Audit: Rail authority not ready for federal funds

Office of the Inspector General finds flaws in authority's contract reviews; duplicated efforts

The California High-Speed Rail Authority has dished out more than $3.4 million in payments without reviewing the relevant invoices and is not prepared to manage the $2.25 billion it has received in federal funding, the state's Inspector General Laura Chick concluded in a new audit.

Chick's review is the latest report taking the rail authority to task for inadequate management of public funds. State Auditor Elaine Howle reached similar conclusions when her office reviewed the authority's finances earlier this year.

The new audit looked at $8.94 million in the authority's expenditures and found that 38 percent of these funds were spent without proper documentations. It reviewed 11 invoices from various rail consultants and found that $3.4 million in expenditures were "without adequate supporting documents." The authority was able to obtain these documents from consultants upon request from the Office of the Inspector General.

"However, without adequate documentation when authorizing payment, the Authority cannot verify the number of hours, and therefore the expenditures, charged to the project is accurate," the audit states.

The audit also found that the authority hired different public outreach consultants, some of whom were performing the same functions. In February, the agency hired the firm Ogilvy Public Relations Worldwide to lead its outreach effort. But even with the new contract, the two previous consultants -- Townsend Raimundo Besler & Usher and Lucas Public Affairs -- remained under contract and charged the authority $8,000 and $10,000 per month, respectively.

"Since Ogilvy became the lead for communications and public outreach, Townsend and Lucas' work should have been conducted and coordinated through them or ceased all together (sic)," the audit stated.

In a cover letter addressed to Gov. Arnold Schwarzenegger, Chick wrote that the "days of paying bills that show no deliverables, no progress reports, no tasks performed and no timesheets must end."

She noted that the authority has a new contract manager who is now checking the agency's contracts more carefully -- in some cases renegotiating them. These renegotiations have resulted in potential $2.6 million in savings, Chick wrote.

"Just think how much money could be saved if all state contracts were negotiated in this way from the get-go!" Chick wrote.

The audit concludes that the agency is "not fully prepared to distribute and monitor (American Recovery and Reinvestment Act) funds." The authority would need to match these federal funds with state money authorized by Proposition 1A, the audit notes.

So far, the authority has not taken all the necessary steps to ensure these funds would be available. This includes approving a plan detailing funding sources and revenue-generating projections for the segment of the rail line where the federal funds would be used.

"At this time, the Director of Finance has not approved funding plans, as required, for any of the proposed corridors seeking Proposition 1A funds as a match to ARRA," the audit stated. "Without Proposition 1A funds matching the ARRA funds, the Authority may not have enough funding to design and construct an operationally independent segment and may be ineligible to receive ARRA funds."

At the same time, Chick's audit commends the authority for making a serious effort to respond to Howle's earlier criticisms. Five of the earlier audit's recommendations have already been fully addressed and the authority is now working to implement the other five, Chick wrote.

"The (Bureau of State Auditor) findings showed the Authority as not ready to do serious business," Chick wrote. "Our report reveals an organization that took that audit seriously.

"With new top management now in place, and additional personnel resources on the way, the Rail Authority is better poised to make its next round of decisions."

The authority's CEO Roelof van Ark wrote in his response to the audit that the authority's response has been hampered by its inability to hire staff because of California's budget impasse, which was resolved earlier this month after a historic 100-day delay. Now that the budget is in place, the authority plans to hire new auditors and other staff in the coming months.

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Like this comment
Posted by Sidney
a resident of South of Midtown
on Oct 28, 2010 at 11:27 am

California high-speed rail is proving to be a high-speed train wreck.

Inadequate planning, inadequate cost controls, inadequate public outreach, ignoring public input, political fix is in...HSR has all the earmarks of a gigantic public boondoggle.

The problem is, this gigantic HSR boondoggle will cost taxpayers billions at a time when pennies need to be pinched.

HSR is a 20th century concept trying to live in a 21st century world featuring fiber optic communications moving ideas, not people.

Greenhouse gases generated by people getting to trains, taking trains, getting off trains, then heading to their final destinations miles away will be horrible. Costs will be colossal, a horrible investment.

Invest just a fraction of HSR-earmarked money on fiber, and everyone gets to instantly move their ideas 24/7, no driving, no greenhouse gases.

Buy a clue, America.

Like this comment
Posted by YIMBY
a resident of University South
on Oct 28, 2010 at 1:53 pm

YIMBY is a registered user.

I wouldn't say HSRA is a train wreck - I'd say they have some internal problems to fix to make them more accountable. Van Ark is aware of this shortcoming:

SACRAMENTO -- Roelof van Ark, CEO of the California High-Speed Rail Authority, issued the following statement in response to today’s report by the Office of the Inspector General:

"It is important to consider all aspects of the report. As the Inspector General noted, in the past few months, we made significant progress in addressing the issues raised in April by the Bureau of State Audits. I’m pleased that these efforts have already begun to pay dividends, saving taxpayers up to $2.6 million and establishing robust oversight of the project. ...continues"
Web Link

they have there work cut out now that:
Oct. 28: "Today, the California High-Speed Rail Authority was awarded $715 million from the federal government, bringing to $4.3 billion the funding secured to begin construction on the core of the system in 2012..."

Like this comment
Posted by Alfred W
a resident of another community
on Oct 28, 2010 at 4:24 pm

Shut down the High Speed Rail project.

Not only the HSR Authority has no viable business model to ensure the project profitability but now this report shows that they are misspending the funds!

The city should put together a proposition on the ballot to de-fund the whole project

Like this comment
Posted by Fed up
a resident of Adobe-Meadow
on Oct 29, 2010 at 7:52 am

Lets be clear - The Authority as made a conscious choice to spend their money on engineering work even though the business plan, which was required by law to be ready before the election - is still completely inadequate.

In fact, they re-did the business plan in Dec 2009 and the non-partisan Legislative Analysts Office concluded it still violates the law because it would subsidize the project. Prop 1A specifically told Californians they would only pay the $9 billion and that's it. This is a major problem and rather than deal with it - they keep drawing pictures of the train.

The Authority is not a NEW organization - they have been around for over 14 years. And they still can't even manage to get the basics done (like filing information about foreign gifts). How can we trust them with $40 billion.

The Inspector General's most important statement is that the Authority is still NOT ready to handle ARRA stimulus money because they have no way to track how they would even spend it.

Isn't it time to rethink the structure of this project? What is this board doing? We need to have less consultants and more actual state employees doing the work so we have people with "skin in the game" as Senator Simitian said.

If we don't have major reforms soon, we will tank the possibility for HSR in California for many years. There is a do-able project - one that likely doesn't need 4 tracks and won't be a "scar" on the Peninsula - but not if the consultants continue to make ridiculous engineering specifications that just increase the size and cost to California tax payers.

We're being milked by the contractors and there is no end in sight...

Like this comment
Posted by parent
a resident of Charleston Gardens
on Oct 29, 2010 at 4:43 pm

Im sorry, but I (100% lifelong Dem) will be voting 100% Republican this year, as perhaps the last and only desparate hope to see this nightmare halted. The more money the Obama administration literally shoves on California HSR the more real danger we are all in of having this 'fast tracked' down our throats.

What I think could really turn the tide now, if act fast, is huge numbers of email should be sent to republican campaigns, those fox news crackpots, etc, asking them to EXPOSE the California democrats for this ludicrous lack of accountability, and the continued showering of federal cash on the crooked CA HSR by the Obama administration. Its utterly ridiculous that Jerry Brown, who is the current Attorney General, isn't being called to account for these abuses happening right under his nose! While he busily runs on 'spend within our means', 'bring decision making power back to the local communities' and no-new taxes without vote.

What about all the accountability Obama promises with ARRA? This ought to be a huge black eye for the administration! There ought to be federal congressional investigations into these abuses.

Like this comment
Posted by ODB
a resident of Old Palo Alto
on Oct 29, 2010 at 5:13 pm

During the Gubernator's recent trip to Asia it was established that China and Japan are willing to both build the hardware for CA high-speed rail AND provide the financing. If that happens, you can kiss your federal ARRA stimulus dollars goodbye on their way to Asia, lock stock and interest.

Like this comment
Posted by Former Democrat
a resident of Another Palo Alto neighborhood
on Oct 29, 2010 at 5:23 pm

We will be voting for Meg Whitman and Greg Conlon, the only two politicians in this race that have spoken out against HSR.

Like this comment
Posted by pat
a resident of Midtown
on Oct 31, 2010 at 5:04 pm

>”I (100% lifelong Dem) will be voting 100% Republican this year, as perhaps the last and only desparate hope to see this nightmare halted.”

Great strategy. That way you’ll also vote for the same people who got the country into this financial disaster plus 2 wars + religion in politics + anti-choice + “trickle down economics.”

And do you really think that will stop HSR?

Like this comment
Posted by Parent
a resident of Charleston Gardens
on Oct 31, 2010 at 5:12 pm

Well there's a much better chance that the republicans will stop HSR than the dems, who are guaranteeing to keep HSR going. So, yes, that's the chance I'm willing to take. Reproductive rights used to be my litmus test. Now its stopping HSR.. HSR coming is THE burnging platform right now.

Sorry, but further commenting on this topic has been closed.

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