Audubon

Schedule of Findings ### Page 42 Findings Related to the Financial Statements: INTERNAL CONTROL DEFICIENCIES: 2025-001 Segregation of Duties Criteria – 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. In order to maintain proper internal control, 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 financial statements. Condition – Generally, one or two individuals may have control over the following areasfor which no compensating controls exist: | Item | Segregation of Duties Issue | | - | - | | 1) | Accounting system - performance of all accounting functions and having custody of assets. | | 2) | Cash - initiating cash receipt and disbursement transactions, handling and recording cash and reconciling bank accounts. | | 3) | Investments - detailed record keeping, custody of investments and reconciling earnings. | | 4) | Long-term debt - maintaining long-term debt records and handling and recording cash and reviewing compensated absence records. | | 5) | Receipts - opening mail, collecting, depositing, recording and reconciling. | | 6) | Disbursements - purchasing, disbursement preparation, recording, check writing, signing and reconciling. | | 7) | Payroll - entering rates into the system, preparing, reconciling, recording and distributing. | | 8) | Journal entries are not reviewed and approved by an independent person. | For the Audubon Fire and Rescue Association, one individual has control over each of the following areas: | Item | Segregation of Duties Issue | | - | - | | 1) | Cash - initiating cash receipt and disbursement transactions, handling and recording cash and reconciling bank accounts. | | 2) | Receipts - opening mail, collecting, depositing, recording and reconciling. | | 3) | Disbursements - purchasing, disbursement preparation, recording, check writing, signing and reconciling. | Cause – The City and the Audubon Fire and Rescue Association have a limited numberof employees and procedures have not been designed to adequately segregate duties or provide compensating controls through additional oversight of transactions and processes. ### Page 43 Effect – Inadequate segregation of duties could adversely affect the City’s and theAssociation’s ability to prevent or detect and correct misstatements, errors or misappropriation on a timely basis by employees in the normal course of performing their assigned functions. Recommendation – We realize segregation of duties is difficult with a limited number ofoffice employees. However, the City and the Association should review their control procedures to obtain the maximum internal control possible under the circumstances utilizing currently available staff, including elected officials. Reviews of journal entries and reconciliations should be performed by independent persons and should be evidenced by the signature or initials of the reviewer and the date of the review. Responses – City – The City has the Mayor review all reconciliations and utility reports to ensureaccuracy and integrity. This allows for continual checks and balances of staff. Fire and Rescue Association – The Association will strive to correct inadequatesegregation of duties and include the Mayor or City Clerk as an independent person for the review. Conclusion – Response acknowledged. The City and the Association should continue toreview their control procedures to obtain the maximum internal control possible under the circumstances utilizing currently available staff, including elected officials. 2025-002 Bank Reconciliations Criteria – An effective internal control system provides for internal controls related toensuring proper accounting for all funds by maintaining appropriate accounting records and reconciling bank and book balances. Condition – While a bank reconciliation is prepared through the City’s software eachmonth, monthly reconciliations of all bank and investment account balances were not reconciled to the City’s book balance for the entire fiscal year. At June 30, 2025, the City’s book balance exceeded the bank balance by $3,809. Cause – Procedures have not been designed and implemented to perform a completereconciliation of all bank and investment accounts to the book balance or to require the bank reconciliations to be reviewed by an independent person. Effect – Lack of performing and maintaining complete bank reconciliations and lack ofreview by an independent person could result in unrecorded transactions, undetected errors, and opportunity for misappropriation. Recommendation – The City should establish procedures to ensure all bank andinvestment account balances are reconciled to the City’s books monthly. Variances, if any, should be reviewed and resolved timely. An independent person should review the bank reconciliation and document the review by signing or initialing and dating the monthly bank reconciliation. ### Page 44 Response – The City will have the Mayor initial and date bank reconciliations. Conclusion – Response accepted. 2025-003 Computer System Criteria – Properly designed policies and procedures pertaining to control activities overthe City’s computer system and implementation of the policies and procedures help provide reasonable assurance financial information is safeguarded and reliable, and helps ensure the reliability of financial reporting, the effectiveness and efficiency of operations and compliance with applicable laws and regulations. Condition – Although the City has a disaster recovery plan, the plan does not include: | Item | Disaster Recovery Plan Issue | | - | - | | 1) | A written agreement with another entity for a location which could be used to process critical applications in the event of an emergency; | | 2) | A requirement that a copy of the disaster recovery plan be kept off site; | | 3) | An inventory of computer equipment needed for temporary processing; | | 4) | An inventory of all software applications; | | 5) | A requirement that copies of all user documentation and policies and procedures be located off site; | | 6) | A requirement that an extra stock of paper supplies, such as checks, warrants, and purchase orders, be located off-site; | | 7) | A requirement that the plan in place be tested has not been fulfilled. | Cause – Management has not required the disaster recovery plan to include the abovecritical information. Effect – The failure to have a formal disaster recovery plan which includes the criticalitems noted above could result in the City’s inability to function in the event of a disaster or continue City business without interruption. Recommendation – The City should review and modify the current disaster recovery planto include all critical information. Response – The City is in included in the county wide disaster recovery plan. Conclusion – Response acknowledged. The City should review and modify the currentdisaster recovery plan to include all critical information. INSTANCES OF NONCOMPLIANCE: No matters were noted. ### Page 45 Other Findings Related to Required Statutory Reporting: 2025-A Certified Budget – Disbursements during the year ended June 30, 2025, exceeded theamount budgeted in the culture and recreation and community and economic development functions. In addition, disbursements exceeded the amounts budgeted prior to the budget amendment in the community and economic development function. 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.” Recommendation – The budget should have been amended in accordance withChapter 384.18 of the Code of Iowa before disbursements were allowed to exceed the budget. Response – The City will continue to keep track of disbursements to not exceed the budget.The City will amend the budget as necessary. Conclusion – Response accepted. 2025-B Questionable Expenditures – No disbursements we believe may not meet the requirements ofpublic purpose as defined in an Attorney General's opinion dated April 25, 1979 were noted. 2025-C Travel Expense – No disbursements of City money for travel expenses of spouses of Cityofficials or employees were noted. 2025-D Business Transactions – Business transactions between the City and City officials oremployees are detailed as follows: | Name, Title and Business Connection | Transaction Description | Amount | | - | - | - | | Janelle Remsburg, City Clerk, spouse owns Remsburg Service | Building repairs and maintenance | $ 70,067 | In accordance with Chapter 362.5(3)(j) of the Code of Iowa, these transactions may represent a conflict of interest since the total transactions were greater than $6,000 during the fiscal year and the transactions were not competitively bid. Recommendation – The City should consult legal counsel to determine the disposition of thismatter. Response – The City will consult with the City Attorney in regard to this matter. Conclusion – Response accepted. 2025-E Restricted Donor Activity – No transactions were noted between the City, City officials, Cityemployees and restricted donors in compliance with Chapter 68B of the Code of Iowa. 2025-F Bond Coverage – Surety bond coverage of City officials and employees is in accordance withstatutory provisions. The amount of coverage should be reviewed annually to ensure the coverage is adequate for current operations. ### Page 46 2025-G City Council Minutes – No transactions were found that we believe should have beenapproved in the City Council minutes but were not. 2025-H Deposits and Investments – No instances of noncompliance with the deposit and investmentprovisions of Chapters 12B and 12C of the Code of Iowa and the City’s investment policy were noted. 2025-I Revenue Notes – The City’s water and sewer revenue note resolution requires the City toretain sufficient dollar amounts in the water and sewer reserve accounts until the end of the bond issue. The City did not retain the appropriate amounts in the water and sewer reserve accounts at year end June 30, 2025. Recommendation – The City should ensure balances are retained in the water and sewerreserve funds as required by the water and sewer note resolutions. Response – The City will refer to the resolution for transfers for the water and sewer notes. Conclusion – Response accepted. 2025-J Annual Urban Renewal Report – The Annual Urban Renewal Report was approved andcertified to the Iowa Department of Management on or before December 1st. 2025-K Financial Condition – At June 30, 2025, the City had a deficit balance in the Special Revenue,Economic Development Fund of $5,053. Recommendation – The City should investigate alternatives to eliminate the deficit in orderto return the fund to a sound financial position. Response – The City plans to perform fund transfers to eliminate this deficit. Conclusion – Response accepted. 2025-L Employee Benefit Fund – Chapter 384.6 of the Code of Iowa allows cities to certify taxes tobe levied in an amount necessary to meet its obligations for related employee benefits. Property tax levied for employee benefits should be expended only for employee benefits paid from the General Fund. During year ended June 30, 2025, the City paid for water and sewer employees from the Special Revenue, Employee Benefit fund. Enterprise employee benefits should be paid from the enterprise funds. Recommendation – The City should review expenses and ensure the appropriate funds areused and make a transfer from Enterprise Fund, Water and Enterprise Fund, Sewer to repay the Special Revenue Fund, Employee Benefits. Response – The City doesn’t want to pay any employee out of the water or sewer fund. Conclusion – Response acknowledged. Any employee who is performing work for the utilitieswould need to be allocated and the appropriate transfers from enterprise funds be made to be in compliance with Chapter 384.6 of the Code of Iowa. ### Page 47 2025-M Donation – During the fiscal year, the City donated $20,000 to the Audubon RecreationFoundation. The Constitution of the State of Iowa prohibits governmental bodies from making a gift to a private nonprofit corporation. Article III Section 31 of the Iowa Constitution states, “…no public money or property shall be appropriated for local or private purposes, unless such appropriation, compensation, or claim, be allowed by two thirds of the members elected to each branch of the General Assembly.” At least six official Iowa Attorney General Opinions since 1972 have consistently concluded that “a governmental body may not donate public funds to a private entity, even if the entity is established for charitable educational purposes and performs work which the government can’t perform directly.” The Opinions further state, “Even if the function of a private nonprofit corporation fits within the scope of activities generally recognized as serving a public purpose, a critical question exists regarding whether funds or property transferred to a private entity will indeed be used for those public purposes. “Political subdivisions and municipalities, including cities, counties, schools and townships are municipal-governmental entities. As governmental entities they are governed by elected bodies, are directly responsible to the public as a whole, and are subject to the limitations imposed on them by the state. Although a private organization may be formed to provide and support ‘public’ services which are the same or similar to the services provided by the government, the private organizations are not subject to the same degree of public accountability and oversight as governmental entities.” Recommendation – We are not awa