On May 27, 2011, the Board approved a compact contract between the School and a not-for-profit foundation (Foundation) that states that the Foundation will provide the School with access to legal and financial assistance, technical support and advocacy at State and local levels. The fee for these services is 1 percent of per pupil revenue from the prior academic year. On January 31, 2013, the Board approved a revised compact contract with the Foundation that supersedes the prior compact contract. The revised contract increases the fee from 1 percent for the 2012-13 school year, to 1.5 percent for the following year, and 2 percent for the final year of the contract. The increase in the fee percentage over the next two years will place an additional financial burden on the School. The fee structure of a percentage of per pupil revenue does not appear to be reasonable, as the services being provided do not have any bearing the number of students at the School or the State Education Department Charter School Tuition rate. We also found that the School did not budget properly. The School failed to accurately budget a number of expense accounts, including failing to budget some account codes and using unrealistic amounts in others. In addition, the School does not modify its budget during the year. During fiscal years 2011-12 and 2012-13, School officials had budgeted for a $650,362 surplus. However, the actual net income amounted to only $89,497, a shortfall of $560,865.

District officials did not adopt policies governing the establishment, use and maintenance of reserve funds and could not demonstrate the reasonableness of reserve balances. As a result, two of the District's reserve funds had balances that totaled $3.19 million in excess of the amounts needed for authorized purposes, and three of the District's reserve funds had balances that totaled $1 million that were not supported by a written plan or other documentation validating the amounts retained. District officials also do not have a comprehensive payroll policy supported by written procedures. As a result, there is no independent review of leave time records. In addition, District officials do not ensure that access rights to the payroll and human resource modules within the computerized accounting system are appropriately limited. Finally, Board President Larry Gauger is employed by an engineering firm that does business with the District. Mr. Gauger formally disclosed his interest in writing and abstained from voting on matters involving the firm. However, it is unclear whether he has directly performed engineering work on District projects. If he was involved with the procurement, preparation or performance of the contract, or if his compensation from the firm was directly affected by the firm's relationship with the District, he would have a prohibited interest in the contract.

For the last five fiscal years ending June 30, 2013, the Board and District officials consistently underestimated revenues by a total of $7.2 million and overestimated expenditures by a total of $4.4 million. These budgeting practices generated approximately $6.7 million in operating surpluses, which caused unexpended surplus funds to significantly exceed the statutory limit each year. Although District officials annually appropriated fund balance to reduce the tax levy, these funds were not needed because the budgeting practices generated operating surpluses. As a result, the District's unexpended surplus funds exceeded the statutory limit of 4 percent of the ensuing year's budget by more than $7 million, or 35 percent, as of June 30, 2013. Furthermore, District officials improperly accounted for certain financial activity which understated unexpended surplus funds by approximately $1 million. Consequently, the District has accumulated more than $8 million in unexpended surplus funds.

The Board did not ensure budget estimates were reasonable. Over the last five years, the District appropriated a total of almost $3.6 million of unexpended surplus funds and budgeted for expenditures from its reserves in its budgets. Although unexpended surplus and reserve funds were included in the budgets as a financing sources, the District did not actually use the surplus funds or all of the budgeted reserve fund amounts as planned in fiscal years 2008-09 to 2009-10 and fiscal years 2011-12 to 2012-13 because District expenditures were significantly less than what had been estimated for those years. In addition, two of the District's reserve fund balances are excessive. Finally, when we consider the total operating surpluses and planned use of fund balance over the last 5 fiscal years, the District raised $2.4 million more in taxes than necessary for operations.

District officials improperly made gifts and non-interest bearing loans of public moneys to members of the District's fire department in excess of $26,000. This included the payment of personal expenses. The District retained an independent contractor to perform the duties of Secretary-Treasurer. However, Town Law requires that the positions of District Treasurer and District Secretary are public offices and may not be delegated to an independent contractor. Also, during our 16-month audit period, the District paid the Secretary-Treasurer a total of $118,940, of which $113,340 represents hourly payments. Using the Secretary-Treasurer's $20 hourly rate, this would equate to the Secretary-Treasurer working over 11 hours a day, seven days a week, every week, for 16 months. The Board did not have written policies and procedures over financial operations including investments, cash receipts and deposits. As a result, bank accounts totaling approximately $463,000 were listed as reserve funds even though the Board could not provide evidence that it met the legal requirements to establish reserves for those moneys. In addition, receipts in some cases were held in excess of 200 days before deposit. The Secretary-Treasurer only reconciled one of the District's bank accounts on a monthly basis. Finally, we found that the Board did not obtain the legally required independent annual audit and that the Secretary-Treasurer did not file an annual financial report with the State Comptroller's Office for 2011.

We found that the Library's Business Manager ensured that individuals reported and paid on the payrolls were bona fide employees and, as such, were paid at their approved salaries and wages, and they received only the benefits to which they were entitled. However, we determined that there was inadequate supervision and oversight of the payroll process. During the audit process, we informed Library officials about our concerns regarding segregation of duties in the payroll process. The Business Manager and the Director took action to mitigate this weakness.

The Board did not ensure that all disbursements were for proper purposes. The Board did not audit and approve 63 disbursements prior to payment, totaling $149,505. We reviewed 64 disbursements totaling $110,090 that were approved by the Board and found discrepancies with 31 disbursements totaling $24,808. Of this amount, $5,883 was disbursed for items that were not appropriate District expenditures, such as clambake tickets, volunteer incentive gifts, meals and travel expenses for mutual aid. In addition, the payroll vendor has access to a District bank account with a significant amount of District cash. Furthermore, while District officials did establish policies to safeguard the use of certain District vehicles, they did not implement such policies for District-owned computers. The Board also did not properly manage the District's financial condition. We found deficiencies in the manner in which the Board budgeted for operations and capital purposes. Finally, we found that the District had no formal long-term capital plan.

We found that the Executive Committee generally does not provide adequate oversight of Company financial activities because the Treasurer does not provide it with adequate monthly or annual reports. The Treasurer was unable to provide us monthly reports for 10 of the 18 months in our audit period. We reviewed all 226 disbursements totaling $54,054 made during the period April 1, 2012 through September 17, 2013. While these disbursements appeared to be for legitimate Company purposes, 198 disbursements totaling $49,682 were not recorded in the Treasurer's report or Company minutes as having been authorized for payment, including $10,858 for accident and health insurance and $3,639 to a local grocery store/gas station. We also found that the Treasurer did not include $5,533 of receipts in his monthly reports. For example, $4,045 for fundraising and soda sales was deposited on July 26, 2013, but not included in the July monthly report. The Treasurer also does not prepare bank reconciliations.

The Board did not establish adequate controls to ensure that financial activity was properly recorded and reported and to safeguard District moneys. Specifically, the Board did not adopt an investment policy or a code of ethics; issue a W-2 form for the Treasurer's wages and take out withholdings from her gross pay; perform a thorough audit of claims before payments were made; obtain an audit of the District's records by an independent public accountant; and verify the applicability of the wording in the contract relating to the calculation of the District's annual fire protection bill.

The Board does not provide adequate oversight of Company financial activities because the Treasurer does not provide the Board with monthly or annual reports. Additionally, the Treasurer does not prepare a monthly bank reconciliation to be presented to the Board. Further, the Board did not elect two members to audit the Treasurer's records as required by the by-laws and did not audit bills or approve payments prior to checks being issued. While Board resolutions authorized significant purchases and disbursements, the Board did not subsequently review the bills before payment. Additionally, not all Company funds were accounted for or in the custody of the Treasurer as required by the by-laws; instead, the Grounds Superintendent collected fees and made disbursements related to the rental and maintenance of a Company facility.

The Town's internal controls over payroll processing were not properly designed or operating effectively. Although the Town has a collective bargaining agreement (CBA) with the highway department employees, the Town lacks written policies and procedures to provide guidance to Town officials on how to process and distribute payrolls. Furthermore, although the Supervisor stated that he signs a payroll certification page for each payroll; he does not review the payroll records for any errors. As a result, all six highway department employees received a total of 134.25 hours of leave accrual benefits valued at $2,516 they were not entitled to for the six months of payroll we reviewed. Also, four of the six highway department employees did not receive a total of 37.50 hours of compensatory time valued at $700 they were entitled to for the same period.

Disbursements totaling more than $1.3 million were made prior to Board approval. Had the Board authorized the payment of certain allowable claims pre-audit, more than $1.2 million of these claims would not require prior Board approval. In addition, the Treasurer does not sign all checks to pay claims. Rather, the Board authorized that supplemental warrant checks need only one signature. The Board also did not provide guidance for procuring goods and services not required to be competitively bid. Therefore, all 35 claims totaling $163,960 were acquired either without obtaining competition or the Board approved the purchase without the required documentation of competition attached to the claim. Also, Library staff did not seek competition when selecting four professional service providers who received payments totaling $54,885. Lastly, the Library did not enter into a written agreement with two professional service providers who received payments totaling $33,750.

We found that Village officials did not seek competition when purchasing vehicle fuel as required by GML and the Village's procurement policy. Had the Village used State contract vendors, it could have saved approximately $1,100, or 4 percent on the fuel purchases we reviewed. In addition, the Board authorized the payment of more than $2,300 in gasoline purchases using fuel credit cards without receipts to document these transactions or identify the purchaser. Furthermore, officials did not maintain diesel fuel inventory records. As a result, there are increased risks that fuel will not be obtained at the lowest possible price or that unauthorized fuel use could occur and not be detected.

For the five fiscal years ending June 30, 2013, District officials consistently over-estimated expenditures by a total of $8.3 million. These budgeting practices generated approximately $3.9 million in operating surpluses. Although District officials appropriated $300,000 of fund balance in each of the last five fiscal years to reduce the tax levy, the Board over-estimated expenditures by an average of $1.7 million annually, thus negating any benefit the appropriation of fund balance would have in reducing the property tax levy. District officials also used some of the annual operating surpluses to fund eight general fund reserves and one debt reserve that, as of June 30, 2013, totaled $10.5 million and $1.4 million, respectively. Five of these reserves are over-funded.

We found that the City did not properly award all contracts and has not annually reviewed the procurement policy, as required by General Municipal Law (GML). We found that 17 vendors' contracts totaling approximately $1 million were not executed by the Council President as required by the Charter, but rather by the City Manager. We also found no indication in the Council minutes that these contracts were approved by the Council. In addition, City officials did not regularly seek competition or indicate the selection basis, such as using requests for proposals (RFPs), when procuring professional services. We found that the City awarded contracts to four out of seven professional service providers without evidence of any cost benefit analysis, or having applied and evaluated the procurement policy factors. Generally, the City selected these vendors as a result of their past history of providing services to the City. Payments to these four vendors totaled $260,987 during our audit period.

Overtime costs were primarily attributed to insufficient staffing, particularly, an insufficient number of part-time officers. Had the Sheriff's Office had sufficient full-time and part-time staff, more than $87,000 in overtime costs could have been avoided. Additionally, we identified instances where control weaknesses allowed two administrative employees to receive over $56,000 in overtime pay without pre-approval and proper supporting documentation. We also found numerous weaknesses in controls over payroll processing and the maintenance of time and attendance records within the Sheriff's Office. We identified eight instances, totaling approximately $1,500, where seven officers were paid or compensated for time they did not work. These errors and overpayments occurred because the Sheriff and his administrative staff did not provide sufficient oversight to mitigate the risk of erroneous or inappropriate transactions. During 2012, the County purchased over 2,100 prescription medications totaling about $198,000 for inmates from a local pharmacy without the benefit of competition or obtaining price quotes. We reviewed 983 of the medications purchased, totaling approximately $83,000, and found that the County could have purchased the same medications on State bid and realized savings of more than $32,000 (almost 40 percent).

The Board did not establish or implement adequate internal controls to properly oversee the District's financial operations. As a result, the District incurred operating surpluses and retained unexpended surplus funds totaling more than $270,000 or 169 percent of the budgeted appropriations for 2013. The Board has not adopted an investment policy as required by law, has not developed a capital plan and has not updated the procurement policy since December 1998. Furthermore, District officials could not provide us with a Board-adopted code of ethics during our audit, only a code of ethics template. Additionally, the Board did not adequately segregate the Treasurer's duties or implement compensating controls such as performing an annual audit of her records and reports for 2011 and 2012 to provide some assurance that she was performing her duties in a satisfactory manner. Further, the Treasurer failed to prepare and submit the 2012 AUD and did not file the 2011 AUD in a timely manner. Finally, our review of all the cash disbursements paid in 2012 disclosed that 10 disbursements totaling more than $31,000 did not include sufficient supporting documentation and 12 disbursements totaling approximately $8,700 were not approved by the Board.

We found that the Clerk-Treasurer properly billed, collected and deposited water and sewer rents. However, she did not maintain timely, complete and accurate records. In addition, we found significant control deficiencies. We reviewed eight credit adjustments totaling $516 from individual customer accounts and found that none of these adjustments were properly authorized by the Board and only two had been sufficiently documented as to the rationale for the adjustments. Additionally, we reviewed all 34 deposits from the June 3, 2013 through August 30, 2013 collections totaling $12,059 and found that all the receipts were posted as collected on the date the deposits were prepared, rather than when the payments were actually received. The Clerk-Treasurer uses a combination of manual records, spreadsheets with control and subsidiary accounts and a billing software application to record water and sewer financial activity. This “accounting system” did not ensure that transactions were recorded in a timely manner. We reviewed the Clerk-Treasurer's spreadsheets and found that they were not up-to-date to reflect the Village's current financial position. We also found that any individual in the Clerk-Treasurer's office could handle all aspects of a financial transaction.

Village officials do not consistently require the use of purchase orders when approving purchases, and use purchase orders which were reviewed and approved after the invoice was received. We reviewed 60 claims totaling $194,937 and found that 42 claims totaling $168,141 were made without the use of a purchase order and the other 18 claims included confirming purchase orders prepared after the goods or services had already been purchased or received. Additionally, Village personnel did not always obtain and document verbal or written quotes before purchasing goods and services as required by the Village's procurement policy. We reviewed 16 claims that required verbal or written quotes; 14 claims totaling $22,588 did not have any documentation to indicate the required quotes were solicited. Further, the Board does not review claims for payment; instead, one Trustee is appointed as Commissioner of Claims. Our review of 60 claims totaling $194,937 found that none of the claims contained all the necessary documentation or authorizations, such as purchase order requisitions, itemized invoices and receiving reports, to facilitate an effective audit. All 60 claims appeared to be for proper and necessary Village purposes. Finally, Village officials have not established sufficient internal controls over key components of the Village's information technology system, including the safeguarding of computerized financial data against unauthorized access or potential loss, data backup, monitoring of remote-access users and server room security.

For the 2011-12 and 2012-13 fiscal years, we compared billings totaling approximately $7.4 million for all three school districts of residence to revenues received and reported and did not identify any discrepancies. We also selected a random sample of 25 students to determine if billings to the school districts of residence were accurate and supported. We found that the School did not maintain adequate supporting documentation regarding students' residency. We found that seven students' files did not contain a proof of residency. In addition, three of the students had moved and their files had a different verified address than the School used when it billed the Rochester City School District.