We found weaknesses in the Court's internal controls and a lack of oversight of the Court's operations by the Justices and the Board. The clerks performed all of the key aspects of the Court's accounting function with limited oversight. Deposits were not always made, and monthly reports were not always submitted in a timely manner. Because of these weaknesses, the Board and the Justices have limited assurance that all moneys collected are accounted for, and there is an increased risk that Court funds could be misappropriated without detection or correction.

While the District does have adequate financial policies, it does not have certain financial procedures in place. The Board has not ensured that procedures concerning certain financial recording and reporting were developed. The Treasurer submits a budget-to-actual financial report to the Board only at the end of the fiscal year and has not filed the required annual financial report with the Office of State Comptroller since the 2008 fiscal year. Although the Treasurer identifies checks that have cleared the bank, he does not perform proper bank reconciliations. The Board authorizes each claim for payment and indicates its approval by affixing Board member signatures to the claims, but the Board minutes do not indicate the approval to pay these claims. In addition, the Board contracts with an independent auditor to perform an annual audit of the Treasurer's records; however, the last completed audit was performed in 2010 for the 2008 fiscal year.

The Board did not adopt a procurement policy as required. In August 2011 the Board adopted a resolution stating that although it is understood that the Town is required to have written policies, the resolution directed Town officials to consult the Office of the State Comptroller's publications for guidance. However, this resolution did not satisfy the requirement to adopt a written procurement policy, where the Board would specify the number of written or verbal quotes or bids to be obtained for various dollar thresholds, among other things. The Board also annually adopted resolutions requiring that it approve all purchases costing more than $1,500; however, these resolutions made no mention of quotes or bids to be obtained prior to such approval. The Highway Superintendent indicated that he obtained quotes for certain purchases, but did not retain them or attach them to the claim for review by the Board prior to payment.

The Board frequently over-estimated budgeted expenditures for the 2009 through 2012 fiscal years, and also appropriated $1 million in fund balance each year which was not fully needed to finance District operations. As a result, only a fraction of the appropriated fund balance was used to fund operations in three of the four years reviewed. None of the appropriated fund balance was used in the other year.

The Board did not establish procedures to help ensure that fuel was dispensed only into Town vehicles and equipment by authorized employees. Furthermore, there were no procedures in place to regularly monitor fuel transactions for reasonableness and ensure that only authorized employees were provided with a user ID. As a result, the Town paid $4,991 for fuel that was obtained by a former employee and used for other than Town purposes.

The financial condition of the Town's highway town-wide fund has declined in recent years from a balance of $88,293 at the beginning of 2008 to a deficit balance of $12,600 at the end of 2012. This decline in fund balance was caused by the Board not adopting realistic budgets and effectively monitoring budgets throughout the year. Additionally, the Board has not established an effective claims auditing process to ensure all claims reviewed and approved by the Board contain adequate support to substantiate they are proper Town expenses. One $1,500 claim was for a piece of highway equipment purchased from the Highway Superintendent's (Superintendent) personal trucking business. We determined that the Superintendent had a prohibited interest in the purchase of this equipment. Further, the Board did not audit the books and records of the Supervisor, Town Clerk, tax collector, and Town Justice as required. Finally, the Superintendent does not maintain inventory records that collectively show the amount of beginning inventory, fuel purchased, fuel consumed, and the balance of fuel remaining. Our analysis of a sample of the Town's gasoline and diesel fuel purchases and recorded usage determined that the Town is unable to account for approximately 2,510 gallons of fuel valued at approximately $8,440.

The Board did not develop reasonable budget estimates for the general town-wide fund and did not properly monitor and control actual activity against those estimates, allowing appropriations to be over-expended. In addition, the Board aggregately over-estimated revenues for mortgage tax by $154,157 and the rental of real property by $77,580 in the three most recent fiscal years (2010-2012). Because of the revenue shortfalls and over-expended appropriations, the general town-wide fund experienced operating deficits in the 2010, 2011, and 2012 fiscal years. Consequently, the general town-wide unrestricted fund balance declined from $450,949 at January 1, 2010, to a deficit of $107,587 at December 31, 2012. Finally, the Board and Town officials have not developed a comprehensive multiyear financial plan to adequately address the Town's operational and capital needs.

The Board disbursed $102,275 from the water system improvement reserve to pay for work associated with the River Street retaining wall project. However, because this reserve was set up as a capital reserve for the improvement of the water system, expending moneys from this reserve for other than its intended purpose, such as for the repair of the retaining wall, was an inappropriate use of the reserve. Although we were informed that this amount is to be repaid upon the receipt of State aid, there is no legal authority to temporarily borrow moneys from a capital reserve to be repaid upon the receipt of State aid. In addition, the Board did not effectively audit all claims under its jurisdiction because it only reviewed the voucher edit lists and did not review each related claim. The Board also did not audit, or cause to be audited, the annual financial report or supporting records of the Clerk-Treasurer. Finally, the Board does not monitor the remote access of software vendors or the Village's information technology consultant who has the ability to modify or destroy financial application data. Further, the Board has not developed a comprehensive disaster recovery plan, back-up copies of data are not stored in a secure off-site location, and the Village does not periodically verify that the system can be restored from the back-up copies.

The Board needs to improve its budgeting practices and enhance its oversight of the Town's finances. The Board has not adopted realistic budgets for the general fund primarily because it repeatedly under-estimated revenues. As a result, at the end of 2012, fund balance in the general fund had increased to $741,000 or 67 percent of the ensuing year's appropriations. In addition, portions of the fund balance set aside as a funding source for subsequent years' budgets were not used as planned. We also found that the water and sewer districts were not properly funded, resulting in the general fund having to make interfund loans to these districts to support their operations. Finally, the Board did not have a policy to govern the level of fund balance that should be maintained and has not adopted long-term financial plans. Without multiyear operational and capital plans, the Board's ability to manage the Town's fiscal stability is diminished.

The Board and District management are not developing realistic expenditure budget estimates. For the fiscal years ended 2008 to 2011, the District spent an average of $1.8 million less than budgeted appropriations each year. For the fiscal year ended 2012, the District's actual revenues and expenditures were far closer to budget estimates, receiving $60,000 less than budgeted revenues and spending only $702,000 less than budgeted appropriations. The District's annual budgets also included the use of fund balance to finance operations in order to keep the real property tax levies at amounts the Board considered to be reasonable. For a five-year period, the Board adopted budgets that included aggregate appropriated unexpended surplus of more than $4.7 million, an average of more than $940,000 annually, which should have decreased the amount available to appropriate. However, very little of the planned amount was used because, for the same period, actual operations generated surpluses totaling more than $5.3 million.

The Board did not adequately manage the water fund's financial operations. The Board consistently over-estimated expenditures and revenues, which initially resulted in an excessive fund balance, but has since caused fund balance to significantly decrease over the past two years. Although capital expenditures were made to repair infrastructure and decrease water loss, no long-term capital plan has been put into place to address financial needs and further capital improvements. Without proper budgeting and capital planning, this resulting decrease in fund balance may lead to fiscal stress in the water fund.

The Board did not establish reasonable financial plans for three of its major operating funds but repeatedly relied on transfers from the general fund and appropriations of fund balance to finance operations in the highway and fire protection funds. Although Town officials accounted for these three funds individually, they maintained a consolidated checking account for the combined funds and paid for large purchases without verifying that the fund balance was actually available. As a result, the financial condition of the three funds deteriorated significantly over the past four years. While the Town's overall tax levy for the general, highway, fire protection, library, lighting district, and water funds was relatively steady over the past four years, the general and highway funds' budgeted tax fluctuated significantly and failed to consistently fund operations.

We found that the Board and District officials did not adopt and implement appropriate policies and procedures for the extra-classroom activity fund. As a result, six student clubs were inactive but had deposits totaling $4,450 that were not closed out. In addition, the student treasurers lacked documentation/accounting records for remittances totaling $10,188 and documentation, such as itemized receipts and payment orders, for disbursements totaling $16,736. The central treasurer lacked duplicate receipts for remittances totaling $13,188 and documentation, such as itemized receipts and payment orders, for disbursements totaling $8,965. These deficiencies increase the risk that receipts will not be deposited and disbursements will not be appropriate.

District officials developed reasonable budgets and managed fund balance responsibly in accordance with statute. Although the District's fund balance has decreased significantly over the past five years, from $8.5 million beginning in 2009 to $4.6 million in 2013, the District is not currently in fiscal stress. The decline resulted from the District's planned operating deficits and planned use of moneys from its tax stabilization reserve.

The court clerk maintained complete, accurate and timely monthly bank reconciliations and cash accountability reports; however, the Justices did not review these reconciliations and reports. This is of particular concern because the court clerk performed all financial transactions and the Justices did not review her work to ensure that it was accurate and complete. Further, the Village did not maintain time records for the court clerk. As such, Village officials do not have assurance that the court clerk worked all of the hours that she was paid for. Due to poor segregation of duties and the lack of oversight, we obtained information to determine if cases were accounted for properly. Other than deposits not being made timely, we found no exceptions to the amounts collected, reported and accounted for by the court clerk.

In recent years the District has struggled with fiscal challenges due to a deteriorating financial condition. We found that the Board adopted budgets that limited costs and tax increases. The Board balanced its budgets with appropriations of unexpended surplus funds and reserves. As a result, by the end of the 2011-12 fiscal year, the District had only $10,000 remaining in reserves, and an unexpended surplus fund balance of $384,362. To meet short-term cash flow needs, the District borrowed $1.1 million at the beginning of the 2012-13 fiscal year. While the Board has taken steps to attempt to address its declining financial position, we found that the Board has not developed a multiyear financial plan to improve the budget development process.

The Sullivan County IDA (SCIDA) has established a Uniform Tax Exempt Policy for both general and specific-purpose projects. The policies are specific and clearly articulate project goals and abatement schedules. The project approval process includes in-depth cost-benefit analyses based on reasonable assumptions. However, there is no effective mechanism in place to identify agency members' financial interests in potential projects during the selection process. SCIDA officials submit a financial disclosure form to the County Clerk of the Legislature, detailing any business interests; however, the County does not unseal and review the financial disclosure forms or provide them to the SCIDA for review. One of the projects in our review was approved for a PILOT agreement even though a SCIDA Board member was the spouse of one of the two partners in the potential project. Lastly, projects are monitored and performance goals are tracked. PILOT amounts are adjusted annually based on performance.

The Board did not ensure that the Clerk-Treasurer properly reported the Village's financial condition. We found errors in almost every aspect of the accounting function from the accounting records to the financial reports and in the reports to the IRS. The Clerk-Treasurer submitted an annual financial report with less cash reported than the actual balance available. Available fund balance was also significantly underreported and several expenditure lines were reported inaccurately. Moreover, the interim reports that the Clerk-Treasurer provided to the Board were incomplete and did not include sufficient information to enable the Board to monitor the Village's financial activities against the adopted budgets. Further, the Board did not audit the Clerk-Treasurer's records at any time.

The Board needs to improve its oversight of key financial activities and ensure that applicable laws and best practices are followed to help ensure that Town resources are adequately safeguarded. The Tax Collector did not deposit and remit tax payments within the timeframes required by law, and the Supervisor did not ensure that the bookkeeper maintained timely and accurate records and bank reconciliations. Further, because the Board did not audit the books and records of the applicable officials, these and other deficiencies were not detected. The Board also did not properly audit claims and failed to use competition when procuring professional services, increasing the risk of wasting taxpayer money.

The Board did not ensure that detailed claims audit procedures were in place to enable it to perform a proper and thorough audit in a timely manner. As a result, claims totaling more than $11,200 were paid more than 90 days after the invoice date, and claims totaling more than $1,400 were paid for a service contract which was expired. Informal procedures were established and implemented in November 2012 which helped to improve the Town's claims auditing process.