The District did not apply for all the transportation State aid to which it was entitled for new bus purchases in a timely manner. The Business Manager did not report nine buses that were purchased during our audit period to the New York State Education Department for approval for transportation State aid. Had we not notified District officials of this, the District could have lost $612,902 in related aid consisting of $157,127 that the District would have received during the 2013-14 through 2015-16 fiscal years and $455,775 that we project the District would have received during the 2016-17 through 2020-21 fiscal years. The District also maintained five reserves in its general fund during our audit period, which consisted of an employee benefit accrued liability (EBALR), retirement contribution, unemployment insurance, workers' compensation and insurance reserve. As of June 30, 2015, the five reserves had balances totaling approximately $2.5 million. The District did not appropriately establish, fund and/or use four of these reserves totaling approximately $2.4 million, and the Board did not adopt a reserve policy. District officials were unable to provide us with documentation for the establishment of the EBALR and unemployment insurance reserves. We also found that the District used $69,447 from the retirement contribution reserve for a purpose that was not statutorily authorized.

District officials did not prepare accurate budgets for the 2012-13, 2013-14 and 2014-15 fiscal years. The District overestimated appropriations by an average of $2.5 million each year. While the District appropriated fund balance to help finance operations, the amounts appropriated were generally not used. Furthermore, unrestricted fund balance has exceeded the legal limit annually. As of June 30, 2015, unrestricted fund balance was $2.6 million (12 percent of the ensuing year's budget) or approximately $1.7 million over the legally allowable limit. Finally, the District improperly retained $5.7 million in a debt reserve and overfunded the employee benefit accrued liability reserve by $220,000 (20 percent).

District officials have established adequate procedures over the claims processing function to ensure that claims are adequately documented and supported, are for appropriate purposes, and are audited and approved prior to payment. The claims auditor conducts a thorough examination of each claim to determine whether it is for appropriate District purposes, whether the goods or services being billed for were actually received, and whether the claims are adequately documented and supported. We commend District officials for establishing effective procedures for processing claims against the District.

The Board has established a fund balance policy stating that the Board will keep unrestricted fund balance between a minimum of 2 percent of the ensuing year's appropriations and the 4 percent maximum allowed by law. However, for the past four years the District did not comply with its policy and the law, retaining unrestricted fund balance of 20 to 22.6 percent of the ensuing year's appropriations. These levels exceeded the statutory limit by more than $4 million, or at least 16 percentage points, each year.

BOCES officials have established adequate procedures over the claims processing function to ensure that claims were adequately documented and supported, for appropriate purposes, and audited and approved prior to payment. The Board has delegated its claims auditing responsibility to a claims auditor. The claims auditor conducts a thorough examination of each claim to determine whether it is for appropriate BOCES purposes, the goods or services being billed for were actually received, and the claim was adequately documented and supported. We commend BOCES officials for establishing effective procedures for processing claims against BOCES.

While the Board and District officials have generally maintained unrestricted fund balance levels in accordance with statutory limits, we found that District officials used budgeting practices that appropriated fund balance and reserves that were not actually used. The District routinely overestimated expenditures (averaging $10 million) and, as a result, did not use an equivalent amount of appropriated fund balance and reserves as budgeted. This practice is projected to continue in the 2015-16 fiscal year. Moreover, once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's recalculated unrestricted fund balance ranges from $6.1 million (6 percent) to $7.4 million (8 percent) of the ensuing years' appropriations for the fiscal years 2012-13 through 2014-15, exceeding the statutory limit. In addition, District officials consistently budgeted in the general fund for expenditures that could have been paid for with reserve funds, five of which appear to be overfunded by more than $18 million. As a result, the District has levied higher taxes than necessary.

The Board did not adopt realistic budgets or ensure that reserves were reasonably funded. District officials consistently overestimated appropriations in the general fund budget during the last three fiscal years 2012-13 through 2014-15 totaling more than $3.4 million or 9 percent, generating approximately $2.7 million in operating surpluses. The District used the operating surpluses to fund various reserves, which led to reserve balances increasing by more than $2.4 million (32 percent) since July 1, 2012. Although District officials appropriated an average of approximately $333,000 in fund balance and $258,000 in reserves annually towards the ensuing year's budget, none of the appropriated funds were used because of consistent year-end surpluses. This trend is projected to continue through 2015-16. While we continue to forecast an operating surplus for 2015-16, we recognize certain measures the Board and District officials have begun implementing regarding their financial management practices. For example, they did not raise the tax levy in 2014-15, and they reduced the tax levy by more than 5 percent ($250,000) for 2015-16.

Although the Board and District officials have generally maintained fund balance levels in accordance with the law, they have annually appropriated portions of fund balance for the subsequent year's budget that were not used because they consistently overestimated appropriations. This trend is projected to continue through 2015-16. Once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's recalculated unrestricted fund balance ranged from $692,000 (14 percent) in 2012-13 to $749,000 (15 percent) in 2014-15. Furthermore, even though unrestricted fund balance continued to increase through June 30, 2015, District officials continued to raise the tax levy every year. Had District officials retained the same tax levy as in 2012-13, residents could have realized approximately $380,000 in cumulative savings. In addition, the unemployment reserve totaled $220,000 as of June 30, 2015 even though annual unemployment expenditures averaged $4,000. Further, District officials have routinely levied taxes for expenditures, including unemployment expenditures, which could have been paid for with reserve funds that totaled $1.3 million as of June 30, 2015.

The Payroll Manager performs incompatible duties without sufficient oversight or independent review. District officials instituted a compensating control by having the Superintendent, who is independent of the payroll process, certify the payrolls. However, no one independent of the payroll process reviews hourly rates or annual salaries entered by the Payroll Manager for accuracy or compares the payroll registers with payroll source documents (i.e., time records) to ensure that payments were based on the actual hours or days worked prior to payroll processing. In addition, the District does not have adequate procedures in place to ensure overtime is preapproved, and District officials generally did not preapprove overtime worked by employees.

District officials did not ensure that the District's unrestricted fund balance was within the statutory limit during the past three fiscal years (2012-13 through 2014-15). The District's unrestricted fund balance exceeded the statutory limit for these years ranging from 6.5 to 10.7 percent. As of June 30, 2015, the District's unrestricted fund balance totaled more than $570,000, which exceeded the statutory limitations by $223,561. Because the District overestimated expenditures by approximately $2.3 million from 2012-13 through 2014-15 it used only a small amount ($92,072 or 3 percent) of the nearly $3.3 million of fund balance that was appropriated for the same period. When adding back unused appropriated fund balance, the District's recalculated unrestricted funds further exceeded the statutory limit.

The Board and District officials did not adequately manage the District's financial condition. They overestimated general fund appropriations when preparing and adopting the last three completed fiscal year's budgets, resulting in operating surpluses totaling $2.5 million. During this period, the District increased the tax levy by a total of 2 percent and appropriated fund balance totaling about $1.8 million and reserves totaling $128,000, which were not needed to finance operations as planned. We believe the District will not use the appropriated fund balance totaling $492,377 for 2015-16. In addition, as of June 30, 2015, the District officials had three reserves totaling $782,596 that were overfunded, incorrectly recorded a deferred revenue totaling $453,301 and overstated a liability totaling $59,870, which further increases the excessive amount of unrestricted fund balance. When combining the unused appropriated fund balance and reserves with the other overstatements and excesses, the District's recalculated unrestricted fund balance was between 13 and 26 percent of the ensuing year's appropriations, exceeding the 4 percent statutory limit. The District also has more than $1 million in the debt service fund available for debt payments that has not been used to finance debt payments, and it continues to accumulate money each year.

The Board and District officials have not implemented appropriate IT policies and procedures related to personal, private and sensitive information classification or data backups. Additionally, the Board has not adopted a sufficient, comprehensive disaster recovery plan. Consequently, IT assets are at risk for unauthorized, inappropriate and wasteful use, and the District could encounter an interruption in services.

Over the five-year period ending June 30, 2015, the Board maintained unrestricted fund balance within the 4 percent statutory maximum. However, the Board appropriated more fund balance than needed, resulting in an estimated net budget variance of $20.6 million from 2011-12 through 2015-16. After the unused appropriated fund balances are added back, the unrestricted fund balance exceeds the statutory limit, ranging from 6 percent to 7.4 percent of the ensuing year's appropriations for the period. Furthermore, although four of the District's six reserve funds had reasonable balances, the retirement contribution reserve and the employee benefit accrued liability reserve had significant balances in excess of their respective liabilities. As a result of these practices, District officials levied real property taxes that were higher than necessary.

The Treasurer did not maintain adequate records and reports. For example, the Treasurer's accounting records were inaccurate and, at times, illegible. In addition, the Treasurer's financial reports were inconsistent, untimely and inaccurate. The Board did not complete an annual audit of the Treasurer's records. Without accurate records and reports, the Board cannot make informed financial decisions. These discrepancies occurred because the Board did not segregate key financial duties and did not implement compensating controls. The Treasurer was responsible for all aspects of financial transactions, including receiving and opening mail; receiving and depositing cash receipts; transferring funds between bank accounts; preparing, signing and mailing checks; and recording transactions. Although the Vice Chairman of the Board receives a copy of the checking account bank statement and visually inspects the canceled check images for appropriateness, no one compares the canceled check images to the Board-approved abstracts (lists of claims to be paid) to ensure that the checks were for legitimate and approved District expenditures. Finally, although the Board minutes indicated that the Board performed an audit of financial records, we determined that this internal audit was not thorough.

We found unnecessary permissions granted for changing student grades, assuming accounts and identities, and viewing PPSI. For example, 29 users were able to change grades without having the responsibility and 11 users could assume other SIS users' identities without any job-related need to do so. Although these users did not actually change grades or assume other users' identities, the unnecessary ability to do so weakens controls over system integrity. We also found unnecessary student information system (SIS) user accounts, including those for three former District employees. During our audit period, SIS accounts were assumed approximately 140 times and SIS identities nearly 400 times by various users. None of this use was found to be inappropriate; however, unnecessary permissions and accounts increase the risk of unauthorized access and potentially harmful modification, use or exposure of personal, private and sensitive information (PPSI). Due to the lack of effective management, permissions and accounts were not properly assigned or maintained in accordance with employees' job responsibilities and changing employment status. Further, officials did not properly monitor SIS use. This essential control would help to safeguard the District's PPSI from potential unauthorized activity that may not be detected and addressed in a timely manner.

The Board and District officials need to improve the budget process to ensure reserves and fund balance are maintained at reasonable levels in accordance with statutory requirements. Over the five-year period (2010-11 through 2014-15), the Board adopted budgets that included almost $1 million of appropriated fund balance, which was not used to fund operations because the District incurred operating surpluses during four of the five years. District officials used surplus funds to increase reserves and the debt service fund each year. However, District officials did not use these restricted funds to pay for reserve and debt service related obligations because the Board budgeted appropriations each year to pay these expenditures. When the unused appropriated fund balance and excess debt service and reserve funds were added back, the District's recalculated unrestricted fund balance exceeded the statutory limit, ranging from 8.5 to 12.7 percent. As a result, District officials have missed the opportunity to accumulate less fund balance, reduce the tax levy and increase transparency in the District's budget process.

District officials have not effectively managed the fund balance of the general fund. As a result, the fund balance exceeded the statutory limit for the fiscal years ending June 30, 2014 and 2015. In addition, although the District has funded reserves, the Board has not established a plan that states the necessary funding levels and provides guidelines for use and replenishment of the reserve funds.

The Board and District officials could improve their management of the school lunch fund's financial condition. Although the school lunch fund had surpluses in 2012-13 and 2013-14 totaling almost $25,000, the fund realized a deficit of more than $26,000 in 2014-15, resulting in a 75 percent decrease in fund balance. Furthermore, the District paid health insurance and retirement system costs for cafeteria employees, averaging $41,500 annually, out of the general fund. Had the District paid these costs from the school lunch fund, this fund would have had deficits in each of the last three fiscal years totaling more than $126,000. Additionally, the school lunch fund owes the general fund more than $212,000, which is unlikely to be paid back because it would cause the fund's cash balance to decline significantly. Finally, District officials did not perform a cost-per-meal analysis and the District's productivity level for meals per labor hours (MPLH) is below the industry average.

BOCES adopted policies and procedures requiring that goods of the same kind that exceed $20,000 for purchase contracts and $35,000 for public work contracts within 12 months be subject to competitive bidding in accordance with GML. Irrespective of the type and nature of the purchase, all purchases require an approved purchase order (PO) before payment can be made. Procurements that are exempt from GML, such as professional services, are documented in the procurement guidelines. BOCES' procurement guidelines state that professional services are acquired at the discretion of the Superintendent or through separate provisions. Other than procurement for external auditor services, BOCES' policy or procurement guidelines do not require the use of competition, such as RFPs in procuring professional services.

District officials have established appropriate procedures over the claims processing function to ensure that claims were properly itemized and supported; the goods or services had been received and were for proper purposes; and the claims were audited and approved prior to payment. The Board has delegated its claims auditing responsibility to a claims auditor. We randomly selected 500 checks totaling $10,488,630 paid during our audit period and reviewed the associated claims to determine whether the claim was supported with sufficient itemization of the goods or services acquired, contained adequate supporting documentation, and was for legitimate District purposes. We also determined whether the claims were audited and approved by the claims auditor prior to payment. Except for minor issues which we discussed with District officials, we found that the claims were for legitimate District purposes and were properly audited prior to payment. We commend District officials for establishing and implementing effective procedures over the District's claims processing function.