Poor planning and a “lack of effective leadership” within the state Department of Human Services prevented its $155 million computer system from meeting some of the objectives of the federal Affordable Care Act, according to a new report by the Hawaii state auditor.

The Kauhale On-Line Eligibility Application system, or KOLEA, launched in time to meet a federal deadline on Oct. 1, 2013, but the system hasn’t been able to meet federal goals of creating a simple, real-time process for enrolling and determining eligibility for coverage, according to the auditor.

Human Services Director Rachael Wong disputed major findings of the audit, arguing the report is “wholly incorrect” in suggesting the computer system doesn’t meet the requirements of the Affordable Care Act, also known as Obamacare.

Wong contends KOLEA meets all of the basic requirements for a Medicaid eligibility determination system under the ACA, and said planning was delayed because of delays in federal guidance on what would be required of the new system.

The federal Centers for Medicare &Medicaid Services has confirmed that the state system is accurate and timely in determining eligibility for coverage, Wong said in her reply to the audit.

Wong called for an audit of KOLEA in March after she said she kept hearing conflicting accounts from observers inside and outside her department about whether the system was working the way it should.

Lawmakers then ordered the state auditor to conduct a management and financial audit of the KOLEA system, including an evaluation of the process used to select the consultants who built the system. The report included a summary review of the change orders or modifications of the KOLEA contract to add new functions to the system.

According to the report released Wednesday, the Affordable Care Act envisioned a quick and simple eligibility and enrollment process for people applying for benefits. That system is supposed to use electronic data to ease the paperwork burden on applicants and state agencies.

However, the auditor contends KOLEA has a number of shortcomings that caused it to fail to meet those goals, and “the end result is that the state could be paying benefits for people who are not eligible for them or improperly denying coverage to those who are eligible.”

Among the problems cited by the auditor are three planning- and training-related matters.

>> The project suffered from improper planning, which was compounded by the short time frame it had to meet federal deadlines.

According to the audit, the KOLEA project team’s challenges “were compounded by the former division administrator’s reluctance to start planning for the ACA changes early on and his failure to intervene when staff who were responsible for developing new policies and procedures shunned their duties,” according to the report.

The report contends the former Med-QUEST administrator refused to allow planning to begin until late 2011, contributing to the problems.

Wong countered that planning was actually delayed because federal regulations and rules for the new system were not published until March and July 2013, just a few months before the system was supposed to go live.

>> Poor planning also prevented KOLEA from performing electronic data matching to verify applicants’ self-reported income, data that is critical for decisions on eligibility for Medicaid, according to the audit.

The report said 39 states conduct verification before enrolling applicants, but Hawaii is one of 11 states that verify income after applicants are enrolled in a program.

Since KOLEA is not linked with real-time Department of Labor and Industrial Relations data on applicants’ income, eligibility workers must manually verify income for some applicants, which increases the risk of errors, the auditor found.

However, the audit also noted the link to the DLIR’s data was never established because the labor department rejected the plan. Since then, discussions have been held between DHS and DLIR to deal with the issue, and an agreement is expected in early 2016, according to the audit.

The report also criticized KOLEA because it has not been exchanging data with the Internal Revenue Service to verify income.

>> DHS Eligibility Branch workers who interact with thousands of Medicaid applicants each year were not properly trained on the new rules and procedures, or on how to navigate the new KOLEA system, according to the audit.

“This is a serious issue since users report that KOLEA produces inconsistent and inaccurate eligibility determinations, requiring eligibility workers to manually resolve them,” the audit found.

Eligibility workers find KOLEA difficult to use, and workers “cannot consistently make correct eligibility decisions,” the audit said.

Wong wrote in her reply that the department values the feedback on KOLEA from both the auditor and DHS eligibility workers, and “we will use the final audit report as a tool for continued improvement.”

Users of KOLEA initially complained the new system for processing Medicaid applications would freeze while in use, lose applicant information or fail to upload documents that were required for verification.

Wong has acknowledged problems with the launch of the KOLEA system, but contends many of those flaws have been addressed. She has said KOLEA processed an estimated 330,000 Med-QUEST or Medicaid applications or renewals.

KOLEA has attracted the attention of lawmakers in part because it is part of a larger, expensive information technology project for the Department of Human Services.

The state initially contracted with accounting and consulting firm KPMG LLP for $89.9 million in mostly federal funds to develop and maintain what is known as an “enterprise” system that would absorb information technology functions for much of DHS, starting with Medicaid.

The auditor noted that contract modifications or change orders later increased the total cost to $146.5 million. Three other vendors were also awarded contracts related to the system, bringing the total cost to $154.7 million, according to the auditor’s report. Most of that was paid by the federal government, which covered 90 percent of eligible costs of the system overhaul.

KOLEA was the first application of the new system, and it replaced an obsolete system for determining who is eligible for Medicaid and other medical assistance programs. KOLEA also included features needed to meet the complex new requirements imposed under the Affordable Care Act.

Applications for health coverage under the ACA were routed through the KOLEA system, which determined whether applicants were eligible for Medicaid.

If they were not eligible, their applications were then forwarded to a separate computer system called HHIX. That system was operated by the nonprofit Hawaii Health Connector, which ran the state’s health insurance marketplace under the Affordable Care Act.

The state auditor in January reported that file transfers between KOLEA and HHIX did not work, and Health Connector and DHS officials each blamed the other agency’s computer system for the problems.

Gov. David Ige finally ordered the shutdown of Health Connector earlier this year because it was out of compliance with the ACA.