A legislative audit alleged several employees with the state Division of Vocational Rehabilitation apparently violated ethics laws.
The audit also cited poor morale, allegations of favoritism, improperly spent funds and instances of state computers used to view pornography at the agency, in a report released Wednesday.
"The common factor that allows these types of problems to continue is a poor management control environment," the audit said, adding that officials there demonstrate "little respect for the necessary rules that make government accountable to the people."
Labor Commissioner Ed Flanagan, who oversees the agency, disputed the report's findings and said its allegations were either sensationalized, misrepresented or inaccurate.
"Unfortunately, no one audits the auditors," said Flanagan. "They are a bunch of Ken Starrs over there. They ran down every rabbit trail."
Ken Starr was the special prosecutor who investigated President Clinton.
The Legislative Audit Division will turn over its ethics findings to the attorney general's office for review. The division would not disclose the names of the employees or the specifics of the allegations.
The Legislative Audit Division began probing the department as part of an annual three-year review of state funds. It later expanded the investigation at the approval of the Legislative Budget and Audit Committee, which voted Tuesday to release the report.
"We will be looking for a response from the Department of Law for what action they deem appropriate, and why," said Sen. Gene Therriault, a North Pole Republican who is chairman of the committee.
Among the findings:
A client received $230,000 worth of services that the audit suggests came at the encouragement of the governor's office. Bob King, press secretary to Gov. Tony Knowles, said he had not seen the audit.
Flanagan denied that Knowles interceded in the case, but said the governor's office may have inquired about it as part of "constituent services" that politicians provide.
The division gave Challenge Alaska, a nonprofit group that hosts an annual wheelchair race, more than $15,900 over three years. Some funds were improperly used to purchase awards and others came only after the federal education department refused the group a grant.
The division indulges in acts of favoritism, improperly rewarding unqualified employees, and manages by intimidation and retribution. Recommendations from a $5,200 contract to examine morale at the division's Disability Determination Services office went unheeded.
One state computer had been used to view pornographic Web sites, and inappropriate pictures were found on its hard drive.
In his response, Flanagan disputed most of the audit findings. He was particularly critical of the alleged ethical violations.
One such ethics violation involved an employee who mistakenly used a state credit card to purchase personal items, Flanagan said.
"It was an inadvertent mistake that never cost the state a dime. That's just typical of the way this audit is reflected," Flanagan said.