A new audit slammed the lack of oversight for the state’s Kauhale Initiative, and identified nearly $13.7 million in “questionable” and possibly “unauthorized” payments using public funds.
The state Office of the Auditor published the anticipated report on the Statewide Office on Homelessness and Housing Solutions’ handling of the initiative, which is meant to provide long-term housing for homeless individuals by building “villages” of small homes.
The report comes a few months after the auditor’s office sent a memorandum to state legislators to bring awareness to the situation before completing the audit.
It found that SOHHS “allowed projects to proceed without signed agreements, omitted basic public works protections, and did not ensure that required planning deliverables were completed on time and used to inform project commitments. It also did not consistently enforce requirements governing project changes, subcontractor approval, and contractor licensing.”
Because work was started — and sometimes finished — before a contract was signed, the state couldn’t control deliverables, amendments, responsibilities and spending for the construction work.
Without proper oversight in place, according to the audit, the agency “could not demonstrate that work was properly authorized, projects were completed as agreed, or the State received everything for which it paid.”
The audit laid out the consequences of the contracting issues for specific projects.
At the end of August 2024, SOHHS put 20 tiny homes on the Cedar Church property in Kalihi Valley. It spent $716,000 on the project as a whole, but the work was done without a contract in place, so there were no established responsibilities over the project’s operating costs, requirements and liability.
After deficiencies were found at the homes just months later, including improperly connected units that led to “a risk of electrocution,” SOHHS demanded the church return the units or buy them for $400,000. In September, the state sold all the units for $1.
The audit also found that SOHHS entered into development contracts without evaluating cost information and ended up using more state funds for some projects than required.
For example, for the second phase of the Hoʻokahi Leo Kauhale on Middle Street, SOHHS authorized $6.7 million for the work, even though a later cost estimate found that the project was only $5.4 million.
“SOHHS committed the State to development contracts before receiving the planning work intended to inform those commitments, and its records do not demonstrate that it subsequently used that work to control the State’s financial exposure,” the audit said.
Additionally, contract obligations weren’t followed or enforced.
HomeAid Hawaiʻi, the lead developer for the state’s Kauhale project, was awarded a $5.2 million contract for the construction of 75 homes in Iwilei in the Alana Ola Pono Kauhale. HomeAid only installed 40 units, but SOHHS didn’t reduce the contract award to reflect the lower production, and HomeAid spent most of what was given to them.
HomeAid also made unauthorized — and more expensive — development changes to the buildings in the project.
The audit also reported $110,000 that the state reimbursed to HomeAid for expenses with no authorized funding in their pre-development contract.
They include charges for conferences and associated travel and lodging costs, along reimbursements for meals and alcohol.
In 2024, SOHHS reimbursed HomeAid $5,200 for an Urban Land Institute conference in Las Vegas, which included a three-night stay at the Las Vegas Hilton at Resorts World. The hotel charges consisted of “meals, alcohol, and intimacy kits,” which the audit confirmed included “condoms, lubricant, vibrators, restraints, an eye mask, and a feather tickler.”
SOHHS also reimbursed expenses on rental cars and office equipment like laptops and hard drives.
The Kauhale Initiative is Gov. Josh Green’s signature housing effort. Since January 2023 he’s issued two dozen emergency proclamations to suspend requirements normally associated with state public works projects, allowing construction to be done quickly. He’s said that he wants to build 30 Kauhale.
In a written response to the audit, his office said that SOHHS is “aggressively” taking steps to recover some of the improperly spent public funds. Those funds include $16,000 for authorized travel costs, $300,000 in administrative costs, and $170,000 for subcontractors and consultants not directly related to the Kauhale Initiative.
The response also said that SOHHS is working to correct the oversight and control issues addressed in the audit, though refuted some of the “unauthorized” spending, namely a $2.5 million payment for the Alana Ola Pono project and a $2.4 million pre-development agreement, both to HomeAid.
Green defended the initiative as a whole as a success.
“Our Kauhale are delivering results across Hawai‘i with nearly 900 beds so far, providing stable housing and human services to more than 2,900 of our formerly houseless neighbors,” Green said in his written response to the audit. “We welcome accountability and will continue strengthening the program, but we will not lose sight of what matters most: Kauhale are working, they are changing lives.”
He also noted the Point-in-Time Count reports show that unsheltered homelessness dropped by 13% from 2024 to 2026.
HomeAid, in a statement, also defended the success of the initiative. It said the $13.7 million in questionable and unauthorized payments “includes amounts already reconciled through contractual safeguards that protected both parties as operating procedures changed.”
