The Board and District officials did not maintain reasonable fund balance. As of June 30, 2015, the District's unrestricted fund balance totaled over $1.1 million, exceeding the 4 percent statutory limit by 7.3 percentage points. With the inclusion of the unused appropriated fund balance, the fund balance ranged from 12.1 to 14.7 percent of the ensuing year's appropriations. In addition, the District had a reserve fund that was overfunded by $703,000. We found that appropriations have been overestimated by $2 million in total, or an average of 6.9 percent per year, from 2012-13 through 2014-15. District officials were generally overestimating health insurance, contractual special education and certain teachers' salaries instead of relying on historical information. These budgeting practices made it appear that the District needed to both raise taxes and use fund balance to close projected budget gaps. However, there were operating surpluses in two of the three years reviewed. Furthermore, the District increased the tax levy from $7.3 million in 2012-13 to $7.7 million in 2015-16, a total increase of about 4.5 percent or an annual average of 1.5 percent.

The Trustee and Treasurer ensured that disbursements were for proper District purposes and adequately supported. The Treasurer submitted prepared checks, including supporting documentation, to the Trustee for audit and approval prior to payment. We commend District officials for implementing appropriate cash disbursement procedures.

District officials are not properly monitoring employee overtime to ensure that the District is incurring only necessary overtime costs. While the District's payroll instructions state that employees must obtain supervisory approval before working overtime hours, the District does not have adequate procedures in place to ensure overtime is preapproved. During our audit period the District paid $470,355 for overtime. Of this total, the District paid $363,482 (77 percent) of the overtime costs to personnel in the Building and Grounds Department (department) and Security office. We randomly selected two bi-weekly November 2014 payrolls in which employees worked 196.75 overtime hours and received overtime payments totaling $8,371. We found that none of the overtime hours worked had been preapproved. For example, one security guard worked 33.5 overtime hours and received overtime payments totaling $1,143 for “video room coverage.” This consisted of monitoring the cameras in the security office that provide surveillance of the school's facilities. Had overtime preapproval been mandated, overtime would have been more closely monitored and shifts may have been rearranged to incorporate video room coverage into employees' regular workdays.

The Board consistently overestimated appropriations in the District's adopted budgets. Although the District reported year-end unrestricted general fund balance at levels that essentially complied with the 4 percent statutory limit, the Board adopted budgets which included appropriated fund balance and reserves that were not needed as funding sources because the Board and District officials overestimated appropriations by an average of 8.8 percent over the last three fiscal years. As a result, the District experiencing an operating surplus in 2011-12 and operating deficits in 2012-13 and 2014-15 that were significantly less than planned. When the unused appropriated fund balance was added back, recalculated unrestricted fund balance averaged about 8 percent of the ensuing year's appropriations, exceeding the legal limit. In addition, the employee benefit accrued liability reserve was overfunded by $1.39 million, which was nearly 40 times the amount of compensated absences reported by the District.

Although the District has procedures specific to the maintenance of IT inventory, the Board has not adopted an asset policy establishing capitalization or tagging thresholds, control over assets, or how to maintain records for these assets. Consequently, three assets valued at $1,650 could not be located and 21 assets valued at $69,370 were either not tagged or the asset tag numbers did not agree with the asset records. Furthermore, 10 assets purchased in 2015-16 valued at $57,573 were not recorded on the asset list and nine assets valued at $45,750 were listed as disposed of, but were still in service. We also found that 18 of 20 assets listed as disposed of, valued at $32,920, did not have documentation indicating authorization or approval. As a result, District officials do not have assurance that all District property is accounted for properly.

District officials have not effectively managed the general fund's fund balance. The District has not correctly recorded and reported the composition of its fund balance. Since the fiscal year ending June 30, 2013, the Treasurer has recorded and reported the amount of unrestricted fund balance that exceeds the statutory limit at the end of each fiscal year as “other restricted fund balance” to keep the unrestricted fund balance within the limit. This accounting practice understates the true amount of the general fund's unrestricted fund balance and circumvents the statutory limit the District is permitted to retain. As a result, over the four past fiscal years, 2011-12 through 2014-15, the District retained unrestricted fund balance amounts that ranged from 15 percent to 34 percent of the ensuing year's appropriations. In addition, the District appropriated fund balance that was not used and funded the capital reserve with no established plans. These actions also helped to keep the unrestricted fund balance within the statutory limit.

The Board and District officials need to improve the budget process to ensure they effectively manage the District's financial condition. During the last three completed fiscal years (2012-13 through 2014-15), the Board and District officials overestimated general fund appropriations by $7.3 million (9 percent) resulting in combined operating surpluses totaling $6.4 million. District officials used the operating surpluses to make interfund transfers totaling approximately $4 million and increase reserves by $1.6 million. As a result, four reserves with balances totaling $2.9 million (48 percent of total reserves) are overfunded and potentially unnecessary. In addition, $570,000 in appropriated fund balance was not needed to finance operations and compensated absences and accrued liabilities were overstated by $275,930 as of June 30, 2015. We also believe that the $285,000 appropriated fund balance for 2015-16 will not be used. These practices allowed the District to report year-end unrestricted fund balance at levels that essentially complied with the statutory 4 percent fund balance limit. However, when adding back the unused appropriated fund balance, overstated liabilities and overfunded reserves, the District's recalculated unrestricted fund balance ranged between 16 to 18 percent of the ensuing year's appropriations, significantly exceeding the statutory limit. As a result, the District's tax levy was higher than necessary to fund District operations. In addition, the District's school lunch fund balance exceeded Federal regulations by almost $360,000. Lastly, the Board and District officials have not developed a formal written multiyear financial plan. As a result, officials may not be aware of future needs and available revenue streams while working on strategic planning.

Over the five-year period ending June 30, 2015, the Board and District officials have adopted budgets that reduced unrestricted fund balance to within the 4 percent statutory limit of the ensuing year's appropriations. However, each year in the period, District officials appropriated more fund balance than needed, which artificially lowered the percentage. Instead of having operating deficits totaling $2.8 million for the period, as planned, the District's net result of operations was a surplus of $705,000. In addition, District officials overfunded five of the six reserves as of June 30, 2015. Moreover, District officials did not use debt service funds to make payments on long-term debt. This fund's balance ranged from $1.3 to $1.8 million for the five-year period. With the inclusion of the unused appropriated fund balance, the overfunded reserves and the unused debt service funds, the fund balance for the five years ranged from 26.7 percent to 29.4 percent of the ensuing year's appropriations. Appropriating fund balance that is not needed and the lack of a formal plan for the use of reserves, including optimal or targeted funding levels and the justification for them, has resulted in the tax levy appearing to be higher than necessary.

The District has accumulated unrestricted fund balance that exceeds the statutory limit by approximately $977,000 (nearly 12 percentage points) and has levied more taxes than were needed to fund operations during the 2013-14 through 2015-16 fiscal years. The Board also overestimated appropriations in the 2012-13 through 2014-15 budgets by more than $2.3 million (10 percent). In addition, the District's budgeting practices made it appear that the District needed to both raise taxes and appropriate fund balance and reserves to close projected budget gaps. However, it realized an operating surplus of $51,390 during the 2012-13 fiscal year and smaller-than-planned operating deficits of $24,169 in 2013-14 and $39,578 in 2014-15. As a result, the District used less than 3 percent of the total appropriated fund balance and reserves during those three years, and the District's unrestricted fund balance increased rather than decreased at the end of each year. The District continued the same budgetary practices when preparing the budget for the 2015-16 fiscal year, which will likely result in similar actual results of operations as the last three fiscal years.

Although the Board has developed a purchasing policy and District officials have developed corresponding regulations, they do not provide guidance for seeking competition when procuring professional services. The policy and regulations do not indicate when, or at what monetary threshold, it is appropriate to use written RFPs, written quotes or verbal quotes. Additionally, the policy and regulations do not outline the specific documentation requirements to be used during the solicitation process, including documentation for the decisions made. In discussion with District officials, we found that there are also no informal guidelines to ensure competition is sought for professional services. Further, the District did not have formal written agreements with four of the professional service providers that were paid more than $5,000.

The District has overestimated appropriations in the adopted budgets by about an average of 14 percent annually over the past three years. As a result, a significant portion of the fund balance appropriated in the general fund was not needed to finance operations and unassigned fund balance has exceeded the 4 percent legal limit each of the last three fiscal years. The District has reduced the reported level of year-end unassigned fund balance from 9.3 percent of the ensuing year's budget at the end of 2012-13 to 6.9 percent at the end of 2014-15, but when the unused appropriated fund balance is added back, the recalculated unassigned fund balance exceeds 20 percent of the next year's appropriations for each of the three years. In addition, the District's tax certiorari reserve is overfunded by approximately $567,000 and, based on historic costs, the unemployment insurance reserve has enough funds to cover 37 years of expenditures.

The District's unassigned fund balance has exceeded the 4 percent legal limit from fiscal years 2012-13 through 2014-15. At the end of 2014-15, the District's fund balance was approximately $2.4 million, or 9.7 percent of the ensuing year's appropriations. This amount exceeds the limit by 5.7 percentage points, or about $1.4 million. Although the District's unassigned fund balance has exceeded the statutory limit for the past three fiscal years, the Board increased the tax levy from $7.8 million in 2012-13 to $8.3 million in 2015-16, an increase of about 6 percent. Finally, the Board has not adopted a multiyear capital or operational plan for the use of surplus fund balance.

The Board has consistently overestimated appropriations in its adopted budgets by about 9 percent over the past three years. As a result, a significant portion of the fund balance appropriated in the general fund was not needed to finance operations and unassigned fund balance has exceeded the 4 percent legal limit from fiscal years 2012-13 through 2014-15. The District has reduced the reported level of year-end unassigned fund balance from 12 percent of the ensuing year's budget at the end of 2012-13 to 8.6 percent at the end of 2014-15. However, when the unused appropriated fund balance was added back, the recalculated unassigned fund balance exceeded 15 percent of the next year's appropriations in all three years.

While the Board and District officials reported fund balance levels in accordance with the law, District officials annually appropriated fund balance towards the subsequent year's budget, of which not all of the amounts were used because the Board and District officials consistently overestimated appropriations. When the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's recalculated unrestricted fund balance in all three years ranged from approximately $2 million (9 percent) to $2.2 million (11 percent), exceeding the statutory limit. This trend is projected to continue through 2015-16 based on our review of the current budget. In addition, the Board and District officials have not properly managed four reserves that appear to be overfunded or contain funds that are improperly restricted by approximately $7.6 million, which is approximately 35 percent of 2015-16 budgeted appropriations. District officials also consistently budgeted for expenditures that could have been paid for with reserve funds. Although unrestricted fund balance continued to increase through June 30, 2015, District officials continued to increase the tax levy every year. Had District officials maintained the same tax levy as in 2012-13, residents could have realized approximately $720,000 in cumulative savings. As a result, District officials missed opportunities to reduce taxes.

The Board and District officials have not realistically budgeted or properly managed fund balance. As a result, unrestricted fund balance has consistently exceeded Real Property Tax Law limits. As of June 30, 2015, the District's unrestricted fund balance was approximately $3.6 million (14 percent of the ensuing year's budget) or approximately $2.6 million over the legally allowable limit and is projected to remain at nearly the same level at the end of 2015-16. Although the Board and District officials annually appropriated a portion of fund balance towards the subsequent year's budget, the total amounts appropriated were mostly not used because District officials overestimated appropriations. Moreover, once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, recalculated unrestricted fund balance ranged from $2.9 million (13 percent) to $4.1 million (17 percent) during 2012-13 through 2014-15. In addition, District officials consistently budgeted for expenditures that could have been paid for with reserve funds. Although unrestricted fund balance continued to increase through June 30, 2015, District officials continued to raise the tax levy each year of the period by an average of 3 percent. Had District officials retained the same tax levy each subsequent year as in 2012-13, residents could have realized approximately $410,000 in cumulative tax savings.

Although we found that claims were generally supported by adequate documentation and were for appropriate purposes, they were not always audited and approved prior to payment. We found that the Business Manager, who also serves as the District's Treasurer (Treasurer), prints signed checks prior to the claims auditor's audit and approval of the corresponding claims. The Treasurer stated that checks have to be printed from the financial system in order to print a corresponding warrant. However, we found that the District's financial system can generate a report prior to the checks being printed that contains the same information as the warrant that was being provided to the claims auditor, except for the check numbers. When signed checks are generated prior to the claims auditor's audit and approval, there is an increased risk that improper claims could be paid by the District. In addition, the Treasurer stated that the District prepares and issues checks for certain claims prior to the regular semi-monthly claims audit to meet the payment deadlines. Claims for these disbursements are then presented to the claims auditor with other claims during the subsequent semi-monthly cycle.

District officials ensured that retiree health insurance contributions were properly billed, collected and deposited. Although the account clerk performs most of the duties, District officials implemented proper compensating controls to ensure bills are accurate, money is collected from all retirees and money is deposited into District bank accounts. They also have a process in place to timely identify deceased retirees. However, they could further increase controls to ensure deceased retirees are identified timely.

Department staff are not consistently and effectively collecting payments of court-ordered financial obligations from defendants. We reviewed 24 cases with outstanding balances totaling $107,827 and found that 20 cases (83 percent) were in arrears totaling approximately $62,100. In addition, Department staff do not report defendant non-payment delinquencies to the court in a timely manner as required by law. Further, the Department did not charge applicable defendants Driving While Intoxicated or Driving While Ability Impaired administrative fees totaling approximately $215,300 that were allowed by law. Department staff have not disbursed victims' trust fund moneys since April 2012 and lack a process to locate victims that should receive payments after initial contact by mail. Therefore, the Department potentially had $35,091 in undisbursed restitution payments as of July 2015. Because the Department's computerized software that recorded the amounts owed and paid by the defendants and owed and paid to the victims was limited in the types of reports that could be generated, the composition of the undisbursed funds is unknown. Finally, Department staff are unable to perform an accountability of the Department's assets (cash and receivables) and liabilities at any point in time. The Director has not adequately segregated the administrative assistant's duties in the collection and disbursement process or provided compensating controls, which increased the risk that Department funds could be misappropriated without detection.

District officials have not adequately managed the District's financial condition by maintaining reserve fund balances at reasonable levels and developing long-term plans. There is no written plan that details the appropriate and necessary levels for reserve funds and prescribes how the reserve fund balances are to be monitored, analyzed and maintained. As a result, four of the District's 11 reserve funds, totaling more than $6.8 million, may be overfunded or unnecessary. Additionally, District officials have not developed formal multiyear financial or capital plans, which would greatly benefit the District in meeting its current and future obligations and preparing for potentially adverse economic and environmental challenges.

District officials did not maintain fund balance in accordance with statutory requirements. The unrestricted fund balance exceeded the statutory limit of 4 percent of the ensuing year's budget for each of the last three years, ranging from 5 to 11 percent. From 2012-13 through 2014-15, the District's unrestricted fund balance increased by $568,000, or 108 percent. As of June 30, 2015, the District's reported unrestricted fund balance totaled $1.1 million, exceeding the statutory limit by $691,000. Further, over these three years, the District actually used $382,000, or 18 percent, of the $2.2 million of fund balance appropriated to finance operations. During 2014-15, District officials appropriated $681,641 to help finance the 2015-16 budget; however, we project that they will use about $121,000 (18 percent). As such, the District's unrestricted fund balance will continue to exceed the statutory limit. District officials have established a repair reserve in 2015-16 with some of the excess funds. However, over the last three years, when unused appropriated fund balance was added back, the District's recalculated unrestricted fund balance exceeded the statutory limit each year, ranging from 13 to 16 percent of the ensuing year's budget.