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 needs to improve its budget process and ensure it adopts reasonable budgets and appropriately maintains restricted funds to effectively manage the District's financial condition. From 2012-13 through 2014-15, District officials overestimated appropriations in the adopted budgets each year. This budget practice generated approximately $1 million in cumulative operating surpluses for these years. Over these years, officials also appropriated nearly $2.8 million of fund balance as a financing source in the annual budgets. However, approximately 94 percent of this amount was not needed due to the operating surpluses. As a result, the District's unassigned fund balance exceeded the statutory limit each year ranging from 4.3 to 6.8 percent of the ensuing year's budget. When unused appropriate fund balance is added back, the District's recalculated unassigned fund balance ranged from 9 to 11 percent of the ensuing year's appropriations, further exceeding the statutory limit each year. During 2014-15, the District appropriated $830,000 for the 2015-16 budget, but the District projects that it will not be needed. As such, we expect the District's unassigned fund balance will continue to exceed the statutory limit. District officials also overfunded the workers' compensation reserve and retained almost $1 million of excess funds in the capital projects fund. Finally, District officials have not adopted long-term financial and capital plans, as required by Board policy.

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.

While District officials did develop a policy to address the procurement of goods and services not subject to competitive bidding, the policy did not specify the frequency of seeking competition for professional services. Further, we did not find any evidence that the Board determined which professional services were subject to the request for proposal (RFP) process or any evidence that the Board monitored the RFP procedures for professional services. The Assistant Superintendent for Business Affairs explained that she will initiate the RFP process for professional services and bring the RFP before the Board for approval. Except for minor discrepancies that we discussed with District officials, the purchases we reviewed were made in accordance with the District's policy.

The Board and District officials could improve their management of the school lunch fund's financial condition. The school has reported a negative school lunch fund balance since 2006-07. Over the last three fiscal years, fund balance decreased by over $141,000 as a result of operating deficits averaging approximately $47,000 per year. Operating deficits include subsidies from the general fund which averaged $23,000 over the past three years. Without these subsidies, the fund's operating deficits would average about $70,000 a year. Furthermore, at the end of 2014-15, the school lunch fund owed the general fund $168,000. We project another operating deficit in 2015-16 that will reduce the fund balance of the school lunch fund by an additional $72,000.

District officials did not require employees to follow established procedures to ensure that paid salaries and wages were accurate and did not have procedures in place to ensure that leave accruals were properly verified and recorded. As a result, we found errors in nine employees' pay. Although not significant, these errors occurred due to lack of management or independent review of the payroll clerk's work. Further, District officials did not always follow procedures or ensure that employees had enough accruals prior to approving leave requests. In addition, there was no supervisory review of the human resources clerk's work to ensure leave time requested was accurately transferred to the time and attendance system.

The Board generally ensured that District officials complied with General Municipal Law and the District's procurement policy for purchases requiring quotes and purchases subject to competitive bidding. However, we found that District officials could improve their purchasing process by attaching sufficient supporting documentation to claims for purchases not subject to competitive bidding. In addition, officials should ensure that purchases are made only after the purchasing agent issues an approved purchase order. When sufficient supporting documentation is not available for review or purchase orders are executed after a purchase is made, there is an increased risk that unauthorized or inappropriate purchases could be made.

The purpose of our audit was to determine if counties effectively monitored service provider agreements for the period January 1 through December 31, 2013.

District officials have effectively managed the District's financial condition. The District's unrestricted fund balance and reserve balances totaled almost $2 million and $2.5 million, respectively, as of June 30, 2015. However, the decline in those balances by $667,600 and $2.1 million over the past three years suggests the District may be heading toward fiscal challenges. Over the three-year period ending June 30, 2015, District officials budgeted for operating deficits of $1.96 million. However, the net result of operations was a total deficit of approximately $957,000. District officials budgeted to use another $960,000 of unrestricted fund balance in 2015-16; however, we project they will use $292,000. Further, budget estimates for general fund revenues and expenditures have been within a few percentage points from actual amounts over this period. However, the District's revenues have not kept pace with expenditures, which have increased at rates of 4 and 8 percent, respectively. Over the three-year period, the balance of the District's three reserves decreased by almost $2.1 million, or about 45 percent, to $2.5 million as of June 30, 2015. Based on the continuous use of these reserves, supporting documentation and future plans, the balance of each of these reserves was reasonable. However, at this rate of decline, they will be depleted and unavailable for use as funding sources within three years. As a result of the revenue and expenditure trends and the continued use of fund balance, the District's total year-end fund balance declined by over $2.4 million, or 30 percent over the last three years. The Assistant Superintendent for Business started July 2014 and has been mainly focused on developing short-term plans and solutions to managing the District's finances, including the use and funding levels of reserves. District officials are in the process of developing multiyear long-term plans to address their financial situation.

At the time of our audit, the District had an ongoing capital project (Project) which involved constructing, renovating and improving all three school buildings and the bus garage. The Project was approved by District residents in December 2014 with a total budget of $12.4 million. The District engaged various consultants to facilitate the Project including an architectural and engineering firm for building design and development and assisting in the purchasing process, a Clerk of the Works to manage construction and a municipal advisory firm for bonding and cash flow planning. Overall, District officials properly managed Phase I of the Project. The Board presented the Project to District residents in a transparent manner. In addition, all work performed was consistent with the NYSED-approved scope and with properly approved change orders. District purchasing practices for the Project conformed to GML and to the Project's budget.

Although the Board and District officials have generally maintained fund balance levels in accordance with the law, they have annually appropriated portions of fund balance for the subsequent year's budget that were not used because they consistently overestimated appropriations. This trend is projected to continue through 2015-16. Once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's recalculated unrestricted fund balance ranged from $692,000 (14 percent) in 2012-13 to $749,000 (15 percent) in 2014-15. Furthermore, even though unrestricted fund balance continued to increase through June 30, 2015, District officials continued to raise the tax levy every year. Had District officials retained the same tax levy as in 2012-13, residents could have realized approximately $380,000 in cumulative savings. In addition, the unemployment reserve totaled $220,000 as of June 30, 2015 even though annual unemployment expenditures averaged $4,000. Further, District officials have routinely levied taxes for expenditures, including unemployment expenditures, which could have been paid for with reserve funds that totaled $1.3 million as of June 30, 2015.

District officials did not ensure that unrestricted fund balance and reserves were reasonable. The unrestricted fund balance has been well over the statutory limit for the past several years, while at the same time real property taxes were raised to the maximum allowable by the property tax cap regulations. Conservative budgeting practices have contributed to appropriated fund balance and reserves not being used as budgeted. Furthermore, certain reserves had excessive balances when compared to their respective liabilities.

We reviewed 84 bank reconciliations the Treasurer prepared for all 14 District bank accounts during our audit period to determine if they were prepared in a timely manner. We found that the Treasurer generally reconciled the bank accounts in a timely manner and that the Assistant Superintendent reviewed and signed all these reconciliations. We also prepared bank reconciliations for all District bank accounts for October and November 2015 and compared them with the reconciliations prepared by the Treasurer to determine if the District's reconciliations were accurate. Our reconciliations generally agreed with those prepared by the Treasurer, except for minor differences, which we discussed with District officials. We commend District officials for establishing and implementing an effective controls over the reconciliation process.

The Board did not adopt realistic budgets or ensure that reserves were reasonably funded. District officials consistently overestimated appropriations in the general fund budget during the last three fiscal years 2012-13 through 2014-15 totaling more than $3.4 million or 9 percent, generating approximately $2.7 million in operating surpluses. The District used the operating surpluses to fund various reserves, which led to reserve balances increasing by more than $2.4 million (32 percent) since July 1, 2012. Although District officials appropriated an average of approximately $333,000 in fund balance and $258,000 in reserves annually towards the ensuing year's budget, none of the appropriated funds were used because of consistent year-end surpluses. This trend is projected to continue through 2015-16. While we continue to forecast an operating surplus for 2015-16, we recognize certain measures the Board and District officials have begun implementing regarding their financial management practices. For example, they did not raise the tax levy in 2014-15, and they reduced the tax levy by more than 5 percent ($250,000) for 2015-16.

The Payroll Manager performs incompatible duties without sufficient oversight or independent review. District officials instituted a compensating control by having the Superintendent, who is independent of the payroll process, certify the payrolls. However, no one independent of the payroll process reviews hourly rates or annual salaries entered by the Payroll Manager for accuracy or compares the payroll registers with payroll source documents (i.e., time records) to ensure that payments were based on the actual hours or days worked prior to payroll processing. In addition, the District does not have adequate procedures in place to ensure overtime is preapproved, and District officials generally did not preapprove overtime worked by employees.

District officials did not prepare accurate budgets for the 2012-13, 2013-14 and 2014-15 fiscal years. The District overestimated appropriations by an average of $2.5 million each year. While the District appropriated fund balance to help finance operations, the amounts appropriated were generally not used. Furthermore, unrestricted fund balance has exceeded the legal limit annually. As of June 30, 2015, unrestricted fund balance was $2.6 million (12 percent of the ensuing year's budget) or approximately $1.7 million over the legally allowable limit. Finally, the District improperly retained $5.7 million in a debt reserve and overfunded the employee benefit accrued liability reserve by $220,000 (20 percent).

While the Board and District officials have generally maintained unrestricted fund balance levels in accordance with statutory limits, we found that District officials used budgeting practices that appropriated fund balance and reserves that were not actually used. The District routinely overestimated expenditures (averaging $10 million) and, as a result, did not use an equivalent amount of appropriated fund balance and reserves as budgeted. This practice is projected to continue in the 2015-16 fiscal year. Moreover, once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's recalculated unrestricted fund balance ranges from $6.1 million (6 percent) to $7.4 million (8 percent) of the ensuing years' appropriations for the fiscal years 2012-13 through 2014-15, exceeding the statutory limit. In addition, District officials consistently budgeted in the general fund for expenditures that could have been paid for with reserve funds, five of which appear to be overfunded by more than $18 million. As a result, the District has levied higher taxes than necessary.

Over the five-year period ending June 30, 2015, the Board maintained unrestricted fund balance within the 4 percent statutory maximum. However, the Board appropriated more fund balance than needed, resulting in an estimated net budget variance of $20.6 million from 2011-12 through 2015-16. After the unused appropriated fund balances are added back, the unrestricted fund balance exceeds the statutory limit, ranging from 6 percent to 7.4 percent of the ensuing year's appropriations for the period. Furthermore, although four of the District's six reserve funds had reasonable balances, the retirement contribution reserve and the employee benefit accrued liability reserve had significant balances in excess of their respective liabilities. As a result of these practices, District officials levied real property taxes that were higher than necessary.

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.