Hawaii Department of Health 

Needs to Reduce Open Grants 

and Unspent Funds

Report No. 16-P-0218 June 28, 2016

U.S. ENVIRONMENTAL PROTECTION AGENCY

OFFICE OF INSPECTOR GENERAL

Hotline Report: Spending Taxpayer Dollars
Report Contributors: Angela Bennett

Lela Wong

Abbreviations

CFR Code of Federal Regulations

DOH Hawaii Department of Health

DOT Hawaii Department of Transportation

DWSRF Drinking Water State Revolving Fund

EPA U.S. Environmental Protection Agency

FY Fiscal Year (federal)

IUP Intended Use Plan

OIG Office of Inspector General

SDWA Safe Drinking Water Act 

SFY State fiscal year

Cover photo: The Ewa Shaft Granular Activated Carbon Treatment Facility, on the Hawaii 

island of Oahu, which has received Drinking Water State Revolving Funds.

(Hawaii Department of Health photo)

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16-P-0218

June 28, 2016

Why We Did This Audit

The U.S. Environmental 

Protection Agency (EPA) Office 

of Inspector General (OIG) 

received a hotline complaint

regarding the Hawaii 

Department of Health (DOH). 

The complaint alleged that 

Hawaii DOH pools its funds 

from the Drinking Water State 

Revolving Fund (DWSRF) 

program with Hawaii 

Department of Transportation 

funds. The complaint also 

alleged that the EPA continues 

to fund the state’s DWSRF 

program even though it has 

10 open grants with $30 million 

in unspent funds, of which 

$5 million is not committed. 

Our objective was to determine 

the validity of the allegations 

and recommend corrective 

actions to address the 

allegations, as appropriate.

This report addresses the 

following EPA goals or 

cross-agency strategies:

 Protecting America's 

waters.

 Launching a new era of 

state, tribal, local and 

international partnerships.

Send all inquiries to our public

affairs office at (202) 566-2391

or visit www.epa.gov/oig.

Listing of OIG reports.

 

Hawaii Department of Health Needs to 

Reduce Open Grants and Unspent Funds 

 What We Found

We found no evidence to support the allegation 

that Hawaii DOH pools its DWSRF with Hawaii 

Department of Transportation funds, nor did we 

find indications of improper shifting of funds 

between the DWSRF and other state programs. 

We confirmed that Hawaii DOH had 10 open grants in August 2015, 

as well as a large amount of unspent funds. The 10 open grants far 

exceeded the national average of four, and the agency funding utilization 

target of two. We learned that Hawaii DOH did not use the EPA’s 

preferred first-in-first-out method to fund projects under the 10 open 

grants. Rather, Hawaii DOH funded each project under a specific grant. 

Therefore, any project delay would limit Hawaii DOH’s ability to spend 

funds, and grants may not be closed as expeditiously as anticipated. 

A limited number of customers and the funding of projects not ready to 

proceed may have contributed to the unspent funds issue.

Hawaii DOH has closed four grants since the complaint, and has taken 

steps to significantly reduce the unspent funds from $22.3 million in 

August 2015 to $15.09 million as of April 1, 2016. However, additional 

actions are needed to further reduce the open grants and spend the funds 

more efficiently and expeditiously, as required under federal regulations 

and grant terms and conditions, and to meet the agency’s DWSRF 

funding utilization target.

Region 9 was aware of these matters, and has issued a Notice of 

Non-Compliance to Hawaii DOH. Hawaii DOH has established a 

corrective action plan to address the noncompliance. In addition, 

Region 9 has an ongoing management study to identify and address the 

root causes for these issues.

 Recommendation and Planned Corrective Actions

We recommend that the Regional Administrator, Region 9, reevaluate the 

status of fundable projects and Hawaii DOH’s progress on implementing the 

corrective action plan items, prior to awarding the fiscal year 2016 allotment 

of $8,312,000 and any future award, until Hawaii DOH meets the agency’s 

funding utilization target. Hawaii DOH concurred with our findings and 

recommendation, but requested updates to reflect the status of open 

assignments and unspent funds. We have incorporated the changes into the 

report where appropriate. Since Region 9 has not yet responded to the 

recommendation, the recommendation remains unresolved.

U.S. Environmental Protection Agency

Office of Inspector General

At a Glance

Hawaii DOH needs to 

spend $12 million by 

September 30, 2016,

to meet the agency’s 

target for DWSRF 

funding utilization. 
June 28, 2016

MEMORANDUM

SUBJECT: Hawaii Department of Health Needs to Reduce Open Grants and Unspent Funds

Report No. 16-P-0218

FROM: Arthur A. Elkins Jr. 

TO: Alexis Strauss, Acting Regional Administrator 

Region 9

This is our final report on the subject audit conducted by the Office of Inspector General (OIG) of the 

U.S. Environmental Protection Agency (EPA). The project number for this audit was OA-FY15-0026.

This report represents the opinion of the OIG and does not necessarily represent the final EPA position.

EPA Region 9’s Water Division administers and manages project grants to the states, including the 

DWSRF program.

Action Required

In accordance with EPA Manual 2750, you are required to provide us your proposed management 

decision on the findings and recommendation contained in this report before you formally complete 

resolution with the grant recipient. Since Region 9 has not yet responded to the report’s 

recommendation, that recommendation is considered unresolved. Your proposed management decision 

is due in 120 days, or on October 26, 2016. To expedite the resolution process, please email an 

electronic version of your proposed management decision to trefry.john@epa.gov.

Your response will be posted on the OIG’s public website, along with our memorandum commenting 

on your response. Your response should be provided as an Adobe PDF file that complies with the 

accessibility requirements of Section 508 of the Rehabilitation Act of 1973, as amended. The final 

response should not contain data that you do not want to be released to the public; if your response 

contains such data, you should identify the data for redaction or removal, along with corresponding 

justification. 

This report will be available at www.epa.gov/oig.

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

WASHINGTON, D.C. 20460

THE INSPECTOR GENERAL
Hawaii Department of Health Needs to Reduce 16-P-0218

Open Grants and Unspent Funds

Table of Contents

Purpose...................................................................................................................... 1

Background .............................................................................................................. 1

DWSRF Laws and Regulations .......................................................................... 1

Agency Requirements ........................................................................................ 2

Fund Utilization................................................................................................... 2

Region 9 Action to Withhold Grant Funds........................................................... 3

Prior Audit Report ..................................................................................................... 3

Responsible Office.................................................................................................... 4

Scope and Methodology........................................................................................... 4

Results of Audit......................................................................................................... 6

Pooling of DWSRF With DOT Funds .................................................................. 6

Open Grants and Unspent Funds ....................................................................... 8

Conclusion ............................................................................................................... 9

Recommendation...................................................................................................... 10

Auditee Response and OIG Evaluation ................................................................... 10

Status of Recommendations and Potential Monetary Benefits ............................. 11

Appendices

A Auditee Response to Draft Report .................................................................. 12

B Distribution ....................................................................................................... 14
16-P-0218 1

Purpose

The U.S. Environmental Protection Agency (EPA) Office of Inspector General 

(OIG) received a hotline complaint regarding the Hawaii Department of Health 

(DOH). The complaint alleged that the Hawaii DOH pools its funds from the 

Drinking Water State Revolving Fund (DWSRF) program with Hawaii 

Department of Transportation (DOT) programs. Also, the complaint alleged that 

the EPA continues to fund the state’s DWSRF program, even though it has 

10 open grants with $30 million in unspent funds. Our objective was to determine 

the validity of the allegations and recommend corrective actions to address the 

allegations, as appropriate. 

Background

On June 16, 2015, the OIG received an anonymous complaint concerning the 

Hawaii DWSRF program. The complainant alleged that it is common knowledge 

in Hawaii that the state’s DOH and DOT pool their funds. The complainant 

expressed concern that the DWSRF is paying for costs unrelated to the program 

and perhaps to another state program. The complainant also alleged that the EPA 

wants to award an additional $8 million of DWSRF to the Hawaii DOH, even 

though it appears that the program already has 10 open grants with $30 million in 

unspent funds, of which $5 million is uncommitted. The complainant said the 

$8 million in new grants should not be awarded.

DWSRF Laws and Regulations

The 1996 Safe Drinking Water Act (SDWA) Amendments created the DWSRF

program. The DWSRF is a loan program that provides low-cost financing to 

eligible entities for public and private water system infrastructure projects needed 

to achieve or maintain compliance with SDWA requirements and protect public 

health. 

Under the DWSRF program, EPA Region 9 provides DWSRF grants to Arizona, 

California, Hawaii and Nevada. Each state manages its DWSRF program, and 

loans or other types of assistance for drinking water projects are distributed 

according to each state’s program and priorities. Every year, Congress 

appropriates funds, which the EPA distributes among the states. States have the 

flexibility to set aside a portion of their capitalization grant to fund SDWA 

programs, such as the Public Water System Supervision, Source Water Protection, 

capacity development and wellhead protection programs.

Each fiscal year, each state is required to submit an Intended Use Plan (IUP) as 

part of its application for its DWSRF capitalization grant. The IUP provides 

information regarding the use of federal, state and additional monies generated 

from other program sources. The IUP also includes details on key aspects of the 

program, including the long- and short-term goals, the priority setting criteria, a 
16-P-0218 2

fundable list of projects, and the expected funding schedule for each project. The 

latest IUP submitted by Hawaii DOH is for the State Fiscal Year (SFY) 2016, 

which is part of the application of the EPA fiscal year (FY) 2015 DWSRF 

capitalization grant award. The IUP was dated September 2015 and accepted by 

the EPA in October 2015.

Agency Requirements

The SDWA requires the agency to “publish guidance and promulgate regulations...

to ensure that each [state] commits and expends funds allotted... as efficiently as 

possible.” According to the Code of Federal Regulations (CFR) in 40 CFR §

35.3550, “[states] must agree to commit and expend all funds as efficiently as 

possible and in an expeditious and timely manner.” The regulation further requires 

states to have binding commitments for all funds (capitalization grant amount and 

the state matches) within 1 year of receipt of the grant payment. This requirement is 

incorporated in terms and conditions of the grants.

On April 14, 2014, the agency issued a reduction strategy memorandum on 

DWSRF unliquidated obligations (or unspent funds) to address concerns about the 

timely expenditure of federal funds. The memorandum stated that the agency’s 

objective is to fully utilize DWSRF funds from FY 2013 or earlier by the end of 

September 2016, and completely draw down funds for future years’ grants within 

2 years from the date of grant award.

Fund Utilization

As of August 2015, Hawaii DOH had 10 open grants with $22.3 million in unspent 

funds. As shown in Table 1, the oldest open grant was awarded in July 2006. 

Table 1: Hawaii DOH open DWSRF grants as of August 12, 2015

Grant no.

Project 

start

Project 

end

Award 

date

Total 

award

Funds 

remaining

99986506-0 8/31/2006 6/29/2016 7/11/2006 $8,285,500 $0*

99986507-0 6/30/2007 6/29/2017 5/24/2007 8,229,300 72,647 

99986508-0 2/29/2008 6/29/2017 2/12/2008 8,229,000 94,419 

99986509-0 2/28/2009 6/29/2018 2/23/2009 8,146,000 519,295 

99986510-1 12/31/2009 6/29/2019 11/5/2013 8,146,000 1,452,181

99986511-0 3/31/2011 6/29/2017 2/7/2011 13,573,000 4,571,059 

99986512-1 9/29/2011 6/29/2018 11/5/2013 9,268,000 3,215,438

99986513-0 9/27/2012 6/29/2019 8/8/2012 9,125,000 2,152,919

99986514-0 9/29/2013 6/29/2020 9/22/2013 8,421,000 3,883,090 

99986515-1 11/30/2014 6/29/2021 8/2/2015 8,787,058 6,319,121

Total $90,209,858 $22,280,170**

Source: EPA’s grant management system quick report.

* Even though this grant had a $0 balance as of August 12, 2015, the final financial status 

report was not received to close out the grant until October 2, 2015.

** Calculation discrepancy due to rounding.
16-P-0218 3

Although the agency encourages states to use federal funds from the oldest grants 

first—an accounting practice known as “first-in first-out”—Hawaii DOH did not 

adopt the practice. Instead, Hawaii DOH tied the funding for each project or 

contract to a specific funding source, such as a capitalization grant. Thereby, any 

project delay would limit Hawaii DOH’s ability to spend funds and grants may 

not be closed as expeditiously as anticipated. According to an EPA contractor 

report issued on October 22, 2014, approximately 78 percent of the states were 

using the first-in first out method as of June 16, 2014. Consequently, 75 percent 

of the programs had four or fewer open grants.

Region 9 Action to Withhold Grant Funds

On October 24, 2014, Region 9 issued a Notice of Non-Compliance to the Hawaii 

DOH because Hawaii DOH had not:

 Managed DWSRF funds in a sound, efficient and prudent manner, due to 

lack of adequate personnel and effective tools and processes.

 Committed and expended all funds in the DWSRF as efficiently as 

possible and in an expeditious and timely manner, which violates the CFR

and grant terms and conditions. As of June 2014, Hawaii DOH had total 

unspent funds of $100 million (including $33 million in EPA funds).

An attachment to the Notice of Non-Compliance contained 30 items that the 

Hawaii DOH was required to address. On January 30, 2015, Hawaii DOH 

submitted a corrective action plan to address the items. 

Prior Audit Report

During our audit, we found that the Hawaii DOH had not made adequate progress 

in implementing the January 30, 2015, corrective action plan. In particular, we 

noted that the Hawaii DOH had not:

 Provided an acceptable IUP for the state’s SFY 2016. 

 Executed targeted loan commitments of $56 million (only 87 percent

executed), resulting in a shortage of $7.4 million. 

 Disbursed targeted disbursements of $60 million (only 80 percent

disbursed), leaving $11.8 million in undisbursed funds. 

In addition, based on our observations, projects on the fundable list may not be 

ready to proceed, and estimated start dates may not be realistic. 

As a result, we issued an early warning report on September 28, 2015, Early 

Warning Report: EPA Region 9 Should Withhold Award of the Fiscal Year 2015 
16-P-0218 4

Drinking Water State Revolving Fund Grant to the Hawaii Department of Health

(15-P-0298). We recommended that the Regional Administrator, Region 9, 

exercise fiduciary responsibility and withhold FY 2015 funds of $8,787,000 for 

the Hawaii DOH DWSRF capitalization grant until the region is satisfied with the 

corrective action plan implementation progress.

Based on our recommendation, Region 9 withheld $8,098,680 of the $8,787,000,

and issued an enforcement letter to require Hawaii DOH to meet interim 

corrective action plan targets for loan execution and disbursement by January 29, 

2016, to award the remaining $8,098,680 allotted for the fiscal year. Hawaii DOH 

met the interim targets by January 6, 2016, approximately 3 weeks ahead of 

schedule. The EPA awarded the remaining funds allotted for the fiscal year on 

March 3, 2016. 

Responsible Office

EPA Region 9’s Water Division administers and manages project grants to the 

states, including the DWSRF program.

Scope and Methodology

We conducted this audit from August 17, 2015, to April 28, 2016, in accordance 

with generally accepted government auditing standards issued by the Comptroller 

General of the United States. Those standards require that we plan and perform 

the audit to obtain sufficient, appropriate evidence to provide a reasonable basis 

for our findings and conclusions based on our audit objective. We believe that the 

evidence obtained provides a reasonable basis for our findings and conclusions 

based on our audit objective. 

We performed the following steps to address the pooling of funds concern:

 Interviewed EPA Region 9 and Hawaii DOH staff and management to

discuss the allegation and the potential for the pooling of funds to occur.

 Performed a walk-through of Hawaii DOH’s accounting systems to obtain

an understanding of how funding is encumbered, and DWSRF expenditure 

and revenue transactions are initiated, processed and recorded in the 

accounting system, to identify potential weaknesses in the system that may 

have allowed for the shifting of funds between the DWSRF and the DOT 

programs.

 Reviewed judgmentally selected journal voucher transactions for evidence 

of improper funding transfers between the EPA and DOT or other state 

programs.
16-P-0218 5

 Interviewed the EPA’s contractor for the management study report issued 

on October 22, 2014, to determine whether they are aware of any potential 

weaknesses in the system that may have allowed for the shifting of funds 

between programs. 

 Reviewed Single Audit reports for FYs 2013 and 2014 to identify any 

instances of shifting of funds between programs.

 Identified DOT’s unspent fund amounts to determine whether DOT 

programs have a need for additional funds. 

We performed the following to address the concerns on the large number of open 

grants and unspent funds:

 Identified Hawaii DOH’s DWSRF open grants from the EPA’s grant 

management database.

 Obtained information on the project status of the open grants from Hawaii 

DOH.

 Interviewed EPA Region 9 and Hawaii DOH staff and management to

discuss the hotline allegations, Notice of Non-Compliance, and Hawaii 

DOH’s progress in implementing the corrective action plan to address the 

Notice of Non-Compliance.

 Interviewed federal project managers for DOT and U.S. Housing and 

Urban Development grants to obtain an understanding of the extent of the 

unspent funds issue for their programs, and identify possible causes and 

solutions for the issue.

 Reviewed the SDWA Amendments, federal regulations, and EPA policy 

and guidance to determine the applicable requirements pertaining to the 

award of DWSRF funds.

 Reviewed Hawaii DOH’s DWSRF priority list of projects from the 

SFY 2016 IUP to determine the need for continued funding under the 

program.

 Reviewed Hawaii DOH’s DWSRF fundable list of projects for SFY 2014 

through 2016 to determine whether the projects proposed for funding were 

ready to proceed within the fiscal year.

 Interviewed Hawaii DOH’s loan recipients—the four counties in the state 

of Hawaii—regarding their project proposal and approval process, to 

obtain an understanding of their challenges and obstacles.
16-P-0218 6

Results of Audit

We found no evidence to support that DWSRF funds are pooled with DOT funds,

nor did we find indications of improper shifting of funds between the Hawaii 

DOH and other state programs. While all funds are deposited into the state 

treasury, Hawaii accounts for the funds by grant in its accounting system. 

We did confirm that Hawaii DOH had 10 open grants at the beginning of our 

fieldwork in August 2015. The 10 grants far exceeded the national average of 

four, and the agency target of two. Hawaii DOH has since submitted a final 

financial status report and closed the oldest grant. It has also taken steps to 

significantly reduce the unspent funds from $22.3 million in August 2015 to 

$15.09 million as of April 1, 2016. However, additional actions are needed to 

further reduce the open grants and spend the funds more efficiently and 

expeditiously, as required under federal regulations in 40 CFR § 35.3550 and 

the grant terms and conditions, and to meet the agency’s DWSRF funding 

utilization target.

Pooling of DWSRF With DOT Funds 

We found no evidence to support the allegation regarding pooling of funds. We 

based our conclusion on interviews with EPA employees, a walk-through of 

Hawaii’s accounting processes, review of selected expenditure and revenue

adjustment transactions, a discussion with the EPA’s consultant on a management 

study of Hawaii’s DWSRF program, and a discussion with the DOT program 

manager regarding federal grant funds. 

Interviews With EPA Employees

Interviews with the Region 9 employees responsible for the Hawaii DOH 

grants did not disclose any indication of funding shifts between DWSRF and 

DOT or other departments in the state. We learned that Region 9 had 

expressed concerns about Hawaii DOH shifting funds between the DWSRF 

and the EPA’s Ground Water 106 (GW106) grant. Hawaii DOH stated that, 

based on previous correspondence with the EPA, Hawaii DOH believed it was 

allowed to use the EPA’s Public Water System Supervision and GW106 grant 

funds for DWSRF set-aside activities. This issue was resolved with the 

conclusion that no unapproved transfers had occurred. As of October 1, 2014, 

Hawaii DOH had discontinued this practice.

Walk-Through of Accounting Processes

A walk-through of the accounting processes indicated that Hawaii has 

implemented controls to ensure proper accounting of funds, and the risk of 

pooling DWSRF with DOT funds is low. Our conclusion is based on the 

following: 
16-P-0218 7

 Each department has its own funding accounts. According to the 

Hawaii Department of Budget & Finance, DOT’s funding is under a 

special account and, therefore, the transferring of funds between DOT 

and DOH cannot occur. 

 Each project is assigned its program charge code at the beginning, when 

the funding source is established. The charge codes are noted in the 

source documents supporting the transactions. The charge codes are also 

verified by the Hawaii DOH accounting staff at the Environmental 

Resources Office and the Administrative Services Office to ensure 

accounting entries are properly supported. Accounting entries are also 

reconciled at least monthly. 

The charge codes cannot be changed without an approved journal 

voucher. Journal vouchers are generated by the program offices with 

justifications and supporting documentation, and approved by the chief 

of the Environmental Resources Office and Administrative Services 

Office. Once approved, the journal vouchers are then input into the 

accounting system by the Department of Accounting and General 

Services, which is separate from Hawaii DOH. The accounting system 

input is again verified by the Administrative Services Office for 

accuracy. Both the Administrative Services Office and Department of 

Accounting and General Services are control points external to the 

DWSRF program.

 DWSRF and the DOT programs have separate staff and are at different 

physical locations. It would be difficult for DOH and DOT staff and 

management to coordinate the shifting of funds.

Review of Expenditure and Revenue Adjustment Transactions

We judgmentally selected four expenditure journal voucher transactions and 

three revenue journal voucher transactions for review. The transactions 

covered the period from July 1, 2013, to August 18, 2015. Our review did not 

identify any evidence of pooling of funds between DWSRF and DOT or other 

state programs. 

Interview on Management Study

We also followed up with the firm contracted by the EPA to conduct a 

management study of Hawaii’s Clean Water State Revolving Fund and 

DWSRF programs. Based on its understanding of Hawaii’s accounting 

system, the firm agreed it would be difficult to shift funds between programs 

without proper authorization. 
16-P-0218 8

Discussion With DOT Program Manager

Based on discussions with the EPA project officer and DOT program 

manager, we learned that DOT’s federal grants also had a large amount of 

unspent funds. As of January 12, 2015, DOT had the highest unliquidated 

obligation (or unspent funds) balance in the state—approximately 

$819 million. Therefore, we did not identify any motivation to shift funds to a 

department with such a large fund balance.

Open Grants and Unspent Funds

We confirmed the allegation that DWSRF has 10 open grants with a large amount 

of unspent funds. As of August 2015, the Hawaii DOH had 10 open grants with 

$22.3 million in unspent funds (see Table 1 in the “Background” section of this 

report). Details of our review follow.

Large Number of Open Grants

We identified the 10 open grants from the EPA’s grant management system 

and discussed the reasons for delay with Hawaii DOH. Based on our 

understanding, delays in grant close-out are partly due to long-term ongoing 

projects or contracts with funding tied to a specific grants. Of the nine grants 

that remained outstanding as of January 2016, eight were from FY 2013 and 

earlier. As of April 1, 2016, Hawaii DOH has submitted final financial status 

reports to close four of the eight older grants.

Hawaii DOH has taken some steps to reduce the number of open grants. 

Starting with new projects awarded in SFY 2015, loan agreements are no 

longer tied to a grant. The loan documents only reference the DWSRF 

appropriation code, not the project code (or grant reference). This would allow 

Hawaii DOH to change the funding source without having to go through the 

lengthy process of modifying the loan agreement. Hawaii DOH can modify 

the purchase order directly to change the funding source, so that older grant 

funds can be used first. However, based on the current system and project 

status, it is unlikely for Hawaii DOH to meet the agency target of fully 

utilizing funds from FY 2013 or earlier by the end of September 2016.

Item 27 of the Hawaii DOH’s corrective action plan, due by June 30, 2017, 

requires Hawaii DOH to “[a]chieve a balance of unliquidated federal funds, 

including set-asides, of no more than the sum of the federal capitalization 

grants for federal fiscal years 2015 and 2016.” The FY 2015 grant amount was

$8,787,000 and the FY 2016 allotment amount is $8,312,000. As a result, the 

total balance of unliquidated federal funds shall be no more than $17,099,000.
16-P-0218 9

Large Amount of Unspent Funds

In our early warning report (Report No. 15-P-0298), we noted that projects on 

the fundable list may not be ready to proceed, and estimated construction start 

dates may not be realistic. We noted some projects carried over onto the 

fundable list for multiple years. This is one of the causes for the large amount 

of unspent funds; other causes were identified in the management study

conducted by the EPA contractor. This occurred because Hawaii DOH relied 

solely on the counties to provide the estimated construction start dates. Hawaii 

DOH did not fully consider the challenges and delays the counties might 

encounter. Historical preservation, environmental review and land ownership 

are common challenges and causes for delay. 

Maui County also mentioned another challenge it faces—all projects need to 

be approved by its council, which only meets once a year for project and 

budget approvals. With the time needed for project approval and funding, 

Maui often needs an 18-month lead time. Project approval may be uncertain at 

the time it is proposed to the Hawaii DOH. Once a project is delayed, funding 

may not be spent as expeditiously as anticipated. 

There is also a general concern about the lack of customers. Currently, the 

four counties in Hawaii are DOH’s only customers for the DWSRF. Counties 

need to evaluate their options for funding projects—e.g., using their own 

money versus DWSRF loans. We were advised by Kauai that the county has 

sufficient bond funds to finance projects for the next 1 to 2 fiscal years; 

therefore, it will not be applying for DWSRF loans in SFY 2016 or possibly 

SFY 2017. With only four potential customers, losing one would have a major 

impact on Hawaii DOH’s ability to issue loans and spend the funds. 

Conclusion

Hawaii DOH’s open grants far exceed the national average and the agency target. 

The causes may be the lack of customers and the fact that projects on Hawaii 

DOH’s fundable project lists used to obtain the grant awards may not be ready to 

proceed within the expected timeframe. Since each project is tied to a specific 

grant, delays in project start would result in Hawaii DOH not being able to spend 

the funds and close the grants as expeditiously as anticipated. Although Hawaii 

DOH has taken steps to significantly reduce the unspent funds, it still needs to 

continue to follow its corrective action plan to meet the agency’s long-term 

objective of completely drawing down funds for future years’ grants within 

2 years from the date of grant award.

Our review of the SFY 2016 priority list of projects showed Hawaii DOH has the 

need for the DWSRF in SFY 2017. However, due to the lack of realistic estimates 

for construction start dates, Region 9 should reevaluate the status of the fundable 
16-P-0218 10

project lists. In addition, Hawaii DOH’s progress on the implementation of the 

corrective action plan items should be reevaluated prior to any future award.

Recommendation

We recommend that the Regional Administrator, Region 9:

1. Reevaluate the status of the fundable projects and Hawaii DOH’s progress 

on implementing the corrective action plan items prior to awarding the 

FY 2016 allotment of $8,312,000 and any future award. The reevaluation 

should continue until Hawaii DOH meets the agency’s funding utilization 

target.

Auditee Response and OIG Evaluation

Hawaii DOH concurred with our findings and recommendation, but requested 

updates to the final report to reflect the status of open assignments and unspent 

funds as of the draft report date of April 28, 2016. Hawaii DOH’s full response is 

in Appendix A of this report. We have incorporated the changes into the report 

where appropriate. Since Region 9 has not yet responded to the report’s 

recommendation, that recommendation is considered unresolved.
16-P-0218 11

Status of Recommendations and 

Potential Monetary Benefits

RECOMMENDATIONS

POTENTIAL MONETARY 

BENEFITS (in $000s)

Rec. 

No.

Page 

No. Subject Status1 Action Official

Planned 

Completion 

Date

Claimed 

Amount

Agreed-To 

Amount

1 10 Reevaluate the status of the fundable projects and 

Hawaii DOH’s progress on implementing the 

corrective action plan items prior to awarding the 

FY 2016 allotment of $8,312,000 and any future 

award. The reevaluation should continue until 

Hawaii DOH meets the agency’s funding utilization 

target.

U Regional Administrator, 

Region 9

$8,312

1 O = Recommendation is open with agreed-to corrective actions pending. 

 C = Recommendation is closed with all agreed-to actions completed. 

 U = Recommendation is unresolved with resolution efforts in progress.
16-P-0218 12

Appendix A 

Auditee Response to Draft Report

Mr. John M. Trefry

Director, Forensic Audits

Office of Inspector General

U.S. Environmental Protection Agency

1200 Pennsylvania Avenue, NW (2410T)

Washington, D.C. 20460

[via Trefry.John@epa.gov only]

Attention: Ms. Angela Bennett

[via Bennett.Angela@epa.gov only]

Dear Mr. Trefry:

SUBJECT: Draft Report, Hawaii Department of Health Needs to Reduce Open Grants and 

Unspent Funds

Project No. OA-FY16-0102

Dated April 28, 2016

The Department of Health (DOH) concurs with the findings and recommendation of the Office of 

Inspector General (OIG). The report is factually accurate, however updates through the 

publication date of April 28, 2016, have not been identified. The DOH comments and updates 

to the findings are listed below:

1. At a Glance (pdf page 3), Paragraph 3, First sentence: Revise to “Hawaii DOH has 

closed four (4) grants since the complaint and has taken steps to significantly reduce the 

unspent funds from $22.3 million in August 2015 to $15.09 million as of April 1, 2016.” If 

allowed to indicate amount as of May 1, 2016, please use $14.77 million instead. These 

current values are from the enclosed Monthly DWSRF ULO Reports received from EPA 

Headquarters on pages 3 and 4.

2. Report Page 3 (pdf page 8), Paragraph 1, Last 2 sentences: Insert space between 

“2014.” and “Consequently.”

3. Report Page 4 (pdf page 9), Paragraph 1, Last sentence: Revise to “Hawaii DOH met 

the interim targets early by January 6, 2016, and was approved to apply for the 

remaining FY 2015 funds. The funds were awarded on March 3, 2016.” The first page 

of the US EPA Assistance Amendment for FS 99986516-01 is enclosed on page 5.
16-P-0218 13

4. Report Page 8 (pdf page 13), Paragraph 1, Last sentence: Revise to “Hawaii DOH 

submitted final financial status reports to close four (4) grants (FS99986506, 

FS99986507, FS99986508, and FS99986509 for FFY 2005, FFY 2006, FFY 2007, and 

FFY 2008 as of April 1, 2016).” EPA Compass reports for the four (4) closed grants are 

enclosed on pages 6 to 9.

5. Report Page 8 (pdf page 13), Paragraph 2, Add after last sentence: The Hawaii DOH 

Corrective Action Plan Item No. 27, due by June 30, 2017, requires Hawaii DOH to 

“[a]chieve a balance of unliquidated federal funds, including set-asides, of no more than 

the sum of the federal capitalization grants for federal fiscal years 2015 and 2016.” The 

FFY 2015 grant amount is $8,787,000.00 from the enclosed US EPA Assistance 

Amendment for FS 99986516-01 on page 5. The FFY 2016 grant amount of 

$8,312,000.00 is from the FY 2016 DWSRF Allotments received from EPA Headquarters 

on page 10. The total balance of unliquidated federal funds shall be no more than 

$17,099,000.00.

If you have any questions, please contact Ms. Joanna L. Seto, P.E., Safe Drinking Water 

Branch Chief, at (808) 586-4258 or via email at joanna.seto@doh.hawaii.gov.

Sincerely,

Virginia Pressler, M.D.

Director of Health

Enclosures: 1. DWSRF ULOs by State, As of 04/01/2016

2. DWSRF ULOs by State, As of 05/01/2016

3. US EPA Assistance Amendment for FS 99986516-01, awarded 03/03/2016

4. EPA Compass Document: GO FS99986506, closed date 06/17/2015

5. EPA Compass Document: GO FS99986507, closed date 05/09/2014

6. EPA Compass Document: GO FS99986508, closed date 02/19/2016

7. EPA Compass Document: GO FS99986509, closed date 04/01/2016

8. EPA FY 2016 DWSRF Final Allotments, received on 2/9/2016

c: Ms. Lela Wong, OIG [via Wong.Lela@epa.gov only]

Mr. Mike Montgomery, EPA Region 9 Tribal and State Assistance Branch Immediate Office 

(WTR-3) [via Montgomery.Mike@epa.gov only]

Mr. Doug Eberhardt, EPA Region 9 Infrastructure Section (WTR-3-3) 

[via Eberhardt.Doug@epa.gov only]

Ms. Susan Polanco de Couet, EPA Region 9 Infrastructure Section (WTR-3-3) 

[via Polanco.Susan@epa.gov only]

Mr. Keith Yamamoto, Deputy Director of Health [via email only]

Dr. Keith E. Kawaoka, Deputy Director for Environmental Health [via email only]

Mr. Stuart Yamada, Environmental Management Division [via email only]

Ms. Sina Pruder, Wastewater Branch [via email only]
16-P-0218 14

Appendix B

Distribution

Office of the Administrator

Regional Administrator, Region 9 

Deputy Regional Administrator, Region 9 

Agency Follow-Up Official (the CFO) 

Agency Follow-Up Coordinator

General Counsel

Associate Administrator for Congressional and Intergovernmental Relations

Associate Administrator for Public Affairs

Director, Grants and Interagency Agreements Management Division, 

Office of Administration and Resources Management 

Director, Water Division, Region 9

Audit Follow-Up Coordinator, Region 9 

Director, Hawaii Department of Health