A state audit of the troubled Hawaii Health Connector said inadequate planning and improper procurement procedures by the Connector’s executive director and board of directors led to an unsustainable health insurance exchange.

The Connector did not properly procure and administer its contracts and monitor costs, putting federal grants at risk, the report said.

“Contracts were awarded without following proper procedures to ensure competitive pricing and procurement documentation was disorganized or missing from most contract files,” said acting state auditor Jan Yamane in the report released Thursday. “Many of the Connector’s IT consultant contracts were amended numerous times and costs ballooned as the Connector continued to rely on their services.”

The auditor also noted “numerous questionable travel and entertainment costs as well as unsupported severance pay.”

“These questionable costs may be disallowed by the funding agency, and noncompliance with federal regulations may result in repayment of amounts or suspension and termination of a federal grant,” she said.

In addition, Yamane said the Connector did not have information technology staff to manage the project’s development or monitor contracts, relying on vendors to self-report their progress.

“The board’s ability to monitor its massive IT system’s development progress was impaired by an uncooperative executive director who withheld information,” she said referencing its first executive director Coral Andrews, who left the job shortly after launching the exchange in October 2013. “Throughout the website development process, the board was largely unaware of the Connector’s myriad problems.”

Jeff Kissel, the Connector’s current executive director, said in a statement that the Connector’s management and board are working with the auditor to make certain that the “organization operates in a manner that assures compliance with applicable statutory and regulatory guidelines and is transparent and efficient as it continues to develop this important resource for the community.”

“The audit findings detailed many of the challenges the Connector encountered during its first year of business. They included deficiencies in the planning process, procurement, and governance. The recommendations are reasonable and have been addressed,” Kissel said.

“Strict controls on the procurement process are in place and the relationship with certain contractors and service providers has either been terminated or revised,” he added. “The Connector is also working closely with its Legislative Oversight Committee to ensure that it continues to improve its operations as enrollment increases and costs are reduced.”

The Connector received $204.4 million in federal grants to establish Hawaii’s state-based health insurance exchange, created by the Affordable Care Act, also known as Obamacare.

The report said interim executive director Tom Matsuda concluded that even with substantial reductions to its estimated $15 million annual operating budget, the Connector would not be sustainable and would have to dramatically increase fees on participating exchange plans or the state would need to assess a fee across the market to preserve services.