town of cambria - osc.state.ny.us town of cambria (town) is located in niagara county (county) and...

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, 2015 – May 11, 2017

2017M-161

Town of CambriaCapital Projects Financing

thomas p. Dinapoli

Page

AUTHORITY LETTER 1

INTRODUCTION 2 Background 2 Objective 2 Scope and Methodology 2 CommentsofTownOfficialsandCorrectiveAction 2

CAPITAL PROJECTS 4 Recommendations 7

APPENDIX A ResponseFromTownOfficials 8APPENDIX B OSC Comments on the Town’s Response 12APPENDIX C AuditMethodologyandStandards 13APPENDIX D HowtoObtainAdditionalCopiesoftheReport 14APPENDIX E LocalRegionalOfficeListing 15

Table of Contents

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State of New YorkOffice of the State Comptroller

Division of Local Governmentand School Accountability January2018

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.

FollowingisareportofourauditoftheTownofCambria,entitledCapitalProjectsFinancing.ThisauditwasconductedpursuanttoArticleV,Section1oftheStateConstitutionandtheStateComptroller’sauthorityassetforthinArticle3oftheNewYorkStateGeneralMunicipalLaw.

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 and Methodology

Comments of Town Officials and Corrective Action

TheTownofCambria(Town)islocatedinNiagaraCounty(County)andhasapopulationofapproximately5,800.TheTownisgovernedbyanelectedfive-memberTownBoard(Board),whichiscomposedof a Town Supervisor (Supervisor) and four Council members. The Board is responsible for the general oversight and control of the Town’soperationsandfinances.TheSupervisorservesastheTown’schief fiscal officer and is responsible for the Town’s day-to-dayfinancialoperations,includingpreparingtheaccountingrecordsandfinancialreports.

TheTownprovidesvariousservicestoitsresidents,includinghighwaymaintenance, snow removal, water and sewer, refuse collectionand general government administration. Budgeted appropriations for2017totaled$5.1millionandwerefundedprimarilywithsalestax, realproperty taxes,Stateaidandusercharges.TheTownalsomaintainedfourcapitalprojectsfunds:WaterlineConstruction,TownParkComfortStation,HighwayEquipmentandSewerConstruction.

Theobjectiveofourauditwastoreviewcapitalprojectfinances.Ourauditaddressedthefollowingrelatedquestion:

• Did the Board and Town officials properly plan for thefinancingofcapitalprojects?

WeexaminedcapitalprojectrecordsfortheperiodJanuary1,2015throughMay11,2017.

We conducted our audit in accordance with generally acceptedgovernmentauditingstandards(GAGAS).Moreinformationonsuchstandards and the methodology used in performing this audit are includedinAppendixCofthisreport.

The results of our audit and recommendations have been discussed withTownofficials,andtheircomments,whichappearinAppendixA, have been considered in preparing this report. Town officialsagreed with some of our findings and indicated they would takecertain corrective action. Appendix B includes our comments onissues raised in the Town’s response letter.

The Board has the responsibility to initiate corrective action. Awrittencorrectiveactionplan(CAP)thataddressesthefindingsandrecommendations in this report should be prepared and forwarded to ourofficewithin90days,pursuanttoSection35ofGeneralMunicipal

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Law.FormoreinformationonpreparingandfilingyourCAP,pleaserefertoourbrochure,Responding to an OSC Audit Report, which you receivedwiththedraftauditreport.WeencouragetheBoardtomakethisplanavailableforpublicreviewintheTownClerk’soffice.

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Capital Projects

Town activities that involve the construction of permanent improvements or the acquisition of equipment are considered capital projects.WhentheBoarddeemsitnecessarytoissuebondsand/orbondanticipationnotes(BANs)tofinance,inpartorwhole,capitalprojectcosts,itmustfirstformallyadoptabondresolutionthatsetsforth,amongotherthings,theestimatedmaximumcostofthecapitalprojectand,generally,thefinancingplanforthecapitalproject.TheSupervisor is required to account for the improvements or acquisitions inacapitalprojectsfundwhentheyarefinancedwithdebtproceeds.1

NewYorkStateLocalFinanceLawrequirestheproceedsofbondsandbondanticipationnotes(BANs)tobeusedsolelyfortheobjectorpurposeforwhichthedebtwasissued.Whenaprojectiscomplete,anyresidualbondorBANproceedsmustbeappliedtothepaymentof thedebtserviceon thatdebt.BondandBANproceedsmaynotbeusedtoreimbursetheTownforcapitalprojectexpendituresmadebefore the Board authorized the bonds to be issued.

TheBoard andTown officials did not act in full compliancewithrelevantStatestatutesthatgoverntheissuanceofmunicipaldebt.Asaresulttheydidnotproperlyplanforthefinancingofcapitalprojects.Had they bettermanaged the finances of these projects, theTowncould have saved approximately $10,200 in issuance costs relatedtothebondsandapproximately$19,200inannualinterestondebt.Also,theBoarddidnotadoptabondresolutionbeforeissuingaBANand theTowndidnot restrict unexpendedBANproceeds to repaythe relatedoutstandingdebt.Finally, thecashbalance in thesewerconstruction capital projects fund as of December 31, 2016 wasapproximately$130,000.Townofficialswereunsureofthesourceofsomeofthecashbalance.Acapitalprojectsfundshouldnotbeusedtoaccountforexcesscash. WaterlineConstruction2 –TheTown issued a short-termBAN for$815,000tofundthisproject.OfthetotalBANproceedsreceivedin1 LocalFinanceLawSection165.00requiresthattheproceedsofthesalesofbondsandBANsmustbedepositedandsecuredinaspecialbankaccount.Generally,the proceeds may not be commingled with other Town funds. However, theBoard may adopt a resolution providing that money appropriated for the same purposeforwhichthebondsorBANshavebeenauthorizedmaybedepositedinthe same bank account with the proceeds.

2 This project was formally known as the Comstock, Suberra, Cambria (CSC)waterlinecapitalproject.InSeptember2015,theBoard,byresolution,approvedtheissuanceof$704,000ofbondstofinancetheinstallationofwaterlines.Theresolutionindicatedthattheproject’smaximumestimatedcosttobe$704,000.InJune2016,theBoard,byresolution,increasedtheamountofdebttobeissuedandthemaximumprojectcostto$815,000.

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November2016,97percentwerenotneeded tofund thewaterlineproject and remained on deposit in a Town bank account. The Town could have avoided incurring issuance costs ($8,150) and annualinterestcosts($15,077)onthisunneededdebt.

Thewaterlineprojectcosts,whichtotaled$832,048,werefinancedwith residual cash on deposit from prior projects and interfund transfers. The Town transferred cash totaling $371,000 inAugust2015 ($170,000) and September 2016 ($201,000) from the waterdistrict fund to the waterline construction capital project’s fund. These transferswereintheadoptedwaterdistrictbudget,buttheintendeduse of the cash was not described. According to Town officials,thesetransferswerenotpartofthefinancingplanforthiswaterlineconstructionproject.IftheBoardplannedtousethiscashforanothercapitalproject,theSupervisorshouldhavesetupaseparatecapitalproject fund to account for this cash.

AsofDecember31,2016,cashofapproximately$794,000remainedinthewaterlineconstructioncapitalprojectsfund,mainlyfromtheunexpendedBANproceeds.TheTowndidnotrestrictthiscashinthedebtservicefundtorepaytheoutstandingBAN.

TownParkComfortStation – Capital project records show that the Townspent$530,697onthecomfortstationandfinancedtheprojectwith$429,973incashfromthegeneralfund,$80,000inGreenwayCommissionfundsand$20,724ofTribalCompactmoney.AsofMay1,2017,theprojectwascomplete.

On February 9, 2017 the Board approved, by resolution, a bondissuance of $200,000 to provide funding for the comfort station’sconstruction.3 In anticipation of issuing bonds, theTown issued aBAN. On that same date, Town officials held a public hearing todiscussthecomfortstation’sconstruction.Asnotedintheminutes,the Supervisor indicated that the project was “about 95 percentcompleted.”Wenotethatapproximately$472,000(89percent)oftheprojectcostshadbeenpaidforbythemeetingdate.Therefore, theTowndidnotneedtoissuea$200,000BANtofinanceprojectcosts.Issuancecosts for thisdebtwereapproximately$2,000andannualinterestcostsforthisdebtwas$4,100.

OnMarch20,2017,theTownreceivedthe$200,000BANproceeds,which were deposited into the general fund checking account to reimburse the general fund for project costs. However, the Townlacksauthoritytousetheproceedstoreimburseitselfforexpendituresmade prior to the bond resolution’s adoption authorizing the issuance

3 Theestimatedmaximumcostoftheproject,asindicatedinthebondresolution,was$544,782.

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of the project’s bonds. The Supervisor should have set aside the proceedsinthedebtservicefundtorepaytheoutstandingBANratherthanreimbursethegeneralfund.Furthermore,itisunclearwhetherthe Board intended to provide a temporary advance or permanently transfergeneralfundcashtofinancetheproject.TheminutesdidnotindicatethattheBoardapprovedanyinterfundadvance,asrequired.4

However, as noted, the Town was not authorized to apply BANproceeds to reimburse any such temporary advance.

HighwayEquipment–InAugust2016,theTownpurchaseda2017model year dump truck for $201,838 net of a $25,000 trade-in ofanothervehicle.TheTownpaidforthetruckinDecember2016with$105,827ofcashfromthehighwayequipmentcapitalprojectsfund,a$21,838transferfromthehighwayfundand$80,000fromaBANissuedinNovember2016.

TheBANwasissuedwithoutBoardapproval.TheBANstatesthat“This note is … issued pursuant to proceedings duly adopted by the FinanceBoardofthe[Town],datedNovember20,2016.”ABoardmeetingwasnot heldon that date.AlthoughapublichearingwasheldonNovember10,2016foranopportunityforpubliccommenton theproposed truckpurchase, theminutesdonot indicate thatabond resolution was approved by the Board subsequent to the public hearing, the last Boardmeeting prior to the BAN issuance.TownofficialswereunabletoprovideuswithanyexplanationastowhytheBoarddidnotadoptabondresolutionbeforetheBANwasissued.TheTown’sissuanceofBANswithoutabondresolutionoftheBoardis not in accordance with the Board’s power to authorize the issuance of bonds.

Sewer Construction – The cash balance in the sewer construction capital projects fund as ofDecember 31, 2016was approximately$130,000.This cash balance included a $60,000 budgeted transferfrom the sewerdistrict fund in2016, $20,000of revenue receivedfromtheCountyin2016andcashthathadaccumulatedinpriorfiscalyears.Townofficialswereunsureofthesourceofthecashthathadaccumulatedfrompriorfiscalyears.

Acapitalprojectsfundshouldnotbeusedtoaccountforexcesscash.IftheBoardwantstoaccumulatesewerfundstohelpfinanceafuturecapitalpurchase,itshouldcreateacapitalreservepursuanttoGML.Ifdebtwas issued to fundacapitalproject, residualcashbalancesfrom a completed project should be transferred to the debt service fund and used to repay the outstanding debt.

4 GeneralMunicipalLaw(GML)Section9-a

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TheBoardshould:

1. Take necessary action to obtain a better understanding of municipal debt issuance and management.

2. AdoptabondresolutionpriortostartingacapitalprojectandpriortoissuingBANs.

3. Approvetheissuanceofdebtonlywhenitisneededtofundproject costs.

TheSupervisorshould:

4. SetasideunspentwaterlineBANproceedsinthedebtservicefundanduseittopayofftheBAN.

5. TransfercomfortstationBANproceedsimproperlydepositedin the general fund to the debt service fund and use it to pay offtheBAN.

6. Identify the source of unidentified cash in the sewerconstructioncapitalprojectsfundand:

• Use the cash to pay the outstanding debt if it is unexpendeddebtproceeds.

• Considercreatingacapitalreservefund,ifthecashisintended for a future capital project.

• Return the cash to the sewerdistrict, if it is surplusfunds.

Recommendations

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APPENDIX A

RESPONSE FROM TOWN OFFICIALS

TheTownofficials’responsetothisauditcanbefoundonthefollowingpages.

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SeeNote1Page12

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SeeNote2Page12

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APPENDIX B

OSC COMMENTS ON THE TOWN’S RESPONSE

Note1

Asweindicateinthereport,waterlineconstructionprojectcostswerefinancedwithresidualcashondepositinthecapitalprojectsfundfrompriorprojectsandinterfundtransferstotaling$371,000.Thesetransferswereintheadoptedwaterdistrictbudgets,buttheintendeduseofthecashwasnotdescribed.Townofficialstoldusthesetransferswerenotpartofthefinancingplanforthiswaterlineconstructionproject.Also,therewasnothingintheminutesorthebondresolutiontoindicatethattheBoardeverapprovedanyinterfundadvancestoprovidetemporaryprojectfinancing.AsofDecember31,2016,cashofapproximately$794,000remainedinthewaterlineconstructioncapitalprojectsfund,mainlyfromtheunexpendedBANproceeds.

Note2

Werevisedthereportbasedontheinformationprovided.

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APPENDIX C

AUDIT METHODOLOGY AND STANDARDS

Toachieveourauditobjectiveandobtainvalidevidence,weperformedthefollowingprocedures:

• Wereviewedaccountingrecordsforthefollowingcapitalprojects:waterconstruction,Townparkcomfortstation,highwayequipmentandsewerconstruction.Thisincludedledgersandreceiptanddisbursementrecordsprimarilyfrom2015throughtheendoffieldwork.Acursoryreview of capital project activity from 2011 through 2014 was made when it became apparent that residual cash from prior projects appeared to remain available for subsequent capital projects.

• WereviewedBoardminutesfrom2015throughtheendoffieldwork.

• Wereviewedcapitalprojectbankstatementsfor2016and2017uptotheendoffieldwork.

• Wereviewedbondresolutionsofvariousdebtissuancesduringthecourseofourauditperiod.

• WeinterviewedtheSupervisor,bookkeeper,TownClerkandTownAttorneyconcerningcapitalprojectsaccountingprocedures,officialBoardproceedingsandbondresolutions.

• Wereviewedtheclaimusedtoprocessthepaymentforthedumptruckpurchase.

• Wereviewedadoptedbudgetsfor2015and2016forpermanentandplannedtransferactivityto the various capital projects.

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

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APPENDIX D

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

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

Toobtaincopiesofthisreport,writeorvisitourwebpage:

1515Division of LocaL Government anD schooL accountabiLity

APPENDIX EOFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENTAND SCHOOL ACCOUNTABILITYAndrewA.SanFilippo,ExecutiveDeputyComptroller

GabrielF.Deyo,DeputyComptrollerTraceyHitchenBoyd,AssistantComptroller

LOCAL REGIONAL OFFICE LISTING

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