Audit Objective
Did City of Olean (City) officials properly manage the City’s fund balance, and did the City Auditor (Auditor) properly record and report financial activity?
Audit Period
June 1, 2020 – February 6, 2026
Understanding the Audit Area
A city council, in conjunction with city officials, is responsible for maintaining a city’s fiscal health by effectively managing fund balance and ensuring financial activity is accurately recorded and reported. Fund balance represents the difference between accumulated revenues and expenditures over time and is an important indicator of a city’s financial condition. Maintaining reasonable levels of unrestricted fund balance helps provide financial stability, address unforeseen expenditures or revenue shortfalls, maintain essential services, support favorable credit ratings and reduce the needs for sudden increases in taxes or user fees.
City officials are also responsible for maintaining complete, accurate and current accounting records and financial reports. Reliable financial information enables officials to monitor a city’s financial condition, make informed fiscal and operational decisions, ensure compliance with applicable laws and regulations and promote transparency and accountability to taxpayers and maintain public trust.
The City’s fiscal year runs from June 1 to May 31. At the end of the 2024-25 fiscal year, the City reported a combined total of approximately $6.7 million in unrestricted fund balance in its general, water and sewer funds. Combined budgeted appropriations for these funds totaled approximately $29.3 million.
Audit Summary
City officials1 did not properly manage the City’s fund balance or ensure that financial activity was accurately recorded and reported. As a result, City officials did not always consistently maintain unrestricted fund balance in accordance with the City’s fund balance policy (Policy), and the City’s accounting records and financial reports were inaccurate. As a result, officials did not have reliable financial information to effectively monitor the City’s financial condition and make informed financial decisions.
City officials did not always maintain unrestricted fund balance levels in accordance with the Policy’s established fund balance levels, in part, because the City Council (Council) could not agree on what corrective actions to take. Also, the Policy did not establish procedures for restoring fund balance when levels declined. In addition, the City’s budgeting practices caused fund balance levels to fluctuate and fall below Policy thresholds.
The City’s inaccurate accounting records and financial reports made it difficult for officials to manage fund balance. The Auditor used improper accounting practices, including netting revenues and expenditures and recording transactions in incorrect accounts, which resulted in significant misstatements in the City’s accounting records and financial reports. As a result, City officials did not have reliable financial information with which to monitor the city’s financial condition and fund balance.
From the 2020-21 through 2024-25 fiscal years, the general fund’s unrestricted fund balance decreased by approximately $454,000 (16 percent) and fell below Policy thresholds in the 2021-22 through 2024-25 fiscal years. The water fund’s unrestricted fund balance also fluctuated consistently and remained below Policy thresholds during the 2021-22 through 2023-24 fiscal years. If not corrected, the City’s fund balance levels could be depleted.
City officials also did not develop comprehensive multiyear financial and capital plans to assess the long-term effects of budgeting practices, capital needs and fund balance levels. Without these plans, officials did not have important tools for maintaining reasonable fund balance levels and planning for current and future financial needs.
Lastly, the Auditor did not ensure that required financial reports were accurate or filed in a timely manner. The Auditor filed the City’s Annual Financial Reports (AFRs) for the 2020-21 through 2022-23 fiscal years between 27 and 187 days late. Although the Auditor filed the 2023-24 and 2024-25 AFRs on time, he knowingly submitted them with inaccuracies. These deficiencies diminished transparency and accountability and increased the risk that officials would make improper financial decisions that were based on inaccurate financial information and were not in the best interests of taxpayers.
The report includes 10 recommendations that, if implemented, will strengthen the City’s management of fund balance, improve the accuracy and reliability of accounting records and financial reporting, enhance long-term financial planning and promote informed decision making, transparency and accountability. City officials agreed with our recommendations and their response is included in Appendix B.
This audit was conducted pursuant to Article V, Section 1 of the State Constitution and the Office of the New York State Comptroller’s (OSC’s) authority as set forth in Article 3 of the New York State General Municipal Law (GML). The audit’s methodology and standards are included in Appendix C.
The Council has the responsibility to initiate corrective action. A written corrective action plan (CAP) that addresses the findings and recommendations in this report should be prepared and provided to OSC within 90 days, pursuant to GML Section 35. For more information on preparing and filing the CAP, please refer to the OSC brochure, Responding to an OSC Audit Report, which was provided with the draft audit report. The Council is encouraged to make the CAP available for public review in the City Clerk’s office.
1 Unless otherwise indicated, this report uses “City officials” to collectively refer to the Mayor, Council and Auditor.