by Andrew Walden
With its LLCs on the line, the Hawaii State Office of Hawaiian Affairs (OHA) has already stonewalled one audit—while lying to the legislature about it. Are they now preparing to stonewall another?
As the 2019 legislature considered giving OHA $139M in so-called ceded lands arrears, OHA insiders stonewalled an internally commissioned audit of OHA’s own Limited Liability Corporations (LLCs) while lying to the legislature about its progress. When legislators found out, they killed the cash payout and froze OHA’s regular budgetary funding pending yet another audit.
Act 37 of 2019 makes release of OHA funding for Fiscal Year 2020-21 contingent on the State Auditor completing the report.
Quoted in minutes from the July 18, 2019 OHA Board of Trustees meeting, State Auditor Les Kondo explains:
Act 37 it asks us to do a financial and management audit…. My understanding is that OHA receives annual financial audits, has an independent annual financial audit by a CPA firm and some of the LLCs are included in OHA's audit and the LLCs that are not are independently audited by a CPA firm as well. Based upon that understanding we will not be doing a financial audit of OHA. ... We don't want to engage a firm to duplicate work that another independent CPA firm is already doing. The standards are relatively the same, or are the same. Their test samples may be different, they may have different opinions but at this point, we are going to rely upon the professional judgement and those professional firms doing what they are contracted to do. So we are not going to engage in anybody to do a financial audit of OHA. Our focus like I said is a management or performance audit and it's likely the focus of that is going to be the LLCs and OHA's oversight of those LLCs as well as the LLCs themselves.
I know the Act it is unusual in the sense that it ties the release of the General Funds Appropriation to OHA to our completion of the audit. We are very aware of that provision. I want to assure you that we see it and your interim CEO has come very soon after that bill was signed to let us know that it was there. But we knew it was there. We are very aware of it and I commit here that we will do our best to issue that report as expeditiously as we can and 20 days before session, which is our deadline, is roughly in my mind is the end of the calendar year. So my expectation is that we will issue that report by the end of the calendar years. That all said that is going to be partly dependent upon the cooperation we get from OHA. We certainly expect full cooperation from OHA that means documents as well as access to people when we come and ask for interviews. We expect and we understand that you have, you and your staff, have other responsibilities. But we also believe that this is also part of your responsibility. We certainly will be aware and to the extent that we can accommodate other work, we will do that. But we also need to finish our work so that we can issue the audit timely. We will do our best, but we expect full cooperation, full access to you folks, to staff, to records. I know there is an agenda item that I think the Board may consider in Executive Session about our access to confidential OHA material.
One might expect OHA would change its ways after its lies cost so many millions of dollars, but Kondo describes difficulties beginning almost as soon as OHA’s funding restriction was signed into law under Act 37.
Kondo reminds Trustees he can subpoena records:
I communicated with (OHA Board Counsel Robert) Klein a couple times by email. The last time we were here 2 years ago, we had no issue. In other words, we had access to whatever OHA information OHA had. Confidential information, including Executive Meeting minutes. We expect that. I understand that Mr. Klein is here to advise the Board and it's a new Board about our ability to access that. When I read our statute, the Auditor statute, it tells me we have access to all records, with no exception. We also have the ability to if necessary to subpoena records, or subpoena people. I don't believe we ever need to pull that trigger for a State Agency. I believe a State Agency must cooperate. We would use that extremely sparingly.
We didn't get access to Executive session minutes when we audited HART. That was in the paper, you may have seen that. We, internally we had some issues with HART and HART's counsel about that but we did not push further than just reporting the fact that we didn't get access. Partly it was because HART is a City agency; partly it is because we had deadlines we needed to meet for the legislature. That was another legislative mandated audit. I am not sure we will take that same position with OHA. I don't want this to be viewed as a threat. I just want you to know because I want to lay all my cards on the table so you folks know our position. I am not sure we will walk so quietly away should you folks tell me that we don't get access to your materials. I am thinking we will take a little tougher stand because I think this is an important issue not just for us and OHA, but us and other State agencies. So I'm just telling you right up front, I am not sure if you tell me you are not going to get access that we will walk away quietly and softly on that one. We expect access to everything and anything and we expect access to you folks and we will push hard to get that.
With OHA facing criminal investigations from the State Attorney General and the FBI, Kondo tries to allay Trustees’ fears that law enforcement might get their hands on OHA materials:
...The information that we receive from an auditee, the work papers, which would include your documents, the interviews that we have with you folks, the summaries of those interview, we tape most of the interviews as well. So that tape recording as well is all considered work papers to us. By statute, the work papers are confidential. So what that means to me is nobody gets access to those work papers, to those tapes, to those documents, to those executive session minutes, unless there is a court order. I can't tell you never ever, but only by court order. So we have been subpoenaed by the Attorney General's office, for instance, for other agency's documents that we have received through an audit we fight that. Not a court order. Subpoena is not a court order. To me there is some protection, not absolute, but pretty solid protection for OHA and any other agency with respect to confidential material as well as other types of material that is not available to the public….
Apparently Kondo received “a letter from Mr. Klein about another letter that we have received from a Trustee's aide”—with Klein arguing that the “letter from the Trustee’s aide” should not become part of the audit:
Mr. Kondo- …I wanted to make sure that you understood that we had some concerns about our access to your information….
Chair Colette Machado- You having trouble now? Or prior?
Mr. Kondo- Well this issue is going to be teed up in Executive Session I believe because I got a letter from Mr. Klein about another letter that we have received from a Trustee's Aide. About whether or not that letter was appropriate for us, it's a letter from one of your Attorneys. So that teed up that issue about, oh are we now going to get issues getting access to other confidential material, executive session minutes, for sure, we are going to come and ask for. I just don't want to have trouble getting access, so that is why Mr. Klein, was gracious enough to ensure that it was on the agenda so this issue could be resolved early on. And if the decision by the Board is, no access then we are going to, in my office; try to figure out what our next step is. So I am laying it on the table like I said earlier, not so much, just for your information so you know where we are coming from. I certainly understand your point there about trying to get this thing done timely….
Did OHA have legal authority to create LLCs?
Mr. Kondo- In addition to access to records, I would want the Board to consider asking your Attorneys, directing your Attorneys to answer our questions. My issue here is that, some of you we have asked, we have interviewed and the staff as well the administration as well, they question has been what is the legal authority for OHA to create LLCs. People that we asked that question to, they don't know. I am not saying there is none, but when I asked your attorney, could you please direct us to that legal authority, his response back to me was he is going to talk to you folks about that in the Executive Session. He is going to tell you. I don't want to be playing phone tag, playing the telephone game where he needs to tell you and you need to tell me, I want for legal authority, I feel that is something that me and Mr. Klein or me and your attorneys we can have that discussion. I would suggest that is an issue you folks talk about and perhaps direct your attorney to have that discussion with us instead of having it with you and then you conveying this information….
Klein claims he is not playing games:
Robert G. Klein, Board Counsel- I will advise my client in Executive Session.
Chair Colette Machado- Appropriately, yes.
Robert G. Klein, Board Counsel- When I get their input then I will contact you. Is that okay. You cannot expect the Trustees to make legal conclusions themselves and report them to you.
Mr. Kondo- That is why I asked you the question. Because they didn't have an answer.
Robert G. Klein, Board Counsel- I don't think you have the full understanding of the process.
Mr. Kondo- Maybe not. But I wanted the Trustees to at least be aware of the issue and perhaps instead of us playing that game, that perhaps they would be able ...
Robert G. Klein, Board Counsel- There will be no games played, Mr. Kondo, at all.
Mr. Kondo- Sorry for that use of word. You telling them what the answer is when they didn't know and them coming back to tell us what that answer is that doesn't seem like it's the most efficient process.
Robert G. Klein, Board Counsel- That is why·you should just deal with me.
Mr. Kondo- I did and that was the answer. That is what the issue is.
Robert G. Klein, Board Counsel- There is a process that you don't understand.
Trustee Brendon Kalei'aina Lee- Point of order Madame Chair.
Chair Colette Machado - Ok Aloha everybody, Trustee Lee.
Trustee Brendon Kalei'aina Lee- Our legal counsel and our presenter should not be engaging in a debate.
Chair Colette Machado- I agree so I am going to cease this dialogue between the two of you. …
Trustees Chair Machado says “tremendous leaks” are “jeopardizing our position as an organization.”
Chair Colette Machado - I just want to make a point before we redirect to the next item on the agenda. We have been subjected to tremendous leak of information that has been identified as Attorney Client Privilege, not just by Trustees, but individual staff members that work for Trustees. That is a major concern, because if that is released without proper review and vetting, legally I feel that jeopardizing our position as an organization and it's a breach of fiduciary and duty of care. I understand the sensitivity of a staff member releasing confidential, whether it was mistakenly done or not, that is not the role of a Trustee staff to do that. I wanted to make that clear to you till you understand that. That it's not the duty of care, and the responsibility, that is not fiduciary, it's directed to the Trustees themselves and we have a Board Counsel that is where I am corning in as the Chair. You need to know how I feel about that. We have suffered so much from unnecessary leaks that goes out, it's unfair to the organization to defend itself when it's not done in a right manner.
Mr. Kondo- Like I mentioned before, and I appreciate your position, but like I mentioned before the last time we were auditing OHA, two years ago, that information flowed to us without any issue. So whether or not that was the reason why we got access to that letter, I don't know. But it didn't raise an issue when we got it because we expect it. But I understand your position and certainly that is your prerogative to discuss it here with your attorney and decide how you want to deal with that issue….
Will access to Executive Session minutes be an issue?
Trustee Brendon Kalei'aina Lee- I wasn't going to say anything Mr. Kondo but because you just made that statement, your statements earlier about access to our Executive Session and that you must get it. You mentioned before that it was never an issue. The way that it was brought to this table, it infers that you are expecting an issue. You may not have meant it that way, but that is the way that it came off. But because you said what you just said now, I felt that it was important to say that. I understand that is not your intent, but the public is watching this as well and it give the impression that you're expecting OHA to not give you the same access that you got before.
Mr. Kondo- I don't know. But we had an issue about a letter, so before it got up to something that was bigger than just the letter, I thought it was very important to be aware of our concern.
Auditor Kondo indicates the deadline for presentation of his audit report to the legislature is December 31, 2019.
Meanwhile, the other group of auditors looking into OHA’s LLCs say the outgoing OHA CEO Kamana’o Crabbe spent his last month in office hiding from them.
PDF: Minutes from July 18, 2019 OHA BoT meeting.
Link: Act 37 Text, Status