State Auditor Les Kondo announced today that the Office of the Auditor has suspended its audit of the Office of Hawaiian Affairs’ (OHA) limited liability companies (LLCs) because the OHA Board of Trustees is denying access to complete and unredacted minutes of its meetings, even though the audit was ordered by the state Legislature and state law gives the auditor the “unambiguous” authority to examine all OHA records.
Although the Legislature, last session, directed his office to conduct a performance audit of OHA and to report its findings and recommendations prior to the convening of the 2020 legislative session, which opens January 15, the audit cannot proceed without full and unfettered access, Kondo said in a press release.
As a result, until OHA fully cooperates,“we are compelled to suspend the audit mandated by the Legislature” due to the unacceptable risk of inaccurate or incomplete findings based on insufficient evidence, Kondo said.
From September 2007 to October 2015, OHA created seven LLCs to hold OHA assets such as Waimea Valley and to pursue other outside business opportunities and higher-risk ventures.
According to Kondo, the state audit would assess OHA’s use of its LLCs, including the Board of Trustees’ oversight of and decisions involving the LLCs, as well as whether grants and other funding from OHA to the LLCs, and the LLCs’ use of those moneys, were consistent with OHA’s spending policies and procedures.
OHA released the results of a review by the private firm CliftonLarsonAllen LLP (CLA) of a sample of OHA’s contracts, grants, and other financial disbursements for a five-year period beginning in 2012.
“CLA’s review identified numerous ‘red flags,’ millions of dollars in spending that the firm felt were potentially fraudulent,” Kondo said. “However, the scope of CLA’s work was limited to reviewing OHA’s compliance with its policies and procedures.”
The state audit was slated to be more in depth.
“Our audit is focused on OHA’s use of its LLCs and will provide a significantly deeper review,” Kondo said.
Until very recently, Kondo added, OHA believed the LLCs were private organizations not subject to state laws applicable to OHA and other state agencies, and fought efforts to obtain information about the LLCs.
He emphasized that the Office of the Auditor’s audits are conducted in accordance with generally accepted government auditing standards and are intended to provide objective analyses to assist management and those charged with governance and oversight with improving program performance and operations, reducing costs, facilitating decision making, and contributing to public accountability.
“Those auditing standards require that our findings and conclusions are based on sufficient and appropriate audit evidence,” Kondo said. “Our inability to access complete records may create a significant risk that our findings, conclusions, and recommendations may be based on improper or incomplete information,” Kondo said.
“Until the Board of Trustees fully cooperates in the audit, including providing us with complete and unredacted minutes of its executive sessions, we cannot eliminate or reduce that risk to an acceptable level,” he concluded.
Kondo cited Section 23-5(a), Hawai‘i Revised Statutes, which reads, “The auditor may examine and inspect all accounts, books, records, files, papers, and documents and all financial affairs of every department, office, agency, and political subdivision.”