SCR98.DOC

WHEREAS, the current fiscal climate highlights the need for appropriate and efficient expenditure of funds by state agencies; and

WHEREAS, though the legislature is charged with setting all appropriations for the state, it must rely on the executive branch to ensure funds are used in a suitable manner and that appropriate fees and other charges are correctly assessed and collected; and

WHEREAS, the Department of Transportation (DOT), a state department responsible for the collection and use of hundreds of millions of dollars annually, has been the subject of state audits that found serious deficiencies in its handling of state resources; and

WHEREAS, the Auditor's 1999 financial audit of the DOT Airports Division found significant deficiencies in the division's procurement process including:

(1) Failure to ensure competition in the contractor selection process for a new multi-million dollar Airports Management Information System (AIRMIS/2000);

(2) Improper procurement of a contract to develop and implement the AIRMIS/2000 by means of a sole source contract;

(3) Failure to comply with the Hawaii Public Procurement Code and applicable administrative rules relating to change orders and small purchases;

(4) Failure to properly plan for the contracted work relating to the AIRMIS/2000 and failure to maintain contract files;

(5) Ineffective controls over lease renewals and renegotiations;

(6) Untimely actions on delinquent accounts resulting in improper billings to lessees and uncollectible lease rents of more than $180,000; and

(7) A hampered ability to monitor and collect outstanding receivables of approximately $50,000,000 due to the failure to apply cash receipts to specific invoices and the failure to enforce collection policies and procedures; and

WHEREAS, concerns continue to arise over the DOT's management of state funds, including, for example, the implementation of the Airports Division's automated vehicle identification system for the Honolulu International Airport to track incoming and outgoing vehicles; and

WHEREAS, a total of approximately $1.5 million for the automated vehicle identification system was derived from appropriations provided by the legislature under Act 252, Session Laws of Hawaii 1994 and Act 116, Session Laws of Hawaii 1998; and

WHEREAS, the successful implementation of the automated vehicle identification system with these state funds has yet to be achieved by the contractor and questions have arisen regarding whether the system's hardware, software, and firmware are outdated and ineffective and whether the division has been able to collect tolls in an effective manner; and

WHEREAS, the Auditor's 1997 financial audit of the DOT's Harbors Division, which examined and tested the DOT's financial records and systems for accounting and internal controls for compliance with applicable laws and regulations found serious deficiencies, including:

(1) One "material weakness" in the Harbors Division's internal control structure, which is the worst possible reportable condition and which, as explained by the American Institute of Certified Public Accountants, indicates that significant errors or irregularities, including illegal acts such as thefts, may occur and may not be detected within a timely period by employees in the normal course of performing their assigned functions. Additionally, a "material weakness" also includes the lack of financial information for management to review;

(2) Failure to prepare financial reports, resulting in the need to pay costly outside auditors to prepare accounting records and schedules necessary for financial audits, which has resulted in expenditures of over $90,000 per year for accounting work that is the year-round responsibility of the Division;

(3) Deficient property management practices, including an inadequate property inventory, resulting in the failure to collect all lease rents and month-to-month lease arrangements that have gone on for years, including one lease renewal that has gone unresolved for twelve years, resulting in rental amounts that have remained the same since 1975; and

(4) Seriously deficient controls over cash receipts and billings at three district offices and certain harbors, resulting in no assurance that all cash receipts are properly deposited; and

WHEREAS, concerns have arisen regarding whether the Harbors Division collects and can account for all fees and charges it is due; including, for example, the collection of fees from cargo carriers and whether amounts submitted can be audited by the division to determine whether they are accurate; now, therefore,

BE IT RESOLVED by the Senate of the Twenty-fifth Legislature of the State of Hawaii, Regular Session of 2009, the House of Representatives concurring, that the Auditor is requested to conduct a management audit of the Department of Transportation for the purpose of determining whether:

(1) Appropriations are efficiently administered for the purposes intended;

(2) Contracts are appropriately awarded and include adequate safeguards; and

(3) Fees and other charges assessed are collected and accounted for accurately; and

BE IT FURTHER RESOLVED that the Auditor report on the Auditor's findings and recommendations to the Legislature no later than twenty days prior to the convening of the Regular Session of 2010; and

BE IT FURTHER RESOLVED that certified copies of this Concurrent Resolution be transmitted to the Director of Transportation and the Auditor.

	OFFERED BY:	_____________________________

Report Title:

DOT; Budget Audit

THE SENATE	S.C.R. NO.	98
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII