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Thursday, December 13, 2018
Auditor: DLNR Held Back Ceded Lands Payments
By Hawaii State Auditor @ 9:32 PM :: 2660 Views :: Ethics, Hawaii State Government, Land Use, OHA, Small Business

Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Land and Natural Resources

107 special funds, revolving funds, trust funds, and trust accounts were reviewed

From Hawaii State Auditor, December, 2018, Report No. 18-19 

17 funds and accounts did not meet criteria

WE REVIEWED 107 FUNDS AND ACCOUNTS administered by the Department of Land and Natural Resources (DLNR) and reported on 37 of them – specifically, 18 special funds, 1 revolving fund, 9 trust funds, and 9 trust accounts. We found 9 special funds, 4 trust funds, and 4 trust accounts did not meet criteria – specifically, 8 special funds and 1 trust fund should be evaluated to determine if they should be continued; 1 special fund, 2 trust funds, and 2 trust accounts should be closed; 2 trust accounts should be reclassified to trust funds; and 1 trust fund should be reclassified to a trust account.

(Editor's Note: These 17 accounts hold over $50M -- see Full Report pg 9)

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of DLNR’s revolving funds, trust funds, and trust accounts, and our second review of DLNR’s special funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Inactive funds result in unused moneys of nearly $1.9 million

Three special funds and their related sub-accounts with remaining balances of nearly $1.9 million as of June 30, 2018, had no financial activity during the 5-year period of our review. Leaving significant amounts of money in idle accounts is an inefficient use of public funds.

Reporting shortfall

We noted that DLNR did not file statutorily required reports for non-general funds and for administratively created funds. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds and provide increased budgetary flexibility.

Over $26 million of State’s portion of ceded land revenues were not transferred to the State general fund in a timely manner

DLNR’s trust account which holds the State’s portion of ceded land revenues accumulated approximately $30 million of ceded land proceeds through June 30, 2017. In FY2018, in accordance with Act 178, SLH 2006, DLNR transferred the FY2016 fund balance, over $26 million, to the State general fund after receiving direction from the Department of Budget and Finance (B&F). There were no transfers made to the State general fund during FY2014 – FY2017. DLNR should work with B&F to ensure that the general fund portion of ceded land proceeds are transferred to the State general fund at least annually

Agency response

For 6 funds and 2 accounts, DLNR agreed with our assessment that they did not meet the criteria for those types of funds and accounts. DLNR represented that it will take appropriate action to evaluate whether those funds and accounts should be continued, closed, or reclassified. However, DLNR did not agree with our assessment that 6 funds and 2 accounts did not meet the criteria for those types of funds and accounts. After reviewing DLNR’s reasoning as expressed in its response to the report, we maintain that our analyses are appropriate. We confirm our conclusions that those funds and accounts should be continued, closed, or reclassified.

In reference to the Special Land and Development Fund, we found it did not completely meet criteria of a special fund because there is no clear nexus between the program and the portion of the highway fuel tax that is one of the fund’s sources of revenue. DLNR asserts that there is a nexus between the highway fuel tax and the protection of natural resources. Specifically, according to DLNR, visitors pay the highway fuel tax which funds the department’s natural resource protection programs and, in turn, helps to ensure sufficient access to the State’s natural resources to meet the needs of those visitors. While we agree that State’s natural beauty is important to the visitor industry, the “nexus” articulated by DLNR between the fuel tax and the visitor industry is too tenuous. There must be a clear link between the revenue source and the program, which we did not find.

As to our other observations, DLNR agreed that any inactive balances will be returned to the originating fund; that they will comply in filing the required statutory reports; and work with the Department of Budget and Finance to ensure the transfer of the State portion of ceded land revenues annually.

LINK: Auditor’s Summary

Over $26 Million of State Portion of Ceded Land Revenues were not Transferred to the State General Fund in a Timely Manner 

From Full Report pg 43

DLNR’s trust account, “Public Land Trust Funds, Ceded Land Proceeds for O‘ahu, Maui, Hawai‘i, and Kaua‘i – General Fund Portion,” is a temporary holding account for the 80 percent share of general fund receipts derived from the use of ceded lands within the public land trust. The trust account has accumulated approximately $30 million of ceded land proceeds through FY2017. Upon direction from the Governor or the Director of Budget and Finance (B&F), funds held in the account are used to make up any shortfall of the $3,775,000 that the State is obligated to pay to the Office of Hawaiian Affairs (OHA) at the end of each fiscal quarter pursuant to the requirements of Act 178, SLH 2006.

On July 17, 2017, the B&F Director notified DLNR that the ceded land payments to OHA were sufficient to meet the obligation and requested DLNR transfer the account balances prior to FY2017 from the trust account to the general fund. In FY2018, DLNR transferred $26.6 million to the general fund, representing its portion of ceded land proceeds through FY2016. DLNR should coordinate with B&F to ensure that the general fund portion of ceded land proceeds are transferred to the general fund at least annually.

...

From Full Report pg 46

We are compelled to note our concerns about DLNR’s cooperation in our review of its funds, a review that is mandated by statute. As part of our review process, we asked DLNR to provide information about each of its funds through a questionnaire that we provided in the beginning of June 2018. In responses to the questionnaires, DLNR identified at least three funds that it represented are supported through general fund appropriations, which raised questions about the capacity of these funds to be financially self-sustaining. In its response, DLNR contradicts its earlier representation, now stating that the funds are, in fact, self-sustaining. We had extensive communication with DLNR throughout our review period, including an exit conference at which we informed DLNR about our findings that those funds are not self-sustaining. At no time during the process, including the exit conference, did DLNR express disagreement with our findings relating to those funds, and more importantly, DLNR never corrected its representation that the funds are supported through general fund appropriations. We intentionally involve agencies throughout our review process to provide them with ample opportunity to provide us with accurate information, to supplement information, and to correct information. We expect agencies to cooperate in our review and to provide accurate information about their funds.

On November 26, 2018, at the exit conference, we asked DLNR to provide any additional information they would like us to consider by November 29, 2018. On November 27, 2018, DLNR sent us a copy of the non-general fund report for a fund that we concluded was not reported to the Legislature pursuant to Section 37-47, HRS. However, information that DLNR provided was not about the fund in question. It is concerning that DLNR does not appear to have a complete and thorough understanding of its funds, especially the information that is reported to the Legislature as required by statute.

LINK: Full Report

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