Some questionable expenditures in the workers' compensation budget should have been charged under the director's business expense allowance, a state auditor says.

Jason Wahl with the state auditor's office took the stand again Wednesday, this time in response to a subpoena from the defense in the trial of felony misapplication of public funds against former Workforce Safety and Insurance director Charles "Sandy"Blunt.

In cross-examination, Burleigh County Assistant State's Attorney Cynthia Feland questioned Wahl about a 2006 audit of the agency's possible misspending of funds on gift cards and meeting expenses, asking if some of the expenses reimbursed to Blunt should have been absorbed into an $18,000 living and business expense fund he received above his salary.

Wahl said they should have been paid through Blunt's account; those expenses equaled a little more than $600 and were incurred from August 2004 to February 2006, according to court documents.

Wahl went on to say that as an agency head, Blunt would have to be held personally accountable for all of the items considered questionable, including an item purchased for Blunt's own welcome reception on the week he began work for the agency.

Previous testimony from former employee Angie Scherbenske outlined that at least one of the practices he is being held responsible for -giving gift cards as rewards for good employees - was in place before his tenure.

Blunt is facing two felony charges of misapplication of public funds, including charges related to spending agency money on awards and employee meetings, sick leave for an employee who was not physically ill and charges relating to alleged illegal bonuses. In total, the charges add up to more than $41,000.

The trial may be reaching its conclusion, as defense attorney Michael Hoffman told presiding South Central District Judge Bruce Romanick in the courtroom Wednesday that he expects to wrap up his side today.

The prosecution had rested its case by lunchtime Wednesday, after testimony from their final witnesses, including testimony from Scherbenske identifying a "culture of fear"at the agency.

"Istruggled with upper management's procurement practices,"said Scherbenske, who worked as a procurement officer with the agency and now works at the Office of Management and Budget. She went on to describe that she often questioned practices and in fact coordinated procurement training for management, but that she conducted business under guidance of her supervisor, and ultimately, Blunt.

"It was my job and there was a culture of fear there,"she said.

She outlined all of her concerns during her exit interview with the agency, she said, which were then flagged by the agency's human resources manager and sent on to OMB. The former director of risk management at OMB, Johanna Zschomler, testified about OMB's launch of an external audit of the WSI's procurement and financial practices in response to Scherbenske's claims.

Zschomler said the audit, completed by local accounting firm Brady Martz &Associates, was highly contested by Blunt, who disagreed with what was outlined as inappropriate spending. Blunt said in a terse a letter to Zschomler that he had sought guidance about expenditures - including meeting expenses, employee awards and gift certificates - and that the agency had the authority to make the purchases.

Although the two disagreed about that authority, Zschomler testified, through questioning from Hoffman, that Blunt agreed to discontinue the practices.

Hoffman called two former members of the agency's board of directors as witnesses -Evan Mandigo and Bob Indvik - as well as current agency attorney Tim Wahlin.

Mandigo and Wahlin both testified about the perceived illegal bonuses given to four employees; each said they disagreed with the state auditor's assessment that a portion of the retroactive pay given to the employees was considered a bonus. At issue is more than $7,000 the auditor's office considered above and beyond what the employees were entitled to in their retroactive pay.

Each employee was given an increase related to a performance evaluation and an increase to bring them up to industry standards; the employees in question received additional salary increases above those two conditions. When applied retroactively, the state audit said, the final increase is considered a bonus.

Wahlin did not agree with splitting up the increases, saying that if retroactive payments were acceptable for the first two amounts, it should be acceptable for all of them.

"Peeling off one portion of the three, I can't get my head around that either way,"he said.

Indvik, former board chair who resigned in January 2008, said Blunt was given direction from the board to run the agency like a private business and to keep the stigma of politics and bureaucracy out of the agency.

(Reach reporter Crystal R. Reid at 250-8261 or at crystal.reid@;bismarcktribune.com.)