Ky. League of Cities audit goes to law enforcement

AP News
Posted: Dec 17, 2009 1:32 PM

A financial review that turned up "excessive and questionable spending" at the Kentucky League of Cities has been turned over to state and federal law enforcement agencies.

State Auditor Crit Luallen said Thursday she forwarded the report to law enforcement "because of the nature and complexity of the exam's findings."

Those findings included high pay for executives of the quasi-governmental organization that is primarily funded by public money, conflicts of interest in spending, undocumented credit card expenses and gifts from vendors, including admission to a Las Vegas strip club for three League staff members.

The audit team of state financial experts found 19 positions in the organization paid more than $100,000 _ some far more, thanks to raises over the past seven years.

Auditors noted that the executive director's salary had risen since 2002 from $170,000 to $331,000, and that the deputy executive director's pay rose over the same period from $141,00 to $255,000. They also noted a raise that took the chief insurance services officer salary from $124,000 to nearly $239,000.

League of Cities President Michael D. Miller acknowledged in a statement Thursday that "in many ways, we had become complacent in assessing and managing some of our own internal operations."

Miller said the board of directors has appointed a task force to address concerns raised by state auditors.

"We have also established new policies for KLC travel and expense reimbursement that clearly define allowable costs related to lodging, meals, entertainment, rental cars and airfare," he said. "And strict rules and limitations are now in place regarding spouse travel."

Besides law enforcement, Luallen said findings from the financial review also have been sent to the Internal Revenue Service, the Kentucky Department of Revenue and the Kentucky Department of Insurance.

Luallen told a news conference that the organization's board of directors needs to improve policies governing ethical conduct and spending by staffers. The main function of the organization is to provide insurance coverage for Kentucky cities and to do research and training for city officials.

"If KLC is to continue providing valuable services to our cities, many of which are struggling, its board must strengthen its financial oversight," Luallen said Thursday.

The organization's longtime executive director, Sylvia Lovely, resigned in August after the Lexington Herald-Leader published articles detailing questionable spending.

The financial review found "exorbitant retirement bonuses" that cost more than $500,000, and more than $350,000 in "excessive or questionable spending." It also alleged numerous conflicts of interest, including inappropriate relations with vendors.

Luallen said the League's board had little or no knowledge or understanding of many of the issue raised by the exam. She said board members were unaware of specific salaries and did not know the cost of the retirement bonuses.

Among the conflicts of interest discovered: The organization paid $1.4 million for legal services to a law firm that employs the spouse of the former executive director. And the organization paid $28,600 at Azur Restaurant, which is partially owned by the spouse of the former executive director.

The review found that executives in the organization accepted gifts and gratuities from vendors, including housing and expenses at Bonaire, a small island in the Dutch Carribbean.

Auditors reviewed financial records from July 1, 2006 through June 30, 2009, finding $74,463 in credit card expenditures without supporting documentation and an additional $212,871 in questionable spending based on available documentation.

The financial review uncovered $430,000 spent by the organization on out-of-state travel for staffers and their spouses, $56,000 for meals at local restaurants, and $50,000 to purchase tickets to football and basketball games and to horse racing events.

Staffers spent $4,200 at a Colorado storytelling workshop, made a $1,570 visit to Liquor Barn, and spent more than $3,300 for 500 copies of "The Little Red Book of Everyday Heroes" which was written by the former executive director.