KRS 45.237: Definitions for KRS 45.237 to 45.239 -- Establishment of internal

controls and preaudit procedures for state agencies -- Collection of

improper payments -- Referral of certified debts by agency or local

government to Department of Revenue -- Information to be provided to

State Treasurer.

(1) As used in KRS 45.237 to 45.239:

(a) "Agency" means an organizational unit or administrative body in the

executive branch of state government as defined in KRS 12.010;

(b) "Cabinet" means the Finance and Administration Cabinet;

(c) "Court of Justice" means the Administrative Office of the Courts, all

courts, and all clerks of the courts;

(d) "Debt" means:

1. For agencies, a sum certain which has been certified as due and

owing;

2. For local governments, a sum certain which has been certified as

due and owing, including but not limited to any delinquent taxes or

fees other than delinquent real and personal property taxes; and

3. For the Court of Justice, a legal debt, including any fine, fee, court

costs, or restitution due the Commonwealth, which have been

imposed by a final sentence of a trial court of the Commonwealth

and for which the time permitted for payment pursuant to KRS

534.020 has expired;

(e) "Department" means the Department of Revenue;

(f) "Improper payment" means a payment made to a vendor, provider, or

recipient due to error, fraud, or abuse; and

(g) "Local government" means any city, county, urban-county government,

consolidated local government, charter county government, or unified

local government of the Commonwealth.

(2) The cabinet shall develop for the executive branch of state government a

system of internal controls and preaudit policies and procedures applicable to

disbursement transactions for the purpose of prevention and detection of errors

or fraud and abuse prior to the issuance of a check or warrant. The initial

policies and procedures shall focus first on programs or activities that expend

the most federal and general fund dollars. The cabinet shall develop preaudit

procedures that meet the unique needs of each agency.

(3) In establishing these systems of internal control and preaudit policies and

procedures, the cabinet shall:

(a) Consult with each agency within the executive branch to ascertain its

unique fraud risks;

(b) Establish policies and procedures for agency-level oversight of fraud

risks, including risk assessment, risk tolerance, and management policies,

and fraud-prevention processing controls;

(c) Establish systems and procedures for detecting both unintentional errors

and fraudulent misrepresentations that may have occurred in vendor

invoices submitted for payment, applications submitted for benefits,

claims for refunds of amounts previously paid or withheld, and other

disbursements;

(d) Establish systems and procedures for preventing and detecting

unintentional errors and the fraudulent disbursement of funds by state

government employees in the processing, approving, and paying of

invoices, refunds, vouchers, benefit payments, and other disbursements;

and

(e) Consult with the state Auditor of Public Accounts, the Commonwealth

Office of Technology, the American Institute of Certified Public

Accountants, the Association of Certified Fraud Examiners, law

enforcement agencies, or any other entity with knowledge and expertise

in the detection and prevention of fraud.

(4) Each agency shall diligently attempt to collect amounts paid to a vendor,

provider, or recipient due to error, fraud, or abuse for sixty (60) days after the

improper payment is discovered. If the improper payment has not been

recovered after sixty (60) days, the agency shall certify the improper payment

as a debt of the agency and shall refer all certified debts to the department.

(5) A local government may, after making reasonable efforts to collect its debts, by

ordinance, resolution, or otherwise pursuant to law, certify its debts that have

been due and owing for more than ninety (90) days to the department for

collection. The department may, by administrative regulation promulgated in

accordance with KRS Chapter 13A, prescribe the form and format of, and the

information required in, referrals by a local government, which may be required

to be made electronically.

(6) Any funds recovered by an agency within the sixty (60) day collection period

allowed under subsection (4) of this section and prior to referral to the

department shall be allocated to the fund from which the improper payment

was expended.

(7) Each agency shall submit annual summaries of debts due to error, fraud, or

abuse, improper payments discovered, and certified debts referred to the

department to the Legislative Research Commission. These summaries shall

include but not be limited to:

(a) Debts owed the Commonwealth that have been identified by the agency,

in accordance with the preaudit procedures established under this

section, as those resulting from error, fraud, or abuse, of either the payee

or the state agency;

(b) The aggregate amount of money collected by the agency on those debts

during the sixty (60) day period allowed under subsection (4) of this

section; and

(c) The aggregate amount of certified debts that the agency referred to the

department.

(8) Each agency shall provide information about each debt due to error, fraud, or

abuse that is certified under this section to the State Treasurer for the

Treasurer's action under KRS 44.030(1).

(9) Each local government shall, where feasible, provide information about each

debt that is certified pursuant to this section to the State Treasurer for the

Treasurer's action under KRS 44.030(1).