‘SYSTEMIC ISSUES’: Audit finds ‘material weaknesses’ in county’s financial procedures and controls

A state audit has found “material weaknesses” and “systemic issues” in the Bartholomew County government’s financial procedures and controls for administering federal funds, including instances in which officials failed to accurately report expenditures, document procurements and, in one case, verify if a vendor was banned from receiving federal dollars before awarding a contract.

The audit, filed Aug. 18 by the Indiana State Board of Accounts, found that the county’s procurement policy “did not comply with applicable state laws and regulations” and that county officials had failed to design or implement effective internal controls to ensure compliance with rules that aim to protect federal taxpayer money from fraud, waste and abuse from contractors.

More specifically, the audit detailed a range of errors in the information that county officials provided the state auditors — including some that resulted in understating expenditures of a COVID-19 relief fund by $1.89 million, child support enforcement program by $519,263, highway planning and construction program expenditures by $390,879, among other errors.

The audit also points to a $155,000 contract that county officials awarded to a vendor “without full and open competition.”

“There was no detailing the history of the procurement or the county’s justification for limiting competition,” the audit states. “Additionally, the county did not verify that the vendor was neither suspended nor debarred, or otherwise excluded or disqualified from participating in federal programs prior to entering into the contract.”

In addition, the audit mentions four purchases of less than $1,000 that county officials agreed to verbally without documenting “the history of the procurement, including the rationale for the method of procurement, selection of vendor and the basis for price.”

The Indiana State Board of Accounts officials said the audit did not find any evidence of missing or misappropriated funds or any questionable transactions. The audit has now been filed with the Federal Audit Clearinghouse, officials said.

Bartholomew County Auditor Pia O’Connor did not respond to questions about the audit, the specific transactions mentioned in the report and what steps the county has taken to correct the issues. O’Connor said her office was preparing to respond later this week.

Bartholomew County Treasurer Barb Hackman was traveling out of the country and unable to comment by press deadline.

Corrective action

The auditor’s office submitted two corrective action plans to the Indiana State Board of Accounts in response to the audit in which O’Connor said, “I agree with the (audit’s) findings as stated.” In addition, the plans state that her office “continues to work with other county departments to improve the grant process” and “the commissioners to improve the process of administering” the COVID-19 relief funds the county has received.

“This includes, but is not limited to, internal controls and procurement and suspension and debarment processes,” the auditor’s office states in one of the corrective action plans.

The plans, however, did not provide any more details on specific measures that county officials would take. It also is unclear when the auditor’s office expects to complete the action plans, as officials listed the anticipated completion date as “continuously working to complete.”

Bartholomew County Council President Greg Duke said he was aware of the audit’s findings and plans to talk with O’Connor about the issues documented in the report, adding that he has contacted several state agencies to gather more information “to find out what other counties are doing, what are the best practices and where we might be deficient.”

“(The county auditor and treasurer) are elected officials, so they have the right to act within the context of their own offices,” Duke said. “…But I acknowledge the fact these are all taxpayer funds, whether they came by federal grant or state (grant) or through our local levy. The council is keen to know what’s going on.”

Past audit

Some “systemic problems” have been found in the past, according to Bartholomew County audits performed in previous years.

Last year, a similar state audit covering calendar year 2020 found “several deficiencies” in the county auditor’s internal control system related to financial transactions and reporting, which “enabled material misstatements or irregularities to remain undetected.”

Some of the “deficiencies” included misclassifying financial transfers and using journal entries to record transactions without always including “sufficient supporting documentation or evidence of a review, nor were these transactions approved by the county auditor as fiscal officer, or, when required, the board of county commissioners.” Other issues were related to the county auditor’s software, which was not closed timely at the end of each month, resulting in the “backdating of transactions.”

The auditor’s office also failed to report financial activity related to the county’s 2019 highway garage project on its ledger and to state auditors, resulting in understating its beginning cash balance by $5.96 million, disbursements by $4.2 million, receipts by $915,554 and the ending cash balance by $2.66 million, according to the 2020 audit.

In addition, county officials failed to put in place a system to accurately report expenditures of federal funds, which led to understating COVID-19 relief fund expenditures by $2.8 million and child support enforcement grant expenditures by $439,800, while overstating highway planning and construction grant expenditures by $1.69 million.

“The lack of internal controls and noncompliance were systemic problems throughout the audit period,” the 2020 audit states.

The 2020 audit also found “several deficiencies” in the county treasurer’s office, including issues with the office’s bank reconcilement process, with transactions posting after reconcilement had been completed. However, no supporting documentation was presented to the auditors for these transactions or whether the bank reconcilement adjusted for the changes, the audit states.

The state auditors also pointed to issues related to the treasurer’s cash book, finding that its “ending balance and the subsequent day’s beginning balance did not agree” for two days that they reviewed and that there was no clear audit trail of supporting documentation for amounts posted to the cash book, including adjustments and corrections, or an “oversight or review process of either the routine transactions or corrections and/or adjustments posted to the cash book.”

Additionally, the treasurer’s cash book did not match the county auditor’s funds ledger. “As of Dec. 31, 2020, the audited bank reconcilement indicated that the total cash and investments per the cash book was short $201,586,” the 2020 audit states.

The treasurer’s office submitted a corrective action plan to fix the issues, including, among other things, procedures to document all adjustments and corrections to bank reconcilements, ensure ending balances and beginning balances agree and review all transactions.

The treasurer’s office said it anticipated having the plan implemented by Dec. 31, 2021. It is unclear the extent to which the plan was implemented by that date, though the subsequent 2021 state audit did not identify those same issues in the treasurer’s office.

Beth Kelley, deputy state examiner for the Indiana State Board of Accounts said many of the errors that were detected in Bartholomew County during the 2021 audit were common across the state, especially the reporting guidelines for the COVID-19 relief funds, which she said “can be a little confusing.” The number of errors her office finds during audits “varies from county to county,” but “I don’t think that in Bartholomew County anything really stands out as excessive.”

“They’re material enough to notify the federal government about, but they’re common among counties and cities and towns,” Kelley said.