We found the Board has established adequate controls to ensure that financial activity is properly recorded and reported and that District money is safeguarded. The District receives copies of canceled check images, which the Chairman reviews to ensure that District funds are used solely for legitimate District expenditures. The Treasurer has maintained complete, accurate and timely records to account for all of the District's financial activities. The annual financial report was accurate and submitted to the Office of the State Comptroller in a timely manner. Additionally, the Board contracts with an independent accountant to complete an annual audit of the Treasurer's books and records. Moreover, the Board has adopted a code of ethics, a procurement policy and investment policy, as required. We commend District officials for designing and implementing controls to ensure that financial activity is properly recorded and reported and that District money is safeguarded.

The Board needs to improve its oversight of the District's financial activity. The Board did not develop a procurement policy; an investment policy; a cash management policy, including the handling and recording of cash transactions; or a code of ethics. As a result, District employees had no formal guidelines for performing their duties, District recordkeeping was poor and Board minutes were incomplete. The Board also needs to improve its oversight of the Treasurer's duties, such as requiring that complete accounting records be maintained and performing periodic reconciliations. The Board did not annually audit the Treasurer's records and reports as required by New York State Town Law and did not ensure that the Treasurer prepared and filed the District's annual financial report with the State Comptroller in a timely manner. In addition, the Treasurer did not maintain complete and accurate accounting records and, as a result, could not prepare and file annual financial reports with the State Comptroller and the Board in a timely manner. Moreover, the Treasurer did not develop comprehensive financial reports for the Board. Finally, the Treasurer did not perform bank reconciliations for reserve accounts, and bank reconciliations for the general fund bank account were not accurate.

The School's charter requires School officials to obtain at least three quotes for the purchase of goods over $10,000 and to obtain Board approval for any purchases that exceed $20,000. However, the charter does not establish procedures for procuring services. The Board has not established adequate written policies or procedures for procuring services and has not provided adequate oversight of the procurement process. As a result, School officials did not use competitive methods when procuring goods or services. We reviewed purchases from 32 vendors who were paid approximately $2 million and found that School officials did not seek competition when procuring goods, services and insurance from 21 vendors who were paid more than $1.3 million during the audit period. As a result, the School may have incurred unnecessary costs. For example, the School purchased 150 laptop computers for $529 each without seeking competition. If the School had purchased the laptops using the applicable New York State bid contract, it could have saved $30 per laptop or $4,500 in total.

District officials have not established a policy or written procedures to ensure that all overtime hours worked by department employees are properly authorized. We reviewed overtime payments totaling $41,663 made to 10 employees and found that payments totaling $36,723 had not been preapproved. Because District officials have not always required employees to obtain written preapproval for working overtime, there is no assurance that the District is not paying more overtime costs than necessary.

For the 2013-14, 2014-15 and 2015-16 fiscal years, the Board and District officials overestimated expenditures by a total of $6.2 million (7.8 percent). Furthermore, when unused appropriated fund balance is added back, the District's recalculated unrestricted fund balance was in excess of the statutory limit. As a result, the District's tax levy was higher than necessary. Further, the Board did not adopt a written reserve policy and three reserves appear to be overfunded. District officials appropriated reserves as a funding source in the annual budgets, but did not always use those funds as planned. When the District used reserve funds as a financing source as planned in the budget, they transferred a similar amount from the operating surplus back into the reserves at year end. We also found that the employee benefit accrued liability reserve was improperly used for retirement incentives.

District officials granted unnecessary permissions for changing student grades, assuming accounts and identities, and viewing personal, private and sensitive information (PPSI). As a result, 17 users had permissions to change grades even though they were not responsible for doing so. Further, two users made 32 grade changes and permission forms could not be located for 13 of these grade changes. Also, 15 users, including 10 Mohawk Regional Information Center (MORIC) employees, could assume other student information system (SIS) users' accounts and/or identities and one user (a MORIC employee) assumed six different SIS identities seven times. Further, two MORIC technicians, who support the SIS servers but not the system itself, can view the SIS audit log, which contains students' medical information, dates of birth and home addresses. Because the SIS does not generally create records in the audit log when users view information, we could not determine whether PPSI has been accessed inappropriately. These activities were not detected and investigated by officials because, at the times, officials did not routinely monitor audit logs. Stronger procedures would help officials safeguard PPSI from potential unauthorized activity that may not be detected and addressed in a timely manner.

The Board and District officials need to improve the budgeting process to ensure that budget estimates and fund balance are reasonable to effectively manage the District's financial condition. The Board and officials overestimated expenditures by approximately $4.1 million and underestimated revenues by approximately $900,000 from 2012-13 through 2014-15, which generated more than $5 million in operating surpluses. Further, the Board and officials increased the tax levy by almost $1.1 million (13.7 percent) over these years. As a result, approximately $2.6 million of appropriated fund balance was not used to finance operations. From 2012-13 through 2014-15, District officials reported appropriated fund balance totaling $450,000 and made unbudgeted transfers totaling more than $2.1 million to the District's reserves, which compromised the transparency of the District's finances. Additionally, three District general fund reserves, with balances totaling over $2.9 million as of June 30, 2015, were overfunded or potentially unnecessary. Further, the Board did not adopt a multiyear financial plan allowing it to identify developing revenue and expenditure trends, set long-term priorities and goals, avoid large fluctuations in tax rates and more effectively manage the use of fund balance and reserves.

District officials have not implemented adequate IT access controls for safeguarding personal, private and sensitive information (PPSI) in the financial system (FS) and student information system (SIS). We found unnecessary FS and SIS user accounts, including a built-in FS account that was not removed and other accounts for former employees, former long-term substitutes and current employees who do not need access. We also found questionable FS access and suspicious access attempts that were not detected and investigated by officials. In addition, we found unnecessary FS permissions for creating employee records and viewing employees' PPSI and unnecessary SIS permissions for changing student grades, assuming SIS identities and viewing students' PPSI. Unnecessary accounts and permissions increase the risk of unauthorized access and potentially harmful modification, use or exposure of PPSI. While we found no evidence of abuse of these accounts and permissions, our ability to review FS and SIS activity is limited due to deficiencies in the systems' audit logging capabilities. However, officials did not effectively use all information available in the audit logs to properly monitor FS and SIS use. This essential control would help to safeguard PPSI from potential unauthorized activity that may not be detected and addressed in a timely manner.

The City's charter requires that the Commissioner audit all claims. However, we found that the Commissioner did not audit claims in accordance with charter requirements. Instead, claims were reviewed and verified by the purchasing and finance departments at different stages in the claim payment process. Because the claims processing function was decentralized, with each department maintaining its own documentation, a complete claim voucher packet was not kept in one central location. Except for minor discrepancies, which we discussed with City officials, we found that the claims we reviewed were for appropriate City purposes, properly itemized, supported and approved before payment. However, we did not find any evidence that the Commissioner audited these claims, as required by the charter.

The Board did not properly oversee and monitor ambulance billing and collection. Moreover, the Board allowed two third parties to collect Village money. We identified charges for ambulance services that were inaccurate, unbilled, uncollected, unenforced and unreconciled. As a result, approximately $13,900 in potential revenue to the Village was not billed ($6,295), underbilled ($5,782) or remained uncollected ($1,830). This occurred, in part, because the Board had not adopted written policies and procedures for ambulance service billing and collection.

The clerk properly billed, collected, recorded and deposited collections. However, we found that the Authority did not have written policies or procedures governing the application of billing adjustments and late fees and penalties added to customer accounts. As a result, the clerk made billing adjustments and adjusted late fees and penalties to customer accounts without the Board's authorization or adequate oversight and guidance.

Officials properly oversaw the water testing performed by the public water supplies (PWS) and generally performed surveys as required. They addressed water quality issues and properly reported water test results to the New York State Department of Health (DOH); however, we identified opportunities for improvement. Officials did not issue notices of violations to PWS in three of 13 instances when operators failed to comply with regulations. Furthermore, sanitarians did not consistently document that they performed analytical reviews of the operators' Monthly Operating Reports. In addition, violations identified in completed surveys were not always reported to DOH, officials did not provide documentation that all violations were corrected and one survey was not completed in a timely manner.

The County procured purchase and public works contracts that exceeded the competitive bidding thresholds in accordance with General Municipal Law and also procured purchase and public works contracts that did not exceed the competitive bidding thresholds in accordance with the County's purchasing policy. However, the County did not procure professional services in accordance with the County's purchasing policy. The County did not use a request for proposal to procure services that were provided to the County during our audit period from 11 service providers who were paid a total of $1,551,961 for these services. As a result, the County may have paid more than necessary when obtaining these services.

The Board and District officials did not properly manage reserve funds. Further, the Board and District officials did not follow the District's reserve policy and were unable to provide us with evidence that they documented the financial need or purpose for the unemployment insurance, retirement contribution, insurance and tax certiorari reserves (with balances totaling approximately $1.2 million), the conditions under which these reserves will be used or replenished and the rationale used to determine each of these reserve's appropriate funding level. In addition, District officials were unable to provide us with evidence showing that they periodically assessed the reasonableness of reserve balances. While the Board annually budgeted for the use of debt reserve funds, these funds were not used to finance related debt payments because of annual operating surpluses. Further, as a result of these surpluses, money retained in the unemployment insurance, retirement contribution, insurance and tax certiorari reserves was not used to finance related reserve expenditures. As a result, these reserves were overfunded.

The Board and District officials did not develop reasonable budgets or effectively manage the District's financial condition to ensure that the general fund's unrestricted fund balance was within the statutory limit. District officials overestimated operating expenditures in each of the last three fiscal years totaling about $5.5 million (5.3 percent) and appropriated nearly $5.6 million in fund balance, most of which was not needed to fund operations. Further, District officials were unable to demonstrate why $4.2 million in fund balance should be restricted in the debt service fund. As a result, the District's recalculated unrestricted fund balance annually averaged about 17.5 percent of the ensuing years' budgetary appropriations, which is 13.5 percentage points more than the statutory limit. Finally, the Board has not developed a formal policy for the reserves which resulted in the workers compensation, unemployment insurance, employee benefit accrued liability and tax certiorari reserves being overfunded by about $1.4 million.

The Board and District officials overestimated budgeted appropriations by 9 to 12 percent – ranging from $9.8 to $12.4 million – for three of the four years in our audit period (2012-13 through 2014-15). They also appropriated $14.9 million in fund balance during that time, which was not needed to finance operations because the District generated $22.8 million in operating surpluses during those three years. When adding back the unused appropriated fund balance, the District's recalculated fund balance exceeded the statutory limit by up to 4.7 percentage points. The District also retained an annual average of $1.1 million of unrestricted funds in the debt service fund without using these moneys for debt payments, and its retirement contribution reserve of $16.9 million is overfunded. District officials properly reduced the 2014-15 unrestricted fund balance to the statutory limit by transferring $16.3 million into the capital project fund the following year, thereby using all the fund balance that had been appropriated. In addition, they have not increased the tax levy in the past three years. To remain within the statutory limit and control operating surpluses, District officials must adopt budgets that align more closely with historical expenditures and discontinue appropriating fund balance that will not be used.

District officials did not comply with the Board's computer control policy. The Board has not annually designated a system administrator. Instead, the Board annually appoints a Network Systems Manager who performs these duties. As a result, there may be confusion as to who is responsible for financial software administration. Also, the District does not have procedures outlining how user access rights should be established or modified and permissions are not reviewed quarterly to ensure a proper segregation of duties. Further, change reports are not provided to the Assistant Superintendent for Business monthly and audit trails are not reviewed or provided to the Board. We looked at all 50 users of the District's financial software and found that three users, including the Assistant Superintendent for Business, were granted system administrator access even though it was not required to perform their job duties. Also, District officials provided leave record, vendor record, budget transfer and personal private and sensitive information access rights to 18 users that did not require it to perform their job duties. Finally, District officials do not review audit logs and change reports or provide audit trails to the Board on a quarterly basis.

The Board has not effectively managed fund balance. Town officials have adopted budgets that consistently overestimated expenditures and underestimated revenues. Expenditure variances have averaged 5 percent for the general fund and 9 percent for the highway fund over the last three fiscal years while revenue variances have averaged 16 percent and 10 percent, respectively. The consistency of these surpluses has driven fund balance amounts to significant levels of excess. Available fund balance in the general fund and the highway fund have consistently been near or over 100 percent of actual expenditures for the last three fiscal years and are projected to increase at the end of 2016. The total available fund balances are more than enough to fund operations for an entire year. Furthermore, included in the fund balance are two certificates of deposit, totaling approximately $437,000 at the end of 2015, held at a local bank for over 10 years that have not been needed for cash flow purposes.

The Board budgeted $678,000 of appropriated fund balance in each budget for fiscal years 2013-14 through 2015-16. However, actual operations resulted in 71 percent of the appropriated fund balance remaining unused because of overestimated expenditures. When adding back unused appropriated fund balance, the District's recalculated unrestricted fund balance was between 4.9 and 7.3 percent of the next year's budget in fiscal years 2012-13 through 2014-15, exceeding the statutory limit. Additionally, two of the District's reserves, totaling $900,000, may be overfunded and potentially unnecessary.

District officials have not effectively managed fund balance and have allowed unrestricted fund balance to exceed the statutory limit for the past three fiscal years by an average of $2.7 million. As of June 30, 2015, unrestricted fund balance totaled $3.8 million and was 17 percent of 2015-16 budgeted appropriations, exceeding the statutory limit by $2.9 million. Although District officials appropriated fund balance each year, none of it was needed because District officials overestimated appropriations each year by an average of $1.1 million or 5 percent. As a result, the District realized operating surpluses each year and unrestricted fund balance continued to increase. At the same time, District officials have allowed reserve balances to accumulate to excessive levels and have consistently levied taxes for expenditures that could have been paid for with reserve funds. District officials have accumulated more than $5.8 million in 10 general fund reserves and have allowed more than $700,000 to sit idle in the debt service fund. The Board has not developed a written reserve fund policy or documented its rationale for setting aside funds in reserves, optimal funding levels or conditions under which the reserves would be used.