While the Board has not adopted written policies and District officials have not developed written procedures over the payroll function, we found no significant exceptions with the accuracy of the payment of salaries, wages or separation payments. The District Clerk routinely records the Board's approval of individual contracts, collective bargaining agreements, employee hirings, salaries, wage rates, resignations and retirements, along with the effective dates of the activity, in the minutes of the Board's meetings. The payroll clerk then enters the Board-approved information into the human resources management system which is used to make the respective salary, wage or separation payments. Additionally, the Superintendent reviews and certifies the regular payrolls. Although the payroll system is operating effectively and our testing did not identify exceptions, the Board and District officials should document the system in writing and adopt a payroll policy to ensure the system stays in operation, as staff members or duties change over time.

We determined that certain sources of revenue and expenditure categories in the preliminary budget are not reasonable and, at current rates, could potentially contribute to a depletion of the general fund balance within three to five years. Further, the City has not completely implemented recommendations contained in our prior budget review letters issued between March 2009 and March 2016. The City's preliminary budget complies with the property tax levy limit set by statute.

On a monthly basis, the Treasurer provides the Board members with the claims for its audit and approval. The Board performs a deliberate audit of each claim before the Treasurer is authorized to make payment, which is indicated by the Commissioners' initials on each individual claim and adoption of a Board resolution. However, the Board could improve the audit process to ensure all claims are audited before payment, when required. The Board approved the Treasurer's use of a debit card to purchase office supplies and postage. The use of a debit card is not permitted by law and severely weakens controls over District officials' ability to monitor and secure District cash.

The Board needs to improve its management of the District's financial condition. The Board did not adopt a policy to address the level of unrestricted fund balance to be maintained or a multi-year financial plan. In addition, the Board adopted budgets that appropriated $1.6 million of unrestricted fund balance between 2013 and 2015. However, the appropriated fund balance was not used because the Board also overestimated budgeted expenditures resulting in a total of $1.65 million of operating surpluses due in large part to expenditures for salaries and health insurance. Consequently, the District had unrestricted fund balances that ranged from 78 to 85 percent of the ensuing year's budgets over the past three years. As a result, the District's tax levies were higher than necessary. The Board also needs to improve the District's procurement procedures. District officials made 38 purchases totaling $395,731 without the use of requisitions or purchase orders and two payments totaling $117,421 to vendors that were not selected through a competitive bidding process. In addition, District officials made 12 payments totaling $18,856 to vendors without obtaining quotes and procured services from five professionals totaling $181,121 without using competition. As a result, there is an increased risk that budget appropriations could be overspent and that the goods and services procured will not be appropriate, necessary and acquired at the best cost.

We found the District did not award the Length of Service Awards Program (LOSAP) points in accordance with District policy. As a result, in 2015 three firefighters received one year of service credit and a defined contribution of $700 each to which they were not entitled. We also identified discrepancies in the points awarded to all 30 firefighters we reviewed. However, these inaccuracies did not affect the service credit awarded to the remaining 27 participants. This occurred because the District did not award points for participation in miscellaneous activities in accordance with General Municipal Law and because the District did not perform an adequate review of points awarded. We also found mathematical errors in the points awarded and reported to the LOSAP Administrator. Finally, as of July 31, 2016 the District officials had not prepared a summary of LOSAP points earned to date for the 2016 year.

The District's unrestricted fund balance, for the 2013-14, 2014-15 and 2015-16 fiscal years, exceeded the statutory maximum of 4 percent of the ensuing year's appropriations. However, from 2013-14 through 2015-16, the unrestricted fund balance declined from $4,079,523 (13.0 percent of the ensuing year's appropriations) to $3,777,439 (11.3 percent of the ensuing year's appropriations). Additionally, District officials appropriated an average of $1.3 million in fund balance as a financing source in each of the annual budgets for 2014-15 through 2016-17, but the unrestricted fund balance still exceeded the 4 percent statutory limit. However, the District used fund balance totaling between $512,702 and a projected $210,000 in 2016-17 to finance operations. When unused appropriated fund balance for the ensuing year was added back, the District's recalculated unrestricted fund balance as a percent of ensuing year's appropriations exceeded the 4 percent statutory limit each year by more than 10 percentage points. We found that revenue estimates were reasonable while appropriations have been overestimated by $4.6 million in total, or an average of 4.4 percent per year, from 2013-14 through 2015-16. We projected the results of operations for fiscal year ending June 30, 2017 and anticipate the District to have a small operating deficit. This will result in the use of fund balance, but not the $1.3 million planned.

We found that the Board needs to improve its oversight of District operations. Specifically, the Board has not established adequate written policies and procedures governing cash receipts and disbursements, nor has it adequately segregated the Secretary-Treasurer's duties. Furthermore, the Board has been giving the District's four employees a Christmas bonus in addition to their fixed salary. These bonuses, which constitute an unauthorized gift of public moneys, totaled $800 for 2015. In addition, District officials did not maintain complete and accurate fuel inventory records or adequately monitor gasoline credit card purchases. The District maintains one 500-gallon above-ground diesel storage tank at District headquarters, where 13 individuals have keys to the fuel pump. From January 2015 through July 2016, the District purchased 7,513 gallons of diesel fuel at a total cost of $18,249. District officials did not maintain complete and accurate fuel inventory records to safeguard and account for fuel. As a result, District officials could not account for more than 2,000 gallons of diesel (28 percent of the diesel purchased), valued at approximately $5,000. In addition, the District's five gasoline credit cards were used to make 393 gasoline purchases totaling $14,221 during the same period. Our review of 82 charges made with two of these cards, totaling $4,016, found that 45 of these purchases (55 percent) totaling $2,150 were lacking either odometer readings or receipts.

Based on the results of our review, we found that the significant revenue and expenditure projections in the proposed budget are reasonable. District officials have reviewed their tax levy limit calculation to ensure that the District's proposed tax levy increases the 2017-18 tax levy within the limits established by property tax cap law.

We reviewed the Treasurer's records and reports and verified that all cash receipts and disbursements were properly recorded and reported. Cash receipts consisted of only the real property tax levy, which was properly recorded and deposited. The 148 cash disbursements totaling $41,777 during the audit period were properly recorded and reported.

The District currently holds individual whole life insurance policies with face values totaling $280,000 for seven employees, officers and former officers who were provided these benefits by Board resolution (three managerial employees, three current Board members and one former Board member). As of December 31, 2015, these policies had a combined cash surrender value of $119,871. Because General Municipal Law only authorizes group life insurance for officers and employees of a water district, the District is not authorized to offer individual life insurance policies for its managerial employees and Board members by Board resolution. Also, to the extent these policies have a cash surrender feature with the cash value payable to the District as owner, this may constitute an unauthorized investment of District funds. The District paid over $16,600 in premiums during our audit period for individual whole life insurance coverage for the seven individuals, even though there was statutory authority only to provide group life insurance.

The Board and District officials need to improve the budget process to ensure reserves and fund balance are maintained at reasonable levels. From fiscal years 2011-12 through 2015-16, the Board adopted budgets that resulted in operating surpluses each year ranging from $216,000 to $2.6 million. The Board used surplus funds to increase reserves and accumulate fund balance up to the 4 percent statutory limit. Restricted funds grew from $285,000 as of June 30, 2012 to $4.5 million by June 30, 2016. The appropriation of fund balance and transfers of surplus funds to increase reserves at year-end resulted in the District's reported unrestricted fund balance remaining within the 4 percent statutory limit. By not establishing adequate reserve policies and not funding reserves through budget appropriations, the Board may have missed the opportunity to use fund balance as a financing source, fund one-time expenditures or reduce the tax levy. We also found that the Board did not ensure that employees received only the reimbursements they were entitled to. The District reimbursed three employees $15,000 for use of personal vehicles to commute from home to work which was not provided in a written agreement. The District also reimbursed an ineligible employee for $4,726 in daycare expenses.

The Board did not implement adequate claims processing procedures to ensure claims were adequately supported, properly authorized and for valid District purposes. The Treasurer compiles bills and invoices and provides a listing of bills to be paid (abstract) to the Board to authorize the payment of claims. The Board Chairman and Treasurer indicated that the Board does not perform a deliberate audit of each claim by comparing the claim as listed on the abstract against available supporting documentation. Instead, the Board reviews the abstract and documents its approval of claims by signing the abstract and passing a resolution to approve claims for payment. However, the resolutions do not include information necessary to determine the number and dollar amount of the claims authorized for payment. Furthermore, without a thorough and deliberate examination of the individual claims and supporting documentation, the Board does not have enough information to determine whether the claims it approves are appropriate and legitimate, and there is an increased risk that improper claims could be paid.

The Board and District officials did not prepare accurate budgets for the 2012-13 through 2015-16 fiscal years as appropriations were overestimated by an average of $5.5 million per year, or 15.8 percent. Furthermore, appropriated fund balance was never used as budgeted because the District's budgeting practices produced operating surpluses in all four fiscal years reviewed. When unneeded appropriated fund balance is added back to unrestricted fund balance, unrestricted fund balance exceeds the statutory limit by 9 percentage points. Finally, the employee benefit accrued liability reserve, the unemployment insurance reserve and the insurance reserve are overfunded.

The Board did not ensure that high school extra-classroom activity (ECA) funds were properly safeguarded. The Board did not adopt an adequate ECA policy to provide comprehensive guidance for District officials and students or appoint a faculty auditor to ensure that receipts were issued, disbursements were supported with adequate documentation and that student ledgers were maintained and reconciled with the Central Treasurer's records. As a result, the ECA had apparently unaccounted-for cash totaling $3,563. We identified disbursements totaling $33,167 that were either approved for payment without adequate supporting documentation or did not evidence proper approvals prior to payment. Additionally, we noted four ECAs had no student records, as required, and three additional ECAs had only partial records, one of which reported receipts totaling $400 less than the Central Treasurer's records.

District officials need to improve their payroll procedures and employee time and attendance practices to ensure employees' salaries and wages are accurately paid and leave accruals are properly maintained and recorded. We found that the Treasurer controlled the entire payroll process and the Superintendent's payroll certification was inadequate. Board minutes did not clearly identify payroll-related actions taken by the Board. The Board did not authorize the stipends or salary amounts paid to 10 employees totaling more than $80,000. In addition, leave records were not correct because the secretary inaccurately recorded leave time and comp time use. As a result, the Treasurer's vacation leave balance was overstated by 69 days. Finally, the Board appointed the head custodian (custodian), as assistant clerk of the works (assistant clerk) for a District construction project. This individual is also the District's transportation supervisor and a part-time bus driver. Over the two-year audit period, the custodian was paid $162,673, or about $81,000 for each year, when including his overtime for the extra bus runs and the assistant clerk duties. Because the custodian did not maintain time records for his different positions and ineffectively maintained his assistant clerk time records, there is no assurance that the custodian was accurately paid for his various positions.

The Board needs to improve its oversight of the District's finances. The Board was unaware that the Treasurer has not filed an annual financial report with OSC for the last three years (2013 through 2015). Also, the Board did not contract for an independent annual audit of the Treasurer's records even though the District received more than $345,000 in revenues during 2015. Board members told us they did not know they were required by law to have an audit. In addition, while the Treasurer provides the Board with monthly reports of budget-to-actual results, cash balances and bills to be approved for payment, she does not present bank reconciliations and bank statements to the Board for review. The Treasurer told us she provided monthly bank reconciliations and statements to the Board only when requested and Board members told us they never requested them for review. We reviewed the Treasurer's bank reconciliations through the end of our audit period and found that the cash balance in the savings account was $30,000 higher than was reported in the District's accounting records. The Treasurer accounted for this transaction in the savings account bank reconciliation as an outstanding transfer due back to the bank since November 2011. Board members were unaware of this reconciling transaction until we brought it to their attention. District officials then contacted the bank and obtained a copy of a $30,000 check that was deposited in the District's savings account in November 2011. They also located Board meeting minutes indicating that the funds originated from the sale of a District pumper truck.

The Board did not adopt adequate policies and procedures for cash receipts and disbursements. While the Board reviews certain non-recurring disbursements exceeding $500 at its monthly meetings, it does not review all claims. The Board adopted a disbursement policy granting the Assistant Treasurer the authority to pay certain claims when they are recurring or when necessary to avoid late fees; however, these claims are not subsequently audited or reviewed by the Board. The Board's inadequate oversight of the disbursement process creates a risk that payments may not be for appropriate purposes.

While the Board has not adopted written policies and District officials have not developed written procedures over the payroll function, we found no significant exceptions with the accuracy of the payment of salaries, wages or separation payments. While our testing did not identify material exceptions, opportunities exist for the Board and District officials to improve internal controls over the payroll process.

Company officials have ensured that disbursements were for the benefit of the entire Company membership. However, they have not ensured that all cash receipts were deposited in full. Company officials have not established adequate internal controls over cash receipts. They did not maintain sufficient documentation to indicate the amount of money received at each fundraising event and did not always maintain adequate records to identify the source of each bank deposit. While our audit did not find any significant exceptions, the inadequate internal controls increase the risk that disbursements could be made for non-Company purposes or receipts collected may not be deposited, and such errors or irregularities may not be detected or corrected.

We identified revenue and expenditure projections in the adopted budget that are not reasonable and could result in an increase in the City's accumulated deficit. Several appropriation amounts, such as health insurance, New York State Employees' Retirement System payments and debt service payments, are nearly $2.4 million higher than required. The City's 2017 budget also includes $600,000 in revenue from the sale of a property that was included in the City's 2016 adopted budget with estimated revenues of $550,000. However, the property did not sell in 2016, and, therefore, the City incurred a revenue shortfall of $550,000. In addition, the City appropriated $1,617,746 in the budget for overhead services that the general fund provides to the various City funds. However, there is no documentation to support these allocations. The City complied with the real property tax law by adopting a local law to override the tax cap.