Too Many Red Flags to Ignore: OHA Must Follow Up on the CLA Report
by OHA Trustee Keli‘i Akina, Ka Wai Ola, August 1, 2021
The 2019 Clifton Larsen Allen (CLA) report on OHA and OHA’s limited liability companies turned up numerous specific red flags that the Legislature has directed OHA to follow up on.
The Legislature’s directive to OHA cannot be ignored because it was signed into law as Act 29, and is a provision of OHA’s biennium budget appropriation. The Legislature’s directive also presents OHA with an opportunity to bolster its credibility by getting to the bottom of the specific transactions CLA flagged.
In its review of 185 transactions over five years, CLA listed 32 that contained “red flags” of potential fraud, waste or abuse totaling $7.8 million of beneficiary trust funds. Many shared common characteristics of missing procurement documents and lack of evidence that OHA ever received what it paid for. Let that sink in.
If records of a transaction lacked certain documentation that was required either by law or by OHA’s internal policies, or if a transaction lacked evidence of contract deliverables, (i.e., evidence that OHA or the LLC involved got what it paid for from the entity that it paid), then the transaction got flagged.
As a result of the $500,000 investment OHA made into the CLA examination of OHA’s own contracts and disbursements, OHA received a list of questionable transactions worth $7.8 million.
A disbursement to the Akamai Foundation as fiscal sponsor for Naʻi Aupuni, for example, was flagged because the funding ($2.6 million) was provided only 81 days before the ʻaha, and no billings or receipts were given to OHA to account for how the funds were spent.
Other transactions were flagged as potential misappropriation of funds to a for-profit entity. In one case, OHA provided a $150,000 lease guarantee to Kauhale, LLC, when it defaulted on its commercial lease of property located in the Waikīkī Beachwalk. Similarly, through a series of four disbursements, OHA gave $118,367 to a for-profit entity operating the Makaweli Poi Mill on Kauaʻi.
Another recurring theme amongst the red flags was vendor favoritism. Contracts awarded through the exempt procurement method. This method is generally reserved for situations where procurement by competitive means is impractical or disadvantageous to the procuring party. In one example, a contractor was retained for $38,932 to provide public relations and messaging services related to the Kakaʻako Makai settlement. Because the contractor’s company was formed in the same year that its contract was executed with OHA, and because the contractor’s invoices were sequenced equally, it appeared that OHA was this contractor’s only client and that the contractor specifically formed its company to execute the contract with OHA.
By signing Act 29 into law, the Legislature told OHA to conduct (or hire someone to conduct) a follow-up to the December 2019 CLA report. OHA Administration addressed CLA’s recommendations by making changes to OHA’s internal policies and procedures. And while policy and procedural work are important, risk remains that there were other fraudulent, wasteful, or abusive transactions not reviewed by CLA. After all, the CLA budget only allowed for the review of a fraction of OHA and LLC transactions entered into, and over a limited period of time.
So while I value and support OHA Administration’s implementation plan, I do not believe it satisfies the directive given to OHA via Act 29. The Board must exercise leadership, and seize this opportunity to resolve the red flags. Not only would doing so benefit OHA and restore its credibility, it would also satisfy Act 29.
For a copy of my summary analysis of the CLA report, email me at TrusteeAkina@oha.org.
Related: Red Flags: An Analysis of the Independent Audit of OHA and its LLCs