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Utah State Auditor's report criticizes Kane Co. water district over conflicts of interest

Running water
Posted at 5:33 PM, May 12, 2022
and last updated 2022-05-12 19:33:30-04

SALT LAKE CITY — A report by the Utah State Auditor is leveling some criticism at the Kane County Water Conservancy District over potential conflicts of interest.

The report, released Thursday, was apparently sparked by complaints about the water district's efforts to build a golf course. Utah State Auditor John Dougall's office did not look into whether that project is appropriate. However, it did evaluate and find problems related to the water district's finances and conflicts of interest involving board members.

The Utah State Auditor's report said there wasn't enough separation of duties among Kane County Water Conservancy District employees to help guard against fraud and recommended changes.

"Many of the purported non-compliance issues are the result of the small size of the District," Kane County Water Conservancy District Board Chair Ben Clarkson and Executive Director Mike Noel (a former state lawmaker) wrote in a formal response to the audit, insisting proper safeguards in place.

The district said it would institute further changes at the recommendation of auditors.

But the Utah State Auditor's Office raised concerns about conflicts of interest among water district board members and the agency's director. The report said the district made $2,219 in purchases from a vendor "in which the Director has a substantial interest."

"According to the Director, he was not directly involved in the decision to make those purchases, but it appears that those who did make the decision likely knew of his part ownership of that vendor," the report said. "The District does business with a telecommunication business where a member of the Board is an executive. The District paid that business a total of $26,051. While there was not a competitive procurement process for these services, that business appears to be a sole provider of those service within the city where the District is located."

The report also said the district made $20,000 in payments for an option to purchase land for the golf course.

"A District board member has a substantial interest in the entity selling that land. According to the audio of the meeting, the Director disclosed the board member’s ownership interest before the board member voted in favor of the land purchase. However, verbal disclosure of the conflict does not satisfy statutory requirements. The land purchase option appeared reasonable given the District’s intent to build a golf course," auditors wrote.

While the Utah State Auditor's Office recommends written disclosure forms for a conflict of interest, the Kane County Water Conservancy District said its own legal counsel disagreed.

"The District's interpretation of state law is that a written sworn statement declaring a conflict of interest is only required when the conflict arises due to a relationship with an entity that is regulated by the District," Clarkson and Noel wrote.

They added that every transaction used best procurement practices and any conflicts were disclosed. The Utah State Auditor's Office responded and cautioned the district about its legal advice.

"The claim by the District’s attorney that Utah Code... applies only to transactions involving a regulated business is unique in our experience and such an illogical opinion as to render the section of statute essentially useless," auditors wrote. "This interpretation would allow a board member to participate in a self-serving land deal – being involved in steering, negotiating, pricing, and approving the deal – without any requirement to disclose that board member’s personal interest under the rational that the District does not regulate that business."

Still, the District said it has now adopted a written conflict of interest policy.

Read the full report here: