Audit: Rail project financial plans 'not reliable,' more cost overruns expected

Audit: Rail project financial plans 'not reliable,' more cost overruns expected
Published: Apr. 14, 2016 at 7:34 PM HST|Updated: Apr. 15, 2016 at 6:12 PM HST
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(Image: Hawaii News Now/File)
(Image: Hawaii News Now/File)

HONOLULU (HawaiiNewsNow) - The agency overseeing Oahu's $6.5 billion rail project is relying on unreliable financial reporting and has an outdated plan for system maintenance, a scathing city audit concludes.

"Better planning is needed to address and manage future rail project costs," city Auditor Edwin Young said in the report, which was released Friday. The Honolulu Authority for Rapid Transportation "needs to improve planning and oversight to effectively address and manage future operations and maintenance needs."

The 176-page report revolves around three major findings: HART needs to improve financial management, streamline project management and contract administration, and address future rail project costs.

"Despite having a goal of completing the project on time and on budget, HART's project costs have increased $1.3 billion from the original estimate of $5.2 billion to an estimated $6.5 billion," the audit said. "HART's processes can be improved to construct and compete the project more economically, effectively, and efficiently. Absent the improvements, we anticipate additional shortfalls and cost overruns will occur."

Other findings from the audit include:

  • HART can't demonstrate that it has an effective method of tracking, monitoring, and reporting on delay claim costs.
  • The rail agency does not have an adequate contingency reserve.
  • HART is paying for vacant office space.

Even before the audit was released, it was causing considerable controversy -- and calls for greater accountability.

On Thursday, HART CEO and Executive Director Dan Grabauskas blasted the report, calling it a "joke," "ridiculous," and "flawed."

"It's a mess," Grabauskas said at a news conference Thursday. "The so-called audit is a joke, but it hasn't been funny. Frankly, there's nothing there."

While the audit was still in draft form, City Council members discussed some of the audit's conclusions, including that the project is facing significant cost overruns and that HART lacks a long-term plan for system maintenance.

HART Board Chairman Don Horner resigned Monday, partly in response to the audit, but also defended his work and said the rail project is on track.

In a rambling news conference Thursday, after remaining quiet for days, Grabauskas appeared angry and flustered over how the audit's conclusions were being discussed publicly before being released.

"We do have a plan for operations and maintenance. To say that there is no financial plan in there is incorrect," Grabauskas said.

Perhaps most interesting, Grabauskas used the news conference to accuse the city auditor of not being independent and of being "under tremendous pressure from members of the City Council" to wrap up the rail audit quickly.

"There's a real frustration and unfairness," he said. "That's not the way that the auditor is supposed to conduct himself. There are lot of violations of general auditing principles that this auditor has perpetrated."

In HART's written response to the audit, Grabauskas reiterated those claims, saying the report was written "to intentionally mislead."

"HART cannot say with any degree of certainty that this audit was performed in accordance with auditing standards or that the associated report is free from bias," Grabauskas wrote.

The auditor responded to those criticisms in a letter accompanying the audit, saying that HART had five weeks to respond to the report's conclusions.

"HART's attempts to discredit the audit work and attempts to intimidate the auditors were unprofessional," Young said. "We stand by our audit findings."

Hawaii News Now political analyst Colin Moore said Thursday that Grabauskas' public condemnation of the audit is unusual.

"At this point, it suggests to me that he doesn't care all that much about whether he keeps his job. He sees this as politically motivated, and he may be partially right on that," he said.

Honolulu City Council Chairman Ernie Martin, who has butted heads with the Caldwell administration, had called for HART leadership to step down in response the audit.

In a statement Friday, Mayor Kirk Caldwell said he would take his time to thoroughly review the audit's findings.

"Ultimately the report provides an opportunity to address concerns about the rail project to the HART board of directors, as well as the executive director and CEO Dan Grabauskas," Caldwell said. "My focus is on building this transformational project as quickly and inexpensively as possible."

For his part, Moore believes the fallout from the audit could benefit both Martin and Caldwell.

"If the city auditor's report comes out and Grabauskas ends up being dismissed, then he's (Caldwell) dealt with the problem and HART will move for smoothly forward. And Ernie Martin can claim credit for a lot of this, if that indeed happens," Moore said.

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