Ky. auditor investigates more than $1M in sloppy spending and alleged embezzlement in N.Ky.

Ky. auditor: Abuse of public trust is rampant

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COVINGTON, Ky. – Investigations totaling more than $1 million in misuse of public money in Northern Kentucky has the state auditor so concerned he's heading to the region for a meeting with local officials.

Auditor Adam Edelen will meet with school, city, county and other officials Tuesday to discuss methods to improve governance and accountability during a seminar at The METS Center in Erlanger. The seminar is free and open to the public.

“I love the region, but I’m spending a lot more time professionally there than I prefer," Edelen said. "Significant public corruption is a cause for alarm. Certainly Northern Kentuckians deserve better than they’re getting right now,'' he said.

Over the past year, Edelen, whose office performs 600 audits each year of county and state governmental agencies, has also investigated three school districts, two cities and a county water district in Northern Kentucky. Those six 'special' investigations were flagged to his office by allegations of potential misuse of public money.

Most recently, the City of Covington’s former finance director, Robert Due, 63, was fired, charged criminally and is being sued by the city for $600,000, which is the amount of cash that authorities have said he skimmed from city coffers over seven years.

He pleaded not guilty in August to theft, unlawful access to a computer, criminal possession of a forged instrument and official misconduct. He has twice attempted suicide and is currently jailed awaiting trial.

Due joins a growing list of public officials and employees who have come under scrutiny tied to charges of embezzlement at worst and sloppy bookkeeping at best.

Recent Northern Kentucky cases investigated include:

  • Mason County Schools superintendent, board members and some employees spent $212,110 on items they did not document. The case was referred to the Internal Revenue Service.
  • Dayton Independent Schools' now retired superintendent was investigated on allegations he took  $224,000 in unauthorized benefits and payments over an eight-year period. The FBI is currently investigating this case and the school has a civil suit pending against Rye for full restitution.
  • In April, a Walton city employee was found to have spent more than $6,000 in city funds to buy gifts for employees, city council members and the mayor. The city, which did not have policies in place about some spending, has since tightened its procedures. No crimes were committed and no one was sued.
  • Walton Mayor Phil Trzop pleaded guilty in August to pocketing more than $30,000 from the Boone County Water District -- money that was made from the selling of scrap metal acquired during water line repairs. He repaid the district $29,000.
  • Northern Kentucky Athletic Director Scott Eaton was charged with taking $311,000 over six years from athletic department funds. He was fired. His criminal case is pending. The auditor is not involved with NKU’s affair at this time, but NKU handed over information about its findings to Attorney General Jack Conway and federal prosecutors.

“Recent scandals have led honest public officials in Northern Kentucky to ask what went wrong and whether it could happen in their office,” the auditor said.  “I’ve gathered the brightest minds in governance and accounting, as well as those who have been victims and those who have prosecuted it to shed light on these important questions.”

How Could This Happen?

There are some commonalities in each case, including that in each officials took advantage of a system where there were no, or lax, accounting procedures in place, said Edelen.

“It’s important to have a robust system of oversight so that this doesn’t happen again.”

According to his office, Kentucky cities are responsible for hiring an independent certified public accountant to audit its finances annually.

For Covington, that was Cincinnati-based accounting firm Decosimo in fiscal year 2012. Prior to that the city used Von Lehman and Company in Fort Mitchell, Ky.

That audit, however, is only a snapshot of the fiscal year’s finances, not a thorough look at every transaction for the year, said Covington City Manager Larry Klein.

“It’s important for the firms who do this work understand that each year, to not just audit to a template, but providing a high-quality audit tool to evaluate the management of the organization,” said Edelen.

Who Can The Public Trust?

The vast majority of public officials are honest and committed to the do the right thing, said Edelen.

“We catch the bad guys to not only hold them accountable, but it’s important to separate the bad actors from those are doing their job and holding the public trust,” he said.

While no amount of security can eliminate all potential abuses, steps are being taken to increase the city’s safeguards, said Bill Wells, resident of Covington.

“The positive things happening in Covington far outnumber the setbacks, and we will get through this, and be better for it.”

Citizens like Wells acknowledge that while no one is happy about the incident, the City of Covington is much stronger than most people think.

“One man’s actions aren’t enough to eliminate my public trust,” said Wells. “It’s times like this that my mother would say, ‘if it doesn’t kill you, it will make you stronger’. Believe me, after the investigations and audits, Covington will be stronger.”

What Now?

Edelen’s office is currently investigating City of Covington’s finances during Due’s tenure with the city.

“Anytime there is an abuse of the public trust, there is clearly the need for fundamental change—create a roadmap of better use of tax dollars,” said Edelen.

In the meantime, he said it’s up to the watchdogs in the community to hold public officials accountable.

“There’s an electoral consequence,” said Edelen. “[The] ultimate accountability is with the voting public.”

Officials are voted in and officials then hire employees like Due. But it’s going to take diligence on the part of the public, officials and independent auditors to stop defrauding or unexplained missing funds to stop.

“I’m concerned that local officials aren’t paying as close attention to the findings and asking tough questions to the auditors, drilling down, not treating the process as a boiler plate,” said Edelen.

“Taxpayers can demand that they run with transparency and accountability. Form watchdog groups—there are 4.5 million citizen auditors,” he said. “[The] public is crucial for a good government.”

It’s time to “hold their feet to the fire,” said Wells.

To read more on each cases with an auditor's report:

Kenton County School District: Auditor's full report

Mason County Schools: Auditor's full report

Dayton Independent Schools: Auditor's full report

 

Moving Forward

In light of so many Northern Kentucky-based investigations, Edelen will host an upcoming seminar in Erlanger on improving governance and accountability for local government officials.

Representatives from the auditor's office and law enforcement will join him to discuss best practices and lessons learned from past cases of fraud and mismanagement to help improve transparency and accountability.  

The summit will be held at The METS Center, at 3861 Olympic Blvd., Erlanger, Ky., on Oct. 15, from 9 a.m. to noon.

 

Bob Driehaus, WCPO education reporter, contributed to this report.

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