STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER 110 STATE STREET ALBANY, NEW YORK May 18, 2012

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1 THOMAS P. DiNAPOLI COMPTROLLER STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER 110 STATE STREET ALBANY, NEW YORK May 18, 2012 STEVEN J. HANCOX DEPUTY COMPTROLLER DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY Tel: (518) Fax: (518) Mayor John Stranges Members of the Board of Trustees Village of Bath 110 Liberty Street Bath, NY Report Number: 2010M-089-F Dear Mayor Stranges and Members of the Board of Trustees: One of the Office of the State Comptroller s primary objectives is to identify areas where local government officials can improve their operations and provide guidance and services that will assist them in making those improvements. Further objectives are to develop and promote shortterm and long-term strategies to enable and encourage Village officials to reduce costs, improve service delivery and to account for and protect their Village s assets. In accordance with these objectives, we conducted an audit of the Village of Bath to assess the financial operations of the Village. As a result of our audit, we issued a report, dated November 2010, identifying certain conditions and opportunities for Village management s review and consideration. To further our policy of providing assistance to local governments, we revisited the Village of Bath on February 27, 2012 to review the Village s progress in implementing our recommendations. Our follow-up review was limited to interviews with Village personnel and inspection of certain documents related to the issues identified in our report. We also received and reviewed additional documentation of further action taken after our field visit. 1 Based on our limited procedures, it appears that the Village has made significant progress implementing corrective action. Of the 27 audit recommendations, 21 recommendations were implemented, five were partially implemented, and one was not implemented. Recommendation 1 Control Environment The Board of Trustees (Board) should establish a control environment that fosters ethical values, competence and commitment to compliance with relevant laws and Village policies. Board members should also take an active role in managing the Village s operations, including Village Utility operations, to fulfill their governance and accountability responsibilities. 1 Additional information was obtained on April 18, 2012 pertaining to action taken at the March 19, 2012 and April 17, 2012 Board meetings. This information is discussed under the applicable recommendations.

2 Status of Corrective Action: Partially Implemented Observations/Findings: The Board has not taken a sufficiently active role in establishing a strong control environment and managing Village operations. The Board did add a layer of oversight when it appointed a new Utility Commission on November 18, 2011, to take responsibility for managing Village Utility operations. In addition, while the Clerk-Treasurer has worked to improve record keeping and financial procedures, the Board has only recently approved an investment policy, various financial policies, and a code of ethics that we had recommended in our report to improve the control environment. 2 In delaying corrective action to address recommendations made in November 2010, the Board has not demonstrated a firm commitment to improving the Village s control environment. Sufficient time has not yet elapsed to determine whether these recently-approved policies and procedures will be effective or adequately monitored by the Board. If the Board does not provide adequate oversight, and again places too much reliance on the Clerk-Treasurer, it will increase the risk that significant errors and irregularities will recur. Recommendation 2 Prosecute Intentional Overpayments The Board should consider contacting law enforcement officials and encouraging the prosecution of employees who intentionally overpaid themselves or took pay to which they knew they were not entitled. Observations/Findings: The Village did work with law enforcement officials and successfully recovered full restitution of $11,544 from the former Deputy Clerk-Treasurer as of December 1, Recommendation 3 Recover Improper Payments The Board should take the necessary action to recover all improper salary and benefit payments made to current and former Village officials and employees. Observations/Findings: The Village has recovered amounts deemed inappropriate by the Board of Trustees from five of the other eight individuals who were identified as having been overpaid. 3 The Village recovered payments totaling $31,098, or 56 percent of the $55,855 in improper payments received by eight employees identified in our report. The Village will receive an additional $1,700 pending a final settlement agreement with one of these employees. While 2 Corrective action was not completed until after our follow-up field visit for five of the fully implemented recommendations and one partially implemented recommendation. 3 The Board based its decision on consultation with the Village s legal counsel and negotiation with the employees legal counsel. 2

3 the Board did not require repayments from the Village Utility Supervisors for unauthorized overtime, 4 it did adopt a policy which formally allows them to earn overtime. Recommendation 4 Payroll Policies The Board should develop, implement and monitor comprehensive policies and procedures over the processing and approval of payroll transactions. Procedures should provide for proper segregation of duties and review of payroll data to ensure that salaries, wages and related benefits are accurately paid in accordance with contractual requirements. Observations/Findings: On March 19, 2012, the Board adopted a policy which details and segregates the various duties related to the processing, review, and approval of payroll transactions. The policy also provides for paychecks to be signed by the Deputy Clerk-Treasurer. However, Village Law provides for only the Clerk-Treasurer to sign checks, and for the Deputy Clerk-Treasurer to sign checks only in the absence or inability of the Clerk-Treasurer. Given this statutory requirement, the Board can provide for adequate segregation of duties by requiring the Deputy Clerk-Treasurer to either perform bank reconciliations, or to review reconciliations prepared by the Clerk-Treasurer. Recommendation 5 Authorize Salaries and Benefits The Board should ensure that it clearly authorizes and documents, in writing, all salaries and benefits to be provided to all current and newly-appointed employees. Benefits should be documented in sufficient detail to avoid misinterpretation. Observations/Findings: The Board adopted new personnel policies for Village employees and for Village Utility employees that identify all employee benefits to be provided. Salaries of current and newly-appointed personnel are documented on the periodic certified payrolls filed with the Steuben County Civil Service Department, and pay rates are also documented in the employees' personnel records. Additionally, from review of the minutes of the Board, we have verified that newly hired employees, and the salaries they are to receive, are approved in the Board minutes. Recommendation 6 Time and Leave Accrual Records The Board should require that every employee maintain time records and leave accruals, and that each employee s immediate supervisor review these records for accuracy and appropriateness. Observations/Findings: All employees are now required to maintain time records which include leave accruals. Time cards are approved in writing by department heads showing evidence of 4 Reported improper payments to these three employees totaled $11,047. 3

4 review for appropriateness and accuracy. We reviewed time cards on file in the Clerk- Treasurer s office and verified they were maintained for all employees. We also reviewed a sample of leave-accrual records to confirm that employees time usage was recorded. Recommendation 7 Certify Payroll The Mayor and department heads should review and certify Village payrolls in conformance with Village Law, and report payroll information to the County annually, in accordance with Civil Service Law. Observations/Findings: We reviewed payrolls for the fiscal year to date and verified that the Mayor certified payrolls for all department heads, and that department heads certified payrolls for their respective department staff. In addition, the Village properly filed its June 2010 and June 2011 payrolls with the Steuben County Civil Service Department for annual certification, as required. Recommendation 8 Policies and Procedures for Clerk-Treasurer Responsibilities The Board should develop and implement policies and procedures to ensure that all financial transactions of the Village are properly recorded and reported in a manner to allow taxpayers to gain assurance that Village assets are properly safeguarded. Observations/Findings: The Clerk-Treasurer developed and provided a list of procedures and assigned responsibilities for deposits and bank reconciliations, as well as a list of year-end accounting procedures. On April 18, 2012, we received and reviewed copies of financial policies that the Board adopted at its March 19, 2012 meeting. These financial policies addressed cash receipts, payroll and credit card acceptable use. Recommendation 9 Segregation of Clerk-Treasurer Duties The Board should ensure that financial duties are assigned so that the work of one individual independently verifies another s in the course of their regular duties. The Board should segregate the duties of recordkeeping and check preparation, or provide for an adequate form of compensating control. Observations/Findings: Although ideal segregation of duties is not possible, the Board and Clerk-Treasurer have developed policies and procedures which segregate certain duties between the Clerk-Treasurer and the Deputy Clerk-Treasurer, and provide for compensating controls to provide additional assurance that errors or irregularities would be prevented or detected. For 4

5 example, the Board now receives and reviews bank reconciliations along with monthly financial reports. Recommendation 10 Village Receipts The Board should ensure that all Village receipts are recorded and deposited in a timely manner and in compliance with statute. Observations/Findings: Village receipts appear to be recorded and deposited in a timely manner and in accordance with statute. We reviewed duplicate receipt books for the period June 1, 2011, to January 31, 2012, and verified there were no undeposited checks or money in the office or vault. Recommendation 11 Monthly Bank Reconciliations Bank reconciliations should be performed monthly. These reconciliations should be formally documented and retained on file to be available for audit purposes and review by the Board. Differences detected in the reconciliation process should be promptly investigated and resolved. Observations/Findings: Bank reconciliations are now completed and up to date, and included in the monthly Board packets for their review. Our review of bank reconciliations for the period from June 1, 2011, to January 31, 2012, confirmed they are done correctly and regularly to verify that accounting records are accurate and in agreement with bank records. Recommendation 12 Backup of Financial Data The Board should require the periodic backup of crucial financial data to prevent the loss of this information, and ensure the availability and security of required financial records. Observations/Findings: Financial data is backed up nightly to Steuben County servers. Additionally the Clerk-Treasurer performs her own backup to a thumb drive and stores it in the vault in her office. Recommendation 13 Village Records The Board should establish and enforce procedures for adequate and secure maintenance of all Village records, particularly of records containing personnel or other confidential information. Status of Corrective Action: Partially Implemented 5

6 Observations/Findings: We found that the Clerk-Treasurer has reorganized all Village records and now maintains them in the locked fireproof vault in her office. Personnel records are kept locked in a safe behind the Clerk-Treasurer s desk. However, the Board has not formalized the process by adopting a policy for the adequate and secure maintenance of records. Recommendation 14 Monthly Budget Status Reports The Board should require and use monthly monitoring reports generated by the financial software in order to help strengthen internal controls. Observations/Findings: The Clerk-Treasurer now provides the Board with monthly financial reports that include budget status, vouchers to be paid, bank balances, and cash flow reports. We reviewed examples of monthly financial reports currently provided to the Board and found they contained appropriate and sufficient information. Recommendation 15 Board Minutes The Board should ensure that the minutes of its proceedings are adequately and timely prepared, and maintained in an appropriate fashion to provide a secured permanent record. Observations/Findings: We reviewed the minute books maintained by the Clerk-Treasurer for the period June 1, 2011, through February 21, 2012, to verify that minutes were up to date and properly organized. We found the minutes were complete and appropriately maintained through this period. Minutes are now available on the Village s website for public access and review. Recommendation 16 Investment Policy The Board should adopt a written investment policy in accordance with statutory provisions which should include, among other provisions, that moneys are deposited only in permissible instruments in banks within New York State. Observations/Findings: The Board adopted an investment policy on April 17, We have reviewed the policy and determined that it is comprehensive and sufficient. The policy includes the provision that moneys are to be deposited only in permissible instruments in banks within New York State. Recommendation 17 Interest in Contracts The Board should review the conflicts of interest provisions of General Municipal Law (GML), and ensure that Village officials and employees know about the law and comply with it. 6

7 Status of Corrective Action: Partially Implemented Observations/Findings: The Mayor 5 and Clerk-Treasurer told us they became much more familiar with conflict of interest laws since our audit. However, we found no clear indication that the Board had reviewed the provisions of GML in relation to conflicts of interest, or had taken adequate action (through memos or staff meetings, etc.) to disseminate information about conflicts of interest, to ensure that Village officials and employees understand the requirements of the statute, and to enforce compliance with those requirements. Recommendation 18 Code of Ethics The Board should review and update its code of ethics and ensure that all Village officers and employees know about and comply with the code s provisions. Status of Corrective Action: Partially Implemented Observations/Findings: On April 17, 2012, the Board reviewed the Village s Code of Ethics (Code) from 1970, and approved it with no amendments or updates. Even though the Code was first adopted more than 40 years ago, Village officials have still not implemented some of its provisions. For example, the Code states that the Mayor is responsible for providing a copy of the Code to all employees, but the Mayor has not yet done so. In addition, the Board has not yet appointed the Ethics Board created by the Code. After we discussed these matters with Village officials on April 23, 2012, the Clerk-Treasurer indicated she will provide department heads with enough copies of the Code for all employees, and have the Mayor formally notify staff that they are required to abide by it. Recommendation 19 Utility Director s Interest in Contracts The Village Utility should not do business with any firm owned by the Director s wife. Observations/Findings: We interviewed the Mayor and Clerk-Treasurer, who stated that they are now more aware of the conflict of interest laws and are more careful not to enter into contracts that cause a conflict of interest. More specifically, the Director has since retired and the Village has discontinued contracting with his wife. Recommendation 20 Utility Director s Interest in Contracts The Director should not make or participate in official decisions involving his wife or any business with which she is affiliated. 5 We spoke with the former Mayor during our February 23, 2012 audit follow-up visit; a newly elected Mayor took office as of April 1,

8 Observations/Findings: The Village Board has appointed a Utilities Commission, which is now responsible for entering into vendor agreements. Therefore, the Director is no longer responsible for such duties. Recommendation 21 Post GML Conflicts of Interest Provisions The Mayor should ensure that a copy of the GML conflicts of interest provisions is posted in a conspicuous place in each public building under the Village s jurisdiction. Observations/Findings: We verified that the Village has posted Section 801 of GML at all of its locations: in the Clerk-Treasurer s office, in the highway garage, and in the Village Utility office. Recommendation 22 Review Procurement Policy The Board should review, update, and clearly disseminate its policy and communicate the policy and procedures to all Village employees. The Board should also review the policy annually and amend it as necessary. Observations/Findings: The Board reviewed and updated its procurement policy on July 11, The revised policy has been updated to reflect amended bidding thresholds. The Clerk- Treasurer indicated that the updated policy was ed to all supervisors and that she intends to add the Board s annual review and approval of the procurement policy to the agenda of the annual reorganization meeting. Recommendation 23 Update Procurement Policy The Board should ensure that its revised policy includes provisions for: Ensuring that Village officials aggregate like purchases to be made during a fiscal year to identify those that exceed competitive bidding thresholds Soliciting competition when procuring professional services. Status of Corrective Action: Not Implemented Observations/Findings: The newly-adopted procurement policy contains the same general provisions as the old policy as it relates to professional services and aggregating like purchases made during a fiscal year. We recognize that professional services have special considerations and that the vendor who offers the lowest price may not have the necessary qualifications. However, the Board should include policy provisions that require Village officials to seek 8

9 written proposals for professional services. Written proposals give Village officials the information they need to clearly consider all relevant factors, compare vendor qualifications, and support their vendor selection decisions. Further, the revised policy did not contain adequate provisions to ensure that Village officials properly aggregate purchases of like items in determining whether purchases will exceed bid thresholds, as demonstrated by our audit tests of a sample of like-item purchases. 6 The Board needs to implement and enforce more detailed procedures to coordinate and estimate like purchases to be made during a fiscal year. Recommendation 24 Procurement Policy Compliance Village officials should monitor for compliance with policies and procedures to ensure that all purchasing decisions are clearly documented. Status of Corrective Action: Partially Implemented Observations/Findings: Although Village officials maintain quote documentation and have it readily available, the Board does not routinely see this documentation when it audits claims. To ensure that the Board can view supporting documentation during the claims audit process, we presented options to Village officials for summarizing the method of vendor selection on the voucher, with reference to available quotes, when this information is too voluminous to attach to the claim. Recommendation 25 Claims Audit The Board should perform a thorough and deliberate audit of all Village claims before payment. Observations/Findings: The Board now reviews, audits, and approves all claims prior to payment. The Board designated a two-member committee of the Board that reviews all claims and makes a recommendation to the Board to approve all or some of the claims. 7 The full Board then audits and approves the claims for payment, which is clearly noted in the Board minutes. The Board members also sign the abstracts to certify that they audited all listed claims. Recommendation 26 Credit Card Policies and Procedures The Board should adopt, implement, and enforce adequate policies and procedures over the use of credit cards. 6 During our audit, we identified 53 claims paid to six vendors for utility purchases totaling $219,766 that were for like items purchased throughout the fiscal year. Although these purchases aggregated to amounts that exceeded competitive bidding thresholds, there was no evidence that the Village had advertised for bids or taken other measures to obtain competitive price comparisons for any of these purchases. 7 Village Law, Section

10 Observations/Findings: On March 19, 2012, the Board adopted a credit card policy. In addition, all cardholders have since acknowledged receipt and familiarity with the policy by signing a cardholder agreement. The policy, if properly monitored and enforced, should provide improved controls over the use of credit cards. Recommendation 27 Late Fees on Credit Card Purchases Village officials should ensure that credit card bills are audited and paid in timely manner to avoid late fees. Observations/Findings: We interviewed Village officials and reviewed audited abstracts and credit card bills for the last two years, and found that the Board audits credit card bills along with the monthly abstract. The Village has been charged only one late fee since we completed our audit fieldwork in February 2010, which occurred because a department head held the bill longer than necessary. Village officials addressed this issue with the department head, and the problem has since been corrected. During our review, we discussed the basis for our recommendations and the operational considerations relating to these issues. We encourage you to continue with your efforts to implement our recommended improvements in your fiscal management. I trust that our follow-up review was of assistance to you. If you have any further questions, please contact Edward V. Grant, Jr., Chief Examiner of our Rochester Regional Office, at (585) Sincerely, Steven J. Hancox Deputy Comptroller Division of Local Government and School Accountability 10