Kern County 10/07

KERN COUNTY Audit Report ROAD FUND July 1, 2005, through June 30, 2006 J C OHN HIANG California State Controller October 2007 J C OHN HIANG California State Controller October 12, 2007 The Honorable Ann K. Barnett Craig M. Pope Auditor-Controller Road Commissioner Kern County Kern County 1115 Truxtun Avenue 2700 M Street, 4th Floor Bakersfield, CA 93301 Bakersfield, CA 93301 Dear Ms. Barnett and Mr. Pope: The State Controller’s Office (SCO) audited Kern County’s Road Fund for the period of July 1, 2005, through June 30, 2006. We also reviewed road-purpose revenues, expenditures, and changes in fund balances for the period of July 1, 2002, through June 30, 2005. The results of this review are included in our audit report. The county accounted for and expended Road Fund moneys in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and the SCO’s Accounting Standards and Procedures for Counties manual, except for a procedural finding identified in this report. Further, the county accounted for and expended fiscal year (FY) 2002-03 through FY 2005-06 Transportation Equity Act of the 21st Century Matching and Exchange moneys in compliance with Article XIX of the California Constitution and Streets and Highways Code section 182.6. If you have any questions, please contact Steven Mar, Chief, Local Government Audits Bureau, at (916) 324-7226. Sincerely, Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits JVB/sk cc: Grace Kong, Chief Local Program Accounting Branch Department of Transportation Kern County Road Fund Contents Audit Report Summary ........................................................................................................................... 1 Background ....................................................................................................................... 1 Objectives, Scope, and Methodology .............................................................................. 2 Conclusion ......................................................................................................................... 3 Follow-Up on Prior Audit Findings ................................................................................ 3 Views of Responsible Officials ........................................................................................ 3 Restricted Use ................................................................................................................... 3 Schedule 1—Reconciliation of Road Fund Balance ............................................................ 4 Schedule 2—Reconciliation of TEA-21 Balance ................................................................. 5 Finding and Recommendation .............................................................................................. 6 Attachment—County’s Response to Draft Audit Report Kern County Road Fund Audit Report Summary The State Controller’s Office (SCO) audited Kern County’s Road Fund for the period of July 1, 2005, through June 30, 2006 (fiscal year [FY] 2005-06). We also reviewed road-purpose revenues, expenditures, and changes in fund balances for the period of July 1, 2002, through June 30, 2005. This review was limited to performing inquiries and analytical procedures to ensure that (1) highway users tax apportionments and road- purpose revenues were properly accounted for and recorded in the Road Fund; (2) expenditure patterns were consistent with the period audited; and (3) unexpended fund balances were carried forward properly. The last day of fieldwork was March 2, 2007. Our audit and review disclosed that the county accounted for and expended Road Fund moneys in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and the SCO’s Accounting Standards and Procedures for Counties manual, except for a procedural finding identified in this report. In addition, we audited Transportation Equity Act of the 21st Century (TEA-21) Matching and Exchange moneys for FY 2002-03 through FY 2005-06, at the request of the California Department of Transportation (Caltrans). The TEA-21-funded projects have been verified to be for road-related purposes and are eligible expenditures. The TEA-21 moneys received by the county were accounted for and expended in compliance with Article XIX of the California Constitution. Background We conducted an audit of the county’s Road Fund in accordance with Government Code section 12410. The Road Fund was established by the county boards of supervisors in 1935, in accordance with Streets and Highways Code section 1622, for all amounts paid to the county out of moneys derived from the highway users tax fund. A portion of the Federal Forest Reserve revenue received by the county is also required to be deposited into the Road Fund (Government Code section 29484). In addition, the county board of supervisors may authorize the deposit of other sources of revenue into the Road Fund. Once moneys are deposited into the Road Fund, fund use is restricted to expenditures made in compliance with Article XIX of the California Constitution and Streets and Highways Code Sections 2101 and 2150. The Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991 created a federal program designed to increase flexibility in federal funding for transportation purposes by shifting the funding responsibility to state and local agencies. The TEA-21 is a continuation of this program. The funds are restricted to expenditures made in compliance with Article XIX of the California Constitution. Caltrans requested that we audit these expenditures to ensure the county’s compliance. -1- Kern County Road Fund Objectives, The objectives of our audit of the Road Fund and TEA-21 Matching and Scope, and Exchange moneys were to determine whether: Methodology • Highway users tax apportionments and TEA-21 Matching and Exchange moneys received by the county were accounted for in the Road Fund, a special revenue fund; • Expenditures were made exclusively for authorized purposes or safeguarded for future expenditure; • Reimbursements of prior Road Fund expenditures were identified and properly credited to the Road Fund; • Non-road-related expenditures were reimbursed in a timely manner; • The Road Fund cost accounting is in conformance with the SCO’s Accounting Standards and Procedures for Counties manual, Chapter 9, Appendix A; and • Expenditures for indirect overhead support service costs were within the limits formally approved in the Countywide Cost Allocation Plan. Our audit objectives were derived from the requirements of Article XIX of the California Constitution, the Streets and Highways Code, the Government Code, and the SCO’s Accounting Standards and Procedures for Counties manual. To meet the objectives, we: • Gained a basic understanding of the management controls that would have an effect on the reliability of the accounting records of the Road Fund, by interviewing key personnel and testing the operating effectiveness of the controls; • Verified whether all highway users tax apportionments and TEA-21 Matching and Exchange moneys received were properly accounted for in the Road Fund, by reconciling the county’s records to the State Controller’s and Caltrans’ payment records; • Analyzed the system used to allocate interest and determined whether the interest revenue allocated to the Road Fund was fair and equitable, by interviewing key personnel and testing a sample of interest calculations; • Verified that unauthorized borrowing of Road Fund cash had not occurred, by interviewing key personnel and examining the Road Fund cash account entries; and • Determined, through testing, whether Road Fund expenditures were in compliance with Article XIX of the California Constitution and with the Streets and Highways Code, and whether indirect cost allocation plan charges to the Road Fund were within the limits approved by the SCO’s Division of Accounting and Reporting, County Cost Plan Unit. -2- Kern County Road Fund We conducted the audit according to Government Auditing Standards, issued by the Comptroller General of the United States. We did not audit the county’s financial statements. Our scope was limited to planning and performing audit procedures necessary to obtain reasonable assurance concerning the allowability of expenditures claimed for reimbursement. Accordingly, we examined transactions on a test basis to determine whether they complied with applicable laws and regulations and were properly supported by accounting records. We considered the county’s internal controls only to the extent necessary to plan the audit. Conclusion Our audit and review disclosed that the county accounted for and expended Road Fund moneys in compliance with Article XIX of the California Constitution, the Streets and Highways Code, and the SCO’s Accounting Standards and Procedures for Counties manual, except for the procedural finding described in the Finding and Recommendation section of this report. We verified that the TEA-21-funded projects were for road-related purposes, and are eligible expenditures. The TEA-21 moneys received by the county were accounted for and expended in compliance with Article XIX of the California Constitution and the Streets and Highways Code. Follow-up on Prior Findings noted in our prior audit report, issued on August 18, 2003, have been satisfactorily resolved by the county. Audit Findings Views of We issued a draft audit report on August 22, 2007. Craig M. Pope, Director of the county’s Roads Department, responded by a letter dated Responsible September 4, 2007, agreeing with the audit results. The county’s Officials response is included as an attachment in this final audit report. Restricted Use This report is solely for the information and use of county management, the county board of supervisors, and the SCO; it is not intended to be and should not be used by anyone other than these specified parties. This restriction is not intended to limit distribution of this report, which is a matter of public record. Original signed by JEFFREY V. BROWNFIELD Chief, Division of Audits -3- Kern County Road Fund Schedule 1— Reconciliation of Road Fund Balance July 1, 2005, through June 30, 2006 Amount Beginning fund balance per county $ 20,185,533 Revenues 38,273,782 Total funds available 58,459,315 Expenditures (44,536,487) Ending fund balance per audit $ 13,922,828 -4- Kern County Road Fund Schedule 2— Reconciliation of TEA-21 Balance July 1, 2002, through June 30, 2006 Amount Beginning balance per county $ — Revenues: TEA-21 Matching and Exchange funds 1,620,176 Expenditures: Construction (1,441,470) Ending balance per county 178,706 Ending balance per audit $ 178,706 Note: The TEA-21 moneys have been accounted for and expended within the Road Fund. -5- Kern County Road Fund Finding and Recommendation FINDING— During the FY 2005-06, the county did not reimburse the Road Fund in a timely manner for non-road expenditures performed for other county Non-road expenditures departments. The Road Fund was reimbursed for some non-road not reimbursed in a transactions as late as seven months after completion of the work and, in timely manner one instance, eight months after the completion of the work (according to an invoice for the Community and Economic Development Department). Road Fund moneys can be expended for road or road-related purposes as outlined in Streets and Highways Code sections 2101 and 2150. Non-road related expenditures from the Road Fund should be reimbursed within 30-60 days after the completion of work. Recommendation The county should ensure that the Road Fund is reimbursed in a timely manner (within 30-60 days after completion of work) for non-road work performed for other county departments. County’s Response We received the Draft Road Fund Auditor Report prepared by your office. We have reviewed the report and are in concurrence with the finding that non-road expenditures should be reimbursed in a timely manner. This occasionally has been a problem when dealing with other County departments, such as Airports and Community Development. We do all we can to insist on their timely repayment and appreciate having the added authority of your office to strengthen our argument in the future. SCO’s Response The SCO concurs with the county’s response. -6- Kern County Road Fund Attachment— County’s Response to Draft Audit Report Kern County Road Fund State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S07-RFA-001