Special Reports

Auditor tells public boards how to restrict expenses

Kentucky State Auditor Crit Luallen, in light of a spending scandal at Lexington's Blue Grass Airport, released a list of recommendations for public and non-profit boards across the state on Monday.

Among those recommendations are that boards should consider having employees of the entities they oversee use purchasing cards rather than credit cards. Purchasing cards would allow boards to restrict the types of expenditures that can be made and the amount spent on a single item, according to Luallen.

Luallen also recommended that boards have a detailed orientation process for new and returning board members to ensure that they understand their purpose and responsibilities.

Lexington Mayor Jim Newberry said he forwarded the recommendations to agencies that are part of the city's financial reports. "I have requested that each agency report back to me on whether or not they are in compliance with each recommendation."

Asked whether there would be further action if they are not in compliance, Susan Straub, a spokeswoman for the mayor, said: "I think the letter is clear, and he will make any additional decisions when he gets their responses, if necessary."

In all, there are 28 suggestions in Luallen's list for ensuring that boards "establish appropriate financial oversight and internal controls to help govern their agencies."

"Some of these recommendations might seem like common sense; however, as we saw at the airport, weak controls over time can cause a major breakdown in financial management if there isn't proper oversight in place by the board," Luallen said.

She presented the list to members of the Kentucky Society of Certified Public Accountants on Monday in Louisville. Copies also were sent to Newberry and members of the Urban County Council. The list also was made available on the auditor's office Web site, www.auditor.ky.gov.

Luallen said the list stems from questions from the council and members of boards statewide after her office conducted an audit of Blue Grass Airport officials' expenditures and after recent stories about the Lexington Public Library.

Luallen's office found that seven airport officials, including four who have stepped down, had more than $500,000 in questionable and unsupported expenses from January 2006 through December 2008.

"I think this will be an important tool for many boards around the state," she said.

Newberry said he welcomed the recommendations.

"The public has every reason to expect that public agencies and boards meet the highest ethical and financial standards, and I appreciate the auditor's recommendations toward that end," Newberry said.

Newberry said city hall already is following most of Luallen's recommendations, "but it never hurts to review policies and procedures."

Since the airport scandal became public in November, the Blue Grass Airport board has adopted many new policies similar to those recommended by Luallen. Before the state auditor completed her examination of airport officials' expenses in February, the airport board already had taken credit cards away from the seven airport employees who had such cards.

"I think that she's got some excellent suggestions, and I would encourage all the boards to review that and to try to adopt as many of the recommendations that would be practical," said Urban County Councilman Ed Lane, who also is the mayor's appointee to the airport board.

"With the things that happened at the airport, many of the boards here in Central Kentucky are re-evaluating their ... financial controls and budgets more carefully," Lane said.

Urban County Council member Diane Lawless said she is particularly concerned about whistle-blower policies, another issue that Luallen addresses in her "lessons learned" list.

Luallen suggests that boards establish methods, such as whistle-blower policies, that allow for concerns to be brought to their attention, but Lawless said that employees should have "some place above the board level" to take their concerns.

"I want this to apply to any board that the Urban County Government appoints," Lawless said.

She also said she wants complaints and concerns reported to the council and to the city administration.

Newberry noted that the city already has been considering having a structure in place to allow people to voice concerns anonymously.

Employees are at risk of not being heard or even of losing their jobs when their complaints and concerns are registered to a board that blindly follows its agency's executive director, Lawless said.

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