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What is the State of the County?

STATE OF NEW MEXICO

MORA COUNTY

Schedule of Findings and Responses June 30, 2018

SECTION I- FINDING- FINANCIAL STATEMENT

2018-001 (2017-001) Control Over Payroll – Significant deficiency (Repeated and modified)

Condition: The County has the following deficiencies over payroll:

– No approved pay rates for 9 of the 40 payroll payments tested.

– One employee was paid holiday pay at the overtime rate for 24 hours which is a violation of the Personnel Policies.

– One employee is the daughter of the department director (immediate family member) and both employees work in the same department where there is an apparent supervisory relationship due to the nature of the specialized work (first responder) resulting in a violation of the County’s prohibited practices as outlined in the nepotism prohibited section of the Personnel Policy Manual.

The County has made progress toward resolving this finding and expects to have it fully resolved in the current fiscal year.

Criteria: NMSA 1978 Section 6-6-3 requires that every local pubic body keep all books, records and accounts in their respective offices in the form prescribed b the local government division. The county’s Personnel Policy Manual, Section VI, 6.3 Nepotism Prohibited, forbids the practice or appearance of nepotism by prohibiting immediately family members from being employed by the County where there is a supervisory relationship between them, without exception. The Fair Labor Standards Act requires that employees to be paid at least the federal minimum for all hours worked and overtime pay at time and one half the regular rate of pay for all hours worked over 40 in a workweek. Per Personnel Policy Manual, Section 10.3 Holiday (5.) Holiday pay will consist of eight (8) hours of pay at the employee’s normal rate of pay.

 Cause: The County does not have adequate controls over payroll.

 Effect: The County is not in compliance with NMSA 1978 Section 6-6-3 and is lacking significant controls over payroll. In addition, the County is in violation of the Personnel Policy Manual as noted above. The County is in violation of the Fair Labor Standards Act.

Recommendation: The County should establish and implement procedures over payroll to ensure that payroll is accounted for in accordance with applicable laws and policy manuals.

Management’s Response: Mora County will establish desk-top procedures for processing payroll as well as incorporate a review for the County Manager to review and approve the payroll batch, prior to producing payroll payments. The current Employee Handbook was updated and approved by Commission in November 2018 to include ” the prohibition of nepotism would not apply if there are extenuating circumstances such as remote location and lack of qualified individuals, and/or in the best interests of the County”. Along with this policy update, documentation will be maintained in personnel files to address concerns for nepotism.  A Responsible Party – County Manager and Payroll Clerk. This will be fully implemented by June 30, 2019.

2018-002 Controls Over Procurement – Other non-compliance

Condition: The County has the following deficiencies over procurement:

– For one Procurement tested, the advertisement for bid was made 9 days prior to the bid opening date.

Criteria: Per State Status, 13-1-104 NMSA 1978, an invitation for bids or a notice thereof shall be published no less than ten calendar days prior to the date set forth for the openings of bids.

Cause: The County did not publish the invitation to bid in accordance with State Statutes.

Recommendation: The County should publish invitations for bids in compliance with State Statutes.

Management’s Responses: The County held a purchasing training session on February 26, 2019 to ensure that all purchasing requisitions are provided to Finance at least 2 weeks in advance and that invitations for bid will be published no less than 10 calendar days prior to the date set forth for the opening of bids. The County Manager has a daily purchasing requisition meeting with the Finance Director to ensure timely review of each submission.The Purchasing Policy will be reviewed, updated an fully implemented by June 30, 2019. Responsible Party – Finance Director.

2018- 003 Controls Over Expenditures – Significant deficiency

Condition: The County has the following deficiencies over expenditures:

– For one purchase out of 48 tested in the amount of $12,687, there was a lack of sufficient supporting documentation to determine proper approval.

– For one purchase, out of 48 tested in the amount of $1,606, there was no purchase requisition to authorize the purchase order.

– For two purchases, out of 48 tested in the amount of $5,500, there was a lack of supporting documentation as required, i.e., purchase requisition, purchase order, contract, etc.

 – For one purchase out of 48 testes in the amount of $1,537, the invoice date preceded the requisition and purchase order date.

Criteria:  NMSA 1978 Section 6-6-3 requires that every local public body keep all books, records and accounts in their respective offices in the form prescribed by the local government division. Mora Procurement Policies Procedure require that all purchases made by Mora County have a valid purchase order; and purchase orders must be preceded by user-initiated Purchase Requisition.

Cause: The County does not have adequate controls over expenditures.

Effect: The County is not in compliance with NMSA 1978 Section 6-6-3. The County is not in compliance its Procurement Policies and Procedures.

Recommendation: The County should establish and implement procedures over expenditures to ensure compliance in accordance with applicable laws and procedures.

 Management’s Response: Mora County has begun drafting updated procedures. Elected Officials are now reviewing checks and supporting documentation for policy compliance, prior to check signature and disbursement.  Responsible Party – Finance Director. This will be Fully implemented by June 30, 2019.

2018 – 004 (2012-005) Cash Reconciliation – Material weakness (Repeated and modified)

Condition: Cash was not reconciled on the accounting system. The reconciliation that was used was incorrect because there were outstanding checks that had cleared the bank. The cash was not reconciled by $1,152,107 in the current year. This is an increase of $1,130,741 from last year’s reconciliation difference of $21,366. The County has continued to improve on their understanding of the accounting software and the reconciliation system in the County’s software and expects to have this finding fully resolved in FY19.

Criteria: Bank statements should be reconciled to the balances in the general ledger and subsidiary accounts as required by 1978 NMSA 6-10-2.

Cause: When performing the reconciliation, the activity is posting to cash accounts that are not linked and segregated to individual general ledger accounts, and the reconciliation is consistently off by different amounts every month. The County does not reconcile to general ledger balances and does not have internal controls over general ledger balances.

Effect: The County is not in compliance with 1978 NMSA 6-10-2 and is lacking a significant control over cash which is a violation of 1978 NMSA 6-10-2.

Recommendation: The accounting software should be correctly setup and cash should be reconciled in the system to general ledger balances in a timely manner.

Management’s Response: The County worked diligently to review all expenses and deposits for the time period of the audit. It was realized that the beginning cash balances of July 1, 2017 had been updated from the systematic carryforward of June 30,2017. The balances entered for July 1,2017 reflected the current bank balances and did not take into consideration outstanding checks that had not been cashed. It was this adjustment to cash balances that caused the cash reconciliation discrepancy. The County will pursue supplemental training of the financial software system to better understand reporting capabilities, carry-forward functionality and a monthly reconciliation process, within the financial system, in order to prevent future cash reconciliation issues. Responsible Party – Mora County Treasurer & Chief Deputy Treasurer. This process will be developed and implemented by June 30,2019.

2018-005 (2016-003) Controls Over Fixed Assets – Material weakness (repeated and modified)

Condition: The County has the following deficiencies over fixed assets:

– No annual physical inventory performed at fiscal year-end and no required certification of the same.

– Fixed assets were improperly excluded and included from the subsidiary ledger.

The County has made progress toward resolving this finding and expects to have it fully resolved in FY19.

Criteria: NMSA 1978 Section 6-6-3 requires that every local public body keep all books, records and accounts in their respective offices in the form prescribed by the local government division. Subsection A of Section 12-6-10 NMS 1978 requires an annual physical inventory of equipment on the inventory list and certification of the same. The County does not have sufficient procedures to account for controls over fixed assets.

Cause: The County does not have adequate internal control procedures over fixed assets.

Effect: An annual inventory of fixed assets and a certification of the same was not conducted as of June 30,2018. Fixed assets were not reviewed for items no longer in use.

Recommendation: The County should establish and implement procedures over fixed assets to ensure that they are accounted for in accordance with applicable laws.

 Management’s Response: Mora County will establish and implement procedures over fixed assets to ensure that they are accounted for in accordance with applicable laws. The Roads Department has completed its inventory; however, the full inventory wil be complete by the end of FY19. Going forward, a physical inventory will be conducted annually and will be incorporated into the financial system. Responsible Party – Finance Director. Finding will be resolved by June 30, 2019.

2018-006 (2016-005) Ambulance Receivables – Significant deficiency (Repeated and modified)

Condition: During our testing of the ambulance fund receivables and related revenue we noted the following:

– The County does not have a formal process for writing off accounts, any approval requirement for adjustments to accounts whether payments are received or not.

 – There is no formal integration of the receivable information into the rest of the County’s accounting records.

There does not appear to be a formal oversight process of monitoring the Ambulance’s receivables and ensure they have completeness of the related billings.

Criteria: GASB codification requires that all receivables be reported net of uncollectible amounts. New Mexico Administrative Code (NMAC); 2.20.5, requires that model accounting practices established by the local government division are followed by authorized personnel.

Cause: The County does not review these amounts to determine collectability, perform an annual assessment of its reserve for uncollectible receivables. There does not appear to be adequate oversight to remedy these problems.

Effect: The County does not state their ambulance receivables balance in accordance with standards as of June 30,2018 without assistance and adjustments proposed by the auditors. The County does not appear to be monitoring their receivables to ensure collectability and completeness.

Recommendation: The County should establish and implement procedures over ambulance receivables to evaluate collectability and determine appropriate reserves for uncollectible accounts. The County should also review and monitor these accounts and procedures on a regular basis and document such review.

Management’s Response: The EMS Director will prepare monthly Accounts Receivable Aging reports and present them to the County Manager for their review and approval of write-offs. A copy will also be given to the Finance Director to update the AR in County financial accounting software.  The County Manager, and if requested, the EMS Director will report to the Board of Commissioners a summary of EMS AR summary activity. Further, the EMS Director will run the year-end financial reports and ensure the correct criteria is used to produce reliable and accurate financial information.  Responsible Parties will be the County Manager and EMS Director. These processes will be implemented for the FY19 Budget and reported to the Commission starting June 2019.

2018-007 (2017-002) Controls Over Solid Waste Receivables – Other Noncompliance (Repeated and modified)

Condition: The County has failed to collect current employee’s outstanding balances.

 A total of seventeen employees have outstanding balances in the amount of $12,619. Eleven employee accounts with a total balance of $6,556 have not made timely payments on their accounts during the fiscal year. One employee account has a current tax lien with an outstanding balance of $1,568. The County has failed to enforce tax liens of solid waste customer accounts. Of the ten tax liens on solid waste customer accounts, one customer has two accounts for the same address, one with and one without tax lien for a total outstanding balance of $2,666. The County continues to not collect current employees’ outstanding solid waste receivable balances.

Criteria: New Mexico Administrative Code (NMAC) 2.20.5, requires that model accounting practices established by the local government division are followed by authorized personnel. The County does not have sufficient procedures for collecting current employee’s outstanding balances.

Cause: The County does not have adequate controls over solid waste receivables.

Effect: The County is not in compliance with state statute.

Recommendation: The County should comply with state statute requirements concerning controls over receivables and ensure outstanding balances for services are billed when accounts are finalized and closed.

Management’s Response: Mora County personnel and County Commissioners are dedicated to implementing corrective actions that will address accounts receivable. The finance team has already initiated training with Triadic technicians to pull accounts receivable aging reports to not only focus on employee collections, but also the community at large.  Policies and hiring documents are currently being updated to enforce employee account status as an employment eligibility condition. Full implementation will occur by June 30, 2019. Responsible Parties – County Manager, Finance Director & Treasurer.

2028- 008 (2017-004) Reconciliation of Financial Accounting Records – Significant deficiency (Repeated)

Condition: The County has several areas where they are not reconciling the supporting documentation to the related account balances on a regular basis.

Cause: The County does not have adequate controls over recording and reconciling detail activity to accounts balances for certain asset and liability accounts.

Criteria: New Mexico Administrative Code  (NMAC); 2.20.5, requires that model accounting practices established by the local government division are followed by authorized personnel.

 Effect: The County is not in compliance with state statute.

Recommendation: The County should comply with statute requirements concerning reconciliations of accounting records.

 Management’s Response: Mora County will comply with state statute requirements concerning reconciliations of accounting records.  Personnel has been set in place to ensure the proper flow of approval processes, review of expenditures and utilization of the financial system to its full potential. The Procurement Policy is currently being updated and a training will be provided to ensure compliance by June 30, 2019. Responsible Party – Finance Director.

2018-009 Controls Over Budgeting – Material weakness

Condition: During test work over the budgeting process, it was noted that the County had discrepancies between DFA quarterly reporting, amounts entered into the general ledger system (Triadic) as budgets and the actual approved budgets and approved budget adjustments. It was also noted that the County over expended their budgeted expenditures for various funds and also had a budgeted cash deficit in a fund. The following deficiencies over the budgeting process were noted:

– Approved budget adjustments made during the fiscal year in the amount of $67,888 in revenue, $16,738 in expenditures, and $55,352 in transfers that were not included on the DFA quarterly report for the period ending June 30, 2018,.

– The SBR VFD Fund 254 over expended the approved budget by $20,298.

– The SBR VFD 260 over expended the approved budget by $153.

– The Rainsville VFD Fund 285 over expended the approved budget by $69.

The Severance Bond SAF Fund 265 had a budgeted cash deficit of ($1,092,694).

– Revenue budgets input into the general system did not match the approved budgets. The difference was $1,625,254.

– Expenditure budgets input into the general ledger system did not match the approved budgets. The difference was $600.

Criteria: NMSA 1978 Section 6-6-3 requires that every local public body keep all books, records, and accounts in their respective offices in the form prescribed by the local government division. The County does not have sufficient procedures to account for activity over the budgeting process.

Cause: The County does not have adequate controls over the budgeting process.

Effect: The County has an increased risk of over-expenditure of line item due to inadequate controls over the budgeting process. The County is reporting incorrect amounts to the DFA on quarterly reporting statements.

Recommendation: The County should establish and implement procedures over the budgeting process to ensure that they are accounted for timely and accurately.

Management’s Response: Mora County has implemented new reporting templates for monthly commissioner meetings that expands current sped to include encumbered funds, forecasted payroll/taxes, forecasted operating costs and risk/opportunity notes to ensure full discussion occurs with the financial position of the County. Starting in April 2019, a running balance by department and account will be maintained to track requisitions submitted to the finance team, resulting with a daily balance that will prohibit over expenditures. Full implementation will occur by June 1, 2019. Responsible Party – Finance Director.

2018-010 Late Audit Report– Other noncompliance

Condition: The audit for the year ended June 30, 2018 was not submitted to the state auditor’s office by the December 1, 2018 due date.

Criteria: By statute, Section 2.2.29 NMAC (State Auditor Rule), the deadline for submission of this report was December 1 ,2018.

Cause: Completion of the current year audit was delayed due to the County not being able to reconcile the cash balance per the general ledger by approximately $1.15 million.

Effect: The County was not in compliance with State statute. The County is potentiality subject to state funding cuts and delays due to the untimely audit.

Recommendation: The County should ensure that audits are completed and submitted in accordance with state statute.

Management’s Response: Mora County personnel and County Commissioners are dedicated to implementing corrective actions that will address each finding from 2017/2018 audit. This audit presented challenges that required extensive research for cash reconciliation, utilization of the financial system, and stronger procedures. It is with full intent that there will no longer be audits submitted past the December 1st filing deadline.

2018-011 Internal Controls over Accounting Systems – Material weakness

Condition: During testing of cash and equity balances, the following control deficiencies were identified:

– During the end of year closing process the County over-rode cash and fund account balances and manually entered bank statement balances creating an overall difference in cash and fund balances of approximately 1.15 million.

– An entry made to cash and fund account balance was posted backwards with an impact on cash and fund account balances of $406,000.

– Beginning balances for amounts manually entered were not reconciled to ending balances from prior year.

– Prior year audited cash and fund balances for the agency funds were not recorded in the accounting system.

– Current year agency fund cash activity was not recorded in the respective agency fund cash accounts.

Criteria: Accounting software system general ledger account balances should roll from year to yar without the need to override amounts in order to maintain integrity of the Accounting System. General ledger and subsidiary accounts should be reconciled as required by 1978 NMSA 6-10-2.

Cause: The accounting software system used by the County did not appear to close the year-end accounts properly, resulting in the County overriding account balances. The County does not record agency funds activity correctly.

Effect: The County is not in compliance with 1978 NMSA 6-10-2 and is lacking significant controls over the accounting software system and general ledger.

Recommendation: The accounting software system should be correctly setup and operated without balance modification in order to maintain the integrity of the system. Reconciliation of year-end account balances should be performed and properly reviewed on a timely basis.

Management’s Response: Understanding and utilization of the Triadic Financial System has increased significantly since the audit findings were presented. There are several opportunities identified to assist with full utilization of the system: training presented by Triadic will take place prior to FY19. This training will include use of the inventory module, which will support compliance of asset management. Tracking delinquent Solid Waste accounts for collection efforts. Use of the trial balance for ensuring the carry-forward balance reconciliation and budget entry reconciliation. We   have already begun conversations with the software technicians to prevent ability to change carry-forward balances. Each of these items will be implemented by June 30, 2019. Responsible Parties – Treasurer & Finance Director.