Scathing KLC audit likely won't affect relations in Shelby

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By The Staff


A stinging audit of the spending practices of the Kentucky League of Cities likely won’t affect Shelby County’s two cities’ relationship with that organization.

State Auditor Crit Luallen released a report last week that outlined lavish and questionable spending practices by KLC and said that audit had been sent to law enforcement agencies. She told The State-Journal in Frankfort that she forwarded the report to law enforcement “because of the nature and complexity of the exam’s findings.”

Her audit seemed to support the findings earlier this year by The Herald-Leader in Lexington, which cited high pay for executives for an organization supported by public money, conflicts of interest, undocumented credit card expenses and gifts from vendors, including admission to a Las Vegas strip club for three League staff members that included former Shelbyville Mayor Neil Hackworth, the organization’s deputy executive director.

“It’s a shame,” Shelbyville Mayor Tom Hardesty said. “There are a lot o good people that work for the League of Cities, and myself and Mayor [Steve] Eden of Simpsonville, I know we both get a lot of good help from them, almost on a daily basis, on different advice, insurance services, etc.

“In every organization there’s always room for improvement. Every now and then you have to step back and look at your organization and see if there’s a better way you need to run it. They probably weren’t doing that, and it took an outside agency to take that look for them. Had somebody been watching, they probably wouldn’t be in the situation they’re in now.

“We’ll continue to be a member. I don’t have a problem with being a member because of all the good services it does offer. They keep up with a lot of specially legislated issues that cities need to be on top of. I’m planning on staying with the League. Our dues are minimal and we do have our worker’s comp and property insurance through the League.”

In their report, auditors found that:

§       There were 19 positions in the organization paid more than $100,000 — some far more.

§       The executive director’s salary had risen since 2002 from $170,000 to $331,000, and that the deputy executive director’s pay rose over the same period from $141,00 to $255,000. They also noted a raise that took the chief insurance services officer salary from $124,000 to nearly $239,000.

§       “Exorbitant retirement bonuses” that cost more than $500,000, and more than $350,000 in “excessive or questionable spending.”

§       Numerous conflicts of interest, including inappropriate relations with vendors. They included $1.4 million for legal services paid to a law firm that employs the spouse of the former executive director and $28,600 in spending at Azur Restaurant, which is partially owned by the spouse of the former executive director. Executives in the organization accepted gifts and gratuities from vendors, including housing and expenses at Bonaire, a small island in the Dutch Caribbean.

§       There was $74,463 in credit card expenditures without supporting documentation and an additional $212,871 in questionable spending based on available documentation.

§       There was $430,000 spent on out-of-state travel for staffers and their spouses, $56,000 for meals at local restaurants, and $50,000 to purchase tickets to football and basketball games and to horse racing events.

§       Staffers spent $4,200 at a Colorado storytelling workshop, made a $1,570 visit to Liquor Barn, and spent more than $3,300 for 500 copies of “The Little Red Book of Everyday Heroes” which was written by the former executive director.

Longtime executive director Sylvia Lovely resigned earlier this year.

League of Cities President Michael D. Miller acknowledged in a statement Thursday that “in many ways, we had become complacent in assessing and managing some of our own internal operations.

“We have also established new policies for KLC travel and expense reimbursement that clearly define allowable costs related to lodging, meals, entertainment, rental cars and airfare. And strict rules and limitations are now in place regarding spouse travel.”

Besides law enforcement, Luallen said findings from the financial review also have been sent to the Internal Revenue Service, the Kentucky Department of Revenue and the Kentucky Department of Insurance.

Luallen said at a news conference that the organization’s board of directors needs to improve policies governing ethical conduct and spending by staffers. The main function of the organization is to provide insurance coverage for Kentucky cities and to do research and training for city officials.

“If KLC is to continue providing valuable services to our cities, many of which are struggling, its board must strengthen its financial oversight,” Luallen said.

She said the League’s board had little or no knowledge or understanding of many of the issue raised by the exam. She said board members were unaware of specific salaries and did not know the cost of the retirement bonuses.