Fraud at Olelo is a hard lesson for nonprofits

How two executives allegedly worked in concert to use their positions to embezzle and defraud the government of more than $1.3 million, including CARES Act grant money, should serve as a cautionary tale for nonprofit organizations and government offices.

“If you are a board member of a nonprofit, you want to ensure there are multiple sets of eyes involved in approving and reviewing expenditures so that there’s not a diversion of funds,” cautioned Hugh Jones, former senior deputy attorney general, who supervised the state Attorney General’s Office’s Tax and Charities Division for more than a decade and taught nonprofit organization law at the University of Hawaii.

He said this is particularly true with a nonprofit where there are significant income and expenditures, as in the recent case, where it was in the millions.

The recent case involved Olelo Community Media, the operator of Oahu’s public-access cable channels.

Former Olelo human resources director Hanalei Aipoalani, 42, pleaded guilty to embezzlement in March and will be sentenced in June by a federal court judge. The maximum penalty he faces is 20 years’ imprisonment. Aipoalani managed to perpetrate a scheme at Olelo that went undetected for 4-1/2 years.

Aipoalani also accepted a bribe in September as a temporary CARES Act program administrator for the City and County of Honolulu, according to the U.S. Attorney’s Office for the District of Columbia. The bribe was for helping Stacy Higa, CEO of Olelo’s Hawaii island counterpart, Na Leo TV, to apply for $850,000 in CARES Act grants, the U.S. Attorney’s Office said in court documents.

Higa, a former Hawaii County councilman and 2020 mayoral candidate, has been on leave from Na Leo since April 1 to deal with allegations related to his role in the case. He did not respond to requests for comment on the allegations.

Both Olelo and Na Leo are Public, Education and Government (PEG) Access channel operators, which receive millions of dollars collected from fees charged to cable channel subscribers and also apply for grants as most nonprofits do.

Former Olelo CEO Kealii Lopez, who hired Aipoalani in 2010 as a manager at its Waianae media center, said Aipoalani was later promoted by another CEO to human resources director.

Lopez stressed the critical need for multiple checks and balances at a nonprofit such as Olelo when hiring and overseeing top employees, especially those in charge of collecting and distributing funds.

“The key is whether there were red flags beforehand that Olelo may have been aware of,” and whether they were raised to management, Lopez said. “What you don’t want to have happen is a situation like this used against the organization.”

Aipoalani’s CARES Act position ended in November, and he was charged Dec. 18 with embezzlement. Yet he got a job with the Honolulu City Council in January. The Council was notified by its attorneys of the charges after Aipoalani’s hiring, and he was given two weeks’ notice and left in February.

“Mr. Aipoalani’s actions were unacceptable and broke the public trust,” City Council Chairman Tommy Waters said. “Moving forward, the Council will be investing in more comprehensive background checks that include information on pending arrests and investigations. It is also clear that we need to continue to strengthen our Ethics Commission to have a city government that is accountable to the public.”

Mayor Rick Blangiardi said, “We condemn the actions of any employee of the city who violates the law and breaches the public’s trust. The public has a right to expect that public servants entrusted with the oversight of public funds conduct themselves ethically and within the bounds of law at all times. There are no exceptions. Our administration is committed to honesty, transparency and accountability in serving the public.”

When Aipoalani was human resources director at Olelo, he paid himself $527,000 from money Olelo got from a federal government volunteer program from 2014 and 2019. Olelo was given $935,242 in federal funds from the AmeriCorps program to pay the volunteers stipends.

AmeriCorps, a volunteer service program funded by the federal government and private contributors, sends volunteers on extended terms to areas of high need in the U.S. It is thought of as a domestic version of the Peace Corps.

Aipoalani kept AmeriCorp volunteers on his books, receiving stipends for them from the federal government, when they no longer were volunteering at Olelo.

Aipoalani’s wife, Angelita Aipoalani, also conspired to embezzle more than $69,000 as payment for AmeriCorps work she did not do. She also received $11,505 to pay for her own educational loans. Her $80,505 is part of the $527,000 Hanalei Aipoalani admitted to embezzling.

On April 1, Angelita Aipoalani pleaded guilty by video teleconferencing in federal court in Washington, D.C., for her role in the conspiracy. She faces a maximum of five years’ imprisonment but will likely receive six months to one year due to a plea agreement and no prior criminal convictions.

Hanalei Aipoalani signed a plea agreement in which he will likely serve five to seven years and pay a restitution of $527,000.

The court is not bound by the plea deals. The couple will be sentenced June 24 by a federal judge in Washington.

Aipoalani ran unsuccessfully for Congress in 2006, and for state House District 44 representing Waianae in 2008 and 2012.

He funneled some of the $527,000 he paid himself through Na Leo TV by creating fraudulent invoices from Na Leo to Olelo, claiming Na Leo was entitled to reimbursement for AmeriCorps stipends.

Aipoalani was paid to be a senior adviser to Higa at Na Leo from 2015 to 2017.

Aipoalani was banned in 2013 from any involvement in any federal grant or contracting program, a year before the AmeriCorps scheme began, because he previously tried to divert federal grant funds to his personal bank account, according to his Statement of Offense.

He had been working for Olelo at the time, but it is unclear whether the banning was related to his Olelo job and whether Olelo was aware of the ban.

Olelo has said little about the case.

Its board of directors and former CEO and President Sanford Inouye, who promoted Hanalei Aipoalani to human resources director, declined to answer questions related to the case. Inouye left Olelo on April 1.

“We conducted an internal investigation and promptly reported our findings to federal authorities,” Olelo’s new CEO and president, Roger McKeague, said in a written statement. “We have fully cooperated with those authorities throughout this process. At their request, we have kept and will continue to keep the particulars of our communications confidential.”

“When it is appropriate to provide any additional information, we of course will,” McKeague told the Honolulu Star-Advertiser.

After leaving Olelo in May 2019, Aipoalani got a job at the nonprofit Aloha United Way, where he headed human resources before leaving in June 2020.

“While none of the charges brought against Mr. Aipoalani were related to work at Aloha United Way, the alleged activity detailed in the indictment is deeply disturbing,” AUW CEO John Fink said. “We have already conducted reviews of our financial and program records for the period that Mr. Aipoalani was employed at AUW.

“However, in light of the new information recently released by the Department of Justice about Mr. Aipoalani’s activities at other agencies, we are engaging outside professionals to perform additional reviews of AUW books and records.”

Prior to hiring Aipoalani, AUW did criminal background and employment checks on him, as is done for all new hires, AUW said in an email.

The U.S. Attorney’s Office in Washington declined to say whether charges are pending against Higa, the Na Leo president, and what triggered the investigation of Aipoalani.

Higa served as executive director for the organization that administers AmeriCorps programs in the state — the Hawaii Commission for National and Community Serv­ice — from 2011 until May 31, when he resigned to run for mayor on the Big Island.

University of Hawaii spokesman Dan Meisenzahl said steps have been taken with the commission, which is attached to UH, for greater oversight.

UH has started an internal review of the AmeriCorps programs in Hawaii.

Aipoalani said in a court document that he expected to be paid $60,000 a year in exchange for helping Higa get approval last year for CARES Act funds when Aipoalani was the temporary CARES Act program administrator for the City and County of Honolulu. Aipoa­lani helped Higa get approval for two fraudulent CARES Act grants totaling $845,000.

Aipoalani, in the court document, said he and Higa discussed “opening LLCs on Oahu, using their wives as principles in order to launder the money.”

In October the FBI raided Na Leo’s Hilo offices, but Higa continued in his position, which he began Jan. 9, 2015.

Na Leo’s board chairman said he could not comment due to an ongoing investigation.

Higa’s hiring was approved by Na Leo’s board, its assistant general manager said.