of Jim Hall
Chairman, National Transportation Safety Board
Committee on the Budget Task Force on Housing and Infrastructure
House of Representatives
Regarding an Audit and Investigation
of the National Transportation Safety Board
April 13, 2000
Good morning, Chairman Sununu and Members of the Task Force. I was invited to appear before you today regarding the National Transportation Safety Board's (NTSB) request for an audit and an investigation by the Department of Transportation's Inspector General (DOT IG) regarding financial discrepancies found during an August 1999 document reconciliation in preparation for our end-of-year financial record close-out.
Before I begin, let me spend a few moments on the NTSB and its mission. Since Congress created it as an independent agency in 1967, the Safety Board has served as the eyes and ears of the American people at more than 100,000 aviation accidents and thousands of surface transportation accidents. Over time, it has become one of the world's premier accident investigation agencies. In fact, it is only one of nine independent investigative organizations in the world.
Perhaps, more importantly, as part of our investigations, we make safety recommendations that we hope will prevent similar accidents from recurring. In its 33-year history, the Board has issued almost 11,000 recommendations in all transportation modes to more than 1,250 recipients.
In 1990, we began compiling a Most Wanted list that highlights some of what we consider to be our most important, but not yet implemented, recommendations - and covers concerns such as data recorders in all transport vehicles, aircraft icing, fuel tank flammability, and human fatigue.
It's important to note that because the Board does not have regulatory or enforcement powers, we rely on our reputation for impartiality and thoroughness to get our recommendations implemented. To date, more than 80 percent of them have been adopted.
Many safety features currently incorporated into airplanes, automobiles, trains, pipelines and marine vessels had their genesis in Safety Board recommendations. Over the years, Board recommendations on ground proximity warning systems, wind shear, crew resource management, railroad passenger safety, drunk driving, seatbelts, child safety seats, graduated licensing, and emergency response to hazardous material accidents have been implemented. At an annual cost of less than 20 cents a citizen - the 400-member Safety Board is one of the best investments in the government.
My testimony submitted for the record details the series of events leading up to the August 1999 discovery. Today, I want to focus on what actions have occurred since I requested Mr. Mead's assistance.
However, I do want to emphasize several facts. NTSB staff discovered the discrepancies and notified me of their findings. Because I was concerned about this compromise to the agency's financial integrity, I immediately requested the DOT IG audit and criminal investigation to determine if our concerns were valid and whether there were any additional problems - even though the IG has no jurisdiction over the agency. The NTSB's staff and leadership cooperated fully throughout the IG's audit and investigation. We were already taking corrective actions before the IG completed their work. And, we kept our appropriating and authorizing committees fully informed throughout the investigation.
I asked the IG to look at three areas during their audit and investigation:
Mr. Mead and his staff responded to my request quickly and effectively. He sent a full team of auditors and investigators who devoted three months to the audit and seven months to the investigation.
The IG's audit report did conclude that there were weaknesses in our internal controls, and that existing controls were not followed. The report made three recommendations:
I had terminated the Rapidraft Payment System even before I received the IG's preliminary report in October 1999. Following that report, we took a series of additional actions.
I placed the CFO on administrative leave. In January 2000, I hired a new CFO with 35 years of federal financial management service. And, we are currently recruiting to fill vacancies in accounting operations and system accounting.
We implemented government-wide commercial credit card programs for travel expenses and small purchases. Travel vouchers and purchase card bills are now paid through Treasury Department Disbursing Centers.
And, we selected an independent audit firm (Pricewaterhouse-Coopers), which began work yesterday, to develop a program for comprehensive financial integrity. As part of their audit, they will:
We received the IG's investigative report on March 21st. It did not find any additional criminal activity beyond that already found by the NTSB. It concluded that the two previously identified employees had embezzled about $95,000.
Both employees have left the NTSB. I have been advised that one has been indicted by a grand jury, and the other is pleading guilty for criminal acts involving embezzlement and that restitution will be sought.
Let me close by saying that I take this situation very seriously and it is deeply troubling. It has unduly impugned the reputation of the agency and its dedicated employees. This has been an especially difficult time for the Board's employees, and a distraction from their demanding mission. We are taking every action necessary to ensure that these deficiencies are rectified and procedures put in place to ensure that they do not recur. I fully support independent oversight of the Board's financial operations on a regular basis.
I also want to again express the NTSB's appreciation for the work of Ken Mead and his staff in helping us with this task.
Mr. Chairman, that completes my statement and I am prepared to answer your questions.
Good morning, Chairman Sununu and Members of the Task Force. I was invited to appear before you today regarding an audit and an investigation that the National Transportation Safety Board (NTSB) requested from the Department of Transportation's Inspector General (IG). In August 1999, as the NTSB's staff was engaged in reconciling documents to close our books for the fiscal year, financial discrepancies were found and brought to my attention. I promptly called Inspector General Mead and asked for a full and independent investigation.
Before turning to the circumstances of that request, I would like to put the problems we discovered in our program for rapidraft payments program in context. I became Chairman of NTSB in October 1994, and inherited a financial accounting system and organization that had been in place for many years and had not been modernized with automated information capabilities. Weaknesses in its utility for budgeting purposes were apparent, and after preparation of budgets for 1996, I asked senior managers at NTSB to rethink our finance and budget process to make recommendations to improve our performance. Staff reviewed the provisions of the Chief Financial Officer Act, which, although it does not apply by its own terms to a small agency such as NTSB, appeared to reflect a "best practice" approach to financial operations. As a consequence of this review, in February 1997, I requested the Department of Treasury's Financial Management Service (FMS) to do a top-to-bottom evaluation of the finance accounting system that had been in place at NTSB for more than a decade. The cost for this service was $55,000, not insignificant for NTSB, but we believed that modernization was critical.
NTSB received FMS's initial report in June 1997. The report found that the existing accounting system was insufficient to support modernized accounting practices. It recommended that we acquire a new accounting system. We contracted again with FMS for assistance in selection of such a system. This resulted in the purchase of an off-the-shelf, Joint-Financial-Management-Improvement-Program (JFMIP) compliant accounting program. The FMS report also recommended that we target October 1, 1998, as the date for changeover to a new system. We met that date, and began use of an entirely new, modern system for fiscal year 1999. Achieving this target placed a substantial workload on the accounting staff, but we believed it was a critical first step in permitting us to achieve a clean audit opinion on NTSB's financial statements. The goal of a clean audit was a key recommendation of FMS and is a central concept embodied in the Chief Financial Officer Act. I wholeheartedly agreed with this approach.
I concurrently elevated the organizational structure of the comptroller's function to independent office status, headed for the first time by a Senior Executive level official, also as recommended by the FMS report and the Chief Financial Officer Act. And we undertook intensive training of administrative staff in the program offices, in order to use the new accounting system to its full potential. We knew that the total process of modernization and information integration would take several years. However, by the middle of 1999, we were in the midst of a substantial revision in our financial processes, with the goal of meeting financial accounting practices at a level not yet, even today, required of us.
Discovery of Embezzlement
From April 1989 until August 1999, Safety Board offices used what was for a time a government-wide, GSA-approved rapidraft payment system. Rapidraft is a service offered by a commercial vendor that enables a government employee to write checks to pay for goods and services. NTSB Board Order 46A, issued in October 1990, established the rapidraft program for payment of small purchases, travel advances, travel expenses, training registration, and other services. Proper reconciliation of accounts within the program was a shared function between program offices and the financial specialists within what is now organized as the Office of Chief Financial Officer (CFO). In August 1999, during reviews to prepare for the fiscal year-end close-out, a highway safety program officer asked for assistance from the CFO office in reconciling records discrepancies concerning a particular rapidraft payment. That meeting triggered further analysis, and the subsequent review identified suspect behavior on the part of two NTSB employees concerning possible embezzlement. Approximately $95,000 appeared to be at issue.
NTSB's Request to IG for Audit and Investigation
NTSB has traditionally used the services of outside, independent auditors to assess financial management issues. In this instance, I asked DOT IG if it would conduct an audit and a criminal inquiry. The IG does not have jurisdiction over the NTSB. However, NTSB has the authority to use the services of other federal agencies and has used the services of other IGs in the past. We were in the process of finalizing a new voluntary audit agreement with the DOT IG when the discrepancies were uncovered. We believed that an IG, with the ability to simultaneously pursue a financial audit and a criminal investigation, was especially well suited to assist us. Consequently, we broadened the scope of our pending agreement to include criminal investigations and requested that the DOT IG to commence an immediate two-pronged review of the problem we had uncovered. Staff and management were instructed to cooperate fully with the work of the IG. NTSB (with DOT IG participation) briefed its Congressional authorizing and appropriating committees on the problems identified and the initiation of work by the DOT IG. The concerns shared with the Inspector General were:
The IG completed its audit work and briefed top NTSB management on its results on October 26, 1999, and their final report was delivered on November 8, 1999. In addition, the IG periodically shared information on the progress of their criminal investigation, and delivered the results of that investigation on March 21, 2000.
IG Audit and Investigation Report Recommendations
The IG's audit report concluded that there were weaknesses in internal controls, and that existing controls were not followed. The report made the following three recommendations:
The IG investigative report concluded that there was criminal activity on the part of the two employees that were originally referred by the NTSB.1 No other embezzlements were uncovered by the IG. Criminal enforcement is ongoing and restitution will be pursued. In addition, the report recommended administrative action be considered for certain irregularities concerning use of agency e-mail, and that NTSB ensure proper procedures for the acquisition of small purchases, the payment of performance bonuses only within the payroll process, and adherence to government regulations regarding the use of frequent flyer mileage upgrades.
NTSB Actions Taken and Planned
In September 1999, NTSB terminated the Rapidraft Payment System. After receiving the October 26 briefing on this subject, the then incumbent CFO was placed on administrative leave. In January 2000, a new CFO with 35 years of federal financial management service was hired. Recruitments are underway to fill additional vacancies in accounting operations and system accounting. After the new CFO familiarized himself with the circumstances of DOT IG's work, a series of briefings were undertaken with NTSB's authorizing and appropriating committees of Congress concerning the results of the IG's work and our responses. The NTSB has initiated implementation of all the IG Audit Report's recommendations.
· Conduct a closeout review of the Rapidraft Payment System;
· Document NTSB's financial management processes and systems;
· Perform a baseline analysis of existing financial polices, procedures and systems;
· Test internal controls;
· Develop internal control recommendations; and
· Assess audit readiness.
As I noted, the IG's report on the investigation was received at the Board on March 21, 2000, and we are currently preparing an action plan that will address all stated recommendations. As a result of the IG's work, we understand that one of the two clerical employees originally referred to the IG by NTSB has been indicted, and the other is pleading guilty for criminal acts involving embezzlement.
I would like to close by indicating NTSB's appreciation for the work of Ken Mead and members of his staff. This has obviously been a difficult time for NTSB, but as an institution we strongly favor having the ability to resort to independent, expert assistance as a means of quality assurance and improved performance. We would like to thank DOT IG for providing that service to us in this case. Mr. Chairman, that completes my statement and I will be happy to respond to questions.
2 A copy of the PricewaterhouseCoopers proposal, and the Board's acceptance letter, were provided to the Committee. PricewaterhouseCoopers began their audit activity on April 12, 2000, and we expect the review to take about four months.