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August 20, 2014

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Krolicki case highlights accounting ethics issue

When, if ever, can budget items be put ‘off-line’?

A future “Law and Order” episode, this is not.

“Off-line budgeting” — a plot twist that only an accountant could love (or follow) — led to the indictment of Lt. Gov. Brian Krolicki by a Las Vegas grand jury.

Veterans of government know that audits routinely find money misspent or given out in questionable ways.

Rarely, at least in Nevada’s history, have those findings led to felony charges as they did against Krolicki, who is accused of mismanaging a multibillion-dollar college savings program in his previous position as Nevada’s treasurer.

The charge was perhaps best summarized by an exchange between a deputy attorney general and a grand jury witness:

“And so for somebody to squirrel away funds someplace and then for a constitutional officer or any public officer to use those funds for purposes that he deems to be within the State’s interest, would that be within the state budget act or would you consider that to be off-line budgeting?”

Yes, that would be off-line budgeting, the witness confirmed.

The case has some observers wondering if a tougher definition of public accountability is emerging, with Attorney General Catherine Cortez Masto as the enforcer.

Her close associates say Cortez Masto intends to raise the ethical standard. She is a straight arrow who believes strictly in the rule of law, they said.

But some Republicans see in the case against Krolicki signs of partisanship.

Former Assemblyman John Marvel, a Republican who had served on the legislative audit committee since 1989, said this is the first time he can remember an audit leading to an indictment.

“Every audit we have, there’s some infringement of the law,” he said. “We could probably indict everybody for something.”

One memorable example is a 2006 audit of the Southern Nevada Workforce Investment Board, which couldn’t account for millions of dollars. “Other than a complete disregard for government accounting standards and financial principles, ignorance or disdain for the taxpayer, the consultants know of no legitimate reason for ... allowing for these deplorable practices,” the auditors said.

Yet no indictments came down.

One of the grand jurors in the Krolicki case seemed to question whether Krolicki had crossed the line. According to a transcript of the grand jury proceedings, the juror asked a Department of Public Safety investigator whether “gratuities” were changing hands between Krolicki and the marketing company for the savings program, Rose/Glenn Group.

“It seems now this is just accounting malfeasance” the juror said.

An audit of the College Savings Plan last year accounted for all state money.

This is not to be dismissive of the charges against Krolicki and his chief of staff, Kathy Besser.

The grand jury, despite at least one member’s earlier qualms, did indict Krolicki.

If the allegations of the indictment are true, the two intentionally took about $6 million of taxpayer money and decided to spend it on television ads and mailers promoting the savings plan — and featuring Krolicki.

There was testimony from a deputy treasurer that Krolicki and Besser were upset that the Legislature had allocated only a minimal amount of money for marketing the program.

And, as Cortez Masto told the Sun: “It comes down to transparency in government. One individual doesn’t get to decide which money goes into state coffers and what money doesn’t.”

Krolicki, a Republican, has also blamed partisanship.

Cortez Masto and Krolicki’s successor at the treasurer’s office, Kate Marshall, are Democrats.

Krolicki pointed out that the indictment followed his announcement that he would challenge Democratic Senate Majority Leader Harry Reid. But the investigation had been going on for nearly two years and it was an open secret in Carson City that he was likely to be indicted.

So has the bar for public behavior been raised for Nevada elected officials?

Bob Loux would seem to provide a perfect test case.

As head of Nevada’s anti-Yucca Mountain staff, Loux has admitted to paying himself and his workers more than the amounts approved by the Legislature — off-line budgeting. He has resigned, effective with the appointment of a permanent successor.

Assembly Minority Leader Heidi Gansert, a Republican, had requested Cortez Masto investigate Loux, director of Nevada’s Agency for Nuclear Projects, for possible malfeasance in office and criminal activity.

The public will have to wait for another case.

Cortez Masto sent a letter to Gansert saying she had recused her office from the investigation.

“Over the last twenty years Mr. Loux has had an ongoing working relationship with my office in this State’s fight against the federal government regarding Yucca Mountain,” she wrote. “To avoid a conflict of interest and any appearance of impropriety if my office were to undertake the criminal investigation, it is in the best interest of the State that the matter be referred to the Washoe County Sheriff’s Office.”

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