Audit of Daviess County Clerk’s Fee Account Reveals Two Significant Weaknesses
State Auditor Mike Harmon released Daviess County Clerk Leslie McCarty’s audit of the 2020 financial statements on Tuesday. The audit identified two deficiencies as material weaknesses: the county clerk did not keep accurate records of receipts and disbursements (although the clerk’s fourth quarter report was materially accurate) and the county clerk n did not prepare accurate and timely bank reconciliations.
More details on the shortcomings, as well as McCarty’s response, can be found below. The full audit report is available here. McCarty did not respond to an email request for further comment on Tuesday.
As part of the audit process, the auditor should comment on non-compliance with laws, regulations, contracts and grants. The auditor should also comment on material weaknesses in internal control over financial operations and financial reporting.
“A deficiency in internal control exists when the design or operation of a control does not enable management or employees, in the ordinary course of performing their assigned duties, to prevent, or detect and to correct anomalies in a timely manner”, according to the audit. “A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement in the entity’s financial statements will not be prevented, or detected and corrected in a timely manner. .
The audit considered the shortcomings described below as material weaknesses.
The Daviess County Clerk did not keep accurate records of receipts and disbursements:
The Daviess County Clerk’s receipts and disbursements records were not properly maintained for the 2020 calendar year. There were several items not recorded in these records and other items which were not properly filed . Differences of $632,925 were noted on the Receipts ledger and $297,288 were noted on the Disbursements ledger. Although the records maintained were not accurate, the Clerk’s fourth quarter report was materially accurate. This was because the official and accountant were unaware of the record keeping requirements for the clerk’s office. During the year, the office changed its computer system and changed the way it kept its records, which caused confusion about how items were recorded.
By not keeping a cumulative and continuous record of receipts and disbursements, there is nothing to document the origin of the quarterly amounts. Ledgers are a key piece of documentation for final accounting records.
KRS 68.210 gives the state local finance officer the authority to prescribe a uniform system of accounting. the County Budget Preparation and State Local Finance Officer Policy Manual requires that records of receipts and disbursements be maintained and consistent with quarterly reports submitted.
Good internal controls require that records be kept daily to ensure that daily receipts are recorded in a timely and appropriate manner, to ensure that disbursements are recorded and accounted for, and to provide a basis for bank reconciliations to ensure cash balances are properly maintained.
We recommend that the county clerk’s office maintain accurate records of receipts and disbursements and that these be used to reconcile all accounts and be used to ensure that accurate financial reports are submitted to the proper authorities.
County Clerk’s Response: As noted in the commentary, all issues in the receipt and disbursement records reviewed by the auditor have been resolved as “the clerk’s 4th quarter report was materially accurate.” The discrepancy shown in the commentary according to our output is the result of our accounting department recognizing receipts and disbursements related to the overdue tax sale. We have since made changes to correct these issues with ledgers with advice from our auditor. Specifically, we will be making adjustments to how we account for the tax sale in coordination with the auditor’s recommendations to address the discrepancy noted in the commentary.
The Daviess County Clerk did not prepare timely and accurate bank reconciliations:
The Daviess County Clerk’s bank reconciliations that have been prepared for most of the year have not been prepared properly. There were several issues throughout the year in reconciling ledger balances and ensuring the correct amounts were transferred between credit card accounts and amounts sent to the state for their payment vouchers. . Due to account reconciliation issues, more than $183,000 of corrections were made to the credit card deposit account in February 2021, when it was determined where the funds should be transferred.
These issues are in part due to issues noted in Finding 2020-001. These errors were also caused by a lack of control over reconciliation processes.
By not properly reconciling all bank accounts on a monthly basis, the clerk is unable to determine if all charges are properly accounted for and all payments have been made correctly to their public accounts.
Good internal controls require that reconciliations are performed accurately and in a timely manner to ensure that accurate account balances are calculated for accounts to ensure that the correct amounts are available to pay all appropriate vendors and agencies.
We recommend that the County Clerk prepare and maintain timely, accurate bank reconciliations for all accounts maintained for his office.
County Clerk’s Response: With respect to bank reconciliations, we have made transfers in 2021 to resolve 2020 issues. electronic registration of documents. We were one of the first in the state to initiate this process and have since learned a lot over the year. Our issues were with the clerk’s office credit account where funds from electronic check-in were going through in addition to credit card transactions. We have since created a better process to record these transactions and transfer them in a timely manner; thus solving future problems.
Learn more about the audit process
State law requires the auditor to conduct annual audits of county clerks and sheriffs. The county clerk’s responsibilities include collecting certain taxes, issuing licenses, maintaining county records, and providing other services. The Registrar’s office is funded by statutory fees collected in connection with these functions.
Auditing standards require the auditor’s letter to state whether the financial statements present fairly the receipts and disbursements of the Daviess County Clerk and the receipts, disbursements and balances of the operating funds and county fund of the Daviess County Clerk in accordance with generally accepted accounting principles in the United States of America. The clerk’s financial statements did not follow this format, according to the audit report. However, the report indicates that the Registrar’s financial statements are fairly presented in accordance with the regulatory basis of accounting, which is an acceptable reporting methodology. This reporting methodology is followed for all 120 clerk audits in Kentucky.
According to the audit, “In planning and performing our audit of financial statements, we considered the Daviess County Clerk’s Internal Control over Financial Reporting (Internal Control) as a basis for designing procedures. audit procedures appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Daviess County Clerk’s internal control.
He continues, “As a result, we express no opinion on the effectiveness of the Daviess County Clerk’s internal review. Our review of internal control was performed for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that could be material weaknesses or deficiencies. and, therefore, material weaknesses or material deficiencies may exist that have not been identified.”