Financial and Program Audit of the Department of Health’s Deposit Beverage Container Program
from Hawaii State Auditor, May, 2025 (excerpt)
THIS IS THE TENTH BIENNIAL financial and program audit of Department of Health’s (DOH) Deposit Beverage Container Program (Program or DBC Program) and Deposit Beverage Container Deposit Special Fund (Special Fund). The Legislature established the Program in 2002 to increase recycling of specific types of beverage containers, reduce litter, and provide a connection between beverage container manufacturing decisions and the recycling program management.
The Special Fund was created to hold fees, deposits, and accrued interest – moneys that are used to pay deposit beverage container refunds and handling fees as well as Program-related expenses.
Our prior reviews have repeatedly raised concerns that DOH’s reliance on self-reported information from beverage distributors and redemption centers increases the risk of fraud. Specifically, we have pointed out that distributors and redemption centers have financial incentive to under- or over-report the amounts that the former must pay into the Special Fund and the latter may claim for reimbursement from the Special Fund. For example, in Report No. 15-02, Financial and Program Audit of the Deposit Beverage Container Program, we found a distributor, Whole Foods Market, Inc., had substantially underpaid the Program for more than six years – depositing $0.06 for each case of beverages instead of $0.06 for each individual container. DOH did not collect underpayments for the full six-year period, instead settling for payment of $46,198 that Whole Foods represented was the amount of the underpayments from July 2012 through December 2014; however, that resolution left uncollected more than three years of underpayments. And Report No. 19-08, Financial and Program Audit of the Deposit Beverage Container Program, identified instances of actual fraud at a redemption center. During that review, auditors compared receipts that they had received for redeeming containers at a redemption center on two separate occasions with the cash receipt log submitted by the redemption center to DOH to support its claim for reimbursement; the amounts the redemption center claimed had been paid to the auditors were significantly more than the amounts auditors received on both occasions. DOH reimbursed the redemption center the inflated amounts and took no action against the redemption center even after being aware of the apparent fraud.
In 2022, the Legislature passed Act 12, SLH 2022, to compel DOH to develop and implement procedures to verify the accuracy and completeness of data reported by beverage distributors and redemption centers as recommended in the Office of the Auditor’s biennial reports. Act 12, codified as Section 342G-121.5, Hawai‘i Revised Statutes (HRS), requires DOH “to develop a risk-based process to help remedy the flaws in the deposit beverage container program.” This statute was effective upon its approval on April 27, 2022.
Our prior reports have included multiple recommendations and assessed the status of the Program’s implementation of those recommendations. However, we repeatedly discovered that DOH had done nothing to address the recurring findings and had not implemented any of the recommendations to address those findings. We found that the Program viewed these biennial audits as a replacement for internal controls, expecting the Auditor to perform the Program’s job of reviewing Report No. 25-08 / May 2025 2 records and conducting “secret shopper” activities to identify errors in the amounts received from distributors or claimed by redemption centers. Therefore, in the past audit, the Auditor focused on the status of the department’s implementation of the recommendations made in Report No. 21-13, Financial and Program Audit of the Department of Health’s Deposit Beverage Container Program. This report again assesses the implementation status; we also assessed DOH’s compliance with Section 342G-121.5, HRS.
We found that DOH still has made no progress on implementing the prior recommendations, including those codified by the Legislature in Section 342G-121.5, HRS.
read … FULL REPORT
BACKGROUND: