Motor Carrier Safety: Reincarnating Commercial Vehicle Companies Pose Safety Threat to Motoring Public; Federal Safety Agency Has Initiated Efforts to Prevent Future Occurrences
Released: 2009-07-30T00:00:00

Letter

Background

FMCSA’s primary mission is to reduce the number and severity of crashes involving large commercial trucks and buses conducting interstate commerce. It carries out this mission in the following ways: issuing, administering, and enforcing federal motor carrier safety and hazardous materials regulations; and gathering and analyzing data on motor carriers, drivers, and vehicles, among other things. FMCSA also takes enforcement actions and funds and oversees enforcement activities at the state level through Motor Carrier Safety Assistance Program grants.

For-hire motor carriers are required to register with FMCSA and obtain federal operating authority before operating in interstate commerce. Applicants for passenger carrier operating authority must submit certain information to FMCSA, including contact information and U.S. Department of Transportation (DOT) number, and must certify that they have in place mandated safety procedures. After publication of the applicant’s information in the FMCSA Register, a 10-calendar-day period begins in which anyone can challenge the application. Within 90 days of the publication, the carrier’s insurance company must file proof of the carrier’s insurance with FMCSA. Applicants must also designate a process agent, a representative upon whom court orders may be served in any legal proceeding. After FMCSA has approved the application, insurance, and process agent filings, and the protest period has ended without any protests, applicants are issued operating authority.

FMCSA ensures that carriers, including motor coach carriers, comply with safety regulations primarily through compliance reviews of carriers already in the industry and safety audits of carriers that have recently started operations. Compliance reviews and safety audits help FMCSA determine whether carriers are complying with its safety regulations and, if not, to take enforcement action against them, including placing carriers out of service. FMCSA makes its compliance determination based on performance in six areas: one area is the carrier’s crash rate, and the other five areas involve the carrier’s compliance with regulations, such as insurance coverage, driver qualifications, and vehicle maintenance and inspections.

Carriers are assigned one of three Carrier Safety Ratings based on their compliance with the Federal Motor Carrier Safety Regulations (FMCSR). These ratings include “satisfactory,” for a motor carrier that has in place and functioning adequate safety management controls to meet federal safety fitness standards; “conditional,” for a motor carrier that does not have adequate safety management controls in place to ensure compliance with the safety fitness standard, that could result in a violation of federal safety regulations; or “unsatisfactory,” for a motor carrier that does not have adequate safety management controls in place to ensure compliance with the safety fitness standard, which has resulted in a violation of federal safety regulations.

Carriers receiving an unsatisfactory rating have either 45 days (for carriers transporting hazardous materials in quantities that require placarding or transporting passengers) or 60 days (for all other carriers) to address the safety concerns. If a carrier fails to demonstrate it has taken corrective action acceptable to FMCSA, FMCSA will revoke its new entrant registration and issue an out-of-service order, which prohibits the carrier from operating until the violations are corrected. Further fines are assessed if it is discovered that it is operating despite the out-of-service order.

Federal law requires new carriers to undergo a new-entrant safety audit within 18 months of when the company begins to operate. Carriers are then monitored on an ongoing basis using various controls that include but are not limited to annual vehicle inspections and driver qualification regulations. However, FMCSA may suspend a company or vehicle’s operation at any time by ordering it out of service if it determines that an imminent safety hazard exists. (An imminent hazard means any condition of vehicle, employee, or commercial motor vehicle operations which substantially increases the likelihood of serious injury or death if not discontinued immediately.) In addition, FMCSA orders carriers out of service for failure to pay civil penalties levied by FMCSA, failing to take required corrective actions related to prior compliance reviews, or failing to schedule a safety audit. Out-of-service carriers are supposed to cease operations and not resume operations until FMCSA determines that they have corrected the conditions that rendered them out of service. If a carrier fails to comply with or disregards an out-of-service order, FMCSA may assess a civil monetary penalty each time a vehicle is operated in violation of the order.

FMCSA and state law enforcement agencies use several methods to ensure that carriers ordered out of service, including motor coach companies, do not continue to operate. For example, FMCSA and its state partners monitor data on roadside inspections, moving violations, and crashes to identify carriers that may be violating an out-of-service order. FMCSA will visit some suspect carriers that it identifies by monitoring crash and inspection data to determine whether those carriers violated their orders. Also, recently, the Commercial Vehicle Safety Alliance began to require checking for carriers operating under an out-of-service order during roadside inspections and to take enforcement action against any that are. However, given the large size of the industry, the nation’s extensive road network, and the relatively small size of federal and state enforcement staffs, it is difficult to catch motor coach carriers that are violating out-of- service orders. In addition, some carriers change their identities by changing their names and obtaining new DOT numbers—these carriers are generally referred to as reincarnating carriers—to avoid being caught.

Reincarnated Motor Carriers Exist

Our analysis of FMCSA data for fiscal years 2007 and 2008 identified 20 motor coach companies that likely reincarnated from “out-of-service” carriers. This represents about 9 percent of the approximately 220 motor coach carriers that FMCSA ordered out of service for those fiscal years. The analysis was based on two or more exact matches of data for the new entrant with the data for the out-of-service carriers on the following categories: company name, owner/officer name, address, phone number, cell phone number, fax number, vehicle identification number, and driver names. These 20 motor coach companies registered with FMCSA before FMCSA developed processes specifically for detecting reincarnated bus companies that were established subsequent to the Sherman, Texas, crash (see next section). The number of potential reincarnated motor coach carriers is understated because (1) our analysis was based on exact matches, so it could not find links if abbreviations were used or typos occurred in the data, (2) FMCSA only provided us data on vehicles and drivers when an accident or inspection took place, and thus the provided FMCSA data does not include the entire population of vehicles or drivers for either new entrants or out-of-service carriers, and (3) our analysis could not identify owners who purposely provided FMCSA bogus or otherwise deceptive information on the application (e.g., ownership) to hide the reincarnation from the agency. Although the number of reincarnated motor coach carriers that we could identify was relatively small, the threat these operators pose to the public has proven deadly. According to FMCSA officials, registration and enforcement policies at the time of the Sherman, Texas, crash, reincarnation was relatively simple to do and hard to detect. As a result, motor coach carriers known to be safety risks were continuing to operate, such as the company that was involved in the bus crash in Sherman, Texas.

Five of the reincarnated carriers we identified were still operating as of May 2009. Our investigation found one of them had not received a safety evaluation and two carriers had been given a conditional rating after the agency determined its safety management controls were inadequate. The remaining two motor coach carriers were deemed satisfactory in a FMCSA compliance review because FMCSA inspectors were likely not aware of the potential reincarnations. We referred all five companies to FMCSA for further investigation. Based on our review of FMCSA data, we found that the agency already identified six of the 20 reincarnated motor coach carriers and ordered them out of service. The agency discovered them while performing a crash investigation (as in the case of the bus accident in Sherman, Texas), compliance reviews, or other processes. In addition, new carriers are subject to a safety audit within 18 months.

Several of the reincarnated carriers we identified were small businesses located in states neighboring Mexico and making trips across the border. Our investigation also determined that all of the reincarnated motor coach carriers we identified were directly related to companies that received fines for safety problems shortly before being ordered out of service. Based on our analysis of the FMCSA data, we believe they reincarnated to avoid paying these fines and continue their livelihood. For example, we found instances where carriers continued to operate despite being ordered out of service for failure to pay their fines. In fact, one carrier was operating for several months after being placed out of service. We believe that these carriers reincarnated into new companies to evade fines and avoid performing the necessary corrective actions.

We attempted to contact the owners to ask why they reincarnated but were unable to reach many of them. For the six owners that we did interview none said that they had shut down their old companies and opened new ones to evade the out-of-service orders.

Table 1 summarizes information on 10 of the 20 cases that we investigated. Appendix II provides details on 10 others we examined. Appendix III provides a summary of the key data elements that matched on the new entrants that were substantially related to out-of-service carriers.

The following narratives provide detailed information on three of the more egregious cases we examined.

Case 1: The owner of a Houston motor coach company registered a new carrier with the same phone number, fax number, and cell phone number as the old one. The new company started in March 2007, 8 months before FMCSA ordered the old company out of service. The two companies appear to have operated simultaneously for a period of time. Six days after the new company was formed, a motor coach carrying 16 passengers operated by the old company was stopped and inspected on the United States–Mexico border at Laredo, Texas. The old company was charged with five violations, including “Operating without required operating authority.” The old company owes $2,000 in fines. Our investigators contacted one of the owner’s daughters. She stated that her mother was arrested for possessing drugs when she crossed the border from Mexico into the United States, and that her mother subsequently opened another bus company using another daughter’s name. The daughter said she was not involved with the bus company. In 2008, the new carrier’s new entrant registration was revoked and the owner was convicted of cocaine possession.

Case 2: The owner of a New York motor coach company located at a church registered a new carrier using the same fax number, driver, and vehicle as the old one. FMCSA conducted a compliance review for the old company on May 30, 2007. Five safety violations were identified, including one “Acute” violation for “Failure to implement an alcohol and/or controlled substances testing program.” The old company, which was ordered out of service in October 2007 for failing to pay a fine, still has $2,000 in outstanding fines as of May 2009. On August 9, 2007, approximately 2 months prior to FMCSA ordering the old company out of service, a new carrier was established with the same company officer name and fax number as the old carrier. The location of the old carrier was a school, which was associated with (and located next door to) the church. The owner of the new company claimed that the old company belonged to his father, not him, and that it was a “completely different business from his own.” FMCSA records clearly show that this is not the case. The new owner is listed as “Vice President” of the old company, and “President” of the new company. The owner of the new company is also cited as being present during the Compliance Review conducted on May 30, 2007. The new company registered with FMCSA in August 2007 and FMCSA has not conducted a new-entrant safety audit of the new carrier as of July 2009, exceeding FMCSA’s internal goal of 9 months.

Case 3: The owner of a Los Angeles motor coach company registered a new carrier using the same social security number, business name, phone number, fax number, and company officer as the old one. FMCSA conducted a compliance review on the old company in December 2006, resulting in an “Unsatisfactory” safety rating. The review cited 11 safety violations, including one “Acute” violation for “Failure to implement an alcohol and/or controlled substances testing program” and four “Critical” violations for failure to maintain driver and vehicle records. Since the old company did not take the necessary steps to fix the violations within 45 days, it was ordered out of service in February 2007. A month later a motor coach operated by the old company was inspected in Douglas, Arizona. The company was charged with operating a commercial motor vehicle after the effective date of an “unsatisfactory” rating and fined $5,620.

The same owner started the new company in June 2008. FMCSA conducted a compliance review on the new carrier and gave it a “satisfactory” safety rating in October 2008. FMCSA officials stated that they were not aware of any affiliation with the previous company. Our investigators visited the place of business of the new carrier, which was being run out of a retail store. Although the old carrier was out of service, several brochures and business cards for the old carrier were displayed on the store’s counter, showing the same phone number as the new company. We attempted to contact the owner, but the business representative stated that the owner was currently in Mexico as the driver on a bus tour and could not be contacted. A week after our interview, unrelated to our investigation, FMCSA revoked the new company’s authority due to lack of insurance.

Tools FMCSA Uses to Identify Reincarnated Carriers and Their Limitations

Passenger Carrier Vetting Process

Prior to the August 2008 crash in Sherman, Texas, FMCSA did not have a dedicated processe to identify and prevent motor coach carriers from reincarnating. At that time, an out-of-service carrier could easily apply online for a new DOT number and operating authority. In the application, the owner could include the same business name, address, phone number(s), and company officer(s) that already existed under the out-of- service DOT carrier. FMCSA did not have a process to identify these situations, and, thus, FMCSA would have granted the new entrant operating authority upon submission of the appropriate registration data.

Subsequent to the Sherman crash, FMCSA established the Passenger Carrier Vetting Process (PCVP), which requires the review of each new application for the potential of being a reincarnation. Under this process, FMCSA executes a computer matching process to compare information contained in the motor coach carrier’s application to data of poor- performing motor coach carriers dating back to 2003. Specifically, it performs an exact match on the application with fields in nine categories across various FMCSA databases. This produces a list of suspect carriers and the number of matches in each category, which serve as indicators for further investigation. FMCSA officials stated that they have begun to enhance the computer-matching portion of the PCVP process. Specifically, the system will also be able to match fields that are close, but not necessarily exact matches of each other. For instance, “John P. Smith Jr.” would match “John Smith,” and “Maple Ln.” would match “Maple Lane.” This enhancement should improve its ability to detect those carriers attempting to disguise their prior registration.

In addition to the computer matching, FMCSA Headquarters personnel receive and review each new carrier application for completeness and accuracy. It reviews the application for any red flags or evidence the company is a potentially unsafe reincarnated motor coach carrier. For example, the FMCSA staff check secretaries of state databases for the articles of incorporation to identify undisclosed owners. If the computer- matching process or FMCSA Division Office review identifies any suspected motor coach carriers attempting to reincarnate, FMCSA sends a Verification Inquiry letter to the applicant requesting clarification. If the carrier does not respond to the Verification Inquiry Letter within 20 days, the application will be dismissed. If the response to the letter shows the applicant is attempting to reincarnate, FMCSA issues a Show Cause Order stating that the application for authority will be denied unless the carrier can present evidence to the contrary. If the application is not completed, FMCSA dismisses the application and thus no authority is given.

After the carrier is approved to operate, FMCSA requires all new carriers, including motor coach carriers, to undergo a safety audit within 18 months of approval. During this review, FMCSA should identify whether the new motor coach company is a reincarnation of a prior carrier. Although we did not specifically evaluate the effectiveness of the new-entrant audit process, we found two cases where FMCSA did not identify new motor coach carriers as reincarnations of companies it had ordered out of service and after the PCVP went into effect. Because we did not evaluate the effectiveness of the new-entry safety audit and the PCVP, we do not know the extent to which reincarnated carriers are still able to avoid FMCSA detection when registering to operate with the agency.

Performance and Registration Information Systems Management (PRISM)

GAO recently reported that PRISM provides up-to-date information on the safety status of the carrier responsible for the safety of a commercial vehicle prior to issuing or renewing vehicle registrations. PRISM generates a daily list of vehicles registered in the state that are associated with carriers that have just been ordered out of service by FMCSA. It is a tool that can be used by state personnel. PRISM’s innovation is that it is designed to associate vehicle identification numbers with out-of-service carriers to prevent the carrier from registering or reregistering its vehicles.

Although PRISM is a potential deterrent to a carrier wishing to reincarnate, only 25 states have implemented the system to the extent that they can automatically identify out-of-service carriers and then deny, suspend, or revoke their vehicle registrations. Another limitation to PRISM’s effectiveness is that it only includes vehicles that register under a protocol known as the International Registration Plan (IRP)—which pertains only to carriers involved in interstate commerce. Charter buses are exempt from IRP (interstate) registration and thus not subject to PRISM. Furthermore, vehicles are not checked at registration since companies are not required to supply this information on their application to FMCSA.

Legal Impediments to the Denial or Revocation of Reincarnated Carriers’ Operating Authority

FMCSA’s duty and authority to deny operating authority registration to persons not meeting statutory requirements is provided by statute. A person applying for registration must demonstrate that he or she is willing and able to comply with the safety regulations, other applicable regulations of the Secretary, and the safety fitness requirements. Complexities regarding the application of State laws on corporate successorship may, in certain instances, affect the agency’s ability to deny operating authority to or pursue enforcement against unsafe reincarnated motor carriers under these statutory provisions. The complexities include the legal standard that must be met to hold a newly formed corporation liable for civil penalties assessed against its corporate predecessor.

The facts necessary to satisfy the legal standard—whether under federal or State law—require documentation outside the normal compliance review processes. FMCSA uses a detailed Field Worksheet which lists types of evidence that would be needed, including company contact information, documentation on management and administrative personnel, business assets, tax records, insurance, payroll, drivers, vehicles, customer lists, advertising and promotional materials, corporate charters, and information on the corporate acquisition or merger at issue. This labor intensive investigative process is not undertaken unless strong preliminary evidence indicates that the new company is a reincarnation of a former motor carrier against which enforcement was taken and that the reincarnation was for the purpose of evading enforcement action or violation history of the predecessor company.

In order to make it easier for FMCSA to place a reincarnated carrier out of service, the Highways and Transit Subcommittee of the Committee on Transportation and Infrastructure of the House of Representatives approved legislation on June 24, 2009, that would impose a uniform federal standard and would authorize FMCSA to deny or revoke operating authority from a carrier who failed to disclose a relationship with a prior carrier. The legislation would also authorize FMCSA, in certain cases, to impose civil penalties against a reincarnated motor carrier that were originally imposed against a related motor carrier.

Corrective Action Briefing

We briefed U.S. Department of Transportation (DOT) officials on the results of our investigation. They agreed that reincarnation of motor coach carriers is an important concern but stated that there are legitimate reasons for motor coach carriers to transfer ownership or reincorporate, or both, such as divorce, death, relocation, or new business opportunities. DOT officials stated that they established the PCVP to identify and attempt to prevent reincarnated carriers from receiving approval for operating authority. DOT officials stated that the PCVP is also used for household goods carriers and that they hope to use the process for other types of carriers if they obtain the resources to support this process. However, DOT officials stated that even if DOT has identified a carrier as a reincarnation, DOT must still prove that the new carrier is the corporate successor to the old carrier in order to deny or revoke the operating authority of the new carrier. DOT officials stated that this standard differs between states and that certain states require a very high standard of proof. As such, this determination is labor-intensive and requires documentation outside the normal compliance review process. DOT officials also provided technical comments to the report, which we addressed, as appropriate.

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Appendix I: Scope and Methodology

To identify new entrants that were substantially related to motor carriers ordered out of service, we obtained and analyzed information from the following DOT databases: the Motor Carrier Management Information System (MCMIS), the Licensing & Insurance (L&I) system, and the Enforcement Management Information System (EMIS) as of December 2008. We identified new motor coach operators as those that had a New Entrant Program entry date of October 1, 2006, or later. We identified out- of-service motor carriers as those with an active, nonrescinded out-of- service order in place and who had been ordered off the road for reasons other than failure to make contact with DOT while in the New Entrant Program. We matched the new entrant carriers with those that were ordered out of service on the following key fields: company name, owner/officer name, address, phone number, cell phone number, fax number, vehicle identification number, and driver names. For the motor coach carriers identified, we interviewed, if possible, the owners to validate whether the company had reincarnated and, if possible, determine the reason for the reincarnation.

Our analysis understates the actual number of reincarnated carriers because the matching scheme used cannot detect even minor changes in spelling, addresses, or owner names. In addition, the number is understated because FMCSA only provided us data on vehicles and drivers when an accident or inspection took place, and thus the provided FMCSA data does not include the entire population of vehicles or drivers for either new entrants or out-of-service carriers. Our analysis also could not identify all reincarnated carriers where the owners purposely provided FMCSA bogus or deceptive information on the application (e.g., ownership) to hide the reincarnation from FMCSA.

To determine the tools FMCSA uses to identify reincarnated carriers, we interviewed FMSCA officials on the process that the agency uses to attempt to identify potentially reincarnating carriers. We also obtained and examined policies and other FMCSA documentation to obtain an understanding of the design of its motor carrier enrollment process. We did not perform any tests of the controls and therefore cannot make conclusions on its effectiveness.

Data Reliability

To determine the reliability of DOT’s databases, we reviewed the system documentation and performed testing on the validity of the data. We performed electronic testing of the data including verifying the completeness of the carrier data against numbers published by DOT. We discussed the sources of the different data types with DOT officials and discussed their ongoing quality-control initiatives. Based on our review of agency documents and our own testing, we concluded that the data elements used for this report were sufficiently reliable for our purposes.

We conducted the work for this investigation from November 2008 through July 2009 in accordance with quality standards for investigations as set forth by the Council of the Inspectors General on Integrity and Efficiency.

Appendix II: Reincarnated Motor Coach Carriers

In the body of the report, we provide detailed information on 10 reincarnated carriers. Table 2 below provides detailed information on the other 10 motor coach carriers that we investigated and determined were potential reincarnations. The cases were primarily identified by two or more exact matches of FMCSA data for new entrants and for out-of- service carriers in the following categories: company name, owner/officer name, address, phone number, cell phone number, fax number, vehicle identification number, and driver names.

Appendix III: Summary of Reincarnated Motor Coach Carriers

As stated earlier, we identified 20 new entrants that were substantially related to motor carriers ordered out of service. We identified these new entrant carriers by matching them with those that were ordered out of service on the following key fields: company name, owner/officer name, address, phone number, cell phone number, fax number, vehicle identification number, and driver names. Table 3 below provides the fields that were matched between the new entrant and the carrier that was ordered out of service.

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

GAO staff who made major contributions to this report include Matthew Valenta, Assistant Director; John Ahern; Donald Brown; John Cooney; Paul Desaulniers; Eric Eskew; Timothy Hurley; Steve Martin; Vicki McClure; Sandra Moore; Andrew O’Connell; Anthony Paras; Philip Reiff; and Ramon Rodriguez.