We performed certain tests to ensure that 35 non-payroll disbursements totaling $66,400 were properly approved and legitimate Town expenditures and found 17 discrepancies totaling $8,450. Specifically, 10 checks totaling approximately $6,900 were never approved by the Board. We also tested 21 payroll disbursements totaling a gross amount of $13,600 to ensure that they were made for proper purposes and identified four employees − who received gross pay totaling $886 − that did not have an approved timesheet on file to verify that they were paid for hours actually worked. Additionally, we found no evidence that the Board approved the pay rates of the three transfer station employees, who were paid a gross amount of $17,370 during our audit period. Moreover, we found that the Highway Superintendent was underpaid by a total of more than $2,300 for his health insurance buy-out in the 2011 and 2012 fiscal years. These discrepancies occurred because the Board did not provide adequate oversight of disbursements and did not provide for a detailed audit of the Supervisor's records for the 2011 fiscal year.

We found that from 2007-08 to 2011-12 the Village had unforeseen expenditures of $89,500 for increased water costs and major flood damage. Because the Village has a very small tax base, and the Board did not include contingency appropriations in its budgets, the Board had no mechanism to react to unforeseen expenditures of this magnitude other than to hope that it might get some revenue source, like Federal or State aid, if there was an emergency. The Village was able to avoid fiscal instability because it received unanticipated revenues in four of those five years totaling approximately $120,500, of which $50,064 was Federal and State aid for the reimbursement of emergency disaster work due to the flooding.

Internal controls over cash receipts and disbursements were not appropriately designed or operating effectively. The bookkeeper's cash receipt and disbursement duties were not adequately segregated and Town officials have not established compensating controls such as a periodic review of accounting records or bank statements. In addition, 13 deposits totaling $2.33 million were not recorded until five or more days after deposit and one as long as 33 days after deposit, and duplicate receipts or daily receipt logs were not used. Furthermore, because the abstracts presented to the Board did not include manually processed checks, 21 percent of the claims paid by the Town totaling $846,560 were not audited prior to payment, and 18 claims totaling $293,160 that were paid lacked sufficient documentation such as written contracts or rate schedules. Town officials have not ensured that accounting records are accurate, complete and up-to-date. The former Supervisor paid $173,000 to the Library as settlement for the balance of the 2011 real property taxes, capital fund balance and the unexpended library fund balances from prior years without documentation to support this payment. The Board also has not entered into an agreement or established a policy regarding electronic transfers of Town funds and has not audited the financial records of the Clerk or Supervisor for 2010 or 2011. Finally, the Town has partnered with a not-for-profit organization (NFP) to purchase land for open space. However, the Town solicited donations totaling $75,000, despite no express authority for the Town to do so, and the payment of $50,000 to the NPF toward the NPF's purchase of open space was done without a contract. In the absence of a contract, such a payment constitutes a gift and Town officials have no assurance that the funds will be expended as intended.

The Board authorized, and paid a total of $125,000 toward two loans to a private, not-for-profit ambulance company from a Town “Revolving Loan Fund” which we understand was established using Federal grant moneys from one or more federal HUD programs. We have been informed by the United States Department of Housing and Urban Development (HUD) that program income held in certain Revolving Loan Funds continue to be subject to Federal HUD requirements under HUD programs. The Board believed that loaning money to the private not-for-profit ambulance corporation was within the allowable purposes of their loan program. In particular, the Board recognized the need for ambulance protection for their citizenry and had previously loaned money from that fund for other ambulance-related purposes. If the Town was not permitted under Federal law to make loans to the private ambulance company, the Town would have improperly expended moneys from the Revolving Loan Fund. Because the propriety of the use of these funds is governed by Federal, not State law, we are referring this issue to HUD for its consideration.

The Board and Supervisor cannot be sure that all money collected was properly accounted for and that disbursements were only made for proper Town purposes. The Supervisor allows the bookkeeper to perform most aspects of the functions relating to the receipt and disbursement of moneys without providing sufficient oversight of her duties.

We found that the City has had a pattern of structural budget deficits, meaning recurring revenues were not sufficient to fund recurring expenditures. During our audit period (2009 through 2013 budgets) the general fund's budget gap averaged $12.4 million. City officials balanced the budgets using fund balance and an estimate for casino revenue that averaged $5.3 million annually. One cause of this structural deficit was that although casino moneys have not been received since 2008, the City continued to budget for these revenues. Although City management has implemented information technology policies and procedures, including a computer use policy, they have not implemented adequate controls and restrictions over user access to the financial system. Further, City management has not developed adequate procedures for data backup and storage, or a comprehensive disaster recovery plan.

The District paid over $1 million in claims in 2012. Each Commissioner is assigned to separate committees, which include areas such as equipment, radios and trucks. When an invoice is received, it is provided to the Commissioner assigned to that area. It is that Commissioner's responsibility to review the claim and determine if it is a proper District expenditure. Because of this procedure, the entire Board does not audit all claims. At monthly meetings, they simply receive a warrant of claims for approval. In addition, the Board passed a resolution which allows the Treasurer to pay specific bills prior to audit. However, instead of including only those specific exceptions allowed by Town Law, the resolution also allows credit card bills to be paid in advance of the Board's audit.

The Board has not adopted written policies for cash receipts, segregated critical duties so that one individual does not control all phases of a transaction, or designed procedures so that someone is reconciling and reviewing the daily cash list to properly safeguard Village assets. In addition, the recreation center has one cash register that is used by eight employees without using a unique code to identify who is using the register. The Village also needs to improve internal controls over information technology. We found that copies of back-up data are not stored in a secure off-site location, and the Board has not developed a disaster recovery plan.

Over the past three years, District officials have tried to maintain the same level of programs and services while keeping the tax levy as low as possible. However, they were able to do so only by continually appropriating fund balance, resulting in the drastic depletion of the year-end unexpended surplus fund balance from $1.7 million in 2009-10 to just over $64,000 (or 0.2 percent of District expenditures) in 2011-12. Further, over the same three-year period the District received $2.4 million less in revenues than budgeted. Most of this shortfall was from State aid and interest earnings. Luckily, the effects of the revenue over-estimates were offset by the over-estimated expenditures that amounted to about $9 million over the three-year period. The vast majority of this over-estimation, $7.4 million, was in salaries and benefits, which should be budgeted on established salary schedules and therefore should not have significant variances.

The Board hired an accounting firm (Firm) to perform many of the Treasurer's duties, such as maintaining the accounting records, preparing and processing payroll and disbursement checks, preparing bank reconciliations, and preparing the Treasurer's monthly and annual financial reports. The Treasurer is responsible for the oversight of the Firm and the billing of real property taxes and water and sewer services. The Treasurer was unable to provide adequate oversight of those performing her duties and the Board did not perform an annual audit.

Although the Board adopted budgets that were realistic and supported by revenues, expenditures were consistently and significantly overestimated. In addition, although the Board appropriated more than $690,000 of unexpended surplus funds each year, for a total exceeding $2.1 million over a three-year period to help finance the ensuing year's operations, the District actually used only $266,732 of the fund balance during this period. As a result, the District has accumulated considerable unexpended surplus funds, up to four times the amount allowed by statute. Although the District has developed a multiyear financial plan, the plan does not reduce the excessive unexpended surplus funds in a manner that benefits the taxpayers.

We found the District established adequate internal controls over payroll and personal services. District officials implemented specific procedures to ensure that individuals reported and paid on the payrolls were bona fide employees and, as such, were paid at their approved salaries and wages, and they received only the benefits to which they were entitled. We also determined that the various control procedures over the payroll process that the District had established included adequate supervision and oversight.

The District has an opportunity to save on transportation costs by reducing excess capacity on buses, decreasing the number of spare buses in its fleet and increasing the District's buses-to-mechanics ratio to a more efficient level. By making such changes to improve transportation efficiency, the District could realize up to $654,000 of annual cost savings and as much as $1.4 million in avoided future bus replacement costs. District officials also can improve the efficiency of the Department of Buildings and Grounds by establishing performance measures. The Department has more staff than recommended by the National Center for Educational Statistics. If the Department maintained custodial staffing levels recommended by these industry benchmarks, the District could reduce costs by up to $293,000 annually.

The City did not adopt a comprehensive procurement policy. As a result, City officials and employees did not solicit competitive proposals for five of eight professional services providers who were paid $164,613. City officials also did not have a written agreement with one of eight professional service providers we tested. City officials did not solicit written quotations for eight of 18 purchases tested totaling $73,661. In addition, the City Council did not require the Treasurer to provide written periodic financial reports for use in monitoring City financial operations. Finally, system users were unnecessarily assigned administrative rights and had access to system modules that they did not need to perform their job duties. The City Council did not establish an information breach notification policy or a disaster recovery plan to minimize disruption of operations in the event of a catastrophic event.

Several individuals received compensation from both the Allegany County Industrial Development Agency (ACIDA) and the County including the ACIDA CFO and Director, and the County Planner. There were no written job duties for the ACIDA Director. As such, it was not always clear when he was acting on behalf of the ACIDA or the County. Furthermore, the job description for the CFO does not indicate the normal work hours for that position. It is unclear whether services compensated for by the ACIDA were provided at times other than those for which these individuals were compensated as County employees. In addition, the Board was unable to demonstrate it had adequately evaluated the impact on the ACIDA and its bond holder, the County, before approving a $3.5 million speculative project involving the purchase of land and installation of a water line. Finally, the Board failed to use appropriate evaluation criteria before it approved the construction of a $760,000 facility with the apparent sole function of housing the Allegany County Departments of Aging and Veterans Affairs. There is no authority in General Municipal Law for an IDA to construct a building to be used for County office space.

We commend the Board for their efforts to provide oversight of the financial operations of the Town. We believe that the Finance Committee's monthly review of the records could be improved by comparing the check images to the Board-approved claim vouchers, or to payroll registers, to ensure that the payees and amounts agree. We reviewed 130 disbursements totaling almost $280,000, which included payroll disbursements. We did not find any material discrepancies.

Village officials have not developed any formal IT policies and the Board has not developed a formal disaster recovery plan, instituted breach notification procedures, or adopted procedures for data backup. In addition, the Village's bookkeeper, although not a Village employee, has administrative rights to the Village's financial software. Finally, although audit logs are available through the software, they are not generated and reviewed by Village officials. The Board also has not instituted appropriate internal controls for online banking. The Village uses online banking services with one bank and currently only makes intra-bank transfers between its accounts at this bank. However, the Board was unfamiliar with and unaware of the importance of these types of controls.

The Justice failed to account for all moneys received and the Board did not provide effective oversight of Court operations, resulting in a $2,910 shortage in the Justice's account. The Justice did not prepare monthly bank reconciliations or accountabilities, issue appropriate receipts for all money received, deposit money in a timely manner, file accurate and timely financial reports, maintain an accurate listing of bail, or properly report ticket dispositions to the DMV.

We identified discrepancies totaling $4,800 in the Supervisor's cash receipt records, and found that the Supervisor paid claims totaling $54,000 that had not been reviewed and approved by the Board. The Supervisor also provided inadequate financial information to the Board, and failed to file the Town's annual financial report with the Office of the State Comptroller (OSC), as required. These problems occurred because the Board has not provided appropriate oversight and the Supervisor did not properly segregate financial duties. For example, the Supervisor collected water rents and permit fees instead of having the collections done by the Town Clerk and the recordkeeping by the Supervisor. The Supervisor authorized Town payments, maintained Town financial records, and collected and deposited Town moneys. Finally, because Board members did not request cash receipt and disbursement data or conduct an annual audit of the Supervisor's records, they did not identify the above discrepancies or realize that the Town had not filed its annual report with the OSC.

The Lake Hadlock Dam, which is located in the Lake Hadlock Park District, was under repair from September 2004 to May 2005. On July 2, 2005, the Dam collapsed causing extensive damage to the Dam and the surrounding area. There were two capital projects initiated as a result of the Dam collapse with a combined cost of approximately $6.7 million. One was for the reconstruction of the Dam and the other was for the repair of Goodman Road. We found that the Town properly accounted for the proceeds received and spent on these capital projects.