Half a dozen senior officials in Mayor Jim Newberry's administration were informed about allegations of fraud made by one of their own employees in 2008 and 2009, according to new documents released Monday by a city council committee investigating the matter.
Mountjoy Chilton Medley, the city's external auditing firm, communicated with the officials in the course of investigating allegations of fraud by Patrick Johnston, director of risk management for the city. Although the specific allegations have never been made public, Johnston raised questions about the city's procurement of insurance from the Kentucky League of Cities in 2008, a process overseen by Commissioner of Law Logan Askew.
A July 28 letter from Mountjoy to the investigative committee indicates that far more of Newberry's closest advisers knew about Johnston's allegations than had been publicly known previously. A tug of war for information about the allegations has been going on between the administration and the Urban County Council all summer.
The issue of Johnston's allegations became public only after the administration refused to answer questions about them from Urban County Council members as early as April. The administration went so far as to hire an outside attorney, Terry Sellars, who opined that council members were a "third party" to a city audit and therefore were unqualified to see the allegations.
Many of the same administration officials who deemed the information too confidential for the council to hear will be asked to appear before the investigative council committee in the coming weeks.
"Clearly, we have some employees who have lost sight of who they work for, and that is the citizens of this community," said committee chairman and council member George Myers.
Susan Straub, Newberry's spokeswoman, said specific information about the allegations was not shared with officials during the Mountjoy audit. "Naturally, as part of the annual audit process, Mountjoy talked to the city's financial managers," Straub said in a statement. "Mountjoy verbally communicated there had been an allegation, that they had looked into it, and that they did not find any fraud."
The council's questions initially were about whether there was any relationship between Johnston's allegations and the administration's proposal to eliminate his job. But the issue now has segued into a more basic power struggle between the executive and legislative branches of Urban County Government.
Myers asked after Monday's meeting: "Why is it so difficult for the legislative body of this government to get the information it needs?"
Askew was one of the officials notified by Mountjoy about Johnston's allegations, according to the July 28 letter from the firm to Myers. Other officials included the former finance commissioner, Kyna Koch; the former acting commissioner of finance, Bill O'Mara; director of purchasing, Brian Marcum; senior advisor of management, Joe Kelly; the director of internal audit, Bruce Sahli; and the former chairman of the Internal Audit Board, DeWitt Hisle, who is also finance chairman of Newberry's current mayoral campaign.
Myers, a member of the internal audit board, is particularly incensed at internal auditor Sahli, the only player who has refused to respond to the committee's subpoenas for information.
On Monday, Myers discussed the possibility that the full council might penalize Sahli for rejecting the subpoena.
A host of questions remains to be answered by the committee and the state auditor's office, which, at Newberry's request, is also investigating. The questions range from how Johnston's allegations were handled to what role politics is playing in the administration's actions during an election year.
The committee is asking several of the players to speak before them starting at its Aug. 9 meeting.
Still at issue is whether the senior administration pushed to hire the Kentucky League of Cities instead of other insurance carriers. In e-mails and other documents obtained by the Herald-Leader, Johnston said the information that council members heard about the insurance proposals was different from what he had prepared. But neither Askew nor Johnston have elaborated.
In addition, the committee is trying to figure out whether Johnston's allegations and his clear disagreements with the administration have anything to do with the proposal to split up the risk management department and eliminate Johnston's job.
A consulting firm hired by the city recommended that the risk management department be reorganized in 2008. This year, the council voted not to approve the elimination after the fraud allegation issues became public.
Committee members also want to know how Sahli and Mountjoy decided the 2008 and 2009 allegations had no merit. If the allegations are about insurance procurement, it's possible they were not considered pertinent to the city's finances. Sahli has declined to explain his reasoning; in the July 28 letter, Mountjoy said Johnston's allegations did not affect the city government's financial statements.
Julian Beard, a council member who serves on the committee, said Monday that the entire process of governance in Lexington needs to be examined.
"I don't understand why everybody is playing everything so close to the chest," he said. "If we think the process is ABC and it gets changed to ABCDE and we don't know about it, then we're flying blind. It's a big problem, and it gets ugly."
Reach Linda Blackford at (859) 231-1359.