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Tuesday, March 05, 2019
Tokuda-Connected Recycler Busted for Fraud
By Hawaii State Auditor @ 10:55 PM :: 2602 Views :: Environment, Small Business, Tax Credits

(Editor’s Note: Sen Jill Tokuda is the former ‘director of community relations’ for Reynolds Recycling.  She once registered a ‘nonprofit’ corporation, Charitable Ventures, Inc., at the same address as Reynolds’ Sand Island headquarters.)

Report No. 19-08, Financial and Program Audit of the Department of Health’s Deposit Beverage Container Program, June 30, 2018

From Hawaii State Auditor, Report 19-08, March, 2019

In Report No. 19-08, we found that the Department of Health has not addressed the Deposit Beverage Container Program’s fundamental weaknesses, identified more than a decade ago.

The program remains entirely dependent upon beverage distributors and redemption centers to self-report how many containers they import into the State and the number they collect for recycling. As a result, moneys paid into the program’s special fund and moneys paid out of it are based on unverified numbers and opportunities for fraud and error are legion.

This financial and program audit, which covers the fiscal year that ended June 30, 2018, also found further evidence of an incomplete and broken system.

  *   *   *   *   *

Potentially Fraudulent Overpayments of Deposit Refund Reimbursements to a Redemption Center Discovered (pg 20-23)

In early October 2018, we performed 15 unannounced visits at 10 different redemption centers located throughout the State to verify that the redemption centers were in compliance with the law. In four of the visits, we requested redemption center staff to redeem beverage containers by counting each container. In the remaining eleven visits, we requested redemption center staff to redeem beverage containers by weight.

We found that in 2 out of 15 redemption center visits, the amounts provided in the redemption transaction logs, noted as the manually prepared Cash Receipts Log, did not match to our receipts and the amount paid. Both of the discrepancies were at the Reynolds Recycling location at 1106 University Avenue on October 2, 2018 and October 4, 2018. During those visits, our staff member was required to sign a Cash Receipts Log, which was submitted by the redemption center as detailed support for its DR-1 form. The staff auditor also received a “10- key” tape receipt that detailed the calculation of the amount received.

As the October 2, 2018 receipt indicates, our staff auditor was paid 61 cents for 5.1 pounds of glass bottles redeemed; however, after the visit, 32.8 pounds of aluminum cans and 12.8 pounds of plastic containers were added to the Cash Receipts Log, adding $52.48 and $16.83, respectively, to the total. See Exhibit 2.3. As a result, instead of $0.61, the redemption center was reimbursed $69.31 by the Program. Two days later, our staffer submitted three pounds of plastic containers and was paid $3.95, but 6.9 pounds of aluminum cans were added to the Cash Receipts Log, which added $11.04 to the total. The redemption center was reimbursed $14.99 instead of $3.95. In both instances, the Cash Receipts Logs appear to have been altered after we had visited the location to reflect additional material type containers, resulting in an increase in amounts reimbursed. We reported our findings to the Office of the Auditor and the Director of the Department of Health on November 20, 2018.

During FY 2018, the total deposit amounts reimbursed to Reynolds Recycling was approximately $7.96 million. Although no specific information was available for the University location, the total amount reimbursed to Reynolds Recycling, coupled with the fact that only a small sample was tested, raises concerns as to the potential amount of overpayments that may have been paid to the redemption center.

Conclusions

The Program’s lack of oversight over self-reporting by distributors and redemption centers expose the Program to a greater risk of fraud and incorrect reporting. Plans to address these program weaknesses are pending and have yet to be implemented. Until the Program implements effective preventative and detective activities to verify reports submitted, under reported deposits and fees and over reported redemptions may not be detected. Consequently, the Program may be operating at a greater cost than necessary, and the reported redemption rate may not be reliable. Resolution of these deficiencies is necessary to alleviate public concerns over the cost of the Program, including questions regarding the container fee rate necessary to operate the Program.

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