Audit finds instances of potential fraud at recycling redemption center

HONOLULU (HawaiiNewsNow) - A newly-released audit that officials say underscores the “fundamental flaws” with Hawaii’s beverage container deposit program found two instances in which an Oahu bottle redemption center apparently falsified receipts in order to get significantly larger payouts than what it should have received.

The findings of the audit prompted the state Health Department Tuesday to pledge greater oversight ― and to refer the findings of potential fraud to the state Attorney General’s Office.

Officials say they’re also hoping to bring on a consultant to assess how to better manage the system.

The report from the state Auditor’s Office says the beverage container program essentially operates on the honor system. The state, for example, trusts redemption centers to pay out the right amount to consumers ― and also trusts them to seek accurate reimbursements. There is no work to ensure their self-reporting is accurate.

But the audit found what it says is evidence of potential fraud at a Reynolds Recycling Center on University Avenue.

It found that receipts given to staff auditors on two separate days were later doctored to make it look like Reynolds collected more bottles ― and paid out more cash ― than it actually had.

In just those two transactions, the difference between what the auditors were paid and what Reynolds said they were paid was $80.35.

In one case, the state auditor got a 61-cent refund but Reynolds sought a $69.31 reimbursement.

In the second case, Reynolds sought a $14.99 reimbursement but only paid out $3.95 to the staff auditor.

The report points out that Reynolds, which operates multiple redemption centers across the state, was paid about $8 million through the bottle redemption program in fiscal year 2018.

“Although no specific information was available for the university location, the total amount reimbursed to Reynolds Recycling, coupled with the fact that only a small sample was tested, raises concerns as to the potential amount of overpayments that may have been paid to the redemption center," the report said.

In a statement, Reynolds said that the two transactions, however, were linked to a single individual and that the company has worked with the state to address the matter.

“For 38 years, Reynolds Recycling has helped to promote recycling and support State sustainability goals throughout Hawaii,” the company said, in a statement. “We are proud of our transparency and accuracy when reporting to the state and will continue to do so into the future.”

Another problem the audit highlighted was at the distributor level.

Distributors ― including beverage companies and grocery stores ― collect the container deposit fee.

And because distributors can pass on beverage container costs to consumers, they “have an inherent incentive to under-report sales/distributions of deposit beverage containers," the auditor said.

Indeed, the state audit did find several instances of underpayments by distributors. In other words, distributors were collecting more in beverage container fees than they were paying to the state fund set up to reimburse them.

That fund, incidentally, has about $38 million sitting in it ― an all-time high. (For each beverage container purchased, consumers pay a 5-cent deposit and a 1-cent handling fee.)

In its response to the report, state Health Department Director Bruce Anderson acknowledged “long-term, systemic" issues with the beverage container deposit program and said changes are underway to address them.

“Fraud is a serious and real risk for this program,” Anderson added.

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