YELLOW SHEET Office of the State Auditor of Missouri Claire McCaskill

Report No. 2005-02

February 2005

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

This audit is the second of two reports of the City of Nevada.  The first report issued in September 2004 identified receipts totaling at least $39,701 collected by the City of Nevada from January 2002 to April 2004 but were not deposited, and apparently misappropriated.  This report's 12 findings focus on the city's financial condition and internal controls over management and financial functions.

The city regularly uses water and sewer funds to compensate for negative balances in other city funds.  City officials indicate that it has been approximately 20 years since water and sewer rates have been reviewed.  Water and sewer revenues should be used to fund the operations of water and sewer services only, and should not generate profits to fund other services provided by the city.  The existing water and sewer rate structures have allowed the city to, in effect, levy additional taxes without a vote of the citizens.

As of August 31, 2004 the city's General, Park, Park Construction, Street and Airport Funds had a negative cash balance totaling approximately $1.3 million.  The city's water and sewer fund had a cash balance of approximately $2 million and was used to cover the shortfall in the city's checking account.  Contributing to the city's negative cash balances were poor controls over city revenues, inadequate procurement procedures, and construction of the city's new swimming pool prior to receiving adequate funding.

The city regularly operates their general fund with a deficit cash balance throughout the year making interfund loans from water and sewer at year end to bring the cash balance above zero.  The city's audited financial statements show that interfund loans to the city's general fund are a trend that has increased from $90,000 in 2001 to $450,000 in 2003. 

The city's budget does not reflect the need for interfund loans to cover deficit balances.  Additionally, budgets were amended during 2004 by the City Council to include additional expenditures without sufficient revenues to pay for the additional budgeted expenditures.  As a result deficit budgets were approved which are prohibited by state law and the City Charter.  Considering the poor financial condition of several city funds, it is imperative that the City Council adequately monitor the city's financial condition and develop a plan which will allow the city to operate without subsidies from the city's water and sewer funds.

In 1997, the city received land and a building (The Ozark Building) from the State Department of Mental Health (DMH), and $587,104 in state appropriations representing an economic development grant for the building.  The Ozark Building has remained unoccupied and no improvements have been made since it was transferred to the city.  Reports have not been properly submitted to the state, and the monies have remained in the city's bank account. 

The city needs to improve its process of procuring and monitoring most of its professional services.  Proposals were not always solicited, written contracts were not always obtained, and documentation was not always adequate to support amounts paid.  In one example, the city paid $88,000 to a public relations firm between January and August 2004 without soliciting proposals or adequate supporting documentation, and approximately $65,000 was incurred prior to the city signing an agreement.

The City Council does not adequately monitor the use of the hotel/motel tax monies paid to the Nevada/Vernon County Chamber of Commerce to provide tourism services.  While the contract with the chamber indicates periodic reports will be provided to the city, no reports have been obtained from the chamber.

In 1999 the city entered into an exclusive ten-year contract with a local vendor to provide non-alcoholic beverages at city facilities.  The city did not retain a copy of the contract, and there is no documentation to indicate proposals were solicited, or that the agreement was approved by the City Council.  In addition, monthly commissions totaling $8,464 paid to the city between January 2002 and October 2004 were not properly tracked.  Commission monies were classified in several different accounts in the city's financial records, some commission monies were held as long as nine months before being deposited, and some commission monies are unaccounted for by the city.  

The city purchased more than $69,000 in fuel during 2003 through the use of 71 fuel credit cards.  Additionally, the city has ten discount store credit cards, four bank credit cards, two home improvement store credit cards, and two office supply credit cards.  Purchases on these cards totaled approximately $126,400 during 2003.  Credit card purchases are not always reviewed and approved by someone other than the credit card holder and adequate supporting documentation was not maintained for many credit card purchases.

Travel expenditures were not always supported by adequate documentation, and some appeared unreasonable and excessive.

Also included in the report are recommendations related to city expenditures, cellular phones, city vehicles, bonus and incentive payments, closed meetings, and the city code.

Complete Audit Report