The Board needs to improve its budget process and ensure it adopts reasonable budgets and appropriately maintains restricted funds to effectively manage the District's financial condition. From 2012-13 through 2014-15, District officials overestimated appropriations in the adopted budgets each year. This budget practice generated approximately $1 million in cumulative operating surpluses for these years. Over these years, officials also appropriated nearly $2.8 million of fund balance as a financing source in the annual budgets. However, approximately 94 percent of this amount was not needed due to the operating surpluses. As a result, the District's unassigned fund balance exceeded the statutory limit each year ranging from 4.3 to 6.8 percent of the ensuing year's budget. When unused appropriate fund balance is added back, the District's recalculated unassigned fund balance ranged from 9 to 11 percent of the ensuing year's appropriations, further exceeding the statutory limit each year. During 2014-15, the District appropriated $830,000 for the 2015-16 budget, but the District projects that it will not be needed. As such, we expect the District's unassigned fund balance will continue to exceed the statutory limit. District officials also overfunded the workers' compensation reserve and retained almost $1 million of excess funds in the capital projects fund. Finally, District officials have not adopted long-term financial and capital plans, as required by Board policy.

While District officials did develop a policy to address the procurement of goods and services not subject to competitive bidding, the policy did not specify the frequency of seeking competition for professional services. Further, we did not find any evidence that the Board determined which professional services were subject to the request for proposal (RFP) process or any evidence that the Board monitored the RFP procedures for professional services. The Assistant Superintendent for Business Affairs explained that she will initiate the RFP process for professional services and bring the RFP before the Board for approval. Except for minor discrepancies that we discussed with District officials, the purchases we reviewed were made in accordance with the District's policy.

District officials established adequate procedures to ensure employees were paid their approved salaries or wages. Establishing and adhering to a good system for processing and verifying payroll payments ensures the employees are accurately paid their salaries and wages. We commend District officials for designing an effective system that ensures the accuracy of compensation paid to employees.

District officials did not require employees to follow established procedures to ensure that paid salaries and wages were accurate and did not have procedures in place to ensure that leave accruals were properly verified and recorded. As a result, we found errors in nine employees' pay. Although not significant, these errors occurred due to lack of management or independent review of the payroll clerk's work. Further, District officials did not always follow procedures or ensure that employees had enough accruals prior to approving leave requests. In addition, there was no supervisory review of the human resources clerk's work to ensure leave time requested was accurately transferred to the time and attendance system.

The Board generally ensured that District officials complied with General Municipal Law and the District's procurement policy for purchases requiring quotes and purchases subject to competitive bidding. However, we found that District officials could improve their purchasing process by attaching sufficient supporting documentation to claims for purchases not subject to competitive bidding. In addition, officials should ensure that purchases are made only after the purchasing agent issues an approved purchase order. When sufficient supporting documentation is not available for review or purchase orders are executed after a purchase is made, there is an increased risk that unauthorized or inappropriate purchases could be made.

The Board and District officials did not ensure that budget estimates and reserves were reasonable. They overestimated general fund appropriations when preparing and adopting the last three budgets, which resulted in operating surpluses totaling $10.6 million. From the 2011-12 through 2014-15 fiscal years, the District also increased the tax levy by more than 13 percent and appropriated fund balance totaling $14.6 million, which was not used to finance operations as planned. At the same time, District officials designated more than $3 million of unrestricted fund balance for costs related to other post-employment benefits (OPEB) each year, but did not use these moneys to make related payments and instead budgeted for OPEB costs in the general fund budget. When combining the unused appropriated fund balance and unused designated OPEB moneys, the District's recalculated unrestricted fund balance averaged more than 8 percent of the ensuing year's appropriations, exceeding the 4 percent statutory limit. Also, from 2012-13 through 2014-15, District officials overfunded the workers' compensation reserve by $1.4 million.

The purpose of our audit was to determine if counties effectively monitored service provider agreements for the period January 1 through December 31, 2013.

District officials have effectively managed the District's financial condition. The District's unrestricted fund balance and reserve balances totaled almost $2 million and $2.5 million, respectively, as of June 30, 2015. However, the decline in those balances by $667,600 and $2.1 million over the past three years suggests the District may be heading toward fiscal challenges. Over the three-year period ending June 30, 2015, District officials budgeted for operating deficits of $1.96 million. However, the net result of operations was a total deficit of approximately $957,000. District officials budgeted to use another $960,000 of unrestricted fund balance in 2015-16; however, we project they will use $292,000. Further, budget estimates for general fund revenues and expenditures have been within a few percentage points from actual amounts over this period. However, the District's revenues have not kept pace with expenditures, which have increased at rates of 4 and 8 percent, respectively. Over the three-year period, the balance of the District's three reserves decreased by almost $2.1 million, or about 45 percent, to $2.5 million as of June 30, 2015. Based on the continuous use of these reserves, supporting documentation and future plans, the balance of each of these reserves was reasonable. However, at this rate of decline, they will be depleted and unavailable for use as funding sources within three years. As a result of the revenue and expenditure trends and the continued use of fund balance, the District's total year-end fund balance declined by over $2.4 million, or 30 percent over the last three years. The Assistant Superintendent for Business started July 2014 and has been mainly focused on developing short-term plans and solutions to managing the District's finances, including the use and funding levels of reserves. District officials are in the process of developing multiyear long-term plans to address their financial situation.

At the time of our audit, the District had an ongoing capital project (Project) which involved constructing, renovating and improving all three school buildings and the bus garage. The Project was approved by District residents in December 2014 with a total budget of $12.4 million. The District engaged various consultants to facilitate the Project including an architectural and engineering firm for building design and development and assisting in the purchasing process, a Clerk of the Works to manage construction and a municipal advisory firm for bonding and cash flow planning. Overall, District officials properly managed Phase I of the Project. The Board presented the Project to District residents in a transparent manner. In addition, all work performed was consistent with the NYSED-approved scope and with properly approved change orders. District purchasing practices for the Project conformed to GML and to the Project's budget.

District officials did not prepare accurate budgets for the 2012-13, 2013-14 and 2014-15 fiscal years. The District overestimated appropriations by an average of $2.5 million each year. While the District appropriated fund balance to help finance operations, the amounts appropriated were generally not used. Furthermore, unrestricted fund balance has exceeded the legal limit annually. As of June 30, 2015, unrestricted fund balance was $2.6 million (12 percent of the ensuing year's budget) or approximately $1.7 million over the legally allowable limit. Finally, the District improperly retained $5.7 million in a debt reserve and overfunded the employee benefit accrued liability reserve by $220,000 (20 percent).

District officials have established adequate procedures over the claims processing function to ensure that claims are adequately documented and supported, are for appropriate purposes, and are audited and approved prior to payment. The claims auditor conducts a thorough examination of each claim to determine whether it is for appropriate District purposes, whether the goods or services being billed for were actually received, and whether the claims are adequately documented and supported. We commend District officials for establishing effective procedures for processing claims against the District.

The Board has established a fund balance policy stating that the Board will keep unrestricted fund balance between a minimum of 2 percent of the ensuing year's appropriations and the 4 percent maximum allowed by law. However, for the past four years the District did not comply with its policy and the law, retaining unrestricted fund balance of 20 to 22.6 percent of the ensuing year's appropriations. These levels exceeded the statutory limit by more than $4 million, or at least 16 percentage points, each year.

BOCES officials have established adequate procedures over the claims processing function to ensure that claims were adequately documented and supported, for appropriate purposes, and audited and approved prior to payment. The Board has delegated its claims auditing responsibility to a claims auditor. The claims auditor conducts a thorough examination of each claim to determine whether it is for appropriate BOCES purposes, the goods or services being billed for were actually received, and the claim was adequately documented and supported. We commend BOCES officials for establishing effective procedures for processing claims against BOCES.

While the Board and District officials have generally maintained unrestricted fund balance levels in accordance with statutory limits, we found that District officials used budgeting practices that appropriated fund balance and reserves that were not actually used. The District routinely overestimated expenditures (averaging $10 million) and, as a result, did not use an equivalent amount of appropriated fund balance and reserves as budgeted. This practice is projected to continue in the 2015-16 fiscal year. Moreover, once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's recalculated unrestricted fund balance ranges from $6.1 million (6 percent) to $7.4 million (8 percent) of the ensuing years' appropriations for the fiscal years 2012-13 through 2014-15, exceeding the statutory limit. In addition, District officials consistently budgeted in the general fund for expenditures that could have been paid for with reserve funds, five of which appear to be overfunded by more than $18 million. As a result, the District has levied higher taxes than necessary.

The Board did not adopt realistic budgets or ensure that reserves were reasonably funded. District officials consistently overestimated appropriations in the general fund budget during the last three fiscal years 2012-13 through 2014-15 totaling more than $3.4 million or 9 percent, generating approximately $2.7 million in operating surpluses. The District used the operating surpluses to fund various reserves, which led to reserve balances increasing by more than $2.4 million (32 percent) since July 1, 2012. Although District officials appropriated an average of approximately $333,000 in fund balance and $258,000 in reserves annually towards the ensuing year's budget, none of the appropriated funds were used because of consistent year-end surpluses. This trend is projected to continue through 2015-16. While we continue to forecast an operating surplus for 2015-16, we recognize certain measures the Board and District officials have begun implementing regarding their financial management practices. For example, they did not raise the tax levy in 2014-15, and they reduced the tax levy by more than 5 percent ($250,000) for 2015-16.

Although the Board and District officials have generally maintained fund balance levels in accordance with the law, they have annually appropriated portions of fund balance for the subsequent year's budget that were not used because they consistently overestimated appropriations. This trend is projected to continue through 2015-16. Once the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's recalculated unrestricted fund balance ranged from $692,000 (14 percent) in 2012-13 to $749,000 (15 percent) in 2014-15. Furthermore, even though unrestricted fund balance continued to increase through June 30, 2015, District officials continued to raise the tax levy every year. Had District officials retained the same tax levy as in 2012-13, residents could have realized approximately $380,000 in cumulative savings. In addition, the unemployment reserve totaled $220,000 as of June 30, 2015 even though annual unemployment expenditures averaged $4,000. Further, District officials have routinely levied taxes for expenditures, including unemployment expenditures, which could have been paid for with reserve funds that totaled $1.3 million as of June 30, 2015.

The Payroll Manager performs incompatible duties without sufficient oversight or independent review. District officials instituted a compensating control by having the Superintendent, who is independent of the payroll process, certify the payrolls. However, no one independent of the payroll process reviews hourly rates or annual salaries entered by the Payroll Manager for accuracy or compares the payroll registers with payroll source documents (i.e., time records) to ensure that payments were based on the actual hours or days worked prior to payroll processing. In addition, the District does not have adequate procedures in place to ensure overtime is preapproved, and District officials generally did not preapprove overtime worked by employees.

District officials did not ensure that the District's unrestricted fund balance was within the statutory limit during the past three fiscal years (2012-13 through 2014-15). The District's unrestricted fund balance exceeded the statutory limit for these years ranging from 6.5 to 10.7 percent. As of June 30, 2015, the District's unrestricted fund balance totaled more than $570,000, which exceeded the statutory limitations by $223,561. Because the District overestimated expenditures by approximately $2.3 million from 2012-13 through 2014-15 it used only a small amount ($92,072 or 3 percent) of the nearly $3.3 million of fund balance that was appropriated for the same period. When adding back unused appropriated fund balance, the District's recalculated unrestricted funds further exceeded the statutory limit.

The Board and District officials did not adequately manage the District's financial condition. They overestimated general fund appropriations when preparing and adopting the last three completed fiscal year's budgets, resulting in operating surpluses totaling $2.5 million. During this period, the District increased the tax levy by a total of 2 percent and appropriated fund balance totaling about $1.8 million and reserves totaling $128,000, which were not needed to finance operations as planned. We believe the District will not use the appropriated fund balance totaling $492,377 for 2015-16. In addition, as of June 30, 2015, the District officials had three reserves totaling $782,596 that were overfunded, incorrectly recorded a deferred revenue totaling $453,301 and overstated a liability totaling $59,870, which further increases the excessive amount of unrestricted fund balance. When combining the unused appropriated fund balance and reserves with the other overstatements and excesses, the District's recalculated unrestricted fund balance was between 13 and 26 percent of the ensuing year's appropriations, exceeding the 4 percent statutory limit. The District also has more than $1 million in the debt service fund available for debt payments that has not been used to finance debt payments, and it continues to accumulate money each year.

The Board and District officials have not implemented appropriate IT policies and procedures related to personal, private and sensitive information classification or data backups. Additionally, the Board has not adopted a sufficient, comprehensive disaster recovery plan. Consequently, IT assets are at risk for unauthorized, inappropriate and wasteful use, and the District could encounter an interruption in services.