Examination of Certain Policies, Procedures, Controls, and
Financial Activity of the City of West Buechel

ADAM H. EDELEN
AUDITOR OF PUBLIC ACCOUNTS
www.auditor.ky.gov

209 ST. CLAIR STREET
FRANKFORT, KY 40601-1817
TELEPHONE (502) 564-5841
FACSIMILE (502) 564-2912

 The Auditor Of Public Accounts Ensures That Public Resources Are
Protected, Accurately Valued, Properly Accounted For, And
Effectively Employed To Raise The Quality Of Life Of Kentuckians.

 Table of Contents

TRANSMITTAL LETTER
EXECUTIVE SUMMARY ............................................................................ i

Chapter 1

Introduction and Background...................................................................... 1

Chapter 2

Findings and Recommendations .................................................................. 3

 

 December 10, 2015

The Honorable Mayor Rick Richards
City of West Buechel
3705 Bashford Avenue
Louisville, Kentucky 40218
RE:

Examination of Certain Policies, Procedures, Controls, and Financial Activity of the City of
West Buechel

Dear Mayor Richards:
We have completed our Examination of Certain Policies, Procedures, Controls, and Financial
Activity of the City of West Buechel (City). This examination resulted in 14 findings and offers
multiple recommendations to strengthen the management and internal controls of the City. Unless
otherwise indicated, the examination period was July 1, 2012 through December 31, 2014.
These findings identify serious concerns regarding questionable spending, use of funds, weak
processes and internal controls related to fiscal management and oversight, and disregard for existing
policies. It also appears certain action was taken without the City Council’s knowledge or approval.
Due to the nature of certain findings discussed within this report, we are referring these issues to the
Attorney General’s Office, the Federal Bureau of Investigation, and the Department of Revenue to
determine whether further investigation is warranted.
The examination was severely limited due to significant missing accounting records and
unreliable computer-generated information from the City’s accounting system. The City was able to
provide auditors with bank statements from nine different City bank accounts; however, several months
of bank statements were missing and some of these accounts did not provide the canceled checks
processed during the month. In addition, the City provided a few boxes and stacks of various documents
and records from multiple years that were not labeled or organized for auditors to examine.

 Mayor Richards
December 10, 2015
Page 2

The Auditor of Public Accounts requests a report from the City on the implementation of the
examination recommendations within (60) days of the completion of the final report. If you wish to
discuss this report further, please contact Brian Lykins, Executive Director of the Office of Technology
and Special Audits, or me.
Respectfully submitted,

Adam H. Edelen
Auditor of Public Accounts

 ADAM EDELEN
AUDITOR OF PUBLIC ACCOUNTS

Performance and Examination Audits Branch
Executive Summary
December 10, 2015

Examination of Certain Policies, Procedures, Controls, and Financial Activity
of the City of West Buechel
Impetus, Scope and Methodology
The West Buechel (City) City Council approved a
resolution on January 6, 2015, requesting this office to
conduct an examination of the City’s finances and
operations under the former City administration. To
initiate this examination, auditors met with City
officials on January 20, 2015, to discuss several issues
and to request the initial documentation needed to
address the City officials’ concerns. The purpose of
this examination was not to provide an opinion on
financial statements or activities, but to review specific
concerns brought to the attention of this office
regarding activities of the former City administration
and evaluate the processes and controls related to those
concerns. Unless otherwise indicated, the examination
period was July 1, 2012 through December 31, 2014.

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The examination was suspended on March 13, 2015, to
allow the City to gather the necessary accounting
information and documentation to address the areas of
concern. According to current City officials, upon
taking office, they had limited access to City records
and other financial information and, at that time, the
information and documentation requested could not be
located or was not available.

The City provided auditors with bank statements from
nine different City bank accounts; however, several
months of bank statements were missing and some of
these accounts did not provide the canceled checks
processed during the month. Given the lack of
documentation for these accounts, auditors focused on
examining the Operating Account and Payroll Account.
The City then requested and provided all of the bank
statements for these accounts for the period under
review.

On August 6, 2015, our office informed the City that
more than a reasonable time period had passed for the
City to prepare for the examination and auditors would
be on-site at the City on August 13, 2015, to initiate
testing and other examination procedures. Upon our
arrival, the City provided a few boxes and stacks of
various documents and information from multiple years
that were not labeled or organized for auditors to
examine. Except for an incomplete summary of
payments made to City vendors, City officials did not
provide any type of financial statement or ledger. In
addition, the City was not able to provide the following
information:
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paid to individuals through the payroll vendor
only. The employee’s position titles, position
descriptions, approved salary rates, or
timesheets were not provided.
Supporting documentation for expenditures in
fiscal year (FY) 2013, FY 2014, and FY 2015,
including invoices, purchase orders, applicable
bidding documentation.
List of any donations made by the City during
FY 2013, FY 2014, and FY 2015.
A list of all vendor contracts maintained by the
City during FY 2013, FY 2014, and FY 2015.
Listing of all capital assets maintained by the
City during FY 2013, FY 2014, and FY 2015.
Listing of property owned by the City during
FY 2013, FY 2014, and FY 2015.
Listing of investments made by the City during
FY 2013, FY 2014, and FY 2015.

Background
The City is located in Jefferson County, Kentucky with
a population of approximately 1,300 with a total land
area of 0.6 square miles. It operates under an elected
mayor-council form of government with six City
Council members. The primary revenue sources are
property taxes, occupational taxes, net profit taxes,
business license taxes, insurance premium taxes, bank
franchise taxes, and municipal road aid. According to
the City’s most recent financial statement audit as of
June 30, 2014, total revenue was $1,649,862 with
expenses of $1,537,394, which resulted in excess
revenue of $112,432. For FY 2013, the City’s revenue

Detailed staff information related to position
and salary data.
The only staff related
information was provided by the City’s payroll
vendor. This information provided the amounts
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 totaled $1,579,409 with expenses of $1,201,577,
resulting in excess revenue of $377,832.

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The City’s current Mayor took office in January 2015,
but had also served a previous term as City Mayor from
January 2003 until December 2006. The City’s former
Mayor originally took office in January 1995 and was
re-elected to another term that ended in December
2002. After the current Mayor’s original term ended in
December 2006, the former Mayor was re-elected and
served two more terms from January 2007 until
December 2014.

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Findings and Recommendations
Finding 1: The examination was severely limited
due to significant missing accounting records and
unreliable computer generated information from the
City’s accounting system.
Due to the lack of accounting records and information
maintained by the City, the unreliable information
generated from the City’s accounting system, and the
City’s failure to implement fundamental financial
operating processes and controls, the auditors’ ability to
perform a detailed examination was severely limited. It
was determined the City lacks records and
documentation to support expenditures known to have
been incurred based on details of the City’s bank
accounts’ that were provided. In addition, limited to no
documentation was available to support the financial
statements and other information provided in the City’s
annual audits. It could not be determined whether the
financial documentation was ever maintained or was
subsequently removed or deleted. Due to the lack of
supporting documentation and missing data, only the
random items of documentation provided by the City
could be reviewed and City officials provided no
assurance the information provided to auditors was
complete or accurate. This situation indicates that a
high fraud risk exists due to the lack of accountability
established by the City.
Recommendations:
We recommend the City, a
member of the Kentucky League of Cities (KLC),
contract with KLC or another firm having expertise in
establishing written policies and controls designed to
ensure a City operates in an efficient, effective, and
professional manner to the benefit of the public it
serves. We further recommend the development and
implementation of policies and controls include:
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Requiring detailed documentation to be
obtained and maintained to support of financial
activity;
Maintaining financial and other related
documents in a logical and secured manner to
ensure documents are readily available;
Documenting
and
reporting
records
determined to be missing to ensure the issue is
thoroughly investigated;
Requiring two signatures for checks and
delegating authority to specific individuals to
be responsible for signing checks; and
Establishing other financial related policies
and controls to ensure the City consistently
operates in an efficient, effective, and
professional manner.
For example, we
recommend the City Council establish a policy
detailing the process to report lost or missing
financial information or records to the
appropriate authorities.

Finding 2: Almost $87,000 in charges with no
supporting documentation were made on a credit
card issued to the former Mayor.
The City’s Operating Account was used to
automatically pay the monthly balance of a credit card
issued in the former Mayor’s name without adhering to
the City’s Handbook policies regarding credit card
purchases. The City’s credit card policies require a
monthly schedule of credit card transactions be
developed that document which employee made the
purchase, a brief description of the items purchased, the
dollar amount of the items purchased, and the purpose
of the purchase. No schedules documenting this
information or supporting documentation was provided
to auditors for the almost $87,000 in purchases made on
this credit card from April 2012 through December
2014. A review of credit card statements found
approximately $38,000 of these expenditures appeared
personal in nature based on the type of purchase made
and the lack of any supporting documentation
identifying a related business purpose for the purchase.
Significant expenditures were incurred on the credit
card issued to the former Mayor without the City
Council’s oversight or review of whether the
expenditures benefitted the City or were personal in
nature.
Recommendations: We recommend the City enforce
the current credit card policy if the City continues to
maintain a credit card. We also recommend the credit
card policy be expanded to require all City employees
and officials, including the Mayor and City Council
members, comply with the policy.
To improve
oversight and transparency, we recommend the policy

Training staff to ensure an understanding of
the City’s accounting process and system;
Recording and reporting of transactions and
other related information consistently and
accurately;
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 require the credit card transaction action summary and
the credit card statement be provided monthly in the
City Council members meeting packets for review and
discussion at City Council meetings. We further
recommend that this review and discussion be
documented in the City Council meeting minutes. To
facilitate providing this documentation, we recommend
the City consider developing a credit card transaction
form to record the information required by the credit
card policy and the necessary approvals. Specifically,
the form should document the name of the employee
making the purchase; the purpose of the purchase; a
description of the purchase including the quantity and
dollar amount of the purchase, the date of the purchase,
and the employee’s name who preapproved the
purchase. We also recommend, in lieu of credit cards,
the City consider the following:
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Finding 3: Financial reporting provided by the
former Mayor to the City Council was inconsistent,
incomplete, and not adequate to monitor the City’s
financial activity.
A review of a sample of monthly packets provided to
City Council members by the former Mayor, as well as
the available City Council meeting minutes, found that
the City Council was not provided adequate financial
information needed to fully understand or monitor the
City’s financial activities. The information provided to
City Council members prior to a City Council meeting
was inconsistent and incomplete with no reconciliation
to actual bank statements. During the examination
period, it was determined the City’s financial activity
included at least nine bank accounts, numerous
automatic and online purchases, a credit card, and a
fleet card account, yet the City Council meeting
minutes do not document the presentation of specific
financial reports, information, or any detailed
discussions of the City’s financial situation. KRS
91A.020 requires cities to maintain an accounting
system and financial reports for disclosure of financial
operations and to determine a city’s compliance with
statutory provisions.
Recommendations: We recommend that the City
comply with KRS 91A.020 and maintain proper
accounting records and present the City Council with
complete and accurate financial reports. These reports
should disclose sufficient financial information for City
Council members to understand and discuss the City’s
financial operations. We recommend the City conduct
monthly reconciliations of all City bank accounts prior
to the presentation of financial information to the City
Council. We recommend the City Council determine
specific reports and other financial information
including budget-to-actual reports to be provided in
City Council members’ monthly meeting packets,
which assists in providing continuity and transparency.

The use of purchasing cards that would allow
the City to restrict the types of purchases that
can be made on the card based on industry
codes. Casinos, specialty retail outlets, and
food and beverage establishments are examples
of these restrictions. The amount spent on a
single purchase can also be restricted through
the use of a purchasing card.
Reimburse employees’ personal credit card
charges when the use is necessary. Procedures
and supporting documentation requirements
should be developed to facilitate this type of
reimbursement.

Finally, we recommend, if the use of credit cards is
needed, the City implement the following oversight
controls:
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A City Council member or committee of the
City Council should be assigned to review, at a
minimum, credit card statements of executives
prior to payment.
Credit card charges should be supported by
detailed receipts, documented business
purpose, and supervisory approval. The
employee should be responsible for the timely
payment of any unsupported credit card
charges or disallowed expenses.
Policies established by the City should ensure
that all review procedures are performed in a
timely manner to avoid late fee and finance
charges.

Finding 4: According to City Council meeting
minutes, the City has not passed a budget ordinance
since May 2012 and the former Mayor did not
provide quarterly budget to actual reports as
required by KRS 91A.030(11).
Based on information provided by City staff, City
ordinances, and the available City Council meeting
minutes, the City continues to operate under the budget
ordinance passed by the City Council for FY 2013. In
addition, a review of the available City Council meeting
minutes and City Council member meeting packets
found no indication that the former Mayor provided
City Council members with financial reports comparing
budget-to-actual revenues and expenditures. KRS
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 method of financing the purchase should be approved
by the City Council. All information related to these
purchases should have been disclosed and discussed
with the City Council prior to incurring significant
expenses.
Recommendations: We recommend the City adopt
procurement policies requiring disclosure to and
authorization by the City Council prior to purchasing
and financing a property above a determined amount.
We also recommend bond, loan, or other financing
agreements above a determined amount be presented to
the City Council for review and authorization. The
resulting action taken by the City Council should be
documented in the meeting minutes. This disclosure
provides transparency and an opportunity for the City
Council to discuss the need and approval for the
purchase. We further recommend the City have an
appraisal performed by a qualified third party to ensure
a clear understanding of the value of any property being
considered for purchase. We recommend the City
address the use of these properties to ensure they
provide the best use and benefit to the City. Further, an
evaluation should be performed to determine whether it
is in the best interests of the City to retain or sell the
properties. We also recommend that the City notify the
Kentucky Bond Corporation that no further funds will
be requested for the property purchase, referred to as a
project, to ensure the City minimizes the amount
required to be repaid. We recommend the City perform
an analysis to determine whether it is in the City’s best
interest to retire the loan balance early or to follow the
established payment schedule, which continues to
accrue interest.

91A.030 requires each city to operate under an annual
budget ordinance and provide quarterly budgetary
comparisons for each governmental fund. The lack of
detailed financial and budgetary information provided
by the former Mayor appears to have resulted in a City
Council not having sufficient information to be well
informed or aware of the City’s financial condition.
This lack of information and the inability to properly
monitor the City’s financial activity can result in City
officials making uninformed decisions or failing to take
action that is in the best interests of its citizens.
Recommendations: We recommend the City comply
with KRS 91A.030 and pass a budget ordinance each
fiscal year. In order to properly plan and monitor the
City’s financial activity, revenue and expenditures must
be budgeted and consistently monitored.
As
recommended in Finding 3, City Council members
should receive in meeting packets at least quarterly, a
budget-to-actual financial report and other necessary
financial reports to strengthen monitoring of the City’s
financial activity. The budget categories or line items
should provide transparency and sufficient detail to
allow City Council members to accurately identify the
types of expenditures attributed to each budget item.
Further, if expenditures occur at an unexpected rate,
additional detail should be requested to ensure
expenditures are reasonable and necessary. Finally, we
recommend the City develop and implement policies
and controls to ensure financial activity is consistently
recorded and reported in the City’s accounting system,
which increases transparency and disclosure.
Finding 5:
The City purchased property paying
at least $364,000 in FY 2013 having questionable or
no public benefit.
On December 21, 2012, the City paid $238,812, net of
fees, taxes, and allowances, to purchase a building,
known as the TEM Building, and, on June 25, 2013,
purchased six lots, located near City Hall, for $125,497
in addition to any unknown associated costs. The City
entered into a loan with KLC Kentucky Bond
Corporation dated July 31, 2012, to purchase the TEM
Building, though the City’s Operating Account had a
balance of $1,491,685 in unrestricted funds available
for use at the time. In contrast, the six lots located near
City Hall were purchased using funds from the
Operating Account. City Council meeting minutes
document very little about these purchases, so it is not
clear whether the City Council members approved these
two purchases or understood how the City was funding
these purchases. Additionally, information provided
does not disclose whether these properties were ever
independently appraised prior to the purchases. While
the City had no established procurement policies, the
use of taxpayer funds to purchase property and the

Finding 6: Business records related to two private
companies associated with the former Mayor, two
computers with missing hard drives, and property
of unknown ownership were found in the City’s
TEM Building.
An examination of the contents of the TEM Building
was made in an attempt to determine how the property
may have been used by the City. Auditors found file
cabinets containing business documentation related to
two different companies associated with the former
Mayor, two computers with missing hard drives, and
property of unknown ownership. Due to the current
administration’s concerns regarding the reason for the
former Mayor to have an office in the TEM Building in
addition to the office in City Hall, City officials stated
an effort was made to secure the TEM Building so the
contents of the building could be reviewed without any
items being tampered with or removed. These efforts
were unsuccessful as the building suffered water

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 and available if the paper copy of the documentation
cannot be located.
Maintaining documentation
electronically should assist in providing timely
expenditure and other information to City officials,
management, City Council members, and others. We
further recommend a reconciliation of the City’s
Operating and other account bank statements to the
transactions recorded in the accounting system be
performed monthly to properly oversee the City’s
financial activity. Bank reconciliations should be
available to assist in answering potential questions
asked by City Council members. To ensure proper
segregation of duties, the bank account reconciliations
should be performed by someone other than the
employee responsible for recording the financial
activity into the City’s account system. We recommend
any questionable activity identified during the bank
account reconciliations be investigated and reported to
the Mayor and at City Council meetings. We further
recommend the City comply with the policies
established in the City’s Handbook related to allowable
expenditures and review these policies at least annually
to determine whether any modifications are necessary
to strengthen the policy and internal controls. Finally,
as recommend in Finding 1, a policy should be
developed to delegate authority to specific individuals
to be responsible for signing checks and require two
signatures.

damage from burst pipes in March 2015, which resulted
in extensive repairs. In addition, City maintenance
equipment was stored in the building so staff retained
keys to the building after the locks were changed. The
City was not able to provide auditors with any
inventory listing or purchasing documentation, which
made it impossible to determine the property that
should have been onsite and the ownership of several
seemingly random and unnecessary items of property.
However, the removal of hard drives from two on-site
computers demonstrates action may have been taken to
prevent the computers’ contents from being identified.
According to the current Mayor, the two on-site
computers were functional prior to securing the
building.
Recommendations: We recommend the City take
steps to inventory all of the City’s assets, including all
property contained in the TEM Building.
We
recommend City employees evaluate these items and
keep those that provide a benefit to the City, while
disposing of other items as surplus property. If records
are located that document the computers in the TEM
building were purchased by the City, we recommend
further investigation be performed to determine
whether the hard drives for these computers were
removed for an inappropriate purpose.
Finding 7:
Although a total could not be
determined, a review of the City’s Operating
Account identified questionable checks and
expenditures.
A review of the City’s Operating Account revealed
excessive and questionable uses of City funds although
a total amount could not be determined. Given that
complete financial statements, actual expenditures, and
supporting documentation could not be provided by the
City, a review was performed of the Operating Account
bank statements and processed checks were categorized
by the type of expenditure activity. The review
identified several questionable types of expenditures
and expenditure amounts that appeared excessive. In
addition to checks written from the Operating Account,
many on-line and automatic payments were made from
this account; however, on many occasions, it was
difficult to determine the purpose of the automatic
withdrawals. The majority of the amount of the City’s
expenditures are made from the Operating Account
given automatic payments from this account include
transactions to pay the City’s monthly payroll and
credit card account balances.
Recommendations: We recommend that the City
maintain the documentation needed to support City
expenditures and other financial activity. We also
recommend this documentation be maintained
electronically so the information can be easily accessed

Finding 8: Manual checks totaling over $22,000
from the City’s Payroll Account included salary
payments not reported as taxable income and checks
totaling $7,200 for unknown purposes.
The City outsourced its payroll accounting to a vendor
but issued additional manual checks that were not
included in an employee’s taxable income. Based on
Payroll Account bank statements for the period June
2012 through January 2015, manual checks totaling
$22,361 were written. Two $2,500 checks were written
for cash and another two checks totaling $2,200 were
written to the former Mayor. In addition, checks were
written to non-employees that appear to have provided
ad hoc services for the City.
Recommendations: We recommend the City’s Payroll
Account solely be used to pay salary related
expenditures. We also recommend the City refrain
from improperly compensating employees for vacation
leave as the employee already receives accrued
vacation leave. We recommend the City discontinue
the practice of writing checks for cash. We further
recommend all compensation be properly reported as
taxable income. If manual checks are needed, this
information should be provided to the payroll

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 loan payments were deducted from the former Mayor’s
salary. In addition, other questionable payments made
to the former Mayor were identified. Regarding the
Chief of Police, a canceled check was found that stated
“Loan” on the memo line. The loan to the clerk was
found during a review of the Check Request Forms that
documented the City made a loan to the former clerk.
A canceled check was also found during the time period
and for the amount on the Check Request Form.
Recommendations:
We recommend the City
implement controls to prevent loans from being
provided to City staff or officials to ensure public funds
are not used for personal needs. As stated in the City’s
handbook, public funds should not be used to benefit
one person or a small number of persons without a
value to the community as a whole. For loans that have
been made, we recommend the City ensure all loans
made to City official or employees are fully repaid. We
further recommend strengthening internal controls over
the reporting of questionable activity by the City
Council establishing an independent process to receive,
analyze, and ensure investigation and resolution of
issues involving questionable activity or other concerns.
The process to report such issues should be available to
employees, business associates, and the general public.
An advertised email or postal address to receive
concerns would allow the City Council to receive this
information.

accounting vendor to ensure necessary accounting
adjustments are made.
We also recommend
strengthening internal controls by designating a City
Council Committee Chair or member to be a required
signatory for all checks written to the Mayor. Monthly
Payroll and other bank account reconciliations should
be conducted and available for the City Council’s
monthly meetings to assist in responding to questions
raised by City Council members.
Finding 9: The City used Operating Account funds
to open at least two bank accounts that appear
unwarranted and were not available to City Council
for review.
The City maintains at least two bank accounts, the
Buechel Festival and Christmas Fund Accounts, which
appear unnecessary and not available for review by the
City Council. The funds used to open each of these
bank accounts originated from the City’s Operating
Account, which is held at the same bank. Based on a
review of the information provided to the City Council,
these bank accounts were not disclosed to the City
Council. It appears the only bank accounts disclosed to
the City Council are the City’s Operating and Road Aid
Accounts. Therefore, these two bank accounts were
under the sole discretion of the Mayor without the City
Council having the opportunity to oversee or approve
the establishment of the bank accounts and the use of
the accounts’ funds.
Recommendations: We recommend the City ensure
that proper oversight be implemented for all bank
accounts under the City control. As recommended in
Findings 7 and 8, monthly bank account reconciliations
should be performed by an employee independent of
the person entering transactions activity into the City’s
accounting system.
Further, these reconciliations
should be provided to appropriate City management
and to the City Council members to discuss or question
during City Council meetings. Also, as previously
recommended in Finding 7, City management and the
City Council should be provided monthly financial
statements for review to strengthen the oversight of the
City’s financial activity. In addition, we recommend
the City Council discuss the need for multiple bank
accounts.

Finding 11:
The City’s operating and human
resource policies do not adequately address financial
controls and reporting necessary to professionally
manage the City’s financial operations.
While the City provided a policy Handbook, first
revised in April 1993 and later revised in October 2007,
the City’s financial management and human resource
(HR) policies are not properly updated or complete to
adequately address the City’s needs. A review of the
City’s policy Handbook found crucial financial areas
and procedures were not addressed. Further, it was
determined that compliance with existing policies and
procedures was either nonexistent or minimal. Based
on the lack of compliance to established policies or
procedures and that the Handbook was last revised
approximately eight years ago during the previous
administration, it appears there was a lack of
awareness of the current Handbook policies.
Recommendations: We recommend the City review
and update its financial policies and procedures. As
recommended in Finding 1, the City, a member of the
KLC, should contract with KLC or another firm having
expertise in establishing written policies and controls
designed to ensure a City operates in an efficient,

Finding 10: Evidence identified three loans made to
City officials; however, the total number and
amount of loans could not be determined.
As auditors reviewed the random and haphazard
documents provided by the City, various items of
documentation that loans were provided to the former
Mayor, Chief of Police, and a clerk were identified.
The evidence of a loan made to the former Mayor was a
report from the payroll accounting vendor indicating
Page vi

 authorized. The travel expense policy should state the
documentation requirements for the reimbursement of
each type of travel expenditure. The policy should
provide examples of expenditures that are to be paid for
by the employee, such as costs incurred by family
members or the attendance at events not approved.
This policy should explicitly state that expenses not in
compliance with the travel expense policy will not be
reimbursed or paid by the City.

effective, and professional manner to the benefit of the
public it serves. In addition to the policy areas
recommended in Finding 1, we also recommend the
City address general procurement policies, bidding
requirements, basic financial procedures such as
reconciliations, expense approvals, and the need for a
petty cash policy. The City should also update its
position descriptions that include education and
experience requirements to ensure qualified staff are
consistently hired.
The development and
implementation of other financial related policies and
controls should also be considered to ensure the City
consistently operates in an efficient, effective, and
professional manner.

Finding 13:
The current City Clerk-Treasurer
did not provide evidence of a bond required by state
law for officials that handles public money.
In response to inquiries made to determine the City’s
compliance with state law bonding requirements,
auditors were informed that the current City ClerkTreasurer was bonded May 2015; however, although
requested, no documentation was provided to confirm
the City Clerk/Treasurer was bonded. KRS 65.067
requires a bond for all officials or employees who
handle public money. To protect City funds and
comply with state law, those meeting the statutory
requirements must be bonded. Compliance with this
statute should be confirmed annually.
Recommendations: We recommend the City obtain
documentation to determine whether the City ClerkTreasurer is currently bonded.
In addition, we
recommend a review be performed to determine which
City officers, officials, and employees handle public
funds and should be bonded in compliance with KRS
65.067. Based on this determination, we recommend
City officials work with the City attorney to determine
the amount of the bond needed for each person and
ensure a clear understanding of the bond terms and
conditions. Finally, we recommend the City maintain
the documentation for all City personnel covered by a
bond.

Finding 12: The City’s travel reimbursement policy
is undefined, vague, and requires no documentation
to support a request for reimbursement.
The City’s Handbook includes a travel reimbursement
policy that does not define criteria for travel status yet
provides the amount of $50 to be reimbursed for any
type of travel. This policy does not assist the City in
controlling travel costs and protecting public funds
from unnecessary reimbursements. In its current state,
the policy does not provide criteria to determine what
constitutes travel status, establish the process to request
and approve travel, identify allowable travel expenses,
or have a requirement to provide supporting
documentation for any travel expenses.
Recommendations: We recommend the City travel
policy specifies what constitutes travel status, when
documentation is required, and clearly state the
expenses covered by the established per diem amount
to prevent the duplication of reimbursements. In
addition, the City should also create a travel
reimbursement form to document the travel information
such as the time period the City official or employee
was in travel status, the travel location, and the reason
for the travel. We also recommend the City consider
adopting a travel policy similar to that detailed in
Kentucky state government’s regulation, 200 KAR
2:006. We further recommend the developed travel
reimbursement form be submitted for approval by
appropriate management and a City Council Committee
or Council representative be delegated the
responsibility to review and approve the Mayor’s travel
reimbursement requests. To minimize and control
costs, we recommend the travel expense policy define
allowable costs related to lodging, meals,
entertainment, personal mileage reimbursement, rental
cars, and airfare. We suggest overnight travel status be
required for any reimbursement other than mileage. In
addition, the policy should establish a required distance
to be traveled from an employee’s or City Council
member’s work area for an overnight stay to be

Finding 14:
In 2012, the former Mayor
submitted a 1997 City ordinance to the Department
of Insurance to increase the City’s insurance
premium tax from 5 percent to 10 percent after the
City Council voted down this proposed increase in
2011.
To facilitate an increase in the City’s insurance
premium tax from five percent to 10 percent, the City’s
former Mayor provided a 15-year old ordinance to the
Department of Insurance (DOI) in January 2012. The
December 6, 2011 City Council meeting minutes
document the former Mayor’s motion to increase the
insurance premium tax to 10 percent failed to be passed
by the City Council. The meeting minutes do not
document that the City Council was informed of a 1997

Page vii

 ordinance that raised the rate to 10 percent but was
apparently never implemented. At a subsequent City
Council meeting on February 7, 2012, it is documented
in the City Council meeting minutes that a resident
asked the former Mayor about the insurance premium
tax increase. The minutes further document that the
“[m]ayor stated we already had the ordinance in place
so we proceeded with the ordinance.”
Recommendations: We recommend that the City
work with DOI to further investigate this issue to
ensure the legality of this tax increase and take
whatever action, if any, is necessary to appropriately
address. We further recommend the City Council
review this issue to determine the desired City
insurance premium tax rate to be established moving
forward. This issue was referred to DOI to consider
whether further investigation is warranted.
Additional Observations Made During the
Examination Process
As previously stated, the examination period was
primarily July 1, 2012 through December 31, 2014,
which was during the administration of the former
Mayor. Testing and other review procedures focused
on the period under examination; however, the
following observations involving City operations under
the current administration were also made:









The City continues to operate under the
existing Personnel Policies & Procedures
Handbook and has not revised or updated
policies and procedures;
Supporting documentation for financial records
from January through August 2015 was
reportedly stolen; however, according to the
City’s Chief of Police no police report has been
filed;
Action has not been taken to ensure staff are
trained to obtain a thorough understanding of
the City’s accounting process and system;
The hiring of two City employees with either a
former or current personal relationship with the
Mayor may impair objectivity in the
supervision and oversight of these employees;
and
Throughout the examination process, auditors
consistently
experienced
difficulty
in
contacting City officials and being provided
with requested documentation.

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Introduction and Background
Impetus, Scope
and Methodology

The West Buechel (City) City Council approved a resolution on January 6, 2015,
requesting this office to conduct an examination of the City’s finances and
operations under the former City administration. To initiate this examination,
auditors met with City officials on January 20, 2015, to discuss several issues and
to request the initial documentation needed to address the City officials’ concerns.
The purpose of this examination was not to provide an opinion on financial
statements or activities, but to review specific concerns brought to the attention of
this office regarding activities of the former City administration. Further, the
examination will evaluate the processes and controls regarding these concerns and
make recommendations to ensure appropriate controls exist within the City to
provide strong oversight over financial operations. The examination period was
July 1, 2012 through December 31, 2014, unless otherwise stated.
The examination was suspended on March 13, 2015, to allow the City to gather the
necessary accounting information and documentation to address the areas of
concern. According to current City officials, upon taking office, they had limited
access to City records and other financial information and, at that time, the
information and documentation requested could not be located or was not available.
City officials worked to gather and gain access to various City records but were not
able to readily determine whether financial information was complete, accurate, or
available for review.
On August 6, 2015, our office informed the City that more than a reasonable time
period had passed for the City to prepare for the examination and auditors would be
on-site at the City on August 13, 2015, to initiate testing and other examination
procedures. Upon our arrival, the City provided a few boxes and stacks of various
documents and information from multiple years that were not labeled or organized
for auditors to examine.
Auditors inventoried the various documents and items of information provided by
the City. Except for an incomplete summary of payments made to City vendors,
City officials did not provide any type of financial statement or ledger. The City
was aware that the summary of vendor payments was not accurate due to known
vendor payments missing from the report and no other reports or information was
provided. In addition, the City was not able to provide the following information:





Detailed staff information related to position and salary data. The only staff
related information was provided by the City’s payroll vendor. This
information provided the amounts paid to individuals through the payroll
vendor only. The employee’s position titles, position descriptions, approved
salary rates, or timesheets were not provided.
Supporting documentation for expenditures in fiscal year (FY) 2013, FY
2014, and FY 2015, including invoices, purchase orders, applicable bidding
documentation.
List of any donations made by the City during FY 2013, FY 2014, and FY
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Introduction and Background






2015.
A list of all vendor contracts maintained by the City during FY 2013, FY
2014, and FY 2015.
Listing of all capital assets maintained by the City during FY 2013, FY
2014, and FY 2015.
Listing of property owned by the City during FY 2013, FY 2014, and FY
2015.
Listing of investments made by the City during FY 2013, FY 2014, and FY
2015.

Auditors were provided with the City’s Personnel Policies & Procedures Handbook
(Handbook).
However, the Handbook section related to financial
reporting/requirements was limited to approximately two pages and there were no
procurement policies.
Auditors were informed the City had only one credit card used by the former
Mayor. Credit card statements were missing; however, the City was able to obtain
the statements from the credit card provider.
The City provided auditors with bank statements from nine different City bank
accounts; however, several months of bank statements were missing and some of
these accounts did not provide the canceled checks processed during the month.
Given the lack of documentation for these accounts, auditors focused on examining
the Operating Account and Payroll Account. The City then requested and provided
all of the bank statements for these accounts for the period under review.
Background

The City is located in Jefferson County, Kentucky with a population of
approximately 1,300 with a total land area of 0.6 square miles. It operates under an
elected mayor-council form of government with six City Council members. The
City provides public safety, public works, recreational, and community services to
its residents. The primary revenue sources are property taxes, occupational taxes,
net profit taxes, business license taxes, insurance premium taxes, bank franchise
taxes, and municipal road aid.
According to the City’s most recent financial statement audit as of June 30, 2014,
total revenue in FY 2014 was $1,649,862 with expenses of $1,537,394, which
resulted in excess revenue of $112,432. For FY 2013, the City’s revenue totaled
$1,579,409 with expenses of $1,201,577, resulting in excess revenue of $377,832.
The City’s current Mayor took office in January 2015, but had also served a
previous term as City Mayor from January 2003 until December 2006. The City’s
former Mayor originally took office in January 1995 and was re-elected to another
term that ended in December 2002. After the current Mayor’s original term ended
in December 2006, the former Mayor was re-elected and served two more terms
from January 2007 until December 2014.
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Findings and Recommendations
Finding 1: The
examination was
severely limited
due to significant
missing accounting
records and
unreliable
computer
generated
information from
the City’s
accounting system.

Due to the lack of accounting records and information maintained by the City, the
unreliable information generated from the City’s accounting system, and the City’s
failure to implement fundamental financial operating processes and controls, the
auditors’ ability to perform a detailed examination was severely limited. It was
determined the City lacks records and documentation to support expenditures
known to have been incurred based on details of the City’s bank accounts’ that
were provided. In addition, limited to no documentation was available to support
the financial statements and other information provided in the City’s annual audits.
It could not be determined whether the financial documentation was ever
maintained or was subsequently removed or deleted. Due to the lack of supporting
documentation and missing data, only the random items of documentation provided
by the City could be reviewed and City officials provided no assurance the
information provided to auditors was complete or accurate.
This situation
indicates that a high fraud risk exists due to the lack of accountability established
by the City.
Typically, a local government’s full population of financial transactions is available
to examine and trace to supporting documentation to determine whether the
expenditure was appropriate, properly accounted for, and accurately reported.
However, a complete report of City financial transactions was not available to
examine due to missing transactions in the City’s accounting system. Except for
bank statements with some canceled checks, limited documentation, and a random
stack of check request forms, very little supporting documentation was provided for
auditors to review.
A summary of vendor payments was provided to the auditors; however, it was
readily determined the list was incomplete and inaccurate because a review of
canceled checks found several missing transactions. Also, the summary of vendor
payments only included checks written by the City, not on-line transactions or
automatic payments also made by the City. The City had significant on-line and
automatic payments that were not included in the summary of vendor payments, so
the report was of limited value in testing the City’s expenditures.
According to City staff, checks should have two signatures; however, this is not a
policy requirement and it appears any two employees or officials were authorized to
sign a check. The City did not establish a written policy specifying certain
positions in the City as one of the two signers authorized to sign a check. While a
check may typically be processed regardless of the signature, the control requiring
two signatures is meant to ensure two authorized employees of the City agree that
the payment is necessary and appropriate.

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Findings and Recommendations
While a substantive examination of all concerns involving the operation of the City
could not be performed, the review of available information identified expenditures
that provide no apparent benefit to the City and appear questionable or personal in
nature, as discussed in several findings throughout the report. Policies and
procedures were not established to properly control or address the City’s financial
operations. The written policies that did exist were vague and incomplete.
Recommendations

We recommend the City, a member of the Kentucky League of Cities (KLC),
contract with KLC or another firm having expertise in establishing written policies
and controls designed to ensure a City operates in an efficient, effective, and
professional manner to the benefit of the public it serves. We further recommend
the development and implementation of policies and controls include:








Finding 2: Almost
$87,000 in charges
with no supporting
documentation
were made on a
credit card issued
to the former
Mayor.

Training staff to ensure an understanding of the City’s accounting process
and system;
Recording and reporting of transactions and other related information
consistently and accurately;
Requiring detailed documentation to be obtained and maintained to support
of financial activity;
Maintaining financial and other related documents in a logical and secured
manner to ensure documents are readily available;
Documenting and reporting records determined to be missing to ensure the
issue is thoroughly investigated;
Requiring two signatures for checks and delegating authority to specific
individuals to be responsible for signing checks; and
Establishing other financial related policies and controls to ensure the City
consistently operates in an efficient, effective, and professional manner.
For example, we recommend the City Council establish a policy detailing
the process to report lost or missing financial information or records to the
appropriate authorities.

The City’s Operating Account was used to automatically pay the monthly balance
of a credit card issued in the former Mayor’s name without adhering to the City’s
Handbook policies regarding credit card purchases. The City’s credit card policies
require a monthly schedule of credit card transactions be developed that document
which employee made the purchase, a brief description of the items purchased, the
dollar amount of the items purchased, and the purpose of the purchase. No
schedules documenting this information or supporting documentation was provided
to auditors for the almost $87,000 in purchases made on this credit card from April
2012 through December 2014. A review of credit card statements found
approximately $38,000 of these expenditures appeared personal in nature based on
the type of purchase made and the lack of any supporting documentation
identifying a related business purpose for the purchase. Significant expenditures
were incurred on the credit card issued to the former Mayor without the City
Council’s oversight or review of whether the expenditures benefitted the City or
were personal in nature.
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According to the City’s Handbook, “all city owned credit cards will be kept at city
hall and no employee will be permitted to use a city credit card without prior
consent of the Mayor or the Mayor’s designated agent. A summary schedule of
credit card transactions will be created each month that includes the name of the
employee who made the transaction, a brief description of the items purchased, the
dollar amount of the items purchased, and the purpose of the purchase. The
summary schedule will be reviewed and approved by the Mayor. If transactions are
not approved, or are found to be personal in nature, the employee who made the
purchase will be required to reimburse the city for any disallowed transactions.”
The City did not provide any summary schedules to document the purpose of the
purchases, nor did any City Council meeting minutes document the use or review of
a credit card. If the former Mayor was the primary user of the credit card, the City
Council should have provided oversight of these expenses to determine if there
were any disallowed transactions requiring a reimbursement to the City.
Auditors reviewed the credit card statements from April 2012 through December
2014. Some of these statements were found at City Hall, while any missing
statements were requested from the credit card provider. Table 1 illustrates the
amounts spent during this period.
Table 1: City Credit Card Charges by Fiscal Year
Fiscal Year
FY 2012 *
FY 2013
FY 2014
FY 2015 **
Total

Credit Card Amount
$825
$28,594
$46,194
$11,288
$86,901

Source: Auditor of Public Accounts based on information provided by the City.
* This year only consisted of April, May, and June, 2012.
** This year only consisted of July through December, 2014.

In reviewing credit card statements, charges were noted as questionable and
appearing personal in nature if it seemed unlikely that a purchase from a particular
vendor would be of benefit to the City and no documentation was provided
identifying a business purpose for the expenditure. If the vendors were different
but involved similar purchases, the credit card charges were aggregated as an
expenditure type instead of a vendor. Table 2 documents the category and amount
of expenditures identified.

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Findings and Recommendations
Table 2: Credit Card Charges that Appear Personal in Nature
Vendor/Expenditure Type
Aggregate Amount
Hotel Charges
$7,553
Cell Phone Payments
$7,035
Software Purchases
$5,737
QVC
$3,855
Kentucky Kingdom
$3,417
Restaurant Equipment
$3,148
Gas Purchases
$1,676
PayPal
$1,615
Food Purchases
$1,171
Car Rentals
$1,109
Home Shopping Network
$379
Lowes
$318
Jewelry
$300
Bath & Bodyworks
$278
Total
$37,593
Source: Auditor of Public Accounts based on information provided by the City.

The concerns related to hotels, software, cell phones, gas, and car rentals are that
there is no supporting documentation to establish how the expenses benefitted the
City. Expenses for these types of items were also found being paid by checks and
through automatic payments from the City’s Operating Account. These types of
expenses could have been personal in nature but there was no oversight to review
these expenses and determine if they should be reimbursed to the City. The City
Council’s knowledge of credit card expenditures is not known because the City
Council meeting minutes do not document any discussions related to this credit
card.
Recommendations

We recommend the City enforce the current credit card policy if the City continues
to maintain a credit card. We also recommend the credit card policy be expanded
to require all City employees and officials, including the Mayor and City Council
members, comply with the policy. To improve oversight and transparency, we
recommend the policy require the credit card transaction action summary and the
credit card statement be provided monthly in the City Council members meeting
packets for review and discussion at City Council meetings. We further
recommend that this review and discussion be documented in the City Council
meeting minutes.

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Findings and Recommendations
To facilitate providing this documentation, we recommend the City consider
developing a credit card transaction form to record the information required by the
credit card policy and the necessary approvals. Specifically, the form should
document the name of the employee making the purchase; the purpose of the
purchase; a description of the purchase including the quantity and dollar amount of
the purchase, the date of the purchase, and the employee’s name who preapproved
the purchase.
We also recommend, in lieu of credit cards, the City consider the following:




The use of purchasing cards that would allow the City to restrict the types of
purchases that can be made on the card based on industry codes. Casinos,
specialty retail outlets, and food and beverage establishments are examples
of these restrictions. The amount spent on a single purchase can also be
restricted through the use of a purchasing card.
Reimburse employees’ personal credit card charges when the use is
necessary. Procedures and supporting documentation requirements should
be developed to facilitate this type of reimbursement.

Finally, we recommend, if the use of credit cards is needed, the City implement the
following oversight controls:





Finding 3:
Financial
reporting provided
by the former
Mayor to the City
Council was
inconsistent,
incomplete, and
not adequate to
monitor the City’s
financial activity.

A City Council member or committee of the City Council should be
assigned to review, at a minimum, credit card statements of executives prior
to payment.
Credit card charges should be supported by detailed receipts, documented
business purpose, and supervisory approval. The employee should be
responsible for the timely payment of any unsupported credit card charges
or disallowed expenses.
Policies established by the City should ensure that all review procedures are
performed in a timely manner to avoid late fee and finance charges.

A review of a sample of monthly packets provided to City Council members by the
former Mayor, as well as the available City Council meeting minutes, found that
the City Council was not provided adequate financial information needed to fully
understand or monitor the City’s financial activities. The information provided to
City Council members prior to a City Council meeting was inconsistent and
incomplete with no reconciliation to actual bank statements. During the
examination period, it was determined the City’s financial activity included at least
nine bank accounts, numerous automatic and online purchases, a credit card, and a
fleet card account, yet the City Council meeting minutes do not document the
presentation of specific financial reports, information, or any detailed discussions of
the City’s financial situation. KRS 91A.020 requires cities to maintain an
accounting system and financial reports for disclosure of financial operations and to
determine a city’s compliance with statutory provisions.
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Findings and Recommendations
KRS 91A.020 addresses the need for cities to maintain complete accounting
records. KRS 91A.020 (1) specifically requires the following:
Each city shall keep its accounting records and render financial
reports in such a way as to:
(a) Determine compliance with statutory provisions; and
(b) Determine fairly and with full disclosure the financial
operations of constituent funds and account groups of
the city in conformity with generally accepted
governmental accounting principles.
Related to financial information, one of the monthly packets reviewed included a
spreadsheet of manual checks written during the period November 2, 2012 and
November 29, 2012, and a copy of the Operating Account online register of
payments for the period October 24, 2012 through November 27, 2012. A review
of the checks listed on this spreadsheet found that of the 18 manual checks
presented to the City Council, 11 were found in the corresponding monthly bank
statement, three were identified as voided, three were found in later bank
statements, and one check was not processed by the bank. The copy of the
Operating Account online register of payments identified 23 bank generated checks
and 17 transfers. Of the 23 bank generated checks, sixteen were found in the
corresponding monthly bank statement, four were found in other bank statements,
and three were never found on a bank statement. Of the 17 transfers, all were found
on the corresponding monthly bank statement.
The actual monthly bank statement for November 2012 identified 34 checks
totaling $19,040, 43 transfers totaling $98,315, and 11 deposits, credits, and interest
totaling $216,605. However, the City Council was not presented with the actual
bank statement or specific statement related information to know actual activity or
an ending balance. A reconciliation of the financial information provided to the
actual bank statement was not presented.
The only financial information provided in the other monthly packet we reviewed
was a copy of the Operating Account online register of payments. As with the other
month, there was no actual bank statement or related information presented or
discussed so that City Council members could be aware of the City’s current
financial condition.
The information provided to City Council members does not allow for a complete
understanding of the City’s Operating Account or other accounts. The City had at
least nine bank accounts, credit card, a fleet card account, and a loan payable.
Discussions related to these financial issues were not documented in City Council
meeting minutes.

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Findings and Recommendations
Recommendations

We recommend that the City comply with KRS 91A.020 and maintain proper
accounting records and present the City Council with complete and accurate
financial reports. These reports should disclose sufficient financial information for
City Council members to understand and discuss the City’s financial operations.
We recommend the City conduct monthly reconciliations of all City bank accounts
prior to the presentation of financial information to the City Council. We
recommend the City Council determine specific reports and other financial
information including budget-to-actual reports to be provided in City Council
members’ monthly meeting packets, which assists in providing continuity and
transparency.

Finding 4:
According to City
Council meeting
minutes, the City
has not passed a
budget ordinance
since May 2012
and the former
Mayor did not
provide quarterly
budget to actual
reports as required
by KRS
91A.030(11).

Based on information provided by City staff, City ordinances, and the available
City Council meeting minutes, the City continues to operate under the budget
ordinance passed by the City Council for FY 2013. In addition, a review of the
available City Council meeting minutes and City Council member meeting packets
found no indication that the former Mayor provided City Council members with
financial reports comparing budget-to-actual revenues and expenditures. KRS
91A.030 requires each city to operate under an annual budget ordinance and
provide quarterly budgetary comparisons for each governmental fund. The lack of
detailed financial and budgetary information provided by the former Mayor appears
to have resulted in a City Council not having sufficient information to be well
informed or aware of the City’s financial condition. This lack of information and
the inability to properly monitor the City’s financial activity can result in City
officials making uninformed decisions or failing to take action that is in the best
interests of its citizens.
According to KRS 91A.030(1), each city is required to “operate under an annual
budget ordinance adopted and administered in accordance with the provisions of
this section. Notwithstanding any other provision of law, no city shall expend any
moneys from any governmental or proprietary fund, except in accordance with a
budget ordinance adopted pursuant to this section.”
According to KRS
91A.030(11), the executive authority of the city is responsible for “the preparation
and submission to the legislative body of operating statements which shall include
budgetary comparisons of each governmental fund for which an annual budget has
been adopted. These reports shall be submitted not less than once every three (3)
months in each fiscal year.”
Given that the City last passed a budget ordinance on May 1, 2012 for FY 2013, the
FY 2013 budget ordinance has continued to remain in effect through FY 2016. No
efforts to implement or monitor the City’s budget were documented in the City
Council meeting minutes. The City’s most recent audited financial statements for
FY 2014 provided a budget-to-actual report and identified specific budget line
items in which actual expenditures exceeded the budgeted amount. Based on the
documentation provided to the auditors, it appears the City Council members were
not notified of these budgetary issues.
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Recommendations

We recommend the City comply with KRS 91A.030 and pass a budget ordinance
each fiscal year. In order to properly plan and monitor the City’s financial activity,
revenue and expenditures must be budgeted and consistently monitored. As
recommended in Finding 3, City Council members should receive in meeting
packets at least quarterly, a budget-to-actual financial report and other necessary
financial reports to strengthen monitoring of the City’s financial activity. The
budget categories or line items should provide transparency and sufficient detail to
allow City Council members to accurately identify the types of expenditures
attributed to each budget item. Further, if expenditures occur at an unexpected rate,
additional detail should be requested to ensure expenditures are reasonable and
necessary.
Finally, we recommend the City develop and implement policies and controls to
ensure financial activity is consistently recorded and reported in the City’s
accounting system, which increases transparency and disclosure.

Finding 5: The
City purchased
property paying at
least $364,000 in
FY 2013 having
questionable or no
public benefit.

On December 21, 2012, the City paid $238,812, net of fees, taxes, and allowances,
to purchase a building, known as the TEM Building, and, on June 25, 2013,
purchased six lots, located near City Hall, for $125,497 in addition to any unknown
associated costs. The City entered into a loan with KLC Kentucky Bond
Corporation dated July 31, 2012, to purchase the TEM Building, though the City’s
Operating Account had a balance of $1,491,685 in unrestricted funds available for
use at the time. In contrast, the six lots located near City Hall were purchased using
funds from the Operating Account.
City Council meeting minutes document very little about these purchases, so it is
not clear whether the City Council members approved these two purchases or
understood how the City was funding these purchases. Additionally, information
provided does not disclose whether these properties were ever independently
appraised prior to the purchases. While the City had no established procurement
policies, the use of taxpayer funds to purchase property and the method of financing
the purchase should be approved by the City Council. All information related to
these purchases should have been disclosed and discussed with the City Council
prior to incurring significant expenses.

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According to the September 29, 2011 City Council meeting minutes, the former
Mayor informed the City Council that the City was looking at the TEM Building
“for the stationing of the maintenance garage.” After the former Mayor informed
the City Council the asking price was “$230,000.00 with $25,000.00 tax adjustment
over an approximate ten year period of time,” a City Council member asked where
the money would come from for this purchase. The former Mayor stated that the
building would be paid by grants acquired by the City’s Economic Development
Commission. The former Mayor then stated the City could lease the building for
$2,000 per month with the option to buy until the City acquired funds through these
grants. The former Mayor explained that the maintenance department and the
economic development commission could both be housed in this building. The
City Council voted on leasing the building, with the former Mayor breaking the tie
to pass the motion. The City entered into a lease of the building on October 15,
2011.
The City leased the building from October 15, 2011 until the City purchased the
building on December 21, 2012. A review of the City’s financial statement audit
for FY 2013 found that the City entered into an agreement with the KLC Kentucky
Bond Corporation to finance the acquisition of the TEM Building to be used as a
maintenance garage. According to the FY 2013 financial statement audit, the note
payable had an initial principal balance of $260,000 and matures on January 1,
2027.
After contacting KLC to inquire about the financing agreement, KLC provided the
auditors with a copy of the application for participation in the KLC Kentucky Bond
Corporation Financing Program (KBCFP), the financing agreement, and the request
for disbursement documentation for the City. The application for participation in
the financing program is dated June 6, 2012, and lists the intended use as
purchasing a building “for programs and maintenance garage.”
According to the financing agreement, dated July 31, 2012, the City has agreed to
pay back a total of $323,711 over the duration of the loan: principal of $260,000,
interest of $51,834, and expenses of $11,877. The financing agreement has a stated
duration of 15 years with a schedule of 175 payments in total.
The financing agreement also included Ordinance 241 to support the opinion of the
City’s counsel that the agreement was properly authorized. According to
Ordinance 241 presented in the lease agreement, the Ordinance had its first reading
on May 1, 2012 and the second reading on June 4, 2012, with the following
purpose:
AN ORDINANCE APPROVING A LEASE FOR THE
FINANCING OF A PROJECT; PROVIDING FOR THE
PAYMENT AND SECURITY OF THE LEASE; CREATING A
SINKING FUND; AND AUTHORIZING THE EXECUTION OF
VARIOUS DOCUMENTS RELATED TO SUCH LEASE.
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After reviewing the financing agreement, the auditors again read the City Council
meeting minutes to search for additional information about this ordinance, the
decision to purchase this building, and incur a note payable given the City had
funds available for the purchase. No mention of purchasing the TEM Building was
found, nor was there any discussion of a financing agreement.
The date documented as the first reading for Ordinance 241 is May 1, 2012 and the
second reading was June 4, 2012. A review of the City Council meeting minutes
for May 1, 2012, documents no mention of Ordinance 241. The next regular
meeting, held on the first Tuesday of each month, would have been June 5, 2012.
Although requested, the City could not provide the meeting minutes for June 5,
2012; however, the financing agreement states that the second reading for
Ordinance 241 occurred on June 4, 2012.
Meeting minutes record a discussion of Ordinance 241 in a special meeting held on
June 19, 2012. The documented minutes state that the purpose of Ordinance 241
was to allow the former Mayor the authority to have the City join the “KLC bond
pool.” According to the minutes, the City Attorney explained that “being in this
bond pool would allow us to receive the lowest interest rate possible.” The
Ordinance passed with a vote of five members in favor. However, according to the
financing agreement, Ordinance 241 had already passed on June 4, 2012.
Additionally, the meeting minutes did not mention the TEM Building, a financing
agreement, or any purchase at all related to the adoption of Ordinance 241.
Auditors requested Ordinance 241 from the City but it was not provided.
Therefore, we were unable to compare the ordinance received from KLC to the
ordinance on file with the City.
The Request for Disbursement form signed by the former Mayor, requested by
auditors and provided by KLC, states the City requested a disbursement of
$246,735 from KBCFP on November 15, 2012. According to this document, the
City purchased the building at a stated contract sales price of $244,000 plus $2,735
in associated fees, insurances, and taxes. On December 6, 2012, a wire transfer is
documented as received on the City’s Operating Account bank statement for
$246,735. The disbursement request of $246,735 does not agree with the final
$238,812 purchase price paid by the City because the City received a price
reduction due to the allowance for previous building lease payments.
KLC provided auditors with documents that confirmed the $246,735 was the first
and only payment associated with this loan made to the City. A KLC
representative stated that the City should contact the company to let them know that
no further payments would be needed for the project so that future payments could
be reduced.

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In addition, no evidence was found of any economic development activity that
could be attributed to an Economic Development Commission discussed in the City
Council meeting minutes related to the TEM Building. Currently, the TEM
Building’s garage does contain maintenance equipment and other property, which
is discussed further in Finding 6.
Regarding the purchase of the six lots in close proximity to City Hall, the former
Mayor informed the City Council at the March 5, 2013 meeting that she made an
offer on these properties the previous February. Then, in the April 2, 2013 minutes,
the former Mayor informed the City Council that the City will purchase the
properties. Auditors found no evidence that the City Council voted on the purchase
of these properties in the City Council meeting minutes. The May 14, 2013
meeting minutes state the owner of the six lots was getting the property ready and
would pay for the needed demolition of any existing structures on the property.
While the purchase price of the property was not documented in the City Council
meeting minutes, auditors found a $125,497 canceled check dated June 25, 2013,
was provided to the property owner. Also identified was an additional canceled
check for $10,250 dated September 27, 2013, paid to an excavator for demolition
on this property. It appears the City, and not the property owner as the City
Council was previously informed, paid for the demolition.
Recommendations

We recommend the City adopt procurement policies requiring disclosure to and
authorization by the City Council prior to purchasing and financing a property
above a determined amount. We also recommend bond, loan, or other financing
agreements above a determined amount be presented to the City Council for review
and authorization. The resulting action taken by the City Council should be
documented in the meeting minutes. This disclosure provides transparency and an
opportunity for the City Council to discuss the need and approval for the purchase.
We further recommend the City have an appraisal performed by a qualified third
party to ensure a clear understanding of the value of any property being considered
for purchase.
We recommend the City address the use of these properties to ensure they provide
the best use and benefit to the City. Further, an evaluation should be performed to
determine whether it is in the best interests of the City to retain or sell the
properties.
We also recommend that the City notify the Kentucky Bond Corporation that no
further funds will be requested for the property purchase, referred to as a project, to
ensure the City minimizes the amount required to be repaid. We recommend the
City perform an analysis to determine whether it is in the City’s best interest to
retire the loan balance early or to follow the established payment schedule, which
continues to accrue interest.

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Finding 6:
Business records
related to two
private companies
associated with the
former Mayor, two
computers with
missing hard
drives, and
property of
unknown
ownership were
found in the City’s
TEM Building.

An examination of the contents of the TEM Building was made in an attempt to
determine how the property may have been used by the City. Auditors found file
cabinets containing business documentation related to two different companies
associated with the former Mayor, two computers with missing hard drives, and
property of unknown ownership. Due to the current administration’s concerns
regarding the reason for the former Mayor to have an office in the TEM Building in
addition to the office in City Hall, City officials stated an effort was made to secure
the TEM Building so the contents of the building could be reviewed without any
items being tampered with or removed. These efforts were unsuccessful as the
building suffered water damage from burst pipes in March 2015, which resulted in
extensive repairs. In addition, City maintenance equipment was stored in the
building so staff retained keys to the building after the locks were changed. The
City was not able to provide auditors with any inventory listing or purchasing
documentation, which made it impossible to determine the property that should
have been onsite and the ownership of several seemingly random and unnecessary
items of property. However, the removal of hard drives from two on-site
computers demonstrates action may have been taken to prevent the computers’
contents from being identified. According to the current Mayor, the two on-site
computers were functional prior to securing the building.
Upon entering the TEM Building, auditors observed a large office copier and
printer, along with other items that did not appear to be City-oriented. Certain file
cabinets contained multiple stacks of personal documents relating to non-City
businesses of the former Mayor. These personal documents included tax returns,
certifications for non-City business staff, immunization records, licenses,
employment applications, business letterheads, meeting notes, and property
notations. In addition to the City’s maintenance equipment, the garage in the TEM
Building contained items that included used refrigerators, several desks, lamps,
chairs, couches, a paper shredder, two televisions, and decorative pillows. It is
unclear whether these items were purchased by the former Mayor using City funds,
were personal items, or were in the building when the property was purchased.
In an attempt to confirm whether the two newest computers found in the building
were City equipment, auditors recorded the serial numbers and discovered the
computers’ hard drives were missing. While not readily noticeable when viewing
the computers, the computers weighed less than expected. As a result, the cover
was taken off the computer to reveal the hard drives were missing. Based on
observations, the removal of the hard drives may have been an effort to prevent the
computers’ contents from being identified. In addition, auditors could not confirm
whether the computers were City property because the City did not provide an
inventory list or supporting documentation related to computer purchases.

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Recommendations

We recommend the City take steps to inventory all of the City’s assets, including
all property contained in the TEM Building. We recommend City employees
evaluate these items and keep those that provide a benefit to the City, while
disposing of other items as surplus property. If records are located that document
the computers in the TEM building were purchased by the City, we recommend
further investigation be performed to determine whether the hard drives for these
computers were removed for an inappropriate purpose.

Finding 7:
Although a total
could not be
determined, a
review of the
City’s Operating
Account identified
questionable
checks and
expenditures.

A review of the City’s Operating Account revealed excessive and questionable uses
of City funds although a total amount could not be determined. Given that
complete financial statements, actual expenditures, and supporting documentation
could not be provided by the City, a review was performed of the Operating
Account bank statements and processed checks were categorized by the type of
expenditure activity. The review identified several questionable types of
expenditures and expenditure amounts that appeared excessive. In addition to
checks written from the Operating Account, many on-line and automatic payments
were made from this account; however, on many occasions, it was difficult to
determine the purpose of the automatic withdrawals. The majority of the amount of
the City’s expenditures are made from the Operating Account given automatic
payments from this account include transactions to pay the City’s monthly payroll
and credit card account balances.
Based on City Council meeting minutes, City Council members are not provided
information regarding the activity within the Operating Account nor how these
expenditures relate to the City’s budget. The City Council members must have a
clear understanding of the City’s actual expenditure activity to ensure proper
oversight and use of funds. Further, many of the expenditures identified from the
City’s Operating Account bank statement were not recorded in the City’s
accounting system at the time of the auditor’s review and appear to have either
never been recorded or were subsequently deleted. These expenses should be
budgeted for and recorded in City’s accounting system to ensure transparency,
appropriate disclosure, and reporting.
To evaluate the City’s Operating Account financial activity, auditors scheduled the
monthly bank statement activity for the period June 2012 through December 2014.
This information is presented in the following table:

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Table 3: Operating Account Bank Statement Schedule

Date Ending
Checks
June 29, 2012
($115,948)
July 31, 2012
($124,913)
August 31, 2012
($22,273)
September 28, 2012
($18,218)
October 31, 2012
($19,402)
November 30, 2012
($19,040)
December 31, 2012
($251,768)
January 31, 2013
($45,567)
February 28, 2013
($8,231)
March 29, 2013
($15,677)
April 30, 2013
($25,731)
May 31, 2013
($40,894)
June 28, 2013
($215,414)
July 31, 2013
($38,291)
August 30, 2013
($152,703)
September 30, 2013
($66,764)
October 31, 2013
($58,603)
November 29, 2013
($33,774)
December 31, 2013
($31,500)
January 31, 2014
($42,116)
February 28, 2014
($44,529)
March 31, 2014
($31,412)
April 30, 2014
($65,708)
May 30, 2014
($55,225)
June 30, 2014
($47,852)
July 31, 2014
($165,120)
August 29, 2014
($48,581)
September 30, 2014
($151,385)
October 31, 2014
($52,077)
November 28, 2014
($77,746)
December 31, 2014
($41,570)
Sum Total
($2,128,028)
Average Monthly Balance

Automatic
Withdrawals/
Transfers/
Charges
($18,229)
($51,720)
($81,797)
($117,863)
($65,798)
($98,315)
($90,063)
($102,967)
($91,901)
($70,182)
($74,924)
($79,335)
($79,667)
($84,463)
($90,012)
($73,837)
($92,548)
($77,781)
($82,226)
($87,684)
($75,210)
($76,034)
($123,444)
($100,200)
($78,924)
($118,070)
($86,257)
($85,120)
($98,271)
($82,655)
($110,375)
($2,645,869)

Total
Deductions
($134,177)
($176,633)
($104,070)
($136,080)
($85,200)
($117,355)
($341,831)
($148,534)
($100,131)
($85,859)
($100,654)
($120,229)
($295,081)
($122,754)
($242,714)
($140,601)
($151,150)
($111,556)
($113,727)
($129,799)
($119,739)
($107,445)
($189,152)
($155,425)
($126,776)
($283,189)
($134,838)
($236,505)
($150,348)
($160,401)
($151,945)
($4,773,897)

Deposits
$1,038,217
$237,500
$133,158
$11,082
$276,795
$216,605
$284,893
$130,077
$348,937
$10,010
$81,337
$239,971
$45,720
$67,714
$206,946
$127,743
$263,918
$205,664
$80,251
$136,732
$180,300
$32,099
$257,974
$147,641
$35,721
$121,564
$195,183
$24,310
$293,087
$242,963
$106,367
$5,780,477

Ending
Balance
$1,430,818
$1,491,685
$1,520,772
$1,395,775
$1,587,369
$1,686,619
$1,629,680
$1,611,224
$1,860,030
$1,784,180
$1,764,863
$1,884,606
$1,635,245
$1,580,205
$1,544,437
$1,531,579
$1,644,346
$1,738,454
$1,704,978
$1,711,911
$1,772,471
$1,697,125
$1,765,947
$1,758,164
$1,667,109
$1,505,483
$1,565,829
$1,353,633
$1,496,373
$1,578,935
$1,533,358
$1,576,039

Source: Auditor of Public Accounts based on bank statements provided by the City.

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The schedule of the City’s Operating Account’s monthly financial activity
demonstrates significant fluctuations in account deposits and deductions. Monthly
Operating Accounting deposits ranged from $1,038,217 to $10,010 and deductions
ranged from $341,831 to $85,200. Considering these fluctuations do not provide a
reasonable baseline in activity, inappropriate or excessive expenses are difficult to
detect without reviewing adequate documentation for each transaction.
An analysis of the account, over this time period, found the City’s total deposits
were approximately $1 million greater than total deductions and the average
monthly Operating Account balance exceeded $1.5 million. The City’s revenue
was more than sufficient to offset the City’s operating expenses.
For this same period, a review was performed of the Operating Account’s canceled
checks and transactions were categorized to estimate the use of City funds per
expenditure type. The checks written by the City could be read; however, it was
difficult reading the date and vendor name on bank generated checks due to the
copy’s small, blurred print. For each check, however, the typed dollar amount on
the check was clearly visible so the check amount could consistently be determined.
As a result, a number of checks totaling over $142,000 could not be specifically
classified and are indentified in Table 4 in the category “Illegible.” Table 4
illustrates the results of categorizing expenditures from the City’s Operating
Account:

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Table 4: Breakdown of Canceled Check Information by Category and Fiscal Year
Expenditure Category

FY12 *

FY13

FY14

Insurance (KLC & Others)
$960
$90,508
$137,694
Kentucky Local Gov. Trust
$214,767
Vehicle Purchases & Accessories
$99,504
$76,158
$96,132
TEM Building
$6,000
$242,336
Illegible
$6,075
$28,768
$52,117
Property Purchased (Six Lots)
$125,524
Contract Labor
$315
$37,008
$31,311
Fleet Card
$1,478
$36,738
$31,071
Information Technology Services
$10,057
$29,438
$20,991
Police
$1,881
$36,591
$15,049
Vehicle Repairs
$1,100
$8,756
$28,688
Security Services
$12,540
$3,420
$4,016
Attorney
$2,000
$16,540
$12,335
Uniforms
$502
$300
$14,133
Tax Refunds
$17,793
$2,653
Building Maintenance
$353
$7,717
$7,788
CPA Audit Services
$8,940
Miscellaneous
$30
$4,833
$3,408
Police Air Conditioning Unit
Utilities
$779
$4,108
$1,885
Employee Reimbursements
$119
$3,887
$3,285
Per Diem
$2,832
$2,550
Community Center
$3,270
$3,977
Grocery
$37
$2,429
$2,190
Festival
$453
$1,558
Hotels
$765
$1,104
Vehicle Wash
$1,426
Restaurants
$25
$2,503
$25
Dues
$1,048
$788
Petty Cash
$80
$990
$245
Employee Gas Reimbursements
$18
$764
$472
Donations
$929
$119
Office Supplies
$57
$786
Christmas
$261
Auto Rental
$704
Kentucky Amusement Park
$600
Cash
$431
Grand Total
$143,910
$797,529
$692,373
Source: Auditor of Public Accounts based on bank statements provided by the City.
* This year only consisted of June 2012.
** This year only consisted of July through December, 2014.

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FY15 **
$178,006
$94,857
$2,712
$57,264
$46,616
$17,490
$13,897
$3,222
$7,686
$21,148
$7,000
$11,578
$205
$4,743
$7,275
$3,257
$9,788
$2,927
$1,927
$2,225
$1,372
$2,114
$1,156
$1,395
$70
$15
$100
$187
$563

$500,794

Total
$407,167
$309,624
$274,505
$248,336
$144,224
$125,524
$115,250
$86,777
$74,383
$56,743
$46,230
$41,124
$37,875
$26,513
$20,651
$20,601
$16,215
$11,528
$9,788
$9,700
$9,217
$7,607
$7,247
$6,028
$4,125
$3,025
$2,821
$2,553
$1,906
$1,315
$1,270
$1,148
$1,030
$824
$704
$600
$431
$2,134,607

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Table 4 clearly demonstrates that insurance costs are the highest expenditure
category in the Operating Account for checks written by the City. In addition, the
checks written to the “Kentucky Local Gov. Trust” appear to be related to the
City’s health insurance. The third highest expenditure category was for vehicle and
vehicle accessory purchases. The expenditure amount for this purpose appeared to
be excessive for a City with this population; however, it is not known what was
purchased or how much was budgeted for this purpose.
Expenditures totaling $115,250 for contract labor, which included checks written to
individuals for cleaning services, also seemed questionable and excessive given the
City did not appear to have written service agreements. Checks totaling $26,513
for uniform allowance or reimbursements also appeared to be a greater expense
than anticipated for the City’s police officers and public works employees.
During the expenditure analysis of more than 1,200 canceled checks, specific
transactions appear questionable or appear to violate the procurement procedures
required by the City’s Handbook. The following are examples of transactions
identified of potentially questionable and inappropriate transactions:







Although an excavation company was paid $10,250 for the demolition on
the six lots near City Hall acquired by the City in June 2013, a person
apparently not associated with the excavation company was paid $2,000 and
$1,000 on June 28, 2013, and a $1,000 check dated November 22, 2013, for
the purpose of “clean up fillin.”
Checks were written directly to hotels, yet in most instances the location of
the hotel is unknown and the City provided no supporting documentation
for the expense to identify the need and purpose for the expenditure. On
August 24, 2012, a check for $764.88 was written to a hotel, while another
hotel was paid $1,104.24 on May 2, 2014. A Louisville hotel was paid
$847.56 by check on October 3, 2014, which is unreasonable given that the
hotel is approximately 10 miles from City Hall. Another hotel was paid
$308 on October 22, 2014. In addition, the City used the credit card to pay
hotel expenses.
On November 1, 2012, a check for $329 with “BBT” as the payee had
“child support” written on the check memo line. The check appeared to be
a cashier’s check and was only signed by one of the City’s former clerks.
A check was written to an auto body repair center in the amount of
$16,236.52 for repairs to one police car.

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The City’s Handbook states that “[p]ublic funds must be spent in such a manner as
to be beneficial to the public and not predominately personal in nature.”
Specifically, the City prohibits the use of City funds for expenditures that benefit
one person or a small number of persons. The Handbook also prohibits the use of
City funds “to provide gifts, awards, prizes, remembrances, parties, or any other
type of special recognition to one person or a small group of persons which has no
overall value to the community as a whole.” However, the following checks are
examples of expenditures that appear to violate this policy.









Two gift cards were purchased for unknown uses on June 30, 2014. One
gift card was for $375 and the other was for $500.
A car rental company was issued a check for $527.20 on August 21, 2012,
for a car rental for one of the City’s former clerks.
A check was issued annually in December for $100 to a maintenance
worker who was not a City employee, but an employee of the cleaning
service provider.
Several checks were written to local restaurants, but the largest individual
check identified to a restaurant was for $1,497.90 on December 21, 2012.
A blank check was issued to Wal-Mart on July 21, 2013 with a check
request form that states “food for Rose” as the purpose of the purchase.
According to the bank statement, the check amount was $47.70.
A check was written to a Kentucky amusement park on June 18, 2014 for
$599.50 to purchase 10 tickets.
Checks were issued annually for $100 to the City’s Public Works staff with
statements on the memo lines such as Santa Claus and Christmas.
A check was written to an auto body paint company for $1,600.13 for a
former City Council member’s car repairs.

The City’s Handbook also states that “[a]ll labor done on behalf of the city by nonemployee persons must be supported by a written agreement which specifies the
terms and conditions of the work to be done and the terms of the payment.”
However, the following checks were found that appear to violate this policy.






Non-employees of the City were issued checks that totaled approximately
$600 for cleaning the TEM building; yet no written agreements were
provided to support these expenditures.
Five checks were written to a staff employee’s sons for a total amount of
$230. This staff person either signed or endorsed all four checks.
A family member of a former clerk received at least two checks totaling
$200, which stated on the check memo lines for “fish tank maintenance.”
The checks were written on September 12, 2012 and June 24, 2013.
A non-employee of the City received a check for $600 on February 12,
2014, with the memo line stating “city website.”
A non-employee received a check for $1,500 on May 22, 2013, with
nothing written on the memo line.
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

A non-employee was issued a check for $50 for “cleaning brush” on May 7,
2014.

Related to conflicts of interest, the City’s Handbook states that the City “shall not
contract with nor purchase services from employees outside the terms of normal
employment conditions.” However, the following checks were found that appear to
violate this policy.



Recommendations

A public works employee was issued a check for $600 on June 21, 2013 for
“repair work on van.”
A public works employee was issued a check for $50 for “cleaning brush”
on May 7, 2014.
A Public Works employee was paid $210 by check for “cutting trees.”

We recommend that the City maintain the documentation needed to support City
expenditures and other financial activity. We also recommend this documentation
be maintained electronically so the information can be easily accessed and available
if the paper copy of the documentation cannot be located. Maintaining
documentation electronically should assist in providing timely expenditure and
other information to City officials, management, City Council members, and others.
We further recommend a reconciliation of the City’s Operating and other account
bank statements to the transactions recorded in the accounting system be performed
monthly to properly oversee the City’s financial activity. Bank reconciliations
should be available to assist in answering potential questions asked by City Council
members. To ensure proper segregation of duties, the bank account reconciliations
should be performed by someone other than the employee responsible for recording
the financial activity into the City’s account system. We recommend any
questionable activity identified during the bank account reconciliations be
investigated and reported to the Mayor and at City Council meetings.
We further recommend the City comply with the policies established in the City’s
Handbook related to allowable expenditures and review these policies at least
annually to determine whether any modifications are necessary to strengthen the
policy and internal controls. Finally, as recommend in Finding 1, a policy should
be developed to delegate authority to specific individuals to be responsible for
signing checks and require two signatures.

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Finding 8:
Manual checks
totaling over
$22,000 from the
City’s Payroll
Account included
salary payments
not reported as
taxable income
and checks totaling
$7,200 for
unknown
purposes.

The City outsourced its payroll accounting to a vendor but issued additional manual
checks that were not included in an employee’s taxable income. Based on Payroll
Account bank statements for the period June 2012 through January 2015, manual
checks totaling $22,361 were written. Two $2,500 checks were written for cash
and another two checks totaling $2,200 were written to the former Mayor. In
addition, checks were written to non-employees that appear to have provided ad
hoc services for the City.
In order for an employee’s taxable income to be complete and accurately reported,
the income must be recorded through the City’s payroll accounting system because
the vendor generates the City employees’ W-2 tax forms from the payroll
accounting system. While there may be instances when a manual check is needed
if an error is made or an employee was left out of payroll, this was never the reason
documented on the canceled check memo. Further, in this situation, an adjustment
would have to be recorded in the City’s payroll accounting system maintained by
the vendor. Also, the Payroll Account should be used to track employee costs and
not for ad hoc or miscellaneous payments for services provided. Besides the
canceled checks, there was rarely any additional supporting documentation to
determine the necessity of the payment, the number of hours worked, the rate of
pay, or whether any services were actually provided. The following table illustrates
the number of checks and the total dollar amount for each fiscal year reviewed:
Table 5: Summary of Manual Checks Written From City’s Payroll Account
Fiscal Year
FY 2012 *
FY 2013
FY 2014
FY 2015 **
Total

Number of Manual Checks
3
25
25
24
77

Total Check Amounts
$ 1,285
$11,867
$ 6,110
$ 3,099
$22,361

Source: Auditor of Public Accounts based on information provided by the City.
* This year only consisted of June 2012.
** This year only consisted of July through January 2015.

Most of these checks were documented as “payroll” or the memo line indicates the
check was related to the employees’ salary yet these checks would not have been
included in the employees’ taxable income. The following are specific instances
that appear questionable related to this issue.


A City employee was issued a check on June 13, 2014, for $286 with a
documented purpose of “vacation days.” A check request form was
attached that documents that the employee is asking that no taxes be
withheld. This employee should have received regular pay while on
vacation, so it appears an additional payment should not be necessary.

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Findings and Recommendations





The same employee received two checks five days apart on November 7,
2013 and November 12, 2013, for the same amount of $592.13. One
check’s memo says “one week vacation” and the second check says
“vacation.” Without supporting documentation, this may have been
duplicate checks, but, if not, the employee received over $1,184 for
additional, apparently non-taxed income.
In March 2014, a City Public Works employee and police officer were both
issued a check for $400 with a stated purpose of “installs-4 weeks.”
A City office staff employee was paid $140 with no taxes withheld for
“office work-TEM.” This income should have been included in the
employee’s taxable income; however, it also appears this work would be
part of the staff’s general job responsibilities.

Other significant checks did not appear to be related to payroll. The following are
specific instances of questionable manual checks written from the Payroll Account:



With no stated purpose, a check to the former Mayor for $2,000 was written
on July 19, 2012, and, on June 26, 2014, a check for $200 was written to the
former Mayor.
On December 13, 2012 a $2,500 check for “Cash” was written with no
stated purpose in the memo line. On the next day, December 14, 2012,
another check for $2,500 for “Cash” was written but the memo line stated
“Police.”

According to the City’s Handbook, the “city shall not contract with nor purchase
services from employees outside the terms of normal employment conditions.”
However, a Public Works employee received a $100 check in July 2012 with the
word “Labor” on the memo line. This same employee also received a check for
$750 on November 21, 2012 for “chain saw use.”
The City’s handbook also requires all “labor done on behalf of the City by nonemployees must be supported by a written agreement which specifies the terms and
conditions of the work to be done and the terms of payment.” Similar to issues
found with the Operating Account, no agreement was provided to support the
following payments:





An individual, not an employee, was paid $60 for “TEM Cleaning” on three
different occasions from the Payroll Account. This account should only be
used for payroll related purposes. This individual was sporadically paid
from the Payroll and Operating Accounts for this same type of work.
Another individual was paid eight checks that totaled $3,262 for “office
work” but was not a City employee, and this income would not apparently
have been reported as taxable income by the City.
Another individual was paid $36.44 for “service of fish tank.” This should
have been paid out of the Operating Account as a service provided and not
considered payroll.
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Recommendations

We recommend the City’s Payroll Account solely be used to pay salary related
expenditures. We also recommend the City refrain from improperly compensating
employees for vacation leave as the employee already receives accrued vacation
leave. We recommend the City discontinue the practice of writing checks for cash.
We further recommend all compensation be properly reported as taxable income. If
manual checks are needed, this information should be provided to the payroll
accounting vendor to ensure necessary accounting adjustments are made.
We also recommend strengthening internal controls by designating a City Council
Committee Chair or member to be a required signatory for all checks written to the
Mayor. Monthly Payroll and other bank account reconciliations should be
conducted and available for the City Council’s monthly meetings to assist in
responding to questions raised by City Council members.

Finding 9: The
City used
Operating Account
funds to open at
least two bank
accounts that
appear
unwarranted and
were not available
to City Council for
review.

The City maintains at least two bank accounts, the Buechel Festival and Christmas
Fund Accounts, which appear unnecessary and not available for review by the City
Council. The funds used to open each of these bank accounts originated from the
City’s Operating Account, which is held at the same bank. Based on a review of
the information provided to the City Council, these bank accounts were not
disclosed to the City Council. It appears the only bank accounts disclosed to the
City Council are the City’s Operating and Road Aid Accounts. Therefore, these
two bank accounts were under the sole discretion of the Mayor without the City
Council having the opportunity to oversee or approve the establishment of the bank
accounts and the use of the accounts’ funds.
Regarding the Buechel Festival Account, the City did appear to organize an annual
fall festival called various names throughout the years. The festival for 2012 was
known as the Clock Festival because the former Mayor was interested in
establishing a City clock. In the City Council meeting minutes dated September 6,
2011, the former Mayor states the festival would be a fundraising event with no
money from the City’s Operating Account used to offset festival costs. According
to the same City Council meeting minutes, based on the former Mayor’s research,
the clock would cost $12,000 and the chimes would cost $9,000.
From the bank statements the City provided for review, it appears that the Buechel
Festival Account was opened on August 24, 2012. Based on a review of the bank
statements provided, a $50,000 transfer of funds was made from the Operating
Account on September 27, 2012, to the Buechel Festival Account. From October
22, 2012 to November 12, 2012, $2,119 from the Buechel Festival Account was
expended for gift cards, 22 checks totaling $8,904.99 were processed, two transfers
to the Operating Account totaling $1,066.06 were made, and two bank charges
totaling $48.18 were paid. However, only five deposits totaling $1,806 were made
into the Buechel Festival Account. The withdrawals and deposits during this time
left a balance of $43,027 in the account. The balance in the Buechel Festival
account as of August 31, 2015, is $35,716. This analysis is based on the limited
information provided for auditor’s review.
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The Operating Account was also used for festival expenses even though a specific
account, established with Operating Account funds, was initiated for this event. A
review of processed checks from the Operating Account found checks documented
as being related to festival expenditures. During calendar year 2012, a total of
$1,318 was documented as being for festival related expenditures. In 2013 and
2014, there was a total of $1,622 and $2,716 respectively, which was documented
as festival related expenditures that were paid by the Operating Account and not the
Festival Account.
Regarding the City’s Christmas Fund Account, City staff stated that it was used for
the purpose of providing charitable benefits to less fortunate families within the
City. The items provided, according to City staff, were food items, warm clothing,
outer wear and toys for children. In the City Council meeting minutes for fiscal
years 2012, 2013, 2014, and 2015, the City Council and Mayor discuss “Christmas
baskets” but it is never clear in the meeting minutes the contents to be included in
the baskets, the source of funds, the amount of funds needed to provide the items
for the baskets, or the names of those receiving “Christmas baskets.”
The City provided limited documentation pertaining to the City’s Christmas Fund
Account. The first activity, according to the documentation provided, was a
counter deposit of $1,000. There is no documentation available regarding the
source of the funds.
This account incurred monthly service charges of
approximately $20. From the statements provided, there was a $950 check
processed on this account; however, no canceled check documentation was attached
to the bank statement to indicate the payee on the check or the purpose of the
check. On December 12, 2012, a $50 remote deposit was made and a deposit of
$100 from the Operating Account was made on March 5, 2013. Based on the bank
statement provided by the City from September 28, 2012 through April 30, 2013,
plus statements for December 31, 2013 and November 28, 2014, the only other
account activity was the $20 monthly service charges discussed above. The
balance in the Christmas Fund account as of November 28, 2014, was $208.05 and
$148.05 on August 31, 2015. Auditors were not provided all the statements for this
account, but the $60 decline in the account balance was likely be due to a monthly
inactive account fee of $7.50 from November 2014 through August 2015.
Even with a dedicated Christmas Fund, Christmas expenses were also paid from the
Operating Account. During the period reviewed, the Operating Account had
canceled checks totaling $1,289 that had a documented purpose of “Christmas.”
However, it is not known what items were purchased, the purpose of the
expenditure, or whether the expenditures were related to the Christmas baskets
provided by the City for families in need.

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The need for these accounts was not documented. While there may be a need to
have a separate account to ensure that funds are not comingled, these situations do
not appear to meet this criterion since the Operating Account and funds from other
accounts were apparently used for similar purposes. In addition, it does not appear
these accounts or the use of funds in these accounts were discussed with the City
Council to determine how the funds should be used. Because these accounts were
apparently reviewed by only one person, the former Mayor, the risk of improper
use of City funds is increased. Also, bank charges are being levied on these
accounts that are serving no real purpose to the City.
Recommendations

We recommend the City ensure that proper oversight be implemented for all bank
accounts under the City control. As recommended in Findings 7 and 8, monthly
bank account reconciliations should be performed by an employee independent of
the person entering transactions activity into the City’s accounting system. Further,
these reconciliations should be provided to appropriate City management and to the
City Council members to discuss or question during City Council meetings. Also,
as previously recommended in Finding 7, City management and the City Council
should be provided monthly financial statements for review to strengthen the
oversight of the City’s financial activity. In addition, we recommend the City
Council discuss the need for multiple bank accounts.

Finding 10:
Evidence identified
three loans made
to City officials;
however, the total
number and
amount of loans
could not be
determined.

As auditors reviewed the random and haphazard documents provided by the City,
various items of documentation that loans were provided to the former Mayor,
Chief of Police, and a clerk were identified. The evidence of a loan made to the
former Mayor was a report from the payroll accounting vendor indicating loan
payments were deducted from the former Mayor’s salary. In addition, other
questionable payments made to the former Mayor were identified. Regarding the
Chief of Police, a canceled check was found that stated “Loan” on the memo line.
The loan to the clerk was found during a review of the Check Request Forms that
documented the City made a loan to the former clerk. A canceled check was also
found during the time period and for the amount on the Check Request Form.
The City’s Handbook prohibits “[e]xpenditures made specifically to benefit one
person or a small number of persons which has no overall value to the community
as a whole.” However, considering the state of the documentation provided, we
could not determine the total extent of loans made by the City to other employees.

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Because of reports related to loans paid to the former Mayor and Chief of Police, a
payroll report was requested by the auditors from the City’s payroll accounting
vendor. The vendor was only able to provide this information for the period
August 2013 to January 2015. In that time period, the former Mayor had payroll
deductions totaling $500 under the code “ADVANCE” and $732 coded as
“LOAN.” While the amount deducted from the former Mayor’s paychecks for this
period is known, this does not provide any documentation as to how much was
actually advanced or loaned. As noted in Finding 8, two checks for $2,200 from
the Payroll Account had the former Mayor as the payee and two checks payable to
cash for $2,500 each were also identified, but there were no documented purposes
for these checks.
According to a City employee, the former Mayor instructed various amounts to be
deducted from her paycheck in an attempt to reimburse the City for items
purchased from the City’s credit card for personal use. However, due to the lack of
controls and documentation related to credit cards, it is not known which purchases
were considered personal or whether the former Mayor was the actual person
incurring the credit card charge.
In our review of canceled checks from the Payroll Account, a check to the Chief of
Police dated October 11, 2013, in the amount of $1,000 was found with a memo
line documentation of “Loan.” The payroll report for the period August 2013 to
January 2015, from the City’s payroll accounting vendor documented payroll
deductions coded as “LOAN” totaled $980.73.
From reviewing a stack of Check Request Forms, one check request form was
found with the stated purpose for “emergency surgery will be payed back through
payroll weekly.” This Check Request Form was dated March 21, 2014 in the
amount of $200 payable to a clerk employee. The form was signed “approved by”
the former Mayor. In conjunction with this form, a canceled check was found from
the Payroll Account dated March 21, 2014 for $200 to this employee. This check
had authorizing signatures of both the former Mayor and the clerk employee
requesting the loan.
Recommendations

We recommend the City implement controls to prevent loans from being provided
to City staff or officials to ensure public funds are not used for personal needs. As
stated in the City’s handbook, public funds should not be used to benefit one person
or a small number of persons without a value to the community as a whole. For
loans that have been made, we recommend the City ensure all loans made to City
official or employees are fully repaid.

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We further recommend strengthening internal controls over the reporting of
questionable activity by the City Council establishing an independent process to
receive, analyze, and ensure investigation and resolution of issues involving
questionable activity or other concerns. The process to report such issues should be
available to employees, business associates, and the general public. An advertised
email or postal address to receive concerns would allow the City Council to receive
this information.
Finding 11: The
City’s operating
and human
resource policies
do not adequately
address financial
controls and
reporting
necessary to
professionally
manage the City’s
financial
operations.

While the City provided a policy Handbook, first revised in April 1993 and later
revised in October 2007, the City’s financial management and human resource
(HR) policies are not properly updated or complete to adequately address the City’s
needs. A review of the City’s policy Handbook found crucial financial areas and
procedures were not addressed. Further, it was determined that compliance with
existing policies and procedures was either nonexistent or minimal. Based on the
lack of compliance to established policies or procedures and that the Handbook was
last revised approximately eight years ago during the previous administration, it
appears there was a lack of awareness of the current Handbook policies.
While the City’s population of approximately 1,300 may be considered small, the
City’s most recent financial statement audit, June 30, 2014, reported revenue of
$1,649,862. The financial operations of the City do not appear to have been
managed adequately or professionally, nor were adequate financial controls,
personnel policies, and position descriptions, or qualifications implemented or
followed.
The current Handbook contains approximately two pages of general operating
policies and procedures that discuss the proper use of public funds. No policies or
procedures existed regarding general procurement policies, bidding requirements,
financial procedures, such as reconciliations or expenditure approvals, or for other
fundamental operating areas.
The primary area addressed by the City’s policy Handbook regarding expenditures
was the requirement that “a check request form must be filled out and approved by
the Mayor or the Mayor’s designated agent prior to the check being issued. A
receipt for the purchase must be presented as soon as reasonably possible after the
transaction is completed. Under no circumstances will blank checks be signed and
issued to an employee prior to a purchase being made.” However, based on the
check request forms found during the examination, the form was rarely complete,
was not supported by any documentation, and blank checks were found several
times scattered throughout the information the City provided to auditors.

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Without established and documented financial accounting policies and procedures,
expenditures could be paid by the City multiple times, controls do not exist to
ensure revenue, employee reimbursements, expenditures and other financial
operations are properly recorded and legitimate, and expenditures are not
reconciled monthly to each of the City’s bank accounts. For example, an employee
could purchase fuel for a vehicle with a credit card or fleet card, be reimbursed for
the expenditure, and also receive a mileage reimbursement.
Employee
reimbursements should only be made if a receipt for purchase can be presented,
which shows the original method of payment. In addition, the City had a credit
card issued by a hardware store, yet the City’s bank credit card was used multiple
times to purchase several items from this hardware store. Without a process in
place, including requiring a receipt to support purchases, verifying the purchases
were necessary and made on behalf of the City, it cannot be determined whether the
purchases were business related or personal in nature.
Having no bidding policies or other established procurement requirements
needlessly increases the risk that services or other purchases are not transparent, the
City does not receive the best value, detailed terms and conditions for services are
omitted, and conflicts of interests exist. The City has not established a threshold or
a process for contract or purchase amounts to be presented to the City Council for
discussion and approval, or whether the City’s Mayor will make all contracting and
purchasing decisions. The City’s lack of procurement policies, controls, and
processes provides no safeguards to detect whether a contractor charged an
unreasonable amount for a service, whether payment was made for a service that
was not fully provided, or an item was purchased well above the retail value.
Further, the possibility exists that management or the City Council would not be
informed of these actions.
Without proper procedures related to cash management, expense approvals, or
requirements to perform monthly reconciliations and reporting, the City is not
adequately or transparently accounting for and controlling public funds. The City
currently uses a commercial software product to maintain its accounting system but
it does not appear that controls have been established by the City to reconcile the
system to actual bank statements. Examination procedures identified evidence that
significant transactions were deleted from the accounting system.
In addition, the City’s policy Handbook does not address controls or procedures for
the City’s petty cash system. In reviewing the City’s Operating and Payroll
Accounts over approximately two and a half years, the City processed 17 checks for
a total of $6,746 for cash or petty cash. There was no evidence of receipts to
support the expenditure and use of petty cash funds.

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Further, the City has not updated personnel position descriptions to ensure
professional and qualified staff is hired for management and other positions.
Without ensuring staff meet at least minimal requirements established to perform
specific job duties, the City continues to needlessly increase the risk that the
financial and other operations of the City are performed in an uncontrolled,
careless, and haphazard manner that does not adequately serve its citizens.
Recommendations

We recommend the City review and update its financial policies and procedures.
As recommended in Finding 1, the City, a member of the KLC, should contract
with KLC or another firm having expertise in establishing written policies and
controls designed to ensure a City operates in an efficient, effective, and
professional manner to the benefit of the public it serves. In addition to the policy
areas recommended in Finding 1, we also recommend the City address general
procurement policies, bidding requirements, basic financial procedures such as
reconciliations, expense approvals, and the need for a petty cash policy. The City
should also update its position descriptions that include education and experience
requirements to ensure qualified staff are consistently hired. The development and
implementation of other financial related policies and controls should also be
considered to ensure the City consistently operates in an efficient, effective, and
professional manner.

Finding 12: The
City’s travel
reimbursement
policy is
undefined, vague,
and requires no
documentation to
support a request
for
reimbursement.

The City’s Handbook includes a travel reimbursement policy that does not define
criteria for travel status yet provides the amount of $50 to be reimbursed for any
type of travel. This policy does not assist the City in controlling travel costs and
protecting public funds from unnecessary reimbursements. In its current state, the
policy does not provide criteria to determine what constitutes travel status, establish
the process to request and approve travel, identify allowable travel expenses, or
have a requirement to provide supporting documentation for any travel expenses.
The City’s entire travel
instructions/requirements:

reimbursement

policy

contains

the

following

1. If a city employee is authorized by the Mayor to travel out of
town on city business, the city will pay a per diem of fifty dollars
($50.00) for each day or portion of a day, in excess of six (6)
hours, for food and incidental expenses incurred by the employee
if the travel is within the state of Kentucky. If the travel is
outside the state, the per diem will be seventy-five dollars
($75.00) per day.

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2. An employee may request the per diem in advance upon
appropriate notification to the Mayor of the number of days the
employee will be out of town. If the employee does not stay the
number of days for which a per diem expense check was written,
reimbursement to the city will be required within five (5) days of
the employee’s return. If the travel extends for additional days
beyond those for which the advance was given, the employee
must request reimbursement and receive approval from the
Mayor before reimbursement is made for the additional time.
3. Registration and hotel accommodations will be paid by the city
directly to the charging entity.
4. Travel expenses may be paid by the city in advance directly to
the provider or, if the employee uses their own vehicle, they may
be reimbursed at the mileage rate allowed for federal tax
purposes after submitting the expense reimbursement form and
receiving approval by the Mayor.
Based on our examination of monthly Operating Account bank statements,
canceled checks totaling $7,532 were found with the check’s memo line
documenting the purpose as a per diem reimbursement. From the large number of
checks with round dollar amounts, it appears that employees are primarily claiming
the $50 amount per day, no matter the travel distance. This allows for City officials
and staff to receive $50 even if the travel required is minimal. For example, one
check found in our review was written to a local hotel for $847.56, yet there is no
apparent reason for the City to pay for a hotel stay and per diem within the official
or staffs’ area of residence.
Currently, no requirements exist regarding the number of miles one must travel or
the requirement of an overnight stay in order to qualify for a per diem
reimbursement. Under current policy, an employee could travel in metro Louisville
area within their normal work hours and still qualify for a per diem reimbursement.
Additionally, there are no guidelines as to how the daily per diem works related to
mileage or meal reimbursement. An employee could receive the daily per diem,
mileage reimbursement, and turn in restaurant receipts for meal reimbursement.
Further, the current travel reimbursement requirements only address employees, yet
several City Council members were paid per diem reimbursements based on our
review of canceled checks.

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Recommendations

We recommend the City travel policy specifies what constitutes travel status, when
documentation is required, and clearly state the expenses covered by the established
per diem amount to prevent the duplication of reimbursements. In addition, the
City should also create a travel reimbursement form to document the travel
information such as the time period the City official or employee was in travel
status, the travel location, and the reason for the travel. We also recommend the
City consider adopting a travel policy similar to that detailed in Kentucky state
government’s regulation, 200 KAR 2:006. We further recommend the developed
travel reimbursement form be submitted for approval by appropriate management
and a City Council Committee or Council representative be delegated the
responsibility to review and approve the Mayor’s travel reimbursement requests.
To minimize and control costs, we recommend the travel expense policy define
allowable costs related to lodging, meals, entertainment, personal mileage
reimbursement, rental cars, and airfare. We suggest overnight travel status be
required for any reimbursement other than mileage. In addition, the policy should
establish a required distance to be traveled from an employee’s or City Council
member’s work area for an overnight stay to be authorized. The travel expense
policy should state the documentation requirements for the reimbursement of each
type of travel expenditure. The policy should provide examples of expenditures
that are to be paid for by the employee, such as costs incurred by family members
or the attendance at events not approved. This policy should explicitly state that
expenses not in compliance with the travel expense policy will not be reimbursed or
paid by the City.

Finding 13: The
current City
Clerk-Treasurer
did not provide
evidence of a bond
required by state
law for officials
that handles public
money.

In response to inquiries made to determine the City’s compliance with state law
bonding requirements, auditors were informed that the current City Clerk-Treasurer
was bonded May 2015; however, although requested, no documentation was
provided to confirm the City Clerk/Treasurer was bonded. KRS 65.067 requires a
bond for all officials or employees who handle public money. To protect City
funds and comply with state law, those meeting the statutory requirements must be
bonded. Compliance with this statute should be confirmed annually.
Specifically, KRS 65.067 establishes the following requirements related to
bonding:
(1) All officers, officials, and employees of cities, counties, urbancounty governments, charter county governments, a regional
wastewater commission, and special districts who handle public
funds in the execution of their duties shall give a good and
sufficient bond to the local governing body for the faithful and
honest performance of his or her duties and as security for all
money coming into that person's hands or under that person's
control. The bond amount shall be based upon the maximum
amount of public funds the officer, official, or employee handles
at any given time during a fiscal year cycle. The local governing
body shall pay the cost of the bond.
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(2) Elected officials who post bond as required by statute, and
employees of their offices covered by a blanket or umbrella
bond, shall be deemed to have complied with subsection (1) of
this section.
According to the City’s Handbook, the position descriptions for the City ClerkTreasurer, Assistant City Clerk, and all police officers require the employee to be
bonded. Maintenance staff are the only City employees not required to meet
bonding requirements.
With annual City revenues exceeding $1.5 million, the failure to ensure all required
employees are bonded needlessly places public funds at risk. The City has not
developed a process for public funds to be protected by ensuring all officers,
officials, and employees that handle the City’s funds, including the Mayor are
bonded.
Recommendations

We recommend the City obtain documentation to determine whether the City
Clerk-Treasurer is currently bonded. In addition, we recommend a review be
performed to determine which City officers, officials, and employees handle public
funds and should be bonded in compliance with KRS 65.067. Based on this
determination, we recommend City officials work with the City attorney to
determine the amount of the bond needed for each person and ensure a clear
understanding of the bond terms and conditions. Finally, we recommend the City
maintain the documentation for all City personnel covered by a bond.

Finding 14: In
2012, the former
Mayor submitted a
1997 City
ordinance to the
Department of
Insurance to
increase the City’s
insurance
premium tax from
5 percent to 10
percent after the
City Council voted
down this
proposed increase
in 2011.

To facilitate an increase in the City’s insurance premium tax from five percent to 10
percent, the City’s former Mayor provided a 15-year old ordinance to the
Department of Insurance (DOI) in January 2012. The December 6, 2011 City
Council meeting minutes document the former Mayor’s motion to increase the
insurance premium tax to 10 percent failed to be passed by the City Council. The
meeting minutes do not document that the City Council was informed of a 1997
ordinance that raised the rate to 10 percent but was apparently never implemented.
At a subsequent City Council meeting on February 7, 2012, it is documented in the
City Council meeting minutes that a resident asked the former Mayor about the
insurance premium tax increase. The minutes further document that the “[m]ayor
stated we already had the ordinance in place so we proceeded with the ordinance.”
According to the City’s financial statement audit for FY 2011, City revenue from
the insurance premium tax was $80,632. The City’s most recent financial statement
audit for FY 2014 reported insurance premium tax revenue of $244,998, which is
an increase of $164,366 since the tax was increased to 10 percent during FY 2012.

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A review of City ordinances found two different versions of Ordinance 162 in 1997
on file at the City, with both ordinances increasing the insurance premium tax from
five percent to 10 percent. Although the number, date, and signatures of the two
ordinances are the same, a review of the two ordinances identified differences in
wording, formatting, and print style indicating they were created at different times.
In addition, the title of the ordinance submitted to DOI in January 2012 authorizing
an increase in the insurance premium tax is “AN AMMENDED (sic)
ORDINANCE RELATED TO LICENSE FEES IMPOSED UPON EACH
INSURANCE COMPANY.” It is not known why two ordinances having the same
number, signatures, and date, with one identified as amended, would both be on file
with the City.
Auditors contacted a DOI representative responsible for addressing municipal
insurance premium tax issues who confirmed that the City’s insurance premium tax
was five percent since 1986 until an increase in the tax in 2012. It is unclear why
this tax was not increased in 1997 or whether Ordinance 162 was originally
submitted to DOI.
Considering the modifications made to the original ordinance used to authorize an
increase in the insurance premium tax 15 years later, information regarding this
issue was provided to DOI to determine whether further investigation by DOI is
warranted. The investigation could address the length of time since Ordinance 162
series 1997 was passed with no resulting action taken to increase the insurance
premium tax until 2012, when increasing the tax was clearly not supported by the
City Council in a meeting held on December 6, 2011.
Recommendations

Additional
Observations
Made During the
Examination
Process

We recommend that the City work with DOI to further investigate this issue to
ensure the legality of this tax increase and take whatever action, if any, is necessary
to appropriately address. We further recommend the City Council review this issue
to determine the desired City insurance premium tax rate to be established moving
forward. This issue was referred to DOI to consider whether further investigation is
warranted.
As previously stated, the examination period was primarily July 1, 2012 through
December 31, 2014, which was during the administration of the former Mayor.
Testing and other review procedures focused on the period under examination;
however, the following observations involving City operations under the current
administration were also made:



The City continues to operate under the existing Personnel Policies &
Procedures Handbook and has not revised or updated policies and
procedures;
Supporting documentation for financial records from January through
August 2015 was reportedly stolen; however, according to the City’s Chief
of Police no police report has been filed;
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



Action has not been taken to ensure staff are trained to obtain a thorough
understanding of the City’s accounting process and system;
The hiring of two City employees with either a former or current personal
relationship with the Mayor may impair objectivity in the supervision and
oversight of these employees; and
Throughout the examination process, auditors consistently experienced
difficulty in contacting City officials and being provided with requested
documentation.

The recommendations made in this report will assist the current City administration
and City Council in addressing several of the observations noted above.

Page 35

 The City did not respond to the examination report, although the City was provided an opportunity to
have a response included in the report.

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