State auditors report $2.5 million discrepancy

Audit Manager Debbie Pennick prepares to read the report of the state auditor’s office findings for Whitman County for 2015 as County Commissioners Art Swannack and Michael Largent, plus county clerk Maribeth Becker, look on. Kelly Collins, director of the local audit, sits to the right of Pennick.

County books for 2015 show

lack of internal controls

Staff members from the state auditor's office Monday reported that the county was unable to provide accurate financial statements and that weaknesses existed in financial reporting for the audit on the county's books for 2015.

The county's audit woes date back more than a decade, a span of time when the county has only been able to provide accurate financial statements in five of 11 years.

The lack of adequate internal controls led to the county being unable to explain variances of more than $2.5 million in ending cash.

“It's not fraud or misappropriation,” said Debbie Pennick, audit manager.

“The county couldn't accurately present financial information,” said Kelly Collins, director of local audit. “It's a discrepancy in the records of the county.”

The $2.5 million is not actually money that is missing, but the discrepancy was described as one where ending numbers did not agree.

The county had ending cash listed at $80,326,586, and the banks reflected had the ending balance at $83,286,325.

“We'll be unable to issue an opinion there,” Pennick reported to the county commissioners.

The state's audit found that the county lacked adequate internal controls to ensure accurate reporting of its financial statements and schedules.

“We've been working on this issue with the county,” said Pennick. “The county has put in significant effort in the last 10 years.”

County Auditor Eunice Coker in her response agreed with the findings of the audit in all regards. Coker said steps are being taken to remedy the conditions. She noted the county has now hired a finance administrator and an assistant to the finance administrator. These positions were filled after the time period of the audit, which was Jan. 1, 2015, through Dec. 31, 2015.

In regard to the county not being able to provide financial statements from 2015, Pennick said it was important to focus on the future.

“They decided to move on from 2015 and put resources into solving it for 2016,” she said.

Coker said the county would continue to work with the county treasurer to improve accounting processes, establish support for all journal entries in the system and work “with our new experienced and dedicated staff in the financial administration division.”

The full audit report will soon be available online at sao.wa.gov.

Pennick said she expects it to be released either Monday, Nov. 28, or Thursday, Dec. 1.

The report noted the county had relied heavily on one employee to prepare financial statements and schedules, and that employee is no longer employed with the county and was unavailable to assist with the state audit.

The auditors noted county employees do not fully understand the accounting software used by the county or how the recording of transactions impacts the accuracy of accounting records. The county relies on journal vouchers to keep accounting records, and there is no effective process to ensure entries are properly authorized, supported or reviewed for accuracy.

The county's annual report preparation does not include controls that ensure amounts reported in the financial statements and schedules agree with bank reconciliations or accounting records. Employees lack the technical knowledge, training and resources needed to ensure the county's financial reporting is accurate and complete, and the county does not have monitoring controls for the review of the completed annual report to ensure significant errors or inconsistencies are detected and resolved.

“It could be things as simple as checks clearing,” said Commissioner Michael Largent.

The auditors also found the county lacked adequate internal controls when it came to accurate reporting of expenditures relating to federal awards.

“There were control deficiencies in place,” Collins said. “This is a repeat issue for the county that we've reported on in the past.”

The state report said one weakness exists in regard to schedule of expenditures for federal grants. The report said employees responsible for preparing forms to assist in the preparation of the reports have not received adequate training.

The auditors said the county's books contained errors in nine of the 16 grants reported, resulting in an overstatement of federal expenditures by $48,904. Also, the grant expenditures were reported as direct awards when they were actually from pass-through agencies.

“That's significant that we need to have that accurately identified,” stated Collins.

The county lacks internal controls that ensure federal expenditures recorded in the accounting records are reconciled. It noted the county has not taken prompt, corrective action on previous audit findings.

“There have been some targeted improvements, but the county is still struggling,” said Collins.

The final finding was in regard to payroll processing and stated that there was an increased risk that errors could occur and not be detected in a timely manner.

These conditions led to multiple time records, vacation and sick leave request forms or compensatory time requests/approvals not always being retained, leave balance adjustments sometimes being made without adequate explanation and support and payroll remittance forms not always being reviewed for accuracy.

These controls include that the county does not have detailed written procedure manuals to document payroll rules, regulations or county expectations, and does not have a training program for processing and monitoring payroll processes.

It added the county does not have an official policy related to arrangements between departments. Some employees have multiple employee identification codes, and the county does not use an automated system which limits daily hours worked and leave balance accruals.

The auditors found that the county's automated payroll system lacks key processing controls to ensure the accuracy of recorded financial data. This includes the inability to accurately allocate payroll costs among multiple account codes and to transfer payroll tax data to the disbursements module and assist in the preparation of quarterly payroll reports.

The system limitations make it necessary for some employee deductions to be manually recorded.