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AOC Response to Audit by Kentucky Auditor of Public Accounts

Operational arm of Judicial Branch making changes to strengthen internal processes

In May 2017, the Administrative Office of the Courts asked Kentucky Auditor of Public Accounts Mike Harmon to conduct the first audit in the history of the Kentucky Judicial Branch. The audit began in June 2017 and the results were announced in July 2018.

The AOC’s response to the audit’s findings and recommendations can be found here.

Scope of Audit
The AOC asked that the scope of the audit cover Fiscal Years 2016 and 2017 and include a review of:

  • Policies and internal controls governing financial activity of the then-Department of Administrative Services.
  • Policies and procedures governing the Budget and Accounting & Purchasing offices.
  • Policies and procedures to receive and resolve concerns related to potential waste, fraud and abuse.

“When the AOC requested this audit, it was an unprecedented step that reversed more than 40 years of tradition in how the court system has handled external review,” Chief Justice of Kentucky John D. Minton Jr. said. “While we are careful to safeguard the Judicial Branch as a separate and co-equal branch of government, we also want to advance our efforts to be transparent and accountable to Kentucky taxpayers. The Judicial Branch took the lead in requesting this extraordinary level of outside scrutiny and we’re proud of the steps we’ve taken to address the concerns raised in the Auditor’s report.”

Steps Taken to Tighten Controls Prior to Final Audit Report
Even before the audit results were released in July 2018, the AOC had already addressed many of the issues that would be identified in the audit’s findings and recommendations:

  • Developed inventory control processes.
  • Implemented waste, fraud and abuse reporting mechanisms.
  • Trained managers and staff on purchasing and procurement practices.
  • Revised operational procedures regarding reimbursements to county governments for the operation and maintenance of court facilities.
  • Consulted a tax attorney to provide advice on proposed revisions to travel reimbursement policies being developed by the AOC for recommendation to the Supreme Court.
  • Implemented a weekly process to deactivate user accounts for separated/transferred employees.
  • Restructured the Department of Administrative Services.
  • Arranged for the Auditor of Public Accounts to conduct a one-day training for AOC managers and staff on internal controls to prevent waste, fraud and abuse.

Before the release of the audit report, the Supreme Court had also:

  • Adopted an Open Records Policy for the AOC.
  • Adopted an order governing the handling of the Judicial Branch’s surplus property.
  • Adopted Section 2.02, Reporting Waste, Fraud, and Abuse, for the Kentucky Court of Justice Personnel Policies.
  • Adopted the Kentucky Court of Justice Language Access Plan and Procedures, requiring that language access services be provided by interpreters employed by or under contract with the AOC.

Steps Taken to Implement Audit Recommendations
Since submitting its response to the audit in July 2018, the AOC has made strong progress in carrying out the audit’s recommendations. The AOC has:

  • Adopted Procedures for the Creation & Revision of Standard Operating Procedures, Standards, Departmental Policies, and Departmental Guidelines.
  • Adopted new sanitization and electronic data disposal procedures.
  • Implemented KYCourts3 in six counties with a projected roll-out schedule through 2022.
  • Engaged Deloitte to consult on Phase I of audit implementation. Deloitte worked on-site at the AOC from October 2018 to February 2019 and:
    • Made recommendations on developing a robust internal auditing department with an independent Audit Oversight Committee.
    • Developed charters for the internal auditing department and Audit Oversight Committee and a strategic roadmap for implementation.
    • Made recommendations regarding the AOC’s organizational structure.
    • Provided written process documents for six of the AOC’s financial processes: Budget, Travel Reimbursement, County Facility Reimbursement, Property Accountability, Leases and Procurement.
    • Made recommendations on implementing technology and other internal controls for these six processes.
  • Adopted a new organizational structure to enhance accountability by providing an adequate separation of duties, and checks and balances for the expenditure of all Judicial Branch funds. It will also increase transparency of the Judicial Branch’s policies and procedures, and support long-term stability by providing succession planning for the AOC’s executive officers and managers. The new AOC structure created an:
    • Office of Audits and hired a director to oversee its responsibilities.
    • Office of Finance & Administration to include the existing functions of budget, facilities, accounting and procurement, and hired a director to oversee this area.
  • Contracted with Dean Dorton to help establish an internal auditing department and make strategic long-term hires for the future.

The Supreme Court has also implemented changes since the release of the audit report, including:

  • Adopted Kentucky Court of Justice Travel Regulations effective Sept. 1, 2018, and updated as of November 1, 2019.
  • Issued an order calling for the AOC to recommend Administrative Procedures to establish an Audit Oversight Committee and stronger internal auditing controls.
  • Adopted Administrative Procedures establishing an Audit Oversight Committee and an AOC Division of Internal Audit. These APs also require the AOC to conduct annual external audits starting with Fiscal Year 2021, and to make public the results of those audits.

“These changes to our administrative operations are some of the most extensive – and necessary – made in recent memory,” Chief Justice Minton said. “And while this new structure will require a considerable investment of time and money, the improvements we’re making today will ensure a stronger court system tomorrow.

Other Implementation Plans Include:

  • The AOC and Supreme Court will procure appropriate technology to incorporate additional internal controls in the financial processes of the Judicial Branch.
  • The AOC will continue to evaluate, supplement, revise and draft procedures related to financial and administrative functions.
  • The AOC will issue a Request for Proposals for external auditing services to be conducted on a regular and ongoing basis, with audit reports to be made available to the public.

This page will be updated regularly to reflect the AOC’s progress.