Mucking Around in the Past?

By Tom Yamachika, President, Tax Foundation Hawaii

On Thursday, June 22nd, the board of Honolulu Authority for Rapid Transportation (HART) stunned critics by cancelling a special audit that would have examined past cost overruns.

Ember Shinn, former City Managing Director and HART board member, was quoted as saying, "It's not my intent to muck around in the past and try to figure out what we did wrong in the past. It's more trying to get forward.” The HART board decided that the money set aside for was better spent on other things, especially because there were other outside reviews being conducted.

This comment seems to show a lack of understanding of what an audit is, and of the problems that it is supposed to address.

According to the American Institute of Certified Public Accountants, the purpose of an audit is to provide users of financial statements with an opinion by the auditor on whether the financial statements are presented fairly in all material respects. The audit (and the auditor’s opinion) enhances the degree of confidence that intended users can place in the financial statements.

Companies, governmental units, and others communicate their financial condition to owners, constituents, or other stakeholders. One common way to communicate this information is through financial statements such as profit and loss statements, balance sheets, and related statements. Stakeholders receiving those statements may be trying to follow the Russian proverb made famous by Ronald Reagan: “Trust, but verify.” So, the entity presenting the financial statements engages a disinterested professional, often a CPA firm, to test the information on the statements to see if it is trustworthy. This testing process is the “audit,” and the resulting opinion is the “audit report.” Variations on this theme also occur, but the overall objective is to enhance stakeholder confidence.

One of the biggest problems with the Honolulu rail project today is the lack of confidence that constituents and legislators have in the financial condition of the project. One recent email I received put it this way: “No one trusts anything about rail. No trust. No deal.” House Finance Chair Luke said something similar March 10, that it’s “not because people no longer support rail, but people have lost confidence in the cost, and they have lost confidence in the management, and they have lost confidence in what this project is going to cost in the future.”

An audit is designed to give people more confidence. Is it “mucking around in the past”? Sure it is. But is it something we need? The dollars that would need to be spent on an audit, no matter who does it, could go toward one of the many other cost items – plenty of costs to go around – but why is it not important to restore public confidence? HART needs to remember that it has a boss, namely We the People of Honolulu. If your boss lost confidence in your work, wouldn’t it be important to do something about that?

And then, why is mucking around in the past a bad thing? As the philosopher George Santayana said, “Those who cannot remember the past are doomed to repeat it.” If we are trying to move forward and aren’t, we need to figure out why. Maybe then we can do something different, and get a different outcome from the doom and gloom that we are all constantly hearing now.