Report No. 2008-46
July 2008
Complete Audit Report

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

Several concerns related to two economic development building projects were noted. A member of the city council voted to hire a firm to provide architectural and management services for one building project with apparent knowledge that he would work for this firm on the construction project. In addition to serving as project manager, a construction company owned by the councilman was paid to perform some of the work on both building projects. As project manager the councilman was responsible for approving the work being done by his construction company on one building project, and he also approved additional construction costs of $250,000 to meet the specific needs of the manufacturing company. Of this amount, the councilman's construction company was paid $180,341. There was no bidding performed for these additional improvements. Some of these matters may present potential violations of state law.

Bids were not solicited for some amounts paid to other contractors related to these projects and bidding was not handled by the architectural and construction management firm in accordance with the city's bid policy.

It appears the city may be circumventing prevailing wage laws. The city often enters into supplier contracts for various construction projects and the contractor's employees become temporary city employees. Some temporary employees work very few hours while others may work for most of the year. City personnel indicated the city uses supplier contracts in an effort to save the city money resulting from lower wages paid to employees and lower overhead costs of the contractor. In addition, temporary city workers do not receive the same benefits as full-time classified city employees such as health insurance or paid holiday leave. State law requires prevailing wage to be paid to all workers employed by contractors, who perform construction work on public projects other than routine maintenance.

Utility customers may be paying too much for some utility services as a result of subsidizing the promotion of economic development and general city expenses through the payment of their utility bills. The city has transferred substantial amounts from various funds to the Administrative and Economic Development Funds without proper documentation or justification. City officials indicated the transfers are based upon the benefit provided to those funds; however, the city had no documentation to support these allocations. Approximately one percent of customer billings for electric, water and wastewater are transferred to the Economic Development Fund to promote economic development activities. The city has not established an ordinance approving or justifying these transfers.

Over $6.6 million was due to the Electric Fund at October 31, 2007, from the Economic Development and Airport Funds as the result of three interfund loans to cover two building projects for economic development purposes and for the building of an airport hanger. Loan repayments are funded by amounts received from building leases, and based upon current lease agreements, one loan will not be completely repaid until 2026. The city's budget and financial statement do not reflect the amounts owed to the Electric Fund for these loans. In addition, interfund borrowing is not appropriate as a long-term funding mechanism.

The city has not complied with its purchasing policy. There are purchases noted for which bids were not solicited or not documented. Several expenditures in excess of $10,000 were noted for which bids were solicited through various means; however, the bids were not advertised in the local newspaper. In addition, several instances were noted where the city did not obtain verbal quotations for purchases between $100 and $3,000.

Controls and procedures over city expenditures are in need of improvement. We identified Christmas bonuses paid to employees, unnecessary expenditures, and some payments to not-for-profit organizations that were not supported by a written agreement. In addition, the city does not have a formal food or credit card policy and has not evaluated the cost and distribution of cellular phones.

Also included in the audit report are recommendations related to professional services and city contracts, civic center and parks procedures and controls over monies, vehicle usage, payroll policies and procedures, accounting controls and other city procedures, financial reporting and planning, council minutes, and capital assets.

Complete Audit Report
Missouri State Auditor's Office
moaudit@auditor.mo.gov