Federal and state law enforcement agencies are sifting through state Auditor Crit Luallen's detail-rich report of wild spending at Blue Grass Airport to figure out whether former or current managers committed crimes.
Missing documents and instances of outrageous spending and employees double-dipping on reimbursements laid out in Luallen's report could lead to charges such as credit card fraud and theft, depending on what additional proof investigators find, several former prosecutors said Wednesday.
State Attorney General Jack Conway said in a statement that his investigators are working with their federal counterparts to determine "whether or not any criminal charges should be filed."
"For some time, our office has been meeting with the auditor's staff to understand the findings of this troubling audit," Conway said. "We can't comment on the specifics of any investigation, but the findings of this audit speak for themselves."
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If former and current managers who used airport-issued credit cards and accounts to make personal purchases haven't been reporting that on their income taxes, they also could have problems with the IRS.
"I certainly think they could look at that and consider that income to those folks," said Mike Kalinyak, a Lexington tax attorney and former general counsel for the state Finance Cabinet and the Revenue Department. "You don't have a tax problem even if you're doing something wrong, as long as you report it."
Already, Luallen has dispatched her audit to the FBI, U.S. Attorney's office and the state attorney general.
Joe Whittle, a former U.S. Attorney for the Western District of Kentucky, said the examples laid out in Luallen's report and previously reported by the Herald-Leader could point to "a major" probe.
"That sounds like a massive case of fraud and something the U.S. Attorney and the FBI would pursue," Whittle said. "This is the type of case I would really go after if I were U.S. Attorney."
If investigators find instances of improper spending across state lines, prosecutors could pursue federal mail fraud or wire fraud charges, especially considering that Blue Grass Airport receives some federal funding, he said.
But some financial cases can be tricky and are often handled through civil suits, said Jane Graham, a Lexington lawyer and former assistant U.S. Attorney for the Eastern District of Kentucky.
Investigators can build the strongest criminal cases by proving that someone deliberately deceived their employer, she said.
In some finance-related criminal cases, prosecutors can charge someone with theft if they can show that an employee was reimbursed for an item the company already paid for, Graham said.
The audit noted several instances in which airport employees were reimbursed more than once for the same purchase. The audit also noted widespread problems with the airport's reimbursement policies.
In the last few months, former airport officials have been rushing to reimburse the airport for purchases they made that ended up in their homes, and to return other items purchased on airport cards.
Former executive director Michael A. Gobb, for instance, wrote a $1,000 check earlier this month to finish paying off a $2,000 piece of exercise equipment he bought with airport funds in March 2007.
"How does he justify that? I've seen people prosecuted for a lot less," said Chris Gorman, a former Kentucky attorney general.
Investigators will probably trace back many of the other $500,000 worth of questionable purchases over three years that Luallen's audit found. Those include $700 bottles of champagne, a $5,000 strip club jaunt and thousands of dollars of gasoline and meal charges around Lexington.
Other years' spending couldn't be examined because of missing documents, Luallen said.
Gobb was recorded on airport surveillance cameras removing accounting department documents from the airport in December, confirmed Luallen and Brian Lykins, who headed up the audit for Luallen's office.
Other airport employees also told state auditors they saw Gobb removing documents. But, said Luallen, the papers Gobb removed were copies of existing records and not the six years' worth of Gobb's expense reimbursements that are missing.
Neither Gobb nor his attorney returned calls from the Herald-Leader.