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Audit criticizes Laurel contract

A Laurel County official gave his business partner — who later became his wife — a contract for more than $500,000 worth of emergency equipment, raising questions about the propriety of the deal, according to an audit released Tuesday.

The equipment included 40 specially equipped emergency-response trailers and 40 generators to be used by 10 counties. The company that won the project supplied trailers that were smaller and less sturdy than specified, and generators less powerful than required, auditors concluded.

The audit said the company also apparently overcharged for the generators.

One county emergency director even questioned whether the trailers were new, because of "deteriorated conditions," the audit said.

State Auditor Crit Luallen referred the findings to the FBI, the U.S. Department of Homeland Security and the state Attorney General's Office.

The state Division of Emergency Management didn't properly oversee handling of the purchase, the audit said.

"It's clear that the state's lax monitoring allowed this major purchase to be awarded to a related party who supplied equipment to 10 counties that was not only under specifications but also inflated in price," Luallen said in a news release.

The suspect purchase came as part of a $1.8 million grant to the counties. Luallen's office questioned the entire $1.8 million cost because of the problems.

The findings were included in the second part of an annual performance audit of state agencies by Luallen's office, released Tuesday. The audit covered the fiscal year ending June 30, 2008.

The audit recommended improved financial practices at a number of state agencies.

For instance, the Cabinet for Health and Family Services needs to improve security in local offices over electronic benefit transfer cards, and the Kentucky Office of Homeland Security should improve internal controls over its reports to the federal government, the audit said.

However, the largest questioned cost in the audit was the $1.8 million grant to Laurel County.

The finding was included in the audit because the federal money came through the state as part of the Chemical Emergency Stockpile Preparedness Program.

The program awards money for emergency-preparedness programs in counties near the Blue Grass Army Depot in Richmond, which stores hazardous chemical weapons.

The 10 counties getting equipment with the money designated the CSEPP director in Laurel County to handle the purchase, so the money ran through the fiscal court there, the audit said.

The audit did not identify the Laurel County CSEPP director by name. County Judge-Executive Lawrence Kuhl said it was Brian Reams, the county's emergency-management director.

A separate audit of the Laurel County Fiscal Court, released with the larger state review, said Reams opened bids for the equipment purchase with no one else present.

Reams awarded a large chunk of the contract to a company called Providing Response and Emergency Preparedness LLC, or PREP, owned by a person with whom he was in partnership in another business and then married, according to auditors.

The audits did not identify that person by name.

State incorporation records list Melody Vess as the sole member and organizer of PREP. She also is listed as an officer in a separate company, now inactive, called Hazmat Eleven Inc., that shows Reams as president.

A woman who answered the telephone at Reams' office Tuesday afternoon said there would be no comment on the audit.

Laurel County Magistrate Jeff Book said Judge-Executive Kuhl notified magistrates that he had fired Reams on Tuesday morning.

The audits said PREP submitted an invoice for $530,446, but it contained specifications and quantities for equipment very different than what the counties actually got.

For instance, the bid called for counties to get 8,000-watt generators, but they got 3,000-watt units. And it appeared PREP overcharged for those generators by up to $900 apiece, the audit said.

The counties later traded in the generators for more powerful ones, with the extra cost covered by additional federal money, the audit said.

The county fiscal court audit said PREP was the low bidder on providing the equipment. But for various reasons — including that the company couldn't supply some equipment — the cost of the purchases ended up exceeding what would have been paid to the other bidder, the audit said.

Other county emergency directors told officials from the state Division of Emergency Management and the Federal Emergency Management Agency of their concerns about the equipment PREP supplied, but the agencies did not start a formal investigation.

The audit said the Division of Emergency Management, which is part of the Department of Military Affairs, didn't properly monitor the purchasing process and didn't check to make sure the equipment funded with the grant met the requirements.

The department should review which purchases local governments can do and which the state should handle, and expand a policy to review local purchases above a certain dollar threshold, the audit said.

The department said in a response that it will complete a review of the $1.8 million grant and will set up a procedure to do inspections of equipment that counties buy with CSEPP money.

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