Jul 26, 2017 - Internal Revenue Service (IRS) established an Employer .... Secretary of State and had not filed the requ
OFFICE OF AUDITOR OF STATE ST AT E OF IOWA Mary Mosiman, CPA Auditor of State
State Capitol Building Des Moines, Iowa 50319-0004 Telephone (515) 281-5834
Facsimile (515) 242-6134
NEWS RELEASE
FOR RELEASE
Contact: Mary Mosiman 515/281-5835 or Tami Kusian 515/281-5834
July 26, 2017
Auditor of State Mary Mosiman today released a report on a special investigation of the Polk City Police Officers Association (Association) for the period July 1, 2010 through March 31, 2016.
The
special investigation was requested by City officials as a result of concerns regarding how the Association was established and, as a result, the propriety of financial transactions handled by the Association. Mosiman reported a member of the Polk City Police Department (Department) established a checking account in 2002 which was named “Polk City Police Officers Association.” In addition, the Internal Revenue Service (IRS) established an Employer Identification Number in 2002 for the “Polk City Police Department Association.”
However, no other documentation was prepared for the
establishment of an Association, such as by-laws or articles of incorporation. Mosiman
also
reported
the
special
investigation
identified
$3,648.89
of
unsupported
disbursements from a checking account established for the Association. The remaining $42,178.30 of disbursements from the checking account were also unsupported but determined to be reasonable for the operations of the Association or the Department.
The $42,178.30 includes $21,687.71 of
disbursements for an annual golf outing and an annual Fall Festival, $13,005.00 for the purchase of a utility terrain vehicle (UTV) for the Department, $3,071.35 for radios for the Department, $2,020.99 reimbursed to the City for the purchases of “Tasers”, and $825.00 for donations to memorials. Mosiman reported adequate records were not maintained for collections and disbursements and detailed bank records were not available prior to July 1, 2010. As a result, it was not possible to determine if there were improper or additional unsupported disbursements or if all donations were properly deposited.
The report also includes recommendations for the City and the Department to strengthen internal
controls,
such
as improvements to segregation
of
duties,
maintaining
supporting
documentation for all disbursements, and maintaining adequate financial records, including ledgers, receipt books, and bank reconciliations. Copies of the report have been filed with the Division of Criminal Investigation, the Polk County Attorney’s Office, and the Attorney General’s Office. A copy of the report is available for review on the Auditor of State’s web site at https://auditor.iowa.gov/reports/1620-0723-BE00 and in the Office of Auditor of State. ###
REPORT ON SPECIAL INVESTIGATION OF THE POLK CITY POLICE OFFICERS ASSOCIATION FOR THE PERIOD JULY 1, 2010 THROUGH MARCH 31, 2016
1620-0723-BE00
Table of Contents Page Auditor of State’s Report
3-4
Investigative Summary: Background Information Detailed Findings Recommended Control Procedures
5-6 6-11 12-14
Exhibit: Disbursements from the Association’s Checking Account Staff
Exhibit A
16-19 20
2
OFFICE OF AUDITOR OF STATE ST AT E OF IOWA Mary Mosiman, CPA Auditor of State
State Capitol Building Des Moines, Iowa 50319-0004 Telephone (515) 281-5834
Facsimile (515) 242-6134
Auditor of State’s Report To the Honorable Mayor and Members of the City Council: At your request and as a result of concerns regarding how the Polk City Police Officers Association (Association) was established and the propriety of financial transactions handled by the Association, we conducted a special investigation of the Association. We have applied certain tests and procedures to selected financial transactions of the Association for the period July 1, 2010 through March 31, 2016. Based on a review of relevant information and discussions with Association members, we performed the following procedures for the period specified. (1)
Examined documents related to the establishment of the Association to determine if it is part of the City or a separate legal entity.
(2)
Evaluated internal controls to determine whether adequate policies and procedures were in place and operating effectively.
(3)
Reviewed activity in the Association’s separately maintained checking account to identify any unusual activity. We also examined images of redeemed checks and withdrawal documents from the checking account to determine propriety.
(4)
For selected disbursements, we examined available supporting documentation to determine whether the disbursements were appropriate, properly approved, and properly supported.
(5)
Examined documentation obtained from Tournament Club of Iowa to determine propriety of charges.
(6)
Interviewed the Association’s former understanding of certain disbursements.
President/Treasurer
to
obtain
an
The procedures identified $3,648.89 of unsupported disbursements from the Association’s checking account. While City officials initially understood the Association had been established as a non-profit organization, we determined the Internal Revenue Service (IRS) issued the Association an Employer Identification Number as a business. In addition, the necessary paperwork was not filed with the Iowa Secretary of State’s Office to register as a non-profit corporation and no other documentation was prepared for the establishment of an Association, such as by-laws or articles of incorporation. Because adequate records were not maintained for collections and disbursements and detailed bank records were not available prior to July 1, 2010, we were not able to determine if there were improper or additional unsupported disbursements or if all donations were properly deposited to the Association’s checking account. Several internal control weaknesses were also identified. Our detailed findings and recommendations are presented in the Investigative Summary of this report. The procedures described above do not constitute an audit of financial statements conducted in accordance with U.S. generally accepted auditing standards. Had we performed additional procedures, or had we performed an audit of financial statements of the City of Polk 3
City Police Department, other matters might have come to our attention which would have been reported to you. Copies of this report have been filed with the Division of Criminal Investigation, the Polk County Attorney’s Office, and the Attorney General’s Office. We would like to acknowledge the assistance and many courtesies extended to us by the officials and personnel of the City of Polk City Police Department during the course of our investigation.
MARY MOSIMAN, CPA Auditor of State June 21, 2017
4
Polk City Police Officers Association Investigative Summary
Background Information The City of Polk City is located in Polk County and has a population of approximately 3,700. The Polk City Police Department (Department) is considered a department of the City. The City is responsible for paying the Department’s operating expenses, including the salaries of the police officers, utilities, fuel, insurance, monthly service fees for communication, training, building maintenance, and purchases and maintenance of equipment. In order to pay for the operations of the Department, the City budgets funds from its General Fund annually. The Police Chief is hired by the City Council and oversees the Department’s operations. During the period of our investigation, 2 individuals served as the Police Chief. The current Police Chief (Chief), Trace Kendig, was hired on June 13, 2016. Mark Bowersox served as the Police Chief (former Chief) for many years prior to Mr. Kendig. The Department currently has 6 full-time and 3 part-time officers. In November 2002, the Internal Revenue Service (IRS) assigned an Employer Identification Number (EIN) to the Polk City Police Department Association. However, no other documentation was prepared for the establishment of an Association, such as by-laws or articles of incorporation, In June 2014, at the request of a member of the Department, the IRS agreed to change the name associated with the EIN to “Polk City Police Officers Association” (Association). A member of the Department established a checking account on November 4, 2002 which was named “Polk City Police Officers Association.” Activity in the checking account was limited until December 2010 when a $30,000.00 donation was deposited. According to members of the Department, deposits prior to the donation consisted of proceeds from redemption of pop cans. City officials stated the City’s auditor recommended formally establishing a non-profit organization for the Association in 2011 to ensure the proceeds of the donation were properly administered and to clearly document the proceeds were intended to support the operations of the Department. According to City officials, a Department member completed the necessary forms to request the Association be established as a non-profit organization by the IRS. However, the forms were never filed with the IRS or the Iowa Secretary of State’s Office. As a result, the Association was not established as a non-profit organization by the IRS or the State. Organizations which support City operations may be considered part of the City if they are not separately registered as a non-profit corporation with the Secretary of State. The operations of the Association were overseen by the Association’s President. Dustin Bjornson, a former Polk City Police Sergeant, was the President and Treasurer of the Association until he resigned from the Department on November 18, 2016. As the President/Treasurer, Mr. Bjornson’s duties included: •
Receipts – collecting, preparing deposits, and making deposits,
•
Disbursements – purchasing, preparing checks, signing and distributing checks, and maintaining supporting documentation,
•
Bank accounts – reconciling monthly bank statements to the accounting records.
Additionally, the President/Treasurer is primarily responsible for accounting for the all financial transactions and maintaining appropriate supporting documentation. According to Mr. Bjornson, there were no formal meetings to approve disbursements. If the Association was going to purchase an item, he or the former Chief called the members and requested approval. Checks could be signed by Mr. Bjornson or the former Chief. 5
According to City officials, there were no meetings held by the Association. If there were issues to be discussed, all communication was done through email and face to face conversations with members of the Association. The former Chief and Mr. Bjornson were signers on the Association’s checking account and as such could sign checks and withdraw funds from the Association’s checking account. The current Chief and the City’s Finance Director were added to the account and the former Chief and Mr. Bjornson were removed from the account in March 2016. The Chief and City Administrator have not prepared and/or signed any checks since November 17, 2016. The Association’s bank statement is mailed to a Post Office box. The mail was picked up by Mr. Bjornson or the former Chief. All unused and voided checks, bank statements, supporting documentation, and other documentation were maintained by Mr. Bjornson. The Association is funded through can redemptions and donations. On December 3, 2010, the Association received a $30,000.00 donation from an estate. According to the information attached to the donation, the funds were not restricted for a specific project. When the current Chief began receiving donations for 2 fallen officers, he asked the City’s Finance Director where the donations should be deposited and recorded in the City’s accounting system. According to the Chief, he was told by the City’s Finance Director the donations should be deposited with the Association. Based on the City’s Finance Director’s response, the current Chief contacted Mr. Bjornson and asked for information on the Association. The Chief stated he was told the Association was registered with the Secretary of State. When the Chief began to research the Association, he found it was not registered with the Secretary of State and had not filed the required IRS form 990 tax returns. The Chief located a letter from the IRS assigning the Association an EIN. However, the Association did not file the required documents to be established as a tax exempt organization or a 501(c)(3) non-profit organization. The Chief asked Mr. Bjornson for the records related to the Association and its operations. According to the Chief, Mr. Bjornson refused the request and asked others to take legal action to prevent the Chief from obtaining the records. After several requests, the Chief obtained the checkbook, some of the bank statements, and some supporting documentation from Mr. Bjornson. When he reviewed the information provided, he identified checks written by Mr. Bjornson to himself for which there was no supporting documentation. When the Chief identified the concerns, he contacted the bank, froze the account, and had the former Chief and Mr. Bjornson removed as signers on the account in March 2016. As a result of concerns regarding how the Association was established and the propriety of financial transactions handled by the Association, City officials contacted the Office of Auditor of State to request a review of Association’s operations. As a result of the request, we performed the procedures detailed in the Auditor of State’s report for the period July 1, 2010 through March 31, 2016.
Detailed Findings Based on these procedures, we identified $3,648.89 of unsupported disbursements for the period July 1, 2010 through March 31, 2016. The remaining $42,178.30 of disbursements from the Association’s checking account during this period were reasonable for the Association’s or Department’s operations and included purchases for an annual golf outing sponsored by the Association, an annual Fall Festival, and food for officers while participating in training. All findings are summarized in Table 1 and a detailed explanation of each finding follows. Because adequate records were not maintained for receipts and disbursements and detailed bank records were not available prior to July 1, 2010, we were unable to determine if there were improper or additional unsupported disbursements. We were also unable to determine if all 6
donations were properly deposited during this period of our investigation because sufficient collection records were not prepared.
UNSUPPORTED DISBURSEMENTS Using the documentation available from the Association, including bank statements, images of redeemed checks, and available supporting documentation, internet searches, and discussions with Department staff, we classified the disbursements as unsupported or reasonable. Disbursements were classified as improper if they appeared personal in nature and/or were not necessary or reasonable for operations of the Association or Department. However, we did not identify any improper disbursements. Disbursements were classified as unsupported if sufficient documentation was not available and we were unable to determine the propriety of the payment based on information obtained from Association and Department staff, the payee, amount, and frequency of the payments. It is possible some of the unsupported disbursements may be appropriate for Association or Department operations. We also identified disbursements we consider reasonable for Association or Department operations based on discussions with City and Department staff, supporting documentation maintained by the City and/or the Association, the vendors, and the type of goods and services provided by the vendor. Examples of disbursements we considered reasonable include payments for postage, training, and equipment. Invoices or other supporting documentation was not always retained by Mr. Bjornson. According to Mr. Bjornson, he typically reimbursed himself and the former Chief for supplies related to the Fall Festival and prizes for the annual golf outing. Exhibit A lists the disbursements from the Association’s checking account and how each disbursement was classified. Table 1 summarizes the amounts by categories. Table 1 Reasonable Description Payments to TCI Vehicles Reimbursementcity Electronic communication Entertainment Reimbursementindividual Cash Donation Retail store Legal fees PO Box/postage License /raffle Grocery/party supply Convenience store Sporting goods Unknown Other Total
Unsupported
Annual Events
Other
Subtotal
$ 17,111.76 -
14,105.00
17,111.76 14,105.00
-
-
-
17,111.76 14,105.00
1,265.00
2,020.99
3,285.99
-
-
-
3,285.99
1,797.24
3,071.35 -
3,071.35 1,797.24
-
-
-
3,071.35 1,797.24
500.00 910.00 70.40 -
825.50 250.50 158.00 40.00
500.00 910.00 825.50 250.50 228.40 40.00
452.46 1,155.00 -
895.66 676.40 147.29
1,348.12 1,155.00 676.40 147.29
1,848.12 2,065.00 825.50 676.40 250.50 228.40 187.29
33.31
-
33.31
-
83.22
83.22
116.53
$ 21,687.71
19.25 20,490.59
19.25 42,178.30
1,607.46
111.96 51.90 75.00 2,041.43
111.96 51.90 75.00 3,648.89
111.96 51.90 75.00 19.25 45,827.19
7
Annual Events
Other
Subtotal
Total
The unsupported disbursements identified are discussed in detail in the following paragraphs. For a number of years, the Association has held an annual golf outing and assisted the City in planning for the annual Fall Festival. As shown by the Table, we identified $23,295.17 of disbursements, including $2,065.00 of cash withdrawn from the Association’s checking account, related to the annual golf outing and annual Fall Festival. The annual events are summarized in the following paragraphs. Fall Festival – According to City officials, the Fall Festival is held on a weekend near Halloween each year and is intended for children in the 6th grade or younger. The Fall Festival includes entertainment, games, prizes, and food for those attending. The event is sponsored by the Association, Fire Department, and the City. In addition, local businesses donate items, supplies, and food for the Fall Festival. The event is free to all those who attend. During our review of check images and withdrawals from the Association bank account, we identified $5,028.41 of disbursements which were related to the Fall Festival based on the vendor, date, and/or notation in the check memo from November 2010 until October 2015. Based on the vendor, types of goods and services provide by the vendor, and discussions with City Officials and Mr. Bjornson, we determined $3,665.95 were reasonable disbursements for the Fall Festival. The reasonable disbursements include, $1,797.24 paid to Complete Entertainment, $1,265.00 paid to the City of Polk City, and $500.00 paid to Ivan Sarguza for DJ services. The remaining $452.46 consisted of 4 checks made payable to Mr. Bjornson. Because the checks were prepared and signed by Mr. Bjornson without any independent review and there was no supporting documentation, we have included the $452.46 paid to Mr. Bjornson as unsupported reimbursements to individuals in Table 1. We also identified 5 cash withdrawals totaling $910.00 which appear to be associated with the Fall Festival. According to Mr. Bjornson, cash was withdrawn from the Association’s checking account to award prizes to the children who attended for best costume. In addition, there was a sandbox where children could scoop for loose change as a prize. Based on the dates of the Fall Festival, it is reasonable the cash withdrawn was related to the Fall Festival. Golf Outing – According to the former Chief, the golf outing was organized as a social event for the officers, families, and friends. Registration for the annual golf outing begins a couple months before the outing; however, registration fees are also collected the day of the event. Based on the deposit information in the bank statements, the registration fees (fees) were deposited a month prior to the event and up to a week after the golf outing. During our review of check images and withdrawals from the Association bank account, we identified $18,266.76 of disbursements which were related to the Annual Golf Outing based on the vendor, date, and/or notation in the check memo. Based on the vendor, types of goods and services provide by the vendor, and discussions with City Officials and Mr. Bjornson, we determined $17,111.76 were payment to TCI for the annual golf outing. Based on support received from TCI, the payments included fees for the golf outing and the meal provided at the golf outing. According Mr. Bjornson and the former Chief, additional cash was also withdrawn from the bank and used for the annual golf outing and Fall Festival. Because there was no supporting documentation for cash withdrawals and the not all checks included information on the memo line, the $1,155.00 of additional cash withdrawals is included as unsupported cash disbursements in Table 1. During the period of our review, the golf outings were held at the Tournament Club of Iowa (TCI). Registration fees paid by participants were to be deposited to the Association’s bank account. The registration fees collected were supposed to cover the cost of green fees, cart rental, a meal, and prizes. According to the former Chief, cash and other prizes were awarded in each of the 3 flights and for pin events, such as longest drive. The Association did not maintain a listing of participants, issue receipts for the fees collected, or prepare any other type of records related to the collection of registration fees.
8
According to the former Chief, the registration fee for the outing was between $60.00 and $70.00 each year. During our review of images of checks deposited to the Association’s checking account, we identified checks which included the notation “golf outing.” Most of the checks deposited to the Association’s checking account were for $65.00; however, some were for less than or exceeded $65.00. We discussed these checks with Mr. Bjornson and the former Chief but they were unable to provide an explanation for the amounts which were less than or exceeded $65.00. It is possible the checks which were less than $65.00 excluded the cost of the meal. It is also possible the checks which exceeded $65.00 included a donation or the purchase of a “mulligan.” Because most of the checks were written for $65.00 or a multiple of $65.00, this amount was used to estimate the amount of registration fees collected for the golf outings. Using information obtained from TCI, we determined the number of golfers who participated in the annual outings held in 2012 through 2015. Table 2 includes the estimated collections for the annual golf outing which we calculated based on the registration fee and the number of golfers. The Table also compares the estimates to the amounts actually deposited to the Association’s bank account. The amounts deposited include all deposits to the Association’s checking account during the month prior to the event and for a week after the payment to TCI. Table 2 Golf Outing Date
Number of Golfers
Estimated Collections
Fee
Amount Deposited
Estimate Over/(Under) Amount Deposited
09/09/12
45
$ 65.00
$ 2,925.00
2,446.20
478.80
08/29/13
46
65.00
2,990.00
2,544.00
446.00
09/17/14
32
65.00
2,080.00
2,475.00
(395.00)
08/13/15
47
65.00
3,055.00
3,058.00
(3.00)
$ 11,050.00
10,523.20
526.80
Total
As illustrated by the Table, the total estimated collections for the 4 annual outings exceeded the total actual amount deposited by $526.80. We were unable to obtain explanations why the amount deposited for the 2012 and 2013 outings was less than the expected collections. Because the Association did not issue receipts, maintain listings of the participants, and the bank was unable to provide deposit information prior to July 1, 2010, we were unable to definitively determine the exact amount that should have been deposited into the Association’s checking account for the golf outings. In order to determine if the amounts deposited covered the cost of the golf outings, we compared the amount deposited to the amount billed by TCI and any cash withdrawn from the Association’s banks account within a week prior to the outing for prizes. Table 3 compares the amount deposited to the amounts disbursed for the golf outing. Table 3
Amounts Disbursed Date of Golf Outing
Amount Deposited
Payment to TCI
Cash Withdrawal
07/XX/10~
$ 4,790.00
3,986.00
-
3,956.00
804.00
09/XX/11~
6,780.36
3,780.36
685.00
4,465.36
2,315.00
09/06/12
2,446.20
2,446.20
-
2,446.20
-
08/29/13
2,544.00
2,544.00
-
2,544.00
-
Total
Profit/ (Loss)
09/17/14
2,475.0
1,769.60
470.00
2,239.60
235.40
08/13/15
3,058.00
2,585.60
-
2,585.60
472.40
$ 22,093.56
17,111.76
1,155.00
18,266.76
3,826.80
Total
~ - TCI was unable to provide invoices for the 2010 and 2011 golf outing. The month of the golf outing is based on the month the check to TCI was written.
9
As shown by the Table, the amount collected exceeded the amount disbursed in 2010, 2011, 2014, and 2015. However, the amount collected and disbursed were the same for the 2012 and 2013 outings. As shown by Table 3, cash was withdrawn from the Association’s checking account for the 2011 and 2014 golf outing. However, no cash was withdrawn for golf outings held in 2010, 2012, 2013, and 2015. The cash withdrawal in 2014 included “Golf Outing” on the memo line of the checks. Mr. Bjornson stated the 2011 cash withdrawal was also for the golf outing. As previously stated, cash prizes were awarded during each annual golf outing. As a result, it appears cash was withheld from deposits for the 2010, 2012, 2013, and 2015 golf outings to pay for the prizes. Because only 2 cash withdrawals were made for the golf outing, we have included the $1,155.00 as unsupported disbursements in Table 2. According to Mr. Bjornson and the former Chief, the golf outing was not held as a fundraising event. However, some golfers paid more than the golf outing fee as a donation to the Association. When we asked about the excess amount collected for the 2011 outing, Mr. Bjornson stated part of the excess was a result of people who registered to play, but who did not attend. TCI only billed the Association for the actual number of golfers who participated in the outing. The Association did not refund the fees for those who did not attend the outing. According to Mr. Bjornson, it was decided after the outing to write a check to the Mercy Hospice in Johnston as a donation. On October 13, 2011, the Association issued check #1043 for $655.00. Check #1043 is included in Exhibit A as a reasonable disbursement. Because supporting documentation was not maintained for disbursements related to the golf outing, we cannot determine if all costs were paid from the Association’s checking account. Other Unsupported Disbursements In addition to the $1,607.46 of unsupported disbursements for the annual events, we identified additional unsupported disbursements totaling $2,041.43. The additional $2,041.43 is summarized by category in Table 1. Because supporting documentation was not provided for the payments listed in Table 1, we were unable to determine if the disbursements were for Department operations, personal use, or fundraising purposes. Examples of the disbursements are summarized below. Reimbursements to individuals – We identified disbursements totaling $895.66 to individuals which were not supported by documentation. Based on discussions with Mr. Bjornson, City officials, and the timing of the disbursements, the checks may be for items related to the golf outing and the Fall Festival. The $895.66 of disbursements includes $404.79 of payments to Mr. Bjornson. Of the $404.79 of payments to Mr. Bjornson, a check for $53.50 included the notation “Franklin Funeral” on the memo line and 2 checks totaling $352.29 did not include a notation. As previously stated, because the checks were prepared and signed by Mr. Bjornson without any independent review and there was no supporting documentation we have included the payments to Mr. Bjornson as unsupported reimbursements to individuals in Table 1. The remaining $490.87 reimbursed to individuals consists of a check for $150.00 which includes “CPR Training” on the memo line of the check, a check for $52.81 to former Chief Bowersox which includes “Jim Burton – Flowers” on the memo line of the check, and 3 checks totaling $288.06 which did not include a notation. According to the City officials and Mr. Bjornson, members purchased items for the annual events or for use by the Department and requested reimbursement from the Association. It is not clear why it would be necessary for Mr. Bjornson to issue reimbursements to himself when he had access to the Association’s checkbook and could make purchases directly from the checking account.
10
Retail stores - We identified disbursements totaling $676.40 to retail stores, including Target, Walmart and Kohl’s. According to the City officials, Mr. Bjornson and other members may have purchased items for events or the Department. According to Mr. Bjornson, every year the Association requested a list of items needed by residents of a retirement home in Polk City. The list included clothing and toiletries. Association members purchased the items at various stores, including Target, Walmart, and Kohl’s. OVERSIGHT AND INTERNAL CONTROL As previously started, the Association did not have formal meetings to discuss the operations of the Association. The Association has a fiduciary responsibility to exercise authority over its funds, efficiently and effectively achieve its mission, provide oversight of the Association’s operations and maintain the public trust. Oversight is typically defined as the “watchful and responsible care” a governing body exercises in its fiduciary capacity. Based on our review, we identified the following concerns related to oversight of the Association: •
The positions of President and Treasurer were held by the same person. As a result, there was no oversight of the Association’s financial transactions.
•
Adequate supporting documentation was not consistently maintained for all Association disbursements.
•
The Association does not have a written policy and procedures manual which includes requirements for supporting documentation for all payments to vendors and reimbursements to members and other individuals.
•
The Association did not hold meetings to discuss Association business including, approving disbursements to vendors, reimbursements to members, and discussions related to how funds received were to be used to benefit the Department.
As previously stated, the Association received an EIN from the IRS. According to City officials, a Department member completed the necessary forms to request the Association be established as a non-profit organization by the IRS. However, the forms were never filed with the IRS or the Iowa Secretary of State’s Office. As a result, the Association is not established as a non-profit organization by the IRS or the State. Organizations which support City operations may be considered part of the City if they are not separately registered as a non-profit corporation with the Secretary of State. In which case, all donations collected by the Association should have been deposited with the City and recorded in the City’s accounting system. Section 384.20 of the Code of Iowa states, “A city shall keep accounts which show an accurate and detailed statement of all public funds collected, received, or expended for any city purpose, by any city officer, employee, or other person, and which show the receipts, use, and disposition of all city property. Public money may not be expended or encumbered except under and an annual or continuing appropriation.”
11
Recommended Control Procedures We reviewed the procedures used by the Association to process receipts and disbursements. An important aspect of internal control is to establish procedures that provide accountability for assets susceptible to loss from error and irregularities. These procedures provide the actions of one individual will act as a check on those of another and provide a level of assurance errors or irregularities will be identified within a reasonable time during the course of normal operations. Based on our findings and observations detailed below, the following recommendations are made to strengthen the Association’s controls. A) Segregation of Duties – An important aspect of internal control is the segregation of duties among employees to prevent an individual employee from handling duties which are incompatible. The President/Treasurer, who was the same individual for the Association, had control over each of the following areas for the Department: (1) Receipts – collecting, preparing deposits, and making deposits, (2) Disbursements – purchasing, preparing checks, signing and distributing checks, maintaining supporting documentation, and (3) Bank accounts – reconciling monthly bank statements to the accounting records. Recommendation – We realize segregation of duties is difficult with a limited number of staff. However, the Association and the City should review their control procedures to obtain the maximum internal control possible under the circumstances utilizing currently available personnel and elected officials. In addition, someone independent of financial duties should review financial records, perform or review bank reconciliations, and examine supporting documentation for accounting records. Any irregularities identified during the reviews should be addressed in a timely manner. B) Disbursements – During our review of the Association’s receipts and disbursements, we identified disbursements were not always supported by invoices or other documentation. Recommendation – All disbursements and reimbursements to individuals should be supported by invoices or other documentation which includes the purpose of the purchase and a description of the goods and services purchased. Disbursements should be reviewed by someone independent from issuing and signing checks to ensure the disbursements meet the Association’s mission and are for the benefit of the Department. C) Financial Accounting Records – Very limited financial records were maintained by the Association during the period of our investigation. The following conditions were identified: (1) No ledger was maintained. (2) Pre-numbered receipts were not issued for collections for donations and fund raising activities. (3) Monthly bank account reconciliations were completed; however, the bank statements were delivered to and reviewed by the individual responsible for disbursing the Association’s funds. Recommendation – Department officials should ensure the Association establishes formal accounting records to account for all receipts and disbursements. Records should include: •
Pre-numbered receipts for all collections. 12
•
Checks should be prepared by the Treasurer and written in sequential order. Checks should be reviewed and signed by appropriate officials. The review should include comparing invoices and supporting documentation to the check.
•
Monthly bank to book reconciliations should be prepared by an independent individual and reviewed by someone independent of all financial transactions.
D) Organization of the Association – The Association has been operated solely to benefit
the operations of the Police Department. We identified the following concerns regarding the establishment of the Association: (1) The Association obtained an EIN from the IRS. While City officials initially understood the Association had been established as a non-profit organization, they later learned the required paperwork had not been filed with the Secretary of State or the IRS to request being established as a non-profit organization. (2) The Association did not have articles of incorporation, a formal Board of Directors, by-laws, or written policies and procedures related to the operations of the Association. (3) The Association did not hold meetings to discuss Association business including approving disbursements to vendors, reimbursements to members, and discussions related to how funds received were to be used to benefit the Department. Instead, these decisions were made by informal communications. No minutes or other supporting documentation was maintained regarding the decisions made by the Association members. (4) The President and Treasurer positions were held by the same individual. As a result, there was no oversight of the Association’s financial transactions. (5) The members of the Association are exclusively members of the City of Polk City Police Department. As a result, there may be an appearance the Association is a function of the City or the Department.
Section 384.20 of the Code of Iowa states, in part, “A city shall keep accounts which show an accurate and detailed statement of all public funds collected, received, or expended for any city purpose.” As a result, the Association would be considered part of the City and all activity should be recorded in the City’s accounting system and all funds should be deposited with the City. Recommendation – The Association and City Officials should determine if the Association should be included as part of the City of Polk City or established as a separate non-profit organization. If the Association is to be included as part of the City’s operations, City officials should ensure the following: •
All City policies, including receipting, depositing and disbursing of funds are complied with.
•
The separately maintained checking account is closed and deposited with the City and recorded in the City’s accounting system.
•
Funds received from donations are recorded in a separate fund in the City’s accounting system and used in accordance with any restrictions placed on them.
13
•
If the City would begin sponsoring fundraising events for the benefit of the Department, the following items should be addressed prior to each event: o
How the proceeds from the event will be used, such as the purchase of certain equipment.
o
If the expected proceeds from the event will be sufficient to pay the costs of the event.
o
Potential liability issues are identified and properly mitigated.
o
Minutes of the City Council meetings should also clearly document the City Council’s approval of the event. In addition, minutes should clearly document consideration of the matters listed above.
If the Association is established as a separate non-profit organization, the Association should ensure they are established in accordance with Chapter 504 “Revised Iowa Nonprofit Corporation Act” of the Code of Iowa and in accordance with IRS Code 501(c)(3) related to non-profit organizations. In addition, the Association should ensure all required forms are filed with the Secretary of State and IRS in a timely manner. Examples of Association requirements for State and IRS non-profit include: •
Articles of incorporation,
•
Organization of the Association/Corporation,
•
By-Laws,
•
Description of Activities, and
•
Emergency by-laws and powers.
Current Status – According to the Current Chief, articles of incorporation and by-laws are being drafted and the required information is being prepared to file with the Secretary of State and the IRS.
14
Exhibit
15
___________________________________________________________________________________________________ Report on Special Investigation of the Polk City Police Officers Association Disbursements from the Association's Checking Account For the period July 1, 2010 through March 31, 2016 Description per check register or bank statement
Check
Date
Number
07/15/10
1109
TCI
None
$ 3,986.00
09/27/10
1111
Mitzi Ecklund
None
200.00
10/05/10
1112
Dustin Bjornson
Franklin Funeral
10/20/10
1113
Complete Entertainment
None
393.80
Check memo
Amount
53.50
10/26/10
NA
Counter Withdrawal
None
220.00
11/02/10
1115
Matthew Archer
None
38.06
11/02/10
1114
Dustin Bjornson
None
212.19
11/02/10
1116
Dustin Bjornson
Fall Fest
147.07
11/03/10
1117
Ivan Sarsoza
Fall Fest DJ
250.00
11/18/10
1118
Caseys
None
25.66
12/07/10
1108
Nobbies
None
38.12
12/14/10
1110
Bingham Family
None
50.00
03/18/11
1119
City of Polk City
Fall Fest
832.37
06/01/11
NA
Counter Withdrawal
None
06/10/11
1120
Jack Wilkinson
CPR Training
06/17/11
1031
Dewey Ford
None
06/22/11
1034
Mark Bowersox
Jim Burton- Flowers
07/08/11
1032
Handley Law Firm
Atty Fee: 8353-00
07/27/11
1033
Electronic Engineering
7/22/2011
08/05/11
1035
Handley Law Firm
#2 #8353
50.50
08/25/11
1036
Phoukham Tran Fund
None
50.00
09/08/11
1039
Post Master
Fall Fest Stamps
70.40
13,005.00 150.00 1,100.00 52.81 125.00 3,071.35
09/15/11
NA
Counter Withdrawal
None
685.00
09/29/11
1042
TCI
None
3,780.36
10/05/11
1044
Postmaster
None
26.00
10/13/11
1043
Mercy Hospice Johnston
None
655.00
10/31/11
NA
Cash-Change
None
220.00
11/01/11
1037
WAL-MART STORES PURCHASE 1037 ANKEIA
None
474.28
11/02/11
1045
Dustin Bjornson
Nobbies -Fall Fest
50.99
11/02/11
1046
Dustin Bjornson
Fall Fest Reimb
31.12
11/04/11
1038
Complete Entertainment
None
857.54
11/07/11
1040
Ivan Sarguza
None
250.00
01/05/12
1047
Dustin Bjornson
Pol City xxxxx
139.10
06/29/12
NA
Bank adjustment
None
19.25
07/16/12
1050
Caseys
None
17.11
08/07/12
1110
Not provided
None
75.00
08/07/12
1100
Handley Law Firm
None
75.00
09/17/12
1101
Caseys
None
46.72
___________________________________________________________________________________________ 16
Exhibit A ___________________________________________________________________________________________________
Reasonable Unsupported -
Golf Outing
Fall Festival
3,986.00
Other -
Total -
3,986.00
200.00
-
-
-
-
53.50
-
-
-
-
-
-
393.80
-
393.80
220.00
-
-
-
220.00
38.06
-
-
-
-
212.19
-
-
-
-
147.07
-
-
-
-
-
-
-
250.00
25.66
-
-
-
-
38.12
-
-
-
-
50.00
-
-
-
-
-
-
-
832.37
250.00
832.37
-
-
-
13,005.00
13,005.00
150.00
-
-
-
-
-
-
-
1,100.00
1,100.00
52.81
-
-
-
-
-
-
-
125.00
125.00
-
-
-
3,071.35
3,071.35
-
-
-
50.50
50.50
-
-
-
50.00
50.00
-
-
-
70.40
685.00 -
3,780.36 -
70.40 -
-
-
-
-
3,780.36
-
26.00
26.00
-
655.00
655.00
-
220.00
-
-
-
-
474.28
-
-
-
-
50.99
-
-
-
-
31.12
-
-
-
-
220.00
-
-
857.54
-
857.54
-
-
250.00
-
250.00
139.10
-
-
-
-
-
-
-
19.25
19.25
17.11
-
-
-
-
75.00
-
-
-
-
-
-
-
75.00
75.00
46.72
-
-
-
-
____________________________________________________________________________________________________ 17
___________________________________________________________________________________________________ Report on Special Investigation of the Polk City Police Officers Association Disbursements from the Association's Checking Account For the period July 1, 2010 through March 31, 2016 Description per check register or bank statement
Check
Date
Number
09/25/12
1102
TCI
Officer Assn. outing
10/29/12
1106
Cash
Prizes and Money
10/29/12
1103
Scheels
None
10/31/12
1107
Dustin Bjornson
Fall Fest Supplies
10/31/12
1104
Nobbies
Fall Fest
33.31
11/07/12
1105
Complete Entertainment
Fall Fest
545.90
11/30/12
1108
City of Polk City
Reimb City for WalMart Fall Fest
432.63
12/12/12
1109
WAL-MART STORES PURCHASE 1109 ANKEIA
None
121.98
12/17/12
1110
TARGET T1767 PURCHASE 1110
None
12.71
04/04/13
1112
Postmaster
P.O. Box Rental
28.00
04/15/13
1113
City of Polk City
Taser Donation
2,020.99
09/03/13
1114
CASEYS GEN STORE 5159656100 1114
None
10/16/13
1115
TCI
Golf Outing
10/25/13
1116
Cash
None
03/07/14
1117
Postmaster
P.O. Box Rental
30.00
07/16/14
1119
Dudley Family
None
30.00
09/12/14
1118
Cash
Golf Outing
470.00
09/26/14
1120
TCI
Golf Outing
1,769.60
11/13/14
1121
Toyland Gifts
Raffle
12/10/14
1122
IA Dept of Inspections
None
40.00
12/26/14
1124
KOHLS DEPT STORE 8005645740 1124
None
23.30
12/26/14
1123
WAL-MART STORES PURCHASE 1123 ANKEIA
None
44.13
01/22/15
1151
Julie Jorgenson Benefit
None
50.00
03/03/15
1150
Polk City Fire
Raffle
40.50
03/18/15
1152
Postmaster
Post Box
34.00
08/24/15
1153
TCI
Golf Outing
10/26/15
1154
Cash
Fall Festival 2015
12/31/15
1155
Hy-Vee Check # 1155
None
03/09/16
1156
USPS
P.O. Box Rental
Total
Check memo
Amount 2,446.20 200.00 51.90 223.28
22.47 2,544.00 120.00
147.29
2,585.60 150.00 45.10 40.00 $ 45,827.19
NA - Not applicable Auditor's notations are in italics.
___________________________________________________________________________________________ 18
Exhibit A ___________________________________________________________________________________________________
Reasonable Unsupported -
Golf Outing 2,446.20
Fall Festival -
Other
Total -
2,446.20
-
-
-
200.00
51.90
-
-
-
-
223.28
-
-
-
-
-
-
33.31
-
33.31
-
-
545.90
-
545.90
-
-
432.63
-
432.63
121.98
-
-
-
-
12.71
-
-
-
-
-
-
-
28.00
28.00
200.00
-
-
-
2,020.99
2,020.99
22.47
-
-
-
-
-
-
2,544.00
-
2,544.00
-
-
-
120.00
-
-
-
30.00
30.00
-
-
-
30.00
30.00
-
-
-
-
-
-
1,769.60
470.00 -
1,769.60
120.00
147.29
-
-
-
-
-
-
-
40.00
40.00
23.30
-
-
-
-
44.13
-
-
-
-
-
-
-
50.00
50.00
-
-
-
40.50
40.50
-
-
-
34.00
34.00
-
-
2,585.60
-
150.00
-
-
-
2,585.60
-
-
45.10
-
3,648.89
17,111.76
150.00 4,575.95
40.00
40.00
20,490.59
42,178.30
____________________________________________________________________________________________________ 19
Report on Special Investigation of the Polk City Police Officers Association Staff
This special investigation was performed by: Annette K. Campbell, CPA, Director James S. Cunningham, CPA, Manager Matthew C. Hickenbottom, Senior Auditor
Tamera S. Kusian, CPA Deputy Auditor of State
20
