State Auditor Mike Harmon has released the audit for the financial statement of the Clinton County Fiscal Court for the fiscal year ended June 30, 2019. State law requires annual audits of county fiscal courts.

Auditing standards require the auditor’s letter to communicate whether the financial statement presents fairly the receipts, disbursements, and changes in fund balances of the Clinton County Fiscal Court in accordance with accounting principles generally accepted in the United States of America. The fiscal court’s financial statement did not follow this format. However, the fiscal court’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 115 of 120 fiscal court audits in Kentucky.

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

The audit contains the following comments:

* The county failed to maintain supporting documentation. (Some) documents had to be requested from other sources or were created.

County Judge/Executive’s Response: This audit has been conducted under two separate administrations. From July 1, 2018 through January 7, 2019 was prior administration. The current administration began at that time and though it’s hard to tell when the errors were made, I can only speak for what we have done since that time and say that we are working to correct the errors listed in this report. Personnel changes have been made to rectify errors that occurred through June 30, 2019.

Reconciliation has been done monthly since July 1, 2019. All training letters are being kept in a file on site in the judge’s office.

* The county failed to properly reconcile the payroll revolving account and account for liabilities. This is a repeat finding and was included in the prior year audit report. A bank reconciliation for the payroll revolving account was not presented. After reconciling the account, it was determined that the account had a negative reconciled balance of $61,248 as of June 30, 2019. Unrecorded liabilities were the main contributing factor to the negative balance totaling $140,825. The aforementioned liabilities included past due state taxes, federal taxes, and retirement contributions not properly remitted to their respective agency.

County Judge/Executive’s Response: As of July 1, 2019 all reconciliations are done monthly.

* The county failed to implement proper internal controls over disbursements. This is a repeat finding from the prior year audit and listed several deficiencies in procedures.

County Judge/Executive’s Response: All documents are verified by three personnel.

* The county did not maintain adequate internal controls over cash, receipt, and reporting processes.

County Judge/Executive’s Response: As of July 1, 2019 reconciliation reported monthly to Fiscal Court for acknowledgement and approval during Fiscal Court meetings.

* The county failed to implement adequate internal controls over payroll, a repeat finding.

The listing included: three employees did not sign or approve time sheets; four supervisor signatures were missing from time sheets; FICA withholds were incorrectly computed due to retirement being deducted from taxable wages; one employee had five percent withheld for retirement instead of the required six percent.

Due to FICA withholding being calculated and paid incorrectly, the county may be liable for penalties, interest and paying the unpaid FICA retirement.

County Judge/Executive’s Response: Since July 1, 2019 procedures implemented for biweekly inspection by three personnel.

* The county failed to properly reconcile retirement reports to payroll reports, a repeat finding. Discrepancies were noted between amounts reported to the County Employees Retirement System (CERS) and the county’s payroll reports. The following errors and problems were noted:

— Detailed retirement reports and invoices are not printed and maintained in the fiscal court’s records to document the payments made to retirement.

— Retirement contributions were not properly recorded to disbursement ledgers.

— The amounts reported for gross salaries on the retirement reports did not agree with gross salaries per the payroll summaries.

Improper reporting and payment of retirement may lead to employees not being credited properly for retirement benefits. In addition, improper reporting may lead to penalties and interest being assessed by the Kentucky Retirement System.

County Judge/Executive’s Response: As of July 1, 2019 monthly reconciliation is performed before reporting retirement reporting.

* The jailer did not have adequate segregation of duties over accounting functions of the jail commissary and inmate accounts, a repeat finding. A lack of segregation of duties existed over jail commissary, receipts, disbursements and bank reconciliations.

A lack of segregation of duties exists as a result of oversight by the jailer and staffing limitations due to budget restraints.

County Judge/Executive’s Response: Previous administration prior to January 7, 2019 cannot comment. New jail personnel has corrected this issue.

County Jailer’s Response: Due to limited staff this is unavoidable, but have implemented dual control on all.

* The jailer’s annual commissary report was not accurate and was not presented to the county treasurer as prescribed by the State Local Finance Officer. The report presented for the audit only covered six months of the fiscal year instead of 12 months. The beginning balance, receipts, and disbursements were understated by $10,041, $26,391, and $30,616, respectively. In addition, a receipt was incorrectly accounted for in the current year that resulted in the ending balance being overstated by $203.00.

We recommend the jailer prepare and submit to the county treasurer in a timely manner an accurate annual jail commissary report.

County Judge/Executive’s Response: Previous administration, prior to January 7, 2019 cannot comment. New jail personnel has corrected this issue.

County Jailer’s Response: Was not aware of standard until this audit.

* The jailer did not have adequate controls over jail commissary disbursements, a repeat finding.

It noted in six instances where items were purchased at a cost of $1,096 including repair and maintenance supplies, office supplies, and leg irons that should have been purchased from the fiscal court’s jail fund and recommended the fiscal court reimburse the jail commissary for that amount.

County Judge/Executive’s Response: Previous administration prior to January 7, 2019 cannot comment. New jail personnel has corrected this issue.

County Jailer’s Response: Agree to fully comply.

* The county did not annually review the administrative code and make any changes or revisions deemed necessary. During the review of the fiscal court minutes, we were unable to find where the fiscal court performed the required annual review of the administrative code. In addition, the auditor noted that the ethics code and personnel policy appear not to have been updated for several years.

KRS 68.005 requires the fiscal court should review the administrative code annually before the end of the fiscal year and recommended the fiscal court review the administrative code, ethics code, and personnel policy and make the necessary changes and modifications as appropriate.

County Judge/Executive’s Response: County Attorney is revising and updating all policies.

* Disbursements exceeded approved budgeted appropriations, a repeat finding. Disbursements exceeded approved budgeted appropriations for the general fund, jail fund, LGEA fund, ambulance fund, and 911 fund.

Failure to amend the budget or exceed budgeted appropriations is a violation of Kentucky Revised Statutes. We recommend fiscal court comply with KRS and DLG requirements by budgeting all fiscal court disbursements and debt by amending the budget as necessary to reflect unanticipated receipts and disbursements.

County Judge/Executive’s Response: Budget was approved by previous administration. Changes will be made in the Budget for 2020-2021 Fiscal year.

* The county failed to prepare a Schedule of Expenditures of Federal Awards. We recommend the county prepare and submit a Schedule of Expenditure of Federal Awards to DLG (Department of Local Government) as required.

County Judge/Executive’s Response: Will be implemented in the next fourth quarter.

* The treasurer did not prepare annual settlement and adhere to the publishing requirement. The county did not present a treasurer’s settlement to the fiscal court for approval at the end of the fiscal year, and failed to publish the released audit report in according with KRS statutes.

We recommend the treasurer prepare and present a treasurer’s settlement and adhere to the publishing requirements.

County Judge/Executive’s Response: Personnel from previous administration, will be corrected on next settlement.

* County failed to accurately report activity of the general fund in the fourth quarter financial report. We noted that the general fund was overstated by $11,689. This occurred due to disbursements in the tourism account and tri-county animal shelter account not being accounted for in the financial reporting system.

County Judge/Executive’s Response: Prior treasurer and administration, efforts have been in place to correct since July 1, 2019.

* The county failed to maintain adequate cash balances in bank accounts. This is a repeat finding. The county failed to properly transfer funds into the general fund, jail fund, ambulance fund, and payroll revolving account. The finding also gives a breakdown of the dates and balances in which each situation occurred.

As a result, the county incurred $110 in service charges and was in noncompliance with DLG requirements.

We recommend the county either perform cash transfers or refrain from disbursing funds when available balances are insufficient.

County Judge/Executive’s Response: Previous county treasurer did not reconcile, has been corrected in current administration.

* The county failed to properly disclose debt on the quarterly financial report. The auditor was unable to locate the liabilities page that should have been submitted to the Department of Local Government. During the year, the county entered into an agreement for the purchase of Stryker cots for the ambulance service in the amount of $52,710. The ending balance should have been reported on the fourth quarter financial report as of June 30, 2019 was $42,710.

The county was not aware of the requirement to disclose debt on the fourth quarter financial report.

We recommend the fiscal court properly disclose all debt on the quarterly financial reports.

County Judge/Executive’s Response: Miscommunication of filing status.

* The county failed to establish proper controls over the Local Government Economic Assistance (LGEA) fund that resulted in noncompliance.

The lack of oversight and understanding of allowable disbursements from the LGEA fund resulted in the deficiencies.

County Judge/Executive’s Response: Previous administration, payroll adjustments have been made. Account codes have been corrected.

* The county failed to properly code and record receipts…we noted 64 instances where receipts were posted to incorrect account codes totaling $510,278. In addition, the county failed to account for the receipt from the financing of medical equipment totaling $52,710. Also, the county incorrectly deposited $82,971 in the general fund that should have been deposited into the road fund.

We recommend that the county ensure receipts are posted and accounted for properly.

County Judge/Executive’s Response: Previous county treasurer, funds will (be) reimbursed before next fiscal year.

* The general fund has a deficit balance of $60,452, as of June 30, 2019.

The general fund deficit was due to outstanding payroll liabilities and monies owed to the road fund.

We recommend the road fund liability and payroll account deficit be properly remedied.

County Judge/Executive’s Response: Corrections in place.

* The county failed to properly remit taxes. This is a repeat finding. The county failed to properly remit taxes to the IRS and Kentucky Department of Revenue. Two of six IRS payments for the year tested were not made timely of which one remained unpaid six months later. Additionally, six state tax returns for the quarter tested was not remitted timely and remained unpaid six months later.

Federal and state taxes were not remitted in accordance with required withholding deposit schedules which may result in penalties and interest being incurred.

We recommend the fiscal court implement internal controls over payroll reporting and implement strong oversight over tax payments to state and federal entities.

County Judge/Executive’s Response: All previous administration, all state and revenue taxes have been paid in full by the current administration.

* The county failed to timely file and pay retirement. The fiscal court reported and paid the retirement payments for the month of April 2019 on June 5, 2019, after the statutory deadline. This late payment resulted in the county incurring late penalties.

We recommend the county establish procedures and internal controls to ensure retirement is properly reported and paid into the County Employees Retirement Systems (CERS) correctly.

County Judge/Executive’s Response: Previous administration and treasurer, monthly corrections are being made to retirement’s satisfaction.

As previously stated, the audit in its entirety can be found on the state auditor’s web page.