The Board did not effectively manage fund balance and reserves. District budgets from fiscal years 2010-11 through 2012-13 included the planned use of fund balance averaging $495,000 per year; however, less than $51,000 was actually used. In addition, the District did not plan for the funding or use of reserves, but instead transferred excess surplus moneys to reserves to avoid exceeding the fund balance statutory limit. Regardless, the District's fund balance exceeded the statutory limit for two out of the last three years. Furthermore, District officials overfunded four of the District's seven reserve funds. By accumulating funds without a clear plan for the future intended use, District officials have made tax levies higher than necessary. And while fund balance is greater than necessary, the Office of the State Comptroller's Fiscal Stress Monitoring System identified the District as susceptible to fiscal stress in 2013, primarily due to the decrease in available cash to fund operations.

When implementing a new fingerprint time clock system, the Board did not establish policies and procedures over payroll timekeeping to ensure that employees' work and leave time was accurately accounted for. The Districts' new timekeeping system did not adequately and accurately document the time employees worked. Once the District transitioned to using the fingerprint time clock it resulted in less accountability over timekeeping because it was not used effectively. For example, employees did not consistently use the fingerprint time clock to punch in or out to record the times they reported for and left work, account for missed time clock punches nor did supervisors consistently review or sign employees' time records. Due to these deficiencies we could not determine from the time records we reviewed if all hourly employees worked the scheduled hours. Further, employees' leave accrual records were not reviewed for accuracy after information was entered into the leave tracking software. As a result, some employees' leave was not properly approved and documented on the time records or recorded in the central leave record.

Although the Department members developed good policies and procedures, the bylaws could be improved by adding specific language specifying who is responsible for approving bills for payment and reviewing the Treasurer's work to ensure that all Department cash receipts and disbursements are properly accounted for. We found that the Treasurer performed most accounting duties with limited oversight. Although the Treasurer maintained accurate records and reports, no one reviewed the accounting records or compared the bank reconciliations with the bank statements and cancelled check images. Department members approved some bills and transfers prior to making payment, however no one audited and approved all Department bills before they were paid. Department officers also did not follow the dual signature requirement for 11 identical checks for food at the meetings totaling $495 that were signed only by the Treasurer. Moreover, the Department's bylaws do not contain any specific cash receipts requirements. As a result, there were limited procedures in place to verify cash receipt accountability.

The Board needs to improve its oversight of the District's budget and financial condition. In fiscal years 2010-11 through 2012-13, the District budgeted to use an average of $811,000 of fund balance to fund the ensuing year's expenditures. However, the District did not use these funds as intended because revenues exceeded expenditures by an average of more than $1.7 million in each of these years. As a result, the District's unrestricted fund balance, totaling $3.8 million as of June 30, 2013, was 15 percent of the 2013-14 budgeted appropriations. This was almost four times in excess of the 4 percent statutory limit. Officials also need to improve their oversight of employees' sick leave accrual balances. We found that the sick leave accrual balances in the time and attendance system were not correct for fiscal years ending June 30, 2012 and June 30, 2013. As of July 1, 2013, all 10 employees' sick leave balances reviewed were overstated by a total of 139.25 days, with a value of $44,430. During the audit period, sick leave accrual balances were not accurate and, therefore, District officials could not rely on them.

The District reported year-end unrestricted fund balance at levels that essentially complied with the 4 percent fund balance limit for fiscal years 2008-09 through 2012-13. This was accomplished, in part, by appropriating fund balance and funding reserves at year end. District officials' appropriation of fund balance aggregated to more than $21 million over the past five years, which should have resulted in planned operating deficits. However, because the District significantly overestimated expenditures in its adopted budgets, it experienced large operating surpluses in four of those five years and did not use the appropriated fund balance. The District used surplus funds to finance reserves without including those transfers in the budget process. For the five years reviewed, total actual revenues exceeded expenditures by almost $13 million and only $5 million of the nearly $21.5 million of appropriated fund balance was used to finance operations.

The Board and District officials have made limited improvements in their budgeting and financial practices in response to our prior audit findings. Of the six audit recommendations, one recommendation was implemented, three recommendations were partially implemented and two recommendations were not implemented. In addition, the District's purchasing policies lacked specific provisions required by General Municipal Law. We found that District officials and employees made purchases in accordance with the District's purchasing policy and the goods and services obtained were for appropriate District purposes. Additionally, we found that the District claims auditor appeared to adequately audit the District's claims. However, due to the requirements of Education Law, the individual serving as claims auditor was prohibited from doing so due to performing other conflicting District duties. Finally, we found that the Board needs to improve the District's property disposal policy.

The Board used fund balance as a financing source in the annual general fund budget until it was nearly depleted. Since 2010-11, the District appropriated more than $4.7 million in fund balance to finance appropriations in the general fund. This has resulted in a dramatic reduction in the District's total fund balance. During this same time period, the District increased property taxes an average of $521,000 (2.3 percent) annually. In addition, the District improperly used two reserves to help fund general fund operations during the 2012-13 fiscal year.

We found that the Board does not audit District's claims as required by the Act. Instead two Board members audit all claims, the President and the Treasurer. The Director reviews the claims and initials each invoice before the senior account clerk prints the checks and the abstract of claims. The President and the Treasurer audit the claims, sign the checks and sign the abstract that authorizes the Treasurer to pay the claims. The abstract is presented to the Board and the remaining Board members sign the abstract without performing a thorough and deliberate audit of each claim. The Board minutes include a resolution indicating the total number and dollar amount of the claims listed in the abstract. However, neither the resolution nor the abstract states that the Board had audited the claims as required by the Act.

The members complied with applicable laws, rules and regulations by adopting a code of ethics and Company bylaws that clearly states the duties to be performed by the Treasurer and the Trustees. However, members did not provide adequate oversight of cash receipt and disbursement activities. The members also did not audit all claims prior to payments being made or conduct an annual audit of the Treasurer's records. The Treasurer maintains complete, accurate and timely records and presents monthly and quarterly reports of most Company activities including total receipts and expenditures and bank account balances to the members and prepares monthly bank reconciliations. However, death benefit payouts and grant activities were not included on any reports submitted to the members.

The Business Officers did not establish adequate internal controls over cash receipts and disbursements to ensure that Department moneys were safeguarded. The Treasurer managed the Department's funds with little or no oversight by any of the other Business Officers. We found that the Treasurer made $18,100 in questionable disbursements that were not supported by invoices or authorized by the Department's membership. Of this amount, checks totaling $7,866 were paid to the Treasurer; checks totaling $6,925 were paid to Total Quality Plus (a business purportedly owned by the Treasurer); and electronic funds transfers totaling $3,307 were made to a credit card company. In addition, cash receipts totaling almost $2,600 were unaccounted for. Further, 14 transfers totaling $14,305 were made from the Le Roy Firemen's Benevolent Association's (Association) bank accounts to the Department's checking account, and four unauthorized transfers totaling $8,600 were made from the Department to the Association. The Department Treasurer is also Treasurer of the Association. The Department's bank balance on October 10, 2013 was $7,824 less than the cash balance in the Treasurer's accounting records. Subsequently, the Treasurer made an unexplained deposit of $7,500 on October 24, 2013 to the Department's bank account, which was composed entirely of cash.

The Board did not establish adequate internal controls over the receipt and disbursement of foreign fire insurance (FFI) tax. We identified $27,738 in questionable disbursements that were not supported by invoices or authorized by the Board. Of this amount, 15 checks totaling $10,197 were payable to the Treasurer; three checks totaling $3,563 were payable to Total Quality Plus (a business purportedly owned by the Treasurer); three electronic funds transfers totaling $13,761 were made to a credit card company; and an electronic funds transfer of $217 was made to a wireless telephone provider. Moreover, an additional $6,727 was unaccounted for. We also found 13 unexplained deposits to Association bank accounts totaling $22,440 that were not recorded in the Association's records or reports. Further, 14 unauthorized transfers totaling $14,305 were made from the Association's bank accounts to the Le Roy Fire Department's (Department) checking account. In addition, four transfers totaling $8,600 were made from the Department to the Association. The bank account balance the Treasurer reported on the 2012 annual report was $27,741 more than what was actually in the bank at December 31, 2012. An unexplained deposit of $24,350 was made on October 28, 2013 to the Association bank account with a check from Total Quality Plus.

We found that the Board and the claims auditor did not ensure that the District only paid for actual expenditures necessarily incurred on official District business and as limited by contract. This resulted in questionable or unsupported travel costs totaling more than $9,000. In addition, while the Board has established a maximum daily rate for meals to ensure that travel is cost-effective and reasonable, the Board has not established maximum rates for lodging. Had the Board and District officials used GSA thresholds for lodging, they could have saved the District approximately $2,400.

The District has five general fund reserves with reported balances totaling about $12.3 million as of March 24, 2014. The District's reserve funds included a capital reserve totaling $5 million, a tax certiorari reserve totaling $4.8 million, a retirement contribution reserve totaling $1.8 million, an unemployment insurance reserve totaling $604,438 and a liability reserve totaling $100,000. We analyzed these reserves for reasonableness and adherence to statutory requirements and determined that all five were properly established. Funding for the capital, tax certiorari, retirement contribution and liability reserves was properly authorized and these reserves were funded at reasonable levels. However, the District's unemployment insurance reserve appears to be overfunded by more than seven times the amount necessary to pay District unemployment claims. District officials initiated steps to reduce the reserve's balance when preparing the 2013-14 budget.

The Treasurers did not appropriately perform the duties of their office. The Treasurers have not established any written procedures for the office's financial processes. In addition to the lack of procedures, the Treasurers did not adequately segregate duties for receipts and disbursements or develop compensating controls to adequately safeguard County assets. For example, the Treasurers did not provide any oversight procedures for collecting general receipts and tax moneys, or disbursing payroll and accounts payable checks. Because of the lack of oversight, the Treasurers could not verify that records were accurate. Also, the Treasurers did not reconcile cash with the accounting records in a timely manner, resulting in inaccurate financial reports that are not prepared in a timely manner. Although the County's public accountants (CPA) have conveyed the material weaknesses resulting from the lack of oversight, the Treasurers did not develop any formal plan to address the recommendations made by the CPA in the annual management letter. Instead, the Treasurers relied on the CPA's annual audit to determine the correct amounts that should be reported.

The Board needs to improve its oversight to ensure that financial resources are adequately safeguarded. The highway department did not maintain perpetual fuel inventory records or take periodic physical inventories, which caused fuel usage to be under-recorded. In addition, the senior center director did not issue duplicate press-numbered receipts, record all receipts and did not remit funds in a timely manner. Also, the Receiver of Taxes (Receiver) did not deposit receipts totaling $21,000 in a timely manner and signed checks for taxpayers who had sent in unsigned checks. The Board did not review the Receiver's bank reconciliations and the Receiver's office also accumulated approximately $66,000 as a result of duplicate payments. In addition, the senior center director accepted donations of assets and the director issued receipts without a documented methodology to determine fair market value and the Board was not informed of this practice. Asset donations totaling $7,960 could not be located, including donations totaling $700 that were made by the director or her husband. Also, the asset inventory in the senior center was inadequate and there was no asset inventory in the highway department. Finally, $552,449 in purchases of goods or services were made without quotes, bids or requests for proposals and $145,527 in professional services were procured without a written contract.

The Board has adopted a code of ethics and purchasing and investment policies as required by statute and policies on key financial areas, such as budgeting, credit card usage, disbursements and reporting. However, the Board does not have any policies or procedures for cash receipts. As a result, District officials did not maintain detailed cash receipts records, including the amounts and dates received, who received the money and its source. Additionally, the Treasurer prepared monthly bank reconciliations and submitted detailed monthly reports and abstracts of claims for payment. However, the Board did not review the bank reconciliations or bank statements on a monthly basis; moreover, the Board did not compare canceled check images to approved abstracts to ensure that District funds were used only for legitimate District expenditures. Instead, the Chairman and the Board reviewed these records every three months, which would not detect errors or irregularities in a timely manner. Furthermore, the Board did not conduct an annual audit of the Treasurer's records. Lastly, the Board audits and approves claims for payment at its monthly meetings. However, it does not meet in August and, therefore, the Treasurer and the Chairman process and pay all of August's claims prior to the Board's audit even though not all of these claims are the type that are statutorily authorized for payment in advance of audit.

The Board has not established adequate policies and procedures relating to maintaining a reasonable level of fund balance. The Town has accumulated excessive fund balances in the town-wide (TW) general, town-outside-village (TOV) general, TW highway and TOV highway funds, resulting, at least in part, from unrealistic budget estimates. In addition, the Board has not developed a long-term financial and capital plan to help address the Town's future needs. As a result, there is an increased risk that more taxes may be raised than necessary.

The Board adopted a policy requiring that no bill be paid unless at least three Commissioners approve the bills as evidenced by at least three Commissioners' signatures on each voucher and as stated in the Board minutes. However the policy does not require the Treasurer to provide the Board with an abstract listing all the claims, which the Commissioners could then review and compare with the individual vouchers when performing the claims audit. Because the Board is not provided with a list of claims, it reviews and approves each individual claim presented. Therefore, the Board cannot be assured that it is reviewing and approving all District claims prior to payment. In addition, we found nothing in the Board minutes to show which claims the Board approved, because all the minutes we reviewed included the general statement “All bills and vouchers were audited and approved.” The minutes also did not include sufficient information showing the total dollar amount of claims authorized for payment.

Village officials do not adequately monitor water operations. Although Village officials were aware of the aging infrastructure and potential for leaks, no one determined whether water was unaccounted-for. Village officials do not have written policies or procedures requiring the reconciliation of the water produced by the water system with the water billed to customers. Further, there are no procedures to estimate the volume of water used for authorized unbilled uses, such as hydrant and water filter flushing and firefighting. We found that the Village has unaccounted-for water totaling 36.7 million gallons annually, or approximately 60 percent of the water produced; the industry standard is at 10 percent. On an annual basis, the Village produced 60.9 million gallons of water but billed its customers for 15.1 million gallons. We estimate the cost to produce the unaccounted-for water to be as much as $53,400 annually, or about 25 percent of the water fund's average expenditures. The Village's average cost for water production per resident is $189, which is more than double the $92 average cost per resident for similar villages.

While the Treasurer does maintain up-to-date and accurate accounting records, the President and Executive Committee did not provide adequate oversight to ensure the Treasurer properly accounted for all of the cash receipts and disbursements. The Treasurer is properly performing all the cash receipt and disbursement duties with little oversight. Moreover, the Treasurer is paying all of the more routine bills as he receives the invoices with no audit performed. However, donations and other unusual expenses are being paid after the membership approves them. Finally, three out of the eight checks over the $2,500 threshold, totaling $19,800, cleared the bank and were not signed by both the President and Treasurer. The President told us he had also discovered these and discussed the matter with the Treasurer. The President believed they may not have notified their bank of the dual-signature requirement. Department officials told us that they were unaware of the need for additional controls over the cash disbursement process (such as an annual audit) as they trusted the Treasurer, and additional procedures may be too cumbersome for members to perform.