State of New York

OFFICE OF THE INSPECTOR GENERAL

METROPOLITAN TRANSPORTATION AUTHORITY

Penalties and Overtime Payments in LIRR’s Transportation Department

MTA/OIG #2005-60 FEBRUARY 2006

MATTHEW D. SANSVERIE INSPECTOR GENERAL

February 24, 2006 Mr. James Dermody President MTA Long Island Rail Road Jamaica Station Jamaica, NY 11435 Re: Penalty and Overtime Payments in

LIRR’s Transportation Department MTA/OIG #2005-60 Dear Mr. Dermody: This office has completed an audit of MTA Long Island Rail Road’s penalty and overtime payments in the Transportation Department. We initiated this review because our prior review of LIRR’s pension payments showed the continuing impact of these types of payroll costs. Our objective was to identify situations that drive these extra costs with a view toward recommendations that would enable the railroad to better manage these costs. The report examines the situations that give rise to penalty payments as well as situations that drive overtime among engineers and conductors. Further it examines the hidden cost of these payments: it determines their effect on contributions that LIRR must make to the pension system to cover added pension costs resulting from the overtime and penalty payments. We are pleased by your general agreement with the report’s findings and recommendations as indicated in your response, which is included as Appendix D. Our audit was performed pursuant to the MTA Inspector General’s authority as set forth in Section 1279 of the Public Authorities Law. We would like to thank managers and staff for the cooperation extended in the course of our audit. Very truly yours, Matthew D. Sansverie

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State of New York Metropolitan Transportation Authority

Office of the Inspector General

EXECUTIVE SUMMARY Penalties and Overtime Payments in LIRR’s Transportation Department

In this report the OIG reviews factors, other than base salary, that contribute to MTA Long Island Rail Road‘s (LIRR) labor costs. Specifically, our focus is on “penalty payments” and overtime earned by LIRR’s engineers and conductors. The report describes how these costs are incurred and identifies opportunities to better manage some of them. Many LIRR collective bargaining agreements have restrictive work rules that result in extra payments to employees if they are violated. Within the Transportation Department, such extra payments are referred to as “penalty payments.” In 2004, the highest paid 77 LIRR engineers and conductors doubled or tripled their annual base salaries, earning anywhere from $125,000 to $210,000 on base salaries of approximately $64,000. Our analysis showed that penalty payments were a contributing factor to these greatly inflated earnings. Thus, because of operational imperatives and negotiated work rules, LIRR engineers and conductors can work a single 8-hour shift, but get paid for two, three, or even four days’ work, exclusive of overtime.

In addition to analyzing penalty payments, we also identified issues regarding LIRR overtime. Overtime reached a peak in 2004 with the 1,331 represented engineers and conductors in Transportation averaging $18,800 each. Costs have begun to go down because a hiring program has filled some of the vacant positions and new controls on overtime were initiated in Transportation. We found, however, that despite the institution of cost cutting measures, these internal controls have been inconsistently implemented and are not fully addressing the problem. In particular, there continues to be lax controls over overtime and penalties earned by crews in the rail yards. LIRR Needs to Better Manage Penalty Payments and Overtime Transportation Department management is concerned with maintaining on-time-performance and closely monitors the arrival times of passenger trains. Given the capacity issues faced by LIRR, however, the commitment to on-time-performance for passenger service often requires that equipment trains--those not carrying passengers--are held back in deference to passenger service. As a result of work rules, however, this can result in increased costs if equipment train crews miss their next scheduled runs and get “swapped” out of assignment. “Swapping,” working outside one’s normal assignment, is a violation of the engineer

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work agreement. Because affected employees receive penalty payments for this, late equipment trains have a sizeable impact on labor costs. Transportation management has taken action in the past to minimize the impact of late equipment trains when they became aware of the problem. Unfortunately, Transportation does not track late equipment trains like it does passenger trains and thus it cannot aggressively or regularly manage this cost factor. LIRR has a policy to keep yard crews on overtime after their shifts end to supplement staffing in the yards. We found, however, that there are no records that document the work activity in the yards. Consequently, many crews assigned to the yards are receiving 4 hours of overtime each day without any record of the trains they moved, if any, while on overtime. LIRR managers explained that these crews are kept on assignment to provide coverage in the event there is an equipment problem that requires an extra crew and that providing back up coverage is critical to maintaining service. LIRR does not know if this is the most cost-effective way to provide coverage because there are no records indicating how often these crews are actually needed or for how long they are needed.

We also found that penalty payments are not being adequately monitored as evidenced by the LIRR’s failure to be aware that one crew earned 158 penalty claims in 2004--most of them for moving a single equipment train each night from Brooklyn to Hillside. Recent management efforts to control costs have helped, but more needs to be done. Records recently implemented to improve control and accountability were not accurate and, because they are handwritten, do not provide management with an efficient way to analyze and identify areas for cost savings. We are also concerned about the lack of a sufficient audit trail to assess the veracity of penalties and justify the need for so much overtime. Without a sufficient audit trail, Transportation management is unable to appropriately verify these claims. We also identified weak administrative controls and a time lag between the submission and approval of overtime and penalty payment claims. Hidden Cost of Overtime and Penalty Payments The secondary cost of penalties and overtime is rarely considered by LIRR managers making on-time-performance based decisions. Because these extra payments represent pensionable time, current overtime and penalty payments reverberate in increased LIRR contributions to pension plans and the costs of employee vacation pay. For example, a $239 penalty payment to an employee eligible to retire, or who may become eligible to retire within several years, actually costs the LIRR about $566 when the additional pension and vacation impact is considered. Penalties and overtime also present significant costs in terms of managerial time and effort expended to verify and approve claims. Management should be

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aware of the external cost impacts and should consider the total costs, not solely the direct costs to the Transportation Department, when establishing crew book assignments and longer term overtime and penalty claim arrangements. Electronic System Necessary Given the challenges in maintaining acceptable on-time-performance on a railroad working at or near operational capacity, we are concerned by the fact that in 2004 LIRR failed to fully implement its Resource Process and Control System (RPCS). RPCS was designed to greatly improve controls, limit abuse, and reduce costs in Transportation’s crew management and payroll processing systems. Full implementation of all modules of the RPCS was halted due to what appears to be an incomplete understanding of the benefits of the system as a whole. Only the costs and part of the benefits were considered in the decision-making process and we believe that, as a result, the wrong decision was likely made. LIRR must effectively monitor costs and make adjustments to avoid unnecessary “extra” payments to employees. Given the myriad variables involved, Transportation needs a comprehensive electronic system that will help manage these variables and provide effective control over and accountability for engineer and conductor penalty payments and overtime.

Recommended Action Eight recommendations are offered to improve control and accountability over Transportation penalty payments and overtime, including the requirement that LIRR be able to systematically authorize, record, and analyze all extra payments through a comprehensive electronic system. The LIRR generally agreed with our recommendations (see Appendix D) and has begun to implement them.

TABLE OF CONTENTS BACKGROUND ................................................................................................................................... 1 OBJECTIVES, SCOPE, AND METHODOLOGY............................................................................... 3 PENALTY PAYMENTS ARE A SIGNIFICANT COMPONENT OF

PAYROLL COSTS............................................................................................................................. 4 Major Penalties and Their Cost in 2004 ....................................................................................... 5 Some Engineers Are Earning Three Penalty Payments in One Day ............................................ 7 Importance of Controlling Penalty Payment Costs....................................................................... 8

MUCH OF TRANSPORTATION’S OVERTIME IS BUILT INTO LIRR’S OPERATING STRUCTURE ............................................................................................................. 9

PENALTY AND OVERTIME PAYMENTS HAVE A HIDDEN COST BEYOND THE FIRST YEAR ......................................................................................................... 10

Penalty Payments and Overtime Increased 2004 Retirees’ Annual Pensions ............................ 10 Payments for Vacations and the BLE Welfare Fund Are Also Increased

by Penalties and Overtime....................................................................................................... 11 Management Needs to Be Aware of the Real Cost of Its Decisions .......................................... 12

OPPORTUNITIES FOR GREATER CONTROL AND ACCOUNTABILITY OF PENALTY PAYMENTS AND OVERTIME ............................................................................ 14

Late Equipment Trains--a Major Cause of Overtime and Penalty Payments--Are Not Being Reported by TIMACS................................................................... 14

Penalties Are Not Being Effectively Monitored......................................................................... 17 Yard Overtime Is Not Adequately Justified and Controlled ...................................................... 18 Recent Management Initiatives to Control Costs Are Not Sufficient ........................................ 20

THE OVERTIME AND PENALTY PAYMENT CLAIM PROCESS IS ANTIQUATED AND TIME CONSUMING................................................................................... 22

The Claims Process .................................................................................................................... 23 The Approval Process Is Inconsistent and Time Consuming..................................................... 23 New Logs Initiated in 2004 Are Not Accurate ........................................................................... 24

AN AUTOMATED SYSTEM TO MONITOR AND CONTROL ASSIGNMENTS IS NEEDED......................................................................................................... 25

RPCS Design and Implementation Decisions ............................................................................ 26 Description of the Disruption Management Module .................................................................. 26 The Decision to Cancel Disruption Management was Based Only on

Its Added Costs........................................................................................................................ 27 Control and Accountability Would Be Greatly Enhanced ......................................................... 28 Transportation Has Not Developed a Payroll Manual................................................................ 29

CONCLUSION.................................................................................................................................... 29 RECOMMENDATIONS ..................................................................................................................... 30 APPENDIX A: LIRR Organization Chart of Relevant Units ...........................................................A-1 APPENDIX B: LIRR Engineers Earning Over $125,000 in 2004 ...................................................B-1 APPENDIX C: LIRR Conductors Earning Over $125,000 in 2004.................................................C-1 APPENDIX D: LIRR Officials’ Comments on This Report ............................................................D-1 APPENDIX E: Contributors to This Report ..................................................................................... E-1

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BACKGROUND The LIRR is a New York State public benefit corporation. Accordingly, its employees enjoy some of the same benefits that state employees receive. At the same time, as a former private interstate railroad, the LIRR is subject to the Railway Labor Act and is regulated by the Federal Railroad Administration (FRA). More importantly, because LIRR operates under the FRA, legal decisions have held that LIRR employees are not subject to the New York State Taylor Law that bans strikes by public employees. The LIRR’s engineers and conductors are represented by the Brotherhood of Locomotive Engineers (BLE) and the United Transportation Union (UTU). Besides setting the basic rates of pay, the collective bargaining agreements between the LIRR and the UTU and BLE establish the work rules, seniority rights, discipline processes, grievance and other procedures governing all aspects of an employee’s daily work. The agreements, especially those for the engineers and conductors, have very detailed and specific work rules that can add greatly to the regular pay earned by employees. This report reviews LIRR’s efforts to efficiently manage overtime and penalty payments generated by those work rules. Largely because of the work rules cited above, LIRR’s engineers and conductors are among the highest paid represented workers in the MTA. During 2004, the railroad’s 355 engineers earned an average of $97,408 and its 976 conductors earned an average of $79,408.1 The average overtime earned by all 1,331 engineers and conductors was $18,798. On an aggregate basis, as shown in Table 1, their total earnings included 21 percent in overtime as well as an additional 5 percent in penalty payments. These penalties, which are payments of up to an additional day’s pay for violations of highly technical work rules, provided 9 percent of all earnings for engineers.

TABLE 1: Impact of Overtime and Penalty Payments on Engineer and Conductor Earnings in 2004

Base Pay Overtime

Penalty Payments

Holiday, Vacation, & Other

Total Earnings

Engineers $20,914,264 $ 7,635,810 $3,392,009 $ 5,790,346 $ 37,732,429 Conductors 50,795,344 17,384,712 1,929,337 10,719,984 80,829,377 Total Earnings 71,709,608 25,020,522 5,321,346 16,510,330 118,561,806 % of Total 60% 21% 5% 14% 100%

1 Averages exclude earnings of engineer and conductor trainees.

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Just how high individual earnings for engineers and conductors can reach is shown in Table 2, a list of the 5 highest paid engineers and the 5 highest paid conductors in 2004. Taking full advantage of penalty payments, the top engineer earned $210,436. The top conductor benefited more from overtime and earned $176,412. More complete lists of the 77 engineers and conductors who earned over $125,000 in 2004, are shown in Appendices B and C.

TABLE 2: Highest Paid Engineers and Conductors in 20042

Approximately $11 million of overtime earned by engineers and conductors in 2004 was planned, that is, it was built into the crew schedule or was paid out at time and one-half for working on a holiday. Another $13 million of overtime in 2004 was essentially unplanned, that is, it was spent paying engineers and conductors to work on their days off, for unplanned assignments, or for hours that exceeded their normal work day. Penalty payments are not overtime. Rather, they are distinct, additional payments “earned” when work assignments violate contract work rules. We will discuss penalty payments in greater detail below. As an illustration of the concept, however, the following are some conditions that lead to penalty payments: • An engineer operating a diesel and electric engine on the same day;

2 Earnings exclude vacation and sick leave buyouts. 3 Normally, engineers and conductors have the same base salary. However, engineers have been working without a labor contract since December 31, 2002. Consequently, their base pay is based on the hourly rate for engineers in effect at that time.

Engineers Base Pay3 Overtime Penalty

Payments

Holiday, Vacation, & Other

Total Earnings

#1 $ 62,227 $ 51,790 $ 73,924 $ 22,496 $ 210,436 #2 62,227 34,970 47,495 18,240 162,932 #3 62,227 27,769 55,173 13,658 158,828 #4 62,227 46,973 29,666 19,801 158,667 #5 62,227 53,530 24,607 17,507 157,872

Conductors #1 64,095 74,076 26,138 12,102 176,412 #2 64,095 77,512 8,997 9,935 160,539 #3 64,095 71,322 12,993 11,292 159,702 #4 64,095 74,251 9,702 10,196 158,244 #5 64,095 55,127 26,680 10,253 156,155

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• Working as a “passenger”4 train crew engineer or conductor and then as a “yard” crew engineer or conductor for any period during the course of a tour; and

• An engineer operating a train other than the train he or she was scheduled to operate.

Penalty payments have a cost not only in the actual dollars paid to the workers, but in the creation of administrative burdens as well. For example, LIRR managers must closely monitor train operations, not only with an eye to getting trains to their destinations on time, but also in a way that minimizes “violations” of the work rules and the subsequent claims for overtime and penalty payments. The LIRR maintains a crew management system to process these claims. Transportation’s payroll coordinators review over 100,000 hard copy time cards every year to determine if overtime and penalty payments are justified. If there is a question about a payment, information often has to be pieced together from various administrative sources. We estimate that just one of these administrative burdens, the verification of time cards within Transportation, costs over $400,000 per year.5

OBJECTIVES, SCOPE, AND METHODOLOGY The objectives of our audit were to: • Identify the major reasons for the high level of overtime and penalty

payments earned by engineers and conductors in LIRR’s Transportation Department.

• Determine if there are ways for the LIRR to more effectively manage or eliminate overtime and penalty payments in the Transportation Department.

• Determine if there are sufficient controls to assure that overtime and penalty payments are being correctly awarded and accurately paid by the LIRR.

We met with various LIRR officials in the Transportation Department, the Finance Department, Information Services, Service Planning, and other support departments to obtain management’s rationale for penalty payments and the high overtime, and also to identify their efforts to control them and prevent abuse. We visited various LIRR operations centers, train yards, and terminals to develop an understanding of their operations and to learn how penalties and overtime are generated. We also obtained detailed penalty and overtime cost data by individual, location, craft, and tour within the Transportation Department.

4 The vast majority of engineers and conductors are assigned to either passenger service or yard service. Passenger service involves operating regularly scheduled passenger trains. Yard crews operate trains within the confines of a particular yard. 5 Appendix A contains an organization chart depicting the relevant LIRR units as of January 2005.

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We obtained and reviewed “Exception Time Cards” submitted by engineers and conductors for the period January to December 2004 and used them to develop databases and conduct analyses of overtime and penalty costs to identify the factors that drive the payment of overtime and penalties. The audit was conducted in accordance with Audit Quality Standards of the Association of Inspectors General and in conformance with Generally Accepted Government Auditing Standards.

PENALTY PAYMENTS ARE A SIGNIFICANT COMPONENT OF PAYROLL COSTS

As shown in Tables 1 and 2, engineers and, to a lesser extent, conductors earn a significant part of their income through penalty payments. As noted above, penalty payments as high as an additional day’s pay are given to engineers and conductors for violations of specific work rules defined in relevant collective bargaining agreements. Such work rules are not unique to the LIRR. They can be found throughout the railroad industry. A U.S. General Accounting Office (GAO) report6 issued over 20 years ago stated: “Rail industry observers, Federal agencies, and others have discussed extensively the fact that work rules--the countless provisions of labor contracts that govern how labor is used on railroad engines and trains, the assignment of employees to their daily tasks, and the intricate formulas by which they are paid--have the effect of increasing operating cost. In addition, work rules have the effect of restricting productivity. Much has been written about the need to revise some work rules, but change seems to come slowly, when it comes at all.” To be clear, “penalty” payments do not arise from violations of health, safety, or FRA regulations. Rather, penalty payments at the LIRR are made for any violation of the numerous contract work rules that have survived through successive collective bargaining agreements over the course of many years. Many of the rules have been in agreements since the 1920s and address railroad operations from that era. According to the Vice President of Labor Relations they were negotiated into the agreements by unions essentially to save jobs and maintain union membership. Equipment and operations today have changed dramatically as has the nature of the LIRR itself, going from a private business to a public infrastructure component. Despite these changes in the operating environment of the LIRR, there has been little corresponding modification of many work rules to make them more reflective of, and responsive to, current operational and financial realities.

6 U.S. General Accounting Office Report #CED-80-61, “Conrail’s Attempts To Control Labor Costs and Improve Its Labor Productivity,” http://archive.gao.gov/d46t13/112613.pdf.

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Major Penalties and Their Cost in 2004 Below are descriptions of the major penalty payments incurred at the LIRR and their 2004 cost. • 2nd Class of Service - Cost: $1.8 million - Per article 2(b) of the BLE

Agreement, an engineer will be paid an additional day’s pay, in addition to the earnings of his scheduled assignment, when after reporting for duty he is assigned to another class of service. For example, if an engineer reports to his regular passenger assignment and then is later assigned to yard or freight service, he will receive an additional day’s pay. Conductors have a similar work rule in article 2 of their Trainmen Agreement, however, they are paid a half day’s pay for each penalty. According to the Vice President of Labor Relations, this rule can be traced back to at least March 1924 where it was a part of the agreement between the LIRR and the BLE.

• Commingling - Cost: $1 million ($168,000 for the 1st half of 2005) - The work Agreement between the BLE and the LIRR provides in article 2(l) that engineers may not operate diesel engines and electrically powered multiple-unit equipment, that is M-1s, M-7s and dual mode engines, during the same assignment. This practice is referred to as “commingling” for which engineers receive an additional day’s pay. Conductors assigned to the engineer’s crew do not get the penalty because their work agreement does not contain a commingling work rule.

The LIRR’s purchase of dual mode engines in recent years provides a good example of how an old work rule can have an unintended impact on costs. According to LIRR Labor Relation’s officials, the commingling rule dates back to the 1960s when the LIRR acquired a prototype dual mode engine and reached agreement with the BLE to essentially classify a dual mode engine as an electric powered engine. Specifically, article 2(l) was added to the BLE work agreement and it stated that “multiple energy source equipment will not be considered diesel equipment.” At the time, the new article had little impact--diesel engines operated only in non-electric territory, multiple-unit engines operated in electrified areas, and commingling violations were rare.

In 1999, however, the LIRR began to take delivery of 23 new dual mode engines to replace half of its diesel fleet. The major reason for acquiring the dual mode engines was to upgrade service to customers from eastern Long Island and provide them with more “one seat service” into Penn Station. In accord with article 2(l), the new engines were classified as electric and provided the LIRR with a fleet of 23 diesel engines and 23 dual modes to service its non-electric territory. However, the application of the commingling work rule established in the 1960s, had an unintended and arguably “windfall” impact for some LIRR engineers. Specifically, given the even split between dual mode and diesel engines capable of operating in non-electric territory, the engineers working the Port Jefferson, Oyster Bay, Greenport, and Montauk branches became much

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more likely to be assigned diesel and dual mode engines on the same day and thus incur a commingling penalty. Consequently, from 2001 through 2004, total commingling claims for engineers averaged $95,000 per month.

In November 2004, Transportation management decided to use only dual mode engines on its Oyster Bay branch and initiated other controls over commingling. As a result, monthly commingling costs have decreased from $98,625 for the period January to October 2004 to $28,687 from December 2004 through the 1st half of 2005.

• Outside of Normal Assignment - Cost: $618,000 - Per article 2(a) of the

BLE Agreement, an engineer assigned to operate any train other than his scheduled train runs in the crew book, will be paid the actual time for the additional service at the straight time rate in addition to the earnings of his scheduled assignment which he was unable to complete. In effect, the engineer is paid at double time for any period during his normal tour when he is operating a train other than his scheduled train runs for the day. Conductors on the same crew will not receive any benefit, unless the additional service goes beyond their scheduled release time. They would then be paid at the overtime rate. This penalty typically occurs when the crew of a late arriving train cannot make its next scheduled train and another crew is substituted away from its scheduled assignment (referred to as “swapping”) to operate the scheduled train of the late arriving crew.

• Sheridan Shop - Cost: $260,000 - Per a labor agreement made in 1984,

only engineers are allowed to move engines into the Sheridan Shop at Richmond Hill for servicing. Sheridan Shop claims are actually a type of 2nd class of service claim, but the costs are separately coded for tracking purposes.

The Sheridan claims are mainly earned by Yard Passenger Diesel (YPD)7 crews when they move an engine into the Sheridan Car Shop for service. The Sheridan move actually takes about one hour, but it generates a day’s pay for the engineer and a half day’s pay each for the conductor and assistant conductor on the YPD crew. In contrast, at the Richmond Hill Locomotive Shop located right next to the Sheridan Car Shop, Maintenance of Equipment department electricians move engines with no additional expense to the LIRR.

• Meal Payments - Cost: $1.6 million - All passenger and yard crews are

entitled to a meal period of 20 minutes at some point between their 3rd and 6th hour on duty. If a meal period is not provided during those exact hours, the employee is paid for an additional 20 minutes at the time and one-half rate.

7 YPD crews are assigned to operate diesel engines only within a yard.

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Some Engineers Are Earning Three Penalty Payments in One Day Under current work rules, LIRR engineers can claim 3 or even 4 days’ pay in one 8-hour shift. When certain rules in the work agreement are violated, the engineer receives one day’s pay for each rule violation. During 2004, we identified 30 instances where engineers earned three penalty payments in one day. When combined with their normal day’s pay, they earned four days of pay for one 8-hour shift. The number of times two additional penalty payments were earned was much more extensive. During 2004, we found 662 instances where engineers (514 times), and conductors (148 times), earned two penalty payments and received three days pay for one day’s work. We also found that it was a relatively small group of senior engineers who were benefiting from the “three penalty payments in one day” scenario. In fact, one engineer accounted for 8 of the 30 occasions where an engineer received three penalty payments plus straight time. Given that a day’s pay for an engineer is $239, this engineer earned $956 in a single 8-hour tour eight times in 2004. How the engineer, referred to as engineer A.B., “earned” four day’s pay during a single work day, in addition to overtime is described below:

FFoouurr DDaayyss’’ PPaayy iinn OOnnee DDaayy OOnn JJuunnee 1155,, 22000044,, AA..BB.. wwaass tthhee eennggiinneeeerr ffoorr yyaarrdd ccrreeww YYPPDD440033.. TThhee ccrreeww ooppeerraatteess ddiieesseell eennggiinneess iinn JJaammaaiiccaa SSttoorraaggee yyaarrdd aanndd iittss nnoorrmmaall ttoouurr iiss 1100 pp..mm.. ttoo 66 aa..mm.. AAtt 1111::4455 pp..mm..,, AA..BB.. wwaass ddiirreecctteedd ttoo lleeaavvee tthhee yyaarrdd aanndd ttaakkee aa ppaasssseennggeerr ttrraaiinn ppoowweerreedd bbyy aa dduuaall mmooddee eennggiinnee ttoo OOyysstteerr BBaayy.. HHee rreecceeiivveedd ttwwoo ppeennaallttyy ppaayymmeennttss ffoorr mmaakkiinngg tthhiiss mmoovvee.. •• AA..BB.. ““eeaarrnneedd”” oonnee ppeennaallttyy ppaayymmeenntt----aa 22nndd ccllaassss ooff sseerrvviiccee ccllaaiimm----ffoorr

ooppeerraattiinngg iinn ppaasssseennggeerr sseerrvviiccee oonn tthhee rruunn ttoo OOyysstteerr BBaayy wwhheenn hhee wwaass aassssiiggnneedd oorriiggiinnaallllyy ttoo yyaarrdd sseerrvviiccee aass ppaarrtt ooff aa ddiieesseell yyaarrdd ccrreeww..

•• AA..BB.. ““eeaarrnneedd”” aa sseeccoonndd ppeennaallttyy ppaayymmeenntt ffoorr ““ccoommmmiinngglliinngg”” bbeeccaauussee tthhee

eennggiinnee hhee ooppeerraatteedd ttoo OOyysstteerr BBaayy wwaass aa dduuaall mmooddee eennggiinnee aanndd hhee ooppeerraatteedd ddiieesseellss iinn tthhee yyaarrdd.. AA..BB.. rreettuurrnneedd ffrroomm OOyysstteerr BBaayy aanndd wwaass bbaacckk iinn tthhee JJaammaaiiccaa SSttoorraaggee yyaarrdd bbyy 11::5533 aa..mm..

•• AA..BB.. ““eeaarrnneedd”” aa tthhiirrdd ppeennaallttyy ppaayymmeenntt aatt 22::0000 aa..mm..----aa ““SShheerriiddaann SShhoopp”” ccllaaiimm ffoorr mmoovviinngg aann eennggiinnee iinnttoo tthhee SShheerriiddaann sshhoopp.. TThhiiss mmoovvee wwaass ccoommpplleetteedd iinn 4455 mmiinnuutteess..88

TThhuuss,, oonn tthhiiss oonnee ddaayy AA..BB.. ““eeaarrnneedd”” tthhrreeee ppeennaallttyy ppaayymmeennttss ffoorr aa ttoottaall ooff $$771188,, wwhhiillee bbeeiinngg ppaaiidd hhiiss rreegguullaarr ccoommppeennssaattiioonn ooff $$224477 ffoorr wwoorrkkiinngg hhiiss uussuuaall sshhiifftt.. AA..BB.. aallssoo eeaarrnneedd $$115577 ffoorr 33½½ hhoouurrss ooff oovveerrttiimmee.. IInncclluuddiinngg ootthheerr ssmmaalllleerr ppaayymmeennttss,,99 AA..BB..’’ss ggrroossss ppaayy ffoorr oonnee ddaayy aatt wwoorrkk wwaass $$11,,117777..

8 A.B. did work three and one-half hours of overtime on June 15th, but he completed moves that resulted in three penalty payments by 3 a.m., which is within the time frame of his normal eight hour tour. 9 Per the BLE labor agreement work rules, A.B. also earned $30 (an hour’s pay) for performing a brake test, a meal payment of $15, and a $10 certification allowance that is paid each work day to fully qualified engineers who maintain unrestricted certification licenses.

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Importance of Controlling Penalty Payment Costs While a day’s pay for a violation of technical work rules seems an excessive amount, the origin of this practice strongly suggests that it was never intended to be that way. A LIRR Labor Relations official told us that, historically, railroad engineers and conductors were paid on a mileage plus time basis. A day’s pay was similar to a nominal stipend while the mileage pay was the bigger factor. Thus, the historical context of some of the older penalty payments suggests that neither the LIRR nor the represented individuals understood that they would be a large cost item. Currently, however, engineers are paid based on time only and a day’s pay is $239. As further evidence of the anachronistic and regressive nature of these penalty payments, the work rules did not change when the pay structure for engineers did. By applying the same rules the same way today, LIRR has significantly increased its operating costs without a commensurate increase in what that extra cost buys. Under these outdated work rules, employees get paid extra for doing ordinary, foreseeable and necessary job activities, which they are trained and ready to do, but were not necessarily scheduled to perform. These work rules severely limit LIRR’s ability to make the necessary moves to maintain on-time-performance in response to weather and other challenges without incurring sometimes significant additional costs. Our real concern is not just the additional cost, per se. Rather, such a pay structure is arbitrary because it lacks a rational relationship between the additional pay and effort or experience given in return. When salary structures are irrational, they no longer act as incentives to better performance. Given that penalties have a high actual cost above and beyond the payment itself, as discussed later in the report, it is incumbent upon railroad management to control the application of these work rules. The Vice President of Labor Relations told us that the LIRR has had some success in limiting the interpretation of the agreements through the arbitration process. For example, they were successful in limiting the need for engineers at the LIRR’s Richmond Hill Locomotive Shop. In this instance, the LIRR took the position that electrician car movers could move engines into the shop. The BLE disagreed with the position and took the LIRR to court. The BLE lost in court and took the issue to arbitration claiming a violation of the work agreement and the status quo. The arbitration was decided in LIRR’s favor and electrician car movers are now allowed to move engines into the Richmond Hill Shop. This is a benefit for the LIRR because electrician car movers make less money, are more numerous, and can move engines when they are ready to work on them. Most importantly, however, this ruling prevented the award of full day penalty payments to engineers for making locomotive moves at the Richmond Hill Locomotive Shop. Thus, left unchanged, these work rules are an expensive reality of operating the busiest commuter railroad in America and managers must strive to maintain on-time-performance while not unnecessarily triggering penalty payments. Later in this report, we will discuss opportunities that LIRR may

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have to control operations in order to reduce costs and to find additional ways to avoid triggering penalties.

MUCH OF TRANSPORTATION’S OVERTIME IS BUILT INTO LIRR’S OPERATING STRUCTURE

Engineers and conductors earned $25 million in overtime during 2004. Unlike penalty payments and as discussed below, much of the cost of overtime is planned into the schedule or at least anticipated. However, as in the case of penalty payments, we conclude that LIRR can better manage these costs. Per collective bargaining agreements, work by an employee that exceeds 8 hours in a day must be paid at time and one-half. For engineers and conductors, there are six major types of overtime--crew book, extra assignment, pure, relief, short swing, and holiday overtime. The types and the approximate cost to LIRR in 2004 are defined below. • Crew Book Overtime - Cost: $6.1 million - Crew Book10 overtime is

the built-in overtime included in the daily crew schedules that the LIRR has set up so it can meet its service requirements. The LIRR’s labor agreements with the BLE and UTU do not allow the use of split shifts with compensated rest time between them as does MTA Metro-North’s (MNR) labor agreements. As a result, one crew cannot be used to fully cover both the morning and afternoon rush hours. Because the LIRR never obtained from the UTU and BLE the same agreement that MNR has, LIRR has set up 273 passenger and yard crews in its crew book with tours that range from 5 hours and 2 minutes to 11 hours and 24 minutes. Crews working above 8 hours are paid at time and one-half, which is considered crew book overtime. Crews working under 8 hours, however, are not paid a pro rata share of 8 hours. They are paid for a full day despite not working a full 8 hour day.

• Extra Assignment Overtime - Cost: $1.9 million - Extra Assignment

Overtime is scheduled for any of the various daily extra assignments that are not in the crew book. It includes the payment for any hours scheduled into an extra assignment beyond 8 hours.

• Pure Overtime - Cost: $5.4 million - Pure overtime is the unplanned

overtime, paid at time and one-half, that occurs each day as a result of train delays, emergencies, accidents, and other unscheduled events that will occur on a railroad.

• Relief Overtime - Cost: $6.8 million - Relief overtime is the pay at time

and one-half that engineers and conductors earn when they work on their assigned days off. Transportation officials told us that relief overtime costs were driven primarily by a shortage of engineers. This shortage

10 The crew book is issued 4 to 5 times per year and lists the train assignments by crew number for all engineers and conductors.

10

occurred because of an unanticipated surge in retirements in the years 2000 to 2003. Relief overtime also includes $1.4 million in flagging11 overtime by conductors.

• Short Swing Overtime - Cost $1.2 million - Per the BLE Work

Agreement, engineers are paid at time and one-half rate for all tours started within 22.5 hours of the beginning of a previous tour. These tours are referred to as Short Swing tours. Conductors are paid at time and one-half for the second tour they start in a day.

• Holiday Overtime - Cost: $3.1 million - Holiday overtime is the pay for

all hours worked by engineers and conductors on a holiday at the time and one-half rate.

While overtime costs certainly need to be controlled, it should be understood that all overtime costs are not in the same category as penalty payments. Some overtime, like crew book overtime, is essentially a cost containment measure to reduce the total number of engineers needed by the LIRR. In short, it is less costly to extend the tour of one crew and pay a few hours of overtime each day rather than hire another crew--with all the added fringe benefits--to work a tour that may be only a few hours long. Holiday overtime also is fixed by labor agreements and would be difficult to reduce other than by eliminating some train service on holidays. The overtime that can be controlled through better management appears to be pure overtime and some types of relief overtime.

PENALTY AND OVERTIME PAYMENTS HAVE A HIDDEN COST BEYOND THE FIRST YEAR

Although the LIRR paid over $30 million in overtime and penalty payments to engineers and conductors in 2004, the cost of the payments to the LIRR does not end with the initial payment to the employee. Because the formulas for calculating pensions, vacation pay, and payments to the BLE Welfare Fund are based on current and/or prior years’ earnings, the impact of penalty payments and overtime continues for several years. Penalty Payments and Overtime Increased 2004 Retirees’ Annual Pensions LIRR employees hired before January 1, 1988 are members of the LIRR Pension Plan and Plan for Additional Pensions. This plan is a relatively generous pension plan that allows employees to retire at age 50 with 20 years of service. Under the plan, all overtime and penalty payments earned in the 5 years prior to retirement, as well as vacation buyouts, are included in the calculation of the employee’s final average salary. The employee’s pension benefit is calculated using the final average salary multiplied by a percent based on years of service.

11 Per their work agreement, conductors are given the right to work all flagging assignments. When working these assignments, conductors direct the movement of trains in work areas.

11

We found that penalty and overtime payments to engineers and conductors retiring under the plan boosted pensions to levels higher than base salary for many of these employees. Specifically, 76 engineers and conductors retired in 2004, at an average age of 52, with an average annual pension of $61,603. As shown in Table 3, 13 of the 76 retirees left with a pension greater than $75,000 including one with a pension of $99,872 earned by a conductor with a base pay of $64,092. In addition, the 13 received an average vacation and sick leave buyout of $62,176 each when they retired.

TABLE 3: Engineer and Conductor Retirees with Annual Pensions Over $75,000 in 2004 (13 of 76 Retirees in 2004)

Craft Retirement

Age Base12

Pay

2000-05 Average Earnings

Annual Pension

1 Conductor 52 $64,095 $155,214 $99,872 2 Conductor 51 64,095 143,103 91,160 3 Conductor 53 64,095 140,672 90,859 4 Conductor 54 64,095 129,279 89,154 5 Engineer 54 62,227 129,545 88,392 6 Conductor 53 64,095 140,667 87,524 7 Engineer 52 62,227 129,458 84,193 8 Engineer 51 62,227 131,114 83,742 9 Engineer 54 62,227 132,996 79,647 10 Conductor 51 64,095 130,038 78,999 11 Engineer 50 62,227 128,521 78,852 12 Engineer 57 62,227 112,879 78,570 13 Engineer 51 62,227 124,022 76,646

Note: All employees retired with 29-32 years of service.

These annual pension benefits--that are well in excess of the retirees’ base salaries--are largely the result of a seniority-based crew assignment system that enables senior engineers and conductors to select assignments that generate the largest amount of overtime and penalty payments in the five years before they retire--the base period that is used to establish pension benefits. Payments for Vacations and the BLE Welfare Fund Are Also Increased by Penalties and Overtime Vacation payments to engineers and conductors are also impacted by penalties and overtime. Their labor agreements provide that for each week of vacation they take, engineers and conductors are paid 1/52nd of their prior

12 Engineers have been working without a labor contract since December 31, 2002. Consequently, their base pay is based on the hourly rate for engineers in effect at that time.

12

year’s total earnings rather than a normal week’s pay at the straight time rate. Thus, for every $239 penalty payment received in 2004, an engineer with 15 years of service and entitled to 26 vacation days a year (25 vacation days + 1 birthday holiday), will also receive an additional $23.93 in vacation pay in 2005, another $2.39 in 2006, and $ .24 in 2007--a total of $26.57. This rule enabled one engineer to receive almost $20,000 in vacation pay in 2004 whereas he would have received only $6,000 in vacation pay if he was paid at his base salary rate--the vacation benefit received by all other LIRR represented and non-represented employees. The engineer actually received $798 for each vacation day taken in 2004 (instead of his base $239) because he earned $201,490 in 2003 that included $51,656 in overtime payments and $65,699 in penalty payments. The BLE Work Agreement also provides that 6 percent of all earnings by engineers will be paid by the LIRR into the BLE Welfare Fund. This fund is controlled by the BLE and is used to provide its members with additional welfare benefits such as supplemental dental insurance. Since the LIRR payment is tied to engineer earnings, each penalty payment of $239 also generates another $14 expense for the LIRR and conveys a benefit in that amount to the BLE Welfare Fund. Management Needs to Be Aware of the Real Cost of Its Decisions The LIRR managers we spoke with told us that their primary focus is on customer needs and meeting on-time-performance goals. They are not as concerned with the financial or budgetary impact especially when the costs--such as pension and fringe benefits--are “externalities,” costs not charged to their immediate department, but absorbed later by the LIRR. We believe management should be aware of these external costs and should consider all the costs, not solely the direct costs to the Transportation Department, when establishing crew book assignments and other longer term staffing arrangements. For example, when managers consider the cost effectiveness of holding yard crews on overtime versus establishing an additional yard crew, their projections should account for the likelihood that opting for higher overtime levels will create lucrative positions that will draw more senior employees that are within five years of their retirements. Therefore, routinely paying them overtime may be more expensive than staffing the yard with an extra crew. In addition, when the same penalty payment is being earned on a routine basis by a retirement eligible crew, management should evaluate the financial benefit of using an additional crew to perform the penalty work. We estimated the real cost of penalties and overtime by identifying engineers and conductors who are eligible to retire or will be eligible to retire in the next five years and then calculated the added cost their penalties and overtime generated. For example, when a penalty payment is made to a retirement eligible engineer or conductor, the penalty is included in the final average salary formula used to calculate the worker’s pension benefit. The average annual increase in the pension benefit due to a single day penalty of $239 to anyone of the 76 LIRR engineer and conductor retirees in 2004, was

13

$26 per year. Using data from the National Center for Health Statistics, we found that the life expectancy of a 52 year old male (again using the average age of the 76 engineers and conductors who retired in 2004), is 26 years. Thus, the additional $239 penalty payment will cost the LIRR another $684 in pension payments over 26 years.13 Using a present value formula, we estimated that the amount of money the LIRR needs now to fund this liability is about $286.14 As indicated previously, the added vacation costs in the next three years due to the penalty will be $27 and, finally the LIRR will have to contribute another $14 to the BLE welfare fund. Thus, every time a penalty is paid to a worker within five years of retirement, the true cost of the penalty is about $566 consisting of $239 for the penalty, $286 for additional pension costs, $27 for added vacation costs, and $14 for the BLE Welfare Fund. Similarly, the cost for an hour of overtime is about $45, but when the overtime is earned by a retirement eligible engineer or conductor its real cost is $106. On an aggregate basis, the real cost of penalties and overtime paid in 2004, including the added pension and vacation costs, is shown in Table 4 below.

TABLE 4: Real Cost of Penalty Payments and Overtime in 2004

Amount Paid Real Cost

Penalty Payments Commingling $ 1,063,316 $ 1,912,308 2nd Class of Service 1,769,140 2,879,070 Outside Normal Assignment 616,991 1,067,948 Sheridan Shop 259,911 546,446 Meal Payments 1,629,979 2,427,670 Total Penalties

$ 5,339,337

$ 8,833,443

Overtime $25,020,522 $37,281,608

13 We did not consider the life expectancy of the retirees’ spouses in our calculation of the $684. If we did, the cost would have been even greater. 14 Any additional pension liability is especially important because LIRR pension fund costs have risen rapidly. For information on these rising costs, see OIG Report #2004-48L (winner of the 2004 National Association of Local Government Auditors “Knighton Award” for Best Audit), An Investigation into the MTA Long Island Rail Road Company Pension Plan and Plan for Additional Pensions.

14

OPPORTUNITIES FOR GREATER CONTROL AND ACCOUNTABILITY OF PENALTY

PAYMENTS AND OVERTIME Given the impact that penalty payments and overtime have on pension costs, vacation expense, and BLE welfare fund payments now and in the future, management has a duty to ensure that these costs are effectively controlled. Thus, we focused on understanding and analyzing how management currently acts to control these costs and limit the cost impact of contract work rules. Penalty payments and much of the overtime incurred by LIRR are the result of operational decisions made by Transportation managers during the course of each day as they try to maintain schedules and meet on-time-performance standards. Sometimes payments can also be a result of decisions made by managers in other LIRR departments. The current LIRR systems and controls do not adequately capture the reasons for the decisions driving penalty and overtime costs similar to the information captured by LIRR’s Train Information Monitoring and Control System (TIMACS)15 for train delays. Because of the overwhelming institutional value placed on on-time- performance, TIMACS provides managers with the cause of every train delay, which they can use to mitigate such events in the future. Ideally, any new system for tracking penalties and overtime, would capture not only the reason for each payment, but would also establish accountability and determine who was responsible for making the operational decision that led to the penalty or overtime. Since the LIRR does not have an automated system to simultaneously track penalties and overtime along with the decisions giving rise to them, during our audit we had to go back to source data on time cards and log sheets and create our own databases in order to identify the specific actions that generated penalty payments and overtime. Once we collected, organized and analyzed this data, however, we were able to identify concerns about equipment trains, payments made to yard crews, and the payroll verification process itself. Late Equipment Trains--a Major Cause of Overtime and Penalty Payments--Are Not Being Reported by TIMACS During our audit, we were told by Transportation managers that many of the penalties and much of the overtime payments made were a result of the 20 to 50 swaps made every afternoon at Penn Station. Swaps, the switching of crews from their crew book assignments to other train runs (see the section above titled “Major Penalties and Their Cost in 2004” on page 5 for a fuller description of swapping), were routinely made to allow trains to leave Penn Station on time and help maintain on-time-performance standards. Each swap, however, generates at least one penalty. In fact, one swap frequently

15 TIMACS is the real-time system that tracks train movement throughout the LIRR system.

15

has a cascading effect as crews taken off their scheduled assignment are replaced by other swapped crews that are replaced by still other crews. Ultimately, one late train coming into Penn Station can lead to several penalty payments and extensive overtime for multiple crews. We asked Transportation for an automated listing of swaps and were told that they only maintained a daily handwritten swap sheet for Penn Station. Therefore, we obtained the swap sheets at Penn Station for March 2004 and created our own database of crew swaps by entering data on the crews, trains, and reasons for the swaps. Ultimately, we found that equipment trains arriving late into Penn Station during the afternoon rush hour were one of the factors causing these penalties. Equipment trains are scheduled, non-revenue passenger trains running empty to Penn Station or another terminal where both the crew and the equipment are scheduled for additional service or where the train is laid up for the day and the crew goes off duty. The LIRR has 179 equipment trains worked into its Monday to Friday crew book schedule--including 44 trains returning to Penn Station during the afternoon and evening where the crews are scheduled to operate other trains. We found that 8 of these 44 equipment trains coming into Penn Station are frequently late causing penalty payments16 as well as overtime. As shown in Table 5, during 2004 these eight trains arrived late 46 percent of the time.

TABLE 5: Equipment Trains Arriving Late into Penn Station in 2004

Train # # of Times

Train Operated

Arrived Late 10 Minutes or Less

Before Crew’s Next Train17

Percent Arriving Late

4153 238 178 74.8% 3127 241 150 62.2% 4367 246 137 55.7% 3125 244 106 43.4% 4707 239 91 38.1% 3109 233 85 36.5% 3115 250 91 36.4% 5553 252 55 21.8%

Totals 1,943 893 46.0%

16 When the engineer misses his next scheduled train assignment and is assigned to operate another train, he qualifies for Outside of Normal Assignment penalty pay, which is double time while he is operating any train other than his scheduled trains during his normal tour and time and one-half when he works beyond his scheduled release time. 17 LIRR officials told us that crews need a minimum of 10 minutes to make a “turn” at Penn Station. Thus, we considered equipment trains as late when they arrived 10 minutes or less before the departure of the crew’s next scheduled train.

16

Late equipment trains do not carry passengers and thus do not inconvenience LIRR customers. However, the crews operating equipment trains are frequently scheduled to take out other passenger trains within 10-20 minutes of arriving at Penn Station. Thus, if an equipment train crew arrives too late to take out their next (passenger) train on time, Penn Station dispatchers must bring on a substitute crew for the outgoing passenger train. The dispatcher has a few options: he or she can call in a “protect” (standby) crew, a crew from a later scheduled train, or a crew just finishing up its normal tour to operate the train. If a protect crew is used, no penalty will apply. In the other two cases, however, the engineer of the substitute crew is entitled to a penalty payment and possibly overtime. The conductors also may get overtime if they work beyond their scheduled release time. But the cascade effect continues: the crew from the late equipment train, having missed their next passenger run may be then assigned to other trains. In that event they too will receive outside normal assignment penalties and/or overtime. (Alternatively, if the late arriving crew is not re-assigned, they will sit idle and be paid). The effect continues as other crews are swapped to replace those swapped earlier. Every swap costs the LIRR penalties and potential overtime, and every penalty and overtime payment costs the LIRR additional pension expenses and/or vacation and BLE welfare fund payments. Data was not available reflecting the actual cost of outside normal assignment penalties caused by the late arriving equipment trains because, as noted above, the LIRR does not have an automated system to collect and analyze the reasons for the penalties. Our analysis of the March 2004 swap sheets revealed, however, that late equipment trains were directly responsible for 100 of the 882 swaps reported for the entire month. Moreover, swaps made for late equipment trains resulted in 54 additional, cascading swaps to backfill for the initial crew changes. Thus, each equipment train that was too late for its crew to make their next train caused an average of 1.5 swaps. Using data from LIRR’s Data Warehouse, we estimated that the average cost of an outside normal assignment penalty in 2004 including overtime was $284. Thus, we estimated that the swaps generated by the 893 late equipment trains that occurred in 2004 cost approximately $380,00018 not including the additional pension, vacation, and BLE welfare fund payments that are incurred. Despite LIRR’s operating imperatives, we nonetheless believe that some swaps could be avoided if the crews were not so tightly scheduled between runs. We informed Penn Station’s Superintendent of our findings and asked him why the equipment train schedules had not been adjusted so that crews on these trains had more time between runs. He stated that he was not aware that all of the above trains were arriving late so frequently. He told us that he was aware, in general, of the problems that late equipment trains were causing and had recently adjusted the schedule of train #4153, one of the trains we identified, to allow the crew more time to make its next scheduled

18 Late trains (893) x average swaps per late equipment train (1.5) x average outside normal assignment penalty cost ($284) = $380,000.

17

assignment. The Superintendent also showed us that he had adjusted the schedules of several other late equipment trains, which were not on our list of late trains, prior to July 2003. Due to the complexities inherent in the LIRR, monitoring of late equipment trains is an ongoing need. This fact is illustrated by the fact that other equipment trains began arriving late after management made schedule changes to avoid penalties and overtime on the identified late arriving trains. One reason why the Superintendent was unaware of all the late equipment trains is that the TIMACS system does not report on the performance of equipment trains. While equipment trains are properly not included in on-time-performance passenger service data, equipment train performance is clearly a factor in causing penalty and overtime payments. Thus, we feel that management is obligated to more closely monitor it. We asked LIRR Information Service officials if TIMACs could generate reports on equipment train performance. We were assured that TIMACs currently records the arrival times of equipment trains, although it is not used in generating on-time-performance for passenger service. LIRR Information Service staff also agreed that the passenger service criteria for being late--5 minutes and 59 seconds--could be individually adjusted in TIMACs for equipment trains to reflect a more meaningful lateness criteria, the time needed for the crew to make their next train run. Penalties Are Not Being Effectively Monitored Another oversight issue surfaced during our review of penalties generated at the LIRR Flatbush terminal in Brooklyn. We found that the engineers and conductors assigned to one Brooklyn yard crew--YE24, earned 2nd class of service penalty claims 158 times in 2004. Many of these claims, at a total cost of $55,000, were earned by two engineers--one earning $19,506 in additional pay and the other $11,249, and by one conductor who earned an additional $13,066. All of this for work performed during their normal 8-hour tour. Most of the claims--30 of the 158--occurred because the YE24 yard crew was swapped into passenger service and assigned to operate an equipment train (train #5450 for 61 of the 130 claims) from the Brooklyn yard to Hillside or another Jamaica area yard after the p.m. rush hour. The other 28 claims were the result of the more typical swaps that occurred when the YE24 crew was assigned to replace the crew of a passenger train that was late returning to Brooklyn or was swapped onto another train. Our concern here is that LIRR management was not aware of the frequency of the swaps being made; each swap resulted in $362 in penalty payments--$239 for the engineer and $123 for the conductor. When OIG auditors first saw the high number of penalties being paid to the YE24 crew for operating equipment trains, we met with the Superintendent for Terminal Operations-PM who has responsibility for service in Brooklyn. The Superintendent was not aware that the swaps were occurring so frequently. Moreover, he could not immediately provide an operational reason why the YE24 crew would be operating an equipment train on such a consistent basis.

18

Normally, swaps are made when the assigned passenger crew for a train is unavailable due to a late train or because it was pulled to operate another train. Through an analysis of TIMACS data for the 61 instances involving train #5450, we found that in 41 instances the passenger crew normally assigned to operate it had completed its last run on time and was available in Brooklyn to operate train #5450. However, the yardmaster--who is not management and made the swapping decisions involving the 130 equipment and shop trains--still decided to assign the YE24 yard crew to operate the 41 equipment trains. While records indicating the reasons for these swaps were not maintained, LIRR managers told us that the likely reason was that the yardmaster believed there was a need for a more experienced yard crew to operate the equipment trains because of the potential for some operational problem while traveling to Hillside. LIRR management has since taken some action to correct the condition. They have added a “protect” crew in Brooklyn that can now operate trains that previously were likely to be assigned to the YE24 crew, thus avoiding the penalty claim YE24 would have obtained. They have also changed the crew book and eliminated the need for equipment train #5450 in Brooklyn that was causing many of the penalties. They now require penalties to be manually logged each day and they also require penalty claims to be approved by a manager and not by a yardmaster. We are pleased that this specific problem has been resolved, but are concerned nevertheless that this problem, and possibly others like it, were not identified by management. Furthermore, LIRR overtime reports still do not summarize the reasons for claims, nor are they recorded in any automated system that allows claim data to be reviewed and analyzed for the purpose of identifying similar or common reasons for the claims. In effect, these instances prove that penalty claims are not being effectively managed and accountability for these decisions is not being systematically imposed by any level of management. Yard Overtime Is Not Adequately Justified and Controlled The LIRR has established 36 yard crew assignments to facilitate the movement of trains at its train yards that include the West Side yard outside Penn Station, the Jamaica terminal yard, the Flatbush yard in Brooklyn, the Hillside and Holban yards, the Morris Park yard, the Long Island City yard, and the Babylon yard. All but one are staffed 5 to 7 days each week by engineers and/or conductors. During 2004, these yard crews earned $1.8 million in overtime. Of this amount, $1.2 million or 65 percent was earned by engineers and conductors assigned to 11 specific yard crew assignments. These 11 assignments, usually “picked” by the more senior engineers and conductors, enabled 36 engineers and conductors to earn $851,000 or 46 percent of all yard overtime. Each earned between $11,000 and $41,000 in overtime during 2004.

19

The Existing Controls On most days, the crews working these 11 assignments are routinely given 2 to 4 hours of overtime--the maximum allowed under FRA regulations.19 We reviewed time cards and met with LIRR officials to determine the extent of controls they have in place to monitor overtime at the yards. We found that: • There are no automated attendance controls, such as swiping in and out,

that would record when crews go on and off duty each day.

• Prior to November 2004, the only documentation of work that existed was the time cards filled out and submitted by engineers and conductors. The time cards indicate the “on” and “off” duty times and typically contain the stock phrase “worked as directed” to document work performed on overtime.

• Prior to November 2004, time cards were signed by yardmasters who are represented workers and not management. Now, they are required to be signed by a manager.

• In November 2004, the LIRR improved its control of overtime at the yards by requiring a “Yard Crew Assignment Sheet” or “Work Exception Sheet” to be completed daily at each yard. These sheets, signed by the managers on duty each day, are essentially handwritten logs of overtime hours and penalty payments awarded to yard crews. Copies of the sheets are sent to Crew Management to enable Crew Management personnel to verify engineer and conductor claims for overtime.

LIRR Management Maintains That Yard Overtime Is Needed to Ensure Coverage

LIRR Transportation officials told us that yard overtime is assigned each day essentially to “protect” and provide coverage for the yards. In effect, a second crew on overtime is held in the yard in case a train needs to be moved while the scheduled crew is busy. They explained that if a move needs to be made while the scheduled crew is busy and an overtime crew is not available, the Yardmaster would have to use a passenger crew to perform the move. This would require a penalty payment of a day’s pay to the passenger crew which would be more expensive than providing overtime to the yard crew. LIRR management maintains that no documentation of the overtime crew’s activity is needed because they are not held on overtime to work continuously. In fact, it is LIRR management’s hope that they will not have to make any moves during overtime hours, since that would mean that the railroad is operating smoothly. However, the LIRR did not provide us with any analysis or documentation that supports the level of investment in extra coverage indicating how often the crews are actually used to operate trains and why they are usually assigned 4 hours per day rather than two or three hours.

19 Per FRA regulations, engineers and conductors are limited to working 12 hours in one day.

20

Assignment Sheets Are Not Adequately Detailed In the absence of an analysis of yard overtime by the LIRR, we attempted to determine the appropriateness of overtime levels by reviewing the activity levels of crews while they are on overtime. This was not possible, however, because the Assignment Sheets did not contain detailed information on the work performed while on overtime. For example, we reviewed the West Side Yard Assignment Sheets for December 2004 and found that for 45 of the 194 overtime claims, the “Reason Held” column was blank. For another 75 claims, the reason listed was “held to protect,” essentially indicating that the crew was held for coverage purposes. Even where detail such as “Held to make PI [periodic inspection] moves” was provided, the Assignment Sheet did not list the car or engine numbers of the equipment that the crews operated. No other detail was maintained at the yards regarding the type of moves the crew made while held in protect status or whether they were used at all. Since neither a past analysis of yard overtime nor detailed current assignment sheet information is available, it is realistically impossible for management to objectively evaluate whether the overtime hours are truly justified or represent an area in which management could rationally make cuts.

Yard Overtime Has Decreased, but the Controls Can Be Improved

While overtime at the yards has decreased from an average of $153,000 per month in 2004 to $143,000 per month for the first 6 months of 2005, most of this appears to be the result of decreases at the West Side yard where managers have directed yardmasters to daily assess the need to keep crews on after 2 hours of overtime and not just assign the 4 hours of overtime that West Side yard crews had been given in the past each day. While this added oversight has helped, we believe the overall existing controls over yard overtime are inadequate for two reasons. First, without an automated time and attendance system in place such as a requirement for yard crews to swipe “in” and “out,” the system is unnecessarily vulnerable to time and attendance abuse by employees. Second, as discussed above, while the LIRR maintains overtime is needed to ensure adequate coverage at yards, the appropriate level of overtime needed in the yards has not been determined by an analysis of activity in the yards, nor can it be justified by the information now recorded on the Assignment Sheets. Recent Management Initiatives to Control Costs Are Not Sufficient The current cost control initiatives in the Transportation Department can be traced back to 2003. At that time, Transportation noticed that payments for crew swaps and commingling claims were increasing. The 2000-2005 trends for pure overtime, commingling, 2nd class of service, and outside normal assignment can be seen in Figure 1.

21

FIGURE 1: T&E 2000-2005 Pure Overtime and Penalty Trends

In an effort to reduce these claims, Transportation carried out two efforts to analyze them. One of the efforts undertaken was the formation of a team in Jamaica to analyze commingling claims in Jamaica Storage yard. The second was an analysis of the crew book, which resulted in several changes that increased dwell times (the time a crew has off duty between train assignments) for some crews. While increasing dwell time would seem to be less efficient, in some circumstances it can reduce overall costs by giving crews more time to make their next train and eliminate Outside Normal Assignment penalties that occur when they miss their next train. In Fall 2004, Transportation expanded their efforts. They established an interdepartmental group to reduce commingling. This group was composed of representatives from Transportation, Service Planning and Mechanical departments. The group analyzed commingling system-wide and determined that the best way to reduce commingling was to use only dual mode engines on the Oyster Bay line. This plan, implemented in November 2004, helped to reduce commingling claims from $98,625 per month in 2004 to $28,687 per month for the period December 2004 through May 2005. Now, before a crew operates an engine that will generate a commingling claim, the engineer is required to notify personnel in LIRR’s Movement Bureau, who then verify that there is no other engine available that could be used to prevent the claim. This constant monitoring of commingling ensures that a yardmaster or other

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operations person does not inadvertently order a crew to operate an engine that would trigger a commingling claim. After this successful effort, Transportation established an Overtime Task Force to look for ways to reduce the other major penalty claims including second class of service, pure overtime, and outside normal assignment. The Overtime Task Force meets monthly and is led by the General Superintendents of Transportation and Terminal Operations. The Superintendent of Quality Assurance and Administration and all Lead Transportation Managers attend the meetings. A weekly report tracking penalty claims is distributed to each of the Task Force members. The Lead Managers are tasked with investigating and removing the causes of any increases in overtime or penalty payments. The Superintendents are responsible for reviewing the work of the Lead Managers and for questioning any increases that haven’t been addressed by the Lead Managers. The Lead Managers do not have a monetary goal. Rather, their goal is to reduce costs wherever they can. In practice, one General Superintendent explained that he typically looks at overtime and penalty payment trends and selects a couple to raise at the task force meetings, in order to confirm whether or not Lead Managers know what drives the payments. The advantage of using Lead Managers to figure out how to reduce claims is that they are knowledgeable about how particular operational changes will reduce overtime and penalty claims. The disadvantage, according to the General Superintendent of Transportation, is that Lead Managers are busy with the daily operations of the railroad and may not have the time or the research skills necessary to perform detailed analyses of penalties and overtime. We are concerned about the use of an incremental approach like the one detailed above for several reasons. The issues we identified were related to systemic problems with equipment trains and consistently high overtime expenditures at yards. An incremental approach likely will lead only to questions about spikes in costs. It will not necessarily lead management to question costs that are too high in absolute terms but which remain constant. Given that the present approach is geared toward incremental changes, OIG believes that a more comprehensive and systematic monitoring system is needed to provide effective control over penalties and overtime.

THE OVERTIME AND PENALTY PAYMENT CLAIM PROCESS IS ANTIQUATED

AND TIME CONSUMING The system that the Transportation Department uses to verify penalty and overtime claims submitted by its engineers and conductors has been in place for many years. It is a labor intensive, paper system that relies on exception time cards as the primary source of data for the penalty payments and overtime earned by train crews.

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The Claims Process Employees claim overtime or penalty payments by preparing a time card which is approved and then deposited in a drop box located at a terminal. The approved time card can also be turned in to the Crew Management office. The time card represents the employee’s claim of overtime and penalty payments due per the employee’s interpretation of provisions in the union labor agreements. Each day approximately 350 time cards are submitted to Crew Management. They are processed by the department’s seven payroll coordinators, who review the time cards for proper authorization and to verify that the penalties and overtime reported by the employee are accurate and in accord with the engineer and conductor labor agreements. The verification of these claims is done by ensuring proper approval and/or by checking individual claims against various reports and logs that are forwarded each day to crew management. If overtime is claimed, the actual amount of time claimed is manually calculated by the payroll coordinator. The reports and logs submitted include the Engine Service Markup sheet, Penn Station swap sheets, the Morris Park Hostler Work Report, the Transportation Crew Board Report, the Terminal Minutes Report, as well as several other records. This voluminous support information is maintained by crew management to support the payments they authorize each day. The Approval Process Is Inconsistent and Time Consuming According to the Director of Crew Management, all claims submitted should be signed and approved by a manager or supervisor. However, an unsigned time card is considered approved by the payroll coordinators in Crew Management if it is substantiated by one of the logs that are submitted to Crew Management by the field supervisors. In the event that a submitted time card is missing the requisite signature or substantiation by one of the logs, a payroll coordinator will call, e-mail, or send a copy of the time card to the supervisor to obtain approval. We reviewed all 2nd class of service claims--a total of 306, that were paid to engineers in December 2004 and found that the approval process varied: • 178 claims (58 percent) were appropriately signed and approved by a

supervisor.

• 29 claims (9 percent) were verified to one of the supervisor’s logs submitted to Crew Management.

• 53 claims (17 percent) were approved for payment after the payroll coordinator directly contacted a supervisor by e-mail, fax, or telephone.

• 46 claims (15 percent) were considered to be “valid” by the Director of Crew Management. Upon review, the documentation in these cases either did not support the claims or was not maintained in the files.

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Transportation should have maintained adequate documentation to support this last group of 46 claims. In addition, as discussed below, the Crew Management office also does not maintain a manual of their procedures specifying what approval documentation should be maintained by the payroll coordinators. In addition to the lack of documentation, we are also concerned that operations managers and supervisors are required to spend an inordinate amount of time responding to verification requests from payroll coordinators. Each month payroll coordinators contact various managers and supervisors to verify overtime, commingling, outside normal assignment and 2nd class of service claims. For example, payroll coordinators e-mailed Penn Station managers 74 times in January 2005 regarding overtime and outside normal assignment claims. In Jamaica, two lead managers review and approve all claims generated by crews assigned to Jamaica area yards. If they cannot verify a claim based on their own knowledge or see the claim on a log or assignment sheet, they will check with the field personnel who ordered the move. The excessive time consuming nature of such interaction is compounded by the questionable approach of asking managers to verify a series of events that happened days or weeks before. New Logs Initiated in 2004 Are Not Accurate We also found that the new Assignment Sheets instituted were neither accurate nor complete. OIG examined the December 2004 “Yard Crew Assignment Sheets” for the West Side and Brooklyn yards that were intended to record all overtime and penalty payments at the yards. We found the following discrepancies on these daily records: • 59 engineer and conductor penalty overtime claims were not fully

substantiated by the Assignment Sheets. In some instances, the number of hours listed on the assignment sheet differed from the hours claimed by the employee or could not be verified because the release time was not indicated on the assignment sheet. In other instances, the overtime was not indicated at all on the Assignment Sheet.

• Five 2nd class of service claims--each a full day’s pay--were paid to West Side yard and Brooklyn crews in December 2004 while the Assignment Sheet log showed no authorization for those 2nd class of service claims.

We also examined the Jamaica Storage yard “Work Exception Sheets.” These records are prepared daily to list any moves made by the YPD crews or Change Engine20 crews that could result in penalty claims. In some cases, the Exception Sheets were missing for an entire day or for a certain tour. In other cases, the Exception Sheet listed one penalty, but the employee claimed and was paid for two claims. Sometimes the yardmaster wrote “No exceptions” on the work sheet, yet an employee still made a claim for that

20 Change Engine crews deliver engines from one point to another for the use of other crews and/or return of engines to a point where repairs or servicing is to be performed.

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day and was paid. Specifically, we reviewed the January 2005 Work Exception Sheets and found the following: • A total of 206 penalties were paid to Jamaica crews during January 2005

for 2nd class of service, Sheridan shop, and commingling claims. Of these, 53 claims were not listed on the exception sheets. Thus, the two Jamaica area managers responsible for approving the claims would have had to use other means to verify them.

• On 14 days in January 2005, at least one tour did not turn in an exception sheet.

In our opinion, the new logs initiated in 2004 are not accurate and are not adequately providing management with the required backup to verify employee claims. Managers still contact other managers to attempt to verify many claims.

AN AUTOMATED SYSTEM TO MONITOR AND CONTROL ASSIGNMENTS IS NEEDED

Current claims processing for engineers and conductors is labor intensive and lacks adequate controls and accountability. As previously described, insufficient information is provided by managers, which leads to time-consuming, follow up work by payroll staff. Currently, seven Payroll Coordinators within the Transportation department spend a total of 254 hours per week supporting the verification process required by this payroll system--a system which supports the approximately 1,331 engineers and conductors that work at the LIRR. In the second half of this report, we discussed the need for greater control of and information about penalty payments and overtime. Problems, such as the frequency of late equipment trains went unresolved by management. Recent reforms that require handwritten logs of overtime and penalty-generating decisions do not provide sufficient control or give management the ability to readily analyze the data submitted. Until Transportation captures more obviously relevant business data, such as who authorized additional work and why, reliable identification of problems cannot occur and cost saving opportunities will be missed. We believe that the penalty payment and overtime claim processing system needs to be automated. Managers should be electronically recording and authorizing these claims when they make the decisions to incur the costs. Control and accountability for the payments would clearly be enhanced by re-structuring the system in this way. Engineers and conductors should continue to have the capability to initiate a claim if they believe one has been overlooked, but this should be the exception and not the rule. Ironically, Transportation was heading in this direction a few years ago when they commissioned a new crew management and payroll processing system. Unfortunately, as will be described below, a decision was made not to implement all of the system components. Certain features of the system would have likely gone a long way to addressing the problems described in this report.

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RPCS Design and Implementation Decisions In 1999, LIRR’s Information Services department entered into a $1.4 million contract with PS Technology, Inc., for the design and development of a new crew management and payroll processing system, or Resource Process and Control System (RPCS), for the LIRR Transportation Department. The contract specified that RPCS would provide Transportation with the capability to track, analyze, and manage the assignment of train crews and to know where its trains and crews are at all times. RPCS was designed to replace LIRR’s existing Crew Dispatching System, the Train and Engine Exception Payroll system, and Transportation’s Manpower Department Absence Control System. The RPCS system was originally designed as three modules that would interface with each other. The three modules are Crew Dispatch, Timekeeping and Disruption Management. The Crew Dispatch module is already operational and the Timekeeping module will be completed by the end of 2005. In contrast, The Disruption Management module was cancelled in December 2004.21 Description of the Disruption Management Module The Disruption Management module was designed to help Transportation personnel manage trains and crews during a service disruption that can result from storms, equipment failures, employee absences, etc. During a disruption, train crews are often transferred or “swapped.” The Disruption Management module was supposed to provide Transportation personnel with a list of crews that are available and indicate which of the available crews would be the most cost-effective to swap. Costs can vary for different crews for several reasons. For example, engineers receive double time pay when they are operating trains that are not in their original schedule, while conductors get overtime pay at time and one-half only when they work after their scheduled release times--which will vary for each crew. In order to reduce the amount of double time and overtime, Transportation’s managers try to get swapped crews back onto their originally assigned trains as soon as possible. Choosing which crews should be swapped to minimize the ripple effect is difficult to figure out under the best of circumstances, but the Transportation personnel in Terminal Operations have to make these decisions very quickly during peak hours. The Disruption Management module was theoretically going to help Transportation managers make these swapping decisions at the lowest cost. While helping managers assign crews in the most effective manner was a primary objective of the Disruption Management module, the module required the electronic input of any changes to crew assignments and activities throughout the system. We believe that tracking crew assignments and activity, and electronically storing such information would have been valuable to management in and of itself. Unfortunately, this opportunity was lost when the module was cancelled. As designed, RPCS would have

21 Decision was told to IS in April 2004, but the official decision letter was not sent out until December 2004.

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required field personnel, for example Lead Managers and Terminal Operators, to electronically submit information about the activities that generate overtime and penalty payments. Thus, the system could have provided LIRR with the ability to track who approved penalty and overtime payments and collect data on the reasons for these decisions. Full implementation would also have reduced payroll administrative costs. Electronic time slips would have been automatically generated for Payroll Coordinators as verification of penalty and overtime claims. This would have reduced the number of hours that payroll coordinators spend reviewing and verifying claims, which would have allowed for a reduction in the number of payroll coordinator positions. As an example, suppose a crew was swapped at Penn Station, the swap and the reason for it would have been entered into RPCS by a manager. Later, an electronic time slip would be sent to the payroll coordinators to tell them that an engineer should receive double time pay for operating a train outside his normal assignment. Similarly, other penalties, like 2nd class of service and commingling, could be entered into RPCS by various managers and sent to the Payroll Coordinators. Currently, the employee has to submit a handwritten claim form that is manually matched to an activity log or one of the daily worksheets prepared by lead managers. In our opinion, the Disruption Management module would have brought added control and accountability to the granting of penalty payments and overtime. The Decision to Cancel Disruption Management was Based Only on Its Added Costs The LIRR’s Chief Transportation Officer (CTO) made her decision to cancel RPCS for two reasons. First, the CTO had recently assumed the position and was confronted with a budget shortfall and the potential for mandatory budget reductions. It was believed that RPCS’s Disruption Management function would require additional staffing with costs for 2-3 new staff positions ($250,000 in salary and benefits), plus training and workstation costs. Second, even if additional staffing could be afforded, the CTO believed that in the event of a major service disruption the real time data entry required for RPCS to be of value could not be maintained. In her memo canceling the function, she stated, “managing a major operating situation is so multi-faceted and demanding that supervisors can only make quick paper-and-pencil notes.” Thus, from the new CTO’s perspective, the technology’s usefulness during major service disruptions was unproven and more development money would be needed for evaluation. Our review of contemporaneous meeting minutes and our discussions with attendees indicate that additional control and accountability benefits to payroll processing were not presented to the CTO. Specifically, the CTO was never informed that the additional control and accountability benefits could be realized by entering data in batch mode at the end of the day, which would eliminate the burdens associated with operating Disruption Management in real time.

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A 2005 MTA Audit Services Report, “Review of the Resource Process and Control System Contract,” noted that “the analysis performed by Transportation was limited to identifying only the additional costs associated with supporting the operation of the module.” We agree with this assessment, but feel the evidence supports an even broader conclusion: the information collected by the Disruption Management module would have provided additional control and accountability over daily activities and costs, not just those incurred during a disruption. Control and Accountability Would Be Greatly Enhanced One of the primary complaints from Transportation about the Disruption Management module was that it would require real time data entry of decisions and activity. This position suggests strongly that Transportation did not consider the broader benefits. In order to know which crews should be assigned to which trains, crew whereabouts have to be real time. Batch mode data entry at day’s end would not be useful for managing disruptions, but would suffice to provide payroll controls and accountability of the type we found lacking in this audit. Field entry of penalties would enable Transportation to improve control and provide management reporting capabilities. When field personnel enter electronic authorization of overtime and penalty claims into RPCS, they could also enter the reasons for the penalties. This could create a database of the sources and causes of extra pay claims. Currently, Lead Managers and Superintendents at the main terminals receive six-week trend reports on overtime and penalty payments, but the reports do not give any indication of the causes of the extra payments. To identify the causes, Lead Managers and field personnel have to sift through handwritten logs. Compared to data mining on electronic databases, hand sorting is extremely time consuming and very limited in terms of data manipulation options. Additionally, given the large number of claims during a six-week period, it is extremely unlikely that Lead Managers and other field personnel are able to review the data with an eye toward cost management and efficiency. To understand how this information would have aided Transportation, we reviewed the penalties accrued by yard crew YE24 for operating equipment train #5450, described on page 17 in the section, “Penalties Are Not Being Effectively Monitored.” As stated in the section, Transportation did not identify the fact that the YE24 crew received a very high number of penalty claims for operating equipment train #5450 during 2004. Under the current system, the six-week trend data that Brooklyn managers received should have shown that the YE24 crew was receiving a 2nd class of service penalty every day. It would not, however, have indicated the specific cause giving rise to such payments. On the other hand, if the claims and the reasons for them were entered into an electronic database, a report could have been generated showing the Brooklyn Transportation Manager the frequency with which the YE24 crew operated equipment train #5450. As Transportation demonstrated by reducing commingling claims so dramatically, they are proficient at adjusting operations to reduce claims when they understand the underlying

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causes. Batch entry would create an electronic database of the causes of claims, providing Transportation management with the tool needed to continue their efforts to reduce overtime and penalty claims. If field entry of claim information is done as a batch entry, we believe that the overall cost and time savings throughout Transportation will more than offset Transportation’s stated need for three additional staffers. Specifically, Crew Management and Payroll Processing functions will be able to operate more efficiently receiving electronic data to verify claims. More importantly, terminal Lead Managers and Supervisors would be able to save the time they currently spend responding to verification requests from the Payroll Coordinators. In fact, the RPCS Project Manager told us that the biggest savings seen by other railroads that have implemented this type of system has been in payroll coordination. Transportation Has Not Developed a Payroll Manual The BLE and UTU Work Agreements contain provisions and work rules that cover all aspects of employment including how, when, and why overtime and penalty payments are earned. The rules vary based on location, time off in between assignments, class of service of the work, and various other conditions. It was not surprising then when the Director of Crew Management told us that each day payroll coordinators set aside 10-20 questionable claims for review by the Director and union representatives to determine if work rules were interpreted properly on the claims. What was surprising was that given these constraints, the Transportation Department has not developed a manual for its payroll coordinators that clearly describes and interprets the myriad work rules that generate penalty and overtime claims. We found that payroll coordinators in the Crew Management Department did an effective job of processing claims without the benefit of a manual. While that claims approval process was inconsistent and not always properly documented, we found no claims that, clearly, should not have been paid. Nevertheless, sound internal controls systems have a policy and procedures manual for payroll functions. If Transportation does fully automate their payroll system as we are recommending, it seems practical to prepare a manual at the same time. The manual would describe the varied circumstances when penalties and overtime are earned, and would be beneficial not only to the payroll coordinators--especially any new payroll coordinators--but also to the Transportation managers who would be approving penalty and overtime payments.

CONCLUSION Overtime and penalty claims are very costly, in terms of compensation to the train crews as well as the administrative costs of processing the claims. LIRR management has reduced these costs when made aware of the reasons and conditions that lead to the claims. Commingling has been reduced and equipment trains schedules have been adjusted to reduce Outside Normal

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Assignment penalties. However, more savings could be achieved if management had the data and information to understand the causes of other overtime and penalty claims. An automated claim authorization system would allow management to immediately see where, why, and how overtime and penalty payments are occurring. With this information, management could more fully recognize the costs of actions that generate penalties and look for ways to avoid them. Finally, an automated system will provide top management with much needed control and accountability tools so that managers, supervisors, and employees from all departments can more readily be held accountable for the extra payments.

RECOMMENDATIONS

1. LIRR should implement a fully electronic payroll system for engineers

and conductors that provide controls and accountability for penalty payments and overtime and eliminates much of the time consuming daily payroll verification.

2. The system should collect data on the specific reasons for each penalty payment or overtime assignment.

3. The data collected must be routinely reviewed and analyzed for ways to identify and reduce wherever possible causes of penalty payments and overtime.

4. Once an electronic system has been implemented, the LIRR should pursue additional savings through reductions in the payroll processing positions, made possible by limiting the need to personally verify large numbers of claims.

5. Given the fact that the real cost of overtime and penalty payments is at least doubled for employees eligible for or near retirement, management should consider these extra costs when evaluating crew needs and crew book assignments.

6. Given the fact that the real costs of overtime and penalty payments is at least doubled for employees eligible for or near retirement, management should consider these extra costs to help establish the optimum number of engineers and conductors that are needed by the LIRR. In addition, they should be considered when setting up longer term crew assignments such as the need for regular yard overtime each day and the routine assignment of penalty payments to the same crew.

7. LIRR should maintain records of work being performed by yard crews while on overtime to analyze how much overtime is in fact necessary on any given day.

8. Equipment train performance reports should be generated by TIMACS, using the time needed by an arriving crew to make its next assigned train, as performance measurement criteria.

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APPENDIX A: LIRR Organization Chart of Relevant Units

Chief Transportation Officer

Sr. Vice President Operations

Executive Vice President

Vice President Labor Relations

President

Lead Transportation

Manager

Superintendent Engine Service

General Superintendent

Transportation

Superintendent Transportation

General Superintendent

Terminal Operations

Superintendent New York - AM

Superintendent New York - PM

Superintendent Train Movement

Superintendent

Quality Assur./Admin.

Manager Transportation Crew

Management Services

Assistant Manager Crew Management

Services

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APPENDIX B: LIRR Engineers Earning Over $125,000 in 2004

Base Pay Overtime Penalty

Holiday, Vacation & Other

Total Earnings

Retirement Status

Vacation & Sick Leave Buyout

1 $62,227 $51,790 $73,924 $22,496 $210,436 E 2 62,227 34,970 47,495 18,240 162,932 E 3 62,227 27,769 55,173 13,658 158,828 E 4 62,227 46,973 29,666 19,801 158,667 E 5 62,227 53,530 24,607 17,507 157,872 E 6 62,227 30,983 48,175 15,762 157,146 E 7 62,227 46,682 15,366 25,525 149,800 NE 8 52,026 35,621 49,055 8,793 145,495 Retired $63,823 9 62,227 46,324 25,197 11,453 145,201 E 10 62,227 31,688 33,179 17,029 144,123 E 11 62,227 34,532 31,146 15,481 143,387 E 12 62,227 28,818 19,428 32,420 142,893 E 13 62,227 45,936 24,827 9,850 142,839 NE 14 57,041 26,267 42,257 13,661 139,226 Retired 39,247 15 52,026 31,214 46,672 7,425 137,336 Retired 61,684 16 62,227 18,358 41,227 14,488 136,299 E 17 62,227 42,180 18,444 12,889 135,740 E 18 62,227 45,049 12,644 15,636 135,556 E 19 62,227 17,969 42,850 11,836 134,882 E 20 62,227 37,451 20,120 14,856 134,654 E 21 62,227 39,958 8,505 23,962 134,652 NE 22 62,227 38,625 19,656 10,752 131,261 E 23 62,227 41,413 9,078 18,484 131,202 NE 24 62,227 38,477 17,259 12,979 130,942 E 25 62,227 46,714 6,685 14,692 130,318 E 26 62,227 43,354 16,006 8,651 130,238 E 27 62,227 36,190 17,835 13,592 129,844 E 28 62,227 27,967 24,473 13,452 128,119 E 29 52,026 14,526 53,598 7,808 127,958 Retired 58,190 30 62,227 40,754 9,526 15,363 127,870 NE 31 62,227 49,411 8,695 7,516 127,848 NE 32 62,227 38,585 6,763 19,968 127,543 NE 33 62,227 41,568 9,798 13,682 127,275 E 34 62,227 34,080 16,935 13,021 126,263 E 35 62,227 37,556 1,910 23,326 125,019 NE

Legend E – Eligible to retire currently or within 5 years. NE – Not eligible to retire in next 5 years.

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APPENDIX C: LIRR Conductors Earning Over $125,000 in 2004

Base Pay Overtime Penalty

Holiday, Vacation & Other

Total Earnings

Retirement Status

Vacation & Sick Leave Buyout

1 $64,095 $74,076 $26,138 $12,102 $176,412 E 2 64,095 77,512 8,997 9,935 160,539 E 3 64,095 71,322 12,993 11,292 159,702 E 4 64,095 74,251 9,702 10,196 158,244 E 5 64,095 55,127 26,680 10,253 156,155 E 6 64,095 58,694 22,764 10,291 155,844 E 7 64,095 71,692 7,739 11,164 154,690 E 8 53,588 63,839 31,470 5,164 154,062 Retired $76,281 9 64,095 56,751 22,168 8,387 151,401 E 10 64,095 65,001 7,451 8,735 145,282 E 11 64,095 66,078 6,151 7,756 144,080 E 12 64,095 61,890 6,858 11,052 143,895 NE 13 64,095 61,197 8,142 9,931 143,366 E 14 53,588 77,652 8,692 2,882 142,813 Retired 81,687 15 52,293 77,331 4,963 6,277 140,863 Retired 71,273 16 64,095 43,298 23,362 8,758 139,513 E 17 64,095 64,270 2,833 7,677 138,876 E 18 53,588 76,051 6,540 2,431 138,609 Retired 66,521 19 64,095 53,633 11,242 9,433 138,403 E 20 64,095 57,339 6,946 9,977 138,357 E 21 64,095 59,588 4,501 9,412 137,596 E 22 64,095 55,033 8,142 9,921 137,191 NE 23 64,095 56,123 4,541 10,948 135,706 E 24 64,095 44,709 20,651 6,015 135,470 E 25 58,841 66,594 4,660 4,868 134,964 Retired 49,881 26 64,095 52,038 5,064 12,902 134,098 E 27 64,095 53,586 6,657 8,907 133,245 E 28 64,095 55,516 5,417 7,477 132,505 NE 29 64,095 60,788 6,011 1,561 132,455 NE 30 64,095 58,936 3,104 6,070 132,206 E 31 64,095 54,704 9,345 3,765 131,908 E 32 64,095 57,322 3,889 6,450 131,756 E 33 64,095 57,734 3,727 5,482 131,038 E 34 64,095 51,506 10,680 4,499 130,780 E 35 64,095 54,286 1,913 10,130 130,425 E 36 64,095 53,934 4,081 8,125 130,236 E 37 64,095 52,532 4,176 9,286 130,090 E 38 64,095 46,931 8,505 10,477 130,008 E 39 64,095 48,556 4,317 9,251 126,219 E 40 64,095 46,398 6,078 9,082 125,653 E 41 64,095 47,743 5,870 7,899 125,608 NE 42 64,095 42,559 14,890 4,010 125,555 NE

Legend E – Eligible to retire currently or within 5 years. NE – Not eligible to retire in next 5 years.

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APPENDIX E: Contributors to this Report

Audit Manager

ELIZABETH KEATING

Audit and Analysis Team

NATHALIE CATHCART ROBERT MURRAY

Quality Assurance

VINCENT O’REILLY

Word Processing

JULIA CONNER

Production and Distribution

MERYL HUGHES STEPHON MILLER

ELIANA PENA ALICIA POPPE