Audit blisters Delinquencies could cost state taxpayers millions of dollars because the state Department of Hawaiian Home Lands does not properly manage outstanding loans, said state Auditor Marion Higa.
Home Lands
Taxpayers are at risk for
millions because of poor
management of loansBy Pat Omandam
pomandam@starbulletin.comIn a financial audit released yesterday, Higa said the department's management is ineffective and does not ensure all necessary accounting policies and procedures are in place and enforced.
She said outstanding loans and guaranteed loans with outside lenders are improperly managed, while accurate and timely financial reporting is not required.
"Overall, we found that the department has numerous problems," Higa said in the 72-page report. "It does not enforce written collection policies relating to outstanding loans, does not consistently maintain documentation on delinquent loans, does not ensure loan records contain valid addresses, is increasing financial assistance to lessees, and continues to accrue interest on loans related to canceled leases," she said.
As of June 30, 2001, the department had 1,359 loans that were past due. Of this amount, 526 were delinquent loans of more than 60 days totaling $4.5 million -- a delinquency rate of 39 percent.
Historically, the department's loan delinquency rate is 40 percent. In comparison, the average rate for mortgage loans in Hawaii is generally 2.81 percent.
The high delinquency rate is because the department routinely approves more loans for high-risk applicants who cannot obtain loans from commercial institutions.
To counter this risk, Higa said, the department needs to actively monitor loans and enforce collection policies to control the level of bad loans. It also needs to buy software that will automate many of the tasks departmental loan officers now do when dealing with delinquent loans, such as sending delinquent-payment notices and generating loan reports.
Ray Soon, Hawaiian Homes chairman, in his written response included in the audit, said Department of Hawaiian Home Lands loans are designed to serve those with no other financing options. If applicants qualify for loans from financial institutions, they have not been given one by the agency, he said.
While the loans are inherently riskier, in many cases denying the loan to the family denies them the opportunity to live on homelands or the opportunity to repair their existing home, he said.
Soon, in a telephone interview yesterday, added the state Department of Accounting & General Services conducts an independent audit of Hawaiian Homes annually. He said Higa's audit raises issues the department has already addressed or is working on.
He stressed the department is not losing any money.
"Almost every year, there's one or two things that can be improved upon, and we use that as a management tool," Soon said.
"We'll treat this one the same way. We don't agree with each of the technical corrections, but overall, it's a real decent audit, and we're going to look very carefully at all of her recommendations," he said.
State of Hawaii
