TO: Ryan Yamane, Director Hawaii State Department of Human Services, Members of the Senate, Members of the House of Representatives

FROM: Les Kondo, Auditor

DATE: April 20, 2026

RE: Audit of Statewide Office on Homelessness and Housing Solutions’ Kauhale Initiative

PDF: Original Document

As you are aware, we are conducting a performance audit of the Kauhale initiative pursuant 10 Act 309 (Session Laws of Hawai'i 2025).

In the course of our audit work, we have identified significant matters - particularly those related to the use of public funds and internal control that, in our professional judgment, warrant immediate attention by those charged with governance. We are concerned tha significant deficiencies in internal control in the State Office of Homelessness and Housing Solutions’ (SOHHS) implementation of the Kauhale initiative create an ongoing and substantial risk of improper use of public funds.

“This communication is based on audit work performed to date and reflects preliminary observations. It is not intended to represent final findings or conclusions. Additional work, including further review of documentation and discussion with relevant parties, may result in revisions of the observations described herein. However, we believe it necessary to issue this interim communication due to the immediate and continuing risk of waste and improper use of public funds.

Summary of Critical Issues Identified

As part of the audit, we have reviewed 10 contracts between SOHHS and HomeAid Hawai'i totaling almost $40 million, along with invoices submitted for payment.1

In our review of invoices made available to date and, where available, the supporting receipts and other documentation, we identified almost $1.7 million that appears to be unsupported, unallowable, duplicative, or not clearly consistent with the contact terms or applicable State requirements. 2

These include the following categories of questionable costs:

Approximately $770,000 in costs that were initially paid and later credited back to the State, reflecting that SOHHS approved and paid HomeAid Hawai'i invoices that included the improper or unsupported costs; and

• Over $916,000 in costs that, based on documentation available to date, appear to include:
• Costs that may fall outside the defined scope of contractual services;
  • Expenses that appear overhead- related or administrative in nature charged as direct project costs;
  • Costs that appear inconsistent with Stat polices, including certain travel and meal expenses; and/or
  • Costs that ae associated with work performed under another contract for which HomeAid Hawai'i was previously paid.

These issues appear to be general and recurring rather than isolated. Our audit fieldwork is ongoing, and additional information may affect the amounts and characterization of these costs.

Absence of Effective Internal Control

‘We have considered internal control relevant to the audit objectives. 3 Based on our work to date, we observed significant deficiencies in SOHHS’ processes relating to contracting for services, contract administration, and invoice review.

“These deficiencies include, but are not limited to:

Contracting and Public Oversight

• Limited understanding of public works projects, best practices with respect to public works contacting, and cost reimbursement contracting;
• Absence of a defined project or contract management structure;
• No process to assess reasonableness of contract amounts;
• Lack of enforcement of contractual terms; and
• Verbal amendments to contract terms.

Invoice Review and Payment Controls

• No evidence of meaningful review or validation of invoices prior to payment;
• No verification that costs are allowable, reasonable, or within the scope of the contract; and
• Payments appear to be made largely as submitted, without independent scrutiny.

Compliance and Cost Control

• No enforcement of limitations on overhead or administrative expenses; and
• No evidence of invoices being systematically challenged, adjusted, or rejected

Taken together, these conditions indicate that the current control environment does not provide reasonable assurance that improper or unsupported costs will be detected or prevented.

Preliminary Assessment

The pattern, volume, and nature of the costs identified — combined with the internal control deficiencies —indicate significant risk of systemic waste and potential misuse of public funds.

Based on our work to date, the issues appear 0 reflect fundamental weaknesses in program design, contract administration, and financial controls. Given the volume of expenditures reviewed to date, these issues represent a significant exposure of public funds.

Need for Immediate Attention

This communication is intended to ensure that those charged with governance are informed of these preliminary observations while the audit is in progress.

Based on our understanding of current practices, invoices continue to be submitted and paid with limited substantive review or verification. In our professional judgment, waiting until the issuance of a final audit report will likely result in continued exposure of public funds to unsupported of inappropriate costs. The current control environment does not provide reasonable assurance that improper billing will be detected or prevented.

Given the circumstances, those charged with governance should consider whether immediate corrective actions are necessary, including, but not limited to:

• Independent review of invoices prior to payment by a qualified entity outside of SOHHS capable of meaningfully evaluating cost allowability, reasonableness, and consistency with contract requirements;
• Temporary controls or conditions on further reimbursements;
• Independent review of recent payments by a qualified entity outside of SOHHS to identify costs that may be subject to disallowance and recovery; and
• Establishment of enhanced oversight over HomeAid Hawai'i procurement and cost practices, including ongoing review and monitoring by a qualified entity external to and independent of SOHHS.

Next Steps

‘Our audit is ongoing. We will continue to:

• Review contacts, invoices, and expenditures;
• Evaluate internal control processes related to contract oversight; and
• Assess the extent to which costs are consistent with contract terms and applicable requirements.

It may not be feasible for us to quantify all questioned or potentially improper costs within the scope of this audit; we will consider doing so in the future, as appropriate.

“These maters will be addressed in detail, along with formal findings and recommendations, in our final audit report

(List of HomeAid Hawai'i contracts attached below[

List of HomeAid Hawai'i Contracts to Develop Kauhale Projects

1. Pulama Ola (the temporary medical respite kauhale in the Department of Health parking lot across from Queens Hospital): $67,266 (Bill of Sale);
2. Hookahi Leo I (Middle Steet, Phase 1) (DHS-24-GOV-0056): not to exceed $1,200,000;
3. Ka Malu Ko‘olau, Phase | (DHS-24-GOV-0058): not to exceed $1,600,000;
4. Alana Olo Pono (Iwilei) (DHS-24-GOV-0057): not to exceed $5,245,116;
5. Hookahi Leo II (Middle Street, Phase 2) (DHS-24-GOV-0131): not to exceed $6,755,750;
6. Kipuola (Maui) (DHS-24-GOV-0123): not to exceed $7,942,912;
7. Ka Malu Ko‘olau, Phase 2 (DHS-25-GOV-0044): not to exceed $720,000;
8. Weinburg Village (Waimanalo) (DHS-24-GOV-0058): not to exceed $2,000,000.

In addition to the above contracts, SOHHS has also contracted with HomeAid Hawai'i or other Kauhale-related work:

1. re-development (DHS-24-GOV-0052) (to assist in the selection of Kauhale sites): not to exceed $8497,670;
2. Tiny homes (DHS-24-GOV-0109) (to design, build, transport, and deliver 273 units): not to exceed $5,860,082;
3. Kipuola (Mau) (DHS-26-GOV-0024) (10 oversee and manage kauhale) (Kauhale Management Services, LLC): not to exceed $2,243,783 (from December 6, 2025 through December 31, 2026).

DHS Contracts With HomeAid Hawai'i-related Organizations

1. Ka Lai Ola (Maui) (DHS-24-GOV-0105) (Kalaiola Village, LLC): not to exceed $39,500,000;
2. Ka Lai Ola (Maui) (DHS-24-GOV-0105) (Kalaiola Village, LLC): not to exceed $73,963,769;
3. Ka Lai Ola (Maui) (DHS-25-GOV-0043) (Kauhale Management Services, LLC): not 0 exceed $9,000,000;
4. Ka Lai Ola (Maui) (DHS-25-GOV-0043) (Kauhale Management Services, LLC): not to exceed $26,602,357;
5. Pu'uhonua O Nene (Maui) (DHS-25-GOV-0043) (Kauhale Management Services, LLC): not to exceed $4,698,225.

FOOTNOTES

1. Our audit limited to the Kauhale initiative under SOHHS and is focused on the development of Kauhale on undeveloped state lands. In addition to the contracts to develop Kauhale, SOHHS has contracted with Kauhale Management Services, LLC to provide management service at the Kipuola kauhale. That contact is for the period December 6, 2025 through December 31, 2026 for an amount not to exceed $2,243,783. Kauhale Management Services LLC is an entity created by HomeAid Hawai‘i.

Separate from SOHHS, the Department of Human Services has contracted with Kalaiola Village, LLC, another HomeAid Hawai’i created organization, and Kauhale Management Services, LLC to develop and manage, respectively, two projects on Maui, Ka Lai Ola and Pu'ahonua O Nene. Those contracts total approximately $154 million. Those project are not part of our audit of the Kauhale initiative.

2. Some of the invoices that we were provided do not include receipts or supporting documentation, as required by the contracts, to support al the costs on HomeAid Hawaii's invoices. At least one invoice did not include receipts or supporting documentation for ANY of the costs that totaled $2,103,247. SOHHS, nevertheless, paid the total invoice amount.

3. Broadly speaking, internal control is process an organization has designed to mitigate risk, which would include the risk of improper payments.

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