We found that the Board's personnel policy did not clearly define important terms and conditions regarding eligibility for accruing leave or the payment for unused leave. Moreover, there is a lack of segregation of duties over the administration of leave time benefits. The Clerk-Treasurer was the only individual responsible for maintaining records of accrued leave balances, including her own, with no independent review. We reviewed two former Clerk-Treasurers' leave accruals, and the payments made to them for unused leave time at separation from service, totaling $19,605. We found that the Village overpaid these two individuals by $6,875. In addition, the Board has not adopted written policies and procedures regarding the retention and safeguarding of personal, private and sensitive information in electronic format. We found that the Mayor discarded floppy disks without deleting such information first. Furthermore, the Mayor, contrary to adopted Board policy, took custody of an external hard drive owned by the Village and is currently using it for personal purposes.

The Board adopted budgets using fund balance to reduce the tax levy with no systematic approach to ensure that appropriated amounts were available. Because of this, both the general and highway funds experienced significant declines in fund balance from the 2009 to the 2011 fiscal years. For 2013 Town officials took steps to correct their budget deficiencies, which should eliminate the operating deficits in the general and highway funds. In addition, the Board does not perform a proper audit of claims. We found that certain claims lacked itemization and documentation to support that they comply with Town policies and that they represent actual and necessary Town expenses. We also found that the Supervisor was inappropriately paying claims prior to Board audit.

Based on the results of our review, we found that the significant revenue and expenditure projections in the tentative budget are reasonable. We also found that the District's proposed budget complies with the property tax levy limit.

The Town allocates the costs of services provided by some Town operations funded by the general fund to other departments and districts accounted for in other funds. However, we found that the allocation method is not based on the cost of actual services provided. Instead, Town officials applied a flat percentage rate to each department's budget, which is not equitable because all the departments do not use the same type and degree of services. Additionally, the Town improperly included the salaries of the Supervisor and Town Clerk and included certain administrative charges – such as payroll, Justice Court, and municipal garage – in allocations to departments that did not use them. These improperly allocated amounts represented at least $779,829 (26 percent) of the $2,980,750 that was allocated in 2012 to 11 funds.

While City officials had procedures to properly authorize capital projects, they did not adequately monitor financial activity or close completed projects in a timely manner. As a result, the City had 87 open capital projects, only nine of which were active – leaving 78 projects that had been completed, but still open in the records. Forty-eight of the completed projects had surplus balances totaling $3.4 million, $2.4 million of which must be transferred to the debt service fund or reserve for debt. The remaining 30 completed projects had deficits totaling $3 million because they either did not receive the expected financing or were over-expended. The failure to properly manage capital projects has limited the transparency of the financial position of the City's general fund.

Internal controls over the Court's operations were not appropriately designed or operating effectively to allow for proper accounting and reporting of financial activities. Justices Blain and Olson did not perform bank reconciliations properly or at all, prepare monthly accountabilities, deposit cash receipts in a timely manner, adequately segregate the court clerk's duties and provide proper oversight of the court clerk. Further, the Board's oversight of the Court was inadequate. The court clerk improperly held partial payments, did not issue press-numbered receipts for all payments collected by the Court, and did not enter all moneys received into the Court's accounting system. Because of these weaknesses, Justice Blain had unidentified funds totaling $1,848 in his bank account that could not be traced to any open or closed case files, fines or fees, or bail moneys; and Justice Olson had a cash shortage totaling $852 which had not been detected or corrected.

District officials' appropriation of fund balance in excess of the amount actually available to fund operations resulted in an unassigned fund balance deficit of $1.5 million as of June 30, 2011. District officials addressed this situation by implementing reductions to budgeted expenditures in the 2011-12 fiscal year. The District's latest annual report shows the deficit was eliminated as of June 30, 2012.

Although the STAR program has succeeded in delivering millions of dollars in tax relief, we found that local assessors have granted a significant number of exemptions to individuals or entities not eligible to receive them. Our tests of one class of potentially ineligible exemptions at 46 sampled municipalities showed that 19.6 percent of the exemptions should not have been granted because they were duplicate or improper. We project that the State lost $13 million in the 2010-11 fiscal year - and will lose an additional $73 million through the 2015-16 fiscal year - just for exemptions with this specific risk indicator (i.e., having a mailing address that receives STAR exemptions for multiple parcels). Because the exemptions we examined represent less than 3 percent of the STAR exemptions in effect in 2010, the extent of duplicate or improper exemptions is likely significantly higher, and much more costly to the State. We found that some municipalities have taken proactive steps to reduce homeowner “double-dipping” and other abusive practices. However, municipalities, on their own, do not have the tools they need to avoid granting duplicate exemptions; specifically, clear direction in the Law and the ability to perform effective searches for potential duplicate exemptions.

During the audit period, 32 employees left District service and received separation payments totaling $722,738. Generally, District officials calculated the correct amount for separation payments provided to the employees leaving District service. Except for two minor exceptions, which we discussed with District officials, we found that the District has designed appropriate internal controls over employee separation payments and those controls are operating effectively. We also found that, in 2010, District officials developed a disaster recovery plan; however, the Board has not formally adopted the plan. Also, the plan does not sufficiently address all necessary components and does not contain the level of detail necessary to ensure that the computer system could be restored in a timely manner. We also found that the District has not tested the plan to ensure that it can be implemented in emergency situations and that management and staff understand how it is to be executed. Finally, we found that all employees were not made aware of the plan.

The City's servers are not placed in secure locations. In addition, system users were granted administrative privileges that they did not need to perform their job duties. Further, the Council has not adopted a disaster recovery plan. As a result, there is an increased risk that computerized data could be lost or compromised, or that City operations could be seriously disrupted.

The Board and Supervisor did not adequately segregate duties related to the collection, recording, and depositing of receipts, the preparation and recording of disbursements, and bank reconciliations. In addition, the Supervisor allowed the bookkeeper to affix the Supervisor's signature on disbursement checks using a rubber stamp. We also found that no one compares the approved claim warrants to the checks that cleared the bank, and there was no documentation of an annual Board audit of the Supervisor's records.

Over the 2009-10 through 2011-12 fiscal years, the Board underestimated expenditures by a total of more than $416,000 despite historical indications that expenditures consistently exceeded the budget. These budgeting practices created operating deficits that have contributed to ongoing fund balance deficits in the general fund. During this period, the Village received over $642,000 in non-recurring revenue without which the fund balance deficit would have been even greater. The Board also failed to audit all claims as required by Village Law. For the fiscal year ended May 31, 2011, the Board reviewed and authorized only 12 abstracts with 573 claims out of 146 abstracts with a total of 1,031 claims. In addition, a Board member had a prohibited interest in a contract with the Village. Finally, Village officials have not adopted comprehensive IT policies and procedures regarding standards for computer use, remote access, breach notification, data backup, and disaster recovery.

We reviewed four resident school district bills for three resident school districts whose students comprised an average of 95 percent of the student population during the 2011-12 and 2012-13 fiscal years to determine whether the billing invoices were accurate and supported. We found that the School accurately billed the school districts of residence. We also found that the School maintained adequate supporting documentation for the students reviewed. Furthermore, at the end of the fiscal year, the Finance Manager completes a reconciliation of amounts billed and collected. We reviewed his reconciliation for the 2011-12 school year and the reconciliation appeared reasonable.

The Board did not develop and adopt accurate budgets that were based on realistic estimates of revenues and expenditures. Even though the Board received monthly budget-to-actual reports from the Supervisor, they consistently underestimated revenues and overestimated expenditures. As a result, fund balance that was appropriated as a funding source was not used, taxes were unnecessarily levied, and the Town accumulated $309,369 and $399,024 of unrestricted surplus funds in the general and highway funds, respectively. These amounts are excessive in comparison to the Town's expenditure levels, representing 108 percent and 69 percent of the 2013 budgeted expenditures for the general and highway funds, respectively. In addition, the Board accumulated $117,463 in a reserve fund for highway equipment and $18,606 in an unemployment reserve without documenting any planned use.

The Board authorized substantial improvements to the Village's water system and obtained funding for the project from the Environmental Facilities Corporation without first identifying a plan to pay for the related debt. Although the Board raised water rates five times starting in June 2007, it did not establish a reserve to set aside any of these resources to fund project costs or the debt service payments that are expected to begin in the Village's 2013-14 fiscal year. We also found that the Clerk-Treasurer's records for the water fund were inaccurate, and misrepresented the fund's financial condition. In addition, the Board did not establish policies or procedures for the billing and collection of water charges, and failed to properly segregate the duties of the Clerk-Treasurer or implement compensating controls. Finally, we found that the Clerk-Treasurer did not include all unpaid water bills and fees on the tax roll for the 2011-12 fiscal year.

Town officials did not have written procedures for reconciling the water processed by its water system and purchased from the Village with the water billed to its customers. The Town could not account for 8,376,160 gallons, or about 25 percent of the water processed. We estimated that the Town lost $64,787 in water rent revenue from unbilled water if the lost water was due to malfunctioning meters and/or theft. Conversely, if the water lost was due to leaks, the Town incurred a loss of at least $57,000 to purchase 7.6 million gallons of unaccounted-for water. The Town also has not established written procedures that clearly define the process for issuing permits allowing property owners to connect to the water system. Consequently, property owners did not always apply for tapping permits. We calculated that the Town lost revenues of $30,550 as the result of not issuing tapping permits and collecting tapping fees. Finally, Town officials did not seek competitive rates for electricity supply purchases or periodically review the rate they were paying with rates offered by other electricity suppliers. The Town could have saved as much as $4,035 had it contracted with the same energy supply company (ESCO) as the Village, or $2,548 using the Orange County ESCO.

Since our last audit of the City's financial condition, the general fund's unexpended surplus has significantly increased from $165,723 on December 31, 2006 to $6.2 million on December 31, 2011. As of October 31, 2012, the fiscal year 2012 general fund budget of $37.2 million appears on track with City officials not anticipating an operating deficit. Also, while the financial condition of the water and sewer funds has improved during our audit period, the water fund balance continues to remain in a deficit. As of October 31, 2012, the fiscal year 2012 water budget of $2.97 million and sewer budget of $3.67 million appear generally on track with City officials anticipating a small operating deficit in each fund. During the period reviewed, the Council did not address cash flow problems in the water and sewer funds. Instead, the Council routinely relied on increasing amounts of inter-fund loans from the general fund to finance operations in the water and sewer funds. The combined balance of outstanding inter-fund loans from the general fund to the water and sewer funds has increased from approximately $1.4 million on January 1, 2008 to $1.8 million on December 31, 2011, with no plan for repayment.

Intermunicipal cooperation for the provision of IT services has resulted in cost savings for local governments.

The Board does not provide adequate oversight of the Department’s financial activities.

The Board did not ensure that all claims were audited, were audited prior to payment, and did not properly audit all claims to ensure they included evidence of receipt and price quotes. As a result, 20 claims totaling $32,326 were paid even though evidence of Board approval was not documented in the Board minutes, and five claims totaling $6,258 were inappropriately paid in advance of Board audit. Although we did not identify any instances where goods and services were not received, two claims, totaling $4,099, lacked quotes as required by the Village's procurement policy. In addition, the Board did not audit, or cause to be audited, the Treasurer's records and reports.