During a recent speech to the Kentucky Society of CPAs at the Crowne Plaza Hotel, Auditor Crit Luallen presented a list of “lessons learned” from the audit of the Lexington Blue Grass Airport that can benefit public and nonprofit boards across the state.
The airport audit, released in February, detailed more than $500,000 in excessive spending by airport management and offered numerous recommendations to improve airport management’s financial activities.
The audit also gave the airport board the necessary tools to strengthen its oversight and restore accountability through numerous recommendations, which Luallen’s office used to create the “lessons learned” document for all public and nonprofit boards.
The five-page document – “Recommendations for Public and Nonprofit Boards” – provides 28 recommendations to ensure that boards establish appropriate financial oversight and internal controls to help govern their agencies.
The recommendations were sent to members of the Lexington-Fayette Urban County Council for their use in advising other public boards and has been released publicly on the Auditor’s Office web site: www.auditor.ky.gov.
“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 told the group of CPAs.
Luallen said an important recommendation in her report is one that involves a board’s responsibility to adequately oversee agency credit cards.
“At the Blue Grass Airport, more than 92 percent of the former executive director’s credit card transactions had no receipts or supporting documentation detailing the business purpose,” she said. “Also, 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.”
And there was no board policy requiring board oversight of credit card activity, Luallen said.
In the document, Luallen’s office stresses the need for boards to develop a travel expense policy that specifically defines allowable costs; the need for additional scrutiny by a board when expenditures increase at an unexpected rate compared to budgeted amounts and the need for board meeting minutes to document the exact nature of financial reviews by any of the board members.
Additional recommendations include the need for a detailed orientation process for board members that provides an understanding of the board’s structure, operations and responsibilities of each member; the need for a board to establish methods that allow concerns to be brought to the board’s attention, including anonymous concerns; and the need for policies that will ensure proper board monitoring related to employee reimbursement practices and establishing salary ranges.
“During our audit, we found that the former executive director and four other top managers had dramatic increases in their annual salaries over an eight-year period without adequate board scrutiny,” Luallen said.
Luallen said she feels the lessons learned from the Lexington airport can be a tool for all public and nonprofit boards across Kentucky.
Luallen presented the recommendations to the group of CPAs since many of its members audit public or private organizations with a board of directors or might serve on a board.