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Monday, June 27, 2011
Resignation call after Audit reveals “ward heeler’s slush fund” overseen by Honolulu Councilman
By Andrew Walden @ 1:05 AM :: 16574 Views :: Honolulu County, Ethics

by Andrew Walden

Why are the pro-rail forces so bitterly opposed to the Council having authority to vote on the Rail Transit Authority budget?  A December, 2010 Honolulu City Auditor’s report on Community Benefits overseen by Incoming Honolulu Council Chair and first-term Mililani-North Shore councilman Ernie Martin could be “Exhibit A”.

As Deputy Director of the Honolulu Department of Community Services, and later while pulling down $112,000 a year as acting Director of Community Services, Martin personally oversaw the Leeward Coast Community Benefits Advisory Committee for most of the period covered by a scathing December, 2010 Honolulu City Auditor's report

Naturally, this involves Waimanalo Gulch and millions of dollars of taxpayer cash.

As Acting Director he also oversaw the Department’s grants to ORI Anuenue Hale, Inc., – from which the US Department of Housing and Urban Development is now demanding the return of $7.9M in federal taxpayer money.  One of Martin’s final deeds as acting Director in late 2010 was to send the Budget Director a memo forgiving $1.2M of City “loans” to ORI.

Now Martin, who has refused requests for comment on the council shakeup, is slated to become Council Chair as the Council and Mayor prepare to sue each other over control of the Transit Authority budget.  (If Martin responds to our request for comment, we will update this article.)

A little graft can get in the way of a lot of graft.  The contractors lined up to build rail don’t want to be bothered with a few thousand here and a few million there—hence their desire to keep the HART budget out of the Council’s grubby little hands.

Civil Beat June 8 explains what was going on at ORI during Martin’s watch:

Federal investigators say ORI refused to show records documenting who uses the campsite, and lied about how many people used a 16,500-square-foot wellness center also on the site.

According to HUD's report, ORI reported 19 to 27 clients used the wellness center each month between October 2010 and March 2011. Federal investigators characterized that number as a "significant under utilization of the facility." But what they found when they visited the site was even worse.

"ORI refused to provide access to the participant files," HUD investigators wrote. "During the on-site monitoring, HUD observed only five participants in the Adult Day Care program at the Wellness Center."….

…Federal investigators also found the city misused $66,861 in CDBG funds that ORI said would be used to serve elderly and disabled clients. ORI said the funds would be used for activities like exercise, therapy sessions, movies, cooking, music and excursions.

Instead, HUD found that ORI used the money to pay for the salaries of workers at the ORI Wellness Center.

HUD finds the city "failed to monitor ORI," even after longstanding concerns about whether it would be able to meet eligibility requirements.

The Leeward Coast Audit echoes HUD’s case against ORI.  The pattern shows up repeatedly in the distribution of $1M a year of Leeward Coast Community Benefits money pitched by the Hannemann administration as compensation for the impact of the solid waste landfill operation at Waimanalo Gulch.  As one observer said, “It was run like a ward heeler’s slush fund.” 

After Martin’s departure from the Department, the funds were cut from the City budget for 2011 until Waianae-Ewa Councilman Tom Berg demanded that they be restored.

Minutes of a June 26, 2008 meeting of the “Community Benefits Advisory Committee” include these tender morsels:

“Ernie reminded all members to direct inquiries on the Request For Proposals to his office.” .…

…“Ernie clarified that the committee members should declare conflicts of interest and it is anticipated as most members (are) active parts of the community….”

And yes, they did award themselves money.  Environmental activist and Mililani resident Carroll Cox reports:

“The Waimanalo Construction Coalition has a few grants in the amount of $50,000 each from Mayor Hannemann’s Leeward Coast Community Benefits Program.…   Mayor (Hannemann) appointed Ms. Patty Teruya to serve on the selection committee as well as serving as the Mayor’s official Special Events Coordinator. Ms. Teruya not only sits on the selection committee for the City's Leeward Coast Community Benefits Program and is a city employee, she is also a member of the Waimanalo Construction Coalition…. DCCA records also show that Ms. Teruya filed as an officer with the Waimanalo Construction Coalition on December 10, 2001. What is not clear is, why did Teruya remove her name in 2007 but reappears on form as an officer in 2008 and 2009. Was this of concern and to avoid scrutiny for the original grant?”

After the Audit became public, Cox called for Martin’s resignation as Chair of the Council’s Budget Committee.  But the December, 2010 Community Benefits Audit hasn’t received much media attention.  It almost became news June 21--but just before it was to be discussed on the agenda of that day’s Honolulu Council Recreation Committee meeting, Martin’s council ally Ann Kobayashi got up and walked out, denying the committee a quorum and ending the meeting.

In an October, 2010 KITV interview, Martin emphasized his experience as a City employee: "being in the City for over 20 years, I think I know how government works."

Here is how the Auditor says Government worked under Martin’s direct supervision:

The Leeward Coast Community Benefits Program is intended to offset the impact of the landfill in their geographic area by funding programs beneficial to the residents in the Kapolei to Makaha area. In FY2006-07, the inaugural year of the program, grants totaled $1 million and were awarded to 21 community based non-profits. In FY2007-08, an additional $1 million in grants were awarded to 25 non-profit community-based organizations. In FY2008-09, a total of $1 million in grants were awarded to 31 non-profit, community-based organizations….

We found that many contracts lack performance measures and work plans. Some grantees did not deliver goods or services specified by the contracts, did not file required reports, and used grant funds to cover operational costs, administrative costs, and fundraising activities. … Grantee accountability and transparency was reduced and the risk for fraud, waste and abuse increased. For example, some grantees received subsequent grants, even though their past contract was not closed. In addition, the administration’s change to an 80-20 distribution ratio further reduced accountability and made the program more susceptible to fraud, waste, and abuse.

For example, we found one grantee exceeded the scope of its contract by using grant funds for expenses related to a Sunset on the Beach event.... We also discovered the grantee was the producer for the entire Waianae Coast Sunset on the Beach event. Thus the potential conflict of interest and incentive for misreporting expenditures was a potential risk.

According to the LCCBP administrator, once grants are awarded, the RFP documents, including work plans, are discarded because the department relies on the contract with the grantee to manage the grant. Without a work plan, we could not determine if the department had a basis for effectively monitoring and evaluating grantees....

Moreover, the department did not always enforce the contract terms for required or timely reports; did not have a formal contract monitoring program; and did not have an information system for monitoring the grantee and the use of the grant funds. As a result, the department did not provide proper oversight of the grant program, and grantees sometimes did not comply with the contract terms....

In one example, we found a grantee that was awarded $21,063 in FY2006-07 to implement an acupuncture detoxification treatment program for individuals with substance abuse issues. Contract files show invoices totaling $21,016. Of that amount, $11,315 (54 percent) was for costs related to providing acupuncture services and the remaining $9,701 (46 percent) was for administrative fees.

The grantee also had a possible conflict of interest and a questionable operating structure that used sub-recipients. The city entered into a contract with the grantee, but that grantee was not the direct service provider. The grantee was actually a fiscal sponsor for a newly formed organization that would assist in providing cost-effective health care services to disadvantaged and underserved communities.

As the fiscal sponsor, the grantee received fiscal sponsor administrative fees that totaled $1,458. However, this newly formed organization did not actually have its own operating administration because invoices were submitted by yet a separate entity that provided operations and management services and invoiced project management services fees totaling $8,243. This project management entity then contracted with a local acupuncture school to provide the actual services. Coincidentally, one of the partners for the project management entity was a third year student at the acupuncture school that was contracted to provide acupuncture services.

In FY2008-09, a grantee used an unspecified amount of its $51,364 grant award, along with other funds, to hire a fundraiser, project manager, and an architect for its project to construct an education and sustainability center in Kapolei. Another non-profit received $60,000 in FY2007-08 and expended an unspecified amount of grant funds for a contract hire that assisted with administrative and fundraising activities.

Our analysis revealed that 16 (33 per cent) of the 49 non-profits that received grant awards between FY2006-07 to FY2008-09 received additional LCCBP grants before the existing grants were fully expended or before the final reimbursements were approved. The community services department did not conduct post-evaluations of its grantees or check the grantee’s past performance with the LCCBP grant program before awarding subsequent grants. As a consequence, grantees that did not utilize all of its previous grant funds or satisfy requirements for final reimbursement were able to receive new grant awards. (p35)

So how did Martin’s department respond to this situation?  The Auditor’s report continues:

in FY2007-08, the managing director’s office directed the community services department to implement a new distribution program that advanced 80 percent of the total grant award and reimbursed the final 20 percent upon satisfactory completion of contract requirements and final invoice.

… the new distribution policy … reduced grantee accountability and increased the potential for fraud, waste, and abuse to occur. Specifically, the increased advance percentage from 25 percent to 80 percent of the grant award allowed grantees to secure significant resources while removing the department’s means for monitoring their use until most of the funds had already been spent.(p36)

… the change to the 80-20 grant funds distribution policy indicated the policy may have caused an increase in the amount of grant funds not spent for Leeward Coast initiatives. For example:

  • In FY2006-07, we found that 3 (14 percent) of 21 grant recipients had an outstanding balance of 20 percent or more of unspent grant funds.
  • In FY2007-08, the number of grant recipients with balances exceeding 20 percent increased to 17 (68 percent) of 25 grant recipients.
  • The number of grant recipients that had an outstanding balance of 20 percent or more of unspent grant funds increased to 25 (81 percent) of 31 grant recipients in FY2008-09. (p37)

There is no significant consequence if a grantee does not submit a final payment request, file reports, or provide a final accounting of how the monies were spent. If the grantee takes the 80 percent advance payment and does not account for the use of the funds, the city and community have no assurance the Leeward communities are benefiting from the grants.  (p38)

With their $5.5B pot of Rail gold on the line, would the contractors and their politicians want to be bothered with this kind of small time nonsense?


Report No. 11-02, December 2010 Audit of the Leeward Coast Community Benefits Program (1475K)

Nanakuli Park: Hannemann pounds Hanabusa in proxy fight between Waimanalo Gulch and PVT landfill


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