A new audit reviewing contracts at the San Diego Association of Governments is again raising concerns about the regional planning agency’s leadership, and its in-house watchdog team is accusing management of impeding its work.
Internal auditors say SANDAG’s process of awarding contracts is concerning enough that even after their monthslong review, they’re conducting further investigation and will refer their findings to outside oversight agencies.
Officials did not specify which matters they will further investigate, nor did they say which agencies they believe should look into the audit further.
The report released late Friday by SANDAG’s Office of the Independent Performance Auditor flagged large contract amendments that lacked board approval, missing and poorly kept paperwork, and millions of dollars in consultant payments for work that auditors argued could have been done by in-house staff.
Mary Khoshmashrab, who has headed the office since 2019, also noted that some members of management “remained unwilling to provide direct access” to certain documents over confidentiality concerns — a move that hindered the auditors’ work, she said.
SANDAG leaders disputed many of the audit’s findings and believe they “fully cooperated,” according to the agency’s written response. CEO Hasan Ikhrata also said that SANDAG has already improved policies that address some of the auditors’ concerns.
Ikhrata continued: “Management also wishes to establish that, even if it does not agree with portions of the audit or the way some elements are described, it is supportive and appreciative of many of the recommendations to the extent they provide opportunities for enhancements to SANDAG’s business operations.”
Internal auditors said their findings open the agency and its more than $1 billion budget to serious potential risks: Among them are unanticipated cost increases, collusion between staff and contractors, and losing federal grants due to noncompliance.
Like a previous audit that looked into the agency’s contracts, the latest report again does not identify the vendors.
Khoshmashrab said because of the obstacles her office faced during the audit, staff were unable to perform sufficient testing and opted against making statements regarding whether fraud existed.
“However, auditors can state that based on the testing that auditors were able to perform, auditors found no indication of intentional wrongdoing or fraud by staff,” she wrote in her report.
But they did raise concerns about some vendor practices. In one project involving SANDAG’s toll operations systems, a contractor — a services firm identified as “Vendor AA” — was awarded more money because another company it was overseeing — described as “Vendor EE” — didn’t do its job on time.
Vendor EE was supposed to complete its work in 2019, but its task order has been extended by four years to 2023 “due to failure to perform.” As a result, Vendor AA has seen eight cost changes increasing the value of its contract.
Auditors warned that using consultants to perform project management duties created a possible conflict of interest: Vendor AA has a financial incentive, they said, to allow delays and recommend extensions.
SANDAG staff had also failed to conduct regular performance evaluations of the work, which has yet to be completed.
Among auditors’ other findings:
- Forty-four of 122 task order changes exceeded $100,000 and did not receive specific board approval, which auditors found concerning despite being allowed under current policy.
- Seventeen of 201 transactions were inappropriately dated retroactively to authorize changes after a contract or task order had already expired.
- Approval documents such as cost estimates, records of negotiations and others were missing from 170 transactions.
- More than 100 consultant contracts totaling some $40 million were awarded for human resources and legal services, which auditors flagged for “overlap” with internal staff’s expected duties and qualifications.
This audit follows others that have embroiled the agency in recent years. Khoshmashrab has also issued reports detailing improper severance payments and misuse of agency-issued credit cards.
Her office already flagged vendor contracts in October, when auditors found SANDAG increased awarded amounts by tens of millions of dollars with little documentation and poor oversight.
The agency’s 10 vendors with the highest percentage changes were originally awarded nearly $48 million in work — and that total more than doubled over four years to almost $106 million.
Auditors continued to flag the increases in the latest report, pointing out that one contractor hired for environmental and engineering services for the recent Blue Line trolley extension project was originally awarded $25 million, but the final contract amount had increased to more than $128 million — over 400% higher.
Ikhrata said that amount was not excessive and instead “reflects the size and complexity” of the project.
He also defended the agency’s use of consultants for human resources and legal services, saying auditors didn’t fully consider “the operational needs of the agency” and argued that it was outside of the scope of their report’s objectives.
Ikhrata maintained he had authority as head of SANDAG to make large increases to vendor contracts without board approval as long as the amount stayed within the total project budget.
Khoshmashrab’s office responded to Ikhrata’s rebuttal, saying it still remained concerned about many of the findings — including that board rules allow Ikhrata, in theory, to make millions of dollars worth of contract increases while working with large project budgets without formally asking board leaders.
She stressed that a project budget often covers several contracts awarded to various vendors, “not just one,” and “this is why a project budget is approved for a high dollar value, not for the use of amending/increasing a contract.”
Auditors also dismissed what Ikhrata called a “difficult and cumbersome” process to retrieve SANDAG’s large amount of paperwork. Many of the documents that couldn’t be located during the audit were ultimately found, the CEO said in his response.
“(The independent auditor) recognizes the high volume of documentation the agency is required to maintain, just as all public agencies are required to do so — and which many successfully do,” Khoshmashrab said. “SANDAG is not the exception.”
The agency’s Audit Committee will review the findings Friday before the report moves to the full board for discussion later this month.
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