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HB 588 filed to combat excessive audit fees

FRANKFORT – With support of many county governments, including the Magoffin County judge/executive who helped write the proposed legislation, Representative John Blanton and three other state representatives introduced a bill that would require state auditors to be current or allow local governments to hire CPAs, instead of being locked into costly and unavoidable fees from the state auditor’s office.

Magoffin County Judge/Executive Matt Wireman has been pushing legislators since he’s been in office to find some way to alleviate county government’s ever-increasing fees after being hit repeatedly with costly and some terribly old audit bills from previous administrations.

As it stands currently, the state auditor’s office is required to audit all public accounts, and then they bill the county governments for those audits. With numerous accounts at the sheriff’s office alone, and accounts to be audited for the county clerk’s office and fiscal court, Wireman, who has also served for many years as a finance officer for Floyd County Schools, said in the past three years the county has paid nearly $1 million in county audit fees, and estimates that cost should have been more in the ballpark of $300,000 to $400,000.

“When I took over in January 2019, there were a lot of outstanding audits or audits that had not been completed related to the sheriff’s office, and those audits went all the way back to 2013,” Wireman said. “The current state auditors went in and completed about 14 of those during the next eight to 12 months and sent us a bill. It was quite large – over $400,000. One of the things that jumped out at me was the enormous cost.”

Wireman further explained that for the 2015 unmined coal audit, the audit report itself identified that $24,745 was collected in tax revenue, to be paid to the fiscal court, with the bill for that audit costing $23,286.

“Ninety-four percent of the tax collected went to the state auditor,” Wireman said. “We saw other instances where the bill time, just to audit a fee account from one year, was over 900 hours. These are unheard of hours. I’m an accountant. Most folks know that. That’s what I’ve done my entire career. I’ve been a school finance officer for an over $60 million budget. I got audited every single year and I’m for it. I want them, but they’ve got to be timely.

Without these audits being timely, what they’ve done is continued to carry forward a lot of the findings and reinvestigating them, and re-bill them, and it’s not very timely.”

Wireman started discussing the issue with the state auditor’s office and Representative John Blanton (R- Salyersville), but was unable to come to a resolution.

“Rather than things getting better, they just kept going as-is,” Wireman said. “We’re at a point now where the state auditor’s office has contracted with a CPA firm to come in and audit the sheriff, but then they bill us to review the audit of the CPA firm they hired. There’s a lot in my view of problems in that entire system, not with the auditing, itself.”

Wireman reiterated that he is not opposed to audits at all.

“I’m for that. I want to be audited. I want people to come look and turn over every stone because I want people to know that in my office and I think most county judge’s involved that I’ve met across the state during my time they want that transparency and that accountability,” Wireman said.

He also noted that the billings and lack of timeliness is harming small, rural counties.

“You get big counties like Kenton, Boone – places like that – where they have multimillion dollar budgets and the state audits cost them what it costs us here, they never see that,” Wireman said. “When you’re seeing Magoffin County having since I’ve been judge either billed or already paid where it’s already contracted, over $939,000. That’s astronomical. There’s no benefit to the reader, to the people, to find out what happened in 2013. That’s nothing. It’s not current.”

Representative Blanton noted that, upon learning about the “outrageous amounts being charged” to Magoffin County, he and Judge Wireman met with the state auditor’s office, but was unable to find a compromise since the audit fees in large part fund the state auditor’s office.

“As a state office, the state needs to fund it, not push it onto the backs of counties,” Blanton explained.

After not being able to reach an agreement with the state auditor’s office, Judge Wireman and Representative Blanton met with the legal team for the Kentucky Association of Counties (KACO) and drafted a bill that is now known at House Bill 588, with Blanton first filing it last year to start the conversation and proposing the bill last week on February 24.

“As it stands now, audits are mandated by the state, but the counties have to pay for it, and that funds the state auditor’s office,” Blanton explained. “Right now, the state auditor is required to audit these funds every year, but this bill will cut that back, with some exceptions – if something is believed to be fraudulent, the county requests it, etc.

Otherwise, the state auditor would be required to audit the offices every four years, and the other years counties would be able to use a private auditor, which is generally half or less than half of what the auditor’s office charges.”

Blanton also noted that right now the auditor’s office is already contracting out some of the work to private CPAs, then charging the counties for hours for that office reportedly uses to review the CPAs’ work, often costing more than the private auditor had charged to perform the actual audit.

Wireman said, “What the bill does is it forces the state auditor to be current, or to allow counties to hire their own CPAs. KACO and the Kentucky County Judges Association did a survey and what they found was that, in most cases, CPA firms were up to 50% cheaper than the state auditor’s office. We’d gone through testimony at committee meetings that the state auditor has said his office can’t make it without the revenues he receives from counties, so he’s said, if we’re going to change any of this, then the state needs to give more money to him. I can’t see that for the justification for all the hours and all the things we’ve been billed.”

Wireman explained that school districts are audited every year, with the audit completed by November 15.

“Right now, they’re just completing 2019 on the sheriff, maybe 2020,” Wireman said. “We’re in 2022. Those things should be done in a timely manner and that’s what this bill does.”

Also, with Wireman’s background in finance, he was able to provide a comparison to audit fees the county pays versus what the school district he works for pays annually.

“I can tell you that the school district I work in – Floyd County – pays over $20,000 a year to have $60 million worth of transactions audited. That’s $20,000 to audit $60 million worth of transactions, a thousand employees, 10,000 purchase orders, all the checks that we wrote every year. Here we’re looking at auditing a sheriff’s account that had $500,000 go through it and over $60,000 to audit that. That’s one of the problems. The good thing about contracting with a CPA firm is they do it for a set amount. That set amount, you know what it is, you put it in your budget and you’re paying for it, but the state auditor comes in and you’re setting here waiting because there’s a meter running and when it gets to whatever they get done, they send it to you, and it is what it is.”

Wireman also told Mortimer Media Group he has no issue with the staff in the state auditor’s office, noting there are great people working there, but explained his problem is with the practices of leadership and the procedures with state auditing are not efficient.

“They need to be caught up and what they can’t do, they need to allow those counties that are not having problems to go ahead and hire a CPA firm because here, if I pay essentially $900,000, I’d have to shut the county down. We just couldn’t make it. That’s one of the reasons we’ve been pushing this and kind of doing a media blitz, talking to a lot of television stations and newspapers across the state. I know KACO is meeting with House leadership and Representative Blanton has been fighting this hard. He sponsored the bill. Hopefully, we can see this change made so that the people, not only in in Magoffin County, but every county around us and all across the state can see audits that are timely so they can know how their county officials are performing now, not what happened 5-6-7 years ago.

Blanton said he is working diligently to get a committee hearing for the bill, noting he’s not sure how the bill will be received in the House since larger communities are less affected by the issue. HB 588 is also co-sponsored by Representatives Adam Bowling (R-Middlesboro), Samara Heavrin (R-Leitchfield), and Brandon Reed (R-Hodgenville).

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