Portion of Lawrence Co. Fiscal Court Audit to be Referred to Ethics Committee

By Lilly Adkins

BSN Associate Editor

FRANKFORT —State Auditor Mike Harmon released the audit of the financial statement of the Lawrence County Fiscal Court for the fiscal year ended June 30, 2022, with five findings, two of which will be referred to the Lawrence County Ethics Committee.

The audit said the Lawrence Co. Fiscal Court did not accurately report debt on the quarterly financial statement.

The debt schedule presented with the fourth quarter report (which serves as the year-end financial statement) inaccurately reported debt obligations, the audit said. The report did not account for the balance of the Kentucky association of Counties Leasing Trust, FEMA lease in the amount of $250,000 or the Justice Center Corporation Refinance, Series 2021, bond issues in the amount of $9,272,300, nor did it reflect $64,104 on their financial statement for short-term debt, the audit said.

The audit recommended the county ensure that the correct amounts are shown on all financial statements presented to the public and the Department for Local Government. They also said the county should review the quarterly reports before signing them and submitting them.

“This debt was paid off and loan was re-issued during new budget preparation. This was an oversight and has been corrected,” Lawrence County Judge Executive Phillip Carter said in response to the recommendation. “We have hired additional help to keep up with the workload. The assistant judge or administrative assistant will review the reports before signing and submitting.”

The audit said the Lawrence Co. Fiscal Court violated the county ethics code by engaging in multiple transactions with parties who are related to the county judge/executive, which is a violation of the county’s adopted ethics code.

The audit said a lack of internal controls allowed for the approval and employment of the county judge/executive’s brother as the county road foreman, the utilization of a vendor for various projects where the county judge executive’s son-in-law is an officer of the entity, and the sale of a personal item by the county judge to the fiscal court. The county judge executive failed to recuse himself from voting on transactions that involved related party issues in all fiscal court meetings for Fiscal Year 2022, the audit said, adding that neither the hiring of the brother nor payments to a vendor for whom the son-in-law is an officer were submitted to the county’s ethics commission.

The audit said the total paid per each instance of related party transactions in FY 2022 included, Road Foreman, $62,108; Related Party Vendor, $156,987 and County Judge Executive, $1,500.

The audit recommended the fiscal court adhere to the requirements outlined in the county ethics code by refraining from hiring or engaging vendors who are related parties. If the fiscal court does choose to involve related parties, then the ethics commission should thoroughly review and assess these transactions to ensure transparency and ethical compliance, the audit said, adding that this finding will be referred to the Lawrence County Ethics Commission.

“The Fiscal Court hired the County Judge’s brother as road foreman because he was the only person who met the requirements for the position and would accept the job, other people were offered the job before the brother, in addition the brother also served in the same position under a previous administration and left on good terms,” Carter said in response to the recommendation. “At the time of the Fiscal Court acceptance of bids from the vendor, the son-in-law of the judge executive was not listed as an officer of the entity. The county judge does not vote on fiscal court matters other than as a tie breaker. All votes case by the judge executive are either for tie breaking purposes or purely symbolic to show unity on the court. All future hirings and or vendor purchases that require Ethics Commission approval will be submitted to the Ethics Committee in advance and will be in compliance with all state and federal statutes and guidelines.”

The audit said the Lawrence Co. Fiscal Court did not establish and maintain effective internal controls over compliance with coronavirus state and local fiscal recovery fund requirements.

The audit said the fiscal court transferred federal funds from the American Rescue Plan Act fund to the general, jail, road, Local Government Economic Assistance, and E911 funds without first ensuring sufficient supporting documentation of allowable expenditures during the same period as the funds were reported as expended on the Schedule of Expenditures of Federal Awards.

The audit said the county was awarded $2,975,148 in ARPA funds, receiving the first payment of $1,487,618 in May 2021, their second payment of $1,487,530 in June 2022, into the ARPA fund and the fiscal court transferred $714,640 into the General Fund; $250,000 into the Road Fund; $40,000 into the Jail Fund; $25,000 into the LGEA fund; $10,000 into the E911 Fund and $217,739 into Payroll.

The audit said the transfers from the ARPA fund were considered “lost revenue” according to their fiscal court meeting minutes. At the time of the transfers, and until auditors inquired about the supporting documentation, the county did not maintain a list of expenditures that reconciled to the transfer total. After this inquiry, the county gathered documentation and provided auditors a reconciliation of expenditures of eligible costs that supported the amount transferred into the general fund.

The audit recommended the county establish and maintain internal controls over compliance for all federal program expenditures to ensure accurate use and reporting of federal awards, including maintaining sufficient supporting documentation of expenditures that reconciles to any transfer from a federal program fund into other county funds.

“The fiscal court would like to point out that ARPA funds were properly distributed. During this time there was little guidance on how to manage the reporting. All reporting has been corrected,” Carter said in response to the recommendation.

The audit said the fiscal court failed to implement effective internal controls over federal reimbursed expenditures and circumvented internal controls by performing a split purchase.

The audit said the fiscal court paid $29,999 to a vendor for inflatables and associated items for the Lawrence County Cove project. This vendor was paid an additional $5,000 on the same day for other items applicable to the cove project for a total of $34,999. In addition, the fiscal court also made a payment of $30,000 to another vendor for the renting of equipment which is also a violation of the ethics code as discussed in Findings 2022-002 and 2022-005. There was a total of $64,999 in purchases with federal funds that were not advertised or opened for bid in accordance with KRS 424.260. Additionally, vendors were not checked to see if they were debarred or suspended.

The audit recommended all expenditures of $30,000 or more be bid in accordance with KRS 424.260(1). Purchases should not be split in order to avoid bid requirements. The fiscal court should also abide by the requirements of 2 CFR200.318(a) by adhering to their own policies and procedures for procurement of projects.

“The two purchases made by the county were made at different times for different items. Although both purchases were paid for at the same time, due to the fiscal court approval needed to pay the bills, neither of them separately required a bid process,” Carter said in response to the recommendation. “The county does acknowledge the $29,999 price tag being close to the allowable amount to spend without bidding, however, the county would state that the purchase price was agreed upon out of good faith and with no attempt to circumvent the bidding requirements. The final $30,000 accounted for this section was for the rental of a dozer. The anticipated rental time and need far exceeded initial estimates. During the initial rental period, the dozer was rented to level the new soccer field, during the work on the soccer field the adjacent land was given to the county and the work on that field exceeded the initial estimates, leading to the overage. Upon realizing the amount was getting close to the $30,000 bid requirement the county contacted the owner of the dozer and explained the situation. At that point the owner of the dozer made an offer to sell the dozer to the county at a discounted price which would include a portion of the balance the county already owed. The county bid the purchase of a new dozer. The only bid for a dozer was from the rented dozer’s owner. The county has put into place controls that will require opening of bids no matter the anticipated and/or expected outcomes in adherence to all statutory authority.”

The audit said the Lawrence Co. Fiscal Court did not abide by 2 CFR 200.318(c)(1). During testing of Assistance Listing Number (ALN) 97.036 and ALN 21.027, it was discovered that Federal funds were disbursed to a vendor of which the Judge/Executive’s son-in-law is a members and the judge’s brother who is the road foreman for premium pay and as a FEMA applicant agent. ALN 97.036 Vendor total, $78,961 and Road Foreman total, $14,023. ALN 21.027 Vendor total, $30,000 and Road Foreman total, $4,160.

The audit said the fiscal court disbursed federal funds to parties with a known relation to the Lawrence County Judge/Executive. The fiscal court is noncompliant with the 2 CFR 200.318(c)(1) and the Lawrence County Ethics Code and is at risk for extensive federal oversight and repayment of questioned costs.

The audit recommended the fiscal court adhere to the requirements set by federal standards. The fiscal court should refrain from using vendors and employees that could potentially create conflicts of interest when using federal funds. If the fiscal court does choose to involve related parties, it is imperative that the ethics commissions thoroughly review and assess these transactions to ensure transparency and ethical compliance. The audit also said the finding will be referred to the Lawrence County Ethics Commission.

In response to the recommendation, Carter referred the auditor to his answer regarding the finding that the Lawrence County Fiscal Court violated the county ethics code.