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Louisville Mayor Greg Fischer has launched a review of the city’s Planning and Design Services department.

Fischer previously announced audits of Public Works and Animal Services, and he’s planning a review of the economic development department. The mayor says he wants each department to be a model for other cities.

The Planning and Design Services department works on zoning and landmarks, among other issues. The review will look at how the department can better serve developers and neighborhoods. It will be led by an eight person panel that includes representatives from the mayor’s office, the state resource council, home builders and preservation groups.

The panel:

  • Bill Bardenwerper, Attorney
  • Tommy Clark, Office of the Mayor
  • Tom Fitzgerald, Kentucky Resource Council
  • Gabe Fritz, The Housing Partnership
  • Chuck Kavanaugh, Home Builders Association
  • Gale Lively, Louisville Apartment Association
  • Jim Mims, Director, Inspections, Metro Codes and Regulations
  • Steve Porter, Attorney
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Democratic candidate for mayor Shannon White sent an e-mail today commenting on last month’s audit of Metro Government. White’s criticism of Metro Government comes two days after State Auditor Crit Luallen discussed the audit with two Metro Council committees.

In the e-mail, White criticizes Democratic candidates David Tandy and Jim King and Republican candidate Hal Heiner (all three are councilmembers) for their relationship to metro government, even though they weren’t cited for being behind anything in the audit. White specifically targets Tandy for his trip to Baltimore to meet with Cordish executives about a loan the city gave the company.

I am outraged over the current administration’s handling of taxpayers’ dollars. Let us NOT forget that the recent state audit found 69 problems areas with metro government mostly due to MAJOR accounting problems, including 23.5 MILLION dollars in question.

Ten of thousands of dollars were not accounted for in Metro Corrections, the city actually gave back thousands of dollars of federal grant money and lost cats and dogs that were in the care of Metro Animal Services.

I am disappointed over the latest ads from three of my opponents promising an “open and honest government” … promises that the city government will be held accountable.

It is all complete BULL- these current Metro Council members are part of the establishment and part of the problem. Hal Heiner, Jim King and David Tandy are the reason our local government is in the shape it’s in.

In addition, we should remember that Councilman Tandy continues to promise transparency when he went on a fact finding mission to investigate the Cordish deal that involved 900,000 dollars of tax money- your hard earned money.

And Tandy ended up signing a confidentiality agreement while promising transparency- he knows what happened to our tax dollars- but agreed with the big corporation to keep it silent.

David Tandy & Jim King both served as presidents of Metro Council.

Do you really want more of the same administration? If we elect a councilmember to keep doing the same things- Louisville will get the same results.

Ahead of today’s joint Metro Council committee meeting with State Auditor Crit Luallen, Mayor Jerry Abramson‘s office released this statement on the city’s progress since the last audit:

Mayor Jerry Abramson’s administration has completed or implemented more than 100 steps to improve the city’s financial practices to comply with recommendations in the annual state audit released just last month.

Another 81 improvements have been initiated and the vast majority of those changes will be completed or put into practice by June 30, the end of the city’s fiscal year.

“We have worked swiftly and diligently to make changes that will further strengthen a financial system that has already earned top national ratings from Wall Street firms,” Abramson said. “I appreciate the good advice from State Auditor Crit Luallen’s office, and I’m proud of our management team for making major strides in record time.”

The annual audit covered the FY 2008-2009 fiscal year, which ended more than nine months ago, and included more than 60 findings. The city had initiated but not completed numerous improvements during the period when state auditor’s team was reviewing the city’s financial practices.

Among the improvements completed or implemented:

·         Business managers and department directors across government are receiving additional training in financial processes, procurement rules and internal controls.

·         Metro Corrections has implemented new procedures for cash handling and is improving its inmate financial management system to better track individual accounts. Additionally, Corrections is adding new technology with the potential to increase booking fee collections and improve efficiency in cash handling.

  • Metro Animal Services has fully implemented a state-of-the-art computer tracking database with barcode scanning for animals. These improvements better ensure animals are properly traced through their intake, stay, and adoption.

·         Public Works is implementing more detailed procedures to review invoices, monitor private contractors and track expenditures for FEMA-eligible reimbursements for disaster recovery efforts.

·         Office of Management and Budget is leading an accounting change across government to follow the auditor’s recommended method of reporting revenues and multi-year grants.

Under state law, the City of Louisville is audited annually to ensure accountability to its citizens and to get recommendations for strengthening financial operations. The City of Louisville has earned top credit ratings from Standard and Poor’s, Moody’s and Fitch – three of the nation’s top financial firms.

Democratic candidate for mayor Jim King‘s latest ad starts with references to the recent Metro audit and then touts King’s work on transparency in the Metro Council and his work in the private sector.

Republican candidate and Metro Councilman Hal Heiner previously mentioned his work on other transparency legislation in a TV ad, and several candidates have touted their plans for making government more open. With the audit still fairly fresh in the news cycle, it’s likely we will see continued discussion of how candidates will change Metro Government. With this issue and the current list of candidates, a debate of plans versus experience is likely to be a part of that discussion.

Republican Chris Thieneman was on TV the other day discussing FEMA grants and the recent audit of Metro Government.

Democrats Tyler Allen and Jim King also spoke out about the audit. Allen held a press conference and King made this statement:

“As many in this community are aware, I’ve long had concerns over the level of transparency at City Hall.  While I’m pleased that the mayor is focusing on our accounting system, I’m still convinced the only way to hold government truly accountable and for the people of this community to trust its government is to open the city’s books to the light of day.  As a Metro Councilman, I have worked to improve the levels of transparency by creating the city’s Government Accountability and Oversight Committee and authoring the city’s Transparency Ordinance.  I am the only practicing CPA on the Metro Council and in the race for mayor and if elected, on day one I will implement a system of internal accountable controls that will eliminate the material weaknesses and significant control deficiencies that currently exist in Metro Government’s accounting system.”

Metro Council leaders Madonna Flood, Hal Heiner and Ken Fleming have weighed in on the audit. Heiner is also a Republican candidate for mayor. His campaign has this statement:

“Unfortunately this could just be the tip of the iceberg, which is why Councilman Heiner has laid out a plan in his transparency policy that calls for a full scale audit of every department and agency in Metro Government.  Ultimately it is the mayor’s responsibility to have a financial management system in place that can be relied upon, and what has developed over the past 20 years is a culture of complacency in managing taxpayer dollars.  A fiscally sound city is paramount for Louisville to win new jobs, and a Heiner Administration will work to that end.”

Democrat Greg Fischer‘s campaign sent this:

“As an outsider to the Mayor’s Office and Metro Council, the findings from the state auditors report are troubling.  I am aware of the findings and don’t like them at all.  I haven’t run my businesses this way and I won’t let something like this happen on my watch as Mayor.”

And Metro Councilman and Democratic candidate David Tandy‘s campaign spokesperson says he…

…is reviewing the audit and will incorporate the findings into his plan to make metro government transparent and accountable when he is mayor.

Here is the WFPL story on the audit.

Here is the audit (PDF)

Here is the summary (DOC)

Metro Councilman Kelly Downard says there’s not enough time to fix the weaknesses highlighted in the audit, instead, he says it will be up to the next mayor.

Jim King and Tyler Allen have spoken out already, and more candidates will likely weigh in soon. This will become a campaign issue. The audit could play to King and Hal Heiner, who have worked on transparency legislation in the council. It could also boost candidates who have built reputations as activists, if they handle it right.

David Tandy may take more heat now for his visit he paid to Cordish headquarters last year. The loan given to Cordish is mentioned in the audit, and Tandy has been criticized for not doing enough to get details on how the money was spent in 4th Street Live. Tandy, however, was president of the council last year when transparency legislation passed.

What the audit may do, though, is take some heat off of the next mayor, whoever that is. Here’s an excerpt from a recent WFPL story:

…most know Abramson best as the affable cheerleader for the city. The mayor who has held hundreds of ribbon cuttings and groundbreakings. Owen says he hasn’t seen any of the candidates demonstrate Abramson’s ability to generate enthusiasm in the face of good and bad times, and that talent shouldn’t be overlooked.

“I worry sometimes that the candidates don’t know what they’re getting themselves into, if they’re going to be daily compared, in the first months of their term, to Jerry Abramson,” says Owen. “I’d say for the first year there’s always going to be “Where’s Jerry?””

A new leader can use changes in Metro Government employees and practices to signal a fresh start, and that could stave off comparisons, be they to positive or negative events of the last 7 years.

Many of the weaknesses highlighted in the audit–those tied to poor management–seem like symptoms of an administration that has been in power for a long time. In the WFPL story on the audit, Kelly Downard says he doesn’t think there’s actual malice behind the problems. But with the same leadership in place for years, underqualified employees move up over time and if they aren’t trained properly, then problems like this arise. If the audit doesn’t turn into major campaign fodder, it may serve as a lesson in leadership for the next mayor.

Following an audit from State Auditor Crit Luallen, Mayor Jerry Abramson‘s office announced that former Neighborhoods Department director Melissa Mershon and special assistant in the department Carol Butler have resigned.

From the Mayor’s office:

Mayor Jerry Abramson sought and accepted the resignations of two veteran employees in the former Neighborhoods Department as a result of information discovered by the city’s Internal Auditor and the State Auditor in reviews of financial transactions.

Melissa Mershon, former director of the Neighborhoods Department, and Carol Butler, a special assistant in the department, submitted their resignations Friday.

While working on a planned book on Louisville’s neighborhoods, Mershon failed to follow the city’s purchasing rules and Butler, who is part-owner of a book publishing company, did not comply with a city personnel policy that places restrictions on employees doing business with the city.

“I am surprised and disappointed by the actions of two people who have decades of public service to the community,” Abramson said. “I cannot accept such clear lapses of judgment and violations of rules.”

The city’s Internal Auditor Mike Norman began a review after receiving a tip that some invoices paid to vendors by the Neighborhoods Department had been created by the department using company letterhead rather than submitted directly by the companies.

He forwarded information to the Louisville Metro Police Department’s Public Integrity Unit and also shared information with the office of State Auditor Crit Luallen, who was completing a financial audit of the city for FY 2009.

Abramson was first made aware of the issue earlier this month in a draft audit finding by the State Auditor.

Responding immediately to the draft audit finding, Abramson asked members of his senior leadership team – Deputy Mayor Bill Summers, Legal Counsel Tina Heavrin and Chief Financial Officer Jane Driskell – to investigate the matter.

After gaining approval from the Internal Auditor and the LMPD Public Integrity Unit, the team questioned Mershon and Butler about the issues raised in the state audit finding regarding the invoices and the payments to Butler Books.

The review found that Mershon had approved three pre-payments to Butler Books over the past 2 ½ years totaling $14,900 for the neighborhoods book, which the department had planned to produce and sell.

Beginning in 2007, Mershon approved the pre-payments over the course of three fiscal years without a contract or competitive bidding. The city’s procurement code requires contracts for goods and services totaling more than $10,000. Because the total payments exceeded that threshold, the department should have used an approved purchasing method such as competitive bidding, negotiated bidding or professional service contract, according to the city’s purchasing rules.

Butler owned the book company with her husband, Bill, until his death last summer. The city’s personnel policy prohibits city employees from doing business over $25 with the city without competitive bidding.

The book was not completed and Butler repaid the money last week.

During the inquiry by the mayor’s leadership team, Mershon acknowledged she had created invoices for numerous vendors as a matter of practice, including Butler Books, rather than require the companies to submit invoices on their own.

The mayor’s leadership team presented the information to Abramson last Friday when he returned from a trip to Washington, D.C.  Abramson made the decision to ask Mershon and Butler to resign.

In addition to the personnel actions, Abramson will take the following steps:

·         Ask the State Auditor and Internal Auditor to complete their reviews of the former Neighborhoods Department and to make recommendations for improvements in financial practices

·         Require directors and business managers to attend additional training sessions on procurement, personnel and ethics rules

And here is the draft audit from Luallen:

During our FY 2009 audit of accounts payable, transactions selected for testing included an invoice submitted by Metro Department of Neighborhoods in the amount of $15,000. During FY 2009, Metro Department of Neighborhoods was responsible for neighborhood outreach and organizing community events. This agency housed the divisions of Brightside, Community Outreach, Office of International Affairs, MetroCall and the Mayor’s Special Events Office, and in FY 2009 was funded primarily through the General Fund.  In requesting the supporting documentation for this transaction, we were notified that the documentation was under review by Metro Internal Audit.   Upon contacting Metro Internal Audit, we were made aware that the invoice appeared to be fabricated because it did not match the appearance of other invoices submitted by the vendor.  Furthermore, additional evidence indicated instances in which several other vendor invoices processed by the Metro Department of Neighborhoods also did not match the vendor’s standard invoice.  All of the questionable invoices look basically the same with the exception of the vendor’s logo, which had been copied onto the invoice in most cases.

Evidence indicates that 36 invoices from 15 separate vendors processed between July 1, 2007 and June 30, 2009 appear to be created by someone other than the vendor.  These 36 invoices were approved for payment, generating checks to the 15 vendors totaling $368,660.  Because investigations by Metro Internal Audit and Metro Public Integrity are not yet complete, there is a potential that other invoices have been handled in this manner and not yet detected.

Also, a review of the documentation indicates that one of the 15 vendors was a business owned by an employee of the Metro Department of Neighborhoods.  Evidence suggests this vendor was paid $14,900 over three fiscal years.  One of the three payments making up the $14,900 paid to this vendor is included in the 36 questionable invoices identified above. This raises concerns of a possible conflict of interest, especially since the payment is not supported by valid, detailed documentation to justify the purchase.

Due to the nature of the concerns raised by this information, Metro Internal Audit suspended its review and submitted the documentation to Metro Police Public Integrity Unit.  The APA deferred its investigation and communication of this matter several weeks to avoid interfering in the preliminary stage of an investigation.

The auditors did not do procedures beyond a review of evidence gathered in ongoing investigations, and therefore were not able to ascertain the cause for, or source of, the questionable invoices.  Evidence exists indicating these invoices may represent prepayments or deposits to vendors for upcoming events and future services.   However, if prepayments or deposits were required, it is unclear why the invoices were not generated by the vendor.

Also, due to the similarity of the invoices in question, there is indication that the invoices were likely created by department personnel.  The creation of invoices by agency personnel is an extremely poor business practice which increases the risk of fraud, misappropriation, and accounting errors such as authorization for duplicate payments for the same service.  Although on rare occasions there may be a practical business need to pay deposits or prepayments on certain services, those payments should be supported by valid supporting documentation.

Furthermore, the payments made to a business co-owned by a department employee constitute a related party transaction at a minimum.  Related party transactions in and of themselves are not illegal, but there is an increased risk of unethical behavior which should be mitigated by full disclosure and transparency.  The failure to fully itemize the payments on the business’s standard invoices only increases this risk.

The weaknesses noted above indicate an extremely high risk of unethical business practices.  Whereas there may be legitimate business needs for prepayments and deposits, all payments for goods and services should be evidenced through valid supporting documentation obtained from the vendor or evidenced through contractually scheduled payments.  This supporting documentation should be of sufficient detail for identifying the business purpose of the payment.

Recommendation:

We recommend that Metro Internal Audit complete its review of this matter to ascertain the cause and extent of the invoicing practice noted, and to fully investigate the conflict of interest identified.  We further recommend that Metro Internal Audit’s report be referred to the Auditor of Public Accounts for review upon completion, and also to Metro Public Integrity for determination on whether additional investigation is warranted.

We further recommend Metro Office of Management and Budget immediately prohibit this practice, and communicate the prohibition to all Metro departments.  Furthermore, Metro Office of Management and Budget should train accounts payable employees on detecting potentially fabricated pay documents, and reiterate procedures for reporting questionable items so they may be reviewed.

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