A city Ethics Commission report concludes that an investigation found no ethics laws were violated in the awarding of three Honolulu Board of Water Supply contracts, but calls on the city auditor to look into serious problems uncovered at the agency.

One of the contracts the commission investigated is tied to the water agency’s recent problems involving billing and customer service. Nearly four out of five of the board’s 116,000 customers received estimated bills showing charges higher or lower than their actual usage for at least a month last year, causing an overload of the agency’s complaint lines. Some customers found they were being "back-billed" thousands of dollars after months of underestimated charges.

At the center of the commission’s investigation were two contracts won by a company whose co-owner recently left the water agency, and a third contract that was issued to his former employer while he was still with the city.

The commission’s advisory opinion concluded that it "finds insufficient information exists to support a finding of probably cause of an ethics violation stemming from the award and performance of three contracts."

However, the report said, "the investigation revealed systemic problems that, if not remedied, could lead to future ethical issues." Noting that City Auditor Edwin Young already is being tasked by the City Council to conduct an audit following the recent billing and other problems, the report called on the auditor’s office and board officials to review the issues, which included concerns about the release of confidential information and a lack of training for those tasked with awarding contracts.

The ethics investigation was requested by board Water Manager Ernest Lau in November after environmental watchdog Carroll Cox questioned contracts awarded to UTC-10 Consulting LLC, a company registered by Brian McKee and his wife, Julie, in January 2012. Brian McKee was chief information officer for the board until May 2011 and his duties included creating and putting into place a strategic information technology plan to modernize the agency’s business systems, the opinion said.

Cox’s charges centered around two contracts that UTC-10 won under collective bidding — one valued at $1.5 million awarded in June 2012 for a water master plan, the other valued at $950,000 awarded in June 2012 for project management of computerized maintenance services.

Cox, in a letter to Lau on Nov. 8, 2013, questioned the propriety of the UTC-10 contracts "that (McKee) appears to have authored and developed, then used to evaluate the qualifications of vendors seeking those same contracts."

Lau, in a response to Cox on Nov. 8, said he had forwarded the matter to the Ethics Commission and suspended the McKee contracts pending the outcome of a board investigation into possible criminal or procurement violations.

Rich Wilson, an attorney for the McKees, said one of the McKee contracts expired and that UTC-10 submitted an invoice to the agency for unpaid bills.

The commission looked into whether any relationships existed between the members of the board’s contract selection committee and those awarded the contracts and concluded there were no business, financial or personal relationships that created a conflict of interest, the commission report said.

The report also concluded that while city employees must wait a year before they can be paid by outside sources to appear before a city agency, city law "allows former city officers and employees to offer to and contract with the city during the one-year period."

As a result, McKee and UTC were not in violation, the report said.

Cox also called into question a contract issued in June 2008, when McKee was chief information officer, won by McKee’s former employer. The $800,000 contract had 11 change orders that resulted in the contract growing to $4.2 million as of August 2013. The commission report said it found no evidence of ethical misconduct regarding the awarding of that contract.

The report, however, criticized the board for allowing confidential contract information to have been made public. While the commission’s investigation ultimately could not determine how the information was released, it showed that "there were insufficient safeguards to protect confidential information in physical copies of the contracts and related documents."

Lau said he is pleased the commission found no ethics violations.

"We appreciate the commission’s recommendations to review certain systemic issues within the BWS and we are taking action to improve these areas raised in the opinion," Lau said in a news release.

Cox said the commission investigation did not focus on the core issues he raised and instead chose to call in water agency employees — whistleblowers who went to superiors about their concerns about the department — in an effort to "bully" them into disclosing how confidential information was leaked.

He called it unacceptable that the commission would find it proper for McKee to have received contracts based on bid specifications he helped create. Cox said Lau should have forwarded the investigation to "a bona fide law enforcement agency with a concern for white-collar crime investigations" instead of the Ethics Commission.

Commission Executive Director Chuck Totto called the security breach a legitimate concern, but said it was only a small part of the investigation. He denied any bullying on the part of his staff.

Attorney Wilson said Cox owes his clients an apology for impugning their characters. "They didn’t do anything wrong," he said.

See the Ethics Commission’s report here: bit.ly/1bQG8bR.