Public has no right to see city fraud allegations, attorney general rules

The public has no right to see fraud allegations at the center of an investigation in Lexington government, according to an opinion from the state Office of the Attorney General.

The opinion released Friday said the Lexington-Fayette Urban County Government did not violate the state's Open Records Act by denying the Lexington Herald-Leader's request for the documents because they are an auditor's work papers, excluded from public inspection even after a final audit report is released.

The Herald-Leader had appealed to the attorney general an April 29 denial of its request for the records by LFUCG's internal audit division. Attorney General Jack Conway's office interprets the state's open-records and open-meetings laws.

Assistant Attorney General Amye Bensenhaver concluded that the allegations belong to the city's outside auditor, Mountjoy Chilton Medley. The attorney general's office had previously ruled in 1978 that the public does not have a right to see work papers of the state auditor.

The Herald-Leader argued that the papers belonged to LFUCG, which hired Mountjoy, and that work papers were no longer excluded after the audit was complete.

Bensenhaver also cited national auditing standards as a reason to keep the documents confidential.

"A key feature of this information gathering process, as we understand it, is the need to insure confidential reporting of fraud under the conditions that preclude employee retaliation," she wrote. "It was under this standard, and these conditions, that Mountjoy circulated its Fraud Risk Assessment to LFUCG management employees in 2008 and 2009, assuring the recipients that their 'responses will be confidential and only used as part of our audit analysis.'"

In a statement on Friday, Mayor Jim Newberry said the opinion "recognizes the importance of the independence of the internal auditor from the Mayor and the Council, as we have said."

The internal audit division and board are housed in the Government Center and are financed by the Urban County Government, but under its charter, both groups operate independently from the mayor's office. Under the charter, the mayor appoints all the board members.

Still, Newberry said the opinion "in no way diminishes my desire to open these documents to the public."

"Contrary to news stories and editorial opinion, I have repeatedly asked that these documents be made public because I am convinced that they will reflect no fraud," he said. "Per my request to Mountjoy Chilton Medley on August 11, I hope the external auditors will make these documents public soon."

Herald-Leader Editor Peter Baniak said the newspaper will evaluate the opinion, which has the force of law but can be appealed in circuit court.

In 2008 and 2009, Patrick Johnston, the city's director of risk management, filled out two fraud risk assessments. Mountjoy investigated both claims and found there was no "material misstatement" of the city's finances due to fraud.

Johnston's name was released to the city's law commissioner, Logan Askew, after he requested the fraud allegations in an open-records request. Askew was granted a heavily redacted version of the documents because he was mentioned in Mountjoy's investigation, he has said.

The allegations are now at the center of investigations by an Urban County Council committee and the state auditor's office. Those investigations are focused on Johnston's allegations about problems in insurance procurement, and whether the allegations were related to the proposed elimination of Johnston's job.

Joe Kelly, a senior aide to Mayor Jim Newberry and a non-voting member of the Internal Audit Board, told the council committee on Friday that he told Askew about the investigation. He cited city and state ethics codes that allow anyone accused in an ethics complaint to see the names of their accusers.

In addition, Mountjoy sent a letter to council member K.C. Crosbie — who first raised questions about the allegations — with documents that also mentioned Johnston's name.

Earlier Friday, lawyers appeared in Fayette Circuit Court over another matter related to the Internal Audit Board.

Terry Sellars, who was hired by the city to represent the Internal Audit Board and Bruce Sahli, director of the internal audit division, is attempting to quash a subpoena served on Sahli by the council's investigative committee.

Sellars has argued that the Urban County Council does not have subpoena power. Retired Franklin Circuit Court Judge Roger Crittenden is representing George Myers, the council member who is chairman of the committee. The city also is paying Crittenden, which means the city is paying attorneys to both sue and defend itself.

The hearing on Sahli's motion has been rescheduled until Sept. 3.

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