Hutchinson office cited for errors

OLIVET — An audit report by the state of South Dakota shows that attempts by the Hutchinson County Auditor’s office to correct a missed 2008 tax levy not only failed to fix the problem but created more headaches for the county.

As was reported last week, the county failed in 2008 to levy Hutchinson taxpayers in the Freeman School District for $79,238 to help pay off bonds for the new Freeman Elementary School. The Hutchinson County commissioners in December 2009 approved a $79,238 payment from the county general fund to cover the school district’s shortfall.

McCook and Turner counties, which also have land in the Freeman School district, levied the correct tax amounts.

Because the county general fund includes revenue from taxpayers throughout the county and not just from the Freeman School District, the drawing of the money out of the general fund meant that all Hutchinson County taxpayers helped to pay for the new elementary school — even taxpayers who don’t live in the school district. Hutchinson County Auditor Jeanie Simonsen previously called the error an honest oversight that is being corrected.

The public audit report for 2007 and 2008 released April 15 by the state Department of Legislative Audit shows that the mistake was one of several errors in the property-tax apportionment process.

Hutchinson County tried, in March 2009, to avoid a recurrence of the $79,238 shortfall by billing Freeman district taxpayers for the missed levy of 51 cents per $1,000 of assessed valuation.

That was too late, said the audit report, because tax notices had already been sent. Adding the levy in March, therefore, did not result in more taxes being collected; it only resulted in taking one more deduction from a fixed pile of money. As a result, the school district got $29,895 more than it should have received and other taxing entities got correspondingly less.

On the short end of tax receipts were Hutchinson County, which received $17,897.72 less; a water development district, $483.01 less; the City of Freeman, $6,191.15 less; townships, $3,802.09 less; and unidentified taxing entities, $1,521.68 less, for a total shortfall of $29,895.65. The Department of Legislative Audit recommended that the Freeman School District return the $29,895.65 to the county to correct the problem.

Freeman School District Business Manager Ronda Rinehart said that her office will verify the tax numbers, and any owed money will be returned to the county to help straighten out the books.

The $29,895 “is a different basket of money,” she said, and it will be returned, as per the recommendations of the Department of Legislative Audit.

“We can always use $29,000, but if the money is not ours, we’re not going to keep it,” she said.

Another $42,082 was allocated to the wrong funds within the Freeman School District. Those errors will be corrected internally. The $42,082 does not need to be returned, but it must be correctly redistributed among five different school district funds.

The audit report recommends that accounts be checked more frequently to avoid similar problems in the future. The issues at stake are accounting problems, state Auditor General Martin Guindon said. No malfeasance is suspected and no money is missing.

Russ Olson, local government audit manager with the Department of Legislative Audit, supervised the audit process. He said the errors in the report are hardly unique, but they are a concern.

“I don’t want to say it’s never happened, but it’s quite uncommon for it to get to this extent,” he said.

State auditors are available to give advice to remedy the problems, and his office will check to make certain the correct adjustments are being applied.

“We set up with them certain procedures that they need to do going forward, and told them when you get these things done, give us a call,” Olson said. “We want to make sure that what they’re doing is correct.”

In a final recommendation, the audit report recommends that Hutchinson County consult with legal counsel to determine an appropriate method for correcting the past property-tax apportionment errors on future tax bills.

County State’s Attorney Glenn Roth said he has read the audit report and is researching the matter to determine how to proceed.

Other audit findings included:

• $13,346 in opt-out property tax collections for Wittenberg Township for January to April 2009 were incorrectly sent to Sweet Township.

• Clayton Township taxes for the Emery School district were instead sent to the Bridgewater School District. The Bridgewater district received overpayments of $14,138 in 2008, and $13,635 in 2009. This problem can probably be handled between the two school districts, said Guindon, since the two districts have since consolidated. But the report also noted that the error remained uncorrected.

• By law, the undesignated funds in a county’s general fund cannot exceed 40 percent of all appropriations for the next fiscal year.

Hutchinson’s general fund was supposed to be no more than $1,163,984 by Dec. 31, 2008. The fund balance was instead $4,092,464, or $2.7 million over the recommended amount.

• In hindsight, the shortfalls and overpayments could have been higher. Freeman School District Business Manager Ronda Rinehart said her district’s levy of 51 cents per $1,000 in 2008 was underestimated and was insufficient to cover school bonds. The new elementary school bond levy for all schools in the district will be $1.39 per $1,000 of assessed valuation.

The complete audit report is available on line at www.state.sd.us/legislativeaudit/home.htm.

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