The HART board formally accepted the audit of their June 30, 2015, financial statements at its meeting January 28. During that meeting, I mentioned that their note on “Liquidity Risk” included a statement that the federal government “may” require the return of federal funds if there is a breach of the grant agreement and that this is inconsistent with statements HART has been making.
HART chair Don Horner then made a point of asking the auditors whether they had found any “pattern of errors,” “inconsistencies” or “sloppy information.” The auditors said “no.” But what Horner failed to point out is that the errors and inconsistencies that I’ve found are beyond the auditors’ scope of work.
The reports that contain these errors have been used by legislators and councilmembers when making decisions related to rail, and I think it’s important we understand just how pervasive this problem is.
Here are the errors, with more detailed information below:
- Mixing accrual basis and cash basis numbers;
- Double counting $298 million in revenue;
- Not including certain revenues in a projection;
- Three different amounts for expenditures;
- 33% – 38% of surcharge is paid by visitors – NOT;
- Ridership numbers don’t add up, even in “raw data”;
- $140 million adding error:
- Confusing presentation of updated project balance included math error: and
- Credit not included in change order for WOFH.
Accrual Basis Mixed with Cash Basis
The legislature had good questions for HART last year when they were discussing the extension of the general excise surcharge tax. One report that HART provided in response was “Revenues from January 1, 2007 to December 31, 2014.” The report shows a mixture of accrual basis and cash basis numbers for revenue. For people who are unfamiliar with these concepts, an analogy would be creating a table of temperatures with some listed as Celsius and others as Fahrenheit. It doesn’t make sense and just isn’t done.
Incorrect Revenues and Inconsistent Expenditures
The revenues report led me to HART’s monthly “Planned vs. Received Project Funding” figure, which is included in HART’s progress reports and the monthly ad that is published in the Honolulu Star-Advertiser. This report double counts $298 million of revenue. This is not an obvious error but had been repeated many months (possibly years – I didn’t go back to check) until it was finally corrected in the August 2015 PMOC report.
HART provided a number of reports to the Honolulu City Council in response to questions about the surcharge tax extension. Table A-1, “Capital Plan Cash Flows @ 4% GET Surcharge Growth Rate” projects“All Other” revenue to be only $6 million, but as of the date it was given to council, other revenue had already exceeded $9 million. This is the table that Chair Martin based his amendment on for the floor draft to Bill 23 (the surcharge extension) that went to the mayor for his signature.
Table A-1 also shows expenditures to date (June 30, 2015) of $1,512 million, while the “Quarterly Cash and County Surcharge Revenue Report as of June 30, 2015” shows total expenditures of $1,637 million. HART’s monthly “FACTS” ad shows the expenditures at yet another amount — $1,581 million. No one on the council asked HART in a public setting why these numbers don’t match. No one from HART provided me with an explanation.
Other Types of Errors
Mayor Caldwell has stated he prefers the surcharge tax, because 33% to 38% of the tax is paid by visitors and offshore military. The amount is actually less than 20%. Additional information on this was provided by me to the city council October 21, 2015.
When the city council was discussing authorization for HART to issue bonds backed by the City and County of Honolulu, HART provided the council with a cash flow projection that included a $140 million math error. This document is now part of our city law in Resolution 15-7.
The most recent error I found was related to the $26 million change order for the West Oahu Farrington Highway Guideway. HART did not include a credit of about $5,000. However, they did round up administrative costs, so that the net impact was about $2,000 . . . in the contractor’s favor.
Update: there was one more slide related to the WOFH change order that had an error. The total was off by $4,000 and was presented to the HART board at its December meeting.
These are just the errors that I’ve noticed. HART produces many other numbers for decision making and “public consumption.” Isn’t it time that they were accurate, complete and consistent?