Leading a transit organization is a very challenging, but rewarding, occupation. Those who have had the privilege to be a transit system executive belong to a small but dedicated group of professionals. While the principal goal of the transit CEO is to provide transportation in a safe, efficient and customer-oriented manner, one of the inescapable responsibilities of the job is to ensure the proper fiscal management of the system. Taxpayers and policy-makers rightfully expect that the transit management professionals will provide for the proper stewardship of the public resources invested in the transit system.
This article takes a look at some practices and pitfalls transit executives need to be aware of as they work to lead their staffs in providing the best service available to their riders.
In our management of more than 120 transit operations throughout the United States we have found there are some specific fiscal management practices a transit executive should strive to have in place to be effective. While this article does not allow us to go into great detail regarding these practices, we can briefly discuss them.
First, a transit executive needs a formal management plan developed to meet the organization's mission. This plan should have measurable goals and objectives with appropriate staffing and operating plans. This plan will serve as the basis for developing both an operating and capital budget.
From the formal management plan, a budget development methodology needs to be created that involves as many of the operating and supervisory staff as possible. This budget development protocol must tie the system's goals and objectives to a financial resource. The budget preparation should provide for reviews by senior staff and policy-makers and ultimately result in the formal adoption of a budget or financial plan that is "married" to the management plan and the fiscal year goals and objectives.
Experienced financial managers are essential for any transit agency. Just as you require trained professionals to lead your operations and maintenance functions, there must be experienced professionals who assume responsibility for the critical financial functions. These managers can help with the establishment of an accurate financial management information system, which is critical. Having access to accurate and timely financial data and reports is essential if an executive and the policy-makers are to make well-informed decisions. These MIS systems also support the payroll, accounts payable and monthly financial reporting that are necessary.
The forecasting of revenues and expenses during your fiscal year is a must. It is not enough to develop a budget and then set it aside as the reality of the operation evolves during the fiscal year. Budgets must be living documents that are reviewed each month. As situations change, so too must the forecasting of expenses. The executive and policy makers need to be kept informed so that midcourse corrections can be made to ensure proper fiscal accountability. Forecasting of revenue and expenses directly flows to cash flow management. One of the most difficult duties of the successful transit professional is the proper management and projection of cash flow. As all professionals realize, financial procedures tend to work together, proper budgeting leads to proper management, proper management leads to proper operations, proper operations lead to proper cash flows and so on. The management of cash flows is imperative in two basic areas:
- The ability to provide for timely and complete payment of vendors supplying services and supplies. As we all know nothing makes a vendor happier than being paid on time and in full.
- The proper return to the company and meeting of set project goals.
One of the best ways for a professional to ensure a smooth running operation is to ensure the staff and management running the shop have the proper tools to be successful. This not only transfers literally to the maintenance side of the operation but directly to the administrative side as well.
We all know what it's like to get that assembly required item from the store with the instructions missing; this is very similar to what happens when you ask your staff to provide proper support and results without that instruction booklet. This is why it is imperative that an organization have a complete policy and procedures manual, this is the "instruction booklet" for the staff. This should not only tell them how and when to do specific tasks but it should also tell them what not to do.
The setting up of accurate and complete manuals allows employees a clear reference guide as to what should be completed and in what order. Most companies are quick to produce the "Employee Handbook" when asked for the policy and procedures manual but very few have the policies and procedures for different departments.
For example, do you have an accounting policy and procedures manual outlining what the process should be for month-end close? A policy and procedures manual for the human resources function that says what should and should not be in an employee file? There always tends to be one person who people go to for the answers to the procedural questions in a department; let us all hope that person should never be sick or worse yet on vacation. The organization may come to a screeching halt while we wait for their return.
Would it not be easier and more efficient to have the policy written and clear? The ability to have a clearly written group of policies and procedures not only allows for the proper training of new staff, but as a reference point for seasoned staff which make the transit operation run with much less steering from the person at the helm.
The use of outside reviews is an essential tool in the arsenal of the transit professional. Be it an external or internal audit or review, the availability of another set of eyes observing from afar can prove to be very powerful in guiding the successful professional. This use of auditors and reviewers allows for surety in the financial instruments as well as suggestions for ways to improve from financial experience outside of the organization. This added expertise can allow for fresh ideas to continually flow into an organization as it is imperative to the continued growth. The management team must view these reviews as a positive part of the fiscal management process. Time must be spent with the reviewers to understand what they looked at and what their findings mean.
One of the often overlooked practices in transit operations is the ongoing observance of the internal control structure within an operation. Internal controls are frequently considered a finance function that has no relevance to the operation; but what about the ability to limit liability within an organization? On a regular basis an internal control audit should be performed to look at the normal items like accounts payable, proper signoff, reconciliations and the protection of assets as part of the review. The truly successful transit professional realizes that the most irreplaceable asset the organization has are its employees.
The professional transit manager should include in the internal controls audit the observance of any dangers to the staff, be it a torn carpet or tenuous stacking of parts inventory. This complete review will allow for the avoidance of accidents and injuries, therefore, lowering the insurance claims and potential openings for litigation. This will result in lower premiums and, consequently, will reduce spending. As we have said before, most items in fiscal management are linked to others.
One more tool available to transit managers is the comparison of financial data to a peer group. A peer group should be comprised of transit systems of similar size and operating in similar environments. Comparisons of your transit system to the peer group will often lead to questions and may lead to increased efficiency. In some situations, the comparison and subsequent research may uncover situations that were unknown to the management team.
Reviewing key performance indicators (KPI) is another management tool that can be used to monitor the fiscal performance of the system. Things that can be monitored and compared by month and year include: inventory turns, cost recovery ratios and days cash on hand.
Grants management provides a tool to managers to gauge the effectiveness of the federal and state funding sources. Managers can monitor the percentage of expenses funded by grants, the frequency of funds requests and the milestones required for federal grants.
Operational audits can be used to supplement the financial audits in ensuring an efficient operation. These audits include cash handling reviews, cash counting reviews and operator audits that review fare collection processes.
The procurements that a transit system issues, account for much of the annual expenses. Managers need to monitor the procurement process and ensure that procurement policies are in place and followed. Procurement audits should be done periodically and all large procurements should be internally audited prior to award.
Managers should periodically review the insurance coverage in place. This includes liability insurance, physical damage insurance and employee benefit insurances. The policies should be reviewed to guarantee that the desired protections are in place and the coverage limits are acceptable. Through bidding or price quoting, managers can ensure that the price the system receives is fair.
The list of key financial management items listed above will provide the transit manager with a good set of tools to oversee the financial process. Managers need to use all of the tools available to them to protect the assets of the transit systems. Some of the pitfalls that transit systems have experienced due to poor fiscal management include:
- *Theft by an employee because management oversight and separation of duties were not in place.
- *The transit system operating in crisis when a key employee leaves because procedure manuals don't exist or are outdated. This can also be affected if employee cross-training has not been done.
- *The system not having suffi cient cash to pay bills or meet payroll needs. The lack of management attention to monthly and sometimes weekly financial reporting is often the culprit.
- *Operating outside of the annual budget parameters due to poor budget development and lack of "ownership" by those that developed the budget.
- *Overpaying for items or not having the required documentation to "backup" a federally funded procurement.
- *Finding out that the system does not have the insurance coverage the manager thought was in place once an accident or incident has occurred.
The transit manager must stay involved in the financial management of the transit system. Time must be spent with the staff going over the financial reports to determine where problems exist and strategies must be developed to address the problems. The manager must also periodically review the policies to ensure that they remain current and continue to meet the system's needs.
The annual reviews and audits that are performed present an excellent opportunity for the manager to ask questions about the financial condition of the system.
Auditing firms have become more responsive to managers' questions and have increased the amount of information reviewed. Managers must actively participate in these audits.
Managers can also turn to transit consultants to provide an added level of financial review. This type of service could include policy development, financial organization structure reviews and reviews that tie into the financial system such as procurement reviews, fleet management reviews and payroll reviews. There are many companies that are available to provide these services.