County Audit 012712

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Washington State Auditors Office

Accountability Audit Report

Kitsap County

Report DateDecember 27, 2011

Report No. 1007248

Issue DateFebruary 21, 2012

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February 21, 2012

Board of CommissionersKitsap CountyPort Orchard, Washington

Report on Accountability

We appreciate the opportunity to work in cooperation with your County to promoteaccountability, integrity and openness in government. The State Auditors Office takes seriouslyour role to advocate for government accountability and transparency and to promote positivechange.

Please find attached our report on Kitsap Countys accountability and compliance with statelaws and regulations and its own policies and procedures. Thank you for working with us toensure the efficient and effective use of public resources.

Sincerely,

BRIAN SONNTAG, CGFMSTATE AUDITOR

Washington State AuditorBrian Sonntag

Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 TDD Relay (800) 833-6388

FAX (360) 753-0646 http://www.sao.wa.gov

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Table o f Cont ent s

Kitsap County

December 27, 2011

Audit Summary .......................................................................................................................... 1

Related Reports ......................................................................................................................... 2

Description of the County ........................................................................................................... 3

Schedule of Audit Findings and Responses ............................................................................... 5

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Audit Summ ary

Kitsap CountyDecember 27, 2011

ABOUT THE AUDIT

This report contains the results of our independent accountability audit of Kitsap Countyfrom January 1, 2010 through December 31, 2010.

We evaluated internal controls and performed audit procedures on the activities of theCounty. We also determined whether the County complied with state laws andregulations and its own policies and procedures.

In keeping with general auditing practices, we do not examine every transaction, activity

or area. Instead, the areas examined were those representing the highest risk ofnoncompliance, misappropriation or misuse. The following areas were examined duringthis audit period:

Personal property tax Building permit receipting Rental property management Auditors Office cash receipting Parks contracts/agreements/fair

operations/cash receipting Insurance/risk management Real Estate Excise Tax

disbursements Open public meetings/records laws

Hotel/motel tax expenditures Disbursements Payroll Conflict of interest/ethics laws Police/Sheriff/Jail financial

operations/custody of evidence Restricted funds Procurement (bidding/prevailing

wage) Solid waste billing/cash receipting

RESULTS

In most areas, the County complied with state laws and regulations and its own policiesand procedures.

However, we identified conditions significant enough to report as findings:

The County lacks sufficient controls to ensure it sets appropriate rental rates,collects late payments and properly selects tenants for its rental properties.

The Department of Community Development lacks adequate internal controls toensure proper calculation and collection of impact fees.

We also noted certain matters that we communicated to County management. Weappreciate the Countys commitment to resolving those matters.

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Related Repor t s


FINANCIAL

Our opinion on the Countys financial statements and compliance with federal grantprogram requirements is provided in a separate report, which includes the Countysfinancial statements.

FEDERAL GRANT PROGRAMS

We evaluated internal controls and tested compliance with the federal program

requirements, as applicable, for the Countys major federal programs, which are listed inthe Federal Summary section of the financial statement and single audit report.

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Desc r ip t ion o f t he Count y


ABOUT THE COUNTY

Kitsap County was formed in 1857 from parts of King and Jefferson counties andincludes four incorporated cities: Bremerton, Bainbridge Island, Poulsbo and PortOrchard. The County is home to Puget Sound Naval Shipyard, Naval Base Kitsap andthe Keyport Undersea Warfare Research Station. The County serves approximately244,800 citizens.

The County is governed by a three-member Board of Commissioners, elected by districtvoters to staggered, four-year terms. Additional elected officials help administer the

County including: Assessor, Auditor, Clerk, Coroner, Prosecutor, Sheriff, Treasurer and judges for the District and Superior Courts. The County has approximately 1,300employees that provide services including: road construction and maintenance, floodcontrol, parks and recreation facilities, court services, law enforcement and criminaldetention. In addition, the County provides tax assessments and collections, planning,zoning, rehabilitative services, public health care, election administration, treasuryservices and processing and disposing of solid and liquid wastes. The County operateson an annual budget of approximately $200 million.

ELECTED OFFICIALS

These officials served during the audit period:

Board of Commissioners:

County AuditorCounty AssessorCounty TreasurerCounty ClerkCounty CoronerProsecuting AttorneyDistrict Court Judges:

Superior Court Judges:

Charlotte GarridoJosh BrownRobert GelderWalter WashingtonJim AveryMeredith GreeneDavid PetersonGreg SandstromRuss HaugeMarilyn Paja

James RiehlDaniel PhillipsJeanette DaltonLeila MillsAnna LaurieTheordore SpearmanJay RoofRussell HartmanM. Karlynn HaberlySally Olsen

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APPOINTED OFFICIALS

Director, Community DevelopmentDirector, Public WorksBudget and Finance OfficerDirector, Park and RecreationDirector, Information ServicesDirector, Human ServicesDirector, Juvenile Services

Larry KeetonRandy CasteelAmber DAmatoJames DunwiddieBud HarrisBurt FurutaNed Delmore

COUNTY CONTACT INFORMATION

Address: Kitsap County619 Division StreetMS 31Port Orchard, WA 98366

Phone: (360) 337-7132

Website: www.kitsapgov.com

AUDIT HISTORY

We audit the County annually. We reported no audit findings from 2000 through 2003,2006, 2007 and 2008. The 2004 report included one finding regarding internal controlweaknesses over citations at the Sheriffs Office and the 2005 audit reported a lack ofadequate internal controls over cash receipts at the Facilities, Parks and RecreationDepartment.

The County has taken steps to correct conditions noted in these findings. We believethis reflects the Countys desire and commitment to maintain an effective financialsystem.

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Sc hedule of Audi t Findings and Responses


1. County lacks sufficient controls to ensure it sets appropriate rental rates,collects late payments and properly selects tenants for its rentalproperties.

Description of Condition

The County rents 15 properties to the public and county employees. The propertiesgenerate approximately $151,000 in rent annually.

We audited this area to determine whether the County was properly managing rental

contracts and had a fair tenant selection process. We identified issues regarding latepayments, rental rates and tenant selection.

Late Payments

We performed work at three County departments that manage the properties. We found$18,350 was owed to the County for overdue rent, late fees and security deposits:

Parks and Recreation DepartmentWe found outstanding payments totaling $15,750. Of that, $8,100 was due to onetenants missed payments. The County is seeking to evict this tenant. Theremaining $7,650 is late payment penalties the Department has not collected. We

also noted the Department had not collected $700 in deposits for three properties.

Public Works DepartmentWe found outstanding payments totaling $1,900 on one contract and no formal rentalagreement, no deposit collected and no late fee terms for this contract.

Facilities DepartmentThe Facilities Department manages three rental contracts. We found rent is notbeing receipted when received by County. Without the receipt detail, we wereunable to determine if rent was paid by the 10th of each month as required by therental agreement.

Rental Rates

The County has no formal policy regarding rental rates. It could not providedocumentation to show it had evaluated if its rates are consistent with market rates.

Tenant Selection

The County has no formal policy detailing how to select tenants for rental properties.

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Cause of Condition

The County has not assigned a specific individual or department to oversee rentalproperties. It does not have forms or policies the departments can use to manage theproperties in a consistent manner.

Effect of Condition

By not enforcing rental agreements, the County has not receipted $18,350 in overduerent, deposits and late fees.

By not periodically evaluating rental rates, the County could be over- or under-chargingtenants.

Without a formal tenant selection process, the County may be selecting tenants that areunable to pay rent which could result in additional costs to the County. In addition,tenants may be unfairly or inconsistently selected.

Recommendation

We recommend the County:

Assign a specific individual or department to oversee rental properties.

Establish and follow County policies and procedures for collecting late payments,assessing rental rates and tenant selection.

Ensure rental payments are receipted daily when remitted to the County.

Countys Response

In response to the audit finding, the County will take the following steps:

The County will appoint an individual to serve as or acquire the services of aProperty Manager to oversee rental properties.

The Property Manager will lead the County in determining if it makes sense tokeep each rental property. Rentals may be retained,sold or demolished.

If rental properties remain, the County will establish and follow County-widepolicies and procedures for collecting late payments, assessing rental rates andtenant collection.

The County will ensure payments are receipted daily when remitted to the

county.

Auditors Remarks

We thank the County for its cooperation and assistance during the audit andacknowledge its commitment to improvements. We will review the status of this issueduring our next audit.

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Applicable Laws and Regulations

State law (RCW 43.09.200) Uniform System of Accounting, Budgeting AccountingReporting Standards Manual (BARS), Volume 1, Part 3, Chapter 1, Internal Control,Page 12 state:

Identification of requirements Controls should ensure that requirementsare identified and that employees whose actions may affect complianceare aware of applicable requirements. When statutory, regulatory orcontractual provisions are unclear, the government should seekclarification through legal counsel, research or communication withregulatory agencies or contracting parties.

Compliance Controls should prevent non-compliance or detect non-compliance in a timely enough fashion for the government to rectify thesituation. Such controls vary greatly, depending on the nature of thecompliance requirement.

Safeguarding of public resources Controls should preventmisappropriation or misuse of public resources or detect misappropriationor misuse in a timely fashion and assign responsibility to individualscharged with custody of assets. Such controls should cover all receiptsand receivables, expenditures and commitments, provisions of goods orservices and the safekeeping of all public assets at risk of misappropriateor misuse.

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Sc hedule of Audi t Findings and Responses


2. The Department of Community Development lacks adequate internalcontrols to ensure proper calculation and collection of impact fees.

The Department of Community Development generated approximately $2.2 million in feerelated revenue for fiscal year 2010.

The Department provides services and information for clients seeking permits forbuilding construction, land development, fire and other associated permits withinunincorporated Kitsap County.

We audited this area to determine whether the County had adequate internal controlsover the receipting of permit payments and provided adequate oversight for transactionoverrides.

We found a significant amount of system overrides. We judgmentally selected 25transactions and compared them to supporting documentation. We found seven errors.We noted management does not consistently and independently review overrides orvoids. We also noted insufficient documentation to support the purpose or amounts ofthe overrides.

After further review, we found the overrides occurred because Department employeesare not using the system as intended. They manually calculate fees and enter those

calculations into the system. Staff should be entering the original information into thesystem and allowing it to calculate the criteria.

During the audit, we became aware of an issue identified by the Department. TheDepartment had discovered that the annual adjustment for impact fees was incorrectlyidentified and applied to approximately 950 permits submitted March 1, 2009 September 30, 2011. The net amount of the error is approximately $15,000 in under-collected fees.

Recommendation

We recommend the County:

Consult with legal counsel to determine how to handle the amounts over andunder collected.

Ensure a supervisor approves future overrides and retain documentation tosupport the override amount.

Provide Department staff training on how to properly use the impact fee softwaresystem in order to minimize errors due to manual calculations.

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County Response

In response to the audit finding of our internal controls related to impact fees, the Countyagrees with the finding and have made the following improvements:

The Department of Community Development took immediate action to correct theerror upon discovery and has trained affected staff on accurate calculation ofannual impact fee adjustments as specified in Kitsap County Code.

The Department of Community Development conducted an assessment of prioryear impact fee calculations to determine the magnitude of the issue.

The Department of Community Development is preparing a briefing for the Boardof County Commissioners and will be meeting with legal counsel for input onresolution.

The Department of Community Development will further investigate overrides asspecified.

Auditors Response

We appreciate the Countys commitment to resolving this issue. We will review this areaagain during our next scheduled audit.

Applicable Laws and Regulations

RCW 43.09.200 - Uniform system of accounting, Budgeting Accounting ReportingStandards Manual (BARS), Volume 1, Part 3, Chapter 1, Internal Control, Page 12.

The full text of the state law can be found athttp://apps.leg.wa.gov/rcw/default.aspx.
http://apps.leg.wa.gov/rcw/default.aspxhttp://apps.leg.wa.gov/rcw/default.aspxhttp://apps.leg.wa.gov/rcw/default.aspxhttp://apps.leg.wa.gov/rcw/default.aspx

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(SAO FACTS.DOC - Rev. 09/11)

ABOUT THE STATEAUDITOR'S OFFICE

The State Auditor's Office is established in the state's Constitution and is part of the executivebranch of state government. The State Auditor is elected by the citizens of Washington and servesfour-year terms.

Our mission is to work with our audit clients and citizens as an advocate for governmentaccountability. As an elected agency, the State Auditor's Office has the independence necessary toobjectively perform audits and investigations. Our audits are designed to comply with professionalstandards as well as to satisfy the requirements of federal, state, and local laws.

The State Auditor's Office employees are located around the state to deliver services effectively and

efficiently.

Our audits look at financial information and compliance with state, federal and local laws on the partof all local governments, including schools, and all state agencies, including institutions of highereducation. In addition, we conduct performance audits of state agencies and local governments andfraud, whistleblower and citizen hotline investigations.

The results of our work are widely distributed through a variety of reports, which are available onour Web site and through our free, electronic subscription service.

We take our role as partners in accountability seriously. We provide training and technicalassistance to governments and have an extensive quality assurance program.

State Auditor Brian Sonntag, CGFMChief of Staff Ted Rut tDeputy Chief of Staff Doug CochranChief Policy Advisor Jerry PugnettiDirector of Audit Chuck Pfeil, CPADirector of Performance Audit Larisa BensonDirector of Special Investigations Jim Brittain, CPADirector for Legal Affairs Jan Jutte, CPA, CGFMDirector of Quality Assurance Ivan Dansereau

Local Government Liaison Mike MurphyCommunications Director Mindy ChambersPublic Records Officer Mary LeiderMain number (360) 902-0370Toll-free Citizen Hotline (866) 902-3900

Website www.sao.wa.govSubscription Service https:/ / ww w.sao.wa.gov/ EN/ News/ Subscriptions/
http://www.sao.wa.gov/http://www.sao.wa.gov/http://www.sao.wa.gov/

County Audit 012712

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