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Procurement Audit of theDepartment of Education: Part 2

A Report to theGovernor and theLegislature of the State of Hawai‘i

THE AUDITOR

STATE OF HAWAI‘I

Report No. 09-04February 2009

Ofce of the Auditor

The missions of the Ofce of the Auditor are assigned by the Hawai‘i State Constitution(Article VII, Section 10). The primary mission is to conduct post audits of the transactions,accounts, programs, and performance of public agencies. A supplemental mission is toconduct such other investigations and prepare such additional reports as may be directed

by the Legislature.

Under its assigned missions, the ofce conducts the following types of examinations:1. Financial audits attest to the fairness of the nancial statements of agencies. Theyexamine the adequacy of the nancial records and accounting and internal controls,and they determine the legality and propriety of expenditures.2. Management audits, which are also referred to as performance audits, examine theeffectiveness of programs or the efciency of agencies or both. These audits arealso called program audits, when they focus on whether programs are attaining theobjectives and results expected of them, and operations audits, when they examinehow well agencies are organized and managed and how efciently they acquire andutilize resources.3. Sunset evaluations evaluate new professional and occupational licensing programs todetermine whether the programs should be terminated, continued, or modied. Theseevaluations are conducted in accordance with criteria established by statute.4. Sunrise analyses are similar to sunset evaluations, but they apply to proposed rather than existing regulatory programs. Before a new professional and occupationallicensing program can be enacted, the statutes require that the measure be analyzedby the Ofce of the Auditor as to its probable effects.5. Health insurance analyses examine bills that propose to mandate certain healthinsurance benets. Such bills cannot be enacted unless they are referred to the Ofceof the Auditor for an assessment of the social and nancial impact of the proposed

measure.

6. Analyses of proposed special funds and existing trust and revolving funds determine if proposals to establish these funds are existing funds meet legislative criteria.7. Procurement compliance audits and other procurement-related monitoring assist theLegislature in overseeing government procurement practices.8. Fiscal accountability reports analyze expenditures by the state Department of Education in various areas.9. Special studies respond to requests from both houses of the Legislature. The studiesusually address specic problems for which the Legislature is seeking solutions.Hawai‘i’s laws provide the Auditor with broad powers to examine all books, records,les, papers, and documents and all nancial affairs of every agency. The Auditor alsohas the authority to summon persons to produce records and to question persons under oath. However, the Ofce of the Auditor exercises no control function, and its authority islimited to reviewing, evaluating, and reporting on its ndings and recommendations to the

Legislature and the Governor.

THE AUDITOR

STATE OF HAWAI‘I

Kekuanao‘a Building465 S. King Street, Room 500Honolulu, Hawai‘i 96813

The Auditor State of Hawai‘i

The Ofce of the Auditor and the certied public accounting rm of GrantThornton LLP conducted a procurement audit of the Department of Education,State of Hawai‘i, for the scal year July 1, 2006 to June 30, 2007. The auditexamined the procurement process, policies, and transactions of the departmentand included inquiry, analytical procedures, and inspection of relevant recordsand documents to assess the department’s compliance with state procurementlaws and regulations.The initial phase of our audit uncovered numerous reportable ndings anddeciencies in the department’s leadership and oversight related to its procurement process. We also identied a material weakness involving the department’s lack of monitoring of internal controls over compliance with procurement requirements.These results are presented in Report No. 09-03,

Procurement Audit of the Department of Education: Part 1.

Given the high volume of violations and the identication of several risk factorsand fraud indicators in the initial phase of work, we were compelled to expandthe scope of our audit. As part of our expanded work, we reviewed departmentemails and detailed project les to better understand the decisions made and actionstaken with respect to select contracts. We also interviewed numerous departmentemployees to gain further insight into the specic facts and circumstancessurrounding each contract. The results of the additional work performed are presented in this second report.The second phase of our audit revealed an organizational culture of disregard for procurement rules in the Ofce of School Facilities and Support Services (formerlyknown as the Ofce of Business Services and referred to herein as the “Ofce of School Facilities”). That culture has allowed ofce directors, managers, and staff to believe they have the discretion to unilaterally determine whether compliancewith procurement laws and rules is in the best interest of the department.We encountered numerous instances of department personnel manipulating the professional services selection process and awarding contracts to predeterminedconsultants. For instance, for a $300,000 construction management project selection,the Project Control Section head bypassed established procedures by hand-pickingthe selection committee members and recommending a specic rm. The publicworks administrator then led the committee as its chair, documented the resultsselecting the recommended rm, addressed the results to himself as public worksadministrator, and approved the results on behalf of the branch.

OVERVIEW

Procurement Audit of the Department of Education: Part 2

Report No. 09-04, February 2009

Summary

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