CORBIN — June 17, 2009.pdf

Special to The Times-Tribune

State Auditor Crit Luallen on Tuesday released five audits of Whitley County Sheriff Lawrence Hodge, which found a total deficit of nearly $125,000 in the office over a three-year period.

The audits, which span from Jan. 1, 2005 until Dec. 31, 2007, have been referred to the FBI for further review.

In compliance with state law, the auditor annually issues two sheriff’s reports — one reporting on the audit of the sheriff’s tax account and the other reporting on the audit of the fee account used to operate the office.

The five audits released Tuesday by Luallen’s office cover the sheriff’s 2005 and 2006 tax accounts and his fee accounts for the years 2005-2007. Auditors had a difficult time accessing records in the sheriff’s office throughout the audit process, which caused the delay in releasing the sheriff’s audits.

The combined known deficit found in the office reported in the five audits is $124,483.

The 2005 tax account had a deficit of $15,984 and the 2006 tax account had a deficit of $54,444. According to auditors, “the sheriff’s office failed to deposit receipts paid by individuals and corporations for property and other taxes into the official tax account, resulting in the deficits.”

The sheriff’s fee accounts ran deficits of $2,803, $40,624 and $10,628 from 2005-2007, respectively. According to auditors, these deficits occurred from unknown undeposited receipts and disallowed office expenditures.

“Auditors were unable to determine the complete amount because of a lack of adequate record keeping in the sheriff’s office. Had adequate records been available, the deficit would likely be more,” according to the audit.

Auditors found that the problems occurred in each account because of a lack of internal control to prevent or detect these types of errors and because the sheriff did not implement any type of oversight.

All audits found that a lack of adequate segregation of duties exists over all accounting functions. During a review of internal controls, auditors noted that the sheriff’s former bookkeeper was responsible for opening mail, receiving and recording cash, preparing daily checkout sheets and making daily bank deposits, writing disbursement checks, posting to the receipts and disbursements ledgers and tax collection journals, reconciling bank records to ledgers and journals, and preparing monthly financial reports.

“Our audits found serious problems of financial management and the recommendations should improve oversight of the office,” Luallen said. “Additionally, our referral to the FBI will insure that law enforcement conducts any necessary follow-up.”

Audit findings in the fee accounts include:

The sheriff did not maintain accurate accounting records or account for all receipts in the appropriate year.

The sheriff did not deposit receipts of the office in a timely manner.

The sheriff should not loan money to his fee account from his tax account.

The sheriff did not provide adequate oversight for fuel purchases made with credit cards.

The sheriff lacked adequate controls over drug and alcohol account receipts and their disbursements, and did not maintain proper documentation for disbursements of the accounts.

The sheriff should not expend seized assets before being awarded by the court.

Audit findings in the tax accounts include:

The sheriff’s office did not properly account for and distribute all tax payments received from taxpayers.

The sheriff should accurately account for all franchise tax collections and distribute all franchise taxes properly.

The sheriff’s office did not properly account for all paid and unpaid tax bills and accepted payments after the tax sale date.

The sheriff should refund penalties collected in error.

The sheriff did not deposit receipts of the office in a timely manner and did not reconcile deposits to the daily collection journals or a daily receipts ledger.

In the tax account audits, auditors found an unusually large number of supplemental reports prepared by the sheriff’s office and a large volume of paid tax bills reported on them.

A supplemental report is generally used to report discounts given on property tax bills after the discount period has closed. Kentucky law provides very specific guidelines as to when a discount can be given after the discount period.

The Whitley County Sheriff’s office reportedly discounted millions of dollars of tax bills through the supplemental reports. Auditors found evidence that in some instances taxpayers paid a higher amount then was reported. In other cases, taxpayers were not charged the appropriate amount of penalty and interest that was due, which resulted in taxing districts receiving less than they should.

The tax audits also found that the sheriff lacked controls over the tax collection process in his office and did not provide any oversight in this area. “When tax bills are paid but not subsequently marked as paid by the sheriff’s office, it can be a mechanism for concealment of theft of tax collections,” according to the audit.

Because the sheriff did not reconcile the daily tax collection journals to the deposits, available records are insufficient to determine if all collections were deposited in tact or made in a timely manner.

The fee audits describe how the sheriff did not provide adequate oversight of $177,464 of fuel credit card purchases for the three years - $61,578 (2005), $46,314 (2006), $69,572 (2007). Auditors could not determine if all of the fuel purchased was for official use.

Concerning the lack of controls over drug and alcohol accounts, auditors found that in 2005 the sheriff deposited $19,311 to and expended $17,655 from the drug account. Auditors were unable to identify the source of four deposits totaling $10,151 since the deposits tickets simply indicated that “cash” and “checks” were being deposited and these four deposits could not be traced to any court orders awarding the funds to the sheriff’s department.

In 2006, auditors were unable to identify the source of nine deposits totaling $967 since the receipts ledger simply indicated a “name” and “donation” or “restitution.”

Sheriff Hodge did not return a phone call from The Times-Tribune seeking comment.