Home » UPDATED: Report: Hawaii Deputy Attorney General Hugh Jones Eviscerates Embattled Wailuku Main Street Association

UPDATED: Report: Hawaii Deputy Attorney General Hugh Jones Eviscerates Embattled Wailuku Main Street Association

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[Click HERE to see Attorney General Hugh Jones' report that's cited in this story]

After months of secrecy, Hawaii Deputy Attorney General Hugh Jones of the AG’s Tax and Charities Division has finally released a report detailing alleged malfeasance and mismanagement at the Wailuku Main Street Association. The report, which was obtained by MauiTime through a public records request, details numerous examples of troubles and questionable behavior at the association, and calls outright for the WMSA board to “terminate” executive director Jocelyn Perreira.

For slightly more than 26 years, the Wailuku Main Street Association has operated as a tax-exempt, non-profit organization that seeks to “develop and implement programs to revitalize” the commercial cores of small towns on Maui. For that time, it has taken nearly 100 percent of its funding from the County of Maui, through grants from the Planning Department.

But for the last few years the organization has come under fire for a variety of issues–most notably, questionable spending of county grant money and alleged mismanagement by Perreira. I wrote about criticisms surrounding the organization back in this 2004 story, and earlier this year The Maui News ran a series of hard-hitting stories detailing county officials who had concerns with how the WMSA board of directors (click here for a list of the board members) was spending county grant money.

According to WMSA’s fourth quarter report, the County of Maui currently owes the organization nearly $250,000 in grant money that county officials refuse to pay, saying they lack critical information as to where the money is going.

Now the report, which came in the form of an Aug. 30 letter (with exhibits) from Jones to WMSA attorney Kevin Jenkins, adds tremendous fuel to fires surrounding the troubled organization. The letter, though just 11 pages, is an exhaustive, blistering account of problems, shortcomings and bizarre behavior committed by the WMSA:

“WMSA has failed to comply with its governing documents and polices in numerous respects and WMSA appears terribly confused about its corporate structure. It appears that the directors have violated their statutory duties of care in numerous respects including but not limited to delegating (or largely abandoning) governance of the organization to the Executive Director [Perreira]… The Board has failed to comply with its own Bylaws in many instances and engaged in non-permitted proxy voting at Board meetings.”

Even worse, Jones wrote that the WMSA board’s lack of oversight over their own organization has even endangered the group’s precious tax-exempt status:

“[T]he Board has failed to formally adopt fundamental polices to protect the organization from risk and threats despite informing the Internal Revenue Service (“IRS”) it has done so, putting the organization’s valuable tax exempt status at risk. WMSA’s 2009 and 2010 IRS Form 990 [tax return] appears inaccurate in several material respects and WMSA has engaged in prohibited political intervention by making an illegal campaign contribution.”

The “illegal campaign contribution”–expressly forbidden by the IRS–was a $200 contribution the Friends of Alan Arakawa in May 2011. The dollar amount was the minimum contribution for access to a fundraiser. Though Perreira addressed the official WMSA check to “Friends of Alan Arakawa”–the mayor’s official campaign committee–she told Jones that she “did not know” the event was a political fundraiser and, in any case, was only “following a Board directive to attend” (Jones noted in his report that his office could find nothing in the WMSA board minutes from the April and May 2011 meetings to substantiate her claim).

Jones’ letter includes a long list of other problems he found with WMSA, including financial mismanagement, questional lobbying and even nepotism:

• “At some meetings, as many as seven directors ‘participated’ in meetings by proxy. Such a practice is not permitted by Hawaii’s nonprofit law and is inimical to the bedrock fiduciary concept that a director exercise care and prudence in governing the corporation.”
• “Former directors have confirmed for our office that the Board lets the Executive Director basically ‘run the show’ and directors do not control the governance of the organization…”
• “The Executive Director states that the Board adopted a conflict of interest policy. The policy that was produced is one sentence long and not meaningful or effective.”
• “All of WMSA’s liquid assets (last publicly reported at $256,000) are not invested but remain deposited in a non interest bearing bank account in excess of FDIC insurance limits contrary to professional advice allegedly given as early as its 2009 fiscal year audit by WMSA’s external auditor.”
• “There is little evidence of actual program services by WMSA in the last two years… The apparent absence of concrete program services appears to have allowed WMSA to build up a significant reserve of over $250,000 from County/taxpayer funding.”
• “WMSA itself has no records to substantiate how it allocated its functional expenses among program services, management and general, and fundraising on its IRS Form 990 for 2010 but reports $154,000 in program related services.”
• “The other senior employee of WMSA is the Executive Director’s daughter who has been employed by WMSA for fifteen years an an Accountant/Office Manager and was hired ‘at the recommendation of the CPA’ in violation of WMSA’s anti-nepotism policy (the Board retroactively modified its anti-nepotism policy after her date of hire).”
• “Part IV, line 3 of WMSA’s IRS Form 990 for 2010 states that it does not engage in lobbying. However, WMSA frequently testifies before the County Council in support of or against specific legislation and WMSA staff expends time preparing the written testimony and meeting with Council members, their staffs and subcommittees. Such activities constitute ‘direct lobbying’ under applicable Treasury regulations. Furthermore, WMSA’s County Grant agreements prohibit the use of counties funds for lobbying.”
• “WMSA reported no membership dues on its Form 990, yet in response to the AG Subpoena, WMSA produced to our office ‘membership lists’ for 2009 through 2011 showing contributions.”
Jones went on, but you get the idea.
The deputy attorney general ended his letter with seven “remedial measures,” the first of which was “Terminate the Executive Director and recruit a qualified successor through an open, competitive procurement process.” Other measures included a ban on proxy-voting, a scrubbing of the bylaws to get rid of “contradictory or illegal provisions” and the creation of a policy manual and a strategic plan. There is no deadline in the letter for action, but the tone of the letter would seem to indicate that Jones won’t wait long to see results.

At press time, the phones for the offices of Perreira and Tom Cannon, a Wailuku architect who serves as WMSA board chairman, gave busy signals. Attorney Kevin Jenkins did not respond to a voicemail message by press time.

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3 Comments
  1. wmsa@msn.com

    September 4, 2012

    Could you post a link to the Deputy AG’s letter?

  2. Tommy Russo

    September 4, 2012

    Link to original AG doc is located at the top of this post.

  3. Mike Foley

    September 4, 2012

    WMSA should be disbanded & $$ refunded to County.

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