County could lose millions due to lack of annual audit

CLAY COUNTY — After Clay County’s contracted auditing firm said it will not complete its work due to the ongoing state audit, the county is scrambling to find a new auditing firm in hopes of not losing upwards of millions of dollars in grant funding.

Various grant funding is in jeopardy because it requires documentation from the independent financial audit that has yet to be completed.

What is at stake

Immediately on the line is $280,000 in federal funds used by the Sheriff’s Office to combat drug trafficking and gangs and investigate major narcotics cases as part of the Missouri Western Interdiction and Narcotics multijurisdictional task force.

According to Sheriff Paul Vescovo, the grant pays for six deputies’ salaries and benefits.

To maintain the funding, 2018 audit details were to be submitted by Friday, Nov. 15, to the Kansas City Police Department, the agency charged with administering the grant. According to Sheriff’s Office administrators and Clay County Presiding Commissioner Jerry Nolte, that deadline was not met.

According to County Auditor Victor Hurlbert, hundreds of thousands in other grant funding that also requires annual audit details may also be at stake without a complete audit. Other dollars help fund an array of county departments including the highway department, Midwest Regional Air Center, emergency management and child support enforcement.

Now that the MoWIN deadline has not been met, Vescovo said his office risks being dropped from the task force, which it has been a member of since the 1970s.

“Clay County will be dropped from MoWIN because they don’t want to jeopardize that for the organization as a whole. That is not Kansas City, Missouri’s fault that that could happen,” he said, citing a letter from KCPD. “It would be a great loss for the county and other cities involved (in the task force).”

The issue is another potential financial blow to the Sheriff’s Office, which is waiting an appeals ruling in its lawsuit against the county after suing the commission for underfunding the office’s detention center operations. According to the sheriff, the jail is at risk of being unable to feed or provide medical care to hundreds of inmates.

According to copies of emails from September to November between Clay County deputy Capt. Steve Siercks to Assistant County Administrator for Finance Laurie Portwood, the Sheriff’s Office began sounding an alarm in the matter late this summer and sent regular emails to Portwood questioning the status of the audit from auditing firm RSM.

While Portwood was able to provide some documents at the end of September, in a Sept. 30 email, she told Siercks that RSM advised final reports were not available.

In a response to an email from Siercks on Nov. 5, Portwood said issues with the lack of an audit were brought to commissioners’ attention and any further questions should be addressed by the sheriff to the County Commission directly.

Why audit is not done

According to elected county officials, RSM recently told county leaders by phone it would not complete the audit it began at the start of 2019 due to the pending state audit. County leaders said they have been contracting with RSM for multiple years, including when the state audit began, and were given no indication until recently that the outside auditing firm’s work would not be completed as contracted.

“Their interpretation is that they suspended their audit because they feel they cannot go forward until the state audit is complete as it may affect any of their findings or completion of their work. To that, I strongly disagreed. … Generally accepted auditing standards are very clear, and that is that a performance audit (which the state audit is), which is looking at fraud and inefficiencies, is very different from a financial audit (which is what RSM was contracted for),” Hurlbert said.

Single audits of government entities’ financials are required annually by law.

Who is to blame

When asked by the Courier-Tribune why the status of the annually required audit had not been questioned before this fall, Hurlbert said he began taking notice of the audit process this summer but because the commission redirected annual audit oversight from his office to Portwood’s, it was the finance department’s responsibility to make sure issues and status updates were reported to the commission.

Presiding Commissioner Jerry Nolte said the blame for not having the annual audit complete on time lies with RSM, which is in breach of contract for not completing its work; the county finance department for not communicating as much as it should have about the issue with commissioners; and the commission, for delegating work to staff that it should be doing.

While Eastern Commissioner Luann Ridgeway agrees with Nolte that RSM is in breach of contract, that is where the agreement on responsibility for the incomplete audit ends. Ridgeway said Nolte is out of line for trying to blame any other entity than RSM. The county, she added, has not had similar issues in previous years of contracting with the auditing firm.

Ridgeway said like Hurlbert, she and State Auditor Nicole Galloway agree that a pending state audit is not a valid reason to stop a separate, independent financial audit, adding she would be in favor of seeking a legal remedy against RSM if needed. Despite what happens, the county will fund the drug task force, she said.

“If they weren’t going to complete their work, they should’ve told us in the earlier part of the year,” she said of RSM, later adding as of last Tuesday, the county went out for bid for a new auditing firm. Bids are required to be open for two weeks.

“I expect we will move rapidly to contract with the successor CPA firm soon after the bid closes,” she said.

Managing Editor Amanda Lubinski can be reached at amanda.lubinski@mycouriertribune.com or 903-6001.

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