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The scandal-tainted Utah League of Cities and Towns is attempting to unravel details of a mysterious fund that came to light in a recent state audit and is being used to pay for sponsored articles on the Deseret News website.

League President Steve Hiatt, Kaysville's mayor, said he wasn't aware of the fund until the Jan. 19 audit, which ripped the organization for inappropriate executive spending and lax oversight, and didn't realize it was paying the bills for the sponsored stories until the newspaper told him.

It is unclear whether public money went into the Utah Municipal Cooperative II, Hiatt said, and whether the money should have belonged to the league in the first place.

"The water is murky," Hiatt said, adding the league and state Auditor John Dougall are trying to get to the bottom of it.

Depending on the finding, the sponsored stories in the Deseret News may be funded by public money.

The league's contract with Deseret Digital Media, obtained by The Salt Lake Tribune through an open-records request, shows the league agreed to pay $10,000 a month — $120,000 a year — to place sponsored stories on the website of the Mormon church-owned News.

The deal allows the league to post two sponsored stories a week that its staff writes on topics of its choice, and the News guarantees that links to them will be displayed "above the fold on most desktops."

Hiatt said former league executive director Ken Bullock — who resigned under fire last week for charging tens of thousands of dollars of personal expenses on the league's credit card — had told the board the project was not paid for with taxpayer money or dues from cities, but was funded by an outside donor.

That donor turns out to be the mystery fund that Bullock controlled.

Last week, the state auditor disclosed that Bullock charged $57,000 on the league's credit card, which the auditor viewed as interest-free personal loans because of belated payment. The Tribune had previously reported, using leaked documents, that most of the spending was for travel to see Bullock's son play college basketball.

The audit also questioned $130,000 in other expenses by Bullock. It said Bullock failed to disclose an additional $80,000 he was paid or reimbursed by what he contended was a private group, which turns out to be the fund paying for the sponsored stories in the News.

Hiatt said the fund is managed by four people — including Bullock, none of whom now has ties to the league — but is supposed to be used only to help the league.

"We have started our own internal review to see where these funds originated," he said. "If they are public funds, if they are member funds, then we would pursue recovering those."

After The Tribune asked the league and News about the situation Thursday, the News printed a front-page story Friday saying it had been paid for the league's sponsored stories with checks from the Utah Municipal Cooperative II.

The News provided only a brief response to several questions about the situation submitted by The Tribune.

"We entered into an advertising contract with the League of Cities and Towns in good faith," said Greg Peterson, president of Deseret Digital Media in charge of online operations for the News and KSL.

"It's meant to promote the local government and is an advertising vehicle for the League," he said.

The stories are clearly marked as sponsored by the league.

So, Hiatt said, "It does appear to be clearly delineated as an advertisement, not as a story. But maybe to the average person, it doesn't appear that way."

He defends the expenses for those stories, as long as they are eventually proven to be funded by proper donations and not taxpayer money.

"Any time you can get your message out there to show the purpose of what your local and state governments are doing for you … and you can get it out there with donations from outside entities, then great," he said.

"I'm certainly happy with the stories I've seen to date. The idea and the concept are positive."

Among headlines of the stories posted are: "We're looking out for you," "City of St. George opens new 'inclusive' park," "Bear River City celebrates its sesquicentennial," and "Community policing in Bountiful."

Hiatt says he is having trouble finding whether the league's board ever explicitly approved the $120,000-a-year contract with the News. He says the board was informed about it and approved a budget with money for it.

"Our procurement policies may not have required" a direct vote on the contract, he said. But changes were made in the wake of the critical audit and "at this point with our amended policy, I don't think the executive director on his own could make that same call."

He expects the league's board to revisit the contract and how it was made.

The News did not respond to whether the contract has affected in any way its news coverage of the league.

That newspaper had not covered earlier problems by the league what were covered by other news outlets, including stories on former administrator Michelle Reilly's resignation after she was found to have charged thousands of dollars in personal expenses to the league; changes in policy that followed that; and how Bullock charged big travel expenses, and reimbursed them months later.

The News first covered the issues when the state auditor's report was released last week. Months earlier, in October, several News staffers attended a league board meeting where reforms in the wake of Reilly's resignation were discussed but the newspaper did not publish a story. Staffers were there to talk only about the project to feature sponsored stories.

Also, among more than $40,000 in questionable meal charges on ULCT credit cards previously reported by The Tribune, based on leaked documents, was $267 for four dinners at the Bout Time sports bar and grill with a News reporter.

Bullock earlier told The Tribune that some of the dinners with the reporter were to discuss how the ULCT could improve its news coverage. He also said some of the thousands of dollars in meal charges were paid out of private donations the league receives from businesses — donations that Bullock said made up about 18 percent of the ULCT budget.

The league is funded mostly by member cities to lobby on their behalf, help train their staffs and do research.

On Wednesday, the league held a lunch for all members of the Legislature. It bused them to the Salt Palace to eat and listen to the league's legislative priorities.