Although the District's Human Resources office generally notified the information technology (IT) office of new hires and employees who separated from District service, there was no written policy for notifying the IT office of new hires, keeping track of equipment assigned to employees and collecting equipment when an employee leaves District employment. The District's inventory of portable electronic devices lacked key information, such as date inventoried and purchased, and did not show all devices assigned to employees. Our review of equipment assigned to 38 former employees found three tablets unaccounted for, two of which were later recovered after our inquiry. In addition, one Board member had a prohibited interest in District contracts because he owned a business from which the District purchased awards for student athletes, which cost a total of $14,723 during the Board member's terms between July 2009 and July 2015.

The Board did not properly manage the Town's financial condition. It improperly allocated approximately $181,500 of sales tax distributions and $150,400 of Consolidated Local Street and Highway Improvement Program revenue across differing and incorrect tax bases, resulting in taxpayer inequity. Furthermore, Town officials maintained inaccurate accounting records resulting in misstatements in several funds. We provided training to the Supervisor and Board in 2015 on proper sales tax allocation and other budgeting practices. The Supervisor and Board were receptive to the training and correctly allocated sales tax in the 2016 budget. We commend local officials for taking corrective action for 2016 and encourage them to correct for the misallocations of prior years.

We examined 20 claims totaling $269,495 to determine if District officials obtained competitive quotes in compliance with the District's purchasing policy. Although the Board generally ensured that District officials complied with the District's procurement policy for purchases requiring quotes, officials could improve their purchasing process by attaching sufficient supporting documentation to claims when purchases are made from a government contract.

The Board adopted effective policies and procedures for the Authority's cash receipt processes and Authority officials adequately segregated the duties of collecting, recording and depositing cash. The cash receipt process is centralized and all collections are done at the Authority's main office. The majority of payments received are made by check or automatically through the customers' bank accounts and a small amount of cash is received at the Authority office. We commend the Board and Authority officials for designing and implementing effective controls over cash receipts.

We found that District officials did not always account for employees' leave accruals in accordance with applicable agreements. As a result, the District made separation overpayments of $14,971 during our audit period.

Although the District's policy indicates that it has a written online banking agreement with its bank, District officials were not aware of any agreements regarding online banking. The Board adopted an online banking policy, but District officials did not develop written procedures for online banking activities. District officials also did not adequately segregate online banking duties and did not dedicate a separate computer for online transactions to limit access to online bank accounts. Furthermore, both the Treasurer and Business Administrator have the ability to perform online banking transactions, but neither has received Internet security awareness training. As a result, there is an increased risk that inappropriate transactions or misappropriations could occur.

District officials appropriately developed a detailed, quantitative five-year strategic plan. Although District officials did not meet each specific goal of their five-year strategic plan, this occurred because they had to reprioritize their work to plan for a new program. As a result, the District was awarded grants totaling over $2 million to assist farmers with environmental conservation projects. District officials have worked to meet the goals outlined in their mission statement and should routinely review and update their five-year strategic plan to address new priorities as they arise.

The Board and District officials have not effectively managed the District's fund balance. The Board adopted budgets for fiscal years 2012-13 through 2014-15 that appropriated a total of $60.8 million in fund balance to finance operations. Because the District's budget consistently overestimated expenditures over that three-year period, the District used only $5.6 million (9.2 percent) of the appropriated fund balance. As a result, the District's unrestricted fund balance has exceeded statutory limits. When unused appropriated fund balance was added back, the District's recalculated unrestricted fund balance was between 8.2 and 9.2 percent of the ensuing year's budget, more than twice the legal limit. Furthermore, District officials could not provide Board resolutions establishing five reserve funds totaling $36 million. Additionally, District officials could not provide a clear purpose or intent regarding the future purpose of $4.2 million restricted in the insurance reserve and the Board overfunded the retirement contribution reserve by $4.3 million. In addition, the Board and District officials did not comply with District policy when hiring the new Superintendent and all administrators. The Board did not hire the most qualified available candidate for the Superintendent position as required by its own policy. The Board paid Eastern Suffolk Board of Cooperative Educational Services (BOCES) approximately $7,000 to conduct a thorough search for a qualified Superintendent. Instead of hiring one of the candidates BOCES recommended as having the best qualifications, the Board hired a candidate that BOCES recommended be excluded. Furthermore, the adopted Board policy requires the Superintendent to recommend two candidates for each administrative position. The Board did not comply with the policy when appointing the Assistant Superintendent for Secondary Education or advertising for the position of Director of Policy and Programs. Also, District officials did not post 17 of 27 administrative positions filled during the audit period, many of which were temporary.

The Board needs to improve internal controls to effectively protect the District's computer system and data. The Board has developed an acceptable use policy and an email policy. However, the acceptable use policy does not address computer users who do not use the District's computers for instructional purposes or the inappropriate use of IT equipment. In addition, the email policy allows for the use of personal email through external mail servers. Further, District staff are able to access websites such as online shopping, social networking sites, travel and automobile sites that are unrelated to their District duties and violate the acceptable use policy because the District's web filtering software is not configured to block access. We also found that one District computer had no virus protection software installed. As a result, users could expose the District to malicious attacks that could compromise systems and data. Further, time spent by employees using District resources for personal reasons represents lost District resources.

The Board has not formally adopted a multiyear capital plan. However, they have informally planned for and addressed some of the Village's critical infrastructure needs and updated or improved other Village structures. From 2012-13 through 2016-17, Village officials completed three projects to improve the Village's critical infrastructure and other assets. These projects, totaling approximately $4.7 million, included significant upgrades and improvements to the municipal water system ($4.23 million), rehabilitation of the municipal building ($390,000) and equipment additions to a local park ($39,850). The financing sources for these projects included grants, debt and the planned use of fund balance including established reserves. While Village officials made a conscientious effort to fund the costs associated with these capital improvements through the use of fund balance and other funding resources, the Board increased the 2016-17 real property tax levy by 9 percent, or about $20,000, to reduce its continued reliance on fund balance. Through a formally documented multiyear plan, Village officials may have been able to mitigate the need for a significant one-time increase to the tax levy.

District officials used competitive methods when procuring goods and services, in accordance with the District's purchasing policy and applicable laws. We reviewed a sample of 20 purchases totaling $149,853 that were subject to the District's procurement policy. We found that except for one minor issue, which we discussed with District officials, these purchases were obtained using competitive methods. We commend District officials for complying with the statutory requirements and designing a purchasing process that enables competitive methods for procurement of goods and services.

Over the five-year period 2011-12 through 2015-16, the District's reported unrestricted fund balance ranged from 12 to 17 percent of the ensuing year's budget. Although the Board appropriated fund balance annually to fund operations, it was not used because annual budgets resulted in operating surpluses. In addition, the District's tax certiorari reserve was overfunded by $793,000 and the workers' compensation reserve was not used to fund expenditures totaling approximately $1.5 million. When overfunded reserve amounts were added back into unrestricted fund balance, the recalculated unrestricted fund balance exceeded the statutory limit by 13.9 to 24.6 percentage points over the five-year period.

The Board and District officials did not adequately manage the District's financial condition. We found that the Board and District officials regularly prepared and adopted unrealistic budgets. The last four fiscal years' budgets were comprised of overestimated appropriations and underestimated revenues, resulting in aggregate operating surpluses totaling $719,000. Therefore, $2.06 million in appropriated fund balance was not used to financial operations. In addition, the District ended 2015-16 with another operating surplus totaling $268,000 further adding to their total fund balance. Overall, District officials improved their budgeting practices with the adoption of the 2016-17 budget, by budgeting based on historical trends. District officials also established reserve funds to prepare for future contingencies. However, they did not always include the funding of reserves in the budgets voted on by taxpayers. Instead, the Board allocated amounts to reserves at the end of each fiscal year to reduce unrestricted fund balance to the statutory limit. Four of the District's seven general fund reserves, which have balances totaling $8 million as of June 30, 2016, are overfunded and potentially unnecessary. When adding back the unused appropriated fund balance and overfunded reserves, the District's recalculated unrestricted fund balance ranged from 21 to 24 percent of the ensuing year's appropriations. As a result, the District's tax levy was higher than necessary to fund District operations. Finally, District officials have not implemented adequate internal controls over the claims and accounts payable processes, as incompatible duties are not adequately segregated and mitigating controls have not been implemented.

The Board consistently overestimated general fund appropriations by an annual average of $3.2 million, or 10.8 percent, from fiscal years 2012-13 through 2014-15. This resulted in most of the fund balance appropriated in the general fund not being used to finance operations. The District's reported unrestricted fund balance has exceeded the 4 percent statutory limit in two out of the last three fiscal years. When the unused appropriated fund balance is added back, the recalculated unrestricted fund balance has averaged over 16 percent of the ensuing year's appropriations, or about four times the statutory limit, for fiscal years 2012-13 through 2014-15. Also, fund balances reported in the school lunch fund exceeded the maximum amount allowed by federal regulations by an average of 43 percent in 2013-14 and 2014-15. Lastly, the Board did not develop a formal multiyear financial or capital plan to help identify developing revenue and expenditure trends and set long-term priorities and goals.

The purpose of our audit was to determine whether housing authorities were adequately controlling and monitoring administrative costs for the period January 1, 2012 through November 25, 2015.

The Board and District officials did not adequately monitor the District's financial condition and take appropriate action to maintain the District's fund balance. The Board adopted budgets for fiscal years 2012-13 through 2014-15 that appropriated a total of $17.4 million in fund balance and $7 million in reserve funds, or a total of $24.4 million in funds, to finance operations. However, because the District overestimated expenditures by $21.3 million over the three-year period, most of the appropriated fund balance was not used. As a result, the District's unrestricted fund balance has exceeded statutory limits. When adding back unused appropriated fund balance, the District's recalculated unrestricted funds averaged almost 8 percent of the subsequent year's appropriations. Additionally, District officials did not have proper documentation for establishing and using two of four reserve funds totaling $1.1 million and for the audit period, the District used only $632,640 of the almost $7 million of appropriated reserve funds. The District also overfunded its workers' compensation and unemployment insurance reserve funds by $308,210 for the audit period. As a result, the Board may have levied more taxes than necessary to maintain operations.

Based on the results of our review, we found that the proposed budget does not include provisions for paying down the County's outstanding projected $10 million deficit. The budget also does not include any provisions for the potential financial impact of the settlement of 10 collective bargaining agreements. The County's proposed budget complies with the property tax levy limit.

District officials could minimize risk by better managing network user accounts and security settings. They should monitor network user accounts to ensure that unnecessary accounts are disabled or removed in a timely manner. In addition, the District should configure a logon banner to inform users of the potential consequences of unauthorized access.

The Board's purchasing policy, adopted in August 2014 and revised in January 2015, provides guidance for the procurement of goods and services and public works which require competitive bidding. In addition, although the Board adopted a policy in August 1995 and revised it in January 2015 describing its responsibilities and the need to develop further guidance for procuring goods and services not required to be competitively bid, the policy was deficient since the Board developed no further guidance. Therefore, officials do not have guidance for the procurement of professional services or purchases under the competitive bidding thresholds. During our audit period, District officials did not use competition when procuring five professional service contracts costing $605,947 including a $57,999 overpayment of one of these contracts. In addition, officials did not use competition or enter into a written agreement for two attorney service contracts totaling $203,866. The District made two purchases totaling $81,834 without using competitive bidding as required. Finally, officials did not seek competition for 15 purchases under the competitive bidding thresholds totaling $63,916.

The Board and District officials need to improve controls over the District's information technology (IT) assets. The Board did not establish adequate IT policies and procedures. We also found that the service level agreement with the District's IT vendor is inadequate as it does not define all necessary aspects of the services provided to the District. As a result, the Board does not have adequate assurance that the District's IT assets are secure.