Iowa City Schools Audit Reveals $38M in Unapproved Loans

A new audit of the Iowa City Community School District has uncovered more than $38 million in unapproved interfund loans and a nearly $1 million deficit in the district's student activity fund, deepening an ongoing budget crisis that has already forced $7.5 million in spending cuts. The audit, presented on Tuesday, June 23, by Bohnsack & Frommelt, found that the district's financial statements are reliable, but its internal controls and fiscal oversight are severely lacking.

What did the audit find about unapproved interfund loans?

The Iowa City Community School District is currently catching up on three years of delayed audits. The fiscal year 2024 report, reviewed during the June 23 school board meeting, revealed that the district carried more than $38 million in interfund receivables and payables. These are essentially short-term debts created when the district borrows cash from one account to cover shortfalls in another.

Under Iowa law, school districts must formally authorize interfund loans through their board of directors and fully repay them within the following fiscal year. The audit found that the ICCSD board never approved these transfers, and the borrowed funds were not repaid by the state's deadline. Auditors recommended that the district repay the amounts owed and pass a formal resolution authorizing the interfund loans.

This is not the first time the district's borrowing practices have raised red flags. The district's financial troubles first emerged in January, when the board was asked to retroactively approve a $10 million interfund loan to cover salaries that outpaced projections. That retroactive approval drew sharp criticism from the Iowa City community, and the 2024 audit flagged a similar pattern of unapproved, unrepaid borrowing on a much larger scale.

How did the student activity fund fall nearly $1 million into debt?

Auditors also discovered that the ICCSD's student activity fund was operating at a $983,381 deficit after the district spent more on athletics and other extracurricular programs than it generated in revenue. The budget for that fund was overextended by more than $1 million during fiscal year 2024, and the fund now owes nearly $1.5 million to other district accounts.

At a June 9 board meeting, officials revealed that the district had been supplementing the student activity fund with money from the general fund. That practice, however, violates state law. In Iowa, student activity funds are required to be self-sustaining, and districts cannot transfer public funds to cover deficits in those accounts.