Orange County Transportation Authority board directors Monday confronted Metrolink’s new CEO with tough questions about the rail agency’s financial wreck, lobbing vague threats about alternate options to funding of the regional agency.
OCTA board members also secured a commitment from CEO Michael DePallo to conduct a forensic audit of Metrolink finances.
The grilling of DePallo came after an audit of the $196-million agency found that financial accounting has been sloppy and ripe for potential fraud. An internal review conducted last month also found shoddy accounting practices.
As a particularly alarming example of how bad the record keeping has been, Metrolink’s restricted accounts, including those supposed to contain federal funds, appear to be underfunded by $66 million, according to the internal review and OCTA Director Michael Hennessey.
What exactly happened to those funds is unclear, Hennessey said.
“We had a fare increase. We had funds moved over from restricted funds, federal restricted funds … and we don’t know where they are,” said Hennessey.
Metrolink operates 170 weekday trains that carry 42,000 riders each day. It is funded by passenger fares and revenue from the five member agencies that form the joint powers authority, among other revenue sources, according to an OCTA staff report.
OCTA contributes nearly $20 million annually, the staff report states.
The problem appears to go back years. During much of that time, OCTA directors have consistently had problems getting answers about Metrolink’s finances from that agency’s staff, directors said.
“Based on the documentation provided, it is not clear that Metrolink staff even has a clear idea about what funds member agencies owe,” states the internal report, which was prepared by a committee of the Metrolink board. “The committee is concerned that this is a microcosm of Metrolink staff’s record keeping across the board.”
DePallo, who was brought in as Metrolink CEO two months ago to clean up the agency, has created an action plan to put Metrolink on “sounder financial footing” within 90 days, he wrote in a memo to Metrolink board members.
DePallo’s plan includes forming a committee composed of financial professionals from each member agency and meanwhile reorganizing Metrolink’s finance department, which will include a new audits section and a unit to oversee implementation of a financial information systems upgrade, according to the memo.
Yet OCTA board directors said that fixing the accounting problems isn’t enough.
Director Jeffrey Lalloway, who is also an Irvine city councilman, demanded that DePallo conduct a housecleaning of Metrolink staffers who have been responsible for mishandling the agency’s basic financial accounting.
“For me this is a people problem. There’s folks there that are either incompetent or unwilling to perform the tasks,” Lalloway said. “I hear you reassigning people into these departments, I don’t hear that you’re reassigning people out.
DePallo assured Lalloway that problem staffers would be ousted from the agency. He noted that three former chief financial officers have already departed.
“The main problem is gone right now,” DePallo said.
The new CEO also assured Hennessey that the agency would conduct a forensic audit. OCTA directors expressed concern that, while corruption hasn’t been rooted out yet in the wave of scrutiny facing Metrolink, there’s also no way to know whether fraud had been committed.
OCTA directors also expressed frustration over the Metrolink board’s culture. Carolyn Cavecche, an OCTA director who served on the Metrolink ad hoc committee that investigated the problem, said Metrolink’s board failed in its basic duties to taxpayers to question the agency’s activities, despite obvious red flags like one-page staff reports on multimillion-dollar contracts.
“The board wasn’t asking the right questions. The board was literally making votes specifically without getting the correct information,” Cavecche said.
At the end of Monday’s discussion, OCTA directors decided to join Metrolink’s member agency advisory committee.
But Hennessey also threatened to push for extreme measures, like restructuring Metrolink’s joint powers authority, if the agency doesn’t right the problem soon.
Looming over the financial morass was the safety of the agency’s riders.
Hennessey pondered aloud that if the agency’s finances are so sloppy, “What don’t we know about the safety of the trains?”
Correction: A previous version of this article incorrectly attributed statements made by OCTA Director Michael Hennessey to Director Frank Ury. We regret the error.