Red Oak

Schedule of Findings and Responses SECTION I – FINANCIAL STATEMENT FINDINGS 2025-001 Lack of Segregation of Accounting 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's and the Library Foundation's financial statements. Condition: Generally, one or two individuals may have control over the following areas for the City: (1) Receipts – collecting, depositing, voiding and recording. (2) Utility receipts – billing, collecting, recording and maintaining accounts receivable. (3) Journal Entries – There is no approval process. For the Library Foundation, one individual has control over each of the following areas: (1) Receipts – collecting, depositing, and recording. (2) Disbursements – check writing and recording. The City and the Library Foundation have 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 or Potential Effect: Inadequate segregation of duties could adversely affect the City's and the Library Foundation'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 and the Library Foundation should review their operating procedures to obtain the maximum internal control possible under the circumstances utilizing currently available staff, including elected officials to provide additional controls through review of financial transactions, reconciliations and financial report. The reviews should be documented by the signature or initials of the reviewer and the date of the review. ### Page 60 City of Red Oak Schedule of Findings and Responses SECTION I – FINANCIAL STATEMENT FINDINGS (CONTINUED) 2025-001 Lack of Segregation of Accounting Duties (Continued) Views of Responsible Officials and Planned Corrective Actions: # # CORRECTIVE ACTION PLAN (CAP): - 1. Explanation of Disagreement with Audit Finding There is no disagreement with the audit finding. - 2. Actions Planned in Response to Finding The City has eight employees that divide the duties that impact internal control and fiscal responsibility. In the past two years an additional position has been created, the Deputy Clerk, to allow for more segregation. The City will continue to review procedures and assigned duties, to separate them as much as possible. The City has also added additional steps that items such as voiding, or billing adjustments are approved by the City Administrator. The Library Foundation has created additional steps to be sure multiple people, with various roles, are reviewing the Foundation's finances. - 3. Official Responsible for Ensuring CAP Lisa Kotter, City Administrator, is the official responsible for ensuring corrective action of the deficiency. - 4. Planned Completion Date for CAP The planned completion date for the CAP is June 30, 2026. - 5. Plan to Monitor Completion of CAP The City Council will be monitoring this CAP. ### Page 61 City of Red Oak Schedule of Findings and Responses SECTION I – FINANCIAL STATEMENT FINDINGS (CONTINUED) 2025-002 Bank Reconciliations Criteria: Internal control that supports the City's ability to initiate, record, process and report financial data requires controls to ensure all bank reconciliations are done accurately and timely. Condition: During the course of our audit, we noted that bank reconciliations were not done accurately or timely. Context: This finding impacts the internal control over bank reconciliations. Effect or Potential Effect: Internal controls that fail to identify necessary adjustments could result in material misstatements to the financial statements. Recommendation: Ensure bank reconciliations are done accurately and timely. Views of Responsible Officials and Planned Corrective Actions: # # CORRECTIVE ACTION PLAN (CAP): - 1. Explanation of Disagreement with Audit Finding There is no disagreement with the audit finding. - 2. Actions Planned in Response to Finding The City continues to train additional employees to perform bank reconciliations to ensure they are performed accurately and timely. - 3. Official Responsible for Ensuring CAP Lisa Kotter, City Administrator, is the official responsible for ensuring corrective action of the deficiency. - 4. Planned Completion Date for CAP The planned completion date for the CAP is August 31, 2026. - 5. Plan to Monitor Completion of CAP The City Council will be monitoring this CAP. ### Page 62 City of Red Oak Schedule of Findings and Responses SECTION II – FINANCIAL STATEMENT FINDINGS (CONTINUED) 2025-003 – Disaster Recovery Plan Criteria: Properly designed policies and procedures pertaining to control activities over the City's computer systems 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: The City does not have a written disaster recovery plan and does not require back-up tapes be stored off site daily in a fireproof vault or safe. Context: This finding impacts the internal control over data backups and disaster recovery. Effect or Potential Effect: The failure to have a formal disaster recovery plan could result in the City's inability to function in the event of a disaster or continue City business without interruption. Storing back-up tapes off-site helps ensure financial and other information is readily available in the case of a disaster or emergency. Recommendation: A written disaster recovery plan should be developed and approved by the City Council, and back-up tapes should be stored off site daily in a fireproof vault or safe. Views of Responsible Officials and Planned Corrective Actions: # # CORRECTIVE ACTION PLAN (CAP): - 1. Explanation of Disagreement with Audit Finding There is no disagreement with the audit finding. - 2. Actions Planned in Response to Finding The City is continuing to work on a plan with our IT consultant and have created additional steps to decrease the chance of disasters and what to do if anything is compromised. - 3. Official Responsible for Ensuring CAP Lisa Kotter, City Administrator, is the official responsible for ensuring corrective action of the deficiency. - 4. Planned Completion Date for CAP The planned completion date for the CAP is August 31, 2026. - 5. Plan to Monitor Completion of CAP The City Council will be monitoring this CAP. ### Page 63 City of Red Oak Schedule of Findings and Responses SECTION II – OTHER FINDINGS RELATED TO STATUTORY REPORTING: 25-II-A Certified Budget Disbursements in the public works and community and economic development functional areas exceeded amounts budgeted during the year. Auditor's 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. City's Response: The budget was amended but final disbursements exceeded the amendment. Auditor's Conclusion: Response accepted. 25-II-B Questionable Disbursements We noted no material expenditures which did not appear to meet the requirements of public purpose as defined in an Attorney General's opinion dated April 25, 1979. 25-II-C Travel Expense No disbursements of City money for travel expenses of spouses of City officials or employees were noted. 25-II-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 Chavis Wise, full-time firefighter, owner of American Fire Protection Inspections and Supplies 1,956$ Duane Barkman, ambulance driver, Owner of Servus Auto Glass Windshield Repairs 420 In accordance with Chapter 362.5(3)(j) of the Code of Iowa, the transactions above do not appear to represent a conflict of interest since they totaled less than $6,000 during the fiscal year. 25-II-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. ### Page 64 City of Red Oak Schedule of Findings and Responses SECTION II – OTHER FINDINGS RELATED TO STATUTORY REPORTING: (CONTINUED) 25-II -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 that the coverage is adequate for current operations. 25-II -G Council Minutes No transactions were found that we believe should have been approved in the Council minutes but were not. 25-II -H Deposits and Investments No instances of noncompliance with the deposit and investment provision of Chapter 12B and 12C of the Code of Iowa and the City's investment policy were noted. 25-II -I Revenue Bonds and Notes The City's sewer revenue bond resolution requires all users of the system, including the City, be charged for usage. The City is not being charged for usage. The City does not make the required monthly transfers to the sinking account. Recommendation: The City should ensure City sewer usage is billed and paid by the City and the required transfers to the sinking account are made monthly. Response: The City has installed these meters in 2026. Conclusion: Response accepted. 25-II -J Annual Urban Renewal Report The Annual Urban Renewal Report was properly approved and certified to the Iowa Department of Management on or before December 1, as required. However, the amount of TIF debt outstanding on the Levy Authority Summary page is negative. Recommendation: The City should ensure the amounts reported on the Annual Urban Renewal Report are supported and agree with City records. Response: The City has recently converted financial software and will be able to complete this process in 2026. Conclusion: Response accepted. ### Page 65 City of Red Oak Schedule of Findings and Responses SECTION II – OTHER FINDINGS RELATED TO STATUTORY REPORTING: (CONTINUED) 25-II -K Unclaimed Property Chapter 556.11 of the Code of Iowa requires all entities to report and remit outstanding obligations, including checks, held for more than two years to the Office of Treasurer of State annually. The City did not remit obligations outstanding for greater than two years, as required. Recommendation: Outstanding checks should be reviewed annually and amounts over two years old should be remitted to the Office of Treasurer of State, as required. Response: The City has recently converted financial software and will be able to complete this process in 2026. Conclusion: Response accepted.