The office of State Auditor Mike Harmon released this week an audit of the Johnson County Fiscal Court for the year ended June 30, 2018, noting findings that the county overspent its budget in some areas and that the court didn’t have “adequate controls” over the former treasurer.
According to the report, the disbursements from the road fund for that fiscal year exceeded approved budget appropriations by $247,578, while the Justice Center Corporation Fund’s debt service disbursements exceeded their budgeted amount by $683,013 and the Johnson County Employee Flexible Spending Account and Health Reimbursement Account Insurance Fund saw administrative disbursements made exceeding appropriations by $2,942.
These over-budget disbursements were in violation of Kentucky law which states “[a]ny appropriation made or claim allowed by the fiscal court in excess of any budget fund, and any warrant or contract not within the budget appropriation, shall be void,” and “no member of the fiscal court shall vote for any such illegal appropriation or claim.”
The auditor made the recommendation that the fiscal court and the county treasurer monitor the budget more closely and amend the county’s budget or transfer the necessary funds in order to precent the county from exceeding the budget in the future, a recommendation with which Judge-Executive Mark McKenzie said he concurred
The court noted in its responses that the appropriate changes in accounting policies had been made, according to the report.
According to the report, another issue with the county’s financial statements arose when the fiscal court “did not establish adequate controls over the Justice Center Corporation Fund,” resulting in an understatement of debt totaling approximately $4,385,000 due to the omission of debt obligations for the Johnson County Justice Center Bonds.
“The former treasurer was unaware she had to prepare a financial statement for the Justice Center Corporation Fund and said she sent the debt schedule to the Department for Local Government when submitting the fourth quarter report, but DLG had no record of it being submitted,” the report said. “By not preparing an annual financial statement, the fiscal court is not aware of the transactions that are occurring relating to the receipts and disbursements of the unbudgeted funds. This could result in undetected fraud, errors, and misstatements. Also, not presenting all debt that the county has outstanding does not give users of the county’s financial information a true picture of the county’s financial well-being. The fiscal court is financially accountable and legally obligated for the Justice Center Corporation Fund.”
According to the report, the former treasurer made errors in other accounts, including the general fund, in which the former treasurer posted sheriff’s excess fees in the real property account in the amount of approximately $246,000 and various incorrect postings in the reimbursement account totaling approximately $221,000, in addition to the aforementioned funds from the road fund and Justice Center Corporation Fund.
The report said this presents an issue because it causes discrepancies in the amounts that are reported to the fiscal court when preparing a budget and can lead to over-expenditures on budgets.
“Bank reconciliations provided for the audit included inaccurate balances because they did not include all necessary information. Inaccuracies included incorrect beginning balances, voided outstanding checks included on outstanding check listings, and actual outstanding checks omitted from the list,” the report said. “The former county treasurer did not properly prepare an annual statement in accordance with KRS 424.220 nor was a settlement presented to the fiscal court for approval as required by KRS 68.020(5) and 68.030. The settlement presented to auditors was a list of bank account balances only.
“The fiscal court did not have controls in place to establish appropriate oversight of the former county treasurer’s activities. The fiscal court did not have procedures in place to detect the material misclassifications and errors made by the former treasurer. The former treasurer appeared to not understand how to record these transactions. As a result, these misclassifications and failure to have a properly prepared treasurer’s settlement could impact the fiscal court’s ability to make sound financial decisions during the course of a fiscal year. KRS 68.210 gives the state local finance officer the authority to prescribe a uniform system of accounts,” the report continued. “The County Budget Preparation and State Local Finance Officer Policy Manual lists the duties of the county treasurer based on KRS 68.020, 68.300, and 68.360(1). This manual requires the county treasurer to maintain the financial records, to receive and disburse money, to invest funds, to prepare monthly bank reconciliations, to prepare financial reports monthly, and to settle accounts within 30 days after the close of each fiscal year. We recommend the fiscal court ensure there are proper training procedures for the financial staff and implement oversight and review procedures to ensure financial transactions are recorded, reconciled, and reported properly.”
According to the report, the former treasurer “appeared to not understand how to record these transactions,” and did not have proper oversight by the fiscal court, nor a policy in place to detect the “material misclassifications and errors made by the former treasurer.”
One more error was reported, in that the monthly revolving payroll account had a cash surplus of $133,798 and was not properly zeroed out, creating a risk of funds remaining in that account that actually belong, in fact, to other funds, according to the report.
“As a result, the overpayments from other funds of the county to the payroll revolving account have accumulated over the years and caused the other funds to have reduced cash resources available for the needs of the county,” the report said.
Harmon’s recommendations included that the fiscal court establish a system for reconciling this account and return the surplus to the appropriate funds, a recommendation with which McKenzie said he concurred and had taken steps to implement.
The report is available in full detail at, www.auditor.ky.gov, and the Johnson County Fiscal Court meets on the second Monday of each month at 4:30 p.m. in the Johnson County Fiscal Courtroom on Court Street. All meetings are open to the public.