HONOLULU -- Lawsuits and investigations into corruption, unethical behavior, workplace violence and sexual harassment have cost the Honolulu Liquor Commission more than $580,000 in the last three years, a KITV 4 News investigation has found. That’s about 20 percent of its annual operating budget.

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The commission has also not fielded investigators seven nights a week, and has been unable to collect hundreds of thousands of dollars in overdue fines.

This summer, the city agreed to pay a former liquor investigator $387,500 to settle a whistle-blower lawsuit. Charles Wiggins testified before a federal grand jury against his co-workers in 2002. His testimony helped lead to the indictments of eight investigators, including two supervisors, for bribery. Wiggins also was paid $43,000 in workers compensation claims, after the city initially denied them.

“He was physically threatened. His life was in danger,” said Andy Winer, Wiggins’ lawyer. Wiggins has since moved to the mainland and will return to Hawaii to testify against three of the former investigators in federal court. Five others already pleaded guilty to bribery.

Another former employee who refused to be identified said: “Many employees have been openly threatened with harm or even death, if they talk with the media or the feds or any other investigation.”

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Commission Faces Costly Legal Problems

Other legal problems have cost the commission more money:

Because of staff complaints about threats and intimidation, the commission hired a psychologist to evaluate “workplace violence” in 2001 and 2002, at a cost of $17,500.

Honolulu lawyer Robert Miller was hired to represent the commission in the FBI’s criminal bribery investigation. He also defended the commission against an ethics complaint, after commissioners and commission staff accepted $9,000 worth of free drinks, food and gifts from licensees at a convention. Miller’s bill so far: approximately $74,500 in the last three years.

Then there are lawsuits filed by two women employees. A former auditor has been transferred to another city department and paid approximately $57,500 to settle a sexual harassment lawsuit. In the summer of 2002, another woman, the Commission’s only female investigator, filed a sex discrimination lawsuit, which is still pending, but is in settlement negotiations.

HONOLULU LIQUOR COMMISSION Chairman: John Spierling Co-Vice Chair: Clyde J. Eugenio Co-Vice Chair: Chu Lan Shubert Kwock Dennis Enomoto Danny Kim Administrator: Wallace Weatherwax Web Site

The commission has paid thousands more in fees for private lawyers to represent its employees accused of misconduct in those lawsuits, but the city has not provided those figures to KITV 4 News yet.

Several more lawsuits will be filed in the coming months against the commission by former employees alleging harassment and hostile workplace environment, sources said.

Liquor Commission Spends Thousands On PR, Planning Contracts

As these management problems were happening, the Liquor Commission hired two public relations firms to, among other things, research the history of the commission. Cost for the last three years: $89,000. One firm was paid to write news releases about weekly Liquor Commission hearings and publish a quarterly newsletter.

“I’d rather have them spend their time regulating liquor sales, than working on a PR campaign,” said Charles Djou, a city councilman whose proposal for an audit of the commission passed the council last month. A management audit of the commission has not been performed in 14 years.

The commission also hired an industrial psychologist on a $20,000 contract for “strategic planning and reorganization” in 2001 and 2002. He never issued a written report, but “orally reported his findings and conclusions to the administration,” according to Wally Weatherwax, the Liquor Commission’s Administrator. Weatherwax declined to be interviewed for this story, but did provide written responses to questions from KITV 4 News.

“It’s a picture of failed management,” said Winer. “You can bring in PR firms, you can bring in industrial psychologists, but I think at some point somebody ought to take a look at who is running this department and what they’re allowing to happen.”

The commission operates on funds from licensing fees. So Oahu residents who buy drinks in bars and restaurants or purchase beer, wine and liquor from the store help to pay the licensees’ fees. The commission is proposing a fee increase for licensees to take effect in 2005, the first hike since 1997.

Current, Former Employees Admit Staffing Shortages

Monday nights can be busy in bars during the fall, when patrons gather to watch Monday Night Football. However, there are no liquor investigators in the field Monday or Sunday nights, because of staffing shortages, according to interviews with eight former and current employees who asked to remain anonymous.

Former employees said the lack of Sunday and Monday inspectors stretches back at least one year. One anonymous former employee said bars take advantage of the situation. “They know they can do these (illegal) things, because they’re not going to get caught. I feel the rules and laws should be enforced any time that liquor is being sold,” the employee said.

The commission would not answer our questions about how many investigators work on each shift. Weatherwax said that would “compromise operational security and jeopardize the safety and welfare of the personnel involved.”

Commission Fails To Collect More than $300K In Fines

The commission also has failed to collect about $375,000 in fines since 1990. Last year, uncollected fines totaled $33,750, or 10 percent of the annual fines for everything from illegal sexual acts by bar employees to serving minors liquor. Some bar owners skip out on fines by closing or filing for bankruptcy, and then opening under a new name.

UNCOLLECTED LIQUOR VIOLATION FINES
Fiscal Year	Violations	Fines Assessed	Fines Collected	Uncollected (not paid in fiscal year due)	Percent Uncollected
98 - 99	354	$176,300	$145,150	$29,900	17%
99 - 00	541	$286,500	$247,200	$19.700	7%
00 - 01	378	$215,400	$200,800	$13,650	6%
01 - 02	313	$221,000	$204,000	$16,900	8%
02 - 03	570	$343,400	$334,200	$33,750	10%
Source: Honolulu Liquor Commission			TOTAL (Since 1990)	$374,414.26

(The dollar amounts in the column entitled "Fines Collected" include some fines from previous years. This is why the numbers don't necessarily appear to add up.)

The city is in the process of “writing off” $262,009 of the outstanding fines, because a collection agency has been unable to collect the funds, Weatherwax said.

Maui’s Department of Liquor Control, by contrast, collected every penny of its fines last year. That’s because Maui requires liquor licensees to put down a deposit bond of at least $5,000 or have the company’s directors sign legal papers agreeing they’ll be personally liable for any money owed to the department.

Weatherwax calls this technique “aggressive” and he has not tried it despite repeated requests and suggestions from his staff. The deposit bond “would be legally and operationally problematic,” Weatherwax said. Maui officials report no legal challenges to their requirements, which have been in effect for six years.

The Honolulu Liquor Commission has also failed to start a “late payment fee,” which was recommended by a 2001 city internal audit.

Djou wants to know if the unpaid fine problem is “part of ongoing corruption, or is it just simply negligence in management, or is there some other explanation which I am unaware of?”

The commission audited just two percent of its bars’ and restaurants’ sales reports in fiscal year 2003. Audits ensure that establishments that sell liquor pay the correct amount in licensing fees, because the fees are based on sales.

At the rate of just 25 audits a year, it would take 57 years to audit all licensees on Oahu. And that’s a 69 percent drop from two years ago, when 79 audits were carried out.

AUDITS OF LICENSEES' SALES REPORTS
FISCAL YEAR	LICENSEES	AUDITS	FINES	ADDITIONAL FEES
2001	1,436	79	$6,650	$600
2002	1,419	46	$5,850	$2,200
2003	1,430	25	$2,350	$1,100

The small number of audits can be blamed on chronic understaffing at the commission, because just half its auditor jobs were filled as of this fall. The commission had only two auditors on staff in 2003, and three on staff in 2001 and 2002, out of four auditor positions. One auditor filed a sexual harassment lawsuit and left the department. And one of them is on maternity leave this year, according to employees. One auditor position has been vacant since February of 2000 and a second has been unfilled since October of 2002, according to city records.

In its written response, the commission said the following criteria are used to determine which licensees are audited:

Public complaints

Gross margin analysis

Random selection over a five-year period

Did not meet restaurant license compliance food sales requirement.

Politicians said the Liquor Commission is in a “no-man’s land” between state city government. “It is created by state law, but it is managed by city government. So consequently, there’s no real one boss,” said Djou.

The mayor appoints the five-member volunteer commission, which must be confirmed by the City Council.

“Someone needs to hold the Liquor Commission accountable for these problems,” said State Sen. Les Ihara Jr., who plans to introduce legislation next year to add explicit language to state law saying counties should “supervise” liquor commissions. That would allow counties to “get into the details of the operation,” Ihara said.

City Auditor Leslie Tanaka said the earliest his office could begin an audit of the Liquor Commission would be in March.