A Hawaii government office that conducts performance reviews of state agencies has itself gotten a bad performance review.
A panel led by a former Honolulu city auditor concluded in a report released Thursday that the state Office of the Auditor has failed in recent years to deliver several audits ordered by the Legislature, either on time or at all, largely because of high staff turnover, too many employees who lack auditing experience and an emphasis on producing sensationalized audit reports that capture media headlines.
The unpaid three-member panel, appointed in January by state House Speaker Scott Saiki, said in its report that state auditor Les Kondo is ill-suited to lead the office as a lawyer without direct accounting or auditing experience and has created a dysfunctional workplace.
“The lack of auditing experience among executive-level staff and other administrative issues are impacting compliance with government auditing standards and the timely submission of reports, as well as causing personnel turnover and unnecessary litigation,” the report said.
Edwin Young, city auditor from 2010 to 2019, chaired the panel. The other members are Colleen Hanabusa, a former state senator and congresswoman, and Wesley Machida, a former accountant and state Department of Budget and Finance director who also has worked in the Office of the Auditor and was a special assistant to Saiki.
Kondo let the working group know in February through three letters that he considers the panel’s effort illegitimate and a political attempt to interfere with the office and remove him from a job that a majority of state lawmakers appointed him to for an eight-year term that began in 2016.
To remove Kondo for cause would require a two-thirds vote by the Legislature.
On Thursday, Kondo defended his office and said the panel’s work is an absurd effort with a predetermined outcome driven by Saiki, who introduced bills in January to cut the office’s budget by 53% and to put lawmakers in control of setting the auditor’s salary.
“It sure seems like it’s a very personal vendetta,” Kondo said. “I’m not surprised at the report.”
The panel’s work was based largely on interviews with former auditor’s office employees, consultants and contractors. The panel accused Kondo of demonstrating hostility and a lack of professionalism by not answering questions, by advising staff not to cooperate and by not providing information including organizational charts, written policies and contracts with accounting firms for financial audit work.
Kondo said he was willing to participate but only after better understanding the purpose of the panel, its authority and the scope of work, which Kondo said wasn’t conveyed despite his requests.
Saiki established the State Auditor Working Group specifically to determine whether the auditor’s office is in compliance with its mandate under the Hawaii Constitution to conduct audits and certify financial statements of state agencies along with other investigations requested by the Legislature.
The panel’s report said the office isn’t in compliance, given a failure to produce all reports requested by lawmakers.
In its 79-page report, the panel said the auditor’s office under Kondo’s leadership failed to deliver 10 of 25 performance audits from 2016 to 2019, and that 12 of the 15 delivered were late.
Kondo said his office with a limited budget and 21 current employees can’t satisfy every request with deadlines that can be six months or less in some cases. Besides performance audits, the office assesses special funds, evaluates health insurance mandates and must assess tax exemptions/ credits, among other things. It also contracts with accounting firms to do financial audits of agencies.
“It’s very challenging,” Kondo said. “We don’t have a big office. We want to issue quality reports. We don’t want to issue a one-pager that doesn’t have any value.”
Kondo disputed that several of the undelivered audits listed in the panel’s report reflected the will of the Legislature because such requests weren’t made by resolutions from both the House and Senate.
For example, only the Senate requested an assessment of mandated health insurance coverage for cannabidiol oil derived from industrial hemp in 2019. And in 2017 only the House requested a performance audit of the Department of Agriculture’s hiring process.
The auditor said his predecessors failed to satisfy a bigger number of audit requests either on time or at all, and that a variety of reasons can delay audits or make them not feasible.
One undelivered audit mentioned at length in the panel’s report involves the state Office of Hawaiian Affairs.
The Legislature passed a bill in June 2019 requesting financial and management audits of OHA be done roughly by the end of 2019, but the auditor’s office suspended the work around when it was due because OHA’s board of trustees refused to share unredacted minutes of closed-door executive session discussions having to do with companies the agency formed to hold and manage investments.
Kondo argued that the audit could not be completed without the minutes. Because the audit wasn’t completed, a $3 million allocation from the Legislature conditioned on the audit got held up.
OHA sued Kondo, and a state judge ruled in September that OHA has the right to withhold the information Kondo sought, though the audit work remains stalled because of the disagreement.
The panel said the minutes weren’t required to complete the audit, and faulted the auditor’s office for not doing the financial part of the audit and engaging in a performance audit instead of a management audit.
It was noted in the panel’s report that the National Conference of State Legislatures performed peer reviews of the auditor’s office in 2016 and 2019 and concluded the office’s quality control system provided reasonable assurance of compliance with government auditing standards and professional best practices on performance audits.
However, the panel concluded that the auditor’s office needs oversight.
“Absent any oversight by the Legislature, the Office of the State Auditor and the problems discussed in this report will continue,” the panel wrote. “That is, untimely reports, the hiring of personnel who lack audit experience, noncompliance with generally accepted audit standards, low performance audit production, personnel turnover, complaints, lawsuits from auditees, and non-responsive behavior by the Office of the State Auditor will continue.”
Two bills were introduced this year to establish a new state agency to oversee the auditor’s office and other agencies including the state Ethics Commission, but they fizzled.