State auditor releases audit of Barren County Fiscal Court
FRANKFORT, Ky. – State Auditor Mike Harmon has released the audit of the financial statement of the Barren County Fiscal Court for the fiscal year ended June 30, 2020. 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 Barren 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 control over financial operations and reporting.
The audit contains the following comments:
The Barren County Fiscal Court did not approve all cash transfers: Six of the transfers made by the county treasurer did not agree to the cash transfers approved by the fiscal court and documented in the minutes. These six transfers totaled $784,416.
This was caused by an oversight by management. They did not realize that cash transfers, including those for debt service payments, required fiscal court approval. By not having cash transfers approved, fiscal court may not be aware of accurate fund balances which could create cash flow issues. KRS 68.210 states, “[t]he administration of the county uniform budget system shall be under the supervision of the state local finance officer who may inspect and shall supervise the administration of accounts and financial operations and shall prescribe … a uniform system of
accounts[.]” As part of that ability, the Department for Local Government requires all fiscal courts to follow the County Budget Preparation and State Local Finance Officer Policy Manual. The manual requires all cash transfers be approved by the fiscal court. Good internal controls also dictate that all transfers be approved by the fiscal court members to ensure that they are aware of money being transferred between funds to allow for future budgeting and planning.
Additionally, good internal controls over cash dictate fiscal court approval before the treasurer moves money from one fund to another.
Harmon’s office recommends all cash transfers are approved by the fiscal court before they are made and that the cash transfer amounts approved should agree to the actual transfers made.
County Judge/Executive’s Response: The previous Treasurer was in the position to make transfers. The current Treasurer was not aware of such unapproved transfers. Debt payments are on the preapproval list in the budget and paid when due.
The Barren County Fiscal Court does not have adequate controls over disbursements: The Barren County Fiscal Court does not have adequate controls over disbursements. The following were noted during the disbursement testing:
• One payment was not recorded properly.
• Five invoices were not paid within 30 days.
• Eleven purchase orders were not issued
According to the deputy county judge/executive, the above findings are due to an oversight over recording, lack of control over external departments such as the jail and sheriff, and not knowing that the purchase orders should be issued for payroll and utility claims.
By not paying bills within 30 days the fiscal court could be charged with late fees or finance charges. Additionally, by not requiring a purchase order to be completed for each purchase, there are no controls in place to ensure there is adequate budgeted funds available before completing a transaction.
KRS 65.140(2), states, in part, “all bills for goods or services shall be paid within thirty (30) working days of receipts of a vendor’s invoice[.]” Good internal controls dictate the fiscal court record all disbursements properly. KRS 68.210 states, “[t]he administration of the county uniform budget system shall be under the supervision of the state local finance officer who may inspect and shall supervise the administration of accounts and financial operations and shall prescribe a uniform system of accounts[.]”
As part of these guidelines, a requirement for a purchase order journal is created. Purchase orders must include a unique purchase order number, an issue approved appropriation code where the purchase will be posted, the vendor name, the date the invoice is received, the amount of the purchase, the date in which the claim is approved by fiscal
court after completion, the date paid, and the amount paid. A sound purchase order system is also an important element of effective internal controls. Purchase orders allow a supervisor to review all purchases before they are made to ensure that budgeting requirements are met.
The auditor’s office recommends the Barren County Fiscal Court record all disbursements properly, pay invoices
within 30 days, and issue a purchase order for all expenditures in order to comply with the standards set forth in the Department for Local Government’s (DLG) County Budget Preparation & State Local Finance Officer Policy Manual.
County Judge/Executive’s Response: The bills get paid when they are turned in to this office.
Some departments do not turn bills in until after they are due. We have never put PO numbers on our utility bills.
The Barren County Fiscal Court failed to implement adequate internal controls over maintenance of the capital asset schedule: The Barren County Fiscal Court failed to implement adequate internal controls over maintenance of the capital asset schedule. The fiscal court failed to add to their capital asset schedule $314,483 for infrastructure, $55,340 for land and buildings, $672,684 for vehicles, and $540,439 for other inventory. Additionally, the fiscal court didn’t delete from their capital asset schedule $142,008 for vehicles, and $ 31,750 for other inventory.
According to the county personnel, they were not aware that the capital asset schedule should be updated.
Without adequate controls the risk of asset misappropriation increases or result in assets not being covered by insurance in the event of an accident or loss. Additionally, the fiscal court’s capital asset schedule did not accurately reflect the assets held by the county.
Good internal controls dictate that assets be properly tracked and maintained to prevent theft or loss. These controls should also ensure compliance with applicable laws and regulations related to capital assets. Furthermore, per the fiscal court’s capital asset capitalization policy all land and land improvements over $12,500, buildings and building improvements over $25,000, and infrastructure over $20,000 should be capitalized and added to the fiscal court’s capital asset schedule.
In addition, all vehicles and equipment over $2,500 should also be capitalized and added to the fiscal court’s capital asset schedule. When items on the capital asset schedule are sold or disposed, they should be deleted from the fiscal court’s capital asset schedule.
Under the authority of KRS 68.210, the Department for Local Government (DLG) issued the County Budget Preparation and State Local Finance Officer Policy Manual which states that “[f]or purposes of internal control, an asset inventory listing must be maintained for all asset purchases/donations above a reasonable dollar amount, and have a useful life of greater than one year.”
The auditor’s office recommend the Barren County Fiscal Court implement internal controls to ensure all assets are being appropriately added and deleted from the capital asset schedule. The auditor also recommend the fiscal court adhere to their capital asset policy.
County Judge/Executive’s Response: The previous Treasurer was in the position to update the Capital Asset Schedule for the 2019 Fiscal Year. The current Treasurer was not aware of the Capital Asset Schedule or that is was not updated.
The audit report can be found on the auditor’s website.