School audits spark ethics, fraud probes


POSTED: Tuesday, February 24, 2009

In April 2006 a Department of Education administrator manipulated procurement rules to award a $300,000 contract to a company employing a former public schools assistant superintendent.





        The state attorney general's office has been asked to investigate numerous Department of Education contracts for:

» Inappropriate discussions and meetings with contractors prior to public notice that gave them an unfair advantage.


» Inappropriate discussion with and involvement of former department employees now working with contractors.


» Manipulation of selection committees that helped decide which companies got contracts.


Source: Hawaii state auditor




During fiscal year 2007, some credit cards issued to faculty and staff for classroom supplies exceeded a $2,500 limit and were improperly used to buy vacuum cleaners and travel coupons.

These are among numerous allegations of fraud and ethical violations found by two state audits of the Education Department. The reports, released yesterday, fault the state's $2.4 billion public schools system over how it handles contracts to fix and maintain isle campuses.

State Auditor Marion Higa called it an “;inefficient and wasteful”; procurement method that lacks oversight from the Board of Education.

The audits raise doubts about whether the Education Department is ready for the additional responsibilities required in a major school reform law passed in 2004. Act 51, also known as the Reinventing Education Act, sought to reduce the bureaucracy in the Education Department and bring spending flexibility to schools by channeling money directly to administrators.

Schools Superintendent Pat Hamamoto lobbied for the increased autonomy, which led to the transfer in 2004 of half of the $100 million in repair and maintenance projects under the Department of Accounting and General Services to the Education Department.

Hamamoto said yesterday the audits' findings “;were not a total surprise”; given the extra financial demands the law placed on the department.

“;But we hadn't expected it to be as revealing,”; she added.

Hamamoto said she asked the state attorney general's office to investigate the alleged fraud and procurement violations in the audit. The Education Department will conduct its own probe, she said.

A review of e-mails and projects from the Office of School Facilities, which got $170 million in 2007, “;revealed numerous potential instances of disregard for procurement laws, including falsifying supporting documentation, overriding internal controls, ignoring rules and policies, and committing potential fraud,”; according to the audit.

It said big-ticket projects were regularly procured with minimal planning and oversight. Some examples:

» An analysis of 36 repair and maintenance contracts showed that 10 of them were at least 10 percent over budget, while four were more than 100 percent over budget.

» Companies were allowed to start work before finalizing contracts, apparently because officials wanted to speed up the process.

The audits covered transactions from July 1, 2006, to June 30, 2007, but also listed contracts awarded as recently as last year.

In one instance a Department of Education official allegedly hand-picked a selection committee that awarded a $300,000 construction contract at Wilson Elementary and Anuenue Elementary to a firm that employed a former assistant superintendent.

The Education Department attempted later to give the same company an $80,000 contract to manage playground maintenance across the state. In an e-mail, an Auxiliary Services Branch administrator, who was a subordinate of the former superintendent, suggested the firm participate in a playground training session to help it place ahead of other companies vying for the work.

The company got the contract, partly because it planned to send employees to the training, but the deal fell through after a procurement branch raised concerns about the process.

State Sen. Fred Hemmings said the improprieties underscore the need for a comprehensive audit of the Education Department—a review he has unsuccessfully sought for two years, and one that has not been done since 1974.

Hemmings (R, Lanikai-Waimanalo) claims education money is being misused, noting that test scores have not significantly improved even though the schools budget grew by some $700 million since Act 51 took effect about five years ago.

“;Most of the money and the energy is going to the bureaucracy rather than the classroom, the teachers and the kids,”; he argued.

Despite problems exposed by the audits, Hamamoto said Act 51 has streamlined operations and projects. She said a unified school calendar has led to more than $150,000 in savings, while the number of schools passing facilities inspection has increased to 99.6 percent.

“;That doesn't mean that the means justify the ends,”; she acknowledged.

Board of Education Chairman Garrett Toguchi said the board and the Education Department are crafting rules to beef up ethics regulations and oversight of contracts.

“;We do have procedures. The problem is they were not being followed,”; he said.