FINANCIAL AUDIT
OF
THE
DEPARTMENT OF BUSINESS, ECONOMIC
DEVELOPMENT AND TOURISM
STATE
OF
HAWAII
Fiscal Year Ended June
30,
2009
Submitted
by
The
Auditor
State
of
Hawaii
~
~
N&KCPAs, Inc.
AC
COUNTANTSlc
ONSULTANl
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AMERICAN
SAVINGS
BANK
TOWER
1001
BISHOP

SUITE
1700
HONOLULU,
HAWAII
96813-3696
T (808)
524~2255
F (808) 523-2090
Ms.
Marion Higa
Office of the Auditor
State of Hawaii
Dear
Ms.
Hi9a:
This
is
our report
on
the financial audit of the Department of Business, Economic
Development
and
Tourism, State of Hawaii (DBEDT),
as
of
and
for the fiscal year
ended June
30,
2009. Our audit was performed

ended June
30,
2009, and to comply with the requirements of
OMB
Circular A-133,
which establishes audit requirements for state and local governments that receive
federal financial assistance. More specifically, the objectives of the audit were as
follows:
1.
To provide a basis for
an
opinion
on
the fairness of the
DB
EDT's basic
financial statements
and
the schedule of expenditures of federal awards
as of and for the fiscal year ended June
30,
2009,
in
accordance with
accounting principles generally accepted
in
the United States of America.
2.
To consider the DBEDT's internal control over financial reporting
in

federal program
in
order to determine our auditing procedures for the
purpose of expressing our opinion
on
compliance and
to
test
and
report
on
internal
control
over
compliance.
2
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N&K (PAs,
Inc.
ACCOUNTANTS
I
CONSULTANTS
5.
To provide
an
opinion on the DBEDT's compliance with applicable laws,
regulations, contracts, and grants that could have a direct and material
effect on each major program.
SCOPE OF THE AUDIT

III
•
PartlV
• Part V
The basic financial statements
and
related notes of the DBEDT
as
of
and
for the fiscal year ended June
30,
2009,
and
our
opinion on the basic financial statements
and
supplementary
information.
Our report
on
internal control over financial reporting
and
on
compliance
and
other
matters.
Our report
on

the officers
and
staff of the DBEDT.
Sincerely,
N&K CPAs,
Inc.
~.9.>I¥
Ron
T.
Shiigi
Principal
3
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PART I
DEPARTMENT OF BUSINESS, ECONOMIC DEVELOPMENT AND TOURISM
STATE OF HAWAII
TABLE OF CONTENTS
Page
FINANCIAL SECTION
Independent Auditors' Report
Management's Discussion and Analysis
Basic Financial Statements
Government-wide Financial Statements
Statement
of
Net Assets
Statement
of
Activities

23
Statement
of
Assets and Liabilities - Agency Funds 24
Notes to the Basic Financial Statements
25
- 42
4
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DEPARTMENT OF BUSINESS, ECONOMIC DEVELOPMENT AND TOURISM
STATE OF HAWAII
TABLE OF CONTENTS
Page
PART I
FINANCIAL SECTION (Continued)
Supplementary Information
PART
II
Schedule
of
Expenditures
of
Federal Awards
Notes to Schedule
of
Expenditures
of
Federal Awards
AUDITORS" REPORT ON INTERNAL CONTROL OVER

Status Report
5
54
56
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PART I
FINANCIAL SECTION
6
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N&K
(PAs,
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ACCOUNTAN[SICONSULT~
To the Auditor
Office of the Auditor
State
of
Hawaii
INDEPENDENT AUDITORS' REPORT
AMERICAN
SAVINGS
BANK
TOWER
1001
8ISHOPSTREET,
SUITE
1700

financial
statements
based
on
our
audit.
We
conducted our audit
in
accordance
with
auditing standards generally accepted
in
the United States of America
and
the standards applicable
to
financial audits contained
in
Government Auditing Standards, issued by the Comptroller General of the United
States. Those standards require that we plan
and
perform the audit
to
obtain
reasonable assurance about whether the financial statements are free of material
misstatement.
An
audit includes examining,
on

opinion.
As
discussed
in
Note
A,
the financial statements of the DBEDT are intended to present
the financial position
and
the changes
in
financial position, where applicable, of only
that portion
of
the governmental activities,
and
each major fund of the State of Hawaii
that
is
attributable to the transactions
of
the DBEDT. They
do
not purport
to,
and
do
not,
present fairly the financial position of the State of Hawaii
as

and
the respective
changes
in
financial position, where applicable, thereof
and
the respective budgetary
comparison for the general and economic development special revenue funds for the
fiscal year then ended
in
conformity with accounting principles generally accepted
in
the
United States of America.
7
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N&K (PAs,
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ACCOONTANTS
I
CONSULTANTS
In
accordance with Government Auditing Standards, we have also issued our report
dated March
15,
2010,
on
our consideration of the DBEDT's internal control over
financial

control
over
financial
reporting
or
on
compliance.
That
report
is
an
integral
part
of
an
audit performed
in
accordance with Government Auditing Standards
and
should
be
considered
in
assessing
the
results
of
our
audit.
The management's

conducted
for
the
purpose
of
forming
an
opinion
on
the
financial
statements that collectively comprise the DBEDT's basic financial statements. The
accompanying schedule of expenditures
of
federal awards
is
presented for purposes of
additional analysis as required
by
U.S. Office of Management
and
Budget Circular
A-133, Audits
of
States, Local Governments,
and
Non-Profit Organizations,
and
is
not a

Development and
Tourism
State
of
Hawaii
MANAGEMENT'S DISCUSSION AND ANALYSIS
Fiscal Year Ended
June
30, 2009
As
management of the Department of Business, Economic Development
and
Tourism, State of
Hawaii
(DBEDT),
we
offer readers of the DBEDT's basic financial statements this narrative overview
and
analysis of the financial activities of the DBEDT for the fiscal year ended June
30,
2009.
FINANCIAL HIGHLIGHTS
• The assets of the DBEDT exceeded its liabilities
at
June
30,
2009 by $81.0
million (net assets).
•
Of

(3)
notes to the basic financial statements. This report also contains other supplementary
information
in
addition to the basic financial statements themselves.
Government-wide
Financial Statements
The government-wide financial statements are designed
to
provide readers with a broad
overview of the DBEDT's finances,
in
a manner similar to a private sector business.
The statement of net assets presents information on all of the
DB
EDT's assets and liabilities,
with the difference between the two reported
as
net assets. Over time, increases or decreases
in
net assets may serve
as
a useful indicator of whether the financial position of the DBEDT
is
improving or deteriorating.
The statement of activities presents information showing how the DBEDT's net assets changed
during the most recent fiscal year. All changes
in
net assets are "reported
as

is
used to maintain control over resources that
have been segregated for specific activities or objectives. The DBEDT uses fund accounting
to
ensure and demonstrate compliance with finance-related legal requirements. The funds of the
DBEDT can
be
divided into two categories, Governmental Funds and Fiduciary Funds.
Governmental Funds
Governmental Funds are used
to
account for essentially the same functions reported
as
governmental activities
in
the government-wide financial statements. However, unlike the
government-wide financial statements, Governmental Funds financial statements focus
on
near-term inflows and outflows of spendable resources,
as
well
as
on
the balances of
spendable resources available at the end of the fiscal year. Such information may
be
useful
in
evaluating the DBEDT's near-term financing requirements.
Because the focus of Governmental Funds

fund balances
for the general fund, economic development special revenue fund, and capital projects fund.
The DBEDT adopts
an
annual appropriated budget for its general fund
and
economic
development special revenue fund. A budgetary comparison statement has been provided
for these funds to demonstrate compliance with this budget. The budgetary comparison
statement for the general fund and the economic development special revenue fund
is
located
in
the basic financial statements.
Fiduciary
Funds
Fiduciary Funds are used to account for resources held for by the DBEDT
in
an
agency
capacity.
Notes
to
the
Basic
Financial Statements
The notes to the basic financial statements provide additional information that
is
essential to a full understanding of the data provided
in

The following table was derived from the government-wide statement of net assets:
Net
Assets
June
30, 2009 and 2008
(Amounts
in thousands)
2009
2008
Assets
Current and other assets $
46,996 $ 53,330
Capital assets, net
50,195 53,268
Total assets $
97,191 $ 106,598
Liabilities
Long-term liabilities, net of current portion $ 1,615 $
1,653
Other liabilities
14,580 13,770
Total liabilities
16,195
15,423
Net assets
Invested
in
capital assets, net
50,195 53,268
Unrestricted

of
Hawaii
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Fiscal Year Ended June
30,
2009
Current
and
other assets decreased
by
$6.3 million or 11.9% from the prior fiscal year, due
primarily to decrease
in
program revenues
and
funds appropriated for new capital
improvement projects.
During the current fiscal year, capital assets decreased
by
$3.1
million or
5.8%,
due primarily
to the recording of current year depreciation expense, which
was
offset
by
current year
additions for capital improvement projects of the Natural Energy Laboratory of Hawaii
Authority