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Thursday, Feb. 26, 2009

Luallen describes 'possible criminal activity' in release of airport audit

Blue Grass Airport officials fostered a culture of "shameful" spending that led to more than $500,000 worth of questionable expenses over three years, State Auditor Crit Luallen said Wednesday with the release of a searing audit. She has referred the findings to criminal investigators.

"I don't think we have ever seen an audit where so many different individuals in the management of a public agency abused the trust with such arrogance and a lack of ethical standards," Luallen said.

The 256-page report details rampant spending by airport executives at bars, restaurants, golf courses, liquor and retail stores, and Web sites. The spending encompasses extravagant items, such as two $700 bottles of champagne, hundreds of dollars worth of cigars, and $1,606 for tickets to six plays, including Dirty Rotten Scoundrels. It also covers more mundane bills: dozens of DVDs that are not at the airport, and $40 in cornhole beanbags. For holiday gifts, managers bought more than $14,000 in hams and $400 in train sets for airport employees and board members.

In all, seven airport officials spent $813,039 using their credit cards or cash, for which they were reimbursed.

During that period, the audit says, some of the managers, led by former executive director Michael A. Gobb, padded their pockets by double-billing the airport for reimbursements. They also cashed out unused vacation days — a perk not available to other airport workers — and bought tens of thousands of dollars worth of gifts for themselves and others.

None of the current or former executives of the airport responded to phone calls requesting comment.

Luallen said she was "appalled" at the spending and highlighted $7,400 spent for five employees to go "on a NASCAR drive that they called a team-building exercise."

She said that instead, it appeared that the trip was "just as a lark — as a fun outing."

The audit points to a lack of checks and balances by the airport's board, saying that in some cases, oversight was non-existent.

"This has been a very embarrassing ordeal for all of us," said J. Robert Owens, the new chairman of the airport board.

There was no hint that board members were complicit in the managers' improper spending, but it was clear that they didn't put procedures in place and trusted Gobb unquestioningly, she said.

During the period that Luallen covered, from January 2006 through December 2008, the board was led by Bernard Lovely, a Lexington lawyer. Lovely was responsible for approving Gobb's expenses. However, just three of Gobb's monthly reports included Lovely's initials, according to the audit.

The airport board, in a 57-page response to the audit, pins much of the blame on Gobb, who "disregarded many of the board's policies." And it points out that Gobb and three of his lieutenants have resigned and that the board has revoked airport credit cards since a series of Herald-Leader articles raised questions about the managers' travel and spending starting in November.

On Wednesday morning, the board approved four specific recommendations from its consultant, Jacobs Consultancy. Those four policies, which are aimed at tightening employee ethics and internal auditing, reflect some of the key recommendations that Luallen made.

"We have moved quickly to rebuild the public trust," Owens said.

The audit, which was requested by the Lexington-Fayette Urban County Council in December, has been referred to the FBI, the U.S. Attorney's Office and Kentucky Attorney General Jack Conway, Luallen said. At one point, 12 members of Luallen's staff were working on the audit.

"Certainly when we make a referral to law enforcement, it is because our auditors have reached conclusions that lead us to believe there is possible criminal activity," Luallen said. "We expect that law enforcement agencies will follow up on this aggressively."

Gobb set the tone

Gobb, who resigned in January, remains at the center of the spending controversy. The audit shows that 92 percent of his total expenses had no documentation whatsoever and 96.5 percent of his $158,384 in airport credit card purchases were questionable or unsupported; that he signed off on $23,000 in bonuses and nearly $83,000 in payouts for vacation days — none of which was approved by the board. In addition, he had the airport pay $36,500 for his association and club memberships in 2008 alone.