Transit fringe benefits—employer-provided benefits designed to encourage public and private employees to use mass transit for their home-to-work commute—date back to the early 1990s. The Energy Policy Act of 1992 created a new category of qualified fringe benefits— the “qualified transportation fringe”—that is excludible from gross income. Executive Order 13150, dated April 26, 2000, required the implementation of a transportation-fringe-benefit program for qualified federal employees, in which federal agencies offer to employees transit benefits excludable from gross income. This benefit includes transit vouchers and passes for public transportation, to be used exclusively to cover actual out-of-pocket commuting expenses, not to exceed a maximum monthly allowable dollar limit set by law, which has been adjusted for inflation over the years and currently is $130. Federal agencies can either distribute transit benefits directly to employees, enter into an interagency agreement with another agency, such as DOT, or contract with a private company for distribution. DOT’s transit benefit program is administered by TRANServe, located within the Office of the Assistant Secretary for Administration. In 1998, TRANServe began offering transit benefit distribution services to other federal entities participating in the federal government’s transit benefit program. Over time, TRANServe has distributed transit benefits in a variety of forms. Prior to 2011, TRANServe had distributed the benefits to participating federal employees via paper fare media—i.e., paper vouchers and paper transit passes (e.g., Metro transit vouchers in the District of Columbia)— and smart cards (e.g., electronic transit cards). In March 2011 and April 2012, DOT published notices for public comment of its intention to adopt a new distribution methodology for transit benefits. Specifically, DOT proposed implementing electronic fare media—a debit card—in place of paper vouchers where electronic fare media is accepted by transit authorities. In its notice, DOT indicated that the move toward debit cards was the result of a growing number of state and local transit authorities transitioning to electronic fare media and rising paper voucher program costs. TRANServe indicated that electronic fare media provides a way to tighten internal controls and support the green government movement, which entails implementing more environmentally-friendly practices. Since 2011, the portion of transit benefits distributed via debit cards has increased while the portion distributed as paper vouchers has declined (see fig. 1). In fiscal year 2014, TRANServe distributed over $210 million dollars in cash equivalent fare media to over 202,000 transit-benefit participants employed by 106 federal entities (referred to as client agencies) nationwide, mostly through the TRANServe debit card. TRANServe administers transit benefits for more federal entities than any other program administrator in the federal sector.percent of the 202,000 TRANServe participants were using the debit card. As discussed in the Standards for Internal Control in the Federal Government, internal control comprises the plans, methods, and procedures used by entities to meet their missions, goals, and objectives. The phrase “internal control” does not refer to a single event, but rather a series of actions and activities that occur throughout an entity’s operations on an ongoing basis and that serve as the first line of defense in safeguarding assets and preventing and detecting errors and fraud.Moreover, internal controls should be designed to provide reasonable assurance that unauthorized acquisition, use, or disposition of an entity’s assets will be promptly detected. Lastly, internal control systems help government program managers achieve desired results through effective stewardship of public resources. In 2007, the Office of Management and Budget (OMB) provided guidance for federal agencies to use in establishing and implementing internal controls over their respective transit benefit programs to help managers reduce the opportunity for fraud, waste, and abuse. its guidance was in response to our 2007 testimony that confirmed allegations that federal employees in the National Capital Region committed fraud by deliberately requesting benefits they were not entitled to and then selling or using these benefits for personal gain. As a result of our investigation and testimony, OMB required all federal agencies to implement several internal controls in order to maintain the integrity of the transit benefit program. OMB issued a memorandum, Federal Transit Benefit Program, M-07-15 (May 14, 2007), to the executive departments and agencies requiring all agencies with transit benefit programs to implement several internal controls designed to deter fraud, waste, and abuse. used at merchants that have been assigned a code indicating they sell fare media. IRS described two other scenarios, one involving a smart card and another involving a debit card where employees do not substantiate their transit fare expenses, scenarios that we did not describe. the electronic media. Subsequently, IRS sent out a notice for public comment on this revenue rule and modified it in 2014. DOT’s TRANServe debit-card program includes activities that correspond to the five internal control standards—(1) control environment, (2) risk assessment, (3) control activities, (4) monitoring, and (5) information and communication. In combination, these activities would be expected to provide reasonable assurance that non-transit-related purchases can be identified and denied. Based on our review of the design of TRANServe’s internal controls for the TRANServe debit-card program, we found that those internal controls align with GAO’s Standards for Internal Control in the Federal Government. However, certain weaknesses could exist as we did not independently test DOT’s internal controls to determine whether they mitigate all possible risks and are operating as intended. TRANServe’s activities for establishing a control environment—a disciplined work environment and ethical culture—amongst management and staff were generally consistent with internal control standards. The Standards for Internal Control in the Federal Government states that management and employees should establish and maintain an environment that sets a positive and supportive attitude toward internal control and conscientious management. A positive control environment is the foundation for all other standards, a foundation that provides discipline and structure as well as the climate that influences the quality of internal control. Several key factors affect the control environment, e.g., the integrity and ethical values maintained and demonstrated by management and staff. TRANServe has established a control environment framework for the debit-card program through the following: A primary goal for the debit-card program: TRANServe has set a primary goal for the debit-card program of offering enhanced internal controls to preserve transit benefits by deterring waste, fraud, and abuse. Internal controls officer: TRANServe created an internal controls officer position in April 2007, which according to officials, has been staffed since 2007 without vacancies. According to the program’s policy and guidance, this position heightens review of the program’s internal controls. The internal controls officer is responsible for maintenance and testing of internal controls, through a combination of inquiry, inspection, and observation. Also, the internal controls officer is responsible for designing training classes for TRANServe employees and DOT’s transit benefit participants. Training: DOT requires all staff who are participants in the transit benefit program, to complete mandatory Transit Benefit Integrity Awareness Training on an annual basis. This is a mandatory electronic course that clarifies transit benefit requirements and emphasizes the internal controls in place to minimize fraud and address ramifications of noncompliance. Additionally, according to TRANServe officials, the training is available on its website for client agencies. Moreover, if requested, the TRANServe staff are available to assist or conduct the training. Online resources: Finally, TRANServe has a number of resources available for internal and external participants and client agency points of contacts. The TRANServe website houses information such as, among others, best practices for internal controls, policies and procedures, and training. This helps to improve agency-level internal controls, thereby strengthening the combined level of internal controls. TRANServe’s activities for assessing and identifying relevant risks, and determining how those risks should be managed, were generally consistent with internal control standards. The Standards for Internal Control in the Federal Government states that internal control should provide for an assessment of the risks the agency faces from both internal and external sources. Risk assessment is the identification and analysis of relevant risks associated with achieving agency objectives. According to TRANserve officials, a formal risk assessment for the TRANServe program has not been conducted; however, this standard states that risk identification methods may include, among others, consideration of findings from other assessments, such as the Federal Managers Financial Integrity Act of 1982 (FMFIA) annual assessment.The following TRANServe activities are related to assessing risk. Internal controls officer: According to the program’s policy and guidance, the internal controls officer is responsible for examining current internal control activities and, identifying potential program vulnerabilities, through testing of controls related to the debit card. Monitoring: According to TRANServe’s standard operating procedure (SOP), monitoring debit card transactions identifies those transit benefit participants who are possibly misusing the debit card. As stated in the SOP, monitoring debit card transactions is performed on a weekly basis; this frequency is necessary to maintain program integrity and prevent the misuse of debit cards for non-acceptable transaction activity. Monitoring activities will be discussed in greater detail later under the monitoring standard. FMFIA annual assessment: DOT’s annual assessment of its internal control and financial-management systems, as required by the FMFIA, is intended to provide reasonable assurance that objectives are being met. Those objectives include whether (1) financial and other resources are safeguarded from unauthorized use or disposition; (2) transactions are executed in accordance with authorizations; (3) records and reports are reliable; (4) applicable laws, regulations and policies are observed; and (5) financial systems conform to government-wide standards. For fiscal year 2014, DOT’s Agency Financial Report stated that DOT utilized its standardized FMFIA internal control program approach for managing internal control and compliance activities. This approach included using the five standards of internal controls to identify, assess, document, and communicate key programmatic internal controls and related risks or weaknesses.