Office of Hawaiian Affairs Chairwoman Colette Machado proposed new spending controls Tuesday following the release of a state audit that revealed inappropriate spending of millions of dollars over a two-year period.

What’s more, trustee Keli‘i Akina called the auditor’s findings “just the tip of the iceberg” and said a more comprehensive audit approved by the board last year will probe much deeper to find the root causes of the spending problems.

The state auditor’s report, released Tuesday, uncovered spending “with little restraint,” especially in regard to discretionary funds that do not face the same rigorous vetting, monitoring and reporting requirements of OHA’s formal grant process.

Some expenditures, the report said, were approved by the agency’s administration without board of trustee vote or even knowledge.

During fiscal years 2015 and 2016, OHA generated nearly twice as much discretionary spending — $14 million — as it did on budgeted, vetted and monitored grants — $7.7 million, according to the audit. To fund the unplanned expenditures, OHA adjusted its budget by $8 million and drew from its reserves to cover much of it.

The report said vague rules governing discretionary spending are broadly interpreted, arbitrarily enforced and sometimes ignored.

“For instance, we found several occasions in which OHA’s chief executive officer (Kamana‘opono Crabbe) ignored ‘do not fund’ recommendations from administration personnel and funded sponsorships, contrary to written guidelines. We also found significant irregularities in and abuse of OHA’s trustee allowance process, which was originally established to cover incidental expenses for trustees to develop and maintain ongoing communication with beneficiaries and the general public, but has evolved to allow a broad range of expenditures,” the report said.

Among the expenditures paid out from OHA’s Native Hawaiian Trust Fund, according to the audit, were $56,300 for retirement benefits for a former trustee, $1,000 for a beneficiary’s rent, $1,000 for another beneficiary’s funeral-related clothing expenses, $1,500 for a trustee’s personal legal expenses and for political donations.

The fund also paid $500,000 for OHA’s involvement in the International Union for Conservation of Nature’s World Conservation Congress opening ceremonies in Honolulu in September 2016.

The behind-the-scenes giving and other spending irregularities appear to violate the trustees’ fiduciary duty to administer trust funds fairly and without self-interest and are inherently inequitable to OHA’s many other beneficiaries who may be in need of financial assistance but are unaware of who to ask for help, the report said.

Training urged

The report recommends that trustees and administrators receive regular and immediate training on their fiduciary duties and about applicable state laws.

In a statement Tuesday, Machado said that given the seriousness of the auditor’s findings, she has already proposed that the board adopt moratoriums on the use of fiscal reserve funds as well as on the use of trustee sponsorships and other agency sponsorships until trustees can adopt measures to address concerns relating to those policies.

“We fully understand that the daunting challenges our beneficiaries face — as well as our sweeping mandate — require our commitment to continuous improvement and progress. We know we must do better,” Machado said.

State Rep. Kaniela Ing (D, South Maui) said he was shocked by the auditor’s findings.

“I knew there were gaps in what trustees could spend. I didn’t know the scale of it,” he said.

Ing, chairman of the House Ocean, Marine Resources and Hawaiian Affairs Committee, said he would be looking to impose restrictions on OHA trustee spending and will even consider removing discretionary funding completely.

OHA at-large candidate William Aila said the audit demonstrates the need for change, transparency and accountability on the board, while Oahu candidate Esther Kia‘aina called for an overhaul of OHA’s spending habits and oversight. She said the board not only needs new leadership, but term limits as well.

Akina, who joined the board at the end of 2016, said that while the state audit gives OHA useful guidance, its focus is narrow and represents a starting point.

“It shows that we have to dig deeper,” he said.

OHA is in contract negotiations with an auditor to conduct an independent audit aimed at identifying fraud, waste and abuse within the agency as well as its subsidiaries over a five-year period. The audit has a completion target of late 2018.

Akina, an early supporter of the independent audit who was named chairman of the board’s Audit Advisory Committee, said the upcoming audit will examine both OHA and its limited-liability companies to provide a more complete picture of OHA’s financial health.

Audit of the Office of Hawaiian Affairs by Honolulu Star-Advertiser on Scribd