HomeMy WebLinkAboutCOM 0918.001 2022-2024 OF •:.
Dr. Holeka Goro Inaba :`�P V' Hwy'•_ +,., Office: (808) 323-4280
•
Council Member District 8 N. Kona 4,.,���'���'' Email:holeka.inaba@hawaiicounty.gov
..4rE os•H'.N':-
HAWAI`I COUNTY COUNCIL
County of Hawai`i ;
West Hawai`i Civic Center, Bldg.A
74-5044 Ane Keohokalole Hwy.
Kailua-Kona, Hawai'i 96740 :a: _.4. -
DATE: June 18, 2024
TO: Heather L. Kimball, Council Chair
and Members of the Hawai`i County Council
FROM: Dr. Holeka Goro Inaba, Council Member
Council District 8
SUBJECT: Bill No. 176; Submits results from County Auditor Tyler Benner of a Grant-In-Aid
Review of awards to nonprofit organizations for Fiscal Year 2022-2023 dated
February 9, 2024
Transmitted herewith is County Auditor Tyler Benner's results of his Grant-In-Aid Review
of awards for the Fiscal Year 2022-2023. This report is being offered to aid discussion on
Bill No. 176 relating to Appropriation of Funds to Nonprofit Organizations, scheduled to be
heard on July 9, 2024.
Thank you for your courtesies in advance.
HGI.wpb
Comm. No. I 8
Ref. To:
S N 1
Hawaii County Is an Equal Opportunity Provider and Employer Ref. Date 8 2024
� County of Hawai'i • o.,;'
Ali eer- garner- �M,.....,,
r/ Office •of the County Auditor •'tt:60 •
County Auditor 120 Pauahi St.,309 ;�#
County of Hawaii Hilo, HI 96720 ° + t 'f
Office of the County Auditor F 808.961.8905 - =-�
Ph 808.961.8386 ?
www.Hawai'icounty.gov ���"•"'�'
To: Heather Kimball, Council Chair
And Members of the Hawaii County Council
Cc: Deanna Sako, Managing Director
Diane Nakagawa, Finance Director
From: Tyler J. Benner, County Auditord6
Subject: Results of Grant-In-Aid Review for Fiscal Year 2022-2023
Date: February 09, 2024
Background
In accordance with our FY 2023-2024 Annual Audit Plan, the Office of the County Auditor(OCA)
has completed a special review of grant awards to nonprofit organizations pursuant to Chapter 2,
Article 25 of the Hawaii County Code.
Purpose
Our review assessed compliance with Article 25 and offered suggestions to improve performance
in future award years.
Scope
We reviewed grant-in-aid processes for all awardees in FY 2022-2023, comprising:
• 61 organizations
• 133 programs
• 100% population tested
• Awards totaling: $3,430,720.00
Methodology
• Reviewed the Electronic Code of Federal Regulations (eCFR) Title 2 Grants and
Agreements, Chapter II, Office of Management and Budget
• Reviewed the Hawai'i State Constitution Article VII Section 4, Appropriations for Private
Purposes Prohibited.
• Reviewed the Hawai'i County Code Chapter 2, Article 25. Appropriation of Funds to
Nonprofit Organizations
• Reviewed the Rules and Regulations of the Director of Finance, specifically Rule 3, as it
relates to Standards for Grants of Public Funds to Nonprofit Organizations (NPO)
• Reviewed Rules of Procedure and Organization of the Council of the County of Hawaii
The County of Hawai'i is an Equal Opportunity Provider and Employer
• Sent letters and verified awardees support documentation to demonstrate:
o Proof of public outreach-flyers, brochures, or equivalents
o Proof of participation -attendance logs or equivalents
o Proof of receipts - receipts supporting final program expenditures and made
comparisons to budget proposals
• Identified risk areas and offered program improvements
Purpose of Article 25
The purpose of Article 25 is to establish standards for the appropriation of funds to nonprofit
organizations providing programs and services which the County has determined to be in the
public interest.
Article 25 Background
Article 25 seeks to cover all grants made by the county to non-profit organizations. It primarily
addresses Grant-in-Aid, Contingency Relief Funds, and "Other Grants."
The County of Hawai'i's Nonprofit Grants-in-Aid, also known as the "Waiwai Grants Program,"
aims to bolster qualified nonprofit organizations to enhance the quality of life on Hawai'i Island.
Facilitated by the collaboration of efforts of the Hawai'i County Council and the County of Hawai'i's
Department of Finance, a minimum of $2.5 million is allocated to various organizations. These
programs address educational needs, cultural enrichment, assistance for vulnerable populations
(including the impoverished, youth, elderly, and individuals with disabilities), support for victims of
crimes of health/social crises, as well as initiatives promoting public health and environmental
welfare, as determined by the County.
As currently written, awarded programs can utilize grant funds, covering program-specific
categories such as salaries, professional fees, operational expenses, supplies, equipment, and
administrative overhead costs. Administrative overhead costs encompass expenses associated
with the organization's day-to-day operations and aren't directly linked to specific program
objectives. They are permissible but should not exceed 10% of the grant awarded.
Additionally, some expenses are strictly prohibited. For example, travel for training and
conferences and administrative and overhead costs exceeding 10% result in disqualification.
Contingency Relief Funds, described, in part, in Rules of Procedure and Organization of the
Council of the County of Hawaii Rule No. 26. (3)(a) purpose is to, "provide for County-Related
Projects, and which may be awarded as a grant to a nonprofit organization pursuant to Section
2-139 of the Hawaii County Code."
Other Grants encompass a range of funding opportunities administered by various departments
for specific purposes.
1
Selective Comparison of Article 25 to Federal Standards
Article 25, primarily designed around local funding sources, stands to gain from alignment with
federal regulations in certain areas, ensuring compliance and effective management, should
federal funds become available in any given year, to include as part of the grants to nonprofits.
Federal Standards of grants and agreements can be found in the eCFR Title 2,which details grant
management principles, agency-specific rules, and uniform audit and administrative guidelines. It
underscores the necessity of local code alignment with federal standards to ensure rigorous
compliance, oversight, and efficient auditing of federal funds.
OCA has identified opportunities to adopt best practices and align with federal standards where
applicable. Consequently, OCA suggests several improvements to enhance, clarify, and
harmonize code elements with federal practices.
Meaningful Feedback from Awardees
While soliciting information, awardees provided meaningful feedback for enhancing the program
framework. The various organizations proposed specific program improvements for the county,
which we believe are noteworthy:
1. Onboard Training and Information. A recurring request from NPOs was for
comprehensive onboard training and information resources to enhance their
understanding of program management and align their practices with county expectations.
It is worth noting that the County has already made strides in this regard by providing
certain training materials and resources, which can be accessed at the following link:
https://www.hawaiicounty.00v/departments/finance/budget/nonprofit-grant-forms.
We commend the County for its past efforts in offering training support. Moreover, we
strongly encourage the continuous refinement and expansion of such training initiatives,
particularly as the program evolves and adapts.
2. Award Management System or Portal. Several NPOs noted that they typically
categorize receipts by vendor, date, or purchaser, making assembling the requested
materials difficult. Some organizations would prefer those receipts and other
documentation to be uploaded directly to an award management system domiciled by the
county and in line with their proposed budget expenditure categories. In this case, the
grant packets are complete upon submission of final program reports and can be audited
internally.
3. Organizations Seek Feedback. Numerous NPOs have expressed their eagerness to
receive feedback regarding their performance and compliance and guidance on potential
improvements. According to federal standards, the awarding agency should develop and
plan programs with measurable outcomes. Presently, the County requests applicants to
propose their performance metrics and subsequently permits the awarded NPOs to self-
assess their performance based on these self-established measures.
2
Summary of Results
We tested all 61 organizations that received funds in Fiscal Year 2022-2023(100%). Our results
are as follows:
• Two organizations could not administer their program and returned funds to the County
• One organization went defunct and subsequently could not produce data related to the
program
Of the remaining 58 organizations, we verified documentation pertaining to community outreach,
participation, receipts, and found:
Community Outreach
• Documentation related to community outreach were generally appropriate
• No exceptions noted
• Not all programs require outreach when the public purpose or benefit is apparent
Participation
• Documentation related to participation were generally appropriate
• We found 15 exceptions:
o Nine organizations did.not track or obtain attendance
o Three organizations submitted attendance records that did not fully account for all
participants, resulting in discrepancies between the final reports and the verifiable
numbers of individuals served, partially attributed to the design of specific programs
as "booth style,"which focused on community engagement without formally tracking
participant numbers. Moreover, for organizations hosting multiple events, attendance
data was recorded for some events but omitted for others.
o Three organizations with multi-programs counted the same populations redundantly
Receipts
• While most revenue and expenditure details were generally appropriate and aligned with
the intent of the projects, we found the following exceptions:
Lack of supporting documentation
o Missing or unclear receipts resulted in an inability to verify all expenditures
o Actual expenditures did not always align to budget expenditures
• A program proposal lacked clarity distinguishing whether a position description referred to
an existing or new employee
• An out-of-state professional services contractor had supplies shipped. Receipts lacking
data made verifying shipping location impossible
• One NPO converted grant dollars to the denomination of an out-of-state professional
services provider, but foreign exchange rate data was not provided
• An organization added bonuses to wages from the grant award
3
• Some programs had multiple funding sources that lacked programmatic accounting codes,
which made expenditures indistinguishable from other areas of operations
• Several NPOs provided system-generated reports in place of receipts
• Some NPOs did not track their program expenditures against their activities
Other exceptions or questionable practices observed.
• In 14 instances, programs were funded, but had a questionable public purpose or benefit
• A program was funded, including travel for training/conferences, which is prohibited
• For several programs, the difference in grant fund dollars and its impact on baseline
operations was indistinguishable from ongoing operations
• One recipient passed some of their dollars through to a sub-recipient. Sub-recipients are
not addressed in Article 25
• Entities purchased equipment with long-term value for short-term programs. The
disposition of equipment is not currently addressed in Article 25
• In one instance, the program did not align to a required eligible purpose as outlined in
section 2-137 (3)
• Some programs included small gifts or stipends that may qualify as perks. Perquisites are
prohibited.
• Our observation indicates that some organizations have operated for an extended period.
Yet, they may not exhibit the proficiency required for the specific grant fund they are
applying for.
4
•
Article 25 Evaluation
The Grant-in-Aid program has three phases:
1. Initial eligibility and vetting
2. Awarding
3. Expense and reporting
Phase 1 Initial Eligibility and Vetting
As described in Article 25, the Department of Finance has the responsibility to ensure that NPOs
are doing the following: '
Section 2-137 Eligible organizations.
1. The non-profit is legally recognized as state tax-exempt by the IRS.
2. The organization's mission benefits County residents.
3. County-funded activities address educational, cultural, and various community needs.
4. The governing board is unpaid and conflict-free.
5. The organization follows specific bylaws and policies, including financial and conflict of
interest management.
6. The organization has at least one year of relevant experience or proven expertise.
7. The organization must meet all necessary Federal, State, and County licensing and
accreditation standards.
In addition, the Department of Finance has the following responsiblities:
Section 2-138 Conditions for grants.
Obtain attestation that:
1. The organization hires based on merit and ability.
2. Follows Federal and State anti-discrimination laws.
3. Agrees to avoid using public funds for entertainment or perks.
4. Adhere to additional requirements set by the director for legal and management
compliance.
5. Permit access to the director, council committees, staff, and county auditor for program
and financial monitoring.
6. Submit a disclosure form listing any conflicts of interest among board members or
administrators, including familial ties to council members, the mayor, managing director,
finance director, or legal counsel, with mitigation measures for conflicts.
Timeline for initial eligibility and vetting.
• By November 30 Annually:The Director of Finance establishes a minimum fund amount
for non-profit applications and publishes a notice soliciting applications.
• By January 31: Non-profits submit their applications, ensuring compliance §§2-137 and
2-138. The Director of Finance submits all qualifying applications to Council.
• By August 31: Agencies are notified of their funding or lack thereof.
5
Section 2-137 of the Hawai'i County Code emphasizes that grant payments to non-profit
organizations should result in direct benefits to the public and serve a public purpose, we found
a gap in the eligibility criteria. Specifically,the enumerated list of requirements does not effectively
assess whether a program aligns with the intended public purpose. This deficiency raises the
possibility that organizations formed to benefit the residents of Hawai'i County could develop
programs that do not fulfill the criteria for a qualifying public purpose. Furthermore, the lack of
clear enumeration in the eligibility criteria may lead to oversight during the initial vetting process.
Additionally,ARTICLE VII Section 4.The Hawai'i State Constitution states,"No tax shall be levied,
or appropriation of public money or property made, nor shall the public credit be used, directly or
indirectly, except for a public purpose. No grant shall be made in violation of Section 4 of Article I
of this constitution. No grant of public money or property shall be made except pursuant to
standards provided by law."
To improve internal controls over the County's grant-in-aid processes, we provide six
observations and suggestions to ensure compliance with Article 25 and best practices.
Observation 1
Opportunities to Establish a More Substantial Public Purpose Alignment.
We suggest the Hawai'i County Council amend Hawai'i County Code Article 25 to establish
alignment with the state constitution regarding serving a public purpose and benefit by
enumerating both as a criteria.
Section 2-139 (C) of the Hawai'i County Charter states, "The director shall submit to the council
all qualifying applications as provided in sections 2-137 and 2-138 for its review and appropriation
of funds."This leads to a natural conclusion that forwarded "qualifying applications" conform with
all seven elements of the Hawai'i County Code §2-137 and the other six elements of §2-138.
However, this is not the case. The Department of Finance does not verify all elements of these
two sections.
Observation 2
Opportunities to Clarify Roles and Responsibilities.
We suggest the Department of Finance work with County Council to clarify the responsible party
for individual items related to §2-137 and §2-138 of the HCC.
6
Phase 2 Awarding
The role of Hawaii County Council in awarding funds is not described as currently written.
In our evaluation of Article 25, we identified procedural gaps. Specifically, the activities of the
Council as they relate to its review and appropriation of funds to nonprofits are not addressed in
the code. Not defining the Council's responsibilities introduces actual and perceptual risks,
including:
Actual Risks
Several risks need consideration. Firstly, the lack of clearly defined responsibilities within the
Council's decision-making process concerning fund allocations to non-profit organizations may
undermine accountability. Secondly, the absence of established procedures could result in
inconsistent and subjective decisions in fund allocation. Thirdly, unclear responsibilities may
inadvertently violate applicable laws and regulations. Lastly, the absence of explicit procedures
heightens the risk of conflicts of interest influencing funding decisions.
Perceptual Risks
Additionally, perceptual risks encompass other concerns. Firstly, there is the risk of erosion of
public trust, driven by a perceived lack of transparency and fairness in the Council's actions.
Secondly, the perception that decisions may be influenced by personal or political biases rather
than objective criteria exposes a susceptibility to bias. Thirdly, nonprofit organizations might
perceive the funding process as unpredictable or biased, potentially reducing their confidence in
receiving fair treatment. Lastly, the perception of favoritism toward certain nonprofits over others
within the community can lead to questions about equitable treatment.
Timeline for Awarding
• Section 2-139 states, "Agencies shall be notified by the director of their funding or lack
thereof by August 31." It is assumed that all activities occur between February, when the
director forwards qualifying applications, and August when organizations are notified.
However, the Council's activities are not explicitly associated with time frames in the
procedure.
Observation 3
Opportunity to Clarify Council Responsibilities.
We suggest the Hawai'i County Council clarify Chapter 2, Article 25 to explicitly include activities
and timelines for reviewing and appropriating non-profit funding. This should include clear
guidelines on the evaluation criteria, decision-making processes, and oversight mechanisms.
Additional elements to consider:
1. Plan and Design Each Year's Program - eCFR Federal Guidlines Title 2 Subtitle A
Chapter II Part 200 Subpart C§ 200.202 requires that the Federal awarding agency must
design a program and create an Assistance Listing before announcing the Notice of
7
Funding Opportunity. The program must be designed with clear goals and objectives that
facilitate the delivery of meaningful results consistent with the Federal authorizing
legislation of the program. Program performance shall be measured based on the goals
and objectives developed during program planning and design.
2. Establish the Selection Process -A merit review is an objective process of evaluating
Federal award applications in accordance with written standards set forth by the Federal
awarding agency. eCFR Federal Guidlines Title 2 Subtitle A Chapter II Part 200 Subpart
C § 200.205 requires that the Federal awarding agency must design and execute a merit
review process for applications, with the objective of selecting recipients most likely to be
successful in delivering results based on the program objectives outlined in § 200.202.
3. Establish Performance Metrics - eCFR Federal Guidlines Title 2 Subtitle A Chapter II
Part 200 Subpart C§200.11 requires that the Federal awarding agency must specify how
performance will be asessed in the terms and conditions of the Federal award, including
the timing and scope of expected performance as well as performance goals, indicators,
targets, and baseline data. Federal performance guidelines contradict Chapter 2, Article
25, which requires the applicant to create these metrics.
Phase 3 Expensing and Reporting of Funds
As currently written, nonprofit organizations' responsibilities include the following activities:
Section 2-142 Records, reporting, and fiscal accountability requirements.
1. The nonprofit organization must adhere to Generally Accepted Accounting Practices
(GAAP) and keep accurate and detailed records that clearly account for the use of County
funds. These records must be available for inspection, review, or audit by the County
expending agency,the director,the legislative auditor, or their designated representatives.
2. Submit a report that shall include, but not be limited to, a detailed description focusing on
specific, measurable outcomes of how the County funds were used, public benefits
derived from their use, and a breakdown of other funding sources and their expenditures.
3. Section 2-142.1 (C) Restrict funds for the program's intended use except for a maximum
of ten percent for administrative and overhead costs.
8
Timeline for Expensing Reporting of Funds.
• Performance reports described above are due to the county within sixty days after June
30 of the contractual year. Failure to submit on-time reports results in ineligibility for at
least the next year and all subsequent fiscal years until that written report is submitted to
and accepted by the Council.
• The Department of Finance's RULES AND REGULATIONS RELATED TO STANDARDS
FOR GRANTS OF PUBLIC FUNDS TO NONPROFIT ORGANIZATION. Rule 3.3
Application for Grants. (b) do not align with HCC Chapter 2 Article 25. Additionally, Rule
3.5 Funding. (b) states that "Payments shall be made monthly on a reimbursement
method. However, the first month's payment, which shall not be less than ten percent of
the total grant to the organization, shall not be made until the organization submits a tax
clearance from the State Director of Taxation."
Funding is currently being provided 50% after contract execution, with the remainder being
distributed after submission of a 6-month progress report, approximately September and
February.
Observation 5
Update Department of Finance Rules and Regulations.
We suggest that the Department of Finance regularly reviews and updates its rules and
regulations to align with actual timing and funding. •
Additional Considerations for other areas of the code as written.
Section 2-139 outlines the procedure for awarding grants, specifying certain criteria for handling
specific grants. However, other sections, such as 2-137 and 2-138, which cover Eligible
organizations and Conditions for grants, apply universally to all grants awarded to nonprofits.This
has led to confusion because while eligibility and conditions apply broadly, the procedures for
handling them do not.
Additionally, consolidating these grant types under one Article has caused some additional
confusion with regard to the most appropriate use. Grant-in-Aid (GIA) funds are distinct from
Contingency Relief Funds (CRF). CRFs act as a financial safety net for unexpected events and
emergencies, consistent with the operations and activities of the County. However, blending
distinct grant types under one section increases the risk that CRFs are used for events that are
not county-related projects. In assessing whether a violation of gifting of public funds has taken
place, one criterion is whether funds awarded serve a fundamental purpose of government. The
implications of merging these distinct programs and their impact on fund allocation must be
carefully considered.
In recent years, the county has significantly expanded its grant offerings under the category of
"Other Grants." These include programs such as the Affordable Housing Production Program,
The Homelessness and Housing Fund,the Homeowners Assistance Fund, and others managed
at various county departments.While certain"Other Grants"adhere to a codified framework, such
9
as those outlined in Article 47 for Disaster Relief, Recovery, and Resilience, other grant programs
exhibit a range of administrative controls.
Finally, some grants incorporate specific rationales with distinct stipulations and limitations that
may run counter to Article 25.
Observation-6
Evaluate the Appropriateness of the Existing Procedure.
We suggest the Hawai'i County Council clarify Article 25 by assessing the diverse methods of
financial distribution and, when appropriate, separate Articles.
Conclusion
We would like to express our gratitude for the ongoing efforts to strengthen the operational
framework of Article 25. The collaborative efforts of various organizations have been
commendable and show a commitment to excellence and continuous improvement.
It is also important to emphasize the opportunities for further refinement and development
identified throughout this review. By addressing the observations and suggestions made in this
review, there is an opportunity to elevate the program's efficiency, transparency, and overall
impact on the community. Improvements will align with best practices and ensure that the program
remains responsive to the evolving needs of Hawai'i Island's residents.
In closing, we thank the various organizations for providing full, free, and unrestricted access to
examine and inspect records and speak with employees tasked with management and oversight.
We would also like to thank the Department of Finance and the Hawai'i County Council for their
commitment to continually improving Article 25. For any questions or concerns, you are welcome
to contact me at(808) 961-8386. Aloha.
10