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 Alfred W
a resident of Menlo Park: other
on Oct 28, 2010 at 4:20 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 R.Gordon
a resident of another community
on Oct 29, 2010 at 12:45 pm

Alfred W. should read other papers to find out that HSR is now starting up in the East and MidWest as a result of the analysis of the situation of the unemployed and the transportation airline failures and costs.
Rather than give you a web link, go to Wisconsin, Florida and three other major states and read their papers.
Menlo Park just seems concerned about Council members' inappropriate remarks. GET OVER IT.READ MORE STUFF THAN THE ALMANAC!

Like this comment
Posted by reader
a resident of Menlo Park: Belle Haven
on Oct 29, 2010 at 1:20 pm

Here you go:

Web Link

"nonpartisan Congressional Research Service examined the 12 corridors of 500 miles or less with the most daily air traffic in 2007. Los Angeles to San Francisco led the list with 13,838 passengers; altogether, daily air passengers in these 12 corridors totaled 52,934. If all of them switched to trains, the number of airline passengers, about 2 million a day, would drop only 2.5 percent. Any fuel savings would be less than that; even trains need fuel."

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