Audits are critical of agency managing LAX modernization project

The agency spending billions of dollars to modernize Los Angeles International Airport needs more financial oversight and relies on too many costly consultants, and a large number of change orders has driven some of the work over budget, according to a series of new audits by City Controller Wendy Greuel.

Released late Friday, the audits evaluate the financial management of Los Angeles World Airports and its current $4.1-billion program to improve the Tom Bradley International Terminal, taxiways and the main utility plant at LAX, the sixth-busiest airport in the world.

Among other things, Greuel noted that the airport department has not had a chief financial officer for several years. It lacks a robust internal audit capability, and the high volume of change orders for the Bradley project — still incomplete — has already exhausted the original contingency fund to pay for cost increases.

“With LAX undergoing a series of dramatic capital improvement projects, investing over $6 billion over the next decade, it is critical that we ensure that the department’s internal infrastructure is up to this historic challenge,” said Greuel, who leaves her position when her term expires at the end of the month.

Greuel’s office also assessed the management of the airport department’s pool of 1,029 motor vehicles used by staff members. Auditors found a lack of accountability, inaccurate inventory records and excessive mileage reimbursements for certain employees.

Though the reports contain criticisms and recommendations, they also credit Los Angeles World Airports with building a strong, effective organization while simultaneously implementing the largest public works project in the history of Los Angeles.

To do so, auditors said, airport officials embarked on an aggressive construction schedule to modernize LAX while contending with lawsuits and demands from airlines, public officials, contractors and residents.

Los Angeles World Airports operates LAX, LA/Ontario International Airport and Van Nuys Airport, one of the nation’s largest general aviation facilities. In fiscal 2012, the airport department took in about $1.1 billion in revenue and grants. Expenses were $809 million, resulting in a $279-million increase in net assets.

Airport officials said late Friday that they had been notified about the audits but could not comment because they have not yet seen copies of them.

The audit of the modernization program found that $191.8 million in change orders was approved for Bradley-related work by September 2012, although the contingency fund contained only $128.1 million.

Airport officials have said the change orders largely resulted from design revisions, errors in plans, changes requested by the construction manager and additions to the project. The budget for the Bradley work has now risen to about $2 billion, compared with $1.545 billion in December 2009.

The controller’s office attributed the problem to the fact that the airport department does not have a multi-year capital improvement plan that could provide more accurate estimates for budgets, project costs and contingency needs.

Auditors also found that airport agreements with the construction manager do not contain sufficient controls, such as sanctions, to ensure proper performance. Similarly, airport officials have not adequately overseen the construction manager’s handling of change orders, which could result in greater costs, according to Greuel’s audit team.

The audit examining the agency’s financial management outlined 16 problems that — if solved — could lower costs, improve the oversight of airport finances and provide the Los Angeles Board of Airport Commissioners more information that would be useful in making policy decisions.

Key among them was the airport department’s heavy dependence on private consultants to carry out key functions related to the modernization project. The department pays an estimated 15% to 20% more for consultants to handle work that could be performed by airport staff.

Auditors estimated that at least $7.2 million could have been saved so far. They recommended a better strategy for hiring consultants because the LAX development program is expected to take a decade or more to complete.

The audit further noted that there was a need for a chief financial officer as well as more support staff for airport executives. Without adequate personnel, the airport’s internal audit process was not effective, the controller concluded.

More questions were raised about the department’s debt management policy, which, auditors said, has remained unchanged since 2006.

The policy sets criteria for selecting the various types of financing available and how much debt can be safely taken on, and identifies officials responsible for managing debt. The controller’s office mentioned that the airport department has borrowed $3.7 billion so far to pay for LAX modernization projects.

dan.weikel@latimes.com