We found that the District needs to improve its claims auditing process to ensure that all claims have been audited and approved by the claims auditor before payment is made. Specifically, we found that the claims auditor did not consistently audit all claims related to the capital fund prior to payment. During our audit period, the District paid 3,282 claims totaling about $40.3 million. We reviewed 151 claims totaling approximately $4.2 million (110 randomly selected claims totaling $1.7 million and 41 judgmentally selected claims totaling $2.5 million) to determine whether the claim packets contained sufficient documentation and were properly authorized prior to payment, itemized and for valid District purposes. Of the 110 randomly selected claims, we generally found that these claims were adequately documented, supported and for valid District purposes. Of the 41 claims judgmentally selected, we found that 37 totaling approximately $2.5 million were paid prior to being audited.

District officials are not properly monitoring employee overtime to ensure that the District is incurring only necessary overtime costs. While the District's payroll instructions state that employees must obtain supervisory approval before working overtime hours, the District does not have adequate procedures in place to ensure overtime is preapproved. During our audit period the District paid $470,355 for overtime. Of this total, the District paid $363,482 (77 percent) of the overtime costs to personnel in the Building and Grounds Department (department) and Security office. We randomly selected two bi-weekly November 2014 payrolls in which employees worked 196.75 overtime hours and received overtime payments totaling $8,371. We found that none of the overtime hours worked had been preapproved. For example, one security guard worked 33.5 overtime hours and received overtime payments totaling $1,143 for “video room coverage.” This consisted of monitoring the cameras in the security office that provide surveillance of the school's facilities. Had overtime preapproval been mandated, overtime would have been more closely monitored and shifts may have been rearranged to incorporate video room coverage into employees' regular workdays.

District officials did not establish adequate procedures for processing payroll. The School Business Official's duties were not adequately segregated because she was responsible for collecting employees' time records; recording the hours worked or salaries to be paid; making changes to employees' pay rates, withholdings and deductions; performing transfers between the District's bank accounts for payroll purposes and preparing and executing the employees' direct deposits. The School Business Official performed all of these duties without sufficient oversight. The District Treasurer (Treasurer) was responsible for reviewing transfers between the District's bank accounts and printing and signing employees' payroll checks. However, the Treasurer's limited role related to processing payroll did not provide sufficient oversight of the School Business Official's work to mitigate the risks incurred due to her incompatible duties. The Superintendent also provided an independent review of the payroll process by reviewing and certifying the final payrolls. However, the Superintendent's reviews were not adequate because he did not compare payroll registers to payroll source documents (i.e., time records) to ensure that payments were based on the actual hours or days worked and Board-authorized hourly rates or annual salaries. No one reviewed the source documents to verify whether the School Business Official accurately processed payrolls.

During the 2014-15 fiscal year, the Board outsourced the District's payroll function to the Franklin-Essex-Hamilton Board of Cooperative Educational Services (BOCES). However, the District's procedures for day-to-day payroll processing did not clearly define the respective payroll responsibilities of BOCES and the District. For example, the District relied on BOCES to monitor the provisions of the collective bargaining agreements (CBAs) and employment contracts, with limited oversight from District officials. Due to the complexity of the CBAs and contracts, the BOCES payroll clerk was not always aware of all applicable payroll provisions. As a result, three employees were overpaid by a combined total of $9,630 and one employee was underpaid by $551.

The Board and District officials did not ensure that the unrestricted fund balance and the capital reserve fund balance were reasonable. As of June 30, 2015, the District's unrestricted fund balance totaled more than $1.4 million and was 7.5 percent of the 2015-16 budgeted appropriations, exceeding the statutory limit by 3.5 percentage points. District officials also appropriated a combined total of approximately $1.7 million of fund balance as a financing source in the annual budgets from 2011-12 through 2015-16, but the District's operations did not always use the fund balance and instead generated operating surpluses totaling approximately $745,000 during this period. When adding back the unused appropriated fund balance during this period, the District's unrestricted fund balance further exceeded the statutory limit ranging from 6.7 percent to a projected 9.6 percent of the ensuing year's appropriations. Furthermore, although we found that the balances maintained in the compensated absences reserve and the debt service fund were reasonable, the capital reserve was overfunded by approximately $593,000 or 80 percent.

The Board is required to deliver to the Tax Collector a school tax roll together with a warrant authorizing the collection of taxes prior to the start of the collection process. If any taxes remain unpaid at the end of the collection period, the Tax Collector is required to return the school tax roll and warrant to the Board, along with a statement of the unpaid taxes and description of the properties on which the taxes remain unpaid. We tested the 2015-16 tax collection totaling approximately $2.65 million and found that the Board did not provide the Tax Collector with a warrant prior to the start of the tax collection process. However, the Tax Collector received, recorded and provided the taxes collected for deposit in accordance with the District's approved budget and tax worksheet prepared by the Superintendent. We commend District officials for developing procedures to ensure that tax collections are secure.

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.

The Trustee and Treasurer ensured that disbursements were for proper District purposes and adequately supported. The Treasurer submitted prepared checks, including supporting documentation, to the Trustee for audit and approval prior to payment. We commend District officials for implementing appropriate cash disbursement procedures.

Department staff are not consistently and effectively collecting payments of court-ordered financial obligations from defendants. We reviewed 24 cases with outstanding balances totaling $107,827 and found that 20 cases (83 percent) were in arrears totaling approximately $62,100. In addition, Department staff do not report defendant non-payment delinquencies to the court in a timely manner as required by law. Further, the Department did not charge applicable defendants Driving While Intoxicated or Driving While Ability Impaired administrative fees totaling approximately $215,300 that were allowed by law. Department staff have not disbursed victims' trust fund moneys since April 2012 and lack a process to locate victims that should receive payments after initial contact by mail. Therefore, the Department potentially had $35,091 in undisbursed restitution payments as of July 2015. Because the Department's computerized software that recorded the amounts owed and paid by the defendants and owed and paid to the victims was limited in the types of reports that could be generated, the composition of the undisbursed funds is unknown. Finally, Department staff are unable to perform an accountability of the Department's assets (cash and receivables) and liabilities at any point in time. The Director has not adequately segregated the administrative assistant's duties in the collection and disbursement process or provided compensating controls, which increased the risk that Department funds could be misappropriated without detection.

District officials have not adequately managed the District's financial condition by maintaining reserve fund balances at reasonable levels and developing long-term plans. There is no written plan that details the appropriate and necessary levels for reserve funds and prescribes how the reserve fund balances are to be monitored, analyzed and maintained. As a result, four of the District's 11 reserve funds, totaling more than $6.8 million, may be overfunded or unnecessary. Additionally, District officials have not developed formal multiyear financial or capital plans, which would greatly benefit the District in meeting its current and future obligations and preparing for potentially adverse economic and environmental challenges.

District officials have not effectively managed the general fund's fund balance. The District has not correctly recorded and reported the composition of its fund balance. Since the fiscal year ending June 30, 2013, the Treasurer has recorded and reported the amount of unrestricted fund balance that exceeds the statutory limit at the end of each fiscal year as “other restricted fund balance” to keep the unrestricted fund balance within the limit. This accounting practice understates the true amount of the general fund's unrestricted fund balance and circumvents the statutory limit the District is permitted to retain. As a result, over the four past fiscal years, 2011-12 through 2014-15, the District retained unrestricted fund balance amounts that ranged from 15 percent to 34 percent of the ensuing year's appropriations. In addition, the District appropriated fund balance that was not used and funded the capital reserve with no established plans. These actions also helped to keep the unrestricted fund balance within the statutory limit.

The District has overestimated appropriations in the adopted budgets by about an average of 14 percent annually over the past three years. As a result, a significant portion of the fund balance appropriated in the general fund was not needed to finance operations and unassigned fund balance has exceeded the 4 percent legal limit each of the last three fiscal years. The District has reduced the reported level of year-end unassigned fund balance from 9.3 percent of the ensuing year's budget at the end of 2012-13 to 6.9 percent at the end of 2014-15, but when the unused appropriated fund balance is added back, the recalculated unassigned fund balance exceeds 20 percent of the next year's appropriations for each of the three years. In addition, the District's tax certiorari reserve is overfunded by approximately $567,000 and, based on historic costs, the unemployment insurance reserve has enough funds to cover 37 years of expenditures.

While the Board and District officials reported fund balance levels in accordance with the law, District officials annually appropriated fund balance towards the subsequent year's budget, of which not all of the amounts were used because the Board and District officials consistently overestimated appropriations. When the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the District's recalculated unrestricted fund balance in all three years ranged from approximately $2 million (9 percent) to $2.2 million (11 percent), exceeding the statutory limit. This trend is projected to continue through 2015-16 based on our review of the current budget. In addition, the Board and District officials have not properly managed four reserves that appear to be overfunded or contain funds that are improperly restricted by approximately $7.6 million, which is approximately 35 percent of 2015-16 budgeted appropriations. District officials also consistently budgeted for expenditures that could have been paid for with reserve funds. Although unrestricted fund balance continued to increase through June 30, 2015, District officials continued to increase the tax levy every year. Had District officials maintained the same tax levy as in 2012-13, residents could have realized approximately $720,000 in cumulative savings. As a result, District officials missed opportunities to reduce taxes.

The Board consistently overestimated appropriations in the District's adopted budgets. Although the District reported year-end unrestricted general fund balance at levels that essentially complied with the 4 percent statutory limit, the Board adopted budgets which included appropriated fund balance and reserves that were not needed as funding sources because the Board and District officials overestimated appropriations by an average of 8.8 percent over the last three fiscal years. As a result, the District experiencing an operating surplus in 2011-12 and operating deficits in 2012-13 and 2014-15 that were significantly less than planned. When the unused appropriated fund balance was added back, recalculated unrestricted fund balance averaged about 8 percent of the ensuing year's appropriations, exceeding the legal limit. In addition, the employee benefit accrued liability reserve was overfunded by $1.39 million, which was nearly 40 times the amount of compensated absences reported by the District.

The Board has consistently overestimated appropriations in its adopted budgets by about 9 percent over the past three years. As a result, a significant portion of the fund balance appropriated in the general fund was not needed to finance operations and unassigned fund balance has exceeded the 4 percent legal limit from fiscal years 2012-13 through 2014-15. The District has reduced the reported level of year-end unassigned fund balance from 12 percent of the ensuing year's budget at the end of 2012-13 to 8.6 percent at the end of 2014-15. However, when the unused appropriated fund balance was added back, the recalculated unassigned fund balance exceeded 15 percent of the next year's appropriations in all three years.

District officials ensured that retiree health insurance contributions were properly billed, collected and deposited. Although the account clerk performs most of the duties, District officials implemented proper compensating controls to ensure bills are accurate, money is collected from all retirees and money is deposited into District bank accounts. They also have a process in place to timely identify deceased retirees. However, they could further increase controls to ensure deceased retirees are identified timely.

Although the District has procedures specific to the maintenance of IT inventory, the Board has not adopted an asset policy establishing capitalization or tagging thresholds, control over assets, or how to maintain records for these assets. Consequently, three assets valued at $1,650 could not be located and 21 assets valued at $69,370 were either not tagged or the asset tag numbers did not agree with the asset records. Furthermore, 10 assets purchased in 2015-16 valued at $57,573 were not recorded on the asset list and nine assets valued at $45,750 were listed as disposed of, but were still in service. We also found that 18 of 20 assets listed as disposed of, valued at $32,920, did not have documentation indicating authorization or approval. As a result, District officials do not have assurance that all District property is accounted for properly.