WAILUKU — Maui County is investigating what happened to nearly $40,000 in grant money it provided to the Aloha Festivals organization in 2007 that was never paid to vendors for local events, The Maui News reported.

Aloha Festivals treasurer Charles Au acknowledged that the Honolulu-based nonprofit ran out of funds in 2007 after years of financial problems, and that a "substantial" amount was still owed to vendors on all islands. County officials said the grants were supposed to pay for events on Maui, Moloka'i and Lana'i. But Au said the money went into the nonprofit's one bank account and was used to cover whatever expenses came in. Only a few of the Maui County vendors received payment.

"The funds ran out, and there was literally no money to pay anyone," he said.

The program has previously borrowed from a bank to stay afloat, but problems became "insurmountable" last year, he said.

Aloha Festivals is now offering to settle the debts with a 60 percent payment to vendors, Au said.

"There are not sufficient funds to pay all that's owed throughout the islands 100 percent," he said.

County Office of Economic Development Coordinator Deidre Tegarden said the situation was "disturbing" because Aloha Festivals received the county funding by presenting vendor invoices from the local events.

"The money was to be used for those purposes only," she said.

The county has sent a letter to Aloha Festivals asking for an explanation and has not yet received a response, she said.

"We're hoping to move forward amicably to resolve the situation," Tegarden said.

The Aloha Festivals organization in Honolulu served as an umbrella for events coordinated locally by volunteer managers. In addition to Maui County, the organization received funding from the Hawai'i Tourism Authority.

This year, events in Maui County were held as "Festivals of Aloha" under the oversight of the Maui Visitors Bureau.

"God bless our people, our coordinators and our communities because they all came together and made it happen," said MVB Executive Director Terryl Vencl. "We brought this home to our own communities, and it was very successful."

All the vendors from the 2008 event were paid, she said.

A parade and ho'olaule'a in Honolulu were the only events held under the Aloha Festivals banner this year. Au said the organization was "encouraged" that it was able to cover the cost of the scaled-down 2008 events and even make a profit, which he said would go toward paying past debts.

Nani Watanabe, who has coordinated the Aloha Festivals on Lana'i since 2005, said it was hard for volunteer island managers like her to face vendors after they weren't paid by the Honolulu-based organization last year.

The island managers were supposed to coordinate the events, then send invoices to Aloha Festivals in Honolulu, which was to cut checks to the vendors, she said. Usually everyone gets paid within a month, she said.

But in 2007, the checks never arrived, and for months the managers couldn't get Aloha Festivals to tell them what was going on, Watanabe said. In January, four months after the events, Aloha Festivals met with the coordinators to tell them there was no more money, she said.

"We were, like, shocked," she said. "By then, people were hounding us for their payments, and we didn't know what to say. We were kind of left out in the cold."

Watanabe said she was so embarrassed, she wrote a letter to each vendor apologizing and explaining the situation. Some vendors were sympathetic, but others were still angry and didn't understand that she didn't manage the money for the program.

"We became the targets," she said. "One vendor felt it was our responsibility to raise the money and pay back all the vendors — but it's not."

Michael "Phoenix" Dupree, co-owner of the Blue Ginger Cafe in Lana'i City, said his family accepted a settlement from Aloha Festivals for about half of what they were owed for the 2007 festival.

"We just wrote off the other part," he said.

Dupree said he was happy to get the settlement, since he'd been expecting not to get any payment. But he said his family wasn't concerned about the money they lost on the 2007 Aloha Festivals. The Blue Ginger participated in the event again this year and would continue in the future, he said.

"It helps our business, and it's for Lana'i," he said.

Watanabe said she was happy to have the 2008 festival funding managed by a Maui-based organization. The Lana'i event was smaller than usual, and it rained, but people still had a good time and all the vendors were paid, she said.

"We pulled together as a team, and I must say it was a success," she said.

Moloka'i Island Manager Tina Thompson said Moloka'i's event also went forward this year as the "Festivals of Aloha," but was smaller and more subdued than previous years.

"Those that were not paid, how can we ask them again?" Thompson said.

Even though the program continues to move forward, Watanabe said she was glad the county was investigating what happened to the money in 2007.

"At least somebody's paying attention to these unpaid bills," she said. "It's a relief, because something's happening."