While new rules regarding conflicts of interest were already created in 2019 for Waverly Utilities, more policy changes are in the works after a re-audit by the State Auditor’s Office.

State Auditor Rob Sand released the report on Friday, Nov. 12. The examination looked over the period from Jan. 1, 2015, to Dec. 31, 2018.

The agency conducted the re-audit at the request of city officials who presented more than 20 specific concerns about business practices and expenses, according to the report. Those covered “questionable business expenses, excessive travel, credit card usage, marketing and advertising expenses and donations made by the Utility,” the re-audit report says.

Waverly Utilities “responded favorably” to recommendations, the report says.

A main theme throughout the report was a lack of adequate documentation demonstrating expenses had appropriate public purpose as required by Article III, Section 31 of the Iowa Constitution.

“Waverly Utilities would like to acknowledge and thank the State Auditor’s staff for conducting a very thorough re-audit of Waverly Utilities financials,” Waverly Utilities Chief Executive Officer Darrel L. Wenzel said in a response to Waverly Newspapers’ request for comment. “While no significant or material finding were made, there are documentation deficiencies that have been or will be addressed and corrected by the Waverly Utilities management staff as overseen by the Board of Trustees.

“To specifically answer your question about policies, the Board did approve a new board member policy that includes a section on Iowa Code 362.5 business transactions and conflict of interest on March 12, 2019. Waverly Utilities attorney and staff are currently working on a Public Purpose Policy and an update will be discussed with the Board at the December board meeting.”

According to the re-audit report, the conflict-of-interest policy was put into place by the Waverly Utilities Board of Trustees after a potential conflict involving now-former Trustee Aelvin Suhr, owner of radio station KWAY. Contracts related to the payments were not established through a competitive bidding process, the report says.

Sand recommended that the utility’s board of trustees ensure all trustees and employees follow the conflict of interest policy approved on March 12, 2019, and state law.

In response to other auditor recommendations, Waverly Utilities said management staff would draft policies regarding public purpose and documentation for expenses such as sponsorships, staff recognition, credit card use, advertising and marketing, and travel expenses, the report says. It’s up to the Board of Trustees whether to approve them.

Other changes coming include expense report forms being modified to include destination to and from mileage, and employees and trustees using personal vehicles for work must submit necessary proof of insurance, according to the report.

The report listed instances when the public purpose of expenses was not clearly documented, including: a $192.95 for hats, $475 to renew membership in a lobbying organization called “National Write Your Congressman,” and $13,871.03 for employee recognition, retirement parties, employee awards, staff meals and other items.

The re-audit cited 107 credit card transactions and $1,018.20 purchases with inadequate or no supporting documentation showing the public purpose.

“During our review, we identified several instances where a personal purchase was made with a Utility credit card,” Sand wrote. “The Utility was subsequently reimbursed for these purchases; however, the initial purchase should not have been made using a Utility credit card.”

The report also said supporting documentation left unclear what portion of fuel, car rental and parking costs should have been reimbursed by a utility official when he traveled to a conference in Arizona.

Waverly Utilities management staff will prepare proposed revisions to the credit card policy to prohibit employees from including related personal expenses or other personal expenses when using the credit card for utility purposes and will present the proposed revisions to the Board of Trustees for formal consideration, the report says.

The report challenged Waverly Utilities over sponsorships. Sand, the state auditor, cites the State Constitution prohibiting governmental bodies from making gifts to a private non-profit corporation. It also cites Attorney General Opinions that conclude “a governmental body may not donate public funds to a private entity, even if the entity is established for charitable or educational purposes and performs work which the government could perform directly ... Even if the function of a private nonprofit corporation fits within the scope of activities generally recognized as serving a public purpose, a critical question exists regarding whether funds or property transferred to a private entity will indeed be used for those public purposes.”

From 2015-2018, the utility has paid out $20,088.55 in sponsorship expenses, to Chambers of Commerce, Exchange Club, Revibe of Vineyard Community Church, Best Dam Run, American Cancer Society Relay for Life, Robotics, swim team, Valley Lutheran School, and the Waverly Rotary Club, the re-audit report says.

The auditor recommended the Utility Board establish procedures to ensure all expenditures comply with Article III, Section 31 of the Iowa Constitution. Waverly Utilities management staff said it will prepare a policy addressing the public purpose served by sponsorship expenses and present it to the board.

The auditor also called into question advertising and marketing expenses. Sand calls for Waverly Utilities to implement policies and procedures to document type and amount of advertising and marketing expenses that are necessary and reasonable and that include the public purpose served.

According to the report, Waverly Utilities responded by saying: “management staff will prepare a policy addressing advertising and marketing and the public purpose served by such expenses and present it to the Board of Trustees for formal consideration and will establish a procedure for administration of such policy.

“For further answer, the annual advertising and marketing plan for the electric utility include mandatory Iowa Utility Board customer notifications, energy efficiency advertising, call before you dig advertisements, social media alerts of electrical outages, and quarterly newsletters to keep customers informed about electric utility actions. Some of the IUB mandatory advertisements include annual LIHEAP notification, Project Share requirements, notification of customer complaint requirement, annual grain bin safety requirement and mandatory rate change notification requirements. Such communications and the associated expenses are necessary and appropriate and serve a public utility purpose.”

Waverly Utilities resisted the auditor’s recommendation for a cell phone policy prohibiting adding personal services and family members to individual cell phone plans.

“Waverly Utilities receives a group discount under this cell phone plan,” says Waverly Utilities’ response according to the report. “This benefit is extended to family members at no cost to Waverly Utilities or the rate payers.

“This is a benefit to Waverly Utilities employees and their families that serves a public purpose by improving personnel and morale, through the retention of faithful and experienced employees. This benefit cannot be provided without Waverly Utilities making the initial payment and requiring reimbursement from the employee. To ensure prompt reimbursement the recovery and reimbursement of an employee’s personal cell phone expense is captured through payroll recovery, similar to the recovery of employee health insurance premiums for a family insurance plan.

“To Waverly Utilities’ knowledge there is no prohibition of this employee benefit in Iowa Code, nor is it known to be a GAAP or GASB accounting violation.

“Because this is a valuable employee benefit believed to serve a public purpose, Waverly Utilities management will recommend the Board of Trustees leave this benefit in place but will also recommend that the Board of Trustees address the public purpose in a policy. If the Board of Trustees determines that this practice does not serve a public purpose, the practice will be discontinued.”