The Board has not established an effective system of internal controls over payroll, to ensure that the Town has properly classified its Fair Labor Standards Act (FLSA) exempt employees, and enforced established requirements for leave requests, accrual records, and employee time records. The Board also did not properly authorize interfund advances or ensure that the Supervisor and accountant properly accounted for them and repaid them timely in accordance with law. Also, the Board has not developed long-term financial plans, policies, or procedures to govern budgeting practices and the level of unexpended surplus funds to maintain. As a result, the Board had consistently adopted budgets with inaccurate estimates for revenues and expenditures, and the amount of fund balance that would be available and used to balance the budget. These inaccurate budgets led to the accumulation of significant fund balances in the general and water funds and, conversely, dangerously low fund balance in the sewer district fund. Finally, the Board has not established policies and procedures related to breach notification or disaster recovery.

The Board did not provide adequate oversight of the Company's financial operations, properly supervise the Treasurer's activities, approve bills prior to payment, or ensure that an audit of the Company's finances was performed by an IPA, as required by law. This lack of oversight diminishes the Board's ability to ensure that taxpayer moneys are used in a responsible manner. As a result, Company resources were spent unnecessarily. We identified payments made totaling approximately $8,500 for services and equipment that were never used. In addition, the Treasurer inappropriately reimbursed himself $1,162 for fees associated with his personal credit card and for unsubstantiated restaurant purchases. Finally, we estimate that the Company will save approximately $10,000 annually if the number of cellular telephones is reduced from 18 to five.

The Board generally provides adequate oversight of District financial activities. It has adopted purchasing and investment policies and a code of ethics, as required by statute, and has ensured that procedures for financial recording and reporting were developed. Monthly financial reports are provided to the Board, the annual financial report is filed with OSC in a timely manner, and the Secretary-Treasurer's records are audited annually. Lastly, the Board audits all District claims. Although the Board passed a resolution to pay claims that are allowed to be paid prior to audit, it also passed a separate resolution to pay other bills prior to audit that are not allowed by Town Law. For example, the Board approved the payment of claims prior to audit for certain vendors that supply trash pickup, health insurance, office supplies, auto parts, payroll accounting services, and fire-related services.

We found that the Board and Village officials have not developed policies and procedures to govern budgeting practices and the level of unexpended surplus funds to maintain or developed long-term financial and capital plans. As a result, the Board has adopted budgets that were not based on sound and realistic estimates of expenditures, and the Village has excessive fund balance in the general fund. In addition, the Board has not adopted an investment policy, which is required by law, or any policies or procedures for finance-related operations. The Board has also not adopted any policies or procedures governing information technology (IT), including those related to acceptable use, data backup, online banking, disaster recovery, equipment disposal, and breach notification. Additionally, the Village's unaccounted-for water for 2011-12 was 30 percent which is significantly higher than the industry standard of 10 percent.

The Board did not adopt a comprehensive IT security plan or a disaster recovery plan. In addition, the Board has not adopted a breach notification policy. Without a proper IT security plan and a disaster recovery plan in place there is an increased risk that Town data, hardware and software systems may be lost or damaged by unauthorized access and use, or disaster. Furthermore, by failing to adopt an information breach notification policy, in the event that private information is compromised, Town officials and employees may not understand or be prepared to fulfill their legal obligation to notify affected individuals.

The Village's internal controls over water operations need to be improved. The water clerk's duties were inadequately segregated, interfund advances were not accurately accounted for, reconciled, or repaid as required and employee benefits costs were inaccurately allocated. As result of deficient internal controls, we detected errors in more than 17 percent of the water bills that we reviewed, and more than $1,100 of customer account adjustments were made without documented prior approval. In addition, as of May 2012, the water fund owed the general fund approximately $126,000. The water fund was also over-charged approximately $74,000 for employee benefit costs.

We found the District established adequate internal controls over payroll. District officials implemented specific procedures to ensure that individuals were paid at their approved salaries and wages and received only the benefits to which they were entitled. We also determined that the various control procedures that the District had established over the payroll process provided adequate supervision and oversight.

The Board does not routinely monitor financial operations, adopt reasonable budgets or take appropriate action to maintain financial stability. As a result, the highway town-wide fund has a deficit and the general and highway town-outside-village funds have unexpended surplus funds that are excessive.

County officials are not ensuring that various departmental operations and functions are operating at the lowest possible cost to taxpayers. The Sheriff's office is understaffed and incurring an average of more than $500,000 annually in overtime. The County could save from $44,000 to $177,000 a year depending on the number of additional officers hired in the jail and road patrol. The County is also not imposing certain allowable fees that the probation department could collect, ranging between $9,500 and $42,300 annually.

We found that the School accurately billed the school districts of residence. We also found that the School maintained adequate supporting documentation of the students' addresses and proof of their residence in each of the resident school districts for the 30 students reviewed. Furthermore, at the end of the fiscal year, the Director of Operations completes a reconciliation of amounts billed and collected. We reviewed his reconciliation for the 2011-12 school year and found it to be accurate.

We found that the Board has not adequately monitored the financial condition of the water and sewer funds. Adequate financial reports were not provided to the Board on a monthly basis. Therefore, the Board has not ensured that adequate cash balances are available to fund expenditures as they come due. Prior to May 31, 2008, the sewer fund borrowed a total of approximately $64,000 and the water fund borrowed a total of approximately $54,000 from other funds, principally from the general fund. The water and sewer funds do not presently have sufficient resources to repay the full amount of these interfund loans without affecting their operations.

The Board has not properly developed annual budgets. The 2009, 2010, and 2011 fiscal year budgets did not include provisions for the Board's accelerated retirement of District debt. From 2009 to 2011, the actual expenditures exceeded the budget estimates each year by an average of 22 percent because of unbudgeted debt service expenditures. For those three years, the Board chose to use available unexpended surplus funds to pay off the debt balances early, avoiding future interest payments. In addition, in 2009, the Board increased the real property tax levy by more than 24 percent to fund, along with the use of debt and unexpended surplus funds, the $399,000 purchase of capital equipment. During 2012, the real property tax levy remained at the same level as when the District made the capital equipment purchase, while the total expenditures returned to the levels before the purchase and debt repayment. As a result, the District generated a $57,000 operational surplus, and the Board opted to transfer $10,000 of the surplus to an existing reserve account. However, the District has not formally established reserve funds. As of the fiscal year ended 2012, the unexpended surplus fund balance was about 47 percent of the total ensuing year's expenditures and the reserve balance was over $175,000.

Library officials have established adequate controls over the claims processing function that allow claims to be audited in a timely manner and ensure the claims are properly supported. The account clerk and/or Director reviews invoices for department head approvals before printing checks and a schedule of claims to present to the Board, which then audits the claims before signing the checks. Finally, the claims auditor performs a post-audit of the claims paid.

The Board needs to improve its oversight of the District's financial operations. The Treasurer submits monthly financial reports to the Board that contain incomplete information, and the District's financial records have not been audited by an independent public accountant since the 2010 fiscal year. The Board also does not formally approve attendance at conferences and could have saved approximately $2,000 on two conferences had it adopted more reasonable meal and lodging per diem rates. The Board has also not distributed the code of ethics to all members as required by General Municipal Law, and one of the Commissioners has not completed the fiscal training required by Town Law. Although the District has hourly payroll expenditures that total approximately $81,000 per year, the District does not have procedures that provide reasonable assurance that employees report time worked accurately on their time cards. In addition, although the Board has adopted a policy to address computer and Internet use and password security, it has not distributed this policy to District members. In addition, the District has no disaster recovery plan. Although the District's third-party IT services provider is supposed to restart the District's IT operations from daily backup files the event of an emergency, this process has never been tested. Finally, District officials do not review audit logs.

The Clerk did not issue press-numbered duplicate receipts for cash collected, accurately record all transactions, remit moneys due to the Supervisor and other entities in a timely manner, or deposit cash receipts intact or in a timely manner. In addition, the Clerk inappropriately inter-mingled her personal financial activity with the Town's business. The Board also did not provide adequate oversight of the Clerk or document its annual audit of the Clerk's records and related results in the minutes of its proceedings. Due to these internal control weaknesses, cash receipts are not adequately safeguarded, and the risk of fraud is significant.

We found that that the Board did not develop budgets with realistic estimates of revenues. In recent years, the Board over-estimated the sales tax revenues and incorrectly estimated the amount of fund balance that would be available to finance operations. After the Board appropriated a portion of fund balance for 2012 operations, the general fund had a remaining deficit unreserved fund balance of approximately $748,000, and the highway fund had a deficit unreserved fund balance of approximately $837,000. Also, the Board did not employ long-term financial planning, which would have helped it identify historical budgeting trends.

The County entered into an improper contract for security services with Watkins Glen International (WGI), a private entity. Over the last two years, the County has paid 351 individuals $233,840 for providing law enforcement services to WGI in connection with events at the Watkins Glen racetrack. In these cases, the County improperly pays these individuals as if they were independent contractors by check based on completed vouchers and issues them an IRS 1099 form at the end of the year. As a result, no taxes are reported or withheld, and no information is reported to the State retirement systems. We also found errors with 231 of the 333 leave request forms that were available for review, 40 exceptions with the 395 overtime entries, and exceptions with eight of the nine employees' leave accruals reviewed. In addition, the Sheriff's Confidential Secretary (Secretary) is responsible for processing all civil fees and bail received and disbursed by the Department with little to no oversight. Finally, receipts are not issued in a consecutive manner, and the Secretary did not prepare monthly reports or perform an accountability analysis. We prepared an accountability analysis as of December 31, 2012, and determined that the civil fee and bail available cash was higher than known liabilities by $253.

The Town's non-payroll cash disbursements were not always properly authorized, adequately supported or in compliance with statutory requirements. The former Supervisor improperly paid 20 claims totaling $19,919 without the audit and approval of the Board. These disbursements included 10 payments totaling $1,819 that she made to herself for the reimbursement of expenses and nine payments totaling $18,100 that were made to vendors for publicity. The Town also made payments totaling $60,000 to the Chamber of Commerce and $6,087 to the Chamber's vendors without entering into written contracts stipulating what services or benefits the Town was to receive for the payments. The Town paid $45,000 to a law firm of which the Town Attorney is a shareholder. The Town Attorney may have a prohibited interest in the contact between the Town and his law firm. Finally, internal controls over fuel inventories also need to be improved. Our review of fuel records from June 2011 through December 2011 disclosed that about 4,500 gallons of fuel valued at about $14,600 were not accounted for.

The Council adopts realistic budgets, and along with the Mayor and City Controller, continually monitors the budgets throughout the year and will initiate and approve any necessary budget amendments. Although we do not consider the City to be in fiscal stress at this time, the low levels of unexpended surplus funds in the general fund and declining balances in the water and sewer funds make the City at risk of becoming susceptible to fiscal stress if the declining trends are allowed to continue. City officials are aware of the low level of fund balance in the general fund and the declining balances in the water and sewer funds. The budget is continually monitored throughout the year and budget amendments are made to address the changing needs of each fund. Officials are also working with a management company to ensure the City's Civic Center is an active venue that attracts visitors to the City.

We commend District officials for establishing and implementing strong internal controls over payroll. Officials implemented specific procedures to ensure that the individuals reported and paid through the payroll process were bona fide District employees, were paid only approved salaries and wages, and received only the benefits to which they were entitled.