Amy Thomas, audit director at the Minnesota Office of the State Auditor (OSA), reported Hubbard County’s 2018 audit results on Tuesday.
“I first would like to thank your staff. Doing three yearly audits in a nine-month period, it’s a great ordeal. We had lots of questions from many auditors, so your county staff got us anything we needed and we really appreciate that,” she told county commissioners. “We issued an ‘unmodified’ opinion on the 2018 financial statements – that’s the highest opinion that you can receive.”
Material audit adjustments were made to the 2018 audit, which resulted in “significant changes to the county’s financials statements.” The report says, “The inability to detect material misstatements in the financial statements increases the likelihood that the financial statements would not be fairly presented.”
The following adjustments were made:
The general fund required an adjustment of $650,573 to reduce revenue and increase
unavailable revenue for receivables not received within the 60-day accrual period.
The road and bridge special revenue fund required an adjustment of $1,687,825 to
record the receivable and unavailable revenue relating to highway allotment activity.
The forfeited tax sale special revenue fund required an adjustment to decrease
unavailable revenue by $287,195, decrease land and timber sales revenue by $121,054 and increase transfers out activity by $408,249 for activity that belongs to other taxing districts and will not be county resources.
The solid waste special revenue fund required adjustments to increase liabilities and expenditures by $161,710 and increase assets and unavailable revenue by $393,428 for activity related to the transfer station project.
The Heritage Center project enterprise fund required an adjustment to remove October through December 2018 general ledger activity for the Sept. 30, 2018 reporting period. This included reducing expenses by $290,620, reducing revenues by $136,552, and increasing assets by $154,068.
OSA recommends that county staff “implement procedures over financial reporting that include review of balances, disclosures and supporting documentation by a qualified individual to ensure the information is complete and accurate.”
Thomas reviewed three findings that have been previously reported, but not yet resolved.
The county is required to help determine participant eligibility in the Medical Assistance Program.
Of the 40 case files reviewed during their audit, Thomas said two had asset information in the Minnesota Department of Human Services’ computer system that did not match the supporting documentation provided by the participant. Five applications were not date-stamped by the county to record receipt of the form.
“I do want to mention that we’ve seen great improvements in this since it was first reported in 2015,” Thomas said, “but we would recommend that the county implement additional review procedures to provide reasonable assurance that all necessary documentation supports eligibility.”
Thomas said the county has also seen improvements in the area of “procurement transactions over $25,000,” which requires the county to verify whether a vendor was debarred, suspended or excluded from participation in a federal assistance program. During the audit, Thomas said two transactions did not comply with these federal regulations.
Finally, in 2007, the bylaws of the Heritage Living Center Board were amended to remove the county board’s jurisdiction and control over the board. This is not in compliance with state statutes, the audit reports, and the bylaws must be corrected to recognize the county’s jurisdiction.
Regarding internal control over financial reporting, the audit notes that Hubbard County “has documented policies over significant functions and controls; however, there are no formal risk assessment and monitoring procedures in place to determine” if internal controls are effective.
OSA recommends that a formal plan be developed, assess risk on a regular basis and document the results of the monitoring.
The audit report states that “it is not uncommon in operations the size of Hubbard County to fail to periodically review those controls.”
Since 2015, Thomas said OSA has been able to resolve findings and there were no new findings in 2018.
2018 financial highlights
At the close of 2018, the total net position of governmental activities was $96,777,780, of which $78,339,297 was the net investment in capital assets, $9,560,994 is restricted for specific purposes and $8,877,489 is unrestricted.
The total net position of governmental activities increased by $11,156,380 in 2018.
At the close of 2018, the county’s governmental funds reported combined ending fund balances of $25,760,294, an increase of $1,200,309 from the prior year. Of the total fund balance amount,
$771,784 is nonspendable; $7,188,851 is legally or contractually restricted; $5,216,998 is committed and $12,582,661 is assigned for specific purposes.
OSA recommends that the county have 35 to 50 percent of revenues, or five months of expenditures, in an unrestricted fund balance by year end.
County commissioner Char Christenson commented that the board has kept the social services department’s unrestricted fund balance intentionally high ($6,040,395) “because with federal and state funding, we never know what we’re going to need and other counties have had to do major levy increases.”
The 35 to 50 percent recommendation is $2,741,535 to $3,916,479 for the social services fund.
In 2018, there was an increase in capital grants and contributions, Thomas noted, related to county highway projects and the new transfer station.
Long-term liabilities have decreased since 2016 due to loans payable and capital lease payoff, she continued.
As for revenue, Thomas noted there is a continual increase in taxes since 2016, while intergovernmental revenue tends to fluctuate each year.
County expenditures also continue to increase for public safety, general government and the highways/streets.
The Heritage Community Enterprise Fund – which combines the activities of the county’s Heritage Living Center, Heritage Manor, and Heritage Cottages facilities – had operating income in 2018 of $437,818.
Total resident services and ancillary revenues increased 26 percent, from $6,434,986 in fiscal year 2017 to $8,092,757 in fiscal year 2018. Total revenue increased 25 percent, from $6,589,149 in fiscal year 2017 to $8,238,520 in fiscal year 2018. The increased revenues were a result of increased capacity in 2018. Resident service expenses increased 12 percent from $6,697,152 in 2017 to $7,512,439 in 2018.