APA Update A s s o c i a t i o n o f G o v e r n m e n t A c c o - - PowerPoint PPT Presentation

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APA Update A s s o c i a t i o n o f G o v e r n m e n t A c c o - - PowerPoint PPT Presentation

Jul 20, 2023 598 likes •990 views

Click to edit Master title style APA Update A s s o c i a t i o n o f G o v e r n m e n t A c c o u n t a n t s A u g u s t 8 , 2 0 1 8 1 Click to edit Master title style Agenda Auditor Harmon Office overview Special

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APA Update

A s s o c i a t i o n o f G o v e r n m e n t A c c o u n t a n t s A u g u s t 8 , 2 0 1 8

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Agenda

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  • Auditor Harmon
  • Office overview
  • Special Examinations
  • Fraud, Internal Controls
  • Common audit findings
  • State Government Challenges
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Auditor Harmon

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  • Thank you!
  • 47th Auditor of Public Accounts
  • Follow The Data
  • Conducts over 600 engagements per year ranging from financial
audits of state and local government to special examinations
  • Most recent special exam was the Administrative Office of the Courts
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Administrative Office of the Courts

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  • Administrative arm of the Judicial Branch
  • Report had 20 findings
  • Available at auditor.ky.gov
  • For example, issues included:
  • Employee only and private sales of AOC surplus items like automobiles
and furniture
  • Lease agreement for office space for one of the justices being awarded to
a company owned by the justice’s two sons, despite the bid being three times as high as an alternative bid and no documentation noting why.
  • AOC leadership Chief Justice Minton and Director Laurie Dudgeon
invited APA to conduct special examination
  • AOC agreed with some but not all recommendations
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Audit Results

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  • Two recent audits of local government show how a lack of oversight
and segregation of duties can put counties in dire financial straits.
  • Pike County Fiscal Court
  • Issues with record keeping, financial management
practices, no oversight of county’s treasurer.
  • S&P Global withdrew its rating on Pike County’s ability to
repay its debts.
  • Treasurer didn’t complete bank reconciliations for FY16
until October 2017
  • Treasurer overstated county’s expenditures by nearly $5.5
million when she filed the county’s financial report with DLG
  • County taking steps toward rectifying, but will take time to
restore credit rating.
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Audit Results

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  • Jackson County Fiscal Court
  • Combined 74 findings for 2015 and 2016 audits
  • Former treasurer had written over $114,000 in

checks to herself. $54,000 from county funds and $60,000 from federal grant.

  • Referred to FBI, federal grand jury indicted her

in May on 10 charges of theft, wire fraud, and aggravated identity theft.

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APA Goals

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  • When there is little or no oversight, this can lead to potential

criminal charges, and at a minimum as in Pike County, can have a drastic impact on their ability to function.

  • APA’s goal is to help state and local government become more

efficient, effective, and ethical.

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APA legislation –SB 144

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  • SB 144 – Effective July 14, allows APA to conduct agreed-

upon-procedures (AUP) engagement for county clerks and sheriff’s offices who have a prior good track record of performance.

  • Worked with KACo, KSA and KCCA
  • Modeled after Ohio legislation and is estimated to save

roughly 25-50% on audit costs for the county

  • To be eligible, must have no reported comments in their

last audit and have to be considered a low-risk auditee.

  • APA retains right to do full audit if there is risk
  • Based on 2015 data, about half of KY’s sheriffs and 2/3 of

county clerks had no reported audit findings, and could be eligible for AUP

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  • New clerks or sheriffs not eligible in first year of

term

  • Fiscal courts not eligible for AUP because most

carry debt which requires full financial statement audit.

  • SB 144 gives counties another tool to save money-

every dollar counts

  • This also helps APA in that we can better manage our

audit staff by placing them on higher-risk audits and special examinations.

APA legislation –SB 144

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APA legislation –SB 91

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  • Senator Mike Wilson sponsored - strengthen financial accountability for cities.
  • Kentucky League of Cities supported
  • The primary objective -add a better mechanism to enforce the audit requirement
that is already in statute for cities. This improved mechanism would be the withholding of state funding from cities that are not compliant.
  • Special examination of the City of Whitesburg - one of the recommendations in
  • ur report released in December.
  • The lack of audits in Whitesburg was concealing a wide range of issues:
  • delinquent water accounts going uncollected
  • business licenses not being collected – even from the mayor’s own business
that was operating out of city hall
  • severely inadequate accounting system that cannot produce even basic
financial reports.
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APA legislation –SB 91

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  • Provides that state funding will be withheld in the event that a city does not have
its audit completed in a timely fashion.
  • This is similar to the penalty that applies currently if a city fails to file its Uniform
Financial Report (or UFIR) with DLG.
  • Same standard that applies to SPGEs that do not obtain audits as required by statute.
  • Allows cities with less than 2,000 population to have audits performed every
  • ther year rather than annually. Currently this applies to cities with 1,000
population or less.
  • The bill also makes clear that it does not override any other legal audit requirements –
for example if a city receives $750,000 in federal funding, it would be required by federal law to have an audit.
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Cost Savings

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  • APA looking to save money too by sending most of our county audits
  • ut electronically, which saves printing costs and postage.
  • We need well-run transparent government. No matter what branch
  • f government - local, state or federal – if we are not conducting

public business in an efficient, effective, and ethical way, there is a failure in how we are managing the taxpayers’ money.

  • APA strives to make sure government is managing resources

provided to them in an efficient manner.

  • Learn more about the office on social media and our website!
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Auditor of Public Accounts (APA)

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  • 135 employees
  • Financial Audits – State and County audits
  • State – CAFR, SSWAK, AUPs
  • County – Fiscal Court, County Clerk, Sheriff Fee,

Sheriff Tax, Circuit Court Clerk, PVA AUPs

  • Technology and Special Audits
  • IT support for financial auditors
  • Special Examinations
  • Planning, Management, and Administrative
  • Legal and Records Services
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APA Mission

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  • Protecting taxpayers by:
  • Promoting transparency
  • Identifying waste, fraud, and abuse
  • Improving efficiency
  • Enhancing IT security
  • Holding public officials accountable
  • We protect taxpayers on both the state and local levels
  • f government.
  • #FollowTheData
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APA

  • KRS 43 – broad authority to audit all state agencies, all private and

semiprivate agencies receiving state aid (.050) as well as all counties, county officials, and SPGEs (.070)

  • Follow Generally Accepted Government Auditing Standards

(GAGAS) aka Yellow Book

  • 80 hours of CPE every two years
  • Peer Review every three years
  • Quality Control
  • Member of the National Association of State Auditors, Controllers,

and Treasurers (NASACT)

  • Participate with several boards as required by statute
  • Member of the AICPA Governmental Audit Quality Center
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The 2018 Yellow Book

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  • What’s new?
  • Issued July 17, 2018
  • New format that differentiates requirements from application guidance
  • Updated independence requirements for auditors who prepare financial
statements of an audited entity
  • Revised Peer Review requirements for audit organizations
  • New guidance to address waste and abuse as defined under
government auditing standards
  • Updated internal control guidance for performance audits
  • Effective for financial audits, attestation engagements, and reviews of
financial statements for periods ending on or after June 30, 2020, and for performance audits beginning on or after July 1, 2019. Early implementation is not allowed.
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APA Special Examinations

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  • TIPS line
  • Online “SAFE-house”
  • APA evaluates each complaint or tip
  • Purpose is to examine and report on matters involving waste,

fraud, or abuse

  • Compliant driven, no targeting
  • Since January 2016, have referred 37 engagements to

enforcement agencies such as the FBI, KSP, OAG, Ethics Commission, and KYTC.

  • FAC Tip Line
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APA Special Examinations

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  • University of Louisville Foundation Governance Review
  • Kentucky Horse Park
  • Election Leave
  • City of Whitesburg
  • City of Campbellsville
  • Administrative Office of the Courts
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Results of APA Audits and Special Examinations

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  • Payroll/Personnel problems
  • Salary adjustments with no appropriate board approval or

contract modifications

  • Benefits paid in excess of contracts
  • Overpayment of wages
  • Fictitious employees
  • Inappropriate Travel Reimbursements
  • Double/Triple dipping
  • No receipts or obscured receipts
  • Nonessential or unauthorized staff, spouses and other non-

staff individuals

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Results of APA Audits and Special Examinations

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  • Expenditures
  • Checks written without appropriate review
  • Unnecessary expenditures with no business purpose
  • Food purchases
  • Conference expenditures including entertainment and alcohol
  • Purchasing excessive conference door prizes, some retained for personal use
  • Lack of proper bank reconciliations
  • Fraudulent checks - made to employee or employee’s family member
  • Procurement
  • Failure to bid when required
  • Bid rigging risks
  • Utilizing external agencies for purchasing, circumventing procurement policies
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Results of APA Audits and Special Examinations

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  • Conflicts of Interest
  • Awarding contracts/scholarships to relatives or personal

businesses owned by management or board

  • Inappropriate vendor “gifts”
  • Utilizing agency/district assets for personal use
  • Federal grant noncompliance
  • Moving funds around, obscuring expenditure details
  • Using federal funds for unallowable purposes
  • Misuse of indirect cost plans (including unallowed costs in

indirect cost pools)

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Common issues found in audits/examinations

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  • Lack of segregation of duties
  • Lack of training
  • Lack of awareness
  • Lack of communication
  • Lack of compliance
  • Not understanding requirements
  • No supporting documentation
  • Sometimes, fraud
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Fraud

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  • The Fraud Triangle:
  • Rationalization
  • Incentives/Pressure
  • Opportunity (management controls)
  • What leads to fraud?
  • Lack of segregation of duties and other internal controls
  • Trust (instead of Trust, But Verify!)
  • Collusion
  • Misunderstanding about scope of financial audits – financial

audits are not designed to detect fraud.

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Fraud Red Flags

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  • Living beyond means
  • Financial difficulties
  • Unusually close relationships with vendors or

customers

  • Excessive control issues
  • Divorce or family problems
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Importance of Internal Controls

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  • Processes put in place by management that are designed to

provide reasonable assurance regarding the achievement of

  • bjectives in
  • Effectiveness/efficiency of operations
  • Reliability of financial reporting
  • Compliance with applicable laws and regulations
  • Protection of assets, including organizational reputation
  • Simply – internal controls help make things that management

wants to happen happen, and things management doesn’t want to happen, not happen.

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Five components of Internal Control

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  • 1. Control Environment – commitment to integrity and ethics
  • 2. Risk Assessment – identify, analyze, and respond to risks,

including fraud risks

  • 3. Control Activities – design and implement control

activities, including IT

  • 4. Information and Communication – use quality

information, communicate internally and externally

  • 5. Monitoring – monitor and evaluate issues and fix

deficiencies. Trust is not an internal control, Trust but Verify!

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Fraud prevention

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  • How do you prevent fraud from happening in your
  • rganization??
  • Set the tone at the top – lead by example
  • Robust set of internal controls
  • Increase perception of detection
  • Identify high risk areas
  • Effective policies and procedures that prohibit deviant

behavior Any fraud is too much fraud, every dollar is significant.

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“

There is no kind of dishonesty into which otherwise good people more easily and more frequently fall than that of defrauding the government.” - Ben Franklin

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Report Allegations of Waste, Fraud, or Abuse

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TIPS Hotline 1-800-KYALERT

Auditor on call 8am-5pm Monday-Friday

SAFE-house www.auditor.ky.gov

Confidential transmission of written allegation and/or supporting evidence
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State Government Challenges

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  • Staffing
  • Recruitment
  • Retention
  • Retirements
  • Succession Planning
  • Leadership Development
  • Budget Constraints
  • Audit and Accounting Standards (GAO, AICPA, GASB, UG)
  • Training
  • eMARS 3.11/3.10
  • Technology, Cyber Security
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APA Career Opportunities

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  • Make a difference and protect taxpayer dollars!
  • Public Accounts Auditor I – requires a bachelors degree

with 20 semester hours or 30 quarter hours of accounting

  • Advancement opportunities – Auditor 1-Audit Manager
  • Continuing Professional Education provided
  • Flexible work schedule
  • File an application with the Kentucky Personnel Cabinet
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Follow Auditor Harmon on Social Media

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Twitter - @KyAuditorHarmon and @AuditorKY Facebook - @KyAuditorHarmon and @AuditorKY Instagram – kyauditor

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APA Contact Information

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  • Assistant State Auditor – Alice Wilson
  • Ext. 2864 alice.wilson@ky.gov
  • Executive Director, Office of Technology and Special Audits – Chris
Hunt
  • Ext. 2863 lchris.hunt@ky.gov
  • Executive Director, Office of Financial Audits – Libby Carlin
  • Ext. 2868 libby.carlin@ky.gov
  • Deputy Executive Director Office of Financial Audits --Jim Royse
  • Ext. 2924 james.royse@ky.gov
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APA Contact Information

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  • Audit Manager – State – Justin Ebert
  • Ext. 2884 Justin.ebert@ky.gov
  • Audit Manager – State – Lori Mann
  • Ext. 2903 lori.mann@ky.gov
  • Audit Manager – State – Josh Winfrey
  • Ext. 2923 josh.Winfrey@ky.gov
  • Quality Assurance Manager – Tammy Patrick
  • Ext. 2900 tammy.Patrick@ky.gov
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APA Contact Information

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  • Northeast Branch Manager-Glen Thompson
  • Ext. 2919 glen.thompson@ky.gov
  • Central Branch Manager-Beth Francis
  • Ext. 2886 beth.francis@ky.gov
  • Western Branch Manager-Shari Scott
  • Ext. 2881 shari.scott@ky.gov
  • Southeastern Branch Manager-Farrah Petter
Ext 2902 farrah.petter@ky.gov
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Thank You