On June 14, the Maui County Auditor released a new report on the county’s use of procurement cards (so-called pCards)–a credit card that county officials can use to buy goods and services. The Auditor decided to take a look at Maui pCard use after a plethora of news reports made clear that former Hawaii Island Mayor Billy Kenoi was using his county pCard to patronize hostess bars, buy sports equipment and so forth (though Kenoi did indeed make all those purchases for his personal use, which are expressly forbidden, a jury in late 2016 found him not guilty on all charges the state brought against him on his pCard use).
For their audit, county Auditor Lance Taguchi and his staff looked at a 13-month period, during which county employees and officials used 369 pCards to make a total of $4.38 million in purchases.
“The Office of the County Auditor set out to determine if Maui County’s pCards were exposed to similar issues like those reported by local news agencies which claimed that Hawaii County pCards were used to pay for a tab at a hostess bar in Honolulu, an expensive bicycle, surfboard, and other personal use,” states the Auditor’s report.
While the auditors found a number of issues in regards to how employees use their pCards (and also discovered that county Finance Director Danny Agsalog had used his pCard to pay for airline tickets to the Mainland* for his family–though prohibited, Agsalog reimbursed the county and is still employed to this day), they ultimately found no pCard charges at hostess bars.
“Of the nearly 25,000 separate transactions, we observed no instances of pCards being used at hostess bars,” states the report.
I know, I know, I was slightly disappointed, too. As it is, safeguards in the pCard system should already prohibit county employees from using the cards at bars or to buy alcohol, so the finding wasn’t surprising.
But wait! The Auditor’s office did discover something else, something rather disturbing.
“[T]esting revealed that some hostess bars are categorized as ‘restaurants,’ states the Auditor’s report. “This creates a loophole that would allow some pCards to be used at hostess or other types of bars. As such, we recommend that this loophole be addressed by finding alternative ways to pay for authorized meals.”
As it was, Taguchi’s auditors found just a handful of restaurants in the pCard transactions–Zippy’s, Aloha Mixed Plate, Bale and Tiffany’s, according to Taguchi. County employees had made purchases to get food during fires or because a Liquor Commission meeting ran late and the commissioners needed lunch, Taguchi added (just to be clear, Taguchi said there was nothing inappropriate about any of these transactions).
But Taguchi also said that his team ran a little experiment. They chose four hostess bars at random, then simulating pCard transactions at them. The auditors determined that two of the bars were indeed classified as bars, and no transaction was possible. But they also found that two were (for whatever reason) considered to be restaurants, making pCard transactions possible.
“Failure of the County to detect and block the purchase of explicitly prohibited items by pCard could result in the loss of public trust and increase the chance of fraud, waste, or abuse,” states the Auditor’s report. The report then recommended the County of Maui establish additional preventative measures to ensure that county pCards can’t be used at any hostess bar.
For the most part, county officials agreed with the report’s findings. In his official response to the report (written on June 7), County of Maui Managing Director Keith Regan had this to say in regards to the report’s sixth finding, “The ability for certain pCards to be used at restaurants creates a loophole which could allow those cards to be used at bars (i.e. hostess bars)”:
“Management appreciates the auditor’s observations and notes for clarity that the auditor’s recommendations did not arise from any specific instances of irregularities found in the performance of the audit. Management acknowledges that the recommendations are preventative controls that may be helpful in minimizing the potential risk for the misappropriation of funds.”
Click here to read the Auditor’s pCard report.
*This story originally misstated Agsalog’s travel destination.