SCR84.DOC

WHEREAS, the Waters of Life Public Charter School is located in Kurtistown, Hawaii, and offers elementary and secondary education from kindergarten through grade ten, and special education programs; and

WHEREAS, the Waters of Life Public Charter School's terms of probation require the school to undergo independent financial audits for fiscal years 2005-2006, 2006-2007, and 2007-2008, with the audits to be completed by early 2009; and

WHEREAS, the independent auditor conducting a financial audit of fiscal year 2005-2006, the first of the three audits, has only recently completed the audit, after months of delay by the school; and

WHEREAS, the independent auditor issued a disclaimed opinion and has withdrawn; and

WHEREAS, the independent auditor was unable to obtain documents from the school to support $816,337 in salaries and wages, $28,925 in repair and maintenance expenses, $44,098 in professional fees, and $55,218 in operating supplies expenses; and

WHEREAS, the Director of the Waters of Life Public Charter School signed the following representation letter as part of the audit:

"The financial statements referred to [WOLPCS' FY05-06 financials] cannot be confirmed to be in conformity with U.S. generally accepted accounting principles and [cannot be confirmed to] include all assets and liabilities under the Organizations control."; and

WHEREAS, as a result of the negative outcome of the audit and the auditor's withdrawal, the Charter School Review Panel is unable to find another independent auditor who will accept the assignment of auditing the Waters of Life Public Charter School for fiscal years 2006-2007, and 2007-2008; and

WHEREAS, the Charter School Review Panel has recently been informed that the school has defaulted on its mortgage payments for the Sunshine Farm property it purchased with state funds (over $300,000), and the school's attorney has informed the Panel that the school "is presently in negotiation with the property owners ... to rescind and release the mortgage. A deed in lieu of foreclosure has been prepared... There is the matter of whether the schoo1 will be able to rent the farm facilities and obtain any credit for prior payments made."; and

WHEREAS, in 2005, the State Auditor issued a report after conducting a management audit concluding that: "Waters of Life's disregard for sound governance and business practices has p1aced its continued viability at risk."; and

WHEREAS, the Waters of Life administrator, sent a "Response to the Audit of Na Wai Ola Waters of Life Charter School" to the State Auditor, dated January 6, 2005, which stated: "We accept the obligation to properly account for our public resources...", and: "It is unacceptable for check amounts not to match supporting documents. This has ceased as of October 11, 2004."; and

WHEREAS, the fiscal year 2005-2006 audit disproves this statement; and

WHEREAS, the Waters of Life Public Charter School continues to exhibit an ongoing pattern of fiscal mismanagement, raising serious questions about the school's financial solvency:

(1) In 2006-2007, the school's Director stated that the school was financially insolvent;

(2) In May-July, 2007, the school was notified it was again in debt, this time to the Charter School Administrative Office (CSAO), in the amount of $113,000; and

(3) In July 2007, a member of the Waters of Life Public Charter School Local School Board sent an email to the school's Director stating: "The board is really quite concerned about the continuing problem with getting straightforward and accurate financial reports... In other words, we have the right to receive clear, accurate, reliable financial records."; and

WHEREAS, in February 2008, the school's Director wrote the Board of Education a letter stating: "Written policies and procedures-Accounting work has been reviewed by CSAO's Chief Financial Officer who has approved present work done and has indicated it is aligned to CSAO accounting best practices recommendations."; and

WHEREAS, in response to the above statement by the school's Director, the CSAO Chief Financial Officer wrote a letter to the Board of Education stating: "I have not received or reviewed written procedures regarding the business practices of Waters of Life. I have encouraged the school to develop written procedures regarding their business practices. However, to date I have not been provided copies of the WOL's business procedures/policies... At no time have I told the school that their accounting procedures were aligned with the CSAO's accounting best practices."; and

WHEREAS, the Charter School Review Panel believes state funds have been and continue to be unaccounted for by the Waters of Life Public Charter School; and

WHEREAS, the school's lack of cooperation with the auditor is reflected in the Charter School Review Panel's January 8, 2009, approved meeting minutes:

"The Panel informed Mr. Jennings that Ms. Katheryn Crayton-Shay, the WOLPCS director, has stated that the school is providing the documents needed by the auditors in a timely manner. Mr. Jennings replied that while she did provide some of the documents, he often had to submit multiple requests over a number of months for the same documents. Finally a deadline was set for the submission of requested documents. The Panel asked Mr. Jennings if he has received all requested documents. Mr. Jennings replied he has not. The Panel asked Mr. Jennings if Ms. Crayton-Shay was aware of the deadlines for the audit... Mr. Jennings informed the Panel that Ms. Crayton-Shay knew the timeline..."; now, therefore,

BE IT RESOLVED by the Senate of the Twenty-fifth Legislature of the State of Hawaii, Regular Session of 2009, the House of Representatives concurring, that the State Auditor is requested to conduct an immediate financial statement audit of the Waters of Life Public Charter School for fiscal year 2006‑2007 and fiscal year 2007-2008; and

BE IT FURTHER RESOLVED that the Auditor is requested to report the audit findings and recommendations as follows:

(1) To the Superintendent of Education, Executive Director of the Charter School Administrative Office, Chair of the Charter School Review Panel, and Director of the Waters of Life Public Charter School, immediately upon completion of the audit; and

(2) To the Legislature no later than twenty days prior to the convening of the Regular Session of 2010; and

BE IT FURTHER RESOLVED that certified copies of this Concurrent Resolution be transmitted to the Auditor, Superintendent of Education, Executive Director of the Charter School Administrative Office, Chair of the Charter School Review Panel, and Director of the Waters of Life Public Charter School.

	OFFERED BY:	_____________________________

Report Title:

Waters of Life Public Charter School; Audit; Auditor

THE SENATE	S.C.R. NO.	84
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII