Osceola

Schedule of Findings Year Ended June 30, 2025 Part I: 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 City of Osceola's (City) financial statements. Condition — Generally, one or two individuals have control over each of the following areas for the City: 1) Cash — reconciling bank accounts, initiating cash receipts and handling and recording cash. 2) Investments — detailed record keeping, custody and reconciling. 3) Inventory — recording and reconciling. 4) Long-term debt — recording and reconciling. 5) Receipts — collecting, depositing, posting and reconciling. 6) Accounting system — performing all general accounting functions and having custody of City assets. 7) Disbursements — preparing checks, signing checks and access to the accounting records. 8) Petty cash — custody, reconciling and recording. 9) Payroll — recordkeeping, preparation and distribution. Cause — The City has a limited number of employees and procedures have not been designed to adequately segregate duties or provide compensating controls through additional oversight of transactions and processes. Effect — Inadequate segregation of duties could adversely affect the City'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 — The City should review its control activities to obtain the maximum internal control possible under the circumstances utilizing currently available staff. Response — The City will review its control procedures to obtain the maximum internal control possible with the limited staff it has. Conclusion — Response acknowledged. 2025-002 Preparation of Financial Statements Criteria - A properly designed system of internal control over financial reporting includes the preparation of an entity's financial statements and accompanying notes to the financial statements by internal personnel of the entity. -40- ### Page 41 City of Osceola Schedule of Findings Year Ended June 30, 2025 Condition - As auditors, we were requested to draft the financial statements and accompanying notes to the financial statements. It is the responsibility of management and those charged with governance to make the decision whether to accept the degree of risk associated with this condition because of cost or other considerations. Cause - We recognize that with a limited number of office employees, preparation of the financial statements and accompanying notes to the financial statements is difficult. Effect - The effect of this condition is that the year-end financial reporting is prepared by a party outside of the City. The outside party does not have the constant contact with ongoing financial transactions. Recommendation - We recommend that City officials continue reviewing operating procedures in order to obtain the maximum internal control possible under the circumstances to enable staff to draft the financial statements and accompanying notes to the financial statements internally. Response — These are very technical issues that the average citizen would not understand. This issue relates to auditor independence issues, and we accept the risk associated with not being able to prepare these documents and apply accounting principles in accordance with an other comprehensive basis of accounting. Conclusion — Response acknowledged. 2025-003 Material Adjustments Criteria — A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements of the financial statements on a timely basis. Properly designed policies and procedures and implementation of the policies and procedures are an integral part of ensuring the reliability and accuracy of the City's financial statements. Condition — We noted that various interfund transfers were not properly recorded. Commercial/Industrial Replacement Claim Payments were not properly classified on the accounting system. Also, some receipts were credited to incorrect funds, and some disbursements were paid from incorrect funds. Cause — City policies do not require and procedures have not been established to provide for an independent review of receipts and disbursements to ensure the City's financial statements are accurate. Effect — Lack of City policies and procedures resulted in City employees not detecting the errors in the normal course of performing their assigned functions. As a result, material adjustments to the City's financial statements were necessary. Recommendation — The City should establish procedures to ensure all receipts and disbursements are properly recorded and reported in the City's financial statements. Response — The City will attempt to implement this recommendation. Conclusion — Response acknowledged. -41- ### Page 42 City of Osceola Schedule of Findings Year Ended June 30, 2025 2025-004 Receipts Criteria — A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements of the financial statements on a timely basis. Properly designed policies and procedures and implementation of the policies and procedures are an integral part of ensuring the reliability and accuracy of the City's financial statement. Condition — Receipts are not deposited timely by the City. Currently, receipts are deposited to the bank within 2-3 days after receipt. Cause — City policies do not require and procedures have not been established to ensure all receipts are deposited timely. Effect — Lack of City policies and procedures resulted in City employees not depositing timely. Recommendation — The City should establish procedures to ensure all receipts are deposited timely, preferably on a daily basis. Response — We will attempt to implement this recommendation. Conclusion — Response acknowledged. 2025-005 Chart of Accounts Criteria — An effective internal control system provides for internal controls related to accurate and complete financial reporting. Condition — The City has not fully implemented the recommended Uniform Chart of Accounts for Iowa City Governments approved by the City Finance Committee. Cause — City policies and procedures have not been established to require the use of the Uniform Chart of Accounts. Effect — Not using a uniform chart account could result in inaccurate or incomplete financial reporting. Recommendation — To provide better financial information and control, the City should establish policies and procedures to require the use of the recommended Uniform Chart of Accounts, or its equivalent. Response — We will look at implementing a chart of accounts for the City. Conclusion — Response acknowledged. 2025-006 Bank Reconciliations Criteria — An effective internal control system provides for internal controls related to reconciling monthly financial reports to all bank accounts and investments. Condition — Although monthly bank reconciliations were prepared for individual bank accounts and investments, the reconciliations are not complied to show a complete reconciliation of all accounts with the general ledger. -42- ### Page 43 City of Osceola Schedule of Findings Year Ended June 30, 2025 Cause — Policies have not been established and procedures have not been implemented to prepare a complete bank reconciliation of all accounts and investments. Effect — Lack of performing and maintaining bank reconciliations could result in unrecorded transactions, undetected errors and opportunity for misappropriation. Recommendation — The City should establish procedures to ensure bank and investment account balances are reconciled to the general ledger monthly. Variances, if any, should be reviewed and resolved timely. Procedures should be established to ensure all financial reports reconcile and include all City activity. Response — Beginning with an effective date of June 30, 2025, this recommendation has been implemented. An outside accounting firm is assisting us with these reconciliations in fiscal year 2026. This should not be an issue in fiscal year 2026 and beyond. Conclusion — Response acknowledged. INSTANCES OF NON-COMPLIANCE: No matters were noted. -43- ### Page 44 City of Osceola Schedule of Findings Year Ended June 30, 2025 Part 11: Other Findings Related to Required Statutory Reporting: 2025-A Certified Budget — Disbursements during the year ended June 30, 2025 exceeded the amounts budgeted in the public works, community and economic development, general government and the business type activities functions. 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 with Chapter 384.18 of the Code of Iowa before disbursements were allowed to exceed the budget. Response — The budget will be amended in the future, if applicable. Conclusion — Response acknowledged 2025-B Questionable Disbursements — No disbursements we believe may not meet the requirements of public purpose as defined in an Attorney General's opinion dated April 25, 1979 were noted. 2025-C Travel Expense — No disbursements of City of Osceola (City) money for travel expenses of spouses of City officials or employees were noted. 2025-D Business Transactions — No business transactions between the City and City officials or employees of the primary government were noted. 2025-E Restricted Donor Activity — No transactions were noted between the City, City officials, City employees 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 with statutory provisions. The amount of coverage should be reviewed annually to ensure the coverage is adequate for current operations. 2025-G Council Minutes — Transactions were found that we believe should have been approved in the Council minutes but were not. Some claims were not approved by the City Council. Several claims were not published in the newspaper. Chapter 372.13(6) of the Code of Iowa requires a summary of all receipts and the minutes of the proceedings of the Council be submitted to the newspaper for publication within fifteen days of the City Council meeting. In addition, this same Code Section requires that the City Council approve all claims and these claims be published in the newspaper. Recommendation - The City should implement procedures to ensure that all claims paid are approved by the City Council. The City should also implement procedures to ensure that all claims paid are included in the newspaper publications. Response - We will implement these recommendations. Conclusion - Response acknowledged. 2025-H Deposits and Investments — No instances of non-compliance with the deposit and investment provisions of Chapter 12B and 12C of the Code of Iowa and the City's investment policy were noted. -44- ### Page 45 City of Osceola Schedule of Findings Year Ended June 30, 2025 2025-I Sewer Revenue Bonds — The following instances of non-compliance with the sewer revenue bond resolutions were noted. • The sewer revenue bond resolutions require all users of the system, including the City, be charged for usage. The City is not currently charged for sewer usage. • The sewer revenue bond resolutions require the City to make sufficient monthly transfers to a separate sewer revenue bond sinking accourtt for the purpose of making the bond principal and interest payments when due. The City did not properly fund the sewer revenue bond sinking account each month as required. • The sewer revenue bond resolutions require the City to maintain and establish a sewer reserve fund with a balance of $436,900. While the City did properly establish this fund, this fund is not backed by cash since the cash balance in the Enterprise, Sewer Fund at June 30, 2025 is $93,386. Recommendation — The City should ensure all City departments pay for sewer usage and should make transfers in a timely manner and amount to the sewer revenue bond sinking account for the purpose of making the bond principal and interest payments when due. In addition, the City should ensure the balance in the sewer reserve fund is backed by cash. Response — We will review these recommendations and implement to the best of our ability. To address the lack of cash, we have additional monies available that the City can borrow, plus we will receive a donation in fiscal year 2026. These actions will help secure the financial issues in the Enterprise, Sewer Fund. Conclusion — Response acknowledged. 2025-J Legal Disbursements — The City paid $12,000 to its prior City Attorney in fiscal year 2025. The prior City Attorney does not provide invoices or detail to the City documenting the services provided by the this individual to the City. Recommendation — The City should ensure a written agreement is in place between the City and City Attorney, and adequate detail is provided to the City in relation to work performed by the City Attorney for the City. Response — The City has appointed a new City A