District officials have not effectively managed fund balance and have allowed unrestricted fund balance to exceed the statutory limit for three fiscal years by 12 to 17 percentage points. As of June 30, 2015, the District's unrestricted fund balance totaled more than $1.3 million and was 20 percent of the 2015-16 budgeted appropriations, exceeding the statutory limit by more than $1 million. Although District officials have appropriated approximately $420,000 of fund balance each year, these funds were not needed because District officials consistently overestimated appropriations by an average of $710,000 or 11 percent. When unused appropriated fund balance is added back, unrestricted fund balance exceeded the statutory limit by 18 to 23 percentage points. Furthermore, District officials overfunded one reserve by approximately $250,000. Based on the 2015-16 and 2016-17 budgets, these budgeting practices have continued. However, District officials have taken steps to reduce unrestricted fund balance. As of June 30, 2016, unrestricted fund balance was approximately $527,000 or 8 percent of the subsequent year's budget.

District officials did not ensure cafeteria operations were financially self-sufficient. The District has incurred operating deficits that averaged approximately $10,000 annually from 2013-14 through 2015-16. Furthermore, District officials paid cafeteria employee benefits annually from the general fund for the same period. Had these expenditures, which averaged $169,000 annually, been paid from the school lunch fund, the average annual operating deficit would have increased to almost $179,000. Additionally, as of June 30, 2016, the school lunch fund owed the general fund $100,000 for interfund loans, which exceeded the school lunch fund's available cash and receivable balances. Therefore, these funds are unlikely to be paid back. Further, subsidies from the general fund were not budgeted, which reduced transparency. Finally, District officials did not perform a cost-per-meal analysis and the District's productivity level for meals per labor hour is below the industry average.

The Board has not established adequate written policies or procedures for procuring professional services. The School's written purchasing procedures require School officials to seek competition for the purchase of commodities, but specifically exempts the procurement of professional services from price competition requirements. As a result, School officials did not use competitive methods when procuring professional services. However, we reviewed the procurement of professional services obtained from eight vendors who received payments totaling $920,000 during our audit period and found that, although School officials did not seek competition, the Board entered into detailed written contracts with the service providers. The providers also submitted adequate documentation when requesting payment.

The three towns of Hadley, Day and Lake Luzerne did not enter into an agreement to govern the Commission and the Board did not establish policies and procedures to help ensure it provided adequate oversight of the Commission's financial operations. Further, the towns' governing boards did not establish policies or procedures over the Commission's operations outlining the Board's and the towns' roles and responsibilities. Payroll expenditures for 2015 totaled $61,667 and represented 70 percent of the Commission's annual budget. However, the Board did not adopt the annual budget or set and approve salaries, wages and wage increases. As a result, Board members did not have a clear understanding of the effect that payroll expenditures had on the Commission's finances and were unable to effectively govern Commission operations. Although the Town of Lake Luzerne's board audits Commission claims before payment, the Board did not approve any of the Commission's purchases or claims. The Director did not always maintain cash receipt records and the records that were maintained did not always contain accurate or sufficient information. According to the records available, we found that between $1,087 and $1,487 of collections were not remitted to the bookkeeper for deposit. As a result, the Board was unable to determine if all receipts collected were remitted to the bookkeeper, accurately recorded and deposited intact and in a timely manner, or whether the Commission collected all the money it should have for these trips.

District officials did not maintain fund balance in accordance with statutory requirements. The fund balance in the general fund increased about $1.4 million from the beginning of 2014-15 to the end of 2015-16. Unrestricted fund balance exceeded the statutory limit for each of the last four years and increased to 16.4 percent as of June 30, 2016, or nearly $979,000 over the legal limit. Although the Board appropriated $100,000 of fund balance to finance the 2014-15 budget and $62,817 to finance the 2015-16 budget, the District generated operating surpluses totaling $411,404 in 2014-15 and $1,020,764 in 2015-16. District officials told us they budget conservatively to protect the District from unforeseen events and attributed variances in instructional and special-education salaries and benefits primarily to teacher contract negotiations, staff resignations and retirements that were not known at the time of budget preparation. In addition, certain grant funding was not approved prior to budget preparation resulting in some salaries being budgeted in the general fund and expensed in the special aid fund.

The Board did not ensure that School officials and employees did not have a prohibited interest in the School's contracts. We found that certain provisions of the School's bylaws and code of ethics appear to be inconsistent with the School's charter and the provisions of General Municipal Law (GML) Article 18. We found that one Trustee could potentially have a prohibited interest pursuant to GML. The Trustee and the School entered into an agreement in the form of a promissory note in which the Trustee lent the School $40,000 to assist with the School's budget shortfalls. The note is to be repaid on or before March 1, 2017 and, the Trustee is to receive interest on the unpaid portion of the principal sum at the rate of 2 percent per year. However, the Trustee has not collected any of the interest owed on the promissory note. The Trustee has declined to accept the accrued interest from the date of inception, March 1, 2014 to June 30, 2015 due to the School's financial condition. If the Trustee decides to continue to decline the interest on the unpaid portion of the principal sum for the remainder of the promissory note term, the Trustee would not have a prohibited interest in the contract. The Board and School officials have not implemented appropriate IT policies and procedures for user accounts, acceptable use, breach notification and data backups. The Board also has not adopted a disaster recovery plan. As a result, IT assets are at risk for unauthorized, inappropriate and wasteful use, which could cause the School to have interruptions in IT services.

The financial activities of the Tax Collector's Office were generally well maintained. During the audit period, when taxpayers paid their tax bill, the Tax Collector recorded payments in the computerized accounting system as payments were received. We compared tax collections against the tax roll, warrant, various bank records and accounting records for 2015 and 2016. We determined that the Tax Collector accurately recorded tax payments and that, with minor exceptions that we discussed with the Tax Collector, deposits were made and collections remitted to the Supervisor and County Treasurer within the statutorily required time limits.

Officials have taken steps to improve repairs and maintenance to roads and equipment. However, they need to develop more detailed long-term plans. The 2016 agreement between the Board and the new Superintendent provides $280,000 for road repairs and maintenance. We estimate that the Town would need to spend approximately $1.1 million to have its roads free of observable defects. Also, neither the equipment maintenance files nor the inventory list included sufficient details to be able to determine the condition of each piece of highway equipment. By taking steps to develop and implement detailed long-term plans for roads and equipment, Town officials can better use the limited funding available in the most cost-effective and efficient way possible. This will result in more timely maintenance, cost savings and improved road and equipment condition.

The Board budgeted $485,000 of appropriated fund balance in each budget for fiscal years 2012-13 through 2015-16. However, actual operations resulted in 84 percent of the appropriated fund balance remaining unused because of overestimated expenditures. In addition, District officials have improperly classified between $600,000 and $725,000 as moneys “not in spendable form” and approximately an additional $445,000 in an unauthorized post-employment benefits liability, which gave the appearance the District's unrestricted fund balance was compliant with the 4 percent statutory limit. However, after adding back unused appropriated fund balance, funds improperly recorded as “not in spendable form” and the unauthorized post-employment benefits liability, the District's recalculated unrestricted fund balance at year-end was between 9.3 and 9.8 percent (nearly 2.5 times the statutory limit) in fiscal years 2012-13 through 2014-15. Additionally, the District does not have a written plan detailing the appropriate and necessary levels for reserve funds and how they are to be monitored, analyzed and maintained. As a result, four of the District's five reserve funds, totaling $2.1 million, may be overfunded or unnecessary. Also, the Board and District officials have not developed a multiyear financial plan.

Town officials designed appropriate internal controls to ensure that water fees were properly billed, collected, deposited and recorded in the accounting records. Town employees prepared customer bills with the appropriate usage and billed at the appropriate rate and collected and deposited the customer payments appropriately. Finally, the Town Comptroller accounted for water revenue and collections accurately. We commend Town officials for developing adequate controls over billing, collecting, depositing and accounting for water rents.

The Assessor did not properly grant and monitor exemptions for both residential and non-residential properties. We found exemptions that the Assessor granted but were included in the real property service software system with incorrect codes and/or with inaccurate amounts. Additionally, the Assessor did not have the proper documentation to support the exemption for some properties. Further, the Assessor granted some exemptions that were not Board approved.

The Supervisor appointed the Clerk to act as his bookkeeper; however, the New York State Attorney General's office has expressed the view that the office of the Clerk is incompatible with the Supervisor's bookkeeper position. In addition, combining the duties of the Clerk and the bookkeeper creates a significant weakness in the internal control system of the Town. Furthermore, there is no annual audit performed of the records of the Clerk or Supervisor, which compounds the control weakness created by combining these duties. Although we did not find any discrepancies in our testing, the duties of the bookkeeper and Clerk are incompatible and should not be performed by one individual.

The Board and Authority officials have established and implemented effective internal controls over the Authority's billing, collecting, depositing and recording of water charges. The controls in place include a formal policy, contractual service agreements and informal procedures. The policy, contracts and procedures provide adequate guidance and oversight to Authority staff involved with generating bills, collecting and recording payments, preparing bank deposits and reconciling customer accounts. We commend Authority officials for developing and implementing effective internal controls over the billing, collecting, depositing and recording of water charges.

BOCES officials established and adhered to good procedures for processing and verifying payroll payments. BOCES' procedures for authorizing new employees (by the Board), entry of employees and salary into the payroll system (by human resources staff), payroll processing (by the payroll clerks) and payroll review and certification (by the Superintendent) provided adequate segregation and oversight of payroll transactions to ensure that the employees we reviewed were accurately paid at Board-authorized rates. We commend BOCES officials for designing and implementing adequate payroll procedures to ensure that employees were accurately paid the salaries and wages to which they were entitled.

While the Board, by resolution, generally approved abstracts of claims, it did not perform an effective claims audit or establish an adequate process to ensure that transactions were properly authorized and approved or that claims were for proper Village purposes. During our audit period, the Village paid 5,987 claims, totaling $12,315,993 and we selected and reviewed 30 claims, totaling approximately $399,377. Although all claims reviewed appeared to be reasonable and legitimate, the use of confirming purchase orders circumvents internal controls and weakens the procurement and budget control process. Moreover, when the Board does not audit and approve claims prior to payment and has the same person that audits the claims sign checks, there is an increased risk that the Village could pay for goods and services that are not proper Village expenditures.

The Board delegated its responsibility to a claims auditor who generally ensured claims were adequately supported, properly audited before payment and in compliance with District policies. The claims auditor verified that claims were supported by original documentation such as detailed invoices or receipts and that each claim had been properly authorized. Additionally, the claims auditor ensured there was evidence within the claims packets indicating that the District actually received the goods or services described in each claim. We commend the claims auditor and encourage the Board and District officials to continue with their efforts in ensuring that the claims audit process is working as intended.

The typical duties of a library treasurer carry with them a high degree of public trust and may involve the exercise of judgment or discretion. As such, without express statutory authority, these functions may not be delegated to an independent contractor. The Treasurer's status, as either a Library officer or independent contractor, is unclear. While this appointment and the duties attached to this function are indicative of those of a public officer, it appears this individual was engaged to perform the duties of Treasurer as an independent contractor. Among the indications of an independent contractor relationship, the Treasurer does not take an oath of office, which is a requirement for holding public office, and is not compensated through the payroll, as are other Library officers and employees. The Board cannot be certain that it has properly appointed an individual to the position of Treasurer.

BOCES did not properly oversee the Managed Technical Support cooperative service agreement (COSER), which resulted in errors in reporting aidable expenditures to the New York State Education Department (SED). Specifically, BOCES assigned staff who were not shared by two or more districts. As a result, BOCES reported aidable expenditures to SED for 62.7 full-time equivalent (FTE) district-based staff who were not eligible for aid reimbursement. Consequently, BOCES claimed $2.5 million in additional aid (on behalf of the districts) to which it was not entitled. In addition, BOCES did not charge all districts for services using the approved FTE method.

Although the Board and District officials reported unrestricted fund balance levels that were in accordance with statutory limits, they have annually appropriated fund balance towards the next year's budget that was not used due to a practice of overestimating appropriations. This trend is projected to continue through 2015-16. Once the unused appropriated fund balance is included in unrestricted fund balance, the District's recalculated unrestricted fund balance exceeds the statutory limit, ranging from approximately $2.4 million (12 percent) in 2012-13 to $930,000 (5 percent) in 2014-15. District officials have increased the tax levy each year of our audit period. In addition, three reserves totaling approximately $3.8 million were overfunded, and the debt reserve totaling approximately $600,000 has not been used since 2010-11 for related debt principal and interest payments, as statutorily required. Funding reserves at greater than reasonable levels contributes to property tax levies that are higher than necessary.

Although the Board adopted a procurement policy that required obtaining competition for purchases not subject to bidding requirements, Village officials did not always ensure that purchases were made in compliance with the requirements. Furthermore, the policy did not include procedures for procuring professional services. We selected a sample of purchases from 30 vendors totaling approximately $1.7 million and found that Village officials did not use competitive methods to procure goods and services from six vendors who were paid a total of $196,732 for professional services. In addition, Village officials did not competitively bid purchases from four vendors totaling $148,387, as required.