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More audits released on sheriff dept


SALYERSVILLE – Four more audits were released this week on the Magoffin County Sheriff Department, with several discrepancies reiterated in the reports that mirrored the audits that were released in August, with the 2017 year deemed inconclusive.

In the 2017 audit released by State Auditor of Public Accounts Mike Harmon on January 13, auditors found that the receipts and disbursements ledger did not support the fourth quarter financial statement, with the receipts having a variance of $144,502 and disbursements of $36,897. The 2012, 2014, 2015, 2016, and 2017 fee accounts had not been settled with the fiscal court and 27 bank accounts from prior years remain open and continue to transfers between them, including involving the current year’s funds being moved into the prior year accounts.

Numerous funds had been deposited into the incorrect bank accounts, and in several instances excess fees or funds for other tax commissions had been deposited into the wrong accounts. 

As had been reported previously, the significant IRS penalties and interest totaling at almost $60,000 also appeared in this audit. Duplicate payments were noted, as were retirement withholdings of over $70,000 that had been withheld from employees, but not paid to the fiscal court. A retirement withholding payment had been paid out of the wrong year’s account, and three revolving payroll accounts had been opened and/or closed in a few short years, confusing the auditors further. 

A deputy was paid in contract labor and the sheriff did not deposit federal forfeiture funds into a separate account, according to the audit.

While a very common finding in governmental audits, one of the biggest infractions noted was the lack of segregation of duties, leaving security holes in the office, according to the audit.

“In addition, it should be noted that due to the inaccurate and incomplete financial records noted above and the continuous commingling of various years accounts, auditors could not ensure proper corrective actions had been enacted by the sheriff to clear any prior year findings. Thus, we will not present or carry forward any prior year findings as part of this audit,” the audit stated.

The auditor noted that Sheriff Montgomery needs to improve his office’s financial practices and internal controls and make sure complete and accurate financial records are kept. 

“The Magoffin County Sheriff’s current practices create an environment for potential undetected material misstatements to occur in the financial statements either by error or fraud,” the auditor stated. “If the Magoffin County Sheriff continues his poor financial practices and does not improve the internal control structure, taxpayer monies will continue to be at risk.”

The auditor recommended that the office improve the overall control environment in order to prepare complete and accurate financial reports, with receipts and disbursement ledgers that reflect the daily activity of the office, as well as recommended that he cease the “commingling of his open accounts.”

Montgomery’s office submitted 16 responses to the 2017 audit (direct quotes and paraphrased responses in italics), including blaming some of the errors on a computer software malfunction, stating that some of the fees had been given to the office by the fiscal court, or completely disagreeing with the auditor’s findings.

“I have been told to not close accounts, then told to close accounts,” Sheriff Montgomery replied in the audit. “It all depends on which auditor you are speaking with. But, I will close unused accounts.”

“The fee account was not opened prematurely. The system uploaded into the wrong month. Again, we depend on the best system we can afford, and it is not always dependable,” Montgomery stated in one response. “I disagree with the comment regarding daily check out sheets. We have always done our daily checkout process based on the advice of several auditors. This same process has been used in previous years, yet this is a new comment. This comment is false! Daily check outs are kept separated by years and are kept straight. If they aren’t in order, we didn’t do it. We maintain a very nice, neat filing system. Once 3-4 auditors shuffle through paperwork, we can’t find what WE need. As for records not being readily available, my small staff cannot turn away paying customers to satisfy every request. They provide information as soon as they possibly can. I do not feel this comment is appropriate. We have always made the state auditors a priority and have allowed them unlimited access to any aspect of our office. Apparently, this is still not good enough!”

Since the responses did not correlate to the same order of the auditor’s findings, some were a little harder to follow.

“These are old penalties that our current Judge refuses to work out an agreement for payment,” one response from the sheriff’s office stated, presumably about the IRS penalties due. “We have money in old fee accounts that would pay this off immediately, but it requires his approval. Meanwhile, interest continues to accrue.”

According to the sheriff’s responses, the duplicate payment was attributed to a QuickBooks payment schedule, several of the items had already been corrected, and some were still in the works at the time of the August exit interview with the audit, with the bookkeeper in the process of separating federal and state money and opening an additional account.

Some of the responses, however, directly argued with the auditor’s findings, stating, for example, “A payroll account is where we pay retirement from, so what does it matter?” and “We open a new payroll account each time the Sheriff begins a new term.”

Montgomery also argued that the “contract labor” infraction was incorrect, stating that an employee owns a business and those were invoices with that business, not contract labor.

In the audits of the sheriff settlement on the 2016 and 2017 taxes and 2016 gas and oil taxes, findings from past audits (released in August) were reiterated, showing a deficit of $622 in the 2014 tax account, interest payments had not been distributed to the school and fee accounts, a misstatement in an annual settlement, and several tax accounts had not been settled. 

The sheriff responded that each of the issues have either been fixed or in the process of being corrected, with Montgomery depositing some of his personal money into at least one account to make sure there were no deficits. He also noted that procedures are in place to avoid some of the mistakes, such as the overpayment to tax commissions. 

The auditor noted that the office lacks adequate internal controls over franchise collections, with no maintained list of franchise bills that were collected during the year and deposit tickets not reflecting the bills that were deposited. Incorrect rates were used on some bills, and 21 bills could not be found at all. 

The sheriff responded, “Current bookkeeper does not accept franchise bills without proper documentation from the state attached. Bills are checked for accuracy before being mailed to the taxpayer. Bookkeeper is in the process of rectifying previous year mistakes. Lists of delinquent or unpaid bills are being turned over to the clerk. As for missing bills, the sheriff does not receive state paperwork, therefore, he has no way of knowing how many bills actually need to be created.”

The auditor, once again, found the office lacks adequate segregation of duties, stating that the same employee should not receive payments, prepare deposits, and post to the receipts ledger, nor should the same employee deposit funds, sign checks, post to ledgers, and prepare bank reconciliations and monthly reports, all of which were being performed predominantly by the bookkeeper.

Montgomery’s office responded, “Due to the size of our office and budget restraints, it is not possible to implement these procedures.”

However, the auditor replied to the response that staffing limitations preventing adequate segregation of duties should be compensated for by controls and strong management oversight to mitigate the risks.

While it is unclear what the full ramifications could involve regarding an inconclusive audit, the state auditor’s office explained to the Independent that it could cause the sheriff to be ineligible to apply for federal grants.

The Office of Auditor Mike Harmon Communications Director Michael Goins told the Independent, “The biggest issue with the audit is that taxpayers in Magoffin County are not getting a true accounting of their tax dollars, and by not doing this it is costing them additional penalties and interest as described in our audit relating to penalties with the Internal Revenue Service.”

The Independent is in the process of going through information provided via open records requests and other outlets regarding the local sheriff department. This is considered an ongoing story, with more expected to be released soon. 


Heather Oney

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