Lexington council fraud investigation ends with visit from auditor, call for apology

Apology sought after No wrongdoing found

bfortune@herald-leader.comOctober 15, 2010 


State Auditor Critt Luallen released her office's 400-page Examination of Certain Financial Transactions, Policies, and Procedures of the Kentucky Association of Counties (KACo) during a morning news conference in her office in Frankfort, Ky., Thursday, October, 29 2009. Photo by Charles Bertram | Staff


The Lexington-Fayette Urban County Council's investigation into fraud allegations by a city employee ended Thursday night with one council member calling on another to apologize for her accusations that started the whole controversy.

Council voted unanimously on May 25 to set up an investigative committee in response to a statement made by council member K. C. Crosbie. Crosbie's statement was based on a city employee's fraud allegations, which proved groundless after five separate audits.

Council member Ed Lane called on Crosbie to issue a public apology.

"Council member Crosbie said fraud had been committed, that the city's internal audit board knew about it, and our internal audit director knew about it and didn't do anything," Lane said.

Crosbie had left Thursday's meeting before Lane's statement, and she did not return phone calls afterward seeking comment.

In early June, a council committee was set up to investigate the fraud charges, shortly before the state auditor's office, at the request of city administration, initiated its audit.

Lane said even the city employee at the center of the six-month controversy, Patrick Johnston, director of the Division of Risk Management, who questioned the way some of the city's insurance had been switched to the Kentucky League of Cities in 2007, never directly accused anybody of wrongdoing.

Lane said Crosbie's statements were costly to the government and damaged the reputations of the government and several individuals. He asked her to retract her allegations and issue an apology to the Internal Audit Board, the Internal Auditor, the Commissioner of Law and the public.

Earlier in the evening, State Auditor Crit Luallen and several members of her staff appeared before council to report on their investigation into the charges of fraud and to answer questions from council members.

The state auditor's report, issued Oct. 4, examined each allegation made by Johnston. While no fraud was found, the audit made several recommendations on how to handle similar allegations if they should be made in the future.

In response, city officials, including the council, have indicated willingness to implement the recommendations.

Luallen attended Thursday's meeting at an invitation from Mayor Jim Newberry to answer questions about her audit, especially a statement that said one of the council members had copies of Johnston's fraud allegations at least a month before the investigative committee was appointed.

The audit did not name the council member. Last week, council member Diane Lawless said she had taken a stack of documents — including the fraud allegations — to the state auditor, but she denied knowing the fraud allegations were among those documents.

The city subsequently spent more than $50,000 in legal fees over the documents as the council investigative committee sought them from the city's internal audit board, which said they were confidential. Luallen's audit will cost the city an additional $50,000.

Several council members and the mayor questioned auditor Brian Lykins, a member of Luallen's staff, about Lawless's statements. Lykins said the auditor's staff went through all the documents and found the fraud allegations. He had copies made and gave the originals back to Lawless.

She was told the documents included questionnaires about fraud allegations. But Lykins said he did not know whether Lawless understood their importance. "We do, because we deal with documents like that all the time," he said.

Lawless said she took the documents home, and either threw them away or shredded them. She did not know what she had until the state auditor's office called her on Aug. 13 to question her about them.

After last night's meeting, Lawless said she felt vindicated by Lykins' statements.

Reach Beverly Fortune at (859) 231-3251 or 1-800-950-6397, Ext. 3251.

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