State Auditor Adam Edelen has released the audit of the 2013 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 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. This reporting methodology is followed for all 120 sheriff audits in Kentucky.

As 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 contains the following comments:

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 of his office. Our examination of receipts and disbursements indicated in January 2013, the Sheriff transferred $20,000 from the Drug Eradication account to the 2013 fee account to cover operating expenses of his office. However, in December 2013, the 2013 fee account reimbursed the Drug Eradication account to correct the error.

KRS 134.16(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: It has been paid back to the account.

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 175 deposits were made into the 2013 fee account. The auditor found 92 of those deposits did not clear the bank within three (3) business days. In addition, the auditor noted that twenty-five (25) of the deposits took over nine business days to clear the bank.

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

The Department for Local Government (DLG) was given the authority by KRS 68.210 to describe 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 noncompliance 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 are short handed and we will do better.

The sheriff’s office lacks adequate segregation of duties over all accounting functions. A lack of adequate 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 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 for Local Development, which could occur, but go undetected.

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

* All Receipts Were Not Accounted For In The Appropriate Year.

* Receipts Were Not Deposited On A Timely Basis.

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 of the opening of mail, depositing of cash, posting of transactions to 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 those functions. Additionally, the sheriff could provide this oversight. If the sheriff does implement controls, these should be noted on appropriate source documentation.

Sheriff’s response: We are short handed in office and we are trying to do better.

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.

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 Kentucky. Call 1-800-KY-ALERT or visit our website to report suspected waste and abuse.