State Auditor Adam Edelen has released the audit of the 2012 financial statement of Clinton County Sheriff Ricky Riddle. State law requires the auditor to annually audit the accounts of each county sheriff. In compliance with this law, the auditor issues two sheriff’s reports each year: one reporting on the audit of the sheriff’s tax account and the other reporting on the audit of the fee account used to operate the office.

Recent changes in auditing standards require the auditor’s letter to communicate whether the financial statement presents fairly the revenues, expenditures and excess fees of the Clinton County Sheriff in accordance with generally accepted accounting principles in the United States. The report found that the financial statement of the sheriff did not follow this format; however, the sheriff’s financial statement is fairly presented in conformity with the regulatory basis of accounting, which is an acceptable reporting methodology.

As a part of the audit process, the auditor must comment on non-compliance with laws, regulations, contracts and grants. The auditor must also comment on material weaknesses involving the internal control over financial operations and reporting.

The audit will be referred to the Attorney General.

The audit contains the following comments:

The sheriff should eliminate the $1,654 deficit in the 2012 fee account. During the course of the audit it was noted the sheriff had a $1,654 deficit in his 2012 fee account. This deficit is due to unrecorded and undeposited receipts of $1,605 and $49 in disallowed expenditures.

Based upon receipts in the County Clerk’s office, we determined the sheriff’s office inspected a total of 483 vehicles that were licensed in Clinton County during 2012. No receipts were issued and no funds were deposited for 321 of these inspections. Due to a lack of an adequate segregation of duties, the undeposited receipts were undetected. KRS 186A.115 states, “there shall be a five dollar ($5) fee for this certification, payable to the Sheriff’s office, upon completion of the certification.” Based on this statute, the sheriff’s office should have collected and deposited into the fee account an additional $1,605 for auto inspections during 2012.

During the audit, we noted the sheriff had $49 of disallowed expenditures in the 2012 fee account. The sheriff’s office was charged $49 by the bank for overdrawing the 2012 fee account on numerous occasions. In accordance with Funk v. Milliken, 317 S.W.2d 499 (KY1958), expenses made through the fee account must be necessary for the operation of the office, reasonable in amount, beneficial to the public, not predominantly personal in nature, and supported by adequate documentation. Bank overdraft fees are not necessary expenses of the office.

We recommend the sheriff deposit personal funds by check of $1,654 in the 2012 fee account to cover the deficit. We further recommend the sheriff should accurately record and deposit all monies received. Proper fees for auto inspection should be collected, accurately accounted for, and deposited into the fee account. In addition, all expenditures should be in compliance with Funk v. Milligen, 317 S.W.2d 499 (KY 1958).

Sheriff’s response: The money will be paid and we acted on good faith on collecting it that the folks who didn’t have funds with them at that time would come back and pay, but didn’t.

The sheriff should account for all receipts in the appropriate accounts. The sheriff engaged in the practice of transferring funds between multiple accounts in order to cover operating expenses in his office. Our examination of receipts and disbursements indicated the following:

a) In January 2012, the sheriff transferred $15,000 from the Drug Eradication account to the 2012 fee account to cover operating expenses of his office. However, in January 2013, the 2012 fee account reimbursed the Drug Eradication account to correct this error.

b) In July 2012, the Sheriff transferred $10,000 from the Drug Eradication account to the 2012 fee account to cover operating expenses of his office. However, in May 2013, the 2012 fee account reimbursed the Drug Eradication account to correct this error.

KRS 134.160(5) states, “Other than as permitted for investments and expenditures by this chapter, the sheriff shall not apply or use any money received by him for any purpose other than that for which the money was paid or collected.

We recommend the sheriff refrain from making loans to various accounts, and that all receipts are deposited to the appropriate accounts.

Sheriff’s response: We do this because we start off with a zero balance at the first of the year and need to pay bills and payroll until our budget is passed and state advancement gets to us and we pay it back when that’s done.

The sheriff should deposit receipts intact on a daily basis. During the course of the audit, we noted that deposits were not made in a timely manner. Our review indicated a total of 131 deposits were made into the 2012 fee account. The auditor found that 61 of these deposits did not clear the bank within three (3) business days. In addition, the auditor noted that eight (8) of the deposits took over nine business days to clear the bank. The auditor also noted penalties totaling $49 were charged due to instances of the account being overdrawn.

The sheriff lacks control over the deposit process and does not provide adequate oversight in this area.

The Department of Local Government (DLG) was given the authority by KRS 68.210 to prescribe a uniform system of accounts. The minimum requirements for handling public funds as stated in the Instructional Guide for County Budget Preparation and State Local Finance Officer Policy Manual require that deposits be made daily. Additionally, the practice of making daily deposits reduces the risk of misappropriation of cash, which is the asset most subject to possible theft. Also, when deposits are not made timely, the risk that the bank account can be overdrawn is increased.

This non-compliance has been addressed in prior year audits. However, the sheriff has not corrected this issue.

We recommend the sheriff immediately implement controls over the deposit process to assure deposits are made daily to comply with KRS 68.210.

Sheriff’s response: We will try to do better. We are understaffed and we do the best we can.

The sheriff should be earning interest on his official accounts. The sheriff does not earn interest on all of his official accounts. Funds deposited into the Sheriff’s Drug Eradication account and Drug Abuse Resistance Education (DARE) account is not earning interest income.

KRS 66.480(4) states in part, “(s)heriffs…may invest and reinvest money subject to their control and jurisdiction…” Additionally, depositing receipts in an interest bearing account would provide investment income beneficial to the office.

This non-compliance has been addressed in prior year audits. However, the sheriff has not corrected this issue.

We recommend the sheriff deposit all applicable receipts of his office into interest bearing accounts.

Sheriff’s response: We will change the account over to interest bearing.

The sheriff’s office lacks adequate segregation of duties over all accounting functions. A lack of segregation of duties exists over all accounting functions. During our review of internal controls, we noted the sheriff’s bookkeeper is responsible for opening incoming mail, receiving and recording cash, preparing of bank deposits, preparing the daily checkout sheets, posting to the receipts and disbursements ledgers, and preparing financial reports.

A limited budget places restrictions on the number of employees the sheriff can hire. When faced with a limited number of staff, strong compensating controls should be in place to offset the lack of segregation of duties.

Lack of oversight could result in misappropriation of assets and/or inaccurate financial reporting to external agencies such as the Department of Local Government, which could occur, but go undetected.

Additionally, because of a lack of adequate segregation of duties existed and because the sheriff did not provide strong oversight over the office, the following occurred:

* All receipts were not accounted for in the appropriate year.

* Receipts were not deposited on a timely basis.

* Penalties were charged for overdrawing the 2012 fee account on multiple occasions.

A segregation of duties over various accounting functions, such as opening mail, recording cash, preparing bank deposits, posting transactions to ledgers, and preparing financial reports or the implementation of compensating controls, when needed because the number of staff is limited, is essential for providing protection from asset misappropriation and/or inaccurate financial reporting. Additionally, proper segregation of duties protects employees in the normal course of performing their responsibilities.

To adequately protect against misappropriation of assets and/or inaccurate financial reporting, the sheriff should separate the duties involving the opening of mail, depositing of cash, posting of transactions to the ledgers, and preparing financial reports. If, due to a limited number of staff, that is not feasible, strong oversight over these areas should occur and involve an employee not currently performing any of these functions. Additionally, the sheriff could provide this oversight. If the sheriff does implement compensating controls, these should be noted on appropriate source documentation.

Sheriff’s response: We are short staffed and I do assist in processing mail “receipts” etc.

The sheriff’s responsibilities include collecting property taxes, providing law enforcement and performing services for the county fiscal court and courts of justice. The sheriff’s office is funded through statutory commissions and fees collected in conjunction with these duties.

The audit report can be found on the auditor’s website.

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The Auditor of Public Accounts ensures that public resources are protected, accurately valued, properly accounted for, and effectively employed to raise the quality of life of Kentuckians.

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