STATE OF HAWAII
BOARD OF EDUCATION
FINANCE AND INFRASTRUCTURE COMMITTEE MEETING

MINUTES

Queen Liliuokalani Building
1390 Miller Street, Room 404
Honolulu, Hawaii 96813
Thursday, April 11, 2024

PRESENT:
Ken Kuraya, Chairperson
Bill Arakaki
Kaimana Barcarse
Warren Haruki
Lauren Moriarty
Kahele Dukelow, Ex Officio

EXCUSED:
Makana McClellan

ALSO PRESENT:
Keith Hayashi, Superintendent, Department of Education
Curt Otaguro, Deputy Superintendent of Operations, Department of Education
Denise Yoshida, Director, Internal Audit, Department of Education
Leslie Kondo, State Auditor
Cory Kubota, Managing Partner, Accuity LLP
Stacey Aldrich, State Librarian, Hawaii State Public Library System
Capsun Poe, Board Executive Director
Wimmie Wong Lui, Board Analyst
Lady Garrett, Secretary


I. Call to order

Committee Chairperson Ken Kuraya called the Finance and Infrastructure Committee (“Committee”) Meeting to order at 9:00 a.m.

II. Approval of minutes of March 7, 2024, Finance and Infrastructure Committee

ACTION: Motion to approve the Finance and Infrastructure Committee’s March 7, 2024, meeting minutes. (Barcarse/Arakaki). The motion carried through unanimous consent from all members present.


III. Discussion Items

Committee Chairperson Kuraya called on Denise Yoshida, Internal Audit Director, to provide the presentation on the Department of Education’s (Department) annual financial and single audit report for fiscal year ended June 20, 2023. Yoshida introduced Leslie Kondo, State Auditor, and Cory Kubota, Managing Partner, Accuity LLP who will provide the results of the single audit for fiscal year (FY) ended June 30, 2023.

Kondo shared that the Office of the State Auditor is responsible for the financial audits of state organizations and programs by contracting with private CPA firms such as Accuity LLP, who has conducted the audit for the past three years. Kubota introduced Ryan Horiuchi, Principal, and Eric Sukamoto, Senior Auditor from Accuity LLP who was also present for the meeting. He outlined the summary of the audit results and explained that the Department is required to undergo an annual single audit under the Uniform Guidance because it expends more than $750,000 in federal monies. The single audit consists of a financial statement audit and federal compliance audit with results reported to the federal government via the Federal Audit Clearinghouse (FAC). The deadline for the FAC is nine months after the fiscal year end which would be March 31, 2024 and the Department financial statements are included in the State of Hawaii Annual Comprehensive Financial Report (ACFR) which is targeted for December 31, 2024. The financial statements include the Hawaii State Public Library System (HSPLS), and all public charter schools. The FY23 audit results relating to federal compliance is referenced on page 47 including a summary of audit results. The Department has 11 major federal programs with two programs (1) Economic, Social and Political Development of Territories; and (2) COVID-19 Education Stabilization Fund received findings of material weaknesses which resulted in a qualified opinion. The remaining 9 major problems have a clean bill of health. He reported that the Department expended $426 million on a cash expenditure basis with $17 million related to charter schools that are separately audited.

Kubota referenced seven reportable findings listed on pages 48-56, and encouraged the Board to review the management discussion and analysis of the report. The management corrective action plan to respond to the findings is included in the corrective action response plan after page 56 of the report. The total government-wide assets total $4.8 billion with greater than 50% in capital assets, total government-wide liabilities totals $689 million. The total revenues totals $4.4 billion with $3 billion from state appropriations and $493 million in federal grants. He recommended that the Board review the management discussion and analysis of pages 4-8 of the report.

Kubota shared the required communications process to ensure the Committee receives information regarding the scope and results of the audit.

Committee Member Haruki asked about the balance sheet and changes in capital assets expenditure amount being relatively small. Kubota explained that a lot of the Department’s expenses are to address deferred maintenance so the expenses are showing up in the income statement instead of the balance sheet. Committee Member Haruki asked if the state relies on the balance sheet for bond purposes. Kubota replied that the balance sheet is included for bond purposes. Committee Member Haruki asked about the liabilities section and if subsequent events are not included for government agencies. Kubota replied that if significant subsequent events occur it is included but financial statements belong to management. The Department does not control or drive the results to respond to rulings such as the temporary hazard pay.

Committee Member Haruki asked what led to the $32 million increase relating to lease payables. Kubota replied that the Governmental Accounting Standards Board (GASB) 87 was implemented in FY 22 which required leases of space to be reported on the balance sheet as an asset and liability. Charter schools did not implement GASB 87 till FY 23 and GASB 96 relates to long-term software leases which are reflected on the balance sheet. Committee Member Haruki referenced HSPLS supply chain issues as a major problem which is out of control but it is ok. Aldrich explained that as long as funds are encumbered by September 30, since supply chain issues have been an issue nationwide the federal government has been understanding.

Committee Member Haruki stated that the corrective action plan for material weaknesses is 13 months which seems like a longtime to remediate the issue. Kubota confirmed that the right steps are being taken and it is not being ignored by the Department.

Committee Chairperson Kuraya called for public testimony on this agenda item.

Vanessa Ott, member of the public, testified in support of more transparency of information and noted that reports regarding financial line items do not show the details of expenditures at schools.

Committee members received written testimony before the meeting. (A listing of the people who submitted written testimony before the meeting is included at the end of these minutes.)

Committee Member Moriarty asked for a comparison of the audit results. Kubota replied that results are consistent and it is challenging to have clear visibility of issues. Committee Member Moriarty stated that there are specific areas where the Department needs to take a systematic look at areas to dig deeper into or with findings. Kubota replied that the biggest cause of findings is due to staffing.

Committee Member Moriarty referenced page 18 of the memorandum relating to workers compensation reserves not being included in liabilities and asked if this was prudent. Kubota replied that the way the financial statements are presented is under a full and modified accrual basis limited to what is expected to be expended. Committee Member Arakaki noted that the corrective action plan includes dates. Kondo clarified that a lot of the questions need to be posed to management and emphasized that the Department financial team is qualified and takes the audits seriously. Hayashi echoed comments from Kondo and noted that the Department takes the report seriously and will move forward to address the findings.

Stacey Aldrich, State Librarian expressed appreciation to Accuity and stated that HSPLS has to think ahead on what areas need to be addressed. Board Member Dukelow, Ex Officio added that the process will help to inform the overall real estate optimization (OREO).
Committee Chairperson Kuraya on Aldrich to provide an update on the Lahaina Public Library campus.

Aldrich stated that the Lahaina Public Library was opened on March 4, 1956 and was located on the site of a former royal taro patch belonging to King Kamehameha III. The last collection count was that roughly 21,000 items were located in the library. Aldrich shared that the Hawaii State Public Library System (HSPLS) will provide immediate Bookmobile services has a short-term goal which includes providing temporary library space, and the long-term goal is for the Lahaina Public Library reopening in a permanent new building. The rapid assessment amount includes $9.9 million from FEMA and $2.7 million from insurance or state funds, a consulting group will provide an assessment on the actual amount to rebuild although costs are subject to change.

Committee Chairperson Kuraya called for public testimony on this agenda item. No testimony was provided.

Committee Member Dukelow stated that there are a lot of discussions on what will happen and asked if work is being done to identify alternative sites for the Lahaina Public Library. Aldrich replied that HSPLS is working with Maui County and community members.


Committee Chairperson Kuraya called on Hayashi and Otaguro to provide an update on the status of schools’ fire alarm systems.

Otaguro shared that the Department continues to work on Lahaina wildfire recovery efforts and will complete an inventory of all schools’ fire alarm systems. The fire alarm replacement plan includes information on quick repair for important parts, minimizing system downtime, and replacing parts based on reliability and cost estimates. As of April 1, 2024, 22 schools have inoperable fire alarm systems resulting in implementing manual fire watch, 68 schools are equipped with operable fire alarm systems that exceed 20 years in age with no replacement parts, 71 schools maintain operable fire alarm systems either 20 years old or with unavailable replacement parts, and 102 schools are equipped with operable fire alarm systems with ages not exceeding 20 years and readily available replacement parts.

Audrey Hidano, Assistant Superintendent of the Office of Facilities and Operations (OFO) shared that the Department is working with the counties to narrow down specific systems and emphasized that the Department is taking this issue very seriously.

Committee Chairperson Kuraya called for public testimony on this agenda item. No testimony was provided.

Committee Chairperson Kuraya asked that the information include updates and suggested that the Department provide a priority column listing information relating to if no replacement or parts are available due to age. He recognized that all fire alarm systems cannot be completed at once due to funding and recommended that the Hawaii Center for Deaf and Blind (HCDB) School be prioritized higher due to the population of students attending this school.

Committee Member Haruki referenced the fire alarm systems that are inoperable and asked how the Department will move forward. Hidano stated that the Department will work on identifying and prioritizing the immediate needs.

Committee Member Moriarty expressed appreciation for the systematic approach relating to fire alarm systems and encouraged the Department to reach out to charter schools.

Committee Member Haruki asked if fire alarm system replacements will be with addressable models. Otaguro confirmed that the replacements will be with addressable models.


Committee Chairperson Kuraya called on Hayashi to provide a review of the status of Department capital improvement projects (CIP).

Hayashi stated that the Department continues to be focused on encumbering CIP funds with the lapse date of June 30, 2024. He summarized the projected contracting schedule and project status timelines. For the period of January to March 2024, the Department has completed 91 construction projects totaling $96,173,996.43.

Committee Chairperson Kuraya called for public testimony on this agenda item.

Jessica Caiazzo, member of the public, testified that construction costs need to include updates and expressed concern with the lack of transparency. She suggested having each school list how to file grievances on their website.


E. Update on King Kamehameha III Elementary campus at Pulelehua

Committee Chairperson Kuraya called on Otaguro to provide an update on King Kamehameha III Elementary campus at Pulelehua.

Otaguro outlined the King Kamehameha III Elementary campus at
Hayashi stated that students were following prior protocols and did not drink from any of the affected water. He outlined the land lease terms, maintenance and facilities costs for the Department for the new Pulelehua campus.

Committee Chairperson Kuraya called for public testimony on this agenda item. No testimony was provided.

Committee Member Haruki commended the staff for their accomplishment and noted that there is a media narrative due to his prior employment; however the lease is not directly related.


IV. Adjournment

Committee Chairperson Kuraya adjourned the meeting at 11:15 a.m.

List of the people who submitted written testimony before the meeting


NAME
Organization
Agenda Item
Vanessa OttIII.A. Presentation of the Department of Education’s annual financial and single audit report, fiscal year ended June 30, 2023