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04/22/2024

Photo: Istock.com

AUDITOR’S SUMMARY

Report No. 24-05

THE DEPARTMENET OF HUMAN SERVICES (DHS) is charged with providing services “for the protection and care of abused or neglected children and children in danger of becoming delinquent to make paramount the safety and health of children who are harmed or are in life circumstances that threaten harm.” The importance of that responsibility – protecting Hawai‘i’s keiki – simply cannot be overstated. When children cannot remain safely in their homes, DHS’ Child Welfare Services Branch (CWSB) places children in foster homes, which the department refers to as resource family homes, until those children can be reunited with their families or placed with adoptive parents or legal guardians.

Foster homes must have a license issued by the department to care for a child. The licensing requirements are contained in the administrative rules promulgated by DHS and are the standards of conditions, management, and competency that the department determined foster homes must meet to provide a safe, stable, and nurturing environment.

DHS recognizes two types of foster homes: homes in which the caregivers have no relation to the youth they foster, referred to as general license homes, and child-specific homes where the caregivers have an existing relationship with the child. While the licensing requirements are the same for both types of homes, only general license homes must be unconditionally licensed before children are placed in the home. DHS can issue provisional certificates, which are temporary licenses, to child-specific homes to allow foster children to be placed in those homes while the homes complete the licensing requirements, which include FBI fingerprint background checks, medical clearances, and home studies. By law, the provisional certificates are, generally, not to exceed 60 days and can only be approved by DHS “if it is reasonable to assume that all licensing requirements will be met within sixty days and that there are no risks to the health, safety, or well-being of a child.”

To expedite foster home licensing, DHS has contracted with Catholic Charities Hawai‘i (Catholic Charities) to perform the home studies and compile the documentation necessary for the department to license the homes. For contracts relating to health and human services, such as DHS’ contracts with Catholic Charities, the law requires DHS to “formulate and implement a monitoring plan” for those contracts, which includes, among other things, “a manual or other set of guidelines” describing the objectives, procedures, and requirements of the department’s monitoring process. DHS is also required to develop criteria and procedures to evaluate contracts after they expire or are terminated.

What we found
We found that DHS’ internal procedures – and, more significantly, its actual practices – did not comport with the department’s legal authority to issue provisional certificates to child-specific homes. DHS has greatly expanded its ability to approve provisional certificates for child-specific homes, which has resulted in foster children staying in homes that have not completed the licensing requirements for far longer than 60 days. In 2019, DHS changed its licensing procedures through an “Internal Communication Form” (ICF), akin to an internal memorandum, to extend the length of a provisional certificate from 60 days, as directed in DHS’ administrative rules, to 90 days; the ICF also sanctioned one additional 60-day provisional certificate in two very narrow circumstances – potentially allowing children to stay in homes that DHS had yet to determine were safe, stable, and nurturing environments for up to 150 days, i.e., 90 days longer than authorized under the administrative rules. Yet, even under the more lenient procedures, we found that DHS struggled to license child-specific homes within 90 days or even in 150 days.

We found that DHS allowed children to be in unlicensed child-specific homes, i.e., those with only provisional certificates, for many months, sometimes even more than a year, by approving multiple consecutive provisional certificates to the same home. Our random sample of roughly 10 percent of CWSB’s “active” licensing files included 30 child-specific homes. None of those homes completed the licensing requirements within 60 days, and none of the children in those homes were removed, as directed under DHS’ licensing procedures. For those homes in our sample, the licensing process took an average of 314 days. Many child-specific homes had been caring for foster children for more than 60 days but had not completed the licensing requirements as of the date on which we reviewed the department’s files. For example, DHS had approved multiple provisional certificates to one of those homes that covered 720 days – and counting. We found that CWSB extended or issued additional provisional certificates and often retroactively dated those certificates to cover periods when children were in homes with expired provisional certificates. This common practice allowed children to stay indefinitely in homes that had not, and in some cases could not, meet the requirements that DHS, itself, had established to ensure that homes were safe.

CWSB also did not monitor or evaluate Catholic Charities’ performance to ensure the services the State paid for were delivered. In fact, Social Services Division staff involved in contracting were unaware that they were legally required to do so. Although DHS was aware Catholic Charities was underperforming, it continued paying the contractor’s invoices and, in 2023, extended Catholic Charities’ licensing contract, and a separate support services contract, for another two years. The contract’s payment structure is “cost reimbursement,” where the State pays Catholic Charities up to $2 million per year, essentially reimbursing Catholic Charities’ personnel and administrative costs associated with the contract. However, reimbursement of those costs is expressly conditioned on Catholic Charities satisfactorily delivering the services required in the contract. We found that DHS reimbursed Catholic Charities’ costs without regard to performance of the services; the department’s payment process effectively removed the requirement that the contracted services be “satisfactorily performed.”

Why do these problems matter?
The CWSB Administrator identified the branch’s licensing of foster homes as the activity posing the most risk to children, telling us: “If a child gets hurt in a home that’s not licensed, it’s devastating and the liability around that is huge … You don’t even place children in a home that is not licensed [or] licensable.” The Administrator’s comment clearly reflects her concern about the risk to children placed in homes that have not completed the requirements the department determined are necessary to provide assurance that homes are safe and healthy environments for children under the DHS’ care.

The department, through CWSB, is responsible for “the safety and health of children who have been harmed or are in life circumstances that threaten harm.” Requiring homes to have licenses issued by DHS is one of the policies that the department included in its administrative rules to perform that critically important responsibility. However, unless a home completed the requirements and was awarded an unconditional license, DHS did not know whether a home was a safe and healthy environment and children in that home were at risk of harm.

According to the CWSB Administrator, “The expectation is that these children will be in homes that will keep them safe … I think we follow the rules, and we try to do our best with that, and on occasion, children are being hurt in those homes.” By disregarding and overwriting the policies and requirements in those rules, DHS’ approach, which allowed children to be in unlicensed child-specific homes much longer than 60 days, seemed to prioritize factors other than the safety and health of the children under its care and increased the risk that children might be harmed in those homes. And, that risk is not simply theoretical. We found a number of cases, which are described in the report, in which children in child-specific homes operating under multiple consecutive provisional certificates were actually harmed.

In addition, the State lost a significant amount of Title IV-E federal funds. Those funds, which reimburse the State for eligible foster care payments, are accessible for payments to licensed homes; the State was not able to claim the Title IV-E funds for foster homes with provisional certificates.

With respect to the contracts with Catholic Charities licensing support services, one purpose of which was to expedite the licensing of child-specific homes, DHS did not hold Catholic Charities accountable for performing the services under the contract. As we found, DHS’ licensing of child-specific homes was neither expedited nor in accordance with legal requirements. Without any monitoring program and confusion between offices as to which was responsible for ensuring performance of the contract, DHS essentially reimbursed Catholic Charities’ personnel and administrative costs without ensuring that satisfactory performance of the services. That approach resulted in a waste of state funds.

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24-05, Audit of the Department of Human Services’ Child Welfare Services Branch
04/17/2024

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AUDITOR’S SUMMARY

Single Audit of Federal Financial Assistance Programs of the State of Hawai‘i
Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the State Single Audit for the fiscal year ended June 30, 2023, was to comply with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The State Single Audit was conducted by Accuity LLP.

Auditors’ Report on Internal Controls over Financial Reporting

THE AUDITORS IDENTIFIED three significant deficiencies in internal controls over financial reporting that are required to be reported in accordance with Government Auditing Standards. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiencies are described on pages 18-22 of the report.

Auditors’ Report on Compliance with Major Federal Programs

THE AUDITORS EXPRESSED A QUALIFIED OPINION on certain major programs and identified three material weaknesses and eight significant deficiencies over compliance with major federal programs that are required to be reported in accordance with the Uniform Guidance. These findings are described in a Schedule of Findings and Questioned Costs that can be found on pages 23-34 of the report. A table with the number and type of findings by department can be found below.

A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis.

A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

About the Report

Single audits provide assurance to the federal government that state agencies and programs receiving federal funds are expending those funds properly. This report includes the total federal expenditures and findings related to departments that are included in the State of Hawai‘i Single Audit of Federal Financial Assistance Programs for the fiscal year ended June 30, 2023. For the departments included in the report that receive federal monies, federal expenditures totaled approximately $797 million. Other departments’ federal expenditures and findings are reported in their individual single audit reports. For the audits procured by the Office of the Auditor, those reports are available through the Office of the Auditor’s website.

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State of Hawai’i Single Audit Report
04/15/2024

PHOTO: O‘AHU METROPOLITAN PLANNING ORGANIZATION

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the O‘ahu Metropolitan Planning Organization, as of and for the fiscal year ended June 30, 2023, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by N&K CPAs, Inc.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, OahuMPO reported total revenues of approximately $3.74 million and total expenses of approximately $3.73 million, resulting in minimal change in net position. Revenues consisted of $3 million from federal grants and $744,000 in contributions from the State of Hawai‘i and City and County of Honolulu.

Total expenses consisted of (1) $358,000 for transportation forecasting and long-range planning; (2) $1.87 million for short-range transportation system and demand management planning; (3) $6,000 for transportation monitoring and analysis; and (4) $1.49 million for program coordination and administration.

As of June 30, 2023, total assets exceeded total liabilities by $498,000. Total assets of $1.8 million, included cash of $822,000, receivables and other assets of $895,000, and net capital assets of $87,000. Total liabilities were $1.3 million.

Auditors’ Opinion

OahuMPO RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. OahuMPO also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. However, the auditors identified two significant deficiencies that are required to be reported under Government Auditing Standards. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiencies are described on pages 45-46 of the report.

There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Organization

Federal highway and transit statutes require urbanized areas greater than 50,000 in population to designate a metropolitan planning organization as a condition for spending federal highway or transit funds. O‘ahu Metropolitan Planning Organization (OahuMPO) is the designated metropolitan planning organization for the island of O‘ahu. OahuMPO was established by agreement between the Governor of the State of Hawai‘i and the Chairperson of the City Council of the City and County of Honolulu and serves as the decision-making body responsible for carrying out continuing, comprehensive, and cooperative transportation planning and programming for the island of O‘ahu.

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Financial and Compliance Audit of the O‘ahu Metropolitan Planning Organization
04/12/2024

Photo: Hawai‘i Public Housing Authority

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the Hawai‘i Public Housing Authority Single Audit for the fiscal year ended June 30, 2023, was to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KMH LLP.

About the Report

SINGLE AUDITS provide assurance to the federal government that state agencies and programs receiving federal funds are expending those funds properly. This report includes the total federal expenditures and findings related to HPHA’s Federal Financial Assistance Programs for the fiscal year ended June 30, 2023. Federal expenditures totaled approximately $154.3 million.

Auditors’ Opinion
HPHA RECEIVED AN UNMODIFIED OPINION on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that were required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Division

The mission of the Hawai‘i Public Housing Authority (HPHA) is to provide safe, decent, and sanitary dwellings for low and moderate-income residents of Hawai‘i and to operate its housing programs in accordance with federal and State laws and regulations. Some of HPHA’s housing assistance programs are funded by the U.S. Department of Housing and Urban Development.

HPHA is administratively attached to the Hawai‘i Department of Human Services (DHS). HPHA operates under the direction of its Executive Director and Board of Directors, which consists of eleven board members, nine of whom are appointed by the Governor. The Director of DHS and the Governor’s designee are ex-officio members.

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Single Audit of Federal Financial Assistance Programs of the Hawai‘i Public Housing Authority
04/12/2024

PHOTO: HAWAII DOT AIRPORTS DIVISION

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the Department of Transportation, Airports Division, Single Audit for the fiscal year ended June 30, 2023, was to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Plante & Moran, PLLC.

About the Report

SINGLE AUDITS provide assurance to the federal government that state agencies and programs receiving federal funds are expending those funds properly. This report includes the total federal expenditures and findings related to the DOT–Airports’ Federal Financial Assistance Programs for the fiscal year ended June 30, 2023.

Auditors’ Opinion

DOT-AIRPORTS RECEIVED AN UNMODIFIED OPINION on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WAS A MATERIAL WEAKNESS in internal control over financial reporting that was required to be reported under Government Auditing Standards. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. The material weakness is described on page 11 of the single audit report.

There was a material weakness in internal control over compliance that was required to be reported in accordance with the Uniform Guidance. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. The material weakness is described on page 12 of the single audit report.

About the Division

The Department of Transportation, Airports Division (DOT–Airports), operates and maintains 15 airports at various locations within the State of Hawai‘i as a single integrated system for management and financial purposes. Daniel K. Inouye International Airport is the principal airport in the airports system, providing facilities for interisland flights, domestic overseas flights, and international flights to destinations in the Pacific Rim. DOT–Airports is authorized to impose and collect rates and charges for the airports system services and properties to generate revenues to fund operating expenses. The Capital Improvements Program is primarily funded by airports system revenue bonds and lease revenue certificates of participation issued by DOT–Airports, federal grants, passenger facility charges, customer facility charges, and DOT–Airports revenues.

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Single Audit of Federal Financial Assistance Programs of the Department of Transportation, Airports Division
04/11/2024

Photo: Office of the Auditor

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, as of and for the fiscal year ended June 30, 2023, and to comply with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, DOH reported total revenues of $952.7 million and total expenses of $837.4 million, resulting in an increase in net position of $115.3 million. Revenues included $635.2 million from general revenues, $267.4 million from operating grants and contributions, and $50.1 million from service charges.

Expenses included $304.7 million for health resources, $398 million for behavioral health, $88.4 million for environmental health, and $46.3 million for general administration.

As of June 30, 2023, total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources by $1.45 billion. Total assets and deferred outflows of resources of $1.63 billion included (1) cash of $528 million, (2) receivables of $104 million, (3) loans receivable of $753 million, (4) accrued interest and loan fees of $3 million, (5) deferred outflows of resources of $2 million, and (6) net capital assets of $239 million. Total liabilities and deferred inflows of resources totaled $177 million. DOH’s net position of $1.45 billion is comprised of a restricted amount of $941 million, of which $872 million is for loans; an unrestricted amount of $271 million; and net investment in capital assets of $239 million.

Auditors’ Opinions
DOH RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOH received an unmodified opinion on its compliance for all major federal programs, except for Substance Abuse and Mental Health Services Projects of Regional and National Significance, Immunization Cooperative Agreements, Opioid STR, Block Grants for Community Mental Health Services, and Block Grants for Prevention and Treatment of Substance Abuse, which received a qualified opinion in accordance with the Uniform Guidance.

Findings
THERE WAS ONE MATERIAL WEAKNESS and three significant deficiencies in internal control over financial reporting that were required to be reported under Government Auditing Standards.

A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. The material weakness is described on pages 100-101 of the report.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiencies are described on pages 102-106 of the report.

There were six material weaknesses and one significant deficiency in internal control over compliance that were required to be reported in accordance with the Uniform Guidance. The material weaknesses are described on pages 107-117 of the report and the significant deficiency is described on pages 118-119 of the report.

A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis.

A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

About the Department

The mission of the Department of Health (DOH) is to protect and improve the health and environment for all people in Hawai‘i. DOH administers and oversees statewide personal health services, health promotion and disease prevention, mental health programs, monitoring of the environment, and the enforcement of environmental health laws. It administers federal grants to support the State’s health services and programs and is organized into four major administrations: Behavioral Health Services Administration, Health Resources Administration, Environmental Health Administration, and General Administration.

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Financial and Compliance Audit of the Department of Health
04/11/2024

PHOTO: DEPARTMENT OF HUMAN SERVICES

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Human Services, as of and for the fiscal year ended June 30, 2023, and to comply with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, DHS reported total revenues of $5.23 billion and total expenses of $5.14 billion. Revenues consisted of $1.54 billion in state allotments, net of lapsed amounts plus non-imposed employee fringe benefits, and $3.7 billion in operating grants from the federal government. Revenues from these federal grants paid for 71.9 percent of the cost of DHS’ activities.

Health care and general welfare assistance programs comprised 70 and 25.2 percent, respectively, of the total cost. The following chart presents each major activity as a percentage of the total cost of all DHS activities.

As of June 30, 2023, DHS’ total assets of $538 million included (1) cash of $344 million, (2) receivables of $112 million, and (3) net capital assets of $82 million. Total liabilities of $320 million included (1) vouchers payable of $10 million, (2) accrued wages and employee benefits of $11 million, (3) amounts due to the State General Fund of $57 million, (4) amounts due to other governments of $148 million, (5) accrued medical assistance payable of $77 million, and (6) accrued compensated absences of $16 million.

Auditors’ Opinions
DHS RECEIVED AN UNMODIFIED OPINION that its financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles. DHS received a qualified opinion on its compliance for all major federal programs, except for Economic, Social, Political Development of the Territories, COVID-19 Coronavirus State and Local Fiscal Recovery Funds, Social Services Block Grant, State Children’s Health Insurance Program, and COVID-19 Medicaid Cluster, which received an unmodified opinion in accordance with the Uniform Guidance.

Findings
THE AUDITORS IDENTIFIED a material weakness and a significant deficiency in internal control over financial reporting that were required to be reported under Government Auditing Standards.

A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. The material weakness is described on pages 60-61 of the report.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiency is described on pages 62-63 of the report.

There were 10 material weaknesses in internal control over compliance that were required to be reported in accordance with the Uniform Guidance. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. The material weaknesses are described on pages 65-67, 70-78, and 81-82 of the report.

There were five significant deficiencies in internal control over compliance that were required to be reported in accordance with the Uniform Guidance. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. The deficiencies are described on pages 64, 68-69, 79-80, and 83 of the report.

About the Department

The Department of Human Services (DHS) works to provide benefits and services to individuals and families in need. The majority of DHS’ budget is comprised of federal funds. DHS’ mission is to direct its funds toward protecting and helping those least able to care for themselves and to provide services designed toward achieving self-sufficiency for clients as quickly as possible. Activities include health care programs; general welfare assistance, employment and support services; child welfare and adult community care services; vocational rehabilitation and services for the blind; youth prevention, delinquency and correction services; and general administration. Attached programs include the Commission on the Status of Women and the Commission on Fatherhood.

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Financial and Compliance Audit of the Department of Human Services
04/10/2024

Photo: Department of Hawaiian Home Lands

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Hawaiian Home Lands, as of and for the fiscal year ended June 30, 2023, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Akamine, Oyadomari & Kosaki CPA’s, Inc.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, DHHL’s total revenues exceeded total expenses
by $207.8 million. Revenues totaled $274.8 million and consisted of (1) program revenue of $54 million and (2) state appropriations, transfers, and adjustments of $220.8 million. Expenses totaled $67 million. Program revenues were comprised of interest income (approximately 37 percent), grants and contributions (24 percent), revenue from the general lease program (34 percent), and other sources (5 percent).

As of June 30, 2023, total assets of $1.54 billion exceeded total liabilities of $398 million, resulting in a net position balance of $1.1 billion. Total assets included net capital assets of $490 million, cash of $623 million, loans receivable of $91 million, and other assets and deferred outflows of resources of $334 million. Loans receivable consisted of 1,251 loans made to native Hawaiian lessees for the purposes specified in the Hawaiian Homes Commission Act. Loans are for a maximum amount of approximately $452,000 and for a maximum term of 40 years. Interest rates on outstanding loans range up to 10 percent. Total liabilities included bonds and lease liabilities totaling $44 million and temporary deposits payable and other liabilities of $354 million.

Auditors’ Opinions
DHHL RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DHHL also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO REPORTED DEFICIENCIES IN INTERNAL CONTROL over financial reporting that are considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that are considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Department

The Hawaiian Homes Commission Act sets aside certain public lands as Hawaiian home lands to be utilized in the rehabilitation of native Hawaiians.  These public lands are managed by the Department of Hawaiian Home Lands (DHHL), a state agency headed by the Hawaiian Homes Commission, whose primary responsibilities are to serve its beneficiaries and to manage this extensive land trust.  DHHL provides direct benefits to native Hawaiians in the form of 99-year homestead leases at $1 per year for residential, agricultural, or pastoral purposes, and financial assistance through direct loans, insured loans, or loan guarantees for home purchase, construction, home replacement, or repair.  In addition to administering the homesteading program, DHHL leases trust lands not in homestead use at market value and issues revocable permits, licenses, and rights-of-entry.  Its financial statements include the public trusts controlled by the Hawaiian Homes Commission.

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Financial and Compliance Audit of the Department of Hawaiian Home Lands
04/10/2024

Photo: Istock.com

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the special-purpose audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Convention Center, as of and for the fiscal year ended June 30, 2023. The special-purpose financial statements have been prepared pursuant to the provisions of the management agreement between the Hawai‘i Tourism Authority and ASM Global (ASM), a private company contracted to operate the Hawai‘i Convention Center. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ENDED June 30, 2023, the Center reported total revenues of $14.4 million, total expenses of $19.2 million, and $7.8 million in net contributions from the Hawai‘i Tourism Authority, which resulted in an increase in net assets of $2 million. Revenues consisted of (1) $7.9 million from food and beverage; (2) $3.1 million from rental income; (3) $3.3 million from events; and (4) $100,000 from other revenues.

Expenses consisted of (1) $6.4 million for personnel services; (2) $4.8 million for building-related expenses; (3) $3.5 million for cost of goods sold; and (4) $4.5 million for other costs.

As of June 30, 2023, the Center’s total assets of $45 million were comprised of (1) cash of
$42 million; (2) amounts due from Hawai‘i Tourism Authority of $1.5 million; (3) accounts receivable of $1.4 million; and (4) other assets of $100,000. Total liabilities of $5.2 million were comprised of (1) accounts payable of $2.6 million; (2) advance deposits of $2.2 million; and (3) other liabilities of $400,000.

Property, building, furniture, and equipment used in the Center’s operations, and related depreciation expense, as well as debt used to finance such capital assets and the related interest expense, are not reflected in the Center’s special-purpose financial statements. Those assets, liabilities, and related expenses are reflected on the financial statements of the Hawai‘i Tourism Authority.

Auditors’ Opinion
THE CENTER RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with the management agreement between the Hawai‘i Tourism Authority and ASM, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

About the Center

THE HAWAI‘I CONVENTION CENTER (Center), which opened to the general public in June 1998, is used for a variety of events, including conventions and trade shows, public shows, and spectator events. The Center offers approximately 350,000 square feet of rentable space, including 51 meeting rooms. The Hawai‘i Tourism Authority assumed responsibility for the operation, management, and maintenance of the Center in July 2000. The Center is reported as a special revenue fund of the Hawai‘i Tourism Authority.

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Department of Business, Economic Development & Tourism, Hawai’i Convention Center – June 30, 2023 Special Purpose Financial Statements
04/10/2024

Photo: Office of the Auditor

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of the Attorney General, as of and for the fiscal year ended June 30, 2023, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, AG reported total revenues of $461.8 million and total expenses of $450.9 million, resulting in an increase in net position of approximately $10.8 million. Revenues include general revenues of $389.4 million, primarily state appropriations; program revenues consisting of charges for services of $37 million; and operating grants and contributions of $35.4 million.

Expenses of $450.9 million consisted of (1) $409.6 million for general administrative and legal services; (2) $24.6 million for child support enforcement; (3) $10.6 million for crime prevention and justice assistance; and (4) $6.2 million for criminal justice data center activities.

Auditors’ Opinions
AG RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. AG also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that was required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Department

The Department of the Attorney General (AG) provides legal services to the executive, legislative, and judicial branches of Hawai‘i State government, including furnishing formal and informal legal opinions to the Governor, Legislature, and heads of Hawai‘i State departments and offices and approving documents relating to the acquisition of lands and interests by the State. AG also maintains criminal justice information, conducts investigations, operates crime prevention programs, and represents the State of Hawai‘i in legal proceedings. AG’s Child Support Enforcement Agency provides assistance to children by locating parents, establishing paternity and support obligations, and enforcing those obligations.

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Financial and Compliance Audit of the Department of the Attorney General – June 30, 2023 Financial Statements
04/05/2024

Photo: Hawai‘i Tourism Authority / Tor Johnson

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Tourism Authority, as of and for the fiscal year ended June 30, 2023, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, HTA reported total revenues of $79.6 million, along with $5 million in transfers from other state departments, and total expenses of $69.5 million. Revenues consisted of $50.5 million from federal grants, $11 million from transient accommodations tax, $16 million from charges for services, and $2.1 million from interest and other revenues.

Total expenses of $69.5 million consisted of $57.4 million for contracts, $8.5 million for depreciation, and $3.6 million for payroll, administrative, and other expenses.

As of June 30, 2023, total assets and deferred outflows of resources of $341.1 million exceeded total liabilities and deferred inflows of resources of $55.3 million, resulting in a net position of $285.8 million. Total assets and deferred outflows of resources included (1) cash of $109.6 million, (2) land and net capital assets of $180.5 million, and (3) other assets and deferred outflows of resources of $51 million.

Auditors’ Opinion
HTA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. HTA also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Authority

The Hawai‘i Tourism Authority (HTA) was established by the 1998 Legislature to serve as the State’s lead agency for strategically managing tourism. State law requires HTA to develop a tourism marketing plan that includes statewide promotional efforts and programs, targeted markets, and other marketing efforts with measures of effectiveness and documentation of HTA’s progress toward strategic plan goals. HTA is also responsible for the Hawai‘i Convention Center. The primary source of funding for HTA’s operations is the General Fund. HTA is governed by a board of directors comprised of 12 voting members, each of
whom is appointed by the Governor, and is placed within the Department of Business, Economic Development and Tourism for administrative purposes.

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Financial and Compliance Audit of the Hawai‘i Tourism Authority
04/05/2024

Photo: IStock.com

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, Drinking Water Treatment Revolving Loan Fund, as of and for the fiscal year ended June 30, 2023, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards and the Environmental Protection Agency Audit Guide for Clean Water and Drinking Water State Revolving Fund Programs. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, the Revolving Fund reported total revenues of $28.9 million and total operating expenses of $7.5 million, resulting in a change in net position of $21.4 million.

Total revenues consisted of (1) administrative loan fees of $2.6 million, (2) federal contributions of $20.5 million, (3) state contributions of $4 million, and (4) other income of $1.8 million.

Total expenses consisted of (1) administrative expenses of $1.4 million, (2) state program management of $900,000, (3) water protection of $400,000, and (4) other expenses of $4.8 million.

As of June 30, 2023, total assets and deferred outflows of resources were $275.6 million and total liabilities and deferred inflows of resources were $6.3 million. Total assets were comprised of (1) cash and cash equivalents of $35 million, (2) loans receivable of $237.9 million, and (3) other assets and deferred outflows of resources of $2.7 million. Total liabilities were comprised of (1) net other post-employment benefits liability of $2.4 million, (2) net pension liability of $2.6 million, and (3) other liabilities and deferred inflows of resources of $1.3 million.

Auditors’ Opinions

THE REVOLVING FUND RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. The Revolving Fund also received an unqualified opinion on its compliance with the Drinking Water State Revolving Funds Program (Program).

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance with the Program.

About the FundThe Safe Drinking Water Act was originally passed by Congress in 1974 to protect public health by regulating the nation’s public drinking water supply. The law was amended in 1996 to provide funding for water system improvements. In 1997, the Hawai‘i State Legislature established the Drinking Water Treatment Revolving Loan Fund (Revolving Fund) to receive federal capitalization grants from the U.S. Environmental Protection Agency. The Revolving Fund is used to provide loans in perpetuity to public drinking water systems for construction of drinking water treatment facilities. Such loans may be at or below market interest rates and must be fully amortized within twenty years. The Revolving Fund is administered by the State of Hawai‘i Department of Health’s Environmental Management Division, Safe Drinking Water Branch.

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Financial and Compliance Audit of the Department of Health, Drinking Water Treatment Revolving Loan Fund
04/05/2024

Photo: IStock.com

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, Water Pollution Control Revolving Fund, as of and for the fiscal year ended June 30, 2023, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards and the Environmental Protection Agency Audit Guide for Clean Water and Drinking Water State Revolving Fund Programs. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, the Revolving Fund reported total revenues of $24.1 million and total operating expenses of $5 million, resulting in an increase in net position of $19.1 million. Total revenues consisted of (1) administrative loan fees of $4 million, (2) interest income of $1.4 million, (3) state contributions of $3.9 million, (4) federal contributions of $12.6 million, and (5) other income of $2.2 million. Total expenses of $5 million consisted of administrative expenses of $3.4 million and other expenses of $1.6 million.

As of June 30, 2023, total assets and deferred outflows of resources were $611.2 million and total liabilities and deferred inflows of resources were $8.2 million. Total assets were comprised of (1) cash and cash equivalents of $91.9 million, (2) loans receivable of $515.1 million, and (3) other assets and deferred outflows of resources of $4.2 million. Total liabilities were comprised of (1) net other post-employment benefits liability of $3.1 million, (2) net pension liability of $3.9 million, and (3) other liabilities and deferred inflows of resources of $1.2 million.

Auditors’ Opinions

THE REVOLVING FUND RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. The Revolving Fund also received an unqualified opinion on its compliance with the Clean Water State Revolving Fund Program (Program).

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance with the Program.

About the Fund

The federal Clean Water State Revolving Fund provides low-cost infrastructure financing for public water quality infrastructure projects. Moneys earmarked for Hawai‘i are deposited into the State’s Water Pollution Control Revolving Fund (the Revolving Fund) and are used to provide loans in perpetuity to county and state agencies for the construction of wastewater treatment facilities and other programs. Loans may be at or below market interest rates and be fully amortized for a period not to exceed twenty years. Under the federal Clean Water Act of 1987, from 1989 to 1994, the State of Hawai‘i received more than $72 million in capitalization grants. The State continues to receive capitalization grants annually from the U.S. Environmental Protection Agency. The Revolving Fund is administered by the State of Hawai’i Department of Health’s Environmental Management Division, Wastewater Branch.

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Financial and Compliance Audit of the Department of Health, Water Pollution Control Revolving Fund
04/05/2024

Photo: Hawai‘i Public Housing Authority

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Public Housing Authority as of and for the fiscal year ended June 30, 2023. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, HPHA reported total revenues of $204.5 million and total expenses of $195.2 million, resulting in an increase in net position of $9.3 million.

Total revenues of $204.5 million consisted of (1) $29 million in charges for services and other revenues, (2) $148.3 million in operating grants and contributions, (3) $7.3 million in capital grants and contributions, (4) $19.4 million in State allotted appropriations, net of lapsed funds, and
(5) $500,000 in other non-program revenue.

Total expenses of $195.2 million consisted of (1) $108 million for the rental housing assistance program, (2) $73.3 million for the rental assistance program, (3) $11.5 million for the housing development program, and (4) $2.4 million for other costs.

As of June 30, 2023, total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources by $472.7 million. The agency reported total assets and deferred outflows of resources of $571.1 million which were comprised of (1) cash of $116.8 million, (2) amounts due from State of $72.6 million, (3) notes and other receivables of $11.4 million, (4) net capital assets of $362.5 million, and (5) other assets and deferred outflows or resources of $7.8 million. The agency also reported total liabilities and deferred inflows of resources of $98.4 million which were comprised of (1) net pension liability of $38 million, (2) net other postemployment benefits other than pensions of $33.4 million, (3) accounts payable and accrued expenses of $14.9 million, and (4) other liabilities and deferred inflows of resources of $12.1 million.

Auditors’ Opinions
HPHA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings
THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that were required to be reported under Government Auditing Standards.

About the AuthorityThe mission of the Hawai‘i Public Housing Authority (HPHA) is to provide safe, decent, and sanitary dwellings for low and moderate-income residents of Hawai‘i and to operate its housing programs in accordance with federal and State laws and regulations. Some of HPHA’s housing assistance programs are funded by the U.S. Department of Housing and Urban Development (HUD).

HPHA is administratively attached to the Hawai‘i Department of Human Services (DHS). HPHA operates under the direction of its Executive Director and Board of Directors, which consists of eleven board members, nine of whom are appointed by the Governor. The Director of DHS and the Governor’s designee are ex-officio members.

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Financial Audit of the Hawai‘i Public Housing Authority
04/05/2024

ILLUSTRATION: ISTOCK.COM

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the State of Hawai‘i’s financial statements, as presented in the Annual Comprehensive Financial Report (ACFR) for the State of Hawai‘i, as of and for the fiscal year ended June 30, 2023. The audit was conducted by Accuity LLP. The ACFR was issued on March 27, 2024.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, total revenues were $18.9 billion and total expenses were $15.2 billion, resulting in an increase in net position of $3.7 billion. Approximately 59 percent of the State of Hawai‘i’s total revenues came from taxes of $11.1 billion, 29 percent from grants and contributions of $5.4 billion, and 12 percent from charges for various goods and services of $2.4 billion.

Total tax revenues of $11.1 billion consisted of general excise taxes of $4.8 billion, net income taxes of
$3.6 billion, and other taxes of $2.7 billion.

The largest expenses were for welfare at $5 billion, lower education at $3.6 billion, higher education at
$1.1 billion, health at $1 billion, and general government at $1.3 billion. Other expenses totaled $3.2 billion.

As of June 30, 2023, total assets and deferred outflows of resources of $32.5 billion exceeded total liabilities and deferred inflows of resources of $31 billion, resulting in a net position of $1.5 billion. Of this amount, $3.9 billion was for the State’s net investment in capital assets, $5.1 billion was restricted for specific programs, and a negative $7.4 billion was unrestricted assets.

As of June 30, 2023, total assets and deferred outflows of resources of $32.5 billion were comprised of (1) net capital assets of $15.8 billion, (2) investments of $7.7 billion, (3) cash of $2.3 billion, (4) receivables of $2.1 billion, (5) restricted assets of $1.3 billion, and (6) other assets and deferred outflows of resources of $3.3 billion. Total liabilities and deferred inflows of resources of $31 billion were comprised of (1) general obligation and revenue bonds payable of $12.4 billion, (2) vacation and retirement benefits of
$11.9 billion, and (3) other liabilities and deferred inflows of resources of $6.7 billion.

Auditors’ Opinion
THE STATE OF HAWAI‘I RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

About the State

THE STATE OF HAWAI‘I is mandated by statute to provide a range of services in the areas of education (both lower and higher), welfare, transportation (including highways, airports, and harbors), health, hospitals, public safety, housing, culture and recreation, economic development, and conservation of natural resources.

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Financial Audit of the Annual Comprehensive Financial Report of the State of Hawai‘i
04/04/2024

Photo: Office of the Auditor

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Education, as of and for the fiscal year ended June 30, 2023, and to comply with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, DOE reported total revenues of $4.36 billion and total expenses of $3.65 billion, resulting in an increase in net position of $705.5 million.

Total revenues of $4.36 billion consisted of (1) $3.02 billion in state-allotted appropriations, net of lapsed funds, (2) $748.3 million in non-imposed employee wages and fringe benefits, (3) $493.3 million in operating grants and contributions, (4) $92.5 million in charges for services, and (5) $2.3 million in other income.

Total expenses of $3.65 billion consisted of (1) $3.39 billion for school-related costs, (2) $85.4 million for state and school complex area administration, (3) $54.6 million for public libraries, and
(4) $119.3 million for capital outlay.

As of June 30, 2023, total assets exceeded total liabilities by $4.14 billion. Of this amount, $1.81 billion is unrestricted and may be used to meet ongoing expenses and obligations. Total assets of $4.83 billion were comprised of (1) cash of $2.31 billion, (2) receivables of $80.5 million, and (3) net capital assets of $2.44 billion. Total liabilities of $688.9 million were comprised of (1) vouchers and contracts payable of $200.2 million, (2) accrued wages and employee benefits of $180.4 million, (3) accrued compensated absences of $86.8 million, (4) workers’ compensation claims reserve of $143 million, (5) amount due to the State General Fund of $5 million, (6) notes payable of $31.9 million, (7) lease liability of $29.2 million, (8) subscription liability of $12.1 million, and (9) other liabilities of $300,000.

Auditors’ Opinion
DOE RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOE also received an unmodified opinion on its compliance with major federal programs, except for Economic, Social, and Political Development of the Territories and COVID-19 Education Stabilization Fund, which received a qualified opinion in accordance with the Uniform Guidance.

Findings
THERE WERE NO MATERIAL WEAKNESSES in internal controls over financial reporting that were required to be reported under Government Auditing Standards. However, the auditors identified a significant deficiency that is required to be reported under Government Auditing Standards. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiency is described on page 48 of the report.

There were two material weaknesses in internal control over compliance that were required to be reported in accordance with the Uniform Guidance. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. The material weaknesses are described on pages 49 and 55-56 of the report.

There were four other instances of noncompliance that were required to be reported in accordance with the Uniform Guidance. The control deficiencies are described on pages 50-54 of the report.

About the DepartmentThe Department of Education (DOE) administers the statewide system of public schools and public libraries. DOE is also responsible for administering state laws regarding regulation of private school operations through a program of inspection and licensing and the professional certification of all teachers for every academic and noncollege type of school. Federal grants received to support public school and public library programs are administered by DOE on a statewide basis.

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Financial and Compliance Audit of the Department of Education
03/19/2024

Photo: Office of the Auditor

AUDITOR’S SUMMARY

Two special funds, five revolving funds, one trust fund, and one trust account did not meet criteria

OUR REVIEW of twelve special funds, six revolving funds, eight trust funds, and seventeen trust accounts of the Department of Transportation (DOT) found two special funds, five revolving funds, one trust fund, and one trust account did not meet the criteria for special funds, revolving funds, trust funds, and trust accounts, respectively, and should be closed or reclassified.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our seventh review of DOT’s revolving funds, trust funds, and trust accounts.
It is our third review of the special funds held by DOT since Act 130, Session Laws of Hawai’i 2013, amended Section 23-12, HRS, to require review of special funds along with revolving funds and trust funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall
WE NOTED THAT DOT did not file statutorily required reports for non-general funds totaling approximately $28.3 million, administratively created non-general funds totaling approximately $530.2 million, non-general funds with balances totaling approximately $1.57 billion under the program measures reporting requirement, and non-general funds with balances totaling approximately $2.19 billion under the cost element reporting requirement. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds.

Agency response
DOT concurred with our recommendations for fund reclassification and stated they will reach out to the Department of Accounting and General Services to implement these recommendations. DOT acknowledged that Safe Routes to School Program Special Fund could be successfully implemented using the General Fund. DOT, with concurrence from the Safe Routes to School Advisory Committee, can transfer funds to the counties to implement the Safe Routes to School Program plan and projects.

FUND TYPES

SPECIAL FUNDS
are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS
such as loan funds, are often established with an appropriation of seed money from the general fund, and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS
such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS
are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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24-04, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Transportation
03/15/2024

Photo: Hawai‘i Housing Finance and Development Corporation

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Housing Finance and Development Corporation, as of and for the fiscal year ended June 30, 2023, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Eide Bailly LLP.

Financial Highlights

HHFDC HAS TWO TYPES OF FUNDS – governmental funds and proprietary funds. HHFDC’s governmental funds are supported primarily by appropriations from the State’s General Fund, federal grants, and proceeds of the State’s general obligation bonds allotted to HHFDC. HHFDC’s governmental funds include (1) the General Fund, (2) the General Obligation Bond Fund, (3) the HOME Investment Partnership Program, (4) the Housing Trust Fund Program, and (5) the Homeowner Assistance Fund Program.

HHFDC’s proprietary funds operate similar to business-type activities and are used to account for those activities for which the intent of management is to recover (primarily through user charges) the cost of providing services to customers. HHFDC’s proprietary funds include (1) the Rental Housing Revolving Fund, (2) the Dwelling Unit Revolving Fund, (3) the Single Family Mortgage Purchase Revenue Bond Fund, (4) the Housing Finance Revolving Fund, and (5) several other non-major enterprise funds.

For the fiscal year ended June 30, 2023, HHFDC reported total program revenues of $87 million and total program expenses of $25.6 million. In addition, HHFDC reported state-allotted appropriations, net of lapses, of $62 million and a loss on disposal of capital assets of $1.7 million for the fiscal year ended June 30, 2023. Together with program revenues and expenses, this resulted in an overall increase in net position of $121.7 million.

As of June 30, 2023, the agency reported total assets and deferred outflows of resources of $1.84 billion, comprised of (1) cash of $628.9 million, (2) investments of $19.3 million, (3) notes and loans receivable of $120.6 million, (4) moneys due from the State of $103.3 million, (5) net capital assets of $84 million, and (6) other assets and deferred outflows of resources of $887.2 million. The agency reported total liabilities and deferred inflows of resources of $82.6 million, comprised of (1) revenue bonds payable of $3.7 million, (2) unearned income of $22.6 million, (3) moneys due to other state departments of $103.3 million, and (4) other liabilities and deferred inflows of resources of $33.6 million.

Auditors’ Opinions
HHFDC RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. HHFDC also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THE AUDITORS IDENTIFIED A MATERIAL WEAKNESS in internal control over financial reporting that was required to be reported under Government Auditing Standards. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. The material weakness is described on page 97 of the report.

There were no findings that were considered material weaknesses in internal control over compliance that are required to be reported under the Uniform Guidance.

About the CorporationThe Hawai‘i Housing Finance and Development Corporation (HHFDC) was established by the State Legislature in 2006. Its mission is to increase the State’s supply of workforce and affordable homes by providing tools and resources to facilitate housing development, such as housing tax credits, low-interest construction loans, equity gap loans, and developable land and expedited land use approvals. The agency is administratively attached to the Hawai‘i Department of Business, Economic Development and Tourism.

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Financial and Compliance Audit of the Hawai‘i Housing Finance and Development Corporation
03/15/2024

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AUDITOR’S SUMMARY

 

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Employees’ Retirement System of the State of Hawai‘i, as of and for the fiscal year ended June 30, 2022. The audit was conducted by Eide Bailly LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, ERS reported total net additions of approximately $1.7 billion. Additions consisted of $1.53 billion from contributions and $165 million in net investment income.

Total deductions of approximately $1.78 billion consisted of (1) $1.74 billion for benefit payments; (2) $17 million for administrative expenses; and (3) $24 million for refund of member contributions.

As of June 30, 2022, assets totaled $22.73 billion and liabilities totaled $872 million, leaving a net position balance of $21.86 billion. Total assets included (1) investments of $22.47 billion; (2) receivables of $156 million; (3) cash of $99 million; and (4) net equipment of $5 million.

Auditors’ Opinion
ERS RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings
THE AUDITORS IDENTIFIED A MATERIAL WEAKNESS and a significant deficiency in internal control over financial reporting that were required to be reported under Government Auditing Standards.

A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. The material weakness identified by the auditors related to the classification of certain investments. A reclassifying journal entry was recorded by management to correct the classification and accounting for these investments. There was no impact on net position, but the journal entry had material impacts on financial statement line items in the statement of fiduciary net position. Management acknowledged the finding and has implemented procedures to monitor, review and approve investment classifications for reporting in conformity with similar investments held by other statewide employee retirement systems.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiency identified by the auditors related to the lack of a documented journal entry review and approval process. Management acknowledged the finding and has implemented procedures to strengthen the journal entry, review, and approval process.

There were no instances of noncompliance or other matters required to be reported under Government Auditing Standards. The Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards is reported separately and is available upon request.

About the System

The Employees’ Retirement System of the State of Hawai‘i (ERS) is a cost-sharing, multiple-employer retirement system for government workers. Through its pension benefits program, ERS provides a defined-benefit pension plan for all state and county employees, including teachers, professors, police officers, firefighters, correction officers, judges and elected officials. ERS is governed by a Board of Trustees, which consists of eight members.

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Financial Audit of the Employees’ Retirement System of the State of Hawai’i
03/07/2024

Photo: Hawai‘i DOT Highways Division

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Transportation, Highways Division, as of and for the fiscal year ended June 30, 2023, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, DOT–Highways reported total revenues of $588 million and total expenses of $598.6 million, resulting in a decrease in net position of $10.6 million. Revenues consisted of (1) $266 million in tax collections; (2) $256.1 million in grants and contributions primarily from the Federal Highway Administration; (3) $57.4 million in charges for services; and
(4) $8.5 million in investment income and other revenues.

Expenses consisted of (1) $145.4 million for operations and maintenance; (2) $205.8 million in depreciation; (3) $235.2 million for administration and other expenses; and (4) $12.2 million in interest.

As of June 30, 2023, total assets and deferred outflows of resources of $5.52 billion were comprised of
(1) cash and investments of $536.7 million; (2) net capital assets of $4.9 billion; and (3) $47.7 million in other assets and deferred outflows of resources. Total liabilities of $796.1 million included $572.1 million in revenue bonds and $224 million in other liabilities.

DOT–Highways has numerous capital projects ongoing statewide; construction-in-progress totaled
$351 million at the end of the fiscal year.

Auditors’ Opinion
DOT-HIGHWAYS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT–Highways also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. However, the auditors identified one significant deficiency in internal controls over financial reporting that is required to be reported under Government Auditing Standards. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiency is described on page 9-10 of the single audit report.

There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the DivisionThe mission of the Department of Transportation, Highways Division (DOT–Highways) is to provide a safe, efficient, and sustainable State Highway System that ensures the mobility of people and goods within the State. The division is charged with maximizing available resources to provide, maintain, and operate ground transportation facilities and support services that promote economic vitality and livability in Hawai‘i. DOT–Highways also works with the Statewide Transportation Planning Office on innovative and diverse approaches to congestion management.

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Financial and Compliance Audit of the Department of Transportation, Highways Division
02/29/2024

Photo: Office of the Auditor

AUDITOR’S SUMMARY

Sixty-five of the funds proposed in 2024 did not meet criteria.

We reviewed 83 Senate and House bills introduced during the 2024 legislative session proposing 65 special and revolving funds of which none met criteria.

ONLY ABOUT HALF OF THE MONEY the State spends each year comes from its main financial account, the General Fund. The other half of expenditures are financed by special, revolving, federal, and trust funds. Between 2008 and 2012, the number of these non-general funds and the amount of money contained in them substantially increased. Much of that upward trend had been caused by an increase in special funds, which are funds set aside by law for a specified object or purpose.

In 2013, the Legislature amended Section 23-11, Hawai‘i Revised Statutes (HRS), after the Auditor recommended changes to stem a trend in the proliferation of special and revolving funds over the past 30 years. Such funds erode the Legislature’s ability to control the State budget through the general fund appropriation process. General funds, which made up about two-thirds of state operating budget outlays in the late 1980s, had dwindled to about half of outlays.

By 2011, special funds amounted to $2.48 billion, or 24.3 percent, of the State’s $10.2 billion operating budget. Also ballooning were revolving funds, which are used to pay for goods and services and are replenished through charges to users of the goods and services or transfers from other accounts or funds. By 2011, revolving funds made up $384.2 million, or 3.8 percent, of the State’s operating budget. Further hampering the Legislature’s control over the budget process was a 2008 court case. In Hawai‘i Insurers Council v. Linda Lingle, Governor of the State of Hawai‘i, the Hawai‘i Supreme Court determined that under only certain conditions could the Legislature “raid” special funds to balance the State budget. In 2013, in order to gain more control over the budget process, the Legislature built new safeguards into the criteria for establishing special and revolving funds.

This year, applying the criteria required by Section 23-11, HRS, we reviewed 83 Senate and House bills introduced during the 2024 legislative session that propose 65 new special and revolving funds. We determined that none of the proposed special and revolving funds satisfied the criteria established by the Legislature.

The CriteriaSECTION 23-11, HRS, requires the Auditor to analyze all bills proposing to establish new special or revolving funds according to the following criteria:

1. The need for the fund, as demonstrated by:

  • The purpose of the program to be supported by the fund;
  • The scope of the program, including financial information on fees to be charged, sources of projected revenue, and costs; and
  • An explanation of why the program cannot be implemented successfully under the general fund appropriation process; and

2. Whether there is a clear nexus between the benefits sought and charges made upon the program users or beneficiaries or a clear link between the program and the sources of revenue, as opposed to serving primarily as a means to provide the program or users with an automatic means of support that is removed from the normal budget and appropriation process.

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24-03, Proposed Special and Revolving Fund Analyses
02/29/2024

Photo: Office of the Auditor

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of the Attorney General, as of and for the fiscal year ended June 30, 2022, and to comply with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, AG reported total revenues of $107.1 million and total expenses of $99.1 million, resulting in an increase in net position of approximately $8 million. Revenues include general revenues of $49 million, primarily state appropriations; program revenues consisting of charges for services of $24.4 million; and operating grants and contributions of $33.7 million.

Expenses of $99.1 million consisted of (1) $59.3 million for general administrative and legal services; (2) $19.3 million for child support enforcement; (3) $14.3 million for crime prevention and justice assistance; and (4) $6.2 million for criminal justice data center activities.

Auditors’ Opinions
AG RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. AG also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that was required to be reported under Government Auditing Standards.

THERE WERE NO FINDINGS that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance. However, the auditors identified a significant deficiency in internal control over compliance. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. The significant deficiency is described on pages 66-67 of the report.

About the Department

The Department of the Attorney General (AG) provides legal services to the executive, legislative, and judicial branches of Hawai‘i State government, including furnishing formal and informal legal opinions to the Governor, Legislature, and heads of Hawai‘i State departments and offices and approving documents relating to the acquisition of lands and interests by the State. AG also maintains criminal justice information, conducts investigations, operates crime prevention programs, and represents the State of Hawai‘i in legal proceedings. AG’s Child Support Enforcement Agency provides assistance to children by locating parents, establishing paternity and support obligations, and enforcing those obligations.

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Financial and Compliance Audit of the Department of the Attorney General
01/25/2024

Photo: Aloha Stadium

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Stadium Authority, as of and for the fiscal year ended June 30, 2023. The audit was conducted by N&K CPAs, Inc.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, the Authority reported total revenues of $6.5 million and total expenses of $7.7 million, resulting in a net operating loss of $1.2 million. Revenues consisted of $5.8 million from rentals from attractions and $700,000 in parking fees and other revenues. The Authority’s net loss was partially offset by $3.4 million in capital contributions, which represents the portion of Aloha Stadium capital improvement costs that were paid by the State of Hawai‘i. In addition, the Authority received net transfers of $300,000, resulting in an increase in net position of $2.5 million.

Expenses consisted of (1) $200,000 for depreciation, (2) $2.6 million for personnel services, (3) $700,000 for utilities, and (4) $3.3 million for initial direct costs for a public-private partnership. Additional expenses totaled $900,000 and included State central services assessments as well as security, professional services, repairs and maintenance, and other costs.

As of June 30, 2023, total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources, resulting in a net position of $12.8 million. Of this amount, $18.7 million was invested in capital assets and there is an unrestricted net deficit of $5.9 million. The agency reported total assets and deferred outflows of resources of $26.9 million, comprised of (1) cash of $7.1 million, (2) receivables, other assets, and deferred outflows of resources of $1.1 million, and (3) net capital assets of $18.7 million. The agency reported total liabilities and deferred inflows of resources of $14.1 million, comprised of (1) net pension liability of $6 million, (2) vacation and other retirement payables of $5.9 million, and (3) other liabilities and deferred inflows of resources of $2.2 million.

Auditors’ Opinion
THE AUTHORITY RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings
THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. However, the auditors identified one material weakness in internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and correct on a timely basis. The material weakness is described on pages 52-53 of the report.

About the Authority

The Stadium Authority (Authority) was established in 1970 and is responsible for the operation, management, and maintenance of Aloha Stadium, located in Honolulu, Hawai‘i. The Authority functions under the direction of a nine-member board, appointed by the Governor. In addition, the president of the University of Hawai‘i and the state superintendent of education are nonvoting ex-officio members of the board. For administrative purposes, the Authority is placed within the State of Hawai‘i’s Department of Business, Economic Development and Tourism.

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Financial and Compliance Audit of the Stadium Authority
01/24/2024

Sthethoscope and medical documents

Photo: IStock.com

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Employer-Union Health Benefits Trust Fund, as of and for the fiscal year ended June 30, 2023. The audit was conducted by KKDLY LLC.

Financial Highlights

EUTF USES THE OPEB TRUST FUND to account for OPEB assets, liabilities, net position, and operations related to post-employment health benefits for retirees and their beneficiaries, including all employer OPEB contributions for retirees and their beneficiaries. An enterprise fund is used to account for active employee healthcare benefits.

ENTERPRISE FUND: For the fiscal year ended June 30, 2023, revenues totaled $103.8 million and expenses totaled $104.2 million, resulting in a net loss of $400,000. Revenues consisted of premium revenue self-insurance of $105.1 million, experience refunds of -$11.6 million, and investment earnings and other revenues of $10.3 million.

Expenses consisted of benefit claims expenses of $93.5 million, administrative operating expenses of $8.7 million, depreciation of $1.5 million, and other operating expenses of $500,000.

As of June 30, 2023, assets and deferred outflows of resources totaled $279 million and liabilities and deferred inflows of resources totaled $82 million, resulting in a net position of $197 million.

OPEB Trust Fund: For the fiscal year ended June 30, 2023, total additions of $1.43 billion, included $1.14 billion from employer contributions, $290 million from net investment earnings, and $1.5 million from other sources. Total deductions were $582.9 million, resulting in a change of fiduciary net position of $849.7 million.

As of June 30, 2023, the OPEB Trust Fund net position balance totaled $7.14 billion. The OPEB Trust Fund held $7.26 billion in assets and $121.5 million in liabilities.

Auditors’ Opinion

EUTF RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Trust FundThe Hawai‘i Employer-Union Health Benefits Trust Fund (EUTF) is a state agency that provides eligible State of Hawai‘i and county (Honolulu, Hawai‘i, Maui, and Kaua‘i) employees and retirees and their eligible dependents with health and life insurance benefits. EUTF is administered by a board of trustees composed of ten trustees appointed by the Governor. The trust fund currently provides medical, prescription drug, dental, vision, chiropractic, supplemental medical and prescription, and group life insurance benefits. Effective June 30, 2013, the board established a separate trust fund (the OPEB Trust Fund) to receive employer contributions to pre-fund other post-employment benefits (OPEB) for retirees and their beneficiaries. EUTF is administratively attached to the State of Hawai‘i Department of Budget and Finance.

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Financial Audit of the Hawai‘i Employer-Union Health Benefits Trust Fund
01/24/2024

Photo Credit: Office of the Auditor

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Community Development Authority, as of and for the fiscal year ended June 30, 2023. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, HCDA reported total revenues of $12.3 million, total expenses of $6.4 million, and net transfers out of $18,000, resulting in an increase in net position of $5.9 million. Revenues consisted of (1) leasing and management activities of $2.9 million, (2) community redevelopment activities of $1.4 million, (3) investment earnings of $800,000, (4) net state appropriations of $1.3 million, and (5) other revenue of $5.9 million.

The following graph illustrates a comparative breakdown of HCDA’s revenues and expenses.

As of June 30, 2023, total assets and deferred outflows of resources of $159.4 million exceeded total liabilities and deferred inflows of resources of $32.1 million resulting in a net position of $127.3 million.

Of the net position balance of $127.3 million, $29.9 million is unrestricted and may be used to meet ongoing expenses, $100,000 is restricted for capital projects, and $97.3 million is invested in net capital assets. The agency reported total assets and deferred outflows of resources comprised of (1) net capital assets of $97.9 million, (2) cash of $32.2 million, and (3) receivables, other assets, and deferred outflows of resources of $29.3 million.

Auditors’ Opinion
HCDA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings
THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Authority

The Hawai‘i Community Development Authority (HCDA) was established in 1976 by Chapter 206E, Hawai‘i Revised Statutes, to establish community development plans in community development districts, to determine community development programs, and to cooperate with private enterprises and various components of federal, state, and county governments to bring community plans to fruition. HCDA is administratively attached to the Department of Business, Economic Development and Tourism.

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Financial Audit of the Hawai‘i Community Development Authority
01/24/2024

Photo: DOT Harbors Division

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Harbors Division, as of and for the fiscal year ended June 30, 2023. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, DOT—Harbors reported total revenues of $229.5 million, total expenses of $118.1 million, and capital contributions of $29,000 from federal grants restricted for capital asset acquisition and facility development, resulting in an increase in net position of $111.4 million. Total revenues consisted of (1) $178.4 million in services, (2) $36.1 million in leases, (3) $12.5 million in interest income, and (4) $2.5 million in other revenues.

Total expenses consisted of (1) $38.2 million in depreciation, (2) $25.2 million in harbor operations, (3) $11.2 million in interest, (4) $28.3 million for personnel, and (5) $15.2 million in administration and other costs.

As of June 30, 2023, the agency reported total assets and deferred outflows of resources of $1.96 billion, comprised of (1) cash and cash equivalents of $631.9 million, (2) receivables of $84.4 million, (3) net capital assets of $1.23 billion, and (4) other assets and deferred outflows of resources of $21 million. Total liabilities and deferred inflows of resources totaled $604.8 million, comprised of (1) $377.3 million in revenue bonds payable and related accrued interest payable, (2) $11 million in general obligation bonds payable, (3) $21.6 million in financed purchase obligation and related accrued interest payable, (4) $5.2 million due to other State agencies, (5) $27.6 million in accounts and contracts payable, and (6) $162.1 billion in other liabilities and deferred inflows of resources.

Auditors’ Opinion

DOT-HARBORS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Division

The Department of Transportation, Harbors Division (DOT-Harbors) is responsible for Hawai‘i’s statewide system of commercial harbors consisting of ten harbors on six islands. Major activities include maintenance and operation, the construction of new harbor facilities, and the management of vessel traffic into, within, and out of Hawai‘i’s harbors. The Division is self-sustaining. Pursuant to Hawai‘i Revised Statutes, rates and charges imposed and collected pay for the costs of operations, maintenance, and repairs, as well as debt service on revenue bonds and other outstanding obligations. A capital improvements program is funded by the revenue and proceeds from harbors system revenue bonds.

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Financial Audit of the Department of Transportation, Harbors Division
01/23/2024

Photo: Office of the Auditor

AUDITOR’S SUMMARY

THE STATE’S NEW ELECTRONIC PAYROLL AND TIME AND LEAVE SYSTEM, accessed through the Hawai‘i Information Portal (HIP), is premised on employees’ entering time they work outside of regular hours, such as overtime, as well as requests for paid and unpaid leave. In addition, HIP features a dashboard that allows State of Hawai‘i personnel to view and manage their payroll and leave information. Employees may also input adjustments to their payable time as well as leave requests, subject to supervisor approval.

To facilitate the State’s transition to HIP, the State of Hawai‘i Office of Enterprise Technology Services (ETS), which shepherded the system’s development and implementation, published the HIP – Time & Leave Standard Operating Policies and Procedures (SOPPs), among other efforts to provide instruction and guidance to employees and supervisors. The SOPPs include processes for employees’ use of HIP that start with timely self-entry of hours worked and leave requests, and are expressly intended to ensure (1) employees receive compensation based on hours worked; (2) departments’ operations with respect to submitting time and leave into HIP are efficient; and (3) payroll is calculated accurately.

The Hawai‘i State Hospital (the hospital) transitioned to HIP in August of 2021. In its preparation for that transition, the hospital decided that the SOPPs – most significantly, the employee self-entry of payable time and leave requests as well as the supervisor review and approval of both – could not be successfully implemented with its staff. Specifically, the hospital did not have confidence that its employees could accurately input their own payable time and leave requests. The hospital was also concerned that supervisors would not provide a thorough and meaningful review of pay and leave requests, which is one of the important controls (or checks) contemplated in the SOPPs.

What we found

Instead of following HIP’s SOPPs, the hospital created its own process, which requires as many as 11 employees to input every hospital employee’s adjustments to base pay for each day the employee works as well as most employees’ leave requests. The process requires handwritten daily rosters to be manually transcribed into a Microsoft Excel spreadsheet before being entered into HIP, and because the hospital’s process prioritizes the inputting of payable time, employee leave may not be inputted timely.

HIP relies on the timely entry of time and leave to ensure that employees’ pay is accurately calculated. Delays in entering either may result in incorrect paychecks. This is especially the case with employees who have little or no accrued leave balances. Those employees may be paid for time when they are on leave that should be unpaid.  The hospital struggles to recover these types of overpayments.

In addition, the hospital’s modified system is highly dependent – perhaps, entirely dependent – on the accuracy of those inputting every employee’s time and leave. That type of unfettered confidence in the group of clerical employees may increase the risk of overpayments and underpayments to employees.

We also found that the hospital’s process minimizes the role of supervisor oversight that ETS intended would serve as a “control” or safeguard to ensure the accuracy of entries. Furthermore, the hospital made this fundamental alteration without designing alternative controls or other types of checks to mitigate the increased risk of data entry errors or fraud. The hospital’s modified process has also created a high-stress environment that we were told is contributing to staff turnover.

Why do these problems occur?
The hospital did not have confidence that its employees, which include both regular hourly employees and shift workers, could and/or would accurately input their own pay exceptions and leave requests. Employee involvement, particularly the timely self-entry of time and leave, is the centerpiece of the HIP payroll and leave system. Employees and their supervisors are intended to have fundamental roles and responsibilities from which time and leave processes flow. For instance, employee-submitted time requests in HIP are automatically routed to a supervisor for review and approval; the system is programmed to identify unusual transactions that might require correction or need closer review, which supervisors must clear. In addition, employees must forecast their accrued leave balances to ensure they have sufficient leave before they can submit requests for time off; and HIP requires certain queries (mandatory audits) be run at specified frequencies.

Despite these safeguards (both programmed and procedural) built into HIP and its SOPPs to ensure the correct entry of time and leave, the hospital’s Human Resources (HR) unit was concerned that the system would not detect employee-inputted errors. HR had been heavily involved in the manual processing of payroll paperwork before HIP and was familiar with the numerous time and leave reporting discrepancies observed in the past. However, these concerns appear to be largely about the capabilities – and the integrity – of staff and not concerns about HIP or the SOPPs. HR was also concerned about employees’ understanding of the adjustments to base pay in their respective bargaining unit contracts and applying those adjustments to their payable time in HIP.

Why do these problems matter?

In the hospital’s modified application of HIP, data-entry staff enter time and leave requests on employees’ behalf. To do so, staff perform a series of manual processes, which include everyday calls to verify time and attendance and transcribing daily rosters into a Microsoft Excel spreadsheet, which in turn is manually entered into the HIP system. Instead of streamlining payroll processes by providing greater functionality and efficiency, the hospital’s version of HIP has had the opposite effect.

In addition, data-entry staff now have considerably more payroll processing responsibilities. Missing are the oversight functions originally designed in the SOPPs. The data-entry staff are generally aware of these duties and that some are mandatory. When they do perform them, they are generally done on an ad hoc basis and at the discretion of the individual data-entry staff. In addition, because they are now responsible for the input and review of information as well as the correction of discrepancies, staff tasked with entering time and leave for employees are not in the position to provide oversight of their own activities, even if they have the awareness or the inclination to do so.

It does not appear that the hospital thoroughly assessed safeguards developed by ETS in its SOPPs to address concerns regarding an employee’s ability to self-enter time and leave accurately, but it is clear that the hospital did not develop controls of its own to replace them or to otherwise ensure the accuracy of the time and leave entered by its HR data-entry staff.

As previously noted, since implementing HIP, as many as 11 hospital employees have been assigned data-entry responsibilities in addition to their regular duties, including unit clerks and section secretaries who would not normally perform human resources functions. According to the HR Specialist, who supervised data-entry staff, approximately 60 percent of their time is devoted to time and leave entry into HIP, which might require overtime depending on the length of the pay period; a pay period shortened by a holiday guarantees data-entry staff will accrue overtime to catch up. The HR Specialist could not give us an estimate of how many hours of overtime are needed to complete the payroll process.

According to HR staff, data entry of time is “chaotic” for unit clerks tasked with tracking 24-hour attendance on the daily roster. And according to the HR Specialist, the HIP-related duties contributed to the departure of two employees specifically hired to enter employee time and leave into the system. Without policies and procedures or any type of organizational infrastructure in place, the long-term – even short-term – sustainability of the current system is doubtful.

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24-02, Audit of the Hawai‘i State Hospital’s Implementation of the Hawai‘i Information Portal
01/23/2024

Photo: Hawaii DOT Airports Division

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Airports Division, as of and for the fiscal year ended June 30, 2023. The audit was conducted by Plante & Moran, PLLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, DOT–Airports reported total revenues of $773.7 million and total expenses of $649.6 million, resulting in an increase in net position of $124.1 million. Revenues consisted of (1) $183 million in concession fees, (2) $98.2 million in landing fees, (3) $197.4 million in rentals, (4) $114.5 million in facility charges, (5) $121.4 million in federal operating and capital grants, and (6) $59.2 million in interest and other revenues.

Total expenses of $649.6 million consisted of (1) $332.7 million for operations and maintenance, (2) $188.2 million in depreciation, (3) $26.1 million for administration, and (4) $102.6 million in interest and other expenses.

As of June 30, 2023, the department reported total assets and deferred outflows of resources of $6.25 billion, comprised of (1) cash of $1.31 billion, (2) investments of $232 million, (3) net capital assets of $4.07 billion, and (4) $638 million in receivables, other assets, and deferred outflows of resources. Total liabilities and deferred inflows of resources totaled $3.54 billion, which includes (1) $1.9 billion in airports system revenue bonds, (2) $157 million in lease revenue certificates of participation, (3) $403 million in customer facility charge revenue bonds, and (4) $1.09 billion in other liabilities and deferred inflows of resources.

Revenue bonds for DOT-Airports are rated as follows:

  • Standard & Poor’s Corporation: AA-
  • Moody’s Investors Service: A1
  • Fitch IBCA, Inc.: A+

DOT-Airports has numerous capital projects ongoing statewide; construction-in-progress totaled $728 million at the end of the fiscal year.

Auditors’ Opinions

DOT-AIRPORTS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THE AUDITORS IDENTIFIED A MATERIAL WEAKNESS in internal control over financial reporting that was required to be reported under Government Auditing Standards. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. The material weakness identified by the auditors related to timely reconciliation and year-end closing procedures to ensure financial activity is accurately reflected in the financial statements. Management is in the process of reviewing and updating year-end procedures to ensure all transactions are properly recorded and reported prior to the start of the annual audit.

There were no instances of noncompliance or other matters required to be reported under Government Auditing Standards. The Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards is reported separately and is available upon request.

About the Division

The Department of Transportation, Airports Division (DOT–Airports), operates and maintains 15 airports at various locations within the State of Hawai‘i as a single integrated system for management and financial purposes. Daniel K. Inouye International Airport is the principal airport in the airports system, providing facilities for interisland flights, domestic overseas flights, and international flights to destinations in the Pacific Rim. DOT–Airports is authorized to impose and collect rates and charges for the airports system services and properties to generate revenues to fund operating expenses. The Capital Improvements Program is primarily funded by airports system revenue bonds and lease revenue certificates of participation issued by DOT–Airports, federal grants, passenger facility charges, customer facility charges, and DOT–Airports revenues.

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Financial and Compliance Audit of the Department of Transportation, Airport Division
01/22/2024

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2023

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Administration Division, as of and for the fiscal year ended June 30, 2023, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2023, DOT–Administration reported total revenues of $43.7 million, total expenses of $35.1 million, and net transfers of $8.8 million, resulting in a decrease in net position of $200,000. Revenues consisted of $24 million from assessments, $17.3 million from federal grants, and $2.4 million from other revenue sources.

Total expenses of $35.1 million consisted of $9.8 million for operating grants and $25.3 million for administration.

As of June 30, 2023, total assets of $51 million were comprised of (1) cash of $21.4 million, (2) accounts receivable of $23.4 million, and (3) net capital assets of $6.2 million. Liabilities totaled $41 million, including a $1.4 million Aloha Tower Development Corporation note payable to the Harbors Division.

Auditors’ Opinions

DOT—ADMINISTRATION RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT–Administration also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

Audit reports for the Department’s Airports Division, Harbors Division, and Highways Division are available on our website.

About the Division

The State Department of Transportation is comprised of four divisions (Airports, Harbors, Highways, and Administration). The Administration Division (DOT–Administration) includes the Office of the Director of Transportation, the Statewide Transportation Planning Office, and Departmental Staff Services Offices. Collectively, these offices provide overall administrative support for the Department of Transportation. The financial statements for the Division reflect the financial activities of DOT–Administration and the Aloha Tower Development Corporation, which is attached to the Department for administrative purposes. DOT–Administration receives a percentage of the Airports, Harbors, and Highways Divisions’ state-allotted appropriations to cover general administration expenses. The Department’s Statewide Transportation Planning Office administers certain Federal Transit Administration and Federal Highway Administration grants.

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Financial and Compliance Audit of the Department of Transportation, Administration Division
01/17/2024

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AUDITOR’S SUMMARY

Two trust accounts did not meet criteria

OUR REVIEW of three special funds, four trust funds, and eleven trust accounts of the Department of Budget and Finance (B&F) found two trust accounts did not meet the criteria for trust accounts and should be closed or reclassified.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our seventh review of B&F’s revolving funds, trust funds, and trust accounts. It is our third review of the special funds held by B&F since Act 130, Session Laws of Hawai’i 2013, amended Section 23-12, HRS, to require review of special funds along with revolving funds and trust funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall
WE NOTED THAT B&F did not file statutorily required reports for non-general funds totaling approximately $22.3 billion, administratively created non-general funds totaling approximately $0, non-general funds with balances totaling approximately $22.6 billion under the program measures reporting requirement, and non-general funds with balances totaling approximately $22.6 billion under the cost element reporting requirement. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds.

Agency response
B&F REPRESENTED that it will thoroughly review each of the items noted in the report and take appropriate actions to address them.

FUND TYPES

SPECIAL FUNDS
are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS
such as loan funds, are often established with an appropriation of seed money from the general fund, and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS
such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS
are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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24-01, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Budget and Finance
01/16/2024

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AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the special-purpose audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Convention Center, as of and for the fiscal year ended June 30, 2022. The special-purpose financial statements have been prepared pursuant to the provisions of the management agreement between the Hawai‘i Tourism Authority and ASM Global (ASM), a private company contracted to operate the Hawai‘i Convention Center. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ENDED June 30, 2022, the Center reported total revenues of $7.3 million, total expenses of $12.3 million, and $22.3 million in net contributions from the Hawai‘i Tourism Authority, which resulted in an increase in net assets of $17.25 million. Revenues consisted of (1) $2.4 million from food and beverage; (2) $2.4 million from rental income; (3) $2.4 million from events; and (4) $100,000 from other revenues.

Expenses consisted of (1) $5.2 million for personnel services; (2) $3.5 million for building-related expenses; (3) $1.2 million for cost of goods sold; and (4) $2.4 million for other costs.

As of June 30, 2022, the Center’s total assets of $42.3 million were comprised of (1) cash of $12.5 million; (2) amounts due from Hawai‘i Tourism Authority of $29.3 million; (3) accounts receivable of $400,000; and (4) other assets of $100,000. Total liabilities of $4.6 million were comprised of (1) accounts payable of $1.8 million; (2) amounts due to Hawai‘i Tourism Authority of $300,000; (3) advance deposits of $2 million; and (4) other liabilities of $500,000.

Property, building, furniture, and equipment used in the Center’s operations, and related depreciation expense, as well as debt used to finance such capital assets and the related interest expense, are not reflected in the Center’s special-purpose financial statements. Those assets, liabilities, and related expenses are reflected on the financial statements of the Hawai‘i Tourism Authority.

Auditors’ Opinion
THE CENTER RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with the management agreement between the Hawai‘i Tourism Authority and ASM, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

About the Center

THE HAWAI‘I CONVENTION CENTER (Center), which opened to the general public in June 1998, is used for a variety of events, including conventions and trade shows, public shows, and spectator events. The Center offers approximately 350,000 square feet of rentable space, including 51 meeting rooms. The Hawai‘i Tourism Authority assumed responsibility for the operation, management, and maintenance of the Center in July 2000. The Center is reported as a special revenue fund of the Hawai‘i Tourism Authority.

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Department of Business, Economic Development & Tourism, Hawai’i Convention Center – June 30, 2022 Special Purpose Financial Statements
12/20/2023

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AUDITOR’S SUMMARY

One revolving fund, one trust fund, and five trust accounts did not meet criteria

OUR REVIEW of seven special funds, five revolving funds, nine trust funds, and twelve trust accounts of the Department of Accounting and General Services (DAGS) found one revolving fund, one trust fund, and five trust accounts did not meet the criteria for revolving funds, trust funds, and trust accounts, respectively, and should be closed or reclassified.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our seventh review of DAGS’ revolving funds, trust funds, and trust accounts. It is our third review of the special funds held by DAGS since Act 130, Session Laws of Hawai’i 2013, amended Section 23-12, HRS, to require review of special funds along with revolving funds and trust funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall
WE NOTED THAT DAGS did not file statutorily required reports for administratively created non-general funds totaling approximately $118,000, non-general funds with balances totaling approximately $3.96 million under the program measures reporting requirement, and non-general funds with balances totaling approximately -$5.4 million under the cost element reporting requirement. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds.

Agency response
DAGS CONCURRED WITH MOST OF OUR FINDINGS
and stated that it will ensure compliance with all statutory reporting requirements. However, DAGS noted that the revolving fund that did not meet criteria did not have a General Fund appropriation for FY2024 deposited into the fund. DAGS noted the trust fund that did not meet criteria was established as a trust fund by statute and would not be financially self-sustaining if the fund classification changed. We maintain our assessment that these funds do not meet criteria for those types of funds established by the Legislature. The program the revolving fund supports can be supported by the General Fund appropriation process and the revenue stream for the trust fund does not meet the definition of a trust fund.

FUND TYPES

SPECIAL FUNDS
are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS
such as loan funds, are often established with an appropriation of seed money from the general fund, and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS
such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS
are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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23-17, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Accounting and General Services
12/13/2023

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AUDITOR’S SUMMARY

One Special Fund did not meet criteria

OUR REVIEW of one special fund, one revolving fund, five trust funds, and three trust accounts of the Department of Defense (DOD) found one special fund did not meet the criteria for a special fund and should be closed or reclassified.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our third review of DOD’s revolving funds, trust funds, and trust accounts. It is our third review of the special funds held by DOD since Act 130, Session Laws of Hawai’i 2013, amended Section 23-12, HRS, to require review of special funds along with revolving funds and trust funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall
WE NOTED THAT DOD did not file statutorily required reports for non-general funds totaling approximately $875,000, administratively created non-general funds totaling approximately $12.6 million, and non-general funds with balances totaling approximately $13.5 million under the cost element and program measures reporting requirements. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds.

Agency response
DOD DID NOT BELIEVE any revisions to the report were necessary and offered no further comments.

FUND TYPES

SPECIAL FUNDS
are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS
such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS
such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS
are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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23-16, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Defense, ,
12/13/2023

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AUDITOR’S SUMMARY

Report 23-15

THIS REPORT ASSESSES eight credits and two exclusions allowable under Hawai‘i’s Income Tax laws. Section 23-91 et seq., Hawai‘i Revised Statutes (HRS), requires the Auditor to review income tax provisions annually, on a five-year recurring cycle.

Specifically, this report reviews the following tax provisions:

  • Exclusion of intangible income of trusts with nonresident beneficiaries, Section 235-4.5(a), HRS;
  • Exclusion of intangible income of foreign corporations owned by such trusts, Section 235-4.5(b), HRS;
  • Credit for taxes paid to another jurisdiction by trusts, Section 235-4.5(c), HRS;
  • Credit for taxes paid to another jurisdiction by S corporations, Section 235-129(a), HRS;
  • Credit to S corporation shareholders for credits earned by S corporations, Section 235-129(b), HRS;
  • Credit for taxes paid to another jurisdiction by individuals, Section 235-55, HRS;
  • Credit to shareholders for taxes on undistributed capital gains of regulated investment companies, Section 235-71(c), HRS;
  • Credit for commercial fisher fuel taxes, Section 235-110.6, HRS;
  • Credit for costs of maintaining Important Agricultural Lands, Section 235-110.93, HRS; and
  • Credit for qualified businesses in Enterprise Zones, Section 209E-10, HRS.

We determined that six provisions accomplish their purposes and one does not, but were unable to determine whether three other provisions achieved the primary purposes for which they were adopted. The inability to draw conclusions with respect to those three provisions stemmed primarily from a lack of data regarding their utilization. Determining whether purposes have been met was also frustrated by a lack of claim tracking or statutorily identified benchmarks or metrics. With respect to some provisions, it was difficult to determine what outcomes the Legislature intended to achieve, as there is no clear indication from underlying bills or their legislative histories.

We recommend that other state agencies be tasked with performing cost-benefit analyses of the commercial fisher fuel tax credit (Section 235-110.6, HRS) and the Enterprise Zone credit (Section 209E-10, HRS). While independent, objective, and well-suited to conduct performance audits and studies on the effectiveness of agency operations, we do not have ready access to the specialized economic data and other resources necessary to conduct a thorough cost-benefit analysis of either credit.

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23-15, Review of Income Tax Provisions Pursuant to Section 23-94, Hawai‘i Revised Statutes
12/12/2023

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AUDITOR’S SUMMARY

Report 23-14

THIS REPORT ASSESSES  seven exemptions and one exclusion under Hawai‘i’s General Excise Tax (GET) and Use Tax laws. Section 23-71 et seq., Hawai‘i Revised Statutes (HRS), requires the Auditor to review GET and Use Tax provisions annually, on a 10-year recurring cycle. In fiscal year 2022, which ended June 30, 2022, GET and Use Tax revenues accounted for $4 billion, or nearly 38 percent of the State’s total tax revenue from all sources.

Specifically, this report reviews the following eight tax provisions:

  • GET exemption for the loading, transportation, and unloading of agricultural commodities shipped for a producer or produce dealer on one island to a person, firm or organization on another island, Section 237-24.3(1), HRS;
  • GET exemption for the loading or unloading of cargo from ships, barges, vessels, or aircraft, including stevedoring services, Section 237-24.3(3)(A), HRS;
  • GET exemption for tugboat services, including pilotage fees and fees from the towage of ships, barges, or vessels in and out of state harbors, or from one pier to another, Section 237-24.3(3)(B), HRS;
  • GET exemption for the transportation of pilots or governmental officials to offshore vessels; rigging gear; checking freight; standby charges; and use and running of mooring lines, Section 237-24.3(3)(C), HRS;
  • Use Tax exclusion for imported oceangoing vehicles used for the interisland public transportation of passengers, Section 238-1, paragraph 7 of “use” definition, HRS;
  • Use Tax exemption for imported alcohol and tobacco to be consumed outside Hawai‘i by vessel and airline passengers and crew, Section 238-3(g), HRS;
  • Use Tax exemption for imported vessels constructed before July 1, 1969, under the Fisheries New Vessel Construction Loan Program, Section 238-3(h), HRS; and
  • GET exemption for shipbuilding and ship repairs rendered to surface vessels federally owned or engaged in interstate or international trade, Section 237-28.1, HRS.

We determined that one Use Tax exclusion and three GET exemptions are meeting their stated or inferred purposes, and that one GET exemption is not meeting its purpose. As we explain in the report, making conclusions as to whether purposes are being met is challenging when amounts claimed are not tracked or where no benchmarks or metrics are statutorily set forth to assess whether a provision is achieving its intended purpose.

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23-14, Review of General Excise and Use Tax Provisions Pursuant to Section 23-75, Hawai‘i Revised Statutes
12/05/2023

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AUDITOR’S SUMMARY

Five Special Funds, two revolving fund, and two trust funds did not meet criteria

OUR REVIEW of fourteen special funds, seven revolving funds, six trust funds, and six trust accounts of the Department of Agriculture (HDOA) found five special funds, two revolving funds, and two trust funds did not meet the criteria for special funds, revolving funds, and trust funds, respectively, and should be closed or reclassified.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our seventh review of HDOA’s revolving funds, trust funds, and trust accounts. It is our third review of the special funds held by HDOA since Act 130, Session Laws of Hawai’i 2013, amended Section 23-12, HRS, to require review of special funds along with revolving funds and trust funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall
WE NOTED THAT HDOA did not file statutorily required reports for non-general funds totaling approximately $1.3 million, administratively created non-general funds totaling approximately $394,000, non-general funds with balances totaling approximately $1.8 million under the program measures reporting requirement, and non-general funds with balances totaling approximately $1.4 million under the cost element reporting requirement. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds.

Agency response
HDOA CONCURRED WITH OUR FINDINGS and stated that it will ensure compliance with all statutory reporting requirements. However, HDOA noted that certain special and revolving funds that did not meet criteria have a clear nexus between fund revenues and the program it supports. We maintain our assessment that these funds do not meet criteria for those types of funds established by the Legislature as the program they support can be supported by the General Fund appropriation process.

FUND TYPES

SPECIAL FUNDS
are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS
such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS
such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS
are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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23-13, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Agriculture
11/30/2023

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AUDITOR’S SUMMARY

IN THE 2023 LEGISLATIVE SESSION, the Hawai‘i State Legislature contemplated mandating insurance coverage for pharmacist services. The Legislature is concerned about the current statewide physician shortage and believes “that pharmacists can help bridge the gaps created by the physician shortage” by providing health care services in medically underserved areas of the State.

Senate Bill No. 165 (SB 165), introduced in the Regular Session of 2023, will mandate insurance coverage for services provided by pharmacists within their scope of practice by private and public health plans in the State, noting that in addition to dispensing medication, pharmacists are skilled in educating patients on how and when to check blood sugar, ways to avoid and manage hypoglycemia, how to take medications correctly to avoid adverse effects, and various medication utilization techniques

Senate Concurrent Resolution No. 17, Senate Draft 1, House Draft 1 (2023 Regular Session) (SCR 17, SD 1, HD 1) requests the Auditor to assess the social and financial impacts of mandating health insurance coverage for services provided by pharmacists, as proposed in SB 165. SCR 17, SD 1, HD 1 also requests the Auditor to assess the impact of Section 1311(d)(3) of the federal Patient Protection and Affordable Care Act (ACA) on the proposed mandatory health insurance coverage in SB 165 that includes, but is not limited to, the additional cost to the State of benefits beyond the essential health benefits of Hawai‘i’s qualified health plans under the ACA.

The proposed health insurance coverage is not “mandatory” and does not extend coverage for additional health care services or diseases.

In Proposed Mandatory Health Insurance Coverage for Pharmacist Services, Report No. 23-12, we found that because insurers are not required to provide insurance coverage for services performed by any pharmacist, the proposed coverage is not mandatory. Therefore, we cannot assess the impacts of the proposed coverage. For instance, without knowing the number of pharmacists whose health care services will be covered, i.e., the number of pharmacists that will contract with insurers to provide health care services, we cannot assess the extent the proposed coverage for services provided by pharmacists will increase or decrease the cost of health care services.

Additionally, the Auditor assessed the impact of Section 1311(d)(3) of the federal ACA to determine the actuarial cost of the defrayment to the State for the reimbursement of services provided by pharmacists. Since the policies offered under the ACA currently include coverage for most of the services that the bill proposes to mandate insurance coverage for pharmacists to perform, the proposed coverage likely will not require the State to defray costs, if enacted.

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23-12, Proposed Mandatory Health Insurance Coverage for Pharmacist Services
11/30/2023

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AUDITOR’S SUMMARY

IN THE 2023 LEGISLATIVE SESSION, the Hawai‘i State Legislature contemplated mandating insurance coverage for standard fertility preservation services. Senate Bill No. 1446 (SB 1446) requires each individual or group health insurance policy to provide coverage to the policyholder and individuals under 26 years of age covered under the policy for standard fertility preservation services if they undergo a medically necessary treatment that may directly or indirectly cause iatrogenic infertility(1). In addition, House Concurrent Resolution No. 96 (HCR 96), also adopted in the Regular Session of 2023, requests the Auditor, in accordance with Sections 23-51 and 23-52, Hawai‘i Revised Statutes (HRS), to assess the social and financial effects of mandating health insurance coverage for fertility preservation services for certain insured persons who have been diagnosed with cancer and whose cancer or cancer treatment may adversely affect the insured person’s fertility.

HCR 96 further requests the Auditor to examine “the necessity of extending the mandatory health insurance coverage for fertility preservation procedures for the spouse or partner of an insured person who has been diagnosed with cancer or whose cancer treatment may adversely affect the insured person’s fertility, to allow the insured person to have a child in the future, and the social and financial effects of extending the mandatory coverage to such spouses or partners.”

In Report No. 23-11, Study of Proposed Mandatory Health Insurance Coverage for Standard Fertility Preservation Services, to conduct our assessment of the impacts of the proposed mandatory coverage for standard fertility preservation services as provided in SB 1446, we had to make numerous and significant assumptions about the Legislature’s intent in order to resolve certain ambiguities in SB 1446 and HCR 96. Among the assumptions we had to make was that any cancer-related medical treatment with a likely side effect of infertility would be covered under the proposed coverage. We also had to assume that coverage would not include the cost of storing cryopreserved material and that coverage had no maximum age for the policyholder. Additionally, SB 1446 specifically excludes a policyholder’s spouse from coverage for standard fertility preservation services as defined by SB 1446 if that spouse is aged 26 years or older.

If the bill is considered during the upcoming legislative session, we suggest the Legislature consider clarifying those parts of the bill to help insurers as well as the public better understand who, when, and what is covered by the mandate.

What is the Relationship Between Cancer and Fertility Preservation?
Cancer treatment can impact a person’s fertility. The effects of cancer treatment on fertility depends on a variety of factors, such as the medicine used, the size and location of the radiation field, the dose, dose intensity, or method of administration, or the age, sex, and fertility of the patient before treatment. In males, chemotherapy or radiotherapy can negatively affect sperm number, motility, morphology, and DNA integrity. In females, any treatment that decreases the number of primordial follicles(2), affects hormonal balance, or interferes with the functioning of the ovaries, fallopian tubes, uterus, or cervix can negatively affect fertility.

Additionally, surgical treatments for cancer can cause fertility problems such as through the removal of all or part of the testicles, penis, ovaries, uterus, or cervix.

Some aggressive forms of cancer such as leukemia require immediate treatment, while treatment for other forms of cancer may be delayed to allow a patient time to preserve their fertility. This is of particular importance for female patients, as they need additional time for stimulation and retrieval of their oocytes.(3)

(1) SB 1446 will also require individual and group hospital or medical service plans issued by a mutual benefit society or health maintenance organization pursuant to Chapter 432 or Chapter 432D, HRS, respectively, to include the identical coverage for standard fertility preservation services. Our discussion regarding the coverage proposed to be mandated for health insurance policies is equally applicable to the coverage proposed under the plans issued by a mutual benefit society or health maintenance organization.
(2) Primordial follicles can transform into pre-ovulatory follicles after puberty which, during ovulation, release mature oocytes.
(3) Oocytes are female germ cells that can mature into an egg, which is the cell that can be fertilized to produce an embryo.

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23-11, Study of Proposed Mandatory Health Insurance Coverage for Standard Fertility Preservation Services
11/28/2023

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AUDITOR’S SUMMARY

IN THE 2023 LEGISLATIVE SESSION, the Hawai‘i State Legislature contemplated mandating insurance coverage for various sexual and reproductive health care services. The Legislature is concerned about the federal government’s attempts to restrict and repeal the Patient Protection and Affordable Care Act, also known as the Affordable Care Act (ACA), and limit access to sexual and reproductive health care. The Legislature found “access to sexual and reproductive health is critical for the health and economic security of all people in Hawaii” and determined “it is vital to preserve certain aspects of the Patient Protection and Affordable Care Act and ensure access to health care for residents of Hawaii.” House Bill No. 1179 (HB 1179), introduced during the 2023 Legislative Session, is intended “to ensure comprehensive coverage for sexual and reproductive health care services, including family planning and abortion, for all people in Hawaii.”

State law requires an impact assessment by the Auditor before any legislative measure mandating health insurance coverage for a specific health service, disease, or provider can be considered. In Report No. 23-10, Study of Proposed Mandatory Health Insurance Coverage for Various Sexual and Reproductive Health Care Services, we found there will be little-to-no social or financial impact should HB 1179 be enacted into law, as nearly all of the services, drugs, devices, products, and procedures that would be mandated are, except for a relatively small number of “grandfathered” plans, currently covered by Hawai‘i health insurance plans, including those plans available under the ACA. Mandating insurance coverage for sexual and reproductive health care services as described by the Legislature, with limited exceptions, does not expand coverage currently provided to insureds.

Social and Financial Impacts of House Bill No. 1179

We surveyed major health insurance providers for information necessary to complete our assessment. We also independently researched certain aspects of the ACA and Hawai‘i’s Prepaid Health Care Act, Chapter 393, Hawai‘i Revised Statutes (HRS). We conducted this assessment from May 2023 through September 2023 in accordance with Sections 23-51 and 23-52, HRS.

We found that the social and financial impacts, if any, are likely negligible because the sexual and reproductive health care services for which the bill would mandate health insurance coverage are already covered by policies issued in the State of Hawai‘i*. And, because the benchmark policy for the plans offered under the ACA in the Hawai‘i marketplace is the HMSA Preferred Provider Plan 2010, which HMSA represents includes coverage for the services identified in HB 1179, individual and small group health insurance plans purchased in Hawai‘i under the requirements of the ACA also include coverage for those sexual and reproductive health care services. Accordingly, mandating that health insurers include coverage for the sexual and reproductive health care services listed in HB 1179 does not change the status quo and likely will not result in any significant social or financial impact, which the providers who responded to our survey confirmed.

We note, however, that some plans require cost-sharing by their members in the form of copayments or deductibles for certain treatments, such as family planning and abortion care. HB 1179 would prohibit an insurer from imposing any cost-sharing requirements with respect to the coverage for the sexual and reproductive health care services, including copayments, coinsurance, or deductibles. While eliminating the cost-sharing that the policies currently may require adds costs that insurers must bear, we believe that those costs are relatively insignificant to insurers’ total costs and any financial impact, if any, will likewise be immaterial.

* Similarly, some health insurance providers have “grandfathered” plans purchased on or before March 23, 2010 that are not subject to certain requirements under the ACA, such as coverage for pre-existing conditions and free preventive care. Such policies do not cover all treatment or service required under the ACA or may provide such treatment or service with a member’s copayment.

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23-10, Study of Proposed Mandatory Health Insurance Coverage for Various Sexual and Reproductive Health Care Services
06/23/2023

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AUDITOR’S SUMMARY

SECTION 342G-17, HAWAI‘I REVISED STATUTES, requires the Office of the Auditor to conduct a management and financial audit of the Department of Health’s (DOH) Deposit Beverage Container Program (Program) in fiscal years ending in even-numbered years. We contracted KMH LLP, a certified public accounting firm, to conduct this financial and program audit for the fiscal year ended June 30, 2022.

Review of Prior Findings

Our previous reports to the Legislature repeatedly raised concerns that DOH’s reliance on self-reported information from beverage distributors and redemption centers increases the risk of fraud, noting the parties have financial incentive to under- or over-report amounts distributors must pay into the Deposit Beverage Container Deposit Special Fund (Fund) and redemption centers may claim for reimbursement. Under the Program, distributors pay a $0.05 container fee and $0.01 handling fee per beverage into the Fund, generally passing those costs on to consumers. Consumers are reimbursed $0.05 per container at redemption centers, which in turn receive payment from the Program based on the number of containers they report as redeemed.

In 2022, the Legislature passed Act 12, Session Laws of Hawai‘i, to compel DOH to develop and implement procedures to verify the accuracy and completeness of data reported by beverage distributors and redemption centers as recommended in the Office of the Auditor’s biennial reports. Act 12 requires DOH “to develop a risk-based process to help remedy the flaws in the deposit beverage container program.”

Given the relatively short period of time elapsed since the issuance of our last review in December 2021 (Report No. 21-13) and the enactment of Act 12, we believed it would be unrealistic to expect DOH to already have significant and meaningful improvements in place that we could audit. Therefore, in addition to required financial information, we asked DOH to provide us with an update on the steps it has taken to improve the Deposit Beverage Container Program (Program) and implement the 2021 audit recommendations. As part of the audit, the department submitted excerpts from various action plans and additional status updates on actions taken as of August 26, 2022.

We have not provided commentary on the Program’s status or findings related to the department’s action plans and status updates in this report. We appreciate that the Program has taken steps to make improvements and implement the recommendations in Report No. 21-13 and we look forward to performing a more detailed review in the future.

2023 Status Update Provided By DOH

In status updates provided on August 26, 2022, the department reported that it is actively recruiting an inspector to fill out its enforcement section, as well as filling other vacancies, anticipating that full staffing will enable the department to increase the frequency of redemption center inspections from quarterly to every other month. The department has also revised its redemption center certification application for new applicants and those renewing certification. Since September 2021, applicants have been required to provide operational plans that incorporate fraud prevention procedures to ensure the collected beverage containers are secured and that receipts given to customers correlate with the deposit containers collected. In addition, the department is seeking amendments to administrative rules that are needed, for instance, to require beverage distributors to conduct independent third-party audits to verify the accuracy of their deposits and reports to the State. The department reported plans to convene an advisory committee to assist in developing any new administrative rules related to the Program as well as help update the State Integrated Solid Waste Management Plan.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, the Fund reported total revenues of $32.97 million and total expenditures of $27.71 million, resulting in a change in fund balance of $5.26 million. Total revenues consisted of (1) deposit beverage container fees of $10.21 million, (2) unredeemed deposits of $22.52 million, and (3) interest income and other of $245,000. Total expenditures consisted of (1) handling and redemption fees of $26.15 million, (2) operating expenditures of $1.54 million, and (3) administrative expenditures of $30,000.

As of June 30, 2022, total assets were $63.15 million and total liabilities were $6.07 million. Total assets were comprised of (1) cash and cash equivalents of $57.16 million, (2) accounts receivable of $5.95 million, and (3) interest receivable of $44,000. Total liabilities were comprised of (1) vouchers and contracts payable of $4.06 million, (2) beverage container deposits of $1.95 million, (3) unearned revenue of $11,000, and (4) accrued wages and employee benefits of $45,000.

Auditors’ Opinion
The Fund received an unmodified opinion that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings
There were no reported deficiencies in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. However, the auditors identified a significant deficiency in internal control. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiency is reported on page 24 of the report.

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23-07, Financial and Program Audit of the Department of Health’s Deposit Beverage Container Program, June 30, 2022
05/09/2023

PHOTO: O‘AHU METROPOLITAN PLANNING ORGANIZATION

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the O‘ahu Metropolitan Planning Organization, as of and for the fiscal year ended June 30, 2022, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, OahuMPO reported total revenues of approximately $3.8 million and total expenses of approximately $3.8 million, resulting in minimal change in net position. Revenues consisted of $2.9 million from federal grants and $889,000 in contributions from the State of Hawai‘i and City and County of Honolulu.

Total expenses consisted of (1) $133,000 for transportation forecasting and long-range planning; (2) $2.2 million for short-range transportation system and demand management planning; (3) $12,000 for transportation monitoring and analysis; and 
(4) $1.4 million for program coordination and administration.

As of June 30, 2022, total assets exceeded total liabilities by $491,000. Total assets of $1.6 million, included cash of $740,000 and receivables and other assets of $713,000. Total liabilities were $1.1 million.

Auditors’ Opinion

OahuMPO RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. OahuMPO received an unqualified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that are considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Organization

Federal highway and transit statutes require urbanized areas greater than 50,000 in population to designate a metropolitan planning organization as a condition for spending federal highway or transit funds. O‘ahu Metropolitan Planning Organization (OahuMPO) is the designated metropolitan planning organization for the island of O‘ahu. OahuMPO was established by agreement between the Governor of the State of Hawai‘i and the Chairperson of the City Council of the City and County of Honolulu and serves as the decision-making body responsible for carrying out continuing, comprehensive, and cooperative transportation planning and programming for the island of O‘ahu.

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Financial and Compliance Audit of the O‘ahu Metropolitan Planning Organization
04/25/2023

Photo: Department of Hawaiian Home Lands

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Hawaiian Home Lands, as of and for the fiscal year ended June 30, 2022, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Akamine, Oyadomari & Kosaki CPA’s, Inc.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, DHHL’s total revenues exceeded total expenses by $45.9 million. Revenues totaled $113.8 million and consisted of (1) program revenue of $52 million and (2) state appropriations, transfers, and adjustments of $61.8 million. Expenses totaled $67.9 million. Program revenues were comprised of interest income (approximately 11 percent), grants and contributions (36 percent), revenue from the general lease program (50 percent), and other sources (3 percent).

As of June 30, 2022, total assets of $1.31 billion exceeded total liabilities of $375 million, resulting in a net position balance of $932 million. Total assets included net capital assets of $470 million, cash of $432 million, loans receivable of $89 million, and other assets and deferred outflows of resources of $316 million. Loans receivable consisted of 1,295 loans made to native Hawaiian lessees for the purposes specified in the Hawaiian Homes Commission Act. Loans are for a maximum amount of approximately $453,000 and for a maximum term of 40 years. Interest rates on outstanding loans range up to 10 percent. Total liabilities included bonds and lease liabilities totaling $39 million and temporary deposits payable and other liabilities of $336 million.

Auditors’ Opinions
DHHL RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DHHL also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO REPORTED DEFICIENCIES IN INTERNAL CONTROL over financial reporting that are considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that are considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Department

The Hawaiian Homes Commission Act sets aside certain public lands as Hawaiian home lands to be utilized in the rehabilitation of native Hawaiians. These public lands are managed by the Department of Hawaiian Home Lands (DHHL), a state agency headed by the Hawaiian Homes Commission, whose primary responsibilities are to serve its beneficiaries and to manage this extensive land trust. DHHL provides direct benefits to native Hawaiians in the form of 99-year homestead leases at $1 per year for residential, agricultural, or pastoral purposes, and financial assistance through direct loans, insured loans, or loan guarantees for home purchase, construction, home replacement, or repair. In addition to administering the homesteading program, DHHL leases trust lands not in homestead use at market value and issues revocable permits, licenses, and rights-of-entry. Its financial statements include the public trusts controlled by the Hawaiian Homes Commission.

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Financial and Compliance Audit of the Department of Hawaiian Home Lands
04/24/2023

Photo: Office of the Auditor

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of the Attorney General, as of and for the fiscal year ended June 30, 2021, and to comply with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KPMG LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, AG reported total revenues of $106.3 million and total expenses of $106.7 million, resulting in a decrease in net position of approximately $453,000. Revenues include general revenues of $48.1 million, primarily state appropriations; program revenues consisting of charges for services of $25 million; and operating grants and contributions of $33.2 million.

Expenses of $106.7 million consisted of (1) $63.6 million for general administrative and legal services; (2) $20.5 million for child support enforcement; (3) $16 million for crime prevention and justice assistance; and (4) $6.6 million for criminal justice data center activities.

Auditors’ Opinions
AG RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. AG also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WAS ONE MATERIAL WEAKNESS in internal control over financial reporting that was required to be reported under Government Auditing Standards. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. The material weakness is described on page 56 of the report.

THERE WERE NO FINDINGS that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Department

The Department of the Attorney General (AG) provides legal services to the executive, legislative, and judicial branches of Hawai‘i State government, including furnishing formal and informal legal opinions to the Governor, Legislature, and heads of Hawai‘i State departments and offices and approving documents relating to the acquisition of lands and interests by the State. AG also maintains criminal justice information, conducts investigations, operates crime prevention programs, and represents the State of Hawai‘i in legal proceedings. AG’s Child Support Enforcement Agency provides assistance to children by locating parents, establishing paternity and support obligations, and enforcing those obligations.

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Financial and Compliance Audit of the Department of the Attorney General
04/21/2023

PHOTO: DEPARTMENT OF HUMAN SERVICES

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Human Services, as of and for the fiscal year ended June 30, 2022, and to comply with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, DHS reported total revenues of $5.01 billion and total expenses of $5.06 billion. Revenues consisted of $1.42 billion in state allotments, net of lapsed amounts plus non-imposed employee fringe benefits, and $3.59 billion in operating grants from the federal government. Revenues from these federal grants paid for 70.9 percent of the cost of DHS’ activities.

Health care and general welfare assistance programs comprised 68.3 and 27.2 percent, respectively, of the total cost. The following chart presents each major activity as a percentage of the total cost of all DHS activities.

As of June 30, 2022, DHS’ total assets of $505 million included (1) cash of $223 million, (2) receivables of $203 million, and (3) net capital assets of $79 million. Total liabilities of $377 million included (1) vouchers payable of $10 million, (2) accrued wages and employee benefits of $12 million, (3) amounts due to the state general fund of $188 million, (4) accrued medical assistance payable of $151 million, and (5) accrued compensated absences of $16 million.

Auditors’ Opinions
DHS RECEIVED AN UNMODIFIED OPINION that its financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles. DHS received a qualified opinion on its compliance for all major federal programs, except for COVID-19 Pandemic EBT Food Benefits, Child Care and Development Block Grant, and Child Care Development Fund Cluster, which received an unmodified opinion in accordance with the Uniform Guidance.

Findings
THE AUDITORS IDENTIFIED a material weakness in internal control over financial reporting that was required to be reported under Government Auditing Standards. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. The material weakness is described on pages 64-65 of the report.

There were 14 material weaknesses in internal control over compliance that were required to be reported in accordance with the Uniform Guidance. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. The material weaknesses are described on pages 66-87 and 89-92 of the report.

There were 2 significant deficiencies in internal control over compliance that was required to be reported in accordance with the Uniform Guidance. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. The deficiencies are described on pages 88 and 93-94 of the report.

About the Department

The Department of Human Services (DHS) works to provide benefits and services to individuals and families in need. The majority of DHS’ budget is comprised of federal funds. DHS’ mission is to direct its funds toward protecting and helping those least able to care for themselves and to provide services designed toward achieving self-sufficiency for clients as quickly as possible. Activities include health care programs; general welfare assistance, employment and support services; child welfare and adult community care services; vocational rehabilitation and services for the blind; youth prevention, delinquency and correction services; and general administration. Attached programs include the Commission on the Status of Women and the Commission on Fatherhood.

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Financial and Compliance Audit of the Department of Human Services
04/20/2023

Photo: Hawai‘i Public Housing Authority

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the Hawai‘i Public Housing Authority Single Audit for the fiscal year ended June 30, 2022, was to comply with the Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KMH LLP.

About the Report

SINGLE AUDITS provide assurance to the federal government that state agencies and programs receiving federal funds are expending those funds properly. This report includes the total federal expenditures and findings related to the HPHA’s Federal Financial Assistance Programs for the fiscal year ended June 30, 2022. Federal expenditures totaled approximately $136.6 million.

Auditors’ Opinion
HPHA RECEIVED AN UNMODIFIED OPINION on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO FINDINGS that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Division

The mission of the Hawai‘i Public Housing Authority (HPHA) is to provide safe, decent, and sanitary dwellings for low and moderate-income residents of Hawai‘i and to operate its housing programs in accordance with federal and State laws and regulations. Some of HPHA’s housing assistance programs are funded by the U.S. Department of Housing and Urban Development.

HPHA is administratively attached to the Hawai‘i Department of Human Services (DHS). HPHA operates under the direction of its Executive Director and Board of Directors, which consists of eleven board members, nine of whom are appointed by the Governor. The Director of DHS and the Governor’s designee are ex-officio members.

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Single Audit of Federal Financial Assistance Programs of the Hawai‘i Public Housing Authority
04/13/2023

ILLUSTRATION: ISTOCK.COM

AUDITOR’S SUMMARY

Single Audit of Federal Financial Assistance Programs of the State of Hawai‘i
Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the State Single Audit for the fiscal year ended June 30, 2022, was to comply with the Code of Federal Regulations, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Title 2, Part 200 (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The State Single Audit was conducted by Accuity LLP.

Auditors’ Report on Internal Controls over Financial Reporting

THE AUDITORS IDENTIFIED two material weaknesses and one significant deficiency in internal controls over financial reporting that are required to be reported in accordance with Government Auditing Standards. The material weaknesses are described on pages 21-21 and 24-25 of the report, and the significant deficiency is described on pages 22-23 of the report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Auditors’ Report on Compliance with Major Federal Programs

THE AUDITORS EXPRESSED A QUALIFIED OPINION on certain major programs and identified three material weaknesses and ten significant deficiencies over compliance with major federal programs that are required to be reported in accordance with the Uniform Guidance. These findings are described in a Schedule of Findings and Questioned Costs that can be found on pages 26-48 of the report. A table with the number and type of findings by department can be found below.

A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis.

A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

About the Report

Single audits provide assurance to the federal government that state agencies and programs receiving federal funds are expending those funds properly. This report includes the total federal expenditures and findings related to departments that are included in the State of Hawaiʻi Single Audit of Federal Financial Assistance Programs for the fiscal year ended June 30, 2022. For the departments included in the report that receive federal monies, federal expenditures totaled approximately $2.51 billion. Other departments’ federal expenditures and findings are reported in their individual single audit reports. For the audits procured by the Office of the Auditor, those reports are available through the Office of the Auditor’s website.

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State of Hawai’i Single Audit Report
04/12/2023

Photo: Office of the Auditor

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, as of and for the fiscal year ended June 30, 2022, and to comply with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, DOH reported total revenues of $1.01 billion and total expenses of $960.6 million, resulting in an increase in net position of $53 million. Revenues included $645.5 million from general revenues, $322.3 million from operating grants and contributions, and $45.8 million from service charges.

Expenses included $381.8 million for health resources, $364.4 million for behavioral health, $85.2 million for environmental health, and $129.2 million for general administration.

As of June 30, 2022, total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources by $1.33 billion. Total assets and deferred outflows of resources of $1.55 billion included (1) cash of $532 million, (2) receivables of $45 million, (3) loans receivable of $729 million, (4) accrued interest and loan fees of $2 million, (5) deferred outflows of resources of $1 million, and (6) net capital assets of $239 million. Total liabilities and deferred inflows of resources totaled $213 million. DOH’s net position of $1.33 billion is comprised of a restricted amount of $877 million, of which $831 million is for loans; an unrestricted amount of $220 million; and net investment in capital assets of $239 million.

Auditors’ Opinions
DOH RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOH received an unmodified opinion on its compliance for all major federal programs, except for Block Grants for Community Mental Health Services, Rural Health Research Centers, Mental Health Disaster Assistance and Emergency Mental Health, and Substance Abuse and Mental Health Services, which received a qualified opinion in accordance with the Uniform Guidance.

Findings
THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that were required to be reported under Government Auditing Standards. However, the auditors identified two significant deficiencies that are required to be reported under Government Auditing Standards. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiencies are described on pages 97-100 of the report.

There were six material weaknesses and one significant deficiency in internal control over compliance that are required to be reported in accordance with the Uniform Guidance. The material weaknesses are described on pages 101-104 and 107-114 of the report and the significant deficiency is described on pages 105-106 of the report.

A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis.

A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

About the Department

The mission of the Department of Health (DOH) is to protect and improve the health and environment for all people in Hawai‘i. DOH administers and oversees statewide personal health services, health promotion and disease prevention, mental health programs, monitoring of the environment, and the enforcement of environmental health laws. It administers federal grants to support the State’s health services and programs and is organized into four major administrations: Behavioral Health Services Administration, Health Resources Administration, Environmental Health Administration, and General Administration.

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Financial and Compliance Audit of the Department of Health
04/10/2023

Photo: Office of the Auditor

AUDITOR’S SUMMARY

Two Special Funds, one revolving fund, and two trust accounts did not meet criteria

OUR REVIEW of six special funds, two revolving funds, four trust funds, and six trust accounts of the Department of Labor and Industrial Relations (DLIR) found two special funds, one revolving fund, and two trust accounts did not meet criteria for those types of funds and should be closed or reclassified.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of DLIR’s revolving funds, trust funds, and trust accounts. It is our second review of the special funds held by DLIR since Act 130, Session Laws of Hawai‘i 2013, amended Section 23-12, HRS, to require review of special funds along with revolving funds and trust funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall
WE NOTED that DLIR did not file statutorily required reports for non-general funds totaling approximately $14.53 million and administratively created non-general funds totaling approximately $17.23 million. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds.

Agency response
DLIR CONCURRED with our findings and represented that it will take appropriate action to reclassify funds per the recommendations in the report. DLIR also stated that it will ensure compliance with all statutory reporting requirements.

FUND TYPES

SPECIAL FUNDS
are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS
such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS
such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS
are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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23-06, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Labor and Industrial Relations
03/31/2023

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Transportation, Highways Division, as of and for the fiscal year ended June 30, 2022, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, DOT–Highways reported total revenues of $568.2 million and total expenses of $573.7 million, resulting in a decrease in net position of $5.5 million. Revenues consisted of (1) $243.3 million in tax collections; (2) $259 million in grants and contributions primarily from the Federal Highway Administration; (3) $56 million in charges for services; and (4) $9.9 million in investment income and other revenues.

Expenses consisted of (1) $138.2 million for operations and maintenance; (2) $209.3 million in depreciation; (3) $207.6 million for administration and other expenses; and (4) $18.6 million in interest.

As of June 30, 2022, total assets and deferred outflows of resources of $5.52 billion were comprised of (1) cash and investments of $545.3 million; (2) net capital assets of $4.92 billion; and (3) $55.4 million in other assets and deferred outflows of resources. Total liabilities of $782.6 million included $608.9 million in revenue bonds and $173.7 million in other liabilities.

DOT–Highways has numerous capital projects ongoing statewide; construction-in-progress totaled $302.5 million at the end of the fiscal year.

Auditors’ Opinion
DOT-HIGHWAYS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT–Highways also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WAS ONE MATERIAL WEAKNESS and one significant deficiency in internal controls over financial reporting that were required to be reported under Government Auditing Standards. The material weakness is described on pages 10-11 of the single audit report, and the significant deficiency is described on pages 12-13 of the single audit report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance. However, the auditors identified two significant deficiencies in internal control over compliance. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. The deficiencies are described on pages 14-17 of the single audit report.

About the Division

The mission of the Department of Transportation, Highways Division (DOT–Highways) is to provide a safe, efficient, and sustainable State Highway System that ensures the mobility of people and goods within the State. The division is charged with maximizing available resources to provide, maintain, and operate ground transportation facilities and support services that promote economic vitality and livability in Hawai‘i. DOT–Highways also works with the Statewide Transportation Planning Office on innovative and diverse approaches to congestion management.

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Single Audit Report

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Financial and Compliance Audit of the Department of Transportation, Highways Division
03/30/2023

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Education, as of and for the fiscal year ended June 30, 2022, and to comply with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, DOE reported total revenues of $3.57 billion and total expenses of $3.28 billion, resulting in an increase in net position of $290 million.

Total revenues of $3.57 billion consisted of (1) $2.22 billion in state-allotted appropriations, net of lapsed funds, (2) $727.4 million in non-imposed employee wages and fringe benefits, (3) $551.2 million in operating grants and contributions, (4) $2.2 million in capital grants and contributions, (5) $45.3 million in charges for services, (6) $25.2 million in lease financing, and (7) $800,000 in other income.

Total expenses of $3.28 billion consisted of (1) $3.11 billion for school-related costs, (2) $57.2 million for state and school complex area administration, (3) $48.4 million for public libraries, and (4) $73 million for capital outlay.

As of June 30, 2022, total assets exceeded total liabilities by $3.44 billion. Of this amount, $1.23 billion is unrestricted and may be used to meet ongoing expenses and obligations. Total assets of $4.04 billion were comprised of (1) cash of $1.71 billion, (2) receivables of $68.1 million, and (3) net capital assets of $2.27 billion. Total liabilities of $603.4 million were comprised of (1) vouchers and contracts payable of $162 million, (2) accrued wages and employee benefits of $173.5 million, (3) accrued compensated absences of $86.8 million, (4) workers’ compensation claims reserve of $140.1 million, (5) amount due to the state general fund of $5 million, (6) notes payable of $33 million, and (7) lease liability of $3 million.

Auditors’ Opinion
DOE RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOE also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO MATERIAL WEAKNESSES in internal controls over financial reporting that were required to be reported under Government Auditing Standards. However, the auditors identified a significant deficiency that is required to be reported under Government Auditing Standards. The significant deficiency is described on page 53 of the report.

THERE WERE NO FINDINGS that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance. However, the auditors identified instances of noncompliance which are required to be reported in accordance with the Uniform Guidance. The findings are described on pages 54-57 of the report.

About the Department

The Department of Education (DOE) administers the statewide system of public schools and public libraries. DOE is also responsible for administering state laws regarding regulation of private school operations through a program of inspection and licensing and the professional certification of all teachers for every academic and noncollege type of school. Federal grants received to support public school and public library programs are administered by DOE on a statewide basis.

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Financial and Compliance Audit of the Department of Education
03/28/2023

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Tourism Authority, as of and for the fiscal year ended June 30, 2022, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, HTA reported total revenues of $36.4 million, along with $5 million in transfers from other state departments, and total expenses of $82.5 million. Revenues consisted of $18.6 million from federal grants, $11 million from TAT, $5.3 million from charges for services, and interest and other revenues of $1.5 million.

Total expenses of $82.5 million consisted of $70.2 million for contracts, $8.6 million for depreciation, and $3.7 million for payroll, administrative, and other expenses.

As of June 30, 2022, total assets and deferred outflows of resources of $340.8 million exceeded total liabilities and deferred inflows of resources of $80.1 million, resulting in a net position of $260.7 million. Total assets and deferred outflows of resources included (1) cash of $116.7 million, (2) land and net capital assets of $188 million, and (3) other assets and deferred outflows of resources of $36.1 million.

Auditors’ Opinion
HTA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. HTA also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Authority

The Hawai‘i Tourism Authority (HTA) was established by the 1998 Legislature to serve as the State’s lead agency for strategically managing tourism. State law requires HTA to develop a tourism marketing plan that includes statewide promotional efforts and programs, targeted markets, and other marketing efforts with measures of effectiveness and documentation of HTA’s progress toward strategic plan goals. HTA is also responsible for the Hawai‘i Convention Center. The primary source of funding for HTA’s operations is the Transient Accommodations Tax (TAT) collected by the State. HTA is governed by a board of directors comprised of 12 voting members, each of whom is appointed by the Governor, and is placed within the Department of Business, Economic Development and Tourism for administrative purposes.

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Financial and Compliance Audit of the Hawai‘i Tourism Authority
03/24/2023

PHOTO: HAWAII DOT AIRPORTS DIVISION

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the Department of Transportation, Airports Division, Single Audit for the fiscal year ended June 30, 2022, was to comply with the Code of Federal Regulations, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Title 2, Part 200 (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KPMG LLP.

About the Report

SINGLE AUDITS provide assurance to the federal government that state agencies and programs receiving federal funds are expending those funds properly. This report includes the total federal expenditures and findings related to the DOT-Airports’ Federal Financial Assistance Programs for the fiscal year ended June 30, 2022.

Auditors’ Opinion

DOT-AIRPORTS RECEIVED AN UNMODIFIED OPINION on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO FINDINGS that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Division

The Department of Transportation, Airports Division (DOT-Airports), operates and maintains 15 airports at various locations within the State of Hawai‘i as a single integrated system for management and financial purposes. Daniel K. Inouye International Airport is the principal airport in the airports system, providing facilities for interisland flights, domestic overseas flights, and international flights to destinations in the Pacific Rim. DOT-Airports is authorized to impose and collect rates and charges for the airports system services and properties to generate revenues to fund operating expenses. The Capital Improvements Program is primarily funded by airports system revenue bonds and lease revenue certificates of participation issued by DOT-Airports, federal grants, passenger facility charges, customer facility charges, and DOT-Airports revenues.

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Single Audit of Federal Financial Assistance Programs of the Department of Transportation, Airports Division
03/13/2023

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AUDITOR’S SUMMARY

THE OFFICE OF HAWAIIAN AFFAIRS (OHA) considers land to be of utmost importance to Native Hawaiians and core to the Hawaiian worldview. The significance of land to OHA is stated in many of its documents, including the Board of Trustees Executive Policy Manual as well as OHA’s current strategic plan. On its website, OHA declares: “Land is not a commodity to be exploited, it is a relative that is respected and cared for and, who, in turn, cares for us.”

In Audit of the Office of Hawaiian Affairs, Report No. 23-04, we examined certain OHA activities with respect to land, including both its commercial properties and legacy lands. Specifically, we report our findings with respect to OHA’s process to identify and select commercial properties to acquire, OHA’s development of those commercial properties, including its Kaka‘ako Makai lands, and OHA’s oversight and management of its legacy lands, which include culturally significant properties.

What we found
We found that OHA has not fully developed its Commercial Property and Legacy Land Programs, neglecting to establish and adopt foundational strategies and policies to guide its real estate activities, strategies and policies that OHA, itself, identified as “guiding principles” more than a decade ago. According to OHA, these foundational components are supposed to guide land acquisition and disposition, as well as the management and use of OHA’s lands. Yet, in October 2021, OHA purchased two commercial properties, 500 N. Nimitz Highway and a partial interest in the adjacent Iwilei Business Center, for $47 million. Without these guidelines and criteria, these acquisitions were ad hoc, featuring strategies and criteria created to facilitate the acquisition. The Chairperson acknowledged that real estate policies would provide OHA with a roadmap; but, as of now, she said, “practice dictates policy.”

Despite its stated intent to redevelop the 500 N. Nimitz Highway and Iwilei Business Center properties in the future, OHA appears to have little understanding of the potential costs to do so. For example, OHA’s environmental study prior to purchasing its interest in the Iwilei Business Center identified the likelihood of soil contamination, recommending a more thorough evaluation before redevelopment; however, OHA did not pursue the matter further to gain a better understanding of the extent of environmental contamination or an estimate of the cost to remediate any contamination that would be required before redeveloping the property.

We also found that OHA is no closer to developing its Kaka‘ako Makai lands than it was 10 years ago when it accepted those lands from the State. However, by the end of our audit window, OHA had spent more than $6.5 million on consulting contracts – one of which was flagged as potential waste in a forensic review – and had no conceptual master plan to show for the expense. Moreover, we found OHA’s desire to include prohibited residential development in its Kaka‘ako Makai plans to be a significant obstacle.

In our review of the Legacy Land Program, we found that OHA’s lax oversight and management of its legacy land stewards and stewardship agreements increased the risk that culturally significant properties “core” to OHA’s mission may be misused; it also puts OHA’s trust assets at risk. For instance, OHA failed to renew stewardship agreements, creating “gaps” when stewards were allowed to occupy and use OHA’s legacy properties without any agreement. Those agreements detail OHA’s expectations regarding the stewards’ use of the culturally significant lands as well as requirements that stewards must meet.

We also found that, even when agreements were in place, OHA did not enforce their terms, permitting, for instance, stewards to use the properties without providing OHA copies of certificates of insurance showing that the stewards have the required insurance coverage and allowing a steward even to deny OHA access to its own property.

Why did these problems occur?
OHA itself recognized the need for and importance of the foundational policies – which it has referred to as “guiding principles” – in its Real Estate Vision, Mission, and Strategy Plan in 2007, in its Executive Policy Manual in 2012, in its Land Committee’s policies in 2014, and more recently in its board Bylaws in 2020; however, it has yet to develop and implement any. It appears that OHA – starting with its trustees – has not made developing and implementing its real estate strategy and other guiding policies a priority.

In regard to the development of Kaka‘ako Makai, OHA’s insistence on building housing has prevented it from adopting a comprehensive conceptual master plan for the properties. While OHA has spent a  considerable amount of time and money on efforts to lift Kaka‘ako Makai’s housing restrictions, it does not appear to have a vision for Kaka‘ako Makai that does not include housing. In the meantime, an interim use plan for one of Kaka‘ako Makai’s lots failed.

Despite Legacy Land Program provisions assigning responsibility to Legacy Land Agents for managing stewards’ compliance with stewardship agreements, we found that OHA defers much of the management of and authority over its legacy lands to the stewards themselves. For example, during a scheduled visit, the steward of Kūkaniloko prohibited our audit team – and OHA representatives – from visiting the birthstones site and Piko zone. OHA complied with the steward’s decision even though the non-exclusive right of entry agreement states that others have the right to enter and use the property, and the steward “shall not otherwise interfere with their use and enjoyment of the property.”

Why do these problems matter?
As fiduciaries, OHA trustees are legally obligated to act with the utmost responsibility over the assets they manage on behalf of OHA’s beneficiaries. Each trustee must perform all duties with the highest standard of care and to act in the best interests of OHA and its beneficiaries. Trustees must act diligently, with due care, and on a fully informed basis.

Since 2007, OHA has recognized the need to have a real estate strategy and corresponding policies that, among other things, would guide OHA’s land acquisitions, dispositions, development, management and use. OHA has repeatedly referred to policies relating to the appropriate allocation of the different types of real estate and balancing its real estate portfolio. Those missing strategies and policies are intended to guide OHA’s real estate activities, not only its selection and acquisition of commercial properties but also its acquisition of culturally significant lands. Without these strategies and policies, OHA has no principles to guide trustees or OHA staff – and as a result, OHA’s actions are ad hoc.

In 2007, OHA controlled only a few legacy lands and the need for these real estate strategies and policies may have been theoretical. However, in 2012, OHA acquired lands in Kaka‘ako Makai in settlement of an outstanding $200 million ceded lands revenue debt and later that same year, purchased the Gentry Pacific Design Center, which OHA renamed Nā Lama Kukui. And in 2021, OHA spent $47 million to acquire the 500 N. Nimitz Highway property and the partial interest in the Iwilei Business Center – without any criteria to assess the appropriateness of the acquisition or to compare other possible real estate investment properties. OHA is now the 13th largest landowner in the State.

The need and importance of these real estate strategies and policies is no longer theoretical as OHA moves to develop these properties. And, if another property “falls into OHA’s lap,” as OHA described its purchase of the 500 N. Nimitz Highway and Iwilei Business Center properties, OHA needs policies to minimize its risk and to ensure that trustees are fulfilling their fiduciary and statutory duties.

OHA’s failure to develop a conceptual master plan for its lands in Kaka‘ako Makai after more than a decade seems to reflect a similar misunderstanding about the need for and importance of a long-range vision or strategy. Without a conceptual master plan, much of OHA’s lands lay vacant or underutilized, which likely means, among other things, reduced revenues to OHA. Instead, OHA has contracted with three different consultants since it acquired the Kaka‘ako Makai lands to develop plans for the properties; yet, even a proposed interim use for one of OHA’s properties was scuttled after OHA learned that it needed to obtain a Special Management Area (Major) Use Permit – but not before it had spent $700,000 on two large tents specifically for that interim use.

In regards to the legacy lands, these properties are the culturally significant, including Kūkaniloko, the birthing site used by generations of Hawaiian chiefesses, which OHA describes as “one of the most sacred sites in Hawai‘i,” the Pahua Heiau, which may have once been a fishing shrine or agricultural heaau, and the Palauea Cultural Preserve, believed to be the remnants of an ancient fishing village. OHA’s lax management and oversight have created substantial and unnecessary risk that the stewards will use these cultural jewels in ways that are inconsistent with OHA’s intent as well as liability to OHA, and ultimately its beneficiaries.

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23-04, Audit of the Office of Hawaiian Affairs
03/10/2023

Credit: Office of the Auditor

AUDITOR’S SUMMARY

Eighty-four funds proposed in 2023 did not meet criteria

We reviewed 96 Senate and House bills introduced during the 2023 legislative session proposing 84 special and revolving funds of which none met criteria.

ONLY ABOUT HALF OF THE MONEY the State spends each year comes from its main financial account, the general fund. The other half of expenditures are financed by special, revolving, federal, and trust funds. Between 2008 and 2012, the number of these non-general funds and the amount of money contained in them substantially increased. Much of that upward trend had been caused by an increase in special funds, which are funds set aside by law for a specified object or purpose.

In 2013, the Legislature amended Section 23-11, Hawai‘i Revised Statutes (HRS), after the Auditor recommended changes to stem a trend in the proliferation of special and revolving funds over the past 30 years. Such funds erode the Legislature’s ability to control the State budget through the general fund appropriation process. General funds, which made up about two-thirds of State operating budget outlays in the late 1980s, had dwindled to about half of outlays.

By 2011, special funds amounted to $2.48 billion, or 24.3 percent, of the State’s $10.2 billion operating budget. Also ballooning were revolving funds, which are used to pay for goods and services and are replenished through charges to users of the goods and services or transfers from other accounts or funds. By 2011, revolving funds made up $384.2 million, or 3.8 percent, of the State’s operating budget. Further hampering the Legislature’s control over the budget process was a 2008 court case. In Hawai‘i Insurers Council v. Linda Lingle, Governor of the State of Hawai‘i, the Hawai‘i Supreme Court determined that under only certain conditions could the Legislature “raid” special funds to balance the State budget. In 2013, in order to gain more control over the budget process, the Legislature built new safeguards into the criteria for establishing special funds.

This year, applying the criteria required by Section 23-11, HRS, we reviewed 96 Senate and House bills introduced during the 2023 legislative session that propose 84 new special and revolving funds. We determined that none of the proposed special and revolving funds satisfied the criteria established by the Legislature.


The Criteria

SECTION 23-11, HRS, requires the Auditor to analyze all bills proposing to establish new special or revolving funds according to the following criteria:

  1. The need for the fund, as demonstrated by:
    • The purpose of the program to be supported by the fund;
    • The scope of the program, including financial information on fees to be charged, sources of
      projected revenue, and costs; and
    • An explanation of why the program cannot be implemented successfully under the general fund appropriation process; and
  2. Whether there is a clear nexus between the benefits sought and charges made upon the program users or beneficiaries or a clear link between the program and the sources of revenue, as opposed to serving primarily as a means to provide the program or users with an automatic means of support that is removed from the normal budget and appropriation process.

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23-05, Analyses of Proposed Special and Revolving Funds 2023
02/06/2023

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AUDITOR’S SUMMARY

HOUSE CONCURRENT RESOLUTION NO. 33, SENATE DRAFT 1 (2022 Regular Session) (HCR 33, SD 1), requests the Auditor to assess the social and financial effects of mandating health insurance coverage for “early access breast cancer screening,” as proposed in Senate Bill No. 827, Senate Draft 2 (2021 Regular Session) (SB 827, SD 2). Based on our analysis of the bill and our interviews and surveys with insurers and health care providers, the major difference between current mandated insurance coverage and that proposed by the bill is the addition of a baseline mammogram for average-risk women ages 35 to 39. We therefore focused our assessment on the proposed mandatory coverage for a baseline mammogram for average-risk women ages 35 to 39.

We conducted this assessment in accordance with Sections 23-51 and 23-52, Hawai‘i Revised Statutes (HRS).

Hawai‘i law currently requires health insurance plans to provide coverage for annual mammograms for women 40 years of age and older and for women of any age with a history of breast cancer or whose mother or sister has had a history of breast cancer. The state’s two largest insurers, Hawai‘i Medical Service Association and Kaiser Permanente, represent that aside from the baseline mammogram for average-risk women ages 35 to 39, the proposed revisions in SB 827, SD 2, are already covered under their current health policies.*

We found that, while a number of states have enacted laws that mandate insurance coverage for baseline mammograms for women ages 35 to 39, none of the major medical organizations we reviewed currently recommend mammography screening for average-risk women ages 35 to 39. The U.S. Preventative Services Task Force guidelines, referred to in both SB 827, SD 2, and HCR 33, SD 1, recommend mammograms for average-risk women starting at age 50. The American College of Obstetricians and Gynecologists, the American Cancer Society, and the National Comprehensive Cancer Network recommend offering mammography screenings starting at age 40.

With regard to our analysis of the social impacts set forth in Section 23-52, HRS, we were unable to determine the level of demand for a baseline mammogram for average-risk women ages 35 to 39. We
note that the affected population is a relatively limited one. According to figures provided by the six insurers that responded to our survey, there was a combined enrollment of 375,023 females ages 35 and over in 2021. This included 44,584, or about twelve percent, who were ages 35 to 39, the age group targeted by the proposed mandate. And we found little information on the impact of providing coverage for a baseline mammogram for average-risk women ages 35 to 39 on morbidity, mortality, and quality of care. The published studies and other articles, generally, focus on women ages 40 and older.

In reviewing the financial impacts of the proposed coverage, in general, the health insurance companies project only very small increases in total healthcare costs and insurance premiums. For the purposes of the Patient Protection and Affordable Care Act, the required coverage would be a new mandate and the State will be responsible for defrayment of the costs of these added benefits to individuals enrolled in the State’s qualified health plans. Given the fact that in 2021 there were only 22,903 Hawai‘i residents
enrolled in private individual market plans through the State’s health insurance marketplace, the number of average-risk women ages 35 to 39 is likely only a relatively small fraction of the total enrollment.


* In addition to the baseline mammogram, SB 827, SD 2, specifies coverage for an annual mammogram for women ages 30 to 50 deemed by a physician or clinician to be at an above-average risk for breast cancer, provided that a formal risk factor screening assessment is first made. We conclude that this falls under currently mandated coverage. The bill also specifies coverage for any additional imaging or supplemental imagery deemed medically necessary by an applicable American College of Radiology guideline; however, any supplemental imaging deemed medically necessary is already required by law to be covered.

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23-03, Study of Proposed Mandatory Health Insurance Coverage for Early Access Breast Cancer Screening
02/06/2023

Photo: Aloha Stadium

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Stadium Authority, as of and for the fiscal year ended June 30, 2022, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by N&K CPAs.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, the Authority reported total revenues of $5.1 million and total expenses of $5.8 million, resulting in a net operating loss of $700,000. Revenues consisted of $4.7 million from rentals from attractions and $400,000 in parking fees and other revenues. The Authority’s net loss was partially offset by $7.3 million in capital contributions, which represents the portion of Aloha Stadium capital improvement costs that were paid by the State of Hawai‘i. In addition, the Authority received Coronavirus State and Local Fiscal Recovery Funds of $2.3 million resulting in an increase in net position of $9 million.

Expenses consisted of (1) $200,000 for depreciation, (2) $3.2 million for personnel services, (3) $1 million for utilities, and (4) $1 million for repairs and maintenance. Additional expenses totaled $400,000 and included state central services assessments as well as security, professional services, and other costs.

As of June 30, 2022, total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources, resulting in a net position of $28.6 million. Of this amount, $37.4 million was invested in capital assets and there is an unrestricted net deficit of $8.8 million. The agency reported total assets and deferred outflows of resources of $43.6 million, comprised of (1) cash of $4.9 million, (2) receivables, other assets, and deferred outflows of resources of $1.3 million, and (3) net capital assets of $37.4 million. The agency reported total liabilities and deferred inflows of resources of $15 million, comprised of (1) net pension liability of $5.7 million, (2) vacation and other retirement payables of $6.3 million, and (3) other liabilities and deferred inflows of resources of $3 million.

Auditors’ Opinion
THE AUTHORITY RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. The Authority also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. However, the auditors identified one material weakness in internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and correct on a timely basis. The material weakness is described on pages 62-63 of the report.

There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Authority

The Stadium Authority (Authority) was established in 1970 and is responsible for the operation, management, and maintenance of Aloha Stadium, located in Honolulu, Hawai‘i. The Authority functions under the direction of a nine-member board, appointed by the Governor. In addition, the president of the University of Hawai‘i and the state superintendent of education are nonvoting ex-officio members of the board. For administrative purposes, the Authority is placed within the State of Hawai‘i’s Department of Accounting and General Services.

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Financial and Compliance Audit of the Stadium Authority
02/03/2023

Photo: Hawai‘i Public Housing Authority

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Public Housing Authority as of and for the fiscal year ended June 30, 2022. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, HPHA reported total revenues of $189 million and total expenses of $183 million, resulting in an increase in net position of $6 million.

Total revenues of $189 million consisted of (1) $28 million in charges for services and other revenues, (2) $135 million in operating grants and contributions, (3) $4 million in capital grants and contributions, and (4) $22 million in state-allotted appropriations, net of lapsed funds.

Total expenses of $183 million consisted of (1) $98 million for the rental housing assistance program, (2) $71 million for the rental assistance program, (3) $11 million for the housing development program, and (4) $3 million for other costs.

As of June 30, 2022, total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources by $463 million. The agency reported total assets and deferred outflows of resources of $561 million which were comprised of (1) cash of $108 million, (2) amounts due from State of $70 million, (3) notes and other receivables of $9 million, (4) net capital assets of $367 million, and (5) other assets and deferred outflows or resources of $7 million. The agency also reported total liabilities and deferred inflows of resources of $98 million which were comprised of (1) net pension liability of $35 million, (2) net other postemployment benefits other than pensions of $36 million, (3) accounts payable and accrued expenses of $14 million, and (4) other liabilities and deferred inflows of resources of $13 million.

Auditors’ Opinion
HPHA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings
THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that were required to be reported under Government Auditing Standards.

About the Authority

The mission of the Hawai‘i Public Housing Authority (HPHA) is to provide safe, decent, and sanitary dwellings for low and moderate-income residents of Hawai‘i and to operate its housing programs in accordance with federal and State laws and regulations. Some of HPHA’s housing assistance programs are funded by the U.S. Department of Housing and Urban Development (HUD).

HPHA is administratively attached to the Hawai‘i Department of Human Services (DHS). HPHA operates under the direction of its Executive Director and Board of Directors, which consists of eleven board members, nine of whom are appointed by the Governor. The Director of DHS and the Governor’s designee are ex-officio members.

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Financial Audit of the Hawai‘i Public Housing Authority
02/02/2023

Photo: Hawai‘i Housing Finance and Development Corporation

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Housing Finance and Development Corporation, as of and for the fiscal year ended June 30, 2022, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

HHFDC HAS TWO TYPES OF FUNDS – governmental funds and proprietary funds. HHFDC’s governmental funds are supported primarily by appropriations from the State’s General Fund, federal grants, and proceeds of the State’s general obligation bonds allotted to HHFDC. HHFDC’s governmental funds include (1) the General Fund, (2) the General Obligation Bond Fund, (3) the HOME Investment Partnership Program, (4) the Housing Trust Fund Program, and (5) the Homeowner Assistance Fund Program.

HHFDC’s proprietary funds operate similar to business-type activities and are used to account for those activities for which the intent of management is to recover (primarily through user charges) the cost of providing services to customers. HHFDC’s proprietary funds include (1) the Rental Housing Revolving Fund, (2) the Dwelling Unit Revolving Fund, (3) the Single Family Mortgage Purchase Revenue Bond Fund, (4) the Housing Finance Revolving Fund, and (5) several other non-major enterprise funds.

For the fiscal year ended June 30, 2022, HHFDC reported total program revenues of $72.4 million and total program expenses of $25.7 million. In addition, HHFDC reported state-allotted appropriations, net of lapses, of $65 million and a loss on disposal of capital assets of $6.4 million for the fiscal year ended June 30, 2022. Together with program revenues and expenses, this resulted in an overall increase in net position of $105.3 million.

As of June 30, 2022, the agency reported total assets and deferred outflows of resources of
$1.7 billion, comprised of (1) cash of $650.2 million, (2) investments of $22.2 million, (3) notes and loans receivable of $800.4 million, (4) moneys due from the state of $42.8 million, (5) net capital assets of $94.3 million, and (6) other assets and deferred outflows of resources of $108.7 million. The agency reported total liabilities and deferred inflows of resources of $109.1 million, comprised of (1) revenue bonds payable of $4.3 million, (2) unearned income of $20.9 million, (3) estimated future costs of development of $29.6 million, (4) moneys due to other state departments of $22.8 million, and (5) other liabilities and deferred inflows of resources of $31.5 million.

Auditors’ Opinion
HHFDC RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. HHFDC also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings
THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance that are required to be reported under the Uniform Guidance.

About the Corporation

The Hawai‘i Housing Finance and Development Corporation (HHFDC) was established by the State Legislature in 2006. Its mission is to increase the state’s supply of workforce and affordable homes by providing tools and resources to facilitate housing development, such as housing tax credits, low-interest construction loans, equity gap loans, and developable land and expedited land use approvals. The agency is administratively attached to the Hawai‘i Department of Business, Economic Development and Tourism.

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Financial and Compliance Audit of the Hawai‘i Housing Finance and Development Corporation
02/01/2023

Photo Credit: Office of the Auditor

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Community Development Authority, as of and for the fiscal year ended June 30, 2022. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, HCDA reported total revenues of $9.7 million, total expenses of $7.8 million, and net transfers out of $500,000, resulting in an increase in net position of $1.4 million. Revenues consisted of (1) leasing and management activities of $2.5 million, (2) community redevelopment activities of $4.9 million, (3) investment earnings of $300,000, (4) net state appropriations of $700,000, and (5) other revenue of $1.3 million.

The following graph illustrates a comparative breakdown of HCDA’s revenues and expenses.

As of June 30, 2022, total assets and deferred outflows of resources of $153.8 million exceeded total liabilities and deferred inflows of resources of $32.4 million resulting in a net position of $121.4 million.

Of the net position balance of $121.4 million, $28.6 million is unrestricted and may be used to meet ongoing expenses, $100,000 is restricted for capital projects, and $92.7 million is invested in net capital assets. The agency reported total assets and deferred outflows of resources comprised of (1) net capital assets of $93.4 million, (2) cash of $30.6 million, and (3) receivables, other assets, and deferred outflows of resources of $29.8 million.

Auditors’ Opinion
HCDA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings
THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that would have required reporting under Government Auditing Standards. However, the auditors identified one significant deficiency. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The finding is described on pages 66-67 of the report.

About the Authority

The Hawai‘i Community Development Authority (HCDA) was established in 1976 by Chapter 206E, Hawai‘i Revised Statutes, to establish community development plans in community development districts, to determine community development programs, and to cooperate with private enterprises and various components of federal, state, and county governments to bring community plans to fruition. HCDA is administratively attached to the Department of Business, Economic Development and Tourism.

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Financial Audit of the Hawai‘i Community Development Authority
01/31/2023

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AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the State of Hawai‘i’s financial statements, as presented in the Annual Comprehensive Financial Report (ACFR) for the State of Hawai‘i, as of and for the fiscal year ended June 30, 2022. The audit was conducted by Accuity LLP. The ACFR was issued on December 30, 2022.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, total revenues were $18.7 billion and total expenses were $16.3 billion, resulting in an increase in net position of $2.4 billion. Approximately 51 percent of the State of Hawai‘i’s total revenues came from taxes of $9.5 billion, 
40 percent from grants and contributions of $7.5 billion, and 9 percent from charges for various goods and services of $1.7 billion.

Total tax revenues of $9.5 billion consisted of general excise taxes of $3.9 billion, net income taxes of $3.8 billion, and other taxes of $1.8 billion.

The largest expenses were for welfare at $4.9 billion, lower education at $3.4 billion, higher education at $900 million, health at $1.1 billion, and general government at $2.3 billion. Other expenses totaled $3.7 billion.

As of June 30, 2022, total liabilities and deferred inflows of resources of $31.7 billion exceeded total assets and deferred outflows of resources of $29.6 billion, resulting in a negative net position of $2.1 billion. Of this amount, $3.6 billion was for the State’s net investment in capital assets, $4.2 billion was restricted for specific programs, and a negative $9.9 billion was unrestricted assets.

As of June 30, 2022, total assets and deferred outflows of resources of $29.6 billion were comprised of (1) net capital assets of $15.5 billion, (2) investments of $6 billion, (3) cash of $2 billion, (4) receivables of $1.7 billion, (5) restricted assets of $1.4 billion, and (6) other assets and deferred outflows of resources of $3 billion. Total liabilities and deferred inflows of resources of $31.7 billion were comprised of (1) general obligation and revenue bonds payable of $12.5 billion, (2) vacation and retirement benefits of $12 billion, and (3) other liabilities and deferred inflows of resources of $7.2 billion.

Auditors’ Opinion
THE STATE OF HAWAI‘I RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

About the State

THE STATE OF HAWAI‘I is mandated by statute to provide a range of services in the areas of education (both lower and higher), welfare, transportation (including highways, airports, and harbors), health, hospitals, public safety, housing, culture and recreation, economic development, and conservation of natural resources.

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Financial Audit of the Annual Comprehensive Financial Report of the State of Hawai‘i
01/30/2023

Sthethoscope and medical documents

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AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Employer-Union Health Benefits Trust Fund, as of and for the fiscal year ended June 30, 2022. The audit was conducted by KKDLY LLC.

Financial Highlights

EUTF USES THE OPEB TRUST FUND to account for OPEB assets, liabilities, net position and operations related to post-employment health benefits for retirees and their beneficiaries, including all employer OPEB contributions for retirees and their beneficiaries. An enterprise fund is used to account for active employee healthcare benefits.

ENTERPRISE FUND: For the fiscal year ended June 30, 2022, revenues totaled $115.5 million and expenses totaled $121 million, resulting in a net loss of $5.5 million. Revenues consisted of premium revenue self-insurance of $97.1 million, experience refunds of $16.1 million, and investment earnings and other revenues of $2.3 million.

Expenses consisted of benefit claims expenses of $102.4 million, administrative operating expenses of $9.4 million, depreciation of $500,000, and other operating expenses of $8.7 million

As of June 30, 2022, assets and deferred outflows of resources totaled $266.9 million and liabilities and deferred inflows of resources totaled $69.5 million, resulting in a net position of $197.4 million.

OPEB Trust Fund: For the fiscal year ended June 30, 2022, total additions of $726 million, included $845.6 million from employer contributions, $120.4 million from net investment losses, and $800,000 from other sources. Total deductions were $517 million, resulting in a change of fiduciary net position of $209 million.

As of June 30, 2022, the OPEB Trust Fund net position balance totaled $6.29 billion. The OPEB Trust Fund held $6.35 billion in assets and $62.2 million in liabilities.

Auditors’ Opinion

EUTF RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Trust Fund

The Hawai‘i Employer-Union Health Benefits Trust Fund (EUTF) is a state agency that provides eligible State of Hawai‘i and county (Honolulu, Hawai‘i, Maui, and Kaua‘i) employees and retirees and their eligible dependents with health and life insurance benefits. EUTF is administered by a board of trustees composed of ten trustees appointed by the Governor. The trust fund currently provides medical, prescription drug, dental, vision, chiropractic, supplemental medical and prescription, and group life insurance benefits. Effective June 30, 2013, the board established a separate trust fund (the OPEB Trust Fund) to receive employer contributions to pre-fund other post-employment benefits (OPEB) for retirees and their beneficiaries. EUTF is administratively attached to the State of Hawai‘i Department of Budget and Finance.

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Financial Audit of the Hawai‘i Employer-Union Health Benefits Trust Fund
01/27/2023

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AUDITOR’S SUMMARY

 

Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Employees’ Retirement System of the State of Hawai‘i, as of and for the fiscal year ended June 30, 2021. The audit was conducted by KPMG LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, ERS reported total net additions of approximately $6.24 billion. Additions consisted of $1.58 billion from contributions and $4.66 billion in net investment income.

Total deductions of approximately $1.69 billion consisted of (1) $1.65 billion for benefit payments; (2) $19 million for administrative expenses; and (3) $24 million for refund of member contributions.

As of June 30, 2021, assets totaled $23.44 billion and liabilities totaled $1.51 billion, leaving a net position balance of $21.94 billion. Total assets included (1) investments of $21.96 billion; (2) receivables of $354 million; (3) cash of $1.12 billion; and (4) net equipment of $6 million.

Auditors’ Opinion
ERS RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings
THERE WERE NO REPORTED DEFICIENCIES IN INTERNAL CONTROL over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters required to be reported under Government Auditing Standards.

About the System

The Employees’ Retirement System of the State of Hawai‘i (ERS) is a cost-sharing, multiple-employer retirement system for government workers. Through its pension benefits program, ERS provides a defined-benefit pension plan for all state and county employees, including teachers, professors, police officers, firefighters, correction officers, judges, and elected officials. ERS is governed by a Board of Trustees, which consists of eight members.

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Financial Audit of the Employees’ Retirement System of the State of Hawai’i
01/26/2023

Photo: DOT Harbors Division

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Harbors Division, as of and for the fiscal year ended June 30, 2022. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, DOT-Harbors reported total revenues of $206.1 million, total expenses of $112.4 million, and capital contributions of $200,000 from federal grants restricted for capital asset acquisition and facility development, resulting in an increase in net position of $93.9 million. Total revenues consisted of (1) $168.7 million in services, (2) $34.1 million in leases, (3) $2.5 million in interest income, and (4) $800,000 in other revenues.

Total expenses consisted of (1) $38.4 million in depreciation, (2) $18.1 million in harbor operations, (3) $11 million in interest, (4) $30.6 million for personnel, and (5) $14.3 million in administration and other costs.

As of June 30, 2022, the agency reported total assets and deferred outflows of resources of $1.87 billion, comprised of (1) cash and cash equivalents of $607.7 million, (2) receivables of $85.2 million, (3) net capital assets of $1.15 billion, and (4) other assets and deferred outflows of resources of $23.2 million. Total liabilities and deferred inflows of resources totaled $623 million, comprised of (1) $401.7 million in revenue bonds payable and related accrued interest payable, (2) $13.7 million in general obligation bonds payable, (3) $22.8 million in financed purchase obligation and related accrued interest payable, (4) $3.1 million due to other State agencies, 
(5) $18.9 million in accounts and contracts payable, and (6) $162.8 billion in other liabilities and deferred inflows of resources.

Auditors’ Opinion

DOT-HARBORS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Fund

The Department of Transportation, Harbors Division (DOT-Harbors) is responsible for Hawai‘i’s statewide system of commercial harbors consisting of ten harbors on six islands. Major activities include maintenance and operation, the construction of new harbor facilities, and the management of vessel traffic into, within, and out of Hawai‘i’s harbors. The Division is self-sustaining. Pursuant to Hawai‘i Revised Statutes, rates and charges imposed and collected pay for the costs of operations, maintenance, and repairs, as well as debt service on revenue bonds and other outstanding obligations. A capital improvements program is funded by the revenue and proceeds from harbors system revenue bonds.

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Financial Audit of the Department of Transportation, Harbors Division
01/25/2023

Photo: Hawaii DOT Airports Division

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Airports Division, as of and for the fiscal year ended June 30, 2022. The audit was conducted by KPMG LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, DOT-Airports reported total revenues of $666 million and total expenses of $623 million, resulting in an increase in net position of $43 million. Revenues consisted of (1) $169 million in concession fees, (2) $81 million in landing fees, (3) $179 million in rentals, (4) $99 million in facility charges, (5) $111 million in federal operating and capital grants, and (6) $27 million in interest and other revenues.

Total expenses of $623 million consisted of (1) $330 million for operations and maintenance, (2) $167 million in depreciation, (3) $29 million for administration, and (4) $97 million in interest and other expenses.

As of June 30, 2022, the department reported total assets and deferred outflows of resources of $6.14 billion, comprised of (1) cash of $1.28 billion, (2) investments of $229 million, (3) net capital assets of $4 billion, and (4) $633 million in receivables, other assets, and deferred outflows of resources. Total liabilities and deferred inflows of resources totaled $3.57 billion, which includes $1.91 billion in airports system revenue bonds and $1.66 billion in other liabilities and deferred inflows of resources.

Revenue bonds for DOT-Airports are rated as follows:

  • Standard & Poor’s Corporation: A+
  • Moody’s Investors Service: A1
  • Fitch IBCA, Inc.: A+

DOT-Airports has numerous capital projects ongoing state-wide; construction-in-progress totaled
$690 million at the end of the fiscal year.

Auditors’ Opinion

DOT-AIRPORTS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that were required to be reported under Government Auditing Standards.

About the Fund

The Department of Transportation, Airports Division (DOT-Airports), operates and maintains 15 airports at various locations within the State of Hawai‘i as a single integrated system for management and financial purposes. Daniel K. Inouye International Airport is the principal airport in the airports system, providing facilities for interisland flights, domestic overseas flights, and international flights to destinations in the Pacific Rim. DOT-Airports is authorized to impose and collect rates and charges for the airports system services and properties to generate revenues to fund operating expenses. The Capital Improvements Program is primarily funded by airports system revenue bonds and lease revenue certificates of participation issued by DOT-Airports, federal grants, passenger facility charges, customer facility charges, and DOT-Airports revenues.

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Financial and Compliance Audit of the Department of Transportation, Airport Division
01/24/2023

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AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, Water Pollution Control Revolving Fund, as of and for the fiscal year ended June 30, 2022, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards and the Environmental Protection Agency Audit Guide for Clean Water and Drinking Water State Revolving Fund Programs. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, the Revolving Fund reported total revenues of $20.7 million and total operating expenses of $3.7 million, resulting in an increase in net position of $17 million. Total revenues consisted of (1) administrative loan fees of $3.7 million, (2) interest income of $1.4 million, (3) state contributions of $2.5 million, (4) federal contributions of $12.3 million, and (5) other income of $900,000. Total expenses of $3.7 million consisted of administrative expenses of $2.8 million and other expenses of $900,000.

As of June 30, 2022, total assets and deferred outflows of resources were $592 million and total liabilities and deferred inflows of resources were $8.2 million. Total assets were comprised of (1) cash and cash equivalents of $87.5 million, (2) loans receivable of $501.1 million, and (3) other assets and deferred outflows of resources of $3.4 million. Total liabilities were comprised of (1) net other post-employment benefits liability of $3.4 million, (2) net pension liability of $3.6 million, and (3) other liabilities and deferred inflows of resources of $1.2 million.

Auditors’ Opinion

THE REVOLVING FUND RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. The Revolving Fund also received an unqualified opinion on its compliance with the Clean Water State Revolving Fund Program (Program).

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance with the Program.

About the Fund

The federal Clean Water State Revolving Fund provides low-cost infrastructure financing for public water quality infrastructure projects. Moneys earmarked for Hawai‘i are deposited into the State’s Water Pollution Control Revolving Fund (Revolving Fund) and are used to provide loans in perpetuity to county and state agencies for the construction of wastewater treatment facilities and other programs. Loans may be at or below market interest rates and be fully amortized for a period not to exceed twenty years. Under the federal Clean Water Act of 1987, from 1989 to 1994, the State of Hawai‘i received more than $72 million in capitalization grants. The State continues to receive capitalization grants annually from the U.S. Environmental Protection Agency. The Revolving Fund is administered by the State of Hawai‘i Department of Health’s Environmental Management Division, Wastewater Branch.

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Financial and Compliance Audit of the Department of Health, Water Pollution Control Revolving Loan Fund
01/23/2023

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AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, Drinking Water Treatment Revolving Loan Fund, as of and for the fiscal year ended June 30, 2022, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards and the Environmental Protection Agency Audit Guide for Clean Water and Drinking Water State Revolving Fund Programs. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, the Revolving Fund reported total revenues of $16.4 million and total operating expenses of $4.9 million, resulting in a change in net position of $11.5 million. Total revenues consisted of (1) administrative loan fees of $2.5 million, (2) federal contributions of $10.7 million, (3) state contributions of $2.2 million, and (4) other income of $1 million.

Total expenses consisted of (1) administrative expenses of $1.3 million, (2) state program management of $700,000, (3) water protection of $600,000, and (4) other expenses of $2.3 million.

As of June 30, 2022, total assets and deferred outflows of resources were $254.5 million and total liabilities and deferred inflows of resources were $6.6 million. Total assets were comprised of (1) cash and cash equivalents of $24.7 million, (2) loans receivable of $227.5 million, and (3) other assets and deferred outflows of resources of $2.3 million. Total liabilities were comprised of (1) net other post-employment benefits liability of $2.6 million, (2) net pension liability of $2.4 million, and (3) other liabilities and deferred inflows of resources of $1.6 million.

Auditors’ Opinion

THE REVOLVING FUND RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. The Revolving Fund also received an unqualified opinion on its compliance with the Drinking Water State Revolving Funds Program (Program).

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance with the Program.

About the Fund

The Safe Drinking Water Act was originally passed by Congress in 1974 to protect public health by regulating the nation’s public drinking water supply. The law was amended in 1996 to provide funding for water system improvements. In 1997, the Hawai‘i State Legislature established the Drinking Water Treatment Revolving Loan Fund (Revolving Fund) to receive federal capitalization grants from the U.S. Environmental Protection Agency. The Revolving Fund is used to provide loans in perpetuity to public drinking water systems for construction of drinking water treatment facilities. Such loans may be at or below market interest rates and must be fully amortized within twenty years. The Revolving Fund is administered by the State of Hawai‘i Department of Health’s Environmental Management Division, Safe Drinking Water Branch.

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Financial and Compliance Audit of the Department of Health, Drinking Water Treatment Revolving Loan Fund
01/20/2023

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2022

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Administration Division, as of and for the fiscal year ended June 30, 2022, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2022, DOT–Administration reported total revenues of $53.4 million, total expenses of $51.2 million, and net transfers of $1.9 million, resulting in an increase in net position of $4.1 million. Revenues consisted of $23 million from assessments, $29.1 million from federal grants, and $1.3 million from other revenue sources.

Total expenses of $51.2 million consisted of $10.4 million for operating grants and $40.8 million for administration.

As of June 30, 2022, total assets of $54.8 million were comprised of (1) cash of $16.1 million, (2) accounts receivable of $32.1 million, and (3) net capital assets of $6.6 million. Liabilities totaled $44.6 million, including a $1.5 million Aloha Tower Development Corporation note payable to the Harbors Division.

Auditors’ Opinion

DOT—ADMINISTRATION RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT–Administration also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

Audit reports for the Department’s Airports Division, Harbors Division, and Highways Division are available on our website.

About the Organization

Four divisions (Airports, Harbors, Highways, and Administration) make up the State’s Department of Transportation. The Administration Division (DOT–Administration) consists of the Office of the Director of Transportation, the Statewide Transportation Planning Office, and Departmental Staff Services Offices. Collectively, these offices provide overall administrative support for the Department of Transportation. The financial statements for the Division reflect the financial activities of DOT–Administration and the Aloha Tower Development Corporation, which is attached to the Department for administrative purposes. DOT–Administration receives a percentage of the Airports, Harbors, and Highways Divisions’ state-allotted appropriations to cover general administration expenses. The Department’s Statewide Transportation Planning Office administers certain Federal Transit Administration and Federal Highway Administration grants.

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Financial and Compliance Audit of the Department of Transportation, Administration Division
01/18/2023

Photo: Office of the Auditor

AUDITOR’S SUMMARY

Three Special Funds and two trust accounts did not meet criteria

OUR REVIEW of five special funds, three revolving funds, five trust funds, and four trust accounts of the Department of Public Safety (PSD) found three special funds and two trust accounts did not meet criteria and should be closed or reclassified.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of PSD’s revolving funds, trust funds, and trust accounts. It is our second review of the special funds held by PSD since Act 130, Session Laws of Hawaiʻi 2013, amended Section 23-12, HRS, to require review of special funds along with revolving funds and trust funds.

We used criteria developedby the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall
WE NOTED that PSD did not file statutorily required reports for non-general funds totaling approximately $2.96 million and administratively created non-general funds totaling approximately $6.55 million. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds.

Agency response
PSD AGREED with our conclusion about its reporting shortfall and stated that it has taken corrective action. PSD disagreed with our determination that the Administrator/Inmate Activity Account and Law Enforcement Services – Airport special fund did not meet the criteria for each respective type of fund and stated that it “prefers” to maintain the current classifications of both. PSD offered no analysis or other information to support the current classification of either the account or the fund. We maintain that, while both continue to serve the purposes for which they were created, the Administrator/Inmate Activity Account operates as a special fund and should be reclassified as such; similarly, the Law Enforcement Services – Airport special fund should be reclassified as a revolving fund.

Additionally, PSD offered additional comments regarding a transfer between the Correctional Industries Revolving Fund and the Federal Reimbursement Maximization Special Fund. We responded to PSD’s comments and have included the department’s written comments to the draft report in its entirety.

FUND TYPES

SPECIAL FUNDS
are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS
such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS
such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS
are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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23-02, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Public Safety
01/17/2023

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AUDITOR’S SUMMARY

Although registration of appraisal management companies does not comply with the State’s policy for professional and vocational regulation, public interest likely justifies continued regulation.

REGULATION OF APPRAISAL MANAGEMENT COMPANIES (AMCs) is set to “sunset,” or cease, on June 30, 2023. Chapter 26H-5, Hawai‘i Revised Statutes (HRS), requires the Auditor to assess professions and vocations set to “sunset” to determine whether the current regulation complies with the State’s policy for professional and vocational licensing as expressed in the Hawai‘i Regulatory Licensing Reform Act. The statute also requires the Auditor to assess whether the law establishing the regulatory program should be reenacted, modified, or permitted to expire, and evaluate the effectiveness and efficiency of the regulatory program.

In Report No. 23-01, Sunset Evaluation: Regulation of Appraisal Management Companies, we conclude that the Hawai‘i Regulatory Licensing Reform Act does not support the regulation of AMCs. AMCs are not a “profession” or “vocation” but are organizations whose business is to assist lenders in retaining appraisers. In addition, the work performed by AMCs does not reasonably affect the health, safety, or welfare of consumers of services provided by these companies.

Although we find the Hawai’i Regulatory Licensing Reform Act does not support regulation, we conclude that public interest likely justifies reenactment of the AMC registration program codified in Chapter 466L, HRS.

Act 118, Session Laws of Hawai‘i 2017, codified as Chapter 466L, HRS, established the Appraisal Management Company Registration Program (AMC registration program) to conform with the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203 (Dodd-Frank Act) requirements related to the regulation of AMCs. The Dodd-Frank Act required, among other things, federal regulatory agencies to establish minimum requirements for state registration and supervision of AMCs. While states were not required to enact AMC registration and supervision, if a state failed to do so by August 10, 2018, certain AMCs would be barred from providing appraisal management services for federally related transactions in the state.

Criteria not met
The Hawai‘i Regulatory Licensing Reform Act, Chapter 26H, HRS, sets out the State’s policy regarding the regulation of professions and vocations. AMCs are business entities, not professions or vocations; therefore, the State’s policy with respect to professional and vocational licensing does not support regulation of AMCs.

We also considered whether the work performed by AMCs reasonably affects the health, safety, or welfare of consumers of that work, which is the threshold requirement for professional and vocational regulation in Hawai‘i. In the context of the State’s policy, we do not interpret “consumers” to mean the general public – i.e., home buyers who have applied for a loan through a financial institution that requires an appraisal report. Given the nature of appraisal management services provided by AMCs, consumers of these services are lending institutions, and regulation is not necessary to protect the public health, safety, or welfare.

Public interest may require regulation of AMCs be reenacted
Section 466L-1, HRS, states that regulation of AMCs reflects the Legislature’s position that it was necessary to create a regulatory framework for AMCs in accordance with the Dodd-Frank Act.

Currently, all 50 states and the District of Columbia have opted to create an AMC registration program. Hawai‘i would be the only state without an AMC registration program if Chapter 466L, HRS, is not reenacted. There are likely other consequences for AMCs contracted to perform appraisals in Hawai‘i should the AMC registration program be allowed to expire. AMCs in a state that has not adopted regulation under the Dodd-Frank Act may be barred from providing appraisal management services for some federally related transactions.

From the limited information about AMCs noted above, including the 2017 Legislature’s finding that a large source of Hawai‘i’s funding for residential mortgage loans are from outside Hawai‘i, we believe the public interest likely supports continuing the AMC registration program.

What are Appraisal Management Companies?
AMCs ARE NOT APPRAISERS, but companies that serve an intermediate role between lenders and appraisers. AMCs assist lenders in obtaining appraisals by providing appraisal management services, which include contracting with licensed appraisers to perform appraisal assignments and managing the process of having an appraisal performed.

Hawai‘i’s AMC registration program applies to companies that oversee an appraisal panel of more than 15 appraisers in a state, or 25 appraisers in two or more states. If an AMC meeting this size threshold is not registered, they may not directly or indirectly engage or attempt to engage in business as an AMC, perform appraisal management services, or advertise or hold oneself out as engaging in or conducting business as an AMC.

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23-01, Sunset Evaluation: Regulation of Appraisal Management Companies
12/27/2022

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AUDITOR’S SUMMARY

SENATE CONCURRENT RESOLUTION NO. 241, SENATE DRAFT 1, of the 2022 Legislature, requests the Auditor to assess the social and financial effects of mandating health insurance coverage for “standard fertility preservation services” for insureds who have been diagnosed with cancer that may, or whose treatment may, adversely affect their fertility, as proposed in House Bill No. 2242 (HB 2242) and Senate Bill No. 3308 (SB 3308), both introduced in the Regular Session of 2022.

We conducted this assessment in accordance with Sections 23-51 and 23-52, Hawai‘i Revised Statutes (HRS).

HB 2242 and SB 3308 propose to mandate insurance coverage for fertility preservation services where (1) the “insured is diagnosed with a cancer that may, or whose treatment may, adversely affect the fertility of the insured” and (2) the “standard fertility preservation services are deemed reasonably necessary for the insured.” HB 2242 and SB 3308 require that both conditions be satisfied to activate the coverage.

To understand the proposed mandatory insurance coverage, we researched the bills’ definition of “standard fertility preservation services” and attempted to determine the meaning of the term “reasonably necessary” in the context of the bills. The term “reasonably necessary,” is not defined in HB 2242 or SB 3308. While Hawai‘i law defines “medical necessity,” we did not find a definition of “reasonably necessary” in the chapters of the Hawai‘i Revised Statutes that the bills propose to amend, nor in Chapter 432E, HRS, the Patients’ Bill of Rights and Responsibilities Act.

We spoke to various medical care provider organizations and health insurance providers for their understanding of the term “reasonably necessary.” None of the organizations or insurers were able to define “reasonably necessary.” Some of the insurers said “reasonably necessary” is not a commonly used insurance term.

Without a clear definition of the term “reasonably necessary,” we are unable to determine the extent of the proposed mandated insurance coverage – specifically, when an insured is entitled to coverage for fertility preservation services. Without that understanding, we are unable to assess the social and financial impacts of the proposed mandatory health insurance coverage under Section 23-52, HRS.

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22-16, Proposed Mandatory Health Insurance for Fertility Preservation Procedures for Cancer Patients
11/17/2022

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AUDITOR’S SUMMARY

One Special Fund, one trust fund, and one trust account did not meet criteria

OUR REVIEW of four special funds, two trust funds, and seven trust accounts of the Department of Taxation (DoTAX) found one special fund, one trust fund, and one trust account did not meet criteria and should be closed or reclassified.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of DoTAX’s revolving funds, trust funds, and trust accounts. It is our second review of the special funds held by DoTAX since Act 130, Session Laws of Hawaiʻi 2013, amended Section 23-12, HRS, to require review of special funds along with revolving funds and trust funds. DoTAX did not have any revolving funds during our review period.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall
WE NOTED that DoTAX did not file statutorily required reports relating to funds totaling approximately negative $2.3 million. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds.

Agency response
DoTAX did not believe any revisions to the report were necessary and offered no further comments.

FUND TYPES

SPECIAL FUNDS
are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS
such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS
such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS
are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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22-14, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Taxation
10/26/2022

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AUDITOR’S SUMMARY

One fund did not meet criteria

OUR REVIEW of the one special fund and two trust funds of the Department of Human Resources Development (DHRD) found the special fund did not meet criteria and should be reclassified to a revolving fund.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years.  Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of DHRD’s revolving funds, trust funds, and trust accounts. It is our second review of the special funds held by DHRD since Act 130, Session Laws of Hawaiʻi 2013, amended Section 23-12, HRS, to require review of special funds along with revolving funds and trust funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall
WE NOTED that DHRD did not file statutorily required reports relating to funds totaling approximately $2.75 billion. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds.

Agency response
DHRD CONCURRED WITH THE FINDINGS and will take appropriate action to reclassify a special fund that functions more like a revolving fund. DHRD also stated that it will ensure compliance with all reporting requirements.

FUND TYPES

SPECIAL FUNDS
are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS
such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS
such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS
are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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22-12, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Human Resources Development
10/05/2022

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AUDITOR’S SUMMARY

ACCORDING TO THE 2020 State of Hawaii Data Book, more than 158,000 individuals residing in Hawai‘i are limited English proficient. For this population, interpreters, translators, and other language access-related services may be needed to help navigate government activities such as court proceedings, as well as to understand rights and responsibilities related to public housing, driver’s license examinations, voting procedures, unemployment benefits, and public health services associated with the COVID-19 pandemic.

In 2006, the Legislature established the Office of Language Access (OLA) to address the needs of limited English proficient individuals in Hawai‘i and to ensure they have meaningful access to state services, programs, and activities. OLA is responsible for, among other things, ensuring compliance with language access laws by all state offices, including those attached to the legislative and judicial branches of state government, and organizations that receive state funding, which the law refers to as “covered entities.”

OLA is responsible for providing training and technical assistance to agencies in developing and implementing language access plans; educating the public about their language access rights; coordinating language access efforts among various organizations and stakeholders; and administering a language access resource center to address the need for qualified language interpreters and translators. OLA is also required to review and monitor each agency’s language access plan to ensure it provides reasonable assurance that limited English proficient persons will have meaningful access to the services provided by the state agency.

What we found
We found that OLA has done little of consequence to address the language access needs of limited English proficient persons or to ensure meaningful access to services, programs, and activities offered by state agencies and covered entities. OLA is not performing obligations required by its enabling statute, Chapter 321C, Hawai‘i Revised Statutes (HRS), that the Legislature clearly believed were necessary to address the language access needs of the state’s limited English proficient population. For example, OLA does not “provide oversight and central coordination to state agencies in their implementation of language access requirements” or “provide technical assistance to covered entities in their implementation” of the law.

Instead, we found an agency whose efforts to review and monitor language access plans, which should ensure that agencies have a process through which they will provide people who are limited English proficient meaningful access to services, programs, and activities, is nothing more than a paper exercise. When it created OLA, the Legislature delegated its policymaking authority to OLA, requiring the agency to promulgate administrative rules to provide the specific direction necessary to ensure meaningful access. Because OLA has not adopted administrative rules to, among other things, empower itself with the authority to approve or reject an agency’s language access plan, agencies can ignore OLA’s comments and recommendations about their respective plans – which our audit found is what agencies generally do. As a result, OLA characterizes its reviews of language access plans as “feedback” that it “hopes” agencies will take into account in the next update of their language access plans.

More akin to comments, these “reviews” do little – if anything – to ensure plans comply with the law. And, we found OLA has posted agencies’ language access plans that often are nothing more than a verbatim recitation of the factors listed in the statute that agencies must consider in developing their respective plans. Moreover, OLA posts language access plans “as is,” without any accompanying information. Posting these plans without any indication that they are current or have been approved by OLA provides little, if any, assurance that an agency has a reasonable plan to address the language access needs of limited English proficient persons who seek access to the agency’s services, programs, or activities.

In addition, OLA’s Language Access Resource Center (LARC) is required by statute to maintain a publicly available roster of language interpreters and translators that includes each individual’s qualifications and credentials based on OLA guidelines and in consultation with the Language Access Advisory Council. While OLA does maintain a roster of language interpreters and translators on its website, that roster does not include any OLA-approved qualifications and credentials as the statute directs. In fact, we found that applicants are not required to show proof of their qualifications and competency before they are added to the roster.

Why did these problems occur?
OLA’s Executive Director describes Chapter 321C, HRS, as a “law without teeth.” He points out that the law does not specifically authorize OLA to approve or reject agencies’ language access plans and does not require agencies to address recommendations that may arise from OLA’s review of those plans. However, Chapter 321C requires OLA to establish and adopt administrative rules, a power the Legislature conferred to OLA to provide the specific direction to agencies and covered entities about their language access plans as well as the processes by which OLA intended to ensure limited English proficient persons have meaningful access to services. OLA had started the rulemaking process sometime in 2016 – a decade after it was created – but the effort ground to a halt in 2018.

Through administrative rules, OLA could give the language access law “teeth.” For instance, OLA should, among other things, establish its expectation with respect to the language access plans agencies must submit, including the requirement that those plans be approved by OLA; OLA should establish requirements that must be met for an agency’s language access plan to be posted on OLA or agency websites; OLA should create a process through which persons who are limited English proficient can obtain OLA’s help to obtain language assistance, as contemplated by the statute; and OLA should establish the criteria interpreters and translators must meet to be included on LARC’s roster.

Why do these problems matter?
Almost 16 years after it was established, OLA remains a partially formed organization, conducting its day-to-day operations without having first established and clarified the organization’s direction, duties, and authority. The result: many activities that are nothing more than paper exercises, with questionable purpose and effectiveness and little connection to OLA’s statutory role. In addition, we found LARC has not become the “centralized resource” that the Legislature determined was needed to grow the pool of language interpreters and translators and address the needs of the state’s limited English proficient population. OLA has done little to verify that the self-described interpreters and translators on its roster are qualified to provide competent and accurate services. It has not even defined the terms “qualified,” “competent,” and “certified” as they relate to the language interpreters and translators it hopes to recruit and retain.

In short, OLA is not the agency that the Legislature intended to address the language access needs of Hawai‘i’s limited English proficient population.

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22-10, Audit of the Office of Language Access
09/14/2022

Senate Bill No. 2882, introduced during the 2022 Regular Session, would regulate the community health worker profession, requiring certification of the workforce. The Hawai‘i Regulatory Licensing Reform Act, Chapter 26H, Hawai‘i Revised Statutes, requires the Auditor to assess measures that would subject professions that are currently unregulated to licensing, certification, or some other state oversight. Senate Concurrent Resolution No. 2, Senate Draft 1 (2022 Regular Session) requests the Auditor to conduct a sunrise review on the regulation of community health workers as proposed in Senate Bill No. 2882.

The legislation does not suggest that regulation is needed for consumer protection, and we do not believe the types of services in the bill reasonably endanger the health, safety, or welfare of those benefiting from the services.

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AUDITOR’S SUMMARY

COMMUNITY HEALTH WORKERS connect underserved communities with programs and services that impact health outcomes, addressing factors such as access to medical care, housing, and nutritious food. There is no standard definition, scope of practice, or set of core competencies for a community health worker at the state or national level. Community health workers who spoke with the Office of the Auditor said they spend much of their time doing social work, such as helping people apply for nutrition assistance or Medicaid or improving their living conditions. As a recruitment facilitator for a statewide training program described, community health workers are translators – of language, culture, and bureaucracy – helping others navigate healthcare and social service systems .

As defined in Senate Bill No. 2882, the services for which community health workers would be required to be certified by the state include case work, peer counseling, education, and outreach, as well as direct services such as blood pressure screening and first aid. In addition, Senate Bill No. 2882 includes the stipulation that “no person shall practice community health work under this chapter except under the direct order of, or in association with, a community-based organization, local health care system, facility, clinic, or hospital.” Existing community health workers and advocates we spoke with noted that some community health workers are employed outside of medical settings, such as for health insurance providers, or in schools or prisons.

Mandatory certification is inconsistent with state regulatory policy

It is the policy of the State of Hawai‘i, as reflected in the Hawai‘i Regulatory Licensing Reform Act, that only those professions that reasonably affect the health, safety, or welfare of consumers of their services be subjected to state oversight. Furthermore, the law states that “the purpose of regulation shall be the protection of the public welfare and not that of the regulated profession or vocation.” Senate Bill No. 2882 appears intended to benefit the profession by recognizing the important work community health workers perform to help individuals navigate medical and social service systems and live healthier lifestyles. The legislation does not suggest that regulation is needed for consumer protection, and we do not believe the types of services in the bill reasonably endanger the health, safety, or welfare of those benefiting from the services.

We also assessed the impact of the proposed regulatory scheme against other criteria in the Hawai‘i Regulatory Licensing Reform Act. We did not identify any evidence of abuse or complaints against community health workers, nor unreasonable barriers to entering the profession if the training program is offered statewide. We could not determine how much it would cost to regulate the workforce, but the Department of Commerce and Consumer Affairs’ Professional and Vocational Licensing Division said it would need at least three additional staff to administer the regulation of community health workers and
speculated that the fees for licensure could exceed $1,000 to cover overhead costs. It is our conclusion that mandatory statewide certification for community health workers, as proposed in Senate Bill No. 2882, is inconsistent with state policy relating to the regulation of new professions and vocations.

Hawai’i Regulatory Licensing Reform Act

The Hawai‘i Regulatory Licensing Reform Act requires the Auditor to analyze proposed regulatory measures that, if enacted, would subject unregulated professions and vocations to licensing or other regulatory controls. The policies that the Legislature adopted regarding regulation of professions and vocations are as follows:

The State may regulate professions and vocations only where reasonably necessary to protect the health, safety, or welfare of consumers, and not that of the regulated profession or vocation;

The State must regulate professions or vocations when the health, safety, or welfare of the consumer may be jeopardized by the nature of the service offered by the provider;

Evidence of abuses by providers of the service must be given great weight in determining whether regulation is desirable;

Regulation must be avoided if it will artificially increase the cost of goods and services to consumers, except in cases where this cost is exceeded by the potential danger to the consumer;

Regulation must not unreasonably restrict entry into professions and vocations by all qualified persons; and

Aggregate costs for regulation and licensure must not be less than the full costs of administering that program.

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22-08, Sunrise Analysis: Regulation of Community Health Workers
07/05/2022

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AUDITOR’S SUMMARY

Financial Statements, Eighteen-Month Period from January 1, 2020 to June 30, 2021

THE PRIMARY PURPOSE of the special-purpose audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Convention Center, as of June 30, 2021 and for the eighteen-month period from January 1, 2020 to June 30, 2021. The special-purpose financial statements have been prepared pursuant to the provisions of the management agreement between the Hawai‘i Tourism Authority and ASM Global (ASM), a private company contracted to operate the Hawai‘i Convention Center. The audit was conducted by Accuity LLP.

Financial Highlights

IN DECEMBER 2020, the Center changed its fiscal year-end from December 31 to June 30; therefore, the financial statements cover the eighteen-month period from January 1, 2020 to June 30, 2021. For the eighteen-month period from January 1, 2020 to June 30, 2021, the Center reported total revenues of $9.8 million, total expenses of $14.3 million, and $500,000 in net contributions from the Hawai‘i Tourism Authority, which resulted in a decrease in net assets of $5 million. Revenues consisted of (1) $2.6 million from food and beverage; (2) $3.7 million from rental income; (3) $3.4 million from events; and (4) $100,000 from other revenues.

Expenses consisted of (1) $7.4 million for personnel services; (2) $4 million for building-related expenses; (3) $1.1 million for cost of goods sold; and (4) $1.8 million for other costs.

As of June 30, 2021, the Center’s total assets of $24.4 million were comprised of (1) cash of $19.1 million; (2) amounts due from Hawai‘i Tourism Authority of $4.4 million; (3) accounts receivable of $800,000; and (4) other assets of $100,000. Total liabilities of $3.9 million were comprised of (1) accounts payable of $900,000; (2) amounts due to Hawai‘i Tourism Authority of $300,000; (3) advance deposits of $2.1 million; and (4) other liabilities of $600,000.

Property, building, furniture, and equipment used in the Center’s operations, and related depreciation expense, as well as debt used to finance such capital assets and the related interest expense, are not reflected in the Center’s special-purpose financial statements. Those assets, liabilities, and related expenses are reflected on the financial statements of the Hawai‘i Tourism Authority.

Auditors’ Opinion
THE CENTER RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with the management agreement between the Hawai‘i Tourism Authority and ASM, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

About the Center

THE HAWAI‘I CONVENTION CENTER (Center), which opened to the general public in June 1998, is used for a variety of events, including conventions and trade shows, public shows, and spectator events. The Center offers approximately 350,000 square feet of rentable space, including 51 meeting rooms. The Hawai‘i Tourism Authority assumed responsibility for the operation, management, and maintenance of the Center in July 2000. The Center is reported as a special revenue fund of the Hawai‘i Tourism Authority.

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Department of Business, Economic Development & Tourism, Hawai’i Convention Center – Eighteen-Month Period from January 1, 2020 to June 30, 2021 Special Purpose Financial Statements
06/29/2022

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AUDITOR’S SUMMARY

Report 22-07

THIS REPORT ASSESSES two tax credits, two exclusions, and one deduction from taxation under Hawai‘i’s Income Tax and Financial Institutions Tax. Section 23-91 et seq., Hawai‘i Revised Statutes, requires the Auditor to review tax provisions on a five-year recurring cycle.

More specifically, this report reviews the following tax provisions:

  • Credit for capital goods used by a trade or business, sections 235-110.7 and 241-4.5, HRS;
  • Credit for research activity, section 235-110.91, HRS;
  • Exclusion of royalties and other income derived from a patent, 
copyright, or trade secret of a Qualified High Technology Business, section 235-7.3, HRS;
  • Exclusion of income and proceeds from stock options or stocks of a Qualified High Technology Business or a holding company for a Qualified High Technology Business, section 235-9.5, HRS; and
  • Deduction for adjusted eligible net income of an international banking facility, section 241-3.5, HRS.

Under section 23-93, HRS, this report also was to include reviews of sections 235-17.5, HRS, and 241-4.4, HRS, which are tax credits for capital infrastructure costs; and section 235-110.3, HRS, an ethanol facility tax credit. However, these credits have since been repealed; for that reason, we did not review these credits.

As we note in the report, it was difficult to determine the purposes of the tax provisions reviewed and what outcomes the Legislature intended the tax provisions to achieve without any clear indication from the statute, the bills that created the provisions, or the laws’ legislative histories. Therefore, we were unable to determine whether the two tax credits, two exclusions, and the deduction were achieving their purposes, primarily due to a lack of reliable data, articulated benchmarks, or other measurables. We recommend the Legislature clearly articulate the purpose of each tax provision and establish specific metrics to measure the provision’s effectiveness, which will permit a more thorough and meaningful analysis when we review these provisions in the future.

We further recommend that other state agencies be tasked with performing cost-benefit analyses of the credit for capital goods used by a trade or 
business (Section 235-110.91, HRS) and the credit for research activity (Sections 235-110.7 and 241-4.5, HRS). While independent, objective, and well-suited to conduct performance audits and studies on the effectiveness of agency operations, we do not have ready access to the specialized economic data and resources necessary to conduct a thorough cost-benefit analysis of these and other tax credits.

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22-07, Review of Income and Financial Institutions Tax Provisions Pursuant to Section 23-93, Hawai‘i Revised Statutes
06/28/2022

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AUDITOR’S SUMMARY

THIS REPORT ASSESSES certain Hawai‘i tax exemptions, exclusions, and credits under the General Excise Tax (GET), Use Tax, Public Service Company Tax, and Insurance Premium Tax. Section 23-71 et seq., Hawai‘i Revised Statutes (HRS), requires the Auditor to annually review tax provisions on a 10-year recurring cycle.

As described by the Department of Taxation, Hawai‘i’s GET and Use Tax, taken in concert, apply to nearly all business activities in Hawai‘i. In fiscal year 2021, which ended June 30, 2021, GET and Use Tax revenues accounted for $3.08 billion, or nearly 38 percent of the total tax revenue of $8.17 billion.

This report reviews a total of nine tax provisions, which include four exemptions, three exclusions from GET, and two tax credits.

  • Exclusion on Gross Receipts of Home Service Providers Acting as Service Carriers (Section 239-2, paragraph (5) of the definition of 
“gross income”, HRS)
  • Exclusion for Dividends or Gross Income from the Sale or Transfer of Materials and Supplies, Interest on Loans, and Provision of Services Among Members of an Affiliated Public (Utility) Service Company Group (Section 239-2, HRS)
  • Exemption for Monthly Surcharge Assessments Collected by a Utility from Ratepayers in Emergency Situations (Section 239-5.5, HRS)
  • Tax Credit for Lifeline Telephone Service Subsidies (Section 239-6.5, HRS)
  • Exclusion for Green Infrastructure Charges Received by Electric Utilities (Section 269-172, HRS)
  • Exemption of Gross Income or Gross Proceeds Received by Insurance Companies (Section 237-29.7, HRS)
  • Tax Credit to Facilitate Regulatory Oversight (Section 431:7-207, HRS)
  • Exemption for Nonprofit Medical Indemnity or Hospital Service Associations or Societies Specifically from General Excise Tax, Public Service Company Tax, and Insurance Premium Tax (Section 432:1-403, HRS)
  • Exemption for Fraternal Benefit Societies Specifically from General Excise Tax, Public Service Company Tax, and Insurance Premium Tax (Section 432:2-503, HRS)

Under section 23-74, HRS, we also were to analyze the exclusion for gross receipts from the sale or transfer of materials and supplies, interest on loans, and provision of services among members of an affiliated public service company group under section 237-3(b), HRS. We previously reviewed that exclusion in Report No. 20-09, Review of General Excise and Use Tax Exemptions and Exclusions, issued in June 2020.

We could not determine whether three GET exemptions and one tax credit were achieving their purpose. We also determined that one exemption, three exclusions, and one tax credit were at least partially meeting their stated or inferred purposes. As we note in the report, making conclusions as to whether purposes are being met is extremely challenging (and often impossible) when amounts claimed are not tracked or where no benchmarks or metrics are set forth in statute to assess whether a provision is achieving its intended purpose.

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22-06, Review of Tax Provisions Pursuant to Section 23-74, Hawai‘i Revised Statutes
06/08/2022

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Auditor’s Summary

Audit of the Department of Public Safety
Report No. 22-05

ACCURATELY DETERMINING the appropriate level of staffing on a day-to-day basis is important for any organization. However, unlike many other state organizations, jails and prisons operate 24 hours a day, 365 days a year, providing services for persons who have been charged with or convicted of committing criminal offenses and requiring essential security posts in those facilities to be filled every shift.

To determine the number of security staff positions (Adult Correctional Officers or ACOs) needed to safely operate facilities without having to close posts, suspend inmate programs, re-assign ACOs, and rely on significant amounts of overtime, correctional institutions employ a staffing multiplier called a shift relief factor, an important metric that accounts for staff absences. The shift relief factor uses the actual instances (either days or hours) ACOs are unable to work their regularly assigned posts – whether because of approved and unapproved leave, training requirements, and other work assignments, among other things – to determine the number of full-time ACO positions needed to keep a security post occupied for a single eight-hour work shift. The number of needed security staff positions at a particular facility is the product of the shift relief factor multiplied by the number of the facility’s permanent security posts. The shift relief factor is a well-recognized tool in determining and managing security staffing needs and employee schedules.

We recognize that the shift relief factor is one of many considerations in determining the correct level of security staffing and that the department faces many other challenges, especially during the pandemic. Although not a cure-all for these challenges, the shift relief factor is a critical part of determining security staffing needs and relies on the department identifying the correct data needed and ensuring that data is compiled in a timely, complete, accurate, and reliable manner.

What we found
In Report No. 22-05, Audit of the Department of Public Safety, we found the department’s current shift relief factor, which was calculated more than five decades ago, does not account for, among other things, federal and state regulations that have been enacted subsequently, changes to collective bargaining agreements, and other conditions that have increased the amount of leave ACOs are entitled to use as well as training ACOs must complete, all of which have significantly increased the instances when ACOs are unable to cover their regularly assigned posts. Without an up-to-date and accurate shift relief factor, the department does not know the number of ACO positions it needs to operate its correctional facilities, and as a result, its wardens must routinely resort to “band-aid” solutions to cover security posts in their facilities: closing posts, suspending inmate programs, re-assigning staff, and excessive overtime.

We also found the department has not developed a process to accurately and consistently collect the data needed to calculate the shift relief factor. Nearly 30 years ago, in our 1992 report, we had raised concerns about the quality of the data used by the department in its attempt to update its shift relief factor. We had recommended that DPS implement information systems to keep track of each category of lost time and any resultant overtime. In a follow-up report two years later, we noted that the department still lacked an information system that could deliver needed data on a reliable, timely, and readily usable basis. We again recommended the department continue to give high priority to developing one that would produce reliable data for determining the shift relief factor.

Almost 30 years later, the department still has not implemented a system to collect, compile, and maintain complete, reliable employee leave and absence data. And, without that data, the department cannot determine the number of security positions it needs.

Why did these problems occur?
In Report No. 94-18, A Follow-up Review of Security Staffing in the Department of Public Safety, published in November 1994, we recommended among other things that the department continue to give high priority to developing and implementing information and control systems that would produce reliable data for determining the shift relief factor. We also recommended that the department continue its efforts to maintain accurate leave records and timesheets. In this regard, we urged the department to pursue the development of an automated system to replace its current manual processes for recording leave time. These recommendations were never fully implemented. And, today, the department still lacks a data collection system to collect up-to-date, consistent, and accurate data needed to calculate a shift relief factor.

According to the current Director, updating the shift relief factor is not a department priority. Consequently, the department has made little effort to collect the data needed to do so. A majority of the eight wardens we spoke with said the department has not provided guidance regarding the data reporting – documented or otherwise – leaving staff at some prisons to figure it out on their own. This lack of guidance, i.e., policies and procedures, has resulted in inconsistencies in data collection and reporting. For instance, at one facility we visited, when an ACO calls in sick, but no overtime was generated as a result (i.e., another ACO working on the same shift is reassigned to the vacant post or the vacant post is closed), the absent ACO’s hours were not included in the sick leave totals reported in the facility’s general summary report, which should account for all leave taken. When we pointed out this inconsistency, which contributed to the underreporting of sick leave totals, the staff assigned to input data for the facility’s reports explained they did not have any policies and procedures for preparing the reports and did the best they could to figure it out on their own.

The Director noted that there are other priorities such as filling vacancies and monitoring other types of leave like workers compensation. While we understand the department’s urgency to fill existing vacancies, it is critical for the department to know the number of ACO positions it needs; it is the Director who must prioritize updating the department’s shift relief factor and convey the importance of collecting the data needed to do so. He must set the appropriate “tone at the top.”

Why do these problems matter?
The National Institute of Corrections believes that access to accurate, high-quality data that can be presented in the appropriate formats is a precondition of effective management support in the jail system. However, the department still has not developed a tool to collect and compile the needed data and, perhaps even more concerning, the department still has no policies or procedures relating to collecting such data.

Until the department knows the number of ACO positions needed to cover the security posts in its facilities, wardens must resort to regularly closing posts, suspending inmate programs, re-assigning ACOs, and relying on significant amounts of overtime. Those types of “triage” measures likely increase work stresses and risks to security staff as well as to inmates. The department needs to base its staffing requirements on timely, objective information, which includes an up-to-date shift relief factor calculated using actual data about the instances ACOs are unable to cover their regularly assigned posts.

We note that an updated shift relief factor data will provide credibility to the department’s staffing analysis and provides stronger support for its staffing requests to the Legislature.

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Audit of the Department of Public Safety
05/26/2022

Hawaii DOT – Highways Division

AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of Transportation, Highways Division
Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Transportation, Highways Division, as of and for the fiscal year ended June 30, 2021, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, DOT–Highways reported total revenues of $494 million and total expenses of $525 million, resulting in a decrease in net position of $31 million. Revenues consisted of (1) $188 million in tax collections; (2) $239 million in grants and contributions primarily from the Federal Highway Administration; (3) $58 million in charges for services; and (4) $9 million in investment income and other revenues.


Expenses consisted of (1) $125 million for operations and maintenance; 
(2) $211 million in depreciation; (3) $168 million for administration and other expenses; and (4) $21 million in interest.

As of June 30, 2021, total assets and deferred outflows of resources of $5.55 billion were comprised of (1) cash and investments of $547 million; (2) net capital assets of $4.95 billion; and (3) $50 million in other assets and deferred outflows of resources. Total liabilities of $807 million included $646 million in revenue bonds and $161 million in other liabilities.

DOT-Highways has numerous capital projects ongoing statewide; construction in progress totaled $213 million at the end of the fiscal year.

Auditors’ Opinion

DOT-HIGHWAYS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT–Highways also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WAS ONE MATERIAL WEAKNESS and one significant deficiency in internal controls over financial reporting that were required to be reported under Government Auditing Standards. The material weakness is described on page 9 of the single audit report, and the significant deficiency is described on pages 10-11 of the single audit report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance. However, the auditors identified two significant deficiencies in internal control over compliance. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. The deficiencies are described on pages 12-14 of the single audit report.

About the Division

 

The mission of the Department of Transportation, Highways Division (DOT–Highways), is to provide a safe, efficient, and sustainable State Highway System that ensures the mobility of people and goods within the state. The division is charged with maximizing available resources to provide, maintain, and operate ground transportation facilities and support services that promote economic vitality and livability in Hawai‘i. The Department also works with the Statewide Transportation Planning Office on innovative and diverse approaches to congestion management.

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Financial and Compliance Audit of the Department of Transportation, Highways Division
04/08/2022

PHOTO: DEPARTMENT OF HUMAN SERVICES

AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of Human Services
Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Human Services, as of and for the fiscal year ended June 30, 2021, and to comply with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, DHS reported total revenues of $4.62 billion and total expenses of $4.66 billion. Revenues consisted of $1.31 billion in state allotments, net of lapsed amounts plus non-imposed employee fringe benefits, and $3.31 billion in operating grants from the federal government. Revenues from these federal grants paid for 70.7 percent of the 
cost of DHS’ activities.


Health care and general welfare assistance programs comprised 66.5 and 28.2 percent, respectively, of the total costs. The following chart presents each major activity as a percentage of the total cost of all DHS activities.

 

As of June 30, 2021, DHS’ total assets of $560 million included (1) cash of $257 million, (2) receivables of $223 million, and (3) net capital assets of $80 million. Total liabilities of $383 million included (1) vouchers payable of $28 million, (2) accrued wages and employee benefits of $20 million, (3) amounts due to the state general fund of $218 million, (4) accrued medical assistance payable of $101 million, and (5) accrued compensated absences of $16 million.

Auditors’ Opinions

DHS RECEIVED AN UNMODIFIED OPINION that its financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles. DHS received a qualified opinion on its compliance for all major federal programs, except for Coronavirus Relief Fund and Pandemic EBT Food Benefits, which received an unmodified opinion in accordance with the Uniform Guidance.

Findings

THE AUDITORS IDENTIFIED a material weakness in internal control over financial reporting that was required to be reported under Government Auditing Standards. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. The material weakness is described on pages 73-74 of the report.

There were 15 material weaknesses in internal control over compliance that were required to be reported in accordance with the Uniform Guidance. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. The material weaknesses are described on pages 75-103 of the report.

There was one significant deficiency in internal control over compliance that was required to be reported in accordance with the Uniform Guidance. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. The deficiency is described on pages 106-107 of the report.

There was one finding of known questioned costs when likely questioned costs are greater than $25,000 that was required to be reported in accordance with the Uniform Guidance. The finding is described on pages 104-105 of the report.

About the Department

 

The Department of Human Services (DHS) works to provide benefits and services to individuals and families in need. The majority of DHS’ revenue is comprised of federal funds. DHS’ mission is to direct its funds toward protecting and helping those least able to care for themselves and to provide services designed toward achieving self-sufficiency for clients as quickly as possible. Activities include health care programs; general welfare assistance, employment and support services; child welfare and adult community care services; vocational rehabilitation and services for the blind; youth prevention, delinquency and correction services; and general administration. Attached programs include the Hawai‘i State Commission on the Status of Women and the Hawai‘i State Commission on Fatherhood.

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Financial and Compliance Audit of the Department of Human Services
04/07/2022

PHOTO: HAWAI‘I PUBLIC HOUSING AUTHORITY

AUDITOR’S SUMMARY

Single Audit of the Financial Assistance Programs of the Hawai‘i Public Housing Authority
Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE  of the Hawai‘i Public Housing Authority Single Audit for the fiscal year ended June 30, 2021, was to comply with the Code of Federal Regulations, Uniform Administrative Requirements, Cost Principles, and 
Audit Requirements for Federal Awards, Title 2, Part 200 (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KMH LLP.

About the Report

SINGLE AUDITS provide assurance to the federal government that state agencies and programs receiving federal funds are expending those funds properly. This report includes the total federal expenditures and findings related to the HPHA’s Federal Financial Assistance Programs for the fiscal year ended June 30, 2021. Federal expenditures totaled approximately $124.5 million.

Auditors’ Opinion

HPHA RECEIVED AN UNMODIFIED OPINION on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO FINDINGS that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Authority

 

The mission of the Hawai‘i Public Housing Authority (HPHA) is to provide safe, decent, and sanitary dwellings for low and moderate-income residents of Hawai‘i and to operate its housing programs in accordance with federal and State laws and regulations. Some of HPHA’s housing assistance programs are funded by the U.S. Department of Housing and Urban Development.


HPHA is administratively attached to the Hawai‘i Department of Human Services (DHS). HPHA operates under the direction of its Executive Director and Board of Directors, which consists of eleven board members, nine of whom are appointed by the Governor. The Director of DHS and the Governor’s designee are ex-officio members.

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Single Audit of Federal Financial Assistance Programs of the Hawai‘i Public Housing Authority
04/07/2022

PHOTO: HAWAII DOT AIRPORTS DIVISION

AUDITOR’S SUMMARY


Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE  of the Department of Transportation, Airports Division, Single Audit for the fiscal year ended June 30, 2021, was to comply with the Code of Federal Regulations, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Title 2, Part 200 (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KPMG LLP.

About the Report

SINGLE AUDITS provide assurance to the federal government that state agencies and programs receiving federal funds are expending those funds properly. This report includes the total federal expenditures and findings related to the DOT-Airports’ Federal Financial Assistance Programs for the fiscal year ended June 30, 2021. Federal expenditures totaled approximately $199.3 million.

Auditors’ Opinion

DOT-AIRPORTS RECEIVED AN UNMODIFIED OPINION on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO FINDINGS that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Division

 

The Department of Transportation, Airports Division (DOT-Airports), operates and maintains 15 airports at various locations within the State of Hawai‘i as a single integrated system for management and financial purposes. Daniel K. Inouye International Airport is the principal airport in the airports system, providing facilities for interisland flights, domestic overseas flights, and international flights to destinations in the Pacific Rim. DOT-Airports is authorized to impose and collect rates and charges for the airports system services and properties to generate revenues to fund operating expenses. The Capital Improvements Program is primarily funded by airports system revenue bonds and lease revenue certificates of participation issued by DOT-Airports, federal grants, passenger facility charges, customer facility charges, and DOT-Airports revenues.

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Single Audit of Federal Financial Assistance Programs of the Department of Transportation, Airports Division
04/06/2022

PHOTO: OFFICE OF THE AUDITOR

AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of Education
Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Education, as of and for the fiscal year ended June 30, 2021, and to comply with the requirements of Title 2 U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, DOE reported total revenues of $3.31 billion and total expenses of $3.08 billion, resulting in an increase in net position of $231 million.


Total revenues of $3.31 billion consisted of (1) $2.15 billion in 
state-allotted appropriations, net of lapsed funds, (2) $733 million in non-imposed employee wages and fringe benefits, (3) $388 million in operating grants and contributions, (4) $2 million in capital grants and contributions, and (5) $38 million in charges for services.


Total expenses of $3.08 billion consisted of (1) $2.89 billion for school-related costs, (2) $88 million for state and school complex area administration, (3) $48 million for public libraries, and (4) $58 million for capital outlay.

As of June 30, 2021, total assets exceeded total liabilities by $3.15 billion. Of this amount, $1.07 billion is unrestricted and may be used to meet ongoing expenses and obligations. Total assets of $3.72 billion 
were comprised of (1) cash of $1.59 billion, (2) receivables of $64 million, and (3) net capital assets of $2.07 billion. Total liabilities of $575 million were comprised of (1) vouchers and contracts payable of 
$145 million, (2) accrued wages and employee benefits of $168 million, (3) accrued compensated absences of $87 million, (4) workers’ compensation claims reserve of $135 million, (5) amount due to the state general fund of $5 million, and (6) notes payable of $35 million.

Auditors’ Opinion

DOE RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOE also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO MATERIAL WEAKNESSES in internal controls over financial reporting that were required to be reported under Government Auditing Standards. However, the auditors identified instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. The finding is described on page 49 of the report.

There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance. However, the auditors identified instances of noncompliance which are required to be reported in accordance with the Uniform Guidance. The finding is described on pages 50-51 of the report.

About the Department

 

The Department of Education (DOE) administers the statewide system of public schools and public libraries. DOE is also responsible for administering state laws regarding regulation of private school operations through a program of inspection and licensing and the professional certification of all teachers for every academic and noncollege type of school. Federal grants received to support public school and public library programs are administered by DOE on a statewide basis.

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Financial and Compliance Audit of the Department of Education
04/06/2022

PHOTO: OFFICE OF THE AUDITOR

AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of Health
Financial and Compliance Audit, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, as of and for the fiscal year ended June 30, 2021, and to comply with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, DOH reported total revenues of $1.03 billion and total expenses of $914 million, resulting in an increase in net position of $114.2 million. Revenues included $809.2 million from general revenues, $171.3 million from operating grants and contributions, and $47.7 million from service charges.

Expenses included $336.1 million for health resources, $375.2 million for behavioral health, $128 million for environmental health, and $74.7 million for general administration.

 

As of June 30, 2021, total assets and deferred outflows of resources exceeded 
total liabilities and deferred inflows of resources by $1.44 billion. Total assets and deferred outflows of resources of $1.44 billion included (1) cash of $441 million, (2) receivables of $44 million, (3) loans receivable of $705 million, (4) accrued interest and loan fees of $2 million, (5) deferred outflows of resources of $2 million, and (6) net capital assets of $249 million. Total liabilities and deferred inflows of resources totaled $159 million. DOH’s net position of $1.28 billion is comprised of a restricted amount of $844 million, of which $802 million is for loans; an unrestricted amount of $190 million; and net investment in capital assets of $249 million.

 

Auditors’ Opinion

DOH RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOH received an unmodified opinion on its compliance for all major federal programs, except for Block Grants for Community Mental Health Services and Special Supplemental Nutrition Program for Women, Infants and Children, which received a qualified opinion in accordance with the Uniform Guidance.

Findings

THERE WAS ONE MATERIAL WEAKNESS and two significant deficiencies in internal control over financial reporting that are required to be reported under Government Auditing Standards. The material weakness is described on page 93 of the report, and the significant deficiencies are described on pages 94-97 of the report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

There were four material weaknesses in internal control over compliance that are required to be reported in accordance with the Uniform Guidance. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. The material weaknesses are described on pages 98-105 of the report.

About the Department

 

The mission of the Department of Health (DOH) is to protect and improve the health and environment for all people in Hawai‘i. DOH administers and oversees statewide personal health services, health promotion and disease prevention, mental health programs, monitoring of the environment, and the enforcement of environmental health laws. It administers federal grants to support the State’s health services and programs and is organized into four major administrations: Behavioral Health Services Administration, Health Resources Administration, Environmental Health Administration, and General Administration.

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Financial and Compliance Audit of the Department of Health
04/01/2022

ILLUSTRATION: THINKSTOCK.COM

AUDITOR’S SUMMARY

Single Audit of Federal Financial Assistance Programs of the State of Hawai‘i
Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE  of the State Single Audit for the fiscal year ended June 30, 2021, was to comply with the Code of Federal Regulations, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Title 2, Part 200 (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The State Single Audit was conducted by Accuity LLP.

Auditors’ Report on Internal Controls over Financial Reporting

THE AUDITORS IDENTIFIED one material weakness and two significant deficiencies in internal controls over financial reporting that are required to be reported in accordance with Government Auditing Standards. The material weakness is described on pages 19-20 of the report, and the significant deficiencies are described on pages 21-24 of the report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Auditors’ Report on Compliance with Major Federal Programs

THE AUDITORS EXPRESSED A QUALIFIED OPINION on certain major programs and identified one material weakness and six significant deficiencies over compliance with major federal programs that are required to be reported in accordance with the Uniform Guidance. These findings are described in a Schedule of Findings and Questioned Costs that can be found on pages 25-35 of the report. A table with the number and type of findings by department can be found below.

A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis.

A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

About the Report

 

Single audits provide assurance to the federal government that state agencies and programs receiving federal funds are expending those funds properly. This report includes the total federal expenditures and findings related to only those departments that are included in the State of Hawaiʻi Single Audit of Federal Financial Assistance Programs for the fiscal year ended June 30, 2021. For the departments included in the report that receive federal monies, federal expenditures totaled approximately $5.12 billion. Other departments’ federal expenditures and findings are reported in their individual single audit reports.

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State of Hawai’i Single Audit Report
03/31/2022

PHOTO: DEPARTMENT OF HAWAIIAN HOME LANDS

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Hawaiian Home Lands, as of and for the fiscal year ended June 30, 2021, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Akamine, Oyadomari & Kosaki CPA’s, Inc.


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, DHHL’s total expenses exceeded total revenues by $11.4 million. Revenues totaled $53.3 million and consisted of (1) program revenue of $33.8 million and (2) state appropriations, transfers, and adjustments of $19.5 million. Expenses totaled $64.7 million. Program revenues were comprised of interest income (approximately 16 percent), grants and contributions (24 percent), revenue from the general lease program (53 percent), and other sources (8 percent).

As of June 30, 2021, total assets of $984 million exceeded total liabilities of $98 million, resulting in a net position balance of $886 million. Total assets included net capital assets of $467 million, cash of $385 million, loans receivable of $92 million, and other assets and deferred outflows of resources of $40 million. Loans receivable consisted of 1,320 loans made to native Hawaiian lessees for the purposes specified in the Hawaiian Homes Commission Act. Loans are for a maximum amount of approximately $453,000 and for a maximum term of 40 years. Interest rates on outstanding loans range up to 10 percent. Total liabilities included bonds and capital lease obligations totaling $43 million and temporary deposits payable and other liabilities of $55 million.

Auditors’ Opinion

DHHL RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DHHL also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES IN INTERNAL CONTROL over financial reporting that are considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that are considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Department

 

The Hawaiian Homes Commission Act sets aside certain public lands as Hawaiian home lands to be utilized in the rehabilitation of native Hawaiians.  These public lands are managed by the Department of Hawaiian Home Lands (DHHL), a state agency headed by the Hawaiian Homes Commission, whose primary responsibilities are to serve its beneficiaries and to manage this extensive land trust.  DHHL provides direct benefits to native Hawaiians in the form of 99-year homestead leases at $1 per year for residential, agricultural, or pastoral purposes, and financial assistance through direct loans, insured loans, or loan guarantees for home purchase, construction, home replacement, or repair.  In addition to administering the homesteading program, DHHL leases trust lands not in homestead use at market value and issues revocable permits, licenses, and rights-of-entry.  Its financial statements include the public trusts controlled by the Hawaiian Homes Commission.

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Financial and Compliance Audit of the Department of Hawaiian Home Lands
03/18/2022

Photo: Office of the Auditor

AUDITOR’S SUMMARY

Financial Audit of the Agribusiness Development Corporation
Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Agribusiness Development Corporation, as of and for the fiscal year ended June 30, 2019. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, ADC reported total revenues of $15.8 million, along with
$5 million in transfers from other state departments, and total expenses of $3.9 million resulting in a change in net position of $11.9 million. Revenues consisted of (1) program revenues related to general support for agriculture of $2.1 million, (2) program revenues related to agricultural water development and irrigation services of $900,000, and (3) general revenues of $12.8 million.

 

Total expenses of $3.9 million consisted of (1) $2.8 million for general support for agriculture (2) $800,000 for agricultural water development and irrigation services, and (3) $300,000 for capital outlay.

As of June 30, 2019, total assets of $128.4 million exceeded total liabilities of $6.4 million, resulting in a net position of $122 million. Total assets included (1) cash and investments of $42 million, (2) net receivables of $400,000, and (3) net capital assets of $86 million. Total liabilities included bonds payable of $5.2 million and other liabilities of $1.2 million.

Auditors’ Opinion

ADC RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

A MATERIAL WEAKNESS IN INTERNAL CONTROLS over financial reporting that was required to be reported under Government Auditing Standards, is described on pages 46-49 of the report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

About the Corporation

 

The Hawai‘i State Legislature created the Agribusiness Development Corporation (ADC) in 1994 amidst a series of sugar and pineapple plantation closures that lawmakers viewed as “an unprecedented opportunity for the conversion of agriculture into a dynamic growth industry.” Projecting that the downsizing of sugar and pineapple production would free up 75,000 acres of agricultural land and 50 million gallons of water daily over the next decade, the Legislature established ADC as a public corporation tasked with developing an “aggressive and dynamic” agribusiness development program to convert former plantation assets for use by new large-scale commercial enterprises producing the majority of their crops for export. However, instead of leading the state’s agricultural transformation, ADC has become a landowner, managing 4,257 acres of land on Kaua‘i and O‘ahu, as well as the owner-operator of the Waiāhole Water System that transports water from Windward O‘ahu through the Koolau Mountains to Central O‘ahu. ADC is administratively attached to the Hawaii Department of Agriculture.

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Financial Audit of the Agribusiness Development Corporation
03/04/2022

PHOTO: OFFICE OF THE AUDITOR

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Administration Division, as of and for the fiscal year ended June 30, 2021, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Egami & Ichikawa, Certified Public Accountants, Inc.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, DOT–Administration reported total revenues of $43.5 million, total expenses of $41 million, and transfers to other DOT divisions of $6 million, resulting in a decrease in net position of $3.5 million. The transfers relate to unencumbered cash balances related to assessment revenues from those divisions. Revenues consisted of $19.3 million from assessments, $22.9 million from federal grants, and $1.3 million from other revenue sources.

Total expenses of $41 million consisted of $11.1 million for operating grants and $29.9 million for administration.

As of June 30, 2021, total assets of $20.3 million were comprised of (1) cash of $16.2 million, (2) accounts receivable of $2.7 million, and (3) net capital assets of $1.4 million. Liabilities totaled $14.1 million, including a $1.8 million Aloha Tower Development Corporation note payable to the Harbors Division.

Auditors’ Opinion

DOT-ADMINISTRATION RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT–Administration also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

Audit reports for the Department’s Airports Division, Harbors Division, and Highways Division are available on our website.

About the Division

 

Four divisions (Airports, Harbors, Highways, and Administration) make up the State’s Department of Transportation. The Administration Division (DOT–Administration) consists of the Office of the Director of Transportation, the Statewide Transportation Planning Office, and Departmental Staff Services Offices. Collectively, these offices provide overall administrative support for the Department of Transportation. The financial statements for the Division reflect the financial activities of DOT–Administration and the Aloha Tower Development Corporation, which is attached to the Department for administrative purposes. DOT–Administration receives a percentage of the Airports, Harbors, and Highways Divisions’ state-allotted appropriations to cover general administration expenses. The Department’s Statewide Transportation Planning Office administers certain Federal Transit Administration and Federal Highway Administration grants.

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Financial and Compliance Audit of the Department of Transportation, Administration Division
03/02/2022

Credit: Office of the Auditor

AUDITOR’S SUMMARY

Sixty-three funds proposed in 2022 did not meet criteria.

We reviewed 104 Senate and House bills introduced during the 2022 legislative session proposing 63 special and revolving funds of which none met criteria.

ONLY ABOUT HALF OF THE MONEY the State spends each year comes from its main financial account, the general fund. The other half of expenditures are financed by special, revolving, federal, and trust funds. Between 2008 and 2012, the number of these non-general funds and the amount of money contained in them substantially increased. Much of that upward trend had been caused by an increase in special funds, which are funds set aside by law for a specified object or purpose.

In 2013, the Legislature amended section 23-11, Hawai‘i Revised Statutes (HRS), after the Auditor recommended changes to stem a trend in the proliferation of special and revolving funds over the past 30 years. Such funds erode the Legislature’s ability to control the State budget through the general fund appropriation process. General funds, which made up about two-thirds of State operating budget outlays in the late 1980s, had dwindled to about half of outlays.

By 2011, special funds amounted to $2.48 billion, or 24.3 percent, of the State’s $10.2 billion operating budget. Also ballooning were revolving funds, which are used to pay for goods and services and are replenished through charges to users of the goods and services or transfers from other accounts or funds. By 2011, revolving funds made up $384.2 million, or 3.8 percent, of the State’s operating budget. Further hampering the Legislature’s control over the budget process was a 2008 court case. In Hawai‘i Insurers Council v. Linda Lingle, Governor of the State of Hawai‘i, the Hawai‘i Supreme Court determined that under only certain conditions could the Legislature “raid” special funds to balance the State budget. In 2013, in order to gain more control over the budget process, the Legislature built new safeguards into the criteria for establishing special funds.

The Criteria

SECTION 23-11, HRS, requires the Auditor to analyze all bills proposing to establish new special or revolving funds according to the following criteria:

1. The need for the fund, as demonstrated by:

  • The purpose of the program to be supported by the fund;
  • The scope of the program, including financial information on fees to be charged, sources of projected revenue, and costs; and
  • An explanation of why the program cannot be implemented successfully under the general fund appropriation process; and

2. Whether there is a clear nexus between the benefits sought and charges made upon the program users or beneficiaries or a clear link between the program and the sources of revenue, as opposed to serving primarily as a means to provide the program or users with an automatic means of support that is removed from the normal budget and appropriation process.

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22-03, Proposed Special and Revolving Fund Analyses
02/18/2022

Credit: Office of Hawaiian Affairs

One Office of Hawaiian Affairs special fund should be closed.

OUR REVIEW of the two special funds, one revolving fund, and one trust fund of the Office of Hawaiian Affairs (OHA) found one special fund did not meet criteria and should be closed.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of the revolving funds, trust funds, and trust accounts of OHA. It is our second review of the special funds of OHA, since Act 130, Session Laws of Hawai‘i 2013, amended section 23-12, HRS, to require review of special funds along with revolving funds and trust funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund and account, we present a five-year financial summary, the purpose of the fund or account, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of the programs or their management, or whether the program should be continued.

Reporting shortfall
We noted that OHA did not file statutorily required reports for administratively created non-general funds totaling at least $15 million. Accurate and complete reporting will greatly improve the Legislature’s oversight of these funds.

Agency response
OHA acknowledged our recommendations related to the closing of the trust fund and stated they are working with the Department of Accounting and General Services to close this fund.

OHA disagreed with our assertion that the reporting of Non-General Funds is required by section 37-52.5, HRS, stating that the Native Hawaiian Revolving Loan Fund is a federal fund and for various reasons should not be included with information annually required to be reported to the Legislature. We disagree. Section 37-52.5, HRS, applies to any fund or account that is administratively established, and is “the criteria for the establishment and continuance of administratively established accounts and funds.” OHA should report to the Legislature, annually, its administratively created funds and accounts, irrespective as to when those funds and accounts were established, as required by section 37-52.5(b), HRS.


FUND TYPES

SPECIAL FUNDS
are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS
such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS
such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS
are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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22-02, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Office of Hawaiian Affairs
01/28/2022

PHOTO: Office of the Auditor

We received a copy of a draft report from the chair of the House Committee to Investigate Compliance with Audit Nos. 19-12 and 21-01 on December 30, 2021, and submitted this response on January 14, 2022.  The draft we responded to was incomplete; recommendations were missing in some instances and notes and placeholders indicated that substantive content would be added to the final report.  This was confirmed when the committee asked for an additional 10 days to complete its report.  The Office of the Auditor was denied the opportunity to offer explanation, clarification, or context to unsupported allegations and innuendo contained only in the final report issued on January 29, 2022.  We will supplement this response in the coming days.

The two audits the committee was established to investigate contained serious, evidence-based findings about longstanding mismanagement of public lands and state-owned assets by the Department of Land and Natural Resources and the Agribusiness Development Corporation.  Despite the committee’s charge, those factual findings are largely absent from the committee’s report and in some instances are dismissed without rationale.  The committee’s failure to fully investigate these real, documented problems demonstrate the importance of keeping government accountability agencies like the Office of the Auditor free from political interference.  We are deeply concerned that the relentless personal attacks on the Auditor – defamatory and libelous in most other contexts – deflect attention from the serious issues raised in our audits, as well as the broader consequences of committee chair Della Au Belatti’s yearlong campaign to strip the Office of the Auditor of the independence necessary to keep government transparent and accountable. 

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Office of the Auditor’s Response to Draft Report of the House Investigative Committee to Investigate Compliance with Audit Nos. 19-12 and 21-01
01/26/2022

Photo: Office of the Auditor

Two Department of Education trust funds should be closed.

Our review of 16 special funds, 9 revolving funds, 12 trust funds, and 
1 trust account of the Department of Education (DOE) found 2 trust funds 
did not meet criteria and should be closed. Our review of 2 special funds, 
2 trust funds, and 2 trust accounts of the Hawai‘i State Public Library System (HSPLS) found that all funds and accounts met criteria.

Section 23-12, Hawai‘i Revised Statutes, requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of the revolving funds, trust funds, and trust accounts of DOE, and our fifth review of the funds and accounts of HSPLS. HSPLS did not have any revolving funds during our review period. It is our second review of the special funds of DOE and HSPLS.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund and account, we present a five-year financial summary, the purpose of the fund and account, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of the program or their management, or whether the program should be continued.

Reporting shortfall
WE NOTED noncompliance by both DOE and HSPLS with statutory requirements required by section 37-52.5, Hawai‘i Revised Statutes. 
Accurate and complete reporting, as well as timely closing of funds, will greatly improve the Legislature’s oversight of these funds.

Agency response
DOE AGREED with our findings and will take appropriate action to close the two trust funds that did not meet criteria and ensure compliance with reporting requirements. HSPLS agreed with our findings and will also work to ensure compliance with reporting requirements.


FUND TYPES

SPECIAL FUNDS
are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS
such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS
such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS
are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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22-01, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Education and the Hawai’i State Public Library System
01/07/2022

Photo: Hawai‘i Housing Finance and Development Corporation

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Housing Finance and Development Corporation, as of and for the fiscal year ended June 30, 2021, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

HHFDC HAS TWO TYPES OF FUNDS – governmental funds and proprietary funds. HHFDC’s governmental funds are supported primarily by appropriations from the State’s General Fund, federal grants, and proceeds of the State’s general obligation bonds allotted to HHFDC. HHFDC’s governmental funds include (1) the General Fund, (2) the HOME Investment Partnership Program, (3) the Housing Trust Fund Program, (4) the General Obligation Bond Fund, (5) the Coronavirus Relief Fund Program, (6) the Rental Assistance and Mediation Program, and (7) the Tax Credit Assistance Program Fund.

HHFDC’s proprietary funds operate similar to business-type activities and are used to account for those activities for which the intent of management is to recover (primarily through user charges) the cost of providing services to customers. HHFDC’s proprietary funds include (1) the Rental Housing Revolving Fund, (2) the Dwelling Unit Revolving Fund, (3) the Single Family Mortgage Purchase Revenue Bond Fund, (4) the Housing Finance Revolving Fund, and (5) several other non-major enterprise funds.

For the fiscal year ended June 30, 2021, HHFDC reported total program revenues of $131.2 million and total program expenses of $103.7 million. In addition, HHFDC reported state allotted appropriations, net of lapses, of $300.7 million and a gain on sale of capital assets of $31.7 million for the fiscal year ended June 30, 2021. Together with program revenues and expenses, this resulted in an overall increase in net position of $359.8 million.

As of June 30, 2021, the agency reported total assets and deferred outflows of resources of $1.6 billion, comprised of (1) cash of $659.9 million, (2) investments of $29.4 million, (3) notes and loans receivable of $724.1 million, (4) moneys due from the state of $4.6 million, (5) net capital assets of $93.4 million, and (6) other assets and deferred outflows of resources of $89.1 million. The agency reported total liabilities and deferred inflows of resources of $96.2 million, comprised of (1) revenue bonds payable of $8.5 million, (2) unearned income of $21.2 million, (3) estimated future costs of development of $35.2 million, (4) moneys due to other state departments of $400,000, and (5) other liabilities and deferred inflows of resources of $30.9 million.

Auditors’ Opinion

HHFDC RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. HHFDC also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance that are required to be reported under the Uniform Guidance.

About the Corporation

 

The Hawai‘i Housing Finance and Development Corporation (HHFDC) was established by the State Legislature in 2006. Its mission is to increase the state’s supply of workforce and affordable homes by providing tools and resources to facilitate housing development, such as housing tax credits, low-interest construction loans, equity gap loans, and developable land and expedited land use approvals. The agency is administratively attached to the Hawai‘i Department of Business, Economic Development and Tourism.

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Financial and Compliance Audit of the Hawai‘i Housing Finance and Development Corporation
01/06/2022

PHOTO: HAWAII DOT AIRPORTS DIVISION

AUDITOR’S SUMMARY


Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Airports Division, as of and for the fiscal year ended June 30, 2021. The audit was conducted by KPMG LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, DOT-Airports reported total revenues of $540 million and total expenses of $604 million, resulting in a decrease in net position of $64 million. Revenues consisted of (1) $59 million in concession fees, (2) $62 million in landing fees, (3) $152 million in rentals, (4) $49 million in facility charges, (5) $201 million in federal operating and capital grants, and (6) $17 million in interest and other revenues.


Total expenses of $604 million consisted of (1) $345 million for operations and maintenance, (2) $158 million in depreciation, (3) $14 million for administration, and (4) $87 million in interest and other expenses.

As of June 30, 2021, the department reported total assets and deferred outflows of resources of $5.45 billion, comprised of (1) cash of $1.04 billion, (2) investments of $240 million, (3) net capital assets of $3.97 billion, and (4) $197 million in receivables, other assets, and deferred outflows of resources. Total liabilities and deferred inflows of resources totaled $2.92 billion, which includes (1) $1.66 billion in airports system revenue bonds, (2) $1.23 billion in other liabilities and deferred inflows of resources, and (3) $22 million in special facility revenue bonds.


Revenue bonds for DOT-Airports are rated as follows:

• Standard & Poor’s Corporation: A+
• Moody’s Investors Service: A1
• Fitch IBCA, Inc.: A+


DOT-Airports has numerous capital projects ongoing state-wide; construction-in-progress totaled $1.53 billion at the end of the fiscal year.

Auditors’ Opinion

DOT-AIRPORTS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that were required to be reported under Government Auditing Standards.

About the Division

 

The Department of Transportation, Airports Division (DOT-Airports), operates and maintains 15 airports at various locations within the State of Hawai‘i as a single integrated system for management and financial purposes. Daniel K. Inouye International Airport is the principal airport in the airports system, providing facilities for interisland flights, domestic overseas flights, and international flights to destinations in the Pacific Rim. DOT-Airports is authorized to impose and collect rates and charges for the airports system services and properties to generate revenues to fund operating expenses. The Capital Improvements Program is primarily funded by airports system revenue bonds and lease revenue certificates of participation issued by DOT-Airports, federal grants, passenger facility charges, customer facility charges, and DOT-Airports revenues.

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Financial and Compliance Audit of the Department of Transportation, Airports Division
01/06/2022

ILLUSTRATION: ISTOCK.COM

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the State of Hawai‘i’s financial statements, as presented in the Annual Comprehensive Financial Report (ACFR) for the State of Hawai‘i, as of and for the fiscal year ended June 30, 2021. The audit was conducted by Accuity LLP. The ACFR was issued on December 30, 2021.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, total revenues were $17.7 billion and total expenses were $19.3 billion, resulting in a decrease in net position of $1.6 billion. Approximately 43 percent of the State of Hawai‘i’s total revenues came from taxes of $7.7 billion, 47 percent from grants and contributions of $8.3 billion, and 10 percent from charges for various goods and services of $1.7 billion.

Total tax revenues of $7.7 billion consisted of general excise taxes 
of $3.4 billion, net income taxes of $3.3 billion, and other taxes of 
$1 billion.

The largest expenses were for welfare at $4.6 billion, lower education at 
$3.3 billion, higher education at $1 billion, health at $900 million, and general government at $1.9 billion. Other expenses totaled $7.6 billion.

As of June 30, 2021, total liabilities and deferred inflows of resources of 
$32.9 billion exceeded total assets and deferred outflows of resources of 
$28.7 billion, resulting in a negative net position of $4.2 billion. Of this amount, $3.8 billion was for the State’s net investment in capital assets, $4.5 billion was restricted for specific programs, and a negative $12.5 billion was unrestricted assets.

As of June 30, 2021, total assets and deferred outflows of resources of $28.7 billion were comprised of (1) net capital assets of $15 billion, (2) investments of $5.1 billion, (3) cash of $2.4 billion, (4) receivables of $2.1 billion, (5) restricted assets of $1.3 billion, and (6) other assets and deferred outflows of resources of $2.8 billion. Total liabilities and deferred inflows of resources of $32.9 billion were comprised of (1) general obligation and revenue bonds payable of $12.4 billion, (2) vacation and retirement benefits of $14.6 billion, and (3) other liabilities and deferred inflows of resources of $5.9 billion.

Auditors’ Opinion
THE STATE OF HAWAI‘I RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

About the State

THE STATE OF HAWAI‘I is mandated by statute to provide a range of services in the areas of education (both lower and higher), welfare, transportation (including highways, airports, and harbors), health, hospitals, public safety, housing, culture and recreation, economic development, and conservation of natural resources.

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Financial Audit of the Annual Comprehensive Financial Report of the State of Hawai‘i
12/30/2021

PHOTO: HAWAI‘I PUBLIC HOUSING AUTHORITY

AUDITOR’S SUMMARY

Financial Audit of the Hawai‘i Public Housing Authority
Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Public Housing Authority as of and for the fiscal year ended June 30, 2021. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, HPHA reported total revenues of $178 million and total expenses of $187 million, resulting in a decrease in net position of $9 million.

Total revenues of $178 million consisted of (1) $25 million in charges for services and other revenues, (2) $119 million in operating grants and contributions, (3) $6 million in capital grants and contributions, and (4) $28 million in State allotted appropriations, net of lapsed funds.

Total expenses of $187 million consisted of (1) $91 million for the rental housing assistance program, (2) $80 million for the rental assistance program, (3) $11 million for the housing development program, and (4) $5 million for other costs.

As of June 30, 2021, total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources by $458 million. The agency reported total assets and deferred outflows of resources of $558 million which were comprised of (1) cash of $98 million, (2) amounts due 
from State of $64 million, (3) notes and other receivables of $10 million, (4) net capital assets of $375 million, and (5) other assets and deferred outflows or resources of $11 million. The agency also reported total liabilities and deferred inflows of resources of $100 million which were comprised of (1) net pension liability of $44 million, (2) net other postemployment benefits other than pensions of $38 million, (3) accounts payable and accrued expenses of $12 million, and (4) other liabilities and deferred inflows of resources of $6 million.

Auditors’ Opinion

HPHA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that were required to be reported under Government Auditing Standards.

About the Authority

 

The mission of the Hawai‘i Public Housing Authority (HPHA) is to provide safe, decent, and sanitary dwelling for low and moderate-income residents of Hawai‘i and to operate its housing programs in accordance with federal and State laws and regulations. Some of HPHA’s housing assistance programs are funded by the U.S. Department of Housing and Urban Development (HUD).


HPHA is administratively attached to the Hawai‘i Department of Human Services (DHS). HPHA operates under the direction of its Executive Director and Board of Directors, which consists of eleven board members, nine of whom are appointed by the Governor. The Director of DHS and the Governor’s designee are ex-officio members.

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Financial Audit of the Hawai‘i Public Housing Authority
12/29/2021

PHOTO: ISTOCK.COM

AUDITOR’S SUMMARY

Financial and Compliance Audit, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, Water Pollution Control Revolving Fund, as of and for the fiscal year ended June 30, 2021, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards and the Environmental Protection Agency Audit Guide for Clean Water and Drinking Water State Revolving Fund Programs. The audit was conducted by KMH LLP. 


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, the Revolving Fund reported total revenues of $20 million and total operating expenses of $2.9 million, resulting in an increase in net position of $17.1 million. Total revenues consisted of (1) administrative loan fees of $3.2 million, (2) interest income of $1.4 million, (3) state contributions of $2.5 million, (4) federal contributions of $12.3 million, and (5) other income of $600,000. Total expenses of $2.9 million consisted solely of administrative expenses.

 

As of June 30, 2021, total assets and deferred outflows of resources were $575.4 million and total liabilities and deferred inflows of resources were $8.6 million. Total assets were comprised of (1) cash and cash equivalents of $87.1 million, (2) loans receivable of $485.2 million, and (3) other assets and deferred outflows of resources of $3.1 million. Total liabilities were comprised of (1) net other post-employment benefits liability of $3.5 million, (2) net pension liability of $4.4 million, and (3) other liabilities and deferred inflows of resources of $700,000.

 

Auditors’ Opinion

THE REVOLVING FUND RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. The Revolving Fund also received an unqualified opinion on its compliance with the Clean Water State Revolving Funds Program (Program).

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance with the Program.

About the Fund

 

The federal Clean Water State Revolving Fund provides low-cost infrastructure financing for public water quality infrastructure projects. Moneys earmarked for Hawai‘i are deposited into the State’s Water Pollution Control Revolving Fund (the Revolving Fund) and are used to provide loans in perpetuity to county and state agencies for the construction of wastewater treatment facilities and other non-point source projects. Loans may be at or below market interest rates and be fully amortized for a period not to exceed twenty years. Under the federal Clean Water Act of 1987, from 1989 to 1994, the State of Hawai‘i received more than $72 million in capitalization grants. The State continues to receive capitalization grants annually from the U.S. Environmental Protection Agency. The Revolving Fund is administered by the State of Hawai’i Department of Health’s Environmental Management Division, Wastewater Branch.

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Financial and Compliance Audit of the Department of Health, Water Pollution Control Revolving Fund
12/29/2021

PHOTO: ISTOCK.COM

AUDITOR’S SUMMARY

Financial and Compliance Audit, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, Drinking Water Treatment Revolving Loan Fund, as of and for the fiscal year ended June 30, 2021, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards and the Environmental Protection Agency Audit Guide for Clean Water and Drinking Water State Revolving Fund Programs. The audit was conducted by KMH LLP. 


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, the Revolving Fund reported total revenues of $17.1 million and total operating expenses of $4.2 million, resulting in a change in net position of $12.9 million. Total revenues consisted of (1) administrative loan fees of $2.5 million, (2) federal contributions of $11.6 million, (3) state contributions of $2.2 million, and (4) other income of $800,000.

 

Total expenses consisted of (1) administrative expenses of $1.7 million, (2) state program management of $700,000, (3) water protection of $800,000, and (4) other expenses of $1.1 million.

As of June 30, 2021, total assets and deferred outflows of resources were $243.1 million and total liabilities and deferred inflows of resources were $6.8 million. Total assets were comprised of (1) cash and cash equivalents of $21 million, (2) loans receivable of $219.8 million, and (3) other assets and deferred outflows of resources of $2.3 million. Total liabilities were comprised of (1) net other post-employment benefits liability of $2.7 million, (2) net pension liability of $2.9 million, and (3) other liabilities and deferred inflows of resources of $1.2 million.

Auditors’ Opinion

THE REVOLVING FUND RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. The Revolving Fund also received an unqualified opinion on its compliance with the Drinking Water State Revolving Funds Program (Program).

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance with the Program.

About the Fund

 

The Safe Drinking Water Act was originally passed by Congress in 1974 to protect public health by regulating the nation’s public drinking water supply. The law was amended in 1996 to provide funding for water system improvements. In 1997, the Hawai‘i State Legislature established the Drinking Water Treatment Revolving Loan Fund (Revolving Fund) to receive federal capitalization grants from the U.S. Environmental Protection Agency. The Revolving Fund is used to provide loans in perpetuity to public drinking water systems for construction of drinking water treatment facilities. Such loans may be at or below market interest rates and must be fully amortized within twenty years. The Revolving Fund is administered by the State of Hawai‘i Department of Health’s Environmental Management Division, Safe Drinking Water Branch.

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Financial and Compliance Audit of the Department of Health, Drinking Water Treatment Revolving Loan Fund
12/28/2021

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AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Community Development Authority, as of and for the fiscal year ended June 30, 2021. The audit was conducted by N&K CPAs, Inc.


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, HCDA reported total revenues of $7.6 million and total expenses of $6.5 million, resulting in an increase in net position of $1.1 million. Revenues consisted of (1) leasing and management activities of $1.9 million, (2) community redevelopment activities of $2.2 million, (3) investment earnings of $300,000, (4) net state appropriations of $2.8 million, and (5) other revenue of $500,000.

The following graph illustrates a comparative breakdown of HCDA’s revenues and expenses.

As of June 30, 2021, total assets and deferred outflows of resources of $140.2 million exceeded total liabilities and deferred inflows of resources of $20.2 million resulting in a net position of $120 million.

Of the net position balance of $120 million, $23.3 million is unrestricted and may be used to meet ongoing expenses, $2.6 million is restricted for capital projects, and $94.1 million is invested in net capital assets. The agency reported total assets and deferred outflows of resources comprised of (1) net capital assets of $94.1 million, (2) cash of $27.5 million, and (3) receivables, other assets, and deferred outflows of resources of $18.6 million.

Prior Period Adjustments

THE JUNE 30, 2020 FUND BALANCE/NET POSITION was restated to correct errors made in the prior period related to an understatement of liabilities of $88,000 and an overstatement of net capital assets of $46.2 million.

Auditors’ Opinion

HCDA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that would have required reporting under Government Auditing Standards. The auditors identified two material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. The material weaknesses are described on pages 68-70 of the report related to the prior period adjustments noted above.

About the Authority

 

The Hawai‘i Community Development Authority (HCDA) was established in 1976 by Chapter 206E, Hawai‘i Revised Statutes, to establish community development plans in community development districts, to determine community development programs, and to cooperate with private enterprises and various components of federal, state, and county governments to bring community plans to fruition. HCDA is administratively attached to the Department of Business, Economic Development and Tourism.

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Financial Audit of the Hawai‘i Community Development Authority
12/28/2021

PHOTO: HAWAII TOURISM AUTHORITY / TOR JOHNSON

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Tourism Authority, as of and for the fiscal year ended June 30, 2021. The audit was conducted by Accuity LLP. 


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, HTA reported total revenues of $46.1 million, along with $5 million in transfers from other state departments, and total expenses of $49.2 million. Revenues consisted of $38 million from TAT, $5.8 million from charges for services, and interest and other revenues of 
$2.3 million.

 

Total expenses of $49.2 million consisted of $36.4 million for contracts, $7.9 million for depreciation, and $4.9 million for payroll, administrative, and other expenses.

As of June 30, 2021, total assets and deferred outflows of resources of $320.3 million exceeded total liabilities and deferred inflows of resources of $13.5 million, resulting in a net position of $306.8 million. Total assets and deferred outflows of resources included (1) cash of $104.6 million, (2) land and net capital assets of $192.9 million, and (3) other assets and deferred outflows of resources of $22.8 million.

 

Auditors’ Opinion

HTA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Authority

 

The Hawai‘i Tourism Authority (HTA) was established by the 1998 Legislature to serve as the State’s lead agency for strategically managing tourism. State law requires HTA to develop a tourism marketing plan that includes statewide promotional efforts and programs, targeted markets, and other marketing efforts with measures of effectiveness and documentation of HTA’s progress toward strategic plan goals. HTA is also responsible for the Hawai‘i Convention Center. The primary source of funding for HTA’s operations is the Transient Accommodations Tax (TAT) collected by the State. HTA is governed by a board of directors comprised of 12 voting members, each of whom is appointed by the Governor, and is placed within the Department of Business, Economic Development and Tourism for administrative purposes.

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Financial Audit of the Hawai‘i Tourism Authority
12/22/2021

PHOTO: Office of the Auditor

We submitted a “closing statement” to the House Investigative Committee to Investigate Compliance with Audit Nos. 19-12 and 21-01 to correct the record regarding the legitimate and authorized scope of the committee’s investigation, as well as to address unsubstantiated allegations about omissions and anomalies raised during the committee’s public hearings.  The committee was created to conduct a fact-based inquiry into significant findings reported in our audits of the Department of Land and Natural Resources’ Special Land and Development Fund and the Agribusiness Development Corporation.  However, instead of focusing on the real problems and shortcomings within the agencies we audited, the committee spent much of its time seeking information about what the Office of the Auditor did not report in a continuing attempt to “audit the Auditor” that began when the House Speaker created a “State Auditor Working Group” in January 2021.

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Office of the Auditor’s Closing Statement to House Investigative Committee
12/22/2021

Empty Promises: The Department of Health has done little to address the Deposit Beverage Container Program’s significant and fundamental problems.

We have repeatedly expressed the same concerns about the Program’s reliance on self-reported data from distributors and redemption centers, explicitly stating that the department’s passive oversight exposes the Program to possible fraud, waste, and abuse.

Photo: istock.com

AUDITOR’S SUMMARY

SECTION 342G-17, Hawai‘i Revised Statutes, requires the Office of the Auditor to conduct a management and financial audit of the Deposit Beverage Container Program (Program) in fiscal years ending in even numbers. This financial and program audit for fiscal year ended June 30, 2020 was conducted by the certified public accounting firm of KMH LLP with the assistance of the Office of the Auditor.

What Did We Find? We have repeatedly expressed concerns about the Program’s reliance on self-reported data from distributors and redemption centers, explicitly stating that the Department of Health’s (DOH) passive oversight exposes the Program to possible fraud, waste, and abuse. During an initial meeting with the department, management conceded that they had not addressed any of our previous audit findings, despite the actual fraud that was reported in 2018. DOH’s administration of the Program continues to rely on self-reported information. Without any controls in place – i.e., policies, procedures, or processes – we could not audit the department’s performance of its statutory responsibilities, and the Program continues to be at risk of fraud, waste, and abuse.

As a result, we redirected this year’s review to ascertain and report why DOH has failed to address the long-standing findings that have been repeated for years. Our review primarily consisted of a series of interviews with DOH and Program management, including the then-Deputy Director of Environmental Health, the Solid and Hazardous Waste Branch Chief, the Solid Waste Coordinator, and the Recycling Coordinator.

During this review, the Solid Waste Coordinator described a “compliance testing pilot project” the Coordinator had started in July 2020 to cross-reference customer-signed receipts with redemption center daily reports 
and the forms submitted to request reimbursement of the redemption amounts paid to consumers. According to the Solid Waste Coordinator, 
if successful, Program staff would review and cross-reference one redemption center’s records per quarter. As of June 30, 2020, there were 
62 redemption centers in the state, meaning it would take Program staff more than 15 years to complete testing of every redemption center. In our next audit of the Program, we will likely assess this and other improvements to the Program that the department represents it had started subsequent to our current audit.

Why Did These Problems Occur? DOH and Program management have taken no substantive actions to address the prior audit findings, including any measures to identify and prevent the type of fraud that we reported in 2019. DOH’s disinterest or reluctance to properly administer the Program may be because management does not believe the Program should be its responsibility. According to the Deputy Director for Environmental Health at the time, the prior DOH Director believed that the department should not be administering the Program in the first place and that those duties should be contracted out. However, administration of the Program is a department responsibility, and until the Legislature amends that responsibility, DOH must be accountable for the Program’s shortcomings. DOH and Program management must prioritize addressing the audit findings and other Program improvements; starting with the DOH director, they must clearly convey the importance and urgency of addressing the Program shortcomings to other managers and Program staff.

Why Do These Problems Matter?

In prior audits, we performed very limited testing of distributors and redemption centers’ compliance with their respective statutory requirements. We found many instances where distributors and redemption centers have improperly enriched themselves – whether intentionally or not – because of the department’s lack of controls and its passive administration. And, because DOH is entirely reliant on distributors to self-report the number of containers sold, and on redemption centers to self-report the number of containers redeemed, there is both incentive and opportunity to continue to do so.

In addition, the moneys that the Program collects are the deposits and handling fees collected from consumers that are held in a fund for those consumers who redeem the containers at redemption centers. While the number of containers that consumers redeem continues to decline (which means the fund continues to grow), DOH is accountable for the deposits and handling fees. Should the Program ever run short of funds, taxpayers would be – but should not be – responsible for reimbursing the amounts redemption centers pay to consumers who redeem their containers.

If the department believes that the administration of the Program is not aligned with its current capabilities, it should hire a third-party to administer the Program, which the statute expressly allows. Whether through a third-party or its own staff, we recommend DOH take immediate action to address the deficiencies in the administration of the Program that have been repeatedly identified in prior reports.

Financial Audit of the Department of Health, Deposit Beverage Container Deposit Special Fund
Financial Statements, Fiscal Year Ended June 30, 2020


Financial Highlights
For the fiscal year ended June 30, 2020, the Deposit Beverage Container Deposit Special Fund (Fund) reported total revenues of $27.66 million and total expenditures of $21.94 million, resulting in a change in fund balance 
of $5.72 million. Total revenues consisted of (1) deposit beverage container fees of $7.92 million, (2) unredeemed deposits of $18.86 million, and 
(3) interest income of $870,000. Total expenditures consisted of (1) handling and redemption fees of $20.71 million, (2) operating expenditures of 
$1.17 million, and (3) administrative expenditures of $50,000.

As of June 30, 2020, total assets were $55.91 million and total liabilities were $5.58 million. Total assets were comprised of (1) cash and cash equivalents of $55.65 million, (2) accounts receivable of $170,000, and 
(3) interest receivable of $90,000. Total liabilities were comprised of 
(1) vouchers and contracts payable of $3.3 million, (2) beverage container deposits of $2.05 million, (3) unearned revenue of $200,000, and 
(4) accrued wages and employee benefits of $30,000.

Auditors’ Opinions
The Fund received an unmodified opinion that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings
There were no reported deficiencies in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. However, the auditors identified a significant deficiency in internal control. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiency is reported on page 40 of the report.

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21-13, Financial and Program Audit of the Department of Health’s Deposit Beverage Container Program, June 30, 2020
12/20/2021
Sthethoscope and medical documents

PHOTO: ISTOCK.COM

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Employer-Union Health Benefits Trust Fund, as of and for the fiscal year ended 
June 30, 2021. The audit was conducted by KKDLY LLC.


Financial Highlights

EUTF USES THE OPEB TRUST FUND to account for OPEB assets, liabilities, net position and operations related to post-employment health benefits for retirees and their beneficiaries, including all employer OPEB contributions for retirees and their beneficiaries. An enterprise fund is used to account for active employee healthcare benefits.

ENTERPRISE FUND: For the fiscal year ended June 30, 2021, revenues totaled $135.8 million and expenses totaled $91.3 million, resulting in a net income of $44.5 million. Revenues consisted of premium revenue self-insurance of $96.1 million, experience refunds of $36.5 million, and investment earnings and other revenues of $3.2 million.

Expenses consisted of benefit claims expenses of $81.5 million, administrative operating expenses of $9.3 million, depreciation of $100,000, and other operating expenses of $400,000.

As of June 30, 2021, assets and deferred outflows of resources totaled $272.3 million and liabilities and deferred inflows of resources totaled $69.4 million, resulting in a net position of $202.9 million.

OPEB TRUST FUND: For the fiscal year ended June 30, 2021, total additions of $2.59 billion, included $1.53 billion from employer contributions, $1.06 billion from net investment earnings, and $500,000 from other sources. Total deductions were $497.4 million, resulting in a change of fiduciary net position of $2.09 billion.

As of June 30, 2021, the OPEB Trust Fund net position balance totaled $6.08 billion. The OPEB Trust Fund held $6.14 billion in assets and $59.7 million in liabilities.

Auditors’ Opinion

EUTF RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Trust Fund

 

The Hawai‘i Employer-Union Health Benefits Trust Fund (EUTF) is a state agency that provides eligible State of Hawai‘i and county (Honolulu, Hawai‘i, Maui, and Kaua‘i) employees and retirees and their eligible dependents with health and life insurance benefits. EUTF is administered by a board of trustees composed of ten trustees appointed by the Governor. The trust fund currently provides medical, prescription drug, dental, vision, chiropractic, supplemental medical and prescription, and group life insurance benefits. Effective June 30, 2013, the board established a separate trust fund (the OPEB Trust Fund) to receive employer contributions to pre-fund other post-employment benefits (OPEB) for retirees and their beneficiaries. EUTF is administratively attached to the State of Hawai‘i Department of Budget and Finance.

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Financial Audit of the Hawai‘i Employer-Union Health Benefits Trust Fund
12/17/2021

PHOTO: ALOHA STADIUM

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Stadium Authority, as of and for the fiscal year ended June 30, 2021. The audit was conducted by N&K CPAs, Inc. 


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, the Authority reported total revenues of $2.9 million and total expenses of $6.7 million, resulting in an operating net loss of $3.8 million. Revenues consisted of (1) $2.6 million from rentals from attractions, (2) $100,000 in parking fees, and (3) $200,000 in advertising and other revenues. The Authority’s net loss was partially offset by $9 million in capital contributions, which represents the portion of Aloha Stadium capital improvement costs that were paid by the State of Hawai‘i. However, the Authority also reported an extraordinary item for an impairment loss of $73.3 million related to the existing stadium structure resulting in a decrease in net position of $68.1 million.

Expenses consisted of (1) $200,000 for depreciation, (2) $4.4 million for personnel services, (3) $900,000 for utilities, and (4) $300,000 for repairs and maintenance. Additional expenses totaled $900,000 and included state central services assessments as well as security, professional services, and other costs.

 

As of June 30, 2021, total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources, resulting in a net position of $18.6 million. Of this amount, $30.2 million was invested in capital assets and there is an unrestricted net deficit of $11.6 million. The agency reported total assets and deferred outflows of resources of $34.4 million, comprised of (1) cash of $2.4 million, (2) receivables, other assets, and deferred outflows of resources of $1.8 million, and (3) net capital assets of $30.2 million. The agency reported total liabilities and deferred inflows of resources of $15.8 million, comprised of (1) net pension liability of $6.9 million, (2) vacation and other retirement payables of $6.7 million, and (3) other liabilities and deferred inflows of resources of $2.2 million.

Impairment Loss

In fiscal year 2021, partly due to the COVID-19 pandemic, the Authority determined that the existing stadium structure experienced a significant and unexpected decline in service utility and determined it will no longer be used for its originally intended purpose of serving as a gathering place for the people of Hawai‘i. Accordingly, the Authority recorded an impairment loss of approximately $73.3 million as of June 30, 2021, which is reported as an extraordinary item in the financial statements and there is no carrying value remaining on the statement of net position for the stadium structure.

Auditors’ Opinion

THE AUTHORITY RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO SIGNIFICANT DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters required to be reported under Government Auditing Standards.

About the Authority

 

The Stadium Authority (Authority) was established in 1970 and is responsible for the operation, management, and maintenance of Aloha Stadium, located in Honolulu, Hawai‘i. The Authority functions under the direction of a nine-member board, appointed by the Governor. In addition, the president of the University of Hawai‘i and the state superintendent of education are nonvoting ex-officio members of the board. For administrative purposes, the Authority is placed within the State of Hawai‘i’s Department of Accounting and General Services.

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Financial Audit of the Stadium Authority
12/16/2021

PHOTO: HAWAII DOT HARBORS DIVISION

AUDITOR’S SUMMARY

Financial Audit of the Department of Transportation, Harbors Division
Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Harbors Division, as of and for the fiscal year ended June 30, 2021. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, DOT—Harbors reported total revenues of $183.7 million, total expenses of $109 million, and capital contributions of $6.2 million from federal grants restricted for capital asset acquisition and facility development, resulting in an increase in net position of $80.9 million. Total revenues consisted of (1) $153.9 million in services, (2) $26.9 million in rentals, (3) $1.7 million in interest income, and (4) $1.2 million in other revenues.


Total expenses consisted of (1) $40.2 million in depreciation, (2) $16.6 million in harbor operations, (3) $13.1 million in interest and bond costs, (4) $25.8 million for personnel, and (5) $13.3 million in administration and other costs.

As of June 30, 2021, the agency reported total assets and deferred outflows of resources of $1.73 billion, comprised of (1) cash and cash equivalents of $619.1 million, (2) receivables of $21.2 million, (3) net capital assets of $1.08 billion, and (4) other assets and deferred outflows of resources of $11.1 million. Total liabilities and deferred inflows of resources totaled $580.1 million, comprised of (1) $420.7 million in revenue bonds payable and related accrued interest payable, (2) $16.2 million in general obligation bonds payable, (3) $24 million in capital lease obligation and related accrued interest payable, (4) $8 million due to other State agencies, (5) $23.8 million in accounts and contracts payable, and (6) $87.4 million in other liabilities and deferred inflows of resources.

Auditors’ Opinion

DOT-HARBORS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Division

 

The Department of Transportation, Harbors Division (DOT—Harbors) is responsible for Hawai‘i’s statewide system of commercial harbors consisting of ten harbors on six islands. Major activities include maintenance and operation, the construction of new harbor facilities, and the management of vessel traffic into, within, and out of Hawai‘i’s harbors. The Division is self-sustaining. Pursuant to Hawai‘i Revised Statutes, rates and charges imposed and collected pay for the costs of operations, maintenance, and repairs, as well as debt service on revenue bonds and other outstanding obligations. A capital improvements program is funded by the revenue and proceeds from harbors system revenue bonds.

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Financial Audit of the Department of Transportation, Harbors Division
12/13/2021

Photo: iStock.com

AUDITOR’S SUMMARY

 

Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Employees’ Retirement System of the State of Hawai‘i, as of and for the fiscal year ended June 30, 2020. The audit was conducted by KPMG LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, ERS reported total net additions of approximately $1.74 billion. Additions consisted of $1.39 billion from contributions and $358 million in net investment income.

Total deductions of approximately $1.59 billion consisted of (1) $1.55 billion for benefit payments; (2) $18 million for administrative expenses; and (3) $22 million for refund of member contributions.

As of June 30, 2020, assets totaled $18.85 billion and liabilities totaled $1.46 billion, leaving a net position balance of $17.39 billion. Total assets included (1) investments of $17.6 billion; 
(2) receivables of $250 million; (3) cash of $953 million; and (4) net equipment of $8 million.

Auditors’ Opinion
ERS RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings
THERE WERE NO REPORTED DEFICIENCIES IN INTERNAL CONTROL over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters required to be reported under Government Auditing Standards.

About the System

THE EMPLOYEES’ RETIREMENT SYSTEM OF THE STATE OF HAWAI‘I (ERS) is a cost-sharing, multiple-employer retirement system for government workers. Through its pension benefits program, ERS provides a defined-benefit pension plan for all state and county employees, including teachers, professors, police officers, firefighters, correction officers, judges, and elected officials. ERS is governed by a Board of Trustees, which consists of eight members.

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Financial Audit of the Employees’ Retirement System of the State of Hawai’i
10/27/2021

PHOTO: O‘AHU METROPOLITAN PLANNING ORGANIZATION

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2021

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the O‘ahu Metropolitan Planning Organization, as of and for the fiscal year ended June 30, 2021, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2021, OahuMPO reported total revenues of approximately $3.1 million and total expenses of approximately $3.1 million, resulting in minimal change in net position. Revenues consisted of $2.5 million from federal grants and $618,000 in contributions from the State of Hawai‘i and City and County of Honolulu.

Total expenses consisted of (1) $26,000 for transportation forecasting and long-range planning; (2) $1.4 million for short-range transportation system and demand management planning; (3) $75,000 for transportation monitoring and analysis; (4) $22,000 for emergency management; and (5) $1.6 million for program coordination and administration.

As of June 30, 2021, total assets exceeded total liabilities by $468,000. Total assets of $1.9 million, included cash of $939,000 and receivables and other assets of $948,000. Total liabilities were $1.4 million.

Auditors’ Opinion

OahuMPO RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. OahuMPO received an unqualified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that are considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Organization

Federal highway and transit statutes require urbanized areas greater than 50,000 in population to designate a metropolitan planning organization as a condition for spending Federal highway or transit funds. O‘ahu Metropolitan Planning Organization (OahuMPO) is the designated metropolitan planning organization for the island of O‘ahu. OahuMPO was established by agreement between the Governor of the State of Hawai‘i and the Chairperson of the City Council of the City and County of Honolulu and serves as the decision-making body responsible for carrying out continuing, comprehensive, and cooperative transportation planning and programming for the island of O‘ahu.

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Financial and Compliance Audit of the O‘ahu Metropolitan Planning Organization
10/26/2021

PHOTO: DEPARTMENT OF LAND AND NATURAL RESOURCES

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Land and Natural Resources, as of and for the fiscal year ended June 30, 2020. The audit was conducted by N&K CPAs, Inc.


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, DLNR reported total revenues and transfers of $187.8 million and total expenses of $182.5 million, resulting in an increase in net position of $5.3 million. Revenues consisted of (1) $70.4 million from State appropriations, net of lapses, (2) $49.8 million from charges for services, (3) $27.5 million from operating grants and contributions, (4) $21 million from nonimposed employee fringe benefits, (5) $2.2 million from capital grants, and (6) $14.7 million from taxes, interest, and other income. Total transfers in amounted to $2.2 million.

Total expenses of $182.5 million consisted of (1) $72.5 million for environmental protection, (2) $64 million for cultural and recreation, (3) $13.4 million for economic development, (4) $22.1 million for government-wide support, (5) $6.9 million for individual rights, and (6) $3.6 million for public safety.

As of June 30, 2020, total assets of $834.4 million exceeded total liabilities of $77.7 million by $756.7 million. Total assets included cash of $295.7 million, receivables of $2.9 million, and land and net capital assets of $535.8 million. Total liabilities included vouchers and accrued payables of $30.5 million, amounts due to the State of $10.9 million, general obligation bonds payable of $32.9 million, and unearned revenues of $3.4 million.

Auditors’ Opinion

DLNR RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THE AUDITORS IDENTIFIED four material weaknesses in internal control over financial reporting that are required to be reported in accordance with Government Auditing Standards. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. The material weaknesses are described on pages 73-81 of the report. The department’s corrective action plan can be found on pages 83-85.

There were no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Department

 

The Department of Land and Natural Resources’ (DLNR) mission is to enhance, protect, conserve, and manage Hawai’i’s unique and limited natural, cultural and historic resources held in public trust for current and future generations of the people of Hawai’i. DLNR manages and administers the State’s parks, historical sites, forests, forest reserves, fisheries, wildlife sanctuaries, game management areas, public hunting areas, and natural area reserves and is responsible for nearly 1.3 million acres of state lands, beaches, and coastal waters as well as 750 miles of coastline. DLNR is headed by the Board of Land and Natural Resources.

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Financial Audit of the Department of Land and Natural Resources
10/21/2021

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Auditor’s Summary

 

One fund did not meet criteria

WE REVIEWED 3 TRUST FUNDS of the Office of the Governor (GOV); the office did not have special funds, revolving funds, or trust accounts during the period of review, FY2017 – FY2021.
We found GOV’s trust funds did not collect, spend, or transfer any funds in FY2021. GOV closed two of the trust funds  during the period under review and planned to close the third. The Office of the Lieutenant Governor (LTG) did not have any special funds, revolving funds, trust funds or trust accounts during the same five-year period.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of GOV’s revolving funds, trust funds, and trust accounts, and our fifth review of LTG’s funds and accounts. It is our second review of the special funds held by GOV and LTG since Act 130, Session Laws of Hawaiʻi 2013, amended Section 23-12,
HRS, to require review of special funds along with revolving funds and trust funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For  each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall

WE NOTED THAT GOV did not file statutorily required reports and funds totaling approximately $1,000. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds and provide increased budgetary flexibility.

Agency response

THE OFFICE OF THE GOVERNOR did not dispute the findings and will take appropriate action to close a trust fund that no longer serves its original purpose. GOV also stated that it will ensure compliance with all reporting requirements.

FUND TYPES

SPECIAL FUNDS are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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21-12, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Office of the Governor and Lieutenant Governor
05/21/2021

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AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of Health
Financial and Compliance Audit, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, as of and for the fiscal year ended June 30, 2020, and to comply with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, DOH reported total revenues of $847.4 million and total expenses of $809 million, resulting in an increase in net position of $38.4 million. Revenues included $653.3 million from general revenues, $154.2 million from operating grants and contributions, and $39.9 million from service charges.

Expenses included $291.6 million for health resources, $374.8 million for behavioral health, $92.2 million for environmental health, and $50.4 million for general administration.

 

As of June 30, 2020, total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources by $1.16 billion. Total assets and deferred outflows of resources of $1.32 billion included (1) cash of $518 million, (2) receivables of $28 million, (3) loans receivable of $661 million, (4) accrued interest and loan fees of $2 million, (5) deferred outflows of resources of $2 million, and (6) net capital assets of $109 million. Total liabilities and deferred inflows of resources totaled $158 million. DOH’s net position of $1.16 billion is comprised of a restricted amount of $845 million, of which $772 million is for loans; an unrestricted amount of $208 million; and net investment in capital assets of $109 million.

 

Auditors’ Opinion

DOH RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOH received a qualified opinion on certain major programs over compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WAS ONE MATERIAL WEAKNESS and one significant deficiency in internal control over financial reporting that are required to be reported under Government Auditing Standards. The material weakness is described on pages 93-94 of the report, and the significant deficiency is described on pages 95-97 of the report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

There were three material weaknesses in internal control over compliance that are required to be reported in accordance with the Uniform Guidance. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. The material weaknesses are described on pages 98-102 of the report.

About the Department

 

The mission of the Department of Health (DOH) is to protect and improve the health and environment for all people in Hawai‘i. DOH administers and oversees statewide personal health services, health promotion and disease prevention, mental health programs, monitoring of the environment, and the enforcement of environmental health laws. It administers federal grants to support the State’s health services and programs and is organized into four major administrations: Behavioral Health Services Administration, Health Resources Administration, Environmental Health Administration, and General Administration.

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Financial and Compliance Audit of the Department of Health
05/21/2021
DCCA Building

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AUDITOR’S SUMMARY

Financial Audit of the Department of Commerce and Consumer Affairs
Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Commerce and Consumer Affairs, as of and for the fiscal year ended June 30, 2019. The audit was conducted by N&K CPAs, Inc.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, the DCCA reported total revenues of $66.4 million, along with $5 million in transfers from other state departments, and total expenses of $55.5 million resulting in a change in net position of $10.9 million. Revenues consisted of (1) charges for services of $54.8 million, (2) operating grants and contributions of $9.5 million, and (3) general revenues of $2.1 million.

Total expenses of $55.5 million consisted of (1) $29.5 million for regulation of services, (2) $17.6 million for enforcement of fair business practices, and (3) $8.4 million for general support.

 

As of June 30, 2019, total assets of $118.4 million exceeded total liabilities of $7.6 million, resulting in a net position of $110.8 million. Total assets included (1) cash of $113.7 million, (2) interest receivable of $2.4 million, (3) net capital assets of $400,000, and (4) other assets of $1.9 million.

Auditors’ Opinion

DCCA RECEIVED A QUALIFIED OPINION on governmental activities as land and buildings and related depreciation expense has not been recorded in governmental activities. Except for the issue noted, the DCCA received an unmodified opinion that its remaining financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE TWO MATERIAL WEAKNESSES and four significant deficiencies in internal controls over financial reporting that were required to be reported under Government Auditing Standards. The material weaknesses are described on pages 47-49 of the report, and the significant deficiencies are described on pages 43-47 and 50 of the report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

About the Department

 

The mission of the state’s Department of Commerce and Consumer Affairs (DCCA) is to protect Hawai‘i’s consumers and service its business community with respect and fairness to the interests of both. The DCCA is made up of nine public-facing divisions: Business Registration Division, Cable Television Division, Division of Consumer Advocacy, Division of Financial Institutions, Insurance Division, Office of Administrative Hearings, Office of Consumer Protection, Professional and Vocational Licensing Division, and Regulated Industries Complaints Office. Also included is the Hawaii Post-Secondary Education Authorization Program and the Public Utilities Commission (an administratively attached agency). DCCA is a specially funded agency that strives to operate under a self-sufficiency model. Fees and revenues collected are to be used for the regulation of the contributing industries.

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Financial Audit of the Department of Commerce and Consumer Affairs
05/20/2021

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AUDITOR’S SUMMARY

Financial Audit of the Public Utilities Commission
Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Public Utilities Commission, as of and for the fiscal year ended June 30, 2020. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30,2020, the PUC reported total revenues of $19.4 million, along with $5 million in transfers from other state departments, and total expenses of $11.3 million. Revenues consisted entirely of program service fees. Revenues were offset by $7.6 million in transfers and lapses of State-allotted appropriations, resulting in a change in net position of $500,000.

Total expenses of $11.3 million consisted of $7.1 million for regulation, $3 million for administration, and $1.2 million for compliance.

 

As of June 30, 2020, total assets of $25.4 million exceeded total liabilities of $1.5 million, resulting in a net position of $23.9 million. Total assets included (1) cash of $6 million, (2) fees receivable of $9.4 million, (3) net capital assets of $9.2 million, and (4) other assets of $800,000.

Auditors’ Opinion

THE PUC RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO MATERIAL WEAKNESSES in internal controls over financial reporting that were required to be reported under Government Auditing Standards. However, the auditors identified two significant deficiencies in internal control over financial reporting. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The deficiency is described on pages 42-43 of the report.

About the Department

 

The Public Utilities Commission (PUC) was established in 1913 by Act 89. Its primary duty is to protect the public interest by overseeing and regulating public utilities to ensure that they provide reliable service at just and reasonable rates. The PUC regulates all chartered, franchised, certificated, and registered public utility companies operating in the State of Hawai‘i. It also reviews and approves rates, tariffs, charges and fees; determines the allowable rate of earnings in establishing rates; issues guidelines concerning the general management of franchised or certificated utility businesses; and acts on requests for the acquisition, sale, disposition or other exchange of utility properties, including mergers and consolidations. The PUC is composed of three commissioners appointed by the Governor for staggered four-year terms. The PUC is placed within the Department of Commerce and Consumer Affairs for administrative purposes.

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Financial Audit of the Public Utilities Commission
04/22/2021

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AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of Education
Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Education, as of and for the fiscal year ended June 30, 2020, and to comply with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30,2020, DOE reported total revenues of $3.45 billion and total expenditures of $3.26 billion, resulting in an increase in net position of $188 million.


Total revenues of $3.45 billion consisted of (1) $2.27 billion in state-allotted appropriations, net of lapsed funds, (2) $851 million in non-imposed employee wages and fringe benefits, (3) $262 million in operating grants and contributions, (4) $12 million in capital grants and contributions, and (5) $58 million in charges for services.


Total expenses of $3.26 billion consisted of (1) $3.04 billion for school-related costs, (2) $81 million for state and school complex area administration, (3) $61 million for public libraries, (4) $77 million for capital outlay, and (5) $2 million for transfers out.

As of June 30, 2020, total assets exceeded total liabilities by $2.89 billion. Of this amount, $901 million is unrestricted and may be used to meet ongoing expenses and obligations. Total assets of $3.46 billion 
were comprised of (1) cash of $1.42 billion, (2) receivables of $50 million, and (3) net capital assets of $1.99 billion. Total liabilities of $568 million were comprised of (1) vouchers and contracts payable of 
$134 million, (2) accrued wages and employee benefits of $182 million, (3) accrued compensated absences of $78 million, (4) workers’ compensation claims reserve of $137 million, (5) amount due to the state general fund of $5 million, and (6) notes payable of $32 million.

Auditors’ Opinion

DOE RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOE also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO MATERIAL WEAKNESSES in internal controls over financial reporting that were required to be reported under Government Auditing Standards. However, the auditors identified one significant deficiency in internal control over financial reporting. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The deficiency is described on pages 56-58 of the report.

There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance. However, the auditors identified three significant deficiencies in internal control over compliance. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. The deficiencies are described on pages 59-64 of the report.

About the Department

 

The Department of Education (DOE) administers the statewide system of public schools and public libraries. DOE is also responsible for administering state laws regarding regulation of private school operations through a program of inspection and licensing and the professional certification of all teachers for every academic and noncollege type of school. Federal grants received to support public school and public library programs are administered by DOE on a statewide basis.

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Financial and Compliance Audit of the Department of Education
04/21/2021

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AUDITOR’S SUMMARY

Single Audit of Federal Financial Assistance Programs of the State of Hawai‘i
Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE  of the State Single Audit for the fiscal year ended June 30, 2020, was to comply with the Code of Federal Regulations, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Title 2, Part 200 (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The State Single Audit was conducted by Accuity LLP.

Auditors’ Report on Internal Controls over Financial Reporting

THE AUDITORS IDENTIFIED one material weakness and two significant deficiencies in internal controls over financial reporting that are required to be reported in accordance with Government Auditing Standards. The material weakness is described on pages 24-26 of the report, and the significant deficiencies are described on pages 20-23 of the report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

 

Auditors’ Report on Compliance with Major Federal Programs

THE AUDITORS EXPRESSED A QUALIFIED OPINION on certain major programs and identified one material weakness and three significant deficiencies over compliance with major federal programs that are required to be reported in accordance with the Uniform Guidance. These findings are described in a Schedule of Findings and Questioned Costs that can be found on pages 27-33 of the report. A table with the number and type of findings by department can be found below.

A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis.

A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

About the Report

 

Single audits provide assurance to the federal government that state agencies and programs receiving federal funds are expending those funds properly. This report includes the total federal expenditures and findings related to only those departments that are included in the State of Hawaiʻi Single Audit of Federal Financial Assistance Programs for the fiscal year ended June 30, 2020. For the departments included in the report that receive federal monies, federal expenditures totaled approximately $2.14 billion. Other departments’ federal expenditures and findings are reported in their individual single audit reports.

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State of Hawai’i Single Audit Report
04/15/2021

PHOTO: HAWAI‘I PUBLIC HOUSING AUTHORITY

AUDITOR’S SUMMARY

Financial and Compliance Audit of the Hawai‘i Public Housing Authority
Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE  of the audit audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Public Housing Authority as of and for the fiscal year ended June 30, 2020, and to comply with the requirements of Code of Federal Regulations, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Title 2, Part 200 (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, HPHA reported total revenues of $146 million and total expenses of $166 million, resulting in a decrease in net position of $20 million.

Total revenues of $146 million consisted of (1) $25 million in charges for services and other revenues, (2) $108 million in operating grants and contributions, (3) $3 million in capital grants and contributions, (4) $9 million in State allotted appropriations, net of lapsed funds, and (5) $1 million in other non-program revenue.

Total expenses of $166 million consisted of (1) $80 million for the rental housing assistance program, (2) $70 million for the rental assistance program, (3) $11 million for the housing development program, and (4) $5 million for other costs.

As of June 30, 2020, total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources by $467 million. The agency reported total assets and deferred outflows of  resources of $565 million which were comprised of (1) cash of $105 million, (2) amounts due from State of $57 million, (3) notes and other receivables of $10 million, (4) net capital assets of $381 million, and (5) other assets and deferred outflows or resources of $12 million. The agency also reported total liabilities and deferred inflows of resources of $98 million which were comprised of (1) net pension liability of $40 million, (2) net other postemployment benefits other than pensions of $40 million, (3) accounts payable and accrued expenses of $12 million, and (4) other liabilities and deferred inflows of resources of $6 million.

Auditors’ Opinion

HPHA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. HPHA also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that were required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Authority

 

The mission of the Hawai‘i Public Housing Authority (HPHA) is to provide safe, decent, and sanitary dwelling for low and moderate-income residents of Hawai‘i and to operate its housing programs in accordance with federal and State laws and regulations. Some of HPHA’s housing assistance programs are funded by the U.S. Department of Housing and Urban Development (HUD).
HPHA is administratively attached to the Hawai‘i Department of Human Services (DHS). HPHA operates under the direction of its Executive Director and Board of Directors, which consists of eleven board members, nine of whom are appointed by the Governor. The Director of DHS and the Governor’s designee are ex-officio members.

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Financial and Compliance Audit of the Hawai‘i Public Housing Authority
04/14/2021

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AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of the Attorney General
Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of the Attorney General, as of and for the fiscal year ended June 30, 2020, and to comply with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Egami & Ichikawa CPAs, Inc.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, AG reported total revenues of $130.3 million and total expenses of $124.2 million, resulting in an increase in net position of $6.1 million. Revenues include general revenues of $49.7 million, primarily state appropriations; program revenues consisting of charges for services of $39.6 million; and operating grants and contributions of $41 million.

 

Expenses of $124.2 million consisted of (1) $78.8 million for general administrative and legal services; (2) $24 million for child support enforcement; (3) $14.2 million for crime prevention and justice assistance; and (4) $7.2 million for criminal justice data center activities.

Auditors’ Opinion

AG RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. AG also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO MATERIAL WEAKNESSES in internal control over financial reporting that were required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Department

 

The Department of the Attorney General (AG) provides legal services to the executive, legislative, and judicial branches of Hawai‘i State government, including furnishing formal and informal legal opinions to the Governor, Legislature, and heads of Hawai‘i State departments and offices and approving documents relating to the acquisition of lands and interests by the State. AG also maintains criminal justice information, conducts investigations, operates crime prevention programs, and represents the State of Hawai‘i in legal proceedings. AG’s Child Support Enforcement Agency provides assistance to children by locating parents, establishing paternity and support obligations, and enforcing those obligations.

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Financial and Compliance Audit of the Department of the Attorney General
04/13/2021

Hawaii DOT – Highways Division

AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of Transportation, Highways Division
Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Transportation, Highways Division, as of and for the fiscal year ended June 30, 2020, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, DOT-Highways reported total revenues of $491 million and total expenses of $522 million, resulting in a decrease in net position of $31 million. Revenues consisted of (1) $227 million in tax collections; (2) $190 million in grants and contributions primarily from the Federal Highway Administration; (3) $51 million in charges for services; and (4) $23 million in investment income and other revenues.


Expenses consisted of (1) $158 million for operations and maintenance; (2) $209 million in depreciation; (3) $140 million for administration and other expenses; and (4) $15 million in interest.

As of June 30, 2020, total assets and deferred outflows of resources of $5.44 billion were comprised of (1) cash and investments of $365 million; (2) net capital assets of $5.01 billion; and (3) $66 million in other assets and deferred outflows of resources. Total liabilities of $667 million included $493 million in revenue bonds and $174 million in other liabilities.

DOT-Highways has numerous capital projects ongoing statewide; construction in progress totaled $303 million at the end of the fiscal year.

Auditors’ Opinion

DOT-HIGHWAYS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT-Highways also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO MATERIAL WEAKNESS in internal controls over financial reporting that were required to be reported under Government Auditing Standards. However, the auditors identified one significant deficiency in internal controls over financial reporting. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The deficiency is described on pages 12-14 of the single audit report.

There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance. However, the auditors identified three significant deficiencies in internal control over compliance. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. The deficiencies are described on pages 15-20 of the single audit report.

About the Division

 

The mission of the Department of Transportation, Highways Division (DOT-Highways), is to provide a safe, efficient, and sustainable State Highway System that ensures the mobility of people and goods within the state. The division is charged with maximizing available resources to provide, maintain, and operate ground transportation facilities and support services that promote economic vitality and livability in Hawai‘i. The Department also works with the Statewide Transportation Planning Office on innovative and diverse approaches to congestion management.

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Financial and Compliance Audit of the Department of Transportation, Highways Division
04/12/2021

PHOTO: HAWAII DOT AIRPORTS DIVISION

AUDITOR’S SUMMARY


Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Airports Division, as of and for the fiscal year ended June 30, 2020, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KPMG LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, DOT-Airports reported total revenues of $569 million and total expenses of $561 million, resulting in an increase in net position of $8 million. Revenues consisted of (1) $151 million in concession fees, (2) $74 million in landing fees, (3) $148 million in rentals, (4) $94 million in facility charges, (5) $67 million in federal operating and capital grants, and (6) $35 million in interest and other revenues.


Total expenses of $561 million consisted of (1) $311 million for operations and maintenance, (2) $136 million in depreciation, (3) $22 million for administration, and (4) $92 million in interest and other expenses.

As of June 30, 2020, the department reported total assets and deferred outflows of resources of $5.2 billion, comprised of (1) cash of $1.04 billion, (2) investments of $343 million, (3) net capital assets of $3.66 billion, and (4) $151 million in receivables, other assets, and deferred outflows of resources. Total liabilities and deferred inflows of resources totaled $2.6 billion, which includes (1) $1.38 billion in airports system revenue bonds, (2) $1.2 billion in other liabilities and deferred inflows of resources, and (3) $22 million in special facility revenue bonds.


Revenue bonds for DOT-Airports are rated as follows:

• Standard & Poor’s Corporation: AA-
• Moody’s Investors Service: A1
• Fitch IBCA, Inc.: A+


DOT-Airports has numerous capital projects ongoing state-wide; construction-in-progress totaled $1.5 billion at the end of the fiscal year.

Auditors’ Opinion

DOT-AIRPORTS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT-Airports also received an unmodified opinion on its compliance with major federal programs in
accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Division

 

The Department of Transportation, Airports Division (DOT-Airports), operates and maintains 15 airports at various locations within the State of Hawai‘i as a single integrated system for management and financial purposes. Daniel K. Inouye International Airport is the principal airport in the airports system, providing facilities for interisland flights, domestic overseas flights, and international flights to destinations in the Pacific Rim. DOT-Airports is authorized to impose and collect rates and charges for the airports system services and properties to generate revenues to fund operating expenses. The Capital Improvements Program is primarily funded by airports system revenue bonds and lease revenue certificates of participation issued by DOT-Airports, federal grants, passenger facility charges, customer facility charges, and DOT-Airports revenues.

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Financial and Compliance Audit of the Department of Transportation, Airports Division
04/09/2021

PHOTO: Office of the Auditor

The State Auditor Working Group, formed by Speaker of the House Scott Saiki to “determine whether the Office of the State Auditor is in compliance with Art. VII, section 10 of the Hawai‘i State Constitution,” issued its report on April 1, 2021.  Although described to be akin to an audit, the Working Group’s review does not remotely resemble one.  The report was completed without ever talking to the Auditor or any other current staff.  It is primarily a collection of opinions based on manipulated data, inaccurate assumptions, and unattributed snippets of critical comments from former employees.  The Working Group’s “findings” and conclusion are flatly wrong.  Their review was never intended to be objective or fair and was simply part of a larger campaign to undermine our work and to exert influence over the Office of the Auditor.  The State Constitution, which established the position, intended the Auditor to be non-partisan and independent, shielding the Auditor from such political interference.  The Office of the Auditor helps to preserve the public trust in government through unbiased, objective, fact-based analysis that is intended to provide transparency, ensure accountability, and improve government.

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State Auditor’s Response to Working Group Report
04/09/2021

PHOTO: DEPARTMENT OF HUMAN SERVICES

AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of Human Services
Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Human Services, as of and for the fiscal year ended June 30, 2020, and to comply with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, DHS reported total revenues of $3.75 billion and total expenses of $3.79 billion. Revenues consisted of $1.28 billion in state allotments, net of lapsed amounts plus non-imposed employee fringe benefits, and $2.47 billion in operating grants from the federal government. Revenues from these federal grants paid for 64.9 percent of the cost of DHS’ activities.


Health care and general welfare assistance programs comprised 
72.6 and 20.7 percent, respectively, of the total cost. The following chart presents each major activity as a percentage of the total cost of all DHS activities.

 

As of June 30, 2020, DHS’ total assets of $618 million included (1) cash of $324 million, (2) receivables of $226 million, and (3) net capital assets of $68 million. Total liabilities of $400 million included (1) vouchers payable of $26 million, (2) accrued wages and employee benefits of $48 million, (3) amounts due to the state general fund of $193 million, (4) accrued medical 
assistance payable of $119 million, and (5) accrued compensated absences of $14 million.

Auditors’ Opinion

DHS RECEIVED AN UNMODIFIED OPINION that its financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles. DHS received a qualified opinion on its compliance for all major federal programs, except for Economic, Social, and Political Development of the Territories, which received an unmodified opinion in accordance with Uniform Guidance.

Findings

THERE WAS NO MATERIAL WEAKNESSES in internal control over financial reporting that were required to be reported under Government Auditing Standards. However, the auditors identified one significant deficiency in internal controls over financial reporting. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The deficiency is described on page 70 of the report.

There were 11 material weaknesses in internal control over compliance that were required to be reported in accordance with the Uniform Guidance. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. The material weaknesses are described on pages 71-86 of the report.

There were two findings of known questioned costs when likely questioned costs are greater than $25,000 that were required to be reported in accordance with the Uniform Guidance. The findings are described on pages 87-88 of the report.

About the Department

 

The Department of Human Services (DHS) works to provide benefits and services to individuals and families in need. The majority of DHS’ budget is comprised of federal funds. DHS’ mission is to direct its funds toward protecting and helping those least able to care for themselves and to provide services designed toward achieving self-sufficiency for clients as quickly as possible. Activities include health care programs; general welfare assistance, employment and support services; child welfare and adult community care services; vocational rehabilitation and services for the blind; youth prevention, delinquency and correction services; and general administration. Attached programs include the Commission on the Status of Women and Commission on Fatherhood.

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Financial and Compliance Audit of the Department of Human Services
04/08/2021

PHOTO: DEPARTMENT OF HAWAIIAN HOME LANDS

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Hawaiian Home Lands, as of and for the fiscal year ended June 30, 2020, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Akamine, Oyadomari & Kosaki CPA’s Inc.


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, DHHL’s total revenues exceeded total expenditures by $12.2 million. Revenues totaled $73.3 million and consisted of (1) program revenue of $32.7 million and (2) state appropriations, transfers, and adjustments of $40.6 million. Expenses totaled $61.1 million. Program revenues were comprised of interest income (approximately 30 percent), grants and contributions (6 percent),
revenue from the general lease program (47 percent), and other sources (17 percent).

As of June 30, 2020, total assets of $995 million exceeded total liabilities of $97 million, resulting in a net position balance of $898 million. Total assets included net capital assets of $465 million, cash of $397 million, loans receivable of $94 million, and other assets and deferred outflows of  resources of $39 million. Loans receivable consisted of 1,346 loans made to native Hawaiian lessees for the purposes specified in the Hawaiian Homes Commission Act. Loans are for a maximum amount of approximately $453,000 and for a maximum term of 30 years. Interest rates on outstanding loans range up to 10 percent. Total liabilities included notes, bonds, and capital lease obligations totaling $47 million and temporary deposits payable and other liabilities of $50 million.

Auditors’ Opinion

DHHL RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DHHL also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES IN INTERNAL CONTROL over financial reporting that are considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that are considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Department

 

The Hawaiian Homes Commission Act sets aside certain public lands as Hawaiian home lands to be utilized in the rehabilitation of native Hawaiians.  These public lands are managed by the Department of Hawaiian Home Lands (DHHL), a state agency headed by the Hawaiian Homes Commission, whose primary responsibilities are to serve its beneficiaries and to manage this extensive land trust.  DHHL provides direct benefits to native Hawaiians in the form of 99-year homestead leases at $1 per year for residential, agricultural, or pastoral purposes, and financial assistance through direct loans, insured loans, or loan guarantees for home purchase, construction, home replacement, or repair.  In addition to administering the homesteading program, DHHL leases trust lands not in homestead use at market value and issues revocable permits, licenses, and rights-of-entry.  Its financial statements include the public trusts controlled by the Hawaiian Homes Commission.

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Financial and Compliance Audit of the Department of Hawaiian Home Lands
04/01/2021

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AUDITOR’S SUMMARY

This report assesses certain tax exemptions and exclusions from Hawai‘i’s General Excise Tax (GET). Section 23-71 et seq., Hawai‘i Revised Statutes (HRS), requires the Auditor to annually review different tax exemptions, exclusions, and credits on a 10-year recurring cycle.

As described by the Department of Taxation (DoTax), Hawai‘i’s GET and Use Tax, combined, apply to nearly all business activities in the state. In fiscal year 2020, which ended June 30, 2020, GET and Use Tax revenues accounted for $3.36 billion, or 49 percent of the total tax revenue of 
$6.89 billion. Those amounts predate the current COVID-19 pandemic, which has significantly impacted public health and the State’s economy, while simultaneously resulting in sharp reductions in GET and Use Tax revenue.

This report reviews a total of nine tax provisions – seven GET exemptions and two GET exclusions. While DoTax collects data on seven of these tax provisions, our ability to report information about three of them was restricted by DoTax’s policy prohibiting disclosure of information, even in aggregated form, when there are a limited number of taxpayers. The current policy is to exclude disclosure when there are five or fewer claims for an exemption, or when an individual return represents a large percentage of the tabulation.

We note we were required to analyze an exemption for amounts received by TRICARE-managed care support contractors. However, that exemption was repealed on December 31, 2018. We, therefore, did not review that exemption.

We also note that the GET exemption relating to cooperative housing corporations is related to an exemption for reimbursements to associations of owners of condominium property regimes or nonprofit homeowners or community associations, which we are not scheduled to analyze until 2024. However, because DoTax does not segregate data relating to these two exemptions, we report the exemptions’ aggregated numbers in this report.

Overall, we found there was insufficient data to determine whether six of the seven exemptions reviewed are meeting their stated or inferred purposes. As we note in the report, making conclusions as to whether purposes have been met is extremely difficult where amounts claimed are not tracked or where no benchmarks or metrics are provided. We also found that one exemption for amounts received by a patient-centered community care contractor used to pay third-party health care providers pursuant to a contract with the United States is likely being erroneously or improperly claimed by some taxpayers.


In fiscal year 2020, which ended June 30, 2020,

GET and Use Tax revenues accounted

for $3.36 billion, or 49 percent of the

total tax revenue of $6.89 billion.


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21-07, Review of General Excise and Use Tax Exemptions and Exclusions Pursuant to Section 23-73, Hawai‘i Revised Statutes
03/31/2021

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AUDITOR’S SUMMARY

Report 21-06

This report assesses the Motion Picture, Digital Media, and Film Production Income Tax Credit and the Renewable Energy Technologies Income Tax Credit. Section 23-91 et seq., Hawai‘i Revised Statutes, requires the Auditor to annually review different tax credits, exclusions, and deductions on a five-year recurring cycle.

In 2018, Hawai‘i’s tax laws contained 21 tax credits, totaling $341.93 million, according to a December 2020 report by the Hawai‘i Department of Taxation (DoTax). More than forty-four percent of that amount was attributed to the tax credits reviewed in this report. The Motion Picture, Digital Media, and Film Production Income Tax Credit was the State’s costliest tax credit with $80.23 million in claims, followed by the Renewable Energy Technologies Income Tax Credit with $70.5 million in claims.

The Motion Picture, Digital Media, and Film Production Income Tax Credit reduces the taxpayer’s income tax liability by the amount of the tax credit. The tax credit is based on “qualified production costs,” which are costs incurred in the State by a production that is subject to the Hawai‘i GET or income tax. We determined that the purpose of this credit is to encourage the growth of the State’s film and creative media industries by keeping Hawai‘i competitive and comparable to other jurisdictions that offer tax breaks to attract productions, which generate tax revenue, jobs, and tourism marketing exposure. We noted several challenges to conducting an accurate cost-benefit analysis of this credit, including the impact of “free-riders,” i.e., productions that would have filmed in Hawai‘i irrespective of the credit.

In 2018, 25 qualified productions incurred $425.53 million in qualified production costs and claimed tax credits of $80.23 million, according to DoTax.

The Renewable Energy Technologies Income Tax Credit provides tax credits for expenses relating to renewable energy technologies, including solar energy systems and wind-powered energy systems installed by individuals and businesses. The single-family solar thermal (water heater) tax credit cap is $2,250 per system; the wind-powered commercial property tax credit cap is $500,000 per system; the single-family photovoltaic (PV) system tax credit cap is $5,000 per system; and the commercial property photovoltaic systems tax credit cap is $500,000 per system. Based on the legislative history, we determined that, generally, the purpose of the credit is to reduce the State’s dependence on imported oil for electricity generation by encouraging private investment in renewable energy systems.

According to DoTax, 7,337 individuals and 77 corporations claimed the tax credit in 2018, totaling $70.5 million.

Overall, we found both tax credits appear to be achieving certain aspects of their stated purposes, but concrete conclusions cannot be drawn until the Legislature identifies metrics or benchmarks to measure achievement. As noted throughout the report, although we were able to identify purposes for the provisions reviewed, we had no objective means to assess whether those provisions were achieving their respective purposes. We recommend the Legislature clearly articulate purposes and establish specific metrics for measuring effectiveness for each tax credit. Clearly stated purposes for each tax credit and metrics for us to assess performance against specific targeted outcomes will permit a more thorough and meaningful analysis of the 
tax credits.

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Review of Income and Financial Institutions Tax Credits Pursuant to Section 23-92, Hawai‘i Revised Statutes
03/18/2021

PHOTO: O‘AHU METROPOLITAN PLANNING ORGANIZATION

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the O‘ahu Metropolitan Planning Organization, as of and for the fiscal year ended June 30, 2020, 
and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, OahuMPO reported total revenues of approximately $2.2 million and total expenses of approximately $2.2 million, resulting in minimal change in net position. Revenues consisted of $1.76 million from federal grants and $439,000 in contributions from the State of Hawai‘i and City and County of Honolulu.

Total expenses consisted of (1) $147,000 for transportation forecasting and long-range planning, (2) $218,000 for short-range transportation system and demand management planning, (3) $37,000 for transportation monitoring and analysis, (4) $254,000 for emergency management, and (5) $1.57 million for program coordination and administration.

As of June 30, 2020, total assets exceeded total liabilities by $511,000. Total assets of $1.8 million included cash of $504,000 and receivables and other assets of $1.3 million.

Auditors’ Opinion

OahuMPO RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. OahuMPO received an unqualified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that are considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance. Findings identified in the prior year audit have been resolved.

About the Organization

Federal highway and transit statutes require urbanized areas greater than 50,000 in population to designate a metropolitan planning organization as a condition for spending Federal highway or transit funds. O‘ahu Metropolitan Planning Organization (OahuMPO) is the designated metropolitan planning organization for the island of O‘ahu. OahuMPO was established by agreement between the Governor of the State of Hawai‘i and the Chairperson of the City Council of the City and County of Honolulu and serves as the decision making body responsible for carrying out continuing, comprehensive, and cooperative transportation planning and programming for the island of O‘ahu.

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Financial and Compliance Audit of the O‘ahu Metropolitan Planning Organization
03/18/2021

PHOTO: OFFICE OF THE AUDITOR

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Administration Division, as of and for the fiscal year ended June 30, 2020, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Egami & Ichikawa, Certified Public Accountants, Inc.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, DOT–Administration reported total revenues of $34.1 million, total expenses of $26.7 million, and transfers to other DOT divisions of $6.6 million, resulting in an increase in net position of $800,000. The transfers relate to unencumbered cash balances related to assessment revenues from those divisions. Revenues consisted of $22.4 million from assessments, $10 million from federal grants, and $1.7 million from other revenue sources.

Total expenses of $26.7 million consisted of $10.4 million for operating grants and $16.3 million for administration.

As of June 30, 2020, total assets of $27.7 million were comprised of (1) cash of $19 million, (2) accounts receivable of $7.1 million, and (3) net capital assets of $1.6 million. Liabilities totaled $17.9 million, including a $2.2 million Aloha Tower Development Corporation note payable to the Harbors Division.

Auditors’ Opinion

DOT-ADMINISTRATION RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT–Administration also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

Audit reports for the Department’s Airports Division, Harbors Division, and Highways Division are available on our website.

About the Division

 

Four divisions (Airports, Harbors, Highways, and Administration) make up the State’s Department of Transportation. The Administration Division (DOT–Administration) consists of the Office of the Director of Transportation, the Statewide Transportation Planning Office, and Departmental Staff Services Offices. Collectively, these offices provide overall administrative support for the Department of Transportation. The financial statements for the Division reflect the financial activities of DOT–Administration and the Aloha Tower Development Corporation, which is attached to the Department for administrative purposes. DOT–Administration receives a percentage of the Airports, Harbors, and Highways Divisions’ state-allotted appropriations to cover general administration expenses. The Department’s Statewide Transportation Planning Office administers certain Federal Transit Administration and Federal Highway Administration grants.

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Financial and Compliance Audit of the Department of Transportation, Administration Division
03/03/2021

AUDITOR’S SUMMARY

Fifty-one funds proposed in 2021 did not meet criteria

We reviewed 75 House and Senate bills proposing 51 special and revolving funds during the 2021 legislative session of which none met criteria.

ONLY ABOUT HALF OF THE MONEY the State spends each year comes from its main financial account, the general fund. The other half of expenditures are financed by special, revolving, federal, and trust funds. Between 2008 and 2012, the number of these non-general funds and the amount of money contained in them substantially increased. Much of that upward trend had been caused by an increase in special funds, which are funds set aside by law for a specified object or purpose.

In 2013, the Legislature amended Section 23-11, Hawai‘i Revised Statutes (HRS), after the Auditor recommended changes to stem a trend in the proliferation of special and revolving funds over the past 30 years. Such funds erode the Legislature’s ability to control the State budget through the general fund appropriation process. General funds, which made up about two-thirds of State operating budget outlays in the late 1980s, had dwindled to about half of outlays.

By 2011, special funds amounted to $2.48 billion, or 24.3 percent, of the State’s $10.2 billion operating budget. Also ballooning were revolving funds, which are used to pay for goods and services and are replenished through charges to users of the goods and services or transfers from other accounts or funds. By 2011, revolving funds made up $384.2 million, or 3.8 percent, of the State’s operating budget. Further hampering the Legislature’s control over the budget process was a 2008 court case. In Hawai‘i Insurers Council v. Linda Lingle, Governor of the State of Hawai‘i, the Hawai‘i Supreme Court determined that under only certain conditions could the Legislature “raid” special funds to balance the State budget.  In 2013, in order to gain more control over the budget process, the Legislature built new safeguards into the criteria for establishing special funds.

We reviewed 75 House and Senate bills proposing 51 special and revolving funds during the 2021 legislative session. None satisfied the criteria set forth in Section 23-11, HRS, for proposed special and revolving funds. References to House Draft and Senate Draft versions reflect bill status at the time of our review.

The Criteria

SECTION 23-11, HRS,
requires the Auditor to analyze all bills proposing to establish new special or revolving funds according to the following criteria:

1. The need for the fund, as demonstrated by:

  • The purpose of the program to be supported by the fund;
  • The scope of the program, including financial information on fees to be charged, sources of projected revenue, and costs; and
  • An explanation of why the program cannot be implemented successfully under the general fund appropriation process; and

2. Whether there is a clear nexus between the benefits sought and charges made upon the program users or beneficiaries or a clear link between the program and the sources of revenue, as opposed to serving primarily as a means to provide the program or users with an automatic means of support that is removed from the normal budget and appropriation process.

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21-04, Proposed Special and Revolving Fund Analyses
02/12/2021

Photo: Office of the Auditor

Auditor’s Summary

 

Thirteen funds did not meet criteria

WE REVIEWED 70 FUNDS AND ACCOUNTS administered by the Department of Health (DOH) and its administratively attached agency, the Hawai‘i Health Systems Corporation (HHSC) – specifically, 45 special funds, 5 revolving funds, 9 trust funds, and 11 trust accounts. We found 7 special funds, 1 revolving fund, 3 trust funds, and 2 trust accounts did not meet criteria. We recommended 7 special funds be repealed or closed, including one special fund that HHSC believes should be removed from the State’s Financial Accounting and Management Information System (FAMIS). 

We also recommended that the revolving fund be reclassified to a special fund, the trust accounts reclassified to trust funds, and 1 trust fund be reclassified to a trust account. Lastly, we recommended that DOH reevaluate and reclassify two trust funds because multiple programs, with distinct purposes, intents, and uses, appear to be operating out of 
these funds.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of DOH’s revolving funds, trust funds, and trust accounts, and our second review of DOH’s special funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall

WE NOTED THAT DOH AND HHSC did not file statutorily required reports for non-general funds totaling approximately $62.3 million and administratively created non-general funds totaling approximately $57.1 million (although HHSC asserts that the approximately $49.9 million cash balance in the Hawai‘i Health Systems Corporation FAMIS account is a recording error that it is working to reverse). Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds and provide increased budgetary flexibility.

Agency response

DOH DISAGREED WITH OUR CONCLUSION that three special funds did not satisfy the clear nexus/clear link criterion required by statute, and provided comments. Specifically, DOH provided additional information about the programs and expenditures related to the Community Health Centers Special Fund, the Domestic Violence and Sexual Assault Special Fund, and the Hawai‘i Birth Defects Special Fund. We find this additional information does not address our concern that the funds do not either reflect a clear nexus between the benefits sought and the charges made upon the program users or beneficiaries, or a clear link between the program and the sources of revenue. We reached the same conclusions in our last review of DOH’s funds, Report No. 15-17, and maintain our analysis of these funds was appropriate and correct based upon the information DOH provided to us during the current review.

DOH also questioned the basis for our recommendations related to three funds and accounts: the Environmental Response Revolving Fund; the Mai‘ili‘ili Supplemental Environmental Project Fund; and the Trust Fund for Non-Diseased Children of H.D. Patients, Charles A. Brown Trust. We believe the fund definitions provided by statute and the descriptions of the funds in question, which were based on DOH’s own questionnaire responses, adequately support our conclusions that these funds should be reclassified. DOH did not provide any additional information that supports or otherwise justifies amending our recommendations.

As to its reporting shortfall, DOH acknowledged that certain funds and accounts were not submitted to the Legislature due in part to staff turnover, and is working to correct the oversight.

HHSC generally agreed with our recommendations. However, as to its reporting shortfall, HHSC asserted that the Health Systems Special Fund cash balance was reported as part of a larger consolidated cash balance that included but was not limited to the 15 accounts associated with the Health Systems Special Fund. HHSC also acknowledged that it does not file a separate administratively established fund report but will do so going forward.

FUND TYPES

SPECIAL FUNDS are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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21-03, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Health
02/04/2021

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AUDITOR’S SUMMARY

Financial and Compliance Audit, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, Water Pollution Control Revolving Fund, as of and for the fiscal year ended June 30, 2020, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards and the Environmental Protection Agency Audit Guide for Clean Water and Drinking Water State Revolving Fund Programs (Program). The audit was conducted by KMH LLP. 


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, the Revolving Fund reported total revenues of $18.3 million and total operating expenses of $5.1 million, resulting in an increase in net position of $13.2 million. Total revenues consisted of (1) administrative loan fees of $2.4 million, (2) interest income of $1.2 million, (3) state contributions of $2.5 million, (4) federal contributions of $8.9 million, and (5) other income of $3.3 million. Total expenses of $5.1 million consisted of administrative expenses of $2.7 million and other expenses of $2.4 million.

 

As of June 30, 2020, total assets and deferred outflows of resources were $558 million and total liabilities and deferred inflows of resources were $8.2 million. Total assets were comprised of (1) cash and cash equivalents of $97.8 million, (2) loans receivable of $457.1 million, and (3) other assets and deferred outflows of resources of $3.1 million. Total liabilities were comprised of (1) net other post-employment benefits liability of $3.7 million, (2) net pension liability of $4 million, and (3) other liabilities and deferred inflows of resources of $500,000.

 

Auditors’ Opinion

THE REVOLVING FUND RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. The Revolving Fund also received an unqualified opinion on its compliance with federal statutes, regulations, and terms and conditions of federal awards that apply to the Program.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance with the Program.

About the Fund

 

The federal Clean Water State Revolving Fund provides low-cost infrastructure financing for public water quality infrastructure projects. Moneys earmarked for Hawai‘i are deposited into the State’s Water Pollution Control Revolving Fund (the Revolving Fund) and are used to provide loans in perpetuity to county and state agencies for the construction of wastewater treatment facilities and other non-point source projects. Loans may be at or below market interest rates and be fully amortized for a period not to exceed twenty years. Under the federal Clean Water Act of 1987, from 1989 to 1994, the State of Hawai‘i received more than $72 million in capitalization grants. The State continues to receive capitalization grants annually from the U.S. Environmental Protection Agency. The Revolving Fund is administered by the State of Hawai’i Department of Health’s Environmental Management Division, Wastewater Branch.

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Financial and Compliance Audit of the Department of Health, Water Pollution Control Revolving Fund
02/03/2021

PHOTO: ALOHA STADIUM

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Stadium Authority, as of and for the fiscal year ended June 30, 2020. The audit was conducted by N&K CPAs. 


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, the Authority reported total revenues of $6.9 million and total expenses of $13.5 million, resulting in a net loss of $6.6 million. Revenues consisted of (1) $3.7 million from rentals from attractions, (2) $1.5 million from food and beverage concessionaire commissions, (3) $900,000 in parking fees, and (4) $800,000 in advertising and other revenues. The Authority’s net loss was partially offset by $9 million in capital contributions, which represents the portion of Aloha Stadium capital improvement costs that were paid by the State of Hawai‘i.

Expenses consisted of (1) $4.5 million for depreciation, (2) $5.3 million for personnel services, (3) $1.1 million for utilities, and (4) $400,000 for repairs and maintenance. Additional expenses totaled $2.2 million and included state central services assessments as well as security, professional services, and other costs.

 

As of June 30, 2020, total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources, resulting in a net position of $86.7 million. Of this amount, $94.6 million was invested in capital assets, $100,000 was restricted, and there is an unrestricted net deficit of $7.9 million. The agency reported total assets and deferred outflows of resources of $101.9 million, comprised of (1) cash of $5.3 million, (2) receivables, other assets, and deferred outflows of resources of $2 million, and (3) net capital assets of $94.6 million. The agency reported total liabilities and deferred inflows of resources of $15.2 million, comprised of (1) net pension liability of $6.4 million, (2) vacation and other retirement payables of $7.1 million, and (3) other liabilities and deferred inflows of resources of $1.7 million.

 

Auditors’ Opinion

THE AUTHORITY RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO SIGNIFICANT DEFICIENCIES in internal control over financial reporting that would have required reporting under Government Auditing Standards. The auditors identified one material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. The material weakness is described on page 53 of the report which found $1.2 million in unrecorded capital additions and related capital contributions for the fiscal year ended June 30, 2020.

There were no instances of noncompliance or other matters required to be reported under Government Auditing Standards.

Going Concern Consideration

THE REPORT NOTES that due to the impact of the COVID-19 pandemic and the related emergency proclamations and emergency orders issued by the Governor, the Authority has substantial doubt about its ability to continue as a going concern for the 12-month period following the date of the issuance of the financial statements. The Authority has implemented cost saving measures in response to the conditions that have arisen due to COVID-19. The financial statements do not include any adjustments that might result from the outcome of this uncertainty, and the auditors’ opinion is not modified with respect to this matter.

About the Authority

 

The Stadium Authority (Authority) was established in 1970 and is responsible for the operation, management, and maintenance of Aloha Stadium, located in Honolulu, Hawai‘i. The Authority functions under the direction of a nine-member board, appointed by the Governor. In addition, the president of the University of Hawai‘i and the superintendent of the Hawai‘i Department of Education are nonvoting ex-officio members of the board. For administrative purposes, the Authority is placed within the State of Hawai‘i’s Department of Accounting and General Services.

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Financial Audit of the Stadium Authority
02/03/2021

PHOTO: ISTOCK.COM

AUDITOR’S SUMMARY

Financial and Compliance Audit, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Health, Drinking Water Treatment Revolving Loan Fund, as of and for the fiscal year ended June 30, 2020, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards and the Environmental Protection Agency Audit Guide for Clean Water and Drinking Water State Revolving Fund Programs. The audit was conducted by KMH LLP. 


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, the Revolving Fund reported total revenues of $20.5 million and total operating expenses of $6.1 million, resulting in a change in net position of $14.4 million. Total revenues consisted of (1) administrative loan fees of $2.4 million, (2) federal contributions of $14.8 million, (3) state contributions of $2.2 million, and (4) other income of $1.1 million. Total expenses consisted of (1) administrative expenses of $2.1 million, (2) state program management of $700,000, (3) water protection of $500,000, and (4) other expenses of $2.8 million.

 

As of June 30, 2020, total assets and deferred outflows of resources were $230.3 million and total liabilities and deferred inflows of resources were $6.8 million. Total assets were comprised of (1) cash and cash equivalents of $23.8 million, (2) loans receivable of $203.6 million, and (3) other assets and deferred outflows of resources of $2.9 million. Total liabilities were comprised of (1) net other post-employment benefits liability of $2.8 million, (2) net pension liability of $2.7 million, and (3) other liabilities and deferred inflows of resources of $1.3 million.

 

Auditors’ Opinion

THE REVOLVING FUND RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. The Revolving Fund also received an unqualified opinion on its compliance with the Drinking Water State Revolving Funds Program (Program).

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance with the Program.

About the Fund

 

The Safe Drinking Water Act was originally passed by Congress in 1974 to protect public health by regulating the nation’s public drinking water supply. The law was amended in 1996 to provide funding for water system improvements. In 1997, the Hawai‘i State Legislature established the Drinking Water Treatment Revolving Loan Fund (Revolving Fund) to receive federal capitalization grants from the U.S. Environmental Protection Agency. The Revolving Fund is used to provide loans in perpetuity to public drinking water systems for construction of drinking water treatment facilities. Such loans may be at or below market interest rates and must be fully amortized within twenty years. The Revolving Fund is administered by the State of Hawai‘i Department of Health’s Environmental Management Division, Safe Drinking Water Branch.

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Financial and Compliance Audit of the Department of Health, Drinking Water Treatment Revolving Loan Fund
01/29/2021

PHOTO: HAWAII TOURISM AUTHORITY / TOR JOHNSON

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Tourism Authority, as of and for the fiscal year ended June 30, 2020. The audit was conducted by Accuity LLP. 


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, HTA reported total revenues of $89 million, along with $5 million in transfers from other state departments, and total expenses of $88 million. Revenues consisted of $79.6 million from TAT, $6.7 million from charges for services, and interest and other revenues of 
$2.7 million.

 

Total expenses of $88 million consisted of $75.6 million for contracts, $7.5 million for depreciation, and $4.9 million for payroll, administrative, and other expenses.

As of June 30, 2020, total assets and deferred outflows of resources of $325.9 million exceeded total liabilities and deferred inflows of resources of $15.9 million, resulting in a net position of $310 million. Total assets and deferred outflows of resources included (1) cash of $101.8 million, (2) investments of $2 million, (3) land and net capital assets of $194.9 million, and (4) other assets and deferred outflows of resources of $27.2 million.

 

Auditors’ Opinion

HTA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Special-Purpose Financial Statements for the Hawai‘i Convention Center, as of and for the year ended December 31, 2020, will issue in July.

About the Authority

 

The Hawai‘i Tourism Authority (HTA) was established “by the 1998 Legislature to serve as the State’s lead agency for strategically managing tourism. State law requires HTA to develop a tourism marketing plan that includes statewide promotional efforts and programs, targeted markets, and other marketing efforts with measures of effectiveness and documentation of the Authority’s progress toward strategic plan goals. HTA is also responsible for the Hawai‘i Convention Center. The primary source of funding for HTA’s operations is the Transient Accommodations Tax (TAT) collected by the State. HTA is governed by a board of directors comprised of 12 voting members, each of whom is appointed by the Governor, and is placed within the Department of Business, Economic Development and Tourism for administrative purposes.

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Financial Audit of the Hawai‘i Tourism Authority
01/28/2021

Photo: Hawai‘i Housing Finance and Development Corporation

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Housing Finance and Development Corporation, as of and for the fiscal year ended June 30, 2020, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Accuity LLP.

Financial Highlights

HHFDC HAS TWO TYPES of funds – governmental funds and proprietary funds. HHFDC’s governmental funds are supported primarily by appropriations from the State’s General Fund, federal grants, and proceeds of the State’s general obligation bonds allotted to HHFDC. HHFDC’s governmental funds include (1) the General Fund, (2) the HOME Investment Partnership Program, (3) the Housing Trust Fund Program, (4) the General Obligation Bond Fund, and (5) the Tax Credit Assistance Program Fund.

HHFDC’s proprietary funds operate similar to business-type activities and are used to account for those activities for which the intent of management is to recover (primarily through user charges) the cost of providing services to customers. HHFDC’s proprietary funds include (1) the Rental Housing Revolving Fund, (2) the Dwelling Unit Revolving Fund, (3) the Single Family Mortgage Purchase Revenue Bond Fund, (4) the Grants in Aid Fund, and (5) several other non-major enterprise funds.

For the fiscal year ended June 30, 2020, HHFDC reported total program revenues of $69.2 million and total program expenses of $273 million. In addition, HHFDC reported state allotted appropriations, net of lapses, of $119.1 million for the fiscal year ended June 30, 2020. Together with program revenues and expenses, this resulted in an overall decrease in net position of $84.7 million.

As of June 30, 2020, the agency reported total assets and deferred outflows of resources of $1.5 billion, comprised of (1) cash of $650.6 million, (2) investments of $40 million, (3) notes and loans receivable of $624 million, (4) moneys due from the state of $4.6 million, (5) net capital assets of $96.4 million, and (6) other assets and deferred outflows of resources of $80.9 million. The agency reported total liabilities and deferred inflows of resources of $351.9 million, comprised of (1) revenue bonds payable of $16.4 million, (2) unearned income of $21.5 million, (3) estimated future costs of development of $36.7 million, (4) moneys due to other state departments of $248.7 million, and (5) other liabilities and deferred inflows of resources of $28.6 million.

Auditors’ Opinion

HHFDC RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. HHFDC also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

There were no reported deficiencies in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance that are required to be reported under the Uniform Guidance.

About the Corporation

 

The Hawai‘i Housing Finance and Development Corporation (HHFDC) was established by the State Legislature in 2006. Its mission is to increase the supply of workforce and affordable homes by providing tools and resources to facilitate housing development, such as housing tax credits, low-interest construction loans, equity gap loans, and developable land and expedited land use approvals. The agency is administratively attached to the Hawai‘i Department of Business, Economic Development and Tourism.

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Financial and Compliance Audit of the Hawai‘i Housing Finance and Development Corporation
01/27/2021

PHOTO: DEPARTMENT OF LAND AND NATURAL RESOURCES

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Land and Natural Resources, as of and for the fiscal year ended June 30, 2019. The audit was conducted by N&K CPAs, Inc.


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, DLNR reported total revenues of $210.6 million, along with $5 million in transfers from other state departments, and total expenses and transfers of $201.4 million, resulting in an increase in net position of $9.2 million. Revenues consisted of (1) $93.7 million from State appropriations, net of lapses, (2) $49.2 million from charges for services, (3) $38.1 million from operating grants and contributions, (4) $16.9 million from nonimposed employee fringe benefits, (5) $300,000 from capital grants, and (6) $12.4 million from taxes, interest, and other income.

Total expenses and transfers of $201.4 million consisted of (1) $73.5 million for environmental protection, (2) $65.2 million for cultural and recreation, (3) $24.6 million for economic development, (4) $10.4 million for government-wide support, (5) $7 million for individual rights, and (6) $5 million for public safety. Total transfers out amounted to $15.7 million.

As of June 30, 2019, total assets of $831.4 million exceeded total liabilities of $81.1 million by $750.3 million. Total assets included cash of $306.7 million, receivables of $4.9 million, and land and net capital assets of $519.8 million. Total liabilities included vouchers and accrued payables of $28.6 million, amounts due to the State of $11.7 million, general obligation bonds payable of $34.6 million, and unearned revenues of $6.2 million.

Auditors’ Opinion

DLNR RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THE AUDITORS IDENTIFIED four material weaknesses in internal control over financial reporting that are required to be reported in accordance with Government Auditing Standards. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. The material weaknesses are described on pages 72-79 of the report. The department’s corrective action plan can be found on pages 81-83.

There were no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Department

 

The Department of Land and Natural Resources’ (DLNR) mission is to enhance, protect, conserve, and manage Hawai’i’s unique and limited natural, cultural and historic resources held in public trust for current and future generations of the people of Hawai’i. DLNR manages and administers the State’s parks, historical sites, forests, forest reserves, fisheries, wildlife sanctuaries, game management areas, public hunting areas, and natural area reserves and is responsible for nearly 1.3 million acres of state lands, beaches, and coastal waters as well as 750 miles of coastline. DLNR is headed by the Board of Land and Natural Resources.

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Financial Audit of the Department of Land and Natural Resources
01/26/2021

ILLUSTRATION: ISTOCK.COM

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the State of Hawai‘i’s financial statements, as presented in the Comprehensive Annual Financial Report (CAFR) for the State of Hawai‘i, as of and for the fiscal year ended June 30, 2020. The audit was conducted by Accuity LLP. The CAFR was issued on December 30, 2020.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, total revenues were $14.5 billion and total expenses were $15.5 billion, resulting in a decrease in net position of $1 billion. Approximately 52 percent of the State of Hawai‘i’s total revenues came from taxes of $7.6 billion, 26 percent from grants and contributions of $3.7 billion, and 22 percent from charges for various goods and services of $3.2 billion.

Total tax revenues of $7.6 billion consisted of general excise taxes of $3.7 billion, net income taxes of $2.7 billion, and other taxes of $1.2 billion.

The largest expenses were for welfare at $3.7 billion, lower education at $3.6 billion, higher education at $1.1 billion, health at $1.1 billion, and general government at $1.1 billion. Other expenses totaled $4.9 billion.

As of June 30, 2020, total liabilities and deferred inflows of resources of $28.6 billion exceeded total assets and deferred outflows of resources of $25.4 billion, resulting in a negative net position of $3.2 billion. Of this amount, $5.1 billion was for the State’s net investment in capital assets, $4 billion was restricted for specific programs, and a negative $12.3 billion 
was unrestricted assets.

As of June 30, 2020, total assets and deferred outflows of resources of $25.4 billion were comprised of (1) net capital assets of $14.8 billion, (2) investments of $3.1 billion, (3) cash of $1.8 billion, (4) receivables of $1.8 billion, (5) restricted assets of $1.1 billion, and (6) other assets and deferred outflows of resources of $2.8 billion. Total liabilities and deferred inflows of resources of $28.6 billion were comprised of (1) general obligation and revenue bonds payable of $10.6 billion, (2) vacation and retirement benefits of $14.5 billion, and (3) other liabilities and deferred inflows of resources of $3.5 billion.

Auditors’ Opinion
THE STATE OF HAWAI‘I RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

About the State

 

THE STATE OF HAWAI‘I is mandated by statute to provide a range of services in the areas of education (both lower and higher), welfare, transportation (including highways, airports, and harbors), health, hospitals, public safety, housing, culture and recreation, economic development, and conservation of natural resources.

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Financial Audit of the Comprehensive Annual Financial Report of the State of Hawai‘i
01/19/2021

Photo: Department of Human Services

Auditor’s Summary

 

Six funds did not meet criteria

WE REVIEWED 41 FUNDS AND ACCOUNTS administered by the Department of Human Services (DHS) and its administratively attached agency, the Hawai‘i Public Housing Authority (HPHA) – specifically, 15 special funds, 8 revolving funds, 7 trust funds, and 11 trust accounts. We found 1 special fund, 3 revolving funds, 1 trust fund, and 1 trust account did not meet criteria. We recommended the special fund, the trust fund, and one revolving fund be closed because they no longer serve the purpose for which they were originally established. We also recommended that the trust account be reclassified to a trust fund and one revolving fund be reclassified to a special fund. Lastly, we recommended that one revolving fund be repealed because it is not financially self-sustaining.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of the DHS’ revolving funds, trust funds, and trust accounts, and our second review of the DHS’ special funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall

WE NOTED THAT DHS AND HPHA did not file statutorily required reports for non-general funds totaling approximately $12.6 million and administratively created non-general funds totaling approximately $5.6 million. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds and provide increased budgetary flexibility.

Agency response

DHS LARGELY AGREED with our conclusions and plans to implement our recommendations as soon as practical.

DHS disagreed with our conclusion that the Public Housing Revolving Fund should be reclassified to a special fund. A revolving fund is a fund from which is paid the cost of goods and services rendered or furnished to or by a state agency and which is replenished through charges made for the goods or services. Revenues for the fund include all moneys received or collected by HPHA, that are not otherwise pledged. As such, we maintain our analysis of this fund was appropriate and correct based upon the information DHS provided to us during the review process and fund definitions provided in statute.

DHS also disagreed with our conclusion that the State Low-Income Housing Revolving Fund should be repealed. Revolving funds must demonstrate the capacity to be financially self-sustaining. This fund’s expenditures exceeded revenues in four of the five years under review and the fund required general fund support in FY2019 and FY2020. DHS’ response did not provide information that supports or otherwise justifies amending our conclusion that the fund is not financially self-sustaining.

FUND TYPES

SPECIAL FUNDS are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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21-02, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Human Services
01/14/2021

Photo: Office of the Auditor

Auditor’s Summary

 


THE HAWAI‘I STATE LEGISLATURE
created the Agribusiness Development Corporation (ADC) in 1994 amidst a series of sugar and pineapple plantation closures that lawmakers viewed as “an unprecedented opportunity for the conversion of agriculture into a dynamic growth industry.” Projecting that the downsizing of sugar and pineapple production would free up 75,000 acres of agricultural land and 50 million gallons of water daily over the next decade, the Legislature established ADC as a public corporation tasked with developing an “aggressive and dynamic” agribusiness development program to convert former plantation assets for use by new large-scale commercial enterprises producing the majority of their crops for export.

What we found

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. After almost 30 years, ADC has yet to develop an agribusiness plan – a plan required by statute – to define and establish goals, objectives, policies, and priority guidelines for its agribusiness development strategy or other short- and long-range strategic plans.

Instead of leading the State’s agricultural transformation, ADC primarily manages 4,257 acres of land it started acquiring in 2012 at the direction of the Legislature as well as the Waiāhole Water System on O‘ahu. Yet, we found that the corporation struggles to manage its lands, challenged by the myriad duties required for effective land management. For instance, a preferred anchor tenant had occupied ADC land for years without a formal, written agreement. We saw evidence of the tenant’s farming activity during an October 2019 site visit, roughly two weeks before ADC finally executed a license agreement with terms retroactive to 2016. That tenant also had provided services in exchange for rent credits, building reservoirs and paving roads used by other ADC tenants. But, ADC did not follow the state procurement process when authorizing the work nor did it document, monitor, or track the services, labor, or materials the tenant provided. In fact, the Executive Director acknowledged that ADC had opted to take the tenant’s “word” on the services provided, the costs incurred, and the materials used.

Finally, we found that ADC’s Board of Directors, as the head of the corporation, has provided minimal guidance and oversight of ADC’s operations. Rather than taking an active role in developing agribusiness policies, establishing short- and long-term strategic plans, and charting the corporation’s direction, the Chairperson and Vice-Chairperson believe that the Board’s responsibility is to address whatever business is brought before it by the Executive Director. And, as a result of the Board’s abdication of its policy-making and oversight responsibilities, ADC has yet to provide the necessary leadership to facilitate the transition of agricultural lands and infrastructure from plantation operations into other agricultural enterprises that it was intended to provide after almost 30 years since its creation.

Why did these problems occur?

ADC – both its Board of Directors and its staff – does not understand the corporation’s overarching purpose, a mission that has remained unchanged since its creation in 1994 and is clearly stated in statute: ADC was established “as a public corporation to administer an aggressive and dynamic agribusiness development program” to replace the economic loss caused by the closure of Hawai‘i’s sugar and pineapple plantations. The Legislature intended the corporation “to facilitate the transition of agricultural infrastructure from plantation operations into other agricultural enterprises, to carry on the marketing analysis to direct agricultural industry evolution, and to provide leadership for the development, financing, improvement, or enhancement of agricultural enterprises.” And, ADC was granted powers and exemptions unique in Hawai‘i state government that afford the corporation unrivaled flexibility to bring former plantation lands back into production “in a timely manner.” However, as with its primary statutory mission, the corporation is generally unaware of those powers and how they can be used to develop a diversified agriculture industry for Hawai‘i.

ADC has failed to prepare a Hawai‘i agribusiness plan – which is required under Chapter 163D, Hawai‘i Revised Statutes – that would define and establish the goals, objectives, policies, and priority guidelines for the corporation’s agribusiness development strategy. The Executive Director thinks such a plan is unnecessary: “I have everything up here,” he said, pointing to his head. In lieu of a written strategic plan, short-term or long-term, ADC gave us a “project matrix” that looked like a to-do list of 85 tasks ranging from lawn mowing to acquiring property.

Limited participation from ADC’s Board of Directors compounds the corporation’s challenges. Board members receive no orientation or training and offer ADC’s management and staff little meaningful oversight or direction, primarily considering matters that the Executive Director chooses to bring before them or getting involved in day-to-day staff-level work. The Board has not set goals or performance measures for the Executive Director to fulfill and has not held him accountable for neglecting statutory requirements such as preparing the agribusiness plan or conducting market research.

We had difficulty pinpointing exactly why ADC struggles with managing the lands it has acquired since 2012, in part because the corporation’s recordkeeping and filing system are in disarray. Documents were piled under desks and kept wherever space allowed. Staff hastily assembled tenant files after we requested them, but the files they provided were disorganized and often missing important documents, such as board approvals, license agreements, and proof of insurance. When we requested documents we believed would be essential to the day-to-day operations of a corporation that manages land and properties – such things as land management policies, land acquisition guidelines, inventories of land holdings, tenant listings, and rent rolls – we were informed that the requested materials did not exist and would need to be assembled. ADC could not provide us with even baseline metrics of its land holdings and its management of those resources because they do not collect, track, and document such data. We had to create our own inventory of ADC’s lands and licenses issued for portions of larger parcels during the audit.

ADC also has not developed documented policies and procedures to guide its operations, which precluded us from assessing which, if any, part of a process may have failed. When we asked to review the corporation’s acquisition process, staff came up with a 10-step process on the spot, although, in practice, each of ADC’s purchases has been directed by the Legislature. The Executive Director told us that documented guidance would be “good to have” but he does not want to “get stuck with something in writing.” But operating without documentation, a formal plan or strategy, or board oversight, has resulted in a corporation that lacks a clear sense of direction and accountability.

Why do these problems matter?

The Legislature recognized the demise of Hawai‘i’s sugar and pineapple industry would create a significant loss to the state economy and had the foresight to identify the need for “aggressive and dynamic leadership” to develop an agricultural industry to fill that economic void. ADC was created to provide that leadership, to facilitate the development of Hawai‘i-based agricultural enterprises whose products are primarily for export, and to assist Hawai‘i-based agricultural enterprises with marketing and promotional strategies to exploit local, national, and international markets. ADC has not become the entity the Legislature envisioned – one that would develop an agriculture industry to stand as a pillar of the state economy, alongside tourism and the military. After nearly 30 years, the economic void created when plantations ceased production remains mostly unfilled.

The current pandemic has highlighted the necessity of having a diverse and well-balanced economy during difficult times. The spread of COVID-19 caused the State to restrict travel to Hawai‘i, virtually shuttering the tourism industry and disrupting the State’s economy. Large-scale agricultural enterprises whose crop productions are primarily for export would likely have lessened the economic blow while providing the State with greater food self-sustainability. The high cost the State has paid for ADC’s past inaction and its continued lack of direction, focus, and competence is immeasurable; the missed opportunities are unknowable. However, what is clear is that the State can no longer wait for ADC to figure out what it is, what it is supposed to do, and how it is supposed to do it.

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21-01, Audit of the Agribusiness Development Corporation
01/07/2021

PHOTO: HAWAII DOT HARBORS DIVISION

AUDITOR’S SUMMARY

Financial Audit of the Department of Transportation, Harbors Division
Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Harbors Division, as of and for the fiscal year ended June 30, 2020. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, DOT—Harbors reported total revenues of $183.6 million, total expenses of $106.5 million, and capital contributions of $200,000 from federal grants restricted for capital asset acquisition and facility development, resulting in an increase in net position of $77.3 million. Total revenues consisted of (1) $147.9 million in services, (2) $27.1 million in rentals, (3) $7.5 million in interest income, and (4) $1.1 million in other revenues.

Total expenses consisted of (1) $32.5 million in depreciation, (2) $18.8 million in harbor operations, (3) $13.6 million in interest and bond costs, (4) $23.7 million for personnel, and (5) $17.9 million in administration and other costs.

As of June 30, 2020, the agency reported total assets and deferred outflows of resources of $1.49 billion, comprised of (1) cash and cash equivalents of $422.4 million, (2) receivables of $17.1 million, (3) net capital assets of $1.04 billion, and (4) other assets and deferred outflows of resources of $11.8 million. Total liabilities and deferred inflows of resources totaled $416 million, comprised of (1) $265 million in revenue bonds payable and related accrued interest payable, (2) $18.7 million in general obligation bonds payable, (3) $25.1 million in capital lease obligation and related accrued interest payable, (4) $7.1 million due to other State agencies, (5) $16.6 million in accounts and contracts payable, and (6) $83.5 million in other liabilities and deferred inflows of resources.

Auditors’ Opinion

DOT-HARBORS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Division

The Department of Transportation, Harbors Division (DOT—Harbors) is responsible for Hawai‘i’s statewide system of commercial harbors consisting of ten harbors on six islands. Major activities include maintenance and operation, the construction of new harbor facilities, and the management of vessel traffic into, within, and out of Hawai‘i’s harbors. The Division is self-sustaining. Pursuant to Hawai‘i Revised Statutes, rates and charges imposed and collected pay for the costs of operations, maintenance, and repairs, as well as debt service on revenue bonds and other outstanding obligations. A capital improvements program is funded by the revenue and proceeds from harbors system revenue bonds.

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Financial Audit of the Department of Transportation, Harbors Division
01/05/2021

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AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Community Development Authority, as of and for the fiscal year ended June 30, 2020. The audit was conducted by N&K CPAs, Inc.


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2020, HCDA reported total revenues of $6.5 million and total expenses of $19.8 million, resulting in a decrease in net position of $13.3 million. Revenues consisted of (1) leasing and management activities of $2.4 million, (2) community redevelopment activities of $1.4 million, (3) investment earnings of $600,000, (4) net state appropriations of $1.2 million, and (5) other revenue of $900,000.

The following graph illustrates a comparative breakdown of HCDA’s revenues and expenses.

As of June 30, 2020, total assets and deferred outflows of resources of $185.4 million exceeded total liabilities and deferred inflows of resources of $20.3 million resulting in a net position of $165.1 million.

Of the net position balance of $165.1 million, $21.7 million is unrestricted and may be used to meet ongoing expenses, $1.7 million is restricted for capital projects, and $141.7 million is invested in net capital assets. The agency reported total assets and deferred outflows of resources comprised of (1) net capital assets of $141.7 million, (2) cash of $25.2 million, and (3) receivables, other assets, and deferred outflows of resources of $18.5 million.

Auditors’ Opinion

HCDA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Authority

 

The Hawai‘i Community Development Authority (HCDA) was established in 1976 by Chapter 206E, Hawai‘i Revised Statutes, to establish community development plans in community development districts, to determine community development programs, and to cooperate with private enterprises and various components of federal, state, and county governments to bring community plans to fruition. HCDA is administratively attached to the Department of Business, Economic Development and Tourism.

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Financial Audit of the Hawai‘i Community Development Authority
01/04/2021
Sthethoscope and medical documents

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AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2020

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Employer-Union Health Benefits Trust Fund, as of and for the fiscal year ended 
June 30, 2020. The audit was conducted by KKDLY LLC.


Financial Highlights

EUTF USES THE OPEB TRUST FUND to account for the OPEB assets, liabilities, net position and operations related to post-employment health benefits for retirees and their beneficiaries, including all employer OPEB contributions for retirees and their beneficiaries. An enterprise fund is used to account for active employee healthcare benefits.

ENTERPRISE FUND: For the fiscal year ended June 30, 2020, revenues totaled $146.7 million and expenses totaled $97.5 million, resulting in a net income of $49.2 million. Revenues consisted of premium revenue self-insurance of $103.2 million, experience refunds of $41.8 million, and investment earnings and other revenues of $1.7 million.

Expenses consisted of benefit claims expenses of $88.1 million, administrative operating expenses of $8.9 million, depreciation of $100,000, and other operating expenses of $400,000.

As of June 30, 2020, assets and deferred outflows of resources totaled $224.5 million and liabilities and deferred inflows of resources totaled $66 million, resulting in a net position of $158.5 million.

OPEB TRUST FUND: For the fiscal year ended June 30, 2020, total additions of $1.18 billion, included $1.11 billion from employer contributions, $71 million from net investment earnings, and $800,000 from other sources. Total deductions were $504.9 million, resulting in a change of fiduciary net position of $679.8 million.

As of June 30, 2020, the OPEB Trust Fund net position balance totaled $3.98 billion. The OPEB Trust Fund held $4.05 billion in assets and $67.5 million in liabilities.

Auditors’ Opinion

EUTF RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Trust Fund

 

The Hawai‘i Employer-Union Health Benefits Trust Fund (EUTF) is a state agency that provides eligible State of Hawai‘i and county (Honolulu, Hawai‘i, Maui, and Kaua‘i) employees and retirees and their eligible dependents with health and life insurance benefits. EUTF is administered by a board of trustees composed of ten trustees appointed by the Governor. The trust fund currently provides medical, prescription drug, dental, vision, chiropractic, supplemental medical and prescription, and group life insurance benefits. Effective June 30, 2013, the board established a separate trust fund (the OPEB Trust Fund) to receive employer contributions to pre-fund other post-employment benefits (OPEB) for retirees and their beneficiaries. EUTF is administratively attached to the State of Hawai‘i Department of Budget and Finance.

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Financial Audit of the Hawai‘i Employer-Union Health Benefits Trust Fund
12/30/2020

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Auditor’s Summary

 

The current licensing requirement for behavior analysts should be extended beyond its sunset date.

THE PRACTICE OF APPLIED BEHAVIOR ANALYSIS  seeks to understand and change the behavior of individuals. Behavior analysts evaluate a person’s behavior, identify target problem behaviors, and establish intervention tools based on evidence-based principles of behavior analysis that are designed to decrease the problem behaviors and increase desired behaviors. Applied behavior analysis is used in a variety of settings, including homes, clinics, schools, and universities, and practitioners often provide services to vulnerable children and adults.

In Report No. 20-20, Sunset Evaluation: Regulation of Behavior Analysts, we found that regulation of behavior analysts is consistent with and supported by the criteria for professional licensing set forth in the Hawai‘i Regulatory Licensing Reform Act, Chapter 26H, Hawai‘i Revised Statutes (HRS). In our view, the current licensing requirement for behavior analysts is reasonably necessary to protect the health, safety, and welfare of children and adults receiving services from a behavior analyst. However, while we found that criteria for continued regulation were met, if the Legislature continues the current regulation of behavior analysts, we recommend that behavior analysts be required to provide the Department of Commerce and Consumer Affairs (DCCA) with proof of their active status as a Board Certified Behavior Analyst or Board Certified Behavior Analyst-Doctoral as part of the license renewal process.

Registration requirements

To obtain a license in Hawai‘i, an applicant must have passed the Board Certified Behavior Analyst examination and maintain an active status with the Behavior Analyst Certification Board as a certified behavior analyst. Applicants must attach a copy of their certification status to the license application, as well as have the board directly provide DCCA with a letter confirming the applicant’s current certification status. In addition, applicants must provide information about pending criminal convictions and disciplinary actions. Upon receipt of a complete application and payment of a registration fee, applicants are licensed by DCCA as behavior analysts and are entitled to engage in the practice of applied behavior analysis statewide.

The regulation will “sunset” on June 30, 2021, after which there will be no state oversight of the profession unless the Legislature enacts legislation to continue regulating behavior analysts in Hawai‘i.

Criteria met

The behavior analyst utilizes principles and procedures to improve skills in a range of common activities including communication, learning, eating, playing, and sleeping. In unique cases, if individuals exhibit severe challenging behaviors, including causing harm to themselves or others, behavior analysts can perform physically invasive or potentially hazardous procedures that require specialized training. These specialized procedures are used primarily to de-escalate dangerous situations. In contrast, treatment by unqualified providers of applied behavior analysis could lead to ineffective or delayed treatments of those with behavioral problems, which could even exacerbate problems and result in life-long deleterious effects. For children who use the services of a behavior analyst, inappropriate or incorrectly provided early intervention services can damage a child and foster increased problems as a child matures.

In our review, we also found that Hawai‘i’s regulation of behavior analysts does not appear to artificially increase consumer costs. On the contrary, since 2015, the State has mandated insurance coverage for applied behavior analysis services for autism treatment. Such increased access to these services likely lowers consumer costs.

We also found that regulation does not unreasonably restrict entry into the profession by qualified persons. The standards are available to anyone meeting the education and practicum requirements and are similar to those established by other states that license or otherwise regulate behavior analysts. Moreover, we found no evidence the cost to obtain a license in Hawai‘i is deterring applicants. Based on DCCA’s estimated costs of the behavior analyst licensing program, the aggregate of the fees collected from licensees appears to cover the full cost of administering the program.

Since Hawai‘i’s licensing requirement took effect in 2016, the number of licensed behavioral analysts has nearly doubled.

What a behavior analyst does

A behavior analyst works with individuals to identify treatments based on reaction and behavior. Behavior analysts are typically at the top of a treatment hierarchy acting as case supervisors responsible for assessing, designing, and implementing behavior change programs, while also training and supporting other related service providers such as Board Certified Assistant Behavior Analysts, Registered Behavior Technicians, parents, educators, or others who comprise multidisciplinary teams serving an individual receiving behavior analysis services.

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20-20, Sunset Evaluation: Regulation of Behavior Analysts
12/22/2020
DCCA Building

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Auditor’s Summary

 

Four funds did not meet criteria

WE REVIEWED 39 FUNDS AND ACCOUNTS administered by the Department of Commerce and Consumer Affairs (DCCA) – specifically, 20 special funds, 12 trust funds, and 7 trust accounts. We found 2 special funds, 1 trust fund, and 1 trust account did not meet criteria. We recommended both special funds be closed, the trust fund be reclassified to a special fund, and the trust account be reclassified to a trust fund.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of DCCA’s revolving funds, trust funds, and trust accounts, and our second review of DCCA’s special funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data, which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall

WE NOTED THAT DCCA did not file statutorily required reports for its funds and accounts totaling approximately $2.1 million. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds and provide increased budgetary flexibility.

Agency response

DCCA DISAGREED with our assessment that one trust fund should be reclassified to a special fund. We maintain that the fund does not meet the criteria of a trust fund because it functions as, and meets the criteria for, a special fund and should be reclassified.

DCCA also disagreed with our conclusion that one special fund was inappropriately created because it was administratively established after Section 37-52.3, HRS, was amended to require all new special funds be established pursuant to an act of the Legislature. However, DCCA’s response did not provide other information that would justify amending our conclusion.

Finally, as to our observations on DCCA’s reporting of non-general funds, DCCA acknowledged one reporting oversight but disagreed with our conclusion that a trust fund was not properly reported. We maintain that the fund should have been included on DCCA’s report to the Legislature of the department’s administratively established accounts and funds based upon the information DCCA provided to us during the review process.

FUND TYPES

SPECIAL FUNDS are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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20-18, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Commerce and Consumer Affairs
11/24/2020

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Auditor’s Summary

 

Two funds did not meet criteria

WE REVIEWED 29 FUNDS AND ACCOUNTS administered by the Judiciary – specifically, 6 special funds, 2 revolving funds, 17 trust funds, and 4 trust accounts. We found 1 special fund and 1 trust fund did not meet criteria. We recommended the special fund, which does not appear to be financially self-sustaining, be repealed and the trust fund be reclassified to a special fund.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of the Judiciary’s revolving funds, trust funds, and trust accounts, and our second review of the Judiciary’s special funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall

WE NOTED THAT THE JUDICIARY did not file statutorily required reports for non-general funds totaling more than $47 million. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds and provide increased budgetary flexibility.

Agency response

THE JUDICIARY generally agreed with our findings but disagreed with our assessment that one trust fund should be reclassified to a special fund. We maintain that the fund does not meet the criteria of a trust fund because it functions as, and meets the criteria for, a special fund and should be reclassified.

As to our observations on the Judiciary’s reporting of non-general funds, the Judiciary stated that it will take immediate corrective action to ensure compliance with reporting requirements.

FUND TYPES

SPECIAL FUNDS are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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20-17, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Judiciary
11/19/2020

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Auditor’s Summary

 

One fund did not meet criteria

WE REVIEWED 13 FUNDS AND ACCOUNTS administered by the Department of Hawaiian Home Lands (DHHL) – specifically, 4 special funds, 2 revolving funds, 6 trust funds, and 1 trust account. We found 1 trust fund did not meet criteria and should be reclassified to a trust account.

Section 23-12, Hawai‘i Revised Statutes (HRS), requires the Auditor to review all existing special, revolving, and trust funds every five years. Reviews are scheduled so that each department’s funds are reviewed once every five years. Although not mandated by statute, we included trust accounts as part of our review. This is our sixth review of DHHL’s revolving funds, trust funds, and trust accounts, and our second review of DHHL’s special funds.

We used criteria developed by the Legislature and by our office based on public finance and accounting literature. For each fund, we present a five-year financial summary, the purpose of the fund, and conclusions about its use. We did not audit the financial data which is provided for informational purposes. We do not present conclusions about the effectiveness of programs or their management, or whether the programs should be continued.

Reporting shortfall

WE NOTED THAT DHHL did not file statutorily required reports for non-general funds totaling $1,783,000. Accurate and complete reporting will greatly improve the Legislature’s oversight and control of these funds and provide increased budgetary flexibility.

Agency response

DHHL DISAGREED with our assessment that one trust fund should be reclassified to a trust account, which is the same determination we reached in our 2015 review of DHHL’s funds. We maintain that the fund does not meet the criteria of a trust fund because it functions as, and meets the criteria for, a trust account and therefore should be reclassified.

As to our observations on DHHL’s reporting of non-general funds, DHHL stated that it was an oversight and that corrective action has been taken.

FUND TYPES

SPECIAL FUNDS are used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.

REVOLVING FUNDS such as loan funds, are often established with an appropriation of seed money from the general fund and must demonstrate the capacity to be self-sustaining.

TRUST FUNDS such as a pension fund, invoke the State’s fiduciary responsibility to care for and use the assets held to benefit those with a vested interest in the assets.

TRUST ACCOUNTS are typically separate holding or clearing accounts and are often used as accounting devices for crediting or charging state agencies or projects for payroll and other costs.

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20-16, Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Department of Hawaiian Home Lands
11/17/2020

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AUDITOR’S SUMMARY

 

Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Employees’ Retirement System of the State of Hawai‘i, as of and for the fiscal year ended June 30, 2019. The audit was conducted by KPMG LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, ERS reported total net additions of approximately $2.13 billion. Additions consisted of $1.2 billion from contributions and $933 million in net investment income.

Total deductions of approximately $1.5 billion consisted of (1) $1.47 billion for benefit payments; (2) $14 million for administrative expenses; and (3) $17 million for refund of member contributions.

As of June 30, 2019, assets totaled $18.69 billion and liabilities totaled $1.46 billion, leaving a net position balance of $17.23 billion. Total assets included (1) investments of $17.89 billion; (2) receivables of $222 million; (3) cash of $576 million; and (4) net equipment of $7 million.

Auditors’ Opinion
ERS RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings
THERE WERE NO REPORTED DEFICIENCIES IN INTERNAL CONTROL over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the System

 

THE EMPLOYEES’ RETIREMENT SYSTEM OF THE STATE OF HAWAI‘I (ERS) is a cost-sharing, multiple-employer retirement system for government workers. Through its pension benefits program, ERS provides a defined-benefit pension plan for all state and county employees, including teachers, professors, police officers, firefighters, correction officers, judges and elected officials. ERS is governed by a Board of Trustees, which consists of eight members.

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Financial Audit of the Employees’ Retirement System of the State of Hawai’i
10/14/2020

Auditor’s Summary


As a novel coronavirus ravaged regions in Asia, Europe, and the continental United States, the State of Hawai‘i took an unprecedented step to prevent the virus that causes COVID-19 from spreading in the Islands. Since March 26, all travelers entering the state – visitors and returning residents alike – have been required to self-quarantine for 14 days upon arrival, with limited exceptions. According to the Director of the Hawai‘i Emergency Management Agency, who is appointed by the Governor to serve as the Incident Commander for COVID-19, the self-quarantine mandate was meant to deter visitor traffic as well as restrict the mobility of those who do travel to Hawai‘i during the period they might be contagious. The effect on travel was immediate – April 2020 arrivals were down 99 percent from a year earlier and have remained at depressed levels since.

The travel self-quarantine program has evolved over the past six months 
and is on the cusp of yet another major change; effective October 15, a new pre-travel testing program will allow visitors to bypass self-quarantine with proof of negative results from a state-approved COVID-19 testing partner within 72 hours of flying to Hawai‘i. Yet two days before the pre-travel testing program was set to be launched, details of how it will work – particularly on the neighbor islands – were still unsettled. The lingering uncertainty as Hawai‘i begins reviving its tourism industry reflects many of the concerns raised in our limited scope review of the travel self-quarantine program. While we observed well-intentioned, hard-working state and county employees during our work on this report, we did find an overall lack of coordinated planning and communication among the state and county agencies involved. This has diminished the effectiveness of the self-quarantine program and raises questions about the program’s future success.

About this report

At the Senate Special Committee on COVID-19’s request, we performed a limited scope review of the travel self-quarantine program. Our report includes a high-level analysis of the airport screening process for trans-Pacific and interisland arrivals, the web-based Safe Travels program that collects travelers’ health and trip details and makes the information available to those responsible for ensuring compliance, enforcement efforts, and both near-term and long-range planning. It also offers recommendations aimed at providing oversight and improving coordination and communication among the many agencies charged with developing, operating, and enforcing the travel self-quarantine mandate.

What we observed

The travel self-quarantine program is a multiagency effort, pulling together the Department of Transportation-Airports Division (DOT-Airports), the Hawai‘i Tourism Authority (HTA), the Office of Enterprise Technology Services (ETS), the Hawai‘i Emergency Management Agency, the Hawai‘i National Guard, the Department of the Attorney General, and county law enforcement, as well as the Department of Health (DOH). While the Incident Commander is responsible for overseeing the State’s overall response to the COVID-19 pandemic, we could not identify any individual who is tasked with operational oversight over the travel quarantine component of the State’s response and familiar with all aspects of the program.

Rather, we discovered each state and county agency is generally operating in its own “silo,” focused on a specific function and not necessarily considering the big picture. For example, ETS created the web-based Safe Travels platform to expedite the airport screening process led by DOT-Airports, automate compliance checks previously performed by HTA, and help county police departments enforce the self-quarantine requirements. In practice, though, Safe Travels has not eliminated the need for airport screeners to manually verify health and trip information that passengers are required to provide on the State’s digitized health and travel form prior to departure. Automated emails and text messages that remind all people in self-quarantine to check in daily have replaced a 100-person call center that reached only 10 percent of those in quarantine. However, the automated daily check-ins are through email and soon, voice bots, but do not include location information to confirm that the person is checking in from their designated self-quarantine location.

Generally, we found information does not flow smoothly between the state and county agencies involved in different aspects of the program. While the State has led screening efforts at the airports, enforcing the travel quarantine has fallen to the counties, which have taken different approaches to ensuring compliance with the travel self-quarantine. Kaua‘i, for example, has adopted the strictest measures, conducting 300 in-person compliance checks a day with the assistance of Hawai‘i National Guard personnel and collecting traveler information on its own form instead of relying on the State’s mandatory travel and health form that collects the same information. In other counties, enforcement has been largely reactive, dependent on reports and complaints from the public, social media, and interested community groups. As a result, the self-quarantine is largely an “honor” system, dependent upon the deterrent effect of potential penalties and the visitor’s tolerance for risk.

Issues and Concerns

An absence of near-range and long-term planning raises questions about the program’s future even as the State anticipates an imminent increase in arrivals. Passenger screening, currently led by DOT-Airports and staffed by the Hawai‘i National Guard and private contractors, will be handed off to DOH at the end of the year. We found little evidence of planning for this impending transition, however, which is now less than three months away. None of the people we interviewed could even tell us how the travel self-quarantine program will be funded after the end of the year, which includes contracts with Roberts Hawaii Tours, Inc. and Worldwide Flight Services, Inc. to screen arriving trans-Pacific travelers at some of the State’s airports, as well as the counties’ costs to enforce the quarantine. Those expenses currently are paid with moneys the State received through the CARES Act, which must be spent by December 30, 2020.

According to the Incident Commander, “When [DOT-Airports] started screening, I told them that we cannot have the perfect product. However, just by announcing it and doing it, we will eliminate 90 percent of the visitors.” The travel self-quarantine mandate initially reduced visitor arrivals by 98 percent, he said, calling that “a huge success.” Nevertheless, more than six months after the travel quarantine mandate went into effect, we expected to see better communication and coordination between the agencies responsible for different aspects of the program. The program is hampered by a lack of oversight and the absence of a defined organizational structure to effectively and efficiently manage every piece of the process, starting from screening at the airports to enforcement of the quarantine requirement. Instead, the apparent delegation of authority to agencies to develop their own processes to support their responsibilities relating to the travel self-quarantine program has created inefficiencies and other concerns that likely have – and, if unaddressed, will continue to – hurt the effectiveness of the program.

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20-13, Limited Scope Review of the State of Hawai‘i’s Mandatory Travel Self-Quarantine Program
09/24/2020

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AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended December 31, 2019

THE PRIMARY PURPOSE of the special-purpose audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Convention Center, as of and for the year ended December 31, 2019. The special-purpose financial statements have been prepared pursuant to the provisions of the management agreement between the Hawai‘i Tourism Authority and AEG Management HCC, LLC (AEG), a private company contracted to operate the Hawai‘i Convention Center. The audit was conducted by Accuity LLP.

Financial Highlights

FOR THE YEAR ended December 31, 2019, the Center reported total revenues of $16.9 million, total expenses of $23.5 million, and $12.8 million in net contributions from the Hawai‘i Tourism Authority, which resulted in an increase in net assets of $6 million. Revenues consisted of (1) $11.1 million from food and beverage; (2) $2.7 million from rental income; (3) $2.9 million from events; and (4) $200,000 from other revenues.

Expenses consisted of (1) $8 million for personnel services; (2) $4.7 million for building-related expenses; (3) $4.9 million for cost of goods sold; and (4) $5.9 million for other costs.

As of December 31, 2019, the Center’s total assets of $30 million were comprised of (1) cash of $19.5 million; (2) amounts due from Hawai‘i Tourism Authority of $8.7 million; (3) accounts receivable of $1.2 million; and (4) other assets of $600,000. Total liabilities of $4.5 million were comprised of (1) accounts payable of $1.9 million; (2) amounts due to Hawai‘i Tourism Authority of $1.1 million; (3) advance deposits of $700,000; and (4) other liabilities of $800,000.

Property, building, furniture, and equipment used in the Center’s operations, and related depreciation expense, as well as debt used to finance such capital assets and the related interest expense, are not reflected in the Center’s special-purpose financial statements. Those assets, liabilities, and related expenses are reflected on the financial statements of the Hawai‘i Tourism Authority.

Auditors’ Opinion
THE CENTER RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with the management agreement between the Hawai‘i Tourism Authority and AEG, which is a basis of accounting other than accounting principles generally accepted in the United States of America.

About the Center

 

THE HAWAI‘I CONVENTION CENTER (Center), which opened to the general public in June 1998, is used for a variety of events, including conventions and trade shows, public shows, and spectator events. The Center offers approximately 350,000 square feet of rentable space, including 51 meeting rooms. The Hawai‘i Tourism Authority assumed responsibility for the operation, management, and maintenance of the Center in July 2000. The Center is reported as a special revenue fund of the Hawai‘i Tourism Authority.

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Department of Business, Economic Development & Tourism, Hawai’i Convention Center – December 31, 2019 Special Purpose Financial Statements
08/28/2020

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Auditor’s Summary

On August 13, 2020, the Senate Special Committee on COVID-19 asked the Auditor to report on protocols currently employed by the Hawai‘i State Department of Education (DOE) to address the coronavirus that causes the disease COVID-19. This report specifically discusses DOE’s policies and procedures regarding when teachers, other school employees, and students are confirmed positive for COVID-19.

As we note throughout our report, we received no cooperation from DOE. The department did not provide any of the documents we requested, limiting our review to policies and procedures that are publicly available on DOE’s website and elsewhere online. We had hoped to interview DOE to clarify how these plans have been implemented and followed, among other things. However, notwithstanding repeated requests, DOE declined to schedule meetings with us before the issuance of this report. As many of our questions echo those being asked by the public and public officials, it is unreasonable for DOE to refuse our requests about their safety and health guidelines. This is especially critical since teachers and some students have already returned to campus.

About this report
While DOE did not provide us with documents nor make staff available for interviews, the information we found on the department’s website appears to include policies and procedures that guide DOE’s response to positive COVID-19 cases involving school employees and students. We summarized the documents we were able to locate, primarily DOE’s Pandemic Contagious Virus Plan, Emergency Operations Plan, Return to Learn: School Reopening Plan, Health and Safety Handbook, and Principal Handbook. We also summarized policies and procedures for communications, including disseminating information about positive COVID-19 cases. Without interviewing DOE staff, however, we were unable to determine if DOE is following these guidelines or if there are other policies and procedures that guide its actions.

Issues and questions

We have numerous questions about the policies and procedures outlined in the documents, some of which appear outdated and incomplete. We also found inconsistencies in the guidance. For example:

• DOE takes the position that the Department of Health is the lead agency for notifying people who are COVID-19 positive or who may have been exposed to a positive case. The Department of Health is responsible for notifying the school of positive cases involving school employees or students by letter to the principal and provides the principal with the start and end dates of the person’s required isolation. We have no information to confirm the Department of Health is, in fact, notifying school principals.

• The Return to Learn: School Reopening Plan, Health and Safety Handbook is silent regarding notification by the Department of Health about school employees or students who are close contacts of a COVID-19 positive case. We assume the Department of Health obtains school-specific information from close contacts, including the school at which the person works or attends. However, we could not verify if the Department of Health notifies principals or others about school employees and students who may be infected because of their contact with someone who has tested positive. The department’s policies and procedures are also silent as to actions the school takes when informed that its employee or student is a close contact of someone who is positive.

• The Department of Health is responsible for tracing and contacting the infected person’s close contacts. The Hawai‘i State Teachers Association (HSTA) told us that some principals have been conducting contact tracing themselves because the Department of Health is overwhelmed.

• Although DOE has communication policies and procedures in place to address COVID-19 cases, we question whether the department is following its own guidance. DOE generally has not provided information about COVID-19 cases on school campuses and the limited information that it does share has been inconsistent and incomplete. For instance, DOE had not been publicizing positive cases until pressed by HSTA. Then, citing privacy laws, DOE only provided information by large complex areas, prompting the teachers’ union to begin identifying specific schools.

• The department’s Communications Plan seems to delegate school-level communication decisions to the principals, including informing their respective school communities about positive cases. While we are aware, anecdotally, about some school principals sending letters about positive cases to teachers and staff, we were unable to determine whether principals have notified students, families, and others who are part of the “impacted school community” about all of the positive cases on their respective school campuses.

• DOE justifies its limited reporting of positive cases to avoid any potential Family Educational Rights and Privacy Act (FERPA) and/or Health Insurance Portability and Accountability Act (HIPAA) violations. We question whether FERPA or HIPAA apply to information about positive cases in a specific school, including whether the case involves a teacher, administrator, support staff, or student, which contains no personally identifiable information. The U.S. Department of Health and Human Services and the U.S. Department of Education have issued guidance about the application of HIPAA and FERPA, respectively, that seems inconsistent with the department’s position.

• The Pandemic Contagious Virus Plan includes a four-page Cleaning and Disinfecting of Facilities Protocol Checklist that details procedures for the cleaning and disinfecting of facilities when a positive case is associated with a school. According to the checklist, once a positive case has been identified, the campus is closed to all employees and students for 21 days. We question whether the department is following its cleaning and disinfection procedures. While the department has not identified specific schools, it has confirmed positive cases on a number of its school campuses. We are unaware of any school closures for cleaning and disinfecting.

• The Pandemic Contagious Virus Plan is intended “to increase communication to our [DOE] staff and students in the event of an outbreak.” It includes four response levels and corresponding department actions. However, it is unclear which response level individual schools are at, and consequently, unclear what actions the schools should take. In addition, portions of the document appear outdated, such as guidance on social distancing considerations and troubleshooting technology problems.

• The Pandemic Contagious Virus Plan provides relatively detailed information about routine cleaning and sanitization of facilities and devices. While some procedures may seem reasonable on their face, such as training of school custodial staff through online video, webinar, and/or in-person training, we did not have the opportunity to review any of those materials. The procedures also require that high-touch surfaces in classrooms such as chairs, desks, and tabletops be cleaned multiple times throughout the day. The document, however, is silent as to who is responsible for the cleaning. During the August 20 Board of Education meeting, in response to similar questions, we understood DOE to say teachers are explicitly not responsible for cleaning classrooms under the current union contract.

• We are unclear whether the department is using the Pandemic Contagious Virus Plan. We have not seen media reports about an “Incident Command Center” within DOE nor an individual serving as the department’s incident commander. We also are unaware of information through news releases or other publications to “ethnic media,” as used in the Pandemic Plan. And, certain portions of the Pandemic Contagious Virus Plan seem to be outdated.

• The Principal Handbook, dated July 29, 2020, version 2, contains information and guidance about school operations in the current COVID-19 pandemic, yet does not contain information specific to a positive COVID-19 case on a school campus. This version includes outdated start dates for students, leaving us to question whether this handbook is current. We found that it also offers guidance that conflicts with guidelines from the Centers for Disease Control and Prevention and the Department of Health, such as allowing student desks to be 3-feet apart, only half the distance CDC recommends.

Recommendations

1. DOE must update its policies and procedures, as needed, to be consistent with current State and County policies, including the Governor’s proclamations and amendments thereto and the orders issued by the county mayors. While we recognize the situation continues to evolve and is fluid, if the Pandemic Plan and the handbooks are intended to be DOE’s policies and procedures relating to the current COVID-19 situation, those documents need to be continually and immediately updated as the State of Hawai‘i, the various counties, and the department’s policies and procedures change. We noted a number of policies and procedures that appear to be inconsistent with the department’s actual approach to positive cases on its school campuses.

2. DOE must obtain legal guidance from the Department of the Attorney General about the application of HIPAA, FERPA, and other privacy laws to reporting of COVID-19 confirmed positive cases on school campuses. Specifically, the Department of Attorney General should advise as to whether, among other things: (1) HIPAA bars the department from disclosing that an unnamed DOE employee has tested positive at a specific public school; (2) HIPAA bars the department from disclosing that an unnamed student has tested positive at a specific public school; (3) HIPAA bars the department from disclosing that an unnamed individual who was on a specific public school campus has tested positive; (4) FERPA bars the department from disclosing that an unnamed DOE employee has tested positive at a specific public school; (5) FERPA bars the department from disclosing that an unnamed student has tested positive at a specific public school; and (6) FERPA bars the department from disclosing that an unnamed individual who was on a specific public school campus has tested positive.

To the extent HIPAA, FERPA, and other laws do not prohibit DOE from reporting information about positive cases, the department should do so no later than 24 hours after it is informed of a positive case. That disclosure should state, among other things:

(1) the date of the positive test result;

(2) whether the positive case is a teacher, an administrator, support staff, or a student;

(3) the specific school where the department employee works or the student attends;

(4) the times the infected person was on the school campus in the two days immediately prior to positive test results; and

(5) the dates and times the infected person was on campus after the positive test results.

Information should include details about the cleaning and disinfecting of affected spaces, including the closure of school campuses or school facilities.

3. DOE should report, separately, the number of school personnel and students who are self-isolating and self-quarantining by school and update those numbers within 24 hours of changes to the number of school personnel and students who are directed to self-isolate and self-quarantine.

4. DOE must provide complete and timely information to the public about changes to its policies and procedures relating to the department’s COVID-19 response, generally, and not limited to DOE’s protocols for when there is a positive case on a school campus. For instance, the department must provide the criteria or other considerations it is using to formulate decisions regarding, for instance, when students will be allowed to return to school campuses for in-person instruction.

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20-11, Report on the Hawai‘i State Department of Education’s Policies and Procedures for Handling Positive COVID-19 Test Results in Staff, Teachers, and Students
07/13/2020

Hawaii DOT – Highways Division

AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of Transportation, Highways Division
Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Transportation, Highways Division, as of and for the fiscal year ended June 30, 2019, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, DOT–Highways reported total revenues of $558 million and total expenses of $567 million, resulting in a decrease in net position of $9 million. Revenues consisted of (1) $225 million in tax collections; (2) $251 million in grants and contributions primarily from the Federal Highway Administration; (3) $55 million in charges for services; and (4) $27 million in investment income and other revenues.


Expenses consisted of (1) $202 million for operations and maintenance; (2) $205 million in depreciation; (3) $145 million for administration and other expenses; and (4) $15 million in interest.

As of June 30, 2019, total assets and deferred outflows of resources of $5.41 billion were comprised of (1) cash and investments of $329 million; (2) net capital assets of $5.03 billion; and (3) $50 million in other assets and deferred outflows of resources. Total liabilities of $606 million included $429 million in revenue bonds and $177 million in other liabilities.

DOT–Highways has numerous capital projects ongoing statewide; construction in progress totaled $369 million at the end of the fiscal year.

Auditors’ Opinion

DOT-HIGHWAYS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT–Highways also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE ONE MATERIAL WEAKNESS in internal control over financial reporting that is required to be reported under Government Auditing Standards. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. The reconciliation process for FY 2019 was not completed until June 16, 2020, more than eleven months after the fiscal year-end. Information about this audit and the material weakness identified by auditors is described on pages 12-16 of the single audit report.

There were no findings that are considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance. However, the auditors identified one deficiency in internal control over compliance that is considered a significant deficiency. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. The deficiency is described on pages 17-18 of the single audit report.

About the Division

 

The mission of the Department of Transportation, Highways Division (DOT–Highways), is to provide a safe, efficient, and sustainable State Highway System that ensures the mobility of people and goods within the state. The division is charged with maximizing available resources to provide, maintain, and operate ground transportation facilities and support services that promote economic vitality and livability in Hawai‘i. The Department also works with the Statewide Transportation Planning Office on innovative and diverse approaches to congestion management.

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Financial and Compliance Audit of the Department of Transportation, Highways Division
06/25/2020

Illustration: istock.com

AUDITOR’S SUMMARY

This report assesses certain tax exemptions and exclusions from Hawai‘i’s General Excise Tax (GET) and Use Tax. Section 23-71 et seq., Hawai‘i Revised Statutes, requires the Auditor to annually review different tax exemptions, exclusions, and credits on a 10-year recurring cycle, including provisions for the Public Service Company Tax and Insurance Premium Tax. This report is our first review under these statutes.

As described by the Department of Taxation (DoTax), Hawai‘i’s GET and Use Tax, combined, apply to nearly all business activities in Hawai‘i, resulting in a $111 billion tax base. In FY2018, GET and Use Tax revenues accounted for $3.55 billion, or 31 percent, of the State’s total revenue of $11.32 billion. Notwithstanding, lawmakers may choose to exempt or exclude certain revenues from taxation to promote social and economic goals. Since these exemptions and exclusions reduce revenues to the State, the analysis and recommendations in this report aim at better informing policymakers about the purposes, costs, and benefits of various GET and Use Tax provisions to allow for improved policymaking.

This report reviews 13 tax provisions: 6 GET and Use Tax exemptions and 
7 GET exclusions. Overall, we found, with one exception, there is insufficient data to determine whether the exemptions reviewed are meeting their stated or inferred purposes. We recommend the one exemption that is not achieving its purpose be repealed and the Legislature consider including clearly articulated purposes along with specific metrics for measuring effectiveness in all new or amended tax preferences. As noted throughout this report, we struggled to determine the purposes of the provisions reviewed and, in some cases, were unable to even infer the purposes. Additionally, we had no objective means to assess whether provisions were achieving their purposes. Including clearly stated purposes for each tax provision and metrics for us to assess performance will permit a more thorough and meaningful analysis of exemptions. We further recommend that all seven exclusions be removed from the schedule of future reviews.

Exclusions and Exemptions
Policymakers use tax preferences to promote various economic and social goals. Such provisions may allow money that would otherwise be spent on taxes to remain in the hands of taxpayers. For example, taxpayers who own or operate businesses may use those tax savings to create jobs. Other preferences may provide economic support to specific segments of society.

Exclusions
Exclusions remove revenues from certain activities that were never intended to be part of a broadly defined tax base. Excluded amounts generally are not included in a taxpayer’s reported revenues and are therefore not taxed.

Example: The exclusion for gross receipts from sales of securities excludes such revenue from GET. This revenue does not have to be reported. However, in some instances capital gains from securities sales are still subject to Hawai‘i income tax.

Exemptions
Exemptions refer to receipts from taxable activities or goods that, for policy purposes, are not subject to tax collection.

Example: Contractors can deduct payments made to subcontractors from their gross revenue and avoid GET liability on those amounts. The exemption for amounts paid by contractors to subcontractors shifts payment of GET at the 4 percent retail rate on those amounts to the subcontractor, effectively eliminating the pyramiding of GET. The Legislature hoped that the reduced taxes paid by general contractors would lower the cost of housing.

Exemptions come at a cost. Allowing certain taxpayers to reduce the amount of gross revenues that are subject to GET reduces the amount of tax revenues that might otherwise be available for the State to spend. While direct spending programs are subject to review through the budgetary process, monies the State does not see can be more challenging to evaluate. Identifying whether the benefits of tax exemptions outweigh their costs can be a complex endeavor, but such reviews can provide important information to legislators about the effectiveness of a tax preference and monies that may be available for other state priorities.

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20-09, Review of Excise and Use Tax Exemptions and Exclusions
06/16/2020

PHOTO: OFFICE OF THE AUDITOR

AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of the Attorney General
Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of the Attorney General, as of and for the fiscal year ended June 30, 2019, and to comply with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Egami & Ichikawa CPAs, Inc.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, AG reported total revenues of $109.6 million and total expenses of $109.2 million, resulting in an increase in net position of $400,000. Revenues include general revenues of $50.3 million, primarily state appropriations; and program revenues consisting of charges for services of $25.2 million and operating grants and contributions of $34.2 million.

 

Expenses of $109.2 million consist of (1) $65 million for general administrative and legal services; (2) $22.5 million for child support enforcement; (3) $14.8 million for crime prevention and justice assistance; and (4) $6.9 million for criminal justice data center activities.

Fiduciary Fund Deficit

Inflows and outflows of funds related to the Child Support Enforcement Agency program are accounted for separately in an agency fund. The report notes under usual conditions, agency fund assets should be equal to agency fund liabilities, as the funds are held on behalf of others; however, AG continues to maintain a deficit balance of approximately $551,000 at June 30, 2019. According to AG, the deficit balance is caused by a combination of uncollected recoupments due from custodial parents resulting from overpayments and uncollected non-sufficient fund payments due from non-custodial parents.

Auditors’ Opinion

AG RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. AG also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO MATERIAL WEAKNESSES AND ONE SIGNIFICANT DEFICIENCY in internal control over financial reporting that is required to be reported under Government Auditing Standards. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiency related to the fiduciary fund deficit noted above is described on pages 71-73 of the report.

There were no findings that are considered to be material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Department

 

The Department of the Attorney General (AG) provides legal services to the executive, legislative, and judicial branches of Hawai‘i State government, including furnishing formal and informal legal opinions to the Governor, Legislature, and heads of Hawai‘i State departments and offices and approving documents relating to the acquisition of lands and interests by the State. AG also maintains criminal justice information, conducts investigations, operates crime prevention programs, and represents the State of Hawai‘i in legal proceedings. AG’s Child Support Enforcement Agency provides assistance to children by locating parents, establishing paternity and support obligations, and enforcing those obligations.

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Financial and Compliance Audit of the Department of the Attorney General
04/17/2020

PHOTO: DEPARTMENT OF HUMAN SERVICES

AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of Human Services
Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Human Services, as of and for the fiscal year ended June 30, 2019, and to comply with Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal  awards. The audit was conducted by KMH LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, DHS reported total revenues of $3.42 billion and total expenses of $3.46 billion. Revenues consist of $1.21 billion in state allotments, net of lapsed amounts plus non-imposed employee fringe benefits, and $2.21 billion in operating grants from the federal government. Revenues from these federal grants paid for 63.8 percent of the cost of DHS’ activities.


Health care and general welfare assistance programs comprised 72.7 and 20.5 percent, respectively, of the total cost. The following chart presents each major activity as a percentage of the total cost of all DHS activities.

 

As of June 30, 2019, DHS’ total assets of $593 million included (1) cash of $369 million, (2) receivables of $154 million, and (3) net capital assets of $70 million. Total liabilities of $328 million included (1) vouchers payable  of $22 million, (2) accrued wages and employee benefits of $27 million, (3) amounts due to the state general fund of $197 million, (4) accrued medical  assistance payable of $68 million, and (5) accrued compensated absences of $14 million.

Auditors’ Opinion

DHS RECEIVED AN UNMODIFIED OPINION that its financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles. DHS received a qualified opinion on its compliance for all major federal programs, except for Foster Care – 
Title IV-E, Social Services Block Grant and Disability Insurance/SSI Cluster, which received an unmodified opinion in accordance with the Uniform Guidance.

Findings

THERE WAS ONE SIGNIFICANT DEFICIENCY in internal controls over financial reporting that is required to be reported under Government Auditing Standards. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The significant deficiency is described on pages  76-77 of the report.

There were 13 material weaknesses in internal control over compliance that are required to be reported in accordance with the Uniform Guidance. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. The material weaknesses are described on pages 78-99 of the report.

About the Department

 

The Department of Human Services (DHS) works to provide benefits and services to individuals and families in need. The majority of DHS’ budget is comprised of federal funds. DHS’ mission is to direct its funds toward protecting and helping those least able to care for themselves and to provide services designed toward achieving self-sufficiency for clients as quickly as possible. Activities include health care programs; general welfare assistance, employment and support services; child welfare and adult community care services; vocational rehabilitation and services for the blind; youth prevention, delinquency and correction services; and general administration. Attached programs include the Commission on the Status of Women and Commission on Fatherhood.

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Financial and Compliance Audit of the Department of Human Services
04/15/2020

PHOTO: OFFICE OF THE AUDITOR

AUDITOR’S SUMMARY

Financial and Compliance Audit of the Department of Education
Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Education, as of and for the fiscal year ended June 30, 2019, and to comply with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, DOE reported total revenues of $3.2 billion and total expenditures of $3.14 billion, resulting in an increase in net position of $65 million.


Total revenues of $3.2 billion consisted of (1) $2.03 billion in state-allotted appropriations, net of lapsed funds, (2) $779 million in non-imposed employee wages and fringe benefits, (3) $288 million in operating grants and contributions, (4) $43 million in capital grants and contributions, and (5) $67 million in charges for services.


Total expenses of $3.14 billion consisted of $2.95 billion for school-related costs, $83 million for state and school complex area administration, $37 million for public libraries, and $72 million for capital outlay.

As of June 30, 2019, total assets exceeded total liabilities by $2.7 billion. Of this amount, $769 million is unrestricted and may be used to meet ongoing expenses and obligations. Total assets of $3.22 billion were comprised of cash of $1.23 billion, receivables of $66 million, and net capital assets of $1.93 billion. Total liabilities of $525 million were comprised of (1) vouchers and contracts payable of $134 million, (2) accrued wages and employee benefits of $152 million, (3) accrued compensated absences of $72 million, (4) workers’ compensation claims reserve of $147 million, (5) amount due to the state general fund of $5 million, and (6) notes payable of $15 million.

Auditors’ Opinion

DOE RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOE also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal controls over financial reporting that are considered to be material weaknesses and required to be reported under Government Auditing Standards. However, the auditors identified one deficiency in internal control over financial reporting that is considered a significant deficiency. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The deficiency is described on pages 53-55 of the report.

There were no findings that are considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance. However, the auditors identified one deficiency in internal control over compliance that is considered a significant deficiency. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. The deficiency is described on pages 56-57 of the report.

About the Department

 

The Department of Education (DOE) administers the statewide system of public schools and public libraries. DOE is also responsible for administering state laws regarding regulation of private school operations through a program of inspection and licensing and the professional certification of all teachers for every academic and noncollege type of school. Federal grants received to support public school and public library programs are administered by DOE on a statewide basis.

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Financial and Compliance Audit of the Department of Education
04/13/2020

ILLUSTRATION: THINKSTOCK.COM

AUDITOR’S SUMMARY

Single Audit of Federal Financial Assistance Programs of the State of Hawai‘i
Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE  of the State Single Audit for the fiscal year ended June 30, 2019, was to comply with the Code of Federal Regulations, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Title 2, Part 200 (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The State Single Audit was conducted by Accuity LLP.

Auditors’ Report on Internal Controls over Financial Reporting

THE AUDITORS IDENTIFIED one material weakness and two significant deficiencies in internal controls over financial reporting that are required to be reported in accordance with Government Auditing Standards. The material weakness is described on pages 22-25 of the report, and the significant deficiencies are described on pages 18-21 of the report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

 

Auditors’ Report on Compliance with Major Federal Programs

THE AUDITORS EXPRESSED A QUALIFIED OPINION on certain major programs and identified five material weaknesses and six significant deficiencies over compliance with major federal programs that are required to be reported in accordance with the Uniform Guidance. These findings are described in a Schedule of Findings and Questioned Costs that can be found on pages 26-38 of the report. A table with the number and type of findings by department can be found below.

A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis.

A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

About the Report

 

Single audits provide assurance to the federal government that state agencies and programs receiving federal funds are expending those funds properly. This report includes the total federal expenditures and findings related to only those departments that are included in the State of Hawaiʻi Single Audit of Federal Financial Assistance Programs for the fiscal year ended June 30, 2019. For the departments included in the report that receive federal monies, federal expenditures totaled approximately $298 million. Federal expenditures and findings for other departments including the Department of Health and the Department of Transportation are reported by those departments in individual audit reports.

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State of Hawai’i Single Audit Report
04/08/2020

PHOTO: OFFICE OF THE AUDITOR

AUDITOR’S SUMMARY

Financial Audit of Accounting and General Services, State Parking Revolving Fund
Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Accounting and General Services, State Parking Revolving Fund, as of and for the fiscal year ended June 30, 2019. The audit was conducted by KPMG LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, the Fund reported total revenues of $3.9 million and total expenses of $3.7 million. Total revenues consisted of parking assessments of $2.7 million, parking meter collections of $1 million, and traffic fines and other income of $200,000. Total expenses consisted of depreciation of $400,000, personnel services of $1.9 million, repairs and maintenance of $500,000, and other expenses of $900,000.

 

As of June 30, 2019, total assets and deferred outflows of resources of $18 million were comprised of (1) net capital assets of $14.6 million, (2) cash of $2.6 million, and (3) receivables and deferred outflows of resources of $800,000. Total liabilities and deferred inflows of resources of $6.8 million were comprised of (1) pension liability of $2.8 million, (2) net other postemployment benefits other than pensions of $2.8 million, and (3) accrued liabilities and deferred inflows of resources of 
$1.2 million.

Capital assets are used to provide parking for employees, contractors with state-related business, and the public. Net capital assets of $14.6 million consist of land of $9.3 million, structures and improvements of $4.9 million, and construction in progress of $400,000.

Auditors’ Opinion

THE FUND RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Fund

 

The State Parking Revolving Fund (Fund) was established by Act 161, Session Laws of Hawai‘i 1963 (codified as Section 107–11, Hawai‘i Revised Statutes). The Fund is responsible for the assessment and collection of reasonable parking fees, installation of parking meters, and the restriction and control of parking on all state lands within the state Comptroller’s jurisdiction. All fees, charges, and other revenue collected are deposited into this fund. Moneys are expended, as necessary, to defray the cost of paving parking areas as well as the purchase and installation of parking meters on state lands within the state Comptroller’s jurisdiction.

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Financial Audit of Accounting and General Services, State Parking Revolving Fund
04/06/2020

PHOTO: HAWAII DOT HARBORS DIVISION

AUDITOR’S SUMMARY

Financial Audit of the Department of Transportation, Harbors Division
Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Harbors Division, as of and for the fiscal year ended June 30, 2019. The audit was conducted by KKDLY LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, DOT—Harbors reported total revenues of $198.7 million and total expenses of $93 million, resulting in an increase in net position of $105.7 million. Total revenues consisted of $159.2 million in services, $29.9 million in rentals, $7.9 million in interest income, and $1.7 million in other revenues.


Total expenses consist of $29 million in depreciation, $17.1 million in harbor operations, $9 million in interest and bond costs, $22.3 million for personnel, and $15.6 million in administration and other costs.

As of June 30, 2019, the agency reported total assets and deferred outflows of resources of $1.45 billion, comprised of: (1) cash and cash equivalents of $419.6 million, (2) receivables of $25.3 million, (3) net capital assets of $987.7 million, and (4) other assets and deferred outflows of resources of $14.6 million. Total liabilities and deferred inflows of resources totaled $451.3 million, comprised of: (1) $282.7 million in revenue bonds payable and related accrued interest payable, (2) $21 million in general obligation bonds payable, (3) $26 million in capital lease obligation and related accrued interest payable, (4) $4.6 million due to other State agencies, (5) $35.9 million in accounts and contracts payable, and (6) $81.1 million in other liabilities and deferred inflows of resources.

Auditors’ Opinion

DOT-HARBORS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Division

 

The Department of Transportation, Harbors Division (DOT—Harbors) is responsible for the statewide system of commercial harbors, which consists of ten harbors on six islands. The system plays a vital role in Hawai‘i’s economy, as the harbors serve as the primary means for goods to enter and exit the State of Hawai‘i. Hawai‘i imports approximately 80 percent of what it consumes, the majority of which enters the State through the commercial harbors system. DOT—Harbors operations are self-sustaining. The Department of Transportation is authorized to impose and collects rates and charges for use of the harbors system and its properties to generate revenues to fund operating expenses. Capital improvements are funded by DOT—Harbors’ revenues and the issuance of harbor system revenue bonds.

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Financial Audit of the Department of Transportation, Harbors Division
04/03/2020

PHOTO: HAWAII DOT AIRPORTS DIVISION

AUDITOR’S SUMMARY


Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the  financial statements of the Department of Transportation, Airports Division, as of and for the fiscal year ended June 30, 2019, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which set forth audit requirements for state and local governmental units that receive federal awards. The audit was conducted by KPMG LLC.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, DOT-Airports reported total revenues of $646 million and total expenses of $473 million, resulting in an increase in net position of $173 million. Revenues consisted of $183 million in concession fees, $83 million in landing fees, $163 million in rentals, $126 million in facility charges, $52 million in federal operating
and capital grants, and $39 million in interest and other revenues.


Total expenses of $473 million consisted of $291 million for operations and maintenance, $122 million in depreciation, $23 million for administration,
and $37 million in interest and other expenses.

As of June 30, 2019, the agency reported total assets and deferred outflows of resources of $5.15 billion, comprised of (1) cash of $1.26 billion (2) investments of $304 million, (3) net capital assets of $3.43 billion, and (4) $155 million in receivables, other assets, and deferred outflows of  resources. Total liabilities and deferred inflows of resources totaled $2.56 billion, which includes $1.42 billion in airports system revenue bonds, $1.11 billion in other liabilities and deferred inflows of resources, and $22 million in special facility revenue bonds.


Revenue bonds for DOT-Airports are rated as follows:

• Standard & Poor’s Corporation: AA-
• Moody’s Investors Service: A1
• Fitch IBCA, Inc.: A+


DOT-Airports has numerous capital projects ongoing state-wide; construction-in-progress totaled $1.3 billion at the end of the fiscal year.

Auditors’ Opinion

DOT-AIRPORTS RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT-Airports also received an unmodified opinion on its compliance with major federal programs in
accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Division

 

DOT—AIRPORTS operates and maintains 15 airports at various locations within the State of Hawai‘i as a single integrated system for management and financial purposes. Daniel K. Inouye International Airport is the principal airport in the airports system, providing facilities for interisland flights, domestic overseas flights, and international flights to destinations in the Pacific Rim. DOT-Airports is authorized to impose and collect rates and charges for the airports system services and properties to generate revenues to fund operating expenses. The Capital Improvements Program is primarily funded by airports system revenue bonds and lease revenue certificates of participation issued by DOT-Airports, federal grants, passenger facility charges, customer facility charges, and the DOT-Airports
revenues.

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Financial and Compliance Audit of the Department of Transportation, Airports Division
04/01/2020

PHOTO: OFFICE OF THE AUDITOR

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE  of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Accounting and General Services, State Motor Pool Revolving Fund, as of and for the fiscal year ended June 30, 2019. The audit was conducted by KPMG LLP.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, the Fund reported total revenues of $2.3 million and total expenses of $2.9 million, resulting in a decrease in net position of $600,000 (or 381 percent). Motor vehicle rentals and repairs represented 99 percent of the Fund’s total revenue and other income represented 1 percent.


Total expenses of $2.9 million consisted of personnel services of $1.3 million, depreciation of $900,000, gas and oil of $300,000, repairs and maintenance of $300,000, and other costs of $100,000.

As of June 30, 2019, total assets and deferred outflows of resources of $3.7 million were comprised of (1) cash and cash equivalents of $900,000, (2) net capital assets of $2 million, and (3) receivables and deferred outflows of resources of $800,000. Total liabilities and deferred inflows of resources of $4.6 million were comprised of (1) net pension liability of $2.4 million, (2) net other postemployment benefits other than pension of $1.9 million, and (3) other liabilities and deferred inflows of resources of $300,000.

Auditors’ Opinion

THE FUND RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

About the Fund

 

The State Motor Pool Revolving Fund (Fund) was established pursuant to Act 77, Session Laws of Hawai‘i 1963 (codified as Section 105-11, Hawai‘i Revised Statutes). The Fund is responsible for providing safe and economical transportation for state personnel requiring the use of passenger vehicles in connection with official state business. All moneys collected are used for the acquisition, operation, repair, maintenance, storage, and disposition of all state-owned vehicles assigned to the state motor pool.

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Financial Audit of the Department of Accounting and General Services, State Motor Pool Revolving Fund
04/01/2020

PHOTO: OFFICE OF THE AUDITOR

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements of the Department of Transportation, Administration Division, as of and for the fiscal year ended June 30, 2019, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Egami & Ichikawa, Certified Public Accountants, Inc.

Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, DOT–Administration reported total revenues of $29.5 million, total expenses of $21.4 million, and transfers to other DOT divisions of $6 million, resulting in an increase in net position of $2.1 million. The transfers relate to unencumbered cash balances related to assessment revenues from those divisions. Revenues consisted of $23 million from assessments, $5.1 million from federal grants, and $1.4 million from other revenue sources.

Total expenses of $21.4 million consisted of $10.3 million for operating grants and $11.1 million for administration.

As of June 30, 2019, total assets of $21.4 million were comprised of (1) cash of $18 million, (2) accounts receivable of $1.8 million, and (3) net capital assets of $1.6 million. Liabilities totaled $12.5 million, including a $2.6 million Aloha Tower Development Corporation note payable to the Harbors Division.

Auditors’ Opinion

DOT-ADMINISTRATION RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DOT–Administration also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that were considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Division

 

Four divisions (Airports, Harbors, Highways, and Administration) make up the State’s Department of Transportation. The Administration Division (DOT–Administration) consists of the Office of the Director of Transportation, the Statewide Transportation Planning Office, and Departmental Staff Services Offices. Collectively, these offices provide overall administrative support for the Department of Transportation. The financial statements for the Division reflect the financial activities of DOT–Administration and the Aloha Tower Development Corporation, which is attached to the Department for administrative purposes. DOT–Administration receives a percentage of the Airports, Harbors, and Highways Divisions’ state-allotted appropriations to cover general administration expenses. The Department’s Statewide Transportation Planning Office administers certain Federal Transit Administration and Federal Highway Administration grants.

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Financial and Compliance Audit of the Department of Transportation, Administration Division
03/27/2020

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Hawaiian Home Lands, as of and for the fiscal year ended June 30, 2019, and to comply with the requirements of Title 2, U.S. Code of Federal Regulations, Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which established audit requirements for state and local governmental units that receive federal awards. The audit was conducted by Akamine, Oyadomari & Kosaki CPA’s Inc.


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, DHHL’s total revenues exceeded total expenditures by $18.1 million. Revenues totaled $73.8 million and consisted of (1) program revenue of $40.6 million and (2) state appropriations, transfers, and adjustments of $33.2 million. Expenses totaled $55.7 million. Program revenues were comprised of interest income (approximately 27 percent), grants and contributions (11 percent), revenue from the general lease program (43 percent), and other sources (19 percent).

As of June 30, 2019, total assets of $986 million exceeded total liabilities of $100 million, resulting in a net position balance of $886 million. Total assets included net capital assets of $479 million, cash of $370 million, loans receivable of $94 million, and other assets and deferred outflows of resources of $43 million. Loans receivable consisted of 1,336 loans made to native Hawaiian lessees for the purposes specified in the Hawaiian Homes Commission Act. Loans are for a maximum amount of approximately $453,000 and for a maximum term of 30 years. Interest rates on outstanding loans range up to 10 percent. Total liabilities included notes, bonds, and capital lease obligations totaling $52 million and temporary deposits payable and other liabilities of $48 million.

Auditors’ Opinion

DHHL RECEIVED AN UNMODIFIED OPINION that the financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles. DHHL also received an unmodified opinion on its compliance with major federal programs in accordance with the Uniform Guidance.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that are considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. There were no findings that are considered material weaknesses in internal control over compliance in accordance with the Uniform Guidance.

About the Department

 

The Hawaiian Homes Commission Act sets aside certain public lands as Hawaiian home lands to be utilized in the rehabilitation of native Hawaiians.  These public lands are managed by the Department of Hawaiian Home Lands (DHHL), a state agency headed by the Hawaiian Homes Commission, whose primary responsibilities are to serve its beneficiaries and to manage this extensive land trust.  DHHL provides direct benefits to native Hawaiians in the form of 99-year homestead leases at $1 per year for residential, agricultural, or pastoral purposes, and financial assistance through direct loans, insured loans, or loan guarantees for home purchase, construction, home replacement, or repair.  In addition to administering the homesteading program, DHHL leases trust lands not in homestead use at market value and issues revocable permits, licenses, and rights-of-entry.  Its financial statements include the public trusts controlled by the Hawaiian Homes Commission.

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Financial and Compliance Audit of the Department of Hawaiian Home Lands
03/27/2020

PHOTO: HAWAII TOURISM AUTHORITY / TOR JOHNSON

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2019

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Hawai‘i Tourism Authority, as of and for the fiscal year ended June 30, 2019. The audit was conducted by Accuity LLP. 


Financial Highlights

FOR THE FISCAL YEAR ended June 30, 2019, HTA reported total revenues of $332.4 million, along with $5 million in transfers from other state departments, and total expenses of $108.3 million. Revenues consisted of $95.5 million from TAT, $9.3 million from charges for services, and interest and other revenues of $3.5 million. HTA also reported the cancellation of approximately $224.1 million in debt service payments on general obligation bonds related to the construction of the Hawai’i Convention Center pursuant to Act 86, Session Laws of Hawai’i 2018, effective July 1, 2018.

 

Total expenses of $108.3 million consisted of $96.4 million for contracts, $7.3 million for depreciation, and $4.6 million for payroll, administrative, and other expenses.

As of June 30, 2019, total assets and deferred outflows of resources of $325.5 million exceeded total liabilities and deferred inflows of resources of $16.5 million, resulting in a net position of $309 million. Total assets and deferred outflows of resources included: (1) cash of $96 million, (2) investments of $3.5 million, (3) land and net capital assets of $196.8 million, and (4) other assets and deferred outflows of resources of $29.2 million.

 

Auditors’ Opinion

HTA RECEIVED AN UNMODIFIED OPINION that its financial statements were presented fairly, in all material respects, in accordance with generally accepted accounting principles.

Findings

THERE WERE NO REPORTED DEFICIENCIES in internal control over financial reporting that were considered to be material weaknesses and no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Special-Purpose Financial Statements for the Hawai‘i Convention Center, as of and for the year ended December 31, 2019, will issue in July.

About the Authority

 

The Hawai‘i Tourism Authority (HTA) is responsible for developing and implementing a strategic tourism marketing plan and developing measures of effectiveness to assess the overall benefits and effectiveness of its marketing plan and its progress toward achieving the agency’s strategic plan goals. HTA is also responsible for the Hawai‘i Convention Center. The primary source of funding for HTA’s operations is the Transient Accommodations Tax (TAT) collected by the State. HTA is governed by a board of directors comprised of 12 voting members, each of whom is appointed by the Governor. HTA was established on January 1, 1999, and is placed within the Department of Business, Economic Development and Tourism for administrative purposes.

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Financial Audit of Hawai‘i Tourism Authority
03/25/2020

PHOTO: DEPARTMENT OF LAND AND NATURAL RESOURCES

AUDITOR’S SUMMARY

Financial Statements, Fiscal Year Ended June 30, 2018

THE PRIMARY PURPOSE of the audit was to form an opinion on the fairness of the presentation of the financial statements for the Department of Land and Natural Resources, as of and for the fiscal year ended June 30, 2018. The audit was conducted by