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.

We reviewed budget-to-actual results for the fiscal years 2009-10 through 2011-12 and found that District officials adopted realistic budgets and kept expenditures within budgeted appropriations. The Board reviewed budget to actual comparison reports throughout the year to monitor the budget and approved budget transfers at the monthly Board meetings. However, the heavy reliance on appropriated fund balance as a financing source in the annual budgets has resulted in a significant reduction in the District's unexpended surplus funds. From 2009-10 to 2011-12, the total fund balance in the general fund has been depleted by 44 percent, from $5,696,396 to $3,170,685, and the unexpended surplus fund balance has been depleted from $1.9 million to just over $730,000 (or 3.1 percent of District appropriations) in 2011-12.

Over the past five fiscal years, District officials added approximately $1 million to reserves and increased the real property tax levy by approximately 26 percent. Additionally, the Board failed to adopt a formalized plan for reserve funds that included the intent, funding levels and use of such funds. As of June 30, 2013, the District had more than $2 million in a debt service reserve that District officials could not associate with any outstanding debt. Additionally, four of the District's six general fund reserves totaling approximately $1.7 million were not supported by a plan or other documentation validating the amount retained. Furthermore, while the Board adopted an asset policy, it has not updated it to reflect current District processes. The District engaged a third-party asset tracking company to account for the District's fixed assets, without any formal control procedures in place for this process. Our review of 50 movable assets disclosed discrepancies for 16 of them valued at more than $11,000. Our review of nine assets included on the disposed asset list disclosed that five of them valued at $6,000 were still in use at the District.

The Board generally does not provide adequate oversight of Department financial activities.

Counties have not maximized their reimbursement of expenditures related to the administration of social services programs. Specifically, the seven counties we audited failed to seek reimbursement for more than $1.4 million in eligible costs, potentially losing almost $1 million in additional revenue. This revenue was lost because the counties did not have formally established and consistent billing processes which resulted in billing errors (under-billings and over-billings) or a failure to bill at all.

The District retained excessive fund balance, exceeding the permitted statutory limit, in each of the fiscal years 2007-08 through 2011-12 by as much as $228,694. Although the Board President stated the unexpended surplus fund balance was for cash flow purposes, none of the adopted budgets included a planned balance as is permitted by Law. District officials have not properly budgeted for tuition and teacher personnel salaries. District officials also consistently levied more than was needed for budgeted appropriations between the fiscal years of 2007-08 through 2012-13. In addition, the Board paid the former Superintendent $28,687 in the 2011-12 fiscal year through vendor disbursements as if he were an independent contractor rather than through payroll. This included an extra $2,167 which was not provided for in his contract. Finally, we found that the Board does not audit the claims nor do they receive an abstract of claims for approval.

Although the Board adopted budgets with revenues that were realistic and supported, expenditures were consistently and significantly overestimated. As a result the District spent nearly $8 million less than budgeted over a five-year period.

District officials have consistently over-estimated expenditures and appropriated unexpended surplus funds that they did not use. The District's unexpended surplus funds have exceeded the statutory 4 percent limit during the 2011-12 and 2012-13 fiscal years and tax levies may have been higher than necessary. Additionally, the District had four established reserves that totaled approximately $969,000 at June 30, 2013 and had no formal plan on funding or using these reserves. The District's retirement reserves balance of $310,000 was five times what the District spent during the 2013 fiscal year. We also found that the District has a well-designed set of control procedures that can provide reasonable assurance that thefts of cash receipts will be prevented or detected. We reviewed the District's procedures for the collection of cash receipts for milk sales and non-resident tuition, totaling $169,576, and found no exceptions.

In 2008, the Town Board approved a five-year capital plan to construct a new Town Hall/highway garage at an estimated cost of $602,620. Construction began in the spring of 2010. Between 2009 and 2013, the Board expanded the scope of this project and increased the budget from the original estimate of $602,620 to $3,000,000. As of May 2013, project expenditures totaled over $2.2 million, with the remaining work, scheduled for completion in December 2013, expected to incur additional costs. Because Town officials did not develop a comprehensive plan at the onset of the project, detailing how the construction would be completed with available Town resources, they did not determine the extent to which they would need to use contract services and did not properly plan and budget for them. Further, Town officials did not monitor expenditures against estimated costs. The Town also did not budget for over $400,000 in architectural and engineering services and may have incurred unnecessary costs by not complying with certain bidding requirements and not soliciting competitive proposals for architectural services.

The Board did not effectively oversee and monitor the Village's financial operations. The Board did not ensure that it received complete and accurate reports from the Clerk-Treasurer. In fact, we found several material errors in the maintenance of the accounting records and related reports. As such, the Board did not have accurate information with which to base its financial decisions and, ultimately, did not adopt reasonable budgets for the general, water and sewer funds. Inaccurate budgeting and lack of monitoring have caused fund balance to decline in the general and sewer funds. While the Village's funds currently have positive unexpended surplus fund balances, if the Board continues to accept inaccurate financial reports, base its decisions on unreliable information, and not monitor results of operations, the Village could enter into fiscal stress. In addition, the Board cannot be sure that only authorized disbursements (including payroll) were made, that all moneys received were properly deposited, or that all transactions were properly recorded and reported. The Clerk-Treasurer and her Deputy perform most aspects of the cash receipt and disbursement functions without independent oversight. There were 58 disbursements totaling more than $217,000 made and payroll benefits provided without Board approval.

The School billed the correct school districts of residence and, overall, the School maintained adequate supporting documentation regarding students’ residency. However, we found nine students’ files did not contain the required proof of residency; three instances where no date was on the address verification document or the date was several years old; and one instance where the address did not agree with the address on the billing record. Although the results of our testing did not disclose significant errors or irregularities, the errors we did find occurred because the School has not fully developed its residence verification process.

The Board routinely relied on unexpended surplus funds to finance town-wide general and certain water and sewer district operations, and continually adopted budgets that did not provide sufficient revenues to fund expenditures. As a result, unexpended surplus funds declined in the town-wide general fund, two water district funds and one sewer district fund. Town officials stated they appropriated unexpended surplus funds to keep the tax levy and user rates stable. However, this practice resulted in budgets that were not structurally balanced because they relied on unexpended surplus funds to finance recurring expenditures. Additionally, the cost of operations is not sustainable based on the current levels of unexpended surplus funds maintained. As a result, Town officials may need to increase taxes and user fees if unexpended surplus funds are not available to finance operations in subsequent years.

For the three year period ending June 30, 2013, District officials have consistently over-estimated expenditures by a total of $12.2 million and increased the tax levy by 5.4 percent. These budgeting practices generated approximately $2.4 million in operating surpluses, which caused unexpended surplus funds to exceed statutory limits in each of the past three years. For example, at June 30, 2013, unexpended surplus funds exceeded statutory limits by approximately $3.2 million. Although District officials appropriated approximately $3 million in each of the last three fiscal years to reduce the tax levy, the Board over-estimated expenditures by between $3 million and $4 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 annual operating surpluses to fund nine reserves that, as of June 30, 2013, totaled $4.6 million. Six of the nine reserves are over-funded.

District officials consistently over-estimated expenditures over the past four years by more than $3.8 million, resulting in operating surpluses totaling $1.3 million. Therefore, the majority of the $2.4 million in Board-appropriated unexpended surplus funds was not needed to fund District operations. Because the amount of unexpended surplus funds that can be legally retained is limited, each year since 2009 District officials transferred money in excess of this limit to various District reserve funds. As a result, reserves totaled more than $2.1 million at June 30, 2013. District officials could not demonstrate a planned need for more than $1.7 million of the reserves. Officials also did not appropriately use the debt reserve fund, which had a balance of more than $380,000 as of June 30, 2013. Instead, District officials levied real property taxes and paid debt service with general fund appropriations. By routinely following these practices, District officials have withheld significant funds from productive use, levied unnecessarily high taxes and compromised the transparency of District finances to taxpayers.

The Board did not adopt a policy or method to determine the amount of unexpended surplus funds to maintain. In addition, the bookkeeper/budget officer did not establish procedures to reasonably estimate the amount of fund balance that will be available at year end. As a result, the Board has relied heavily on appropriated fund balance as a financing source in the annual budgets and, in some years, it appropriated more fund balance than was actually available. For example, when adopting the 2012 and 2013 budgets, the Board appropriated more general fund balance than was actually available resulting in budget deficits going into both the 2012 and 2013 fiscal years. Similarly, when adopting the 2012 budget, the Board appropriated more highway fund balance than was actually available resulting in a budget deficit going into the 2012 fiscal year. This has led to a significant reduction in the Town's fund balances from the beginning of 2010 to the end of 2012. Fund balance in the general fund declined 79 percent (from $38,912 to $8,331), and the highway fund balance declined 89 percent (from $38,139 to $4,236) during this period.