District officials have consistently overestimated expenditures by a total of $19.7 million and increased the tax levy by 11.5 percent over the five-year period ending June 30, 2013. These budgeting practices generated approximately $14 million in operating surpluses, which caused unexpended surplus funds to exceed statutory limits in each of those years. For example, as of June 30, 2013, unexpended surplus funds exceeded statutory limits by approximately $10.8 million. Although District officials appropriated at least $2 million in each year to reduce the tax levy, the Board overestimated expenditures between $2.6 and $4.5 million annually, thus negating any benefit the appropriation of fund balance would have in reducing fund balance or the property tax levy. District officials also used some of the operating surpluses to fund five reserves that, as of June 30, 2013, totaled $4.4 million. Two of these reserves are overfunded.

The Board and District officials did not properly manage the financial condition of the general and school lunch funds. The general fund had deficits in the last three years while the school lunch fund had deficits in the last two years. We also project both the general and school lunch funds to end the 2013-14 fiscal year with deficits of $1.8 million and $89,000, respectively. The District consistently appropriated fund balance and used a portion of the appropriated amount in the last three fiscal years. The general fund could become financially stressed due to the recurring operating deficits, potential litigation, potential buy back of retirement services, improper payments being made from the employee benefit accrued liability reserve, subsidies to the school lunch fund and loans to the school lunch fund that are unlikely to be paid back to general fund. District officials also did not provide sufficient oversight of cafeteria operations and therefore, school lunch receipts were not properly recorded, collected and deposited and inventory was not properly accounted for. The Food Service Director was inappropriately adding 10 free meals per day to the record of meals to increase participation figures. We identified unpaid balances of $36,600 for meals provided. Transactions were voided without being reviewed or approved. Bank deposit amounts did not always agree with the District's records and no one followed up on the discrepancies. In addition, the Food Service Director did not maintain a perpetual inventory record. Although a monthly inventory was performed, it was not accurate. Finally, over the past three fiscal years, although the price of food did not increase, the cost to provide meals increased significantly, which could be an indication that inventory supplies were wasted or misused.

The District did not always maintain reasonable fund balances. The District accumulated a significant surplus of fund balance from 2008-09 to 2011-12. Although District officials included a budgetary provision to use some of the accumulated surplus to finance operations, the surplus was not used because the District spent less than the revenues received in those years. Most of this accumulation was the result of significant overestimations of expenditures from several years ago. For example, in 2008-09 the District overestimated expenditures by approximately 9 percent. Over the last three fiscal years, the Board adopted more reasonable budgets with actual revenues and expenditures coming within estimates by an average of 1 percent and 6 percent, respectively. We also determined that District officials have accumulated excessive balances in the liability and compensated absences reserve funds that can be used to offset budgetary shortfalls in the near term.

The Board and Supervisor are not properly managing the Town's fund balances. From fiscal years 2011 through 2013, fund balance available for use in each of the four major operating funds has either increased significantly or remained at a high percentage of the ensuing year's budget. In addition, the Board has not adopted long-term financial and capital/infrastructure plans to set forth the Town's objectives and goals. The Board also has not established any policies or procedures to govern the level of fund balance to maintain for each fund.

The Board's policies and procedures are not sufficient to ensure that the Treasurer properly records and reports cash disbursements and receipts. The Treasurer prepares the bill packages and list of bills for Board approval, records disbursements (including payroll), signs the checks and accurately reconciles the bank accounts. Additionally, the Treasurer can perform transfers between the District's banks with limited oversight. One commissioner reviews the bank reconciliations, bank statements, canceled check images and transfers on a monthly basis; however, he does not compare the canceled check images to the Board-approved list of bills. Moreover, one commissioner thoroughly audits the claims, in place of the entire Board. The rest of the Board members review and approve the list of bills. Therefore, the Board cannot be sure that there are no unauthorized disbursements. We reviewed 19 cash receipts totaling $612,700 and found seven totaling $79,200 that were not deposited in a timely manner, up to six weeks after receipt. The Treasurer told us that she made five of these deposits after being away from the office for some time and also indicated that she sometimes holds payments for deposit until other payments of the same type are received.

Generally, the Village's internal controls over claims processing were adequate to ensure claims were for appropriate purposes, adequately supported and properly audited and approved. The Clerk-Treasurer and Deputy Clerk-Treasurer assembled the claim packages, prepared an abstract and presented claims and abstracts to the Board for audit and approval. The Board also passed a resolution to authorize the Clerk-Treasurer and Deputy Clerk-Treasurer to pay claims for utilities, postage and freight prior to audit. We commend Village management on developing and implementing controls to provide assurance that Village purchases are properly reviewed and approved prior to payment.

The District's procedure for auditing claims is not adequate. The Board Secretary or Chairman reviewed the claims against the District and submitted them to the Treasurer for payment. Subsequent to the payment of claims, the Treasurer prepared an abstract and submitted it to the Board for review and approval. In addition, other than the Secretary or Chairman, none of the other Board members actually reviewed the claims. Furthermore, the Chairman is the person primarily responsible for making District purchases, and as such, he is in a position to initiate and subsequently approve those same purchases, without review. The other Board members should also audit the claims to provide adequate oversight. Lastly, the Board did not pass a resolution authorizing the Treasurer to pay eligible claims in advance of audit; therefore, the Treasurer did not have the authority to pay any claims prior to approval by the Board.

The Board's lack of comprehensive written policies and procedures for payroll processing and maintaining leave time accrual balances has resulted in the bookkeeper performing incompatible duties related to payroll processing and maintaining all leave accrual balances, without the mitigating control of District officials sufficiently monitoring or reviewing her work to ensure accuracy. Although our testing did not reveal any material discrepancies, the District's failure to establish adequate internal controls over payroll processing and leave accrual balances could lead to errors occurring and remaining undetected. Also, the District has an increased risk that it could make inappropriate payments to employees based on errors within their leave accrual records.

During the audit period, the Board did not adopt realistic budgets and as a result actually exceeded the 4 percent legal limit for the 2008-09 through 2012-13 fiscal years. This was caused, in part, by the transfer of a portion of fund balance in to a tax reduction reserve that was not formally established by the Board. In addition, the Board has excess money of $85,440 in the debt service fund and $33,000 in the capital projects fund, and a portion of the $239,000 in the insurance reserve could be excessive. Furthermore, for each fiscal year between 2008-09 and 2012-13, the Board adopted general fund budgets that had planned deficits, meaning that the total estimated revenues were less than the total planned expenditures. However, the general fund generated surpluses instead of deficits for 2008-09 and 2009-10 and generated deficits that aggregated to about $750,000 less than the planned deficits for the remaining three years.

The Treasurer submits a monthly report to the Board that summarizes receipts and disbursements and shows the cash balances in the District's four bank accounts, along with the bank statements. However, the Treasurer does not maintain running cash balances in the check book registers or maintain accounting records with cash accounts and subsidiary revenue and expenditure accounts. This lack of adequate accounting records has prevented the Treasurer from being able to reconcile bank balances to book balances, provide comprehensive periodic information to the Board so it can adequately monitor the District's financial activities and file annual financial reports with OSC. The last annual financial report that was filed with OSC was for the 2010 fiscal year, which was filed on October 7, 2013 or approximately two and one half years late. The lack of annual financial reports for the last three fiscal years leaves the District without a transparent means to demonstrate its annual financial standing to the Board, taxpayers, the State and other interested parties. Furthermore, the Board did not conduct an annual audit of the Treasurer's records for the 2013 fiscal year, as required by statute.

The Board did not ensure that the Treasurer's duties and responsibilities were discharged in accordance with legal requirements and District policy. The District Clerk was inappropriately authorized to sign checks in the Treasurer's absence and, in fact, signed all District checks in place of the Treasurer. This did not comply with Education Law or District policy. Additionally, the Assistant Superintendent for Business and a Senior Account Clerk routinely approved and performed wire and electronic transfers without the Treasurer's approval, further weakening internal controls over disbursements.

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.