Zurik: Legislative auditor blasts misspending at MERS

Zurik: Legislative auditor blasts misspending at MERS
Published: Dec. 7, 2015 at 5:42 PM CST|Updated: Dec. 8, 2015 at 3:11 AM CST
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FOX 8 file image of former MERS chief Bob Rust
FOX 8 file image of former MERS chief Bob Rust

NEW ORLEANS (WVUE) - The former head of a retirement system that was the subject of a FOX 8 investigation may have violated state law.

The state's legislative auditor released a scathing report Monday, detailing the misuse of money by the Municipal Employees Retirement System.

The audit finds that former executive director Bob Rust and board members misused system funds by attending pricey out-of-state conferences and buying dinners and drinks at fancy restaurants.

"These funds, whether you call them public or private or whatever, they're system funds," Legislative Auditor Daryl Purpera insists. "They belong to the system.  They don't belong to the board members; they don't belong to the executive director. They do belong to the system.  And to use them in a manner like this, yes, it's gross misuse of those funds."

Much of the audit focused on the board's yearly retreat to the Grand Hotel in Point Clear, Alabama and conference planning trips, when Rust would go weeks earlier to plan that yearly board retreat.

The audit confirmed what we found in our reports: Rust used system funds to pay for a hotel room for his son.    Rust tried to hide that from us, whiting out his son's name in a series of public records requests.

It was the board's general counsel who discovered the documents given to us were altered.

"I look at that and it quite frankly frightened me," Warren Ponder said in a special meeting on MERS spending practices over the summer. " I didn't want it in just my possession, I wanted it in the hands of someone else."

The audit says Rust paid his son's hotel room for three years, at a total cost of $6,788.65.

Those board retreats or conferences had set days.  The audit found "Rust also allowed MERS to pay for extended hotel stays" - all totaled $3,999.52.

We showed how investment companies doing business with MERS paid for much of the conference or board retreat expenditures through sponsorship fees.  Rust deposited the money in what he called an "educational fund", and used that to buy the alcohol and rooms at the Grand Hotel.

State Treasurer John Kennedy questioned the arrangement.

"Suppose I said, 'Okay, all you investment bankers henceforth, if you want to do business with the treasurer's office, you each have to contribute $5,000 to an "education fund" that I administer, to take people out to dinner and to go to Disney World," Kennedy suggested. "No! That's a violation – I'm not a criminal lawyer, but it's probably a violation of criminal law, and i know it's a violation of the code of ethics."

The auditor agrees with Kennedy and says Rust "may have violated the code of governmental ethics."

Rust also took a series planning trips to the Gulf Coast, most of the time during holiday weekends such as Easter or Memorial Day.

Rep. Kevin Pearson, who chairs the La. House Retirement Committee, told us earlier this year that such planning certainly could have been handled by phone, for the most part.

"Doesn't look good," Pearson acknowledged when we asked him about Rust's trips.

The auditor found Rust took seven conference planning trips over five years, costing the system almost $15,000.  These trips were for him to plan that annual retreat or conference. But on one trip, Rust rented a three-bedroom, three-bath house. On another trip, he rented two hotel rooms.

The auditor found Rust may have violated both state law and state ethics law with these purchases.

"Anybody operating a governmental office should know better than to do that," Purpera says.  "They are an abuse of the authority and power of an individual... Completely a misuse of public funds."

The auditor's office also questioned about $25,000 of spending on meals - Purpera's staff couldn't determine how the meals benefited the system or its members. In four years, MERS spent $12,892.22 on holiday dinners at Ruth's Chris Steak House and Galatoire's.  Some of it was used to buy alcohol.

According to the audit, these dinners "appear to be excessive."

The auditor will likely hand over this report to the state ethics board and local law enforcement for possible investigation.

"For them to use them to buy expensive meals, transportation, alcoholic beverages -  you know, almost all these events involved lots of alcohol -  that sort of thing, I think they should have known better," Purpera tells us. "And certainly I think the Board of Ethics may have an issue with it."

The legislative auditor says the district attorney of East Baton Rouge Parish, where MERS is headquartered, could be looking into whether Rust committed theft by purchasing rooms for his family.

Rust's attorney told the auditor in a letter that the board was aware of all of the spending and, if they felt these trips were improper, they had a duty to not approve them. The legislative audit itself includes that letter; you can read it and the complete audit at this link.

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