FRANKFORT, Ky. (March 11, 2025) – Kentucky Auditor Allison Ball released the first volume of the annual Statewide Single Audit of the Commonwealth of Kentucky (SSWAK) for Fiscal Year 2024. This report reviewed over $22 billion in state and federal funds distributed to 370 federal programs managed by 35 different state entities, excluding state universities and retirement systems. Over $500 million in financial reporting mistakes were uncovered by the Auditor's Office.
“The Statewide Single Audit identifies millions of dollars in potential misstatements on the Commonwealth's financial statements each year, playing a crucial role in ensuring Kentucky's financial position is accurately represented and protected," Auditor Ball said. “Through this audit, we ensure that Kentucky is correctly keeping track of its finances, preventing serious economic problems from occurring, and safeguarding taxpayer dollars from waste, fraud, and abuse."
Our office identified 10 opportunities for improvement, known as findings, in the SSWAK Volume I for Fiscal Year 2024. Integrity in the Commonwealth's financial statements is potentially compromised due to these findings. If the Commonwealth's financial statements are in question, businesses will question the Commonwealth's economic climate and the Commonwealth may lose out on federal funding, among other negative consequences. Our office provided specific recommendations for each finding, but the general recommendation would be for all identified entities to strengthen internal controls over tracking and reporting financial activity.
Notable Findings from SSWAK I Include:
- The Finance and Administration Cabinet (FAC) lacked controls to ensure the Commonwealth's financial position was accurately represented to Kentuckians and the federal government. FAC did not transpose manual adjustments into the proper reporting system, accurately record long-term debt and tax refunds payable, and did not have proper controls in place to catch duplicate or erroneous entries. During our review, $364,014,818 of mistakes were identified, of which $324,192,392 was corrected by management upon detection by the APA, and the remaining $39,822,426 was corrected by management per its response to the findings. As mentioned, if the Commonwealth's financial position is not accurately relayed to the public, then businesses will not have confidence in Kentucky's economic climate. And to the extent those reporting errors involve federal funds, the federal government may choose to take a variety of actions against Kentucky with respect to those funds.
- Kentucky Horse Park (KHP) lacked controls to ensure its financial position was accurately represented to the Commonwealth. KHP lacked controls to ensure complete, accurate, and properly accounted for financial activity. During a review, $1,532,760 of errors were identified due to incorrect recording of accounts receivables and unearned revenue at year end. Repeat from FY23, KHP failed to properly record $1,638,960 of capital expenditures and service expenses. KHP's failure in this regard is a misstatement of its financial position which misrepresents Kentucky's financial activity as a whole.
KY Department of Revenue (DOR) submitted its closing financial activity with a material error. DOR entered $55,654,311 for a $5,654,311 uncollectible accounts receivable resulting in a $50,000,000 keying error. Its internal controls failed to prevent or detect and correct the reporting errors. The error was identified during a review of the DOR's year end closing package to the Finance and Administration Cabinet (FAC) compilation application. DOR's failure in this regard is a misstatement of Kentucky's financial position, which, among other things, affects how businesses view Kentucky's economic climate. The error of $50,000,000 was corrected by management upon detection by the APA.
KY Cabinet for Health and Family Services (CHFS) incorrectly recorded an amount for a federal program on the Schedule of Expenditures of Federal Awards (SEFA). CHFS incorrectly recorded the amount of benefit awarded to the Commonwealth and its internal controls did not detect the error. In addition to compromising integrity in the Commonwealth's financial statements, this error could lead to additional noncompliance with federal regulations over major federal programs. CHFS's failure to comply with federal regulations could cause federal funds to be withheld from Kentucky. Per management's response, the error of $43,604,160 was corrected by management upon detection by the APA.
KY Energy and Environment Cabinet (EEC) incorrectly accounted for grant activity on the Schedule of Expenditures of Federal Awards (SEFA). EEC incorrectly reported funds for a federal program due to revenue recognition error between fiscal years and expenditure transfer error. Its internal controls failed to prevent or detect and correct the reporting errors. In addition to compromising integrity in the Commonwealth's financial statements, this error could lead to additional noncompliance with federal regulations over major federal programs. EEC's failure to comply with federal regulations could cause federal funds to be withheld from Kentucky. The errors of $44,530,214 were corrected by management upon detection by the APA.
- Four funds had significant outstanding payment misstatements from several Kentucky agencies. All Commonwealth agencies prepare a closing package at fiscal year-end to ensure accurate and complete financial reporting. During a review, several significant misstatements were identified across four funds due to the incorrect recording of accounts payable. Internal controls over the preparation agencies as well as oversight of the year-end entries failed to detect the misstatements. Per management's response, the errors of $20,759,045 were corrected by management upon detection by the APA. Failing to properly record accounts payable could result in Kentucky overcharging or undercharging businesses doing work for the Commonwealth or, eventually, attempting to collect an incorrect amount of debt from those same businesses. In addition, failing to meet payment obligations or maintain accurate records can result in non-compliance with regulatory requirements, leading to penalties.
The complete audit including management's response to each finding and accompanying recommendations can be found on our website. Volume II of the SSWAK, which covers Kentucky's reporting compliance for each major federal program and associated internal controls, will be released in the coming weeks.
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