by Andrew Walden
The long-awaited CLA audit of the Office of Hawaiian Affairs, released December 4, 2019, flags 32 transactions worth $7,762,064 as potentially fraudulent, wasteful or abusive expenditures. According to OHA Trustee Keli’i Akina, PhD, “85% of the transactions included audit observations, defined as situations where ‘the results of testing revealed occurrences of noncompliance with statutory requirements and/or internal policies’ or ‘that revealed indicators or red flags of waste, fraud, or abuse.’”
About half of the “Red Flags” are the subject of previous Hawai’i Free Press articles.
The CLA audit period covers July 1, 2012 through June 30, 2017 for both OHA and its LLCs.
As OHA insiders watched the audit unfold, they prepared to escape its consequences by shuffling the bureaucratic deck. Under Crabbe’s leadership, OHA tried to lie its way through the 2019 legislative session—and got caught. As a result OHA funding was withheld by vote of the 2019 Legislature--pending completion of the CLA audit. Meanwhile Judge Jeffrey Crabtree ruled that the OHA LLCs are “agencies … owned, operated, and managed by OHA, a state entity…” and ordered them to hand over their check register pursuant to a UIPA request from Hawai’i Free Press.
Crabbe ‘decided’ not to seek reappointment as OHA CEO. His last month in office was spent hiding from CLA’s audit team. The OHA BoT has agreed to dissolve several of OHA’s seven LLCs and OHA is now seeking volunteers to serve as its representatives on the LLCs Boards of Directors.
Crabbe and his number one crony Trustee Bob Lindsey both filed complaints against Trustee Keli’i Akina for telling the truth about OHA audits and pointing out --in the wake of the Legislature’s withholding of OHA funds-- that OHA would have benefited from following State ethics and transparency laws.
Leaving OHA under an ethical cloud, Crabbe has now been selected as CEO of the Kohala Institute where Bob Lindsey serves on the Board of Trustees. A previous Kohala Institute CEO was UH Law Professor Kamana Beamer—recipient of a $435K contract “Red Flaged” by CLA. (p12) Hawai’i Free Press readers learned about Beamer’s contract in 2017: “OHA Procurement Violations: Crabbe, Lindsey and the $435K Beamer.”
Now the audit is out and we can see what OHA and Crabbe were trying to hide. But Hawaii media coverage is agenda-driven. The audit was big news during the legislative session as OHA insiders resisted reforms that Legislators were demanding. But now Crabbe is gone and a judicial order has ended the illusion that the LLCs (and by extension, OHA) were not departments of the Hawaii state government—so the local media is ignoring the audit findings.
In a news release announcing publication of the audit, OHA Trustees Chair Colette Machado and Trustee Dan Ahuna say, “As the sample was judgmentally selected, it is inappropriate to extrapolate sample results across all OHA contracts and disbursements during the review period.”
Translation: Stop looking because you will find more.
The CLA audit report (p4) explains: “fraud and/or financial irregularities may exist within the organization that we may not have identified during the performance of our procedures….”
The most important sentences in the entire report read: “The professional standards promulgated by the AICPA prohibit CLA from rendering an opinion as to whether there has been any fraud or other criminal activity by anyone associated with this engagement. Therefore, CLA does not render such opinions.” (p4)
But there is one incident which CLA identifies as “a possible attempt to disobey HRS §103D-304.” (HRS §103D-304 covers procurement of professional services.)
Notably a reported payment of $112,500 on 06/03/2015 to lawyer Breann Nu’uhiwa and/or Reed Smith LLP (pg106) does not show up in the OHA and LLC check registers obtained earlier by Hawai’i Free Press through the UIPA process.
Are there other items fraudulently deleted from the check registers?
Here is the story, quoted from the auditor’s report (p103-9):
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c. Restrictions on Post Employment
One ($200,000—ED) contract was identified by CLA as possibly not compliant with HRS §84-18(c), which states, “no former employees, within twelve months after termination of the former employee's employment, shall represent any person or business for a fee or other consideration, on matters in which the former employee participated as an employee or on matters involving official action by the particular state agency or subdivision thereof with which the former employee had actually served….”
K-56 – OHA Contract #3025
Reed Smith LLP submitted a Statement of Qualifications to OHA dated September 27, 2013 that listed Breann Nu'uhiwa as the attorney that would provide professional services relating to non-litigation legal expertise. Ms. Nu'uhiwa was employed by OHA (as the Chief Advocate—ED) from April 23, 2012 through September 4, 2013. This proposal was submitted less than one month after Ms. Nu'uhiwa left her employment with OHA. Reed Smith LLP was approved on October 3, 2013 as one of the professional service providers under the legal category. This contract with Reed Smith LLP was not executed until May 5, 2015; however, it was effective retroactively to September 7, 2014.
Although the effective date of the contract was more than one year after Ms. Nu'uhiwa left her employment with OHA, CLA learned through inquiry with current OHA staff that Ms. Nu'uhiwa provided “pro-bono” services to OHA during the first year after her separation from OHA.
The individuals appointed to be on the Professional Services Selection Committee in 2014, when the contract was established, were Albert Tiberi, Kawika Riley, and Ernie Kimoto. …
There was a possible attempt to disobey HRS §103D-304….
Indicators that this contract may not have been procured in adherence with the requirements of ethical procurement required by HRS §103D-101.
i. Employees of OHA may not have been impartial or independent during the procurement process…. Ms. Nu'uhiwa was the main provider of professional services for this contract that was executed for $200,000. The individuals appointed to be on the Professional Services Selection Committee in 2014, when the contract was established, were Albert Tiberi, Kawika Riley, and Ernie Kimoto. While Ms. Nu'uhiwa was employed by OHA, Mr. Riley was her direct report. Because they had a recent working-relationship, it may have been difficult to remain impartial during the evaluation of all of the applicants.
On November 13, 2014, the CEO, approved the Professional Service Selection Committee recommendation dated November 6, 2014, and executed the contract on May 5, 2015. The CEO was listed as the first reference in the Statement of Qualifications submitted by Reed Smith LLP to OHA. This raises the question of whether the CEO remained independent of the contractor, not only because Ms. Nu'uhiwa had been employed by OHA during his time as CEO, but also because he was the first listed reference in the contractor’s proposal.
ii. Based on the information presented for this contract, there is sufficient evidence to determine that an ethical procurement process was not followed for this contract. ….
a) It appears the Selection Committee Appointment form was backdated, which may be an indication of unethical behavior…. The contract file contained an email dated November 5, 2014, from a procurement specialist stating the he had reviewed the Procurement Managers desk and located only the Purchase Requisition and a copy of an email that stated that this procurement should be on a fast track because of a start date of September 7, 2014, which had already past, and the Selection Committee Appointment form should have been completed prior to the evaluations. The Selection Committee Appointment form located in the contract file was dated September 15, 2014, which appears to indicate that the selection committee appointment form may have been back-dated, which may be an indication of unethical behavior.
b) The contract effective date was prior to the Selection Committee Recommendation, which may be an indication of unethical behavior ….
On November 6, 2014, a memorandum communicating that for the category of legal services –Native Hawaiian Self Governance/Hawaiian Language immersion education, there were six vendors recommended for professional services for the 2014/15 year, including Reed Smith LLC. However, based on the totality of documentation reviewed, it appears that a decision had been made to hire this vendor well in advance of this memorandum based on the fact that the contract was effective as of September 7, 2014 and on the fact that the draft invoice communicated work performed as early as September 10, 2014. This appears to be an indication of disobedience to statutes and of unethical behavior.
c) There was a possible attempt to disobey HRS §103D-304
In contradiction to the majority of the procurement documents included in the contract file that relate to a procurement of professional services, the Procurement Document Checklist prepared on November 14, 2014, and signed by legal counsel on December 16, 2014, describes this contract as an exempt purchase under HRS §103D-102(b)(4)(J). The Purchase Order completed on May 1, 2015, also identifies this contract as an exempt contract.
HRS §103D-102(b)(4)(J) sates, “to procure...goods or services which are available from multiple sources but for which procurement by competitive means is either not practicable or not advantageous to the State: Services of attorneys employed or retained to advise, represent, or provide any other legal service to the State or any of its agencies, on matters resulting under laws of another state or foreign country, or in an action brought in another state, federal or foreign jurisdiction, when substantially all legal services are expected to be performed outside of this state.”
Because Ms. Nu'uhiwa’s services did not include services provided for matters resulting under the laws of another state, federal or foreign country, or in an action brought in another state, federal or foreign jurisdiction, it appears that if this contract was in fact processed as an except contract, it was by inappropriate utilization of the cited exemption.
d) Evidence was observed of persons not afforded an equal opportunity to compete in a fair environment….
The contract was executed by the CEO on May 5, 2015, with a contract effective date of September 7, 2014, however, the required “Authorization to Proceed with Contract” was not signed by the procurement specialist and the CFO until May 11, 2015, and the procurement package checklist was not completed until May 15, 2015. The contract should not have been executed prior to these two documents being completed. This fact pattern is evidence of disobedience to statutes and unethical behavior.
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Procurement -- The OHA Way
Just an aberration? Don’t be ridiculous. This is OHA.
According to CLA, 14 of 14 contracts audited -- 100% of the contracts CLA reviewed for Procurement Violations -- featured either ‘Red Flags’ or ‘observations’ of the following:
“…evidence was observed of persons not afforded an equal opportunity to compete in a fair environment….” (p99)
“Notices were (not) published before the beginning of each year inviting professional service organizations to submit statements of qualifications and expressions of interest.” (p100)
“Steps were (not) taken to ensure the review committee members and the selection committee members would be impartial and independent in their review and selection of professional service providers. (p100)
“Contracts in excess of $5,000 were (not) posted (for public review) within 7 days after the contract was awarded.” (p100)
“The Selection Committee's rankings were (not) included in the posting.” (p100)
“The organization receiving the award was (not) included in the posting.” (p100)
“The dollar amount of the contract was (not) included in the posting.” (p100)
“The name of the designee(s) making the selection was (not) included in the posting.” (p100)
“Any existing relationships between the principals of the service provider and the official making the award decision were (not) included in the posting.” (p100)
“The terms of the contract and conditions for renewal or extension were (not) included in the solicitation.” (p101)
“Professional services were (not) solicited no later than May of each year.” (p101)
“A procurement notice was (not) issued requesting proposals from the appropriate service providers.” (p101)
“Notices were (not) posted on the Procurement Notices System and in major newspapers.” (p101)
The punishment for violation of HRS §84-18: “The State by the attorney general may recover any fee, compensation, gift, or profit received by any person as a result of a violation of the code of ethics by a legislator or employee or former legislator or employee. Action to recover under this subsection shall be brought within one year of a determination of such violation.”
But why depend on the AG? Nu’uhiwa, Tiberi and Kimoto are lawyers subject to oversight by the Office of Disciplinary Counsel.
Related: Red Flags: An Analysis of the Independent Audit of OHA and its LLCs