$189,000 is missing due to Hampton Roads Transit flaws

Oversight at Hampton Roads Transit was so slack that thousands of dollars went missing from bus fare collections at the Oceanfront almost weekly, for a total of $189,000 in just over two years, state investigators said.

The total is twice what was originally believed to be missing, and represents about 20 percent of the money collected from resort trolleys. During the summer months, the trolleys are among the three most popular bus routes operated by HRT.

The suspected theft "is a direct result of poor management oversight," concluded a special review by the Virginia Department of Transportation Inspector General that was released last week.

The report found that fare collections on all HRT services, about $9 million a year, were not reconciled against electronic fare-box data for more than two years. Also, money boxes were not locked and security escorts were not used regularly when transporting cash - all violations of HRT policies.

"This was an area that was so blatantly unwatched that it was obvious to corrupt employees," said Virginia Beach City Councilman Jim Wood, who was HRT chairman when the theft was discovered. "It was an absolute failure of management."

What's worse, Wood said, was that the previous HRT management conducted its own sting operation to try to catch the culprits, refused to call law enforcement authorities to investigate or prosecute, and hid the theft from the HRT board.

It was Wood who took the case to Virginia Beach police in January.

As a result, two former employees were indicted by a special grand jury in August and charged with embezzlement, money laundering and state income tax evasion. The investigation is continuing. A trial is set for next month, but the Virginia Beach commonwealth's attorney's office said it will likely be continued until the spring.

"The whole thing was a bungled, botched mess," Wood said.

The handling of the missing funds contributed to the forced resignation of then-president and CEO, Michael Townes. Townes also was blamed for spiraling cost overruns on Norfolk's starter light-rail line, the total price of which ballooned to $338 million from $232 million.

HRT's new president and CEO, Philip Shucet, requested the inspector general's investigation shortly after taking the helm in February.

"Cash controls were a material weakness," Shucet said, adding that reconciling cash "is a fundamental principle of any cash-based business, and we weren't doing it."

Steps have been taken to correct the most egregious shortcomings, he said, and the agency continues to work to improve other areas of money management.

Cash collections are now reconciled with records from electronic fare boxes daily, weekly and monthly, said David Sullivan, HRT's interim senior vice president for finance.

Additionally, money boxes are always locked, guards are now used whenever money is being transferred to HRT's money counting room and surveillance cameras are reviewed whenever money is exchanged, Sullivan said.

HRT has made "spot checks" of cash reconciliations from all of the agency's bus operations and found no other significant gaps, he added.

"Can we guarantee somebody will not take money again? No," Shucet said. "But we can say the likelihood is great that it would be discovered in a short amount of time and would be addressed appropriately."

HRT is planning to hire an internal auditor by July to review the agency's policies and procedures and evaluate whether they're being followed.

The inspector general's report offered this account of what happened:

HRT's revenue services manager was told in August 2009 that the vault containing trolley fares arrived at HRT's money counting room open, so he reconciled records and found a shortage of more than $5,000.

HRT's security officer and two off-duty Norfolk police officers who work part time for HRT set up surveillance.

They observed employees load a money vault into an HRT van and, instead of driving directly to the money room, stop at the home of one of the employees. They also noted the van "was speeding at times."

They saw one of the employees open a van door "presumably to remove something" and then enter the house. The surveillance vehicle was parked in such a way that it did not have a clear view of what, if anything, was taken from the van.

The off-duty police officers suggested HRT pursue the matter further with police help. Instead, HRT officials confronted the employees. Upon hearing conflicting stories, officials suspended the employees for speeding and detouring from their assigned route. Eventually, they were terminated.

"They did not see enough to arrest the money room employees or get a warrant," the report states.

HRT's executives, with advice of legal counsel, decided not to seek prosecution.

However, HRT did notify its external auditors of the missing funds during the annual audit that fall but did not ask them to verify the amount. The discrepancy was noted in the audit report, but that page of the report was missing when it was presented to the HRT board in December 2009, Wood said.

After receiving a Freedom of Information request from The Pilot for the documents, HRT's former senior vice president for finance, Larry W. Davenport, wrote a letter to board members informing them of the suspected embezzlement and that the auditor concluded it "did not result from an inadequacy of internal controls."

A review of the trolley deposits conducted by the American Public Transportation Association at HRT's request showed that money was missing almost on a weekly basis between April 2007 and August 2009. The amounts ranged from $5 to $7,500, but were mostly in the $1,000 to $3,000 range.

"It's one of our biggest routes in the summer - with tourists using cash, not fare cards. That's why it was so lucrative for thieves," Wood said.

Debbie Messina, (757) 446-2588, debbie.messina@pilotonline.com