While commending Mackinac County employees for meticulous bookkeeping, auditors have reminded commissioners that a lack of checks and balances in the county’s accounting system needs to be repaired.

As in recent years, the auditor’s management letter suggested certain accounting duties need to be segregated and moved from the treasurer’s office to the clerk’s office. Meeting July 28, commissioners discussed whether the ledger work could be transferred and performed with current employees in the clerk’s office, but took no action to order the move.

“We need to do this right,” said County Commission Chairperson Dawn Nelson.

Currently, there is a lack of segregation of duties, with the treasurer’s office collecting all county money and maintaining the general ledger, said auditor Paul Bailey of Stewart, Beauvaais and Whipple of Port Huron.

“Although we did not find any problems,” he said, “it makes finding them a lot more difficult if there was. The best scenario for controls is to have those duties segregated; not in the same office, and especially not with the same individual.”

In the audit’s management letter, the admonition is listed as a “reportable condition,” which is a deficiency in the operation of an internal control process that might adversely affect the county.

The auditor, nevertheless, praised the county for its bookkeeping.

“I will say your general ledger accounting is one of the better general ledger accounting systems, accuracy-wise, that we deal with,” said Mr. Bailey. “When working with the county, [auditors] do not have to make a lot of accounting entries, and cash always balances to the penny, and I am able to get answers to my questions.”

Mr. Bailey explained to commissioners that because of corporate fraud exposed in recent years in the United States, such as at Enron in Texas, auditors now have a new process to follow. For fraud to exist, he explained, three things must take place: There must be an opportunity, there must be incentive, such as a personal benefit derived from the fraud, and there must be justification, in which the perpetrator believes he deserves to take the money.

Mr. Bailey said it takes five people about one week to perform the Mackinac County audit. Before starting the county’s audit, he meets with his staff and they discuss what they know about the county. They spend about half a day discussing how various offices in the county operate. Then, when about mid-way through the audit process, they meet as a team and discuss what county procedures have changed. They challenge themselves with how, if they were a county employee, they could beat the system, he said. Once they identify a few ways that fraud might take place, they change their procedures and return to the audit process.

The auditors also talk to county employees other than just those working with the county ledger. His staff interviewed six county employees and asked them if they know of anything going on.

“One of my questions is, ‘If you were doing the audit, what areas would you be concerned about?’,” he said.

Commissioners will continue their examination of the auditor’s management letter for possible action at a later meeting.

Mackinac County, in 2004, operated in the black, according to the auditors, with revenues exceeding expenses by $115,411.

“In all but one of the last five years, you’ve had revenues over expenditures in your general fund, which I commend you on in these tight times, for keeping a tight control on the reins,” said Mr. Bailey. In 2003, revenues were down, but in all of the other five years, revenues exceeded expenditures, he noted.

The annual Operating Statement, ending December 31, 2004, details that the county took in revenues of $5,246,035, had expenditures of $5,053,280, and net transfer of $77,000 to other funds. The county’s general fund had assets of $3,977,000, liabilities of $2,195,000, and a fund balance of approximately $1,781,799.

In 2002, commissioners began to put aside 12 percent in an undesignated fund, with everything else going into a designated fund for capital improvements, said Mr. Bailey, who said about 12 to 20 percent is typical.

More than 60 percent of the county’s income comes from property taxes and user fees, and about 20 percent from state and federal sources, he said. On the expenditure side, 26 percent of expense is used to operate public safety, 18 percent is used to meet the county’s judicial needs, and general government expenses use about 37 percent of the county’s money.