State lawmakers should conduct an investigation of legislative auditor Marion Higa, Gov. Linda Lingle said yesterday, following a draft audit of the state Department of Budget and Finance that Lingle called "shoddy," "unprofessional" and "politically motivated."

Higa's latest draft report focuses, in part, on the issue of the state's handling of so-called auction rate securities that could affect Hawai'i's bond rating, Lingle said.

"You have a legislative auditor that does not have appropriate oversight by the Legislature," Lingle said. "I would ask legislators to sit her down and get her refocused. ... She should not be able to put out information that is so clearly false, that she never sought a legal opinion on, that could damage the credit rating of the state, that could cost the people of Hawai'i millions of extra dollars to finance projects. It's just so unprofessional."

Lingle said she had been an early fan of Higa's work.

But the latest draft audit "is filled with false allegations with false impressions and it is the shoddiest work I've seen put out by any government agency," Lingle said. "It was done with a complete disregard for the facts and not even an attempt to learn the facts."

State House Speaker Calvin Say, D-20th (St. Louis Heights, Pālolo Valley, Wilhelmina Rise), said he had not reviewed the draft audit and could not comment yesterday on the substance of Lingle's criticism — or her call to investigate Higa.

But Say said he believed Higa was "doing her best at this point in time with the resources that she has. She has to be the watchdog as the legislative auditor."

Higa was appointed to her first eight-year term in 1992 and answers to both houses of the Legislature. She oversees a staff of 26 employees and a budget of $6.3 million.

Senate President Colleen Hanabusa, D-21st, (Nānākuli, Mākaha), remembers the governor praising Higa's work.

"The governor had nothing but great things to say about Marion Higa," Hanabusa said. "She thought Marion Higa was one of the functions of government that worked.

"To launch an investigation based on one or two reports you don't like isn't a good enough argument to make," Hanabusa said. "If she (Lingle) feels strongly about it, she should come before us and tell us why."

Many of the recommendations in Higa's earlier audits were adopted by the Lingle administration, the governor said.

But Lingle believes Higa's office took an inappropriate, political tone last month when a draft audit said Ted Liu, the head of the Department of Business, Economic Development and Tourism, should be relieved of his duties due to a "troubling pattern on nondisclosure" of financial details surrounding an overseas trade mission and federal grant program.

Asked yesterday whether there was any political motivation behind which departments her office audits, Higa said, "The answer's no. It's very simple."

Higa's office decided to audit the state Department of Budget and Finance last fall when the issue of the value of the state's auction rate securities came up during the state's annual comprehensive financial report audit by an outside accounting firm, Higa said.

"I decided to pursue some of those issues this year," Higa said. "That's the genesis."

For much of the fall and winter, accountants from Honolulu-based Accuity LLP, which calls itself Hawai'i's largest and most experienced public accounting firm, occupied space in the Department of Budget and Finance in the former Hemmeter Building, now known as No. 1 Capitol District.

The outside accountants often spent up to eight hours per day reviewing information on auction rate securities and other operations of the office, said Georgina Kawamura, state Budget and Finance director.

The state bought auction rate securities in 2008 but found them harder to liquidate as world financial markets spiraled, said Scott Kami, director of the Budget and Finance Department's Financial Administration Division.

"Every seven or 28 days, auctions were conducted (giving the state the option) to liquidate or hold onto them," Kami said. "By February 2008, the market began to freeze and the auctions weren't being conducted, reducing their liquidity."

Kawamura said Higa's draft report "outright accused of us of violating state law" by not selling the securities.

The accountants from Accuity LLP repeatedly "would ask us all these questions (about the handling of the auction rate securities) that we thought we were addressing correctly," Kawamura said. "But what we repeatedly told them did not come out in the report. They said what we did violated state law."

Kawamura was backed by a legal opinion by state Attorney General Mark Bennett and by three accounting firms, Lingle said.

After calling for legislators to investigate Higa yesterday, Lingle thanked more than a dozen of the Budget and Finance Department's 50 employees who came to Lingle's press conference.

Higa's draft report, Kawamura said, is "unfair to the people who work in my department. I'm defending the people who work in my department because it's not deserved. ... I am mad."

Lingle called for an investigation of Higa yesterday even before her final report came out because of what happened with the draft report about Liu, the head of DBEDT.

Once the draft report about Budget and Finance comes out, Lingle said, the media will "pick out the most headline grabbing event."

"We're left to try to catch up and prove that what she said was false," Lingle said.

Even before statehood, delegates to the 1950 Constitutional Convention wanted the office of auditor to be under the legislative branch.

Higa said that her office's eight-year terms were designed to make her politically independent — and that she can only be removed for "cause" by a two-thirds vote of members from both houses meeting in joint session.

"I'm doing my job," Higa said. "... There's a reason to have an auditor in the legislative branch and that's to serve a watchdog function of the branch that appropriates the money."