Auditor Harmon Releases Audit of Lawrence County Sheriff’s Gas and Oil Tax Settlement
FRANKFORT, Ky. – State Auditor Mike Harmon today released the audit of the sheriff’s settlement – 2014 gas and oil tax settlement for Lawrence County Sheriff Garrett Roberts. State law requires the auditor to annually audit the accounts of each county sheriff. In compliance with this law, the auditor issues two sheriff’s reports each year: one reporting on the audit of the sheriff’s tax account, and the other reporting on the audit of the fee account used to operate the office.
The audit contains the following comments:
Receipts were not deposited daily. Funds were not deposited daily. For example, during the month of January, deposits were made on five days of the month. Also, we discovered two instances of late unmined coal deposits. An unmined coal deposit in the amount of $8,395 dated May 29, 2015 was not deposited until July 7, 2015, and another unmined coal deposit in the amount of $86,013 dated October 16, 2015 was not deposited until November 3, 2015.
It appears the sheriff often holds several daily deposits and then takes them to the bank rather than making daily deposits. Further, policies and procedures are not in place to ensure that tax receipts are deposited daily.
Undeposited receipts are susceptible to misappropriation or theft. Such occurrences could materially affect the financial statement. Under the authority of KRS 68.210, the Department for Local Government has established requirements for all local government officials handling public funds. These requirements include “daily deposits intact into a federally insured banking institution.” We recommend that the sheriff implement policies and procedures to ensure that tax receipts are deposited intact on a daily basis.
Sheriff’s response: No response.
The sheriff did not remit payments to taxing districts timely. The sheriff did not remit payments to taxing districts timely.
Unmined coal taxes collected totaling $137,075 were collected beginning in April 2015. The sheriff collected unmined coal taxes through July 2015 and did not prepare monthly reports as required and did not distribute to the taxing districts until March 2016. Also, franchise taxes in the amount of $447,392 collected in July 2015 were not paid out to the taxing districts until April 2016.
In addition to these late payments mentioned, six out of seven months collections were not delivered to the districts on time.
These checks were dated beyond the 10th of the month following the month of collections, and it appears they were held and not delivered or mailed until weeks later. By not preparing and delivering checks to the districts on time, the county, school, and other taxing districts were not able to use funds totaling $584,467.
These taxing districts rely on the timely receipt of tax revenues, and their budgets and cash flows were negatively affected. KRS 134.191(1) requires the sheriff to provide monthly reports by the tenth day of each month to the taxing districts. KRS 134.191(3) requires the sheriff to pay the taxing districts all funds that were collected during the period covered by the report.
Pursuant to KRS 134.191, any sheriff failing to pay over taxes collected as required by law shall be subject to a penalty of one percent (1%) for each thirty (30) day period or fraction thereof that the payment is not made, plus interest at the tax interest rate provided in KRS 131.183 on such amounts.
The governing body of a county, the department, or the other district for which the sheriff collects taxes, in its settlement with the sheriff, shall charge him or her with such penalties and interest. We recommend the sheriff prepare monthly reports for all taxes collected and pay the taxing districts timely in the future.
Sheriff’s response: No response.
The sheriff did not remit interest payments to the school and fee account monthly. The sheriff did not distribute interest earned on tax collections to the school or the fee account on a monthly basis.
The sheriff earned $2,547 of interest in his 2014 tax account, but only paid it to the school and fee account for the months of October and November. Policies and procedures are not currently in place to ensure that interest earned from tax collection deposits are paid to the school district and fee account timely.
Failure to distribute interest earnings monthly results in a noncompliance. Based on the amount of interest earned and after factoring in what the sheriff has already paid for October and November, the sheriff still owes $942 to the school district and $1,024 to the fee account. The sheriff should distribute the investment earnings at the same time as monthly tax collections. KRS 134.140(2) requires the sheriff to pay monthly “that part of the investment earnings for the month which are attributable to the investment of school taxes.” According to KRS 134.140(4), the balance of the investment income should be paid to the sheriff’s operating account. We recommend the sheriff comply with KRS 134.140 by remitting the interest due to the school and fee account on a monthly basis.
Sheriff’s response: No response.
The sheriff’s office lacks adequate segregation of duties. The sheriff’s office lacks adequate segregation of duties. Inadequate segregation of duties allows one person to have a significant role in processing and recording receipts and disbursements which would increase the risk of undetected misappropriation of assets and inaccurate financial reporting. The sheriff’s bookkeeper collects payments from customers, records transactions in the ledgers, prepares deposits, and reconciles the bank account. Internal control duties should be segregated to decrease the risk of misappropriation of assets, errors, and inaccurate financial reporting to external agencies. The sheriff could implement some compensating controls such as comparing the daily checkout sheet to the receipts ledger and the bank deposit. Although they do not eliminate the lack of adequate segregation of duties, compensating controls do decrease the risk present in the absence of proper segregation of duties. We recommend the same person not perform multiple accounting functions, and if the duties cannot be segregated, then strong oversight over the employee’s work should be provided and documented.
Sheriff’s response: No response.
The sheriff’s responsibilities include collecting property taxes, providing law enforcement and performing services for the county fiscal court and courts of justice. The sheriff’s office is funded through statutory commissions and fees collected in conjunction with these duties.
The audit report can be found on the auditor’s website.
(Editor’s Note: This audit comes straight from the state auditor and speaks for itself. This is not the first time the same complaints have been made in Lawrence County. There is a real problem, according to Sheriff Roberts, in getting the reports prepared and the deposits made as the state requires because of the lack of manpower in the office. But this is the first time (to our knowledge) that the audit has mentioned the sheriff not making timely deposits of oil and gas and coal severance taxes and distributing them to taxing districts on time. The state is believed to have been behind in their reporting which caused local sheriffs to also be behind but the audit does not mention that. Neighboring Martin County got a similar audit on its former sheriff for 2014-15)
