A financial audit of the state Department of Land and Natural Resources is calling for better management of the agency's federal grant programs, better accounting and financial processes and a review of the Division of Boating and Ocean Recreation's operations.

The audit, conducted by the Office of the Auditor and certified public accounting firm KHM LLP, looked at fiscal year 2004-2005 and found several problems.

The report highlighted in particular two weaknesses: a lack of a comprehensive federal grant program management system and inadequate accounting and financial reporting processes.

However, Board of Land and Natural Resources Chairman Peter Young said DLNR's financial reports undergo an independent audit every year.

"We receive unqualified, clean opinions without any findings," he said.

In addition, he said the department had already started taking some of the actions recommended by the auditor.

One area where Young agreed with the audit is its recommendations for inspections and improvements at the small boat harbors, where auditors noted some safety hazards.

"We have wanted to make improvements to our small boat harbors over the past three years," he said, noting any capital improvements need to be approved and funded by the state Legislature.

While DLNR requested $10 million in improvements, only a few of the projects were approved, he said.

The audit noted operational and safety problems at the Ala Wai, Ke'ehi and Wai'anae small boat harbors, which are supposed to be self-sufficient but suffer from inadequate funding due to a fee structure that has remained unchanged since 1995.

Young said DLNR is looking into problems highlighted in the audit. "We are evaluating areas around the state and, as noted in the audit, there are some areas where there are no docks and we would love to build those docks, but we need legislative approval."

Reach Treena Shapiro at tshapiro@honoluluadvertiser.com.