Even though the Board received monthly budget-to-actual reports from the Supervisor, it did not develop and adopt accurate budgets that were based on realistic estimates of revenues and expenditures. Additionally, the Board has not adopted a policy and Town officials have not developed procedures to govern the level of unexpended surplus funds maintained. As a result of the flawed budget process, the Town has accumulated excess unrestricted fund balances in the general and water funds. The general fund's excess unrestricted fund balance is 128 percent of the ensuing year's budget and the water fund's excess unrestricted fund balance is 75 percent of the ensuing year's budget. Furthermore, the Board's poor budgeting has generated operating surpluses of almost $1.86 million in the general fund.

The internal controls in the Justice Court were not adequately designed and operating effectively. We found a cash shortage of $1,814 in one of the Justice's accounts and identified 11 missing receipt numbers in the computer system for which there was no documentation. Further, all three Justices either performed inadequate bank reconciliations or did not perform them at all. Although the Board audited the Justices' records, the audits failed to identify the control weaknesses, the cash shortage, or the lack of bank reconciliations. Additionally, the Clerk did not establish adequate controls over her financial activities and the Board did not establish effective monitoring controls. We also found that the Town has applied its substantial revenues from wind power to reducing the taxpayers' burden and increasing the Town's unassigned fund balance. The tax levy decreased from about $659,000 in 2006 to about $302,000 in 2013 (a 54 percent reduction). Although we commend Town officials on their use of these moneys to reduce the tax levy and build fund balance, we urge the Board to consider developing a comprehensive, multiyear financial and capital plan for the use of the wind power revenues.

The Board-adopted credit card policy authorizes issuing credit cards to certain District officials. The policy states that each credit card purchase is limited to $2,500 and must be documented by submitting a receipt which specifies the purchase date, amount, location, reason, item description, and the purchaser's name. However, this policy does not require bonding insurance for all individuals who are issued District credit cards. We found that the only individual bonded was the Treasurer. Therefore, we reviewed all 158 credit card purchases totaling $25,500 made during our audit period. Our review disclosed that District officials made 26 credit card purchases totaling $1,609 that did not include all the supporting documentation required by the District's credit card policy. Additionally, 19 credit card purchases totaling $11,635 circumvented the District's procurement policy that required documentation for solicited quotes.

The Board did not adopt realistic budgets, did not adequately monitor and adjust the annual budgets, and did not adequately monitor the Town's financial operations to ensure fiscal stability. As a result, the Town's general town-wide fund's unexpended surplus funds declined from $169,198 as of January 1, 2010, to a deficit of $28,226 as of December 31, 2012, while the highway part-town fund's unexpended surplus funds declined from $63,773 to a deficit of $29,228 for the same period. The general town-wide and highway part-town funds have had operating deficits during the last three fiscal years because the Board over-appropriated fund balance and over-estimated revenues.

The Board did not ensure that Town officials followed statutory bidding requirements or the Town's procurement policy. We identified approximately $301,000 in purchases that were not properly bid as required by law, and approximately $94,000 in purchases that did not have quotes as required by Town policy. Additionally, Town officials stated that items were purchased through State or county contract but they did not confirm that they received the appropriate contract pricing and did not have documentation to that effect. Our comparisons of items and prices against State and county contracts indicated that the purchases were not made through OGS or county contract. Further, the required prior Board approvals of purchases exceeding policy thresholds were not obtained.

The Board has adopted budgets that relied too heavily on appropriated fund balance as a financing source. As a result, the financial condition of the general, highway, and lighting district funds has diminished in recent years, resulting in fiscal stress. As of December 31, 2012, the general and highway funds reported unexpended fund deficits of $24,853, and $31,823, respectively, and the lighting district fund had unexpended surplus funds of only $2,598. We also found that the Board does not receive monthly budget status reports or cash balances to monitor the Town's financial condition and that the Board did not develop a multiyear financial and capital plan to address the Town's long-term priorities.

The Town's budgets from fiscal years 2009 through 2012 were unrealistic. Total actual revenues during this period were approximately $1.3 million more than budgeted, and total expenditures during this period were $340,669 less than appropriations. These unrealistic budgets caused unexpended surplus fund balance to increase significantly. At the end of 2010, the Town had $2.7 million in unexpended surplus fund balance, which was more than double the ensuing year's appropriations. Further, at the end of fiscal year 2012, the Town had $1.3 million of unexpended surplus fund balance, which was projected to remain above 100 percent of the 2013 fiscal year's appropriations. The Town continues to levy taxes unnecessarily even though it has excessive fund balance. Further, the Board has not developed a multiyear plan for the use of fund balance.

As of December 31, 2012, the Board accumulated unexpended surplus funds in the general fund totaling $458,698, which were excessive compared to the 2013 budget of $255,420. This primarily occurred because the Board underestimated budget revenues in previous years and did not adopt a policy to govern the level of fund balance to be maintained. The Board also did not develop a long-term financial to ensure unexpended surplus funds will be used as this Board intends, or in other ways to benefit taxpayers. Lastly, the Board did not audit the records and reports of the Supervisor or Town Clerk-Tax Collector. As a result, the Board is at risk of failing to detect and correct errors, irregularities, or fraudulent activity.

The Board did not develop hiring policies and payroll procedures for managing the Town's payroll process. Sixty employees began work and were paid $28,210 between February and June 2012 prior to the Board's approval of their employment and pay rates. Further, Highway employees were paid $1,413 for time not worked when they left work early and one employee earned leave accruals to which she was not entitled. In addition, we found that Highway employees were overpaid $1,861 due to incorrect pay rates. We also found that the Board failed to establish uniform and consistent procedures for employees to record the request, approval, and use of leave. As a result, leave records were not accurately maintained and may have resulted in employees receiving payment for leave time to which they were not entitled. Finally, payments totaling $8,519 were made for compensatory time without the Board's written approval.

The Board adopted budgets for the general fund that were not structurally balanced; instead the Board routinely relied on appropriating significant amounts of fund balance to finance operations. In addition, the County's enterprise health fund and enterprise refuse and garbage fund were not self-sufficient and, therefore, required subsidies from the general fund through both interfund transfers and advances. County officials also did not ensure that interfund advances from the general fund to the enterprise funds were fully repaid by the close of the fiscal year. As a result, the general fund realized planned operating deficits, a declining fund balance, and a declining cash balance from 2010 to 2012. The County's financial condition will likely decline further during 2013 because the Board has adopted budgets for the general fund, enterprise health fund, and enterprise refuse and garbage funds for 2013 using the same budgeting practices. County officials' failure to establish comprehensive written policies and procedures for the preparation and processing of payroll and leave time accruals has resulted in a lack of segregation of duties and lack of compensating controls. As a result, we found that employees were both over and underpaid and that employees' leave accrual records were not properly maintained. Finally, County officials have not properly limited users' access within the computerized payroll systems and have not generated and reviewed change reports from these systems.

The Board has not adopted a policy and Town officials have not developed procedures to address the level of unexpended surplus fund balance to be maintained. The Board's overly conservative budgeting practices have resulted in the Town continuing to maintain excessive unexpended surplus fund balances in all four major operating funds. At the end of the 2012 fiscal year, the unexpended surplus fund balance of the general town-wide fund was 69 percent of budgeted appropriations for 2013, the general town-outside-village fund was 106 percent, the highway town-wide fund was 63 percent, and the highway town-outside-village fund was 85 percent of 2013 appropriations. In addition, internal controls over cash receipts in the Clerk's office were not appropriately designed or operating effectively, which provided the Clerk/Tax Collector with an opportunity to misappropriate funds. Had the Board ensured that proper controls were in place, it may have been in a better position to detect or prevent the shortage of $3,385 in tax receipts and $400 in Clerk receipts as of March 7, 2013. Finally, had the Board conducted the annual audit of the Justice Court, it may have been in a position to detect the shortage of $105 at March 31, 2013.

The Town's general town wide fund balance has decreased by approximately $2.4 million over the past five years, due primarily to the Board relying on fund balance as a financing source for operations. The Board did not adopt a policy or ensure that procedures were in place to govern the level of fund balance to be maintained. Furthermore, the Board's estimates of unexpended surplus fund balance to be appropriated in the budgets exceeded the amounts actually available; as a result, the Board did not adopt structurally balanced budgets.

The Board did not prepare reasonable budget estimates. The Board received an extra $1.7 million in unbudgeted revenues from 2008 to 2012. Of this amount, $1.3 million is related to flood revenues. The Board budgeted $6.2 million in expenditures over the same time period and actually spent $6.8 million, resulting in excess spending of $630,000. The Supervisor does not segregate flood-related expenditures in the accounting records, so it could not be determined how much of this difference was attributable to the flood. As a result, the combined unassigned fund balance for all funds had risen to more than $577,000 by the end of 2012, which was 45 percent of the ensuing year's budget. Because flood-related expenditures are not segregated in the accounting records or the adopted budgets, there is not a base-line level for routine expenditures, which makes it difficult to adopt proper budgets in the subsequent year.

The Village is in better financial condition than it was during our previous audit; this is partially attributed to the budgets adopted by the Board. These budgets featured increased tax levies and resulted in operating surpluses and increases in the overall level of unexpended surplus funds. In addition, the Board has recently implemented cost saving ideas including improving the insulation of the highway department garage in January 2013 and changing the date of elections. However, the Board could make improvements in budget preparation and in monitoring and controlling the budget throughout the year to prevent deterioration of the Village's financial condition.

Our audit identified deficiencies in providing adequate oversight of Justice Court operations including depositing, recording, reconciling, and reporting. The Justices did not sufficiently segregate the Clerk's duties or establish adequate procedures for reviewing her work. The Justices also failed to reconcile their bail records to the Clerk's accounting records, or review the information the Clerk entered into the Court's database system. Additionally, they did not ensure that all money received was deposited and recorded in a timely manner, or that monthly reports were submitted to the Justice Court Fund within the time allowed. Further, because the Board failed to conduct annual audits of the Court's financial records, no one can be certain that all Court money was accurately reported and accounted for.

The Board needs to improve controls over cash disbursements to ensure that cash is properly safeguarded. Board members and the Treasurer do not audit each claim prior to the bookkeeper preparing the disbursements and no one reviews the processed payroll reports prior to disbursement or regularly reviews prepared bank reconciliations. In addition, the administrative secretary is allowed to apply the Board President's signature with a stamp to payroll disbursements. Further, the Board has allowed the bookkeeper − who is a vendor − direct access to District bank accounts to withdraw funds for claims that have not been reviewed by the Board members and Treasurer. District officials also have not adequately restricted online banking access rights to ensure the security of funds and the Director, administrative secretary, Treasurer, and bookkeeper share the same user name and password for the online banking function.

District staff did not always follow the competitive bidding guidelines as required by GML, or the District's purchasing policy, for purchases required to be bid, or those that were required to be purchased by obtaining verbal or written quotes. District personnel also did not comply with the District's purchasing policy by seeking competition when procuring the services of professional service providers. In addition, the Board did not follow its own purchasing policy by approving vendors for use outside of the competitive process. Finally, the Board does not always enter into written agreements with professional service providers.

Based on the results of our review, we found that revenue and expenditure projections in the proposed budget are reasonable. However, the Town is currently reporting accounts payable in the Hospital fund that are related to the hospital which closed in 2005. While the Hospital fund is primarily responsible for the $1.9 million payable, the fund only has approximately $536,000 in current resources available to liquidate the liability. The Town's total current resources are approximately $1.9 million. Thus, the full liquidation of the liability could significantly impact the Town's real property tax levy or the current level of services provided. The Town has been reporting the same liability for several years without any changes. Finally, the Town has adopted a local law to override the tax levy limit in 2014.

The Company's governing body did not adequately safeguard the Company's money. The governing body did not develop and implement internal controls over its cash disbursement and receipt functions and did not ensure the Company's by-laws were implemented. The Treasurer did not maintain reports of the Company's financial activities, report to the governing body, or prepare monthly bank reconciliations. As a result, the President was able to misuse the Company's debit card and apparently misappropriate more than $38,000 of the Company's funds during the period October 2009 to December 2012. In addition, during this period, the President made additional questionable purchases and cash withdrawals totaling more than $7,500.

Based on the results of our review, we found that revenue and expenditure projections in the proposed budget are reasonable. The Town's preliminary budget complies with the property tax levy limit.