Audit: Kentucky Panel 'Messy,' But No Intent to Defraud

Though the old Kentucky Racing Commission has been called "messy and sloppily run," with lax management and a disregard for standard business practices, the organization did nothing that calls for involvement by law enforcement agencies, according to an audit report released June 22.

The independent accountant's report was issued by the office of Crit Luallen, auditor of public accounts for Kentucky. The study was requested March 3 by the administration of Republican Gov. Ernie Fletcher. The Kentucky Horse Racing Authority, formed in January after Fletcher abolished the racing commission, had enacted procedural changes before the audit began.

The document details things such as travel expenses, potential conflicts of interest, poor record-keeping practices, and a refusal to adopt recommendations made in previous audits. The audit wasn't financial in nature but rather an "agreed-upon procedure"--a look into specific areas that leads to recommendations.

Among the items addressed in the audit are about $10,000 paid to an employee for travel from home to the workplace; payment of $30,000 to an Ohio consultant even though state law prohibits the money to be spent out of state; and one individual filling the positions of executive director and chief steward, a situation with the potential for conflicts of interest.

Luallen noted instances in which funds gleaned from racetrack assessment fees were kept in plastic bags and left in car trunks. A 1998 audit recommended procedures for deposit at banks.

"Incredibly, those recommendations were never implemented," Luallen said. "In many cases, the management team of the commission simply did not understand or failed to follow written procedures."

Luallen called the commission "messy and sloppily run," though no intent to defraud was discovered. Still, "that is not the standard to which government should aspire," she said. "The state agency representing Kentucky's signature industry should have been one of the most professional and best managed in state government--unfortunately it was not."

LaJuana Wilcher, secretary of the Environmental and Public Protection Cabinet, said the state doesn't plan to seek criminal charges even though the audit uncovered a few things that "would cause one to wonder." Wilcher said the KHRA plans to put the past behind.

"Our goal is to move forward and ensure as we work with the authority that proper procedures are in place," Wilcher said.

Wilcher wouldn't name the individual that was paid $10,000 in travel expenses for about 1 1/2 years, though Luallen said the individual was paid mileage for driving from Grove City, Ohio, to Turfway Park in Florence, Ky. The report indicated a supervisor sanctioned the payments, so the individual won't have to return the money, Wilcher said.

The report found that the Kentucky Equine Drug Research Council should be reimbursed $30,000 for a payment made to Sams. It said the racing commission didn't follow proper procedure in procuring his services.

Indeed, some members of drug council repeatedly urged the commission to pay Sams even though, as the audit report states, drug council funds can only be spent on testing and research in Kentucky according to statute. The commission did so after it received a letter from Dr. Ed Ford, secretary of the cabinet for former Democratic Gov. Paul Patton, that it should pay Sams given the importance of drug testing to the industry.

"If the KHRA determines that nationally recognized expertise outside of Kentucky is needed to perform equine drug testing, statutes must be changed to allow for broader use of the equine drug research fund," the audit report said.

The positions of executive director and chief steward were filled by Bernie Hettel until he was asked to resign earlier this year. The report said dual employment isn't prohibited by law but it does create conflicts of interest.

Here are some of the recommendations contained in the report:

--The executive director of the KHRA will report to the Environmental and Public Protection Cabinet for administrative purposes.

--The positions of executive director and chief steward can't be held by the same person.

--The cabinet and KHRA should seek legislation and promulgate regulations to clarity establishment and modification of track assessment fees and the manner of prorating the executive director's salary among racetracks.

--The KHRA should implement and adhere to controls in areas that include employee time and attendance reporting, consistent application of travel reimbursement regulations, the security and timely deposit of license fees and other receipts, and the timely reconciliation of the receipts.

Luallen indicated the way the racing commission operated was tied to the political culture. Chairman Frank Shoop, she said, was well connected to Patton, which "added to the aura of the racing commission of being independent and able to function in its own sphere without a lot of oversight."

Wilcher acknowledged that KHRA chairman Bill Street also is "well connected," but she said the authority intends to follow protocol and not have the problems the racing commission had in the years before it was abolished.