Town of Exeter...costs and to strengthen controls intended to safeguard local government assets....

Division of LocaL Government & schooL accountabiLity

o f f i c e o f t h e n e w y o r k s t a t e c o m p t r o L L e r

report of ExaminationPeriod Covered:

January 1, 2013 — September 4, 2014

2015M-23

Town of ExeterRecords and Reports

thomas p. Dinapoli

Page

AUTHORITY LETTER 1

INTRODUCTION 2 Background 2 Objective 2 Scope and Methodology 2 CommentsofLocalOfficialsandCorrectiveAction 2

RECORDS AND REPORTS 4 Recommendations 6

APPENDIX A ResponseFromLocalOfficials 7 APPENDIX B AuditMethodologyandStandards 9APPENDIX C HowtoObtainAdditionalCopiesoftheReport 10APPENDIX D LocalRegionalOfficeListing 11

Table of Contents

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State of New YorkOffice of the State Comptroller

Division of Local Governmentand School Accountability August2015

DearTownOfficials:

A toppriorityof theOfficeof theStateComptroller is tohelp localgovernmentofficialsmanagegovernment resources efficiently and effectively and, by so doing, provide accountability for taxdollarsspenttosupportgovernmentoperations.TheComptrolleroverseesthefiscalaffairsoflocalgovernmentsstatewide,aswellascompliancewithrelevantstatutesandobservanceofgoodbusinesspractices.Thisfiscaloversightisaccomplished,inpart,throughouraudits,whichidentifyopportunitiesforimprovingoperationsandTownBoardgovernance.Auditsalsocanidentifystrategiestoreducecosts and to strengthen controls intended to safeguard local government assets.

Following isa reportofourauditof theTownofExeter,entitledRecordsandReports.ThisauditwasconductedpursuanttoArticleV,Section1oftheStateConstitutionandtheStateComptroller’sauthorityassetforthinArticle3ofNewYorkStateGeneralMunicipalLaw.

This audit’s results and recommendations are resources for local government officials to use ineffectivelymanagingoperationsand inmeeting theexpectationsof their constituents. Ifyouhavequestionsaboutthisreport,pleasefeelfreetocontactthelocalregionalofficeforyourcounty,aslistedat the end of this report.

Respectfullysubmitted,

Office of the State ComptrollerDivision of Local Governmentand School Accountability

State of New YorkOffice of the State Comptroller

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Background

Introduction

Objective

Scope andMethodology

Comments ofLocal Officials andCorrective Action

The Town of Exeter (Town), located in Otsego County, isapproximately32squaremilesandservesabout990residents.Theelected five-member Town Board (Board) is the legislative bodyresponsible for managing Town operations, including maintainingsound financial condition.TheTown Supervisor (Supervisor)1 is a memberoftheBoardandservesastheTown’schiefexecutiveofficerandchieffiscalofficer.

TheTownprovidesvariousservicestoitsresidents,includinghighwaymaintenance, snow removal and general government support. TheTown’s 2014 budget appropriationswere approximately $659,000,fundedprimarilywithrealpropertytaxesandStateaid.

The objective of our audit was to review the Town’s financialoperations.Ourauditaddressedthefollowingrelatedquestion:

• Did the Supervisor and Board ensure accounting records wereaccurateandup-to-dateandfinancialreportswerefiledtimely?

WeexaminedtheTown’srecordsandreportsfortheperiodJanuary1,2013throughSeptember4,2014.Wealsoextendedourscopebackto2010 for annualfinancial reports and to2012 for tax levy limitcalculations.

We conducted our audit in accordance with generally accepted governmentauditingstandards(GAGAS).Moreinformationonsuchstandards and the methodology used in performing this audit are includedinAppendixBofthisreport.Unlessotherwiseindicatedinthisreport,samplesfortestingwereselectedbasedonprofessionaljudgment,asitwasnottheintenttoprojecttheresultsontotheentirepopulation.Where applicable, information is presented concerningthe value and size of the relevant population and the sample selected forexamination.

The results of our audit and recommendations have been discussed withTownofficialsandtheircomments,whichappearinAppendixA, have been considered in preparing this report. Town officialsgenerally agreed with our recommendations.

1 The Supervisor resigned on December 31, 2014, and a new Supervisor waselectedtoaone-year termthatcommencedJanuary1,2015.For thepurposesofthisauditreport,“Supervisor”referstotheTownSupervisorthatresignedonDecember31,2014.

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The Board has the responsibility to initiate corrective action. Awrittencorrectiveactionplan(CAP)thataddressesthefindingsandrecommendations in this report should be prepared and forwarded toourofficewithin90days,pursuanttoSection35oftheGeneralMunicipalLaw.FormoreinformationonpreparingandfilingyourCAP, please refer to our brochure, Responding to an OSC Audit Report,whichyoureceivedwiththedraftauditreport.Weencouragethe Board to make this plan available for public review in the Town Clerk’soffice.

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Records and Reports

TheBoardhasaresponsibilitytooverseetheTown’sfiscalactivitiesand safeguard its resources.TheSupervisor, as chieffiscal officer,is responsibleforperformingbasicaccountingfunctions, includingmaintaining accounting records, performing monthly bankreconciliationsandfilingannualfinancialreportsandtaxlevylimitcalculations2asrequiredbytheOfficeoftheStateComptroller.Theaccounting records and reports must be up-to-date, complete andaccurate to be relevant and useful for managing Town operations andevaluatingtheTown’sfinancialcondition.Anannualaudithelpsthe Board fulfill its fiscal oversight responsibilities by providinganopportunitytoassessthereliabilityandtimelinessofthebooks,records and supporting documents. Records and reports should also beavailableforanalysisbythird-partyusersoffinancialinformation,such as taxpayers, bonding agencies and other State and federalagencies.

The Board did not ensure the Supervisor maintained up-to-date,completeandaccuraterecords.AlthoughtheSupervisorprovidedtheBoardwith accuratemonthly budget-to-actual reports, the balancesheetsincludedinaccurateaccountbalances.Forexample,theJuly31,2014highwayfundbalancesheetoverstatedliabilitiesbymorethan$76,000becausetheSupervisorhadincorrectlyrecordedareceipt.3

Further, bank reconciliations containedoutdateddeposits in transitand inaccurate transactions,4 including journal entries that should havebeenremovedtoreflecttheactualcashbalancesintheaccounts.Moreover,thelasttimetheSupervisorfiledtheannualfinancialreportwasforthe2010fiscalyear,eventhoughourOfficesentoutseveralnotices to remind theSupervisor of thefiling deadlines and offers

2 TheStateLegislatureandtheGovernorenactedalawin2011thatestablishedataxlevylimitonalllocalgovernments,whichwaseffectivebeginninginthe2012fiscalyear.Thelawprecludeslocalgovernmentsfromadoptingabudgetthatrequiresataxlevythatexceedstheprioryeartaxlevybymorethan2percentor therateof inflation,whichever is less,unless thegoverningboardadoptsalocallawtooverridethetaxlevylimitation.

3 This receipt represents a reimbursement fromCHIPS for improvementsmadein 2013. When the Supervisor received the money, she applied it against areceivable,whichwas incorrect because the receivablewasnever created.Asaresult,thisentrycreatedanegative(credit)balanceinthereceivableaccount.When the Supervisor received themoney, she should have debited cash andcredited revenue.

4 UnreconciledtransactionsasofDecember31,2014includeddepositsintransitdatingbackseveralyears, includingonefromJanuary2012for$7,229,andajournalentry(credit)tocashdatedDecember30,2011for$22,958.Inaddition,therewereunreconcileddepositsintransitfrom2012and2013.

55Division of LocaL Government anD schooL accountabiLity

forassistance,andthetaxlevylimitcalculationhasneverbeenfiledsincetheinceptionofthetaxcaplawforthe2012budgetyear.

The Supervisor told us these conditions occurred because she was notfamiliarwiththeaccountingsoftwareandbecauseTownofficialswereunabletofindareliablebookkeeper.Forexample,in2012,theBoardhiredabookkeepertocorrectdeficienciesintherecordsandfile the2011annualfinancial report;however, thebookkeeperwasunabletocorrectlybalancethebooksandthereforecouldnotfilethereport.TheSupervisor,whohadexpressedherdesiretoresignfromherpositionseveralyearsago,failedtofiletherequiredtaxlevylimitcalculationsinceitsinception.Further,theBoardhasnotauditedtheSupervisor’srecordsduringourauditperiodbecauseitreliedsolelyon its trust of the Supervisor.

HadtheBoardperformedevenacursoryauditoftheTown’srecords,5

itwould have identified the discrepancies described in this report.Asa result, theBoarddoesnothaveaccurate,up-to-datefinancialinformationsuchashowmuchcashisavailable,tomakeinformeddecisions. For example, without accurate bank reconciliations andbalancedfunds,itisnotpossiblefortheBoardtoknowtheamountoffundbalanceineachfund,andthereisanincreasedriskthaterrorsorirregularities have occurred and remain undetected.

Furthermore, this lack of information limits the Board’s ability tomonitorfinancialoperationsandcanleadtounplanneddeficits,suchasthosethatwereexperiencedbytheTown’shighwayfundfortwoofthepastthreefiscalyears.ThesedeficitscausedtheBoardtouse$52,000ofunrestrictedfundbalancetosupporthighwayoperations.While the general fund currently has enough resources to support highwayoperations,thisdemonstratestheneedfortheBoardtohavesufficientinformationtoensuretheTownhastheresourcesnecessaryto provide the desired level of services in the future.

Moreover,thislackofinformationcausesalackoftransparencyforthird-partyusersoffinancialinformation,suchastaxpayers,bondingagenciesandotherStateandfederalagencies.Forexample,becausetheannualfinancialreportshavenotbeenfiled,theTownhasnotbeenevaluated forfiscal stressbyourOffice’sFiscalStressMonitoringSystem.6 This evaluation can be a valuable tool in assessing the

5 Toassistintheperformanceofitsauditfunction,theBoardshouldreviewouroffice’spublicationentitledFiscal Oversight Responsibilities of the Governing Board. This publication is available on our website: www.osc.state.ny.us/localgov/pubs/lgmg/fiscal_oversight.pdf.

6 Ourofficehasdevelopedasystemofevaluatingamunicipality’ssusceptibilitytofiscalstressbasedontheannualfinancialstatementsfiled.Fordetails,see:www.osc.state.ny.us/localgov/fiscalmonitoring/index.htm.

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Town’s financial condition for both taxpayers and Town officials.Finally,becausetheannualtaxlevylimitcalculationshavenotbeenfiled,theBoarddoesnotknowifitisincompliancewiththelawandtheTowntaxpayersareunabletoreceivepropertytaxfreezecredits.7

TheSupervisorshould:

1. EnsurethattheTown’saccountingrecordsandreportsareup-to-date,completeandaccurate.

2. SubmitannualfinancialreportsandtaxlevylimitcalculationstoourOfficeinatimelymanner.

TheBoardshould:

3. Conduct a comprehensive annual audit of the Supervisor’sfinancialrecords.

Recommendations

7 The property tax freeze credit reimburses homeowners for increases in localproperty taxeson theirprimaryresidences.Toreceive thecredit,homeownersmust meet certain eligibility requirements and the municipality where the homeowner'spropertyislocatedmustcomplywiththeNewYorkStatepropertytaxcap.TheNewYorkStateTaxDepartmentreviewseligibilitydata,calculatesthe credits and automatically mails checks to eligible homeowners.

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APPENDIX A

RESPONSE FROM LOCAL OFFICIALS

Thelocalofficials’responsetothisauditcanbefoundonthefollowingpage.

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99Division of LocaL Government anD schooL accountabiLity

APPENDIX B

AUDIT METHODOLOGY AND STANDARDS

OuroverallgoalwastoreviewtheTown’srecordsandreportsfortheperiodJanuary1,2013throughSeptember4,2014.Wealsoextendedourscopebackto2010forannualfinancialreportsandto2012fortaxlevylimitcalculations.

To achieveour audit objective andobtainvalid audit evidence,weperformed the following auditprocedures:

• WeinterviewedTownofficialsandreviewedBoardminutestogainanunderstandingofTownprocesses and operations and to determine the internal controls in place.

• We compared theTown’s adjusted bank balances for all funds to the cash recorded in theaccountingrecordstodeterminetheTown’sbookbalanceasofDecember31,2014.

• We interviewed the Supervisor to gain an understanding of the accounting records and determine whythe2011,2012and2013annualfinancialreportshadnotbeensubmittedtoouroffice.

• WeinterviewedTownofficialstodetermineifanannualauditwasperformedoftheSupervisor’srecords and reports and to gain an understanding of their review of monthly Board reports.

WeconductedthisperformanceauditinaccordancewithGAGAS.Thosestandardsrequirethatweplanandperform theaudit toobtainsufficient,appropriateevidence toprovidea reasonablebasisforourfindingsandconclusionsbasedonourauditobjective.Webelievethattheevidenceobtainedprovidesareasonablebasisforourfindingsandconclusionsbasedonourauditobjective.

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APPENDIX C

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

OfficeoftheStateComptrollerPublicInformationOffice110StateStreet,15thFloorAlbany,NewYork12236(518)474-4015http://www.osc.state.ny.us/localgov/

Toobtaincopiesofthisreport,writeorvisitourwebpage:

1111Division of LocaL Government anD schooL accountabiLity

APPENDIX DOFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENTAND SCHOOL ACCOUNTABILITYAndrewA.SanFilippo,ExecutiveDeputyComptroller

GabrielF.Deyo,DeputyComptrollerNathaalieN.Carey,AssistantComptroller

LOCAL REGIONAL OFFICE LISTING

BINGHAMTON REGIONAL OFFICEH.ToddEames,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Suite170244 Hawley StreetBinghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313Email:Muni-Binghamton@osc.state.ny.us

Serving:Broome,Chenango,Cortland,Delaware,Otsego,Schoharie,Sullivan,Tioga,TompkinsCounties

BUFFALO REGIONAL OFFICEJeffreyD.Mazula,ChiefExaminerOfficeoftheStateComptroller295MainStreet,Suite1032Buffalo,NewYork14203-2510(716)847-3647Fax(716)847-3643Email:Muni-Buffalo@osc.state.ny.us

Serving:Allegany,Cattaraugus,Chautauqua,Erie,Genesee,Niagara,Orleans,WyomingCounties

GLENS FALLS REGIONAL OFFICEJeffreyP.Leonard,ChiefExaminerOfficeoftheStateComptrollerOneBroadStreetPlazaGlensFalls,NewYork12801-4396(518)793-0057Fax(518)793-5797Email:Muni-GlensFalls@osc.state.ny.us

Serving:Albany,Clinton,Essex,Franklin,Fulton,Hamilton,Montgomery,Rensselaer,Saratoga,Schenectady,Warren,WashingtonCounties

HAUPPAUGE REGIONAL OFFICEIraMcCracken,ChiefExaminerOfficeoftheStateComptrollerNYSOfficeBuilding,Room3A10250VeteransMemorialHighwayHauppauge,NewYork11788-5533(631)952-6534Fax(631)952-6530Email:Muni-Hauppauge@osc.state.ny.us

Serving:NassauandSuffolkCounties

NEWBURGH REGIONAL OFFICETennehBlamah,ChiefExaminerOfficeoftheStateComptroller33AirportCenterDrive,Suite103NewWindsor,NewYork12553-4725(845)567-0858Fax(845)567-0080Email:Muni-Newburgh@osc.state.ny.us

Serving:Columbia,Dutchess,Greene,Orange,Putnam,Rockland,Ulster,WestchesterCounties

ROCHESTER REGIONAL OFFICEEdwardV.Grant,Jr.,ChiefExaminerOfficeoftheStateComptrollerThePowersBuilding16WestMainStreet,Suite522Rochester,NewYork14614-1608(585)454-2460Fax(585)454-3545Email:Muni-Rochester@osc.state.ny.us

Serving:Cayuga,Chemung,Livingston,Monroe,Ontario,Schuyler,Seneca,Steuben,Wayne,YatesCounties

SYRACUSE REGIONAL OFFICERebeccaWilcox,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Room409333E.WashingtonStreetSyracuse,NewYork13202-1428(315)428-4192Fax(315)426-2119Email:Muni-Syracuse@osc.state.ny.us

Serving:Herkimer,Jefferson,Lewis,Madison,Oneida,Onondaga,Oswego,St.LawrenceCounties

STATEWIDE AUDITSAnnC.Singer,ChiefExaminerStateOfficeBuilding,Suite170244 Hawley Street Binghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313