OHA investigation identifies $7.8M of possible fraud, waste or abuse

An independent financial review of the Office of Hawaiian Affairs has identified transactions worth $7.8 million as potentially fraudulent, wasteful and abusive.

OHA’s long-awaited independent audit, covering a period from 2012 to 2016, documented signs of shoddy record keeping, inadequate oversight, unlawful procedures, missing documents, conflicts of interest and, in some cases, contractors who failed to perform the work they were hired to do.

Of the 185 contracts and disbursements reviewed by the national accounting firm of CliftonLarsonAllen (CLA), 85% suggested conflicts with statutory requirements or internal policies, and 17% were flagged for potential fraud, waste and abuse.

Trustee Kelii Akina, who pushed for the $500,000 audit following his 2016 election to the board, called the findings troubling.

“The results, in some instances, are more serious than I imagined,” Akina said.

In a written statement, OHA Chairwoman Colette Machado and Kauai trustee Dan Ahuna had a slightly more upbeat take on the report of over 1,000 pages.

“The recommendations of this report confirm that OHA is moving in the right direction,” they said, in part because the board is already working toward greater transparency with a number of the recommendations already being implemented.

However, they did acknowledge that “more needs to be done to regain the trust of our beneficiaries and the general public.”

The trustees voted Wednesday to have the agency’s administration review and analyze the report and prepare a plan for implementation by Jan. 22.

But Akina, who led the OHA committee that helped set up the parameters of the financial review, urged his fellow board members to dive deeper into the findings and hold accountable those responsible for any fraud, abuse and waste.

The audit contract, awarded more than two years ago, called for an examination of both OHA and its limited-liability companies with an eye toward identifying areas in the agency’s procurement process at risk of fraud, waste and abuse.

The firm flagged 32 transactions with potential for fraud, waste and abuse, including:

>> A $99,600 contract in 2013 to a nonprofit for 36 youth scholarship meetings. OHA had no documentation to show the meetings were actually held, and the nonprofit’s tax returns showed costs for only half the meetings.

>> A $150,000 disbursement to ABW Holdings LLC to pay for a lease guaranty OHA signed on behalf of its now-defunct subsidiary Kauhale LLC when it defaulted on its commercial lease at Waikiki Beachwalk. The transaction appears to have been split in two payments in a move to avoid scrutiny by the chief financial officer and legal counsel.

>> A $185,000 contract in 2012 to Absolute Plus Advisors, now out of business, for financial advisory services. The contract amendment was executed five months after the contract date, and no documents were available showing the firm did the work for which it was hired.

The largest contract flagged as questionable was a $2.6 million grant to the nonprofit Akamai Foundation, which was the fiscal sponsor for the election of delegates to the 2015 Na‘i Aupuni Hawaiian constitutional convention.

The problem is that the election was canceled at the last minute, and auditors found few if any receipts, invoices or billings to demonstrate what costs were incurred. OHA was dinged for potential lack of oversight, abuse of the disbursement process and waste of funds, among other things.

Contacted Friday, Akamai Foundation Chairman Louis Perez said all the funds were spent in accordance with the contract and that there remains documentation that describes every expenditure in detail.

Perez said he might understand auditors not finding a lot of receipts because, with the election under attack in the courts, officials were cautious about appearances, and there was a concerted effort to maintain neutrality and distance between the governance campaign and OHA.

According to its contract, CLA was not tasked with determining whether any transactions were in fact fraudulent, abusive and wasteful. Instead, it was only to point out whether they might be.

In addition, the firm didn’t just pick out a random sampling of contracts and disbursements, but used its professional judgment to select transactions that appeared more likely to have indicators of fraud, waste or abuse, officials said.

The report concludes with 109 recommendations to help OHA tighten up its financial procedures and guard against abuse. Among the recommendations: more employee training, starting a special audit committee and establishing a hotline for reporting fraud and abuse.

In his analysis of the report, Akina said the document acts as a road map of issues to resolve and offers a valuable list of transactions that warrant further investigation.

Former veteran OHA trustee Rowena Akana said she was not surprised by the amount of fraud and abuse suggested in the report.

“We knew what was going on,” she said, adding that she tried to bring additional problem areas to the board leadership’s attention but that her concerns were often ignored.

Akana urged the board to investigate the red-flagged cases in the report and consider having the state Attorney General’s Office resume as lead counsel for the agency.

Machado and Ahuna noted that since the report looked at a five-year period that began seven years ago, several grant and procurement reforms are not reflected in the observations.

What’s more, employees with knowledge about certain contracts or disbursements are no longer with OHA and were unable to provide key information, they said.

One employee no longer with OHA is Kamana‘opono Crabbe, who led OHA as CEO during the entire range of the report.

Crabbe, who left his job at the end of June and became CEO of the Kohala Institute at Iole on the Big Island on Oct. 28, could not be reached for comment Friday.

New CEO Sylvia Hussey will head OHA’s analysis of the report and come up with a plan to implement reforms. The former Kamehameha Schools administrator and certified public accountant was hired by OHA as COO last year and took over as permanent CEO on Dec. 1.

In their statement, Ma­chado and Ahuna said OHA has “an unwavering commitment to continued improvement,” as illustrated, in part, by the fact that the board took the “very unusual step” of hiring a national accounting firm to examine a sample of contracts and disbursements.

“We were not required to do this,” they said. “Despite undergoing regular state audits and receiving clean annual independent financial audits for eight consecutive years, our Board chose to do this on its own, something few other state or private entities would do.”

The board leaders added, “We are in a critical period of transition intended to set the agency on a firm course for the future, with a new CEO, a new 15-year Strategic Plan, and the implementation of these financial management upgrades. We look forward to sharing our progress with our community and general public soon.”