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.

The Board and District officials did not develop reasonable budgets or effectively manage the District's financial condition. The District appropriated an average of approximately $1.4 million in fund balance annually, which was not needed to fund operations due to operating surpluses. District officials consistently overestimated expenditures by almost $6.9 million (13.6 percent) over the last four fiscal years (2011-12 through 2014-15). These budgeting practices generated approximately $1.5 million in operating surpluses over the same period. Further, the District improperly reported about $1.3 million of unrestricted fund balance in the debt service fund and improperly encumbered $100,000. These practices allowed the District to appear that it was within the 4 percent statutory limit imposed on the level of unrestricted fund balance. However, when adding back unused appropriated fund balance, moneys that were improperly placed in the debt service fund and an erroneous encumbrance, the District's recalculated unrestricted fund balance was about 25 percent of the ensuing year's appropriations, exceeding the statutory limit from 2011-12 through 2015-16. As a result of these practices, District officials have levied real property taxes that were higher than necessary to fund District operations. Finally, District officials have not developed a multiyear financial plan.

District officials achieved health insurance cost savings by changing health insurance carriers and offering employees a buyout incentive. From July 1, 2013 through June 30, 2016, the cost savings will total approximately $3.9 million. We commend District officials for implementing these cost savings measures.

In May 2013, the Office of the State Comptroller issued an audit report that addressed the County's declining general fund balance and weakening financial condition. The audit recommended that the Board develop a fund balance policy that establishes a reasonable amount of fund balance to be maintained to meet the County's needs and provide sufficient cash flow, and that the Board develop a long-range plan to ensure that sufficient resources would be available to meet future operational and capital needs. The Board has not implemented either of these recommendations. Since our last audit, the general fund's unassigned fund balance has continued to decline to a deficit of nearly $2.9 million as of December 31, 2014. In addition, the County did not have sufficient cash to pay its bills and other obligations when due, resulting in the County issuing $10 million in short-term debt in the form of revenue anticipation notes in fiscal years 2013, 2014 and 2015. Although the County has consistently spent less than it budgeted each year, the Board has overestimated revenues such as sales tax and State and federal aid in the adopted budgets. As a result, the County has made little progress in rebuilding its fund balance. The County wrote off $1.7 million in uncollectible accounts receivable in 2014, which also has contributed to the decline in fund balance. Preliminary figures for 2015 indicate the County may generate a small operating surplus due, in part, to its cost cutting efforts. However, this is unlikely to eliminate the cumulative unassigned fund balance deficit.

Over the last five fiscal years, budgets presented to District residents were not as transparent as they could have been because they did not include estimated amounts for tax certiorari judgments or amounts to fund them. District officials issued debt to pay for tax certiorari judgments, which masked the District's true operating results. Without the issuance of debt, the District's fund balance would have declined by almost $3.1 million. Although the District appropriated $4.5 million of fund balance over the last five years which was intended to fund a portion of the budget, only $333,623 of this amount was actually used. In addition, the District issued debt to fund tax certiorari judgments during the 2014-15 fiscal year rather than using funds held in reserve to pay for these judgments. District officials did not have any cost-benefit analysis to show that issuing debt was the most cost-effective method for paying for tax certiorari judgments. As a result of the debt issuances, residents are responsible for $3 million in interest and additional fees for all 11 outstanding debt issuances. The additional costs associated with the issuance of debt may impact future school programs or place an unnecessary burden on residents. In addition, District officials do not have a comprehensive, multiyear financial plan.

District officials did not effectively manage the District's financial condition by ensuring budget estimates were reasonable and based on historical costs and trends. From fiscal years 2012-13 through 2014-15, the District overestimated expenditures by a total of more than $1.4 million (or 19.6 percent). Due to the overestimated expenditures, the District incurred operating surpluses totaling more than $900,000 in these three years and did not use any of the $500,000 appropriated fund balance to fund operations. As a result, the District has accumulated unrestricted fund balance that exceeds the statutory limit by approximately $1.6 million, or 75 percentage points, as of June 30, 2015. These practices caused the District to levy more taxes than were needed to fund operations.

The 2016-17 budget relies on nonrecurring funding of $11 million which will not be available in future years. The City continues to rely on fund balance to close gaps in the budget. The City's budget is relying on a 3 percent growth in sales tax revenues, which may be overly optimistic. If police overtime savings are not realized, the City would potentially be over-budget by as much as $1.4 million based on the 2015-16 fiscal year overtime costs. The City plans to borrow up to $6.5 million for tax certiorari settlements in the 2016-17 fiscal year. With the 2016-17 budget, the City will have exhausted 91.22 percent of its taxing authority and the City's ability to increase property taxes may be limited in future years if property values do not increase. The City's outstanding debt has grown almost 27 percent over the last 10 years, and the City's debt service payments have risen 50 percent since 2008.

Based on our limited procedures, it appears that the District has made limited progress on implementing corrective action. Of the five audit recommendations from the 2013 audit, one recommendation was implemented, one recommendation was partially implemented and three recommendations were not implemented. Of the 11 audit recommendations from the 2011 audit, one recommendation was implemented, seven recommendations were partially implemented, two recommendations were not implemented and one recommendation was not applicable.

Over the three-year period ending June 30, 2015, the Board ensured that unrestricted fund balance was within the 4 percent statutory limit of the ensuing year's appropriations, and the District's six reserves were reasonably funded. However, each year, the Board appropriated more fund balance than needed, which artificially lowered the percentage to within the 4 percent statutory limit. Instead of having operating deficits totaling $2.9 million as planned, the District's net result of operations for the three-year period was a surplus of approximately $19,000. With the inclusion of the unused appropriated fund balance, the fund balance ranged from 13 percent to 15.8 percent of the ensuing year's appropriations, resulting in higher than necessary real property tax levies. With the significant increase in payments in lieu of taxes revenue received in 2015-16, the Board and District officials elected to lower the real property tax levy 9 percent and increase educational services and support. However, we project that the 2015-16 results of operations will result in a favorable budget variance of approximately $915,000. As a result, the majority of the $1 million appropriated in fund balance for 2015-16 likely will not be used, and the District's recalculated fund balance will likely continue to exceed the statutory limit.

District officials have not developed a long-term financial plan to maintain financial stability. The District has experienced operating deficits totaling $686,600 from the 2012-13 through the 2014-15 fiscal years. While the District did not use as much fund balance as planned in these years, the continued use of fund balance to finance operations is not a long-term solution. Furthermore, the District has one reserve with less than $5,000 and unrestricted fund balance is less than 2 percent of the 2015-16 budgeted appropriations. We project that the District will experience an operating deficit of approximately $200,000 for the 2015-16 fiscal year. Because fund balance is a finite resource, consistently relying on it as a budgetary financing source could be detrimental to the District's financial stability. Without a long-term financial plan to decrease expenditures or increase revenues, District officials may need to consider other options to fund the financing gap.

We found that the District needs to improve its claims auditing process to ensure that all claims have been audited and approved by the claims auditor before payment is made. Specifically, we found that the claims auditor did not consistently audit all claims related to the capital fund prior to payment. During our audit period, the District paid 3,282 claims totaling about $40.3 million. We reviewed 151 claims totaling approximately $4.2 million (110 randomly selected claims totaling $1.7 million and 41 judgmentally selected claims totaling $2.5 million) to determine whether the claim packets contained sufficient documentation and were properly authorized prior to payment, itemized and for valid District purposes. Of the 110 randomly selected claims, we generally found that these claims were adequately documented, supported and for valid District purposes. Of the 41 claims judgmentally selected, we found that 37 totaling approximately $2.5 million were paid prior to being audited.

The Board adequately audits claims prior to payment and ensures the claims are supported by adequate documentation and are for legitimate Town purposes. Prior to the Board meetings, the junior accountant prepares claims using supporting documentation provided by the vendors, which includes voucher forms, invoices and shipping documentation. She also assigns claim numbers, prepares the abstract of claims and submits all claims to the Board for its review. The Board audits and signs each individual claim indicating approval of for payment. After the Board approves the claims, the Town Clerk certifies the abstract of claims and submits it to the Supervisor for payment. We commend Town officials for establishing and implementing adequate procedures for auditing claims.

The purpose of our audit was to determine if District officials properly accounted for extra-classroom cash receipts and disbursements for the period July 1, 2013 through May 8, 2015.

The Board and District officials did not develop reasonable budgets or effectively manage the District's financial condition to ensure that the general fund's unrestricted fund balance was within the statutory limit. From fiscal years 2011-12 through 2014-15, the District improperly calculated its unrestricted fund balance and spent nearly $23.8 million (93 percent) less of appropriated fund balance and reserves than were budgeted to finance operations. As a result, the District's recalculated year-end unrestricted fund balance averaged about 9.4 percent of the next year's budgetary appropriations over the last four years, which is more than two times the statutory limit. In addition, the retirement contribution, liability, employee benefit accrued liability and unemployment reserves, totaling about $18 million, appear to be overfunded or unwarranted. Finally, the Board and District officials have not developed a multiyear financial plan.

The Board and District officials did not ensure that the unrestricted fund balance and the capital reserve fund balance were reasonable. As of June 30, 2015, the District's unrestricted fund balance totaled more than $1.4 million and was 7.5 percent of the 2015-16 budgeted appropriations, exceeding the statutory limit by 3.5 percentage points. District officials also appropriated a combined total of approximately $1.7 million of fund balance as a financing source in the annual budgets from 2011-12 through 2015-16, but the District's operations did not always use the fund balance and instead generated operating surpluses totaling approximately $745,000 during this period. When adding back the unused appropriated fund balance during this period, the District's unrestricted fund balance further exceeded the statutory limit ranging from 6.7 percent to a projected 9.6 percent of the ensuing year's appropriations. Furthermore, although we found that the balances maintained in the compensated absences reserve and the debt service fund were reasonable, the capital reserve was overfunded by approximately $593,000 or 80 percent.

District officials did not establish adequate procedures for processing payroll. The School Business Official's duties were not adequately segregated because she was responsible for collecting employees' time records; recording the hours worked or salaries to be paid; making changes to employees' pay rates, withholdings and deductions; performing transfers between the District's bank accounts for payroll purposes and preparing and executing the employees' direct deposits. The School Business Official performed all of these duties without sufficient oversight. The District Treasurer (Treasurer) was responsible for reviewing transfers between the District's bank accounts and printing and signing employees' payroll checks. However, the Treasurer's limited role related to processing payroll did not provide sufficient oversight of the School Business Official's work to mitigate the risks incurred due to her incompatible duties. The Superintendent also provided an independent review of the payroll process by reviewing and certifying the final payrolls. However, the Superintendent's reviews were not adequate because he did not compare payroll registers to payroll source documents (i.e., time records) to ensure that payments were based on the actual hours or days worked and Board-authorized hourly rates or annual salaries. No one reviewed the source documents to verify whether the School Business Official accurately processed payrolls.

During the 2014-15 fiscal year, the Board outsourced the District's payroll function to the Franklin-Essex-Hamilton Board of Cooperative Educational Services (BOCES). However, the District's procedures for day-to-day payroll processing did not clearly define the respective payroll responsibilities of BOCES and the District. For example, the District relied on BOCES to monitor the provisions of the collective bargaining agreements (CBAs) and employment contracts, with limited oversight from District officials. Due to the complexity of the CBAs and contracts, the BOCES payroll clerk was not always aware of all applicable payroll provisions. As a result, three employees were overpaid by a combined total of $9,630 and one employee was underpaid by $551.

The Board did not adopt realistic budgets based on historical or known trends. The Board underestimated non-property tax revenues and overestimated expenditures, for total budget variances of more than $35 million. The Board-adopted budgets generated operating surpluses totaling more than $20 million over these three years. As a result, the total $14.9 million in appropriated fund balance and reserves was not needed or used to fund operations. District officials also made unbudgeted interfund transfers totaling $38 million from the capital reserves (reported in the general fund) to the capital projects fund and also made unbudgeted transfers to the District's reserves. Along with the budgeted appropriation of fund balance that has not been used, this has reduced reported year-end fund balance to within the 4 percent limit established by the Real Property Tax Law. When the unused appropriated fund balance is added back, the District's recalculated unrestricted fund balance ranged from 5.9 to 6.6 percent of the ensuing year's budget, exceeding the statutory limit in each year. In addition, two of the District's six general fund reserves, which had balances totaling more than $4 million as of June 30, 2015, are overfunded or potentially unnecessary. In addition, while the District's separation payments generally conformed to the terms of the collective bargaining agreements (CBAs), we found that the District paid three retirees $31,603 (5 percent) for payments approved for benefits over what was authorized in the CBAs. We also question payments to six administrators totaling $18,012 (3 percent) for vacation days carried over from the previous year without Superintendent approval, as required by the CBA.

The Board is required to deliver to the Tax Collector a school tax roll together with a warrant authorizing the collection of taxes prior to the start of the collection process. If any taxes remain unpaid at the end of the collection period, the Tax Collector is required to return the school tax roll and warrant to the Board, along with a statement of the unpaid taxes and description of the properties on which the taxes remain unpaid. We tested the 2015-16 tax collection totaling approximately $2.65 million and found that the Board did not provide the Tax Collector with a warrant prior to the start of the tax collection process. However, the Tax Collector received, recorded and provided the taxes collected for deposit in accordance with the District's approved budget and tax worksheet prepared by the Superintendent. We commend District officials for developing procedures to ensure that tax collections are secure.

District officials did not ensure that the cash receipts process for ECA funds were administered in accordance with District guidelines and those of the Commissioner of Education. Bank deposit slips are usually not prepared by the ECA clubs as required by the District's written guidelines. Instead they are prepared by the Central Treasurer who also deposits the funds in the bank. Additionally, the Central Treasurer did not issue pre-numbered duplicate receipts for all funds placed in her custody, funds are not always deposited timely and bank deposit slips are not always prepared by the ECA clubs.