Audit of the Office of Hawaiian Affairs
A Report to the Governor and the Legislature of the State of Hawai‘i
In our audit we found that in FY2015 and FY2016, OHA spent nearly double as much on discretionary disbursements ($14 million) as it did on planned, budgeted, and properly publicized, vetted, and monitored grants ($7.7 million). These expenditures did not undergo the rigorous vetting, monitoring, and reporting requirements of OHA’s formal grant process. Some were approved by the OHA Administration without Board of Trustee vote or even knowledge.
From Hawaii State Auditor, Report 18-03, February 13, 2018
IN REPORT NO. 18-03, Audit of the Office of Hawaiian Affairs, we found that the Office of Hawaiian Affairs (OHA) has created alternate funding processes that allow the agency to regularly direct money towards a multitude of programs, projects, and individuals. At first glance, these funding opportunities appear to be guided by policies, procedures, and guidelines designed to ensure that funds are distributed fairly and equitably. In reality, however, these expenditures and other forms of discretionary spending do not undergo the rigorous vetting, monitoring, and reporting requirements of OHA’s formal grant process. Some are approved by the OHA Administration without Board of Trustee vote or even knowledge.
What we found
In FY2015 and FY2016, OHA spent nearly double as much on discretionary disbursements ($14 million) as it did on planned, budgeted, and properly publicized, vetted, and monitored grants ($7.7 million). To fund these unplanned expenditures, OHA realigned its budget (by $8 million) and drew from its Fiscal Reserve ($6 million). We found that OHA has spent with little restraint, using Native Hawaiian Trust Fund moneys to pay for such things as the retirement benefits for a former trustee ($56,300), political donations, an international conservation convention ($500,000), as well as a beneficiary’s rent ($1,000), another beneficiary’s funeral-related clothing expenses ($1,000), and a trustee’s personal legal expenses ($1,500).
Why did these problems occur?
OHA’s vague rules guiding its discretionary spending are broadly interpreted, arbitrarily enforced, and at times, disregarded. For instance, we found several occasions in which OHA’s chief executive officer (CEO) ignored “do not fund” recommendations from Administration personnel and funded Sponsorships, contrary to written guidelines. We also found significant irregularities in and abuse of OHA’s Trustee Allowance process, which was originally established to cover incidental expenses for trustees to develop and maintain ongoing communication with beneficiaries and the general public, but has evolved to allow a broad range of expenditures. When we asked trustees, the CEO, and other officers about questionable expenditures, the consistent justification provided was that the money helps a Native Hawaiian or Hawaiian beneficiary, thus fulfilling OHA’s mission to improve the conditions and wellbeing of Native Hawaiians and Hawaiians.
Why do these problems matter?
The Fiscal Reserve, the source for much of OHA’s discretionary spending, has been spent down rapidly in recent years. From FY2011 to FY2016, the Fiscal Reserve balance fell from $15.1 million to a little more than $2 million, as the board spent the maximum $3 million allowed under OHA policy each year. However, not only do OHA’s spending irregularities pose risks — both great and small — to the Native Hawaiian Trust Fund, they appear to violate the OHA trustees’ solemn fiduciary obligation to their beneficiaries that they will administer the trust fairly, equitably, and without self-interest. In other words, this form of behind-the-scenes giving is inherently inequitable to OHA’s many other beneficiaries who may be in need of financial assistance, but are unaware of who and how to ask for help.
We acknowledge that trustees have broad discretion in determining whether a particular expenditure betters the conditions of Native Hawaiians and Hawaiians, but their desire to provide assistance to a few should be tempered by their fiduciary duties to all of the beneficiaries, both present and future. Doing so would not only benefit Native Hawaiians and Hawaiians in the long term, it would help ensure that they are treated more equitably in the short term.
read … Summary or Full Report
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State Audit of OHA Shows Need for Further Investigation
Trustee Kelii Akina calls on Board of Trustees to assert control over finances
News Release from OHA Trustee Keli’i Akina, PhD, February 13, 2018
HONOLULU, HI- The State Auditor today released its official report on the Office of Hawaiian Affairs, after completing a thorough examination of OHA grants, sponsorships and spending in fiscal years 2015 and 2016.
At-large Trustee Keli‘i Akina now looks to the upcoming independent audit initiated by the OHA Board of Trustees to go further than the State Auditor in examining OHA’s finances.
“The State Auditor’s report is just the tip of the iceberg,” Trustee Akina said. “While the state audit has provided OHA with useful guidance, its focus was narrow, and provides merely a starting point. It shows that we have to dig deeper. The independent audit, on the other hand, will systematically examine both OHA and its LLCs, providing a more complete picture of OHA’s financial health.”
“For example, while the state audit found mismanagement and inappropriate spending of millions of dollars over a two-year period, the independent audit will cover a five-year period of time and a broader sampling,” Trustee Akina continued. “While the state Audit merely raised questions about OHA’s LLCs, the independent audit will provide an actual examination of LLC contracts and financial records.”
“While the state audit points to much of what needs to be changed, the independent audit is needed to identify root causes,” Trustee Akina said.
Trustee Akina is chairperson of the Audit Advisory Committee, which advocated for an independent auditor to identify fraud, waste and abuse within OHA and its subsidiary LLCs. OHA is currently in contract negotiations with an auditor, and the audit has a completion target of late 2018.
The State Audit of OHA, Report No. 18-03, is available on the Office of the Auditor website at http://auditor.hawaii.gov/.
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“Millions Improperly Spent. OHA Audit Shows!”
That's today's headline in the Honolulu Star-Advertiser, where my comments appear, as they do in Civil Beat, Hawaii News Now, and other media outlets.
I'm sending you highlights below, so that you know we are making a difference.
Thanks to your ongoing support and encouragement, we are reforming the Office of Hawaiian Affairs for the good of all citizens.
... Trustee Keli‘i Akina called the auditor’s findings “just the tip of the iceberg” and said a more comprehensive audit approved by the board last year will probe much deeper to find the root causes of the spending problems.
... Akina, who joined the board at the end of 2016, said that while the state audit gives OHA useful guidance, its focus is narrow and represents a starting point. “It shows that we have to dig deeper,” he said.
...OHA is in contract negotiations with an auditor to conduct an independent audit aimed at identifying fraud, waste and abuse within the agency as well as its subsidiaries over a five-year period. The audit has a completion target of late 2018.
...Akina, an early supporter of the independent audit who was named chairman of the board’s Audit Advisory Committee, said the upcoming audit will examine both OHA and its limited-liability companies to provide a more complete picture of OHA’s financial health.
There's more to come! I'll keep you updated.
Together, we can transform Hawaii for the good of all people...
E Hana Kakou/ Let's Work Together!
Keliʻi Akina, Ph.D.
Trustee-at-Large, Office of Hawaiian Affairs
This is an unofficial message from me in my private capacity and does not represent nor use resources of the Office of Hawaiian Affairs.
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OHA statement regarding release of final audit
Statement of OHA Chair Colette Machado: February 13, 2018
The Office of Hawaiian Affairs (OHA) thanks the state Auditor for its diligent work in developing its Final Audit, which was released today. OHA is proud of our substantial contributions to the Lāhui and to all Hawaiʻi since the agency was established in 1980. Our advocacy and funding have helped to protect Native Hawaiian rights, preserve traditional cultural practices, and advance the socio-economic well-being of our beneficiaries.
We appreciate that this audit is intended to help OHA improve so that we can better fulfill our mandate of bettering the conditions of Native Hawaiians. We fully understand that the daunting challenges our beneficiaries face – as well as our sweeping mandate – require our commitment to continuous improvement and progress. We know we must do better.
OHA acknowledges the Auditor’s findings that we must endeavor to institute and enforce disciplined spending through clearly defined, objective and responsible policies and protocols. This will better enable OHA to uphold its solemn trust obligations to our beneficiaries. OHA will review and give serious consideration to the Auditor’s recommendations, some of which are already being addressed by OHA.
Given the seriousness of several of the Auditor’s findings, I have already proposed that the Board immediately adopt moratoriums on the use of Fiscal Reserve funds as well on the use of Trustee Sponsorships and other agency Sponsorships until the Board approves amendments that address concerns relating to those policies.
Again, OHA is committed to the change necessary to best serve our people.
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