Audit Objective
Did the Holtsville Fire District (District) Board of Commissioners (Board) adopt budgets with reasonable estimates and properly establish and manage capital reserve funds?
Audit Period
January 1, 2019 – December 31, 2023
Understanding the Audit Area
A fire district (district) board of fire commissioners (board) is responsible for managing the district’s fiscal activities and safeguarding its resources. To properly manage financial operations, the board should develop and adopt reasonably estimated and structurally balanced budgets based on historical data or known trends in which recurring revenues finance recurring expenditures. In preparing a budget, a board must estimate the amounts a district will spend and receive, the amount of fund balance that will be available at the end of the fiscal year to use towards the next year’s budget and the expected real property tax levy. Accurate estimates help ensure that the tax levy is not greater than necessary.
Reserve funds are established to provide resources for an intended future use with a clear purpose or intent that aligns with the statute authorizing the fund. If a board chooses to accumulate money for future capital improvements and equipment, it must pass a resolution to formally establish a capital reserve fund.
The District’s budgeted appropriations for fiscal year 2024 totaled $3.8 million, and capital reserve fund balances totaled $2.6 million as of December 31, 2023.
Audit Summary
The Board did not adopt budgets with reasonable estimates or properly establish and manage capital reserve funds. As a result, from 2019 through 2023, the Board transferred an additional $1 million into reserve funds. This was 45 percent more than the $2.2 million in transfers planned, with no indication of the Board’s plan to use the funds. The District’s tax levy increased by $771,762 from 2019 to 2024, meaning that real property taxes may have been higher than necessary.
The Board developed and adopted budgets that resulted in a total operating surplus of $4.8 million between fiscal years 2019 and 2023.The Board underestimated revenues in 2023 and consistently overestimated expenditures during the audit period, resulting in budget variances in four of the five fiscal years reviewed totaling $1.4 million, or 11 percent of the $13.8 million in appropriations. The Board also appropriated fund balance totaling $68,598 in three of the fiscal years reviewed that was not utilized.
Additionally, the Board did not properly establish two capital reserve funds. Board meeting minutes from 1972 (the year the District was established) mention the reserve funds and balances at the time of the meeting. However, there was no Board resolution or other supporting documentation indicating that the Board properly established the reserve funds. Furthermore, the District did not have a fund balance and reserve policy to address these matters and made unbudgeted transfers to these reserves that were not transparent. Although the Board planned to transfer $2.2 million into the capital reserve funds between 2019 and 2023, $3.2 million was transferred during that time because of operating surpluses.
Because the Board did not adopt budgets with reasonable estimates, have a fund balance and reserve policy or ensure that the District’s capital reserve funds were properly established, the Board’s intentions regarding fund balance were not clear, reserves may have been overfunded and real property tax levies may have been higher than necessary. Additionally, official’s financial management practices were not transparent and officials did not inform taxpayers on how all District funds were being used or reserved.
The report includes six recommendations that, if implemented, will improve the District’s ability to adopt budgets with reasonable estimates and properly establish and manage capital reserve funds. District officials disagreed with certain aspects of our findings but indicated they planned to initiate corrective action. Appendix C includes our comment on an issue raised in the District’s response letter.
We conducted this audit pursuant to Article V, Section 1 of the State Constitution and the State Comptroller’s authority as set forth in Article 3 of the New York State General Municipal Law (GML). Our methodology and standards are included in Appendix D.
The Board has the responsibility to initiate corrective action. Pursuant to Section 181-b of New York State Town Law (Town Law), a written corrective action plan (CAP) that addresses the findings and recommendations in this report must be prepared and forwarded to our office within 90 days. To the extent practicable, implementation of the CAP must begin by the end of the next fiscal year. For more information on preparing and filing your CAP, please refer to our brochure, Responding to an OSC Audit Report, which you received with the draft audit report. We encourage the Board to make the CAP available for public review.