State Auditor Crit Luallen Monday released audits of the Knox County Fiscal Court for fiscal years 2006 and 2007, which cover the administration of former Knox County Judge-Executive Raymond Smith. Smith, who is scheduled for sentencing on Tuesday, pleaded guilty to federal mail fraud on March 3, 2008. The charges stem from 2003-2005 audit findings that Luallen’s office referred to the FBI and other law enforcement agencies. The 2006 and 2007 audits, which detail 53 findings and question millions of dollars in expenditures, were referred to the United States Attorney’s Office, the Internal Revenue Service (IRS), the county attorney’s office and the Kentucky Department of Revenue for further review. As with the previous three annual audits (2003-2005) of Knox County Fiscal Court under Smith’s administration, auditors issued a disclaimed opinion, meaning they cannot give assurance on the accuracy of the county’s financial statements. The serious audit findings are from the time when former judge Smith held office. Since a portion of the 2007 audit covers current Knox County Judge-Executive J.M. Hall who was elected in November 2006, auditors provided Hall with several recommendations to strengthen controls and oversight of his office. Hall agrees to the recommendations in the audit. “Again, our audits have found very serious problems in the office of the former Knox County Judge-Executive. After years of continual mismanagement in the Knox County Judge’s office, we are encouraged by the current judge’s willingness to adopt our recommendations and improve oversight of his office for the benefit of the taxpayers of Knox County,” Luallen said.
Among the serious findings in the 2006 audit are:
· The county did not follow proper purchase and procurement procedures that resulted in more than $2 million of expenditures that failed testing procedures. During expenditure testing, auditors found that some invoices were absent or did not provide adequate documentation to support the expenditure. There were other instances where invoices were not paid timely. Auditors selected 121 invoices for testing totaling $2.7 million. Auditors’ testing showed expenditures had inadequate documentation or no receipts. Several invoices were not original and were either a faxed or copied invoice, causing auditors to question their legitimacy. In addition, 33 road fund invoices were improperly itemized and did not include the description of work performed, location, and the amount of hours and rate per hour.
· The county should take possession of assets that were purchased within a reasonable time period. Auditors discovered that the former judge-executive ordered office furniture in July 2005 that included a desk and hutch in the total amount of $4,144. Upon further investigation, auditors determined that the expenditure did not have supporting documentation such as a receipt and purchase order. Auditors discovered that the furniture was picked up on Feb.19, 2007. Upon further inquiry, it was determined that the furniture was not delivered to the county, and auditors could not determine where the furniture is currently located.
· More than $4,000 in credit card expenditures could not be appropriately validated and were not properly documented.
Auditors chose five months of credit card statements to test for a total of $10,265 charges. Of the $10,265 of credit card expenditures tested, only $5,709 had proper documentation to support the expenditure - leaving $4,556 without adequate documentation. Several expenditures were for travel, meals or miscellaneous supplies.
· Questionable payments were made to a company totaling $113,173 for various county round projects. Auditors question disbursements totaling $113,173 paid to one company for various county road projects. Auditors found instances where the checks were issued to a company that the former county judge-executive may have financial interest. There were also instances where checks were cashed and deposited by individuals other than the payee. Due to the questionable endorsements, an organizational search of this company was performed on the Kentucky Secretary of State’s website. According to that search, no company was found to match the search request. In addition, occupational tax records were reviewed to determine whether the company paid occupational taxes; no records were found of payments. Of the $113,713 total, only $44,483 contained endorsements. The remaining $68,290 did not contain any endorsements. There were no purchase orders issued for payments made to this company. Five checks were disbursed before a fiscal court meeting totaling $45,550. Additionally, all of the invoices were not properly itemized. The invoices did not contain daily costs that were billed to the county and did not identify the billing time periods on the invoice. The transactions may involve questionable banking practices relating to the depositing of and cashing of checks by individuals other than the intended payee.
These four findings were referred to the US Attorney’s Office.
Among the serious findings in the 2007 audit are:
· The county did not follow proper purchase and procurement procedures that resulted in more than $962,000 of expenditures that failed testing procedures. Auditors found that some invoices were absent or did not provide adequate documentation to support the expenditure. There were other instances where invoices were not paid timely. Auditors selected 163 invoices for testing totaling $1.8 million. Auditors’ testing showed expenditures had inadequate documentation or no receipts. In addition, 50 road fund invoices were improperly itemized and did not include the description of work performed, location, and the amount of hours and rate per hour.
· The former county judge-executive owes the county $6,118 due to overpayment of vacation time not permitted by Kentucky law.
Kentucky law (KRS 67.705) states that the county judge-executive shall receive an annual salary pursuant to the salary schedule and be paid training incentives as set by the Governor’s Office of Local Development (GOLD). The maximum salary for the county judge-executive in calendar year 2006 was $79,247 and a training incentive for 2006 of $3,302 totaling $82,667; however, payroll records and reports filed indicate that the former county judge-executive received $88,667, which is $6,118 in excess of the amount that should have been paid by statue. Prior to leaving office, the former administration prepared the last payroll under their administration, included in this was a check to the county judge-executive. The notation on the check was for vacation time. This check should not have been paid to the county judge-executive. Elected officials are not entitled to vacation and sick leave time. Their positions are elected and therefore do not have attendance requirements.
· $2,546 of credit card expenditures could not be appropriately validated and were not properly documented. Auditors chose five credit card statements to test for a total of $13,468 charges. Of the $13,468 of credit card expenditures tested, only $10,922 had proper documentation to support the expenditure - leaving $2,546 without adequate documentation. Several expenditures were for travel, meals or miscellaneous supplies. Auditors inquired of the finance officer to see if travel vouchers existed to support expenditures related to meals and travel and were told there are no such files. Three credit card statements had finance charges. In addition, multiple expenditures showed that the county paid sales taxes. These three findings were referred to the U.S. Attorney’s Office. To review other findings in the 2006 and 2007 audits, visit www.auditor.ky.gov