The Board and District officials have not realistically budgeted or properly managed fund balance. As a result, unrestricted fund balance has consistently exceeded Real Property Tax Law limits. As of June 30, 2015, the District's unrestricted fund balance was approximately $3.6 million (14 percent of the ensuing year's budget) or approximately $2.6 million over the legally allowable limit and is projected to remain at nearly the same level at the end of 2015-16. Although the Board and District officials annually appropriated a portion of fund balance towards the subsequent year's budget, the total amounts appropriated were mostly not used because District officials overestimated appropriations. Moreover, once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, recalculated unrestricted fund balance ranged from $2.9 million (13 percent) to $4.1 million (17 percent) during 2012-13 through 2014-15. In addition, District officials consistently budgeted for expenditures that could have been paid for with reserve funds. Although unrestricted fund balance continued to increase through June 30, 2015, District officials continued to raise the tax levy each year of the period by an average of 3 percent. Had District officials retained the same tax levy each subsequent year as in 2012-13, residents could have realized approximately $410,000 in cumulative tax savings.

Over the five-year period ending June 30, 2015, the Board and District officials have adopted budgets that reduced unrestricted fund balance to within the 4 percent statutory limit of the ensuing year's appropriations. However, each year in the period, District officials appropriated more fund balance than needed, which artificially lowered the percentage. Instead of having operating deficits totaling $2.8 million for the period, as planned, the District's net result of operations was a surplus of $705,000. In addition, District officials overfunded five of the six reserves as of June 30, 2015. Moreover, District officials did not use debt service funds to make payments on long-term debt. This fund's balance ranged from $1.3 to $1.8 million for the five-year period. With the inclusion of the unused appropriated fund balance, the overfunded reserves and the unused debt service funds, the fund balance for the five years ranged from 26.7 percent to 29.4 percent of the ensuing year's appropriations. Appropriating fund balance that is not needed and the lack of a formal plan for the use of reserves, including optimal or targeted funding levels and the justification for them, has resulted in the tax levy appearing to be higher than necessary.

Although we found that claims were generally supported by adequate documentation and were for appropriate purposes, they were not always audited and approved prior to payment. We found that the Business Manager, who also serves as the District's Treasurer (Treasurer), prints signed checks prior to the claims auditor's audit and approval of the corresponding claims. The Treasurer stated that checks have to be printed from the financial system in order to print a corresponding warrant. However, we found that the District's financial system can generate a report prior to the checks being printed that contains the same information as the warrant that was being provided to the claims auditor, except for the check numbers. When signed checks are generated prior to the claims auditor's audit and approval, there is an increased risk that improper claims could be paid by the District. In addition, the Treasurer stated that the District prepares and issues checks for certain claims prior to the regular semi-monthly claims audit to meet the payment deadlines. Claims for these disbursements are then presented to the claims auditor with other claims during the subsequent semi-monthly cycle.

The District has accumulated unrestricted fund balance that exceeds the statutory limit by approximately $977,000 (nearly 12 percentage points) and has levied more taxes than were needed to fund operations during the 2013-14 through 2015-16 fiscal years. The Board also overestimated appropriations in the 2012-13 through 2014-15 budgets by more than $2.3 million (10 percent). In addition, the District's budgeting practices made it appear that the District needed to both raise taxes and appropriate fund balance and reserves to close projected budget gaps. However, it realized an operating surplus of $51,390 during the 2012-13 fiscal year and smaller-than-planned operating deficits of $24,169 in 2013-14 and $39,578 in 2014-15. As a result, the District used less than 3 percent of the total appropriated fund balance and reserves during those three years, and the District's unrestricted fund balance increased rather than decreased at the end of each year. The District continued the same budgetary practices when preparing the budget for the 2015-16 fiscal year, which will likely result in similar actual results of operations as the last three fiscal years.

Although the Board has developed a purchasing policy and District officials have developed corresponding regulations, they do not provide guidance for seeking competition when procuring professional services. The policy and regulations do not indicate when, or at what monetary threshold, it is appropriate to use written RFPs, written quotes or verbal quotes. Additionally, the policy and regulations do not outline the specific documentation requirements to be used during the solicitation process, including documentation for the decisions made. In discussion with District officials, we found that there are also no informal guidelines to ensure competition is sought for professional services. Further, the District did not have formal written agreements with four of the professional service providers that were paid more than $5,000.

District officials have not adequately managed the District's financial condition by maintaining reserve fund balances at reasonable levels and developing long-term plans. There is no written plan that details the appropriate and necessary levels for reserve funds and prescribes how the reserve fund balances are to be monitored, analyzed and maintained. As a result, four of the District's 11 reserve funds, totaling more than $6.8 million, may be overfunded or unnecessary. Additionally, District officials have not developed formal multiyear financial or capital plans, which would greatly benefit the District in meeting its current and future obligations and preparing for potentially adverse economic and environmental challenges.

District officials have not effectively managed the general fund's fund balance. The District has not correctly recorded and reported the composition of its fund balance. Since the fiscal year ending June 30, 2013, the Treasurer has recorded and reported the amount of unrestricted fund balance that exceeds the statutory limit at the end of each fiscal year as “other restricted fund balance” to keep the unrestricted fund balance within the limit. This accounting practice understates the true amount of the general fund's unrestricted fund balance and circumvents the statutory limit the District is permitted to retain. As a result, over the four past fiscal years, 2011-12 through 2014-15, the District retained unrestricted fund balance amounts that ranged from 15 percent to 34 percent of the ensuing year's appropriations. In addition, the District appropriated fund balance that was not used and funded the capital reserve with no established plans. These actions also helped to keep the unrestricted fund balance within the statutory limit.

The District has overestimated appropriations in the adopted budgets by about an average of 14 percent annually over the past three years. As a result, a significant portion of the fund balance appropriated in the general fund was not needed to finance operations and unassigned fund balance has exceeded the 4 percent legal limit each of the last three fiscal years. The District has reduced the reported level of year-end unassigned fund balance from 9.3 percent of the ensuing year's budget at the end of 2012-13 to 6.9 percent at the end of 2014-15, but when the unused appropriated fund balance is added back, the recalculated unassigned fund balance exceeds 20 percent of the next year's appropriations for each of the three years. In addition, the District's tax certiorari reserve is overfunded by approximately $567,000 and, based on historic costs, the unemployment insurance reserve has enough funds to cover 37 years of expenditures.

While the Board and District officials reported fund balance levels in accordance with the law, District officials annually appropriated fund balance towards the subsequent year's budget, of which not all of the amounts were used because the Board and District officials consistently overestimated appropriations. When the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's recalculated unrestricted fund balance in all three years ranged from approximately $2 million (9 percent) to $2.2 million (11 percent), exceeding the statutory limit. This trend is projected to continue through 2015-16 based on our review of the current budget. In addition, the Board and District officials have not properly managed four reserves that appear to be overfunded or contain funds that are improperly restricted by approximately $7.6 million, which is approximately 35 percent of 2015-16 budgeted appropriations. District officials also consistently budgeted for expenditures that could have been paid for with reserve funds. Although unrestricted fund balance continued to increase through June 30, 2015, District officials continued to increase the tax levy every year. Had District officials maintained the same tax levy as in 2012-13, residents could have realized approximately $720,000 in cumulative savings. As a result, District officials missed opportunities to reduce taxes.

The Board consistently overestimated appropriations in the District's adopted budgets. Although the District reported year-end unrestricted general fund balance at levels that essentially complied with the 4 percent statutory limit, the Board adopted budgets which included appropriated fund balance and reserves that were not needed as funding sources because the Board and District officials overestimated appropriations by an average of 8.8 percent over the last three fiscal years. As a result, the District experiencing an operating surplus in 2011-12 and operating deficits in 2012-13 and 2014-15 that were significantly less than planned. When the unused appropriated fund balance was added back, recalculated unrestricted fund balance averaged about 8 percent of the ensuing year's appropriations, exceeding the legal limit. In addition, the employee benefit accrued liability reserve was overfunded by $1.39 million, which was nearly 40 times the amount of compensated absences reported by the District.

The Board has consistently overestimated appropriations in its adopted budgets by about 9 percent over the past three years. As a result, a significant portion of the fund balance appropriated in the general fund was not needed to finance operations and unassigned fund balance has exceeded the 4 percent legal limit from fiscal years 2012-13 through 2014-15. The District has reduced the reported level of year-end unassigned fund balance from 12 percent of the ensuing year's budget at the end of 2012-13 to 8.6 percent at the end of 2014-15. However, when the unused appropriated fund balance was added back, the recalculated unassigned fund balance exceeded 15 percent of the next year's appropriations in all three years.

District officials ensured that retiree health insurance contributions were properly billed, collected and deposited. Although the account clerk performs most of the duties, District officials implemented proper compensating controls to ensure bills are accurate, money is collected from all retirees and money is deposited into District bank accounts. They also have a process in place to timely identify deceased retirees. However, they could further increase controls to ensure deceased retirees are identified timely.

Although the District has procedures specific to the maintenance of IT inventory, the Board has not adopted an asset policy establishing capitalization or tagging thresholds, control over assets, or how to maintain records for these assets. Consequently, three assets valued at $1,650 could not be located and 21 assets valued at $69,370 were either not tagged or the asset tag numbers did not agree with the asset records. Furthermore, 10 assets purchased in 2015-16 valued at $57,573 were not recorded on the asset list and nine assets valued at $45,750 were listed as disposed of, but were still in service. We also found that 18 of 20 assets listed as disposed of, valued at $32,920, did not have documentation indicating authorization or approval. As a result, District officials do not have assurance that all District property is accounted for properly.

The District's unassigned fund balance has exceeded the 4 percent legal limit from fiscal years 2012-13 through 2014-15. At the end of 2014-15, the District's fund balance was approximately $2.4 million, or 9.7 percent of the ensuing year's appropriations. This amount exceeds the limit by 5.7 percentage points, or about $1.4 million. Although the District's unassigned fund balance has exceeded the statutory limit for the past three fiscal years, the Board increased the tax levy from $7.8 million in 2012-13 to $8.3 million in 2015-16, an increase of about 6 percent. Finally, the Board has not adopted a multiyear capital or operational plan for the use of surplus fund balance.

While Council and City officials have taken certain steps to improve the City's operations and reduce its related costs, they did not ensure that all City operations were functioning at the lowest cost to taxpayers. Refuse expenditures consistently exceeded revenues and health insurance expenditures have increased. Furthermore, through 2014, the City's outstanding debt included payments for items that are beyond their useful lives. City officials were aware of these issues and are developing plans to reduce these expenditures. In addition, we identified a number of opportunities related to non-property tax services that could help improve the City's fiscal health. Specifically, we identified opportunities for City officials to consider for sewer and refuse operations, building permits, parking operations and, potentially, gross receipts tax revenues.

The Treasurer did not comply with the bylaws that require getting approval before making disbursements, even though all Company checks had two authorized signatures. The Treasurer provided the Board with a list of cash disbursements on each monthly Treasurer's report for bills that were previously paid. However, other than the Treasurer, Company officials did not review documentation supporting each cash disbursement to ensure payments were for valid Company purposes. Therefore, we reviewed all cash disbursements for our audit period, consisting of 106 disbursements totaling $17,665, which included 92 checks totaling $17,285 and 14 petty cash disbursements totaling $380. We found that 28 disbursements totaling $5,293 were not adequately supported, which prevented us from determining if these disbursements were for valid Company purposes.

District officials did not effectively manage cafeteria operations. District officials did not perform a cost-per-meal analysis and did not always consider past productions when planning future meals, which contributed to the cost of producing a meal exceeding the price charged. As a result, the general fund is subsidizing the school lunch fund, on average, $66,000 annually. District cafeteria staff do not produce the meals in a productive manner. The District's productivity level for meals per labor hour (MPLH) is not within the industry averages. Although the industry averages may not always be achievable given certain District conditions, District officials can use the industry averages to monitor operations and work towards increasing productivity, when necessary. District officials should actively monitor the MPLH to improve the operational productivity. Further, District officials did not adequately segregate duties over the collection, accounting and depositing of money or implement adequate mitigating controls, which increases the risk of recording and depositing errors or irregularities.

District officials established adequate procedures for payroll to ensure employees were accurately paid at their approved salaries or wages. Establishing and adhering to a good system for processing and verifying payroll payments helps ensure that employees will be accurately paid their salaries and wages. We commend District officials for establishing an effective system that ensures the accuracy of compensation paid to employees.

District officials employed budgeting practices that generated operating deficits, but only used a fraction of the appropriated fund balance to fund operations. This resulted in fund balance appropriations that were not needed. As a result, during the 2012-13 through 2014-15 fiscal years, the District's unassigned fund balance was 9.65 to 12.35 percent of the ensuing years' budgets, while the statutory limit for fund balance was 4 percent. In addition, the Board transferred moneys to the District's reserves without calculations or justifications for the funding levels in the reserves and maintained balances in the unemployment insurance reserve and workers' compensation reserve that were excessive because those balances could fund related costs for 15 years and six years, respectively. These budgeting practices increase the risk that funds will not be used productively and that tax levies will be higher than necessary.

The Board did not effectively manage reserves and fund balance. We found that, as of June 30, 2015, the District had an account for post-employment benefit liabilities totaling over $7.1 million when there is currently no authority to reserve funds for this purpose. District officials also could not provide documentation for the establishment of its unemployment reserve fund. Additionally, three reserve funds with balances totaling over $1.5 million may be excessively funded. Had the unauthorized post-employment benefit liability funds been properly reported, total unrestricted fund balance would have been 23 percent of the ensuing year's budgeted appropriations, far exceeding the statutory limit of 4 percent. The District also did not use appropriated fund balance of $1.62 million, which would further increase the unrestricted fund balance beyond 23 percent.