Luallen Releases Audit of Magoffin County Fiscal Court

State Auditor Crit Luallen has released the audit of the financial statements of the Magoffin County Fiscal Court for the fiscal year ended June 30, 2005. 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. Findings have been forwarded to Social Security Administration, Internal Revenue Service, and Kentucky Revenue Department.

The audit contains the following comments:

The Fiscal Court has made numerous Social Security and Medicare payroll errors resulting in liability in excess of $30,000. The taxable wages reported to the IRS on the county's 941 forms for Social Security and Medicare (FICA) was understated by approximately $197,000 for calendar year 2005. The additional amount due from both the county employees' share and fiscal court share is approximately $15,000 each totaling $30,000 for the 2005 calendar year due to the Internal Revenue Service. Also, the total gross wages reported on county employees' 2005 W-2 Wage and Tax Statements were $777,421, which was understated by $199,215 and should have been $976,636. The audit recommends the fiscal court immediately seek professional tax guidance to correct these payroll issues by amending the appropriate reports, including the 2005 W-2 Wage and Tax Statements, and pay the additional taxes due.

The County Judge Executive, Bill W. May, responded, "Agree: 941c has been completed and mailed to IRS and KY Revenue Cabinet. W-2cs have been completed and mailed to applicable employees." The Auditors office replied that the auditor's reviewed the amended tax forms and these forms had multiple errors. The auditors continued, "The County should seek professional tax guidance to ensure appropriate measures are taken to resolve this matter and to ensure payroll is correctly reported in the future."

The Finance Officer received $22,466 related to payroll that is questioned. During fiscal year ending June 30, 2005, the Finance Officer received 15 weeks of vacation pay totaling $11,898 in addition to regular wages of $41,266. Also, the Finance Officer received overtime payments totaling $10,394 that was not properly supported by timesheets. Further, the Finance Officer owes the county $174 for health insurance premiums not properly deducted from her paychecks. The county's Administrative Code states, "Vacation time shall not be accumulated in excess of four (4) regular work weeks," and "At the end of each fiscal year, an employee may exercise the option to cash in his/her vacation time; not to exceed two (2) regular work weeks." There was no formal record of vacation leave time maintained by the county for the Finance Officer.

The audit recommends the Fiscal Court collect at least 13 weeks of vacation pay, which totals $10,312 and $174 due for additional health insurance premiums for a total of $10,486 from the Finance Officer. The audit also recommends the Fiscal Court and County Attorney examine the $10,394 in overtime paid during fiscal year ended June 30, 2005, to determine the validity of these payments. In addition, overtime should be paid in accordance with federal wage and hour laws based on a 40-hour workweek, paid on the regular payday for the pay period in which the overtime was worked and consistently applied to all county employees. Further, the audit recommends the County Judge Executive review and sign the Finance Officer's timesheets as well as review and sign her paychecks to ensure appropriate payment of wages.

The County Judge Executive, Bill W. May, responded, "See Amended Personnel Policy and County Attorney's opinion." The Auditors office replied that the amendment to the Personnel Policy was approved by the fiscal court subsequent to the end of fieldwork.

The County Treasurer received $10,775 related to payroll that is questioned. During fiscal year ended June 30, 2005, the County Treasurer received seven and a half (7.5) weeks of vacation pay totaling $3,546 in addition to regular wages of $24,784. Also, the County Treasurer received overtime payments totaling $5,612 that were not properly supported by timesheets. Further, the County Treasurer owes the county $1,617 for retirement that was not withheld from the County Treasurer's paycheck as required. The Fiscal Court did not require timesheets and did not keep a formal record of vacation or sick time accrued and taken. As a result of the lack of records, we could not determine if overtime was actually worked or the validity of the overtime paid.

The audit recommends the Fiscal Court collect from the County Treasurer at least five and a half (5.5) weeks of vacation pay, which equals $2,600 and $1,617 due for retirement withholdings for a total of $4,217. The audit also recommends the Fiscal Court and County Attorney examine the $5,612 in overtime paid to the County Treasurer during fiscal year ended June 30, 2005, to determine the validity of these payments.

The County Judge Executive, Bill W. May, responded, "See Amended Personnel Policy and County Attorney's opinion." The Auditors office replied that the amendment to the Personnel Policy was approved by the fiscal court subsequent to the end of fieldwork. See Appendix B and Appendix C.

Other county employees received vacation pay in excess of administrative code. In addition to the Finance Officer and County Treasurer receiving excessive vacation pay, the audit found five (5) other employees who received more than two (2) weeks of vacation pay. The courthouse custodian and 911 supervisor each received over three and one half (3 ½) weeks of vacation pay and two road workers received over two (2) weeks of vacation pay during fiscal year ended June 30, 2005. Also, the county employee responsible for time keeping at the road department was paid for 104 hours of vacation time while her vacation time balance reflected only 80 hours.

The audit recommends the County Treasurer maintain leave records for all county employees and reconcile her balances to the leave records maintained by other departments each pay period. Also, the audit recommends Fiscal Court examine the vacation pay for all county employees to determine if any amounts should be collected from other employees who received excessive vacation pay.

The County Judge Executive, Bill W. May, responded, "See Amended Personnel Policy and County Attorney's opinion." The Auditors office replied that the amendment to the Personnel Policy was approved by the fiscal court subsequent to the end of fieldwork.

The County Judge Executive owes the county $5,776. The County Judge Executive was overpaid his salary by $2,713 for calendar year 2004. Also, on September 29, 2004, he was paid an additional $3,063. According to the County Treasurer, this payment was made to the Judge Executive as a form of a flexible spending plan since the Judge Executive did not participate in the county health insurance plan. The county's Administrative Code does not address employees waiving health insurance and the county does not have an IRS approved flexible spending plan. For calendar year 2004, the County Judge Executive should have been paid $61,860 in salary and $1,546 in training incentive payments for a total of $63,406. These amounts are determined by the Governor's Office for Local Development in accordance with state law. Earnings records indicated that he was paid a total of $66,119 not including the $3,063 payment. The County Judge Executive should reimburse the Fiscal Court a total of $5,776 for overpayment of salary and the unapproved payment made to him in lieu of health insurance.

The County Judge Executive, Bill W. May, responded, "Check #017994 in amount of $2,331.54 voided. Although included in payroll record, there is no record of check clearing bank. $2,713-$2,332=$381 due from employee. See Amended Personnel Policy and County Attorney's opinion on medical payment." The Auditors office replied that check #17994 was replaced by check #18011. "Also, the medical payment is in violation of GOLD's policy for setting the County Judge Executive's maximum salary. The County Judge Executive should reimburse the Fiscal Court a total of $5,776, and the Governor's Office for Local Development should be notified when this repayment has been made."

Timesheets should be properly maintained. During the testing of payroll, the auditor's noted the following weaknesses: timesheets were not prepared by all employees; timesheets did not have proper supervisory approval; and records of vacation and sick leave accumulated and taken were not properly maintained. The County Judge Executive, Bill W. May, responded, "Agree: This policy will be implemented immediately."

All Expenditures should be presented to the Fiscal Court for approval. No payments for payroll and utilities were approved by Fiscal Court. The County Judge Executive, Bill W. May, responded, "Agree: This was an oversight. Currently have Standing Order for FY-07."

Employees underpaid health insurance premiums by $1,857. There were two employees who received additional health insurance coverage beyond the single plan that is provided by the county. Additional health insurance premiums of $3,677 were paid during the fiscal year for a road employee; however, only $1,994 was withheld from his paychecks, leaving $1,683 due from the employee.

The County Judge Executive, Bill W. May, responded, "Due to an administrative error, additional coverage for road department employee was not discontinued upon his request, therefore this employee should not be liable for these payments. Finance Officer will reimburse the MCFC in the amount of $174."

Fiscal Court should approve annual salary schedule. The County Judge Executive, Bill W. May, responded, "Fiscal Court sets salaries along with making appointments at the beginning of each new term of office and makes adjustments annually with the preparation and approval of the annual budget. Agree that this practice should be adopted."

The Fiscal Court should comply with bidding requirements for FEMA projects. Seven (7) of the nine (9) expenditures for contract work for FEMA projects tested totaling $125,772 out of $161,727, were not bid as required by KRS 424.260 and the county's Administrative Code.

The County Judge Executive, Bill W. May, responded, "A declaration of emergency was declared. Although the disaster occurred in May 2004 and the work was not completed until the fall of 2004, work on the projects was ongoing during the interim. The declaration of emergency would have continued to be in effect." The Auditors office replied that the declaration of emergency could not be found in the fiscal court minutes.

A $51,248 KADD lease payment has been delinquent since October 2003. The County Judge Executive, Bill W. May, responded, "Paid August 15, 2006: Check #001685-General Fund."

The Fiscal Court should adopt a written investment policy. The County Judge Executive, Bill W. May, responded, "Agree. Treasurer will consult with the County Attorney for the purpose of preparing a policy."

The County should maintain proper records for the Public Properties Corporation Fund. The County Judge Executive, Bill W. May, responded, "Agree: Efforts will be initiated to collect and maintain the above mentioned records."

Invoices should be paid within 30 working days of receipt. The County Judge Executive, Bill W. May, responded, "Agree: Every attempt will be made to insure timely payments of claims."

This report, in its entirety, can be accessed on the internet at the following site: www.auditor.ky.gov.


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