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State Auditor Brian Sonntag finds Sound Transit has failed to comply with a legal requirement to conduct annual comprehensive performance audits

Sound Transit replies that it will not comply

Washington State Auditor Brian Sonntag's audit team has conducted a performance audit of Sound Transit.  The audit report was released on October 4, 2007 and is posted here in pdf. 

The top detailed finding in a list of 20 findings on pages 4-6 is that Sound Transit has not commissioned an independent comprehensive performance audit every year. 

The State Auditor concluded that the Sound Move Plan and Resolution 75 approved by voters in 1996 require Sound Transit to conduct such an audit every year.  The Auditor's report provides a detailed example (shown below) of why this would be a good idea even if there were not such a legal requirement.

The State Auditor then recommended that Sound Transit comply with the requirement by commissioning such independent performance audits annually.

Sound Transit was offered the opportunity to respond to the finding, conclusion, and recommendation, and did so in writing in the report.

Sound Transit's response, in summary, is "NO," Sound Transit won't do this; Sound Transit intends to do only an annual financial audit.

The State Auditor provided the final word, repeating that Sound Transit should conduct a comprehensive performance audit, because the intent of the 1996 Sound Move plan was to provide the public with an annual assessment of the performance and management of Sound Transit. 

The Auditor concludes, "interpreting this requirement as only having to conduct comprehensive, annual financial audits misleads the general public and does not meet the intended outcome of the goal."

What will happen next as a result of Sound Transit's defiance in the face of the Auditor's finding, conclusion, and recommendation is not clear.  The State Attorney General and the Citizens Oversight Panel both have a stake in the outcome of Sound Transit's refusal to comply with the Sound Move commitment, in addition to the interest of the general taxpaying public in the Sound Transit district. 

Sound Transit wrote in its response to the Auditor that the State Attorney General has reached a legal interpretation that is "not inconsistent with our own legal interpretation."  The Auditor wrote back, "We believe the intent conveyed to the voters, regardless of Sound Transitís internal legal opinion, was for performance audits to take place."

Further Detail

In its performance audit of Sound Transit released on October 4, 2007, the Office of State Auditor included the following result, described as a finding and a conclusion:

Sound Transit has not Commissioned Annual, Independent, Comprehensive Performance Audits Limiting the Ability to Identify and Address Budget, Schedule, and Scope Issues

The following is the text of the Auditor's report on pages 31-35 justifying this finding, with underlining added for emphasis of key points:

The following discusses the issues Sound Transit encountered regarding cost, schedule, and scope changes relating to the Central Link Light Rail Project and provides recommendations that will contribute towards Sound Transitís present culture of continuous improvement. The Citizen Oversight Panel (COP) ó the 15-member volunteer committee appointed by the Board ó was created to oversee and monitor the implementation of Sound Move. In addition, the COP is mandated to oversee the completion of annual, specific assessments through independent performance audits.

As an independent group charged with this purpose, the COPís input is central to ongoing year-to-year management decisions. Evaluating project alternatives, capital and operating budgets, financial plans, management of the regional fund, equity in sub-area budgets and reporting, adhering to schedules and budgets, and reviewing annual performance audits is paramount for accountability.

Performance audits are crucial to helping the COP assess the health of the organization. In addition, performance audits enhance transparency of operations and practices, increase accountability, and provide recommendations for improvement. The intended impact is increased efficiency and effectiveness of the audited entity.

Independent, comprehensive performance audits have not been conducted annually. Sound Move states, within its Public Accountability requirement that the RTA will:

a). Conduct an annual comprehensive performance audit through independent audit services;

b). Appoint and maintain for the ten-year construction period a citizens' oversight committee, charged with an annual review of the RTAís performance audit and financial plan, for the reporting and recommendations to the RTA Board." In addition, Resolution 75 states: To ensure that the ten-year development and implementation program occurs within the framework and intent of the financial policies approved by Resolution 72, the RTA will conduct an annual comprehensive performance audit through independent audit services and appoint and maintain a citizensí oversight committee for the ten-year construction period.

The oversight committee is charged with an annual review of the RTAís performance audit and financial plan and for reporting and recommendations to the Board."

Sound Transitís legal counsel has previously advised the Sound Transit Board and the COP that the COP is only required to review Sound Transitís annual independent financial audits to assess compliance with the financial policies adopted as part of Sound Move. However, language stated within Sound Move, Resolution 75, and the financial policies approved by Resolution 72, specifically requiring an annual comprehensive performance audit, appears to go beyond a financial audit. The Government Accountability Office (GAO) defines a performance audit as follows:

Performance audits provide an independent assessment of the performance and management of government programs against objective criteria or an assessment of best practices and other information. Performance audits provide information to improve program operations, facilitate decision making by parties with responsibility to oversee or initiate corrective action, and contribute to public accountability. The term performance audit is used generically to include work classified by some audit organizations as program evaluations, program effectiveness and results audits, economy and efficiency audits, operational audits, and value-for-money audits.

This definition is widely publicized and accepted. By specifically using the stated terminology annual comprehensive performance audits implies to the average reader that an assessment of operational efficiency and effectiveness as it relates to public accountability will be conducted. These types of audits have not taken place on an annual basis.

Since comprehensive performance audits were not carried out on an annual basis, strategic action plans addressing the cause of the budget, schedule, and scope problems were not implemented in a timely manner. For example, a performance audit that was limited to Sound Transitís cost estimating systems and project controls was not carried out until 2001. The audit found that when the estimating guidelines were completed, they were issued (February 1999) but never formally implemented during the development of the earlier project estimates. As a result, it appears there were some deficiencies in the development of the earlier estimates. Based upon a review of the available documentation as well as interviews with various Project personnel, some of these deficiencies were discovered or noticed during [Deloitte & Toucheís] D&Tís assessments.

Sound Transit noted on their website that the same auditor "concluded that Sound Transit used adequate methods and data in developing its current Link light rail cost estimate." This is an example of a reactive rather than proactive process. Sound Transit would have benefited from a proactive audit plan.

Sound Transitís lack of annual performance audits since 2001 has made it a challenge for the COP to address the cause of problems. In April 2005, the COPís Sound Move Year 8 Report noted ten "lessons learned." However, the causes of these issues were not identified. A comprehensive performance audit would have provided a mechanism to identify those causes. This has made it difficult for the COP to measure whether Sound Transit has addressed why problems occurred and how Sound Transitís culture of continuous improvement mitigates the risk of the addressed problems happening again.

Recommendations identified in annual performance audits should also be followed-up upon in subsequent years to assure status of implementation, benefit, and validity.

Recommendation #1a: We recommend Sound Transit initiate annual comprehensive performance audits, incorporating a process of review and reporting on the status of actions and progress on previous report recommendations.

Recommendation #1b: We recommend the Citizen Oversight Panel ensure annual comprehensive performance audits are conducted and reported to the public and the Board when they have not been performed.

The Performance Audit report then provides this text written by Sound Transit that responds to recommendations 1a and 1b, underlining added for emphasis:

Sound Transit appreciates the benefits that can be identified through independent review of Sound Transitís operations. Over the last ten years, Sound Transit has been one of the most frequently audited governmental entities within the State of Washington. Appendix A-3, for example, identifies forty-nine (49) different audits that were previously completed, many of which were targeted performance audits. In fact, between 2003 and January 2007, Sound Transit had an independent Performance Audit Committee, which was tasked with planning, directing, and monitoring performance-based audits focused on agency deliverables and outcomes. Upon passage of I-900, which gave the State Auditor's Office performance audit authority, Sound Transit sunsetted this committee.

Additionally, as the auditors have noted in this report, Sound Transit has internally identified numerous lessons learned from the construction of the Initial Segment. Many of these lessons learned are already in place, and Sound Transit is in the process of incorporating others.

Independent review and auditing plays an important role in the refinement of procedures.

However, because the auditorís conclusions conflict with settled Washington law regarding the applicable legal rules of statutory interpretation, Sound Transit disagrees with the auditorís interpretation that Resolutions 72 and 75 require comprehensive, annual performance audits of all of Sound Transitís operations. In fact, Sound Transitís Board previously requested a legal analysis of this very issue.

That legal analysis, which was made available to the auditors during the audit process, demonstrates that Sound Transitís governing documents plainly require only that Sound Transit perform a comprehensive, annual financial audit. We understand that this issue has also been reviewed by the State Attorney General in past years, and that the AGís conclusion is not inconsistent with our own legal interpretation. In accordance with this interpretation, we have conducted such an audit each year and have made the annual financial audit available to the COP each year to ensure compliance with the adopted financial polices (e.g., subarea equity) as legally required by Resolutions 72 and 75.

Comprehensive, annual performance audits of all of Sound Transitís operations are also unfeasible. By way of comparison, this audit was only of Link construction, and it has taken more than seven months to complete and, although not actually tracked, has likely required well over a thousand hours of Sound Transit personnel time, in addition to the cost of the auditors. A comprehensive performance audit as suggested by the auditors, however, would encompass all of Sound Transitís operations, including the construction, maintenance, and operations of Sounder Commuter Rail and Regional Express bus service, as well as all of Link operations and all of the various departments and operations that support Sound Transit generally. The magnitude of such an audit would easily increase by a factor of five or ten, resulting in a cycle of perpetual audits requiring the addition of full-time audit support personnel and disruption to normal activities.

Perpetual audits would also create no lag time between audits to allow for evaluation and incorporation of recommendations and lessons learned. Follow-on audits would be conducted prior to there having been time to incorporate recommendations from the prior audit. For all of these reasons, comprehensive, annual performance audits of all of Sound Transitís operations are not only not legally required, they are also logistically unfeasible.

As noted, Sound Transit appreciates the value of both self-evaluation and external evaluation. We intend to continue to self-evaluate and implement lessons learned as they are identified. As we have done in the past (see, for example, the eight previous performance audits identified in Appendix A-3), we will also continue to request our own limited performance audits that are focused on areas that have been specifically targeted for evaluation. Finally, as required by our governing documents, we will continue to perform a comprehensive, annual financial audit every year.

To conclude this section of the Audit Report, the State Auditor responded to the Sound Transit with these concluding remarks, underlining added for emphasis:

Performance audits help insure that Sound Transit efficiently and effectively spends Washington State taxpayersí dollars. We believe the intent conveyed to the voters, regardless of Sound Transitís internal legal opinion, was for performance audits to take place. The language stated within Sound Move, Resolutions 72 and 75, specifically state that annual comprehensive performance audits are to be performed. We believe that the common definition of performance audits coupled with the placement of the requirement within the public accountability statement of Sound Move, indicate the intent to provide the public with an assessment of the performance and management of Sound Transit. Interpreting this requirement as only having to conduct comprehensive, annual financial audits misleads the general public and does not meet the intended outcome of the goal.

Finally, note that CETA spotted this gap in Sound Transit's performance in 2003

Citizens for Effective Transportation Alternatives (CETA) and the Public Interest Transportation Forum (PITF) provided the first public notice of Sound Transit's deficiency in conducting annual comprehensive performance audits.  PITF published the following information in summer 2003 on the World Wide Web of the Internet, and alerted journalists via email:

In 2003, CETA members Will Knedlik and Emory Bundy uncovered that Sound Transit up to that point in time had never conducted a "comprehensive performance audit through independent audit services" in the seven years since voters approved its Ten-Year Regional Transit System Plan, a requirement of the Plan and subsequent Board resolution.  This issue is documented in the following description from Emory Bundy:

Sound Transit Executive Director Joni Earl sent a memo to the Sound Transit board, August 26, 2003, titled "Report on performance audit request."  (Download this document in pdf, with reference documents included.)  She contends that the agency is not obliged to conduct a performance audit, as described in the Ten-Year Plan and in Resolution 75.  However, the language of the Sound Move Plan adopted by voters in 1996 is clear on the promise of an annual comprehensive performance audit:

"Sound Move:  The Ten-Year Regional Transit System Plan
Appendix B:  Financial Policies

"To insure that the ten-year construction program development and implementation occurs within the framework and intent of these [financial] policies, the RTA will:

        a)  Conduct an annual comprehensive performance audit through independent audit services;

        b)  Appoint and maintain for the ten-year construction period a citizens' oversight committee, charged with an annual review of the RTA's performance audit and financial plan, for reporting and recommendations to the RTA Board."

There is a Federal interest in the conduct of these performance audits, because of the probability that they would reveal problems pertinent to the successful completion of the Link Light Rail project as defined by a Full Funding Grant Agreement.  The need for such audits has been clear for years.

For example, back in September 2000 there was a "Call for an Independent Audit" made by 88 citizens of the central Puget Sound region.  Sound Transit officials declared in response on September 6, 2000, that the agency had been "audited to death," there were "no cost overruns,"  and anyone who suggested otherwise was "twisting the truth." At the time, Sound Transit officials were in possession of bids for the Capitol Hill tunnel, the cheapest of which was $300 million more than the budget.  They also knew that the right-of-way costs in the Rainier Valley were multiples of what they were representing; they were claiming $42 million, the next month they admitted $90 million. The current budget is $233 million.  Independent estimates of cost overruns on the 1996 plan for 21 miles of light rail now come to about five billion dollars.

Sound Transit is obligated to commission an "annual comprehensive performance audit through independent audit services," just as it's obligated to "appoint and maintain a citizen's oversight committee for the ten-year construction period."  Furthermore, it is the explicit responsibility of the Citizen Oversight Panel to conduct "an annual review of the RTA's performance audit and financial plans"  That is what the Citizen Oversight Panel is created to do:  review the annual performance audit and financial plan and, having done so, make reports and recommendations to the board.  It cannot do its job unless the annual, independent performance audit is conducted--that's a fundamental precondition of its mission.

At the oral hearing for the Sane Transit v. Sound Transit lawsuit before the State Supreme Court, June 10, 2003, Justice Sanders directly asked Sound Transit's chief counsel, Desmond Brown, whether the agency is obliged to observe all the provisions of Resolution 75, or whether it is free to select and observe some portions, and not others.  Mr. Brown was unequivocal, and declared:  "All of them."

"REGIONAL TRANSIT AUTHORITY RESOLUTION NO. 75

"Section 5. To ensure that the ten-year development and implementation program occurs within the framework and intent of the financial policies approved by Resolution 72, the RTA will conduct an annual comprehensive performance audit through independent audit services and appoint and maintain a citizens' oversight committee for the ten-year construction period. The oversight committee is charged with an annual review of the RTA's performance audit and financial plan and for reporting and recommendations to the Board."

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Last modified: February 07, 2011

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