The Board did not always enforce its policies and procedures. Although the Board is required to approve all budget transfers above $25,000, the Chief Financial Officer approves these transfers. We reviewed 30 budget transfers totaling $9.2 million and found that 24 totaling $7.8 million were not presented to the Board for approval. The Board approved the remaining six budget transfers totaling $1.4 million between 18 and 70 days after the transfer was processed. The Board's ability to monitor the budget and ensure that account codes are not overspent is compromised when it does not approve budget transfers. Additionally, BOCES officials are making excessive use of miscellaneous budget codes for expenditures. Expenditures totaling $2.3 million were coded to miscellaneous budget codes during the 2014-15 fiscal year. This reduces the transparency of BOCES operations. BOCES officials are also not ensuring that all employees are adhering to the established purchasing policy and procedures. Employees purchased goods and services totaling $13,700 from six vendors before preparing purchase orders to be approved by the purchasing department. The purchasing department is not adequately tracking the occurrence of confirming purchase orders by notifying employees of their lack of adherence to the established policy.

The Board did not ensure that adequate accounting records and reports were maintained and did not effectively monitor the District's financial operations. The Clerk did not maintain accurate and complete accounting records and the Treasurer did not provide the Board with adequate periodic reports. Furthermore, we recalculated the District's assets, liabilities and fund balance and found unrestricted fund balance deficits for the 2013-14 and 2014-15 fiscal years and budgetary deficits for the 2013-14, 2014-15 and 2015-16 fiscal years. Additionally, the District incurred a cash flow shortage that precluded employees from cashing their paychecks from July 2013 to September 2013. In 2014, the District liquidated two certificates of deposit containing reserve funds and transferred those moneys to the general fund checking account. If the District had not made these transfers, the District would have also experienced cash flow shortages in 2014 and 2015.

The Board needs to improve its internal controls over water rents to ensure that they are accurately billed and collected and ad valorem assessments are properly levied. We found that internal controls over water rents and assessments were inadequate and oversight is lacking. Because Town officials were uncertain of District boundaries, ad valorem assessments were not levied on all properties in the District. As a result, assessments charged to District property owners were higher than necessary. We also identified 79 properties in the District that were paying ad valorem assessments but were not billed water rents. As a result, the Town may have lost as much as $31,850 in revenue during our audit period. In addition, 41 customers who were charged the minimum quarterly water rent may actually be using more water than the amount billed for minimum use. We also found that some meters were broken and had not been operating or repaired since March 2011. As a result, the Town may be losing revenue by not knowing the actual amount of water used by customers with broken meters. Finally, the Board did not establish procedures to provide guidance to the clerk, or adequately segregate the clerk's duties. As a result, customers were billed incorrectly or not billed at all.

The Board implemented adequate procedures over cash receipts and disbursements. Cash receipts were all deposited in District accounts, and disbursements were adequately supported and for valid District purposes. Except for minor discrepancies that we discussed with District officials, all checks were adequately supported, properly authorized and for valid District purposes. We commend District officials for designing and implementing an effective set of controls over cash receipts and disbursements.

District officials should improve their billing process for nonresident students by determining actual attendance dates. We reviewed 10 tuition invoices for seven nonresident students placed at the District totaling $219,941 from the 2012-13 through 2014-15 years. While District officials effectively identified nonresident students who were placed at the District, we found that the Treasurer used incorrect attendance dates when calculating bills for three students. As a result, two home districts were underbilled by $5,078 and one home district was overbilled by $638.

The Board and District officials did not effectively manage the District's financial condition. District officials did not adopt budgets based on historical or known trends but instead overestimated expenditures by almost $2.7 million over the last four fiscal years (2011-12 through 2014-15). The District appropriated $2.4 million in fund balance as a financing source in the annual budgets for 2012-13 through 2015-16. However, the District's budgeting practices resulted in operating surpluses in three of these years and we project the District will also likely end 2015-16 with an operating surplus. As a result, none of the appropriated fund balance will be needed to finance operations. The District also retained an average of approximately $342,000 of unrestricted funds in the debt service fund, $1.1 million in the agency fund's group health insurance account and $429,000 in excessive reserves over these years. When adding back unused appropriated fund balance, excess money retained in the debt service, agency funds and reserves, the District's recalculated unrestricted fund balance exceeded the statutory limit, averaging more than 18 percent of the ensuing year's appropriations, or more than four times the statutory limit. From 2011-12 through 2015-16, District officials increased the tax levy by approximately 7 percent. As a result of these practices, District officials levied real property taxes that were higher than necessary to fund District operations. Additionally, the Board did not adopt a written reserve fund policy or develop a multiyear financial plan.

City officials have not established sufficient procedures for pursuing the collection of unpaid parking violations or set a benchmark for collection rates. The City collected $110,000 in revenues for 4,367 violations from January 2011 through April 2016, which represents 61 percent of total parking violations. We determined the City could have collected an additional 1,757 parking violations totaling approximately $44,000 if it collected fines for 85 percent of the parking violation tickets issued. If the City collects the additional 24 percent of parking violations that are still outstanding, dating back to January 2011, the City could receive approximately $83,000 in additional revenue. We also found that the Finance Department staff deposited the receipts for fines collected intact and in a timely manner.

The Board needs to improve controls over the Company's financial activities. The Board has not established policies and procedures for cash receipts, cash disbursements, fundraising or the audit of claims. Bingo operations did not follow applicable regulations. Fundraising reports were not always complete and did not contain sufficient information to verify proceeds. We found that $14,787 (54 percent) of bingo deposits were not made timely and 37 canceled checks totaling $9,016 (23 percent) did not contain the required two signatures. The Company paid hall rental expenses of $24,900 to itself, which it then deposited into the Company's checking account and paid the Treasurer six checks totaling $1,090 as reimbursements for supplies which is not permitted by bingo regulations. We also found disbursements made without supporting documentation to identify the purpose for the payments.

The general fund has been subsidizing the Dover Ridge sewer and water districts (Districts). As a result, the sewer and water funds owe the general fund $100,020 and $13,745, respectively. Accounting records for the Districts are not accurate. All amounts billed could not be traced to deposits, all expenditures could not be explained and bank reconciliations were not performed in a timely manner. Furthermore, we found inadequate segregation of duties in the Districts' financial activities with no compensating controls in place. Finally, the Board-approved procurement policy did not include the method of selecting the Districts' professional services provider. As a result, there is no assurance that professional services for which the Districts paid a total of $187,209 in the last three years were acquired in the most prudent and economical manner.

In recent years, the Board has balanced its adopted budgets with appropriations of fund balance and reserves, which has led to planned operating deficits from 2012-13 through 2014-15 and a $2.2 million decline in the general fund balance. While the District maintained over $5.7 million in its reserve funds through 2014-15, it did not use the reserve funds as appropriated in the budgets. Officials primarily relied on unrestricted funds to finance the operating deficits which caused the unrestricted fund balance in the general fund, as reported by the District, to decline to about $139,000 at the end of 2014-15. However, due to an overstatement of recorded liabilities, the actual unrestricted fund balance was approximately $527,000 at the close of 2014-15, representing a 63 percent decline from 2012-13. The Board has subsequently continued to appropriate fund balance and reserve funds totaling at least $1.45 million each year in the 2015-16 and 2016-17 adopted budgets. As a result, the District's general fund balance will likely continue to decline. In addition, the school lunch fund was not self-sufficient and required advances and subsidies from the general fund to finance its operations. During 2013-14, the District improperly charged the school lunch fund's health insurance costs, totaling over $129,600, to the general fund to avoid a further deterioration of the lunch fund's financial condition. At the end of 2014-15, the lunch fund owed the general fund $47,000 and in 2015-16 borrowed an additional $20,000 to help with cash flow. Lastly, the Board has not developed a multiyear financial plan to address the declining fund balance and to guide the use of the reserve funds.

Although we did not find any material discrepancies, the Board and District officials need to improve controls over the payroll process. Specifically, District officials have not provided employees with written procedures over payroll, did not adequately segregate payroll duties or establish sufficient compensating controls, did not adequately review payrolls before certifying them and did not pre-approved overtime and leave requests as required. We reviewed payroll payments along with applicable supporting documentation for 35 employees, of the District's 373 employees, totaling approximately $729,000 during three separate months to determine if the employees' salaries and wages were paid accurately. Except for minor discrepancies, which we discussed with District officials, employees' salaries and wages were paid accurately. We also analyzed the District's six reserves with reported balances totaling approximately $9 million as of June 30, 2015 for reasonableness and adherence to statutory requirements and determined that all reserves were properly established. However, only two of the reserves (tax certiorari and retirement contribution) have been used over the last five years. The other four reserves have not had any funds added or used over the last five years except for accumulated interest allowed by law. There was no evidence that the Board has periodically assessed these four reserves for necessity. Additionally, there was no clear plan for the future use of any of the District's six reserves. The Board President told us that the Board has not adopted a formal plan for the use and funding of reserves.

The Board and District officials have not ensured internal controls over information technology (IT) are appropriately designed and operating effectively. The Board did not establish adequate IT policies and procedures. District officials did not maintain accurate and up-to-date IT hardware inventory records. We also found that service level agreements for IT consultants do not adequately identify who is responsible for various aspects of the District's IT environment. District officials have also not ensured that District employees received adequate cyber security training. Finally, we identified significant weaknesses in the District's web filter and its implementation. As a result, the Board does not have adequate assurance that the District's IT assets are secure.

From fiscal years 2012-13 through 2014-15, the Board overestimated appropriations by an average of $1.4 million or 15 percent and appropriated an average of $1 million in fund balance annually in its adopted budget. These practices made it appear that the District was in compliance with the statutory limit on unrestricted fund balance. However, because the Board overestimated appropriations in each of these years, the District generated operating surpluses and, therefore, none of the appropriated fund balance was actually used. After factoring in the unused appropriated fund balance, the recalculated unrestricted fund balance over the three-year period averaged 13.6 percent of the ensuing years' appropriations. Lastly, District officials did not adopt a multiyear financial or capital plan.

The Board has not established a fingerprinting policy. As a result, School officials allowed employees to be hired and have contact with students prior to receiving fingerprint clearances and allowed independent contractors to have contact with students without first verifying they held a valid clearance. These practices increase the risk to student safety.

We found that District employees' wages and salaries were properly paid. We reviewed payroll payments totaling $3.6 million made to 40 employees during our audit period and, except for minor discrepancies, which we discussed with District officials, we found that the employees' salaries, wages and leave time were accurately paid. However, even though District officials implemented specific procedures to ensure employee leave accruals were earned in accordance with Board-authorized amounts, they were not followed consistently. Time sheets were modified without employee re-certification and leave accrual usage input into the District's financial system (System) were not reviewed for accuracy. As a result, some employee leave records were not accurately tracked, resulting in discrepancies between employee time sheets and the System.

The District has maintained unrestricted fund balance in the general fund at the statutory limit for the past two fiscal years. The Board used appropriated fund balance to finance its adopted budgets and incurred planned operating deficits totaling $7.4 million from 2012-13 through 2014-15. As of February 2016, the District projected a $1.8 million operating deficit for the 2015-16 fiscal year, which it plans to finance with reserve funds instead of appropriated fund balance. In an effort to end the decline in fund balance and maintain it at a healthy level, the Board also reduced appropriations by about $3.3 million in the 2016-17 adopted budget and did not appropriate any fund balance or reserve funds to finance the budget. Going forward, the District will need to plan for a number of factors that will affect its future finances, including declining PILOT revenue, employee contract negotiations, likely increases in health insurance costs, and a receivable from the school lunch fund that is expected to be largely uncollectible. However, the Board currently does not have a formal multiyear financial plan, which would help guide the Board as it faces future economic and environmental challenges. The District also does not have an effective process in place to identify all nonresident foster students receiving educational services from the District. Due to weaknesses in the District's identification and billing process, the District did not bill and receive about $237,000 from other school districts for eligible nonresident foster children who received educational services during the 2012-13 through 2014-15 fiscal years. Additionally, the District had 10 nonresident foster students eligible for tuition reimbursement for the 2015-16 fiscal year. If the District takes prompt action to bill the districts of origin for these students, we estimate the District could receive between $47,000 and $125,000 in tuition reimbursements, depending on the length of time the students remain enrolled during the 2015-16 school year.

The District is serving nutritious meals to its students. However, the meals cost more to prepare than the revenue generated by the meal sales. Furthermore, the school lunch productivity is lower than industry standards. These deficiencies have resulted in the District school lunch fund reporting a deficit total fund balance of $452,041 as of June 30, 2015, despite annual $50,000 subsidies from the general fund. If the District could reduce or eliminate the need for these operational subsidies, those resources could be used for other District purposes.

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. We commend District officials for establishing effective procedures for processing claims against the District. Establishing and adhering to effective claims auditing procedures decreases the risk that errors or irregularities in processing and paying claims could occur and not be detected in a timely manner.

The Board did not adequately manage the District's finances by ensuring budgets were realistic and by properly planning for and using fund balance. The District generated a cumulative operating surplus of $720,000 from fiscal years 2012-13 through 2014-15. Although District officials appropriated $2.6 million of fund balance to help finance the budget each year, none of it was needed because District officials overestimated appropriations each year by an average of $2.7 million, or 4 percent. When unused appropriated fund balance is added back, unrestricted fund balance exceeded the statutory limit by amounts ranging from $2 million to $2.4 million, or 2.9 to 3.6 percentage points. District officials also improperly set aside more than $6.5 million in a debt reserve. During the last three fiscal years, District officials have transferred more than $1.3 million from unrestricted fund balance to the reserve. Had District officials accounted for these funds properly, unrestricted fund balance would have further exceeded the statutory limit. Despite the significant amount of accumulated fund balance, District officials have increased the tax levy by more than $5 million (13.7 percent) from 2012-13 through 2015-16. Furthermore, because District officials did not properly analyze cash flow, they unnecessarily issued $6 million of short-term debt each year, incurring $81,000 in debt issuance and interest costs over the past four years.

During our audit period, District officials awarded seven professional service contracts totaling almost $1.1 million without the benefit of competition, as required by the District's procurement policy. Officials did not comply with the District's policy when procuring goods and services below the competitive bidding threshold for 19 purchases totaling $119,130 or with General Municipal Law bidding requirements and District policy for two purchases totaling $62,153. As a result, the Board does not have adequate assurance that these goods and services were procured in the most economical way and in the best interests of its residents.