Auditor Refers Area Development District Findings to Prosecutor, Police, FBI

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Posted on March 4, 2014

1512396_688312061190168_1517062364_nLexington, KY – Alleged malfeasance by previous administrators at the Bluegrass Area Development District (BGADD) has risen to the level that State Auditor Adam Edelen is referring the case to the state’s attorney general, Kentucky State Police and the FBI.

“For over a decade, the former administration of the Bluegrass ADD took advantage of the fact that the average citizen wasn’t paying close attention to its activities and may not even understand exactly what a development district does,” Edelen said at a press conference announcing the findings of a 51-page report complied after an exhaustive investigation by his office. “It strayed far from its mission and seemingly convinced itself that because it doesn’t receive direct payments from taxpayers, it doesn’t have to be accountable. But let me be clear, every penny this agency receives comes from taxpayers, and today is the day we begin holding it accountable.”

Edelen said the BGADD – one of 15 ADDs statewide with the aim at bringing regional growth, cooperation, economic development and workforce needs – strayed from its mission as its past executive director wreaked too much power and often circumvented its board, made up largely of elected officials and those close to them in community development roles.

The board, as currently constructed, lists 77 members according to the Bluegrass BGADD’s website. Edelen’s report found that former director Lenny Stoltz, II overstepped bounds in allocation of funds by seeking approval from one of the board’s committee rather than the executive board made up of half elected officials and half of what it calls “citizen members.”

fay heatingOne specific example was the hiring of an HVAC company to do work on a building the BGADD purchased a few years ago.

Photo Bret Melrose

Bret Melrose while member of the Workforce Investment board charged approximately half million in no-bid contract work for the ADD.

The $600,000 building had $465,000 worth of work done without any bid process, nor was there written contract, documentation describing services to be performed or an estimate of the costs. The BGADD also had no invoices to support $63,000 worth of payments to the vendor. Auditors learned that the HVAC company was owned and operated by a member of the Workforce Investment Board, which is chaired by its bylaws by the executive director of the BGADD, and all members were also appointed by the BGADD’s director, creating a possible conflict of interest, according to the auditor.

The audit also found excessive and unnecessary expenditures by the BGADD and misuse of credit cards by the former executive director. Auditors questioned $513,770 worth of expenditures that either lacked supporting documentation or appeared unnecessary or excessive.

Examples of questioned spending include:

  •  Meals in or around Lexington
  •  Travel expenses for individuals who were not employees of the BGADD
  •  Travel expenses beyond what was required for conference attendance
  •  Hotel charges for stays in the same town as an employee’s workstation

The exam also found that Stoltz was paid a $20,000 lump sum reimbursement without providing receipts, detailed credit card statements or other support to justify the charges.

“I don’t know what’s more astounding, the fact that someone had the gall to make such a request with zero documentation to back it up or that it got approved,” Edelen said.

The June 2010 request from Stoltz stated he used an American Express card exclusively for BGADD related purchases such as hotels, flights and meals and what was reimbursed to him came after interest had been added. At the time of his letter, he stated there was an outstanding balance of $17,000 and also requested $3,000 in interest. A check was issued to him on the same date after being approved by the Administrative Review and Finance Committee.

A number listed online as Stoltz’s rang with a fast busy signal when called Tuesday afternoon. A message sent to his Facebook page seeking an interview has not been responded to.

The auditor’s report also found Stoltz interfered in an internal investigation of the group’s director of a work reentry program for former felons.

Stoltz, the report finds, “attempted to halt an internal investigation identifying possible criminal violations and did not report those possible violations to law enforcement.”

According to the report, Tayna Fogle, herself a former felon and star of the University of Kentucky basketball team collected money from felons who were participating in the BGADD’s felon re-entry program, known as Steppin’ To A New Beat, even though the program was federally funded and did not require a fee.

The fees were not accounted for and auditors were unable to determine how much was collected and for how long.

The examination also found that eight individuals housed at a location under contract with the BGADD to provide housing for Steppin’ To A New Beat participants had not been enrolled in the reentry program, creating a questioned federal cost of $6,400.

“We are talking not just about the questionable use of federal dollars, but what appears to be the exploitation of individuals who were trying to re-enter society,” Auditor Edelen said. “Not only did the former BGADD administration not report these suspected activities to law enforcement, it tried to squash its own internal investigation.”

The number listed online for Christian Torp, the lawyer representing Fogle, has been disconnected. A message sent to his Facebook page was read but no reply was sent.

Other areas questioned by Edelen include a lease on the building that houses BGADD’s office. The building is owned by the Bluegrass Industrial Foundation (BIF), which is run by Jas Sekhon, the executive director that preceded Stoltz.

Edelen said the BGADD had paid enough in rent to an organization so closely tied to its own, that the organization could have bought its building many times over by now.

“In my view what the Bluegrass Industrial Foundation can do to make this right is they can give the ADD the building they’ve paid for, for a number of years,” Edelen said.

Luke Morgan, an attorney for the BIF said the question of the building would be on the foundation’s agenda and added that at the time of its founding, federal grantees were advised not to become “encumbered” with mortgages.

Morgan also reiterated that the BIF is a “separate entity, not a subsidiary,” of BGADD.

Edelen said previously received federal grants could be recalled. “I don’t think there is any question,” he said when asked if money might have to go back to the federal government.

Now the BGADD must tackle the issues raised in the report, many of which have been on the board’s radar since the auditor’s office first became involved.

“This is a turn around job. This AD District has been run into the ground by its leadership for a generation or two,” Edelen said. “They have 60 days to get their house in order to my satisfaction, I will be working very closely with them to make sure that they get to the appropriate result.”

Current BGADD Executive Director, David H. Duttlinger, said the group is up for the task and looks forward to continuing the organization’s mandated mission.

Duttlinger said the auditor helped them to “put a line of demarcation between the old regime and the new regime. (The board has) been taking actions over the last 10 months, but even the actions they take have to be validated.

“Looking at his report, its hopeful to see the validation that he brings forth and there’s areas of concern that we didn’t know about and when we see things that we didn’t know about we want to go back and make sure that we have a corrective action plan that will address each of those situations,” Duttlinger said.

When asked how the organization he’s headed for less than a year can get past the stigma of an organization that was allegedly run improperly and misused public funds, Duttlinger said: “I don’t think the area development district is supposed to be an organization that is readily recognizable by everybody. It’s unfortunate what’s happened… but what’s important is that we reestablish that public trust so we can continue to be that service delivery agency that provides necessary good for the public that deserves them.”

– See more at: http://bizlex.com/2014/03/auditor-refers-area-development-district-findings-to-prosecutor-police-fbi/2/#sthash.s4xYB6WY.dpuf

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