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HomeMy WebLinkAbout1975-1980 RECEIVED DEu ' 3 i981 Town r'-rid 'Southold REPORT OF EXAMINATION OF. TOWN OF SOUTHOLD OFFICE f'STROLLER E Ec, 1. STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER ALBANY,NEW YORK C12236 81M-491 EDWARD V.REGAN January 1, 1975 - December 31, 1980 STATE COMPTROLLER Report Filed - December 21, 1981 TO THE SUPERVISOR AND MEMBERS OF THE TOWN BOARD OF THE TOWN OF SOUTHOLD SUFFOLK COUNTY, NEW YORK: Pursuant to the authority vested in the State Comptroller by Article 3 of the General Municipal Law, we have examined the records, documents and procedures of the Town of Southold for the period January 1, 1975 through December 31, 1980 for compliance with various statutes and regulations. In addition, we have examined the records, documents and procedures established by the Town of Southold to determine compliance with the Federal Revenue Sharing and Antirecession Fiscal Assistance Act and regulations as required by Sections II.C.3 and III.C.3 of the Audit Guide and Standards for Revenue Sharing and Antirecession Fiscal Assistance Fund Recipients (The Guide) issued by the U.S. Department of the Treasury. We also compared the data furnished by the Bureau of Census with the audited records of the Town of Southold for the period January 1, 1979 through December 31, 1979 as required by Section II.C.4 of the Audit Guide. The financial statements of the various funds and account groups of the Town of Southold for the fiscal years ended December 31, 1975, 1976, 1977, 1978, 1979 and 1980 were audited by independent accountants. The independent accountant also conducted a financial and compliance audit of federal revenue sharing funds. Copies of their reports are on file in the town clerk's office. We noted no instances of noncompliance with the regulations and no material differences between the data furnished by the Bureau of Census and the records of the Town of Southold for the year ended December 31, 1979. Our findings with respect to other aspects of this examination are set forth in the following pages. Very truly yours, OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS 2. Town of Southold C RESULTS OF EXAMINATION Financial Accounting and Reporting Financial Statement Presentation Accounts Payable Reserve for Encumbrances Revenue from State and Federal Aid Debt Service Fund and Long-Term Debt Group of Accounts Accounting and Reporting of Federally Funded Projects Payments Charged to Wrong Fund Internal Control Processing of Tax Receipts - Receiver of Taxes Cablevision Franchise Fees Deposits not Timely - Trustees of the Freeholders Payroll Procedures Vacation and Sick Leave Policy for Chief of Police C Vehicle Fuel Fixed Assets: Book Inventory Incomplete Physical Inventory Not Taken Inventory of Highway Machinery, Tools and Equipment Inventory of Repair Parts - Highway Department Segregation of Duties - Supervisor's Office Undertakings Expenditures Public Advertisement for Bids Attendance at Conventions Payments for Equipment Repairs Secretarial and Office Expenses of Town Attorney Installment Purchase of Copy Machine Lack of Sufficient Substantiation for Claim Vouchers Payments in Support of Local Sports Leagues STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS 3. Town of Southold C ' Compliance Purchases of Highway Machinery and Equipment without Town Board Authorization Payments of Tax Collections to Town Supervisor Justice Moneys not Deposited Timely Receipt Forms C STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS Town of Southold RESULTS OF EXAMINATION Financial Accounting and Reporting Financial Statement Presentation A review of the town's 1980 annual financial report and the records supporting this report revealed the following: Accounts Payable - Although none of the town's operating funds showed a liability for accounts payable at December 31, 1980, a review of claims paid in January and February, 1981 revealed numerous instances in which goods and services had been provided to the town in 1980, thereby establishing a liability at December 31, 1980 that should have been shown on the balance sheet. Reserve for Encumbrances - The amounts shown in the reserve for encum- brances account of the highway and federal revenue sharing funds at Decem- ber 31, 1980 included items that represented actual liabilities for goods and services provided to the town in 1980 and, therefore, should have been classified as accounts payable. Furthermore, nearly one-third of the total amount in the reserve for encumbrances account in the federal revenue sharing fund at December 31, 1980 improperly represented moneys appropriated by the town, not moneys encumbered. CThe encumbrance of appropriations should be limited to recording commit- ments in the form of purchase orders, contracts or salary commitments, rather than obligations represented by goods and services actually received. Revenue From State and Federal Aid - During the fiscal years ending December 31, 1979 and 1980, revenues from stake and federal aid were accrued in the revenue control account when the claims were submitted. However, the subsidiary revenue accounts from which the town prepared its annual financial reports were kept on a cash basis, recording these revenues only when the aid was actually received. As a result, the control and subsidiary revenue accounts were not in agreement and the revenues appearing in the annual financial reports were misstated. When the expenditure of money is the prime factor in determining the eligibility for aid, the revenues and expenditures should be recorded in the same period. In addition, the basis of accounting for these revenues should be the same in both the control and subsidiary accounting records. Debt Service Fund and Long-Term Debt Group of Accounts - In the annual financial report for the fiscal year ending December 31, 1980, the long-term debt group of accounts included $10,000.00 classified as bonds payable and payments of $10,000.00 of debt principal and $1,050.00 of interest which were indicated as having been made from the debt service fund. These liabilities and transactions actually involved bond anticipation notes, the proceeds of which had been deposited in the general fund and expended for the installation of street lights. STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS 5. Town of Southold CLong-term improvements financed by debt such as this installation of street lights should be accounted for in the capital projects fund. Further- more, the liability for the above mentioned bond anticipation note should be accounted for in the capital projects fund. The purpose of the general long-term debt group of accounts is to record only general long-term debt which is not recorded in the liability accounts of other funds. The debt service fund is provided to account for the payment of principal and interest on serial bonds, statutory installment bonds and capital notes, where appropriate. 07 Accounting and Reporting of Federally Funded Projects During the year ended December 31, 1980 several programs-'and projects funded by the federal government such as the community development program, the nutrition pro- gram, construction of the new town hall annex and others were not accounted for and reported in the various funds of the town,- but instead were accounted for in supple- mental cash basis statements. We recommend that the town establish a separate community development fund. The other programs and projects mentioned above could be accounted for in existing funds of the town. Payments Charged to Wrong Fund Claims paid from the town-wide general fund during the year ended December 31, 1980 and charged against the taxable property of the entire town, included some of the costs of maintaining and operating the town police department, such as elec- tricity costs, even though the town has within it an incorporated village main- taining its own police department. The aforementioned expenditures should have been budgeted and charged to the taxable property of the town outside the village (Town Law, §150) . Internal Control Processing of Tax Receipts, Receiver of Taxes In order to expedite the processing of property tax collections during the busy part of the collection period, moneys received along with accompanying tax bills were transferred by the receiver of taxes to a local bank for deposit and receipting. The bank provided the receiver with a daily record of tax bills received and processed by the bank; however, no independent control record of moneys received by the receiver and turned over to the bank was prepared. STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS 6. Town of Southold CIn order to provide better control and accountability of moneys over which he has custody, we recommend that the receiver of taxes develop a daily control total of the -moneys received by him and transferred to the bank, and that this total be reconciled to the deposits credited and records provided by the bank. In addition, we note that the only individuals who are authorized by law to accept and handle tax payments are receivers of taxes and duly appointed deputies. Nothing was presented to indicate that any individual at the bank had been ap- pointed deputy receiver. Town Board Cablevision Franchise Fees In 1975, the town entered into a ten year contract with a cablevision company whereby the town would receive a yearly franchise fee equal to 3% of the gross subscriber revenues received by the company in the previous year. Although the company has remitted payments to the town each year, no evidence was presented to indicate that the company has provided the. town with any information as to the amount of the gross subscriber revenues on which the payments to the town in 1979 and 1980 were based. Furthermore, while the contract allows the town access to the company books and records reflecting its operations under this franchise, there is no evidence that the town has availed itself of this contract provision to verify the correctness of the fees remitted from the beginning of the contract through December 31, 1980. We recommend that the town verify this revenue. Future contracts should require that the cablevision company provide an independently certified statement of gross subscriber revenues as support for the fee remitted each year. Deposits Not Timely - Trustees of the Freeholders An examination of the books and records of the board of trustees of the free- holders for the year ended December 31, 1980 revealed that fees remitted to the board were often not deposited in the board's official bank account until several weeks after receipt. During the period of time prior to deposit, cash and checks were kept in an unsecured location. We recommend that receipts be deposited promptly and that undeposited receipts be kept in a more secure location. STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS 7. Town of Southold CPayroll Procedures A review of the procedures used by the town for the processing of payrolls revealed the following deficiencies in internal control: a) Time sheets that were prepared by employees were not always approved as evidenced by the signature of their immediate supervisor or department head. b) Payrolls, after being prepared by an outside contractor, were not approved by either department heads or town officials as required by Town Law, §120. Furthermore, the verification of the payrolls returned by the outside contractor was left to the same employees responsible for preparing the information used by the outside contractor in producing the payrolls. c) The heads of the highway department and police department picked up their department's checks to distribute to their employees without signing for them. d) The monthly reconciliation of the payroll checking account was done by an employee involved in payroll preparation and payment. We recommend that department heads or employees' supervisors approve time C sheets prior to the preparation of the payroll and certify the payrolls as required by §120 of the Town Law. Furthermore, we suggest that the town invest- igate ways to achieve a greater segregation of duties in the processing of the payroll in order to improve internal control. Vacation and Sick Leave Policy for Chief of Police Although records were maintained of credits to and use of vacation time, compensatory time, personal leave and sick leave for the chief of police, there was no evidence that a formal policy exists as to the amount of such leave time the chief of police is to receive each year. The town board should establish a policy as to the amount of leave time which may be accrued annually by the chief of police. Vehicle Fuel Although the police and highway departments maintained records indicating gasoline consumption by date, vehicle and driver, no perpetual book inventory record of gasoline in the in-ground fuel tanks was maintained. Furthermore, when gasoline was delivered no verification was made of the amount received. STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS 8. Town of Southold We recommend that a perpetual inventory record be maintained showing gasoline received, dispensed and amount on hand and that this record be periodically con- firmed to amounts actually in the tanks. In addition, the amount in the tanks should be measured immediately before and after a delivery to verify the amount delivered as indicated on the delivery ticket. Fixed Assets: Book Inventory Incomplete Although the town's inventory records of fixed assets are updated annually through the use of property acquisition and disposition sheets, an examination of the inventory records revealed instances in which assets acquired and disposed of since the inventory was first prepared in 1978 were not added to or deleted. Furthermore, equipment owned by the town, but located in the private office of the town attorney, was not listed in the inventory records. More care should be taken in updating the inventory records so that they reflect all additions and deletions. Furthermore, the records should be complete and include all town owned fixed assets of significant value and having a useful life of over one year even if not physically located on town property. Fixed Assets: Physical Inventory Not Taken Although a physical inventory of town owned fixed assets was taken in 1978 by an appraisal company, and has been updated annually through the use of property Cacquisition and disposition information prepared by each department, no physical inventory has been taken since 1978. We recommend that physical inventories be periodically taken and reconciled with the inventory records. Inventory of Highway Machinery, Tools and Equipment A comparison of the inventory of highway machinery, tools and equipment filed with the town board in September 1980 with that filed in September of 1979 revealed that several items which appeared on the 1979 inventory did not appear on the 1980 inventory. We found that some of the items had been disposed of and were properly deleted from the 1980 inventory. However, we were advised that most of the items, consisting primarily of chain saws originally costing between $129.00 and $465.00, were not disposed of but were not included in the 1980 inventory due to a policy decision to exclude items with a relatively low cost and which are frequently re- placed. In order to properly control and account for equipment, we recommend that the inventory include all equipment costing in excess of $100.00 and likely to have a useful life exceeding one year. The equipment should be identified by serial number where possible. STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS 9. Town of Southold C Inventory of Repair Parts - Highway Department Although perpetual inventory records for repair parts were established approximately four years ago, the records have not been currently maintained and reconciled with a physical inventory. We were advised that a stock clerk is in the process of updating the inventory records. A test count of ten in- ventory items, including some updated within the past few months, revealed discrepancies between the records and the amount on hand in eight instances. We recommend that procedures for recording the acquisition and use of repair parts be reviewed. Furthermore, , the records should be periodically confirmed to a physical inventory. Segregation of Duties - Supervisor's Office We noted that an employee in the town supervisor's office had access to the books, also handles mail receipts and at times signs checks with the check signer. In order to improve internal control, we suggest the town investigate whether a greater segregation of duties is possible. Undertakings CAlthough the town clerk and town justices are covered by individual bonds, the deputy town clerk and justice court clerks, all of whom handle cash, are not covered by blanket position bonds. We recommend that the town board consider the necessity of obtaining blanket position bonds for any employees handling cash who are not covered by individual bonds. Expenditures Public Advertisement for Bids No record was found to indicate that bids were requested by public advertising for purchases in 1980 of police uniforms, lubricants and highway signs, each type aggregating in excess of $3,000.00. Except as otherwise provided by law, all purchase contracts in excess of $3,000.00 should be awarded to the lowest responsible bidder after public adver- tisement for bids (General Municipal Law, §103) . STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS 10. Town of Southold Attendance at Conventions Payments were made in 1980 to several officers and employees for reim- bursement of expenses incurred in attending the annual meeting of the Association of Towns; however, the minutes of the board did not indicate, with the exception of one officer, the adoption of resolutions authorizing each such individual to attend (General Municipal Law, §77-b) . Payments for Equipment Repairs In 1980 approximately $140.00 was paid for repairs to telephone equipment while at the same time the town paid $900.00 for a service contract with the same company. We advise the town to review the service agreement to determine whether the repairs were covered and a refund is due. Secretarial and Office Expenses of Town Attorney During the year ended December 31, 1980 the town attorney received payments totaling $15,000.00, the amount provided in the budget to cover his secretarial and office expenses. The vouchers submitted by the attorney for these payments were not itemized, nor were they supported by receipted bills or other documen- tation of the actual expenses incurred. There is no authority for a town attorney to receive a lump-sum amount to spend for secretarial and office expenses in his discretion. A town may only reimburse an officer or employee for actual and necessary expenses incurred in executing the duties of his office or position. Such claim should not be paid unless submitted to the town board on an itemized voucher sufficiently supported to allow proper audit thereof (Op. State Compt. 78-852; Town Law, §§116(1) , 118(1)) . Installment Purchase of Copy Machine We noted that payments were made for a copy machine used by the town attorney and located in his private office. This machine was purchased pursuant to a lease purchase agreement entered into in 1977 when such installment purchases were not authorized by law. Furthermore, the purchase was not made pursuant to competitive bidding, despite the fact that its cost exceeded $2,300.00, at a time when all purchase contracts exceeding $1,500.00 were subject to the competitive bidding requirements of General Municipal Law, §103. All public contracts should be in accordance with the applicable sections of Article 5-A of General Municipal Law. STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS ' 11. Town of Southold c Lack of Sufficient Substantiation for Claim Vouchers A review of claims paid in the year ended December 31, 1980 revealed numerous instances in which the receiving copy of the purchase order was not attached to the claim. Also, various receiving copies of the purchase order or invoices reviewed were not signed by the employee of the department receiving the goods and services. The receipt of goods and services should be verified as evidenced by the signature or initials of the employee receiving the goods and services. In order to properly audit claims prior to their payment, vouchers should contain sufficient substantiation, including the receiving copy of the purchase order. Payments In Support of Local Sports Leagues During the year ended December 31, 1980 payments totaling over $4,500.00 were made by the town to or on behalf of several little leagues, soccer leagues, soft- ball leagues and slo-pitch leagues located within the town for the purchase of equipment, supplies and insurance. A town may not give or loan any money or property to or in aid of a private corporation, association or private undertaking, including privately operated little leagues (Op. State Compt. 80-204) . We would note that the town may purchase C sports equipment in conjunction with its own recreation program which would be under its control and would be available to all town residents, subject to reasonable regulations (General Municipal Law, §242) . Compliance Purchases of Highway Machinery and Equipment Without Town Board Authorization On January 2, 1980 the town board authorized the superintendent of highways to purchase machinery and equipment costing up to $1,500.00 without prior approval of the board. A review of highway department claims for the year ended December 31, 1980 revealed, however, a number of such purchases exceeding $1,500.00 which were not submitted to the board for prior approval. Furthermore, several contracts for the purchase of machinery and equipment costing in excess of $1,000.00 were not submitted for approval to the Suffolk County Commissioner of Public Works. All purchases of equipment, tools and other implements to be used for highway maintenance, construction or reconstruction, snow plows, or other devices for re- moving snow from the highways costing in excess of an amount fixed by the board are to be submitted to the board for prior approval by the superintendent of high- ways (Highway Law, §142(1(a)) . STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS ` 12. Town of Southold No contract for the purchase of highway machinery or equipment exceeding in price the sum of $1,000.00 shall be valid unless the county superintendent shall have approved thereof (Highway Law, §142(l(b)) . Payments of Tax Collections to Town Supervisor Payments made by the receiver to the town supervisor of 1980-81 taxes collected were not in accordance with Section 13(a) of the Suffolk County Tax Act. This act requires that after thirty days from the delivery of the warrant, and at the expiration of each period of ten days thereafter, the receiver of taxes pay over to the supervisor on account of the town, the school districts and the special districts all moneys so collected in proportion to the balances remaining unpaid until such balances are paid in full. Instead of paying over the moneys in proportion to the balances remaining unpaid, the payments made after thirty days were evenly split between school districts and all other purposes. Payments for all other purposes were completed on January 29, 1981. Payments for school districts totalling $535,000.00 were not completed until April 2, 1981. We recommend that the tax receiver adhere to the applicable provisions of the Suffolk County Tax Act. C � Justice James H. Rich, Jr. Moneys Not Deposited Timely An examination of Justice Rich's cash receipts records for March and June 1980 disclosed numerous instances in which money received in his offical capacity was not deposited in his official bank account within seventy-two hours after receipt (22 NYCRR 30.7) . Receipt Forms Although duplicate press-numbered receipts were issued for all moneys collected, the pre-printed numbers were crossed out and the receipts renumbered by hand. To avoid negating the internal controls over cash provided by the use of press- numbered receipts, we suggest that receipts not be renumbered by hand. STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS