County has 3 findings on financial audit
Published 10:16 am Wednesday, November 22, 2023
By Fiona Morgan
The Boyle County government received its financial audit for the 2021-22 fiscal year with three findings of noncompliance.
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State law requires annual audits of county fiscal courts and State Auditor Mike Harmon releases the audits on a regular basis. The auditor’s letter communicates whether the financial statement presents fairly the receipts, disbursements and changes in fund balances of the Fiscal Court in accordance with accounting principles generally accepted in the U.S.
The auditor must comment on noncompliance with laws, regulations, contracts, grants and weaknesses involving internal control over financial operations.
The fiscal year started July 1, 2021 and ended June 30, 2022. The audit had the following findings:
The Boyle County Fiscal Court’s fourth quarter report was materially misstated and disbursements exceeded budgeted appropriations.
The Fiscal Court did not have adequate internal controls over cash transfers.
The county did not prepare a capital asset list for the fiscal year.
Michael Goins, communications director for the Auditor of Public Accounts, said the findings boil down to there being some accounting errors on that year’s fourth quarter report and a general lack of oversight on different things.
Fourth quarter report
Disbursement amounts went over approved budget appropriations on the fourth quarter report. Goins explained that this is not missing money, rather it was a lapse in keeping proper record of payments.
“Anyone who’s ever had a checking account knows that when you write a check, if you don’t write it down in your checking account book that you sent out money, then your book shows that you have more money than you do,” Goins explained.
The county’s fourth quarter report needs to be accurate so the fiscal court can make good financial decisions. Since the fourth quarter report did not match the county’s ledgers, there had to be 14 adjustments to total receipts in the amount of $14,617,311; and to total disbursements in the amount of $9,581,886.
The audit states that the specific adjustments are as follows:
• The fiscal court collects occupational tax and net profit tax on behalf of the city of Danville. The funds were deposited to and disbursed from the county’s occupational tax bank account; however, they were not recorded on the county’s receipts and disbursements ledger or fourth quarter report. This resulted in material adjustments to receipts of $11,746,960 and disbursements in the amount of $13,517,331.
• The occupational and net profit tax collected for the county is not posted to the county’s ledgers when received. It is placed in a separate occupational tax bank account and only posted to the county’s ledgers when the funds are transferred to the county’s general fund. This resulted in a material adjustment to reduce county occupational tax receipts in the general fund by $1,770,331.
• As a result of not budgeting for the payments to the city of Danville, the general government line item in the general fund financial statement budget to actual schedules was over budget by $13,176,874. In addition, disbursements of $200,000 to a fire department were not properly accounted for resulting in a line item for protection to persons and property being over budget by $180,308.
Occupational and net profit tax should have been posted when received. However, they were not posted to the general fund until they were transferred from the occupational tax bank account.
The judge executive’s response in the audit states that the fiscal court has not used disbursement codes for the Tax Administration bank account. When the current treasurer came into the position, she continued to not include the numbers, but was told during the audit that they should be included.
County Treasurer Darlene Lanham went over the audit report during Tuesday’s Fiscal Court meeting. She explained that years ago, before she started, the way occupational tax payments were set up to the City of Danville was that the finance officer took them out of revenue line items. The payments were being put into revenue line items and being taken out of revenue line items. There were no expenditure line items for those payments.
“When I came in I had never really seen it that way but I followed suit,” Lanham said. “When the state auditors came in, they said no we need it to appear this way, it needs to be expenditure line items, this needs to be on your budget report.”
The court has since passed several budget amendments to account for those receipts. Occupational and net profit tax are now being posted as they’re supposed to be, which is when they are actually received and not when they are transferred in.
Judge Executive Trille Bottom told the Advocate-Messenger that occupational taxes are handled differently than other things in the budget, which has also led to errors.
“The occupational tax collections are reported differently than anything else in the county budget,” Bottom said. “They go directly into the bank account, they don’t pass through the general ledger, so the treasurer has to go in and manually put those amounts in, the deposits and payments.”
Lanham manually inputs those numbers, and there was one line item she missed.
“I probably skipped over it when I was going down the line because essentially all of these things I enter freehand,” Lanham said.
However, a new system is in the process of changing how those numbers are handled. Bottom said the financial software they use, called Spring Brook, has software for treasurers, occupational tax, code enforcement and collections. The software for collections and occupational tax had not been set up until last week.
Bottom said everyone just got trained on how to use the new software. It will change how occupational tax is handled.
What led to some issues
The 2021-22 fiscal year saw three different treasurers handle finances for the county. Former Treasurer Keagan Hinkle was fired in late July 2021, just after the fiscal year started.
Assistant Tax Administrator Jackie Richardson stepped in as acting treasurer from August 2, 2021 through Nov. 7, 2021. Then Lanham was hired. In addition to turnover, one finance officer was out on maternity leave for 12 weeks.
“There were a lot of things that were happening and a lot of things that people didn’t know, and everybody was working together to try and figure it out,” Lanham said.
Lanham explained that sometimes the first, second and third quarter reports will build up to the fourth. She said the first quarter report was done late due to Hinkle’s firing; the second quarter report was done when Lanham started, and Lanham was still trying to figure things out for the third quarter.
For the third quarter Lanham said they were still working out some kinks, including a glitch in some software. She said they were working around an old system trying to update things.
Lanham had been a finance officer for Lincoln County before being hired in Boyle. Bottom said that making the step to treasurer can come with a learning curve.
“There’s a lot of things that you would know as a treasurer that you would not know as a finance officer, so I think some of this can be attributed to just a learning curve coming in and learning what a treasurer does,” Bottom said.
Bottom further explained that not all incoming treasurers are trained by the previous treasurer. For example, Hinkle did not train the following acting treasurer.
The audit states that the Fiscal Court did not have adequate internal controls over cash transfers. This is a repeat finding and was included in the prior year audit report.
“Two transfers totaling $148,035 were made from the general fund to the joint jail fund in order to cover overdrafts in that fund. Those transfers were not properly approved by the fiscal court,” the audit states.
On the fourth quarter report, transfers in and out did not net to zero across funds and transfers on the disbursements section did not net to zero, meaning that those numbers were inaccurate.
“These reporting errors resulted in significant adjustments to transfers in and out for the general fund, jail fund, E911 fund and the EMS fund,” the audit states.
The Judge Executive’s response states, “The minutes of January 11, 2022 fiscal court meeting indicates a transfer of $100,000 lowering the total of unaccounted transfers to $48,035. As a new treasurer in office, a transfer to cover a low bank account was mistakenly left off the fiscal court requests.”
Lanham said in Tuesday’s meeting that the issue was a simple transfer error that wasn’t corrected in time for the audit, but it’s been taken care of.
Cash transfers are now written out on a form that includes the amount of transfer and the fund of withdrawal and deposit. These forms are included in the fiscal court packet for the judge and magistrates to see before meetings and then signed by the judge executive after approval. This process has been in place for over a year.
“Before I came on there was no written cash transfer or budget transfer list, and that was one of the things that I felt needed to be done because I wanted things to be as clear as possible,” Lanham said.
Lanham said she compares the transfer report with bank statements, and compares it to money that will soon come in and soon be spent.
The auditor recommends that an employee independent of the financial reporting process review the cash transfer ledgers periodically throughout the year to make sure no unauthorized transfers are being made, ensure all transfers are approved by fiscal court and ensure that all transfers in and out are reported accurately on the ledgers and fourth quarter report.
Capital Asset List
The Boyle County Fiscal Court did not prepare a capital asset listing for the fiscal year. There had not been a capital asset listing since fiscal year 2020.
The finance officer who worked on the capital asset updates in prior years left during fiscal year 2022. No employee took over maintaining and updating the capital assets list during FY 2022.
The Budget and Policy Manual requires counties to maintain a schedule of additions and deletions of capital assets. If they don’t, the risk increases that balances might not be reported accurately.
Lanham said when she learned there was not an updated capital assets list, she went to the judge executive and talked about what needed to be done.
“We were getting ready to start doing a thorough inventory to get ready for Spring Brook to put all our fixed assets in, so when this came up and I knew that they were going to need this, I said I can come up with something, but I would rather do it the right way and I’d rather it be correct, but it’s going to it’s going to be a finding [on the audit],” Lanham said.
She said they agreed to take their time with the assets list to do it correctly, even though it led to a finding.
They completed a thorough inventory of the county property in June 2023 and an updated capital asset listing is in process of being completed. An inventory list is being entered into the new software for tracking.
The new finance officer Elena Plyman came into the position in February or March according to Bottom, and is now in charge of monitoring the capital assets list on a regular basis. Lanham explained that since Plyman is the one who sees purchases and makes payments, she should be able to keep track of assets.
Lanham also keeps up with the actual capital asset listing and is notified of any changes as they occur.
The full audit report and the examination report can be found on the state auditor’s website.