The Board overestimated appropriations in the adopted budgets by an average of about $947,000 or 9 percent over the past three years. As a result, $724,000 or almost 90 percent of the appropriated fund balance was not actually needed to finance operations, and unassigned fund balance was more than twice the statutory limit from fiscal years 2012-13 through 2014-15. The District has reduced the reported level of year-end unassigned fund balance from 10.9 percent of the ensuing year's budget at the end of 2012-13 to 9.7 percent at the end of 2014-15. However, when the unused appropriated fund balance was added back, the recalculated unassigned fund balance exceeded 17 percent of the next year's appropriations in all three years. The Board has not developed multiyear operational or capital plans to address excess fund balance and future needs.

District officials did not prepare accurate budgets for the 2010-11 through the 2015-16 fiscal years. While the District appropriated fund balance to help finance operations, it was not needed because the District's budgeting practices regularly produced significant operating surpluses. District officials plan to use $13 million of the accumulated surplus to finance a capital project, rather than issue debt that aligns with the State's building aid payment schedule. District officials have maintained real property taxes at a consistent level over the past five years. However, for perspective, the District's tax levy could have been $2 million (24 percent) lower for each of the last five completed fiscal years, and the District would have continued to realize an operating surplus in each fiscal year. In addition, the District's retirement contribution reserve and unemployment insurance reserve were overfunded. The balance of the retirement contribution reserve as of June 30, 2015 was $7.8 million, which was more than 18 times the District's annual average contribution of approximately $422,000. The balance of the unemployment insurance reserve as of June 30, 2015 was $244,000, which was 22 times the District's average annual unemployment costs of $11,000.

The Board did not adopt structurally balance budgets from 2010 through 2014 resulting in a $1 million (91 percent) decline in general fund balance to $95,000. In addition, highway fund balance declined by $359,000 (96 percent) over these years resulting in an ending fund balance about of $15,000. In 2015, the Board budgeted to appropriate $150,000 of general fund balance to finance operations. However, there was only approximately $95,000 available, resulting in the general fund beginning 2015 with a budgetary deficit of $55,500. In 2015, the general fund will likely have an operating deficit of approximately $46,000 reducing the general fund balance to less than $50,000. Further, tentative 2015 highway fund operating results show a deficit of approximately $17,000. As a result, the highway fund may have problems funding operating costs. Town officials also need to establish comprehensive policies and procedures for preparing payroll and maintaining leave time accruals for Department employees and improve their oversight of this process. As a result of these weaknesses, we question whether certain overtime should have been paid. In addition, we found, that some employees' leave accrual records were not accurately maintained resulting in four employees leave accruals being overstated by 148.85 hours valued at $3,957, while five employees leave accruals were potentially understated by a total of 54.1 hours valued at $1,351. Finally, a seasonal employee was paid $1,350 for 54.4 hours to which he may not have been entitled.

District officials have established effective procedures to ensure claims are adequately documented and supported, are for legitimate District purposes and are approved prior to payment, in accordance with District policy and Education Law. The Board has delegated its claims auditing responsibility to a claims auditor. We commend District officials for establishing effective procedures for processing claims against the District. Establishing and adhering to effective claims auditing procedures decreases the risk that errors or irregularities with processing and paying claims may occur and go undetected.

We found questionable activity and unnecessary permissions granted for changing student grades, modifying SIS permissions, assuming accounts or identities and viewing PPSI. We also found unnecessary user accounts in the SIS, including those for former District employees, former third-party personnel, Mohawk Regional Information Center personnel that do not directly support the SIS and substitute secretaries and nurses that only need occasional access. These issues were the result of, at least in part, District officials' failure to review SIS audit logs on a regular basis, properly manage accounts and permissions and establish effective policies and procedures. Unnecessary permissions increase the risk of inappropriate activity such as unauthorized changes to student grades or SIS permissions and disclosure or misuse of students' PPSI. Unnecessary accounts also increase this risk, as well as the efforts needed to manage permissions in the SIS, which could result in inadvertently granting more access than needed.

District officials procured goods and services in accordance with General Municipal Law (GML) and the District's purchasing policy and regulations. District officials have established adequate internal controls over the District's procurement process. The Board adopted a purchasing policy and regulations that provide guidance on procurement methods for all purchases, including those that do not require competitive bidding. During our audit period, the District paid claims for goods and services totaling $4.34 million. We reviewed 52 claims totaling $2.09 million to determine whether they were purchased in accordance with GML requirements and the District's purchasing policy. Except for minor discrepancies which we discussed with District officials, District employees adhered to GML requirements and the District's purchasing policy and regulations. We commend District officials for establishing and implementing an effective system of controls over the District's purchasing practices.

The District's reported unrestricted fund balance for the past three years was understated because the District incorrectly restricted funds for the future payments of other post-employment benefits (OPEB). With the inclusion of the incorrectly restricted funds, the unrestricted fund balance was in excess of the 4 percent statutory limit for the 2012-13, 2013-14 and 2014-15 fiscal years. The Assistant Superintendent of Business stated the Board wanted to partially fund the District's future OPEB. However, there is no legal authority for the District to fund its OPEB. During our audit period, the District allocated $7.1, $8.7 and $9.8 million at the end of the 2012-13, 2013-14 and 2014-15 fiscal years, respectively, to partially fund its OPEB liability. We recalculated the District's unrestricted fund balance for the fiscal years ending June 30, 2013 through June 30, 2015 by adding back the amounts the District had restricted for its OPEB liability. As of June 30, 2013, the District's recalculated unrestricted fund balance totaled $11.6 million and was 10.3 percent of the 2013-14 appropriations, exceeding the statutory limit by more than $7.1 million. As of June 30, 2014 and 2015 the recalculated unrestricted fund balance amounts were $13.4 and $14.5 million, which were 11.5 and 12.4 percent of the ensuing years' appropriations and exceeded the statutory limits by more than $8.7 and $9.8 million, respectively.

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.

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.

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.

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.