When the Village of Keeseville dissolved, the Town of Ausable (Town) and the Town of Chesterfield entered into a verbal agreement to provide for the continuation of water and sewer services to residents who previously received these services from the Village. We commend the Town for engaging in inter-municipal cooperation to ensure the continuation of water and sewer services in an efficient manner. However, the verbal agreement entered into by the Town was not sufficient to ensure Ausable Water District 2 (AWD2), Ausable Water District 3 (AWD3) and Ausable Sewer District 1 (ASD1) were properly managed. The Board did not develop individual budgets and the Supervisor did not maintain separate accounting records for these districts. As a result, Town officials could not monitor each respective district's financial operations or determine if each district was self-sufficient. In addition, the Town designated the responsibility of billing, collecting and enforcing water and sewer charges for AWD2, AWD3 and ASD1 to the Town of Chesterfield, but did not enter into a written inter-municipal agreement with the Town of Chesterfield or request or receive adequate supporting documentation from the Town of Chesterfield to allow Town officials to provide proper oversight of the districts' operations. Consequently, the Board did not receive or approve the water and sewer billing registers. Further, the Town of Chesterfield did not assess penalties to delinquent accounts. As a result, the Town did not properly enforce all delinquent accounts. In addition, Town officials were unaware that $14,914 in collections that were recorded as being received by the Town of Chesterfield had not been remitted to the Town.

The Board needs to improve its budget development practices. The Board consistently budgeted to appropriate more fund balance in the town-wide general fund than was actually available to finance operations. These practices caused deficits of $15,192 in 2014 and a projected deficit of $8,437 in 2015. The Board also appropriated substantial fund balance in the town-wide highway fund to finance operations, which caused this fund's unrestricted fund balance to decrease by $98,592, or 52 percent, from 2013 through 2015. The Board must be careful when appropriating fund balance in future budgets to ensure that it does not get depleted. Additionally, the Board has not developed a multiyear financial and capital plan to address the Town's long-term priorities. Lack of this plan diminishes the Board's ability to manage Town finances.

The District's purchasing policy does not require District officials to use competitive bidding for any purchases. As a result, District officials did not adhere to General Municipal Law bidding requirements for purchases of goods and services. Also, District officials did not always comply with the District's purchasing policy by obtaining written quotes for purchases. Consequently, the District paid $27,411 more than necessary when procuring goods and services.

District officials do not require the use of purchase orders when purchasing goods and services. Additionally, District officials did not always seek competition for goods and services that fell below the bidding thresholds and when selecting professional service providers. Therefore, the Board does not have adequate assurance that services were procured in the most economical manner and in the best interest of the taxpayers.

We found that District officials properly billed and collected for tuition. For the past three fiscal years, the District billed an average of $7.5 million in tuition, and due to the timely collections, funds were sufficient to cover the District's cash-flow needs. The District's billing and collection process expedites the collection of tuition, which allows the District to remain financially solvent. We commend District Officials for developing and implementing a good system of controls over tuition billing.

We identified significant internal control weaknesses over the Authority's billing and collection of tenant rents. There were no comprehensive written policies and procedures, billing and collection duties were not properly segregated and no one internally reviewed the rent and additional charges posted to tenants' accounts by the housing assistant supervisor and the account clerk/typist. Further, we found collections were not always deposited intact because eight personal checks totaling $1,980 were cashed using Authority funds. We also found that users' access rights within the tenant accounts module of the computerized financial system were not properly restricted, and Authority management did not generate and review adjustment or voided-payment reports from the system. As a result, unauthorized changes could be made to the financial data or inappropriate transactions could be initiated to conceal the misappropriation of funds.

The Board adopted budgets for 2011-12 through 2014-15 that appropriated a total of $16.7 million in fund balance to finance operations. Because the District consistently overestimated expenditures over the four year period, most of the appropriated fund balance was not used. Furthermore, District officials did not have resolutions establishing two reserves totaling $1.7 million or resolutions that included the intent and/or funding levels for three reserves totaling $4.1 million. In addition, District officials have overfunded the unemployment reserve.

The Parks and Recreation Maintenance Supervisor did not ensure the accuracy of the hours worked by golf course employees, which resulted in improper payments. Two golf course employees were compensated over $16,000 in a three-year period for hours paid that were unsupported by time records. Furthermore, the Supervisor did not adequately segregate payroll duties or establish sufficient compensating controls, which increases the risk that funds could be misused without being detected.

The Board and BOCES officials generally ensured that the extra-classroom cash receipts and disbursements were properly safeguarded. However, while the central treasurers follow State Education Department (SED) guidance, they do not have detailed procedures in place to formally reconcile the potential sales from fundraising activities to the amount collected and deposited. For example, we tested five fundraising activities and found that no one reconciled final fundraising activity, comparing the amount of items purchased and sold to the amount of cash collected and recorded. BOCES officials told us they did not perform the fundraising activity reconciliations because these were not specifically required by SED. For the past several years they tried to gradually improve controls but did not want to overly burden the faculty advisors or central treasurers all at once.

District officials have established adequate procedures over the claims processing function to ensure that claims were for appropriate purposes, adequately supported, and audited and approved prior to payment. The Board has delegated its claims auditing responsibility to a claims auditor. We commend District officials for establishing and implementing effective procedures over the District's claims processing function.

Although the Board and District officials actively monitor the District's financial condition, the District has experienced some fiscal problems during the last six years. As of June 30, 2015, the District reported a fund balance deficit of $175,000 (2 percent of the ensuing year's budget). The District relies on short-term debt to alleviate cash flow problems, but District officials do not monitor cash flow during the year to ensure there will be sufficient cash on hand to satisfy current obligations. Furthermore, as of June 30, 2015, the District had approximately $932,000 in accounts receivable. Although the Treasurer takes appropriate action to ensure all tuition due the District is collected in a timely fashion, the Board has not adopted written policies and procedures to help guide the billing and collection process.

We analyzed the District's reserves for reasonableness and adherence to statutory requirements and determined that all seven reserves were funded at reasonable levels. While the tax certiorari reserve balance exceeded the District's average historical settlement as a percentage of the original claim amount, the excess amount is reasonable. We encourage the Board to continue its funding of reserves at levels deemed reasonably necessary based on all information available during the budgeting process, and to ensure the appropriate use of those funds.

The Board and Authority officials did not establish an adequate system of internal controls over water charges. For example, no one independent of the billing clerk reviewed the billing registers and collections in the form of cash were not deposited in a timely manner or properly secured prior to deposit. In addition, Authority officials did not properly limit users' access within the billing and collection software. As a result, there was an increased risk that cash collections could be lost or misused and that unauthorized changes could be made to the financial data or inappropriate transactions could be initiated and remain undetected.

District officials waited until the end of the 2014-15 fiscal year before making approximately $523,400 in budget transfers to correct 72 appropriation accounts that were overexpended during the course of the year. District officials continued to spend appropriation accounts even after the budget reports showed negative account balances. The Board did not approve the transfers until almost two months into the next fiscal year, and 77 budget transfers, totaling $1,038,006 (95 percent of the total amount transferred during the year), did not have the Superintendent's approval as required by District policy. We also found that the District did not develop and implement comprehensive IT controls to safeguard IT assets and data from unauthorized access, harm or loss. Four individuals have administrative permissions in the financial application that do not align with their job duties. In addition, no one was reviewing the audit log (automated trail of system activity) as a compensating control. Furthermore, the rooms housing servers and other IT infrastructure were unlocked and did not have other adequate safeguards. The hardware inventory that District officials provided us was outdated, and no software inventory is maintained. Lastly, the disaster recovery plan did not contain adequate information to guide District officials and staff in the event of a disaster affecting IT operations.

The Board appoints an individual as Treasurer each year at its reorganization meeting. However, the functions of this individual are limited to signing checks for Library disbursements. The Treasurer does not maintain any Library accounting records or prepare and submit monthly reports to the Board. In addition, the Treasurer's status, as either a Library officer or independent contractor, is unclear. Because the Treasurer is responsible for the care and custody of Library funds, the Board cannot delegate these functions to an independent contractor. In addition, it is essential that the Treasurer, not other Library staff, performs the duties for which the Treasurer is responsible, including maintaining accounting records, depositing and disbursing funds and providing a monthly Treasurer's report to the Board.

The payroll clerk's duties were not adequately segregated because she was responsible for collecting employees' time records; recording the hours worked or salaries to be paid; making changes to employees' pay rates, withholdings and deductions; and having access to paychecks until she disbursed them to District employees. The payroll clerk performed all of these duties with limited oversight. Although the Board adopted a payroll policy that included oversight procedures to mitigate the risk resulting from a lack of segregation of duties, these procedures were either not adequately performed or not performed at all. We reviewed all payroll payments totaling $1,023,287 made to 20 employees during our audit period and identified minor discrepancies. The lack of segregation of duties associated with processing payrolls, along with the lack of adequate oversight, increases the risk that errors or irregularities with the processing of payrolls could occur and remain undetected.

We found that District officials established adequate procedures for payroll to ensure employees were accurately paid at their approved salaries or wages. We also determined that the various procedures for the District's payroll process provided adequate supervision and oversight.

Cortland County Industrial Development Agency (CCIDA) officials have developed adequate procedures for selecting and monitoring participating projects and for managing the assistance and incentives provided to the firms or businesses in the CCIDA tax exemption program. Projects are monitored and performance goals are tracked. If a project does not meet contractual agreements, CCIDA officials adjust tax exemption amounts based on performance.

Even though County officials have been discussing the escalating costs of temporary housing for several years, prior to March 2014, they had not taken steps to effectively manage these costs. Since 2001 the annual total temporary housing costs have increased, with a dramatic increase beginning in 2006. From 2006 through 2014, temporary housing costs in the County have increased by 400 percent from almost $183,000 to over $909,000. This increase is a result of the length of stay and cost per night. In 2001, County officials paid for 645 nights of temporary housing costs for 60 cases, while in 2014, they paid for 17,731 nights for 291 cases. If County officials could reduce the costs for providing temporary housing for their most expensive cases by using less expensive options to reduce the amount paid per night and number of nights stayed, they could have saved approximately $1 million from 2012 through 2014. Or, if County officials could bring the County's cost per capita in line with the costs of neighboring counties by adopting some of the strategies used in those locations, we estimate that the County's costs could be reduced by hundreds of thousands of dollars. For example, if Otsego County's cost per capita of $43 were the same as Sullivan County's cost per capita of $39, Otsego County would have saved approximately $200,000 during the same three-year period.

District officials have generally taken appropriate action to manage the District's financial condition. District officials typically prepared conservative budgets which generated modest operating surpluses. Although District officials developed a multiyear financial plan and include multiyear projections in the annual budgets, a formal, documented multiyear capital plan has not been developed. In addition, the District has not developed a plan to determine the appropriate and necessary reserve fund balance levels or defined its intentions for using reserves as a financing source for capital improvement projects. We question the reasonableness of three reserves with a cumulative balance of approximately $3,380,000.