REPORT OF THE AUDIT OF THE BREATHITT COUNTY SHERIFF

Transcription

1 REPORT OF THE AUDIT OF THE BREATHITT COUNTY SHERIFF For The Year Ended December 31, 2007 CRIT LUALLEN AUDITOR OF PUBLIC ACCOUNTS SEA HERO ROAD, SUITE 2 FRANKFORT, KY TELEPHONE (502) FACSIMILE (502)

2

3 EXECUTIVE SUMMARY AUDIT EXAMINATION OF THE BREATHITT COUNTY SHERIFF For The Year Ended December 31, 2007 The Auditor of Public Accounts has completed the Breathitt County Sheriff s audit for the year ended December 31, Based upon the audit work performed, the financial statement presents fairly, in all material respects, the revenues, expenditures, and excess fees in conformity with the regulatory basis of accounting. Financial Condition: Excess fees increased by $6,266 from the prior year, resulting in excess fees of $81,298 as of December 31, Revenues increased by $22,747 from the prior year and expenditures increased by $16,481. Report Comments: The Sheriff s Bookkeeper Was Paid In Excess Of Agreed Upon Amounts The Sheriff And Two Employees Were Paid Cash Advances In Excess Of $6,900 For Unearned Salary Benefits The Sheriff Should Pay Overtime At Time And One Half Normal Compensation The Sheriff s Salary Should Be Paid In Accordance With The Maximum Salary Established By The Department For Local Government The Sheriff Should Maintain Proper Personnel Files And Monitor Payroll For Accurate Compensation The Sheriff Should Require Accurate Payroll Reports And Pay Withholdings In A Timely Manner The Sheriff Should Properly Account For Retirement The Sheriff Should Correct State And Federal Withholding Errors The Sheriff Should Comply With Applicable Laws And Regulations Over Payroll The Sheriff Should Eliminate The $5,670 Deficit In His 2007 Fee Account The Sheriff s Office Lacks Adequate Segregation Of Duties The Sheriff s Office Should Prepare Daily Checkout Sheets Deposits: The Sheriff's deposits were insured and collateralized by bank securities.

4

5 CONTENTS PAGE INDEPENDENT AUDITOR S REPORT... 1 STATEMENT OF REVENUES, EXPENDITURES, AND EXCESS FEES - REGULATORY BASIS... 3 NOTES TO FINANCIAL STATEMENT... 5 SCHEDULE OF EXCESS OF LIABILITIES OVER ASSETS - REGULATORY BASIS... 8 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENT PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS COMMENTS AND RECOMMENDATIONS... 15

6

7 The Honorable Harvey J. Richardson, Breathitt County Judge/Executive The Honorable Ray Clemons, Breathitt County Sheriff Members of the Breathitt County Fiscal Court Independent Auditor s Report We have audited the accompanying statement of revenues, expenditures, and excess fees - regulatory basis of the Sheriff of Breathitt County, Kentucky, for the year ended December 31, This financial statement is the responsibility of the Sheriff. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, and the Audit Guide for County Fee Officials issued by the Auditor of Public Accounts, Commonwealth of Kentucky. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion. As described in Note 1, the Sheriff s office prepares the financial statement on a regulatory basis of accounting that demonstrates compliance with the laws of Kentucky, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenues, expenditures, and excess fees of the Sheriff for the year ended December 31, 2007, in conformity with the regulatory basis of accounting described in Note 1. The schedule of excess of liabilities over assets is presented for purposes of additional analysis and is not a required part of the financial statement. Such information has been subjected to auditing procedures applied in the audit of the financial statement and, in our opinion, is fairly stated, in all material respects, in relation to the financial statement taken as a whole. In accordance with Government Auditing Standards, we have also issued our report dated January 14, 2009 on our consideration of the Breathitt County Sheriff s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

8 The Honorable Harvey J. Richardson, Breathitt County Judge/Executive The Honorable Ray Clemons, Breathitt County Sheriff Members of the Breathitt County Fiscal Court Page 2 Based on the results of our audit, we have presented the accompanying comments and recommendations, included herein, which discuss the following report comments: The Sheriff s Bookkeeper Was Paid In Excess Of Agreed Upon Amounts The Sheriff And Two Employees Were Paid Cash Advances In Excess Of $6,900 For Unearned Salary Benefits The Sheriff Should Pay Overtime At Time And One Half Normal Compensation The Sheriff s Salary Should Be Paid In Accordance With The Maximum Salary Established By The Department For Local Government The Sheriff Should Maintain Proper Personnel Files And Monitor Payroll For Accurate Compensation The Sheriff Should Require Accurate Payroll Reports And Pay Withholdings In A Timely Manner The Sheriff Should Properly Account For Retirement The Sheriff Should Correct State And Federal Withholding Errors The Sheriff Should Comply With Applicable Laws And Regulations Over Payroll The Sheriff Should Eliminate The $5,670 Deficit In His 2007 Fee Account The Sheriff s Office Lacks Adequate Segregation Of Duties The Sheriff s Office Should Prepare Daily Checkout Sheets This report is intended solely for the information and use of the Sheriff and Fiscal Court of Breathitt County, Kentucky, and the Commonwealth of Kentucky and is not intended to be and should not be used by anyone other than these interested parties. Respectfully submitted, January 14, 2009 Crit Luallen Auditor of Public Accounts

9 Page 3 BREATHITT COUNTY RAY CLEMONS, SHERIFF STATEMENT OF REVENUES, EXPENDITURES, AND EXCESS FEES - REGULATORY BASIS For The Year Ended December 31, 2007 Revenues State: Kentucky Law Enforcement Foundation Program Fund $ 3,354 Sheriff Security Service 85,794 $ 89,148 Circuit Court Clerk: Fines and Fees Collected 1,238 Fiscal Court 84,019 County Clerk - Delinquent Taxes 1,518 Other Fees On Taxes Collected - 10% Add On Fees 14,985 Commission On Taxes Collected 147,923 Fees Collected For Services: Auto Inspections 1,350 Serving Papers 24,403 Carrying Concealed Deadly Weapon Permits 3,630 29,383 Other: Transporting Prisoners 10,114 Miscellaneous 2,321 Overpayment Refunds 5,765 18,200 Interest Earned 238 Borrowed Money: State Advancement 6,600 Total Revenues 393,252 The accompanying notes are an integral part of this financial statement.

10 Page 4 BREATHITT COUNTY RAY CLEMONS, SHERIFF STATEMENT OF REVENUES, EXPENDITURES, AND EXCESS FEES - REGULATORY BASIS For The Year Ended December 31, 2007 (Continued) Expenditures Operating Expenditures and Capital Outlay: Personnel Services- Deputies' Salaries $ 146,031 Employer's Share Social Security 15,214 Contracted Services- Advertising 217 Payroll Services 2,400 Vehicle Maintenance and Repairs 15,534 Materials and Supplies- Office Materials and Supplies 16,044 Deputies Supplies 11,672 Other Charges- Transporting Prisoners 1,549 Carrying Concealed Deadly Weapons 2,450 Miscellaneous 5,105 $ 216,216 Capital Outlay: Vehicles 23,100 Debt Service: State Advancement 6,600 Total Expenditures 245,916 Net Revenues 147,336 Less: Statutory Maximum 66,038 Excess Fees Due County for ,298 Payments to Fiscal Court - January 9, ,000 April 14, ,000 70,000 Balance Due Fiscal Court at Completion of Audit $ 11,298 The accompanying notes are an integral part of this financial statement.

11 BREATHITT COUNTY NOTES TO FINANCIAL STATEMENT Page 5 December 31, 2007 Note 1. Summary of Significant Accounting Policies A. Fund Accounting A fee official uses a fund to report on the results of operations. A fund is a separate accounting entity with a self-balancing set of accounts. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain government functions or activities. A fee official uses a fund for fees to account for activities for which the government desires periodic determination of the excess of revenues over expenditures to facilitate management control, accountability, and compliance with laws. B. Basis of Accounting KRS directs the fiscal court to collect any amount, including excess fees, due from the Sheriff as determined by the audit. KRS requires the Sheriff to settle excess fees with the fiscal court at the time he files his final settlement with the fiscal court. The financial statement has been prepared on a regulatory basis of accounting, which demonstrates compliance with the laws of Kentucky and is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Under this regulatory basis of accounting revenues and expenditures are generally recognized when cash is received or disbursed with the exception of accrual of the following items (not all-inclusive) at December 31 that may be included in the excess fees calculation: Interest receivable Collection on accounts due from others for 2007 services Reimbursements for 2007 activities Tax commissions due from December tax collections Payments due other governmental entities for payroll Payments due vendors for goods or services provided in 2007 The measurement focus of a fee official is upon excess fees. Remittance of excess fees is due to the County Treasurer in the subsequent year. C. Cash and Investments At the direction of the fiscal court, KRS authorizes the Sheriff s office to invest in the following, including but not limited to, obligations of the United States and of its agencies and instrumentalities, obligations and contracts for future delivery or purchase of obligations backed by the full faith and credit of the United States, obligations of any corporation of the United States government, bonds or certificates of indebtedness of this state, and certificates of deposit issued by or other interest-bearing accounts of any bank or savings and loan institution which are insured by the Federal Deposit Insurance Corporation (FDIC) or which are collateralized, to the extent uninsured, by any obligation permitted by KRS (4).

12 BREATHITT COUNTY NOTES TO FINANCIAL STATEMENT December 31, 2007 (Continued) Page 6 Note 2. Employee Retirement System The county officials and employees have elected to participate in the County Employees Retirement System (CERS), pursuant to KRS administered by the Board of Trustees of the Kentucky Retirement Systems. This is a cost-sharing, multiple-employer, defined benefit pension plan that covers all eligible full-time employees and provides for retirement, disability, and death benefits to plan members. Benefit contributions and provisions are established by statute. Nonhazardous covered employees are required to contribute 5.0 percent of their salary to the plan. The county s contribution rate for nonhazardous employees was percent for the first six months and percent for the last six months of the year. Hazardous covered employees are required to contribute 8.0 percent of their salary to the plan. The county's contribution rate for hazardous employees was percent for the first six months and percent for the last six months of the year. Benefits fully vest on reaching five years of service for nonhazardous employees. Aspects of benefits for nonhazardous employees include retirement after 27 years of service or age 65. Aspects of benefits for hazardous employees include retirement after 20 years of service or age 55. Historical trend information pertaining to CERS progress in accumulating sufficient assets to pay benefits when due is presented in the Kentucky Retirement Systems annual financial report which is a matter of public record. This report may be obtained by writing the Kentucky Retirement Systems, 1260 Louisville Road, Frankfort, Kentucky , or by telephone at (502) Note 3. Deposits The Breathitt County Sheriff maintained deposits of public funds with depository institutions insured by the Federal Deposit Insurance Corporation (FDIC) as required by KRS (1)(d). According to KRS (4), the depository institution should pledge or provide sufficient collateral which, together with FDIC insurance, equals or exceeds the amount of public funds on deposit at all times. In order to be valid against the FDIC in the event of failure or insolvency of the depository institution, this pledge or provision of collateral should be evidenced by an agreement between the Sheriff and the depository institution, signed by both parties, that is (a) in writing, (b) approved by the board of directors of the depository institution or its loan committee, which approval must be reflected in the minutes of the board or committee, and (c) an official record of the depository institution. Custodial Credit Risk - Deposits Custodial credit risk is the risk that in the event of a depository institution failure, the Sheriff s deposits may not be returned. The Breathitt County Sheriff does not have a deposit policy for custodial credit risk but rather follows the requirements of KRS (4). As of December 31, 2007, all deposits were covered by FDIC insurance or a properly executed collateral security agreement.

13 BREATHITT COUNTY NOTES TO FINANCIAL STATEMENT December 31, 2007 (Continued) Page 7 Note 4. State Grant - Kentucky Law Enforcement Foundation Program Fund (KLEFPF) The Breathitt county Sheriff s office was awarded a grant under the Kentucky Law Enforcement Foundation Program Fund (KLEFPF) from the Commonwealth of Kentucky Department of Criminal Justice Training. Under the program, eligible officers received up to $3,100 annually as provided in KRS During calendar year ended December 31, 2007, the Breathitt County Sheriff s office received $3,354. All funds received were expended for their intended purpose. Note 5. Asset Forfeiture Account The Breathitt County Former Sheriff received forfeiture proceeds from a court order and established an Asset Forfeiture Account. These funds are to be used for law enforcement expenses. On January 1, 2007, the beginning balance in the Asset Forfeiture Account was $247. The Former Sheriff closed the account in August 2007 by paying the balance to Breathitt County Fiscal Court. As of December 31, 2007 the balance in the Asset Forfeiture Account was $0. The Sheriff plans to request a refund of $247 from fiscal court and reestablish an Asset Forfeiture Account. Note 6. Body Armor Grant Account The Breathitt County Sheriff s office received an award under the Kentucky Body Armor Program. The funds received are to be used to purchase bulletproof vests for the Sheriff s Department. The beginning balance in the Body Armor Grant Account totaled $801, interest receipts totaled $1 and bank fees totaled $18. The Body Armor Grant Account balance as of December 31, 2007 totaled $784. Note 7. Related Party Transactions The following related party transactions were discovered: A. On April 24, 2007, the Sheriff purchased a 2003 Ford Crown Victoria from a deputy in the Sheriff s office for $7,500. B. On April 24, 2007, the Sheriff purchased a 2000 Ford Crown Victoria from a deputy in the Sheriff s office for $2,600.

14 Assets Page 8 BREATHITT COUNTY RAY CLEMONS, SHERIFF SCHEDULE OF EXCESS OF LIABILITIES OVER ASSETS - REGULATORY BASIS December 31, 2007 Cash in Bank $ 3,435 Receivables: Kentucky State Treaurer $ 1,656 Internal Revenue Service 1,162 2,818 Total Assets 6,254 Liabilities Unpaid Obligations: Local Tax Withholdings- City 598 County 28 Excess Fees ,298 Total Unpaid Obligations 11,924 Total Fund Deficit as of December 31, 2007 $ (5,670)

15 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENT PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

16

17 The Honorable Harvey J. Richardson, Breathitt County Judge/Executive The Honorable Ray Clemons, Breathitt County Sheriff Members of the Breathitt County Fiscal Court Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of The Financial Statement Performed In Accordance With Government Auditing Standards We have audited the statement of revenues, expenditures, and excess fees - regulatory basis of the Breathitt County Sheriff for the year ended December 31, 2007, and have issued our report thereon dated January 14, The Sheriff s financial statement is prepared in accordance with a basis of accounting other than generally accepted accounting principles. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Breathitt County Sheriff s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Sheriff s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Sheriff s internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However as discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity s ability to initiate, authorize, record, process, or report financial data reliably in accordance with the regulatory basis of accounting which is a basis of accounting other than generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity s financial statement that is more than inconsequential will not be prevented or detected by the entity s internal control over financial reporting. We consider the deficiencies included in the accompanying comments and recommendations as items and , to be significant deficiencies in internal control over financial reporting.

18 Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of The Financial Statement Performed In Accordance With Government Auditing Standards (Continued) Page 12 Internal Control Over Financial Reporting (Continued) A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statement will not be prevented or detected by the entity s internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in the internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, we consider the significant deficiencies described above to be material weaknesses. Compliance And Other Matters As part of obtaining reasonable assurance about whether the Breathitt County Sheriff s financial statement for the year ended December 31, 2007, is free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are included in the accompanying comments and recommendations as items , , , , , , , , , and The Breathitt County Sheriff s responses to the findings identified in our audit are included in the accompanying comments and recommendations. We did not audit the Sheriff s responses and, accordingly, we express no opinion on them. This report is intended solely for the information and use of management, the Breathitt County Fiscal Court, and the Department for Local Government and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, January 14, 2009 Crit Luallen Auditor of Public Accounts

19 COMMENTS AND RECOMMENDATIONS

20

21 BREATHITT COUNTY RAY CLEMONS, SHERIFF COMMENTS AND RECOMMENDATIONS Page 15 STATE LAWS AND REGULATIONS: For The Year Ended December 31, The Sheriff s Bookkeeper Was Paid In Excess Of Agreed Upon Amounts During our review of payroll, we found the bookkeeper was overpaid. Interviews with the Sheriff and bookkeeper revealed there was a verbal agreement on January 2, 2007, establishing the bookkeeper s compensation at the same rate as the former bookkeeper, which was $37,442 per year. A review of the Kentucky Retirement Systems (KRS) Personnel Action form, effective January 1, 2007, stated the bookkeeper should receive an annual salary of $42,432. However, during 2007, the bookkeeper was compensated $47,268 (which includes the $1,300 salary advance discussed in comment ). Therefore, the bookkeeper was paid $9,826 ($47,268 less $37,442) more than the amount of the verbal agreement and $4,836 ($47,268 less $42,432) more than the amount indicated on the personnel action form on file at KRS. The bookkeeper was responsible for the payroll and reporting functions. The Sheriff s policy for salary payment calls for employees to be paid for 26 pay periods or bi-weekly. The bookkeeper however, received 44 paychecks during We recommend the Sheriff s office follow established policies concerning payroll. We also recommend the Sheriff provide strong oversight of payroll. We will refer this matter to the County Attorney to determine how much the bookkeeper should have been compensated and if legal action is necessary to recover any salary due fiscal court from the bookkeeper. Sheriff s Response: The bookkeeper s salary has been discussed with the County Attorney and no further action has been taken at this time. The Sheriff will ensure that all policies concerning payroll will be strictly enforced and carried out The Sheriff And Two Employees Were Paid Cash Advances In Excess Of $6,900 For Unearned Salary Benefits The auditors found a pattern of paying cash advances for salary not yet earned to three employees in the Sheriff s office. This included the Sheriff, the bookkeeper, and the Sheriff s daughter. These amounts were checks written to these individuals separate from their regular payroll checks. KRS states, The county judge/executive, clerk, jailer who operates a full service jail, and sheriff shall each receive a monthly salary of one-twelfth (1/12) of the amount indicated by the salary schedule in KRS , prohibiting cash advances of unearned salary benefits. The Sheriff received a total of $400 ($100 on four different occasions) for unearned salary benefits. Of the $400, the Sheriff repaid $300 during The balance of $100 is due the fee account and has been included in comment regarding the Sheriff s salary. The Sheriff s bookkeeper received a total of $4,850 for unearned salary benefits. Of the $4,850 advanced to the bookkeeper, $1,300 was not repaid and is due to Breathitt County Fiscal Court. Additionally, the Sheriff s daughter received a total of $1,630 for unearned salary benefits, which has been repaid. We recommend the Sheriff discontinue the practice of advancing payments for unearned salary benefits. This matter will be referred to the County Attorney (comment ). Sheriff s Response: No more cash advances will be made. The bookkeeper s unpaid cash advances are being referred to the Breathitt County Fiscal Court and the County Attorney. The cash advances were stopped as soon as noted by auditors.

22 BREATHITT COUNTY RAY CLEMONS, SHERIFF COMMENTS AND RECOMMENDATIONS For The Year Ended December 31, 2007 (Continued) Page 16 STATE LAWS AND REGULATIONS: (Continued) The Sheriff Should Pay Overtime At Time And One-Half Normal Compensation The Sheriff s office runs payroll bi-weekly. The auditors noted that timesheets are kept for the two week period, and that the total number of hours for the two weeks is multiplied by the regular hourly rate, not accounting for time and a half for any hours worked over 40 in any one week. The Fair Labor Standards Act (FLSA) requires that all covered, nonexempt employees be paid overtime pay at a rate of not less than one and one-half times an employee s regular rate of pay after 40 hours of work in a workweek. Overtime pay earned in a particular workweek must be paid on the regular payday for the pay period in which the wages were earned. Earnings may be determined on a salary basis, but in all such cases the overtime pay due must be computed on the basis of the average hourly rate derived from such earnings. This is calculated by dividing the total pay for employment in any workweek by the total number of hours actually worked. The overtime requirement may not be waived by agreement between employer and employees. The Sheriff, the bookkeeper, one deputy, and the Sheriff s daughter are the only full-time employees in the Sheriff s office. All other deputies are considered part-time, so their work schedules vary. The auditor noted four pay periods where an employee worked over 40 hours in one week and overtime was not calculated. The FLSA does not define full-time employment or part-time employment. This is a matter generally to be determined by the employer. An employee s full-time or part-time status does not change the application of the FLSA. We recommend the Sheriff become compliant with the FLSA and state laws including payment of overtime at a rate of not less than one and onehalf times an employee s regular rate of pay after 40 hours of work in a workweek. Sheriff s Response: All employees working over forty hours per week will be paid time and one half The Sheriff s Salary Should Be Paid In Accordance With The Maximum Salary Established By The Department For Local Government The Sheriff received compensation of $71,708 during The statutory maximum salary established by the Department for Local Government was $66,038. The Sheriff therefore received $5,670 in excess of the statutory maximum. It appears the statutory salary was calculated as if there were 24 pay periods, when there were actually 26. Also, when the bookkeeper gave the financial report to the Treasurer for the year, the Sheriff s salary line was not correctly reflected, and the Treasurer thought the Sheriff was still owed approximately $1,500, which the bookkeeper paid him out of the 2008 account. We recommend the Sheriff reimburse the fee account $5,670 in order to comply with the maximum salary established by the Department for Local Government. Sheriff s Response: The Sheriff s salary will be paid according to schedule set by the Department of Local Government. The arrangement for paying the $5,670 by the Sheriff is pending The Sheriff Should Maintain Proper Personnel Files And Monitor Payroll For Accurate Compensation The Fair Labor Standards Act (FLSA) requires employers to keep certain records for covered, nonexempt employees. There are no required forms for the records, but the records must include accurate information about the employee and data about hours worked and wages earned. The following is a list of the basic records required by the FLSA:

23 BREATHITT COUNTY RAY CLEMONS, SHERIFF COMMENTS AND RECOMMENDATIONS For The Year Ended December 31, 2007 (Continued) Page 17 STATE LAWS AND REGULATIONS: (Continued) The Sheriff Should Maintain Proper Personnel Files And Monitor Payroll For Accurate Compensation (Continued) Time and day of week when employee s workweek begins; Hours worked each day and total hours worked each workweek (timesheets); Basis on which employee s wages are paid; Regular hourly/salary pay rate; Total daily or weekly straight-time earnings; Total overtime earnings for the workweek; All additions to or deductions from the employee s wages; Total wages paid each pay period; Date of payment and the pay period covered by the payment. During our audit, we noted the Sheriff did not maintain complete personnel files or documentation of regular hourly and salary pay rates for his deputies and office personnel. Furthermore, the Sheriff did not require the bookkeeper to maintain timesheets recording hours worked and leave balances. Timesheets provide documentation of hours worked to ensure compliance with wage and hour laws as well as to determine eligibility for the County Employee Retirement System. We recommend the Sheriff maintain complete personnel files that properly document payroll and we further recommend the Sheriff monitor payroll regularly. Sheriff s Response: All personnel files are being updated. The payroll journal reports include most required information. All employees now do time sheets, including the bookkeeper The Sheriff Should Require Accurate Payroll Reports And Pay Withholdings In A Timely Manner The Sheriff did not report or remit a total of $627 of local taxes withheld from employees wages. This total includes $598 local taxes withheld from employees checks due to the City of Jackson and $29 local taxes withheld from employees checks due to the county. Also, employee wage and tax statements (i.e. W-3, W-2, K-3 and K-2) appear to be inaccurate. Seven employees W-2s do not present accurate gross salaries for Of the seven incorrect W-2s, four were overstated (totaling in excess of $4,900), and three were understated (totaling in excess of $2,400). The Sheriff is responsible for reporting and remitting taxes and withholdings to the appropriate agencies in a timely manner. Failure to report and pay withholdings in a timely manner could result in penalties being assessed to the Sheriff. Penalties are not allowable expenses of the Sheriff s office. Furthermore, inaccurate employee wage and tax statements could result in inaccurate withholdings. We recommend the Sheriff remit all local payroll withholdings due for We also recommend the Sheriff implement procedures to assure the employee wage and tax statements are properly prepared and that withholdings are paid in a timely manner. We also recommend the Sheriff take necessary steps to assure amended W-2s are prepared and submitted. Sheriff s Response: Payroll withholding liabilities have been paid. Auditor will copy working papers as assistance in correcting W-2 forms. Sheriff will seek professional help in preparing amended forms.

24 BREATHITT COUNTY RAY CLEMONS, SHERIFF COMMENTS AND RECOMMENDATIONS For The Year Ended December 31, 2007 (Continued) Page 18 STATE LAWS AND REGULATIONS: (Continued) The Sheriff Should Properly Account For Retirement Payroll testing revealed the Sheriff did not withhold retirement from one employee whose work hours averaged in excess of 100 hours per month. Employees who work an average of 100 hours or more per month are required to contribute to the retirement system. Also, the Sheriff did not withhold retirement until September 2007 from three deputies who were already participating in the County Employee Retirement System. The Sheriff failed to withhold and remit a total of $1,644 to the retirement system. This total includes $1,469 that was not withheld from employees checks and $175 that was withheld from employees wages. The Sheriff incorrectly withheld and remitted $97 from part-time employees checks. Failure to properly withhold retirement could affect employees future benefits. We recommend the Sheriff ensure all eligible employees participate in the County Employee Retirement Systems (CERS) and that all withholdings are paid in a timely manner. We also recommend the Sheriff contact the CERS to determine the steps necessary to correct these issues. Sheriff s Response: Retirement System will contact the Sheriff s department for any additional retirement due them. Retirement will be deducted from all employee wages if working over one hundred hours each month The Sheriff Should Correct State And Federal Withholding Errors Withholdings on taxable wages reported to the Internal Revenue Service (IRS) on the Sheriff s 941 forms for Social Security and Medicare (FICA) were overstated by approximately $5,400 during This was determined by comparing the Sheriff s payroll summaries to the 941 forms. The Sheriff also overpaid state withholdings by $1,966. This total includes $310 that was not withheld from employees checks and an additional payment of $1,656 from the fee account that was not due to the state. Additionally, there were 44 checks totaling $11,891 paid to deputies from which no federal withholdings were withheld. The Sheriff incorrectly paid a total of $2,465 to the IRS for employee federal withholdings. This total includes $74 of FICA and $1,229 of federal taxes that were not withheld from employees checks and an additional payment of $1,162 that was not due to the IRS for We recommend the Sheriff take steps to correct these payroll issues. These steps may include amending the appropriate reports, collecting appropriate refunds and/or paying taxes due. Correction of these errors may require the Sheriff to seek assistance from a tax professional. Sheriff s Response: All state items have been resolved. Federal items cannot be resolved until corrected W-2 s are issued.

25 BREATHITT COUNTY RAY CLEMONS, SHERIFF COMMENTS AND RECOMMENDATIONS For The Year Ended December 31, 2007 (Continued) Page 19 STATE LAWS AND REGULATIONS: (Continued) The Sheriff Should Comply With Applicable Laws And Regulations Over Payroll During testing of Sheriff s payroll, we were unable to verify the accuracy of payroll and noted several significant non-compliances with applicable laws and regulations regarding payroll. We are therefore unable to verify the accuracy and appropriateness of wages and withholdings reported to federal, state and local agencies (i.e. 941 Forms and W-2 s). We will refer these matters to the Internal Revenue Service and the Department of Revenue for review. Depending on the final resolution of these matters, contributions may be due from the Sheriff and his deputies. Penalties and interest charged for late payments or for filing late reports should be paid by the Sheriff from personal funds. Sheriff s Response: All the above deficiencies are pending due to the final decision of the above departments The Sheriff Should Eliminate The $5,670 Deficit In His 2007 Fee Account The Sheriff has a $5,670 deficit in his 2007 fee account. The deficit is primarily due to the Sheriff receiving salary of $5,670 in excess of the amount authorized by the Department for Local Government. The deficit has prevented the Sheriff from paying all liabilities of the 2007 fee account. The Sheriff owes excess fees of $11,298 to the fiscal court and $627 for unpaid employee withholdings. We recommend the Sheriff obtain receivables due to the 2007 fee account and deposit personal funds in the amount of $5,670 to eliminate the deficit. We recommend the Sheriff pay all unpaid liabilities of the 2007 fee account after depositing personal funds and obtaining receivables. Sheriff s Response: Arrangement by the Sheriff for payment of the above is pending. INTERNAL CONTROL - SIGNIFICANT DEFICIENCIES AND MATERIAL WEAKNESSES: The Sheriff s Office Lacks Adequate Segregation Of Duties The Sheriff s office lacks adequate segregation of duties due to the responsibilities of recording, depositing, and reconciling cash being delegated to the same individual. The functions of receiving, recording, depositing, and reconciling cash should be separated whenever possible in order to decrease the risk that errors, misstatements, and/or fraud will occur and go undetected. Since only one person performs most of these functions, there is no assurance that financial transactions are accurate, complete, and free of error/misstatement. We recommend the Sheriff segregate the duties of recording, depositing, and reconciling cash or implement and document compensating controls to offset this control deficiency. Examples of compensating controls include the Sheriff comparing daily checkout sheets to the receipts ledger and bank deposit, reviewing bank reconciliations for accuracy, performing surprise cash counts, signing all checks, reviewing invoices prior to payment, and reviewing all financial reports. The Sheriff should document his review process by initialing reports and supporting documentation. Sheriff s Response: Segregation of duties is still a problem since we are short of staff. The Sheriff will take a more active part by reviewing and initialing reports and other documents. We have been approved for a part-time clerk at three hundred hours per year.

26 BREATHITT COUNTY RAY CLEMONS, SHERIFF COMMENTS AND RECOMMENDATIONS For The Year Ended December 31, 2007 (Continued) Page 20 INTERNAL CONTROL - SIGNIFICANT DEFICIENCIES AND MATERIAL WEAKNESSES: (Continued) The Sheriff s Office Should Prepare Daily Checkout Sheets During the course of our audit, we noted that daily checkout sheets were not being prepared. Good internal controls dictate checkout sheets should be prepared on a daily basis. The checkout sheets should agree to batched receipts, deposits, and the receipts ledger. Failure to prepare daily checkout sheets could result in information being omitted from the financial statement. We recommend the Sheriff prepare daily checkout sheets and ensure they agree to batched receipts, deposits, and the receipts ledger. Sheriff s Response: Daily checkout sheets are now prepared daily.

27