The Board and District officials did not prepare accurate budgets for the 2011-12 through the 2014-15 fiscal years. While the District appropriated fund balance and reserves to help finance operations, it was not needed because the District's budgeting practices produced operating surpluses in three of the four fiscal years we reviewed. The District only used $296,578 (9.6 percent) of the $3.1 million of fund balance it appropriated during this time to finance operations. When unused appropriated fund balance was added back, the District's recalculated unrestricted fund balance exceeded the statutory limit by up to 5 percentage points. Furthermore, the balance in the retirement contribution reserve was $1.7 million as of June 30, 2015, which was more than five times the District's annual average contribution. Consequently, we question the reasonableness of the amount in this reserve. Finally, the debt reserve, with a balance of $241,000 as of June 30, 2015, has not been used over the last four years. District officials were unsure of the source of the cash in this reserve.

The Board did not provide proper oversight of the administration of its capital fund program (CFP) or investments. As a result, CFP funds were not always properly used. We identified payments totaling over $44,000 for activities that were not on the Plan and/or Contracts, were not properly supported or were modifications to the original Plan that lacked evidence of written Board approval. Further, the Authority reported investments totaling more than $1 million that may not be properly secured and are not sufficiently monitored by the Board. There was no written agreement for services between the Authority and the firm administering these investments. Additionally, the Authority could not identify the original source of the more than $1 million invested.

The Board and District officials did not effectively manage fund balance. While the Board appropriated fund balance in the annual budgets to help finance operations, these amounts were not needed because the District's budgeting practices produced operating surpluses each year. District officials also appropriated reserves as a funding source in the annual budgets that were not expended as budgeted. District officials appropriated $3 million in reserves from the 2012-13 through 2014-15 fiscal years but charged expenditures totaling only $138,000 to the related reserves during these years. The District's unrestricted fund balance was in excess of the statutory limit, ranging from 6 percent to 7 percent of the ensuing year's appropriations during two of these years (2012-13 and 2013-14). However, when unused fund balance is added back, the District's recalculated unrestricted fund balance was in excess of the statutory limit for all three years, ranging from 5 to 9 percent of the ensuing years budget. We also found that three general fund reserves, totaling approximately $4.2 million, were overfunded, and the District improperly accumulated $1 million of surplus cash in the debt service fund.

The Board and District officials did not properly manage fund balance or ensure reserve balances and budget estimates were reasonable. For the 2012-13 through 2014-15 fiscal years, the District's unrestricted fund balance exceeded the statutory limit ranging from 5.5 to 7.6 percent of the ensuing year's budget appropriations. During this same period, the Board significantly overestimated District expenditures by a combined total of approximately $7.2 million, which resulted in annual operating surpluses totaling approximately $2.1 million. In addition, the Board appropriated approximately $1.1 million of fund balance during these years to finance operations but none of the amounts appropriated were used. Furthermore, despite experiencing operating surpluses, District officials increased the real property tax levy by an average of approximately $397,000 each year. Finally, the District's retirement contribution reserve had a balance of more than $1.6 million. Based on the District's average annual retirement contribution of about $579,000, its current balance is sufficient to pay these costs for almost 3 years.

The District has not adequately restricted user access and transaction rights on the computerized payroll system based on job responsibilities, which compromises the segregation of duties and could permit improper payroll changes. Six individuals had access to functions in the payroll system that were not required to fulfill their assigned job duties. Three of these individuals were in the Human Resources Department and three were in the Business Office. We also found that an elementary school secretary had more rights to the payroll system than needed for her job. Additionally, District officials are not adequately monitoring the payroll for improper or erroneous transactions. Procedures should require that payrolls are adequately certified. Without effective controls, there is an increased risk that someone could initiate and conceal inappropriate payroll transactions or that mistakes could be made and not detected in a timely manner.

The Board and District officials did not ensure that budget estimates and reserves were reasonable. They overestimated general fund appropriations when preparing and adopting the last three budgets, which resulted in operating surpluses totaling $10.6 million. From the 2011-12 through 2014-15 fiscal years, the District also increased the tax levy by more than 13 percent and appropriated fund balance totaling $14.6 million, which was not used to finance operations as planned. At the same time, District officials designated more than $3 million of unrestricted fund balance for costs related to other post-employment benefits (OPEB) each year, but did not use these moneys to make related payments and instead budgeted for OPEB costs in the general fund budget. When combining the unused appropriated fund balance and unused designated OPEB moneys, the District's recalculated unrestricted fund balance averaged more than 8 percent of the ensuing year's appropriations, exceeding the 4 percent statutory limit. Also, from 2012-13 through 2014-15, District officials overfunded the workers' compensation reserve by $1.4 million.

The Board has not adopted policies addressing electronic banking transactions and District officials have not developed written procedures for wire transfers. There is also a lack of segregation of duties in the wire transfer process. The Secretary for the Assistant Superintendent of Finance or District Treasurer initiates and authorizes wire transfers online and receives wire transfer confirmations without supervisory review. In addition, the District did not have comprehensive agreements with each bank that addressed electronic or wire transfers. These weaknesses increase the risk that inappropriate wire transfers could be initiated and not detected.

The Board and District officials did not appropriately establish and maintain reserve funds. The District had five reserves as of June 30, 2015. The unemployment insurance reserve had a balance of $2.9 million. However, District officials are unable to find a resolution establishing this reserve and it is overfunded. The current balance in the unemployment insurance reserve could pay for unemployment insurance costs for more than 27 years. In addition, the employee benefit accrued liability reserve (EBALR) has a balance of $6 million. However, the EBALR is not needed because the District does not have a liability for compensated absences. Further, the State Comptroller previously recommended that the District consider using the EBALR surplus when planning its future budget. The Board and District officials also need to improve controls over extra-classroom activity funds. Club officials did not maintain adequate supporting documentation, such as duplicate pre-numbered receipts, for cash collections totaling $38,377. In addition, supporting records for 2014-15 prom ticket sales totaling $19,325 were disposed of despite a requirement to maintain the records for six years. Supporting documentation for collections totaling $103,145 and $106,872 did not contain the dates the cash was collected or the compositions of the collections, respectively. Further, the central treasurers did not issue receipts to club officials when they remitted $10,437 for deposit.

District officials established adequate procedures to ensure employees were paid their approved salaries or wages. Establishing and adhering to a good system for processing and verifying payroll payments ensures the employees are accurately paid their salaries and wages. We commend District officials for designing an effective system that ensures the accuracy of compensation paid to employees.

The Board adopted a policy governing the procurement of professional services. The policy states that competitive bids or quotations shall be solicited in connection with purchases pursuant to law. The policy directs that professional services are secured in a manner that protects the integrity of the process, ensures the prudent use of tax dollars and provides a high quality standard of service. We reviewed the procurement of all 41 professional service providers' contracts totaling approximately $4.8 million during the audit period. The District has not recently sought competition when procuring services from eight service providers, who received payments totaling $699,328. According to District officials, the Board contracted with these service providers each year rather than issue a formal request for proposal because the providers have a long history with the District and are familiar with its needs.

The Board should improve its internal controls over separation payments to ensure that payments are accurately calculated. The Board did not ensure that District officials developed written procedures for processing or approving separation payments and there was no adequate independent review of the calculations to ensure they were accurate. As a result, the District overpaid seven employees for retirement incentives by total of $35,000 and underpaid four employees for unused vacation time by a total of $1,359.

From fiscal years 2011-12 through 2014-15, District officials adopted budgets that resulted in operating surpluses. In addition, District officials also appropriated between $800,000 and $1 million of fund balance each year that was not used, resulting in an unrestricted fund balance of almost $3.4 million as of June 30, 2015, or 13.5 percent of the ensuing year's appropriations. In addition, the Board did not adequately segregate financial duties because all financial responsibilities were assigned to one individual. The Board also did not adequately oversee the claims audit process to ensure that claims were sufficiently audited and findings reported. The Board did not ensure that the audit committee functioned as intended, did not establish an internal audit function and it has not issued a request for proposal for the annual external audit since 2007. Lastly, the Board did not ensure that the Treasurer conducted annual inventories or that sufficient asset records were maintained for all District assets.

The Board needs to improve its budget process and ensure it adopts reasonable budgets and appropriately maintains restricted funds to effectively manage the District's financial condition. From 2012-13 through 2014-15, District officials overestimated appropriations in the adopted budgets each year. This budget practice generated approximately $1 million in cumulative operating surpluses for these years. Over these years, officials also appropriated nearly $2.8 million of fund balance as a financing source in the annual budgets. However, approximately 94 percent of this amount was not needed due to the operating surpluses. As a result, the District's unassigned fund balance exceeded the statutory limit each year ranging from 4.3 to 6.8 percent of the ensuing year's budget. When unused appropriate fund balance is added back, the District's recalculated unassigned fund balance ranged from 9 to 11 percent of the ensuing year's appropriations, further exceeding the statutory limit each year. During 2014-15, the District appropriated $830,000 for the 2015-16 budget, but the District projects that it will not be needed. As such, we expect the District's unassigned fund balance will continue to exceed the statutory limit. District officials also overfunded the workers' compensation reserve and retained almost $1 million of excess funds in the capital projects fund. Finally, District officials have not adopted long-term financial and capital plans, as required by Board policy.

The Board and District officials need to improve controls over the payroll process to adequately segregate payroll processing duties, and District management needs to develop adequate procedures to ensure that overtime is pre-approved. We found that payroll and leave accrual records were generally accurate. However, $15,105 (89 percent) out of $16,950 in overtime payments made to eight employees was paid without pre-approval of the overtime hours worked. Further, overtime payments included work of a routine nature that, with proper scheduling, may have been avoidable.

While District officials did develop a policy to address the procurement of goods and services not subject to competitive bidding, the policy did not specify the frequency of seeking competition for professional services. Further, we did not find any evidence that the Board determined which professional services were subject to the request for proposal (RFP) process or any evidence that the Board monitored the RFP procedures for professional services. The Assistant Superintendent for Business Affairs explained that she will initiate the RFP process for professional services and bring the RFP before the Board for approval. Except for minor discrepancies that we discussed with District officials, the purchases we reviewed were made in accordance with the District's policy.

The Board and District officials could improve their management of the school lunch fund's financial condition. The school has reported a negative school lunch fund balance since 2006-07. Over the last three fiscal years, fund balance decreased by over $141,000 as a result of operating deficits averaging approximately $47,000 per year. Operating deficits include subsidies from the general fund which averaged $23,000 over the past three years. Without these subsidies, the fund's operating deficits would average about $70,000 a year. Furthermore, at the end of 2014-15, the school lunch fund owed the general fund $168,000. We project another operating deficit in 2015-16 that will reduce the fund balance of the school lunch fund by an additional $72,000.

District officials did not require employees to follow established procedures to ensure that paid salaries and wages were accurate and did not have procedures in place to ensure that leave accruals were properly verified and recorded. As a result, we found errors in nine employees' pay. Although not significant, these errors occurred due to lack of management or independent review of the payroll clerk's work. Further, District officials did not always follow procedures or ensure that employees had enough accruals prior to approving leave requests. In addition, there was no supervisory review of the human resources clerk's work to ensure leave time requested was accurately transferred to the time and attendance system.

The Board generally ensured that District officials complied with General Municipal Law and the District's procurement policy for purchases requiring quotes and purchases subject to competitive bidding. However, we found that District officials could improve their purchasing process by attaching sufficient supporting documentation to claims for purchases not subject to competitive bidding. In addition, officials should ensure that purchases are made only after the purchasing agent issues an approved purchase order. When sufficient supporting documentation is not available for review or purchase orders are executed after a purchase is made, there is an increased risk that unauthorized or inappropriate purchases could be made.

The purpose of our audit was to determine if counties effectively monitored service provider agreements for the period January 1 through December 31, 2013.

District officials have effectively managed the District's financial condition. The District's unrestricted fund balance and reserve balances totaled almost $2 million and $2.5 million, respectively, as of June 30, 2015. However, the decline in those balances by $667,600 and $2.1 million over the past three years suggests the District may be heading toward fiscal challenges. Over the three-year period ending June 30, 2015, District officials budgeted for operating deficits of $1.96 million. However, the net result of operations was a total deficit of approximately $957,000. District officials budgeted to use another $960,000 of unrestricted fund balance in 2015-16; however, we project they will use $292,000. Further, budget estimates for general fund revenues and expenditures have been within a few percentage points from actual amounts over this period. However, the District's revenues have not kept pace with expenditures, which have increased at rates of 4 and 8 percent, respectively. Over the three-year period, the balance of the District's three reserves decreased by almost $2.1 million, or about 45 percent, to $2.5 million as of June 30, 2015. Based on the continuous use of these reserves, supporting documentation and future plans, the balance of each of these reserves was reasonable. However, at this rate of decline, they will be depleted and unavailable for use as funding sources within three years. As a result of the revenue and expenditure trends and the continued use of fund balance, the District's total year-end fund balance declined by over $2.4 million, or 30 percent over the last three years. The Assistant Superintendent for Business started July 2014 and has been mainly focused on developing short-term plans and solutions to managing the District's finances, including the use and funding levels of reserves. District officials are in the process of developing multiyear long-term plans to address their financial situation.