Audit of the Research Corporation of the University of Hawai‘i
RCUH’s weak plans and limited role reduce accountability for hiring and procurement exemptions
From Hawaii State Auditor, Report No. 15-07, June 2015
Conservative, complacent business approach relegated RCUH’s role to a university service bureau
The Research Corporation of the University of Hawai‘i (RCUH) was formed to play a proactive role in promoting the welfare of Hawai‘i’s people by initiating, stimulating, conducting, and coordinating research and training, as well as commercializing inventions and discoveries. We found, however, that RCUH acts primarily as a provider of services to UH, which constituted $9 out of every $10 in RCUH business in FY2014. The RCUH board recognized a need to expand UH services and pursue more non-UH projects in 2004. However, plans to do so were not implemented or updated because the RCUH Board of Directors lacked initiative, training, policies, and metrics needed to drive proper planning. This planning failure undermines RCUH’s accountability for services provided and for achievement of the purpose for which the corporation was founded.
We further found that RCUH’s executive director and board took a cautious business approach that ignored plans to pursue more non-UH projects. According to the RCUH board chair, from about 2002 through 2011, UH’s research enterprise was growing rapidly, which provided the corporation with all the work it could handle. As a result, there was no pressing need to grow RCUH’s non-UH business. Plans to pursue non-UH business also were undermined by RCUH efforts to avoid conflicts with a public sector union and private service providers.
Improved oversight of projects is needed to ensure the integrity of RCUH’s services
RCUH’s broad purpose allows projects remotely associated with research or training to qualify for exemptions from state procurement and civil service laws. As such, strong management controls should be in place to ensure that projects qualify for RCUH’s exemptions. During FY2014, the corporation had about 3,000 employees earning $113.5 million in salary. We found that RCUH allows state agencies to circumvent contract requirements, secure services without proof of governor approvals, and forgo required evaluations of $4.3 million in projects. We also found that the corporation lacks clear policies and procedures for the review and acceptance of direct projects, and the department in charge of administering those projects lacks staff to ensure adequate project vetting and monitoring. We further found that written policies and procedures could improve RCUH’s oversight of intramural and revolving account projects. A lack of accountability for the flexibility afforded to RCUH raises the risk that RCUH’s employment and procurement exemptions are inappropriately used, which in turn may expose the corporation to criticism and undermine the public’s trust.
Neither the board chair nor the executive director disputed our findings in their responses to our audit. The chair said the board will review the corporation’s mission and make changes as needed, but that the current mission was appropriate. He also said the board will work with the executive director to ensure policies and procedures are reviewed and updated. The chair agreed that RCUH needs strategic and long-range goals, objectives, and performance measures. The board chair also stated that our audit did not take into account the legislative intent of creating RCUH, or the statutory composition of the board, which both skew toward providing services to UH. The chair misses our larger point that the RCUH board adopted initiatives to grow and diversify the corporation’s business in 2004, but failed to ensure their implementation.
The RCUH executive director disagreed with our recommendation that the Legislature amend Chapter 304A, HRS, to require RCUH to develop and provide annual reports with goals and objectives. He said it will be recommended to the next executive director to follow-up on our recommendations by enhancing board orientation, and establishing performance measure parameters. Additionally, the executive director said RCUH is updating its policies and procedures and is developing guidelines as needed. The executive director further stated that RCUH will not execute any direct project agreements or amendments without approval from the governor, and that all state agencies will be required to comply with the State/RCUH master agreement.
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Highlights from Report
P 7: Prior Audits
We conducted an audit of the corporation in 1993 and a follow-up audit in 1995. Our 1993 Audit of the Research Corporation of the University of Hawai‘i, Report No. 93-10, found a lack of accountability and oversight in RCUH’s operations, financial management, and contract administration. RCUH also lacked clear policies, criteria, and management controls for contracts with state agencies. Further, RCUH’s financial statements were misleading. Finally, we found that RCUH’s management fee structure for state agencies was arbitrary and not linked to services provided. We recommended that the corporation accurately report revenues and expenses in its financial statements. We also recommended UH ensure RCUH developed clear policies, criteria, and guidelines for the types of projects RCUH will accept from state agencies; developed management controls and a monitoring program to ensure that state projects do not circumvent state laws and contracts; formalized policies for a management fee for RCUH contracts with state agencies based on its administrative costs, and define the use of revenues derived from the fees.
P 17-18: HGEA Grabs for Control of 3,000 RCUH Employees
According to a 2014 new markets proposal prepared by the RCUH executive director, the corporation has been cautious about promoting more use of its services by state agencies following complaints by the Hawai‘i Government Employees Association to the Legislature asserting that many RCUH employees should be state or UH employees. He further wrote that RCUH should be cautious in marketing its staffing and procurement services to county governments lest the public-sector unions “crank up” their attempts to restrict employment through RCUH. He also wrote that marketing services to non-profit organizations might put RCUH in competition with private sector companies....
P 18: RCUH oversees UH intramural and revolving fund account projects
RCUH’s broad purpose allows projects remotely associated with research or training to qualify for exemptions from state procurement and civil service laws. Accordingly, strong management controls should be in place to ensure that projects qualify for RCUH’s exemptions. Procurement laws are meant to ensure fair, competitive access to government contracts, while civil service laws support a merit-based system of public employment. We found that RCUH allows state agencies to circumvent contract requirements, secure services without proof of governor approvals, and forgo required project evaluations. We also found that the corporation lacks clear policies and procedures for the review and acceptance of direct projects, and the department in charge of administering those projects lacks staff to ensure adequate project vetting and monitoring. We further found that written policies and procedures could improve RCUH’s oversight of UH intramural and UH revolving fund account projects. A lack of accountability for the flexibility afforded to RCUH raises the risk that RCUH’s employment and procurement exemptions are inappropriately used, which in turn exposes the corporation to criticism and undermines the public’s trust....
P 20: RCUH Allows State Agencies to Circumvent State Laws
We further found RCUH allowed two state agencies to circumvent master agreement requirements, which undermined accountability. Six of seven projects we reviewed contained standard form contracts with all requisite terms and conditions needed to satisfy statutory requirements and the master agreement. However, we found that the Department of Education (DOE) contracted for RCUH services via a Memorandum of Agreement (MOA) in which the DOE was allowed to dictate its own terms and conditions, contrary to the master agreement terms and conditions. For example, the DOE contract does not require documentation of a governor’s approval for the execution of the MOA or two subsequent amendments. DOE’s position was that the department did not need governor’s approval to utilize RCUH because the master agreement was not applicable. Additionally, the master agreement was not incorporated or referenced in the MOA, and there was no evidence that DOE justified the project qualified for RCUH services. RCUH provided administrative and research services to support a fiber optic network project in DOE schools under a $65,490 contract.
LINK: Full Report
DN: Another part of UH suffers management woes allowing state agencies to circumvent contract requirements and more
PBN: State audit claims Research Corp. of the University of Hawaii not serving its purpose