Elizabeth Freitas, a retired police officer living on Kauai, had been getting paid to administer thousands of polygraph tests for years, including examinations for Hawaii’s Department of Public Safety. But all of a sudden the flow of state contracts stopped.

She would later discover that Leanne Gillespie, a worker at the state Department of Public Safety, had used her power to push contracts to her husband by falsely claiming he was the only polygraph examiner in Hawaii who was qualified to contract with the department, according to a lawsuit that Freitas and her Lihue-based firm, Freitas &Freitas Investigations, filed against the state and Gillespie in 2014.

Hawaii taxpayers might now be on the hook for $400,000 to settle the case. The state Attorney General’s Office submitted the proposed settlement to the Legislature this week for approval.

Gillespie is still employed with the Department of Public Safety, said James Walther, a state deputy attorney general. He wouldn’t say whether she had been disciplined in any way, saying that he couldn’t comment on personnel matters.

“The Department of Public Safety has and will continue to follow the procurement law,” he said.

The state denied the charges in court filings.

Gillespie was hired by DPS in 2005 as the coordinator of the department’s Sex Offender Management Team, one of several state agencies responsible for implementing the statewide sex offender treatment program, which requires all sex offenders to undergo periodic polygraph examinations. Her husband, Bill Gillespie, was one of a number of polygraph examiners in the state.

Between 2005 to 2008, DPS competitively bid contracts, awarding multiple contracts to Freitas to perform polygraph tests. But in 2008, the department stopped following the procurement code, according to the lawsuit, and instead began awarding the money to treatment centers — primarily the Community Assistance Center — which would then hire polygraph examiners on behalf of the department.

At some point, according to the complaint, Gillespie conspired to discredit Freitas and other polygraph examiners so the treatment centers wouldn’t hire them.

Gillespie “was determined to falsely discredit plaintiff and other polygraph examiners so that her husband, Bill Gillespie, would obtain most or all of the sex offender polygraph work in the state,” according to the complaint.

To this end, Gillespie sent an email in January 2012 to sex offender treatment providers, supervision officials, employees of the Department of Public Safety and members of the judiciary claiming that polygraph examiners had to meet standards set by the American Polygraph Association, a private entity with no licensing board or authority in the state, according to the lawsuit.

The email falsely claimed that in order for a polygraph examiner to be able to provide services to the Sex Offender Management Team, the person had to meet various standards, including specialized training and continuing education requirements laid out by the APA.

“Gillespie ended her email by saying, ‘It is unfortunate that we only have one examiner who meets the APA standards,’” the complaint states. “According to Defendant Gillespie, the ‘one examiner’ is her husband, Bill Gillespie.”

After the email went out, Freitas stopped receiving contracts from all state agencies and Bill Gillespie became the only polygraph examiner contracted by the Community Assistance Center for the islands of Oahu and Maui, the complaint says.

Freitas complained to DPS officials, including its former director Ted Sakai, but no action was taken, according to the lawsuit, which says state officials should have known that Gillespie’s claims about qualifications were false and stopped her from making the defamatory statements.

The complaint doesn’t stipulate how much income Freitas claims to have lost. Freitas didn’t return calls seeking comment.