Town of Sidneya bookkeeper and contract with two vendors hired by the former Supervisor, who collectively perform the disbursement duties in his office.The hired bookkeeper (bookkeeper)

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, 2014 — June 25, 2015

2015M-214

Town of SidneySupervisor’s Disbursements

thomas p. Dinapoli

Page

AUTHORITY LETTER 1

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

SUPERVISOR’S DISBURSEMENTS 4 Recommendations 6

APPENDIX A ResponseFromLocalOfficials 7APPENDIX B AuditMethodologyandStandards 10APPENDIX 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 November2015

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.

FollowingisareportofourauditoftheTownofSidney,entitledSupervisor’sDisbursements.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

2 Office Of the New YOrk State cOmptrOller2

Background

Introduction

Objective

Scope andMethodology

The Town of Sidney (Town) is located in Delaware County and has approximately 5,800 residents. The Town provides variousservicestoitsresidents,suchasgeneralgovernmentalsupport,streetmaintenance, snow removal and recreational services. TheTown's2015budgetedappropriationsareapproximately$2.2million,fundedprimarilywithrealpropertytaxes,Stateaidandrecreationalfees.

The Town is governed by an elected Town Supervisor (Supervisor) and four elected council members (Board). The Board is responsible for the general oversight of Town operations. The Supervisor, aschief fiscal officer, is responsible for the day-to-day managementof the Town, including basic accounting functions and disbursingTownfunds.Upontakingoffice,theSupervisorcontinuedtoemploya bookkeeper and contract with two vendors hired by the former Supervisor, who collectively perform the disbursement duties inhis office. The hired bookkeeper (bookkeeper) is an employee oftheTownandperformsfinancialduties,suchasaccountingfor theTown’srevenues,preparingclaimsvouchersandissuingnon-payrollchecks. The Supervisor contracts with one vendor to process payroll (payroll vendor) and a second vendor1 to provide the rest of the financialfunctions(outsourcedbookkeeper).

TheobjectiveofourauditwastoassesstheBoardandSupervisor’soversightofthedisbursementprocessintheSupervisor’soffice.Ourauditaddressedthefollowingrelatedquestion:

• Did Town officials provide adequate oversight of theSupervisor’sdisbursements?

WeexaminedtheSupervisor’sdisbursementsfortheperiodJanuary1,2014throughJune25,2015.

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.

1 This vendor is located in California and works remotely using the Town’scomputerizedfinancialsoftware.


Comments ofLocal Officials andCorrective Action

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

The Board has the responsibility to initiate corrective action. Awrittencorrectiveactionplan(CAP)thataddressesthefindingsandrecommendations in this report should be prepared and forwarded to ourofficewithin90days,pursuanttoSection35ofGeneralMunicipalLaw.FormoreinformationonpreparingandfilingyourCAP,pleaserefertoourbrochure,Responding to an OSC Audit Report, which you received with the draft audit report. We encourage the Board to make thisplanavailableforpublicreviewintheClerk’soffice.


Supervisor’s Disbursements

The Supervisor is responsible for overseeing the duties performed inhisofficetoensurethatonlyproperTownexpendituresaremade.While the Supervisor can hire a bookkeeper or contract with vendors toassisthimwithhisduties,heisresponsibleforprovidingadequateoversightofthoseduties,includingverifyingthatonlydisbursementsapprovedbytheBoardaremade.Inaddition,theSupervisorshouldapprove payroll before his electronic signature is used. The Board isrequiredtoannuallyaudittheSupervisor’srecordstoprovideanopportunity for the Board to assess the reliability and timeliness of theSupervisor’sbooks,recordsandsupportingdocuments.

AlthoughtheTowndisbursedalmost$2.2millionin2014,neitherthe Supervisor nor the Board provided adequate oversight of the disbursement process to ensure that only proper Town disbursements are being made. Upon taking office, the Supervisor continued toemploy a bookkeeper and contract with two vendors (the payroll vendor and the outsourced bookkeeper) hired by the former Supervisor,whocollectivelyperformthedisbursementdutiesinhisoffice.However,theSupervisordoesnotprovideadequateoversightof the bookkeeper or the two vendors. In addition, the Supervisordoes not ensure all disbursements are approved by the Board and doesnotalwayscontrolhissignature.Furthermore,theBoarddoesnotperformanannualauditoftheSupervisor’srecords.

The bookkeeper prepares claims vouchers and issues non-payrollchecks. Although the Supervisor manually signs the non-payrollchecks,hedoesnotreviewbankstatementsorcanceledcheckimagesto verify that only those disbursements approved by the Board are made.

The payroll vendor relies on the outsourced bookkeeper to provide information regarding hours worked and rates of pay. Then, thepayrollvendorprocessesthepayroll,makesthedirectdepositsandissues checks. The outsourced bookkeeper reviews payroll reports for accuracyandperformsotherduties,suchasmakingjournalentriesand preparing monthly bank reconciliations and Board reports. Although the outsourced bookkeeper provides some oversight byperforming bank reconciliations to verify that all disbursements are recordedintheSupervisor’srecordsandreviewingpayrollreportsforerrors,theSupervisordoesnotprovideoversightfortheoutsourcedbookkeeper’s work, such as reviewing bank reconciliations andcleared check images. Furthermore, the Supervisor should notdelegatehisoversightresponsibilitiestoanoutsideparty.Inaddition,


the payroll vendor electronically affixes theSupervisor’s signatureto thepayrollcheckswithout theSupervisor’sapprovalofpayroll.Finally,theBoarddoesnotperformitsrequiredannualauditoftheSupervisor’s records, which adds to the lack of oversight for theSupervisor’sdisbursements.

The Supervisor informed us that he hired the bookkeeper and outsourced bookkeeper to segregate the disbursements process thinking that this addressed any weaknesses within the process; however,hefailedtorealizehestillneededtoprovideoversightoftheir work.2Furthermore,althoughTownofficialshiredthepayrollvendor to minimize the risks associated with reporting errors and potentialpenalties,theSupervisorallowedthepayrollvendortoaffixhissignaturetopayrollchecksand,therefore,didnotmaintaincontrolover his signature by approving the payroll before it was processed. Inaddition,BoardmemberstoldusthattheythoughttheirmonthlyauditandapprovalofclaimswassufficientanddidnotunderstandthattheystillneededtoperformanannualauditoftheSupervisor’srecords.However,ourofficeauditedtheTownin2010andadvisedthe Board at that time of the need to perform an annual audit.

Becauseofthelackofoversight,wescannedbankstatementstoensurethere were no transactions that were atypical of a town and reviewed Board-approved abstracts to confirm that all check numbers wereaccountedfor. Wealso traced185canceledcheck images totalingover$708,800toBoard-approvedclaimsvouchersandabstracts toensure that only Board-approved, legitimate disbursements weremade.Additionally,wereviewed10employees’grosspayamountsto determine if they were paid at rates the Board intended3andsixhourly employees’ timesheets to ensure they were paid for actualhours worked.

Although our testing did not reveal any improper disbursementsorunreasonablepayrollpayments,withoutproperoversightby theSupervisorandBoard,thereremainsariskthatdisbursementscouldbemadeforinappropriatepurposes.Inaddition,theTownispayingthetwovendorsinvolvedinthedisbursementsprocessover$16,000a year. The Town may be able to realize cost savings if some or all of the duties assigned to the two vendors were performed by the bookkeeper and the Supervisor performed an appropriate level of oversight to compensate for the lack of segregation of duties.

2 AfterweprovidedtrainingtotheSupervisorwhileonsite,hebeganreviewingbank reconciliations and canceled check images.

3 PerunioncontractorBoard-adoptedbudget


Recommendations TheSupervisorshould:

1. Continue to review bank reconciliations and canceled check imagestoverifythatonlyBoard-approveddisbursementsaremade,includingthosedisbursementsmadeforpayroll-relatedexpenditures.

2. Approvepayrollbeforechecksareelectronicallysignedandmaintain control over his signature.

3. Performacostbenefitanalysistodetermineifthebookkeepershould be performing disbursements duties currently performed by the two vendors.

TheBoardshould:

4. Perform,orcausetobeperformed,therequiredannualauditoftheSupervisor’srecords.


APPENDIX A

RESPONSE FROM LOCAL OFFICIALS

Thelocalofficials’responsetothisauditcanbefoundonthefollowingpages.




APPENDIX B

AUDIT METHODOLOGY AND STANDARDS

Our objectivewas to assess theBoard and Supervisor’s oversight of the disbursement process intheSupervisor’soffice.Toachieveourauditobjectiveandobtainvalidevidence,weperformedthefollowingprocedures:

• WereviewedBoardminutesandconductedinterviewswithBoardmembers,theSupervisor,the bookkeeper and the outsourced bookkeeper to gain an understanding of who performs the duties in the disbursement process and who provides oversight of those duties.

• WescannedallbankstatementsfromJanuary2014throughMay20154 to ensure there were notransactionsatypicalofatown(i.e.,cashwithdrawalsornon-payrollrelatedwires).Wealso scanned all canceled check images that cleared the bank for the same time period to determineiftheSupervisormanuallysignedallnon-payrolldisbursementchecks.AdditionallywereviewedallchecknumbersonBoard-approvedabstractsforthescopeperiodtoensureallcheck numbers were accounted for.

• We traced 185 canceled check images totaling $708,891 (all the cleared check imagesfromFebruary 2014, June 2014 and June in 2015) to theBoard-approved claim vouchersandabstractstoensurethatonlyBoard-approved,legitimatedisbursementsweremade.Werandomly selected the above three months to perform our testing.

• We obtained the second payroll report forApril of 2015 and selected one employee fromeach class of employee (we selectedfive employees out of the 10 that hadBoard-adoptedrates) where rates were either established by the adopted budget or union contract and traced salaryamountspaidtoBoard-approvedrates(i.e.,unioncontractsorBoard-adoptedbudgets)to determine if employees were paid at adopted rates.

• We traced total salary amounts paid to all five employeeswithout established pay rates toBoardadoptedbudgetsfor2014todetermineifamountspaidwerereasonablebasedonthebudgeted salary amounts given to their departments.

• WealsoselectedallsixhourlyemployeeswithoutBoard-adoptedhourlyratesandselectedone hourly employee represented by union contract and traced hours paid to time sheets to determine if hourly employees were paid for hours worked. We randomly selected the above month to perform our testing.

• WeobtainedallBoard-approvedclaimvouchersforthetwovendorsthatprovidedbookkeepingand payroll services to the Town and calculated the total amount paid. We also projected the amounttobepaidthroughtheendof2015.

4 May2015waslastcompletedmonthinourauditperiod.


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,ChiefExaminerOfficeoftheStateComptrollerOneBroadStreetPlazaGlensFalls,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.,ChiefExaminerOfficeoftheStateComptrollerThePowersBuilding16WestMainStreet,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,Room409333E.WashingtonStreetSyracuse,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

Town of Sidneya bookkeeper and contract with two vendors hired by the former Supervisor, who collectively perform the disbursement duties in his office.The hired bookkeeper (bookkeeper)

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