District officials have established effective procedures to ensure claims are adequately documented and supported, for legitimate District purposes and approved prior to payment, in accordance with District policy and Education Law. The Board adopted a claims policy which requires the claims auditor to determine that each claim against the District is for a valid District purpose, and that the obligation was incurred by an authorized District official, the items for which payment is claimed were in fact received or services were rendered, and the obligation does not exceed the available appropriation. The policy also requires the claims auditor to verify that the claim is mathematically correct, does not include previously paid charges, and is in agreement with the purchase order or contract upon which it is based. We commend District officials for establishing effective procedures for processing claims against the District.

District officials did not always comply with the District's purchasing policy and procedures when procuring professional services and other purchases whose cost was under the bidding threshold. They did not use competition when procuring the services of five professional service providers and when making nine purchases. Therefore, the Board does not have adequate assurance that these goods and services were procured in the most economical way and in the best interests of the taxpayers.

Although we did not find any material discrepancies with the District's payroll payments, we found that District officials have not established adequate internal controls over payroll. Specifically, we found District officials did not adequately segregate payroll duties or establish sufficient compensating controls. The payroll clerk performed all steps in the payroll process, including adding employees and entering and modifying employee information in the District's accounting software program. In addition, the payroll clerk is responsible for printing payroll checks and processing direct deposits. Furthermore, the payroll clerk remits the amounts withheld for employee benefits to appropriate entities and has full user access rights for entering and changing employee information in the accounting software program. The District had instituted a compensating control by having both the Superintendent and the Business Manager review the payroll register provided by the payroll clerk before pay day. However, their reviews were not extensive enough because they did not compare payroll journals to payroll source documents (i.e., time records). Further, while the District's accounting software program had the capability to generate payroll change reports, these reports were not routinely prepared or reviewed by the Superintendent or the Business Manager.

Over the past three years, the Board and District officials have adopted budgets that used general fund balance and certain reserve funds for operating expenditures. We commend the Board and officials for bringing the unrestricted fund balance closer to the 4 percent statutory limit, from 7 percent to 5.3 percent for fiscal years 2012-13 through 2014-15, and using reserve funds appropriately. As expenditures outpaced revenues, the Board and officials used unrestricted fund balance and certain reserve funds to offset the variance. However, continued reliance on unrestricted fund balance and reserve funds to finance recurring expenditures will put the District in a precarious financial position. If District officials use over $164,000 (33 percent of the June 30, 2015 fund balance) to fund 2015-16 operations as planned, it will be the third consecutive year with an operating deficit. If District officials continue to appropriate and use fund balance at this rate, we estimate the unrestricted fund balance will drop to 2.7 percent of the ensuing year's appropriations by the end of 2015-16. The continued use of fund balance and reserve funds to finance operations has also led to the real property tax levy being artificially low. If expenditures remain steady and District officials do not identify other significant revenues to offset the use of fund balance, the real property tax levy would need to increase approximately 6 percent to make up the 2015-16 budget shortfall. Moreover, significant balances set aside for specific purposes in reserve funds limits the ability to finance expenditures for other purposes including capital needs.

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.

District officials have not properly managed fund balance. As a result, unrestricted fund balance has consistently exceeded statutory limits. As of June 30, 2015, the District's unrestricted fund balance was $4.2 million (18 percent of the ensuing year's budget) or approximately $3.3 million over the legally allowable limit and is projected to remain at nearly the same level (17 percent) at the end of 2015-16. Although District officials annually appropriated a portion of fund balance towards the subsequent year's budget, none of the amounts appropriated were used because District officials consistently overestimated appropriations resulting in operating surpluses. This trend is projected to continue through 2015-16. Moreover, once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's unrestricted fund balance amounts in all three years ranged from $4.4 million (20 percent) to $5.6 million (24 percent). In addition, District officials consistently budgeted in the general fund 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 every year by an average of 2 percent, or a total of $760,000 over the last four years. As a result, District officials may have missed opportunities to reduce taxes and return excess funds back to the taxpayers.

In many regards, the Board has taken a passive role and yielded much of its rightful decision-making duties and authority to the College President. The President and other College officials have been allowed to act independently of the Board and have made significant decisions out of the view of the public and students. The Board did not authorize salaries and benefits for senior executives. The President assumed responsibility for establishing salaries and authorizing benefits for senior executives and was allowed to do so without adequate Board oversight. College officials did not submit required written justifications to the Board for approval prior to creating 10 senior executive positions with annual salaries totaling $756,000. Moreover, the College made questionable compensation payments to two executives totaling $77,000. Also, leave records were not accurate or updated in a timely manner. As a result, two executives received overpayments totaling $5,285. In addition, although the Board adopted a procurement policy that required competition for purchases not subject to bidding requirements, College officials did not follow it. The College paid 11 professionals a total of $440,000 for services without using requests for proposals as required by the College's procurement policy. The College also paid one professional $514,000 for services without verifying that State contract pricing was obtained. Further, the College did not enter into written contracts with eight professionals for services totaling $342,000 and paid two professionals a total of $72,400 based on claims that lacked dates and/or descriptions of the services provided. Finally, the Board has not provided adequate oversight over the College's contracts with affiliated entities to ensure services were rendered as contracted and the consideration provided by the College was appropriate. The College, the Auxiliary Services Corporation of Erie Community College (ASC) and the Erie Community College Foundation are separate and distinct entities governed by their own Boards. However, certain College officials − including the President and the Chief Administrative and Fiscal Officer − hold key positions at the Foundation and the ASC, respectively. The close relationship between the three entities and these overlapping roles have often compromised the transparency of the College's actions and operations.

The Board did not establish adequate internal controls over the cash disbursements process. As a result, 12 checks totaling $241,893 were written to the Chair's wife, of which $239,622 was inappropriate. The Chair represented $228,871 of this amount as reimbursement for payments to the District's contracted architect, which neither the Chair nor his wife had made. To obtain reimbursement, the Chair submitted falsified invoices and supporting documentation for nonexistent architectural services, business trip expenses, and permits that were never purchased. In addition, the District's credit card was used to make $14,910 in questionable purchases, including gas, cigarettes, groceries and other personal items. We also found that the Board did not perform a proper audit of claims prior to payment or ensure that adequate supporting documentation was attached. The District made 63 payments totaling $451,844 that had no support and another 64 payments totaling $196,863 that had purchase orders, but no other supporting documentation such as an itemized receipt or invoice. Had the Board performed a thorough audit of all disbursements and questioned the unsupported claims, it likely would have discovered these inappropriate payments and been able to take corrective action.

The Board does not appropriately evaluate projects and award financial benefits because it has not established adequate project evaluation criteria. Although the Board has established a Uniform Tax Exemption Policy (UTEP), the policy does not include general criteria applicable to all projects or guidelines for projects seeking tax exemptions. In addition, the cost-benefit analyses used to evaluate projects do not compare the community costs against expected community benefits. Moreover, the Board does not properly monitor the performance of businesses because it does not compare employment and capital investment goals against actual project results. Lastly, although the UTEP contains a recapture provision, this provision is vague and does not include specific events that could trigger recapture and plans for implementation or potential penalties. While we acknowledge that specificity in the recapture clause is not required, it is good business practice to include some type of criteria to facilitate accountability. Finally, SIDA officials did not effectively administer the City's Development Fund money. SIDA's audited financial statements show that over $2 million is due to the City from the Fund. SIDA officials should coordinate with City officials to determine the extent to which the $2 million liability should be repaid to the City.

Village officials did not provide adequate oversight of the cash receipts process. There were no procedures for the reconciliation and reporting of cash receipts from trash bag sales to residents used to pay for their refuse pickup service or for Program fees. In addition, there were no procedures for the periodic inventory of the trash bags that were purchased and stored but not yet sold to residents. As a result, 1,974 trash bags valued at $2,885 could not be accounted for and Program cash collected per registration records could not be traced to receipts or bank deposits, totaling $310. In addition, deposits of collections for trash bag sales were not made within 10 days as required by law. Program fees and clothing payments in excess of $300 were not collected and the Program Director took home and accumulated recreation fees before turning them over to the Treasurer. As a result, the Village has an increased risk of loss of revenue. In addition, the Board's oversight of Village operations needs to be improved. The Board does not receive interim financial or operating reports, bank statements or bank reconciliations from the Treasurer and does not provide for an annual audit of the Treasurer's financial reports. In addition, Board minutes do not contain a resolution listing employee wages and salaries, nor does the budget include a schedule of wages and salaries as required by New York State Village Law. The Board also did not hold reorganizational meetings to publicly appoint non-elected officials and designate an official newspaper and bank.

We reviewed the Village's cell tower revenues and cash disbursements to professional service providers and found that, generally, controls over tower revenues and disbursements were adequate. However, the Village did not receive any revenues for one of the co-locators during the 2014 calendar year. Village officials told us they did not have any new amendments for the delinquent cell carrier and were unable to determine the exact dollar amount owed to the Village. We estimated the amount the Village did not receive to be between $13,900 and $14,900. After we completed our fieldwork, the Village settled with the co-locator and received $13,250.

We commend District officials for establishing an effective policy to ensure claims are adequately documented and properly supported, for legitimate purposes and approved prior to payment by an authorized District official. The policy requires the Board to conduct a thorough audit of each claim and verify that the goods or services on the claim were received and the claim does not exceed the available appropriation, is mathematically correct, does not include previously paid charges and agrees with the purchase order or contract on which it is based. Establishing and adhering to an effective claims auditing policy decreases the risk that fraud, abuse or errors may occur and go undetected.

The District contracted with the Consultant to oversee and coordinate transportation services for $32,600 annually. However, we found that, as reported in our prior audit, the companies of the Consultant and the Vendor appear to be related or affiliated to each other. Despite the concerns raised in our prior audit and a report by an independent transportation advisor (Advisor) hired by the Board, the District entered into a new contract with the same Consultant when the contract expired in 2009. We found that the Board has not provided sufficient oversight of the Consultant and the Vendor. District officials have not periodically solicited bids or requests for proposals for primary transportation services. Instead, they have subsequently extended the contracts annually as they expired. In addition, we found that the Consultant did not provide all of the services which, based on the contract with the District, appeared to be the Consultant's responsibility. The Consultant reviewed the Vendor's monthly billings. We reviewed 22 disbursements totaling over $1.2 million and found minor deficiencies. However, we found that the mileage information submitted by the Vendor for fuel reimbursements was not supported by appropriate documentation and the District was overbilled for over 5,200 gallons of fuel with a value of approximately $16,300 for 2013-14.

District officials generally ensured claims were properly audited prior to payment. However, the BOCES claims auditor approved all District payments including the payments made to the Otsego Northern Catskills BOCES. When a BOCES directly provides claims auditing services to a district using a BOCES employee, while providing goods and other services to the same district, the arrangement puts the individual serving as claims auditor in the position of approving significant claims submitted by the BOCES, the individual's employer. Therefore, the claims auditor's objectivity and independence is compromised. In addition, checks are printed with the Treasurer's electronic signature affixed prior to the claims audit, and the Treasurer does not directly supervise the application of her signature. The District's independent auditors identified a control weakness in the District's claims audit process in the 2013-14 fiscal year. For example, they found several months in which claims were paid prior to certification from the claims auditor. Finally, The Board and District officials generally ensured the unrestricted fund balance was within the 4 percent statutory limit. However, certain reserves had significant balances when compared to their respective liabilities. District officials have a five-year plan to reduce these reserves to reasonable levels.

The Board did not properly oversee the District's $17 million capital project. While the completed project costs were below the amounts budgeted, the Board did not ensure goods and services were procured in compliance with the General Municipal Law or the District's procurement policy. In addition, the Board did not periodically obtain and review budget-to-actual financial reports or review and approve change orders. Without proper monitoring, the project could have experienced large cost overruns or work could have been performed that was outside the voter-approved project scope; Furthermore, the Board has little assurance that project goods and services were acquired in the most prudent and economical manner and without favoritism.

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. For the 2013-14 and 2014-15 fiscal years the District overestimated expenditures by a total of $682,398. This overestimation averages 15 percent of total appropriations for the two years. As a result, the District has accumulated an amount of unrestricted fund balance that exceeds the statutory limit of 4 percent of the ensuing year's budgeted appropriations. As of June 30, 2015, the District's unrestricted fund balance was 59 percent of the 2015-16 budgeted appropriations.

Although District officials use a computerized fuel inventory management system, they need to improve their oversight of fuel use. The Board has not ensured that policies and procedures are in place to control fuel assets. District officials do not review fuel transaction reports generated from the computerized fuel inventory system or reconcile fuel purchased to fuel consumed to identify anomalies regarding quantities dispensed, fueling times and vehicle or equipment used. As a result, the District's fuel inventory record was overstated by 452 gallons of gasoline and 297 gallons of diesel fuel, with a total value of $1,725. In addition, District officials assigned one employee to manage the District's fuel inventory system with limited or no management oversight. Finally, records for 34 of the 95 keys used to dispense fuel have been erroneously deleted and the cameras installed at the District do not provide a view of the license plates of the vehicles being fueled.

The purpose of our audit was to determine whether local governments ensured that they complied with the Long Island Workforce Housing Act for the period January 1, 2009 through December 31, 2014.