completeness of the data elements within the enrollment 
database, including the calculation of the allowable monthly 
transit subsidy benefit by the DOD participants. Furthermoe, we 
have reviewed the transit subsidy policies and procedures. We 
plan to issue our report in July 2007.
    Investigative work by GAO identified potential abuse of the 
agency Transit Subsidy Programs within the National Capital 
Region, including the DOD Transit Subsidy Program. We have 
recently met with the GAO investors and anticipate receiving 
information on specific abuses they have identified. The cases 
will be referred to the appropriate investigative agency within 
DOD for further investigation. Additionally, we expect to make 
referrals to our Defense Criminal Investigative Service (DCIS) 
as a result of our audit work.
    The Transit Benefit Program is a valuable program which, if 
properly administered, can help alleviate traffic congestion 
and reduce automobile emissions. However, the continuing abuse 
of the use of the transit benefits make clear the need for 
additional controls to help prevent fraud, waste, and abuse. We 
believe that the work that we are performing in our audit will 
assist the Department in identifying areas needing further 
improvement.
    That concludes my statement.
    Senator Levin. Thank you, Mr. Gimble.
    You made reference to a meeting that you are going to be 
having with the GAO coming up to review the problems and the 
need for additional safeguards?
    Mr. Gimble. Yes, sir. What we also are doing is getting a 
referral. They have identified, I think, eight or so 
individuals, DOD employees, that have potential abuses.
    Senator Levin. In terms of the process used in the 
Department, you will be meeting with the GAO. Can you give us a 
report after that meeting as to what steps you will be taking?
    Mr. Gimble. We can do that.
    Senator Levin. Ms. Washington, there was a Department of 
Defense \1\ report that I made reference to before that the 
number of Federal employees participating in the Transit 
Benefit Program rose from 53,000 prior to an Executive Order, 
which I believe was 2003, to 114,000 within a year after the 
order was being signed.
---------------------------------------------------------------------------
    \1\ DOD 16 Note: Should be the Department of Transportation.
---------------------------------------------------------------------------
    Do you know approximately how many Federal employees now 
use Metro?
    Ms. Washington. Throughout the Nation?
    Senator Levin. No, Metro in Washington.
    Ms. Washington. About 106,000.
    Senator Levin. That would be less than it was a couple of 
years ago. OK, say 106,000.
    Then it said, according to the survey done as part of the 
DOT evaluation, 11 percent of the participants had switched to 
transit from commuting in a single occupancy vehicle. What 
percent of that population was already taking Metro?
    Ms. Washington. I am not sure, sir. I do not know the 
answer to that question. I am familiar that there was a study 
done that mentioned 11 percent but I do not have the 
information on that.
    Senator Levin. Do you know whether that study identifies 
what percentage of the Federal employees, which was 
approximately 114,000 at the time of the survey, what 
percentage of them were taking Metro anyway?
    Ms. Washington. No, I do not.
    Senator Levin. So we do not know really what affect this 
subsidy has had. We can tell what percentage of employees are 
riding Metro but we do not know what percentage of employees 
would have ridden Metro anyway?
    Ms. Washington. That is correct.
    Senator Levin. That seems to me to be one of the real 
problems with this program, it is hard to identify what 
percentage of employees were moved or attracted or given an 
incentive to leave either a single occupant vehicle or a 
multiple occupant vehicle or a carpool or whatever, moved to 
Metro as a result of this subsidy.
    If only 10 or 15 percent of the Federal employees who use 
Metro are using it because of an incentive, and 80 percent or 
more would have been using Metro anyway, you do not need the 
incentive for 80 percent of the employees. And then you have 
got to compare that with what Federal employees may or may not 
get in other parts of the country who do not have Metro or do 
not have the access to a mass transit system. And so there is 
an equity issue in terms of Federal employees, too, that I 
believe has to be placed on these scales.
    Do you have any idea in the Department of Defense what 
those numbers might be? The number of people that use Metro at 
the Department of Defense or other mass transit that would 
otherwise be in a single passenger vehicle or in a multiple 
passenger vehicle?
    Mr. Rhodes. No, Senator, I do not.
    Senator Levin. Is there a way practically to find out 
without surveying the whole world?
    Mr. Rhodes. Short of surveying, I do not know, sir.
    Senator Levin. I think that you made reference, Mr. Gimble, 
to an audit by the Department of Defense Inspector General back 
in 2003 which said that ``controls over the transit subsidies 
program within the Army, Navy, Air Force, and the Defense 
Logistics Agency needed improvement'' as the IG said. And then 
you quoted the following line ``that our review substantiated 
the allegations that there is no verification of an applicant's 
employment and that DOD employees could be selling or giving 
away their transit subsidies.''
    What steps have been taken since that audit to avoid that, 
to improve internal controls?
    Mr. Gimble. Several of the Defense components have 
implemented reconciliation procedures which would be a big step 
in accomplishing that. The idea of stopping people from selling 
or moving the card--giving their cards away. That is a little 
tougher to deal with.
    What we did there is initiate a data mining project, but 
you have to weigh the benefit that you get.
    Senator Levin. I am not following you. You have to weigh 
the benefit, what did you say after that?
    Mr. Gimble. You have to weigh the benefits, the costs 
versus the benefits.
    Senator Levin. I got that part, but what came after that I 
could not follow.
    Mr. Gimble. Abuse of transit benefits is a fairly low 
occurrence. Through our data mining we are able to capture some 
of these occurances. Also, GAO has identified 8 or 10 people 
that go out on eBay. But in DOD we have not had a widespread 
occurrence of that. So either that control is there as one 
that--if you do not identify it by data mining, it is really 
kind of hit or miss, is the point.
    Senator Levin. Are you saying that basically the benefits 
here may not justify the cost of doing that kind of a survey? 
Is that what you are saying?
    Mr. Gimble. That, but there is a benefit of doing the 
reconciliations and the verifications of employment and I think 
the comparison to the subsidized parking. Those are fairly 
cheap ways to do things. And I think these are some of the 
better internal controls that you can have.
    Senator Levin. That has not yet been done?
    Mr. Gimble. Many DOD organizations are doing those. It is 
my understanding the Army has still not formally issued their 
policy but it has issued draft guidance which is being 
coordinated with affected Army organizations. But everybody 
else has issued reconciliation procedures. And also, I think 
Mr. Rhodes alluded to the parking lot scans.
    Senator Levin. Back to you, Ms. Washington. You said that 
there is proven value to this program and you said there are 
163,000 participants, nearly half the work force. But you are 
not able to say what percentage of those participants would 
have been on mass transit anyway?
    Ms. Washington. That is correct.
    Senator Levin. Then how do you say there is great proven 
value to the program when you have no way of assessing how many 
people were motivated by the program to do something and may 
have done it the same way anyway?
    Ms. Washington. Well, we are looking at some of the 
statistics, as I mentioned, on VRE. You are absolutely right, 
Senator, we cannot empirically say that they may have taken VRE 
anyway. But we are looking at 65 percent of the riders on VRE 
or 15,000 people take VRE from outlying areas in Virginia. I 
would venture to say that WMATA probably has some similar 
figures, as well.
    But you are absolutely right, we cannot say empirically 
that it has been proven that it is increased. What it has done 
is taken--into account the earlier study that the Texas 
Department of Transportation, which did say that there was less 
congestion on the roads, that there was less fuel emissions and 
things like that. But you are absolutely right, we cannot 
empirically say that it has taken more people off of the road.
    Senator Levin. That study in Texas, is that a recent study?
    Ms. Washington. It was actually conducted in 2003.
    Senator Levin. Could you furnish that? I do not know if we 
have that study or not.
    Ms. Washington. Absolutely.
    Senator Levin. That is one of the intriguing aspects of 
this matter, it seems to me, is it is kind of hard to state 
with any confidence as to how many people would be riding Metro 
or some other form of mass transit who otherwise would not be. 
We know there are a large number of Metro customers who are 
using these tickets, these cards. VRE apparently has a whole 
lot of folks that are riding VRE who use these cards. But we 
have no idea how many of those folks would be using those 
cards, would be paying for it themselves.
    And that raises the equity issue, it seems to me, because 
if there are a lot of people who are getting their 
transportation paid for by the government, who would have paid 
for that mass transit from their own pay, where you have other 
folks in other parts of the country without mass transit who 
work for the Federal Government who do not have that benefit, 
it seems to me there is an inequity there. And so there are a 
lot of intriguing aspects to this program in addition to the 
question of waste, fraud, and abuse, the misuse of the cards by 
sale or by transfer to other people.
    We will leave my role there and turn this over to Senator 
Coleman, again with our thanks.
    Senator Coleman. Thank you, Mr. Chairman.
    Let me first get to the question of or the issue of who is 
responsible for checking into waste, fraud, and abuse. Ms. 
Washington, what is the Department of Transportation 
perspective? Who has the responsibility in individual agencies 
for determining whether, in fact, employees are complying with 
the rules for this program?
    Ms. Washington. It is the individual agency. We actually 
order and disburse the fare media, but the individual agencies 
are to certify and account for the use of the fare media within 
their organizations.
    Senator Coleman [presiding]. You do the program for 75 
percent of the Federal agencies? Do you receive a user fee from 
the agencies?
    Ms. Washington. Yes, we do.
    Senator Coleman. What does that user fee cover?
    Ms. Washington. I will mention what Mr. Rhodes said 
earlier. We input all of the applications into a database. We 
provide reports for them to help them administer their program. 
We also negotiate with fare media organizations so that we can 
buy in bulk and get discounts for the fare media. So we provide 
reports to them, we administer it, we go out and we set up the 
programs within the agencies. So it is administrative 
oversight.
    Senator Coleman. Were you aware of any agencies that 
thought that DOT had the responsibility for oversight and did 
not understand their own role in managing the program? Has that 
come to your attention?
    Ms. Washington. It has come to my attention. However, on 
the statements that we give to the agencies each month, and 
also on the memorandum of understanding that we have with every 
agency, it clearly states who is responsible for what.
    Senator Coleman. So when it comes to your understanding, do 
you simply refer them to that statement? What do you do?
    Ms. Washington. Yes.
    Senator Coleman. Mr. Rhodes from the Department of Defense, 
at least it appeared that GAO, in their investigation, had the 
belief that Defense thought it was somebody else's 
responsibility. Can you give me your understanding of who has 
responsibility for oversight regarding waste, fraud, and abuse 
in this program?
    Mr. Rhodes. Sir, my organization has responsibility for 
implementation, which means, I think we have responsibility for 
that as well. We partner tightly with the Department of 
Transportation in that those reconciliations--the reports that 
they provide to do the reconciliation, as Mr. Gimble referred 
to, is a critical piece of the process because those are 
verified every month by each of the military organizations and 
components to validate that those employees that drew the 
benefit are actually on their rolls and somebody that they are 
paying. Therefore, they reimburse for those costs.
    I believe there was some confusion at one of the exit 
briefings and some of the discussion on who has what role.
    From the Department of Defense there was about 5 percent of 
our costs that went to the administration and distribution fees 
that covered the services provided by the Department of 
Transportation. They allow for distribution of the fare media 
at 30 different locations around the area. Again, they maintain 
the databases for us. They provide reports that are customized 
and modified to facilitate some of the reconciliation process 
that we have there. They also provide a daily download of DOD 
enrollment data to our Pentagon Force Protection Agency so they 
can continually cross check against the parking records, 
whenever anybody is applying for the subsidy, which is another 
one of the safeguards in the process.
    Senator Coleman. Ms. Washington one of the concerns that I 
have as I look at the GAO report, do you have a copy? Could 
someone give a copy of the report, page 17, comparison of 
written transit benefit program controls.
    Ms. Washington. Yes, sir, I have it here.
    Senator Coleman. This document reflects a lack of 
consistency across the agencies in terms of application 
requirements verification implementation. Should anyone have 
the responsibility for ensuring that there is greater 
consistency in the areas of application requirements 
verification implementation?
    Ms. Washington. I definitely think that there should be 
some consistency. For example, in the Department of 
Transportation there is more that we can do to get additional 
information. Again, each department should determine what they 
need to certify their program. But I agree, there should be 
consistency.
    Senator Coleman. The concern, though is individually within 
the departments, as one looks at the state of things as they 
are today, there is a great deal of discrepancy between what is 
and what is not required. How do we deal with that?
    Ms. Washington. Well, I think that once we get the 
recommendations and we have heard the recommendations from the 
IGs and GAO, then we will work together to have some 
consistency across the board.
    Senator Coleman. I am going to suggest, Ms. Washington, 
since you administer the program for 75 percent of the Federal 
agencies, since they may or may not have IG audits, apparently 
just six of the agencies have, that Transportation take the 
lead in communicating with agencies the list of best practices.
    Ms. Washington. We certainly can do that now that we have 
our internal controls officer, we can certainly do that.
    Senator Coleman. Clearly one of them, among the egregious 
findings are agencies sending payments to folks who have not 
worked for the agencies for 4 or 5 years. There should be a 
pretty obvious one that there should be some kind of system of 
removal from Transit Benefits Program, including exit 
interviews.
    Ms. Washington. Correct.
    Senator Coleman. I would ask that you come back to this 
Subcommittee with some indication of some kind of uniformity 
and directions provided to the other agencies.
    Ms. Washington. OK.
    Senator Coleman. Mr. Scovel, Mr. Gimble, I appreciate the 
very specific recommendations, Mr. Scovel in particular, that 
you have laid out. Training programs, appropriate disciplinary 
actions. I am looking for is there a best practice? Is there 
clearly, as you have indicated, the U.S. Attorneys are not 
going to prosecute these cases. Individually, they are not 
rising to the level of fraud. But collectively, they are very 
significant fraud. But individually they are not going to do 
that.
    What type of disciplinary actions would be appropriate? Do 
you have any recommendation or does any member of the panel 
have any recommendations?
    Has any agency put in place a disciplinary system that 
effectively deals with folks who violate the terms and 
conditions of the use and sale of their Metrocheks or Smart 
cards?
    Mr. Scovel. Thank you, Senator Coleman. If I can take first 
crack at your question, in preparing for today's hearing my 
staff conducted a quick survey around our Department as well as 
a few other departments in the Federal Government. We have 
found that within the Department of Transportation there is no 
uniform table of penalties or system of punishments to take 
into account DOT employees who may have violated the Federal 
Transit Benefit Subsidy program.
    It is one of our recommendations that departments give 
serious thought to that, realizing of course that discussion 
belongs with the manager and supervisor and, in our Department, 
the administrator of each operating administration. In past 
cases that my office has worked, we have seen penalties ranging 
the gamut from admonishment and counseling, on the one hand, 
all the way to termination of employment, depending upon the 
facts of the offense and, frankly, the character of the 
offender as well. We think those are useful benchmarks.
    We think that something that has been lacking, however, is 
virtually an automatic consideration of suspension or debarment 
from the transit subsidy program. We think that should be step 
one, in fact. But both in our Department and elsewhere we have 
found that that has not been the case.
    Senator Coleman. Ms. Washington, I am going to kind of put 
it back on your shoulders. And in part, and I do understand, 
the agreement that you have with the agencies is very clear. It 
is the responsibility of the customer to verify eligibility of 
the recipients. I think it would be helpful, though, to the 
agencies to have a little direction, again not to provide exact 
specificity of penalties but to indicate that there needs to be 
appropriate action.
    I would think the comments of the Inspector General here 
that, at a minimum, if somebody is violating their agreement 
that they face some sanction regarding participation in the 
program for at least a period of time, something to say this is 
wrong.
    The case the GAO highlighted was that folks that you 
investigated, and they were still back on eBay selling the 
Metrocheks even after they understood that they were subject to 
investigation. I think you have got to get people's attention.
    Ms. Washington. We agree. At the Department of 
Transportation, and in fact, we have already initiated meetings 
with our departmental director of human resources and our 
general counsel to put in place some guidelines. So we will 
absolutely do that.
    Senator Coleman. Thank you.
    Mr. Gimble, let me get a little better understanding from 
the Department of Defense. Does the Department of Defense have 
a uniform policy or do the various branches have their own? 
Does the Navy policy on this differ from the Air Force, differ 
from the Army or any other service branch?
    Mr. Gimble. You are talking about the reconciliation 
process?
    Senator Coleman. Yes.
    Mr. Gimble. As I understand it, each one develops their own 
but there are some basic things that they should have in there. 
Essentially, you would have the controls over the enrollment 
application process. You would verify the eligibility of the 
employee for the benefits. And it should have a process and 
method for reviewing the applications. What we are looking at 
now, is once you are in the program how often do you go back? 
If you have a change, is that properly handled, for example, if 
employees drop out? And that gets back to your point about the 
folks that have been gone for 4 years and still drawing the 
Metrocheks.
    So these reconciliations we think will accomplish most of 
that.
    I would just tell you, back to your other question, we have 
a fairly low occurrence of referrals to date in the Department. 
But to provide a couple of examples: We had one person that got 
caught up in this and did not receive a promotion. The other 
paid back all of the monies and got a letter of counseling.
    Predating those audits though, when the program first stood 
up, we in DOD IG discovered one of our junior people who was 
double collecting for a couple or three quarters, which cost 
him his job. We removed him from service.
    Senator Coleman. I would hope, again, that we have some 
clarity as to what is allowed and what is not allowed, and 
clearly it is not allowed to sell these, to transfer these. And 
that there is clarity in terms of action will be taken and some 
kind of disciplinary action. Again, it may depend on the 
nature, may depend on a whole range of things regarding the 
individual. But I think it has to be clear that this is not 
allowed. This is not legal and there are consequences. 
Otherwise, I think the behavior continues.
    In regard to the Department of Defense, I am just trying to 
understand the system. In the GAO review, they noted that the 
Department of Defense does not verify commuting cost by 
approving official, it does not review or does not have 
benefits adjusted due to travel, leave, or change of address. 
And it does not have a removal of benefits program, including 
exit interviews. Are those things that they do not do, are 
those across the board or are those simply--again, because you 
have a decentralized program; is that correct?
    Mr. Gimble. That is correct. We are specifically looking at 
those issues in the audit that we are going to be issuing this 
summer. We are going to deal with the application process to 
include the initial enrollment, status changes and de-
enrollment, also the quality of the data in the database and 
the retention of the documentation. So we think if we address 
those issues along with the reconciliation procedures that are 
already in place, we will start having pretty good control over 
the DOD program.
    Now I need to say this: We believe that it is the 
administrator's responsibility to establish those internal 
controls. And we believe that it is our IG responsibility in 
the waste, fraud, and abuse area to periodically test. So what 
we would plan to do is periodically test the controls of the 
program.
    Senator Coleman. I would hope, though, that based on your 
review that you can provide some direction to the 
administrators so they have a sense of how best to ensure that 
this does not occur in the future.
    Mr. Gimble. Based on our audit done in 2003, we got an 
excellent response to our recommendations. All our 
recommendations were concurred with and all except one have 
been completed.
    We would expect this new audit to go a little further and 
establish some additional controls.
    Senator Coleman. Just to clarify again the state of things, 
you state DOD verifies active employment status and whether the 
employee has parking; is that correct?
    Mr. Gimble. DOD?
    Senator Coleman. Yes.
    Mr. Gimble. We are saying that we are working on the 
verification.
    Mr. Rhodes. Senator, if I might, for the Department of 
Defense for our program in the National Capital Region, the 
individual participants pick up their fare media on a quarterly 
basis. At that quarterly basis when they pick up their fare 
media, they have to identify a DOD identification to the--
though it is the Department of Transportation that is 
facilitating the process for us, our requirement that we lay 
out for them is they have to identify the personal individual 
identification as they sign for it.
    Additionally, when they sign for it on a quarterly basis, 
there is a reattestation of that certification. So the self-
certification happens when they apply and then it also happens 
each quarter when they pick up their benefits.
    Additionally, a third piece of that on the reconciliation 
that does happen at each of the military organizations and 
components, they do that on a monthly basis. That is a roster 
of all the people who were currently enrolled. They compare 
that against their personnel and employment databases to ensure 
that they are all active valid individuals. So if somebody were 
to have departed but for some reason we did not collect their 
identification badge, within that month we would also get the 
reconciliation process in there.
    Senator Coleman. Is anybody aware of anyone ever returning 
excess benefits upon departure?
    Mr. Rhodes. Yes, Senator. That has occurred.
    Ms. Washington. Yes.
    Senator Tester. Tell me about that, how that works?
    Ms. Washington. In our system, it is part of our exit 
process and employees have to go through the Transit Benefit 
Office; they do indeed turn in their benefits.
    Senator Coleman. So the key though is, particularly in 
Transportation, you have that as part of your exit process?
    Ms. Washington. That is correct.
    Senator Coleman. And agencies that do not, I do not think 
the Defense has it as part of their exit process. Mr. Rhodes, 
are you aware of folks turning back any benefits?
    Mr. Rhodes. Yes, I am, Senator. And in fact, each of the--
again, we have 70 military components and organizations that is 
subdivided down to we use 40 points of contact in those 
organizations. But in that element we do have requirements that 
they include that in their out-processing process. So I am not 
sure of what criteria exactly got you a check on the box. We 
may not have specifically formed it in the manner that gets a 
check in the box on the GAO report, but we do have that as a 
requirement in our processes.
    Senator Coleman. The GAO indicated, at least the review in 
the DOT program, they estimated that 35 percent of DOD 
employees are improperly receiving the maximum amount of 
transit benefits. Does that number surprise you, Mr. Gimble?
    Mr. Gimble. It does, frankly, a little bit. But our data 
mining effort that we ran on the 2005 records indicated about 
28 percent of the data was not verifiable at that point in 
time. So I really do not have an opinion as to whether that is 
high or low.
    Mr. Rhodes. Senator, at the last check, about 51 percent of 
our enrollees have self-certified for the maximum benefit. I am 
not sure if the 35 percent is of that 51 percent.
    Senator Coleman. I think of those receiving the maximum. 
The investigation for GAO only focused on those receiving 
maximum benefits. It did not include any others. So this whole 
GAO report really focuses on just a small slice of the universe 
of folks involved in the program.
    Mr. Rhodes. I know that we have about 51 percent that are 
certified for the max benefit, that they have self-certified 
and identified that amount. So if it is 35 percent of that 
number, that seems high. It will be interesting to see the 
information to try to see what we can do to modify.
    Senator Coleman. The Subcommittee found at least one of the 
Federal employee unions actually offered to be helpful and work 
on this issue. They see it as a good program and there is 
concern about whether the program continues. What role, 
anybody, either Ms. Washington or Mr. Rhodes, role for the 
unions in helping to avoid some of the problems that the GAO 
found in this program?
    Ms. Washington. We will certainly consider that. We had not 
considered that before. We certainly will consider that.
    Senator Coleman. I think it would be, again, worth having 
the discussion.
    I think I will conclude my questioning. I do believe again 
that Transportation can play a more active role in educating 
the other agencies about their responsibilities and providing 
them with some understanding of the types of things that should 
be done in application requirement verification and 
implementation, to have perhaps a better system of uniform and 
consistent penalties, again providing some leeway, obviously. 
But there should be some bottom line in all of this.
    I think all of those would help prevent some of the abuse 
that the GAO report found. So I appreciate the efforts that 
have been already accomplished. I think there is more work to 
be done. I would expect the agencies to file these materials 
with the Subcommittee and we will go from there. But I want to 
thank all of the witnesses for their testimony today.
    With that, this hearing is now adjourned.
    [Whereupon, at 4:18 p.m., the Subcommittee was adjourned.]


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