State officials are questioning more than $2.8 million in spending done by the Bluegrass Area Development District from 2010 to 2013, most of it related to scandals that ended in the ouster of the group's executive director.
The state Education and Workforce Development Cabinet and the Department of Aging and Independent Living started an investigation in 2014 after state Auditor Adam Edelen released a scathing examination of the development district that found numerous conflicts of interest and questionable financial activity.
That activity was referred to the state agencies because state and federal funding flows through them to development districts, which provide regional aging and employment services, among other things. The Bluegrass ADD represents 17 counties and has a fiscal year 2016 budget of about $27 million, 90 percent of which comes from federal and state grants.
The Bluegrass ADD has 60 days to respond to questions from the state agencies with documentation explaining the questionable expenses. The district board is scheduled to discuss the matter Sept. 23.
The state agencies raised red flags on numerous costs, particularly those associated with rent, travel expenses and employee bonuses.
For example, for more than two decades, the Bluegrass ADD paid yearly rent of more than $230,000 to the Bluegrass Industrial Foundation, a nonprofit set up by another former Bluegrass ADD director, Jas Sekhon. At Edelen's urging, the district bought the building for $300,000.
The state agencies also questioned more than $200,000 in travel expenses and credit card charges.
In Edelen's initial investigation, he found $513,770 in questionable credit card expenditures — ones that lacked supporting documentation or appeared excessive. Edelen said many of those charges were for meals in and around Lexington, and there were travel expenses for people who weren't district employees.
Edelen also found that executive director Lenny Stoltz, who was forced out in 2013, was paid a $20,000 lump sum reimbursement for 20 years' worth of charges on his personal credit card without providing receipts, detailed credit card statements or other support to justify the charges.
The state agencies also questioned $625,524 in bonuses paid to district employees from 2010 to 2013.
Current Bluegrass ADD executive director David Duttlinger said the questioned spending occurred before he or the agency's current executive committee was in place.
"While we are happy to reach this milestone in dealing with the questioned costs, there is a formal process that must be followed to resolve these matters," Duttlinger said in a statement. "We are anxious to put these issues from 2010 to 2013 behind us and return to fulfilling the mission of Bluegrass ADD, which is to enhance the economy of our communities through planning to maximize resources, projects to promote development, and programs to improve the quality of life for the citizens of our region."
If the questioned costs are disallowed by the state, it's not clear who might have to reimburse the state and federal governments. According to an agreement that governs the Bluegrass ADD, local jurisdictions "shall always remain liable for misuse of funds." However, liability insurance could cover some of those costs.
Kevin Atkins, chief development official for the Lexington-Fayette Urban County Government, said much of the $2.8 million in questioned costs was covered in Edelen's audit. Lexington officials have been critical of how Bluegrass ADD was overseen and pushed for Edelen's audit.
"We don't believe that we are responsible for any of the repayment," Atkins said of the Urban County government.
Charles Payne, who brought attention to many of the development district's problems as president of Riverpark Neighborhood Association, dismissed Duttlinger's claim that previous officials are responsible for any problems. Duttlinger has been at the district since 2011, and many of the elected officials on its board are the same, Payne said.
"The only changes in arrangement is that Lenny has left, so I'm skeptical," he said. "I think it's going to be very difficult to get out of this; they're going to get stuck with something."