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AOC Response to Audit by KY Auditor of Public Accounts

Operational arm of Judicial Branch is 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.” There is value in obtaining regular audits of the AOC and making those results public, and the Supreme Court will determine the scope and frequency of audits going forward.”

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 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
The AOC submitted its response to the audit’s findings in July 2018 and has turned its focus to carrying out the audit’s recommendations. The AOC’s Audit Implementation Response Team has begun implementing changes, including:

  • Issued a request for project services for a consultant to assist with the AOC’s audit implementation.
  • 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.
  • The AOC engaged Deloitte as a consultant to help with Phase I of audit implementation. Deloitte worked on-site with the AOC to:
    • Make recommendations on developing a robust Internal Auditing Department with an independent Audit Oversight Committee.
    • Develop charters for the Internal Auditing Department and Audit Oversight Committee and a strategic roadmap for implementation.
    • Make recommendations regarding the AOC’s organizational structure.
    • Provide written process documents for six of the AOC’s financial processes: Budget, Travel Reimbursement, County Facility Reimbursement, Property Accountability, Leases, and Procurement. 
    • Make recommendations on implementing technology and other internal controls for these six processes.
  • The AOC issued a Request for Proposals to seek short-term assistance from outside experts to establish the 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:

  • Adoptedrevised Kentucky Court of Justice Travel Regulations effective Sept. 1, 2018.
  • Issued anorder requiring the AOC to conduct an external audit every two years, starting with Fiscal Year 2020, and to make public the results of those audits. The order also calls for the AOC to create Administrative Procedures to establish an Audit Oversight Committee and stronger internal auditing controls.

“The Judicial Branch believes in being a good steward to the taxpayers and the General Assembly for all funding appropriated to the court system,” Chief Justice John D. Minton Jr. said. “That’s why we invited the Auditor of Public Accounts to conduct an audit in 2017 and why the Supreme Court has now ordered external audits on a biennial basis for the AOC.”

Implementation Plan Going Forward
Other implementation plans include:

  • The AOC and Supreme Court will evaluate the initial recommendations from Deloitte and develop a plan to reinforce the organizational structure of the financial and administrative functions at the AOC.
  • 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 relating 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.

“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,” Chief Justice Minton said. “It is my hope that the Executive and Legislative branches of state government will follow our example and commit to conducting regular audits and making the results public.”

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