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Tuesday, September 27, 2022
Auditor: HTA oversight lax, internal controls deficient
By Hawaii State Auditor @ 3:01 AM :: 1080 Views :: Ethics, Tourism

Follow-Up on Recommendations from Report No. 18-04, Audit of the Hawai‘i Tourism Authority

Hawaii State Auditor, Report No. 22-09, September 2022

Section 23-7.5, Hawai‘i Revised Statutes, requires the Auditor to report to the Legislature annually on each audit recommendation more than one year old that has not been implemented by the audited department or agency….

In this report, we present the results of our review of 27 recommendations made to the Hawai‘i Tourism Authority in Report No. 18-04, Audit of the Hawai‘i Tourism Authority, which was published in February 2018….

Why we did the 2018 audit

We conducted the audit pursuant to Section 23-13, Hawai‘i Revised Statutes (HRS), which requires the Auditor to conduct a management and financial audit of all contracts or agreements in excess of $15 million awarded by the Authority at least every five years. We issued Report No. 18-04, Audit of the Hawai‘i Tourism Authority, in February 2018.

What we found in 2018

In Report No. 18-04, we assessed HTA’s oversight of its two contracts valued at over $15 million: one with AEG Management HCC, LLC (AEG) to manage, operate, and market the Hawai‘i Convention Center, and the second with the Hawai‘i Visitors and Convention Bureau (HVCB) to market Hawai‘i in the continental United States and Canada. We also examined HTA’s procurement of service contracts and its compliance with the statutory limit on its administrative expenses. In all three areas, we found that HTA’s autonomy, which included a permanent source of funding and an exemption from the State Procurement Code, facilitated lax oversight, deficient internal controls, and ultimately, less accountability.

We found HTA had reimbursed millions of dollars to contractors without receipts and other required documentation; reimbursed costs, such as first-class airfare, luxury hotel accommodations, and other extravagant expenses that were expressly prohibited by contract; and consistently failed to enforce other contract terms that are intended to protect the State. We also found HTA had disregarded its own procurement policies and procedures, awarding sole source contracts based on questionable justifications, paying contractors without executed contracts, and voluntarily waiving ownership of intellectual property the State paid to develop. In response to a statutory change that reduced the amount HTA could use for its administrative expenses from the Tourism Special Fund, we reported HTA had shifted some of those administrative expenses to non-Tourism Special Fund sources and to HTA programs, but had not significantly reduced its administrative costs.

What we found in 2021

Our review of the Authority’s implementation of the recommendations made in Report No. 18-04 was conducted during August and September 2021.1 Therefore, our assessment of implementation is based on information we obtained in 2021. We waited to issue this report in part because of legislation introduced this past session (2022), that proposed significant changes to HTA’s budget. We intend to request an update on the implementation status from HTA in a year.

Our follow-up efforts were limited to reviewing and reporting the implementation status of our audit recommendations. We did not explore new issues or revisit old ones that did not relate to the original recommendations. We found that the Authority had implemented 5 of the recommendations and partially implemented 16 of the 27 recommendations directed to the Authority in Report No. 18-04, Audit of the Hawai‘i Tourism Authority. Two recommendations were not implemented; HTA does not agree with and has not implemented two recommendations; and we found two recommendations to be no longer applicable.

1 Report No. 18-04 also contained three recommendations to the Legislature, which can be found in Appendix A. However, this report does not follow-up on those recommendations as this review was conducted pursuant to Section 23-7.5, HRS, which specifically directs the Auditor to report on recommendations that have not been implemented by an audited agency…

2021 Legislation Affected HTA Funding and Procurement Exemption

IN 2021, the Legislature repealed HTA’s dedicated source of funding. Among other things, the Legislature appropriated $60 million from the American Rescue Plan Act to replace HTA’s share of Transient Accommodation Tax or TAT revenues. That act, passed by Congress to provide financial help to states and municipalities during the COVID-19 pandemic, is unlikely to be a permanent source of funding for HTA.

The Legislature also repealed HTA’s exemption from the State Procurement Code in 2021. Many of the recommendations in the 2018 audit related to aspects of HTA’s procurement of goods and services, which at the time were exempt from the State Procurement Code. While certain of HTA’s policies and procedures may have been rendered moot by the repeal of HTA’s procurement exemption, our audit’s findings emphasized the need for HTA to clearly define procurement responsibilities, follow its own procedures, and limit its use of sole source procurements. Notwithstanding the repeal of its procurement exemption, our recommendations continue to be applicable to HTA’s procurement activities and, arguably, more relevant because of the statutory remedies for violations of the State Procurement Code. Those recommendations continue to be important to ensure that HTA complies with procurement requirements and its work is in the State’s interest.…

read … Full Report

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