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Thursday, June 26, 2003



State audit
blasts HVCB

A draft copy of the report says
the visitors bureau exploited state
funding, and blames the state
Tourism Authority for failing
to provide oversight


A Hawaii Visitors & Convention Bureau vice president also served as president of a Taiwan public relations company that was awarded a $242,000 contract while she worked for the bureau.



HVCB conflicts

Among the findings in a state audit of the Hawaii Tourism Authority's contracts with the Hawaii Visitors & Convention Bureau:

>> "Inadequate oversight by the Hawaii Tourism Authority provided the Hawaii Visitors & Convention Bureau with a blank check to spend state funds for self-serving purposes."

>> One employee's severance pay was $141,000, nearly equal to the employee's annual salary.

>> "HVCB used state contract funds to pay for other state agencies' expenditures under questionable circumstances."

>> HVCB employees inflated mileage and parking reimbursement requests.

>> More than $600 in HVCB money was used to pay for President Tony Vericella's parking and speeding tickets, family travel and hotel in-room movies.

>> The salary of an HVCB vice president in Japan was partially funded by Japan Airlines, creating the potential for a conflict of interest.



Three days after the vice president, Wei-Wei Ojiri, resigned from the bureau, the bureau executed the contract.

Another vice president of the HVCB has had his salary paid for in part by Japan Airlines, the company he once worked for, even though he is supposed to work with every Japan-based airline to promote travel to Hawaii.

In these ways and others, the Hawaii visitors bureau has exploited state funding without any supervision, according to a draft, confidential copy of a state audit to be released next week.

"Inadequate oversight by the Hawaii Tourism Authority provided the Hawaii Visitors & Convention Bureau with a blank check to spend state funds for self-serving purposes," the audit says. "The authority's failure to monitor and enforce its marketing contracts with the bureau leaves little assurance that $151.7 million in state funds were effectively spent to promote Hawaii as a visitor destination."

The authority is the state agency charged with promoting tourism, and spends most of its budget on contracts with the bureau.

Tony Vericella, president and chief executive of the bureau, said yesterday he has not been able to review the audit, though he has heard it was negative. He said the bureau will look at the audit and deal with anything that needs to be addressed.

"We take everything seriously, whether it's big or small," Vericella said.

Vericella said it was "reasonable, rational and justifiable" that Ojiri, the bureau's former vice president of developing international markets, quit the bureau shortly before it executed a contract with Ojiri's company in Taiwan. Vericella declined further comment.

The audit hammers the bureau, but it also blames lax oversight of the authority, which was previously hit by a critical state audit last year. This new audit delves into the finances of the visitors bureau, a private nonprofit trade organization.

"Ultimately, the authority's failure to exert adequate controls allowed HVCB to 'run amok' with state contract funds," the audit said. The audit, conducted by the office of state Auditor Marion Higa, was the working of Sen. Donna Mercado Kim (D, Kalihi Valley), a strong critic of local tourism officials.

The audit is becoming public at a delicate point, just as a committee of the Hawaii Tourism Authority is set to award a million-dollar Hawaii tourism marketing contract that has always been held by the HVCB.

The bulk of the bureau's funding comes from the authority contract, which was worth a total of $129 million between January 2000 and last December. The audit specifically covers that period. The audit also covers the bureau's separate $22.7 million state contract to market Hawaii to business travelers in the same period.

For a new tourism marketing contract that starts in 2004, the bureau is facing competing bids, both for the entire contract and for smaller contracts covering specific geographic areas, such as Japan and North America. A committee of the tourism authority had been expected to make contract recommendations to the full board of the authority in July. The authority now has to deal with a second critical audit of how it handled the bureau's activities.

Rex Johnson, chief executive of the authority, said he cannot comment on the audit until it is finalized by the state auditor. The authority will get a chance to respond to the state auditor, though the bureau, a private agency, will not be given the same opportunity.

Several of the alleged indiscretions detailed in the audit involved relatively small amounts of money, but taken as a whole, the problems portray a general environment of abuse of taxpayer dollars, the audit says.

In reference to evidence that bureau employees inflated mileage and parking expense requests, the audit said "there appears to be an operant culture of taking advantage of the funding source -- state funds."

The bureau sought to avoid returning any unspent funds to the state authority at the end of its budget year, and would commit extra funds to pay for future goods or services, the audit said. "We find it highly suspicious that HVCB has never had unspent state contract funds to return to the authority," the audit said. Logging current expenses for future services violates generally accepted accounting principles.

The bureau ended last year with $3.1 million in cash.

The audit also said Vericella used state funds to pay for $137 in parking and speeding tickets, $174 for family travel and $359 for in-room movies rented at hotels, an inappropriate use of state funds and a violation of the bureau's own policies.

Vericella's total compensation for 2001 was $391,310, paid for through private funds, according to the bureau's filing with the Internal Revenue Service.

The audit also cited other breaches of bureau policy, such as state funds being used for $93 in napkins and refreshments for two HVCB office blessings.

When the bureau hired Kiyoshi Mukumoto, a former Japan Airlines employee, as its vice president for Japan in 1997, the HVCB was not able to match Mukumoto's salary. So the bureau agreed to let JAL fund part of Mukumoto's salary. The bureau submits payments to JAL, which pays Mukumoto.

"Any arrangement that presents even the appearance of a conflict of interest should be avoided so that marketing activities supported by state contract funds are not tainted," the audit said.

Vericella said he was not working for HVCB when Mukumoto was hired.

The HVCB also had dealings with Gov. Ben Cayetano's tech czar, Joe Blanco, that appear to evade the state procurement code, the audit said. The code requires that contracts of more than $25,000 have to be purchased competitively.

The audit said that $48,000 went to communications firm Joan Bennet and Associates Inc. in two separate payments of about $24,000. One of the payments was funneled through the Hawaii visitors bureau. The scope of services for both payments were similar, the audit said.

Blanco said he told the auditor that the work was for two separate things and that there was no violation.



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