raquette lake union free school district – monitoring ... · bank statements, maintained a manual...

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:

July 1, 2012 – February 29, 2016

2016M-203

Raquette Lake Union Free School District

Monitoring Financial Condition

thomas p. Dinapoli

Page

AUTHORITY LETTER 1

INTRODUCTION 2 Background 2 Objective 2 Scope and Methodology 3 CommentsofDistrictOfficialsandCorrectiveAction 3

MONITORING FINANCIAL CONDITION 4 Recommendations 8

APPENDIX A ResponseFromDistrictOfficials 9APPENDIX B AuditMethodologyandStandards 11APPENDIX C HowtoObtainAdditionalCopiesoftheReport 12APPENDIX D LocalRegionalOfficeListing 13

Table of Contents

11Division of LocaL Government anD schooL accountabiLity

State of New YorkOffice of the State Comptroller

Division of Local Governmentand School Accountability September 2016

DearSchoolDistrictOfficials:

AtoppriorityoftheOfficeoftheStateComptrolleristohelpschooldistrictofficialsmanagetheirdistrictsefficientlyandeffectivelyand,bysodoing,provideaccountabilityfor taxdollarsspent tosupportdistrictoperations.TheComptrolleroverseesthefiscalaffairsofdistrictsstatewide,aswellasdistricts’compliancewithrelevantstatutesandobservanceofgoodbusinesspractices.Thisfiscaloversight is accomplished, in part, throughour audits,which identify opportunities for improvingdistrictoperationsandBoardofEducationgovernance.Auditsalsocanidentifystrategiestoreducedistrict costs and to strengthen controls intended to safeguard district assets.

FollowingisareportofourauditoftheRaquetteLakeUnionFreeSchoolDistrict,entitledMonitoringFinancialCondition.ThisauditwasconductedpursuanttoArticleV,Section1oftheStateConstitutionandtheStateComptroller’sauthorityassetforthinArticle3oftheNewYorkStateGeneralMunicipalLaw.

This audit’s results and recommendations are resources for district officials to use in effectivelymanagingoperationsandinmeetingtheexpectationsoftheirconstituents.Ifyouhavequestionsaboutthisreport,pleasefeelfreetocontactthelocalregionalofficeforyourcounty,aslistedattheendofthis report.

Respectfullysubmitted,

Office of the State ComptrollerDivision of Local Governmentand School Accountability

State of New YorkOffice of the State Comptroller

2 Office Of the New YOrk State cOmptrOller2

Background

Introduction

Objective

The Raquette Lake Union Free School District (District) is located in theTownsofAriettaandLongLakeinHamiltonCounty.TheDistrictisgovernedbytheBoardofEducation(Board),whichiscomposedof five electedmembers.TheBoard is responsible for the generalmanagementandcontrolof theDistrict’sfinancial andeducationalaffairs.TheSuperintendentofSchoolsistheDistrict’schiefexecutiveofficerandisresponsible,alongwithotheradministrativestaff,forday-to-day District management under the Board’s direction. The District Clerk (Clerk) served as the bookkeeper and was responsible formaintainingfinancial recordsfor theDistrict.EffectiveJanuary1,2016, theDistrict signedacross-contract1withOtsego-NorthernCatskill Board of Cooperative Educational Services for shared businessofficeserviceswhichincludebookkeeping.

The District operates no schools but maintains one building as a communitycenterwithmeetingspace,agymnasium,afitnessroom,aplaygroundandanathleticfield.TheDistricthasfouremployees,and two students for whom it pays tuition to attend a neighboring schooldistrict.Itsbudgetedappropriationsforthe2015-16fiscalyearare$261,308whicharefundedprimarilywithrealpropertytaxes.

Duringthe2004-05fiscalyear,duetoadecliningnumberofstudents,the District hired an attorney to research reorganization options for theDistrict,includingconsolidatingtheDistrictwithaneighboringdistrict or paying tuition for its students to attend a neighboring district.The attorney returned anopinion in January2005 that thebestcourseofactionforstudentsandDistricttaxpayerswouldbetopay tuition for students to attend a neighboring district rather than to consolidatewithaneighboringdistrict.Asaresult,theDistrictcloseditsschoolbutretainedthebuildingtobeusedasDistrictoffices.TheDistricthasnotperformedaconsolidationstudysince the2004-05fiscalyear.GiventhattheDistricthasonlytwostudentsanddoesnotoperateanyschools,itmaybetimetolookintoconsolidationagain.

The objective of our audit was to determine if District officialsmonitoredtheDistrict’sfinancialcondition.Ourauditaddressedthefollowingrelatedquestion:

• Did the Board ensure that adequate accounting records and reports were maintained to allow the Board to effectively monitortheDistrict’sfinancialoperations?

1 As part of the District’s Cooperative ServicesAgreement with the Franklin-Essex-HamiltonBoardofCooperativeEducationalServices


Scope andMethodology

Comments ofDistrict Officials andCorrective Action

We examined the financial records and reports and analyzed thefinancialconditionoftheDistrictfortheperiodJuly1,2012throughFebruary29,2016.

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/or size of the relevant population and the sample selectedforexamination.

The results of our audit and recommendations have been discussed withDistrictofficials,andtheircomments,whichappearinAppendixA, have been considered in preparing this report.District officialsgenerally agreed with our findings and recommendations andindicated they planned to initiate corrective action.

The Board has the responsibility to initiate corrective action. Pursuant toSection 35 ofGeneralMunicipalLaw,Section 2116-a(3)(c)ofNewYorkStateEducationLawandSection170.12oftheRegulationsoftheCommissionerofEducation,awrittencorrectiveactionplan(CAP)thataddressesthefindingsandrecommendationsinthisreportmustbepreparedandprovidedtoourofficewithin90days,withacopyforwardedtotheCommissionerofEducation.Tothe extent practicable, implementation of the CAPmust begin bytheendof thenextfiscalyear.Formore informationonpreparingandfilingyourCAP,pleaserefertoourbrochure,Responding to an OSC Audit Report, which you received with the draft audit report. TheBoardshouldmaketheCAPavailableforpublicreviewintheDistrictClerk’soffice.


Monitoring Financial Condition

The Board is responsible for managing and overseeing the District’s overall fiscal affairs and safeguarding its resources. To meet thisresponsibility,Districtofficialsmustensurethatcompleteandaccurateaccounting records aremaintained and timelyfinancial reports areprovidedtotheBoardsoitcaneffectivelycarryoutitsfiscaloversightresponsibility. The District Treasurer (Treasurer) is the custodian of District money and is responsible for preparing periodic budget status reports including the original budget, any authorized amendments,actual transactions to date (revenues and expenditures by accountcode) and the variances between the amended budget and actual revenues and expenditures. The Clerk, acting as the bookkeeper,was responsible for maintaining financial records for the District.Additionally,schooldistrictsarelegallyallowedtoestablishreservesandaccumulatefundsforcertainfuturepurposes(forexample,capitalprojectsorretirementexpenditures).

The Board did not ensure that adequate accounting records and reports were maintained and did not effectively monitor the District’s financial operations. The Clerk did not maintain accurate andcomplete accounting records and the Treasurer did not provide the Boardwithadequateperiodicreports.Furthermore,werecalculatedtheDistrict’sassets,liabilitiesandfundbalanceandfoundunrestrictedfundbalancedeficits for the2013-14and2014-15fiscalyearsandbudgetary deficits for the 2013-14, 2014-15 and 2015-16 fiscalyears.Additionally, theDistrict incurred a cash flow shortage thatprecludedemployeesfromcashingtheirpaychecksfromJuly2013toSeptember2013.In2014, theDistrict liquidatedtwocertificatesof deposit containing reserve funds and transferred those moneys to thegeneral fundcheckingaccount. If theDistricthadnotmadethese transfers, theDistrictwouldhavealsoexperiencedcashflowshortagesin2014and2015.

Records and Reports – The Clerk did not maintain accurate and complete accounting records and the Board did not receive adequate periodic reports. While the Board received monthly Treasurer’s reportsthatincludedthemonth’sbeginningreconciledbankbalances,receipts and disbursements for the month and the reconciled ending bankbalances, the reportswerenot adequatebecause theydidnotincludemonthly budget status reports.As a result, the Boardwasunable to adequately monitor the amount of revenues received to date ortheamountexpendedfromeachappropriationtodate.


The Clerk used a computerized accounting system to maintain the District’s accounting records and was responsible for preparing andfiling theannualfinancial report (ST-3) to theNewYorkStateEducation Department; however, these records were not accurate.In addition, the Treasurer received and reconciled the monthlybank statements,maintained amanual check register andpreparedthe monthly Treasurer’s report for the Board based on his check register. We reviewed theaccounting recordsandannualfinancialreports for the2012-13,2013-14,and2014-15fiscalyearsand fortheperiod July1, 2015 throughFebruary29,2016and found thatrevenues, expenditures andbalance sheet accounts reportedon thefinancialreportdidnotagreewiththeaccountingrecordsduringtheperiodreviewed.Forexample,theDistrictreported$77,471ofcashbalancesinreservesonthe2014-15financialreport,butaccordingtotheaccountingrecords,theDistricthad$150,725ofcashinreserves.Furthermore,whiletheTreasurer’scheckregisterwasaccurateandcomplete, this record does not provide an adequate accounting ofrevenuesandexpendituresorassets,liabilitiesandfundbalance.

We used source documents to recalculate assets, liabilities andfund balance as of June 30, 2013, 2014 and 2015 and found thatthe balances did not agree with either the financial report or theaccounting records for any of the three years. For example, theClerk’s accounting system showed that the District had assets totaling $19,580,liabilitiestotaling$189and$19,391offundbalanceasofJune30,2015,buttheDistrictactuallyhadassetstotaling$96,909,liabilitiestotaling$11,973and$84,937offundbalance.Assetswereunderstated because the District did not accurately record cash held for special reserves, and liabilities were understated because theClerk did not accurately record accounts payable and amounts due totheNewYorkStateEmployees’RetirementSystemandtheNewYorkStateTeachers’RetirementSystem.TheBoardPresident andTreasurer told us they were aware that balance sheet accounts in the accounting system had been inaccurate formany years. However,Districtofficialsdidnotidentifythecausesofthesediscrepanciesorcorrect them.

We also recalculated revenues based on the Treasurer’s cash receipts journal and traced 20 selected expenditures2 to source documents to determine if they were recorded accurately. We found revenues were not accurately recorded in the accounting records or reported intheannualfinancialreportsfor2012-13,2013-14or2014-15.Forexample,accordingtotheaccountingsystem,theDistricthadrevenuestotaling $206,978 in the 2014-15 fiscal year, but we calculatedrevenuestotaling$197,016.Thesediscrepancieswerecausedbythe

2 We judgmentally selected our test sample to include disbursements with varying purposes (claims and payroll) and amounts that were paid throughout our audit period.


Clerkinaccuratelyrecordingrevenues.Forexample,in2014-15theTreasurerreceivedanddeposited$1,920ofrevenuesfromrefundsofprior-yearexpendituresbuttheClerkrecorded$248forthisrevenue.Expendituresrecordedintheaccountingsystemagreedwithsourcedocuments – such as canceled check images, claims and payrollregisters–butdidnotagreewiththeannualfinancialreport.

The lack of accurate accounting records precludes the preparation of meaningful reports for theBoard’suse.WithoutadequatefinancialreportsitisdifficultfortheBoardtoevaluatetheDistrict’sfinancialactivities,andtheDistrict’struefinancialconditionmaybeobscured.

Fund Balance–ThetruefinancialconditionoftheDistrictwasnotevident to the Board due to the lack of accurate accounting records and adequate monthly reports. We interviewed the Board President and Treasurer to determine how the annual budget was prepared and monitored. The President indicated that the Board relied on the Clerk to prepare the tentative budget which the Board used to develop the adopted budget presented to District voters in May each year. The President and Treasurer also stated that the amount of fund balanceappropriatedtofinanceoperationswasdeterminedtoensurethat the tax levy complied with the tax cap3 even though District officialscouldnotconfirmthatenoughfundbalancewasavailabletoappropriate.AccordingtothePresident,theBoardwasawarethatthe computerized accounting records maintained by the Clerk were not accurate and therefore used the Treasurer’s monthly reports to monitor the District’s financial condition. However, because thesereportsdidnotcontainbudgetdetail,theydidnotprovidetheBoardwith an adequate means of monitoring the District’s budgets.

The Board appropriated more fund balance than was available in each of the last threefiscalyears.TheBoard’s resolutionsadoptingandauthorizingtheannualtaxwarrantsindicatedthat,attheendof2012-13, 2013-14 and 2014-15, respectively, the District had $90,883,$41,596and$29,316ofunrestricted fundsavailable toappropriatetofund theensuingyear’sappropriations.However,asofJune30,2013,theDistrictactuallyhad$14,805ofunrestrictedfundbalancetoappropriatefortheensuingyearand,further,hadunrestrictedfundbalancedeficitsasofJune30,2014andJune30,2015.Asaresult,theDistricthadbudgetarydeficitsinthelastthreefiscalyears,asshownin Figure 1. 3 In2011,theStateLegislatureenactedalawestablishingapropertytaxlevylimit,generallyreferredtoasthepropertytaxcap.Underthislegislation,thepropertytaxleviedannuallygenerallycannotincreasebymorethan2percent,ortherateof inflation, whichever is lower, with some exceptions. School districts mayoverridethetaxlevylimitbypresentingtovotersabudget thatrequiresa taxlevythatexceedsthestatutorylimit.However,thatbudgetmustbeapprovedby60 percent of the votes cast.


Figure 1: Fund Balance June 30, 2013 June 30, 2014 June 30, 2015

Total Fund Balance at Year-End $104,318 $80,608 $84,937

Less: Restricted Fund Balance $89,513 $93,532 $140,147

Actual Unrestricted Fund Balance $14,805 ($12,924) ($55,210)

Less: Budgeted Fund Balance Appropriation for Ensuing Year $80,688 $31,322 $18,864

Budgetary Deficit for Ensuing Yeara ($65,883) ($31,322) ($18,864)

a The budgetary deficit represents the amount of fund balance that the Board budgeted to appropriate but

which was not available to appropriate.

WhiletheDistrictincurredoperatingdeficitsin2012-13and2013-14,theyweresmallerthanplanned(approximately$16,000in2012-13and$24,000in2013-14)becausetheDistrictexpendedlessthanitappropriatedand,in2014-15,realizedasmalloperatingsurplus.ThecumulativeoperatingdeficitcausedtheDistrict’stotalfundbalancetodeclinefrom$104,318asofJune30,2013to$84,937asofJune30,2015.

Furthermore,becausetheBoarddidnotmonitortheDistrict’sfinancialcondition,theDistrictincurredacashflowshortageinJuly2013anddidnothaveenoughcash forpayrollandpaymentofclaims.Asaresult,DistrictemployeesvoluntarilywentwithoutpayanddidnotcashtheirpaychecksdatedJuly15,July31,August15andAugust31,2013untilSeptember2013whenenoughrealpropertytaxrevenuewas collected and deposited in District bank accounts to cover the paychecks.Ninechecks totaling$9,309wentuncashedduring this10-week period.

Reserves – The District had four reserve funds4 during our audit period:thecapitalreserve,theexcesstaxlevyreserve,theemployeebenefit accrued liability reserve (EBALR) and the repair reserve.The District’s financial condition was further obscured when, inMarch 2014, the District liquidated a certificate of deposit thatcontained$30,748and$31,927ofEBALRandrepairreservefunds,respectively,andtransferredthosemoneystothegeneralfund.ThetransferwasnotBoard-approvedand is not authorizedbyGeneralMunicipalLaw(GML).Withcertainrestrictions,GMLallowsforthetransfer of unexpended or unnecessaryEBALR and repair reservefund balances to other authorized reserve funds, but there is noprovisiontoeliminatetheEBALRorrepairreserveandtransferthefundstothegeneralfund.Additionally,duringthe2012-13through2015-16fiscalyears,schooldistrictswereallowedtowithdrawfrom

4 Schooldistrictsmayestablishreservestofinanceavarietyofobjectsorpurposesbut must do so in compliance with statutory requirements.


theEBALRanamountnottoexceedthelesserofthedollarvalueofexcessfundinginthereservefundasdeterminedbytheOfficeoftheState Comptroller or the amount of the school district’s remaining gap elimination adjustment (reduction in State aid) as calculated by the State Commissioner of Education. The District did not request a reviewofthebalanceinitsEBALRbeforetransferringthesefundstothegeneralfund.HadtheEBALRandrepairreservemoneynotbeenimproperly comingled with the money in the District’s general fund bankaccount,theDistrictwouldhaveagainhadcashflowshortagesfromJunethroughAugust2014andfromMaythroughAugust2015.

Monthlybudgetstatusreportsandaccurateperiodicreportsofassets,liabilities and fund equity would have enabled the Board to know the District’struefinancialconditionandtakeactiontopreventthecashflow shortage that occurred in 2013, andwhichwould have againoccurredin2014and2015iftheDistricthadnottransferredreservefund cash into the District’s general fund bank account.

TheBoardshould:

1. Ensurethatitreceivesallrequiredreports,includingquarterlybudget status reports.

TheBoardandDistrictofficialsshould:

2. Ensure that accounting records are accurate and up to date and thatthefinancialsreportedtotheStateEducationDepartmentagree with the accounting records.

3. Use the most accurate estimates of fund balance available when preparing the annual budget.

4. MaintaintheEBALRandrepairreservefundmoneyseparatelyfrom the District’s checking or savings accounts so that these reservesarenotusedtopayoperatingexpenses.

Recommendations


APPENDIX A

RESPONSE FROM DISTRICT OFFICIALS

TheDistrictofficials’responsetothisauditcanbefoundonthefollowingpage.


APPENDIX B

AUDIT METHODOLOGY AND STANDARDS

Toachieveourauditobjectiveandobtainvalidevidence,weperformedthefollowingprocedures:

• We interviewed District officials to gain an understanding of their financial monitoringpractices.

• We reviewed the Board meeting minutes and the monthly Treasurer’s reports.

• Wereviewthegeneralledger,trialbalancesandbalancesheetsfromthecomputerizedaccountingsystem to determine if entries were supported. We compared the balances in the computerized accountingrecordstotheannualfinancialstatementsandidentifieddiscrepancies.

• We used the Treasurer’s check register to recalculate revenues and used reconciled bank balancesandrecordsofliabilitiestorecalculatetheDistrict’srevenues,assets,liabilitiesandfund balance.

• WeidentifiedallreservesinplaceduringthelastthreeyearsandrequestedsubstantiationfromDistrictofficialstodetermineifeachreservewasestablishedandmaintainedproperly.

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


APPENDIX C

HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT

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

Toobtaincopiesofthisreport,writeorvisitourwebpage:


APPENDIX DOFFICE OF THE STATE COMPTROLLER

DIVISION OF LOCAL GOVERNMENTAND SCHOOL ACCOUNTABILITYAndrewA.SanFilippo,ExecutiveDeputyComptroller

GabrielF.Deyo,DeputyComptrollerTraceyHitchenBoyd,AssistantComptroller

LOCAL REGIONAL OFFICE LISTING

BINGHAMTON REGIONAL OFFICEH.ToddEames,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Suite170244 Hawley StreetBinghamton,NewYork13901-4417(607)721-8306Fax(607)721-8313Email:[email protected]

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]

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

GLENS FALLS REGIONAL OFFICEJeffreyP.Leonard,ChiefExaminerOfficeoftheStateComptrollerOne Broad Street PlazaGlensFalls,NewYork12801-4396(518)793-0057Fax(518)793-5797Email:[email protected]

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:[email protected]

Serving:NassauandSuffolkCounties

NEWBURGH REGIONAL OFFICETennehBlamah,ChiefExaminerOfficeoftheStateComptroller33AirportCenterDrive,Suite103NewWindsor,NewYork12553-4725(845)567-0858Fax(845)567-0080Email:[email protected]

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

ROCHESTER REGIONAL OFFICEEdwardV.Grant,Jr.,ChiefExaminerOfficeoftheStateComptrollerThe Powers Building16WestMainStreet,Suite522Rochester,NewYork14614-1608(585)454-2460Fax(585)454-3545Email:[email protected]

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

SYRACUSE REGIONAL OFFICERebeccaWilcox,ChiefExaminerOfficeoftheStateComptrollerStateOfficeBuilding,Room409333 E. Washington StreetSyracuse,NewYork13202-1428(315)428-4192Fax(315)426-2119Email:[email protected]

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

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