Acting on a request by the current administration of the Village of Rushville, The New York State Comptroller’s Office conducted an audit of the village’s finances and information technology (IT). Officially, the audit period was from June 1, 2016 to April 5, 2018; however, the origins of the most serious allegation stretch back into the prior administration’s handling of finances.
The key findings of the audit were that currently the board did not:
• Annually audit the Clerk-Treasurer’s records and report or conduct a thorough audit of claims.
• Ensure investments were made in compliance with New York State General Municipal Law (GML) As a result, the cemetery fund incurred a loss of approximately $62,000.
• Designate an official to certify payroll.
• Develop proper IT controls.
At the Sept. 10 meeting of the board, Mayor John Sawers and Clerk-Treasurer/Tax Collector/Registrar/Records Management Officer Joanne Burley presented the results of the audit to the audience of about 25 village residents.
What was most startling in their report to the citizens was the mismanagement of $125,000 in the village’s Cemetery Fund. According to former Mayor Jon Bagley, interviewed by phone, a previous administration headed by former Mayor Skip Gorton invested that money in 2008 with Icon Leasing Fund, a high risk fund.
According to the records Sawers and Burley could find, the original $125,000 investment was made in 2008. From that point forward, the principal began to fall precipitously.
June 2008 - $125,000
Jan. 2009 - $93,867.50
April 2009 - $93,021.25
Jan. 1, 2010 - $55,351.25
April 1, 2010 - $43,441.25
Aug. 2010 - $37,722.50
Jan. 2011 - $35,978
April 2011 - $30,230
Jan. 2012 - $19,933.75
April 2012 - $19,456.25
Sept. 2012 - $18,426.25
Aug. 2014 - $13,742.50
March 2015 - $9,240.00
By the time Sawers was elected mayor and Burley was appointed as clerk, the principal was at barely 1 percent of what it had been.
April 2016 - $1,587.50
April 2017 - $67.50
Dec. 2017 - $0
Burley said the auditor commented to her that the village will never recover the lost principal.
During this same period, the fund paid out approximately $63,000 in dividends, which Sawers says was put into the general fund and spent by the village. But it seems little attention was paid to the rapidly dwindling principal. Taken as base monies, this means the loss to the village was just $62,000. But if the investment had been made in approved funds, that full $125,000 principal plus interest would still exist. The Chronicle-Express reached out to Bagley at his Canandaigua real estate office Tuesday morning. He said the investment dates back to Skip Gorton’s term as mayor. Bagley says The investment was made through Anderson Van Horn Insurance in Canandaigua with Stock Broker Spencer Corzine of Wall Street Financial. Bagley says Tom Zuber, the village’s accountant during his tenure, advised that the funds could not be withdrawn from the investment, that the village “had to ride out the storm.”
The auditor found “The Board adopted an investment policy, but it was not always followed. As a result, some cemetery fund money was placed in investments not authorized by GML. For example, an investment in a leasing fund resulted in a loss of about $62,000. Current Village officials believed that the other cemetery fund investments were also in unnecessarily risky holdings. Therefore, they withdrew the funds, closed that account and moved the money into a new account at the Village’s bank. However, some investments included in their new portfolio are also not authorized by GML (e.g., corporate bonds, mutual funds, bonds of other states).
The disarray of finances, records, and procedures is what prompted the board to request the audit by the Comptrollers’ Division of Local Government And School Accountability.
Their auditor stated: “The Board Has Not Provided Adequate Oversight - The board did not adequately oversee financial affairs and safeguard resources. Key financial duties were not sufficiently segregated, and the board did not implement compensating controls such as providing additional oversight. The lack of oversight resulted in control weaknesses that increase the risk of errors or misuse of resources. The board did not annually audit, or hire an independent public accountant to audit, the clerk-treasurer’s records and report. Board members indicated they were unaware of this requirement.”
The auditor believed this to be the true cause of the financial mismanagement rather than any criminal purpose.
“Allowing errors to go undetected and uncorrected can result in decisions being made with incorrect information. Had the board performed an annual audit, it likely could have found and addressed many of the errors and discrepancies.”
Burley took responsibility for her errors and took the advised action to correct them.
The audit found the clerk-treasurer:
• Paid eight claims totaling $12,743 (20 percent) before audit, including purchase card balances totaling $5,971 and a lawnmower totaling $3,700.
• Paid claims for nine purchases totaling $1,939 without proper supporting documentation. These included seven purchases totaling $1,656 that were made using a purchase card.
• Overpaid five claims by $697, which included overpayments for conferences ($434), water chemicals ($153) and other miscellaneous expenditures ($110). After auditors notified the clerk-treasurer, she contacted the vendors and received a refund totaling $388 in addition to statement credits for future bills.
• Paid sales tax totaling $204 on 10 purchases. Burley was able to get a refund from one vendor totaling $88.
In addition, village officials did not purchase office supplies from state contract vendors. A review of two months of purchases from one store totaling $450 found that $170 could have been saved if purchased from a state approved vendor.
Further, the village was not receiving the state contract price from their fuel vendor. After notifying the vendor of this oversight, the village was credited for approximately $3,600.
The audit states: “The clerk-treasurer performed incompatible duties without sufficient oversight, such as, entering employees’ work hours into a spreadsheet that is emailed to the payroll vendor, reviewing the payroll report, approving the payroll report, making bank transfers and signing payroll checks. The clerk-treasurer was solely responsible for the payroll process after time cards were approved by the mayor.”
The errors discovered included:
• Made an unsupported payment to an employee for a health savings account totaling $1,000.
• Paid employees for leave time that they did not have totaling $401 because of inaccurate leave records.
• Did not properly deduct an employee’s share of dental plan contributions, resulting in an extra cost to the Village of $241.
• Overpaid herself by $180 for seven hours of holiday leave, in a pay period that did not contain any holidays, and three hours of sick time for which she did not use any accrued sick leave.
• Did not use a proper cut-off for payroll at year-end. As a result, employees were paid at their 2017-18 pay rates for eight days of 2016-17 resulting in $147 in overpayments.
Information Technology, Disaster Recovery
The auditor also found the town to be at significant risk because of poor IT security and procedures, and that village officials had not developed a disaster recovery plan to back up records and preserve information during potential disasters such as fires or floods.
After the full examination, the auditor recommended steps the board and clerk should take to bring the village up to date with GML:
1. Annually audit the clerk-treasurer’s records and annual financial report. The audit’s results should be documented in the Board minutes.
2. Amend the procurement and purchase card policies.
3. Ensure investment practices provide for the legality, safety and liquidity of investments, prudently balanced against yield.
4. Thoroughly audit all claims before payment and ensure that all claims contain sufficient supporting documentation before authorizing payment.
5. Review prior claims and payrolls and seek reimbursements for overpayments.
6. Ensure that a payroll certification is completed by a designated official other than the clerk-treasurer before finalizing the payroll.
7. Require bank reconciliations to be completed in a timely manner and provided to the board or other designated official for review.
The clerk-treasurer should:
8. Complete bank reconciliations in a timely manner.
9. Periodically provide reconciliations and supporting documentation to the board or other designated official for independent review.
10. Develop, adopt and implement acceptable computer use and breach notification policies and a disaster recovery plan.
11. Periodically review and update all IT policies and procedures to reflect changes in technology and the computing environment, train employees appropriately.
At the Monday night meeting, the board accepted the audit officially, with several members stating how helpful it had been to them. The also approved the required response letter to the Comptroller’s office with an action plan to address the findings. Among other items, the plan includes procedures for auditing claims prior to payment; tighter controls on credit card use; updated payment cycles; and changes in payroll procedures and bank reconciliations.
Village officials have met with bank representatives to ensure investments are secure, and new IT policies and procedures have been adopted.
“We found your council through the audit process to be very helpful. With new procedures in place we look forward to continued success in the Village of Rushville,” concluded Sawers.