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The Honolulu Advertiser
Posted on: Saturday, January 30, 2010

Hawaii audit calls for ouster of economic development director

By Sean Hao
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

Ted Liu

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Ted Liu should be relieved of his duties as head of the state's top economic development agency due to a "troubling pattern on nondisclosure" of financial details surrounding an overseas trade mission and federal grant program, according to a state audit released yesterday.

State auditor Marion Higa said the head of the Department of Business, Economic Development and Tourism withheld or misrepresented information that should have been provided to the Legislature and other state agencies. His actions obscured accountability over how federal grant money and money raised from the private sector were spent, she said.

"Given the numerous and egregious acts carried out by the department administration under the direction of the director ... and the director's lack of veracity in his interactions with the Legislature over time, we recommend the governor consider removal of the director," the audit said.

Liu said yesterday he has no intention of stepping down.

"I serve at the pleasure of Gov. Linda Lingle," he said. "She has directed me to keep sprinting toward the finish line and that's what I intend to do to continue to support the stability and recovery of our economy and continue to break new ground in many of the areas in which we have had success in, including China."

Lingle said that Liu and his department deserve credit for the state's progress on issues such as renewable energy and science, technology, engineering and math education.

"Ted will continue to have my complete and total support, as well as his entire DBEDT team," the governor said when asked about the pending audit on Thursday.

Lingle said she visited the department over the holidays and told staff that "everything that they hear about DBEDT is simply politics, and has nothing to do with their work, that they do an outstanding job."


The audit initially was prompted by questions surrounding $268,000 in private money raised by DBEDT and spent on a state-led 2005 trade mission to China and South Korea. DBEDT asked private companies to donate money for the trip to cover extras such as the travel expenses and honorariums for local entertainers who accompanied Lingle. The donations were sent to the Pacific and Asian Affairs Council. Spending of the money was directed by DBEDT.

Money raised by sponsors paid for a variety of trip costs, including a dinner at a Shanghai restaurant where 21 glasses of $30-a-glass Dom Perignon champagne were purchased, according to the audit. A total of $8,700 was spent on the VIP dinner and a party held the following night.

Excess money not spent on the trade mission was later used to subsidize a branch office in Taiwan, and to pay for a reception at Washington Place for a visiting China official.

According to the audit, DBEDT withheld records and provided misleading information about how the trade mission was run. During the nearly two-year audit process, Higa said her agency also uncovered evidence that DBEDT did not disclose that a $399,500 federal grant actually was meant to be a reimbursement for money spent by the state.

"In fact, due to the department's characterization of the moneys as a grant rather than reimbursements, the Legislature did not consider whether it should adjust the department's budget accordingly or whether the reimbursement funds should be deposited into the state treasury," the audit said.

Federal reimbursements obtained by DBEDT were used to help subsidize a branch office in Beijing and to offset budget shortfalls at the agency.

Liu disclosed the findings of the draft version of the audit in November. He disputed its accuracy and questioned its timing. At the time, Lingle and Liu had just returned from another trade and tourism promotion trip to China.


State Sen. Donna Mercado Kim, chairwoman of the Senate Ways and Means Committee, helped push for the audit and has been a vocal critic of Liu. She said the audit was a thorough and well-documented critique of the director and his agency

"The auditor's report makes it clear that Liu and DBEDT cannot be trusted to operate within the parameters of the law, and, perhaps worse, are unwilling to acknowledge their transgressions," she said in a written statement.

"Where we should hear sincere assurances of changed practices backed up by a workable plan for improvement we instead hear excuses and equivocation."

Liu has been the subject of several probes by state lawmakers and state departments.

In 2006 the state procurement office found that the Lingle administration did not violate procurement law when it turned to a nonprofit without competitive bidding to handle private sponsorships of the 2005 trade mission. The state attorney general's office found that the administration did not violate any criminal laws.

In April, the state auditor cited the department for a range of procurement errors that were the "direct result of its lack of training, poor management oversight, and a weak control climate."

In June, the city prosecutor declined to file misdemeanor criminal charges in relation to the department's botched award of a hydrogen investment fund contract to the lowest-rated bidder. The prosecutor said he found evidence of "incompetence," but not a crime.