April 13, 2020

Matthew Henderson, Commissioner

Department of Vehicle Regulation
Kentucky Transportation Cabinet
200 Mero Street
Frankfort, Kentucky 40622

Dear Commissioner Henderson:

Under the terms of our agreement, we have audited the Schedule of Motor Vehicle and Motorboat Taxes and
Registration Fees Collected and Paid to the Commonwealth of Kentucky by each County Clerk - Cash Basis -
for the year ended December 31, 2019, the Schedule of Vehicle Registration Fees Payable to the Commonwealth
By Each County Clerk - Cash Basis - for the year ended December 31, 2019, and the related notes to the
schedules. Our audit was conducted in accordance with auditing standards generally accepted in the United
States of America.

Our audit consisted of inventory verification and other auditing procedures in each of the 120 county clerks’
offices. At the end of fieldwork in each county, we met with the county clerks to discuss the findings of
indebtedness to the Commonwealth and made recommendations for improvements in the county clerks’ internal
control and compliance procedures. As part of our audit, we also examined the Kentucky Transportation
Cabinet’s Automated Vehicle Information System as it relates to the processing of motor vehicle and motorboat
license registration fees, usage tax and ad valorem tax transactions.

The following issues concerning internal controls and compliance procedures are specific to the county clerks:

Ballard, Bath, Boyd, Carlisle, Carter, Elliott, Estill, Green, Livingston, Marion, and Owsley County
Clerks Failed To Properly Remit Motor Vehicle Taxes As Required:

Condition/Context:
The following counties failed to remit motor vehicle taxes as required:

• The Ballard, Carter, and Livingston County Clerks did not properly remit ad valorem taxes resulting in
overpayments to the state. The Ballard County Clerk also overpaid the districts.
• The Ballard and Owsley County Clerks failed to remit ad valorem taxes timely.
• The Bath County clerk failed to properly remit ad valorem taxes resulting in a district being underpaid.
• The Boyd County Clerk remitted the county district ad valorem taxes to the state for October 2019,
resulting in an overpayment to the state and underpayment to the county.
• The Elliott County Clerk failed to remit ad valorem taxes timely and still owes the state and districts
combined a total of $106,115.
Matthew Henderson, Commissioner
Department of Vehicle Regulation
Kentucky Transportation Cabinet
Page 2

Ballard, Bath, Boyd, Carlisle, Carter, Elliott, Estill, Green, Livingston, Marion, and Owsley County
Clerks Failed To Properly Remit Motor Vehicle Taxes As Required: (Continued)

• The Marion County Clerk underpaid ad valorem taxes to the one district.
• The Ballard County Clerk overpaid license fees to the state.
• The Elliott County Clerk failed to remit license fees in a timely manner and still owes the state $7,331.
• The Estill and Owsley County Clerks failed to remit license fees in a timely manner.
• The Carlisle County Clerk did not properly pay usage tax to the state resulting in an underpayment.
• The Elliott County Clerk did not properly pay usage tax to the state resulting in an underpayment of
$122,392.
• The Estill County Clerk did not properly pay usage tax in a timely manner. Daily usage payments were
grouped together and up to a week late. Also, weekly reports were not remitted timely.
• The Green County Clerk did not remit usage tax timely for four days and remitted one payment twice.
• The Owsley County Clerk did not remit usage tax payments timely.

The failure to remit taxes properly was a result of poor management oversight by county clerks. Failure to make
complete and timely payments as required results in the county clerks being non-compliant with applicable laws
and statutes. This also results in taxing districts being underfunded, and could also lead to the county clerk
owing penalties and interest.

The following statutes are applicable to motor vehicle tax payments:

• KRS 186.230(5) requires the county clerk to report and remit each Monday to the department all moneys
collected during the previous week. Failure to file the weekly report of all moneys collected within 7
working days after the report is due shall subject the clerk to a penalty of 1% of the moneys collected
during the reporting period for each month, or fraction thereof, until the document is filed.
• KRS 134.815(1)(2) requires the county clerk to report and pay, by the 10th of each month, ad valorem
taxes collected for the preceding month, less the collection fee of the county clerk. Any county clerk
who fails to pay over these collections shall be required to pay a penalty of 1% for each thirty days, or
fraction thereof, plus interest at the legal rate per annum of such taxes.
• KRS 131.155(2)(c) requires the county clerk to deposit motor vehicle usage tax and sales and use tax
collections in the clerk’s local depository account not later than the next business day following receipt.
The clerk shall cause the funds to be electronically transferred from the clerk’s local depository account
to the State Treasury in the manner and at the time prescribed by the department.

We recommend the county clerks comply with the statutes described above by ensure all required motor vehicle
tax payments are made in a complete and timely manner.

A Jessamine County Clerk’s Office Employee Altered Social Security Numbers To Avoid Delinquent Tax
Payments

Employees in county clerk offices are allowed to change the social security number (SSN) associated with a
vehicle for valid reasons, including divorces and changing from joint ownership to sole ownership. According
to the Kentucky Transportation Cabinet (KYTC), county clerks are aware that an individual cannot sell, transfer,
or renew a vehicle that has delinquent taxes and that changing a SSN to avoid paying property taxes is illegal.

There were eight instances where SSN’s were changed without supporting documentation in Jessamine County.
Five of these instances were determined to be improper.
- One employee changed the SSNs on her vehicle registration. She also changed the SSNs on both of her
daughters’ vehicle registrations twice. This employee inappropriately changed these five SSNs in order
to avoid delinquent tax obligations.
Matthew Henderson, Commissioner
Department of Vehicle Regulation
Kentucky Transportation Cabinet
Page 3

A Jessamine County Clerk’s Office Employee Altered Social Security Numbers To Avoid Delinquent Tax
Payments (Continued)

- This same employee changed a SSN on another taxpayer’s vehicle registration without supporting
documentation.
- Two other employees each changed one SSN on a taxpayer’s vehicle registration without supporting
documentation.

The county clerk did not have controls in place to ensure SSNs were only altered for valid reasons. Failure to
ensure controls are in place at the point of data entry to prevent altering SSNs, and a lack of a periodic review
process for changes that do occur, could result in violations of KRS 186.021(1).

KRS 186.021(1) states, “…a county clerk shall not issue a replacement plate, decal, or registration certificate as
provided in KRS 186.180, or a registration for renewal to any person who on January 1 of any year owned a
motor vehicle on which state, county, city, urban-county government, school, or special taxing district ad
valorem taxes are delinquent.”

We recommend the Jessamine County Clerk implement controls to ensure SSNs are only altered for valid
reasons. We further recommend he develop a process to periodically review SSN changes in AVIS until KAVIS
is fully implemented. Lastly, we recommend he require employees to scan supporting documentation for any
changes to a taxpayer’s SSN in AVIS/KAVIS. This will be referred to the Commonwealth of Kentucky’s
Attorney General’s office.

Ballard, Carlisle, Casey, Hart, Henry, Livingston, Marion, Owsley, Russell, and Simpson County Clerks
Failed To Maintain Accounting Records In Accordance With KRS 68.210

The following county clerks failed to maintain accurate accounting records:

• The Ballard, Carlisle, and Casey County Clerks’ ledgers required numerous adjustments for amounts
excluded from the ledgers or misclassified.
• The Ballard, Carlisle, Henry, Livingston, Owsley, and Russell County Clerks failed to accurately
reconcile the fourth quarter financial report to the receipts and disbursements ledgers, resulting in these
records not being in agreement.
• The Owsley and Simpson County clerk did not submit the fourth quarter report to the Department for
Local Government as required.
• The Hart County Clerk’s fourth quarter report submitted to the Department for Local Government was
not complete.
• The Marion County Clerk failed to prepare a fourth quarter financial report.

Failure to maintain accurate records was due to poor management oversight by the county clerks. Failure to
prepare and maintain complete and accurate accounting records results in inaccurate financial information being
provided for the county clerks’ offices.

KRS 68.210 gives the state local finance officer the authority to prescribe and install a system of uniform
accounts for all local government officials. The prescribed uniform system of accounts sets minimum accounting
requirements which includes the preparation and maintenance of the following records: receipts ledger,
disbursements ledger, daily checkout sheets, quarterly reports and bank reconciliations. Also, the state local
finance officer requires the quarterly reports to be submitted no later than 30 days following the close of the
quarter.
Matthew Henderson, Commissioner
Department of Vehicle Regulation
Kentucky Transportation Cabinet
Page 4

Ballard, Carlisle, Casey, Hart, Henry, Livingston, Marion, Owsley, Russell, and Simpson County Clerks
Failed To Maintain Accounting Records In Accordance With KRS 68.210 (Continued)

We recommend the county clerks ensure compliance of the uniform system of accounts, in accordance with KRS
68.210, by preparing and maintaining the minimum required accounting records described above. We also
recommend county clerks ensure quarterly reports are remitted timely.

Carlisle, Hart, Madison, and Pulaski County Clerks Failed To Comply With Heavy Vehicle Use Tax
Requirements

Four county clerks did not maintain the required documentation for registration of vehicles subject to the heavy
vehicle use tax (HVUT). The county clerks listed above either did not maintain a copy of the proof of payment
or the vehicles identification number (VIN) on the form obtained from the taxpayer did not match the
registration.

Failure to maintain the required HVUT documentation was due to poor management oversight by the county
clerks. Failure to maintain the required supporting documentation results in county clerks being non-compliant
and could result in incorrect taxes being collected or possibly being mishandled.

601 KAR 9:115 states that proof of payment of the federal HVUT must be provided when issuing a registration
of most vehicles with a declared gross weight of 55,000 pounds or more. The KAR outlines the acceptable
proofs of payment, exempt vehicles and special conditions and further states that the county clerk must attach
the proof of payment to the copy of the certificate of registration for the county clerk’s records.

In the future, we recommend county clerks obtain the required proof of payment when registering vehicles
subject to HVUT, maintaining a copy for their records. We further recommend county clerks ensure that the
VIN number on the form matches the registration.

Estill, Grayson, Harlan, Jessamine, Letcher, Nelson, Pendleton, Pulaski, Taylor, Todd, and Wayne
County Clerks Failed To Comply With Wrecker Requirements:

Eleven county clerks did not have affidavits signed in accordance with KRS 186.050(7) to document the vehicles
would only be used in wrecker service. Failure to obtain a signed affidavit was a result of ineffective procedures
in the county clerks’ offices. Also, during 2016, the Kentucky Department of Transportation removed the
affidavit stamped on the registration for wreckers. County clerks were instructed to have an alternate form
signed in place of the registration form. Some county clerks stated they were unaware of these new procedures.
Failure to get a signed affidavit could result in loss of money to both the county clerks and the Kentucky
Department of Transportation if these registrations were being used improperly.

KRS 186.050(7) states, in part:

“Any person owning a motor vehicle with a gross weight of fourteen thousand (14,000) pounds or less
on which a wrecker crane or other equipment suitable for wrecker service has been permanently
mounted may register the vehicle and obtain a license for eleven dollars fifty cents ($11.50) by filing
with the county clerk, in addition to other information required, an affidavit that …. during the next
twelve (12) months the vehicle will be used only in wrecker service”.

KRS 186.240(2)(c) states, in part:

“…the Transportation Cabinet shall provide for the issuance of reflectorized plates for all motor
vehicles, and shall collect a fee, in addition to the fee set out in KRS Chapter 186 and KRS 281.631, of
fifty cents ($0.50)”.
Matthew Henderson, Commissioner
Department of Vehicle Regulation
Kentucky Transportation Cabinet
Page 5

Estill, Grayson, Harlan, Jessamine, Letcher, Nelson, Pendleton, Pulaski, Taylor, Todd, and Wayne
County Clerks Failed To Comply With Wrecker Requirements (Continued)

This results in a combined fee of $12.00 for the registration of motor vehicles pursuant to KRS 186.050(7).

We recommend county clerks take appropriate steps to ensure the alternate form issued by the Kentucky
Transportation Cabinet are signed in place of the registration form as required by KRS.

Breckinridge, Clark, Daviess, Nelson, Pike, Simpson, and Warren County Clerks Failed To Implement
Adequate Internal Controls Over Corrections Or Voided Transactions

Seven county clerks did not either maintain supporting documentation as to the nature of the correction or void
or ensure the transactions were properly authorized. The lack of supporting documentation and failure to
properly authorize these transactions occurred due to poor management oversight by the county clerks, along
with failure to implement sound policies and procedures over corrections and voided transactions.

Failure to properly document and authorize voided transactions increases the risk of misappropriation of funds.
Proper internal controls dictate that corrections or voids performed in the county clerks’ offices should be
adequately documented and authorized.

In order to improve internal controls, we recommend the county clerks implement sound policies and procedures
over corrections and voided transactions, which should require proper supporting documentation and
authorization.

This letter is intended solely for the information and use of the Kentucky Transportation Cabinet and is not
intended to be and should not be used by anyone other than the specified party.

Thanks and God Bless,

Mike Harmon
Auditor of Public Accounts