Federal Transit Benefits Program: Ineffective Controls Result in 
Fraud and Abuse by Federal Workers (24-APR-07, GAO-07-724T).	 
                                                                 
Under the federal transit benefits program, federal employees	 
receive transit benefits (e.g., Metrocheks) to encourage them to 
commute to work via public transportation. Based on information  
provided by the Department of Transportation, as of July 2006,	 
the National Capital Region had 120,000 participants claiming	 
roughly $140 million in benefits. Recently, inspectors general	 
(IG) of various agencies have found numerous prior instances of  
fraud, waste, and abuse in this federal program. Based on both	 
the significance of these IG findings and the amount of federal  
money spent on transit benefits, GAO was asked to (1) investigate
allegations that federal employees in the National Capital Region
are involved in fraud and abuse related to the transit benefits  
program, (2) identify the potential causes of any fraud or abuse 
that is detected, and (3) estimate the magnitude of fraud and	 
abuse in the National Capital Region in 2006. To address these	 
objectives, GAO identified federal employees selling their	 
transit benefits on the Internet and obtained additional data	 
from these sellers' employing agencies to determine whether more 
widespread problems existed. GAO also obtained the policies and  
procedures governing the transit benefits program at each of the 
employing agencies.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-724T					        
    ACCNO:   A68704						        
  TITLE:     Federal Transit Benefits Program: Ineffective Controls   
Result in Fraud and Abuse by Federal Workers			 
     DATE:   04/24/2007 
  SUBJECT:   Federal agencies					 
	     Federal employees					 
	     Fraud						 
	     Internal controls					 
	     Investigations by federal agencies 		 
	     Mass transit					 
	     Program abuses					 
	     Program management 				 
	     Transportation					 
	     Transportation policies				 
	     Travel						 
	     Waste, fraud, and abuse				 

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GAO-07-724T

   

     * [1]Summary
     * [2]Case Studies Illustrate Fraudulent and Abusive Activity Asso

          * [3]Federal Employees Must Certify That They Are Eligible for Be
          * [4]Case Studies Illustrate Fraudulent Sale of Metrocheks on eBa
          * [5]Investigations Show Federal Employees Fraudulently Sold Metr
          * [6]Other Investigative Case Studies Illustrate How Federal Empl
          * [7]Nonfederal Employees in Possession of Transit Benefits

     * [8]Weaknesses in Program Controls May Contribute to Fraud and A
     * [9]Federal Employees Likely Made More than $17 Million in Poten
     * [10]Corrective Actions
     * [11]Conclusion
     * [12]Contacts and Acknowledgments
     * [13]GAO's Mission
     * [14]Obtaining Copies of GAO Reports and Testimony

          * [15]Order by Mail or Phone

     * [16]To Report Fraud, Waste, and Abuse in Federal Programs
     * [17]Congressional Relations
     * [18]Public Affairs

Testimony

Before the Permanent Subcommittee on Investigations, Committee on
Homeland Security and Governmental Affairs, U.S. Senate

United States Government Accountability Office

GAO

For Release on Delivery
Expected at 2:30 p.m. EDT
Tuesday, April 24, 2007

FEDERAL TRANSIT BENEFITS PROGRAM

Ineffective Controls Result in Fraud and Abuse by Federal Workers

Statement of Gregory D. Kutz, Managing Director
Forensic Audits and Special Investigations

John J. Ryan, Assistant Director
Forensic Audits and Special Investigations

GAO-07-724T

Mr. Chairman and Members of the Subcommittee:

Thank you for the opportunity to discuss allegations of fraud and abuse
related to the federal government's transit benefits program. This program
was established by executive order in April 2000, and is intended to
reduce federal employees' contribution to traffic congestion and air
pollution and to expand their use of public transportation. In the
Washington, D.C., National Capital Region,^1 federal agencies are required
to offer employees tax-free^2 transit passes for public transportation, to
be used exclusively to cover their actual out-of-pocket commuting
expenses. In 2006, employees could not receive more than $105 per month in
transit passes.^3

Agencies in the National Capital Region can either distribute these
transit passes directly to employees or contract with the Department of
Transportation for distribution. Based on information provided by
Transportation, as of July 2006, the portion of the program they
administer had approximately 250,000 participants who claimed about $250
million worth of benefits. The National Capital Region constituted the
largest part of this program, with 120,000 participants claiming roughly
$140 million worth of benefits. These numbers do not include agencies that
do not contract with Transportation and administer their own programs.^4
As shown in figure 1, the transit passes themselves are issued by the
Washington Metropolitan Area Transit Authority (WMATA) in the form of
either Metrocheks, which are paper fare cards, or SmartBenefits,^5 which
are electronic deposits to a transit debit card (called a SmarTrip card).

^1 Executive Order 13150 defines the National Capital Region as "the
District of Columbia; Montgomery, Prince George's, and Frederick Counties
in Maryland; Arlington, Fairfax, Loudoun, and Prince William Counties in
Virginia; and all cities now or hereafter existing in Maryland or Virginia
within the geographic area bounded by the outer boundaries of the combined
area of said counties."

^2 As discussed later in this testimony, transit benefits used for
commuting purposes by the intended recipient are tax free. However, income
derived from the sale of transit benefits would be considered taxable
income; sellers would be required to report these sales as part of their
gross income.

^3 Pub. L. No. 109-59, S3049 (Aug. 10, 2005).

^4 Agencies that administer their own programs purchase Metrocheks or
SmartBenefits directly from WMATA and manage the distribution in-house. If
an agency contracts with Transportation, then Transportation obtains
Metrocheks from WMATA and distributes the passes to employees or initiates
the SmartBenefits deposit on an employee's SmarTrip card. Transportation
charges a fee of nearly 5 percent for each dollar administered, with
additional fees charged for in-building distribution, shipping, and vendor
fees.

Figure 1: WMATA-Issued Metrochek and SmarTrip Card

^5 Slightly more than half of federal agencies in the National Capital
Region participate in the SmartBenefits Program (i.e. give employees the
option of receiving their benefits directly on their SmarTrip cards), and
only three federal agencies require enrollment in SmartBenefits as part of
the transit benefits program

As shown in the figure, WMATA labels paper Metrocheks with a warning
indicating that they may only be issued to qualified employees by approved
employers and that resale is illegal; SmarTrip cards are printed with a
similar warning. The inspectors general (IG) of various agencies have
identified numerous problems related to the transit benefits program,
including ineligible employees receiving benefits and a lack of policies
and procedures essential to preventing fraud, waste, and abuse.^6

Based on both the significance of these IG findings and the amount of
federal funds spent on transit benefits, you asked us to (1) investigate
allegations that federal employees in the National Capital Region are
involved in fraud and abuse related to the transit benefit program, (2)
identify the potential causes of any fraud or abuse we detected, and (3)
estimate the magnitude of fraud and abuse in the National Capital Region
during 2006.

To conduct our work, we investigated allegations of Internet sales of
transit benefits by federal employees in the National Capital Region. We
confirmed selected sellers' federal employment status in consultation with
federal IGs or offices of investigation and through Internet payment
records. We interviewed a nonrepresentative selection of the sellers,
examined their transit benefit applications, and prepared case studies
detailing our findings. To determine whether other individuals at the
sellers' employing agencies were fraudulently using their benefits, we
data mined a nonrepresentative selection of transit benefit records,
compared employee home and work addresses, conducted further interviews,
and prepared additional case studies. To identify the potential causes of
the fraud and abuse we detected, we reviewed the written transit policies
and procedures at all the case study individuals' employing agencies.
While we were unable to develop a precise estimate of the magnitude of the
potentially fraudulent transit benefit payments that occurred in the
National Capital Region, we used available data to develop an order of
magnitude estimate. Specifically, we analyzed limited data from the case
study individuals' employing agencies and records from the National
Finance Center. For more information on the data used to develop our
calculations, see appendix I. It is important to note that we did not
conduct a comprehensive audit of the federal transit benefits program.
Rather, our investigation of allegations concerning individuals selling
their benefits over the Internet led us to conduct limited investigations
at specific agencies. Although we conducted corrective actions concerning
our investigative findings with these agencies, as discussed later in this
testimony, we are not issuing recommendations. We conducted our
investigative work in accordance with standards prescribed by the
President's Council on Integrity and Efficiency and conducted our audit
work in accordance with generally accepted government auditing standards.

^6Treasury Inspector General for Tax Administration, The Administration of
the Public Transportation Subsidy Program Can Be Improved, 2006-10-062,
March 2006; Federal Communications Commission Office of the Inspector
General, Report on Audit of the FCC Transit Benefit Program, 04-AUD-02-02,
September 27, 2004; National Archives and Records Administration Office of
the Inspector General, Audit of NARA's Transit Benefit Program, Audit#
04-07, March 31, 2004; Department of Defense Office of the Inspector
General, Financial Management: Allegations Concerning Controls Over DoD
Transit Subsidies Within the National Capital Region, D-2004-009, October
14, 2003; U.S. Government Printing Office of the Inspector General, Report
on Improving Controls over the Administering of GPO's Transit Benefit
(Metrochek) Program, 03-07-156, September 30, 2003.

Summary

Our investigation confirmed allegations that federal employees in the
National Capital Region committed fraud by deliberately requesting
benefits they are not entitled to and then selling or using these benefits
for personal gain.^7 These employees could be subject to prosecution for
unlawful conversion under 18 U.S.C. S641. In addition, because the
employees we investigated signed certifications^8 stating that they will
only use their transit benefits to cover actual out-of-pocket commuting
costs, they could be subject to criminal prosecution under the False
Statements Act, 18 U.S.C. S1001. As described below, our case studies
demonstrate abusive and potentially fraudulent activity by individuals
employed at the Departments of Commerce, Transportation, State, Homeland
Security, Defense, and the Treasury and at the Internal Revenue Service
(IRS), the Patent and Trademark Office, and the U.S. Coast Guard.^9

           o After investigating just 3 days of sales on the Internet auction
           site eBay, we identified 58 individuals selling Metrocheks,^10
           selected 20 for investigation, and determined that these 20 were
           in fact federal employees. Collectively, these 20 federal
           employees have fraudulently sold more than $21,000 worth of
           Metrocheks on eBay over the past 2 years. In subsequent interviews
           with 13 of the 20 eBay sellers, we found cases where federal
           employees received parking benefits in addition to Metrocheks,
           were on extended leave from work, or did not even use public
           transportation to commute to work. One GS-14 information
           technology specialist for IRS drove to work, parked for free in
           agency-provided parking, and was still able to collect $105 per
           month in transit benefits--most of which he sold on eBay. In
           addition, none of the 13 individuals we interviewed reported
           income earned from Metrochek sales on their federal tax returns.

           o Posing as buyers, our investigators purchased $840 worth of
           benefits from three federal employees fraudulently selling their
           Metrocheks on Craigslist, a popular community Web site. For
           example, one of our investigators purchased $420 worth of
           Metrocheks for $350 from an Air Force captain who advertised on
           the site. The captain corresponded with our investigator using his
           military e-mail address and told our investigator that he would
           show up at the designated meeting spot in his "Air Force service
           dress uniform." Our investigator tried to get the captain to sell
           him the benefits for less money, but the captain refused and told
           our investigator that his wife had gotten angry at him for
           accepting less than the agreed-upon fee the last time he sold his
           transit benefits. After our investigator completed the purchase,
           the captain explained that he usually "slugs" (i.e., rides for
           free with another driver, thus incurring no commuting costs) to
           work and therefore does not use his transit benefits. He indicated
           that this was not the first time he had sold his benefits and he
           offered to enter into an ongoing "partnership" with our
           investigator to sell his benefits on a quarterly basis.

           o Further investigation at the agencies where the eBay and
           Craigslist sellers worked also demonstrated that federal employees
           are not using their transit benefits to cover actual out-of-pocket
           commuting costs. Through data mining of information submitted on
           transit benefit records, we found many employees who appeared to
           provide inaccurate and inflated commuting cost information on
           their transit benefit applications and we developed case studies
           on 23 of these individuals. Specifically, based on a comparison of
           their home and work addresses, these 23 individuals claimed more
           benefits than they needed to commute to work. During our
           interviews, 11 admitted to deliberately falsifying their
           applications in order to obtain excess transit benefits for
           personal use. One GS-11 associate director at Transportation
           admitted to claiming the maximum transit benefit of $105 per month
           when his actual commuting cost was only $54 per month. This
           individual, who received his benefits on a SmarTrip card under the
           SmartBenefits program, admitted to using the excess $51 per month
           for personal travel.

           o Although our objective was to investigate allegations related to
           federal employees, our data mining revealed other troubling
           information related to the abuse of the transit benefit program by
           nonfederal employees. For example, we identified 28 individuals
           who have received transit benefits from federal agencies even
           though they do not appear to work for these agencies, 9
           individuals who separated from the agencies but did not return
           their unused benefits, and 4 former federal employees who
           continued to receive benefits after leaving their respective
           agencies. For example, one Commerce employee left the department
           in 2001, but records indicate that Commerce mailed her $65 per
           month in transit benefits until she moved to a new address in
           2006.

^7 The Association of Certified Fraud Examiners defines occupational fraud
as "the use of one's occupation for personal enrichment through the
deliberate misuse or misapplication of the employing organization's
resources or assets."

^8 As discussed later in this testimony, four Transportation employees who
we investigated claimed that they did not sign transit benefit
certifications.

^9 IRS, Patent and Trademark, and the Coast Guard are subcomponents of
Treasury, Commerce, and Homeland Security, respectively, but we
investigated them separately because they administer their transit
benefits programs separately.

^10 This number includes individuals identified by the subcommittee.

Weaknesses in the design of program controls at Commerce, Transportation,
State, Homeland Security, Defense, Treasury, IRS, Patent and Trademark,
and the Coast Guard can be associated with the fraudulent and abusive
activity we identified. Each of these agencies has its own process for
management and oversight; there are no governmentwide policies or
standards establishing internal controls for the federal transit benefits
program. Although we did not conduct a comprehensive review of each
agency's controls, the results from investigations illustrate flaws in the
design of the controls. For example, we developed case studies on four
employees who admitted that they continued to receive transit benefits
even though they were on extended absences from work. However, none of the
agencies adjust benefits because of leave or travel. In addition, we
developed case studies on two employees who admitted that they receive
both parking and transit benefits, but only three agencies established
control procedures intended to ensure that transit benefit recipients were
not also receiving parking benefits.

Finally, using transit benefits records from seven of the nine agencies^11
reviewed, we determined that the amount of potentially fraudulent transit
benefits claimed during 2006 in the National Capital Region was at least
$17 million and likely more. This fraudulent amount could be millions more
if a similar magnitude of fraud exists in the dozens of agencies we did
not review, or if the other types of fraud we identified in this
investigation could be quantified.

^11 Commerce, Transportation, Homeland Security, Defense, Treasury, IRS
and the Coast Guard.

Case Studies Illustrate Fraudulent and Abusive Activity Associated with Federal
Transit Benefit Program

Despite signing certifications stating that they will only use their
transit benefits to cover actual out-of-pocket commuting costs, federal
employees in the National Capital Region are committing fraud or violating
the False Statements Act^12 by requesting benefits they do not need and
then selling or using these benefits for personal gain. Specifically, we
developed case studies on individuals employed at Commerce,
Transportation, State, Homeland Security, Defense, Treasury, IRS, Patent
and Trademark, and the Coast Guard.^13 These case studies illustrate how
federal employees fraudulently sold Metrocheks on eBay and Craigslist. Our
case studies also illustrate how federal employees requested benefits in
excess of their actual commuting costs, based on a comparison of their
home and work addresses. In addition, during the course of our
investigative work, we found evidence indicating that a number of
individuals are in possession of federal transit benefits even though
these individuals do not appear to work for the federal government.

Federal Employees Must Certify That They Are Eligible for Benefits and Will Not
Sell Benefits or Overstate Commuting Costs

Employees at all of the agencies at which we conducted our investigative
work are required to sign a certification statement as part of the transit
benefit application process. As shown in figure 2, this certification
typically confirms that the employee is eligible for benefits, will not
sell or transfer the benefits, and is not requesting more than the needed
amount of benefits. Some certifications also require employees to confirm
that they do not have federally subsidized parking permits. In addition,
the applications contain a false statement warning to inform employees
that any false, fictitious, or fraudulent statements on their signed
applications and may subject them to criminal prosecution.

^12 18 U.S.C S1001.

^13 IRS, Patent and Trademark, and the Coast Guard are subcomponents of
Treasury, Commerce, and Homeland Security, respectively, but we
investigated them separately because they administer their transit
benefits programs separately.

Figure 2: Examples of Transit Benefit Certifications and False Statement
Warning

If requesting SmartBenefits, employees must provide the serial number of
their WMATA-issued SmarTrip card so that their benefits can be directly
deposited to the card. If employees receive paper Metrocheks, they are
required to sign another document when they pick up the Metrocheks. This
form reiterates that the employee will not sell or transfer the Metrocheks
and will not claim excess benefits. In addition, as shown in figure 1,
Metrocheks are labeled with a warning indicating that they may only be
issued to "qualified" employees and that resale is illegal. SmarTrip Cards
feature a similar warning.

Case Studies Illustrate Fraudulent Sale of Metrocheks on eBay

We identified 58 individuals^14 selling Metrocheks on eBay on July 24,
August 7, and August 23, 2006, and confirmed that at least 20 of these
individuals were in fact federal employees. Collectively, these 20
employees fraudulently sold more than $21,000 worth of Metrocheks over the
last 2 years and could be subject to prosecution for unlawful conversion
under 18 U.S.C. S641. In addition, because the employees we investigated
signed certifications^15 stating that they will only use their transit
benefits to cover actual out-of-pocket commuting costs, they could be
subject to criminal prosecution under the False Statements Act, 18 U.S.C
S1001. In subsequent interviews with 13 of the 20 eBay sellers, we found
instances where federal employees received parking benefits in addition to
Metrocheks, were on extended leave from work, or did not even use public
transportation to commute to work. In addition, none of the individuals we
interviewed reported the income generated from the illegal sale of
Metrocheks on their tax returns and they would be required to report these
sales as part of their gross income. Table 1 highlights the information we
obtained on 8 of these individuals through eBay, PayPal (an Internet
payment service), and our interviews. More detailed information on 4 of
the cases follows the table. For a list of all 20 federal employees
selling Metrocheks on eBay, see appendix II.

^14 This number includes individuals identified by the subcommittee.

^15 As discussed later in this testimony, four Transportation employees
who we investigated claimed that they did not sign transit benefit
certifications.

Table 1: Case Studies of Federal Employees Who Fraudulently Sold
Metrocheks on eBay

                                Number of                                     
                                    sales Face value                          
                                 over the         of                          
        Seller's         Salary    past 2 Metrocheks                          
Case employing agency level      years       sold Case details             
1    Transportation   GS-14         12     $1,080 Does not always use      
                                                     public transportation    
2    Treasury         GS-14          6      1,380 Does not always use      
                                                     public transportation    
3    IRS^a            GS-14          3        930 Receives parking         
                                                     benefits                 
4    CG^b             GS-12          3        900 Uses public              
                                                     transportation, but      
                                                     claims more benefits     
                                                     than needed for commute  
                                                     to work                  
5    Transportation   GS-14          6        789 Received benefits while  
                                                     on maternity leave       
6    State            GS-12         10      1,500 Received benefits while  
                                                     on travel; does not      
                                                     always use public        
                                                     transportation           
7^c  Defense          E-6           61      6,000 Do not always use public 
8^c  Defense          GS-7                        transportation           

Source: GAO.

aIRS administers its own transit program and has different processes for
management and oversight than Treasury as a whole.

b The Coast Guard administers its own transit program and has different
processes for management and oversight than Homeland Security as a whole.

cCases 7 and 8 are a married couple selling their Metroheks from the same
eBay account. See details below.

Case 1: Seller has been employed as a GS-14 specialist at Transportation's
Federal Motor Carrier Safety Administration since 1990. Seller has
received the maximum amount of transit benefits since he first entered the
transit benefit program in November 2004. Seller explained that he
accumulated excess benefits over time by using other means of
transportation to and from work, including "slugging," riding with a
neighbor, and driving his motorcycle. Seller readily admitted to selling
his transit benefits on eBay on multiple occasions for personal gain (12
lots of Metrocheks valued at a total of $1,080), but stated that he did
not know it was illegal to sell his transit benefits--despite the warning
printed on every Metrochek and the certification statement he signed on
his application and each time he picked up his benefits.

Case 3: Seller is a GS-14 information technology specialist and has been
employed by IRS since 2003. Seller has received the maximum amount of
transit benefits since he first entered the transit benefit program in
February 2004. Seller also receives parking benefits from IRS and
accumulated excess benefits over time by driving to work and parking in an
agency-owned parking space for free. Seller admitted to selling his
transit benefits on eBay for personal gain on multiple occasions (three
lots of Metrocheks valued at a total of $930). Seller's eBay account
history also reflected the sale of computers, and after some questioning
by investigators, seller confessed that he had stolen numerous computers
and computer parts from IRS, which he subsequently sold on eBay. We
referred the case to the Treasury Inspector General for Tax
Administration. The employee has since been placed on administrative leave
indefinitely and without pay and was indicted for theft of government
property on February 7, 2007.

Case 5: Seller is a GS-14 attorney for the Federal Highway Administration
and has been employed at Transportation since 1990. Seller confirmed that
she has received the maximum benefit since first entering the program in
1999. She explained that she accumulated excess benefits in two ways: (1)
she continued to claim transit benefits while on maternity leave and (2)
she works from home at least 1 day a week. Although she has recently been
working from home more frequently, she still claims the maximum benefit.
Seller admitted to selling her transit benefits on eBay on multiple
occasions (six lots of Metrocheks valued at a total of $789), but stated
that she did not know it was illegal to sell her transit benefits--despite
the warning printed on every Metrochek and the certification statement she
signed on her application and each time she picked up her benefits.

Cases 7 and 8: These sellers are a married couple both working for
Defense. The wife, an administrative leading petty officer, has been
receiving almost $100 per month since first entering the program in
September 2005. The husband, a financial technician, has been receiving
the maximum benefit since first entering the program in March 2003. Both
sellers acknowledged that they accumulated excess benefits over time by
driving to work. The husband admitted to selling his transit benefits on
eBay on multiple occasions (61 lots of Metrocheks valued at a total of
$6,000). The wife, although she admitted she used her transit benefit for
personal travel, denied selling her benefits on eBay. However, the names
of both spouses appear on the eBay account selling Metrocheks.

Investigations Show Federal Employees Fraudulently Sold Metrocheks on Craigslist

Posing as buyers, our investigators purchased $840 worth of benefits from
three federal employees fraudulently selling their Metrocheks via
Craigslist, a popular community Web site. First, investigators purchased
$210 worth of Metrocheks for $160 from a GS-12 State Department employee
who posted on the site. The seller also asked to be paid with cash because
she wanted to buy Christmas presents for her friends. After purchasing the
Metrocheks, investigators identified themselves as a federal agents
conducting investigation and reminded the seller that she had signed
certifications stating that she would not sell transit benefits. The
seller insisted that she did not know it was illegal to sell benefits and
also stated that she was selling extra Metrocheks left over from a
previous government job. However, in e-mail correspondence prior to the
sale, the seller told one of our investigators that she would be able to
sell him benefits on a continuing basis, four times per year. We confirmed
that she receives $255 in Metrocheks four times a year from the State
Department.

Investigators next purchased Metrocheks from an Air Force captain who
advertised on the site. The captain corresponded with our investigator
using his military e-mail address, as shown in figure 3.

Figure 3: E-mail Correspondence from Air Force Captain

When our investigator arrived at the meeting spot, he told the captain
that he only had $350 and asked if that would be enough to purchase the
entire $450 worth of Metrocheks. The captain said no, and told our
investigator that his wife had gotten angry at him for accepting less than
the agreed-upon fee the last time he sold his transit benefits.
Ultimately, our investigator purchased $420 worth of benefits for $350.
After the exchange, the captain explained that he usually "slugs" to work
and therefore does not use his transit benefits. He also offered to enter
into an ongoing partnership with our investigator to sell his benefits on
a quarterly basis. Our investigator did not identify himself as a federal
agent because the Air Force Office of Special Investigations indicated
that it would like to continue to develop a case against this seller.

Finally, our investigator purchased $210 worth of Metrocheks for $190 from
a former GS-11 international trade specialist with Commerce. This employee
resigned from Commerce on and then arranged to sell her benefits to our
investigator one week later. After our investigator purchased the
Metrocheks, the seller explained that she was moving overseas and would no
longer be collecting benefits. She also explained that she had typically
walked to work at Commerce, so she did not really need the benefits in the
first place. Our investigator did not identify himself as a federal agent
because the IG at Commerce wanted to pursue further action against this
seller by withholding her final paycheck.

Other Investigative Case Studies Illustrate How Federal Employees Abuse the
Transit Benefit Program

Further investigation at the agencies where the eBay and Craigslist
sellers worked also demonstrated that federal employees are not using
their transit benefits to cover actual out-of-pocket commuting costs.
Through data mining of information submitted on transit benefit
applications, we found many employees who appeared to provide inaccurate
and inflated commuting cost information on their transit benefit
applications. We developed case studies on 23 of these individuals.
Specifically, based on a comparison of their home and work addresses,
these 23 individuals claimed more benefits than they needed to commute to
work. Eleven of these individuals admitted to deliberately falsifying
their applications in order to obtain excess transit passes for personal
use. Table 2 highlights the information we obtained on 10 of these cases
through our data mining and interviews. More detailed information on 3 of
the cases follows the table. For a list of all 23 individuals, see
appendix III.

Table 2: Case Studies of Federal Employees Providing Inaccurate and
Inflated Commuting Cost Information on Their Applications

                                            Excess                            
                                          benefits                            
        Applicant's                    claimed per                            
Case employing agency  Salary level        year Case details               
1    Commerce          GS-5                $480 Refused to tell            
                                                   investigators what excess  
                                                   benefits were used for     
2    IRS               GS-13                612 Used benefits for personal 
                                                   travel                     
3    Treasury          GS-8                 660 Purchased transit tokens   
                                                   for son; sold benefits to  
                                                   contractors and friends    
4    Treasury          GS-14                540 Gave benefits to visiting  
                                                   friends                    
5    Transportation    GS-13                444 Stored excess benefits at  
                                                   home                       
6    Transportation    GS-11                612 Used benefits for personal 
                                                   travel                     
7    Defense           Not                  660 Used benefits for personal 
                          available                travel; received parking   
                                                   benefits                   
8    Defense           Not                  660 Used benefits to pay for   
                          available                transportation of her      
                                                   children to daycare        
9    Coast Guard       GS-9                 228 Gave benefits to family    
                                                   and friends; used benefits 
                                                   for personal travel;       
                                                   accumulated excess         
                                                   benefits during extended   
                                                   absences from work         
10   Homeland Security Not                  228 Refused to tell            
                          available                investigators what excess  
                                                   benefits were used for     

Source: GAO.

Case 3: Employee is a GS-8 secretary at Treasury. She has participated in
the transit benefits program since September 2000 and admitted to
knowingly providing false information on her transit benefit application
by claiming the maximum benefit of $105 per month when her actual
commuting cost is $50 per month. As provided on the application signed by
the employee, this false statement may constitute a violation of 18 U.S.C
S1001 and renders the employee subject to criminal prosecution. She
further admitted to using her $55 in excess Metrocheks each month to
purchase transit tokens for her son to use to travel to school. Employee
also admitted to selling her excess benefits to Treasury contractors (who
are not eligible to receive federal transit benefits) and to friends in
her community. Employee stated that she deliberately overestimated the
amount of money she needed to commute to and from work on her transit
benefit application in order to have excess benefits to sell to friends.

Case 4: Employee is a GS-14 deputy director at Treasury. Employee has
participated in the transit benefits program since 2003 and admitted to
knowingly providing false information on his transit benefit application
by claiming the maximum benefit of $105 per month when his actual
commuting cost is $60 per month. As provided on the application signed by
the employee, this false statement may constitute a violation of 18 U.S.C
S1001 and renders the employee subject to criminal prosecution. Employee
stated that he distributed some of his excess Metrocheks to friends
visiting Washington D.C.

Case 9: Employee is a GS-9 working in the Health and Safety Division at
the Coast Guard. Employee has participated in the transit benefits program
since 1996 and admitted to knowingly providing false information on her
transit benefit application by claiming the maximum benefit of $105 per
month when her actual commuting cost is $86 per month. She also admitted
that she accumulated excess benefits by continuing to receive benefits
even though she has been taking extended amounts of leave. As provided on
the application signed by the employee, this false statement may
constitute a violation of 18 U.S.C S1001 and renders the employee subject
to criminal prosecution. She also acknowledged that she intentionally
abused her benefits by using them for personal travel and distributing
them to her sister and friends.

Nonfederal Employees in Possession of Transit Benefits

Although our objective was to investigate allegations related to federal
employees, our data mining revealed other troubling information related to
the abuse of the transit benefit program by nonfederal employees.
Specifically, through our data-mining efforts, we were able to identify
employees at Commerce, Coast Guard, Treasury, IRS, and Homeland Security
who may have collected transit benefits even though they did not currently
work for the federal government. We requested additional identification
information on these individuals from the agencies and subsequently found
28 individuals who have received transit benefits even though they do not
appear to work for the agencies, 9 individuals who left their agencies but
did not return their unused benefits, and 4 former federal employees who
continued to receive benefits after leaving their respective agencies.

           o Commerce confirmed that one of the individuals we identified
           continued to receive transit benefits after separating from the
           agency. Records indicate that this employee left the department in
           2001, but Commerce continued to mail her $65 per month in benefits
           until she moved to a new address in 2006. Commerce also confirmed
           that three of the other individuals we identified separated from
           the agency, but did not return their unused transit benefits. For
           example, one Commerce employee picked up $300 worth of benefits on
           July 3, 2006, and then left the agency on July 5, 2006.
           o The Coast Guard confirmed that one employee we identified picked
           up transit benefits after separating from the agency. In addition,
           one of the individuals we asked the Coast Guard to identify has
           never worked there; the agency could find no employment records on
           this individual even though he picked up transit benefits under
           Coast Guard's transit program.

           o Treasury confirmed that one employee we identified picked up
           benefits at least five times after separating from the agency. In
           addition, Treasury confirmed that another employee picked up
           benefits and then separated from the agency the very next day, and
           another picked up benefits and left the agency 9 days later.
           Neither of these individuals returned any of their unused benefits
           to Treasury. Finally, 25 of the individuals we asked Treasury to
           identify have never worked there; the agency could find no
           employment records on these individuals even though they picked up
           transit benefits under Treasury's transit program.

           o IRS confirmed that four of the employees we identified picked up
           benefits and left the agency shortly thereafter without returning
           benefits. For example, one employee picked up the $315 worth of
           benefits on July 6, 2006, and then left the agency on August 4,
           2006. In addition, one of the individuals we asked IRS to identify
           has never worked for IRS; the agency could find no employment
           records on this individual even though he picked up transit
           benefits under IRS's transit program.

           o We did not receive a response from Homeland Security by the
           close of our investigation.

Weaknesses in Program Controls May Contribute to Fraud and Abuse

Weaknesses in the design of program controls at Commerce, Transportation,
State, Homeland Security, Defense, Treasury, IRS, Patent and Trademark,
and the Coast Guard can be associated with the fraudulent and abusive
activity we identified. Each of these agencies has its own process for
management and oversight; there are no governmentwide policies or
standards establishing internal controls for the federal transit benefit
program. Although we did not conduct a comprehensive review of each
agency's controls, the results from our interviews and data mining
illustrate flaws in the design of the controls. Figure 4 details the
critical elements included in each agency's written policies and
procedures.

Figure 4: Comparison of Written Transit Benefit Program Controls

Note: State, in its protocols, indicates that supervisors have the option
of requesting additional information from employees to verify their
commuting costs (but this is not a requirement). Defense, in its
protocols, indicates that component agencies should set up offices to
establish and implement internal controls, but we did not receive any
documentation indicating that these offices were set up or that internal
control procedures were set at the component-agency level.

The following are examples of our investigative findings illustrating
weaknesses in the design of agencies' transit benefit controls.

           o We interviewed 23 individuals who provided inaccurate commuting
           costs on their applications, based on a comparison of their home
           and work addresses. However, none of the agencies had written
           policies in place at the time of our review requiring an approving
           official to verify that employees provided accurate commuting
           costs. Transportation, Treasury, State, and Defense do not even
           require employees to provide their home addresses on their
           applications, which may make it even more difficult to determine
           whether commuting costs are valid. Furthermore, only three
           agencies (IRS, Commerce, and Patent and Trademark) require
           employees to provide a commuting cost breakdown to demonstrate
           that they are entitled to the benefits they are requesting.

           o Four employees admitted to us that they continued to receive
           transit benefits even though they were on extended absences from
           work. However, none of the agencies use information that employees
           provide in the normal course of working for the government--such
           as changes of address on their W-2 forms, taking annual leave, or
           traveling on business--to adjust benefits because of leave or
           travel. In addition, only three agencies (Transportation, IRS, and
           State) have an approving official review employees' eligibility to
           receive benefits.

           o Two employees admitted to us that they received both parking and
           transit benefits, but only three agencies (Transportation,
           Homeland Security, and Defense) had a process in place to ensure
           that transit benefit recipients were not also receiving parking
           benefits.

           o We identified four former federal employees who continued to
           receive transit benefits even after they left their agencies.
           However, only two agencies (Transportation and IRS) ensure that
           employees who leave the agencies are removed from the transit
           benefits distribution list.

           o We found 28 individuals who have received transit benefits from
           federal agencies even though they do not appear to work for these
           agencies. However, only three agencies (Transportation, IRS, and
           State) verify employee eligibility.

           o As discussed earlier in this testimony, figure 4 shows that all
           the agencies required applicants to sign a written certification
           stating that they are eligible to participate in the transit
           benefits program, that they do not receive parking benefits, and
           that their transit benefits will be used for their work commute
           only. However, during the course our investigations, we
           interviewed four employees at Transportation who all claimed that
           they were only asked to provide an oral estimate of their
           commuting costs. None of the employees recall filling out or
           signing an application form. We asked Transportation to provide us
           with copies of these applications in order to validate the
           employees' claims. In response, the department provided us with
           electronic copies of the applications in question, but these
           applications do not contain employee signatures.
		   
		   Federal Employees Likely Made More than $17 Million in Potentially
		   Fraudulent Transit Benefit Claims

           Using limited employee data and transit benefit records, we
           determined that the amount of potentially fraudulently transit
           benefits claimed during 2006 in the National Capital Region was at
           least $17 million and likely millions more. This magnitude is
           based on the roughly $70 million in transit benefits claimed by
           employees at Commerce, Transportation, Homeland Security, Defense,
           Treasury, IRS, and the Coast Guard.^16 The total amount of fraud
           could be millions more if a similar magnitude of fraud exists in
           the dozens of agencies that we did not review, or if the other
           types of fraud GAO identified in this investigation could be
           quantified.
		   
^16 We could not include State or Patent and Trademark in this part of the
investigation for the following reasons: (1) State does not provide
adequate data to either Transportation or the National Finance Center
databases and (2) Patent and Trademark does not use Transportation to
administer its transit benefit program.

           Our investigations and audit work revealed that many of the
           employees at these seven agencies provided inaccurate commuting
           cost information on their transit benefit applications. We
           determined this by examining transit benefit data for about 4,000
           individuals working at the headquarters offices of these seven
           agencies and claiming roughly $4 million worth of benefits.
           Specifically, we identified a set of zip codes for each of the
           seven agency headquarters buildings and found that employees
           living within these zip codes could not legitimately claim the
           maximum allowable benefit of $105 per month, no matter what
           combination of Metrobus and Metrorail they used to commute to
           their places of employment. Based on this analysis, we determined
           that the 4,000 individuals we examined were not entitled to the
           maximum transit benefit amount. However, we found that hundreds of
           these individuals did in fact request this maximum amount,
           claiming more benefits than they needed to commute to work.
           Although these individuals may have been eligible for a portion of
           the transit benefits they requested, their applications should not
           have been approved because they signed certifications stating that
           they would not request benefits in excess of their monthly
           commuting costs (see figure 2). As provided on the applications
           submitted by these employees, such overstated requests constitute
           a potential violation of the False Statements Act, 18 U.S.C.
           S1001. Because of these overstatements, we found that $1million of
           the transit benefits that these individuals claimed were
           potentially fraudulent. This $1 million represented about 25
           percent of the $4 million claimed by the 4,000 individuals we
           examined at these seven agencies. We then applied this fraudulent
           claim rate to the roughly $70 million claimed by employees
           participating in the transit benefits program at the seven
           agencies in the National Capital Region during 2006.

           Based on this collective audit and investigative work, we found
           that the seven agencies could have made potentially fraudulent
           payments totaling more than $17 million. Given the number of
           agencies not covered by our analysis, it is likely that this
           amount is significantly understated and could be millions more. In
           particular, the $17 million in potentially fraudulent claims does
           not include the other agencies that contract with Transportation
           for distribution or the agencies that administer their own transit
           benefits programs. Moreover, this order of magnitude only includes
           individuals who work at the headquarters offices of the
           aforementioned seven agencies and who claimed the maximum benefit
           per month. It does not include individuals who work at offices
           other than headquarters or who have potentially made fraudulent
           claims for less than the maximum amount. The order of magnitude
           also excludes many of the other types of fraud and abuse we
           reported in our case studies, such as individuals who claim
           benefits but do not use them because they use agency parking or
           "slug" to work, or individuals who received federal transit
           benefits even though they do not work for the federal government.
           For more information on the data used to develop our calculations,
           see appendix I.
		   
		   Corrective Actions

           During the course of investigation, we communicated the results of
           our work to the IGs and/or the offices of special investigation at
           Commerce, Transportation, State, Homeland Security, Defense,
           Treasury, IRS, Patent and Trademark, and the Coast Guard. At the
           close of our investigation, we referred the individuals we
           identified as fraudulently selling Metrocheks on eBay and
           Craigslist to the appropriate agency IG and/or office of
           investigation for criminal and/or administrative action. We
           similarly referred the individuals who provided inaccurate and
           inflated commuting cost information on their applications, the
           individuals who have received transit benefits from federal
           agencies even though they do not appear to work for the agencies,
           the individuals who left their agencies but did not return their
           unused benefits, and the former federal employees who continued to
           received benefits after leaving their respective agencies. In
           addition, we held corrective action briefings on April 4, April
           17, and April 18, 2007, to provide the agencies with an overview
           of our investigation and our findings.
		   
		   Conclusion

           WMATA now plans to eliminate the Metrochek program and offer only
           SmartBenefits by January 2008. Because SmartBenefits are less
           negotiable than paper Metrocheks, this action may stop some
           federal employees from fraudulently selling their transit
           benefits. But a switch to SmartBenefits will not prevent the other
           types of fraud and abuse we identified. As shown by our
           investigation, federal employees have taken advantage of the lack
           of effective management, oversight, and control of the program.
           For example, unless commuting costs are verified, employees may
           still request and receive more benefits than they need. Moreover,
           as demonstrated by individuals we interviewed who admitted to
           deliberately falsifying their applications for benefits, federal
           workers can commit transit benefit fraud without suffering any
           adverse consequences. Agencies should take aggressive actions
           against employees who we identified as committing fraud, and look
           to put reasonable controls in place that can minimize fraud and
           abuse in this program.

           Mr. Chairman and members of the subcommittee, this concludes my
           statement. I would be pleased to answer any questions that you or
           other members of the subcommittee may have at this time.
		   
		   Contacts and Acknowledgments

           For further information about this testimony, please contact
           Gregory D. Kutz at (202) 512-6722 or [email protected]. Contact points
           for our Offices of Congressional Relations and Public Affairs may
           be found on the last page of this testimony. In addition to the
           individual named above, Valerie Blyther, Shafee Carnegie, Jennifer
           Costello, Paul Desaulniers, Craig Fischer, Janice Friedeborn,
           Dennis Fauber, Matthew Harris, Adam Hatton, Jason Kelly, John
           Kelly, Barbara Lewis, James Madar, Andrew McIntosh, Richard
           McLean, Gertrude Moreland, Crystal Lazcano, Jennifer Leone, John
           Ryan, Viny Talwar, Walter Vance, and Tami Weerasingha.

		   Appendix I: Potential Magnitude of Fraudulent Payments

           To provide an order of magnitude of the employees fraudulently
           claiming transit benefits within the National Capital Region, we
           identified a selection of federal employees who met a specific set
           of criteria and evaluated the validity of their transit benefit
           application data. First, we narrowed our scope to seven
           agencies--Commerce, Treasury, IRS, Defense, Homeland Security,
           Coast Guard, and Transportation--where we identified employees
           selling their transit benefits on the Internet and for whom we had
           sufficient data.^1 We further narrowed our scope by limiting our
           analysis to federal employees working at the headquarters
           buildings of these seven agencies. We then identified a set of zip
           codes for each of the seven agency headquarters buildings.
           Employees living within these zip codes could not legitimately
           claim the maximum allowable benefit of $105 per month, no matter
           what combination of Metrobus and Metrorail they used to commute to
           their places of employment. We identified approximately 4,000
           federal employees at the seven agencies that lived within these
           zip codes, and determined that approximately 19 percent of them
           may have fraudulently claimed the maximum benefit by providing
           false statements on their applications in violation of 18 U.S.C. S
           1001. These potentially fraudulent claims represent about 25
           percent of the $4 million claimed by the total selection of 4,000
           employees. We then applied this fraudulent payment rate to the
           roughly $70 million spent by the seven agencies on the transit
           benefit program in the National Capital Region during 2006 and
           determined that the possible magnitude of potentially fraudulent
           transit benefit payments was more than $17 million.

           In this analysis, public transportation costs were calculated as
           the actual costs incurred as a result of utilizing a combination
           of Metrobus and/or Metrorail to commute to and from a place of
           employment. We used peak fares (as opposed to nonpeak fares) for
           our calculations, because we assumed that transit benefit
           participants were working during normal business hours. We also
           assumed that the employees did not take any sick or annual leave
           and worked at their headquarters offices five days per week. In
           other words, we assumed that the employees did not have
           alternative work schedules (i.e., they did not work four 10 hour
           days) and they did not telecommute.
		   
^1 We could not include State or Patent and Trademark in our analysis for
the following reasons: (1) State does not provide adequate data to either
Transportation or the National Finance Center databases and (2) Patent and
Trademark does not use Transportation to administer its transit benefit
program.

           We used information from the Department of Transportation (which
           is responsible for administering the program for the selected
           agencies) and the National Finance Center to identify employees
           from the seven selected agencies whose homes of record are located
           within our defined area and who were also claiming the maximum
           benefit. To confirm our conclusions concerning these individuals,
           we tested a nonrepresentative selection of our potentially
           fraudulent cases, identified their home address, and used the
           Washington Metropolitan Area Transit Authority's online Trip
           Planner to determine the participant's actual daily, and then
           monthly, public transportation costs. We interviewed these
           participants and confirmed that the individuals we selected were
           not entitled to the maximum benefit.
		   
Appendix II: Federal Employees Fraudulently Selling Metrocheks on eBay		   

           The table below provides a complete listing of information on all
           the 20 eBay sellers we identified as federal employees. Note that
           we did not interview sellers 14-20.

Table 3: Federal Employees Fraudulently Selling Metrocheks on eBay

                                      Number                                  
                                          of                                  
                                       sales                                  
                                        over Face value                       
                                         the         of                       
        Seller's                      past 2 Metrocheks                       
Case employing agency Salary level  years       sold Case details          
1    Transportation   GS-14            12     $1,080 Does not always use   
                                                        public transportation 
2    Treasury         GS-14             6      1,380 Does not always use   
                                                        public transportation 
3    IRS^a            GS-14             3        930 Receives parking      
                                                        benefits              
4    Coat Guard^b     GS-12             3        900 Uses public           
                                                        transportation, but   
                                                        claims more benefits  
                                                        than needed for       
                                                        commute to work       
5    Transportation   GS-14             6        789 Received benefits     
                                                        while on maternity    
                                                        leave                 
6    State            GS-12            10      1,500 Received benefits     
                                                        while on travel; does 
                                                        not always use public 
                                                        transportation        
7    Defense^c        E-6              61      6,000 Does not always use   
8    Defense^c        GS-7                           public transportation 
9    Commerce         GS-14            11        420 Claims that           
                                                        Metrocheks sold on    
                                                        eBay were purchased   
                                                        from a third party    
                                                        and not obtained from 
                                                        the federal           
                                                        government; we could  
                                                        not validate these    
                                                        claims                
10   Patent and       GS-9              4        417 Received parking      
        Trademark^d                                     benefits in addition  
                                                        to transit benefits   
11   Defense          E-6               8      2,370 Does not always use   
                                                        public transportation 
12   Defense          GS-12            12      1,090 Does not always use   
                                                        public transportation 
13   Patent and       GS-7              1        400 Claims that           
        Trademark^d                                     Metrocheks sold on    
                                                        eBay were purchased   
                                                        from a third party    
                                                        and not obtained from 
                                                        the federal           
                                                        government; we could  
                                                        not validate these    
                                                        claims                
14   Defense          We did not        2        230 We did not interview  
                         obtain this                    this seller           
                         information.                                         
15   State            We did not        4        120 We did not interview  
                         obtain this                    this seller           
                         information.                                         
16   Defense          We did not        7        825 We did not interview  
                         obtain this                    this seller           
                         information.                                         
17   Labor            We did not       10      1,180 We did not interview  
                         obtain this                    this seller           
                         information.                                         
18   Defense          We did not        4        600 We did not interview  
                         obtain this                    this seller           
                         information.                                         
19   IRS^a            We did not        4        360 We did not interview  
                         obtain this                    this seller           
                         information.                                         
20   Defense          We did not        3        378 We did not interview  
                         obtain this                    this seller           
                         information.                                         

Source: GAO.

aIRS administers its own transit program and has different processes for
management and oversight than Treasury as a whole.

bCoast Guard administers its own transit program and has different
processes for management and oversight than Homeland Security as a whole.

cCases 7 and 8 are a married couple selling their Metrocheks from the same
eBay account.

dPatent and Trademark administers its own transit program and has
different processes for management and oversight than Commerce as a whole.

Appendix III: Federal Employees Providing Inaccurate Commuting Costs on
Transit Benefit Applications

Through data mining of information submitted on transit benefit
applications, we found many employees who appeared to provide inaccurate
and inflated commuting cost information on their transit benefit
applications. The following table provides a complete listing of the 23
individuals we interviewed.

Table 4: Federal Employees Providing Inaccurate and Inflated Commuting
Cost Information

                                            Excess                            
                                          benefits                            
        Applicant's                    claimed per                            
Case employing agency  Salary level        year Case details               
1    Commerce          GS-5                $480 Refused to tell            
                                                   investigators what excess  
                                                   benefits were used for     
2    IRS               GS-13                612 Used benefits for personal 
                                                   travel                     
3    Treasury          GS-8                 660 Purchased transit tokens   
                                                   for son; sold benefits to  
                                                   contractors and friends    
4    Treasury          GS-14                540 Gave benefits to visiting  
                                                   friends                    
5    Transportation    GS-13                444 Stored excess benefits at  
                                                   home                       
6    Transportation    GS-11                612 Used benefits for personal 
                                                   travel                     
7    Defense           Not                  660 Used benefits for personal 
                          available                travel and received        
                                                   parking benefits           
8    Defense           Not                  660 Used benefits to pay for   
                          available                transportation of her      
                                                   children to daycare        
9    Coast Guard       GS-9                 228 Gave benefits to family    
                                                   and friends; used benefits 
                                                   for personal travel;       
                                                   accumulated excess         
                                                   benefits during extended   
                                                   absences from work         
10   Homeland Security Not                  228 Refused to tell            
                          available                investigators what excess  
                                                   benefits were used for     
11   Commerce          GS-9                 228 Claimed to use a more      
                                                   expensive route to avoid   
                                                   traffic; investigators     
                                                   could not confirm this     
                                                   explanation                
12   Commerce          GS-9                 660 Claimed to use a more      
                                                   expensive route to avoid   
                                                   traffic; investigators     
                                                   could not confirm this     
                                                   explanation                
13   Commerce          GS-9                 228 Refused to tell            
                                                   investigators what excess  
                                                   benefits were used for     
14   IRS               GS-14                540 Used benefits to pay for   
                                                   parking;                   
15   IRS               GS-12                240 Gave benefits to wife,     
                                                   daughter and girlfriend    
16   IRS               GS-14                492 Refused to tell            
                                                   investigators what excess  
                                                   benefits were used for     
17   Treasury          GS-11                492 Purchased transit tokens   
                                                   for daughter               
18   Treasury          GS-8                 540 Gave benefits to friends   
                                                   and relatives              
19   Treasury          GS-14                612 Gave benefits to husband,  
                                                   siblings and daughter      
20   Transportation    GS-8                 228 Used benefits for personal 
                                                   travel                     
21   Transportation    GS-6                 324 Used benefits for personal 
                                                   travel                     
22   Coast Guard       GS-11                660 Used benefits to pay for   
                                                   parking                    
23   Coast Guard       GS-6                  60 Used benefits for personal 
                                                   travel                     

Source: GAO.

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Highlights of [25]GAO-07-724T , a testimony before the Permanent
Subcommittee on Investigations, Committee on Homeland Security and
Governmental Affairs, U.S. Senate

April 24, 2007

FEDERAL TRANSIT BENEFITS PROGRAM

Ineffective Controls Result in Fraud and Abuse by Federal Workers

Under the federal transit benefits program, federal employees receive
transit benefits (e.g., Metrocheks) to encourage them to commute to work
via public transportation. Based on information provided by the Department
of Transportation, as of July 2006, the National Capital Region had
120,000 participants claiming roughly $140 million in benefits. Recently,
inspectors general (IG) of various agencies have found numerous prior
instances of fraud, waste, and abuse in this federal program.

Based on both the significance of these IG findings and the amount of
federal money spent on transit benefits, GAO was asked to

(1) investigate allegations that federal employees in the National Capital
Region are involved in fraud and abuse related to the transit benefits
program,

(2) identify the potential causes of any fraud or abuse that is detected,
and (3) estimate the magnitude of fraud and abuse in the National Capital
Region in 2006.

To address these objectives, GAO identified federal employees selling
their transit benefits on the Internet and obtained additional data from
these sellers' employing agencies to determine whether more widespread
problems existed. GAO also obtained the policies and procedures governing
the transit benefits program at each of the employing agencies.

After investigating just 3 days of sales, GAO confirmed that at least 20
federal employees were fraudulently selling their Metrocheks on eBay. For
example, one GS-14 Department of the Treasury employee drove to work,
parked for free in agency-provided parking, and was still able to collect
$105 per month in Metrocheks--most of which he sold on eBay. Posing as
buyers, GAO investigators also purchased Metrocheks from 3 federal
employees fraudulently selling their benefits on Craigslist, a popular
community Web site. These employees are likely the tip of a much larger
number of violations of law.

GAO investigations revealed additional examples of federal employees
inflating their transportation expenses on their transit benefit
applications. Many of them admitted to intentionally falsifying their
benefit applications to receive excess benefits. For example, a GS-11
Department of Transportation employee admitted to claiming the maximum
allowable benefit of $105 per month when his actual commuting cost was
only $54.

Weaknesses in the design of program controls at the Departments of
Commerce, Transportation, State, Homeland Security, Defense, and Treasury,
the Internal Revenue Service (IRS), the Patent and Trademark Office, and
the U.S. Coast Guard can be associated with the fraudulent and abusive
activity we identified. Although GAO did not conduct a comprehensive
review of each agency's controls, the results from investigations
illustrate flaws in the design of the controls. For example, GAO
identified four employees who continued to receive transit benefits even
though they were on extended absences from work, but none of the agencies
had written policies requiring adjustment of benefits because of leave or
travel.

Back of Metrochek with Warning Language

Using transit benefits records from seven of the nine agencies GAO
reviewed, GAO determined that the amount of potentially fraudulent transit
benefits claimed during 2006 in the National Capital Region was at least
$17 million and likely more. This fraudulent amount could be millions more
if a similar magnitude of fraud exists in the dozens of agencies GAO did
not review, or if the other types of fraud GAO identified in this
investigation could be quantified.

References

  25. file:///home/webmaster/infomgt/d07724t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-07-724T
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