NEWPORT, Tenn. (WATE) — The Tennessee Comptroller’s Office investigation into allegations of malfeasance related to Newport Utilities found several issues including wasteful spending and poor oversight over a five-year period.

A report was released Wednesday following an investigation by the Comptroller’s Office in conjunction with the Tennessee Valley Authority Office of Inspector General. Newport Utilities, which provides electric, water, wastewater, and broadband services in the City of Newport and the surrounding areas in Cocke County.

“Utility boards have a fiduciary responsibility to ensure there is adequate oversight of public funds and management decisions,” said Comptroller Jason Mumpower. “As our report notes, this oversight failure led to noncompliance with state law, grant agreements, contract provisions, and substantial wasteful purchases.”

The results of the investigation have shared with the Office of the District Attorney General of the 4th Judicial District and the United States Attorney’s Office for the Eastern District of Tennessee.

According to the report, the two following internal control and compliance deficiencies were found.

• The board did not sufficiently oversee broadband projects, manager decisions, and expenses.
• The manager did not present the annual financial audit to the board in a timely manner.

A summary of the findings of the report is detailed below.

Read the full report is available to view or download here.

The report states that the TVA issued a letter dated April 10, 2020, to Newport Utilities and the mayor asserting that the utilities office had exceeded the $3.3 million loan that was approved in 2017 for the expansion and maintenance of the fiber optic network and other working capital. According to the Comptroller’s Office, the loan stated that the “Electric division will not furnish any other credit, guarantee, or other financial accommodations, including joint debt issuance, to or on behalf of the broadband division.”

After this notification, the report says that the board of directors and general manager of Newport Utilities paid an accounting firm $65,000 to determine the amount from the electric funds that had been used for broadband and to suggest accounting corrections that would properly set up the receivable and payables accounts. The firm, however, found that as of September 30, the broadband division had a net interdivisional loan balance of $7,992,654, exceeding the $3.3 million loan by $4,692,654, according to the report.

Additionally, the Comptroller’s Office report said that amount of money was spent on avoidable settlement payments. In 2014, the manager of Newport Utilities resigned and was replaced by a newly hired manager by the board. The first manager then filed a lawsuit against Newport Utilities, and while the board’s legal counsel advised them in January 2015 that they should contest the lawsuit, the board terminated the employment of the newly hired manager in September 2015 and rehired the former manager. The report states that the first manager reached a settlement with the utilities office for $125,000 in September of 2015, with $60,000 in back pay and $65,000 for non-wage compensatory damages. The manager who was newly hired filed a lawsuit against the board in June of 2017 and was awarded $775,000 according to the report. In total, $900,000 was spent on these settlements.

The report says that starting in November 2018, Newport Utilities started construction and installation of a broadband project for the Harford and Grassy Fork Communities which was funded by a $467,827 Appalachian Regional Commission (ARC) grant. The purpose of the project was to establish a 10.73-mile network route through the mountainous terrain near the interconnection point of Cosby through the Harford community and to Grassy Fork school, but two payments received in 2019 by Newport Utilities totaling $160,739.39 were used for construction costs outside of the grant-approved route according to the report. Not only were these changes to construction not submitted for approval or granted, but ARC personnel was not alerted that a significant amount of construction was being done outside of the narrowly identified and authorized zone, the report states.

Newport Utilities also paid inflated rental fees and avoidable administrative fees of at least $102,175 to the company installing fiber. While the company installing the fiber initially paid the $1,500 rent paid by Newport Utilities directly to the building owner starting in April of 2018, the company later then inexplicably began billing Newport Utilities $500 per week for rent, totaling $2,000, and $1,500 per week for a warehouse administrative fee. Between July of 2018 and November of 2019, the report states that an additional $10,000 was paid in rent to the installation company than if it had been paid directly to the landlord, and $92,175 was paid for warehouse administrative fees for tasks that could have been, and later were, performed by utilities employees.

It was also found that the board approved a questionable amount of both sick and vacation leave for the manager, which totaled $93,678.95, according to the report. The Comptroller’s office said that the manager did not accurately record leave on his time records, and that he both entered and approved his own time in the payroll system. The report says that the manager did not request or record vacation or sick leave between July 2018 and December 2019 because he told investigators he always worked more than 40 hours per week, therefore, he did not use any vacation or sick leave. On November 23, 2018, the manager requested 400 hours of vacation leave as payment, totaling $28,844, and then when resigned in January 2020, he requested and was paid for 379.72 hours of vacation leave, totaling $31,433.22, and 403.5 hours of sick leave, totaling $33,401.73 according to the report.

The Comptroller’s Office said the manager was able to request payment for the 1,183.22 hours because policy and the manager’s contract allowed for payment of any unused leave both at the end of employment and periodically.

At least $9,914.18 was improperly used by the manager for questionable purchases between April 2018 and November 2019 according to the report. Of these purchases, the report explains that the manager reimbursed Newport Utilities for at least $2,828.29 for personal charges, however, he signed a credit card user agreement that stated that the corporate card was not to be used for personal purchases. Some of these purchases included meals, coffee, candy, snacks, subscription services, and dry cleaning, according to the report.

It was also found that in March 2018, the manager authorized $3,635 in payments for landscaping and painting of the building adjacent to the utilities office, which Newport Utilities does not own, without board approval.

Lastly, the board and manager did not document that competitive bids were solicited for certain broadband related construction, supplies, and other services. In the items listed in the report, It is stated that the company who was responsible for installing fiber from the major infrastructure to homes and businesses ordered supplies from a vendor that they selected, which bulled utilities directly for $519,545.80. Another incident listed in the report states that the manager contracted an individual to provide tracking of the broadband critical path installation progress without soliciting bids and Newport Utilities paid that person $126,427.61.

While the report does say that Newport Utilities have indicated that they either have corrected or intend to correct these deficiencies, it also says that some of the deficiencies contributed to the issues that the investigation found.