District officials need to improve their claims audit process to ensure that the claims auditor properly audits and approves all claims before payment. The claims auditor told us that sometimes he audits and approves the claims before the checks and warrants are generated and later compares the approved claims with the check stubs and warrants. In other instances, the claims auditor told us that he approves the claim at the same time he reviews and approves the warrant – after the claims have been paid. After completing his review, the claims auditor signs each individual claim along with the corresponding warrant, certifying the claims to be paid despite some payments having already been disbursed before his review. Although the District has a policy that requires the claims auditor to report the results of the claims audit to the Board, the claims auditor was unaware of the policy and did not provide any reports to the Board.

From 2015-2017, District officials transferred excess funds derived from overestimating appropriations to the reserve funds, leaving the District with virtually no unrestricted fund balance. Because the District had no unrestricted fund balance, it appeared that the tax levy needed to be increased. For the four years reviewed, the District's unrestricted fund balance ranged from $0 to $263, or about 0 percent of the ensuing year's budgeted appropriations. As a result, the District's real property tax levy has increased yearly, by a total $64,000 from 2015 to 2018 (4.3 percent or an annual average of 1.4 percent). We also found that reserves were not adequately established and funded. In addition, District officials did not always seek quotations for purchases under the bidding threshold.

The District lacked adequate procedures to ensure Medicaid claims were submitted and reimbursed for all eligible services provided. We found that for a total of 1,280 of 1,783 (72 percent) eligible services totaling $25,004 that were recorded as being provided in the special education system, claims were either not submitted for reimbursement or claims were submitted and rejected for various reasons. District officials did not review and resubmit the rejected claims. As a result, the District did not realize revenue totaling $12,502 (50 percent of the eligible services provided). The failure to submit claims and receive reimbursements for eligible services occurred because officials did not establish adequate procedures to ensure that all claim reimbursement documentation requirements were met.

Effective September 2016, the Board authorized revisions to its standard project application and adopted new policies for evaluating projects and recapturing financial assistance to address the 2015 IDA reform legislation. We reviewed all seven projects approved by the Board after the 2015 IDA reform legislation became effective. We found that all these projects had a standard application, a uniform project agreement including provisions for suspension, discontinuance and recapture of financial assistance, which were consistent with this legislation. However, we found that the Board did not ensure that adequate cost-benefit analyses for proposed projects were developed before project approval and annual project status reports were submitted in a timely manner. Finally, the Board did not ensure that annual assessments of progress toward achieving project goals were performed.

To supplement money received from foreign fire insurance proceeds and donations, the Company holds an annual chicken barbecue. The Bylaws do not address fundraising activities and there are no policies and procedures in place to ensure fundraising money is safeguarded. There was no report prepared of expenditures, revenues and starting cash, and the records that did exist were not adequate. In addition, Company officials told us the Treasurer has their approval to pay disbursements when he receives them, but we found no authorization of this in the Bylaws or Company meeting minutes. Finally, the Directors have not prepared and filed the Company's 2017 and 2018 Form 990 with the Internal Revenue Service or the annual report of foreign fire insurance tax proceeds, expenditures and the remaining balance with the State Comptroller's Office. The Treasurer told us he thought the Horseheads Fire District's Board of Commissioners was filing the reports.

Key duties over water and sewer operations such as billing, collecting, entry of payments and adjustments were inadequately segregated and lacked effective oversight procedures. Village officials did not implement adequate compensating controls to reduce the risk involved in concentrating key water and sewer district financial responsibilities with the account clerk. We also reviewed 51 water and sewer adjustments made in 15 customer accounts totaling $26.71 million to determine whether the adjustments were approved, supported and appropriate. We found that 43 adjustments totaling $26.7 million had no documented approval and two adjustments totaling $11,890 lacked adequate supporting documentation to show they were appropriate. In addition, water and sewer receivable control accounts were not reconciled to unpaid customer account balances. Finally, the Board did not review the water and sewer re-levy list and the list of unpaid customer accounts. The Clerk-Treasurer worked with the financial software vendor to obtain a complete list of unpaid water and sewer customer accounts from the system as of May 8, 2018, the day before the re-levy list was generated. We adjusted the May 8 unpaid list for account balances the Clerk Treasurer told us would not have been included in the re-levy, and we calculated an unpaid list equaling $148,440. The adjusted unpaid list was $26,835 more than the re-levy list, which indicates the Village may not have re-levied all applicable unpaid charges.

In 2018, the Board policy set a $2,000 threshold for determining which assets are to be depreciated in the District's accounting records. However, the Board has not established threshold values for tagging and inventorying assets for departmental inventory control purposes, such as computers, electronic devices, tools and lawn equipment. The Board has designated the Purchasing Agent to be the person responsible for recording and tracking fixed assets and arranging for an annual inventory and appraisal of District property. However, the Purchasing Agent told us there have been no annual physical inventories conducted and that asset records are not kept up to date. In addition, the Board improperly designated the Purchasing Agent to serve as the Property Control Manager because the same person is responsible for approving transactions, maintaining accountability, and recordkeeping for all fixed assets. In addition, fixed assets were not tagged as District property for seven items valued at $42,669, out of 30 assets that we tested totaling $300,614. Finally, assets disposed of were not removed from the master inventory list.

City officials have not effectively managed the billing of EMS charges. During the audit period, the EMS Department was dispatched to 4,579 EMS-related incidents. Either transports or on-site medical services were provided for 3,676 incidents, or approximately 80 percent. For the other 903 incidents, no medical services were provided. The EMS department did not bill for 614 of the 3,676 incidents, totaling $417,606 in unbilled services. Furthermore, we found nine transports that were inaccurately billed as medical treatments with no transport. We estimate this represents approximately $8,300 in lost billings. The Mayor and Council members informed us that they were not aware that the EMS department was not billing for all medical services. Furthermore, no one routinely reconciles the medical services provided to amounts billed to ensure that all services are billed correctly.

In May 2014, officials adopted a comprehensive plan which included an action item to develop a capital asset management plan, as well as budget appropriately and establish reserves for scheduled asset replacement costs. However, they still have not developed a multi-year capital plan. At the beginning of our audit, officials were unable to provide us with an accurate and complete inventory of capital assets, and they did not have any formal replacement plans in place. We found that nearly 88 percent (21 of 24) of the heavy equipment and 58 percent (29 of 50) of the vehicles are past their recommended useful life. Because of past financial condition concerns, officials indicated that they have been unable to replace capital assets appropriately. From 2014 to 2018, the City's financial condition has improved. Furthermore, officials started budgeting to fund capital reserves for fiscal years 2017 and 2018, which helped increase total fund balance. While we commend officials on their work towards increasing total fund balance to a reasonable level, it is not adequate by itself to finance current and future capital needs. If officials use reserves and available fund balance to pay for the $1.1 million estimated capital needs, total fund balance would be reduced to $1.3 million.

Town officials purchased a fire truck for more than $300,000 without competitive bidding. We also reviewed all 36 purchases from 2017 and 2018 ranging from $2,001 to $10,000 totaling $162,642 to determine whether quotes or proposals were obtained. We found that officials did not obtain quotes or proposals as required by the policy for 14 purchases totaling $70,889 (44 percent). Officials also obtained professional services from three professional service providers who were paid $280,550 in 2017 and 2018 without seeking competition. These services were for legal ($43,760), insurance ($18,790) and fire protection services ($218,000). In addition, the Supervisor did not provide oversight of the bookkeeper's recordkeeping and reporting of financial activity. The Supervisor also did not present his records to the Board for audit and did not adequately safeguard online banking transactions.

During the 2017-18 school year, the District had 63 nonresident students who elected to attend the District. During the 2018-19 school year, the District had 71 nonresident students who elected to attend the District and two nonresident students who were placed at the District through foster care. We found District officials accurately and timely charged tuition for those nonresident students who elected to attend the District. However, District officials lacked procedures for billing tuition to placed nonresident students' home districts. Specifically, we found that the two nonresident students placed in the District both left the District during the 2018-19 school year. The students' home districts were not billed nonresident tuition upon their departure. After we told the School Business Executive of their departure, she billed $4,053 to the students' home districts on May 29, 2019, which was 159 and 106 days after the placed nonresident students left the District.

The Board should improve its management of fund balance in the water and sewer funds to ensure it does not raise more funds from customers than necessary to finance operations. Over the last three fiscal years (2015-16 through 2017-18) total fund balance increased by approximately $349,000 (28 percent) in the water fund and $109,000 (7 percent) in the sewer fund. At the end of 2015-16, the water fund had excessive surplus fund balance that could have funded three years of expenditures. Water and sewer fund balances grew continuously because the Board did not adopt realistic budgets. In addition, Village officials have not developed multiyear financial or capital plans or a fund balance policy. Finally, the Board did not audit the Clerk-Treasurer's records and reports or identify and address improper budgeting and accounting practices that resulted in inaccurate accounting records and reports.

District officials did not use a request for proposal (RFP) process when contracting for the annual audit as required by Education Law. District officials told us that they did not obtain proposals or seek competition for the annual audit. Although law also requires the District to repeat the RFP process every five years, the Assistant Superintendent told us that they have not issued an RFP for the last seven years since he has been with the District. In addition, District officials did not always comply with the purchasing policy when procuring professional services by using RFPs, as required. During the audit period, officials paid more than $1.5 million to these providers. Officials did not use RFPs to select six professional service providers who were paid a total of $437,732, including $153,077 for legal services, $139,415 for accounting and auditing services, $89,000 for independent performance evaluation services and $56,240 for Medicaid billing specialist services.

The Board overestimated appropriations by a total of $3.5 million over three years and annually appropriated an average of $357,000 of fund balance that was not used to finance operations. Because the Board overestimated appropriations, it appeared that more revenue and financing sources (fund balance) were needed to maintain a structurally balanced budget and address budgeted operating deficits (more expenditures than revenues), despite historical trend data indicating otherwise. However, because no operating deficits occurred and no appropriated fund balance was used, annual operating surpluses cumulatively totaled approximately $1.2 million and fund balance increased. As of June 30, 2018, surplus fund balance totaled $365,000 and was 5 percent of 2018-19 appropriations, exceeding the 4 percent statutory limit by approximately $74,000 or 1 percentage point. Annually appropriating fund balance that is not needed to finance operations is, in effect, a reservation of fund balance not provided for by statute and a circumvention of the statutory limit imposed on the surplus fund balance level. For perspective, when we added the unused appropriated fund balance amounts back into surplus fund balance, the District exceeded the limit each year by 6 to 7 percentage points. Finally, the District has not adopted a comprehensive written reserve fund policy and could not demonstrate a plan for the need for certain reserves that have not been used for three years.

The Board did not regularly review financial records to ensure that receipts were properly recorded and deposited in the bank and that disbursements were properly supported and approved for District purposes. As a result, the audit found deposit shortages totaling $1,095. Given these shortages, the matter was referred to OSC's Division of Investigations which then partnered with the Chautauqua County District Attorney's Office to jointly investigate this matter. In May 2019, the Assistant Treasurer admitted to stealing $4,100 in County funds from 2012 to 2017 and resigned from her position. She pleaded guilty to misdemeanor petit larceny and agreed to pay back $4,100 in restitution.

Controls are inadequate over receipts and disbursements because the Treasurer, without adequate oversight, is the only one who receives, counts, deposits and reports cash receipts and prepares, signs, reports and maintains a manual ledger of checks. Therefore, there is a lack of segregation over the Treasurer's duties, as he has control over the approval, recording and disbursing functions. The Treasurer sends listings of the receipts and disbursements to the bookkeeper to record in the accounting records. The bookkeeper performs monthly bank reconciliations and provides financial reports to the Treasurer. Although this slightly mitigates the risk, the Treasurer is the only one counting money collected without anyone else certifying it or verifying it was deposited. Furthermore, we could not determine whether 75 purchases totaling $27,514 were approved by the Membership because of inadequate documentation. We also could not determine whether 20 purchases totaling $3,245 were for proper Company purposes.

While the District had acceptable use policies for IT assets, they were not readily available for our review, disseminated to officials and staff, or enforced. In addition, the policies did not address connecting personal mobile computing and storage devices to the network, which can create security vulnerabilities and allow inappropriate access to IT assets and data. The Board did not adopt IT security policies addressing data classification, regulations to help ensure the protection of PPSI or a breach notification policy in the event that attackers access PPSI. It also did not adopt policies addressing online banking, user access rights or sanitation and disposal of IT equipment. Officials did not maintain up-to-date hardware inventory records. District officials also did not maintain a comprehensive software inventory. Finally, the District did not implement comprehensive procedures for monitoring user accounts. During our review of the District's 833 enabled network user accounts for staff and students, we found that 332 accounts (40 percent) had not been used in the last six months.

The Treasurer appropriately paid health insurance buyout payments to seven eligible employees in 2017-18 and nine eligible employees in 2018-19 totaling $82,188, as of December 14, 2018. The average annual buyout payable to each participating employee during these two years was $7,793. If the District did not offer the health insurance buyout option, it could have been liable for a portion of the participating employees' health insurance had they chosen coverage from the District at an estimated cost of $182,254 during our audit period. The health insurance buyout may have saved the District as much as $100,066 during our audit period. However, we believe that the District's two collective bargaining agreements (CBAs) clearly state that employees wishing to participate in the buyout program must elect to have no health insurance through the District. However, we found that three employees received a health insurance buyout in 2017-18 and 2018-19 even though they were covered by the District's health insurance through a spouse or parent employed by the District. As a result, District officials paid these employees approximately $34,738 in health insurance buyouts during our audit period that appear inconsistent with the language contained in both CBAs. Finally, the Treasurer's buyout calculations were not reviewed by District officials.

The Town did not have an acceptable use policy. We reviewed the technology use section of the employee handbook and found that it did not clearly define use that was not acceptable or the consequences of violating the computer and communication systems. We reviewed the web browsing history for 10 computers used by 10 employees and found significant personal Internet use on all 10 computers that was not related to Town-business. This included social media use and accessing entertainment and leisure websites. All 10 employees' job duties included routinely accessing PPSI. As a result, their personal Internet use unnecessarily exposed this information to being compromised. Town officials also did not provide users with IT security awareness training to help ensure employees understood IT security measures. Town officials did not develop comprehensive written procedures for managing system access. During our review of all 15 network accounts, we found that five (33 percent) had not been used in six months or more. The Board did not adopt an information breach notification policy or a disaster recovery plan. Finally, the Town did not have a written contract or service level agreement with its IT consultant.

The Justices did not prepare monthly accountabilities or maintain sufficient records to identify outstanding balances. For example, we found that Justice Kline did not properly identify and pay Court funds to appropriate parties. We performed an accountability of Justice Kline's account as of the month she resigned (April 2018) and found that she had records to support $4,600 of outstanding bail (i.e., from defendants pending resolution of their cases); and $273 owed to defendants, the Town Supervisor and Justice Winsor's account. However, Justice Kline had unidentified funds of $8,906, the majority of which ($8,704) was transferred from the prior justice, Justice Daniels. Furthermore, she recorded $370 of receipts from three defendants, reported this amount to the JCF and remitted this amount from her account to the Town Supervisor. However, the $370 was not deposited into Justice Kline's account. We sent confirmations to the three defendants to determine whether Justice Kline recorded erroneous receipts or whether she failed to deposit the collections. We did not receive responses from the defendants to determine the cause of the $370 shortage in her account. Justice Kline transferred her bank balance of $13,359 to Justice Winsor when she left office in April 2018. Justice Winsor was unable to identify most of the outstanding liabilities because he was not provided monthly accountabilities from Justices Daniels and Kline. We commend Justice Winsor for researching the sources of unidentified funds transferred from prior Justices Daniels and Kline.