A regional mental health provider has repaid the state more than $300,000 that it spent to buy a house near Lake Cumberland for executives to use.
The purchase was one of several problems identified last year at the agency once called the Bluegrass Regional Mental Health-Mental Retardation Board, now known as Bluegrass.org.
State Auditor Adam Edelen confirmed Friday that Bluegrass.org had repaid the money.
"The fact that more than $300,000 has been recovered on behalf of taxpayers I think is significant," Edelen said.
Bluegrass.org, based in Lexington, receives state funding to provide services in Central Kentucky to people who have mental health needs, substance abuse problems, and intellectual and developmental disabilities. It served nearly 30,000 people last year.
The agency also operates Bluegrass Oakwood in Somerset, where more than 100 people with significant intellectual and developmental disabilities live.
In 2006, Bluegrass.org used $320,621 in taxpayer money to buy and furnish a 2,508-square-foot house in Somerset for senior executives to use while working at Oakwood, rather than stay in a motel or make the 90-minute drive back to Lexington.
The money came from the state Cabinet for Health and Family Services, which provides funding for much of Bluegrass.org's work.
The mental health agency listed the expense as "administrative support," and the cabinet did not know that Bluegrass.org used public money to buy a house, according to a review by Edelen's office.
Edelen's office undertook the audit after a June 2012 article in the Lexington Herald-Leader cited the house purchase and other financial and management issues at bluegrass.org, including large bonuses for top executives.
After the newspaper's story, Bluegrass.org sold the house for $292,000.
The agency's chief executive, Shannon Ware, retired shortly before Edelen's audit was released in December.
The audit found that Bluegrass.org had paid top executives more than $2.8 million in "executive benefit contributions" since 1997, even as frontline employees went without raises some years and worked for relatively low pay.
The board of directors did not approve the extra pay for executives, the audit found.
Other findings included that Ware and her husband, Joseph Toy, spent $38,000 without adequate documentation, some of it for tickets to University of Kentucky basketball and football games; and that the agency's board had failed to address several potential conflicts of interest among employees.
One example involved Ware and Toy, who headed the agency before retiring in 2008, then came back as a consultant.
Ware replaced Toy as CEO. After they married in 2009, Ware essentially supervised her husband, signing his time sheets at times, the audit found.
The Herald-Leader had reported earlier that Ware and Toy took home a total of more than $1 million in compensation in 2010, including $377,637 in base salary.
Also, Ware at one time supervised her son-in-law, Eric Crabtree, who was director of information technology at Bluegrass.org.
The audit's recommendations included that Bluegrass.org repay the state the money used to buy and furnish the Somerset house, minus appropriate lodging and travel costs that the state would have paid to the agency.
Jill Midkiff, spokeswoman for the Cabinet for Health and Family Services, said Friday that Bluegrass.org paid the state $308,015 in May. The cabinet did not announce the reimbursement.
David Hanna, a licensed psychologist and longtime Bluegrass.org employee who is now its interim president and chief executive, said the agency and its board worked diligently to address issues in the audit.
"It was our effort to comply with all the recommendations," Hanna said Friday.
In addition to repaying the state, Bluegrass.org hired an internal auditor and discontinued the executive benefit plan, Hanna said.
Edelen lauded Hanna and the Bluegrass.org board for making positive changes in the wake of the audit. Edelen said the cabinet deserves credit for its stewardship as well.
The audit identified problems at Bluegrass.org, but its actions since are an example of an agency taking the findings seriously and "working aggressively to right the ship," Edelen said.
Bill Estep: (606) 678-4655. Twitter: @billestep1.