TransTech Management, Inc. FINAL REPORT Management Audit of The Port Authority Transit Corporation Prepared for: Delaware River Port Authority March 7, 2016 TransTech Management, Inc. 354 W Meadow Road Suite 100 Eden, NC 27288 336.379.9985 office 336.379.1455 fax transtechmanagement.com © Copyright 2016, TransTech Management, Inc. FINAL REPORT Port Authority Transit Corporation Management Audit Prepared By: March 7, 2016 354 W Meadow Rd, Suite 100 Eden, North Carolina 27288 (336) 379‐9985 (office) (336) 379‐1455 (fax) www.transtechmanagement.com Final Report PATCO Management Audit Table of Contents I. Executive Summary Audit Objectives, Scope and Methodology i Organizational Profile iv DRPA Citizen’s Advisory Committee Input ix Preliminary Assessment Summary x Internal Support Services Satisfaction Survey x Compensation Competitiveness Analysis xiii Findings and Recommendations xx Implementation Plan xxv Acknowledgements xxv II. Objectives, Scope and Methodology Background 1 Audit Objectives 2 Audit Scope 3 Yellow Book Audit Approach 4 Audit Methodology and Completed Tasks 6 Organization of the Audit Report 7 Acknowledgements 8 III. Organizational Profile PATCO Overview 9 Operating and Capital Budgets 11 Organizational Structure and Staffing 11 Ridership 13 PATCO Strategic Plan 14 Departmental Profiles 17 PATCO Governance / General Manager’s Office 17 Transit Services Department 20 Equipment Department 23 Way and Power Department 25 Passenger Services and Fare Collection Department 29 System Safety Department 31 DRPA Citizen’s Advisory Committee 32 Review of Prior Management Audits 34 IV. Preliminary Assessment Summary Assessment Model 46 Assessment Summary 47 Final Report PATCO Management Audit V. Internal Support Services Survey Results Response Profile 53 Frequency of Interaction with Internal Support Services 54 Departmental Evaluation 56 Finance 56 Purchasing 58 Human Resources 62 Contract Administration 66 Information Services 68 General Counsel 70 Benefits Administration 72 Overall Ratings by Department 74 Internal Support Services Satisfaction Summary 75 VI. Compensation Competitiveness Analysis Background 76 Disclaimer 78 Compensation Analysis Approach 78 Summary of Market Data Analysis 80 Compression Analysis 83 Compression Analysis Results 85 Conclusions 89 VII. Findings and Recommendations Organizational Structure and Management 91 Operational Efficiency and Effectiveness 101 Policies, Practices and Compliance 121 VIII. Implementation 134 Appendices 148 Appendix A – List of Source Documents Appendix B – List of Interview Participants Appendix C – Citizen Advisory Committee Focus Group Summary Appendix D – Internal Support Services Survey Detail Appendix E – Compensation Survey Data Appendix F – Workflow Focus Group Summaries Appendix G - DRPA / PATCO Response to the Management Audit Final Report PATCO Management Audit I. EXECUTIVE SUMMARY The Delaware River Port Authority (“DRPA”) engaged TransTech Management, Inc. (“TTM” or “TransTech,” along with our subject matter expert team from Kensington Consulting and Raul V Bravo + Associates, to perform a management audit of its Port Authority Transit Corporation (“PATCO”) subsidiary. This Executive Summary provides an overview of the Final Report on the audit objectives, process and results, including the following: Study Objectives, Scope and Methodology Organizational Profile DRPA Citizen Advisory Committee Input Preliminary Assessment Summary Internal Support Services Satisfaction Compensation Assessment Findings and Recommendations. Audit Objectives, Scope and Methodology Section II of the audit report provides the background of the project and describes its objectives and approach. Under its governing documents, the DRPA is a bi-state public transportation agency created by a compact agreement between the Commonwealth of Pennsylvania and the State of New Jersey, with the consent of the United States Congress with powers and responsibilities including but not limited to: Ownership and operation of four toll bridges connecting New Jersey and Pennsylvania across the Delaware River including the Benjamin Franklin Bridge, Walt Whitman Bridge, Commodore Barry Bridge and the Betsy Ross Bridge. Operation of the Port Authority Transit Corporation’s (PATCO) high speed heavy rail system operating under regulatory oversight of the Federal Transit Administration. The PATCO system is 14.2 miles in length and connects central city Philadelphia to Lindenwold, New Jersey, serving thirteen stations and carrying an average of approximately 36,000 passengers every weekday. Article XII of the DRPA Compact specifically requires the periodic performance of a management audit, as follows: Page │ i Final Report PATCO Management Audit “Not less than once every five years, the Commission shall cause a management audit of its operational effectiveness and efficiency to be conducted by an independent consulting firm selected by the commission.” In August of 2010 the DRPA Board of Commissioners adopted Resolution DRPA-10-040 – one of several “reform resolutions” intended to strengthen public accountability and transparency – to create an Audit Committee whose duties include overseeing an independent management audit of the Authority every two years. To ensure that the biannual management audits are conducted in accordance with the Compact and Resolution DRPA-10-040 the Audit Committee identified four discrete divisions of the Authority, two of which are to be examined every two years on a rotating basis, as follows: DRPA Administrative and Support Functions. Public Safety. Bridge Operations. PATCO. In furtherance of this mandate, the DRPA, through its Office of the Inspector General, competitively selected and engaged the services of TransTech Management, Inc. and its teaming partners to conduct an independent management and performance audit of its wholly-owned subsidiary, PATCO, and to recommend improvements to enhance its overall effectiveness and efficiency. Audit Objectives The specific objectives of the 2015 PATCO management audit include: Conduct a thorough, objective and independent assessment of the organizational and operational efficiency and effectiveness of PATCO services and operations. Identify and recommend ways by which the Authority can maintain or improve service to its customers while reducing or moderating operating losses. Examine the effectiveness of management of administrative services performed by external consultants or contractors. Evaluate the Authority’s implementation of recommendations from prior internal and independent audit reports. Develop specific findings, conclusions and recommendations for improvement. Develop and deliver an implementation approach and specific, executable action plans. Compile and deliver a thorough written report of findings and recommendations for presentation to the Authority’s Audit Committee and Board of Commissioners. Page │ ii Final Report PATCO Management Audit Audit Scope All PATCO departments and functions were included in the project scope including: Office of the General Manager. Transit Services. Passenger Services and Fare Collection. Way and Power. Equipment. System Safety. Shared administrative services provided by DRPA including Finance, Payroll, Human Resources and Information Services. The following aspects of PATCO’s organization, management and operations were addressed: Organizational structure. Duties and responsibilities of management and staff. Management authority and span of control. Effectiveness of policies, processes and strategies. Staffing levels. Duplicative and/or redundant staff functions. Operating costs and opportunities for cost reductions. Reasonableness of salaries and benefits, including the risk of salary compression. Compliance with FTA regulations including review of procedures for elevators and escalators. Review of Standard Operating Procedures (SOPs) for all departments. Work flow analysis of all departments including Way and Power. The audit was facilitated by the DRP Office of the Inspector General. Audit Approach TTM performed the audit in accordance with the Generally Accepted Government Auditing Standards (“GAGAS”) issued by the Comptroller General of the United States, also known as the “Yellow Book.” The general standards state that the auditor must: Perform the work in accordance with basic ethical principles. Maintain independence in both fact and appearance. Use professional judgment in the planning, conduct and reporting of audit results. Possess the professional competence needed to address the audit objectives. Provide adequate quality control. Performance audits provide objective analysis and recommendations to management and decision makers in order to facilitate the improvement of operations, support executive decision-making and improve accountability. Accordingly, the major tasks of the TTM approach include the following: Page │ iii Final Report PATCO Management Audit Task 1 – Plan and Initiate the Audit. Task 2 – Complete Interviews and Field Work. Task 3 – Develop Audit Findings. Task 4 – Prepare and Review Audit Report. Task 5– Conduct Audit Outbrief. We believe that the evidence obtained through the course of our work supports our findings and recommendations and provides a reasonable basis for our findings and conclusions based on our audit objectives. Throughout the course of this engagement, the TTM audit team had extensive contact and interaction with members of the management and staff of the DRPA and PATCO. The