(Frankfort - November 17, 2009) State Auditor Crit Luallen today released the audits of the 2008 Taxes for Breathitt County Sheriff Ray Clemons for the period May 3, 2008 through April 15, 2009, and the 2007 Unmined Coal Taxes audit for the period Sept. 6, 2007 through Oct. 21, 2008.

Both audits have been referred to the Kentucky Attorney General's Office due to deficits.

The 2008 tax audit contains the following comments:

The Sheriff had a deficit of $9,302 in his 2007 tax account. During audit procedures, auditors noted additional liabilities of $2,036 due from the 2007 franchise account. On Nov. 16, 2007, $1,699 of 2006 funds was deposited into the 2007 franchise account. In October 2008, the Sheriff paid $1,849 out of the 2007 franchise account to the districts as instructed by the 2006 audit.

Additionally, auditors noted a $187 franchise bill collected and deposited on Nov. 30, 2007 during the 2007 tax year that was included as a delinquent franchise bill. This franchise bill is included in the 2008 tax year and the funds collected will be allocated to the 2008 tax accounts.

Based on the additional liabilities noted above, the 2007 tax year deficit of $7,266 will be restated to $9,302. This deficit was due to $9,455 of undeposited receipts less $153 of unidentified receipts that offset this deficit. This matter has been referred to the AG for further investigation.

Clemons responded, "Pending further investigation by the Attorney General."

The Sheriff should distribute 10% add-on fees on a monthly basis. Kentucky law (KRS 134.430(3) states the Sheriff shall be entitled to an additional 10 percent for all delinquent taxes collected from the time the 10 percent fee becomes applicable through the sale of the tax claims. This fee shall be added to the total amount due and paid by the person paying the delinquent tax bill and then distributed to the Sheriff's fee account monthly.

The Sheriff collected $17,676 for 10 percent add-on fees for 2008 collections The Sheriff paid the total amount collected to the fee account; however, he did not pay add-on fees to the fee account monthly, as required.

The audit recommends the Sheriff pay all add-on fees monthly as required.

Clemons, responded, "Ten percent Add-on Fees will be distributed monthly to the fee account as required."

The Sheriff's office lacks adequate segregation of duties. This occurs when only one person has control over various elements of a single account, e.g., deposits and payments. The report recognizes that due to the diversity of operations, small size, and budget restrictions, the Sheriff has limited options for establishing a segregation of duties. However, the audit provides the Sheriff with specific recommendations for improvement of procedures.

Clemons responded, "Due to lack of funds, segregation of duties is not possible at this time."

The Auditor's office responded that the compensating controls recommended above, would not require additional staff. The recommended compensating controls suggest the Sheriff personally review and compare the amounts per the checkout sheets, ledgers, reconciliations, and reports. Implementing and documenting these and other compensating internal controls are important to help prevent and detect any future errors, misstatements, and/or fraud.

The 2007 unmined coal tax account contained the following findings:

The Sheriff has a deficit of $926. As of Oct. 21, 2008, the Sheriff had a deficit of $926 in his 2007 unmined coal tax account. This deficit is due to undeposited receipts noted in the 2007 regular tax settlement audit of $545, which is described in the next comment, and unidentified undeposited receipts of $381.

The audit recommends the Sheriff eliminate the deficit of $926 in his tax account. The audit will refer this matter to the Attorney General for further investigation.

Ray Clemons responded, "OK."

The Sheriff should ensure all receipts are deposited. Kentucky law (KRS 134.140) directs the Sheriff to deposit taxes collected and KRS 134.170 requires the Sheriff to keep a record of taxes collected. During the 2007 property tax settlement, auditors noted 2 unmined coal tax bills totaling $545 marked paid for which we could not confirm a corresponding deposit into the tax account. These 2 tax bills were voided shortly after the original transactions.

Paid cash receipts were provided by the taxpayer. No evidence was found that these collections were deposited into the tax account. These 2 unmined coal tax bills were included in the amount of tax bills paid without a corresponding deposit during the 2007 property tax audit. The audit recommends the Sheriff deposit all taxes collected and maintain accurate and complete record of tax collections.

Clemons responded, "OK."

The Sheriff's office lacks adequate segregation of duties. This occurs when only one person has control over various elements of a single account, e.g., deposits and payments. The report recognizes that due to the diversity of operations, small size, and budget restrictions, the Sheriff has limited options for establishing a segregation of duties. However, the audit provides the Sheriff with specific recommendations for improvement of procedures.

Clemons responded, "Due to budget restrictions, additional staff is not possible at this time."

The Auditor's office responded that the compensating controls recommended above, would not require additional staff. The recommended compensating controls suggest the Sheriff personally review and compare the amounts per the checkout sheets, ledgers, reconciliations, and reports. Implementing and documenting these and other compensating internal controls are important to help prevent and detect any future errors, misstatements, and/or fraud.

The Sheriff's responsibilities include collecting property taxes, providing law enforcement and performing services for the county fiscal court and courts of justice. The Sheriff's office is funded through statutory commissions and fees collected in conjunction with these duties.