Hawaii audit exposes bottle bill issues

Hawaii audit exposes bottle bill issues

By Jake Thomas, Resource Recycling

Hawaii's Office of the Auditor has found that the state's beverage container deposit is poorly managed and susceptible to fraud.

The Aloha State, which enacted its bottle bill in 2005, levies a redeemable nickel deposit on most beverage containers, except for milk, other dairy products and spirits. The deposits go into a state fund and are redeemed when a consumer takes an eligible container to a privately-owned redemption center.

The law establishing the container deposit program also requires the state auditor to periodically examine how well it's functioning. In the last few weeks, Hawaii's Office of the Auditor released a pair of reports, which were produced by the accounting firm Accuity LLP, concluding that there isn't enough oversight of the program and that it is vulnerable to fraud.

One of the recent reports, based on data from fiscal year 2010, concluded that "several deficiencies expose the Program to fraud, including the over-reliance on self-reporting by Program personnel and lack of systematic compliance inspections."

The report found that some distributors were unable to provide documentation for the amount of payments they made into the program. The report also states that four redemption centers refused to provide documentation for the amount of material they redeemed and the related deposit reimbursements requested. Two of these centers, according to the report, appear to be operating without the proper certification from the state.

"There is also at least one large redemption center operator that increases the weights reported on deposit redemption forms submitted to the Program to correct for errors made by redemption center employees," reads the report.

As a result, Hawaii's bottle bill may be incurring unneeded expenses and the container redemption rate may not be reliable, according to the report.

Another recently-released report from the auditor that uses data from fiscal year 2008 found similar problems, saying the program is "poorly managed."

"When parties refuse to turn over their documents, or at least copies, then there is concern about internal controls and the validity of the monies claimed," Marion M. Higa, Hawaii state auditor, told Plastics Recycling Update.

Higa says that when Hawaii's bottle bill first went into effect in 2005, then Governor Linda Lingle didn't direct enough resources to the State Department of Health, which is responsible for monitoring the program, to ensure that it was effectively run. As a result, Hawaii's bottle bill has had chronic oversight problems, she says.

"There was a scramble to make things work, and the folks that were there at the department always believed that they never had enough people to implement it correctly," says Higa.

Janice Okubo, spokesperson for the Hawaii State Department of Health, confirms Higa's assessment.

"The primary issue we are faced with is staffing and we were unable to hire because we were undergoing a hiring freeze [when the bottle bill was being implemented,]" she says. "The staffing resources are very much an issue."

According to Okubo, there are five inspector positions dedicated to ensuring the bottle bill is implemented effectively, but only one position is filled, which she says is due to a combination of finding someone with the right qualifications and the recruitment process.

Susan Collins, president of the Container Recycling Institute, told Resource Recycling in an email exchange that it's admirable that Hawaii's container deposit program is routinely audited, given the large amounts of money involved.

"However, I kept looking for the scale of the impacts as I read the report," she wrote. "Are the problems a big deal, or much ado about nothing? What is the scale of the actual harm of these procedural deficiencies?"

Collins points out that some of the underpayments documented in the audit are for amounts ranging from $10 to $1,400.

"In a $40 million-per-year program, that's really small," wrote Collins in the email, who also noted that correcting procedures is important. "I think the auditors should have done more to indicate what the actual level of harm might have been with the redemption center payment process."

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