It's not pretty and I'm not happy about it. It's somewhat embarrassing. But I've got to take what's coming and get through it now and answer the questions. We'll do what we need to (do) to make sure it doesn't happen again. —Mike Kohler, Jordanelle service district chairman
SALT LAKE CITY — State auditors blasted managers of an idle, publicly funded multimillion-dollar Wasatch County wastewater treatment plant in a report Monday for creating an environment ripe for misconduct and fraud.
An audit of the controversial Jordanelle Special Service District revealed a "business as usual" management style that is "resistant and dismissive" to sound business practices. Auditors noted the district's approach to the investigation was to defend inappropriate activity, and distort, deflect and manipulate facts and information.
"Essentially, the district defends certain actions simply by throwing mud in a clear pool of water so that the picture becomes cloudy," according to the 32-page Utah State Auditor's Office report.
Findings from the 15-month investigation include:
• Thousands of dollars in questionable credit card charges for meals, gas, travel and other items, the majority of which was not supported with receipts.
• The district writing off $30,000 owed to it under a contract with Strawberry Lakeview Special Service District, placing an unfair burden on Jordanelle ratepayers.
• Lack of a complete policies and procedures manual, and missing closed meeting minutes and recordings.
• A $1.8 million purchase of a 52-acre parcel of land under "unusual circumstances."
• Lack of a readily available list of developers who entered into water reservation fee agreements and, in some cases, no written contracts with developers at all.
Mike Kohler, a former Wasatch County commissioner who became Jordanelle service district chairman in January, said he's not pleased with the audit, which covered 2008 to 2013.
"It's not pretty and I'm not happy about it. It's somewhat embarrassing. But I've got to take what's coming and get through it now and answer the questions. We'll do what we need to (do) to make sure it doesn't happen again," he said.
The inactive, state-of-the-art $16 million sewer plant is at the center of a bitter legal dispute pitting the Jordanelle Special Service District against property owners and bondholders. The prolonged conflict resulted in the largest government bond default in Utah history.
It has sparked several lawsuits, state and legislative audits, and apparently an FBI inquiry into how Wasatch County officials conduct business. State lawmakers also stepped into the fray earlier this year but were unable to help resolve the issues.
Attorneys for companies that bought $30 million in bonds for the project say the legal battle is damaging Utah's reputation as a good place for investing. They say it could also hurt the ability of counties and cities to sell bonds or obtain credit for public facilities and infrastructure.
The fight started after landowners southeast of Jordanelle Reservoir wanted to develop lots for about 3,300 high-end homes on the heels of the 2002 Salt Lake Olympics. They worked with the district to build a sewer plant using publicly financed assessment bonds to cover developers' costs.
As the plant was being finished in 2008, the economy took a downturn and developers weren't able to sell the lots but were still obligated to pay the service district assessments, according to the district. When they didn't pay, the district foreclosed on the property and tried to sell it to pay the bonds.
Attorneys for the bondholders say the district picked the wrong way to finance the project.
Assessment or "dirt" bonds are typically used for localized roads and sewer lines, not for a project that appears to be able to serve a large part of the county at the expense of only a few in the service district boundaries, bondholders contend.
Kohler said he understands why the auditor's office sees the district's response as obstructive. But, he said, the ongoing litigation left its lawyers no choice but to be "extremely careful" with their answers.
"All in all, they got what they asked for that we could find," he said.
Kohler said the district also made changes during the course of audit, including adopting a policy and procedures manual, hiring a controller, tightening credit card controls, and making a uniform, transparent water reservation fee policy.
Due to the lack of receipts, auditors questioned whether credit card charges were made for legitimate business purposes and called some purchases wasteful and improper. Spending at local restaurants, for example, tripled from 2008 to 2013.
"This seems unusual considering the economic downturn," auditors wrote, adding they would expect eating out at the district's expense would decrease during that time.
The audit also found that only 16 receipts from 312 grocery store purchases were available for review. Of the $960 on those receipts, half went for treats, drinks and magazines.
Auditors says two Jordanelle employees double-dipped on business trips by collecting per diem before they left and then using a district credit card to buy meals.
The frequent use of the district's gas card was used to put fuel into a personal vehicle or to purchase nonfuel items.
Kohler said it's possible some of those credit cards expenditures were for personal use but auditors can't prove it one way or another.
Despite the policy changes, auditors said they still have concerns about the district's financial practices and the board’s ability to correct the problems.
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