1 REPORT OF THE AUDIT OF THE JACKSON COUNTY SHERIFF For The Year Ended December 31, 2011 ADAM H. EDELEN AUDITOR OF PUBLIC ACCOUNTS ST. CLAIR STREET FRANKFORT, KY TELEPHONE (502) FACSIMILE (502)
3 EXECUTIVE SUMMARY AUDIT EXAMINATION OF THE JACKSON COUNTY SHERIFF For The Year Ended December 31, 2011 The Auditor of Public Accounts has completed the Jackson County Sheriff s audit for the year ended December 31, Based upon the audit work performed, the financial statement presents fairly, in all material respects, the revenues, expenditures, and excess fees in conformity with the regulatory basis of accounting. Financial Condition: The Jackson County Sheriff s 2011 fee account has a deficit totaling $112,889 for the 2011 calendar year. This deficit is attributed to payroll liabilities due the fiscal court for 2011of $65,275, an overpayment of commissions of $28,252 due back to the 2011 tax account, and $28,868 due to the 2012 Fee Account for use of 2012 funds for 2011 expenses. In addition to the above payments due, the Sheriff is due $8,987 from the Fiscal Court for excess fees incorrectly paid. The Sheriff also owes $519 to his Fee Account for disallowed expenditures. Report Comments: Accurate Records Should Be Maintained In Accordance With KRS Receipts Should Be Issued In Triplicate And Accounted For Daily The Sheriff Should Ensure That Expenditures Are For Official Business The Sheriff Should Eliminate The $112,889 Deficit In His Official 2011 Fee Account The Sheriff s Office Lacks Adequate Segregation Of Duties The Sheriff Failed To Adequately Monitor Fuel Purchases The Sheriff Exceeded The Salary Limits Set By Fiscal Court Along With The Approved Budget Deposits: The Sheriff's deposits were insured and collateralized by bank securities.
5 CONTENTS PAGE INDEPENDENT AUDITOR S REPORT... 1 STATEMENT OF REVENUES, EXPENDITURES, AND EXCESS FEES - REGULATORY BASIS... 3 NOTES TO FINANCIAL STATEMENT... 5 SCHEDULE OF EXCESS OF LIABILITIES OVER ASSETS - REGULATORY BASIS... 9 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENT PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS COMMENTS AND RECOMMENDATIONS... 17
7 The Honorable William O. Smith, Jackson County Judge/Executive The Honorable Denny Peyman, Jackson County Sheriff Members of the Jackson County Fiscal Court Independent Auditor s Report We have audited the accompanying statement of revenues, expenditures, and excess fees -regulatory basis of the Sheriff of Jackson County, Kentucky, for the year ended December 31, This financial statement is the responsibility of the Sheriff. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, and the Audit Guide for County Fee Officials issued by the Auditor of Public Accounts, Commonwealth of Kentucky. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note 1, the Sheriff s office prepares the financial statement on a regulatory basis of accounting that demonstrates compliance with the laws of Kentucky, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenues, expenditures, and excess fees of the Sheriff for the year ended December 31, 2011, in conformity with the regulatory basis of accounting described in Note 1. The schedule of excess of liabilities over assets is presented for purposes of additional analysis and is not a required part of the financial statement. Such information has been subjected to auditing procedures applied in the audit of the financial statement and, in our opinion, is fairly stated, in all material respects, in relation to the financial statement taken as a whole. In accordance with Government Auditing Standards, we have also issued our report dated December 17, 2012 on our consideration of the Jackson County Sheriff s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
8 The Honorable William O. Smith, Jackson County Judge/Executive The Honorable Denny Peyman, Jackson County Sheriff Members of the Jackson County Fiscal Court Page 2 Based on the results of our audit, we have presented the accompanying comments and recommendations, included herein, which discusses the following report comments: Accurate Records Should Be Maintained In Accordance With KRS Receipts Should Be Issued In Triplicate And Accounted For Daily The Sheriff Should Ensure That Expenditures Are For Official Business The Sheriff Should Eliminate The $112,889 Deficit In His Official 2011 Fee Account The Sheriff s Office Lacks Adequate Segregation Of Duties The Sheriff Failed To Adequately Monitor Fuel Purchases The Sheriff Exceeded The Salary Limits Set By Fiscal Court Along With The Approved Budget This report is intended solely for the information and use of the Sheriff and Fiscal Court of Jackson County, Kentucky, and the Commonwealth of Kentucky and is not intended to be and should not be used by anyone other than these interested parties. Respectfully submitted, December 17, 2012 Adam H. Edelen Auditor of Public Accounts
9 Page 3 JACKSON COUNTY DENNY PEYMAN, SHERIFF STATEMENT OF REVENUES, EXPENDITURES, AND EXCESS FEES - REGULATORY BASIS For The Year Ended December 31, 2011 Revenues Federal Grants $ 58,365 State - Kentucky Law Enforcement Foundation Program Fund (KLEFPF) 11,986 State Fees For Services: Finance and Administration Cabinet 90,772 Circuit Court Clerk: Fines and Fees Collected 3,235 County Clerk - Delinquent Taxes 26,199 Commission On Taxes Collected 121,598 Fees Collected For Services: Auto Inspections $ 1,490 Accident and Police Reports 144 Serving Papers 19,375 Carrying Concealed Deadly Weapon Permits 3,830 24,839 Other: Transporting Prisoners 3,373 Add-On Fees 21,132 Miscellaneous 5,922 30,427 Interest Earned 25 Borrowed Money: State Advancement 26,000 Total Revenues 393,446 The accompanying notes are an integral part of this financial statement.
10 Page 4 JACKSON COUNTY DENNY PEYMAN, SHERIFF STATEMENT OF REVENUES, EXPENDITURES, AND EXCESS FEES - REGULATORY BASIS For The Year Ended December 31, 2011 (Continued) Expenditures Operating Expenditures and Capital Outlay: Personnel Services- Deputies' Salaries $ 277,292 Other Salaries 11,986 Contracted Services- Advertising 220 Computer/Copier Support 3,050 Materials and Supplies- Office Materials and Supplies 16,997 Uniforms 12,514 Auto Expense- Gasoline 54,166 Maintenance and Repairs 11,882 Other Charges- Conventions and Travel 6,002 Postage 823 Bond 4,737 Carrying Concealed Deadly Weapon Permits 2,171 Miscellaneous 4,289 Capital Outlay- Vehicles 3,000 $ 409,129 Debt Service: State Advancement 26,000 Total Expenditures 435,129 Less: Disallowed Expenditures Meals (519) Total Allowable Expenditures $ 434,610 Net Revenues (41,164) Less: Statutory Maximum 71,725 Fund Deficit at December 31, 2011 $ (112,889) The accompanying notes are an integral part of this financial statement.
11 JACKSON COUNTY NOTES TO FINANCIAL STATEMENT Page 5 December 31, 2011 Note 1. Summary of Significant Accounting Policies A. Fund Accounting A fee official uses a fund to report on the results of operations. A fund is a separate accounting entity with a self-balancing set of accounts. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain government functions or activities. A fee official uses a fund for fees to account for activities for which the government desires periodic determination of the excess of revenues over expenditures to facilitate management control, accountability, and compliance with laws. B. Basis of Accounting KRS directs the fiscal court to collect any amount, including excess fees, due from the Sheriff as determined by the audit. KRS requires the Sheriff to settle excess fees with the fiscal court at the time he files his final settlement with the fiscal court. The financial statement has been prepared on a regulatory basis of accounting, which demonstrates compliance with the laws of Kentucky and is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Under this regulatory basis of accounting revenues and expenditures are generally recognized when cash is received or disbursed with the exception of accrual of the following items (not all-inclusive) at December 31 that may be included in the excess fees calculation: Interest receivable Collection on accounts due from others for 2011 services Reimbursements for 2011 activities Tax commissions due from December tax collections Payments due other governmental entities for payroll Payments due vendors for goods or services provided in 2011 The measurement focus of a fee official is upon excess fees. Remittance of excess fees is due to the County Treasurer in the subsequent year. A schedule of excess of liabilities over assets is included in this report as a supplemental schedule. C. Cash and Investments At the direction of the fiscal court, KRS authorizes the Sheriff s office to invest in the following, including but not limited to, obligations of the United States and of its agencies and instrumentalities, obligations and contracts for future delivery or purchase of obligations backed by the full faith and credit of the United States, obligations of any corporation of the United States government, bonds or certificates of indebtedness of this state, and certificates of deposit issued by or other interest-bearing accounts of any bank or savings and loan institution which are insured by the Federal Deposit Insurance Corporation (FDIC) or which are collateralized, to the extent uninsured, by any obligation permitted by KRS (4).
12 JACKSON COUNTY NOTES TO FINANCIAL STATEMENT December 31, 2011 (Continued) Page 6 Note 2. Employee Retirement System The county official and employees have elected to participate in the County Employees Retirement System (CERS), pursuant to KRS administered by the Board of Trustees of the Kentucky Retirement Systems. This is a cost sharing, multiple employer defined benefit pension plan, which covers all eligible full-time employees and provides for retirement, disability and death benefits to plan members. Benefit contributions and provisions are established by statute. Nonhazardous covered employees are required to contribute 5 percent of their salary to the plan. Nonhazardous covered employees who begin participation on or after September 1, 2008 are required to contribute 6 percent of their salary to the plan. The county s contribution rate for nonhazardous employees was percent for the first six months and percent for the last six months. Benefits fully vest on reaching five years of service for nonhazardous employees. Aspects of benefits for nonhazardous employees include retirement after 27 years of service or age 65. Nonhazardous employees who begin participation on or after September 1, 2008 must meet the rule of 87 (members age plus years of service credit must equal 87, and the member must be a minimum of 57 years of age) or the member is age 65, with a minimum of 60 months service credit. CERS also provides post retirement health care coverage as follows: For members participating prior to July 1, 2003, years of service and respective percentages of the maximum contribution are as follows: Years of Service % paid by Insurance Fund % Paid by Member through Payroll Deduction 20 or more 100% 0% % 25% % 50% % 75% Less than 4 0% 100% As a result of House Bill 290 (2004 General Assembly), medical insurance benefits are calculated differently for members who began participation on or after July 1, Once members reach a minimum vesting period of ten years, non-hazardous employees whose participation began on or after July 1, 2003, earn ten dollars per month for insurance benefits at retirement for every year of earned service without regard to a maximum dollar amount. Historical trend information showing the CERS progress in accumulating sufficient assets to pay benefits when due is presented in the Kentucky Retirement Systems annual financial report. This report may be obtained by writing the Kentucky Retirement Systems, 1260 Louisville Road, Frankfort, KY , or by telephone at (502)
13 JACKSON COUNTY NOTES TO FINANCIAL STATEMENT December 31, 2011 (Continued) Page 7 Note 3. Deposits The Jackson County Sheriff maintained deposits of public funds with depository institutions insured by the Federal Deposit Insurance Corporation (FDIC) as required by KRS (1)(d). According to KRS (4), the depository institution should pledge or provide sufficient collateral which, together with FDIC insurance, equals or exceeds the amount of public funds on deposit at all times. In order to be valid against the FDIC in the event of failure or insolvency of the depository institution, this pledge or provision of collateral should be evidenced by an agreement between the Sheriff and the depository institution, signed by both parties, that is (a) in writing, (b) approved by the board of directors of the depository institution or its loan committee, which approval must be reflected in the minutes of the board or committee, and (c) an official record of the depository institution. Custodial Credit Risk - Deposits Custodial credit risk is the risk that in the event of a depository institution failure, the Sheriff s deposits may not be returned. The Jackson County Sheriff does not have a deposit policy for custodial credit risk but rather follows the requirements of KRS (4). As of December 31, 2011, all deposits were covered by FDIC insurance or a properly executed collateral security agreement. Note 4. Grants A. High Intensity Drug Trafficking Area Grant The Jackson County Sheriff receives an Appalachia High Intensity Drug Trafficking Area (HIDTA) grant from the Office of National Drug Control Policy to supplement the salaries and purchase gasoline in an effort to curb illegal drug related activities in Appalachia. The Sheriff received and expended $58,365 during the year. B. Kentucky Law Enforcement Foundation Program Fund The Jackson County Sheriff s Office was awarded a grant under the Kentucky Law Enforcement Foundation Program Fund (KLEFPF) from the Commonwealth of Kentucky Department of Criminal Justice Training. Under the program, an eligible officer is entitled to receive up to $3,100 annually as provided in KRS During 2011, the Jackson County Sheriff s Office received and expended $11,986. Note 5. Forfeiture Account The Jackson County Sheriff maintained an account for the purpose of receiving assets forfeited to the Commonwealth as a result of legal proceedings. Expenditures from this fund are to be for law enforcement activities. The beginning balance in the Forfeiture Account was $0. During 2011, the Sheriff received $5,352, including a transfer from the former Sheriff in the amount of $4,028. A total of $4,915 was expended during the year, leaving an ending balance of $437 as of December 31, 2011.
14 JACKSON COUNTY NOTES TO FINANCIAL STATEMENT December 31, 2011 (Continued) Page 8 Note 6. Subsequent Events On October 9, 2012, the Fiscal Court presented an Emergency Executive Order to begin Fee Pooling the Jackson County Sheriff immediately due to an excessive amount of payroll owed to the Fiscal Court from the Sheriff and due to the Sheriff being unable to provide payment to his employees for their services. As of December 31, 2011, the Sheriff owed the Fiscal Court $65,274 for payroll. For calendar year 2012, the Sheriff owes an additional $212,641. Due to the Fee Pooling Executive Order, the Sheriff is now required to turn all revenue earned over to the Fiscal Court on a weekly basis. In turn, the Fiscal Court now provides for all expenditures, including payroll.
15 JACKSON COUNTY DENNY PEYMAN, SHERIFF SCHEDULE OF EXCESS OF LIABILITIES OVER ASSETS - REGULATORY BASIS December 31, 2011 Page 9 Assets Cash in Bank $ 40,974 Deposits in Transit 387 Receivables: Per Bank Statement $ 96,602 Due From Fiscal Court - Excess Fees Due Back 8,987 Disallowed Expenditures Due From Sheriff ,108 Total Assets 147,469 Liabilities Paid Obligations: Outstanding Checks $ 27,298 Liabilities Per Bank Statement 110,665 Total Paid Obligations 137,963 Unpaid Obligations: Due Fiscal Court for 2011 Payroll 65,275 Due 2012 Fee Account 28,868 Due 2011 Tax Account for Overpaid Commissions 28,252 Total Unpaid Obligations 122,395 Total Liabilities 260,358 Total Fund Deficit as of December 31, 2011 $ (112,889)
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17 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENT PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
19 The Honorable William O. Smith, Jackson County Judge/Executive The Honorable Denny Peyman, Jackson County Sheriff Members of the Jackson County Fiscal Court Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of The Financial Statement Performed In Accordance With Government Auditing Standards We have audited the statement of revenues, expenditures, and excess fees - regulatory basis of the Jackson County Sheriff for the year ended December 31, 2011, and have issued our report thereon dated December 17, The Sheriff s financial statement is prepared in accordance with a basis of accounting other than generally accepted accounting principles. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Internal Control Over Financial Reporting Management of the Jackson County Sheriff s office is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Sheriff s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statement, but not for the purpose of expressing an opinion on the effectiveness of the Sheriff s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Sheriff s internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described in the accompanying comments and recommendations, we identified certain deficiencies in internal control over financial reporting that we consider to be material weaknesses. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. 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 of the entity s financial statement will not be prevented, or detected and corrected on a timely basis. We consider the deficiencies described in the accompanying comments and recommendations as items , , , and to be material weaknesses.
20 Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of The Financial Statement Performed In Accordance With Government Auditing Standards (Continued) Page 14 Compliance And Other Matters As part of obtaining reasonable assurance about whether the Jackson County Sheriff s financial statement for the year ended December 31, 2011, is free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the accompanying comments and recommendations as items , , , and The Jackson County Sheriff s responses to the findings identified in our audit are included in the accompanying comments and recommendations. We did not audit the Sheriff s responses and, accordingly, we express no opinion on them. This report is intended solely for the information and use of management, the Jackson County Fiscal Court, and the Department for Local Government and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, December 17, 2012 Adam H. Edelen Auditor of Public Accounts
21 COMMENTS AND RECOMMENDATIONS
23 JACKSON COUNTY DENNY PEYMAN, SHERIFF COMMENTS AND RECOMMENDATIONS Page 17 For The Year Ended December 31, 2011 FINANCIAL STATEMENT FINDINGS: Accurate Records Should Be Maintained In Accordance With KRS KRS authorizes the state local finance officer to install a system of uniform accounts that set the minimum requirements for the handling of public funds for government officials. Books of original entry for receipts and disbursements along with monthly bank reconciliations are included in these requirements. Receipts and disbursements ledgers should be prepared from source documents and should be posted daily. Receipts should be posted from daily checkout sheets while disbursements should be posted from the actual checks and debit memos, if applicable. Monthly bank reconciliations should also be prepared and should include all receivables and liabilities for that month. Each month, the bank reconciliation should be reconciled to the receipts and disbursements ledgers. The Sheriff failed to accurately prepare receipts and disbursements ledgers or to maintain accurate monthly bank reconciliations. The Sheriff began using Quickbooks during the middle of the calendar year but failed to input the receipt and disbursement amounts from source documents, and instead used the bank statements. Receipts were not divided into categories and disbursements were not all-inclusive. Monthly bank reconciliations were being performed; however, they were not taking into account any receivables or liabilities for each month, nor was the bank reconciliation agreed to the Sheriff s records. Failure to maintain accurate receipts and disbursements ledgers and failure to prepare accurate monthly bank reconciliations resulted in a deficit for calendar year In order to prevent this from reoccurring, we recommend the Sheriff begin maintaining accurate receipts and disbursements ledgers, prepared from source documents. We further recommend the Sheriff perform accurate monthly bank reconciliations. The Sheriff should also ensure that the ending balance per the bank reconciliation agrees to the ending book balance per the Sheriff s records. Sheriff s Response: This has all been taken care of. The office is running on QuickBooks and all bank statements and ledgers are current Receipts Should Be Issued In Triplicate And Accounted For Daily The system of uniform accounts authorized by KRS requires pre-numbered three-part receipt forms be issued for all receipts. One copy should be given to the payor, one copy should be attached to the daily checkout sheet, and one copy should remain in the file. Voided receipts should be marked void, with two copies kept in sequential order with the daily checkout sheet and one copy remaining in the file. Receipts should be sequentially accounted for on a daily basis. The Sheriff s office utilizes duplicate receipt forms instead of triplicate forms, with one copy given to the payor and the other copy attached to the daily checkout sheet. Voided receipts are not being maintained with the daily checkout sheets, nor are receipts are not put in sequential order. Failure to monitor the sequential order of receipts could lead to missing receipts, and in turn missing funds. We recommend the Sheriff comply with the system of uniform accounts by issuing triplicate receipt forms, ensuring that all receipts are sequentially accounted for, including voided receipts. Sheriff s Response: A new receipt book has been purchased and place in office with triplicate form.
24 JACKSON COUNTY DENNY PEYMAN, SHERIFF COMMENTS AND RECOMMENDATIONS Calendar Year 2011 (Continued) Page 18 FINANCIAL STATEMENT FINDINGS (Continued): The Sheriff Should Ensure That Expenditures Are For Official Business During calendar year 2011, the Sheriff failed to ensure expenditures were for official business. Juror meals accounted for $565. By confirming with the Circuit Clerk s office, it was determined that only $46 was for meals actually purchased for jurors. The remaining $519 was found to be made on days when there were no jury trials being held. These purchases are not considered to be for allowable purchases of the office and will be disallowed. Funk v. Milliken, 317 S.W. 2d 499 (Ky 1958), Kentucky s highest court ruled that county fee officials expenditures of public funds will be allowed only if they are necessary, adequately documented, reasonable in amount, beneficial to the public and not primarily personal in nature. Our testing procedures indicate the Sheriff made expenditures that were not considered allowable. We recommend the Sheriff reimburse the fee account $519, from personal funds, for these unallowable expenditures. Sheriff s Response: I was the one that brought it to the auditor s attention after I learned of a complaint to me. I had no knowledge of the spending but will repay the $ The Sheriff Should Eliminate The Deficit of $112,889 In His Official 2011 FeeAccount The Sheriff has a deficit of $112,889 in his official 2011 Fee Account. This deficit can be attributed to the following: (a) Poor and inaccurate records as noted in , which resulted in a deficit of $28,868 as of December 31, The Sheriff did not open a new bank account for his calendar year 2012 Fee Account, which led to $28,868 of 2012 receipts being used for 2011 disbursements. (b) 2011 payroll liabilities due the Fiscal Court in the amount of $65,275; (c) An overpayment of commissions due to the 2011 Tax Account in the amount of $28,252; (d) In addition to the above, the Fee Account is due $8,987 from the Fiscal Court for an excess fee payment made on January 9, 2012 in error. The Fee Account is also due $519 from the Sheriff for disallowed expenditures. As noted in , the Sheriff failed to maintain accurate receipts and disbursements ledgers along with accurate monthly bank reconciliations. Accurate records, along with the reconciliation of these records, would have prevented this deficit from occurring. We recommend the Sheriff consult with the Fiscal Court and County Attorney to determine how to eliminate this deficit. Sheriff s Response: I have set a meeting up with the Judge Executive on September 5, 2012 to discuss this matter. It will be resolved.
25 JACKSON COUNTY DENNY PEYMAN, SHERIFF COMMENTS AND RECOMMENDATIONS Calendar Year 2011 (Continued) Page 19 FINANCIAL STATEMENT FINDINGS (Continued): The Sheriff s Office Lacks Adequate Segregation Of Duties The Sheriff s office lacks adequate segregation of duties over receipts, the reconciliation process, and other general areas in the Fee Account. During our review of internal control, we noted that two individuals are primarily responsible for most receipt/reconciliation functions, including opening incoming mail, receiving and recording cash, preparing bank deposits, preparing the daily checkout sheets, preparing bank reconciliations, preparing the financial reports and monitoring budget to actual amounts. A limited budget places restrictions on the number of employees a Sheriff can hire. When faced with these types of restrictions, strong compensating controls should be in place to offset the lack of adequate segregation of duties. Proper segregation of duties, or the implementation of compensating controls, is essential for providing protection from asset misappropriation and/or inaccurate financial reporting, while also protecting employees in the normal course of performing their responsibilities. To adequately protect against misappropriation of assets and/or inaccurate financial reporting, the Sheriff should implement strong compensating controls including, but not limited to, the following: (1) Recount cash at the end of each day and compare to the deposit ticket and daily checkout sheet. The Sheriff should initial the deposit ticket and daily checkout sheet to document agreement. (2) Reconcile bank account monthly to the receipts and disbursements ledgers. The Sheriff should initial the bank statement and the receipts and disbursements ledgers to document agreement. (3) Compare budgeted receipts and disbursements to actual amounts to ensure that receipts and disbursements are within budget and not being overspent. The Sheriff should initial the comparison to document his review. Sheriff s response: I look at all daily deposits, bank statements and ledgers and I initial all of them daily. Auditor s Reply: The Sheriff did initial the bank statements and daily checkout sheets, but he has not recounted the cash to ensure their accuracy. As stated in finding , bank reconciliations, receipts ledgers, and disbursements ledgers were not correct and a budget to actual comparison was never done.
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