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Southern Utah News Front Page: April 20, 2017
Blistering report issued by Utah State Auditor''s Office concerning two Kane County Special Service Districts
By Dixie Brunner
Kane County received a highly-critical report from the State Auditor’s Office concerning questionable interactions and operations of two special service districts it manages. The voluminous reports, as well as responses from the SSD’s and Commission, were included in the review packets for the period January 2011-December 2015. The reports can be viewed in their entirety at the website: www.auditor.utah.gov
State Auditor John Dougall’s office released its public findings on April 11, 2017. Public reaction to the damning report was angry and immediate, bringing to mind another recent State Auditor’s report concerning former Kane County Treasurer Georgia Baca, who was subsequently investigated by the State Attorney General’s Office and who’s criminal trial is still ongoing.
Specifically, the Special Service Districts in question were the Canyon Land Special Service District and the Kane County Recreation and Transportation SSD. In addition, a third report was directed at Kane County, concerning oversight of the afore-mentioned SSD’s.
Canyon Land Special Service District was created on November 23, 2009 by the Kane County Commission. Canyon Land was authorized to provide drinking water, wastewater collection and treatment, and fire protection services to a private development (Amangiri). Currently, Canyon Land does not provide any services directly, however it has entered into contracts to provide fire protection through another government agency and sewer services through a company affiliated with the private development. Members of Canyon Land’s Administrative Control Board are appointed by the Kane County Commission.
While there were nine findings and recommendations the State Auditor’s Office had concerning Kane County’s interaction with Canyon Land, the biggest brow raiser was that Canyon Land paid compensation to two individuals – board member Kane County Commissioner Jim Matson and contract accountant Kane County Clerk/Auditor Karla Johnson.
Canyon Land board member Matson contracted with Canyon Land to provide consulting services. The Auditor’s Office issued the following recommendation concerning this issue. “We recommend that this board member either resign from his position on the Board or discontinue to contract with Canyon Land.”
In addition, it also said the board member received $7,500 annually for his service on the Board. The report cited Utah Code that states that the maximum amount of annual board member compensation is $5,000. The excess payments received during 2014 were the result of duplicate payments made to the board member. The checks were written the same day and were deposited within a short period of time, and it appears the board member willfully accepted the duplicate payment. Among recommendations on this issue is that the board member repay the $7500 of excess compensation to Canyon Land and that the Kane County Attorney request an independent review to determine if the duplicate payment constitutes criminal activity.
Board member Matson received $14,850 in payments for consulting services to Canyon Land. Utah Code generally prohibits board members from receiving compensation as a consultant while also serving on the board. The recommendation concerning this, is that Canyon Land implements an effective review of payments before they are processed, and that the board member reimburse Canyon Land for either the entire amount of board member compensation ($30,000 over several years) or the entire amount of consulting payments received ($14,850).
It also said they would recommend that the board member also reimburse Canyon Land for various other duplicate and improper consulting payments received totalling ($18,502). $4725 for attendance at board meetings, for which board members were already compensated. $9127 for services provided to private development resort operations, land development and review of land use ordinances and their impact, services deemed outside the scope of Canyon Land business. And $4650 for payments for water and roads, which were unrelated to Canyon Land, and therefore, improper payments.
They also recommended that CL have an effective review of payments, and that checks are signed by someone other that the payee.
The report also said in its findings that Canyon Land’s contract accountant, who is Kane County Clerk/Auditor Karla Johnson, received over $50,000 for services from 2011-2015. Of this amount, $17,000 was for bonuses above the contracted amount.
The Auditor’s Office said that Canyon Land’s attorney had explained that the contract accountant services were not obtained through a best practice of competitive procurement process.
The report said the Kane County Clerk has provided accounting services to Canyon Land for a number of years and has received payment as an independent contractor. This type of arrangement could raise questions regarding whether the county clerk obtained this position with Canyon Land by virtue of her official capacity with the county. It goes on to say while public officers’ and employees’ ethic laws generally allow public officials the same opportunities to acquire economic interests as all other citizens, as long as it does not interfere with the discharge of their public duties.
The State Auditor’s second critical review of Kane County was of the county’s Recreation & Transportation Special Service District (R&T). The R&T was created in 1996 by the Kane County Commission to develop recreation and transportation infrastructure countywide. Board members are appointed by the Kane County Commission.
The criticism of R&T is that they give excessive compensation to board members. It cites 4/7/15 board minutes that state, “As a smaller workload is projected for the future, the board...will be reduced from six to three members (decided on by the Commission), and meetings will be held only two to four times a year.” However, even though they were supposed to have a smaller workload, the 9/1/2015 board minutes approved an increase in board member compensation from $75 a meeting, to the maximum allowed by law of $5000 per year, per board member. The report said that at the new rate for meetings that usually last approximately 1-1/2 hours, if the board met four times during the year, they would receive approximately $833 per hour for their service (or double that if they meet only twice a year). The state recommended that R&T compensate all board members equitably and that the pay be generally commensurate with the time commitment and expertise.
The second issue was that the R&T’s contract accountant, again Kane County Clerk/Auditor Karla Johnson, received $14,400 for services from 2013-2015. With the cost per transaction being between $120-$130, the contract accountant’s compensation appears excessive. The State Auditor recommended that the professional services be obtained through an established competitive procurement process that considers both cost and qualifications, and that the county should avoid overpaying the contract accountant. The report found that there could be a potential conflict between public duties and personal interests.
Another finding was that there was a potential violation of state nepotism law and violation of the open and public meeting act. The R&T Board hired the wife of a board member to serve as its secretary. Because the minutes did not indicate the vote taken by individual members, as required by law, they were unable to determine whether R&T complied with nepotism laws.
Both special service districts, as well as the Kane Commission, responded to all of the findings and recommendations. The following are the highlights of their response, but again, all parts of the Auditor’s Report and the county and SSD’s responses were lengthy, but can be read online in their entirety at the websites listed at the end of this article.
The Canyon Land Special Service District response (shortened version).
• Concerning the question of whether the entity is an SSD or an improvement district, they responded that former Deputy County Attorney Bill Bernard said to legally provide sewer service, it had to be a special service district. Canyon Land Improvement District (CLID) has begun working with Kane County to dissolve the special service district and expects to complete that process in the next few months.
• Re: Board member (Matson) contracting with district in violation of law-CLID contracted with an limited liability company owned by a CLID trustee after full disclosure by that trustee of all real potential conflicts of interest created by such an arrangement. Although the consulting arrangement criticized by the Auditor’s report was approved in accordance with applicable law and is completely legal, CLID has discontinued the arrangement at the urging of the State Auditor.
• Re: Board member compensation in excess of legal maximum. CLID asserts that the Auditor’s implication of any sort of criminal intent or liability is wholly unfounded, unjustifiably inflammatory, and inappropriate for an audit report that should be based on actual evidence. CLID will aggressively defend against any allegations of criminal wrongdoing.
• Re: Board member receiving improper or duplicate compensation. CLID respectfully disagreed. They contracted with a company owned by a trustee in full compliance with applicable laws. “As such, the significant majority of the payments that the Auditor identifies as ‘improper’ are in fact, legitimate payments made for services received by CLID and are neither duplicate nor improper.” (Documentation provided.)
It then went on to say that CLID had undertaken a detailed review of all expenditures in response to the Auditor’s findings, and has identified several improper payments. They identified payments to the company in question totaled $3,525, specifically for trustee services. CLID said that it would require the consulting company repay the amounts identified as improper payments, adding that the company in question has agreed to do so.
• Re: Possible excessive compensation paid to board member. CLID will compensate all members of the board of trustees equally, even though several of the trustees do not desire to be compensated for their service. CLID also notes that board members are appointed by Kane County for their knowledge, judgment and expertise that are necessary to effectively lead CLID, and they are compensated accordingly.
• Re: (Kane County Clerk/Auditor Karla Johnson) – Failure to use a competitive bid process resulted in overpaying for accounting services. CLID is a small improvement district with no full-time employees; as such and since it is required by statue to appoint a district clerk to maintain financial and other records for the district, according to Utah Code 17B-1-632, CLID determined that accounting services would be most efficiently provided by the appointed and statutorily-required District Clerk. CLID believes that the compensation provided to the District Clerk has been reasonable and fully justifiable.
They further noted that CLID is seeking a new clerk as the current clerk had expressed an intention to resign. CLID issued a request for proposals in accordance with the purchasing policy and applicable Utah law seeking an individual or firm to provide accounting and administrative services.
• Re: Potential conflict between public duties and personal interests. CLID will discuss with Kane County the feasibility of using Kane County employees to provide accounting and other professional services.
• Re: Improper imposition of property tax. In the future, CLID will collect the fees directly from the property owners within CLID’s boundaries rather than allowing those fees to be collected by Kane County along with property taxes, even though using the County collection process is more efficient and less costly for CLID.
The Kane County Recreation & Transportation Special Service District response, submitted by Tony Wright, Chairman of the R&T Board
• Re: Excessive compensation for R&T board members. Current compensation was within the allowed State guidelines, and not in conflict with any current Kane County policies. However, the district is in the process of reviewing new county guidelines and will adjust compensation
• Re: Failure to use competitive bid process. The District now uses the Kane County procurement policies and a competitive bid process was used to hire administrative and accounting services effective January of 2017. A new person for accounting has been hired from this process.
• Re: Potential conflict between public duties and personal interests. At the present time training has been completed and the services are all being determined using the procurement policies.
• Re: Potential violation of State nepotism law and violation of open public meeting act. Persons involved in possible nepotism were due to a temporary assignment for secretary services. As of 1/17, this service was advertised for applicants. As of 2/17, the secretarial services have been assigned to a person based on this review process, a service provider who has no relationship to board members. All board members have had training and actions have taken place to ensure that all discussion and meetings conform with the open meeting act.
• Re: Failure to adopt purchasing policy. The R&T SSD is currently in process of adopting the Kane County procurement policy.
The State of Utah Office of the State Auditor also scrutinized Kane County’s oversight of Canyon Land Special Service District and Kane County Recreation & Transportation Special Service District, charging that they failed to properly oversee the activities of the two. It read, that as the creator of these SSDs, the Kane County Commission is ultimately responsible for ensuring they comply with the law and ensure that funds are appropriately used.
The report also said Kane County should be concerned with potential conflicts (either real or perceived) between public duties and personal interests. The State Auditor said that Kane County officials currently serve on boards or work for various SSDs. “These types of arrangements could raise questions regarding whether the county officials obtained these positions by virtue of their official capacity with the County.”
Lastly, Kane County was encouraged to more clearly define whether Canyon Land is an LD or SSD. They said this is an important distinction because it determines the level of oversight to be exercised by the county and to determine applicable laws.
Kane County’s response was sent by Commission Chairman Dirk Clayson. He expressed appreciation for the evaluation and recommendations for improvement that the State Auditor’s Office had made regarding the SSDs. “Based on calling these items to our attention, we have made some significant changes in how we provide oversight for these organizations,” wrote Clayson.
The Canyon Land Special Service District Report is available specifically at: http://financialreports.utah.gov/saoreports/2017/CLSSD-16-SPCanyonLandCanyonLandSpecialServiceDistrict.pdf
The Kane County Recreation & Transportation Special Service District Report is available specifically at:
The Kane County Oversight of Special Service Districts Report is available specifically at: