A state audit of Cannon County's financial practices released this week found some deficiencies. Cannon County Executive Mike Gannon says the problems have been, or will be, addressed.
The "Annual Financial Report, Cannon County, Tennessee" for the year ended June 30, 2009 was conducted by the Department of Audit, Division of County Audit, of the State of Tennessee Comptroller of the Treasury.
"Our audit resulted in 16 findings and recommendations, which we have reviewed with Cannon County management," the report states.
According to Blake Fontenay, Director of Communications for the Comptroller's Office, "findings and recommendations" result from nearly every county audit performed by the state each year. A review by the Cannon Courier of approximately 20 county audits released to date this year found the average number of "findings" to be in the 8-10 range.
The major concern expressed by auditors in this year's Cannon County audit are related to the Cannon County REACH after-school program.
"Deficiencies were noted in the administration of the REACH after-school program," the audit states. "The program did not issue receipts for all collections as required by the state statute and did not reconcile receipts issued with attendance records at the program's remote sites. The program does not follow the county's purchasing policies. Employees were paid $24,599 without proper documentation. Also, these payments ($24,599) were not channeled through the county's payroll system. Officials did not request reimbursement for grant funds on a timely basis resulting in the General Fund providing a cash flow of $120,999 to the REACH program beyond a reasonable period. Expenditures for the period exceeded funds collected from all sources by $19,995, resulting in the county's General Fund subsidizing the program."
Concerning the findings by the auditors on REACH, Gannon said, "There was no evidence whatsoever of any wrongdoing. Every dime has been accounted for. It's just the way it (the money) was being handled. I specifically asked if they (auditors) could show me if any money was missing, or had been misspent, and they said no. They did not find that there was anything inappropriate or fraudulent because if they could, then heads would fly."
Gannon said the issue with REACH was not that money was being spent inappropriately, only that REACH was not conducting its business the way the state audit says it should be done.
"We have already put measures in place to insure that REACH is complying with what the auditors recommend," Gannon said. "I went beyond what the state recommended and I brought in a former state auditor, one who audited the UT system, and he told us how to correct these problems and what to do to make sure it is done right."
Following is the portion of the report that deals with the audit's findings, the auditors' recommendations, and the county's responses. Download the entire Cannon Audit 2009
CANNON COUNTY, TENNESSEE
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
For the Year Ended June 30, 2009
PART I, SUMMARY OF AUDITOR’S RESULTS
1. Our report on the aggregate discretely presented component units and the aggregate remaining fund information is qualified. Our report on the governmental activities and each major fund is unqualified.
2. The audit of the financial statements of Cannon County disclosed significant deficiencies in internal control. Three of these conditions were considered to be material weaknesses.
3. The audit disclosed two instances of noncompliance that were material to the financial statements of Cannon County.
4. The audit disclosed no significant deficiencies in internal control over major programs.
5. An unqualified opinion was issued on compliance for major programs.
6. The audit revealed no findings that are required to be reported under Section 510(a) of OMB Circular A-133.
7. The Child Nutrition Cluster: School Breakfast Program and National School Lunch Program (CFDA Nos. 10.553 and 10.555), Title I Grants to Local Educational Agencies (CFDA No. 84.010), and Special Education Cluster: Special Education — Grants to States and Special Education — Preschool Grants (CFDA Nos. 84.027 and 84.173) were determined to be major programs.
8. A $300,000 threshold was used to distinguish between Type A and Type B federal programs.
9. Cannon County did not qualify as a low-risk auditee.
PART II, FINDINGS RELATING TO THE FINANCIAL STATEMENTS
Findings and recommendations, as a result of our examination, are presented below. We reviewed these findings and recommendations with management to provide an opportunity for their response. The written responses of the county executive are included in this report.
CANNON COUNTY AND CANNON COUNTY SCHOOL DEPARTMENT
FINDING 09.01 CANNON COUNTY AND THE CANNON COUNTY SCHOOL DEPARTMENT DO NOT HAVE THE RESOURCES TO PRODUCE FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS
(Internal Control — Material Weakness Under Government Auditing Standards)
Generally accepted auditing standards require that Cannon County’s and the Cannon County School Department’s financial statements be the product of financial reporting systems that offer reasonable assurance that management is able to produce financial statements and footnotes that comply with generally accepted accounting principles (GAAP). The preparation of financial statements in accordance with GAAP requires that the county and the School Department have internal controls over reporting government-wide and fund financial statements, including the related notes. It is permissible for us, as the external auditors, to assist the county and the School Department in preparing their financial statements and footnotes as a matter of convenience as long as the county and the School Department have the skills needed to prepare their financial statements and footnotes. However, management, including the accounting staff, does not have the technical skills to prepare GAAP financial statements and disclosures. This deficiency is the result of management’s failure to correct the finding noted in the prior—year audit report. The inability to prepare financial statements and footnotes is an indication of a lack of controls, or ineffective controls, because material misstatements may not be detected.
RECOMMENDATION
Cannon County and the Cannon County School Department should develop the ability to produce financial statements and footnotes that comply with GAAP. This could include having at least one staff member trained in financial statement preparation. This staff member should have sufficient skills necessary to prepare a complete set of year-end financial statements even though the external auditors prepare the county’s and the School Department’s financial statements as a matter of convenience. If we, as the external auditors, continue to prepare the county’s and the School Department’s financial statements, this individual must have sufficient knowledge to determine the completeness of financial statement information and disclosures.
MANAGEMENT’S RESPONSE — COUNTY EXECUTIVE
We concur. Cannon County does not have the available resources to prepare its financial statements and footnotes. This will be addressed during our next budget committee hearings for the next fiscal year.
OFFICE OF COUNTY EXECUTIVE
FINDING 09.02 THE GENERAL FUND REQUIRED MATERIAL AUDIT ADJUSTMENTS FOR PROPER FINANCIAL STATEMENT PRESENTATION
(Internal Control — Material Weakness Under Government Auditing Standards)
At June 30, 2009, certain general ledger account balances in the General Fund were not materially correct, and audit adjustments were required for the financial statements to be materially correct at year-end. Generally accepted accounting principles require Cannon County to have adequate internal controls over the maintenance of its accounting records. Therefore, the county’s financial reporting system did not prevent, detect, or correct potential misstatements in the accounting records. Although it is permissible for us, as the external auditors, to assist the county in preparing its financial statements, it is a strong indicator of a material weakness in internal controls if the county has ineffective controls over the maintenance of its accounting records, which are used to prepare the financial statements, including the related notes to the financial statements. This deficiency is the result of management’s failure to correct the finding noted in the prior-year audit report. We presented audit adjustments to management that they approved and posted to properly present the financial statements in this report.
RECOMMENDATION
Cannon County should have appropriate processes in place to ensure that its general ledgers are materially correct.
MANAGEMENT’S RESPONSE — COUNTY EXECUTIVE
We concur. In order to prevent, detect, and correct potential misstatements in the accounting records, the Office of County Executive will start recording all accruals as of June 30.
FINDING 09.03 DEFICIENCIES WERE NOTED IN THE ADMINISTRATION OF THE REACH PROGRAM
(A. — Noncompliance Under Government Auditing Standards; B., C., D., E., and F. — Internal Control — Material Weakness Under Government Auditing Standards)
The REACH program is an after-school care program that operates sites in all of the county’s six schools. The program collects donations and childcare fees at the sites; however, its primary source of revenue is grant funds. The program’s director serves as the primary grant writer and administrator in addition to overseeing the daily operations of the program. Program revenues are deposited with the county trustee and disbursed through the county’s General Fund. Program expenditures totaled $421,539 during the year examined. Our examination of the REACH program revealed that county officials failed to exercise proper oversight of the program as evidenced by the following deficiencies:
A. The REACH program regularly holds fund raising activities such as cookbook sales and an annual horse show and routinely receives donations from businesses and individuals. The program does not issue receipts for these collections as required by Section 9-2-103, Tennessee Code Annotated.
B. Receipts were issued for after-school care fees; however, these receipts were not reconciled with attendance records from each remote site. The failure to reconcile receipts with attendance records increases the risk of fraud and abuse.
C. The REACH program does not follow Cannon County’s purchasing policies as noted below:
1. Purchase orders are not issued by the program as required for other county departments. Purchase orders are necessary to control who has purchasing authority for the county and to document purchasing commitments. The failure to issue purchase orders increases the risks of unauthorized purchases.
2. The program does not follow the county’s travel policy. During the year examined, reimbursement rates for mileage and lodging varied from trip to trip. For example, on at least two occasions, the director received two per diem payments for meals for each day because she claimed that she was paying for meals for herself and an employee. The failure to adhere to the county’s travel policy increases the risks of fraud and abuse.
3. The County Executive’s Office routinely issued advances and reimbursements to the program’s director. Many of these disbursements were made without adequate documentation. The director turned in store receipts for reimbursement or issued handwritten requests for advances and received county warrants issued in her name. Many of the purchases made in this manner were made at Wal-Mart even though the program has a credit card for purchases at Wal-Mart. Failure to require adequate documentation for purchases increases the risk of fraud and abuse from unauthorized purchases.
4. During the year, the program purchased at least $2,025 in gift cards in various denominations redeemable at stores and restaurants. The director stated that these cards were used as awards for students and staff; however, no documentation of the distribution of these cards was maintained by the program. Failure to document adequately the purpose and the distribution of gift cards increases the risk of misappropriation of local and grant funds.
5. The program regularly paid state sales tax on purchases made by and reimbursed to the director. Also, several times during the year the program paid late fees and finance charges on credit purchases made at Wal-Mart or Sam’s Club. The payment of sales taxes and late charges are an abuse of program funds.
D. The program paid $24,599 to employees without adequate documentation supporting the purpose for these payments. The payments were requested by the director and were described as back pay, bonuses, and awards. The County Executive’s Office made these payments based on the director’s requests that included a list of employees, amounts to be paid, and the accounts from which to charge the payments. Many of these payments, including payments totaling $11,728 paid to the director, were not channeled through the county’s payroll system and not subjected to payroll taxes and withholdings.
E. Most of the grants used to operate the REACH program are reimbursement grants that require the program to spend local funds first and then request reimbursements from the grant. We noted that the county did not request reimbursements from grants in a timely manner, which resulted in the county’s General Fund providing cash flow for this after school program. At June 30, 2009, eligible expenditures totaling $245,999 had been made from the 21st Century Community Learning Centers Grant ($125,000), the Lottery Education Afterschool Program Grant ($99,999), and the Tobacco Grant ($21,000), and no requests for reimbursements had been made. In August 2009, reimbursement was received for the 21st Century Grant; however, no requests for reimbursements had been made from the other two grants as of September 21, 2009. The failure to request grant reimbursements in a timely manner resulted in the county providing a cash flow of $120,999 to the Reach program beyond a reasonable period.
F. Expenditures for the period under examination exceeded funds collected from all sources (grants, donations, fund raisers, and fees) by $19,905. This resulted in the county’s General Fund subsidizing the REACH program.
RECOMMENDATION
Receipts should be issued for all collections as required by state statute. Receipts issued should be reconciled with attendance records from each of the program’s remote sites. The program should follow the county’s policies for purchasing and travel, should document adequately all disbursements, and should avoid paying sales taxes and late charges. Adequate documentation should be maintained for all payments to program employees. All salary related payments should be channeled through the county’s payroll system. County officials should request reimbursements from grant funds on a regular and timely basis.
MANAGEMENT’S RESPONSE — COUNTY EXECUTIVE
A. We concur. New cash receipting policies have been implemented to ensure that all collections are properly receipted and deposited in a timely manner.
B. We concur. New procedures have been developed. The Office of County Executive will reconcile cash receipts to the attendance records of the REACH program.
C. We concur. The REACH program is currently being required to abide by all purchasing and travel regulations. The REACH program had adequate documentation concerning the advance, disbursements and gift cards; however, this documentation was not available in the payables file. The REACH program has been allowed to create petty cash funds. The petty cash will be reconciled and monitored by the Office of the County Executive. The REACH program director has been informed that all Wal-Mart purchases are to be made using the Wal~l\/Iart credit card, no exceptions. The Office of County Executive has informed all county employees that the reimbursement of sales tax will no longer be an acceptable practice.
D. We concur. All future payments related to employee pay (i.e. incentives) will be processed through the payroll system, and 1099s were issued for all payments to employees for the fiscal year ending June 30, 2009.
E. We concur. Grant invoices will be completed and submitted on a monthly basis.
FINDING 09.04 EXPENDITURES EXCEEDED APPROPRIATIONS
(Noncompliance Under Government Auditing Standards)
Our audit revealed the following deficiencies in budget operations:
A. Expenditures exceeded total appropriations approved by the County Commission in the Solid Waste/Sanitation Fund by $21,340.
B. Expenditures exceeded appropriations approved by the County Commission in the following funds’ major appropriation categories (the legal level of control):
Fund/major category and Amount Overspent:
County Mayor/ Executive $404
County Buildings $2,366
Administration of the Sexual Offender Registry $250
Fire Prevention and Control $711
Rural Fire Protection $19,405
Other Public Safety $16,580
Rabies and Animal Control $1,750
Other Public Health and Welfare $1,768
Senior Citizens Assistance $1,221
Agriculture Extension Service $870
Other Economic and Community Development $15,280
General Debt Service:
Principal on Debt - General Government $529
Industrial/Economic Development:
Interest on Debt - General Government $37
Section 5-9-401, Tennessee Code Annotated, states that "All funds from whatever source derived, including, but not limited to, taxes, county aid funds, federal funds, and fines, that are to be used in the operation and respective programs of the various departments, commissions, institutions, boards, offices and agencies of county governments shall be appropriated to such use by the county legislative bodies." These deficiencies exist because management failed to stay within the spending limits authorized by the County Commission, which resulted in unauthorized expenditures, and management also failed to correct the finding noted in the prior-year audit report.
RECOMMENDATION
Expenditures should be held within appropriations approved by the County Commission.
MANAGEMENT’S RESPONSE — COUNTY EXECUTIVE
We concur. In the future, we will encumber an estimate of payables and will include this estimate in the budget amendments for County Commission approval.
FINDING 09.05 DEFICIENCIES VVERE NOTED IN THE ADMINISTRATION OF THE SOLID WASTE/SANITATION FUND
(A. and B. — Internal Control — Significant Deficiency Under Government Auditing Standards C. — Noncompliance Under Government Auditing Standards)
We noted the following deficiencies in the administration of the Solid Waste/Sanitation Fund. These findings exist because management failed to correct these deficiencies noted in the prior-year audit report.
A. The Solid Waste/Sanitation Fund had a deficit of $12,091 in the undesignated fund balance account at June 30, 2009. Sound business practices dictate that expenditures be held within available funds. This deficit can be attributed in part to findings B. and C. noted below.
B. Payables were not determined and recorded on the accounting records of the Solid Waste/Sanitation Fund at June 30, 2009, as required by generally accepted accounting principles. We performed additional audit procedures and determined payables of $21,822 existed at June 30, 2009. We presented audit adjustments to management that they approved and posted to present these payables properly in the financial statements of this report.
C. During the year examined, officials made three transfers totaling $34,527 from the General Fund to the Solid Waste/Sanitation Fund for operating funds. One of these transfers ($11,027) was not approved by the County Commission, and another transfer ($18,500) was not approved by the County Commission until July 18, 2009. Section 5-9-401, Tennessee Code Annotated, requires that all expenditures be appropriated by the County Commission. Since the $18,500 transfer was approved after June 30, 2009, we have not reflected the transfer in the financial statements of this report.
RECOMMENDATION
County officials should monitor the financial activity of the Solid Waste/Sanitation Fund to ensure that adequate funding is timely provided to prevent the recurrence of a fund deficit in the undesignated fund balance account. Payables should be properly determined and recorded on the accounting records as required by generally accepted accounting principles. All expenditures should be appropriated by the County Commission prior to year-end.
MANAGEMENTS RESPONSE — COUNTY EXECUTIVE
We concur. ln the future, we will encumber an estimate of payables and include this estimate in the budget amendments for County Commission approval.
FINDING 09.06 THE OFFICE HAD DEFICIENCIES IN PURCHASING PROCEDURES
(A. — Internal Control —— Significant Deficiency Under Government Auditing Standards; B. — Material Noncompliance Under Government Auditing Standards)
Our examination of purchasing procedures revealed the following deficiencies, which can be attributed to the failure of management to correct the deficiencies noted in the prior-year audit report.
A. Purchase orders were not issued in some instances. Purchase orders are necessary to control who has purchasing authority for the county and to document purchasing commitments. The failure to issue purchase orders in all required instances increases the risks of unauthorized purchases.
B. Competitive bids were not solicited to purchase a fire truck for the Mooretown Volunteer Fire Department ($65,000) and to haul waste collections ($121,260) to a landfill. Also, county officials purchased radios ($16,580) purportedly purchased on a state bid; however, no documentation was provided to support the state bid price. Sections 5-14-201 through 5-14-206, Tennessee Code Annotated, require public advertisement and solicitation of competitive bids for purchases exceeding $10,000. The failure to solicit competitive bids could result in the county paying more than the most competitive price.
RECOMMENDATION
The office should issue purchase orders for all applicable purchases to improve internal controls over the purchasing process and to document purchasing commitments. Competitive bids should be solicited for all purchases exceeding $10,000 as required by statute.
MANAGEMENT’S RESPONSE — COUNTY EXECUTIVE
We concur. The Office of County Executive will issue purchase orders for all applicable purchases of $100 or more. The office will solicit competitive bids for all purchases exceeding $10,000 as required by state statute.
FINDING 09.07 DEFICIENCIES WERE NOTED IN THE COLLECTION OF FUNDS AT REMOTE COLLECTION SITES
(Noncompliance Under Government Auditing Standards)
We noted the following deficiencies in the collection of funds at remote collections sites:
A. The Ambulance Service, Senior Citizens` Center, and the REACH program did not always deposit collections with the county trustee within three days of collection as required by Section 5-8-207, Tennessee Code Annotated (TCA . This statute requires that county officials deposit all public funds within three days of collection. This deficiency can be attributed to the failure of management to correct the finding noted in the prior-year audit report.
B. In February 2009, the Senior Citizens’ Center stopped issuing receipts for funds collected. Section 9-2-103, TCA, requires official receipts to be issued for all collections.
RECOMMENDATION
Official receipts should be issued for all collections, and all collections should be deposited within three days as required by state statutes.
MANAGEMENT’S RESPONSE — COUNTY EXECUTIVE
We concur. New cash receipting policies have been implemented to ensure all collections are properly receipted and deposited in a timely manner as required by statutes.
FINDING 09.08 GOVERNMENT-WIDE FINANCIAL STATEMENTS DID NOT INCLUDE OTHER POSTEMPLOYMENT BENEFITS AS REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Noncompliance Under Government Auditing Standards)
Cannon County general government provides postemployment healthcare benefits through a commercial carrier that allows pre-65 age retirees to remain in the plan at the active employee rates. Cannon County did not obtain an actuarial valuation to determine the data necessary for the measurement, recognition, and display of other postemployment benefits (OPEB) necessary to prepare government-wide financial statements and note disclosures, as required by Governmental Accounting Standards Board (GASB) Statement No. 45, Accountin and Financial Re ortin y Em lo ers for Postem lo ment Benefits Other Than Pensions. GASB is the standard—setting body for accounting principles that state and local governments are required to follow. This statement establishes standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information in the county’s financial statements. The general government recognized only the current year cost (expense) of these benefits on a pay-as-you go basis. We believe the omission of this data is not material to the government-wide financial statements.
RECOMMENDATION
Cannon County should present government~wide financial statements and note disclosures in conformity with generally accepted accounting principles. The county should contract for a biennial actuarial valuation of the plan and provide the necessary information for the measurement, recognition, and display of OPEB.
MANAGEMENT’S RESPONSE —— COUNTY EXECUTIVE
We do not concur. No employee is eligible for postemployment insurance benefits because Cannon County’s policy allows benefits for retired employees only if the retired employee covers the entire premium cost. However, our insurance carrier, Blue Cross Blue Shield of Tennessee, does not allow benefits for retired employees unless the county agrees to pay half of the premium cost. The Cannon County Commission will be asked to review and revise the current policy in January. The original policy passed by the County Commission did not allow for the county to incur any health insurance cost for retired employees. It is our opinion, that due to the rules of Blue Cross Blue Shield, the original policy is null and void. Therefore, if an employee retires, Cannon County has no expense, liability, or need for an actuarial study.
AUDITOR’S REBUTTAL
At June 30, 2009, one retired employee was included on the county’s insurance billing. Also, county officials were not aware of the insurance carrier’s requirement for the county to pay a portion of the premium until researching further as a result of the finding noted above. It appears that the intent of the county was to allow retired employees to participate in the county’s insurance plan; therefore, the county would be required to adhere to the
requirements of GASB Statement No. 45. Officials should clearly document whether retirees are allowed to remain in the county insurance plan. If it is the intent of the county to allow retirees to remain in the county’s insurance plan, then officials should clearly document whether the retiree pays the active employee rate (leaving the county with an implicit rate subsidy) or if the retiree pays a higher retiree rate (leaving the county with no subsidy).
FINDING 09.09 THE AMBULANCE SERVICE DID NOT REVIEW SOFTWARE AUDIT LOGS
(Internal Control — Significant Deficiency Under Government Auditing Standards)
The software application used by the Ambulance Service generated a daily log that displayed changes made by users. Since this log provided the only audit trail of these changes, it should be reviewed daily for inappropriate activity. Management advised that they were unaware of the log; therefore, they did not begin printing and reviewing this log until after the interim exit conference on February 5, 2009. Procedures for reviewing this log are currently in place.
OFFICE OF DIRECTOR OF SCHOOLS
FINDING 09.10 THE SCHOOL FEDERAL PROJECTS FUND HAD A CASH OVERDRAFT
(Internal Control — Significant Deficiency Under Government Auditing Standards)
At June 30, 2009, the School Federal Projects Fund had a cash overdraft of $10,781. Sound business practices dictate that expenditures be held within available funds. This overdraft resulted from the issuance of warrants exceeding cash on deposit with the county trustee. The cash overdraft was liquidated in August 2009.
RECOMMENDATION
The School Department should not issue warrants exceeding cash on deposit with the county trustee.
OFFICE OF CIRCUIT AND GENERAL SESSIONS COURTS CLERK
FINDING 09.11 THE OFFICE HAD DEFICIENCIES IN COMPUTER SYSTEM BACKUP PROCEDURES
(Internal Control — Significant Deficiency Under Government Auditing Standards)
System backups were not stored off-site. Sound business practices dictate that system backups be stored off-site. This deficiency is the result of management’s failure to implement adequate disaster recovery planning procedures. In the event of a disaster, all backup data could be destroyed, resulting in costly delays in generating and recording information accounted for through the automated process.
RECOMMENDATION
Backups should be rotated off-site on a weekly basis. Some possibilities for an off-site storage location would be another county office building with a fireproof vault or a safe-deposit box at a local bank.
OFFICE OF SHERIFF
FINDING 09.12 THE OFFICE HAD DEFICIENCIES IN COMMISSARY OPERATIONS
(Noncompliance Under Government Auditing Standards)
The following deficiencies were noted in the operation of the commissary:
A. Profits from commissary operations were not remitted to the county trustee monthly. The state attorney general opined in November 1989, that profits earned from commissary operations are local revenues and should be administered as any other local revenue. Section 8-24-103, Tennessee Code Annotated (@), provides that all funds earned by the Sheriffs Department should be reported to the county monthly.
B. During the year examined, the office made purchases of supplies and equipment totaling $14,509 directly from the commissary bank account instead of through the county’s General Fund. As noted above, the state attorney general opined that profits earned from commissary operations are local revenues and should be administered as any other local revenue. Section 5-9-401, TCA, states that "all funds from whatever source derived, including, but not limited to, taxes, county aid funds, federal funds, and fines, that are to be used in the operation and respective programs of the various departments, commissions, institutions, boards, offices and agencies of county governments shall be appropriated to such use by the county legislative bodies." Therefore, these purchases bypassed the county’s purchasing and budgetary processes.
C. Official prenumbered receipts were not issued for some collections. Section 9-2-103, TQ, requires that official prenumbered receipts be issued for all collections. The absence of good internal controls over the issuance of receipts on all collections increases the risks of fraud and misappropriation. This deficiency can be attributed to the failure of management to correct the finding noted in the prior-year audit report.
RECOMMENDATION
Profits generated from the operation of the jail commissary should be remitted to the county monthly, and all operating expenses of the office should be appropriated by the County Commission and paid from the General Fund through the county’s budgetary process. Official prenumbered receipts should be issued for all collections
FINDING 09.13 OFFICIAL RECEIPTS WERE NOT ISSUED BY THE OFFICE
(Noncompliance Under Government Auditing Standards)
The office did not issue official receipts for collections as required by Section 9-2-104, Tennessee Code Annotated. Instead, the office used generic receipts that did not display the official name of the office. This deficiency occurred because management advised that they were not aware of this statute. The use of generic receipts exposes the office to risks that collections may not be accounted for properly. The office began using official receipts after they were made aware of the statute on February 2, 2009.
OTHER FINDINGS AND RECOMMENDATIONS
FINDING 09.14 A CENTRAL SYSTEM OF ACCOUNTING, BUDGETING AND PURCHASING HAD NOT BEEN ADOPTED
(Internal Control — Control Deficiency Under Government Auditing Standards)
County officials had not adopted 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. This deficiency is the result of management’s failure to correct the finding noted in the prior-year audit report. 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.
RECOMMENDATION
County officials should consider adopting the County Financial Management System of 1981 or a private act that would provide for a central system of accounting, budgeting, and purchasing covering all county departments.
MANAGEMENT’S RESPONSE —— COUNTY EXECUTIVE
We concur. Cannon County does not have the available resources to create a central system of accounting, budgeting, and purchasing. This will be addressed during our budget committee hearings for the next fiscal year.
FINDING 09.15 DUTIES WHERE NOT SEGREGATED ADEQUATELY IN THE OFFICES OF COUNTY EXECUTIVE, ROAD SUPERVISOR, DIRECTOR OF SCHOOLS, TRUSTEE, COUNTY CLERK, CIRCUIT AND GENERAL SESSIONS COURTS CLERK, CLERK AND MASTER, REGISTER, AND SHERIFF
(Internal Control — Significant Deficiency Under Government Auditing Standards)
Duties were not segregated adequately among the officials and employees in the Offices of County Executive, Road Supervisor, Director of Schools, Trustee, County Clerk, Circuit and General Sessions Courts Clerk, Clerk and Master, Register. and Sheriff. Officials and employees responsible for maintaining accounting records were also involved in receipting, depositing, and/or disbursing funds. Accounting standards provide that internal controls be designed to give reasonable assurance of the reliability of financial reporting and of the effectiveness and efficiency of operations. This lack of segregation of duties is the result of management’s decisions based on the availability of financial resources and is a significant deficiency in internal controls that increases the risk of unauthorized transactions. Also, this deficiency is the result of manage1nent’s failure to correct the finding noted in the prior-year audit report.
RECOMMENDATION
Officials should segregate duties to the extent possible using available resources.
MANAGEMENT’S RESPONSE — COUNTY EXECUTIVE
We concur. A new policy concerning segregation of duties in the Office of County Executive has been written and implemented.
FINDING 09.16 THE PRACTICE OF PAYING SCHOOL DEPARTMENT BUILDINGS AND CONTENTS INSURANCE PREMIUMS FROM THE GENERAL FUND IS OF QUESTIONABLE LEGALITY
(Material Noncompliance Under Government Auditing Standards)
During the year, the county expended $49,234 from the General Fund to pay buildings and contents insurance premiums for the School Department. Opinion No. 92-03 issued by the Tennessee Attorney General’s Office states "...a county legislative body cannot lawfully divert revenues collected for general county purposes, or other non-education purposes, and apply those moneys to education purposes." Therefore, we question the legality of using General Fund monies to pay buildings and contents insurance premiums for the School Department. This deficiency can be attributed to the failure of management to correct this finding since 2003.
RECOMMENDATION
Building and contents insurance premiums for the School Department should be appropriated and paid from school funds. General Fund monies should not be used to pay education expenses.
MANAGEMENT’S RESPONSE - COUNTY EXECUTIVE
We concur. School Department building and contents insurance premiums will be paid from school funds.
PART III, FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS
There were no findings and questioned costs for federal awards.
CANNON COUNTY, TENNESSEE AUDITEE REPORTING RESPONSIBILITIES
For the Year Ended June 30, 2009 There were no audit findings relative to federal awards presented in the prior- or current-years} Schedules of Findings and Questioned Costs.