Auditor finds duplicate time sheets, possible mismanagement of tourism funds for the city
SALYERSVILLE – The state auditor released a letter sent to the mayor last week regarding an examination of financial management and oversight of tourism funds collected by the City of Salyersville, which has been turned over to the attorney general for further review.
In a letter dated August 6, Auditor of Public Accounts Mike Harmon explained that his office performed an examination of the City of Salyersville, especially regarding tourism funds, in response to concerns expressed to the auditor’s office. The letter was not an annual audit and only made recommendations, not opinions, on the city’s finances.
The letter highlighted two major findings from the July 1, 2017 through April 30, 2019 records they reviewed, both pertaining to the lack of oversight.
According to the auditor’s letter, the city provided limited oversight of contract personnel paid through tourism funds, including that one contractor, who is also Mayor James “Pete” Shepherd’s son, reported working approximately 224 hours of duplicate time on behalf of the city and the Magoffin-Salyersville Housing Authority between July 24, 2017 and June 23, 2018. Upon review of contract employee timesheets for fiscal year 2018 paid by tourism funds, approximately 78% of the timesheets had no indication of supervisory review or approval, with two of the contractors listed as Shepherd’s sons.
Mayor Shepherd talked with Mortimer Media Group on Thursday, stating, “It looks bad to me, too.”
Shepherd explained that at the time in question, his son, Morgan, was working part-time at the housing authority, working 24 hours a week, and helping him finish odds and ends for the city when he wasn’t working there, mowing, weedeating and picking up garbage at the park.
“It was poor judgment on his part and poor judgment on my part because I wasn’t checking his timesheets,” Shepherd said. “He was just kind of lackadaisically filling out his timesheets with hours that he worked, but they started looking at it, and he was overlapping on his timesheet.”
He noted that when this was brought to his attention, he scolded his son and the issue was corrected, and Morgan was soon hired to the housing authority full-time, eradicating the problem completely.
“It did look bad, like he was getting paid for the same jobs at the same time, but he wasn’t,” Shepherd said. “He was working with the housing authority when he clocked in and he worked for me the other times.”
Shepherd reiterated that the hours his son was paid for by the city was hours worked, but they had been logged at the wrong times, stating that no “double-dipping” had occurred.
The auditor’s office stated that it was a conflict of interest for his sons to work for the city.
“If the Mayor is serving as supervisor to his sons in fact or appearance, this creates a conflict of interest and an apparent violation of the City’s Code of Ethics. The City’s Code of Ethics specifies that ‘[n]o officer or employee of the city ... shall supervise or manage the work of a family member’ and that “[n]o family member of the governing body (Mayor or City Council) shall hold a paid position with the City or any of its [sic] entities.”
The auditor’s office recommended the city enforce the requirements that no family member of the mayor or city council member hold a paid position with the city or its affiliated entities and that no officer or employee oversee the work of a family member.
Shepherd explained that his son has since been hired on full-time to the housing authority as the executive director and is no longer a contract worker for the city, noting that they checked with a legal team to make sure his son legally could work for the housing authority since it is not overseen by the mayor, prior to his promotion. He also said legally he cannot hire family members for paid positions, but he can for contract labor, which is what they had been.
The auditor also recommended the city require all timesheets to be approved by an appropriate supervisor before being paid, and recommended the tourism commission and housing authority seek legal guidance to determine whether any portion of the funds paid to the contractor/executive director for duplicate hours may be recovered.
Shepherd said he expects the attorney general to investigate the matter, but was confident they would not find any illegal activity had occurred.
The auditor also alleged that the city had expended tourism funds for non-tourism related purposes without input or approval of the Salyersville Tourism Commission.
Though the city had enacted a restaurant tax to generate funds to promote tourism in 1997, which is to be overseen by a tourism commission, the commission has not met since 2009.
“While the City has attempted to appoint members to the Commission since that time, it has not ensured regularly scheduled meetings of the Commission have occurred,” the auditor stated.
Shepherd took the blame for that, as well, noting that he had appointed people, but had not pushed for them to meet. He said they are scheduled to meet this week, however, and he plans to make sure they keep a regular meeting schedule.
The auditors sampled 63 expenditures from the handwritten disbursement ledgers of the tourism fund from July 1, 2017, through April 30, 2019, breaking down the spending as follows: 3% personal in nature, 5% made in error, 8% partial tourist activity, 16% tourist activity, 19% unclear purpose, and 49% standard city expenditures.
The auditor listed the following as being either standard city expenditures or as unclear in purpose:
• Contract labor for three people for election work $360
• Mowing a cemetery $250
• Payment of two city workers’ medical bills $263
• Health insurance for city workers $1,662
• Christmas gifts to be given away at community event $2,502
• Excavation of public road $1,120
• Concrete work for tornado shelter $5,000
• General use gasoline $2,919
• Portion of workers compensation insurance $13,187
• Monthly financial support for rescue squad $1,000
• Coffee for City Hall and Fire Department $259
• Pumper truck for Fire Department $4,000
• Boots for street department workers $1,378
• Gasoline for storm victims $249
• Laundering uniforms for 5 workers $122
• Contract labor for Street and Parks Departments $342
Shepherd said determining what expenditures are related to tourism is a “very vague area,” noting that he felt many of the items were directly related to tourism. He stated that the concrete work for the shelter was justified since that would serve people in the park. Workers compensation insurance covered the workers as they hung up flowers, cleaned at the park, and swept the streets.
“As far as the pumper truck, that was a partial payment and it’s what we use to clean the park every time it floods,” Shepherd explained. “A lot of these things overlap.”
He also noted that the totals were not full costs of those items, but just percentages of the payments to reflect their worth towards tourism.
Shepherd also stated that the “financial support” for the rescue squad is a donation made annually, not monthly, and is made to compensate them for helping with crowd control, traffic, etc., during tourism events, such as Heritage Days.
As for the money spent on toys for kids after the Christmas parade, he said that is not from tax money, but from donations for that specific event.
The auditor noted that two expenditures were personal in nature, one for funeral flowers, and the second as “payday advances,” which they likened to interest-free personal loans from public funds. Shepherd said he was just trying to help his workers and all money was paid back, noting that they no longer do advances like that.
Since this was not a traditional audit, Shepherd was not given the opportunity to respond to the findings prior to it being released to the general public.
“I wish they would have asked me because a lot of this has been changed,” Shepherd said. “We bent over backwards to comply to their requests for documents. What bothers me is how some of it is wrong and some can’t be justified, but some of it can be if they had just asked.”
The auditor recommended that the city reestablish routine meetings of the tourism commission and that the commission work with the city to create and enforce rules for expenditures made with tourism funding.
The letter was sent to the city council members, as well as referred to the Kentucky Attorney General, the U.S. Department of Housing and Urban Development and the Salyersville Board of Ethics.