Glasgow Daily Times, Glasgow, KY

January 15, 2014

Auditor gives mixed review

Court, jailer need to change some financial procedures

Glasgow Daily Times

GLASGOW — The state auditor’s office found a few problems during its review of Barren County Fiscal Court’s financial reports for the fiscal year ending June 30, 2012, according to documents released this week.

The audit did find, however, that the county’s “financial statements, in all material respects, fairly present 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 process, though, the auditor also has to comment on noncompliance with laws, regulations, contracts and grants, as well as any material weaknesses involving the internal control over financial operations and reporting.

A press release from Auditor Adam Edelen’s office summarizing the findings listed the following four directly quoted comments and then further explained and provided a response from the county official(s) on each:

• The Fiscal Court should either deal directly with the state price contract vendor or advertise for bid on purchases that exceeded $20,000 in accordance with KRS 424.260.  

• Fiscal Court should maintain an accurate capital assets listing.

• The Jailer should prepare and submit sales tax reports in a timely manner.

• The Jailer lacked adequate segregation of duties over receipts and disbursements.

Bidding procedure  

“During fiscal year 2012, the Fiscal Court purchased three vehicles from a local dealership without advertising for bids. The local vendor indicated the county was given the same price as the state price contract,” the audit stated.

To use a vendor for a purchase of more than $20,000 without asking for bids, a county must have adopted the Model Procurement Code (KRS 45A.345-460), with one of three options: purchasing the vehicle from the state price contract; advertising for bids to negotiate a lower price, or negotiating directly with a vendor as long as the final price does not exceed the state price contract, the audit further stated.

If the fiscal court has not adopted the code, the first two options are available; however, as the fiscal court had not adopted it, the county “should have purchased each vehicle directly from the vendor who held the state price contract or advertised for bids on the vehicle.”

“We recommend the Fiscal Court deal directly with state price contract vendors or advertise for bids in accordance with KRS 424.260 if the Fiscal Court chooses not to adopt the Model Procurement Code,” the audit stated.

The response quoted from Judge-Executive Davie Greer was: “We were told by the Ford dealership here that they could give us the state price. We know better now, we will do this in the future.”

“Companies try that on us all the time,” Greer said Wednesday, “telling us they’ve got the state bid when they don’t.”

Where county officials may have taken them at their word before, now they know to call Frankfort and double-check, she said. Plus, they know to make the distinction between the vendor’s offering the state bid price and actually having the state contract approval.

“We just goofed,” Greer said, “but it was no big deal. [The auditors] took it into consideration that they told us [that]. We’ve learned, though, and we won’t do that again.”

Capital assets listing

An accurate capital asset listing ensures all asset additions and deletions are included, and Barren County’s “did not include all additions for fiscal year 2012 and included assets which had been traded or sold prior to June 30, 2012. We also noted the capital assets beginning balance was overstated by $824,600,” the audit stated.

“Not maintaining an accurate list of capital assets could cause capital assets to not be insured or paying for insurance for an asset the county no longer owns,” the audit stated.

The recommendation was for the county to develop and implement a system to add and remove items throughout the fiscal year and to conduct a physical inventory of capital assets to ensure the listing is reasonably accurate.

Greer’s quoted response: “Measures already in place and review for areas of improvement.”

On Wednesday, Greer referred questions on this to County Treasurer Denise Riddle for a better explanation.

Riddle said the document in question is a list of the value of any county asset worth $2,500 or more.

The process had already been in place for her and the deputy judge-executive to double-check to ensure the items got added and subtracted as needed, but with the knowledge that these things slipped through the cracks, they’ve tightened up on the procedure, she said.

“It was just human error is basically what it was,” Riddle said. “To my way of thinking, it wasn’t anything huge, because it was corrected immediately (when the auditor was there and asked about it).”

Timely jail sales tax reports

Auditors noted the jailer paid late-reporting penalties totaling $68 on two monthly sales tax reports and eight reports were filed too late to take the permissible vendor’s compensation, resulting in fewer funds being available for inmates’ use.

State law requires vendors to remit sales taxes to the Revenue Cabinet on or before the 20th day of the next succeeding calendar month, but it also allows vendors to deduct 1.75 percent of the first $1,000 of tax due and 1.5 percent of the tax due in excess of $1,000, provided the amount due is not delinquent at the time of payment, the audit explains.

Auditors recommended the avoidance of penalties and retention of the vendor’s compensation by filing the reports in a timely manner.

Greer’s response was simply that the matter has been brought to the jailer’s attention.

Jailer Matt Mutter’s response was quoted as: “The two sales tax reports where late penalties accrued was due to computer software update resulting in inaccurate reports. The eight reports were not actually filed too late; I was unaware and didn’t file the vendors compensation allowed.”

Mutter on Wednesday said the sales tax issue occurred just as the detention center moved to its new location and new JailTracker software was being implemented.

“It threw a wrench in a lot of things,” he said. “It took a while to figure out the new way to do it.”

With regard to the vendor’s compensation, he reiterated he had not been aware of the option.

“That wasn’t hard to fix after [the auditor] pointed it out to us,” Mutter said. “We went over all of this with him once he got it done.”

Segregation of duties

“The Jailer’s former bookkeeper for the commissary fund made deposits, signed checks, made entries into the accounting system, and performed some of the bank reconciliations. Dual signatures were not required on checks, and the Jailer stated he did not review the former bookkeeper’s work unless he became aware of a problem,” the audit stated. “We also noted during the review of controls, deposits were held for as many as 16 days during July and August of 2011. The Jailer was unaware of this matter until it was brought to his attention by the auditors. As a result of improper controls, late penalties were paid on one invoice, there was a lack of documentation for one invoice, and itemized tickets were not always maintained for fuel purchases.

“The result of one person performing all of these duties increases the likelihood that errors or fraud could occur and go undetected by the internal control system. The segregation of duties and responsibilities between different individuals for custody of assets, record keeping of those assets, and reconciliation of the asset account is an important control activity needed to adequately protect the resources of the Jailer’s account and ensure accurate financial reporting.”

The auditors recommended the duties over receipts and disbursements be divided among more than one individual. If that is not possible, the audit stated, the jailer should implement controls – and document them – to compensate that would reduce the risk.

Greer’s quoted response: “I have discussed with the Jailer and he has taken care of this.”

Mutter’s quoted response: “The Jailer now requires dual signatures on all checks. Compensating controls have been implemented and will be documented to the best of our capability with the number of staff we have employed.”

Mutter said Wednesday that a new bookkeeper had been in place since before the audit, and now the bookkeeper plus either Mutter or the chief deputy jailer sign any checks.

To view the full 96-page report, go to: auditreports/Pages/LocalGovernment AuditsReleased.aspx

Read more in the print or digital Glasgow Daily Times.