California high-speed rail project faces call for forensic audit

California’s high-speed rail project now carries an official high-end cost estimate exceeding $231 billion, after voters in 2008 approved $9.95 billion in state bonds to provide initial funding for a $33 billion system.

The original plan projected a 2-hour-40-minute trip between Los Angeles and San Francisco, speeds up to 220 miles per hour and completion in 2020. Those were targets rather than measured results.

In an opinion essay, Nick Patsaouras, an electrical engineer, civic leader and author of “The Making of Modern Los Angeles,” says spending continued through all eight years of Gavin Newsom’s administration without laying a single inch of track. He also says that full service, if trains ever run, remains years away.

He treats the project as a case study in lost public trust and squandered taxpayer money, attributing the erosion to failed oversight and weak cost accountability.

The proposed remedy is not another standard review. The next California governor should appoint qualified independent auditors and order a forensic audit, a targeted examination of financial records for waste, fraud, potential embezzlement, regulatory violations or other misconduct.

The intervention matters because Newsom vetoed a bill that would have allowed the Office of the Inspector General, the state office responsible for audits and investigations, to hire highly trained staff for audits and investigations. That staffing would have expanded the office’s capacity to test contracts and expenses.

Patsaouras poses the immediate question: “What is Newsom afraid of?” He directs the next governor to answer it. He presents the dispute as a test of Newsom’s legacy, including his claim that the project could doom his presidential ambitions.

Newsom described the high-speed rail program as a job creator. Patsaouras counters that early jobs went to what he calls well-connected consultants and contractors who made political contributions to the bond initiative and assisted politicians supporting it.

He also alleges that Newsom repeatedly appointed donors and political allies to project oversight roles, often people he says lacked the experience or time to supervise the work properly. These are allegations in the essay, not findings from the September inspector-general report.

That distinction matters when assessing the September report from the project’s inspector general. It found weaknesses in oversight and approval procedures, along with questionable entertainment and travel reimbursements for consultants. About $600,000 in reimbursements violated state contracting rules and travel regulations.

The report appears to have contributed to the recent departure of CEO Ian Choudri, although the essay establishes no direct causal finding. Those findings show control failures and rule-breaking, but they do not complete a fraud investigation.

Patsaouras calls for a forensic review that can test accounts, contracts, expenses, vendors and suspicious conduct for evidence capable of supporting court proceedings. That is the practical difference from a standard audit, which he likens to a general assessment rather than a zoom lens.

What would an independent forensic audit change?

The California High-Speed Rail Authority is governed by a nine-member voting board of directors, and two non-voting members also sit on it. The voting board oversees planning, construction, finances, contracts and major policy decisions.

• Five voting members are appointed by the governor.
• Two are appointed by the California Senate Rules Committee.
• Two are appointed by the speaker of the California Assembly.

Patsaouras asks why the governor’s five appointees did not identify damaging control failures sooner during the eight years of Newsom’s administration. He attributes that failure to appointments he describes as politically connected and sometimes lacking the experience or time to oversee the work.

An October report said the authority had awarded a $24 million contract to KPMG. The board knew the consulting firm intended to charge more than its unusually low bid for senior positions. The board chair then asked the inspector general to review the project, but apparently did not request an independent forensic audit.

That is a reported claim about the award, not evidence of the final charge. The essay does not provide the underlying contract and expense records needed to quantify the additional amount, so those records would have to establish the outcome.

Patsaouras regards the inspector general as valuable but says it lacks the manpower, scope and expertise for a detailed examination designed to uncover fraud and financial misconduct and produce evidence that can stand up in court. An independent forensic audit would target specific accounts, contracts, expenses, vendors or suspicious behavior rather than assess the system in general.

For taxpayers, that could establish facts for legal scrutiny, identify contracts that warrant investigation and show where management controls failed. It would not add track, reduce the $231 billion estimate or bring forward a service date.

Patsaouras says the law should hold anyone who violated the public trust fully accountable, while stressing that an audit should reveal truth rather than presume guilt. His standard for the next governor is stronger than promises to do better.

He cites poor management controls, delays, cost overruns and billions of taxpayer dollars already committed as reasons why another routine review will not settle the case. The proposed audit would examine every major contract and test the financial trail behind reimbursements and the KPMG award.

The proposed audit would seek three concrete answers: what happened to taxpayer money, who abused it and who was responsible for protecting it.

His instruction is to open the books, follow the money and examine every major contract. He concludes: “Only if the next governor of California orders a forensic audit can we move forward to make high-speed rail workable, and to regain the public trust.”