June 23, 2020 - (2021 Shelby County Holiday Hours) - The Shelby County Commissioners met Wednesday, June 17, 2020 and received the outside auditor's report from Axley & Rode (Click here to view report).
Representing the accounting firm was Justin Matthews, CPA. Provided by the firm is a letter giving a summary of all communications required as part of the audit, outlines of any changes in accounting, and the packet which includes the annual financial report.
"When you say we're getting an audit, what we're getting is we're getting these couple of pages and what this does is it outlines exactly what we've done and who's responsible for what. Now of course, management is responsible for these financial statements and also the system of internal controls that allows for these to be presented fairly," said Matthews.
Matthews gave the commissioners the Statement of Net position with the total net position being $14,301,361. He reminded the commissioners of a line item from the previous year called Pension Assets.
Matthews stated the Texas County and District Retirement System (TCDRS) pension has done so well in the past that the portion related to Shelby County was actually overfunded, which he said was really good as the market had performed better than anticipated.
TCDRS cuts off their measurement of the financial year at the end of the calendar year, and he said December 2018 was a very bad month for the market.
"So what that did is that turned that asset into a liability. So rather than having a, I think it was around a $15,000 net pension asset, we wound up now having a pension liability of almost $1.3 million," said Matthews.
That doesn't mean the county would have to suddenly fund $1.3 million immediately, and Matthews said the market already rebounded in 2019, and was actually fairly solid.
"Losses that were incurred here during 2020 have actually already been recovered as well. So this is just a snapshot in time where they measure this actually was just a really bad period for measurement," said Matthews.
Matthews explained that made the pension liabilities appear much higher in the report, and was probably the most significant item that's changed.
Capital leases were another focus of Matthews which generate more liability on the county. Capital leases due in one year are $206,012.
"So many of the equipment leases that we do actually meet the criteria for what they call capital leases which is the same as if you bought them and financed," said Matthews. "We've gotten the assets on the books and we've got a liability that offsets it."
Paying the leases is counted as a liability rather than just being an expense.
Most of the decrease in fund balance comes from the Road and Bridge departments, and most of that is just due to repairs, explained Matthews. There was a large gravel expense during last year, making a lot of that impact. This also includes equipment purchases.
"When you look at expenditures of $1.6 million rest assured we did not have a cash outlay of $1.6 million.," said Clint Porterfield, County Auditor. "That was not the budget, but as Justin has explained what the capital leasing that we do, that expenditure for the new lease of a piece of equipment, even though we've only made one payment on it, the grand total of the lease is in that number."
Porterfield explained that is a good example of year end accruals for the capital lease that Matthews described affecting the county expenses. When reviewing actual expenditures, especially on the operating expense line.
One glaring issue the outside auditor presents to the commissioners every year is inadequate segregation of duties. The county doesn't have an adequate separation of duties in the Justice of the Peace offices to assure that all transactions are properly accounted for during the year.
The audit report indicates there is a risk due to a lack of preventative controls of material misstatement in the financial records due to the lack of adequate segregation of controls related to these financial transactions. The county relies on detective controls to detect and correct errors after the fact with review processes.
A direct example of this issue not openly addressed in court was when former Justice of the Peace for Precinct 4 Jenny Hicks, who was also Tenaha City Municipal Judge at the time, was alleged to have unlawfully appropriated and/or misused traffic fines paid to the city of Tenaha in the amount of $6,685.50. As a result, she was indicted for theft, and abuse of official capacity August 1, 2018. The case remains open and not yet prosecuted, and the question remains, are any county funds through the JP office unaccounted for from that time period?
"Anytime we see some of those duties that are held by one person we say, we might have an issue, just be aware of it," said Matthews. "It's not always something that we have to put something in place to address. It's just something we need to be aware of."
Commissioner Tom Bellmyer asked Matthews if he audits other counties and what the resolution there may be in dealing with issues of segregation of duties.
"The best way to alleviate segregation of duties issues is to add additional staff," said Matthews. "I wouldn't say it's always necessary to add an additional staff, but rather split the responsibilities of those people amongst others.
Measures have been taken by the County Auditor and Treasurer to catch any financial error in the JP systems.
"We have done some things to help alleviate that. Not necessarily hiring a body or another set of eyes, but we do now have some access to by our, treasurer and others, myself included to those systems used by the JPs, which we did not have before," said Porterfield. "So we now have some oversight on the desk review responsibility, where we can go into those systems and see what activities are taking place that we did not have before. So we're taking steps."
Agenda items approved during the meeting include: 1. Pay weekly expenses. 2. FY2020 Budget Line Item Transfers. 3. County Holidays for 2021. 4. Adjourn.