Independent auditors told the Iowa City Community School District board on Sept. 9 that the district's FY2023 financial statements received an unmodified audit opinion but included a material weakness for untimely financial reporting and several significant deficiencies that the district must correct. The audit team also reported late filing of the district's single-audit package under federal requirements.

Kristen Hughes of RSM, the district's auditors, summarized the audit documents, which include the district's Annual Comprehensive Financial Report (ACFR) and the Schedule of Expenditures of Federal Awards (SEFA). "The large document is the district's annual also known as the ACFR," Hughes said, and she pointed board members to the MD&A (management's discussion and analysis) for a concise summary.

The auditors said revenue rose about $15.7 million (roughly 6 percent) from FY2022 to FY2023 and identified the primary drivers as roughly $8 million in additional state sources and about $3 million in higher interest income. Expenditures rose substantially as well'total expenditures rose about 24 percent year over year, the auditors said, driven primarily by increased capital outlay (about $24 million) tied to Facilities Master Plan 2 work and a $33 million increase in debt service related to issuing new bonds and refunding prior debt.

Aaron, the RSM manager who presented the financial highlights, told the board that nearly $30 million of the increased debt-service spending reflected the district's issuance of a new revenue bond and the refunding of a prior bond.

On internal controls and reporting, Hughes told the board the auditors identified a material weakness that stemmed from untimely financial reporting and revisions made during the audit. "The finding stems from untimely financial reporting that occurred with these FY23 financials," Hughes said. The auditors also reported significant deficiencies that included reconciling differences in bank reconciliations and a lack of adequate segregation of incompatible responsibilities in the business office.

The single-audit portion of the engagement examined federal programs. RSM selected two major programs for testing; the auditors issued clean opinions on both but noted findings including errors in SEFA preparation (cutoff/misclassification), a material weakness tied to insufficient secondary review for an ESSER-related grant, and late filing of the single-audit package. The federal guidance requires submission of the single-audit package within nine months of fiscal year-end, the auditors noted.

Board members questioned why the full compliance section of the audit had not been uploaded to the board materials before the meeting. The auditors said two versions of the financial statements are prepared (one with the compliance section for federal filing and one without), and that the compliance-included version is the appropriate document to share with the board. Superintendent Matt Degner and district finance staff took responsibility for the oversight and described steps being taken to improve procedures.

Superintendent Degner and district finance leaders described the causes of the reporting problems as turnover in the business office and limited capacity for transition from a long-tenured staff member. Degner said the district has begun tightening procedural controls, segregating posting authority, implementing mandatory reviews for posted items, and cross-training staff. Alan Moran, a finance office staff member referenced during the discussion, said those steps are already underway.

When asked about recovery and oversight, district staff agreed to provide quarterly progress updates on corrective actions tied to the audit findings; the corrective-action timeline discussed in the meeting set a target of returning to on-schedule reporting by March 2027.

Why this matters: the audit confirms the district's financial statements are presented in accordance with GAAP, but the material weakness and the single-audit issues signal weaknesses in internal financial controls and federal-compliance processes. The board directed staff to report progress and put tighter procedures in place to reduce risk and restore timely reporting.

Board members asked follow-up questions about staffing, succession planning and program-specific controls; finance leadership said they are working to add capacity and strengthen segregation of duties so the district can produce timely, auditable reports.

The auditors who presented were identified in the meeting as Kristen Hughes and Aaron of RSM. District speakers who discussed responses included Superintendent Matt Degner, CFO Kurth, and finance office staff including Alan Moran. No formal board action on the audit presentation was taken at the Sept. 9 meeting; the board received the report and asked for follow-up briefings and quarterly updates from staff.