Last week HVCB saw the resignation of its president, Tony Vericella, who became a high-profile casualty of a state audit that ripped the agency's accounting practices and misuse of state money.

Then on Friday, HVCB learned, as it had feared, that it will no longer be the sole marketer of the Islands to the world — a position it has held for decades.

While the Hawai'i Tourism Authority allowed HVCB to hold on to the lion's share of the state's $25.3 million marketing contract as the Islands' promoter covering North America, it lost about $8 million in state money for marketing to the rest of the world.

Perhaps most stinging of all, it will no longer be the marketer in Japan, the second most important visitor market for Hawai'i.

Starting Jan. 1, promotions covering Japan will be handled by Tokyo advertising agency Dentsu Inc. under a contract worth about $6.3 million.

The loss of large chunks of the state contract will likely lead to layoffs at the HVCB. The agency employs about 100 people and an estimated 15 could lose their jobs or will need to seek work with the new contractors.

For Hawai'i, the changes in the state marketing effort will have broad impact and raise several challenging issues as the $10 billion tourism industry fights to gain back ground after a prolonged slump:

• Coordination — How will the Hawai'i Tourism Authority ensure smooth running of five separate marketing efforts?

• Monitoring — Having come under fire from the state Auditor Marion Higa and lawmakers for its lax management of the HVCB, can the authority adequately monitor the five contractors and their use of state money?

• Effectiveness — Will the state get its money's worth from marketing efforts that have now been parceled out by geographic areas?

Vericella's resignation surprised many in the tourism industry, but they say it could also be an opportunity for HVCB to recover from its struggles.

Les Enderton, interim president and chief executive officer, is keeping house until a permanent head is named, expected within three months. Enderton is a leading candidate for the job.

Enderton doesn't plan to make any major changes as interim president, which could mean delay in making sweeping reforms at HVCB to comply with demands from the state auditor.

But some think he could be better at responding to the Legislature's demands and Higa's recommendations than the more flamboyant Vericella.

"He has the right demeanor, he knows marketing," said HVCB chairman Tony Guerrero.

Chuck Gee, dean emeritus of the University of Hawai'i's School of Travel Industry Management, said Enderton is capable, but being head of HVCB is no easy job.

With travel-dampening problems such as terrorism and SARS, the challenge of developing new markets such as China and revitalizing Waikiki, Enderton's plate is full.

"There's so many things that the CEO of HVCB has to contend with that you wouldn't have had to think about in that position even a couple of decades ago," said Gee.

"There's a lot more than just worrying about advertising," Gee said.

Vericella's resignation came after the departure earlier this year of another key HVCB executive, David Preece, who was vice president for North American marketing. The position has yet to be filled.

"The HVCB has lost two very key people in the organization and hopefully that will not hold back the remaining team at HVCB from moving forward," said Danny Casey, president of the Hawai'i chapter of the American Society of Travel Agents. "Les Enderton's appointment I think is a very positive step."

Demand for accountability

Legislators, tourism officials, Gov. Linda Lingle and others are asking for investigations into HVCB based on findings in Higa's audit.

They want to examine everything from a contract awarded to former vice president Wei-Wei Ojiri several days after she resigned to the use of $191,000 in state money that the state auditor deemed inappropriate.

The major legal issues — including whether HVCB was used to evade state procurement code, accounting practices the state auditor says may have been an attempt to spend as much state money as possible, and decisions that raise questions about conflict of interest — are sure to be more complicated than Vericella's use of public

money for in-room hotel movies and speeding tickets, which he repaid.

More issues may emerge if potential investigations by the attorney general, the tourism authority and a special legislative panel with subpoena powers materialize.

Whether the state should pursue any legal action given the audit's findings, what standards a private contractor to a state agency should be held to and what is acceptable in accounting are all questions that beg for answers.

The tourism authority has worked to deflect some of the criticism of itself by showing improvements in accountability measures and contract terms since the period the audit reviewed, and by pointing to the tourism authority's new leadership and board members who represent a "new HTA."

But it has proven far more difficult for HVCB to duck the darts.

The bureau has admitted to some wrongdoing, rebutted other claims by the auditor, explained its reasoning behind some decisions and outlined policy changes to address some problems.

It has identified about $17,000 of inappropriately used state money it plans to pay back to the tourism authority. The money was paid to a law firm to perform legal services involving legislation that would have hurt HVCB's convention center marketing business.

The tourism authority may examine whether more money was inappropriately used.

According to HVCB, Higa's report outlines about $30,000 in questionable expenditures, including Vericella's personal expenditures; $800 of gifts for HVCB's outgoing board chairman that included a massage, golf package and stay at a Four Seasons hotel; and other spending.

According to Higa's report, what could be the most serious finding in the audit is HVCB's filing of invoices for one year to pay for goods and services in the next year. The practice, she said, is a violation of generally accepted accounting principles.

"By doing so, HVCB was able to spend exactly up to its state contract limit and circumvent the potential return of unexpended funds to the authority," according to Higa's report.

But HVCB has said its auditor KPMG found no impropriety in its review of the bureau's financial statements. It has asked KPMG to review its findings.

Vericella said there are some gray areas in accounting for advertising and marketing agencies, and said accounting firms may differ in opinion about their propriety.

"In generally accepted accounting principles, they are what the word means — generally accepted," Vericella said.

Vericella also said the bureau was being conservative in its practices in filing invoices to the tourism authority for vendor expenses and that HVCB has returned excess money to the authority in past years.

Contracting concerns

Legislators said they are particularly concerned about HVCB's award of a $242,000 state-financed subcontract to Ojiri's Taiwan public relations company, the Wish Company.

At about the same time, HVCB also awarded a separate, privately-financed contract to another company run by Ojiri. The circumstances "suggest self-dealing or at least a conflict of interest," according to Higa.

HVCB said the decision was made because Ojiri was most qualified for the job.

"We felt we hired the best person there," said HVCB chairman Tony Guerrero. "Everybody can be a Monday morning quarterback."

Higa also questioned an arrangement between former Gov. Ben Cayetano and HVCB that may have circumvented the state procurement code.

HVCB, which is a private nonprofit organization and is not subject to procurement code, received a $24,000 allocation as part of $200,000 for high-technology development.

Higa said HVCB did not keep the allocation but disbursed it to vendors, essentially serving as a pass-through for payment of services procured by Joseph Blanco, Cayetano's special adviser for technology.

Cayetano said the money spent was authorized by law and the High Technology Development Corp. was exempt from procurement law.

Also, in November 2001 the Research Corporation of the University of Hawai'i entered into an agreement with HVCB for services the university agreed to provide, but HVCB's "alleged role" was only to pay invoices from the governor's office for services again procured by Blanco, according to the audit report.

In another allocation, a $24,000 letter of agreement between Joan Bennet and Associates, the High Technology Development Corp. and the Department of Business, Economic Development and Tourism outlined similar services under the agreement between HVCB and the university, which "leads us to question whether

use of HVCB as the pass-through entity for payment was designed to evade the state procurement code," according to the state auditor.

Guerrero said he ended HVCB's involvement in the agreement to serve as a pass-through a year ago when he found out about it and felt it was not appropriate for the bureau to serve that role.

"It's none of our business," he said.