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State audit blasts High-Speed Rail Authority

New report finds flaws in agency's oversight of contracts, management of risks

California's controversial high-speed-rail project risks major delays because of poor planning, a shaky business plan and lax oversight by the state agency charged with building the $43 billion system, a new report from the California State Auditor Elaine Howle has found.

The audit, which the state auditor's office released Thursday, identifies a myriad of flaws in the California High-Speed Rail Authority's effort to implement the 800-mile rail system, for which state voters approved $9.95 billion in 2008. The audit found that the rail authority has failed to carefully track the work of its contractors; has not figured out exactly how it will pay for the colossal project; and has spent at least $4 million on invoices without receiving evidence that the work in the invoices was performed.

"The report concludes that the High-Speed Rail Authority has not adequately planned for the future development of the program," Howle wrote in the cover letter of the report, which carries the descriptive title, "High-Speed Rail Authority: It Risks Delays or an Incomplete System Because of Inadequate Planning, Weak Oversight, and Lax Contract Management."

Many of the audit's findings echo the concerns recently expressed by Legislative Analyst's Office; by state Sens. Joe Simitian and Alan Lowenthal; and by a multitude of rail watchdogs and project opponents. Chief among these is the concern that the rail authority's business plan has failed to identify the necessary funding sources for the project and to adequately consider some of the project's biggest risks.

The rail authority's 2009 business plan projected, for example, that the rail authority would receive $4.7 billion from the federal government as part of the American Recovery and Reinvestment Act. So far, the agency has only received $2.25 billion.

"The program risks significant delays without more well-developed plans for obtaining or replacing federal funds," the auditor's report states.

The report also notes, however, that the rail authority is working to improve its approach to managing funding risks. The agency recently hired a risk-insurance manager and revised its risk-management process. The audit states that the authority "must ensure that these actions for managing risk are fully implemented so it can respond effectively to circumstances that could significantly delay or even halt the program."

The new report is particularly scathing in its review of the rail authority's oversight of contracts. The auditor's office found that the rail authority "does not generally ensure that invoices reflect work performed by contractors." Though the rail authority's program manager is required to review each invoice and make sure the work was performed before notifying rail authority staff to release money for the funds, that procedure has not been followed. In fact, the audit found that the rail authority paid at least $4 million to regional contractors without documented notification from the program manager.

In other cases, the rail authority paid contractors for work or for items that were not part of their terms of agreement. In one case, it reportedly spent $46,000 on furniture for its program manager. The payment was "based on an oral agreement, despite the fact that its written contract expressly states that oral agreements not incorporated in the written contract are not binding." The written contract, the audit notes, requires the program manager to "provide its own furniture, equipment and systems."

The audit also points out one case in which the rail authority paid a regional contractor more than $194,000 to subcontract for tasks that were not included in the work plan. The rail authority also reportedly paid its program manager $53,000 for work on a federal grant application -- work that was also not included in the work plan.

The rail authority's program manager, not named in the audit, is the firm Parsons Brinckerhoff.

The report also had major questions about the peer-review committee, which was mandated by state legislation and which is supposed to be reviewing the rail authority's plans. Auditors found that only five of the eight members of the committee have actually been appointed. The auditor's office also found that members of this group have not been holding public meetings -- which the auditor's office believes may violate the Bagley-Keene Act, which governs open meetings.

The audit recommends that the rail authority produce "alternate funding scenarios"; keep a better track of its expenditures; and make sure it receives accurate reports on contractors' progress.

Curt Pringle, chair of the rail authority's board of directors, wrote in his response to the auditor's office that the rail authority agrees with the auditor's recommendations, but not the report's title.

"We do believe, however, that the report's inflammatory title is overly aggressive considering that the contents of the audit's findings are not equally scathing," Pringle wrote. "While the Authority is appreciative that the report in its entirety reflects more objectively the challenges of a state entity in transition from a planning body to one responsible for implementing a large-scale infrastructure project, we also appreciate that not all Californians are able to read each and every word in the audit report and therefore may be misled by the title and headlines contained within."

The rail authority also wrote in its response to the audit that it is already working to update its risk-management practices; clarify its efforts to secure private funds for the rail project; and implement a database that tracks expenditures.

Comments

Posted by Rodger, a resident of Sylvan Park
on Apr 30, 2010 at 4:55 pm

None of this is a surprise, it's a bad project with bad project management. This project was sold to the voters with only partial funding, $10 Billion is really only 10% of the $100 Billion needed to complete this unneeded project, several airlines can fly you to LA much faster without costing the Tax Payers. Let's cancel this project, we need a State Wide anti High Speed Rail proposition.

Web Link

Rodger


Posted by Kristine, a resident of Monta Loma
on May 2, 2010 at 6:15 pm

The projects primary problem is the amount of people harassing it for mostly inane reasons. Last I checked in order to get the greater transport capacity of this project has, through highways and airports would require a double to triple amount the price of this project. Silly thing is those more expensive projects would get less complaints simply cause they are more common.


Posted by Kristine, a resident of Monta Loma
on May 2, 2010 at 6:19 pm

And another thing, those airports are insanly subsidized so taxpayers wouldn't get a break at all. Along with all of those highways. Hiddens prices are still prices.


Posted by CC, a resident of Shoreline West
on May 4, 2010 at 8:39 am

The audit system is working. We welcome more disclosure from the HSR on how our tax money is spent. Apparently, the HSR is mismanaged by the wrong group of people who are wastful, and those managers need to be replaced before they drain the 10 billion tax dollar from Californian.


Posted by Steve, a resident of Old Mountain View
on May 4, 2010 at 4:27 pm

@Kristine this projects problems are manyfold - including the state being practically insolvent. My bet is on this epic waste of time and money being abandoned due to the good people of California coming to their senses... Oh who am I kidding?


Posted by kathy, a resident of Sylvan Park
on May 5, 2010 at 2:48 pm

The HSR Management needs to have a series of meetings to address the audit report, not whether or not a tunnel or a trench is a more suitable option. If it were a Dilbert cartoon it would be hysterically funny but unfortunately it is real, your tax dollars at work.


Posted by a.j., a resident of North Whisman
on May 8, 2010 at 6:59 pm

Yes I agree. Also your federal tax dollars pay for 41% of defense spending in this country, much of that 41% going towards subcontractors like kbr who are essentially billing in a similar "shameful" manner to the army for military operations in operation "iraqi freedom"

Our tax dollars need to come back here to US. Not to fund pet projects.


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