Newberry to ask state auditor to meet with council about fraud documents

Lexington Mayor Jim Newberry will ask State Auditor Crit Luallen to appear before Urban County Council as soon as possible to talk about documents at the center of a six-month controversy sparked by allegations of fraud made by a city employee.

Newberry made the statement after a heated exchange between Vice Mayor Jim Gray and council member Jay McChord at a council work session Tuesday.

In June, Gray appointed council members to a special investigative committee to look into fraud allegations by Patrick Johnston, the city director of risk management. Johnston questioned the way some of the city's insurance had been switched to the Kentucky League of Cities in 2007. Johnston's job was later targeted for elimination.

Johnston's allegations were at the center of the controversy, and the investigative committee was formed in part to force the Internal Audit Board or the city's external auditors to turn over the allegations to council.

Last week, council members seemed stunned by the revelation in Luallen's audit that an unnamed council member had a copy of the fraud allegations at least a month before the investigative committee was formed.

Councilwoman Diane Lawless said last week she had met with Luallen on May 6 and turned over a large stack of documents, including the fraud allegations. However, Lawless said she did not know the allegations were among the documents. She said it was common for many people to leave documents for her.

The controversy has cost Lexington taxpayers at least $50,000 in legal bills — plus, the city will have to pay for the state audit, estimated to be another $50,000.

At Tuesday's work session, McChord said "there should be serious ramifications" to Lawless's having the documents but not telling other members of the investigative committee.

McChord said he did not know "what can be done." Last week, he said the city's ethics board should investigate Lawless's actions. "I want clarity on how she obtained the documents," he said.

McChord, who served with Lawless on the investigative committee, also said Tuesday that Johnston told the committee he had talked to Lawless and Councilwoman K.C. Crosbie about his allegations before the investigative body was formed.

McChord said of Crosbie, "On May 25, she was dead certain there was fraud." He asked how Crosbie was able to make a statement "with such certainty."

According to a time line provided by the internal audit board, the council formed the investigative committee on May 25 "in response to allegations" by Crosbie.

McChord turned to Vice Mayor Gray and said: "I gotta ask, vice mayor, when you put this committee together, were you aware two members had this intimate knowledge, had documents and those sorts of things?"

Gray shot back, "Let me answer you real quickly, real clearly — no. I read about it in the newspaper. I certainly had no documents." Gray continued, speaking to McChord: "What you are doing here today is an illustration of Bullying 101."

Gray is running against Newberry in the Nov. 2 mayoral election.

This story was originally published October 13, 2010 at 12:00 AM with the headline "Newberry to ask state auditor to meet with council about fraud documents."