Auditor Of Public Accounts
State Auditor Crit Luallen Releases volume two of Statewide Audit of Kentucky
Kentucky Auditor Crit Luallen has released the second volume of the annual statewide audit of the Commonwealth of Kentucky for fiscal year ending June 30, 2007, finding that the state did not comply with federal requirements regarding two programs – the Highway Planning and Construction program and the Highway Safety program.
The audit found inadequate oversight of $24 million in transportation federal funds and $2 million in federal emergency disaster relief funds.
Federal law dictates an audit of the financial statements and compliance with requirements applicable to major federal programs. This year, the Auditor’s Office issued that report in two volumes.
Volume one, released in February, contained financial reporting information based on an audit of the state’s financial statements and contained 75 findings. Volume two of the audit examines the state’s monitoring of major federal programs and found, in most respects, that Kentucky is in compliance with federal guidelines. Both reports can be found at www.auditor.ky.gov
In volume two, auditors note 18 findings, including the two cases of material non-compliance in transportation, that show significant deficiencies in how state government oversees federal funds.
“It’s vital that Kentucky has proper oversight and management of federal programs and funding because of the wide range of counties and citizens affected by them,” Luallen said. “This aspect of our audit focuses entirely on the state’s expenditures of these federal awards and reports on its internal controls and compliance regarding these programs.”
Included in the audit findings are the following items:
- The Kentucky Transportation Cabinet (KYTC) should improve policies and procedures relating to the amount of awards given to and the monitoring of subrecipients of the U.S. Department of Transportation’s Highway Planning and Construction Program.
Auditors were unable to verify the appropriate use of more than $24 million in expenditures because KYTC did not keep proper documentation, such as a complete list of subrecipients who received federal funds from the agency.
Auditors also found a potential for questioned costs because KYTC did not have proper monitoring procedures in place. Because of this, auditors could not conclude that all the disbursements of this federal grant were accurate and valid payments. The Auditor’s Office will submit the report to federal authorities for follow up to determine if the state must repay any of the funds.
According to the audit, KYTC responded: “The cabinet can and will improve the documentation of subrecipient monitoring and oversight which occurs and incorporate procedures which will enhance this oversight.”
- The Kentucky Transportation Cabinet (KYTC) should implement policies and procedures for tracking subrecipients of the Highway Safety program.
Auditors examined oversight of the Highway Safety program under the Kentucky State Police (KSP) and KYTC, since an executive order moved oversight of this federal program from KSP to KYTC on June 15, 2007.
Examination of this program found a lack of proper tracking and follow-up on audit reports required by subrecipients of this program. Auditors did not question costs on this grant because there was enough documentation to identify the subrecipients and the payments made to them.
With KYTC currently administering this federal program, auditors recommend stronger controls in subrecipient monitoring. According to the audit, KYTC responded that it would develop and maintain a tracking system for dispersing highway safety funds.
- The Department of Military Affairs (DMA) should implement procedures to ensure that all subrecipients of Federal Emergency Disaster Relief (FEMA) grants are properly monitored.
The auditor’s office reviewed DMA’s oversight of FEMA grants after state auditors asked the agency to review a recent Leslie County Fiscal Court audit, which reported that the county failed to provide auditors with documentation on more than $2.0 million in FEMA grants for disaster relief from 2004-2007. Federal law requires counties to document grant usage, and DMA is to monitor this requirement.
During the statewide audit, auditors reviewed DMA’s handling of FEMA subrecipients receiving $500,000 or more in funding to ensure the subrecipients obtained a program audit, which federal guidelines require. Of 20 federal grant applicants, six were not asked by DMA to certify whether or not they were required to have an audit of their program.
Based on this information and other audit findings in this area, auditors are recommending DMA closely monitor all subrecipients to ensure they are meeting all federal guidelines. The auditor’s office is also asking DMA to develop a corrective action plan to resolve the FEMA reporting issues in Leslie County.
According to the audit, DMA has established an action plan to properly monitor its oversight of FEMA grants and to correct the issue in Leslie County.
Other audit findings include the Cabinet for Health and Family Services should ensure adoption assistance and foster care case files have supporting documentation required by federal guidelines and the Kentucky Office of Homeland Security should improve internal controls over preparing federal grant reports.
Federal law requires, in part, this annual audit by Luallen’s office of the state’s financial statements and compliance with federal program requirements. This audit, also known as the Statewide Single Audit of Kentucky (SSWAK), is submitted to the federal government. Work began on this annual audit in May 2007. This report is the product of 44 auditors and more than 17,000 hours of work.