HB2318

SECTION 1. The legislature finds that the office of the auditor conducts a financial and program audit of the department of health's deposit beverage container program every other year. The auditor's 2019 report to the legislature reported accounting exceptions in records provided by six of twenty-four deposit beverage distributors. One of the recommendations made by the auditor was to increase deposit beverage distributors' accountability for information provided to the deposit beverage container program by requiring deposit beverage distributors to obtain independent audits for years ending in odd numbers. The auditor's recommendation for deposit beverage distributors to obtain independent audits for years ending in odd numbers was adopted by the legislature in Act 12, Session Laws of Hawaii 2022.

The legislature further finds that the independent audit requirement caused financial hardship to small businesses. In some cases, the cost of obtaining an independent audit exceeded the amount of deposits and container fees paid by a distributor to the department of health.

Therefore, the purpose of this Act is to amend the deposit beverage distributor independent audit requirement to mitigate the financial impact to small businesses.

SECTION 2. Chapter 342G, Hawaii Revised Statutes, is amended by adding to part VIII a new section to be appropriately designated and to read as follows:

"§342G- Independent audit. (a) Deposit beverage distributors who distribute at least seventy-five million deposit beverage containers in a calendar year ending in an even number shall obtain an independent audit for the calendar year after the calendar year ending in an even number.

(b) Deposit beverage distributors who distribute at least two million but fewer than seventy-five million deposit beverage containers in a calendar year ending in four or nine shall obtain independent audits for the calendar year after the calendar year ending in four or nine.

(c) Deposit beverage distributors who distribute fewer than two million deposit beverage containers in a calendar year shall be exempt from the requirements of this section.

(d) At a minimum, each independent audit shall:

(1) Assess the accuracy of inventory reports and payments to the department required by section 342G-105;

(2) Assess the accuracy of fees collected in sales, transfers, or donations of deposit beverage containers to or from other deposit beverage distributors and dealers;

(3) Contain a certification that the independent audit is accurate to the best of the independent auditor's knowledge and ability; and

(4) Be submitted to the department by September 30 of the calendar year after the deposit beverage distributor is required to obtain the independent audit."

SECTION 3. Section 342G-101, Hawaii Revised Statutes, is amended by adding a new definition to be appropriately inserted and to read as follows:

""Distribute" means to manufacture beverages in deposit beverage containers in this State, or to import and engage in the sale of filled deposit beverage containers to a dealer or consumer."

SECTION 4. Section 342G-121.5, Hawaii Revised Statutes, is amended to read as follows:

"[[]§342G-121.5[]] Risk-based [~~selection process;~~] audit. (a) The department shall develop a risk-based process to select, for periodic audit, certain deposit beverage distributor and redemption center reports submitted to the deposit beverage container program. The department may hire personnel or external consultants to perform the audits. In developing a risk-based process to audit certain deposit beverage distributor and redemption center reports, the department shall:

(1) Consider a variety of risk factors, including but not limited to the amount of money transacted, prior audit findings, and frequency of the deposit beverage distributor's or redemption center's prior audits;

(2) Require deposit beverage distributors to send monthly or semi-annual distribution reports and supporting records, such as schedules of invoices, shipping documents, point-of-sale reports, and other documentation as required by the department, to the deposit beverage container program; and

(3) Ensure that the audit process includes a risk assessment derived from deposit beverage distributor and redemption center data based on the reports submitted, including but not limited to carrying out analytics and trend analyses to target certain deposit beverage distributors and redemption centers having unusual fluctuations.

(b) The department shall:

(1) Summarize the results of the deposit beverage distributor and redemption center audits and assess whether enforcement actions should be considered to ensure that the amounts that are being reported are accurate;

(2) Consider conducting follow-up audits; and

(3) Consider publicly announcing violations.

~~(1)~~ ~~Develop~~] develop and submit to the deposit beverage container program for approval an internal control process to ensure that the monthly or semi-annual distribution report forms contain accurate data and that adequate records are maintained[~~; and~~

~~(2) Obtain independent audits for years ending in an odd number~~]."

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval.

INTRODUCED BY:

_____________________________

BY REQUEST

HOUSE OF REPRESENTATIVES	H.B. NO.	2318
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII