Special Reports

Auditors 'appalled' by spending

Kentucky State Auditor Crit Luallen said Tuesday that her office has put law enforcement agencies on notice about possible criminal wrongdoing at Blue Grass Airport.

“We have made initial contact with the appropriate law enforcement agencies to advise them that we are aggressively pursuing this audit,” Luallen said.

While she said her auditors currently don’t have specific evidence of criminal activity, “we’re appalled at the examples of spending that have already been made public in this case.”

Thousands of dollars worth of electronics, DVDs and Nintendo Wii video games have been charged to the airport, airport documents show. The airport’s attorney has said it is unclear who has those items and where they are.

Luallen’s office began auditing the airport after articles appeared in the Herald-Leader about excessive expenditures that former airport Executive Director Michael Gobb made using airport money. Gobb resigned last week.

The review of the airport’s accounting is a high priority for her office, Luallen said.

“It is our goal to get this done in a matter of weeks, not months,” she said. “We’re trying to be as diligent as we can to get to the bottom of this as quickly as possible.”

Seven auditors from Luallen’s office are working on the audit.

She went on to say that, based on news accounts, it was clear a serious problem with financial management and the oversight of spending existed at the airport. Among questionable expenditures is $4,500 that was charged by three employees, including Gobb, on an airport credit card in 2003 for an evening at a Texas strip club.

The Herald-Leader found that financial controls at the airport were so lax that the seven airport officials who were assigned credit cards incurred more than $8,000 in finance charges and late fees over the last three years.

Airport Board Chairman Bernard Lovely told the Herald-Leader on Monday that such charges “would not be an issue in the future.” Lovely also said he would cancel the seven employee credit cards — one of the first procedural changes made at the airport since Gobb resigned.

Luallen said she generally puts law enforcement agencies on notice when she thinks there might be wrongdoing, then keeps those agencies apprised as audits proceed. But her office doesn’t refer a particular case to law enforcement until after an audit has been completed, she said.

“I believe it is critical that the airport have strong, qualified management during what is a difficult period,” Luallen said. “They need to make a decision quickly about getting some management expertise at the top there.”

Lovely, who had stepped in to oversee airport operations after Gobb’s resignation, also has come under fire.

A committee of the Urban County Council unanimously called Tuesday for Lovely, who had been responsible for signing off on Gobb’s expenses, to step aside as chairman and stop overseeing airport operations until Luallen’s audit is finished.Lovely did not return phone calls requesting comment.

‘Grossly inappropriate’

Imposing new long-term accounting procedures will be key to cleaning up the airport mess, city leaders said.

“We all agree that the conduct we’ve heard about is disgusting, it was appalling, it was grossly inappropriate,” said Mayor Jim Newberry, who appoints the airport board’s members.

He said it’s up to the board to set the checks and balances and added that board members seem to be moving swiftly to do so.

Up to this point, much of the airport credit card approval process rested on Gobb. The other six administrators would receive their statements, make notes — usually one or two words — about the purpose of each expense and then send them to Gobb for approval, said Thomas Halbleib, the airport’s attorney.

Gobb was supposed to send his statements to Lovely for approval, but as the Herald-Leader reported last month, e-mail messages between Gobb and Lovely suggest that the chairman didn’t see all of Gobb’s expenses.

In addition, Gobb appeared to be approving expenditures that he himself had made or had other administrators make on their cards.

But many times in the last three years, credit-card bills either weren’t paid in full by accounting or checks were mailed late.

“It’s money that’s really just going down the drain, as I see it,” said Councilman Julian Beard. “In my opinion, they are extremely undisciplined in how they handle this.”

The airport recently received a clean bill of financial health from an auditing firm hired by the city.

But that audit, conducted by Potter & Co. in Lexington, wasn’t meant to delve into detailed accounts and payment procedures. The audit focused on verifying the airport’s big-picture financial condition, such as whether the $143 million entity was operating in the black, which it is.

The audit states that it is the airport board’s management that “has established a comprehensive internal control framework that is designed to protect the assets from loss, theft or misuse.”

Jeff Payne, associate professor of accounting at the University of Kentucky, said such an audit wouldn’t normally pick up problems with credit cards unless the entity made a majority of its purchases through those cards.

But he said the airport wouldn’t be the first agency or company to see waste from procurement cards.

“I would say it’s not unusual,” Payne said. “They have to be very tightly monitored.”

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