Audit reveals conflicts of interest, questionable spending by former Prestonsburg officials

Adam H. Edelen is Kentucky's auditor of public accounts.
Adam H. Edelen is Kentucky's auditor of public accounts. HERALD-LEADER

A former mayor of Prestonsburg had a conflict of interest on a land deal that benefited him, and he used city money to pay expenses for a professional arena football team, according to a special examination of the city’s finances by state Auditor Adam Edelen’s office.

The exam also found that the city’s former comptroller did tax-preparation work for businesses and individuals on city time.

The former comptroller used $7,504 in taxpayer money to buy income-tax software, then installed it on city-owned computers and charged people to prepare their returns, according to the findings in the examination.

“The former administration was cutting sweetheart deals for itself, wasting taxpayer dollars and generally running the city for the benefit of a few,” Edelen said in a news release.

The report on the examination did not name the officials. Current Mayor Les Stapleton, who took office at the first of the year, said the findings referred to former Mayor Jerry Fannin and Yvette Latta, who left the job as the city’s comptroller in March.

The former mayor appears to have walked away from that real estate deal with $97,000 in grant money in his pocket.

State Auditor Adam Edelen

The city council requested the special examination. Edelen’s office issued a report on the inquiry Wednesday.

Contacted Wednesday morning, Latta said she had not seen the report and did not want to comment immediately. Efforts to reach Fannin were not successful.

In addition to the former mayor’s alleged conflicts of interest, the exam said a lack of appropriate policies led to questionable spending, and it included examples of the city’s failure to follow bid rules.

The findings will be referred to Kentucky State Police, the state attorney general’s office and the local ethics board, according to a news release.

The land deal the report cited unfolded over several years, beginning in December 2001 when the city agreed to transfer 100 acres to the Prestonsburg Industrial Corp.

The corporation was to develop 19 acres and sell the rest, with the city getting $5,000 for each acre sold, the report said. Fannin bought a total of two acres from 2005 to 2009 but paid a total of $3,000, $7,000 less than called for under the agreement, auditors found.

In December 2012, Fannin sold his two acres to the Floyd County Emergency and Rescue Squad for $100,000, or $97,000 more than he paid for it, according to the examination.

Edelen’s office said it appeared Fannin benefited personally from his office, first through an opportunity to buy the land for less than it was supposed to cost, and then by having knowledge of, and influence over, the rescue squad’s purchase of his land.

The city helped the squad get a grant to buy the land, which it wanted for a new building, the report said.

“The former mayor appears to have walked away from that real estate deal with $97,000 in grant money in his pocket,” Edelen said.

Other findings in the report included that there was a risk Fannin improperly received a Chevrolet Tahoe as a gift, that he used $1,800 in city money to pay renewal fees on his skilled-trade licenses, and that he authorized spending $7,835 in public money in 2012 and 2013 for an arena football team in Pikeville of which he was a member.

Some of the checks went to the team while others paid for lodging or gas costs when the team traveled, the report said.

The report said part of the money came from the city’s Senior Fund, which the United Way of Eastern Kentucky had supported to help with delivery of meals to older people. The payment played a role in the organization’s decision to void or revoke two grants to the city, the report said.

Auditors also said there was inadequate documentation for $8,300 in checks the city wrote to Latta’s husband or his media consulting business.

The city failed to obtain $3,341 in reimbursements for cellphones used by family members of local officials, and did not properly withhold supplemental insurance premiums from employees’ checks, resulting in employees underpaying more than $32,000, the report said.

In a response included with the examination, Stapleton said the city has made a number of changes since he took office as mayor, strengthening financial controls, following bidding laws and changing procedures to avoid conflicts of interest by employees.

Stapleton also asked Edelen to help push for a criminal investigation of the findings.

The auditor’s office audits the finances of county offices, including fiscal courts, sheriffs and county clerks.

Cities usually hire private companies to do required audits of their books. However, the auditor’s office has authority to do special examinations of cities.