Town of German. Oversight of Financial Operations and Tax Collector. Report of Examination. Period Covered: January 1, 2011 February 21, M-95

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1 O FFICE OF THE NEW YORK STATE COMPTROLLER DIVISION OF LOCAL GOVERNMENT & SCHOOL ACCOUNTABILITY Town of German Oversight of Financial Operations and Tax Collector Report of Examination Period Covered: January 1, 2011 February 21, M-95 Thomas P. DiNapoli

2 Table of Contents AUTHORITY LETTER 2 Page EXECUTIVE SUMMARY 3 INTRODUCTION 5 Background 5 Objective 5 Scope and Methodology 5 Comments of Local Officials and Corrective Action 5 FISCAL OVERSIGHT RESPONSIBILITIES 7 Recommendations 8 TAX COLLECTION 9 Recommendations 10 APPENDIX A Response From Local Officials 11 APPENDIX B OSC Comments on the Town s Response 13 APPENDIX C Audit Methodology and Standards 14 APPENDIX D How to Obtain Additional Copies of the Report 16 APPENDIX E Local Regional Office Listing 17 DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 11

3 State of New York Division of Local Government and School Accountability July 2012 Dear Town Officials: A top priority of the is to help local government officials manage government resources efficiently and effectively and, by so doing, provide accountability for tax dollars spent to support government operations. The Comptroller oversees the fiscal affairs of local governments statewide, as well as compliance with relevant statutes and observance of good business practices. This fiscal oversight is accomplished, in part, through our audits, which identify opportunities for improving operations and Board governance. Audits also can identify strategies to reduce costs and to strengthen controls intended to safeguard local government assets. Following is a report of our audit of the Town of German, entitled Oversight of Financial Operations and Tax Collector. This audit was conducted pursuant to Article V, Section 1 of the State Constitution and the State Comptroller s authority as set forth in Article 3 of the General Municipal Law. This audit s results and recommendations are resources for local government officials to use in effectively managing operations and in meeting the expectations of their constituents. If you have questions about this report, please feel free to contact the local regional office for your county, as listed at the end of this report. Respectfully submitted, Offi ce of the State Comptroller Division of Local Government and School Accountability 2 OFFICE OF THE NEW YORK STATE COMPTROLLER

4 State of New York EXECUTIVE SUMMARY The Town of German (Town) is located in Chenango County and has a population of approximately 370 residents. The Town Board (Board) consists of the Town Supervisor (Supervisor) and four Council members, and is the legislative body responsible for overseeing the Town s operations and finances. The Supervisor is responsible for the Town s daily operations. The Board is responsible for the general management and oversight of the Town s financial and operational affairs and for ensuring the performance of an annual financial audit. The Tax Collector is responsible for the collection, deposit, and remittance of tax receipts to the Supervisor. The Town s 2012 appropriations for all budgeted funds totaled $306,869, financed primarily by real property taxes, sales tax, and State aid. Scope and Objective The objective of our audit was to review the Town s financial operations for the period January 1, 2011 to February 21, Our audit addressed the following related questions: Did the Board properly fulfill its obligation to oversee the Supervisor and perform annual audits? Did the Town Tax Collector record, deposit, and remit real property tax receipts in a timely manner? Audit Results The Board does not provide adequate oversight of the Town s financial operations. The Board has not developed or formally adopted any policies other than a code of ethics, the Supervisor s duties are not properly segregated and the Supervisor does not present any monthly summaries of the financial activities. Moreover, the Board does not provide for an annual audit of the Supervisor s financial records. We also found the Tax Collector did not accurately and timely record, deposit, or remit taxes collected. Also, the Board did not audit the Tax Collector s records. Inaccurate accounting records increase the risk that errors and irregularities may occur and go undetected and uncorrected. 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 DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 33

5 generally agreed with our recommendations and indicated they planned to take corrective action. Appendix B includes our comments on the issues raised in the Town s response letter. 4 OFFICE OF THE NEW YORK STATE COMPTROLLER

6 Introduction Background The Town of German (Town) is located in Chenango County and has a population of approximately 370 residents. The Town provides a variety of services to its residents, including street maintenance and improvements, snow removal, and general government support. The Town s 2012 total appropriations for all budgeted funds totaled $306,869, financed primarily by real property taxes, sales tax, and State aid. An elected five-member Town Board (Board), which consists of the Town Supervisor (Supervisor) and four Council members, is the legislative body responsible for overseeing the Town s operations and finances. The Supervisor is both the chief executive officer and chief fiscal officer of the Town and is responsible for the Town s daily operations, including reporting to the Board. The Board is responsible for the general management and oversight of the Town s financial and operational affairs. The Board is also responsible for ensuring the performance of an annual financial audit, whether conducted by the Board itself or by contracting with an outside auditor. The Town also employs a Tax Collector who is responsible for the collection, deposit, and remittance of tax receipts to the Supervisor. Objective The objective of our audit was to review the Town s financial operations. Our audit addressed the following related questions: Did the Board properly fulfill its obligation to oversee the Supervisor and perform annual audits? Did the Town Tax Collector record, deposit, and remit real property tax receipts in a timely manner? Scope and Methodology We examined the Board s oversight of the Supervisor and annual audit procedures as well as the Tax Collector s recording, depositing and remittance practices, for the period of January 1, 2011 to February 21, We conducted our audit in accordance with generally accepted government auditing standards (GAGAS). More information on such standards and the methodology used in performing this audit are included in Appendix C of this report. Comments of Local Officials and Corrective Action 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 DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 55

7 agreed with our recommendations and indicated they planned to take corrective action. Appendix B includes our comments on the issues raised in the Town s response letter. The Board has the responsibility to initiate corrective action. A written corrective action plan (CAP) that addresses the findings and recommendations in this report should be prepared and forwarded to our office within 90 days, pursuant to Section 35 of the General Municipal Law. For more information on preparing and filing your CAP, please refer to our brochure, Responding to an OSC Audit Report, which you received with the draft audit report. We encourage the Board to make this plan available for public review in the Town Clerk/Tax Collector s office and/or Town Hall. 6 OFFICE OF THE NEW YORK STATE COMPTROLLER

8 Fiscal Oversight Responsibilities Part of the Board s responsibility for the general management and control of the Town s finances is providing proper and adequate oversight, such as developing policies to help guide and monitor fiscal operations and conduct audits. The Board should, and in some cases must, develop and formally adopt policies that establish control procedures for daily financial operations, including segregating incompatible duties or implementing mitigating controls through oversight. For example, the Board is required to adopt a procurement policy and annually review and update it. Additionally, the Board should ensure that all payments made are for proper Town expenditures, and that the Town s accounting records and reports are accurate and complete. The Board can accomplish this through a rigorous audit of claims presented for payment, verifying the sequence of claims presented each month has consecutive numbering from the previous month, reviewing monthly reports, as well as an annual audit of the Supervisor s records and reports. The Board does not provide adequate oversight of the Town s financial operations. The Board has not developed or formally adopted any policies other than a code of ethics. In addition, the Supervisor s duties are not properly segregated. The Supervisor is responsible for all of the financial activities including: receiving and disbursing money, recording transactions, reconciling the recorded cash balances with the Town s bank balances, and reporting summaries of the financial activities. The only oversight the Board provides for these duties is their monthly audit of the claims presented by the Supervisor. However, we found that the Board does not receive sufficient information to verify that they are auditing all claims for which disbursements are made as the sequence of claims is not provided. The Supervisor does not present any monthly summaries of the financial activities and the Board does not conduct an annual audit of the Supervisor s financial records. Two Board members told us they did not realize that policies and controls should be formally established and adopted and were unaware that there was any requirement for the Supervisor s records to be audited. Furthermore, the Supervisor told us he has presented financial reports in the past, but the Board did not express interest in reviewing them on a consistent basis. As a result, he makes the Board members aware that information is readily available upon request. The Supervisor told us that he has not presented these financial reports to the Board since approximately 2009, and that no Board member has asked to review them since. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 77

9 When there is no policy guidance in place, it is hard to ensure that public funds are used prudently and in the best interest of the Town s taxpayers. While our review of the Supervisor s records did not disclose any material discrepancies, with the Supervisor controlling all financial transactions without oversight, significant risks exist that errors and irregularities may occur and go undetected and uncorrected. Without the listing of claims audited and approved for the Board to verify they are presented all claims for audit, payments could be made for inappropriate purposes or in error. Absent an annual audit, the Board cannot be sure that the accounting records present an accurate summary of all of the financial activities to serve as a sound basis for financial decision-making and planning. Recommendations 1. The Board should, and in some cases must, develop and formally adopt policies to establish control procedures and to guide fiscal operations. 2. The Board should require the Supervisor to present periodic financial reports. 3. The Board should ensure that they audit all payments by verifying the sequence of claims presented each month. 4. The Board should annually audit, or cause to be audited, the Supervisor s financial records. 1 8 OFFICE OF THE NEW YORK STATE COMPTROLLER 1 Board members should refer to our publication entitled Local Government Management Guide Fiscal Oversight Responsibilities of the Governing Board.

10 Tax Collection In order to properly account for tax collections, it is important to record tax receipts in a timely manner. Town Law requires the deposit of tax receipts to be within 24 hours of collection, and generally, such moneys should be remitted to the Supervisor at least once a week until the Town s levied amount has been fulfilled. The Tax Collector should record the payments as of the date that they are received. Finally, the Board is required to annually audit, or cause to be audited, the records of the Tax Collector. The Tax Collector did not record, deposit, or remit taxes collected accurately and timely. Also, the Board did not audit the Tax Collector s records. Recording of Payments The Tax Collector did not record the payment dates for the money she received as the date of receipt, but instead recorded the date received as the day that she recorded the payment. Only one of the payments we reviewed was recorded with a payment date that matched the postmark on its respective envelope. 2 Eleven of these payments were recorded as paid between three days before, and up to 24 days after, the postmark date. Deposits of Collections The Tax Collector did not deposit the money she had collected on a timely basis. Instead, the Tax Collector deposited money she collected with gaps of 10 days to 47 days between deposits. Remittance to Supervisor The Tax Collector disbursed money to the Supervisor when she had collected enough money to satisfy the Town s total levy. During the 2011 collection cycle, she made only two disbursements to the Supervisor; one for the total levy on February 5 and another for $186 for interest and penalties collected on March 21. As of February 15, 2012, she had not made any payments to the Supervisor for the 2012 collections. The Tax Collector told us that she would process payments in batches, but physical ailments limited the number of receipts that she could process at any one time. She further told us she was not aware of the requirement for the frequency to deposit tax collections 2 According to Real Property Tax Law, payments by mail are considered paid based on the postmark date. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 99

11 within 24 hours of collection or to remit collections to the Supervisor weekly. The Board s failure to audit the Tax Collector s records also contributed to these errors and delinquencies occurring. Inaccurate accounting records increase the risk that errors and irregularities may occur and go undetected and uncorrected. Timeliness of deposit and remittance are significant components of an accurate accounting of tax collection activities, and, additionally, when records are audited by the Board, these greatly contribute to the mitigation of risk. Recommendations 5. The Tax Collector should record payment dates as of the date payments are received. 6. The Tax Collector should deposit money she has collected within 24 hours. 7. The Tax Collector should remit collections to the Supervisor at least weekly. 8. The Board should audit, or cause to be audited, the Tax Collector s records, ensure that the Tax Collector s records are current and accurate, and ensure that deposits and remittances are made timely. 10 OFFICE OF THE NEW YORK STATE COMPTROLLER

12 APPENDIX A RESPONSE FROM LOCAL OFFICIALS The local officials response to this audit can be found on the following page. The Town s response letter refers to attachments that support the response letter. Because the Town s response letter provides sufficient details of its actions, we did not include the attachments in Appendix A. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 111

13 See Note 1 Page 13 See Note 2 Page OFFICE OF THE NEW YORK STATE COMPTROLLER

14 APPENDIX B OSC COMMENTS ON THE TOWN S RESPONSE Note 1 Although Town officials provided resolutions that indicated they will adopt a procurement policy and an investment policy, the resolutions did not address all of the concerns we identified. For example, they did not adopt policies that establish control procedures for daily financial operations, including segregating incompatible duties or implementing mitigating controls through oversight. Additionally, the requirements for formal procurement and investment policies are specifically outlined in the law. Town officials should review General Municipal Law Sections 39 and 104-b and the Office of the State Comptroller s Local Government Management Guides entitled Investing and Protecting Public Funds and Seeking Competition in Procurement for additional guidance. Note 2 The topic was not within the scope of our audit. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 1313

15 APPENDIX C AUDIT METHODOLOGY AND STANDARDS During this audit, we examined the Board s oversight of the Supervisor and annual audit procedures, as well as the Tax Collector s recording, depositing and remittance practices for the period of January 1, 2011 to February 21, To accomplish our audit objective and obtain relevant audit evidence, our procedures included the following: We conducted interviews with various Town officials to gain an understanding of the following areas: existing formal policies, annual audit procedures, duties of the Supervisor, internal control procedures and tax collection procedures. We reviewed canceled check images on Town bank statements to determine the total amounts paid to each Board member and compared the payments to budgeted salaries for the 2011 fiscal year. We reviewed check images to determine the total amounts paid to the Supervisor during the 2011 fiscal year and compared this to the total paid to the Supervisor in the accounting software and to budgeted amounts. From canceled check images, we selected a judgmental sample of five payments to vendors that could be used for personal use. We then traced the payments to supporting documentation to verify the appropriateness of the payments and to the warrant to verify that they were approved by the Board. For three consecutive months, we compared a total of 95 canceled check images to approved claims (warrants) to identify any unapproved checks or gaps in the check sequence (50 general fund checks totaling $27,861 and 45 highway fund checks totaling $24,619). For all gaps in the check sequence, we determined if the missing checks were voided and kept on file or remain on an outstanding check list. We compared amounts paid to vendors and employees per the accounting software to canceled check images on Town bank statements for all 227 general fund checks (totaling $159,055) and all 187 highway fund checks (totaling $174,129) for the 2011 fiscal year to determine if the amounts matched. We scanned bank statements for all electronic transfers and manual withdrawals between January 1, 2011 and December 31, 2011 and verified the appropriateness of those transactions. From Town bank statements, we compared all 377 checks cashed from the general and highway funds (totaling $317,778) to checks recorded in the accounting system to determine if check amounts and payees matched for the period of January 2011 to December We selected a non-biased judgmental sample of 15 envelopes of paid tax bills and compared the postmark dates to the dates posted in the system. 14 OFFICE OF THE NEW YORK STATE COMPTROLLER

16 We reviewed bank statements to calculate the number of days between the deposits of all tax collection receipts from January 1, 2011 to February 21, We documented the dates of all checks written to the Supervisor from canceled check images on tax collection bank statements from January 1, 2011 to February 21, 2012 and calculated an average time between remittances. We identified a non-biased judgmental sample of 15 envelopes with postmark dates dated after the penalty cutoff date. We then calculated the appropriate penalty that should have been charged on the payments and traced them through the accounting system to the deposit in order to verify that correct penalty amounts were charged and deposited. We selected a sample of 15 payments from the accounting system from January 2012 and traced them to the postmarked envelopes in which the payments were mailed, in order to verify that the postmark date was before the penalty cut-off date. We reviewed the Tax Collector s electronic bank statements to verify that the Tax Collector's tax bill was paid appropriately for the 2011 and 2012 tax years. We conducted this performance audit in accordance with generally accepted government auditing standards (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. DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 1515

17 APPENDIX D HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT To obtain copies of this report, write or visit our web page: Public Information Office 110 State Street, 15th Floor Albany, New York (518) OFFICE OF THE NEW YORK STATE COMPTROLLER

18 APPENDIX E OFFICE OF THE STATE COMPTROLLER DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY Andrew A. SanFilippo, Executive Deputy Comptroller Steven J. Hancox, Deputy Comptroller Nathaalie N. Carey, Assistant Comptroller LOCAL REGIONAL OFFICE LISTING BINGHAMTON REGIONAL OFFICE H. Todd Eames, Chief Examiner State Office Building - Suite Hawley Street Binghamton, New York (607) Fax (607) Muni-Binghamton@osc.state.ny.us Serving: Broome, Chenango, Cortland, Delaware, Otsego, Schoharie, Sullivan, Tioga, Tompkins Counties BUFFALO REGIONAL OFFICE Robert Meller, Chief Examiner 295 Main Street, Suite 1032 Buffalo, New York (716) Fax (716) Muni-Buffalo@osc.state.ny.us Serving: Allegany, Cattaraugus, Chautauqua, Erie, Genesee, Niagara, Orleans, Wyoming Counties NEWBURGH REGIONAL OFFICE Christopher Ellis, Chief Examiner 33 Airport Center Drive, Suite 103 New Windsor, New York (845) Fax (845) Muni-Newburgh@osc.state.ny.us Serving: Columbia, Dutchess, Greene, Orange, Putnam, Rockland, Ulster, Westchester Counties ROCHESTER REGIONAL OFFICE Edward V. Grant, Jr., Chief Examiner The Powers Building 16 West Main Street Suite 522 Rochester, New York (585) Fax (585) Muni-Rochester@osc.state.ny.us Serving: Cayuga, Chemung, Livingston, Monroe, Ontario, Schuyler, Seneca, Steuben, Wayne, Yates Counties GLENS FALLS REGIONAL OFFICE Jeffrey P. Leonard, Chief Examiner One Broad Street Plaza Glens Falls, New York (518) Fax (518) Muni-GlensFalls@osc.state.ny.us Serving: Albany, Clinton, Essex, Franklin, Fulton, Hamilton, Montgomery, Rensselaer, Saratoga, Schenectady, Warren, Washington Counties SYRACUSE REGIONAL OFFICE Rebecca Wilcox, Chief Examiner State Office Building, Room E. Washington Street Syracuse, New York (315) Fax (315) Muni-Syracuse@osc.state.ny.us Serving: Herkimer, Jefferson, Lewis, Madison, Oneida, Onondaga, Oswego, St. Lawrence Counties HAUPPAUGE REGIONAL OFFICE Ira McCracken, Chief Examiner NYS Office Building, Room 3A10 Veterans Memorial Highway Hauppauge, New York (631) Fax (631) Muni-Hauppauge@osc.state.ny.us STATEWIDE AND REGIONAL PROJECTS Ann C. Singer, Chief Examiner State Office Building - Suite Hawley Street Binghamton, New York (607) Fax (607) Serving: Nassau and Suffolk Counties DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 1717