We found the Board routinely underestimated revenues in its various operating fund budgets, which generated operating surpluses. It used the surplus funds at year-end to fund reserves with $16 million over fiscal years 2014 through 2017. As of December 31, 2017, the Town had accumulated approximately $24 million in reserves ($22 million in 19 reserves across its various funds, and $2.1 million in a special recreation account). This amounted to 89 percent of the Town's 2018 budget appropriations, and a $12.3 million increase over the last four years. The Board had not developed a comprehensive multiyear financial and capital plan to substantiate the need to accumulate these funds and demonstrate its plans for expected future use of its growing reserves. In addition, the Town generally does not use its reserves. Although the Board included limited computer use policies in its employee handbook, it has not ensured the policies are enforced or monitored. The Board also did not include provisions or adopt other IT policies addressing key areas such as data backups, online banking, user accounts, access rights, passwords, remote access, personal, private and sensitive information (PPSI), mobile and personal computing and storage devices, or hardware and software inventories. The Board also did not adopt a disaster recovery plan. Town officials did not maintain a comprehensive software inventory and did not adequately monitor or manage active network accounts. Finally, Town employees had not received IT security training.

The Board has not adopted a reserve policy and did not include provisions in the annual budgets for funding its reserves. Instead, District officials transferred money to reserves from operating surpluses at the end of the fiscal year to stay within the 4 percent limit. As a result, general fund reserves increased by $2.5 million over the last five completed fiscal years. As of June 30, 2017, the District reported nine general fund reserves and a debt service reserve with balances totaling $13 million. District officials could not provide Board resolutions for the establishment of all but the capital and workers' compensation reserves. In addition, seven reserves with balances totaling $9.4 million (72 percent of total reserves) at June 30, 2017 are overfunded by $7.8 million and potentially unnecessary. By maintaining overfunded and/or unnecessary reserves, the Board and District officials levied more taxes than necessary, and may have compromised the transparency of District finances. These practices allowed the District to report year-end unrestricted fund balance at levels that appeared to comply with the statutory 4 percent fund balance limit. However, when adding back overfunded and unnecessary reserves, the District's recalculated unrestricted fund balance was 19 percent of the ensuing year's appropriations at June 30, 2017, almost five times the statutory limit.

The Supervisor neither maintained nor required the bookkeeper to maintain complete, accurate and up-to-date accounting records and reports. He also did not adequately oversee the bookkeeper's work during our audit period by verifying that all transactions were properly recorded and monthly bank statement balances were reconciled with cash balances recorded in the accounting system. As a result, the bookkeeper failed to properly maintain the Town's accounting records. Town officials were provided with monthly reports of operations (i.e., actual revenues and expenditures) compared to the budgetary estimates. However, because the accounting records were inaccurate and incomplete, the monthly reports contained inaccurate balances for cash, interfund transfers and interfund advance receivables and payables. Finally, the Town's annual update documents (AUDs) were not filed in a timely manner.

The Company's bylaws provide limited guidance on the Board's responsibilities and the Treasurer's duties. Because the bylaws did not provide adequate guidance and the Board did not provide oversight, none of the four Treasurers maintained complete, accurate and up-to-date records or performed monthly bank reconciliations. In addition, no written monthly reports were prepared during 2016 and the 2016 Form 990 filed with the IRS was inaccurate. Although the last Treasurer during our audit period prepared written monthly reports and presented them to the membership, the reports did not include details of receipts and disbursements. Instead, the reports provided the bank balances as of the monthly meeting date. Additionally, because the Company's bylaws are silent regarding fundraising activities, reports were not prepared for all activities and those that were prepared were inadequate. For example, there were no records indicating the starting and ending ticket numbers, the number and type of chicken dinners sold and the number of golf participants and sponsors as well as amounts received.

We compared budgeted revenues and appropriations with actual operating results for 2014-15 through 2016-17. While revenues estimated were generally reasonable, the Board overestimated appropriations by an average of nearly $2.8 million annually (15 percent). Because the Board overestimated appropriations, it created what appeared to be a projected budget gap, causing the District to both increase its tax levy and use appropriated fund balance to close projected budget gaps. From 2014-15 through 2016-17, the Board increased the real property tax levy by a total of approximately $248,000, or 2.4 percent. The Board also appropriated $7.2 million (a yearly average of $2.4 million) in fund balance in the 2014-15 through 2016-17 budgets. However, the District realized cumulative operating deficits totaling only approximately $1 million over this three-year period. Over the past three fiscal years, the District reported unrestricted fund balance that ranged from 3 percent to 5.1 percent of the subsequent year appropriations. This exceeded the 4 percent limit allowed by New York State Real Property Tax Law by 1.1 percent at the end of the 2015-16 fiscal year, but was within the allowable limit at the end of the 2014-15 and 2016-17 fiscal years. In 2014-15, the District did not use $2.1 million of the $2.6 million fund balance appropriated, did not use $2.42 million of the $2.46 million appropriated for 2015-16 and did not use $1.7 million of the $2.1 million appropriated for 2016-17. When unused appropriated fund balance is added back to the reported unrestricted fund balance, the District's recalculated unrestricted fund balance ranged from 11.8 to 16.6 percent of subsequent years' appropriations.

County officials did not ensure employees were accurately paid separation payments. We reviewed 30 separation payments totaling $512,693 made to former employees during the audit period to determine whether they were accurately calculated in accordance with the terms of each respective collective bargaining agreement. County employees did not accurately calculate separation payments made to seven former employees (23 percent of payments reviewed). As a result, one former employee was overpaid $10,000 and three former employees were overpaid a combined total of $89. In addition, one former employee was underpaid $334 and two former employees were underpaid by a combined total of $69. These errors occurred because the payroll clerk made a calculation error and the associates used inaccurate hourly rates and accrued unused sick leave balances when calculating the payment of employees' accrued unused sick leave. In addition, the associates provided the payroll clerk with inaccurate leave balances used to calculate payments.

School officials ensured the accuracy of compensation paid and benefits provided to employees. We found that payroll duties were adequately segregated and there was appropriate oversight of the payroll process. The Board authorizes new employee hiring, the administrative assistant prepares offer of employment letters, which list the salary to be paid, and the School Director and the Board President sign these letters. However, School officials did not update the salaries contained in the offer letters if changes were made after the letters were prepared. In addition, School officials did not have any written policies to address this issue. Further, the Board did not formally approve the health insurance opt-out program and the leave benefits for six maintenance employees.

District officials established adequate procedures to ensure that goods and services were procured in accordance with the District's policy. We reviewed 50 purchases totaling $334,676 made during our audit period and found that they were properly procured. We commend District officials for effectively designing and implementing its policy and procedures that ensure effective purchasing of goods and services.

The District did not have a comprehensive policy for identifying and recording fixed assets. In 2013, the Board established a policy setting a $5,000 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 Assistant Superintendent to be the person responsible for recording and tracking fixed assets and arranging for an annual inventory and appraisal of District property. However, the Assistant Superintendent told us there have been no annual physical inventories conducted and also acknowledged that asset records are not kept up to date. As a result, 18 fixed assets valued at $168,700 were either not recorded on the master inventory list or not properly tagged. Finally, the District's inventory records of technology assets were inconsistent.

We reviewed the District's procurement of services from 32 professional service providers paid $1.6 million. We found that District officials did not seek competition for 26 professional service providers paid almost $1.3 million. The District used these professional service providers for as many as 13 years without seeking competition. In addition, the District did not have written agreements with 10 of the providers who were paid a total of almost $395,000 during our audit period. Some of the providers have provided services to the District for over 12 years. Finally, officials did not always obtain quotes for goods and services, as required by the purchasing policy.

The Board did not establish compensating controls to help oversee the former Supervisor's work. Our tests of check disbursements totaling $1.4 million disclosed three payments totaling $36,380 that did not contain adequate support. In addition, one employee was overpaid $1,100 and detailed time records were not maintained to support $1,922 in hourly wages paid to another employee. The Board did not properly authorize health insurance benefits averaging $183,000 annually for elected officials in 2016 and 2017. In addition, to calculate health insurance contributions when preparing payroll, the former Supervisor deducted the individual premium cost before applying the 15 percent contribution rate to arrive at the contribution amount for any employee who received other than individual coverage. However, the policy does not specify that the individual coverage should be deducted before applying the 15 percent. As a result, we estimate the Town may have paid an annual average of $11,600 more than it should have in 2016 and 2017 (about $1,160 per employee each year) for the 10 full-time employees with insurance benefits other than individual coverage. Finally, because the Frankfort Consolidated Health District (FCHD) is no longer operating, the Board, in consultation with its legal counsel, Village and County officials, should consider dissolving the FCHD. If the FCHD is dissolved, the Supervisor should return the $43,200 of unexpended funds to the County so it can be used to reduce the County tax levy on properties within the Town and Village.

District officials have established adequate procedures over the payroll function to ensure that compensation paid and benefits provided to employees are accurate. We analyzed 35,236 checks totaling $124.3 million to ensure the accuracy of compensation paid and benefits provided to employees. Except for minor deficiencies discussed with District officials, compensation paid and benefits provided to employees were accurate. We commend the District for effectively designing and implementing policies and procedures that ensure the accuracy of compensation paid and benefits provided to District employees.

Real property taxes totaling nearly $2.2 million in 2016 and $1.3 million in 2017 were not always remitted to the Supervisor and County Treasurer (Treasurer) in a timely manner. For example, the Clerk collected tax payments totaling $774,127 during the first three weeks of January 2016 but remitted these collections to the Supervisor between four to six weeks later. In addition, clerk fees and real property taxes were not always deposited within the required timeframes. Clerk fees collected during five months of our audit period totaling $11,179 were deposited from between one to 33 days after receipt. In 2016, the Clerk deposited $37,036 in real property taxes from between one to 24 days after receipt. Finally, bank reconciliations were not always prepared or accurate.

The extra-classroom activity (ECA) clubs had receipts totaling $849,946 during the audit period. We reviewed 71 cash receipts totaling $520,743 out of 253 cash receipts totaling $647,245 collected by 10 clubs and remitted to the central treasurers for deposit during our audit period. All of these collections were accurately accounted for in the central treasurers' ledgers and deposited intact. We found that three clubs accurately accounted for collections in the student treasurers' ledgers and maintained supporting documentation for 27 transactions totaling $194,666. While five clubs maintained the cash ledger and deposit summary sheets, they did not maintain supporting documentation, such as duplicate press-numbered receipts or sales records, for 37 cash receipts totaling $236,912. In addition, two clubs did not maintain any records for seven cash receipts totaling $89,165. Finally, while three student treasurers maintained adequate records for both years, we found the following discrepancies with the seven other student treasurers' records.

The Board and District officials should improve budgeting practices to ensure that budgets are realistic and take action to address the reasonableness of fund balance. We compared budgeted appropriations and estimated revenues with actual operating results for fiscal years 2014-15 through 2016-17 and found that, while revenue variances were generally reasonable (underestimated by less than 1 percent), appropriations were overestimated by more than $5.7 million, or an annual average of $1.9 million (6.75 percent). Because the Board overestimated appropriations, it appeared the District needed to use appropriated fund balance to close projected budget gaps. The Board annually appropriated an average of $1 million of fund balance as a financing source in the 2014-15 through 2016-17 budgets, which should have resulted in planned operating deficits equal to the amount appropriated and decreased fund balance. However, due to overestimated appropriations, the District realized annual operating surpluses, and fund balance increased by more than $2.1 million (52 percent). As of June 30, 2017, unrestricted fund balance totaled more than $3.3 million and was 11 percent of the 2017-18 budgeted appropriations, exceeding the statutory limit by more than $2.1 million, or 7 percentage points. Based on our analysis of the 2017-18 adopted budget and year-to-date operations, the District will likely experience an operating surplus and not use appropriated fund balance. Therefore, fund balance will continue to increase and exceed the limit.

We compared the District's budgeted revenues and appropriations with actual results of operations for the 2014-15 through 2016-17 fiscal years. While revenue estimates were realistic, the Board significantly overestimated appropriations for recurring expenditures. Although total appropriations were only overestimated by approximately $1.3 million or 2 percent during this time, we found this occurred because the District expended more than $4.5 million for non-recurring expenditures that were not included in the adopted budgets. These expenditures offset appropriations that were significantly overestimated in the adopted budgets. Without these expenditures, total appropriations in the adopted budgets would have been overestimated by approximately $5.8 million or 11 percent during this time. In addition, during the same three-year period, the District's budgets included appropriated fund balance totaling more than $1.3 million, which should have resulted in planned operating deficits in the same amount. However, because the District overestimated appropriations in its budgets, it realized an operating surplus of $68,070 in the 2014-15 fiscal year and $1,362,314 in the 2015-16 fiscal year despite appropriating fund balance to finance operations during those years of $700,000 and $370,000, respectively. In addition, although the District realized an operating deficit of $610,752 in 2016-17, which was $379,048 more than the planned deficit, this occurred because the District made a $3 million interfund transfer from a capital reserve to the capital projects fund to finance a project that was not included in the adopted budget. As a result, none of the appropriated fund balance was actually used during the 2014-15 through 2016-17 fiscal years. The District's budgetary practices contributed to an increasing level of unrestricted fund balance that was in excess of the statutory limit. The District's tax levy has remained the same over the past three fiscal years. However, had District officials been aware of the general fund's increasing unrestricted fund balance, the Board could have reduced the tax levy.

Three Board members attended a conference in Orlando, Florida, scheduled for January 16 to 18, 2017. Two Board members incurred a combined cost of $5,982 at a nearby resort for lodging expenditures. The District's travel procedure is to have the District administrator make travel arrangements for conferences. District officials told us that the administrator did not make the travel arrangements for this trip. Instead, the trip was booked through a travel agency. An invoice from the travel agency identified the two Board members, one with a resort stay from January 14 to 19 for $3,230 and the second with a resort stay from January 14 to 18 for $2,752. The invoice, attached to the credit card statement and the claims was approved by the Board. However, the invoice was not itemized and did not provide any other information regarding these charges. The other Board member, who attended the conference from January 15 to 18, used the conference-recommended hotel and paid total lodging expenses of $489 (a conference rate of $145 per night plus tax). We requested that the District obtain itemized receipts for the resort charges. The District administrator obtained two emails from the travel agency which identified the resort package cost of $3,230 and for $2,752 for the two Board members and their spouses. The resort website indicates that the package includes hotel accommodations and tickets to theme parks. Instructions for the District's expenditure form states that theme park charges are not covered travel expenditures. As of the end of fieldwork, District officials had not provided the itemized receipt for these charges.

Although claims were supported by adequate documentation and for appropriate purposes, they were not always audited and approved before payment. The Treasurer printed and signed checks before the claims auditor audited and approved the corresponding claims. For example, the claims auditor did not audit and approve claims for five disbursements totaling $14,020 before payment, as required by New York State Education Law. These five disbursements were for the payment of a hotel room for a conference, reconstruction of the cafeteria solarium and the purchase of sports uniforms and transportation supplies. This occurred because the Treasurer prepared and issued checks for these claims before the biweekly claims audit to meet payment deadlines. In addition, the claims auditor did not audit and approve claims for 20 disbursements totaling $16,105 before payment, as required. These 20 disbursements were for various purposes, such as payments for school supplies, services rendered by individuals and a hotel room for a conference.

During our audit period, the District paid 31 claims, totaling $16,091, for conference and travel related expenditures. The Board did not ensure that 28 of these claims, totaling $12,986, were properly authorized and/or adequately supported before payment. Conference and travel expenditures totaling $8,396 were not authorized in advance by the Board, as required by District policy. Nineteen conference and travel expenditure claims, totaling $5,080, did not contain proof that the member or employee attended the conference or training. Finally, the District reimbursed travelers a total of $244 for mileage and parking that were not supported by the claims documentation.

District officials have established adequate procedures to ensure that retiree health insurance contributions were accurately billed, collected, recorded and deposited. We reviewed contributions for 40 retirees, totaling $33,139, and noted minor deficiencies, which we discussed with District officials. We also found that contributions paid to the District were largely deposited timely and intact. We commend District officials for designing and implementing controls that properly safeguard the billing, collection, depositing and recording of retiree health insurance contributions.