Auditors reported five issues after reviewing Marshall County Fiscal Court for the fiscal year ending June 30, 2017 including lack of fixed reasonable compensation for all employees, failure to report on the animal shelter's bank account, receipts not properly turned over to the treasurer, weak internal controls over capital assets and lack of segregation of duties for jail commissary.
The auditors with Peercy and Gray, PSC of Louisville determined the fiscal court did not fix reasonable compensation for all employees in accordance with KRS 64.530, stating the building inspector's W-2 showed a compensation of $120,612, making him the highest paid employee of the fiscal court.
The auditors reported the building inspector only receive a paycheck a couple of times a year for the inspections he conducted; did not turn in a timecard for the work he completed and was instead paid on a commission basis; was not enrolled in the county employee retirement system; according to his contract approved by the fiscal court on Nov. 5 2013 retroactive to July 1, 2013, receives 80% of the receipts collected for the inspections.
According to the audit there was a subsequent contract signed on May 8, 2015, which states the electrical inspector shall be compensated solely by the electrical contractor of the owner of the property being inspected or the person firm or corporation installing any new electrical work; the court shall in no way compensate electrical inspector for electrical inspection services and neither shall the county be responsible for the collection of any unpaid electrical inspection fees.
"If the intent of this agreement was for the electrical inspector to be paid directly by the contractor, then this should be investigated further. All inspection fees should be deposited into the fiscal court bank account for the building inspection fund," the audit reads in part.
The auditors said the fiscal court was in violation of KRS 64.530 because the salary of the building inspector was not fixed and because he does not record his time there is no way of knowing if he works enough hours to qualify for the county employee retirement system.
"The compensation for the building inspector appears to be excessive and unreasonable," the auditors wrote.
The auditors recommend further investigation into the building inspector's compensation and all fees deposited into the fiscal court bank account for the building inspection fund, as well as fixing the building inspector's compensation in accordance with statute.
Neal reportedly told the auditors, "The fiscal court has a contract with this employee. He is paid per that contract."
Deputy Judge-Executive Brad Warning told The Tribune-Courier the electrical inspector discussed in this finding has a contract with the fiscal court and is paid per that contract.
"We've had discussions with different auditors regarding this relationship and each opinion has differed," he added. "This administration inherited this relationship and has not gotten clear and concise recommendation from the auditors office on how to properly structure this."
The auditors took many issues with Marshall County Animal Care and Control including the fees collected at the shelter were turned over to the county treasurer only two or three times per month, disbursements were made without fiscal court approval and two of the 12 disbursements tested showed nearly $22 paid in sales tax.
The auditors also took issues with the animal shelter's bank account being excluded from the county's fourth quarter financial report and budget process.
The audit states in part: "Due to the nature of this account and sources of funding, the county elected not to include the corresponding receipts and disbursements in the county's budget process or on the quarterly financial reports. As a result, the county's quarterly finance reports were misstated."
The auditors reported these issues were repeat findings and recommended the county comply with Kentucky Revised Statutes (KRS) 68.020 and 68.210 by including all receipts and disbursements associated with the county budget process and on the quarterly financial reports and requiring all funds collected in locations other than the treasurer's office be deposited on a daily basis.
Judge-Executive Kevin Neal's response to the above issues and recommendations, according to the audit, was assurance the county would implement internal policies for daily deposits and follow the recommendations of the auditors. He also reportedly told the auditors the animal control account was viewed the same as the park foundation account with its own federal ID number and generated income off of county-owned property but did not turn over all collections to the county; he also reported they pay state tax on items because they are not tax exempt.
Warning told The Tribune-Courier he believes the word "misstated" is misleading because it insinuates false quarterly reporting by the county.
"The Animal Shelter Donation Account is separate from the general accounting of the fiscal court because it has a separate FEIN and functions apart from the other funds the county received," he explained. "The donation account was organized so that individuals and businesses could make donations to the Animal Shelter. Furthermore, since this audit, all money collected by the animal shelter is turned over to the treasurer's office for daily deposits."
The auditors found what they reported as weak internal controls over capital assets which resulted in the omission of capital asset additions from the county's schedule of capital assets, which they also reported as a repeat finding.
The audit reads in part: "Procedures are not followed to monitor the purchase of capital assets from the purchase, to inclusion on the county's schedule of capital assets and finally, to the inclusion on the county's insurance policy, if necessary. The county's schedule of capital assets for the audit period failed to recognize all asset purchases that occurred throughout the year. Also, many entries on the schedule of capital assets did not include serial/identification numbers that would make tracing items difficult. Finally, no annual inventory of capital assets was performed."
The auditors stated strong internal controls over assets are necessary to ensure accurate financial reporting and to protect assets from misappropriation. By having weak internal controls over assets, they stated, the county is left vulnerable to misappropriation or misstatement and because the county failed to emphasize strong internal controls over the reporting of capital assets, those misstatements were able to occur without detection.
The auditors recommended a detailed inventory system which should include a detailed description of every county asset, an inventor control or serial number, date acquired, purchase price, location, date destroyed or sold as surplus and a brief description of why the asset was discarded. They further recommended that inventory be updated throughout the year and compared with the inventory on file with the insurance company.
Neal reportedly told the auditors that on March 7, 2017 Galls (which offers public safety equipment and uniforms) presented a website as a solution that included an asset management plan but the fiscal court "did not pass that solution," so his office found AssetTiger and began using it in May 2017. He reported the county has continued to build within that management program and has "made great strides" in the county's asset management plan.
Warning told The Tribune-Courier that overall, he believes a great improvement is evident since the current administration took office.
"We have put measures in place to be more accountable, consistent and transparent while managing such a large budget. We are pleased with the success of our team and will continue to make improvements at the recommendation of the auditors and also by our own observations," he explained. "We feel we have made significant strides in improving our internal processes to comply with the recommendations from the auditor. Considering the $20,000,000 budget that we must manage, we feel our efforts in following procedures and protocols have improved each year as this administration has taken over."
The auditors noted another repeat finding with a lack of segregation of duties over the jail commissary operations. They reported the Marshall County Detention Center's lack of an adequate segregation of duties was due to a limited number of staff and the diversity of operations, which resulted in the bookkeeper having to perform multiple tasks such as posting to the receipts and disbursement ledgers, preparing bank deposits, preparing bank reconciliations and preparing financial reports.
"Segregation of duties over these tasks, or the implementation of compensating controls when limited by staff, is essential for providing protection from asset misappropriation and helping prevent inaccurate financial reporting," the report said in part.
The auditors recommended the jailer either separate the duties or, if that is not possible due to limited staff, provide strong oversight.
Marshall County Jailer Roger Ford reportedly told the auditors he would ensure documents and receipts were reviewed and initialed by at least two different people.
This is the first audit which represents only Neal as head of the county; the previous audit was split between his management and that of former Judge-Executive Chyrill Miller.
Warning said the fiscal year 17-18 audit is currently being conducted by Romaine & Associates, PLLC but he does not have a timeline of when that will be complete.