UPDATES & ANALYSIS

5.05

An entity created by local governments is beyond the State Auditor’s reach, according to the Iowa Supreme Court

by Rox Laird | May 5, 2023

The Iowa State Auditor is empowered by the Iowa Code to audit agencies of the state government and certain governmental subdivisions of the State, including cities and counties. Meanwhile, local governments are authorized by the Iowa Code to form collaborative entities. Does that mean the State Auditor has authority to audit those entities?

Not necessarily, according to the Iowa Supreme Court.

In a unanimous decision handed down April 7, the Supreme Court held that the Iowa Communities Assurance Pool (ICAP), a collaboration of cities, counties and other local governments to share in risk management, does not meet the criteria set out by statute for entities that are subject to state audits.

ICAP is a nonprofit with nearly 800 members including cities, counties, townships, county fairs, and other local agencies. It is audited annually by an independent, private auditor. The State Auditor’s office had not previously sought to audit ICAP until 2019 when a news report about an out-of-state meeting of the ICAP board raised questions about board members’ travel expenses.

State Auditor Rob Sand subsequently launched an investigation into the board members’ expenses, seeking financial records including travel reimbursements.

Though ICAP took the position that it does not meet the definition of a governmental subdivision subject to a state audit, it nonetheless released a number of documents while withholding others. Sand issued a subpoena for those documents and sought a ruling from the Polk County District Court to enforce the subpoena, which the trial court denied, finding that ICAP is not a governmental subdivision subject to the state auditor’s authority.

The Supreme Court agreed.

The key issue in this appeal, the Court said in an opinion written by Justice Christopher McDonald, is whether ICAP is a governmental subdivision as defined by Chapter 11 of the Iowa Code. Chapter 11 governs the State Auditor, and defines which entities are subject to the State Auditor’s authority. The relevant statute defines a governmental subdivision as “cities and administrative agencies established by cities, hospitals or health care facilities established by a city, counties, county hospitals organized under chapters 347 and 347A, memorial hospitals organized under chapter 37, entities organized under chapter 28E, community colleges, area education agencies, and school districts.”

The Court dismissed an argument raised in this case that ICAP is organized under Chapter 28E, which permits state and local governments to jointly provide services and facilities. To create a 28E entity, local governments must clear a number of hurdles, including taking action by ordinance or resolution, none of which was done in the case of ICAP.

“In short, ICAP has been in existence since 1986 and has almost 800 government entity members, but not one of those almost 800 members made any filing to create or treat ICAP as an entity organized under chapter 28E,” McDonald wrote.

Rather, ICAP was organized under Iowa Code section 670.7, which governs tort liability of governmental subdivisions.

The Court also dismissed the Auditor’s argument that there is a public policy justification for ICAP to be subject to the State Auditor’s authority.

“The state auditor had never attempted to assert authority over ICAP in the thirty-three years prior to this case, and it is not as if ICAP is some fly-under-the-radar operation. ICAP has almost 800 government entity members all subject to the state auditor’s authority,” McDonald wrote. “In any event, while it might be good policy to subject local government risk pools to some oversight, it does not follow that the state auditor is the person who should be vested with such authority.”

 

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