The Board did not adopt budgets based on historical or known trends. The Board overestimated expenditures by approximately 5 percent from fiscal years 2012-13 through 2014-15, which generated more than $3.5 million in operating surpluses. As a result, approximately $1.7 million of appropriated fund balance was not used. To reduce the year-end fund balance to within the statutory limit, District officials made unbudgeted transfers to the capital projects fund and to the District's reserves. These practices compromised the transparency of the District's finances and, in effect, increased the District's unrestricted fund balance to more than the statutory limit in each year. Further, two of the District's six general fund reserves, with balances totaling $4 million as of June 30, 2015, are overfunded or potentially unnecessary. Additionally, the Board did not adopt an adequate procurement policy, in compliance with New York State General Municipal Law, to require and enforce competitive procedures for procuring goods and services that fell below the competitive bidding thresholds or for professional services. We found that, of 35 purchases reviewed totaling approximately $1.4 million, the District did not properly seek competition or adequately document the reasons for selecting particular service providers for 15 purchases (43 percent) totaling more than $780,000. Therefore, the District may not be receiving services of the desired quality at the lowest possible price.

Although District officials have maintained accurate records of employees' leave accruals, no one reviews those records to ensure all leave accrued and used has been entered into the computerized system accurately. Furthermore, District officials have not developed written procedures documenting the type of records to be maintained or guidelines for using, approving, recording and reviewing leave accruals. We reviewed leave time accruals for 25 employees and found that the District was allowing 10-month employees to accrue five days of personal leave instead of the four days allowed by their CBA. We also found that two supervisory employees were responsible for approving their own absences. This increases the risk that absences will not be recorded accurately, resulting in employees using more leave than they are entitled to.

The Board did not audit and approve claims prior to payment or adopt a claims audit policy. The Library's senior clerk reviewed claims and prepared checks, which the Director and Treasurer reviewed, approved for payment and signed. The Board minutes did not indicate whether the Board reviewed or approved the claims. While the Director provides a financial report to the Board, which is documented in the minutes, the report does not provide sufficient detail of disbursements for the Board to adequately monitor financial activity. Internal controls are compromised when the same individuals who review and approve claims for payment also sign the checks to pay those same claims. This control weakness could be corrected if the Board audited the claims prior to payment.

We found that District officials did not consistently document that they obtained materials, supplies and services at the lowest cost in the best interests of the District's residents. According to the Business Administrator, the District follows an informal price quote procedure. We tested 43 claims totaling $96,409 to determine if they contained documentation indicating that District officials sought quotes from various sources before making the purchase. Of these, 26 claims (60 percent) totaling $47,288 lacked evidence that the purchaser sought a sufficient number of price quotes from various sources. For example, claims for projection equipment and installation ($11,000), tablet computers ($9,380), District calendars ($2,476) and student agendas ($1,590) did not include the requisite number of price quotes. Furthermore, the claims auditor was unaware of the District's informal policy for securing price quotes for purchases under the competitive bidding thresholds. The lack of an adequate procurement policy could result in the District paying more than necessary for goods and services.

We found that the Board did not formally document its approval for three administrators' salary payments totaling more than $460,000 and benefits such as health insurance, for which the District paid approximately $80,000 during our audit period. This occurred because the Board has not adopted a payroll policy and District officials have not established specific procedures to provide guidance and to ensure that employee compensation and benefit payments are accurate, properly approved and supported.

BOCES officials have not implemented appropriate access controls and did not implement procedures to delete inactive employees from the active directory and the accounting system on a timely basis. As a result of these weaknesses, BOCES' computerized data is at an increased risk of loss or misuse due to unauthorized access. In addition, BOCES officials have not implemented access controls to ensure proper segregation of duties in the computer system or limited access to users based on their job descriptions and responsibilities. Vendors doing business with BOCES must be entered into the financial software prior to creating a requisition. Access to these vendor files should be limited to an employee in the purchasing department who does not authorize purchases or approve claims for payment. However, all 83 users have access to the vendor module and can add, delete and update vendors' files, and nine of those users can finalize the changes. As a result, duplicates existed in the system because users created new vendor files when entering purchases for existing vendors.

The District procured goods and services in accordance with its policy and the statutory requirements. We reviewed 25 purchases totaling $109,213 that were subject to competitive quotes in accordance with the District's procurement policy. We found that 16 of these purchases were purchased using State and county contracts, which is an allowable exception to obtaining bids and quotes. Of the remaining purchases, five contained appropriate documentation indicating they were purchased from a sole source vendor and four were made after officials obtained the required number of quotes. Except for minor discrepancies that we discussed with District officials, purchases were made in accordance with the District's policy. We commend District officials for establishing and implementing an effective system to ensure goods and services were procured in accordance with their procurement policy and applicable statutes.

The Board and District officials did not adequately manage the District's financial condition. Officials overestimated general fund appropriations for the 2012-13 through 2014-15 fiscal years by $14.9 million (7 percent), which resulted in operating surpluses totaling $2.4 million. During this period, the District levied an additional $1.6 million in real property taxes and appropriated fund balance totaling $16 million and reserves totaling $258,440 that were not needed to finance operations as planned. This resulted in the District's unrestricted fund balance exceeding the 4 percent statutory limit ranging from 14.1 to 18.9 percent. We also project that the District will not use any of the appropriated fund balance totaling $4.5 million for 2015-16. Because District officials continued these budgeting practices when adopting the 2016-17 budget, the District will most likely experience another operating surplus. In addition, as of June 30, 2015, the District had two reserves totaling $2.6 million that were overfunded, overstated a liability totaling $638,885 and did not transfer unused flex spending moneys totaling $250,047 to the general fund, which further increases the excessive amount of unrestricted fund balance. When combining the unused appropriated fund balance for the ensuing year and reserves with the other overstatements and excesses, the District's recalculated unrestricted fund balance was between 25 and 30 percent of the ensuing year's appropriations, further exceeding the statutory limit. As of June 30, 2015, the District also had more than $3.6 million in the debt service fund available for debt payments that had not been used to finance debt payments, and it continues to accumulate money each year.

The Board did not adopt realistic budgets based on historical or known trends. The Board overestimated expenditures averaging nearly 7.9 percent from fiscal years 2012-13 through 2014-15, which generated approximately $2.1 million in operating surpluses. The Board also budgeted for operating deficits during this time by appropriating fund balance each year, although these funds were not needed due to the operating surpluses generated by the unrealistic budgets. District officials reduced the year-end fund balance, to stay within the 4 percent limit established by New York State Real Property Tax Law, by making unbudgeted transfers to the District's reserves. When adding back unused appropriated fund balance, the District's recalculated unrestricted fund balance exceeded the statutory limit each year by more than 7.4 percent of the ensuing year's budget. Three of the District's five general fund reserves, which had balances totaling approximately $10.1 million as of June 30, 2015, were excessive or potentially unnecessary. Further, we found that the District incorrectly recorded money in the special aid fund that should be recorded in either the general fund or a miscellaneous special revenue fund. In addition, District officials have not developed written policies and/or procedures to formalize the separation payment process. The District does not maintain adequate supporting documentation for each separation payment. In addition, there is no review of each separation payment by any other employee or supervisor before it is paid through payroll or deposited into an employee's deferred compensation account. Furthermore, we found that the District has multiple contracts that have ambiguous terms in regards to leave accruals.

The District finances its capital projects through borrowings, general fund budget appropriations, State aid and other sources of revenue. During the audit period, the District reported 20 open capital projects and a balance of $5.1 million in its capital fund. District officials did not properly manage and account for the District's capital projects. We reviewed four projects with authorizations totaling $144 million and expenditures of $142.6 million as of June 30, 2015. The Board did not authorize an appropriation for one project and did not effectively monitor the four projects. As a result, the District has more than $1.3 million from completed projects that has not been returned to its source and over $107,000 in expenditures that did not have an authorized budget appropriation.

BOCES has not properly accounted for surplus funds and has not properly managed reserves in a transparent manner. From fiscal years 2012-13 through 2014-15, the Board and BOCES officials have consistently overestimated appropriations by an average of $4.4 million, or 6.6 percent, each year. As a result of these practices, BOCES has generated annual operating surpluses averaging $4.7 million and totaling approximately $14 million during this time. Although BOCES has refunded more than $10 million of its surpluses to the districts, BOCES has also used approximately $4 million (29 percent) to increase its reserves without adequate disclosure to the public and the districts. BOCES officials also overfunded three reserves and maintained a trust that was not allowable. As a result, BOCES has restricted more than $15 million in funds that should have been returned to the component and participating districts.

We found that the Board and BOCES officials did not properly manage fund balance and reserves in accordance with statute. Similar to findings in our prior audit of BOCES, we determined that BOCES officials did not properly estimate certain budget appropriations and used the resulting surpluses totaling approximately $3 million to fund unbudgeted capital projects. Furthermore, BOCES officials have improperly restricted more than $5 million of surplus funds for a purpose not statutorily allowed and had approximately $2.4 million in reserves that were not used and did not evidence plans for future use. Had certain actions not occurred, the BOCES would have had to return more than $8 million to its component districts. When the BOCES retains surplus funds the tax burden is increased for the residents of the component districts.

Town officials did not ensure revenues were sufficient to finance current expenditure levels for the water, sewer and general funds. From fiscal years 2013 through 2015, these funds have experienced recurring operating deficits. Specifically, the water fund had an average annual operating deficit of $65,000, the sewer fund had an average deficit of $19,000, and the general fund had an average deficit of $215,670. As a result, the water and sewer funds have had to borrow $730,000 from the general part-town fund to maintain cash flow and operations. If Town officials do not take action to address the deficits, these funds may not be able to repay these loans. This will impact the general part-town fund's financial condition and result in an inequity for residents who paid for but did not benefit from these services. Further, the general fund does not have any unrestricted fund balance to fund unexpected expenses.

The District's policies and procedures for timekeeping and leave accruals are not adequate to ensure time and leave records are accurate. The District paid an employee $50,477 more than he was entitled to for unused leave accruals at the time of his retirement. Time and attendance records are not submitted by all employees. In addition, leave accrual records for five employees included numerous errors. Additionally, for two of four biweekly payrolls, payroll hours worked and salaries paid were inaccurate resulting in an underpayment to three employees totaling $1,226 and minor overpayments to two employees totaling $55. The Board did not establish and adopt policies and procedures over cash receipts to ensure all cash receipts were properly collected, recorded and deposited. The Fishers Island freight agent's duties related to cash receipts are not adequately segregated, collections received are not reconciled to collections recorded and duplicate pre-numbered receipts are not issued for cash collected. Records indicate that $1,636 in fees were not invoiced or collected, $300 of cash receipts were collected but never recorded in the accounting software and another $300 was collected and never deposited in the bank account. In addition, because the Assistant Manager of Business Operations does not maintain a perpetual inventory of ferry ticket books, at least seven ticket books worth $1,575 are unaccounted for. Because the Assistant Manager of Business Operations does not impose late fees for property that the District rents, the District has not collected more than $20,000 it is entitled to based on lease agreement provisions. Finally, District officials did not ensure that goods and services were procured in compliance with statutory bidding requirements and the District's procurement policy. We identified $617,037 in purchases that were not properly bid as required by law and approximately $38,600 in purchases that were made without obtaining quotes as required by District policy.

District officials have established adequate procedures to ensure the accuracy of salaries and wages paid to employees. The Board approves all salaries and pay rates in the various contracts for the instructional, non-instructional and administrative employees at the District. At the beginning of each school year, the senior account clerk updates each individual employees' salary, pay rate and leave accruals, as stated in their respective contracts, in the District's financial system. We commend District officials for designing and implementing a good system of controls to help ensure the accuracy of compensation paid to employees.

Although the District's budget estimates were reasonable, the Board and District officials allowed unrestricted fund balance to exceed the statutory limit for the past three fiscal years. As of June 30, 2015, unrestricted fund balance totaled $1.4 million and was 14 percent of the 2015-16 budgeted appropriations, exceeding the limit by 10 percentage points. Furthermore, the District has two reserves totaling $967,000 that may be overfunded. During the past three fiscal years, District officials have increased the tax levy by an average of $82,000, or 2 percent annually and increased the tax levy 1.5 percent for 2015-16.

District officials need to improve their security policies and procedures. Our review of 80 District-owned MCDs disclosed PPSI on 16 (20 percent) of these devices. We also found that District officials have not developed a classification scheme or performed an adequate inventory of the PPSI stored on District MCDs. Unless the District officials identify all the PPSI maintained, it could be difficult to promptly notify the affected students and their families and other parties if a data security breach should occur. In addition, District officials need to improve their oversight of cash collections for extra-classroom activity funds and athletic events. Officials did not implement policies and procedures over athletic event admissions and adopt procedures to ensure adequate reconciliations of extracurricular cash collection activities were prepared. District officials did not ensure that sufficient documentation was maintained for cash collections and pre-numbered cash receipts were issued for all money collected. We identified 29 cash receipts totaling $17,577 that were not deposited within the three-day period allowed by District policy. In addition, the athletic director did not monitor or periodically reconcile the athletic event ticket inventory to account for the number of tickets sold. As a result of these discrepancies, District officials were unable to determine if all ticket money collected was deposited.

Generally, we found that the Board designed an adequate system of controls by establishing policies and procedures for managing, accounting and reporting the School's financial operations. However, the Board should provide clearer guidance with respect to conflicts of interest as well as better oversight of School official's compliance with designed controls. For example, we found the CEO signed checks payable to herself which were not dually signed by the Board Chairperson as required and certain checks were approved and paid without having adequate supporting documentation. Additionally, we found the Board entered into agreements with two current Trustees which appear to have conflicts of interest.

District officials did not always obtain competitive quotes and adhere to bidding requirements when procuring goods and services. We selected a sample of 30 vendors who were paid approximately $2.2 million between July 1, 2014 and December 31, 2015. District officials did not have bid documentation to support payments totaling $757,700 made to two vendors for transportation, and they did not have documentation to support sole source payments totaling $53,000 to two vendors for textbooks. While the Board adopted policies and procedures that provided guidance for purchases that do not require competitive bidding, District officials did not follow the policy and use competitive quotes to procure goods and services from 14 vendors paid a total of $116,626.

The Board developed an adequate process to ensure that special education claims were accurate, valid, properly supported and for legitimate District purposes. However, District officials have not formally documented their procedures in writing, which can lead to a lack of guidance and inconsistencies in how the procedures are carried out. During our audit period, the District processed 107 special education claims from eight vendors, totaling $570,289. We examined 12 special education claims containing 115 invoices and totaling $198,788 to determine whether rates charged and services rendered agreed with applicable contracts, invoices were adequately itemized and properly supported showing the level of service provided for each date, and claims contained the claims auditor's and other approvals required by the District's procedures. We found only minor discrepancies, which we discussed with District officials. However, the lack of written procedures increases the chance that claims will not be processed properly or that procedures will not be properly communicated when there are staffing changes.