The state auditor's office released a highly critical report Friday on nearly $5 million in agriculture marketing grants from Kentucky's tobacco settlement money.
According to the audit, requested by the Governor's Office of Agricultural Policy, oversight of the grants to Louisville-based Allied Food Marketers West was so lax that the results can't be measured.
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State auditor Crit Luallen called the report “deeply troubling.”
The grants were awarded by the Agricultural Development Board in 2005 and 2006, under former Gov. Ernie Fletcher, who chaired the board. The vice chairman of the board was, and still is, Agriculture Commissioner Richie Farmer.
“I think the board and the staff need to take this very seriously,” Luallen said.
Roger Thomas, the ag policy board's executive director, said in a press release that shortly after he was appointed last winter by Gov. Steve Beshear, “it became apparent that several financial-control and contract-management issues had been overlooked. At that time, we sought and received authorization from (the board) to pursue an independent review by the Auditor of Public Accounts of a project in which a possible discrepancy had occurred.”
Allied's contract expired June 30 and was not renewed.
By e-mail, Allied Food Marketers owner Rick Raque said Friday afternoon that he could not respond until he had read the audit.
Allied was supposed to help Kentucky farmers get their products into more markets. “The results were questionable,” Luallen said.
She said the $5 million boondoggle resulted from a combination of lack of oversight on the part of the state, starting at the very beginning with the way the contract was written; lack of oversight of the vendor; and the questionable spending by Allied.
“The contract was very weak and was not protecting the commonwealth's interest,” Luallen said Friday.
“Ultimately, the responsibility falls back to the office of agricultural policy,” she said. “In the previous administration, (under Fletcher) that office was not providing adequate oversight and accountability.”
The Agricultural Development Board was meeting at the State Fair in Louisville on Friday.
Speaking from Louisville by phone, Farmer said that farmers needed a distribution link to the marketplace, which is what the contract was designed to provide.
“As far as being involved in the legal process or drawing up the contract, I was not involved in that,” Farmer said. He said the board began hearing complaints at the end of 2007. “When that started to happen, one of the first conversations I had with the new administration was that we had concerns.”
Asked whether the board should have had greater oversight, Farmer said, “Yeah, probably so.”
Raque's company routinely turned in expenses that should have raised eyebrows but apparently were never reviewed.
■ $56,000 spent on charitable contributions and sponsorships for golf tournaments. These included donations to a booster club at the high school attended by one of Allied's officers as well as $33,600 to send 56 retail employees, almost half of whom were out-of-state residents, to a meat cutters' training school.
■ $15,400 spent on meals and snacks for Allied employees, including $3,822 in meals for one company officer and his spouse, an Allied subcontractor, and excessive tipping, sometimes more than double the actual bill.
■ Several instances of paying for meals and expenses for state employees, probably in excess of the $25 statutory limit.
There were multiple conflicts of interest, including a $500,000 earmark for Rebekah Grace Food Supplements to market natural and organic products. The general manager of Rebekah Grace was an employee of Allied, which already had a deal to steer products to Rebekah Grace.
Luallen said the results have not been referred to a law enforcement agency because the contract was so weakly written that it would be difficult to hold Allied to any criminal conduct.
Thomas said in the response that the GOAP agrees with most of the nine recommendations for greater oversight, and that they have hired legal counsel to review previous and future contracts.
The auditor's office also will scrutinize other agriculture grants and monitor the implementation of the changes.
The governor's office has commissioned a University of Kentucky study of the economic impact of $156 million in grants on the farm community. That report is scheduled to be released this fall.