After they failed to disclose serious lapses in the toll-collection system regulating state Route 125, senior San Diego Association of Government leaders rushed into a contract with a new vendor whose financial systems did not meet agency standards, an internal audit released Monday concluded.
In fact, former executives at the regional planning agency known as SANDAG took deliberate shortcuts to get the contractor approved by the Board of Directors rather than performing the due diligence needed for the $28 million agreement, the audit found.
The rushed process means SANDAG will have difficulty tracking and recording revenue from the toll road — almost the same problems as those identified in the earlier contract, the auditor said.
“The finance department’s financial reporting needs were not considered during the procurement process,” the agency’s Office of Independent Performance Auditor said in one of two reports Monday.
“System requirements were not developed for the replacement (back office) implementation and therefore are absent in the contract with Deloitte,” the report adds.
Courtney Ruby, the independent SANDAG auditor who was appointed last year, issued another, separate conclusion: None of the former SANDAG executives alerted the Board of Directors to problems with the toll operations conducted by longtime contractor ETAN Tolling Technology, the company that was fired earlier this year after an internal finance officer reported the failures.
“The executive team had knowledge of the significance of ETAN’s performance issues in June 2022,” the other report noted.
The findings come less than a month before San Diego County voters are being asked to approve Measure G, which would increase the sales tax by a half-cent to generate new money for SANDAG.
Delays in informing the Board of Directors about the ETAN failures caused those same SANDAG officials to rush into the Deloitte agreement without completing the proper due diligence, Ruby said.
All of the SANDAG officials singled out in the audits have now left the organization, which became the subject of a U.S. Department of Justice investigation earlier this year.
Longtime Chief Executive Officer Hasan Ikhrata resigned in December 2023. Deputy CEOs Coleen Clementson and Ray Major and Chief Financial Officer Andre Douzdjian all left earlier this year.
It is not clear what, if any, consequences those former SANDAG officials might face.
In a statement Monday, the new SANDAG chief executive officer said transparency and accountability in all agency operations remains a top priority.
“We cooperate fully with the Office of the Independent Performance Auditor on these investigations and the latest findings are consistent with what we have been implementing and telling the board about,” said Mario Orso, who was hired this spring.
“We have an update scheduled for our board this week to share a realistic schedule and the actions we are taking to make sure we have the appropriate system requirements, due diligence and oversight in place going forward,” he said.
SANDAG Chair Nora Vargas said in a statement that the auditor’s report “is crucial in shaping our future decisions. I’m committed to ensuring public funds are used effectively and efficiently. Our community will be kept informed throughout every stage of our process. At SANDAG, accountability is a core value that we will continue to uphold.”
The planning agency will be providing formal responses to the two reports sometime in the coming weeks or months.
ETAN Tolling was hired years ago to manage the millions of dollars a year SANDAG collects from drivers using the 10-mile toll-road stretch of state Route 125 that runs through much of South County.
The same company also managed operations on the toll-road section of Interstate 15, although the problems with that system were not so dysfunctional.
The issue with collections on the state Route 125 section formerly known as the South Bay Expressway burst into public view last fall, after former finance director Lauren Warrem sued SANDAG in the wake of her termination.
According to her lawsuit, Warrem was fired after alerting senior officials to reporting discrepancies in the ETAN financial records.
SANDAG is now defending the employment lawsuit Warrem filed against the agency as well as a class-action lawsuit filed by drivers who were charged inaccurate amounts or improper fees after using the roadway.
In the initial weeks after the flawed software became public, Ikhrata took responsibility for failing to inform the board of directors sooner.
“You hire staff to do their job and we were doing our jobs and we knew there were issues,” he told the board at his farewell meeting in December. “And I don’t think you want every time we have a … small operational issue to know.
His top lieutenants, meanwhile, distanced themselves from the scandal, including Clementson, who took over as interim CEO early this year.
“Ultimately, that was the CEO that made the decision,” Clementson told the board in April. “The CEO had a meeting with the CEO of ETAN, and they made an agreement that they were going to continue to work on this.”
In another report issued earlier this year, it was disclosed that SANDAG first learned about the ETAN Tolling problems as early as 2017.
Not only did agency officials not inform the board, they continued to pay the company millions of dollars. They also continued to pay their contract project manager, a separate company called HNTB, to supervise the failed work.
After the SANDAG board – a diverse group of elected officials representing San Diego County and its 18 cities – was told about the toll-collection failures, staff recommended Deloitte be hired to take over the system as soon as possible.
Board members agreed and approved a no-bid contract for $28 million with Deloitte and its partner, A-to-B. But the report released Monday said the new partnership is not equipped to properly monitor toll collections.
“System requirements were not developed for the replacement BOS (back office system) implementation and therefore are absent in the contract with Deloitte,” the audit found.
“The A-to-B MoveBeyond software does not include an internal financial accounting system, or a similar internal general ledger like ETAN’s BOS,” the audit said. “SANDAG discovered a critical component needed to facilitate the integration of the new BOS with SANDAG’s (resource planning) system was missing.”
The SANDAG board of directors is scheduled to meet Friday.
No additional information about the ongoing federal investigation into SANDAG’s business practices has been publicly disclosed since The San Diego Union-Tribune reported the probe earlier this year.
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