CORBIN — Kentucky State Auditor Mike Harmon spoke at the Southern Kentucky Chamber of Commerce monthly meeting Tuesday.
Harmon, Kentucky’s 47th state auditor, was sworn into office in 2016 after having beat Democrat incumbent, Adam Edelen. Before that, Harmon spent 13 years in the Kentucky General Assembly.
Harmon says his office conducts 500-600 audits a year and that most of those audits are local fiscal courts throughout the state, sheriff's offices, and county clerk's offices. The state audit office also conducts special exams.
“Special exams are where we get a chance to kind of break free a little bit of the normal accounting standards,” explained Harmon. “We still use accounting standards, but break free of some of them, and look a little more in depth.”
The very first special exam Harmon and his team performed after taking office was the Kentucky Law Enforcement Foundation and Program Fund (KLEFPF).
“We did that to ensure that the tax dollars that were intended for our police and fire ended up with our police and fire. I can tell you that now they are,” he said to the group of business leaders at Tuesday's luncheon at the Corbin Center.
Harmon also spoke about conducting a Governance Exam of the University of Louisville Foundation and the University of Louisville. Harmon admits that at first he had concern performing the governance. However, after learning that the university actually received tax dollars for its Bucks for Brains program — described on the university’s website as a program that uses state funds to match private donations, effectively doubling the impact of private investment — and after the chairman wrote a letter requesting the exam, Harmon and his team decided it was OK to do so.
“It was interesting the Governance Exam between the University of Louisville and the University of Louisville Foundation,” Harmon said. “We found things like the university had lent the foundation $67 million. Well, really the foundation is there to support the university, not the university to support the foundation. But perhaps the most surprising thing that we found was that a billion dollar foundation did not have budget to actuals, did not have a line item budget.”
Harmon says that the university is using the audit as a roadmap to get back on track.
“They’re working diligently. That university is important for the state just as all of our universities are important for the state,” he said.
Harmon also announced that his office had just released its special exam of Senate Bill Two.
“That basically was requiring greater transparency in our pension systems," he said. "A lot of people know that we struggle currently with our unfunded pension liabilities. So in 2017 the General Assembly felt like it was important to have more transparency in how those are invested.”
That special exam found that both the Kentucky Retirement System (KRS) and the Kentucky Teacher Retirement System (KTRS) had failed to post 80%+ contracts.
“KRS was a little concerning because they had provided us three different sets of data, and every set of data was different,” he said.
Harmon said that KRS was also allowing its investment managers do redactions on forms they were submitting, a normal procedure, as certain items and trade secrets can be redacted.
“But they were redacting things like the table of contents. I mean no one can really argue that a table of contents is a trade secret,” Harmon said.
In 2018, Harmon and his team appropriated an Ohio law that states that if a sheriff's office or county clerk's office had a clean audit the year before, they can apply for an agreed upon procedure (AUP). Harmon says this is important because the auditor's office invoices for audits.
By allowing entities to apply for an AUP it saves them costs.
“Our original analysis we wanted to be conservative, we didn’t want to pump it up," he said. "We originally figured 25-50%, but now that we’ve had that law passed, Senate Bill 144, we’re actually finding in many cases it’s saving them 50%+.”
Harmon says the Senate Bill 144 also gives those entities with one or two findings on an audit an incentive to get those findings resolved or fixed.
“The other thing it does is, it helps us because all government offices we’re doing more and more with less and less,” explained Harmon. “So we have to be more efficient. It allows us to take auditors off lower risk audits and put them on higher risk audits.”
Harmon and his team have also been releasing what they called data bulletins.
“There’s tons of information out there. What we like to do it is, we distill it down to something that the average individual [can understand]," he said. "We like to distill that down to just kind of help them get their mind wrapped around some of the information.”
The auditor’s office has released a data bulletin regarding debt. Harmon said that bulletin shows the state was $56.4 billion in debt.
“Now this doesn’t include your counties, doesn’t include your cities, it’s just the state,” Harmon clarified. “Of that, about 80% of that was due to the unfunded pension liabilities. If you take that $56.4 billion and you divide it by every man, woman, and child in the state of Kentucky that equates to about $12,300.”
Harmon also pointed out some of the other tasks performed by the state auditor’s office.
“We also try to be as much of a resource as we can to our county officials, our state. We try to be as much of a resource as we can without impairing our ability to audit,” he said.
“A lot of people think the auditor's office is like the IRS, but I tell everybody ‘we’re not like the IRS, we’re your auditor. We work for you.’ It is our role as auditors to be efficient, effective, and ethical. We don’t target anyone, we don’t give anyone a pass. We simply follow the data. Data should be nonpartisan.“
If you have an auditing tip or would like any more information, visit www.auditor.ky.gov.