Special Reports

Audit: Airport board repeatedly missed red flags

While Blue Grass Airport executives were racking up questionable charges and travel expenses, the board overseeing them repeatedly missed warning signs of over-spending and lax record-keeping, according to state Auditor Crit Luallen.

A lack of adequate controls and lax monitoring of expenses by board members created an environment in which there was "little risk of detection" for improper spending of more than $500,000 in three years, Luallen said in her report last week.

"There was not enough questioning on the part of the board about some of these matters," she said.

The board of directors has since scrambled to tighten its policies and procedures for airport employees and managers.

Luallen said her investigators found no evidence that board members were involved in the misspending or complicit in the directors' schemes. But she mentioned numerous instances that should have tipped off directors to the spending:

■ The board regularly increased the airport managers' "training and travel" budgets, which ballooned from $90,000 in 2006 to $150,000 in 2008. Each time, Michael Gobb and the other airport employees overspent it. In 2006 and 2007, they spent nearly twice what they initially were allotted.

Gobb and former administration and finance director John Rhodes would present monthly revenue and expense reports to the board so that members could ask questions.

"The board should have expressed concern about spending practices and requested detailed information as to how this money was being spent," the audit said.

■ Gobb had nearly carte blanche to approve many of his own expenses and all of his subordinates' spending. As previously reported by the Herald-Leader, that allowed Gobb to direct others to make purchases on their airport-issued credit cards. The purchases included Hannah Montana concert tickets and thousands of dollars in electronics, including Nintendo Wii systems.

The executive director's and board members' travel was to be coordinated with the board chairman, and travel was to be planned in advance when possible, according to the airport's policies and procedures manual. But the board had no specific policy for the chairman to sign off on Gobb's expenses, so Gobb would often tell Rhodes, the chief financial officer, to reimburse him or pay the credit card bills.

Former board Chairman Bernard Lovely's approval of Gobb's spending "was sporadic throughout the process," Luallen said.

"The CFO could have and should have brought concerns forward to the board," she added. "But he in fact was cooperating with the executive director and was a beneficiary in many cases of this excessive spending and also of the personal benefits that were awarded to select staff."

■ Auditors couldn't find documentation outlining details of the cost, purpose or benefits to the airport for "numerous out-of-state and international travel for events and conferences."

■ When Gobb did turn in travel reports, they were often incomplete.

For instance, his February 2008 travel explanation said he made a presentation at an airport planning symposium in Denver on Feb. 28, yet he continued to charge expenses for the trip until March 4.

■ The board members knew of generous employee Christmas gifts and giveaway prizes because they were often at events where the gifts and prizes were given, but they did nothing to curtail such spending, the audit said.

For example, marketing director Brian Ellestad and former operations director John Coon spent more than $1,000 in 2006 and 2007 combined for Lionel trains as staff Christmas party prizes. Gobb also charged $1,222 to Hobbytown USA in the same period.

And over three years, the airport paid $14,741 for holiday hams for employees.

"The board was aware of the majority of these gifts or at least had been invited to the events during which most of these gifts were distributed," the audit said.

■ Board members, at times, were beneficiaries of the directors' spending.

Coon, for instance, charged a $201 vintage flight propeller as a gift for an outgoing board member in 2008. He told auditors that female board members were given jockey silks.

In March 2008, marketing manager Amy Caudill charged $296 on her airport credit card to buy 14 copies of The Little Red Book of Everyday Heroes, written by Sylvia Lovely, the wife of the former board chairman.

Caudill told auditors that Gobb told her to buy the books and place them at each board member's seat at the following meeting.

Bernard Lovely also was reimbursed by the airport for a $388 charge stemming from a 2007 trip to Hawaii for the American Association of Airport Executives issues conference. That expense, according to the receipt, was for a "helicopter tour," the audit said.

"The helicopter tour was covered in full through this reimbursement," the audit said.

Former board chairman Jon Zachem, who headed the group in 1998, 1999, 2002 and 2003, said he warned his successors that they had to watch Gobb and his spending "like a hawk."

"It appears to me that some board members might be a little extravagant, too," Zachem said.

Lovely disagreed. He said Gobb and the other directors concealed much of their improper spending.

"I think the board, as we found out, was thwarted at every turn in providing oversight," he said. "When two or three people collude against you, it's virtually impossible to detect until you catch them in their lies. Finally, we caught them in their lies."

He said he first knew something wasn't right last fall, when directors "started giving different stories" about the purchase of four shotguns, which directors bought to use at a Boy Scouts event.

That issue arose months after the Herald-Leader began asking questions about airport expenses.

The airport saga should serve as a cautionary tale for other public and quasi-governmental agencies that have volunteer boards, Luallen said.

"I don't want this whole controversy to have a chilling effect on people who either serve on public boards today or may be asked to serve on public boards in the future," Luallen said. "Rather, I hope people will see this as a case study that can help boards understand what their roles should be and understand where their weaknesses may be."

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