Audit report for City of Red Oak released
Auditor of State Rob Sand has released an audit report on the City of Red Oak..
The City’s receipts totaled $8,670,917 for the year ending June 30, a 31.2% decrease from the prior year. Disbursements for the year ended June 30, 2021 totaled $8,367,458, a 19.6% decrease from the prior year.
The decreases are due primarily to the City not issuing new debt for projects in the fiscal year 2021 and the decreased capital project spending.
Sand reported eight findings related to the receipt and disbursement of taxpayer funds. The findings address issues such as a lack of segregation of duties, disbursements exceeding budget, a deficit fund balance in the Capital Projects Fund, and questionable donations.
Sand provided the City with recommendations to address each of the findings. Seven of the eight findings discussed above are repeated from the prior year.
• Segregation of duties: The state auditor’s office stated the City of Red Oak, the Volunteer Fire and Rescue Association and the Library Foundation should review their operating procedures to obtain the maximum internal control possible under the circumstances utilizing currently available staff, including elected officials to provide additional controls through review of financial transactions, reconciliations and financial report. The reviews should be documented by the signature or initials of the reviewer and the date of the review.
The City of Red Oak’s response was that it will continue to do its best in segregation of duties, and that they have already increased reviews with initials or signatures by an independent reviewer. The Library Foundation and Volunteer Fire and Rescue Association would be asked to follow this procedure. The response was accepted by the state auditor’s office.
• Disbursements exceeding budget: The auditor’s office stated disbursements during the year ending June 30, 2021 exceeded the amount budgeted in the community and economic development function. In addition, disbursements exceeded the amounts budgeted in the community and economic development and debt service functions prior to the budget amendment. Chapter 384.20 of the Code of Iowa states, in part, “public monies may not be expended or encumbered except under an annual or continuing appropriation.” The recommendation was that the budget should have been amended in accordance with Chapter 384.18 of the Code of Iowa before disbursements were allowed to exceed the budget.
The City of Red Oak responded that it tried to watch its budget and will continue to monitor and try to make any amendments prior to it taking place. The response was accepted by the auditor’s office.
• Deficit fund balance in Capital Projects Fund: The auditor’s office noted the Capital Projects Fund had a deficit balance of $554,409 at June 30, 2021, and recommended that the city should investigate alternatives to eliminate the deficit to return the fund to a sound financial position.
The city responded that it has worked on getting its projects cleaned up and closed out. It leaves a project in a deficit until all receipts have been received before it is closed out. The response was accepted by the auditor’s office.
• Questionable Donations: The auditor’s office cited donations of $30,000 to the Montgomery County Development Corporation and $10,000 to the Red Oak Chamber and Industry Association. The report indicated they were not aware of any statutory authority for the City to donate public funds to private non-profit organizations, and that the city should cease said donations.
The response from The City of Red Oak was that these contributions were in support of economic development activities as authorized by Chapter 15A of the Code of Iowa, and that the Red Oak City Council would adopt a resolution to clarify and support this. The response was accepted by the state auditor’s office.
The Red Oak City Council has a fiduciary responsibility to provide oversight of the City’s operations and financial transactions. Oversight is typically defined as the “watchful and responsible care” a governing body exercises in its fiduciary capacity.
A copy of the audit report is available for review on the Auditor of State’s web site at auditor.iowa.gov/reports/audit-reports/.
Sand expressed his appreciation for the cooperation and courtesy extended by the officials and employees of the City of Red Oak throughout the audit.