Iowa Auditor of State Rob Sand released a report Thursday, October 15th, 2026, detailing 16 findings related to the receipt and disbursement of taxpayer funds in the City of Keota in Keokuk County, covering the fiscal year from July 1st, 2022 through June 30th, 2023.
The agreed-upon procedures report, conducted pursuant to Chapter 11.6 of the Code of Iowa, flagged issues ranging from a lack of basic financial controls to disbursements exceeding the city’s budget and a deficit in the city’s sewer fund. Eleven of the 16 findings were repeated from the prior year’s report.
Among the most significant findings was a bank reconciliation problem in which the city maintained 23 bank and investment accounts during the fiscal year but reconciled only one of them monthly. A reconciliation performed at the end of the fiscal year initially showed the city’s bank balance exceeding its book balance by $922,144. Auditors traced part of the gap to incorrect journal entries made during fiscal year 2021, which reduced the unexplained variance to $193,134 — an amount that remained unresolved. The city also failed to maintain a listing of outstanding checks.
The annual financial report contained significant errors as well, according to the report. Total receipts were overstated by $195,417, total disbursements were overstated by $8,122, and the proprietary ending fund balances were understated by $1,367,511, resulting in a net understatement of $1,319,392 in fund balances.
Auditors also found that city disbursements exceeded budgeted amounts in multiple categories — including public safety, public works, culture and recreation, community and economic development, and business type activities — without the required budget amendments. The city additionally failed to document that it published the required public hearing notice on its original budget.
The city donated $1,100 in public funds to the Keota Community Club, a nonprofit, for Keota Fun Days. The report noted that the Iowa Constitution prohibits governmental bodies from making gifts to private nonprofit corporations, citing at least six Iowa Attorney General opinions since 1972 that have consistently held that a governmental body may not donate public funds to a private entity. Auditors recommended the city cease such donations unless it enters into a formal contract for services.
Other findings included a lack of segregation of duties, with one employee controlling financial transactions from start to finish across multiple areas including cash handling, payroll, utility billing and disbursements. City Council meeting minutes for two of four meetings observed were not published within the required 15-day window, and none of the four included the required summary of disbursements and receipts. Monthly City Clerk’s reports were not completed and provided to the council for review. One employee timesheet showed no evidence of supervisor review.
Utility reconciliations were completed only through February 2023, with no reconciliations prepared for March through June. For one month observed, utility receipts on the monthly reconciliation were understated by $3,579 compared to the accounting system. Interfund transfer records showed total transfers in did not equal total transfers out by $266,532, and not all transfers were approved by the required resolution.
The city’s Enterprise, Sewer Fund carried a deficit balance of $485,717 as of June 30th, 2023. Auditors also found the city failed to maintain sewer rates at the level required by its revenue bond agreement, which calls for net operating receipts of at least 110% of annual principal and interest on the bonds. Additionally, the city exceeded the maximum deposit amounts approved in its depository resolution during the fiscal year.
Sand provided the city with recommendations to address each finding. The full report is available on the Auditor of State’s website at auditor.iowa.gov.
