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:
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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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Serving:Broome,Chenango,Cortland,Delaware,Otsego,Schoharie,Sullivan,Tioga,TompkinsCounties
BUFFALO REGIONAL OFFICEJeffreyD.Mazula,ChiefExaminerOfficeoftheStateComptroller295MainStreet,Suite1032Buffalo,NewYork14203-2510(716)847-3647Fax(716)847-3643Email:[email protected]
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