Kamehameha uses Enron firm in audit
By Jim Dooley
Advertiser Staff Writer
The beleaguered accounting firm Arthur Andersen, on trial in Houston for obstructing justice in the federal investigation of Enron Corp.'s collapse, was paid $2.1 million last year to help audit Hawai'i's largest nonprofit organization, the $6 billion Kamehameha Schools, according to the organization's tax return, made public yesterday.
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Eric Yeaman, chief financial officer of Kamehameha Schools, was an Arthur Andersen employee, working as "internal auditor" of the schools, when the Kamehameha trustees decided to hire him for the CFO post in July 2000.
Hamilton McCubbin says Arthur Andersen shows "outstanding integrity."
Arthur Andersen has continued to serve as internal auditor and provides other services to Kamehameha Schools. The company will receive a slightly lower sum this year than the $2.1 million it was paid last year, according to Yeaman and to the tax return.
Yeaman said he has a conflict of interest in dealing with Arthur Andersen and "leaves the room" when there is any discussion at Kamehameha Schools about a business transaction with the accounting firm.
Hamilton McCubbin, chief executive officer of the schools, said the Honolulu office of Arthur Andersen has demonstrated "outstanding integrity" in its dealings with Kamehameha Schools.
The internal auditing contract with Arthur Andersen expires this summer, and the schools plan to hire their own internal auditing staff rather than rely on an outside company for the work, McCubbin said.
But an outside firm will be needed to help in that transition and to provide independent expertise when needed by the internal auditing staff, McCubbin said.
Arthur Andersen will be free to bid for that work, he said.
Once the fourth-largest accounting firm in the world, Arthur Andersen has lost clients steadily in the wake of the Enron scandal. In addition to the criminal trial now going on in Houston, Arthur Andersen has been named in a class action lawsuit filed by Enron shareholders. The firm has been selling offices and assets around the country, and could face bankruptcy in the near future, according to news reports.
The Kamehameha Schools tax return shows net assets of more than $4 billion. A wholly owned subsidiary, Kamehameha Activities Association, filing a separate return for the first time, listed assets of more than $2 billion.
The schools, which educate children of Hawaiian ancestry, spent $139 million of its operating budget on program services, and another $53.9 million in school construction and repair, according to the tax filing.
The construction expenses were mainly incurred building two new campuses, one on the Big Island and the other on Maui.
McCubbin said the schools are now spending about $20,000 per student on the Neighbor Islands, compared with $13,000 per student at the main campus on O'ahu.
The tax return also reveals considerable turnover in top employees at the huge institution.
Four former executives of Kamehameha Schools/Bishop Estate are listed among the highest-paid executive personnel, but the numbers include their severance pay.
They include Nathan Aipa, former chief lawyer for the schools and later acting chief administrative officer. Aipa, now in private practice, was paid $413,620 for the tax year ended June 30, 2001.
Former Kamehameha tax director Gilbert Ishikawa was paid $271,610; Rodney Park, former administrative/planning director, received $260,023; and former appraisal director Kenneth Teshima was paid $214,627.
McCubbin is the highest-paid executive now on payroll at Kamehameha Schools, receiving $321,026 plus $28,585 in expense account allowances.
Chief Investment Officer Wendell Brooks, who also has left the institution, was paid $300,000. Yeaman was paid $224,532. Mike Chun, acting chief education officer, was paid $188,718.
Executive salaries are considerably higher now than they were before years of turmoil culminated with the departure of all five of the institution's trustees two years ago.
Trustees used to be paid about a million dollars each. Last year they were paid between $122,000 and $49,500, depending on whether they served in the job a full year.
Board chairman Robert Kihune received the top salary of $122,000, because he was one of the acting trustees who carried over to full-time status. The same is true of trustee Connie Lau, who was paid $100,500, according to the return.
Reach Jim Dooley at jdooley@honoluluadvertiser.com or 535-2447.
