Kentucky Association of County Treasurers and Finance Officers

1
Kentucky Association of County Treasurers and
Finance Officers

• Training
• Auditor of Public Accounts
• April 9, 2008

2
Overview

• Internal Control
• Electronic Fund Transfers - Deposits to Countys
  Bank Accounts
• Department for Local Government
• Transaction Fees
• Credit Card Processing
• Federal Grants
• Local Government Economic Assistance Development
  Fund
• Detention Center Collections

3
Overview

• Collection From Other Departments
• Magistrates Monthly Expense Allowance
• Annual Financial Statement - Publication
  Requirements
• Kentucky Department for Libraries and Archives
• James Driver, State Social Security Program
  Manager
• Kentucky Office of Employment Standards
• Time Records - APA Recommendations

4
Internal Control

• The requirements for evaluating internal control
  over financial reporting for the private sector
  were a result of a series of financial crises in
  2001 and 2002 - for instance Enron and WorldCom.
• The Sarbanes-Oxley Act of 2002 required the
  Public Company Accounting Oversight Board to
  establish auditing and attestation standards that
  required auditors to determine if an entitys
  internal controls are effective for large
  companies.

5
Internal Control

• Two of the major sources of guidance for state
  and local governmental units on auditing and
  internal control are
• the Single Audit Act and
• Government Auditing Standards issued by the
  Comptroller General of the United States.
• Statement on Auditing Standards issued by the
  American Institute of Certified Public Accountants

6
Internal Control

• APA auditors do not express an opinion on the
  effectiveness of a Countys internal control over
  financial reporting. We give negative assurance.
• Internal Controls are implemented to protect
  honest employees.

7
Internal Control - Control Deficiency

• 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 deficiency in
  design exists when (a) a control necessary to
  meet the control objective is missing or (b) an
  existing control is not properly designed so that
  even if the control operates as designed, the
  control objective is not always met.

8
Internal Control - Control Deficiency

• A deficiency in operation exists when a properly
  designed control does not operate as designed or
  when the person performing the control does not
  possess the necessary authority or qualifications
  to perform the control effectively.

9
Internal Control - Significant Deficiency

• 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
  generally accepted accounting principles such
  that there is more than a remote likelihood that
  a misstatement of the entity's financial
  statements that is more than inconsequential will
  not be prevented or detected.

10
Internal Control - Material Weaknesses

• 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 statements
  will not be prevented or detected.

11
Internal Control - Remote Likelihood

• The term remote likelihood as used in the
  definitions of the terms significant deficiency
  and material weakness has the same meaning as the
  term remote as used in FASB 5.
• Remote the chance of the future event or events
  occurring is slight. Therefore, if the
  likelihood of an event is more than remote,
  it is at least reasonably possible.

12
Occupational Tax

• Most counties have a designated occupational tax
  collector as well as a separate bank account for
  occupational tax collections.
• This employee receives the occupational tax
  returns with payment from the businesses and
  deposits the collections into the occupational
  tax account.

13
Occupational Tax

• The employee usually writes a check from the
  occupational tax account to the Treasurer on a
  quarterly basis.
• This employee is also responsible for reconciling
  the occupational tax account, and keeps
  track of delinquent taxpayers.
• There are no compensating controls.

14
Ambulance Service

• In a county that runs its own ambulance service,
  one employee is designated to bill for the runs,
  collect the billings, post these receipts to the
  ledgers and keep track of the accounts
  receivable.
• There are no compensating controls.

15
Payroll Officer

• The payroll officer receives the employers share
  of withholding and health insurance from the
  other departments in the county without providing
  any formal documentation to support the amounts
  requested.
• The payroll officer deposits payroll funds into a
  separate account.

16
Payroll Officer

• The payroll officer prepares all withholding
  reports and payroll checks.
• The payroll officer pays all withholding reports
  to the proper authorities.
• The payroll officer hands out the payroll checks.
  There are no compensating controls.

17
Electronic Fund Transfers - Deposits to Countys
Bank Accounts

• My audits have been slowed recently by confusion
  surrounding miscellaneous debits and credits to
  bank statements. More and more, government
  agencies are using Electronic Fund Transfers to
  make payments. We are requesting
• Attach to the bank reconciliation or bank
  statement a list of the journal entries made as a
  result of the Electronic Fund Transfers.
• Include the name and number of whom you contact
  to determine the reason for EFT.

18
Department for Local Government

• The Department for Local Government and the
  Auditor of Public Accounts try to be consistent
  in their policies and procedures.
• We have developed the following slides

19
Transaction Fees

• County governments are allowed to accept payment
  of any fine, forfeiture, tax, or fee by check,
  draft, electronic funds transfer, debit or credit
  card account, or other similar means of payment.
  If an individual chooses to pay a fine,
  forfeiture, tax, or fee by any means other than
  cash, the county government may recover any
  transaction fee that would otherwise be incurred
  by the county for submitting or processing the
  transaction as part of and in addition to the
  original amount of the fine, forfeiture, tax, or
  fee.

20
Transaction Fees

• County governments are allowed to pay
  transaction fees as long as the State Local
  Finance Officer approves a standing order in
  accordance with KRS 68.275(3).
•  
• The State Local Finance Officer has agreed to
  approve transaction fees as part of the standing
  order.

21
Transaction Fees

• KRS 68.275(3) The fiscal court may adopt an
  order, called a standing order, to pre-approve
  the payment of recurrent monthly payroll and
  utility expenses. No other expenses shall be
  pre-approved pursuant to this subsection without
  the written consent of the state local finance
  officer. . All standing orders adopted by the
  fiscal court shall be renewed annually and
  submitted to the state local finance officer by
  July 1 of each fiscal year with the submission of
  the county budget if the fiscal court wishes to
  continue the standing order.

22
Credit Card Processing

• Contact professionals to help you develop
  policies and procedures.
• No electronic credit card numbers should be
  transmitted or stored in any other system,
  personal computer, or e-mail account.
• Physical cardholder data must be locked in a
  secure area, and limited to only those
  individuals that require access to that data. In
  addition, restrict access to data on a "need to
  know" basis.

23
Federal Grants

• Federal grants do not always require a separate
  bank account.
• However, some grantors may require that a
  separate bank account be maintained in order to
  track program income.
• The State Local Finance Officer has a fund titled
  Federal Grants in the chart of accounts. You
  are not required to deposit all federal grants
  into this fund.

24
Local Government Economic Assistance Development
Fund

• A county may transfer funds from the General Fund
  to the Local Government Economic Assistance
  Development Fund to build a project before grant
  funds are received.
• When the grant funds arrive, these funds should
  be deposited into the LGEADF. Then cash
  transfers from the LGEADF to the General Fund
  should be made.
• The county treasurer and finance officer should
  use the 4900 accounts to reflect the transfers.

25
Detention Center Collections

• Collections from inmates totaled 19,079,740 for
  fiscal year ended June 30, 2005.
• These collections were generally paid in cash and
  money orders.
• We recommend that collections from inmates for
  booking fees, per diem fees, and other fees be
  deposited into a bank account maintained by the
  Detention Center.

26
Detention Center Collections

• The Detention Center prepares a report and an
  accompanying check is written to the Jail Fund at
  the end of the month.
• The County Treasurer deposits the check into the
  Jail Fund and files the report.
• Officials/employees who handle public funds
  should be bonded for an amount covering the
  maximum amount of funds that they may have under
  their control at any one time.

27
Collection From Other Departments

• There may be small collections from other county
  departments such as the Animal Shelter. The
  person delivering the funds should take a report
  and the funds collected to the County Treasurer.
  The County Treasurer should issue a receipt for
  the cash they are accepting and deposit the funds
  into a bank account.
• Officials/employees who handle public funds
  should be bonded for an amount covering the
  maximum amount of funds that they may have under
  their control at any one time.

28
Magistrates Monthly Expense
Allowance

• KRS 64.530(6) Justices of the peace and county
  commissioners shall not receive any compensation
  for their services on the fiscal court, other
  than as provided by this section provided,
  however, justices of the peace and county
  commissioners may receive no more than three
  thousand six hundred dollars (3,600) annually or
  three hundred dollars (300) per month as an
  expense allowance for serving on committees of
  the fiscal court.

29
Annual Financial Statement - Publication
Requirements

• KRS 424.220 (8) The appropriate officer of a
  county shall satisfy the requirements of
  subsection (6) of this section by publishing the
  county's audit, prepared in accordance with KRS
  43.070 or KRS 64.810, in the same manner that
  city audits are published in accordance with KRS
  91A.040(6).

30
Annual Financial Statement - Publication
Requirements

• KRS 91A.040(6) Each city county shall, within
  thirty (30) days after the presentation of an
  audit to the city county legislative body,
  publish an advertisement in accordance with KRS
  Chapter 424 containing

31
Annual Financial Statement - Publication
Requirements

• The auditor's opinion letter -
•  
• If the auditors office conducts the audit we
  will publish the Independent Auditors Report,
  which includes the opinion on the financial
  statements. We also refer to the Independent
  Auditors Report as the Letter of Transmittal.
  You do not need to publish this part of the audit
  report.

32
Annual Financial Statement - Publication
Requirements

• The "Budgetary Comparison Schedules -Major
  Funds," which shall include the general fund and
  all major funds
•  
• A statement that a copy of the complete audit
  report, including financial statements and
  supplemental information, is on file at city hall
  the county treasurers office and is available
  for public inspection during normal business
  hours

33
Annual Financial Statement - Publication
Requirements

• A statement that any citizen may obtain from city
  hall the county treasurers office a copy of
  the complete audit report, including financial
  statements and supplemental information, for his
  personal use
•  A statement which notifies citizens requesting a
  personal copy of the city fiscal court audit
  report that they will be charged for duplication
  costs at a rate that shall not exceed twenty-five
  cents (0.25) per page and

34
Annual Financial Statement - Publication
Requirements

• A statement that copies of the financial
  statement prepared in accordance with KRS 424.220
  are available to the public at no cost at the
  business address of the officer responsible for
  preparation of the statement.

35
Kentucky Department for Libraries and Archives

• Public records are specifically defined by
  Kentucky statute (KRS 171.410 (1) ) as "all
  books, papers, maps, photographs, cards, tapes,
  disks, diskettes, recordings and other
  documentary materials, regardless of physical
  form or characteristics, which are prepared,
  owned, used, in the possession of or retained by
  a public agency."

36
Kentucky Department for Libraries and Archives

• The Kentucky Department for Libraries and
  Archives has a Record Retention Schedule for
• County Treasurer
• County Judge/Executive
• County Jailer
• General Schedule for Electronic and Related
  Records

37
Kentucky Department for Libraries and Archives

• The Local Records Branch provides records
  management assistance to more than 2,900 local
  government agencies within the Commonwealth.
  These services are provided by Four regional
  administrators strategically located
• South Region - Larry Barnett [phone], ext.
  258, Cell Number [phone]
• East Region - Tim McIntosh [phone], ext.
  258, cell number (502) 750 - 1913

38
Kentucky Department for Libraries and Archives

• West Region - Trace Kirkwood [phone], ext.
  258, cell number [phone]
• North Region - Lena Jones Turner [phone]
  Ext. 258, cell number (859) 707- 6423
•  
• For direct service assistance and grant
  application information please contact the
  regional administrator for your area.

39
Kentucky Department for Libraries and Archives

• Local records grant application information may
  be obtained by contacting Sunnye Smith, Grant
  Specialist at [phone], ext. 257.
•  
• http//kdla.ky.gov/home.htm
•  

40
James Driver, State Social Security Program
Manager

• James Driver in the Finance Cabinet, Office of
  the Controller, specifically serves as a liaison
  between State and Local Governments and
  employment tax issues ranging from filing proper
  withholding forms, classification of workers, and
  1099 reporting, to taxable fringe benefits.

41
James Driver, State Social Security Program
Manager

• Independent Contractors
• W-2 Employees
• Federal Recordkeeping Requirements
• If you have any questions you can contact him at
  the following (email is often the best for
  initial contact since he travels frequently but
  checks his email constantly)

42
James Driver, State Social Security Program
Manager

• Division of Local Government ServicesSocial
  Security Coverage Reporting Branch501 High
  Street, 4th floor, Station 11PO Box
  639Frankfort KY 40602-0639James.driver_at_ky.gov
  ltmailtoJames.driver_at_ky.govgt      502-564-6888

43
Kentucky Office of Employment Standards

• Mr. Robert Horine
• Investigator
• Office of Employment Standards
• 1047 US 127 South Suite 4
• Frankfort, KY 40601
• Cell [phone]

44
Kentucky Office of Employment Standards

• 803 KAR 1005, covers employer-employee
  relationships and is what the wage and hour
  department uses. Other agencies may have their
  own definitions.
• 803 KAR 1070, covers the salary exemptions.  It
  defines and gives the requirements for the
  different categories of exemptions (Executive,
  Administrative, Supervisory, Professional) and
  also covers how salaries need to be paid.

45
Kentucky Office of Employment Standards

• The timekeeping law is KRS 337.320.
• Salaried employees are exempt from this statute
  (along with minimum wage, overtime, etc.) under
  the definition of employee, which is defined in
  KRS 337.010.

46
Kentucky Office of Employment Standards

• The link to their main website is
• http//www.labor.ky.gov/ows/employmentstandards/
• Mr. Horine will be discussing these issues during
  his presentation.

47
Time Records - APA Recommendations

• Time records provide documentation to verify
  time worked for retirement, time and
  one-half payments, sick leave, compensatory
  leave, annual leave earned and taken.
• Time records should be maintained.

48
Time Records - APA Recommendations

• Time records should be signed by both the
  employee and supervisor.
• Time records should be reconciled to leave
  balances for instance, sick and annual leave.

49
Time Records - APA Recommendations

• A time report or record should include
• Name
• Identifying Number
• Period of Time Covered
• Hours Distributed To Work Time, Annual Leave,
  Compensatory Leave, Sick Leave, Election Leave
  and Holiday Leave. Total hours charged to each
  area.
• Employee Signature Area
• Supervisory Signature Area

50
Training Materials Provided

• Copy of the Power Point Presentation
• The accompanying CD include resources that may
  assist you.