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Thursday, Jul. 02, 2009

State to audit League of Cities, KACo

"Excessive spending" and "inadequate oversight" within the Kentucky Association of Counties and the Kentucky League of Cities prompted state Auditor Crit Luallen to launch an investigation of the two groups on Wednesday.

Luallen said that "alarming media reports" by the Lexington Herald-Leader over the past month have created "serious concerns over spending" at the organizations.

"In both of these cases, we want to get to the bottom of exactly what has caused a pattern of excessive spending with inadequate oversight, how extensive was that, and what other issues are out there that also need to be reviewed and analyzed," Luallen said.

The auditor's investigation comes after the Herald-Leader reported this week that KACo's five top officials spent nearly $600,000 in two years on travel, meals and other expenses. More than half of those expenses were charged by Bob Arnold, KACo's executive director.

Last month, the newspaper reported that the League's top three leaders charged $300,000 in trips and expenses over three years. Eighteen of its 83 employees earn $100,000 or more, and Executive Director Sylvia Lovely's compensation package is $315,000.

"It is clear by the examples of extravagant spending and lack of transparency that these agencies and their boards need the necessary tools to fulfill their responsibilities to the taxpayers," Luallen said.

Luallen notified KACo President J. Michael Foster, the Christian County attorney, and League President Connie Lawson, Richmond's mayor, of the audit in letters that spelled out her authority to conduct an investigation.

Both organizations are non-profit groups funded through dues from local governments and fees for providing insurance and financing services to counties and cities. Public officials from across the state serve on the groups' boards of directors.

In addition to the newspaper articles, Luallen said, her office received "specific concerns" about the two groups.

Both organizations' boards of directors plan to discuss the audits in coming days.

"We're waiting for direction from them," said League spokesman Robin Cooper, who declined to comment further. The League's board has scheduled a conference call for Thursday.

KACo's board will discuss the issue later this week, although a time hadn't been set by late Wednesday, said Chris Harris, a Pike County magistrate and KACo's second vice president.

"I feel sure the executive board will cooperate with the auditor in any way we can to open our books," Harris said.

Foster, the group's president, pledged his full cooperation to Luallen.

"I always consider an audit a useful tool in terms of financial management and fiscal responsibility," he said. "I've never been defensive about an audit."

Luallen said she hadn't determined how many of her 133 employees will be assigned to scrutinize the two organizations. The reviews will first focus on the expenses and compensation of executives at the League and KACo, as well as their boards' oversight procedures, she said. The scope could expand to the organizations' insurance or financing programs, depending what auditors find, she said.

"We will be looking at every area we have concerns and questions about," she said.

Luallen's staff examined spending by officials at the Blue Grass Airport earlier this year, completing the audit in about three months.

"I don't think this will be as quick as the airport," she said. "It will be several months."

KACo and the League will have to reimburse the auditor's office when the reviews are completed, said Terry Sebastian, Luallen's spokesman.

Arnold, KACo's executive director, said he was concerned because "there's not the money in the budget for that."

Overall, Arnold said KACo doesn't have anything to hide. "But I still don't think she's got the authority to do it," he said.

In her letters to leaders of KACo and the League, Luallen cited several state statutes that she says authorizes the auditor's office to examine the organizations.