Tuesday, February 24, 2009


Hawaii State Auditor uncovers apparent fraud in Dept. Education procurement

by Larry Geller

(see also this Star-Bulletin article)

Listed on today’s Senate Order of the Day are two fresh audit reports conducted by the state auditor. The reports were released to the public and to the press yesterday (Feb. 23, 2009).

The audit was conveyed in two parts, here and here. According to the summary of part 1:

Given the high volume of violations and the identification of several risk factors and fraud indicators in the initial phase of work, we were compelled to expand the scope of our audit.

What sort of things did the auditor discover? The details are in the reports, but the summary gives a flavor of it. For example:

We encountered numerous instances of department personnel manipulating the professional services selection process and awarding contracts to predetermined consultants. For instance, for a $300,000 construction management project selection, the Project Control Section head bypassed established procedures by hand-picking the selection committee members and recommending a specific firm. The public works administrator then led the committee as its chair, documented the results selecting the recommended firm, addressed the results to himself as public works administrator, and approved the results on behalf of the branch.

What about the apparent fraud? From the summary of Part 2:

We discovered several other alarming practices within the Office of School Facilities that appeared to be fraudulent and unethical. In one example, a highranking department official instructed a consultant to hire a specific sub-consultant in exchange for additional contract funding, thereby evading the competitive procurement process. The sub-consultant, who has close ties with the department, performed work under a department program that was unrelated to the contract’s scope. Another inappropriate action involved selection committee members agreeing via email to change a prior selection decision to award the project to a vendor who was previously unranked, but had been improperly allowed to begin work on the project. The committee then falsified the selection documents to reflect the modified decision as the original selection.

In addition to whatever fraud might have been involved with the contracts, falsifying public records is itself a matter for prosecution.

Will the officials involved be prosecuted? The auditor spelled it out here:

The actions noted above are possible instances of procurement fraud, committed by department personnel and the construction consultant, and may be subject to civil and criminal penalties as defined by Section 3-131-4, HAR.

The auditor discovered emails describing holding checks to avoid having funds lapse, and advised:

Instructing vendors to submit falsified documents to the State is a fraudulent act, by both department personnel and vendors.

How serious is the problem? The report states, just before the summary at the end of Part 2:

With hundreds of millions of dollars in capital improvement projects yet to be awarded, the possibility of continued unethical and possibly of fraudulent behavior is high, and the prospect of inefficiency and waste is a certainty.

Let’s see if there is action taken against white-collar crime in this state agency, or if those who allegedly committed the fraud are allowed to continue on with just a slap of the ruler. One way to stop fraud is to investigate it and prosecute it independently, that is, outside the department involved.

Particularly in these bad economic times, we taxpayers need to know that our money is not being wasted through improper procurement procedures. Left as things are, the auditor believes that waste is a certainty. We shouldn’t just let that happen.

I wonder if it is too much to hope that those in the DOE who allowed this to continue might be replaced by others who can manage such a large operation properly. Where does the buck stop?



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