Nearly $40 million in unapproved interfund loans and issues with athletic spending were the focus of a recent audit report as the Iowa City Community School District continues to grapple with a significant budget crisis.
The district is catching up on three years’ worth of delayed audits. Its fiscal year 2024 report, reviewed during the Tuesday, June 23 school board meeting, found that the district’s financial statements are reliable, but internal control of interfund accounting and fiscal oversight is lacking.
The audit, presented Tuesday, June 23, by Bohnsack & Frommelt to the board of directors, Superintendent Matt Degner and Chief Financial Officer Pat Moore—the only district leadership present— is part of the district’s efforts to address the backlog of delayed reports.
The district is in the midst of an ongoing financial crisis, requiring it to seek emergency loans and implement $7.5 million in spending cuts for fiscal year 2027, which begins on July 1. The local district’s financial troubles emerged in January after the board of directors was asked to retroactively approve a $10 million interfund loan to pay salaries, which outpaced the district’s projections.
ICCSD’s 20224 audit finds unapproved, unrepaid interfund loans
The district has drawn scrutiny from the Iowa City community after board members retroactively approved a $10 million interfund loan in January, a similar issue that auditors flagged in the 2024 audit.
Auditors found that the ICCSD had more than $38 million in interfund receivables and payables, or debts due and debts owed, created to cover short-term cash borrowing funds across accounts.
In Iowa, districts must authorize interfund loans and fully repay them within the following fiscal year. The audit showed that the transfers between accounts were not approved by the board of directors and were not repaid by the state’s deadline.
Auditors recommend that the district repay the amount owed and pass a formal resolution authorizing the interfund loans.
Student activity fund faces nearly $1 million deficit
Auditors also found that ICCSD’s student activity fund was operating at a $983,381 deficit after spending more on athletics and other extracurricular programs than it generated in revenue.
At the board meeting on June 9, it was revealed that the district was supplementing the student activity fund with the general fund.
The audit found that the budget was overextended by more than $1 million during fiscal year 2024, resulting in a nearly $1 million deficit. That fund also owes nearly $1.5 million to other district accounts.
As a result, ICCSD’s high school athletics could be faced with reduced funding.
Auditors attributed the deficit to inadequate financial monitoring and internal controls.
In Iowa, student activity funds are required to pay for themselves, and districts cannot transfer public funds to cover deficits, meaning the deficit fund could persist until the district reaches financial stability.
“We have talked about it with the AEDs that obviously it is not legal for a general fund outside a safety transfer to provide funding to the activity fund,” Moore said. “Complete honesty there.”
The ICCSD will continue to monitor transactions in each fund to ensure expenses don’t exceed revenue, and will also seek other ways to eliminate the debt.
Audit reveals gaps in oversight and procedures
Notably, the audit identified multiple weaknesses in internal controls, focusing on the district’s financial challenges in tracking and managing funds.
A significant issue is how the district handles cash disbursements. Basic safeguards are not in place for those who handle, record, and review the district’s funds, increasing the risk of errors and undetected misuse.
Auditors revealed that a single employee could process invoices, print checks, and perform other payroll tasks.
The district on Tuesday pledged to review “current processes and realign duties and system access levels,” and “look for ways to realign and reassign duties where possible.”
Jessica Rish is an entertainment, dining and education reporter for the Iowa City Press-Citizen. She can be reached at JRish@press-citizen.com or on X, formerly known as Twitter, at @rishjessica_
This article originally appeared on Iowa City Press-Citizen: $38M in loans, athletics funding issues deepen ICCSD budget crisis
Reporting by Jessica Rish, Iowa City Press-Citizen / Iowa City Press-Citizen
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By Jessica Rish, Iowa City Press-Citizen | USA TODAY Network
