Former Franklin County Sheriff Pat Melton was flagged by the state auditor with three instances of noncompliance — all of which were repeat offenses that had been documented in the year prior — according to an audit of the 2017 tax settlement released this week.
State Auditor Mike Harmon issues the reports on all of Kentucky’s 120 sheriff’s offices, whose duties include collecting and passing along property taxes.
As part of the audit process, the state is required to comment on two things — material weaknesses involving the internal control over financial operations and reporting and noncompliance with laws, regulations, contracts and grants.
For the second consecutive year, the FCSO, during Melton's tenure, was cited for the following: “lacked adequate controls and oversight for daily office procedures;” “did not ensure tax collections were deposited daily;” and “lacked adequate segregation of duties over daily accounting and reporting functions.”
In a seven-sentence written response to the auditor, Melton said "no funds were missing" during his time as sheriff. Melton was defeated last year by current Sheriff Chris Quire.
On the first offense, Harmon specifically listed nine examples of deficiencies, which included various employees working out of the same drawer with the same log-in credentials; no documentation on the software report that cash and checks counted from the cash drawer by deputy agreed to report; no indication that a review of the deposit was performed; and numerous billing errors.
In one finding, a $30,000 disbursement error to one taxing district resulted in an overpayment. In an effort to correct the mistake, the FCSO mistakenly reported it as a refund.
“I respect the professional manner the APA conducted this audit," Melton wrote in his response. "It is my understanding all financial issues found in the audit are reconciled with the other agencies and no further action is required. During my tenure no funds were missing and my team (was) dedicated to make this county a safer place to live, work and play.”
The audit also indicates that daily checkout procedures were not adequately followed. Specifically, Harmon noted that someone other than the bookkeeper should ascertain that the deposits agree with the report, review supporting documentation, sign checks in the sheriff’s absence and ensure accuracy in the ledger and monthly reports.
“A lack of adequate segregation of duties increases the risk that undetected errors could occur and have a material effect on financial reporting of the office,” the auditor wrote.
Harmon also noted that on four occasions in November 2017 alone tax collection deposits were not processed in a timely manner. In two instances, collections for a two-day period were held in the office for two to three days.
There were two cases where the deposit dates and report dates didn’t match up, according to the audit. Two collections were processed on Nov. 9, 2017, per the deposit tickets, but the reports weren’t run until four to five days later.
“The practice of making daily deposits reduces the risk of misappropriation of cash, which is the asset most susceptible to loss or theft,” Harmon wrote. “Delaying processing of deposits can be used to conceal the theft of tax payments to the sheriff’s office.”
When The State Journal contacted Melton on Thursday, he declined to comment further. However, in his response to Harmon, he said the administrative issues were resolved or in the process of being resolved.
“During my tenure my office collected over $200 million in taxes as prescribed by law and every single penny was accounted for,” the former sheriff wrote.
About Melton's response, Harmon wrote, "The former Franklin County Sheriff’s response was not subjected to the auditing procedures applied in the audit of the financial statement and, accordingly, we express no opinion on it."
According to Judge-Executive Huston Wells software and antiquated computers were somewhat to blame but he said he trusts Melton's former staff. Wells also noted that new software will be installed and the FCSO will be replacing its servers.
"The most important thing is we clean up those irregularities in deposits," he said. "The sheriff (Chris Quire) realized these issues and brought in a new bookkeeper with a lot of experience. She's on top of everything."
Quire told The State Journal he is confident the audit problems will not reoccur as the new bookkeeper, Fran Howard, had no findings in her 2017 tax settlement audit performed while she was still working for the Bourbon County Sheriff's Office.
"I was blessed to find an experienced bookkeeper," Quire said. "You can check her audits and compare them to Franklin County."