Iowa State Auditor Rob Sand has released an agreed-upon procedures report for the City of Keota in Keokuk County covering the fiscal year ending June 30, 2022. The report identifies twelve findings related to the receipt and disbursement of taxpayer funds, eleven of which are repeated from the prior year. An agreed-upon procedures report is a targeted review of specific financial records and compliance requirements rather than a full financial audit.
The report noted that 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 report stated, adding that many of the findings indicate the council needs to exercise additional oversight — a pointed reminder given that eleven of the twelve findings are repeated from the prior year.
Key Findings
Among the most significant findings was a bank reconciliation issue. The city maintained 26 bank and investment accounts during fiscal year 2022, but only one was reconciled monthly. An initial reconciliation variance of $724,213 was identified, with the city’s bank balance exceeding its book balance by that amount. The city did not take steps to resolve the variance, which was later traced to inaccurate journal entries made during fiscal year 2021 involving interfund transfers and loan proceeds. After accounting for that activity, the variance was reduced to $3,379. The city has since upgraded to new accounting software and is working to resolve the remaining issues.
The report also identified a deficit balance of $485,717 in the Enterprise, Sewer Fund as of June 30, 2022, and noted that principal and interest payments on the city’s general obligation sanitary sewer bonds were being paid from the wrong fund. Iowa law requires such payments to be made from the Debt Service Fund rather than the Enterprise, Sewer Fund.
Auditors also flagged several issues with the city’s Annual Financial Report, including beginning balances that did not match prior year ending balances, receipts and disbursements that were understated by $184,050 and $359,515 respectively compared to the city’s general ledger, and transfers that were overstated by $32,680.
Disbursements in the public safety, community and economic development, and business type activities functions exceeded budgeted amounts without a budget amendment being approved as required by Iowa law. Two of thirty disbursements tested also lacked supporting invoices or documentation.
The report also cited a lack of segregation of duties, where a single individual had control over accounting, cash handling, investments, receipts, utilities billing, debt recordkeeping, disbursements, and payroll. Additionally, two of five employee timesheets reviewed showed no evidence of supervisor approval.
Questionable Disbursements
Auditors flagged two disbursements as potentially not meeting the public purpose standard required under the Iowa Constitution — a $1,700 payment for trees purchased as a memorial gift and $1,045 spent on Adventureland tickets for DARE students. Auditors recommended the city document the public purpose served by such expenditures before authorizing similar payments in the future.
The full report is available on the Auditor of State’s website.
