Gov blasts audit as 'defamatory'


POSTED: Wednesday, March 03, 2010

Legislative Auditor Marion Higa could damage the state's good credit rating and cost taxpayers millions of dollars with a not-yet-published audit of the state Department of Budget and Finance, Gov. Linda Lingle said yesterday.

In a pre-emptive strike, Lingle released details from a draft of the audit at a press conference yesterday.

The governor said Higa made “;false and defamatory”; statements about the department's operation and suggested there is a “;personal, political”; motivation behind the draft report Higa sent to state lawmakers.

Higa said Lingle's office just provided its response to the draft audit Monday and that it is not fair for the governor to criticize the report before those responses are considered. Further, she noted, the draft audit was prepared by an outside auditing firm and was supposed to be confidential.

“;It's a fairly classic difference of opinion between auditors and auditees,”; Higa said.

Lingle was most sensitive about Higa's criticism of the department for investing about a third of the state's $3.2 billion investment portfolio in student loan auction-rate securities. The investments went from being readily accessible to being frozen when brokerages stopped auctions in early 2008.

Last month, Maui County filed a federal lawsuit against a brokerage firm over a $44.2 million investment in auction-rate securities.

“;There has never been one dollar lost in auction-rate securities,”; Budget and Finance Director Georgina Kawamura told reporters. “;As recently as Feb. 24, we sold $10 million of these securities at par value.”;

Kawamura added, “;They outright accused us of violating state law in holding these investments.”;

She said in a later interview, “;We can continue to hold these securities until they mature. If we were to sell them, there would be money lost. We have adjusted our investments, whether treasury bills or certificates of deposit or other instruments, to make sure they become the short term and the auction-rate securities become long term, so it provides flexibility.”;

In the audit, which was labeled a “;financial examination”; of the Budget and Finance Department, Higa wrote: “;The recent downturn in the national and global economies has highlighted the deficiencies in the department.

“;Although other governmental entities across the nation have been affected by the economic slump, the impacts on the department — including the significantly reduced value and availability of funds in the state treasury, and the department's inability to perform essential duties following employee turnover and position freezes — have been alarming.”;

Higa cited the impact of staff shortages on efficiency and said there is a lack of formal employee training, established procedures and supervisory reviews. She recommended implementing security controls on information storage and updating accounting and other information technology systems.

Higa would not release or elaborate on the draft report, but said it is broader than just the budget office's handling of auction-rate securities.

Lingle said Higa's audit is “;an unfounded, false and defamatory attack on the integrity of the department and its employees.”;

She said the current audit “;draws a legal conclusion about the state's purchase of auction-rate securities that the legislative auditor is unqualified to make. It is not based on evidence and is at odds with a written opinion by the state attorney general.”;


The Associated Press contributed to this report.