Lexington city employee who made fraud reports keeps job for now

lblackford@herald-leader.comMay 28, 2010 

A Lexington city employee will keep his job for now as city council members explore the reasons for his job's elimination, including whether it's related to reports he made of possible fraud.

The decision came after a tense two-hour meeting Thursday in which the employee, Patrick Johnston, said he felt intimidated by city officials who told him he'd be personally liable if he talked about fraud allegations he made in 2008 and 2009.

Johnston, the director of the city's Division of Risk Management, spoke to a city council committee that is considering the reorganization of his department, which historically oversees the city's insurance policies.

The committee voted unanimously not to approve the reorganization of the division. It reported its vote to the full council Thursday, and council will take up the matter on Tuesday.

Afterwards, Johnston said he was relieved to still have a job.

"I think the council members are doing a great job of properly evaluating certain recommendations," he said. But he said he still believes that the reorganization is related to information he included in a fraud risk assessment questionnaire, a document external auditors use to ask employees whether they know of any fraud.

Council member KC Crosbie is fighting to see Johnston's questionnaire, but administration officials say it is confidential.

"Show me substantive and real efficiencies or I can't believe it's anything but something that's related back to that," Johnston said. He has declined to make the documents public because he is concerned about being sued.

The city denied the Herald-Leader's request under the state's Open Records Act to see those documents. The newspaper is challenging the denial.

The three city council members on the committee — George Myers, Doug Martin and Jim Gray — were clearly not convinced that splitting up the risk management division was saving the city money and were disturbed by Johnston's fraud allegations.

Myers, in particular, seemed concerned that Johnston's allegations, which were given to the city's internal audit division, were not shared with the Internal Audit Board, which is made up of citizens and council members, including Myers.

"The (audit) board can't do its job if it doesn't even know something exists" he said. "That's what I find problematic."

Fraud allegations

The city's staff attorney, Keith Horn, said that routine allegations of fraud wouldn't go before the Internal Audit Board, and he would have to talk to Bruce Sahli, the internal audit director. Sahli wrote a letter to Johnston on Sept. 22, 2009, saying that the city's outside auditors found no evidence of fraud in Johnston's allegations.

"I need to caution you about going down this road," Horn told the committee members during the discussion.

But council members disagreed, and kept talking about it.

"The director of risk management in his career at the government has only initiated a written document like this two times in his tenure and you had no conversations about it?" asked an incredulous Jim Gray.

Myers also seemed concerned about the administration's statements about Johnston's liability. Johnston was accompanied by his lawyer, Patrick Nash.

"What I don't understand is if I'm the director of risk management and I report 'This is what I think is happening,' that I'm not protected," he said.

Horn said that government insurance does not cover individuals who make potentially libelous statements.

After the meeting, Myers said he believes the Internal Audit Board will discuss the matter in the next few weeks.

Saving money?

City officials say the reorganization of risk management would save $290,000 by eliminating three positions and moving others.

In 2007, the city switched to the Kentucky League of Cities as an insurance agent, which, city officials say, improved coverage and saved money. Johnston has said he did not endorse the League as a choice and believes it is costing the city more money.

Johnston would not comment on whether his fraud allegations were about the League, which underwent a state audit that turned up numerous problems, particularly in its insurance division.

According to city documents, overall expenses on insurance have gone from $1.376 million in 2007 to $1.274 million in 2010. The costs did go up to about $1.4 million in 2008 and 2009, but officials say that's because the city was under-insured by about $200 million.

The League did not bid to be an insurance agent in 2011.

Johnston said because of previous re-organization efforts, he has not had access to recent information on insurance costs. But he believes they have increased because there is less emphasis on risk management. He said he caught an error in an e-mail that could have cost the city $7 million. It did not involve the League.

"It concerns me when I see things like that, but my efficiencies are no longer needed," he said.

The reorganization of Johnston's department stemmed from a 2007 audit to create greater efficiencies in city government.

"I'm very glad they're keeping risk management intact for now," said council member Diane Lawless, who attended the meeting. "I think there is more investigation that needs to be done."

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