WHEREAS, the Housing and Community Development Corporation of Hawaii (HCDCH) receives approximately $25 million in federal funds per year to provide public housing for low-income individuals and families in Hawaii; and

WHEREAS, in May, 2002, the United States Department of Housing and Urban Development (HUD) notified HCDCH that it suffered from serious deficiencies in the administration of its public housing program due to a failure to adhere to statutory requirements and program guidelines; and

WHEREAS, in response to HUD's concerns, HCDCH drafted a corrective action work plan (CAWP) to address deficiencies in management and communication, staffing, compliance with federal guidelines, financial control, and information systems; and

WHEREAS, in August, 2002, HUD notified HCDCH that the state agency's executive director had violated federal conflict of interest rules when she awarded a sole source contract to Punaluu Builders, a business owned by her ex-husband; and

WHEREAS, while HCDCH has formally denied that the procurement of the $771,000 contract violated federal requirements, HCDCH officials have acknowledged deficiencies in documentation and recordkeeping related to the contract; and

WHEREAS, in September, 2002, HUD issued a corrective action order to HCDCH that requires the housing agency to procure a private firm to provide it with technical assistance in all areas of management; and

WHEREAS, a HUD audit conducted in September, 2002, found HCDCH to be in violation of several federal regulations, including those pertaining to timely and sufficient procurement planning, full and open competition in the procurement process, appropriate procurement methods, sole source contracts, and ethics/conflict of interest; and

WHEREAS, HCDCH responded to HUD's concerns by developing an action plan that involves a review of applicable federal and state laws, development of a procurement procedure checklist and mandatory procurement training program, and establishment of a contracts and procurement officer position; and

WHEREAS, HUD has requested HCDCH to pay $771,000 to HUD's comprehensive grant program as reimbursement for unsupported costs arising out of the Punaluu Builders contract; and

WHEREAS, within the past two years, the State has forfeited almost $750,000 in federal grant moneys provided to hire anti-drug personnel for public housing projects because HCDCH failed to expend the moneys before the grants expired, and the State is at risk of forfeiting an additional $814,000 between now and September, 2003; and

WHEREAS, the failure to adhere to federal guidelines in the administration of Hawaii's public housing program jeopardizes the State's receipt of $25 million in federal funding and its ability to provide housing for thousands of low-income individuals and families, and puts the State at risk for repayment or forfeiture of federal funds; and

WHEREAS, it is critical that HCDCH take affirmative and immediate corrective action to address the deficiencies found by HUD in order to avoid the loss of affordable housing for Hawaii's people or the State's control of its public housing program; and

WHEREAS, the State and HUD have entered into a memorandum of understanding under which the State has agreed to conduct a nationwide search for a new executive director, obtain prior HUD approval for board appointments and executive staff hirings, increase staff training in procurement laws and regulations, and prohibit contract awards to companies found to have abused federal programs or misspent federal funds; and

WHEREAS, pending confirmation of its members by the Senate, the HCDCH will be governed by a new board of directors; now, therefore;

BE IT RESOLVED by the Senate of the Twenty-Second Legislature of the State of Hawaii, Regular Session of 2003, that the Auditor is requested to conduct management and financial audits of the Housing and Community Development Corporation of Hawaii; and

BE IT FURTHER RESOLVED that the Auditor is requested to include as part of the management audit an evaluation of the HCDCH Board of Directors' responsiveness to HUD's corrective action order and the memorandum of understanding, and the progress of the board's efforts to address HUD's concerns; and

BE IT FURTHER RESOLVED that the Auditor is requested to submit a report of findings and recommendations to the Legislature no later than twenty days prior to the convening of the Regular Session of 2004; and

BE IT FURTHER RESOLVED that certified copies of this Resolution be transmitted to the Housing and Community Development Corporation of Hawaii and the Auditor.

Report Title:

Auditor; HCDCH Management and Financial Audit