January 30, 2006 The 2002 Audit Bottom Line: The county spent $923,000 more than it took in

As I continue to report on Hamblen County audits starting with the year 2001, we move to 2002 with this reminder. County financial audits have a certain usefulness, but they are very limited in scope and they are not designed to detect fraud, waste, or abuse, according to the State Comptroller's Office--the state department that monitors all audits of county government.

The title of this post tells the big headline story for 2002.

According to the 2002 audit (the last one performed by the private, local auditors), the county spent $923,000 more than it took in.

Unfortunately, there was nothing new about the county spending more than it took in---in fact, going all the way back to 1992, 2002 was the 7th year that the county spent more than it took in.

One dramatic difference, however, was the size of the deficit---$923,000. The previous high deficit was $815,666.

Another dramatic difference was that with this huge deficit, the county ended up with its lowest fund balance as of 6/30/02-- an ending fund balance of just $389,568.

The third important item to note is that the county found itself in this financial mess less than three years after a wheel tax was started "to build up the general fund balance."

There was only one major finding or accounting irregularity reported in the audit and that was to state that the Finance Department spent more than county commission had appropriated out of the General Fund, Garbage Fund, and Highway Fund. This is a violation of state law.

(This one reported finding by the local auditors will contrast dramatically with the 29 reported "findings" in the next year's 2003 audit that was performed by state auditors at a significant financial savings to the county and that will be the subject of a future post.)

The local auditors also stated that Hamblen County operated on a cash basis in 2002 when officials should recognize that "Hamblen County is required to report on the modified accrual basis." Accrual is an accounting term that in general means that you put income and expenses in the year where they belong even if you haven't yet received the income or written the expense check.

The reply to this audit finding from the Finance Department was that Hamblen County had "consistently" been using the cash basis of accounting in previous years.

So why hadn't this problem been reported in prior audits and corrected?

These two statements seem odd.

Did the auditor tell the County Mayor and the Finance Department during the many prior years that he had been performing the county audit that they were required to operate on the modified accrual basis?

1. If the auditor did tell the county repeatedly that it must operate on the modified accrual basis, why did the county (according to the Finance Department) say it had "consistently" been using the cash basis of accounting instead?

2. If the auditor did not tell the county that it was required to report on the modified accrual basis during the many prior audits, then why did he suddenly bring this up in the 2002 audit?

More on 2002 next time.

Any comments may be sent to noe4accountability@yahoo.com. If you would like to have your comments published, please include your name, address, and phone number for contact and verification.