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Knox audits referred to prosecutors

From millions of dollars in poorly documented spending to $4,144 in missing office furniture, auditors found a raft of problems in the two latest audits of the Knox County Fiscal Court.

Shortcomings in record keeping and financial controls accounted for some problems, but other findings involve potential criminal, tax and ethics violations. State Auditor Crit Luallen's office referred findings from the audits to federal prosecutors, the Internal Revenue Service and the county attorney's office for possible further action.

The audits reviewed spending by the county from July 1, 2005, to June 30, 2007. Luallen's office released the audits Monday.

As with the three previous audits of the county, the latest two said there were so many accounting problems that there was a high risk of fraud in county spending and that auditors could not express an opinion on the county's financial activity.

Raymond C. Smith was judge-executive during most of the period covered in the latest audits. Smith was scheduled to be sentenced in federal court Tuesday on charges that grew from audits covering the first part of his term. Late Monday, his attorney filed a motion to delay the sentencing.

In May 2006, a state audit raised questions about $2.7 million in county spending. That led to further investigation; the day after Smith lost his race for a second term in November 2006, FBI agents carted off boxes of records from his office.

Smith pleaded guilty to mail fraud. He admitted he had false bids prepared for county projects to cover the fact that companies owned by him or family members did the work, and that he mailed false documents to auditors.

Smith has said that he used companies with which he had ties in order to save the county money on public projects. He faces a prison sentence of about three years, based on advisory guidelines. His plea deal also calls for him to repay the county $110,000. Smith's brother pleaded guilty to taking part in the scheme.

The audits released Monday indicate record-keeping didn't get any better at the end of Smith's four years in office. The audits cover the last 18 months of his term and the first six months of that of his successor, Judge-Executive J.M. Hall, but the most serious problems occurred under Smith, Luallen said.

Among other things, the audits found that the county improperly paid for more insurance coverage for elected officials than for employees; that records on employee timesheets and vacation time were inadequate; that the county was spending $1,000 a month on cell phones but had poor control over usage; that the county failed to properly bid the purchase of a piece of heavy equipment for $118,881; and that records of the fiscal court were in “complete disarray.”

Auditors questioned more than $2 million in spending in the 2005-06 fiscal year because there wasn't adequate documentation for it. That doesn't mean money is missing, just that record-keeping was too poor to confirm the spending was proper.

The audit also questioned payments of $113,173 to a company that did roadwork. Smith may have had an interest in the company, the audit said.

Auditors found that in the last pay period when Smith was in office, the county issued a check to him for $6,118 for unused vacation time. Elected officials aren't entitled to vacation pay; the payment put Smith over his legal maximum salary, so he owes the county the money, the audit said.

The financial review also found that the county paid for $4,144 worth of office furniture Smith ordered in 2005, but that no one picked up the furniture until February 2007, after Smith was out of office. Auditors couldn't find the furniture.

Hall, the current judge-executive, said the store owner said Smith picked up the furniture. That issue has been referred to federal prosecutors.

Smith and his attorney were not available for comment Monday afternoon.

Hall said he has made a number of changes recommended by auditors to fix problems identified in the audits. Luallen agreed that Hall seems committed to improving record-keeping and financial oversight by his office.

“After years of continual mismanagement in the Knox County judge's office, we are encouraged by the current judge's willingness to adopt our recommendations and improve oversight of his office for the benefit of the taxpayers of Knox County,” Luallen said.

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