By Jeff Noble / Staff Writer
State Auditor Adam Edelen has some financial issues with the Knox County Fiscal Court, and Wednesday he released his office’s findings on the court’s 2012 audit.
A total of 11 separate financial findings were noted by Edelen. Of those findings, six of them were found to have “significant deficiencies” by the auditors.
The audit notes, “A significant deficiency is a deficiency or a combination of deficiencies in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.”
Recommendations were made to the Fiscal Court by auditors to correct these areas where they found significant deficiencies:
—The county should improve internal controls over the road department.
—The county did not follow proper purchase and procurement procedures that resulted in failed testing procedures.
—The county lacks adequate segregation of duties over payroll processes.
—The Fiscal Court should provide adequate oversight for fuel purchases made with credit cards.
—The Knox County Jail lacks adequate segregation of duties over accounting functions.
—The Jailer should prepare an accurate annual report and bank reconciliations for the Jail Canteen Account.
Edelen’s audit also said for the county to maintain complete and accurate capital asset schedules to comply with governmental accounting board standards. It added the county should comply and make sure the same level of health insurance benefits are provided to all county employees, according to an opinion by the state’s Attorney General. Also, Knox County should ensure that both the original and final budgets are properly recorded and balanced on the quarterly reports.
Two other suggestions in the audit said purchase orders should be properly prepared and approved prior to making purchases, and that the county should make sure all debts be recorded and that quarterly reports be reviewed to ensure accuracy,
Judge-Executive J. M. Hall acknowledged the audit’s issues and said the county has corrected, or will make corrections, to almost all of them.
“We’ve reduced it down from 22 issues last year to 11 this year, so we’re doing better. We’re glad they we do have audits every year, and when they asked us to make corrections, we follow their guidelines and we do it.”
The audit commented the county lacked controls in the road department, and called for the county to develop work orders coming from the Judge-Executive’s office for projects as they come up with Judge’s or a designated person’s approval signature. Road logs should be kept in all road vehicles accounting for almost every mile and hour the equipment’s used, including location, purpose, and be signed by the operator. Gravel logs should be kept with a description of the truck, operator and location where the gravel’s hauled. Weight tickets for gravel being hauled to the road department should be signed and logged. Also, monthly reports should be sent to the court and documented in the minutes, describing at least the location and work performed during the month.
Hall noted an employee has been hired by the county to keep those logs in compliance.
On a test of expenditures, the audit found out of 149 invoices selected, five invoices were not paid within 30 days, and five purchase orders were dated after the invoice. It also noted road fund expenditures didn’t have signed delivery tickets to support the invoices. They recommended the Fiscal Court maintain all original vendor invoices including any supporting documentation, approve all expenditures by the court, and pay all invoices within 30 days.
“That’s where the state gives us flex money to lay blacktop. We actually had to do the blacktop first, and the state reimbursed us after the 30-day period passed. That happens once in a while. But we don’t have any outstanding bills, because we pay our bills on a timely basis. We agree on the audit’s recommendations,” Hall said
According to the audit, the county’s Finance Officer performs the entire payroll function and other duties, preparing payroll records, checks and posting expenses. Payroll checks are signed by the judge-executive or deputy judge-executive and the treasurer. It recommended the court strengthen internal controls by segregating those duties, and strong oversight be implemented if that’s not possible due to limited staff.
“We are now initialing with two people, instead of one,” noted Hall.
When they reviewed expenditures, auditors found several county departments used credit cards for fuel purchases, but original invoices weren’t retained and compared to monthly statements before payment was made. They noted odometer readings reported on monthly statements appeared to have been incorrectly entered. The audit recommended original invoices be retained for fuel purchases and reconciled to the monthly billing statement before making payment, and that controls be put in place requiring accurate odometer readings be used when buying fuel.
“Some of the receipts weren’t turned in, some were not stapled to the invoice, and some were still inside the vehicles. We are complying with the audit on this one,” Hall said.
The audit pointed out the Knox County Jail’s bookkeeper prepares and deposits receipts, prepares and signs checks, posts the ledger, prepares reports and performs bank reconciliations. It added the jailer does review bank reconciliations and reports on a regular basis. Recommendations were for the jailer to separate those bookkeeping duties, which would adequately protect employees in performing their assigned functions, and would protect the court against inaccurate financial reporting.
Hall said he did talk to Jailer Mary Hammons about the recommendations.
Hammons response to the audit was, “We are working on correcting these findings.”
When the Jail Canteen Account was tested by auditors, they discovered the jailer presented an annual financial statement to the treasurer as required, but not detailed enough to accurately represent financial activity for the year in the canteen account. Also, bank reconciliations performed seemed to be on an accrual basis, instead of the cash basis, of accounting. It was recommended the jailer present an accurate and complete annual report, and perform bank reconciliations that agree with the annual report.
Hall said he and Hammons agreed on the audit’s findings and would take action.
“We are working on making more detailed reports,” Hammons responded to auditors.
According to the audit, the county didn’t have a completed capital asset schedule for the fiscal year, with a list of capital asset additions, retirements and disposals not properly maintained. The Knox County Hospital building and related property weren’t included on the listing because the historical cost, or estimated historical cost, can’t be determined. A schedule of additions should be maintained as assets are purchased to simplify the process of updating the capital asset schedule. It also mentioned that failing to tag capital asset increases the risk of inaccurate reporting. The audit recommended the county maintain complete and accurate capital assets schedules and records to comply with GASB (Governmental Accounting Standards Board) requirements.
“We actually corrected that one during a previous fiscal court meeting,” Hall said.
When they tested payroll, auditors discovered county employees aren’t receiving the same level of health insurance benefits, and elected officials and one appointed employee were receiving county-paid family coverage while others are paying for the extra cost for family coverage. During the 2012 fiscal year, the county paid as much as $655 per month per employee for additional costs of the family plan over the single plan. According to the County’s Administrative Code, the county promotes equal opportunity in benefits and compensation matters. It stated further the county pays for an individual’s health insurance policy, but does not add that certain individuals will receive the family benefit as well.
The audit noted a Kentucky Attorney General Opinion, stating, “The basic statute providing for governmentally-funded health coverage for public employees does not provide for one level of coverage for officers, and another level for employees.” Auditors recommended the court follow the opinion and ensure the same level of health insurance coverage for all employees.
“We get written up every year for that. Our county attorney’s opinion is that we can separate county employees and elected officials, because the state already said that elected officials aren’t county employees and we don’t get the benefits,” said Hall.
The audit mentioned the quarterly report showed the county’s budget was out of balance in multiple funds as of last June 30. When reviewed, the original budget in the General Fund was inappropriately recorded, with several funds out of balance due to errors in entering information in the accounting system. They recommended the county make sure the original budget is properly recorded on quarterly reports, and be reviewed so it remains balanced.
“We had to do transfers on that issue, also during a previous court meeting, and it’s been corrected,” Hall noted.
In reviewing internal controls, auditors noted purchase orders weren’t always prepared before the actual purchase date, and didn’t contain a description, account number, purchase amount and the date. They suggested obtaining an approved purchase requisition and purchase order prior to items being ordered or services received, to determine if adequate funds and appropriations are available.
Hall said, “We’re complying.”
Auditors said the court obtained a line of credit up to $1 million to finance the Knox County Hospital’s operation on April 28, 2011, with the debt not recorded in the prior year’s audit or quarterly report. They added, “However, in the current year this debt was correctly reported on the 4th Quarter Report. The interest is payable semi-annually at a rate of 6.25 percent. The principal amount outstanding and resulting prior-period adjustment to June 30, 2012 was $997,726.” The audit recommended the county make sure all debt be recorded and quarterly reports be reviewed for accuracy.
“That has been completed and quarterly reports are being done,” said Hall.
The audit showed Knox County with assets totaling $26,709,956. Total liabilities were $24,944,060, with total net assets of $1,765,896.
Of those total assets, $26,686,172 came from governmental activities, with $23,784 from business-type activities.
In the total net assets, $1,742,112 were from governmental activities, with $23,784 from business-type activities.
The audit was done for Edelen by the Louisville firm of Peercy and Gray, PSC, and was for the fiscal year ending on June 30, 2012.