A handful of Diamond residents and city council members came out at 5 p.m. Wednesday at Diamond City Hall to hear findings of a state audit.

“I put an audit grading system in when I became state auditor two years ago,” Missouri Auditor Tom Schweich said to the audience. “This particular case, we rated the performance of this city ‘fair,’ which is not the highest rating we have, but we also look at what people do when they get the audit and what their reaction is. We found that [Diamond] Mayor [Shane] Hunter was extremely responsive to our audit and has agreed to implement virtually every recommendation that we in the audit. So it is not high rating, it is a fair rating, and there are some problems. A fair rating usually means there are a lot of little problems and no really big problems, and that is how I would pretty much characterize this audit.”

This particular audit was a petition audit.

“Voters have taken the time to get signatures and send them to our office, get them certified before we come in and do an audit,” Schweich said. “In this particular case, you needed 166 signatures to get us to come in [for] 25 percent of the registered voters to get a state audit. You got 173 valid signatures and that activates my duty to come in and do the audit. Our audit period was from June 2010 to June 2012. We spend about 500 hours doing this audit. We said the estimate cost for doing the audit would be $40,000, the actual cost was $25,000 to $26,000. That is a lot of money, but I do think that if the recommendations of the auditor implemented, you would realize savings of much more than that over time.”

The complete audit can be found at www.auditor.mo.gov. Schweich said there were some key aspects ranging from city sales tax and lease to disbursement procedures to accounting controls and procedures to utility system controls and procedures to payroll procedures to property tax controls and procedures to
financial statements and budgets and to meetings and ordinances.

Schweich not only gave a summery of the topics at hand but also recommendation and the auditee’s response.

For example:

• City sales tax

Finding: The city is not allocating a portion of the revenue generated from a one-half cent city sales tax to parks and recreation. A city ordinance requiring a portion of the city's sales tax revenue to be allocated to parks and recreation was amended after the sales tax issue was approved by voters.

In November 2003, voters approved a one-half cent general sales tax. The ballot language specifically referenced City Ordinance No. 256, which was passed by the Board of Aldermen in August 2003 and states in part, "A portion of the tax, equal to one-eighth of one percent (.0125 percent) shall be earmarked for expenditures for the parks and recreation."

According to city officials the percentage stated in Ordinance Number 256 was not correct. In February 2005, Ordinance Number 262 was passed to amend the initial ordinance and list the percent allocated to parks and recreation as 0.125 percent. Then, in November 2006, Ordinance Number 262 was amended with the passage of Ordinance 285 which indicates that the portion previously allocated to parks and recreation would now be distributed to the city's general fund. As a result, the city discontinued allocating a portion of the sales tax revenue to parks and recreation.

According to documentation prepared by the city in 2003, the city estimated total sales tax revenues of $20,000 with $5,000 to be used for parks. This sales tax generated approximately $35,000 during the year ended June 30, 2012, and, using the same calculation method as the city, this results in approximately $8,750 that could have been used for parks and recreation.

Although the city's original sales tax ordinance earmarked a portion of the sales tax revenue for parks and recreation, city officials believe the city is not legally required to follow the restriction because the ballot language only referred to the ordinance and did not specifically restrict the funds. However, the city does not have any documentation to indicate legal counsel was consulted prior to lifting the restriction of these sales tax revenues.

Auditor recommendation: Consult legal counsel to determine if the city is legally authorized to amend the original sales tax ordinance to eliminate the parks and recreation restriction, and if applicable, calculate the amount of park and recreation revenue for prior years and transfer that amount from the city's general fund to a fund restricted for parks and recreation.

Auditee’s response: We have addressed this recommendation by passing Resolution No. 092012 on Sept. 10, 2012, to allocate one eighth of the one percent sales tax into the city's parks and recreation account. We will determine if any prior year amounts of sales tax collections should be transferred.

• Utility system controls and procedures – water loss

Finding: The city has experienced a significant increase in the amount of unbilled water (water loss) each month and has not documented efforts to resolve the losses.

The city's computerized water and sewer billing system compares total water pumped to total water billed to customers to determine the amount of water loss. In two years the amount of water loss each month has increased significantly. In July 2010, the city water loss was approximately 783,000 gallons (25 percent of the water pumped); however, in June 2012, the water loss was approximately 2.5 million gallons (49 percent of the water pumped).

While the board meeting minutes occasionally reference the city's water losses, there is no documented effort by the board to address the losses. City officials indicated that water lines are deteriorating and need to be replaced and some unmetered water is also suspected.

To help detect significant water loss and ensure all water use is properly billed, the board should review the reconciliation of gallons of water pumped to gallons of water billed on a monthly basis and document efforts to investigate and resolve the differences. According to the United States Environmental Protection Agency, the water industry goal for unaccounted for water is 10 percent or less.

Auditor recommendation: Review the reconciliation of gallons of water pumped to gallons of water billed on a monthly basis and document efforts to investigate and resolve the differences.

Auditee’s response: The city's past meter maintenance program was poor. We recently began recalibrating and replacing city meters as needed to ensure meter readings are accurate. Some water system leaks have also been discovered and water system controls have been identified to obtain more accurate system reconciliation reports. We are reviewing reconciliation reports monthly and working to resolve the significant water losses.

“It is a lot of small problems,” Schweich said. “You have a great city, you have a lot to be proud of. I am confident and I don’t say this everywhere I go, that the city is very attentive to what we said, they are going to try to fix the problems. We probably will take a swing by here in 90-120 days to do a quick follow-up to see that everything has been implemented, issue a very short follow-up report so that you can be sure. I am pretty confident that this group is committed on fixing it. Bottom line, I think that things are going to be improved, I think that you have a great community that you should be proud of. I think that it was a great idea to have this audit done.”

Hunter said he was pleased with the audit findings.

“As you heard from the state auditor, we have already implemented some of the changes that they are requiring and we are also working on implementing on even more to make sure that the city is in great standards,” he said. “We are doing everything that we can for the citizens of Diamond and make sure that our community keeps growing and keeps strong.”

Of the 49 percent water loss, Hunter said, “We are working on updating meters, we are finding that some of the older meters are not reading correctly, some people are actually getting more or less than what the meters are saying. So now we have implemented [a program] where we replace meters on a regular basis to make sure that everybody’s getting the actual water readings that they need.”