The Board has not properly managed financial reserves or sufficiently followed the District's reserve policy and regulations. District officials were unable to provide us with evidence that they have documented the financial need or purpose to be served for each reserve, the conditions under which reserves will be used or replenished and the rationale used to determine the appropriate funding level for each reserve. As of June 30, 2015, the District had seven reserves totaling approximately $11 million. We found that four reserves, with balances totaling $7.3 million, appear to be overfunded. In addition, the District has not properly used the debt reserve, which had a balance of $2.9 million, to pay related debt. In addition, District officials did not provide appropriate oversight over fuel that was delivered to the transportation contractor's tanks. As a result, the District cannot be certain that all of the fuel purchased by the District was used for District purposes. It appears that the District may have purchased approximately 3,800 more gallons of fuel, valued at approximately $7,300, than it should have.

The Board and District officials did not effectively manage the District's financial condition by ensuring budget estimates were reasonable and based on historical costs and trends, and that fund balance was maintained at the statutory limit. In 2013-14 and 2014-15 the District adopted budgets that projected planned operating deficits (appropriated fund balance) of $103,272 and $218,440, respectively. However, the District instead experienced operating surpluses of $173,105 in 2013-14 and $37,382 in 2014-15 and did not need to use the appropriated fund balance. Furthermore, the District has accumulated unrestricted fund balance that exceeds the statutory limit for the ensuing year's budgeted appropriations. As of June 30, 2015, the District's reported unrestricted fund balance was 19 percent of the 2015-16 budgeted appropriations.

The Board and District officials need to improve the budgeting process to ensure that the fund balances maintained in the general and certain restricted funds are reasonable. Over the five-year period ending June 30, 2015, the District's unrestricted fund balance exceeded the statutory limit, ranging from 6.5 to 12.3 percent of the ensuing year's budgeted appropriations. From 2011-12 through 2015-16, District officials appropriated a combined total of approximately $956,000 of unrestricted fund balance as a financing source in the annual budgets. However, because the District generated operating surpluses totaling approximately $1.8 million (including a projected $242,000 operating surplus for 2015-16), none of the appropriated fund balance was actually used to finance operations. When the unused appropriated fund balance was added back, the District's recalculated unrestricted fund balance further exceeded the statutory limit, ranging from 9.4 to 14.2 percent. Furthermore, we found that restricted fund balances (i.e., the debt service fund and four general fund reserves) totaling more than $2 million were significantly more than their respective liabilities and, therefore, were overfunded. Moreover, District officials did not use any of these restricted fund balances to make payments for the associated liabilities.

In May 2013, the Office of the State Comptroller issued an audit report that addressed the County's declining general fund balance and weakening financial condition. The audit recommended that the Board develop a fund balance policy that establishes a reasonable amount of fund balance to be maintained to meet the County's needs and provide sufficient cash flow, and that the Board develop a long-range plan to ensure that sufficient resources would be available to meet future operational and capital needs. The Board has not implemented either of these recommendations. Since our last audit, the general fund's unassigned fund balance has continued to decline to a deficit of nearly $2.9 million as of December 31, 2014. In addition, the County did not have sufficient cash to pay its bills and other obligations when due, resulting in the County issuing $10 million in short-term debt in the form of revenue anticipation notes in fiscal years 2013, 2014 and 2015. Although the County has consistently spent less than it budgeted each year, the Board has overestimated revenues such as sales tax and State and federal aid in the adopted budgets. As a result, the County has made little progress in rebuilding its fund balance. The County wrote off $1.7 million in uncollectible accounts receivable in 2014, which also has contributed to the decline in fund balance. Preliminary figures for 2015 indicate the County may generate a small operating surplus due, in part, to its cost cutting efforts. However, this is unlikely to eliminate the cumulative unassigned fund balance deficit.

The Board did not adopt structurally balance budgets from 2010 through 2014 resulting in a $1 million (91 percent) decline in general fund balance to $95,000. In addition, highway fund balance declined by $359,000 (96 percent) over these years resulting in an ending fund balance about of $15,000. In 2015, the Board budgeted to appropriate $150,000 of general fund balance to finance operations. However, there was only approximately $95,000 available, resulting in the general fund beginning 2015 with a budgetary deficit of $55,500. In 2015, the general fund will likely have an operating deficit of approximately $46,000 reducing the general fund balance to less than $50,000. Further, tentative 2015 highway fund operating results show a deficit of approximately $17,000. As a result, the highway fund may have problems funding operating costs. Town officials also need to establish comprehensive policies and procedures for preparing payroll and maintaining leave time accruals for Department employees and improve their oversight of this process. As a result of these weaknesses, we question whether certain overtime should have been paid. In addition, we found, that some employees' leave accrual records were not accurately maintained resulting in four employees leave accruals being overstated by 148.85 hours valued at $3,957, while five employees leave accruals were potentially understated by a total of 54.1 hours valued at $1,351. Finally, a seasonal employee was paid $1,350 for 54.4 hours to which he may not have been entitled.

District officials did not prepare accurate budgets for the 2010-11 through the 2015-16 fiscal years. While the District appropriated fund balance to help finance operations, it was not needed because the District's budgeting practices regularly produced significant operating surpluses. District officials plan to use $13 million of the accumulated surplus to finance a capital project, rather than issue debt that aligns with the State's building aid payment schedule. District officials have maintained real property taxes at a consistent level over the past five years. However, for perspective, the District's tax levy could have been $2 million (24 percent) lower for each of the last five completed fiscal years, and the District would have continued to realize an operating surplus in each fiscal year. In addition, the District's retirement contribution reserve and unemployment insurance reserve were overfunded. The balance of the retirement contribution reserve as of June 30, 2015 was $7.8 million, which was more than 18 times the District's annual average contribution of approximately $422,000. The balance of the unemployment insurance reserve as of June 30, 2015 was $244,000, which was 22 times the District's average annual unemployment costs of $11,000.

District officials procured goods and services in accordance with General Municipal Law (GML) and the District's purchasing policy and regulations. District officials have established adequate internal controls over the District's procurement process. The Board adopted a purchasing policy and regulations that provide guidance on procurement methods for all purchases, including those that do not require competitive bidding. During our audit period, the District paid claims for goods and services totaling $4.34 million. We reviewed 52 claims totaling $2.09 million to determine whether they were purchased in accordance with GML requirements and the District's purchasing policy. Except for minor discrepancies which we discussed with District officials, District employees adhered to GML requirements and the District's purchasing policy and regulations. We commend District officials for establishing and implementing an effective system of controls over the District's purchasing practices.

The Board overestimated appropriations in the adopted budgets by an average of about $947,000 or 9 percent over the past three years. As a result, $724,000 or almost 90 percent of the appropriated fund balance was not actually needed to finance operations, and unassigned fund balance was more than twice the statutory limit from fiscal years 2012-13 through 2014-15. The District has reduced the reported level of year-end unassigned fund balance from 10.9 percent of the ensuing year's budget at the end of 2012-13 to 9.7 percent at the end of 2014-15. However, when the unused appropriated fund balance was added back, the recalculated unassigned fund balance exceeded 17 percent of the next year's appropriations in all three years. The Board has not developed multiyear operational or capital plans to address excess fund balance and future needs.

Over the last five fiscal years, budgets presented to District residents were not as transparent as they could have been because they did not include estimated amounts for tax certiorari judgments or amounts to fund them. District officials issued debt to pay for tax certiorari judgments, which masked the District's true operating results. Without the issuance of debt, the District's fund balance would have declined by almost $3.1 million. Although the District appropriated $4.5 million of fund balance over the last five years which was intended to fund a portion of the budget, only $333,623 of this amount was actually used. In addition, the District issued debt to fund tax certiorari judgments during the 2014-15 fiscal year rather than using funds held in reserve to pay for these judgments. District officials did not have any cost-benefit analysis to show that issuing debt was the most cost-effective method for paying for tax certiorari judgments. As a result of the debt issuances, residents are responsible for $3 million in interest and additional fees for all 11 outstanding debt issuances. The additional costs associated with the issuance of debt may impact future school programs or place an unnecessary burden on residents. In addition, District officials do not have a comprehensive, multiyear financial plan.

The Board has not adopted reasonable and structurally balanced budgets. From fiscal years 2012-13 through 2014-15, revenue estimates were generally reasonable. However, the Board annually adopted budgets that overestimated expenditures and appropriated fund balance and reserves that it did not actually use to fund operations. The Board overestimated expenditures by between $16.2 million (7.4 percent) and $18.3 million (8.1 percent) during this time. Despite these expenditure variances, the District has reported operating deficits for each of the last three fiscal years. The Board appropriated an average of $3.9 million in fund balance each year, which made it appear that it would be using it to fund operations. The District also appropriated $12.8 million in reserves in each of the last three fiscal years. However, because the Board has not adopted realistic budgets, the District has actually used an average of $238,534 of unassigned fund balance (6 percent) and $1.5 million of reserves (11 percent). Despite presenting budgets to District residents each year that made it appear that the District was depleting its reserves and fund balance, the Board's continued overestimation of appropriations has actually resulted in the District's unassigned fund balance increasing. When unused appropriated fund balance was added back, the District's recalculated unassigned fund balance was nearly 6 percent of the ensuing year's appropriations, exceeding the statutory limit by almost 2 percentage points each year.

The Board did not maintain some of its eight reserve funds at reasonable levels. The retirement contribution and unemployment insurance reserves, with balances totaling $2.8 million, were overfunded. In addition, the District inappropriately transferred $905,000 from four reserves to unrestricted fund balance. Further, the District did not have documentation to support that any of its reserves were formally established, and it did not have a written reserve policy. As a result, the District has unnecessarily restricted resources that could have been used for the benefit of residents.

BOCES officials have established adequate controls over the claims processing function that allow claims to be audited in a timely manner in accordance with BOCES' policy and New York State Education Law. The Board delegated its responsibility to a claims auditor and established a claims auditing policy to provide guidance to the claims auditor. BOCES made 22,236 claims for disbursements totaling $260.1 million during our audit period. We reviewed 88 of these disbursements, which paid for 177 claims totaling approximately $2 million to determine if they contained sufficient documentation, were properly authorized and approved, sufficiently itemized and for valid business purposes. Except for minor issues that we discussed with BOCES officials, we found that claims were properly authorized, approved and audited before payment, appropriately supported and for legitimate BOCES purposes. We commend BOCES officials for establishing and implementing an effective system of controls over claims processing.

The Board and District officials did not develop reasonable budgets or effectively manage the District's financial condition. The District appropriated an average of approximately $1.4 million in fund balance annually, which was not needed to fund operations due to operating surpluses. District officials consistently overestimated expenditures by almost $6.9 million (13.6 percent) over the last four fiscal years (2011-12 through 2014-15). These budgeting practices generated approximately $1.5 million in operating surpluses over the same period. Further, the District improperly reported about $1.3 million of unrestricted fund balance in the debt service fund and improperly encumbered $100,000. These practices allowed the District to appear that it was within the 4 percent statutory limit imposed on the level of unrestricted fund balance. However, when adding back unused appropriated fund balance, moneys that were improperly placed in the debt service fund and an erroneous encumbrance, the District's recalculated unrestricted fund balance was about 25 percent of the ensuing year's appropriations, exceeding the statutory limit from 2011-12 through 2015-16. As a result of these practices, District officials have levied real property taxes that were higher than necessary to fund District operations. Finally, District officials have not developed a multiyear financial plan.

District officials did not effectively manage the District's financial condition by ensuring budget estimates were reasonable and based on historical costs and trends. From fiscal years 2012-13 through 2014-15, the District overestimated expenditures by a total of more than $1.4 million (or 19.6 percent). Due to the overestimated expenditures, the District incurred operating surpluses totaling more than $900,000 in these three years and did not use any of the $500,000 appropriated fund balance to fund operations. As a result, the District has accumulated unrestricted fund balance that exceeds the statutory limit by approximately $1.6 million, or 75 percentage points, as of June 30, 2015. These practices caused the District to levy more taxes than were needed to fund operations.

The Board appointed a claims auditor and adopted a claims auditing policy establishing procedures for auditing claims. The policy requires the claims auditor to report directly to the Board regarding the claims audit results. The claims auditor is required to examine all claims for adequate evidence to support the District's expenditure. The policy also requires that the Treasurer pay valid claims against the District only upon the claims auditor's approval. We judgmentally selected and reviewed 75 claims totaling $3 million to determine whether each claim was for appropriate District purposes, adequately supported, audited and approved prior to payment. We reviewed 50 general fund claims totaling $822,000 and 25 capital fund claims totaling $2.2 million. We found that the claims were for appropriate purposes and were adequately supported, audited and approved prior to payment. We commend District officials for implementing an effective claims audit process.

District officials have generally taken appropriate action to manage the District's financial condition and are planning to increase future fund balance. From fiscal years 2012-13 through 2014-15, District officials typically prepared accurate budgets that generated minimal operating surpluses or planned operating deficits. To maintain programs and manageable tax increases, while dealing with the loss of $3.49 million in State aid, District officials used fund balance and interfund transfers to finance general fund operations. Because of this practice, the District's 2014-15 unrestricted fund balance decreased to 1.2 percent of 2015-16 budgeted appropriations. District officials acknowledged the decline in unrestricted fund balance and developed a plan to increase it to between 3 and 4 percent of the ensuing year's budget. District officials started to implement this plan by addressing the District's reliance on non-recurring revenues as a financing source. Therefore, District officials reduced interfund transfers in the annual budgets by approximately $445,000 during the audit period and implemented certain cost savings measures. As a result of their efforts, we project that the District will end 2015-16 with a modest operating surplus that will increase unrestricted fund balance. In addition, the District has developed multiyear financial and capital plans. However, including more details in these plans, such as funding sources, would benefit the District as it faces current and future economic and environmental challenges.

District officials achieved health insurance cost savings by changing health insurance carriers and offering employees a buyout incentive. From July 1, 2013 through June 30, 2016, the cost savings will total approximately $3.9 million. We commend District officials for implementing these cost savings measures.

We found questionable activity and unnecessary permissions granted for changing student grades, modifying SIS permissions, assuming accounts or identities and viewing PPSI. We also found unnecessary user accounts in the SIS, including those for former District employees, former third-party personnel, Mohawk Regional Information Center personnel that do not directly support the SIS and substitute secretaries and nurses that only need occasional access. These issues were the result of, at least in part, District officials' failure to review SIS audit logs on a regular basis, properly manage accounts and permissions and establish effective policies and procedures. Unnecessary permissions increase the risk of inappropriate activity such as unauthorized changes to student grades or SIS permissions and disclosure or misuse of students' PPSI. Unnecessary accounts also increase this risk, as well as the efforts needed to manage permissions in the SIS, which could result in inadvertently granting more access than needed.

The District's reported unrestricted fund balance for the past three years was understated because the District incorrectly restricted funds for the future payments of other post-employment benefits (OPEB). With the inclusion of the incorrectly restricted funds, the unrestricted fund balance was in excess of the 4 percent statutory limit for the 2012-13, 2013-14 and 2014-15 fiscal years. The Assistant Superintendent of Business stated the Board wanted to partially fund the District's future OPEB. However, there is no legal authority for the District to fund its OPEB. During our audit period, the District allocated $7.1, $8.7 and $9.8 million at the end of the 2012-13, 2013-14 and 2014-15 fiscal years, respectively, to partially fund its OPEB liability. We recalculated the District's unrestricted fund balance for the fiscal years ending June 30, 2013 through June 30, 2015 by adding back the amounts the District had restricted for its OPEB liability. As of June 30, 2013, the District's recalculated unrestricted fund balance totaled $11.6 million and was 10.3 percent of the 2013-14 appropriations, exceeding the statutory limit by more than $7.1 million. As of June 30, 2014 and 2015 the recalculated unrestricted fund balance amounts were $13.4 and $14.5 million, which were 11.5 and 12.4 percent of the ensuing years' appropriations and exceeded the statutory limits by more than $8.7 and $9.8 million, respectively.

District officials have established effective procedures to ensure claims are adequately documented and supported, are for legitimate District purposes and are approved prior to payment, in accordance with District policy and Education Law. The Board has delegated its claims auditing responsibility to a claims auditor. We commend District officials for establishing effective procedures for processing claims against the District. Establishing and adhering to effective claims auditing procedures decreases the risk that errors or irregularities with processing and paying claims may occur and go undetected.