Alameda Corridor Authority Creates Audit Committee

The government agency in charge of the Alameda Corridor created an audit committee Thursday, but denied a seat on the panel to Los Angeles City Controller Rick Tuttle, who for months has advocated more stringent oversight of the $2.4-billion rail project.

Instead, the board of the Alameda Corridor Transportation Authority appointed three of its own to the ad hoc advisory committee--Supervisor Yvonne Brathwaite Burke, Long Beach Port Director Richard D. Steinke and Los Angeles Port Director Larry A. Keller.

The panel will oversee audits of the Alameda Corridor project and help decide what issues or problems should be addressed during construction of the 20-mile-long route from downtown Los Angeles to the county’s fast-growing ports. The rail portion of the project is scheduled to be completed by April 2002.

Tuttle said he was pleased the audit committee was created, but disappointed that his office would not be able to officially participate in something he has pushed for since spring. As a member of the authority that governs the project, Tuttle said the city of Los Angeles should have a stronger oversight role.

“We could have added an experienced audit staff to the mix,” Tuttle said after the vote. “But we will try to be around anyway. We intend to have as close a relationship as possible” with James C. Hankla, the project’s executive director.

Though Jeffrey Kellogg, the chairman of the corridor’s board, once dismissed Tuttle as a politician looking for an issue, ACTA general manager Gill V. Hicks said the committee appointments were made according to the recommendations of KPMG, an outside accounting firm that reviewed the agency’s operations. KPMG advised the corridor board to pick its own members for the committee.

“Typically audit committees are made up of members of the board,” Hicks said. “We are keeping to tradition on that. The board just decided to go ahead with the KPMG recommendation.”

Hicks said the corridor authority has developed good communications with Tuttle’s office and will continue to provide the controller access to the agency’s staff and records.

Tuttle became concerned about the effectiveness of ACTA’s financial controls after Nancy Schafer, one of the agency’s controllers, transferred $3 million in bond proceeds into her personal bank account. Schafer, who was replaced in March, has blamed the mistake on a computer error and a failure of the agency’s financial safeguards.

Tuttle has repeatedly said that an audit committee could help avoid the cost overruns, mismanagement and delays that have hampered construction of the Los Angeles subway system.

Corridor officials initially resisted the idea, saying the agency is already monitored by a host of local, state and federal agencies. On Thursday, however, board members approved the panel in light of KPMG’s recommendations to create the audit committee.

The KPMG review also advised the corridor authority to adopt safeguards that will prevent the transfer of corridor funds to the wrong bank accounts. An inadequate account verification system “could result in the failure to identify unauthorized or inappropriate wire transfers in a timely manner,” the review stated.

A summary of the report, which was released Thursday, stated that the agency appears to have taken “proactive steps to develop internal controls to manage risks associated with ACTA’s operations.”

KPMG noted that the corridor authority has informally instituted those controls throughout the operation, including the hiring of an internal auditor who answers directly to the agency’s executive director.

To help keep the project on schedule, KMPG warned that construction change orders should be processed and approved by the board in a timely fashion. ACTA expects to exceed $3 million per month in change orders during peak construction periods in the next two years.

KPMG further recommended that the corridor agency better monitor the performance and effectiveness of its job training program and the private consultants it hires. The report stated that the agency needs an information recovery plan in case a disaster disables its computerized database.

Hicks said the agency will be responding to the recommendations in the weeks ahead. Some are under review and some have already been implemented, he added.