SALT LAKE CITY — Ken Bullock, longtime director of the League of Cities and Towns, resigned Wednesday, the day before an audit says he improperly charged about $57,000 to the taxpayer-funded group's credit card for personal purposes and racked up about $130,000 in questionable charges due to lack of receipts.
Utah State Auditor John Dougall's office also concluded that Bullock failed to take corrective action against the league's former director of administrative services, Michelle Reilly, who the audit says embezzled the league's funds by charging more than $26,000 in personal expenses to the group's credit card, as well as more than $57,000 in "questionable" purchases due to lack of receipts.
Those charges include thousands in purchases for spa services, lingerie, iTunes, dining, liquor, travel, flowers and parking tickets, the audit states.
On the last day of her employment, the audit said Reilly also spent 219,800 of the league's American Express points — valued at nearly $1,500 — to book personal travel.
Dougall's office has recommended a criminal investigation into Reilly for potential misuse of public funds, corrective action against Bullock and an overhaul of the league's policies.
Bullock and Reilly could not be reached for comment Thursday, but Kaysville Mayor Steve Hiatt, president of the league, confirmed that Bullock resigned and said the board will be making criminal investigators aware of Reilly's alleged embezzlement.
The audit did not recommend a criminal investigation of Bullock, but Hiatt said the board will be turning over the entire audit to law enforcement investigators so they can decide how to proceed.
"(Bullock's) situation here is candidly unfortunate," Hiatt said. "I believe he's given his heart and soul to the league over the last 30 years. He certainly did a great job being a voice and advocate on (Capitol) Hill, but clearly there are some things that he fell short on."
The league's board treasurer, Midvale Mayor JoAnn Seghini, also resigned from her league position the day before the release of the audit, amid criticism that the board lacked oversight over the league's top officials.
"The Utah League of Cities and Towns board is committed to taking all necessary steps to ensure the integrity and professionalism of the (league)," Hiatt wrote in an email to league members prior to the audit's release.
"The board has already enacted many policy amendments that correct the management shortfalls identified in this audit. The board is steadfast in its commitment to reassure our partners and membership that these types of unfortunate events never take place again."
Before Reilly resigned in August, she reimbursed the League of Cities and Towns of nearly $5,000 for purchases made between July 2015 and July 2016. But the audit's findings date back to May 2012 through September 2016, showing she still owes more than $20,000 in personal charges.
During the same time period, the audit says Bullock reimbursed the league nearly $46,000 for personal travel expenses but failed to fully reimburse the $57,000 total, "likely due to poor record-keeping," the audit concluded.
During interviews with auditors, Bullock said he used league funds to watch his son play college basketball for Stanford University, but at the end of his son's season, he would go through his credit card statements and identify personal charges and then reimburse them, according to the audit.
The practice resulted in up to six-month loans from the league to Bullock, the report concluded, but to-date, Bullock still owes the league about $11,000.
"It didn't look like he was trying to steal the money, it just looked like poor record-keeping," Dougall said. "But still, at the end of the day, $57,000 in essentially personal loans from the league to the director is not allowed by the law."
The audit recommends the league's board ask Reilly and Bullock to repay all unreimbursed personal charges. In a letter responding to the audit's findings, the league's board said it will pursue repayment from both Reilly and Bullock, but it "does not believe (Bullock) had any criminal intent to defraud."
"There is no excuse for the lax manners in which these items were handled by the former CFO and executive director," the letter states. "The board concurs that personal accountability is critical for the success of any entity, especially one charged with the responsibility of managing public funds."
Reilly had "a four- to five-year history of very poor performance," the audit adds, yet Bullock failed to take adequate corrective action against her, despite knowing about her "significant performance failings."
For example, the audit says Reilly repeatedly sent late payments and incurred additional costs — including nearly $20,000 for eight late pension payments to the Utah Retirement Systems, more than $7,000 for 79 late credit card payments, and nearly $5,000 in three late payroll tax payments.
Reilly also failed to maintain adequate supporting documents for the league's credit card payments, with more than $722,000, or 85 percent of the league's AmEx credit card charges from May 2012 to September 2016 lacking adequate documentation, the audit found.
Additionally, the report says Reilly initiated payments to herself and other employees from the league's flexible spending account without adequate documentation or in some cases without any documentation.
Bullock was aware of Reilly's poor performance but only performed a "cursory" review of credit card statements, failing to identify improper purchases, according to the audit.
"Unfortunately (Bullock) knew about many of these issues and from our perspective failed to take timely corrective action, and that ultimately resulted in placing the league and its members at risk," Dougall said.
The audit also says the league's board failed to provide adequate oversight and was "overly deferential" to Bullock due to an apparent "lack of understanding by board members of their role and lack of understanding" of the league's structure as an interlocal governmental entity.
"Although the board treasurer was assigned to review and approve various expenditures, those reviews were inadequate," the report states.
Seghini said Thursday she spent 20 years as the league's treasurer but decided to step down from that role to give the organization a "fresh start."
When asked if she felt she fulfilled her role as treasurer or felt any accountability for the lack of oversight of Bullock's or Reilly's practices, Seghini said "she dealt with the information she was given."
"There was a lot of information I didn't know," she said. "These new changes have really made the organization safer, and I'm proud of the fact that the board stepped up and said, 'We can do better.'"
Among the new policy changes the league has enacted is a "reimbursement-only" program to eliminate all but one league credit card and a comprehensive update of its policies and procedures on Dec. 9.
"We believe these amendments — along with a restructuring of management and reiteration of board responsibilities — will appropriately address these concerns and commit to revisiting these policies on an annual basis," the board said.
Roger Tew, a former Utah State Tax Commissioner, has been appointed as the league's interim executive director until the board selects a permanent leader, Hiatt said.
The Utah League of Cities and Towns represents 246 cities in Utah and is mostly funded by contributions from member cities to lobby on their behalf, train staff and conduct research.
Contributing: Ladd Egan