March 25, 2006 2004 audit Part II

As I have mentioned the 2004 audit indicates some improvement in the handling of county finances. It's really funny to look at the dramatic change in audit findings that occurred when the county started using the state auditors in 2003. The 2002 audit (1 solitary finding by the local private auditors) and then the 2003 audit (29 findings by the state auditors with numerous sub-findings) and then the 2004 audit (15 findings and again numerous sub-findings by the state auditors). Click here for 2004 audit findings.

Looking at the audit history, I find it very hard to believe that the county was operating just fine in 2002 with a glowing audit (1 finding) from the local private auditors and then suddenly in 2003 the county was violating state law, not budgeting money as required by law, spending more money than was approved, not controlling purchases, not maintaining a general ledger, totally unaware that the county had to go by the state comptroller's "chart of accounts," and boom there are 29 findings by the state auditors. It just seems more likely that all these violations and irregularities were occurring in 2002 but "somehow" went unreported.

Moving on to the 2004 audit, there were 15 findings. One finding reported problems in making debt payments--or actually making a debt payment for a debt that the county didn't even owe. The audit reported that the county made an interest payment of $45,326 in December 2003 for a debt that was actually owed by the City of Morristown, not Hamblen County. The city finally reimbursed the county for all but $408 in June 2004. The 2004 audit reports that the $408 was still owed to the county as of the audit report date.

There were major purchasing deficiencies. The Mayor's Finance Department apparently selected an employee to serve as a purchasing agent, but the agent didn't keep control over purchase orders. Blank purchase orders were just handed out to departments, so nobody knew what was being purchased (or how much had been spent) until after the bill arrived.

There were no employment work records for certain "exempt" county employees. County departments over the years had increasingly allowed more and more employees to be considered "exempt" employees. The "exempt" employees were salaried and didn't have to keep any time sheets. The state auditors said that all employees should be required to keep a record of time worked. They also pointed out that since vacation time was not tracked in some instances, "(exempt) employees [] obtain[ed] a higher benefit rate than the non-exempt (hourly) employees."

There were deficiencies in controls over travel. Apparently, nobody required an itemized receipt for meals paid with credit cards, so the county didn't know what it was paying for. It appears that the receipt total was submitted and paid without an itemized detail.

There were severe deficiencies in budgeting. The budgeting deficiencies were very important and included five different items (A-E)---four of which are discussed here.

(A) Despite state law, the audit states that the County Mayor didn't even present a budget to commission (and so didn't get approval to spend money) for certain funds (such as the sheriff's special revenue fund). Some budgets were brought to commission, but others weren't.

(C) The Finance Department overspent the legally approved spending amounts in several funds: the General Fund, the Highway Fund, the Special Debt Fund, the General Debt Fund, and the Hospital Debt Fund. If spending limits for county funds are going to be ignored, what's the purpose in going through a long, drawn-out budget process? And this occurred in 2003 as well--for example, the 2003 audit says that spending exceeded appropriations in the General Fund in amounts ranging from $737 all the way up to $296,964.

(E) There were huge budgeting problems. The beginning fund balance estimates provided to commissioners during the budget process were way off. Estimates of fund balance are estimates, but the auditors apparently think (and so do I) that county financial officials should be able to get at least reasonably close to the real figure.

When the county was preparing its '04 budget in July 2003, county financial officers estimated and told commissioners that the beginning fund balance for the general fund was $697,526 when it was really only $208,870. The Commission was told that the fund balance for the solid waste (garbage) fund was $56,265 when the fund really had a deficit balance of ($205,578). In an understatement, the auditors added: "County officials should better estimate the beginning fund balance when adopting the budget."

I've mentioned this problem several times at meetings because this is critical financially. If county officials can't come up with at least a close estimate of what's in the bank (fund balance), then it's no wonder that there is overspending and no one really knows what the county has or exactly where it's going.

(D) Finally, the audit also reported a finding where the County Mayor instructed the Finance Department to transfer money ($89,986) from the General Fund to the General Capital Projects Fund and to transfer money ($274,730) from the General Debt Fund to the General Capital Projects Fund without the required approval of county commission.

County commission not only never approved the transfers, but county commission apparently wasn't even told that the transfers were being made or that payments totalling $360,000 had been made in error for years.

In response to this finding, the Mayor told the auditors that he talked with the trustee and finance director (but not county commission) and then instructed his Finance Department to make the transfers to "restore" the accounts to what county commission had actually approved "over the years." It turns out that these wrong payments totalling over $360,000 included spending errors going all the way back to June 15, 1999 and continuing up to June 9, 2004.

It looks like the Capital Projects Fund was being used for over five years to pay for things that should have been paid out of the County's General Fund or the County's Debt Fund. In 2004, the Mayor talks with two county officials (but not to county commissioners) and instructs them to switch everything back around.

Why such secrecy--to the point that county commissioners didn't even know that $360,000 had been moved around until they read about it in the audit? Why did no one explain to county commission what had happened and then ask for the required approval to make the transfers?

More on these spending errors next time...