A recent Hamilton County external audit raises red flags about internal controls in Trustee Bill Hullander's office, which functions as a county banker managing more than $1 billion a year.
An audit of the county's constitutional offices by Joseph Decosimo and Co. also reported significant delays in the accounting and financial reporting process of the county's Department of Education, which received about $373.4 million of the county's $625.8 million budget this year's budget.
The county had to ask for a 30-day extension to submit the Comprehensive Annual Financial Report to the Government Finance Officers Association.
"Although we received full cooperation of management and believe that we were given direct and unrestricted access to the County's books and records, as we disclosed in our management report, we encountered significant difficulties in performing and completing this audit process for both the Department of Education and the Trustee's Office," the management report states.
Though the audit showed material weaknesses, deficiencies and noncompliance, county officials and Hullander say steps have been taken to make changes that will prevent future problems.
"I have reviewed, and responded in detail to, each concern and have worked diligently to make sure all of these issues have been resolved," Hullander said in a statement Tuesday.
The report was sent to County Commissioners and County Mayor Jim Coppinger late last week. Members of the Board of Education haven't yet received copies, said County Auditor Bill McGriff.
Though Coppinger doesn't oversee the independently-elected trustee or the school system, which is a separate entity, their audits affect the overall financial picture of the county and possibly its coveted AAA bond rating.
"We obviously have some work to do," Coppinger said, reiterating that he's offered to help work through the audit's findings with the affected offices.
The fiscal 2011 year began July 1, 2010, and ushered a flurry of county leadership changes. Hullander won the August 2010 election and was sworn in that September. County Mayor Claude Ramsey resigned to become deputy governor and Coppinger was named his interim replacement.
The audit found a material weakness in internal controls for bank reconciliations, which the Trustee's office assumed responsibility for after Hullander took office.
"Under the prior administration, the county Accounting Department had assumed the majority of the Trustee's duties as it related to financial reporting by the Trustee," Hullander said in a statement. "Most of these duties were official duties of the Trustee, so I made the decision to move these responsibilities back into the Trustee's Office so I could be assured it would be performed accurately and on a timely basis."
The audit said reconciliations weren't completed on a timely basis, that adjustments weren't reported to parties on a timely basis and that some weren't performed accurately.
The audit recommended the office complete the reconciliations within at least 10 days of the close of each month "to adequately safeguard the County's cash balances and to serve as an effective control in preventing and/or detecting fraud."
Management responded that the trustee had problems receiving information and attributed some of that to technical problems with information technology systems interfacing with one another. The trustee consulted with the comptroller of the Treasury and has modified its reconciliation procedures, the audit said. Check clearing accounts for offices and departments are now reconciled by that office or department.
"I had no idea that it would take such an extended period of time before my office would be granted access to all the areas of information that would be needed to achieve this," Hullander said. "Some of the problem my staff and I encountered were major technical issues, inaccurate reporting through file transmissions, extensive delays in securing necessary access to essential data, and an ongoing federal investigation in regards to the prior trustee's handling of bankruptcy filings."
The audit also found that the trustee's office hadn't complied with a state law requiring that he file monthly reports and fee reports on a timely basis. The office also hadn't paid excess fees to the county general government on Sept. 1 and April 1, as required by state law.
The audit also questioned the internal controls on the trustee's payroll system, which Hullander established for his office. The county's payroll department previously handled the function.
Hullander said Tuesday he plans to continue controlling his own payroll and employs the person formerly in charge of the county's payroll.
The Board of Education bought out the contract of former Superintendent Jim Scales, whose chief financial officer Tommy Kranz resigned in February 2011. Another top finance department official also left.
Current Superintendent Rick Smith hasn't yet filled the vacancies created by Kranz and another key accounting department individual, the audit shows.
"These positions remained vacant resulting in the accounting department being understaffed and inexperienced in certain areas due to insufficient cross-training," the audit said.
The audit also found a material weakness in the reconciliation of cash balances with the Department of Education, which should be done weekly, according to auditors' recommendations."
Though the changes slowed down the audit process, McGriff chalked it up mostly to a communication problem.
"They made available anything and everything that was needed to complete the audit, whether it was manually or through the IT department," McGriff said. "Our IT department has bent over backward to work with the Trustee and the other departments."
Hullander said the major changes at the schools' finance department affected some of the data transfer but that the two offices are now working together well.
The management report recommended that the superintendent hire more people for the schools' finance department.
When asked if he had spoken with Smith about the audit, Coppinger said he hadn't specifically -- yet.
"I personally have not yet, obviously we'll have that discussion," he said. "He's well aware of what his responsibilities are as it relates to the budget and how we interact with them."
Christie Jordan, director of accounting and budgeting, said the school system's central office has seen reductions in staffing levels, which have left vacancies in the finance department.
In a school board finance committee meeting on Tuesday evening, members discussed the possibility of hiring an internal auditor, a position the department once had. That position, estimated to cost about $100,000, would check efficiency, equity and return on investment of school spending.