Based on the results of our review, we found that the significant revenue and expenditure projections in the proposed budget are reasonable. The City has made good progress in improving its financial condition and implemented or resolved recommendations contained in our budget review report letter issued in March 2012. We recommend that the potential water and sewer rate increases be authorized by the Common Council prior to the adoption of the budget. We also recommend that appropriations be included in the respective equipment line items for each department in the general fund budget, rather than transferring the funds to the capital projects account. The City's proposed budget complies with the property tax levy limit set by statute.

The Supervisor assigned his accounting duties to a bookkeeper. Except for some minor exceptions, which we discussed with Town officials, we found that the accounting records were accurately maintained and the financial information included in the annual update document (AUD) filed with the Office of the State Comptroller (OSC) was supported by the accounting records. However, we did not find evidence in the 2011 and 2012 Board minutes that the Board audited the accounting records of the Supervisor for the 2010 and 2011 fiscal years. Furthermore, there was no indication that the Board had solicited the professional services of an independent public accountant to perform an audit of the records.

The Board has not implemented adequate policies and procedures for fund balance. As a result, the Town retained and/or accumulated excessive amounts of unexpended surplus funds in the general fund and the water and sewer districts that resulted from unrealistic budget estimates. The Board also did not develop a financial and/or capital plan or establish reserves to ensure unexpended surplus funds are used as intended. In addition, the Town purchased approximately $109,000 in gasoline and diesel fuel during our audit period. Prior to May 2012, the Highway Superintendent maintained adequate perpetual inventory records for most of our audit period that included the amount of gasoline and diesel fuel purchased and consumed. Effective May 2012, the Town installed a computerized system to maintain similar records. However, the Highway Superintendent did not review any fuel usage reports generated daily from the new computerized fuel system and did not compare a perpetual inventory record to physical inventories of fuel on hand.

An intermunicipal agreement was entered into by the Town and the Village to address their respective involvement with not only the construction phase of a joint highway facility (Project) but the facility's future operation and maintenance. While the inter-municipal agreement sets forth the approach and the responsibilities assigned to the Town and Village, many of its terms were not complied with. In addition, Town officials did not fully inform taxpayers of the entire cost or fully disclose the Board's intentions with respect to financing the Project during the early planning phase. As a result of Town officials' poor planning and management, the Project's costs have grown to more than $4.7 million. We noted that change orders totaled more than $800,000, $438,000 of which were unrelated to the original project scope and were not competitively bid, as required.

Although we found that County contracts are authorized in accordance with the County Charter and the Nassau County Interim Finance Authority (NIFA) directives, the authorization process is not always timely. Seven of the 22 contracts subject to the County Charter 45-day approval process exceeded the limit from two to 111 days. When additional guidelines were added by NIFA during a control period, the contract approval process increased to an average of 85 days, an increase of 39 days. Due to the County's lengthy process for approving contracts, officials are allowing services to be performed by vendors prior to the ratification of contracts and the signature of the County Executive or the Deputy County Executive.

We found that the previous Clerk used the Town's credit card to charge personal items totaling $8,347, did not deposit fees and real property taxes in a timely manner, and did not remit funds to the Supervisor and other agencies in a timely manner. Additionally, the Town could not provide us with the Clerk's 2010 records. Without the 2010 records, we could not adequately determine if all collections were accounted for, deposited, and remitted to the appropriate parties. Because of these weaknesses, Town funds could have been lost or misappropriated. In addition, since 2007, the Town has incorrectly budgeted and accounted for all of its sales tax revenues, totaling $296,353, in the town-wide funds. This has resulted in an inequity among taxpayers.

The Board and Supervisor did not meet their fiscal oversight responsibilities. Nearly every aspect of the Town's financial operations – including maintaining accounting records and reports, collecting community development loans, preparing and collecting water billings, performing the cash receipt and disbursement functions, and auditing claims – was weak and highly susceptible to errors and irregularities occurring without detection. As a result, most of the Town's assets are at significant risk of loss.

The Board has not adopted comprehensive policies to ensure that access to the District's financial system is restricted to only those functions required by individual employees' job duties. In addition, District officials have not implemented access controls to ensure proper segregation of duties within the financial system and to limit access to users based on their job descriptions and responsibilities.

The Board and District officials routinely overestimated expenditures in the District's annual budget. Total expenditures were overestimated by approximately $4.8 million in the 2009-10 fiscal year and $3.6 million in both the 2010-11 and 2011-12 fiscal years. As a result, the District's unexpended surplus funds increased from approximately $4 million at June 30, 2010 to $6.8 million at June 30, 2011, and to $8.9 million at June 30, 2012. The District's unexpended surplus fund balance at June 30, 2012 exceeded the limit set by RPTL by over $4.8 million. In addition, the District had excess capacity on 124 of the 210 routes reviewed. We identified six routes which potentially could be reduced to three routes and could potentially save the District over $130,000 per year.

The Board did not provide the necessary guidance to the Supervisor and employees, and did not establish internal controls that ensured the Town's financial activity was accurately recorded and reported. The Board did not ensure that the Supervisor assigned accounting duties to properly trained personnel or that those duties were adequately segregated and performed. The Board did not annually audit the records and reports of the Supervisor, or other departments, audit all claims before they were paid, and had not established adequate controls over credit card use. The Town's accounting records and resultant financial reports were in considerable disarray. For example, the Town failed to accurately report the cash position of any Town fund in its annual report to the Office of the State Comptroller (OSC). Finally, the Board has not established adequate policies and procedures related to acceptable use, breach notification, or disaster recovery.

The Board and Supervisor did not develop sound budgets based on actual current needs and/or past activity. Instead, the Board's adopted budgets included revenue estimates that were consistently less than revenues actually received, and expenditure estimates that were consistently more than actually spent. Even though the over-expenditures largely offset the excess revenue, the Board raised taxes and issued debt that was largely unnecessary. While the Board continued to under-budget revenues in fiscal year 2012, the adopted budget for 2013 is more closely based on realistic revenue and expenditure figures that take actual past revenues and expenditures into account.

We found that the Board's personnel policy did not clearly define important terms and conditions regarding eligibility for accruing leave or the payment for unused leave. Moreover, there is a lack of segregation of duties over the administration of leave time benefits. The Clerk-Treasurer was the only individual responsible for maintaining records of accrued leave balances, including her own, with no independent review. We reviewed two former Clerk-Treasurers' leave accruals, and the payments made to them for unused leave time at separation from service, totaling $19,605. We found that the Village overpaid these two individuals by $6,875. In addition, the Board has not adopted written policies and procedures regarding the retention and safeguarding of personal, private and sensitive information in electronic format. We found that the Mayor discarded floppy disks without deleting such information first. Furthermore, the Mayor, contrary to adopted Board policy, took custody of an external hard drive owned by the Village and is currently using it for personal purposes.

The Board adopted budgets using fund balance to reduce the tax levy with no systematic approach to ensure that appropriated amounts were available. Because of this, both the general and highway funds experienced significant declines in fund balance from the 2009 to the 2011 fiscal years. For 2013 Town officials took steps to correct their budget deficiencies, which should eliminate the operating deficits in the general and highway funds. In addition, the Board does not perform a proper audit of claims. We found that certain claims lacked itemization and documentation to support that they comply with Town policies and that they represent actual and necessary Town expenses. We also found that the Supervisor was inappropriately paying claims prior to Board audit.

Based on the results of our review, we found that the significant revenue and expenditure projections in the tentative budget are reasonable. We also found that the District's proposed budget complies with the property tax levy limit.

The Town allocates the costs of services provided by some Town operations funded by the general fund to other departments and districts accounted for in other funds. However, we found that the allocation method is not based on the cost of actual services provided. Instead, Town officials applied a flat percentage rate to each department's budget, which is not equitable because all the departments do not use the same type and degree of services. Additionally, the Town improperly included the salaries of the Supervisor and Town Clerk and included certain administrative charges – such as payroll, Justice Court, and municipal garage – in allocations to departments that did not use them. These improperly allocated amounts represented at least $779,829 (26 percent) of the $2,980,750 that was allocated in 2012 to 11 funds.

While City officials had procedures to properly authorize capital projects, they did not adequately monitor financial activity or close completed projects in a timely manner. As a result, the City had 87 open capital projects, only nine of which were active – leaving 78 projects that had been completed, but still open in the records. Forty-eight of the completed projects had surplus balances totaling $3.4 million, $2.4 million of which must be transferred to the debt service fund or reserve for debt. The remaining 30 completed projects had deficits totaling $3 million because they either did not receive the expected financing or were over-expended. The failure to properly manage capital projects has limited the transparency of the financial position of the City's general fund.

Internal controls over the Court's operations were not appropriately designed or operating effectively to allow for proper accounting and reporting of financial activities. Justices Blain and Olson did not perform bank reconciliations properly or at all, prepare monthly accountabilities, deposit cash receipts in a timely manner, adequately segregate the court clerk's duties and provide proper oversight of the court clerk. Further, the Board's oversight of the Court was inadequate. The court clerk improperly held partial payments, did not issue press-numbered receipts for all payments collected by the Court, and did not enter all moneys received into the Court's accounting system. Because of these weaknesses, Justice Blain had unidentified funds totaling $1,848 in his bank account that could not be traced to any open or closed case files, fines or fees, or bail moneys; and Justice Olson had a cash shortage totaling $852 which had not been detected or corrected.

District officials' appropriation of fund balance in excess of the amount actually available to fund operations resulted in an unassigned fund balance deficit of $1.5 million as of June 30, 2011. District officials addressed this situation by implementing reductions to budgeted expenditures in the 2011-12 fiscal year. The District's latest annual report shows the deficit was eliminated as of June 30, 2012.

Although the STAR program has succeeded in delivering millions of dollars in tax relief, we found that local assessors have granted a significant number of exemptions to individuals or entities not eligible to receive them. Our tests of one class of potentially ineligible exemptions at 46 sampled municipalities showed that 19.6 percent of the exemptions should not have been granted because they were duplicate or improper. We project that the State lost $13 million in the 2010-11 fiscal year - and will lose an additional $73 million through the 2015-16 fiscal year - just for exemptions with this specific risk indicator (i.e., having a mailing address that receives STAR exemptions for multiple parcels). Because the exemptions we examined represent less than 3 percent of the STAR exemptions in effect in 2010, the extent of duplicate or improper exemptions is likely significantly higher, and much more costly to the State. We found that some municipalities have taken proactive steps to reduce homeowner “double-dipping” and other abusive practices. However, municipalities, on their own, do not have the tools they need to avoid granting duplicate exemptions; specifically, clear direction in the Law and the ability to perform effective searches for potential duplicate exemptions.

During the audit period, 32 employees left District service and received separation payments totaling $722,738. Generally, District officials calculated the correct amount for separation payments provided to the employees leaving District service. Except for two minor exceptions, which we discussed with District officials, we found that the District has designed appropriate internal controls over employee separation payments and those controls are operating effectively. We also found that, in 2010, District officials developed a disaster recovery plan; however, the Board has not formally adopted the plan. Also, the plan does not sufficiently address all necessary components and does not contain the level of detail necessary to ensure that the computer system could be restored in a timely manner. We also found that the District has not tested the plan to ensure that it can be implemented in emergency situations and that management and staff understand how it is to be executed. Finally, we found that all employees were not made aware of the plan.