NEWPORT, Tenn. — The Tennessee Comptroller's Office, alongside the Tennessee Valley Authority Office of Inspector General, has released an investigation on Newport Utilities after allegations of wrongdoing related to the company.
The investigation was initiated after Newport Utilities officials identified and reported the use of funds for "questionable purchases" and work on private property, as well as deficiencies associated with the installation of broadband, according to the Comptroller's Office.
In 2016, Newport Utilities began installing the broadband system in its service area. As part of the original business plan, Newport Utilities management used an interdivisional loan from TVA of up to $3.3 million for initial construction and maintenance costs. Investigators determined that Newport Utilities exceeded the loan amount by at least $4.6 million, the Comptroller's Office said.
"Utilities management also failed to establish a separate accounting unit for its broadband division to track revenues and expenses despite advice from consultants, regulators, and its external auditing firm," the Comptroller's Office said.
The Comptroller's Office said management also did not document that competitive bids were solicited for certain broadband-related construction, supplies and other services.
For example, in one instance a company tasked with installing fiber in individual homes ordered at least $519,545.80 in supplies that were billed to the utilities. Investigators found no evidence that the utilities had either a contract with this vendor or that the supplies had been competitively bid. A subsequent analysis performed by the utilities concluded the vendor charged more than double the price of its competitors in some instances.
The report also describes several other issues:
- The Newport Utilities Board of Directors’ employment decisions resulted in avoidable settlement payments totaling $900,000 to its former managers.
- The former general manager, who resigned in January 2022, approved unallowable work of at least $160,739.36 on an Appalachian Regional Commission grant. The grant was for a broadband project along a 10.73-mile route for the Hartford and Grassy Fork communities in Cocke County; however, work was performed outside the grant-approved route using the grant money.
- The utilities paid inflated rental and administrative fees of at least $102,175 to rent a portion of a commercial building for storing broadband installation supplies.
- The board paid the former general manager questionable vacation and sick leave balances totaling $93,678.95.
- The former general manager used the utilities’ credit card to make questionable purchases totaling at least $9,914.18. This amount includes $2,828.29 in personal purchases. Although prohibited from making personal purchases, the former general manager did reimburse the utilities for these charges.
- The former general manager authorized payments totaling $3,635 for landscaping and painting a privately owned building adjacent to the utilities’ main office. This was done without board approval.
“Utility boards have a fiduciary responsibility to ensure there is adequate oversight of public funds and management decisions,” Tennessee Comptroller of the Treasury Jason Mumpower said. “As our report notes, this oversight failure led to noncompliance with state law, grant agreements, contract provisions, and substantial wasteful purchases.”
The results of the investigation have been shared with the Office of the District Attorney General of the 4th Judicial District and the United States Attorney’s Office for the Eastern District of Tennessee.