In the latest development involving a Hawaii House of Representatives investigation into two audits from State Auditor Les Kondo, the star witness Wednesday was a former employee.
Ron Shiigi, the former administrative deputy auditor, testified that he had wanted to examine two issues raised in connection with the state Department of Land and Natural Resources’ special land and development fund.
The Legislature had requested the audit, which was released by Kondo’s office in June 2019. The audit found the DLNR’s Land Division lacking in its management of public lands and its administration of the fund.
But Shiigi, who was subpoenaed by the House committee and testified under oath, said he had wanted the auditing team to look for more evidence regarding a forged signature on DLNR paperwork involving an easement grant for land on Kauai.
Shiigi, who has spent 50 years auditing either with the state or in the private sector, also wanted to learn more about a nonprofit company that had lost its status with the IRS yet continued to receive a reduced rent agreement with DLNR — as he said is common for nonprofits — rather than pay fair market value.
Kondo, who Shiigi made clear had final authority on such matters, chose not to look further into the two issues. Both issues were also not mentioned in the DLNR’s land fund audit nor shared with state lawmakers.
Committee Chair Della Au Belatti, the House majority leader, said the omissions may amount to auditing irregularities and/or potential mismanagement, malfeasance and fraud.
The forgery matter is of particular concern, she indicated, because the DLNR turned the matter over to the attorney general’s office. The AG’s investigation concluded that a signature on DLNR documents was indeed forged. The Kauai land agent is no longer with the agency.
“We need to understand certain issues uncovered during the audit not reported,” said Belatti, who reminded the Zoom audience that the audits are performed so that agencies and lawmakers can improve the operations of state government.
Kondo was not at Wednesday’s hearing but was apparently paying close attention.
“Contrary to Ron Shiigi’s recollection, the audit team was aware of the fraud because we do the digging,” he said after the hearing. “We were doing our own information gathering as part of our planning and fieldwork for the audit.”
Kondo said that DLNR Director Suzanne Case was also aware of the matter, as was the AG — something that Case herself confirmed for the committee Wednesday. There was thus no reason to include mention of the investigation in the audit, Kondo added.
“If we had discovered fraud or potential fraud, we would certainly have reported that to the DLNR chair,” Kondo said.
He also noted that Shiigi did not object to the final audit, describing it — in Kondo’s words — as “solid.” Shiigi testified that he stood by the work of his office.
Kondo said he did not recall the issue of the nonprofit’s status. But he also pointed out that Shiigi, as the administrative deputy auditor, was directly involved in leading the DLNR audit.
“If he thought things needed to be explored, he should have been more forceful in making that known to me. I recall that he never objected to what we were doing or reporting.”
Yellow Book Standards
Shiigi did take issue with aspects of how Kondo ran the auditor’s office. He was not comfortable, for example, with Kondo’s decision to record interviews with those being audited.
“In my experience we never used recordings in all of my auditing,” he said, adding that it “would not have been a standard practice.”
Shiigi said he believed recording amounts to elevating the “drama” of the interviews. He expressed concern that using direct quotes might amount to a breach of trust, as the subjects are told the interviews are confidential while the reports themselves are made public.
Kondo, however, said the recordings are in fact for the protection of those being interviewed. “We want to make sure things are not taken out of context,” he said, noting that handwritten notes might not always be accurate.
Shiigi also said the federal government Yellow Book on auditing standards is merely a framework and a guide. Ultimately, it is the professional judgment on the part of the auditor that steers reports. Kondo agreed with that.
Kondo again expressed frustration with the House examination, which has been going on for several months.
“It’s become very apparent that the committee’s focus is again trying to find fault with me and my office’s work rather than focus on the significant findings contained in our audit reports about the DLNR and the ADC that really need to be addressed.”
The ADC refers to the state’s Agribusiness Development Corporation, which was the subject of an audit released in January. “We found that ADC has done little — if anything — to facilitate the development of agricultural enterprises to replace the economic loss created by the demise of the sugar and pineapple industries,” Kondo’s office reported.
Belatti clarified “for the record” during the hearing that she and her colleagues are trying to determine “who knew what and when, and what did they do.” She expressed concern that the omissions by the auditor’s office might indicate a “larger pattern” of not reporting critical information about government operations.
Earlier Thursday, the committee will hear from Keith Chun, a former state land planning and development manager with the DLNR’s Land Division. At Wednesday’s hearing, it was revealed that Chun had met with auditors regarding the DLNR audit.
Belatti said her work will continue through the rest of the year, explaining that “numerous documents” continue to be submitted to her office related to the investigation.
In a related development, Belatti also said the committee will hold off on contempt proceedings against Kondo for his refusal earlier this month to turn over certain documents.
A court hearing on whether to quash the request is set for Nov. 3. Belatti expressed confidence in “our very competent attorney general to handle the matter with the courts at this time so we are not further distracted.”
Kondo said he is still seeking to procure outside legal representation for his office.
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