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 The hardware inventory that District officials provided us was outdated, and no software inventory is maintained.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.

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.