Accountability Audit Report

Ferry County

For the period January 1, 2018 through December 31, 2019

Published December 31, 2020

Report No. 1027602

Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (564) 999-0950 Pat.McCarthy@sao.wa.gov

Office of the Washington State Auditor

Pat McCarthy

December 31, 2020

Board of Commissioners

Ferry County

Republic, Washington

Report on Accountability

Thank you for the opportunity to work with you to promote accountability, integrity and openness

in government. The Office of the Washington State Auditor takes seriously our role of providing

state and local governments with assurance and accountability as the independent auditor of public

accounts. In this way, we strive to help government work better, cost less, deliver higher value and

earn greater public trust.

Independent audits provide essential accountability and transparency for County operations. This

information is valuable to management, the governing body and public stakeholders when

assessing the government’s stewardship of public resources.

Attached is our independent audit report on the County’s compliance with applicable requirements

and safeguarding of public resources for the areas we examined. We appreciate the opportunity to

work with your staff, and we value your cooperation during the audit.

Sincerely,

Pat McCarthy

State Auditor

Olympia, WA

Americans with Disabilities

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Office of the Washington State Auditor Page 3

TABLE OF CONTENTS

Audit Results ................................................................................................................................... 4

Schedule of Audit Findings and Responses .................................................................................... 6

Related Reports ............................................................................................................................. 12

Information about the County ....................................................................................................... 13

About the State Auditor's Office ................................................................................................... 14

Office of the Washington State Auditor Page 4

AUDIT RESULTS

Results in brief

This report describes the overall results and conclusions for the areas we examined. In most of the

areas we examined, County operations complied, in all material respects, with applicable state

laws, regulations, and its own policies, and provided adequate controls over safeguarding of public

resources.

As referenced above, we identified areas where the County could make improvements. These

recommendations are included with our report as findings.

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

internal control, or area. As a result, no information is provided on the areas that were not

examined.

About the audit

This report contains the results of our independent accountability audit of Ferry County from

January 1, 2018 through December 31, 2019.

Management is responsible for ensuring compliance and adequate safeguarding of public resources

from fraud, loss or abuse. This includes the design, implementation and maintenance of internal

controls relevant to these objectives.

This audit was conducted under the authority of RCW 43.09.260, which requires the Office of the

State Auditor to examine the financial affairs of all local governments. Our audit involved

obtaining evidence about the County’s use of public resources, compliance with state laws and

regulations and its own policies and procedures, and internal controls over such matters. The

procedures performed were based on our assessment of risks in the areas we examined.

Based on our risk assessment for the years ended December 31, 2019 and 2018, the areas examined

were those representing the highest risk of fraud, loss, abuse, or noncompliance. We examined the

following areas during this audit period:

Self-insurance for health and welfare

Cash receipting – timeliness and completeness of deposits, voids and adjustments at

Treasurer’s Office

Use of restricted funds – hotel/motel taxes, rural counties sales tax and chemical

dependency/mental health services tax

Accounts payable – general disbursements, credit cards, travel expenditures, electronic

funds transfers and employee reimbursements

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Procurement – public works

Interfund loans and transfers

Equipment rental and replacement – establishment of rates and billing accuracy

Financial condition of County Road fund

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SCHEDULE OF AUDIT FINDINGS AND RESPONSES

2019-001 The County did not comply with state law regarding the use of

restricted tax revenues.

Background

The County collects rural counties sales tax for economic development purposes.

The County collected about $67,000 and $70,000 in rural counties sales tax in 2018

and 2019, respectively. State law (RCW 82.14.370(3)(b)) requires the County to

consult with local cities, towns, port districts and the associate development

organization (ADO) when using these funds, to ensure the uses meet the

requirements.

Additionally, the County collects lodging tax for tourism promotion. The County

collected about $32,000 and $38,000 in lodging tax in 2018 and 2019, respectively.

State law (RCW 67.28.1816-.1817) requires the County to establish a lodging tax

advisory committee (LTAC), whose purpose is to review applications for the use

of lodging tax and recommend uses to the County from these applications. All uses

of lodging tax must follow the application process through the LTAC.

Description of Condition

Rural counties sales tax

We audited 17 payments from 2018 and 2019, totaling about $91,000. We found

16 payments, totaling about $58,000, were not for costs specifically authorized in

state law. Allowable uses include financing public facilities serving economic

development and financing personnel in economic development offices. Further, 5

of these 16 payments, totaling about $32,000, were not related to economic

development activities within the County. Additionally, we audited salaries for six

employees paid with these funds in 2019, totaling about $62,000. We found that

three of these employees were not economic development personnel and were paid

a total of about $14,000.

The County did not perform the required consultation with local cities, towns, port

districts and the ADO for any uses of rural counties sales tax in 2018 or 2019. The

County spent about $67,000 and $80,000 in rural counties sales tax in 2018 and

2019, respectively.

Lodging tax

The County has not established a lodging tax advisory committee. As a result, all

uses of lodging tax in 2018 and 2019 did not comply with this requirement. The

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County spent about $23,000 and $48,000 in lodging tax in 2018 and 2019,

respectively.

Cause of Condition

County management and governance did not completely understand the

requirements regarding the use of these funds. As a result, the review of these

payments was not effective to verify they were for allowable uses.

Effect of Condition

Rural counties sales tax

Without consulting local cities, towns, port districts and the ADO, the County

cannot effectively determine that uses of these funds meet the requirements of state

law. By using these funds for purposes not allowed in state law, the County might

have missed opportunities to use these funds in ways that could have a greater

impact for economic development.

Lodging tax

By not establishing an LTAC and following the application process required by

state law, the County might have missed opportunities for uses that have a greater

effect for tourism promotion.

Recommendations

We recommend that County management strengthen its understanding of the

requirements for the use of rural counties sales tax and lodging tax and establish

controls effective to verify all uses meet all requirements in state law.

We further recommend the County consult with local cities, towns, port districts

and the local ADO, to ensure the uses of rural counties sales tax meet the applicable

requirements.

Last, we recommend the County establish an LTAC and require all potential users

of lodging tax to apply through the LTAC, as required by state law.

County’s Response

Ferry County has made arrangements to consult with the City, ADO, etc for 2021

expenditures of the rural counties sales tax funds and will do so going forward.

Additionally the County is in the process of forming a lodging tax advisory

committee (LTAC) for reviewing applications for the use of lodging tax and making

recommendations to the County from the applications. We will also review the

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applicable laws for the use of these funds going forward so we can comply with

them.

Auditor’s Remarks

We appreciate the County's commitment to resolving the issues noted, and will

follow up during the next audit.

Applicable Laws and Regulations

RCW 43.09.200, Local government accounting – Uniform system of accounting

The Budgeting, Accounting and Reporting System (BARS) manual, 3.1.3, Internal

Control

The American Institute of Certified Public Accountants defines significant

deficiencies and material weaknesses in its Codification of Statements on Auditing

Standards, section 265, Communicating Internal Control Related Matters Identified

in an Audit, paragraph 7.

RCW 67.28.1816, Lodging tax – Tourism promotion

RCW 67.28.1817, Lodging tax – Lodging tax advisory committee in large

municipalities—Submission of proposal for imposition of or change in tax or use—

Comments.

RCW 82.14.370, Sales and use tax for public facilities in rural counties

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SCHEDULE OF AUDIT FINDINGS AND RESPONSES

2019-002 The County did not comply with state law regarding procurement

and retainage.

Background

Ferry County is governed by an elected, three-member Board of Commissioners.

For fiscal years 2018 and 2019, the County operated on budgets of about

$12.6 million and $12.8 million, respectively.

When procuring public works contracts and purchases over certain dollar amounts,

state law (RCW 36.32.250 and RCW 36.32.245) requires the County to formally

solicit bids and award contracts to the lowest responsible bidder. Specific to public

works projects, the County must also withhold 5 percent or less of the money from

the contractor’s payments until certain conditions are satisfied (RCW

60.28.011(1)(a)).

Last, state law (RCW 60.28.051) requires the County to obtain certifications from

the Washington State Department of Labor and Industries, Washington State

Department of Revenue, and the Washington State Employment Security

Department, that the contractor has paid in full all increases, penalties and taxes

due on the contract, before releasing the retained amount.

Description of Condition

Public works project: Fuel system

The County awarded a project for a fuel system installation to the higher of two

bidders, for about $180,000, due to supplementary benefits included in that bidder’s

offer that were not part of the original specifications. The awarded contractor’s bid

was about $50,000 higher than the lowest bidder.

Additionally, the County did not withhold the required amount from contractor

payments, but instead withheld the final payment, which was about 43 percent of

the total project costs.

Last, the County did not obtain the required certifications from the applicable state

agencies before releasing the final payment.

Purchase

The County did not formally solicit and bid the purchase of a wheel loader, totaling

about $160,000, as required by state law (RCW 36.32.245). Instead, the County

contacted several vendors to receive informal quotes.

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Cause of Condition

The County did not have policies that addressed state law requirements for

purchases and procuring contractors for public works projects. Additionally, Public

Works staff did not have a full understanding of the state legal requirements

regarding procurement, financial thresholds and retainage requirements.

Effect of Condition

By awarding the fuel systems installation to the higher bidder, the County did not

receive the best price for the public works contract as originally specified and

prevented a contractor from the opportunity to provide services to the County.

In withholding more than the required amount of retainage, the County did not pay

the contractor in compliance with state law. Additionally, by releasing the final

payment before obtaining certifications from the applicable state agencies, the

County could be liable for any unpaid obligations of the contractor to these

agencies.

By not adhering to competitive procurement requirements for the wheel loader

purchase, the County did not allow for full and open competition and cannot be

sure it received the best price.

Recommendations

We recommend the County:

Establish procurement policies that comply with state law

Train staff on procurement and retainage requirements

Establish controls to comply with all procurement and retainage

requirements for public works projects and purchases

County’s Response

There have been a very high number of turnovers of employees within Ferry County

Public Works since 2017. There were all new employees when the fuel system

specifications were written and went out for bid. The “higher” bidder was selected

because they offered everything we needed in a fuel system. The “lower” bidder

was a cloud based system and had subscription fees that we believed would make

it the “higher” bid. We did not realize that every little aspect such as “no cloud

base” or “no subscription fees” had to be written into the required specifications.

The “lower” bidder did not even come out and inspect our equipment/locations to

see what would work for us and everything that would be needed for the job. The

“higher” bidder came out to our locations and listed everything that would be

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needed to complete the job to our satisfaction. When speaking with the “lower”

bidder, he completely understood why we went with the other “higher” bid.

We withheld the final payment until the job was done and an inspection of work

was done. We did not know we had to hold a certain percentage and receive

certifications from certain state agencies because we paid for this with our money,

not grant money and did not know the same rules apply.

We wrote a procurement policy, copying almost word for word from another

County’s policy. Our policy, however, was rejected. We have begun writing another

procurement policy which will hopefully be accepted. Current staff and incoming

new staff will be trained on the procurement and retainage requirements.

Auditor’s Remarks

We appreciate the County's commitment to resolving the issues noted, and will

follow up during the next audit.

Applicable Laws and Regulations

RCW 43.09.200, Local government accounting – Uniform system of accounting

The Budgeting, Accounting and Reporting System (BARS) manual, 3.1.3, Internal

Control

The American Institute of Certified Public Accountants defines significant

deficiencies and material weaknesses in its Codification of Statements on Auditing

Standards, section 265, Communicating Internal Control Related Matters Identified

in an Audit, paragraph 7.

RCW 60.28.011, Retained percentage

RCW 60.28.051, Duties of disbursing officer upon completion of contract.

RCW 36.32.245, Competitive bids – Requirements – Advertisements – Exceptions.

RCW 36.32.250, Competitive bids – Contract procedure – Contracts under forty

thousand dollars – Small works roster process.

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RELATED REPORTS

Financial

Our opinion on the County’s financial statements and compliance with federal grant program

requirements is provided in a separate report, which includes the County’s financial statements.

That report is available on our website, http://portal.sao.wa.gov/ReportSearch.

Federal grant programs

We evaluated internal controls and tested compliance with the federal program requirements, as

applicable, for the County’s major federal programs, which are listed in the Schedule of Findings

and Questioned Costs section of the separate financial statement and single audit report. That

report includes a federal finding regarding procurement and suspension and debarment

requirements reported. That report is available on our website,

http://portal.sao.wa.gov/ReportSearch.

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INFORMATION ABOUT THE COUNTY

Ferry County serves a population of approximately 7,650 citizens. The County is administered by

three elected Commissioners and seven additional elected officials including Assessor, Auditor,

Clerk, District Court Judge, Prosecuting Attorney, Sheriff and Treasurer.

For fiscal years 2018 and 2019, the County operated on budgets of $12.6 million and $12.8,

respectively. Its 100 full-time employees provide an array of services including law enforcement,

road improvement, judicial services, community health services and general administration

services.

Contact information related to this report

Address: Ferry County

350 E. Delaware Avenue #2

Republic, WA 99166-9747

Contact: Joyce Schertenleib, Chief Accountant

Telephone: (509) 775-5225 x1138

Website: www.ferry-county.com

Information current as of report publish date.

Audit history

You can find current and past audit reports for Ferry County at

http://portal.sao.wa.gov/ReportSearch.

Office of the Washington State Auditor Page 14

ABOUT THE STATE AUDITOR’S OFFICE

The State Auditor’s Office is established in the state’s Constitution and is part of the executive

branch of state government. The State Auditor is elected by the citizens of Washington and serves

four-year terms.

We work with our audit clients and citizens to achieve our vision of government that works for

citizens, by helping governments work better, cost less, deliver higher value, and earn greater

public trust.

In fulfilling our mission to hold state and local governments accountable for the use of public

resources, we also hold ourselves accountable by continually improving our audit quality and

operational efficiency and developing highly engaged and committed employees.

As an elected agency, the State Auditor’s Office has the independence necessary to objectively

perform audits and investigations. Our audits are designed to comply with professional standards

as well as to satisfy the requirements of federal, state, and local laws.

Our audits look at financial information and compliance with state, federal and local laws on the

part of all local governments, including schools, and all state agencies, including institutions of

higher education. In addition, we conduct performance audits of state agencies and local

governments as well as fraud, state whistleblower and citizen hotline investigations.

The results of our work are widely distributed through a variety of reports, which are available on

our website and through our free, electronic subscription service.

We take our role as partners in accountability seriously, and provide training and technical

assistance to governments, and have an extensive quality assurance program.

Contact information for the State Auditor’s Office

Public Records requests PublicRecords@sao.wa.gov

Main telephone (564) 999-0950

Toll-free Citizen Hotline (866) 902-3900

Website www.sao.wa.gov