The Board did not ensure that all claims were audited, were audited prior to payment, and did not properly audit all claims to ensure they included evidence of receipt and price quotes. As a result, 20 claims totaling $32,326 were paid even though evidence of Board approval was not documented in the Board minutes, and five claims totaling $6,258 were inappropriately paid in advance of Board audit. Although we did not identify any instances where goods and services were not received, two claims, totaling $4,099, lacked quotes as required by the Village's procurement policy. In addition, the Board did not audit, or cause to be audited, the Treasurer's records and reports.

The Board has not maintained an adequate level of unassigned fund balance which limits the Village's ability to manage emergencies and other unanticipated occurrences. For example, in two of the last four fiscal years, Village officials appropriated more fund balance than was actually available. For the 2009-10 and 2011-12 fiscal years, the Board appropriated $1,874 and $999, respectively, of fund balance that they did not have. The Board also has not exercised effective oversight of the Clerk-Treasurer. For example, the Clerk-Treasurer has not filed the required annual financial report with OSC on a timely basis. Further, the Board did not audit, or cause to be audited, the records and reports of the Clerk-Treasurer.

We found that the Board did not provide adequate oversight of the District's capital projects and tax certiorari reserve funds. District officials overfunded the High School Roof project and burdened District taxpayers with $1.3 million in unnecessary borrowing. Further, the District paid approximately $579,300 in tax certiorari claims from July 1, 2009 through June 30, 2012 from the general fund instead of using the tax certiorari reserve. We also found that the District's Audit Committee acted outside the scope of its authority and withheld information from the Board. The District also paid four professional service providers (legal, architectural, internal audit, and external audit) $233,894 during the audit period without first soliciting competition. Finally, the Board did not properly segregate the Treasurer's and Deputy Treasurer's duties over cash disbursements.

The Council did not review the fire companies' fundraising events held in 2011 because none of the fire companies provided the City with advance notice of these events, as required by law. These events included chowder sales, food and beer tents at Canal Fest and a variety of raffles, bingo, and other games of chance. We identified fire company fundraisers that operated at a loss and provided free alcohol to participants. In addition, City officials did not maintain records indicating they sought written or verbal quotes, as required by the purchasing policy. We tested 24 claims totaling $41,600 from nine vendors who provided the City with materials and supplies totaling $140,703 in 2011. We found that for all 24 claims tested, department supervisors did not maintain a record of the verbal or written quotes required by the procurement policy and therefore, could not provide evidence that City funds were used in the most efficient and economical manner.

Town officials have not closed out a capital project for a dump closure with a remaining cash balance of $111,373. In addition, Town officials did not receive approval from OSC for establishing capital project reserve funds and exceeded the Board-authorized amount when funding two reserves by a total of $101,445.

The Village is compensating the appointed Building Inspector and elected Village Justice by voucher as if they were independent contractors. However, these are Village official positions and should be paid on the Village's payroll. In addition, the Board did not adopt a comprehensive credit card policy. Although the Village adopted a credit card policy on April 23, 2012, this policy only set the credit card limits and required that receipts be submitted for any purchases; it did not specify who was authorized to use the credit cards, for what purpose the cards could be used, or procedures for monitoring the card usage. The Village had two major credit cards, one issued to the Mayor and one issued to the Administrator. The Mayor regularly used the Village credit card at local restaurants and in most instances there were no credit card receipts to show whether items purchased were appropriate Village charges.

Due to the poor condition of the City's financial records and reports, City officials were unable to determine the City's true financial condition. The extremely poor state of the City's financial records precluded a determination of the City's true financial condition. The Council failed to establish the policies and internal control procedures needed to implement, manage and monitor the City's financial management system. Even after years of unfiled financial reports, lack of information about current financial condition and un-reconciled bank accounts, the Council did not take action to correct the City's financial information. Furthermore, the Council did not review and act upon what financial information was provided such as quarterly operating statements showing over expended appropriation accounts. Finally, the Commissioner has proposed, and the Council has adopted, unrealistic budgets over the past several years. As a result, City finances could be under fiscal stress and the Council would not know it.

We found that at least $19,107 of taxpayer funds were missing from 2010 through 2012. We also identified that the Clerk transferred money between accounts under her control to cover up these shortfalls. During our audit, the Clerk expressed that she had concerns that a family member was gaining access to taxpayer funds and removing them from her possession. In addition, because the Clerk did not maintain adequate, accurate and complete records and reports or physically secure collections, there may have been transactions that were not accounted for and additional moneys missing. We were unable to determine if this was the case or quantify additional missing moneys because the records were so poorly maintained.

The former Superintendent and Director of Business Services did not provide sufficient oversight over the District's financial operations. They both failed to properly assign users within the financial software, and Business Office staff performed incompatible duties without management's sufficient oversight or control. Further, District officials failed to ensure that Business Office staff were billing for various reimbursements due to the District. As a result, the District lost out on at least $52,000 in reimbursement revenues due.

The Board is not providing adequate oversight of the Dog Control Officer and Code Enforcement Officer. The Board did not require the Officers to remit the fees they collected to the Town. Instead, it approved both Officers to retain fees collected on the Town's behalf which circumvented Town Law. In addition, we found that the Board gave both Officers approval to open and maintain bank accounts for cash collections and disbursements for their respective operations with no Board oversight. Furthermore, the Board's review of claims was inadequate, resulting in claims being paid prior to Board audit and approval, certain claims lacking adequate supporting documentation and payments for goods and services that were not for appropriate Town purposes. The Board did not audit the records of the Supervisor, Town Clerk, Dog Control Officer and Code Enforcement Officer.

The Authority has established and designed an adequate system of internal controls over claims processing.

The Board does not adequately audit claims presented for payment. The Board does not require documents such as receiving reports, quotes, or bid or State and County contract information be submitted for claims review. In addition, we reviewed 73 payments and found that 27 payments totaling $24,823 did not have signed receiving documentation, and four payments that required quotes totaling $102,801 did not have the required quotes or alternate documentation. In addition, internal controls over IT do not adequately protect electronic data. The Board has not adopted an acceptable computer use policy, a breach notification policy or a disaster recovery plan.

The District's procurement policy does not require the use of competitive methods when procuring professional services. We reviewed all five professional services providers who received at least $20,000 in payments during our audit period. District officials did not solicit competition for the services provided by any of the five professionals, who were paid a total of $343,289. The payments comprised $143,989 to an insurance agency, $79,134 for physical training services, $54,181 for legal services, $39,500 for accounting services, and $26,485 for engineering consulting services. In addition, although the District entered into written agreements with the physical trainer and the engineering consultant, there are no Board resolutions approving these contracts. Further, the payments to the physical trainer were not in accordance with the written agreement. While the written agreement, dated May 2007, states that the trainer is to be paid $40 per hour, during our audit period he was paid $50 per hour for his services.

The Board and Town officials were aware of revenue shortfalls and did not take the appropriate action to maintain the sewer and water districts' financial stability. In addition, the Board adopted budgets for the sewer and water districts that were not reasonable or structurally balanced. This resulted in annual operating deficits, declining fund balances and declining cash balances. Finally, the Board has not adopted a long-term capital plan or a long-term financial plan to address the corresponding costs and future repairs and maintenance costs.

The Board has not established written policies and procedures for cash receipts and disbursements, claims processing or information technology. The Board has not adequately segregated the Treasurer's duties or implemented mitigating controls. The District entered into a new three-year lease with the Golden Glow Volunteer Fire Company effective January 1, 2011 to pay rent of $30,000 annually for the two existing firehouses, which was double the $15,000 amount paid in 2010. When the new firehouse construction is complete, the two existing firehouses will be sold. However, the rent amount will remain at $30,000 per year. The Board did not perform a cost-benefit analysis of this transaction or determine if the rental price was at fair market value. Given that the payment for at least the first two years of the lease doubled the cost for the same space, it is questionable that the District has been paying fair market value. Instead, it appears that the increase was intended to subsidize the construction of the new firehouse that will be privately held. Furthermore, statutory budget constraints may limit the District's ability to absorb any future increases in the lease payment.

The Board Chairman told us that the Board conducts an internal review of the Secretary-Treasurer's financial records, bank statements, and canceled checks two or three times throughout the year but could not provide us with any written evidence of this review. The Treasurer did not file the required annual financial reports with OSC for the 2009, 2010, and 2011 fiscal years. The Board was unable to provide us with an adopted investment policy and a code of ethics, which are required by law. As of August 31, 2012, the District reported an equipment capital reserve totaling $324,836 and a building capital reserve totaling $227,122. The Secretary-Treasurer does not maintain accounting records for each reserve fund as required. From January 1, 2010, to August 31, 2012, the Board financed the reserves with budgetary appropriations, operating surplus at the end of the year, and interest income, totaling $71,873 for the equipment reserve and $118,429 for the building reserve. The District did not make any expenditures from the reserve funds during this time period.

The Board and Mayor did not ensure that only authorized disbursements were made. Payments totaling $1,386 were made to the Clerk-Treasurer without Board approval and all employees had the wrong amounts withheld for health insurance. In addition, 447 checks totaling approximately $325,000 were inappropriately paid prior to Board audit.

The Company did not adequately plan for the construction of the new firehouse. Because the Company did not solicit competitive bids for this large building project, it cannot be assured it obtained the best price. Furthermore the Company's plan to repay the debt issued to finance construction is based on contingencies such as the sale of the two existing firehouses, continuation of increased rent from the District, and fundraising in amounts that far exceed amounts raised in the past. We also found that the Officers and Directors had not established written policies and procedures governing cash receipts and disbursements. As a result, the Treasurer's duties are not adequately segregated and there is a lack of ongoing, regular oversight by the Officers and Directors as a compensating control.

The Board adopted budgets during our scope period that cut costs by abolishing positions, outsourcing services or sharing them with other districts, and saving money on energy costs. Given the District's declining enrollment and the current economic climate, cost-cutting is prudent. However, the District's budgets did not cut revenues at the same pace, resulting in the District's accumulating an increasing amount of money in restricted fund balance, or reserves, and building up amounts of unexpended surplus funds that exceeded the legal limit in the past two years. Although the District appropriated more than $1 million in unexpended surplus each year to help finance the ensuing year's budget, the District did not use these funds because it generated a surplus each year. We also found that the Board has not developed a multi-year financial plan to improve the budget development process.

During 2008-09, 2009-10 and 2010-11, the Board overestimated expenditures by approximately $1.9 million. Expenditures were overestimated by over $4 million in the 2011-12 budget. The District's tax certiorari fund was overfunded by $207,000 to $636,000 for the three fiscal years ended June 30, 2010. Finally, the former Treasurer did not prepare and present monthly reports to the Board. As of May 9, 2012, the Board did not receive and discuss the monthly Treasurer's reports for the period July 2011 through March 2012. Further, bank reconciliations for the general fund for July 2011 through December 2011, and January 2012 and February 2012 were prepared in March 2012 and April 2012, respectively. Budget status reports for the period July 2011 through February 2012 were not submitted as of May 9, 2012.