Queen Liliuokalani Building
1390 Miller Street, Room 404
Honolulu, Hawaii 96813
Tuesday, November 1, 2016
9:00 a.m.

Lance Mizumoto, Chairperson
Kenneth Uemura, Vice Chairperson
Grant Chun
Margaret Cox
Brian De Lima
Darrel Galera, ex officio

Kathryn Matayoshi, Superintendent
Stephen Schatz, Deputy Superintendent
Amy Kunz, Senior Assistant Superintendent and Chief Financial Officer, Fiscal Services
Barbara Krieg, Assistant Superintendent, Human Resources
Siobhan Ng, Acting Chief of Staff
Denise Yoshida, Director, Internal Audit Office
Karl Yoshida, Director, School Process and Analysis Branch
Tom Ishimaru, Accounting Director, Accounting Services BR
Matt Denton, Audit Specialist, Internal Audit Office
Jennifer Luke, Audit Specialist, Internal Audit Office
Alison Kunishige, Executive Director
Regina Pascua, Private Board Secretary
Kenyon Tam, Board Analyst
Bernadette Fo

I. Call to Order The Audit Committee (“Committee”) meeting was called to order by Committee Chairperson Lance Mizumoto at 9:00 a.m. II. Public Testimony on Board of Education (“Board”) Agenda Items

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

No written testimony was received.

III. Approval of Minutes

ACTION: The Audit Committee’s minutes of August 2, 2016, were approved as circulated without objection. IV. Discussion Items

Jennifer Luke, Audit Specialist, Internal Audit Office, presented the results of the Department’s Vendor/Contract Management Review. The purpose of this project was to review the Department of Education’s (“Department”) current vendor/contract management policies and processes as it relates to management’s due diligence over vendor oversight, purchasing authority, contract administration and accountability for large purchase contracts ($25,000 and over) of goods and services provided.

Committee Member Brian De Lima entered at 9:05 a.m.

Luke described the responsibilities of the Department’s Chief Procurement Officer, the administration of contracts, and the office in the Department that provides administrative and technical support for procurement and contracting, the Procurement and Contracts Branch (“PCB”), which is under the Department’s Office of Fiscal Services. Luke also covered the scope, objectives, and time period that the report covered (fiscal year 2015 and current fiscal year 2016 up to March 2016), and noted any contracts that were excluded from the review.

Committee Chairperson Mizumoto instructed presenters to assume that Committee Members have read the report and to limit the presentation of background information.

Luke noted that there were three observations that resulted from the review: (1) need for better oversight, monitoring, and accountability at the school/office level; (2) need for better tracking and monitoring of contracts and vendors; and (3) strengthening controls over IT vendors. Luke went into greater detail on the basis for each of these observations, providing the rating, impact, and recommendation and management plan.

Committee Vice Chairperson Uemura asked what total population or baseline was used for the testing in Observation 1. Luke described the process, but noted that it is hard to explain because the total population was filtered down to exclude some exempt purchases. Committee Chairperson Mizumoto asked that Luke put the process for testing and determining the sample size in writing and send that to the Committee members. Committee Vice Chairperson Uemura noted that the sample size is important because it impacts his comments on ratings and recommendations.

The Committee discussed some of the observations in more detail. Committee Chairperson Mizumoto referenced the recommendation to address the observation relating to better tracking and monitoring of contracts and stated that there should be an information tracking system to track all activity and include the full contract amount, not just the original contract amount.

Committee Vice Chairperson Uemura suggested taking out the word “or” from the first recommendation for Observation Number 2 on page 9 of the report so that the recommendation would be to consider implementing an information system to track all contract activities and add a column to the existing tracking sheet to account for additional funds added into a contract either from a modification or supplemental agreement, but noted that PCB would need to discuss this recommendation.

Committee Chairperson Mizumoto asked whether contract tracking sheet should be added to the Audit Committee’s quarterly report, since it will be completed by December 31, 2016. Committee Vice Chairperson Uemura noted that there should be a later deadline to complete the implementation of a system to track all contract activities.

The Committee discussed Observation 3 regarding strengthening controls over IT vendors. Committee Chairperson Mizumoto asked for clarification on the rationale for giving this recommendation a low rating, given cybersecurity issues. Luke responded that the low rating was because the Department’s Office of Information Technology Services (“OITS”) works closely with vendors, the Department’s Data Governance and Analysis Branch does a good job of monitoring student data usage, and contract language covers data security. Committee Chairperson Mizumoto asked that this rationale be included in the report because the current comments do not reflect that the gaps identified are covered.

Committee Member Brian De Lima asked where most of the contracts originate. Luke stated that most originate from the State Office, but there are multiple offices that handle IT projects and that at times there are more than one contract administrator. Committee Member De Lima also asked whether principals are responsible for executing and monitoring school level contracts. Luke replied that ultimately the principal is responsible for oversight of contracts under $25,000 at the school level.

Committee Member Brian De Lima also asked whether the principals have enough resources to deal with the necessary paperwork; the report referenced new principal training. Committee Member Margaret Cox added that in new principal training, principals are trained on a variety of subjects and she is not sure that this training is adequate. Ex-Officio Committee Member Darrel Galera added that his understanding is that principals were also required to complete procurement training, but he is not sure that it is still in place. He added that some schools had business managers that can also provide support. Committee Member Cox stated that only schools that have issues need to have training and that it needs to be helpful and not punitive because principals are trying to do things correctly. Committee Chairperson Mizumoto asked whether there is a way to identify schools that may need more training. Luke stated that this report only covers contracts over $25,000 and few schools have contracts that large. Contracts under $25,000 do not go through the State Office, so she did not have a listing of those contracts.

Committee Vice Chairperson Uemura recommended that the Committee take action on the report. Either accepting the report, including the recommendations of the Internal Audit Office and management’s recommendation and timeline for completion, or deferring action until they Committee received clarification on Observation 1 and revisions to Observation 2. Committee Chairperson Mizumoto noted that the item was not agendized for action on today’s agenda, but stated that the Committee could take the necessary administrative steps to authorize the Committee to take action on reports in the future.

Committee Chairperson Mizumoto instructed presenters to assume that Committee Members have read the report and to limit the presentation of background information.

Denise Yoshida, Director, Internal Audit Office, provided updates as outlined in the report’s Executive Summary. She noted that the format of the audit plan and report were revised in accordance with the Committee’s requests, one of which was the Management Action Item Dashboard Summary matrix.

Vice Chairperson Uemura suggested Yoshida further revise the Management Action Item Dashboard Summary matrix so that audit review items labeled as “partially completed” are identified as not overdue if still falling within the timeframe set for completion.

Yoshida stated that the most recent audits listed in the Observation Analysis of Completed Reports grid showed observable improvements in Department compliance.

Committee Vice Chairperson Uemura inquired about the open cases in the Fraud & Ethics Hotline Summary of the report, and commented that the overall report was a good one -- except for the open cases. Matt Denton, Audit Specialist, Internal Audit Office, clarified that there is no reporting standard for open or outstanding cases, and asked the Board what they would like to see in the reporting of these cases. Currently, case managers are not supervised or monitored for performance for reviews of investigations, but receive check-ins every 4 to 6 weeks to see what progress has been made, however, status updates may be requested.

Committee Vice Chairperson Uemura noted that closed cases are well described and categorized, and asked if open cases can also be categorized. Denton replied that the 21 open cases for fiscal year 2017 have not been categorized yet, however, cases that have been categorized may be reported on. Committee Vice Chairperson Uemura expressed an interest in more information about the open cases, including the issue (for example, management issues) or who is handling the case (for example, Superintendent or Human Resources), however, he also noted that it may not be practical to categorize these cases if the cases are at an initial stage where there is insufficient information to do so.

Committee Chairperson Mizumoto noted that the Committee is looking for more information regarding the cases, for example, case type, investigation length, explanation for longer investigations, and suggested looking at the reports that Human Resources provides for Department Directed Leave and Leave Pending Investigation for guidance. Denton offered to prepare a response for the next quarterly report.

Committee Vice Chairperson Uemura stated that the Observation Analysis of Completed Reports shows improvement, but noted that for common observations, “Lack of Oversight & Monitoring” was noted for almost every previously completed report.

Committee Chairperson Mizumoto stated that the Committee would move on to discuss updates on audit findings with two or more extensions requested: the Leave Data & Timekeeping Process Review issued in March 2010 and Leave Accounting Follow-Up Review issued in January 2014.

Amy Kunz, Senior Assistant Superintendent and Chief Financial Officer, Fiscal Services, testified that for the Leave Data & Timekeeping Process Review, the Department is currently partnering with the State of Hawaii Enterprise Resource Planning Initiative (“ERPI”) and just signed a contract with a consultant to move forward on long-range payroll and time and attendance, and in the meantime, have created a time keeper checklist, School Administrative Services Assistant (“SASA”) Academy course, including leave policies and procedures regarding accruals, and getting out in the field to ensure best practices and that business managers have the tools they need. Kunz is also looking to have the State Office of Enterprise Technology Services, make a presentation to the Board about the long-term system upgrades.

Committee Chairperson Mizumoto called on Tom Ishimaru, Accounting Director, Accounting Services BR, who made the extension requests to get his perspective as the person in the field.

Ishimaru testified that the time keeping system is a stand alone system where information must be entered separately by a time keeper, and the time keeper can only enter information if the employees submit their leave in an accurate and timely manner. Because the system is manual and not integrated and employees must request their leave using a paper form, it is not an efficient system. The State system upgrade will help not only with payroll processing, but also time and attendance tracking.

Committee Chairperson Mizumoto noted that while automation will be an important part of the solution, if the overall process is still inefficient, automation could take place and not create significant improvements. Committee Chairperson Mizumoto suggested the Department take a look at the current process while waiting for the automation to take place to ensure that the processes are aligned so automation will result in a more efficient program.

Committee Vice Chairperson Uemura asked about the risk of the process currently in place. Ishihara replied that the current process causes salary overpayments. An example is leave without pay. When people take their leave without submitting the request or receiving authorization then the individuals continue to be paid and the leave hours are not accounted for. Committee Chairperson Mizumoto expressed concern about the magnitude of the overpayment, and asked if there is a way to measure overpayment.

Senior Assistant Superintendent and CFO Kunz stated that since her time at the Department there has been a heightened awareness of salary overpayments. Some steps have been put into place to minimize it including additional support through the Principals Academy and principals’ meetings, but some of the loss is driven from collective bargaining contracts where leave is provided upfront before employees earn it. The majority of overpayments being collected are a result of this issue. Currently, the Department provides monthly information to the Department of Accounting and General Services (“DAGS”) on salary overpayments, and collections is turned over to the Attorney General’s collection arm.

Ex Officio Committee Member Patricia Bergin entered at 10:00 am.

Kunz further noted that there are many moving parts to this issue, but progress is being made and will continue to be made. Committee Chairperson Mizumoto requested the amount of outstanding overpayments the Department is pursuing. Senior Assistant Superintendent and CFO Kunz offered to provide the monthly DAGS report, but noted that the salary overpayment balance is around $300,000.

Committee Member De Lima noted the need to hasten implementation of technological solutions to reduce the administrative burden of principals and school level administrators.

Committee Chairperson Mizumoto commented that the Department cannot solely rely on an automated system to improve things, but must also take a look at improving the current processes. Kunz concurred and noted that the Leave Accounting Review has many of the same issues as the timekeeping review.

Committee Chairperson Mizumoto asked Ishimaru about the likelihood of requesting a third extension, and expressed concern and frustration about the lack of progress being made or a timeline or roadmap for completion. Ishimaru stated that he will meet with Internal Audit to discuss the comprehensive plan for the various steps and milestone dates.

Committee Chairperson Mizumoto called on Karl Yoshida, Director, School Process and Analysis Branch of OITS to update the committee on the Data Integrity Review -- Student Enrollment report, issued April 2013.

K. Yoshida reported that subject area experts reviewed the process and procedure manual and provided feedback for compliance issues. Currently, the outstanding issues with the manual are formatting and pagination. Once resolved, the manual will be presented to the Deputy Superintendent for review and will likely be transmitted to the Department of the Attorney General for further review.

In the meantime, training was conducted with school office staff statewide during July and August 2016 that included how to enroll and withdraw students under various scenarios. Refresher classes are scheduled statewide for October and December 2016, and beginning January and February 2017 scheduler training will begin.

Resource materials have also been provided such as learning guides, FAQs, and training videos. Most recently, on Oct 20, 2016, a memo went to all CAS and principals announcing the assignment of resource teachers (“RT”) from OITS to all schools. RTs are assigned by district and act a point of contact for schools on general policies within functions of the student information system and other school matters.

Committee Chairperson Mizumoto asked if data integrity was in the same category as data governance. K. Yoshida stated that the two work together and also with OITS. The manual was designed to provide consistencies to make it easier for all entities to work together on student information.

Committee Chairperson Mizumoto asked about the likelihood of another extension. K. Yoshida stated that he planned on finishing the manual in the next 2-3 months and hoped that the review by the Deputy Superintendent and Department of the Attorney General would be done in a timely manner. Committee Member Cox commented on how busy a school’s office is because of the amount of things going on at the school level and that she does not want Committee Members to think that people are not working as hard as they can. Committee Chairperson Mizumoto agreed and stated that Committee Members are interested in reducing potential redundancies in processes so that schools have time to address the needs of students.

V. Adjournment

Committee Chairperson Mizumoto adjourned the meeting at 10:21 a.m.