By Jeff Neagle
The audit of the Adair County Fiscal Court for fiscal year 2018-2019 is complete and the results have been released by the office of the Auditor of Public Accounts, Mike Harmon. This audit comes three months after the 2017-2018 fiscal year audit was reported in The Adair Progress on March 12, 2020. That audit revealed $80,987 missing from the ‘inmate account’ at the Adair County Jail. The account is more commonly known as the commissary account.
The new 2018-2019 audit shows $97,451 unaccounted for in the commissary account. When added to the previous audit findings, the audits show a total of $178,438 missing from the account. The missing funds are not taxpayer funds. The account is money deposited by inmates or their families.
The report listed six total findings by the auditor’s office. Of these, four deal with issues at the jail, which was three fewer than the previous audit. The remaining two are Fiscal Court and County related. For each finding at the jail, Jailer Joey White were allowed to give written responses to the auditor. All four jail issues are repeat findings from the previous year’s report.
The first finding as listed in the report stated, “The jailer failed to properly implement controls over the inmate account which resulted in missing deposits totaling $97,451.” This finding is a repeat finding from the previous fiscal year. The inmate account holds funds received by the jail from inmates.
The report stated that there were six deficiencies in this area related to the kiosk machines located in the jail, bank statement reviews, and reconciliation, daily checkout sheets and deposits, and disbursements from the inmate account. The report recommended the jailer “implement adequate controls over accounting functions and all activity of the inmate account in order to protect from asset misappropriation. Additionally, this finding will be referred to the Kentucky State Police.”
The previous audit was also sent to the Kentucky State Police and they are investigating the missing funds. This new information will be added to the case currently underway.
In response, Jailer White stated, “With the new administrator that started November 2019, and due to limited number of staff, the jailer implemented two more staff to improve [the] segregation of duties to have adequate internal control over accounting functions and safeguard of the inmate accounts.”
The second finding stated, “The Adair County Jail does not have adequate segregation of duties.” According to the report, the lack of segregation of duties allowed the misappropriation of funds to occur. The report recommended that with the limited number of staff, stronger oversight should occur and involve more people with the account functions.
White’s response to the finding stated that he had implemented two more staff to improve the segregation of duties. He also stated that he is approving bank statements, deposit slips, deposit receipts, checks and bank reconciliations for accuracy.
The third finding also related to the commissary account. It stated that the “jailer did not present an annual jail commissary report to the county treasurer.” The auditor said this was a lack of oversight over accounting functions which resulted in “misstated financial reporting for the jail commissary fund,” and recommend the jailer submit the annual report.
White said he has already instituted the new policy and has been submitting monthly jail commissary reports to the county treasurer and will submit the annual report as well.
The final issue dealt with the remittance of sales tax, which the auditor said were not filed in a timely manner. White said all sales tax reports and late fees have been caught up and since December, all monthly sales tax has been paid in a timely manner.
In separate interview, White and Judge Gale Cowan both stated that the Kentucky State Police investigation is still continuing. The KSP investigation of the 2017-2018 year has been underway since the audit was released in March. With the new report just released, they will now shift attention to it.
In addition, the independent accounting firm of Patrick & Associates, LLC will be conducting an audit of financial records from July 1 to December 31 of 2019. White had requested the audit previously and said in the interview that he expects there will be money missing from that time as well.
Judge Cowan confirmed they will be working on the new audit soon. She stated that once the full year audit is conducted, the work already completed will not have to be redone.
White stated, “Since we have been aware of last year and this year, we have already changed our policy and practice of how we are doing things to safeguard inmate funds.”
The final two issues in the audit are both related to the fiscal court. The first auditor comment stated, “The Adair County Fiscal Court did not properly disclose debt balances on the quarterly financial report.” The audit says this is a repeat finding from the previous year. The report says the court listed a combined debt on June 30, 2019 of $9,268,990 but the actual amount was $8,597,935 for a difference of $671,055. Combined interest was given as $2,034,923 but the actual amount was $1,266,553 for a difference of $768,370.
The auditor’s office recommended the court “implement controls such as reviews of financial statements by an individual independent of the reporting process to ensure that all reporting is accurate.”
In response, Judge Cowan wrote, “This finding is due to incorrect amortization schedules being given to county treasurer. This was corrected at time of finding. County Treasurer is now calling bod company prior to each fiscal year to make sure she has the correct information.”
The final finding in the report stated the court does not have adequate segregation of duties. The report said that “Although mail is received by the administrative assistant, the treasurer rotates the duties of preparing deposits with the finance officer and then posts the deposits to the receipts ledger.
Additionally, both the finance officer and treasurer rotate the duty of preparing disbursement checks (which are automatically posted to the ledger by the computer system)….A segregation of duties over various accounting functions, collecting receipts, preparing bank deposits, and preparing reports and reconciliations, or the implementation of compensating controls, when needed because the number of staff is limited, is essential for providing protection from asset misappropriation and inaccurate financial reporting.”
Judge Cowan responded that “with the new administration, the County Judge Executive is viewing all bank statements and signing along with the County Treasurer.”