Purpose of Audit

The purpose of our audit was to evaluate the Town’s methodology for allocating administrative costs for the period January 1, 2011, to September 30, 2012.

Background

The Town of Riverhead is located in Suffolk County and has a population of approximately 33,500. The Town is governed by a Town Board which comprises five elected members, including the Town Supervisor. The town-wide general fund budget was $42,383,100 for the 2011 fiscal year and $43,865,900 for the 2012 fiscal year.

Key Finding

• The Town allocates the costs of services provided by some Town operations funded by the general fund to other departments and districts accounted for in other funds. However, we found that the allocation method is not based on the cost of actual services provided. Instead, Town officials applied a flat percentage rate to each department’s budget, which is not equitable because all the departments do not use the same type and degree of services. Additionally, the Town improperly included the salaries of the Supervisor and Town Clerk and included certain administrative charges – such as payroll, Justice Court, and municipal garage – in allocations to departments that did not use them. These improperly allocated amounts represented at least $779,829 (26 percent) of the $2,980,750 that was allocated in 2012 to 11 funds.

Key Recommendations

• Continue to develop an allocation plan based on the direct relationships between the various services provided by the general fund and the actual services received by the benefiting department or fund.
• If estimates are used when preparing the annual budget, reconcile the estimates to the actual cost of services provided.