Lazaro Aleman
ECB Publishing, Inc.
The Jefferson County Commission last week received a long-awaited report on the findings of a forensic audit that it authorized be conducted of Clerk of Court Kirk Reams’ office. The report, on the surface at least, appears quite damning.
Forensic auditor Julian Dozier, of Thomas Howell Ferguson CPA, presented the board with the 46-page report on Thursday evening, Nov. 3. Dozier then proceeded to give a more than 1½-hour oral summation of the document, complete with information about Florida’s statutory requirements governing budgeting and accounting processes, screenshots of the clerk’s budgets and budget worksheets, internal memos, ledgers, specific transactions and other related data.
Bottom line, the gist of Dozier’s extremely detailed presentation was that over the four-year period that he examined from fiscal year 2019 to current fiscal year 2022, the clerk’s office had expended at minimum $829,387 in excess of the amounts authorized by the Board of County Commissioners (BOCC).
The $829,387, Dozier underscored, represented “a best-case scenario.” Possibly, he said, the unauthorized expenditures far exceeded this figure, especially if the review was conducted on a line-by-line basis of the budgets.
“This is looking at it globally, big picture,” Dozier said. “But let’s assume, that for whatever reason, the budget approved was on a total expense basis, which is not how it works per Florida statues. But let’s say it was, that number that we’re talking about, the $829,387, would be approximately the amount it would be. But if you go line-item-by-line-item in the budget, you would find greater numbers.”
The audit report can be viewed online on the Jefferson County Commission official website at http://www. jeffersoncountyfl.gov/p/ countydepartments/board-of-county-commissioners. Given its length, complexity and detailed nature, however, the best that can be provided here is a brief summation of Dozier’s comments and some of the highlights of his oral presentation.
Dozier began by touching on the difficulty of getting the necessary information for the audit from the clerk’s office. Many of the items requested, he said, were either not provided, were reported to be nonexistent, or were provided in a fashion that was deemed incomplete. All of which, he said in understatement, had made the analysis “a little bit harder.”
He next established the statutory foundations for the development and processing of constitutional officers’ budgets per Florida law. One key point that he made was that constitutional officers’ budgets had to reach a zero balance; and if the budgets didn’t achieve the zero balance, the constitutional officers were required to submit budget amendments to correct the deficits.
Another point was that the clerk controls two budgets, one for the court side of his operation, which he submits to the Florida Clerks of Courts Operations Corporation (CCOC); and the second for the county’s side of the operation, for his functions as county comptroller and clerk, which budget the BOCC funds with general funds.
A third point was that per the Uniform Accounting System (UAS) prescribed by the Florida Department of Financial Services (DFS), the clerk’s budget must fall within one of six categories, listed as personnel services, operating expenses, capital outlays, debt service, grants, aids and other uses.
The two key categories that were particularly relevant to the clerk’s office in terms of the audit were the personnel services and operating costs, Dozier said. The UAS, he noted, defined personnel services as expenses for salaries, wages and related employee benefits provided for persons employed by the reporting entity. Whereas operating costs, he said, included expenditures for goods and services other than personnel services or capital outlays.
“The distinction here is that a contractor is an operating expenditure, as opposed to an employee, who would be a personnel service expense,” Dozier underscored, promising to return to the point later.
His final point was that constitutional officers were required statutorily to provide a report to the BOCC within 31 days of the close of each fiscal year, stating how much revenue had been received and how much expended during the budgeted period.
“It did not seem like those reports were being made, or at least not made timely,” Dozier said. “But the other piece of this is that county officers must pay back to the county’s general fund any excess monies. And that was not the process that has been going on here.”
The way the budget process worked, Dozier explained, was that the clerk submitted a tentative budget to the BOCC for the county side of his operation, and the BOCC approved and funded this budget up to the net amount. The net amount, Dozier said, represented the total expenditure for the county’s side of the operation, minus what the clerk’s operation generated in fees for its services during the year.
Dozier went page-by-page through screenshots of the clerk’s budgets and budget worksheets for fiscal years 2019, 2020, 2021 – and projecting forward, year 2022 –to show where the fees received, or revenues generated by the office, were never subtracted from the total expenditures, so that the BOACC overpaid the budgeted amount in each of the years.
“Remember I said that you had to have a zero-balance budget at the end of the year, where your receipts minus your expenses, equals zero,” Dozier said. “You’ll see on these pages that the funds required from general revenue are incorrectly calculated. They show total amount of expenses, but they are not netted against the estimated income that the clerk was going to have for that year. For example, in fiscal 2020, they were estimating $186,000 of revenue with $386,000 of expenses, so the net amount should have been $200,000, not $386,000. If you go to the next page, you will see that the error was corrected when you get to the next year’s budget for fiscal year 2021… You’ll see that it shows a $200,000 requirement from the general fund instead of $386,000 requirement from the general fund. That’s a $186,000 mistake, because it was $386,000 as presented for 2020, but then when the math was corrected, it’s only $200,000.”
In actuality, Dozier said, by approving the budgets, the BOCC had committed to fund the clerk for $189,000 in 2019, $200,000 in 2020, $202,000 in 2021, and $275,000 for 2022. But in actuality, he said, the amounts that the BOCC had paid to the clerk had far exceeded these amounts.
He cited overpayments to the clerk’s office of $141,450 in 2019, $183,989 in 2020, $278,948 in 2021 and a projected $225,000 for the current fiscal year of 2022.
Moreover, he added, judging from the apparent lack of documentation, the excess amounts overpaid had never been returned to the board, nor had the errors been corrected via budget amendments.
Dozier then returned to the UAS categories that he had mentioned at the start of the presentation, noting that the clerk had failed to use the required categories in his budget worksheets.
“One of the things that you notice on these worksheets is that they are not the six captions that the uniform accounting manual requires,” Dozier said. “The reason this is relevant is that if you have a contractor who is providing accounting services or other administrative services, that person is an operating expense, not a personnel service to the clerk. And so, if the budget had been prepared correctly at the clerk’s level and sent to you correctly, what was shown for operating expenses each year would not have had enough money to cover the cost of that contract and the other operating expenses that the clerk’s office incurs. It was incorrectly being put as a salary or some kind of personnel service and it doesn’t meet the definition of a personnel service per the accounting manual.”
Dozier said that if the clerk office’s growth were calculated year by year from 2019 through 2022, its budgeted expenses had increased by $140,000. Which, he said, represented a 38.9-percent increase. Yet the office’s revenues had only increased about 31 percent, he said.
“So your budget deficit for the clerk has increased 45.5 percent over the four-year period,” Dozier said. “And that is based on the budget; the actual numbers are greater than these amounts.”
Commissioner Stephen Walker asked if it was possible to track where the money had gone.
“The money went to a lot of places,” Dozier said. “Payroll for the clerk office consumed a fair amount of money. The health insurance premiums are pretty sporting. The contractor who participates in the accounting function, the payments for those services are fairly high. That’s Mr. Charles Culp, or WCCJR Consultants, depending on which contract you’re looking at. And there are some other operating expenses that are purported advertising amounts and other charges that add up.”
Walker wanted to know if an in-house accountant would have caught the errors.
“This is something that the auditor noted as well in his findings for this year’s audit, as well in several prior audits,” Dozier said. “That having accounting staff in place would help mitigate some of the internal control deficiencies and would identify misstatements and errors, whether intentional or unintentional.”
Commissioner Betsy Barfield wanted to know how the clerk had been able to do all that the report indicated.
“Well, all the accounting functions are centralized in the clerk’s office,” Dozier said. “The lack of segregation of duties (best practice for crosschecking budgets) plays a big role there. Having an independent budget officer at the county level would go a very long way toward identifying these things, should they happen again in the future.”
The board also had played into it, Dozier said, citing for example fiscal year 2019, where the drawdowns from the county to the clerk’s office had been $30,000 monthly, for a total of $360,000 during the 12-month period.
“You’re basically saying, okay, at the end of the year, whatever your revenue is, pay that back to us,” Dozier said. “And that only works if that cash is still there at the end of the year to pay it back to you. It would probably be better on a monthly basis to scale down the drawdowns to reflect the revenue that has already occurred during the year or for it to be the net of the projected revenue in some way, so that you’re not paying the full expense amount and hoping that later on the money will come back to you.”
Another of the things that Dozier noted was that the audits for fiscal years 2020 and 2021 had identified that certain court-related expenses had been paid from the county’s general fund.
“So the clerk’s court budget that is theoretically funded by the state through the CCOC process overspent its available funding by $97,000 in fiscal 2020 and $96,000 in fiscal 2021,” Dozier said. “And that money ended up being charged to the general fund and funded by the board of county commissioners. Is that legal? Again, I would have to defer to your legal counsel. But that is not the way that I would expect this to be handled. Because again, that would be an unbudgeted general fund expenditure that you would think would require a budget amendment for it to be paid by the general fund.”
Dozier reiterated that the $829,387 represented “a best-case scenario.”
“It could be higher than that, depending on how the pandemic money was treated or not treated and what’s going on with 2019 transfers that the audit said happened but we couldn’t verify,” Dozier said.
He also touched on other previously-noted expenses that “didn’t appear to have a county-related purpose,” such as “for potentially unallowable p-card transactions,” payments for “purported advertisement expenses,” and the $85,000 paid for family insurance coverage for clerk’s office employees, including the clerk and contractor.
“These are areas that I think we’ve taken as far as we can with this phase of the project,” Dozier said. “I think there are other avenues to continue pursuing these that would be better than having a forensic auditor look at them. Law enforcement would be one avenue.”
County Attorney Heather Encinosa in fact informed the board that the information had already been conveyed to the appropriate authorities. A letter from Encinosa to that effect was transmitted to State Attorney Jack Campbell on Nov. 4, along with a copy of the forensic audit.
The letter asked that the audit information be added to the ongoing investigation of the clerk’s office being carried out by the Florida Department of Law Enforcement.
Stated the letter in part: “Given the significant sum of money involved and the unauthorized expenditures from 2021, which were already brought to your office’s attention, we ask that your office thoroughly investigate these new allegations and take any appropriate actions which may result from such investigation.”
“The Board of County Commissioners and the citizens of Jefferson County are rightfully concerned about the integrity of the Clerk’s office and what appears to be a misuse of public funds,” the letter concluded.