Auditor Of Public Accounts
Auditor: Over 1 Million Dollars Questioned in Knott County

Press Release Date:  Wednesday, October 19, 2005  
Contact Information:  Jeff Derouen
Phone: (502) 573-0050
Fax: (502) 573-0067
Pager: (888) 222-5670

State Auditor Crit Luallen released the Knott County Audit for the fiscal year ending June 30, 2004.  Auditors questioned the appropriateness of $1,073,775 in County expenditures, of which $180,475 is clearly owed to Knott County Fiscal Court.  The audit, which listed 21 findings and recommendations, has been referred to the Attorney General's Office, the Kentucky State Police, the Federal Bureau of Investigation, and the Kentucky Department of Revenue.

"This Knott County Audit reflects serious mismanagement of public funds and is one of the most troubling county audits this office has ever produced. It is simply unacceptable that in this day and age such blatant disregard for federal, state, and local law still exists." Auditor Luallen said. "The residents of the Commonwealth of Kentucky deserve government at every level with integrity and accountability."

The Governor's Office for Local Development requested that the Auditor's Office place special emphasis on the Knott County swimming pool project paid with coal severance funds. The County received $1,250,000 in coal severance funds since April 20, 2001, of which $1,204,988, or 96%, has been spent on the pool project.  Multiple change orders increased the cost of the project 195% over the original bid amount of $408,500, yet the pool is unusable and has remained in its current unfinished state for over a year.  The pool contractor was overpaid by $105,331, including $86,981 for pool equipment already purchased by Fiscal Court.  These transactions were processed without the full oversight of the Knott County Fiscal Court.

In addition, the property the pool is being built on was purchased after a series of questionable transactions.  Fiscal Court received an appraisal for the pool property on June 13, 2001, stating a fair market value of $135,000.  On July 5, 2001, the Knott County Attorney and the Knott County Treasurer's brother purchased the property from private citizens for $100,000.  On August 13, 2001, the property was sold to the Knott County Attorney's mother for $130,000, who, in turn, sold it to the Knott County Fiscal Court for the $135,000 appraised value on December 11, 2001. As well, both the project and construction managers stated the site selected significantly increased the cost of the pool project.

Besides the swimming pool contract, $893,300 of Federal Emergency Management Agency expenditures has been questioned for failure to comply with federal requirements. Knott County government often did not follow competitive bid requirements for federal and county projects.  Of the contracts tested, $137,477 was paid to a relative of the former County Judge / Executive.  The County also paid $52,932 for work on private property, of which $11,168 was also paid to the same relative of the former County Judge / Executive. Additionally, the audit found that the Knott County Fiscal Court paid an expenditure using a bill that had been altered after it was submitted.

Auditors discovered that $1,316,651, or 21% of the County's operating budget (total budget minus payroll, debt, and pass through grants), was paid to companies owned by a single contractor or his immediate family.  The relationship between this contractor and the County was the subject of an April 30, 2003 special examination by the Auditor's Office.  Not all of these transactions had proper supporting documentation or complied with bid requirements.

Also, the audit revealed that the Fiscal Court provides multiple county vehicles for County employees to use. The County pays insurance coverage, annual taxes, repairs, and fuel for the vehicles.  Employees use the vehicles during non-business hours and for commuting to their workstations.  However, the vehicles are not included as part of the employees' compensation packages and no tax liability was paid for their use by the individuals.

The audit recommends that the Knott County Attorney or Attorney General pursue the recovery of funds overpaid by the County, and that the federal government undertake further audits of all federal grants due to missing records. 

This audit was conducted as a routine fiscal court audit for fiscal year 2004.  Work has begun on the fiscal year 2005 audit.