State audit seeks changes in some county procedures

"In most areas, the county complied with state laws and regulations and its own policies and procedures," read an excerpt from the "accountability audit report" by the Washington State Auditor's Office. "However, we noted certain issues that we communicated to the county's management."

Those issues were included in a six-page "management letter" addendum that went to county officials. The letter pointed to 10 specific areas where the state's independent audit team believed internal control structures should be corrected.

In a Sept. 15 letter addressed to Klickitat County Commissioners Don Struck, Ray Thayer, and Joan Frey, Susan Remer -- a certified public accountant and audit manager for the state's 2002 audit -- wrote:

"In planning and performing our audit of Klickitat County for the period Jan. 1, 2002, through Dec. 31, 2002, we noted some areas in which the county's internal control structure could be improved."

The first item on the list was "Loans to Hospital District 1 and Hospital District 2."

According to the State Auditor's Office, The Board of County Commissioners approved two resolutions that authorized unsecured loans of $200,000 to Hospital District 1 and to Hospital District 2, respectively.

The loans were approved on Dec. 10, 2001.

"Each loan is payable over a term of five years with interest calculated at the average for the prior year's interest rate of the State Insurance Pool plus .05 percent for administrative fees," read the report from the State Auditor's Office. "The districts began repayment of the loan in 2002."

The Auditor's Office pointed out that state law does not allow the county to loan money to a hospital district.

"We recommend that the county refrain from the loaning of public funds," read the conclusion in the report. "We further recommend that the county immediately pursue repayment of the loan."

A spokesperson for the Auditor's Office in Olympia said the county's loan procedures would be reviewed in the next audit.

"For a county to loan money to a hospital, that is not a common thing. We'll follow up in the next audit," said Mindy Chambers, communications manager for the State Auditor's Office in Olympia.

County Commissioner Don Struck explained that the hospitals requested the funds to purchase vital medical equipment.

"Both hospitals agreed to pay the county back at a rate of $45,000 per year, a five- year amortization with interest," Struck said.

Struck added that the county requested a legal opinion before the loan was made.

"We were told it was OK," Struck said.

Struck added that the lack of a finding on the hospital loans indicated the auditors did not regard it as a significant issue.

"I think the auditors saw it was a short-term loan, and there was a method of repayment, so let's not make an issue of it," Struck explained.

Struck questioned whether the loan actually violated state law.

"We would dispute that," he said. "We've had discussion with the auditor before, and they didn't say you can't do that. It's not illegal to loan money to junior taxing districts. So there is a certain level of frustration. We feel like we've gone through all the hoops, and we checked with the state and were not told we couldn't do this."

"I would have thought it was a good investment in county infrastructure," added County Treasurer Dani Burton. "The State Auditor is probably trying to discourage loaning altogether."

Burton pointed out that both hospitals have made their first repayments as scheduled.

"Their next payments are due in December. They are not delinquent," Burton explained.

Another issue raised by the state audit report came under the heading, "Bid law compliance."

The report described the following concern: "An original bid was awarded on Sept. 16 (2002) to a construction firm that was the low bidder, in the amount of $938,369, for the Hoctor Road and Old Highway 8 road projects totaling 5.2 miles. On Oct. 14 (2002), the Board (of County Commissioners) approved a change order in the amount of $216,440.25 -- 23 percent of the original contract amount -- to the construction firm to add 2.4 miles to the projects. State bid laws say any significant departure from the original bid specification must be re-bid ... Thus, the county circumvented bid laws through a change order."

"We probably should have re-bid," Struck said. "What happened was, we added sections of guardrail to the contract. Since the contractor was already installing the guardrail, the engineering department said, while we've got them here let's get this other work done. So we just added it to the existing contract. Technically it should have gone out to bid, but it seems silly, and we got our hands slapped for that. Technically, they're right to be careful if it's a substantial addition over the original contract."

Struck said the lack of clear-cut direction can be troublesome.

"There is a lot of gray area in these audits. It's kind of frustrating," he said.

Chambers said it was not uncommon to find uncertainty about what the law stipulates.

"In many instances, people don't understand what the laws require," Chambers explained. "If they have questions, they can certainly call us. But generally, counties rely on the county attorney for legal advice."

The state's management letter also reviewed the county's "financial statement preparation" related to use of the "browser" function within county government.

"The county uses a computerized accounting system for financial reporting," read an excerpt. "The system has a `browser' function that allows the user to alter programs, batches, and individual amount if desired. While the county has limited the number of users allowed on the browser system, those with access rights to the browser have unlimited access to all functions of the system. Additionally, transactions made in the browser function do not leave an audit trail, which represents a potential risk. This concern was noted in several prior audits. We recommend that the county Auditor and the Board of County Commissioners develop internal controls over the accounting system necessary to meet the needs of county officials and to ensure the financial statements are fairly stated."

Struck said there was conflicting information coming from the State Auditor's Office on this question.

"If something we're doing is not proper, tell us what we should do," Struck said. "We responded rather strongly that they don't give us clear direction. They've told us the county Auditor should not be in complete control, or there needs to be checks and balances and a paper trail. They don't tell us how we should be doing it. Last year, they said it's a problem. But that issue is before a judge, and it has been for months now."

In its recommendations, the management letter also suggested changes in the way executive sessions are handled, including providing "enough general information so that it is clear whether the subject matter fits within one of the allowable reasons for an executive session, and that public announcements for the meeting are in compliance with state law."

Chambers said the items raised with Klickitat County were "not terribly unusual."

"This is an opportunity for the county to fix this before it gets worse and we write a finding," Chambers said. "We hope to use those recommendations to help those folks get this fixed."

"It was a fair audit, and needs to be followed up by the commissioners and the community," said Klickitat County Auditor Diana Housden. "The letter says, these are the things we found that need to be corrected, and gives the county a chance to do so."

Other areas where the Auditor's Office made recommendations for changes in procedures were referenced under the following headings: "Jail inmate trust accounts," "Gifts of public funds," "Open Public Meetings Act," "Hotel/motel tax," "Building inspection department-Tidemark system," and "Surplus vehicle."

Struck said the 2002 audit report was a good one overall, despite the points raised in the management letter.

"There were no findings, that's the main thing," Struck explained.