State Auditor suspends audit of the Office of Hawaiian Affairs’ limited liability companies citing Board of Trustees’ decision to withhold information

News Release from Office of Hawaii State Auditor, Dec. 30, 2019

HONOLULU — State Auditor Les Kondo announced that the Office of the Auditor has suspended its audit of the Office of Hawaiian Affairs’ (OHA) limited liability companies (LLCs) after the OHA Board of Trustees decided to deny his office access to complete and unredacted minutes of its meetings. Last session, the Legislature directed the Auditor to conduct a performance audit of OHA and to report its findings and recommendations prior to the convening of the 2020 legislative session; however, the Board of Trustees’ refusal to fully cooperate in the audit process prevents the Auditor from completing the audit.

From September 2007 to October 2015, OHA created seven LLCs to hold OHA assets such as Waimea Valley and to pursue other outside business opportunities and higher-risk ventures. According to Kondo, the audit will assess OHA’s use of its LLCs, including the Board of Trustees’ oversight of and decisions involving the LLCs, as well as whether grants and other funding from OHA to the LLCs, and the LLCs’ use of those moneys, were consistent with OHA’s spending policies and procedures.

“Early last month, OHA released the results of a review by CliftonLarsonAllen LLP (CLA) of a sample of OHA’s contracts, grants, and other financial disbursements for a five-year period beginning in 2012,” said Kondo. “CLA’s review identified numerous ‘red flags,’ millions of dollars in spending that the firm felt were potentially fraudulent. However, the scope of CLA’s work was limited to reviewing OHA’s compliance with its policies and procedures.”

“Our audit is focused on OHA’s use of its LLCs and will provide a significantly deeper review of the LLCs,” continued Kondo. “Until very recently, OHA believed the LLCs were private organizations, not subject to state laws applicable to OHA and other state agencies, and fought efforts to obtain information about the LLCs.”

The Office of the Auditor’s audits are conducted in accordance with generally accepted government auditing standards and are intended to provide objective analyses to assist management and those charged with governance and oversight with improving program performance and operations, reducing costs, facilitating decision making, and contributing to public accountability. Those auditing standards require that our findings and conclusions are based on sufficient and appropriate audit evidence.

“We determined our inability to access complete records may create a significant risk that our findings, conclusions, and recommendations may be based on improper or incomplete information,” said Kondo. “State law is unambiguous about our authority to examine all OHA records. Until the Board of Trustees fully cooperates in the audit, including providing us with complete and unredacted minutes of its executive sessions, we cannot eliminate or reduce that risk to an acceptable level. Under such conditions, we are compelled to suspend the audit mandated by the Legislature.”1

1 See Section 23-5(a), Hawai‘i Revised Statutes (“The auditor may examine and inspect all accounts, books, records, files, papers, and documents and all financial affairs of every department, office, agency, and political subdivision.” Emphasis added.)

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Trustee Keli'i Akina's Statement on Suspension of OHA Audit

News Release from OHA Trustee Keli’i Akina, PhD, December 30, 2019

HONOLULU, HI- The decision by the state auditor to suspend the legislatively mandated audit of the Office of Hawaiian Affairs is another black mark in OHA's record of transparency.  At stake are millions of dollars of funds withheld from OHA by the state legislature that should be going to meet the needs of Hawaiian people.

The state auditor's decision follows on the heels of an independent audit of OHA by CliftonLawsonAllen which identified numerous red flags for potential fraud, waste, and abuse.   While the independent audit was not an extensive examination of OHA's LLCs, the state auditor would have focused on the LLCs.  

OHA owes it to its beneficiaries and state taxpayers to take all necessary steps to cooperate with efforts to bring transparency and accountability to the agency.

Related: Red Flags: An Analysis of the Independent Audit of OHA and its LLCs

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Speaker Saiki: Kondo too Soft on OHA

HNN: …House Speaker Scott Saiki criticized Kondo for suspending the audit.

He said Kondo should have used his subpoena power to force OHA to comply or taken the agency to court, instead of halting the work.

Kondo said as a state agency OHA is required by law to comply with his request and that no other state board has ever refused to turn over executive session minutes….

read … Auditor: Secrecy forced him to suspend lawmaker-requested review of OHA

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OHA May Lose $3M Funding Due to Refusal to Comply With Audit

SA: …The suspension may tie up the release of money for OHA and its Native Hawaiian beneficiaries. That is because OHA’s appropriations bill from the 2019 legislative session withholds about half, or $3 million, of the general funds approved for the agency’s budget until an audit report is filed….

read … State suspends Office of Hawaiian Affairs audit over refusal to release records

CB: Les Kondo blames a decision by the Office of Hawaiian Affairs Board of Trustees to withhold information.

SA: State suspends OHA audit over refusal to release records 

HPR: State Auditor Suspends Review After OHA Trustees Refuse To Release Records

Sept 28, 2019: OHA Refuses to Cooperate with Auditor—May Lose Legislative Appropriation to Hide LLC Secrets 

Flashback 2006: Waimea Valley preserved

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OHA Trustees Machado, Lee Admit Refusing to Provide Unredacted Minutes to Auditor

OHA statement regarding State Auditor’s suspension of OHA’s audit

Statement of OHA Chair Colette Machado and OHA Vice Chair Brendon Kaleiʻāina Lee Regarding State Auditor’s Suspension of OHA’s Audit

News release from OHA, December 30, 2019

In 2019, the Legislature approved OHA’s budget act with the condition that the agency’s second fiscal year of general funds cannot be released and used to benefit the Native Hawaiian people until the State Auditor submits an audit report to the Legislature.

Since then, OHA has timely provided the State Auditor with all documents requested, as we have always done for each of the regular audits we undergo every four years with the State Auditor. Specifically, OHA provided the State Auditor with minutes of all executive session meetings he requested.  Certain portions of those meeting minutes were redacted because they are protected by the attorney-client privilege codified as Hawai’i Revised Statutes Chapter 626, Rule 503.

The authority the State Auditor attempts to exert under the guise of Hawaiʻi Revised Statutes 23-5 is unprecedented in scope even for audits conducted by the State Auditor.

The Honolulu Authority for Rapid Transportation (HART) also provided the State Auditor with redacted executive meeting minutes when it underwent an audit review.  We note this did not prevent the State Auditor from completing its audit of HART (Report No. 19-03). We are disappointed that under the same circumstances, the State Auditor chose to complete its audit of HART but has chosen to not complete OHA’s audit.

We find it unfortunate that the State Auditor is using an unprecedented interpretation of his powers and has now unilaterally decided to not fulfill a legislative mandate and to instead play politics with critical general funds for Native Hawaiians.

To be clear, the State Auditor could present a situation where a court could decide if it agrees with his unprecedented interpretation of his power. But the State Auditor is not doing this. Instead, he has chosen to not do his job.

Nevertheless, we hope to work with the Legislature this session to ensure that programs and services to Native Hawaiians continue uninterrupted. In addition, we look forward to continuing to work with the State Auditor.

It’s important to recognize that OHA is constantly audited, by the state auditor (every four years as required by law), annually by an independent auditor, and most recently by a top ten national accounting firm, CliffordLarsonAllen LLP (CLA). OHA has a record of fully cooperating with these audits.

And, we are proud of our historical record of making meaningful improvements in how we serve our beneficiaries as a result of past reports of the State Auditor. We note that State Audit Report No. 18-08, released in June 2018, found that OHA fully or partially implemented all but one of the 23 recommendations from the previous State Audit Report from 2013.  In March 2019, OHA informed the State Auditor that we fully implemented seven and partially implemented 32 of the 39 recommendations from Report No. 18-03 (released in February 2018) and, in August 2019, OHA informed the State Auditor that we fully implemented all 11 recommendations from Report 18-08. We will approach implementing the recommendations made by CLA the same way we do with all audits, and we look forward to reviewing an implementation report by our administration on January 22.