Source: June 2010 Ka Wai Ola o OHA Column

Sometimes, even the best of intentions can go amiss.  This past February through April, OHA underwent a massive reorganization.  The purpose of the restructuring was to make OHA better able to implement the recently passed 2010-2016 OHA Strategic Plan.  While I appreciate all of the hard work that our Administration put into reorganizing OHA, I have the following concerns:

(1) COMPLICATED & CONFUSING: 

Prior to the recent re-organization, OHA had a simple structure that was easy to understand.  The Board of Trustees set the policy for the Administrator and he would oversee the day-to-day operations of OHA.  He had two Deputies helping him, one in charge of beneficiary advocacy & empowerment and another for OHA operations.

Now, OHA has been split into three levels.  The top level is the Board of Trustees.  In the second level, the “Chief Executive Officer” (CEO) oversees the “Chief Operating Officer” (COO) with the help of the “Corporation Counsel” and the “Chief Knowledge Officer.”  The CEO also directly oversees OHA’s Nonprofit, Hi’ilei Aloha, LLC.  In the third level, the COO oversees four “Line of Business” managers that have direct control over their respective divisions.  They include:  (1) the Resource Management Director/Chief Fiscal Officer, (2) the Community Relations Director, (3) the Chief Advocate, and (4) the Research Director.

The new structure has made it difficult for Trustees and their staff to assist our beneficiaries.  For example, if someone calls my office and needs help with ceded land maps, do I call the “Chief Knowledge Officer” or the “Resource Management Director” or the “Research Director?”  The answer is the “Research Director.”  So now, what happens to the unwritten rule that “employees are not to consult with trustees?”

(2) OUTSIDE CONSULTANTS: 

According to COO, the Administration is planning to conduct a large amount of research so that OHA can operate based on hard data.  Unfortunately, they also plan to contract much of this work to outside companies instead of doing it “in-house.”  Given the many expert managers and advocates that we have hired, such as the “Chief Knowledge Officer,” the question is — Why?  OHA is paying these new managers generously high salaries (compared to similar state employees) and I believe they should be doing more to earn it.  Trustee Machado’s concern that OHA may be too “top-heavy” at a recent meeting appears to be correct.  Also, Hawaiians have been studied to death on almost every subject, whether it’s culture, health, housing, history, land, legends, rights — you name it and there are studies and books full of data on it.  So why are we re-inventing the wheel?

(3) GRANTS: 

The Administration is currently revising the new guidelines for approving OHA grants, but there is no word yet on when it will be completed.  My concern is that the guidelines won’t be stringent enough to prevent abuses by certain trustees to “fast tracking” grants for favored nonprofit organizations.

(4) JOB TITLES: 

Many of the new positions have ridiculous titles that seem to be either too vague or too broad and the staff members who will be responsible for completing the tasks have yet to be completely identified to the trustees.  We are a Hawaiian governmental agency formed to serve our Hawaiian and native Hawaiian beneficiaries.  We are not a private corporation.  I believe the titles of the new positions and divisions need to clearly reflect the tasks and duties they are charged with.  At present, they make no logical sense at all.  My fear is that we are creating layers of bureaucracy that in the end will not produce many benefits for our beneficiaries.  So is this change good?  We shall have to wait and see.

If you have a comment to share or if you have subjects that you would like to know more about, please send it to my office or write a letter to the editor of the Ka Wai Ola o OHA.  Aloha pumehana.

Source: March 2010 Ka Wai Ola o OHA Column

Back in September of 2009, the trustees were given a draft of State Auditor Marion Higa’s Investment Portfolio Review of the Office of Hawaiian Affairs.  The 48-page report to the Governor and the State Legislature had many critical things to say about OHA’s investment structure and ability to carry out its duties.

Here are just a few of the Auditor’s concerns:

• The board’s Investment Policy Statement (IPS) is inadequate to ensure potential conflicts and other violations are identified, reported, and resolved.
• OHA does not have a “whistleblower” policy or a toll-free phone line available to OHA staff and beneficiaries to report potential conflicts, violations, or other issues.
• OHA does not track general beneficiary concerns or complaints specifically related to the trust.  Complaints are therefore less likely to be reported and OHA cannot ensure complaints are properly received and resolved.

The Auditor also wrote that the Trust’s lackluster performance warrants review of the advisory service’s policies, processes, and performance. 

• The trust’s investments were underperforming for the majority of the review period of FY2004 to FY2008, not only failing to meet its own target earnings goals in nearly half of the quarters, but also falling below average nationwide peer performance in 18 of the 20 quarters reviewed.
• OHA did not consistently monitor investment compliance during FY2004 to FY2008.  In addition, the investment advisors do not certify quarterly or annually that they are compliant with the trust’s investment guidelines.

On September 8, 2009, Chair Haunani Apoliona responded to the State Auditor and tried to address the concerns the Auditor brought up and what OHA planned to do about it.  It was clear that the Chair wanted the Auditor to soften the harsh report.

However, on October 1, 2009, I received a copy of the State Auditor’s Final Report and, to no surprise to me, nothing substantive was changed.  The Auditor concluded that:

• While a cursory reading of the board’s response may appear to contradict the Auditor’s findings, in most instances the board challenged secondary points but ultimately acknowledged the major points of the Auditor’s findings.
• Moreover, many of those arguments misconstrued the facts presented in the Auditor’s report.
• The Auditor’s final report contains only a few editorial changes based on the board’s response.

On October 2, 2009, an obviously irritated Chair Apoliona personally responded to the Auditor, complaining that she could have gone over the auditor’s comments point-by-point but chose to focus on the “big picture.”

In a memo dated October 23, 2009, I wrote that I agreed with many of the criticisms made by the State Auditor.  Further, Chair Apoliona should focus on making the much needed changes that the State Auditor suggested.  Only then can we move forward as an organization and do better for our beneficiaries.

If you are interested in reading the State Auditor’s report on OHA in its entirety, please visit the State Auditor’s website at http://hawaii.gov/auditor/Reports/2009/09-10.pdf.  Until the next time.  Aloha pumehana.

Source: Ka Wai Ola o OHA, July 2005

‘Ano’ai kakou… On January 16, 2003 the Board of Trustees voted to hire two investment companies, Goldman Sachs and Frank Russell, to handle all of OHA’s investment decisions. I abstained from the vote because I felt that it would be dangerous for the Board of Trustees to give up their direct oversight over the Native Hawaiian Trust Fund.

I had further doubts after I read the contracts OHA’s administration signed with Goldman & Russell. Our past contracts specifically stated that OHA, its trustees, and employees would be protected from all actions, suits, claims, damages, and expenses that arise out of a contractor’s errors, omissions, or acts. As you may recall, I wrote in my August 2003 article that since the contracts OHA signed with Goldman and Russell had no such language, OHA trustees are liable for any mistakes that they make, even though we don’t have any direct control over investment decisions.

In March of 2003, OHA hired R.V. Khuns & Associates, Inc. to come up with recommendations for OHA’s Investment Policy. One of their recommendations was that the Board should hire a separate and independent consultant to monitor both Goldman and Russell. I strongly fought for this when it was discussed at the Board table. Unfortunately, the budget committee rejected the idea.

While the budget committee may have disagreed with R.V. Khuns & Associates’ recommendation, State Auditor Marion Higa supported the idea of an independent consultant in her April 2005 audit of OHA. Here are a few of her findings:

(1) OHA has failed to create an independent function to oversee investment advisors. According to the auditor, basic things such as performance reporting, ensuring compliance with guidelines, and risk management were not being done because OHA doesn’t know how. The auditor wrote that OHA doesn’t have enough knowledge, experience, and expertise when it comes to overseeing investments. She stressed that OHA needs to hire someone (either in-house or an outside consultant) with experience in institutional investment oversight to make up for this deficiency.

(2) OHA’s lack of a standard report format has resulted in inconsistent reporting by the advisors. The auditor wrote that OHA did not create a standard format for Goldman and Russell to report how they were investing our money. The auditor said that this was because OHA did not know what information it needed to properly evaluate them. The auditor also pointed out that it was fundamentally flawed to depend on Goldman and Russell to decide what should be reported. Goldman and Russell are just as liable as OHA trustees for any losses (that come from not following OHA’s investment policy) so why would they report any violations to OHA? To solve this problem, the auditor recommended that OHA consider hiring outside experts to design the performance reports.

(3) Investment advisor compliance with certain guidelines cannot be verified. According to the auditor, OHA can barely make sure that Goldman and Russell are following OHA’s investment policy because we aren’t getting enough information from them. OHA doesn’t even have the computer software needed to screen important information. The auditor recommended that, for OHA’s protection, both Goldman and Russell should be required to sign a disclosure statement, on a regular basis, saying that they are following OHA’s investment policy. I believe her recommendation is added confirmation that the contracts our administration signed with Goldman and Russell did not contain proper safeguards for OHA.

I hope this proves, once and for all, that OHA needs an independent consultant to watch over our two investment managers.

Imua Hawaii Nei…