Audit raps Department of Hawaiian Home Lands
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By Mike Leidemann
Advertiser Staff Writer
The Department of Hawaiian Home Lands has accounting deficiencies of "the worst possible type" that could cost the state and taxpayers millions of dollars, according to the state auditor's office.
A report released yesterday says the department does not have an adequate way to determine its allowance for doubtful accounts and can't provide the necessary details to support the figures in its own financial statements.
The auditor's office also found that the department incorrectly recorded $1.8 million in the wrong accounting period and has failed to follow its own policies on collecting delinquent loans.
"This could cost the state and Hawai'i's taxpayers millions of dollars; also, this could cost qualified eligible beneficiaries the opportunity to receive assistance because loan moneys are tied up in delinquent loans that are unlikely to be repaid," state auditor Marion Higa wrote in the summary of the audit, which covers the fiscal year July 1, 2000, to June 30, 2001.
Ray Soon, department chairman, said some of the criticisms arose because the department follows different — but equally valid — accounting procedures. Most of the differences are technicalities that could be easily amended, Soon said, but he's not sure all the amendments are necessary.
"One of the major criticisms is that we don't have a documented methodology for determining what kind of reserves to have for bad loans, but we have real estate that backs up these loans," he said.
Soon said he didn't see the criticisms as major issues.
The $1.8 million noted in the audit referred to the purchase of the 54-acre La'i'opua homestead property in Kona. This should have been recorded as a single expenditure and not broken into the three payments made over three years, Higa said; otherwise, it gives an incorrect impression of department liabilities.
In its written response, the department noted efforts to improve on loan collection and added that its loans are inherently riskier because it is the "lender of last resort" for most borrowers.
Soon said that the department would review the criticisms but didn't see any flaws central to the functioning of the department.
"There is nothing she found that shows a dollar missing," said Soon, who has chaired the department for four years. "What she did was she focused in on some technical accounting differences. The audit is a valuable tool. We intend to make appropriate changes."
The Department of Hawaiian Home Lands was formed 80 years ago to place eligible Hawaiians on 203,500 acres of land.
Among the other problems found in the audit:
- The department does not enforce written collection policies for its outstanding loans.
- Documentation for follow-up on delinquent loans is not maintained consistently.
- The department has failed to maintain details of its guarantees of up to $50 million in loans originally made by other agencies.
Higa recommended an overhaul of the department's accounting procedures, including new "internal control policies and procedures" that would ensure that all expenditures and liabilities are properly recorded.
She also said the department should make its own computations on allowances for loan delinquencies. Instead, she said, that function has been performed by the same accounting firm, Akamine Oyadomari & Kosaki CPA's Inc., that does the department's annual audits.
Advertiser staff writer Vicki Viotti contributed to this report.
