Audit 362582

SEGREGATION OF DUTIES: An adequate internal control system design should be designed to adequately segregate responsibilities of performing control functions sufficient to prevent circumvention of those controls by any one individual. Condition and Context: The County has not employed an internal control system that sufficiently segregates accounting functions to a degree that reasonably reduces the risk that fraud could occur and not be detected. Cause of the Condition It appears that the County currently employs an insufficient number of financial personnel required to sufficiently segregate accounting functions. Effect of the Condition: Internal controls may be circumvented to reduce the ability of those internal controls to detect fraud. Recommendation: Although this condition is a serious defect in the design of the internal control system, we believe the financial and personnel resources necessary to adequately segregate accounting functions would outweigh the assurance provided. However, we also recommend that management and the Board of Commissioners be continuously aware of this condition, segregate high-risk functions when possible, implement alternative mitigating procedures, and rigorously investigate unusual transactions when discovered. Views of Responsible Officials: We understand that an internal control system is inadequate without sufficient segregation of accounting functions. However, we believe that the required resources necessary to properly segregate accounting functions are beyond reasonable expectations, given the size and current resources of the County. We are aware of the risks of fraud associated with insufficient segregation of accounting functions and the County implements mitigating controls, when possible, and investigates unusual circumstances and transactions when encountered.

Federal Program: 20.509 Formula Grants for Rural Areas and Tribal Transit Program Grant No: Grant Period: Year ended June 30, 2024 Condition: The program, operated as a fund of the county, leases transit vehicles from another fund of the county. At the inception of the lease, the County sought proposals for the lease of transit vehicles from businesses engaged in transit vehicle leasing activity and determined that purchasing transit vehicles would be the most cost effective option. However, the County structured the agreement for transit vehicles to be purchased by another fund and lease the vehicles to the transit program at an increased price with substantial benefit to the transit program. Criteria: 2 CFR 200.318(c) requires the county officials avoid participation in selection, award, or administration of contract when a conflict of interest is present. Cause: County management has responsibility to effectively manage resources for the entire County. It appears the County’s judgement was impaired when weighing the cost of the lease to the transit program with the benefit to County. Effect: The cost of current, past and future lease payments are not in compliance with 2 CFR 200.318(c). Context and Questioned Cost: All transit vehicles are leased by the Transit Service Fund under one lease. Total payments to be made by the Transit Service fund for the duration of the lease term is $1,588,774. Total payments to be made for the purchase of vehicles by the General fund under a lease/purchase contract is $1,143,986. As of June 30, 2024, lease payments made for the purchase of the transit vehicles by the General Fund have not exceeded the amounts paid and charged to expense by the Transit Service Fund. As such, there is no questioned cost. Repeat Finding: No Recommendation: We recommend the county review and modify the terms of the lease between the transit program and the county fund. We also recommend consulting with the program oversight agency to determine any necessary correction action. Views of Responsible Officials: The County reviewed acceptable all possibilities for the acquisition of transit vehicles for the transit program and sought advise and acceptance for the method and structure chosen from the County’s program oversight agency. We believed these lease transactions to be in compliance with program requirements. We will further review the matter, discuss further with the oversight agency, and any issues determined by the oversight agency.

SEGREGATION OF DUTIES: An adequate internal control system design should be designed to adequately segregate responsibilities of performing control functions sufficient to prevent circumvention of those controls by any one individual. Condition and Context: The County has not employed an internal control system that sufficiently segregates accounting functions to a degree that reasonably reduces the risk that fraud could occur and not be detected. Cause of the Condition It appears that the County currently employs an insufficient number of financial personnel required to sufficiently segregate accounting functions. Effect of the Condition: Internal controls may be circumvented to reduce the ability of those internal controls to detect fraud. Recommendation: Although this condition is a serious defect in the design of the internal control system, we believe the financial and personnel resources necessary to adequately segregate accounting functions would outweigh the assurance provided. However, we also recommend that management and the Board of Commissioners be continuously aware of this condition, segregate high-risk functions when possible, implement alternative mitigating procedures, and rigorously investigate unusual transactions when discovered. Views of Responsible Officials: We understand that an internal control system is inadequate without sufficient segregation of accounting functions. However, we believe that the required resources necessary to properly segregate accounting functions are beyond reasonable expectations, given the size and current resources of the County. We are aware of the risks of fraud associated with insufficient segregation of accounting functions and the County implements mitigating controls, when possible, and investigates unusual circumstances and transactions when encountered.

Federal Program: 20.509 Formula Grants for Rural Areas and Tribal Transit Program Grant No: Grant Period: Year ended June 30, 2024 Condition: The program, operated as a fund of the county, leases transit vehicles from another fund of the county. At the inception of the lease, the County sought proposals for the lease of transit vehicles from businesses engaged in transit vehicle leasing activity and determined that purchasing transit vehicles would be the most cost effective option. However, the County structured the agreement for transit vehicles to be purchased by another fund and lease the vehicles to the transit program at an increased price with substantial benefit to the transit program. Criteria: 2 CFR 200.318(c) requires the county officials avoid participation in selection, award, or administration of contract when a conflict of interest is present. Cause: County management has responsibility to effectively manage resources for the entire County. It appears the County’s judgement was impaired when weighing the cost of the lease to the transit program with the benefit to County. Effect: The cost of current, past and future lease payments are not in compliance with 2 CFR 200.318(c). Context and Questioned Cost: All transit vehicles are leased by the Transit Service Fund under one lease. Total payments to be made by the Transit Service fund for the duration of the lease term is $1,588,774. Total payments to be made for the purchase of vehicles by the General fund under a lease/purchase contract is $1,143,986. As of June 30, 2024, lease payments made for the purchase of the transit vehicles by the General Fund have not exceeded the amounts paid and charged to expense by the Transit Service Fund. As such, there is no questioned cost. Repeat Finding: No Recommendation: We recommend the county review and modify the terms of the lease between the transit program and the county fund. We also recommend consulting with the program oversight agency to determine any necessary correction action. Views of Responsible Officials: The County reviewed acceptable all possibilities for the acquisition of transit vehicles for the transit program and sought advise and acceptance for the method and structure chosen from the County’s program oversight agency. We believed these lease transactions to be in compliance with program requirements. We will further review the matter, discuss further with the oversight agency, and any issues determined by the oversight agency.