It’s the moment you’ve all been waiting for. State Auditor of Public Accounts Crit Luallen just released the audit of the Kentucky League of Cities. I have just two words for it all: HOT MESS. Before you write those two words off as immature or over-hyped, I suggest you stick around to read everything I’m about to share with you. Because the 30 findings and more than 140 recommendations are just mind-boggling.

I spent all night reading the audit and examining everything that occurred under Sylvia Lovely’s (who referred to herself as the Britney Spears of Central Kentucky in her resignation letter – because she really is toxic) leadership (lack thereof?). Under the blind eyes of people like Jim Newberry and Jerry Abramson. My mind is blown. These people are insane, corrupt and should be tarred and feathered.

This level of waste, fraud and abuse is sickening. The egotistical manner of the sheer corruption involved is much worse than that of the Kentucky Association of Counties. It’s all been referred to state and federal law enforcement for further review. Matters have also been referred to the Internal Revenue Service and Kentucky Departments of Revenue and Insurance.  This is Kentucky’s worst nightmare.

Let’s just jump right in (I’ll dumb it down as much as possible so it’s easily digested)…

Names you need to know:

• Sylvia Lovely – Executive Director/CEO
• Neil Hackworth – Deputy Executive Director/COO
• William Hamilton – Executive Pool Administrator/Chief Insurance Services Officer

The lack of oversight of the above KLC executives, according to the audit, resulted in the executive staff (those folks named) receiving unprecedented salaries and exorbitant retirement bonuses that cost more than $500,000. More than $350,000 was spent questionably and excessively. And every conflict of interest you can imagine came about – including inappropriate relationships with KLC vendors. And all of this, for the most part, occurred without the KLC’s board knowing a darn thing. Most had no idea what Sylvia & Crew were being paid, what the retirement bonuses were worth and none of the conflicts ever saw the light of day.

“Our findings clearly point out the need for the board to strengthen policies and procedures to ensure that it maximizes benefits back to its member cities,” Luallen said. “If KLC is to continue providing valuable services to our cities, many of which are struggling, its board must strengthen its financial oversight. Our audit gives the board the necessary tools to move forward successfully.”

Executive salaries increased dramatically from 2002 to 2009:

• The executive director’s salary jumped 95% from $170,248 in 2002 to $331,186 in 2009
• The deputy executive director’s salary jumped 80% from $141,753 to $255,258
• The chief insurance services officer’s salary jumped 93% from $123,909 to $238,867
• 19 positions at KLC have salaries exceeding $100,000 per year

Crazy Retirement Bonuses:

• KLC staff got retirement bonuses in the form of forgivable loans as an incentive to “remain with KLC and to reward past loyalty and dedication.” $400,000 was set aside for the program and the principal amount was to be forgiven over a period of five-years.
• Seven employees were paid an amount equal to the purchase of five years of nonqualified service from the County Employee Retirement System.
• KLC said Lovely received $125,000 over five years, but that’s a farce. Primarily because her $25,000 payments were after-tax amounts. Over the five-year period, the bonus was paid in amounts ranging from $43,000 to $43,500. The actual cash payout over five years was $218,000 for lovely.
• To date, $533,000 has been spent on the bonus compensation program.
• This will get your goat: The projected monthly pension benefit for Lovely if she retires at 65 would be $17,725. That’s $502,384 for the lifetime of the retirement. If she retires in January? She’ll get $13,769 per month.
• At 65, Neil Hackworth will get $16,357 per month or $508,267 for the lifetime.
• William Hamilton received $58,000, even though he wasn’t eligible to purchase nonqualified service time in CERS.
• Despite what Lovely & Crew said, the bonuses were never paid back.

Read the rest of this damning report – including surprising reactions and non-reactions from Jim Newberry and Jerry Abramson, unbelievable expenditures (strip clubs are included, don’t you worry!), details of an harassment investigation that was kept top-secret and my final thoughts – all after the jump…

Conflicts of Interest:

• $1.4 million spent on legal services at the law firm where Lovely’s husband is a partner
• $28,600 spent at Azur Restaurant, partially owned by – you guessed it – Lovely’s husband
• $14,413 in payments made to Hamilton’s wife for decorating services. She was paid an additional $1,000 to travel to NYC for the selection of artwork.
• Several family members of Hamilton’s either currently work or previously worked for KLC vendors.
• A current KLC executive board member, also the chair for KLC’s Insurance Services, serves as an independent insurance agent for the insurance products sold by KLC.
• Hackworth bought a BMW from the KLC vehicle pool for $9,000 when the actual value was $15,623 (hello, Martha Stewart-esque!)

The audit goes on to detail the truck loads of gifts and freebies received from KLC vendors, including: housing and expenses at a vendor president’s home in Bonaire, an island in the Dutch Caribbean; reimbursement to KLC by a vendor for admission to a strip club in Las Vegas for three KLC staffers; two trips to Naples, FL; lodging in Munich, Germany by a reinsurance vendor.

Spending – While nothing like KACo, it’s still a mess:

• $74,463 was spent on credit cards from July 1, 2006 to June 30, 2009 that had no supporting documentation. $212,871 was questionable. And $53,503 of reimbursements had little documentation. Another $13,320 had none.
• $430,000 was spent on out-of-state travel, $56,000 on meals at local restaurants, $50,000 on event tickets (football, basketball and horse racing).
• $4,200 on a Colorado storytelling workshop; $1,570 at Liquor Barn in one trip; $3,300 for 500 copies of “The Little Red Book of Everyday Heroes” written by none other than Sylvia “Britney” Lovely; $28,000+ at Azur, nearly $5,000 on just two retirement parties.
• Over a two-year period KLC spent $314,000 on vehicles, including $64,000 for Lovely’s vehicle. Income related to the personal use of those vehicles was not properly reported by staffers.
• $7,239,378 was spent over eight years on the NewCities Foundation (formed in 2002 to “research, study, educate and innovate communities about civic engagement) with almost no quantifiable results.

Juicy Tidbit:

• A local law firm conducted an harassment investigation at KLC involving Hamilton, who was said to have possibly “unethical business practices” and “explosive” outburst. An independent report said KLC needed to perform an independent audit of the finance and insurance department. Of course, that never occurred.

Now, the findings (not typing the recommendations out — way too much, sorry – you’ll have to read them once the audit is live):

1. The KLC Executive Board did not provide effective leadership and governance over its financial resources to the ultimate benefit of its member cities.
2. KLC Executive Board had not adopted a compensation administration policy with definitive guidelines.
3. Bonus and loans made to KLC staff cost over one-half million dollars with questionable benefit to KLC.
4. KLC Executive Staff represented that employee loans and a bonus were repaid because KLC Executive Staff did not receive salary increases suggested by a consultant.
5. KLC Executive Staff extended, forgave, and granted loans without Executive Board authorization.
6. KLC Executive Staff altered a Compensation Program loan agreement without board approval and did not comply with the terms of the resulting employment agreement.
7. Discrepancies between the board-approved Compensation Program and the corresponding Promissory Notes and Loan Agreements impacted the accuracy of income reported.
8. KLC’s Executive Board had not adopted a policy governing the purchase of vehicles.
9. KLC Sold a vehicle at less than faire market value to an Executive Staff member.
10. KLC had no credit card policy control over one million dollars that was charged on cards issued to employees.
11. KLC’s travel and entertainment expense policies were insufficient to prevent excessive spending.
12. KLC’s budget and financial information does not provide a breakdown of the projected or actual expenses associated with its affiliated organizations.
13. Policies for ethical behavior were weak or nonexistent for board members, officers and staff.
14. Numerous conflicts of interest existed that contributed to the appearance of, if not actual, improprieties by certain KLC board members and staff.
15. Ineffective policies for the acceptance of gifts resulted in personal benefits and the appearance of, if not actual, inappropriate relationships with vendors.
16. KLC did not require its board members, trustees and Executive Staff to file statements of financial disclosure revealing potential conflicts of interest.
17. KLC had no whistleblower policies or procedures established to report ethical and other policy violations, or to investigate such potential violations, or to impose sanctions for violations.
18. A procurement policy for the purchasing of goods and services was not established by KLC Executive Staff or the Executive Board.
19. KLC board members and trustees received no formal orientation on their legal and fiduciary responsibilities.
20. The KLC board structure may impeded oversight and accountability.
21. KLC allowed credit card expenses and reimbursement requests to be paid with no or inadequate supporting documentation.
22. KLC spent over $430,000 on out-of-state travel with questionable benefit to KLC membership.
23. KLC spent over $56,000 on meals at local restaurants.
24. KLC spent approximately $50,000 to purchase tickets for various events.
25. KLC had no policy governing expenditures for alcohol.
26. KLC Executive Staff did not inform the Executive Board of a harassment investigation that raised broader concerns involving an Executive Staff member.
27. The insurance programs of KLC were not organizationally independent of the primary KLC member association activities.
28. KLC subsidized NewCities through in-kind contributions and cash totaling $7,239,378 over an eight-year period with few quantifiable results.
29. Income related to personal use of vehicles was not accurately reported in executives’ W-2 wages.
30. Weak internal controls identified at KLC did not provide a sufficient review process prior to making a payment.

Highlights from Sylvia Lovely’s spending:

• $2.89 on 2 York Peppermint Patties at the airport in Louisville
• $1,900 on 4 tickets to the Breeder’s Cup at Churchill Downs
• $1,000 for 2 tickets to the Derby Soiree
• $10.06 at Borders for a newspaper & “Pink Pussycats Notebook”
• Umpteen visits to Azur
• More crap than you can imagine from Leather, Inc
• $6,336 to Greater Louisville Inc for extra hotel nights, no purpose
• $1,824.50 at the Grand Hotel in Mackinac Island, MI
• $4,200 on a storytelling workshop in Colorado Springs – Doug Stevenson Story Theater International
• $1,200 for four nights in hotels in New Orleans with no purpose
• $1,061.66 at the Fairmont Hotel in San Francisco – the receipt didn’t agree with the credit card statement
• Gifts for board members and mayors from Harry & David
• $438 for two tickets to the Bluegrass Ball
• $356.95 for a meal for just two people at Charlie Palmer’s NYC Aureole restaurant
• $40.28 at Off Broadway Costumes
• $150.99 for Sirius Radio

Highlights from Neil Hackworth’s spending:

• Dozens upon dozens of meals at Durango’s, Bellini’s and other restaurants
• $182.16 for a meal at The Eiffel Tower in Las Vegas
• $839.21 at Bally’s Paris Las Vegas, $401.03 of which was a Les Artise Steakhouse charge
• $1,240.10 at Charleston Place in Charlestown, SC which included a spa charge
• $948.82 for a meal at Beaujolais Bistro in Reno
• $730.88 at the Marriott in New Orleans which included lobby bar charges
• $727.18 on two meals in Puerto Rico
• $2,004.96 for four nights in Mackinac Island, MI – $517.18 per night
• $755.30 at Macaroni Grill (!!!)
• $1,157.32 for a meal at Galatoire’s in New Orleans
• $1,201.65 for five nights & bar charges at San Antonio’s Hotel Contessa
• $995.64 for a meal at Vivace in Tucson
• $585.05 for a meal at the Sardine Factory in Monterey, CA
• $3,710.91 for seven nights at Portola Hotel in Monterey
• $1,161.72 for four nights at Lodge at Vail in Vail, CO
• $1,409.41 at the Marriott in New Orleans
• $1,161.55 for a meal at Vincenzo’s in Louisville
• $32.58 for internet access at BWI
• $85.12 at Rumors II in Lexington
• His monthly Bellsouth internet access charge for DSL
• $1,297.73 for a car rental in Anchorage, AK
• $324 for Kentucky Oaks tickets
• $1,404 for UK Season Tickets
• $912.50 for UK Season Tickets for KCL’s use
• $4,000 in cash allegedly used to purchase UK tickets

Highlights From William Hamilton’s spending:

• $162.27 for a meal at Reno’s Roadhouse in Morehead
• $80 at Strip Club Diamond Cabaret in Las Vegas
• $45.55 at Zingers in Las Vegas
• $1,365.90 on a meal at Azur
• $495.52 on a meal at Dudleys for just two people
• $858 on golf supplies
• $273.42 on a meal at Bellini’s
• $623.96 on a meal at Sullivan’s in Austin, TX
• $1,003 at an African American Forum
• $382.66 on a meal for two at SL Sterlings in Reno
• $206.47 at Harrah’s in Reno which included topless revue charges
• $831.22 at Azur on a meal for four people (multiple super-expensive meals, actually)
• $506.96 at a pro shop in Orlando
• $1,156.22 on a meal at Morton’s in San Antonio
• $1,140.08 at the Amelia Island Resort Beach Club on Amelia Island in Florida
• $1,354.15 on a four-night stay at The Equinox Resort in Manchester Village, VT
• $84.83 at Hooters in Asheville, NC
• $2,343.78 for a retirement party at Azur
• $187.84 on booze at the Westin in Savannah, GA
• $572.90 meal for two at Citronelle in Washington, DC
• $725.72 at Kingfisher Bar & Grill in Tucson
• $2,450.98 at Shula’s Steakhouse at Disney World
• $939.34 on meals at the Marriott in Orlando
• $424 for a tip at Azur at a retirement party
• $4,236.20 at Jeff Ruby’s in Louisville
• Nearly $800 on a meal at Proof in Louisville
• $489.90 at the Metro West golf flub in Orlando
• $765.10 at Duff’s Service Station in Lexington
• $1,832 on UK football tickets

Other Employee Spending Highlights:

• $499.95 for a microphone
• $1,825.20 hotel room for Sylvia Lovely at 21C in Louisville
• $5,394 on a video camera
• $214.12 at Stucky’s Beauty Salon in Morehead
• Tens of thousands of dollars on booze and gifts
• $1,466.08 at Buca in Washington, DC on for a meal
• $1,314.36 for two employee GPS units for one individual
• $585.65 for a watch
• Thousands to AT&T for employee internet access
• $3,000 for moving expenses
• $8.47 for a power strip at an employee’s home
• More than $300 for a wireless router & equipment at an employee’s home
• $250.20 on Southwest to D.C., which doesn’t fly to D.C. and certainly didn’t in 2006 (Baltimore)
• Newspaper home delivery and weekend service from the Courier-Journal

A Flashback & Reminder:

• Will Kelly Flood still defend Sylvia Lovely and discuss how sad her “loss” is?
• Don’t forget that Sylvia’s retirement party tonight comes at a cost of $10,000.

Final Thoughts & Reactions:
On Tuesday, KLC’s President and Mayor of Jackson, Michael Miller, sent a response to Luallen regarding the audit. Click here (Warning: PDF Link) to read a copy of the letter. It’s filled with empty nothingness and barely acknowledges the severity of the situation.

But the situation is so bad, you can imagine, that some members of the board decided to write letters of their own – to distance themselves from the corruption and to make clear that there are some competent folks involved. One of those writers was Lexington Mayor Jim Newberry, who sent a joint letter with Frankfort City Manager, Tony Massey. Click here (Warning: PDF Link) to read that letter.

Some excerpts from the Newberry CYA letter, as this all happened on his watch as he turned a blind eye:

This letter is in regards to the recently completed audit your office conducted for the Kentucky League of Cities (KLC).

As members of the KLC Executive Board, we do not feel that Mayor Miller’s response adequately addresses the concerns which have been raised by the audit. The pattern of questionable practices by individuals associated with the Kentucky League of Cities is disturbing. It is also disturbing that as an Executive Board member, we were not made aware of these activities.

Each of the audit’s 30 findings should be acknowledged and your recommendations addressed.

Unfortunately, there are some members of the Executive Board who do not believe the practices identified to be significant. An example is the comment in the KLC response letter that practices you discovered are “necessary business actions in the competitive insurance market.”

Unfortunately for Newberry, he’ll never escape the fact that Lovely is a friend of his. Or that this all happened as he turned that blind eye.

Diane Whalen, Mayor of Florence, sent an email response to Michael Miller and CCd the auditor. Click here (Warning: PDF Link) to read that.

An excerpt:

Dear Mayor Miller,

Since the full Executive Board was not asked to participate in drafting the response, I want to thank you for forwarding us the proposed response to the auditor’s report on Kentucky League of Cities, however I don’t really see where it offers much in the way of substance or recognition of the many serious issues still facing KLC.

If, as you state in the letter, we are interested in running our KLC businesses in the best interest of our members, then many additional changes are needed both to the organization and to the culture that has been created.

Absolutely damning.

You may be asking yourself, however, where Jerry Abramson is as a member of the board. Well, folks, he also bears responsibility for Lovely’s behavior and his silence on the matter speaks wonders. Gotta ask yourself it that’s the kind of person you want leading this state as Lt. Governor.

In summary: Kentucky is effed all to hell thanks to these ridiculous people who waste our tax dollars. It’ll never change if you keep voting their crony pals back into office. Learn from these mistakes and let’s move this Commonwealth forward.

Click here (Warning: Huge PDF Link) to download a copy of the audit in full.

Oh, and just for poops and giggles:

Yes, everyone is innocent until proven guilty. But I thought maybe Sylvia was wondering what she’d look like in orange, so I saved her the worry by roughly Photoshopping her head onto some halloween costume dude’s body. It’s a public service, obviously, and I’d do it for anyone if I thought they were wondering about whether or not a particular outfit makes them look fat.