Vanpool Replacement and Surplus Practices

Auditor's Office

Vanpool Replacement and Surplus Practices

Management Audit

Report No. 2001-02

Bert Golla, CPA, Senior Financial Auditor
Susan Baugh, CGFM, Principal Management Auditor

TABLE OF CONTENTS

Introduction
Audit Objectives
General Conclusions
Major Findings:

Finding 2-1 - In 1998 through May 2001, the VanPool Program appeared to maintain more vans in the retired fleet than were necessary for vanpool groups and to meet other program needs.

Finding 3-1 - The VanPool Program did not meet the council-mandated cost recovery requirement from 1997 through 2000.

Finding 3-2 - The VanPool Program rate-setting process could be improved by developing policy guidelines that address some factors affecting fares.

INTRODUCTION

The management audit of Metro Transit’s VanPool Program replacement and surplus practices was initiated at the request of the Metropolitan King County Council and included in the council-adopted 2000 Auditor’s Office work program. The council was interested in determining the reasonableness of Transit’s vanpool replacement and surplus practices. In addition, the audit included a review of the VanPool Program’s compliance with the council-mandated recovery of costs, and a review of the VanPool Program’s rate-setting methodology for developing fares that became effective in 2000.

AUDIT OBJECTIVES

The audit objectives were to review the reasonableness of Metro Transit’s vanpool operations with respect to its replacement and surplus practices for used passenger vans; determine the VanPool Program’s compliance with the council-mandated recovery of costs; and review the VanPool Program’s rate-setting methodology for developing passenger fares that took effect in 2000.

GENERAL CONCLUSION

The general audit conclusion is that the Metro Transit’s replacement and surplus practices for used passenger vans are reasonable, except that the VanPool Program appears to maintain more vans in the retired fleet than are necessary for vanpool groups and to meet other program needs.

MAJOR FINDINGS AND RECOMMENDATIONS

Finding 2-1. In 1998 through May 2001, the VanPool Program appeared to maintain more vans in the retired fleet than were necessary for vanpool groups and to meet other program needs.

The audit staff noted that Rideshare Operations Section had apparently kept on a regular basis an inventory of retired vans that were not immediately needed to service existing vanpool groups and to meet other program needs.

As illustrated in Exhibit D (page 9), after allowing provisions for trades and program growth, an estimated 40 vans in 1998, 70 vans in 1999, 110 vans in 2000, and 50 vans for the first five months in 2001, were not essential to be maintained in the retired fleet. The market value of 50 vans in 2001 was estimated at $320,000.

Audit staff recognizes that numerous considerations drive the level and type of fleet maintained and the timing of van purchases and sales. These considerations should be systematically monitored and analyzed to ensure that the fleet inventory is cost-effective. While VanPool Program management addresses many significant considerations, we did not find a systematic approach that quantified the combined economic impact of these considerations or tradeoffs. Such an analysis would include the net financial impact of: 1) maintaining vans in the fleet beyond the number required to meet estimated program needs; 2) selling retired vans sooner and in larger volume rather than holding the release of some vans to achieve a better resale value, and 3) holding extra vans to derive lease and loan income. Absent a more quantified evaluation, the current level of retired vans does not seem justified.

The audit recommended that Rideshare Operations Section establish a system for regularly evaluating a cost-effective inventory of vans. This system should include timely sale of vans and other fleet changes consistent with achieving the program’s objectives.

Finding 3-1. The VanPool Program did not meet the council-mandated cost recovery requirement from 1997 through 2000.

The VanPool Program did not comply with the King County Code requirement to recover the full costs of capital and operations and at least 25 percent of the administrative costs in 1997 through 2000. Despite the fare increase in 2000, the VanPool Program still failed to recover vanpool costs of approximately $363,000 in that year as shown on Exhibit F (page 15).

The audit recommended that the Rideshare Operations Section review its VanPool Program fare structure and operating costs to adjust fares, as needed, to ensure compliance of the King County Code, which requires full recovery of capital and operations costs and at least 25 percent of administrative costs.

Finding 3-2. The VanPool Program rate-setting process could be improved by developing policy guidelines that address some factors affecting fares.

The audit staff reviewed the records used by Metro Transit to project adjustments for passenger fares that became effective in April 2000. As discussed on pages 13 to 15, some important factors needed to be addressed by Metro Transit to improve its process in establishing future adjustments for passenger fares. These factors included the recovery rate from surplus sale of used vans, estimated life cycle of vans used in vanpool operations, administrative costs for cost recovery requirement, and frequency of review of vanpool costs and adjustment of passenger fares.

The audit recommended that the Rideshare Operations Section develop policy guidelines for calculating passenger fares that include recovery rate from surplus van sales, impact of the six-year life cycle, clarification of administrative costs, and frequency of schedule for reviewing and adjusting vanpool passenger fares to comply with council intent.

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