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Internal audit reports identify $776,000 in overbilled costs on HNTB contract; office to seek external peer review every three years
Summary
Paula Rivera, head of the authority’s internal audit office, reported an incurred-cost audit of HNTB that identified $776,000 in overbilled or overreimbursed costs and previewed a full-board item proposing an external peer review every three years under revised audit standards.
Paula Rivera, head of the authority’s internal audit office, presented three items to the Finance and Audit Committee on Oct. 9: an incurred-cost audit of the authority’s design-services contract with HNTB for the Bakersfield extension (locally generated alternative), a pre-award review for a right-of-way engineering contract and a preview of a full-board agenda item proposing an external peer review schedule for the audit office.
On the incurred-cost audit, Rivera said the audit covered the period Sept. 1, 2022, through Oct. 30, 2024. She said reimbursed services totaled $39,682,999 and that auditors examined $39,671,539 of those billings. Rivera told the committee auditors identified overbilled and overreimbursed costs totaling $776,000; HNTB had an opportunity to respond and generally agreed with the issues, and one subconsultant has been given 90 days to provide additional documentation.
Rivera said the pre-award review — performed to help determine a fair and reasonable price under requirements that mirror the Brooks Act process for qualifications-based procurements — had primarily cosmetic issues and recommended awarding a right-of-way engineering and surveying contract for the Merced-to-Bakersfield section to Westwood Professional Services pending final cost validation.
On audit standards and external reviews, Rivera explained that both the Government Auditing Standards (the "Yellow Book") and global internal audit standards (the "Red Book") were revised in the past year and that the office recommends the authority approve an external peer review every three years (the more restrictive cadence) rather than a five-year self-assessment. Rivera said the external peer review is more valuable because independent reviewers provide feedback on processes and work products.
Why it matters: The incurred-cost audit finding represents a recoverable or contested amount in an active contract and illustrates the audit office's role in contract compliance. The recommended external peer-review cadence sets oversight expectations for the audit office going forward.
Rivera concluded her briefing by noting she will present the peer-review proposal to the full board for approval.
