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.

The District did not comply with New York State Real Property Tax Law and retained unrestricted fund balance in amounts at the end of the 2012-13 through 2014-15 fiscal years that ranged from 20.1 to 27.8 percent of the ensuing years appropriations. As of June 30, 2015, the unrestricted fund balance exceeded the statutory limit by more than $1.9 million. The District has retained excessive levels of unrestricted fund balance even though each of the District's last six independent audit reports contained a finding related to the unrestricted fund balance being in excess of the statutory limit. The Business Manager said the District had not implemented corrective action due to the uncertainty of potential State aid reductions and that, without the excess levels of unrestricted fund balance, the District would have had to cut programs and positions.

The 2016-17 budget relies on nonrecurring funding of $11 million which will not be available in future years. The City continues to rely on fund balance to close gaps in the budget. The City's budget is relying on a 3 percent growth in sales tax revenues, which may be overly optimistic. If police overtime savings are not realized, the City would potentially be over-budget by as much as $1.4 million based on the 2015-16 fiscal year overtime costs. The City plans to borrow up to $6.5 million for tax certiorari settlements in the 2016-17 fiscal year. With the 2016-17 budget, the City will have exhausted 91.22 percent of its taxing authority and the City's ability to increase property taxes may be limited in future years if property values do not increase. The City's outstanding debt has grown almost 27 percent over the last 10 years, and the City's debt service payments have risen 50 percent since 2008.

Based on our limited procedures, it appears that the District has made limited progress on implementing corrective action. Of the five audit recommendations from the 2013 audit, one recommendation was implemented, one recommendation was partially implemented and three recommendations were not implemented. Of the 11 audit recommendations from the 2011 audit, one recommendation was implemented, seven recommendations were partially implemented, two recommendations were not implemented and one recommendation was not applicable.

The purpose of our audit was to determine if District officials properly accounted for extra-classroom cash receipts and disbursements for the period July 1, 2013 through May 8, 2015.

District officials have not developed a long-term financial plan to maintain financial stability. The District has experienced operating deficits totaling $686,600 from the 2012-13 through the 2014-15 fiscal years. While the District did not use as much fund balance as planned in these years, the continued use of fund balance to finance operations is not a long-term solution. Furthermore, the District has one reserve with less than $5,000 and unrestricted fund balance is less than 2 percent of the 2015-16 budgeted appropriations. We project that the District will experience an operating deficit of approximately $200,000 for the 2015-16 fiscal year. Because fund balance is a finite resource, consistently relying on it as a budgetary financing source could be detrimental to the District's financial stability. Without a long-term financial plan to decrease expenditures or increase revenues, District officials may need to consider other options to fund the financing gap.

The Board did not adopt realistic budgets based on historical or known trends. The Board underestimated non-property tax revenues and overestimated expenditures, for total budget variances of more than $35 million. The Board-adopted budgets generated operating surpluses totaling more than $20 million over these three years. As a result, the total $14.9 million in appropriated fund balance and reserves was not needed or used to fund operations. District officials also made unbudgeted interfund transfers totaling $38 million from the capital reserves (reported in the general fund) to the capital projects fund and also made unbudgeted transfers to the District's reserves. Along with the budgeted appropriation of fund balance that has not been used, this has reduced reported year-end fund balance to within the 4 percent limit established by the Real Property Tax Law. When the unused appropriated fund balance is added back, the District's recalculated unrestricted fund balance ranged from 5.9 to 6.6 percent of the ensuing year's budget, exceeding the statutory limit in each year. In addition, two of the District's six general fund reserves, which had balances totaling more than $4 million as of June 30, 2015, are overfunded or potentially unnecessary. In addition, while the District's separation payments generally conformed to the terms of the collective bargaining agreements (CBAs), we found that the District paid three retirees $31,603 (5 percent) for payments approved for benefits over what was authorized in the CBAs. We also question payments to six administrators totaling $18,012 (3 percent) for vacation days carried over from the previous year without Superintendent approval, as required by the CBA.

Over the three-year period ending June 30, 2015, the Board ensured that unrestricted fund balance was within the 4 percent statutory limit of the ensuing year's appropriations, and the District's six reserves were reasonably funded. However, each year, the Board appropriated more fund balance than needed, which artificially lowered the percentage to within the 4 percent statutory limit. Instead of having operating deficits totaling $2.9 million as planned, the District's net result of operations for the three-year period was a surplus of approximately $19,000. With the inclusion of the unused appropriated fund balance, the fund balance ranged from 13 percent to 15.8 percent of the ensuing year's appropriations, resulting in higher than necessary real property tax levies. With the significant increase in payments in lieu of taxes revenue received in 2015-16, the Board and District officials elected to lower the real property tax levy 9 percent and increase educational services and support. However, we project that the 2015-16 results of operations will result in a favorable budget variance of approximately $915,000. As a result, the majority of the $1 million appropriated in fund balance for 2015-16 likely will not be used, and the District's recalculated fund balance will likely continue to exceed the statutory limit.