Newberry dismisses fraud allegations as 'a lot of smoke'

Investigations into fraud allegations made by a city employee will come to nothing, Mayor Jim Newberry said Wednesday.

"There is a lot of smoke ... but I am confident there is no fire," the mayor said on WVLK-590 AM's The Lexington Morning News With Jack Pattie.

Newberry appears on the radio program on the first Wednesday of each month to answer callers' questions. This month, he will be followed Thursday by Vice Mayor Jim Gray, who is challenging Newberry for the city's top job in the Nov. 2 general election.

Specific fraud allegations have never been made public, but Patrick Johnston, the city's director of risk management, raised questions in 2008 and 2009 about the city's procurement of insurance from the Kentucky League of Cities. His job has since been targeted for elimination as part of a broader city reorganization.

The Urban County Council voted unanimously to set up a committee to investigate the matter. At Newberry's request, State Auditor Crit Luallen also is investigating.

Newberry said Wednesday that Luallen might come up with suggestions for the city to improve the way it buys insurance, but "I think that at the end of the day ... the conclusion will be that there was no fraud."

The city's internal and external auditors have found the fraud allegations to be without merit.

Asked about Newberry's comments, Gray released a statement: "It's inappropriate for me, or the mayor, to prejudge an issue that is clearly considered serious by both the council and the state auditor."

On Tuesday, the council committee received a letter from Mountjoy Chilton Medley, the city's external auditing firm, that said the firm had communicated about the allegations with several city officials, including Bill O'Mara, the former acting commissioner of finance; Bruce Sahli, director of the internal audit division; and law commissioner Logan Askew.

The letter says the firm "communicated the matter to management in order to allow management the opportunity to evaluate the information and determine if an investigation was necessary."

After the letter was made public, Newberry spokeswoman Susan Straub said no specific information about the allegations was passed on to the officials.

Newberry repeated that claim Wednesday.

He said the letter from Mountjoy Chilton Medley "did not make clear the fact that the specific allegation was never shared with anybody in our administration."

All of the callers to Wednesday's radio program had questions about things such as problems with paving on city streets and railroad bridges that need painting.

But Pattie read a news release from the Gray campaign that accused Newberry of illegally running his campaign from his city office.

The news release was prompted by a posting on the Herald-Leader's Bluegrass Politics blog last week. The item noted that Lance Blanford, Newberry's campaign chairman, has a security badge that allows him to enter the government center without stopping at the front desk.

The badge has a city seal, a picture of Blanford and identifies him as "campaing (sic) manager."

Newberry said Blanford comes to the government center only because he sits in on Monday morning scheduling meetings. He said at least several dozen people have similar badges, including "one of the vice mayor's most active campaign supporters."

Straub later identified that person as Lori Houlihan, who coordinates volunteers for the Gray campaign.

Straub said Houlihan might have gotten the badge because she used to work for property valuation administrator David O'Neill.

Houlihan said she turned the badge in as she left the PVA's office and joined the Gray campaign.

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