Hawaii Department of Land and Natural Resources funds mishandled, audit finds

A multimillion-dollar state fund to acquire private land for conservation purposes has been poorly managed by the Department of Land and Natural Resources, hampering its effectiveness, accountability and transparency, according to a state audit.

The January report by Auditor Les Kondo also raised questions about whether state ethics and procurement laws were violated by the department when it issued three consecutive purchase orders for $4,999.50 each, just 50 cents below the threshold requiring compliance with small- purchase procurement regulations. The three orders went to a consultant already on contract for the agency.

Auditors attempted to question the consultant about the purchase orders, but he refused to cooperate, leading Kondo’s office to issue a subpoena, according to the report.

The audit cited numerous problems with the Legacy Land Conservation Fund, including poor oversight, budget shortfalls, inappropriate spending, lapsed funding and the department’s failure to adopt a strategic plan — a requirement of state law since 2006 — to guide the agency and its board in making decisions.

“Without a plan in place, the program and DLNR lack an overall direction and purpose,” Kondo wrote in the report.

DLNR Director Suzanne Case said most of the issues identified by the auditor arose during a period a few years ago in which the program administrator position was unfilled and leadership of the division that oversees it was in transition.

“Generally, we feel that it’s a very well-run program that’s got a tremendous amount of oversight,” Case said in a phone interview, describing the program as “extraordinarily successful.”

Since 2005, when the program obtained a dedicated source of funding from real estate conveyance taxes, it has completed 30 land acquisitions, according to Case’s written response to the auditor.

The program issues grants to nonprofit organizations, counties and state agencies for land conservation and resource protection purposes. The counties and nonprofits are required to seek matching funds equaling at least 25 percent of total costs.

Matching funds so far have exceeded that requirement by seven times, or over $38 million, according to Case’s letter to the auditor, citing that fact as one example illustrating proper management.

She also noted that the program has kept administrative costs below the 5 percent mandated by law, saving nearly $1.5 million.

The department typically has about $5 million each year to award grants.

A nine-member advisory commission with diverse expertise considers grant applications and makes recommendations to DLNR’s board, which awards the funding. After a yearlong application and vetting process, the commission ranks its recommendations in order of priority.

Auditors found that DLNR and its Division of Forestry and Wildlife, or DOFAW, which administers the program, sometimes make recommendations for its own projects, even when they conflict with or do not match the commission’s priorities.

The auditors also said the division was able to obtain conservation money while not being subjected to the same accountability and transparency requirements as the other grant applicants.

“The practice may not have technically violated any existing law or rule,” the audit noted. “However, the advantages and special treatment DOFAW took, at a minimum, do not promote confidence in the process by applicants or the general public.”

Case disagreed with the notion that the process, which she called detailed and thorough, is unfair.

Case acknowledged that the program does not have a single strategic plan in place, though one is being pursued, but said the department and board rely on multiple documents to guide decision-making.

Case also said the department followed the state ethics code, seeking guidance from the State Ethics Commission, when contracting with the consulting firm.

The consultant, David Penn, eventually was hired as the program administrator or specialist, according to Case.

Among the audit’s other findings:

>> In a majority of cases, the department could not produce documents that grant recipients are required to file every two years to ensure the acquired property is being used in accordance with contract requirements and continues to serve the conservation purposes for which the grant was awarded.

>> The program failed to encumber money for approved projects on a timely basis, resulting in $2.2 million in lapsed funds.

>> Money languishes in the conservation fund because the program does not monitor grant awards to ensure projects are completed in a timely fashion.

>> The department erroneously paid administrative fees of nearly $685,000 to another state agency in FY 2016 and 2017, reducing what was available to fund projects in those years.

“It goes from worse to worst,” Donna Wong, executive director of Hawaii’s Thousand Friends, an environmental and conservation advocacy group, said of the audit’s findings. She said her organization always has held out hope that DLNR was acting in the best interests of the public. “Our hope has been dashed,” Wong said.