State Auditor Blasts DAGS For Failure to Verify Rail Invoices

Mar 28, 2019

State Auditor Les Kondo
Credit Wayne Yoshioka

The Hawaiʻi Office of the Auditor has issued a blistering report on the failure of state accounting officials to adequately verify invoices from the transit agency developing the Honolulu rail system.

Auditor Les Kondo said the Department of Accounting and General Services did not set up a system to check the invoices from the Honolulu Authority for Rapid Transportation and lacks administrative rules to do so. Moreover, Kondo said, the department does not to intend to develop those rules.

"DAGS' responsibility with respect to HART's invoices is relatively narrow: verify that the invoices HART submits contain only capital costs and none of the specific costs that cannot be paid using the state revenues under the law," Kondo said in a statement. "Basicially, does an invoice qualify, or not?"

"Instead, staff auditors perform time-consuming and redundant spot checks that not only are they not qualified to do but also mimic more extensive reviews that HART had previously performed," he said.

Some of the work is so time-consuming that DAGS auditors can't review all of the costs that HART submitted for payment, opting only to sample a small fraction of the costs for each invoice, Kondo added.

The work wastes time and money and provides "nothing more than a false sense of assurance that state moneys are spent properly."

In a statement, DAGS called the auditors's report a "welcome tool to help us further refine and strengthen how we review documentation given the current process and working with our assigned resources."

But the department said it is not required to issue written rules for its review of HART invoices and already has written audit or verification procedures in place. It says it uses a sampling method "which is a generally accepted audit procedure."

"If DAGS auditors do not have sufficient documentation or have questions regarding the qualification of expenses incurrred, DAGS will return those invoices and not issue reimbursement until adequate supporting documents are received," the DAGS statement reads.

The auditor's report comes as federal authorities are investigating the construction of the city rail system, the most expensive capital improvement project in state history. A grand jury has issued multiple subpoenas to HART seeking tens of thousands of documents, including those on change orders, relocation and real estate acquisition costs and board minutes.

State Comptroller Curt Otaguro, head of DAGS, told HART officials that the state will not pay for invoices that are covered by the subpoenas and ongoing federal investigation, the Star-Advevertiser reported.

Costs for the 20-mile rail system have ballooned from an earlier $5.1 billion to its current estimated $9.2 billion, an increase of about 80 percent. Delays have also plagued the project. 

State Auditor DAGS Report