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Nonprofit Mishandled Stimulus Funds, Audit Says

August 7, 2012, 5:31 PM HST (Updated August 8, 2012, 9:50 AM)
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A Big Island nonprofit agency mishandled some of the federal stimulus funding it received in 2010, an audit has revealed.

According to the audit issued last month by the Inspector General for the Department of Health and Human Services, the Hawaii County Economic Opportunity Council improperly spent $22,602 for fringe benefits that year.

In addition, HCEOC has not properly accounted for another $122,000 from the stimulus grant, the audit said.

The audit said the $22,602 for paid time off and other fringe benefits for its staff was “unallowable” because HCEOC could not provide proper documentation for its use, and the funds would have to be repaid by the state.

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The funding came from a $975,000 Community Service Block Grant to HCEOC administered by the Office of Community Services of the state Department of Labor and Industrial Relations. Another $41,000 was not used and was returned to the state.

The funding was part of $1 billion in funding from the American Recovery and Reinvestment Act distributed in block grants across the country to reduce poverty and revitalize low-income communities.

Lori Ahlstrand, a regional inspector general from San Francisco, told state officials that the $122,000 still to be accounted for was purportedly used for salaries and fringe benefits, and for spending apparently not justified for the benefits received.

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In written responses included in the audit, both the state Office of Community Services and HCEOC agreed with the findings.

Mila Kaahanui, executive director of the Office of Community Services, told Ahlstrand that HCEOC is required to reimburse the state for the $22,602, and she said her office would work with the Big Island agency to try to locate documentation to justify the $122,000 still in question.

Kaahanui’s letter dated July 12 said the problem stemmed from HCEOC’s bookkeeping procedures.

“We believe the issues above are primarily shortcomings of the accounting system used by HCEOC at the time,” her letter said.

Kaahaniu said her agency also had not been able to adequately monitor HCEOC spending during that period because of a freeze imposed on hiring and travel by former Gov. Linda Lingle as a result of the economic downturn.

Since then, the Office of Community Service has increased its staffing and is helping HCEOC to reorganize and obtain additional training, she said.

In his letter to Ahlstrand dated May 17, HCEOC Interim Executive Director Lester Seto acknowledged that the fringe benefits paid from the grant was unallowable, and said the inspector general’s findings on the $122,000 were “valid.”

Seto told Big Island Now that he agreed HCEOC’s accounting procedures have been lacking, and the agency also has been undergoing high turnover in key positions.

“We’ve had three fiscal officers in the past year,” he said.

HCEOC has recently received permission to upgrade its accounting software, Seto said, and he and his deputy director continue to try to locate documentation for the $122,000 still in question.

He said if those records are not found, HCEOC will have to repay that amount also, and the repayments must be from non-government funds.

He said possible sources of the money could be Meals on Wheels or another agency program involving transportation of Medicaid patients, both of which he said provide a thin profit margin.

“It will be a hardship,” Seto said.

He said the 2010 block grant funds were used for a variety of HCEOC programs including tutoring and mentoring at elementary and high schools, assisting clients of Drug Court and students in the YWCA’s Teen Court, and home finance management courses for Micronesian immigrants.

Since its founding in 1965, HCEOC has offered programs ranging from transportation to housing to diversified agriculture for individuals and families. Its founder and longtime director, George Yokoyama, is mostly retired but still helps the agency obtain grants and other assistance, Seto said.

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