News Story

Auditor blasts People Mover finances

Detroit Transportation Corp. rife with financial issues, according to audit

The Detroit People Mover's financial management is susceptible to inaccuracies, misappropriations and even theft, according to an audit of the transit system's operator.

The Detroit Transportation Corp. had ineffective or deficient policies and procedures in various areas, including accounting and human resources, Detroit’s Office of the Auditor General concluded last year.

The corporation showed “deficiencies in accounting, human resources, and information systems controls due to management not maintaining, revising, and monitoring the internal control environment," concluded the January 2023 report, which analyzed a six-year operational history, spanning from July 2015 through June 2021.

“The internal control deficiencies contributed to informal practices and irregularities in the performance of operations, the lack of defined accountability and performance measurement for critical operations, and the potential for DTC operations to become misaligned with business objectives,” the report said.

The auditor found that the corporation, a component unit of the city created in 1985, lacked "defined credibility for critical accounting operations." It also lacked effective methods of tracking vendor accounts and vacation accruals.

Four general managers led the Detroit Transportation Corp. during the period audited.

The city of Detroit gave subsidies to the corporation in several years: $6.5 million in fiscal year 2018, another $7 million in 2019, and $6 million in 2020.

The Detroit Transportation Corp. manages the People Mover, a 2.9-mile-long transit system in Detroit. The system has faced criticism since its inception, with the head of the Federal Urban Mass Transportation Administration calling the People Mover a “pork-barrel project gone wild” in 1985. More recent reviews have found further problems with the corporation’s management.

“My gut reaction is that the severity of the findings and the lack of available staff (several unfilled positions), mean many of the recommendations proffered by the audit will go unresolved,” Robert Daddow, a former deputy Oakland County executive, told CapCon.

Daddow said the problems may be even worse, pointing to infrequent audits, a small staff, limited controls over financial checks and balances, and failure to follow basic accounting principles.

The audit should have been done earlier, Daddow said, given the Detroit Transportation Corp.'s history of problems. A triennial review by the Federal Transit Administration found deficiencies in eight of the 20 areas examined, including financial management and procurement. The administration had reported these same problems in previous reviews, Daddow said, noting that correcting cited deficiencies would normally be a high priority for management.

Daddow also pointed out problems with bank reconciliations, which are designed to detect errors and inappropriate transactions. The auditor requested 21 bank reconciliations from July 2019 to March 2021 but received only eight.

The People Mover's management also neglects to document transactions properly. Half of the payments did not have completed purchase order documentation, Daddow said, and there were 20 “doubled-up payments to vendors” that totaled $53,000.

Daddow pointed to duplicate tracking numbers and a failure to obtain board approval for a half-million-dollar contract. The operator is required to have board approval for expenditures over $25,000.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.