The Madera County Board of Supervisors voted Feb. 26 to hire an outside accounting firm to perform an audit of the county's treasurer-tax collector office headed by Tracy Kennedy.
In a presentation to the board, Madera County Chief Administrative Officer Eric Fleming requested that an outside auditor be hired to review the departments' procedures.
Madera County Auditor-Controller Marcia Hall, told the supervisors she had concerns with cash handling and other internal controls and said the books are about $300,000 out of balance.
In a report about a year ago to the County Audit Committee, a committee at the time Kennedy sat on, along with supervisor David Rogers, former Supervisor Frank Bigelow and the county counsel, among others, Hall said about $40,000 was usually kept in the treasurer's vault, many thousands more than necessary. Hall said she surveyed surrounding counties and was told they keep between $2,000 and $3,000 in cash on hand.
Kennedy said because of Hall's observation, she has since reduced the amount of cash kept in the vault.
Hall also reported that a security camera that monitors the vault had been covered up and that the treasurer's office cashed paychecks for employees, which was a poor practice.
Hall said the county's external auditor, Gallina CPA, with offices in Roseville and San Jose, had recommended an outside consultant due to accounting deficiencies in the treasurer's office.
After the meeting, Kennedy, who was elected to her position in 1990, said she relies on the state government code and the taxation code to guide her in the operation of her office.
"My office does not do 'accounting,' nor do we post any entries into the county's accounting system," Kennedy said. "The auditor's office does all of the accounting and posting and we do the cash management, which is by design to ensure the checks and balances. In fact, we do not have any staff 'accountants' in our office and are down three full time positions."
Kennedy said that as county treasurer, she has discretion in a lot of areas such as cashing county issued checks (warrants) and the amount of money that is kept in the vault.
"There is nothing illegal with keeping cash in the vault," Kennedy said. "The amount varies based on the variety of deposits that come to us on any given day."
Kennedy said she was aware of Hall's questions and concerns about some of the procedures in her office and thought all those issues had been resolved.
"We have implemented many of the changes she (Hall) suggested although she never put them in writing," Kennedy said.
But Fleming said Kennedy made it clear to Hall that she would not be complying with any recommendations to tighten up financial controls in her office.
"When she (Kennedy) refused to work with Hall, Hall came to me seeking guidance," Fleming said. "That is when I suggested this matter be elevated to the Audit Advisory Committee. It was at the insistence of the committee that Kennedy made some minor adjustments such as reducing the amount of cash in the vault. There are still significant issues with investment transactions happening outside the county's financial management system. We have evidence that more than $150,000 in errors are due to how investment income was categorized. We can not conclude the 2010-2011 audit until these issues are resolved."
"Characterizing as 'evidence' a potential category error for $150,000, an error that has never been specifically disclosed to us, out of an overall pool amount of more than $294 million seems a little harsh at this juncture," Kennedy said. "All our investments are recorded in a subsidiary program, which is by design, similar to the operations of the other 57 county treasurers in the state that handle treasury investment pools. The implication continues to be that we are not cooperating, which could not be further from the truth. My office has been very cooperative with Hall and the independent external auditors. I have always been cooperative, responsive and forthcoming with the external auditors," Kennedy said.
Kennedy said a comprehensive financial annual report is sent to the state, by law, every fall. She said the report is a routine annual audited financial statement covering, but not limited to, grant funds received by the county, the issue of county bonds if any and to make sure the county is in compliance with reporting requirements. She said the July 1, 2011 - June 30, 2012 report has not been completed, nor has the June 30, 2011 report been finalized.
"The report is in the process of being finalized by the outside auditor and is expected to be presented to the supervisors in the near future," Kennedy said.
Kennedy said any delays in the current audit is not due to the external auditor needing any information from her office.
"The delay is due to the final accounting reconciliations done by the county's auditor-controller's office (Hall) to reconcile the county accounting records."
Kennedy said she is not objecting to the outside audit and feels more time should have been given to her and Hall to continue working the issues out in a professional manner.
"I just wish that I had been involved in the process and it (outside audit) is be based on facts and not false accusations or items that have already been remedied," Kennedy said.
Rogers said the Audit Advisory Committee urged Hall and Kennedy to work out the problems, but that has not happened.
Rogers told the supervisors everyone wanted to allow Hall and Kennedy the chance to work the issues out but personal clashes between the two officials interfered with that happening.
Fleming said the county tried hard to resolve the issues internally "so that we wouldn't have to expose our dysfunction to the public. Unfortunately, this type of public approach was required to get Ms. Kennedy to cooperate and comply for the good of the county as a whole. Quite frankly, I was alarmed by her conduct during the months following the committee meeting in which she was ordered to correct issues within her office."
Fleming said Kennedy began openly trying to distract people within the agency and the public away from the real issues with a inaccurate concern about Hall's Merced County residency and that the supervisors broke the law when Hall was appointed.
"To be very clear, the board of supervisors did nothing illegal by appointing Hall to fill the unexpired term," Fleming said following last week's board meeting.
Fleming said the purpose of the outside audit is not to point fingers at Kennedy, but is to "find out where we are at ... we can not afford to get involved in personality conflicts."
"As the county administrator, I'm just relieved to move forward past this unnecessary drama and get our financial house back in order and avoid any further loss of grant revenues," Fleming said.
Supervisors voted 4-0 to retain the Fresno firm of Hemming, Morse, LLP, to conduct the new audit. The county is still waiting for Governor Jerry Brown to appoint a District 1 supervisor, a seat left vacant when Bigelow was elected to the state assembly in November.
Fleming said Monday the contract with Hemming, Morse has been approved and he expects the audit to begin soon with completion by early summer.
Kennedy said she has already set aside some office space for the outside auditor.
"I will continue to cooperate with the auditors as I have done my whole career in Madera County," Kennedy said. "I want the people that I represent to understand that I will take any appropriate corrective actions necessary to ensure the integrity of my office and safeguard their trust in the office that I hold,"
Kennedy said she looks forward to the conclusion of the audit so she can get back to doing the job she has been elected to do.