We found that Department officials have established adequate internal controls over cash receipts. Department officials established a fiscal management policy in February 2012 providing guidance over the collecting, recording, depositing and safeguarding of cash receipts received in the civil office. We also determined that various control procedures that Department officials had implemented over the cash receipts process in the civil office provided additional oversight. We tested 147 receipts totaling $14,592 from January 1, 2012 through December 31, 2012 and 127 receipts totaling $12,203 from January 1, 2013 through June 30, 2013. We found that appropriate receipts were issued for all the cash receipts reviewed; they were recorded accurately and timely into the computerized system, and were deposited timely and intact.

The Board did not adopt realistic budgets or routinely monitor financial operations. School officials created an expenditure code entitled “building fund” and budgeted $4.8 million for it in the 2010-11 fiscal year, $5.2 million in 2011-12, and $2.6 million in 2012-13 even though School officials had no expectation of any outflow of cash for such expenses. As a result, net income was understated in each of those three years. Additionally, the Board is not monitoring the annual budget and has not established a Budget and Finance Committee as required by School by-laws. The School also paid for Board member expenditures that were not authorized by the School by-laws or policy. Of $31,630 in Board expenditures, $26,444 was not authorized. These expenditures, which included undocumented credit-card charges as well as direct reimbursements, were for food, transportation to attend regular Board meetings, lodging and charges for the Chairman's cell phone. Additionally, the former Chairman was directly reimbursed for an undocumented expenditure, and alcohol was purchased at Board dinners. Finally, the School paid four vendors a total of $521,197 for significant public work and purchase contracts without fair competition, did not seek competitive price quotes when procuring goods and services totaling $16,028, and engaged six professional service providers, paid a total of $478,264, without soliciting competition. Further, the School paid an information technology consultant $118,182 more than the agreement provided, and did not have an applicable agreement for paying $25,713 for security services.

The Board has taken steps to provide oversight of the Library/Museum's financial activities. An accounting firm prepares the accounting records, and the Executive Director provides the Board with financial reports. However, the Board did not adopt a budget for the fiscal years 2011-12 and 2012-13, as required by the by-laws, and did not monitor and comply with the stipulations in the Foundation Agreement regarding the maintenance of Foundation funds. In fact, although the Foundation Agreement stipulates that the Library/Museum can only spend interest earned on Foundation funds, the Library/Museum violated this stipulation by spending $138,458 of principal. While the Board reviewed bills prior to payment, it allowed them to be paid late due to the lack of available cash. We also found weak controls over cash receipts. The Board contracted with an accounting firm to provide accounting services but did not review any bank statements, reconciliations, or canceled checks to ensure payments were only for authorized purposes.

City officials failed to maintain accurate and complete accounting records. We identified significant inaccuracies in balance sheet account balances as well as in revenues and expenditures. The City's fiscal year runs from July 1 through June 30 and the City generally prepares and files its Annual Update Document (AUD) in conjunction with the annual independent audit of the City's financial statements. As of September 17, 2013, the City had not yet closed its accounting records, initiated the independent audit or filed the AUD for the 2011-12 and 2012-13 fiscal year. We reviewed the annual financial reports and audited financial statements prepared by the City's independent auditor for the 2009-10 and 2010-11 fiscal years and found the independent auditor issued qualified opinions on the City's financial statements in both years.

The City's Boat Basin operations are generally operating efficiently. However, the cost allocation of administrative services could be improved. In 2000 and 2001, the City contracted with an outside vendor to analyze and calculate cost allocations for its enterprise funds including the Boat Basin fund. Although the cost allocation was updated in 2001, it has not been updated since that time. The City increased the administrative services costs charged to the Boat Basin each subsequent year until 2009, but City officials could not provide documentation showing their methodology for calculating these annual increases. From 2009 through 2013, the City has charged an annual flat fee of $88,367 for administrative services provided to the Boat Basin. We estimated the amounts the City undercharged the Boat Basin fund, during fiscal years 2009 through 2013, using the last cost allocation methodology in 2001 and the City's actual costs for each of the five years. Based on the 2001 methodology, the Boat Basin has been undercharged approximately $50,000, since 2009.

While the Board adopted the Company's constitution and bylaws, which dictate the manner in which operations are to be conducted, these procedures are insufficient. In addition, the Board is not providing adequate oversight to ensure the procedures in the constitution and bylaws are being followed, and did not establish a code of ethics. Although the Administrative Board authorizes each claim for payment presented to it, through a resolution noted in the minutes, there is no process in place to verify that all claims approved by the Administrative Board are properly paid, or that the Administrative Board is presented with and approves all the claims that are actually paid. Neither the Board nor the Administrative Board reviews monthly bank statements or require the Treasurer to perform bank reconciliations. Also, the Treasurer's report is usually verbally communicated as the Treasurer is not timely with recording financial information. Finally, the Treasurer's books are consistently reviewed by a disinterested third party who reported that everything was in good order; however, this review was not an effective audit as it failed to identify the weaknesses and discrepancies we found in our audit.

The Board and District officials did not ensure that fund balances were reasonable. For the five-year period ending June 30, 2013, District officials planned to use $4.2 million of fund balance to finance District operations; however, they only used $1.27 million of appropriated fund balance during this period. As a result, the unexpended surplus funds exceeded the statutory maximum of 4 percent of the ensuing year's budget during this period, ranging from 21 percent to 33 percent. In addition, the District has four reserve funds with excessive balances.

During our audit period, the District paid general fund claims totaling $17,972,830. District officials have established adequate controls over the claims processing function that ensure claims are audited in a timely manner and are properly supported. Even though the claims auditor appeared to be properly auditing claims, the purchasing agent did not always formally approve all purchases prior to ordering goods and services. We selected and reviewed 25 claims, totaling $154,909 to determine if purchase orders were issued prior to the ordering of the goods and services, and if claims were for legitimate District purposes and audited prior to payment. Despite minor deficiencies that were discussed with District officials, the claims we tested did appear to be for proper District purposes and audited prior to payment. However, purchase orders for 10 of the 25 claims totaling $50,859 were confirming purchase orders which were prepared after the invoice was received from the vendor. For example, the District paid a vendor $17,960 on September 7, 2012, for special education services; the vendor's invoice was dated July 28, 2012 and the purchase order was dated September 5, 2012.

The Board has not established adequate policies and procedures for long-term planning and providing guidance on maintaining a reasonable level of fund balance. The Town has excessive fund balances in the general – outside village, highway – town-wide and highway – outside village funds; the fire district; and the water and lighting districts that resulted from unrealistic budget estimates. In addition, the Board has not developed a financial and/or capital plan or established reserves to ensure unexpended surplus funds are used as intended. We also found significant weaknesses with how the Clerk handled the $17.1 million of tax and penalty payments collected during our audit period. The Board has not established policies and procedures, and provided the proper oversight to ensure that Clerk properly performs all required duties related to her position as the Receiver of Taxes. Tax collections were not deposited in the bank or remitted to the Town and County in a timely manner. Tax collection money was not properly secured in the Clerk's office and $3,140 went missing from the safe. The Clerk also did not perform bank reconciliations for the tax collection account. As a result, in 2011 the Clerk had $4,500 of unidentified funds. However, in 2012 the Clerk had to use approximately $4,200 of penalty moneys for other items including $2,900 to correct errors.

The Board adopted budgets that did not accurately estimate the Town's operational needs. Specifically, we found that large capital purchases and improvements during the last five completed fiscal years were not budgeted for and the associated means of financing were not considered. Town officials purchased approximately $262,000 of equipment and spent $503,333 on capital improvements to Town facilities. Additionally, in the current fiscal year over $590,000 was spent on the highway garage that the Board also did not budget for. We reviewed budgets for the last five completed fiscal years and found that not only did the Board not budget for larger expenditures, but they also did not consider historical information while preparing the budget for the next year. These poor budgeting practices led to operating deficits in certain years for the various funds.

District officials consistently over-estimated expenditures in the general fund by a total of $6.3 million over the five-year period ending June 30, 2013. Therefore, the District did not need to use the $5.8 million of fund balance that the Board appropriated as a funding source in the general fund budgets for the same five-year period. Instead, the District has experienced operating surpluses in the general fund for four of the last five years, totaling $1,100,434, leading to unexpended surplus fund balance exceeding the statutory limit of 4 percent of the ensuing year's operations for the last two fiscal years. Also, District officials could not demonstrate a planned need for more than $876,000 in reserves.

Based on our limited procedures, it appears that the Village continued to make significant progress implementing corrective action. Of the eight audit recommendations, seven recommendations were implemented, and one recommendation was partially implemented.

The District does not have adequate financial policies and procedures. While the Board has adopted a purchasing policy and a code of ethics, it has not adopted an investment policy. The Board also has not ensured that written procedures concerning financial recording and reporting were followed. In addition, the Treasurer does not reconcile the bank accounts on a monthly basis. The District contracts with a bookkeeper who performs bank reconciliations only at year-end. Board members authorize all claims for payment and indicate their approval by affixing their initials on the vouchers and the Board minutes consistently indicate their approvals to pay these claims. However, the Board does not see check images in the subsequent month to verify that prior approved claims were in fact paid as directed.

The Supervisor has assigned accounting duties to the bookkeeper, but has not provided sufficient oversight. As a result, the manual and computerized accounting records maintained by the bookkeeper included inaccuracies such as the improper allocation of real property and sales taxes among tax bases. In addition, separate general ledger cash accounts were not maintained for funds in which cash was commingled and the Board was not provided with monthly budget-to-actual reports. The bookkeeper also has not filed annual financial reports timely since 2008, the late filings ranged from 10 days for 2008 to 59 days for 2011. Further, as of August 2013, the bookkeeper had not filed the annual financial report for 2012. Although the Board has audited the Supervisor's records annually, it has not done so effectively, and the Supervisor has allowed the bookkeeper to sign Town checks in the bookkeeper's own name. As a result, it is difficult for the Board to determine the financial condition of the Town's operating funds. In addition, taxpayers with real property located in the Village of Bridgewater (Village) have received extra benefits at the expense of taxpayers with property located outside the Village, and there is an increased risk that errors or irregularities could occur.

We estimate that the City will realize operating deficits in the general fund ($1.5 million), water fund ($275,000), sewer fund ($370,000) and refuse fund ($212,000) for the fiscal year ending December 31, 2013, totaling $2,357,000. These operating deficits occurred because City officials did not include realistic estimates in the 2013 adopted budget. In addition, the City's December 31, 2012 financial position was misstated in its financial statements, which provided City officials with an inaccurate representation of the City's financial condition. This inaccurate reporting likely contributed to the continuing cash flow problems the City experienced in its 2012 and 2013 fiscal years. We found that asset accounts reported as of December 31, 2012 were unsupported and overstated, and liabilities were underreported. Our analysis indicated that the City should have reported fund balance deficits in the general, water and refuse funds as of December 31, 2012. Further, these deficits will be substantially greater as of December 31, 2013, as a result of the operating deficits we forecast for the 2013 fiscal year.

District officials believed they were effectively managing the District's finances. However, the Superintendent and the Board did not develop reasonable budget estimates. For fiscal years 2007-08 through 2011-12, the Board adopted budgets that over-estimated expenditures by almost $2 million, with over-estimating the students with disabilities account comprising almost 68 percent of that variance. The District's revenue estimates were underestimated by nearly $723,000 for the same time period. These estimates ranged from as little as $9,000 in 2010-11 to $269,000 in 2011-12. The Board's adopted budgets also included appropriating fund balance totaling more than $2 million during the 2007-08 to 2011-12 fiscal years. However, only $420,000 of this fund balance was actually needed due to the operating surpluses in 2008-09 and 2009-10 (totaling $1,155,011). The unexpended surplus fund balance is more than the 4 percent statutory limit, at 10.61 percent in 2007-08, 5.11 percent in 2008-09, 12.04 percent in 2009-10, and 4.05 percent in 2011-12. However, for the 2010-11 year, the fund balance was under the threshold at 3.95 percent. To reduce the unexpended surplus fund balance and bring it closer to the 4 percent limit, District officials made unplanned transfers to reserves.

The Board needs to improve its oversight and management of the District's budget. Over the last five years, District officials consistently under-estimated revenues and over-estimated expenditures in the Board-adopted budgets by a total of more than $1.7 million. The Board appropriated unexpended surplus funds each year, for a five-year total exceeding $3.1 million, to help finance the ensuing year's operations. However, the District actually used less than $1.9 million of the appropriated fund balance during this period. As a result, the District accumulated unexpended surplus fund balance equivalent to 68 percent of the ensuing years' budgets, or 16 times the amount allowed by statute. For the same time period, the District also increased the real property tax levy by more than $325,000. In addition, the District has not developed a multiyear financial plan that addresses the District's long-term operational needs or the use of unexpended surplus fund balance in a manner that benefits the District taxpayers.

The Town is experiencing fiscal stress due to a deteriorating financial condition. The general fund's total unreserved fund balance has declined by $25 million, from $14.7 million at the end of fiscal year 2007 to a fund deficit of $10.3 million at the end of 2012. The Town-outside-village fund's total unreserved fund balance decreased from a surplus of $2.5 million at the end of fiscal year 2007 to a fund deficit of $7.4 million at the end of 2011. The TOV fund deficit decreased to $4.5 million at the end of 2012. The Solid Waste Disposal District's (SWDD) unreserved fund balance went from a surplus of $2.6 million at the beginning of 2010 to a deficit of $7.9 million at the end of 2011. The SWDD fund deficit increased to $11.9 million in 2012. Finally, the Garbage Collection District fund sustained a $17.3 million operating deficit in 2012, thus decreasing fund balance from a surplus of $7 million to a deficit of $10.3 million at the end of 2012. Collectively, these four funds reported net operating deficits of $24.2 million (operating deficits of $27.1 million and operating surpluses of $2.9 million) and their operations accounted for more than 70 percent of the Town's 2012 budget expenditures. We also found that the Town does not have a formal change order policy that establishes procedures to be followed when change orders are necessary. Finally, the Board has not adopted IT policies and procedures regarding remote access, data backup, breach notification and disaster recovery.

District officials are not properly managing the District's fund balance levels. They have appropriated funds they have not used in four of the last five fiscal years (2008-09 through 2012-13), because the District consistently spent less than what was budgeted. Although District officials used $205,000 of appropriated fund balance in 2011-12, their unreserved fund balance increased to almost 20 percent of the following year's budgeted appropriations. While the 2012-13 unreserved fund balance dropped slightly, they are still well above amounts allowed by law. In addition, two reserves have excess balances totaling $450,000, based on their intended use. Also, during this time, real property taxes have increased from $2.5 million in 2009 to $2.7 million in 2013, and the District has issued $1.5 million in additional debt.

District officials did not ensure reasonable levels of fund balance were maintained. While their budgets included the use of surplus and reserved fund balances to finance operations, the positive variances between their budgets and actual results never necessitated the full use of the surplus funds. Instead, the amount of surplus increased the District's total fund balance by $521,000 over a five-year period. Some of these surplus funds were transferred to various reserves resulting in three reserves having more money than is likely necessary. Additionally, the District reported liabilities that were more than $1.3 million over the actual obligations for the same period. The adjustment of the overfunded reserves and correction of the understated liabilities would increase the available fund balance by more than $1.8 million. This would cause the fund balance to be well over the amount allowed by law.