The Honolulu City Council has started discussing support for an “independent forensic audit” of Honolulu Authority for Rapid Transportation’s operations and contracts related to the rail project via Resolution 19-29. It is scheduled for adoption during Friday’s full council meeting.

There have been numerous warning signs that fraud may have occurred with respect to rail, including the statement by former city auditor, Edwin Young, that “internal controls were so weak, that if fraud, waste and abuse were to occur, HART and many others would not have detected it, could not prevent it and could not have taken corrective action if it had occurred.” (Statement made by former city auditor, Edwin Young, on Aug. 16, 2017, during discussions related to Resolution 17-199 heard in a special meeting of the Honolulu City Council’s Committee on Budget.)

There’s no doubt in my mind that we need to go beyond the audits that have been performed and actually look for fraud, waste and abuse. The question is, how should that be done?

Resolution 19-29 and its proposed amendment state an audit should be initiated “to address any misappropriation of public assets or other illegal actions.” Audits are not designed to do this, however.

This gets to be a little “insider baseball,” but it’s extremely important to understand the distinction between auditing and investigating. Auditors who audit government entities follow professional standards found in the Government Auditing Standards issued by the Comptroller General of the U.S. Those are the standards that the city and state auditors followed in their recent audits.

HART rail progresses near the Aloha Stadium Arizona Memorial.

The Honolulu rail project is moving forward near Aloha Stadium.

Cory Lum/Civil Beat

Under the auditing standards, auditors are required to be independent. The apparent expectation of the “forensic audit” requested by this resolution is that an expert opinion, such as a probable cause statement, be given. The AICPA Code of Professional Conduct, however, specifically states that “expert witness services” to an audit client compromises independence.

An auditor is therefore not allowed to give an opinion as to whether fraud or illegal actions have occurred. If we move forward with the resolution or proposed amendment as is, we will likely end up with the same type of report we have already received from the city and state auditors.

In addition, auditors are not trained in criminal investigations. We need to be sure that any physical evidence of illegal wrongdoing is properly handled, especially given the recent whistleblower lawsuit regarding alleged improper procedures related to contract change orders.

The federal government has issued three subpoenas to HART, the third one reportedly related to an ongoing investigation by U.S. attorneys and the FBI. As noted in discussion during the council budget meeting last week, the FBI does not usually share their results. It’s therefore important that any consultant hired to perform fraud examination services have prior experience working with law enforcement.

Resolution 19-29 should be amended to reflect a fraud investigation or examination rather than a forensic audit. The scope of work and qualifications of the firm should be very specific, with results provided in a report or reports to the council based on the phases of services provided.

If fraud is found, the report must contain a statement or statements of probable cause. A referral package for prosecution should be put together. An additional report that should be provided should include recommendations specific to ongoing fraud prevention to address what was found.

People are rightfully upset with the continued increasing costs related to rail. Let’s not add to that waste by ordering an audit that cannot provide us with what is needed – reassurance that fraud has not occurred, or if it has, consequences for those who have perpetrated it.

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