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1992 Annual Report

State of Hawaii Office of the Auditor

Marion M. Higa State Auditor

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1992 Annual Report

State of HawaiiOffice of the Auditor

Marion M. HigaState Auditor

Title of Report Recommendation(s) Comments*

92-11 Repeal or modify various funds. No legislation enacted.Review of Special andRevolving Funds of theJudiciary and the Departmentsof the Attorney General, Laborand Industrial Relations, Landand Natural Resources,Personnel Services, Taxation,Transportation, and PublicSafety

92-12 The department should stop contracting with The department reportsFinancial Audit of the other state agencies to avoid constitutional it has developedDepartment of Business, provisions on the lapsing of appropriations, contracting guidelinesEconomic Development, and It should be required to comply with the State and will be makingTourism Accounting Manual and the governor’s improvements in loan

budget execution policies; should develop operations and internalguidelines for administering contracts, and controls. It disagreesdocumenting loan activities. Other that it contracts withimprovements should be made in the areas of state agencies to avoidsegregation of duties, depositing of receipts, lapsing.recording of security deposits, and controlsover petty cash.

•Includes actions reported in 1992.

MISSION OFTHE OFFICE OF THE A UDITOR

Through post-audits of the accounts,programs, and performance of state agencies,the office seeks to assure the accountability ofgovernment agencies for their implementationofpolicies, management ofprograms, andexpenditure ofpublic funds. The office reportsits findings and recommendations to thegovernor and the Legislature to give policymakers timely, accurate, and objectiveinformation for decision making.

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STATE OF HAWAIIOFFICE OF THE AUDITOR465 S. King Street, Room 500Honolulu, Hawaii 96813-2917

Honorable Members of the LegislatureThe Honorable John Waihee, GovernorCitizens of Hawaii

Ladies and Gentlemen:

I am honored that in 1992 the Legislature appointed me to be the State Auditor. During my eight-year term of office, I hope to build on our past history of excellence and carry forward ourcommitment to serve the people of Hawaii through independent, objective, and timely evaluationsand audit reports.

This firstAnnual Report of the Office of the Auditor highlights our accomplishments in calendar year1992, the staff who made possible the accomplishments, the reports we issued, the legacy on whichwe build, and our hopes for the future. We conclude this report with an essay on one of the moimportant issues facing state government—fiscal responsibility and the respeLegislature and the Executive.

Sincerely,

March 30, 1993

MARION M. HIGAState Auditor

(808) 587-0800FAX: (808) 587-0830


92-2 The department should cease releasing The department reportsFinancial Audit of the certificates of deposit to lessees in default; that it has taken actionDepartment of Land and establish policies and procedures governing to implement theNatural Resources the release of all certificates of deposit or recommendations.

other forms of cash performance bonds tolessees; comply with the requirements ofSection 17 1-20, HRS concerning notice ofbreach or default; and establish procedures toensure that all lessees’ surety bonds aremaintained on a current basis.

92-3 Repeal or modify various funds. No legislation enacted.Review of Special andRevolving Funds of theHousing Finance andDevelopment Corporation andthe Department of Business,Economic Development, andTourism

92-4 No recommendations.Study of Financing for HeartTransplant Services in Hawaii

92-5 The Legislature should consider limiting the No legislation enacted.Review of the State Health agency’s function to regulating large capital The agency prefers toPlanning and Development investments in health care facilities and address annual andAgency medical technology. operating costs rather

than one-time capitalThe agency should determine the costs. It is working toappropriateness of its numerous service implement somecategories, and recommend more meaningful recommendations,thresholds for those it decides to retain. It disagrees with others,should also develop better ways to measure and points toits effect on containing costs; monitor the insufficient resources asprojects it approves; improve management a problem.controls over the certificate of need process;reduce the number of reviews by advisorycommittees; and develop its researchcapacity.


*Jncludes actions reported in 1992.

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Financial Audit of the Department of Health (Report No. 92-30)

After examining the financial statements and internal controls of the Department ui Health, our office inassociation with the firm of Nishiharna & Kishida, CPA’s, Inc. reported the following: except for thestate hospitals fund and the general fixed assets accounL group, the department’s financial statementspresent fairly its financial position as of June 30, 1992. However, the department had weaknesses in itsfinancial management and neither executed nor monitored its contracts efticiently. We recommendedthat the department complete its contracts before services begin, clarify payment terms, and developmonitoring standards. Further, the department should deposit and record cash receipts daily, transfer Table of Contentsmoney improperly held in special funds to the general fund, and perform monthly bank reconciliations.

SPECIAL FUND ANALYSES Introduction to the State Auditor 1

Loss of Budgetary Control: A Summary Report of the Review of Special and Revolving Funds 1992--A Banner Year 2(Report No. 92-14)

Ove~iew of the Office 3Special and revolving funds, created to tinance specilic activities or programs on a continuing basis,- Consrnutional Authontydivert moneys from the general fund, thus reducing the Legislature s control 01 state linances. We

reviewed 166 funds totalling about $1.5 billion that is not available for other programs. We Program of Workrecommended that 70 of these funds (totalling $146 million) be repealed, discontinued, or sunsetted.Further, we recommended that the Legislature establish sunset dates for all existing and newly created Organization and Staffing 6special and revolving funds, repeal the authority of the University of Hawaii to establish these fundsadministratively, and require that proposals lbr new funds be supported by evidence of need. Staff of the Office of the Auditor 8

Building on Our History of Excellence 9

Highlights of the Reports 14

Follow-Up on Prior Recommendations 16

Essay: Fiscal Responsibility and Accountability 17

Appendixes

Summary of Reports--1992 Work Program 21

Follow-Up on Past Reports (Report Nos. 9 1-16 through 92-12) 27

Office of the Auditor, Appropriations and Expenditures for thefiscal year ended June 30, 1992 31

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SUNSET EVALUATIONS

Bail Bond Agents (Report No. 92-16)

Bail bond agents charge about 10 percent of the total bail amount to post a bond guaranteeing thatamount if the defendant fails to show up in court. We found no evidence that bail bond agents haveharmed consumers of their services; therefore, we recommended repeal of the licensing requirement.

Massage (Report No. 92-17) INTRODUCTION TO THE STATE AUDITOR

Marion M. Higa was born inHonolulu and attended McKinleyHigh School and the Universityof Hawaii. She graduated withhonors from the University ofHawaii and continued hereducation at the University ofillinois at Urbana, Illinois, whereshe received a Master ofEducation degree.

Ms. Higa has been with theOffice of the Auditor for over 22years. She began as an assistantanalyst and served as auditmanager and deputy auditorbefore becoming Acting Auditorin late December 1991. As theState Auditor, she believes that“there is something to be said forlongevity and institutionalhistory, especially ingovernment.” She was appointedby unanimous votes of the Senateand House of Representativessitting in joint session onApril 28, 1992.

Before becoming State Auditor,Ms. Higa supervised manyprojects including the audits ofthe Hawaii Visitors Bureau, theCommunity Hospitals, the Officeof Hawaiian Affairs, the HawaiiYouth Correctional Facility, andthe Department of Education.

In 1992 Ms. Higa became amember of the executivecommittee of the NationalLegislative Program EvaluationSociety, a section of the NationalConference of State Legislatures.Made up of professionals in thefield of legislative programevaluation and performanceauditing, the society seeks toadvance the art and science oflegislative program evaluation,promote professionalism andtraining, and enhance theexchange of ideas andinformation. As a member of theexecutive committee, Ms. Higawill play an important role inplanning and directing theactivities of this national society.

Timesharing Plans (Report No. 92-19)

Timesharing offers buyers exclusive right of occupancy in a unit of real estate, generally a condominiumapartment, for a recurring period of time, usually one to four weeks each year. We found that regulation

• I’

Massage is the manipulation by rubbing, pressing, or kneading of soft body tissues Ibr therapeuticpurposes. We found that regulation of massage helps to reduce the potential for hanri, diminish theassociation between massage and prostitution, and establish the boundaries of practice. We thereforerecommended continuing the regulatory program for massage under the Board of Massage Therapy whilemaintaining the current requirements for training and apprenticeship.

Medicine and Surgery (Report No. 92.25)

Physicians, physician assistants, and emergency medical service personnel are regulated by the Board ofMedical Examiners. We found that practitioners who diagnose incorrectly or treat patients incompetentlycan cause serious harm. We also found that the board does not pay sufficient attention to the regulationof physician assistants and emergency medical personnel. We therefore recommended continuing theregulation of all three occupations under a restructured board that includes a physician assistant andmobile intensive care technician.

Osteopathy (Report No. 92-24)

Osteopathic physicians are medical practitioners who emphasize the relationship of the neuromusculoskeletal system to the other body systems. We found the dangers posed to the public byincompetent osteopathic physicians are similar to those posed by medical doctors. Therefore werecommended continuing the regulation of osteopathic medicine but doing so under the Board of MedicalExaminers. The Board of Osteopathic Examiners would then be terminated.

Physical Therapy (Report No. 92.20)

Physical therapists treat and rehabilitate persons suffering from pain, loss of mobility, or a disablinginjury or disease. We found that improper application of physical therapy techniques could cause seriousharm. We therefore recommended continuing the regulation of physical therapists under the Board ofPhysical Therapy.

Podiatrists (Report No. 92-18)

Podiatrists are independent medical practitioners who diagnose and treat conditions affecting the humanfoot and ankle. We found that podiatrists who make incorrect diagnoses or offer incompetent treatmentcan cause harm. Therefore, we recommended continuing the regulatory program, adding a podiatrist tothe Board of Medical Examiners, and requiring applicants to pass national examinations on the sciencesand clinical competency.

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Study of the Department of Health’s Administration of Contracts for Purchases of Service forPersons with Developmental Disabilities (Report No. 92-32)

1992--A BANNER YEAR

This was a banner year for theOffice of the Auditor.

• We won the 1992 “History ofExcellence Award” given bythe National LegislativeProgram Evaluation Society,winning this nationalcompetition on our first try.

excellence in programevaluation or performanceauditing, (2) contributions tolegislative evaluation orauditing, and (3) impact onlegislative decision making.

states concluded that we havean effective quality control

Developmental disabilities, such as autism and prolbund mental retardation, severely limit a person’sability to function in daily activities. The Legislature asked the State Auditor to study the Department ofHealth’s contract policies and administrative processes for providing services to persons withdevelopmental disabilities. We found that the department did not base its payment to private serviceproviders on the costs of services. Therefore, we recommended that the Legislature require thedepartment to develop a purchase of service payment system based on reasonable and equitable costs. Inaddition, the director of health should not only execute and pay purchase of service contracts on time butalso monitor those contracts uniformly. Further, the department should develop bettor ways to determinewhether services are being provided to all who need them.

Study of the Memorandum of Agreement for Coordinating Mental Health Services to Children(Report No. 93-1)

In 1980 the Legislature required that the Department of Health and the Department of Education developa memorandum to coordinate mental health services for public school children. The Legislature asked usto assess the effectiveness of the agreement and we found that it is no longer serving its intendedpurpose. We recommended that the two departments implement, monitor, and update the memorandum.The Department of Education needs to ensure predictable mental health services for special educationchildren, and the health department needs to detine its mission and priorities for children’s mental health.Legislative action may be appropriate.

Study of the Fiscal Relationship Between Hawaii’s Legislative and Executive Branches (ReportNo. 93-2)

In requesting this study, the Legislature noted that the executive branch has increased its authority overspending matters while the Legislature’s role has eroded. We found that with respect to budget review,the Legislature lacks the resources to deal with the executive branch on an equal footing. With respect tobudget execution, the Legislature has granted the executive so much latitude that legislative power todirect state policies through program appropriations has been undermined. We recommended steps tosimplify and make more useful the State’s budgeting system; to strengthen the Legislature’s staff and itsaccess to budget information; and to limit executive flexibility to make transfers and restrictappropriations.

Update on the Department of Education’s Financial Management System and School InformationSystem (Report No. 93-3)

In this report we followed up on our January 1991 report on the development by the Department ofEducation of two major computer systems—the Financial Management System (FMS) and the SchoolInformation System (SIS). We found that the department has expended over $17 million so far on theFMS, but the system does not deliver important benefits that the department said it would. It does notintegrate the budget system with the accounting system. Ignoring our earlier advice, the department hasimplemented the system without proper testing. We recommended that the department make appropriateorganizational changes to better integrate budgeting and FMS; develop budget preparation capability atthe school level; and work with the State’s Information and Communication Services Division (ICSD) toimprove system availability and response time.

• We received a “stamp ofapproval,” an unqualifiedopinion; from the NationalState Auditors Association.An experienced peer reviewteam of auditors from other

Awards are based on threecriteria: (1) a history of

system and our audit workmeets professional auditingstandards.

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~.uion.,I Lcgi~Ian~ePro~rum Fsn1~~tjo~

Sc~ckt) \LPES

Vice Speaker Jackie Young and Marion Higa admire the 1992NLPES Award for Excellence in Cincinnati.

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and maintenance positions to ensure that Oahu schools receive the same level of service as those on theneighbor islands. And the Legislature could consider providing consistent funding for majorprogrammed repairs.

Study of Hawaii’s Procurement Code (Report No. 92-29)

We found Hawaii’s procurement system to be inefficient and costly because the law is out of date,incomplete, open to interpretation, and unable to meet state purchasing requirements. In addition, wefound state procurement to be decentralized both for policy and practice. No central authority isresponsible for issuing procurement rules or managing state procurement. We therefore recommendedthat the State revise its procurement law using the American Bar Association’s model procurement codeas a framework. Furthermore, we recommended that the Legislature establish an independentProcurement Policy Office, assisted by a Procurement Advisory Committee, to issue rules, administerpolicy, develop a manual, and train officials.

Review of Security Staffing at the Department of Public Safety (Report No. 92-27)

We found that the Department of Public Safety used questionable data to calculate security staffingneeds. In addition, we found that high overtime costs ($8.4 million in FYI99I-92) were just one aspectof the department’s lack of controls over time lost through leaves and vacancies. We recommended thatthe department fix responsibility at a senior management level for security staffing and for assuring thereliability of data used to determine staffing needs. The department should install a security staffingsystem that includes policies, procedures, and guidelines for creating adequate staffing plans and formonitoring performance and compliance. Also, the department should establish appropriate managementcontrols over lost time and overtime.

Constitutional Authority

The delegates to the 1950Constitutional Conventionconsidered the Office of theAuditor sufficiently important tobe established in the StateConstitution. They intended theoffice to help eliminate wasteand inefficiency in stategovernment. In placing theAuditor in the legislative branchwith extraordinary independence,the delegates were forwardthinkers; few other states thenhad similar provisions.

The State Constitution requiresthe Auditor to be appointed for

an eight-year term by a majorityvote of each house in jointsession. The Auditor may beremoved only for cause by a two-thirds vote of the members injoint session. It is theconstitutional duty of the Auditorto conduct post-audits of thetransactions, accounts, programs,and performance of alldepartments, offices, andagencies of the State and itspolitical subdivisions. TheAuditor undertakes suchadditional studies andinvestigations as may be directedby the Legislature.

AI.OIHILLU I.

.1

Kekuanao’a Building, formerly theTerritorial Office Building, is nowthe homefor the Office ofthe Auditor.

Management Audit of the Child Support Enforcement Agency (Report No. 92-22)

In 1992, Hawaii’s Child Support Enforcement Agency (CSEA), the largest division in the Department ofthe Attorney General, collected more than $55 million in child support and disbursed about $54 millionto custodial parents. We initiated this audit because previous audits and recent complaints indicatedserious deficiencies in the agency’s financial management. We found that CSEA lacked a system forfinancial management and a system for case management. As a result, the agency could not ensure theaccuracy of case records, collections, and payments. Families dependent on child support suffer theconsequences.

We recommended that CSEA should hire a controller to design and install a financial managementsystem. In addition, the agency should establish management controls over its case processing.

Review of the Transfer of the Marine Patrol and Potential Transfer of the Division of Conservationand Resource Enforcement to the Department of Public Safety (Report No. 92-28)

Responsibility for protecting Hawaii’s natural resources and users of those resources is shared betweenthe Department of Land and Natural Resources (DLNR) and the Department of Public Safety (PSD). Wefound that the transfer of the marine patrol to PSD had not improved conservation and enforcementefforts because DLNR and PSD had not coordinated enforcement activities. The transfer of DLNR’senforcement arm, the Division of Conservation and Resource Enforcement (DOCARE), to PSD wouldresult in similar problems. Therefore, we recommended that the Legislature clarify the mission, role, andresponsibilities of the marine patrol and either transfer the marine patrol to DLNR or require PSD andDLNR to coordinate their enforcement activities. Further, we recommended that DOCARE remainwithin DLNR.

OVERVIEW OF THE OFFICE

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APPENDIX A

SUMMARY OF REPORTS—i 992 WORK PROGRAM

PERFORMANCE AUDITS AND SPECIAL STUDIES

Review of the Insurance Rate Increase Request by AIG Hawaii, Inc. (Report No. 92-13)Program of Work

The annual program of workconsists of reports mandated bystatutes such as the Sunset Law,projects initiated by the office,and projects requested by theLegislature through concurrentresolution, provisos in thegeneral appropriations act, andother acts. Typically, weundertake the following types ofprojects each year:

• Performance audits—Alsocalled management audits,these are examinations of theeffectiveness and efficiencyof programs or theirmanagement or both.

• Financial audits—Examinations of the legalityand propriety of agencyexpenditures, the adequacy ofaccounting and internalcontrol systems, and thefairness of financialstatements.

• Sunset evaluations—Evaluations of certainprofessional and vocationallicensing programs todetermine whether they

should be terminated,continued, or modified.Occupations are scheduledfor evaluation under theSunset Law, Chapter 26H ofthe Hawaii Revised Statutes.

• Sunrise analyses—Analysesof proposals to regulateoccupations to determine ifthey should be enacted forthe protection of the publichealth, safety, and welfare.

• Health insurance analyses—Assessments of the social andfinancial impact of proposalsto mandate health insurancebenefits.

• Special fund analyses—Assessments of proposals tocreate special and revolvingfunds.

• Special studies—Focusedreviews of issues oflegislative concern.Legislative requests are madethrough laws, concurrentresolutions, or conferencecommittee reports.

The Insurance Division of the Department of Commerce and Consumer Affairs granted AIG Hawaii, Inc.a 44 percent increase in automobile insurance rates. Soon after, the Insurance Commissioner resignedand accepted a position as president of AIG Hawaii. Because of’ the potential conilict of’ interest, theLegislature requested the State Auditor to review AIG Hawaii’s rate filing. We secured the services ofthe Casualty Actuarial Practice of KPMG Peat Marwick to assist us in this review. We found theincrease was warranted and the Insurance Division’s review complied with its own standards andprocedures and Hawaii’s motor vehicle insurance rating laws as well as generally accepted actuarialprinciples of ratemaking. We recommended that the Insurance Division develop a policy and proceduresmanual for reviewing rate filings and a checklist for documenting its review.

Study of Costs Incurred by Financial Institutions to Comply with Investigative Subpoenas (ReportNo. 92-15)

Investigative subpoenas, served on financial institutions, are used to obtain records useful for cash flowanalyses prior to taking legal action. Because both the attorney general and the Honolulu prosecutingattorney complained that financial institutions charged widely varying fees to reproduce documents, theLegislature passed Act 273, HRS, to set uniform rates of $15 per hour for research antI 50 cents per pagefor reproduction. In addition, the Legislature asked the State Auditor to review the situation. We foundno consistent relationship between charges and costs reported by financial institutions. Research chargesranged from $10 to $40 per hour and reproduction from 15 cents to $3 per page for a total of $40,000 inresponse to 106 investigative subpoenas. We concluded that the fees set in Act 273 offered a reasonablecompromise.

Study of Curriculum, Budgeting, and Repair in Hawaii’s Public Schools (Report No. 92-31)

We found that the Department of Education (DOE) lacks an effective curriculum management system.Educators disagree on the substance of the core curriculum and that of add-on programs. Therefore, werecommended that the Board of Education better manage its curriculum, develop new policies to fixresponsibility for curriculum management, and monitor the department’s implementation of thosepolicies.

We found that the proposed restructuring of the department’s program budget, though well-intentioned,gives only slightly more decision-making authority to schools and that this is offset by a large loss inaccountability. We recommended that the Legislature not appropriate according to the proposed newlumpsum program categories for the next fiscal biennium appropriations but authorize a lumpsumbudgeting pilot project.

To improve the school repair and maintenance program, we recommended that the DOE and theDepartment of Accounting and General Services (DAGS) update their memorandum of agreement,implement a training program for school administrators on the basics of repair and maintenance, anddevelop standards for school inspections. In addition, DAGS should determine how to deploy its repair

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iii

Results of our work

All work is performed inaccordance with generallyaccepted government auditingstandards. The office hasestablished a quality assurancesystem to ensure that work isdone by staff who areprofessionally proficient, freefrom any impairments to theirindependence, and who exercisedue professional care inconducting the audit.

We report our findings andrecommendations in writtenreports that are issued to thegovernor and the members of theLegislature. Agencies affectedby the recommendations aregiven the opportunity tocomment on a draft of the report.

Their comments are included inthe final published report. Ourreports are available free tomembers of the public. Evidencethat supports each report isavailable for review at our office.

IAnalysts on a team discuss progress of project.

fl [:ii1•

Analyst reviews and compilesdocumentation for a report.

The office is headed by the StateAuditor who has overallresponsibility for the policies anddirection of the office. She issupported by a deputy auditorand two assistant auditors—onewith primary responsibility forfinancial audits and the otherwith primary responsibility forperformance audits. Theorganizational structure of theoffice is shown on the followingpage.

Office management, professionalanalysts, and office services staffwork together to produce thepublished report.

A staff of 22 professionalanalysts, ranging from assistantto senior analysts, carry out theplanning, research, and draftingof audit reports. They workindividually or in teams. Ourprofessional staff come from avariety of backgrounds includingpublic administration,accounting, public health,

history, education, urbanplanning, English, law, fine arts,library studies, and businessadministration. Wherespecialized expertise is needed,we contract with consultants forassistance.

Four secretaries support the workof the office with duties rangingfrom administrative functions topublishing and distributing thereports.

We had also noted in an earlierreport the large backlog ofauthorized but unimplementedcapital improvement projects—Examination of Selected Aspectsof the State General ObligationBond Fund (Report No. 82-3).The impact of this backlog is along lead time betweenlegislative authorization andactual implementation so that theCIP budget is an unrealisticspending plan. A second—andmore important—impact is thatthe backlog allows the governorto pick and choose whichprojects will be implemented.

We recommended in our recentreport on legislative/executivefiscal relationships that thebudget process be made moreuseful and understandable. TheLegislature should considerestablishing a joint committee toamend the Executive Budget Act,Chapter 37, Hawaii RevisedStatutes. The Legislature should

also consider enacting legislationto limit executive flexibility tomake transfers and restrictions.It should strengthen its resourcesby expanding its fiscal staff,gaining independent access todetailed i nfonTlation on revenuesand expenditures, and adoptingsuch tools as fiscal notes.

We stated in a prior report,“Informed legislation is afundamental prerequisite ofresponsible government.” TheLegislature must have timely andrelevant information so that itcan stake out its position andbecome an informed andindependent voice in determiningstate policy. The Legislature cantake action on many fronts toregain control over the purse.This is increasingly important torestore public trust thatgovernment is allocatingresources in the most effective,responsive, and responsiblemanner.

ORGANIZATION AND STAFFING

-dSecretarial staff collate and publish thereports.

6 19

money in the general fund. Wefound an increasing effort byagencies to establish and usespecial funds. We believe thatthis has weakened theLegislature’s ability to controlthe state budget. Funds divertedare funds not available for othercurrent or more pressingprograms.

We found cash balances inspec ial and revolving fundsaggregated about $1.5 billion.As of June 30, 1991, cashbalances in funds werecommended for repealamounted to $146 million. Werecommended that theLegislature should considerrepealing those special andrevolving funds we identified forrepeal and establish sunset datesfor all existing and newlyestablished special and revolvingfunds. We also recommendedclearer definitions for specialfunds—that the funds should beused only when this means offinancing is essential to thesuccessful operation of aprogram, and when a clear linkexists between the program andthe sources of revenue dedicatedto its support. Finally, werecommended that any proposalto create a new special orrevolving fund be supported byevidence of need.

In another report, A Study ofLegislative/Executive FiscalRelations (Report No. 93-2), weidentified improvements thatcould strengthen theLegislature’s power to set policyfor the State. We found that withrespect to budget review, theLegislature lacks the resources to(teal with the executive branch onan equal footing. Budgetdocuments are obscure anddifficult to use, much of theinformation legislators need ismissing, budget requests andinformation are not submitted ina timely manner, and legislativestaffing is inadequate.

With respect to budget execution,we found that the Legislature hasgranted the executive so muchlatitude that legislative power toimplement state policies throughprogram appropriations has beenundermined. The Legislature hasregularly included provisions inthe general appropriations actsthat allow the governor to maketransfers among appropriationsand programs. This has giventhe executive branch the powerto reduce funds for certainlegislatively initiated programsor not fund them at all. It hasalso allowed the executive toinitiate and fund major programswithout legislative authorization.

Assistant Auditor(Performance)

Auditor ExecutiveSecretary

Deputy Auditor Secretaries

Assistant Auditor(Financial)

Organization of the Office of the Auditor

Analysts are assigned on a project basis to assistant auditors or the deputyauditor for the duration of their projects:

Senior Analysts Analysts Associate Analysts Assistant Analysts

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STAFF OF THE OFFICE OF THE AUDITOR ESSAY: FISCAL RESPONSIBILITY ANDACCOUNTABILITY

Marion M. Higa

Diana M. Chang

Assistant Auditors

Dallas G. Weyand IIJ. James McMahon

Analysts

David BrueckJosephine L. ChangMelanie A. ChinenJoanna CrockerBen G. ForsianciSusan HallCraig A. HopsekerCindy KamMelvia C. KawashimaVan LeePamela K. MatsukawaRobert A. McClellandNancy MillardJanice V. MorrisonRoxane N. P. OrianHeather B. SanchezTony SmalleyJim SterlingJohn SwisslerJoseph W. TriasJess H. WaltersMichael T. Yamashita

State Auditor

Deputy Auditor

Financial AuditsPerformance Audits

Office Services

Evelyn KanjaCarol J. AndradeDeborah M. A. HigaPatricia Mukai

Fiscal responsibility andaccountability are alwaysdemanded of governmentofficials, but in times of tightbudgets and constrainedrevenues, the public’sexpectations of its officials findgreater voice. We add our voiceto the call.

In a speech to a 1972 PacificConference of Legislators, thenState Auditor Clinton Tanimuradescribed fiscal responsibilityfrom several perspectives.

The first perspective meanspublic officials demonstratefidelity and honesty in financialtransactions. Governmentofficials are expected to adhereto laws, rules, and policies incollecting and expending publicfunds.

A second perspective requirespublic officials to be accountablefor efficiency and economy ofoperations. Governmentagencies should conserve fundsand not spend public money onluxuries, unnecessary frills andother nonessential costs.

A third and most importantperspective is that government

agencies must be heldaccountable for the results andaccomplishments of theirprograms. He cautioned thatagencies may be spending moneyefficiently but not achieving thedesired results.

The Legislature plays a key rolein ensuring fiscal responsibility.Under the doctrine of theseparation of powers as providedfor in both the State and U.S.Constitutions, legislative,executive, and judicial branchesare to be coequal. TheLegislature’s power lies in itscontrol over revenues andexpenditures. To the extent thatthis power is eroded, the integrityof the Legislature as aninstitution is undermined. It isunable to assure either its ownfiscal responsibility or that of theexecutive branch.

Two of the reports of our 1992work year highlight the issue ofthe Legislature’s loss of controlover public moneys. In Loss ofBudgetary Control: A SummaryReport of the Review ofSpecialand Revolving Funds (ReportNo. 92-14), we noted that thepower of the Legislature is partlya function of the amount of

8 17

FOLLOW-UP ON PRIORRECOMMENDATIONS

BUILDING ON OUR HISTORY OFEXCELLENCE

The office follows up onrecommendations made in priorreports to determine whetherprompt and appropriate actionshave been taken. Our policiesrequire us to track the status ofboth legislative and managementactions.

During the legislative session,our monitoring team attendshearings, reviews testimony, and

tracks any legislative actionstaken to implement ourrecommendations. In October ofeach year, the State Auditorsends a letter to state agenciesrequesting information on actionsthey have taken to implementrecommendations.

Agency responses to letters sentin October 1992 are summarizedin Appendix B.

The office hasalways strived tofulfill the visionof those whodrafted Hawaii’sState Constitution.The delegates toHawaii’s firstconstitutionalconventionbelieved theywere breakingnew ground increating theoffice. They saw the Auditor asone of the more importantpositions in state financialmanagement. The office wouldbe “an independent watchdog ofpublic spending” to keepgovernment honest and efficientand to provide the Legislaturewith a check against the powersof the executive branch. Sincethe Legislature determines statepolicy and how moneys are to bespent, the delegates decided tomake the Auditor responsible tothe legislative branch. To ensureindependence, they gave theAuditor an eight-year term as asafeguard against undue pressurefrom any one Legislature.

The office became a reality in1965 when a joint session of theHouse and Senate appointedClinton T. Tanimura as theState’s first Auditor. The“watchdog agency” was initiallyhoused in a corner of the formerSchuman Carriage Buildinggarage. “I started off alone,” hestated, “but by the end of theyear, there were three analystsand a secretary on the staff.”

In that first year, Tanimuraprepared a long and short rangeplan for the office that sought toanswer the following questions:What is the reason for ourexistence? and What are wetrying to achieve?

-.—~ ~

The former Schumari Carriage Building,first home ofthe Office of the Auditor.

16

Tanimura believed that theLegislature had lost control ofthe “purse strings.” He said,“The Legislature finds itself in aposition where it must rely on theexecutive branch to tell it wherethe money is going.” And heintended that the Office of theAuditor would help theLegislature maintain control overstate money. He envisioned theAuditor as an independentcritical observer of the executivebranch and as an adviser to thelegislative branch on theformulation of public policy.

To help legislators makeeffective policy decisions,Tanimura developed andimplemented an audit programthat consisted of three majortypes of audits: (1) financial—tocheck on the accuracy offinancial statements, (2)operations—to examine theefficiency of management andhow well agencies use resources,and (3) program—to detenriinethe effectiveness of governmentprograms. In practice, thesedistinctions are often blurred.Financial audits were thefoundation but performanceaudits (which include bothoperations and programevaluations) became the majorfocus. Tanirnura recognized that

money could be spent legally yetfoolishly through poor planningand management.

A leader in performanceauditing

Hawaii became one of the firststate auditing agencies to conductperformance evaluations and todevelop standards for theirimplementation. Our officebecame recognized as a leader inthe field. A 1971 review foundnine states with performanceauditing programs and identifiedNew York, California, andHawaii as being the “mostadvanced.”

In The Peiformance Post Auditin State Government (MichiganState University, 1967), LennisM. Knighton described Hawaii asone of the leaders among thestates in the development and useof performance audit policies andprocedures. Knighton cited theoffice’s first management reportas one of the finest examples ofperformance auditing examinedin his study.

Under Clinton Tanimura’sleadership, the office addressedmany critical issues. The reportscontributed to constructivedebate about the management of

department’s financialmanagement system has notproduced the intended results.

Seven occupational licensingprograms were studied. Werecommended improvements inregulatory programs for podiatry,massage, medicine, osteopathy,physical therapy, and timesharing. Using criteria in theSunset Law, we recommendedthat the regulation of bail bondagents be discontinued and thatproposed regulation ofcounselors not be enacted.

We studied the social andfinancial impact of requiringhealth insurance coverage to

screen children for leadpoisoning. We found that thereis little demand for coverage;that insurance alone may not leadto more screenings; and thatcoverage would likely increasehealth care costs and insurancecosts.

Our financial audits disclosedweaknesses in internal controls atthe Departments of the AttorneyGeneral, Health, and PublicSafety. We recommendedimproved policies, procedures,and the institution of appropriatecontrols.

Summaries of each of our reportscan be found in Appendix A.

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The office issued 24reports as the resultof our 1992 workprogram: 11performance auditsand special studies, 7sunset evaluations, 1sunrise analysis, Ihealth insuranceanalysis, 3 financialaudits, and asummaiy report ~nour review of specialand revolving funds.These reports examinedimportant issues that deal withboth the accountability of stateagencies for their performanceand the concerns of the publicwho receive state services. Wealso analyzed 50 proposed newspecial and revolving funds.

In many instances managementand program operations of stateagencies could be improved bybetter management controls andclearer missions and priorities.Our recommendations coveredstate programs involving childsupport enforcement;conservation of marine andnatural resources; curriculum,budgeting, and repair andmaintenance of Hawaii’s publicschools; programs for persons

with developmental disabilities;and mental health services forpublic school children.

We studied security staffing forthe State’s correctionalinstitutions, the adequacy of theprocurement law, and the statusof the Department of Education’sfinancial management systems.We reported that the securitystaffing formula used by theDepartment of Public Safety isreasonable but supported byquestionable data. Theprocurement law does not meetthe State’s procurement needsand we recommended that theState revise the law using theAmerican Bar Association’smodel procurement code as aframework. The education

government resources, and theywere instrumental in improvinggovernment services. Our 1975report on the Public UtilitiesCommission was an earlysuccess in bringing about neededimprovements. Variouspublications used the report as acase study, including AuditingPerformance in Government(John Wiley and Sons, 1982) byRichard E. Brown, Thomas P.Gallagher, and Meredith C.Williams. Based on ourrecommendations, the PublicUtilities Commission wascompletely reorganized with newrate-making and adjudicationprocedures, and a consumeradvocate was established tohandle appeals against thecommission.

The office received nationalrecognition for its work. In 1972the National Conference of StateLegislatures presented the officewith a First Place Award ForExcellence in a LegislativeReport for its audit of theeducational television system. In1974, and again in 1981, theGovernmental ResearchAssociation gave the office its“Most Distinguished ResearchAward.” The 1974 award wasfor an audit of the faculty

workload at the University ofHawaii and the 1981 award wasfor a management audit oforganization, planning, andpersonnel at the University ofHawaii.

Changing times mean changingways

After serving more than two fullterms, Clinton Tanimura retiredin December 1988. Newton Sue,who had served as DeputyAuditor, became the new ActingState Auditor.

By 1989 all states had auditorsresponsible for post-auditfunctions. In addition,performance auditors hadbecome a recognized professionwith official standards. In 1989,Acting Auditor Sue adoptedgenerally accepted governmentauditing standards for the office.These standards had beenpromulgated by the U.S. GeneralAccounting Office to ensure thecredibility, reliability, andquality of audit reports.Adopting the standards hasmeant new policies andsignificant changes in ouroperations, but we believe thatthe office now has a morecredible and accountable auditoperation.

HIGHLIGHTS OF THE REPORTS

Reports issued by the Office of the Auditor.

In tandem with thisimprovement, we made aconcerted effort to enhance thereadability of our reports.Realizing that legislators dealwith a flood of information, wemade our reports more sharplyfocused and concise, includingonly information that is relevantand significant. In addition, weadopted a new format thathighlights our findings andrecommendations. We created ashort detachable overview foreach report that legislators cancompile and put in notebooks forquick reference duringcommittee hearings. And westarted to use photographs toillustrate the findings.

When Marion Higa becameActing State Auditor onDecember 31, 1991, sheinstituted three new policies. To

strengthen communications withthe Legislature, she, togetherwith other office staff, presentedtestimony and briefed legislatorson issues that we explored in ourreports. She also initiated aprocedure to follow up onrecommendations made in priorreports to determine whetherneeded improvements had beenmade and to continue to holdagencies accountable for theirperformance. Also, inrecognition of the constitutionallanguage that created the positionof an auditor, the new incumbenthas dropped the adjective“legislative” from her title and isnow known as the State Auditor.

Looking to the future

The office remains committed toits mission. Independence,objectivity, and credibility areour strongest assets in fulfillingthis mission. We remain alert toways that will make us moreeffective in helping theLegislature carry out its policymaking responsibilities. To thatend, we continue to evaluate ourown performance just as weevaluate the performance ofother state agencies in meetingtheir objectives.

A professionally competent andtrained staff is essential. Werequire and provide continuing

professional education for theirgrowth and development. Wecontinue to look for ways toincrease staff and managementproductivity and effectiveness.

To ensure the office is responsiveto the needs of the public and theLegislature, we will continue toinitiate audits of governmentprograms that significantlyimpact the lives of Hawaii’scitizens, that have policyimplications, and that bearpotential for improvement. Wewill respond to the legislativerequests as directly and fully aspossible.

Analysts research state and national databases by modem.

Y~I

Professional staff parti(’iPate intraining sessions.

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