The latest state audit on Honolulu’s troubled rail project, released Thursday, takes aim not at the rail agency itself but rather at a separate agency that’s supposed to keep watch over the project’s spending.

That agency, the Department of Accounting and General Services, started reviewing rail’s construction-related receipts in 2018 before releasing those dollars to the Honolulu Authority for Rapid Transportation.

DAGS was enlisted to ensure those receipts from HART were strictly construction-related, and that they didn’t include any administrative costs. Those duties fell under the state’s second, $2.4 billion bailout in 2017 aimed at finishing the 20-mile, 21-station project.

However, the state auditor’s latest review “found that DAGS fundamentally misunderstands its responsibilities” under the state deal for rail, “performing unnecessary busy work that not only wastes time and money but also increases the risk of improper payment.”

Specifically, DAGS lacks the administrative rules required by law to guide its analysis of the rail receipts, and it provides no formal training to staff, according to the auditor. The result is often a waste of time, the report added.

Those problems lead to the risk that DAGS’ review is simply arbitrary and, worse, that improper payments for rail could be approved, the auditor’s report further states.

“We appreciate the auditor’s feedback, and we’re open to refining and improving our processes,” state Comptroller Curt Otaguro said in a statement Thursday.

As part of their 2017 rail bailout, legislators gave DAGS $400,000 to verify that all rail expenditures are legitimate — that they relate directly to construction — before reimbursing HART for the costs.

Rail has seen its costs nearly double since December 2014, from just over $5 billion to more than $9 billion. The report out Thursday is the third of four chapters expected to be released by the state auditor on rail. Prior reports have examined what the auditor found to be weak budget projections and significant accountability gaps.

Some Rail Funding Has Been Rejected

In its first full year reviewing rail receipts, DAGS approved and certified some $317 million in invoices for reimbursement to HART in 2018, the agency’s quarterly reports show.

But DAGS  returned 11 percent of HART’s total invoices unreimbursed in 2018, representing about $40 million, Otaguro said earlier this month. DAGS seeks further documentation for those expenses, he added.

The issue of what DAGS decides to approve came up at the HART board’s most recent Finance Committee meeting, held earlier this month. “There’s no due process” to determine what’s eligible for reimbursement to HART, board member Ember Shinn said.

HART officials said that rail staff is having trouble submitting all of its invoices on a timely basis, and that DAGS’ two full-time staff members reviewing HART’s receipts were similarly having trouble keeping up.

As time passes, the ability for HART to explain those expenses wanes, Glenn Nohara, another rail board member, warned at that March 14 meeting. The rail agency has struggled with high turnover among top management in recent years. Its most recent chief financial officer, Robert Yu, left the project earlier this year.

In November, before he left, Yu disclosed in a briefing that DAGS was rejecting invoices for road-repaving after construction and the creation of rail’s fare-collection system.

The state auditor’s report released Tuesday states that DAGS, lacking its required administrative rules, has been relying on the state attorney general’s opinion to decide whether road repaving qualifies as a legitimate construction cost.

“The staff is not even given detailed instructions on how to construe the costs contained in HART’s invoices,” it stated.

This third state audit arrives during the latest in what appears to be a never-ending series of critical moments for the island’s beleaguered rail project. HART continues to wait for the Federal Transit Administration to approve its recovery plan — a move that would finally release the project’s remaining $744 million in federal funding.

But it’s also been ensnared in a federal criminal investigation, with three grand jury subpoenas demanding that HART provide tens of thousands of documents related to construction and oversight.

Read the stat auditor’s report here: