Federal Monitor's Report on HERE Corruption I. INTRODUCTION (Use your browser to enlarge the print in the following document) This is my fourth report as the Monitor of the Hotel Employees and Restaurant Employees International Union (International Union or HEREIU). My earlier reports, dated February
15, 1996, January 8, 1997, and August 14, 1997, covered my term of service as Monitor through June 30, 1997. This report summarizes activities of my office for the entire period of September 5, 1995, to August 25, 1998.
Currently, disciplinary charges are pending against five additional individuals. Until those charges are resolved, the final report cannot be submitted. However, in this report, I will give findings as to the current
state of the International Union, including recommendations for future improvements. The final report will include complete financial data on my monitorship. A. HEREIU Structure and Organization The International Union headquarters is located in Washington, D.C.
During my term as Monitor, the International Union was led by a General Executive Board headed by General President Edward T. Hanley, General Secretary-Treasurer John W. Wilhelm, General Vice-President John M. O'Gara,
and Director of Organization Thomas Hanley. In addition, 14 District Vice-Presidents and 12 Vice-Presidents At-Large are also members of the General Executive Board. The powers of the General Executive Board are
outlined in Article IV of the International Constitution. On May 18, 1998, the General Executive Board elected John W. Wilhelm, former General Secretary-Treasurer, to succeed Edward T. Hanley as General President
beginning August 1, 1998. Ted T. Hansen, an International Vice-President from Sacramento, California, has succeeded Mr. Wilhelm and Ron Richardson, the Executive Vice-President, has taken the General Vice-President's
position, replacing John M. O'Gara, who has retired. Mr. Edward T. Hanley, Jr., Co-General Counsel of the HEREIU, resigned his position effective July 31, 1998. Robert J. Rotatori, Esq., is now the General Counsel.
According to the Labor Organization Annual Report Form, LM-2, filed by the HEREIU for fiscal year 1997 (May 1, 1996 - April 30, 1997), the General Executive Board members received salaries, allowances, and expenses
totaling $3,538,940. Additionally, disbursements to employees of the International Union for salaries, allowances, and expenses amounted to $8,666,901. These employees range from administrative staff to International
Organizers, State Organizers, and International Auditors. Total receipts for the HEREIU for that same period were $30,852,667. The number of local unions in the International Union stands at 138. There are also eight
State Councils and two Joint Executive Boards, one in Las Vegas, Nevada, and one in Chicago, Illinois. Joint Executive Boards exist to adjudicate differences between local unions located in the same community and State
Councils do the same at the state level. The current membership of the union is 244,423. The General President has the power to appoint a trustee, called an International Trustee, to take control of the affairs of a
local union, a Joint Executive Board, or a State Council. The allowable bases for such action are set forth and explained in the International Constitution. When my term as Monitor began, 26 local unions were under
trusteeship. B. HEREIU History The history of the International Union dates back to
1891 in Chicago, Illinois, when a national union, the Waiters and Bartenders Union, was founded. By the late 1940's and early 1950's, the total membership of the union was around 400,000. The current name was adopted at
the 39th General Convention in 1981. Criminal infiltration has been an ongoing problem with the union. During the 1930's, a Special Commission on Crime headed by Thomas Dewey of New York revealed massive racketeering
in the restaurant business in New York, including criminal influence in local labor unions. In 1958, the Select Committee on Improper Activities in the Labor or Management Field, chaired by United States Senator John L.
McClellan, established that organized crime figures in Chicago, Illinois and, elsewhere, had assumed control of some local unions. Again in 1983, the Permanent Subcommittee on Investigations of the United States Senate
conducted lengthy hearings that, again, indicated the influence of criminal elements in union affairs. The full history of the International Union can be found in Senate Report 98-595, 98th Congress, 2d Session,
"Hearings Before the Permanent Subcommittee on Investigations of the Committee on Government Affairs, United States Senate," August 27, 1984.
C. Consent Decree On September 5, 1995, the United States Government filed suit against the International Union and its General Executive Board seeking
equitable relief under the Racketeer Influenced and Corrupt Organizations (RICO) statute, Title 18 U.S.C., Section 1961 et seq. The complaint alleged that "[f]or over 25 years, various members and associates of
organized crime groups have exercised influence over the HEREIU and [its] various constituent entities." Specifically, the complaint alleged that the defendants, together with members and associates of organized
crime, unlawfully, knowingly and willingly conspired to violate Title 18 U.S.C., Section 1962 (c), in conducting the International Union's enterprise through a pattern of racketeering activity. On the same day,
September 5, 1995, the parties entered into a Consent Decree which, among other things, permanently enjoined all current and future members of the union from violating RICO, from knowingly associating with organized
crime members or associates or any barred persons, and from interfering with the efforts of anyone effectuating the Consent Decree. The remedial objective of the Consent Decree is that the International Union and its
constituent entities be free from the direct or indirect influence of any organized crime group or the threat of such influence now and in the future. As stated in the Consent Decree, all officers and other persons
holding positions of trust in the International Union and its constituent entities are required to have a heightened fiduciary duty to the membership and are required to promote democratic participation in union affairs
as guaranteed by the Labor-Management Reporting and Disclosure Act. That same day, September 5, 1995, and pursuant to the Consent Decree, the Court appointed me as Monitor to oversee the affairs of the
International Union and its various constituent entities such as Districts, District Councils, local unions, and other subordinate bodies as defined by the International Constitution. The Consent Decree also directed
the International Union's General Executive Board to create a Public Review Board and to adopt an Ethical Practices Code. The Public Review Board and Ethical Practices Code were presented to the International Union's
convention in 1996, and adopted as part of the International Constitution, effective September 9, 1996. The purpose of the Ethical Practices Code is to insure high standards of executive and administrative practices
in the International Union, its subordinate bodies, and local union officials. Under the Ethical Practices Code, the International Union is required to maintain adequate safeguards for the prevention of corruption,
discrimination, anti-democratic procedures, and the association of any official of the International Union or its subordinate bodies with organized crime figures or anyone that would bring disrepute to the union. The
Public Review Board was established to review complaints and conduct hearings whenever necessary to insure the high moral and ethical standards in the administrative and operational practices of the International Union,
its subordinate bodies and local unions, and to review all matters arising under the International Union's Ethical Practices Code. Now that my term as Monitor has expired, the Public Review Board is providing oversight
to the International Union under the terms of the Consent Decree. I have joined two other individuals to make up the membership of the Public Review Board. The other two members are Archbishop James P. Keleher of Kansas
City and James R. Thompson, former governor of Illinois, who is Chairman of the Public Review Board. Under the terms of the Consent Decree, my term as the Monitor was set to expire March 5, 1997, i.e., within 18
months of the filing of the Consent Decree on September 5, 1995. In February 1997, I requested an extension of my term based on a showing of probable cause to believe that corruption or the influence of organized crime
exists in the International Union or its constituent entities. The Court agreed and granted the extension for a period of 12 months, ending March 5, 1998. However, for purposes of disciplinary proceedings still pending,
my office continues until all proceedings are completed. D. The Monitorship My office
staff remained the same throughout my term as the Monitor. Daniel F. Sullivan served as my Chief Investigator and LaVerne Waller as my Administrative Assistant. My Investigations Officer, Howard E. O'Leary, Esq., of the
law firm Dykema Gossett in Washington, D.C., was responsible for the evaluation and presentation of the evidence in disciplinary proceedings authorized by the Consent Decree. He was assisted by Judy Jenkins of the same
firm. The investigative work was performed by retired law enforcement officials available to the Office of the Monitor from all over the country. Throughout my term as Monitor, invaluable assistance was provided by
the Office of the United States Attorney for the District of New Jersey, the Organized Crime Section of the Department of Justice, the Federal Bureau of Investigations, and the United States Department of Labor.
After my appointment as Monitor in September 1995, I spent the remainder of 1995, in large part, reviewing the history of the International Union, as well as pertinent reports of government agencies and the records of
the U.S. Senate Permanent Investigations Subcommittee, which conducted hearings on the International Union. My office began its actual investigative work in January, 1996. Since then, I have reviewed the operations and
actions of the International Union in a systematic way. In doing this, I have relied on the Consent Decree's mandate that the International Union give me unfettered access to all records or documents and officials,
agents, employees, and members of the International Union and its constituent entities. Investigators from my office have conducted reviews of select local unions and the International Union headquarters. Investigations
have also been conducted in response to unsolicited complaints and allegations. Finally, investigators from my office have conducted investigations regarding specific programs, issues, topics, and individuals associated
with the International Union. The Consent Decree gives the Monitor the authority to investigate, audit, and review all aspects of the International Union and its constituent entities to advance its remedial
objective. The Monitor is also given authority to disapprove International Union actions that he believes may violate the injunctive prohibitions of the Consent Decree, may constitute a crime involving labor
organizations or the employee benefit plans, or may further the direct or indirect influence of any organized crime group or the threat of such influence now or in the future. In accordance with this authority, I have
reviewed the International Union's hiring, appointment, and reassignment decisions. I also have reviewed contracts, leases, and other obligations. I am pleased to report that the International Union has been very
cooperative in submitting matters to me for review and has given members of my staff unfettered access to records. The Consent Decree, as required, was published in the November/December 1995 issue of the Catering
Industry Employee magazine. I included a "Message to All Members" asking them to help me carry out my responsibilities. An 800 number was provided to facilitate member participation in the process. This has
resulted in the receipt of many unsolicited complaints and allegations that were processed by my office. Many of the complaints concerned grievances that were not within my jurisdiction, as defined by the Consent
Decree. Other complaints required us to conduct preliminary investigations in order to obtain sufficient facts to determine whether the matter was appropriate for handling by the Office of the Monitor or by the
International Union. In those matters that were referred to the International Union for handling, I am happy to report that these items were handled in a responsible manner. II. REVIEW OF LOCAL UNIONS / CANDIDATE CLEARANCEA. Findings One of the most productive procedures followed
by my office was the review of local unions. My office conducted reviews at the International Union's headquarters and at 16 local unions. Some were terminated short of a complete review. The local unions were selected
for review because or their location in an area or region historically known to be susceptible to the influence of organized crime. Others were reviewed as a result of specific allegations or known problems. Reviews
were conducted of the following local unions: Local 1, Chicago, Illinois Local 2, San Francisco, California
Local 4, Buffalo, New York Local 5, Honolulu, Hawaii
Local 6, New York, New York Local 7, Baltimore, Maryland
Local 10, Cleveland, Ohio Local 11, Los Angeles, California
Local 25, Washington, D.C. Local 57, Pittsburgh, Pennsylvania
Local 69, Secaucus, New Jersey Local 77, Rhinelander, Wisconsin
Local 84, Toledo, Ohio Local 122, Milwaukee, Wisconsin
Local 274, Philadelphia, Pennsylvania Local 340, San Mateo, California
Local 450, Forest Park, Illinois Local 631, Phoenix, Arizona
International Union Headquarters,
Washington, D.C. Chicago Joint Executive Board,
Chicago, Illinois Many of the reviews demonstrated
that some local unions were not being operated and managed in a manner consistent with the best interests of the membership, and some reviews resulted in disciplinary charges. We found that:
1. Many of the local unions do not obey their bylaws.
2. Notice to membership meetings is not adequate, resulting in lack of quorums for General Membership meetings
3. Expenses are not presented to the membership for approval as required, or, if presented,are vague or not presented in the full context of the expenditures.
4. Raises and bonuses are not presented to the membership for approval as required, in many instances, they were not even presented to the local union's Executive Board.
5. Per capita taxes are delinquent with no effort to make arrangements for payment to the International Union.
6. Personal expenses are placed on union credit cards, including personal meal and beverage expenses.
7. Expenses are charged to the union without adequate documentation to verify that the expense was necessary for conducting union business.
8. Automobiles are provided for employees who only use them to commute to and from work.
9. Training of officers, business agents, and organizers is minimal or nonexistent.
10. Organizing projects are not coordinated or supervised.
11. Severance and insurance programs are set up for the officers, which are not in the best interest of the membership.
12. Members are not permitted to
inspect LM-2 reports as required by the Labor Management Reporting and Disclosure Act, and, in many cases, members are unaware they exist.
13. Personnel policies, salary pay scales, job descriptions, performance standards do not exist.
14. The International Union's audit program is not properly designed to detect fraud or abuse by officers and employees of local unions.
15. Many local unions do not require Business Agents to file any documentation or weekly report describing what they did during the preceding week.
16. Executive Board members have little or no understanding of their
fiduciary obligation to ensure that the local's funds are spent solely in the best interests of the membership.
17. Many locals do not have an annual audit despite the requirement for such an audit in the HEREIU Constitution.
As noted above, most locals failed to follow the HEREIU Constitution and their own local bylaws
with respect to salary increases and bonuses. The HEREIU Constitution, Article XI, Section 23(c), and local bylaws require that all wages, salaries and expense allowances must be determined by a recommendation of the
local's Executive Board and approval by majority vote at a regular or special meeting of the General Membership. The actual practice relating to salary increases and bonuses varies widely among HERE locals. At a
number of locals, salary increases are discussed, approved and recorded in Executive Board meeting minutes. An oral motion is then made to approve the Executive Board meeting minutes at the next regular General
Membership. The membership does not know that the Executive Board meeting minutes include salary increases and/or bonuses for the officers and no motion is made or vote is taken at the General Membership meeting on the
proposed salary increases. Instead, the increases are implemented unbeknownst to the members, in violation of the HEREIU Constitution and the bylaws. At certain locals, the Executive Board meeting minutes are
available for inspection on request by individual members. Such access is no excuse, however, for failing to accord the members their right to be informed of, and participate in, compensation decisions with their money.
Members who sought to exercise his or her right to oppose a proposed salary increase would have to scrutinize the Executive Board meeting minutes prior to the General Membership meeting, oppose the oral motion to
approve the Executive Board meeting minutes and demand a vote on the proposed salary increase. The International Union should promulgate uniform policies to be followed in connection with salary increases and bonuses
for local union officers and employees. Local 69 in Secaucus, New Jersey, for example, followed a practice of listing the current salaries of officers and employees and the proposed salaries after implementation of the
recommended increases. Prior to taking a vote on each proposed salary increase, the Executive Board's recommendation should be disseminated to the members in writing at a General Membership meeting, namely, the
employee's current salary, the amount of the proposed increase and the proposed salary after the increase. A motion should then be made for a vote on the proposed increase for each officer and/or employee, and approved
by the General Membership prior to being implemented. (Credit Card Abuse) Practices vary widely among local unions with respect to the issuance of credit cards. Local 450 in Forest Park, Illinois issued no credit cards, while Local 1 in the same
metropolitan area issued credit cards for use by its president, secretary and treasurer. Union issued credit cards present great opportunity for abuse, and stringent controls are necessary to protect the General
Membership from such abuse. A number of locals issued credit cards for the use of the top two or three officers. Typically, the local's office manager pays the monthly statement on the assumption that all such charges
were necessary for conducting official union business and trusts the officers to reimburse the local for any charges that were personal. It is unrealistic to expect that the local's office manager will confront his or
her superiors about charges that appear to be personal. Instead, there must be a system of controls in place to ensure that sufficient documentation exists to establish the business necessity for all such expenditures.
(Preventing Credit Card Abuse) The International Union should establish uniform policies for the use of credit cards by local union officials. At periodic intervals, possibly bi-weekly, the local union
official should fill out and sign a form identifying the individuals present, briefly explain why the expenditure was necessary for conducting official union business, and attach both the receipt and charge slip
relating to the expenditure. The local union official's signature shall constitute a certification that the expense was, in fact, necessary for conducting official union business. All local union officials should
understand that a knowing false certification shall constitute grounds for disciplinary charges, including removal from office and termination of employment with the local. (What Local Trustees Should Do Vs. What They Do)
The bylaws of HERE locals typically provide for the election of three trustees who are members of the Executive Board. The trustees generally are not (and should not be) salaried employees of the local. The trustees are
given the responsibility of verifying the locals' quarterly financial reports and the annual audit required by Article XIV, Section 11, of the HEREIU Constitution. As part of their responsibilities, the trustees should
be required to review each month the forms, certifications and supporting documentation submitted by the officers relating to their credit card charges. After reviewing these materials, the trustees should be required
to certify that to the best of their knowledge, information and belief, the expenses in question were necessary for conducting official union business and that adequate documentation exists to verify or substantiate the
business necessity for such expenses. With such a system of controls in place, recurring charges at a particular restaurant or bar should prompt inquiry by the trustees and the local's independent auditors. Our
investigations of HERE locals found that not only trustees, but Executive Board members, generally had little or no understanding of their fiduciary responsibilities under the Labor Management Reporting and Disclosure
Act and the HEREIU Constitution. The Labor Management Reporting and Disclosure Act, Title 29 U.S.C., Section 501(a), provides that Executive Board members have a duty to hold the money and property of the local solely
for the local's benefit and that of its members and to expend same only in accordance with the HEREIU's Constitution and local union bylaws. The HEREIU Constitution, Article XI, Section 23(a), provides that all funds of
a local shall be held for the sole benefit of its membership, and no local may make any expenditure other than for the best interest of the local. Under the Labor Management Reporting and Disclosure Act, the Executive
Board members are legally liable to the members for violations of their fiduciary duties to the local and its membership. Unfortunately, Executive Board members generally had no understanding of their obligations or
exposure under the Labor Management Reporting and Disclosure Act. Few were familiar with the HEREIU Constitution and their own local's bylaws, although the Labor Management Reporting and Disclosure Act requires that all
of the local's expenditures be in accordance with the HEREIU Constitution and the bylaws. At Local 122 in Milwaukee, Wisconsin, for example, many of the Executive Board members were retirees, some in their eighties, who
were unlikely to question, much less oppose proposals from the incumbent management. When our investigation disclosed that Local 122 owed in excess of $100,000 in per capita taxes to the International Union, the
Executive Board members who were not part of the incumbent management were "shocked" to learn of this delinquency. What is more shocking, of course, is that these individuals -- each of whom had a fiduciary
obligation to see that the locals funds were expended in the bests interests of the membership -- had absolutely no understanding of their own local's financial condition. The International Union should develop
educational materials and provide training to Executive Board members of HERE locals about their fiduciary obligations to the local and its membership, including the obligation to oppose salary increases, bonuses and
the like when such expenditures are not in the membership's best interest. Similarly, some locals, like Local 1, require their Business Agents to file weekly reports describing their
activities for each day of the preceding week, while others do not require any documentation to verify that the Business Agents actually worked and/or describe what he or she did. The Business Agents performs a
substantial portion of his or her duties on their own outside of the office, namely, servicing collective bargaining agreements, handling grievances or attempting to organize new employers. A requirement that Business
Agents fill out and sign a weekly report describing their activities during each day of the preceding week is necessary to ensure that the employees are actually working and fulfilling their responsibilities to the
membership. Requiring such documentation makes it more difficult for "no-show" or "partial show" employees to defraud the membership. For example, the weekly reports of one Local 1 Business Agent
indicated that this individual reportedly spent portions of approximately 70 days annually attempting to organize a particular riverboat casino. Our investigation disclosed that, in truth and fact, this Business Agent
was gambling at the casino and unknown to many of the individuals involved in this organizing campaign. The International Union should promulgate uniform reporting policies and forms for use by all Business Agents
employed by HERE locals. Such policies should have provisions for periodic review of such weekly reports by the Business Agent's superiors. There also appears to be wide disparity among HERE locals on the necessity
for having audited annual financial statements. The HEREIU Constitution, Article XIV, Section 11, provides: . . . Local unions shall have their books audited annually and a copy of such audit must be filed with
the General Secretary-Treasurer within sixty (60) days after the expiration of the audit period. Despite the above requirement, many locals are not audited at all, including, for example, a local as large as
Local 1 with more than 15,000 members. An annual audit performed by a certified public accounting firm is an important safeguard against corruption, embezzlement and non-feasance. All HERE locals -- or at least all HERE
locals above a certain size threshold -- should be required to have an annual certified audit. Clearly, not all of the above problems exist in the majority of local unions; however, the HEREIU should be sensitive to
these problems and take corrective action if they occur. B. Local 1 This local union
is the home local of the former General President, former General Vice-President, and former Director of Organization. Their association with this local union has resulted in considerable International Union assistance.
A report prepared by the International Union in February 1997, revealed that assistance to Local 1 over the years amounts to $2,608,337.81. This was the largest amount of assistance granted to any local union, with the
exception of Local 226, Las Vegas, Nevada, which had been involved in a protracted strike. The report also showed that 18 International Union employees were assigned to this local union. The International Union's W-2's
issued for 1995 list 40 employees with Chicago area home addresses. The records of the International Union also revealed that in 1996 there were 14 automobiles leased by the International Union and garaged in Illinois.
Despite all of the extra attention and assistance granted to Local 1, it has been in a bad financial condition for many years. Local 1 officials could not produce any accounting reports when requested. They suggested
that Thomas Havey & Company, Chicago, Illinois, was the accounting firm which would be in a position to provide accounting reports. Havey employees provided annual compilation reports for the period 90 through 1996.
They explained that their compilations are limited to presenting, in the form of financial statements, information that is the representation of Local 1 officers. They expressed no opinion or other form of assurance on
these statements. It is unclear where the compilations go when presented by Thomas Havey & Company to officials of Local 1. Havey's compilations, including the attached cover letter, are directed to the Executive
Board of Local 1; however, when shown the compilations during an interview, all of the Executive Board members advised they had never seen them before. The current Secretary-Treasurer of Local 1, who has been in this
position since May 1, 1991, advised he had never seen the compilations before and was unaware of the extent of the financial difficulties of this local union. He appeared shocked to learn that the compilation, dated
December 31, 1993, reflected (by notes attached to the compilation) that Local 1 had a 22-month financial delinquency owed to the pension plan. He advised that when he assumed the position of Secretary-Treasurer, he
requested Thomas Havey & Company to conduct an audit. Upon completion of that audit, Havey officials met with him, the President, and Secretary-Treasurer of Local 1 and advised them that Local 1 was overstaffed. The
Havey officials suggested cutting the number of Business Agents at Local 1. This did not happen because the President of Local 1, Thomas Hanley, advised he was not running a bank, and he did not want to cut employees.
The Secretary-Treasurer was aware of per capita delinquencies being forgiven by the International Union in 1991, and it was obvious that the President of Local 1 did not feel he needed to work from a balanced budget
principle. The Secretary-Treasurer did not know how the per capita delinquencies would be handled, but he assumed the President would find a way to resolve this problem. A review of the compilations shows that in
May, 1984, the International Union granted a $304,522 loan to Local 1 to cover past due per capita taxes and various other expenses incurred prior to April 30, 1984. Terms of the loan called for Local 1 to make monthly
payments in the amount of $3,000 between 1985 and 1990, which never occurred. Additionally, as of December 31, 1990, Local 1 owed another $440,000 in per capita payments to the International Union. The $440,000 debt was
deleted because of the International Union's "forgiveness" of per capita loans at the 1991 International Union convention, but the 1984 loan of $301,522 continued as a debt until 1993, when a prior period
adjustment was made indicating it had been determined that this loan had also been forgiven in 1991. The 1993 compiled report contained comments from Thomas Havey & Company regarding Local 1's capacity to exist
as a going concern. The going concern comment is set forth as follows: Note 8. Going Concern As shown in the accompanying financial statements, the Union incurred a deficiency of receipts over expenditures of
$33,536 for the year ending December 31, 1993; as of that date, there was a fund balance deficit of $23,905. Those factors, as well as the Union being approximately $200,000 delinquent on various administrative
expenses and pension plan contributions create an uncertainty about the Union's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Union
were unable to continue as a going concern. The Union is currently implementing a plan to eliminate delinquent expenses as well as reduce the overall cost of administration. In addition, dues rates were increased
January 1, 1994. The debt reduction plan referred to above apparently did not work because the December 30, 1994, compilation reflected that the Local 1 was still 11 months delinquent ($99,000) in payments to the
pension plan and $88,000 delinquent in various administrative expenses. The December 30, 1995, compilation continued to show approximately $92,000 in delinquent pension plan payments and $29,000 delinquent in various
administrative expenses. The December 31, 1996, compilation lists a pension delinquency of $81,000 and a $233,000 per capita delinquency. This $233,000 delinquency was in addition to the $1,300,300 interest free loan
which was granted to Local 1 by the International Union during 1996. The loan is to be repaid at the rate of $7,500 per month. After reviewing the above identified compilations, it would seem logical to ask why the
International Union's officials allowed this local union to continue from 1984 to the end of 1996, ignoring loan repayments, accumulating large per capita, pension payments, and administrative debts. The former
International Union's General Secretary-Treasurer, Herman Leavitt, advised he did not see the compilations prepared by Thomas Havey & Company for Local 1. He acknowledged there were conversations and communications
between his department and the General President regarding the financial problems at Local 1. The problems never seemed to go away and no one pressed to resolve them. During all the years of financial difficulty, the
officers and employees of Local 1 received salary increases on a regular basis and former General President Hanley collected $31,000 per year as Executive Director of the Local. The failure of the HEREIU
General Officers to deal with this never-ending Local 1 problem is, of course, due to the fact that many of the general officers come from Chicago and this is their home local. The national leadership never tried to run
the International Union from Washington, D.C. Mr. Edward T. Hanley never spent more than 25 days per year at the International Union's headquarters and his son, the Director of Organization, averaged a day or two per
month in Washington, D.C. Hopefully, the new national leadership will give the HEREIU the national and international attention it deserves. Local 1 should have been placed in trusteeship many years ago. I am informed by
General President Wilhelm that Local 1 is currently timely on both per capita and loan repayments. C. Chicago Joint Executive Board Review of the records of the Chicago Joint Executive Board reveals that the stated purpose of this Board is to provide coordinated management of the various local
unions in the Chicago Metropolitan Area and to resolve disputes between local unions. The minutes for this Joint Executive Board for the period 1989-1997 show that the only local unions participating are Local 450,
Forest Park, Illinois, and Local 1, Chicago, Illinois. During this entire period, Local 450's Secretary-Treasurer, Frank Riggio, has served as the Executive Director-President of the Chicago Joint Executive Board. John
O'Gara served as the Secretary-Treasurer of the Joint Executive Board until June 5, 1989. He resigned when he was appointed General Vice-President of the International Union. At that time, Thomas Hanley was named
Secretary-Treasurer of the Chicago Joint Executive Board. The positions of Executive Director-President, Secretary-Treasurer, and Office Secretary are all paid positions. The salaries are $300 per week for the
Executive Director-President; $300 per week for the Office Secretary; and $200 per week for the Secretary-Treasurer. The Office Secretary also serves as the Office Manager of the International Union's Midwestern
Regional Office and has the title of Administrative Assistant to the General President of the International Union. The Chicago Joint Executive Board usually meets at the Midwestern Regional Office location. A review
of the minutes of the Chicago Joint Executive Board's meetings reveals that the Executive Director-President is almost always present and presides at the meetings. The usual business consists of the Executive
Director-President providing information regarding Local 450's activity for the past month and someone from Local 1 also discussing what had occurred at Local 1 over the past month. The Secretary-Treasurer has been a
very infrequent participant in the Chicago Joint Executive Board's activities over the past several years. In 1994, he attended only one of the twelve meetings that year. His attendance for several other years was never
more than 50 percent of the Joint Executive Board's meetings, yet he has continued to receive in excess of $10,000 from the Board each year. The Office Secretary of the Board receives an annual salary of approximately
$15,600 and also is enrolled in a pension plan which is funded by the Joint Executive Board. This is all in addition to the pension plan benefits, salary and allowances ($68,705 in fiscal year 1997), and an automobile
leased for her by the International Union. The Chicago Joint Executive Board is funded by a 25 cent per month per capita fee on all members of the participating local unions (Local 450 and Local 1). In 1996, the Chicago
Joint Executive Board's cash receipts were $50,252. The paid officers and the Office Secretary are all also highly paid officers/employees of the International Union and/or Local 1 and Local 450. The work performed
by this Joint Executive Board appears to be that of both Local 1 and Local 450 keeping each other informed of their work in order to coordinate their efforts in overlapping areas. This kind of inter-local cooperation
would appear to be a routine function of both Local 1 and Local 450. That should not require a Joint Executive Board to accomplish. I am aware of the fact that the Chicago Joint Executive Board is a signatory to a
multi-employer collective bargaining agreement with the Chicago Hotel Association. The most recent agreement, executed in early 1997, is for a term of five years and eight months. Consequently, during the five year
period between collective bargaining agreements, there is little justification for the Joint Executive Board's existence, much less for the payment of salaries to its personnel. Recommendation:
That the salaries for the Chicago Joint Executive Board personnel be discontinued. D. Candidate Clearance Union democracy is a fundamental tenet of
union governance, and the International Constitution deals at length with rules and procedures for electing high level International Union officials and conducting elections in local unions. Furthermore, the Consent
Decree, under paragraph 27, specifically sets out procedures for the Monitor to oversee the election of officers in the International Union and its constituent entities. The objective is to ensure that elections are
free from corruption and the influence of any barred person. The Consent Decree requires that the Monitor be advised in advance of all candidates for elections, both at the International Union headquarters and within
the union's constituent entities. The Office of the Monitor has reviewed 1,064 candidates for elective office in 64 local unions. In addition, we have reviewed 64 individuals appointed as Business Agents or
similar positions of trust. If the background materials included recent run-ins with the law, investigators conducted interviews, at my request, to provide individuals an opportunity to explain the circumstances of
those situations. We have conducted approximately 25 such interviews. No candidate for elective or appointive office has been disqualified as a result of these reviews. It is not known how many potential candidates did
not apply, or withdrew, because the screening process was in place. III. REVIEW OF INTERNATIONAL UNION A. Financial and Administrative Management
Representatives of the Office of the Monitor conducted an on-site review of administrative operations and detailed audits of certain financial records at the International Union headquarters in Washington, D.C. From the
onset, it was clear that the International Union suffered from a management deficit and did not subscribe to generally accepted business practices. Despite an apparent abundance of personnel, the staff of 35 employees
was neither prepared nor expected to carry out certain functions normally deemed basic and essential to most business entities of any size. There is a program to develop a budget for the Research Department. General
President Wilhelm has implemented a computer accounting program which will be the basis of a HEREIU budget. He hopes that all departments of the HEREIU will be operating on a budget within a year or two. He, in his
capacity as Secretary-Treasurer, took the initiative to implement a budget procedure for the International Union's overall operations. Interviews of officials, employees and some consultants confirmed that the
International Union has traditionally operated without some absolute basics. There is no budget, no organization chart, no job description for employees, and no policy manual. One consultant commented that the former
General President had not seen a need for "structure". However, the consultant added that the time for structure in the management of the International Union had probably arrived. While the lack of an
organizational chart may not, on the surface, appear to be critical, it is clearly a deficiency in the overall management of the International Union. Time and again during the interview of officers, employees and
consultants, the interviewees were unable to define lines of authority on matters in which they were directly involved. For example, one might assume that the Director of Organization would have a degree of
responsibility either directly or indirectly over every employee in the Department of Organization. During an interview, he denied having any degree of responsibility over certain individuals and/or initiatives,
however, other officials involved in organizing efforts made specific comments contradicting his remarks. The staff of the International Union was asked to provide an organizational chart, position descriptions and
job titles for employees of the International Union, but the only existing internal document provided was a listing of headquarters personnel arranged alphabetically by first name. Consequently, my staff conducted
interviews of all employees to determine the duties of each and to develop an understanding of the work flow. These interviews revealed expressions of confusion, questionable workload distribution, duplication of effort
and, in some cases, animosity attributed to a lack of clearly defined duties and lines of authority. In some instances, for example, employees' duties were taken from them when their superiors vacated assignments or new
bosses brought in their own assistants. In those instances, the pay of the former incumbents was not impacted, but they were left without clearly defined duties. Aside from the obvious insensitivity to the affected
employees, there is an apparent disregard for cost-effective management. While salaries of most employees seem to be very generous, there were no uniform standards for selection of appointees, no uniform compensation
standards, no performance review process, and no established criteria for promotion or pay increases. The lack of documents accounting for authority, responsibility, and performance of employees was not only an
indication of poor management, but, in some cases, it clearly facilitated intentionally inflated compensation and the concealment of ghost employees. In several instances, the Monitor's inquiries about organizers,
special assistants and consultants precipitated abrupt departures through retirement and resignation. Recommendation: 1. Prepare a budget for the next fiscal year.
2. Establish written policy establishing a system for evaluating performance of employees. 3. Prepare an organizational chart defining lines of authority/responsibility for officers and employees.
4. Define standards for compensation of all employees. B. Credit Cards The International Union maintains a credit card account with the American Express company which allows each of the General Officers (General
President, General Vice-President, Secretary-Treasurer, and Director of Organization) to charge expenses. Additionally, retired General Officers John Gibson, John Kenneally, and Herman Leavitt have credit cards, as well
as the Executive Vice-President. The American Express cards were utilized by these individuals during the period 1993-1996 to charge approximately $645,000 in expenses to the International Union. Additionally, the
former General President has a VISA credit card (First Card) assigned to him, and the General Vice-President obtained a VISA card (Citibank Advantage) in June, 1995. These two cards were utilized to make additional
charges of $237,316 (First Card) and $89,487 (Citibank Advantage) during the same period, 1993-1996. As a result, the International Union disbursed approximately $971,803 for routine credit card purchases during this
period. The justification for obtaining second credit cards for the General President and General Vice-President was not fully documented; however, it was noted that both the First Card and the Citibank Advantage
card provide free air miles based upon usage. No evidence of utilization of free air miles was noted in the union's records. Formal policy regarding the use of above identified credit cards appears to be
non-existent. The secretaries to each of the officers have been given the responsibility of reviewing the credit card expenses and insuring that receipts are attached to the monthly statements. During interviews, these
employees identified items which could not be charged, such as cigarettes, movies and laundry/dry cleaning. It was noted that on several occasions these items were detected on the credit card bills, and the individual
officers reimbursed the International Union for these expenses. It appeared that staff employees did not have a clear understanding as to whether alcohol is an allowable expense. The fragmented credit card
utilization policy for the International Union is set forth in two memoranda; one prepared by the Department of Organization in January, 1991 and another bearing the name of Director of Organization dated February,
1994. This second memoranda stated that Thomas Havey & Company, the International Union's auditors, had advised that International Union employees had been in violation of the U. S. Department of Labor laws and
regulations with regard to meal expenses. It stated that any meal charges by the cardholder and any other union employee from their home city would not be reimbursed. When questioned about this memoranda, the Director
of Organization did not recall preparing it. He also suggested that this policy might not apply to officers of the International Union. Clearly, the U.S. Department of Labor and the Internal Revenue Service (IRS)
regulations make no distinction between officer and employee. Department of Labor International Compliance Audit Program (I-CAP) investigators were concerned that International Union officials were attempting to
circumvent their directive in this matter. The file of the Department of Labor documents this and indicate that the directives regarding expenses must apply to "all officials, the highest ranking general officers,
as well as employees". A review of the documents maintained by the Department of Labor regarding an I-CAP audit conducted at the International Union during 1990-1992 presented a much clearer picture of the
International Union's policy (or lack thereof) regarding business expenditures. The audit directed that officers and employees incurring reimbursable expenses should submit timely, adequate, written documentation
sufficient to corroborate the business purpose of the expenditure. The Department of Labor files reflect that International Union officials were not keeping adequate records regarding officers expenses. They pointed out
that, in many cases, explanations were not given for charges and, in other cases, incomplete or insufficient explanation was given. They directed that documentation for these expenses must include who, what, where,
when, and why, and that this documentation must be completed when the expense occurs. They pointed out that, if recorded in a timely manner, this accurate documentation would minimize the risk that the expenditures
would be considered personal in nature, and it would greatly assist the Accounting Department in accurately recording these expenditures. These instructions as given by the Department of Labor were set forth in a
management letter prepared by Thomas Havey & Company for the General Executive Board of the International Union. When my review of the International Union's records began, it became immediately obvious that the
Department of Labor's instructions regarding timely recording and sufficient documentation had been totally ignored. We discovered that the secretaries were still trying to obtain documentation for credit card charges
that had occurred eight to ten months earlier. The credit card bills were sent to the Accounting Department in a timely manner, but, in many cases, the supporting documentation would not be sent to the Accounting
Department until after the end of the fiscal year. In other words, the bills were being paid with no documents attached. Additionally, when the documentation was finally received, it consisted of receipts and cryptic
comments such as "locals", "skychefs", or "health and welfare". This was the very type of documentation that the Department of Labor had previously advised was totally unacceptable. My
review also revealed that the responsibility for approval of these miscellaneous expenses was not properly assigned. A secretary was given the responsibility to insure the appropriateness of charges incurred by the
highest officials of the International Union. This resulted in expenses being reviewed to determine if specific disallowed expenses have been charged, for example, if video movies are rented or cigarettes purchased. The
bulk of the charges were not, however, being reviewed by anyone to determine the appropriateness of the expense. A cursory review of these records immediately spotted numerous problems which could have been addressed by
an appropriate approval process. For example, records for restaurant and bar purchases made by one senior official disclosed a pattern of excessive tipping. It was not uncommon for the tips to be greater than the
restaurant/bar purchase amounts, as set forth below: Date Purchase Tip Total 10/6/94 $ 5.80 $ 80.00 $ 85.80 12/7/94 $ 97.20 $50.00 $147.20
3/9/95 $34.38 $ 50.00 $ 84.38 6/21/95 $150.29 $100.00 $250.29 6/21/95 $ 98.80 $100.00 $198.80 2/9/96 $ 33.00 $ 50.00 $ 83.00
4/29/96 $116.45 $150.00 $266.45 An International Union employee assigned to drive this official to and from area restaurants at union expense confirmed that this official was known to give very generous tips.
Records for another senior International Union official revealed a pattern of extensive purchases at restaurants/bars in his home-base area with fellow employees from that
geographical area. Examples are as follows: 12/5/95 $ 48.28 Miller's Pub 12/5/95 $136.00 O'Callaghan's 12/5/95 $105.00 Jilly's 12/5/95 $ 35.50 The Boss Bar TOTAL $317.78
5/15/96 $ 54.50 Lino's 5/15/96 $ 38.50 Gibson's Bar & Steakhouse 5/15/96 $211.88 Gibson's Bar & Steakhouse 5/15/96 $ 11.50 Lola's/Roulette 5/15/96 $ 15.50 The Redhead
5/15/96 $ 15.70 White Star Cafe TOTAL $347.58 The above expenses at Chicago, Illinois area establishments are all attributed to this senior International Union official and, in each case, one other individual
(different individuals on December 5, 1995, and May 15, 1996) who share office space in Chicago, Illinois. When questioned regarding these expenses, the official and the employees contend they were conducting union
business (talking to bartenders, etc.) at all of the business establishments where charges were incurred. This does not appear to be responsive to the Department of Labor instructions or the Director of Organization
memoranda of February 28, 1994. While it is recognized that this International Union has a special interest in insuring the economic well-being of the hotel-restaurant industry, it is doubtful that this is
accomplished by a select few officials frequenting bars and restaurants. Since we examined the credit card abuses, the HEREIU has initiated a two-level verification process, first, in the user department and then in
the General Secretary-Treasurer's office, which is designed to curb the abuses disclosed by our review. Clearly, a system of stringent controls should be in place to ensure the credit card charges by International
Union officials are necessary for conducting official union business. At least monthly, International Union officials should fill out and sign a form identifying the individuals present when the expense was incurred,
briefly explain why the expense was necessary for conducting official union business, and attach both the receipt and charge slip relating to such expenditures. If an International Union official fails to submit such
documentation in a timely fashion, the expense should be deemed personal and deducted from the official's compensation. The International Union official's signature on the form along with the supporting documentation
shall constitute a certification that the expense was, in fact, necessary for conducting official union business. All International Union officials should understand that a knowing false certification shall constitute
grounds for disciplinary action, including removal from office and termination of employment with the International. Semi-annually, the expense forms and supporting documentation submitted by International
Union officials relating to credit card charges should be reviewed by a select number of General Executive Board members who should certify that, to the best of their knowledge, information, and belief, the expenses in
question were necessary for conducting official union business and that adequate documentation exists to verify or substantiate the business necessity for such expenditures. Recommendation:
1. Terminate issuance of union credit cards to retired officials. 2. Assign responsibility for review and approval of credit card expenditures to a select number of General Executive Board members and ensure that
these individuals are familiar with the Department of Labor and Internal Revenue Service regulations regarding business expenditures. 3. A sufficient sample of expense forms and supporting documentation should be
reviewed by the certified public accounting firm conducting an audit of the International Union's financial records to ensure that the system of control relating to credit card charges is adequate.
C. Per Diem / Allowances On June 19, 1990, John Reynolds, General Counsel for the International Union, advised a representative of the U.S. Department of Labor that the International Union was attempting to influence
their employees to switch from per diem allowances to salary. He pointed out that IRS tax codes changed in 1986 or 1987 making per diem allowances taxable, and effective July 1990, they were required to begin
withholding FICA on per diem payments. He also pointed out that it would be less work for the International Union to include these monies as salary because it reduces the bookkeeping within the organization. The
International Union converted all employees from per diem to salary, except for some reasons not altogether clear, the current and retired general officers. The four current General Officers continue to receive $100
daily per diem, 365 days per year, even when they are on vacation or sick leave. Certain retired officers (John Gibson, General Secretary-Treasurer Emeritus; Herman Leavitt, General Secretary-Treasurer Emeritus; and
John C. Kenneally, General Vice-President Emeritus) also receive daily per diem payments. Mr. Gibson receives $40.00 per day, Mr. Leavitt receives $100 per day, and Mr. Kenneally receives $50.00 per day. The per diem
payments do not appear to be related to actual expenses incurred by the officers because some of them are additionally reimbursed for miscellaneous cash expenses, such as taxi and skycap tips. The payment of per diem,
and recording it as an allowance on the LM-2 form also tends to present a distorted picture of the total salaries paid to the officers. Payment of a per diem allowance for possible expenses to a retired employee is
incomprehensible. Even after receiving this $14,600 per year in per diem payments, John Gibson still submits bills for miscellaneous expenses when he attends conventions or other similar functions. In addition to the
above per diem allowances, the International Union has for many years awarded officers and select employees for attending International Union conventions and General Executive Board meetings. International
Vice-Presidents, Administrative Aides, and Administrative Assistants were each given $4,000 for attending the 1996 Convention. The allowance for attending General Executive Board meetings is usually $2,000-$2,500. This
International Union granted $478,150 in allowances in fiscal year 1997.
The 1996 LM-2 for the Laborers International Union of North America, an organization with 793,730 members, lists no money expended for officer/employee allowances. Recommendation:
Eliminate per diem payments and General Executive Board/Convention payments to officers and select employees, current and retired. D. Leased Vehicles Historically, the International Union has maintained a fleet of
nearly 60 leased vehicles, ostensibly for the business use of certain union officials, employees, and consultants. In addition to this fleet, the International Union owns limousines based in Washington, D.C. and
Chicago, Illinois, and a motor home which is based at an automobile dealership in suburban Chicago, Illinois near the residence of the General President. The motor home was acquired during 1988 at a cost of $100,000 and
currently has approximately 17,000 miles on the odometer. The International Union spends about $425,000 annually for leased vehicles and another $100,000 on miscellaneous automotive maintenance expenses. In the
interest of expediency, the Monitor's audit did not address the dollar value of automobile insurance premiums or the cost of liability judgments/claims. However, the amounts in the latter two categories are assumed to
be substantial because the International Union provides automobile insurance coverage not only on vehicles leased and owned by the union but also on several vehicles owned by employees who are reimbursed for mileage
expenses in lieu of being provided with union cars. Anecdotal information obtained during the course of several interviews suggests that the International Union has incurred significant costs for legal expenses and
payment of claims emanating from automobile accidents. Some of the local unions also lease vehicles. Local 1, Chicago, Illinois, for example, has maintained a fleet of approximately 16 vehicles despite its failure to
pay per capita taxes and its chronic inability to meet other financial obligations. Clearly, the total cost of automobile-related expenses incurred by this International Union and its constituent entities
is at a level that deserves the close scrutiny of management on a continuing basis, and program management sufficiently structured to provide managers with the information necessary to make fiscally sound decisions.
Unfortunately, that has not been the case in the past. It has not been overlooked that about one year ago, and probably as a reaction to the Monitor's inquiries, then General Secretary-Treasurer Wilhelm published a
document announcing the terms of an agreement between the International Union and a vendor who is to be the sole source provider of leased vehicles. It is hoped that the publication of the General Secretary-Treasurer's
memoranda is intended as an initial step in a much greater effort toward fiscal responsibility. A review of International Union practices with regard to acquisition, assignment, maintenance and disposal of vehicles
revealed that the International Union had no uniform program in place to ensure fiscal responsibility. Accounting and reporting for this very costly segment of the International Union's total expenditures were sorely
lacking and, in some cases, suggests the possibility that expenses may have been deliberately concealed from the general membership of the International Union and government oversight. For example, the International
Union's submissions of the required Labor Organization Annual Report (U.S. Department of Labor Form |
