The Board consistently adopted budgets that included overestimated expenditures, underestimated revenues, and the appropriation of fund balance to finance operations; but for three of the last six years, these appropriated funds were not available. As of May 31, 2012, the Village's general fund balance was at a deficit of $56,633, after the planned use of $94,653 to finance operations. We project the available surplus funds at the end of the 2012-13 fiscal year to be approximately $25,500. Budgetary variances were caused by the Board's failure to consider historical revenues and expenditures and/or current known needs as they developed the budgets, and the Board did not effectively monitor the actual results against their operating budgets during the year. Surplus fund balance is no longer available for use as a financing source for Village operations. The Board will be faced with decisions of reducing expenditures or identifying revenues or other financing sources.

District officials have taken appropriate action to manage the District's financial condition. District officials recognized the need to be proactive in budget development and expenditure controls. The District's Finance Committee meets regularly to monitor and evaluate the current year's budget and available fund balance and to plan for next years' budgets. District officials developed reasonable budgets and monitored the budgets throughout the year to properly manage the District's financial condition. Since 2010, total State aid received by the District has declined more than $1 million (8 percent decrease) and revenues, other than real property taxes, have also declined approximately $1.3 million (48 percent). To offset these declining revenues, the District increased its real property tax levy, cut expenditures by $500,000, and used more than $400,000 of its available surplus.

We found that the Company has established a system of internal controls with appropriate procedures to ensure that financial activity is properly recorded and that Company moneys are safeguarded, except for controls over the use of credit cards. The Company does not have a formal policy governing the use of credit cards. Company officials do not ensure that invoices for all credit card purchases are retained and attached to the credit card statement. We reviewed all 264 payments totaling $122,007 made by the Company in 2012, including $7,250 for credit card purchases. We found that claims for credit card purchases totaling $1,570, or 22 percent of the 2012 credit card purchases, did not have adequate documentation on file.

The Board has adopted a code of ethics, but it has not adopted an investment policy or a procurement policy. The Board also has not ensured that procedures are in place for financial recording and reporting. As a result, although the Treasurer did submit monthly financial reports to the Board, they were not complete because the Treasurer had not reconciled the cash and bank balances. The Board also does not perform, or contract for, an annual audit of the Treasurer's records. Finally, while the Treasurer maintained cash balances showing increases and decreases for checking and saving accounts, he did not reconcile those cash balances to the monthly bank statement balances. Because of these weaknesses, we selected all 39 check disbursements totaling $29,914 from January 1, 2013, through February 28, 2013, and found that the disbursements appeared to be for proper District purposes.

Village officials have not developed formal information technology (IT) policies for user access, and the Board has not developed a formal disaster recovery plan. We found generic user accounts on the Village's computer system and some users unnecessarily had administrative rights. We also found that the Village Clerk/Treasurer has administrative rights to the Village's financial software. Therefore, she has the ability to add users, modify access rights and data files, and correct errors. Finally, although audit logs are available through the financial software, they are not generated and reviewed by Village officials. As a result of these weaknesses, the Village's IT system and its data are subject to an increased risk of corruption, loss, or misuse.

The Board has not properly developed its annual operating budgets. In three of the last five fiscal years, the District spent more money than it received. Budget inaccuracies contributed to the District using 54 percent of fund balance to fund the ensuing years' appropriations. Additionally, during this same period, the District budgeted to fund its reserves with approximately $115,000 of fund balance in anticipation of future equipment and repair needs. The fund balance has declined from approximately $71,000 in 2008 to $32,000 in 2012. During the budget development process, the Board did not consider historic trends and develop budgets with these trends in mind. In addition, throughout the fiscal year, the Board did not monitor budget performance or adjust the budgets to reflect actual expenditures as they occurred because the Treasurer was not providing reports showing budget performance.

We found that the Committee generally does not provide adequate oversight of Company financial activities.

During our audit period, the District paid claims totaling $24,547,479. District officials have established adequate controls over the claims processing function that ensure claims are audited in a timely manner and are properly supported. The claims auditor generally conducts a thorough and deliberate audit of each claim before the Board authorizes payment. Even though the claims auditor appeared to be properly auditing claims, the purchasing agent did not always formally approve all purchases prior to ordering goods and services. We selected and reviewed 25 claims totaling $145,637 to determine if purchase orders were issued prior to the ordering of the goods and services and if claims were for legitimate District purposes and audited prior to payment. Despite minor deficiencies that were discussed with District officials, the claims we tested did appear to be for a proper District purpose and audited prior to payment. However, purchase orders for six of the 25 claims totaling $33,539 were confirming purchase orders which were prepared after the invoice was received from the vendor.

Village officials need to improve internal controls over the Village's time and attendance procedures and leave accruals. We identified 79 errors in nine employees' accrual records. There were no timesheets or other records of the days or hours worked, such as calendars and logs, for four salaried employees, and timesheets for two part-time employees were not signed by their supervisors. In addition, internal controls over the Court's operations were not appropriately designed or operating effectively to allow for proper accounting and reporting of financial activities. Bank reconciliations were not documented for Justice Harrison's account, and monthly bank reconciliations of Justice Portin's account showed a recurring, unresolved surplus balance of $446 during the audit period. Finally, internal controls over the Treasurer's activities and the Board's oversight of the Treasurer's financial operations also need to be improved. The Treasurer did not properly reconcile all Village bank accounts or update the accounting records in a timely manner. Further, the Board did not ensure that adequate policies, procedures and agreements were established for online banking and did not provide sufficient oversight of electronic funds transactions.

The Board does not audit claims and has not designated a claims auditor to perform this function. Instead, the Executive Director audits the claims, including payments made for the reimbursement of his own travel costs. Our review of claims did not identify significant discrepancies.

The Board did not ensure that the District only paid for actual District expenses, necessarily incurred on official District business and did not establish appropriate policies and procedures to ensure that expenditures were properly supported. This resulted in the payment of $15,041 in questionable travel costs which do not appear to be for the District's benefit. In addition, claims totaling $23,847, some of which were for this questionable travel, were submitted and paid without adequate support. This included $2,813 in reimbursements to a Chief for expenditures that the District had already paid for on the District credit card. Finally, the Board has not established a maximum daily rate for meals and lodging to ensure that travel is cost-effective and reasonable. Had the Board implemented per diem rates established by GSA for meals and lodging and mandated that the most cost-effective and reasonable means of travel be used, they could have saved over $12,000 on the five out-of-state conferences in 2012.

For the 2011-12 fiscal year we compared billings totaling approximately $3.2 million for all five school districts of residence to revenues received and reported and did not identify any discrepancies. We also reviewed the relevant factors included in the calculation for all five final billings to the school districts and did not identify any discrepancies in the School’s calculation.

We determined that internal controls over the Town's purchasing process were properly designed and operating effectively. We found that Town officials obtained appropriate competition when soliciting purchases from 26 vendors who were paid more than $20,000 each and approximately $1.4 million in total. We also reviewed supporting documents to verify that procurements and subsequent payments were properly authorized, accurate and for legitimate purposes and, where applicable, if reimbursed expenses were appropriate and properly supported by paid bills or receipts. All transactions that we examined were for proper Town business purposes, and were supported by contracts, Board resolutions and appropriately itemized invoices.

The Board has not established an effective system of internal controls over payroll, to ensure that the Town has properly classified its Fair Labor Standards Act (FLSA) exempt employees, and enforced established requirements for leave requests, accrual records, and employee time records. The Board also did not properly authorize interfund advances or ensure that the Supervisor and accountant properly accounted for them and repaid them timely in accordance with law. Also, the Board has not developed long-term financial plans, policies, or procedures to govern budgeting practices and the level of unexpended surplus funds to maintain. As a result, the Board had consistently adopted budgets with inaccurate estimates for revenues and expenditures, and the amount of fund balance that would be available and used to balance the budget. These inaccurate budgets led to the accumulation of significant fund balances in the general and water funds and, conversely, dangerously low fund balance in the sewer district fund. Finally, the Board has not established policies and procedures related to breach notification or disaster recovery.

The Board did not provide adequate oversight of the Company's financial operations, properly supervise the Treasurer's activities, approve bills prior to payment, or ensure that an audit of the Company's finances was performed by an IPA, as required by law. This lack of oversight diminishes the Board's ability to ensure that taxpayer moneys are used in a responsible manner. As a result, Company resources were spent unnecessarily. We identified payments made totaling approximately $8,500 for services and equipment that were never used. In addition, the Treasurer inappropriately reimbursed himself $1,162 for fees associated with his personal credit card and for unsubstantiated restaurant purchases. Finally, we estimate that the Company will save approximately $10,000 annually if the number of cellular telephones is reduced from 18 to five.

The Board generally provides adequate oversight of District financial activities. It has adopted purchasing and investment policies and a code of ethics, as required by statute, and has ensured that procedures for financial recording and reporting were developed. Monthly financial reports are provided to the Board, the annual financial report is filed with OSC in a timely manner, and the Secretary-Treasurer's records are audited annually. Lastly, the Board audits all District claims. Although the Board passed a resolution to pay claims that are allowed to be paid prior to audit, it also passed a separate resolution to pay other bills prior to audit that are not allowed by Town Law. For example, the Board approved the payment of claims prior to audit for certain vendors that supply trash pickup, health insurance, office supplies, auto parts, payroll accounting services, and fire-related services.

We found that the Board and Village officials have not developed policies and procedures to govern budgeting practices and the level of unexpended surplus funds to maintain or developed long-term financial and capital plans. As a result, the Board has adopted budgets that were not based on sound and realistic estimates of expenditures, and the Village has excessive fund balance in the general fund. In addition, the Board has not adopted an investment policy, which is required by law, or any policies or procedures for finance-related operations. The Board has also not adopted any policies or procedures governing information technology (IT), including those related to acceptable use, data backup, online banking, disaster recovery, equipment disposal, and breach notification. Additionally, the Village's unaccounted-for water for 2011-12 was 30 percent which is significantly higher than the industry standard of 10 percent.

The Board did not adopt a comprehensive IT security plan or a disaster recovery plan. In addition, the Board has not adopted a breach notification policy. Without a proper IT security plan and a disaster recovery plan in place there is an increased risk that Town data, hardware and software systems may be lost or damaged by unauthorized access and use, or disaster. Furthermore, by failing to adopt an information breach notification policy, in the event that private information is compromised, Town officials and employees may not understand or be prepared to fulfill their legal obligation to notify affected individuals.

The Village's internal controls over water operations need to be improved. The water clerk's duties were inadequately segregated, interfund advances were not accurately accounted for, reconciled, or repaid as required and employee benefits costs were inaccurately allocated. As result of deficient internal controls, we detected errors in more than 17 percent of the water bills that we reviewed, and more than $1,100 of customer account adjustments were made without documented prior approval. In addition, as of May 2012, the water fund owed the general fund approximately $126,000. The water fund was also over-charged approximately $74,000 for employee benefit costs.

We found the District established adequate internal controls over payroll. District officials implemented specific procedures to ensure that individuals were paid at their approved salaries and wages and received only the benefits to which they were entitled. We also determined that the various control procedures that the District had established over the payroll process provided adequate supervision and oversight.