~by The Scranton Journal
A recent audit of the city of Scranton by the State Auditor turned up 17 findings that need improvement. Auditor of State Rob Sand has released an agreed-upon procedures report on the city of Scranton for the period July 1, 2019, through June 30, 2020.
During this time frame, records show the city went eight months without a city clerk; utilitized an interim clerk; hired a clerk who was terminated two months later and hired another clerk who resigned after two months.
Sand reported 17 findings related to the receipt and disbursement of taxpayer funds. The findings address issues such as a lack of segregation of duties, the lack of bank and utility reconciliations, lack of supervisory approval for timesheets and transfers being made without resolutions. Sand provided the city with recommendations to address each of the findings.
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.
The auditor’s findings are included in this story. City officials are making a concerted effort to follow the recommendations of the auditor.
A copy of the agreed-upon procedures report is available for review on the Auditor of State’s web site at https://auditor.iowa.gov/audit-reports.
Segregation of duties – Management is responsible for establishing and maintaining internal control. A good system of internal control provides for adequate segregation of duties so no one individual handles a transaction from its inception to completion. 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.
Bank reconciliations – The cash and investment balances in the city’s general ledger were not reconciled to bank and investment account balances throughout the year. For the two months reviewed one month’s book balance exceeded the bank balance by $590.
Voided receipts – Voided receipts are not reviewed by an independent person.
Reconciliation of utility billings, collections and delinquent Accounts – Utility billings, collections and delinquent accounts were not reconciled throughout the year and a delinquent account listing was not prepared monthly.
Utility rates – Utility rates are not entered into the system by an independent person. Also, the rates entered into the system not periodically reviewed by an independent person to ensure proper utility calculations and billings.
Credit card transactions – The city uses credit cards for certain purchases involving city business. The city has not adopted a formal policy to regulate the use of the credit card and to establish procedures to require adequate supporting documentation be maintained for credit card purchases.
Journal entries – Supporting documentation for journal entries made by the city is not maintained. Also, there is no evidence of review of journal entries by an individual independent of the journal entry process.
Monthly city clerk’s report – The city clerk’s report provided to the city Council shows total receipts and disbursements for all city funds but does not show the beginning and ending balances for each fund or the fund balance for all funds combined. Also, the city clerk’s report does not compare disbursement by function to budgeted amounts to allow the city’s elected officials to monitor the city’s compliance with the approved budget.
Financial condition – The capital projects fund had a deficit balance of $239,320 at June 30, 2020.
City council meeting minutes – Chapter 372.13(6) of the Code of Iowa requires minutes of all city council proceedings be published within 15 days of the meeting, including a summary of receipts. Minutes for one meeting observed were not published within 15 days. Also, one meeting’s minutes observed did not include a summary of receipts.
Local Option Sales Tax (LOST) – The City’s LOST ballot requires LOST receipts be allocated as follows: 20 percent for the operating expenses of the Scranton public library, 30 percent for the general expenses of the city of Scranton, 30 percent for costs associated with the public works department, and 20 percent for costs associated with the water and sewer operations. LOST disbursements were not tracked in a manner to document compliance with the requirement that 30 percent of LOST receipts are used for the public works department.
Payroll – Seven of 12 timesheets traced did not include evidence of supervisory review. Also, two payroll payments did not have timesheets to support the amount paid. In addition, the city did not maintain documentation for the approval and wage rate for a new employee. Additionally, there is no written approval required or maintained for payroll deductions.
Investments – An accounting record/register is not maintained for each investment.
Interfund transfers – Rule 545-2.5 of the Iowa Administrative Code requires transfers between funds to be passed by resolution and include a clear statement of the reason or purpose for the transfer, the name of the affected funds and the dollar amount to be transferred. Transfers were approved as a part of the budget approval process and transfers made did not agree to the original amount approved.
Electronic check retention – Chapter 554D.114 of the Code of Iowa allows the city to retain cancelled checks in an electronic format and requires retention in this manner to include an image of both the front and back of each cancelled check. The city does not receive an image of the back of each cancelled check for several bank accounts.
Annual financial report – The amounts the city reported for long-term debt activity on the fiscal year 2020 annual financial report (AFR) did not agree with the city’s financial records.
Questionable disbursements – In accordance with Article III, Section 31 of the Iowa Constitution and an Attorney General’s opinion dated April 25, 1979, public funds may only be spent for public benefit. The city incurred $191 in late charges, due to a late loan payment. We believe this disbursement may not meet the requirements of public purpose as defined in the Attorney General’s opinion since the public benefit to be derived has not been clearly documented.
