Edelen releases audit of Clinton Fiscal Court

Posted July 3, 2013 at 2:09 pm

State Auditor Adam Edelen has released the audit of the financial statements of the Clinton County Fiscal Court for the fiscal year ended June 30, 2012. State law requires annual audits of county fiscal courts.

The audit found that the county’s financial statements, in all material respects, fairly represent the county’s assets, liabilities, and net assets arising from cash transactions and revenues received and expenditures paid 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 fiscal court should reimburse the jail canteen fund $12,000 for jail operation expenditures. During Auditor’s review of jail canteen fund expenditures, we noted an expenditure of $12,000 paid to the fiscal court. This expenditure is related to the housing of prisoners in another county and is not permitted by Kentucky Revised Statutes. KRS 441.135 states, “the jailer may maintain a canteen fund for the benefit of prisoners…allowable expenditures shall include recreational, vocational, and medical purposes.” Therefore, we must disallow this $12,000 expenditure from the jail canteen fund.

We recommend the fiscal court reimburse the jail canteen fund $12,000 from its jail fund for the disallowed expenditure. We also recommend the fiscal court and Jailer ensure that profits from the jail canteen fund be used only for the benefit of the inmates in accordance with KRS 441.135.

County Judge/Executive Lyle Huff’s response: None.

County Jailer Gene Ferrill’s response: None.

The Fiscal Court should improve internal controls over payroll. As a result of our audit, we noted that the fiscal court had weaknesses in internal controls over the payroll process. During our review of payroll, the following instances were noted:

* One (1) timecard was not signed by a supervisor.

* Five (5) employees tested were not paid correctly for hours worked.

* The auditor noted that salary employees do not always account for a 40 hour work week.

* Two (2) employees appeared to be improperly classified as part-time and failed to withhold and remit retirement for the employees considered part-time. During fiscal year 2012, the first employee averaged 107 hours per month and the second employee averaged 145 hours per month.

* Five (5) employees had withholdings that were not supported by withholding authorizations.

* One department receives pay at time and a half while a second department receives comp time. However comp time does not appear to be authorized by the county’s administrative code.

* Payroll checks for the pay period ending April 15, 2012 and December 15, 2012 were issued prior to payday.

* During the test of health insurance, we noted that incorrect health premiums were being withheld from several employees’ payroll checks or insufficient funds were being withheld from the employees.

* A leave report is maintained by the payroll clerk, however when the auditor compared the leave and sick time taken during the testing period it was noted that report was not accurate.

* We recommend the fiscal court strengthen internal controls over the payroll process to ensure timecards/timesheets are prepared each pay period, accurately account for time worked, are submitted and signed by employees, and approved by supervisors. We also recommend the Fiscal Court take steps to ensure overtime is properly calculated based on an established work week in compliance with their administrative code. We recommend that employees who average more than 100 hours per month have retirement withheld. We recommend that signed authorizations be maintained in the employees’ personnel files for all additional withholding, that a record of sick, vacation, and comp time be maintained by the payroll officer. We also recommend the fiscal court review their administrative code to ensure compliance with their code.

County Judge/Executive Lyle Huff’s response: None.

The fiscal court should improve internal control procedures over receipts and disbursements. As a result of our audit, we noted a lack of segregation of duties exists over the following accounting functions: receipts, collection and processing, recording-keeping, disbursement processing, report preparation, and reconciliations. Adequate segregation of duties would prevent the same person from having a significant role in these incompatible functions. The County Treasurer prepares and deposits the receipts, posts the ledger and prepares reports from these ledgers for submission to the Department for Local Government (DLG), and performs the bank reconciliations. The Occupational Tax Administrator receives and documents payments received for occupational tax and net profits. The Finance Officer prepares a listing of bills for fiscal court’s approval and prints the checks. The County Judge and County Treasurer sign the checks without evidence of a comparison to the invoices.

To adequately protect employees in the normal course of perforating their assigned functions and to protect the fiscal court against inaccurate financial reporting, we recommend the fiscal court separate the duties in preparing and depositing receipts, recording transactions, preparing reports, and reconciling bank accounts. If any of these duties cannot be segregated due to limited staff or budget, strong oversight should be provided over the employee responsible. The employee providing the oversight should document this.

We also recommend the County Treasurer and County Judge/Executive, prior to signing the checks, compare them against the original invoices. Additionally, we recommend the ledgers maintained by the County Treasurer and Finance Officer be reconciled monthly with documentation and the reconciliation noted.

County Judge/Executive Lyle Huff’s response: None.

The fiscal court should improve purchase and procurement procedures. During our review of expenditures we noted numerous deficiencies in purchase and procurement procedures. From our sample of tested expenditures we noted the following: ten (10) invoices were not paid within a 30 day time period, six (6) vouchers were paid without a purchase order, two (2) POs were missing supporting documentation, one (1) payment was greater than the amount approved by the fiscal court, and eight (8) expenditures were made without being included on the claims list for fiscal court approval. The auditor also noted haul tickets for road materials were not signed by a county employee nor were they turned into the Finance Officer by a county employee. All haul tickets were turned in by the vendor to the Finance Officer.

Good internal controls dictate that adequate original supporting documentation be maintained for all disbursements. All original vendor invoices and receipts should be maintained including any supporting documentation, agreed to the corresponding purchases order, and cancelled upon payment. All purchase orders should be approved and issued before the work or service is performed. KRS 65.140 states “Unless the purchaser and vendor otherwise contract all bills for goods and services shall be paid within 30 working days of receipt of a vendor invoice.”

We recommend the fiscal court maintain all original vendor invoices including any supporting documentation, issue purchase orders before work or service is performed, and comply with KRS 65.140 by paying vendors within thirty (30) working days unless the purchaser and vendor otherwise contract. In addition, we recommend all haul tickets be signed by a county employee, with one returned to the driver and the second turned into the finance officer to be matched to the vendors invoice before the invoice is paid.

County Judge/Executive Lyle Huff’s response: None.

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 Kentuckians.

For more information, visit auditor.ky.gov and follow Auditor Edelen on Twitter@AuditorKY, facebook.com/AuditorKY and youtube.com/AuditorKy. Call 1-800-KY-ALERT or visit our website to report suspected waste and abuse.)