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.

District officials did not effectively manage cafeteria operations. District officials did not perform a cost-per-meal analysis and did not always consider past productions when planning future meals, which contributed to the cost of producing a meal exceeding the price charged. As a result, the general fund is subsidizing the school lunch fund, on average, $66,000 annually. District cafeteria staff do not produce the meals in a productive manner. The District's productivity level for meals per labor hour (MPLH) is not within the industry averages. Although the industry averages may not always be achievable given certain District conditions, District officials can use the industry averages to monitor operations and work towards increasing productivity, when necessary. District officials should actively monitor the MPLH to improve the operational productivity. Further, District officials did not adequately segregate duties over the collection, accounting and depositing of money or implement adequate mitigating controls, which increases the risk of recording and depositing errors or irregularities.

The Board did not effectively manage reserves and fund balance. We found that, as of June 30, 2015, the District had an account for post-employment benefit liabilities totaling over $7.1 million when there is currently no authority to reserve funds for this purpose. District officials also could not provide documentation for the establishment of its unemployment reserve fund. Additionally, three reserve funds with balances totaling over $1.5 million may be excessively funded. Had the unauthorized post-employment benefit liability funds been properly reported, total unrestricted fund balance would have been 23 percent of the ensuing year's budgeted appropriations, far exceeding the statutory limit of 4 percent. The District also did not use appropriated fund balance of $1.62 million, which would further increase the unrestricted fund balance beyond 23 percent.

We examined a sample of 2014-15 payroll transactions totaling $1.14 million and found that the District's salary and wage payments were accurate and leave records were properly maintained. However, District officials did not document their verification of eligibility for retirement incentives, totaling $90,000, that were paid to three former employees, which resulted in a payment of $30,000 to one individual that was inconsistent with CBA provisions. In addition, the District paid $6,962 for unused vacation to the former Superintendent that was not provided for in the former Superintendent's employment contract.

The Board needs to improve its oversight of the claims audit function. The Board did not develop a comprehensive job description that outlines the expectations and requirements of the claims auditor. It also did not provide purchasing policies for the claims auditor to use as guidance when auditing the claims related to purchases that do not require competitive bidding. In addition, the claims auditor did not ensure that sufficient funds were available on open purchase orders when approving claims resulting in eight open purchase orders being overspent by $77,436.

District officials established adequate procedures to ensure employees were paid their approved salaries or wages. The Board approves the hiring of all new employees and establishes salaries and wages in the provisions of negotiated collective bargaining agreements or individual contracts. Other compensation rates that are not addressed in the agreements (e.g. additional duties or appointments to positions such as the tax collector, claims auditor or coaches) are determined at Board meetings and documented in the meeting minutes. 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.

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

The Board and District officials could improve their efforts to ensure retirees enrolled for health insurance benefits are eligible. The Board has not developed written policies or procedures to monitor retiree health insurance eligibility. The District also made payments to providers totaling $3.6 million without receiving support indicating enrollee information and/or premium rates. Further, District officials are not proactively ensuring the continued eligibility of retirees. As a result, the District has an increased risk that it could be paying for ineligible enrollees.

District officials managed fund balance responsibly in accordance with statute. Real Property Tax Law allows a school district to maintain up to 4 percent of the ensuing year's budget as unrestricted fund balance. The District has maintained approximately this amount of unrestricted fund balance for the three fiscal years that we reviewed. District officials' adopted budgets were reasonable because revenues and appropriations were based on known sources and historical trends. Furthermore, District officials adequately monitored the budgets throughout the year. Although total reserves remained relatively flat, we analyzed the individual reserves and determined that the reserve for compensative absences is overfunded. This reserve must be used only for cash payments for accrued and unused sick, vacation and certain other leave time owed to employees when they leave District employment. As of June 30, 2015, we determined the District's liability for compensated absences was approximately $1.3 million. However, the reserve balance was over $2.4 million. Therefore, the reserve was overfunded by approximately $1.1 million. While District officials effectively managed financial operations, the Board should have adopted a reserve policy that established the reserves to be used, how they would be funded and when they would be used.

The Board 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. District officials overestimated expenditures in the budgets resulting in an unrestricted fund balance of $2.8 million at the end of 2014-15, which was 5.5 percent of the next year's appropriations. Although this amount exceeded the 4 percent statutory limit, District officials have made progress in reducing the unrestricted fund balance from 12.3 percent of the next year's appropriations at the end 2012-13. District officials have also maintained excessive balances in three reserve funds, including the employee benefit accrued liability reserve (EBALR) which is overfunded by $2 million, the capital reserve which has a balance of $490,000 that relates to a completed capital project and the tax certiorari reserve which has a balance of $362,357 with no pending claims. The District has also accumulated and maintained excess funds in its debt service fund. As of June 30, 2015, the District had $7.1 million in this fund. However, District officials were unable to demonstrate why $6.9 million of that amount was restricted in the debt service fund. While District officials told us that they intended to use it for future projects, they did not request required voter approval for establishing a capital reserve.