On a monthly basis, the Treasurer provides the Board with an abstract (i.e., list of claims) and the corresponding claims for their audit and approval. The Board Chairman and a Commissioner indicated that the Board performs a deliberate audit of each claim before the Treasurer is authorized to make a payment, which is indicated by the Commissioners' signatures on the corresponding abstract and adoption of a Board resolution. However, the Board-adopted resolutions did not include any information documenting the specific claims that were audited and approved. We reviewed 100 check disbursements and the corresponding claims totaling $424,382 to determine whether the claims paid were supported by adequate documentation, for appropriate District purposes and audited and approved prior to payment. We found that 15 claims totaling $2,523 included payments of $2,278 for purchases that were not supported by any documentation. Except for minor discrepancies that we discussed with District officials, the claims for the remaining 85 disbursements were for appropriate District purposes. We found that the Board properly audited and approved the claims for 28 disbursements totaling $87,103. However, the Board did not audit and approve the claims for six disbursements totaling $5,837. In addition, the Board could not provide us with supporting documentation to show that it audited and approved the claims for 66 additional disbursements totaling $331,442 prior to payment. Seven of these claims totaling $317,741 were for monthly payments for ambulance services. These deficiencies occurred because the Commissioners did not record the date of their approval on the corresponding abstract for these claims and the Board minutes did not include resolutions specifying the claims that were audited and approved.

The Board did not adopt policies for password management, protection of personal, private and sensitive information (PPSI), wireless technology, remote access, mobile devices, sanitation and disposal of electronic media, user accounts, access rights, data backups and breach notification. In addition, the Business Manager had administrative rights to the financial software, which provided her with the ability to add or update user access rights and add, delete, change or modify data. The Business Manager was unaware that she had administrative rights and, upon learning this, her administrative rights were removed. The Board also did not adopt a disaster recovery plan. As a result, there is an increased risk that the District's IT data and components will be lost or misused and that the District will not be able to resume critical operations in the event of a system failure.

The Board and District officials did not effectively manage the District's financial condition by ensuring budget estimates were reasonable and based on historical costs and trends, and that fund balance was maintained at the statutory limit. In 2013-14 and 2014-15 the District adopted budgets that projected planned operating deficits (appropriated fund balance) of $103,272 and $218,440, respectively. However, the District instead experienced operating surpluses of $173,105 in 2013-14 and $37,382 in 2014-15 and did not need to use the appropriated fund balance. Furthermore, the District has accumulated unrestricted fund balance that exceeds the statutory limit for the ensuing year's budgeted appropriations. As of June 30, 2015, the District's reported unrestricted fund balance was 19 percent of the 2015-16 budgeted appropriations.

The Board did not adopt budgets based on historical or known trends. The Board consistently overestimated expenditures between 4 and 11 percent from fiscal years 2012-13 through 2014-15, which generated $4.2 million in operating surpluses. The Board also budgeted for operating deficits during this time by appropriating $400,000 in fund balance each year, but did not need to use these funds due to the operating surpluses. To stay within the 4 percent statutory limit, District officials made unbudgeted transfers to the capital projects fund and to the District's reserves. When adding back unused appropriated fund balance, the District's recalculated unrestricted fund balance was more than 5.5 percent of the ensuing year's budget in each year. Further, as of June 30 2015, the District overstated encumbrances by at least $198,771, which understated the amount of available unrestricted fund balance. As a result, unrestricted fund balance was actually 6.3 percent of the 2015-16 budget. We also found that four of the District's 10 general fund reserves, which had balances totaling $6.3 million as of June 30, 2015, were overfunded or potentially unnecessary. Finally, District officials did not have written policies and/or procedures governing separation payments and did not maintain adequate supporting documentation for each separation payment. The District's three collective bargaining agreements and three of its individual employment contracts did not clearly indicate at what point in the school year leave is granted, or whether the available leave for the current year should be pro-rated if an employee leaves before the end of the school year. We reviewed separation payments totaling $188,276 made to 17 employees. District officials made payments totaling $12,058 to four employees that they could not verify were correct due to ambiguous contract terms.

The District established authorizing provisions in the Board-adopted collective bargaining agreements, contracts, memorandums of agreement and management confidential benefit resolutions that defined how to calculate the various components of the separation payments. However, no policies or procedures have been adopted or put in place to provide guidance to employees and District officials when processing, reviewing or approving these payments to ensure that the calculations were accurate and sufficiently supported. As a result, District officials made eight questionable separation payments and incorrectly calculated five separation payments totaling $73,568.

District officials need to improve the budget process to ensure budget estimates and reserve balances are reasonable and fund balance is maintained in accordance with statutory requirements. The District appropriated approximately $500,000 of fund balance annually from 2010-11 through 2014-15 as a financing source in the annual budget, but more than 90 percent of this amount was not needed due to operating surpluses. In addition, District officials transferred money to the District's reserves at the end of each year, which resulted in four reserves being overfunded by approximately $1.8 million (96 percent of total reserves) as of June 30, 2015. Further, these reserves (debt service, retirement contribution, unemployment insurance and tax certiorari) had balances that were excessive or unnecessary because expenditures for reserve related costs were included in the annual budgets and not paid from these funds. These practices allowed the District's unrestricted fund balance to appear that it was within the 4 percent statutory limit. However, when unused appropriated fund balance and excess reserves were added back, the District's recalculated unrestricted fund balance each year was approximately 30 percent of the ensuing year's appropriations. During 2014-15, District officials appropriated $585,000 for the 2015-16 budget. However, we project that it will not be needed. As such, we expect the District's unrestricted fund balance will continue to exceed the statutory limit, which contributed to real property taxes being higher than necessary to fund District's operations.

The Board has not properly managed financial reserves or sufficiently followed the District's reserve policy and regulations. District officials were unable to provide us with evidence that they have documented the financial need or purpose to be served for each reserve, the conditions under which reserves will be used or replenished and the rationale used to determine the appropriate funding level for each reserve. As of June 30, 2015, the District had seven reserves totaling approximately $11 million. We found that four reserves, with balances totaling $7.3 million, appear to be overfunded. In addition, the District has not properly used the debt reserve, which had a balance of $2.9 million, to pay related debt. In addition, District officials did not provide appropriate oversight over fuel that was delivered to the transportation contractor's tanks. As a result, the District cannot be certain that all of the fuel purchased by the District was used for District purposes. It appears that the District may have purchased approximately 3,800 more gallons of fuel, valued at approximately $7,300, than it should have.

The Board and District officials did not adequately manage the District's financial condition to ensure that fund balance was within the statutory limit. From fiscal years 2012-13 through 2014-15, the District's unrestricted fund balance exceeded the 4 percent statutory limit. For example, the District had unrestricted fund balance in the general fund totaling over $1.7 million, or 17.6 percent of the following year's appropriations, as of June 30, 2015. The Board adopted budgets for the three-year period that appropriated a total of $810,000 in fund balance to finance District operations. However, due to operating surpluses in the same years, none of the appropriated fund balance was used. The District experienced operating surpluses because budgeted revenues were underestimated and appropriations overestimated by almost $2.7 million for the three-year period. For the same period, the unrestricted fund balance averaged about $1.4 million. As a result, the District's year-end unrestricted fund balance as a percentage of next year's budgetary appropriations averaged about 14.1 percent over the last three years, which is almost three and a half times the statutory limit. When the unused appropriated fund balance is added back to the unrestricted fund balance, the District's recalculated unrestricted fund balance ranged from almost 11 percent to 21 percent of the ensuing year's appropriations. Finally, the Board has not adopted a multiyear financial plan to allow it to facilitate the development of future finances. Such a plan would help the Board and District officials monitor and plan for the use of fund balance.

District officials have generally taken appropriate action to manage the District's financial condition and are planning to increase future fund balance. From fiscal years 2012-13 through 2014-15, District officials typically prepared accurate budgets that generated minimal operating surpluses or planned operating deficits. To maintain programs and manageable tax increases, while dealing with the loss of $3.49 million in State aid, District officials used fund balance and interfund transfers to finance general fund operations. Because of this practice, the District's 2014-15 unrestricted fund balance decreased to 1.2 percent of 2015-16 budgeted appropriations. District officials acknowledged the decline in unrestricted fund balance and developed a plan to increase it to between 3 and 4 percent of the ensuing year's budget. District officials started to implement this plan by addressing the District's reliance on non-recurring revenues as a financing source. Therefore, District officials reduced interfund transfers in the annual budgets by approximately $445,000 during the audit period and implemented certain cost savings measures. As a result of their efforts, we project that the District will end 2015-16 with a modest operating surplus that will increase unrestricted fund balance. In addition, the District has developed multiyear financial and capital plans. However, including more details in these plans, such as funding sources, would benefit the District as it faces current and future economic and environmental challenges.

The Board did not maintain some of its eight reserve funds at reasonable levels. The retirement contribution and unemployment insurance reserves, with balances totaling $2.8 million, were overfunded. In addition, the District inappropriately transferred $905,000 from four reserves to unrestricted fund balance. Further, the District did not have documentation to support that any of its reserves were formally established, and it did not have a written reserve policy. As a result, the District has unnecessarily restricted resources that could have been used for the benefit of residents.

The Board appointed a claims auditor and adopted a claims auditing policy establishing procedures for auditing claims. The policy requires the claims auditor to report directly to the Board regarding the claims audit results. The claims auditor is required to examine all claims for adequate evidence to support the District's expenditure. The policy also requires that the Treasurer pay valid claims against the District only upon the claims auditor's approval. We judgmentally selected and reviewed 75 claims totaling $3 million to determine whether each claim was for appropriate District purposes, adequately supported, audited and approved prior to payment. We reviewed 50 general fund claims totaling $822,000 and 25 capital fund claims totaling $2.2 million. We found that the claims were for appropriate purposes and were adequately supported, audited and approved prior to payment. We commend District officials for implementing an effective claims audit process.

The District did not comply with New York State Real Property Tax Law and retained unrestricted fund balance in amounts at the end of the 2012-13 through 2014-15 fiscal years that ranged from 20.1 to 27.8 percent of the ensuing years appropriations. As of June 30, 2015, the unrestricted fund balance exceeded the statutory limit by more than $1.9 million. The District has retained excessive levels of unrestricted fund balance even though each of the District's last six independent audit reports contained a finding related to the unrestricted fund balance being in excess of the statutory limit. The Business Manager said the District had not implemented corrective action due to the uncertainty of potential State aid reductions and that, without the excess levels of unrestricted fund balance, the District would have had to cut programs and positions.

BOCES officials have established adequate controls over the claims processing function that allow claims to be audited in a timely manner in accordance with BOCES' policy and New York State Education Law. The Board delegated its responsibility to a claims auditor and established a claims auditing policy to provide guidance to the claims auditor. BOCES made 22,236 claims for disbursements totaling $260.1 million during our audit period. We reviewed 88 of these disbursements, which paid for 177 claims totaling approximately $2 million to determine if they contained sufficient documentation, were properly authorized and approved, sufficiently itemized and for valid business purposes. Except for minor issues that we discussed with BOCES officials, we found that claims were properly authorized, approved and audited before payment, appropriately supported and for legitimate BOCES purposes. We commend BOCES officials for establishing and implementing an effective system of controls over claims processing.

The Board overestimated appropriations in the adopted budgets by an average of about $947,000 or 9 percent over the past three years. As a result, $724,000 or almost 90 percent of the appropriated fund balance was not actually needed to finance operations, and unassigned fund balance was more than twice the statutory limit from fiscal years 2012-13 through 2014-15. The District has reduced the reported level of year-end unassigned fund balance from 10.9 percent of the ensuing year's budget at the end of 2012-13 to 9.7 percent at the end of 2014-15. However, when the unused appropriated fund balance was added back, the recalculated unassigned fund balance exceeded 17 percent of the next year's appropriations in all three years. The Board has not developed multiyear operational or capital plans to address excess fund balance and future needs.

District officials did not prepare accurate budgets for the 2010-11 through the 2015-16 fiscal years. While the District appropriated fund balance to help finance operations, it was not needed because the District's budgeting practices regularly produced significant operating surpluses. District officials plan to use $13 million of the accumulated surplus to finance a capital project, rather than issue debt that aligns with the State's building aid payment schedule. District officials have maintained real property taxes at a consistent level over the past five years. However, for perspective, the District's tax levy could have been $2 million (24 percent) lower for each of the last five completed fiscal years, and the District would have continued to realize an operating surplus in each fiscal year. In addition, the District's retirement contribution reserve and unemployment insurance reserve were overfunded. The balance of the retirement contribution reserve as of June 30, 2015 was $7.8 million, which was more than 18 times the District's annual average contribution of approximately $422,000. The balance of the unemployment insurance reserve as of June 30, 2015 was $244,000, which was 22 times the District's average annual unemployment costs of $11,000.

The Board did not adopt structurally balance budgets from 2010 through 2014 resulting in a $1 million (91 percent) decline in general fund balance to $95,000. In addition, highway fund balance declined by $359,000 (96 percent) over these years resulting in an ending fund balance about of $15,000. In 2015, the Board budgeted to appropriate $150,000 of general fund balance to finance operations. However, there was only approximately $95,000 available, resulting in the general fund beginning 2015 with a budgetary deficit of $55,500. In 2015, the general fund will likely have an operating deficit of approximately $46,000 reducing the general fund balance to less than $50,000. Further, tentative 2015 highway fund operating results show a deficit of approximately $17,000. As a result, the highway fund may have problems funding operating costs. Town officials also need to establish comprehensive policies and procedures for preparing payroll and maintaining leave time accruals for Department employees and improve their oversight of this process. As a result of these weaknesses, we question whether certain overtime should have been paid. In addition, we found, that some employees' leave accrual records were not accurately maintained resulting in four employees leave accruals being overstated by 148.85 hours valued at $3,957, while five employees leave accruals were potentially understated by a total of 54.1 hours valued at $1,351. Finally, a seasonal employee was paid $1,350 for 54.4 hours to which he may not have been entitled.

District officials have established effective procedures to ensure claims are adequately documented and supported, are for legitimate District purposes and are approved prior to payment, in accordance with District policy and Education Law. The Board has delegated its claims auditing responsibility to a claims auditor. 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 with processing and paying claims may occur and go undetected.

We found questionable activity and unnecessary permissions granted for changing student grades, modifying SIS permissions, assuming accounts or identities and viewing PPSI. We also found unnecessary user accounts in the SIS, including those for former District employees, former third-party personnel, Mohawk Regional Information Center personnel that do not directly support the SIS and substitute secretaries and nurses that only need occasional access. These issues were the result of, at least in part, District officials' failure to review SIS audit logs on a regular basis, properly manage accounts and permissions and establish effective policies and procedures. Unnecessary permissions increase the risk of inappropriate activity such as unauthorized changes to student grades or SIS permissions and disclosure or misuse of students' PPSI. Unnecessary accounts also increase this risk, as well as the efforts needed to manage permissions in the SIS, which could result in inadvertently granting more access than needed.

District officials procured goods and services in accordance with General Municipal Law (GML) and the District's purchasing policy and regulations. District officials have established adequate internal controls over the District's procurement process. The Board adopted a purchasing policy and regulations that provide guidance on procurement methods for all purchases, including those that do not require competitive bidding. During our audit period, the District paid claims for goods and services totaling $4.34 million. We reviewed 52 claims totaling $2.09 million to determine whether they were purchased in accordance with GML requirements and the District's purchasing policy. Except for minor discrepancies which we discussed with District officials, District employees adhered to GML requirements and the District's purchasing policy and regulations. We commend District officials for establishing and implementing an effective system of controls over the District's purchasing practices.

The Board has not adopted reasonable and structurally balanced budgets. From fiscal years 2012-13 through 2014-15, revenue estimates were generally reasonable. However, the Board annually adopted budgets that overestimated expenditures and appropriated fund balance and reserves that it did not actually use to fund operations. The Board overestimated expenditures by between $16.2 million (7.4 percent) and $18.3 million (8.1 percent) during this time. Despite these expenditure variances, the District has reported operating deficits for each of the last three fiscal years. The Board appropriated an average of $3.9 million in fund balance each year, which made it appear that it would be using it to fund operations. The District also appropriated $12.8 million in reserves in each of the last three fiscal years. However, because the Board has not adopted realistic budgets, the District has actually used an average of $238,534 of unassigned fund balance (6 percent) and $1.5 million of reserves (11 percent). Despite presenting budgets to District residents each year that made it appear that the District was depleting its reserves and fund balance, the Board's continued overestimation of appropriations has actually resulted in the District's unassigned fund balance increasing. When unused appropriated fund balance was added back, the District's recalculated unassigned fund balance was nearly 6 percent of the ensuing year's appropriations, exceeding the statutory limit by almost 2 percentage points each year.