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State auditor finds UDMO at fault

By Staff | Sep 30, 2008

An audit released this month by the Iowa State Auditor shows Upper Des Moines Opportunity, Inc. committed a number of irregularities in its accounting system.

The audit covered the period from Oct. 1, 2004 through Sept. 20, 2007 and was requested by Osceola County Attorney Bob Hansen.

The audit identified the following concerns:

n Without approval of the board, three loans totaling $64,000 were issued. Upper Des Moines Opportunity does not administer any loan programs and two of the three loans were made to or involved parties with a relationship to UDMO. In addition, the loans were made with funds which include interest earned on federal funds.

n At least $19,346.29 of interest was earned on LIHEAP and HEAP federal funds during fiscal years 2005 through 2007. Of this amount, $15,535.73 was earned in UDMO’s energy account and $3,810.66 was earned in the general account. The interest was used for UDMO’s general operations rather than being returned to the federal government in compliance with Federal Cash Management requirements.

n A former employee was paid $15,000.03 with federal funds over a nine-month period to provide services through a consultant contract. However, the consultant did not provide all documentation required by the contract. The limited documentation provided was not sufficient to determine what specific services were provided.

n The executive committee rather than the board makes a significant number of decisions regarding UDMO’s operations, which are typically not ratified by the board. In addition, the composition of the executive committee does not meet the representation requirements imposed on the full board by Chapter 216A of the Code of Iowa.

n A number of controls in place at UDMO and UMDO’s policies and procedures need improvement.

The budget irregularities first came to light when, after UDMO Executive Director Larry Rohret suddenly died, the board appointed Nancy Schmitz as executive director. According to the audit report, during her tenure Schmitz discovered that several loans had been made without being formally approved by the board of directors.

According to the report, on Oct. 19, 2006, the executive committee fired Schmitz and the board approved her termination Nov. 1. “As a result of her termination, allegations began to surface concerning UDMO’s operations and the loans made by UDMO with Rohret’s approval. As a result of the concerns, the Osceola County Attorney and the board requested assistance from the Office of Auditor of State.”

According to the audit, UDMO made a $25,000 loan to Graettinger Economic Development Council to establish a grocery store in Graettinger. At the time the loan was made, the grocery store was owned by Main Street Market LLH. According to promissory notes provided to the state auditor’s office, Gina Lowman-Hall, the current deputy director of UDMO, was an owner. At the time the loan was made, Hall was UDMO’s community relations director.

Lowman-Hall later said she was unaware of UDMO’s loan to GEC until Schmitz brought that and other loans to the board’s attention.

In another instance, $11,000 was loaned to an employee because of financial hardships. Rohret approved the interest-free loan which was made in three installments between June 20, 2005 and Dec. 30, 2005. Repayments are being made to UDMO through the employee’s payroll withholding, according to the audit.

The audit report made several recommendations:

n The Policies and Procedures Manual should be periodically reviewed and updated to address changes in UDMO’s operations and its operating environment.

n UDMO should implement procedures to track interest earned on all programs and ensure interest earned on federal funds is returned in compliance with federal regulations. UDMO should work with the Iowa Department of Human Rights to determine the amount of interest to be repaid for LIPHEAP and HEAP.

n The board should establish policies regarding the allowable use of federal, state and local grants as well as corporate funds and approval of loans.

n UDMO should implement procedures to ensure all disbursements are adequately supported.

n The board should take an active role in the oversight of UDMO, including reviewing financial reports, approving actions of the executive committee, ensuring minutes document significant discussions and actions of the board, reviewing and approving expenditures and approving personnel actions.

n All disbursements should be properly supported by invoices or other appropriate documentation. In addition, all collections should be properly recorded in the accounting system in a timely manner.

n Because the executive committee is acting as UDMO’s governing body, its membership should comply with requirements for the full board established by Chapter 216A of the Code of Iowa and Section 676B of the Community Services Block Grant Act.

n UDMO should establish policies and procedures which prohibit salary advances. In addition, UDMO should review policies and procedures to ensure travel advances are provided only as needed. Many of the costs associated with travel for which advances are provided may be met by the appropriate use of UDMO’s credit card.

n UDMO’s compensation policies should provide for consistent treatment of all employees for merit increases and across the board for cost of living increases.

n UDMO should implement procedures to ensure UDMO vehicles are not used for personal purposes and mileage logs contain adequate descriptions. In addition, UDMO should ensure any personal use of vehicles is properly reported on an IRS form 1099.

Editor’s note: The Daily News attempted to contact Osceola County Attorney Bob Hansen and current UDMO Executive Director Ron Ludwig for their comments on the audit; however, we were unable to reach them by press time. Look for a follow-up story in a later edition of the Daily News.