Legal bills in city subpoena fight top $51,000

at least $51,000 in legal bills

jcheves@herald-leader.comSeptember 29, 2010 

Lexington taxpayers face at least $51,000 in legal bills from a battle between the city's Internal Audit Board and an Urban County Council investigative committee.

And the meter is still running. A lawsuit to decide whether the council can serve a subpoena on the audit board is pending in Fayette Circuit Court. The cash-strapped Urban County Government is paying for lawyers for all parties in the dispute and could continue to do so for months or even years.

"My concern is that both sides can continue this fight, and then the losing side can appeal all the way to the Kentucky Supreme Court, and we're stuck with the bill. It's not clear to me who gets to decide how far this goes," Councilman Chuck Ellinger said Tuesday, after the council was told at a work session about the growing legal bills.

Also at the work session, council members argued with Jennifer Burke, acting chairwoman of the audit board, over who is at fault for the recent controversy over fraud allegations made by Patrick Johnston, the city's director of risk management. Several times, Mayor Jim Newberry stepped in to chide people for interrupting one another.

Johnston alleged problems with how the city bought insurance in 2007 and 2008. His job was slated for elimination this year as part of a cost-saving reorganization.

The council's investigative committee, which has been billed at least $34,000 for the advice of retired Judge Roger Crittenden on the subpoena issue and related matters, this month issued a report that found no fraud but asked the council to consider referring possible reprisals targeting Johnston and other city employees to the city ethics commission.

The report criticized the city's internal auditor, Bruce Sahli, for not adequately investigating Johnston's concerns or protecting his identity from his superiors. It recommended reconstituting the audit board, to which Sahli reports. The audit board's chairman already had resigned in June under council pressure.

State Auditor Crit Luallen also has investigated the issue. Newberry and Burke said they were given a draft of Luallen's report on Monday for their responses, to be included in the final report. They said they are not allowed to reveal the draft report's contents.

In defense of the audit board, Burke gave the council a seven-page reply to the investigative committee's report, although she ran out of time when she tried to explain it verbally. Council members debated but could not agree on whether to give Burke more than her 15 allotted minutes to appear before them.

Burke said the audit board was deliberately established by law to be independent of the council, so the council cannot reconstitute it. She said Sahli conducted a "preliminary review" of Johnston's allegations and decided "there was no credible evidence of fraud."

Some council members have questioned the thoroughness of Sahli's review. Burke said Tuesday that Sahli did not interview key people — including the claims agent involved in the insurance purchase and the city law commissioner — to protect Johnston's anonymity and because he determined that competitive bidding had not been required.

Sahli later refused to provide related documents to the council because they are considered confidential as described by the ethics code of the Institute of Internal Auditors, she said. When the committee issued a subpoena for the documents, Sahli sued to block it, kicking off the current legal battle.

Sahli stood at the lectern with Burke and the audit board's attorney, Terry Sellars, but he generally let them speak for him. Sellars has billed the city at least $17,000 for representing the audit board in the subpoena dispute.

"Bruce wants to cooperate. He intends to cooperate," Sellars told the council. "Bottom line is, do you want an independent audit function or not?"

"I don't even want a response from you," Councilman George Myers, who led the investigative committee, told Sellars. "Our report is final. Nothing you said today changes anything in our report."

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