FINANCE FIX: Audit findings prompt county finance overhaul

Published 12:36 am Sunday, March 8, 2015

NEWS_FEATURE_FINANCE FIX_150308Beaufort County will get a finance department overhaul in the wake of its annual audit, one that found major problems in how the department operates.

County Finance Officer Mark Newsome laid out his findings, and the audit’s findings, to commissioners at the Beaufort County Board of Commissioners retreat Thursday. What he described was a situation in which the county is in general noncompliance with state statute, in addition to having a setup that’s wide open for potential abuse.

Newsome, a CPA, was hired last year to replace former Assistant County Manager and Finance Officer Jim Chrisman. In his first six weeks on the job, Newsome, a CPA, said he encountered more than a few red flags in the finance department. Among them are the fact that the department has no formal documentation processes; very few written policies and procedures, while those that do exist are out of date; no internal financial reporting; no review of internal financial reporting; an ongoing problem with dispersing money in a timely fashion, with many regular payments running three to four months behind schedule; difficulty meeting reporting deadlines; significant risks of missing debt service payments; discrepancies between the general ledger and budget ordinance; an inability to reconcile bank statements; problems with segregation of duties of finance department employees, which leaves individual employees controlling entire processes with no safeguards; and a finance department that is severely understaffed. Newsome also told commissioners that no written evidence exists of how transactions are executed, other than the electronic records in the county system.

“That’s highly unusual. Beaufort County is 300 years old. I ought to be able to go back (and find records) from 1796. I can’t find things from six months ago. That’s a very serious situation,” Newsome said. “We’ll have to go back and rebuild this record.”

Should the county continue with the status quo, passing up the opportunity to overhaul the finance department, Newsome said the following things could happen: the county’s bond rating could suffer, which would cost the county significantly more when borrowing money; there’s a potential to default on debt service payments, as no set process governs the transaction; the Local Government Commission could get involved; and someone could take criminal advantage of the finance department’s flaws.

“Risk for abuse is about as high as it can be,” Newsome said, adding that even though the risk is there, there is no evidence, at this point, that any type of abuse has happened.

But that is, in part, why he requested hiring an outside firm to perform an internal review and a gap analysis, which would create a map of where the department is and where it should be, in order to bridge the gap between the two. It’s the first step in what Newsome referred to as a two-pronged approach: identifying inefficiencies and building a system of financial reporting; and a recover/maintain aspect — recovering from years of bad processing and operating with a set list of priorities.

Newsome asked for, and county commissioners approved, $200,000 to start the process of fixing the finance department. The additional funds will be used for the internal review and gap analysis, legal funds (in the event any wrongdoing is uncovered), temporary staff, including an accountant, purchasing agent, an accounting tech-level employee and administrative support, office space and equipment. Newsome said the finance department fix would likely take about 18 months to complete, but when it is done, could be used as a model for any county in the state.

“I do not come to y’all lightly with this request, I have a tremendous amount of respect for the fact that we’re spending other people’s money,” Newsome said.

An ad hoc finance committee of Newsome, interim County Manager Ken Windley, Commissioner Robert Belcher and Commissioner Frankie Waters was set up to direct the county’s response to the situation, manage the relationship with auditors and report to the full Board, both formally and informally.

The audit and Newsome’s findings came as something of a shock to commissioners.

“The more I read it, the worse it sounded. That’s when I asked Mark to get all the commissioners one on one, so it wouldn’t be a slap in the face to them,” Board Chairman Gary Brinn said.

Longtime Commissioner Hood Richardson said the situation had been many years in the making, but an overhaul of the department was a daunting task. The combination of Newsome, a new manager in Windley, a new county clerk and a new county attorney, however, was what it took to put the project in motion.

“Now is the opportune time to clean up the whole mess,” Richardson said.

The overall impression of commissioners is that fault lay with bad processes, understaffing and making do, not with any one past employee. While there has been opportunity for embezzlement, those asked are doubtful that it’s happened: on the books, the numbers are where they should be.

“We won’t know any of that until we get into the audit and see if there’s any mishandling of funds,” Brinn said. “We hope not.”

Newsome did say there was good news, in the face of all the bad news he delivered: because of past projections that lowballed revenues and highballed expenses, the county’s general fund has grown.