County budget auditor reported misstatements and deficiencies

In the March 20, 2025, report to the Washington County Commission about the recently completed 2021 county budget audit, auditor Stephen Hopkins wrote of a number of significant accounting and internal control deficiencies that prevented the detection and correction of "misstatements on a timely basis in addition to ensuring that the assets of the county are being safeguarded."

Deficiencies were many and ranged from problematic bank statement reconciliations, to the inability to match federal grant billing revenue to program expenditures for the Operation Stonegarden funds used by the sheriff's department. "It would appear that a reconciliation of the amounts being billed in relation to this grant was either not provided by the sheriff's department to the treasurer's office or not requested by the treasurer's office."

After the listing of deficiencies in more than eight specific categories, the end result was that from 2020 through 2024 the county commissioners were approving the use of fund overlays from one budget year to the next to reduce the amount of taxes to be raised, without the guarantee that the money they were using was actually there.

The taxation overlay

At the heart of the county's 2025 budget crisis that is resulting in the county putting out to vote a $11 million bond is the lack of controls relating to expenditures and appropriations. When the former slate of commissioners approved the carryover amount from one budget year to the next as an overlay to reduce taxes, "the county is in effect budgeting to use funds that may not be available," states the auditor.

The auditor explains that in the 2021 budget "the difference between these budgeted revenues and expenditures should match the budgeted overlay amount determined during the annual budget process. ... However, the difference between the original approved budgeted revenues and expenditures entered into the accounting system was a negative $7.376 million."

Budgeted revenues that were not recorded included the amount for the annual tax assessments of $6.28 million, the amount for the annual use of unassigned fund balance to reduce the tax assessments of $1.026 million, and the amount for the annual use of unassigned fund balance for contingency of $100,000. In addition, there were 118 individual line items that were over expended that totaled $1.28 million. Some were related to court cost reimbursements that had no budgeted amounts, for sheriff's department benefit accounts that had no budgeted amounts, and the largest amount of $795,938 related to the county jail, "benefits accounts for which no actual budgeted expenditure amounts were included."

Although the auditor has not completed the 2022-2024 audits, he did note the presence of the same accounting control errors in subsequent years, which has compounded the problem. "Though the audited actual results of any of these subsequent fiscal years is not currently known, the amount of the county general fund balance approved to be used during the 2022 through 2025 fiscal years of $4,784,837 does exceed the current audited 2021 fiscal year general fund balance of $1,563,478 by an amount of $3,221,359."

Federal grants co‑mingled

In 2019 the county received a federal grant of $312,000 for Operation Stonegarden to be used by the sheriff's department for patrols and enhanced border security for the fiscal years 2019‑2022. However, through the 2021 fiscal year, the county had received and spent $385,325 for the program. The auditor asked for clarification about the apparent overage and was told that an additional Operation Stonegarden grant of $316,875 was provided, which ran from October 1, 2020, through August 21, 2023. The two grants, with revenues and expenditures, were not kept separate. Federal regulations require that expenditures be identified and accounted for by each separate and different grant agreement. The auditor pointed out that not keeping the two grants separate puts the county in the position of not being able to ensure that it is in compliance with grant terms, which could result "in the county being required to repay grant funds whose specific expenditure could not be determined."

While the following years' audits have not been completed, there are $6.1 million in federal ARPA grant funds that were used for the new public safety building but that were accounted for in such a way that the mounting cashflow problem was not easily seen, as explained by the new slate of county commissioners at a recent public hearing.

As the specter of possible additional accounting deficiencies hovers over the county's government and taxpayers while the audits of 2022, 2023 and 2024 are completed, county officials hope that voters will approve the $11 million bond in November to cover debts and obligations uncovered by the auditor. The county's treasurer of 25 years, Jill Holmes, recently resigned, and a provisional treasurer, Grace Falzarano, was appointed by the commissioners at their September 11 meeting. Falzarano, the treasurer for the Town of Columbia Falls, has "prepared some new policies within the finance office that will be going to the commissioners for approval," says County Manager Renee Gray.

Upon review of the auditor's report of deficiencies and recommendations, the commission wrote of the Operation Stonegarden grant accounting deficiency, "We do anticipate this condition to be corrected during the upcoming fiscal year, as time allows, thus eliminating this finding is subsequent audits."

Gray notes, "The county is in communication with legal services. Forensic audit has been mentioned, but we have to wade through the processes."

Problems with reconciliation practices

In February of this year, County Treasurer Jill Holmes moved $400,000 from an account for the unorganized territories (UT) to the county's accounts, which is contrary to state law. The UT has a separate budget from the county's budget. County Manager Gray explains, "The auditor discovered the $400,000 error. It was replaced as soon as the county could with tax money coming in from the municipalities."

The fund transfers were illustrative of the county's problematic bank account reconciliation process. The auditor found that forms used to document the individual preparing the bank account reconciliation reports had the name of the individual typed rather than signed, and none of the forms were dated by the individual preparing them. The forms should then have been reviewed, signed and dated by a different person; instead, dates appear only on a few of the forms. Bank reconciliations "make sure that the accounting transactions which are included in the general ledger are the same as those that show up on the actual corresponding bank statements." Items that do not match up are items that then need to be researched and reconciled. The auditor states, "We do consider these conditions to have represented a significant deficiency in internal controls."

The cash accounts received some sort of reconciliation process, but the non‑cash asset and liability accounts did not. Billing documentation was not reconciled to the general ledger. Errors in payroll included "a number of payroll withholding accounts with balances for which backup documentation as to the nature of the balance was requested but could not be readily provided for all of the accounts." Monthly reconciliations would have quickly identified whether amounts withheld and amounts remitted matched.

Other accounting processes that caused problems were postings to the wrong fiscal year and an inadequate system in place for backup documentation for amounts being paid to ensure that the signature was that of the person approving the expenditure and that the actual "invoices or backup documentation had been reviewed."

Restitution funds and registry of deed fees

The county acts as a fiduciary for the distribution of restitution funds as outlined by court order and received by the district attorney's office, which uses separate accounting software for this purpose. A listing of individuals and amounts of the fiduciary account could not be provided to the auditor, "seemingly based on the limitations of the account software in addition to the manner in which the transactions had been entered." Without such a list, a reconciliation is not possible, the auditor explained, and as such means that it is impossible to know whether there are funds that should still be disbursed or that still need to be received.

State statute governs the registry of deeds' records preservation surcharge. The registry must transfer the funds to the county treasurer, who must then deposit the funds into a nonlapsing account within 30 days of receipt. A nonlapsing account allows unspent money to be carried forward and used from one fiscal year to the next, rather than being returned to the general fund or closed out. This process was not being followed, with significant delays of funds transferred between the two offices, and with fees deposited into the general county deposit account and posted to a separate revenue account.

"The collections made during the fiscal year should have been transferred to this separate cash account (nonlapsing) within 30 days of their receipt from the registry of deeds," the report says. The auditor states that he was unable to determine why the amounts forwarded to the treasurer's office were not put into the nonlapsing account already established for that purpose, nor why the registry was tardy in forwarding the funds to the treasurer.