The District finances its capital projects through borrowings, general fund budget appropriations, State aid and other sources of revenue. During the audit period, the District reported 20 open capital projects and a balance of $5.1 million in its capital fund. District officials did not properly manage and account for the District's capital projects. We reviewed four projects with authorizations totaling $144 million and expenditures of $142.6 million as of June 30, 2015. The Board did not authorize an appropriation for one project and did not effectively monitor the four projects. As a result, the District has more than $1.3 million from completed projects that has not been returned to its source and over $107,000 in expenditures that did not have an authorized budget appropriation.

The District procured goods and services in accordance with its policy and the statutory requirements. We reviewed 25 purchases totaling $109,213 that were subject to competitive quotes in accordance with the District's procurement policy. We found that 16 of these purchases were purchased using State and county contracts, which is an allowable exception to obtaining bids and quotes. Of the remaining purchases, five contained appropriate documentation indicating they were purchased from a sole source vendor and four were made after officials obtained the required number of quotes. Except for minor discrepancies that we discussed with District officials, purchases were made in accordance with the District's policy. We commend District officials for establishing and implementing an effective system to ensure goods and services were procured in accordance with their procurement policy and applicable statutes.

We found that District officials did not consistently document that they obtained materials, supplies and services at the lowest cost in the best interests of the District's residents. According to the Business Administrator, the District follows an informal price quote procedure. We tested 43 claims totaling $96,409 to determine if they contained documentation indicating that District officials sought quotes from various sources before making the purchase. Of these, 26 claims (60 percent) totaling $47,288 lacked evidence that the purchaser sought a sufficient number of price quotes from various sources. For example, claims for projection equipment and installation ($11,000), tablet computers ($9,380), District calendars ($2,476) and student agendas ($1,590) did not include the requisite number of price quotes. Furthermore, the claims auditor was unaware of the District's informal policy for securing price quotes for purchases under the competitive bidding thresholds. The lack of an adequate procurement policy could result in the District paying more than necessary for goods and services.

The Board did not audit and approve claims prior to payment or adopt a claims audit policy. The Library's senior clerk reviewed claims and prepared checks, which the Director and Treasurer reviewed, approved for payment and signed. The Board minutes did not indicate whether the Board reviewed or approved the claims. While the Director provides a financial report to the Board, which is documented in the minutes, the report does not provide sufficient detail of disbursements for the Board to adequately monitor financial activity. Internal controls are compromised when the same individuals who review and approve claims for payment also sign the checks to pay those same claims. This control weakness could be corrected if the Board audited the claims prior to payment.

We found that the Board did not formally document its approval for three administrators' salary payments totaling more than $460,000 and benefits such as health insurance, for which the District paid approximately $80,000 during our audit period. This occurred because the Board has not adopted a payroll policy and District officials have not established specific procedures to provide guidance and to ensure that employee compensation and benefit payments are accurate, properly approved and supported.

The Board and District officials did not adequately manage the District's financial condition. Officials overestimated general fund appropriations for the 2012-13 through 2014-15 fiscal years by $14.9 million (7 percent), which resulted in operating surpluses totaling $2.4 million. During this period, the District levied an additional $1.6 million in real property taxes and appropriated fund balance totaling $16 million and reserves totaling $258,440 that were not needed to finance operations as planned. This resulted in the District's unrestricted fund balance exceeding the 4 percent statutory limit ranging from 14.1 to 18.9 percent. We also project that the District will not use any of the appropriated fund balance totaling $4.5 million for 2015-16. Because District officials continued these budgeting practices when adopting the 2016-17 budget, the District will most likely experience another operating surplus. In addition, as of June 30, 2015, the District had two reserves totaling $2.6 million that were overfunded, overstated a liability totaling $638,885 and did not transfer unused flex spending moneys totaling $250,047 to the general fund, which further increases the excessive amount of unrestricted fund balance. When combining the unused appropriated fund balance for the ensuing year and reserves with the other overstatements and excesses, the District's recalculated unrestricted fund balance was between 25 and 30 percent of the ensuing year's appropriations, further exceeding the statutory limit. As of June 30, 2015, the District also had more than $3.6 million in the debt service fund available for debt payments that had not been used to finance debt payments, and it continues to accumulate money each year.

BOCES has not properly accounted for surplus funds and has not properly managed reserves in a transparent manner. From fiscal years 2012-13 through 2014-15, the Board and BOCES officials have consistently overestimated appropriations by an average of $4.4 million, or 6.6 percent, each year. As a result of these practices, BOCES has generated annual operating surpluses averaging $4.7 million and totaling approximately $14 million during this time. Although BOCES has refunded more than $10 million of its surpluses to the districts, BOCES has also used approximately $4 million (29 percent) to increase its reserves without adequate disclosure to the public and the districts. BOCES officials also overfunded three reserves and maintained a trust that was not allowable. As a result, BOCES has restricted more than $15 million in funds that should have been returned to the component and participating districts.

We found that the Board and BOCES officials did not properly manage fund balance and reserves in accordance with statute. Similar to findings in our prior audit of BOCES, we determined that BOCES officials did not properly estimate certain budget appropriations and used the resulting surpluses totaling approximately $3 million to fund unbudgeted capital projects. Furthermore, BOCES officials have improperly restricted more than $5 million of surplus funds for a purpose not statutorily allowed and had approximately $2.4 million in reserves that were not used and did not evidence plans for future use. Had certain actions not occurred, the BOCES would have had to return more than $8 million to its component districts. When the BOCES retains surplus funds the tax burden is increased for the residents of the component districts.

Although the District's budget estimates were reasonable, the Board and District officials allowed unrestricted fund balance to exceed the statutory limit for the past three fiscal years. As of June 30, 2015, unrestricted fund balance totaled $1.4 million and was 14 percent of the 2015-16 budgeted appropriations, exceeding the limit by 10 percentage points. Furthermore, the District has two reserves totaling $967,000 that may be overfunded. During the past three fiscal years, District officials have increased the tax levy by an average of $82,000, or 2 percent annually and increased the tax levy 1.5 percent for 2015-16.

Town officials did not ensure revenues were sufficient to finance current expenditure levels for the water, sewer and general funds. From fiscal years 2013 through 2015, these funds have experienced recurring operating deficits. Specifically, the water fund had an average annual operating deficit of $65,000, the sewer fund had an average deficit of $19,000, and the general fund had an average deficit of $215,670. As a result, the water and sewer funds have had to borrow $730,000 from the general part-town fund to maintain cash flow and operations. If Town officials do not take action to address the deficits, these funds may not be able to repay these loans. This will impact the general part-town fund's financial condition and result in an inequity for residents who paid for but did not benefit from these services. Further, the general fund does not have any unrestricted fund balance to fund unexpected expenses.

Generally, we found that the Board designed an adequate system of controls by establishing policies and procedures for managing, accounting and reporting the School's financial operations. However, the Board should provide clearer guidance with respect to conflicts of interest as well as better oversight of School official's compliance with designed controls. For example, we found the CEO signed checks payable to herself which were not dually signed by the Board Chairperson as required and certain checks were approved and paid without having adequate supporting documentation. Additionally, we found the Board entered into agreements with two current Trustees which appear to have conflicts of interest.

The District's policies and procedures for timekeeping and leave accruals are not adequate to ensure time and leave records are accurate. The District paid an employee $50,477 more than he was entitled to for unused leave accruals at the time of his retirement. Time and attendance records are not submitted by all employees. In addition, leave accrual records for five employees included numerous errors. Additionally, for two of four biweekly payrolls, payroll hours worked and salaries paid were inaccurate resulting in an underpayment to three employees totaling $1,226 and minor overpayments to two employees totaling $55. The Board did not establish and adopt policies and procedures over cash receipts to ensure all cash receipts were properly collected, recorded and deposited. The Fishers Island freight agent's duties related to cash receipts are not adequately segregated, collections received are not reconciled to collections recorded and duplicate pre-numbered receipts are not issued for cash collected. Records indicate that $1,636 in fees were not invoiced or collected, $300 of cash receipts were collected but never recorded in the accounting software and another $300 was collected and never deposited in the bank account. In addition, because the Assistant Manager of Business Operations does not maintain a perpetual inventory of ferry ticket books, at least seven ticket books worth $1,575 are unaccounted for. Because the Assistant Manager of Business Operations does not impose late fees for property that the District rents, the District has not collected more than $20,000 it is entitled to based on lease agreement provisions. Finally, District officials did not ensure that goods and services were procured in compliance with statutory bidding requirements and the District's procurement policy. We identified $617,037 in purchases that were not properly bid as required by law and approximately $38,600 in purchases that were made without obtaining quotes as required by District policy.

District officials need to improve their security policies and procedures. Our review of 80 District-owned MCDs disclosed PPSI on 16 (20 percent) of these devices. We also found that District officials have not developed a classification scheme or performed an adequate inventory of the PPSI stored on District MCDs. Unless the District officials identify all the PPSI maintained, it could be difficult to promptly notify the affected students and their families and other parties if a data security breach should occur. In addition, District officials need to improve their oversight of cash collections for extra-classroom activity funds and athletic events. Officials did not implement policies and procedures over athletic event admissions and adopt procedures to ensure adequate reconciliations of extracurricular cash collection activities were prepared. District officials did not ensure that sufficient documentation was maintained for cash collections and pre-numbered cash receipts were issued for all money collected. We identified 29 cash receipts totaling $17,577 that were not deposited within the three-day period allowed by District policy. In addition, the athletic director did not monitor or periodically reconcile the athletic event ticket inventory to account for the number of tickets sold. As a result of these discrepancies, District officials were unable to determine if all ticket money collected was deposited.

District officials have established adequate procedures to ensure the accuracy of salaries and wages paid to employees. The Board approves all salaries and pay rates in the various contracts for the instructional, non-instructional and administrative employees at the District. At the beginning of each school year, the senior account clerk updates each individual employees' salary, pay rate and leave accruals, as stated in their respective contracts, in the District's financial system. We commend District officials for designing and implementing a good system of controls to help ensure the accuracy of compensation paid to employees.

To determine if the District's controls over its cash receipts were designed and working effectively, we examined cash receipts totaling approximately $151,000. While we found the District adequately segregated the cash receipt duties, certain controls could be strengthened to ensure that cash collected by the District is protected from misappropriation, loss or theft and is deposited timely. The District did not establish formal, written cash receipt policies and procedures. We found that cash receipts are kept in an unlocked and unattended cabinet. The cabinet used to store the District's cash receipts is not locked during business hours. Because the cabinet is located in a corridor outside the Treasurer's and clerks' offices, neither party has a direct line of sight to the cabinet and, therefore, cannot monitor the cabinet. In addition, the clerks do not always log cash receipts into the cash receipts log when it is received. Twelve cash receipts totaling $7,975 were deposited before a clerk recorded receiving the cash in the District's cash receipts log.

The Board and District officials did not adopt reasonable budgets or ensure that fund balance and reserves were managed in accordance with statutes. From fiscal years 2012-13 through 2014-15, the District overestimated appropriations in the adopted budget by approximately 12 percent each year. The District has also appropriated approximately $1.5 million of fund balance and reserves annually as a financing source in the annual budget, which was not fully used. This practice allowed the District to circumvent the 4 percent statutory limit imposed on the level of unrestricted fund balance. However, when adding back the unused appropriated fund balance, recalculated unrestricted fund balance for each year ranged from $1.4 million (9 percent of the ensuing year's appropriations) to $1.6 million (10 percent of the ensuing year's appropriations), exceeding the allowable limit. Although recalculated fund balance levels consistently exceeded the limit through June 30, 2015 and are projected to continue to do so through June 30, 2016, District officials continued to raise the tax levy every year totaling more than $360,000, or 8 percent, over the last four years.

District officials did not ensure that time, attendance and leave accrual records were accurate, complete and properly approved. The Board did not establish policies and formal written procedures over payroll timekeeping to ensure that employees' leave and work time was accurately accounted for. As a result, time sheets were incomplete and employees were credited with incorrect leave accruals. In addition, District officials did not segregate duties in the time and attendance software, and there were no compensating controls in place. Because of the lack of segregation of duties or compensating controls, there is an increased risk that unauthorized changes to the time and attendance records, software security settings and user authorization privileges could occur and go undetected.

The Board needs to improve its procedures for the special programs to ensure that all cash collected for the playground and driver's education programs is properly collected, accurately recorded and deposited in a timely manner. The Board did not adopt a cash receipts policy and District officials did not adequately segregate the Director's duties or implement compensating controls such as providing supervisory reviews of the Director's activities. In addition, the Director did not maintain logs of all cash received or issue triplicate pre-numbered receipts for playground cash received. Furthermore, District officials did not ensure that pre-numbered receipts were issued for funds received for the driver's education program or that the funds were collected by District officials or employees and deposited in a timely manner. As a result, there is an increased risk that money collected for special programs may be lost or misused.

We found that Library officials controlled expenditures. They developed budgets in four-year increments and then determined real property tax levies based on these budgets. Library officials also reviewed budget-to-actual reports monthly to ensure that expenditures were within budgeted amounts. They have also implemented cost-saving measures, such as obtaining grants and reducing health insurance costs. As a result, the Library's total operating expenditures decreased by approximately $60,000 from 2011-12 to 2014-15. We commend the Director and Library officials for effectively managing Library expenditures.

Authority officials have developed procedures to ensure all cash collections for parking are accounted for and deposited intact and in a timely manner. The Authority uses four methods to collect parking payments from customers; single-space meters, multi-space meters, pay-on-foot machines (park then pay prior to exiting the garage) and monthly parking permits. The Authority bills businesses that pay by check for the permits and automatically charges individuals' credit or debit cards on a monthly basis. The Authority contracts with an armored car company to count and deposit money from the single- and multi-space parking meters at least once per month. On a daily basis, the managers remove the money from the pay-on-foot machines, count it, prepare a deposit slip and deposit the money into the Authority's bank account. The Authority also charges prepaid parking rates for parking in the garages when there are special events such as concerts. The Authority contracts with a third-party employment agency for temporary staff who, along with Authority employees, staff the garages for these special events. We commend Authority officials for establishing a control environment that adequately safeguards cash collections.