The Board has not adopted policies establishing responsibilities and duties for the Treasurer for handling cash and maintaining accounting records. As a result, the Treasurer filed the Village's annual financial report an average of 221 days past the due date for the fiscal years ending in 2008 through 2011. In addition, the Board has not implemented compensating controls to address the lack of segregation of duties performed by the Treasurer. Further, Village officials do not review payroll in a timely manner, and there is no certification of payroll prior to printing checks. In addition, there was no evidence that the Board conducted an audit of claims. Although fuel consumption records were kept for specific vehicles, there were no perpetual inventory records or physical inventories completed. Three employees have access to all financial software functions enabling them to record and change information, and prepare and print checks. Finally, the Board has not developed a formal disaster recovery plan.

The Village has informal procedures over the collection of cash receipts for water and sewer rents and property taxes. Village officials have attempted to mitigate the inherent internal control weaknesses of a small office by having a part-time Deputy Clerk-Treasurer (Deputy) collect receipts. However, weaknesses still exist because the Deputy prepares manual receipts and gives the Clerk-Treasurer all the receipts at the end of each day. The Clerk-Treasurer, who prepares the billings, also enters receipts into the accounting system, reconciles customer accounts, prepares bank deposits and reconciles bank statements without any additional verification or assistance by her Deputy. With these incompatible duties, the Clerk-Treasurer has the ability to misappropriate cash receipts without detection. The Village has not utilized the Deputy in a manner that would create some segregation of duties over the cash receipts process and the Board does not provide additional oversight to mitigate this control weakness.

We found deficiencies in the Village's internal controls over cash disbursements. The Clerk and Treasurer both independently perform incompatible cash disbursement duties and compensating controls have not been established to mitigate this weakness. Furthermore, the Board did not require claims to be adequately documented or appropriately audit and approve all claims. In addition, internal controls were not adequate to ensure real property taxes and water rents were properly accounted for. Incompatible duties were not segregated and the Clerk did not maintain appropriate, complete and accurate records to detail real property tax and water rent billings and collections. Furthermore, deposits were not made timely in compliance with Real Property Tax Law and Village policy and appropriate amounts of interest and penalties were not collected. As a result, the Clerk did not collect all interest and penalties due on overdue real property tax and water rent payments or properly record and report to the County unpaid water rents for re-levy.

The Board did not oversee purchasing, audit claims, obtain written monthly financial reports from either Treasurer, require reconciliations of the bank statements with Company records, or obtain an independent audit of the Treasurer's financial records. The Treasurer made purchases, paid bills, wrote checks, and made ATM cash withdrawals for personal purposes with no oversight. As a result, the Treasurer and Fire Chief were able to initiate non-Company transactions without detection by making purchases with the Company's bank debit card and on the Company's credit with vendors. The Treasurer also issued Company checks to herself, her husband (the Fire Chief), her father-in-law, and their related businesses, and made ATM cash withdrawals of Company funds. Additionally, the Fire Chief used the Company's accounts to make sales tax-exempt purchases for his contracting business – some of which he paid with the Company's debit card – and used Company funds to help purchase a personal vehicle. These personal purchases, payments, and cash withdrawals totaled $113,098. We also identified another $26,386 in questionable payments and purchases that appeared to be personal in nature.

The Department did not establish adequate controls to ensure collections were properly accounted for and remitted to Finance for deposit. Procedures were not sufficient to ensure incompatible duties were properly segregated and collections were adequately accounted for and remitted to Finance in a timely manner.

Based on the results of our review, we found that the significant revenue and expenditure projections in the proposed budget are reasonable.

Based on the results of our review, except for certain matters related to the food service fund, we found that the significant revenue and expenditure projections in the proposed budget are reasonable.

District officials have established adequate controls over the claims processing function that allow claims to be audited in a timely manner and in accordance with District policy and Education Law.

Over the last five years, District officials consistently underestimated revenues and overestimated expenditures in the adopted budgets by a total of $20.5 million. As a result, the District had operating surpluses totaling $13.8 million, which caused the accumulated fund balance to exceed the statutory maximum of 4 percent of the ensuing year's budget. To make it appear that the fund balance was within statutory limits, District officials; appropriated $4.6 million in fund balance that was not needed to fund the budget, created fake encumbrances (by at least $3.1 million for the 2009-10 and 2010-11 years); and transferred approximately $14 million to the District's reserves with no documented plan or justification for their excessive funding levels. In routinely using these inappropriate practices, District officials have, in effect, circumvented the 4 percent fund balance limit, levied more real property taxes than necessary, and retained large amounts of taxpayer dollars without full disclosure and transparency.

Based on the results of our review, we found that the significant revenue and expenditure projections in the proposed budget are reasonable. The City has made good progress in improving its financial condition and implemented or resolved recommendations contained in our budget review report letter issued in March 2012. We recommend that the potential water and sewer rate increases be authorized by the Common Council prior to the adoption of the budget. We also recommend that appropriations be included in the respective equipment line items for each department in the general fund budget, rather than transferring the funds to the capital projects account. The City's proposed budget complies with the property tax levy limit set by statute.

The Supervisor assigned his accounting duties to a bookkeeper. Except for some minor exceptions, which we discussed with Town officials, we found that the accounting records were accurately maintained and the financial information included in the annual update document (AUD) filed with the Office of the State Comptroller (OSC) was supported by the accounting records. However, we did not find evidence in the 2011 and 2012 Board minutes that the Board audited the accounting records of the Supervisor for the 2010 and 2011 fiscal years. Furthermore, there was no indication that the Board had solicited the professional services of an independent public accountant to perform an audit of the records.

The Board has not implemented adequate policies and procedures for fund balance. As a result, the Town retained and/or accumulated excessive amounts of unexpended surplus funds in the general fund and the water and sewer districts that resulted from unrealistic budget estimates. The Board also did not develop a financial and/or capital plan or establish reserves to ensure unexpended surplus funds are used as intended. In addition, the Town purchased approximately $109,000 in gasoline and diesel fuel during our audit period. Prior to May 2012, the Highway Superintendent maintained adequate perpetual inventory records for most of our audit period that included the amount of gasoline and diesel fuel purchased and consumed. Effective May 2012, the Town installed a computerized system to maintain similar records. However, the Highway Superintendent did not review any fuel usage reports generated daily from the new computerized fuel system and did not compare a perpetual inventory record to physical inventories of fuel on hand.

An intermunicipal agreement was entered into by the Town and the Village to address their respective involvement with not only the construction phase of a joint highway facility (Project) but the facility's future operation and maintenance. While the inter-municipal agreement sets forth the approach and the responsibilities assigned to the Town and Village, many of its terms were not complied with. In addition, Town officials did not fully inform taxpayers of the entire cost or fully disclose the Board's intentions with respect to financing the Project during the early planning phase. As a result of Town officials' poor planning and management, the Project's costs have grown to more than $4.7 million. We noted that change orders totaled more than $800,000, $438,000 of which were unrelated to the original project scope and were not competitively bid, as required.

Although we found that County contracts are authorized in accordance with the County Charter and the Nassau County Interim Finance Authority (NIFA) directives, the authorization process is not always timely. Seven of the 22 contracts subject to the County Charter 45-day approval process exceeded the limit from two to 111 days. When additional guidelines were added by NIFA during a control period, the contract approval process increased to an average of 85 days, an increase of 39 days. Due to the County's lengthy process for approving contracts, officials are allowing services to be performed by vendors prior to the ratification of contracts and the signature of the County Executive or the Deputy County Executive.

We found that the previous Clerk used the Town's credit card to charge personal items totaling $8,347, did not deposit fees and real property taxes in a timely manner, and did not remit funds to the Supervisor and other agencies in a timely manner. Additionally, the Town could not provide us with the Clerk's 2010 records. Without the 2010 records, we could not adequately determine if all collections were accounted for, deposited, and remitted to the appropriate parties. Because of these weaknesses, Town funds could have been lost or misappropriated. In addition, since 2007, the Town has incorrectly budgeted and accounted for all of its sales tax revenues, totaling $296,353, in the town-wide funds. This has resulted in an inequity among taxpayers.

The Board and Supervisor did not meet their fiscal oversight responsibilities. Nearly every aspect of the Town's financial operations – including maintaining accounting records and reports, collecting community development loans, preparing and collecting water billings, performing the cash receipt and disbursement functions, and auditing claims – was weak and highly susceptible to errors and irregularities occurring without detection. As a result, most of the Town's assets are at significant risk of loss.

The Board has not adopted comprehensive policies to ensure that access to the District's financial system is restricted to only those functions required by individual employees' job duties. In addition, District officials have not implemented access controls to ensure proper segregation of duties within the financial system and to limit access to users based on their job descriptions and responsibilities.

The Board and District officials routinely overestimated expenditures in the District's annual budget. Total expenditures were overestimated by approximately $4.8 million in the 2009-10 fiscal year and $3.6 million in both the 2010-11 and 2011-12 fiscal years. As a result, the District's unexpended surplus funds increased from approximately $4 million at June 30, 2010 to $6.8 million at June 30, 2011, and to $8.9 million at June 30, 2012. The District's unexpended surplus fund balance at June 30, 2012 exceeded the limit set by RPTL by over $4.8 million. In addition, the District had excess capacity on 124 of the 210 routes reviewed. We identified six routes which potentially could be reduced to three routes and could potentially save the District over $130,000 per year.

The Board did not provide the necessary guidance to the Supervisor and employees, and did not establish internal controls that ensured the Town's financial activity was accurately recorded and reported. The Board did not ensure that the Supervisor assigned accounting duties to properly trained personnel or that those duties were adequately segregated and performed. The Board did not annually audit the records and reports of the Supervisor, or other departments, audit all claims before they were paid, and had not established adequate controls over credit card use. The Town's accounting records and resultant financial reports were in considerable disarray. For example, the Town failed to accurately report the cash position of any Town fund in its annual report to the Office of the State Comptroller (OSC). Finally, the Board has not established adequate policies and procedures related to acceptable use, breach notification, or disaster recovery.

The Board and Supervisor did not develop sound budgets based on actual current needs and/or past activity. Instead, the Board's adopted budgets included revenue estimates that were consistently less than revenues actually received, and expenditure estimates that were consistently more than actually spent. Even though the over-expenditures largely offset the excess revenue, the Board raised taxes and issued debt that was largely unnecessary. While the Board continued to under-budget revenues in fiscal year 2012, the adopted budget for 2013 is more closely based on realistic revenue and expenditure figures that take actual past revenues and expenditures into account.