State Auditor Adam Edelen has released the audit of the sheriff’s settlement–2013 taxes for 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 sheriff’s settlement presents fairly the taxes charged, credited and paid of the Clinton County Sheriff in accordance with generally accepted accounting principles in the United States. The sheriff’s settlement is prepared on the regulatory basis, which is described in the auditor’s opinion letter. Regulatory basis reporting for the sheriff’s settlement is an accurate reporting methodology, and this reporting methodology is followed for all 120 sheriff settlements in Kentucky.

The audit found that the sheriff’s financial statement fairly presents the taxes charged, credited and paid, for the period, April 16, 2013 through April 15, 2014 in conformity with the modified cash basis of accounting.

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 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 110 deposits were made into the 2013 tax account. The auditor found that 29 of these deposits did not clear the bank within three (3) business days. In addition, the auditor noted that four (4) of the deposits took ten or more business days to clear the bank.

The sheriff lacks control 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 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.

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 will do better.

The sheriff’s office lacks adequate segregation of duties over 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 opens incoming mail, collects tax payments, prepare deposits, prepares daily tax collection journals, and prepares monthly tax reports.

Limited budget places restrictions on the number of employees the sheriff can hire. When faced with limited number of staff, 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 Revenue and other taxing districts, which cold occur but go undetected.

A segregation of duties over various accounting functions, such as opening mail, collecting cash, preparing bank deposits, preparing monthly 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 daily responsibilities.

To adequately protect against misappropriation of assets and/or inaccurate financial reporting, the sheriff should separate the duties involving the opening of mail, collecting and depositing of cash, and preparing the monthly tax reports. If, due to a limited number of staff, this is not feasible, strong oversight in these areas should occur and involve an employee not currently performing any of those functions. Additionally, the sheriff can provide this oversight. If the Sheriff does implement compensating controls, these should be documented on the appropriate source documents.

Sheriff’s response: We will do better.

The sheriff’s responsibilities include collecting property taxes, providing law enforcement and performing services for 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 ensure that public resources are protected, accurately valued, properly accounted for, and effectively employed to raise the quality of life of Kentuckians. Call 1-800-KY-ALERT or visit our website to report suspected waste and abuse.