HART mulls scrapping internal audit

Feb. 3—A plan to scrap a previously sought top-down

internal review of the

Honolulu Authority for Rapid Transportation is

underway.

HART's Internal Audit Committee Chair Edwin Young on Friday said he

believed the board of

directors' nearly year-old authorization to procure internal auditing services for the rail agency should be canceled until a better option can be created.

Young, a former Honolulu city auditor, said finding HART's reviewer has been nothing short of problematic, "primarily because the bids came in higher than anticipated," he told the committee, "and also because it is premised on

internal audit standards, which are contrary to what government auditors follow in terms of the accepted government auditing

standards."

Moreover, he asserted the agency's solicitation for internal auditing services — approved by HART's board in April — "contradicts the City Charter, Article 17-103 and 105, which designates the board as a policy-making board and the CEO as responsible for the day-to-day activities of the internal audit services."

Young's request to rescind the board's prior decision — via Resolution 1, which in part states that the existing "scope of serv­ices" for a future internal auditor were "incompatible" and "redundant"— was also based on the city having about 42 full-time equivalent positions "performing the same functions that are listed in the scope of services."

Young said those positions included the Honolulu Ethics Commission as well as the city's Internal Control Division, "which takes care of the hot line calls."

"And we would establish it and perform the same functions with only one manager and one auditor" at HART, Young explained.

Typically, the role of internal auditors is to review large organizations, such as a private company or government agency, to identify operating inefficiencies, wasteful spending, noncompliance with laws and regulations, and even fraud and theft, among other

issues.

But Young's request to cancel this particular internal audit service rankled board member Natalie Iwasa, who claimed she'd been pushing for a full-scale review of HART's inner workings for years.

"I just can't believe it wasn't established in the very beginning because we have a $10 billion project," said Iwasa, "and as the Association of Certified Fraud Examiners points out, organizations of all kinds have experienced approximately 5% loss of revenues annually, and one way to mitigate that risk is to have an internal audit function and a hotline."

She added that "those two methods alone account for over 50% of frauds that are discovered."

"So I am just really frustrated with this, not with that fact that Edwin is bringing this up, but if you understand the history, this board has discussed the

internal audit function for four years now," she said, adding a prior peer review comprising outside rail company directors was conducted, which yielded a detailed report. "The HART board adopted rules based on their report. The procurement was based on their report, and a lot of

it is word for word."

She added that although the board followed those recommendations, "at no point in the entire process did anyone say, 'Hey, wait

a minute, this goes against the Charter.' ... So while I understand what we're

doing, I just wanted to

express my frustration

because this has just taken so long."

However, it wasn't clear whether a resolution was needed to cancel HART board's prior authorization to procure internal auditing services.

Daniel Gluck, HART's deputy corporation counsel, said that, legally speaking, having Resolution 1 and "a paper trail of the board taking action to rescind this" was a good idea.

"But the board could also probably just vote, and we'd have it in the minutes and we'd be OK," the attorney added.

Later, board member Roger Morton queried Young on whether city

auditors have jurisdiction over HART.

"And is it appropriate for us to look to them for providing that service, and are they willing?" Morton asked.

Young replied, "HART is a quasi-governmental entity, so they have no jurisdiction over it."

"We can solicit their support, but they can't tell us what to do," Young said, adding his intent was to come up with a "different scope of services, a different model, and more in compliance with the City Charter."

Ultimately, the committee recommended the full HART board cancel its prior solicitation for internal auditing services.