CATLETTSBURG — State Auditor Adam Edelen has issued a highly critical review of the Boyd Fiscal Court’s finances for the fiscal year ended June 30, 2011.

The report, released Tuesday, cites numerous instances of non-compliance with state laws, regulations, contracts and grants, as well as “material weaknesses” involving internal controls over financial operations and reporting.

Among them: A combined deficit of more than $88,000 in the general and road funds at year’s end, bills being paid without fiscal court approval, “substantial errors” in the fourth-quarter financial report the county submitted to the state, improper expenditures of Local Government Economic Assistance funds, materials costing more than $20,000 being purchased without being advertised for bids and lack of adequate segregation over the payroll process and jail canteen fund.

In his responses to each of the deficiencies noted in the audit, Boyd Judge-Executive William “Bud” Stevens pledges to correct the problems.

The auditor is required to comment on problems as part of the audit process. Following is an overview of the comments in Boyd County’s audit:

‰The county’s fourth-quarter financial report to the state Department of Local Government contained “substantial errors.” Said errors were instances where the numbers in the report did not match up with reconciled cash balances. Unexplained variances of $33,054, $7,633 and $8,074 had to be adjusted on the general fund, road fund and jail fund, respectively, to agree to the audited cash balances.

Auditors recommended county Treasurer Billie Zellers ensure that all activity on the bank statements be properly posted to the receipts and disbursement ledgers so they can be accurately included in the quarterly financial reports.

‰The general and road funds ended the fiscal year with deficits of $61,444 and $26,646, respectively. Due to the year-end cash shortage, the county was forced to borrow $300,000 from Kentucky Farmers Bank to meet payroll and other operating expenses, according to the report.

“Purchase orders should not be issued unless adequate funds are available to cover the expenditure,” the report states. “We recommend the county monitor fund balances and ensure funds are not in a deficit.”

Stevens said the county had addressed the issue by assigning that specific task for to one of the fiscal court’s clerks.

‰Expenditures should not exceed budgeted appropriations. The report noted 98 separate instances where the county paid out more than it budgeted on line items in the budget, and, each time the county overdraws a line item, it may be violating state law.

“We recommend the county treasurer present line item budget transfers to the fiscal court as necessary to ensure expenditures do not exceed budgeted appropriations,” the report states.

‰Auditors found two instances where Zellers transferred funds without fiscal court approval, prompting a recommendation that all future transfers be approved a documented in the court’s minutes.

‰The report also documents one instance where Zellers paid an invoice without court approval, which is against state law. The invoice, for $1,346, was paid on March 16, 2011, and, on April 5, 2011, it was noted in the court’s minutes to not pay it, the report states.

‰Truck license receipts totaling $185,066 were incorrectly deposited in the general fund, rather than the road fund, as required by state law.

‰Local Government Economic Assistance (LGEA) funds totaling $3,599 were spent on social services and recreation and culture. State law requires that expenditures of LGEA funds received by non-coal-producing counties impacted by the transport of coal be limited to public transportation.

‰Quarterly financial reports to the Department of Local Government, due at the September, December, March and June, were all submitted late.

‰Bridge materials costing $45,007 were purchased without going through the bid process. State law requires that all expenditures of $20,000 or more be advertised for bids.

‰The county failed to pay four invoices totaling $18,310 within 30 days of receiving them, as required by state law.

‰The fiscal court failed to review its administrative code and make and change or revisions it deemed necessary during the month of June, as the law requires.

‰Zellers did not prepare an annual settlement and present it to the fiscal court for approval, as required by law.

‰Fourth-quarter financial statements did not agree to bank records, receipt and disbursement ledgers were not accurate, both of which the auditor’s office said were the result of “weak internal controls” over accounting records.

To strengthen controls, the auditor’s office recommended the county assign the verification of payables and receipts to a separate person other than the treasurer, which Stevens said was being done.

‰The county lacks adequate segregation of duties over the payroll process, which the auditor’s office said increases the risk of misappropriation, errors, inaccurate financial reporting and fraud.

Stevens said the county was working to implement checks and balances regarding payroll.

‰The jail lacks adequate segregation over canteen transactions, a problem Stevens said would be corrected by having the treasurer review the jail’s bank reconciliation on a monthly basis.

‰The county’s payroll revolving account wasn’t reconciled to zero on a monthly basis.

‰Employee time sheets were not signed by their supervisors.

KENNETH HART can be reached at khart@dailyindependent.com or

(606) 326-2654.