Audit of the Leeward Coast Community Benefits Program, Office of the City Auditor, Honolulu. Report No. 11-02, December 2010.

This low-key but barbed audit by the city auditor did a spot-check of expenditures that were part of a program started by the Hannemann administration in 2006. It was intended to compensate the community following extension of the deadline for closing down the Waimanalo Gulch land fill. A total of about $7 million were spent over the three years tracked by this audit (FY 2006-2007, 2007-2008, and 2008-2009), including $3 million in grants to community organizations.

We found that many contracts lack performance measures and work plans. Some grantees did not deliver goods or services specified by the contracts, did not file required reports, and used grant funds to cover operational costs, administrative costs, and fundraising activities. Some grantees may have used grant funds to pay liability insurance premiums although it was required to maintain coverage at no cost to the city. Some grantees received subsequent grants, even though their past contract was not closed. In addition, the administration’s change to an 80-20 distribution ratio further reduced grantee accountability and transparency and the risk for fraud, waste and abuse increased. [emphasis added]

The last point needs some explanation. During the first year of the grants, the city was supposed to pay 25% of grant funds “up front.” Another 65% was to be reimbursed as expenditures were made by the grantee. And the final 10% was paid when the final grant report was submitted by the grantee and approved by the city.

But the next year, this was changed to pay out 80% of the grant in advance, with the final 20% to be paid after all reports were done.

The problem identified by the auditor is that many organizations simply never submitted any reports and could not account for their expenditures, and the city had no procedures or policies to assure accountability. This despite the fact that grant reports are required by ordinance, according to the audit.

We found that contract files maintained by the community services department did not consistently contain these required documents. Moreover, the department did not always enforce the contract terms for required or timely reports; did not have a formal contract monitoring program; and did not have an information system for monitoring the grantee and the use of the grant funds. As a result, the department did not provide proper oversight of the grant program, and grantees sometimes did not comply with the contract terms.

There are no “smoking guns” in the audit, but lots of hints that the system increased opportunities for fraud and abuse. Coupled with previous anonymous and unsubstantiated allegations of favoritism and politics in awarding community grants, there’s probably some good reason to look for fire behind all the smoke.