City of Red Oak receives 2023 audit report from state

Auditor of State Rob Sand released an audit report on the City of Red Oak.
The City’s receipts totaled $9,238,714 for the year ended June 30, 2023, a 4.1% decrease from the prior year. Disbursements for the year ended June 30, 2023 totaled $9,408,177, a 6.1% increase over the prior year. The significant decrease from the prior year in receipts is due primarily to a large donation to the library in the year ended June 30, 2022. The significant increase in disbursements is due primarily to increased public safety salaries and the repair and purchase of equipment.
Sand reported 11 findings related to the receipt and disbursement of taxpayer funds. They are found on pages 50 through 56 of this report. The findings address issues such as a lack of segregation of duties, financial reporting, disbursements exceeding budget, a deficit fund balance in the Special Revenue, Employee Benefits Fund and the Capital Projects Fund and questionable donations. Sand provided the City with recommendations to address each of the findings. Seven of the findings discussed above are repeated from the prior year. According to Sand, the 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.
Among the recommendations from the auditor’s office was that the city 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 responded that it has eight employees that divide the duties that impact internal control and fiscal responsibility. In the past two years an additional position has been created, the Deputy Clerk, to allow for more segregation. The City will continue to review procedures and assigned duties, to separate them as much as possible. The City has also added additional steps so that such as voiding, or billing adjustments are approved by the City Administrator.
The audit also recommended that the city should implement procedures to ensure that all transfers between bank accounts and certificates of deposits are identified and properly reported in the City’s financial statements. The city responded it is first working with a consultant to get all CDs posted to the various banks in the software system to make sure that cash balances to the banks have a zero discrepancy. Once those are posted, processes will be created to be sure cashed CDs are posted in the cash properly. That response was accepted as well.
The audit recommended that a written disaster recovery plan should be developed and approved by the City Council, and back-up tapes should be stored off site daily in a fireproof vault or safe. The city responded it is working on a plan with its IT consultant and have created additional steps to decrease the chance of disasters and what to do if anything is compromised. The response was accepted by the auditor’s office.
Also, the audit recommended through the report that all disbursements should be supported by invoices or other supporting documentation. The city responded that it has stopped paying anything without an invoice, and the response was accepted.
The audit also noted that it is not aware of any statutory authority for the City to donate public funds to private nonprofit organizations. If the nonprofit organization provides a service to the City, the City may enter into an agreement properly established under Chapter 28E of the Code of Iowa or an ordinary contract for services similar to one they would enter with a private entity providing services. Either way, the agreement should detail the services provided and the cost of those services, as well as provide transparency for the City that allows confirmation the funds were spent as agreed and a clawback provision in the event that they are not spent as agreed. If the entity is not providing a service to the City, the City should immediately cease making future donations. The city responded that it has created a resolution authorizing the funds to the MCDC and Chamber and after that created an actual service agreement. The response was accepted.
The complete audit report is available at auditor.iowa.gov/reports/file/79767.pdf.