A state audit of the business arm of the government has found that questionable contracts resulted not from systemic problems but from shoddy decision-making. That should shelve legislation aimed at dismantling the department — but should not halt an investigation into possible criminal conduct.

Ted Liu, director of the state Department of Business, Economic Development and Tourism, admitted to a special Senate committee more than a year ago that he was wrong to award a contract to manage an $8.7 million investment in hydrogen power to the lowest-ranked of three bidders. He said he chose what he believed to be the “;best value to the state.”;

But the decision appeared to be far from isolated. The audit ordered by the committee found that proper policies and procedures were ignored in 40 percent of the department's contracts from mid-2004 through last June. It attributed the lapse to “;lack of training, poor management oversight and a weak control climate,”; according to an audit, obtained by the Star-Bulletin's Allison Schaefers, that will be put online after relevant agencies have had an opportunity to respond.

“;These errors and exceptions point to a larger issue of a lack of internal control within the whole procurement environment,”; the audit says, resulting in clerical errors that, “;if not corrected, could lead to abuse and even fraud.”;

City Prosecutor Peter Carlisle says he opened an investigation five months ago into the handling of the hydrogen contract and expects to decide in June whether criminal charges are warranted.

The Senate investigation led by Sen. Donna Mercado Kim has been heated and has resulted in legislation to transfer some of the department's divisions to other agencies. The department conducts economic research, oversees island tourism and helps the government and businesses look for opportunities.

Gov. Linda Lingle has called the proposal “;a distraction from the major economic recovery we all should be involved in.”; She has complained that “;personality plays by certain members of the Legislature are really destructive to our recovery efforts,”; obviously referring to Kim.

But the Kim-led investigation turns out to have exposed a serious pattern of flawed conduct. Auditor Marion Higa's report concludes that the department should “;employ an effective procurement system grounded in the idea of transparency, accountability and competition”; required by state procurement laws.

Higa's list of recommendations to achieve that level of efficiency does not include transferring duties to other state agencies.

Instead, she rightly urges proper training of staff, revision of the state contracts manual, holding managers responsible for procedures to be followed, and disciplinary action to assure “;that fraud, waste and abuse will not be tolerated.”;