YELLOW SHEET Office of the State Auditor of Missouri Claire McCaskill

Report No. 2006-49

August 2006

The following findings were included in our audit report on the City of Osborn, Missouri.

The city of Osborn has not prepared a cost study to support the water and sewer rates to ensure these user fees are established to cover the costs of providing these services.  Without a current cost study to support the rate charged for water and sewer services, it is unclear whether the rate assessed for these services is set at an appropriate level.

The City Clerk performs all functions related to preparing the water and sewer bills, receipting and recording water and sewer payments and credit adjustments, depositing water and sewer receipts, monitoring accounts for delinquencies, and initiating service shutoff orders.  No independent review of the City Clerk's work is performed.  Records to account for water and sewer meter deposits are not reconciled with the cash balance in the water and sewer meter deposit bank accounts, and some water and sewer deposits collected did not agree with the amounts indicated on the signed water and sewer deposit agreement.  Also, the city does not perform monthly reconciliations of total billings, payments received, and delinquent amounts for water and sewer services.

The City Clerk prepares checks for current bills throughout the month and presents them to the mayor for his signature, but only a listing of paid bills is provided to the board at their monthly meeting.  In addition, the vendor invoices supporting payments are not typically presented to the Mayor or Board of Alderman for their review.   Furthermore, employee wages are not always reported to the IRS properly and subjected to payroll tax withholdings and a cell phone usage policy has not been adopted.

The city does not have a formal bidding policy.  The decision of whether to solicit bids and proposals for a particular purchase or a professional service is made on an item-by-item basis.  Bids or proposals were not solicited for any of the expenditures we selected for testing, including a water/sewer extension project totaling over $14,000.

Accounting duties are not adequately segregated and there is no independent oversight of the work performed by the City Clerk, who also serves as the City Treasurer.  In addition,

the City Clerk signs all checks and records all disbursements, performs bank reconciliations and prepares financial reports.  Neither the board nor other personnel independent of the cash custody and record-keeping functions provide adequate supervision or review of the work performed by the City Clerk.  Receipts slips are not issued for monies received, and documentation of bank reconciliations is not maintained.

Numerous errors and omissions were found in the record keeping of the City Clerk.  Cash control ledgers were not complete and monthly financial reports were not prepared and presented to the board.  In addition, numerous receipts were not posted to the ledgers, including some motor vehicle related revenues, grant proceeds, and bank interest.

The city's budgets lack information required by state law.  Disbursements exceeded budgeted amounts by approximately $11,700 and $12,400 for the General Fund and Water and Sewer Fund, respectively, for the year ended March 31, 2005.  The city did not prepare amended budgets for either fund, nor did the city set forth any reasons for exceeding the budgeted amounts in the board minutes or adopt a resolution authorizing the additional expenditures. Also, the city has not published semi-annual financial statements and has not obtained annual independent audits as required by state law.

The city has not established a separate fund or separate accounting for street receipts and disbursements and does not monitor the use of these funds.  During the year ended March 31, 2005, the city deposited approximately $15,800 in state motor vehicle-related receipts into the General Fund, but only spent approximately $5,300 for identifiable street related purposes.  In addition, the General Fund subsidized the Water and Sewer Fund by paying for various water and sewer expenditures.  Justification for these subsidies was not maintained, and it is unclear whether these payments were intended as loans or subsidies.

Also included in the report are recommendations related to minutes and records, property taxes, capital assets, ordinances, and a street maintenance plan.

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