While the Board meets regularly to deal with a range of issues, its oversight of the School's fiscal affairs could be improved. The Board contracted with National Heritage Academies Inc. (NHA) to be responsible for the administration, operation and performance of the School in accordance with the School's Charter and subject to the oversight and authority of the Board. The agreement transfers all School revenues to NHA, and the revenues are to be expended by NHA in accordance with the approved budget, and as otherwise authorized by the Board. NHA provides the Board with projected budgets, budget amendments and quarterly financial statements for its review. Although the Board reviews and approves budgets and budget amendments, the budgetary information and the quarterly financial statements lack transparency to allow the Board to identify the fee for services paid to NHA and to distinguish indirect from direct costs, and how indirect costs are allocated by NHA to the School. For example, $2.9 million in indirect costs have been allocated to the School by NHA but the Board has not received support for how the costs are allocated. As a result, this limits the Board's ability to adequately monitor NHA and verify indirect costs allocated to the School are accurate and appropriate.

We reviewed four building leases and 12 service contracts entered into by the School to ascertain if it has procurement procedures and policies designed to obtain the best possible goods and services for the best price. We found that the School entered into the leases without any process for determining the fair rental value of the buildings. Similarly, although competitive bidding is not required, we found that the School only sought competition for one of the service contracts we reviewed. These findings are of particular concern because the leases and contracts were entered into with organizations having various types of business or occupational relationships with members of the Board or their family or friends. Under these circumstances, it is questionable whether the leases and contracts were in the best interest of the School. The School paid for use of a building and for certain services without having entered into written agreements. The School also lacked appropriate information technology (IT) policies and procedures. The School did not properly control user access rights to the IT system and did not properly establish a disaster recovery plan. Furthermore, we found that the School lacked accurate IT inventory records.

The Village's internal controls over billing, collecting and enforcing water fees needs to be improved. The Clerk's duties were inadequately segregated, unpaid water bills were not accurately re-levied, water bills were not prepared in accordance with the Village's local law, and the Board did not approve all customer account adjustments the Clerk made in the water accounting system. Further, the Board did not annually audit, or cause to be audited, the Treasurer's records. As a result, there is an increased risk that the Village may not be collecting all the revenue to which it is entitled and the Board's ability to monitor the Village's water operations is diminished.

The Justice did not establish adequate internal controls over the Court's financial operations. Specifically, the Justice did not perform bank reconciliations, prepare monthly accountabilities, deposit cash receipts in a timely manner, properly account for bail money held by the Court or submit the required monthly reports to JCF in a timely manner. Because of these weaknesses, there is an increased risk that errors and irregularities could occur without being detected and corrected, which puts public resources at risk.

Although the District has implemented procedures and controls over the payroll process, there is room for improvement due to the lack of uniformity in procedures. Due to the lack of specific guidance and uniformity for timekeeping procedures, we tested computerized data and records for samples of employees, including substitutes, working for different functional departments and school buildings. Our tests included regular hours, overtime and the use of accrued leave time such as sick leave. For example, we selected six of 64 employees with custodial titles, eight of 83 employees with bus driver titles and five of 55 employees with food service titles. Except for minor deficiencies that we discussed with District officials, we found that the controls over timekeeping were adequate to limit the risks associated with a lack of specific guidance and uniform procedures. However, the District can strengthen the controls over timekeeping by establishing and implementing uniformity of procedures and forms.

The Board did not adopt a policy or develop procedures to govern the level of fund balance to be maintained. Additionally, the Board had not developed accurate budget estimates or a formal, comprehensive multiyear financial and capital plan to adequately address the Town's long-term operational and capital needs. As a result, the water fund has retained excessive amounts of unexpended surplus fund balance. Unexpended surplus funds were consistently more than the actual expenditures in each of the fiscal years 2008 through 2012. In contrast, the highway fund reported deficit unexpended fund balances of approximately $61,000 in 2011 and $10,000 in 2012. Because the Board considered that the tax levies were no longer sustainable without significant budget cuts, it enacted a local law in 2012 to override the 2 percent property tax increase limit under the new tax cap law, thereby allowing the Town's 2013 budget to exceed the tax cap by $25,403, or approximately 5 percent.

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.