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 Examinations • Fraud, Internal Controls • Common audit findings • State Government Challenges 2 2
Click to edit Master title style Auditor Harmon • Thank you! • 47 th 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 3 3
Click to edit Master title style Administrative Office of the Courts • 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 4 4
Click to edit Master title style Audit Results • 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. 5 5
Click to edit Master title style Audit Results • 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. 6 6
Click to edit Master title style APA Goals • 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. 7 7
Click to edit Master title style APA legislation –SB 144 • 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 8 8
Click to edit Master title style APA legislation –SB 144 • 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 . 9 9
Click to edit Master title style APA legislation –SB 91 • 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 our 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. 10 10
Click to edit Master title style APA legislation –SB 91 • 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 other 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. 11 11
Click to edit Master title style Cost Savings • APA looking to save money too by sending most of our county audits out electronically, which saves printing costs and postage. • We need well-run transparent government. No matter what branch of 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! 12 12
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Click to edit Master title style Auditor of Public Accounts (APA) • 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 14 14
Click to edit Master title style APA Mission • 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 of government. • #FollowTheData 15 15
Click to edit Master title style 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 16 16
Click to edit Master title style The 2018 Yellow Book • 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. 17 17
Click to edit Master title style APA Special Examinations • 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 18 18
Click to edit Master title style APA Special Examinations • University of Louisville Foundation Governance Review • Kentucky Horse Park • Election Leave • City of Whitesburg • City of Campbellsville • Administrative Office of the Courts 19 19
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