State Auditor Mike Harmon

FRANKFORT, Ky. - State Auditor Mike Harmon has released the audit of the financial statements of the Ballard County Fiscal Court for the fiscal year ended June 30, 2014. State law requires annual audits of county fiscal courts.

Auditing standards require the auditor's letter to communicate whether the financial statement presents fairly the receipts, disbursements, and changes in cash and cash equivalents of the Ballard County Fiscal Court in accordance with accounting principles generally accepted in the United States.

The Fiscal Court's financial statement did not follow this format. However, the Fiscal Court's financial statement is fairly presented in conformity with the regulatory basis of accounting, which is an acceptable reporting methodology. This reporting methodology is followed for 115 of 120 fiscal court audits in Kentucky.

As part of the audit process, the auditor must comment on non-compliance with laws, regulations, contracts, and grants. The auditor must also comment on material weaknesses involving the internal control over financial operations and reporting. The audit contains the following comments:

Material weaknesses over the Health Reimbursement Account resulted in misuse and overpayments.

The following findings were noted with Ballard County's Health Reimbursement Account:

1. Employees were overpaid the annual amount contributed by the County, including the County Treasurer who may have been overpaid $13,007 for a four- year period.

2. Prescriptions that were reimbursed more than once, and in some cases up to three times.

3. The County made reimbursements to employees that do not qualify under IRS guidelines, including gum, soft drinks, automatic transmission fluid, over-the- counter medication, and massages without a doctor's prescription.

4. Reimbursements were made for services not yet received or expenses not yet incurred.

5. Lack of proper supporting documentation for reimbursement amounts.

6. Employees were not required to submit reimbursement forms prior to being reimbursed for medical expenses.

7. The Treasurer failed to produce reimbursement ledgers for fiscal year 2013 and 2014.

For those years that did have reimbursement ledgers, the Treasurer failed to post multiple reimbursement checks to those ledgers, causing the true amount of reimbursement not to be shown.

8. Ballard County does not have a formal policy over health reimbursements.

A lack of segregation of duties occurred over the health reimbursement account. The Health Reimbursement Account is maintained by the County Treasurer for those employees who waive the County's health insurance coverage. Each month, the County contributes $500 for each employee who participates. These funds are then used to reimburse participating employees for medical expenses.

Because of the weaknesses and non-compliances that were noted, testing was expanded to include health reimbursements for fiscal years 2011, 2012, 2013, and 2014. Strong internal controls and a written policy governing the Health Reimbursement Account are vital in ensuring that it is accounted for properly, and that all reimbursement amounts are appropriate and qualify under federal guidelines. They are also important in protecting the County's assets and those given the responsibility of accounting for them. Because the County failed to have either in place, the aforementioned findings were allowed to occur. In response to these findings, we make the following recommendations:

9. Ballard County should adopt a formal policy, in compliance with federal guidelines, that governs health reimbursements offered to employees who waive the County's health insurance.

10. The County should implement strong fiscal court oversight and monitoring of the account and ledgers, ensuring all disbursements are properly supported, properly recorded, and valid against the County's HRA policy.

11. All claims submitted by employees for reimbursement should be subject to strict scrutiny, in order to ensure employees are only reimbursed once for any medical expenses.

12. The County should maintain accurate ledgers, detailing reimbursement amounts issued to employees who waive the County's insurance coverage.

13. The County should eliminate all reimbursements for non-qualifying expenses according to IRS guidelines.

14. The County should eliminate all reimbursements for services not yet received or expenses not yet incurred by employees.

15. Employees should be required to submit reimbursement forms, accompanied by proper supporting documentation, prior to any reimbursement check being issued.

Due to their severity, the findings noted will be turned over to the Office of the Attorney General of the Commonwealth of Kentucky.

County Judge/Executive Viniard's response:

1. Overpayments are being checked by County Attorney. Reimbursements for services not yet received had doctor estimates for monthly payments.

2. Fiscal Court approves medical reimbursements of $500 at the first of each fiscal year. Was unaware of reimbursement forms. This issue has been resolved. To our knowledge all ledgers were given to auditors however 2013 ledger,

3. 2013 quarterly report and several other supportive documents that were given to auditors still have not been found.

Auditor's reply: In order to perform testing over the Health Reimbursement Account, auditors requested the treasurer's reimbursement ledgers corresponding to fiscal years 2011, 2012, 2013, and 2014

Ledgers corresponding to fiscal years 2011 and 2012 were provided to auditors. Ledgers corresponding to fiscal years 2013 and 2014 were never provided to auditors, even after multiple requests. According to the county treasurer, these ledgers were missing and never located prior to the end of fieldwork.

4. Overpayment amounts were determined by recapping cancelled checks for fiscal years 2011, 2012, 2013, and 2014, all of which were cosigned by the County Judge/Executive and the County Treasurer.