By Becky Killian / Editor
A special state examination of the City of Barbourville “found lax controls and oversight” resulting in “financial mismanagement and abuses,” according to a report from Kentucky Auditor Adam Edelen.
The report indicates Barbourville Mayor David Thompson and others exerted “undue influence over financial activities” and likely benefited personally as a result, Edelen said.
Edelen said the audit will be referred to the Attorney General, the Kentucky Department of Revenue and the Cabinet for Health and Family Services.
The audit began last summer after five of six city council members sent a letter to the auditor’s office in March requesting the audit.
The audit, which looked at certain financial activities from July 1, 2007, through Aug. 31, 2013, resulted in 28 findings and recommendations that criticized the city’s financial practices and oversight.
Noted among the state’s findings were the city’s practice of giving checks to the mayor or Street Superintendent Jim Baker for distribution to contractors and employees.
The state found 183 instances where checks totaling $38,585 were co-endorsed by either the mayor, his wife Wendy Thompson, or both Thompsons. Those checks were either cashed or deposited into the mayor’s personal bank account. Of those checks, $27,001 were payroll checks for the city’s water park employees.
From 2007 through 2012, Wendy Thompson served as the manager of the water park. She resigned from the full-time position in order to manage her own day care facility.
The state’s report noted the mayor explained he and his wife cashed checks as a convenience for the park’s employees.
After the report’s release, Thompson reiterated the check-cashing practice was a convenience he and his wife offered to the park’s employees, many of whom were young and did not have bank accounts, which would have allowed them ready access to free check cashing. He said he and his wife did not charge for this service.
In criticizing the check-cashing practice for employees and vendors, the state said it gave “the appearance of commingling public and private funds.”
“It indicates the possibility that payments to some individuals were not solely for the benefit of the city,” Edelen said in a press release.
The report indicated water and ball park concession income and expenses weren’t reported to the recreation board as required and the mayor and his wife did not provide that documentation to auditors upon request.
“The public has no idea how much money these park concessions made or how it was spent,” Edelen said. “Parks may seem like small potatoes to some, but they are important community assets.”
Auditors also found that Wendy Thompson potentially reaped greater profits by reporting inaccurate payroll expenses to the city.
The state also criticized the city’s practice of paying contract workers and a vendor using invoices prepared by the street superintendent or the mayor, rather than relying on detailed invoices provided by the contractors seeking payment.
Auditors determined community service time sheets submitted to the state’s Cabinet for Health and Family Services for individuals receiving benefits from the Kentucky Transitional Assistance Program were “grossly overstated and not accurate.” That determination was made after auditors visited the city’s recycling center eight times and counted the number of individuals present. Those counts were compared to attendance logs prepared by the mayor and submitted to the Cabinet.
“In all instances, the number of participants is significantly over-reported,” the audit states.
Auditors also raised a concern about a conflict of interest related to the mayor’s oversight of the participants in the Cabinet’s program and the enrollment of participants’ children in Wendy Thompson’s day care facility.
“The examination determined of the 26 participants assigned to the Recycling Center, 11 of these participants enrolled a total of 25 children in the Mayor’s wife’s day care. In total, the Mayor’s wife received state child care funding for these 25 children totaling $7,468 for the month of August,” the report states.
On Tuesday, Mayor Thompson said he has implemented as many as nine community service programs since he took office and said he doesn’t ask the participants about their child care arrangements.
Mayor Thompson said the months’-long audit had negatively affected the morale of the city’s employees. As a result, he said he was “tickled to death” the audit was finally complete and said he had expected the state would have more findings than it did.
The findings have been reviewed with the appropriate city departments and Thompson said those that have not already been corrected will be corrected within 30 days.
Findings and recommendations
The audit released Tuesday by the state auditor’s office outlined 26 problems with how the city conducted its business. Those findings were:
1) Auditors found 183 checks totaling $38,585 payable to city contractors or employees that were co-endorsed by Mayor David Thompson, his wife, Wendy Thompson, or both Thompsons. The checks were either cashed or deposited into the mayor’s personal bank account.
2) Recurring payments from the general and recreation funds were made to a general contractor, a plumber and an electrician for work that could have been performed for less cost by street department employees.
3) The city’s street superintendent prepared “numerous” contractor invoices and those invoices as well as any supporting documentation were not signed by the contractors.
4) Community service time sheets submitted to the Commonwealth’s Cabinet for Health and Family Services were “grossly overstated” and inaccurate. Also, auditors identified a possible conflict of interest related to the mayor’s oversight of participants required to complete community service and the enrollment of those participants’ children in a child care facility owned by Wendy Thompson.
5) The mayor serves on the recreation board and the tourism commission, which is against the law.
6) The mayor participated in the hiring process that resulted in Wendy Thompson serving as manager of the city’s water park from 2007 through 2012.
7) An “excessive” number of free season or day passes to the water park were issued by the mayor, Wendy Thompson, and Street Superintendent Jim Baker.
8) Water park and ball park concession income, expenses and concession prices weren’t reported to the recreation board beginning in the summer of 2009 when Wendy Thompson became responsible for filing those reports.
9) Wendy Thompson did not make timely reports of restaurant taxes collected to the city, so the state was unable to determine if all returns were properly filed or if they reported the appropriate revenue amounts.
10) No sales tax returns were filed with the Kentucky Department of Revenue for water and ball park concessions for any year in which concessions were managed by the recreation board or Wendy Thompson.
11) Concession payroll appeared understated with multiple instances where no or few paid employees were present in the concession stand.
12)A list of water park equipment and supplies wasn’t maintained until the summer of 2013 when a new manager created a list of items.
13) The city didn’t collect RV rental fees consistently and ensure utilities were properly paid, with auditor’s noting the RV park host didn’t pay rental as a condition of employment, but that Street Superintendent Jim Baker also didn’t pay rent. Auditor’s also found a camper on private property adjacent to the RV park that had connected to the park’s electricity — the state was unable to determine if the camper owner was paying for the electricity used.
14) The mayor suspended rental payments for the Old Town General Store building because of needed roof repairs. The state recommended the recreation board ensure all agreements are in the best interest of taxpayers by implementing fair and consistent rent.
15) The city didn’t receive vending machine revenue from May 2007 through April 2013 although purchases were made.
16) The city has only received three payments for aluminum sold by the recycling center since January 2010.
17) The city didn’t receive revenue from the sale of metal appliances collected by the street department.
18) The city failed to get bids for purchases of more than $20,000 from an asphalt company and a gasoline wholesaler.
19) The city used unnecessarily restrictive bid specifications in its purchase of two used vehicles for the police department.
20) The tourism commission failed to adequately oversee the repairs and remodel of the H.H. Owens Home.
21) The tourism commission awarded the highest bidder a contract in its purchase of decorative aluminum fencing for the Civil War Interpretive Park without justifying the rejection of the low bid.
22) The city needs to improve internal controls over gasoline purchases by reconciling purchases with actual usage.
23) The city’s gravel stockpile isn’t adequately safeguarded from unauthorized access.
24) The tourism commission lacks adequate segregation of duties such as opening mail, preparing deposits and preparing financial statements — although the report noted no record keeping errors.
25) The city lacks adequate segregation of duties over general fund and recreation fund receipts — with the report again noting no record keeping errors were found.
26) The street superintendent and assistant street superintendent used city-owned vehicles to drive to their residences although this use was not noted as a fringe benefit on their W-2 forms.
27) The city didn’t properly declare city-owned vehicles as surplus prior to sale and title transfers to purchasers were delayed. Also, the city sold a motorcycle for which it had no title and the city no longer has a camper currently titled to the city.
28) Amounts paid for two land purchases “significantly exceeded assessed values.”