DOS, Mayor’s Office, Highway Department, and Trustee’s Office cited in audit
The Division of Local Government Audit released the annual financial report for Grundy County last week. A summary of the audit reveals that the audit resulted in ten findings and recommendations which have been reviewed with Grundy County management. Findings covered the Office of Director of Schools, the Office of County Mayor, the Office of Highway Superintendent, and the Office of Trustee.
Office of Director of Schools
Finding 1 states that the School Federal Projects Fund had a cash overdraft of $196,953 as of June 30, 2017. This special revenue fund is used to account for restricted federal revenues, which must be expended on specific educational programs.
“The discretely presented School Federal Projects Fund had a cash overdraft of $196, 953 at June 20, 2017. This cash overdraft resulted from the issuance of checks exceeding cash on deposit with the Trustee. The cash overdraft was liquidated subsequent to June 30, 2017. Sound business practices dictate that expenditures be held within available funds,” stated the auditor.
Corrective action recommended by the Comptroller’s Office suggests, “The School Department should not issue checks exceeding cash on deposit with the Trustee.”
Addressing this recommendation, Director of Schools Jessie Kinsey stated, “I concur. The School Department is better aware of the process and will work to improve the process to not exceed cash on deposit with the county trustee.”
Finding 2 involves a finding carried over from the previous year: Little Jackets Daycare did not properly account for cash maintained in its bank account. In response, the school system stated that a corrective action plan was put into place, however it was difficult to manage proper accounting practices due to the location of the building and limited staff. The Little Jackets daycare closed June 30, 2017.
Kinsey stated on Monday with regards to the School Federal Projects Fund overdraft, “Reimbursements were not processed in a timely manner due to a transition of accounting staff at the end of the fiscal year.”
Kinsey says new accounting staff are in place and have been trained on how to process reimbursements monthly. However, she also expresses concerns with the Trustee’s Office.
“In early August 2017, Tyler McCullough contacted the BOE to notify the central office of the overdraft in the School Federal Projects Fund,” said Kinsey.
“This notification from Mr. McCullough was over a month after the 2016-2017 fiscal year had already ended. If the checking system through the Trustee’s Office would have been implemented properly, this deficiency may have been prevented.
“Furthermore, in working with the Trustee’s Office, the BOE has experienced an on-going trend of not receiving monthly reports to our office by the tenth day of each month. Timely reports from the Trustee could possibly have allowed our accounting department to have a more accurate status of all accounts throughout the year.
“We are hopeful that moving forward the Trustee’s office will conduct these operations as recommended by the auditor, so that the BOE can also comply with the auditor’s guidelines.
“The Grundy County Board of Education central office staff are continuously working to improved internal controls and accounting processes in order to be in compliance with federal and state laws, as well as local policies,” concluded Kinsey.
Office of Grundy County Mayor
Finding 1 states that all eligible employees do not participate in the Tennessee Consolidated Retirement System.
“Grundy County did not comply with the mandatory membership requirements of the defined benefit retirement system in which the county participates. Auditors determined that seven fulltime employees of Grundy County were eligible for participation but were not participating in the TCRS. Title 8, chapters 34-37 of Tennessee Code Annotated establish and governed the TCRS. These statutes require mandatory participation in the TCRS for all employees of participating employers after a probationary period,” reported the auditor.
The recommendation from the Comptroller’s Office stated, “Grundy County should present government wide financial statements and disclosures in conformity with general accepted accounting principles. The county should comply with title 8, chapters 34-37, TCA, regarding employee participation in TCRS. County officials should contact TCRS to determine a corrective action plan.”
Finding 2 revealed that county expenditures exceeded appropriations approved by the County Commission in certain major appropriation categories (the legal level of control). These funds included the primary government fund (county attorney $1,045), and the solid waste/sanitation fund (convenience centers 4,084); and discretely presented School Department funds (principal on debt $4,041, interest on debt $1,353).
The auditor stated, “Expenditures that exceed appropriations are a violation of state statutes. These expenditures were funded by available fund balance and greater than anticipated revenues.”
On Monday, Grundy County Mayor Michael Brady had this to say about the audit findings:
“Being the County Mayor of Grundy County is a great honor and I want to thank you again for that privilege.
“The first finding was not all eligible employees were participating in the TCRS Retirement System. It was our opinion that TCRS was at the discretion of the employee and did inquire about this; however, anyone eligible must participate. We are currently addressing this issue in order to be compliant with the State of Tennessee. “
We had a slight overage in expenditures. Legal expenses presented invoices late in the budget year and the line item could not be amended before the fiscal year end.
“We have implemented our internal controls policy and for the first time in several years, the Grundy County Mayor’s Office does not have a segregation of duties finding. We work diligently to comply with all rules and regulations and make it our ongoing priority.”
Office of Highway Superintendent
During the year, the Highway Department performed road repairs for the cities of Coalmont, Gruetli-Laager, Altamont, and Tracy City, however the Highway Department was reimbursed only the costs of the materials used on the city project.
The auditor recommended The Highway Department should recover the actual costs of performing work for other government entities.
Dewayne “Turkey” Hargis, Highway Superintendent, responded that, “The cities and other government entities cannot afford to reimburse the Highway Department for the actual costs of the projects. The Highway Department will continue to charge the cities and other governmental entities the costs of the materials.”
Office of Trustee
Finding 1 states the checking system has been improperly implemented at the Trustee’s Office.
“In prior years, the Trustee’s Office adopted the checking system as authorized by TCA to pay obligations. However, the Trustee’s Office does not operate that checking system in compliance with state statute. This statute provides that the issuance of checks by the county departments shall be certified by the Trustee either by the list certification method, the check signing/validation method, a combination method, or other certification method requested by the Trustee and approved by the Comptroller of the Treasurer,” the audit states.
“The Trustee does not use any of the specific methods noted above. In Grundy County, the Mayor’s Office, School Department, and Highway Department do not furnish the Trustee lists of checks issued. Therefore, the Trustee is not certifying the availability of cash on deposit.
“In addition, the Trustee has one check clearing account for county funds and school department funds to process payroll and non-payroll checks. The Trustee does not transfer monies into this check clearing account from the county master account. Instead, as checks clear the bank, the Trustee’s bank charges the paid checks automatically to the check clearing account and then automatically transfers monies out of the Trustees county master account to the check clearing account to cover those checks. Therefore, the Trustee is allowing the bank complete authority to automatically take funds out of the county master account without the Trustee knowing the amount of the transfers until after the fact. This resulted in checks being drawn and paid on the School Federal Projects Fund even though funds were not available to honor the checks,” continued the auditor.
The recommendation was that the, “Trustee should implement the methods provided by the TCA regarding issuance of checks. The Trustee should require the County Mayor’s Office, the School Department, and the Highway Department to submit lists of checks issued by fund, and the Trustee should take these lists and certify that funds are available for payment of those checks. The Trustee should make appropriate transfers from the county master account to the check clearing accounts from the lists provided. The Trustee should not allow the bank to automatically access the county master account.
Tyler McCullough’s response to this finding is noted on the audit.”
“When I implemented the checking system, I spoke with CTAS and our software vendor about the process and neither advised me that I needed to receive anything from the other offices. I began this process in 2014, and I have not been advised until now that I was doing it incorrectly. I feel this finding is inappropriate considering I have gone through two previous audits with no findings,” stated McCullough. “If I had been advised I was doing them incorrectly I would have made the change immediately due to the fact that I take pride in having no findings.”
Finding 2 reveals the Trustee paid checks issued by the School Federal Projects Fund that exceeded available funds.
“Throughout the fiscal year, the Trustee paid checks issued from the school federal projects fund that exceeded the available cash balance on deposit. As of June 30, 2017, the paid checks exceeded the available cash on deposit by $197,579. TCA prohibits the Trustee from paying a check if sufficient funds are not available. Paying checks that exceed available cash is the result of a lack of management oversight and the failure to properly implement the checking system. The deficiency exists because the School Department continued to issue checks exceeding cash on deposit with the Trustee and the Trustee kept honoring the checks,” the audit states.
The auditor recommended, “The trustee should not pay checks that exceed available cash as required by state statute.”
McCullough’s response stated on the audit says, “Under the current way that I have been advised to operate the checking system, I had no way to control the spending. I went to the School Department and told the BOE to stop spending and I was advised there were funds in transit from federal programs they were due in refunds.
“I called the school and told them to stop spending and they continued. I had no way to stop them and I still don’t.”
Finding 3 states that commissions were not paid to the county on a monthly basis.
“The County Trustee did not pay commissions to the county monthly. The Trustee did not pay any commissions to the county from July 2016 to January 2017, or in April 2017. TCA requires fees, including commissions, to be paid to the county monthly. This deficiency was the lack of management oversight.”
Finding 4 states that monthly reports of taxes collected were not made by the Trustee on or before the tenth of the following month.
“The Trustee did not provide the County Mayor with reports of taxes collected by the tenth day of the month as required by state statute. During the year examined, all monthly reports of taxes collected by the Trustee were issued from two to 73 days after the tenth day of the month,” says the auditor.
“The 2017-2018 Comptrollers report has been released and there were some minor discrepancies in this year’s audit,” explained McCullough on Monday. “The Board of Education went through a transition in accounting staff during the year. This transitioning delayed check processing and resulted in the school’s federal funds cash overdraft.
“The Trustees office had no control over the Board of Education’s accountant or accounting department. Checks come to our office after they clear banks, our office transfers funds accordingly thereafter.
“I have met with the Comptroller’s Office and was advised in what measures to take to prevent this error from occurring again. Now all county departments are required to receive a prior approval from the Trustee before issuing any checks. We did correct this issue back in August, per the advisory of the Comptroller’s Office. It is our goal to strive for excellence in every order of business coming in or out of the Trustees office. We want to ensure precise and immaculate service to the best of our abilities. Please call our office anytime with any concerns or questions, we will be happy to assist you,” concluded McCullough.
In concluding the audit, the auditor made a recommendation that all county departments follow best practices.
“Grundy County should adopt a central system of accounting, budgeting, and purchasing. It would significantly improve internal controls over the accounting, budgeting, and purchasing processes. The absence of such a system has been a management decision by the County Commission resulting in decentralization and some duplication of effort. The Division of Local Government Audit strongly believes that the adoption of a central system of accounting, budgeting, and purchasing is a best practice that would improve accountability and the quality of services provided to the citizens of Grundy County.