Special audit reviews financial and operational procedures of Salyersville Water Works

SALYERSVILLE, Ky. (FOX 56) — In January, State Auditor Allison Ball’s office released the findings of a limited-scope examination of Salyersville Water Works (SWW).

It was meant to examine the financial and operational procedures from July 2021 through March 2024.

Ball said this wasn’t part of the regular audits her office does but came about from tips from the city of Salyersville as well as residents who had concerns with SWW.

For context, the city of Salyersville took over control of SWW in 2024; it was previously owned by a group not associated with the city.

The following are the findings from the audit:

• SWW lacked adequate internal control structure—lacked internal controls and engaged in poor security practices, leaving them vulnerable to fraud and other unlawful activities.
• Billing adjustments were not handled properly—SWW did not have a policy outlining when an adjustment to a customer’s bill would be appropriate and allowable, nor sufficient documentation explaining why some adjustments were made. As a result, hundreds of thousands of dollars were adjusted on bills without any supporting documentation over the examination period.
• Insufficient controls lead to questionable purchases. Numerous purchases, totaling over $20,000, by SWW staff were excessive, predominantly personal, or lacking a clear business purpose. When credit card transactions and checks were tested, few were adequately supported by proper documentation. Additionally, SWW employees were not required to log mileage or turn in receipts for gas purchases.
• Receipts were not accounted for properly: Cash, checks, and credit card deposits were not properly accounted for nor supported by proper documentation, resulting in numerous occasions in which auditors were not able to determine if funds were deposited.
• Public funds were improperly utilized for employee bonuses. Bonuses were given to employees during the Christmas holiday, totaling $6,750 for FY 2021 and $7,042 for FY 2022. The use of public funds for bonuses violates Section 3 of the Kentucky Constitution.
• The SWW Board does not have statutory authority to establish fees—SWW started charging $7 per month to customers with a grinder pump for grinder pump maintenance fees to offset the rising cost and upkeep of grinder pumps. This fee was passed with one board member’s approval; however, the Board does not have the statutory authority to impose these fees.
• SWW engaged in questionable real property transaction: The City sold property to SWW. SWW was established and currently operates as a department of the city. SWW is not a separate corporate entity entitled to hold real property in its own name. Rather, any real property should be held in the name of the city. SWW mortgaged the property, and the city allowanced it. This was found to be in direct violation of state law.
• SWW has failed to maintain a sufficient capital assist listing: SWW’s capital asset listing did not provide descriptions, historical costs, or year of acquisition for any of the recorded assets, which included vehicles and buildings.
• SWW lacks written policies and procedures: It operated without guidance and uniformity because they did not have any written policies and procedures to create an organizational structure to follow on a day-to-day basis and to ensure financial transactions were properly handled, recorded, and documented.
• SWW failed to implement segregation of duties: Without supervision, the office manager was responsible for preparing bills, adjusting bills, accepting payments, posting payments, making deposits, and reconciling accounts. These duties should be segregated or compensated with controls to mitigate the risk of undetected waste, fraud, and abuse.

As an eastern Kentuckian herself, Ball said she always keeps an eye on local waterworks companies, given the trouble various parts of the region have had with water and the amount of money it costs to keep them running properly.

She hopes this audit will show there is a right way to go about things and a wrong way.

“I actually don’t think they’re isolated to Salyesrville,” Ball said. “I think these are the kinds of things that you’re going to see in water districts all over the state because there’s not been a lot of training, there’s not been a lot of uniformity. Some of the problems here were adjustments being made without a policy for adjustments. For example, in the first quarter of 2024, I think there were about 1000 bills that were adjusted, and it was almost $1 million in adjustments when you actually looked at it. So that’s real money.”

Ball said things have already begun to improve with SWW under the city’s control.

Salyersville Mayor Stanley Howard said that under the old regime, SWW was struggling financially and now the city is trying to right the wrongs.

When the city took over SWW, Howard said money was kept in closets, which were poorly secured. The old regime would spend more money than what they had for things such as Christmas parties, then ask the city council for more money.

But now the city has completely reorganized the books and now does daily deposits into a secure account.

Howard said the real changes won’t be felt for some time, but it’s his promise to his neighbors that the city is going to make things right.

“We’re going to get it fixed,” Howard said. “We’re trying to keep the rates as low as possible. We can’t raise rates because we’ve got a lot of leaks; that’s not the cure for it. Our cure is to change the water lines, change our meters, and not put the burden on the people raising our water bills because we’re in a fixed-income community and everybody’s on fixed incomes; most of us are retired. When they retire, they come to town, and we’re going to have good water rates. That’s the benefit of living in the city, and we’ll fix our problems and not put the burden on the people.”

Another issue the audit found was meter rates that overcharged customers.

Howard said those problems were a result of human error, as employees would have to write down the meter readings by hand.

The city recently received grant funding from the state that would replace all the meters in the city and automate that process.

You can read the full audit below: