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Thursday, May 23, 2002




CEO’s daughter gets
job at Kamehameha

Hamilton McCubbin played
no role in the hiring, the trust says

Water request still alive


By Rick Daysog
rdaysog@starbulletin.com

The Kamehameha Schools has hired the daughter of Chief Executive Officer Hamilton McCubbin to a part-time position in a potential conflict of interest.

In a 38-page report recently sent to the Internal Revenue Service, the estate's internal auditor Arthur Andersen LLP said that the trust hired "an immediate family member of a top (Kamehameha Schools) executive" to a temporary job, starting March 26.

Arthur Andersen's report -- which also was given to the estate's five trustees, the Attorney General's Office and the trust's court-appointed master Ben Matsubara -- did not identify the executive and his relative. But the trust confirmed that McCubbin's daughter, who is a doctoral candidate at a mainland college, was hired at the estate as a research assistant for the summer.

McCubbin did not return calls, but the trust said he was not involved in his daughter's hiring and had no influence in the process.

The estate, in a statement approved by trustees, also said the position was advertised internally and externally. The position ends June 30.

Arthur Andersen said the division that hired McCubbin's daughter reports to the chief executive officer, but the accounting firm described the hiring as an "isolated personnel matter" that was conducted through the normal employment process.

The trust's in-house lawyers concluded that matter did not violate the estate's conflict-of-interest policies, Arthur Andersen said.

The trust said McCubbin's annual conflict-of-interest disclosure form was filed in February and predated his daughter's hiring.

Subsequently, McCubbin has amended his disclosure form to list her employment.

Arthur Andersen indicated that McCubbin filed his amended disclosure form after the issue was first raised in April by the internal auditing team. The executive did not immediately update his disclosure form "due to an oversight," Arthur Andersen said.

Peter Hanashiro, an Arthur Andersen partner, declined comment when asked why the firm did not identify McCubbin in the report. Deputy Attorney General Hugh Jones also declined comment.

Arthur Andersen has served as the estate's internal auditor since February 2000. For the fiscal year ending June 30, 2001, the estate paid the accounting firm $2.1 million.

The report, known as the Closing Agreement Compliance Monitoring Report, was required under the February 2000 closing agreement between the IRS and the Kamehameha Schools.

In the closing agreement, the IRS reaffirmed the estate's tax-exempt status after the $6 billion charitable trust agreed to implement major management reforms and remove former board members Henry Peters, Richard "Dickie" Wong, Lokelani Lindsey, Gerard Jervis and Oswald Stender.

The IRS and the Attorney General's Office alleged that the former trustees engaged in numerous conflicts of interest and self-dealing.

The reforms included a strict conflict-of-interest policy.

The Star-Bulletin obtained a copy of Arthur Andersen's report from the Attorney General's Office after filing a formal request under the state's open-records law.

The Star-Bulletin initially asked the estate for a copy of the compliance monitoring report, but trust officials denied the request. The estate said such reports typically cover internal and operational matters that are "often of a sensitive nature."

The bulk of Arthur Andersen's report described how trust officials have complied with the terms of the IRS closing agreement.

The report also described a management dispute involving the head of Kukui Inc., a for-profit trust unit which owns McKenzie Methane Corp., a Houston-based natural gas producer.

In a Feb. 27 letter to senior trust executives, Kukui President Dennis Fern alleged that Wendell Brooks, the former head of the estate's nonprofit Bishop Holdings Corp., abused his power and intimidated Kukui's management.

Fern, the estate's former internal auditor, complained that several activities involving Kukui and Bishop Holdings were not conducted at arm's length and were driven by the estate's asset allocation strategies, Arthur Andersen said. Bishop Holding is the parent of Kukui's sole shareholder.

The estate said it hired an outside law firm to review Fern's allegations.

The law firm found that the trust did not violate any of its internal policies and that there were sufficient checks and balances to avert potential abuses of power.

Fern, the estate's former internal auditor, could not be reached. Brooks declined comment.



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