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Auditor: State tourism commission 'took advantage of the Nebraska taxpayers'

Auditor: State tourism commission 'took advantage of the Nebraska taxpayers'

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LINCOLN — A new state audit has slammed the Nebraska Tourism Commission for excessive spending on conference speakers and photo shoots, improperly reimbursing a contractor for alcohol and cigarettes, and using the executive director’s daughter in a state tourism advertising campaign.

The commission, which became an independent agency four years ago, also was criticized for getting dozens of free meals from its advertising firm, Bailey Lauerman, and for allowing the firm’s ad contract to go over budget by $4.4 million in the past three years.

The audit also cited as excessive $18,000 in moving expenses that were paid to an employee who relocated from Sidney to Kearney and a $44,000 fee for a 90-minute speech at the commission’s annual conference.

“We had heard some rumblings that Tourism was operating as a rogue agency without any oversight,” said State Auditor Charlie Janssen. “It appears that was the case. They kind of took advantage of the Nebraska taxpayers.”

The 79-page audit was released late Friday. The Tourism Commission, in its official response to the audit, acknowledged that some expenses and reimbursements were not properly tracked, and pledged to work with the Nebraska Department of Administrative Services to tighten procedures.

This spring, as part of the state budget bill, lawmakers required the tourism office to contract with Administrative Services to provide oversight on its spending.

State Tourism Director Kathy McKillip said Saturday that many of the problems were related to the lack of a policy and procedures manual for the newly independent agency. A manual is now being drawn up for approval by the commission in August.

“Where there are weaknesses, then we need to learn from them … and move forward,” McKillip said.

[PDF: Read the 2016 State Tourism Guide] 

The agency, in its official response, defended some of the spending as necessary to promote the state and, in some cases, an effort to save money.

One case involved the hiring of McKillip’s daughter as part of a group of college-age “talent” used for a nine-day photo shoot across the state last summer. The shoot was organized by Omaha-based Bailey Lauerman to produce video and photographs for state tourism advertising at attractions and parks across the state.

The daughter, Emma, was featured on the cover of the 2016 State Tourism Guide, the major annual publication of the Tourism Commission.

McKillip, as well as a Bailey Lauerman official, said the daughter was hired by the ad agency — not McKillip — and was paid the same rate, $550 plus expenses, as others on the shoot June 2 through 10.

The audit said the daughter’s hiring probably didn’t violate the state’s nepotism laws because she was not a state employee. But the audit expressed concerns that either her mother had violated a state law barring public officials from obtaining financial gain for themselves or family members, or the ad agency — which was paid $3.6 million last year by the tourism agency — had violated a law prohibiting the offering of something of value to influence a public official.

Both are misdemeanors, punishable by up to three months in jail, a $500 fine or both.

Janssen said his audit would be forwarded to the Nebraska Attorney General’s Office to determine if a law had been violated, as is the case with all audits.

“It’s very questionable,” the auditor said of the hiring.

McKillip said no laws had been broken. “That could be perceived that way. It wasn’t the case here,” she said.

The Tourism Commission, according to McKillip, used “local talent” rather than hiring professional models as a way to save money. She said past Tourism Commission interns and volunteers, along with fraternity and sorority members from the University of Nebraska-Lincoln, were asked to apply. By using them, professional fees of up to $2,500 to $5,000 per day were avoided, the agency said in the audit.

“The goal of ... (the) photo shoot was to be as cost effective and time efficient as possible while covering hundreds of miles supporting Nebraska’s diverse activities and attractions,” the agency’s response said.

The Tourism Commission also stated that it was “challenging” to find talent in the 18- to 26-year-old age range willing to leave a summer job for more than a week, work up to 12 hours a day and “camp out as needed.” McKillip said only seven people applied.

Janssen said he found it hard to believe it was difficult to find young people to “basically have a free vacation and get paid for it.”

“But the (Tourism) publication is very professional and very nice,” he said.

Janssen said he was among the senators who voted to make Tourism an independent agency in 2012. Prior to that it had been a division of the Nebraska Department of Economic Development and was overseen by that agency’s director.

Currently the tourism office has a staff of 11 and a yearly budget of about $6 million, an increase of about $1.6 million from three years ago.

It is overseen by a nine-member board that represents different segments of the state’s tourism industry, from tourism attractions to lodging facilities, the State Game and Parks Commission and Nebraska Travel Association. The members, who are selected by the governor, hired the executive director.

When Janssen was asked if he still supports having Tourism as an independent agency, he said yes, but added that he expects the board members to take a more active role in managing the agency.

“I’m hopeful that they just weren’t aware of the jobs they were supposed to be performing, the director included,” the auditor said. “But if you look at their replies, they seem to be somewhat defensive and say they were operating OK, which was not the case.

“Clearly there’s been quite a lack of oversight on that agency,” Janssen said.

A member of the Tourism board, Jeff Boeka, a North Platte manager of motels, said the audit was disappointing. He said the board will be forming a committee at its meeting Tuesday in Omaha to draft tighter rules and procedures.

When asked if the director’s job might be in jeopardy, Boeka said he couldn’t speak for the nine-member board.

“I think Kathy has done a great job of raising awareness of Nebraska tourism, but there are things that need to be fixed,” he said.

The Legislature’s Appropriations Committee, in a Feb. 29 letter included in the audit, also expressed concerns about oversight and governance at the Tourism Commission.

State Sen. Heath Mello, chairman of the committee, said Saturday that he thinks the new oversight requirements added by senators should address most of the problems identified in the audit.

In the February letter the committee faulted McKillip for not seeking approval from the nine-member board before asking the Legislature for additional spending authority of about $750,000, and for spending about $293,000 more money than the state received last year in lodging taxes — the primary source of funds for the tourism agency.

The agency, the letter said, cannot spend more than has been authorized by the Legislature.

McKillip said commissioners were aware that she was seeking more funds, there just hadn’t been a formal vote to approve it. Lodging tax receipts are increasing about 8 percent a year, so the funds are available, she said.

“The concept is, if the money is there, to utilize it,” McKillip said. “Our job as a commission being new is to be assertive in marketing Nebraska.”

The audit cited dozens of examples of questionable Tourism spending and accounting practices, including:

» Spending $18,000 to move one employee from Sidney to Kearney, a distance of 217 miles. The expense seemed excessive, the audit said, and included paying $8,000 to a Realtor as a commission for selling the employee’s house.

Tourism responded that paying moving expenses is allowed, and that moving the 10-year employee to a more central location in the state prevented the need to hire another full-time employee.

» Providing complimentary massages and paying one speaker a $44,000 fee for a 90-minute speech for the 2015 state tourism conference in Columbus. Three other speakers were paid more than $9,000 each. Overall, the cost of the 2015 event exceeded sponsorships and other conference revenue by about $84,000, which had to be covered by other Tourism funds.

The commission said it received suggestions to bring in nationally recognized speakers, and the keynote speaker, Shawn Achor, a co-founder of GoodThink Inc., fit that description. “Not all conferences break even,” the agency said, adding that many national speakers won’t come to Nebraska because of flight limitations and ground travel required.

» Lacking procedures for tracking purchase orders against the agency’s contracts; thus, Tourism couldn’t tell if spending was within established budgets. Expenditures under two Bailey Lauerman contracts went over budget by $4.4 million between August 2013 and February 2016.

The Tourism Commission acknowledged that the contracts went over budget, but said that was being corrected by working with Administrative Services, the state agency that handles most state contracts.

» Reimbursing McKillip $1,318 for more than 2,200 miles put on her daughter’s convertible during the photo shoot, even though the Tourism Commission also paid for some gas for the vehicle. That double reimbursement, the audit stated, raised questions of “possible abuse, if not actual fraud.”

The agency responded that McKillip was unaware the daughter’s fuel was being paid for, but said the car was used in the photo shoots.

» Reimbursing Bailey Lauerman for $350 in alcohol and cigarettes purchased during the photo shoot, a violation of state policies. The audit stated that because a number of receipts were missing or illegible, it could not be determined how $5,200 in expenses for the shoot were spent, but that it was “highly probable” that more was spent on alcohol.

“... There did not appear to be any shortage of alcohol, food and other meals being consumed” on the photo shoot, said the audit, which questioned the cost of some meals and tips.

The Tourism Commission said it was unaware reimbursement was being sought for alcohol, and it agreed with the state ban on such reimbursement. The agency said that some meals were purchased for photographing.

» Spending $2,775 for the state airplane to fly a Tourism employee from Lincoln to Valentine for the photo shoot, then flying a Bailey Lauerman staffer and one of the student participants back to Lincoln. The return flight was diverted by bad weather, which resulted in food and overnight lodging expenses of $292 in Kearney.

The agency said that it had used the state plane only twice in the past five years, but that using it saved time in getting people to remote locations. The weather delay was unforeseen, the Tourism Commission said.

» Accepting gifts of meals and drinks from Bailey Lauerman and Swanson Russell, the state’s public relations firm. Bailey Lauerman spent more than $2,500 on more than 35 occasions, including for the spouses of McKillip and a commissioner. Included was a $255 dinner for the director and a Bailey Lauerman employee at a restaurant in Austin, Texas, and a $109 lunch earlier in the day.

“In general, employees who negotiate and sign government contracts or grant awards involving large sums of public funds ought not to receive gifts ... from vendors; likewise, vendors ought not to make valuable bestowals” to public employees, the audit stated, citing a state law prohibiting influence peddling.

The audit stated that it found no credible evidence that acceptance of the free dinners had influenced state employees, but it recommended that Tourism staff and commissioners start filing reports of gifts, as is required of other state officials.

McKillip said the Bailey Lauerman records were incorrect and her husband never received any meals.

But she that, overall, lessons were learned through the audit. “Bottom line is that we need a policies and procedures manual,” she said.

An official with Bailey Lauerman, Mary Palu, said that while entertaining clients is a normal business practice, the agency was unaware of the restrictions on gifts to Tourism officials. She said those errors will be corrected.

Contact the writer: 402-473-9584,

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The Tourism Commission left unspent between $260,000 and $355,000 a year in recent budgets, money that could have been used to contract with the Department of Administrative Services or another state agency for support services, or to hire people with expertise in contract compliance and spending oversight.

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