State auditor levels heavy criticism on Irvines Great Park audit

Voice of OC: State Levels Heavy Criticism on Irvine’s Great Park Audit
The city of Irvine’s high-profile and controversial forensic audit of the Great Park was plagued by poor governance, a lack of auditing standards, and a compromised bidding process, according to a scathing report released by State Auditor Elaine Howle’s office Tuesday.

The 69-page report found a host of problems with how Irvine officials handled a review of the more than $250 million spent by the city to develop 88 acres of the 1,300 acre park, the largest and most scandal-ridden public project in recent county history.
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Irvine officials failed to hold their consultants to common industry standards for government audits that ensure impartial analysis; altered the city’s procurement process “for reasons it could not adequately explain” and in a manner that advantaged one bidder; and managed consulting contracts in a way that led to unnecessary cost overruns and duplicated work, said the report, which was titled “Poor Governance of the $1.7 Million Review of the Orange County Great Park Needlessly Compromised the Review’s Credibility.”

(Read the California State Auditor’s report and the city’s response.)

The state audit also criticized the city for managing their investigation through a two-person council subcommittee, questioning whether the subcommittee had made any real contributions that could justify closed-door meetings away from public scrutiny.

“It wasn’t a real audit, even though it was billed as one at times. I wish people would stop calling it an audit — it was a misuse of taxpayer money,” said Assemblywoman Lorena Gonzalez of San Diego, who pushed for the state audit on behalf of Gafcon Inc., the park’s former lead consultant and one of the main targets of the city’s investigation.

The state audit made a point of referring to the city’s investigation as the Great Park review, and not an audit.

“There was a number of things the city could have done [to improve the process], and every step of the way, they chose not to,” said Gonzalez, who received a $500 campaign contribution from Gafcon CEO Yehudi Gaffen in 2015 and a $3,900 contribution from the company in 2012.

‘Unnecessarily Incendiary’

For the better part of a decade, the Great Park project has been characterized as one of the biggest boondoggles county history. And the city’s report, launched after the council’s Republican majority assumed power in 2012, found significant waste and abuse, including no-bid contracts and dozens of change orders that were approved with little to no accountability.

It also found invoices that lacked documentation, and political pressure so intense it seemed the park’s consultants were running the project instead of city staff.

Many credited the city-commissioned investigation by the Irvine-based Aleshire & Wynder law firm for bringing fiscal accountability to the 1,300-acre park project, which has faced a torrent of criticism for spending millions of dollars on no-bid contracts while construction stalled.

City officials issued a terse response to the State Auditor’s report, calling its title “unnecessarily incendiary” in a letter that was approved by four City Council members with Councilwoman Beth Krom dissenting.

“Although it may be [the state auditor’s] opinion that adopting the recommendations in the report might enhance transparency or public confidence, Irvine does not accept the [state auditor’s] over-arching theme that the city’s actions compromised the integrity of, or diminished public confidence in, the Great Park Review,” wrote the city in its response to state report.

The city also pointed to the lack of any findings that officials violated any state laws or regulations, that would undermine the accuracy of the conclusions reached in the Great Park audit as “validat[ing] the city’s governance.”

Among the findings in the state audit:

  • The City Council did not publicly approve a 2014 contract with the law firm hired to help complete the review, Aleshire & Wynder. Instead, city staff approved purchase orders that increased the value of the contract far above the threshold where a contract must go before the council for approval.
  • Rather than using generally accepted government auditing standards that the city has used in the past, the city applied consulting standards “not rigorous enough for the type of contract review” the city described publicly. The consulting standards only require one of nine professional standards for most government audits.
  • The city modified its selection and evaluation process for bids after it had already received proposals and interviewed selected firms. It added an interview process that they decided would be a significant factor – worth one-third of the total score — but didn’t notify all the bidders about the change.
  • The firm that ultimately won the bid, Hagan, Streiff, Newton & Oshiro, would have been in third place if not for the interview portion that was added.
  • The city structured its request for proposal in a way that “encourage[s] the winning bidder to develop opportunities for future work.” The audit notes that most of the recommendations in HSNO’s report were recommendations for additional work.
  • Both Aleshire and HSNO “performed a substantial amount of overlapping work and came back to the City Council several times for budget increases.” Many times, city staff were not aware of the consultants’ progress and authorized increases as requested.
  • Although the City Council subcommittee was tasked with overseeing the audit, the city hired outside law firms to do the oversight that the subcommittee should have performed. The state audit states that the subcommittee was “unnecessary and compromised the integrity of the park review process.”

Many of the central criticisms in the state’s audit were also aimed at the Great Park – including findings by the city’s consultant that the city’s procurement process was not followed, that the city failed to enforce its own contractual requirements; and ballooning costs and change-orders that were out of control.

The findings of the city’s audit were ultimately fatal to Agran’s long council tenure. In October 2014, Aleshire presented a number of preliminary findings at a City Council meeting despite the fact that the investigation was still in progress, which became fodder for attack ads against Agran, who was unseated in the November 2014 election.

Aleshire’s preliminary findings were later proven to be untrue.

“By permitting Aleshire to publicly disclose these preliminary findings so close to the November 2014 election, the council created an opportunity to influence public opinion in advance of an election,” the audit states.

Subcommittee Questioned

The audit was also critical of the nature of the subcommittee, consisting of council members Jeff Lalloway and Christina Shea, formed to oversee the audit. Because the subcommittee does not have a majority of council members, they were able to operate outside state open meetings laws and did not need to post agendas or documents related to their discussion.

The state audit opined that the subcommittee was unnecessary altogether, and the city would have been better served to discuss the audit as a council during open and closed sessions.

“Although we did not identify any evidence that the subcommittee acted beyond the bounds of an advisory committee, we found little evidence that it added any value to the park review,” the audit states.

Although the Great Park audit is credited with exposing significant waste and abuse in the project, critics say the state audit reveals a process so compromised that the conclusions of the Aleshire & Wynder and HSNO reports should not be trusted.

“It is nothing more than a waste of taxpayer dollars. It’s discredited anything that came out of that process,” Gonzalez said. “If I were a voter in Irvine I probably wouldn’t be re-electing them.”

For Agran and Krom, the state audit was validating.

“It’s belatedly, finally, an objective analysis of what’s going on by way of abuse of power and misuse of public funds,” said Agran. “Which is exactly what the subcommittee was engaged in — misuse of public funds for political purposes.”

Krom said the city’s review of was “politically motivated,” and shouldn’t be referred to as an audit given that consultants were held to a lower standard. She said the city’s response to the state auditors was “offensive.”

When reached for comment Tuesday, Lalloway said he was on vacation with his family and had not read the state’s report. He said the city’s response “sums up his feelings.”

In its letter to state auditors, the city disagreed with many of the audit’s findings and said it lacked context about the “magnitude of constituents’ concerns” about the cost of the Great Park. It said the audit failed to demonstrate how the city undermined the public’s confidence in the audit and that commenting on the value of the council subcommittee was outside the state auditor’s scope of work.

“The CSA [state auditor] has not identified – and cannot identify – any instance where the subcommittee either acted unlawfully when exercising its responsibilities during the Great Park Review, or needlessly interfered with transparency,” the city’s letter states.

The city also questioned whether members of the state audit team have the experience to comment on whether the city was following best practices.

“It is unclear what sources the CSA [state auditor] has used to identify purported ‘best practices,’” the letter states. “It is also not clear that any members of the audit team have acquired practical experience managing the day-to-day operations or serving on the governing body of a city comparable to Irvine.”

And regarding the criticism that its investigation didn’t follow government audit standards, the city said it contracted for “’consulting services’ as opposed to auditing services.”

According to the letter, the city has revised its procurement process to require staff responsible for purchasing work with project managers in preparing requests for proposals, and that procedures for interviews in the bidding process will be clarified.

Finally, the city’s letter asserts that the process was transparent.

“The reports…were ultimately revealed, discussed at length by the full City Council in public, and subjected to public scrutiny,” the letter states.