By Jessie Burchette
jburchette@salisburypost.com
Auditors of the Rowan-Kannapolis ABC system raised red flags in 2007 for nearly $9,000 in reimbursements to employees without receipts.
Potter & Company, the audit firm, also cited the purchase of alcoholic beverages on other receipts and urged the practice be halted.
The management letter dated September 2007 cited several problems ó termed deficiencies and material weaknesses ó in the system’s handling of its finances.
The letter was released at the request of County Commissioner Tina Hall, who has questioned why the ABC system is not more profitable and does not provide more money to the county and municipalities.
The N.C. ABC Commission Web site www.ncabc.com ranks the Rowan-Kannapolis ABC Board 127th in percentage of profit generated out of 157 systems in the state for the 2007-08 fiscal year. Sales totaled $8.5 million, and profit before distribution was $317,221.
The local ABC system distributed no profit to Rowan in 2006, $30,000 in 2007 and so far this fiscal year has given the county $70,000.
While testing miscellaneous expense cash disbursements from July 1, 2006, to June 30, 2007, the auditor wrote “we noted that there was inadequate documentation to support many of the expenses paid. We found numerous incidences, totalling over $8,900 in which no receipts or documentation was available to support the expense paid.”
At another point, the auditor noted that the majority of reimbursements from federal seizure funds were submitted in sealed envelopes, which the accountant could not open. The auditor wrote that all receipts should be provided to the accountant in non-sealed envelopes.
Looking at travel expenses, auditors wrote, “it was noted that travel expenditures (including hotels, meals, incidentals, etc) increased significantly over the prior year, while some of this extra travel was discussed in the organizations minutes during the course of the year, we did not find formal board approval for the extra travel.”
Dealing with travel and purchase of alcoholic beverages, the auditors wrote “We strongly recommend the Board approve all travel for employees in the board minutes, along with the business purpose requiring the travel and prohibit all employees from purchasing alcoholic beverages with ABC funds.”
Marny Hendrick, chairman of the Rowan-Kannapolis ABC Board, said the board heeded the recommendations of that 2007 letter.
Hendrick said the board prohibited all purchase or reimbursement of alcoholic beverages by employees or board members with ABC funds.
Previously, Hendrick had written commissioners saying no ABC funds were used to buy alcoholic beverages. Thursday he told the Post that applied to the ABC operation today.
“As a direct result of the letter, there is no longer any alcohol on the credit cards, no reimbursements for alcohol,” he said.
Hendrick said it’s possible receipts would show he was reimbursed for a mixed drink before the fall of 2007, adding, “that doesn’t happen anymore …that’s in the past.”
The ABC chairman blamed a single law enforcement employee with most of the issues related to the reimbursements without receipts and the sealed envelopes. The individual no longer works for the local system.
“Ninety-nine percent of the receipts were law enforcement,” he said.
Hendrick said the receipts actually existed, but they were not provided to the auditor in a timely fashion.
He also defended travel by employees and board members, saying it is all legitimate ABC business. “We’re not on a junket or something.”
Hall has asked for detailed information and receipts on travel expenses and reimbursement for employees covering a five-year period. Hendrick denied the request, saying the compilation of material doesn’t exist and asking her to resubmit her request with more specifics.
The auditor’s 2007 letter also noted payment of a statement to repair an ABC vehicle, but there was no invoice to ensure the charges were valid.
The 2007 management letter raised the most issues among four audit management letters turned over to Leslie Heidrick, Rowan County finance director.
While the ABC system provides a copy of the annual audit to the county each year, no management letters were provided to the finance office.
In a letter responding to the request, Hendrick wrote that he personally furnished the 2007 letter to then-County Manager Bill Cowan in 2007 with a request it be kept confidential.
Arnold Chamberlain, who was chairman of the Board of Commissioners in 2007, said he did not remember the management letter. “I believe Mr. Cowan would have shared the document with me. He was always very open with me about such information. I am not saying it did not happen. I am saying that if it did, I have no memory of it.”
Chamberlain said if a document of that importance was in the manager’s office, staff should be able to find it.
County staff checked ABC files in the manager’s office and did not find the management letter.
The request for the management letter was part of continuing series of requests for financial information from county officials.
After ABC officials indicated it would take several days to provide the management letters, Carolyn Athey, clerk to the board of commissioners, contacted the N.C. ABC Commission.
Mike Herring, administrator, provided the 2007 letter, which was the only one on file with the state, to the county.
Subsequently, the ABC system provided letters for 2005-2008, indicating that the previous audit firm, McCoy, Hillard & Parks of Salisbury, did not provide a management letter.
In each of the Potter & Co. management letters, the auditors cited the need for ABC board members to be involved in the administrative process and take an active role in the accounting process. The auditors cited the small staff which doesn’t allow separation of duties.
Calling it a “significant deficiency in internal control,” the auditors repeated that message in the September 2008 letter, adding, “Specifically we recommend that a board member review bank statements, bank reconciliation and payroll reports on a monthly basis.”
Hendrick said he pulls records periodically, including bank statements, and does spot checks.
Hendrick said the ABC Board takes the recommendations related to weaknesses and deficiencies seriously. “We react to it immediately, we fix it.”
Potter & Co. cited other issues in the management letters, including the ABC system having to pay a $8,300 late penalty in 2005 fiscal year for failure to pay excise taxes on time. Auditors wrote that steps should be taken to ensure all taxes are paid on time.
Hendrick said the late payment was an employee’s mistake and it hasn’t happened again.
Credit card statements for the ABC system released in May also showed numerous late payment fees of $39 a month. Hendrick said he was not aware of those late fees, saying he saw no reason for a late fee.
Bills from the corporate card for the ABC system, a Chase MasterCard, are typically paid in full each month.
Management letters cited other concerns, including journal entries and general ledger entries that lacked descriptions ó only account numbers and amounts. Auditors recommended a description for each entry.
Auditors also cited the need to have all assets and liabilities recorded properly in the general ledger. In two successive letters, auditors noted a loan agreement was not recorded.