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REPORT OF THE SINGLE AUDIT OF THE LOUISVILLE/JEFFERSON COUNTY METRO GOVERNMENT For the Year Ended June 30, 2009 CRIT LUALLEN AUDITOR OF PUBLIC ACCOUNTS www.auditor.ky.gov 209 ST. CLAIR STREET FRANKFORT, KY 40601-1817 TELEPHONE (502) 564-5841 FACSIMILE (502) 564-2912 Embargoed Until 9am Wednesday March 24, 2010 Embargoed Until 9am Wednesday March 24, 2010 March 24, 2010 Honorable Jerry E. Abramson, Mayor Louisville Metro Council As Auditor of Public Accounts, I am pleased to transmit herewith our report of the Single Audit of the Louisville/Jefferson County Metro Government (Metro Government) for the year ended June 30, 2009. The Federal Government’s Office of Management and Budget (OMB), per OMB Circular A-133 requires the Auditor of Public Accounts to perform the Single Audit of Metro Government. On behalf of the Office of Financial Audit of the Auditor of Public Accounts, I wish to thank the employees of Metro Government for their cooperation during the course of our audit. Should you have any questions concerning this report, please contact Sally Hamilton, Executive Director, Office of Financial Audits, or me. Respectfully submitted, Crit Luallen Auditor of Public Accounts Embargoed Until 9am Wednesday March 24, 2010 Embargoed Until 9am Wednesday March 24, 2010 CONTENTS Page INTRODUCTION .................................................................................................................................. 1 LIST OF ABBREVIATIONS/ACRONYMS ......................................................................................... 5 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS ......................................................... 9 U.S. Department of Agriculture ........................................................................................................... 9 U.S. Department of Commerce............................................................................................................ 9 U.S. Department of Defense ................................................................................................................ 9 U.S. Department of Housing and Urban Development ....................................................................... 9 U.S. Department of the Interior ......................................................................................................... 10 U.S. Department of Justice ................................................................................................................ 10 U.S. Department of Labor.................................................................................................................. 10 U.S. Department of Transportation.................................................................................................... 10 U.S. Equal Employment Opportunity Commission ........................................................................... 11 U.S. Department for Libraries and Archives ..................................................................................... 11 U.S. Environmental Protection Agency ............................................................................................. 11 U.S. Department of Education ........................................................................................................... 11 U.S. Department of Health and Human Services .............................................................................. 11 U.S. Corporation for National and Community Service .................................................................... 12 U.S. Department of Homeland Security ............................................................................................ 12 U.S. Secret Service ............................................................................................................................ 13 U.S. Marshals Service ........................................................................................................................ 13 Other Federal Assistance ................................................................................................................... 13 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS ......................... 15 Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards ......................................................................................................... 19 Report On Compliance With Requirements Applicable To Each Major Program And On Internal Control Over Compliance In Accordance With OMB Circular A-133 And On The Schedule of Expenditures Of Federal Awards.................................................................................... 23 SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION 1 - SUMMARY OF AUDITOR’S RESULTS ................................................................... 29 SECTION 2 - FINANCIAL STATEMENT FINDINGS Material Weaknesses Relating to Internal Controls and/or Noncompliances FINDING 09-METRO-01: Louisville Metro Should Recognize Revenue In Accordance With Generally Accepted Accounting Principles (GAAP) ........................................................................ 31 FINDING 09-METRO-02: Metro Department Of Corrections Should Take Immediate Steps To Improve Its Financial Management ............................................................................................. 36 FINDING 09-METRO-03: Metro Department Of Corrections Should Improve Revenue Recognition And Cash Management ................................................................................................. 38 FINDING 09-METRO-04: Metro Department Of Corrections Should Strengthen Internal Controls Over Inmate Receipts.......................................................................................................... 41 i Embargoed Until 9am Wednesday March 24, 2010 CONTENTS (Continued) Page SECTION 2 - FINANCIAL STATEMENT FINDINGS (CONTINUED) Significant Deficiencies Relating to Internal Controls and/or Noncompliances FINDING 09-METRO-05: Metro Finance Should Improve Internal Controls Related To Journal Voucher (JV) Processing ...................................................................................................... 45 FINDING 09-METRO-06: Metro Finance Should Improve Internal Controls Over Bank Reconciliations .................................................................................................................................. 49 FINDING 09-METRO-07: Metro Finance Should Improve Cash Management Procedures .......... 50 FINDING 09-METRO-08: Metro Purchasing Should Improve Internal Controls Over Contracts And Update Policies And Procedures To Better Reflect Current Practices ...................... 54 FINDING 09-METRO-09: Metro Should Comply With KRS 45A.365 In Awarding Bids............ 58 FINDING 09-METRO-10: Metro Purchasing Should Identify Required Elements For All Metro Contracts, Including A Right-To-Audit Clause ...................................................................... 60 FINDING 09-METRO-11: Metro Finance Should Properly Segregate Duties Related To Void Check Processing............................................................................................................................... 63 FINDING 09-METRO-12: Metro Finance Should Improve Internal Controls Over Payroll Check Distribution............................................................................................................................. 64 FINDING 09-METRO-13: Metro Human Resources Should Implement Procedures To Improve Documentation Related To Personnel Actions ................................................................... 65 FINDING 09-METRO-14: Metro Should Ensure Employee Benefits Are Consistently Applied In Accordance With Established Policies And Procedures ................................................. 67 FINDING 09-METRO-15: Metro Should Improve Required Education And Experience Criteria For Business Managers And Provide Mandatory Annual Training ..................................... 69 FINDING 09-METRO-16: Metro Should Capitalize Asset Renovation Costs In Accordance With Generally Accepted Accounting Principles (GAAP) ............................................................... 71 FINDING 09-METRO-17: Metro Finance Should Improve Internal Controls Over Reporting Capital Assets .................................................................................................................................... 74 FINDING 09-METRO-18: Metro Human Resources Should Improve Procedures For Verifying Health Insurance Claim Payments .................................................................................... 75 FINDING 09-METRO-19: Metro Risk Management Should Improve Internal Controls Over Claims Payments ............................................................................................................................... 77 FINDING 09-METRO-20: Metro Departments Should Conduct Periodic Physical Counts Of Capital Assets And Improve Safeguarding By Tagging Assets ........................................................ 79 FINDING 09-METRO-21: Metro Department Of Corrections Should Improve Controls Over Handwritten Receipts And Take Steps To Improve Security Of Personal Information ................... 81 FINDING 09-METRO-22: Metro Department Of Corrections Should Properly Segregate Incompatible Cash Management Duties Over The Inmate Fund ...................................................... 83 ii Embargoed Until 9am Wednesday March 24, 2010 CONTENTS (Continued) Page SECTION 2 - FINANCIAL STATEMENT FINDINGS (CONTINTUED) Significant Deficiencies Relating to Internal Controls and/or Noncompliances (Continued) FINDING 09-METRO-23: Metro Department Of Corrections Should Improve Internal Controls Over Timesheet Processing ................................................................................................ 85 FINDING 09-METRO-24: Metro Animal Services Should Take Steps To Improve Its Overall Business Climate ............................................................................................................................... 87 FINDING 09-METRO-25: Metro Animal Services Should Strengthen Internal Controls Over Receipts ............................................................................................................................................. 89 FINDING 09-METRO-26: Metro Animal Services Should Improve Inventory Procedures .......... 92 FINDING 09-METRO-27: Louisville Metro Fire Department Should Implement Procedures To Ensure Compliance With Metro’s Small Purchase Policies ........................................................ 95 FINDING 09-METRO-28: Louisville Metro Government Should Consistently Apply Logical Security Procedures Related To Louisville e-Financial Application (LeAP) ................................... 96 FINDING 09-METRO-29: Louisville Metro Government Should Update And Consistently Apply Documented Change Management Processes ...................................................................... 100 FINDING 09-METRO-30: Louisville Metro Government Should Ensure Sufficient Authentication Is Required To Access Potentially Sensitive Information ...................................... 104 FINDING 09-METRO-31: Metro Revenue Commission Employee Transfers Should Be Executed On A Timely Basis .......................................................................................................... 105 FINDING 09-METRO-32: Metro Internal Audit Should Expedite The Investigation Of Apparent Fabricated Invoices Processed By Metro Department Of Neighborhoods Over Multiple Fiscal Years....................................................................................................................... 106 FINDING 09-METRO-33: KentuckianaWorks Should Implement Controls To Ensure Direct Grant Charges Are Traceable Between LeAP And The SEFA ....................................................... 109 FINDING 09-METRO-34: Metro Public Works Should Pay Invoices In Accordance With KRS 65.140 And Should Implement Procedures To Improve Its Cash Management .................... 110 FINDING 09-METRO-35: Metro Public Works Should Implement Procedures To Ensure Grant Charges In LeAP Are Accurate And Traceable To Valid Supporting Documentation ........ 111 FINDING 09-METRO-36: Metro Public Works Should Implement Policies And Procedures To Ensure Adequate Supporting Documentation For JV Transactions .......................................... 112 SECTION 3 - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS Material Weaknesses Relating to Internal Controls and/or Noncompliances FINDING 09-METRO-37: Metro Housing And Family Services Should Continue Its Corrective Action To Improve Its Fiscal Management ................................................................... 113 FINDING 09-METRO-38: Metro Housing And Family Services Should Submit Accurate Performance Reports For CDBG And HOME ................................................................................ 115 FINDING 09-METRO-39: Metro Housing And Family Services Should Comply With TBRA Requirements For Housing Quality Inspections And Should Ensure Employees Are Aware Of Conflict Of Interest Policies ............................................................................................................ 118 iii Embargoed Until 9am Wednesday March 24, 2010 CONTENTS (Continued) Page SECTION 3 - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED) Material Weaknesses Relating to Internal Controls and/or Noncompliances (Continued) FINDING 09-METRO-40: Metro Housing And Family Services Should Ensure Only Allowable Costs Are Included In Reimbursement Draw Down Requests ...........................................120 FINDING 09-METRO-41: Metro Housing And Family Services Should Continue To Strengthen Cash Management, Matching, And Earmarking Controls Over Shelter Plus Care Program And Take Appropriate Action To Ensure Program Funds Are Not Forfeited ......................122 FINDING 09-METRO-42: Metro Public Works Should Improve Its Fiscal Management Of FEMA Disaster Grants .........................................................................................................................125 FINDING 09-METRO-43: Metro Public Works Should Improve Procedures To Ensure Invoices Are Paid In Accordance With Contractual Agreements ........................................................128 FINDING 09-METRO-44: Metro Public Works Should Implement Procedures To Ensure Grant Charges In LeAP Are Accurate And Traceable To Valid Supporting Documentation .............130 Significant Deficiencies Relating to Internal Controls and/or Noncompliances FINDING 09-METRO-45: Metro Office Of Management And Budget Should Implement Policies And Procedures To Ensure Consistent And Equitable Application Of Its Indirect Cost Allocations ............................................................................................................................................132 FINDING 09-METRO-46: Metro Housing And Family Services Should Improve Procedures To Ensure Compliance With The Davis Bacon Act .............................................................................133 FINDING 09-METRO-47: Metro Housing And Family Services Should Continue Progress Towards A Reconciliation Between IDIS And LeAP ..........................................................................135 FINDING 09-METRO-48: Metro Housing And Family Services Should Document Its Review Of Contractors Paid With Federal Funds To Ensure Compliance With Procurement, Suspension and Debarment Requirements ...........................................................................................137 FINDING 09-METRO-49: Metro Housing And Family Services Should Develop Procedures To Identify And Report All Subrecipients ...........................................................................................140 FINDING 09-METRO-50: Metro Housing And Family Services Should Continue To Improve Controls Over The Investor Loan Database ...........................................................................142 FINDING 09-METRO-51: Metro Housing And Family Services Should Ensure Compliance With Program Income Requirements ...................................................................................................144 FINDING 09-METRO-52: Metro Housing And Family Services Should Ensure Employee Responsibilities Are Adequately Segregated .......................................................................................145 FINDING 09-METRO-53: Metro Community Action Partnership Should Implement Procedures To Ensure Reimbursement Requests And Final Reports Are Submitted Timely .............146 FINDING 09-METRO-54: Metro Housing And Family Services Should Strengthen Internal Controls Over LIHEAP Eligibility .......................................................................................................148 FINDING 09-METRO-55: Metro Housing And Family Services Should Ensure Eligibility Requirement Procedures For Shelter Plus Care Are Followed And Required Rent Reasonableness Tests And Inspections Are Performed .......................................................................151 iv Embargoed Until 9am Wednesday March 24, 2010 CONTENTS (Continued) Page SECTION 3 - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS (CONTINUED) Significant Deficiencies Relating to Internal Controls and/or Noncompliances (Continued) FINDING 09-METRO-56: Metro Housing And Family Services Should Continue To Strengthen Controls To Ensure Accurate Recording Of Shelter Plus Care Transactions And Ensure Reimbursement Draw Down Requests Are Only For Allowable Costs ............................. 154 FINDING 09-METRO-57: Metro Housing And Family Services Should Improve Controls Over Reimbursement Requests To Ensure They Are Adequately Supported And Properly Reviewed ......................................................................................................................................... 156 FINDING 09-METRO-58: KentuckianaWorks Should Document Its Review Of Contractors Paid With Federal Funds To Ensure Compliance With Procurement, Suspension and Debarment Requirements ................................................................................................................ 158 FINDING 09-METRO-59: KentuckianaWorks Should Implement Controls To Ensure Direct Grant Charges Are Traceable Between LeAP And The SEFA ....................................................... 160 FINDING 09-METRO-60: KentuckianaWorks Should Segregate The Duties Of Its Fiscal Officer.............................................................................................................................................. 163 FINDING 09-METRO-61: KentuckianaWorks Should Ensure WIA Grant Funds Are Used Only For Costs Allowable To WIA Programs ................................................................................ 165 FINDING 09-METRO-62: Metro Public Works Should Develop A Policy To Review Certified Contractor Payrolls For Compliance With Davis Bacon Act .......................................... 167 FINDING 09-METRO-63: Metro Public Works Should Pay Invoices In Accordance With KRS 65.140 And Should Implement Procedures To Improve Its Cash Management .................... 169 FINDING 09-METRO-64: Metro Public Works Should Improve Policies And Procedures Over Subrecipient Monitoring ......................................................................................................... 172 FINDING 09-METRO-65: Metro Public Works Should Document Its Review Of Contractors Paid With Federal Funds To Ensure Compliance With Procurement, Suspension and Debarment Requirements ................................................................................................................ 174 FINDING 09-METRO-66: Metro Public Works Should Implement Policies And Procedures To Ensure Adequate Supporting Documentation For JV Transactions .......................................... 176 FINDING 09-METRO-67: Metro Public Works Should Improve Internal Controls Procedures Over Preparation And Review Of Project Worksheets ................................................ 178 FINDING 09-METRO-68: Metro Public Works Should Strengthen Procedures Over Payroll Expenditures Charged To FEMA Disaster Grants .......................................................................... 180 FINDING 09-METRO-69: Metro Public Works Should Ensure All Documentation Is Maintained To Support Grant Charges And Implement Procedures To Reduce Errors In Expenses Submitted For Reimbursement ........................................................................................ 182 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS ............................................................ 187 APPENDIX A..................................................................................................................................... 197 APPENDIX B..................................................................................................................................... 199 v Embargoed Until 9am Wednesday March 24, 2010 Embargoed Until 9am Wednesday March 24, 2010