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Monday, November 16, 2009
DoE Procurement audit: Millions wasted by "fraudulent unethical behavior"
By Andrew Walden @ 12:50 AM :: 14259 Views :: Energy, Environment

by Andrew Walden

By now everybody who is paying attention knows that "furlough Fridays" were made as inconvenient as possible by the Hawaii Department of Education (DoE) and the Hawaii State Teachers Association (HSTA) in order to pressure the Legislature for tax increases.  Governor Lingle has proposed giving the DoE a $50M ransom payment from the "Rainy Day" fund if the HSTA and DoE agree to transfer furlough Fridays to non-instructional days.  But even without the extra $50M--and after the budget cuts made necessary by the decline of tourism--the DoE has plenty of money to keep schools open without cutting any class time. 

So what is the DoE wasting taxpayer money on?

Part of the answer is outlined in a November 12 Star-Bulletin column written by Kaua`i High School parents Wendy and Jim Hoglen.  They point out three sources of systemic DoE waste which if eliminated would be sufficient to eliminate all Furlough Fridays:

First, we can save money and increase instructional days by reducing the use of substitute teachers....The DOE has said that it uses approximately a thousand substitute teachers a day, roughly 10 percent of our classroom teachers. Based on the old 180-day school year, teachers were absent anywhere from 14 to 18 days....many of those substitute teacher days are not due to illness or personal reasons but are due to (controllable absences) meetings, conferences and training.

...By (eliminating these controllable absences and) cutting the use of substitute teachers in half, we could save $11 million dollars a year or two furlough days. In addition, students would have that many more days with their trained, certified teachers in their classrooms rather than substitutes.

A second reduction in DOE expense could be achieved by furloughing principals, vice principals (and even Complex Area superintendents) during the summer. Four years ago, when the DOE decided to use a year-round school calendar, it also changed the principals' contract from a 10-month to a 12-month contract. To compensate for this change, the DOE gave principals a 24 percent salary increase. This amounts to $6 million a year in additional DOE expenditures.

Now those same principals have to give up 24 work days (five weeks) for furloughs. Why not just furlough them during the summer?

A third way in which to reallocate funds is to stop gorging on testing.... This year the DOE has added online field testing for both the annual Hawaii State Assessments and the quarterly HSAs; algebra II tests; and online field testing in science for grades 4, 8, and 10 and biology students in grades 9, 11 and 12.

...the Board of Education has estimated that the HSA tests alone cost $25 million to $40 million a year. By cutting back on standardized testing, students would gain more time with their teachers and millions of dollars would be saved.

Another part of the answer comes in the form of Hawai`i State Auditor Marion Higa's February, 2009 Procurement Audit of the Department of Education. The audit report identifies at least $21M in waste from just one $160M project: 

The inefficiency and wastefulness of outsourcing construction and program management services is best illustrated by the department’s Whole School Classroom Renovation Program. In 2006, the Legislature appropriated...$160 million to the program to complete the renovation of the 96 schools....  The management of department programs and other contractors should have been performed in-house. However, the department contracted out these functions through large-dollar contracts.  Allegedly short on time and staff, the Office of School Facilities placed an inordinate amount of responsibility on these program and construction management consultants, including determining the scope of the program and the scope of their own contracts.

In other words, a basic function of the DoE Office of School Facilities has been "outsourced" and "privatized."  The Legislature, Board of Education, and the leadership of the HSTA and HGEA are full of people who never cease to complain bitterly and endlessly against "privatization" of basic government functions.  But not a word has been heard from any of them complaining about this "privatization". 

$21M would be enough to cover the cost of four furlough days--and that does not include the additional millions which may have been wasted by the management consultants inventing unnecessary work for their favored cronies.  And in fact, the audit report summary explains:     

...resulting contracts contain inherent conflicts of interest, lack competition, and provide incentives to drive up costs. The role of the program management consultant is particularly alarming, since that consultant is tasked with assisting in the procurement process, including evaluating proposals and negotiating the contracts on behalf of the department, while simultaneously competing for those contracts.  Consultants are paid large sums of money to monitor and approve other consultants’ work, responsibilities that should be performed by the department and which may lead to waste of taxpayer moneys.

That may be the understatement of the year.

The use of multiple consultants to manage other consultants and contractors redirects moneys designated for school improvements away from school facilities. Under the Whole School Renovation Program structure, the department is paying $21 million in management fees to oversee $160 million in actual improvements to schools. This means
that for every dollar of construction, 13 cents is needed to pay a program or construction manager....The department essentially issued $20,964,000 of “blank” contracts with no scope, no deliverables, and no timetables.

The audit report bottom line?  "Inefficiency and waste is a certainty." 

Why are the unions and their legislators silent on these abuses while rank and file teachers are made to pay the price with furlough days?  The answer can be found by poking thorough the corrupt entrails of some individual contracts. 

Procurement Audits are usually a dry subject, but some readers may remember a "fling" between former DoE Superintendent Paul LeMahieu and Kaniu Kinimaka-Stocksdale which caused LeMahieu to resign his job in late 2001 and gave DoE "procurement" a whole new meaning.  (Stocksdale has more recently become a perennial losing candidate from Hawai`i County Council District 5--Puna.) 

The Star-Bulletin October 21, 2001 reports:   

LeMahieu used extraordinary powers granted by the federal court to award a $2.3 million contract to Pacific Resources for Education and Learning. Those powers included bypassing procurement laws that were barriers to complying with the consent decree in the granting contracts.

The PREL contract resulted in Na Laukoa receiving a $600,000 subcontract. LeMahieu at the time sat on PREL's board but he resigned from the board earlier this year.

This method of shell-game-delivery of DoE money to Stocksdale's "Social & Human Services Organization and Modeling Agency", Na Laukoa, is one which emerges again and again in the most recent DoE audit--and many individual high-seniority union members may be involved.  State Auditor Higa's report details a typical example:

On February 4, 2005, the department awarded and executed a contract for Project Management and Technical Assistance on Repairs & Maintenance and Capital Improvement Projects in the amount of $600,000. However, in the months prior to this award, a former assistant superintendent of the Office of School Facilities violated state procurement laws by instructing the construction consultant to hire a specific sub-consultant to perform work directly for the department and unrelated to the contract.

The construction consultant agreed, but because the contract was already being reviewed by the Department of the Attorney General, the former assistant superintendent decided to add the sub-contractor through a contract modification....

On February 5, 2005, one day after its execution, the contract was modified to add $100,000 and to allow the construction consultant to designate any other individuals to charge for work at the highest allowable rate. No justification was given for this modification, which was approved by the Procurement and Contracts Branch administrator, who reported directly to the former assistant superintendent at that time.  Although the invoices submitted by the construction consultant were vague, providing no details of the work performed, we were able to determine that the sub-consultant was paid $17,100 under the contract during February through June 2005.

Interestingly, a second sub-consultant was paid the bulk of the funds under the $100,000 modification ($85,310) during the period of June 2005 through June 2006. Only one invoice during this period contained a description of the services performed by the second sub-consultant—providing consultative services to ASAs and schools regarding Restroom Cleaning and Restoration Project.

We confirmed through interviews and reviews of related documents and emails that this individual is a former public school principal, with no construction experience. She was also hired by the construction consultant at the instruction of the former assistant superintendent to perform work directly for the department....We noted that the former principal was employed or contracted by the department in a variety of other ways, including being hired as a sub-consultant with a $100,000 allowance to perform similar services under a separate project management contract that is currently in progress.

Sound familiar?  The Audit report continues:

We encountered numerous instances of department personnel manipulating the professional services selection process and awarding contracts to predetermined consultants. For instance, for a $300,000 construction management project selection, the Project Control Section head bypassed established procedures by hand-picking the selection committee members and recommending a specific firm. The public works administrator then led the committee as its chair, documented the results selecting the recommended firm, addressed the results to himself as public works administrator, and approved the results on behalf of the branch.

Pointing out that the DoE employed only one in-house auditor to oversee its $2.4B budget, the report lays blame where it belongs:

The lax tone from the top has unintentionally set the stage for a culture of disregard of procurement rules in the Office of School Facilities. The assistant superintendent of the Office of School Facilities exemplifies the attitude that public procurement rules just get in the way of doing the work—a mindset that is apparently shared by certain Office of School Facilities directors, managers, and staff, resulting in the unethical and potentially illegal actions previously discussed.

In 2004, the superintendent, advocating for the passage of Act 51, asked the Legislature for responsibility over her department’s procurement process. She promised full accountability. Shortly after receiving these new responsibilities, however, procurement authority and responsibilities were delegated to department managers without the establishment of an adequate control system, including formalized policies, procedures, and processes....

The result of these and other systemic flaws is that for every dollar spent on construction for the schools, 13 cents is needed to pay for program and construction management services—duties that the department should be carrying out itself.

With hundreds of millions of dollars in capital improvement projects yet to be awarded, the possibility of continued unethical and possibly of fraudulent behavior is high, and the prospect of inefficiency and waste is a certainty.

But of course, if the Advertiser or Star-Bulletin focused attention on the findings of this nine-month-old public document, that would ruin the DoE/HSTA campaign for higher taxes and contractors--including Senate Education Committee Chair Norman Sakamoto's brother--owner of S&M Sakamoto--could find less money available to them from DoE contracts. It also appears that some current and retired HSTA and HGEA members have branched out into DoE contracting.  Other high seniority union members may illegally benefit from kickbacks.  This may explain why the HSTA and HGEA leaders--whose members are in a position to blow the whistle on almost every scheme--have said nothing about these grotesque wastes of DoE finances.

Corruption has become a path of advancement for a small group of influential upwardly mobile high-seniority union members--and union leaders and their legislators apparently are turning a blind eye as those with less seniority pay the price.



Lingle calls for constitutional amendment: DoE Superintendent to be appointed by next Governor

Gov. Lingle announces $50M plan to get children back to class

Furloughs: Advertiser sides with “sustainability” billionaires against “Save our Sports”

Furloughs: How Unions and the DoE aim to co-opt protesting parents

Furloughs vs Layoffs: The union no-solution strategy

Hawaii budget crisis: Adult Supervision vs Team Chaos

HGEA vs HSTA: The coming legislative budget crisis

Good News: A small elite no longer runs Hawaii -- Bad News: Mufi thinks he can change that

Chaos in the Department of Education

Randall Roth: In Hawaii Education, The Buck Stops Nowhere

Randall Roth dissects Hawaii's failed Department of Education

Roth's full 45 page analysis:


Procurement Audit of the Department of Education:  Part 2

Procurement Audit of the Department of Education:  Part 1


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