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‘Segregation of duties’ primary issue in sheriff’s audit

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Otherwise, ‘sheriff’s financial statement is fairly presented’

By Shannon Brock

The Spencer County Sheriff’s Office received a primarily clean audit from Kentucky’s auditor of public accounts with only one issue cited in the report — segregation of duties.
According to a news release issued by Auditor Adam Edelen’s office, “recent changes in auditing standards require the auditor’s letter to communicate whether the financial statement presents fairly the revenues, expenditures and excess fees of the Spencer County Sheriff in accordance with generally accepted accounting principles in the United States. The report found that the financial statement of the Sheriff did not follow this format.”
However, the news release noted that “the sheriff’s financial statement is fairly presented in conformity with the regulatory basis of accounting, which is an acceptable reporting methodology.”
State law requires the auditor to annually audit the accounts of each county sheriff.
The comment issued by the auditor’s office states, “The sheriff’s office lacks adequate segregation of duties over receipts and receipt procedures need improvement.”
According to the report, the bookkeeper for the office collects payments from citizens, prepares the daily checkout sheet and deposit ticket, and is responsible for bank reconciliations and monthly reports.”
The audit noted the following issues with accounting for receipts:
• During 2012 receipts were not unique to the Sheriff’s office. As of January 1, 2013, receipts unique to the Sheriff’s office are in use.
• During 2012, the daily checkout sheet is not posted daily to the receipts ledger. As of January 2013, receipts are posted daily to the receipts ledger.
• Monthly bank reconciliations are not a true bank reconciliation of bank activity to the bookkeeping system.
• Not all receipts were marked to show method of payment, i.e. cash or check.
“A segregation of duties over daily checkout procedures, deposit preparation and bank reconciliations are essential for providing protection from fraud and/or inaccurate financial reporting,” the audit says. “Additionally, proper segregation of duties protects employees in the normal course of performing their daily responsibilities. If staffing does not allow for segregation of duties, strong management oversight should be implemented.”
As mentioned above, the audit, which covers the calendar year 2012, says that several changes have already been implemented beginning in 2013:
• Deposit is delivered to bank by an employee other than who prepared the deposit.
•The Chief Deputy reviews the reconciliation of bank statements to daily check out sheets and checkbook.
•The bookkeeper and the Chief Deputy each sign all checks.
•The Sheriff performs procedure spot checks randomly during the year.
To improve the receipts process, the auditor’s office also recommends the following:
•Receipts should be marked to show the type of payment received, i.e. cash or check.
•The receipts and disbursements ledger should be totaled monthly and posted to a monthly report.
•The monthly report should be reconciled to bank activity to ensure entries to the receipts and disbursement ledgers were posted accurately.
•Monthly reports and quarterly financial statements should be prepared using receipts and disbursements ledgers.
•The Sheriff should consider obtaining additional training for bookkeeping staff.
The Spencer County Fiscal Court acknowledged the receipt of the sheriff’s audit at its July 1 meeting. Judge-Executive Bill Karrer told the court that segregation of duties has been cited in previous audits. However, with relatively small operations, segregation of duties is an issue that often arises.