3 reviews reiterate visitor bureau flaws

By Kelly Yamanouchi
Advertiser Staff Writer

The Hawai'i Visitors and Convention Bureau committed numerous accounting violations, suffers from inherent conflicts of interest and needs serious management reforms, according to a trifecta of reviews released yesterday.

John Monahan, executive director of the Hawai'i Visitors and Convention Bureau, listens to testimony before the Legislature about an audit of the bureau commissioned by the Hawai'i Tourism Authority, which hires the bureau. Richard Ambo • The Honolulu Advertiser

Aspects of the reviews confirmed a scathing state audit released six months ago accusing the bureau of inappropriate expenditures and mismanagement.

HVCB, the state's major tourism marketing agency, lost major parts of its promotion contract after the audit. The auditor's findings also led to the attorney general's review and studies commissioned by the Hawai'i Tourism Authority from Nishihama & Kishida and Candon Consulting.

According to those reviews, the visitors bureau violated generally accepted accounting principles in dozens of instances. Among the wrongdoings were invoices billed in the wrong year — apparently to avoid having to return money to the state at year's end — doctoring a proposal for services from a marketing firm and inappropriately withholding tax refunds from the state.

"There are serious instances of poor governance and financial controls at the HVCB," said Hawai'i Tourism Authority executive director Rex Johnson.

The findings could result in an HVCB refund to the state of about $3 million of inappropriately used money later this year, in addition to more than $20,000 returned since the state audit.

Candon Consulting and the attorney general recommended that the bureau reduce its 38-member board; keep an arm's-length relationship between its board and the Hawai'i Tourism Authority, which hires the bureau; and do a better job of auditing and adhering to its contract.

HVCB has a one-year contract with the tourism authority to market Hawai'i in North America. The agreement can be renewed for a total of four years. But the bureau lost its state international marketing contracts to other agencies, effective this month.

John Monahan, who has served as HVCB's president for about two months, told state legislators the details of the Nishihama & Kishida audit are "alarming and disturbing."

Monahan succeeded Tony Vericella, who resigned as head of the bureau after the state audit was released in July.

"We will attack and resolve the problems," Monahan pledged then. The tourism authority has given HVCB until June 30 to carry out recommendations laid out in the reviews.

Donna Mercado Kim, chairwoman of the Senate tourism committee, said she welcomed the bureau's willingness to cooperate and reform. "We would all like to see these issues resolved," Kim said.

Before Vericella resigned, his appearances before the Legislature were characterized by heated exchanges and criticism and questioning by Kim.

Monahan said reforms had begun, including a new accounting system. He said he had directed chief financial officer Terry Hee, who was at the center of many of the accounting issues, to review the Sarbanes-Oxley Act, a package of corporate reforms enacted in the post-Enron era to curb accounting abuses and fraud.

Although HVCB is a private nonprofit organization and not directly governed by the act, "we need to be governed by the spirit of Sarbanes-Oxley," he said.

State Attorney General Mark Bennett, citing the bureau's accounting violations and questionable judgment, recommended the authority's marketing contracts be drafted more strictly.

Bennett did not recommend legal action, because there is no requirement to return certain funds and because HVCB had cooperated. The bureau also has made reimbursements, and its state contracts were so broad that the issues became matters of judgment more than violations.

Included in Bennett's review was the questionable timing of invoices for a controversial contract with Disney to promote the Islands in connection with the animated film "Lilo & Stitch."

The HVCB initially entered a multiyear contract with Disney despite the tourism authority's disapproval, and was directed to end the estimated $3.9 million contract after the first year, which cost about $2 million. Monahan said the bureau had reached a settlement with Disney but did not specify the amount.

Bennett said additional reviews could help determine whether HVCB's auditor, KPMG, was negligent. He also said a review was being conducted of former Gov. Ben Cayetano's technology czar Joe Blanco and use of certain state funds.

Many tourism industry executives, including members of the bureau, have criticized the additional audits and reviews of HVCB as politically motivated and excessive use of state money.

The tourism authority spent $235,000 for Nishihama & Kishida's financial audit and Candon's master's review.

"The decision was made to the do the audit, so we have to move on with the audit — but I don't see it as a good use of taxpayer's money," said Dave Erdman, president of local marketing firm PacRim Marketing Group Inc. "It's kind of too late and not necessary at this point."

Erdman said he thought taxpayers' dollars would be more wisely spent on marketing "instead of an expensive audit."

Reach Kelly Yamanouchi at 535-2470 or at kyamanouchi@honoluluadvertiser.com.