Missing Zero Costs MTA $546,000, Auditors Find

In the mind-numbing catalog of waste, fraud and epic irresponsibility that constitutes the Metropolitan Transportation Authority’s dreary history, it probably will rate no more than a footnote.

But a new audit by the agency’s inspector general has found that although the MTA was delighted to get a subway contractor to give $50,000 back to the taxpayers, the transit authority actually was entitled to more than $500,000.

Oops, they were off by a zero.

The audit, obtained this week, condemns the MTA staff for ignoring the agency’s own procedures in negotiating changes to a contract that shortchanged the taxpayers. The inspector general is conducting a further investigation.

“We believe MTA’s interests were not protected by those who are charged with that responsibility,” the report says. “Their failure to follow contract terms, seek available legal assistance, adhere to established procedures and keep adequate records . . . constitutes a form of negligence that resulted in MTA’s not realizing savings of at least $546,000.”

Transit officials said Thursday that they are seeking to recover the money from the contractor, and have taken steps to strengthen their internal controls.

The audit comes in the wake of another report by the independent inspector general assailing the agency for its “general disregard of internal controls in spending of public funds,” including its expenditure of $435,000 several years ago on an ethics manual that was largely unused.

The new audit offers a glimpse into so-called change orders--a process that has increased the cost of the Los Angeles subway project by $425 million.

Change orders usually deal with higher than expected costs on the Metro Rail project, but in this case they dealt with how much the agency should receive from cost savings on a subway communications contract.

The contractor, Amelco Electric, originally said it owed the MTA nothing, the audit found. But the firm agreed to credit the agency $50,854.

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An unidentified systems engineering manager for the MTA, “acting alone,” accepted the offer in 1995, even though the agency’s consultant advised that changes in the contract would result in “substantial windfall to the contractor,” the audit says.

“We could find no record in the contract file of any meeting, telephone calls or other documentation, describing how, when or where MTA determined that [the contractor’s] offer was fair, reasonable and complied with contract terms and conditions,” the audit says.

The audit said the MTA staff member who agreed to the $50,854 viewed the settlement as “generous, since in his views, it wasn’t required under the contract.” An MTA spokesman declined to identify the manager.

MTA auditors attempted to audit the contractor’s books but were denied permission, according to the report. A spokesman for the contractor declined to comment Thursday, citing an MTA prohibition on contractors speaking to reporters.

MTA chief Julian Burke said in response to the inspector general’s report: “We are confident that the new procedures we have implemented will provide the internal controls necessary to process change orders in accordance with sound business practices.”