THE SENATE	S.B. NO.	2625
TWENTY-FIFTH LEGISLATURE, 2010		S.D. 1
STATE OF HAWAII

A BILL FOR AN ACT

RELATING TO OUT-OF-STATE OFFICES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  Prompted by concerns over the management of federal grant funds and the State's 2005 trade mission to China and Korea, the legislature requested that the office of the auditor investigate the department of business, economic development, and tourism, including the department's out-of-state offices.  In early 2010, the auditor released Report No. 10-01, Investigation of Specific Issues of the Department of Business, Economic Development & Tourism.

     The legislature finds that in the auditor's attempt to track the reallocation of $50,000 appropriated for community-based economic development into the Chinese office bank accounts, the existence of federal funds related to the federal market development cooperator program under the International Trade Administration of the United States Department of Commerce were found.  In addition, certain aspects of the out-of-state offices were found to merit closer examination and the scope of the investigation was refocused.

     In conclusion, the auditor's report found that the department has demonstrated a troubling pattern of nondisclosure regarding the 2005 China mission and provided misleading and inaccurate information regarding the department's market development cooperator program award.  In addition, in two of the three operational areas examined, internal controls were found to be seriously lacking, which created opportunities for fraud and abuse.

     The purpose of this Act is to implement recommendations of auditor's Report. No. 10-01, regarding the department of business, economic development, and tourism out-of-state offices.

     SECTION 2.  Chapter 201, part VI, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§201-   Audits; frequency. Beginning July 1, 2010, the department shall conduct at least every two years a financial audit of the out-of-state offices.  The department shall submit the audit report and recommendations to the legislature no later than twenty days prior to the convening of the regular session following the year in which the audit is conducted."

     SECTION 3.  Section 201-85, Hawaii Revised Statutes, is amended to read as follows:

"§201-85  Exemptions.  The department is authorized to hire employees necessary to staff its out-of-state offices subject to chapter 76 and legislative appropriations.  The department may also appoint such other employees exempt from chapter 76 as may be necessary to administer the affairs of its out-of-state offices.  The initial appointment shall not exceed three years, during which time the department shall submit to the legislature a request for approval prior to continuation of the position. The department shall set the duties, responsibilities, salaries, holidays, vacations, leaves, hours of work, and working conditions for these employees.  Subject to the approval of the director of [budget and] finance, the department may be exempted from the following state laws only to the extent necessary for the conduct of its business in operating out-of-state offices:

     (1)  Sections 36-27 and 36-30, relating to special fund transfers and reimbursements to the general fund;

     (2)  Chapter 36, relating to management of state funds;

     (3)  Chapter 38, relating to deposits of public funds;

    [(4) Chapter 40, relating to audit and accounting, except that the department shall comply with section 40-81;

(5)] (4)  Chapter 76, relating to civil service;

    [(6)  Chapter 77, relating to compensation;

(7)] (5)  Section 78-1, relating to public employment, except when expressly hiring personnel subject to section 78-1; and

    [(8)] (6)  Section 171-30, relating to acquisition of real property.

     All moneys necessary for the establishment and operation of out-of-state offices shall be allocated by the legislature through appropriations out of the state general fund.  The department shall include in its budgetary request for each upcoming fiscal period, the amounts necessary to effectuate the purposes of this section."

     SECTION 4.  (a)  The department of business, economic development, and tourism shall, beginning February 1, 2010, cease expending or transferring any of its remaining federal reimbursement marketing development cooperator program funds until it consults with the legislature and the department of budget and finance to determine whether the funds should remain in the possession of the department or be deposited in the state treasury.

     (b)  The department shall review and update the policies and procedures of the out-of-state offices to:

     (1)  Ensure that personnel engaged in both submitting and reviewing expenditures by out-of-state offices are proficient in reading and writing in both English and the official language of the country or jurisdiction where the out-of-state office is located;

     (2)  Include specific reporting and enforcement criteria regarding the purpose for expenditures made by out-of-state offices and ensure the policies are diligently enforced;

     (3)  Immediately adopt the trade mission policy of the United States Department of Commerce to ensure future department trade missions provide sufficient written criteria and transparency, and to restrict the government's influence in the use of private funds to a minimum; and

     (4)  Provide additional ethics training to employees of out-of-state offices.

     (c)  The department shall submit a report on the status of the marketing development cooperator program funds under subsection (a), and a copy of the updated policies procedures under subsection (b) to the legislature no later than June 30, 2010.

     SECTION 5.  (a)  The state procurement office shall review all fiscal materials related to the 2005 trade mission, in consultation with the Pacific and Asian Affairs Council and the Hawaii Pacific Export Council, to determine whether the department of business, economic development, and tourism directly influenced or engaged in the expenditure of the mission funds and was subject to procurement laws.

     (b)  The state procurement office shall submit a report on its findings and recommendations to the legislature no later than September 30, 2010.

     SECTION 6.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 7.  This Act shall take effect upon approval.

Report Title:

Out-of-State Offices; Audit; Policies and Procedures; State Procurement Office

Description:

Beginning July 1, 2010, requires at least every two years an audit of the department of business, economic development, and tourism out-of-state offices; repeals exemption from audit and accounting requirements for out-of-state offices; beginning February 1, 2010, requires the department to cease expending or transferring any remaining federal reimbursement marketing development cooperator program funds; requires the department to update policies and procedures of the out-of-state offices; requires the state procurement office to review financial records of the 2005 trade mission; requires reports to the legislature.  (SD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.