We found that the District had more than $2.9 million in excessive accrued liabilities and moneys in reserve funds. District officials employed budgeting practices that generated operating surpluses while simultaneously appropriating fund balance in the budgets. This caused fund balance appropriations to be unneeded. As a result, the District's corrected unrestricted fund balance was approximately $4.1 million, or 14 percent of the 2013-14 budget, while the statutory limit for fund balance is 4 percent. The District overfunded its employee benefit accrued liability reserve (EBALR) and tax certiorari reserve by more than $1.4 million. District officials also retained excessive balances in the workers' compensation, unemployment insurance, retirement contribution and insurance reserves.

The Board did not routinely audit and approve claims prior to payment. Instead, claims were audited and approved for payment by the Director, who also signed the disbursement checks to pay the claims. The Board subsequently reviewed a check register that showed the check dates, check numbers, payee names, brief payment descriptions and the payment amounts. However, this review was after the claims had been paid and was incomplete. The Board did not review each claim to determine if they were properly itemized and included appropriate supporting documentation. The Secretary ensured that the Board's review was documented in the minutes. Internal controls are compromised when the same person who audits and approves the claims for payment also signs the checks to pay those claims.

The Board does not provide adequate oversight of the District's cash disbursements. The Board has not adopted policies or procedures for cash disbursements. Furthermore, although the Board reviewed and approved each claim before the Treasurer made payments, the Board did not ensure that claims were supported by adequate documentation. The Treasurer did not maintain a ledger, checkbook register or other suitable record to account for cash disbursements and the balance of cash on hand. The Treasurer also did not prepare monthly bank reconciliations or reports, or prepare and file the District's annual reports with OSC for the past two years.

The District is serving nutritious meals to its students. However, the meals cost more to prepare than the revenue generated by the meal sales. District cafeteria staff produce the meals in a productive manner. The District's productivity level for meals per labor hour (MPLH) is within the industry averages. District officials should actively monitor the MPLH to ensure that operations remain productive. In addition, the District reported deficits in its school lunch fund totaling more than $146,000 over the last three fiscal years. During this same time period, the fund's assigned unappropriated fund balance declined to $0. Ultimately, the fund will require a subsidy from the general fund, which may affect the District's ability to maintain a level of tax levy growth allowed under the New York State Real Property Tax Cap Law and continue to fund school operations.

Based on the results of our review, we found that the significant revenue and expenditure projections in the preliminary budget are reasonable. The Town took appropriate action to implement or resolve recommendations contained in the 2014 budget review report issued in November 2014. The Town's proposed budget complies with the property tax levy limit.

The Clerk did not record, deposit or remit tax moneys collected in a timely and accurate manner. An audit and investigation by our office led to the arrest in July 2015 of the Clerk, who pleaded guilty to two counts of attempted tampering with public records on August 7, 2015, admitting she falsified her personal Town and County tax payments for 2011 through 2014 totaling $4,303. This amount is composed of the Clerk's 2012-2014 tax payment shortages totaling $3,262 as of November 2014 plus an extra cash deposit of $1,041 on May 15, 2012 that the Clerk told us was payment of her 2011 personal taxes. As part of the plea agreement, the Clerk resigned from her position and agreed to pay $4,303 in restitution. We also found other deposits that were not made timely and intact. Finally, the Board did not perform an annual audit, or retain an independent auditor to audit the books and records of the Clerk. Consequently, the Board did not provide appropriate oversight or comply with the Town Law.

Authority officials have appropriately managed the Authority's financial condition. The Board meets monthly with the Executive Director and Deputy Executive Director for detailed discussions and to review financial information. These meetings include examining budget-to-actual reports, occupancy rate reports, cash reports and other relevant financial information. During these meetings, Authority officials closely monitor revenues and expenditures to ensure that revenues are keeping pace with expenditures. The Board also approved the Authority's five-year plan, which includes details on making capital and safety improvements and enhancing the overall community. We commend Authority officials for taking the appropriate actions and maintaining their strong financial condition.

While Library officials have attempted to lower costs and increase interest in the Library, their costs remain high while their patrons and circulation remain low. According to information reported to the New York State (NYS) Education Department by all of the libraries in NYS, the Library's costs were generally higher and generally required higher real property tax levies per resident patron than other libraries. Also, the Library's circulation per full-time equivalent was well below the other libraries for 2012-13. The Library's higher costs are part of the Library's trend of increasing expenditures and real property taxes. Contributing factors include fixed costs for operating its three buildings (Jeffersonville, Narrowsburg and Callicoon) compared to the majority of the other libraries operating one building. Also, the Director and Board President told us they require two staff members each at the Jeffersonville and Narrowsburg buildings and three staff members at the Callicoon building during the buildings' hours of operation. Other than comparing salaries to other libraries, Library officials did not perform any comparative cost analysis of Library operations, nor did they segregate cost information by building. Therefore, we performed a cost analysis for the Library and 119 other libraries. We found that the Library would need to reduce costs (excluding capital costs) by approximately $180,000 to be in line with the average of the total costs per patron of the other 119 libraries. In addition, the Library would need to increase its circulation by approximately 58,000 to be in line with the average of the total circulation per FTE of the other 119 libraries and by approximately 25,000 to be in line with the average of the total circulation per capita of the other 119 libraries. Finally, the Library would need to increase its patrons by approximately 3,370 to be in line with the average of the total patrons per capita of the other 119 libraries.

The Board passed a resolution in 2013 to construct a new fire station to replace fire station No. 3 that was damaged by Hurricane Irene. After review and study of the project, the Board decided on a maximum cost of $4.5 million to be funded by issuance of a $3.4 million bond and $1.1 million from reserve funds. We reviewed the process used to construct the station and found that the Board followed applicable laws. We also reviewed construction related expenditures and found that the expenditures were within the Board-approved amount. However, the District did not use competition to procure professional services totaling $568,289 obtained from seven providers related to the fire station project. In addition, the District did not have written agreements with four professional service providers that the District used during the fire station project.

We found that the Board provided sufficient oversight of the Company's cash disbursements. However, Company officials could improve the process because the Treasurer made certain disbursements that were not made in accordance with the bylaws. The Board also did not establish effective internal controls to address a lack of segregation in the Treasurer's cash disbursement duties. The Treasurer has access to check stock, prepares checks, records disbursements in the accounting records and receives the bank statements. In addition the Treasurer has custody of a debit card, receives and reviews bank statements and canceled checks, and does not provide the Board with bank statements or reconciliations. Debit card use posed a significant risk because the Treasurer had direct access to the Company's bank accounts and any unauthorized use may not be readily detected. In addition, because the Treasurer used the card to pay for purchases without prior Board audit and approval and the payments were not made by checks signed by two Trustees, the Company's bylaw requirements were circumvented.

Over the last three fiscal years, District officials have not established structurally balanced budgets. This resulted in artificially low tax levies since at least the inception of the property tax cap made possible by the use of $1.3 million in fund balance. The District's original 2015-16 proposed budget included a 30 percent tax increase to maintain its current level of services. The voters did not approve this budget, but upon re-vote, approved a 17 percent tax increase made possible by budget cuts of $89,000 and a $294,000 donation. The failure to establish structurally balanced budgets will lead to possible future cuts in services and the continued deterioration of the District's fund balance.

The Board needs to improve its oversight of the Clerk-Treasurer's financial duties. The Board did not adequately segregate the Clerk-Treasurer's duties or implement compensating controls to properly oversee her work. Also, the Clerk-Treasurer did not provide the Board with comprehensive financial reports so that it could properly oversee the Village's financial activities. In addition, the Board did not ensure that the Clerk-Treasurer filed the Village's annual financial reports in a timely manner. Lastly, the Board did not annually audit the Clerk-Treasurer's records. Although our audit testing did not disclose any instances of fraud, these deficiencies increase the risk that inappropriate payments and/or errors could be made and remain undetected.

The Board needs to improve its budget process. We reviewed the Department's budgets and operating results from 2012 through 2014 and found that revenue estimates were generally close to the actual amounts received because the majority of the Department's revenues were from contractual amounts billed to the Town and Villages for fire protection services. However, the Department headquarters and four component companies presented, and the budget committee approved, budgets that underestimated expenditures each year. Department officials said they attempted to reduce expenditures by reducing the amounts appropriated in the budgets that were presented to the component units and the public. Department officials intended to use unrestricted net assets to fund any purchases that exceeded the budgets. As a result, the Board's adopted budgets have not accurately portrayed expected Department operating costs to the companies and the public. Furthermore, by relying on net assets to fund budget shortfalls, the Department is not adopting structurally balanced budgets and is instead funding recurring expenditures with one-shot uses of accumulated net assets. Although the Department has unrestricted net assets totaling $1,620,024 as of December 31, 2014 (41.6 percent of the subsequent year's budget), continuing this practice will eventually result in net assets being depleted and, ultimately could cause the Department to go into a deficit position.

BOCES officials have established adequate controls over the claims processing function that allow claims to be audited in a timely manner and in accordance with BOCES policy and Education Law. The Board has delegated the responsibility to audit BOCES claims to a claims auditor. BOCES policy states that the claims auditor is responsible for formally examining, allowing or rejecting all accounts, charges, claims or demands against the BOCES. We commend BOCES officials for establishing and implementing an effective system of controls over claims processing.

City officials are projecting operating surpluses for the 2015 fiscal year totaling $469,078 in the general fund and $150,449 in the water fund and an operating deficit totaling $172,691 in the golf and recreation fund. The City projects that, as of December 31, 2015, it will have unassigned fund balance deficits totaling approximately $4 million in the general fund, $516,476 in the water fund and $740,254 in the golf and recreation fund. The 2016 proposed budget contains significant financial risks that the City Council should consider when adopting the 2016 budget. The City continues to finance operating expenditures with debt when it should be funding such expenditures with operating revenues. In addition, the practice of supporting a significant amount of operating expenditures with one-shot revenues that may not materialize in 2016 is imprudent. The City included $3.5 million in revenue in the 2016 proposed budget from the sale of waterfront property and City officials were unable to provide any definitive documentation that the sale will take place during the upcoming year. The 2016 proposed budget contains an insufficient appropriation of $315,000 for the payment of tax certiorari refunds, which have averaged $848,000 over the last three years. City officials told us they intend to use debt to finance the balance of 2016 tax certiorari settlements above the existing appropriation. The City's proposed budget complies with the tax levy limit because it includes a tax levy of $29,352,553 that maintains the 2016 tax levy within the limits established by Law.

While the Board did provide limited oversight, the accounting records were not adequate and there were numerous errors in the financial reports. The only accounting record maintained is the budget-versus-actual report and notations on check stubs of vendor, date and amount. Neither the former nor current Treasurer kept any type of accounting records detailing payroll and cash balances. Therefore, neither Treasurer could perform bank reconciliations. Moreover, the current Treasurer does not maintain any accounting records documenting all revenues received. The budget-versus-actual reports were not adequate because they did not report bank balances and did not include all of the revenues received and disbursements made. For example, the April 2015 report did not include $37,800 in approved disbursements. Furthermore, the required annual financial report has not been filed with our office since 2012. Additionally, some payments made were not Board-approved, certain required payments were not made and most money was not deposited in a timely manner.

Over the last five fiscal years, budgets presented to District residents were not transparent because they did not include estimated amounts for tax certiorari judgment or the District's plan for funding them. District officials issued debt to pay for tax certiorari judgments, which masked the true operating results. Without the issuance of debt, the District would have had operating deficits in four of the five years and which could have caused a significant decline in fund balance. Also, the District did not use funds in the established reserve towards the payment of these judgments. As a result, the District has incurred additional debt and interest costs. In addition, the Board needs to improve internal controls to effectively protect the District's computer system and data. The Board has not developed policies such as a breach notification policy, PPSI (personal, private and sensitive information) policy or online banking policy. Staff were able to access websites in violation of the District's acceptable use policy, such as for shopping, personal email, social network, travel and automobile because the web filtering software was not configured to block these sites. Additionally, we found physical controls lacking as multiple empty classrooms with computer carts housing laptop computers were left unlocked, and the door connecting the school library to the computer storage room containing spare computers was open and unlocked.

We tested all eight full-time employees' submitted time sheets for eight randomly selected one-week payroll periods during our audit period to determine if they were approved by the Director and supported the amounts paid. Other than minor issues that we discussed with Authority management, all time sheets we reviewed were approved by the Director and supported the amounts paid. We also tested eight randomly selected one-week pay periods for the Authority's eight full-time employees and found that leave was appropriately approved and accurately recorded in the leave records. We also tested employees' leave balances, accruals and use during our audit period to determine if leave time used was accurately and properly earned and the balances were correct according to the personnel policy or collective bargaining agreement, as appropriate. Except for minor exceptions which we discussed with Authority management, leave time was properly approved and recorded.

The Treasurer and District Clerk do not maintain custody of their signature or supervise the signature being imprinted on the checks during the check signing process. Instead, the District's accounts payable and payroll clerks maintain custody of the signature flash drives that house the Treasurer's signature for disbursements and both the Treasurer and District Clerk's signatures for payroll checks. The accounts payable and payroll clerks insert the signature flash drives into their computers and, once prompted by the check signing software, enter a user name and password. We observed the payroll clerk print 1,736 payroll checks totaling $3,627,477 using the flash drive with the Treasurer's and District Clerk's signatures. Neither the Treasurer nor the District Clerk were present to supervise the imprinting of their signatures on the payroll checks. We also reviewed 50 disbursement checks totaling $111,198 to ensure they were for legitimate District purposes. We found no exceptions.

From fiscal years 2010-11 through 2013-14, District officials consistently overestimated budget appropriations. As a result, District officials generated operating surpluses that caused total fund balance to reach $11.9 million by June 30, 2013, which was 28 percent of the 2013-14 fiscal year's budget. To reduce fund balance, District officials transferred moneys to the District's reserves, which resulted in the reserves being overfunded by $6.3 million. In effect, this circumvented the 4 percent statutory limit. Furthermore, District officials did not include the transfers to the reserves in the budgets. In addition, District officials did not implement performance measures to effectively and efficiently manage transportation costs. As a result, we found that up to three contracted buses could be eliminated, which would generate potential cost savings of $147,451 annually. Also, the Transportation Supervisor did not correctly calculate the fuel allotment to the Contractor, resulting in overpayments totaling $3,101 in fiscal years 2013-14 and 2014-15. Furthermore, the District did not recoup $5,841 for excess fuel given to the Contractor in 2013-14. District officials also need to improve internal controls over IT assets. The District's acceptable use policy has not been updated to include guidance for the use of personal devices on the District's network and policies and procedures have not been established for computer security, disaster recovery, data backups and security awareness training. In addition, our review of Internet activity showed that 274 unique domain names were accessed but were not educational in nature as required by the District's acceptable use policy. Lastly, we found that physical controls were lacking because water pipes were above the main servers in the server room at the high school, and there was a recent leak that left water on the floor directly next to one of the shelves that housed a server.