Hawaii Agricultural Development Corporation (ADC) - Legislative Investigation - Accuracy and Precision of State Audit
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Lawmakers questioned state auditor Kondo regarding his audit of the Agribusiness Development Corporation (ADC), which revealed deficiencies in record-keeping and a lack of adequate policies. Kondo indicated that while he offered to discuss findings with ADC leadership, he received no response, and expects forthcoming financial audits to corroborate the performance audit results. Additionally, an audit of Young Brothers Management appreciated the company's cooperation but warned of potential future liquidity issues without significant operational changes.
![Kondo told the committee that the ADC hired an accounting frm, KMH LLP, to sort through the
records. Meanwhile, the auditor contracted with the accounting frm Accuity to perform an audit of the
records made available by KMH.
Kondo expects the fnancial audit to mirror the fndings of his performance audit of the ADC.
“There are going to be signifcant fndings in the report,” Kondo said. “They will fnd material
defciencies in those fnancial records and in those processes, that ADC has … to maintain those
records, the accuracy of those records.”
The ADC has previously told lawmakers that it lacks the staf necessary to compile the documents and
said in 2018 that it's too busy to be audited.
Rep. Amy Perusso, a critic of the ADC, asked Kondo whose responsibility it is to hire more staf and
ensure documents are in order. The auditor said Perusso’s questions are better directed at the ADC
_________________________________________________________________
AUDIT PERFORMED FOR HAWAII PUBLIC UTLITIES COMMISSION
[EXCERPT]
MURO TULLOCH
Young Brothers Management Audit Final Report September 9, 2021
<https://dms.puc.hawaii.gov/dms/DocumentViewer?pid=A1001001A21I09B60842J00162>
The company was fully engaged in the process and made the requested data, as weh as key staf,
available to us throughout the process.
The company should be recognized for being open with the Audit team and for devoting a signifcant
amount of executive and management time to meet with us. There remain disagreements between the
Audit team and YB leadership regarding the core structural business issues and potential improvement
strategies. However, after extensive discussions, we were able to fnd common ground on a number of
actions that we believe will improve operations. [Page 15]
Our audit revealed that there is no silver bullet or single lever that can be pulled to drive large cost
savings. Similar to the approach adopted bymostmature businesses, itis necessary to diligently review
all processes and all cost drivers on a continuous basis, to identify opportunities for efciencies. We
have also found, that once initial improvements have been exhausted, it may be necessary to make
more dramatic process changes in the business delivery model, to fnd the next level ofmprovements.
Efciency is a journey, not a destination. [Page 174]
No parties are blameless in this situation. While the audit has recommended a number of actions that
should be taken to contain costs and improve performance, absent signifcant changes in approach by
all stakeholders, it is our considered opinion that it is highly possible that the company could fnd itself
in a similar liquidity situation within 2-3 years. [Pages 188, 189]](https://image.slidesharecdn.com/hawaii-agriculturaldevelopentcorportionadc-legislativeinvestigation-accuracyandprecisionofstateaudit-210921194932/85/Hawaii-Agricultural-Development-Corporation-ADC-Legislative-Investigation-Accuracy-and-Precision-of-State-Audit-2-320.jpg)
![YB is sincerely appreciative for the auditor's work, including the eforts to identify proposed solutions.
As suggested by the auditor, the company is in the process of implementing a strategic initiative to
understand every dollar of the company’s cost and to use that understanding to reduce and control
those costs; this initiative will be further developed and detailed in YB's new 5-year strategic plan. As
set forth in the company's mission statement, YB remains committed to its community, customers, and
partners and strives to contribute to their success and long-term sustainability. [Page 204]
The Audit Team sincerely appreciates the company's recognition of the thoroughness of the work
performed by the audit team. We also realize that the execution ofthe audit was time consuming and
stressful for the company as our fndings and recommendations have forced them to address difcult
issues. We are encouraged by the stated overall acceptance by the company of the urgent need to
address operational improvements and cost containment initiatives. However we consider it a much
greater compliment to the abilities and the quality of work by our team that the company appears now
to have made a commitment to examine in detail their costs and to take appropriate action to reduce
and control these costs. In our view that is the most critical and urgent activity the company can
undertake to demonstrate its commitment to all stakeholders and must be prioritized. YB states that it
remains committed to its community, customers, and partners and strives to contribute to their
success and longterm sustainabiity. Adoption of the recommendations and actions contained in this
audit report, as well as a renewed focus on the core regulated business activities to ensure services
remain both sustainable and afordable, will be the most transparent and efective demonstration to all
stakeholders of a genuine commitment to improvement by the company. [Pages 204, 205]
For this proposal we assembled a very strong consulting team with expertise in: [Page 216]
• Business Strategy
• Executive Governance
• Hawaii Utility Regulatory Environment
• Business Operational Performance Improvement
• Labor Relations and Agreements
• Forensic Accounting
• Logistic Operations and Strategy
• Management Auditing
• Customer Service
• Intercompany and afliate accounting practices
_________________________________________________________________](https://image.slidesharecdn.com/hawaii-agriculturaldevelopentcorportionadc-legislativeinvestigation-accuracyandprecisionofstateaudit-210921194932/85/Hawaii-Agricultural-Development-Corporation-ADC-Legislative-Investigation-Accuracy-and-Precision-of-State-Audit-3-320.jpg)
Hawaii Agricultural Development Corporation (ADC) - Legislative Investigation - Accuracy and Precision of State Audit
- 1. LAWMAKERS QUESTION STATE AUDITOR ABOUT HIS PROBE OF AGRIBUSINESS AGENCY The agency and the auditor are expected to appear before House lawmakers again Tuesday By Blaze Lovell, Honolulu Civil Beat, September 20, 2021 <https://www.civilbeat.org/2021/09/lawmakers-question-state-auditor-about-his-probe-of-agribusiness-agency/ > House Majority Leader Della Au Belatti, the chairwoman of the committee who has asked the most probing questions of Kondo's ofce, disagreed with his assessment, and said that the purview of the committee is broad enough to include investigating the auditor. Belatti continued with questions on how Kondo’s ofce performed the audit, often diving into the minutiae of government accounting standards and audit practices. Rep. Mark Hashem asked why the audit stated that the ADC lacks policies and procedures to manage its lands. Hashem said his ofce received documents outlining those policies, as well as others that challenge assertions that the ADC lacked the proper controls to provide security for some of its parcels. “If we don't get documents and we don’t get responses, we don't know what we don't know,” Kondo said. Later in the hearing, Kondo said that his ofce met with ADC executive Director Jimmy Nakatani before publishing the audit. He said that would have been an opportunity to provide the auditors with any documents to respond to fndings. “I fnd it a little bit odd they would not address that in their exit statement and make comments about it later,” Rep. Dale Kobayashi said. Kondo also said that he ofered to meet again with ADC leadership and its board of directors to go over the fndings and discuss ways to develop plans to address them, but he hasn’t received a response. The ADC audit was also critical of the agency’s record-keeping. At the time the audit was performed, Kondo's team found that fnancial documents were in such disarray that a fnancial audit couldn't be completed.
- 2. Kondo told the committee that the ADC hired an accounting frm, KMH LLP, to sort through the records. Meanwhile, the auditor contracted with the accounting frm Accuity to perform an audit of the records made available by KMH. Kondo expects the fnancial audit to mirror the fndings of his performance audit of the ADC. “There are going to be signifcant fndings in the report,” Kondo said. “They will fnd material defciencies in those fnancial records and in those processes, that ADC has … to maintain those records, the accuracy of those records.” The ADC has previously told lawmakers that it lacks the staf necessary to compile the documents and said in 2018 that it's too busy to be audited. Rep. Amy Perusso, a critic of the ADC, asked Kondo whose responsibility it is to hire more staf and ensure documents are in order. The auditor said Perusso’s questions are better directed at the ADC _________________________________________________________________ AUDIT PERFORMED FOR HAWAII PUBLIC UTLITIES COMMISSION [EXCERPT] MURO TULLOCH Young Brothers Management Audit Final Report September 9, 2021 <https://dms.puc.hawaii.gov/dms/DocumentViewer?pid=A1001001A21I09B60842J00162> The company was fully engaged in the process and made the requested data, as weh as key staf, available to us throughout the process. The company should be recognized for being open with the Audit team and for devoting a signifcant amount of executive and management time to meet with us. There remain disagreements between the Audit team and YB leadership regarding the core structural business issues and potential improvement strategies. However, after extensive discussions, we were able to fnd common ground on a number of actions that we believe will improve operations. [Page 15] Our audit revealed that there is no silver bullet or single lever that can be pulled to drive large cost savings. Similar to the approach adopted bymostmature businesses, itis necessary to diligently review all processes and all cost drivers on a continuous basis, to identify opportunities for efciencies. We have also found, that once initial improvements have been exhausted, it may be necessary to make more dramatic process changes in the business delivery model, to fnd the next level ofmprovements. Efciency is a journey, not a destination. [Page 174] No parties are blameless in this situation. While the audit has recommended a number of actions that should be taken to contain costs and improve performance, absent signifcant changes in approach by all stakeholders, it is our considered opinion that it is highly possible that the company could fnd itself in a similar liquidity situation within 2-3 years. [Pages 188, 189]
- 3. YB is sincerely appreciative for the auditor's work, including the eforts to identify proposed solutions. As suggested by the auditor, the company is in the process of implementing a strategic initiative to understand every dollar of the company’s cost and to use that understanding to reduce and control those costs; this initiative will be further developed and detailed in YB's new 5-year strategic plan. As set forth in the company's mission statement, YB remains committed to its community, customers, and partners and strives to contribute to their success and long-term sustainability. [Page 204] The Audit Team sincerely appreciates the company's recognition of the thoroughness of the work performed by the audit team. We also realize that the execution ofthe audit was time consuming and stressful for the company as our fndings and recommendations have forced them to address difcult issues. We are encouraged by the stated overall acceptance by the company of the urgent need to address operational improvements and cost containment initiatives. However we consider it a much greater compliment to the abilities and the quality of work by our team that the company appears now to have made a commitment to examine in detail their costs and to take appropriate action to reduce and control these costs. In our view that is the most critical and urgent activity the company can undertake to demonstrate its commitment to all stakeholders and must be prioritized. YB states that it remains committed to its community, customers, and partners and strives to contribute to their success and longterm sustainabiity. Adoption of the recommendations and actions contained in this audit report, as well as a renewed focus on the core regulated business activities to ensure services remain both sustainable and afordable, will be the most transparent and efective demonstration to all stakeholders of a genuine commitment to improvement by the company. [Pages 204, 205] For this proposal we assembled a very strong consulting team with expertise in: [Page 216] • Business Strategy • Executive Governance • Hawaii Utility Regulatory Environment • Business Operational Performance Improvement • Labor Relations and Agreements • Forensic Accounting • Logistic Operations and Strategy • Management Auditing • Customer Service • Intercompany and afliate accounting practices _________________________________________________________________