Two groups charged with investigating allegations of fraud and possible problems with Lexington's city procurement services start their work this week.
The state auditor's employees began their investigation Monday at the invitation of Mayor Jim Newberry. The city council's special investigative committee will start work Tuesday at 8:30 a.m. with an organizational meeting.
Both groups will look at issues surrounding employee Patrick Johnston, the director of the division of risk management. Johnston alerted his superiors to possible problems with the Kentucky League of Cities' insurance services before the city council chose to use KLC as a vendor, according to internal e-mail. He also voiced concerns about possible fraud in questionnaires in 2008 and 2009. His job is marked for elimination under a proposed reorganization of city government.
Council members have questioned whether the two issues are related and have put the reorganization on hold until they get the answers.
The fraud allegations have never been made public; however, in a mass e-mail sent by Newberry over the weekend, he connected the fraud allegations to insurance procurement, the first time someone in his administration has publicly done so.
Johnston has not released the allegations because he says that city officials told him he would be held personally liable for doing so without the protections of the city law department or city insurance.
"State Auditor Crit Luallen this week agreed to conduct an independent examination of a city employee's allegations concerning insurance procurement and the findings by our internal and external auditors that there was no basis to the allegations of fraudulent behavior," Newberry said in the e-mail message, which is on Newberry's official mayoral letterhead.
"I think the State Auditor's examination will clear up some of the distortion, and will reaffirm the findings of both our internal and our external auditors," Newberry's e-mail said.
The city's internal auditor, Bruce Sahli, and its external auditing firm, Mountjoy Medley Chilton, found that there was no basis for fraud in what Johnston had reported in 2008 and 2009.
The administration denied access to the documents to at least one city council member, saying they belong to the external auditors. The administration also denied a request by the Herald-Leader, which is challenging the denial.
Newberry, who is running for re-election against Vice Mayor Jim Gray, said he supports the council committee, but he urged "any council member with political or other types of conflicts or apparent conflicts to refrain from becoming part of this group."
Council member Doug Martin, who volunteered to serve on the committee, stepped down last week because he said he had given $1,000 to Newberry's campaign, and he wanted to avoid any perceived conflict. He was replaced by council member Jay McChord.
Two other council members, KC Crosbie and Diane Lawless, who both have ties to Gray's campaign, have declined to step down. Lawless managed Gray's 2006 campaign; Crosbie's husband, Scott, a former council member, has endorsed Crosbie.
An Internal Audit Board meeting scheduled for Monday was cancelled pending the release of the state auditor's investigation, said board chairman DeWitt Hisle.
"We'd like to see their report before our meeting. It would not be proper for us to discuss it until the auditor has their recommendations," Hisle said.
As chairman, Hisle said he knew about Johnston's allegations and the subsequent investigation into them but did not know their substance.
"I know it was looked at and found not to be fraud," he said. "That's all I know."
Newberry's mass e-mail was sent out through Blue Grass Mailing, a local marketing company. Straub said the administration sends e-mails this way "for a variety of reasons, including their ongoing maintenance of the e-mail list to prevent duplicates and identify bad addresses."