Report Title:

DOE; Internal Auditors; Felix Consent Decree

 

Description:

Appropriates funds for 2.00 FTE auditor positions, 2.00 FTE support positions, and start-up equipment expenses for the DOE's internal audit section.

HOUSE OF REPRESENTATIVES

H.B. NO.

1381

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to the department of education.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The department of education's annual operating budget is approximately $1,500,000,000. Department of education expenditures relating to the Felix v. Cayetano consent decree were $77,474,186 in 1994, and rose to $179,765,660 in 2001. The joint senate-house investigative committee charged with investigating the State's compliance with the Felix consent decree found that obtaining adequate financial information on Felix-related expenses from the department of education was virtually impossible.

The department of education's internal auditor conducted the department's first ever internal audit to determine whether the funds appropriated for the Felix response plan were being spent properly. The internal auditor identified thirty-eight problems that needed correction. The majority of these problems were due to poor communication within the department of education, an inadequate financial management infrastructure, a lack of effective fiscal management tools and reports to support this important effort, an overall absence of accurate fiscal oversight and, above all, a lack of accountability.

In the state auditor's 2001 follow-up report, consultants from the University of Pennsylvania found that Felix-related costs and services continued to be inconsistently reported. The department of education continued to combine Felix-related administrative and service costs with other special education costs.

The auditor of the State of Hawaii, in four previous audit reports addressing Felix-related issues (Report 98-1, "Audit of the Big Island Pilot Project on Mental Health Services"; Report 98-20, "Assessment of the State's Efforts Related to the Felix Consent Decree"; Report No. 99-12, "Study of the Privatization of the Child and Adolescent Mental Health Program"; and Report 01-16, "Follow up and Management Audit of the Felix Consent Decree"), noted that significant issues still have not been addressed. Specifically, overpayments by the department of education are not investigated and reconciled, and information systems capabilities are weak.

The joint senate-house investigative committee concurred with the state auditor and found the following examples of fiscal mismanagement in the department of education as it probed various members subpoenaed before the committee:

(1) A total of one hundred forty laptops were purchased for vacant positions at a cost of $294,000;

(2) Felix-related costs are still obscured, and not accounted for in EDN 150. For FY 2000-01, the department of education reported that over $100,000 of Felix-related expenditures were in EDN 200, which was the program designated for instructional support;

(3) Discrepancies in the amounts of surplus funds, carryover funds, and lapsed funds were reported to the committee;

(4) Funding requests to the legislature appear to be arbitrary because in the 2001 regular session, the department requested an emergency appropriation of $41,300,000. After continued probing by the money committees, the department of education later reduced the request to $33,400,000 and then reduced it again to $27,900,000;

(5) At the end of FY 2000-01, the department of education had $62,500,000 in surplus funds, of which $17,400,000 were from EDN 150. The department of education retained and carried over $48,200,000 from FY 2000-01, the same fiscal year that it requested an emergency appropriation of $27,900,000. In the same year, the department of education also lapsed or returned $14,300,000 to the State; and

(6) There is concern that the department of education has mismanaged millions of federal impact aid dollars. Prior to July 1, 2000, any federal impact aid reimbursements in excess of the legislature's appropriation were lapsed and deposited into the general fund to be available to all other state programs. The legislature, through Act 234, Session Laws of Hawaii 2000, authorized the department of education to retain the excess funds and spend them at its discretion, within certain parameters. The law requires the department of education to allocate the excess funds ($12,000,000 in FY 1999-2000) among all program identification numbers, by an amount proportionate to the total general fund appropriation made by the legislature. However, during a committee hearing, the department of education's budget and planning head conceded that the department allotted all surplus impact aid received in FY 1999-2000 into only one budget program identification number – EDN 100. By doing so, the department of education inappropriately allocated Felix funding within a non-Felix program identification number, confusing the amounts available for Felix programs.

This record of mismanagement indicates a critical need for the department of education to monitor itself, to improve accountability, and remedy deficiencies with regular audits of internal program expenditures. The joint senate-house investigative committee recommended that the department of education improve its fiscal management by developing a means of reconciling budget and expenditure information and developing functional reports, such as an analysis of budgeted to actual expenditures.

The committee also recommended that these reports should be routinely shared with the board of education, the governor, and the legislature. Another recommendation was that the department of education provide a further breakdown of EDN 150 by separating Felix costs from overall comprehensive school support services costs.

In 1999, the legislature created a new budget program designation, EDN 150, or comprehensive school support services, to correct unclear and inaccurate identification of funding relating to the Felix consent decree. In the same year, Act 91, Session Laws of Hawaii 1999, required the department of education to submit a detailed report to the 2000 and 2001 legislatures on EDN 150 allocations and expenditures for special education, the Felix consent decree, and comprehensive school support services.

The department of education currently has only one internal auditor, with no support staff. In contrast, the department of human services, with a budget of $1,200,000,000, has six auditors. This single position was originally established to audit only non-appropriated local school funds (totaling over $6,000,000). The internal auditor is not able to meet the demands for additional internal audit services requested by the department of education, board of education, legislature, executive branch, and the taxpaying public.

The increased demand for fiscal accountability within the department of education, particularly in Felix-related costs, cannot be accomplished with the department's one internal auditor who has no support staff.

The purpose of this Act is to appropriate funds for two auditor positions, two support staff positions, and one-time equipment start-up costs for a three-year pilot project within the department of education's internal audit section. The auditor positions and the two support staff positions are to be attached to the superintendent of education.

The additional audit staff will enable the department of education to audit itself properly, including both financial and management audits, and ensure public accountability for department expenditures. The internal audit function shall be responsible for providing information as to the adequacy and effectiveness of the department of education's system of internal controls, including:

(1) Reliability and integrity of information;

(2) Compliance with policies, procedures, laws, and rules;

(3) Safeguarding assets; and

(4) Economical and efficient use of resources.

SECTION 2. The department of education shall submit a report to the legislature no later than twenty days before the convening of each of the regular sessions of 2004 and 2005 on its activities relating to this Act. The department of education shall also transmit a copy of any audits performed to the legislature.

SECTION 3. This Act shall not be construed to minimize or interfere with the provisions of chapter 23, Hawaii Revised Statutes. When the state auditor, in the course of conducting an audit or an examination under the authority of chapter 23, Hawaii Revised Statutes, requires access to department of education records that may be restricted by any federal law, before denying access to the state auditor, the department shall seek forthwith an official written opinion from the federal government explaining why access by the state auditor is impermissible. If access to records by the state auditor is not permitted within       days after the state auditor's request, or is denied, the internal audit section of the department of education, upon request by the state auditor, shall examine the records for which access is sought and compile a report of all information the state auditor seeks, to the maximum extent allowed under the applicable federal law.

SECTION 4. There is appropriated out of the general revenues of the State of Hawaii the sum of $        or so much thereof as may be necessary for fiscal year 2003-2004, and the same sum, or so much thereof as may be necessary for fiscal year 2004-2005, for:

(1) Two full-time equivalent (2.00 FTE) auditor positions; and

(2) One full-time equivalent (1.00 FTE) secretary position;

(3) One full-time equivalent (1.00 FTE) accountant position; and

(4) One-time, start-up equipment expenses.

SECTION 5. The sums appropriated shall be expended by the department of education for the purpose of this Act.

SECTION 6. This Act shall take effect on July 1, 2003.

INTRODUCED BY:

_____________________________