By Greg Bird
Auditor of Public Accounts Mike Harmon released the 2016-17 audit of the McCreary County Fiscal Court last week, highlighting 11 areas where improper procedures were followed or need better control.
The 61-page document examines the McCreary County Fiscal Court’s financial statements for the fiscal year, and presented comments on findings of noncompliance and material weaknesses involving internal control over financial operations and reporting.
Nine of the findings were repeated from last year, and in some cases several years prior, while two were new to the audit report. Judge Executive Doug Stephens responded to each finding with a comment on how the Fiscal Court was addressing the issue.
The first of the new findings state the Fiscal Court did not budget two funds: the 10 Commandments and dedicated park fund. Judge Stephens noted the two funds were closed and the funds expended for their dedicated purposes.
Secondly, the auditors found transfers were made between some budget funds without approval from the Fiscal Court. They found 92 transfers in the budget year, with only three getting approval prior to being made, 84 were approved after the fact, and three did not receive any approval.
In the official response Judge Stephens stated a plan is in place to minimize the number of accounts in the budget to alleviate the issue.
One recurring finding involves penalties and interest charges as a result of non-timely payments on invoices.
Auditors found late fees and penalties totaling $4,943 paid over the course of the fiscal year due to finance charges and late fees on credit card statements, equipment purchases and payroll tax payments.
KRS 65.140(2) requires bills for goods and services are paid within 30 days of receipt unless a prior arrangement has been made.
Judge Stephens’ response noted some of the late payments were a result of some bills being received late, and not being able to be added to the Fiscal Court agenda for payment in time. He also stated cash flow has improved since the Fiscal Court added an additional half percent to the occupational tax, which should alleviate further late payments.
“Most of the issues have been resolved with additional cash flow due to the increase in revenue with the occupational tax increase,” Stephens wrote.
Two comments concerned the USDA Grant agreement and the revolving loan program.
Auditors state they believed the matching funds provided by the County for the terms of the grant program should not come from repayments from the loans.
Judge Stephens responded by stating the money, once it has passed through the program, is eligible to be used for such a purpose. His response also noted the money in the revolving loan account is from other sources as well.
On the loan program itself, the Auditors state, for the sixth consecutive time, that the fiscal court does not have sufficient monitoring or internal controls over the program.
The report states the Fiscal Court refinanced 12 outstanding loans with a 1 percent interest rate, but due to incomplete records the new beginning balances could not be verified accurately. Additionally, Judge Stephens’ had told auditors the decision to refinance was discussed and approved by the USDA, but did not attain the approval in writing and the USDA official granting the approval was now retired.
Auditors found the fiscal court did not have sufficient internal controls over payroll for the second year in a row.
Auditors tested 20 employees at random, finding four employees did not have a timesheet and six had a timesheet, but no supervisor approval. One employee was granted a vacation leave payout, which was allowed, but Judge Stephens had failed to approve it, which is required. It was also noted that the magistrates and coroner did not submit timesheets to justify their insurance and retirement benefits.
Stephens’ response to the first issues was that the “problems listed will be resolved.” As to the magistrates and constables, he noted they are elected officials, with no set schedule, and as such are not required to submit timesheets.
Another repeat finding concerned not properly reconciling the payroll account. Auditors noted the last fiscal year ended with an unexplained balance of about $61,000.
The same issues had been noted in the previous five audits, and Judge Stephens acknowledged as much in his response: “We agree with the ending balance in the payroll account, as these numbers are exactly what we show in our reconciliations,” he said. “This fund has been out of balance for many years with no obvious explanation for the excess. We are looking to eliminate continued accumulation of funds in this account…”
Auditors also noted the Fiscal Court does not have proper purchase and procurement procedures. Among issued found were: three invoices that were bid did not have sufficient documentation, 12 were not paid timely, 32 did not have a purchase order and one invoice for $222 was paid twice.
Stephens noted procedures have been implemented to minimize the deficiencies and previously some invoices did not require a purchase order.
One finding stated the Fiscal Court did not maintain accurate capital asset records. Stephens noted the errors were “due primarily to tabulating on a calendar year verses a fiscal year,” and should be corrected.
Auditors also noted the county lacks segregation of duties over all accounting functions: a common finding in all local audits as a lack of personnel makes it difficult to provide enough staff to satisfy the requirements.
The full audit can be found online at www.auditor.ky.gov.