Federal Transit Benefits Program: Ineffective Controls Result in Fraud and Abuse by Federal Workers
Released: 2007-04-24T00:00:00

Letter

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 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. 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.

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 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. §641. In addition, because the employees we investigated signed certifications 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 §1001. 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.

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.

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.

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 §1001 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 §1001 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 §1001 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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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. 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.

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. §1001. 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 kutzg@gao.gov. 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. 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. § 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.

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.

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.