LIHUE — An audit by the state Office of the Auditor of the state Department of Health’s beverage-deposit program revealed the program may be susceptible to fraud.
The report, released on Tuesday, details the financials of the program, which revealed the possibility that funds may have been misappropriated due to an “honor system” that they believe is easily manipulated.
On Kauai, there are six redemption centers, the fourth most of any of the islands in the state. Of the six redemption centers on Kauai, one was chosen for testing in the auditor’s report, Reynolds Recycling at 3343 Wilcox Road, Lihue.
One of the centers selected was on Maui, one on Hawaii and seven on Oahu.
The individual results of each redemption center were not included in the audit.
The Reynolds location in Lihue at Nawiliwili Harbor is managed by Kenneth Ramos. Ramos said he learned of the audit Wednesday morning and does not know how the location fared when it was tested. Ramos stated he was not the manager during the time the location was tested.
“The main office brought someone in from Honolulu,” Ramos said, explaining that he was on vacation in August and then had surgery in September and was on leave until November.
Reynolds has two redemption centers on Kauai, the second in Kapaa, and their administrative headquarters is in Honolulu.
Bruce Iverson, director of advertising and marketing, said, “The Kauai locations were in compliance with all tests that were done. We did have one location that was cited, but it was not the Lihue location.”
In order to test redemption centers, the auditor performed a series of tests.
“We redeemed beverage container deposits at each of the selected redemption centers and traced the redemption transaction through the redemption center’s reimbursement request/reporting process and subsequent payment by the program,” the audit reads, adding that testing was conducted between August and November.
There were 24 total centers tested during the audit.
The testing revealed that “There were differences noted between the amounts reported on the Monthly Distribution Report form and the distributor’s supporting records. There potentially exists fraudulent overpayments of deposit refund reimbursement to redemption centers.”
The redemption centers deposit beverage container rates in the state are done by the pound. There are four objects collected at the centers: aluminum, bi-metal, glass and plastics.
The rates the center pays out are $1.60 for aluminum, 30 cents for bi-metal, 12 cents for glass, 94 cents for plastic (mixed sizes 68 ounces or less) and $1.32 for small-size plastic (17 ounces or less).
In the fiscal year 2018, the program had revenues of $24.6 million and expenditures of $17.5 million, resulting in a $7.1 million increase in fund balance to $37.7 million as of June 30.
The program’s container deposit liability increased to $1.9 million as of June 30. To refund deposits and to pay for other liabilities and expenses, the program had $41.9 million in equity in cash and cash equivalents and investments in state treasury as of June 30, the audit stated.
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Ryan Collins, county reporter, can be reached at 245-0424 or rcollins@thegardenisland.com.
