The BOCES procured goods and services in accordance with its policy and statutory requirements. The Board adopted a purchasing policy in 2006, and updated it in 2011, that identifies procedures for using competitive bidding when required and obtaining quotes when competitive bidding is not required. The Board appointed a purchasing agent who is responsible for ensuring that BOCES purchases comply with the policy and procedures. We commend BOCES officials for establishing and implementing effective purchasing procedures.

The Board and Executive Director did not manage FIDA operations within the authority provided by law. The FIDA's governance structure was highly inappropriate and not consistent with applicable legislation for IDAs. The Board manages the FIDA as if it is a department of the Office of Community and Economic Development (OCED), which includes the separate and distinct corporate entities of the FIDA, Village of Fairport Urban Renewal Agency (FURA) and Village of Fairport Local Development Corporation (FLDC). Each of these entities has its own distinct statutory purposes, responsibilities, powers and duties. This governance structure inappropriately gives the appearance that the three entities are affiliates of each other or subsidiaries of OCED. This intertwined governance structure has caused the FIDA to act outside its statutory authority. At the end of 2014, FIDA's unrestricted net assets totaled approximately $2.2 million, which was more than six times its 2014 budget of approximately $343,000. FIDA accumulated this large balance by retaining additional rent payments from long-term lease agreements that were executed prior to statutory amendments that require IDAs to return such funds to the affected taxing jurisdictions. In 2014, the FIDA made an annual contribution to the Village totaling $42,240 but had no basis for the budgeted amount or contract stipulating services to be covered by this contribution. The FIDA inappropriately gifted assets and made advances for commercial loans to the FLDC totaling approximately $824,000. The FIDA also made commercial loans of its own moneys without statutory authority; it had two questionable outstanding loans with balances totaling $187,000 as of November 30, 2014. In addition, the FIDA inappropriately subsidized the FURA by a total of $250,000 from 2010 through 2014 and inappropriately recorded $350,000 as due to FURA to make it appear that it had outstanding debt. Furthermore, these improper governance practices have led to inappropriately commingled bank accounts and combined and inaccurate accounting records for the three OCED entities, as well as significantly misstated annual financial statements.

The Board and Executive Director did not manage FURA operations within the authority provided by law. The FURA's governance structure was highly inappropriate and not consistent with applicable legislation for URAs. The Board manages the FURA as if it is a department of OCED − an overarching umbrella in name only − which includes the separate and distinct corporate entities of the FURA, FIDA and FLDC. Each of these entities has its own distinct statutory purposes, responsibilities, powers and duties. This governance structure inappropriately gives the appearance that the three entities are legally affiliated with each other or subsidiaries of the OCED. This intertwined governance structure has caused the FURA to act outside its statutory authority. Specifically, the FURA inappropriately gifted $250,000 in assets to the FLDC. The FURA also made an annual contribution to the Village totaling $10,560 for the 2014 fiscal year without a basis for the budgeted amount and contract stipulating services to be covered by this contribution. Furthermore, the FURA inappropriately received subsidies from FIDA totaling $250,000 from 2010 through 2014 and incorrectly recorded $350,000 as due from FIDA instead of cash in the accounting records. Management's improper governance practices have led to inappropriately commingled bank accounts and combined and inaccurate accounting records for the three OCED entities, as well as significantly misstated annual financial statements.

We found that County did not always obtain the desired quantity of materials and supplies at the lowest possible cost in accordance with the adopted policies. The Legislature did not award highway material and supply bids to the lowest responsible bidder as required and the Highway Department did not always make purchases from the vendor with the lowest bid price. If the County purchased asphalt and stone products from the low bidders, it may have saved $10,000. County officials and employees who were provided with purchase cards did not always comply with the purchase card policy. Card holders did not sign a cardholder agreement and the Treasurer's office did not periodically audit purchasing card transactions for compliance with the County's policies. As a result, the County cannot ensure that all purchases were made at the lowest cost and in compliance with the purchase card policy.

Department officials have established a cash management policy and related procedures that addresses the collection, deposit and reporting of transfer station cash receipts and establishes an inventory process for garbage bags and garbage disposal stickers. Attendants collect money at each transfer station and enter the details of each transaction, such as the amount collected and payment method, into the Department's computerized financial system and print a transaction receipt. However, the attendants have the ability to void the transactions from the system after receipts are recorded. Monthly, the clerk completes a reconciliation comparing bank statement deposits to the daily transaction report totals. However, prior to our fieldwork, the Clerk did not review the voided transactions. We reviewed two weeks of transfer station cash receipts totaling $153,785 from the receipts and/or transaction reports to deposits on bank statements and found that all amounts were deposited timely and intact with no significant exceptions. However, we identified weaknesses in controls over the inventory of garbage bags and garbage disposal stickers.

The former Clerk retired on June 29, 2014, but made two cash deposits totaling $20,000 into the Town's general fund bank account after her retirement. Town officials found these deposits to be suspicious, in part, because the former Clerk had only been working at the Town a few days each month since February 2014, and the Deputy had generally been preparing and making the bank deposits during the six months leading up to the former Clerk's retirement. The Board requested that we conduct an audit of the former Clerk's records. We examined the former Clerk's records through December 2013, when she was working full-time for the Town and handling most of the recordkeeping and depositing duties for her office. We found that the former Clerk did not properly record all cash receipts and did not deposit all moneys received intact and in a timely manner. The former Clerk received at least $36,742 from January 1, 2009 through December 31, 2013 that was not deposited into a Town bank account and could not be accounted for. We also found the Board did not provide adequate oversight, including adopting written policies or procedures for the handling of cash receipts and performing an audit of the financial records.

In 2014, Town officials did not properly budget or allocate approximately $135,000 in highway equipment purchases between the town-wide and town-outside-village highway funds. As a result, the Town unnecessarily increased tax rates for Town residents residing within the Village and subsequently lowered tax rates for Town residents living outside of the Village. These actions also caused the operations of those funds to be misstated and may result in an inequitable tax burden.

The Board did not ensure that all disbursements represented proper Department expenses and that cash receipts were properly accounted for. As a result of the lack of oversight and non-existent controls over cash receipts and disbursements, personal bills belonging to the Fire Chief and a former Board member were paid using $7,780 of Department funds, and we could not verify the propriety of an additional 177 disbursements totaling $60,108. Furthermore, because of the lack of available supporting documentation, we could not determine if $5,503 of recorded receipts from donations, hall rentals and fundraising activities were deposited.

The District's multiyear financial and capital plans are not comprehensive because they lack certain information, including the funding and use of reserves, grant funding, capital improvements, long-term maintenance on capital improvements and bus purchases. Additionally, District officials have not adequately analyzed reserves to determine if they were established and funded properly and whether existing balances are appropriate and necessary. Although the District's total reserve balances as of June 30, 2015 were limited, totaling $2.06 million or 10 percent of budgeted appropriations, the majority of these funds were maintained in three reserves. Two of these reserves (the unemployment insurance reserve and insurance reserve), with balances totaling $1,077,769, may be unnecessary based on the District's historical needs. The third reserve (other restricted fund balance) with a balance totaling $368,355 has not been formally established to restrict funds for a legally authorized purpose. Currently, the District is undergoing a $10 million capital project and has an additional list of recommended or desired capital improvements. Therefore, the District may be better served by establishing a capital reserve that could be funded with the excessive amounts in the District's other reserve funds.

The District needs to improve its internal controls over the procurement of goods and services not subject to competitive bidding requirements. District officials did not follow or enforce compliance with the District's procurement policy when purchases were not subject to competitive bidding requirements. As a result, purchases were made without the benefit of price comparisons and without sufficient documentation to support the basis for the selection of vendors. This occurred because written procedures were not in place to monitor and enforce compliance with the District's procurement policy.

The Board and District officials overestimated certain expenditure items for four consecutive fiscal years and underestimated revenues in two of the four fiscal years, creating cumulative operating surpluses of over $7.9 million. In addition, the Board appropriated $650,000 of fund balance in each of the last four fiscal years to finance District operations that was not used. These surpluses were then used to fund newly established reserves. By preparing budgets that are not based on realistic projections or estimates and on the most current and accurate information available, the Board and District officials retained fund balance more than the amount allowed by law and may have levied more taxes than necessary.

Although the Board and Town officials ensured that the District was properly established, they did not adequately plan for key aspects of construction and operations. The Board did not adopt written policies or procedures governing water use and billing until a few days before processing water bills for the first billing cycle. The Board also did not ensure that adopted water rates would be sufficient to cover the cost of District operations. As a result, we project that the District is facing a potential revenue shortfall of approximately $15,000 in the first year of District operations. Additionally, as of October 22, 2015, Town officials had yet to start the bidding process for the construction of the water lines even though construction was expected to be completed by June 30, 2016. The Town will incur additional costs if construction is not completed on time, but the Board has no plans in place if costs of construction exceed current funding levels.

The Water Board and Authority finances are commingled to the extent that there is no clear division between the two entities. The Water Board performs essentially all the financial operations with very little involvement from the Authority. The Water Board maintains the Authority bank accounts and prepares the budget and maintains accounting records for both entities. For financial reporting purposes, the Authority is presented as a blended component unit of the Water Board in the Water Board's audited financial statements. The Water Board's financial statements for the fiscal year ended December 31, 2014 commingled Water Board and Authority cash without indicating how much was attributed to each entity. Consequently a user of the financial statements could likely incorrectly conclude that all the financial data reported pertained to the Water Board.

The Board needs to improve controls to ensure that employees receive the salary and benefits to which they are entitled. District officials did not enforce certain collective bargaining agreement provisions and Board resolutions or maintain accurate leave records. As a result, District officials paid nine employees $86,704 for 260 unused sick and vacation days without proper authorization. District officials paid 16 employees $9,127 for 30 days in holiday bonus pay to which they were not entitled and overpaid one employee $4,928 for 19 unused sick days upon retirement. In addition, seven employees were paid $85,807 for 250 sick and vacation days (valued at $88,748 as of December 31, 2014) that were not deducted from the employees' leave balances, resulting in overstated balances and the potential for future overpayments. District officials did not properly monitor life insurance benefits and provided benefits without authority to do so. As a result, the District spent $17,555 more than necessary for group term life insurance benefits. Furthermore, District officials did not receive payment for $2,430 from a Commissioner for the cost of additional group term life insurance coverage. We also found that the Treasurer did not prepare bank reconciliations in a timely manner and did not provide the Board with accurate and timely financial reports. Our review of 60 bank reconciliations for the District's five bank accounts for our audit period revealed that the Treasurer prepared 48 reconciliations more than 30 days after the statement closing date and up to 279 days later. In addition, the Superintendent did not sign or date 26 bank reconciliations to indicate his review. Finally, the Board did not provide adequate oversight over the District financial activities. The Treasurer did not file the 2012, 2013 and 2014 annual financial reports with the Office of the State Comptroller and the District's 2012 and 2013 financial records were not audited in a timely manner.

The District has six collective bargaining agreements (CBAs) and four individual employment contracts that stipulate the terms and benefits for its employees. All CBAs and individual employment contracts include provisions for eligible employees to earn and use leave time and allow employees to receive a payment or other benefit for earned but unused leave time upon separation or retirement from the District. We found that District officials properly accounted for employee leave accruals and made accurate separation payments and service credits to employees based on the applicable CBAs or individual employment contracts. We commend District officials for establishing procedures to ensure that leave records were adequately maintained and separation payments and service credits were correctly calculated.

Over a three-year period, the Board appropriated almost $14.7 million of fund balance, which should have resulted in planned operating deficits each year. Because the Board adopted budgets which overestimated expenditures by a total of over $11 million in those budgets, most of the appropriated fund balance was not used. When the unused appropriated fund balance is added back, the District's recalculated fund balance as a percent of the ensuing years' appropriations ranged between 9.2 percent and 13.5 percent and was in excess of the legal 4 percent limit. Hence, the District actually retained more fund balance than was legally allowable. Budgeting practices which result in the District maintaining fund balance in excess of the amount allowed by law results in real property tax levies that are greater than necessary to fund operations.

District officials have established adequate procedures to ensure employees are accurately compensated. The Board approves all salaries and pay rates in the various contracts for the instructional, non-instructional and administrative employees at the District. At the beginning of each school year, the account clerk updates each individual employees' salary and pay rate as stated in the contracts into the District's financial system. We examined the payroll records for 10 employees for four payroll periods with a combined total gross pay of $88,981, to ensure that the employees' salaries and wages were accurately calculated and in accordance with their CBA, individual employee contract or Board-approved rates. We did not find any errors or other exceptions with the calculation of wages and salaries for these employees.

District officials issued a $500,000 revenue anticipation note (RAN) in 2014-15 with a 2.89 percent interest rate, renewable in two years. Prior to 2012-13, District officials used RAN proceeds to improve short-term cash flow. However, since 2012-13 the District has had sufficient cash flow and did not need to use any RAN proceeds to fund its short-term cash needs. The District could have saved $43,270 in short-term borrowing interest expenditures from 2012-13 through 2014-15. The District will incur another $14,450 in such expenditures in 2015-16. If the Board had issued a RAN only when needed (to improve the District's short-term cash flow) it could have saved a total of $57,720 in interest expenditures over these four fiscal years. In addition, District officials need to issue purchase orders in a timely manner. We found 15 instances where purchase orders totaling approximately $81,000 were issued after the goods and services were obtained.

The Board has adopted an adequate reserve fund policy. During fiscal years 2011-12 through 2014-15, the tax certiorari reserve decreased by $3.5 million and retirement contribution reserve increased by $2.5 million in fiscal year 2012-13. All other reserve account balances remained at approximately the same amount during the period. Retirement system expenditures increased from $897,878 in 2011-12 to $1,074,504 in 2014-15 while the retirement contribution reserve fund balance increased from $1,056,673 to $3,342,768 during the same period. District officials explained that the total amount of the outstanding tax certiorari liability in fiscal year 2012-13 was lower than anticipated due to settlements on reasonable terms. Therefore, the District reduced the amount in the tax certiorari reserve to reflect the decreased tax certiorari exposure by transferring $3.5 million to general fund unassigned fund balance. The transfer caused the general fund unassigned fund balance to exceed the statutory limit of 4 percent of the subsequent year's budget. To meet the statutory requirement, the Board passed a resolution to authorize a transfer of the excess general fund unassigned fund balance amount to the retirement contribution reserve. In addition, the Board approved a five-year plan beginning in fiscal year ending June 30, 2013 to reduce the retirement contribution reserve account by appropriating approximately $1.7 million in excess funds to support the District's operating budget and normalize the trend of future District tax levy increase.

Based on the results of our review, except for the matters described below, we found that the significant revenue and expenditure projections in the proposed budget appear reasonable. The City's proposed budget complies with the property tax levy limit set by statute. The City has a projected unrestricted general fund balance of approximately $3.8 million at the end of 2015-16. The City has appropriated $680,000, or approximately 18 percent, of the projected fund balance to offset certain general fund expenditures in the 2016-17 proposed budget. We caution the City in appropriating fund balance as the use of it to close gaps in the general fund budget decreases the fund balance that is available to cover unforeseen shortfalls in revenue. The 2016-17 proposed budget includes contingency appropriations of $250,000 in the general fund and $75,000 each in the water and sewer funds. This is approximately 1.5 percent, 2.6 percent and 2.7 percent of proposed appropriations in the general, water and sewer funds, respectively. This provides the City with a limited amount of flexibility in the event of unforeseen circumstances that may require additional funds. In addition, all four of the City's collective bargaining agreements have expired or will expire by the end of 2015-16, and the City is still in contract arbitration with one negotiating unit affecting two previous fiscal years. However, the 2016-17 proposed budget does not contain provisions for any potential increased costs associated with settling these agreements.

The District has accumulated unrestricted fund balance that exceeds the statutory limit by approximately $2.3 million (approximately 13 percent) and has levied more taxes than were needed to fund operations during the 2013-14 through 2015-16 fiscal years by that same amount. The Board adopted budgets that did not include estimated revenues for recurring revenues and realistic estimates for expenditures. Consequently, the three annual budgets covering the period of July 1, 2012 through June 30, 2015 underestimated revenues by a total of more than $1.2 and overestimated expenditures by a total of more than $3.6 million. In addition, the District's budgeting practices made it appear that the District needed to both raise taxes and appropriate fund balance and reserves to close projected budget gaps. However, the District realized operating surpluses in all of the last three fiscal years totaling approximately $1.9 million. Therefore, none of the fund balance that was appropriated was actually used in any of the three years, and the District's unrestricted fund balance increased rather than decreased at the end of each year. The District continued the same budgetary practices when preparing the budget for the 2015-16 fiscal year, which will likely result in similar actual results of operations as the last three fiscal years.

The Board did not adopt realistic budgets based on historical or known trends. While revenues were generally budgeted accurately, expenditures were consistently overestimated. For fiscal years 2012-13 through 2014-15, the District budgeted for operating deficits averaging $394,143 each year. However, District officials' budgeting practices generated $4.3 million in surpluses over this period. To reduce the fund balance and stay within the statutory limit, District officials transferred $5.7 million to the District's reserves. District officials also continuously appropriated $250,000 in fund balance each year, which has gone unused for the last three years. When adding back unused appropriated fund balance, the District's recalculated unrestricted fund balance was more than 5 percent of the ensuing year's appropriations in each year, exceeding the statutory limit. In addition, five of the District's reserves, totaling approximately $7.7 million, were overfunded and potentially unnecessary.

BOCES made 5,778 claim payments totaling $67.7 million during our audit period. We reviewed 74 of these claims totaling over $483,000 to determine if they contained sufficient documentation and were properly authorized and approved, sufficiently itemized and for valid business purposes. Most claims we reviewed were properly authorized and approved before payment, appropriately supported and for valid business purposes. However, two tuition claim reimbursements totaling $11,565 were approved and paid to an administrative employee even though tuition was not reimbursable according to the administrator's collective bargaining agreement (CBA). The claims auditor told us she was unaware that tuition reimbursements were not included in this employee's CBA. BOCES' officials explained it has been a past practice to allow tuition reimbursements for furthering education relating to employees' job duties, but agreed that if such payments are made in the future, language specific to tuition reimbursements should be included in the administrator's CBA or a policy should be established authorizing this type of reimbursement for administrative employees.

Based on the results of our review, we found that the significant revenue and expenditure projections in the tentative budget are reasonable. The District's 2016-17 tentative budget includes the appropriation of $2.36 million of fund balance to help finance 2016-17 operations. District officials project that approximately $7.06 million in fund balance may be available. The District's actions are reasonable given the constraints imposed by the tax cap. However, District officials must be aware that fund balance will eventually be depleted and a new revenue source will need to be identified to fund operating expenditures.

The Superintendent reviews and certifies the payrolls. However, he does not perform the review and certification prior to the employees being paid. We examined the payroll records for 20 employees to ensure that salaried and hourly employees were paid at their approved rates, that paid time was supported and that the Superintendent certified the payrolls. All payments were supported by District employment agreements, correctly calculated, properly supported and certified by the Superintendent. We also reviewed 12 separation payments that occurred during our audit period that totaled $163,281 and found that the separation payments were accurately calculated, as per collective bargaining agreements or individual employee contracts, and included adequate supporting documentation.