Kentucky Attorney General Jack Conway Grows A Backbone, Will Investigate Kentucky League Of Cities.

Attorney general investigating KLC
By Linda B. Blackford

The state Attorney General's office has confirmed that it is investigating the Kentucky League of Cities for possible illegal activity.

"My official policy is not to comment on active investigations, that is an active investigation," Conway said Tuesday. "There is some activity that is potentially criminal."

Conway would not say what activity might be illegal. In a report in December, State Auditor Crit Luallen detailed a host of problems at the League, including high expenses, questionable bonus practices and conflicts of interest. She forwarded the audit to Conway's office.

In 2009, Luallen audited the Blue Grass Airport, the Kentucky Association of Counties and the League, spurred by stories in the Herald-Leader about hundreds of thousands of dollars in expenses by those groups' officials.

Both KACo and the League sit on multi-million dollar finance and insurance operations that provide services to counties and cities, which also pay them dues for membership.

Luallen's airport audit was forwarded to the Attorney General's office, which resulted in four former airport officials being indicted on charges of theft by deception.

John Coon and John Slone, two former deputy directors, pleaded guilty to amended charges of conspiracy to commit theft by deception. The charges are misdemeanors, which could mean up to 12 months of jail time. The plea deals require them to testify against former airport executive director Mike Gobb and deputy director John Rhodes.

Conway's office declined to investigate KACo.

The difference, Conway explained to the Herald-Leader in November, was that the KACo Board of Directors had given its officials wide latitude in their spending. At the airport, state auditors found instances where officials misrepresented the purpose for purchases to the board.

Luallen's audit found numerous problems in the League's insurance arm, including gifts to League employees from insurance vendors hired by the League, ranging from greens fees to trips to the Caribbean.

The League has changed numerous policies in the wake of the audit, including limiting credit card use and stopping spousal travel. Newly passed legislation will also require KACo and KLC to be more transparent.

Jackson Mayor Mike Miller, who chairs the League's executive board of directors, declined to comment in detail.

"I'll let the Attorney General do what he thinks needs to be done," he said.

... .

Read more: http://www.kentucky.com/2010/04/13/1222627/attorney-general-investigating.html#ixzz0l25yIL9f

Bills To "Open The Window" And Air Out KACO And KLC STENCHES, And To Bring Accountabilities There Become Law. Thank God!

Governor signs KACo, KLC accountability bills
Herald-Leader Staff Report

Gov. Steve Beshear signed into law Wednesday two bills to strengthen public accountability for the embattled Kentucky Association of Counties and Kentucky League of Cities.

Senate Bill 88 requires both groups to hold open meetings, provide documents under the state's Open Records Act and create Web sites that show their expenditures. The bill also requires the adoption of procurement, ethics, personnel and compensation policies, and it requires training for local officials who oversee the agencies.

KACo and the League provide lobbying, legal advice, insurance and project financing for local governments, and they receive taxpayer funds in the form of dues and payments for insurance and financing services.

Senate Bill 77 strengthens the Kentucky Department of Insurance's oversight of liability self-insured groups, such as KACo and the League, and places these entities under a statute that prohibits inducements in any insurance transaction. The law allows for closer scrutiny of self-insurance groups, requires a formal conflict-of-interest policy and provides for more transparency in insurance matters.

The legislation follows reports by the Herald-Leader and state audits last year that showed the two organizations spent hundreds of thousands of dollars on travel, meals and entertainment, including expenses at strip clubs. The executive directors of both groups eventually stepped down.

"It is a positive step for taxpayers that lawmakers showed unanimous support for a measure that will ensure greater accountability and transparency for two organizations that provide important services to local governments," state Auditor Crit Luallen said. "We thank those legislators who worked closely with this office to make the legislation a reality."

Lexington Herald Leader Editorial Sees "KLC [Kentucky League Of Cities] Ignoring Its Reform Promises". I AGREE!

KLC ignoring its reform promises

Lawmakers, take note: Promises by the Kentucky League of Cities to clean up its act are ringing hollow.

As staff writer Linda Blackford reported, the League has renewed a lucrative contract without competitive bidding, which conflicts with the state auditor's recommendations.

Also, the $156,646 a month contract is going to a company with whom one of the League's top executives has conflicts of interest.

Does this sound like an organization that's turning over a new leaf?

Lawmakers should pay attention because legislation aimed at improving scrutiny of the League's operations may be at risk of running aground, on political egos.

The legislation, which also applies to the Kentucky Association of Counties, would subject both organizations to open meetings and records laws, give their boards a code of ethics, require them to adopt procurement polices in compliance with state law and authorize the state auditor to review their books.

We won't attempt to dissect the pride-of-authorship conflicts that are threatening these reforms, which are not controversial and have already been approved by both chambers.

Suffice it to say that most taxpayers don't care in which chamber a bill originates or who sponsors it, they just want the legislature to look out for their interests.

And it's definitely in taxpayers' interests to avoid a repeat of the outlandish spending and lax accountability uncovered by the Herald-Leader and state Auditor Crit Luallen.

But there was no competitive bidding before extending an insurance claims company's contract for well over $5,000. Why? The League has recently taken over the Kentucky School Boards Insurance Trust. Officials said it would be unwise to change claims carriers while taking on a large new line of business.

That's not unreasonable. But the decision would be much more credible had it been made after considering competing bids.

KACo was the subject of scathing audits in 1992 and 2009.

If the legislature fails to strengthen the laws governing these organizations, more scathing audits and taxpayer abuse will be inevitable.

Kentucky Transportation Cabinet Claims It Learned Lessons From Bid Rigging Trial. I Suppose It Learned How To BETTER Cover Its Tracks. I'm LMAO.

Cabinet learns lessons from trial
TRANSPORTATION ACTING CHIEF SAYS LAWSON CASE SPOTLIGHTED AREAS THAT NEED REFORM
By John Cheves

FRANKFORT — Last month's bid-rigging trial of road contractor Leonard Lawson and former Transportation Secretary Bill Nighbert was another in a long line of public relations disasters for the Kentucky Transportation Cabinet.

The jury acquitted Lawson and Nighbert. But cabinet officials said they were embarrassed by testimony about cozy relations between the cabinet and politically influential road contractors, expensive single-bid contract awards and change orders that needlessly inflate project costs.

The cabinet is trying to address some of the problems raised in the trial, acting Transportation Secretary Mike Hancock said this month.

Hancock, an engineer, served as Nighbert's chief of staff under Republican Gov. Ernie Fletcher and remains at the cabinet under Democratic Gov. Steve Beshear. Hancock declined to criticize Nighbert directly, but he said the cabinet clearly needed reform.

"There are many things we learned throughout the course of the trial, and many opportunities for improvements," Hancock said.

Since the criminal case began in 2008, the cabinet has enacted formal and informal ethics rules to create a professional distance between its officials and the contractors who want a piece of the multi-billion-dollar Road Fund, Hancock said.

The cabinet is adding more controls on change orders and experimenting with different approaches to encourage competitive bidding, he said.

On 15 projects, for instance, the cabinet asked concrete companies to challenge asphalt companies, which tend to hold monopolies in specific regions. One of those projects ultimately went to a concrete company that offered lower prices.

The decision to invite concrete companies to bid against asphalt companies resulted in part from a 2008 analysis done by software that analyzes bidding patterns and can detect possible signs of collusion or bid-rigging, such as a constant lack of competition or unusually high or low material prices being quoted, said Alice Wilson of the cabinet's Office of Audits.

The analysis determined that in most of Kentucky — everywhere except Louisville and Northern Kentucky — asphalt companies do not compete against each other, she said.

On 16 other projects, the cabinet has tried something else, said Ryan Griffith, director of contract procurement.

It packaged several pieces of work together across the traditional territorial lines of various contractors to lure them into competing against each other, Griffith said. In most cases, this resulted in competitive bids, as the cabinet wanted, he said.

A Herald-Leader review of bids on about 150 road projects that were awarded in May 2009 and last month found that competition noticeably was more aggressive when projects crossed county lines.

On average, the projects reviewed by the newspaper drew 2.8 bids each. But multi-county projects drew 3.4 bids on average. All of the multi-county projects drew more than one bid.

The bad economy has helped, cabinet officials acknowledge. Contractors are hungry for work, and with road spending down from $1.6 billion in 2007 to $780 million last year, they are more willing to battle for every job they can get, Griffith said.

"We're seeing some really good prices right now," he said.

Last year, 38 percent of all projects were awarded on single bids, which is down about 3 percent from recent years, Griffith said. The number of single-bid awards is far higher — 63 percent — for asphalt resurfacing projects, the least competitive type of project, and that hasn't changed much.

The winning bids for many road projects over the last year often were lower than the cabinet's own engineers estimated they should cost, potentially saving the state millions of dollars, according to the Herald-Leader's review.

Before the cabinet opened the roughly 150 bids examined by the newspaper, the cabinet estimated the projects would cost a total of $167 million, including a profit for the contractors. Instead, because the bids so often came in below the cabinet's estimates, they cost a total of $142 million, or 15 percent less.

Single bids on average came in 1 percent above the cabinet's estimates. In most cases, the cabinet rejected single bids if they were greater than 6 percent above its estimates. With competitive bids, the winning bids on average were 17 percent lower than the cabinet's estimates.

Keeping distance

On a more basic level, Hancock said, his policy as transportation secretary is not to socialize with road contractors or meet alone with them at work. If a contractor asks to see him, he arranges for other cabinet employees to be present, Hancock said.

During the bid-rigging trial, defense lawyers explained frequent phone calls between Lawson and Nighbert by saying that the millionaire contractor and the cabinet secretary became close friends who chatted day and night and whose families socialized at home and on foreign trips. Nighbert was hired by a company Lawson co-owned after he left the cabinet.

Cabinet engineers should communicate with contractors about projects they're working on, Hancock said, but cabinet leaders ought to keep contractors at arm's length to avoid the appearance of favoritism.

"It's best to maintain some modicum of distance," Hancock said.

In August, a year after Lawson and Nighbert were indicted, the cabinet issued a memo prohibiting its employees from asking contractors for donations, including for the cabinet's United Way drive.

Lawyers did not discuss it during the trial, but in a March 26, 2008, phone call the FBI recorded, Lawson acknowledged giving money to key prosecution witness Jim Rummage, a former deputy state highway engineer who testified that Lawson bribed him with $20,000.

In the call, which was played for the jury, Lawson described the money as "for charity and some stuff like that."

However worthy the cause might be, money should not pass between road contractors and cabinet employees, Hancock said.

Revolving door

Hancock said a thornier problem is the revolving door between the cabinet and road contractors, especially for highly sought engineers.

During the trial, the jury heard about engineers who moved back and forth, sometimes using their cabinet posts to help road builders who had employed them or might employ them again.

Defense lawyers repeatedly invoked former state Highway Commissioner Sam Beverage, whom the Fletcher administration hired after he worked for Lawson. Beverage later lost his state job over ethics violations related to bid-fixing. He then joined Hinkle Contracting Corp., one of Kentucky's dominant road builders.

Beverage did not return a call seeking comment last week.

State ethics laws don't address the revolving door as fully as they should, said John Steffen, executive director of the Executive Branch Ethics Commission.

People are entitled to join a state agency from a company the agency does business with, Steffen said. After they leave, they may return to their previous professions, but for six months they must avoid projects they directly handled in their last three years of state employment, Steffen said.

"This is an area we've looked at," Steffen said. "You shouldn't do favors for someone you used to work for. But at the same time, there is no rule saying you can't have contact with your former employer once you're in state government and in a position to help them."

Pushing competition

During the trial, cabinet engineers testified that the state sometimes pays too much for road projects because of the lack of competition in parts of Kentucky, and because unnecessary change orders add work, material and costs after projects start.

In particular, they complained that political appointees running the cabinet overrule rank-and-file engineers when influential contractors call Frankfort.

"I have some coziness concerns about a few contractors out of the 600 we deal with," Deputy State Highway Engineer Chuck Knowles testified.

The cabinet is trying to address these complaints, officials said.

Early in the Beshear administration, the cabinet strengthened the change-order process by requiring approval signatures from the local project engineer, the chief district engineer and the state highway engineer in Frankfort, said cabinet spokesman Chuck Wolfe.

"There were instances in the past of contractors doing an end run around field staff to get change orders OK'd directly from Frankfort," Wolfe acknowledged.

A Herald-Leader review of all 883 change orders from January 2009 to last month showed that, overall, they resulted in the cabinet spending $12.3 million less than planned, because many changes removed costs rather than adding them. The average change order in this group lowered costs by $14,055.

By contrast, a 2003 legislative study of the Transportation Cabinet criticized it for authorizing some change orders without proper explanation. The cabinet spent nearly $57 million on change orders in 2002 and 2003, or 3 percent of all project costs, according to the study.

Kentucky "Lawmakers To Propose More Oversight Of Kentucky League Of Cities, Kentucky Association Of County Officials".

Lawmakers to propose more oversight of KLC, KACo
By Ryan Alessi

Lawmakers from both parties will push legislation requiring the Kentucky League of Cities and Kentucky Association of Counties to boost oversight and open their meetings and books to the public following high-profile spending problems.

State Auditor Crit Luallen, whose office investigated KLC and KACo last year, suggested language for the bill to key House and Senate members. On Thursday, several House Democratic leaders agreed to sponsor it, and the Senate's state government committee chairman said he expects a companion bill to be filed in that chamber.

The legislation would write into law the obligations of the KLC and KACo boards, which are made up of city and county officials, to provide stricter oversight of the organizations. For example, the groups would have to follow state procurement and competitive bidding procedures and make the confidential notes of annual audits available to the state auditor. In addition, their boards would have to sign off on compensation policies for their staffs.

The Kentucky Association of Counties and its board would be subject to more oversight under a proposed state law.

Proposed provisions

The legislation would require the Kentucky League of Cities and the Kentucky Association of Counties to:

■ Comply with open records and open meetings laws, with exceptions for proprietary information, such as insurance rates.

■ Follow state procurement procedures, including bidding for professional services.

■ Approve a detailed personnel and compensation policy for staff members.

■ Adopt codes of ethics and require that board members file financial disclosure forms.

■ Establish a process to deal with whistle-blower tips.

■ Make budget and spending information accessible to the public.

■ Make the confidential notes of annual audits available to the state auditor.

■ Allow the state auditor to conduct an investigation at any time.

"The key here is to remember that these are organizations that are funded with public dollars and are led by officials who are elected leaders," Luallen told the Herald-Leader in an interview. "The majority of their boards are elected leaders representing the public. As such, they are subject to public scrutiny."

KLC and KACo provide services, such as lobbying and legal help, to local governments. They also sell insurance to the counties and cities, which generates millions of dollars in revenue for the two organizations.

Reports by the Herald-Leader last summer showed that the two groups' executives spent nearly $1 million on travel and entertainment in recent years and that their top officials were highly compensated in salaries and benefits. Audits by Luallen's office confirmed and expanded on those findings.

"I think the revelations of the last year have proven that both the League and KACo need more legislatively mandated accountability and reporting requirements," said Sen. Damon Thayer, R-Georgetown, chairman of the State Senate's state and local government committee.

Since their problems became public, the KLC and KACo boards have cut up many staff credit cards and approved policies to increase the board's oversight of operations and expenses.

KACo President Rick Smith, a Clark County magistrate, said he plans to distribute copies of the new policies and some draft procedures the group has in the works.

"I wish they would read what we've done first and take that into consideration," Smith said. "I don't think we need legislation to do that."

But lawmakers said legislation is necessary so the problems won't recur if newly strengthened policies are eroded or ignored when embarrassment fades over last year's scathing audit reports and media coverage.

"It's not punitive. It's intended to ensure their organizations function as I think everyone wants them to — with active boards and good business practices," said Rep. Arnold Simpson, D-Covington, who will be one of the co-sponsors of the House bill.

Rep. Bob Damron, the House Democratic caucus chairman from Nicholasville, said his party's leadership is backing the bill, which he said probably will be filed early next week.

"Hopefully, this legislation will set the parameters for them to change the cultures," said Damron, who added that he and other lawmakers have received e-mails from constituents upset about government spending who have used KLC and KACo as examples.

The two groups are considered non-profit organizations. But most of their funding comes from tax dollars in the form of dues or insurance payments. Luallen said such quasi-governmental organizations should be held accountable for their use of money.

The proposed legislation would make KLC and KACo subject to the Kentucky open records and open meetings laws. KLC, at one point, denied the Herald-Leader access to records, then reversed that decision. The group voted just last week to continue holding closed meetings.

The bill would allow the organizations to protect records and board discussions of proprietary insurance information, such as rates.

KLC executive board chairman Mike Miller, the mayor of Jackson, said many board members have been concerned about keeping proprietary information from leaking.

"If we can protect the stuff we need to protect, I don't think there's a member on our board who would object to open meetings," he said.

The draft legislation also would require League and KACo spending and budget information to be more transparent. That dovetails with a separate bill filed by Thayer that calls for government expenses to be outlined online.

Miller said KLC staff is already looking at software to allow the League to post expenses online.

"The public has a right to know exactly how this money is being spent and what kind of controls are in place to ensure that we don't have problems again," Luallen said.

Reach Ryan Alessi at (859) 231-1303.

KACO Board Decides To Shelve Committee Recommendation Of Ed Hatchet, Interview More Candidates. Is The Fix in?

KACo board to interview 4 finalists but could still hire Hatchett
By Beth Musgrave and Ryan Alessi

FRANKFORT — In a surprise move, the board of directors for the Kentucky Association of Counties decided Monday to interview four finalists for the organization's top position rather than go with the candidate selected by an 11-member committee earlier this month.

After meeting for nearly three hours behind closed doors, board members of the organization that has been criticized for its rampant spending were mum on the reason the board decided to interview four finalists selected from the more than 60 who applied for the job.

The selection committee had recommended former state auditor and attorney Ed Hatchett for the executive director's position on Dec. 21.

In a written statement, Rick Smith, president of KACo and a Clark County magistrate, said the full board wanted the opportunity to interview the four finalists: Hatchett; Denny Nunnelley, a long-time KACO deputy director; Bill Patrick, executive director of the Kentucky County Attorneys Association and a former county official; and Tony Wilder, commissioner for local government, a former county official and a past president of the KACo board.

"In light of our fiduciary duties, the full board would like the opportunity to interview the final candidates prior to voting on a new chief executive officer," Smith said.

He said the board would like to have the interviews as quickly as possible, but he said it is unlikely the board will make a final decision by Jan. 5, when the legislative session begins.

The group discussed the candidates in executive session, which is closed to the public. Personnel matters can be discussed in private under the state's open meetings law.

Bob Arnold, the former executive director, resigned in September in wake of repeated questions about the organization's spending. The Herald-Leader reported the organization spent more than $600,000 in two years on travel, meals and entertainment. State Auditor Crit Luallen later found more than $3 million in undocumented or excessive spending. Luallen had supported the search committtee's recommendation of Hatchett for the job.

Many on the search committee said Hatchett's reputation would restore credibility to the organization, which provides services and insurance to local governments and helps finance capital projects. But many members of the board of directors have expressed concern about oversight of the organization, saying they wanted to be move involved in the day-to-day operations in light of the organizations' recent spending scandals.

Marshall County Judge-Executive Mike Miller, a member of the board of directors, said before Monday's meeting there was some concern the process to replace Arnold was moving too quickly.

"We thought (the search committee) was going to bring two or three names to the full board to interview," Miller said. "In early December, we learned that they were going to provide just one name to the full board."

Quick Update: Caught And Embarassed, Kentucky League Of Cities (KLC) Officials Have Been SHAMED Into Cancelling "Shindig". Tsk, Tsk!

Kentucky League of Cities cancels Christmas party

The Kentucky League of Cities has canceled the Christmas party that was planned for Friday night at the Mansion at the Marriott Griffin Gate and, instead, will make a $4,000 donation to the Lexington Salvation Army.

KLC had budgeted $9,600 for the party, to which between 200 and 250 people were invited. Based on RSVPs, the League was preparing to spend about $6,000 on the evening party that promised food, dancing and karaoke, KLC spokeswoman Terri Johnson said.

League officials were negotiating the cancellation fee with the Marriott early Friday afternoon but were planning to have at least $4,000 left to donate to the Salvation Army, Johnson said.

The party would have been paid for with donations from vendor companies, which donate between $1,500 and $25,000 to be considered Cornerstone Partners with the League.

KLC employees made the decision to cancel the party Friday morning at a staff meeting with deputy executive director Neil Hackworth, just one day after a scathing state audit criticized the League and its officials for their spending and giving themselves extra perks.

"Given the circumstances of the last few days, we felt better doing something to help those in need," Hackworth said in a statement. He has overseen the League's operations since its executive director, Sylvia Lovely, stepped down in August.

Johnson said the staff will celebrate the holiday season next week with a potluck lunch.

Breaking News: Auditor's Report BLASTS Freewheeling Kentucky League Of Cities' Officials For UNBRIDLED Greed. Read More Below.

Auditor's report blisters League of Cities
By Tom Loftus

FRANKFORT, Ky. — With little oversight from its executive board, the top staff of the Kentucky League of Cities lavished itself with excessive salaries and retirement bonuses in recent years, State Auditor Crit Luallen reported Thursday.

Several top staff members tangled themselves in conflicts of interest and approved hundreds of thousands of dollars in “excessive or questionable” expenses, a report from the auditor’s office said.

At the center of the hard-hitting, 228-page exam by Luallen is the league’s executive director, Sylvia Lovely. The report found that Lovely's salary soared from $170,248 in 2002 to $331,186 in 2009.

The organization paid $218,000 over five years in a retirement bonus for Lovely and bought a $64,000 vehicle for her use. The report noted the league even bought 500 copies of a book authored by Lovely — “The Little Red Book of Everyday Heroes” — for $3,300.

But the report goes beyond Lovely to question the conduct and compensation of other executives in the organization.

“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 in a statement released with the audit.

The audit makes 30 findings about the spending, ethical conduct and lack of board oversight. And it makes 140 recommendations to improve management.

Because of the “nature and complexity of the exam's findings,” Luallen said the report has been turned over to state and federal law enforcement agencies as well as the IRS and Kentucky Department of Revenue for possible investigation.

Luallen launched the examination last summer after reports in the Lexington Herald-Leader revealed questionable spending and generous salaries at the league during a time when a national recession is forcing cities to cut spending.

Luallen's report examined spending and policies back to July 1, 2006. On some issues, the report examined prior years.

The organization was formed in 1927 when 12 Kentucky cities assembled to address common legislative issues and save money through cooperative purchasing. Today it is a non-stock, non-profit corporation with 382 member cities.

It provides training, financial and legal advice and lobbying services for its members. Its affiliated companies also provide insurance coverage and issue tax-exempt bonds for member cities.

The audit reports that in the 2008 fiscal year 87 percent of its revenue came from administrative fees and commissions paid by the insurance and financial programs it administers. The rest came from membership dues paid by cities, interest income and other sources.

Lovely, executive director since 1990, said in August that she accepted responsibility for problems in management and that she would resign effective Jan. 1.

Luallen's report includes a three-page response to the findings from league President Michael D. Miller, the mayor of Jackson.

Miller acknowledged that the organization had “become complacent” in some respects and has already addressed many issues raised in the audit. But he also defended the league against some findings.

“Some issues raised in the report are necessary business actions in the competitive insurance marketplace,” he said

But some city officials submitted letters offering a stronger commitment to reform or disputing Miller's response.

“We do not see where having questionable associations with third-party insurance vendors and staff taking trips paid by such vendors as a necessary business activity,” Lexington Mayor Jim Newberry and Frankfort city manager Tony Massey said in one letter.

Among its findings about questionable spending, the report found that the organization:

*Paid more than $7 million over eight years to an organization founded to educate communities about “civic engagement” called the NewCities Institute. This spending produced “few quantifiable results.”

*Paid high salaries. Lovely is just one of 19 employees paid more than $100,000.

*Paid what Luallen called “exorbitant retirement bonuses” to six officials at a cost of $533,998. The report said this money was primarily used by the officials to buy five years of service in the County Employees Retirement System.

*Sold a vehicle worth at least $14,623 to its deputy executive director for $9,000.

*Paid $212,871 in questionable credit card expenses and $74,463 in expenses that lacked supporting documentation.

*Spent $430,000 on 162 out-of-state trips that often included spouses.

*Spent $50,000 for tickets to various sporting events and shows with questionable benefit to the league.

*Spent more than $314,000 for vehicles over a two-year period.

The report raised questions of the ethical conduct of some top staff:

*The league spent $1.4 million for legal services at a firm where Lovely's husband is a partner, and it spent $28,600 at a Lexington restaurant partly owned by Lovely's husband.

*The organization’s chief insurance services officer, administrator of product development, general counsel and their spouses annually accepted housing and other expenses at a vendor president's home on a Caribbean island.

*A vendor paid the league for a cover charge for admission to a strip club in Las Vegas for three staff members.

*The chief insurance services officer and his spouse took two free trips to Naples, Fla., from a reinsurance vendor.

*Lodging in Munich, Germany, was provided by a reinsurance vendor to the deputy executive director and the chief insurance services officer.

The report also criticized the staff for not informing the board of a harassment investigation that raised concerns involving an executive staff member.

Reporter Tom Loftus can be reached at (502) 875-5136.

Editor's note: Read the report here, or a summary here.

You Have Been Forewarned: Grab Your Handkerchiefs To Cover Your Noses; KLC Audit Report Is Coming Out Today At 10 A. M. .

Kentucky League of Cities audit to be released this morning
Herald-Leader Staff Report

State Auditor Crit Luallen will release findings from a financial review of the Kentucky League of Cities at 10 this morning.

Kathleen Imhoff, Former Lexington Library Chief Executive, Has Been PORNING Us. No Kidding. Read The Audit Report.

Yes, read the audit report here, and the H-L account below:

City audit finds adult materials, deletions on library CEO's computers
By John Cheves

A city audit of the Lexington Public Library turned up 1,522 "adult materials" on the laptop computer assigned to Kathleen Imhoff, the library's former chief executive, in violation of library policy. In addition, more than 10,000 files were deleted from the director's computer two days after she was notified not to alter or remove any documents, the audit said.

The audit also found that Imhoff had unauthorized outside employment that used library time and resources; and that there were tens of thousands of dollars in "questionable spending" on library credit cards.

The audit was made public Thursday and provided to Mayor Jim Newberry and the Urban County Council.

City auditors started to examine the library in April when the Herald-Leader detailed more than $134,000 in spending by Imhoff on travel, meals, gifts and other items over five years, with little oversight. Most of the library's $15 million annual budget comes from Fayette County property taxes.

The library board fired Imhoff in July, shortly after Newberry removed the board's chairman and vice chairman.

Imhoff's attorney did not immediately return a call Thursday seeking comment on the audit.

Among their recommendations, city auditors advised that all library credit cards be canceled and replaced, if necessary, with a limited number of procurement cards that cannot be used for non-business purposes. In its response to the audit, the library board agreed with that recommendation and pledged sweeping reforms in how the library spends its money.

KACO Continues Well NEEDED Reforms. Read More Below.

Read >>>> KACo implements spending reforms, creates code of ethics, by Ryan Alessi:

FRANKFORT — The Kentucky Association of Counties implemented 18 new policies Wednesday to cap travel costs, regulate spending more closely and create a code of ethics for its board members.

The organization's board unanimously approved the package of reforms, which represents the third round of new policies put in place during the term of KACo President J. Michael Foster, the Christian County Attorney.

It is the second set of policies approved since the Herald-Leader reported in June that the organization's top five staff members spent $600,000 in two years on KACo-issued credit cards. Among the more controversial expenses were $450-a-night hotel rooms, a $10,000 room cancellation fee, $1,000 gifts, and expenses at two strip clubs and a Lexington escort service.

"In my opinion, if we had these policies in place we wouldn't have had the problems that we had," said Rick Smith, a Clark County magistrate and KACo's president-elect.

Fallout from the spending scandal included last month's resignation of KACo's executive director, Bob Arnold. Also, past president David Jenkins, the Spencer County judge-executive, stepped down from KACo's executive committee because of charges to two strip clubs and a Lexington escort service that were made on his KACo-issued credit card.

In July, KACo sold the BMW SUV it had provided for Arnold and replaced it with a 2009 Ford Explorer.

The newest 22 pages of procedures closely follow a set of recommendations issued earlier this year by state Auditor Crit Luallen that are aimed at providing better oversight of non-profit groups. Luallen's office is now auditing KACo.

"We are encouraged that the KACo Board has taken these steps," Luallen said in a statement. "Our work on the KACo audit continues and that audit will provide additional recommendations that will further strengthen accountability."

KACo offers services such as legal advice and lobbying for county governments and sells insurance and provides financing.

Foster said it was essential for KACo to "acknowledge our missteps and commit ourselves to a clear course of action designed to avoid the mistakes of the past by developing a road map that will lead to a better way of doing business."

Foster has said he was concerned about the level of spending, particularly on travel expenses.

Denny Nunnelley, KACo's acting executive director, told the board that KACo has spent just 5 percent of its $345,000 travel budget during the first two months of this fiscal year.

Key points of the new policies include:

■ Limiting the amount spent on meals. Staff and board members can be reimbursed for breakfasts and lunches up to $20 and $30, respectively, on in-state trips involving overnight stays. They can be reimbursed up to $50 for dinners on trips or on business outside of their county if it's after 7 p.m.

Those limits go up to $30 for breakfasts, $45 for lunches and $75 for dinners on out-of-state trips.

■ Barring consumption of alcohol during the work day.

■ Setting procedures for booking hotels and airfare, including limiting bellmen tips to $2 and requiring employees who miss the deadline for terminating a reservation to pay room cancellation fees.

■ Outlining specific credit card rules. KACo cards can't be used for personal expenses and statements will be reviewed by the chief financial officer, the card-holder and KACo's three-member audit committee, which Foster created in July.

■ Barring board members and employees from accepting gifts, other than food or entertainment such as golf tournaments, worth more than $100.

■ Providing new board members with orientation presentations and a policy manual.

■ Requiring board members to disclose any potential conflicts of interest or outside investments.

■ Establishing protections for whistleblowers.

KACo paid about $2 million since 2004 in court settlements, legal fees and a jury award stemming from lawsuits brought by former employees who said they were fired for raising concerns about a hostile work environment in 2000.

Also at KACo's board meeting, Foster announced an eight-member search committee to sort through applications for Arnold's replacement. The search committee will meet Oct. 6 to outline the process, Foster said. No deadline has been set to make a hire.

"We don't want to be in a hurry to hire someone," Foster said. "We want the right person."

Kentucky Legislature To Consider Making KACO And KLC Subject To Open Records Act. I Say: Good Move.

Legislature to consider making KACo, KLC subject to Open Records Act
By Linda B. Blackford

Any organization whose employees are covered by the state retirement system would be subject to the state's open records law under proposed legislation that will be considered in January.

Top lawmakers say they generally support the bill, prefiled by Rep. Arnold Simpson, D-Covington, that would define such a group as a "public agency," which would require it to turn over its documents for public perusal.

Simpson said he wrote the bill after a series of stories in the Herald-Leader about the Kentucky League of Cities and the Kentucky Association of Counties, which detailed big salaries and lavish spending. Both groups receive more than 25 percent of their budgets from public funds and both are part of the County Employees Retirement System (CERS). The two groups turned over records to the newspaper, but officials at both groups said they did not consider themselves subject to the Kentucky Open Records Act.

Simpson said the fact that employees of the two groups received retirement benefits from the state, but the organizations weren't identified as public agencies was "ridiculous."

"I would hope that your board would understand that if you take 1 percent of government funding — an iota of government funding — you as elected officials should be forthright and cooperate in every matter with the press," Simpson told officials from both groups at a public hearing last month.

At that meeting, legislators also criticized the fact that the top three executives at the League received $272,000 in loans from the group to buy more time in CERS. The loans were called an incentive. As part of that incentive, the League forgave nearly $100,000 of those loans.

Because the executives were already making high salaries and bought even more time, their retirement payouts will be high. For example, the League's executive director, Sylvia Lovely, will step down in January having made $330,000 in 2009. With 22 years of service at KLC and five years she purchased with the help of a $125,000 loan from the League, she currently is eligible for a pension of between $9,500 and $11,000 a month when she retires, according to estimates by a state retirement system benefit calculator.

That would make her annual benefit as much as $132,000 a year.

The bill could affect other quasi-governmental groups in addition to KACo and KLC if they participate in the state retirement system.

Rep. Mike Cherry, D-Princeton, who chairs the Local Government Committee, said he would call the bill for discussion and expected it would get a favorable hearing.

"I support the bill because it's good government public service," Cherry said. "I was a little bit surprised that organizations like KLC and KACo weren't covered by open records law. I think this bill clarifies what most of us thought was an obvious thing to start with."

A 1991 opinion from the Attorney General's office about KACo said that any agency that receives more than 25 percent of its funding from public monies should be subject to the state's Open Records Act.

Cherry said he thought the groups also should be subject to the state Open Meetings Act. However, Simpson's bill does not address the meetings law.

House Speaker Greg Stumbo, D-Prestonsburg, said he would also support the measure as it moved through the House.

"I support Rep. Simpson's legislation and believe that these organizations should also have their own code of ethics, much like the cities and counties they serve," he said in a statement.

Cherry's counterpart in the Senate, Sen. Damon Thayer, R-Georgetown, has also spoken in favor of the bill.

Senate President David Williams said through a spokesman that he had not had time to review the proposed bill but he agrees with the concept.

KLC's incoming president, Mike Miller, the mayor of Jackson issued a statement on Wednesday: "We welcome the opportunity to work with Rep. Simpson on this legislation and we hope that any proposed clarification of the state's open records law will continue to protect the proprietary information of our financing and city-owned insurance programs."

KACo officials were not immediately available for comment.

KACO And KLC: Lessons In Kentucky's Unbridled Corruption.

Atmosphere changing for boards, executives?
By: lblackford@herald-leader.com ralessi@herald-leader.com
Published: Sun, 09/06 @ 6:13AM

When Bob Arnold was forced to resign Friday as chief of the Kentucky Association of Counties, he became the fourth executive of a quasi-governmental organization in nine months to lose his job amid a controversy over spending.

Arnold joined Michael Gobb, director of Blue Grass Airport; Kathleen Imhoff, director of the Lexington Public Library; and Sylvia Lovely, director of the Kentucky League of Cities — all of whom were either fired or pressured to resign.

Expenses at those organizations for travel, meals and other perks created such a public outcry that the groups' boards were forced to take action.

Players in and observers of these recent dramas say the current economic atmosphere has made the public a lot less forgiving when tax dollars are involved.

"When you're trying to put food on the table and you've got people spending tax dollars outrageously, well, it smells worse during an economic downturn than if everyone is flying high," said Jim Waters, director of the Bluegrass Institute, a free-market think tank.

State Auditor Crit Luallen, whose office audited the airport and is auditing the League and KACo, says she thinks the stories of Wall Street moguls getting perks and bonuses at the same time their companies are getting federal bailouts have enraged Kentuckians who have lost income or jobs.

"I think people are more sensitive to any instances of abuse of the public trust because they are feeling such pressure," she said.

Urban County Council member Diane Lawless agrees that the economy has made people less forgiving. But she says the salacious nature of much of the spending — every group but the library had expenses at strip clubs, for example, and some meals and trips cost thousands of dollars — got people's attention in a way that bigger but more complex examples of self-dealing don't.

"Maybe people don't read stories about conflicts of interest," she said. "I think these stories caught the public's eye because there were these specific behaviors and specific money spent. That's different from 'Oh, his cousin is the contractor that got the job.'"

Lawless said people she talked to seemed particularly upset by $20,000 spent by the Kentucky League of Cities at a restaurant co-owned by Sylvia Lovely's husband, Bernard, or $2.3 million paid to law firms where he was a partner.

League officials repeatedly said they considered the organization a private business, not one that mostly ran on taxpayer dollars or was accountable to the public.

KACo and KLC are funded through dues, insurance payments and finance payments from counties and cities. The two groups' employees are also part of the County Employees Retirement System.

"That was a really bogus argument, and it was frankly offensive to taxpayers and the General Assembly," said state Sen. Damon Thayer, R-Georgetown, one of the lawmakers who called KLC and KACo officials to appear before a legislative hearing.

"I hope the message was sent at the hearing that we consider those agencies to be funded by taxpayers," he said.

Both Blue Grass Airport and the Lexington Public Library receive taxpayer funds either directly or indirectly.

Lasting reform?

While the public outrage has burned hot toward these spending sagas, will it be enough to cause systemic, far-reaching reform? As Rep. Adam Koenig, R-Erlanger says: "If people resign and nothing changes, then we've gained nothing."

Even though the boards share responsibility for failing in their oversight, Koenig said those board members must be given the chance to implement reforms and stick to them. And it should be the local officials who rely on these organizations who keep those board members accountable, he said.

"Hopefully, the county leaders and the city leaders will make sure that their elected board members take care of it," Koenig said. "The people who elected those board members need to keep a better eye on them."

Some board members are elected by their organizations' members, others are appointed by elected officials.

Not everyone agrees that boards need to do a better job.

Trimble County Judge-Executive Randy K. Stevens, who is on several of KACo's program boards, said the forced resignations are signals that board members were doing their due diligence in making corrective actions once they had all the information "of what was happening around them."

"I don't think it's the sign of the times. I think it's a sign of how serious the boards take their job," Stevens said.

He said prospective members of other boards are likely to be more conscious of the expectations that they will keep a closer watch on an organization — responsibilities that will "obviously take away from other work endeavors."

While he said these sagas and their lessons won't be a deterrent for him to serve on other boards, "it will be a consideration."

'A wake-up call'

Luallen, who issued a set of recommendations for board members shortly after her office audited the airport, says she is getting calls from all over the state from various boards and commissions — from the Paducah Industrial Authority to the Kentucky Educational Television Foundation — that want advice or are changing their policies and procedures.

"I think these controversies will have an impact all across Kentucky," she said. "I just sense this has been a wake-up call for a number of groups and board members who may not have realized how much responsibility a board member has, how accountable they have to be for every dollar that is spent."

Lawyer Hired By Kentucky Association Of Counties (KACO) Is Subject Of Ethics Probe. NO Kidding. Only In Kentucky!

Ethics group looking into lawyer hired by KACo
By Ryan Alessi

Robert "Bobby" Russell, the lawyer hired by the Kentucky Association of Counties to do a management review of the organization, is the subject of a state ethics inquiry stemming from his work at the state Transportation Cabinet.

The Executive Branch Ethics Commission issued a subpoena in May for documents related to "every grievance filed against" Russell since December 2007, when he became the state Transportation Cabinet's general counsel.

Russell didn't return calls requesting comment Thursday.

And John Steffen, the ethics commission's executive director, declined to comment.

Russell left that post April 15 and now works as an attorney with Coy, Gilbert & Gilbert, a Richmond firm.

Russell, who is also a former Transportation Cabinet inspector general and Madison County Attorney, just began a review of KACo's chain of command, personnel, board oversight and policies in the wake of controversy over the organization's expenses and board oversight.

KACo's top five managers spent $600,000 in meals, travel, entertainment and other expenses in two years. In addition, the organization and its liability insurance has paid at least $2.2 million in legal costs related to the firing of seven former KACo employees.

KACo President J. Michael Foster, the Christian County Attorney, told legislators at an Interim Joint Committee on Local Government meeting Wednesday that Russell's management review would be critical in helping determine further reforms and personnel decisions at KACo.

"We want the benefit of the comprehensive review in order to make the best decision possible," Foster said.

Foster said he didn't know about the ethics inquiry.

He said he hired Russell, who will be paid $225 an hour, on the recommendation of several officials and didn't expect an inquiry into hiring procedures would affect the management review.

"I would have to say that I have complete confidence in his ability," Foster said.

The subpoena, obtained by the Herald-Leader through an Open Records request, also asks for documents related to Russell's hiring of former Circuit Judge William W. Trude, Jr. in the cabinet's legal office, as well as the promotion of staff attorney Jesse Rowe.

The Louisville Courier-Journal first reported in April that those personnel moves were voided because Russell and the personnel panel assigned to screen applicants didn't follow the proper procedures.

Kentucky Lawmakers Aim To Get To The Bottom Of KACO and KLC's Financial Shenanigans.

Lawmakers grill leaders of KACo, League of Cities about spending
By Ryan Alessi

FRANKFORT — Lawmakers grilled leaders of the Kentucky League of Cities and the Kentucky Association of Counties on Wednesday about what they're doing to prevent another spending scandal and urged that staff members face "consequences" for their actions.

The Interim Joint Committee on Local Government's meeting came a day after League executive director Sylvia Lovely announced that she would step down.

After Wednesday's hearing, one lawmaker said KACo executive director Bob Arnold needs to follow suit.

"A change probably ought to be made," Rep. Adam Koenig, R-Erlanger, said in an interview. "In some ways, at least, the problems at KACo were more egregious" in the amount spent and the type of charges, the former Kenton County commissioner said.

Arnold said in an interview Tuesday that he hasn't felt pressure to resign, nor does he have plans to leave "any time soon."

Wednesday's meeting, lasting more than two hours, was the first chance for legislators to publicly ask questions about management and spending practices at the two organizations, which had been outlined in a series of Herald-Leader articles.

The three leaders of the League charged more than $300,000 in expenses over three years, and KACo's five top staff members spent nearly $600,000 in two years on travel, meals and other items, the Herald-Leader reported. Among charges on KACo credit cards were two dinners costing more than $7,000, hotel rooms with nightly rates of $450 and two charges to a Lexington escort service.

"Without a doubt, the series of articles ... that appeared in the newspaper this summer have been troubling to this committee and our mutual constituents," said state Sen. Damon Thayer, R-Georgetown, co-chairman of the committee.

Lawmakers underscored their concerns about spending by pointing out that both organizations, which provide legal advice and lobbying and sell insurance and project financing to local governments, receive public dollars.

"We answer to the taxpayers, and that's what money you're spending, whether you make it through insurance or through your dues," said Rep. Richard Henderson, D-Jeffersonville.

Both groups have implemented a series of changes to bolster financial oversight and restrict spending.

But legislators, who praised the groups for the services they provide, suggested that the groups consider limiting the number of board members, allowing people who aren't elected officials to serve on those boards, and providing the Georgetown-built Toyota Camry for the organizations' executive directors instead of the BMW SUVs that both were given.

The committee had requested that the organizations appear, and they directed their questions to the presidents — Richmond Mayor Connie Lawson, current president of KLC, and incoming president Mike Miller, mayor of Jackson; and J. Michael Foster, the Christian County attorney and KACo's leader. Thayer said legislators didn't want to hear from the paid staff, but they wanted to question the elected officials who are in charge.

Rep. Arnold Simpson, D-Covington, also said KACo might want to reduce its board from 34 members. The League has 53 board members, including 18 on its executive committee.

Rep. Steven Riggs, D-Louis ville and co-chairman of the joint committee, said the sagas of both quasi-governmental organizations show that board members must be much more engaged in operations. Even though public officials are busy running their cities and counties, they need to make oversight of these groups a priority, he said.

"If you don't want to do the job, which has some responsibilities to it, don't apply," Riggs said.

At one point, Lawson conceded that she was "not really sure if I knew exactly what a board was supposed to do in its entirety" when she joined the board.

Thayer asked League officials about $263,000 in loans the organization made to four employees to buy extra time, and thus higher benefits, in Kentucky's County Employees Retirement System. The Herald-Leader reported that the employees were lent the money but that 20 percent of it was forgiven for each year that they stayed at the League.

Miller told the committee that "technically, the loan wasn't forgiven" because payments came out of the employees' salaries. The League's general counsel, Temple Juett, later pledged to provide documents showing how the loans were handled.

Other lines of questioning focused on rebukes for top staff members who allowed the spending or made questionable charges.

"We have to have consequences; otherwise, it's all window dressing and a charade," said Sen. John Schickel, R-Union.

The League board is discussing requiring employees to repay the group for any expenses deemed improper, Miller said.

Koenig, the Erlanger lawmaker, told the committee he saw a "stark contrast" in the way the League had responded, as opposed to KACo.

"At the KLC, we have someone who either A, stood up and took responsibility, or B, was made to take responsibility," he said, referring to Lovely, who stepped down Tuesday. She will continue to draw her salary of $331,000 through December.

"I just want to make sure that is going to happen at KACo," Koenig said.

Foster responded that he is awaiting results of a management review that was just begun by former Transportation Cabinet inspector general Robert "Bobby" Russell, as well as other internal investigations and audits that are under way, before making any decisions about personnel.

"We'll do whatever's necessary to right the ship," he said.

Ryan Alessi: KLC [Kentucky League Of Cities] To Put Up 'Fire Wall' Between Insurance And Other Operations.

KLC to put up 'fire wall' between insurance and other operations
By Ryan Alessi

The Kentucky League of Cities has agreed to stop offering sports tickets and other perks worth more than $25 to local officials to avoid breaking the law that forbids inducements for prospective insurance customers.

The new policy is part of the League's efforts to establish a clear separation between its insurance division and its other operations, as recommended by the Kentucky Department of Insurance.

Temple Juett, the League's general counsel said in an Aug. 17 letter to the insurance department that the League shares the concern that some gifts KLC provides local officials could be considered incentives for business.

Officials from both the League and the Kentucky Association of Counties have been in discussions with state insurance regulators over the last two months, following the Herald-Leader's articles on spending and expenses of the group's officials.

The insurance department accepted the League's proposed reforms on Tuesday, according to letters obtained by the Herald-Leader through an Open Records request.

Among the changes:

■The Kentucky League of Cities Insurance Services will no longer sponsor meals, hospitality events or cocktail receptions at League events and conferences.

■The League will stop providing football, basketball and other event tickets to League members or prospective members and instead will offer them only to the League's 53 board members.

■The League's insurance administrator, William Hamilton, will give up his duties overseeing the League's financing program to focus exclusively on insurance.

The League and KACo offer services, such as lobbying and legal advice, to local governments but also have divisions that sell property, liability and workers' compensation insurance to cities and counties.

Both organizations, which are funded through local government dues and payments for insurance and financing products, have spent tens of thousands of dollars paying for meals, travel and other expenses for elected local officials who attend their functions.

Many cities and counties then buy insurance from the League and KACo, bypassing other insurance firms.

But Kentucky law prohibits entities that sell insurance from giving away gifts, prizes or perks worth more than $25 to customers or prospective customers. Insurance regulators warned that some of the activities by the League and KACo could be construed as legal violations.

"The statutes were passed to try to provide a level playing field for all insurance agents," said Insurance Commissioner Sharon P. Clark.

The department wanted the groups to set up a fire wall between the parent organizations and the insurance divisions so that the board could more carefully monitor the insurance businesses, Clark said.

Insurance regulators wanted the League and KACo to come up with their own policy changes in response to the concerns because they are so different from private insurance agencies, she said.

Clark said the League had been cooperative and "extremely responsive" during the process.

KACo will agree to make similar changes, said KACo President J. Michael Foster, in an interview Wednesday.

"I think it will be an easy fix," Foster said.

Clark confirmed that the department received a letter from KACo late Wednesday in response the department's recommendations. But officials hadn't had an opportunity to fully review it by Thursday, she said.

Foster said the organization will work to separate the insurance business from any promotions, dinners or activities sponsored by the organization as a whole.

"They want to make sure that the insurance product basically sells itself and that the people who work in the insurance program are not involved in any type of marketing," Foster said. "And if that's what the Department of Insurance recommends, that's exactly what we will do."

Reach Ryan Alessi at (859) 231-1303.

Credit Card Issuing Companies Face Accountability, Responsibility, and Disclosure Act of 2009. I'm Loving It!

New limits on credit card issuers begin to take effect (finally)
Tony Pugh

WASHINGTON — The credit card legislation signed by President Barack Obama in May provides consumers their first morsel of relief on Thursday when card issuers must begin giving more notice before imposing rate increases or charging late fees.

Beginning Aug. 20, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 increases the required notice before raising credit card interest rates to 45 days from 15 days.

The new law offers cardholders another perk: A consumer can now decline a rate increase by closing the account and agreeing to pay off the balance at the current rate within five years.

"So (consumers) can effectively convert their balance into a closed-end loan that they can pay down over five years. That's a tool that they didn't have up until now," said Eleni Constantine, the director of the Pew Charitable Trusts Financial Security Portfolio.

"Now if you don't like your rate, you can close your card, but the rate is already in effect without getting any notice and it applies to your existing balance. This gives people a little more leverage to say, 'No, I'm going to go shop around for another card.'"

Cardholders who rack up late fees also will get a break under the new law on Thursday. The legislation requires that monthly billing statements be mailed or delivered at least 21 days before the due date to charge a late fee. The fees can now be applied after only 14 days notice.

These first provisions aren't the bill's strongest or most important. Most of those measures, such as requiring adult co-signers for card applicants under age 21 and banning retroactive rate increases, won't take effect until February. Other provisions will take effect next summer.

In the meantime, credit card companies are trying to increase profits to offset presumed revenue declines that the new rules will likely cause, said Bill Hardekopf, the chief executive of LowCards.com, a consumer Web site that monitors the card industry.

Specifically, card issuers are increasing interest rates; introducing more cards with annual fees; raising other fees, such as balance-transfer fees; moving from fixed-rate to variable-rate cards and cutting rewards and bonus offerings, Hardekopf said.

He and other consumer advocates wonder why Congress gave the card industry so much time before the laws took effect.

"If credit card issuers need to make a change to increase the (annual percentage rate) or increase a fee, or anything that benefits them, they can do that very, very quickly, so I don't know why the government gave them so much time to make those changes," Hardekopf said.

Gary Martin, of Shreveport, La., watched as the interest on his credit card rose from 9.9 percent to 21 percent earlier this year after his account was purchased by a large national bank. Then last month, it jumped again to 29 percent, and his account was closed without his consent.

Martin, 65-year-old disabled Army veteran of the Vietnam War, said the card company told him that negative information from a credit reporting agency caused both actions. However, he said he never missed a payment, always paid more than the minimum amount due and hasn't used the card for more than a year.

If the new 45-day grace period on interest rate increases had been implemented sooner, Martin said he would've used the extra time to transfer the balance to other cards and seek another one with a better rate.

"If we had not allowed all that time, (Obama) would have saved Americans millions of dollars," he said. "I know about Congress and I know about lobbyists and I know laws take time to go into effect, but there's a ton of people out there eating it right now, and there's gonna be more."

However, Lynne Strang, the vice president of communications for the American Financial Services Association, said the extra time was needed to "reprogram computers, redesign forms, train employees and implement a host of other internal preparations to comply with the new law's requirements."

As for the rate increases, Peter Garuccio, a spokesman for the American Bankers Association, said card companies are simply adjusting to changing market conditions, specifically the recession. He added that uncollectable credit card debt is approaching 10 percent, and that increases costs "because those who pay their bills on time are essentially being asked to pay for those who don't pay their bills at all."

An upcoming review of nearly 400 credit cards by the Pew Trusts Safe Credit Cards Project found that interest rates increased by a median of 2 percentage points in the first half of the year, even though it was cheaper for banks to lend money because the federal target funds rate — the rate banks use for loans to each other — fell by at least three-quarters of a point.

However, investors also provide funds for credit card companies to lend, and many aren't as willing to take risks with their money as they were before the recession.

"The economic situation dictates to a degree, that if you're going to invest your money, you're going to demand a higher rate of return and that increases the cost," Garuccio said.

Lexington Herald Leader: Spending On All The Wrong Things.

Spending on all the wrong things

It's a little hard to know just where the outrage-o-meter should land in the latest story about the free-spending world of the Kentucky Association of Counties.

Should it point directly at executive director Bob Arnold who summarily dismissed long-term employees, ultimately racking up $1.8 million in settlements and fees for wrongful termination?

Or, should it reach into KACo's less-than-illustrious past to former executive director Michael Magee, whose behavior toward a staff member was so distracting that he missed critical meetings and ignored important KACo business, then retaliated against employees who voiced their concerns?

Or, should it land on the KACo board and executive committee that — on the occasions they seemed to even be aware of the activity — rewarded, or at least tolerated, it.

Truth to tell, there's plenty of blame to go around. That said, we vote for number three.

KACo board members, like too many others examined in Herald-Leader stories about wild spending and bad management at quasi-governmental organizations inexcusably failed to do their jobs.

This complex soap opera matters because it's being funded by taxpayer dollars paid to KACo in dues and fees for insurance. Every dollar wasted at KACo is one that could have been used by a cash-strapped county to provide services to the citizens who pay taxes there.

Time and again, the executive committee made up of county executives chose to spend its way out of jams. Consider:

■ When a staff attorney prepared a detailed report on Magee's distractions, his retribution and the liability the hostile work environment created for KACo, the board bought out the attorney's contract for $71,353. KACo later settled a lawsuit with him for $175,000 plus $125,000 in attorney's fees;

■ When he finally resigned — after the above-mentioned report as well as a four-page letter to the full board from a private attorney presenting the concerns of the employees he represented — Magee received $118,553 in severance pay;

■ Despite the upheaval under Magee, the board seemed to glide along in blissful ignorance while, during the first year under Arnold, nine of the 11 employees who had hired the private attorney were either fired or resigned.

When board members finally learned about the departures and the costly settlements, their only action was to require Arnold to run dismissals by the executive committee before they were carried out.

And many KACo board members continue to defend Arnold, saying he's returned the organization to profitability.

While that is apparently true, it's no reason to overlook serious, expensive problems that have arisen under Arnold's leadership. Running KACo effectively is Arnold's job and one for which he is paid very well. In 2008 Arnold's salary was $178,080 plus some generous perks.

At that level of compensation, the board has not just the right, but the obligation, to demand fiscal solvency and competent personnel management.

Kentucky Association of Counties (KACO) President J. Michael Foster Aims To Rein In Organizations UNBRIDLED Spending. GREAT Idea. Read More Below.

KACo president to propose new expense policies
By Ryan Alessi

Kentucky Association of Counties President J. Michael Foster called a special board meeting for Thursday to pitch a new package of financial oversight reforms, including the formation of a regular auditing committee.

"I will be recommending a comprehensive set of guidelines to help us address our financial management issues," said Foster, the Christian County Attorney.

He declined to reveal those specific proposals. He said he wants to present them first to the 34-member board, made up of county officials.
He did, however, confirm that he will form an internal auditing committee to review the organization's spending.

This comes as some local officials have become increasingly critical of KACo's expenses after the Herald-Leader reported that the non-profit organization's top five leaders spent $600,000 on travel, meals, gifts and other items in 2007 and 2008.

KACo officials have conceded that financial oversight was weak.

Executive Director Bob Arnold, who was responsible for more than $350,000 of the expenses, approves staff spending. But no one reviewed Arnold's expenses.

And no one questioned charges to two Louisville strip clubs or a Lexington escort service made last year on the KACo-issued credit card provided to KACo's 2008 president, Spencer County Judge-Executive David Jenkins. Jenkins has denied making the charges.

Arnold has denied making a charge on his KACo card to the same Lexington escort service in 2007.

Foster has tapped Lexington lawyer Brent Caldwell, who has served as outside counsel for KACo for about a decade, to lead an investigation into who signed the receipts at the strip clubs and escort service.

Caldwell said only that he is "making progress."

KACo is funded by dues paid from county coffers and from income for insurance and financing services KACo sells to the counties.

In March, Foster implemented some expense policy changes, such as tapping KACo's general counsel, Tim Sturgill, as chief financial officer to review all employees' expenses and prepare monthly out-of-state travel reports for the KACo board to review.

State Auditor Crit Luallen just launched an investigation into KACo and will recommend other financial controls.

In the meantime, Foster will assemble officials with financial backgrounds to serve on KACo's internal auditing committee.

Bath County Judge-Executive Carolyn Belcher, an accountant whom Foster will nominate to that panel, said she thinks it's important to improve KACo because its services are crucial.

"Tighter controls and checks and balances are needed," she said.

In Boone County on Tuesday, County Commissioner Cathy Flaig issued a statement criticizing KACo's board for allowing "tax dollars to be so severely mismanaged" on expenses. She also criticized Judge-Executive Gary Moore for taking a KACo-funded trip to Hawaii for a national conference in 2005.

Flaig is challenging Moore in next year's election.

Moore said in a statement that he flew to Hawaii for that trip on his personal sky-miles and billed some meals to the county, while paying out of pocket for others.

But KACo paid for Moore, who is not a KACo board member, to go on two trips, including a $2,279 hotel stay for five nights at the Willard InterContinental hotel in Washington, D.C., in March 2007 and paid $720 for the flight and hotel for last summer's National Association of Counties trip to Kansas City, according to the Herald-Leader's review. That was the trip on which Arnold charged a $7,000 dinner for an unknown number of people.

Moore said KACo's offers to pay for some of those expenses saved Boone County tax dollars.

Last week, Pike County Judge-Executive Wayne T. Rutherford sent KACo board members a scathing letter saying they had allowed officials to spend "like drunken sailors." And Spencer County magistrates have asked for county documents to review spending by Jenkins, their judge-executive, in light of the reports about KACo.

Editor's comment: It's about time, Michael. Oh, thanks a lot, Ryan. Kentuckians owe you a lot.

More UNBRIDLED Spending Of Public Funds Draws Deserved Sharp Rebuke.

Pike County leader assails KACo spending, lack of oversight
By Ryan Alessi

The top official in Eastern Kentucky's most populous county accused the Kentucky Association of Counties of spending public money "like drunken sailors" and called for swift corrective action, including replacing those who made improper purchases.

Judge-Executive Wayne T. Rutherford e-mailed a three-page letter on Wednesday to his colleagues in county courthouses across the state that chastises officials on KACo's executive committee, who he said "completely failed in their duty of oversight of the executive director" and of KACo's spending.

Rutherford wrote that he was particularly troubled by charges made on KACo credit cards to "gambling casinos (and) strip joints" at the same time the organization increased administrative fees on its insurance and finance products.
090716rutherfordmug
handout

He also called on the non-profit organization — which provides insurance, project financing, training, lobbying and legal services to counties — to lower its rates and cut dues, which each county pays from tax coffers.

In a review of KACo's spending, the Herald-Leader found last month that the top five officials spent $600,000 on travel and other expenses in two years. In addition, KACo's 2008 president spent nearly $20,000 during his one-year term.

Among KACO's expenses were two $7,000 dinners, hotel rooms costing $450 a night, charges to two Louisville strip clubs and $445 spent with a Lexington escort service.

In a play on KACo's motto — "working for you in ways you never imagined" — Rutherford wrote that "these people spent money in ways I never imagined!"

One of Pike County's magistrates, Chris Harris, serves on KACo's executive committee as the second vice president. Harris and KACo president J. Michael Foster, the Christian County attorney, have been outspoken in pledging reforms at KACo.

Harris said KACo leaders will listen to Rutherford and others as they look at ways to tighten oversight, but he said Rutherford seemed to be taking "cheap shots."

"What's behind that is you've got a man who's afraid that I'm going to run against him for county judge, and he's trying to use this against me," Harris said.

Rutherford didn't mention Harris in the letter. He did single out Spencer County Judge-Executive David Jenkins, the 2008 president, whose KACo-issued credit card was used to pay for many of the charges Rutherford found objectionable.

"Not only am I upset with the board of directors and officers, but also with the Spencer County judge-executive's poor judgment because this type of conduct tarnishes the image of all Kentucky officials," Rutherford wrote.

Jenkins admitted to making charges at the Belterra Casino in Indiana and at the Hooters Casino in Las Vegas, although he denied that the $937 he spent at the casinos was for gambling. Jenkins has disputed charging $620 at Louisville strip clubs and a Lexington escort service. But the credit card issuer denied KACo's request to refund the money.

Jenkins didn't return a phone call Wednesday.

KACo's general counsel, Tim Sturgill, said in a statement that KACo officials "will respond directly to Judge Rutherford regarding his concerns."

Many local officials have praised KACo for its services, including insurance policies that often cost less than those offered by private companies. The organization must clean up any problems to preserve those beneficial programs, said LaRue County Judge-Executive Tommy Turner, who is a KACo board member.

"There is quite a sentiment to right the KACo ship," Turner said.

Some ideas, such as tightening expense oversight, "should be simple to implement," he said. Other moves "could involve changing some of the personnel," which will probably be a more complicated debate, Turner said.

State Auditor Crit Luallen announced this month that her office will investigate KACo's spending. In May, she released 28 recommendations to help non-profit boards increase oversight, which Rutherford said KACo's board should adopt at once.

Rutherford dispatched his letter Wednesday as county officials convened in Louisville for a four-day joint conference of the Kentucky County Judge-Executive Association and the Kentucky Magistrates and Commissioners Association. KACo Executive Director Bob Arnold and Luallen are among the officials scheduled to address the group on Thursday.

Rutherford offered 11 recommendations of his own to "bring this great organization back in line with its intended purpose," including calling for the resignation of officers or board members who participated in casino or strip club entertainment. He also suggested that KACo's board should "consider replacing the present director and chief financial officer."

One charge to the Lexington escort service Campus Cuties, which bills under the name Calypso Enterprises, appeared on Arnold's KACo credit card in May 2007. Arnold, who is legally blind, denied making that charge but conceded that his credit card statements weren't thoroughly vetted.

Rutherford also recommended that KACo release to the media a list of participants who were present at expensive meals, trips and entertainment events paid for by KACo. Receipts and credit card statements of KACo leaders rarely included a report of which officials or staff attended, the Herald-Leader's review found.

He called for further cost savings at KACo, such as canceling advertising during University of Kentucky sporting events and renting out the $12 million headquarters that KACo is building instead of moving into it.

"I have been concerned about KACo for some time," Rutherford wrote, addressing the county officials who serve on KACo's board. "I cannot overstate how strongly I urge you to use your position of influence as KACo board of directors and officers to bring this organization back to its intended purpose, that is one which serves Kentucky counties rather than its own leadership."

His letter ended with a quote from Galatians: "for whatsoever a man soweth, that shall he also reap."

Editor's comment: Read the CJE's letter.

Politics or not, the CJE is right and the officials deserve the rebuke.