Months and months ago the Commonwealth of Kentucky got word that mismanagement and corruption were afoot at the Kentucky Association of Counties. And whattya know? Turns out that’s just scratching the surface.

From 2003 to 2008, KACo’s revenue increased 75%, increasing its budget to more than $5.7 million. As the budget grew, so did spending. And not just on benefits. But on things like dinners, alcohol, sports tickets, adult entertainment and out-of-this-world holiday parties. More than $2 million was spent in a three-year period with $1.4 million having inadequate or no supporting documentation, an unclear business purpose or was excessive in nature.

State Auditor Crit Luallen is releasing an audit in just a moment that reveals a lack of board oversight allowed KACo to stray from its purpose of maximizing benefits to its member counties. A self-serving culture of corruption cost the organization more than $3 million. The audit makes 40 findings and details 150+ recommendations to improve board oversight and operations at KACo.

“Our examination provides the leadership of KACo the proper tools to continue to strengthen accountability and to fulfill its responsibilities to the counties and the taxpayers,” Luallen said. “I believe the public expects no less. In this current economic downturn, when our counties are struggling, our citizens have no patience for waste and excess from those who hold their trust and handle their tax dollars.”

Here’s just a bit of the juicy, juicy:

• $219,144 was spent on 77 restaurant charges, each costing more than $1,000. $8,857 at Mike Ditka’s Restaurant in Chicago. $8,161 at Z’s Oyster Bar & Steakhouse in Louisville. $7,237 at Sal’s Italian Chophouse in Lexington. $7,082 at Starker’s in Kansas City.
• In 2007 and 2008 $48,428 was spent for two board Christmas parties. $43,000 of additional funds were spent on alcohol, though auditors believe the actual amount is much higher based on information provided during interviews.
• $28,700 spent on university football and basketball games, Kentucky Derby tickets and other entertainment events
• $1,814 for 13 tickets to the Radio City Christmas Spectacular in 2008 for five board members + spouses/guests in NYC
• $11,593 on staff birthday lunches
• $7,262 on staff Christmas gifts
• $3,053 on other board/staff gifts
• $8,119 on air travel insurance
• $2,385 on conference meals
• $11,000 over a ten-month period on a condo for KACo’s product development manager in Frankfort
• $1,600 for a two-month condo rental for KACo’s former executive director
• $890 on adult entertainment – including escort services on two occasions and four charges at two different strip clubs. Expenses were charged to KACo credit cards of the former executive director and former board president. Remember when Bob Arnold and David Jenkins lied about using escort services? The audit includes copies of the actual escort service contracts.

Take a look at the evidence here:

Examples of other questionable expenses?

• $334,300 to pay board members for meetings
• $278,154 for legal defense for convicted officials
• $247,944 for a sports advertising contract
• $83,000 for donations and sponsorships
• Second retirement match of $622,355
• And the settlement expenditures incurred outside of the APA examination period for the employee whistleblower lawsuits? $1,734,155

Ready for more? See all 40 findings from the audit and other juicy details after the jump…

Finding 1: By allowing excessive spending, KACo strayed from its purpose of maximizing benefits to the counties and thus ultimately the taxpayers.

Finding 2: KACo paid $219,144.89 for 77 restaurant charges, each costing over $1,000.

Finding 3: Tens of thousands of dollars of alcohol was purchased by KACo.

Finding 4: KACo Spent Over $28,700 to purchase tickets.

Finding 5: The cost for out-of-state conferences, meetings, and other related charges for board members, staff, and spouses was excessive.

Finding 6: KACo hosted expensive meals drawing members from an affiliate conference banquet when the cost of the meal was already paid.

Finding 7: Adult Entertainment charges were found on KACo credit cards.

In total, $890.25 in adult entertainment charges were identified on the KACo credit cards issued to the former KACo Executive director and the 2008 KACo Board President. This included two charges from an escort service and four charges to two different strip clubs. Documentation obtained during the examination indicates that the cardholders were present when the charges were made on their KACo issued credit cards and likely signed all receipts.

Recommendations: We strong recommend the KACo Board analyze its current operations and determine the areas where credit card usage would best benefit the association. This should include reviewing the need for the Board President to be assigned a card. We recommend the KACo Board establish a credit card policy that requires a thorough review of all credit card statements by someone other than the cardholder to ensure charges are reasonable, necessary and appropriate. If the Board continues to provide a credit card to the Executive Director, we recommend the KACo Board specify what BOard member or committee will be responsible to review the credit card statements of the Executive Director on a monthly basis. In addition, if the board continues to provide a credit card to the Board President, we recommend those credit card statements be reviewed monthly by KACo General Counsel. Finally, regardless of how a payment is made, the use of KACo funds for adult entertainment should never be tolerated.

Finding 8: KACo paid $11,593.77 for staff birthday meals in a three-year period.

Finding 9: KACo spent $48,426 on two annual Christmas dinners and associated board meetings

Finding 10: KACo purchased gifts totaling $7,262 for staff Christmas parties over three years

Finding 11: KACo purchased expensive gifts for board members and one staff person.

Finding 12: A change in the work station of the Product Development Manager could save KACo over $20,000.

Finding 13: KACo expended a total of $247,944 over three years on advertising that was directed at the general public rather than public officials.

Finding 14: KACo incurred over $8,000 in automatic charges for air travel insurances.

Finding 15: The KACo Board and Executive Committee did not have a sufficiently detailed understanding of its annual budget.

Finding 16: Procurement policies were not adopted by the KACo Board or the program boards.

Finding 17: The KACo Board and the program boards allowed the KACo Executive Director to have unchecked spending authority.

Finding 18: The Board provided no oversight of credit card usage or expense reimbursements.

Finding 19: The KACo board did not establish comprehensive policies that would clearly define the types of allowable expenses by both staff and board members for business purposes.

Finding 20: Having its Executive Director also serve as its Treasurer compromises KACo’s financial controls and oversight.

Finding 21: The Board did not establish a reporting process that encouraged the receipt of independent information or a whistleblower policy for KACo employees.

Finding 22: Donations and sponsorships were made at the discretion of the former Executive Director.

Finding 23: KACo Board and Program Board members were compensated to attend board meetings in a matter that pears inconsistent with industry practice.

Finding 24: The Commonwealth INsurance Company, Inc. made payments to Board members and officers that were not in compliance with its By-Laws.

Finding 25: KACo’s Board of Directors did not establish sufficient policies and oversight for salary administration.

Finding 26: KACo and its affiliate program boards receive no formal orientation

Finding 27: Policies for Ethical Behavior were Weak or Nonexistent for Board Members, Officers, and Staff.

Finding 28: KACo’s Standards of Conduct were not effective in preventing conflicts of interest by board members and staff.

Finding 29: KACo did not require its board members and executive staff to file statements of financial disclosure disclosing potential conflicts of interest.

Finding 30: KACo’s Standards of Conduct for solicitation and acceptance of gifts and gratuities by board members, officers, and staff were not effective in preventing conflicts of interest.

Finding 31: KACo provides employees with a duel retirement benefit that is in excess of the industry standard.

Finding 32: The employment agreement between KACo and the former Executive Director was designed in such a manner that he would be compensated by KACo even under the conditions of death or dishonesty.

Finding 33: Former Executive Director’s W-2 did not properly reflect all benefits received.

Finding 34: No documentation was found that formally approved the former Executive Director’s country club membership benefit.

Finding 35: KACo’s Director of Insurance and Director of Financial Services received bonuses from the CIC that were not clearly documented in the minutes.

Finding 36: No supporting documentation was provided as required by policy for over $800,000 of credit card charges and reimbursement requests.

Finding 37: KACo did not require adequate documentation for credit card and expense reimbursements.

Finding 38: Public official defense insurance coverage offered through the KACo Kentucky All Lines Fund pays legal fees even when an official is found guilty.

Finding 39: Personal and non-KACo business charges were made using KACo credit cards despite credit card policy.

Finding 40: KACo had insufficient internal control over the collection and deposit of fees for its Kentucky Association of Counties Associate Member Program (KACAM).

Now let’s examine some of the credit card expenses of the Executive Director:

• ETC at Belterra, IN – $1,000 – gift – (for KACo President)
• Don Jacob’s Auto – $5,674 – receipt not itemized
• 8 separate transactions for event tickets
• Jeff Ruby’s – four charges – more than $90,000
• Joe’s Stone Crab – Chicago – $3,342.10
• Tavern on the Green – NYC – $1,251
• Le Parker Meridien – NYC – $9,000+
• Morton’s – Louisville – $4,507.25
• Climate Conditioning – Louisville – $9,755.20
• Applewood Books, Inc. – $5,525
• Hyatt – Lexington – $155,449.64
• Thousands upon thousands of dollars at CDW for “technology”
• $19,000+ in country club expenses

Deputy Director:

• Carmine’s Clam House – Chicago – $2,198.52
• Fogo de Chao – Chicago – $3,002.66
• Jeff Ruby’s – Louisville – $9,881.33
• Jeff Ruby’s – Louisville – $6,358.70
• Jeff Ruby’s – Louisville – $1,899.48
• Z’s Oyster Bar & Steakhouse – Louisville – $4,635.79
• Prime Rib – DC – $1,930.46
• Prime Rib – DC – $1,780.05
• Capital Grille – DC – $2,346.90
• Caucus Room – DC – $2,664.35
• Al Tiramisu – DC – $2,281
• Oval Room – DC – $1,276
• 1789 Restaurant – DC – $1,389.40
• McCormick & Schmick’s Seafood Restaurant – DC – $1,779.97
• Morton’s – Richmond, VA – $5,616.69

General Counsel:

• Jeff Ruby’s – $1,063.47
• Intercontinental Hotel – Washington, D.C. – $7,679.19
• Longhorn Steakhouse – Frankfort – $485
• Capital Grille – DC – $1,216.68
• Intercontinental Hotel – DC – $7,679.19
• Prime Rib – DC – $1,142.76

Director of Insurance:

• Z’s Oyster Bar & Steakhouse – Louisville – $3,209.96
• Z’s Oyster Bar & Steakhouse – Louisville – $270.39
• Z’s Oyster Bar & Steakhouse – Louisville – $4,083.21
• Sal’s Italian Chophouse – Lexington – $5,892.08
• Red Lobster – Owensboro – $812.87
• Ristorante Ciao – Naples, FL – $2,074.62

Director of Financial Services:

• Vincenzo’s Italian Restaurant – Louisville – $5,400
• Vincenzo’s Italian Restaurant – Louisville – $4,800
• Morton’s – The Steakhouse – Louisville – $5,600
• Boone Tavern – Berea – $1,432.20
• New York Guest, LLC – NYC – $3,325 – travel
• Tavern on the Green – NYC – $1,787.00
• Over $5,000 at W Hotels in NYC
• Patsy’s Italian Restaurant – NYC – $620
• Kroger – Frankfort – $1,079.99
• TGI Friday’s – Atlanta Airport – $150

President:

• Thorobred – Louisville – $27 – strip club
• Thorobred – Louisville – $110
• Thorobred – Louisville – $140
• Calypso Enterprises – Lexington – $175 – escort
• Godfather II – Louisville – $168.25 – strip club
• Maker’s Mark Bourbon House & Lounge – Louisville – $700.46
• Hooters Casino Hotel – Night Owl Showroom – Las Vegas – $110.50
• Hooters Casino Hotel – Night Owl Showroom – Las Vegas – $150.91
• Hooters Casino Hotel – Night Owl Showroom – Las Vegas – $39.90
• Hooters Casino Hotel – Night Owl Showroom – Las Vegas – $64
• Hooters Casino Hotel – Night Owl Showroom – Las Vegas – $8.19
• Scores Sportsbar, Inc – Evansville, IN – $20.75 – strip club

All other employee cards:

• Howl at the Moon – Louisville – $1,200+ – dueling piano bar
• La Grotta Italian Ristorante – Richmond, VA – $2,061.37
• Galt House Hotel – Louisville – $5,294.10
• Crown Plaza – Louisville – $10,444.16
• A La Lucie – Lexington – $1,559.42
• Penguin Dueling Piano Bar- Lexington – $207
• Hyatt – Lexington – $1,906.15
• Willard Intercontinental Hotel – D.C. – $22,917.12
• Z’s Oyster Bar & Steakhouse – Louisville – $1,152.68
• Z’s Oyster Bar & Steakhouse – Louisville – $1,391.62
• Thousands upon thousands of dollars in individual fast food purchases

HOT MESS!

Click here to review the entire audit. (Warning: PDF Link)