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The annual audit of Giles County and the Giles County School System by the state of Tennessee has resulted in several findings concerning the accounting of funds.

The annual audit looks at the accounting of funds by the county and the school system for the fiscal year that ended June 6, 2006.

The summary of the auditor’s results includes:

• An adverse opinion on the financial statements of Giles County and an “unqualified” report on the financial statements of the school system.

• Reportable conditions from both entities that were not considered to be a “material weakness.”

• One instance of noncompliance that is considered material to the financial statements of the county and no instances of noncompliance that are considered material to the financial statements of the school system.

• Reportable conditions in internal control over major programs.

• An unqualified opinion on compliance for major programs.

• Two findings that are required to be reported.

• Neither Giles County nor the school system qualified as low-risk auditees.

In their first finding, state auditors noted that government-wide financial statements were not presented in accordance with generally accepted accounting principles.

“Giles County did not identify and determine the historical value of its capital assets and the related depreciation amounts of these assets,” the audit states. “Therefore, Giles County was unable to provide the information necessary to prepare government-wide financial statements for all of its activities as required by Governmental Accounting Standards Board (GASB) Analysis — for State and Local Governments. As a result of this omission, Giles County’s financial statements are not presented in accordance with generally accepted accounting principles; thus, we have issued an adverse opinion on its financial statements.”

Auditors recommended that the county present its government-wide financial statements to conform with accounting principles and maintain records that properly account for capital assets.

The response to this finding came from Giles County Highway Superintendent Barry Hyatt.

“Our road and equipment inventory lists are ready; however, we were advised not to purchase the GASB system for the Highway Department since County General would have to compile the report as a whole,” Hyatt responded.

Finding number two from the auditors noted that a mechanical warrant-signing machine’s counter could be reset.

“The office used a mechanical warrant-signing machine to affix the signature of the county executive,” the audit states. “The mechanical counter on the machine could be reset; therefore, we could not ensure that the office accounted for all warrants.”

Auditors recommended that a counter that cannot be reset be used to ensure that the total number of warrants processed are accounted for properly.

Giles County Executive Janet Vanzant provided the response to this finding.

“The Accounting and Budget Office changed to a laser printer and had to change warrant stock,” Vanzant’s response states. “Therefore, we had to purchase a new warrant-signing machine. We were not aware, nor did the salesperson mention to us, that we should get a machine with a counter that cannot be reset.

“In August 2006, Giles County voters adopted the County Financial Management System of 1981 by public referendum,” the response continues. “Our plans are to begin implementation on July 1, 2007. We will correct this finding at that time.”

In their third finding, auditors noted deficiencies in purchasing procedures.

“The office did not issue purchase orders for some required purchases,” the audit states. “Purchases orders are necessary to control who has purchasing authority for the office and to document purchasing commitments.

“In several instances, invoices were paid without documentation that goods had been received or services had been rendered,” the audit continues. “This practice weakens controls over the purchasing process. We extended our audit procedures and determined that these goods were received and services were rendered.”

The auditors recommended that improvements be made in purchasing procedures by issuing purchase orders for all applicable purchases and by obtaining documentation that goods have been received or services rendered before invoices are paid.

No response from a county authority was included in the audit on this finding.

In their fourth finding auditors noted that expenditures exceeded appropriations by $31,385 for the Highway and Bridge Maintenance appropriation category.

The auditors recommended that expenditures be held within the amount of money approved by the county commission.

Hyatt responded to this finding.

“When we made the decision to pay for rock with left over funds from the 2004-05 budget, we were not informed that the budget needed to be amended in 2005-06,” Hyatt responded.

In their fifth finding auditor’s noted that the school federal projects fund has a cash overdraft of $32,201 at the end of the last fiscal year.

“This cash overdrafted resulted from issuing warrants that exceeded cash on deposit with the county trustee,” the audit states. “This case overdraft was liquidated subsequent to June 30, 2006.”

The auditors recommended that the school system not make disbursements that exceed available cash on deposit with the county trustee.

The response to this finding came from Director of Schools Tee Jackson.

“We make an effort to request funds in a timely manner,” Jackson’s response states. “We have found that the state’s FACTS system is having problems with depositing funds on time.”

In finding number six auditors noted that an interfund loan of $150,000 was made between the school system’s general purpose fund to the federal projects fund.

“This transfer was, in effect, an interfund loan that was not approved by the state director of Local Finance as required by Tennessee Code Annotated,” the audit states. “This loan was repaid prior to June 30, 2006.”

Jackson provided the school system’s response to this finding.

“The Giles County Board of Education approved this interfund loan on April 20, 2006, and the Giles County Commission approved this interfund loan on May 15, 2006,” Jackson responded. “A letter requesting approval and the supporting Report on Debt Obligations Form was completed and mailed to the state director of Local Finance on June 2, 2006; however, we have been informed that this letter and the supporting documentation was never received and was apparently lost in the mail. Every attempt was made to comply with TCA in this matter.”

The auditors offered a rebuttal to this response.

“It is the School Department’s responsibility to ensure that approval is obtained for interfund loans prior to the debt issuance,” the audit rebuttal states.

In the seventh finding auditors noted that an athletic field construction project was not properly administered.

The auditor’s review of the construction of an athletic field at Richland High School revealed the following deficiencies:

• “The School Department advertised for bids to develop and construct an athletic field at Richland High School. The School Department accepted the one bid received totaling $74,399; however, the project was completed at a total cost of $116,555. The cost overruns, which were approved by the director of schools, related mainly to the installation of an irrigation system that was not included in the original bid specifications and was not bid separately. TCA requires that competitive bids be solicited through newspaper advertisement on all purchases exceeding $5,000.

• “The School Department did not employ a registered architect, engineer or landscape architect to design plans, specifications and estimates on the athletic field project as required by TCA. This statute requires that a registered architect, engineer or landscape architect be employed whenever construction contracts are estimated to exceed $25,000.”

• The School Department did not enter into a formal written contract with the contractor employed to complete the project. Without a written contract, the School Department and the contract have no documentation guidance for their responsibilities.”

The auditors recommended that competitive bids be solicited for all purchases estimated to exceed $5,000 and that the irrigation system should have been included in the original specifications or should have been bid separately. The auditors also recommend that the School Department employ a regular architect or engineer and enter into a written contract with all contractors.

No response from the school system was included in the audit on this finding.

In their eighth finding auditors noted that school system office had purchasing deficiencies.

The auditors’ investigation revealed the following:

• “In some instances, purchase orders were issued after the purchases were made. This practice defeats the purpose of issuing a purchase order and makes the purchase order an approval for payment, rather than an approval for the purchase.”

• Competitive bids were not solicited for property and casualty insurance for either 2005-06 or 2006-07. Commercial insurance coverage was acquired for $97,000 and $106,451, respectively. TCA requires competitive bids solicited through newspaper advertisements on all purchases exceeding $10,000.

Jackson’s responded to this finding.

“The Giles County Board of Education implemented purchasing procedures effective July 1, 2006, to provide a more accurate accountability and a better means of internal control,” Jackson’s responded.