STATE OF HAWAII
BOARD OF EDUCATION
AUDIT COMMITTEE

MINUTES

Queen Liliuokalani Building
1390 Miller Street, Room 404
Honolulu, Hawaii 96813
Thursday, September 6, 2018


PRESENT:
Catherine Payne, Committee Chairperson
Dwight Takeno, Committee Vice Chairperson
Brian De Lima, Esq.
Nolan Kawano

EXCUSED:
None

ALSO PRESENT:
Christina Kishimoto, Superintendent
Denise Yoshida, Director, Internal Audit Office
Matthew Denton, Audit Specialist, Internal Audit Office
Brian Shigaya, Audit Specialist, Internal Audit Office
Alison Kunishige, Executive Director
Kenyon Tam, Board Analyst
Regina Pascua, Board Private Secretary
Irina Dana, Secretary


I. Call to Order

The Audit Committee (“Committee”) was called to order by Committee Chairperson Catherine Payne at 9:32 a.m.

II. *Public testimony on Audit Committee (“Committee”) agenda items

Committee Chairperson Payne called for public testimony. There was no public testimony at this time.

III. Approval of Meeting Minutes of May 3, 2018 Committee Member Brian De Lima moved to amend the Audit Committee Meeting minutes of May 3, 2018 to include changes outlined in red as circulated to the Committee Members.

ACTION: Motion to approve the Audit Committee Meeting minutes of May 3, 2018 with changes outlined in red as circulated (Takeno/Kawano). The motion carried unanimously with all members present voting aye.

IV. Discussion Items Denise Yoshida, Director, Internal Audit Office (“IA”), stated that the Department of Education’s (“Department”) internal audit plan quarterly update covers the period between April 1, 2018 and June 30, 2018. She reviewed an executive summary of assurance projects, and consulting, monitoring, fiscal reviews, and other projects. Yoshida highlighted that IA completed the Investigation Process Review and Capital Construction Oversight and Management Implementation Follow-Up Review in June and will be presenting on this topic later in the meeting. IA began its Student Information System Post-Implementation Review/Data Integrity Follow-Up Review. She noted that the review is currently in the fieldwork stage and IA is targeting it for issuance in September 2018. She stated that IA performed five student activity fund reviews, seven school monitoring reviews, and provided internal control consultation to various schools and offices. In addition, IA was involved in several unanticipated fiscal reviews and continued to coordinate and monitor cases from the Fraud and Ethics Hotline.

Yoshida reviewed a summary of IA’s proposed changes to the audit plan. She detailed that IA moved the Post-Investigation-Decision-Making Process Audit from the second quarter of Fiscal Year (“FY”) 2019 to the first quarter of FY 2019. IA also moved its Leave Without Pay Audit from the first quarter of FY 2019 to the third quarter of FY 2019. Finally, IA moved its Operational Audit of the Extracurricular Section from the third quarter of FY 2019 to the second quarter of FY 2019. Yoshida explained that IA shifted these audits due to internal staffing issues.

Yoshida briefly reviewed the management action item dashboard summary, including audits that IA performed that are outstanding and management action plans that IA is monitoring. She explained that the dashboard shows what is outstanding and what is complete.

Matthew Denton, Audit Specialist, IA, reviewed the Fraud and Ethics Hotline summary. He explained that each quarter IA reports hotline data for the three most current fiscal years. Denton stated that the number of cases this quarter are consistent with the number of cases from the prior year. Denton detailed that IA receives 10 to 20 cases per month on average depending on the time of year. He noted that IA closes approximately half of all cases as minor issues, and assigns half for formal case review prior to closure. Denton briefly summarized where IA assigned cases, how many it closed, how it prioritized and addressed cases, and final outcomes.

Committee Member De Lima noted that investigations for several cases that IA opened over a year ago are still ongoing. He asked what IA’s timeline is to complete these investigations and asked why these cases are still open. Denton stated that a case could still be open for a number of different reasons, such as whether it is still in an investigation phase, pending outcome, in a decision-making phase, or a grievance phase. He highlighted that IA closed two of the ongoing cases in its report since June 30, 2018. Denton detailed that IA’s report includes information it receives from case managers as to which phase a case is in, but stated that IA does not ask for additional details. Denton stated that there are timelines and guidelines for employees placed on leave and the field tries to adhere to these.

Committee Member De Lima commented that the Fraud and Ethics Hotline received 203 cases in FY 2018 and asked if the cases listed in IA’s summary are the only ones that are open currently. Denton confirmed that the only open cases are the ones listed in the summary. Committee Member De Lima stated that IA receives an average of 200 cases per year. He noted that there are currently 15 open cases listed in the Fraud and Ethics Hotline Summary, but IA closed two of the cases listed in its summary. Denton confirmed that this is correct. Committee Member De Lima noted that there are not very many open cases, but several have been open for over a year. He encouraged IA to keep track of its ongoing cases.

Committee Vice Chairperson Dwight Takeno commented that IA’s summary of dispositions and its description of whether a complaint had merit is listed in its appendix. Denton confirmed that it is. Committee Vice Chairperson Takeno stated that it would be helpful for IA to include this information in its presentation and in its main set of documents rather than in the appendix. Denton stated that IA could move this information to elsewhere in its report. Committee Vice Chairperson Takeno stated that it would be helpful for the Committee to review what portion of cases had merit to proceed forward to the investigation phase and what portion of cases did not. Denton stated that IA could organize its next quarterly report in the way in which Committee Vice Chairperson Takeno suggested.

Committee Member Nolan Kawano commented that IA assigned the majority of cases to complex areas rather than administrative offices, the Office of the Superintendent, or IA. He asked for an explanation for this distribution and asked whether other offices are unequipped or do not have enough time for investigations. Denton stated that he could not speak for each individual area and does not have information regarding distribution. Committee Member Kawano expressed concern over the dissemination of cases. Denton explained that IA assigns cases based on location. Committee Member Kawano stated that he understood that IA assigns cases based on location, but noted that IA is not assigning many cases to itself or to the Office of the Superintendent. He stated that the way in which cases are distributed may not make sense, particularly when cases take a long time to be resolved. Denton stated that he does not have this information. He explained that IA does not ask for additional details and does not give an opinion on performance. Committee Member Kawano asked IA to review this information for the next Committee meeting and identify whether it needs to resolve systemic issues. Denton confirmed that IA could ask complex areas for additional details and identify causes.

V. Recommendation for Action
Denton stated that the purpose of the Department’s investigation process review is for IA to review and evaluate the design and operating effectiveness of the Department’s process for investigating alleged employee misconduct, and to provide recommendations for improvement. He noted that IA presented the observations of this review by identifying leading practices through research of generally accepted principles, standards, and guidance and compared them to the Department’s practices. Denton stated that based upon its review, IA found that the Department’s controls related to investigation processes are functioning at a “marginal” level. He detailed that leading practices suggest that an effective and efficient investigation process include the following characteristics: investigators must be free, both in fact and appearance, from impairments to independence; investigators should have professional proficiency and also time for the tasks required; the investigation process should include the following tasks: plan the investigation, conduct interviews, gather documents and other evidence, evaluate the evidence, and document the investigation; investigation tasks must be conducted in a timely, efficient, thorough, and objective manner; and investigative data should be stored in a manner that allows retrieval, reference and analysis.

Denton stated that IA found that the Department’s process does include some of these characteristics; however, some weaknesses were noted. IA observed that investigations are not always free, both in fact and appearance, from potential impairments to independence, and information is not maintained for analysis and reporting.

Denton noted that IA’s recommendations for the Department to address impairments to independence include, to create and implement an independent process for complaint intake, review, and assessment. Management should consider creating guidelines for the use of an independent reporting method so that employees know when and how they should use this option; determining who can and who should review and assess the complaints submitted through the independent reporting option; consolidating or centralizing complaint intake functions at the state office level; and updating policies and procedures to provide clarity and guidance to the field. Denton stated that management submitted an action plan. He noted that the Office of Talent Management will work with the hotline intake team to revise the process for review and assessment of complaints received through the Department’s Fraud and Ethics Hotline. The hotline intake team will review complaints involving allegations of serious or egregious misconduct, to determine whether an investigation is warranted and make a recommendation to the appropriate Complex Area Superintendent (“CAS”) or Assistant Superintendent that an investigation be initiated, if deemed necessary.

Denton detailed that to ensure that internal investigations are assigned to investigators who are independent in fact and appearance, IA recommends that management should consider increasing staff at the district level and state office level to conduct investigations; transferring investigation duties to other employees; outsourcing for investigations; and updating policies, procedures, and guidelines for the assignment of investigators. He stated that management’s plan includes that the Office of Talent Management will continue to request three permanent investigator positions in the biennium and supplement budget requests until the positions can be obtained. The Office of Talent Management will also initiate discussions with CASs and recommend that a permanent complex area personnel specialist be hired in each complex area.

Denton stated that for the second observation, IA noted that there is no consistent practice or system for managing investigative information, a lack of policies and procedures for managing investigative information, and the only investigations tracked for review and analysis are the ones in which employees are placed on leave. He stated that IA recommended that management create and implement a process for recording and maintaining investigative information, and store information in a manner that allows effective retrieval, reference, and analysis, while ensuring the protection of sensitive data. Management should consider determining what information should be tracked and analyzed, documenting complaint intake and complaint resolution, standardized forms and templates, computer applications, creating requirements and guidelines for managing investigative information, and updating policies and procedures to provide clarity and guidance to the field. IA also recommended that management consider conducting analysis of investigative information to identify recurring or systematic workplace issues and to assist with determinations for resource allocation, training needs, program development, and process improvements. Denton noted that management’s action plan includes that the Office of Talent Management will research case management software and will follow up with the necessary tasks to procure the case management software. As an interim measure or temporary means of collecting information related to investigations, the Office of Talent Management will develop a spreadsheet for schools, district offices, and state offices to complete and return to the Office of Talent Management to consolidate on a semi-annual basis. Denton stated that IA feels that management’s action plans adequately address IA’s concerns.

Committee Member De Lima asked if IA reviewed other school districts to determine how other districts conduct independent investigations. Denton explained that IA reviewed the top 20 school districts based on size and found that different districts use different methods, such as having multiple offices to address complaints and investigations. He noted that some districts have a similar process to the Department’s.

Committee Member De Lima asked if in other school districts, an individual could call a different office to investigate a complaint if he or she brings it to the principal’s attention and the principal does not investigate. Denton stated that for some school districts, this is part of the procedures, and for other school districts it is not.

Committee Member De Lima asked if certain offices investigate specific allegations in other school districts. Denton explained that some districts have specific areas or agencies, such as police departments, that investigate specific allegations. For example, if there is alleged criminal activity, district police would investigate this complaint.

Committee Member De Lima stated that not all complaints are going to be addressed in the same way. He noted that it is appropriate for a principal to manage a category of complaints, and for investigators to investigate certain types of complaints at the school-level. Committee Member De Lima stated that it might be difficult for the Department to receive more positions. He stated that IA should work with the Office of Talent Management to review how to find the right balance so that its requests to the Legislature are vetted with information. He noted that the Department needs to further review how to conduct investigations.

Committee Member Kawano asked for more detail regarding the investigative process. He asked what happens when the Department receives a complaint, where it comes from, who the source is, and who the complaint is assigned to. Committee Member Kawano asked if the Department always assigns complaints to principals. Denton detailed that IA’s materials include a chart that shows the complaint intake structure.

Committee Member Kawano asked for more detail regarding the process in between which office complaints are reported to and which office complaints are referred to. He asked for more detail regarding referral determinations. Denton explained that a complaint could come into any office. The Department assigns complaints based on the location related to the complaint.

Committee Member Kawano asked what the next step is for a principal after he or she receives a complaint. Denton stated that IA’s materials include a depiction of the Department’s investigation process. He detailed that once the Department intakes a complaint, it reviews and assesses the complaint to determine whether or not an internal investigation is warranted.

Committee Member Kawano asked how a principal determines whether he or she handles a complaint or whether he or she should refer a complaint to a different office. He stated that he is trying to understand whether principals make their own determinations or whether there is a process that principals follow. Denton stated that he is unsure how consistent principals are across the state. He explained that the principal makes the decision to refer or not refer a complaint after he or she reviews and assesses the complaint. If the complaint is related to class discrimination, principals refer the complaint to the Civil Rights Compliance Office (“CRCO”) for review.

Committee Member Kawano commented that it appears as though there are no policies or procedures for principals to follow upon complaint intake and principals determine what to do with a complaint. Denton stated that principals make the determination, but they have guidance to make a decision. Committee Member Kawano asked if principals have written guidance. Denton stated there is no written procedure on how to handle it. Yoshida explained that the determination that a principal makes to handle it as a management issue or an investigation or refer a complaint to a specialized area office, such as labor or civil rights, is not something that was tested. She noted that Cynthia Covell (Assistant Superintendent of Talent Management, Office of Human Resources) could better address Committee Member Kawano’s questions.

Committee Member Kawano suggested that IA expand its audit to review this process. He stated that IA is recommending a new intake process and suggesting an alternative intake process without understanding the current process. Yoshida explained that the alternative reporting method is not a replacement for the current practice of reporting to immediate supervisors and administration. She noted that IA’s audit reviewed the investigation process, including the intake process and how complaints are resolved on the backend. She noted that this is why IA is completing its decision-making review next. Committee Member Kawano stated that he is speaking to the step in between and its relevance. He noted that IA is reviewing the intake and disposition component and he is asking about what happens in between. Yoshida explained that the investigation process is what IA reviewed. Committee Member Kawano suggested that IA expand its review to determine whether the Department has policies and procedures in place so that individuals follow an agreed-upon process once a complaint comes in. He stated that if principals make determinations and the Department assigns complaints based on location, the process may not be consistent. Committee Member Kawano noted that some principals may refer complaints if they have too much on their plates while other principals may not refer complaints out of bias or need to protect individuals.

Christina Kishimoto, Superintendent, explained that the Department provides principals with extensive training and has guidance for principals to refer complaints if complaints are related to protected classes. She detailed that Covell’s staff assists in investigations and provides technical assistance on difficult cases. Kishimoto noted that complaints regarding behavioral issues are related to how staff is getting along and are handled by principals. She detailed that other complaints may be more complex and in these instances CRCO and investigative teams help walk principals through the process. Kishimoto clarified that principals do not make their own determinations because they want to conduct their own investigations. She highlighted IA’s recommendation for the Department to use technology to facilitate documentation regarding the processes it has in place so that it is clear and easy to account for. Kishimoto stated that in some instances, the Department engages in a more independent review and is ensuring that these instances are captured in its processes as well. Kishimoto reiterated Committee Member De Lima’s earlier comments and stated that the Department has processes in place to assign complaints for independent review in certain scenarios.

Committee Member Kawano asked if IA has tested the policies and procedures that Kishimoto detailed. Denton clarified that Kishimoto described guidance, not policies and procedures. Committee Member Kawano asked if IA tested the Department’s guidance. Denton confirmed that it did. Committee Member Kawano asked if all principals are following this guidance. Denton stated that principals make determinations at their own discretion based on their training and guidance. Committee Member Kawano commented that the Department’s procedures are merely guidelines so principals can follow them if they want to. He stated that these are not procedures.

Committee Vice Chairperson Takeno asked if the Department has checks and balances in place to ensure that principals are following the processes that Kishimoto described and referring complaints to the correct offices upon initial intake. Committee Vice Chairperson Takeno noted that complaints could have many facets, such as protected areas and legal areas, and certain offices may need to be involved. He asked if the Department has coordinated efforts to ensure checks and balances. Committee Vice Chairperson Takeno echoed Committee Member Kawano’s sentiments regarding whether principals could determine that they would handle a specific complaint even if guidelines direct them to refer to a different office. Denton stated that this is possible and noted that this is the risk of the Department not having independent options for reporting. He explained that current decision-making goes up the management chain. He detailed that principals make a decision and receive approval from CASs. He noted that this is not organizationally independent. Denton detailed that checks and balances appear later down the road after a principal makes a determination. He stated that part of the checks and balances process is that employees have rights and could undergo the grievance process. Denton stated that if a principal makes the determination to not investigate a complaint, the Department does not have checks and balances in place. He noted that IA found that this is a weakness and addressed it in its report. In order to mitigate this weakness, the Department needs to implement independent reporting methods.

Committee Member Kawano stated that it does not make sense for IA to recommend that the Department keep its current process in place if that process is potentially flawed. He stated that it does not make sense for the Department to implement a new process that is independent and unbiased while keeping its current process. Denton explained that IA’s recommendations are based on risk. He further explained that there is not enough risk for IA to recommend that the Department overhaul its entire procedure to mitigate this weakness. Denton noted that an overhaul of its entire process would cost hundreds of thousands of dollars and the current risk does not warrant that based on IA’s review. Denton stated that IA identified this risk as a moderate risk and rated its review as marginal because it is a lower risk. He explained that it is reasonable for IA to suggest that the Department add another component in order to mitigate the risk that IA found. Denton detailed that the Department’s process includes all complaints and all complaints go to management to be addressed.

Committee Member Kawano asked how many complaints principals chose not to investigate that they should have investigated. He asked if IA tested for this. Denton stated that IA attempted to test for this, but does not have enough information to do so. He explained that the Department has not maintained this information so IA could not conduct an analysis.

Committee Member Kawano asked how IA determined that the weakness it identified is a low risk. Denton detailed the structure of IA’s review and noted that risk explanations are included in IA’s materials. He stated that the risk in this instance would be money loss due to lawsuits or wrongful termination. He noted that it is difficult to quantify and that amount does not satisfy the requirements for a higher observation risk or a rating of unacceptable.

Committee Chairperson Payne stated that individuals at the school-level depend greatly on the professional judgement of school leaders. She detailed that school leaders undergo extensive training to understand if complaints are related to protected classes or criminal issues, and which offices to consult in what instances. She highlighted that there are many checks and balances in place. Committee Chairperson Payne noted that the daily intake of minor complaints is high and most of these minor complaints are handled by professionals at the school-level. She stated that school leaders most likely do not document every issue because it would be very time-consuming to do so.

Committee Member De Lima stated that the Committee has been dealing with investigations and policies as they pertain to directed leave and has been monitoring various aspects of decision-making, investigations, and timelines first on a monthly basis and currently on a quarterly basis. Committee Member De Lima detailed the impetus for IA’s review and described how the Department spent resources to decrease time periods for investigations, determined whether or not appropriate reviews were being conducted to place an individual on Department Directed Leave (“DDL”), reviewed policies from other school districts, determined the analysis regarding whether employees should be placed on DDL or if other alternatives existed, and sent the review out for comment. Committee Member De Lima asked if IA solicited input from unions in regards to its investigation process review. Denton stated that IA did not contact unions. He detailed that IA reviewed bargaining union agreements when it searched for criteria for processes.

Committee Member De Lima stated that in the past, one of the challenges in the Department concluding investigations had to do with meeting with the employee because it placed the employee on leave. The Department also had difficulty scheduling meetings with union representatives. Committee Member De Lima stated that it would have been helpful if IA had solicited comments from union representatives regarding their thoughts on the Department’s current investigation process. He stated that principals need to be able to make their own decisions regarding the use of their resources, but it would have been beneficial to review general guidance principals receive pertaining to investigations. Committee Member De Lima stated that the Department has a lot of data regarding complaints that rise to the level of DDL analysis. He stated that there is no data regarding complaints that do not rise to that level. He asked if it was necessary to spend time and resources on these kinds of complaints. Committee Member De Lima commented that principals have too much on their plates as it is, but stated that he needs more time to review IA’s report. Committee Member De Lima suggested that the Committee review IA’s report again and suggested that the Human Resources Committee also review IA’s report. He suggested that IA take advantage of what it learned regarding how other school districts manage complaints and review whether the Committee and Department need to propose policies to address systemic issues. He also suggested that IA discuss what data the Department needs to collect so that it could successfully advocate for positions and funding from the Legislature. He emphasized the importance of vetting information completely and thoughtfully prior to requesting positions and funding from the Legislature.

ACTION: Motion to defer the Department’s investigation process review to the Human Resources Committee for the Human Resources Committee and the Office of Talent Management to conduct further review prior to being returned to the Audit Committee for the Audit Committee to take action (De Lima/Kawano). The motion carried unanimously with all members present voting aye.

Brian Shigaya, Audit Specialist, IA, stated that the scope of IA’s review included a review of management actions implemented to address the findings and recommendations presented in the Deloitte & Touche LLP reports from 2012 and 2013, and the operating effectiveness of the following functional activities: project prioritization, design and project management, construction management, procurement of professional and construction services, and project accounting. Shigaya stated that the objectives of IA’s review included assurance that management adequately addressed the findings and recommendations from the “Construction Process and Internal Controls Review” reports issued in April 2012 and July 2013, and evaluation of the operating effectiveness and adequacy of the internal controls for the procedures related to the capital improvement program (“CIP”) construction process. Shigaya stated that based on its review, IA found that the controls related to the Facilities Development Branch’s management of the capital improvement projects are functioning at a level of “marginal.” He noted that there were a total of 32 findings and recommendations presented in the two Deloitte & Touche LLP “Construction Process and Internal Controls Review” reports, some of which were repeat findings from the original report or interrelated findings.

Shigaya stated that IA noted five observations, including a lack of a strategic master plan to address the facility improvement needs with limited funds and resources; consultant designs are not consistently reviewed in detail before the projects are bid for construction; projects are not closed timely after the completion of the construction phase; approval of contract change orders are not always executed within the approved delegation of authority; and supporting documentation for blanket encumbrances are not always kept on file.

Shigaya noted that for the first observation, IA found that there are approximately 900 CIP and Repair and Maintenance projects in progress, and the project coordinators are responsible for managing on average 50 to 60 projects concurrently. There is no standard for the number of projects a project manager should handle concurrently due to the number of variables that must be considered. Shigaya stated that IA also noted that there are over 4,000 project requests on the backlog list that date back to 2005 and will likely increase as the facilities age. The average age of the Department’s facilities is over 50 years. Shigaya stated that the budget request proposals submitted to the Legislature are not fully funded, and the Legislature initiated add-on CIP projects are not always in line with priority backlog projects. Shigaya stated that IA recommends that management should develop a strategic master plan that takes into consideration the global facility needs, the evolving curriculum, and the increasing facility needs to efficiently address the school’s facility needs and maximize the funding and resources that are available.

Shigaya stated that for the second observation, IA noted that the Facilities Development Branch has a quality assurance process in place. However, it is not consistently performed. Project coordinators are responsible for performing the assurance process, but their work load includes managing multiple projects concurrently. Due to the limited amount of time, project coordinators’ primary focus is to coordinate the project’s progress, address or resolve issues, and perform other administrative tasks over the design review. In addition, a less detailed review is performed when time is of the essence to proceed with the bidding of projects for construction. Insufficient review of design consultant reviews may result in inaccurate or incomplete designs, increased change orders, complications in construction, and delays in construction and project completion. Shigaya detailed that IA recommends that management should improve their quality assurance process to ensure consistent detailed reviews of the consultant’s designs are performed before the projects are bid for construction.

Shigaya stated that IA’s third observation is that management is not closing projects in a timely manner after the completion of the construction phase. IA noted that there were 110 completed projects that project management did not close within six months after the construction process was completed. Furthermore, management did not close outstanding encumbrances in the financial management system’s accounting system as it completed projects. Shigaya detailed that IA’s fourth observation is that management did not always execute the approval of contract change orders within the approved delegation of authority. IA reviewed 35 project files, and the Public Works Manager approved two change orders rather than the Assistant Superintendent of the Office of School Facilities and Support Services (“OSFSS”). Shigaya stated that management’s plan notes that the delegation of authority to the Public Works Manager level is necessary to ensure project schedules are adhered to. OSFSS will recommend such delegation of authority to the Superintendent. IA’s fifth observation was that management did not keep supporting documentation for blanket encumbrances on file. Shigaya noted that through its testing, IA noted that there was no documentation on file for the blanket encumbrances submitted for contracts that were not fully executed by the end of the lapsing period. Unsupported blanket encumbrances may result in inappropriate and improper use of the blanket encumbrances. Shigaya stated that IA recommends that the Facilities Development Branch should ensure the requirements for submitting blanket encumbrances are met before submitting the encumbrance request. The required documentation should be kept on file. Shigaya highlighted that management agreed to IA’s findings and now has required documentation for blanket encumbrances on its internal server. He stated that IA concurs with management’s action plans and will follow up on its implementation.

Committee Chairperson Payne asked if IA will follow up with management regarding action plans and report back to the Committee. Shigaya explained that IA follows up with management on a quarterly basis.

ACTION: Motion to approve the Department’s construction process and internal controls follow-up review (De Lima/Takeno). The motion carried unanimously with all members present voting aye.

VI. Adjournment

Committee Chairperson Payne adjourned the meeting at 10:20 a.m.