Federal regulators have raised serious questions about the actions of the volunteer board overseeing the state’s second-largest credit union while the directors are facing increasing internal criticism about the level of benefits they are giving themselves.

A small group of dissident members of the nonprofit Hawaii State Federal Credit Union has taken aim at what it considers excessive benefits for the board, including up to seven off-island trips annually for each member, paid travel expenses for spouses and reimbursements for health insurance costs.

The criticism comes in the wake of confidential federal regulatory reports in 2008 and 2009 that detail multiple examples in which the board’s actions raised ethical or governance questions.

The use of a travel agency owned by the board chairwoman to book official trips, frequently at higher prices than what the airlines offered directly, and accepting free rooms at a Waikiki hotel where the annual membership meetings were held were among the practices regulators flagged, according to the federal documents the Star-Advertiser obtained.

The credit union’s board and management, however, point to the institution’s strong financial performance as evidence of their successful stewardship. They say the $1 billion, member-owned organization, which serves current and retired county and state workers and their families, is healthy and growing, and the assets are well protected on behalf of members.

The practices were flagged in annual inspections by the National Credit Union Administration, the agency that regulates all federally chartered credit unions. The incidents underscore what some HSFCU members say is an entrenched board that continues to act as if it is accountable to no one and is driven as much by self-interests as by protecting the interests of the organization.

In mounting a campaign to get two new directors elected in April, the dissident members are calling attention to benefits that national consultants and others describe as unusually generous and well beyond what volunteer directors receive at most other credit unions.

The seven business trips include up to four to the mainland. If a spouse or companion accompanies a director to a conference, the organization pays for the companion’s "reasonable" hotel, meal and ground transportation expenses, plus guest packages offered by the conference organizers, according to the nonprofit’s policy documents.

By contrast, HawaiiUSA, the state’s largest credit union, and Aloha Pacific, the third largest, offer their volunteer board members up to three trips a year. They do not pay for companion expenses.

HawaiiUSA and Aloha Pacific also do not offer directors reimbursement for out-of-pocket payments for health insurance premiums — something that HSFCU does offer.

"These seem pretty much in excess of what boards receive regardless of the credit union’s size," Frank Diekmann, editor and publisher of Florida-based Credit Union Journal, a weekly trade publication, said of the HSFCU benefits.

The credit union’s leaders, in a statement to the Star-Advertiser, defended the way the institution is run and the level of benefits offered directors. All the benefits, they said, comply with federal guidelines.

"The board of directors and management are accountable to the members, regulators and the law," HSFCU spokeswoman Tricia Buskirk said in the statement. "Their performance over the past decade has both protected and advanced the HSFCU."

Buskirk, on behalf of the board and management, declined to respond to questions about the regulatory reports, saying violating the confidentiality of such documents — secret by federal law — would be wrong.

When the board is appraised of issues, it addresses them and makes decisions to satisfy appropriate parties, said Buskirk, the institution’s corporate development and marketing manager.

Credit unions nationally have endured difficult financial challenges in recent years, and HSFCU has not been immune.

The credit union’s return on assets, the most commonly cited indicator of an institution’s performance, dropped considerably over the year ended in September — the most recent data available publicly — to just below the average among peers, the data show. Analysts say many credit unions nationally have experienced declines, and, unlike HSFCU, many have negative return on assets ratios.

Despite the industry struggles, the nearly 75-year-old organization has experienced a 50 percent jump in membership since 2001 and a doubling of assets to slightly more than $1 billion.

It also is one of the few credit unions in the country to provide members with bonus dividends and interest rebates, returning more than $37 million in earnings since 1996, according to Buskirk.

The organization’s performance is compelling evidence that the board and executive team are strong and "successful at running a high-performance credit union," she wrote.

The dissident members, including some HSFCU employees, dispute such characterizations and say the success of the institution comes despite a dysfunctional, power-hungry board. They say the situation shares some similarities, though on a smaller scale, to the board scandal that rocked Bishop Estate more than a decade ago and led to major reforms at the wealthy trust, now called Kamehameha Schools.

The dissidents are pushing for change by supporting two new board candidates: Tax Foundation of Hawaii President Lowell Kalapa and attorney Bill Milks.

Terms for three of the seven current directors — Beverly Ing Lee, the board’s chairwoman; David Shimabukuro, a retired state Employees’ Retirement System administrator; and Peter Leong, former HSFCU president — expire in April. Lee and Shimabukuro are seeking re-election.

If more members were aware of what the board has been doing, they would demand immediate changes, dissidents say.

"Based on the excessive benefits the board has unconscionably voted for themselves, we can conclude that these ‘volunteers’ came to the credit union to do good and ended up doing quite well for themselves," said Warren Hamamoto, a former bank branch manager who is among the group pushing for changes.

"Seven trips a year for each member is shocking and shameful, but including spousal travel benefits just adds insult to injury and breeds the arrogance common when power lacks accountability," Hamamoto added.

Kaulana Park, former Department of Hawaiian Home Lands director and an HSFCU member, originally was part of the candidates’ slate supported by the dissidents, but he withdrew from the race last week because of an employment conflict.

Park spent roughly three years as a volunteer director for a much smaller credit union in the early 2000s. Asked what kind of benefits he received at Hotel Travel FCU, Park said he took no off-island trips and was happy just to get doughnuts at meetings.

"You give your time freely without expecting anything in return," he said. "It’s as simple as that."

HSFCU, as a nonprofit organization, receives city, state and federal tax breaks, including paying only $300 in annual property taxes for its main Honolulu branch. City records show the Halekauwila Street property is worth $7.4 million.

Such tax breaks effectively are public subsidies and mean that what happens at HSFCU should be of interest to taxpayers, not just the organization’s 210 employees and 75,000 members, the dissidents say.

In the 2008 regulatory report, the federal examiners noted that the credit union booked 27 trips between 2006 and 2008 through Classic Travel, the agency chairwoman Lee owns.

"The fact that the board chairperson owns the travel agency and is presumably making a profit from the transactions creates the appearance of impropriety at the very least," regulators wrote.

Ten of the trips during that period were for Lee.

In one example cited, Lee’s airfare to a Las Vegas conference was $972, according to the report. Two other credit union officials attended the same conference and paid between $498 and $508 for their airfare, booked directly with the carrier, regulators disclosed.

After Lee was informed that an ethics complaint had been filed in December 2008, she immediately recognized the conflict-of-interest issue and told the credit union’s internal auditor that she would stop using her business for credit union trips, regulators said.

Lee was quoted in the report as saying she did not charge a commission for her tickets and often did not charge a commission for other travel booked through her agency. She also said the higher airfare usually was due to making the reservation closer to the travel date, according to the documents.

Lee, through Buskirk, declined comment, citing the confidentiality requirement.

A NCUA spokeswoman likewise would not comment.

Among other examples that raised conflict of interest questions, according to the reports:

» Directors received free rooms from a Waikiki hotel in 2007 and 2008 and were offered them in 2009 in conjunction with the credit union’s annual membership meetings. They discontinued accepting the complimentary rooms only after an internal oversight group determined the practice likely violated federal regulations. The number of rooms totaled two for the 2007 meeting, four in 2008 and six in 2009. Lee, who signed the hotel contracts all three years, received a free room in 2007 and 2008, and Louise Akamine, the current vice chairwoman, received one for the 2008 meeting. The documents do not indicate which of the other directors used the remaining rooms. After the oversight committee recommended to discontinue the practice, the board voted to decline the 2009 offer.

Akamine, through Buskirk, declined comment, also citing the confidentiality factor.

» An ethics complaint was filed stating that Lee brought two relatives on a trip, claiming one as her travel companion, with the other claimed by Akamine. An investigator concluded that "not enough was done to avoid the appearance of impropriety." The investigator also noted that Lee approved the travel expense report that included her brother’s expenses as a companion of another credit union official, the documents show.

Dan Clark, a former state credit union examiner in Florida, told the Star-Advertiser the companion incident raised serious questions about ethical violations. "At the very least, I think the chair violated the intent" of the code of conduct, Clark said.

While regulators said in the 2008 report that the credit union took appropriate action to resolve the complaints, they noted that "the picture … painted is one where officials don’t recognize the appearance of a conflict of interest."

They offered some advice.

"Volunteers need to look at their actions from the standpoint of how would this look if it was on the front page of the newspaper or if it was announced to the members at the annual meeting. If this thought makes you cringe, then there probably is the appearance of a conflict of interest at the very least."

In their December 2009 report, NCUA examiners called attention to some significant governance issues.

While the board and senior executives should have been proud of the credit union’s 2009 performance, a serious division between the two groups prevented that, the examiners said.

"Questions have been raised regarding the competency of the board and the intentions of management," regulators wrote.

"This examination does not presently see this as a safety and soundness issue; however, it easily could affect the future safety of the credit union."

Buskirk offered general comments about the discord.

"The board and management have consistently shown a willingness to hear any issue, whether raised by management, individual directors, members, auditors or regulators," she wrote. "The board members and management staff are strong, accomplished, successful people who at times will have real disagreements about what is best for the credit union and its members. Good people differ. The disagreements are worked through and decisions are made."

The examiners, in their 2009 report, also noted that the institution lacked a board-approved long-term strategic plan and appears to have not had one for several years. The board was ordered to approve a plan.

Many governance experts consider the setting of a long-term plan the most important task for a board.

The fact that the credit union did not have one, combined with the other questionable practices, indicates that the board was "terribly dysfunctional," said the Tax Foundation’s Kalapa, who has conducted governance training for nonprofits.

The examiners in the 2009 report also detailed an ethics investigation in which an internal auditor determined that a board member apparently violated the organization’s code of conduct. The apparent violation related to the director’s ownership of a housing development that ran out of funding and became a dump site, generating neighborhood complaints about trash, drug use, drinking and fighting.

The auditor referred the matter to the board but reportedly was told to drop the issue because the directors already had found no violation occurred, according to the federal documents. Yet the board’s minutes failed to reflect such a finding. The examiners ordered the board to take formal action and record the decision.

Buskirk said the board and management accept responsibility to tighten procedures in board meetings and decision-making and are determined to make corrections and follow accepted practices for conducting business.

"Strategic planning has always been the most important function of the board, and it has worked diligently on a continuing basis," she said.

On the benefits front, Buskirk said the board is comfortable with the current package, which includes equipment for working efficiently. She added that directors do not use all travel benefits, and only two board members use any portion of the medical insurance benefits.

Diekmann, the trade publication editor who has covered the industry since the late 1980s, said the health insurance benefit likely is "very rare" among boards.

Hamamoto, the former banker, said the underlying causes of HSFCU’s governance problems stem largely from the board’s lack of new blood. One director has served for 28 years, another for 24, and the average tenure is 16 years.

In these challenging economic times, new board members are critical to the credit union’s future, Hamamoto said. "The status quo is not an option," he said.