Thursday, February 4, 1999

Audit finds fault with
Airports Division finances

By Mike Yuen


The state Airports Division still has not overcome "significant deficiencies" in its procurement process, nor has it corrected lax billing and collection practices, says state Auditor Marion Higa.

In a financial audit released yesterday, Higa revealed that the Airports Division has spent more than $3.8 million on consulting contracts with IBM Corp. for a new computer information system. But the project is so far behind schedule that the division may have to repair its existing information system so that airport computers can read years beyond 1999 to solve the so-called Y2K problem, Higa stated.

The audit also questioned why the contract for the new information system specified a particular software, which led to only a bid by IBM, the only authorized seller of that software in Hawaii.

The latest disclosure of the airports' procurement practices comes a little more than three years after an earlier audit concluded that "the Airport Division's internal control structure over contractual services was inadequate and failed to safeguard public assets."

While state Transportation Director Kazu Hayashida concurred with the findings and recommendations, he denied that there were any questionable practices over the procurement of the airports management information system.

Higa's response: "This finding did not identify the contractor selection process as violating the Hawaii public procurement code; rather, the issue was the division's failure to protect state resources by limiting its contractor selection."

Higa's latest audit also found that the division did not bill a tenant for more than three years even though the tenant, unidentified in the audit, remained on airport grounds; when the tenant's lease expired, the division simply stopped sending bills.

Moreover, Higa's audit revealed that the Airports Division was owed $2.5 million in accounts more than two years delinquent and considered uncollectible.

"Timely termination of leases involving tenants with financial or other problems could reduce the amount of accounts receivable write-offs," she said.

In one case, airport officials carried a business that had been tardy in paying rent since 1993 up until March 1998, when it filed for bankruptcy. The division was owed $201,000.

Hayashida said the division has contracted with the attorney general's Civil Recoveries Division "to aggressively pursue delinquent accounts."

Higa's audit also provided an update on how much Duty Free Shoppers, the airports' largest concessionaire, owes the state: about $62.4 million in past due concession fees, including $2.9 million in interest and late fees, as of December.

Back in September it was nearly $50 million. Duty Free Shoppers has been unable to meet its original rent obligations since March.

"Please be assured," said Hayashida, "that we are diligently working with DFS to finalize the repayment agreement. As negotiations are still in process, I am unable to provide any further comments at this time."

Duty Free Shoppers provided 41 percent, or $102 million, of the division's total operating revenues of $250 million in fiscal 1997-98.

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