State lawmakers are calling for better oversight of the Hawaii Tourism Authority — maybe even budget cuts — in the wake of a scathing state audit released Thursday.
The state Office of the Auditor report dinged the HTA for “lax oversight (and) deficient internal controls.”
The publicly funded state agency, which began operations in 1998, is responsible for creating a vision and long-range strategic plan for tourism in Hawaii. The Legislature provides HTA with an annual budget of more than $108 million in transient accommodations taxes.
Despite the fact that HTA has been allowed to operate as a “semi-autonomous” state agency, State Auditor Les Kondo said it must still be “accountable for its performance, including its use of public money.”
The audit examined HTA’s oversight of a multiyear, $83 million contract with AEG Management HHC to manage, operate and market the Hawai’i Convention Center; HTA’s more than $98 million multiyear 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.
Key deficiencies outlined in the 96-page report include:
>> HTA’s oversight of its major contractors does not ensure that public funds are being used effectively and efficiently.
>> HTA’s procurement and contracting practices undermine accountability and do not ensure best value.
>> HTA has shifted expenses previously classified as administrative to avoid spending caps.
>> 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.
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.
Despite its substantial budget, Kondo said state lawmakers have allowed HTA to operate more like a private business.
For instance, Kondo said HTA may provide its CEO with an annual compensation package of over $440,000 or “more than 2-1/2 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.”
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 protocol fund and a state car to use for official state business. His contract, which runs through 2020, also provides for an automatic 5 percent annual raise.
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.
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’s accountability 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.
State Sen. Will Espero (D- Ewa Beach, Iroquis Point) said “revisiting the exemption of the procurement code will certainly occur due to the findings and allegations in the audit.”
“HTA needs to explain immediately why it is not following its rules and procedures,” Espero said.
Audit findings could be addressed during legislative committee hearings, he said.
“Annual reports to the Legislature regarding key contracts, issues, and spending is a strong possibility. This would include sole source contracts,” he said.
Sen. Laura Thielen (D- Kailua, Waimanalo, Portlock) said she doesn’t support procurement exemptions for state agencies, which should account for how they spend public funds.
“I’m not surprised to find out that there are abuses because when there are exemptions and people aren’t being watched, they will cut corners,” Thielen said. “I hope there are steps taken this session because people want more transparency.”
Thielen said allegations of poor spending outlined in the audit are likely to provide greater momentum for several bills that seek to reduce HTA’s budget.
“HTA absolutely runs away from any responsibility for the management of tourism and its impacts on our people and resources,” she said. “We’re looking at 9.5 million visitors this year and they have no plans for what they are going to do when we hit 10 million, 11 million or 12 million. When do we pull back on marketing?”
While HTA disputes many points in the audit, HTA Board Chairman Rick Fried said the agency is committed to tourism and would accept any criticism that “would help us improve.”
Fried said the scope of the audit focused on HTA business from mid-2013 to mid-2016, and Szigeti took over leadership of the agency in 2015.
“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 improvements to “virtually every performance number.”
Last year, 9.4 million visitors spent $16.8 billion, both records. Tourism was the single largest source of private capital for the state’s economy in 2017, responsible for 204,000 jobs and $2 billion in taxes.
“HTA’s response to the audit was basically suggesting that the end justifies the means. As a state agency, it doesn’t. You have to be accountable,” Kondo said.
Kondo said a state auditor will return to HTA after a year and a half or so to issue another report tracking if the agency has met audit recommendations.
AUDIT FINDINGS
Some of the highlights from the Hawaii Tourism Authority audit conducted by the state Office of the Auditor:
CONTRACTOR EXTRAVAGANCES
HTA reimbursed AEG, the Hawai’i Convention Center contractor, for:
>> Approximately $50,000 in first-class airfare
>> Hotel room rates at over $400 per night
>> One-day chauffeur service at $369
MARKETING MISSTEPS
Gohawaii.com/social reposts photographs of Hawaii from Instagram to show off the many attractions available in the islands, but some of the photos portrayed:
>> People getting close to protected species
>> Removal of rocks and seashells
>> Depictions of areas throughout Hawaii that HTA prefers not to promote
EXPEDIA CAME OUT AHEAD
The state audit identified several problems with a $3.5 million sole-source contract that HTA awarded to Expedia Media Solutions in May 2016 for a one-minute online video and a global marketing campaign, centered on a facial recognition program.
>> Expedia did not obtain a valid Certificate of Vendor Compliance, until two months after the contract expired.
>> HTA asserts that Expedia’s work generated $361.5 million in visitor spending. However, it also has been estimated that Expedia received $70 million in commissions generated from travelers who viewed the “Discover Your Aloha” video prior to booking through Expedia.
>> HTA’s CEO said that he was unaware of the amount of commissions received by Expedia and acknowledged he did not fully understand the project. HTA executives also acknowledged that they did not factor in the likelihood of significant profit for Expedia when negotiating the price of the contract.
>> The campaign received pushback from hoteliers who felt the “Discover Your Aloha” video was cannibalizing hotel bookings by travelers who would have visited Hawaii regardless of the video
>> HTA declined to renew Expedia’s contract. However, as of January 2018, the video remained on Expedia.com, and the company may continue earning commissions from the HTA-funded video.
HTA Final Report by Honolulu Star-Advertiser on Scribd
