Cash Collection and Reconciliation
Fiscal Management and Control Board
June 6, 2016
Draft for Discussion & Policy Purposes Only
Cash Collection and Reconciliation
Cash and coin from Fare Boxes and Fare Vending Machines are collected,
transported, counted, and deposited using different processes
1
Cash & Coin
Enters
Fare box
Cash & Coin
Enters Fare
Vending Machine
2
3
4
5
6
7
Wireless
Probe
Cashbox
Removed
Cash Enters
Cash Receiving
System (CRS)
and Mobile
Vaulting Unit
(MVU)
MVU Enters
Truck
Counted in
Money Room
Deposited
Container
Removed
and Replaced
MVU Enters
Truck
Counted in
Money Room
Deposited
Bill Vault
Draft for Discussion & Policy Purposes Only
2
Cash Collection and Reconciliation
The MBTA counts $142M in cash each year*
• $119M is counted from MBTA vehicles and fare vending machines (FVMs)
› There are 335 fare vending machines at 91 heavy rail stations and other locations
(117 addresses) that accept cash**
› There are more than 1,400 fare boxes on buses and green line vehicles
› One fare box per bus, and two per green line vehicle
• $23M is collected and counted for Cambridge, City of Boston, and Mass DOT
› This is derived from parking meters, tolls, and other revenue
› The MBTA is paid $405K per year for these services
› MBTA can terminate these contracts with 30 day notice
*Based on FY 15 figures
**Another 165 FVMs do not accept cash
Draft for Discussion & Policy Purposes Only
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Cash Collection and Reconciliation
Cash is collected from Fare Boxes and Fare Vending Machines; both have
separate collection processes
FARE BOXES
Location
Number in
service
Pickup
Process
FARE VENDING MACHINES
• Used on buses and green line vehicles (mobile)
• Machines located at heavy rail stations and
other locations (stationary)
• >1,500 fare boxes on buses and green line cars
• 335 fare vending machines accept cash and
coin (164 are card only)
• 14 employees dedicated to removing cash and
coin containers from buses and green line
vehicles during the end of day cleaning and
refueling processes. Cash and coin
consolidated at this point to a larger transport
unit
• 4 daily box trucks dispatched daily to remove
the larger cash and coin transport unit
• Two armed employees staffed on each truck
• Large units returned to MBTA cash vault for
processing
• 7 daily armored vehicle routes dispatched
Monday – Friday
• 2 night armored vehicle routes dispatched
Monday – Friday
• 1 to 3 weekend routes dispatched
• Each dispatched vehicle is staffed with two
armed MTBA employees
Draft for Discussion & Policy Purposes Only
4
Cash Collection and Reconciliation
Significant variance exists in Fare Box collections
Fare Boxes are unreliable
• 48% tested machines inaccurately reported cash
• 23% of wireless information transfers are unsuccessful
• 5% cash boxes don’t transfer information to mobile vaulting units
• 60% of information transfers from mobile vaulting units are unsuccessful
Note: Revenue reported is AFC data; Revenue deposited is from NAMSYS data
Source: NAMSYS Declared vs. Actual Values, FY 15
Draft for Discussion & Policy Purposes Only
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Cash Collection and Reconciliation
Fare Vending Machine reconciliation issues (cash and coin removed from
subways and other stationary locations)
Fare Vending Machines are unreliable
• More than 5,000 transmission errors were recorded over a one year period
• Transmission errors occur when a fare vending machine does not transfer data on the
contents of its cash containers to the AFC System
» The error records a cash or coin container as empty, even if it contains cash
and/or coin
» When these cash and coin containers are delivered with currency inside, the
errors have been recorded as positive variance
Note: Revenue reported is AFC data; Revenue deposited is from NAMSYS data
Source: NAMSYS Declared vs. Actual Values, FY2015
Draft for Discussion & Policy Purposes Only
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Cash Collection and Reconciliation
Significant variances (positive or negative) create risk for the MBTA
• Variance (positive or negative) is the difference between the
amount of money that is reported as received and what is
ultimately deposited:
› Variance should be minimal, and all reports of variance should be
explainable
• MBTA receives reports on expected cash and coin collection
amounts from AFC, this data is fed into our cash vault processing
system (NAMSYS) and should reconcile to the verified amount of
cash and coin received. Neither source reconciles with cash and
coin verified.
Possible Causes of Variance
•Hardware and software deficiencies
•Unreliable cash movement tracking systems
•Leakage
•Outdated cash collection methods (e.g., speedy boxes)
Draft for Discussion & Policy Purposes Only
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Cash Collection and Reconciliation
Overview: business case to RFP cash collection and reconciliation services
 Objectives: (1) eliminate the risks of non-reconciliation (2) identify opportunity to reduce
operating and capital costs, and (3) strategically allocate human and financial capital
Current status
• In FY11, the State Auditor’s report highlighted multiple inadequate physical and financial controls, resulting in significant reliability
problems, and exposing the T and its employees to significant risk.
Business imperative
• Cash collection, counting, and reconciliation are not critical to transit operations, and are non-customer facing
• The MBTA is unable to reconcile the amounts reported to the amounts deposited. This problem is ongoing, and
has yet to be remedied.
Financial summary
• Currently, 78 employees are responsible for the collection, safe transport, deposit, and reconciliation of cash
• Annual operating costs are $10M+ (28 of these 78 are retirement-eligible as of Feb16)
• Annual capital costs are $147K+ (facilities, cameras, and security vehicles)
Recommendation
• An RFP is recommended to achieve daily reconciliation and identify opportunities for cost savings
6/6/2016
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Cash Collection and Reconciliation
Immediate objectives to address future of cash collection and reconciliation
 Reduce operating costs (annual and long-term)
• Current annual operating costs are $10M+
• Maintaining all vault agents and 2 analysts, and continuing to purchase FVM materials reduces internal cost to
$2.2M
 Re-deploy current capital and reduce future capital requirements
• Total capital invested into cash handling opportunities is $4.3M
• Annual capital $147K
• Depreciated value of armored vehicles is $160K
 Partner with an outside firm who can enable auditability
• The 2012 State Auditor’s report states that current cash-handling operations are inadequate, which have resulted
in significant reliability problems
 Partner with an outside firm who can enable daily cash reconciliation
• The 2012 State Auditor’s report concluded that the current automated fare collection (AFC) system does not
reconcile to cash deposits– this is an unacceptable business risk for the MBTA
6/6/2016
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Cash Collection and Reconciliation
Current metrics measuring cash collection and reconciliation performance
Key performance
measures
Current
tracking?
Current baseline

$10M
(long-term)

$ --
Capital expense

$4.3M (expended)
Auditability (Y/N)

(system unable to reconcile)
Daily reconciliation (Y/N)

(system unable to reconcile)
Operating expense
(annual)
Operating expense
Details
Wages, benefits (50%), overtime, services
Long-term pension and healthcare benefits liability
associated with 78 pensionable positions.
Building, building improvements, cameras, and
armored trucks
None
None
6/6/2016
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Cash Collection and Reconciliation
Current state assessment for cash collection and reconciliation
Area
Present risk level
Cost
Efficiency
Desired future state
 In 2015, the MBTA collected more than $110M in cash payments for fares on busses
and trolleys, and at full-service fare vending machines. Today, collection, transport,
counting, and reconciliation is performed by our own workforce, across multiple
departments.
Cash
collection to
reconciliation
activities
Business risk
of nonreconciliation
Summary observations
 In 2012, the MA State Auditor’s report highlighted multiple inadequate physical and
financial controls, resulting in significant reliability problems, and exposing the T and its
employees to the risk of loss, theft, and misuse.
Reconciliation must
occur accurately and
consistently at 100%
 After the 2012 report, the MBTA hired Thacher Associates to conduct a follow-up
assessment, and spent more than a year with a cross-departmental task force
implementing a variety of technological and operational improvements. Despite making
significant headway, we still face cash management challenges today.
 While we have improved our reconciliation figures from 2011 to 2013 (by 66%), our
variance increased again from 2014 to 2015 (by 23%). In a third party scenario, this risk
is removed for both the MBTA and our employees.
?
?
 The current process exposes the MBTA and its employees to potential fraudulent
activities. By focusing only on outputs (reconciled amounts) the MBTA and its
employees can mitigate this risk.
 Currently, 78 employees are responsible for the collection, safe transport, deposit, and
reconciliation of cash, with annual operating costs in excess of $10M+ (reconciliation is
currently not completed at the point of cash entry to the system, and is completed on a
monthly basis). The fair market cost of these activities is unknown.
 There are net inefficiencies in the current operating and financial models supporting
cash collection and reconciliation.
Fully hedge
reconciliation risk
through 3rd party
vendor
Cost of service will be
variable to amount
collected, not fixed
Efficiency will be
included in cost of
service
6/6/2016
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Cash Collection and Reconciliation
Business imperatives to RFP cash collection and reconciliation services
A significant variance occurs on an
annual basis between cash reports
deposited amounts
Despite accountability efforts,
flow of currency within the
process remains unclear
Non-reconcilable losses present
opportunities for legal action
against the T and its staff
Strategic re-deployment within the T
would achieve highest and best use of
current staff and financial resources
Third party hedge is favored to minimize
risk of loss, mitigates potential for
theft/fraud, and eliminates a need for
continued self-insurance and bonding
Auditability
Opaque
process
Risk
$10M+ in annual direct and
indirect costs to count and
reconcile
Legal
liability
Cost
Opportunity
cost
Efficiency
Private sector partner could
perform the functions at the same
or higher service level with fewer
staff and at a lower overall cost
Noncustomer
facing
Functions are not critical to transit operations
and are non-customer facing
6/6/2016
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Cash Collection and Reconciliation
Public Sector Comparators (PSC) allow comparison across sectors
 A PSC is a common tool used to assess the financial viability of public-private partnerships. Provides a
hypothetical risk-adjusted cost if a project were to be financed, built, and operated by the public sector
Typical PSC Inputs
Rationale
Capital
Private costs of carry
Operating
Efficiency/Innovation gains
Projected revenues
New project risk
Asset values
When transferring asset
Risk matrix
Always
Sensitivity analysis
Sometimes
DCF
When revenues produced
Bid comparison
Always
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Cash Collection and Reconciliation
Cash collection risk matrix
Risk Type
Impact
Mitigation Strategy
Continued non-reconciliation
Unrealized revenue recovery
• Pre/post experiment
• Third party audit vendor
• Independent verification and
validation
Downstream interruption
Business process interruption
Design-out dependency
Process improvement costs
Higher than expected
implementation costs
Cost proposals after vendor
selections
Staffing overlap
Increased operational costs
Detailed implementation plan
Control point unreliable
Higher implementation costs
and unrealized revenue
recovery
AFC 2.0 or fare box improvements
Performance bond, letter of credit, and penalty payments can transfer risk
6/6/2016
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Cash Collection and Reconciliation
Cash collection, transport, counting, and deposit preparation could be handled
by a third party vendor with scale who specializes in cash logistics
1
4
5
6
7
Wireless
Probe
Cashbox
Removed
Cash Enters
Cash Receiving
System (CRS)
and Mobile
Vaulting Unit
(MVU)
MVU Enters
Truck
Counted in
Money Room
Deposited
Container
Removed
and Replaced
MVU Enters
Truck
Counted in
Money Room
Deposited
3rd Party
Cash & Coin
Enters Fare
Vending Machine
3
3rd Party
Cash & Coin
Enters
Fare box
2
Bill Vault
Draft for Discussion & Policy Purposes Only
15