The payroll clerk did not use a standard separation payment calculation form and District officials did not provide guidance specifying the required documentation needed to support each payment calculation and the methodology to be used. We found that the payroll clerk did not maintain calculations for three employees' separation payments totaling $21,269 (7 percent) and maintained incomplete calculations for 10 separation payments totaling $63,030 (21 percent). While the District's separation payments generally conformed to the terms of the collective bargaining agreements (CBAs) and employment policies, deviations and errors occurred because District officials did not develop procedures for processing separation. In addition, the claims auditor did not review or approve any of the separation payment calculations before payment was made. As a result, three employees were paid $4,850 more than they were entitled to. Documenting written policies and procedures that govern separation payments would help prevent any confusion or misunderstanding regarding the process and ensure that proper supporting documentation is maintained and calculations are reviewed.

The District established authorizing provisions in the Board-adopted collective bargaining agreements, contracts, memorandums of agreement and management confidential benefit resolutions that defined how to calculate the various components of the separation payments. However, no policies or procedures have been adopted or put in place to provide guidance to employees and District officials when processing, reviewing or approving these payments to ensure that the calculations were accurate and sufficiently supported. As a result, District officials made eight questionable separation payments and incorrectly calculated five separation payments totaling $73,568.

The Board did not adopt budgets based on historical or known trends. The Board consistently overestimated expenditures between 4 and 11 percent from fiscal years 2012-13 through 2014-15, which generated $4.2 million in operating surpluses. The Board also budgeted for operating deficits during this time by appropriating $400,000 in fund balance each year, but did not need to use these funds due to the operating surpluses. To stay within the 4 percent statutory limit, District officials made unbudgeted transfers to the capital projects fund and to the District's reserves. When adding back unused appropriated fund balance, the District's recalculated unrestricted fund balance was more than 5.5 percent of the ensuing year's budget in each year. Further, as of June 30 2015, the District overstated encumbrances by at least $198,771, which understated the amount of available unrestricted fund balance. As a result, unrestricted fund balance was actually 6.3 percent of the 2015-16 budget. We also found that four of the District's 10 general fund reserves, which had balances totaling $6.3 million as of June 30, 2015, were overfunded or potentially unnecessary. Finally, District officials did not have written policies and/or procedures governing separation payments and did not maintain adequate supporting documentation for each separation payment. The District's three collective bargaining agreements and three of its individual employment contracts did not clearly indicate at what point in the school year leave is granted, or whether the available leave for the current year should be pro-rated if an employee leaves before the end of the school year. We reviewed separation payments totaling $188,276 made to 17 employees. District officials made payments totaling $12,058 to four employees that they could not verify were correct due to ambiguous contract terms.

The Board did not adopt a comprehensive procurement policy because it did not address the procurement of professional services. In addition, District officials did not develop or implement procedures for staff to follow when procuring professional services. Therefore, District staff did not have any guidance to determine when they should use competition, such as a request for proposal process or written or verbal quotes. Also, staff did not have any direction for maintaining required documentation during the solicitation process, including documentation requirements for decisions made. During our audit period, the District paid 39 professional services providers a total of $2.3 million. We reviewed all 33 service providers that had individually received payments totaling at or above $2,500 to determine whether the District had used competition when awarding contracts for professional services. District officials properly sought competition when procuring the services of five providers who received payments totaling $1.2 million. However, the District procured the services of three of those five providers more than seven years ago. District officials did not seek competitive proposals or quotes for the remaining 28 professional service providers who received payments totaling $1.1 million. This included services for students with payments totaling $570,339, legal services for $228,085 and consulting services for $85,930.

District officials need to improve the budget process to ensure budget estimates and reserve balances are reasonable and fund balance is maintained in accordance with statutory requirements. The District appropriated approximately $500,000 of fund balance annually from 2010-11 through 2014-15 as a financing source in the annual budget, but more than 90 percent of this amount was not needed due to operating surpluses. In addition, District officials transferred money to the District's reserves at the end of each year, which resulted in four reserves being overfunded by approximately $1.8 million (96 percent of total reserves) as of June 30, 2015. Further, these reserves (debt service, retirement contribution, unemployment insurance and tax certiorari) had balances that were excessive or unnecessary because expenditures for reserve related costs were included in the annual budgets and not paid from these funds. These practices allowed the District's unrestricted fund balance to appear that it was within the 4 percent statutory limit. However, when unused appropriated fund balance and excess reserves were added back, the District's recalculated unrestricted fund balance each year was approximately 30 percent of the ensuing year's appropriations. During 2014-15, District officials appropriated $585,000 for the 2015-16 budget. However, we project that it will not be needed. As such, we expect the District's unrestricted fund balance will continue to exceed the statutory limit, which contributed to real property taxes being higher than necessary to fund District's operations.

The Board did not adopt a policy for fuel inventory accountability and there were no written procedures to provide guidance to employees. In addition, District officials need to improve oversight of fuel reconciliations and review of fuel inventory records. Inconsistencies and variances in fuel use records ranging from 4 to 18 gallons of fuel per day occurred, but District officials did not investigate and resolve these discrepancies. District officials also did not perform any vehicle-based reviews to determine whether District vehicle use was reasonable. We identified 16 different mile per gallon (mpg) readings that did not appear reasonable when compared with the vehicle performance records. Officials also did not investigate variances identified on the fuel inventory reconciliations. Additionally, the supervisor incorrectly calculated tank fuel volume conversions. As of October 31, 2015 the volume of fuel expected to be in the tank was 102 gallons less than gallons calculated by the supervisor. The number of gallons of fuel dispensed on January 7, 2016, as displayed on the pump, was about 10 percent more than the number of gallons actually dispensed. District officials need to improve security over the fuel station.

District officials need to improve internal controls over cafeteria cash receipts. The Board has not adopted policies and District officials have not developed procedures governing cafeteria cash receipts or segregated the incompatible financial duties of cash handling, recordkeeping and cash reconciliations for the food service program. The food service manager did not perform an independent reconciliation of cash sales to deposits or review the work of those who performed incompatible cash receipt duties. In addition, the Treasurer performed incompatible financial duties related to collecting, recording and depositing cafeteria cash receipts and had access to the cafeteria's point-of-sale system that she did not need to fulfill her job responsibilities. As a result, the District has an increased risk that cafeteria receipts could be misappropriated and remain undetected.

The Board and District officials did not adequately manage the District's financial condition to ensure that fund balance was within the statutory limit. From fiscal years 2012-13 through 2014-15, the District's unrestricted fund balance exceeded the 4 percent statutory limit. For example, the District had unrestricted fund balance in the general fund totaling over $1.7 million, or 17.6 percent of the following year's appropriations, as of June 30, 2015. The Board adopted budgets for the three-year period that appropriated a total of $810,000 in fund balance to finance District operations. However, due to operating surpluses in the same years, none of the appropriated fund balance was used. The District experienced operating surpluses because budgeted revenues were underestimated and appropriations overestimated by almost $2.7 million for the three-year period. For the same period, the unrestricted fund balance averaged about $1.4 million. As a result, the District's year-end unrestricted fund balance as a percentage of next year's budgetary appropriations averaged about 14.1 percent over the last three years, which is almost three and a half times the statutory limit. When the unused appropriated fund balance is added back to the unrestricted fund balance, the District's recalculated unrestricted fund balance ranged from almost 11 percent to 21 percent of the ensuing year's appropriations. Finally, the Board has not adopted a multiyear financial plan to allow it to facilitate the development of future finances. Such a plan would help the Board and District officials monitor and plan for the use of fund balance.

Overall, District officials have taken actions to reduce the school lunch fund's dependence on the general fund to support operations. Specifically, District officials took steps for the District to become a Summer Food Service Program provider and increased in-house catering. As a result, we project that the school lunch fund's revenues will increase by approximately $87,000 from 2012-13 through 2015-16, and the fund will generate an operating surplus of approximately $5,000.

The Board has not properly managed financial reserves or sufficiently followed the District's reserve policy and regulations. District officials were unable to provide us with evidence that they have documented the financial need or purpose to be served for each reserve, the conditions under which reserves will be used or replenished and the rationale used to determine the appropriate funding level for each reserve. As of June 30, 2015, the District had seven reserves totaling approximately $11 million. We found that four reserves, with balances totaling $7.3 million, appear to be overfunded. In addition, the District has not properly used the debt reserve, which had a balance of $2.9 million, to pay related debt. In addition, District officials did not provide appropriate oversight over fuel that was delivered to the transportation contractor's tanks. As a result, the District cannot be certain that all of the fuel purchased by the District was used for District purposes. It appears that the District may have purchased approximately 3,800 more gallons of fuel, valued at approximately $7,300, than it should have.

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, and that fund balance was maintained at the statutory limit. In 2013-14 and 2014-15 the District adopted budgets that projected planned operating deficits (appropriated fund balance) of $103,272 and $218,440, respectively. However, the District instead experienced operating surpluses of $173,105 in 2013-14 and $37,382 in 2014-15 and did not need to use the appropriated fund balance. Furthermore, the District has accumulated unrestricted fund balance that exceeds the statutory limit for the ensuing year's budgeted appropriations. As of June 30, 2015, the District's reported unrestricted fund balance was 19 percent of the 2015-16 budgeted appropriations.

The Board and District officials need to improve the budgeting process to ensure that the fund balances maintained in the general and certain restricted funds are reasonable. Over the five-year period ending June 30, 2015, the District's unrestricted fund balance exceeded the statutory limit, ranging from 6.5 to 12.3 percent of the ensuing year's budgeted appropriations. From 2011-12 through 2015-16, District officials appropriated a combined total of approximately $956,000 of unrestricted fund balance as a financing source in the annual budgets. However, because the District generated operating surpluses totaling approximately $1.8 million (including a projected $242,000 operating surplus for 2015-16), none of the appropriated fund balance was actually used to finance operations. When the unused appropriated fund balance was added back, the District's recalculated unrestricted fund balance further exceeded the statutory limit, ranging from 9.4 to 14.2 percent. Furthermore, we found that restricted fund balances (i.e., the debt service fund and four general fund reserves) totaling more than $2 million were significantly more than their respective liabilities and, therefore, were overfunded. Moreover, District officials did not use any of these restricted fund balances to make payments for the associated liabilities.

The Board overestimated appropriations in the adopted budgets by an average of about $947,000 or 9 percent over the past three years. As a result, $724,000 or almost 90 percent of the appropriated fund balance was not actually needed to finance operations, and unassigned fund balance was more than twice the statutory limit from fiscal years 2012-13 through 2014-15. The District has reduced the reported level of year-end unassigned fund balance from 10.9 percent of the ensuing year's budget at the end of 2012-13 to 9.7 percent at the end of 2014-15. However, when the unused appropriated fund balance was added back, the recalculated unassigned fund balance exceeded 17 percent of the next year's appropriations in all three years. The Board has not developed multiyear operational or capital plans to address excess fund balance and future needs.

Over the last five fiscal years, budgets presented to District residents were not as transparent as they could have been because they did not include estimated amounts for tax certiorari judgments or amounts to fund them. District officials issued debt to pay for tax certiorari judgments, which masked the District's true operating results. Without the issuance of debt, the District's fund balance would have declined by almost $3.1 million. Although the District appropriated $4.5 million of fund balance over the last five years which was intended to fund a portion of the budget, only $333,623 of this amount was actually used. In addition, the District issued debt to fund tax certiorari judgments during the 2014-15 fiscal year rather than using funds held in reserve to pay for these judgments. District officials did not have any cost-benefit analysis to show that issuing debt was the most cost-effective method for paying for tax certiorari judgments. As a result of the debt issuances, residents are responsible for $3 million in interest and additional fees for all 11 outstanding debt issuances. The additional costs associated with the issuance of debt may impact future school programs or place an unnecessary burden on residents. In addition, District officials do not have a comprehensive, multiyear financial plan.

The Board has not adopted reasonable and structurally balanced budgets. From fiscal years 2012-13 through 2014-15, revenue estimates were generally reasonable. However, the Board annually adopted budgets that overestimated expenditures and appropriated fund balance and reserves that it did not actually use to fund operations. The Board overestimated expenditures by between $16.2 million (7.4 percent) and $18.3 million (8.1 percent) during this time. Despite these expenditure variances, the District has reported operating deficits for each of the last three fiscal years. The Board appropriated an average of $3.9 million in fund balance each year, which made it appear that it would be using it to fund operations. The District also appropriated $12.8 million in reserves in each of the last three fiscal years. However, because the Board has not adopted realistic budgets, the District has actually used an average of $238,534 of unassigned fund balance (6 percent) and $1.5 million of reserves (11 percent). Despite presenting budgets to District residents each year that made it appear that the District was depleting its reserves and fund balance, the Board's continued overestimation of appropriations has actually resulted in the District's unassigned fund balance increasing. When unused appropriated fund balance was added back, the District's recalculated unassigned fund balance was nearly 6 percent of the ensuing year's appropriations, exceeding the statutory limit by almost 2 percentage points each year.

The Board did not maintain some of its eight reserve funds at reasonable levels. The retirement contribution and unemployment insurance reserves, with balances totaling $2.8 million, were overfunded. In addition, the District inappropriately transferred $905,000 from four reserves to unrestricted fund balance. Further, the District did not have documentation to support that any of its reserves were formally established, and it did not have a written reserve policy. As a result, the District has unnecessarily restricted resources that could have been used for the benefit of residents.

BOCES officials have established adequate controls over the claims processing function that allow claims to be audited in a timely manner in accordance with BOCES' policy and New York State Education Law. The Board delegated its responsibility to a claims auditor and established a claims auditing policy to provide guidance to the claims auditor. BOCES made 22,236 claims for disbursements totaling $260.1 million during our audit period. We reviewed 88 of these disbursements, which paid for 177 claims totaling approximately $2 million to determine if they contained sufficient documentation, were properly authorized and approved, sufficiently itemized and for valid business purposes. Except for minor issues that we discussed with BOCES officials, we found that claims were properly authorized, approved and audited before payment, appropriately supported and for legitimate BOCES purposes. We commend BOCES officials for establishing and implementing an effective system of controls over claims processing.

The Board and District officials did not develop reasonable budgets or effectively manage the District's financial condition. The District appropriated an average of approximately $1.4 million in fund balance annually, which was not needed to fund operations due to operating surpluses. District officials consistently overestimated expenditures by almost $6.9 million (13.6 percent) over the last four fiscal years (2011-12 through 2014-15). These budgeting practices generated approximately $1.5 million in operating surpluses over the same period. Further, the District improperly reported about $1.3 million of unrestricted fund balance in the debt service fund and improperly encumbered $100,000. These practices allowed the District to appear that it was within the 4 percent statutory limit imposed on the level of unrestricted fund balance. However, when adding back unused appropriated fund balance, moneys that were improperly placed in the debt service fund and an erroneous encumbrance, the District's recalculated unrestricted fund balance was about 25 percent of the ensuing year's appropriations, exceeding the statutory limit from 2011-12 through 2015-16. As a result of these practices, District officials have levied real property taxes that were higher than necessary to fund District operations. Finally, District officials have not developed a multiyear financial plan.

District officials did not effectively manage the District's financial condition by ensuring budget estimates were reasonable and based on historical costs and trends. From fiscal years 2012-13 through 2014-15, the District overestimated expenditures by a total of more than $1.4 million (or 19.6 percent). Due to the overestimated expenditures, the District incurred operating surpluses totaling more than $900,000 in these three years and did not use any of the $500,000 appropriated fund balance to fund operations. As a result, the District has accumulated unrestricted fund balance that exceeds the statutory limit by approximately $1.6 million, or 75 percentage points, as of June 30, 2015. These practices caused the District to levy more taxes than were needed to fund operations.

The Board appointed a claims auditor and adopted a claims auditing policy establishing procedures for auditing claims. The policy requires the claims auditor to report directly to the Board regarding the claims audit results. The claims auditor is required to examine all claims for adequate evidence to support the District's expenditure. The policy also requires that the Treasurer pay valid claims against the District only upon the claims auditor's approval. We judgmentally selected and reviewed 75 claims totaling $3 million to determine whether each claim was for appropriate District purposes, adequately supported, audited and approved prior to payment. We reviewed 50 general fund claims totaling $822,000 and 25 capital fund claims totaling $2.2 million. We found that the claims were for appropriate purposes and were adequately supported, audited and approved prior to payment. We commend District officials for implementing an effective claims audit process.

District officials have generally taken appropriate action to manage the District's financial condition and are planning to increase future fund balance. From fiscal years 2012-13 through 2014-15, District officials typically prepared accurate budgets that generated minimal operating surpluses or planned operating deficits. To maintain programs and manageable tax increases, while dealing with the loss of $3.49 million in State aid, District officials used fund balance and interfund transfers to finance general fund operations. Because of this practice, the District's 2014-15 unrestricted fund balance decreased to 1.2 percent of 2015-16 budgeted appropriations. District officials acknowledged the decline in unrestricted fund balance and developed a plan to increase it to between 3 and 4 percent of the ensuing year's budget. District officials started to implement this plan by addressing the District's reliance on non-recurring revenues as a financing source. Therefore, District officials reduced interfund transfers in the annual budgets by approximately $445,000 during the audit period and implemented certain cost savings measures. As a result of their efforts, we project that the District will end 2015-16 with a modest operating surplus that will increase unrestricted fund balance. In addition, the District has developed multiyear financial and capital plans. However, including more details in these plans, such as funding sources, would benefit the District as it faces current and future economic and environmental challenges.

District officials achieved health insurance cost savings by changing health insurance carriers and offering employees a buyout incentive. From July 1, 2013 through June 30, 2016, the cost savings will total approximately $3.9 million. We commend District officials for implementing these cost savings measures.

We found questionable activity and unnecessary permissions granted for changing student grades, modifying SIS permissions, assuming accounts or identities and viewing PPSI. We also found unnecessary user accounts in the SIS, including those for former District employees, former third-party personnel, Mohawk Regional Information Center personnel that do not directly support the SIS and substitute secretaries and nurses that only need occasional access. These issues were the result of, at least in part, District officials' failure to review SIS audit logs on a regular basis, properly manage accounts and permissions and establish effective policies and procedures. Unnecessary permissions increase the risk of inappropriate activity such as unauthorized changes to student grades or SIS permissions and disclosure or misuse of students' PPSI. Unnecessary accounts also increase this risk, as well as the efforts needed to manage permissions in the SIS, which could result in inadvertently granting more access than needed.

The District's reported unrestricted fund balance for the past three years was understated because the District incorrectly restricted funds for the future payments of other post-employment benefits (OPEB). With the inclusion of the incorrectly restricted funds, the unrestricted fund balance was in excess of the 4 percent statutory limit for the 2012-13, 2013-14 and 2014-15 fiscal years. The Assistant Superintendent of Business stated the Board wanted to partially fund the District's future OPEB. However, there is no legal authority for the District to fund its OPEB. During our audit period, the District allocated $7.1, $8.7 and $9.8 million at the end of the 2012-13, 2013-14 and 2014-15 fiscal years, respectively, to partially fund its OPEB liability. We recalculated the District's unrestricted fund balance for the fiscal years ending June 30, 2013 through June 30, 2015 by adding back the amounts the District had restricted for its OPEB liability. As of June 30, 2013, the District's recalculated unrestricted fund balance totaled $11.6 million and was 10.3 percent of the 2013-14 appropriations, exceeding the statutory limit by more than $7.1 million. As of June 30, 2014 and 2015 the recalculated unrestricted fund balance amounts were $13.4 and $14.5 million, which were 11.5 and 12.4 percent of the ensuing years' appropriations and exceeded the statutory limits by more than $8.7 and $9.8 million, respectively.

District officials have established effective procedures to ensure claims are adequately documented and supported, are for legitimate District purposes and are approved prior to payment, in accordance with District policy and Education Law. The Board has delegated its claims auditing responsibility to a claims auditor. We commend District officials for establishing effective procedures for processing claims against the District. Establishing and adhering to effective claims auditing procedures decreases the risk that errors or irregularities with processing and paying claims may occur and go undetected.