Fix recycling program gaps

The Hawaii HI-5 container deposit program, as popular as it remains with people who value the opportunity to redeem bottles and cans for cash, can’t depend forever on that cache of public goodwill.

Recent revelations about the program have raised concerns about the lack of real safeguards against fraud, worries that should bring the program under review when the Legislature convenes in two weeks.

After seven years of running the program, the state Department of Health, the agency handling oversight, should have a much better handle on it.

The system works by having retailers collect a surcharge, recently increased to 6 1/2 cents per container. Whoever later redeems the empty container — thus removing it from the waste stream, the principal purpose of the program — gets back a nickle per container. The remaining nonrefundable fee goes to the companies that collect the used containers and process them for shipment to markets that will reuse the materials in new products.

The core difficulty appears to be "the lack of a systematic verification or inspection process," according to a pair of financial audits performed under contract to the state by the accounting firm Accuity LLP.

This means the state relies too much on self-reporting by companies claiming payment for recycling containers, rather than independently confirming that they are really performing as promised, according to the report.

State officials have said the success of recycling initiatives, which also include Oahu’s curbside program, has meant there are fewer containers left in the waste stream to redeem; that’s one reason, they added, that the fee increase was needed to make the program sustainable.

However, it won’t enhance public faith in the government program if it’s allowed to limp along without stronger controls.

Gary Gill, deputy health director, acknowledged that when some of the audit data was compiled, the hiring freeze did cause staffing shortages that made oversight more challenging. But he said that situation has improved somewhat.

He added that the department still performs its own spot checks of HI-5 redemption centers and private recyclers, and is planning ways to restructure payouts to reduce the risk of fraud. For example, the more generous payout rates based on weight may be recalibrated to make it harder for some to game the system, Gill said.

Still, the auditors’ study suggests that more safeguards are needed to reduce that potential even further.

In fieldwork conducted between November 2010 and April 2011, the auditors redeemed container deposits at a selection of redemption centers and traced the transaction through the centers’ reimbursement request process. Because of the insufficient internal controls fraud is a risk.

The auditors noted that four RRR Recycling Services centers refused to provide documentation of the redemptions paid to consumers, which, according to the report, leaves unanswered questions over the justification for payments the state made to the company.

In addition, Coca-Cola Bottling Co. and Pepsi Bottling Group, two of the largest beverage distributors, did not provide documents for two months.

That meant auditors couldn’t check about $1.4 million in deposits and $270,000 in container fees reported and paid by the companies.

It’s important that, in seeking to improve its container deposit program, Hawaii not throw out the baby with the bathwater. The program has been the principal factor in pushing Hawaii’s container recycling rate to 79 percent in 2008, and program administrative costs have been kept low.

It may be that more needs to be invested, in the way of staff resources. Lawmakers should explore this and other ways to ensure that, in the process of diverting trash from the landfill, the state can keep the flow of deposit revenues as tightly controlled as possible.