Audit Slams Management of Molokai Irrigation System

Report says mismanagement is putting the future of farming in jeopardy.

A view from above of the Molokai Irrigation System reservoir located in Kualapu`u.

By Jennifer Smith

A state audit report released last week Wednesday cited multiple counts of negligence in regards to the Department of Agriculture’s (DOA) management, maintenance and financial handling of the MIS. The audit also said the DOA is failing in its obligation to protect the rights of Hawaiian homestead farmers.

The report acknowledged DOA’s recent efforts to remedy several of the system’s problem areas, but said that without concrete results efforts could not receive credence in the report.

“Many of the steps presented by the department have been taken only within the last few years; meanwhile the department has been responsible for the irrigation systems since 1989,” according to the audit report. “We do give the department credit, however, for beginning to bring the MIS to a better state of repair.”

Background
This first audit of the MIS was prompted by MIS patrons’ and private citizens’ concerns that the DOA was failing to adequately maintain the system, as well as inadequately managing funds to support the agricultural industry on Molokai.

The Senate responded by enacting Concurrent Resolution No. 176, mandating a state audit of the DOA’s finance and management practices of the MIS. The state audit occurred between July and November 2007.

Homesteader Rights
“We will protect the homesteaders’ rights to the water, no questions,” DOA deputy chairperson Duane Okamoto said, disagreeing with audit report findings that the DOA does not take seriously its responsibility of stewardship to Hawaiian homesteaders.

“It is going to take a long time before the DOA can regain the trust of the homesteaders,” Ho’olehua homestead farmer Glenn Teves said. The state agency has a history of not fulfilling its trust responsibilities to homesteaders, according to Teves.

Inadequate planning for future resources has left the needs of the homesteaders second to the interests of larger agricultural business, according to the audit report. While the DOA has an obligation to provide Hawaiian homesteaders with two-thirds of the system’s water, the audit report found that non-homestead farmers consume approximately 80 percent of the system’s available water.

“If homesteaders have two-thirds right to the water, shouldn’t they have two-thirds seats on the board,” Teves said, explaining that homesteaders are not receiving sufficient representation on the MIS Water User Advisory Board (WUAB).

The WUAB is currently required to have only one of the six seats allotted to a homestead farmer. The audit report recommended the board consider adding more homesteader seats and provide more information in regards to definitions and procedures for membership.

The board could entertain the thought of adding more seats for homestead farmers, WUAB chairperson Adolph Helm said in an email. “The idea would be how best to implement this recommendation without compromising the value and input of the broader agriculture community.”

Helm suggested the WUAB, DOA, Department of Hawaiian Home Lands (DHHL) and the homesteaders work collaboratively to clearly define the selection process for the homestead farmer representative or representatives to serve on the board.

Helm also said that while the advisory board may have been underutilized in the past, he believes that has changed considerably in the past two years.  The WUAB is currently more engaged and involved in all aspects of the MIS, according to Helm.

Financial Shortcomings
Financial concerns within the audit cited a lack of sustainability, unjust appropriations practices, and a lack of skilled accounting personnel. To help you with the accounting process, hire an expert from a tax accountant Santa Barbara, a CPA firm who can provide a top-notch accounting service.

“There is concern among MIS users about the inequity in spending for the MIS given the amount of revenue generated by the system,” the report said, explaining that the MIS is the only system out of five that produced a net profit in the last three years.

“It has gotten really bad,” Teves said. He described the MIS as the Cinderella of all of the state systems. “We generate all of this money and nothing comes back to us.”

“To take our hard earned money to help the other systems, while our system falls into disrepair is travesty,” Teves said.

In order to begin regaining the support of homestead farmers, Teves said the DOA needs to “put their money where their mouth is” and add more services, such as technical assistance and marketing.

MIS Mismanagement
A lack of training, leadership, staff and funding plague the DOA, according to the audit report. In short, “the department has not planned for the sustainability of the Molokai Irrigation System.”

The report also said a lack of communication has led to a lack of understanding among management concerning the needs of the irrigation systems. While the DOA readily admits to the disrepair of the MIS, it has yet to conduct simple repairs and maintenance.

“I beg to disagree on the statement of inefficiency in management of the system since they inherited it, the current administration has made great strides in improving the efficiency of the system,” Helm said.

Helm said the DOA has seen a 33% savings in electrical cost from 2006 to 2007, and infused $2.75 million in Capital Improvement Projects (CIP). CIP will provide several improvements to the MIS, including replacing valves on the west portal transmission pipeline, installing a new primary electrical cable through the tunnel and purchasing new meters and equipment.

Other Unresolved Issues
A decision by the Attorney General (AG) asking Molokai Properties Limited (MPL) to get off of the MIS transmission line has left an extension agreement on indefinite hold.

MPL, also known as Molokai Ranch, inherited the Kaluakoi Corporation’s transfer agreement to rent portions of the MIS to transfer Ranch water from central to west Molokai.

Despite entering into discussions to extend the agreement, the attorney general’s office said in September 2007 that an environmental study was required before a new contract could be issued to use the state-run system.

Molokai Ranch General Manager John Sabas said MPL has yet to hear anything from the DOA regarding the future for the transfer agreement.

“We have an obligation to provide water to the people on the West End,” Sabas said, explaining that Molokai Ranch does not have plans to discontinue its use of the MIS. “Until we receive word otherwise that is what we intend to do and have been doing.”

During the last WUAB meeting Okamoto said the AG’s office has been unable to provide guidance on an appropriate set of actions for the DOA.

“This agreement is going to affect Homesteaders for a long time,” homestead farmer Moke Kim said. “This is an important piece of document that needs to be thrown on the table, so that politics don’t play heavy.”

Okamoto said the AG is not purposely delaying the process. However, he added that until questions such as who’s responsible for financing the environmental review and who will receive the contract for the job are answered, the DOA and MPL will operate on a month-to-month basis, with the same terms and conditions from the expired agreement.

The audit report said it is important to note that without funds received from the transmission line rental agreement of $136,397 annually, the MIS would be in the same position as the other irrigation systems. “All of the other irrigation systems collectively are operating at a net loss, and require general fund support.”

Report Recommendations
“If the MIS is to continue its role as the lifeline to the island of Molokai, it is imperative that the department fully commit itself to all aspects of the system,” according to the audit report.

The report calls for a repair to a broken system, as well as a plan for the long-term existence of the MIS. “The people of Molokai are highly dependent on this system and the department needs to ensure that disruption of service does not occur,” according to the audit report.

Recommendations for the DOA focus on area specific improvements, such as creating a strategic plan and improving training practices, in addition to increasing and implementing maintenance practices.

The report also said the DOA should find ways to better serve the community such as disseminating more information to the community and addressing questions related to the MPL transportation agreement.

Department Response
Okamoto said the DOA initially opposed the audit due to the amount of time it would take to collect information. However, he said the department now sees the audit as a means to identify ways to improve. “These improvements are going to make a significant difference.”

The DOA will bring the recommendations to the board and discuss timeframes for improvements, according to Okamoto. “We will do these quickly and move forward on them,” he said.

“We’re happy to put together a strategic plan for MIS,” supplies inventory, track revenues by systems and improve the flow of information.

However, “We really feel the report is a mischaracterization,” Okamoto said, referring to the wording of the audit report. “We didn’t feel it justified these titles,” given the recommendations that were made.

Okamoto also said the audit report’s account of an alleged “bold statement” he made concerning not having to protect homesteaders’ water rights was inaccurate and “absolutely ridiculous.”

“If there is anything we believe strongly it is that we have a moral and statutory obligation to protect the homesteaders’ rights to water,” Okamoto said. “This is a harmful statement-to some it will undermine the work we have done for the past year,” he said.

The Financial and Management Audit of the MIS is available online at http://www.state.hi.us/auditor/Reports/2008/08-03.pdf.

The next MIS WUAB meeting will be held March 18 at 10 a.m. at the MIS office.