FRANKFORT, KY State Auditor Crit Luallen today released an audit of the Lexington Blue Grass Airport, which found a culture of “shameful” and excessive spending by management that resulted in auditors finding more than a half of million dollars in questionable expenditures over a three-year period.
The audit documents how the former executive director established a culture of wasteful spending that provided personal benefits for him and others through inappropriate expenditures and arbitrary personnel actions.
Led by the former executive director, this culture flourished as management circumvented airport policies, falsified spending records, received dramatic salary increases and rang up tens of thousands of dollars on agency credit cards.
More than 92 percent of the former executive director’s credit card transactions had no receipts or supporting documentation detailing the business purpose.
Likewise, a large portion of his management team’s expenditures lacked adequate documentation or a business purpose, with thousands of dollars in direct payments or cash advances questioned by auditors.
The audit, which reviews airport finances from January 2006 to December 2008, makes 22 findings and offers more than 100 recommendations to improve management’s financial activities and oversight by the Blue Grass Airport Board.
Luallen has referred the audit to the Kentucky Attorney General’s Office, FBI and the US Attorney’s Office for the Eastern District of Kentucky. These agencies will determine if further action is warranted.
“With the release of this audit, we are confirming and quantifying earlier reports of shameful and excessive spending by the airport’s former executive director and his management team that did not properly serve the mission of the airport,” Luallen said. “With our recommendations, we are giving the airport board the necessary tools to strengthen its oversight and restore accountability.”
“The public expects such a vital community resource as the Lexington Blue Grass Airport to operate in a responsible manner,” Luallen said. “It’s evident that management staff lost sight that the airport is a public agency and accountable to the public.”
Luallen’s office was officially asked by the Lexington-Fayette Urban County Council in December to perform a special audit on the extravagant spending at the airport reported in local Lexington media.
The Lexington-Fayette Urban County Airport Corporation, a public non-profit organization and a component unit of Lexington city government, owns the airport. The airport board, appointed by the mayor, oversees the airport and its $18 million in annual expenditures.
The audit reviewed the financial activities of the former executive director and his key management team: the director of administration and finance, the director of operations, the director of planning and development, and the director of marketing and community relations. The manager of administration, who acted as the former executive director’s assistant, was included in this group.
The audit found that expenditures by management were either excessive, had inadequate or no supporting documentation, or had no documented business purpose. Undocumented spending included cigars, lavish gifts, excessive travel, limousine service, expensive toys, personal clothing, concerts, sporting or special events, liquor and numerous meals in the Lexington area.
Specific examples included more than $14,000 for holiday hams, more than $2,300 for four shotguns, a rifle and accessories, $1,962 for limousine service in New York City, $7,400 for a 2005 NASCAR Richard Petty “Driving Experience” for staff, more than $4,000 at Hobbytown USA and more than $4,700 for an overnight Atlanta trip.
The audit also uncovered a $168 charge to Club Venus, a Northern Kentucky gentlemen’s club and a $702 purchase for champagne at Pure Las Vegas, a Nevada bar. The audit notes a 2004 purchase totaling $4,400 at a Dallas “strip club” that was earlier reported in the media.
The audit found that management approved their own credit card purchases and could direct purchases to be charged to other department’s budget without prior approval. Additionally, the former executive director used other directors’ credit cards or requested them to make purchases with their credit cards.
Auditors found that a number of expenses were labeled “marketing” or “special events;” however, the airport had no documented or approved marketing plan to confirm that these expenditures were legitimate.
The audit lists each director’s expenditures over the three-year period. The audit can be viewed at www.auditor.ky.gov
The audit makes strong recommendations to the board to improve oversight of credit card purchases, questioning the need for credit cards. If the board continues airport credit card use, it should develop review policies.
Additionally, the board should develop a written policy to require its chair or designee to review expenditures by the executive director, according to the audit.
The executive director and directors are responsible for monthly reports to the board; however, the audit recommends the board develop an additional means of receiving independent information, such as an internal audit process or an employee hotline.
The airport has used the same auditing firm for 20 years, and the audit recommends the airport rotate auditors every five years and include a review of internal controls.
The audit found that board minutes did not discuss approvals for airport spending on executive travel, airport events or agency marketing - all areas where budgetary limits were exceeded. Additionally, the board often entered into closed sessions during monthly meetings without detail conclusions available in the board minutes.
The audit, for example, notes that board minutes did not document any discussion or action related to $10,000 paid to Cottonwood De Tucson on behalf of the former executive director in July 2008. Cottonwood De Tucson is an Arizona treatment facility, according to its Web site.
Luallen’s office found that management did not reimburse the airport for personal expenses, claimed duplicate reimbursement payments, received additional benefits or memberships and were given substantial salary increases.
The former executive director, directors and the manager of administration experienced substantial increases in their annual salaries over an eight-year period. Along with the former executive director’s 108 percent salary increase from 2000-2008, this group of employees “enjoyed large increases in their salaries ranging from 42 to 92 percent,” according to the audit.
In some cases, management requested their paycheck days or weeks in advance, while payments for accrued sick time, which is airport policy, were made at various times of the year, which is contrary to policy, according to the audit.
In several instances, auditors found that the former executive director arbitrarily gave employees bonuses and vacation pay. In a three-year period, 11 employees received more than $23,000 in bonus pay and management more than $82,000 in vacation payouts.
In one instance, the former executive director violated airport policy by approving more than $8,000 in payout of accrued vacation time to the manager of administration.
The audit recommends the board should review all airport salaries, benefits and related policies, and establish guidelines and criteria for these areas.
During the audit, auditors found management had identified personal expenses but failed to reimburse the airport for them due to a lack of policies to address these types of reimbursements. The audit recommends the board develop policies relating to timely reimbursements made to the airport by management and employees.
According to the audit, two members of the management team benefited from duplicate reimbursements due to poor oversight.
In one case, the manager of administration paid for holiday hams with an airport credit card and then requested a duplicate reimbursement for half of the cost or $1,700, according to the audit.
Auditors recommend that all reimbursement requests have the proper supporting documentation and business purpose.
According to the audit, airport management received certain benefits that were not properly documented or justified. These included the personal use of an airport vehicle, gasoline, gym memberships, association memberships, home Internet service, excessive cell phone service and laundry service.
Other audit findings include:
· The former executive director was involved in an accident resulting in property damage while driving an airport vehicle. No accident report was completed despite the requirement of airport policy.
· Airport funds were used to purchase more than 400 DVDs - with 69 missing. The former executive director initiated the DVD library.
· Several years of financial records are missing from the airport and no action was taken to report the loss to law enforcement.
· The airport nepotism policy was violated on at least three occasions.
· Two members of the management team were made public safety officers and were issued handguns though not in compliance with airport policy or a requirement of the job descriptions.