An audit of Stark County found that in the Stark County general fund and multiple special revenue funds cash reserve balances totaled $33.6 million at the time of the audit, and nearly $40 million as of this report. According to state law, the maximum amount allowed in those funds is $10.3 million — which leaves a $23.3 million excess, according to State Auditor Joshua Gallion.
State law permits up to 75% of the appropriation of each fund to be held in cash reserves, something Stark County was substantially higher than by 257%.
"While paying taxes is necessary for continuity of government provided services, over-taxation of citizens is unacceptable. This is money that belongs to the citizens of Stark County," Gallion said. "These funds come from areas such as property taxes. Having balances that are dramatically over the amount allowed by law is concerning."
The audit also found improper bidding and a lack of bidding of road equipment. State law requires procurement for equipment purchased or rented over $100,000. Purchases by Stark County appeared to be in direct violation of state law and the bidding procedures set for the benefit of citizens in North Dakota.
“We’re supposed to be holding right at about $16 million in reserve, and right now we’re closer to $40 million,” Jay Elkin, Stark County’s District 5 commissioner, said. “They’ve never had a problem in the past, and I even brought it up to the auditor last year, and they have always said ‘we’re not going to worry about that’ because it’s not a bad idea to have a reserve.”
Elkin said that having a state audit is always a positive because it provides the county with clear guidance on where there is room for improvement.
“I think it’s a great thing to have a second set of eyes to conduct an audit, especially when it comes to a political or government entity,” Elkin said. “They can point out deficiencies better than we recognize them, and then that provides us with the opportunity to correct them.”
Elkin contended that moving forward the county will face some difficult decisions as they determine the best approach for reducing the reserves, maintaining a productive budget and keeping employees and taxpayers appeased.
“When I look at the market values of properties, and when they continue to fall as they have been the county is going to have to make up a shortfall. County operations don’t go down in expenses and have been holding pretty level at a rate of about $28 million in expenditure and consequently those reserves will deplete themselves over time. This year we are giving about a $2.2 million dollar tax break to the taxpayer by buying the mills down to allow the commission to have an opportunity to offer no mill increase on the general funds side of things to the taxpayer so that when market values increase we can just stay where we are for some time.”
Stark County employees and department heads have been told that budget increases were not going to be possible this fiscal year, which prompted some tensions and now raises the question of why considering that the county has nearly 150% in excess reserve funds.
“Right now the state is about 45% of our revenue and property taxes make up the 55%, so consequently we don’t know if the state is off on their projections and we could end up 30% less than they are projecting. That’s the big elephant in the room for me... trying to figure that one out,” Elkin said concerning lack of pay increases for employees. “When we try to balance a budget and we're already $459,000 short, you try and figure out where that number really is at because that’s only a guess right now. I really believe that the economy at the state level will turn around when the oil economy turns around and we’ll have a better idea of where we can go next year with employee raises.”
Elkin added, “We’ve been very generous with our employees since I’ve been on the commission. We have valued employees and very good employees, and we’ve been blessed to have good employees. I know it’s hard to swallow that we aren’t giving raises, and granted as an employee I’d like to have a salary increase myself, but we’ve been generous the past few years.”
In addition to the excess reserves, Stark County may have violated procurement laws when they purchased two motor graders at a cost of $691,025 under an out-of-state procurement agreement, as well as an International truck at a cost of $137,496 under a Minnesota state bid — both in violation of state procurement laws. Further, the audit found that another three lease-purchase agreements entered into totaling $359,689 were not advertised for bids in accordance with state law.
Stark County officials said that they did not believe that N.D.C.C §24-05-04(2) applied to lease-purchase agreements for road equipment.
“We’ve never had an issue in the past, and the state has done the same thing that they found that we were doing and we’re trying to piece this thing together as best we can and address those issues,” Elkin said. “Those issues will be addressed, no doubt, and that’s why years ago I asked for a yearly audit to protect the people of the county, the departments of the county and county commission. The fact of the matter is that there is not a year that goes by that there is not somewhere that we need to improve and this is where we need to improve on this year.”
The other lesser violations identified in the audit included the fact that Stark County currently does not prepare financial statements, including various adjusting entries and accompanying note disclosures, as required by generally accepted accounting principles (GAAP). Thus, management has elected to have the auditors assist in the preparation of the financial statements and note disclosures.
The audit further found that Stark County does not currently prepare a fraud risk assessment of the entire entity. Fraud risk governance is a key component of entity-wide governance and the internal control environment according to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework principles. This entity wide governance addresses the manner in which the board of directors and management meet their respective obligations to achieve the entities goals in reporting, reliance, and accountability.
The audit continues, Stark County did not obtain adequate pledge of assets at American Bank Center as of December 31, 2019. The County was under pledged by $2,318,909. The auditor’s office recommended that Stark County ensure that it maintains adequate pledges of securities at any bank where the bank balances could exceed FDIC Insurance.
The audit found that The Stark County Water Resource District and Stark County Job Development Authority have limited personnel responsible for most accounting functions. A lack of segregation of duties exists as limited personnel are responsible to collect and deposit monies, issue checks, send checks to vendors, record receipts disbursement in journals, maintain the general ledger, create credit memos, and perform bank reconciliations. Recommendations included, but were not limited to, mitigating the risk associated with the lack of segregation of duties by having financial statements, credit memos and payroll registers reviewed, analyzed and spot-checked by a responsible official; segregation of functions for approval, posting, custody of assets and reconciliation as they relate to any amounts which impact the financial statements.
To read the full audit, visit nd.gov/auditor and search for Stark County under local audits.