District officials did not always comply with the District's purchasing policy and procedures when procuring professional services and other purchases whose cost was under the bidding threshold. They did not use competition when procuring the services of five professional service providers and when making nine purchases. Therefore, the Board does not have adequate assurance that these goods and services were procured in the most economical way and in the best interests of the taxpayers.

Although we did not find any material discrepancies with the District's payroll payments, we found that District officials have not established adequate internal controls over payroll. Specifically, we found District officials did not adequately segregate payroll duties or establish sufficient compensating controls. The payroll clerk performed all steps in the payroll process, including adding employees and entering and modifying employee information in the District's accounting software program. In addition, the payroll clerk is responsible for printing payroll checks and processing direct deposits. Furthermore, the payroll clerk remits the amounts withheld for employee benefits to appropriate entities and has full user access rights for entering and changing employee information in the accounting software program. The District had instituted a compensating control by having both the Superintendent and the Business Manager review the payroll register provided by the payroll clerk before pay day. However, their reviews were not extensive enough because they did not compare payroll journals to payroll source documents (i.e., time records). Further, while the District's accounting software program had the capability to generate payroll change reports, these reports were not routinely prepared or reviewed by the Superintendent or the Business Manager.

The Board and Town officials have not developed policies and procedures to govern budgeting practices and the level of fund balance to be maintained. As a result, the Board adopted budgets that were not based on sound and realistic revenue estimates. The Board underestimated sales tax revenue from fiscal years 2012 through 2014 by a total of $634,000 (105 percent), which contributed to the operating surpluses and excessive fund balance in the town-wide general fund. At the end of 2014, the Town reported an unrestricted fund balance in the town-wide general fund of about $2 million, which is six times the amount of the next year's budget for that fund. In addition, from 2011 through 2014, the Board inappropriately used surplus funds from the town-wide general fund to make long-term interfund loans, totaling approximately $1.5 million, to the water special district fund. These loans contributed to the $1.2 million deficit fund balance in the water special district fund at the end of 2014. Further, the Board has not developed long-term financial and capital plans to help identify and work toward its goals. The Supervisor did not ensure that the clerk maintained all the necessary accounting records, including subsidiary revenue expenditure ledgers and general ledgers, and that each fund and special district were accounted for separately. Lastly, the Board did not annually audit, or have an independent public accountant audit, the Supervisor's records, which hindered its ability to adequately monitor the Town's financial operations.

We generally found the Authority has adequate controls over the collection of tenant rent payments. However, Authority officials could strengthen internal controls by assigning a unique user identification and password in the computer system to each employee that collects rent. This will provide accountability by tracking who collects and records each payment received. In addition, Authority officials do not generate and review audit trail reports, which increases the risk that inappropriate transactions could be made without detection. We found minor exceptions with our audit tests of rent collections and adjustments, which we discussed with Authority officials.

District officials have not properly managed fund balance. As a result, unrestricted fund balance has consistently exceeded statutory limits. As of June 30, 2015, the District's unrestricted fund balance was $4.2 million (18 percent of the ensuing year's budget) or approximately $3.3 million over the legally allowable limit and is projected to remain at nearly the same level (17 percent) at the end of 2015-16. Although District officials annually appropriated a portion of fund balance towards the subsequent year's budget, none of the amounts appropriated were used because District officials consistently overestimated appropriations resulting in operating surpluses. This trend is projected to continue through 2015-16. Moreover, once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's unrestricted fund balance amounts in all three years ranged from $4.4 million (20 percent) to $5.6 million (24 percent). In addition, District officials consistently budgeted in the general fund 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 every year by an average of 2 percent, or a total of $760,000 over the last four years. As a result, District officials may have missed opportunities to reduce taxes and return excess funds back to the taxpayers.

District officials established effective procedures that ensure claims are audited in a timely manner and in accordance with District policy. The Board has delegated the responsibility to audit District claims to a claims auditor. The policy requires the claims auditor to conduct a thorough audit of each claim and verify that the goods or services on the claim were received. The claims auditor must also ensure that the claim is mathematically correct, does not include previously paid charges, and agrees with the purchase order or contract on which it is based. The policy also requires that the Treasurer pay valid claims against the District only upon the claims auditor's approval. We commend District officials for establishing and implementing an effective system of controls over claims processing.

Although District officials have recently started to take measures to improve their financial condition, they did not properly manage the general fund's financial condition. Expenditure growth outpaced revenue growth by 20 percent from 2012-13 through 2014-15. This expenditure growth was primarily caused by increases in personal service costs (8 percent) and employee benefits (17 percent). Moreover, the District's total fund balance dropped by 50 percent or $931,000 from 2012-13 through 2014-15. Although District officials' estimated revenues and expenditures in the 2012-13 through 2014-15 budgets that were reasonable, the adopted budgets were not structurally balanced. The 2012-13 and 2014-15 budgets included $3.5 million of fund balance as a financing source to keep real property tax levies artificially low. This resulted in using $1.2 million or 50 percent of fund balance to fund recurring expenditures. While the level of fund balance at the end of 2014-2015 was reasonable, further appropriations of fund balance could cause financial stress. The Board did not appropriate fund balance in its adopted 2015-16 budget and District voters approved overriding the tax levy limit. District officials are also currently working on implementing cost saving measures.

Over the past three years, the Board and District officials have adopted budgets that used general fund balance and certain reserve funds for operating expenditures. We commend the Board and officials for bringing the unrestricted fund balance closer to the 4 percent statutory limit, from 7 percent to 5.3 percent for fiscal years 2012-13 through 2014-15, and using reserve funds appropriately. As expenditures outpaced revenues, the Board and officials used unrestricted fund balance and certain reserve funds to offset the variance. However, continued reliance on unrestricted fund balance and reserve funds to finance recurring expenditures will put the District in a precarious financial position. If District officials use over $164,000 (33 percent of the June 30, 2015 fund balance) to fund 2015-16 operations as planned, it will be the third consecutive year with an operating deficit. If District officials continue to appropriate and use fund balance at this rate, we estimate the unrestricted fund balance will drop to 2.7 percent of the ensuing year's appropriations by the end of 2015-16. The continued use of fund balance and reserve funds to finance operations has also led to the real property tax levy being artificially low. If expenditures remain steady and District officials do not identify other significant revenues to offset the use of fund balance, the real property tax levy would need to increase approximately 6 percent to make up the 2015-16 budget shortfall. Moreover, significant balances set aside for specific purposes in reserve funds limits the ability to finance expenditures for other purposes including capital needs.

Library officials need to continue to improve the Library's financial management. Although officials established proper internal controls over day-to-day financial operations, they struggled to balance the level of desired and expected services with the operational NYS Education Department requirements and available revenue sources. Over the last three years, Library officials have not developed structurally balanced budgets because the primary source of revenue comes from the County and officials are unable to increase this funding as necessary. As a result, from 2012 through 2014 the Library experienced operating deficits totaling $266,000 and fund balance was depleted by 38 percent. If Library officials continue to use fund balance as a financing source, it could have a significant effect on the financing of future budgets and the ability to maintain current service levels.

While District officials kept taxpayers informed about the level of fund balance through public meetings, budget newsletters and internet video recordings, they did not properly manage fund balance or ensure budget estimates and all reserve fund balances were reasonable. Total fund balance has increased by more than $1 million from 2012-13 through 2014-15 and unassigned fund balance was over 7 percent of the ensuing year's budget as of June 30, 2015, exceeding the statutory limit of 4 percent. Over the past three years, District officials used approximately $1 million of the annual operating surpluses to fund five reserves that, as of June 30, 2015, totaled approximately $3 million. While most reserve fund balances were reasonable, one was overfunded. As a result of these practices, District officials may have levied real property taxes that were higher than necessary to fund District operations.

The Board did not adopt adequate policies for tenant rent collections to ensure payments were safeguarded. Incompatible financial duties within the Authority's office were not adequately segregated and the controls designed to mitigate the associated risks were insufficient. However, we found that three clerks' duties could be modified to help segregate the processing of rent collections. We randomly selected the month of November 2014 within our audit period and reviewed 105 tenant rental payments and related fees during that month totaling $30,734. Except for minor discrepancies which we discussed with Authority officials, we found that all tenant rental payments were properly recorded in the accounting system and deposited intact and in a timely manner. The Board also did not establish policies or procedures to guide staff when processing claims against the Authority. As a result, claims were not audited prior to payment. We reviewed 50 claims totaling $189,005 to determine whether they had proper supporting documentation and were appropriate Authority expenditures. Although we found that the claims reviewed were proper Authority expenditures, we identified minor deficiencies which we discussed with Authority officials.

Village officials have no oversight or monitoring procedures in place to ensure that deposits are made within 10 days, as required by Village Law. The Treasurer deposited Village receipts as infrequently as one to two times per month. In addition, neither the Treasurer nor the police clerk issued duplicate receipts for payments received in the mail or by check. While the Treasurer maintains a cash receipts log that notes the date, payee, amount and form of payment, this log is not periodically reviewed and is not a sufficient alternative to issuing press-numbered receipts for all transactions. Because Village personnel do not deposit receipts in a timely manner or record the collection of all receipts in a press-numbered duplicate receipt book that is routinely reviewed by an individual outside of the collection process, the Village has an increased risk that cash receipts could be lost, stolen or misappropriated without detection.

District officials have established effective procedures to ensure claims are adequately documented and supported, for legitimate District purposes and approved prior to payment, in accordance with District policy and Education Law. The Board adopted a claims policy which requires the claims auditor to determine that each claim against the District is for a valid District purpose, and that the obligation was incurred by an authorized District official, the items for which payment is claimed were in fact received or services were rendered, and the obligation does not exceed the available appropriation. The policy also requires the claims auditor to verify that the claim is mathematically correct, does not include previously paid charges, and is in agreement with the purchase order or contract upon which it is based. We commend District officials for establishing effective procedures for processing claims against the District.

In many regards, the Board has taken a passive role and yielded much of its rightful decision-making duties and authority to the College President. The President and other College officials have been allowed to act independently of the Board and have made significant decisions out of the view of the public and students. The Board did not authorize salaries and benefits for senior executives. The President assumed responsibility for establishing salaries and authorizing benefits for senior executives and was allowed to do so without adequate Board oversight. College officials did not submit required written justifications to the Board for approval prior to creating 10 senior executive positions with annual salaries totaling $756,000. Moreover, the College made questionable compensation payments to two executives totaling $77,000. Also, leave records were not accurate or updated in a timely manner. As a result, two executives received overpayments totaling $5,285. In addition, although the Board adopted a procurement policy that required competition for purchases not subject to bidding requirements, College officials did not follow it. The College paid 11 professionals a total of $440,000 for services without using requests for proposals as required by the College's procurement policy. The College also paid one professional $514,000 for services without verifying that State contract pricing was obtained. Further, the College did not enter into written contracts with eight professionals for services totaling $342,000 and paid two professionals a total of $72,400 based on claims that lacked dates and/or descriptions of the services provided. Finally, the Board has not provided adequate oversight over the College's contracts with affiliated entities to ensure services were rendered as contracted and the consideration provided by the College was appropriate. The College, the Auxiliary Services Corporation of Erie Community College (ASC) and the Erie Community College Foundation are separate and distinct entities governed by their own Boards. However, certain College officials − including the President and the Chief Administrative and Fiscal Officer − hold key positions at the Foundation and the ASC, respectively. The close relationship between the three entities and these overlapping roles have often compromised the transparency of the College's actions and operations.

The Board did not properly oversee the District's $17 million capital project. While the completed project costs were below the amounts budgeted, the Board did not ensure goods and services were procured in compliance with the General Municipal Law or the District's procurement policy. In addition, the Board did not periodically obtain and review budget-to-actual financial reports or review and approve change orders. Without proper monitoring, the project could have experienced large cost overruns or work could have been performed that was outside the voter-approved project scope; Furthermore, the Board has little assurance that project goods and services were acquired in the most prudent and economical manner and without favoritism.

Since fiscal year 2012, the Board has taken steps to reduce the Town's town-outside-village excessive fund balance. However, the Board did not develop a written multiyear financial and capital plan that detailed how to accomplish its goal of reducing fund balance and lowering the overall budget and tax levy in a five-year period. The Board also did not have policies or procedures governing budgeting practices or the level of fund balance to maintain. In addition, due to accounting errors and lack of monitoring, sales tax revenues were inappropriately disseminated and cash flow problems and tax payer inequities occurred. Specifically, at the end of 2014, the town-wide general fund had a total fund balance deficit of $38,956 and the traffic district fund had a fund balance deficit of $44,073. As of the end of 2014, the town-wide general, capital projects, fire protection, traffic district and park funds all used a total of $1.3 million in cash from other funds to pay their financial obligations. However, four of the five funds ended the year with insufficient cash assets to pay back the liabilities as required.

The Board did not establish adequate internal controls over the cash disbursements process. As a result, 12 checks totaling $241,893 were written to the Chair's wife, of which $239,622 was inappropriate. The Chair represented $228,871 of this amount as reimbursement for payments to the District's contracted architect, which neither the Chair nor his wife had made. To obtain reimbursement, the Chair submitted falsified invoices and supporting documentation for nonexistent architectural services, business trip expenses, and permits that were never purchased. In addition, the District's credit card was used to make $14,910 in questionable purchases, including gas, cigarettes, groceries and other personal items. We also found that the Board did not perform a proper audit of claims prior to payment or ensure that adequate supporting documentation was attached. The District made 63 payments totaling $451,844 that had no support and another 64 payments totaling $196,863 that had purchase orders, but no other supporting documentation such as an itemized receipt or invoice. Had the Board performed a thorough audit of all disbursements and questioned the unsupported claims, it likely would have discovered these inappropriate payments and been able to take corrective action.

The District contracted with the Consultant to oversee and coordinate transportation services for $32,600 annually. However, we found that, as reported in our prior audit, the companies of the Consultant and the Vendor appear to be related or affiliated to each other. Despite the concerns raised in our prior audit and a report by an independent transportation advisor (Advisor) hired by the Board, the District entered into a new contract with the same Consultant when the contract expired in 2009. We found that the Board has not provided sufficient oversight of the Consultant and the Vendor. District officials have not periodically solicited bids or requests for proposals for primary transportation services. Instead, they have subsequently extended the contracts annually as they expired. In addition, we found that the Consultant did not provide all of the services which, based on the contract with the District, appeared to be the Consultant's responsibility. The Consultant reviewed the Vendor's monthly billings. We reviewed 22 disbursements totaling over $1.2 million and found minor deficiencies. However, we found that the mileage information submitted by the Vendor for fuel reimbursements was not supported by appropriate documentation and the District was overbilled for over 5,200 gallons of fuel with a value of approximately $16,300 for 2013-14.

We reviewed the Village's cell tower revenues and cash disbursements to professional service providers and found that, generally, controls over tower revenues and disbursements were adequate. However, the Village did not receive any revenues for one of the co-locators during the 2014 calendar year. Village officials told us they did not have any new amendments for the delinquent cell carrier and were unable to determine the exact dollar amount owed to the Village. We estimated the amount the Village did not receive to be between $13,900 and $14,900. After we completed our fieldwork, the Village settled with the co-locator and received $13,250.

District officials generally ensured claims were properly audited prior to payment. However, the BOCES claims auditor approved all District payments including the payments made to the Otsego Northern Catskills BOCES. When a BOCES directly provides claims auditing services to a district using a BOCES employee, while providing goods and other services to the same district, the arrangement puts the individual serving as claims auditor in the position of approving significant claims submitted by the BOCES, the individual's employer. Therefore, the claims auditor's objectivity and independence is compromised. In addition, checks are printed with the Treasurer's electronic signature affixed prior to the claims audit, and the Treasurer does not directly supervise the application of her signature. The District's independent auditors identified a control weakness in the District's claims audit process in the 2013-14 fiscal year. For example, they found several months in which claims were paid prior to certification from the claims auditor. Finally, The Board and District officials generally ensured the unrestricted fund balance was within the 4 percent statutory limit. However, certain reserves had significant balances when compared to their respective liabilities. District officials have a five-year plan to reduce these reserves to reasonable levels.