State Auditor Les Kondo said Monday that his office has suspended its audit of the Office of Hawaiian Affairs’ limited liability companies after the OHA Board of Trustees decided “to deny his office access to complete and un-redacted minutes of its meetings.”

The Hawaii Legislature asked the auditor earlier this year to conduct a performance audit of OHA and report back to lawmakers by the 2020 session, which begins next month.

“However, the Board of Trustees’ refusal to fully cooperate in the audit process prevents the auditor from completing the audit,” according to a press release from the auditor’s office.

State Auditor Les Kondo speaks about the first HART Audit.
State Auditor Les Kondo on Monday suspended a review of OHA LLCs. Cory Lum/Civil Beat/2019

Kondo said state law makes clear that his office has the authority to examine all OHA records, and he said the audit by his office “will provide a significantly deeper review of the LLCs.”

In a press release issued late Monday, however, OHA Chair Colette Machado and OHA Vice Chair Brendon Kaleiaina Lee said Kondo was “playing politics” with critical general funds for Native Hawaiians. As to the reluctance to share board minutes, they said in part:

In 2019, the Legislature approved OHA’s budget act with the condition that the agency’s second fiscal year of general funds cannot be released and used to benefit the Native Hawaiian people until the State Auditor submits an audit report to the Legislature.

Since then, OHA has timely provided the State Auditor with all documents requested, as we have always done for each of the regular audits we undergo every four years with the State Auditor. Specifically, OHA provided the State Auditor with minutes of all executive session meetings he requested. Certain portions of those meeting minutes were redacted because they are protected by the attorney-client privilege codified as Hawaii Revised Statutes Chapter 626, Rule 503.

The statement added, “We find it unfortunate that the state auditor is 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.”

String Of Audits

In the press release the auditor’s office said that, 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.”

Kondo said the audit is assessing OHA’s use of its LLCs.

He referenced the fact that OHA itself recently released the results of a review by CliftonLarsonAllen of a sample of OHA’s contracts, grants and other disbursements from 2012 to 2017, a review that identified numerous “red flags” and “millions of dollars in spending the firm felt were potentially fraudulent.”

Civil Beat reported last month that the CLA review ultimately identified about $7.8 million in spending that’s potentially fraudulent, according to an analysis of the CLA report by OHA Trustee Kelii Akina, a consistent critic of OHA’s spending.

Office of Hawaiian Affairs OHA board member Colette Machado listens during a Finance Meeting at the Capitol.
Then OHA board member Colette Machado at a Hawaii Legislature budget meeting at the Capitol. She has defended the agency’s financial practices. Cory Lum/Civil Beat

The spending included $2.6 million for a contract for a Native Hawaiian constitutional convention “that lacked proof of how the money was spent.”

The CLA report comes about two years after a similarly critical state audit highlighted the need for internal spending controls. After that audit, OHA sought to reform some of its policies and commissioned CLA as a third-party investigator.

On Monday, Akina commented on the audit suspension: “The decision by the state auditor to suspend the legislatively mandated audit of the Office of Hawaiian Affairs is another black mark in OHA’s record of transparency. At stake are millions of dollars of funds withheld from OHA by the state Legislature that should be going to meet the needs of Hawaiian people.”

The trustee added, “OHA owes it to its beneficiaries and state taxpayers to take all necessary steps to cooperate with efforts to bring transparency and accountability to the agency.”

But Machado and Lee said in their statement, “The Honolulu Authority for Rapid Transportation also provided the state auditor with redacted executive meeting minutes when it underwent an audit review. We note this did not prevent the state auditor from completing its audit of HART (Report No. 19-03). We are disappointed that under the same circumstances, the state auditor chose to complete its audit of HART but has chosen to not complete OHA’s audit.”

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