Covington, Ky.'s Former Finance Director Gets 10 Years for Embezzling

BRADENTON, Fla. - Covington, Ky.'s former finance director was sentenced to 10 years in prison for embezzling more than $793,000 in city funds.

Bob Due, who was indicted on 15 counts, pleaded guilty March 13 to abuse of public trust, theft by deception, unlawful access to a computer, and 12 counts of criminal possession of a forged instrument.

Kenton Circuit Judge Gregory Bartlett handed down his decade-long sentence June 6, though a 15-year sentence was recommended by prosecutors.

Following a special state examination of Covington's finances, Kentucky Auditor Adam Edelen said the former director "had complete control over the city's financial systems, allowing him to steal at least $793,000 over the past decade."

"The report boils down to this: One individual had unfettered access to millions of taxpayer dollars without a single person looking over his shoulder for well over a decade," Edelen said. "That this could happen for that long in the 5th largest city in Kentucky is astounding and frankly inexcusable."

Auditors reviewed more than 66,000 checks, and unveiled a scheme that allowed Due to write 68 checks to himself, his spouse, his aunt, and a vendor under his control, said Edelen.

A week after Due entered a guilty plea, Moody's Investors Service dropped Covington's general obligation bond rating two notches to Baa1 citing a history of deficit spending by the city.

The rating downgrade from A2 affected $2.7 million of outstanding debt rated by Moody's, which said it also considered another $44 million of the city's debt in its credit analysis. The outlook is negative.

"The downgrade to Baa1 reflects a history of deficit spending that has led to an extremely limited financial position with no near-term plans to rebuild reserves, which is compounded by the city's reliance on economically sensitive revenue streams," analyst Joshua Travis said March 20.

The rating also considered administrative and personnel changes implemented to help prevent future theft of city resources, he said. Covington has replaced the finance director and approved several new positions, including an assistant finance director, an internal auditor, a revenue manager, and an information technology director.

"The changes reflect management's commitment to preventing future occurrences and ensuring that public funds are properly managed going forward," Travis said. "The city expects that it will be able to recover most of the money that was stolen, which will be added to existing general fund balance."

In downgrading the city's GO rating, Moody's also said it considered the city's large tax base, below average socioeconomic indices, variable-rate debt exposure, and elevated pension burdens.

Covington received a clean audit opinion for fiscal 2013. The audit said that the city believed it incurred more than $700,000 in losses from the embezzlement, and that lawsuits were filed "to recover these funds."

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