Report No. 2007-44
September 2007

Complete Audit Report

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

A previous state audit of the city of East Lynne (Report No. 2002-56) made 35 management recommendations to the city. Of those recommendations, 12 have been implemented, 7 have been partially implemented and 16 have not been implemented by the city. While the former board agreed with most of the prior recommendations, little action was taken to implement them. Many of those prior conditions have been repeated in this report.

The city of East Lynne needs to improve its accounting records. The city does not maintain separate funds for the financial activity of its utility operations and restricted funds. The utility operations are separate accounting entities designed to account for specific city activities. Utility receipts should be used only to fund the operations of the respective utility services. In addition, adequate documentation is not maintained to support the allocation of some wage expenses among the various funds, and transfers between funds and/or bank accounts are not always properly classified in the actual receipts and disbursements in the fund ledgers.

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 and Treasurer. Errors and discrepancies in the accounting records are not always identified, investigated, and resolved, and the board does not receive adequate information on which to base its management decisions. In addition, the city should procure its banking services through a competitive bid process and consider consolidating its bank accounts and CDs.

The city is not properly accounting for sewer receipts and disbursements in accordance with its bond covenant and some required accounts are over-funded. The failure of the city to comply with the bond covenant could allow the bondholders to take legal action to force compliance or immediate payment of all outstanding bonds. Also, the city does not obtain an audit of the sewer receipts and disbursements.

During 2006, the city did not reconcile the total gallons of water billed to the gallons of water pumped. In 2007, the City Clerk started preparing a reconciliation; however, there were significant differences which were not investigated and resolved. In addition, the city does not compare or reconcile gallons of water purchased to gallons of water pumped from the city's water tower. Also, controls over water deposits need to be improved.

The Special Revenue Fund (SRF) includes tax monies for the city's street bonds, capital improvement sales tax monies, road and bridge money from the county, and motor vehicle-related receipts from the state. These monies are co-mingled and are not accounted for separately.

The city does not have a policy for procuring professional services. In addition, disbursements were not always supported by adequate documentation. Some purchases by the police chief, including a hand gun costing $460, appeared questionable.

Potential conflict of interest issues were not properly handled. In May 2004, the board approved renting a building from former Mayor Cox, and paid approximately $7,000. The rental arrangement was not competitively bid, and the board minutes did not indicate the city was renting from the former mayor. Additionally, during 2006, while Mayor Martin was in office, the city purchased office supplies totaling almost $600 from his business without competitive bids.

The police chief's employment contract and related benefits are not clear. The city did not report and withhold payroll taxes or pay the employer's share of social security for compensation paid the mayor and board members; health insurance benefits paid to the former police chief; or extra compensation paid to a police officer. The city had nothing to support why these payments would not be considered taxable compensation.

The city needs to improve its controls over capital assets. Purchases and sales of vehicles through the Internet were not properly documented, and the disposition of assets was not formally handled. Additionally, controls over vehicles and fuel usage need improvement.

Also included in the report are recommendations related to budgets and financial reporting, minutes, meetings, and ordinances, and the municipal court controls, records, and procedures.

Complete Audit Report