Emails show turmoil in state Auditor’s Office during rail audit

Multiple problems unearthed around highly-touted audit of Honolulu rail project

HONOLULU, Hawaii (HawaiiNewsNow) - Back in April 2018, Hawaii Legislative Auditor Les Kondo hired former state Judge Randal Lee as a consultant for multiple audit reports his office was conducting on Honolulu’s troubled rail project.

But several months later, Kondo terminated both Lee and longtime white-collar crime investigator Daniel Hanagami, who was on loan as an investigator for the state Attorney General.

Kondo wrote in an email that the terminations were not for cause but for “convenience.” Public corruption experts said it was a bad move.

“It’s a travesty," said Bob Watada, former executive director of the Hawaii Campaign Spending Commission.

“It tells you that something corrupt is there.”

Kondo’s audits, which were published earlier this year, blamed much of the rail project’s cost overruns on the rush to get construction underway.

While reports provided a lot of new information about problems at the rail project, they didn’t include any of the preliminary findings by Lee and Hanagami on the questionable change orders.

Audiotapes of a city manager’s interview with the investigators showed that Hanagami and Lee were questioning more than $100 million in change orders paid to contractor Kiewit and its subcontractors.

They said the bid specifications and contract language likely forbid many of these expenses.

Lawmakers said losing the two investigators was a big loss.

“I’ve spoken to the auditor several times about this and he was not very happy he had to let these contracts run out ― especially the two investigators ― because he was very happy with Mr. Hanagami’s work," said state Rep. Sylvia Luke, House Finance Chair.

Kondo was not available for comment but in an emails obtained by Hawaii News Now, he told Lee:

“We did not terminate the contract for cause or because of any breach ... the termination was for ‘convenience,'" Kondo wrote in a July 20, 2018 email.

But as part of that email exchange, Lee said Kondo told him his contract was canceled due to “a lack of funding from the Legislature.”

When the state Legislature approved the bailout of the rail project two years ago, it provided the Auditor’s office with $1 million to conduct multiple audits of project.

Lee was awarded a $200,000 contract but was paid just $33,000 when his contract was terminated.

Another $440,000 was paid to a mainland accounting firm ― BKD LLP ― which Kondo later accused of conducting sloppy work.

He also rejected a number of travel and meal expenses charged by BKD auditors.

“The most recent draft report ... continues to have factual inaccuracies, insufficient, incomplete and unclear descriptions of the process and weak analysis," Kondo wrote in a Oct. 4, 2018 email to BKD.

The firm said some of the expenditures were a mistake but it denied that it produced sub-par work.

“Our assessment is that (this) is intended by the auditor’s office as a smokescreen to undermine BKD’s credibility,” said Mike Wolfe, chief risk officer for BKD.

“We were really trying to be independent and objective and report the facts as we saw them. It became clear during the process that that was not what Mr. Kondo was looking for.”

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