
The state has released its audit report on the basic financial statements of Smith County as of and for the year ended June 30, 2023.
According to the report from the Tennessee Comptroller’s Office, “Our audit resulted in four findings and recommendations, which we have reviewed with Smith County management. Detailed findings, recommendations, and management’s responses are included in the Single Audit section of this report.”
To see the full annual financial report visit: https://comptroller.tn.gov/content/dam/cot/la/documents/county/2023/FY23SmithAFR.pdf
The following are summaries of the audit findings:
OFFICE OF DIRECTOR OF ACCOUNTS AND BUDGETS
FINDING 2023-001: THE SOLID WASTE DISPOSAL FUND HAD A DEFICIT IN UNRESTRICTED NET POSITION
(Internal Control – Significant Deficiency Under Government Auditing Standards)
The Solid Waste Disposal Fund had a deficit of $15,384,533 in unrestricted net position at
June 30, 2023. This deficit resulted from the recognition of a liability of $20,798,473 in the
financial statements for costs associated with closing the county’s landfill and monitoring the landfill for 30 years after its closure. Generally accepted accounting principles and state statutes require that such costs be reflected in the financial statements. This deficiency is the result of management’s failure to correct the findings reported in prior-year audit reports.
RECOMMENDATION
County officials should develop and implement a plan that would fund the deficit in
unrestricted net position.
MANAGEMENT’S RESPONSE – DIRECTOR OF ACCOUNTS AND BUDGETS
I concur with this finding. The Solid Waste Disposal Fund is a proprietary fund that has a
liability for the closure, post-closure and monitoring costs for 30 years after its closure. Smith County does some of the closure and post-closure work ourselves to cut down on costs. The closure and post-closure cost will be spread out over several years as each cell meets its full capacity. After the closure of the landfill, money left in the Solid Waste Fund will pay for the 30-year monitoring cost. If and when that money is depleted, the Smith County Tax Base will assume the costs of monitoring. With favorable conditions, it is Smith County’s goal to reduce the deficit through contracts and cell management.
OFFICE OF DIRECTOR OF SCHOOLS
FINDING 2023-002: DEFICIENCIES WERE NOTED IN AMOUNTS REPORTED AS COMPENSATION FOR THE DIRECTOR OF SCHOOLS TO THE TENNESSEE CONSOLIDATED RETIREMENT SYSTEM
(Noncompliance Under Government Auditing Standards)
Deficiencies were noted in amounts reported as compensation for the director of schools
(director) to the Tennessee Consolidated Retirement System (TCRS). The director’s contract provides that the board of education shall pay the director annual compensation as follows:
a. The base BEP Allocation Director’s Salary from the State of Tennessee;
b. The Medicare withholding;
c. The Social Security withholding;
d. The family health care plan premium; and
e. Dental and vision insurance.
The contract also states, “The cumulative amounts shown above shall be the base salary for purposes of TCRS Retirement Benefits.” Section 8-34-101(14)(A), Tennessee Code Annotated, states, “Earnable compensation means the compensation payable to a member for services rendered to an employer.” Auditors asked TCRS to review the director’s contract to determine if all amounts reported met the definition of earnable compensation. TCRS advised that the base BEP allocation salary from the state is the only amount that constitutes “earnable compensation” for retirement purposes. The amounts for subsections (b) – (e) of the director’s contract do NOT constitute “earnable compensation” for retirement purposes. This deficiency is the result of a lack of management oversight. As a result of this deficiency, amounts reported to TCRS for the director have been overstated and could potentially inflate future retirement benefits. We have reported this finding to TCRS.
RECOMMENDATION
Only earnable compensation should be reported to TCRS. The school department should contact TCRS to find out what steps should be taken to correct this deficiency.
MANAGEMENT’S RESPONSE – DIRECTOR OF SCHOOLS
No formal management response was submitted. An explanation to the finding is included in the Corrective Action Plan.
FINDING 2023-003: THE SCHOOL DEPARTMENT WAS ASSESSED A PENALTY OF $59,509 BY THE INTERNAL REVENUE SERVICE FOR NONCOMPLIANCE WITH THE AFFORDABLE CARE ACT
(Noncompliance Under Government Auditing Standards)
During the year, the school department paid a penalty of $59,509 to the Internal Revenue
Service for failure to comply with the Affordable Care Act for 2020. The school department
provides health insurance coverage to its employees; however, this coverage was not in
compliance with federal regulations for certain employees. This deficiency resulted from a
management decision and failure to correct the prior-year finding.
RECOMMENDATION
The school department should ensure the health insurance coverage provided to its employees complies with the Affordable Care Act.
MANAGEMENT’S RESPONSE – DIRECTOR OF SCHOOLS
No formal management response was submitted. An explanation to the finding is included in the Corrective Action Plan.
FINDING 2023-004: MATERIAL AUDIT ADJUSTMENTS WERE REQUIRED FOR PROPER FINANCIAL STATEMENT PRESENTATION
(Internal Control – Material Weakness Under Government Auditing Standards)
At June 30, 2023, certain general ledger account balances in the General Purpose School
Fund were not materially correct, and audit adjustments totaling $714,481 were required for the financial statements to be materially correct at year-end. Generally accepted accounting principles require Smith County to have adequate internal controls over the maintenance of its accounting records. Material audit adjustments were required because the department’s financial reporting system did not prevent, detect, or correct potential misstatements in the accounting records. It is a strong indicator of a material weakness in internal controls if the county has ineffective controls over the maintenance of its accounting records, which are used to prepare the financial statements, including the related notes to the financial statements. This deficiency is the result of a lack of management oversight. We presented audit adjustments to management that they approved and posted to properly present the financial statements in this report.
RECOMMENDATION
Smith County should have appropriate processes in place to ensure its general ledgers are materially correct.
MANAGEMENT’S RESPONSE – DIRECTOR OF SCHOOLS
No formal management response was submitted. An explanation to the finding is included in the Corrective Action Plan.