State Auditor Adam Edelen has released the audit of the 2011 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.

The audit found that the sheriff’s financial statement presents fairly the revenues, expenditures, and excess fees of the Clinton County Sheriff in conformity with the regulatory 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 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 the following:

a) In January 2011, the Sheriff transferred $15,000 from the Drug Eradication account to the 2011 fee account to cover operating expenses of his office. However, in March 2012, the 2011 fee account reimbursed the Drug Eradication account to correct the error.

b) In July 2011, the Sheriff substantially overpaid a vendor’s invoice. The amount of the overpayment was credited to the Sheriff’s charge account. Rather than correcting the issue, the Sheriff used this credit balance to cover future purchases. As of December 31, 2011, the account had a credit balance of $1,248, which subsequently has been utilized for purchases during calendar year 2012. The 2012 fee account has not reimbursed the 2011 fee account to correct this error.

KRS 134.160(5) states, “Other than 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 recommended the Sheriff refrain from making loans to various accounts, and that all receipts are deposited to the appropriate accounts. In addition, we recommend that all outstanding receivables noted herein are transferred to the appropriate accounts.

Sheriff’s response: None.

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 105 deposits were made into the 2011 fee account. The auditor found that 56 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 over twenty business days to clear the bank. The auditor also noted penalties totaling $60 were charged due to instances of the account being overdrawn.

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 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 misappropriations 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: Short-handed and we are trying to do better.

The Sheriff’s Office lacks adequate segregation of duties. 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 disbursement 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 Government, which could occur, but go undetected.

Additionally, because of a lack of adequate segregation of duties exist 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 2011 fee account on multiple occasions.

* Penalties were charged for late payment of invoices.

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 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: Short-handed and looking for better ways.

The Sheriff has disallowed expenditures in his 2011 fee account. During the audit, we noted the Sheriff had a $274 of disallowed expenditures in the 2011 fee account. The Sheriff’s office was charged $214 for late payment penalties on invoices and $60 in overdrawing the 2010 fee account on numerous occasions.

Items such as late payment penalties and bank overdraft fees are not necessary expenses of the office. In Funk vs. Millkien, 317 S.W.2d 499 (KY 1958), Kentucky’s highest court reaffirmed the rule that county fee officials’ expenditures of public funds will be allowable only if they are necessary, adequately documented, reasonable in amount, beneficial to the public, and not personal in nature.

We recommend the Sheriff deposit personal funds of $274 to cover these disallowed expenditures.

Sheriff’s response: Will pay it back.

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 (DARE) account is not earning interest income.

KRS 66.480(4) states, “(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 noncompliance 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 got it now on all accounts.

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.