Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Transportation

From Hawaii State Auditor, Report No. 19-05, January, 2019

We reviewed 377 funds and accounts administered by the Department of Transportation (DOT) and reported on 46 of them. We noted certain sub-accounts with remaining balances totaling approximately $120 million as of June 30, 2018, had no financial activity during our 5-year review period. We also noted that DOT created 2 funds – specifically, 1 special fund and 1 revolving fund – administratively, outside of the legislative process.

Summary or Full Report

Excerpts from Full Report

Difficulties Encountered (pg 5)

We experienced difficulties during our review of the Highways Division’s special funds, revolving funds, trust funds, and trust accounts. We are required by statute to evaluate DOT’s funds and accounts every five years.

During our entrance conference in June, we provided each DOT division (Administration, Airports, Harbors, and Highways) with an inventory of the funds and accounts that we understood each division maintains based on information from FAMIS and asked the divisions to confirm the accuracy of the inventory. The divisions were then asked to provide certain information about each fund and account through questionnaires that we provided.

The Highways Division is the only division that did not respond to our request to confirm its inventory of funds and accounts. In addition, the issues that we encountered with the Highways Division included the following:

• The division did not complete all its responses to the questionnaires until early December, six months after the questionnaires were provided, and only after numerous requests and reminders.

• Many of the division’s responses were incomplete or inaccurate, which caused further delays. We were forced to repeatedly follow up with the division to obtain accurate information about certain funds and accounts.

• We experienced communication problems with the division throughout the process of our review. Specifically, telephone calls were not returned; emails requesting information were ignored or the division’s responses were incomplete; and the division refused our requests to document and clarify information about its funds and accounts that were represented during telephone conversations.

• The division’s Fiscal Management Officer responded to our request for current information about the division’s funds and accounts by demanding that we copy the information that was reported five years ago.

We invested significant time and resources to complete our review of the department’s funds and accounts. The Highways Division’s participation and cooperation in our review of its funds and accounts needs to improve.

Of equal concern, based on the incomplete and inaccurate information that we were provided, it does not appear that the Highways Division has an understanding of all its funds and accounts. Because the moneys held in the funds and accounts are not subject to the level of legislative scrutiny involved with the general fund appropriations, it is critical that the division know each of its funds and accounts and be able to provide complete and accurate information about the moneys in those funds and accounts.

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Office of Hawaiian Affairs Ceded Lands Proceeds – Harbors (trust account) Administratively established (pg 31)

This account meets the criteria of a trust account and continues to serve the purpose for which it was originally created. Administratively created in 2006, the account is used to fulfill DOT Harbors’ requirement to set aside 20 percent of revenues received from the use of ceded lands due the Office of Hawaiian Affairs (OHA) pursuant to Act 178, SLH 2006, and in accordance with Executive Order No. 2006-06. Revenues are from 20 percent of revenues paid to DOT Harbors for the use of ceded lands. Expenditures include payments to OHA for its share of revenues generated from the use of ceded lands.

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Chapter 3 Observations on the Department of Transportation’s Reporting and Accounting for Funds

…During our review of the special funds, revolving funds, trust funds, and trust accounts of DOT, we noted inconsistent adherence to statutory requirements and reporting of financial transactions and balances. In addition, we identified twenty-seven accounts totaling approximately $120 million that had no financial activity during our review period, resulting in unused moneys….

Inactive Accounts Result in Unused Moneys of Approximately $120 Million (pg 47)

We noted some sub-accounts of three special funds, three revolving funds, and one trust fund with remaining balances which total approximately $120 million as of June 30, 2018, had no financial activity during our (5 year) review period. DOT should close the trust fund and the special fund sub-accounts and transfer these moneys to their appropriate fund. Leaving significant amounts of money in idle accounts is an inefficient use of public funds. DOT represents that the revolving funds, which should be reclassified as trust accounts, are required to hold debt service payments relating to revenue bonds….

(Three largest inactive accounts)

• Airport System Debt Service Reserve Account Revolving – $96,893,000
• (Harbors Div) 7th Supplemental Certificate 2010A Debt Service Reserve Fund Principal Revolving $11,455,000
• Harbor Extraordinary Renewal/Replacement Reserve Account Revolving 10,898,000

DOT Did Not Report Non-General Funds as Required by Law (pg 49)

During our review of DOT’s non-general funds, we noted noncompliance with statutory requirements to report financial activity and balances, as required by Section 37-47, HRS, as well as fund information for administratively established funds and accounts under Section 37-52.5, HRS.

In addition, DOT Highways reported funds inconsistently on an individual and combined basis and did not include specific details of the individual funds. For example, the name of the fund on the non-general fund report called “Revolving & OHA” included five revolving funds (three funds were related to the 1993 bond certificate and two funds were operational clearing accounts), none of which were related to OHA. Furthermore, when identifying appropriation account numbers listed on its non-general fund report, DOT Highways uses “etc.” to identify its account numbers rather than providing a full listing of all account numbers being reported.

As shown in Exhibit 3.2, (pg 50) DOT had non-general funds with balances totaling more than $9.7 million and administratively created non-general funds with balances totaling more than $112.1 million that were not reported to the 2018 Legislature as required by Sections 37-47 and 37-52.5, HRS, respectively….

DOT Created Funds Inappropriately (pg 51)

Section 37-52.3, - 52.4, HRS, states that special funds and revolving funds can only be established pursuant to an act of the Legislature. DOT created two funds inappropriately.

• 7th Supplemental Certificate 2010A Debt Service Reserve Fund Principal, a revolving fund administratively created in 2010 by DOT Harbors ($11.5M page 26); and

• State Highway Fund, a special fund administratively created in 2016 by DOT Highways ($500K page 44).

read … Full Report

SA: Hawaii only state shut out of federal DOT grants