State Auditor Crit Luallen Releases
Statewide Audit of Kentucky

Audit of fiscal year ending June 30, 2007
discovers 75 findings within state agencies

Crit Luallen
Auditor of Public Accounts
105 Sea Hero Road, Suite 2
Frankfort, KY 40601

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The audit contains 75 findings that indicate significant deficiencies in the design or operation of internal controls throughout state government. The second part of the audit, to be released in March, focuses on the state’s oversight of federal funds.

Part one of the state government audit, which expresses an opinion on more than $25.3 billion in expenditures, issues findings ranging from poor oversight of state-owned take home vehicle records to weaknesses in financial reporting, computer security procedures and bridge inspections. The full report can be found at www.auditor.ky.gov.

Findings and recommendations of note include:

• Finance and Administration Cabinet should strengthen policies and procedures relating to the approval and tracking of state-owned take home vehicles. “Finance was unable to provide the details of approvals granted to agencies upon our initial request.” Poor recordkeeping raises concerns as to whether the use of state-owned take home vehicles has been properly monitored by the cabinet. (Page 133.)

• The Transportation Cabinet should ensure that bridge inspections be performed in a timely manner. Transportation is responsible for inspecting bridges in Kentucky once every two years for structural damage. When auditors reviewed the 40 bridge inspection reports, they found 35 inspection dates that exceeded the two-year threshold for inspections. Additionally, the audit found that the district and central offices did not properly review the inspection reports: Of the 40 bridges inspected, 34 were not properly or completely reviewed. (Page 217.)

• The Finance and Administration Cabinet should improve multiple processing and control issues within the enhanced Management Administrative and Reporting System (eMARS). The 16 findings presented in this audit identify a diverse array of processing and control issues within the state’s financial management system. The findings relate to five broad areas: system assurance and reporting, logical security, data processing, system and data control configuration, and system operations. The most egregious findings were within the system assurance and reporting areas. (Pages 82-117.)

• Department of Revenue should immediately cease refunding interest on Omitted Intangible Tax. Revenue’s calculations have resulted in additional interest payments to taxpayers and the cabinet has not presented the auditor with any supporting documentation related to an Omitted Intangible Tax settlement to correct the problem. (Page 171.)

• Department of Revenue should adopt sound recordkeeping policies when reporting local property tax revenue. The agency should not include money that is the property of local governments in General Fund receipts in order to show a balanced budget or trigger surplus spending. (Page 174.)

• Department of Transportation should ensure management is aware of equipment purchase procedures. Transportation director and secretary’s office authorized a transfer of property to a county fiscal court without first declaring the property surplus or obtaining payment. “The MOA in this situation resulted in what would appear to be an advance of County Road Aid Funds.” (Page 209.)

“This 200-plus page audit takes a look at some real issues that need attention in the Commonwealth’s day-to-day activities,” Luallen said. “As with all our audits or special reports, they are a tool for agencies to use in tightening their policy and procedures. These guidelines will help state government run more efficiently and be more effective to our taxpayers.”

Federal law requires, in part, this annual audit by Luallen’s office of the state’s financial statements. This audit, also known as the Statewide Single Audit of Kentucky (SSWAK), is submitted to the federal government. The auditor’s office issued an unqualified opinion on the Commonwealth’s financial statements. Part one of the audit presents the related significant deficiencies and material weaknesses as required by auditing standards. Part two of the audit, scheduled for release in March, will provide the auditor’s report on the Commonwealth’s compliance and internal control over federal programs.

Work began on this annual audit in May 2007. This report is the product of 44 auditors and more than 17,000 hours of work. The following auditors were involved in the Statewide Single Audit of Kentucky: Ravi Agrawal, Veronica Bradley, Alicia Boyd, Libby Carlin, Sheena Carter, Jim Carpenter, Philip Christian, Tom Crouch, Charlene Daniels, Justin Ebert, Sarah Feltus, Amy Fisher, Gregory Giesler, Brian Gordon, Nanda Gupta, Sally Hamilton, Teri Harmon, Jennifer Harper, Linda Hinton, Mary Hudson, Catherine Hunt, Tony Hutchins, Jason Johnson, Brent King, Jenny Luscher, Brian Lykins, Richard Maddox, Stephanie Mattingly, Samantha Payne, David Pitts, Robert Poynter, Lori Riddle, Sandra Rudic, Gina Shall, Amy Small, Marshall Smith, Mary Snedegar, Brenda Starr, John Stout, Dustin Tucker, Ross Vanoli, Cindy Watts, Beth Wheeler and LeMarc Williamson.

Crit Luallen
Auditor of Public Accounts
105 Sea Hero Road, Suite 2
Frankfort, KY 40601
WEB: www.auditor.ky.gov/