Audit: Misuse of public funds continued in Estill County even after judge resigned

Mismanagement of public funds continued in Estill County even after a former judge-executive resigned his office and pleaded guilty to corruption two years ago, according to a new state audit.

State Auditor Mike Harmon issued a report on Tuesday strongly criticizing how the Estill County Fiscal Court collected, managed and spent hundreds of thousands of dollars during Fiscal Year 2019. Some of the objections Harmon raised were similar to his concerns in previous audits of the county’s financial accounts.

“The absence of effective internal controls, oversight, and review procedures created an environment in which funds were misappropriated and financial records were manipulated,” the report warned.

Roughly 14,100 people live in Estill County about 50 miles southeast of Lexington. The county has a poverty rate of 23 percent.

A former judge-executive, Wallace Taylor, pleaded guilty in October 2019 to abuse of public trust after stealing more than $38,000 in state grant money that belonged to the county. Taylor was sentenced to serve a term of three years, diverted for a period of five years, but he died months later.

The current judge-executive, Donnie Watson, started his present term in January 2019. An interim judge-executive, Kevin Williams, served during the year 2018, after Taylor’s resignation but before Watson’s election.

On Tuesday, Watson said the county’s books are in better shape today than when he took office. Among other headaches, his administration had to pay about $50,000 in past-due contributions to the Kentucky Public Pensions Authority, much of it for one county firefighter’s retirement benefits.

“We’re just working on things as we’ve found them,” Watson said. “We have most of the problems corrected. But you can’t step into a situation like this and fix all of the problems at once.”

Watson said all three magistrates on the county’s fiscal court came into office with him in 2019.

According to Harmon’s report, state auditors uncovered several financial shortcomings, including:

▪ Some of the cash collected “off-site” was missing from the county’s bank deposits.

At least $5,810 in fees generated by the county’s animal shelter and $300 from its senior citizens center were not deposited into the county’s bank accounts, so they may have been stolen or misappropriated, auditors wrote.

“This was undetected by management,” they wrote. “Due to lack of records and inconsistent record keeping, we could not determine if additional amounts were unaccounted for.”

Harmon said he will refer this finding to the state attorney general’s office for further review.

▪ Estill County’s internal accounting controls were ineffective, allowing for possible fraud and errors, and it did not have adequate control over its accounting software, such as allowing multiple people to share the same passwords.

▪ Estill County failed to adequately oversee disbursements. Spending for hundreds of thousands of dollars did not have appropriate supporting documents, or were not presented to the fiscal court before payment, or did not have all of the necessary county officials’ signatures, or did not have a proper purchase order. Also, competitive bidding rules were not followed.

Estill County racked up at least $11,099 in late fees and finance charges because it didn’t pay its bills on time.

“The county’s administrative code outlines proper procedures for disbursements. However, management overrode these procedures and the fiscal court did not exercise adequate oversight to ensure these procedures were followed,” auditors wrote.

▪ Estill County showed poor planning by spending ahead on its budget. For example, the county’s fiscal year budget for jail inmate expenses was $899,300. But as of Dec. 31 — with half the fiscal year still to go — it had spent $757,789, or 84 percent of the jail inmate budget, leaving the incoming administration with too little money.

▪ Internal controls over occupational tax collections were not adequate. The occupational taxes — which account for 52 percent of the county’s general fund — were sometimes posted in the county’s books as a lump sum rather than listing individual taxpayers. And delinquent tax notices to spur collection weren’t sent with any consistency.

▪ Pension contributions made for county employees were not accurate. Also, some county employees received different levels of health insurance, and some of their paychecks did not reflect the salary ranges set by the county for all employees as of August 2018. Finally, required paycheck deductions were not done on time.