The Board did not establish an adequate claims auditing process. The Board adopted a claims auditing policy which contains provisions related to the appointment and duties of the claims auditor if the Board chooses to have a claims auditor assume its responsibility for auditing claims. However, the Board did not appoint a claims auditor, nor did the Board perform the claims auditing function. Instead, the Board reviewed and approved warrants, which is not an acceptable substitute for the requirement to audit each claim. Further, while the Board's approval of the warrant was generally performed prior to the disbursement of funds to pay the claims, in some instances, checks were prepared and distributed prior to the Board's approval of the warrant. As part of the District's claims process, the account clerk received deliveries and reviewed invoices and the business manager prepared warrants and signed checks. While this process does provide for the review of claim documentation, by law, neither of these positions are eligible to perform the duties of a claims auditor.

District officials have effectively managed the District's financial condition. District officials are using sound practices when planning, monitoring and controlling budgets, and they have developed and monitored long-term capital and financial plans. We encourage District officials to continue to update and monitor these plans and take appropriate actions when necessary, as their current long-term financial plan projects a deficit unrestricted fund balance of $935,226 by 2018-19.

The Board has not demonstrated a positive control environment because it did not appropriately comply with all requirements of the Five Point Plan. While all Board members have completed the required fiscal oversight training, the Board did not ensure that the claims auditor reported directly to the Board or that all claims were audited and approved before they are paid. The Board improperly appointed an individual as both the Treasurer and internal auditor, creating incompatible duties between these two positions. It also has not established an audit committee, because it was unaware of the requirement to do so. In addition, the District did not use a competitive request for proposal process when selecting its external audit firm, and the Board did not prepare a corrective action plan in response to audit reports.

The Board and District officials have established many controls over the claims processing function to ensure that claims are audited adequately and properly supported. We selected and reviewed 45 claims, totaling $225,049, to determine whether the claims were adequately audited and approved. The Board generally ensured that claims were audited and approved before payment. However, the claims auditor did not properly identify and report all confirming purchase orders to the Board, and the Treasurer did not supervise an account clerk typist's use of her electronic signature to sign the District's checks.

District officials are generally managing the District's financial operations effectively. Although the District has generated surpluses totaling $2.5 million in two of the last three years, budgets have been within 2 percent of actuals for expenditures and 3 percent for revenues. District officials have used these surpluses to fund reserves and minimized the need for significant real property tax increases. Although the unemployment insurance and retirement contribution reserves were overfunded by $1.6 million, District officials stated they plan to transfer the excess to the capital reserve to help fund their ongoing capital project. Furthermore, the last significant increase in the real property tax levy, approximately $563,000 (an increase of 3 percent), occurred with the 2013-14 budget. From 2014-15 through 2015-16, the real property tax increase was less than $50,000 (an increase of .3 percent) and Board members told us they would like to continue this practice.

The Board approved pay rates for District employees through the District's two collective bargaining agreements and five individual employment contracts. Additionally, each school year the Board approves a salary statement for each full- or part-time employee that is then acknowledged by each employee and maintained on file. The administrative aide enters all approved pay rates into the payroll software. In addition, time records are submitted to the administrative aide who verifies that they were properly approved, inputs hours worked into the payroll system and processes the payroll. The Superintendent is responsible for reviewing and certifying each biweekly payroll register, after which the Business Manager reviews the processed payroll and prepares the paychecks and direct deposits. Both the Superintendent's review/certification and the Business Manager's review include reviewing the payroll register, timekeeping documents and payroll change reports. We commend District officials for implementing appropriate procedures for processing payroll to ensure that employee salaries and wages were accurately calculated and paid.

Overall, we found that purchases of goods and services not subject to competitive bidding were done in compliance with the District's policy. We reviewed 92 purchases, of which 82 required that District staff obtain quotes. All 82 had quotes as required by District policy. The remaining 10 purchases were not subject to quotes or competitive bidding. We identified only minor issues regarding purchases orders, which we discussed with District officials.

The Board did not adopt realistic budgets and effectively manage the District's fund balance. The 2012-13, 2013-14 and 2014-15 adopted budgets overestimated appropriations by a total of $3.2 million (5 percent) over these years. Additionally, the District's retirement contribution reserve was overfunded by more than $445,000 (33 percent) as of June 30, 2015. The District's unrestricted fund balance has been in excess of the limits established by New York State Real Property Tax Law, ranging from 6.9 percent to 8.3 percent of the ensuing year's appropriations. However, when adding back the excess reserves, the District's recalculated unrestricted fund balance for these three years was in excess of the statutory limit, ranging from approximately 10 to 13 percent. As a result, District officials missed the opportunity to use its reserves to finance operations and the tax levy was higher than necessary. District officials need to improve their process to effectively account for extra-classroom activity fund collections and disbursements. District officials did not maintain adequate records to document 22 extra-classroom activity fund collections totaling $11,990. Student treasurers did not prepare and retain adequate records to document all collections. Duplicate press-numbered receipts or sales reports were not remitted to the central treasurer and adequate profit and loss statements showing fundraising profitability were not completed. Additionally, District officials did not collect and remit $1,382 of sales tax to the New York State Department of Taxation and Finance as required. Finally, student treasurers did not maintain independent ledgers documenting collections and disbursements.

The Board and Executive Director did not manage FURA operations within the authority provided by law. The FURA's governance structure was highly inappropriate and not consistent with applicable legislation for URAs. The Board manages the FURA as if it is a department of OCED − an overarching umbrella in name only − which includes the separate and distinct corporate entities of the FURA, FIDA and FLDC. Each of these entities has its own distinct statutory purposes, responsibilities, powers and duties. This governance structure inappropriately gives the appearance that the three entities are legally affiliated with each other or subsidiaries of the OCED. This intertwined governance structure has caused the FURA to act outside its statutory authority. Specifically, the FURA inappropriately gifted $250,000 in assets to the FLDC. The FURA also made an annual contribution to the Village totaling $10,560 for the 2014 fiscal year without a basis for the budgeted amount and contract stipulating services to be covered by this contribution. Furthermore, the FURA inappropriately received subsidies from FIDA totaling $250,000 from 2010 through 2014 and incorrectly recorded $350,000 as due from FIDA instead of cash in the accounting records. Management's improper governance practices have led to inappropriately commingled bank accounts and combined and inaccurate accounting records for the three OCED entities, as well as significantly misstated annual financial statements.

The Board and Executive Director did not manage FIDA operations within the authority provided by law. The FIDA's governance structure was highly inappropriate and not consistent with applicable legislation for IDAs. The Board manages the FIDA as if it is a department of the Office of Community and Economic Development (OCED), which includes the separate and distinct corporate entities of the FIDA, Village of Fairport Urban Renewal Agency (FURA) and Village of Fairport Local Development Corporation (FLDC). Each of these entities has its own distinct statutory purposes, responsibilities, powers and duties. This governance structure inappropriately gives the appearance that the three entities are affiliates of each other or subsidiaries of OCED. This intertwined governance structure has caused the FIDA to act outside its statutory authority. At the end of 2014, FIDA's unrestricted net assets totaled approximately $2.2 million, which was more than six times its 2014 budget of approximately $343,000. FIDA accumulated this large balance by retaining additional rent payments from long-term lease agreements that were executed prior to statutory amendments that require IDAs to return such funds to the affected taxing jurisdictions. In 2014, the FIDA made an annual contribution to the Village totaling $42,240 but had no basis for the budgeted amount or contract stipulating services to be covered by this contribution. The FIDA inappropriately gifted assets and made advances for commercial loans to the FLDC totaling approximately $824,000. The FIDA also made commercial loans of its own moneys without statutory authority; it had two questionable outstanding loans with balances totaling $187,000 as of November 30, 2014. In addition, the FIDA inappropriately subsidized the FURA by a total of $250,000 from 2010 through 2014 and inappropriately recorded $350,000 as due to FURA to make it appear that it had outstanding debt. Furthermore, these improper governance practices have led to inappropriately commingled bank accounts and combined and inaccurate accounting records for the three OCED entities, as well as significantly misstated annual financial statements.

We found that County did not always obtain the desired quantity of materials and supplies at the lowest possible cost in accordance with the adopted policies. The Legislature did not award highway material and supply bids to the lowest responsible bidder as required and the Highway Department did not always make purchases from the vendor with the lowest bid price. If the County purchased asphalt and stone products from the low bidders, it may have saved $10,000. County officials and employees who were provided with purchase cards did not always comply with the purchase card policy. Card holders did not sign a cardholder agreement and the Treasurer's office did not periodically audit purchasing card transactions for compliance with the County's policies. As a result, the County cannot ensure that all purchases were made at the lowest cost and in compliance with the purchase card policy.

The former Clerk retired on June 29, 2014, but made two cash deposits totaling $20,000 into the Town's general fund bank account after her retirement. Town officials found these deposits to be suspicious, in part, because the former Clerk had only been working at the Town a few days each month since February 2014, and the Deputy had generally been preparing and making the bank deposits during the six months leading up to the former Clerk's retirement. The Board requested that we conduct an audit of the former Clerk's records. We examined the former Clerk's records through December 2013, when she was working full-time for the Town and handling most of the recordkeeping and depositing duties for her office. We found that the former Clerk did not properly record all cash receipts and did not deposit all moneys received intact and in a timely manner. The former Clerk received at least $36,742 from January 1, 2009 through December 31, 2013 that was not deposited into a Town bank account and could not be accounted for. We also found the Board did not provide adequate oversight, including adopting written policies or procedures for the handling of cash receipts and performing an audit of the financial records.

Department officials have established a cash management policy and related procedures that addresses the collection, deposit and reporting of transfer station cash receipts and establishes an inventory process for garbage bags and garbage disposal stickers. Attendants collect money at each transfer station and enter the details of each transaction, such as the amount collected and payment method, into the Department's computerized financial system and print a transaction receipt. However, the attendants have the ability to void the transactions from the system after receipts are recorded. Monthly, the clerk completes a reconciliation comparing bank statement deposits to the daily transaction report totals. However, prior to our fieldwork, the Clerk did not review the voided transactions. We reviewed two weeks of transfer station cash receipts totaling $153,785 from the receipts and/or transaction reports to deposits on bank statements and found that all amounts were deposited timely and intact with no significant exceptions. However, we identified weaknesses in controls over the inventory of garbage bags and garbage disposal stickers.

The District's multiyear financial and capital plans are not comprehensive because they lack certain information, including the funding and use of reserves, grant funding, capital improvements, long-term maintenance on capital improvements and bus purchases. Additionally, District officials have not adequately analyzed reserves to determine if they were established and funded properly and whether existing balances are appropriate and necessary. Although the District's total reserve balances as of June 30, 2015 were limited, totaling $2.06 million or 10 percent of budgeted appropriations, the majority of these funds were maintained in three reserves. Two of these reserves (the unemployment insurance reserve and insurance reserve), with balances totaling $1,077,769, may be unnecessary based on the District's historical needs. The third reserve (other restricted fund balance) with a balance totaling $368,355 has not been formally established to restrict funds for a legally authorized purpose. Currently, the District is undergoing a $10 million capital project and has an additional list of recommended or desired capital improvements. Therefore, the District may be better served by establishing a capital reserve that could be funded with the excessive amounts in the District's other reserve funds.

The Board and District officials overestimated certain expenditure items for four consecutive fiscal years and underestimated revenues in two of the four fiscal years, creating cumulative operating surpluses of over $7.9 million. In addition, the Board appropriated $650,000 of fund balance in each of the last four fiscal years to finance District operations that was not used. These surpluses were then used to fund newly established reserves. By preparing budgets that are not based on realistic projections or estimates and on the most current and accurate information available, the Board and District officials retained fund balance more than the amount allowed by law and may have levied more taxes than necessary.

In 2014, Town officials did not properly budget or allocate approximately $135,000 in highway equipment purchases between the town-wide and town-outside-village highway funds. As a result, the Town unnecessarily increased tax rates for Town residents residing within the Village and subsequently lowered tax rates for Town residents living outside of the Village. These actions also caused the operations of those funds to be misstated and may result in an inequitable tax burden.

The District needs to improve its internal controls over the procurement of goods and services not subject to competitive bidding requirements. District officials did not follow or enforce compliance with the District's procurement policy when purchases were not subject to competitive bidding requirements. As a result, purchases were made without the benefit of price comparisons and without sufficient documentation to support the basis for the selection of vendors. This occurred because written procedures were not in place to monitor and enforce compliance with the District's procurement policy.

The Board did not ensure that all disbursements represented proper Department expenses and that cash receipts were properly accounted for. As a result of the lack of oversight and non-existent controls over cash receipts and disbursements, personal bills belonging to the Fire Chief and a former Board member were paid using $7,780 of Department funds, and we could not verify the propriety of an additional 177 disbursements totaling $60,108. Furthermore, because of the lack of available supporting documentation, we could not determine if $5,503 of recorded receipts from donations, hall rentals and fundraising activities were deposited.

Although the Board and Town officials ensured that the District was properly established, they did not adequately plan for key aspects of construction and operations. The Board did not adopt written policies or procedures governing water use and billing until a few days before processing water bills for the first billing cycle. The Board also did not ensure that adopted water rates would be sufficient to cover the cost of District operations. As a result, we project that the District is facing a potential revenue shortfall of approximately $15,000 in the first year of District operations. Additionally, as of October 22, 2015, Town officials had yet to start the bidding process for the construction of the water lines even though construction was expected to be completed by June 30, 2016. The Town will incur additional costs if construction is not completed on time, but the Board has no plans in place if costs of construction exceed current funding levels.

The Board has adopted an adequate reserve fund policy. During fiscal years 2011-12 through 2014-15, the tax certiorari reserve decreased by $3.5 million and retirement contribution reserve increased by $2.5 million in fiscal year 2012-13. All other reserve account balances remained at approximately the same amount during the period. Retirement system expenditures increased from $897,878 in 2011-12 to $1,074,504 in 2014-15 while the retirement contribution reserve fund balance increased from $1,056,673 to $3,342,768 during the same period. District officials explained that the total amount of the outstanding tax certiorari liability in fiscal year 2012-13 was lower than anticipated due to settlements on reasonable terms. Therefore, the District reduced the amount in the tax certiorari reserve to reflect the decreased tax certiorari exposure by transferring $3.5 million to general fund unassigned fund balance. The transfer caused the general fund unassigned fund balance to exceed the statutory limit of 4 percent of the subsequent year's budget. To meet the statutory requirement, the Board passed a resolution to authorize a transfer of the excess general fund unassigned fund balance amount to the retirement contribution reserve. In addition, the Board approved a five-year plan beginning in fiscal year ending June 30, 2013 to reduce the retirement contribution reserve account by appropriating approximately $1.7 million in excess funds to support the District's operating budget and normalize the trend of future District tax levy increase.