At the time of our audit, the District had an ongoing capital project (Project) which involved constructing, renovating and improving all three school buildings and the bus garage. The Project was approved by District residents in December 2014 with a total budget of $12.4 million. The District engaged various consultants to facilitate the Project including an architectural and engineering firm for building design and development and assisting in the purchasing process, a Clerk of the Works to manage construction and a municipal advisory firm for bonding and cash flow planning. Overall, District officials properly managed Phase I of the Project. The Board presented the Project to District residents in a transparent manner. In addition, all work performed was consistent with the NYSED-approved scope and with properly approved change orders. District purchasing practices for the Project conformed to GML and to the Project's budget.

District officials did not ensure that unrestricted fund balance and reserves were reasonable. The unrestricted fund balance has been well over the statutory limit for the past several years, while at the same time real property taxes were raised to the maximum allowable by the property tax cap regulations. Conservative budgeting practices have contributed to appropriated fund balance and reserves not being used as budgeted. Furthermore, certain reserves had excessive balances when compared to their respective liabilities.

Although the Board and District officials have generally maintained fund balance levels in accordance with the law, they have annually appropriated portions of fund balance for the subsequent year's budget that were not used because they consistently overestimated appropriations. This trend is projected to continue through 2015-16. Once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's recalculated unrestricted fund balance ranged from $692,000 (14 percent) in 2012-13 to $749,000 (15 percent) in 2014-15. Furthermore, even though unrestricted fund balance continued to increase through June 30, 2015, District officials continued to raise the tax levy every year. Had District officials retained the same tax levy as in 2012-13, residents could have realized approximately $380,000 in cumulative savings. In addition, the unemployment reserve totaled $220,000 as of June 30, 2015 even though annual unemployment expenditures averaged $4,000. Further, District officials have routinely levied taxes for expenditures, including unemployment expenditures, which could have been paid for with reserve funds that totaled $1.3 million as of June 30, 2015.

We reviewed 84 bank reconciliations the Treasurer prepared for all 14 District bank accounts during our audit period to determine if they were prepared in a timely manner. We found that the Treasurer generally reconciled the bank accounts in a timely manner and that the Assistant Superintendent reviewed and signed all these reconciliations. We also prepared bank reconciliations for all District bank accounts for October and November 2015 and compared them with the reconciliations prepared by the Treasurer to determine if the District's reconciliations were accurate. Our reconciliations generally agreed with those prepared by the Treasurer, except for minor differences, which we discussed with District officials. We commend District officials for establishing and implementing an effective controls over the reconciliation process.

The Board did not adopt realistic budgets or ensure that reserves were reasonably funded. District officials consistently overestimated appropriations in the general fund budget during the last three fiscal years 2012-13 through 2014-15 totaling more than $3.4 million or 9 percent, generating approximately $2.7 million in operating surpluses. The District used the operating surpluses to fund various reserves, which led to reserve balances increasing by more than $2.4 million (32 percent) since July 1, 2012. Although District officials appropriated an average of approximately $333,000 in fund balance and $258,000 in reserves annually towards the ensuing year's budget, none of the appropriated funds were used because of consistent year-end surpluses. This trend is projected to continue through 2015-16. While we continue to forecast an operating surplus for 2015-16, we recognize certain measures the Board and District officials have begun implementing regarding their financial management practices. For example, they did not raise the tax levy in 2014-15, and they reduced the tax levy by more than 5 percent ($250,000) for 2015-16.

The Payroll Manager performs incompatible duties without sufficient oversight or independent review. District officials instituted a compensating control by having the Superintendent, who is independent of the payroll process, certify the payrolls. However, no one independent of the payroll process reviews hourly rates or annual salaries entered by the Payroll Manager for accuracy or compares the payroll registers with payroll source documents (i.e., time records) to ensure that payments were based on the actual hours or days worked prior to payroll processing. In addition, the District does not have adequate procedures in place to ensure overtime is preapproved, and District officials generally did not preapprove overtime worked by employees.

District officials did not prepare accurate budgets for the 2012-13, 2013-14 and 2014-15 fiscal years. The District overestimated appropriations by an average of $2.5 million each year. While the District appropriated fund balance to help finance operations, the amounts appropriated were generally not used. Furthermore, unrestricted fund balance has exceeded the legal limit annually. As of June 30, 2015, unrestricted fund balance was $2.6 million (12 percent of the ensuing year's budget) or approximately $1.7 million over the legally allowable limit. Finally, the District improperly retained $5.7 million in a debt reserve and overfunded the employee benefit accrued liability reserve by $220,000 (20 percent).

While the Board and District officials have generally maintained unrestricted fund balance levels in accordance with statutory limits, we found that District officials used budgeting practices that appropriated fund balance and reserves that were not actually used. The District routinely overestimated expenditures (averaging $10 million) and, as a result, did not use an equivalent amount of appropriated fund balance and reserves as budgeted. This practice is projected to continue in the 2015-16 fiscal year. Moreover, once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's recalculated unrestricted fund balance ranges from $6.1 million (6 percent) to $7.4 million (8 percent) of the ensuing years' appropriations for the fiscal years 2012-13 through 2014-15, exceeding the statutory limit. In addition, District officials consistently budgeted in the general fund for expenditures that could have been paid for with reserve funds, five of which appear to be overfunded by more than $18 million. As a result, the District has levied higher taxes than necessary.

Over the five-year period ending June 30, 2015, the Board maintained unrestricted fund balance within the 4 percent statutory maximum. However, the Board appropriated more fund balance than needed, resulting in an estimated net budget variance of $20.6 million from 2011-12 through 2015-16. After the unused appropriated fund balances are added back, the unrestricted fund balance exceeds the statutory limit, ranging from 6 percent to 7.4 percent of the ensuing year's appropriations for the period. Furthermore, although four of the District's six reserve funds had reasonable balances, the retirement contribution reserve and the employee benefit accrued liability reserve had significant balances in excess of their respective liabilities. As a result of these practices, District officials levied real property taxes that were higher than necessary.

District officials have established a formal process for assigning and reviewing user access rights for conflicting duties, as recommended by previous audits. However, District officials have not addressed the conflicting duties regarding the payroll access rights adequately. The District Treasurer indicated that she and the Executive Director of School Business Administration have not yet reviewed the payroll clerk's access rights after the completion of the most recent software update. We obtained a report of user access rights for the financial software for May 2015, which was prior to the latest update. We found that the payroll clerk did not have human resource capabilities at that time. However, after the software update in May 2015, the user access rights report showed that the payroll clerk had human resource capabilities, including the ability to add, delete and modify employee records.

The District did not apply for all the transportation State aid to which it was entitled for new bus purchases in a timely manner. The Business Manager did not report nine buses that were purchased during our audit period to the New York State Education Department for approval for transportation State aid. Had we not notified District officials of this, the District could have lost $612,902 in related aid consisting of $157,127 that the District would have received during the 2013-14 through 2015-16 fiscal years and $455,775 that we project the District would have received during the 2016-17 through 2020-21 fiscal years. The District also maintained five reserves in its general fund during our audit period, which consisted of an employee benefit accrued liability (EBALR), retirement contribution, unemployment insurance, workers' compensation and insurance reserve. As of June 30, 2015, the five reserves had balances totaling approximately $2.5 million. The District did not appropriately establish, fund and/or use four of these reserves totaling approximately $2.4 million, and the Board did not adopt a reserve policy. District officials were unable to provide us with documentation for the establishment of the EBALR and unemployment insurance reserves. We also found that the District used $69,447 from the retirement contribution reserve for a purpose that was not statutorily authorized.

The Board has established a fund balance policy stating that the Board will keep unrestricted fund balance between a minimum of 2 percent of the ensuing year's appropriations and the 4 percent maximum allowed by law. However, for the past four years the District did not comply with its policy and the law, retaining unrestricted fund balance of 20 to 22.6 percent of the ensuing year's appropriations. These levels exceeded the statutory limit by more than $4 million, or at least 16 percentage points, each year.

The Board and District officials did not adequately manage the District's financial condition. They overestimated general fund appropriations when preparing and adopting the last three completed fiscal year's budgets, resulting in operating surpluses totaling $2.5 million. During this period, the District increased the tax levy by a total of 2 percent and appropriated fund balance totaling about $1.8 million and reserves totaling $128,000, which were not needed to finance operations as planned. We believe the District will not use the appropriated fund balance totaling $492,377 for 2015-16. In addition, as of June 30, 2015, the District officials had three reserves totaling $782,596 that were overfunded, incorrectly recorded a deferred revenue totaling $453,301 and overstated a liability totaling $59,870, which further increases the excessive amount of unrestricted fund balance. When combining the unused appropriated fund balance and reserves with the other overstatements and excesses, the District's recalculated unrestricted fund balance was between 13 and 26 percent of the ensuing year's appropriations, exceeding the 4 percent statutory limit. The District also has more than $1 million in the debt service fund available for debt payments that has not been used to finance debt payments, and it continues to accumulate money each year.

The District did not accurately maintain employees' leave accrual records. We reviewed 15 employees' leave accrual records during our audit period to determine whether the leave time that they recorded on their time records or leave request forms was properly deducted from their leave accrual balances. We also determined whether the amounts of leave credited and carried forward during the 2014-15 and 2015-16 fiscal years agreed with Board resolutions, collective bargaining agreements or individual employee contracts. We found errors in the leave accrual records for nine of the 15 employees. The cumulative effect of these errors is that, as of January 31, 2016, four employees' leave accrual balances were overstated by a total of almost 20 days, valued at $8,201, and two employees' leave accrual balances were understated by a total of more than one day, valued at $298. This occurred because District officials did not establish adequate procedures to ensure employees' leave accrual records were accurately maintained.

District officials did not ensure that the District's unrestricted fund balance was within the statutory limit during the past three fiscal years (2012-13 through 2014-15). The District's unrestricted fund balance exceeded the statutory limit for these years ranging from 6.5 to 10.7 percent. As of June 30, 2015, the District's unrestricted fund balance totaled more than $570,000, which exceeded the statutory limitations by $223,561. Because the District overestimated expenditures by approximately $2.3 million from 2012-13 through 2014-15 it used only a small amount ($92,072 or 3 percent) of the nearly $3.3 million of fund balance that was appropriated for the same period. When adding back unused appropriated fund balance, the District's recalculated unrestricted funds further exceeded the statutory limit.

District officials have established adequate procedures over the claims processing function to ensure that claims are adequately documented and supported, are for appropriate purposes, and are audited and approved prior to payment. The claims auditor conducts a thorough examination of each claim to determine whether it is for appropriate District purposes, whether the goods or services being billed for were actually received, and whether the claims are adequately documented and supported. We commend District officials for establishing effective procedures for processing claims against the District.

The Board and District officials have not implemented appropriate IT policies and procedures related to personal, private and sensitive information classification or data backups. Additionally, the Board has not adopted a sufficient, comprehensive disaster recovery plan. Consequently, IT assets are at risk for unauthorized, inappropriate and wasteful use, and the District could encounter an interruption in services.

BOCES officials have established adequate procedures over the claims processing function to ensure that claims were adequately documented and supported, for appropriate purposes, and audited and approved prior to payment. The Board has delegated its claims auditing responsibility to a claims auditor. The claims auditor conducts a thorough examination of each claim to determine whether it is for appropriate BOCES purposes, the goods or services being billed for were actually received, and the claim was adequately documented and supported. We commend BOCES officials for establishing effective procedures for processing claims against BOCES.

The Board and District officials did not maintain a reasonable amount of unrestricted fund balance. While the District has four reserves totaling approximately $4.2 million that we determined were reasonably funded based on their supporting documentation and future plans, unrestricted fund balance has exceeded the 4 percent statutory limit for the last three completed fiscal years by an average of 11.9 percentage points. District officials budgeted to use $3.8 million of unrestricted fund balance for the fiscal years 2012-13 through 2014-15. Instead, the District experienced cumulative surpluses totaling $1.1 million and used only $16,300 in 2014-15. We compared budgeted revenues and appropriations to the actual revenues and expenditures for these three completed fiscal years and found the average variances were less than 1 percent for revenues and over 4 percent for expenditures. The generated surpluses were a result of overestimating various expenditures which were specifically in personnel service, contractual and debt interest costs. The result of these budgeting practices made it appear that the District needed to both raise the tax levy, which increased in total by more than 5 percent over the two year period from 2012-13 through 2014-15, and use fund balance to close projected budget gaps. While it is prudent to have some provision for unanticipated expenditures, it can be done by maintaining ample fund balance, adopting a conservative budget or using reserves. Doing all three of these concurrently with growing fund balances may result in unnecessary increases in real property taxes.

We analyzed the District's financial condition for the years 2011-12 through 2014-15 and found, in general, that District officials adequately monitor its financial condition. However, District officials have issued RANs each year despite the District's stable cash position. District officials have issued a $1.7 million RAN each fiscal year since 2011-12. We found that the District had sufficient cash flow and did not use RAN proceeds to finance operations. Even though District officials did not use these proceeds, the District incurred annual interest expenditures and other administrative fees on the borrowed funds. The District could have saved a total of $156,963 (an average of approximately $39,000 each year) in RAN related expenditures during our audit period had a RAN not been issued when the funds were not needed.