Pikeville cited for financial concerns
By Nick Hiltunen
Published in News on February 4, 2008 1:53 PM
PIKEVILLE -- Financial practices of Pikeville's leadership failed to comply with three state laws, state treasurer's office officials informed the town this past week.
The town has three problems, as outlined in a letter from Sharon G. Edmundson, director of fiscal management for the finance division of the Local Government Commis-sion.
* The board of commissioners appointed Town Clerk Kathie Fields to the positions of town clerk and tax collector without permission from the secretary of the commission.
State law says those two positions have a potential conflict and can't be combined without permission.
* Commissioner and finance officer Al Greene had only a $10,000 fidelity bond, but is required to have a minimum $50,000 bond.
Fidelity bonds are insurance for a town in case of fraudulent acts by the individuals they cover.
* Finally, the town does not use pre-audit certificates on checks and obligations for its accounts payable.
Town Mayor Herbert Sieger said that is a matter of using a stamp that marks documents with specific legal language and carries specific legal weight.
The stamp is important for what it signifies, said David Lawrence, a professor of public law and government at University of North Carolina, Chapel Hill, School of Government.
"It represents the conclusions of a process by which the legally designated finance officer makes sure there's money appropriate for contract or purchase order," Lawrence said.
Without it, the checks or debts are "not enforceable," Lawrence said, which means they won't hold up if challenged in court.
Sieger said the problems are the responsibility of the town board of commissioners.
Sieger said Mrs. Fields should not become a scapegoat for the errors because she had no control over their execution.
Mrs. Fields was suspended with pay when former Town Administrator Richard Lock accused her of financial irregularities in her procedures.
The clerk was completely cleared of any wrongdoing by Dean Cunningham of the Local Government Commis-sion, town officials have said.
The town board met in multiple sessions during which only two commissioners and the mayor met. Having only two commissioners at a session means they don't represent a voting body that can officially make decisions.
Commissioner Dennis Lewis said the board met in that fashion at the recommendation of Cunningham, who deferred all comment to a spokeswoman for the Local Government Commission.
Spokesperson Sara Lang said the commission would limit most comment to the letter it sent to the commissioners in office for the time period the error was discovered.
Those commissioners in-clude Finance Commissioner Lyman Galloway, Johnnie Weaver Jr., Edith McClenny, Bruce Thomas and Al Greene.
Another problem noted by the letter was "inadequate separation of duties in the billings, collections, accounts payable and banking functions."
The problem is the same person takes invoices, puts those invoices into the computerized ledger, writes and signs checks and also sends those checks out to people employed by town policy, the letter says.
"Those problems have already been addressed," Sieger said.
Lawrence said many small towns, especially those so small they have only one employee, are often affected by that problem.
"The difficulty is, if it's a small town, you may only have one person in the finance department. It's extraordinarily difficult to separate difficulties in that situation."
The solution is to "get board members involved in certain fashion. That's about all you can do," he said.
Separation of authority in finance operations is also important, Lawrence added.
"One of the core principles of internal control is to separate duties, so that one person can't manage an entire set of transactions. It can facilitate fraud," he said.
The letter from Treasurer Office's Edmundson echoes Lawrence's assessment.
"Lack of segregation ... may lead to errors in the accounting records that go undetected or could allow potential fraud to go undetected," the letter states.
The letter notes that the town has moved forward with action to "begin correcting the statutory violations."
The Local Government Commission sent out two standard instruction messages to help Pikeville with control issues in small governments, the letter says.
Pikeville's leadership can contact staff at the commission, including Edmundson, if they need further help in bringing the town into compliance, according to the letter.
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