SAN DIEGO — SANDAG executives knew about failures with the issue-ridden state Route 125 tolling system for over a year and a half before informing the board of directors, and financial reports from vendor ETAN Tolling Technologies cannot be relied upon, according to an investigative report shared with the board on Friday.
The investigative report completed by SANDAG’s Office of the Independent Performance Auditor (OIPA) is the latest development in the saga of the South Bay Expressway tolling system, detailing how senior financial management allowed issues with financial information to persist without intervening, costing the agency around $2 million.
In October, the SANDAG board was first informed of longstanding issues with ETAN’s tolling system in a closed-session meeting. The following month, former finance director Lauren Warrem sued the agency, alleging that she was terminated after raising questions about why the agency continued to pay contractors for deficient tolling technology that had mischarged drivers.
OIPA launched an investigation in December and found that former CEO Hasan Ikhrata and Chief Financial Officer Andre Douzdjian were informed of significant issues with ETAN’s system in July 2022, with other executives potentially informed at that time.
“It is critical for the board of directors and the public to understand what occurred and how SANDAG can prevent this from happening in the future,” Independent Performance Auditor Courtney Ruby said at the board’s March 29 meeting.
Interim CEO Coleen Clementson announced at the top of Friday’s special meeting that Douzdjian had announced his retirement the day prior. The department plans to hire a replacement within the next 30 days, she said.
Now, the Department of Justice is knocking at the door.
Last week, SANDAG staff members were informed that federal officials had contacted the agency, as first reported by the Union-Tribune.
“SANDAG was recently contacted by the U.S. Department of Justice. We are assisting in any way we can and have informed the SANDAG Board,” SANDAG confirmed in an email to The Coast News Tuesday evening.
SANDAG has not confirmed whether the FBI is specifically involved. A representative from the bureau’s San Diego field office said they cannot confirm or deny the existence of an investigation or whether they have contacted a particular person or agency.
However, individual board members alleged that the bureau is involved.
“We do not know what the FBI is investigating. We know that they are and that it’s underway,” Del Mar Councilmember and SANDAG Board Member Terry Gaasterland said at a City Council meeting on Monday.
Report findings
The report details how issues with ETAN’s system were clear early on, even before they were awarded a contract and went live in 2022. The system never worked as designed and required constant troubleshooting from SANDAG staff.
According to Ruby, SANDAG staff did not want to delay the launch of the SR-125 toll, despite ETAN not meeting many of its contractual requirements.
“ETAN’s implementation of the Back-Office System (BOS) Fastlane was headed for trouble from the beginning. SANDAG executive management failed to address the situation in a timely manner, including informing the Board of Directors,” the report read.
OIPA also found that SANDAG’s finance department lacks adequate internal controls to ensure accurate recording, accounting, and reporting of financial information related to the SR-125 and that the agency has suffered significant revenue losses totaling around $2 million.
In one example, OIPA said the agency lost at least $1 million in revenue because a function in ETAN’s system — the DMV hold functionality — was not turned on after the system went live. SANDAG’s accounting system also failed to record transactions accurately, and finance staff prioritized meeting audit and financial statement deadlines over ensuring the reliability of the financial information itself.
The report listed several recommendations, including developing a policy requiring board notification when multimillion-dollar projects fail to meet deliverables or deadlines. The report also recommended that SANDAG’s finance department be investigated to identify any other issues outside the SR-125 tolling system.
“The entire finance department needs to be evaluated from top to bottom for policies, procedures and practices, so that you all have the confidence, as well as management, that financial reporting is occurring accurately,” Ruby said.
Board members expressed disbelief at the findings and pushed for further investigation into who else may have known about the failures early on and for those individuals to be held accountable.
“Since the release of the report, I’ve been dragging my jaw around… just dumbstruck by the information that was presented and the incompetency that it reveals,” said Encinitas Mayor Tony Kranz. “Decisions made by upper management at this organization are suspect, and how deep they go and who should be relieved of their responsibilities is just not clear to me.”
Other board members said there needs to be an investigation into why it took executives so long to inform the board and how the contract award system is handled. San Marcos Mayor Rebecca Jones said there also needs to be an investigation into whether board leadership knew about the issues before October.
“To be honest, I’m embarrassed as a board member that here we are again, with issues being brought to our attention where we literally have information that hasn’t been given to us, and to really find out the depth of what that actual information is,” Jones said.
Next steps
In January, the board agreed to hire contractors Deloitte and A-to-Be to take over toll road operations from ETAN. The transition will take around seven months, and ETAN will continue to be paid in the meantime.
Of the over 48,000 customer accounts affected by system errors, FAGAN Consulting is still looking into the errors that affected 8,851. So far, they have identified 110 cases of outstanding costs being charged to the wrong customer’s credit card, all of whom have been reimbursed.
Going forward, OIPA will continue to report on the progress of implementing recommendations to the Audit Committee and Board of Directors.
Clementson said SANDAG management will file a formal response to the investigation findings by April 8.
“I want you all to know how seriously we take this,” Clementson said. “I also wanted to make it clear… the gravity of the importance of informing the board early on about issues when we see projects may be going in a direction that was not anticipated.”
