NSW Audit Office - Financial Reports – 2003 - Volume 2 – Review of the Transport Co-ordination

The Audit Office Of New South Wales

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Review of the Transport Co-ordination Authority’s Accreditation and Contract Management of Buses INTRODUCTION In April 2003 the Leader of the National Party wrote to the Auditor-General regarding the collapse of the Port Macquarie-based King Bros Bus Group (King Bros), which operates most of the school and public bus services on the State’s Mid North Coast. The Member was questioning the contractual arrangement between the Transport Co-ordination Authority (formerly the Department of Transport) and King Bros, noting that it significantly impacts on the transport of students and the general public within that region. We reviewed the policies and procedures adopted by the Authority in relation to its statutory obligations, in particular the accreditation of King Bros as an operator. BUS CONTRACTS AND ACCREDITATION The Director-General of the Authority awards contracts to various private and public (State Transit Authority) bus operators. In awarding these contracts, the Director-General has an implicit responsibility to ensure that operators provide reliable and safe passenger transport in their designated area of operation. An or must obtain accreditation from the Director-General in order to operate public passenger bus services in New South Wales. Section 7(2) of the Passenger Transport Act 1990 states that, in awarding accreditation, the Director-General is attesting: (a) that the accredited person is (or, in the case of an accredited corporation, ...

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Review of the Transport Co-ordination Authority’s Accreditation and Contract Management of Buses

INTRODUCTION

In April 2003 the Leader of the National Party wrote to the Auditor-General regarding the collapse of the Port Macquarie-based King Bros Bus Group (King Bros), which operates most of the school and public bus services on the State’s Mid North Coast. The Member was questioning the contractual arrangement between the Transport Co-ordination Authority (formerly the Department of Transport) and King Bros, noting that it significantly impacts on the transport of students and the general public within that region.

We reviewed the policies and procedures adopted by the Authority in relation to its statutory obligations, in particular the accreditation of King Bros as an operator.

BUS CONTRACTS AND ACCREDITATION

The Director-General of the Authority awards contracts to various private and public (State Transit Authority) bus operators.

In awarding these contracts, the Director-General has an implicit responsibility to ensure that operators provide reliable and safe passenger transport in their designated area of operation. An operator must obtain accreditation from the Director-General in order to operate public passenger bus services in New South Wales. Section 7(2) of thePassenger Transport Act 1990that, in states awarding accreditation, the Director-General is attesting: (a) thatthe accredited person is (or, in the case of an accredited corporation, the designated directors and managers of the corporation are) considered to be of good repute and in all other respects fit and proper to be responsible for the operation of a public passenger service; and (b) thatthe accredited person has demonstrated the capacity to meet the government’s standard of: (i) financialviability; and (ii) safetyof passengers and the public; and (iii) vehiclemaintenance, to the degree and in the manner required in respect of services of the kind specified in the accreditation.

ACCREDITATION OF KING BROS

The Authority advised us that King Bros was initially awarded three commercial contracts, in the Kempsey area, in 1994. This company has since progressively acquired contracts for services within the Mid North Coast of New South Wales from other operators. On almost all occasions where this occurred, King Bros formed a new company to operate the services and hold these contracts, which were assigned by the original operator to the relevant King Bros company.

Each of the King Bros companies was required to obtain operator accreditation from the Authority prior to the assignment of contracts. On each occasion a Kempsey accountant provided a statement, that King Bros ‘has the financial capacity to operate … vehicles applied for under accreditation in such a way as to meet the required accreditation standards of passenger and public safety and vehicle maintenance’.

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Review of the Transport Co-ordination Authority

An application was received to assign all contracts held by King Bros to A P King Investments Pty Limited. In support of the application, the Director-General received a further statement from the Kempsey accountant dated, 28 March 2003, in the form of the sample provided in the Accreditation Package (see below). The Authority refused the application.

GENERAL ACCREDITATION AND CONTRACT MANAGEMENT ISSUES

The Director-General must satisfy the legislative obligations regarding ‘financial viability’ of the applicant. In our view, the issue is not merely whether the Authority has complied with the (minimum) legislative requirements, but whether it has undertaken its role effectively.

The Authority appears to have narrowly interpreted the government standard of financial viability as required by the Act. The statement from the accountant, referred to above, does not appear to give sufficient comfort regarding the financial capability of the operator to provide the services, even though it may be legally adequate for the purposes of accreditation.

We note some additional matters in relation to the Authority’s accreditation and management of contracts, including: the Authority provides applicants with an Accreditation Package for completion. On receipt of that package a desktop review of information supplied by the applicant is undertaken to ensure that relevant documentation has been provided and that it meets the accreditation requirements set by the Director-General. A more rigorous and comprehensive process, including the involvement of experts from different disciplines, needs to be developed to ensure that the applicant is able to carry out the services required the desktop review is performed at regional offices with minimal Head Office involvement. The Authority claims this is because the regional offices have a greater operational role in the administration of the contracts there is no process in place to verify that the operator holds and continues to hold valid insurance cover as required under clause 9 – Insurance and Indemnities - of the contract. This requires the operator to indemnify and hold indemnified the Director-General from and against all actions, claims, demands, losses, damages, costs and expenses for which the Director-General may become liable during and after the term of the contract the performance and reliability of the services provided by the operator is usually reviewed once during the term of the contract, which is five years. A more frequent review would appear necessary to ensure the performance and financial viability requirements are met. Based on these findings, the Audit Office believes that the Authority should review all aspects of its accreditation and contract management processes. This includes a more rigorous definition of what constitutes financial viability.

SCHOOL STUDENT TRANSPORT SCHEME (SSTS)

SSTS provides free travel to and from school for eligible students on Government and private bus, rail, and ferry services, school charter services, long distance coaches and in private vehicles where no public transport services exist.

SSTS payments are normally made to operators in five progressive payments each semester, in advance, based on 90 per cent of the actual claim of the previous semester. There are two semesters in each school year. At the end of each semester the difference between the claim based on actual student travel, and the advance payment made, is paid to or claimed from the operator.

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Review of the Transport Co-ordination Authority

As a result of information received, the Authority hired a consultant in September 2002 to investigate suspected improper SSTS claims made by King Bros. The consultant reported a number of anomalies, which constituted overpayments totalling $99,809 in 2002. As well, the Authority detected overpayments of $13,456 in 2001 and $30,778 in the current year to date. The total overpayment of $144,043 was subsequently recovered. These findings resulted in a change to the SSTS payment method to King Bros, as from 1 February 2003. The Authority determined that the payments be made weekly in arrears, as opposed to monthly in advance.

In Volume Six of the 2002 Auditor-General’s Report to Parliament, we reported that there was a potential overpayment to bus operators of $1.6 million under the SSTS. In that Report we also noted that the Authority was to establish a Working Party to review the accountability and administration of the SSTS. We understand that the review is yet to be finalised.

INITIATIVES OF THE AUTHORITY WITH RESPECT TO ACCREDITATION AND THE SSTS The Authority has advised us that it is undertaking initiatives relevant to the administration and reform of the SSTS and improvement in the monitoring of operator contracts. These include: implementation of a Bus Operators Manual and an internal SSTS policy and procedure manual introduction of a centralised on-line application data management system for SSTS claims data analysis and implementation of a pass usage survey implementation of an integrated electronic ticketing system in the greater metropolitan Sydney explore the possibility of the SSTS payment on actual usage basis rather than pursuant to a formula monthly reporting by schools and establishing a website for this purpose. The Authority is also proposing to review the adequacy of the current provisions of the Act and related contractual arrangements. This review includes: provision for the regular review of financial viability of operators and appropriate involvement of independent experts (eg auditors) in that process, including by way of provision of audited financial statements and other appropriate financial performance/status information the adequacy and currency of insurance held by operators the adequacy of arrangements to secure employee entitlements, including verification of these arrangements through certified monthly reports and sample compliance auditing the regular review of operator performance and compliance generally with contractual obligations and accreditation the circumstances and terms on which operator contracts can be assigned or renewed, and the approval and oversight role of the Authority /Director-General in such processes.

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