2004 Annual Report

State of Hawai‘iOffice of the Auditor

Marion M. HigaState Auditor

Essay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Summary of Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Management Audit of the Public UtilitiesCommission and the Division of ConsumerAdvocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Audit of Selected Procurement, Human Re-source, and Fiscal Issues of the Hawai‘i HealthSystems Corporation . . . . . . . . . . . . . . . . . . . . . . . 5

Study of Separation Incentives Provided toPublic Employees Under Act 253 of the2000 Legislature . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Financial Audit of the Department of Health . . . . 6

Financial Audit of the Department of Defense . . . 6

Study of Proposed Mandatory Parity in HealthInsurance Coverage for Additional SeriousMental Illnesses and for SubstanceAbuse . . . . . . . 7

Audit of the University of Hawai‘i Contractwith the University of Hawai‘i Foundation . . . . . 8

Follow-up Audit of Custodial ServicesPrograms of the Department of Accountingand General Services, the Judiciary, theDepartment of Education, and the Univer-sity of Hawai‘i . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Sunrise Analysis: Money Transmitters . . . . . . . . . 9

Assessment of Proposed Mandatory HealthInsurance for Cognitive Rehabilitation . . . . . . . . . 9

Audit of Department of Human Services’Expedited Application Process for PregnantWomen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Review of Revolving Funds, Trust Funds,and Trust Accounts of the Department ofthe Attorney General, the Department ofBusiness, Economic Development andTourism, and the University of Hawai‘i . . . . . . . 10

Management and Fiscal Audit of theHarold L. Lyon Arboretum . . . . . . . . . . . . . . . . . 10

Investigation of the Department of Land andNatural Resources’ Process for DevelopingRecommended Candidate Lists for Appoint-ment to the Island Burial Councils . . . . . . . . . . 11

Audit of Na Wai Ola Waters of Life NewCentury Charter School . . . . . . . . . . . . . . . . . . . 12

Actions Taken on Previous Recommendations . . . . 13(Report Nos. 03-02 to 04-09)

Financial Audit of the John A. Burns Schoolof Medicine of the University of Hawai‘i . . . . . . 13

Financial Audit of the Department of Busi-ness, Economic Development and Tourism . . . . 14

Review of Selected University of Hawai‘iNon-General Funds and Accounts . . . . . . . . . . . 15

Evaluation of the State’s Integrated SpecialEducation Database System . . . . . . . . . . . . . . . . 17

Management Audit of the University ofHawai‘i Incentive Early Retirement Pro-gram (IER) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Follow-Up Audit of the Department ofHuman Servicesí QUEST DemonstrationProject . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Audit of the Department of Education’sSpecial Education Equipment . . . . . . . . . . . . . . . 20

Fiscal Accountability Audit of the Depart-ment of Education: Do Measures ofEffectiveness Impact Funding Decisions? . . . . . . 22

Management and Financial Audit of theHawai‘i Tourism Authority’s MajorContracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Audit of the Department of Human Services’Electronic Benefit Transfer (EBT) Program . . . . . 26

Follow-Up Audit of the Child ProtectiveServices System . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Audit of Kalaupapa Settlement Operationsand Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . 30

Office of the Auditor Appropriations and Ex-penditures on a Budgetary Basis for the FiscalYear ended June 30, 2004 . . . . . . . . . . . . . . . . . . . . . 32

TABLE OF CONTENTS

MISSION OF THE OFFICE

OF THE AUDITOR

THROUGH POSTAUDITS OF THE

ACCOUNTS, PROGRAMS, AND PER-

FORMANCE OF STATE AGENCIES,

THE OFFICE SEEKS TO ASSURE THE

ACCOUNTABILITY OF GOVERN-

MENT AGENCIES FOR THEIR

IMPLEMENTATION OF POLICIES,

MANAGEMENT OF PROGRAMS,

AND EXPENDITURE OF PUBLIC

FUNDS. THE OFFICE REPORTS ITS

FINDINGS AND RECOMMENDA-

TIONS TO THE GOVERNOR AND

THE LEGISLATURE TO GIVE POL-

ICY MAKERS TIMELY, ACCURATE,

AND OBJECTIVE INFORMATION

FOR DECISION MAKING.

The Honorable Members of the LegislatureThe Honorable Linda Lingle, Governor

February 28, 2005

Ladies and Gentlemen:

This Annual Report summarizes the work of the Office of the Auditorin work year 2004. This report, and the audits themselves, spotlightsome of the major issues facing State government.

Good government requires continuous improvement. State workers,although much-maligned, can and do pursue the ideal of improvinggovernment. This effort to reach beyond what has been done beforereflects their optimistic search for something better and does, onoccasion, bring success.

The office continues to use the concept of continuous improvementto foster better government. The improvements made by people atstate agencies, and described in this report, are heartening and reflectour aspirations for an improved government.

Sincerely,

Marion M. HigaState Auditor

STATE OF HAWAI‘IOFFICE OF THE AUDITOR

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It was fashionable many years ago for the Americanbusiness community to wonder why Japanese man-ufacturers were so successful. Americans viewedthe Japanese products as being superior to Ameri-can products—production costs were much lessthan their U.S. counterparts and Japan’s productswere dominating the U.S. markets. Naturally,American business began to study what was thesource of this remarkable success. It was, in oneword, Kaizen.

Kaizen is the concept of gradual unending im-provement by doing things better and setting andachieving higher standards. Kaizen is translatedinto the Western context as the process of contin-uous improvement. The spirit of continuous im-provement is that whatever you are doing, you cando better.

In our work we look for what has been accom-plished, what can be done better, and whether thesituation meets the standards of high quality pub-lic performance. Quality means effective use ofresources as well as the work product. Fortunately,there are examples of this spirit of continuous im-provement in government.

The Follow-up Audit of Custodial Services Programsof the Department of Accounting and GeneralServices, the Judiciary, the Department of Educa-tion, and the University of Hawai‘i, Report No.04-09, found numerous improvements. Our firstaudit, done in 1996, found no cleanliness stan-dards, no management forms to ensure facilitieswere clean, no training programs, no use of costdata to assess the cost-effectiveness of resources,and custodial managers rarely belonged to rele-vant professional organizations. Presently, all fouragencies employ more than 1,600 custodial staffresponsible for about 24.5 million square feet instate facilities. Over $46 million is expended eachyear by these agencies for custodial services.

Since 1996, all four agencies have adopted clean-liness standards. Most of the agencies have devel-oped task lists, checklists and inspection forms.Some have created training programs. For example,the Judiciary uses checklists consistently at theSecond Circuit Court, continually evaluates thecost-effectiveness of its custodial services, and usesits Judicial Education and Resource DevelopmentProgram to create training. Some agencies havepursued training through the Department of Human

Resources Development or have created a trainingposition. Where such resources are not available,in house or on the job training is performed.

Another example of Kaizen is reported in our auditof the Public Utilities Commission (PUC) and theDivision of Consumer Advocacy (DCA), ReportNo. 04-02. Although two prior audits found coredeficiencies in the areas of planning and organiza-tion, the persistent staffing shortages and vacancieshave begun to be addressed. The PUC indicates ithas done a strategic plan with short and long-termgoals, and submitted it to the Legislature. Althoughsome time has passed since the prior audits weredone in 1975 and 1989, both the PUC and DCA in-dicated their intent to continue their improvements.

Another example of a government effort to con-tinually improve is the Department of HumanServices’ decision to expedite the applications ofpregnant women. Before 1994, when Hawai‘i estab-lished the QUEST managed care program, preg-nant women were presumed eligible for medicalservices. With the 1994 establishment of QUEST,pregnant women went through the same processingas all other applicants. This led to concerns thatdelayed medical care, due to lengthy processingtimes, would lead to a negative impact on births.The Department of Human Services establishedan expedited processing goal—that it would process95 percent of pregnant women’s applications withinfive days. Our audit, Report No. 04-12, identifiedseveral items that prevented the department fromreaching its goal department-wide but we alsoidentified one unit that met the goal 100 percent ofthe time. The department indicates it has madeseveral changes in response to our audit in orderto more accurately measure processing times.

The English poet Robert Browning said,

Ah, but a man's reach should exceed hisgrasp, or what's a heaven for?1

Browning was writing about an Italian painter butthis quote could apply to government here and now.It epitomizes the yearning optimism that ought toaccompany our reach for a higher goal. Even much-maligned government workers can, and do, some-times reach beyond their grasp and go so far as toactually make improvements—to carry out Kaizen.

1Robert Browning, Andrea del Sarto (Called “The Faultless

Painter,”) 1855, Lines 97–98.

Essay: Kaizen, a Theme for 2004

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STAFF OF THE OFFICEOF THE AUDITOR

Marion M. HigaState Auditor

Maria B.J. ChunDeputy Auditor

Jan K. YamaneIn-House Counsel/Editor

Calvin K. HangaiAssistant Auditor

Sandra Y. HoshidaAssistant Auditor

Russell WongIT Coordinator

AnalystsUrs C. BauderJulia ChemottiLinden Joesting

Sue KorusLinda Lau

Spencer M.W. LumGreg M. MatsumotoPamela McKeown

Tony SmalleyChad TaniguchiAlbert Vargas

Michele WatanabeRussell Yanagawa

Office ServicesRachel Ray

Debbie M.A. HigaPat Mukai

ExecutiveSecretary

In-HouseCounsel/Editor

IT Coordinator

AdministrativeDeputy Auditor Deputy Auditor

Assistant Auditor

Senior Analysts Analysts Associate Analysts Assistant Analysts

Assistant Auditor Assistant Auditor ProcurementAudit Manager

Secretaries

Auditor

ORGANIZATION OF THE OFFICE OF THE AUDITOR

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PERFORMANCE AUDITS AND STUDIES

• Management Audit of the Public UtilitiesCommission and the Division of ConsumerAdvocacy, Report No. 04-02

• Audit of Selected Procurement, HumanResource, and Fiscal Issues of the Hawai‘iHealth Systems Corporation, Report No.04-03

• Study of Separation Incentives Provided ToPublic Employees under Act 253 of the 2000Legislature, Report No. 04-04

• Study of Proposed Mandatory Parity InHealth Insurance Coverage for AdditionalSerious Mental Illnesses and for SubstanceAbuse, Report No. 04-07

• Audit of the University of Hawai‘i ContractWith the University of Hawai‘i Foundation,Report No. 04-08

• Assessment of Proposed Mandatory HealthInsurance for Cognitive Rehabilitation,Report No. 04-11

• Audit of the Department of Human Services’Expedited Application Process for PregnantWomen, Report No. 04-12

• Review of Revolving Funds, Trust Funds,And Trust Accounts of the Department ofthe Attorney General, the Department ofBusiness, Economic Development, and Tour-ism, and the University of Hawai‘i, ReportNo. 04-13

• Management and Fiscal Audit of the HaroldL. Lyon Arboretum, Report No. 04-14

• Investigation of the Department of Land andNatural Resources’ Process for DevelopingRecommended Candidate Lists for Appoint-ments to the Island Burial Councils, ReportNo. 04-15

• Audit of Na Wai Ola Waters of LifeCharter School, Report No. 05-01

FINANCIAL AUDITS

• Financial Audit of the Department ofHealth, Report No. 04-05

• Financial Audit of the Department of De-fense, Report No. 04-06

SUNRISE ANALYSES

• Sunrise Analysis: Money Transmitters,Report No. 04-10

FOLLOW-UP AUDITS

• Follow-up Audit of Custodial Services Pro-grams of the Department Of Accounting andGeneral Services, the Judiciary, the Depart-ment of Education, and the University ofHawai‘i, Report No. 04-09

Management Audit of the Public Utilities Com-mission and the Division of Consumer AdvocacyReport No. 04-02, February 2004

The 2003 Legislature through Act 94 requesteda management audit of the Public Utilities Com-mission (commission) and the Division of Con-sumer Advocacy (division). The commissionregulates all chartered, franchised, certificated,and registered public utility companies thatprovide electricity, gas, telephone, telecommu-nications, private water and sewage, and motorand water carrier transportation services in thestate. The division represents the interests ofconsumers of utility services before any state orfederal agency.

We found that the commission and the divisioninitially did not have strategic plans to guidetheir agencies. More importantly, neither agencyhad a vision of Hawai‘i’s utility regulatory futureand its role in that process. Lack of strategic plan-ning was also evident in information technology.Neither the commission nor the division has aformal plan or strategy for information systemsdevelopment. The lack of strategic planningaffects the commission’s and the division’s ad-ministration of laws because both agencies havenot assessed whether their administration oflaws is effective in meeting the public’s needs.However, the commission has indicated that ithas done a strategic plan and submitted it tothe Legislature. The commission has failed to

Summary of Reports – 2004 Work Program

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adopt administrative rules specifying maximumtime periods for approvals despite a mandatein the automatic permit approval law. And thecommission’s complaints system does not ful-fill statutory requirements for a central clear-inghouse.

Poor personnel management planning results instaffing shortage and vacancies, outdated jobdescriptions, inconsistent performance evalua-tions, a lack of formal training programs, andinadequate staff and procedural manuals. Severestaffing shortages may compromise the quality ofthe agencies’ work and result in delay. However,staffing shortages have now begun to be addressed.

The division does not adequately advance theinterest of the public in its failure to fulfill itsrole in utility education and to assess the ap-propriateness of rule making. The division hasnot educated the public on public utilities reg-ulation and has not assessed whether to adoptrules to carry out its responsibilities. The divi-sion stated that it has no plans to perform suchan assessment or adopt rules.

We recommended that both agencies makestrategic planning and personnel management apriority.

Audit of Selected Procurement, Human Re-source, and Fiscal Issues of the Hawai‘i HealthSystems CorporationReport No. 04-03, February 2004

The Hawai‘i Health Systems Corporation (cor-poration) was created in 1996 as an independentagency attached to the Department of Health.It replaced the department’s Division of Com-munity Hospitals. The 1996 act creating thecorporation requires it to develop policies andprocedures for procurement consistent with thegoals of public accountability and public procure-ment practices, and encourages the use of pro-visions of the Hawai‘i Public Procurement Code.

Since its inception, the corporation has dependedon state funding for operations and improve-ments, yet the corporation has not embracedthe State’s commitment to open, competitivebidding. Instead the corporation has adoptedprocurement practices that clash with govern-ment accountability. Lenient policies and a lack

of oversight facilitate discretionary contractabuses and result in millions of dollars in non-bid contract awards.

We also found that the corporation’s hiring prac-tices increase costs, risk substantial penalties,and may violate payroll tax laws. Hiring expen-sive independent contractors to perform essen-tially the same function as lower-paid employeesillustrates an award process that emphasizesconvenience over competition. And misclassi-fying workers as independent contractors mayexpose the corporation to liability for taxes andpenalties. Furthermore, corporate perks to man-agement employees are difficult to reconcilewith government accountability.

The corporation uses municipal leases to raisemoney for equipment and infrastructure im-provements. However, municipal leases are notsubject to the State’s debt ceiling but the Statemay be obliged to pay if the corporation is unableto make payments. Municipal leases accountfor over $53 million. And in spite of the mas-sive need for capital, the corporation does nothave a comprehensive long-term capital spend-ing plan for the whole system.

We recommended the corporation strengthenoversight, develop policies on hiring indepen-dent contractors, reassess its termination andseparation policies, and establish accountabilitystandards for capital investments.

Study of Separation Incentives Provided To Public Employees under Act 253 of the 2000LegislatureReport No. 04-04, March 2004

The Legislature asked us to review the separa-tion incentives law, Act 253, Part V, passed in2000. The law authorizes the executive branchto offer voluntary severance or a retirement in-centive for certain state employees. Those em-ployees, whose positions were identified forabolishment, directly affected by a reduction-in-force (RIF), or workforce restructuring plan, wereeligible for the incentive. Other jurisdictions,such as the counties, could also offer a specialretirement incentive under a RIF or workforcerestructuring plan. The separation incentives area tool to assist in restructuring government. How-ever, incorrect implementation and low agency

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participation limited this tool’s effectiveness.

It appears that the separation incentives programwas not evenly applied by either the Depart-ment of Human Resources Development (DHRD)or the Department of Budget and Finance (B&F).These departments did not develop guidelinesfor all participating agencies, did not monitorworkforce restructuring activities, or conclu-sively remove abolished positions from the bud-get files. This failure to provide specific guidanceprobably contributed to the problems with theHawai‘i Health System Corporation’s program.

The Hawai‘i Health System Corporation (corpo-ration) is a separate state entity that implementeda separation program. The corporation’s programallowed its employees to choose whether ornot to retire and then abolished the positionrather than first identifying positions to abolish.The corporation also offered cash buyouts toits employees and 13 people opted out of theirjobs and were paid about $275,000.

We found that the separation incentives law hasdone little to reduce the overall size and cost ofgovernment. Only two jurisdictions participatedresulting in a total of 88 positions, with a savingsof $2 million annually, being abolished govern-ment wide. We recommended, along with otherspecific ideas, that DHRD and B&F collaboratewith all government jurisdictions to ensure ef-fective implementation of the separation incen-tives program.

Financial Audit of the Department of HealthReport No. 04-05, March 2004

The Office of the Auditor and the certified pub-lic accounting firm of KPMG LLP conducted afinancial audit of the Department of Health forthe fiscal year July 1, 2002 to June 30, 2003.The audit examined the department’s financialrecords and transactions, reviewed the relatedsystems of accounting and internal controls, andtested transactions, systems, and proceduresfor compliance with laws and regulations. Theopinion of the firm is that the financial state-ments fairly present the department’s financialposition.

There were, however, deficiencies with respect tothe department’s internal controls over financial

reporting and operations. There were severalproblems surrounding use of the procurementcode and contract administration. In a sampleof 14 out of 60 purchases of less than $25,000,the department failed to comply with Chapter103D, Hawai‘i Revised Statute (HRS), and itsimplementing regulations.

The department’s contract management processlacked formal policies and procedures. In asample of 30 contracts we found that three con-tractors were allowed to begin work before alegally binding contract was executed. Althoughsmall in number, the three contracts totaledabout $22 million.

Moreover, required federal financial reportswere not timely submitted. Failure to complywith federal reporting standards can jeopardizefederal funding. We recommended a checklistsystem to remind personnel of the deadlinesand that managers monitor report submissions.

The department lacks formal policies or proce-dures to identify and lapse invalid encumbrances.After projects or services have been completed,the remaining money should be unencumbered.

And finally, the department lacked control overits petty cash accounts. There were 48 accountstotaling $46,405 with individual account bal-ances ranging from $100 to $10,000. We recom-mended that the department perform periodic,unannounced petty cash account reviews by anemployee independent of the process. We alsorecommended that the department adhere to itsown policies of semi-annual reconciliations andconsider requiring petty cash reconciliationsupon each request for replenishment.

Financial Audit of the Department of DefenseReport No. 04-06, March 2004

The Office of the Auditor and the certified pub-lic accounting firm of PricewaterhouseCoopersLLP conducted a financial audit of the Depart-ment of Defense for the fiscal year July 1, 2002to June 30, 2003. The audit reviewed the depart-ment’s financial records and transactions, therelated systems of accounting and internal con-trols, and tested transactions, systems, and pro-cedures for compliance with laws and regulations.The opinion of the firm is that the financial

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statements, except for accounting relating tocapital assets, fairly present the department’sfinancial position.

Problems relating to the department’s capitalassets were the reason for the qualified opinion.There was inadequate accounting for capitalassets because the department failed to ade-quately document capital asset costs and de-preciation and restated the prior period capitalassets balance to reflect additional capital assetsthat should have been previously capitalizedand depreciated.

There were three other concerns. The first waswith the management of contracts. Contractfiles were not properly maintained, bid openingprocedures were not followed, small purchasevendor selection was not documented, screen-ing committee requirements were not followed,and services were rendered before contracts wereexecuted. Because the department’s supportingdocuments for its procurement decisions wereincomplete, the department was not in compli-ance with the procurement code.

Secondly, the department did not correctly allo-cate wages on a timely basis. Some departmentemployees are paid by state and federal funds.Our review of pay periods revealed that payrollwages were incorrectly charged to federal fundsrather than split between federal and state funds.Although there were later corrections to theseerrors, there are no procedures to ensure changesare timely.

Our last concern was that certain federal finan-cial status reports were not filed on time. Wesampled 15 out of 68 quarterly reports fromFY2002–03. Of the 15 there were five that thedepartment submitted late. Although there wasno penalty in this instance, we recommendedthat the department establish formal writtenprocedures to ensure responsibility for timelyreports.

Study of Proposed Mandatory Parity In HealthInsurance Coverage for Additional SeriousMental Illnesses and for Substance AbuseReport No. 04-07, April 2004

The Legislature requested a social and financialassessment of the effect of mandating parity, or

full coverage, in two areas of health insurance.The request was made in Senate ConcurrentResolution No. 116, Senate Draft 1, House Draft1 (SCR No. 116). The areas are serious mentalillness and substance abuse. The Legislatureproposed adding delusional disorder, major de-pression, obsessive compulsive disorder, anddisassociative disorder to the definition of seri-ous mental illness. Under Hawai‘i law, disordersincluded in the definition of serious mental ill-ness benefit from insurance coverage on a parwith other medical and surgical conditions.Coverage of other mental illness and substanceabuse treatment is mandated by statute as well,but with benefit limits not applicable to seriousmental illnesses.

We found that the social and financial impactsof mandating parity in health insurance cover-age for the expanded definition and for substanceabuse are unclear. The data required by SCRNo. 116 were not available. We surveyed prac-titioners, consumer groups, employer and labororganizations, and other stakeholders but couldnot draw a definitive conclusion because of alow response rate of 16 percent. Although theapplicability of another state’s experience islimited, we reviewed Vermont since it had acase study. Vermont had, overall, a minimal in-crease in initial costs and no substantial increasein premiums in the initial years. The overallminimal cost was a reflection of a decline insubstance abuse treatment and a low increasein mental health treatment in managed care.

This result is consistent with the U.S. Depart-ment of Health and Human Services study whichconcluded state laws had a small effect on pre-miums. The same study shows that employershave not opted for self-insurance to avoid manda-tory coverage laws and do not tend to pass onthe costs to employees.

However, determining the social impact of thelegislative proposal in Hawai‘i was more diffi-cult. Findings on potential financial impact weresparse. For Hawai‘i, the two major health planinsurers reported that only a small percentageof patients exceeded the current benefit limitsfor mental illness and substance abuse treatment.

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Audit of the University of Hawai‘i ContractWith the University of Hawai‘i FoundationReport No. 04-08, May 2004

This audit fulfills a request from the 2002 Leg-islature to review a contract between the Uni-versity of Hawai‘i and the University of Hawai‘iFoundation. Under the contract the foundationprovides fundraising, stewardship, and alumnirelations services. In turn the university paysmore than $3 million per year from 2002 toFY2007–08 for the services. The 2002 contractsucceeds a 1997–2002 contract for $1 millionper year for the university’s 1997–2002 fund-raising campaign.

We found two serious problems with the fund-raising contract: there were neither well-foundedplans nor well-articulated expectations. Instead,the contract language lacks clear descriptionsof mutual responsibilities, deliverables, andperformance standards making it difficult tomonitor performance. These issues led us toother problems outside of the language of thecontract.

The contract was negotiated and processed out-side the university’s procurement process, whichviolated the university’s own sole source pro-curement requirements. Then, when the Boardof Regents considered the contract, it used onlya minimal amount of information to unanimouslyapprove the contract.

The Board of Regents is the entity to receive,manage, invest, and account for gifts on behalfof the university. Oversight of these gifts re-quires reports, standards, and policies to ensurethe proper handling of money and faithfulnessto donor intent. These policies should havebeen incorporated into the contract. The lackof specific policies to foster accountability madethe board’s oversight even more difficult.

We recommended that contracts for fundraisingservices be processed within the university’scontracting system and have the specific lan-guage that ensures accountability. We also rec-ommended that the Board of Regents developpolicies for fundraising; monitor and audit fund-raising activities; and ensure that donor inten-tions are fulfilled.

Follow-up Audit of Custodial Services Programsof the Department Of Accounting and GeneralServices, the Judiciary, the Department of Edu-cation, and the University of Hawai‘iReport No. 04-09, May 2004

This office conducted a follow-up audit of cus-todial services used by four state entities. Thefollow-up was to assess progress made sinceour 1996 audit. The 1996 audit recommendedestablishing fundamental management con-trols. This year we found that some controlshave been partially implemented but severalremain weak.

Our five recommendations in 1996 were to:adopt relevant cleanliness standards; use tasklists, checklists, and inspection forms to moni-tor and measure custodial tasks; develop train-ing programs; use cost data to assess the costeffectiveness of resources used and to comparealternative delivery methods; and that custodialprogram managers belong to relevant profes-sional organizations to stay abreast of industrytechniques and standards.

All four entities have adopted some manage-ment controls. For example, three of the fourhave adopted cleanliness standards from theAssociation of Physical Plant Administrators(APPA). However, the standards were not putinto written procedures but were only passedon through occasional memos and verbal com-ments to staff. Staff revealed that they were un-aware of such standards. The fourth entity, theDepartment of Education, created its own stan-dard and incorporated it into a manual for cus-todial services. The lack of clearly communicatedprocedures to enforce the standards makes itimpossible to monitor the quality of services.

The remaining four areas where we recommendedimprovement had similar problems. For exam-ple, program managers created checklists andinspection forms. But use of these forms wasleft to chance, again resulting in inconsistentservice. As to training - all entities have someparts of a formal training program but actuallyrelied heavily on on-the-job training. The otherareas left incomplete were cost data to assesseffectiveness and compare alternative servicemethods, and custodial program managers be-longing to relevant professional organizations.

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Sunrise Analysis: Money Transmitters Report No. 04-10, October 2004

The 2004 Legislature asked the Office of theAuditor to analyze whether money transmittersshould be regulated as proposed in House BillNo. 2428. This request was specifically madethrough House Concurrent Resolution No. 90,House Draft 1. Money transmitters are non-bank entities that send money between personsby any means, including wire, facsimile, orelectronic transfer. These transfers can be in-side or outside the United States. The bill pro-posed regulating money transmitters throughthe Department of Commerce and ConsumerAffairs, Division of Financial Institutions.

The proposed bill’s purpose is to protect con-sumers from harm if funds are delayed or notreceived. It would also protect the general pub-lic from the transfer of money for criminal pur-poses. The Hawai‘i Regulatory Licensing ReformAct, found in Chapter 26H, Hawai‘i RevisedStatutes, states that professions and vocationsshould only be regulated when reasonably nec-essary to protect the health, safety, and welfareof consumers. Other guidance was from theCouncil on Licensure, Enforcement and Regula-tion, a international organization, that produceda publication Questions a Legislator Should Ask.According to this publication, the primary guid-ing principle for legislators is whether the unreg-ulated profession presents a clear and presentdanger to the public’s health, safety and wel-fare. If it does, then regulation may be necessary.

We did further work to broaden the scope of ourinformation. We surveyed financial institutions,regulatory agencies in other jurisdictions, andinquired into what harm may have occurred inHawai‘i. After considering all of the input, wefound little evidence of harm to consumers orthe public.

We also found little evidence to link the use ofmoney transmitters to facilitate crimes. The vastmajority of money transfers through a Hawai‘ientity would be interstate or international. Po-tential illegal interstate or international trans-actions would be under federal jurisdiction.Given the apparent lack of harm and the pres-ence of other laws, we recommended that HouseBill No. 2428 not be enacted.

Assessment of Proposed Mandatory HealthInsurance for Cognitive RehabilitationReport No. 04-11, November 2004

The 2004 Legislature requested that the Officeof the Auditor assess the social and financialimpacts of mandating insurance coverage forcognitive rehabilitation, pursuant to sections23-51 and 23-52, HRS. The request was madethrough Senate Concurrent Resolution No. 37.The Legislature expressed concern because ofthe lack of services, long rehabilitation processfor such patients, and the lack of coverage bysome health benefit plans.

Cognitive rehabilitation is one form of medicaltreatment for impairments due to traumaticbrain injury. Traumatic brain injuries affectphysical and cognitive functions. Cognitivefunctions include things such as memory or in-formation retrieval; comprehension; thoughtprocessing; attention span; prioritizing thoughts;following a schedule; and understanding abstract,conceptual or complex information. Cognitiverehabilitation refers to strategies or techniquesthat seek to reduce, manage, or cope with theimpaired functions.

There were two initial problems with perform-ing a social and financial assessment of mandat-ing insurance coverage. First, there is, accordingto the State Department of Health, no standardoperational definition for cognitive rehabilitation.Second, existing studies have not definitivelydetermined the effectiveness of cognitive reha-bilitation. While current literature indicates thereare on-going studies, even those studies lack astandard definition for cognitive rehabilitation.

In addition to the above research, we surveyedconsumers and insurance companies. Theirconflicting views reflected the uncertainty wefound in the medical community. Consumersindicated a moderate to significant demand forservices while insurers indicated little to nodemand. The labor unions expressed no over-all position. Since mandatory health insurancefor cognitive rehabilitation appears premature,given the lack of a definition and definitivescientific research, we made no recommendations.

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Audit of the Department of Human Services’Expedited Application Process for PregnantWomenReport No. 04-12, December 2004

The Department of Human Services’ Med-QUEST Division manages the State’s medicalassistance programs including Medicaid assis-tance for pregnant women and a managed careprogram called QUEST. Before the State estab-lished QUEST in 1994, pregnant women werepresumed eligible and permanent Medicaid eli-gibility was determined later. After QUEST wasimplemented, pregnant women went throughthe same lengthy eligibility process as everyoneelse. There were concerns that this added timedelayed prenatal care for pregnant women andcould have a negative impact on births.

To address this concern the department volun-tarily established an expedited application proc-ess in 2004. They stated that they would process95 percent of pregnant women’s completed ap-plications within five business days and thenmaintained statistics showing that they mettheir goal. However, we found that while thedepartment made notable progress, it actuallyfell short of its goal. There were three reasonsfor that shortfall.

First, we reviewed and tested the department’sstatistics by looking at application files and cal-culating compliance rates. Actual compliancerates ranged from 71 to 100 percent. Secondly,the understanding of the standard used to mea-sure the number of processing days varied amongdivision staff and supervisors, resulting in dif-ferent measurements of the actual processingtimes. And thirdly, the actual statistics kept bythe division staff differed from what was in thecomputer database and used to calculate thedepartment’s statistics.

The Office of the Auditor was also asked toanalyze whether a return to presumptive eligi-bility would benefit pregnant women. We foundthat presumptive eligibility may not be anybetter than the present expedited process, andmay cost more and be a barrier to early prenatalcare. Reduced federal requirements and depart-ment efforts have already streamlined the proc-ess making presumptive eligibility unnecessary.Our recommendation is that the department

needs further time with expedited processing.We believe it may be too early to conclusivelydetermine results as the Department has onlysix months of data for its analysis.

Review of Revolving Funds, Trust Funds, AndTrust Accounts of the Department of the At-torney General, the Department of Business,Economic Development, and Tourism, and theUniversity of Hawai‘iReport No. 04-13, December 2004

The Office of the Auditor is required by Hawai‘ilaw to review revolving and trust funds andtrust accounts every five years. There are spe-cific criteria used to review each fund: whetherthe fund’s purpose matches the fund’s actualuse, a five year financial summary, and othercriteria developed by our office using publicfinance and accounting literature. This is ourthird report for the above three agencies.

Of the 92 funds and accounts we reviewed, 60were revolving funds, 16 were trust funds, and16 were trust accounts. Revolving funds areoften established with seed money from thegeneral fund, demonstrate the capacity to beself-sustaining, and then are replenished throughthe activities of the fund. Trust funds create afiduciary responsibility by the State to use theassets for another’s benefit. Such trust fundshave a purpose and a specific group of peoplefor whom it is intended. Trust accounts are ty-pically holding or clearing accounts for stateagencies. These accounts are often used to proc-ess credits or charges to agencies for payroll orother costs.

We presented conclusions about the use of thefunds meeting their criteria, but not about theeffectiveness of the program or program man-agement which uses the funds.

Management and Fiscal Audit of the Harold L.Lyon ArboretumReport No. 04-14, December 2004

The 2004 Legislature requested a managementand fiscal audit of the Harold L. Lyon Arboretum(arboretum) through Senate Concurrent Resolu-tion 115. The arboretum is located in ManoaValley on the island of Oahu, covers about 194acres, and houses a collection of native and

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exotic plants. It was given in 1953 by theHawai‘i Sugar Planters’ Association to theUniversity of Hawai‘i for use as an arboretumor botanical garden.

The audit focused on the university’s strategicplanning and management control of the arbore-tum. Our review revealed a lack of strategicdirection leaving the arboretum outside the in-tegrated planning of the university. The lack ofa strategic plan has left the arboretum subjectto the whims of its staff and the Lyon Arbore-tum Association rather than the university’spolicy-makers. The Lyon Arboretum Associa-tion is a separate, non-university, non-profitentity that raises funds and supports the opera-tions of the arboretum.

The university’s lack of interest in integratingthe arboretum extends to a disinterest in man-agement controls, and the controls that do existhave been inadequate. Arboretum operationslack proper organizational structures, accurateposition descriptions, meaningful staff perfor-mance evaluations, a systematic budgeting proc-ess, and proper financial and inventory account-ing. Land use violations were found becausestructures were built without proper permits.Without effective management controls, thearboretum fell into disarray.

Part of the neglect includes inattention to thearboretum’s fiscal and procurement practices.There has been inadequate funding for the ar-boretum’s physical facilities. Its deterioratingstructures endanger staff and visitors. Neitherplans were created nor resources sought to per-form regularly scheduled maintenance.

One of our recommendations was that the uni-versity begin a strategic planning process, butonly if the arboretum fits into the institution’soverall mission. This process, along with theuse of management controls, should bring theuniversity closer to honoring the stewardshipgranted to it many years ago.

Investigation of the Department of Land andNatural Resources’ Process for DevelopingRecommended Candidate Lists for Appoint-ments to the Island Burial CouncilsReport No. 04-15, December 2004

The 2004 Legislature requested a review of thenomination and appointment of candidates tothe island burial councils through its HouseConcurrent Resolution No. 165, Senate Draft 1.The island burial councils, part of the HistoricPreservation Program created under Chapter6E, Hawai‘i Revised Statutes, are administeredthrough the Department of Land and NaturalResources (DLNR). The purpose of the coun-cils is to decide on the preservation in place orrelocation of Hawaiian burial sites; assist theDLNR in the inventory and identification ofnative Hawaiian burial sites; and make recom-mendations on appropriate management, treat-ment, and protection of burial sites. We alsoreviewed the statute creating the program andthe support services provided by the DLNR.

The concerns about a disorderly council ap-pointment process were partially corroborated.While one list was submitted on time, laterlists were slower to develop. This resulted in alarge number of interim and holdover mem-bers. We also found that the nomination processlacked criteria for regional representative can-didates. The DLNR did not develop guidelinesto guide these nominations nor maintain recordson potential council members’ qualifications.

The historic preservation law, essentially un-changed since it was passed in 1990, containsflaws. These flaws compound the difficulty inadministering the law. For example, the Officeof Hawaiian Affairs is to submit a list of candi-dates, but to whom the list is to be submittedis unclear. Despite recognizing the need for cor-rection to the law, the department did not pur-sue any amendments.

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Finally, the department’s lack of commitmentto the burial sites program foreshadows futureproblems. Functional statements, organizationcharts, policies and procedures had not beendeveloped. Inadequate staffing persisted and ledto a substantial backlog of work leaving hun-dreds of cases unfinished.

Audit of Na Wai Ola Waters of Life CharterSchoolReport No. 05-01, January 2005

Na Wai Ola Waters of Life Charter School wasestablished in 2000 on the Big Island and pro-vides regular and special education to over 130students in kindergarten to grade 12. We foundthat defects in the charter school law, a lack ofoversight by the State Board of Education, andthe school’s governance and business practiceshave contributed to the school’s fiscal crises.

The charter school law lacks clear delineationsof authority and responsibility resulting in con-flicting roles and uncertainty. It also provideslittle basis for ensuring accountability andschool viability, while failing to address otherissues that may expose the State to unintendedliabilities and entanglements. Such issues includeownership of real property purchased by charterschools, liability for debt, and the risks associ-ated with business ventures undertaken by char-ter schools to supplement their income. Theseissues arose at Waters of Life Charter School.

The Board of Education awarded a charter toWaters of Life based on an inadequate business

plan and before the school was ready to effec-tively and responsibly manage its finances. Thesedeficiencies contributed to later managerial andfinancial school problems. The board has notheld the school accountable and has no reliablemeasures of the school’s educational success.The board’s oversight also failed to ensure thatteachers are properly qualified under the char-ter and comply with health and safety require-ments.

Waters of Life Charter School’s faulty planningand governance practices have contributed toits financial woes. Its board lacks the diversityand experience needed to oversee the adminis-tration of an annual budget nearing $1 million.The poor fiscal management has caused wasteand loss and leaves the school’s decision makerswithout reliable financial information. Schoolexpenditures, $2.6 million since inception, lackjustification and documentation. Uncertaintyabout meeting its future financial commitmentsclouds the future of the school.

Follow-Up Audits (1)7%

Financial Audits (2)14%

Performance Auditsand Studies (11)

79%

TYPES OF REPORTS 2004

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RECOMMENDATIONS

1. The school should revise its planning for contractnegotiations by allowing more time for contractnegotiation and execution, such that services com-mence only after the contracts have been finalizedand executed. In addition, the school should reviewthe process used to prepare the final contract rec-onciliations to ensure that the final bills are sentout in a timely manner.

2. The school should take more seriously the con-sequences of not identifying conflict of interestsituations on a timely basis and enforce policies,procedures, and deadlines for completion and sub-mission of the annual disclosure forms and outsideemployment forms.

ACTIONS TAKEN

The school has revised its process of planning for con-tract negotiations to improve timeliness of contractexecution:

Draft budgets for salary and fringe reimbursementagreements are sent to department chairs and hospitaladministrators in early April;

Requested edits are evaluated and incorporated by earlyMay; and,

Final drafts are then distributed to all parties with thegoal of obtaining all signatures by the end of June.

The school is still in the process of building an infor-mation system that will automate the budget processwhich is expected to further improve the timelinessof the contracting process.

In addition, the school has improved the process usedto prepare the final contract reconciliations by perform-ing monthly reconciliations to minimize unreconcileditems at the end of the contract period thereby reduc-ing the amount of time necessary to prepare and sendout final bills.

Since the audit, the school strictly enforces policiesand procedures designed to identify and resolve con-flict of interest situations on a timely basis. The schoolensures that deadlines for completion and submissionof annual disclosure forms are met. School departmentsare required to have its personnel complete the dis-closure forms by April 15 of each year. The departmentssend a summary of the results along with informationon any unresolved potential conflict situations to theschool’s dean’s office by May 15 of every year. Thedean’s office then summarizes this information on theschool level and sends it to the Manoa chancellor’soffice by June 30. The school follows through to ensurethat all potential conflict situations are quickly re-solved. Personnel are also reminded about the policyfor outside employment forms on an annual basis. Theschool requires that outside employment forms be sub-mitted by personnel before they engage in the outsideactivity.

Actions Taken on Previous Recommendations(Report Nos. 03-02 through 04-09)

Report Title: A Financial Audit of the John A. Burns School of Medicine of the University of Hawai‘iReport No.: 03-02

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RECOMMENDATIONS

We recommend that the Hawai‘i Tourism Authority:

• Execute formal contracts before contractors per-form services;

• Monitor contracts and relevant agreement termsin a complete and timely manner. Final reportsshould be received from contractors by the com-pletion date stipulated in the contract. Further,final payments should be withheld from contrac-tors until final reports are received and approved;and

• Perform final evaluations of each contractor priorto entering into any subsequent agreements withthem.

We recommend that the Department of Business,Economic Development and Tourism:

• Reconsider its decision to place top priority on loansissued to high technology and biotechnology busi-nesses in order to increase participation in the depart-ment’s loan programs by small businesses in Hawai‘i;

• Implement a formal marketing strategy to increasepublic awareness of its various loan programs.These efforts could include preparing information-al packets for distribution to loan officers at vari-ous financial institutions in Hawai‘i. Loan officerscould then provide the informational packets toloan applicants who are initially denied credit bythe financial institution but may qualify for thedepartment’s various loan programs;

• Revise procedures to monitor delinquent accountsby contacting borrowers as soon as their accountsbecome ten days past due. For participation loans,the department should coordinate collection effortswith lead financial institutions to ensure collec-tion of past due amounts;

• Establish written guidelines for the following loanfunctions: loan origination, maintenance of loanfiles, loan payment processing, and monitoring ofdelinquent borrowers;

• Ensure that loan files are properly maintained andcontain all required documentation. The department’s

ACTIONS TAKEN

The authority will continue to work with its privatecontractors to provide all required documentation on atimely basis that will fulfill the technical requirementsfor contracting with a state agency.

Despite continuing staff shortages, the authority hasreorganized its staff to closely monitor a contractor’sperformance and to enforce current contract provisionsthat allow withholding of final payment until reportsare received and approved.

The implementation of the Auditor’s recommenda-tions has also been incorporated into the work planof authority staff.

The Hawai‘i Capital Loan Revolving Fund was repealedas of July 1, 2004. No loans are being made.

No new actions taken after the audit.

Loan delinquent reports for both direct and participa-tion loans are prepared monthly. However, the depart-ment has established better coordination between theloan staff and the accounting section to ensure imme-diate collection follow-up via telephone and letters.

The department’s loan program staff is comprised ofone loan officer. The purpose of the loan program is tosupport businesses that would not be able to obtainloans from traditional sources. As such, a decision wasmade that preparing lengthy written guidelines wouldnot be a good use of taxpayer’s funds given limitedresources available.

No new actions taken after the audit.

Report Title: Financial Audit of the Department of Business, Economic Development and TourismReport No.: 03-03

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standardized checklist of all required loan file doc-umentation should be consistently utilized to ensureproper file maintenance; and

• Deposit loan repayments on the day of receipt.

We recommend that the department:

• Adhere to established policies and procedures tounencumber funds relating to contracts/purchaseorders that are fulfilled during the year;

• Periodically evaluate the propriety of all outstand-ing encumbrances. Ensure that all encumbrancescorrespond to active and ongoing projects or pur-poses; and

• Promptly unencumber encumbrances related toclosed, terminated, and/or completed projects orpurposes.

We recommend that the department:

• Perform periodic, unannounced reviews of each divi-sion’s petty cash account reconciliations, includingunannounced cash counts. An employee independentof the petty cash process should perform the review;

• Adhere to established policies requiring divisions toprepare and submit reconciliations of their pettycash account upon each request for replenishment.If reconciliations are not prepared and submitted,the fiscal office should not process the replenish-ment request; and

• Significantly reduce the amount of funds in theadministration petty cash fund.

RECOMMENDATIONS

The president of the University of Hawai‘i shouldensure that:

a. Adequate written policies and procedures are devel-oped for the Research and Training Revolving Fundto ensure that the fund is used as originally intended;

The department has updated internal fiscal procedureswhich require deposit of loan payments on the day ofthe receipt whenever feasible.

All contracts and purchase orders which are fulfilledare closed out within 30 days in compliance withestablished policies and procedures.

The department's contracts section has continued towork with the programs by notifying them withinthree months of the expected termination of a contract.At that time, the program is required to either followprocedures to extend the contract or close out theunfulfilled contract.

Close project monitoring of all contracts is also beingdone by the department to ensure proper administra-tion and timely completion of outstanding projects.

To date, 98 percent of all outstanding contracts havebeen closed with remaining funds unencumbered. Theremaining 2 percent of outstanding contracts are cur-rently in the process of being closed or resolved.

The department’s fiscal section has conducted unan-nounced cash counts for several petty cash funds andhas documented the procedures followed and resultsof the reviews.

The department’s fiscal section has been reviewingeach replenishment request for compliance with de-partmental policies and procedures. Currently no re-plenishment request is being processed without thesubmittal of the required petty cash fund reconcilia-tion from the program.

The department reduced its administration’s Petty CashFund to reflect a lower level required for its currentoperations.

ACTIONS TAKEN

Written policies and procedures covering expendi-tures and allocations for the Research and TrainingRevolving Fund have been issued by the VicePresident for Research.

Report Title: Review of Selected University of Hawai‘i Non-General Funds and AccountsReport No.: 03-04

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b. Adequate written policies and procedures are devel-oped for the Tuition and Fees Special Fund to ensurethat revenues are appropriately allocated, expended,and monitored;

c. The State Higher Education Loan Fund’s writtenpolicies and procedures are reevaluated to ensurethat loan collections are maximized;

d. A responsible party is designated to oversee theTuition and Fees Special Fund and the Researchand Training Revolving Fund;

e. Endowment Fund expenditures are adequatelymonitored to ensure that the endowment fundaccounts are being used as originally intended;

f. Contracts and agreements funded by the Tuitionand Fees Special Fund, Real Property and FacilitiesUse Revolving Fund, and State Higher EducationLoan Fund are executed, monitored, and enforcedin a timely manner;

g. The University of Hawai‘i Foundation contract toprovide fundraising, stewardship, and alumni rela-tion services is amended to require the foundationto adhere to its expenditure policies; and

h. The University of Hawai‘i Foundation contract isamended to ensure that the university has theexpress authority to monitor and review the foun-dation’s services and expenditures.

The Board of Regents should institute the followingreporting requirements:

a. Regular reports from the university president onnon-general fund revenues and expenditures; and

b. Monthly reports from the University of Hawai‘iFoundation detailing specific contract expendituresand a description of how those expenditures directlybenefited the university.

Written policy for the Tuition and Fees Special Fundwas developed by the university Budget Office. Thepolicy was submitted to the Vice President for Ad-ministration and Chief Financial Officer for review.This policy has not yet been adopted

The loan collection office reviewed its operating pro-cedures and implemented several changes to improvecollections. These include implementing an “early in-tervention” program, skip-tracing, and a more aggres-sive follow-up program.

In response to this recommendation, the university’sbudget director was designated as the responsible in-dividual for overseeing the Tuition and Fees SpecialFund and the Vice President for Research was assignedresponsibility for the Research and Training RevolvingFund.

Program heads are primarily responsible for ensuringthat endowment funds are used as intended. Addi-tionally, the university will conduct spot audits ofprogram expenditures to help ensure that funds arebeing appropriately spent.

Stronger monitoring practices by the university’s pro-curement office were implemented to help address thisissue. Additionally, a memorandum was issued tothe University Executive Council and the Council ofChancellors reminding university departments of theneed for timely execution of contracts.

The Board of Regents has established a task groupto work with the university administration and thefoundation in developing a revised contract

As indicated above, the Board of Regents has estab-lished a task group to work with the university admin-istration and the foundation in developing a revisedcontract. Additionally, foundation personnel provideperiodic written and oral reports of expenditures andother performance measures to the university’s Boardof Regents.

The university administration submits quarterly reportson non-general fund budget versus actual revenues,expenditures, and transfers to the Board of Regents.

The University of Hawai‘i Foundation’s Vice Presidentfor Administration and Chief Financial Officer providean oral and written report each quarter explaining thedetails of how the money from the university was spentby the foundation for fundraising. Each month the VicePresident for Admission and CFO detail expenses foralumni relations and the development staff payroll;the Associate Vice President for Alumni Relations re-ports on alumni relations activity; and the FoundationPresident reports on its fundraising activities and giftsto the university.

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RECOMMENDATIONS

1. The superintendent of education should:

a. Address the ISPED infrastructure and web siteissues to encourage ISPED utilization;

b. Establish an adequate system to address userquestions and concerns;

c. Ensure that ISPED meets all Felix consentdecree requirements;

ACTIONS TAKEN

Critical issues expressed by users are being addressed.They include:

• Improved printing of IEP and progress reports; im-proved document editing in the eligibility module,and others requested by users.

• ISPED changes are restricted to no more than 2 re-freshes per year.

• Three servers will be replaced and be in use inJanuary 2005.

• All schools are now networked and connected tothe Wide Area Network.

• Archive specifications have been modified so thatmore data can be archived. This is being testedand is expected to be in use in December 2004.

• Special education teachers will receive, in phases,new IBM laptops and training. The first phase beganin July 2004 and will go through January 2005.

• A December 2003 survey of the 943 special educa-tion teachers revealed that 84 percent noted improve-ments to ISPED, 7 percent noted no improvement,and 9 percent had no response or chose not applic-able.

• Web issues were addressed in October 2002 underindustry standards and continue to be maintainedunder specific guidelines.

“Help ISPED” emails are monitored, tracked, andresponded to in a timely manner, usually within 24hours.

Recurring questions and concerns are identified andusers are informed through ISPED homepage announce-ments, the FAQ, or by training.

The department is implementing a central help desk, anautomated help desk, and a tracking system. ProjectTraksoftware is being used by two system help desks butlacks the security needed to insure confidentiality.This is being addressed with the vendor and will beimplemented with the help desk conversion.

The U.S. District Court has found the department, in-cluding ISPED, in substantial compliance with theFelix consent decree. An April 2004 Stipulation forStep-Down Plan and Termination of the Revised Con-

Report Title: Evaluation of the State’s Integrated Special Education Database SystemReport No.: 03-05

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d. Ensure that future contracts are properly exe-cuted and supported and clearly tie contractor’sremuneration to measurable deliverables;

e. Ensure that ISPED ownership rights and poten-tial royalty income from the sale of theserights is addressed;

f. Clarify the departments’ organizational struc-ture as it relates to ISPED and establish formalguidelines that clearly delineate roles andresponsibilities;

g. Ensure that staff position descriptions are up-dated and adequate, consistent training programsare implemented for ISPED staff and users, andstaff are regularly evaluated;

h. Ensure that ISPED’s budget and expendituresare adequately tracked, monitored, and scruti-nized on an on-going basis;

i. Ensure that efforts to obtain Medicaid reim-bursements, federal funds, federal reimburse-ments, and private funds are maximized andmonitored by a centralized authority; and

j. Establish formal guidelines on how to utilizeISPED to meet state and federal requirements.

RECOMMENDATIONS

1. The Board of Regents should assess the merits ofthe Incentive Early Retirement Program and con-sider eliminating the program.

sent Decree requires five quarterly performance reportsto be posted on a web site. Much of the data for theperformance reports is generated by ISPED.

All vendor contracts are defined by clear statementsof work addendums. Invoices reflect the statementsof work and are carefully reviewed to insure all deliv-erables are fulfilled.

The department has full ownership rights to ISPED.The MOU between Spectria and the department wasmutually dissolved in November 2002.

ISPED’s roles and responsibilities are outlined in anISPED organization chart.

Position descriptions for ISPED staff have been updatedto reflect enhancements to roles and responsibilities.Staff evaluations are conducted as required, new staffreceived an initial orientation and training, and on-going peer training is provided to create a well roundedand informed team.

ISPED expenses are carefully monitored, routinelyscrutinized, and operations and projects are deliveredon time and within budget.

The department continues to monitor the changingenvironment for school-based Medicaid reimbursementclaims. In 2004 the department requested, but wasdenied, legislative funding for a Medicaid claims in-frastructure. The funding would have included changesto the ISPED infrastructure.

Medicaid claims cannot be implemented until ISPED’sfunctionality is resolved. Meanwhile, the departmentcontinues to monitor how claims are done in otherstates so as to be prepared to implement claims whenpolicy and funding issues are resolved.

Utilization memos are regularly sent to the field. TheISPED process database helps to ensure compliancewith Chapters 53 and 56. The ISPED homepage alsohas links to the most “Frequently Asked Questions”and the ISPED User Manual.

ACTIONS TAKEN

The Incentive Early Retirement (IER) program has beenassessed and determined to be an effective means ofretaining experienced employees to support universityprograms while replacements are recruited. In manycases, the IER program also results in cost savings ashigher paid senior employees are replaced with newhires at lower pay levels. We have also found that the

Report Title: Management Audit of the University of Hawai‘i Incentive Early Retirement Program (IER)Report No.: 03-06

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2. If the Board decides to keep the program, it shouldrequire closer review of the program, including:

a. Determining what types of information aresignificant to the success of IER, and requiringthat all applications include such information(e.g., anticipated cost savings from IER);

b. Considering implementing post-IER evaluationsto determine whether the outcomes of the pro-gram justify its continuation; and

c. Monitoring overall costs and assessingwhether IER has been effective in meeting itshuman resource needs.

RECOMMENDATIONS

1. The Department of Human Services should evalu-ate QUEST’s efficacy and appraise the time and re-sources (human, financial, and physical) necessaryto continue and/or expand the demonstration pro-ject. If the evaluation concludes that the managedcare concept should be continued, statutory author-ity should be sought to make the project permanentand end the newer requirement mandated underthe demonstration waiver process.

2. The Department of Human Services should ensurethat a standard operating procedures manual isadopted and followed by the Med-QUEST Division.The manual should include standard procedures for

opportunity to work part-time is an incentive for em-ployees to retire. Therefore, the IER program servesthe further purpose of creating employment opportu-nities for the people of our state.

The university will more closely review the IER pro-gram to better determine its overall costs and its impacton meeting human resource objectives.

Applications for incentive early retirement usuallycontain information concerning the benefits to theprogram of retaining a retired employee on a part-timebasis, as well as anticipated cost savings.

The IER program will be evaluated annually to deter-mine whether desired outcomes are being achieved.

The overall costs of the program will be determinedannually to determine whether cost savings and/orefficiencies are being realized.

ACTIONS TAKEN

Because QUEST slowed down rising Medicaid costs,the department is currently preparing to submit anapplication to the federal Medicaid agency in Decem-ber 2004 to expand QUEST and provide both acute andlong-term care services for aged, blind, and disabled(ABD) who are currently served in the traditionalMedicaid fee-for service program.

Prior to the audit, the Med-QUEST Division adopteda standard operating procedures manual in 1995 toaddress the processing of applications and active casesbetween MQD and the Benefit Employment Support

NOTE: This report, at Exhibit 2.1, contained some errors. Nonetheless, the outcome on the percent differ-ence varied only by one percent. Our original and updated exhibits are as follows:

Original Exhibit 2.1 – Difference in Salary between Retirees and Higher-Paid Replacements

Total Replacements’ # of Retirees Total Retirees’ Salary Salary Difference % Difference

22 $1,564,809 $2,306,728 $741,919 47%

Revised Exhibit 2.1 – Difference in Salary between Retirees and Higher-Paid Replacements

Total Replacements’ # of Retirees Total Retirees’ Salary Salary Difference % Difference

7 $ 558,825 $ 827,844 $269,019 48%

Report Title: Follow-Up Audit of the Department of Human Services’ QUEST Demonstration ProjectReport No.: 03-07

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processing eligibility applications as well as handlingof cases that are transferred from other departmentaldivisions.

3. The Department of Human Services should evalu-ate HAPA to assess the efficacy of shared technologyto fulfill information system requirements. Thedepartment should also ensure that such alterna-tives are identified and evaluated as part of the in-formation system decision-making process.

RECOMMENDATIONS

The Superintendent of Education should ensure thatthe department:

a. Updates its financial management system to ensurecompliance with state procurement requirements;

b. Establishes standard procedures to ensure thatannual physical inventories are accurately andconsistently performed;

c. Monitors and audits inventory reports to ensurethat schools and offices comply with policies andprocedures established in the department’s propertyinventory guide;

Services Division (BESSD). Unfortunately, the differ-ences in organizational set up, the nature of the case-loads, and geography on all of the islands made the uni-form implementation of the manual difficult. Afterthe audit, the draft of the manual has been submittedfor comments to the BESSD and MQD Branches thatare responsible for eligibility determinations and casemaintenance.

The department concurs with this recommendation,has evaluated the efficacy of shared technology as partof future HAPA planning, and will continue that evalu-ation process.

In the next few months, Hawai‘i and Arizona will bejointly issuing a Request for Information (RFI) to gatherinformation on technical solutions now available in themarketplace, which may meet the business needs ofboth states. The results of the RFI process will be in-corporated in the evaluation of the efficacy of sharingsystems to meet the business requirements of bothstates individually as well as jointly. The Centers forMedicare and Medicaid Services (CMS) continues tosupport the HAPA project. Therefore, any change tothis arrangement will require CMS approval throughan Advance Planning Document (APD). Inherent inthe APD process are requirements for a needs assess-ment, alternative analysis and cost benefit analysis.

ACTIONS TAKEN

The special education program’s need to acquire a largenumber of laptop computers necessitated the purchasethrough a central buyer to obtain the lowest possibleprice. In the future, should bulk purchases be made,we will ensure that inventory records are updated totrack the location of each item.

Submission of annual inventory certification formsindicate the annual physical inventory has been per-formed by the administrator certifying the inventoryreport to be accurate. The department has set up pro-cedures to have the administrative service assistants ofthe School Support Section follow up with delinquentschools to submit the certification form. Follow-upwritten reminders to the respective Complex Area Super-intendents have resulted in 100 percent compliance.

Each request for disposal of property is reviewed todetermine reasonableness for the disposal. Irregularitiesare followed up by our operations section with furtherinvestigation before the item is approved for disposal.For example, if a request is submitted to dispose a miss-ing $800 digital camera, follow-up with the school will

Report Title: Audit of the Department of Education’s Special Education EquipmentReport No.: 03-08

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d. Requires schools and offices to transfer all assetsfrom hold files to fixed asset files prior to conduct-ing their annual physical inventories;

e. Establishes policies and procedures to hold person-nel liable for any negligent loss of special educationequipment;

f. Provides schools and offices with better guidanceon proper inventory management; and

be made unless the camera was previously reportedstolen to the police.

An annual report listing items valued at $5,000 or moreis examined to segregate items which may have beenerroneously valued. Follow-up with schools and officeson questionably valued items is made and correctionsmade as necessary.

Monthly reports of items deleted from the hold fileare monitored by our operations section to minimizethe potential for theft. Follow-up inquiries are madeto resolve suspicious deletion of items.

The responsibility for conducting annual physical auditsand following established policies and procedures isdelegated to each respective school or office. Any reportof potential problems in processing daily transactions,including disposals, property file adjustments and trans-fers of property, are followed up by our operationssection contacting the respective principal, ComplexArea Superintendent, or state office administrator.

In addition to routine reminders to transfer propertyfrom the hold file to the fixed asset file, our operationssection staff has participated in all-day workshops atthe District ITC for schools or offices interested inclearing property from their hold file. The School Sup-port Section is assisting target schools/offices with sub-stantial amounts (greater than $10,000) in the hold file.

In the event material progress in decreasing the valueof the hold file is not achieved within a year, writtennotices of the problem are sent to the principal, thenComplex Area Superintendent, or state office adminis-trator, to clear the backlog of properties in the hold file.

A draft policy is under review; a draft procedure out-lining the proper safeguard of state equipment isawaiting further review before being incorporatedinto the FMS User Policy Guide.

Policies and procedures have been established to holdteachers receiving ISPED laptop computers personal-ly liable for lost or stolen computers unless the fol-lowing circumstances are met: 1) Police report mustbe filed within 10 days of the discovery of the loss;(2) Form E-9, Report of Damage or Loss to StateProperty, must be filed in a timely manner to fileclaim for reimbursement or 3) Information ResourceManagement Branch or CompUSA is contacted toactivate tracking software to assist authorities in therecovery of the stolen computer.

In the Fall of 2003, the importance of accurate inven-tory recordkeeping was emphasized at workshops onall islands. Recommended decal log assignments andsuggestions on how to conduct a physical inventorywere also discussed.

ISPED is tracking laptops through Computrace, a theftand asset tracking system. Each laptop is equippedwith programming which is activated with use of the

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g. Improves the process of redistributing laptop com-puters for the ISPED database.

RECOMMENDATIONS

1. The Board of Education should ensure that thesuperintendent of education:

a. Develops an effective system to assess the suc-cess of programs in attaining objectives. At aminimum, this should include the compo-nents of measurable objectives, related mea-sures of effectiveness, methodical analysis andevaluation, and the budgeting process as partsof a coordinated system.

b. Promotes program management, which is ori-ented towards achieving measurable objectives,and provides adequate training to ensure ap-propriate performance measures are developed,used, and accurately reported.

c. Develops relevant, accurate, and clear measuresof effectiveness serving the needs of the depart-ment as well as legislators.

d. Develops systems to ensure that accurate in-formation is collected and disseminated.

e. Develops a coordinated system, adequatelylinked to the objectives of the State’s budgetingsystem, ensuring that planning and budgetingare strengthened by systematic analysis andevaluations assessing program success and ef-fectiveness.

computer, and may be used by authorities to track usageand the physical location of stolen computers.

ISPED laptop computers are no longer redistributedannually. Since laptops are assigned to an individualteacher, the special education teacher may retain his/her laptop if the employee is being transferred to anotherspecial education teacher position at another school.In order to ensure teachers have proper tools to con-tinue entry of data to ISPED, schools with increasingenrollment may also draw from the laptop ìpoolî cre-ated with fully functioning Dell laptops whose war-ranties have expired.

ACTIONS TAKEN

Under the direction of the Board of Education theDepartment of Education has undertaken a series ofinitiatives to address the recommendations in theAuditor’s report and is working on enhancing its ac-countability system. A new Strategic Plan has a com-prehensive and focused set of measures and bench-marks. In addition, the Department of Education isproducing Educational and Fiscal Accountability TrendReports for every school and complex, as well as forthe system as a whole. These reports provide a clearand transparent summary of the outcomes of the schoolsrelated to student academic achievement, safety andwell being, and civic responsibility.

Report Title: Fiscal Accountability Audit of the Department of Education: Do Measures ofEffectiveness Impact Funding Decisions?Report No.: 03-09

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RECOMMENDATIONS

The Hawai‘i Tourism Authority Board of Directorsand its executive director should:

1. Improve contractor accountability by:

a. Holding contractors accountable for complyingwith their own internal policies and procedures;

b. Conducting periodic audits of contract expen-ditures;

ACTIONS TAKEN

The authority retained Nishihama & Kishida, CPA’s,Inc. (N & K) to conduct a financial audit of HVCBcovering January 1, 2001 to December 31, 2002, andto provide additional information regarding the find-ings made by the Auditor. The authority also retainedCandon Consulting Group, LLC (Candon), to advisethe authority on ways to improve its management andthe reporting of its operational financial activities, in-cluding its oversight of HVCB and other contractors.

The authority relied upon the findings and recommen-dations made by N & K and Candon to use specificcontract provisions. These provisions were incorpo-rated into marketing contracts the authority executedwith five contractors providing tourism marketingmanagement services. As compared to previous mar-keting contracts with HVCB, the current contracts aremore specific and will provide greater accountability.

The contract includes the following contract provi-sions:

• §3.8 (a) authorizes immediate termination if HVCBdoes not comply with its fiscal and travel proce-dures;

• §3.8(d) requires HVCB to pay $25,000 as liquidateddamages for failing to comply with its fiscal andtravel policies;

• §6.4 (a) requires HVCB to operate within the bud-get previously approved by the authority; and,

• §6.7 requires HVCB to warrant that it will be ac-countable to the authority for its contract perfor-mance, and if necessary, the authority may requireHVCB to change its financial reporting and evalu-ation system.

The contract includes the following contract provisions:

• §6.4 requires HVCB to submit monthly and quar-terly reports of its contract expenditures; HVCB isalso required to submit an audited financial state-ment, within 90 days after the end of a calendaryear;

• §6.6 (b) requires HVCB to conduct an audit of itsexpenditures at any time upon the authority’s re-quest; and,

• §6.6 (c) provides the authority with a right to con-

Report Title: Management and Financial Audit of the Hawai‘i Tourism Authority’s Major ContractsReport No.: 03-10

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c. Placing a limit on the amount of state fundsthat can be used for contractors’ administrativeexpenditures;

d. Placing a limit on the amount of state fundsthat can be used for contractors’ personnelexpenses;

e. Prohibiting contractors from using contractfunds for legal expenses that are unrelated tothe contract; and

f. Requiring contractors to:

1) Record expenses in accordance with gener-ally accepted accounting principles;

.

2) Limit state-funded expenditures to contract-related purposes;

duct an independent third-party audit.

The contract includes the following contract provisions:

• §3.1 (a) requires HVCB to submit a yearly itemizedbudget, for the authority’s prior approval, of HVCB’smonthly administrative overhead expenses;

• §4.3 provides that no more than 10 percent of totalrevenues from state funds, cooperative funding, andin-kind contributions shall be used for adminis-trative expenditures; and

• §6.4 (e) itemizes the various types of expendituresthat HVCB can expend for administrative overheadpurposes.

The contract includes the following provisions:

• §4.3 provides that no more than 10 percent of totalrevenues from state funds, cooperative funding, andin-kind contributions shall be used for administra-tive expenditures, including the salaries, benefits,health insurance, and payroll taxes of employeesperforming administrative functions; and

• §6.4 (e) itemizes the various types of expendituresthat HVCB can expend for administrative overheadpurposes.

The contract includes the following provisions:

• §3.8 (a) (v) provides for the immediate terminationof the contract if state funds are used for legal ex-penses unrelated to the contract; and,

• §3.8 (d) requires HVCB to pay $25,000 in liquidateddamages if it uses state funds for legal expensesunrelated to the contract.

HVCB has implemented many of the recommendationsof the Candon report, including the establishment ofan Audit Committee to supervise HVCB’s internalaudit function and the independent audit of its finan-cial statements. HVCB’s employees are also currentlybeing trained on the requirements of GAAP.

Section 3.4(f) of the HVCB contract requires all ex-penses to be recorded on an accrual basis in accordancewith GAAP.

Section 3.1 of the HVCB contract requires HVCB to pro-vide an itemized annual budget for HTA’s prior approval.

Section 3.5 requires HVCB to obtain HTA’s approvalfor any change in the pre-approved budget that exceeds$75,000.

Section 3.8 allows HTA to terminate the contract ifHVCB breaches its duty to use state funds for contractpurposes.

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3) Establish an adequate contract managementsystem that includes appropriate controlsand policies and procedures over contractprocurement, filing and documentation,amendments, monitoring, and evaluation;

4) Provide specific information on the amountof state funds spent on personnel costs, over-head, and other administrative expenses;and

5) Implement and enforce appropriate policiesand procedures over the use of state fundsfor travel and entertainment expenses.

2. Enforce all contract provisions;

3. Improve its contract language to specify graduatedpenalties for non-compliance and deadline dates forsubmission of reports, and to require the submissionof reports that contain relevant and reconcilableinformation that ties contractor performance tomeasurable objectives and outcomes specified inthe contract; and

4. Maintain and apply contracting policies and pro-cedures and continue to conduct performanceevaluations of its contractors.

RECOMMENDATIONS

1. The State and Legislature should take appropriatesteps to assess the extent to which HVCB violatedgenerally accepted accounting standards under itscontracts with the Hawai‘i Tourism Authority forleisure marketing and meetings, conventions andincentives marketing.

HTA has either completed or is continuing its imple-mentation of the Candon report to improve oversightof HVCB’s operations.

Section 6.7 of the HVCB contract grants HTA the rightto require HVCB change its financial reporting andevaluation system.

Section 3.1(a) of the HVCB contract requires HVCBto submit an annual budget, for prior approval, of itsadministrative overhead expenses.

Section 4.3 states that no more than 10% of total rev-enues from state funds, cooperative funding, and in-kind contributions shall be used for administrativeexpenditures.

Section 6.4(e) itemizes the various expenses that canbe considered administrative overhead.

Section 3.8 of the HVCB contract allow HTA to termi-nate the contract or require HVCB to pay $35,000 asliquidated damages for violating fiscal policies relatedto travel and entertainment expenses.

Section 4.3 states that travel expenses in excess of$25,000 per month must be presented to HTA forapproval.

HTA’s contract with HVCB has specific contract pro-visions to provide greater accountability for expendi-ture of public funds. HTA has reorganized its staff formore direct communication with HTA’s marketing con-tractors. Financial guidance from N & K and Candon’srecommendations provide a framework upon whichHTA can monitor the contract.

Section 6.4 of the contract requires monthly and quar-terly financial reports of expenditures, including alisting of all variances from the approved budget. HTAis also able to enforce the contract provisions throughits analysis of financial reports.

The HVCB contract has provisions that provide forfinancial penalties; withholding of payment; timedeadlines for responding to requests for information;monthly and quarterly financial reports; evaluations;and late fees for failure to submit reports.

HTA will use the Candon report recommendations,conduct an annual evaluation of its marketing contrac-tors, and evaluate the monthly and quarterly reports.

ACTIONS TAKEN

The Governor's Office relied on the Hawai‘i TourismAuthority to take appropriate actions on the recom-mendations made by this report, and we concur withtheir actions taken to resolve this matter.

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RECOMMENDATIONS

The Department of Human Services should:

1. Hold managers accountable for compliance withmanagement evaluation review recommendationsby monitoring and disciplining supervisors whodo not conduct required case reviews;

.2. Consider system-wide causes and solutions whenmanagement evaluations and quality control reviewsidentify problems at more than one unit;

3. Develop formal follow-up procedures to ensure thatmanagement evaluation recommendations areproperly implemented, which would require:

a. Supervisor to complete required reviews;

b. Eligibility workers to delete all unnecessaryalerts;

c. Development of a plan and timeframe detailinghow and when actions will be completed toaddress recommendations; and

d. The management evaluation team to revisitsites and assess implementation of recommen-dations.

4. Require supervisors to use checklists when review-ing case files and to include them in the case fileas evidence of supervisory review;

5. Require eligibility units to use the HAWI-generatedform letter to verify rental expenses;

ACTIONS TAKEN

All units statewide have already been complying withthis mandate and all Section Administrators (SAs) havebeen complying with the re-reviews with the excep-tion of SAs 1 & 2 on Oahu. SAs 1 & 2 are currentlybeing trained on how to complete a re-review and willbegin reviews shortly and will be monitored by theOahu Branch Administrator.

No new initiative has been taken for reasons stated inour original audit response. The department alreadyconsiders system-wide causes and solutions whenmanagement evaluations and/or quality control iden-tify problems at more than one unit.

Addressed in recommendation #1.

The department has not mandated a statewide clean-up of all alerts as there has never been any evidencethat it is a statewide problem or that not deleting alertscreates an error prone area. The department believesthat alert problems with individual sections, units and/or eligibility workers are best handled at the supervi-sory level on a case by case basis. The departmenthas addressed this problem and now provides theneeded follow-up to ensure compliance. As evidenceof this, all responses for management evaluationsconducted in CY 2003 and 2004 have been received.

The department does not have the resources necessaryto revisit management evaluation sites to assess im-plementation of recommendations. The departmentbelieves its follow-up is sufficient to ensure that rec-ommendations are addressed.

No new action taken in response to the audit.

The department does not believe that a HAWI gener-ated form letter to verify rental expenses is necessary.We also noted that the department’s current processfor verifying rental expenses has been approved by thefederal Food and Nutrition Service.

Report Title: Audit of the Department of Human Services’ Electronic Benefit Transfer (EBT) ProgramReport No.: 03-11

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Report Title: Follow-Up Audit of the Child Protective Services SystemReport No.: 03-12

6. Improve control over EBT card inventories, ensur-ing that:

a. Voiding cards requires necessary approvals; and

b. Supervisors’ access to EBT cards is controlled.

7. Analyze costs incurred for replacement of EBT cards,including identifying:

a. Costs (cards and labor) incurred for replacingcards; and

b. Strategies or alternatives used by other statesthat charge for card replacements.

8. Require the EBT section to coordinate with thedepartment’s Office of Information Technology toincrease the usefulness of transaction data providedby the contractor and reproduce the even-dollarreport in a more useful format;

9. Preserve the federal Food Stamp program’s integri-ty by issuing a policy to guide the EBT section inidentifying participants suspected of using EBTcards for unauthorized activities; and

10. Regularly review the list of authorized EBT systemusers and last log-in activity report to ensure sys-tem security. The department should require thecontractor to clearly identify the user’s full nameon the list.

RECOMMENDATIONS

1. The Department of Human Services should clarify,strengthen, and enforce existing management con-trols to ensure that all child abuse and neglectreports are investigated as appropriate.

Specifically, the department should:

a. Provide training to all Child Welfare ServicesBranch administrators, supervisors, and staffon the necessity of management controls;

b. Provide and require increased training and over-sight to ensure that risk assessment matricesare properly and consistently used during caseintake, assessment, and case management.Supervisors should hold social workers account-able when matrices are not used as required;

The department revised the EBT Card Issuance Requestform, DHS 1490, and issued it on August 15, 2003.This was done simultaneousl with our audit report.

For reasons that were stated in the department’s orig-inal response to the State Auditor’s recommendations,no actions have been taken by the department.

After further discussions with the department’s Officeof Information Technology, the department’s originalcomments about the voluminous size of the reportcontinue to be a factor in the development of utiliz-ing this data.

The department is continuing to pursue this issue bycreating a third position for the EBT section. However,after the 2004 Legislature deleted this vacant position,the division has had to start over with the creation ofthis third EBT position, which it currently is doing.

The department’s access to their EBT system ischanged to a web-based Browser system, which willallow for new reports. The department is currentlyworking with its EBT contractor for a monthly reportwhich will identify the current EBT users.

ACTIONS TAKEN

The importance of management reports and manage-ment controls was re-emphasized in the Child WelfareServices Branch Staff Meeting with Section Admin-istrators on January 7, 2004.

The department is updating its intake, safety and riskassessment tool. As part of implementing the newprocess, training will be provided by the NationalResource Center on Child Maltreatment by February2005 as well as ongoing quality assurance through thenew supervisory case reviews and case reviews similar

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c. Track all cases referred to investigation and en-sure that dispositions are made within 60 days.Supervisors should hold investigators who failto comply with this policy accountable;

d. Clarify that all supervisory reviews of disposi-tions must be indicated on only one CPSS screento eliminate confusion and errors, and to pro-mote consistency; and

e. Ensure that section administrators hold super-visors accountable for monitoring and reviewingintake reports, risk assessment matrices, 60-day disposition deadlines, and case dispositions.

2. The Child Welfare Services Branch shouldimprove intra-agency and interagency communi-cation.

Specifically, the branch should:

a. Hold supervisors accountable for monitoring andreviewing case records, including electronicrecords;

b. Carefully monitor voluntary foster custodyplacements to ensure that Family Court juris-diction is sought when required. Supervisorsshould be held accountable for ensuring all vol-untary foster custody agreements are properlyexecuted; and

c. Ensure all cases that may involve criminalactivity are referred to the appropriate countypolice department.

3. The department should initiate filing for perma-nency hearings when families are unwilling orunable to complete family service plans. In addi-tion, the department must ensure that permanen-cy planning begins within 12 months after achild’s placement in foster care.

4. The department should improve its managementof contracted services. Specifically, the depart-ment should:

a. Identify in a monthly master list all childrenand families authorized to receive services fromeach private provider. Contract monitors shouldreconcile this list to contractor’s invoices andactivity reports prior to authorizing payments;

b. Compel caseworkers to track all children andfamilies receiving services and require that

to the federal Child and Family Services Review (CFSR)that will be conducted on an ongoing basis.

Cases are being tracked by administrators and super-visors and emphasis is being given to this area as partof our new continuous quality assurance plan.

Supervisory reviews of investigative dispositions arecontained in the CU/CD52 screens.

The department is moving toward this goal with oursupervisory and case reviews. This is part of our newcontinuous quality assurance plan.

The department is moving toward this goal with oursupervisory and case reviews. This is part of our newcontinuous quality assurance plan.

This is being done now. Printouts are sent to theunits. The printout reminds workers of the 90 dayand 180 day timelines. Supervisors review the listand instruct the workers to file petitions for fostercustody if the deadline is approaching.

This continues to be done.

The intent of the federal regulation to determine apermanency plan for children within 12 months is notto prematurely force children into guardianship oradoption instead of family reunification when a periodlonger than 12 months would allow the children to bereunited in a safe family home. Service plans that allowfamilies more than 12 months are not necessarily out-side the federal guidelines. The department petitionsthe court for permanency when there is a determina-tion that the child’s family cannot or will not providea safe family home for the child within a reasonable time.

The department believes this recommendation is un-necessary and too costly to implement.

As part of our contracted services, providers are requiredto submit regular reports to the caseworkers. Case-

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regular progress reports be submitted by serviceproviders and reviewed by caseworkers; and

c. Review utilization levels for each privateprovider annually after the first contract yearand make adjustments for the upcoming con-tract year to ensure that costs do not exceedusage.

5. The department should hold staff from the ChildWelfare Services Branch and the Benefit, Employ-ment and Support Services Division accountable forpreventing overpayments of temporary assistanceto families whose children are placed in foster care,and payments to foster care providers when chil-dren are removed from their care.

Specifically, the department should:

a. Enforce the requirement that Child WelfareServices staff notify Foster Care-Income Main-tenance Unit workers within two workingdays of a child’s removal from the family. Re-quire Foster Care-Income Maintenance Unitworkers to notify Benefit, Employment andSupport Services Division income maintenanceworkers within two working days of a child’sremoval from the family home when the fami-ly is receiving Temporary Assistance to NeedyFamilies. Moreover, ensure that Benefit, Em-ployment and Support Services Division incomemaintenance workers adjust assistance pay-ments and flag overpayments on HAWI; and

b. Enforce the requirement that social workersdocument children’s foster care placement andremoval in their case files, and update CPSSwith placement information. In addition, re-

workers are responsible for obtaining reports on thechildren and families in their individual caseloads.

The department is in the process of implementingperformance-based contracting by July 1, 2005. Ac-countability under the new performance-based con-tracts will be by utilization and outcomes, which willbe reviewed quarterly. Providers that are under per-forming our contract measures in any quarter, as de-fined in the contract, will be required to implementcorrective action plans. Contract language allows ad-justments at any time. If the corrective action plansare unsuccessful by specified deadlines, the State mayadjust contract funding or terminate the contract.

Unit supervisors expect the notice of removal to becompleted and sent to the Foster Care-Income Main-tenance (FC-IM) Unit within two working days of achild’s removal from the family.

The FC-IM Unit supervisor receives and reviews amonthly CWS inventory report of all children in fos-ter care to see whether there are children on the listwho have not been referred for IV-E determination.

BESSD has recently given SSD/CWS improved accessto BESSD’s HAWI computer system. This allows theCWS worker to review his/her case to see whether thechild is receiving assistance from BESSD. If so, CWSnotifies the BESSD worker.

BESSD is currently developing a form for CWS to useto request medical coverage for foster children and tonotify BESSD that a child has been placed in fostercare. This form will be used to request removal fromthe BESSD budget if necessary and to request medicalassistance. The form will go to the appropriate BESSDunit and MQD unit. The MQD unit will also reviewthe request to see if the BESSD unit was notified andif the child was correctly removed from the budget.If not, MQD will also contact the BESSD unit. Themedical case will not be opened until the child hasbeen removed from the BESSD budget. When the childis removed and medical established, the form will bereturned to CWS confirming this information. The formis to be filed in the foster care record. This processshould be finalized and implemented by the end of2004.

Supervisors have supervisory conferences with socialworkers regarding their cases and to monitor socialworker’s client contacts. As part of our quality assur-ance, screens have been created in CPSS that function

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quire social workers to routinely contact fosterchildren to ensure that payments do not con-tinue to families after a child has left a fosterhome.It is the role of the assigned staff to com-plete the forms and CPSS screens for a child’splacement and removal. The unit supervisormonitors the assigned staff’s work to make surethat this is done and updated.

6. The department should ensure that all potentialTitle IV-E funds are captured and not lost.

Specifically, the department should:

a. Provide ongoing training to Title IV-E staff toensure that procedures are followed, deadlinesare emphasized, and new methodologies areincorporated for all components of Title IV-Edetermination; and

b. Track all children placed in foster care to en-sure they are referred for Title IV-E eligibilitydetermination within two days and those deter-minations do not exceed the 180-day limit.

RECOMMENDATIONS

1. The director of health should ensure that the depart-ment develops appropriate Hawai‘i AdministrativeRules that specifically address patients’ non-medicalneeds and other appropriate concerns.

2. The department should draft a formal policies andprocedures manual for Kalaupapa Settlement, whichshould include, but not be limited to, settlementrules, inventory controls, food credit program lim-itations, and employee benefits allotted beyondthose required by collective bargaining agreements.

as supervisory tools. The screens capture whether theSW is making monthly contacts with CWS childrenand families. Social worker visits will be closely moni-tored as we respond to areas needing improvementidentified by the Federal CFSR.

In February 2004 and September 2004, Title IV-E staffattended trainings on the use of the Preponderance ofthe Evidence Method for Title IV-E determination. Thetrainings emphasized procedures, deadlines, and newmethodology for Title IV-E determination.

All children are referred for eligibility determinationwithin two days. The two-day notification timelineis an internal procedure, and the 180-day eligibilitydetermination deadline refers only to court documents,not to the overall eligibility determination that can beaccomplished within a two-year period for claimingfederal funds.

ACTIONS TAKEN

A Kalaupapa community meeting was held on January 8,2004 to discuss the pros and cons of creating admin-istrative rules or internal policies to address somedeficiencies identified in the audit. It was agreed thatrules may sometimes, but not always, be the bestmethod to address the needs of the Kalaupapa com-munity. The majority of the time program policieswould be more effective to address patient concerns.

Before this audit was completed the department hadprepared, in August 2003, a manual of its policies andprocedures. This manual, assembled by the Kalaupapaadministrator, was provided to the Patient AdvisoryCouncil to address the patients’ frustration of notknowing the policies and procedures of KalaupapaSettlement. After the audit the department reviewedand updated all policies and procedures mentioned inthe audit. Examples of updates include store operationsand child visitation policies.

The department is working with the attorney general’soffice on a policy to address the ownership of patientbeach houses. New and amended policies are providedto the Patient Advisory Council as they are adopted. Thedepartment is currently recruiting a planner who willamend as well as develop new policies and procedures.

Report Title: Audit of Kalaupapa Settlement Operations and ExpendituresReport No.: 03-15

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3. The department should hold the Kalaupapa ad-ministrator accountable by updating his positiondescription, providing him with training, andevaluating him thoroughly.

4. The department should hold both the branch ad-ministrator and the Kalaupapa administrator ac-countable to a timetable for improving non-medicalconditions.

An updated job description has been submitted to theDepartment of Human Resources Development forformal approval. Changes were made to include tasksthat are more interpersonal in nature in recognitionthat the position requires more than a technical facil-ities manager.

Using the results of a patient survey, training sessionsfor the administrator were arranged, a remediationplan of the administrator was developed and imple-mented, and an evaluation of the administrator wascompleted by the patients.

Many improvements, including those identified in theaudit and others, have been implemented. Improve-ments include:

• Monthly community meetings,

• Quarterly meetings with the patient council,

• Purchase of a van for the patients,

• Purchase of appliances for the patients, and,

• Revision of the visitor quarters policy at the requestof the patients.

The Kalaupapa administrator was required to undergoa special three-month remediation and evaluation peri-od, which was passed at an above satisfactory level.The evaluation was based on concerns identified bythe patients and used patient feedback as part of theevaluation. The department will continue to closelyevaluate the administrator on his interpersonal skillswith patients, his actions to address audit deficiencies,as well as his regular duties and responsibilities. Thebranch administrator meets with the deputy directormonthly, is reviewed on an on-going basis, and receivesan annual review.

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RECOMMENDATIONS

1. The Department of Health should fulfill all of itsresponsibilities under Chapter 342G and Chapter342H, HRS, by:

a. Inspecting facilities on a regular basis;

b. Developing a training program for landfilloperators, as well as its own employees;

c. Ensuring that the state and county integratedsolid waste management plans are revised andsubmitted as required;

ACTIONS TAKEN

The department’s priority is illegal facilities and com-plaints. As of November 2004 the solid waste pro-gram received over 270 complaints which average as90 complaints for each of our three inspectors. Thisexceeds the number of complaints for 2003. We aremaking every attempt to respond to each and everycomplaint we receive and are inspecting every illegalfacility that is brought to our attention. As each illegalfacility requires cleanup actions to be implemented,multiple inspections occur at these sites.

We have conducted over 80 compliance inspectionsof permitted facilities as of September 30, 2004. Wetypically select a given type of facility (and sometimesa given island) to focus on a given year and conductinspections on this selection. This type of compli-ance inspection selection provides for a level playingfield for competing facilities.

As discussed during the audit, the department was inthe process of revising the training program from ex-ternal contracts to internal training sessions based onthe recommendations of the Landfill Operations Work-group. The Landfill Operations Workgroup, which ismade up of landfill managers throughout the state,discusses proper management techniques and proce-dures to meet regulatory requirements.

During calendar year 2004, the department has so farconducted three landfill training sessions for landfilloperators.

Regarding training for the department’s solid wastestaff, the staff has been given the opportunity to at-tend six classes within the state, as well as three con-ferences or technical training sessions out-of-state.Training sessions have ranged from enforcement tosampling techniques to risk communication.

Enforcement on the submission of county integratedmanagement plans for which state funding is not pro-vided is considered to be an “unfunded mandate” and,therefore, unconstitutional. The auditor’s report statedthat funding for planned revisions is available withinthe department’s expenditure ceiling but we believethat assessment was incorrect. The solid waste pro-gram only receives about $500,000 per year to operateits primary regulatory and planning functions. Theremaining funding in the environmental managementspecial fund is statutorily limited in use to the glass

Report Title: Audit of the Department of Health’s Administration of A Statewide Solid Waste Programand Assessment of Related Land Use PoliciesReport No.: 04-01

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d. Ensuring that required facility reports are sub-mitted on time; and

e. Pursuing enforcement action when necessary.

2. The department should develop a database orother tracking system that will assist it in main-taining facility files, enforcing permit and reportdeadlines, and allowing for the easier and fasterexchange of information within the departmentand between the department and the counties.

3. The department should also monitor remainingcapacities of all landfills in the state throughenforcement of solid waste permit requirementsand enforcement of requirements for integratedsolid waste management planning by the coun-ties.

advanced disposal fee and tire programs. It is from this$500,000/year budget that funding can be made avail-able to the counties. The state would need to makeavailable about $1.25 M every 5 years which accountsfor 50 percent of the entire budget over a 5 year period,leaving only $250,000 per year to fund 10 positionsand the operating budget of the solid waste program.

Current funding does not allow the department to fullyfund the counties’ solid waste management plans. Ourplan is to provide partial funding to the counties forthe development of the plans during FY 2003-04.

Until the solid waste program receives additional fund-ing such that the program can fully fund the counties’plans, it will be difficult for the department to enforceon the lack of county submissions.

Annual reports are due to the solid waste programby July 31 for the preceding fiscal year, so that statewaste diversion rates may be calculated. Remindernotices are given to permitted solid waste manage-ment facilities prior to the due date. If necessary, fol-lowup calls are made to the facilities.

Enforcement action is pursued when deemed neces-sary by the department. The solid waste program firstattempts to work with the facility (whether illegal orpermitted) to come into compliance. If necessary, in-formal enforcement (warning letters) and then formalenforcement (notice of violations and order) are pur-sued. The program is not adverse to the idea of usingenforcement action when needed.

The Environmental Health Administration of theHawai´i Department of Health, which includes thesolid waste program, was awarded a One Stop Grantunder the U.S. Environmental Protection Agency’sOne Stop Program to improve information manage-ment within and among all of its environmental pro-grams. To achieve this goal the Environmental HealthAdministration contracted with American Manage-ment Systems to assess existing systems and to cre-ate an information management blueprint for makingimprovements. The blueprint includes facility track-ing, permit tracking, environmental reporting, com-plaint management, and enforcement modules. Themodules will be implemented using a common infor-mation management framework and informationmanagement standards. The exchange of informationwill be improved through the use of a common portalto the modules. The plan is near finalization and theimplementation phase of the One Stop project isexpected to begin shortly.

The enforcement of solid waste management permitswill not ensure adequate landfill capacity, as permitsmay be modified to allow for landfill expansions, andpermit expirations do not necessarily reflect the lifeof the landfill. The more appropriate means to moni-tor available landfill capacity is to enforce the develop-ment and implementation of county integrated solidwaste management plans. However, as discussed

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4. The department and the counties must initiatethe process of siting, planning, and permitting anew landfill many years before the facility is actu-ally needed.

RECOMMENDATIONS

1. The department and the counties must initiatethe process of siting, planning, and permitting anew landfill many years before the facility is actu-ally needed.

RECOMMENDATIONS

1. The department and the counties must initiatethe process of siting, planning, and permitting anew landfill many years before the facility is actu-ally needed.

RECOMMENDATIONS

1. The department and the counties must initiatethe process of siting, planning, and permitting anew landfill many years before the facility is actu-ally needed.

above, it is difficult to enforce the submission of planswithout state funding, as it is construed to be an “un-funded mandate,” and, therefore, unconstitutional.

The department is not responsible for landfill siting.While the department’s solid waste program isresponsible for evaluating and permitting landfillsites and operations, the responsibility of landfill sit-ing lies with the counties and/or private entitieslooking to construct the landfill. The department isable to provide technical assistance during the selec-tion process to ensure the protection of public healthand the environment. The department does not havea statutory mandate to select specific landfill sites forthe counties.

ACTIONS TAKEN

The County of Maui, Solid Waste Division, submit-ted an application for a solid waste permit in Novem-ber 1, 2004. The permit is for operations relating toPhase IV-A, and the entrance facility at Central MauiLandfill. Phase IV-A is a (10) acre cell. A request forfunding for FY2006 relates to the design and construc-tion of Phase IV-B (8 acre cell).

Anticipated life for total phases A and B is (10) years.The division also plans to request funding in FY2007for land purchase for phase V and VI. Total life ex-pectancy is about 25 to 30 for this area.

The division also requested funding to create a 5 to 7year integrated solid waste plan.

ACTIONS TAKEN

The County of Kauai completed a landfill siting studyin March 2001 and has continued discussions withowners of the sites under consideration. Funding isbudgeted to perform planning tasks (engineeringstudies and environmental impact studies) once thenew site is selected. The administration’s intent is toimmediately pursue development and permitting ofthe site once planning studies are conclusive.

ACTIONS TAKEN

The County of Hawai´i went through the siting, plan-ning, environmental assessment, and permitting forthe West Hawai´i Sanitary Landfill in South Kohalain the late 1980s/early 1990s. The County of Hawai´ipresently has the largest solid waste managementcapacity in the State of Hawai´i. It is in the process ofplanning, permitting, and constructing a major recy-cling facility to, among other things, extend the lifeof the South Hilo and West Hawai´i Sanitary Landfills.The county has implemented many of the compo-nents provided in the Update to the Integrated SolidWaste Management Plan for the county completed inDecember 2002 to provide a comprehensive systemfor dealing with solid wastes in the most efficient andcost-effective manner. The County of Hawai´i cur-rently has no plans on siting a new landfill.

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RECOMMENDATIONS

1. The department and the counties must initiatethe process of siting, planning, and permitting anew landfill many years before the facility is actu-ally needed.

RECOMMENDATIONS

1. The Public Utilities Commission and the Divisionof Consumer Advocacy should engage in strategicplanning. Specifically:

a. The Public Utilities Commission’s chair and ad-ministrative director should develop a strategicplan for the commission; and

b. The Department of Commerce and ConsumerAffairs’ director should fill the Division of Con-sumer Advocacy’s executive director position.The departmental director, as consumer advo-cate, and the division’s executive director shouldthen develop a strategic plan for the division.

Both agencies’ planning processes should in-clude all relevant stakeholders, including theagency, regulated companies, and utility con-sumers.

2. The Public Utilities Commission and the Divisionof Consumer Advocacy should make addressingtheir respective agency’s personnel managementissues a priority. This should be undertaken by thedirector of finance and the commission’s chair andadministrative director, and by the director of com-merce and consumer affairs and the division’s ex-ecutive director, respectively.

3. The commission and division should collaborateand hire a consultant to develop an informationsystem that shares common information andprocesses but keeps separate information secured.

ACTIONS TAKEN

The City and County of Honolulu decided on Decem-ber 1, 2004, that Waimanalo Gulch Sanitary Landfillwill continue as the City’s municipal solid wastelandfill. Available capacity at that site can accommo-date refuse for over fifteen years at the present inflowrate. We intend to significantly decrease inflow ratesthrough the expansion of H-POWER, increase recy-cling, and diversion of specific materials to other dis-posal sources, so the site life can be extended further.

ACTIONS TAKEN

The division’s executive director position was filledon May 17, 2004. The executive director and his staffare in the process of preparing a draft strategic planfor the division which will be distributed to relevantstakeholders for comment and input. In addition torepresenting ratepayers before the commission, theplan will also emphasize the importance of the divi-sion’s role in consumer education, access to informa-tion, and in advocating for consumers in otherforums.

See above.

The division’s executive director is currently workingwith the department’s personnel officer and the Depart-ment of Human Resources Development to re-describeseveral positions and to reorganize the division’s per-sonnel structure. This will provide more flexibility andallow the division to better recruit and retain well-qualified staff. The division has recently filled itsvacant supervising attorney and integrated resourceplanning analyst positions and is in the process ofrecruiting for staff attorney and auditor positions.

The commission and division have been collaboratingin the development and acquisition of such a docu-ment management system. We have attended severalpresentations by vendors to obtain information aboutthe available options. We are currently working with

Report Title: Management Audit of the Public Utilities Commission and the Division of ConsumerAdvocacyReport No.: 04-02

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4. The division should conduct an assessment of theneed and value of its own separate set of rules tosupplement or fill in gaps in the commission’srules.

RECOMMENDATIONS

1. The Public Utilities Commission and the Divisionof Consumer Advocacy should engage in strategicplanning. Specifically:

a. The Public Utilities Commission’s chair andadministrative director should develop astrategic plan for the commission; and

b. The Department of Commerce and ConsumerAffairs’ director should fill the Division of Con-sumer Advocacy’s executive director position.The departmental director, as consumer advo-cate, and the division’s executive director shouldthen develop a strategic plan for the division.

Both agencies’ planning processes should includeall relevant stakeholders, including the agency,regulated companies, and utility consumers.

2. The Public Utilities Commission and the Divisionof Consumer Advocacy should make addressingtheir respective agency’s personnel managementissues a priority. This should be undertaken bythe director of finance and the commission’s chairand administrative director, and by the director ofcommerce and consumer affairs and the division’sexecutive director, respectively.

3. The commission and division should collaborateand hire a consultant to develop an informationsystem that shares common information and proc-esses but keeps separate information secured.

the commission to determine the specifics of a systemthat can best serve our combined needs. The commis-sion will be issuing a request for proposals for theshared system by the end of 2004.

The need and value of adopting division administra-tive rules is being assessed. One area currently beingexplored is the division’s role in assisting consumerswith complaints.

ACTIONS TAKEN

In 2003, the commission commenced a strategic plan-ning process. The commission prepared a strategicplan dated November 14, 2003, pursuant to Act 100(SLH 1999), submitted it to the Legislature, and in-cluded its goals and long-range and short-range plansin its FY2002-03 Annual Report. Implementation ofthe strategic plan commenced in FY2003-04. Thecommission plans to evaluate and update its strategicplan annually.

The commission has initiated a number of proceed-ings and activities, involving all relevant stakeholders,to consider major issues affecting its policies andplanning, emerging from:

• Current developments in technology;

• Changing markets, economic conditions, federaland state requirements and consumer needs; and

• Environmental and national security concerns.

The commission has focused on and will continue tofocus on filling position vacancies. The director offinance has stated it will support and work with thecommission in its efforts. Since the Auditor's reportwas issued, commission vacancies have reduced byapproximately 50 percent due to the filling of threeresearch section positions, an auditor II position, thechief engineer position, and a clerical position. In addi-tion, the commission has received necessary approvalsto establish a data processing/ systems analyst posi-tion and is beginning the recruiting process. Additionalefforts to address required personnel staffing levels arealso underway.

The commission and the division have held meetingsto review our respective needs and potential solutions,and are working collaboratively to develop and sharea common, secure document management and infor-

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4. The commission should:

a. Improve its complaints handling process;

b. Adopt administrative rules specifying applica-tion approval deadlines as required by Section91-13.5, HRS;

c. Include long- and short-range plans in its an-nual report to the Legislature as required bySection 269-5, HRS; and

d. Fulfill its policy-making function as requiredby Sections 269-5 and 269-7.5(b), HRS.

RECOMMENDATIONS

1. The corporation’s management should strengthencontract and capital asset management practices.Specifically, it should:

a. Implement and enforce procurement proce-dures consistent with open competitive pro-curement;

mation system. The commission and the division planto issue a request for proposals by the end of the year.

The commission has updated its complaint handlingprocess to resolve complaints more efficiently andconsistently. To continually assess the process, it nowconcludes with a survey, mailed to complainants,asking them for feedback on the commission staff'shandling of their complaint. The initial 56 surveyresponses indicate overwhelming customer satisfac-tion with the resolution process. The commissionalso tracks inquiries concerning public utilities asrequired by Section 269-55, HRS.

The commission is currently drafting rules specifyingapplication approval deadlines, and will commencethe rulemaking process to adopt such rules.

The commission included both long- and short-rangegoals and plans in its FY 2002-03 annual report, issuedDecember 2003, and will continue to include updatedplans in its annual reports.

While the commission regulates industries as requiredby law, it does and will carefully evaluate ways tostreamline the regulatory process. For example, thisyear the commission waived certain regulatory re-quirements for wireless telecommunications carriersand implemented a "zone of reasonableness" conceptof ratemaking for motor carriers - allowing carriers toraise or lower their rates within a zone without beingrequired to show detailed financial information.

ACTIONS TAKEN

Each region and the corporate office has contract ad-ministrators who are responsible for processing allcontract and procurement actions in accordance withHHSC’s procurement policies and procedures. HHSC’spolicies and procedures are made available to all em-ployees of the corporation on the corporation’s network.Further, the corporate procurement staff performs anacquisition management review of procurement pro-cessing at each of the regions on an annual basis. Theresults of such reviews are reported to the Chief Op-erating Officer/Chief Financial Officer (COO/CFO).Each region is required to report back to the COO/CFOand the Corporate Procurement Officer on steps takento correct any deficiencies as well as a plan of actionto prevent future reoccurrences of such deficiencies.

Report Title: Audit of Selected Procurement, Human Resource, and Fiscal Issues of the Hawai‘i HealthSystems CorporationReport No.: 04-03

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b. Ensure that hiring, including contracts for per-sonal services, comply with prudent businesspractices and applicable laws and regulations;

c. Develop and maintain a long-term capitalspending plan;

d. Ensure that analyses and projections submittedfor capital investments are performed compe-tently and are accurate and complete;

e. To the extent possible, identify and submit forlegislative approval major infrastructure pro-jects for financing via general obligations bonds;and

f. Establish, at a minimum, uniform standards foraccounting for and safeguarding capital assets.

2. The Board of Directors of the Hawai‘i HealthSystems Corporation should:

a. Ensure, through improved procurement policiesand strengthened oversight, that the corpora-tion’s procurement practices are consistentwith the goals of government accountabilityand procurement practices;

Management is in the process of considering the addi-tion of an internal audit capability to the system head-quarters in an effort to further advance review andaccountability.

All personal services contract requests require the ap-proval of the HHSC President/CEO after reviews bythe COO/CFO, human resources, and legal as applic-able. This review, along with the approval authorityat the regions, is responsible to ensure that contractsare prudent and necessary and meet applicable lawsand regulations.

HHSC has submitted a six-year capital spending plancovering fiscal years 2006 through 2011 to the De-partment of Budget and Finance. The plan was briefedto the board, community advisory chairs, physicianadvisory leaders and key staff at the October 26, 2004HHSC Board meeting off-site.

Pro forma analysis for capital investment projects areprepared by the Regional Chief Financial Officers andreviewed by both the corporate controller and COO/CFO before presentation to the board of directors forapproval. The corporation has also engaged third-partyfinancial consultants to evaluate projects where thecorporation does not have the expertise to performthe evaluation on its own. The work products of theseconsultants are also reviewed by the corporate con-troller and COO/CFO before presentation to the boardof directors for approval.

HHSC has submitted to B&F a six-year capital spend-ing plan covering fiscal years 2006-2011. HHSC is re-questing that these projects be funded through generalobligation bonds.

HHSC has established both a capitalization thresholdand depreciation policy for capital assets. The capital-ization threshold mirrors that of the state of $5,000.The corporation’s depreciation policy requires thateach facility depreciate assets in accordance with theAmerican Hospital Association’s estimated usefullives of depreciable hospital assets. Further, the cor-poration requires each facility to perform an annualinventory of capital assets, and to reconcile the resultsof that inventory to its capital assets records on thegeneral ledger.

The board of directors has charged its monthly Finance,Information Systems, and Audit Committee (FISAC) toevaluate all Corporation policies and procedures re-lating to procurement and to scrutinize all contractsthat meet the board approval threshold. While theboard agrees that the corporation’s procurement poli-cies should be in line with the standards of public ac-countability, the board believes that HHSC’s currentprocurement policies and procedures provide the flex-ibility and efficiency to operate effectively in today’sbusiness environment where the corporation is com-

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b. Develop and implement policies for hiring in-dependent contractors that ensure compliancewith applicable state and federal laws;

c. Reassess its termination and separation policiesfor consistency with government practices inlight of the corporation’s dependence on leg-islative support; and

d. Establish and enforce accountability standardsfor both competence and reasonable accuracyin analyses and projections presented in sup-port of investments in infrastructure and ser-vice additions.

RECOMMENDATIONS

1. The Departments of Human Resources Develop-ment and Budget and Finance should:

peting with private hospitals and other businesses forthe best products at the best prices available. The boarddoes not believe that the state procurement code givesthe HHSC the flexibility to ensure that necessary goodsand services are delivered to its facilities in order toprovide quality health care to its health care commu-nities.

HHSC has developed internal policies and proceduresto review all requests for personal service contractsprior to approval. The procedures provide that desig-nated individuals are responsible for ensuring compli-ance with applicable laws and regulations beforeobtaining the President/CEO’s approval to initiate acontract. The appropriate procurement contractingstaff is responsible to ensure compliance with applic-able laws as it pertains to the contract language priorto obtaining approval from the contract authority.

The board of directors continues to support the cur-rent termination and separation practices that arenecessary components in the retention of key person-nel and the ability to resolve issues. The practices onthe separation policies result from an arms-length ap-proach taken by the board to develop a conservativecompensation and retention program with the adviceand recommendations from an independent consultant.The termination and separation agreement policiesare exercised only in rare circumstances. Thus it doesnot have an impact on the current financial situationfaced by HHSC.

The board has charged FISAC to evaluate all pro formafinancial analyses on the feasibility of proposed capi-tal investment projects and service line additions. TheFISAC, composed of board members with finance oraccounting backgrounds, requires that any new serviceline or capital investment that was not contemplatedin the corporation’s capital budget be supported by apro forma financial analysis. FISAC has, on occasion,requested that an independent third party analysis bedone before recommending approval to the board. Theboard realizes the additional burden that could fallon the state should significant new service lines orcapital additions fail to meet its pro forma results, andthe board requires management to report back on theresults of certain significant investments. One suchinvestment is the imaging service initiatives at HiloMedical Center, Maui Memorial Medical Center, andKona Community Hospital.

ACTIONS TAKEN

We respectfully disagreed with the Auditor’s findingsand related recommendations that the Departmentsof Human Resources Development and Budget and

Report Title: Study of Separation Incentives Provided to Public Employees Under Act 253 of the2000 LegislatureReport No.: 04-04

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a. Collaborate with all government jurisdictionsto ensure that proper guidelines are developedto implement the separation incentives program;

b. Ensure that employees who elect to participatein the separation incentives program do notreemploy with any public jurisdictions with-out first forfeiting the benefits received underAct 253;

c. Properly monitor the workforce restructuringactivities of the agencies participating in theseparation incentives program and ensure thatabolished positions are removed from appropri-ate budget and personnel files;

d. Collaborate with all government jurisdictionsto determine whether workforce restructuringplans are being properly implemented by theagencies that submit them and the overall effec-tiveness of the plans after implementation; and

e. Ensure that unjustified payments of special in-centive retirement benefits are recovered fromemployees who reemploy with any publicjurisdiction.

2. The Department of Human ResourcesDevelopment should ensure that its reports to theLegislature include a description of how the newworkforce structures will more efficiently servethe needs of agencies’ clients and of appropriatecriteria to measure the new workforce structures’effectiveness.

RECOMMENDATIONS

Finance are statutorily responsible for other Hawai‘ipublic jurisdictions that elect to utilize the SeparationIncentives law. A legislative proposal will be submit-ted in the upcoming 2005 Legislative Session to clarifythe existing statutes and define our administrativeprogram functions and responsibilities.

Section 122, Part V of Act 253, SLH 2000, already requires that, “the chief executive or other appropri-ate authority of the respective jurisdictions shall en-sure that approval of its respective legislative body isobtained, if required, before offering the special retire-ment incentive under section 115”. DHRD has alreadyissued appropriate guidelines.

DHRD has addressed its monitoring of employment ofseparation incentives benefits recipients through var-ious means. This includes, but is not limited to: 1) on-going coordination and dissemination of recipientnames of Act 253 retirees with the Employees’ Re-tirement System, all public jurisdictions and all execu-tive branch department heads; 2) ongoing coordinationand dissemination of cash buyout recipients’ nameswith all executive branch department heads; and 3)periodic electronic checks by pay periods conducted byDAGS payroll and their notice to appropriate execu-tive branch agencies.

This is properly monitored by the affected departmentsin the executive branch, and the Departments ofBudget and Finance and Human Resources Develop-ment.

The Departments of Human Resources Developmentand Budget and Finance do not have any legal authorityor oversight on the staffing activities, including work-force restructuring plans, conducted in other Hawai‘ipublic jurisdictions, including the Hawai‘i HealthSystems Corporation.

This responsibility is performed by the Employees’Retirement System and their Board of Trustees. TheEmployees’ Retirement System will also advise theappropriate jurisdictions of any corrective actionstaken with an Act 253 retirant.

This will be addressed in our legislative proposal toamend Section 120 of Part V, Act 253. Clarificationis needed as reduction-in-force may result from lackof funds, lack of work, lack of need or any legitimatereasons, including decisions to restructure programfunctions and services.

ACTIONS TAKEN

The Department of Budget and Finance believes theDepartment of Human Resources Development (DHRD)is the lead agency for the implementation of separa-tion incentives. In general, we concur with the com-ments provided by DHRD and would emphasize thatother jurisdictions are not the responsibility of our

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RECOMMENDATIONS

We recommend that the department adhere to theprocurement codes and established policies and pro-cedures for the procurement of goods and services.Specifically, the department should ensure that re-quired verbal or written quotations are obtained priorto executing small purchase procurements and thatadequate notification is given to the public beforeprocuring a restrictive purchase of service contract.We also recommend that an appropriate-level man-agement be responsible for overseeing the department’sprocurement process. This person should ensure com-pliance with the procurement codes and conduct peri-odic audits of the department’s procurement functions.

We recommend that the department:

• Establish formal policies and procedures over itsvarious contract management functions for use bythe department’s programs/divisions;

• Provide employees with formalized contract man-agement training to familiarize employees with bestpractice ideas and techniques relating to contractexecution, monitoring contractor performance, andcontract payment processing;

two agencies. The administration is submitting legis-lation this session, relating to separation incentives,to clarify that executive branch authority with respectto separation incentives does not extend to depart-ments or agencies in other jurisdictions.

All workforce restructuring activities involving sepa-ration incentive provisions are carefully monitoredby our department, and abolished positions are iden-tified. Depending on which option is selected by theindividual (cash buyout or retirement), this informa-tion is disseminated to all appropriate agencies andjurisdictions.

ACTIONS TAKEN

The department has implemented an initiative toprovide training to our public health administrativeofficers for improved business processes and financialmanagement. One of the work groups being convenedfocuses on contract management and is working toprovide standard departmental policies and procedures.The involvement of support and program administra-tive staff in this work group will allow for the establish-ment of broad policies with more specific guidelinesto benefit the unique and diverse contracting require-ments of the many programs of the department. Aspreviously stated, the department does have standardboilerplate language for many of the contract provi-sions such as compensation and payment, generaland special conditions, and other standard languagethat is currently used.

The department’s contract specialist continues toprovide training to new programs on contract admin-istration. In addition, training workshops offered bythe State Procurement Office (SPO) on Chapters 103Dand 103F are well attended on a regular basis. ThisSPO training program provides assistance in basicprocurement and writing of Requests for Proposals,evaluation of proposals, Administrative Rules changes,

Report Title: Financial Audit of the Department of HealthReport No.: 04-05

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• Consider the effectiveness of contract manage-ment capabilities when conducting employee per-formance evaluations;

• Formally execute contracts prior to the com-mencement of contracted services; and

• Ensure that contractor performance and invoicesare properly reviewed before contract paymentsare made.

We recommend that the department ensure all re-quired federal financial reports are submitted withinrequired deadlines. This can be accomplished by im-plementing a checklist system to remind personnelof various reporting deadlines. We also recommendthat appropriate-level management be responsible formonitoring each federal program’s reporting processto ensure that proper staffing is available and reportsare prepared, reviewed, and submitted on a timely basis.

We recommend that the department:

• Adhere to the State’s policy of unencumbering fundswhen contracts and purchase orders are fulfilled,closed, or become inactive;

• Establish formal policies and procedures to moni-tor outstanding encumbrances. Specifically, thedepartment should require that outstanding en-cumbrances be periodically evaluated by both thefiscal office and each division/office to ensure thatall encumbrances relate to valid, ongoing commit-ments; and

• Promptly identify and unencumber unspent fundsrelated to contracts and purchase orders that areno longer active.

We recommend that the department:

• Perform periodic, unannounced reviews of eachpetty cash account, including surprise cash counts.An employee independent of the petty cash processshould perform these reviews.

• Adhere to established policies requiring programsand divisions to prepare and submit reconciliationsof petty cash accounts at least semi-annually. Wefurther recommend that the department considerrequiring the preparation and submission of pettycash reconciliations upon each request for replen-

and other problematic areas. The most recent train-ing session was held on August 11, 2004.

The department managers consider the contract man-agement capabilities of those employees who areresponsible for such duties.

The department requires that no services are provid-ed prior to the notice to proceed date on any and allexecuted contracts.

The department has reminded all program managers toensure that the contractual services and deliverableshave been satisfactorily provided by the contractorprior to contract payment.

The department is adhering to the State’s policy ofunencumbering funds as required.

The fiscal officer periodically monitors and evaluatesoutstanding encumbrances utilizing the outstandingencumbrance report and cancels those transactionsthat are no longer required. In addition, the fiscal of-ficer identifies balances older than three fiscal yearsand asks the programs for approval to cancel the con-tract balances. The proper forms are then preparedand sent to DAGS Pre-Audit Division for disposition.

Claims encumbrances on purchase orders for general,special, revolving and trust funds from the previousfiscal year are monitored by the fiscal officer and thebalances not needed are lapsed at June 30 of the nextfiscal year.

Due to the lack of accounting and fiscal staff, a re-quest has been made to provide an additional accoun-tant position as well as a procurement specialist in theFiscal Services unit to provide this review. In lieu ofhaving sufficient personnel to do these unannouncedcash counts, statements of accountability are beingused to control these funds.

The department has implemented the use of state-ments of accountability that all petty cash funds pro-grams must submit twice each year. One warningletter is sent to programs late with these submittalsand if the statements are not provided by the dead-line, replenishment requests will be denied, and the

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ishment. If reconciliations are not prepared and sub-mitted, the Administrative Services Office shouldnot process the replenishment request.

RECOMMENDATIONS

The department should ensure that adequate support-ing documentation is maintained for the capital assetsto support the propriety of these assets. The depart-ment should also ensure that the capital assets areproperly accounted for by department staff, and theirwork is reviewed and approved by the appropriatesupervisor. Finally, the department should commit toa deadline in implementing the retroactive infrastruc-ture asset requirements of GASB Statement No. 34.

We recommend that the department:

1. Comply with the Hawai‘i Public Procurement Codeand applicable procurement rules. Specifically, thedepartment should ensure that:

a. All required documentation are properly filedand retained in the contract files;

b. The list of qualified persons for professionalservices is completed annually by the reviewcommittee designated by the departmentdirector;

.

c. All bid envelopes are time-stamped, or approvalis obtained from the chief procurement officerto utilize another method;

d. Proper documentation is retained in the con-tract files with the department’s justificationfor obtaining fewer than three bids for theselection of a small purchase vendor; and

e. A minimum of three employees are representedon the screening committee for professionalservice procurement, and their names, qualifi-cations, and credentials are properly documentedon the evaluation forms.

2. Ensure contracts are properly executed prior to thecommencement of the contracted work.

petty cash fund must be returned to the Administra-tive Services Office.

ACTIONS TAKEN

All construction work in progress is monitored by in-ventory custodians for the department’s facilities toinsure that improvements and additions are recordedproperly. A “no extension” deadline was implementedfor all property custodians to confirm the inventoryassigned to them. Additional employees have beentrained to process inventory sheets and review theentries.

A consultant was hired to document infrastructurecosts and implement GASB No. 34 requirements byJune 30, 2006.

Standard Operating Procedures (SOP) were developedto address what documentation needs to be in thecontract files and to follow the retention policies forthe State.

A log of professional consultant applications receivedwill be generated annually and included in the SOP.This log will be reviewed and monitored at the begin-ning of each fiscal year by the contract and engineer-ing office

A locked bid drop box is used to receive competitivebid submittals in which bids are time stamped andsecured until bid opening. The department obtainedapproval from the State Procurement Officer to usean alternate time-stamp method for oversized bidproposals.

Purchasing technicians complete a record of smallpurchase form in its entirety or refer to and secureattachments by stapling to prevent the separation ofrelated documents from the document stating thereason and justification why the award was made.

A list of names of individuals with their qualificationsand credentials and their alternatives will be submittedto the Adjutant General for approval. Once approved,it will be part of these individuals’ responsibility tosit on the screening committee.

A contract request form has been created to clearly de-fine approvals and acts to initiate the contract process.

Report Title: Financial Audit of the Department of DefenseReport No.: 04-06

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3. Provide appropriate periodic training to ensure theEngineering Office and other personnel involvedin the procurement process are familiar with theprocurement requirements.

We recommend that the department include in theinstructions for the Request for Personnel Actionform procedures to ensure that changes in the alloca-tion of payroll wages among appropriation codes areprocessed on a timely basis. The department shouldalso establish adequate procedures to ensure theproper monitoring of this process.

We recommend that the department establish andenforce formal written procedures to delineate theresponsibilities and deadlines for completing and sub-mitting required reports.

RECOMMENDATIONS

1. The Board of Regents and the university adminis-tration should ensure that contracts for fundrais-ing services conform to appropriate universityprocedures and sound contracting practices.

2. The contract for fundraising services with the Uni-versity of Hawai‘i Foundation should, at a minimum,include clearly stated services to be performed,clearly defined performance standards and mea-surable outcomes, the method(s) of evaluation forservice performance, and penalties or remedies forfailure to perform.

3. The university and the foundation should clarifytheir mutual intent regarding the relationship be-tween the 2002 fundraising contract and the 1997memorandum of understanding outlining theirrespective roles and responsibilities relating tofundraising.

The date that the vendor received a contract for reviewand signature is now recorded and documented. Thereis on-site training of users of the contract and pro-curement process as well as the development of adepartmental training program to improve awarenessthroughout the department. We continue to work withthe State Procurement Office to establish ways to im-prove our contract execution under the procurementand contracting process.

The department continues to provide appropriatetraining to ensure that the fiduciary responsibilities inthe procurement of goods and services are fairly andprofessionally performed.

The department has reviewed the instructions andmade any necessary changes.

Changes in the allocation of payroll wages among ap-propriation codes are processed as timely as possible.Often the authorizing documentation is not receivedfrom FEMA until after the employee has started work-ing on the project. Projects are reviewed on a regularbasis and any necessary adjustments to the allocationof payroll wages are made when information is pro-vided by FEMA.

The department has established written procedures toensure that reports are submitted by the deadline. Thereports are reviewed and approved by the appropriatesupervisor prior to being signed by the division head.

ACTIONS TAKEN

The Board of Regents (BOR) has designated a taskgroup to work with and monitor the universityadministration and the foundation to ensure confor-mance with university policies and procedures. Theuniversity administration designated the Chief ofStaff to work with the foundation and the BOR toreview and monitor the foundation’s contracting andreporting practices.

The university and the foundation have completed adraft of a revised contract which takes into considera-tion the issues noted in the audit report. The draft iscurrently being reviewed by the BOR.

As noted above, the university and the foundation havedrafted a revised contract which is being reviewed bythe BOR. It combines the original contract and thememorandum of understanding into a single documentand addresses the respective roles and responsibilities.

Report Title: Audit of the University of Hawai‘i Contract with the University of Hawai‘i FoundationReport No.: 04-08

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RECOMMENDATIONS

1. The Board of Regents and the university adminis-tration should ensure that contracts for fundraisingservices conform to appropriate university proce-dures and sound contracting practices.

2. The Board of Regents should:

a. Develop policies and guidelines for fundraisingactivities applicable to all university fundrais-ing organizations, including the foundation;

b. Assume responsibility for contracting forfinancial and performance audits of fundrais-ing activities;

c. Develop a capacity for monitoring fundraisingactivities, including utilizing the university’sinternal audit function, which should reportdirectly to the board;

d. Ensure that the foundation’s expenditure poli-cies over donated funds are strengthened andenforced;

e. Ensure that purposes and spending limitationsfor all accounts, including unrestricted expend-able accounts, properly reflect donor expecta-tions; and

f. Ensure that donor intent is faithfully fulfilled.

ACTIONS TAKEN

The BOR’s actions are described above.

The BOR has appointed a task group that is workingwith the foundation and the university administra-tion to revise the contract between the university andfoundation. This document defines the relationshipbetween the parties regarding the fundraising activi-ties of the foundation.

The foundation is a separate legal entity with its owngoverning Board of Trustees; it would not be appro-priate for the university to be responsible for its audits.Additionally, the Internal Revenue Service and theState Attorney General also play an important role inoversight of not-for-profit entities such as the founda-tion.

The University of Hawai‘i reorganization that wasapproved by the BOR on November 18, 2004, has theuniversity’s internal auditor reporting directly to theBOR. In addition, the foundation provides monthlyfundraising reports to the BOR. The BOR chairperson(or designate) is an ex officio member of the founda-tion’s Board of Trustees and participates on the Exec-utive Committee. Through this liaison, the BOR hasthe opportunity to participate in, guide and understandall aspects of the Foundation’s operations.

A task force has been established to review andstrengthen the existing policy regarding the use ofdonated funds. The changes that will be made willfacilitate the enforcement of the policy.

The BOR and the university internal auditor can auditthe university units’ use of donor funds to ensure com-pliance to policies and donor intent.

The foundation has an expenditure review process toensure spending is in accordance with donor intent.The task force noted above will be recommendingchanges in the approval process of expenditures fromdonor established accounts.

The BOR and the university’s internal auditor moni-tor the foundation’s expenditure review process toensure spending is in accordance with donor intent.The task force will be recommending changes in theapproval process of expenditures from donor estab-lished accounts.

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RECOMMENDATIONS

The Department of Accounting and General Services,the Judiciary, the Department of Education, and theUniversity of Hawai‘i should use management toolsand best management practices to improve their cus-todial services programs. Specifically, program man-agers should:

a. implement guidelines for cleanliness standards inorder to inform line staff of the level of cleanli-ness they must achieve and how their work willbe evaluated;

b. require the systematic use of checklist forms byline staff;

c. require regular and documented inspections, in-cluding follow-up actions, by supervisory staff;

d. evaluate their custodial services programs byassessing cost effectiveness of resource use, com-paring alternative service delivery methods, andevaluating user satisfaction; and

e. develop formal training programs to identify, devel-op, and build the knowledge, skills, and abilitiesthat custodians need to perform their jobs safelyand competently.

ACTIONS TAKEN

The Department of Accounting and General Services(DAGS) has adopted the cleanliness guidelines devel-oped by the Association of Physical Plant Adminis-trators (APPA). These guidelines establish five levelsof cleanliness ranging from Level I, Orderly Spotless-ness to Level V, Unkempt Neglect. Over the years,the DAGS custodial program has been tasked to pro-vide custodial service to a number of additional facil-ities, without a commensurate increase in resources.As such each Janitor II is now responsible to clean anarea ranging from 25,000 to 30,000 square feet. However,by applying the APPA standards the program’s levelof service has fallen somewhere between Level II(Ordinary Tidiness, 18,000 square feet) and Level III(Casual Inattention, 32,000 square feet). While a dailycustodial task list has been developed to guide theJanitor II’s in the performance of their daily tasks, thelack of staff resources continues to challenge the pro-gram’s ability to attain the desired level of performance.

A daily checklist based on the daily custodial task listis in the process of being developed.

Previously developed inspection forms are being revisedto address union concerns.

A survey has been completed to examine the differ-ential costs of services being provided by public em-ployees as compared to private enterprises. RequestPartner, an online application has been implementedto allow building occupants to make work requestsand to track the status of the requests. The applica-tion will be expanded to allow for the ability to con-duct surveys to measure the level of occupant satis-faction.

Due to the lack of funds and staff, the program contin-ues to use “in-house” training to develop basic custo-dial skills. The program continues to seek affordableoutside training. DHRD developed training coursesare also used to supplement these efforts.

Report Title: A Follow-Up Audit of Custodial Services Programs of the Department of Accountingand General Services, the Judiciary, the Department of Education, and the University of Hawai‘iReport No.: 04-09

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RECOMMENDATIONS

The Department of Accounting and General Services,the Judiciary, the Department of Education, and theUniversity of Hawai‘i should use management toolsand best management practices to improve their cus-todial services programs. Specifically, program man-agers should:

a. implement guidelines for cleanliness standards inorder to inform line staff of the level of cleanli-ness they must achieve and how their work willbe evaluated;

b. require the systematic use of checklist forms byline staff;

c. require regular and documented inspections, in-cluding follow-up actions, by supervisory staff;

d. evaluate their custodial services programs byassessing cost effectiveness of resource use, com-paring alternative service delivery methods, andevaluating user satisfaction; and

e. develop formal training programs to identify,develop, and build the knowledge, skills, and abil-ities that custodians need to perform their jobssafely and competently.

RECOMMENDATIONS

The Department of Accounting and General Services,the Judiciary, the Department of Education, and theUniversity of Hawai‘i should use management toolsand best management practices to improve their cus-todial services programs. Specifically, program man-agers should:

a. implement guidelines for cleanliness standards inorder to inform line staff of the level of cleanli-ness they must achieve and how their work willbe evaluated;

ACTIONS TAKEN

The Judiciary adheres to APPA level II cleanlinessstandards which have been issued to all custodial per-sonnel. Custodial supervisors have explained thesestandards to custodial line personnel, and have in-structed them to follow these standards as they per-form the work described in the Judiciary custodialtask list.

The Judiciary has implemented use of a Daily CustodianChecklist which is required to be completed by cus-todial personnel on a daily basis.

The Judiciary has instructed working custodial super-visors to perform bi-weekly inspections and custodialsupervisors to perform monthly inspections with theworking supervisors present for follow-up actions ifneeded. These inspections are documented, and anydeficiencies are noted for later follow-up.

The Judiciary continues to monitor and evaluate itscustodial services program on an ongoing basis todetermine its cost effectiveness and customer

The Facilities Management Branch has worked withthe Judicial Education and Resource DevelopmentProgram (JERD) to develop a more active training pro-gram for the custodians. Custodial personnel haveattended training developed by JERD that includedphysical security awareness and information regard-ing bomb threats, letter bombs, and searches. Also,facilities management is in the process of refurbish-ing its training program by updating its video trainingtapes and leaving a set at each site. These tapes coverfloor care, carpet care, restroom care, hazard commu-nications, and blood borne pathogens, and will allowcustodial personnel to increase their knowledge andskills and perform their work competently and safely.

ACTIONS TAKEN

The Department of Education (DOE) held informationalmeetings for the Oahu head custodians to informthem of the audit results and the need to follow thecleanliness standards outlined in the DOE CustodialHandbook. The DOE plans to follow up with similarmeetings on the neighbor islands.

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b. require the systematic use of checklist forms byline staff;

c. require regular and documented inspections,including follow-up actions, by supervisory staff;

d. evaluate their custodial services programs by asses-sing cost effectiveness of resource use, comparingalternative service delivery methods, and evaluat-ing user satisfaction; and

e. develop formal training programs to identify,develop, and build the knowledge, skills, and abil-ities that custodians need to perform their jobssafely and competently.

RECOMMENDATIONS

The Department of Accounting and General Services,the Judiciary, the Department of Education, and theUniversity of Hawai‘i should use management toolsand best management practices to improve their cus-todial services programs. Specifically, program man-agers should:

a. implement guidelines for cleanliness standards inorder to inform line staff of the level of cleanli-ness they must achieve and how their work willbe evaluated;

Principals have been notified of the custodial auditresults, and of the recommendation to use the check-lists found in the DOE Custodial Handbook.

The DOE is implementing a restroom restorationprogram which focuses on having the school custodi-ans inspect their assigned restrooms multiple timesduring the day. A checklist and inspection guidelinesare included in this program. This will be the basisfor setting the expectations of the custodial staff, andeventually the DOE will expand this “accountabilitymethodology” to other custodial duties. In addition,tentative plans are being made to reorganize the DOEand move the supervision of the custodians undera complex facilities coordinator. This will shift theprogrammatic supervision from the principal to amanagerial employee who will have more time andknowledge to implement tighter custodial standardsand controls.

The DOE is evaluating the effectiveness of the class-room cleaner program and may shift the classroomcleaning duties to custodians if additional fundingresources can be found. The DOE also plans to revisethe custodial handbook and re-evaluate the custodialstaffing formula.

The DOE is completing the Custodial R&M SkillsTraining on the neighbor islands and is seeking fund-ing to expand this training to Oahu. The developmentof formal training programs in other areas is dependenton department resources.

ACTIONS TAKEN

The University of Hawai‘i has taken the actions listedbelow.

UH Manoa has guidelines for cleanliness standards,which have been implemented since the first custodialaudit in 1996. New employees are provided with train-ing on how to meet these standards. All employeesare informed of their job performance expectations onan annual basis through the use of the State’s Perform-ance Appraisal System (PAS). An inspection checklistis also used to evaluate cleanliness standards.

UH Manoa Athletics has cleanliness standards, whichare given to the custodians once a semester and themakai campus coordinator conducts yearly evalua-tions. The makai campus records hold the yearly evalua-tions and quarterly inspection records.

UH Hilo uses Level II for general cleanliness (rubbishis emptied every work day; restrooms and drinkingfountains are cleaned and disinfected daily, thoroughlyscrubbed weekly; halls and stairs are swept/spot moppeddaily, and vacuumed and damp-mopped weekly; inte-rior rooms chalkboards and rails cleaned, floors swept,

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b. require the systematic use of checklist forms byline staff;

c. require regular and documented inspections,including follow-up actions, by supervisory staff;

d. evaluate their custodial services programs by asses-sing cost effectiveness of resource use, comparingalternative service delivery methods, and evaluat-ing user satisfaction; and

spot mopped, and furniture put back in place daily,and floors are vacuumed and/or damp mopped weekly).All janitors are given a copy of the daily, weekly,monthly and annual tasks. Performance evaluationsby their supervisor establish the criteria at the begin-ning of the evaluation.

All of the community college campuses have beenprovided samples of checklists of required tasks andsamples of inspection checklists that they can eitheradopt or modify to meet their specific needs. Thecampuses plan to perform quarterly inspections, fol-lowing up on areas of deficiencies accordingly.

A checklist which contains standards for UH Manoahas been utilized since the first custodial audit in 1996.Supervisors are responsible for formally inspectingand evaluating the line staff on a quarterly basis anduse this checklist as a basis of determining whethercleanliness standards are being met.

For UH Manoa Athletics, the makai campus coordina-tor provides the custodians a checklist every semesteror at the time of hire.

At UH Hilo a “friendly reminder” checklist is postedin each of the janitor rooms. End of shift reports bythe crew’s working supervisor also list the non-dailyactivities performed, which the supervisor reviews ona daily basis.

Supervisory staff at UH Manoa has been instructed toconduct quarterly inspections of each custodial em-ployee using the established Inspection ChecklistPerformance Rating Form. These forms are completedby the working supervisors and reviewed by the fullsupervisors to ensure follow-up on any correctiveactions or training which may be necessary.

For UH Manoa Athletics, the makai campus coordi-nator and Janitor 3 provide weekly inspections of eacharea of responsibility. The makai campus coordinatoror Janitor 3 meets with individual custodians to eval-uate their performance. If the custodian’s performanceis below standard, they will address the issue of at-taining proper standards.

At UH Hilo, the janitor supervisor has a building/areainspection list to evaluate general conditions everyquarter. General areas of need are discussed in bi-monthly meetings with the janitor working supervi-sors. Specific areas of need are discussed in specificcrew meetings that include the respective workingsupervisor and assigned crews. Immediate or criticalneeds are addressed each day at the beginning of shiftmeetings or with specific job order request assign-ments.

UH Manoa will be developing a more systematic ap-proach in assessing the cost effectiveness of existingservice delivery methods as well as exploring alter-nate service delivery methods. A utility crew and aweekend crew have already been established to deal

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e. develop formal training programs to identify,develop, and build the knowledge, skills, and abil-ities that custodians need to perform their jobssafely and competently.

with extraordinary situations, coverage for long-termas well as temporary absences, and service to build-ings and classrooms which are heavily utilized on theweekends.

A UH Manoa campus-wide survey was distributed viae-mail in May 2004 to solicit faculty and staff assess-ment of custodial and landscape services. Althoughonly a fraction of the campus community responded,it provided us with a sampling of tasks which we areperceived to be performing satisfactorily, and indicatedareas of concern where we can improve.

For UH Manoa Athletics, once a year during the ath-letic department budgeting process, evaluations ofcustodial services for the Makai Campus are conducted.The athletic department supplements our custodialefforts by contracting for outside custodial services aswell as hiring student workers to perform custodialservices. The Stan Sheriff Center and Les Murakamistadium managers utilize student help to assist withadditional custodial services during events.

UH Hilo uses APPA national statistics to evaluatethe cost effectiveness for facility support costs. UHHFY03 janitorial costs were $1.19/gsf, or $182.64/FTE.UHH contracts out dormitory common area cleaningto ARC. UHH janitors also provide logistic support forevents and program relocation which would not be anoption if campus cleaning were outsourced. Wherecost effective and safety appropriate, UHH contractsspecific annual tasks such as entire building carpetshampooing, exterior high window cleaning, etc. UHHuser satisfaction is obtained by (a) having janitors re-port any requests and complaints to their workingsupervisor on a daily basis, (b) having the Janitor IIworking supervisor write up repair requests as partof their daily reporting requirements, (c) having theJanitor Supervisor perform quarterly inspections, (d)the Auxiliary Services Manager perform random spotchecks throughout campus, (e) and an “open door poli-cy” where comments (oral, electronic, written) arealways welcome.

Many of the community colleges have begun to con-duct and use satisfaction surveys as a means of asses-sing performance in the building and grounds areas.They also use the results for their accreditation reviewprocess. Due to the growth and expansion of many ofour campuses, the campuses evaluate their staffingnumbers in relation to square footage in order to jus-tify the need for additional positions. A couple ofcampuses have even conducted detailed analyses thatindicated that it would be more cost effective to hireemployees from outside agencies, or in other words,privatize. These requests to privatize were submitted,but received unfavorable responses.

Last year at UH Manoa we created a new position,Assistant Building Services Manager, which has beentasked with developing a formal training program tobuild the knowledge and competencies of our staffwith topics in self-improvement, enhancing custodial

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skills, and safety training. Training for the custodialstaff is expected to be held at least once every quarter,with experts from the University staff, community,and private vendors as instructors. Recent training in-cluded “Dealing with Sensitive Diversity Issues” and“Understanding Chemical and Drug Dangers.”

The facilities management custodial department locat-ed on the Manoa campus provides the athletic depart-ment information about workshops related to custodialservices which are mandatory for custodians. In addi-tion, the athletic department has arranged for classesfor custodial staff to deal with issues such as moldcleaning, new chemicals, and cleaning supplies withvendors that come in and demonstrate the proper useof equipment.

UH Hilo has an “Operational Tasks” guideline for astep by step guide of the various cleaning tasks. Asnew products are introduced in campus operations,the tasks are adjusted appropriately. UHH requiresorientation and training for all new equipment. Manu-facturers’ representatives conduct on-campus trainingand demonstrations for the custodial staff. New em-ployees are given an auxiliary services internal “Stan-dard Operating Procedures” booklet which includessafety procedures. Employees are sent to initial andannual training for blood borne pathogens, lifting,chemical use, etc. New employees are paired up witha working supervisor or senior employee on the crewto help teach and review cleaning procedures, tech-niques, and equipment operation to ensure safe andefficient use of supplies and equipment.

During the past year the community college campuseshave been provided training in, but not limited to,hazardous materials/waste management plan, hazardcommunication, office ergonomics and body mechan-ics, personal protective equipment, lock out/tag outawareness, fall protection awareness and ladder safety,hearing conservation, accident investigation tech-niques, general safety awareness, office safety, electri-cal safety, respiratory awareness, asbestos awareness,and mold awareness. Coinciding with our aggressivetraining program, the community colleges in the lastyear have seen a reduction in workers’ compensationclaims from 107 to 63 claims, and a reduction fromapproximately $607,000 to $275,000 in workers’ com-pensation expenses.

In addition, the campuses have been provided with adetailed custodial training manual that they can adoptor revise to meet their needs. This will be used astheir formal training program for newly hired custo-dians, and can be used in place of or with their exist-ing on-the-job training program.

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OFFICE OF THE AUDITORAPPROPRIATIONS AND EXPENDITURES ON A BUDGETARY BASIS

FOR THE FISCAL YEAR ENDED JUNE 30, 2004

APPROPRIATIONS

Act 1, SLH 2003 (operations) $2,318,772

Act 1, SLH 2003(special studies) 150,000

$2,468,772

EXPENDITURES

Staff salaries $1,477,499

Contractual services 555,534

Other expenses 178,812

Special studies 150,000

$2,361,845

Excess of appropriations over expenditures $ 106,927

EXCESS OF APPROPRIATIONS OVER EXPENDITURES

Act 1, SLH 2003 (operations) $ 106,927

Act 1, SLH 2003 (special studies) $ 0

$ 106,927

THE OFFICE OF THE AUDITOR

Hawai‘i’s laws provide the Auditor with broad powers to examine all books, records, files, papers, anddocuments and all financial affairs of every agency. The Auditor also has the authority to summonpersons to produce records and to question persons under oath. However, the Office of the Auditorexercises no control function, and its authority is limited to reviewing, evaluating, and reporting on itsfindings and recommendations to the Legislature and the Governor.

To carry out its mission, the office conducts the following types of examinations:

1. Financial audits attest to the fairness of the financial statements of agencies. They examine theadequacy of the financial records and accounting and internal controls, and they determine the legalityand propriety of expenditures.

2. Management audits, which are also referred to as performance audits, examine the effectiveness ofprograms or the efficiency of agencies or both. These audits are also called program audits, when theyfocus on whether programs are attaining the objectives and results expected of them, and operationsaudits, when they examine how well agencies are organized and managed and how efficiently theyacquire and utilize resources.

3. Sunset evaluations evaluate new professional and occupational licensing programs to determinewhether the programs should be terminated, continued, or modified. These evaluations are conductedin accordance with criteria established by statute.

4. Sunrise analyses are similar to sunset evaluations, but they apply to proposed rather than existingregulatory programs. Before a new professional and occupational licensing program can be enacted,the statutes require that the measure be analyzed by the Office of the Auditor as to its probableeffects.

5. Health insurance analyses examine bills that propose to mandate certain health insurance benefits.Such bills cannot be enacted unless they are referred to the Office of the Auditor for an assessmentof the social and financial impact of the proposed measure.

6. Analyses of proposed special funds and existing trust and revolving funds determine if proposals toestablish these funds are existing funds meet legislative criteria.

7. Procurement reports include studies and audits relating to the State’s procurement of goods, services,and construction.

8. Special studies respond to requests from both houses of the Legislature. The studies usually addressspecific problems for which the Legislature is seeking solutions.

THE AUDITORSTATE OF HAWAI‘IKekuanao‘a Building465 S. King Street, Room 500Honolulu, Hawai‘i 96813

Phone: (808)587-0800 • Fax: (808)587-0830E-mail: auditors@auditor.state.hi.us Web site: www.state.hi.us/auditor