Auditor recommends better city accounting procedures
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Iowa State Auditor Rob Sands has released the results of his office’s “Independent Report On Applying Agreed-Upon Procedures” for the City of Mount Ayr for the period of July 1, 2020 through June 20, 2021.
“Agreed-Upon Procedures,” also known as audit standards, are the standard procedures a client sets when an external party performs an audit.
In short, the procedures audit checks that appropriate practices are being followed in a company’s financial transactions.
The state auditor’s report identified 10 procedure recommendations for city officials to review. Most are recommendations to change individual practices to conform to the “agreed-upon procedure” standards.
One recommendation, however, identified one item that, in the words of the report, “may represent conflicts of interest.”
The audit cited two transactions. One was with Stewart Tire for $7,326 for tire repair and service on skid loader rubber tracks.
Councilman Jordan Stewart owns Stewart Tire.
The second transaction was with Podium Ink for $6,102 for detour signs, decals, and zoning maps.
Councilman Brad Elliott is a co-owner of Podium Ink.
According to the auditor’s report, the above transactions may represent a conflict of interest since the total transactions were more than $6,000 allowed during the fiscal year and the transactions were not competitively bid.
City superintendent Brent Wise said the two items in question constitute a series of smaller individual purchases, not a large single purchase for which the city routinely seeks competitive bids.
Wise added that he was unaware of the $6,000 annual limit, and any overage in those dollar amounts were an oversight on his part.
“Council members always abstain when claims are brought before the council for approval,” he said. “The finding in the state auditor’s report should not reflect negatively upon the council members themselves.”
The auditor’s report recommended the city consult legal counsel to determine the disposition of this matter.
Wise said city attorney Jason Palmer has been apprised of the issue, and Palmer has released this response to the Record-News:
“The City of Mt. Ayr is in the process of reviewing the State Audit and its process to approve City expenditures. If changes and improvements need to be made, they certainly will be to ensure compliance with the law.”
Other recommendations from the auditor’s report include:
Segregation of duties
A good system of internal control provides for adequate segregation of duties so no one individual handles a transaction from its inception to completion. In order to maintain proper internal control, duties should be segregated so the authorization, custody and recording of transactions are not under the control of the same employee. This segregation of duties helps prevent losses from employee error or dishonesty and maximizes the accuracy of the City’s financial statements.
Recommendation:
We realize segregation of duties is difficult with a limited number of employees. However, the City should review its control procedures to obtain the maximum internal control possible under the circumstances utilizing currently available staff, including elected officials.
Independent reviews of reconciliations should be documented by the signature or initials of the reviewer and the date of the review.
Bank reconciliations – The June 30, 2021 bank reconciliation did not include the City’s revolving fund and Library checking and savings accounts.
Recommendation:
The City should establish procedures to ensure all City accounts are included in the monthly bank reconciliation.
Independent reviews of reconciliations should be documented by the signature or initials of the reviewer and the date of the review.
Reconciliation of utility billings, collections, and delinquent accounts
Utility billings, collections and delinquent accounts were not properly reconciled throughout the year. Although the software generates a reconciliation report, the City does not verify the billings, collections, delinquent accounts and other reconciling items.
Recommendation:
Procedures should be established to verify amounts on the software generated reconciliation report to billings, collections, delinquent accounts and other reconciling items.
Independent reviews of reconciliations should be documented by the signature or initials of the reviewer and the date of the review.
Payroll
Fiscal year 2022 wage increases for the Library were approved as a percentage increase however the approved salary was not documented in the City Councils meeting minutes.
Recommendation:
Actual approved salary should be adequately documented in the City Council meeting minutes as an approved hourly rate or salary and not just a percentage increase, including salaries of Library employees.
Disbursements
Disbursements should be properly supported by an invoice or other supporting documentation. We noted four of thirty disbursements traced were not properly supported.
Recommendation:
The City should maintain an invoice or other appropriate supporting documentation for all disbursements.
Credit card
The City Library has a credit card for use by various employees while on City business. The City Library has not adopted a formal policy to regulate the use of the credit card and to establish procedures for the proper accounting of the credit card charges.
Recommendation:
The Library Board should adopt a formal written policy regulating the use of the Library’s credit card. The policy, at a minimum should address who controls the credit card, who is authorized to use the credit card and for what purposes, as well as the types of supporting documentation required to substantiate the charges.
Void receipts
Void receipts are not reviewed by an independent person.
Recommendation:
To improve financial accountability and control, void receipts should be reviewed by an independent person and the review should be documented by the initial or signature of the reviewer and the date of the review.
Interfund transfers
A fund transfer resolution must be completed for all transfers between funds and must include a clear statement of reason or purpose for the transfer, the name of the fund from which the transfer is originating, the name of the fund into which the transfer is to be received, and the dollar amount to be transferred.
During the year ended June 30, 2021, two of three transfer resolutions did not include a clear statement of the reason or purpose for the transfer.
Recommendation:
The resolutions approving all fund transfers should include the information required by Section 545-2 of the Iowa Administrative Code City Finance Committee Rules.
Journal entries
One of four journal entries was not reviewed and approved by an independent person.
Recommendation:
An independent person should review and approve journal entries. The approval should be documented by signing or initialing and dating the journal entries.
