District officials do not require the use of purchase orders when purchasing goods and services. Additionally, District officials did not always seek competition for goods and services that fell below the bidding thresholds and when selecting professional service providers. Therefore, the Board does not have adequate assurance that services were procured in the most economical manner and in the best interest of the taxpayers.

The Board adopted budgets for 2011-12 through 2014-15 that appropriated a total of $16.7 million in fund balance to finance operations. Because the District consistently overestimated expenditures over the four year period, most of the appropriated fund balance was not used. Furthermore, District officials did not have resolutions establishing two reserves totaling $1.7 million or resolutions that included the intent and/or funding levels for three reserves totaling $4.1 million. In addition, District officials have overfunded the unemployment reserve.

District officials have established adequate procedures over the claims processing function to ensure that claims were for appropriate purposes, adequately supported, and audited and approved prior to payment. The Board has delegated its claims auditing responsibility to a claims auditor. We commend District officials for establishing and implementing effective procedures over the District's claims processing function.

We found that District officials properly billed and collected for tuition. For the past three fiscal years, the District billed an average of $7.5 million in tuition, and due to the timely collections, funds were sufficient to cover the District's cash-flow needs. The District's billing and collection process expedites the collection of tuition, which allows the District to remain financially solvent. We commend District Officials for developing and implementing a good system of controls over tuition billing.

The Board and BOCES officials generally ensured that the extra-classroom cash receipts and disbursements were properly safeguarded. However, while the central treasurers follow State Education Department (SED) guidance, they do not have detailed procedures in place to formally reconcile the potential sales from fundraising activities to the amount collected and deposited. For example, we tested five fundraising activities and found that no one reconciled final fundraising activity, comparing the amount of items purchased and sold to the amount of cash collected and recorded. BOCES officials told us they did not perform the fundraising activity reconciliations because these were not specifically required by SED. For the past several years they tried to gradually improve controls but did not want to overly burden the faculty advisors or central treasurers all at once.

Even though County officials have been discussing the escalating costs of temporary housing for several years, prior to March 2014, they had not taken steps to effectively manage these costs. Since 2001 the annual total temporary housing costs have increased, with a dramatic increase beginning in 2006. From 2006 through 2014, temporary housing costs in the County have increased by 400 percent from almost $183,000 to over $909,000. This increase is a result of the length of stay and cost per night. In 2001, County officials paid for 645 nights of temporary housing costs for 60 cases, while in 2014, they paid for 17,731 nights for 291 cases. If County officials could reduce the costs for providing temporary housing for their most expensive cases by using less expensive options to reduce the amount paid per night and number of nights stayed, they could have saved approximately $1 million from 2012 through 2014. Or, if County officials could bring the County's cost per capita in line with the costs of neighboring counties by adopting some of the strategies used in those locations, we estimate that the County's costs could be reduced by hundreds of thousands of dollars. For example, if Otsego County's cost per capita of $43 were the same as Sullivan County's cost per capita of $39, Otsego County would have saved approximately $200,000 during the same three-year period.

Cortland County Industrial Development Agency (CCIDA) officials have developed adequate procedures for selecting and monitoring participating projects and for managing the assistance and incentives provided to the firms or businesses in the CCIDA tax exemption program. Projects are monitored and performance goals are tracked. If a project does not meet contractual agreements, CCIDA officials adjust tax exemption amounts based on performance.

The Board appoints an individual as Treasurer each year at its reorganization meeting. However, the functions of this individual are limited to signing checks for Library disbursements. The Treasurer does not maintain any Library accounting records or prepare and submit monthly reports to the Board. In addition, the Treasurer's status, as either a Library officer or independent contractor, is unclear. Because the Treasurer is responsible for the care and custody of Library funds, the Board cannot delegate these functions to an independent contractor. In addition, it is essential that the Treasurer, not other Library staff, performs the duties for which the Treasurer is responsible, including maintaining accounting records, depositing and disbursing funds and providing a monthly Treasurer's report to the Board.

The Board and Authority officials did not establish an adequate system of internal controls over water charges. For example, no one independent of the billing clerk reviewed the billing registers and collections in the form of cash were not deposited in a timely manner or properly secured prior to deposit. In addition, Authority officials did not properly limit users' access within the billing and collection software. As a result, there was an increased risk that cash collections could be lost or misused and that unauthorized changes could be made to the financial data or inappropriate transactions could be initiated and remain undetected.

We found that District officials established adequate procedures for payroll to ensure employees were accurately paid at their approved salaries or wages. We also determined that the various procedures for the District's payroll process provided adequate supervision and oversight.

We analyzed the District's reserves for reasonableness and adherence to statutory requirements and determined that all seven reserves were funded at reasonable levels. While the tax certiorari reserve balance exceeded the District's average historical settlement as a percentage of the original claim amount, the excess amount is reasonable. We encourage the Board to continue its funding of reserves at levels deemed reasonably necessary based on all information available during the budgeting process, and to ensure the appropriate use of those funds.

District officials waited until the end of the 2014-15 fiscal year before making approximately $523,400 in budget transfers to correct 72 appropriation accounts that were overexpended during the course of the year. District officials continued to spend appropriation accounts even after the budget reports showed negative account balances. The Board did not approve the transfers until almost two months into the next fiscal year, and 77 budget transfers, totaling $1,038,006 (95 percent of the total amount transferred during the year), did not have the Superintendent's approval as required by District policy. We also found that the District did not develop and implement comprehensive IT controls to safeguard IT assets and data from unauthorized access, harm or loss. Four individuals have administrative permissions in the financial application that do not align with their job duties. In addition, no one was reviewing the audit log (automated trail of system activity) as a compensating control. Furthermore, the rooms housing servers and other IT infrastructure were unlocked and did not have other adequate safeguards. The hardware inventory that District officials provided us was outdated, and no software inventory is maintained. Lastly, the disaster recovery plan did not contain adequate information to guide District officials and staff in the event of a disaster affecting IT operations.

The payroll clerk's duties were not adequately segregated because she was responsible for collecting employees' time records; recording the hours worked or salaries to be paid; making changes to employees' pay rates, withholdings and deductions; and having access to paychecks until she disbursed them to District employees. The payroll clerk performed all of these duties with limited oversight. Although the Board adopted a payroll policy that included oversight procedures to mitigate the risk resulting from a lack of segregation of duties, these procedures were either not adequately performed or not performed at all. We reviewed all payroll payments totaling $1,023,287 made to 20 employees during our audit period and identified minor discrepancies. The lack of segregation of duties associated with processing payrolls, along with the lack of adequate oversight, increases the risk that errors or irregularities with the processing of payrolls could occur and remain undetected.

Although the Board and District officials actively monitor the District's financial condition, the District has experienced some fiscal problems during the last six years. As of June 30, 2015, the District reported a fund balance deficit of $175,000 (2 percent of the ensuing year's budget). The District relies on short-term debt to alleviate cash flow problems, but District officials do not monitor cash flow during the year to ensure there will be sufficient cash on hand to satisfy current obligations. Furthermore, as of June 30, 2015, the District had approximately $932,000 in accounts receivable. Although the Treasurer takes appropriate action to ensure all tuition due the District is collected in a timely fashion, the Board has not adopted written policies and procedures to help guide the billing and collection process.

District officials have generally taken appropriate action to manage the District's financial condition. District officials typically prepared conservative budgets which generated modest operating surpluses. Although District officials developed a multiyear financial plan and include multiyear projections in the annual budgets, a formal, documented multiyear capital plan has not been developed. In addition, the District has not developed a plan to determine the appropriate and necessary reserve fund balance levels or defined its intentions for using reserves as a financing source for capital improvement projects. We question the reasonableness of three reserves with a cumulative balance of approximately $3,380,000.

The Board did not adopt adequate policies for tenant rent collections to ensure payments were safeguarded. Incompatible financial duties within the Authority's office were not adequately segregated and the controls designed to mitigate the associated risks were insufficient. However, we found that three clerks' duties could be modified to help segregate the processing of rent collections. We randomly selected the month of November 2014 within our audit period and reviewed 105 tenant rental payments and related fees during that month totaling $30,734. Except for minor discrepancies which we discussed with Authority officials, we found that all tenant rental payments were properly recorded in the accounting system and deposited intact and in a timely manner. The Board also did not establish policies or procedures to guide staff when processing claims against the Authority. As a result, claims were not audited prior to payment. We reviewed 50 claims totaling $189,005 to determine whether they had proper supporting documentation and were appropriate Authority expenditures. Although we found that the claims reviewed were proper Authority expenditures, we identified minor deficiencies which we discussed with Authority officials.

We generally found the Authority has adequate controls over the collection of tenant rent payments. However, Authority officials could strengthen internal controls by assigning a unique user identification and password in the computer system to each employee that collects rent. This will provide accountability by tracking who collects and records each payment received. In addition, Authority officials do not generate and review audit trail reports, which increases the risk that inappropriate transactions could be made without detection. We found minor exceptions with our audit tests of rent collections and adjustments, which we discussed with Authority officials.

District officials established effective procedures that ensure claims are audited in a timely manner and in accordance with District policy. The Board has delegated the responsibility to audit District claims to a claims auditor. The policy requires the claims auditor to conduct a thorough audit of each claim and verify that the goods or services on the claim were received. The claims auditor must also ensure that the claim is mathematically correct, does not include previously paid charges, and agrees with the purchase order or contract on which it is based. The policy also requires that the Treasurer pay valid claims against the District only upon the claims auditor's approval. We commend District officials for establishing and implementing an effective system of controls over claims processing.

While District officials kept taxpayers informed about the level of fund balance through public meetings, budget newsletters and internet video recordings, they did not properly manage fund balance or ensure budget estimates and all reserve fund balances were reasonable. Total fund balance has increased by more than $1 million from 2012-13 through 2014-15 and unassigned fund balance was over 7 percent of the ensuing year's budget as of June 30, 2015, exceeding the statutory limit of 4 percent. Over the past three years, District officials used approximately $1 million of the annual operating surpluses to fund five reserves that, as of June 30, 2015, totaled approximately $3 million. While most reserve fund balances were reasonable, one was overfunded. As a result of these practices, District officials may have levied real property taxes that were higher than necessary to fund District operations.

Although District officials have recently started to take measures to improve their financial condition, they did not properly manage the general fund's financial condition. Expenditure growth outpaced revenue growth by 20 percent from 2012-13 through 2014-15. This expenditure growth was primarily caused by increases in personal service costs (8 percent) and employee benefits (17 percent). Moreover, the District's total fund balance dropped by 50 percent or $931,000 from 2012-13 through 2014-15. Although District officials' estimated revenues and expenditures in the 2012-13 through 2014-15 budgets that were reasonable, the adopted budgets were not structurally balanced. The 2012-13 and 2014-15 budgets included $3.5 million of fund balance as a financing source to keep real property tax levies artificially low. This resulted in using $1.2 million or 50 percent of fund balance to fund recurring expenditures. While the level of fund balance at the end of 2014-2015 was reasonable, further appropriations of fund balance could cause financial stress. The Board did not appropriate fund balance in its adopted 2015-16 budget and District voters approved overriding the tax levy limit. District officials are also currently working on implementing cost saving measures.