A lack of internal control and lack of a division of financial duties were the only “material weaknesses” pointed out by state auditors in their annual report on the county’s financial statements.
State Auditor Adam Edelen, through his report for Pulaski County for the 2010-2011 fiscal year (ending on June 30, 2011), said Pulaski County Fiscal Court needs to strengthen its internal controls to ensure the county’s finances are being overseen and reconciled correctly.
“Lack of segregation of duties could result in misappropriation of assets and/or inaccurate financial reporting to external agencies such as the Department of Local Government (DLG), which could occur but go undetected,” Edelen stated in the report. “In addition, too much control by one individual without oversight can lead to irregularities that go undetected.”
Pulaski County Treasurer Joan Isaacs, who took over in August of this year after longtime county treasurer Arlene Young retired, said the comment was a result of a change in standards by Edelen’s office.
“It requires a different type of segregation of duties,” Isaacs said. “We weren’t doing that because we weren’t aware of that at the time.”
Isaacs said the county treasurer has performed a number of duties through the years. Those duties include preparing and depositing receipts, posting transactions into the county’s accounting system, preparing reports for submission to the DLG, and performing bank reconciliations for all county funds.
What Edelen’s office would like to see now, she said, is a system in which “as many hands as possible” touch those financial transactions and statements to ensure everything is being done correctly.
Edelen, in his report, recommended that the county “divide the responsibilities for receipts and bank reconciliations among the treasurer, the finance officer, and other employees of the county in order to achieve an appropriate level of segregation of duties.”
Pulaski County Judge-executive Barty Bullock in his official response points to state law, which requires that a county government’s treasurer keep an accurate account of all financial transactions of the county — and that the treasurer deal with all money that flows through the county.
“If the county treasurer gives up too much of the day to recording and receipting of the money collected and distributed, it is entirely possible to lose an accurate oversight of the flow of the county’s overall financial picture,” Bullock stated in his response. “Receiving, recording and balancing of the county’s cash flow is the most important of the treasurer’s duties.”
Bullock added that fiscal court serves as overseer to the treasurer because the magistrates approve the county’s financial statements monthly.
Still, Bullock did say that better controls could be in place.
“We agree that some of the agencies receiving and accounting for money on behalf of the county should have better controls in place,” Bullock said. “We have looked at those agencies and will make the necessary changes to better control the opportunity for fraud.”
Isaacs said she established a new “checks and balances” system as soon as she took over as treasurer.
“That was one of the very first things I implemented,” Isaacs said.
Isaacs said now the county’s financial statements are handled and overseen by no fewer than three people, including herself.
“To us, it wasn’t a major weakness, and I wanted to see that corrected,” Isaacs said. “We wanted things to be tighter.”
Edelen issued similar comments about the Pulaski County Detention Center’s financial statements.
“Our review of internal controls for all jail commissary operations determined there is a lack of adequate segregation of duties because the former bookkeeper was primarily responsible for preparing deposits, preparing daily checkout sheets, preparing disbursement checks, posting to the receipts and disbursement ledgers, generating monthly reports, preparing monthly sales tax returns, preparing the monthly financial statements, and reconciling the bank account,” Edelen stated in the report. “Although other employees assisted the bookkeeper, there was no oversight or independent review of the bookkeeper’s responsibilities.”
Edelen also said further division of duties “is essential for preventing misappropriation of assets and/or inaccurate financial reporting.”
Isaacs said the detention center’s internal controls were pointed out as a weakness due to the new standard as well.
“Anything with the jail we can correct and have corrected,” Isaacs said.
Edelen recommended that Pulaski County Jailer Mike Harris segregate the duties described above to the extent his budget allows.
“If, due to a limited number of staff, that is not feasible, strong oversight over these areas should occur and involve an employee not currently performing any of those functions,” Edelen stated. “Additionally, the jailer could provide this oversight.”
Harris, in his response that was included in the report, said that “deposits of all inmate monies are currently performed by one staff and another staff audits the deposit.
“Monthly bank reconciliations are performed by one staff and the jailer reviews,” Harris continued. “All checks require two signatures, four staff have permission to sign and compare.”
Edelen also pointed out weaknesses in the financial statements for the Lake Cumberland Regional Airport, which underwent its first state audit ever as part of its newly minted status as an agency that receives funds through the county’s occupational tax.
More details on that can be found in the Sunday edition of the Commonwealth Journal.