District officials have established some adequate procedures to ensure retiree health insurance contributions are accurately billed, collected and deposited into District bank accounts. The District also has controls in place to ensure that it is not paying insurance costs for deceased retirees. For example, throughout the year, the insurance company monitors the list of retirees and spouses for any recent deaths through notifications from the Center for Medicaid Services/Medicare. The Business Manager also uses local resources and the Internet to monitor recent deaths. However, weaknesses exist in the District's processes for billing and collecting contributions. No one compares the collections with what was actually deposited. In addition, no one compares the billing letters to the amounts calculated by the Business Manager. These weaknesses occurred because District officials did not segregate duties or implement compensating controls. District officials told us that there are no individuals with the required expertise and time available to review and otherwise provide oversight of the process.

The Board and District officials could improve their management of the school lunch fund's financial condition. Although the school lunch fund had surpluses in 2012-13 and 2013-14 totaling almost $25,000, the fund realized a deficit of more than $26,000 in 2014-15, resulting in a 75 percent decrease in fund balance. Furthermore, the District paid health insurance and retirement system costs for cafeteria employees, averaging $41,500 annually, out of the general fund. Had the District paid these costs from the school lunch fund, this fund would have had deficits in each of the last three fiscal years totaling more than $126,000. Additionally, the school lunch fund owes the general fund more than $212,000, which is unlikely to be paid back because it would cause the fund's cash balance to decline significantly. Finally, District officials did not perform a cost-per-meal analysis and the District's productivity level for meals per labor hours (MPLH) is below the industry average.

The Treasurer did not maintain adequate records and reports. For example, the Treasurer's accounting records were inaccurate and, at times, illegible. In addition, the Treasurer's financial reports were inconsistent, untimely and inaccurate. The Board did not complete an annual audit of the Treasurer's records. Without accurate records and reports, the Board cannot make informed financial decisions. These discrepancies occurred because the Board did not segregate key financial duties and did not implement compensating controls. The Treasurer was responsible for all aspects of financial transactions, including receiving and opening mail; receiving and depositing cash receipts; transferring funds between bank accounts; preparing, signing and mailing checks; and recording transactions. Although the Vice Chairman of the Board receives a copy of the checking account bank statement and visually inspects the canceled check images for appropriateness, no one compares the canceled check images to the Board-approved abstracts (lists of claims to be paid) to ensure that the checks were for legitimate and approved District expenditures. Finally, although the Board minutes indicated that the Board performed an audit of financial records, we determined that this internal audit was not thorough.

The Board and District officials have not effectively managed fund balance and have allowed reserve balances to accumulate to excessive levels. Although the Board has adopted reasonable budgets, District officials have not used the more than $5.2 million residing in the debt service fund for debt service expenditures and inappropriately transferred $1.7 million from the general fund to the debt service fund from July 1, 2010 through June 30, 2013. This practice allowed the District to appear that it was maintaining unrestricted fund balance within the 4 percent statutory limit. Had District officials not transferred these surplus funds, unrestricted fund balance would have exceeded the statutory limit by between $900,000 and $1.7 million, or 3.4 to 6.1 percentage points. Furthermore, the District overfunded three general fund reserves, which had balances totaling approximately $2.5 million as of June 30, 2015. Despite the significant amount of accumulated fund balance, District officials have increased the tax levy by approximately 5 percent from fiscal years 2012-13 through 2015-16.

District officials have established appropriate procedures over the claims processing function to ensure that claims were properly itemized and supported; the goods or services had been received and were for proper purposes; and the claims were audited and approved prior to payment. The Board has delegated its claims auditing responsibility to a claims auditor. We randomly selected 500 checks totaling $10,488,630 paid during our audit period and reviewed the associated claims to determine whether the claim was supported with sufficient itemization of the goods or services acquired, contained adequate supporting documentation, and was for legitimate District purposes. We also determined whether the claims were audited and approved by the claims auditor prior to payment. Except for minor issues which we discussed with District officials, we found that the claims were for legitimate District purposes and were properly audited prior to payment. We commend District officials for establishing and implementing effective procedures over the District's claims processing function.

The Board and District officials need to improve the budget process to ensure reserves and fund balance are maintained at reasonable levels in accordance with statutory requirements. Over the five-year period (2010-11 through 2014-15), the Board adopted budgets that included almost $1 million of appropriated fund balance, which was not used to fund operations because the District incurred operating surpluses during four of the five years. District officials used surplus funds to increase reserves and the debt service fund each year. However, District officials did not use these restricted funds to pay for reserve and debt service related obligations because the Board budgeted appropriations each year to pay these expenditures. When the unused appropriated fund balance and excess debt service and reserve funds were added back, the District's recalculated unrestricted fund balance exceeded the statutory limit, ranging from 8.5 to 12.7 percent. As a result, District officials have missed the opportunity to accumulate less fund balance, reduce the tax levy and increase transparency in the District's budget process.

We found unnecessary permissions granted for changing student grades, assuming accounts and identities, and viewing PPSI. For example, 29 users were able to change grades without having the responsibility and 11 users could assume other SIS users' identities without any job-related need to do so. Although these users did not actually change grades or assume other users' identities, the unnecessary ability to do so weakens controls over system integrity. We also found unnecessary student information system (SIS) user accounts, including those for three former District employees. During our audit period, SIS accounts were assumed approximately 140 times and SIS identities nearly 400 times by various users. None of this use was found to be inappropriate; however, unnecessary permissions and accounts increase the risk of unauthorized access and potentially harmful modification, use or exposure of personal, private and sensitive information (PPSI). Due to the lack of effective management, permissions and accounts were not properly assigned or maintained in accordance with employees' job responsibilities and changing employment status. Further, officials did not properly monitor SIS use. This essential control would help to safeguard the District's PPSI from potential unauthorized activity that may not be detected and addressed in a timely manner.

In general, District officials effectively managed the District's fund balance, including reserves. As of June 30, 2015, the District's unrestricted fund balance and reserves totaled $2.1 million and $8.2 million, respectively. District officials monitored the unrestricted fund balance and reserve balances on a regular basis to provide assurance they were staying within the statutory limit and maintaining reasonable reserve balances. The Board also adopted a formal reserve plan, including optimal funding levels, which District officials regularly updated. However, for the last three years, District officials adopted overly conservative budgets that, as a result, included the use of fund balance that was not needed, and maintained a reserve that was overfunded.

The Board consistently developed and adopted realistic budget estimates, but did not properly manage the District's fund balance and reserves. The District realized operating surpluses in the fiscal years 2012-13 through 2014-15 totaling $7.7 million, which led to an increase in the District's level of unassigned fund balance that exceeded the levels permitted by law at the end of the 2013-14 and 2014-15 fiscal years. Furthermore, the District did not develop a multiyear financial plan or any other long-term plan to manage its fund balance and reserves. Without a multiyear financial plan, the District was not prepared to manage the excess fund balance. As a result, District officials missed the opportunity to effectively manage their fund balance, further reduce the tax levy and increase the transparency of the budgeting process.

District officials did not consistently enforce the purchasing policy's requirements for obtaining and documenting verbal and written quotes prior to purchasing goods whose costs exceeded policy thresholds. We reviewed 25 payments totaling $103,468 made to 25 vendors during the audit period and found that the District paid $20,262 to six vendors without obtaining the required number of verbal or written quotes. For example, District officials paid $3,557 for stage backdrops for a play, $3,217 for lumber and supplies and $2,836 for sports clothing items without obtaining any other quotes.

District officials have not effectively managed the fund balance of the general fund. As a result, the fund balance exceeded the statutory limit for the fiscal years ending June 30, 2014 and 2015. In addition, although the District has funded reserves, the Board has not established a plan that states the necessary funding levels and provides guidelines for use and replenishment of the reserve funds.

District officials have not effectively managed fund balance and have allowed unrestricted fund balance to exceed the statutory limit for the past three fiscal years by amounts ranging from 1 to 4 percentage points per year. Although District officials appropriated fund balance each year, none of it was needed because District officials also overestimated appropriations each year by an average of $3.2 million or 4 percent. When unused appropriated fund balance is added back, unrestricted fund balance exceeded the statutory limit by amounts ranging from 3 to 7 percentage points. In addition, we project that fund balance will continue to increase because the District will incur a $2 million operating surplus in 2015-16. Despite the significant amount of accumulated fund balance, District officials have increased the tax levy over the last three years by approximately $3.6 million (8 percent). Furthermore, because District officials did not properly analyze cash flow, they unnecessarily issued short-term debt each year, incurring over $309,000 in debt issuance and interest costs over the past four years.

BOCES adopted policies and procedures requiring that goods of the same kind that exceed $20,000 for purchase contracts and $35,000 for public work contracts within 12 months be subject to competitive bidding in accordance with GML. Irrespective of the type and nature of the purchase, all purchases require an approved purchase order (PO) before payment can be made. Procurements that are exempt from GML, such as professional services, are documented in the procurement guidelines. BOCES' procurement guidelines state that professional services are acquired at the discretion of the Superintendent or through separate provisions. Other than procurement for external auditor services, BOCES' policy or procurement guidelines do not require the use of competition, such as RFPs in procuring professional services.

The Board did not adopt a comprehensive procurement policy because it did not address the procurement of professional services. In addition, District officials did not develop or implement procedures for staff to follow when procuring professional services. Therefore, District staff did not have any guidance to determine when they should use competition, such as a request for proposal process or written or verbal quotes. Also, staff did not have any direction for maintaining required documentation during the solicitation process, including documentation requirements for decisions made. During our audit period, the District paid 39 professional services providers a total of $2.3 million. We reviewed all 33 service providers that had individually received payments totaling at or above $2,500 to determine whether the District had used competition when awarding contracts for professional services. District officials properly sought competition when procuring the services of five providers who received payments totaling $1.2 million. However, the District procured the services of three of those five providers more than seven years ago. District officials did not seek competitive proposals or quotes for the remaining 28 professional service providers who received payments totaling $1.1 million. This included services for students with payments totaling $570,339, legal services for $228,085 and consulting services for $85,930.

The payroll clerk did not use a standard separation payment calculation form and District officials did not provide guidance specifying the required documentation needed to support each payment calculation and the methodology to be used. We found that the payroll clerk did not maintain calculations for three employees' separation payments totaling $21,269 (7 percent) and maintained incomplete calculations for 10 separation payments totaling $63,030 (21 percent). While the District's separation payments generally conformed to the terms of the collective bargaining agreements (CBAs) and employment policies, deviations and errors occurred because District officials did not develop procedures for processing separation. In addition, the claims auditor did not review or approve any of the separation payment calculations before payment was made. As a result, three employees were paid $4,850 more than they were entitled to. Documenting written policies and procedures that govern separation payments would help prevent any confusion or misunderstanding regarding the process and ensure that proper supporting documentation is maintained and calculations are reviewed.

The Board did not adopt a policy for fuel inventory accountability and there were no written procedures to provide guidance to employees. In addition, District officials need to improve oversight of fuel reconciliations and review of fuel inventory records. Inconsistencies and variances in fuel use records ranging from 4 to 18 gallons of fuel per day occurred, but District officials did not investigate and resolve these discrepancies. District officials also did not perform any vehicle-based reviews to determine whether District vehicle use was reasonable. We identified 16 different mile per gallon (mpg) readings that did not appear reasonable when compared with the vehicle performance records. Officials also did not investigate variances identified on the fuel inventory reconciliations. Additionally, the supervisor incorrectly calculated tank fuel volume conversions. As of October 31, 2015 the volume of fuel expected to be in the tank was 102 gallons less than gallons calculated by the supervisor. The number of gallons of fuel dispensed on January 7, 2016, as displayed on the pump, was about 10 percent more than the number of gallons actually dispensed. District officials need to improve security over the fuel station.

Overall, District officials have taken actions to reduce the school lunch fund's dependence on the general fund to support operations. Specifically, District officials took steps for the District to become a Summer Food Service Program provider and increased in-house catering. As a result, we project that the school lunch fund's revenues will increase by approximately $87,000 from 2012-13 through 2015-16, and the fund will generate an operating surplus of approximately $5,000.

The Board and District officials need to improve the budgeting process to ensure that the fund balances maintained in the general and certain restricted funds are reasonable. Over the five-year period ending June 30, 2015, the District's unrestricted fund balance exceeded the statutory limit, ranging from 6.5 to 12.3 percent of the ensuing year's budgeted appropriations. From 2011-12 through 2015-16, District officials appropriated a combined total of approximately $956,000 of unrestricted fund balance as a financing source in the annual budgets. However, because the District generated operating surpluses totaling approximately $1.8 million (including a projected $242,000 operating surplus for 2015-16), none of the appropriated fund balance was actually used to finance operations. When the unused appropriated fund balance was added back, the District's recalculated unrestricted fund balance further exceeded the statutory limit, ranging from 9.4 to 14.2 percent. Furthermore, we found that restricted fund balances (i.e., the debt service fund and four general fund reserves) totaling more than $2 million were significantly more than their respective liabilities and, therefore, were overfunded. Moreover, District officials did not use any of these restricted fund balances to make payments for the associated liabilities.

District officials need to improve internal controls over cafeteria cash receipts. The Board has not adopted policies and District officials have not developed procedures governing cafeteria cash receipts or segregated the incompatible financial duties of cash handling, recordkeeping and cash reconciliations for the food service program. The food service manager did not perform an independent reconciliation of cash sales to deposits or review the work of those who performed incompatible cash receipt duties. In addition, the Treasurer performed incompatible financial duties related to collecting, recording and depositing cafeteria cash receipts and had access to the cafeteria's point-of-sale system that she did not need to fulfill her job responsibilities. As a result, the District has an increased risk that cafeteria receipts could be misappropriated and remain undetected.

During our audit period, three different individuals served as Clerk with combined cash receipts totaling $12,186. The Clerks did not always properly record, deposit, disburse and report the collection of fees in a timely and accurate manner. The Clerks did not routinely issue duplicate receipts or prepare a monthly accountability analysis. The former Clerk did not record all fees collected and deposited in her cash receipts journal. Because of this, the current Clerk's account had a cash shortage of $171 as of September 29, 2015. It is likely this amount is greater because many collections were not documented with duplicate cash receipts and certain cash receipt records were not available for review. If the Board had conducted the required annual audit of the Clerks' records, it may have been able to detect this shortage.