The city of Lawson is in poor financial condition as a result of numerous internal control weaknesses; cash flow deficits; inefficient management practices; and inadequate controls over expenditures, as well as the theft of over $96,000 by the former City Clerk. In August 2006, the city was contacted by its bank and informed that the general checking account was negative and most of the other restricted accounts established related to bond issues had been depleted. During the three years ended June 30, 2006, General Fund expenditures exceeded revenues by approximately $600,000, causing the fund balance to go from approximately $700,000 down to approximately $99,000. During the same time period, the proprietary fund had a net loss of approximately $373,000. The city had to secure over $289,000 of tax anticipation notes to fund normal operating expenditures in August 2006.
Unauthorized disbursements totaling almost $94,000 were made by the former City Clerk to herself and approximately $2,500 in unauthorized purchases were charged to the city credit card for her personal benefit. The fraudulent transactions made by the former City Clerk occurred between 2003 and 2006 and included duplicate payroll checks for the same period that were issued on several occasions. In addition, the former City Clerk processed payments directly to herself but posted the disbursements to the computer as vendor payments. Although the city bank accounts require two signatures, the former City Clerk was apparently able to falsify signatures on the improper checks. Charges were filed against the former City Clerk and she was found guilty of felony stealing and forgery in Ray County Circuit Court and was sentenced to the Department of Corrections. She was also ordered to pay restitution.
There were also two unauthorized payments made to the former City Administrator in March 2006 totaling over $4,300. These payments were included in two separate checks written as payments for unused leave; however, both checks included a payroll distribution that had already been paid for the same period. These duplicate payroll distributions were subsequently questioned and repaid in November 2006.
The city has not established separate funds nor accounting records for restricted receipts to ensure they are expended only for their intended purpose. All of the city's financial transactions are commingled in one accounting system and the system does not provide for segregation of activities by fund such as a General Fund, Utility (water-sewer-trash) Fund, Street Fund, or various other funds. The city primarily uses one bank account for most general and operating receipts and disbursements, but does maintain other bank accounts for certain types of receipts, such as bond and grant proceeds, court appearance bonds, and police department donations. Many of these other bank accounts were depleted by June 30, 2006, as a result of transfers to the city's general bank account.
There is no independent oversight or adequate segregation of duties related to the City Clerk's office and there is no evidence the various reports provided to the board periodically are reviewed for accuracy. The lack of oversight provided by either the City Administrator or the Board of Alderman has allowed the city's financial condition to seriously decline in the last several years without detection. Adequate controls over disbursements did not exist and an independent review of the composition of receipts to deposits was not performed. Controls over the city's bank accounts, bank statements, bank reconciliations, and subsidiary accounts receivable records for water and sewer accounts, property taxes, and municipal court transactions need to be improved. In addition, monthly open items (liabilities) for the municipal court bond account are not prepared.
The city did not adopt a procurement policy until February 2007 and although the city administrator indicated it was the city's practice to bid purchases exceeding $2,000, bid documentation could not be located for numerous expenditures and the evaluation process for selecting the successful vendor was often not documented. In addition, the city did not have written contracts with all vendors, supporting documentation was not adequate for some expenditures, and numerous invoices were not paid timely.
Budgets prepared the last two years did not present financial information by fund or include several other required components and the budgets are not used to monitor revenues and expenditures throughout the year. In addition, semi-annual financial statements have not been published as required and annual financial reports have not been filed with the State Auditor's office as required by state law.
The city has not performed and documented formal reviews of the adequacy of the water, sewer, and trash user rates. The former City Administrator indicated he calculated the rates informally but had not retained information on the calculations. The Board of Alderman raised water and sewer rates between June 2005 and June 2006 by 30 percent. However, there is no documentation to support the board's decisions or justification for these rate increases.
The city has not properly monitored an agreement with a contractor for the construction, operation, and maintenance of a golf course.
Also included in the report are recommendations related to bond and grant administration, minutes, board meetings, ordinances, and public records, capital assets and vehicle usage, and a street maintenance plan.
Complete Audit Report