YELLOW SHEET Office of the State Auditor of Missouri Claire McCaskill

Report No. 2006-65

October 2006

The following findings were included in our audit report on the city of Clarkton, Missouri.

Due to inadequate cash balances in some funds throughout the last several years, the city of Clarkton has at times paid bills from whichever funds had money available.  The city has used restricted revenues for payment of general expenses of the city and Waterworks and Sewerage System bonds.  In addition, a significant amount of money is due to the federal government for unpaid payroll taxes.  Correcting these issues will further strain the various operating funds of the city.  Multiple recommendations, many similar to those included in our prior report dated 1995, if corrected, would allow the board to more effectively monitor and manage the city’s resources.

The city of Clarkton operates a combined waterworks and sewerage system, and  bills and collects for trash service with the water and sewer.  In November 2005, 22 paid utility stubs, totaling approximately $1,162, did not trace to a daily utility receipt report or to a deposit.  Detail from bank records indicated that at least 14 of these had been paid by check and were included in various deposits; however, it appears these checks were substituted and deposited for other accounts paid by cash.  Due to control weaknesses and inadequate record keeping the city has no assurance that undeposited receipts were spent on city business and were not misappropriated.  The city does not have internal controls to ensure monies collected are properly deposited, and does not maintain adequate records of the total utilities billed each month.   

The City Clerk indicated that after taking office in February 2005, she found $3,511 in cash in city hall.  This money was kept segregated in the change drawer.   Throughout the year it was used to make deposits into various city accounts that needed funds.  In May 2006, the remaining $1,035 was divided equally and deposited into the Sewage Tax, Water Bond Sinking Fund, and Treasurer accounts.  The city did not perform an investigation to determine where the money came from and into what account it should have been deposited.

The City Clerk also serves as city treasurer, which does not allow the segregation of duties necessary and is contrary to an Attorney General's opinion.   Receipts are not deposited intact.  The City Clerk prepares a deposit log from her various receipt records indicating how much is to be deposited to the various bank accounts, and then divides the cash and checks received to equal these deposit amounts  As a result, checks intended for one account are often deposited into other accounts to ensure deposits to the various funds agree to the daily total sheets. 

The City Clerk maintains accounting records on a software program and prepares a monthly bank reconciliation; however; she does not investigate any differences between

the reconciled bank balance and her account ledger and instead makes a balance adjustment for any differences noted.  During the year ended June 30, 2006, the City Clerk made balance adjustments totaling approximately $3,520.  Also, as of June 2006, the city maintained 18 bank accounts, several of which charged a service fee when balances were below a specified amount. 

The city entered into financing agreements for various assets, totaling approximately $65,300, which had no cancellation clauses.  The city had no documentation on how those agreements complied with the Missouri Constitution. 

The city does not have a formal written bidding policy.  The city has an informal policy to solicit bids or proposals for all items over $150.  While the City Clerk indicated she frequently obtains proposals or quotes over the telephone, documentation of these proposals is not maintained. 

Although there is an occasional reference to a specific invoice being approved for payment, the board minutes usually only make a general reference that the monthly financial statement was approved.   A signature indicating receipt of goods or services was not evident on expenditure documentation, and numerous past due payments were processed without a vendor invoice or other adequate supporting documentation including the purpose of the disbursement.  

The city does not adequately monitor the solid waste collection services contract and invoices to ensure compliance with the contract.  During the year ended June 30, 2006, the City Clerk sometimes sent in additional payments or paid more than collected in order to pay off past due amounts;  invoices were not adequately reviewed to ensure all payments and credits were properly applied. 

There are several concerns regarding the city's combined waterworks and sewerage system, including:

• The city has not had annual audits of its water and sewer system as required.
• Appropriate accounts required by bond covenants have not been established.
• The city has not prepared annual budgets for the estimated receipts and expenditures of the system. 
• City ordinances indicate that the rates for water and sewer are to be reviewed each year; however, a formal review has not been performed since 2000. 
• The city has not established or complied with some ordinances, including partial payments and water tap and sewer tap charges.

Also included in the report are recommendations related to contracts for legal and accounting services, restricted revenues, budgets and financial reporting, payroll and personnel matters, minutes, meetings, and ordinances, property tax procedures, fixed assets, street maintenance, volunteer fire department and the municipal court.

Complete Audit Report