Pamelia Audit
Pamelia Audit
Pamelia Audit
OF THE
Town of Pamelia
Financial Management
Report of Examination
Period Covered:
January 1, 2014 March 31, 2015
2015M-276
Thomas P. DiNapoli
Table of Contents
Page
AUTHORITY LETTER
EXECUTIVE SUMMARY
INTRODUCTION
Background
Objective
Scope and Methodology
Comments of Local Officials and Corrective Action
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FINANCIAL MANAGEMENT
Fund Balance and Budgeting
Supervisors Records and Reports
Multiyear Planning
Annual Audit
Recommendations
APPENDIX
APPENDIX
APPENDIX
APPENDIX
A
B
C
D
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EXECUTIVE SUMMARY
The Town of Pamelia (Town) is located in Jefferson County (County) with a population of approximately
3,160. The Town provides various services to its residents, including street maintenance, fire protection,
water, sewer and general government support. The Towns budgeted appropriations for 2015 were
approximately $1.5 million for all funds. These expenditures are primarily funded with revenues from
sales tax and State aid. The Town does not levy real property taxes to finance its operations. The Town
has eight water special districts, with budgeted appropriations totaling approximately $400,000 for
the 2015 fiscal year. The Town purchases water for its districts and bills residents for water usage. In
addition, property owners pay an annual benefit assessment to finance the cost of water special district
debt.
The Town Board (Board), composed of five members, is the legislative body responsible for managing
Town operations and for making sound financial management decisions that are in the best interests
of the taxpayers. The Town Supervisor (Supervisor), who is a member of the Board, serves as chief
executive officer and chief fiscal officer. The Supervisor appointed a clerk who performs the financial
accounting and recordkeeping duties on the Supervisors behalf.
Scope and Objective
The objective of our audit was to evaluate the Towns financial management for the period January
1, 2014 through March 31, 2015. We expanded the scope of our audit back to January 1, 2012 to
analyze financial trends and back to 2011 to review supporting documents for interfund loans. We
also extended the scope to May 31, 2015 to review current year budget versus actual results. Our audit
addressed the following related question:
Did the Board effectively manage and monitor the Towns financial condition?
Audit Results
The Board did not effectively manage and monitor the Towns financial condition. The town-wide
general fund has accumulated excessive unrestricted fund balance totaling approximately $2 million
as of December 31, 2014, which is enough to fund about six years appropriations at current spending
levels. The Town accumulated excess fund balance primarily because the Board underestimated
revenues by $795,019 (61 percent) in total from 2012 through 2014. Sales tax revenues were
underestimated by approximately $634,000, or 105 percent. The practice of underestimating revenues
has resulted in average operating surpluses of $284,723 each year from 2012 through 2014.
The Board has not appropriated any fund balance as a financing source in the 2013 through 2015
budgets. Had the Board appropriated fund balance, it could have relied less on sales tax revenues and
applied some of it to reduce the County taxes. In addition, the Supervisor does not provide an estimate
of the amount of fund balance that is expected to be available at year end in the proposed budget. As
a result, the Board does not have the necessary information available during the annual budgeting
process to help ensure that the level of fund balance maintained is reasonable.
Conversely, the water special district fund has had a deficit unrestricted fund balance for the past three
years. As of December 31, 2014, the deficit totaled more than $1.2 million. The deficit unrestricted
fund balance is largely due to interfund loans payable to the town-wide general fund, which totaled
approximately $1.2 million as of December 2014. There is no authority for the Board to loan money
from the town-wide general fund to Town water special districts to help finance them over a period of
years.
The Supervisor assigned his recordkeeping duties to a clerk, but the clerk does not maintain accurate
and complete records. In the Supervisors monthly report that is given to the Board, the clerk reports
budget-to-actual results for revenues and expenditures, cash balances and total receipt and total
disbursement activity for main operating accounts. However, the clerk does not maintain detailed
revenue and expenditure subsidiary ledgers or a general ledger to support the balances reported. In
addition, the clerk does not maintain separate records for each water and sewer district and does
not know the individual cash and fund balances of each district. The inadequate accounting records
impair the Boards and Town officials ability to monitor and plan the Towns financial operations and
increase the risk that errors could be made and go undetected.
The Board did not develop or adopt a comprehensive, multiyear financial and capital plan, and it
had no other mechanism in place to adequately address the Towns long-term operational and capital
needs. The Board did not audit the Supervisors records or obtain an audit for 2014. This precluded the
Board from having assurance that all of the Towns financial resources were properly accounted for.
Comments of Local Officials
The results of our audit and recommendations have been discussed with Town officials and their
comments, which appear in Appendix A, have been considered in preparing this report. Town officials
generally agreed with our recommendations and indicated they planned to take corrective action.
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Introduction
Background
Objective
Scope and
Methodology
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Financial Management
A basic component of local government budgeting is the prudent
use of fund balance, which is the difference between revenues and
expenditures accumulated over time. It is important for the Board to
adopt long-term plans that set forth the Towns financial objectives
and goals and to have written policies and procedures to govern
budgeting practices and the level of fund balance to be maintained
in each fund.
General Municipal Law (GML) generally allows the temporary loan
of moneys from one fund to another which must be repaid no later
than the close of the fiscal year in which the loan was made. Any delay
in the repayment of a loan could have a significant financial impact
on the funds involved. The Supervisor is responsible for maintaining
accounting records and preparing accurate reports that are clear and
understandable. If the Supervisor assigns these duties to a clerk,
the Supervisor should provide sufficient oversight to ensure that the
records are properly maintained. New York State Town Law (Town
Law) requires that the Board annually audit, or have an independent
public accountant audit, the Supervisors records.
The Board and Town officials have not developed policies and
procedures to govern budgeting practices and the level of fund
balance to be maintained. As a result, the Board adopted budgets that
were not based on sound and realistic revenue estimates. The Board
underestimated sales tax revenue from fiscal years 2012 through
2014 by a total of $634,000 (105 percent), which contributed to the
operating surpluses and excessive fund balance in the town-wide
general fund. At the end of 2014, the Town reported an unrestricted
fund balance in the town-wide general fund of about $2 million,
which is six times the amount of the next years budget for that fund.
From 2011 through 2014, the Board inappropriately used surplus
funds from the town-wide general fund to make long-term interfund
loans, totaling approximately $1.5 million, to the water special district
fund. These loans contributed to the $1.2 million deficit fund balance
in the water special district fund at the end of 2014. Further, the
Board has not developed long-term financial and capital plans to help
identify and work toward its goals. The Supervisor did not ensure that
the clerk maintained all the necessary accounting records, including
subsidiary revenue expenditure ledgers and general ledgers, and that
each fund and special district were accounted for separately. Lastly,
the Board did not annually audit, or have an independent public
accountant audit, the Supervisors records, which hindered its ability
to adequately monitor the Towns financial operations.
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Fund Balance
and Budgeting
2012
$1,451,277
299%
2013
$1,726,029
516%
2014
$2,009,622
600%
An operating surplus occurs when total revenues exceed total expenditures for
the year. The annual operating surpluses in the town-wide general fund were as
follows: 2012 $299,395; 2013 $272,366; and 2014 $282,409.
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likely have another operating surplus in 2015, which will add to the
already excessive fund balance.
The Supervisor told us the Town typically receives $150,000 to
$200,000 above the budgeted sales tax amount each year, but he
continues to underestimate sales tax revenue in the budget because
he likes the Town to earn the revenue before it spends it. However,
the practice of adopting unrealistic budgets to generate operating
surpluses and accumulate surplus funds to spend at a later date is not
in the best interest of Town taxpayers. Rather than receiving more
sales tax revenue from the County than is needed to fund current
operations, the Board could elect to have the County apply a portion
of the Towns share of the sales tax to reduce the County tax levy
burden on Town residents.
Although the general town-wide fund has generated operating
surpluses during the past three years, which have increased fund
balance, the Board did not appropriate any fund balance as a financing
source in the 2013 through 2015 budgets. Had the Board appropriated
fund balance, it could have relied less on sales tax revenues and
applied some of it to reduce the County taxes. Board members told
us the Board does not have a written fund balance policy to help
determine an appropriate level of fund balance to maintain. In
addition, the Supervisor does not provide an estimate of the amount
of fund balance that is expected to be available at year end in the
proposed budget. As a result, the Board does not have the necessary
information available during the annual budgeting process to help
ensure that the level of fund balance maintained is reasonable.
The Supervisor and other Board members told us they have used
some of the excess fund balance in recent years to provide long-term
loans to various water special districts. The town-wide general fund
had outstanding loans to the water special districts totaling more than
$1.2 million as of December 31, 2014. Although the cash associated
with these loans is not available for current use in the town-wide
general fund, it still had a $745,000 cash balance at the end of 2014.
This cash balance is more than two times the amount of budgeted
expenditures in the town-wide general fund for 2015 ($335,422) and
is well beyond the level of cash reasonably needed for cash flow or to
retain as a financial cushion or for managing unforeseen events.
Town officials said they have no plans to place the surplus funds into
reserve funds. They told us they would like to continue to use the
accumulated surplus funds to make future loans to the water special
districts for repairs to water pipes because the water special districts
currently do not have enough money to finance the repairs on their
own. However, funding water special district projects with long-term
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loans from the town-wide general fund is not a permissible use of the
moneys.
Water Special District Fund 2 The Towns water special district fund
consists of eight individual water special districts. The clerk does not
segregate the portion of the combined water special district funds
cash or fund balance that relates to each individual water special
district. Because separate records are not maintained, we evaluated
the financial condition of all the water special districts combined.3
The water special district fund has had a deficit unrestricted fund
balance for the past three years, as shown in Table 2.
(265%)
2013
($851,854)
(251%)
2014
($1,211,924)
(304%)
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There is no authority for the Board to loan money from the town-wide
general fund to Town water special districts to help finance them over
a period of years. GML allows the Town to temporarily loan moneys
between funds; however, the moneys loaned must be repaid no later
than the close of the fiscal year in which the loan was made. The
purpose of interfund loans is to provide temporary cash flow relief,
and not long-term financing.
Even though the Board and Supervisor intend for the water special
district fund to repay the general fund for the individual loans over
a period of several years, interfund loans are considered short-term
liabilities (due to other funds) for financial reporting purposes until
the loans are paid off. Because the water special district fund does
not have enough money to repay the town-wide general fund, the
water special district fund has had a deficit fund balance for at least
the past three years.
The Supervisor told us he thought paying off the long-term interest
bearing loans in the water special district fund would save the Town
money because the town-wide general fund had accumulated excess
funds that were available to pay off the water debt. Currently, property
owners in the water special districts continue to pay annual benefit
assessments for all water special district debt. The Town uses the
assessment revenue received to repay any non-interest bearing longterm debt that remains outstanding in the water special district fund
and to repay the town-wide general fund (with interest) on an annual
basis. The Supervisor told us he would rather have the water special
districts pay the interest to the town-wide general fund, instead of
paying the interest to an outside financing source.4
Although a comparable interest rate has been established, there are
no terms on the interfund loans to indicate when the loans will be
repaid. Even if the long-term loans were legally permissible, without
a formal repayment plan, interest and principal payments may not be
applied consistently and correctly. Further, the assessment revenues
collected may not be enough to pay off the outstanding loans within
a reasonable amount of time. In addition, the Supervisor does not
maintain any records to show how he determined the principal and
interest amounts to apply to each loan annually.
Two water districts have been making annual payments against the
original 2012 loans. The annual payment (principal and interest) was
$55,209 for 2013 and $76,241 for 2014. The water special district
fund paid $16,962 in interest in 2014 to the town-wide general fund
on the 2011 loan but did not pay any principal on the outstanding
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Total interest recorded as received on the loans in the town-wide general fund
from January 2012 through March 2015 equals $152,735.
Towns must account for all money received and disbursed through
separate funds, each of which is a fiscal and accounting entity with
a self-balancing set of accounts. The Supervisor is responsible for
maintaining adequate accounting records that consist of journals,
ledgers and other financial documents that provide a record of all
transactions and account balances. In addition to maintaining
separate accounting records for each fund, the Supervisor must
maintain separate records to identify the individual transactions and
fund balance for each special district to maintain equity among the
taxpayers and/or rate payers that fund each special district.
The clerk reports budget-to-actual results for revenues and
expenditures, cash balances and total receipt and total disbursement
activity for main operating accounts in the Supervisors monthly
report that is given to the Board. However, the clerk does not
maintain detailed revenue and expenditure subsidiary ledgers or a
general ledger to support the balances reported. The clerk updates
the reported ending revenue and expenditure account balances in the
budget-to-actual reports each month, but he does not maintain records
showing the individual transactions that make up the balances.
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As of March 31, 2015, the outstanding balance due to the town-wide general
fund was $1,217,656.
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Recommendations
Town Law provides that the Board may perform the annual audit or engage the
services of a certified public accountant or public accountant to perform the
annual audit within 60 days of the close of the fiscal year.
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APPENDIX A
RESPONSE FROM LOCAL OFFICIALS
The local officials response to this audit can be found on the following page.
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APPENDIX B
AUDIT METHODOLOGY AND STANDARDS
We evaluated the Towns financial management from January 1, 2014 through March 31, 2015. We
expanded the scope of our audit back to January 1, 2012 to analyze prior years financial trends and to
2011 to review supporting documents for interfund loan balances. We extended the scope to May 31,
2015 to review current year budget versus actual results.
To achieve our audit objective and obtain valid evidence, we performed the following audit procedures:
We reviewed Board minutes and interviewed Town officials regarding fund balance, budgeting
practices, long-term plans and interfund loans between the town-wide general fund and water
special district fund.
We reviewed the Towns financial records and reports, including adopted budgets for 2012
through 2015, monthly Supervisor budget-to-actual reports and annual report and original loan
documentation for the water special district fund.
We analyzed current financial trends and projected financial activity and fund balances for the
town-wide general fund and water special district fund as of December 31, 2015.
We interviewed Town officials to determine whether the Board had audited or caused to be
audited the Supervisors records and reports.
We conducted this performance audit in accordance with GAGAS. Those standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis
for our findings and conclusions based on our audit objective. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on our audit objective.
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APPENDIX C
HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT
To obtain copies of this report, write or visit our web page:
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APPENDIX D
OFFICE OF THE STATE COMPTROLLER
DIVISION OF LOCAL GOVERNMENT
AND SCHOOL ACCOUNTABILITY
Andrew A. SanFilippo, Executive Deputy Comptroller
Gabriel F. Deyo, Deputy Comptroller
Tracey Hitchen Boyd, Assistant Comptroller
STATEWIDE AUDITS
Ann C. Singer, Chief Examiner
State Office Building, Suite 1702
44 Hawley Street
Binghamton, New York 13901-4417
(607) 721-8306 Fax (607) 721-8313
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