A legal battle involving the State Ethics Commission and the Office of State Auditor could end up costing taxpayers $40,000.

The N.C. Attorney General's Office has determined that it has a conflict in representing either party in a lawsuit the commission filed earlier this month, reports Dan Kane.

So both sides are hiring private lawyers to handle the matter. Gov. Mike Easley authorized an initial cap of $20,000 for each party.

Noelle Talley, a spokeswoman for the attorney general, said chief deputy Grayson Kelley had unsuccessfully sought to mediate the dispute.

The battle is over whether the commission has to comply with the auditor's investigation into an allegation of preferential treatment for Lt. Gov. Beverly Perdue, the Democratic nominee for governor. A Perdue aide visited the commission's office to review Perdue's financial disclosure statements and was allowed to look at them alone in a vacant office.

Since then, a log noting the arrangement was altered and the employee who made the notation has been fired. Ethics commission officials say nothing was improper in the visit and the employee was not fired as a result of the notation.

The State Ethics Commission is asking a Superior Court judge to prevent State Auditor Les Merritt from investigating a claim of preferential treatment for Lt. Gov. Beverly Perdue, the Democratic nominee for governor.

The suit claims that Merritt's office has a conflict of interest because its investigations chief, Frank Perry, left the ethics commission a year ago. The suit also claims that Merritt, a Republican seeking re-election, "denigrated" the commission in an hour-long interview with a radio station.

It is a rare case in which one state agency is suing another, reports Dan Kane.

"The commission welcomes an independent and impartial investigation by an appropriate entity that is free from actual and/or perceived conflicts of interest," the suit said.

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Lt. Gov. Beverly Perdue said it was a clerical error that caused a Florida development company to be dropped from her financial disclosure statements in 2003 and 2004.

"I had somebody transpose from one statement to the next," Perdue said. "I assume it was an oversight. There was never any intent" to mislead, Dan Kane and Mark Johnson report.

Her general counsel, Will Polk, went to the State Ethics Commission in October to correct the error. But the visit exposed controversy within the commission. Polk was allowed to review Perdue's statements alone in a closed office, causing a staffer to note the unusual treatment in a visitor's log.

The staffer was fired last month — hours after The News & Observer asked about the log and the commission's policy regarding outside reviews of its records.

Ethics officials said nothing improper happened with Polk's visit. State Auditor Les Merritt is investigating.

The company, BBA Development Corp., was dissolved last month, according to a filing with the Florida Department of State's office.

It was based in Bonita Springs and developed a golf course community there, according to the business web site Manta.com.

The State Ethics Commission met for about three hours behind closed doors today to discuss personnel matters, but took no action and offered no comment afterward.

The regularly-scheduled meeting took place amid controversy within the commission. A report in June by a consultant to the Office of State Personnel found a work environment that was dysfunctional and distrustful, Dan Kane reports.

Last month the commission's executive director, Perry Newson, fired an office assistant who had raised questions about preferential treatment to an aide to Lt. Gov. Beverly Perdue. The aide had visited the commission to review Perdue's statements of financial interest.

The office assistant, Amanda Thaxton, had made a notation about the visit that was later erased from the log.

Thaxton was present at the opening of the meeting, but left after the commission went into a closed session. She has filed a grievance over her firing and said she wanted to be present in case the matter came up for public discussion.

Tim Hoegemeyer, general counsel for the State Auditor's Office, also attended the open session. The auditor is investigating how the aide's visit was handled, and its aftermath.

An office assistant at the State Ethics Commission has raised questions about its own ethics.

Ten months ago, Amanda Thaxton made a notation in a public records log when an aide to Lt. Gov. Beverly Perdue was allowed to review her financial disclosure forms alone.

The Perdue aide "reviewed files in ... office alone with door closed," she typed into an electronic log.

Six months later, Kathleen Edwards, the assistant director who let the Perdue aide review the records, found the notation and removed it. Last month, after an N&O reporter asked about the log, executive director Perry Newson fired Thaxton, giving no reason.

"I think it was probably more than coincidence," she said.

The state auditor's office is investigating the incident. (N&O) 

A bill that would prevent the state auditor from investigating potential ethics violations cleared a House vote Thursday and is nearing final passage.

The bill, which designates the N.C. State Ethics Commission as the sole authority on ethics in North Carolina, has already cleared the Senate.

The bill came up after state Auditor Les Merritt began examining the ethics filings of Sen. Martin Nesbitt, an Asheville Democrat. Merritt and the commission disagreed on whether Nesbitt needed to report the business dealings of his adult son.

The bill, which must still have one more vote before the House, requires the auditor to refer potential violations of the ethics act to the commission. He or she must refer potential violations of elections laws to the Board of Elections and potential criminal violations to the SBI or a district attorney.

That would leave fraud, waste of government resources and mismanagement in the auditor's jurisdiction. Debate on the House floor Thursday broke into two positions: those who thought the law was simply a clarification and those who believed the law was unnecessary.

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A bill that would prohibit the state auditor from investigating violations of the state ethics act passed a key Senate committee Monday afternoon.

The bill would require the state auditor to turn over possible violations of the ethics act to the N.C. State Ethics Commission. The ethics act deals with possible conflicts of interest involving officials and their duties.

A similar bill in the House is scheduled for a committee Tuesday.

Lawmakers took up the change after State Auditor Les Merritt began investigating a senator over his son's business dealings. The N.C. State Ethics Commission sees no problem in the case. Merritt disagrees.

In a news release, Merritt said Monday that two eyes are better than one.

"I believe that this legislation is unnecessary because two watchdogs, the State Auditor and the Ethics Commission are better than one when it comes to uncovering abuses in state government," Merritt said in the release.

The problem with two eyes, ethics commission officials have said, is that in the ethics law is complex and in the case of a disagreement, officials would be unsure what to do.

The bill would also require the auditor to refer potential criminal matters over to law enforcement and possible election law violations to elections officials. That would leave waste and fraud as the auditor's main areas of responsibility.

The senate bill is 1875. The house version is 2544.

State Auditor Les Merritt released a report Tuesday on state Sen. Martin Nesbitt.

The report, at the center of a dispute over whether the auditor should investigate violations of the state ethics law, became public after Nesbitt waived his right to confidentiality for the State Ethics Commission to give its side, Ben Niolet and Mark Johnson report.

In the report, Merritt says he believes the Asheville Democrat should have disclosed on ethics filings that he worked with his son's racing team. Nesbitt was an unpaid crew chief.

Merritt's report details how Nesbitt and his son own a business that owns a warehouse that Nesbitt's son used as collateral for a loan for the racing team.

"It's hard to get around the fact that Nesbitt Ventures' business plan is to 'own and lease real estate' but their sole property is being used to provide financial backing to Nesbitt Racing," Merritt said. "Therefore, if Nesbitt Racing fails, which could happen if a major financial sponsor backed out, Nesbitt Ventures and its owners are left holding the debt."

But the ethics commission does not see a conflict because Nesbitt's son doesn't live with his father, which means his financial dealings are irrelevant to Nesbitt's.

"When (Merritt) doesn't like (the ethics commission's) opinion, he says, 'I'm going to apply my own law,'" Nesbitt said.

A bill to prohibit the auditor from looking into ethics cases is moving forward in the legislature.

Questions about state Sen. Martin Nesbitt's son's stock-car racing team are at the heart of an ethics feud.

The Asheville Democrat volunteers as a crew chief for his son Mart's Nesbitt Racing Enterprises and co-owns a Swannanoa garage used as collateral for the company's line of credit. Until recently, the racing team was sponsored by Blue Cross Blue Shield, the Asheville Citizen-Times reports.

The State Ethics Commission advised Nesbitt in 2007 that he did not need to disclose the relationship as a potential conflict of interest on the statement of economic interest filed by legislators. After getting a tip on the matter, Republican state Auditor Les Merritt's office looked into the case.

A spokesman for Merritt would not confirm the legislator in question is Nesbitt but said the auditor is "proceeding with caution" and "not wanting to send something out that could be illegal."

The investigation led to a dispute between the Ethics Commission and the auditor's office over which agency has the responsibility to enforce the state's ethics law.

A bill to prohibit the auditor from looking into ethics cases is moving forward in the legislature. 

A bill that would prohibit the state auditor from enforcing the state's Ethics Act will move forward.

The Legislative Ethics Committee voted to have the bill filed with the understanding that it's still got some kinks to fix. The bill would designate the N.C. State Ethics Commission, created in 2007 in response to a series of scandals, as the sole entity charged with enforcing the act.

The bill has come up because State Auditor Les Merritt, a Republican, has investigated a legislator for potential ethics violations. He supports having the ability to investigate ethics violations. Ethics Commission members and staff say that the commission is best suited to the job.

Merritt's chief deputy, Kris Bailey, told the committee Tuesday that the bill could interfere with the auditor's ability to do his job. At the minimum, audits would have to carry a sentence stating that the audit might be incomplete because of the limitations placed upon his office by state law.

Figuring out how to keep the auditor from the ethics act without interfering with his other duties will be the next task for the committee, members said.