A federal grand jury is probing the finances of the troubled United Public Workers union after its Hawaii director, Dayton Nakanelua, was removed from office earlier this year for alleged “abuse and misuse” of funds.

Investigators from the U.S. Department of Labor, the Internal Revenue Service and the state Attorney General’s Office are involved in the inquiry, and federal authorities have subpoenaed thousands of pages of records from the union, according to a person familiar with the investigation.

UPW Local 646 has about 13,000 members in Hawaii, and represents corrections workers and blue-collar county and state employees as well as about 1,000 private-sector employees statewide.

United Public Workers union building Kalihi UPW1. 13 nov 2016
The head of the United Public Workers union is out after an audit found financial abuse in the union. Cory Lum/Civil Beat/2016

Nakanelua and UPW Administrator of Fiscal and Membership Services Jeanne Endo were removed from their positions last spring after a union trial by the American Federation of State, County and Municipal Employees concluded there was no “meaningful oversight” over the use of UPW funds.

“The opportunity for abuse or misuse of union funds existed as a result, and it has occurred,” according to the ASFCME trial decision issued on April 30. AFSCME President Lee Saunders named Liz Ho administrator of the union local, temporarily giving her control over the operations of the union.

That controversy apparently attracted the attention of federal authorities, who delivered subpoenas to the union during Ho’s first full week on the job as administrator of the union in early May, Ho said.

The audit last year raised a variety of concerns about the management of union funds under Nakanelua’s leadership, and specifically cited $21,840 in charges on UPW credit cards made by Nakanelua and others that lacked proper documentation.

The audit also singled out spending by Nakanelua on one union credit card that included $26,659 for meals during the two-year audit period. According to the audit, “many charges for meals, which were reported on expense reports were either not supported by a receipt, did not document attendees and union business purpose, or both,” according to the report.

The union trial decision also cited Nakanelua’s decision to co-sign a $165,605 check to Hawaii Productions Associates, as a “50% first installment” for a documentary film on UPW. UPW President James Wataru had refused to sign that check because he did not believe the payment had been budgeted or properly authorized by the union’s state executive board.

Dean Sensui, who is listed on state records as the agent for Hawaii Productions, declined to comment on the matter Sunday.

Ho said Friday she is unaware of anyone with the union who has been subpoenaed for questioning, but confirmed that investigators served union officials with subpoenas for voluminous financial documentation.

Ho said UPW provided the records, which included documentation surrounding the union credit cards, records related to the documentary film, and financial records related to the arrangements between the union and various law firms that represent UPW in grievances, arbitrations and litigation.

The December audit report cited extraordinary legal expenses racked up by the union local, including nearly $4.5 million paid to the law firm Takahashi and Covert over a span of less than three years.

That firm is headed by longtime Hawaii labor lawyer Herbert Takahashi, who represented the UPW in various matters for decades.

The auditors found there were no retainer agreements or signed contracts on file with the union detailing the rates to be paid for that legal work or exactly what work was to be done, according to the audit report.

The audit also found Endo received reimbursement for thousands of dollars in charges on a personal credit card. The report found much of that spending lacked documentation or a clear description of why the money was spent, including the purchase of a computer for more than $3,000 and thousands of dollars in gift cards.

The December audit report cited extraordinary legal expenses racked up by the union local, including nearly $4.5 million paid to the law firm Takahashi and Covert over a span of less than three years.

Saunders said in a letter posted on the United Public Workers Facebook page on May 1 that Endo was removed because she mishandled cash, failed to retain and file receipts, failed to promptly file expense reports and paid bills without the required documentation. Saunders alleged her actions amounted to a “wholesale failure to manage UPW’s finances.”

Wataru and former UPW Secretary-Treasurer Gerald Aqui were reprimanded by AFSCME for following a union executive committee policy on political campaign contributions that did not comply with the UPW constitution.

Wataru was also reprimanded for signing off on expense reimbursements without the approval of Nakanelua, but the trial decision concluded none of those expenses benefited Wataru personally. Aqui was also reprimanded for approving expense reports without the proper documentation.

Clifford “Chip” Uwaine, who was executive assistant to Nakanelua, was reprimanded for a technical violation of the union constitution for failing to submit expense reports for direct-billed hotel and flight charges.

Nakanelua did not respond to a request for comment Friday, but Nakanelua and Endo filed a lawsuit in federal court on Oct. 14 alleging that ASFCME’s actions violated the federal Labor Management Relations Act and the Labor-Management Reporting and Disclosure Act.

The lawsuit alleges that “at most” the final AFSCME audit of union finances released in December found problems with documentation and fiscal controls and a lack of detailed political action committee expenditures, but “did not make any findings that any purchases, reimbursements or other expenditures were improper or not for Union purposes.”

Endo also alleged in the lawsuit that the union has been improperly holding a number of her personal possessions that she had stored at the office. Nakanelua and Endo were not allowed to return to the UPW office after the trial decision, and Endo was therefore unable to retrieve those items.

Spokesmen for the U.S. Department of Labor did not immediately respond to a request for comment Friday afternoon. Krishna Jayaram, special assistant to Hawaii Attorney General Clare Connors, said in a written statement that the office does not confirm, deny or comment on investigations.

Criminal conduct within UPW has thrown the union into turmoil in the past. UPW State Director Gary Rodrigues was convicted of conspiracy, embezzling union money, money laundering and health care fraud in 2002, and served more than four years in federal prison.

Rodrigues, who had extensive political connections in Hawaii, served on the state Judicial Selection Commission. That commission reviews applications for judicial vacancies, and then submits short lists of qualified candidates to the governor and the chief justice of the state Supreme Court for appointment to the bench.

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