Secret Timeline Shows OHA Lying to Legislature While Stonewalling LLC Audit
by Andrew Walden
Legislators are moving HB172 and HB402 to transfer as much as $139M in ceded lands arrears to the Office of Hawaiian Affairs (OHA) and boost the cap on OHA’s annual ceded lands payments from $15M a year to $35M a year.
On April 10, OHA Trustees may sacrifice it all -- in order to keep the secrets hidden in OHA's LLCs.
Both bills make the increase in ceded lands payments contingent on public release of a “fiscal and performance audit” of OHA's LLCs.
OHA has told legislators again and again, in testimony between February 28, 2019 and April 4, 2019, “the audit is ongoing” -- but internal documents provided to Hawai'i Free Press show OHA and its LLCs have effectively stopped the audit by refusing to provide auditors with necessary records since last fall.
The documents--being made public for the first time--include a November 27, 2018 CliftonLarsonAllen (CLA) audit status report and November 30, 2018 letter to Trustees Chair Colette Machado from Trustee Hulu Lindsey, a March 8, 2019 timeline, and an April 2, 2019 “Tentative Timetable,” all “prepared by (auditor) CliftonLarsonAllen LLP….”
March 28, 2019, OHA, testifying before the Senate Ways and Means Committee, claims: “The term of the contract is from Sept. 4, 2018 through April 30, 2019. The audit is ongoing and the Board’s commitment remains firm.”
False.
OHA Trustees’ Committee on Resource Management (RM) agenda for Wednesday, April 10, 2019, includes “New Business: Action Item RM #19-02: ‘Amendment to extend the Time of Performance for OHA Contract #3284.’” 3284 is the audit contract. The proposal is to “extend the Time of Performance…from April 30, 2019 to December 16, 2019.”
Why?
“Due to a delay in the contractor obtaining records requested….”
CLA’s timeline shows the LLCs and OHA administration repeatedly refusing to provide key documents without which the audit cannot proceed. In a November 14, 2018 interview with auditors, OHA CEO Kamana’o Crabbe—also a manager of some OHA LLCs--refused to discuss the LLCs with auditors. CLA indicates it has not been paid by OHA on at least two “outstanding invoices.”
On March 29, 2019, Oahu Circuit Court Judge Jeffrey Crabtree ruled, in Walden v Hi’ilei, that OHA’s LLCs are subject to UIPA--Hawaii’s open-records law. The court ruling may be forcing OHA and its LLCs to begin cooperating with the audit. Of course, if Trustees reject action item #19-02, there will be no audit to cooperate with and the LLCs' secrets will remain concealed.
The timeline shows LLC’s interaction with the CLA audit team being conducted since June 1, 2018, entirely by ES&A, the law firm of Anna Elento-Sneed. Sneed also represented the LLCs before Judge Crabtree.
The RM audit discussion is scheduled immediately after an RM executive session which includes:
Consultation with attorneys … regarding OHA’s role as a member of Hi’ilei Aloha LLC and Ho’okele Pono LLC and management options for those LLCs in light of the Minute Order issued in Andrew Walden v. Hi’ilei Aloha LLC, Ho’okele Pono LLC, and Hi’ipaka LLC….
Here are selected events from the CLA timeline arranged chronologically with other relevant events and contrasted with OHA’s representations about the audit in legislative testimony:
February 22, 2018: LLC Manager (and OHA CEO) Crabbe promises, "(OHA LLC) Hi'ilei (Aloha) will provide the Auditor with reasonable access to the LLCs respective documents and information.... if the LLCs conclude the Auditor's request for access to any documents or information is unreasonable...the LLCs will immediately notify the BOT."
June 7, 2018: “CLA met with LLC representatives…. Was informed that the LLCs are covered by private laws and need to not disclose certain information.”
June 8, 2018: “(OHA Procurement Officer Phyllis Ono-Evangelista) emailed ES&A to inform them that all communications and required documents may be between CLA and the LLCs only and that OHA's Trustees did not need to be copied on those communications.”
August 28, 2018: Walden v Hiilei filed
September 10, 2018: “LLC required that CLA allow the LLCs to identify which information is considered confidential.”
September 17, 2018: “CLA emailed Trustee Hulu Lindsey to request a conference call to discuss concerns expressed by ES&A about CLA sharing LLCs' documents with OHA.”
October 8, 2018: “CLA was on site to conduct interviews of certain OHA/LLCs employees. The only interview not conducted as originally planned was that of Mr. Kamana'opono Crabbe. Ten minutes after the interview was scheduled to begin, CLA was informed that Mr. Crabbe had an urgent matter that prevented him from meeting with CLA on that day.”
October 11, 2018: “CLA received letter from ES&A explaining the LLC's legal status and relationship to OHA. Described concern over the negative impact of CLA's work on the LLCs. ES&A explained that it is its opinion that ‘any action that CLA takes that results in the expansion of OHA's access to information will have a profoundly negative impact on the LLC's legal position in ongoing litigation and other legal proceedings.’"
October 14, 2018: “Trustee Hulu Lindsey forwarded a news article titled ‘Lawsuit OHA-Owned Corporations Must Comply with Open Records Laws.’"
October 25, 2018: “CLA provided Trustees Hulu Lindsey and John Waihee with the first status report of the work performed to date, and provided invoice #1932916. CLA mentioned that it is waiting for quite a few documents and some financial information from both OHA and the LLCs. CLA explained that it would continue to reach out to Phyllis requesting an update. CLA communicated that it was waiting for further information from ES&A regarding when the LLCs may be able to provide the additional records requested.”
October 29, 2018: “Trustee Hulu Lindsey forwarded OHA news articles published by the Hawai'i Free Press. CLA replied and informed her that CLA is keeping an eye on news articles pertaining to OHA. On 10/31/2018, Trustee Hulu Lindsey replied that the check registers for 2017 were mentioned in one of the articles she forwarded.”
November 6, 2018: “CLA emailed OHA to confirm interview with Mr. Crabbe on 11/14/2018 from 10:30 am to 12:30 pm.”
November 14, 2018: “OHA informed CLA that Mr. Crabbe would be available for the interview with CLA later that day (11/14/2018) at the starting time scheduled but would be available for only one hour.”
November 14, 2018: “CLA interviewed Kamana'opono Crabbe concerning OHA only (not able to discuss LLCs in person without ES&A being present). Present in this interview was Albert Tiberi.”
November 27, 2018: “CLA provided Trustees Hulu Lindsey and John Waihee with the second status report of the work performed to date and provided invoice #1958802. CLA mentioned in its status update that on November 9, 2018, OHA indicated that additional documents would be provided on November 14th or 15th; however, additional documents were not provided on these dates. Therefore, 15 items requested were still outstanding as of the date of this status report. OHA has not provided CLA with a revised date of expected delivery for the remaining items.”
“CLA communicated that before it could select the sample of contracts and disbursements for testing, CLA must obtain the remaining financial documents/information on the request lists sent to OHA through 11/16/18. The documents and data requested (such as the ki'i data and the reconciliation from the general ledger to the audited financial statements) are important for ensuring that CLA has received complete general ledger data and to fully analyze contract and disbursement data before selecting a sample.”
“CLA communicated that it was initially informed by ES&A that the requested documents that did exist would be provided; however, on 10/12/2018, before any additional documents were provided, CLA was informed by ES&A that CLA would not be provided any additional documentation until the LLC's concerns over the impact of this project on the LLCs were resolved.”
(At this point progress on the audit comes to an end.)
November 27, 2018: CLA Status Report #2 quotes ES&A's October 11, 2018 letter in which LLC attorney Sneed refuses to provide documents, arguing: "...the LLCs are private entities not subject to the 'fraud, waste, and abuse' standard of government accounting...."
November 29, 2018: “Trustee Hulu Lindsey notified CLA that she was re-elected as a trustee and believed that she would no longer be the Resource Management Committee Chair. She apologized for CLA not having received payment on the outstanding invoice….”
November 30, 2018: OHA Trustee Hulu Lindsey, then overseeing the audit as RM Chair, forwards the CLA Status Report #2 to BoT Chair Machado and writes:
“…as revealed by CLA in its November 27, 2018 status report, OHA Administration has failed to provide 15 of the 33 of the requested documents. The LLCs have refused to provide any documents to CLA.
“OHA's failure and the LLCs' refusal to honor the Board's will have led to substantial and unwarranted delays. The final audit report was due to the Board by April 2019. It is now unclear whether CLA will be able to complete the audit at all.
“As a reminder, Trustees have promised this audit and have had the support of OHA’s beneficiaries for it since early 2017. This audit was to be a tool to strengthen OHA assist the Board in its fiscal oversight and restore credibility to OHA. Earlier this year, we told the State Auditor (and essentially, the Legislature) that this audit was one of the proactive steps OHA was taking to address the state audit findings.”
November 30, 2018: OHA CFO Laeha tells Judge Crabtree ‘We Keep Trustees in the Dark About LLCs’
December, 2018: OHA CFO David Laeha vanishes. No public announcement. CFO position remains vacant.
January 14, 2019: “Trustee Lei Ahu Isa responded that they were working with Trustee Hulu Lindsey on getting CLA's invoices paid….”
January 16, 2019: Legislative session opens.
February 28, 2019: OHA testimony on HB172 (pg4) “With regards to the audit described in HB172 HD1, OHA notes that it … has contracted with an independent audit firm to conduct a forensic/performance audit.”
March 5, 2019: Rare Polynesian artifacts known as ki’i are allegedly stolen from the home of OHA CEO Kamana’o Crabbe.
March 19, 2019: OHA testimony on SCR188/SR151 (pg 1) “OHA appreciates the intent of this resolution. The audit is still ongoing. We look forward to receiving the audit findings and recommendations, to help us improve our operations in furtherance of our legal mandate to better the conditions of Native Hawaiians.”
March 19, 2019: OHA testimony on SCR70/SR48 (pg 1) “OHA notes that various audits and financial reviews are already conducted and currently underway for both OHA and limited liability companies (LLCs) created by OHA.”
March 27, 2019: OHA testimony on HCR188 (pg 1) “OHA appreciates the intent of this resolution. The audit is still ongoing. We look forward to receiving the audit findings and recommendations, to help us improve our operations in furtherance of our legal mandate to better the conditions of Native Hawaiians.”
March 28, 2019: OHA testimony on HB172 HD1 (pg 1-4): “The term of the (CLA audit) contract is from Sept. 4, 2018 through April 30, 2019. The audit is ongoing and the Board’s commitment remains firm. The Resource Management Committee (RMC) Chair serves as the contract monitor, with assistance from the RMC Vice Chair. A status update to the Board in a public meeting, by the RMC, is expected in early April; and the status can be relayed to the Legislature at that time.” (See more text below)
March 29, 2019: Court: OHA LLCs Subject to UIPA
April 1, 2019: OHA testimony on SCR188/SR151 (pg 1) “In September 2018, the BOT engaged an external CPA firm, CliffordLarsonAllen LLP (CLA) to conduct an independent audit of the agency and its LLCs, approving $500,000 in trust funds to audit FY12 through FY16. The term of the contract is from Sept. 4, 2018 through April 30, 2019. The audit is ongoing and the Board’s commitment remains firm. The Resource Management Committee (RM) Chair serves as the contract monitor, with assistance from the RM Vice Chair. A status update to the Board in a public meeting, by the RM Committee, is expected in early April; and the status can be relayed to the Legislature at that time.”
April 2, 2019: CLA proposes a “Tentative Timetable Updated 4/2/2019” which starts with an April 29, 2019 ‘DUE DATE OF ALL OUTSTANDING DOCUMENTS FROM OHA/LLCS….’” The Legislative session ends May 2, 2019.
April 3, 2019: OHA testimony on SCR70/SR48 (pg 1) “OHA notes that various audits and financial reviews are already conducted and currently underway for both OHA and limited liability companies (LLCs) created by OHA.”
April 4, 2019: OHA testimony on HB402 (p64-65) “OHA requests that Section 9 of the SD1 be deleted for lack of clarity.”
Section 9 of HB402 SD1 reads: “No additional funding not already approved for use by or appropriated to the office of Hawaiian affairs shall be authorized until the fiscal and performance audit, as approved by the board of trustees of the Office of Hawaiian Affairs, is completed and a complete and accurate copy is provided to the legislature.”
April 5, 2019: WAM passes HB402 SD2 including a requirement to “Prohibit any increases proposed by the public land trust revenues negotiating committee that are not already approved for use by or appropriated to the office of Hawaiian affairs until the fiscal and comprehensive reviews conducted pursuant to this Act, and as approved by the board of trustees of the office of Hawaiian affairs, are completed and complete and accurate copies are provided to the legislature.”
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Documents:
Background:
OHA testimony on HB172 March 28, 2019 (p1-4):
The term of the contract is from Sept. 4, 2018 through April 30, 2019. The audit is ongoing and the Board’s commitment remains firm. The Resource Management Committee (RMC) Chair serves as the contract monitor, with assistance from the RMC Vice Chair. A status update to the Board in a public meeting, by the RMC, is expected in early April; and the status can be relayed to the Legislature at that time.”
With regard to Section 5 of HB172 HD1 SD1, OHA notes that the efforts described for a financial and management audit of the limited liability companies created by OHA is addressed by HCR188, HR170, SCR188, and SR151, which requests OHA to complete its 2017 independent Financial Audit and Management Review, as well as SCR70 and SR48, which requests OHA to conduct an independent fiscal audit of its LLCs.
HCR188, HR170, SCR188, and SR151, requests that OHA complete an audit--- commissioned by the BOT themselves and paid for by Trust funds---to improve operations in furtherance of OHA’s legal mandate to better the conditions of Native Hawaiians. In September 2018, the BOT engaged an external CPA firm, CliffordLarsonAllen LLP (CLA) to conduct an independent audit of the agency and its LLCs, approving $500,000 in trust funds to audit FY12 through FY16. The term of the contract is from Sept. 4, 2018 through April 30, 2019. The audit is ongoing and the Board’s commitment remains firm. The Resource Management Committee (RMC) Chair serves as the contract monitor, with assistance from the RMC Vice Chair. A status update to the Board in a public meeting, by the RMC, is expected in early April; and the status can be relayed to the Legislature at that time.
SCR70 and SR48 requests that OHA conduct an independent fiscal audit of all LLCS created or controlled by OHA. Limited Liability Companies (LLCs) created by OHA engage, contract and pay for their own independent audits. LLC audit reports are provided to OHA for inclusion in OHA’s basic financial statements and footnotes. OHA’s Auditor relies on the LLC Auditor’s opinion. OHA’s audited basic financial statements, including footnotes and LLC information, are published annually on its website. LLC audits are also completed and published annually on the LLC website. Independent fiscal audits of all LLCs created by OHA are already conducted and available for inspection.
Additionally, as noted by the State Auditor on page 29 of Audit Report No. 18-03, issued in February 2018, “As LLCs are a relatively new legal construct, it is unsettled whether OHA’s LLCs are State organizations subject to laws applicable to State agencies, like the State Procurement Code, the State Ethics Code, the Sunshine Law, and the Uniform Information Practices Act.”
OHA notes that the LLCs are not state agencies and therefore it is unclear if the state auditor has the authority to audit the LLCs.
Accordingly, OHA notes that section 5 is unnecessary. Alternatively, if the committee chooses to maintain section 5, OHA offers the following language for the committee’s consideration for section 5, page 4, lines 5 – 14:
SECTION 5. Provided that of the general funds appropriated in part II of this Act, the sum of $ for fiscal year 2019- 2020 shall be expended for the costs for the auditor to conduct or contract for a financial and management audit of the limited liability companies of which the office of Hawaiian affairs is a member, but only to the extent such limited liability companies receive appropriated general funds. In that event, the auditor shall submit a report of the findings and recommendations to the legislature, governor, and the trustees of the office of Hawaiian affairs no later than twenty days prior to the convening of the regular session of 2020.