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2014-10-24 Washington State Auditor’s Office Exit Conference With Island Transit

2014-10-24 Washington State Auditor’s Office Exit Conference With Island Transit

Island Transit yesterday had an exit conference with the Washington State Auditor’s Office (hereafter SAO) with video taken and the release of the severance agreement with former Exec Director Martha Rose.  Most exit conferences are staid affairs, such as the one with the City of Oak Harbor where SAO employees explain any issues with collaboration between auditor & auditee.  In the case of Island Transit; there were audible groans, arrogant grilling and even attempted gifts in what for most state & local governments is a quiet act (1) of meeting with SAO employees to ensure fiscal responsibility.

Midday through 24 October, members of the Island Transit Press Gallery (e.g. IslandPolitics.org, Whidbey News-Times) scooped us (2) with the galling news that former Exec Director Martha Rose thanks to the personal feelings of Island Transit Board Chair Bob Clay towards her Island Transit will now pay over $100,000 to this individual.  Last night, a Seattle Transit Blog Page Two writer interviewed Island Transit Board Member & Oak Harbor Mayor Scott Dudley who said for the record he had sought Martha Rose’s resignation letter (3) since her resignation and that the Island Transit Board never approved former Island Transit Exec Director Martha Rose’s “separation agreement” signed back on 20 October 2014.  The document was not supposed to be released until she signed it and as such, was not released to the public until 24 October 2014.

That same 24 October 2014, the SAO Exit Conference with Island Transit unfolded.  For the first time the general public also learned that former Exec Director Martha Rose was getting special, improper and possibly unconstitutional at a state level treatment from the Island Transit Board.  In SAO documentation publicly released at that meeting, the SAO notes with my emphasis:

The Transit’s personnel policy requires the salary schedule for all Transit employees be approved by the Board of Directors. We found no evidence of the Board approving the salary schedule. The only evidence of salary approval is in the budgeting process in departmental lump sum amounts.
The contract between the Transit and the former Executive Director requires the Board to review annually the Executive Director’s performance, contract and salary. However, this annual review did not occur. The last documented review was conducted in 1996. The former Executive Director received salary increases approximately every two years without specific Board approval.
We identified a lack of oversight of the former Executive Director’s leave usage. The Executive Director was self-approving and self-reporting any leave used to the Payroll Specialist. The former Executive Director’s calendar identified the following:
o Attendance at a conference for 16 days in April 2013 when flight records indicate the Director was only in the same city as the conference for four days.
o Vacation for four weeks that spanned July and August of 2013
o Attendance at a conference for 19 days in September 2013 when flight records indicate the Director was only in the same city as the conference for five days.
o Vacation for three weeks that spanned June and July of 2014
Despite the above items noted on the former Executive Director’s calendar, we identified only six days of leave were deducted from the former Executive Director’s leave balances from August 2012 to September 2014.

That same document also notes on page 1 of their Exit Conference agenda:

Preliminary audit results and recommendations were shared in detail with Transit management and personnel as they were developed during the audit

So there was quite a bit of shock and groaning when Island Transit Emergency Executive Director Bob Clay – with no board approval – entered into a “separation agreement” signed back on 20 October 2014 with former Island Transit Executive Director Martha Rose.  Within that document is this stipulation:

Payment of Vacation Time. The Parties acknowledge and agree that Rose has accrued unused paid time off with Island Transit, the value of which totals eighty-eight thousand one hundred ninety dollars and forty cents ($88,190.40), subject to lawful deductions. Rose acknowledges and agrees that this unused paid time off that Rose has accrued with Island Transit will be paid in monthly installments to Rose of the lesser of either eleven thousand dollars ($11,000) per month or the remaining amount due to Rose for payment in full of her accrued unused paid time off. Such monthly installments will begin on February 15, 2015 and will continue until her accrued unused paid time off is paid in full, and such payments will include lawful deductions.”

As Island Transit Board Member Scott Dudley noted in an interview, “If we were following up the vacation and leave status, we ended up paying for almost nine months of vacation.”  As such, there are cogent, logical calls for a criminal investigation into who knew what when in regards to former Island Transit Exec Director Martha Rose’s “separation agreement”.  Especially as Martha Rose told the Whidbey News-Times when she left she was only staying on after Island Transit’s new facility was complete due to the Island Transit fiscal crisis.  But perhaps these developments should be no surprise – more after the jump.

The State Auditor’s Office (SAO) sent six employees into the exit conference – including three employees from Olympia such as the immediate former Director of the SAO Bellingham Audit Team in Sadie Armijo and a communications professional – for several reasons.  One of which was because this was no ordinary exit conference.  Another of which because the State Auditor’s Office made a finding in part stating, “The Board and management did not effectively monitor the financial activity of the Transit to ensure revenues were adequate to cover increased operational and capital expenditures.  The Board relied on the financial information the Executive Director presented to them.”  Why did the State Auditor’s Office write that?  Because the State Auditor’s Office found, “The Transit’s financial condition has impacted current service levels and puts it at risk of not being able to meet financial obligations.

As if this was bad enough, some in the audience groaned when Island Transit Board Chair and Emergency Director Bob Clay – yes, the same Island Transit Board Member who lobbed an attack on the Island Transit Press Gallery a week beforepredictably decided to impugn shift some blame to the Washington State Auditor’s Office and said they “should have said something… previous to this year’s audit”.  The SAO Deputy Director for Local Audit and immediate former SAO Team Bellingham Director Sadie Armijo said in her own and her team’s defense, “We did take a look at financial condition and one of the things the Transit still had going for it was there was still some reserves.  There was some money there.  …  Those red flags weren’t going up.  The minute those red flags go up, just in this case they went up really fast because of what was going on and the expenditures… at the Transit.”  SAO Director of Local Audit Kelly Collins jumped in and said the Island Transit Headquarters construction was one reason why the State Auditor’s Office wasn’t surprised about reserves being drawn down due to the match requirement with federal grants.

The new Island Transit Board Member Scott Dudley said, “he did not share the same sentiment putting the onus on the State Auditors for pointing out we had a spending problem.  When we look at 2012 we did end the year at $2.2 million dollars in reserves”.  Yet in 2013 the $2.2 million in reserves plus $1.5 million dollars in loans were used for a “spending spree”.  Later on in an interview he noted the finding “shows piss-poor management, poor oversight from a board.  Unbelievable to me Bob Clay would point fingers at the state auditors” and made reference to the fact six SAO employees attended to underline this was not an ordinary SAO audit.

Island Transit Board Member Jim Sundberg then attempted to blame a decline in state support for transit.  Sundberg said he wasn’t getting accurate financial reports warning Island Transit was providing more services “in excess” of Island Transit revenues.  SAO Director of Kelly Collins stressed “that’s the importance of getting meaningful financial reports to the board on a regular basis”.  Island Transit Board Chair Bob Clay then butted in with the excuse the Island Transit Board got only 12 reports and now those reports ‘ formatis now corrected & updated.

Finally, Island Transit’s new Headquarters construction process was issued a SAO Finding for being in noncompliance with the State of Good Repair Grants Program.  For instance, the SAO found noncompliance with wage & matching fund requirements.  The SAO even wrote, ” The Transit spent federal funds on preventative maintenance items and grounds maintenance equipment, such as a tractor, tires and other maintenance supplies, which are unallowable, and two gazebos, which the Transit could not demonstrate were part of the building and should have been included in the project.  These items resulted in known questioned costs of $69,692 and likely questioned costs of $36,704 based on similar vendor purchases in 20l3 and 2014.”  This will be addressed in a future STB post.

Somehow the State Auditor’s Office cannot accept gifts of gratitude from a civilian who was the only person able to use transit to attend a standing-room only Exit Conference where Island County Commissioner Candidate Rick Hannold (who I’ve endorsed) personally attended and his opponent Karla Jacks sent a representative; but a majority of the Island Transit Board seems to still have a serious entitlement complex.  As Island Transit’s brand new Board Member Scott Dudley put it, it was sad, eye opening, and “what we can expect from this board”.  Dudley has even promised he will go to great lengths to remove from the Island Transit Board Bob Clay, Jim Sundberg and Helen Price-Johnson as “this board failed to act, failed to do their duty”.  It seems the Washington State Auditor’s Office agrees.

THE VIDEO:

—–FOOTNOTES—–

(1) Yes, I used that phrase.  On purpose to this audience.  Raising taxes is not a quiet act as all taxation is confiscation whether in the form of property taxes, sales taxes or transit fares.  Civil discussion between professionals on the financial compliance of a governmental agency should be a quiet act.  But when Island Transit broke the public trust…

(2) In my defense, Island Transit cutbacks mean the quickest way to my home office is now through Clinton & Mukilteo.  Regular North by Northwest readers know what’s in Mukilteo that makes waiting for reconnecting to Skagit Transit enjoyable and will read all about it sometime during the week of October 26-November 1.

(3) A Seattle Transit Blog Page Two writer (yours truly) has also sought Martha Rose’s resignation letter.

8 Replies to “North by Northwest 27: State Auditor’s Office vs. Island Transit”

  1. Helen Price-Johnson has issued a statement. As I want the above to sink in, posting as a comment:
    ————————————
    ISLAND TRANSIT UPDATE

    Hindsight is 20/20, and as I look back I see a rural transit agency that was created by a grass roots effort. It built its way up over the years on a shoestring budget, creating a vital public service. For over 25 years it was run by one person, a culture was established and habits entrenched. A cash balance was saved in hopes of building a much needed facility to accommodate the growing needs. Once the facility funds came, it was known that the project would take most all of those savings. Unfortunately, the facility construction took the Director’s focus away from monitoring the daily finances. Expenses exceeded revenues, creating a shortfall. Services had to be cut to reduce expenses and align them with available revenue. Should cuts have been made sooner? Yes. We know that now.

    If the proper internal financial controls had been in place, less dramatic adjustments could have been made over time. But as we see regionally with other transit agencies, necessary cuts to service are not unique to our islands.

    Other corrective steps were taken this year to strengthen Island Transit’s checks and balances. A new professional is overseeing the Transit finance office and is updating the internal controls of the agency. The Board increased its oversight of finances. Two board members now meet monthly with staff to review bank statements, expenses and revenues. Monthly reports were improved so the Board (and a new Director) can better monitor the cash position. State Auditors reported that the Board is taking “all necessary steps to resolve this issue.”

    The State Auditors have just finished their review of the Island Transit books for 2013 and confirmed the fact that the previous financial officer was not following standard practices in a number of important areas. Most significant were the cash shortfall and those controls associated with the federal grant funds for the new building project. Now time has passed to realize the savings from the cuts made this summer, it is clear that the reductions in service were sufficient to “right the ship” and Island Transit is operating in the black again and beginning to rebuild the reserve. It will be a slow but steady process.

    I am glad the Auditors confirmed that no one stole any money. However, they found that the agency did not follow the standards for federal grant record-keeping in their documentation of payroll and the tracking of equipment inventory. That practice is now been corrected and I think a full review of internal controls should be done to be sure best practices are being followed in all areas going forward.

    The Auditors confirmed that the Board must improve oversight of the Director. This is an opportunity to start a new chapter for the agency and break 20 year old habits, implementing clear guidance for Board members to follow and prevent this situation from reoccurring.

    Each of these changes are positive and will build a better, stronger transit agency for our community.

    In the coming months there will be public outreach, seeking input about right-sizing the transit system for the future. We need a reconfiguration of routes to better meet the needs of our community and adjust for the recent impacts to weekend service and the outlying regions of our islands. Where emergency action was necessary earlier in the year, now a more deliberate approach can be taken.

    Moving ahead it is important to hire a qualified Interim Executive Director so the restructuring of routes can be completed and the transit agency is stabilized for the future. The Board has decided to do a limited recruitment for this position to allow more transparency in the process and cast a broader net. Tentative plans are to hire someone by Thanksgiving. An interim position is wise at this time to provide transitional leadership for the organization and allow ample time for significant community outreach in the process of selecting a long-term Director. That outreach should focus on what we want our transit system to provide in the future. How can we best support expanded service? Should it stay fare-free?

    The audit results show that internal financial controls and Board policies did not keep up as the transit agency grew over time. Significant corrective steps have been taken already and I am committed to continuing to improve Island Transit for the future for our community.
    ————————————
    I think most of my reporting raises doubts on many statements raised herein.

  2. Bob Clay, Jim Sundberg, Helen Price Johnson have not done their jobs. They have violated the public trust.

    There is no greater shame than that.

    Jim Campbell has resigned, and he has called for the other 3 to resign as well. Aubrey Vaughn has been involved for a short period of time, but should also resign and give this board a totally new set of responsible faces.

    I would not agree that any elected Island County people should be on this board any longer. It has proven to be too incestuous.

    1. I agree those three need to go. After yesterday’s revelation, yeah.

      Perhaps long-term Island Transit needs a board of THREE transit users (one from each Commissioner district), THREE elected officials (Island County Treasurer, an Island County Commish and an Oak Harbor rep) and THREE representatives from the rank & file of Island Transit who through no fault of their own are caught up in this. Or perhaps folks can directly elect to the Island Transit Board.

  3. I am glad Price-Johnson thinks no one “stole” any money. But she condones the falsifying of vacation time records to the amount of $88,000.00 for Mrs. Rose. At what point does the golden parachute get taken away? The act of stealing vacation hours to the extreme amount should at least warrant a criminal investigation. There still has been no sign of a recovery plan for Island Transit. Scott Dudley has been pointing out the glaring issues within this bankrupt company (someone has to) but he also has presented no plan to keep any part of transit operating with a sound business model. Still no restructuring of the bloated administrative staff. Restructure must start now from the Board through the bloated Administrative staff to more route cuts. It is past time for real action to take place. The excuse of waiting for audit results is over. Rebuild while there is something to still rebuild.

    1. Clif;

      I think Price-Johnson is trying to whitepaper this over. I can’t say too much right now about this but I hope for a criminal investigation due to the golden parachute.

      Scott “Studley” Dudley can only do so much. He’s made proposals to put new revenue on the table and get towards a “sound business model” but can’t even get a second or on the agenda.

      The only way Island Transit routes & staffing will be restructured is with a new Island Transit Board. As more “real action” takes place and retaliatory audits get the a-okay from several offices in Olympia, you can rest assured rebuilding will go up another measure.

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