Audit Finds Numerous Problems at MSD

by Erica Peterson on December 16, 2011

The state auditor’s office has found numerous managerial and ethical problems with the Metropolitan Sewer District, including excessive bonuses and the lack of competitively bid contracts for the board’s legal services.

In the report, released this morning, Auditor Crit Luallen outlined 27 findings and made 150 recommendations on how to improve the district’s performance.

Luallen began the audit in June, at the request of Mayor Greg Fischer after the Courier-Journal reported on questionable spending practices and alleged mismanagement at MSD. MSD is a quasi-government agency—it operates independently from Metro Government but the board, executive director and chief engineer are all appointed by the mayor.

In the audit, Luallen found that board members lacked proper training and the district should adopt a whistleblower policy to allow staff to bring certain concerns directly to the board. The audit found insufficient documentation of expenses, and recommended MSD strengthen the agency’s purchasing card procedure by making it an actual policy.

It recommended MSD adopt an ethics policy, and that its staff and board members avoid what could be perceived conflicts of interest.

The audit also addressed two issues which have come under scrutiny this year: MSD’s generous employee bonuses and the board’s relationship with chief legal counsel Larry Zielke.

Luallen found that the generous bonuses and increased retirement pay for MSD employees seemed excessive for a public entity, and recommended the board review and restructure employee compensation. In the audit, she said:

“The policy providing six-month and annual salary increases and bonuses to new employees should be reconsidered because this policy could provide an excessive increase in compensation to an employee that has not been with MSD a complete year. Furthermore, all forms of compensation, including performance salary increases and bonuses, should be considered if MSD wants to control or freeze its payroll budget.”

The audit also found problems with MSD chief legal counsel Larry Zielke. MSD has used Zielke’s firm since 1984, and no contract has existed for the last four years. The audit found this could impair the board’s objectivity and recommended the MSD board treat the legal counsel position as any other professional service and competitively negotiate a contract.

MSD is required to respond to the audit within 60 days, outlining the implementation of the auditor’s recommendations.

Mayor Greg Fischer has scheduled a press conference at noon to discuss the audit.

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