The Secretary paid herself $5,538 that she was not authorized to receive and paid her husband, a Highway Department employee, $1,800 that he was not authorized to receive. We have referred our report to the proper authorities so that they could take appropriate action. Additionally, employee healthcare contribution rates were miscalculated, resulting in employees paying incorrect amounts for their healthcare benefits. These discrepancies occurred and were not detected because no one reviewed the Secretary's work to ensure that it was accurate. In addition, we found errors in general fund employee payroll payments aggregating $2,484; $1,273 in over-payments and $931 in under-payments, because the number of hours worked were miscalculated. These errors were not caught by the part-time secretary/bookkeeper when processing the records for payroll.

Overall, we found that school officials adequately monitored the District's financial operations to ensure fiscal stability. We found that the District adopted budgets that allowed the unexpended surplus fund balance to remain relatively stable over the last few years and that the District had adequate unexpended surplus funds to support planned deficits for the 2010-11 and 2011–12 fiscal years. The Assistant Superintendent for Business actively monitors available unexpended surplus funds to ensure that the balance is maintained below the 4 percent cap required by law.

The District has made limited progress in implementing the recommendations made in our audit report. Of the three audit recommendations, only one recommendation was implemented. Two recommendations were not implemented. By not implementing the recommendations in the report, the District is forgoing potential revenue.

The system of controls implemented by the Board generally operated effectively. We reviewed the check sequence within and between all abstracts issued from January 1, 2012 through December 31, 2012 to ensure the check sequence was complete and all checks were accounted for. Five out of 674 checks totaling $6,257 were issued and paid but were not on abstracts, and the Town could not account for five checks. These five unaccounted for checks were not listed on any abstracts and were not paid. However, they were not identified as voided checks.

The Board failed to properly establish internal controls or provide adequate oversight of the District's financial operations. The Board's audit of claims was largely ineffective and the Board did not properly supervise the Treasurer's activities. Furthermore, it has not employed an independent public accountant (IPA) to audit the District's finances or LOSAP as required by law. Finally, the Board did not ensure that grants were properly managed. This lack of oversight diminishes the Board's ability to properly monitor the District's financial operations. Our testing disclosed that the District made payments of over $59,572 that appeared questionable, improper, or unnecessary, most of which were purchases made with District credit cards. The District also failed to claim over $121,500 in grant money awarded to it by the Federal Emergency Management Agency (FEMA). Finally, it is unclear whether District-paid cellular telephones are used primarily for District purposes because officials routinely shred the monthly usage documentation.

The District has accumulated more than $16.3 million in excess funds that could be used to benefit taxpayers. The excess balance is about 13 percent of the subsequent year's budget, which is much higher than the statutory 4 percent limit allowed for school districts. The District circumvented the 4 percent limit by inappropriately encumbering approximately $8.7 million in purchase orders and tax certioraris for the 2012 fiscal year. The District also had $2.3 million in excess funds in the unemployment and insurance reserves. In addition, nine of 40 employees started their employment at steps higher than the entry level and cost about $95,000 more a year than if they started at the entry level. According to District officials, individuals were given higher levels because of degree completion, work experience, difficulty of academic curriculum, and scarcity of a particular skill set needed by the District. However, District officials were unable to provide any documentation supporting why those nine employees received an initial salary at those particular levels.

We found that the Board generally does not provide adequate oversight of District financial activities. The Board has not adopted procurement or code of ethics policies in accordance with GML. The Board did not perform an annual audit of the Treasurer's financial records. The only accounting records the Treasurer maintained were a check register and savings account register; the Treasurer did not maintain journals, ledgers, subsidiary revenue or expenditure accounts. The Treasurer also did not document monthly bank reconciliations to determine whether any differences existed between bank records and her checking and savings account registers. We also found that the Board did not adopt an annual budget in accordance with Town Law.

County and Department officials had not established an adequate system of internal controls over the Department's financial operations. Written policies and procedures either had not been developed or they had not been adequately monitored, updated, or distributed to all responsible staff. The Department did not maintain adequate records to support amounts collected or uncollected, the amount of undisbursed restitution being held, or adequate records of unpaid victims, and did not properly segregate the duties of those receiving and disbursing cash. While the Department has consistently disbursed restitution payments it receives each month to the appropriate victims timely and routinely, it did not properly handle those moneys which could not be readily disbursed to victims who could not be located. The staff had not made payments of undisbursed restitution to unpaid victims, as required by law, in many years, if ever. As of August 2012, the Department held over $16,000 in undisbursed restitution which was collected between one year and over 20 years ago. Also, staff did not cancel checks outstanding for over a year as required by law. Finally, the Department did not consistently enforce payment of court-ordered restitution, and only reported noncompliance to the courts for six of the 31 selected cases that had balances in arrears.

District officials stated there was no audit committee active at the District. Also, the District has not received an internal audit report since 2010-11 and the District has not appointed an internal auditor for the 2012-13 school year. In addition, none of the 50 claims we tested, totaling $967,570, had been audited. One claim, totaling $48,998, was for a truck that had no documentation to show the purchase was subject to competition, and five claims, totaling $3,317, were for credit card charges where the credit card company electronically debited the payments directly from the District's bank account. In addition, the Board did not adequately design and implement policies over the security of information technology. As a result, the District does not have a written disaster recovery plan. The Treasurer has administrative rights in the financial software that allow access to all aspects of the system and District officials do not produce or review activity logs.

The recorded total fund balance for the general, sewer, and water funds at the end of the last three fiscal years were either overstated or understated due to various accounting errors. As a result, the Clerk-Treasurer and the Board were not aware of the general, sewer, or water funds' actual operating results and overall financial condition. In addition, the Board did not adopt realistic budgets and did not properly monitor financial operations, which contributed to the Village being in fiscal stress at the end of the 2011-12 fiscal year. Specifically, the general, sewer, and water funds had a combined total deficit fund balance of $4,623 and a combined cash balance of only $6,451 at the end of the 2011-12 fiscal year. The operating funds only had a combined cash balance of $6,451 because the community development fund made an interfund advance of $20,000 to the general fund during the 2011-12 fiscal year. The sewer fund remained in fiscal stress at the end of the 2012-13 fiscal year because the sewer rates did not generate sufficient revenues to cover the costs incurred, resulting in the sewer fund having a total fund balance deficit of $35,029. The financial condition of the general fund and water fund improved and both funds had a healthy fund balance at the end of the 2012-13 fiscal year.

The recreation director did not remit all cash collected at the concession stand to the Supervisor, totaling $12,229 for the years 2010 through 2012. Additionally, we found that disbursements were made directly out of the concession stand bank account and were not reviewed and approved by the Board, or recorded in the financial system. In addition, Town officials have not implemented policies and procedures over the IT system, including a computer-use policy and adequate controls over computer inventory. Audit logs are not reviewed for inappropriate activity and the Board has not adopted a comprehensive disaster recovery plan.

Although the Board and District management believed they were effectively managing the District's financial condition, the adopted budgets continually included over-estimated appropriations. For fiscal years 2007-08 through 2010-11, these budgeting practices generated $2.76 million in operating surpluses, which caused the accumulated fund balance to exceed the statutory maximum of 4 percent of the ensuing year's budget for those same fiscal years. To reduce the unexpended surplus fund balance and bring it closer to the 4 percent limit, District officials made unplanned transfers to the District's reserves. We found those reserves to be over-funded by approximately $699,000 at June 30, 2013. The Board was more conservative in its budgeting practices for fiscal year 2011-12 and 2012-13 and reduced its unexpended surplus funds to a more reasonable level. However, we found that the Board did not include in its 2013-14 budget more than $790,000 in insurance revenues it expects to receive during this fiscal year ending 2013-14. This, combined with the over-funded reserves, will bring total available fund balance to more than $1.9 million in fiscal year ending 2013-14.

The Board adopted budgets that included the use of surplus fund balance to finance operations in an effort to avoid raising unnecessary real property taxes. However, although fund balance was included in the budgets, the District has not actually used fund balance to finance operations since 2008. In fact the District has had operating surpluses for the past several years. Instead of spending down the District's accumulated surplus by an average of $248,000 annually, as the Board had planned, the District's operations generated additional surpluses totaling nearly $1.8 million over the last five completed fiscal years. These operational surpluses occurred because the Board's adopted budgets consistently included overestimated expenditures for each of the last five years and underestimated revenues for three of those years. As a result of the Board's budgeting practices, for the fiscal years ending 2008 through 2012, total fund balance has increased 72 percent to $3.6 million with reserves at almost $3 million or 82 percent of the fund balance at June 30, 2012.

Internal controls over payroll ensured that the District employees were paid only approved salaries and wages. However, although the Board adopted a leave accrual policy, District officials did not enforce the policy's maximum accumulated leave limits. Four of the six employees' leave balances we reviewed exceeded the policy's maximum allowed limits. As a result, there is an increased risk that District employees could receive, use, or get paid for more leave than the amounts allowed in the District's policy.

The Town is currently in fiscal stress, due to the Board's failure to adopt realistic budgets over the past four years. The Town's combined year-end fund balance for its five major operating funds was a $2.2 million deficit at the end of 2012. This resulted from overestimated revenues in 2009 and 2010 and underestimated expenses in 2010 and 2011. The town-wide general fund balance deficit increased from $384,000 in 2009 to a $1.4 million deficit at the end of 2011. To cover operating expenses, Town officials loaned moneys between multiple funds, resulting in $10.3 million of outstanding interfund loans at the end of 2012. Further, the sewer fund's fund balance dropped from a surplus of $765,000 in 2009 to a $1.3 million deficit in 2012, primarily because sewer revenues were not sufficient to cover operating costs. In addition, the town-outside-village general fund had a $2.4 million fund balance deficit at the end of 2012. We also found that the Town did not use nearly $782,000 in donated funds as stipulated by the donors, but instead applied these funds to the Town's general and sewer operations. Town officials did not maintain proper accounting records and did not segregate the donated funds for the exclusive purposes intended.

Village officials have not adopted policies or procedures to govern budgeting practices or the level of unexpended surplus funds to maintain. Although the Board has been provided with sufficient information to develop accurate budgets, the Board has consistently adopted budgets with unrealistic estimates of revenues, expenditures and the amount of fund balance to be used to fund operations. The Board consistently overestimated expenditures and/or underestimated revenues, which caused significant positive budget variances. As a result, although the Board appropriated $3.73 million in fund balance for the general and sewer funds, over $2.9 million of this amount was not used. Consequently, the Village has accumulated excessive unexpended surplus funds amounting to $833,139 and $522,373 in the general and sewer funds, (or 43 and 52 percent of expenditures), respectively. Furthermore, the Board has not developed a comprehensive long-term financial plan, which would be a useful tool to strategically utilize to reduce the excessive unexpended surplus funds in a manner that benefits the taxpayers.

We tested 16 purchases totaling $408,028 made in the 2011-12 and 2012-13 fiscal years. These purchases required bids or quotes, or were purchased from State and County contracts. We found that purchases were not formally bid or awarded by the Board, quotes were not always obtained, and Village officials did not determine if they received the correct State or County contract pricing. The Board's failure to ensure that Village officials obtained bids and quotes in accordance with the Village's procurement policy, and verify that they were receiving the correct State and County contract pricing, resulted in the Village incurring higher costs than necessary for goods and services purchased.

The Board did not develop policies and guidelines for budget preparation and monitoring. As a result, it repeatedly adopted budgets with inaccurate revenue and expenditure estimates, which led to the accumulation of significant surplus funds. Additionally, the Board did not have a long-term plan for identifying fiscal trends, which would have facilitated the budgeting process. We also found that the Board did not adopt an investment policy or develop guidelines over other key financial areas; did not properly authorize interfund advances; and did not provide for timely and/or proper annual audits of the Town Clerk, Town Justice, and Supervisor's office. In addition, the Town's procurement policy does not require the solicitation of written proposals or quotes or other methods for the acquisition of professional services. In 2011 and 2012 the Town paid $314,781 to seven professional service providers without soliciting competition. Town officials were unable to provide the contracts for the payments in 2011 and 2012 for three of the providers.

Our audit revealed that the Board's involvement and scrutiny of financial activities and operations was inadequate, and that the Board and Supervisor were unaware of the inadequate condition of the Town's accounting records. The Supervisor did not adequately oversee and monitor the work of the Budget Officer who served as the Town's bookkeeper and maintained the Town's accounting records. Due to the poor condition of the Town's financial records and reports, the Board was unable to determine the Town's true financial condition or effectively monitor the Town's financial operations. The Board also was unaware that the Town was not in compliance with payroll tax filing or payment requirements for Federal and State liabilities. In addition, the Board did not ensure that the Supervisor had prepared the 2010 and 2011 annual financial reports, and the Supervisor never filed these reports with the Town Clerk or OSC. The Board also failed to perform an adequate audit of the Supervisor's and Town Clerk's books and records.

Internal controls over reserve funds are not appropriately designed or operating effectively. District policy provides that an annual report of District reserves must be prepared and submitted to the Board for review that includes a summary statement of projected use and need of the reserve funds. However, the annual report prepared by the Business Administrator does not include a summary statement. As a result, the Board's ability to monitor the projected use and need of reserve funds could be limited. Currently the District has more than $1 million in a debt service reserve that District officials could not associate with any outstanding debt, and more than $1.1 million in general fund reserves that exceeded reasonable needs of the District.