Less than a month after downgrading Pike County, Kentucky’s general obligation bond rating seven notches to BB, S&P Global Ratings withdrew it after finding the county’s 2017 audit unreliable.
S&P had cut Pike County’s GO bond rating to junk-level BB from A-plus by S&P on May 21.
The 2017 audit said the county’s accounting records were incomplete and didn’t provide sufficient evidence on which to base an audit opinion. It was posted June 4 on the Municipal Securities Rulemaking Board’s EMMA filing system.
The auditor found multiple material weaknesses, including that the county didn’t perform monthly bank reconciliations and failed to record transfers as they occurred.
The county also failed to pay invoices promptly as required by state law and didn’t submit a financial report to the state timely, said S&P analyst Caroline West.
“Given the auditor's disclaimer of opinion, a lack of sufficient quantity of financial data in the audit, and our opinion based on our interactions with management and the auditor's comments that the minimal information presented in the audit is unreliable, we do not view the information as of sufficient quality to maintain the long-term and underlying ratings on the county,” West said.
The seven-notch downgrade in May was based on the 2016 audit, which was released in March.
At that time, S&P said its action was based on the county’s “very weak” economy, budget performance and management.
The eastern Kentucky county is about 140 miles east of Lexington, in the coalfields of the Cumberland Mountains. Pike County was a leading coal and natural gas producer, but a number of mines went into bankruptcy or closed across the state because of the waning industry.
The U.S. Census Bureau estimated the county’s population in 2017 at 59,000, a 9.4% drop from the last official census count of 65,000 in 2010.
The county’s unemployment rate was 6.2% in March, according to the U.S. Bureau of Labor Statistics.
Kentucky’s Auditor of Public Accounts, which is responsible for reviewing county audits, said it planned to issue a press release about the audit next week.
The 37-page audit for 2017, produced by RFH PLLC of Lexington, contained only an unaudited financial statement from the county fiscal court that indicated a cash balance of $2.06 million as of June 30, 2017.
The audit didn’t show the amount of outstanding debt or indicate whether the county paid debt service on time.
The fiscal 2016 audit showed the county had $9.4 million of outstanding GOs and a total of $35.5 million of long-term debt, including $24.5 million of revenue bonds.
S&P placed the county’s A-plus GO rating on CreditWatch with negative implications on March 20 because the 2016 audit had not been released. That audit was posted March 26 on EMMA.
While Pike County received a clean audit opinion in fiscal 2016, the fiscal court came under fire from auditors for procedures that were not performed accurately by the treasurer. Those included invoices that were not paid within 30 days, bank reconciliations that were not performed monthly, and an inaccurate fourth quarter report that was submitted to the state Department for Local Government.
In a report about the county’s 2015 audit, the state auditor said there were no instances of noncompliance with accounting principles and no issues with internal controls or operations that were considered to be material weaknesses.