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Audit finds nine issues with Fiscal Court

The latest audit of the McCreary County Fiscal Court noted several instances of improper procedures and insufficient control over finances – issues that have been brought to light by audits in the past.


The latest audit of the McCreary County Fiscal Court noted several instances of improper procedures and insufficient control over finances – issues that have been brought to light by audits in the past.

Tuesday Auditor of Public Accounts Mike Harmon released his audit of the financial statement of the McCreary County Fiscal Court for the 2014-15 Fiscal Year.

A total of nine issues with financial management were found in the report, including issues with payroll, loans and payments.

The first issue concerned a lack of proper purchase and procurement procedures, where the audit found deficiencies in 66 fiscal court disbursements tested for the year.

Those included: 11 expenditures paid when funds were not available, 34 disbursements issued without purchase orders, 12 disbursements without supporting documentation and 19 invoices not being paid within 30 days.

Judge Executive Doug Stephens’ response to the issue noted the new finance officer has reconciled many of the issues and adjusted procedures to move forward without the problems recurring.

Auditors found the county’s payroll account was not reconciled correctly, the second year this has been noted.

The report states the payroll account did not have a zero balance at the end of the fiscal year; carrying a balance of over $82,000 that can not be readily explained.

It also noted the account had not been properly reconciled since 2011, and any reconciliations are not being reviewed.

In Judge Stephens’ response he stated, as in the previous year, that the finance officer and treasurer both using the same accounting software should eliminate the problem. He also noted that with more than 10 years of not being able to reconcile the account, the best course of action would be to transfer the irreconcilable balance to other accounts and begin new with a zero balance.

The third issue found the fiscal court did not have sufficient control over payroll.

Auditors found 13 of 18 employees with a time sheet with out supervisor approval, one employee’s time uncoded and a timesheet with overtime recorded, but no record of the payment being made.

Judge Stephens’ response stated all issues have been corrected.

Credit card disbursements were noted as having a lack of proper internal control. Issues noted included two payments were made without documentation, finance charges of $139 and late fees of $234 were assessed, four payments for meals were not itemized and two receipts were missing.

Judge Stephens’s response stated his office and the magistrates primarily use the credit card for travel purposes and all efforts to properly document all use and avoid late fees are being taken.

Issue five dealt directly with penalties and interest paid on late payments.

According to the auditors a total of $3,065 was spent on interest and penalties in FY 2015 and $1,336 in FY 2016 that could have been used for other purposes.

“Sufficient cash flow remains an issue and payments are occasionally made later than 30 days,” Judge Stephens said in his response. “I believe the process implemented by this office and the staff, and internal changes that have been made, will minimize late payments and penalties.”

Two issues were found concerning the county’s revolving loan program and the use of funds in the account.

Firstly, auditors questioned the use of $10,000 of revolving loan funds as a match for a Rural Business Enterprise Grant. It was noted funds in the revolving loan program, financed with the USDA Rural Business Enterprise Grant, are to be used only for that program.

Judge Stephens disputes the issue, claiming discussions with USDA officials indicate that the money loses its federal identity once it passes through a loan and is returned as payment. Additionally, he stated, the fund is also funded through other sources as well.

“We therefore, still believe we were justified in utilizing money from those funds to provide our ‘match’ but will pursue discussions with the USDA and will correct the issue if our action is determined to be improper.”

The second issue has been a long-standing concern over the loan program itself.

According to the report a total of 34 loans totaling $1,586,245 were made under the program since June 2000.

Of those loans only six had been paid in full at the end of last fiscal year, totaling nearly $428,000. Seven of the loans are considered active and making payments with an outstanding balance of just over $225,000.

Uncollected loans total more than $900,000, with about $800,000 considered uncollectable loans.

Nine of the loans have filed for bankruptcy, one loan is in litigation, and seven are considered inactive. In total 14 of the 34 loans have been submitted to the County Attorney for legal action. Those loans represent about $563,000 in outstanding principal and interest.

The Fiscal Court has taken steps over the past year to resolve some of the outstanding loans by negotiating with loan holders in an effort to collect. The audit report ends as of June 2015 and does not take any new collections or actions in to account.

Four loans were highlighted and identified as being issued to a board member, a relative of a board member or a county employee.

One loan of $15,000 was listed as issued to the Deputy Judge and his wife in 2008 (prior to his hiring as Deputy Judge). The loan is listed as inactive with a last payment received in October 2010 with an interest rate of 6 percent.

A loan of $75,000 was issued to the Deputy Judge’s mother-in-law in 2011 with an interest rate of 3 percent. Only two payments were received in 2015.

Both of those two loans have been turned over to the McCreary County Attorney’s Office for collection the audit notes.

Judge Stephens noted the Deputy Judge had no input or authority over any loans and has been actively attempting to resolve the outstanding debt.

A 2009 loan of $60,268 was issued to the President of the Loan Board with an interest rate of 1.25 percent.

The President at that time was Rick Stephens, and the loan was made to the McCreary County Voice. That loan was paid in full this fiscal year, and had never been in arrears.

One loan, totaling $50,000 was issued in 2006, was issued to a relative of the President of the loan board, who later filed bankruptcy in 2010. Judge Stephens acknowledged the auditors made an error listing the loan as there is no relation between the two parties.

It should also be noted that the Loan Board did not have authority to issue the loans; the Board reviewed all applications and forwarded recommended loans to the Fiscal Court who had final authority to issue or reject any loans.

Judge Stephens’ response mirrors the response issued for the past several audit reports: “The problems with loan program (sp.) have plagued my administration since the beginning,” he states. “Prior to my administration, the program was not managed by the Fiscal Court and not properly audited, so many of these instances were not revealed until recent audits. Since I have taken over management of this program, my staff has worked closely with the USDA to ensure we are properly managing the program.”

“By action of the Fiscal Court, in an attempt to adequately resolve the outstanding and delinquent loans, we are working with the County Attorney’s Office to pursue resolution and/or enforcement of the collection of delinquent loans and are working with all amiable loan holders to renegotiate the terms and ensure proper security documents are filed.”

Two final issues noted the county did not maintain accurate capital asset records, and lacking proper segregation of duties over accounting functions.

The audit of County Clerk Eric Haynes’ office was also released Tuesday with only one issue being found.

As is typical for a small county office, the only comment was the lack of adequate segregation of duties.

The full audit report can be viewed online at

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