POSTED: Saturday, April 25, 2009

The ink on a state audit faulting the state Department of Business, Economic Development & Tourism for poor leadership and flawed procurement procedures is barely dry, but already the department is facing another probe.

After listening to nearly six hours of testimony yesterday in regard to state auditor Marion Higa's scathing departmental audit, state senators say they will push for another audit exploring allegations that one of DBEDT's attached agencies, the Hawaii Strategic Development Corp., could have entered into “;sweet deals”; with its venture capital partners.

Higa said further study of the HSDC is warranted based on information uncovered during her most recent audit.

“;Although HSDC is responsible for overseeing an approximately $16 million investment portfolio, little is known of its operations and performances,”; Higa said.

The agency lacks current fund reports and its investment losses are not reflected in regular accounting, she said.

“;If the state auditor does not elect to do an audit on the HSDC, we'll pass a resolution asking her to do it,”; said state Sen. Donna Mercado Kim (D, Kalihi Valley), who chaired the state's Hydrogen Investigative Committee, which ruled last year that DBEDT Director Ted Liu had violated state procurement law when he awarded an $8.7 million high-tech investment contract to the lowest-ranked bidder. City Prosecutor Peter Carlisle has yet to determine if misdemeanor charges will be levied.

Liu, who is on the HSDC board of directors, said that if an agency audit is conducted, he would expect findings that are similar to DBEDT's most recent audit.

“;I think they would find errors, but again, I think that they would find that they weren't individually significant,”; he said.

But members of the Senate Ways and Means Committee and a special investigative committee took seriously Higa's characterization of a procurement environment so “;apathetic”; that it could lead to fraud or abuse.

“;It appears that this should not be tolerated,”; said Sen. Les Ihara Jr., (D-Kaimuki).

If another audit is ordered, it would be the fifth facing the department. An audit on the spending practices of select DBEDT departments, including its overseas offices and trade missions, will finish in a couple of months, Higa said. An ongoing audit of the Hawaii Natural Energy Lab should be complete in a few months and an audit of the Aloha Tower Development Corp. probably will come out in the fall, she said.

Kim said further action could come from the Senate Hydrogen Investigative Committee, which has been frustrated by DBEDT's lack of response to committee recommendations and its laissez faire attitude toward procurement.

“;There's woeful disregard and no action taken, and they wonder why DBEDT is being talked about in a reorganization,”; she said.

Liu said his department was waiting to review the recommendations of additional audits before acting on the senate committee's request to adopt new administrative rules for procurement.

Sen. Clarence Nishihara (D-Waipahu, Pearl City) asked Liu to propose oversight procedures that could be adopted prior to an administrative rule change.

The special committee will meet again after 30 days to review Liu's proposal and his compliance with Higa's recommendations, Kim said.

“;We're also waiting on the results of the next audit and on what the city prosecutor has to say,”; she said.