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PrintThe Tennessee Comptroller of the Treasury, Division of Local Government Audit, released today its annual financial report of Cannon County for the fiscal year 2016-2017.
"We have audited the basic financial statements of Cannon County as of and for the year ended June 30, 2017," the report states. "Our audit resulted in five findings and recommendations, which we have reviewed with Cannon County management."
Following is a summary of each finding and management's response:
FINDING 2017-001
THE GENERAL AND SOLID WASTE/SANITATION FUNDS HAD DEFICITS IN UNASSIGNED FUND BALANCE (Internal Control - Material Weakness Under Government Auditing Standards)
The General and the Solid Waste/Sanitation funds had deficits in unassigned fund balance of $132,455 and $1,447, respectively, at June 30, 2017. These deficits resulted from a lack of management oversight, which allowed expenditures to exceed available funds. Also, these deficits resulted from management's failure to correct the finding noted in the prior-year audit report, and management's failure to implement their corrective action plan. Sound business practice dictates that expenditures should be held within available funding.
RECOMMENDATION
Officials should liquidate the deficits in unassigned fund balance. Steps should be taken to ensure expenditures are held within available funding.
MANAGEMENT'S RESPONSE - COUNTY EXECUTIVE
I concur with this finding. The fund balance in the County General Fund has been decreasing since 2009. The county commission approved a plan of action on February 2, 2017, to have a sufficient fund balance of $1,000,000 in five years from the 2016-2017 budget.
The property tax rate levied and allocated to the Solid Waste/Sanitation Fund budget has been cut since 2013. In 2006 it was $.17 and is currently $.15. This has reduced the fund balance to a level that makes it difficult to operate the department. The equipment is very old and worn out requiring a lot of maintenance. An amendment was presented to the county commission on June 29, 2017, to transfer $23,000 from the County General Fund to the Solid Waste/Sanitation Fund; however, the amendment failed.
FINDING 2017-002
THE OFFICE HAD DEFICIENCIES IN BUDGET OPERATIONS (Noncompliance Under Government Auditing Standards)
Our examination revealed the following deficiencies in budget operations:
A. Total expenditures of the Solid Waste/Sanitation Fund exceeded total appropriations approved by the county commission by $21,816.
B. Expenditures exceeded appropriations approved by the county commission in the Jail ($35,224) and County Coroner/Medical Examiner ($1,500) major appropriation categories (the legal level of control) in the General Fund.
C. Salaries exceeded appropriations in ten of the 122 salary line-items of the General and Solid Waste/Sanitation funds by amounts ranging from $1 to $4,035. The budget resolution approved by the county commission states that the salary, wages, or remuneration of each official, employee, or agent of the county will not exceed appropriations that accompany the resolution. Therefore, the salaries that exceeded line-item appropriations were expenditures not approved by the county commission.
RECOMMENDATION
Expenditures should be held within appropriations approved by the county commission.
MANAGEMENT'S RESPONSE - COUNTY EXECUTIVE
I concur with this finding.
A. The expenditures in Solid Waste exceeded the budget largely due to the increasing amount of maintenance required to keep the old and outdated equipment running and also the budget cuts made over the past two years. On December 20, 2016, in special called session, the county commission voted for each department to cut their budgets by 2.5%. The Solid Waste budget took a larger cut, which amounted to $17,934.
B. Expenditures in the Jail category exceeded approved appropriations by $35,221. An amendment was presented to the county commission on June 29, 2017, to transfer funds for the Sheriff's Budget from fund balance, and the amendment failed to get a motion. The Medical Examiner's budget was amended at the June 1, 2017, county commission meeting, but an unexpected invoice was received in July for $1,500.
C. The Election Office clerical line (51500-162) was entered into the computer incorrectly. The other lines were over as well, and it was overlooked to present an amendment to the commission. Again, the Sheriff's Department presented an amendment to the commission on June 29, 2017, that failed.
FINDING 2017-003
THE COUNTY DID NOT REQUIRE A VENDOR TO COMPLY WITH CONTRACT TERMS (Internal Control - Significant Deficiency Under Government Auditing Standards)
The following was disclosed in the prior-year audit report: On January 15, 2013, the county awarded a bid and entered into a three-year contract with Pemberton Trucking Company to provide hauling of the county's solid waste to a disposal site. A portion of this contract stated, "at the end of the term the contract may be extended for two additional years upon the written consent of the parties." On February 1, 2016, an extension was signed by the county and Pemberton Trucking Company. The county did not require the vendor to comply with the terms stipulated in the contract. The original contract specified that the vendor would "provide a minimum of two road worthy and properly maintained semi-tractor trucks available at all times" and that the vendor "shall maintain a general liability insurance policy on trucks in the minimum amount of $2,000,000 naming and maintaining Cannon County as an additional insured under the insurance policy." During the audit, we contacted Pemberton Trucking and were informed that the company only operated one truck. We also noted in reviewing the insurance records maintained by the county that the company's general liability insurance policy on file in Cannon County had expired March 1, 2005. When this was pointed out to county officials, a new policy dated June 13, 2016, was filed in the County Executive's Office, which stated a coverage period of February 27, 2016, to February 27, 2017. However, this policy was for general liability totaling $1,000,000, which is only one-half of the coverage required by the contract.
During the current-year audit, we noted that the county continued with the same extended contract as noted above even though management was aware the vendor had not complied with the original terms of the contract. During the fiscal year, the vendor was paid $184,300 to haul the county's solid waste and scrap metal.
These deficiencies were the result of a lack of management oversight and appear to leave the county in a position where it could potentially suffer substantial loss. Also, these deficiencies were the result of management's failure to correct the finding noted in the prior-year audit report, and management's failure to implement their corrective action plan.
RECOMMENDATION
The county should take steps to correct the above-noted deficiencies and require the vendor to comply with the terms specified in the contract.
MANAGEMENT'S RESPONSE - COUNTY EXECUTIVE
I concur with this finding. The Pemberton contract is up February 1, 2018, and will be corrected when a new contract is in place.
FINDING 2017-004
THE OFFICE HAD DEFICIENCIES IN PURCHASING PROCEDURES (A. - Internal Control - Significant Deficiency Under Government Auditing Standards; B. - Noncompliance Under Government Auditing Standards)
As part of our audit procedures for determining whether the purchasing process was operating as designed, we selected a sample of 64 disbursements totaling $189,091 from a population of 2,181 vendor checks totaling $4,538,215. Our examination revealed the following deficiencies, which are the result of a lack of management oversight.
A. Our examination revealed that purchase orders were issued after the invoice date in five of ten applicable purchases. Purchase orders are necessary to control who has purchasing authority for the county and to document purchase commitments. This practice defeats the purpose of the purchase order and makes it an approval of payment rather than an approval of the purchase.
B. The county purchased emergency communications equipment ($10,820) and firefighter equipment ($25,919) without documentation that competitive bids had been properly solicited. Sections 5-14-201 through 5-14-206, Tennessee Code Annotated, require public advertisement and solicitation of competitive bids on purchases exceeding $10,000. As a result, the lowest and best price may not have been obtained for these items.
RECOMMENDATION
To strengthen internal controls over purchasing procedures and to document purchasing commitments, the office should issue purchase orders for all applicable purchases before purchases are made. Purchases exceeding $10,000 should be competitively bid as required by state statutes.
MANAGEMENT'S RESPONSE - COUNTY EXECUTIVE
I concur with this finding.
A. Sometimes departments are required to make purchases on Wednesday when the County Executive's Office is closed. We will make sure to note on the invoice the circumstances when purchases are made before the purchase order date. Also, we will send a letter to all department heads to make sure they request a purchase order before the purchase is made.
B. The Rescue Squad and Fire Department both purchased radios and since they were for two different departments, there were two invoices. The Fire Department radios totaled $9,483 and the Rescue Squad totaled $1,337, therefore, we didn't feel bids needed to be solicited. Two bids were solicited for the turn out gear. Mid-South Emergency Equipment's bid was $28,098 and M3 Fire Apparatus' bid was $29,106. These were attached to the invoice.
AUDITOR'S COMMENT
There were two invoices for the radios; however, the order for the radios for both departments was placed at the same time by the same department head. Sections 5-14-201 through 5-14-206, Tennessee Code Annotated, require public advertisement and solicitation of competitive bids on purchases exceeding $10,000. Competitive bids were not solicited for the purchase of the turn out gear. The county did not publicly advertise for bids, but instead solicited two quotes from the companies mentioned, which were attached to the invoice.
FINDING 2017-005
THE OFFICE HAD DEFICIENCIES RELATED TO TRAVEL REIMBURSEMENTS (Noncompliance Under Government Auditing Standards)
During our review of the county's purchasing procedures, we reviewed a total of 23 payments made for travel reimbursements. Our review revealed the following deficiencies, which were the result of a lack of management oversight and the office's failure to adhere to the county's established travel policy:
A. In ten of the 23 reimbursements, the office reimbursed employees without receiving the proper travel reimbursement claim forms to document travel expenses. The county travel policy states, "County officials and/or employees shall submit claims for reimbursement for travel expense on the county travel reimbursement form. The reimbursement form must have an original signature of the persons for which reimbursement is claimed and signed by the county official or person who directs the employee's travel." Without the required forms, we were unable to verify that the reimbursements were for authorized travel-related expenses.
B. In two of the 23 reimbursements, the office reimbursed employees for lodging without proper supporting documentation. Payments totaling $876 were made without hotel receipts to support the reimbursement request. The county travel policy states, "lodging receipts are required and must itemize room charges and taxes by date."
C. In nine of the 23 reimbursements, the office reimbursed employees using actual meal receipts as documentation, and in two of 23 reimbursement requests, the office reimbursed employees for meals even when there was no overnight travel. The county travel policy states, "the maximum per diem rates include a fixed allowance for meals and incidental expenses (M &I). The M & I rate, or fraction thereof, is payable to the traveler without itemization of expenses or receipts. Incidentals are intended to include miscellaneous costs associated with travel such as tips for baggage handling, phone calls to home, etc. Reimbursement is made only when overnight travel is required."
D. In four of the 23 reimbursements, the office reimbursed employees using gas receipts as documentation. The county travel policy states, "reimbursement for the use of personally owned cars is at the standard mileage rate." We also noted one instance in which the office reimbursed an employee $50 for mileage without requiring the employee to give details of the mileage driven. These claims included a total number of miles for which the employee was requesting reimbursement; however, no details of departure or destination locations were documented on the form. Without this basic information, neither the office nor the auditors could determine if the amount of mileage reimbursed was accurate.
RECOMMENDATION
County officials and employees should comply with the county's travel policy when requesting reimbursements for travel related expenses. Reimbursements should not be made to employees who do not comply with established policy.
MANAGEMENT'S RESPONSE - COUNTY EXECUTIVE
I concur with this finding. Each department has the responsibility to know and follow the Travel Reimbursement Policy. We will more closely examine travel reimbursement requests to ensure all departments comply with the policy. After discussing this matter with the auditor, we need to follow the current policy or have a new one approved by the commission. We will continue to follow the state policy and will send a letter to each department with a copy of the state policy.
BEST PRACTICE
Accounting literature describes a best practice as a recommended policy, procedure, or technique that aids management in improving financial performance. Historically, a best practice has consistently shown superior results over conventional methods.
The Division of Local Government Audit strongly believes that the item noted below is a best practice that should be adopted by the governing body as a means of significantly improving accountability and the quality of services provided to the citizens of Cannon County.
CANNON COUNTY SHOULD ADOPT A CENTRAL SYSTEM OF ACCOUNTING, BUDGETING, AND PURCHASING
Cannon County does not have a central system of accounting, budgeting, and purchasing. Sound business practices dictate that establishing a central system would significantly improve internal controls over the accounting, budgeting, and purchasing processes. The absence of a central system of accounting, budgeting, and purchasing has been a management decision by the county commission resulting in decentralization and some duplication of effort. The Division of Local Government Audit strongly believes that the adoption of a central system of accounting, budgeting, and purchasing is a best practice that would significantly improve accountability and the quality of services provided to the citizens of Cannon County. Therefore, we recommend the adoption of the County Financial Management System of 1981 or a private act, which would provide for a central system of accounting, budgeting, and purchasing covering all county departments.
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