Charles City

Schedule of Findings and Questioned Costs Year ended June 30, 2025Part I: Summary of the Independent Auditor’s Results:Basic Financial Statementsa) Type of auditor’s report issued: Unmodified opinions were issued on the financial statements which were prepared using cash receipts and disbursements method of accounting, which is a basis of accounting other than U.S. generally accepted accounting principles. b) Internal control over financial reporting: Material weaknesses identified: No Significant deficiencies identified: Yesc) Noncompliance material to financial statements noted: NoFederal Awardsd) Internal control over major programs: Material weaknesses identified: No Significant deficiencies identified: Noe) Type of auditor’s report issued on compliance for major programs: Unmodifiedf) Any audit findings disclosed that are required to be reported in accordance 2 CFR section 200.516(a):Nog) Major programs: Assistance Listing Number 14.871 – Section 8 Housing Choice Vouchers h) Dollar threshold used to distinguish between Type A and Type B programs: $750,000i) Auditee qualified as a low-risk auditee: No59Yes ### Page 75 City of Charles City, Iowa Schedule of Findings and Questioned Costs Year ended June 30, 2025Part II: Findings Related to the Financial Statements: INTERNAL CONTROL DEFICIENCIES:2025-001 Segregation of Duties – Generally, we noted that from time to time one individual may possess control over each of the following areas: 1) Payroll – entering rates and hours into the system, recordkeeping, preparing, signing and distributing. 2) Disbursements – purchasing, invoice processing, check writing, mailing, reconciling and recording. 3) Financial Reporting and Budgeting – preparing and reconciling. 4) Receipts – opening mail, collecting, depositing, journalizing, reconciling and posting. 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’s financial statements. Condition – One individual has control over various functions of the City. 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, including elected officials. We recommend that the City implement a policy that requires dual signatures on all checks being issued. Response – We have reviewed procedures and plan to make improvements to internal control. Conclusion – Response accepted.INSTANCES OF NON-COMPLIANCE:No matters were noted.60 ### Page 76 City of Charles City, Iowa Schedule of Findings and Questioned Costs Year ended June 30, 2025Part III: Findings and Questioned Costs for Federal Awards: INSTANCES OF NON-COMPLIANCE:No matters were noted.INTERNAL CONTROL DEFICIENCIES: Assistance Listing Number 14.871: Section 8 Housing Choice Vouchers Federal Award Year: 2025 Prior Year Finding Number: N/A U.S. Department of Housing and Urban DevelopmentNo matters were noted.61 ### Page 77 City of Charles City, Iowa Schedule of Findings and Questioned Costs Year ended June 30, 2025Part IV: 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 debt service 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 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 accepted. 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 money for travel expenses of spouses of City officials or employees were noted. 2025-D Business Transactions – Business transactions between the City and City officials or employees are detailed as follows: Name, Title, and Business Connection Transaction Description Amount Virginia Titus, Deputy Clerk, Wife of Owner of Titus Lock Services Lock maintenance $ 628 Jeremy Heyer, Housing Board Member Son owns Heyer Lawn Care Lawn mowing 30,666 In accordance with Chapter 362.5(3)(j) of the Code of Iowa, the transaction with the Deputy Clerk does not appear to represent a conflict of interest since the total transactions did not exceed $6,000 during the year. The transaction with the housing board member does not appear to represent a conflict of interest since it was entered into through competitive bidding in accordance with Chapter 362.5(3) of the Code of Iowa. Recommendation – The City should be aware of the potential for a conflict of interest when dealing with members of the City Council, its employees, and relatives of council and employees. Response – We understand the compliance requirements for related parties and will keep this in mind when future possible conflicts of interest arise. Conclusion – Response accepted.62 ### Page 78 City of Charles City, Iowa Schedule of Findings and Questioned Costs Year ended June 30, 2025 2025-E 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-F City Council Minutes – No transactions were found that we believe should have been approved in the City Council meeting minutes but were not. 2025-G Deposits and Investments – No instances of non-compliance with the deposit and investment provisions of Chapters 12B and 12C of the Code of Iowa and the City’s investment policy were noted. 2025-H Revenue Bonds and Notes – The City is required to establish and maintain a water sinking fund account for making the required debt payments in accordance with the revenue bond provisions. During the year ended June 30, 2025, the City did not make sufficient transfers to the water sinking fund account. Recommendation – The City should increase the sinking fund transfers to ensure a balance is maintained to sufficiently cover the required debt payments. Response – The sinking fund will be increased as noted. Conclusion – Response accepted. 2025-I Financial Condition – The following funds had deficit balances at June 30, 2025: Fund Description Balance Special Revenue, 2024 Flood (23,963) Capital Projects, Street Improvements (40,000) Capital Projects, IPC/Sponsored (76,284) Capital Projects, Arboretum Project (63,966) Capital Projects, CW Bike Trail Extension (199,801) Recommendation – The City should investigate alternatives to eliminate these deficits to return the funds to sound financial positions. Response – The City expects future receipts into these funds will eliminate the deficit balances. These deficits are due to costs being incurred prior to the receipt of grant funds and assessments, which operate on a reimbursements basis as part of the grant agreement. Conclusion – Response accepted. 2025-J Annual Financial Report – The Annual Financial Report required by Chapter 384.22 of the Code of Iowa was not completed at the time of fieldwork, however, the fiscal year 2024 report was not filed timely.63 ### Page 79 City of Charles City, Iowa Schedule of Findings and Questioned Costs Year ended June 30, 2025 Recommendation – The City should file the Annual Financial Report by December 1st as required. Response – We will ensure the Annual Financial Report is filed timely in the future. Conclusion – Response accepted. 2025-K Property Tax Budgeting – Property taxes levied and collected for the purpose of providing employee benefits exceeded the actual amounts disbursed for the referenced benefits by $89,827 thereby creating an excess fund balance. Accurate budgeting for receipts and disbursements is one of the most important financial controls for proper financial planning for every function of the City. Per Iowa Code section 384.6(1), “A city may certify taxes to be levied for a trust and agency fund in the amount necessary to meet its obligations.” Recommendation – During the budgeting process, the City should reference historical costs incurred for providing benefits to its employees and compare those amounts to anticipated outlays for the upcoming year when certifying property tax levy amounts, in order to avoid an unnecessary and burdensome tax on its constraints. The City should not include expenses of proprietary funds when certifying expenses for the levy. Response – We will implement a more stringent review process when levying taxes to ensure amounts requested are reasonable and necessary. Conclusion – Response accepted. 2025-L Employee Reporting – IPERS Enrollment – During testing of payroll records, it was noted that the City reported an employee’s hire date to the Iowa Public Employees’ Retirement System (IPERS) as one month earlier than the employee’s actual hire date. Accurate reporting to IPERS is essential, as this information is used to determine employee retirement eligibility, contribution requirements, and is utilized by actuaries in calculating the City’s net pension liability. Recommendation – The City should verify the accuracy of employee information, including hire dates, prior to submitting data to IPERS to ensure accurate reporting and compliance with IPERS requirements. Response – We will review employee setup information for accuracy prior to submission to IPERS to prevent future reporting errors. Conclusion – Response accepted.64