Good Medicine for OHA’s “Red Flags”

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Keli‘i Akina, Ph.D., Trustee, At-Large

If you are like most people, it’s no fun going to the doctor to discover that something is wrong. Yet, a medical check-up is often the first step toward restoring health and preventing future problems.

Audits and financial reviews work the same way. They may be time-consuming and even embarrassing, but they are good medicine. They can result in prescriptions for future improvement.

That’s what happened with the independent review (informally called an audit) of OHA’s financial practices, conducted by the accounting firm Clifton Larson Allen (CLA). CLA reviewed OHA’s financial disbursements from 2012 to 2016 and discovered 38 “Red Flags” totaling over $10 million. The firm noted that these transactions were “possible indicators of fraud, waste and abuse.”

Here are some examples of “Red Flag” disbursements by OHA and the concerns raised by CLA: $2.6 million to an organization that funded an election – the disbursement requests were not supported by any invoices or receipts to demonstrate the costs that were incurred; $1.6 million for a conceptual masterplan – The purpose of this contract was not accomplished; $600,000 to a power company – There is no evidence of what the funds were used for and why such a significant investment was needed when the contract had not yet been secured; and $349,527 for professional services by an education contractor – The procurement documents, such as the signed affidavits of the selection committee members and the purchase requisition appear to be missing. There is no evidence that the contract was in fact awarded to the first-ranked contractor. OHA was unable to provide any deliverables for the work of this vendor.

Overall, 85% of the 185 transactions reviewed by CLA included “occurrences of noncompliance with statutory requirements and/or internal policies.” CLA reported significant problems related to missing procurement documents, lack of evidence of deliverables from contractors, and incorrect processing of contracts.

Now, all of this raises two questions. First, what is being done about the “Red Flag” transactions? Secondly, what is being done to ensure that similar “Red Flags” do not occur at OHA in the future?

In answering the first question, OHA has contracted with the audit consulting firm Plante Moran to examine the concerns raised by CLA. This deep dive into the “Red Flags” will help the Trustees determine what, if any, actions need to be taken. Be on the lookout for Plante Moran’s report, which hopefully will be delivered later this year.

In answering the second question, it is very encouraging that OHA’s administration has moved ahead and implemented a majority of the recommendations set forth by the CLA report. These include: A Standard of Conduct Declaration for all grant agreements; Conflict of Interest Disclosures; Processes that ensure grant applicants are compliant with the Hawaiʻi Revised Statutes; Review of OHA payments with grantee invoices to confirm proper payments; Establishment of OHA’s Grant Portal to electronically track the grant pre-award phase; Ongoing staff training to ensure that OHA’s policies are being followed.

According to OHA’s administration, the implementation of these recommendations has the purpose of “improving OHA’s financial processes, minimizing the risk of fraud, waste, and abuse while strengthening the BOT’s fiduciary, oversight, and governance of OHA.”

This is indeed good medicine for OHA as we take the recommended “prescriptions” seriously. I commend our CEO Sylvia Hussey and OHA staff for moving in the right direction.

But there remains the matter of accountability for the unresolved “Red Flags” identified by the CLA review. As Trustees, we owe it to OHA’s beneficiaries to follow through. That is our fiduciary duty.