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Lake County named only unauditable unit for 2022 under new state law

Lake County’s financial director described the county’s record-keeping — both before and after the transition to the new accounting platform Oracle — as a “dumpster fire.”

The discourse took place Tuesday after Councilman Pete Lindemulder, R-Schererville, asked for an update on the work of Baker Tilly in correcting problems with the 2022 audit of county records by the Indiana State Board of Accounts. The council authorized an appropriation of up to $3 million for the commissioners to execute a contract with the accounting firm to finish work on the transition and further optimize the software.

Baker Tilly has worked to reduce what was originally a $600 million variance to a little under $2 million. That number is expected to continue shrinking as the auditor’s office begins the process of uploading the corrected information into Indiana’s Gateway system and Baker Tilly roots out any additional mistakes.

Scott Schmal, the council’s financial director, said the problem with the record keeping is not isolated to the variance issues. He said the office is lacking in the skills necessary to do the work.

“We need to address the roots of the problem,” Schmal said. He said the skillset was lacking in the auditor’s office when the system went live and that has caused problems that will need to be addressed.

“At the end of the day, it is a dumpster fire. That’s what it is — a dumpster fire,” Schmal said.

He said a step in the right direction is the hiring of a comptroller by the auditor’s office. The council approved the new position earlier this year. Lake County Auditor Peggy Katona said she has hired an MBA with an accounting background to work in the spot.

“If everybody was so highly skilled, we wouldn’t be in the spot we are in,” Schmal said.

The situation with the 2022 audit prompted SBOA to list the county on its website as an “Unauditable Entity for Jan. 1 to Dec. 31, 2022.” Lake County is the only entity listed as such on the SBOA website. The county was added to the website as unauditable for the 2022 year on Jan. 29, according to Kendra Leatherman, general counsel for the State Board of Accounts.

A unit can be declared unauditable when an audit is unable to be performed because the entity’s accounts, records, files or reports are not properly maintained or reconciled, according to the SBOA website.

Leatherman said the posting is to comply with the statutory requirement in Indiana Code. The SBOA is required to publish a list of unauditable entities on our website once we have declared an entity “unauditable,” she wrote via email.

“They are required to get their records, accounts, etc., in an auditable condition in 90 days per statute,” Leatherman said, adding the county also is required by statute to hire or contract with a certified public accountant to assist in the work.

The Lake County Commissioners hired Baker Tilly to remediate the problems that arose with the 2022 audit.

SBOA is no longer in the process of auditing the county for 2022.

“We have disengaged while they otherwise try to remedy their issues,” Leatherman wrote in the email.

The SBOA will resume auditing Lake County once it have determined their accounts, records, files or reports are in a position where we could otherwise resume our work.

According to the statute, if the county auditor is unable to perform the fiscal responsibilities of the office, the county must hire or contract with a certified public accountant to provide guidance to the auditor regarding the performance of the county auditor’s responsibilities or to perform the county auditor’s fiscal responsibilities. The county auditor is considered to be unable to perform the fiscal requirements of the county’s auditor’s position if the county is declared unauditable by statute.

County officials say they are on their way to meeting the 90-day deadline set by SBOA to get their 2022 finances on order.

Commission President Michael Repay, D-Hammond, said the $2.8 million contract with Baker Tilly is multi-faceted. Fixing the problems with the 2022 audit will cost about $75,000 Repay said. The remainder of the contract will be aimed at optimizing Oracle.

“I wouldn’t characterize this as a true financial or finance issue, though some professionals may dispute that. We don’t have issues with cash. We have issues with reporting. They are significant issues, no doubt,” Repay said.

Repay said a lot of arguments can be made as to who screwed up the transition and why, and they are all probably true. The full-time staff does not have the capability and capacity to get what was needed done, and the consultant, HTC, was not readily available to the extent that they should have been on the county’s behalf, he said.

“It is coming a long way. We are not excited about the position we are in. We are not happy at all. At least we understand why we are here and we understand what needs to be done to get it corrected,” he said.

The bulk of the contract is with Baker Tilly’s software implementation side. The contract will provide work on optimizing Oracle and will also fix changes made to the programming that were attempts to force the software to conform with the former processes.

“HTC took a great piece of software and with the input our staff created some reporting applications inside of this software that are not so great,” Repay said.

Katona said staff has been working on the transition to Oracle, which was already underway, when she took office in January 2023 from now Treasurer John Petalas. Since 2006, Petalas and Katona have successfully run for each other’s office whenever term limits have limited holding the office for more than two consecutive terms.

“My biggest thing was it should never have gone live when it did,” Katona said. She said her office was never asked about the implementation. The transition to the new software was complicated by the transition to generally accepted accounting principles (GAAP), which was occurring simultaneously.

She defended her staff’s work and said they have many responsibilities within the office. Like other county officials, Katona pointed the finger at HTC, the company hired to implement the transition.

“They did a horrible job during the changeover. The fault lies on their shoulders,” Katona said.

Katona said officials from the county and Baker Tilly met this week with SBOA to update the agency on the county’s progress in rectifying the problems with the 2022 audit. She expects the problems to be resolved in the coming weeks and SBOA to return to complete its 2022 audit.

cnapoleon@chicagotribune.com