FRANKFORT – Kentucky Auditor of Public Accounts Mike Harmon released two audits on the Magoffin County Sheriff’s office this week, pointing out a couple findings in the reports.
The reports, prepared by Tichenor & Associates, LLP, Certified Public Accountants, presented findings for the Magoffin County Sheriff’s Settlement – 2017 Gas and Oil Taxes for the period of May 16, 2017, through May 15, 2018; as well as for the Magoffin County Sheriff’s Settlement – 2018 Gas and Oil Taxes for the period May 16, 2018 through July 15, 2019.
Within the schedule of findings and responses for the 2017 Gas and Oil Taxes, the report read as follows:
2017-001 The Sheriff’s Annual Settlement Was Materially Misstated
This is a repeat finding and was included in the prior year audit report as finding 2016-001. The sheriff’s annual settlement was materially misstated and was not presented to the fiscal court in a timely manner. The sheriff’s annual settlement did not include the following:
• 2015 and 2016 Gas Re-bills of $50,948
• Penalties of $43
• Discounts of $3,108
• Delinquent Real Estate of $584
• Sheriff’s Commissions of $6,769
• Taxes due to districts of $40,529
• Taxes paid of $155,464
Since these items were not included, the amount owed or due the taxing district was not properly determined. The annual settlement was approved by the fiscal court on September 27, 2018.
The sheriff did not implement proper control procedures to ensure the county settlement was prepared timely and is an accurate representation of tax activity.
By not preparing the county settlement timely, the sheriff was not in compliance with statutes. In addition, accuracy assists in the fiscal court’s ability to hold the sheriff’s office accountable for tax collections and disbursements.
KRS 134.192 requires each sheriff to annually settle his tax accounts on or before September 1 of each year. Furthermore, the annual settlement shall be filed in the county clerk’s office and approved by the governing body of the county no later than September 1 of each year.
The settlement shall show the amount of taxes collected and disbursed for the county, school district and each taxing districts. Effective internal controls over financial reporting are essential to ensure financial reports are accurate.
We recommend the sheriff’s office prepare an accurate annual tax settlement and comply with KRS 134.192 by presenting it to the fiscal court by September 1.
Sheriff’s Response: Sheriff settlements are now being prepared by a professional accountant. Reports will be as accurate as possible.
2017-002 The Sheriff’s Office Lacks Adequate Segregation Of Duties
This is a repeat finding and was included in the prior year audit report as finding 2016-002.
The sheriff’s office lacks adequate segregation of duties and internal controls over tax receipts and disbursements because the sheriff failed to implement proper internal control procedures. The office manager/bookkeeper and deputies collect tax receipts. The office manager/bookkeeper or a deputy prepares a daily bank deposit, reconciles the daily receipts to the daily collection report and posts items to the receipt ledger. The office manager/bookkeeper prepares the month-end tax reports, prepares checks for tax distribution based on the month-end tax reports and posts checks to the disbursement ledger. The office manager/bookkeeper and the sheriff sign tax distribution checks.
The office manager/bookkeeper prepares the monthly bank reconciliation, although there is nothing documented to determine who prepared the reconciliation or that it was reviewed by the sheriff. The office manager/bookkeeper is the sheriff’s daughter which further complicates the internal controls of the sheriff’s department because collusion between the sheriff and his daughter is at a higher risk due to their relationship as compared to unrelated parties.
According to the sheriff, the sheriff operates on limited resources and a restricted budget; as such, the sheriff’s office lacks the means to employ a fundamental segregation of duties strategy.
By not segregating these duties, there is an increased risk of misappropriation of assets either by undetected error or fraud. Internal controls and proper segregation of duties protect employees and the sheriff in the normal course of performing their daily responsibilities. Good internal controls dictate the same employee should not receive payments, prepare deposits and post to the receipt ledger. The same employee should not prepare monthly reports, sign checks and post to the disbursement ledger, and the same employee should not deposit funds, sign checks, post to ledgers, prepare bank reconciliations and monthly reports.
We recommend the sheriff’s office implement internal controls and segregate duties as much as possible. Employees receiving payments and preparing deposits should not be posting to the receipts ledger and preparing bank reconciliations. Employees preparing and signing checks should not be posting to the disbursements ledger and preparing bank reconciliations. A proper segregation of duties may not be possible with a limited number of employees, and in that case, the sheriff could take on the responsibility of preparing or reviewing the daily deposits, receipts and disbursements ledgers, monthly reports and bank reconciliations. These reviews must be documented in a way that indicates what was reviewed, by whom and when, because signing off on inaccurate information does not provide internal control.
Sheriff’s Response: Although we are a small office with a limited number of employees, we will do our best to implement auditors’ suggestions.
The schedule of findings and responses for the 2018 Gas and Oil Taxes included a repeat finding, as follows:
2018-001 The Sheriff’s Office Lacks Adequate Segregation Of Duties
This is a repeat finding and was included in the prior year audit report as Finding 2017-002.
The sheriff’s office lacks adequate segregation of duties and internal controls over tax receipts and disbursements. The bookkeeper and/or office manager and deputy clerks collect tax receipts. The bookkeeper and/or office manager or a deputy clerk prepares a daily bank deposit and reconcile the daily receipts to the daily collection report and post items to the receipts ledger. The bookkeeper and/or office manager prepares the month-end tax reports, prepares checks for tax distribution based on the month-end tax reports and posts checks to the disbursements ledger. The bookkeeper and the sheriff sign tax distribution checks. The office manager prepares the monthly bank reconciliation, although there is nothing documented to determine who prepared the reconciliation or that it was reviewed by the sheriff.
According to the sheriff, he was unable to implement an adequate internal control system to improve segregation of duties. By not segregating these duties, there is an increased risk of misappropriation of assets either by undetected error or fraud. Internal controls and proper segregation of duties protect employees and the sheriff in the normal course of performing their daily responsibilities.
Good internal controls dictate the same employee should not receive payments, prepare deposits and post to the receipts ledger. The same employee should not prepare monthly reports, sign checks and post to the disbursements ledger. Also, the same employee should not deposit funds, sign checks, post to ledgers, prepare bank reconciliations and monthly reports.
We recommend the sheriff’s office implement internal controls and segregate duties as much as possible. Employees receiving payments and preparing deposits should not be posting to the receipts ledger and preparing bank reconciliations. Employees preparing and signing checks should not be posting to the disbursements ledger and preparing bank reconciliations. A proper segregation of duties may not be possible with a limited number of employees, and in that case, the sheriff could take on the responsibility of reviewing the daily deposits, receipts and disbursements ledgers, monthly reports and bank reconciliations.
These reviews must be documented in a way that indicates what was reviewed, by whom and when.
Sheriff’s Response: Although we are a small office with a limited number of employees, we will do our best to implement auditors’ suggestions.
While these reports were released this week, each is dated for June 2020, presumably when the reports were generated. These findings are for previous years, as indicated, and are only the findings of the auditors involved.
