Monticello — State Auditor Crit Luallen recently released the audit of the financial

statements of the Wayne County Fiscal Court for the year that ended June 30,

2009. State law requires annual audits of county fiscal courts.

The audit found that the county's financial statements, in all material

respects, fairly present the county's assets, liabilities, and equity

arising from cash transactions and revenues received and expenditures paid

in conformity with the modified cash basis of accounting.

As part of the audit process, the auditor must comment on non-compliance

with laws, regulations, contracts and grants. The auditor must also comment

on material weaknesses involving the internal control over financial

operations and reporting.

The audit contains the following comments.

The Airport Board lacks an adequate segregation of duties. Segregation

of duties or implementation of compensating controls, when needed because

the number of staff is limited, is essential for providing protection to

employees in the normal court of performing their duties and can also help

prevent inaccurate financial reporting and/or misappropriation of assets.

A lack of segregation exists over the receipts, disbursement and

reconciliation functions because a limited number of employees are available

to properly segregate these job duties. The Airport Board bookkeeper

receives cash, prepares bank deposits, prepares the monthly bank

reconciliation, writes and co-signs all disbursements, as well as posts to

the receipts and disbursements ledgers.

Because the Airport Board bookkeeper handles all functions of the

Airport Board and compensating controls were not in place, the following was

noted:

€ No evidence of review or printout of any general ledger detail or

financial statements.

€ The general ledger was incomplete and in accurate:

a) The beginning net assets were overstated by $4,519. A review of the

bank statements and the general ledger found a $4,987 current year deposit

and two current year checks totaling $353 recorded in the prior year. In

addition, there was one check for $151 that cleared the bank, but was not

recorded on the general ledger. Finally, there was $36 in unknown

overstatements.

b) Auditors discovered errors in classification of revenues in the

amounts of $10,936.

€ Sales tax was not paid timely resulting in $394.91 in penalties and

interest. There were four checks written for the months of February, April,

May and June of 2009 that had not been cashed and were still outstanding as

of November 30, 2009. The sales tax for the months of August, September,

October and November of 2008 and January of 2009 were paid with one check

written on February 2, 2009. There was no evidence in the manual and

computer check registers that sales tax for these months were ever written

monthly. The 1.75 percent vendor compensation was deducted on all of these

forms, but is only allowed when the sales tax is filed and paid timely. It

is likely the Airport Board will receive a notice from the state and will

have to pay this back. Auditors were told that there were problems with the

postal service.

To adequately protect employees in the normal course of performing their

duties and/or prevent inaccurate financial reporting or misappropriation of

assets, the audit recommends that:

€ The Airport Board separate the various receipt, disbursement and

reconciliation functions and implement compensating controls. If, due to

limited staff size, that is not feasible, strong oversight over those areas

should occur and involve an employee not currently performing any of these

functions such as the Airport Board president.

€ All outstanding checks should be investigated and voided and reissued

if necessary.

€ All invoices should be paid timely to avoid penalties and interest and

that sales tax be paid online to avoid problems with the postal service.

The county should capitalize capital assets in accordance with the

approved capitalization policy. During the testing of capital assets of the

governmental entity, auditors discovered the following:

€ The cost to be depreciated column of the capital asset listing for

land and buildings did not total correctly.

€ The final payment for construction costs for the EMS building in the

amount of $5,022 was not capitalized.

€ A Bobcat purchased with loan proceeds in the amount of $28,637 was not

capitalized.

€ A down payment for an ambulance in the amount of $20,940 was not

capitalized. The amount should be recorded on the capital asset listing;

however, depreciation should not be recorded until the final purchase of the

ambulance takes place in the subsequent fiscal year.

During the testing of capital assets of the business-type entities,

auditors discovered the following:

€ Taxiway additions for 2008 in he amount of $599,758 were not included

on the current year Capital Asset Listing for Infrastructure for the

airport. Consequently, depreciation of $23,990 was not recorded for these

additions in the current year.

€ Engineering services in the amount of $38,752 for the Runway Light

Rehabilitation Project for the Airport were not included as construction in

progress as required by the capitalization policy.

The audit recommends that the county strengthen the controls over the

recording of capital assets to ensure compliance with the county's

capitalization policy.

The Airport Board should pay invoices within 30 days as required by KRS

65.140. During the audit testing, auditors noted that three of the seven

invoices auditors tested were not paid within 30 working days. Also, there

were 11 of the 12 sales tax returns not paid timely.

KRS 65.140 states that "unless the purchaser and vendor otherwise

contract, all bills for goods and services shall be paid within 30 working

days of receipt of a vendor's invoice except when payment is delayed because

the purchaser has made a written disapproval of improper performances or

improper invoicing by the vendor's subcontractor."

This statue further states "an interest penalty of one percent of any

amount approved and unpaid shall be added to the amount approved each month

or fraction thereof for 30 working days which follow receipt of vendor's

invoice by the purchaser."

The audit recommends that the Airport Board comply with KRS 65.140 and

pay all invoices within the required 30 working days.