Strange Accounting System Shows Inflated Vacancy-Related Loss at DLNR

posted in: April 2008 | 0

When positions are authorized and funds appropriated for them by the Legislature, state departments can realize savings when the positions are vacant. But when other employees have to carry the extra workload of the vacancies, the savings can be eroded through overtime and other costs. The high vacancy rates at the Department of Land and Natural Resources have led some people to question if the desire to achieve savings may be working at cross-purposes with the need to have warm bodies in place to do the department’s work.

In late January, in response to a request for information from Senator Clayton Hee, the department prepared a list of vacant positions along with an estimate of savings resulting from them. The grand total of actual savings was placed at roughly $250,000. Environment Hawai`i was provided with the same data given to Hee, as well as an updated data set reflecting the department’s position at the end of February.

Comparing the two sets of figures resulted in a shock: in roughly five weeks, the department’s savings attributable to vacancies plummeted nearly three-quarters of a million dollars. Instead of having a net savings result from the empty positions, the department at the end of February was reporting a vacancy-associated loss of nearly half a million dollars.

But was the loss real? Our analysis suggests the department didn’t really lose anything. Instead, the difference between the January and February figures resulted from flawed bookkeeping, and, what’s more, probably neither figure was accurate or even meaningful.

Eroding Economies

To understand how the department calculates its vacancy-associated costs or savings, consider, for example, the figures for the department’s Division of Conservation and Resources Enforcement. By January 25 of this fiscal year, the division reported having achieved a savings of $400,177.50 from not having filled 22 vacancies. Offsetting this, however, was a bill for $410,727.37 in overtime costs, another $59,149.96 in temporary assignment “and other payroll adjustment,” and vacation pay of $49,904.73. (According to the department, when employees retire, they receive a payout for their accrued vacation days, and this has to come out of the overall budget for salaries.)

Excluding the vacation payout, which would presumably have been made with or without the vacancies, DOCARE reported it had actually spent $469,877.33 on salaries to do the work that, had the vacant spots been filled, would have cost it $400,177.50.

In some cases, vacancy savings are redirected, and this is reflected as a cost against the vacancy savings. The Historic Preservation Division, for example, took $100,000 from funds that were originally to pay employees and used part of it instead as a state match for a federal grant for “heritage communities, a Main Street-type program” for `Ewa Villages, according to DLNR administrator Laura Thielen. Another part was “to help us with our data base, … so we can better track the flow of information between islands and the central office.”

Redirecting vacancy savings, Thielen said, requires that the department go through the state process for approval. “In some cases, shifts can be approved within the department,” she said. “At other times, we have to go through Budget and Finance, and in some cases we need approval by the governor and notice to the Legislature.”

Garbage In, Garbage Out?

The spreadsheets provided to Environment Hawai`i supposedly reflected estimated savings accrued from vacancies at the end of January (January 25) and at the end of February (February 29).

The earlier compilation of data indicated that for the current fiscal year, the department had accumulated $248,079.43 in savings from the vacant positions. The later compilation gave a total that was nearly three-quarters of a million dollars less: instead of a showing net savings amounting to a quarter million, the vacancies had actually cost the department $485,854.32.

How could the department lose this much money in a matter of weeks? What did these figures mean?

We looked at the figures more closely in an effort to identify where the losses occurred. That’s when a certain strangeness to the figures began to emerge.

First, according to the spreadsheets, the gross savings achieved from vacancies (before any adjustments for overtime or temporary duty and the like) actually decreased in the one-month period in some divisions. This would seem to be a logical impossibility: since the gross savings reflect a total accumulated from the start of the fiscal year to the time reflected on the spreadsheet, there does not seem to be any way for it to diminish from one month to the next; a dollar unspent in August remains a dollar unspent in December and will still be a dollar unspent on June 30, when the state fiscal year ends.

It is equally implausible that the expenses associated with vacant positions would remain unchanged from one month to the next. Unless suddenly every position was filled and there were no more payouts in overtime or temporary assignments to make up for the lost work, cumulative expenses associated with covering vacancies would presumably be expected to rise from one month to the next. Yet for every one of the 17 DLNR financial accounts that make up its budget, expenses neither increased nor diminished. For example, at the Bureau of Conveyances, expenses associated with vacant positions amounted to $258,551.13 for the portion of the fiscal year ending January 25. A month later, expenses associated with vacancies were unchanged, down to the penny. For both months, the vacancy-related expenses for the entire department stood at $1,959,504.19.

Paper Losses

So if new hires soared in February, and vacancy-related expenses held remarkably, unbelievably steady, how can one explain the apparent fact that the department’s vacancy-associated savings plunged nearly three-quarters of a million dollars over the course of the month?

In fact, the losses are fictional. That’s the only conclusion one can reach.

How did this happen?

The department had not provided any explanation by press time, but we’ve come up with our own. Reviewing the spreadsheets, it appears that once a vacancy is filled, it is removed from the ledger listing vacancies. And savings associated with the unfilled position, accumulating since the first of the fiscal year, are also deleted when the position description is removed.

For example, suppose the Division of Forestry and Wildlife began the year with a vacant clerical position paying $1,911 a month. Each month that position remained vacant, the nominal savings in unpaid payroll would be $1,911 ($22,932 if the position went vacant the entire year). If, on October 1, someone was hired and began working that job, the savings for the year would still be $5,733 (three times the monthly salary), assuming the clerical worker remained on the job. Yet, the way that the DLNR spreadsheets have been prepared, the savings associated with vacancies vanish the moment the post is filled and the position is erased from the register of vacancies.

This faulty accounting is the reason – the only reason – why the net vacancy savings shown for February are so different from (and smaller than) those in the January spreadsheet. With the department having had so many new hires in that period, the savings that would have appeared on the spreadsheet in the event the posts remained vacant suddenly disappeared.

In other words, the three-quarters of a million dollar loss in vacancy-related savings that turns up at the end of February is a completely meaningless number.

To have a truly accurate figure for vacancy-associated savings, one would have to look at the vacancy figures in each of the 17 accounts for each of the preceding months in the fiscal year. Then you would need to multiply each vacancy by the number of months it existed and add up the total. This is the only way to approximate true vacancy savings.

By erasing the savings associated with vacancies that are filled during a given fiscal year, the department has wildly and inexplicably overestimated the cost of vacancies.

Whether anyone at the Capitol has figured out the department’s screwball accounting is an open question. Calls to Senator Hee’s office were not returned by press time. Environment Hawai`i asked the DLNR for an explanation of the accounting procedures used to arrive at these supposed “savings,” but no response had been received by press time.

— Patricia Tummons

Volume 18, Number 10 April 2008