District officials need to improve the procedures established to govern the issuance and use of District credit cards. During our audit period, the District had two credit card accounts and 29 credit cards. One account was for general purpose purchases with two credit cards and the other account was for fuel purchases with 27 fuel credit cards. While the credit card policy is extensive, it did not require employees to acknowledge receiving the policy or address cash advances available with the general purpose cards. We reviewed 15 credit card payments totaling $32,906 for purchases made using these credit cards to determine whether the purchases were for a legitimate District purpose and complied with the District's policy and procedures and whether the cards were adequately safeguarded and used only by authorized personnel. The purchases we reviewed were generally for legitimate District purposes. However, District officials did not always follow the District's credit card policy and procedures. The Superintendent did not identify the job titles of all employees that had custody of District issued credit cards, Business office personnel did not submit a list of authorized card users to the Board annually and the Board did not approve a list of employees who used fuel cards.

The Justices properly collected, recorded and reported Court money in a timely manner, the records were current and accurate, and reports to the Justice Court Fund were timely and complete. However, the Justices did not ensure that Court money was always deposited in a timely manner. We reviewed eight months of financial activity during our audit period and found that the Justices and the clerk accurately accounted for money collected. However, our review of 147 cash receipts totaling $24,135 collected during these months disclosed that 24 receipts totaling $3,258 were not deposited in a timely manner. We also reviewed the Justices' bank reconciliations and accountabilities and found that accountabilities were not always prepared, which increases the risk that money may not be properly accounted for and differences between the liabilities and cash on hand may not be identified.

Although the Board adopted an administrative regulation outlining the requirements for obtaining requests for proposals (RFPs) for professional services, the regulation did not provide sufficient detailed requirements or guidance for seeking competition when procuring professional services. We reviewed the District's process for procuring services. Seven professional service providers were paid a total of $239,689 during our audit period. District officials properly sought competition using RFPs for contracts of three service providers (architect, attorney and external auditor) totaling $120,493. However, the District did not properly seek competition for contracts with the other four professional service providers totaling $119,196.

The District procured goods and services in accordance with its policy and the statutory requirements. Specifically, the District made 174 purchases totaling approximately $1 million that were subject to bidding requirements. We determined that all of these purchases were either competitively bid or allowable exemptions from bidding. One hundred forty-eight purchases totaling approximately $229,000 required quotes or RFPs. With minor exceptions, District staff obtained the necessary quotes or RFPs for these purchases. District employees were aware of and adhered to the District's purchasing policy requirements. We commend District officials for designing a purchasing process that enables competitive methods for the procurement of goods and services.

District officials developed multiyear financial plans that include revenue and expenditure projections as well as the anticipated use of reserve funds to aid in future budget preparations. The District has also developed a separate reserve plan which includes details regarding the anticipated use of reserve funds for a five-year period. However, this plan does not include information related to funding and maintaining the individual reserve funds. District officials also have not prepared a formal analysis of reserve funds based on the District's projected needs, as required by the reserve policy. As of June 30, 2015, the District's reserve funds totaled $6 million, or approximately 17 percent of the total budgeted appropriations for the 2015-16 fiscal year. Two of the reserves – unemployment insurance and liability – have balances that are excessive or unnecessary based on the District's needs. In addition, District officials have not developed a formal, documented multiyear capital plan. District officials informed us that they plan to develop a formal, multiyear capital plan once the building condition survey is received, which is expected by the end of the 2015-16 fiscal year.

Although the Board has developed a purchasing policy and BOCES officials have developed corresponding regulations, they do not require competition when procuring professional services. Therefore, the policy and regulations do not indicate when or at what monetary threshold it is appropriate to use written requests for proposals or written or verbal quotes. Instead, the regulations state that these are not required, but may be used at the business office's discretion. Additionally, although the policy and regulations require adequate documentation be maintained, they do not outline the specific documentation requirements to be used during the solicitation process, including documentation for the decisions made. BOCES officials also told us that they do not have informal guidelines to ensure competition is sought for professional services.

Although the District complied with competitive bidding requirements and adopted a purchasing policy, the policy did not include guidance for procuring professional services. As a result, District officials did not use competitive methods when procuring services from five professionals costing $363,815. In addition, although the policy did require District officials to obtain written quotes for purchases under the competitive bidding thresholds, they did not obtain the required quotes for 11 purchases costing $49,250. District officials also did not enter into a written agreement with an attorney for services costing $44,586. As a result, there was no assurance that certain goods and services were procured in the most economical way and in the best interests of residents, or that there was agreement as to the attorney's services and compensation.

The Board and District officials did not prepare accurate budgets for the 2011-12 through the 2014-15 fiscal years. While the District appropriated fund balance and reserves to help finance operations, it was not needed because the District's budgeting practices produced operating surpluses in three of the four fiscal years we reviewed. The District only used $296,578 (9.6 percent) of the $3.1 million of fund balance it appropriated during this time to finance operations. When unused appropriated fund balance was added back, the District's recalculated unrestricted fund balance exceeded the statutory limit by up to 5 percentage points. Furthermore, the balance in the retirement contribution reserve was $1.7 million as of June 30, 2015, which was more than five times the District's annual average contribution. Consequently, we question the reasonableness of the amount in this reserve. Finally, the debt reserve, with a balance of $241,000 as of June 30, 2015, has not been used over the last four years. District officials were unsure of the source of the cash in this reserve.

The Board did not provide proper oversight of the administration of its capital fund program (CFP) or investments. As a result, CFP funds were not always properly used. We identified payments totaling over $44,000 for activities that were not on the Plan and/or Contracts, were not properly supported or were modifications to the original Plan that lacked evidence of written Board approval. Further, the Authority reported investments totaling more than $1 million that may not be properly secured and are not sufficiently monitored by the Board. There was no written agreement for services between the Authority and the firm administering these investments. Additionally, the Authority could not identify the original source of the more than $1 million invested.

The Board and District officials did not effectively manage fund balance. While the Board appropriated fund balance in the annual budgets to help finance operations, these amounts were not needed because the District's budgeting practices produced operating surpluses each year. District officials also appropriated reserves as a funding source in the annual budgets that were not expended as budgeted. District officials appropriated $3 million in reserves from the 2012-13 through 2014-15 fiscal years but charged expenditures totaling only $138,000 to the related reserves during these years. The District's unrestricted fund balance was in excess of the statutory limit, ranging from 6 percent to 7 percent of the ensuing year's appropriations during two of these years (2012-13 and 2013-14). However, when unused fund balance is added back, the District's recalculated unrestricted fund balance was in excess of the statutory limit for all three years, ranging from 5 to 9 percent of the ensuing years budget. We also found that three general fund reserves, totaling approximately $4.2 million, were overfunded, and the District improperly accumulated $1 million of surplus cash in the debt service fund.

The Board and District officials did not properly manage fund balance or ensure reserve balances and budget estimates were reasonable. For the 2012-13 through 2014-15 fiscal years, the District's unrestricted fund balance exceeded the statutory limit ranging from 5.5 to 7.6 percent of the ensuing year's budget appropriations. During this same period, the Board significantly overestimated District expenditures by a combined total of approximately $7.2 million, which resulted in annual operating surpluses totaling approximately $2.1 million. In addition, the Board appropriated approximately $1.1 million of fund balance during these years to finance operations but none of the amounts appropriated were used. Furthermore, despite experiencing operating surpluses, District officials increased the real property tax levy by an average of approximately $397,000 each year. Finally, the District's retirement contribution reserve had a balance of more than $1.6 million. Based on the District's average annual retirement contribution of about $579,000, its current balance is sufficient to pay these costs for almost 3 years.

The District has not adequately restricted user access and transaction rights on the computerized payroll system based on job responsibilities, which compromises the segregation of duties and could permit improper payroll changes. Six individuals had access to functions in the payroll system that were not required to fulfill their assigned job duties. Three of these individuals were in the Human Resources Department and three were in the Business Office. We also found that an elementary school secretary had more rights to the payroll system than needed for her job. Additionally, District officials are not adequately monitoring the payroll for improper or erroneous transactions. Procedures should require that payrolls are adequately certified. Without effective controls, there is an increased risk that someone could initiate and conceal inappropriate payroll transactions or that mistakes could be made and not detected in a timely manner.

The Board and District officials did not ensure that budget estimates and reserves were reasonable. They overestimated general fund appropriations when preparing and adopting the last three budgets, which resulted in operating surpluses totaling $10.6 million. From the 2011-12 through 2014-15 fiscal years, the District also increased the tax levy by more than 13 percent and appropriated fund balance totaling $14.6 million, which was not used to finance operations as planned. At the same time, District officials designated more than $3 million of unrestricted fund balance for costs related to other post-employment benefits (OPEB) each year, but did not use these moneys to make related payments and instead budgeted for OPEB costs in the general fund budget. When combining the unused appropriated fund balance and unused designated OPEB moneys, the District's recalculated unrestricted fund balance averaged more than 8 percent of the ensuing year's appropriations, exceeding the 4 percent statutory limit. Also, from 2012-13 through 2014-15, District officials overfunded the workers' compensation reserve by $1.4 million.

The Board has not adopted policies addressing electronic banking transactions and District officials have not developed written procedures for wire transfers. There is also a lack of segregation of duties in the wire transfer process. The Secretary for the Assistant Superintendent of Finance or District Treasurer initiates and authorizes wire transfers online and receives wire transfer confirmations without supervisory review. In addition, the District did not have comprehensive agreements with each bank that addressed electronic or wire transfers. These weaknesses increase the risk that inappropriate wire transfers could be initiated and not detected.

The Board and District officials did not appropriately establish and maintain reserve funds. The District had five reserves as of June 30, 2015. The unemployment insurance reserve had a balance of $2.9 million. However, District officials are unable to find a resolution establishing this reserve and it is overfunded. The current balance in the unemployment insurance reserve could pay for unemployment insurance costs for more than 27 years. In addition, the employee benefit accrued liability reserve (EBALR) has a balance of $6 million. However, the EBALR is not needed because the District does not have a liability for compensated absences. Further, the State Comptroller previously recommended that the District consider using the EBALR surplus when planning its future budget. The Board and District officials also need to improve controls over extra-classroom activity funds. Club officials did not maintain adequate supporting documentation, such as duplicate pre-numbered receipts, for cash collections totaling $38,377. In addition, supporting records for 2014-15 prom ticket sales totaling $19,325 were disposed of despite a requirement to maintain the records for six years. Supporting documentation for collections totaling $103,145 and $106,872 did not contain the dates the cash was collected or the compositions of the collections, respectively. Further, the central treasurers did not issue receipts to club officials when they remitted $10,437 for deposit.

District officials established adequate procedures to ensure employees were paid their approved salaries or wages. Establishing and adhering to a good system for processing and verifying payroll payments ensures the employees are accurately paid their salaries and wages. We commend District officials for designing an effective system that ensures the accuracy of compensation paid to employees.

The Board adopted a policy governing the procurement of professional services. The policy states that competitive bids or quotations shall be solicited in connection with purchases pursuant to law. The policy directs that professional services are secured in a manner that protects the integrity of the process, ensures the prudent use of tax dollars and provides a high quality standard of service. We reviewed the procurement of all 41 professional service providers' contracts totaling approximately $4.8 million during the audit period. The District has not recently sought competition when procuring services from eight service providers, who received payments totaling $699,328. According to District officials, the Board contracted with these service providers each year rather than issue a formal request for proposal because the providers have a long history with the District and are familiar with its needs.

The Board should improve its internal controls over separation payments to ensure that payments are accurately calculated. The Board did not ensure that District officials developed written procedures for processing or approving separation payments and there was no adequate independent review of the calculations to ensure they were accurate. As a result, the District overpaid seven employees for retirement incentives by total of $35,000 and underpaid four employees for unused vacation time by a total of $1,359.

From fiscal years 2011-12 through 2014-15, District officials adopted budgets that resulted in operating surpluses. In addition, District officials also appropriated between $800,000 and $1 million of fund balance each year that was not used, resulting in an unrestricted fund balance of almost $3.4 million as of June 30, 2015, or 13.5 percent of the ensuing year's appropriations. In addition, the Board did not adequately segregate financial duties because all financial responsibilities were assigned to one individual. The Board also did not adequately oversee the claims audit process to ensure that claims were sufficiently audited and findings reported. The Board did not ensure that the audit committee functioned as intended, did not establish an internal audit function and it has not issued a request for proposal for the annual external audit since 2007. Lastly, the Board did not ensure that the Treasurer conducted annual inventories or that sufficient asset records were maintained for all District assets.

The Board and District officials need to improve controls over the payroll process to adequately segregate payroll processing duties, and District management needs to develop adequate procedures to ensure that overtime is pre-approved. We found that payroll and leave accrual records were generally accurate. However, $15,105 (89 percent) out of $16,950 in overtime payments made to eight employees was paid without pre-approval of the overtime hours worked. Further, overtime payments included work of a routine nature that, with proper scheduling, may have been avoidable.