County audit spots trouble

A press release from the county, issued Wednesday during its commission meeting, stated, “While the audit report does not evidence wrongdoing, it underscores weaknesses in procedures involving petty cash, bank reconciliations and the reconciliation of tax deposits.”

The municipal auditing firm of Pauly Rogers and Co. PC, of Tigard, was hired to do the targeted audit, at an estimated cost to the county of $4,300. It will recommend policy and procedure changes as well.

The county commission also authorized County Administrator Tyler Stone to hire extra staff, “as needed or necessary,” Commissioner Rod Runyon said, “to conduct the financial business of Wasco County.” County Commission Chair Scott Hege said, “I believe until the investigation is done we will have no further comment.”

Krause, who has a background in banking, was appointed county treasurer and then ran for the elected office. He’s been there four years.

He’s the only employee in the office.

The treasurer collects money from various county offices, such as fees from the sheriff’s office, tax payments from the assessor’s office, recording fees from the clerk’s office — and deposits them in the bank.

Each county department makes its own record of what it turns into Krause before he then documents it and deposits it, he said.

Krause said several key deficiencies were things he pointed out to the auditor. One, for example, showed a $300,000 discrepancy between what the county internally recorded as tax receipts and what deposited at the bank.

That was listed as a material weakness, a serious finding that internal financial controls are such that there is a reasonable possibility that a material misstatement of finances will not be prevented or detected in a timely manner.

The audit found that bank deposits of tax receipts were not reconciled to the tax assessment software before deposits were made. “Because the deposits are not reconciled to the tax receipts,” the audit stated, “the opportunity exists for misappropriation of assets, as well as incorrect balances of cash and tax revenue.”

The audit noted the assessor’s office implemented new software in November 2013, and “systems to reconcile daily cash deposits to the new software were not developed.” Monthly reconciliations of cash to deposits were established in spring 2014, “but were not used by the treasurer’s office.”

The county itself noted in its response to the audit that reconciliation was “severely hampered” by the new software system. It said a new process will be developed by the treasurer to reconcile daily cash deposits to what the assessor collects.

Krause said one day in November 2013 the assessor’s office “listed $300,000 on their deposit slip that wasn’t in there,” he said. It was during tax season, when millions of dollars a day can be collected.

“They process their checks, batch them, fill out a deposit slip and I take it to the bank,” he said. On busy days, there can be so many checks that when stacked, they are as thick as a brick. He can receive several bricks in one day.

“The bank caught it,” Krause said.

He said the assessor’s office told him how much money to distribute to taxing districts, “and I said, ‘You didn’t give me that much money.’”

Krause said the new assessor’s office software was problematic because it “had no reporting capability,” he said. The fix is very labor intensive and requires him to manually cut and add lines from computer documents that can be 15,000 lines long.

He said he told county officials it was “dangerous” because of this manual cutting and pasting function. One accidental line deletion could lead to problems, he said.

He gets a text file, converts it to Excel, does manipulations manually and then uploads it to the county system, he said.

“I have to manually sort, manually cut lines out of it, and add lines to it every month,” he said.

Krause said, “It was out of balance from day one, and Tyler (Stone) knew that, and so did (finance manager) Monica (Morris).”

“The whole software issue, that was a known problem from Day One,” Krause said. “I guess I’m going to get the brunt of the blame for that.”

Stone said he could not comment until the second audit was finished.

Krause said the assessor’s office could tell him “how much to distribute to the taxing districts, but their total at the end of the month didn’t add up to how much they gave me during the month, and that didn’t happen until this software.”

He said the old software balanced “to the penny, every month.”

The software initially didn’t have a module to account for refunds, meaning refunds were not subtracted from the system. “Even the software people were like, ‘I don’t know why they didn’t buy that,’” Krause said. They did buy it last spring, he said.

Krause said the software wasn’t initially connected to the county’s accounting system, but now there’s a patch to get information “from them to me.”

Now, “Their system can say how much they collected, accurately, and their system can tell me how much they collected, accurately, and how much to distribute” to the 35 other taxing entities in the county that receive property tax dollars, he said. But, that system was “out of whack” for much of the audit year, which ran from July 1, 2013 to June 30, 2014.

The audit, done by Friend and Reagan, also found a material weakness regarding bank reconciliations, which were not done in a timely manner. It also noted the treasurer does bank reconciliation, posts revenue and makes bank deposits. “Lack of segregation of duties provides opportunity for misappropriation of assets,” the audit stated.

The audit recommended reconciliation duties be given to someone else.

Krause said past audits have also suggested those duties be done by different people.

“The commissioners didn’t think that was necessary,” Krause said. Instead, they instituted random, unannounced spot checks, about every 60 days, by other county staff to check that his bank deposit equaled the internal reconciliation of the books.

He said nobody has come to check those reports since they started in 2013. He keeps them in a binder on his desk.

The audit said those random checks were not followed, but Krause said they were.

While month-end closings were not done in a timely manner, the audit noted the county does not have a policy requiring timely closings. It recommended establishing one and the county said it would.

Another problem, listed as a significant deficiency, a finding less serious than a material weakness, concerned about $15,000 in petty cash for the county fair. It said the amount was not posted correctly or in a timely manner.

The cash itself is quickly deposited each year, Krause said, but accounting for that cash in the books has historically been delayed by months.

The December he started his job, he said, the accounting for the fair petty cash had not been done yet.

The petty cash from the 2010 fair, for example, wasn’t entered in the county’s general ledger until June 2011.

He said the transaction is actually done by the finance office because it’s a one-time occurrence, while his duties concern recurring postings to the general ledger.

“I’m not trying to blame anybody else for it, but it’s not a transaction I can do and there wasn’t any urgency in the past,” Krause said.

“I told Tyler this is exactly how it’s been done since I got here,” he said of the fair cash posting.

Krause said the county in the past has just given him the audit directly. “This is the first time the county has spent attorney money to ask for a response instead of just giving it to me,” he said.

He was referring to communications sent to him from the county’s new legal counsel, the law firm of Brad Timmons.

As for lagging behind on doing monthly reconciling of the county’s books, Krause said that was lagging when he started his job. “It was behind when I came here. It was definitely behind my whole first year here and it’s never been addressed as an issue,” he said.

He said, “I’ve never been given an absolute drop dead timeframe.”

He’s been doing the monthly reconciliation – balancing what is in the bank account with the county’s internal records — quickly in the last few months.

The audit also found a material weakness in inventory control in the public works department, where several items were not listed in the inventory, which was understated by $47,127.

The county said it would establish third party review of inventory, and do inventory counts multiple times yearly.