SOMERSET — Some Somerset council members are not happy with the city's lawsuit challenging the authority of the state auditor to do special examinations of city governments, but the court action will go forward.
Mayor Eddie Girdler signed the complaint against Auditor Adam Edelen, which was filed July 31 on behalf of the city, after receiving a preliminary copy of the examination. It cited problems with bidding and other issues.
Some council members objected, saying the council had not authorized the lawsuit, though city attorney Carrie Wiese said the council OK'd the action several months ago.
At a council meeting Monday evening — the first since the lawsuit was filed — council member Pat Bourne made a motion to drop the complaint, which he called unwarranted.
But Girdler ruled the motion out of order. That meant there was no vote, but there were some sharp words.
"I am totally against this lawsuit, wasting taxpayer money," said council member John Ricky Minton. "We've got nothing to hide."
Most council members have not spoken publicly against the lawsuit.
If the city continues to push the lawsuit, it could result in a decision undermining the auditor's ability to dig into the books of city governments across the state.
The auditor's office is required to do annual financial audits of a number of local-government offices such as sheriffs, county clerks and fiscal courts. Cities typically hire certified public accountants for their required audits.
However, the auditor's office has long claimed the right to do special exams of cities, sometimes in response to allegations of impropriety.
The auditor's office has done more than 20 such examinations of finances and other issues in cities in the past 15 years, said Stephenie Hoelscher, spokeswoman for Edelen.
J.D. Chaney, deputy executive director of the Kentucky League of Cities, said state law does not include explicit authorization for such special municipal exams. However, Chaney said the law strongly implied that the auditor's office does have authority for such work, and the League of Cities traditionally has accepted that position.
Other cities have not raised challenges similar to Somerset's.
Hoelscher said the auditor's office hopes to resolve the dispute with Somerset.
Edelen has said his office undertook the examination in Somerset in response to concerns about financial activities, procurement policies, employment practices and other issues.
The preliminary report listed more than two dozen findings. They included that the city paid at least $280,000 for services such as tree-trimming and excavation without getting bids as required by law; made $2.7 million worth of adjustments to utility bills without formal policies; and did not adequately account for free passes to the city water park even though the facility lost more than $1 million in the 2013 and 2014 fiscal years.
The city failed to pay the water-park manager for thousands of dollars' worth of overtime in violation of the law, the report said
The audit also said Girdler negotiated special rates for industrial natural-gas customers without adequately documenting the deals in contracts, and did not follow the hiring plan approved by the council.
The examination listed other deficiencies as well, such as shortcomings in personnel and payroll procedures and the fact the city building inspector issued permits for 22 months under an expired permit.
The preliminary report said a number of Somerset employees said they feared retaliation if they spoke freely to auditors. Such concern undermines a key defense against fraud and impropriety, the report said.
The report made recommendations for changes in Somerset and for state lawmakers, such as protecting city workers under the state's whistle-blower law and requiring greater state oversight of city gas systems.
The office plans to refer the findings to law enforcement and state regulatory agencies, Hoelscher said.
The city's lawsuit argues that Edelen's office did not have authority to do the examination. It asks a judge to block release of the final report, though the complaint included the preliminary document.
The city also wants a judge to rule that it doesn't have to pay for the audit. The lawsuit said the city paid $60,000 for a fiscal 2014 audit by the CPA firm, which cited few problems.
A special examination can differ significantly from the work accounting firms typically do for cities.
Hoelscher said Edelen's office has not billed Somerset. The normal process in a special exam is for the office to negotiate a fee with the city, she said.
Somerset probably will face costs for suing over the special exam just as it would for the exam itself.
Douglas Goforth, deputy executive director at the League of Cities for insurance services, said the agency analyzes each claim for coverage. Somerset has not submitted a claim, so there's been no analysis, he said. However, Goforth said, a member's insurance typically would not cover its costs for suing another party.
Wiese, the city attorney, said many statements in the preliminary report were inaccurate and out of context.
Wiese said that Edelen's office agreed to give the city additional time to provide responses and that the city would address each finding. She is working this week to do that.
Generally though, Girdler and others argue, the city is well-managed.
"The citizens of Somerset and our employees can take pride in the fact that their government is well run and that we take seriously how we spend every penny of taxpayer money, constantly seeking to improve our efficiency," Wiese said.