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Auditor Logo Susan Montee

Report No. 2010-08
January 2010

Complete Audit Report

The following findings were included in our audit report on the City of Salem.


The city has transferred substantial amounts from the Electric Fund to the General Fund without adequate justification. From fiscal years 2005 through 2009, operating transfers from the Electric Fund to the General Fund totaled approximately $4.7 million. City officials indicated the city budgets for and makes transfers as needed to cover General Fund operating shortfalls. The city's electric rates are set to cover the transfers to the General Fund, and the city may have established higher utility rates than necessary in lieu of increasing general revenues or reducing services provided by the city.

In January 2000, the Electric Reserve Fund had a balance of approximately $1.7 million; however, as of June 30, 2009, the fund balance had decreased to only $100,681. The city has not adequately documented the calculation of utility rate increases. The Board of Aldermen approved five electric rate increases since 2004, including two increases during fiscal year 2008 and one increase in fiscal year 2009. In August 2005, the city entered into a 45-year agreement to purchase electricity from the electric cooperative and did not consider other electricity suppliers prior to entering into this agreement. The city does not compare or reconcile the kilowatts of electricity billed to customers to the kilowatts of electricity purchased from the electric cooperative.

Bids were not solicited or documented for several purchases between July 2007 and December 2008. Examples include asphalt ($359,720), culverts ($20,123), and airline fuel ($15,919). Bids were solicited by various means for some purchases in excess of $5,000; however, bids were not advertised as required by city policy. Examples include Highway J power line installation ($111,373), city sewer relining ($94,496), water tower repairs ($10,644), and water and sewer supplies ($10,127).

The city has not updated the written agreement with Dent County and the County Collector since 2000 for the preparation of the city's property tax books and the collection of city and library property taxes. Neither the city nor the county has entered into a written agreement with the Salem Public Library for the collection of property taxes. The city has accrued an accounts payable balance of $29,000 to Dent County due to a disagreement on the correct billing amounts for boarding city prisoners at the county jail.

The city provides space at the city's Freedom Activity Center to two entities free of charge: the Telecommunications Community Resource Center run by the University of Missouri and the Cardiovascular Wellness Center run by the Dent County Health Center. The city's lease agreements with these entities are not current and the agreement with the Cardiovascular Wellness Center does not reflect the current arrangements with this entity. The city has not evaluated the cost/benefit of the services provided to city residents by these entities and has not attempted to determine how many residents utilize the services provided at the Freedom Activity Center.

The city does not have written vehicle policies or effective monitoring procedures regarding use of its 49 vehicles. Fuel and usage logs are not maintained for each vehicle. The city allows some supervisory employees to commute from their homes in city vehicles on a daily basis and is not reporting the commuting use in city vehicles as compensation to the employees. The city has no documentation to show the vehicle allowance paid to the Mayor is reasonable compared to actual expenses incurred.

The city does not have policies to ensure aviation fuel prices are set at a levy to cover costs incurred by the city airport. The city does not reconcile aviation fuel sold to fuel purchased. The city does not consider the overall cost of airport operations when setting hangar rental rates, and the rates charged by the city are less than rates charged by other small municipal airports in the state.

Actual expenditures exceeded budgeted expenditures for eight city funds for the year ended June 30, 2008. The Electric Fund expenditures exceeded budgeted expenditures by more than $139,000. An formal annual maintenance plan for city streets has not been prepared or updated since 2004. The open meeting minutes did not always publicly disclose the final disposition of applicable matters discussed in closed session.

The city has not passed an ordinance to establish incentive payments to full-time employees, and these payments totaled approximately $23,000 and $22,500 in December 2008 and 2007, respectively. The city provides annual clothing allowances of $300 each for certain employees not required to wear a uniform or other special clothing, and these clothing allowances were not reported on employees' W-2 forms. Employee timecards are typically prepared by the employee's supervisor and are not signed by the employee. Some city departments do not provide overtime and compensatory time records to the City Clerk's Office.

The city has not prepared a financial analysis of the cost/benefit of splitting the positions of Director of Public Works and City Engineer. In August 2001, the Board of Aldermen separated the Director of Public Works and City Engineer into two separate positions. At that time, the individual holding both positions resigned as Director of Public Works and remained the City Engineer without a decrease in pay, but assumed no additional responsibilities related to the position of City Engineer. In August 2001, the Board temporarily appointed the Mayor as the Director of Public Works and increased his compensation for the new duties assigned to him. The Mayor continues to hold this position.

Other findings in the audit report relate to real estate transactions, accounting/internal controls, city airport, traffic tickets and bonds, and capital assets.

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