District officials have not identified opportunities to reduce student transportation costs by performing appropriate analyses, such as an annual review of bus routes. We determined that the District may be able to save money by reducing excess capacity on buses, evaluating shared runs with other districts for private-school and special-needs routes and reviewing the number of spare buses in its fleet. By improving transportation efficiency, we estimate that the District could save approximately $36,500 annually and more than $460,500 over two years. In addition, the cafeteria fund's financial condition has declined over the past five years as it experienced operating deficits, resulting in a $215,678 deficit fund balance as of June 30, 2013. This occurred because the cafeteria fund budget was not realistic, revenues from meal prices fell significantly short of cafeteria operating costs and collection on overdrawn student and faculty cafeteria accounts was not enforced. Because of the operating deficits and depleted fund balance, the cafeteria fund does not have sufficient available cash to repay its outstanding $34,000 loan from the general fund.

The Board adopted a procurement policy that requires Town officials to solicit quotes or competitive bids, depending on the amount of the purchase or public works contract. However, the Board does not review the procurement policy annually to ensure it properly reflects the Board's current expectations for procurement activity, as required by law. The Board also did not ensure that the Superintendent complied with GML's competitive bidding requirements or the Town's procurement policy when making purchases. The Superintendent did not consistently solicit written quotes or competitive bids as required, or attach appropriate supporting documentation to claims.

We found that the Board generally does not provide adequate oversight of the Department's financial activities. The Board did not adopt financial policies and procedures addressing cash receipts and disbursements, procurement, or claims processing and review, and has not adopted a written code of ethics. Although the bylaws specifically detail the Board's responsibilities and the Treasurer's duties, these guidelines alone do not adequately segregate their duties or ensure that the Board monitors financial activities. Further, the Board did not require the Treasurer to provide it with adequate monthly reports that included receipt, asset and liability information. The Board also did not require that the Treasurer provide an annual financial report to the members, in accordance with the bylaws. Further, the Board did not present the statutorily required Directors' report to the membership at the annual meeting. In addition, we found no evidence that the Board annually audited and approved all of the Department's books and records, as required by the bylaws. In 2012, the Board did not obtain an independent audit of the 2011 records, which was required by GML because 2011 revenues exceeded $200,000. The bylaws also required an audit because a new Treasurer took office in 2011. Lastly, there was no evidence that the Board reviewed and approved bills before they were paid.

The Board has adopted comprehensive procurement policies and procedures that provide guidance as to when items must be competitively bid and when written or verbal quotes should be obtained for purchases not required to be bid. Town officials review and update these policies annually to ensure they provide guidance for officials and employees to follow when bidding is not required by law. Town officials made the purchases based on the need for compliance with the statutory requirements, or after obtaining the appropriate number of proposals, written quotes or verbal quotes as designated in the purchasing policy. Therefore, we determined that internal controls over the Town's procurement process were properly designed and operating effectively.

The Town has not established a system to ensure that leave accruals earned and used by highway department employees are properly accounted for. There is no system to ensure the highway department employees request permission from the Highway Superintendent (Superintendent) to use leave time or for the Superintendent to approve leave requests when he does receive them in advance. Also, the employees' leave accrual balances are not adequately accounted for and monitored. Employees maintain their own leave records (including leave balances and recording leave time used and earned) without oversight and independent verification by Town officials. In addition, the Superintendent has not maintained adequate records of compensatory time as required by the collective bargaining agreement (CBA). Although the cost for the discrepancies identified was not material, the cumulative impact of such errors and irregularities over time could result in a substantial cost.

The Board did not properly authorize all tuition reimbursements paid to the Director. Three reimbursements totaling $4,150 were made to the Director for classes attended from 2010 to 2012. One reimbursement for $1,000 was requested by the Director and approved by the Board in the minutes; however, the other two reimbursements totaling $3,150 were not approved either in the Director's employment agreement or in the Board minutes. The Board President and Vice President told us that the Board approved payments but did not document their approval in the Board's meeting minutes. We also found that the Library did not use competitive methods when procuring goods and services that were not subject to competitive bidding. The Board's adopted purchasing policy did not require officials to solicit competitive proposals prior to engaging the services of professional service providers. As result, the Library paid four professional service providers a total of $152,829 without soliciting any competition. In addition, we reviewed payments to eight vendors totaling $28,010, for which three competitive quotations were required by the Library's purchasing policy. Library officials did not obtain the required number of quotes for purchases from seven of these vendors totaling $23,210.

The Board and Town officials did not provide adequate oversight of the Town's financial operations. The Clerk did not maintain adequate, accurate and complete records and reports. In addition, collections for Clerk fees and real property taxes were not physically secured prior to deposit, were not deposited timely and intact, and were not remitted to the appropriate party timely or in the appropriate amounts. Furthermore, the Clerk did not perform monthly bank reconciliations or accountabilities for the Clerk or conservation bank accounts. The Board failed to provide adequate oversight of the Clerk's financial activities and did not audit the records of the Clerk, as required. Consequently, we found that personal checks were cashed from Town funds, the Clerk deposited $490 of personal checks into the tax-collection account to cover apparent shortages, unsupported deposits of cash were made into all three of the bank accounts used by the Clerk, and the Clerk account had an unidentified balance of $3,202, as of November 30, 2013. The Board had also not adopted all of the water and none of the sewer rates that were being charged to customers, six water customers and one sewer customer were not billed for services received, and adjustments were made to customer accounts without approval. In addition, we found that 14 of 20 deposits contained cash receipts totaling $16,575 that were deposited more than five days after receipt. Furthermore, the Town was not charging connection fees in accordance with the Board-established rate, resulting in lost revenues to the Town of $2,700. The Town was also not properly assessing penalties to delinquent accounts and all delinquent accounts were not properly re-levied. The Board and Town officials had also not established an adequate system of internal controls over transfer station cash receipts.

The Board did not adopt structurally balanced budgets or consistently monitor the budget during the year. In 2011, the general fund realized an operating surplus of more than $23,000 due to $20,000 in reduced funding of its capital reserve. Conversely, in 2012, largely due to unbudgeted construction costs for the Town Hall, the general fund incurred operating deficits which depleted unexpended surplus funds. As a result, the general fund reported a deficit unexpended fund balance of $18,343 at December 31, 2012. Although fund balance increased to approximately $9,000 in 2013 (3 percent of 2014 appropriations), this amount is insufficient to cover unexpected expenses. The highway fund also had a deficit fund balance of approximately $7,300 at December 31, 2013 due to equipment purchases and the Board's increasing appropriation of fund balance. In addition, the Board did not audit the books of key Town officials in a timely manner as required by law.

The Board needs to improve internal controls over the claims audit process. The Deputy Clerk-Treasurer assembles the claim packets and prepares the abstracts. Although the Clerk-Treasurer reviews each individual claim on the abstracts, the Board reviews and approves the abstracts without reviewing the actual claims. Without a thorough and deliberate examination of the individual claims and the supporting documentation, the Board does not have enough information to determine whether or not the claims it approves are appropriate and legitimate and there is an increased risk that improper claims could be paid.

Due to the Town Clerk's reliance on computer technology for cash collection and banking transactions, it is imperative that Town officials ensure that the computerized data is properly safeguarded. The Board needs to improve internal controls to effectively protect the Town's computer system and data. Specifically, the Board needs to restrict administrative rights to those who need them to perform their jobs. In addition, the Town needs to store copies of back-up data in a secure offsite location, and the Board needs to develop a disaster recovery plan. As a result of these weaknesses, there is an increased risk of loss of critical data and/or interruptions to Town operations. In addition, the Board should periodically review the Town's breach notification policy and ensure that employees are adequately prepared to notify affected individuals in the event that their private information is compromised.

We found that the Board did not properly authorize all capital projects, monitor activity and approve the close out of all completed projects. Two projects were completed in 2009 but remained open as of December 31, 2013. The Board also contracted with an accounting firm (Firm) to assist the Supervisor in fulfilling his financial duties. However, the Supervisor did not adequately oversee and monitor the Firm's work. As a result, there were significant problems with the accounting for and reporting of capital project activity, as well as the use of certain debt proceeds. Moreover, the Town's records did not agree with the annual financial reports. The Firm recorded capital project activity for town hall renovations in operating funds together with routine operations. Expenditures from these operating funds were more than $292,000 in 2012. The Firm also incorrectly recorded $100,000 in bond proceeds in the water fund instead of the capital projects fund. Consequently, the $100,000 debt proceeds were improperly used to pay operating expenditures. The commingling of capital project resources and transactions in operating funds does not allow for capital activity to be appropriately monitored against project authorizations approved by the Board and does not comply with legal requirements related to debt proceeds. We also found that two water districts still owed the general town-wide fund almost $58,000 as of December 31, 2013. Further, the Town improperly transferred $140,000 from the highway town-wide fund to the general town-wide fund for the completion of the town hall project in 2012.

The Board entered into a contract with a charter management organization (CMO) to provide management services through a memorandum of understanding (MOU). The MOU specifies the management fee that the School pays annually to the CMO; this fee for the 2012-13 fiscal year was $695,028. The School also reimbursed the CMO over $300,000 for expenses paid by the CMO that were in addition to the management fee. The School also paid $396,406 to a wholly-owned subsidiary of the CMO for the lease of its school facilities. We identified significant concerns with the lack of detail contained in the MOU. Without clear and concise contract language, the School does not have a firm agreement detailing what services are included. If the School is paying for expenditures that should be covered by the management services agreement, it will have fewer funds to improve operations, add schools or to spend on student education. The absence of a clear and unambiguous contract increases the likelihood that taxpayers have paid for goods and services that have not been received.

The Board consistently and significantly overestimated District expenditures from the 2010-11 through 2012-13 fiscal years, which caused the District to realize annual operating surpluses totaling approximately $1.5 million for this period. Each year, the District appropriated fund balance that it did not use. It then transferred surplus moneys to reserves at the end of the fiscal year, instead of appropriating funds to increase the reserve balances in the annual budgets. This increased the reserve balances while allowing the District to maintain its unexpended surplus fund balance amount at the legal limit. Furthermore, in spite of the operating surpluses, the District raised the real property tax levy by an average of approximately $326,000 in each year of our audit period. When the District achieves annual operating surpluses, District officials should pass on the benefits of these surpluses to District taxpayers.

The Board does not audit and approve claims before they are paid from the administrative checking account (ACA). Furthermore, the Board authorized the Library Director and an administrative assistant to manage this account, sign checks and pay vendors before submitting claims to the Board for audit and approval. The Treasurer does not have access to or custody of the funds maintained in the ACA. Without a proper audit and approval of Library claims by the Board prior to payment, the Board cannot be assured that all payments are for legitimate Library purposes or that taxpayer dollars are being disbursed in the most prudent and economical manner. In addition, the Board appointed an independent contractor as the Treasurer, who did not take an oath of office and is being paid through a claim voucher rather than through the payroll system. Because the Treasurer is responsible for the care and custody of Library funds, the Board cannot delegate these functions to an independent contractor. Finally, the Board did not require the solicitation of competition at reasonable intervals when procuring professional services.

The Board needs to improve its policies and procedures over payroll to ensure that Town officials maintain adequate time records, accurately calculate gross pay and verify and monitor leave use. The Supervisor's secretary performed virtually all payroll functions without sufficient compensating controls in place. While the Supervisor reviewed and certified final payrolls, his reviews were inadequate. As a result, employees received compensation at pay rates that were not Board-approved, six employees did not receive the correct gross pay in 2012 and eight employees did not receive the correct gross pay in 2013. These employees received combined overpayments totaling $3,890 and combined underpayments totaling $154. Finally, employees' leave accrual records were not accurately maintained. As a result, we found errors in the leave accrual records for all Town employees totaling 442 hours, valued at $8,198.

The Board does not have written policies, procedures or Board resolutions to govern electronic transfers. As a result, the Treasurer and a payroll clerk processed electronic transfers without adequate segregation of duties or documentation of transactions. None of the 98 electronic transfers in our sample, totaling $42.9 million, had evidence that at least two people were involved in transaction processing, and the payroll clerk was allowed to process 10 transfers totaling $3.9 million without the Treasurer's or any other official's approval. Further, nearly half of the transactions in our sample did not have a written confirmation from the bank as required by law. The District also did not retain any supporting documentation for 44 transfers totaling $12.0 million.

During the period June 1, 2012 through November 30, 2013, the Village paid 3,144 claims totaling $4,407,665. We reviewed a sample of 25 claims totaling $59,446, and related abstracts and Board minutes to determine if the claims had been properly audited and approved by the Board for payment. None of the abstracts that we reviewed included the Clerk's signature or a statement indicating that the Board had audited the claims. In addition, there is nothing to show which abstracts were approved by the Board because all Board minutes reviewed included the vague statement “Approve payment of attached bills and allow Treasurer to make necessary transfers.” Board minutes do not include sufficient information such as abstract numbers, abstract dates or the numbers and dollar amounts of claims to document which claims are authorized for payment. Furthermore, five of the claims that we reviewed were not listed on any abstract. Our review of the 25 claims totaling $59,446 also found that each claim was deficient for one or more reasons. Finally, seven of the claims reviewed were paid without a written contract or agreement between the service provider and the Village.

We reviewed the District's accounting records for the 2012 and 2013 fiscal years to ensure completeness and accuracy. We found that the Treasurer did not properly record and report the District's financial activity. The Treasurer recorded all transfers between bank accounts as revenues and expenditures in the accounting system. In addition, the Treasurer incorrectly recorded the real property taxes for 2012 and 2013 as an opening balance in the check register instead of as a revenue. In prior years, the District hired a consultant to assist the Treasurer with completing and submitting the AUD to OSC. However, the consultant was not available to assist the Treasurer with filing the 2012 AUD. As a result, the AUD was not filed until September 30, 2013, or 152 days late.

The Company's bylaws were not followed because of a lack of member interest to fill positions on the Board of Directors and various committees. We found that the President did not sign vouchers or appoint members to an audit committee. Also, the Company did not file an annual report of foreign fire insurance with OSC or Form 990 with the IRS because there was no Board of Directors and the Treasurer was unaware of these filing requirements. In addition, the Treasurer's accounts were not audited and the Treasurer did not prepare bank reconciliations. Lastly, the Secretary did not issue receipts for cash collected or remit all cash received to the Treasurer intact. Because of these weaknesses, we reviewed all bank statement activity for the period January 1, 2012 through December 18, 2013. We found the Treasurer did not properly record and report all the Company's financial transactions because she lacked sufficient training. We also reviewed 236 disbursements totaling $104,498 listed on the bank statements during this same period. All of the disbursements reviewed appeared to be for appropriate Company purposes; however, 159 disbursements were not in accordance with the bylaws.

We found that District officials established adequate internal controls over leave accruals. District officials implemented specific controls to ensure employee leave accruals were earned in accordance with the employee's employment contract and/or CBA. We also found District officials established controls to ensure the accrual and use of leave time were recorded accurately.