Washington State Auditor s Office. Accountability Audit Report. Grant County. Audit Period January 1, 2002 through December 31, Report No.

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1 Washington State Auditor s Office Accountability Audit Report Audit Period Report No Issue Date October 10, 2003

2 Audit Summary ABOUT THE AUDIT This report contains the results of our independent accountability audit of for the period January 1, 2002, through December 31, We performed audit procedures to determine whether the County complied with state laws and regulations and its own policies and procedures. Our work focused on specific areas that have potential for abuse and misuse of public resources. RESULTS In most areas examined, the County complied with state laws and regulations and its own policies and procedures. However, we identified three conditions significant enough to report as findings: The County Treasurer is not performing timely and adequate bank account reconciliations. did not follow state laws regarding competitive bidding requirements. Public funds were misappropriated at Solid Waste in the Public Works Department and the County failed to notify the Auditor s Office of the misappropriation. We also noted one condition we reported to management. RELATED REPORTS Our opinion on the County s financial statements and compliance with federal program requirements is provided in a separate report, which includes the County s financial statements. CLOSING REMARKS We appreciate the County s prompt attention to resolve prior audit issues and its commitment to ensure compliance with conditions reported in this audit. We thank County officials and personnel for their assistance and cooperation during the audit. Washington State Auditor s Office i

3 Table of Contents Description of the County...1 Audit Areas Examined...3 Schedule of Audit Findings...5 Washington State Auditor s Office ii

4 Description of the County ABOUT THE COUNTY is located in the middle of the state and is one of the largest counties with regard to the area it encompasses. serves a population of approximately 76,221. The County has three elected Commissioners and seven elected offices which include the Assessor, the Auditor, the Clerk of the Court, the Coroner, the Prosecuting Attorney, the Sheriff and the Treasurer all of whom collectively monitor and administer the programs associated with County government. The County operates on a $99 million annual budget. The County has approximately 500 employees who provide an array of services including sheriff/law enforcement services, fire prevention, road improvement, judicial administration, health and social services, recreation, and general administrative services. The County also operates a sanitary landfill and transfer stations located throughout the County. AUDIT HISTORY We audit the County annually. The past audits have reported some areas of concern. There were two findings issued during the audit completed in 2000 and one finding issued during the audit completed in The County has made some progress in addressing and resolving weaknesses identified in our past audits. ELECTED OFFICIALS These officials served during the audit period: Board of Commissioners: Chairman Assessor Auditor Clerk Prosecuting Attorney Coroner Sheriff Treasurer Superior Court Judges: District Court Judges: Leroy Allison Deborah Kay Moore Tim Snead Laure Grammer William Varney Kenneth Kunes John Knodell Jerry Jasman Frank DeTrolio Darryl Pheasant John Antosz Ken Jorgensen Evan Sperlin Richard Fitterer Janis Witener-Moberg Washington State Auditor s Office 1

5 APPOINTED OFFICIALS Extension Agent Director, Public Works, County Engineer Director of Emergency Services Health Officer, County Health District Custodian Juvenile Court Administrator Planning Director, Building Inspector/Fire Marshall Chief Accountant Planning Director Christy Price Derek Pohle Samie H. Lorenz Alexander Bzezny Vern Cummings Warren Swanson Dave Nelson Bob Mosher Scott Clark ADDRESS County P.O. Box 37 Ephrata, WA (509) Washington State Auditor s Office 2

6 Audit Areas Examined In keeping with general auditing practices, we do not examine every portion of 's financial activities during each audit. The areas examined were those representing the highest risk of noncompliance, misappropriation or misuse. Other areas are audited on a rotating basis over the course of several years. The following areas of the County were examined during this audit period: ACCOUNTABILITY FOR PUBLIC RESOURCES We evaluated the County s accountability in the following areas: Cash receipting Petty cash, change and revolving accounts Cash receipting and revenues (District Court, Sheriff s Office and Treasurer s Office) Property and equipment Payroll Purchase of goods and services Financial statements preparation and journal entries LEGAL COMPLIANCE We audited the following areas for compliance with certain applicable state and local laws and regulations: Deposit and investment of public funds Timely deposit of public funds Use of restricted funds Required financial schedules Risk management Budgeting requirements Ethics/conflict of interest laws Open Public Meetings Act Public records retention Debt limitation Allowable expenditures Seized and forfeited property Credit card usage Purchase cards Travel expenses Advance travel payments and reimbursements Street fund expenditures State grants Competitive bidding requirements Competitive bid law compliance Public works contracts Property room requirements FEDERAL PROGRAMS We evaluated internal controls and tested compliance with federal program requirements, as applicable, for the County s major federal programs, which are listed in the Federal Summary section of the financial statement and federal single audit report. 3

7 FINANCIAL AREAS Our opinion on the County s financial statements is provided in a separate report. That report includes the County s financial statements and other required financial information. We examined the financial activity and balances of the County including: Cash and investments Revenues Expenditures Long-term debt Overall presentation of the financial statements 4

8 Schedule of Audit Findings 1. The Treasurer is not performing timely and adequate bank account reconciliations. Background The County Treasurer is responsible for receipting and posting to the accounting records all County funds and funds belonging to many special purpose and school districts. During this process, a variety of issues can arise that would cause the accounting records to disagree with the amount of the funds in the bank account. To ensure these funds are properly receipted, recorded and distributed, the County Treasurer needs to perform monthly reconciliations of the accounting records to the bank accounts. During the previous audit, the auditors noted that the County had not completed the bank reconciliations for the primary bank account for the County for 18 months. Description of Condition Our current audit revealed the County Treasurer did not complete the bank reconciliation for 2002 until April We also noted that the County had not performed any of the 2003 reconciliations at that time. Our review of the reconciliations performed revealed the overall process was incomplete and inadequate. We noted three specific areas of concern. The County has outstanding reconciling items of $1.4 million that need to be followed up on. Per our conversation with the County Treasurer and the Deputy Treasurer, these items include unclaimed property, insufficient funds checks, clerical errors, etc. The Trust accounts used by the County had errors and outstanding balances that were not being reconciled. Revenues are being held in the County s primary bank account that should have been turned over to the state for processing as unclaimed property. The County Treasurer and the Chief Deputy Treasurer were unable to provide an exact figure regarding the amount of unclaimed property in the account. Cause of Condition Management was apparently unable to accomplish timely reconciliations, which are a critical tool to detect errors or irregularities. The Treasurer stated that his department is unable to complete the reconciliations in a timely manner due to staffing shortages. The Treasurer also stated that he could not ensure that the reconciliations would be completed timely in the future. Effect of Condition Lack of timely, accurate reconciliations may delay detection of errors until resolution becomes difficult or impossible and also may delay detection of irregularities until significant additional losses occur. In addition, revenue that has not been claimed remains in the County primary bank account when it should be released to the state for processing as unclaimed property. 5

9 Recommendations We recommend that bank reconciliations be given a higher priority in order to ensure they are performed in a timely manner. In addition, we also recommend the County, where applicable, turn over revenue that remains unclaimed. County s Response The County Treasurer was able to clarify the amounts of the unclaimed items. In addition, he stated that his office is current on all areas of concern at this time and will remain current in the future. will formally request that the Treasurer provide a written report on the status of the bank account reconciliations each month at the Financial Committee meeting attended by the Treasurer, Auditor and the Chairman of the Board of Commissioners. Auditor s Remarks We wish to thank the County staff for their cooperation and for the Board s timely response to our audit finding. We will review bank reconciliation procedures during our next regularly scheduled audit. Applicable Laws and Regulations RCW Property Held by Courts and Public Agencies, which states: Intangible property held for the owner by a court, state or other government, governmental subdivision or agency, public corporation, public authority, or the United States or any instrumentality of the United States that remains unclaimed by the owner for more than two years after becoming payable or distributable is presumed abandoned. RCW Report of Abandoned Property, which states in part: A person holding property presumed abandoned and subject to custody as unclaimed property under this chapter shall report to the department concerning the property as provided in this section. RCW Local Government Accounting Uniform System of Accounting, which states in part: The accounts shall show the receipt, use, and disposition of all public property, and the income, if any, derived therefrom; all sources of public income, and the amounts due and received from each source; all receipts vouchers, and other documents kept, or required to be kept, necessary to isolate and prove the validity of every transaction; all statements and reports made or required to be made, for the internal administration of the office to which they pertain; and all reports published or required to be published, for the information of the people regarding any and all details of the financial administration of public affairs. 6

10 Schedule of Audit Findings 2. did not follow state laws regarding competitive bidding requirements. Description of Condition In each of the last two audits we have reported instance(s) in which the County had not followed state competitive bid laws. During our audit of the County s expenditures, we noted a payment was made to a contractor for the purchase and construction of a new parking lot that exceeded the County s minimum bid threshold. The County stated it thought that the job was put out for bid but could not provide documentation to show the bid process was followed. The County stated because it did not receive any bids through the bid process, telephone calls were made to three area businesses and the County took bids over the phone. Upon reviewing the documentation/quotes, we noted that only one of the businesses was on the small works roster. The project was awarded to a company with the lowest bid quote, but the company was not on the small works roster and the County provided no verification of an approved bid process. The project amount was $12, Cause of Condition The County Maintenance Department Manager stated that he thought he had followed the bid laws and procedures as required but could not show any documentation to support this. Effect of Condition By not following bid laws, the County cannot be assured it obtained the services at the most reasonable price. Recommendations We recommend the County put in place a remedy that necessitates that County departments follow state bid laws. County s Response has initiated a Purchasing and Bidding policy which will be presented to the County by the end of The policy and procedures will include: The appointment by the Board of Commissioners a Bid Coordinator. Beginning in January 2004, bid advertisements and bid specifications from County departments will be routed through the Bid Coordinator for approval (excluding Public Works which has its own policies and procedures); The Board of County Commissioners, through the Clerk of the Board, will be responsible for the annual development of a Vendor List and a Small Works Roster for use by County departments; The Board of County Commissioners will sponsor an annual training or informational updates process regarding purchasing and bid requirements. 7

11 Auditor s Remarks We wish to thank the County for its cooperation during this audit and its prompt attention to addressing this issue. Applicable Laws and Regulations RCW states in part: (1) No contract for public works may be entered into by the county legislative authority or by any elected or appointed officer of the county until after bids have been submitted to the county upon specifications therefore. Before awarding any such contract, the county shall publish a notice at least thirteen days before the last date upon which bids will be received, inviting sealed proposals for such purchases/work. For contracts less than $200,000 the county may let contracts using the small works roster process under RCW RCW states: (1) A state agency or authorized local government may create a single general small works roster, or may create a small works roster for different specialties or categories of anticipated work. At least once a year, the state agency or local government shall publish in a newspaper of general circulation within the jurisdiction a notice of the existence of the roster or rosters and solicit the names of contractors for such roster or rosters. Quotations may be invited from at least five contractors on the small works roster who have indicated the capability of performing the kind of work being contracted. 8

12 Schedule of Audit Findings 3. Public funds were misappropriated at Solid Waste in the Public Works Department and failed to notify the Auditor s Office of the theft. Background During our audit we found that a misappropriation of $1, in public funds had occurred. The County and County Prosecuting Attorney s Office investigated and prosecuted and settled this case without reporting it to the State Auditor s Office as required. A former Transfer Station Attendant, between March 1, 2002, and July 31, 2002, misappropriated the funds from the County. The Attendant took the revenues collected while working at the Moses Lake Transfer Station. The employee also worked at the Goyls Transfer Station but no misappropriation was reported for this station. No federal funds were involved in this case. The former Transfer Station Attendant was allowed to take the daily revenue and receipts home. On a weekly basis he would take the revenue and the receipts to the Solid Waste Accounts Receivable Clerk for deposit into the County s bank account. The Attendant began taking the cash prior to taking the revenue and receipts to the Clerk. The Clerk noticed that the cash summary sheets used by the Attendant and the cash did not match and the cash was short. Subsequently, it was determined that the original receipts turned in with the revenue did not match the yellow copies maintained by the Attendant. In addition to the actual misappropriation, it was discovered that the Attendant had destroyed a receipt book. Because of this, we are unable to determine if additional funds may be missing. The Clerk noticed the inconsistencies in March 2002 and the incidents were reported to the local Sheriff s Office on September 3, An investigation was completed by the Sheriff s Office. The Attendant was charged with and found guilty of first-degree theft on February 4, During the course of the investigation, the Attendant completed a statement indicating that he thought the extra money in the till was tip money and that was the reason he took the cash. Description of Condition Our follow-up to the theft revealed weaknesses in the County s internal controls over solid waste transfer station revenues. The Transfer Station Attendant is allowed to take the daily receipts home. These receipts are deposited into the County s bank account once per week. The Accounts Receivable Clerk did not consistently perform adequate reconciliations of revenues received to the supporting accounting records (cash receipts). When reconciliations were performed, errors and irregularities noted by County employees were not followed up in a timely manner. In this instance, the irregularities were discovered in March 2002 but the employee was allowed to continue to receipt money until July The County began performing consistent reconciliations in April of A book of cash receipts was lost by the Transfer Station Attendant, making it impossible to determine the exact amount of the loss. 9

13 Cause of Condition The County did not have sufficient monitoring to ensure all the revenues received were deposited in the County s bank account. In addition, County personnel were notified of a potential loss of funds and did not immediately follow-up on the errors and irregularities or make changes in the cash receipting procedures. In addition, the County did not report the theft to the State Auditor s Office because of a lack of understanding as to the requirements of state law (RCW ) on the part of the Public Works/Solid Waste Department. Effect of Condition The internal control weaknesses cited above allowed these irregularities to occur and not be detected in a timely manner. As a result, the former Transfer Station Attendant was able to misappropriate at least $1, in public funds and deprive the County of the use of these funds for other legitimate purposes. In addition, the failure to notify the Auditor s Office of the theft did not allow the auditor to complete its own thorough investigation and be a part of the settlement process to ensure that the people of the County were adequately protected with regard to the misappropriation of public funds. In addition, the lack of reporting did not allow for the Auditor s Office to assist the County in ensuring that adequate steps were taken to alleviate the possibility of further misappropriation in a similar manner. Recommendations We recommend the County establish procedures to ensure receipts are deposited in the County s bank account on the day they are received rather than allowing the Transfer Station Attendants to take the receipts home. In addition, we recommend that the County continue to perform adequate reconciliations and immediately follow-up on any errors or irregularities noted. Lastly, if a suspected loss occurs, we recommend the County notify the State Auditor s Office in a timely manner. County s Response There are two issues at play in this finding, 1) internal weakness in the system at the Public Works, and 2) lack of appropriate notification of the State Auditor. Public Work s and the Solid Waste Division have instituted more consistent reconciliation receipt methods. They continue to devise a practical resolution with appropriate oversight for attendants operating remote or very isolated waste stations in the third largest county in the state. will disseminate notice to all County departments and offices advising that State law requires that in all instances of known or reasonably suspected misappropriation and/or loss of public funds or assets, or other illegal activity, the law enforcement agency with jurisdiction should be timely notified and that the Washington State Auditor s Office should also be timely notified. We believe that the implementation of these changes and procedures will help to ensure that the County follows the state bid laws, that the Treasurer performs timely bank reconciliations, and that any fraud investigations are brought to the attention of the State Auditor. 10

14 Auditor s Remarks We wish to thank the County staff for their cooperation and for the Board s timely response to our audit finding. We will review cash receipting and depositing procedures during our next regularly scheduled audit. Applicable Laws and Regulations RCW states that state agencies and local governments shall immediately report to the State Auditor s Office known or suspected loss of public funds or assets or other illegal activity. RCW gives the State Auditor the authority to prescribe a system of accounting: The system shall exhibit true accounts and detailed statements of funds collected, receipted and expended for account of the public for any purpose whatever, and by all public officers, employees or other persons. The accounts shall show the receipt necessary to isolate and prove the validity of every transaction.... RCW states that any compromise or settlement of the claim must be approved by the State Auditor s Office. The Budgeting, Accounting and Reporting System (BARS) manual (Volume 1, Part 3, Chapter 1) issued by the State Auditor prescribes concepts of internal controls for local governments: An internal control system consists of the plan of organization, methods and procedures adopted by management to ensure that resource use is consistent with laws, regulations and policies; that resources are safeguarded against waste, loss, and misuse; and that reliable data are maintained and fairly disclosed in the reports. 11