January 26, 2006

State Auditors Office Completes Review of Scotland County

January is the time most Scotland County residents turn their attention to finances as they prepare to visit the tax accountant. The local county government also is currently focused on its own financial records as the office of the Missouri State Auditor recently released its report on the county audit just completed for the 2003 and 2004 fiscal years.

The Missouri State Auditor is required by state law to conduct audits once every four years in counties, like Scotland County, that do not have a county auditor.

The audit report noted no legal or fiscal issues regarding the countys finances during 2003 and 2004.

We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses, stated Auditor Claire McCaskill in the final report. A material weakness is a reportable condition in the countys procedure or internal controls where misstatements caused by error or by fraud can go undetected in a timely manner by county employees performing their jobs.

However, in addition to a financial and compliance audit of various county operating funds, the State Auditors statutory audit covers additional areas of county operations, as well as the elected county officials, as required by Missouris Constitution.

A number of concerns were noted as part of the audit in the Management Advisory Report (MAR).

The biggest concern involved declining financial conditions in the countys General Revenue Fund and Special Road and Bridge Fund since 2002.

During the years ended December 31, 2003 and 2004, disbursements of the General Revenue Fund exceeded receipts and it appears that receipts will continue to lag behind typical disbursement levels, the audit report stated. Significant increases were experienced in several expenditure categories of the Special Road and Bridge Fund during 2004, and overall road rock costs have been increasing.

In 2003 and 2004, the county deficit spent by more than $100,000 each year, lowering the countys balance from $325,000 to $96,480 entering the 2005 fiscal year.

The Special Road and Bridge Fund saw similar financial issues, with deficit spending of more than $90,000 in 2003 before a positive balance of more than $23,000 in 2004 helped return the funds balance to just over $78,000. The audit indicated the budget problems were related to road rock purchases, which accounts for more than $50,000 of the funds annual expenditures.

Considering the overall financial condition, it appears that receipts into the General Revenue and Special Road and Bridge funds are not keeping pace with the expenditures despite the existence of dedicated funds which are intended to supplement the operations of the two funds, the report stated.

The county agreed with the audit recommendation to consider alternative revenue sources while attempting to decrease expenditures.

We are aware of the significant decrease in fund balances and are working to correct those deficiencies, the county commission statement said.

The county noted that the 2005 financial condition had improved by more than $40,000 thanks to curbing of incidental expenditures throughout county government. The commission highlighted the dispatching contract with the city of Memphis as one new source of revenue, bringing in $20,000 to the county annually.

The audit noted that county procedures to monitor budget and actual disbursements were not effective, and as a result, actual disbursements exceeded the budgeted amounts in various funds. The audit stated that for costs shared by multiple funds, the County Commission has not been consistent in designating which costs will be paid from certain funds. In addition, support for some transfers between funds was not always adequate and amounts were not always repaid as appropriate.

The commission stated We agree with the recommendation and during the current year we have closely monitored funds and made budget amendments as necessary. In the future, we will document the circumstances regarding such disbursements and budget amendments as appropriate. While we could not provide complete documentation, we feel comfortable with the transfers in question. We will try to avoid making such transfers in the future. Not near as many transfers have been needed during 2005. Better documentation of the reasons for transfers will be maintained.

The county officials also intimated that they now have a better understanding of classification of expenditures and to which fund those expenditures should be allocated. Each month the County Clerk provides year-to-date budget information on the six major county funds (General Revenue, Special Road and Bridge, Assessment, Law Enforcement Sales Tax, Road and Bridge Capital Improvement, and Road Rock) and the Treasurer provides cash balances each month when it is time to authorize expenditures.

The declining financial condition in the Special Road and Bridge fund is primarily the result of unanticipated price increases during the last few years on such materials as rock, fuel, and steel, said the commissions audit response. Some alternatives we have considered include closer evaluation of roads and the amount of rock needed to maintain the integrity of roads and the already implemented procedure of taking phone bids each time we make fuel purchases. Receipts should increase for 2006 since the county was approved for a community development block grant to help fund various bridge projects. We have also considered purchasing additional equipment for hauling rock, which we believe will decrease overall hauling expenses in the long run.

The audit suggested the county create a formal road and bridge maintenance plan and noted that the county made a $104,000 prepayment for road rock and did not enter into a written agreement with the quarry. In addition, the countys procedures related to the review of road rock invoices and the sale of some materials to the public were not adequate.

The county defended the pre-payment arrangement in its audit reply.

Prepayment arrangements will be considered again in the future if they are in the best interests of taxpayers; however, we will ensure a written agreement is prepared. Also, the prepayment arrangement discussed above saved the county quite a bit of money on rock purchases during 2004.

Another audit concern highlighted county engineering costs of $99,600 for various federal bridge projects from 2001 to June 2005. There was no documentation that the county considered other engineering firms as required by state law when procuring these services.

In the audit report, the county commission indicated that the firm was selected because of past experience with local projects.

By law, the county is required to consider at least three firms for engineering services when using the federal program. The county recently entered into an agreement with the current engineering firm for the next four county bridges, but indicated it would obtain and file all required documentation when contracting future engineering services as recommended by the audit.

The audit MAR went on to point out that several of the recommendations in this report are repeated from prior audits including findings related to the countys bidding procedures, property tax records, computer controls, commission minutes, and property records/inventory. In prior reports county officials indicated they would implement many of the recommendations; however, no significant improvements were noted in some of these areas.

The audit also included recommendations concerning the lack of documentation for some county official salaries, county commission minutes, county phone usage and various trusts handled by county.

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