Audit of LIRR's Warranty Claims for the M-7 Fleet

MTA/OIG #2007-24

Of the 836 M-7 commuter rail cars that LIRR has purchased from Bombardier Transportation Corporation since 1999, all are still under warranty. Much of the warranty work to replace faulty parts is done in LIRR facilities by LIRR employees using parts supplied by Bombardier. OIG evaluated the reimbursement system used to process claims by LIRR under the warranty. Our audit found that the existing claims process is not capable of ensuring that all eligible work is identified for claim; all identified claims are submitted; and all submitted claims are processed and paid correctly. Because of these weaknesses in the system, LIRR failed to claim approximately $1.2 million of warranty work that it was entitled to – and still can – recover. LIRR agreed with our findings and has begun to submit claims to recover the $1.2 million.

Based on our findings, LIRR quickly took steps to improve its controls and oversight for the warranty reimbursement system. As the audit progressed, and we made ongoing findings and recommendations, LIRR developed and released a new warranty program procedure. This procedure incorporated management controls to ensure that the system is operating effectively and efficiently, and provided increased oversight of the claim process. Once fully implemented, these changes will result in a more effective and efficient warranty reimbursement system. Subsequent to our audit, MTA began a study of best practices for warranty systems both within MTA and among other transportation agencies.