Almanac

News - May 5, 2010

State audit blasts High-Speed Rail Authority

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

by Gennady Sheyner

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 April 29, 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," Mr. 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."

Authority's reaction

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," Mr. 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 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.

REPORT

Go to is.gd/bP5zq (case-sensitive) to view the report. It can take a minute for the PDF document to open.

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