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.

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.

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.

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.

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.

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.