State suspends Office of Hawaiian Affairs audit over refusal to release records

State Auditor Les Kondo announced Monday that the Office of the Auditor has suspended its audit of the Office of Hawaiian Affairs’ limited liability companies because the OHA Board of Trustees is denying access to complete and unredacted minutes of its meetings.

The audit was suspended even though it was ordered by the state Legislature and state law gives the auditor the “unambiguous” authority to examine all OHA records.

“We got redacted minutes, and we told them it’s not what we want,” Kondo said in an interview.

Although the Legislature, when it approved OHA’s budget act 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, the audit cannot proceed according to generally accepted government standards without full access, he said.

The legislative session opens Jan. 15.

“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.

In a statement, OHA Chairwoman Colette Machado and Vice Chairman Brendon Lee contended that OHA has complied with the auditor’s requests.

“OHA provided the State Auditor with minutes of all executive session meetings he requested,” the trustees said, except that “certain portions of those meeting minutes were redacted because they are protected by the attorney-client privilege.”

The trustees complained that Kondo had exceeded his authority, “using an unprecedented interpretation of his powers and has now unilaterally decided to not fulfill a legislative mandate and to instead play politics with critical general funds for Native Hawaiians.”

The suspension may tie up the release of money for OHA and its Native Hawaiian beneficiaries. That is because OHA’s appropriations bill from the 2019 legislative session withholds about half, or $3 million, of the general funds approved for the agency’s budget until an audit report is filed.

Kondo said this particular audit is mandated separately from the regular audits of OHA his office conducts every four years.

“It’s frustrating,” he said,“because OHA is a state agency and is accountable for public as well as Native Hawaiian trust fund money,” and an audit can “assess certain portions of operations to provide insight and transparency.”

From September 2007 to October 2015, OHA created seven limited liability companies to hold OHA assets such as Waimea Valley and to pursue other outside business opportunities.

The audit aims to assess the OHA 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 that money, were consistent with the agency’s spending policies and procedures.

Earlier this month, OHA released the results of a review by the private firm CliftonLarsonAllen LLP 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 is 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 recently, Kondo added, OHA maintained 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.

Kondo cited Section 23-5(a) of the Hawaii Revised Statutes that 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.”

OHA trustee Keli‘i Akina said he believed OHA should called “open (the agency’s) books to lawmakers and the public” to release funding and help raise OHA’s reputation, which “is at an all-time low.”

Machado and Lee said they hope to work with the Legislature and the State Auditor “to ensure that programs and services to Native Hawaiians continue uninterrupted.”

State Rep. Sylvia Luke, chairwoman of the House Finance Committee, could not be reached for comment.