Follow-Up on Recommendations from Report No. 05-02, Audit of Selected Management Issues of the Honolulu Liquor Commission

From Honolulu City Auditor, November, 2019 (excerpts)

The Audit of Selected Management Issues of the Honolulu Liquor Commission, Report No. 05-02, issued in April 2005, found that overall the Commission had a small hard-working staff whose performance was hampered by:

• Inadequate oversight and management of the Commission that required improvement to ensure that the Commission fulfilled its responsibilities pursuant Chapter 281, HRS; and

• Ineffective managerial operational practices.

Based on these findings the audit made 15 recommendations: 9 directed to the Commission, 4 directed to the Liquor Control Administrator and 2 directed to mayor.

Since the original report was issued in 2005, the Office of the City Auditor (OCA) has periodically monitored the status of the report’s recommendations by requesting that the Commission report on the status of the audit recommendations.

In 2011, we reported that 7 of the original 15 recommendations had been completed; 1 recommendation had been dropped, 5 were in progress, and 2 had not been started.

In 2012 we reported that there had been no change in the status of the response to the remaining 7 outstanding audit recommendations.

In 2015, we reported, based on the Commission’s response, that 1 of the 7 outstanding recommendations had been completed, while the rest remained in progress or not started.

However, in 2018, we did not receive an updated status report of the outstanding recommendations from the Commission. Based on this and the period of time that has transpired since the audit was completed, we determined that a follow-up audit should be performed to verify the status of the outstanding recommendations.

The five outstanding audit recommendations included in this follow-up audit are:

The Commission should:

1. Establish an appropriate timeframe for the proposed reorganization plan. Any reorganization plan should include clear description and identification of duties of the proposed senior management team, including descriptions of the qualifications of persons to hold the positions.

2. Assess whether effective administrative oversight of the Commission necessitates the creation of an adjudication board separate from the commissioners.

3. Work with the Department of Budget and Fiscal Services to have the Internal Control Division conduct a thorough review of the Commission’s processes and practices relating to:

• Auditing of licensees, and

• Allocation and utilization of funds received from liquor violation fines.

The Liquor Control Administrator should:

4. Work proactively with the liquor commissioners to identify and fill necessary vacant staff positions. This should include, but not be limited to: filling vacant positions, removing administratively imposed freezes on vacant positions necessary for effective operations, and actively pursuing the necessary fee adjustments to support proper staffing of the Commission. The administrator must actively pursue both of these issues to the administration and the city council.

5. Ensure that the administrative directives and other appropriate policies and procedures are reviewed and updated. This should include: • Procedures and protocols for investigator actions that are clearly defined and routine followed;

• A clear rationale and program for selection of licensees to be audited, a plan to achieve full review of licensees is implemented, and necessary resources secured to achieve these objectives;

• Clearly identified staff duties and responsibilities; and

• Clear guidelines, requirements, minimal acceptable requirements of licensee applications and supporting documents, and provided to all licensee applicants, investigators, commissioners, applicants and others involved in the license process.

Two of the outstanding seven recommendations were directed to the mayor and are omitted from this follow-up audit since the mayor’s response is independent of the Commission.

We found that four of the five outstanding recommendations are in process, while one has been completed. …

NEXT STEPS

We conclude that after 14 years, the response to this recommendation is still in progress and despite the time that has transpired, are encouraged that a partial reorganization has been completed, and that the Field Services Branch’s reorganization is currently being actively pursued. A Commission staff also reports that an additional organization change is requested in FY 2021 for the Administrative Services Branch. The proposed reorganization will create a new accountant position to oversee the branch’s Audit and Accounting Section and also create an additional liquor control auditor position which, if approved, would further address our audit’s finding relating to frequency of the liquor licensee audits (see Appendix D).

A Commission staff person noted that since the 2005 audit was completed there have been four changes in the Liquor Control Administrator position. We acknowledge that organizational changes may be difficult to implement when the senior management position is experiencing periodic changes. We note that the current reorganization efforts have been all achieved under the current Liquor Control Administrator who stepped into the position in 2014. We urge the Commission to pursue completion, adoption, and implementation of the reorganization of the Field Services Branch so that an official organization plan for the Commission will be in place.….

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