Posted on: Friday, March 7, 2003
Business loans criticized
By Sean Hao
Advertiser Staff Writer
The state's economic development agency failed to adequately monitor and market its small business loan programs, minimizing its ability to spur Hawai'i's economy, according to a state auditor's report released yesterday.
In looking over the books of the Department of Business, Economic Development and Tourism for fiscal 2002, the Office of the Auditor found several problems with the agency's revolving loan programs, including "deficient" management.
The auditor said $5.57 million or 59 percent of all program loans were more than 90 days past due. DBEDT also failed to properly manage its contracts and purchase orders, unnecessarily tying up more than a half-million dollars for two years.
In addition, files on the loan program were incomplete and in some cases lacked evidence that funds were spent for authorized purposes. Concerns about DBEDT's loan program were raised during the last audit of the agency's revolving funds in 2000, said State Auditor Marion Higa.
"Most of the findings on the revolving loan funds were made before," she said. "If nothing has happened since the last audit, then somebody should be concerned."
DBEDT Director Ted Liu said he plans to work with the auditor's office to address the concerns raised.
"It's got the type of information that will be very useful to us," he said of the audit.
Higa's report said DBEDT inadequately marketed its loan programs and criticized the agency's focus on financing mainly technology-related companies. The revolving fund loan program granted only 16 loans totalling $2.33 million in the last five years. As of June 30, DBEDT had $6.73 million available to loan businesses.
Loan payments were also not deposited in a timely manner, the auditor found.
Higa recommended DBEDT create a formal marketing program and revise procedures for monitoring delinquent accounts. She also said DBEDT needs to better manage its contracts after the audit revealed that $517,430 was unnecessarily tied up in deals that were cancelled or inactive for at least two years.
The program's high delinquency rate stems in part from the inherently risky nature of the loans, Liu said. The department's loan programs provide alternative financing for small businesses unable to borrow from banks and other lenders.
He also said the previous administration of Gov. Ben Cayetano and the attorney general's office did not write-off loans in a timely fashion.
However, Liu acknowledged DBEDT could do a better job. The challenge is devoting additional resources to generate more loans during tight fiscal times, he said. One solution may be a partnership that would involve state oversight of private fund managers loaning money to new and expanding companies, Liu said.
"I intend to take a new look at how we are trying to finance companies and our funding rules," he said.
The audit also showed inadequate management of contracts by the Hawai'i Tourism Authority, which is attached to the department administratively. According to the audit, tourism authority contractors performed work before contracts were signed and contracts were renewed before prior work was inspected. In one case, final payment on a contract was made before all required work was finished.
Rex Johnson, executive director for the tourism authority, said the contracts in question mainly involved the funding of tourist-related events rather than the purchase of goods and services. Such festivals are run by not-for-profit organizations that often are lax in completing work, he said.
"When you work for these small, not-for-profit organizations it becomes a lot harder to say, 'Okay, get your guys, get your paperwork in today,' " Johnson said. "We're going to have to be a lot more strict about the paperwork side of the business, which is going to be hard on some people."
Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.
