SB 2500 requesting a financial and management audit of the Office of Hawaiian Affairs will be heard Friday, January 29, at 2:45 p.m. in Room 229 by the Water Land and Hawaiian Affairs committee. The public is invited to attend and send in testimony to Senate Chairman Clayton Hee at senhee@capitol.hawaii.gov . Hee is a former OHA Trustees’ Chairman. For more information about Hee: Sandwich Isles Communications: Political Connections Pay Off
The bill was introduced by Sen. Sam Slom, R-Hawaii Kai, after a similar measure failed last session, despite many senators being concerned about lack of accountability in this government agency. LINK >>> SB2500 full text
Here’s what happened last time OHA was fully audited…
Audit: 'OHA Does Not Respect its Duty to Hawaiians'
By Andrew Walden originally published in Hawai`i Free Press July 21, 2005
While Office of Hawaiian Affairs trustees are in Washington lobbying to be transformed into a Hawaiian Government, results of a recent State audit of OHA question whether they are meeting their existing responsibilities to Hawaiians as a department of the state of Hawaii. The sharply worded April, 2005 report, prepared with the assistance of accounting firm KPMG, and issued by State Auditor Marion M. Higa, states that, "OHA’s casual administration of its finances does not demonstrate respect for its fiduciary duty to all Hawaiians. Certain protocol and trustee expenditures appear questionable…" Higa’s office says, OHA’s planning "... has shortcomings and its goals are not being systematically brought to fruition." After 25 years of operation, the Audit says, "OHA continues to struggle internally with organizational, personnel, and fiscal issues.… (OHA) continues to operate like a fledgling agency."
Referring to lobbying for the Akaka Bill, OHA’s response to the audit points out, "OHA has successfully implemented one of the most ambitious educational and advocacy agendas in its history…. In the area of nation-building alone, we have sponsored a significant number of public, political, and media forums and discussions…. We believe that your audit could have done much more to capture the heart and soul of what we do, how we have done it, and what we plan to do. We are always ready to assist you in raising your reports to this higher level."
If the Akaka Bill passes, OHA will no longer be subject to state audits and will no longer be accountable to an outside agency. Moreover OHA, transformed into the Hawaiian ‘Tribal’ Government, could take under its jurisdiction -- and out of the reach of State and IRS auditors -- organizations such as Bishop Estate, Queen Liliuokalani Trust, Department of Hawaiian Home Lands, Sandwich Isles Communications and others.
High on the audit’s list deficiencies is OHA’s lack of a "Comprehensive Master Plan" for meeting its responsibilities to its Hawaiian beneficiaries. Efforts by OHA’s Hui `Imi Advisory Council to write a Comprehensive Master Plan fell apart three years ago when council members lost interest and stopped showing up for meetings. According to the Audit Report, "… the council had not met regularly since 2002 …. Logistical issues plagued the council …. Such issues included the difficulty of convening uncompensated officials…lack of permanent staff and uncertainty of the status of the council after the 2003 departure of its chair who was also an employee of OHA."
OHA Chair Haunani Apoliona’s 12 page response argues that, "OHA created a master plan in 1982 ... (which) was updated in 1986 and 1988 ... . We acknowledge the statutory requirement to continually update the master plan ... . Where we may have fallen short is publication of the revisions along the way ... ."
OHA’s own Strategic Plan says otherwise. As the audit report notes, "In OHA’s Strategic plan 2002-2007 ... the agency itself recognizes that ‘OHA’s Master plan [i.e., the 1982 document as revised,] was not this comprehensive master plan ... .’" The Auditors’ comments on OHA’s response state that, "... nothing offered by OHA amounts to the comprehensive master plan at issue ... ."
The audit report says, "Despite recommendations of our last audit—to properly plan for any contemplated organizational change -- OHA has once again reconstituted itself without the requisite planning resulting in confusion among its staff …. In our 2001 audit, we found that an on-going reorganization by the OHA administrator had led to a state of crisis…half of the former division officers had resigned …. In our current audit, we found that OHA is still reeling from this poorly planned reorganization, and from yet another reorganization in 2003. During (Fiscal Year) FY2001-02 and FY2002-03, OHA hired a combined total of 43 new employees to fill a variety of positions…the agency has a total of 114 positions." … one (recently hired OHA functional group director) was, "not really sure how OHA budgets …."
OHA’s response: "This statement is not true and is made without foundation. Without commenting on previous reorganizations, we wish to assure you that the recent reorganization was not poorly planned. In fact two years of careful analysis went into it, leading to an organizational structure that we believe best serves our mission."
The audit notes, "possible abuse of protocol funds, petty cash, and trustee expense accounts. The vagueness of certain policies and procedures promotes the potential for abuse …."
"(An earlier 2001) audit … found that inadequate controls over trustee expense accounts, the protocol fund, and petty cast account resulted in the loss of funds through gross misuse by some trustees. … For example, two trustees had used their allowances to make interest free personal loans exceeding a combined total of $8000 to themselves and family members." Other expenses included, "$1000 for a beneficiary’s dentures ... ."
The recent audit, "found disbursements totaling $5715 to pay for gifts to staff or trustees and $2493 to pay for internal office events, including farewell luncheons …. One of the farewell luncheons was held for an independent contractor who continues to provide services to the office …." The audit, "found $800 in petty cash payments made without a receipt ….Certain trustees did not always return unspent allowances to OHA. For example, one trustee did not return unexpended allowances totaling $2705.38 for calendar years 2001, 2002, and 2003 …. (T)he spending reflects a complacent attitude towards money held in trust for beneficiaries."
The mysterious "one trustee" is mentioned again in OHA’s response which says, "… (in) one case, OHA administration made repeated requests to a Trustee for an accounting but received no response." The trustee is not identified anywhere in the report and it is not clear whether the trustee who did not return unused expense allowances was the same as the trustee who did not respond to requests for an accounting.
In OHA’s response, Apoliona says, "... we do question the substance and wording of much of your report. For example, by hinting that a breach of fiduciary duty occurred, you misled your readers since such a conclusion is not justified by the information and arguments that you present. Another example: you incorrectly describe OHA as acting like a fledgling agency, despite our rich history of beneficiary service and despite our improved management operations."
As an example of how it meets the "physical needs" of Hawaiians, OHA’s response to the audit points to, "Native Rights staff, who advocate on behalf of Hawaiians on land and water issues so they can have land and water on which to live and farm. In this regard, OHA funds the major portion of the Native Hawaiian Legal Corporation’s (NHLC) operating budget."
Big Island residents will recognize NHLC as the law firm representing Protect Keopuka Ohana (PKO) in its lawsuit which has halted construction on the mostly completed Hokulia development on the Kona side. PKO is alleged to have demanded $50 million from Hokulia during failed mediation talks. A $268 million lawsuit by Hokulia lot owners who were not represented in the court proceedings which halted construction on their property threatens the County of Hawaii with bankruptcy. It is not clear how county bankruptcy will help provide for Hawaiian’s "physical needs" -- although $50 million for PKO would go a long way to providing for its "physical needs."
Another OHA management deficiency cited in the audit report is, "The Native Hawaiian Revolving Loan Fund…a federal lending program supported by funds from both the federal Administration for Native Americans and OHA." According to the audit: "To expand the entrepreneurial opportunities of Hawaiians, the fund offers business loans of $75,000 or less…to Hawaiians unable to secure conventional financing …. As of January 31, 2004 there were 121 loans outstanding, 62 were in default, meaning payments on the loan had stopped altogether, and 20 were delinquent, meaning that payments were continuing, but behind. Defaulted and delinquent loans total $2,429,134, or 72.9 percent, of all outstanding loans …. (G)iven the number of loans that have fallen into default or delinquency, the program has arguably worsened the condition of loan recipients, by saddling them with debt they cannot manage."
OHA’s response complains that the Auditor’s report, "... used a formula that takes all delinquent loans (loans over 30 days past due), adds all non-performing loans (loans that are to be ‘charged off’) and then divides the total by total outstanding loans ... resulting in a delinquency rate of 72.9 percent." According to OHA, "... no one includes ‘charge offs’ ... in the calculation ... . (The Agency for Native Americans) ANA’s recommended formula is: accounts past due ... divided by total outstanding loans ... for a delinquency rate of 14.69 percent."
"But" as the auditor’s reports notes, "these non-performing loan amounts were still on OHA’s books at the time of our audit, and a reading of the revolving fund’s overall status without these amounts would be misleading. We confirmed with the Administration for Native Americans that our calculation was an acceptable approach. Even forms filed with the U.S. Securities and Exchange Commission report combined rates." Bad loans translate into funds that are no longer available for loans to new Hawaiian entrepreneurs.
Chapter three of the audit report details deficiencies in OHA’s investment oversight. This includes OHA’s use of an "active" investment management strategy which increases investment costs by about $300,000 per year. According to the report, "active" strategies -- trying to pick winning stocks and bonds -- under perform "passive" market indexes -- such as owning market index funds--70 percent of the time. Higa’s report points out that 2003 investment results were below market in each of four index categories. OHA’s response points to returns, "of 24.3 percent during 2003."
The audit also points to lack of investment benchmarks to judge results against and lack of oversight which, "prevents the Board of trustees from receiving sufficient information to evaluate the investment advisors’ performance." OHA relies on reports produced by their hired investment management firms, the audit calls on OHA to "recognize the inherent conflict of interest within… (this) structure …."
OHA’s response: "The title (of Chapter 3 of the Audit Report) claims that deficiencies in OHA’s investment management oversight do not ensure compliance with our fiduciary obligations. However, the text of the chapter, apparently prepared by your consultant, does not provide evidence that our fiduciary duty has not been ensured. However the contrary is true …."
Said one observer, "If this is they way OHA operates while it is subject to state audits and oversight, how is it going to function as an independent tribal government?"
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OHA Audits 1990 –2009: http://hawaii.gov/auditor/Categories/Hawn.htm