An investigation by the state auditor's office found no evidence of fraud in the Urban County Government's purchase of insurance from the Kentucky League of Cities, but that doesn't mean City Hall operations are humming along as smoothly as a new high-end luxury car rolling off the dealer's lot.
On the contrary, the report from Auditor Crit Luallen's office identified several problems, including procurement policies and an internal audit process that function in what can best be described as a haphazard fashion.
These shortcomings in procurement policies and internal auditing were contributing factors in generating a 6-month tug of war between Mayor Jim Newberry's administration and the Urban County Council that has run up a tab of at least $100,000 — and counting — in legal fees and audit costs.
Fixes recommended by the state audit report can clean up existing conflicts in the procurement policies and establish the quantitative method for scoring bid proposals that is not part of the process now. Similarly, the report contains recommendations for expanding the Internal Audit Board, for communicating fraud allegations with members of that board in closed sessions and for establishing a confidential process for receiving tips from employees and the public.
All of the recommendations in the report deserve prompt and thorough consideration by the Urban County Council. As Luallen noted Monday, if the recommendations had been in place earlier, the costly tug of war might have been avoided.
Still, no recommendations and no actions by the council can completely eliminate the "human factor," which was responsible for perhaps the most troubling aspect of this controversy.
On two occasions, Patrick Johnston, the city's director of risk management, responded to fraud questionnaires from an external auditing firm by raising concerns about the city's purchase of insurance from the League. One of Johnston's allegations involved conflicts of interest on the part of a League official. Even if the fraud allegations could not be proven, this conflict of interest subsequently was substantiated by an earlier audit.
Johnston's allegations were not shared with the full Internal Audit Board. Nor were they fully investigated, according to the report a special committee of the Urban County Council issued last month. Internal Auditor Bruce Sahli "did not interview the affected persons," the committee report said.
Sahli did tell the board chairman about the allegations. He also told Joe Kelly, Newberry's senior advisor. Kelly, an ex officio member of the Internal Audit Board, shared the information with Law Commissioner Logan Askew, whom Johnston worked for and whose name was mentioned in at least one of the allegations.
In response to an open records request, Askew was given a redacted copy of that allegation. But the name of Johnston, the person making the allegations, was not redacted. Subsequently, the Newberry administration proposed eliminating Johnston's job as part of a reorganization.
When this recommendation and the possibility that Johnston might be the subject of retaliation piqued the council's interest and ultimately led to an investigation by the special committee, Sahli cited confidentiality reasons for refusing to cooperate, even though he apparently saw nothing wrong with sharing a whistle-blower's name with senior administration officials. A lawsuit Sahli filed challenging the committee's subpoena powers remains unsettled, with Fayette County taxpayers picking up the legal fees for both sides in the dispute.
Sahli's selective approach to protecting the confidentiality of a whistle blower and Kelly's nonchalance in alerting a subject of the whistle-blower's allegations represent the troubling "human factor" in this controversy — a factor that can't be fully eliminated simply by changing procurement policies and internal auditing practices.