Overall, the water fund had an operating surplus of $70,864 during the audit period. This overall surplus was due to the performance of three of the seven districts which obscured the operating deficits of the remaining four districts. These operating deficits were a result of Town officials regularly overestimating budgeted water sales revenue in these four districts. In addition, both sewer districts experienced operating deficits totaling $138,972 over the past five years. The operating deficits in the Wickham, Kings Estates and WVOTCP district were planned for each year; the operating deficits in Fairgrounds were unplanned. We project both districts will end 2018 with an operating deficit. Due to the repeated operating deficits caused by not charging the sewer equipment purchases to the sewer users, the overall sewer fund balance has decreased by $73,622 (25 percent) during the audit period. The deficit fund balance of the Fairgrounds Sewer District grew by $16,395 (72 percent) over the same period and we project that its fund balance will decrease further in 2018.

The school lunch fund had operating deficits averaging $67,000 from 2015-16 through 2017-18 and has been relying on subsidies from the general fund to support operations. Even with these subsidies, which were an average of $84,000, deficits occurred in two of those years. For the 2018-19 year, we project the fund will have another deficit totaling approximately $71,400. We calculated the cost to produce a meal was $8.80, while the revenue received per meal was $3.18, not including subsidies from the general fund. Therefore, the District is losing over $5 per meal. We compared the District's average daily participation (ADP) for breakfast and lunch to all other schools in Delaware County. We found that the District had the lowest ADP for breakfast and second lowest ADP for lunch. Furthermore, internal controls over cafeteria cash receipts could be improved.

The Chenango Valley Central School District is located in Broome County. Chapter 260 of the Laws of 2008 authorizes the District to issue debt in an aggregate principal amount not to exceed $3.5 million to liquidate the accumulated deficit in the District's general fund and food service fund as of June 30, 2008. New York State Local Finance Law Section 10.10(d) requires municipalities and school districts that have been authorized to issue obligations to fund operating deficits to submit to the State Comptroller each year, starting with the fiscal year during which the municipality or school district is authorized to issue obligations and for each subsequent fiscal year during which the deficit obligations are outstanding, their proposed budget for the next succeeding fiscal year.

District officials implemented a well-designed system of internal controls over the claims audit process. Due to the District's well designed system of internal controls, we designed our testing to determine if these procedures were being followed consistently. We reviewed 110 claims totaling $414,749 of the 1,104 checks paid during our audit and found that the control procedures were followed for the selected claims to ensure they were adequately documented, were for appropriate purposes and were properly audited and approved prior to payment. There were no recommendations as a result of this audit.

The Board did not effectively manage and monitor the budgets for the general, water and sewer funds. As a result, total fund balance decreased significantly in the general fund between 2015 and 2017 by $2.89 million (68 percent). However, the decrease was due primarily to a significant one-time expenditure for the Town hall capital project, along with unbudgeted engineering and legal fees. Unrestricted fund balance of $2.7 million at year-end or 55 percent of the 2018 appropriations, remains excessive. Additionally, unrestricted fund balance in the water and sewer funds increased between 2015 and 2017 by approximately $830,000 (87 percent) and $1.9 million (54 percent), respectively, totaling $1.7 million and $3.8 million (92 percent and 136 percent of the 2018 appropriations), respectively. These increases occurred because the Board did not adopt budgets that included realistic estimates for revenues and expenditures and fund balance or establish written policies governing the unexpended surplus funds that the Town should reasonably maintain. Town officials informed us that the amounts in the water and sewer funds were going to be used for significant upgrades to these systems. However, because these funds are unrestricted, this intended purpose is not clear or formally established. Further, the Town has not adopted long-term plans to support maintaining such significant fund balance levels.

School officials did not always obtain competitive pricing in compliance with the School's procurement policy or publicly advertise for capital improvement projects. We reviewed 74 purchases totaling approximately $898,000 and found that School officials did not obtain quotes or use request for proposals (RFPs) for 27 purchases totaling approximately $214,000. In addition, School officials did not verify that the School received the awarded New York State Office of General Services contract (State contract) pricing for goods procured. We reviewed four purchases totaling $22,950 that officials told us were obtained using State contracts. We found that two purchases totaling $9,950 did not have the State contract award number written on either the purchase order or the check request, as required by the policy. In addition, for the remaining two purchases totaling $13,000, officials were unable to determine the specific State contract that was used. We contacted the New York State Office of General Services and found that the items purchased were not included in the State contract number listed on the invoice.

District officials should improve their accounting practices to accurately report fund balance. While the District's unrestricted fund balance was reported as being within the legal limit for the past five years, we found the unrestricted fund balance was actually underreported during this time period. District officials also overstated their encumbrances by at least $1.8 million, accrued liabilities by $988,921 and accounts payable by $172,539 as of June 30, 2017. As a result of these errors, the District's unrestricted fund balance was understated at year end for 2012-13 through 2016-17. After making adjustments to correct the errors noted, the unrestricted fund balance exceeded the statutory limit in each of the five years. As of June 30, 2017, the unrestricted fund balance exceeded the legal limit by approximately $2.5 million, or 4.3 percentage points. In addition, we found that the unemployment reserve, with a balance of $1.2 million as of June 30, 2017, was overfunded and had enough to pay for over 46 years of related appropriations.

We found that the Clerk-Treasurers did not maintain accurate and timely accounting records in the computerized accounting program. Both Clerk-Treasurers improperly recorded revenues and expenditures, which misstated actual results and impacted budgeting. For example, the former Clerk-Treasurer netted revenues against expenditures by over $70,000 in 2016-17, which, along with other errors, resulted in 2017-18 budget appropriations being overestimated by $118,890. They also did not record credit card receipts in a timely manner. The former Clerk-Treasurer did not maintain the accounting records using the modified accrual basis of accounting, but instead maintained them on a cash basis. As a result, the accounting records were not adequate for Village officials to properly monitor the Village's financial condition and operations. For example, the Board was unaware of the large number of unpaid water and sewer user fees (user fees) and their negative impact on the cash flow of the water and sewer fund until it approved the relevy of unpaid user fees on the next fiscal years' Steuben County real property tax bills. In addition, because the Clerk-Treasurers' accounting records were inaccurate, the Village's true financial position was unknown. As a result, the Board appropriated $170,000 in general fund balance to balance the 2018-19 budget, $50,754 more than was available. Finally, the Board did not perform, or contract with an independent auditor to perform, an annual audit of the Clerk-Treasurers' books and records.

District officials properly established the budget for the three school buildings and garage renovation project. In addition, District officials ensured that work was completed within the scope of the project. We reviewed 34 check disbursements totaling over $4.8 million for project claims paid during the audit period and determined they were supported by adequate documentation and properly audited. Finally, District officials established the necessary records to account for and monitor the building renovation project. There were no recommendations as a result of this audit.

We compared budgeted appropriations and estimated revenues with actual operating results for 2015-16 through 2017-18 and found that, while revenue variances were generally reasonable (overestimated by 2 percent), appropriations were overestimated by $3.3 million, or an average of $1.1 million (6.7 percent) each year. Due to overestimated appropriations, the District experienced operating surpluses annually, increasing each year, and resulting in a three-year cumulative operating surplus totaling approximately $890,000. As a result, unappropriated, unrestricted fund balance increased to nearly $1.4 million as of June 30, 2018, and was 8 percent of the 2018-19 budgeted appropriations, exceeding the statutory limit by approximately $660,000 or 4 percentage points. Finally, three reserve funds with combined balances of approximately $1.6 million as of June 30, 2018 were not being used as intended and were overfunded.

District officials need to improve budgeting practices to effectively manage the District's financial condition. Further, the Board and District officials have not implemented corrective action on our last audit report, in which we found that the District had accumulated unrestricted fund balance that exceeded the statutory limit by 64 percentage points over the five years ended June 30, 2012. Even after our last audit brought the issue to the attention of District officials, the Board continued to adopt budgets that resulted in further accumulation of fund balance. During the audit period, the District's unrestricted fund balance exceeded the statutory limit by as much as $2.2 million, or 73.4 percentage points. Although, the District has experienced operating deficits in two of the last three years, resulting in total fund balance decreasing by 9 percent, the District's unrestricted fund balance at fiscal year-end 2017-18 was still approximately $2 million, or 54.6 percentage points over the statutory limit. In addition, the Board appropriated $600,000 of fund balance in each of the adopted budgets for the years 2015-16 through 2017-18. However, in 2016-17, none of the appropriated fund balance was used, and for the fiscal years 2015-16 and 2017-18, only $516,193 of the $1.2 million appropriated was used. With unused appropriated fund balance added back, the District's recalculated unrestricted fund balance ranged from 58.6 to 90.5 percent of the subsequent year's budget. Finally, the Board approved inaccurate budgets with underestimated revenues and overestimated appropriations.

The Board did not adopt adequate policies and procedures for monitoring acceptable computer use and granting, revoking, modifying and monitoring individual access rights to the networks. In addition, the Board did not adopt a comprehensive disaster recovery plan or policies and procedures for password security management, data breach notification and backups. Town officials have an acceptable use policy, which is included in the employee handbook. However, employees and officials were generally unaware of the policy's existence and not required to sign a statement to acknowledge that they are aware of this policy. The Board also did not implement a process to address deactivating unnecessary user accounts and did not provide employees with security awareness training to help ensure they understand security measures necessary to protect the network. Town officials did not always maintain a comprehensive Town-wide inventory list of hardware and software. Finally, the Board did not develop a disaster recovery plan to address potential disasters and the continuity of operations, including IT.

Based on the results of our review, we found that the significant expenditure projections in the proposed 2019-20 budget are reasonable. However, the $47.1 million estimated revenues and $22 million property tax levy presented by the District are insufficient to finance the $78.2 million in expenditures. Adopting a $78.2 million budget would require the District to exceed the tax cap because it would need to levy an additional $9 million in real property taxes. District officials indicated that the cost-cutting required to balance the budget would severely impact services provided to students so they are exploring other options, but no decisions have been finalized. The District's proposed 2019-20 budget, as submitted, is in compliance with the property tax levy limit. However, the levy of $22 million is not sufficient to finance $78.2 million budgeted expenditures.

District officials did not establish adequate controls over cafeteria collections. The Board did not adopt written cash receipt policies, cash receipt duties were not properly segregated and the Cafeteria Manager did not adequately oversee the cash receipt function. As a result, one cafeteria employee, the head cashier, had almost complete control over cafeteria cash receipts without adequate oversight. Cashiers perform daily cash counts and prepare daily collection reports that must be manually entered into the point of sales (POS) system to ensure that recorded POS activity matches manually counted collections. These cash counts were not always recorded in the system. We identified 43 collections totaling $7,200 that were not properly recorded in the system but were collected and deposited. The Manager told us that employees may have forgotten to enter these collections into the system at the end of the day. Although we did not identify any theft or loss of cafeteria collections, by not establishing proper procedures to safeguard cafeteria collections, there is an increased risk that collections could be lost, stolen or misappropriated without detection.

Officials adequately segregated the duties of employees responsible for online banking transactions and adequately established security procedures over online banking. All online payments and transfers totaling $72 million during our audit period were appropriate. However, the District's online banking policy does not clearly indicate how online transfers will be authorized and processed. In addition, none of the employees involved in online banking received Internet security awareness training.

District officials ensured employees were accurately paid their approved salaries and wages. We reviewed all payroll records for 35 employees who were paid approximately $1.7 million during the audit period. District officials effectively designed and implemented procedures to ensure that compensation payments were accurate and properly authorized. There were no recommendations as a result of this audit.

Water officials have not implemented comprehensive procedures for managing, limiting, securing and monitoring user access. In addition, water plant personnel have not been provided with job-specific cybersecurity awareness training. Water officials did not prevent or monitor public disclosure of information on the Town's water system. Finally, there are no written policies, procedures, standards or guidelines related to the industrial control system cybersecurity. This includes the use of USB drives, personal devices and other mobile storage devices within the water control system network. Also, job duties do not specify security roles and responsibilities for water personnel to ensure users are aware of and understand what is expected of them to maintain the security of the water control system.

Town officials spent approximately $18,500 on wages, equipment use and materials to improve the Board member's property in May and June of 2015. However, the work performed raises potential issues under the Constitution, because no contract was in place at the time. Additionally, the Board did not perform a cost benefit analysis to make an informed decision on whether this project was necessary or publicly discuss, disclose or approve the work to be performed. Our review of Board minutes for the audit period did not disclose any Board discussion or authorization for the highway department to work on the Board member's property. Furthermore, the Department of Environmental Conservation (DEC) Deputy Regional Permit Administrator told us that any work done on a protected river or river bank, such as this river, would require a DEC permit and that he had no record of contact from the Board member or Town officials for the work performed.

The District has 19 active ECA clubs. We reviewed the collection records and fundraising activities of 10 clubs (53 percent). We traced all 67 deposits totaling $52,404 from July 1, 2017 through April 30, 2018 to the treasurers' records. While each activity had a properly authorized activity application, deposit breakdowns and completed profit/loss statements, 24 deposits (36 percent) totaling $40,515 lacked adequate supporting documentation. Sixteen deposits totaling $23,737 had no collection documentation and eight deposits totaling $16,778 had inadequate or incomplete documentation. The central treasurer's and clubs' ledgers agreed to deposit breakdowns, accurately recording amounts deposited. However, because supporting documentation was lacking at the club level, we could not determine whether all collections were remitted, recorded and deposited intact.

Our review of records for 15 noninstructional employees paid overtime totaling $54,041 during our audit period disclosed that District officials often did not document that prior approval was granted for overtime worked and that start and end times were documented on the time sheets in accordance with the overtime policy. In addition, the Superintendent told us that she permitted two noninstructional employees to earn overtime while they worked from home. However, this is neither specifically authorized nor prohibited by Board policy or in the employees' memorandum of understanding (MOU) with District officials. Although there was no documentation that these employees received prior approval for overtime worked, they were paid for 392 hours of overtime totaling $8,513 while working at home.