Highland County's 2021 audit lists findings of noncompliance, material weakness
A finding for recovery and four other findings of noncompliance were listed in Highland County’s 2021 audit released by the Ohio Auditor’s Office Thursday, May 4.
The 2021 Highland County audit — completed under the tenure of former auditor Bill Fawley — points to a number of problems with the county’s standards. In a letter from Ohio Auditor Keith Faber dated April 12, Faber said auditors “noted the County uses a special purpose framework other than generally accepted accounting principles.”
The summary of the auditors’ findings stated that they found evidence of material weaknesses in internal control reported at the financial statement level and material noncompliance at the financial statement level.
There were four findings “related to the financial statements required to be reported in accordance with GAGAS” as well as one finding for recovery in the county’s audit.
The finding for recovery, which was repaid under audit, was issued against Highland County Auditor Bill Fawley and Payroll Clerk Melanie Anderson in the amount of $6,015. According to the finding, it was repaid March 1.
“In fiscal year 2019 and 2020, the County failed to remit and file portions of School Income Tax and Employee withholding to the State,” the finding for recovery says. “The Ohio Department of Taxation then filed liens against the County to remit taxes, fees, and interest. The County paid these amounts in 2022 including fees and interest in the amount of $6,012. The County also failed to remit Ohio Public Employees Retirement System (OPERS) withholdings timely, resulting in a late fee of $3.
“The Payroll Clerk of the County is responsible for ensuring that all withholdings from employees’ wages for taxes and other benefits are properly withheld and remitted timely.
“In accordance with the foregoing facts and pursuant to Ohio Rev. Code § 117.28, a Finding for Recovery for public monies illegally expended is hereby issued against Melanie Anderson, Payroll Clerk, and W. William Fawley, County Auditor and the County's employee dishonesty coverage carrier, CORSA, jointly and severally, in the amount of $6,015, and in favor of the Highland County Payroll Clearing Fund, in the amount of $6,015.
“The County should draft, approve, and implement policies and procedures over the payroll process to ensure accuracy. Approval of such policies and procedures should be memorialized in the minutes.”
In the future, the county says, the newly formed county “Human Resources office [will] handle all such deductions and payments to the State.”
The letter lists the following definitions: “A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the County’s financial statements will not be prevented, or detected and corrected, on a timely basis.
“We identified certain deficiencies in internal control, described in the accompanying schedule of findings as items 2021-003 through 2021-004 that we consider to be material weaknesses,” Faber wrote. “The results of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the accompanying schedule of findings as items 2021-001 and 2021-002.”
For finding 2021-001, the auditors found a compliance issue with the county’s annual financial report.
“Ohio Administrative Code, section 117-2-03 (B), requires the County to prepare its annual financial report in accordance with generally accepted accounting principles,” the audit says. “However, the County prepared its financial statements on a cash basis, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. The accompanying financial statements omit assets, liabilities, net position/fund balances and disclosures that, while material, cannot be determined at this time.
“The County can be fined and various other administrative remedies may be taken against the County. Contrary to Ohio law, the County did not approve an amended certificate for 2021. Therefore, appropriations exceeded estimated resources in all funds at December 31, 2021.”
In the finding itself, auditors write, “Failure to report on a GAAP basis compromises the County’s ability to evaluate and monitor the overall financial condition of the County. To help provide the users with more meaningful financial statements, the County should prepare its annual financial statements according to generally accepted accounting principles.”
It was noted that this finding was reissued from the 2020 audit after not being corrected.
In response, the county’s Corrective Action Plan says, “The County does not believe the cost of converting from Cash Basis to GAAP is warranted.”
Finding 2021-002 is another instance of noncompliance with Ohio law. According to the finding, the Ohio Revised Code requires that “on or about the first day of each fiscal year,” the county’s fiscal officer should certify “the total amount from all sources available for expenditures from each fund set up in the tax budget.” The Budget Commission is to ten “revise its estimate of the amounts that will be credited to each fund from such sources, and shall certify to the taxing authority of each subdivision an amended official certificate of estimated resources.”
According to the audit’s finding, the county auditor failed to “obtain a certificate of estimated resources from the Budget Commission in 2021,” which was “not detected by the County due to deficiencies in the budgetary compliance and monitoring control policies and procedures.”
This finding was also reissued from the 2020 audit after not being corrected.
The Corrective Action Plan said that the County “has made the necessary changes to avoid this omission” in the future.
The third finding, 2021-003, is one of material weakness “due to deficiencies in the County’s financial statement.”
According to the finding, “the County reported actual expenditure amounts as final appropriations on Budgetary Statements,” leading to the following errors:
• General fund appropriations were understated by $1,132,639.
• Public Assistance fund appropriations were understated by $3,815,078.
• Repair Motor Vehicle License fund appropriations were overstated by $64,767.
• Board of Developmental Disabilities fund appropriations were understated by $281,052.
• Children Services fund appropriations were understated by $973,601.
• American Rescue Plan appropriations were understated by $8,370,625.
The audit noted that corrections had been made, while the Corrective Action Plan states that “additional training has been provided so the correct reports will be provided for end-of-year reporting.”
Similarly, the fourth finding, 2021-004, found “deficiencies in the County’s financial statement monitoring and review process.” As a result, the audit says, “Property tax receipts were overstated and intergovernmental receipts were understated in the amount of $366,694 in the Board of Developmental Disabilities fund. Miscellaneous receipts were overstated in the amount of $692,934 and charges for services receipts and intergovernmental receipts were understated in the amounts of $682,369 and $10,565, respectively in the Board of Developmental Disabilities fund.”
Those statements and records were corrected. However, additional errors found were not corrected, the finding says.
“The County made additional immaterial errors in classifying receipt and disbursement transaction line items in various funds in the Statement of Cash Receipts, Disbursements, and Changes in Cash Fund Balances in amounts ranging from $4,910 to $161,314,” according to the finding. “The County did not correct the financial statements for these errors.
“Failure to accurately post and report transactions could result in material errors in the County's financial statements and reduces the County's ability to monitor financial activity and to make sound decisions which effect [sic] the overall available cash positions of the County. The County should review and implement internal controls to ensure financial transactions are accurately recorded and reported.”
This was the third finding reissued from the 2020 audit after not being corrected.
“County Departments that receive specific funds from the State have been instructed to enter them as lntergovernmental Funds rather than Real Estate Taxes,” the Corrective Action Plan says. “Budgetary staff have also received training to watch for these pay-ins.”
Not listed in a finding, but elsewhere in the audit, it was also noted that the county “has no deposit policy for custodial risk beyond the requirements of State statute.”
“At fiscal year-end, $10,014,154 of the County’s bank balance of $20,435,711 was exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institution’s agent, but not in the County’s name,” the audit says.
The entire audit can be viewed at: https://ohioauditor.gov/auditsearch/Reports/2023/Highland_County_21_Hig….
Comment
It is time to implement GAAP
This should be the county's next order of business. It's been cited by the state for decades. Fix it, Alex.
In the finding itself, auditors write, “Failure to report on a GAAP basis compromises the County’s ability to evaluate and monitor the overall financial condition of the County. To help provide the users with more meaningful financial statements, the County should prepare its annual financial statements according to generally accepted accounting principles.”
It was noted that this finding was reissued from the 2020 audit after not being corrected. (And in many previous years as well.) In response, the county’s Corrective Action Plan says, “The County does not believe the cost of converting from Cash Basis to GAAP is warranted.” That is a copout. Period.
Maybe Ohio auditor faber…
Maybe Ohio auditor faber would like to rethink his glowing comments form last fall about the local office??