Auditor Says ESA Records "Unlawfully Delayed" for Six Months

It's your town. Your lives. Your stories. Make sure someone's telling them—donate to Decorah News now. DES MOINES — Rob Sand said Tuesday that his office identified nine internal control findings in the State of Iowa's most recent annual financial audit, including material weaknesses tied to unemployment insurance programs, while also accusing Gov. Kim Reynolds' administration of unlawfully delaying access to records for the state's Education Savings Account program. Sand released the Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters for the fiscal year that ended June 30, 2025. The audit accompanies the state's Annual Comprehensive Financial Report (ACFR). At a 1 p.m. press conference at the State Capitol, Sand said delays in receiving information from the Department of Education about the Education Savings Account, or ESA, program limited the scope of work his office could perform before a year-end reporting deadline. "Accountability delayed is accountability denied," Sand said. "When someone doesn't give you the material you need to do your job, when you finally get the material, it's going to be tougher to get it done in the manner you would like to." Nine findings, two material weaknesses The audit reported nine findings related to the receipt and disbursement of taxpayer funds. Of those, three were identified as material weaknesses and six as significant deficiencies. Two of the material weaknesses involved the Iowa Department of Workforce Development and its handling of unemployment insurance programs. Auditors found errors in the Unemployment Benefits Fund related to employer accounts and reconciliations. In one instance, accounts that should have been written off as non-collectible were included in receivable balances reported in the state's GAAP package. That required material adjustments to the financial statements. The audit also found the department did not maintain its manual general ledger during fiscal year 2025, did not prepare monthly financial statements during the year and failed to perform timely reconciliations to state accounting records. Reconciliations completed after year's end contained unexplained variances and lacked evidence of independent review. Auditors said the lack of routine reconciliations increased the risk of unrecorded transactions, undetected errors or misappropriation. A third material weakness involved reconciliation of unemployment insurance overpayment billings, collections and delinquent accounts. Although monthly reconciliations were performed, they showed unexplained variances and there was no documentation of independent review, auditors said. The audit report stated that the Iowa Department of Workforce Development attributed several issues to staffing disruptions and the mid-June 2025 launch of a new unemployment insurance modernization system, which it said limited reporting capabilities at year's end. The department said it has since re-established ledgers, implemented a monthly close calendar and added supervisory review. Additional misstatements across agencies The remaining findings were classified as significant deficiencies and involved multiple state agencies, including the Iowa Department of Administrative Services, Iowa Department of Revenue, Iowa Department of Public Defense, Iowa Department of Transportation and Iowa Department of Health and Human Services. Among the corrected material misstatements detailed in a separate audit communication letter: The Department of Transportation overstated construction commitments by $160.3 million due to spreadsheet errors when compiling contract data. The error was corrected. The Department of Workforce Development required multiple adjustments involving unemployment insurance receivables, payables, revenue corrections and allowances, including a $22.7 million overstatement of certain federal benefit overpayments payable and a $14.8 million understatement of prior-year investment income. The Department of Administrative Services misclassified $524,276 in prepaid expenses and overstated unearned revenue in a capital projects fund by $606,285. The Department of Revenue understated amortization on subscription-based IT arrangements by $2.2 million. Auditors reported no instances of noncompliance required to be reported under Government Auditing Standards. Seven of the nine findings were repeat issues from the prior year. Sand said department heads have a fiduciary responsibility to exercise "watchful and responsible" oversight of their agencies' operations and financial transactions. Dispute over ESA audit access In a separate audit communication to state leaders, the auditor's office reported "difficulties encountered" in performing procedures related to the ESA program, which provides public funds for private school expenses. The letter states that management was unwilling to provide information necessary to perform audit procedures on the ESA program, which auditors determined to be material to the state's financial statements. After months of delays, the information was provided in late November 2025, leaving what the letter described as "not adequate time" to expand testing before the audit opinion deadline. At the news conference, Sand said the ESA program totaled nearly $200 million in fiscal year 2025 and is expected to exceed $300 million in the current fiscal year as income limits phase out. "School vouchers program was almost $200 million in fiscal year 2025," Sand said. "That is a lot of money, and Iowans deserve full transparency and accountability in this program like in any other." The audit letter notes that total ESA expenditures were approximately $196 million. The planning materiality thresholds for the affected opinion units, Governmental Activities, and the General Fund, were $123.6 million and $112.9 million, respectively, meaning the ESA program exceeded materiality levels for both. Sand said his office initially requested information in May 2025, but did not receive it until late November. Because of the delay, he said, auditors were limited to what he described as "the absolute bare minimum" level of testing. "We were not able to do anything more than an absolute bare minimum because of the six-month delay," Sand said. "You never know what you're going to find if you actually have the time to do the work the way you'd like to do it." The audit letter also describes a disagreement with management over whether the ESA program should be included in the scope of the statewide ACFR audit. Auditors concluded that because the program's expenditures were material, it was "very clearly within the scope" of the audit. Sand cited Iowa Code section 11.41, which he said requires government agencies to provide his office access to information upon request. He said the administration used Senate File 478 to justify requiring a separate engagement letter before providing ESA records, a requirement he said his office could not accept under auditing standards. Despite the dispute, Sand said his office was able to issue an opinion on the state's financial statements at what he called "the most basic minimal level." In the audit communication letter, Deputy Auditor of State Brian Brustkern wrote that if additional procedures had been performed on the ESA program, "other matters may have come to our attention which may have required changes to the audit plan." The letter concluded that the delays and inability to adjust audit plans "weakens trust, transparency and accountability." The auditor's full report is available on the Auditor of State's website. Get the inside scoop! Subscribe to the free DecorahNews.com newsletter and receive local news, expert analysis, and stories that matter most—straight to your inbox.