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.

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.