Posted on: Friday, December 31, 2004

School-repair money diverted

By Derrick DePledge
Advertiser Capitol Bureau

Managers at the state Department of Accounting and General Services used $1.7 million meant for repairs at public schools to build and renovate warehouses and garages at their regional base yards, an internal audit has found.

The managers also used school repair money to buy computers and a surveillance system and sold material salvaged from school renovation projects for cash that went for staff Christmas parties and other employee functions.

State Comptroller Russ Saito described the mistakes as serious but said the managers were trying to save the state money and make the school repair program more efficient. "They were trying to get the biggest bang for their buck," Saito said.

As a result of the audit, DAGS now will require written consent from the state Department of Education before school repair money is diverted and has established stronger oversight of its Central Services Division, where the mistakes occurred. DAGS also took disciplinary action against employees for the salvage-for-cash practice and for failing to report the new base-yard construction as state assets. The punishment was a personnel matter and is confidential.

Earlier this year, in what Saito said was an unrelated move, he reassigned Central Services off larger school construction projects so workers could concentrate on smaller repair and maintenance problems.

The audit comes at a sensitive time for DAGS and the DOE and against the backdrop of a $460 million school repair and maintenance backlog. An education-reform law approved by the state Legislature this year transfers authority over school repair projects from DAGS to the DOE, and negotiations have moved slowly and, at times, poorly.

Gov. Linda Lingle decided in November to give the DOE immediate control over half of this fiscal year's repair and maintenance money — or $50 million — months earlier than the department expected.

The DOE, which often has blamed DAGS for delays in school-repair projects, now is predicting its own delays and has asked schools to be patient.

The audit, which covered activity at Central Services between July 1996 and last June, was prompted by letters from a retired DAGS district manager to Saito and state Rep. K. Mark Takai, D-34th (Pearl City, Newtown, Royal Summit). The retired manager believed that money Central Services had saved over the years on repair projects should have gone back to the schools, "but I don't think it made it," he wrote.

Repairs prioritized

In the audit, and in an official response from the administrator in charge of Central Services, DAGS refers to the economic downturn in the mid-1990s that tightened the state's budget and forced managers to "think out of the box." Managers prioritized school repairs and tried to get 30 percent to 40 percent savings on renovation projects that could be used for other projects or to support DAGS infrastructure and equipment.

Managers wanted to build or improve regional base yards to end state lease payments at other sites, store bulk-purchases that would save the state money, and do shop fabrication work that might otherwise be done at the schools being repaired.

Central Services eventually used $1.7 million in school repair money to build new regional base yards for the Central and Leeward districts, while the base yard for the Windward district and two base yards for the Honolulu district were renovated.

Attempt to conceal

James Richardson, the Central Services administrator, said in an interview that managers were trying to make the most of a limited amount of money and that the five base yards involved — four of which are on school property — ultimately benefit school repair work. Some at the DOE familiar with school repairs agreed that the base yards help.

"It made a lot of business sense to do it," Richardson said. "From a government side, it's more like, the rules are in place, you've got to follow the rules."

The retired manager who brought the information to the attention of DAGS wrote that Central Services worried about being caught, and the audit found that managers had attempted to conceal what they were doing. In one instance, labor cost worksheets in the summer of 2002 showed that workers were doing repairs at Kaimuki Middle School when they were apparently renovating a Honolulu district base yard near Diamond Head.

Other diversions by Central Services involved much smaller amounts of money than the baseyard construction but raised questions at DAGS.

In October 2002 and January 2003, Central Services used $20,800 in school-repair money to buy eight desktop and four notebook computers for district managers and building inspectors, according to the audit. Earlier, in July 1996, managers used $9,900 in repair money for a closed-circuit television surveillance system, and in June 2000, used $5,000 in repair money for a security alarm system at its Kakoi Street base yard.

Christmas parties

Central Services had also been selling salvaged material from school renovation projects to recycling companies for cash and keeping the money instead of returning it to the state treasury. Central Services had collected nearly $42,000 and had used some of the money for food and refreshments at Christmas parties and employee appreciation functions and for other events. They deposited $23,300 left over back to the treasury last April, and Richardson acknowledged that the practice should no longer continue.

Takai said it is important that state agencies spend money from the Legislature as it was intended. He also said that some of the backlog in more routine school repairs might be the result of how Central Services made larger renovation projects a priority.

"In this particular case the funds were misspent," Takai said. "I think these are the types of problems that we will avoid by turning it over to the DOE."

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com or 525-8070.