Could Honolulu be hit by another Rod Tam scandal? That could be a stretch, but there’s still a lot of gray area when it comes to regulating how Honolulu City Council members spend their yearly allowances, according to the city auditor.

The report marked the office’s first-ever audit of the council, said City Auditor Edwin Young. The office traditionally assesses departments under the city’s executive branch, he said.

The audit found that, although the council has fine-tuned its policies in recent years, there’s still too much wiggle room. There aren’t enough guidelines in place to prevent council members from spending taxpayer money on items unrelated to their city jobs, the report says.

“Everyone tries to conscientiously apply their due diligence, but there are instances when they slip through,” Young said.

Every year each council member receives an allowance meant to cover expenses related to official city business, such as cell phone plans, office equipment, travel costs and postage. For the 2012 fiscal year the allowance per council member — including council staff — was about $16,000.

Council members and their staffs can use the money to pay for business expenses and then claim reimbursement from the council’s administrative office after submitting original receipts. Council Administrative Services reports the claims and posts them online while the city Department of Budget and Fiscal Services processes them.

Concern over the City Council’s spending policies arose out of the 2010 scandal surrounding former Councilman Rod Tam. Tam was convicted of theft and a number of other charges for using nearly $12,000 in public funds for meals that had nothing to do with city business.

“It was a good example of what happens when there’s taxpayer money at stake without sufficient safeguards over the funds,” said Honolulu Ethics Commission Executive Director Charles Totto. “For the most part people are not trying to rip off the city or taxpayers … [Tam] just stretched the envelope as far as he could, and it was evident he had gone too far with it.”

After the incident, the commission recommended in its 2010 advisory opinion that the council revise its spending policies to prevent reimbursements for invalid expenses. The council also passed a resolution requesting a city audit.

The revised policies “resolved some of the issues that arose out of the Tam situation and defined what could be expended under this allowance and how it could be reimbursed, but still more could be done,” Young said.

According to the report, the lack of “adequate clarifications of what is permitted and reasonable and a designated entity with the authority to verify and deny unauthorized claims” put council members at risk for seeking reimbursement for invalid expenses.

In other words, neither the council, Council Administrative Services nor the budget department felt it had the proper authority to review reimbursement claims, according to the audit.

“We found there was some misunderstanding of what the [various departments’] roles were,” Young said. “Everyone thought they were double-checking.”

Still, Council Chair Ernie Martin, who was asked to review drafts of the audit before the final recommendations were published last week, said that many of the audit’s recommendations are already in place.

“I see no compelling reason to significantly revise the current policy at this point in time,” he wrote in response to an audit draft.

Martin did, however, emphasize that he had already delegated specific authority for reviewing claims to Council Administrative Services.

Martin wrote that he would arrange for periodic training for administrative staff and council members and their staffs on spending and reimbursement policies. A member of Martin’s staff told Civil Beat Thursday that all council members and their staffs would be meeting next Tuesday to discuss spending guidelines.

Martin also supported a proposal to conduct annual audits of council members’ expense reports.

The city auditing office reviewed a sample of 48 reimbursements paid out under the updated policies. It found that most of them complied with the new guidelines but that there were a couple of instances where outdated forms were used or expenses were improperly processed. In one case, the city reimbursed a council member for alcohol — an expense explicitly prohibited by the City Council.

Young: Stop Using Cash and Switch to pCards Already

The Ethics Commission’s Totto said that deliberations between the auditor’s office and Martin demonstrate their intent to improve what is ultimately “a systemic problem.”

“There was a policy that was too broad and allowed for abuse, so they took care of the abuse,” Totto said. “And they improved the process so, though it may not be perfect, it is much stronger.”

Young also stressed that council members should make the full switch over to using pCards — credit cards that charge to the city — instead of cash for all their business transactions. The pCard program, adopted late last year, allows administrative staff to review transactions and reject any inappropriate purchases.

“The transactions allow audits of all reimbursement claims to occur,” Young said, noting that the program also posts all transactions online.

Councilwoman Ann Kobayashi, who as of Thursday morning had not read the final audit, agreed that pCards are a “good way” to track spending.

In general, Kobayashi speculated that the lack of strict policies could stem from the general assumption that council members and their staffs know to use their funds appropriately.

“Most people that I know would not abuse their account,” she said. “It’s just the understanding that we’re old enough to take care of our accounts — maybe that’s why there aren’t the strict policies in line … I don’t believe there’s been a lot of abuse before of after what happened with Council Member Tam.”

Kobayashi said she avoids charging meals to the city.

“It’s not worth trying to prove — even if it’s official business,” she said. “It’s too difficult. I just don’t feel right.”

Kobayashi commended Martin for tightening up policies following Tam’s misconduct.

“He’s been very cautious,” she said. “I’m not saying that he can’t trust us, but sometimes it’s good to have some rules in place.”