The District has six collective bargaining agreements (CBAs) and four individual employment contracts that stipulate the terms and benefits for its employees. All CBAs and individual employment contracts include provisions for eligible employees to earn and use leave time and allow employees to receive a payment or other benefit for earned but unused leave time upon separation or retirement from the District. We found that District officials properly accounted for employee leave accruals and made accurate separation payments and service credits to employees based on the applicable CBAs or individual employment contracts. We commend District officials for establishing procedures to ensure that leave records were adequately maintained and separation payments and service credits were correctly calculated.

Over a three-year period, the Board appropriated almost $14.7 million of fund balance, which should have resulted in planned operating deficits each year. Because the Board adopted budgets which overestimated expenditures by a total of over $11 million in those budgets, most of the appropriated fund balance was not used. When the unused appropriated fund balance is added back, the District's recalculated fund balance as a percent of the ensuing years' appropriations ranged between 9.2 percent and 13.5 percent and was in excess of the legal 4 percent limit. Hence, the District actually retained more fund balance than was legally allowable. Budgeting practices which result in the District maintaining fund balance in excess of the amount allowed by law results in real property tax levies that are greater than necessary to fund operations.

The Board needs to improve controls to ensure that employees receive the salary and benefits to which they are entitled. District officials did not enforce certain collective bargaining agreement provisions and Board resolutions or maintain accurate leave records. As a result, District officials paid nine employees $86,704 for 260 unused sick and vacation days without proper authorization. District officials paid 16 employees $9,127 for 30 days in holiday bonus pay to which they were not entitled and overpaid one employee $4,928 for 19 unused sick days upon retirement. In addition, seven employees were paid $85,807 for 250 sick and vacation days (valued at $88,748 as of December 31, 2014) that were not deducted from the employees' leave balances, resulting in overstated balances and the potential for future overpayments. District officials did not properly monitor life insurance benefits and provided benefits without authority to do so. As a result, the District spent $17,555 more than necessary for group term life insurance benefits. Furthermore, District officials did not receive payment for $2,430 from a Commissioner for the cost of additional group term life insurance coverage. We also found that the Treasurer did not prepare bank reconciliations in a timely manner and did not provide the Board with accurate and timely financial reports. Our review of 60 bank reconciliations for the District's five bank accounts for our audit period revealed that the Treasurer prepared 48 reconciliations more than 30 days after the statement closing date and up to 279 days later. In addition, the Superintendent did not sign or date 26 bank reconciliations to indicate his review. Finally, the Board did not provide adequate oversight over the District financial activities. The Treasurer did not file the 2012, 2013 and 2014 annual financial reports with the Office of the State Comptroller and the District's 2012 and 2013 financial records were not audited in a timely manner.

The Water Board and Authority finances are commingled to the extent that there is no clear division between the two entities. The Water Board performs essentially all the financial operations with very little involvement from the Authority. The Water Board maintains the Authority bank accounts and prepares the budget and maintains accounting records for both entities. For financial reporting purposes, the Authority is presented as a blended component unit of the Water Board in the Water Board's audited financial statements. The Water Board's financial statements for the fiscal year ended December 31, 2014 commingled Water Board and Authority cash without indicating how much was attributed to each entity. Consequently a user of the financial statements could likely incorrectly conclude that all the financial data reported pertained to the Water Board.

District officials issued a $500,000 revenue anticipation note (RAN) in 2014-15 with a 2.89 percent interest rate, renewable in two years. Prior to 2012-13, District officials used RAN proceeds to improve short-term cash flow. However, since 2012-13 the District has had sufficient cash flow and did not need to use any RAN proceeds to fund its short-term cash needs. The District could have saved $43,270 in short-term borrowing interest expenditures from 2012-13 through 2014-15. The District will incur another $14,450 in such expenditures in 2015-16. If the Board had issued a RAN only when needed (to improve the District's short-term cash flow) it could have saved a total of $57,720 in interest expenditures over these four fiscal years. In addition, District officials need to issue purchase orders in a timely manner. We found 15 instances where purchase orders totaling approximately $81,000 were issued after the goods and services were obtained.

District officials have established adequate procedures to ensure employees are accurately compensated. The Board approves all salaries and pay rates in the various contracts for the instructional, non-instructional and administrative employees at the District. At the beginning of each school year, the account clerk updates each individual employees' salary and pay rate as stated in the contracts into the District's financial system. We examined the payroll records for 10 employees for four payroll periods with a combined total gross pay of $88,981, to ensure that the employees' salaries and wages were accurately calculated and in accordance with their CBA, individual employee contract or Board-approved rates. We did not find any errors or other exceptions with the calculation of wages and salaries for these employees.

Based on the results of our review, except for the matters described below, we found that the significant revenue and expenditure projections in the proposed budget appear reasonable. The City's proposed budget complies with the property tax levy limit set by statute. The City has a projected unrestricted general fund balance of approximately $3.8 million at the end of 2015-16. The City has appropriated $680,000, or approximately 18 percent, of the projected fund balance to offset certain general fund expenditures in the 2016-17 proposed budget. We caution the City in appropriating fund balance as the use of it to close gaps in the general fund budget decreases the fund balance that is available to cover unforeseen shortfalls in revenue. The 2016-17 proposed budget includes contingency appropriations of $250,000 in the general fund and $75,000 each in the water and sewer funds. This is approximately 1.5 percent, 2.6 percent and 2.7 percent of proposed appropriations in the general, water and sewer funds, respectively. This provides the City with a limited amount of flexibility in the event of unforeseen circumstances that may require additional funds. In addition, all four of the City's collective bargaining agreements have expired or will expire by the end of 2015-16, and the City is still in contract arbitration with one negotiating unit affecting two previous fiscal years. However, the 2016-17 proposed budget does not contain provisions for any potential increased costs associated with settling these agreements.

BOCES officials established adequate procedures for processing payroll to ensure employees were accurately paid at their approved salaries or wages, but did not establish adequate procedures to ensure employees were accurately paid separation payments. As a result, two employees were overpaid by a combined total of $16,348 because their separations payments were not accurately calculated in accordance with the terms of their collective bargaining agreements.

The District has accumulated unrestricted fund balance that exceeds the statutory limit by approximately $2.3 million (approximately 13 percent) and has levied more taxes than were needed to fund operations during the 2013-14 through 2015-16 fiscal years by that same amount. The Board adopted budgets that did not include estimated revenues for recurring revenues and realistic estimates for expenditures. Consequently, the three annual budgets covering the period of July 1, 2012 through June 30, 2015 underestimated revenues by a total of more than $1.2 and overestimated expenditures by a total of more than $3.6 million. 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, the District realized operating surpluses in all of the last three fiscal years totaling approximately $1.9 million. Therefore, none of the fund balance that was appropriated was actually used in any of the 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.

The Board did not adopt realistic budgets based on historical or known trends. While revenues were generally budgeted accurately, expenditures were consistently overestimated. For fiscal years 2012-13 through 2014-15, the District budgeted for operating deficits averaging $394,143 each year. However, District officials' budgeting practices generated $4.3 million in surpluses over this period. To reduce the fund balance and stay within the statutory limit, District officials transferred $5.7 million to the District's reserves. District officials also continuously appropriated $250,000 in fund balance each year, which has gone unused for the last three years. When adding back unused appropriated fund balance, the District's recalculated unrestricted fund balance was more than 5 percent of the ensuing year's appropriations in each year, exceeding the statutory limit. In addition, five of the District's reserves, totaling approximately $7.7 million, were overfunded and potentially unnecessary.

The Superintendent reviews and certifies the payrolls. However, he does not perform the review and certification prior to the employees being paid. We examined the payroll records for 20 employees to ensure that salaried and hourly employees were paid at their approved rates, that paid time was supported and that the Superintendent certified the payrolls. All payments were supported by District employment agreements, correctly calculated, properly supported and certified by the Superintendent. We also reviewed 12 separation payments that occurred during our audit period that totaled $163,281 and found that the separation payments were accurately calculated, as per collective bargaining agreements or individual employee contracts, and included adequate supporting documentation.

Based on the results of our review, we found that the significant revenue and expenditure projections in the tentative budget are reasonable. The District's 2016-17 tentative budget includes the appropriation of $2.36 million of fund balance to help finance 2016-17 operations. District officials project that approximately $7.06 million in fund balance may be available. The District's actions are reasonable given the constraints imposed by the tax cap. However, District officials must be aware that fund balance will eventually be depleted and a new revenue source will need to be identified to fund operating expenditures.

BOCES made 5,778 claim payments totaling $67.7 million during our audit period. We reviewed 74 of these claims totaling over $483,000 to determine if they contained sufficient documentation and were properly authorized and approved, sufficiently itemized and for valid business purposes. Most claims we reviewed were properly authorized and approved before payment, appropriately supported and for valid business purposes. However, two tuition claim reimbursements totaling $11,565 were approved and paid to an administrative employee even though tuition was not reimbursable according to the administrator's collective bargaining agreement (CBA). The claims auditor told us she was unaware that tuition reimbursements were not included in this employee's CBA. BOCES' officials explained it has been a past practice to allow tuition reimbursements for furthering education relating to employees' job duties, but agreed that if such payments are made in the future, language specific to tuition reimbursements should be included in the administrator's CBA or a policy should be established authorizing this type of reimbursement for administrative employees.

The Board needs to improve the budget process to ensure it adopts reasonable budgets and effectively manages the District's financial condition. The District reported year-end unassigned fund balance at levels that essentially complied with the 4 percent fund balance limit for fiscal years 2012-13 through 2014-15. This was accomplished, in part, by appropriating fund balance and funding reserves at year end. However, over the past three years, the Board appropriated nearly $6.4 million of fund balance, which should have resulted in planned operating deficits each year. Because District officials overestimated expenditures in the adopted budgets, the District experienced large operating surpluses in each of those years. From 2012-13 through 2014-15, total actual revenues exceeded expenditures by as much as $4.1 million and no amount of appropriated fund balance was used to finance operations. As a result, the District's tax levy may have been higher than necessary to fund District operations.

The Board and District officials have not properly managed District finances. During fiscal years 2011-12 through 2014-15, the District annually appropriated an average of $2.8 million (97 percent) more in fund balance than what was actually needed to fund operations. This practice allowed the District to circumvent the 4 percent statutory limit imposed on the level of unrestricted fund balance. During 2014-15, the District appropriated $1.8 million for the 2015-16 budget; however, we project that it will not be needed. As such, we expect the District's unrestricted fund balance will continue to exceed the statutory limit. Recalculated unrestricted fund balance ranged between 11.4 percent and 12.2 percent of the ensuing year's appropriations from fiscal years 2011-12 through 2014-15. Furthermore, the District overfunded two reserves by as much as $9.8 million (97 percent) as of June 30, 2015. This amount is 29 percent of the 2015-16 budget.

We analyzed the District's reserves for reasonableness and adherence to statutory requirements and determined that all four reserves were properly established, and three of the four reserves (tax certiorari, retirement contribution and unemployment insurance) were funded at reasonable levels. The District's employee benefit accrued liability reserve (EBALR), exceeded the amount deemed necessary to pay employees for accrued and unused sick and vacation leave time when they leave District employment by almost $178,000.

The Board minutes did not include the adoption of the two procurement policies that were in effect during our audit period or the names of the bidders and the amounts of the bids that were considered by the Board prior to awarding contracts. Although Authority officials generally followed competitive bidding requirements, they purchased a dehumidifier costing $447,000 without soliciting bids. Although the Board declared this purchase to be an emergency, the policy said that the Company would solicit at least two telephone quotes, if practical; however, the Authority received just one quote. In addition, while Authority officials met the minimum advertising requirements for a $789,948 building electrical contract for which they received only one bid, had they made more of an effort, they may have increased the number of bids received and achieved better contract terms. Further, the two procurement policies that were in effect during our audit period did not provide adequate guidance for purchases when competitive bidding was not required. For example, the policies did not clearly identify who was responsible for purchases from $2,500 up to the bidding limits, or the number and type of quotes – verbal or written – that should be obtained. In addition, Authority officials did not obtain the required price quotes for eight purchases below competitive bidding thresholds totaling $140,737 or use an RFP process as prescribed in the policies to obtain services from two professionals totaling $253,742. As a result, the Authority may have incurred higher costs than necessary or not obtained the most favorable terms for goods and services purchased.

In September 2009, the Board entered into an EPC with an 18-year contract term. The construction occurred from June 2010 to its completion in January 2014. The EPC guaranteed energy cost savings of $4.1 million over the 18-year contract term. The EPC capital project had three amendments, with a total capital project cost of approximately $3.3 million. BOCES officials used the Year 1 Measurement and Verification (M&V) Report from the energy service contractor (ESCO) to compare and verify the results of their monitoring activities to the savings reported by the ESCO. The Year 1 M&V Report showed BOCES saved a total of $181,586 and energy consumption savings of 807,875 kilowatt hours and 46,346 therms. If the BOCES continues with these savings each year, it will be on track to reach the guaranteed savings.

The District procured goods and services in accordance with its policy and the statutory requirements. We reviewed 40 purchases totaling $348,070 that were subject to competitive quotes in accordance with the District's procurement policy or were required by GML to be competitively bid. We found that two of these purchases were subject to bidding requirements. Instead of seeking competitive bids, District officials made these purchases from State contracts, which is an allowable exception to the requirement to seek competitive bids. For the remaining 38 purchases, officials were required to obtain quotes in accordance with the District's procurement policy. Except for minor discrepancies which we discussed with District officials, these purchases were made in accordance with the District's policy. We commend District officials for establishing and implementing an effective system to ensure goods and services were procured in accordance with their procurement policy and applicable statutes.

The Board adopted an investment policy, last updated in February 2014, which designates the Treasurer as custodian of District funds. However, the policy does not limit depositories to banks and trusts, as authorized by GML. The policy listed a brokerage firm as a depository, with which the District opened a securities account for the deposit and investment of its two reserve funds totaling $328,063. The District's written agreement with the firm states that the firm is not a bank and that deposits are not insured by the Federal Deposit Insurance Corporation (FDIC). While the firm invested most of the District's money with various banks, the reserve accounts were not invested with a bank or trust located and authorized to do business in New York State. In addition, GML requires any amounts in excess of FDIC coverage to be secured by a pledge of eligible securities. There is no indication in the agreement between the District and the firm that the moneys are secured. Furthermore, the agreement lists the District's Board members as the signatories on the accounts, rather than the Treasurer. In addition, The Board did not exercise appropriate oversight or establish sound policies and procedures related to credit card usage and did not provide sufficient oversight of travel and meal expenditures. The District's policies for credit card use and travel expenditures were inadequate, and the Board did not establish a policy for meals and refreshments. District officials did not comply with existing policies, and the Board did not provide oversight to ensure that funds were used for legitimate District business purposes.