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YELLOW SHEET Office of the State Auditor of Missouri |
Report No. 2004-88
November 22, 2004
The following problems were discovered as a result of an audit conducted by our office of the City of Hermann, Missouri.
User fees for electric, water and sewer, and natural gas have not been established at levels consistent with the costs of providing those services. The Board of Aldermen (board) uses utility funds, especially the Electric Fund, to help finance other city operations. It appears the city has established higher than necessary utility rate structures in lieu of increasing general revenues or reducing services provided by the city. These utility services should not generate profits to fund other services provided by the city.
Transfers from the utility and refuse/waste funds represented approximately 15 percent of the revenues of these funds in fiscal year 2003. Although city officials indicated some of the transfers from the Electric Fund to other funds were loans, there was no supporting documentation that these transfers would be repaid, and the city's audit report showed no evidence of such receivables/payables between funds. Additionally, documentation was not available to support the charges for the other transfers, including the gross receipts tax, billing and collection fee, and communication fee.
Engineering services were not always obtained in accordance with state law, and the city did not solicit proposals in accordance with its policy for many professional services, including:
� The city hired several consultants and engineering firms to provide services such as gas and electric service analysis, engineering for gas pipeline upgrade, traffic study, water study, geotechnical services, general and structural engineering services, and water line replacement. The city paid over $124,000 for these services in fiscal year 2003.
� The city paid over $242,000 for trash pickup services, for which proposals have not been solicited for more than ten years.
� The city pays $500 a month for the city's web-site maintenance and $27,496 for its city attorney's salary, fees and expenses.
In 2002, the city gave $21,484, to the Highway 19 Missouri River Corporation, a not-for-profit organization, for various expenses of the corporation; however, the specific services to be provided for the financial assistance were not clearly defined in a written agreement.
Some expenditures do not appear to be a necessary or prudent use of city funds, including, $9,400 for planning/goals setting meetings for city officials at various resorts in the state, $3,100 for a staff meeting for 8 people at a resort in Excelsior Springs, and approximately $2,000 and $2,500 in December 2003 and 2002, respectively, for a holiday dinner and gifts for employees and their families.
During the year ended June 30, 2003, the city paid $1,922 to a business, whose president is a board member, for trucking services which were not competitively bid. The board minutes do not indicate the board member abstained from approving expenditures to his business. Additionally, board minutes do not indicate that the mayor and board members abstained from approving the salary of relatives, as applicable.
Some clauses in the former City Administrator's employment contract did not appear to be in the best interest of the city. Also, the City Collector received a raise during her term of office, which appears to violate state law.
In spring 2003, the city apparently assisted a local winery purchase real estate in the downtown area; however, the city did not obtain an independent appraisal of the property to determine the fair value of the property. According to city officials, there was an oral understanding that the winery would dedicate other property to the city for use as a city park. However, to-date this transaction has not occurred. Additionally, in April 2004, the city agreed to sell a building to another local winery for $350,000 without obtaining an appraisal or advertising the sale.
In April 2004, the city purchased a motel for $175,000, without obtaining a formal independent appraisal. Instead the city relied upon its agent to value the property, and then paid the agent 5 percent of the purchase price as his commission.
Also included in the report are recommendations to improve meetings and minutes, accounting controls, records and procedures, and capital assets.
Because most of the present members of the Board of Aldermen are newly elected and were not in office during the time period audited and some city officials are no longer employed by the city, we met with several former city officials regarding the findings. Their responses to certain issues are included in the report.
