The Hawaii Tourism Authority suffers from “lax oversight (and) deficient internal controls,” a scathing state audit issued today says, noting that the agency isn’t ensuring that taxpayer funds are spent effectively.

The publicly funded state agency, which began operating in 1999, is responsible for creating a vision and long-range strategic plan for tourism. Because the visitor industry is so critical to the state’s economy, the state Office of the Auditor report acknowledged, state lawmakers have given HTA “great freedom in how it operates.”

The Legislature provides HTA with an annual budget of more than $108 million in transient accommodations taxes. Despite it’s substantial budget, state lawmakers have allowed HTA to operate more like a private business.

For instance, state auditor Les Kondo noted that HTA may provide its CEO with an annual compensation package of over $440,000 or “more than two and a half times the governor’s salary,” which is more comparable to the private sector.

Kondo said he noted the compensation for HTA’s top leader because it “illustrates the autonomy, leeway and flexibility that the Legislature has afforded the agency. It can almost run like a private organization.”

While the law provides for higher compensation, HTA’s President and CEO George Szigeti said he receives an annual salary of $297,675 and has access to a $15,000 protoccol fund and a state car to use for official state business.

Kondo said another way that HTA is different is that it has been exempted from the state procurement code and other requirements for competitive bidding.

Despite the fact that HTA has been allowed to operate as a “semi-autonomous” state agency, Kondo said it must still be “accountable for its performance, including its use of public money.”

HTA Board Chairman Rick Fried said the scope of the audit focused on HTA business from mid-2013 to mid-2016, just a year after Szigeti took over leadership of the agency.

Fried said the agency provided an 18-page rebuttal to the audit, which it said did not give HTA credit for the improvements that have occurred since mid-2016.

“Most of the audit encompassed a time when the current HTA administration was not there,” he said. “Based on my five years as a board member under this administration and others, key improvements have been made to improve budget precision, increase transparency and encourage greater board interaction.”

Fried said the audit also failed to acknowledge HTA’s tourism contributions, which have resulted in record arrivals and spending, greater dispersal of tourists to the neighbor islands, and improvements to “virtually every performance number.”

The audit examined HTA’s oversight of a multi-year, $83 million contract with AEG Management HHC to manage, operate and market the Hawai’i Convention Center; HTA’s more than $98 million multi-year contract with the Hawai‘i Visitors and Convention Bureau to market the islands in the United States and Canada; and HTA’s procurement of service contracts and compliance with the statutory limit on HTA’s administrative expenses.

“In all three areas, we found that HTA’s autonomy has resulted in lax oversight, deficient internal controls and, ultimately, less accountability,” the audit said. Key deficiencies outlined in the 53-page audit include:

>> HTA’s lax oversight of its major contractors does not ensure that public funds are being used effectively and efficiently.

>> HTA’s deficient procurement and contracting practices undermine accountability and do not ensure best value.

>> HTA has shifted expenses previously classified as administrative to other budget lines to comply with the reduced statutory limit.

>> Contracts lack progress reporting, performance measures, and other requirements.

>> HTA may be needlessly waiving rights to copyright ownership.

>> Contractors are not required to demonstrate eligibility to do business for the state.

One bright light in the audit was the finding that major marketing contracts covering Oceania, China, Hong Kong and Korea were executed in accordance with HTA policies and procedures.

The audit was critical about confusion surrounding HTA Chief Operating Officer Randy Baldemor’s job duties. Baldemor announced Jan. 11 that he planned to resign effective March 2. Baldemor joined HTA in June 2015 after Szigeti created a position for him during a restructuring of HTA’s executive leadership team.

Audit conclusions validated accountability and oversight concerns raised by state legislators during the 2017 session, which began with lawmakers pressing HTA to provide them with unredacted budgets.

Last year, lawmakers proposed several legislative measures to increase HTA’saccountability and transparency. After HTA finally provided lawmakers with their 2017 budget, the measures died. But lawmakers had lingering concerns and asked the state auditor to speed up delivery of the agency’s 2018 management audit so they could address findings during this year’s legislative session.

The audit recommended that HTA work to ensure that procurement protocols “are set upon a strong foundation with planning and deliverables to hold contractors accountable.”

While HTA disputes many points in the audit, Fried said the agency is committed to tourism and would accept any criticism that “would help us improve.”

The audit recommended that lawmakers work with the authority to clarify the intent of capping administrative expenses. It also indicated that lawmakers should review HTA’s procurement exemption, and consider repealing or limiting it.

HTA Final Report by Honolulu Star-Advertiser on Scribd