State fires firm auditing rail change orders

The Hawaii State Auditor has canceled a contract with a company that was supposed to review change orders for the $9.2 billion Honolulu rail project, and it is unclear whether that report will ever be completed.

The decision by state Auditor Les Kondo to terminate the $700,000 contract with the certified public accounting firm BKD LLP came to light just as state lawmakers were advancing bills to reduce the auditor’s oversight of the rail project.

On Tuesday, the state House voted unanimously to eliminate the requirement that the auditor produce an annual review of documents and the activities of the Honolulu Authority for Rapid Trans­portation. That review would have included scrutiny of invoices, contracts and progress reports for rail. Senators are expected to vote on a similar bill today.

Lawmakers had previously instructed the auditor to undertake those annual reviews as part of a $2.4 billion state bailout of the city rail project in 2017. The rail project is billions of dollars over budget and years behind schedule, and the city has twice asked the state Legislature for money to continue funding the project.

Meanwhile, House Finance Committee Chairwoman Sylvia Luke said she wants the state Department of the Attorney General to take a “more aggressive approach” to growing concerns about the Honolulu rail project.

In recent weeks the Honolulu rail authority confirmed it received three federal grand jury subpoenas seeking tens of thousands of documents as part of an investigation that involves the FBI and the Honolulu office of the U.S. Attorney.

“What needs to happen now is bigger than an audit,” Luke said.

“In concert with the federal government, I think the state needs to do a little bit more in our investigation of finding out if there were misused (funds) and fraud dealing with state funds,” Luke said. “That’s not going to be accomplished by an audit. That needs to be accomplished through criminal vetting and the Attorney General’s office taking a more aggressive approach on this issue. That’s the discussion that we need to have.”

Luke said she believes that could happen “in conjunction with the federal inquiry.” She said the Attorney General’s office has been in contact with the federal agencies investigating issues surrounding rail, “so we will be asking the Attorney General’s office to look at the rail issue closer to see if there needs to be a state criminal investigation as well.”

Krishna Jayaram, special assistant to state Attorney General Clare Connors, said, “We certainly welcome the representative’s input, and we’ll have that discussion.”

Kondo said his office hired BKD to review change orders and other cost items for the rail project, but canceled the contract “because we were not happy with the work.”

“We had concerns about the accuracy of the information that was being reported, and we had asked the contractor to provide us with assurance that the information (in the draft report) was accurate and supported with appropriate evidence,” Kondo said. “The contractor was not willing to do that.”

He said there is “no way” the auditor would release a report unless it was confident that it was accurate. Kondo said he does not know if his office will rebid the contract, or whether the state will try to recoup about $450,000 it spent on the contract. He said the auditor’s office is consulting with the state Attorney General’s office about those issues.

As for House Bill 118 and Senate Bill 656 to eliminate the auditor’s annual review of the activities of the rail authority, House Finance Committee Chairwoman Sylvia Luke told her colleagues Tuesday that Kondo has had trouble getting certain records from HART.

He is concerned “that with the federal investigation, that he will have additional difficulty in getting complete records from both HART and the city,” she said.

“As long as the investigation is ongoing, the auditor also agrees that we need to cease any more audits, at least from his office, because he doesn’t feel that he will give a complete picture” to lawmakers and the state, she said in an interview.

Kondo said another issue he raised with lawmakers is that “we don’t think we have the expertise to do a meaningful assessment of the invoices (that HART submits to the state to be funded). To do the work that is in the statute right now, we feel like we need an appropriation.”

However, he said he plans to generate two more rail reports this year. One will examine the process HART uses to determine which invoices should be submitted to the state Department of Accounting and General Services, and the process DAGS uses to decide whether to pay those bills.

The second report will scrutinize the process HART uses to review invoices from its contractors, including contractor claims for overhead, Kondo said.