HVCB acted for Hawai'i's benefit
By Tony Vericella
Over the past three weeks, much has been written and said about the Hawai'i Visitors & Convention Bureau since the auditor's report, "Financial and Management Audit of the Hawai'i Tourism Authority's Major Contracts," was first made public.
Naturally, the audit's findings are a matter of public concern because everyone wants assurances that the state's money is being used productively and efficiently.
Vericella
The three years covered by the audit, 2000-02, were the most demanding period Hawai'i's visitor industry has ever faced, marked by a debilitating succession of events — dot-com meltdowns, U.S. and Japan financial market crises, the world-changing impact of 9-11, and the buildup to war in Iraq.
The three-year period also showcased the Hawai'i Tourism Authority and HVCB at its best. No destination worldwide faced greater challenges, especially since 9-11 and the devastating impact it had on air travel.
Hawai'i has experienced a faster and more sustained recovery than any other destination. That alone demonstrates the strength and skill of Hawai'i working together to meet the unexpected and overcome the demands dictated by the ebb and flow of the marketplace.
Rush to judgment
A draft of the audit was leaked to the media a week ahead of its scheduled release, leading to inflammatory accusations and sensational headlines that damaged the bureau's credibility before we had a chance to review it, let alone respond to it.
This has left us with an uphill battle.
HVCB welcomes the scrutiny. We cooperated fully with the auditor's office during the six months that its staff spent in our offices, and we invite other government agencies to review our operations. We take the audit's findings seriously and see it as a constructive process to evolve and improve our policies, procedures and accountability.
It is important to note that the audit found there was no intentional transgression or malfeasance committed by anyone at HVCB.
Good results in tough times
HVCB's contract with HTA was to provide global marketing of leisure and meetings-conventions-and-incentives services. The legislative audit of HVCB focuses almost exclusively on administrative procedures and practices. What it did not address were the positive results that HVCB has helped generate for the visitor industry and the people of Hawai'i.
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Consequently, we take issue with the audit's major finding that a lack of oversight by HTA "leaves little assurance" that HVCB was effective in spending state money to promote Hawai'i as a visitor destination.
Hawai'i Convention Visitors Bureau board member Chris Resich, left, board chairman Tony Guerrero, and CEO and president Tony Vericella addressed the media recently about a critical legislative audit.
HVCB is an aggressive, performance-driven, results-oriented marketing organization — which is exactly what the state has demanded for Hawai'i to stay ahead of our global competitors.
The integrated global marketing efforts HVCB has implemented delivered results that were in sync with HTA's contractual marketing directives to HVB, and helped to generate the following results for the Islands:
• The most positive global destination brand.
• The most successful post-9-11 recovery of any U.S. state or territory from both the American and Japanese markets.
• Expansion of global exposure to targeted consumers from 7.4 billion in 1999 to 17 billion in 2002.
• An increase in Hawai'i's peak travel months from three in 1997 to seven by 2000.
• An increase in annual cooperative marketing and in-kind marketing contributions, from $12.2 million to $23.7 million, through travel partners and strategic partnerships.
• Numerous TV and film projects that exposed Hawai'i and its culture to the world .
• Boosting Hawai'i from No. 17 to No. 2 out of the top 40 most desirable convention destinations in North America, according to an independent national survey of major meeting planners.
• Exceeding of HTA's overseas bookings pace goals for the Hawai'i Convention Center every year from 1998 to 2002, except 2001.
• Exceeding of HTA's goals for leads and lead room nights for noniconvention-center business meetings every year from 1998 to 2002.
• An increase in total visitor days from the Mainland, through May 2003, by 9.2 percent.
• Projected increases in scheduled nonstop seats from the U.S. Mainland of 9.2 percent by the end of 2003, a level that exceeds peak 2000 domestic capacity by nearly 5 percent.
• Recovery in the Japan market that exceeds the rest of the United States, along with a regaining of status since 1998 as the No. 1 desired destination and No. 1 honeymoon destination in the Japan market.
Setting the record straight
The good work and support notwithstanding, the audit has made allegations that must be addressed. Let me use this opportunity to tell our side of the story:
• The audit focused on increases in staffing and staffing costs. From our perspective, HTA set forth specific marketing objectives, and we hired the people needed to build the meetings-conventions-and-incentives market, to do island-specific marketing, and open new markets. Our compensation costs are in line with other destination marketing organizations nationally.
• It's worth noting that most of HVCB's executive salaries, including executive directors of island chapters, are paid from private money. Regardless, these executives spend all of their time working on HTA's main objective — sustained growth in tourism.
• Our compensation packages were criticized as inappropriate for a state agency. But HVCB isn't a state agency. It is a private business. We offer performance-based bonuses to our sales people because that's what works in sales, particularly in the meetings, conventions and incentives market.
• The severance package that the auditor questioned was necessitated by the convergence of unique circumstances: (1) Legislation mandated the transfer of convention center marketing from HVCB to (the Philadelphia-based company) SMG starting Jan. 1, 2003; (2) by the fall, 19 staff members, not surprisingly, had started job-hunting; (3) HTA required HVCB to meet its 2002 booking goals regardless; and (4) HVCB needed to insure a smooth transition of both clients and sales operations to SMG.
The severance package allowed us to retain our people through Dec. 31, exceed our 2002 goals, and shepherd clients, files, and operations over to SMG. The oft-mentioned $141,000 severance was a legal requirement in the employment contract of the former head of that department. The remaining nine who qualified for severance shared $60,000.
The severance issue has become moot with our new 2003 HTA contract that bars the use of state funds for severance pay.
• The audit also charged us with essentially "taking care of our own" by giving a contract to Wish Company, owned by a former HVCB employee. This is not true.
The contract went to the best firm to represent Hawai'i in Taiwan. The former vice president in question was the architect of our success in Taiwan and China, and she hired our very capable former account executive. On the question of timing, the vice president had resigned in January 2002 and had stayed on month-to-month at our request while we searched for a replacement. Her last day was April 30. The Wish Company contract began May 1. It would have terminated at the end of that year if HVCB had not received a new or extended contract with HTA.
Wish never billed or received payment while the vice president was employed at HVCB. In retrospect, should we have put that contract out to bid? Absolutely, yes. It would have removed any hint of potential self-dealing and conflict. The contract will be put out to bid this year along with all other HVCB subcontracts.
• Also questioned was the 1997 salary arrangement for HVCB's vice president of Japan in which his salary was augmented by Japan Airlines, for whom he had worked for 30-plus years. The practice is not unusual in Japan, and it allowed us to hire a more experienced marketing executive.
The arrangement with Hawai'i's largest provider of Japan air service (60 percent share) has not hindered HVCB's marketing relationships with other airlines. JAL has never sought special consideration.
However, to eliminate any possible perception of conflict of interest, HVCB will discontinue the salary arrangement with JAL.
• The audit questioned HVCB's facilitation of other state agencies' programs requested by the former governor's office. We shouldn't have done it. Our executive committee and management stopped this more than a year ago. No HTA or HVCB money was used, and we kept separate ledgers.
And I do know my boss is the board of directors, not the governor.
• The audit asserts that HVCB violated generally accepted accounting principles. HVCB has never been cited for discrepancies in independent audits performed annually by the public accounting firm KPMG. The issue of "unspent funds" cited in the audit refers to accrued invoices in one year for services being provided the year after. The invoices were for ongoing marketing services and programs in approved contract periods and marketing plans.
Conservatively, HVCB accrued expenses when marketing services or programs were committed. For 2002, HVCB returned nearly $292,000 to HTA. HVCB's new contract with HTA stipulates new procedures regarding unspent money.
HVCB can and will continue to improve. We are dedicated to clarifying roles, removing all conflicts or perceptions thereof, and imposing tighter controls.
Have we made mistakes? Yes. I myself was responsible for inadvertently including some personal expenses in the corporate account. I deeply regret this and have reimbursed in full.
A commitment to Hawai'i
For the past 100 years, HVCB has served only one client — the people of Hawai'i — with only one objective: to promote our Islands as the world's premier visitor destination. It is a legacy that the HVCB team is proud to carry into our next century of service.
As a private, nonprofit, tax-exempt organization, HVCB expends 93 percent of all tourism dollars on marketing activities. We are staffed by people of passion and pride who care deeply about Hawai'i and recognize the importance of Hawai'i's No. 1 industry to our state's future.
HVCB remains firmly committed to effectively bringing Hawai'i to the world and the world to Hawai'i. At the same time, HVCB is taking action to address the audit's findings and adopting corrective measures where necessary.
Don Takaki, chairman of Island Movers and the incoming chairman of HVCB, is heading a special committee to examine each of the audit findings and recommend further action to the bureau's board of directors.
Furthermore, HVCB will retain a management consultant to review our internal operations, processes and procedures, and present recommendations to the board. Overseeing this effort will be a management review committee chaired by Stan Brown, vice president of Marriott International.
Everything we have attempted, every initiative we have taken, was just another way of trying to move the ball forward for the benefit of Hawai'i and the community.
While we are never completely satisfied with our performance, we are proud of what we have done well, and smarter for the things we have not done quite so well.
Tony Vericella is president and CEO of Hawai'i Visitors & Convention Bureau.
