YELLOW SHEET Office of the State Auditor of Missouri Claire McCaskill

Report No. 2004-78

September 29, 2004

The following problems were discovered as a result of an audit conducted by our office of the City of Nelson, Missouri. 

A previous state audit of the City of Nelson, dated January 7, 1998 (1998-01) made 21 management recommendations to the city.  Of those recommendations, 1 has been implemented, 10, have been partially implemented and 10 have not been implemented by the city.  Many of those prior conditions have been repeated in this report.

The City Clerk is responsible for all record keeping duties of the city including duties which would normally be performed by a City Treasurer.  This is contrary to an Attorney General's opinion and jeopardizes the system of independent checks and balances intended by state law.  No personnel independent of the cash custody and record-keeping functions provide adequate supervision or review of the work performed by the City Clerk.

Because the city has not established procedures for the review of the work and records of the City Clerk, numerous recording, depositing, and disbursing errors made while a new City Clerk was in office from August to November 2003, were not detected.  It appears the City Clerk's inexperience and the board's failure to adequately review the monthly financial statement and/or bank reconciliations contributed to these conditions.  Numerous adjustments and transfers are needed to city records.  Additionally, the city's current procedures do not ensure payroll and payroll taxes are allocated to the proper funds.  

Controls over water deposits should be improved.  Also, some Water Fund monies are not maintained in an interest-bearing account, resulting in the loss of approximately $300 of interest revenues during the year ending June 30, 2003.  Water service is not always shut-off in accordance with the city code when water accounts are delinquent.

Passwords and user identification codes (IDs) are not used to restrict access to the city's computerized accounting and water/trash billing and collection records.  Additionally, city hall is not always occupied and there is unrestricted access from the community center.  Also, backup copies of computer programs and data are not prepared and stored off-site. 

The city does not have a formal bidding policy.  As a result, the decision of whether to solicit bids is made on a item-by-item basis.  For example, only one bid was obtained for large purchases such as water tower tank service costing $22,355 and property and liability insurance costing $2,475.  Also, vendor invoices or other supporting documentation were not property retained for some disbursements.  Additionally, contrary to state law, the city does not prepare and adopt annual budgets, or publish semi-annual financial statements.   

Numerous problems were noted with the city's procedures for conducting and documenting board meetings including;

• Board minutes are not signed to attest to their completeness and accuracy.

• Meeting notices and agendas are not prepared for regularly scheduled monthly board meetings.  Only meeting notices for special board meetings are prepared.

• Board minutes did not always include sufficient detail of matters discussed and action taken.

• Minutes are not maintained of closed board meetings and open meeting minutes did not always document the related vote to close the meeting and the specific reasons for closing the meeting.

• The city does not have a formal policy regarding public access to city records.

• The board did not always hold public hearings on the city's proposed property tax rate as required by state law.

The Water Fund financial records show a cash balance of $169,716 at June 30, 2003, with operating expenses and transfers totaling approximately $32,000 for the year ended June 30, 2003.  The Mayor indicated the city is saving money for future repair and replacement costs.  However, there is no documentation to support how the water fee was calculated and how much money is necessary to meet future repair and replacement costs.  Water fees are user charges which should cover the costs of providing the related service and maintaining the system, but the rates should not be set at a level which results in an excessive fund balance.

Also included in the report are recommendations to improve records and procedures for city ordinances, capital asset records, and community center policies.

Complete Audit Report