STATE COMPTROLLER AUDIT OF ISLIP TOWN FINANCES....
In August 2010 Thomas DiNapoli, New York State Comptroller, released a report on the Finances of Islip Town Jan 1, 2007-August 31, 2008.
What follows is a compilation of the audit goals and results, taken almost verbatim from the State Comptroller's Audit Report.
What follows is a compilation of the audit goals and results, taken almost verbatim from the State Comptroller's Audit Report.
THE AUDIT GOALS
* In this audit the goal was to determine if the Board maintained adequate oversight to ensure Town reserve accounts and records were properly maintained and that financial activity was accurately and timely reported.
* In addition auditors questioned whether the Board properly planned for capital projects and ensured that the Town's accounting records and procedures were adequate to ensure accuracy and prevent improper use of bond funds.
* Auditors also looked into the Town Clerk's office to determine if they had adequate policies and procedures over cash receipts, licenses, permits and computerized data to protect and account for Town assets.
* Auditors questioned whether the Board had established policies and procedures over employees' compensation and fringe benefits to adequately protect and account for Town assets?
* Auditors questioned whether the Board had established policies and procedures over purchasing to adequately protect and account for Town assets.
THE AUDIT RESULTS
THE TOWN BOARD DID NOT PROVIDE ADEQUATE OVERSIGHT OF THE TOWN'S FINANCIAL ACTIVITY DURING FISCAL YEARS 2006-2008.
THE TOWN INACCURATELY RESERVED AN AVERAGE OF $14.3 MILLION DOLLARS IN FUND BALANCES FOR PURCHASE ORDERS THAT DID NOT SUPPORT TOWN OBLIGATIONS. As a result, the available fund balance was understated.
During fiscal years 2007-2008 the Town Comptroller incorrectly charged a total of $9,958,007 of revenues and expenditures to the wrong funds, that resulted in an inequitable tax levy on certain taxpayers. Residents of Brightwaters, Saltaire, Ocean Beach and Islandia, paid a total of over 9 million dollars in taxes between 2007 and 2008, that should have been shared among all the Town residents and was not.
In addition, Board members did not receive or request adequate information from Town officials.
As a result the Board did not have accurate and timely information needed to develop sound budgets or to effectively monitor expenditures.
As a result the Board did not have accurate and timely information needed to develop sound budgets or to effectively monitor expenditures.
The Town Clerk, Regina Duffy, (Islip Town Clerk now and during the entire time of the audit period) did not adequately segregate duties within her office, did not perform monthly reconciliation of cash assets to liabilities, did not perform bank reconciliations and did not prepare reports for the Board as required by General Municipal Law.
The Town Clerk, Regina Duffy did not ensure that un-deposited cash was properly safeguarded.
Ms. Duffy did not post cash transactions in a timely manner, cash receipts books were not controlled, blank checks were not secure and 22 duplicate checks were missing. As a result according to the audit,
a cash shortage of at least $12,250 occurred and was not detected until the audit.
Since the Town Clerk is the only individual covered by the general bonding clause in the Town's insurance policy; as a result the Town was at risk for not being reimbursed for moneys that may have been lost or stolen. For that reason in September 2009, the Comptroller's office referred the matter to the Suffolk County District Attorney's Office, according to the audit report.
Suffolk County District Attorney, Thomas Spota's Office did not respond to Emails asking if their office ever followed through on the investigation of the missing money, referred to them by the State auditors. Emails were not replied to by their media representative, Robert Clifford, at time of publication.
The audit identified long-standing problems with the Town's capital program. Poor accounting for Capital projects in the early 1990's led to deficits in the capital projects fund of $3,324,744 that have never been accounted for. The audit also revealed the Town was expending bond proceeds for purposes other than those intended, in violation of law.
The audit revealed Town employees received leave time and other fringe benefits without Board authorization, resulting in the Town incurring over $111,000 in unauthorized expenses.
The Town inappropriately gave three independent contractors health insurance coverage through the Town's participation in the New York State Health Insurance Program. Town officials informed the audit board that the practice of insuring the three golf professionals who work at the Town Golf Courses, had been going on for more than twenty years. The Town discontinued the practice after it was brought to their attention by the auditors, that the practice violated the law.
The audit also revealed that Town personnel did not solicit competition when procuring services of 18 professional service providers who were paid $1,154,094. Town officials made payments for 14 purchases totaling $13,200 without obtaining required written and verbal quotes in accordance with Town policy.
The Town did not have written policies and procedures governing the use of credit cards. Town officials also used confirming purchase orders to pay 11 invoices totaling $13,019. These purchase orders are typically for emergencies only.
The audit concluded the Town may have paid more than necessary for goods and services.
TOWN OFFICIALS COMMENT
The auditors sent a draft copy of the audit and discussed their findings with Town officials who for the most part agreed with their findings and recommendations and indicated they planned to take corrective action.
The audit when released, included a response letter from Phil Nolan, Islip Town Supervisor and a separate response from Regina Duffy, Islip Town Clerk, the clerk during the audit period.
The responses from Town officials also blamed the issues on past practices they had continued and that have now been changed in compliance with the audit recommendations.
The audit found that in the last few days of each fiscal year, Town officials created accounting entries for encumbrances that did not exist. These entries misstated the Town's financial position, creating the impression that the Town had fewer resources than it actually did.
Mr. Nolan became Supervisor in November 2006, replacing Supervisor (Rep-) Pete McGowan.
According to the audit nearly 65% of the encumbrances in their sample ($42.78 million dollars)
were not supported by any valid purchase orders placed with vendors.
For example: The Town's encumbrances on December 31, 2007 consisted of 819 entries totaling $32,043,261.
Of the 819 entries, 136 totaling $29,874,091 were dated either December 30 or December 31, 2007.
The auditors received documentation for 22 of those entries (totaling $29,633,622) and found that
$16,555,630 was not supported by any valid purchase orders placed with vendors.
AS A RESULT, THE AVAILABLE FUND BALANCE WAS UNDERSTATED BY AT LEAST $16.6 MILLION DOLLARS.
A second example: 2008 records showed 214 entries, totaling $24,311,974, that were made on Dec 30 or December 31, 2008. After reviewing the supporting documentation for 29 of these entries, totaling $24,191,009, they found that $11,839,927 was not supported by valid purchase orders.
AS A RESULT, THE AVAILABLE FUND BALANCE WAS UNDERSTATED BY ALMOST
$12 MILLION DOLLARS.
Town officials averaged $14.3 million dollars inaccurately reserved in fund balances that did not exist during the audit period 2006-2008
The Town's Comptroller, during the time of the audit and currently, Joseph Ludwig, who sources say lives in Westbury, responded to this saying that it was the Town's long-standing practice to encumber and rollover all unspent appropriations from the prior fiscal year into the reserve for encumbrances as part of the Town's year end closing. Town officials said this was necessary to offset shortcomings in their accounting software, despite the fact that this practice resulted in a misstatement of the Town's financial position.
The auditors also found nearly $10 million in incorrect accounting entries during the audit period 2006-2008. This resulted in an inaccurate and inequitable tax levy on certain taxpayers that should not have borne the costs they did. Village residents paid for $8,999,911 in debt service that should have been shared with Town residents.
According to the report, the Islip Town Comptroller also incorrectly posted an operating surplus totaling
$192,871 for the Division of Land Management.
THE SIGNATURE PLATE: NO SUPERVISION
As the custodian of all Town money, Mr. Nolan has the authority to sign all Town checks and uses a metal signature plate bearing both his and the Town Comptroller's signature, who co-signs all computer generated checks. The audit found that Town employees used the signature plate without adequate
supervision. The Comptroller, Mr. Ludwig, when told that employees were removing the signature plate from the Comptroller's office and using it without oversight or supervision, said that it would be impossible to have someone there either from his office or the Supervisor's when the checks are run.
The audit found that the Comptroller had not compensated for this weakness by designating an individual independent of the check register prior to mailing.
THIS WEAKNESS COULD ALLOW INDIVIDUALS TO SIGN CHECKS FOR OTHER THAN LEGITIMATE TOWN PURPOSES.
Subsequent to the audit, the Town implemented a new accounting system that corrects this problem.
RECOMMENDATIONS
1. Town officials should only create encumbrances that are valid commitments to expend funds for specific purposes.
2. The Board should review and approve the amounts transferred to the reserve for encumbrances.
3. Town officials should ensure that each expenditure and revenue is classified in the proper fund and in accordance with the Office of the State Comptroller's standard chart of accounts.
4. The Board should review the amounts budgeted and charged for debt service, the Youth Bureau and the Division of Land Management and ensure that the correct amounts are charged to the correct funds.
5. The Comptroller should provide the Board with accurate and timely financial information that is sufficient to allow the Board to properly budget and monitor appropriations and revenues.
6. The Comptroller and the Supervisor should continue to maintain control over their signatures during the check signing process.
CAPITAL PROJECTS
The Town did not have procedures to properly account for either the revenues or the expenditures for individual capital projects, according to the audit report. In addition, moneys for all the Town's capital projects were commingled into one bank account. Town officials did not maintain adequate records that would account for each project. The accounting records did not include revenues by source or date and the Town did not maintain separate balance sheets, trial balances or ledgers for each project.
AS A RESULT, TOWN OFFICIALS WERE NOT ABLE TO READILY MONITOR PROJECTS AND PREVENT EXPENDITURES FROM EXCEEDING THE CASH AVAILABLE FOR EACH INDIVIDUAL PROJECT.
Over the years, according to the audit, Town officials did not earmark or segregate cash in any way to prevent the financing for one project from being used to finance another. Instead the Town placed all capital projects money in one bank account and Town officials did not maintain records or earmark the cash by project. When the bank account ran low on cash, the Board simply authorized the issuance of additional debt (which was previously authorized for other projects, but not yet issued) to create a new pool of money to draw from.
AS A RESULT, TOWN OFFICIALS USED MONEYS INTENDED FOR ONE CAPITAL PROJECT TO FINANCE PROJECTS THAT HAD ALREADY DEPLETED THEIR AVAILABLE CASH BALANCES. SINCE THESE BONDS WERE ISSUED PURSUANT TO CAPITAL PROGRAMS ADOPTED BY THE BOARD FOR THE PURPOSE OF FINANCING A SPECIFIC PROJECT, THE UN-EXPENDED BOND PROCEEDS COULD NOT LEGALLY BE USED FOR ANY OTHER PROJECT OR PURPOSE.
For example: in 2007, a project was bonded for $150,000. Town officials improperly used $37,100
of these funds to finance an unrelated project, in violation of Local Finance Law, according to the audit report.
Due to the poor state of the Town's records from as far back as 1989 to August 2008, Town officials were unable to identify any over expenditures of a particular project or the amount of funds raised for specific projects, but actually expended by others, in violation of Local Finance Law, according to the audit.
Because capital money projects were not properly tracked and accounted for, according to the audit,
there is no assurance that moneys were spent as directed by Board resolutions and in compliance with legal requirements.
LET'S TALK ABOUT THE LANDFILL....
According to the audit:
The Commissioner of the Town's Department of the Environmental Control is responsible for implementing and managing, in part, the Town's solid waste stream, environmental protection, recycling and garbage collection. The Commissioner is also the President of the Islip Resource Recovery Agency (IRRA). The IRRA is a public benefit corporation created to assist in the planning and development of waste management facilities in the Town of Islip. Through its collection unit the IRRA provides collection of refuse and recyclables to approximately 1,300 homes.
The IRRA owns the inactive and unlined Sayville landfill. In 1986, the Town of Islip and the IRRA
entered into an Order of Consent with the New York State Department of Environmental Conservation
(NYSDEC) to provide a plan for the future closure of the Sayville landfill. To date, the landfill is still not closed because the Town has requested and been granted postponements of the closing.
In November, 2008, the NYSDEC declined the Town's request to postpone the project for another 10 years, but granted another three year extension. The NYSDEC currently requires that a contract for closing the landfill be awarded by March, 2012 and the required closure certification be completed by February 2013.
The NYSDEC indicated that until the capping is complete, groundwater will continue to be contaminated because various chemicals are leaching out of the facility.
The Town officials had informed the audit committee that they believe the Town is not liable for the landfill's closure and post-closure costs. The Town believes that the IRRA is solely responsible for these liabilities. An agreement between the IRRA and the Town states that the IRRA will reimburse the Town for any costs incurred by the Town related to landfill operations.
According to the audit report, they determined that according to their review of the Order of Consent, both the Town and the IRRA are respondents and are both responsible for closing the landfill. The audit stated that the Town may have some contingent liability, if the IRRA does not act to close the landfill as required by law.
RECOMMENDATIONS
7. Town officials should develop a plan to eliminate the $3,324,744 deficit in the capital projects fund.
8. Town officials should provide periodic reports to the Board showing the authorization for each capital project, revenues, expenditures and encumbrances to date and available authorizations.
9. Town officials should establish adequate accounting records for each capital project. The records should include general ledger accounts for assets, liabilities and fund balance in addition to memorandum accounts of the maximum authorized cost and a detail of project revenues and expenditures since inception.
10. Town officials should take steps to identify the moneys in the Town's capital project bank account and to account for such moneys separately, by project.
11. The Town Board should take appropriate action to ensure that bond proceeds are deposited and expended in accordance with the requirements of Local Finance Law.
12. As a respondent to the Order of Consent, the Town of Islip should work with the IRRA to ensure that the closure of the Sayville landfill is completed in accordance with the New York State DEC regulations.
THE ISLIP TOWN CLERK: REGINA DUFFY
The Town Clerk in Islip, an elected position, has responsibilities that include: issuing licenses and collecting fees, allocating and remitting fee revenues to the Town, Suffolk County or the State and preparing a monthly report that accounts for this activity.
According to the audit report:
Neither the Town Clerk (Ms. Duffy), nor the Board, established any policies and procedures over the financial activity of the Clerk's office. They identified numerous control weaknesses.
As a result of these control weaknesses, the auditors determined that $12,250 was missing and was not detected by Town officials. In September, 2009, the auditors referred the matter to the Suffolk County District Attorney's Office.
Types of Receipts 2007 2008* Total
Solid Waste Permit Application Receipts $4,200 $2,550 $6,750
Towing Business Licenses $3,600 $0 $3,600
Commercial Boat Haulers Permits $250 $1,000 $1,250
Deposit Differences $650 $0 $650
Total Moneys Unaccounted For $8,700 $3,550 $12,250
* Through August 2008
The example given in the audit:
The Clerk's office issued 188 receipts totaling $139,200 for solid waste permit applications in 2007.
The amount reported totaled only $135,000, $4,200 less than the duplicate receipts. The audit reviewed 93 duplicate receipts and 50 original applications for solid waste permits for the period January 1 through August 31, 2008. (The Clerk was unable to locate one entire duplicate receipt book for the period January 24, 2008 through April 29, 2008.)
The receipt totals were $144,750 but the amount reported to the Supervisor and deposited in that same time period totaled only $142,200, $2,550 less than should have been deposited.
The audit found similar discrepancies with towing business licenses and commercial boat hauler permits
totaling $4,850. According to the audit, the Clerk's office could not account for any of the receipt discrepancies.
Other discrepancies included bank deposit slips which totaled less than the daily receipts for the day and daily deposit log. An example the audit gave was 13 deposits from fiscal year 2007, totaling $71,226.
The deposit slip was missing $650 dollars, totaling only $70,576. Again on April 18, 2007 the daily deposit log had a total of $2,290 in receipts for the day, but the amount on the deposit slip was $300 less and totaled only $1,990. According to the audit report, Ms. Duffy could not explain the discrepancies.
After June 1, 2008 the Clerk's office generated receipts from a computer software program. The receipt numbers were not sequential, the system allowed receipts to be changed and /or deleted and did not generate an audit trail (time and date of access, what activity occurred and time and date of log off)
which determine who altered the records.
Due to these control deficiencies, the auditors selected 27 original documents (licenses or applications)
totaling $13,724, to determine whether the total collections were properly recorded in the daily transactions reports.
*Five original documents totaling $218 did not match the receipt information from the daily transactions reports; the receipts were either deleted from the computer or the amount did not match.
*Six receipts totaling $268 had originally been entered properly in the computer program, but were subsequently altered or deleted.
*Seventeen daily reports were missing receipts that were previously listed, totaling$1,788.
With no audit trail built into the financial management system, changes to the financial data could occur with little risk of being detected.
The Clerk, nor the Board, kept track or reviewed revenue expense trends to help detect irregularities according to the audit report.
For example:
The Clerk's revenues decreased by about $75,000 from 2006 to 2007, while the fees remained the same. The 2008 amounts increased from 2006 to 2007, but were still about $40,000 less than 2006, according to the audit.
No one investigated or was even aware that these trends had occurred.
Employees did not keep cash and checks in secure locations during normal business hours.
Approximately 12 employees in the Clerk's office collect cash and use a single cash drawer.
Collections can sometimes total over $37,000 in a single day. The Clerk did not maintain a log to record checks received by mail, did not inventory or log permits, licenses and unused receipt books, according to the audit.
These control weaknesses increased the risk that cash shortages would occur and not be detected.
Bank deposits and reconciliations were not properly or timely performed by the Town Clerk's office, according to the audit.
For example:
The auditors reviewed 23 deposits totaling $172,069 and found that deposit slips were not sufficiently itemized to detail the kind of money being deposited. Town official were unable to trace amounts from individual receipts because they did not include any detailed information as to what checks were being deposited, check number, payee and amount as is customary, according to the audit.
Without this detailed information Town officials have no assurance that all moneys collected are properly deposited into the Clerk's accounts.
The Clerk did not perform bank reconciliations from June 2008 through April 2009. The Clerk admitted neither she nor anyone on her staff knew how to perform a bank reconciliation. The primary function of a bank reconciliation is to ensure that recorded cash balances in the Clerk's records agree with the records maintained by the bank. The Clerk did not have a policy or procedure in place to address returned checks or related charges, according to the audit.
The failure to perform timely bank reconciliations is a serious internal control weakness that jeopardized the safeguarding of Town moneys and impairs the Board's ability to monitor cash. Town officials had no way to determine whether return checks were ever re-deposited because deposit slips were not detailed.
The Town Clerk did not designate someone independent of data entry functions as a systems administrator.
The auditors reviewed the access rights of 20 employees in the Clerk's office and identified 10 employees that had "supervisory access". Users with supervisory access have the ability to change group access and delete or modify access rights, including their own. They have the ability to add, delete, update and alter data. Three of the 10 with this access no longer were employed by the Clerk's office, yet still had access to the system, according to the audit.
As a result of these weaknesses, there was an increased risk that inappropriate transactions could be initiated and not be detected by Town officials.
RECOMMENDATIONS
13. The Clerk and Town officials should investigate the unaccounted for funds and correct and account for any and all discrepancies.
14. The Clerk should inventory, log and maintain all duplicate receipt books. The Clerk needs to develop a procedure whereby computerized receipts are maintained in their original state.
15. The Clerk and the Director should work with the software vendor so that the system can provide an appropriate audit trail.
16. The Clerk should assign the duty of cash drawer reconciliation to an employee who does not collect cash and enter cash receipt transactions into the computer system. Additionally, the bank reconciliations should be done by someone other than the person responsible for making deposits and preparing the daily and monthly reports.
17. The Clerk should analyze revenue trends on a periodic basis to ensure that all moneys collected are accounted for. Any downward trend should be investigated.
18. The Clerk should take steps to ensure that cash checks, permits and receipts are maintained in secure areas.
19. The Clerk should maintain a log to record all checks received by mail. In addition such checks should be endorsed "For Deposit Only" immediately upon receipt.
20. The Clerk should develop formal procedures for the acceptance of and handling of cash receipts.
The procedures should require that deposit slips are sufficiently detailed.
21. The Clerk should develop procedures to ensure that bank account balances are reconciled to cash records on a monthly basis.
22. The Clerk's monthly reports to the Town Supervisor should be accurate and include all financial
activity for the period covered. The Supervisor should review all these reports.
23. The Clerk should deposit all fees within the time required by statute, which they had not done.
Additionally, a system should be established to identify the deadlines applicable to each officer and agency to which remittances are made and to monitor the applicable reports to ensure the deadlines are met.
24. The Clerk should designate someone independent of data entry as a system administrator and only grant that administrator, "supervisory access".
25. Town officials should implement procedures so that employees who need access to data do not have access to change the computer system's security settings.
26. The Town should obtain additional insurance coverage to adequately protect the Town against loss of cash. (Only the Clerk herself was indemnified at the time of the audit).
COMPENSATION AND FRINGE BENEFITS
The auditors found long-standing weaknesses in internal controls over the Town's payroll process relating to compensation provided to Town employees.
12 employees accumulated leave time by a total of 535 days over what they were entitled to accumulate.
Employees received leave time and other fringe benefits without Board authorization, as required, resulting in the Town incurring over $11,000 in unauthorized expenses.
The audit tested seven individuals who terminated employment between January 1 through Aug 31, 2008 and received payments for unused leave accruals totaling $361,255.
Town official calculated all seven computations incorrectly. The Town paid six employees more than they were entitled to because as managerial employees, not covered by a CBA they should not have accumulated and carried over any vacation time. It was not authorized by a Board resolution as required by law. The Town paid the other employee $1,531 less than he was entitled to because the Town used an incorrect hourly rate.
Vacation accruals and sick leave were tested for 15 employees:
10 managerial
5 white/blue collar CBA employees.
Vacation balances were overstated for 12 employees by a total of 535 days with an estimated value of $156,135, because unused leave balances were improperly carried over to the succeeding year.
Town officials paid three golf professionals a total of $460,013 as contracted vendors during the audit period. The Town inappropriately enrolled them in the State Health Insurance Program, in violation
of Internal Revenue Standards. The Town officials said it had been in their contract for almost 20 years, but corrected the issue when brought to their attention by the audit.
RECOMMENDATIONS
27. Town officials should establish a process by which separation payments are reviewed and approved by the Board prior to making payments to individual leaving Town employment.
28. The Board should ensure that all employees are covered by collective bargaining agreements or Board resolutions, which clearly specify all benefits.
29. The Board should review and clarify the Local Law, which authorizes fringe benefits for non-union employees.
30. The Board should develop written procedures for the accrual and carry-over of leave time for management employees.
31. The Board should require that all departments adhere to the collective bargaining agreements' procedures for the carry-over of vacation leave.
32. The Board should require that accurate leave records are maintained for all employees who are eligible to earn leave and ensure that these records are periodically reviewed and reconciled to employees' attendance sheets.
33. The Town should not provide health insurance coverage to non-employees.
PURCHASING
Town officials made payments for 14 purchases totaling $13,200 without obtaining documented verbal and written quotes in accordance with Town policy.
The Town had no written policies and procedures governing the use of their 73 credit cards.
Town officials paid 11 of 20 invoices reviewed, totaling $13, 019 using confirming purchase orders, which allowed the staff to bypass the purchase order system.
As a result the Town may have paid more than necessary for goods and services. The current administration has taken steps to correct the credit card weakness, according to the audit.
Town personnel did not solicit competition when procuring services of 18 professional service providers
who were paid a total of $1,154,094 during the audit period.
General Municipal Law (GML) requires municipalities to adopt a purchasing policy for the procurement
of goods and services when competitive bidding is not required, such as for the procurement of professional services which involve specialized skill, training and expertise; use of professional judgment
or discretion and/or a high degree of creativity. Requests for proposals and competition provides a mechanism for comparing qualifications or fee structures of professional service providers, according to the audit.
The Board policy did not require the Town to solicit competition before awarding professional service contracts and the Town did not have written procedures for documenting how to procure these services.
The audit revealed that of the 18 professional providers tested, the Town procured the services of all 18 providers without soliciting competitive bids and paid these providers a total of $1,154,094 during the audit period.
The way they went about it:
The Deputy Town Attorney told the auditors that if Town officials know of a person or firm with the specialized skills they are looking for, they solicit a person's services directly, propose a draft contract which is then drawn up by the Town Attorney's office, then they would send it to the Board for approval.
Each department was permitted to solicit a vendor directly for professional services and make its recommendation to the Board.
According to the Town's procurement policies:
Employees must obtain verbal or written quotations from at least three separate vendors for purchase contract that range between $500 and $10,000. The policy also requires obtaining quotations from at least three separate vendors for public works contracts between $1,500 and $20,000 but does not specify the type of quote required.
The auditors tested 21 paid claims totaling $17,483, where competitive bidding was not required by General Municipal Law. They found that for 14 purchases totaling $13,200, Town employees did not obtain quotes in accordance with written procedures and the Town's procurement policy.
The Town's failure to comply with the Town's own procurement policy increases the risk that goods and services may not be acquired at the lowest price.
CREDIT CARDS
The Town had at least 72 store-specific credit cards, with seven different vendors and one bank credit card. During the audit period credit card purchases totaled $100,466.
The audit tested 21 claims for credit card purchases totaling $17,483 and determined the Board did not authorize these credit cards and did not have a list of authorized users. They could not determine the credit card users for 12 claims totaling $10,307. Nine of those claims totaling $5,454 did not have credit card slips and/or receipts attached and there was no signature on the attached receipts for three claims.
The absence of a signature prevents the identification of the person responsible for the purchase and results in a lack of accountability for expenses charged to a local government.
The lack of receipts could result in approving payment for an expense that does not serve a Town purpose, according to the audit. Without any specific policies in place, the Town would have difficulty
collecting reimbursement for any unauthorized or questionable charges.
The Town Supervisor suspended the use of store credit cards in April 2008 and the use of the bank card in May 2009.
CONFIRMING PURCHASE ORDERS
A confirming purchase order is one that is prepared after goods have been ordered from a vendor.
The Board adopted policy allows for confirming of purchase orders only when immediate need for goods or public work could not have been anticipated and pre-approved by the Board.
It requires Town staff to indicate they are using a confirming purchase order.
The audit revealed the Town's purchase order system is ineffective because Town personnel routinely use confirming purchase orders for non-emergencies, without documentation to indicate the circumstances that necessitated the use of confirming purchase orders.
For example:
A purchase made on June 14, 2007 for $1,388 for lumber and hardware had a purchase order dated June 28, 2007, which was not approved by the purchasing director until July 2, 2007, 188 days after the purchase had already occurred.
RECOMMENDATIONS
34. The Board should revise the Town's procurement policy to ensure it provides guidance for procuring professional services through a competitive bidding process.
35. Town officials should monitor and enforce compliance with the Town's own procurement policies and procedures relating to verbal and written quotes and ensure that documentation is maintained.
36. The Board should adopt a comprehensive credit card policy and review and update it annually.
The policy should identify all users, set appropriate credit limits, establish custody of the cards when not in use, require proper documentation for all transactions and establish a means to recoup any authorized expenditures.
37. The Board should formally authorize the acquisition and use of any credit card for official Town business.
38. The Town Comptroller should ensure that a proper audit of claims is performed prior to the payment of each credit card statement. This includes requiring that all charges on the statements are adequately supported by itemized receipts signed by the individual making the purchase.
39. The Board should enforce compliance with the adopted policy relating to limiting confirming purchase orders only to emergency situations. Individuals initiating the purchase should justify the reasons for using a confirming order.
PHIL NOLAN RESPONDED
PHIL NOLAN RESPONDED
When the draft of the audit was released to the Islip Town Board Mr. Nolan responded. On July 8, 2010, Supervisor Nolan wrote a letter to Jeffrey P. Leonard, the Chief Examiner for The State Comptroller's Office.
In the 6 page response Mr. Nolan wrote that although the Board did not agree with all the findings the audit had revealed, the Town accepted the findings as stated, with some exceptions which he then began to explain.
Calling the practice of overstating the encumbrances "partially a by-product of an antiquated accounting system", Mr. Nolan wrote that in July 2009, new software was installed and the need to overstate encumbrances had been eliminated.
Mr. Nolan wrote that "the practice of improperly recording the Youth Bureau and Land Management
divisions dates back to 1990 and the Debt Service component back to 2004." Mr. Nolan stated that
as of the 2010 operating budget, Debt Service will be properly classified and properly budgeted to the correct departments.
With regard to the inaccurate and untimely financial information from the Town Comptroller,
which was insufficient to allow the Board to properly budget and monitor operations;
Mr. Nolan responded that as of January 2010, the Comptroller has begun providing various financial reports to the Board on a monthly basis, including cash flow summaries, trial balances, and budget reports for all revenue and expenditure accounts and the status of investments.
With regard to the signature cards, Mr. Nolan declared the Town's new accounting system has password protection over the use of the Supervisor's and the Comptroller's signatures.
In order to develop a plan to eliminate the $3,324,744 deficit in the capital projects fund, Mr. Nolan wrote:
The Town will review the projects that generated the deficit and will determine what funds received the use/benefit of the capital project. Once determined, a schedule will be developed to determine how the appropriate operating funds will reimburse the capital projects fund (fund balance transfer, levy taxes etc.).
Regarding the auditors recommendations to send the Board monthly financial reports, Mr. Nolan
noted that is now being done and will include all of the capital accounts.
Mr. Nolan insisted in his written response, that current Town procedures prevent the Town from overspending an authorized amount for a capital project as had occurred in the past.
With regard to the IRRA and the Sayville landfill, Mr. Nolan wrote:
It is the Town's opinion that the responsibility for the closing of the Sayville landfill is the responsibility of the IRRA. To that end the Comptroller has sat with the President of the IRRA to discuss what steps need to be taken. During 2010, it is anticipated that the President of the IRRA will go before the IRRA Board and propose moving money from the available fund balance into a legal reserve for the purpose of setting aside moneys for the closure.
Mr. Nolan addressed the issue of compensation and fringe benefits by saying the Town will be formalizing a procedure that will require the Comptroller and Director of Personnel and Labor Relations to review all proposed payouts to ensure that the proper amount has been calculated.
Mr. Nolan agreed to implement any and all adjustments necessary to the Town Code Section 17C-2 which defines what benefits are to be extended to all nonunion, full time employees, including elected and appointed officials ("management").
Mr. Nolan noted that early in 2010, the Director of Personnel and Labor Relations for the Town of Islip sent a memo reminding them of the rules for carry over vacation time. They also planned to implement a "time and attendance" software package that will enable the Town to better monitor the amounts of accrued time that employees have earned.
According to the Nolan letter with regard to purchasing issues and confirming orders:
The Town has established an internal procedure for soliciting and evaluating requests for professional services by requiring that an evaluating committee of no less than three individuals, including a representative from the appropriate department along with the Town Comptroller and the Director of Purchasing to review the scope of the work and ensure that the Town does not pay any more than necessary for these services.
The Town will also discuss with the Town Attorney as well as the Director of Personnel and Labor Relations to discuss what, if any, method of discipline can be used if there is a violation of policy (i.e. restitution to be made, voiding contract with vendor, etc.)
The State responded to the Town's policy with regard to adopting a purchasing policy for the procurement of goods and services when no bidding process is required...
Although the Town's policy stated that "the Town Board finds that it is not in the best interest of the Town of Islip to base the award of professional contracts on strictly monetary criteria," the policy did not establish procedures for procuring these types of contracts.
With regard to the use of "confirming orders" for non-emergency purchases, the definition of what constitutes an emergency purchase was to be discussed and defined formally. In the future, according to Mr. Nolan for all "emergency" purchases, a resolution will be put forth before the Board for their approval, before the purchase is made.
During 2008 and 2009, according to Mr. Nolan, the Town revoked all use of credit cards. In December of 2009, the Board formalized a credit card policy which specifically identifies all cards that were authorized as well as spending limits. Storage of cards when not in use, types of purchases allowed as well as procedures for submitting items for payment were all formalized as well, according to the Nolan letter.
The Nolan letter ends with the following statement:
The Town Board appreciates the thorough review of the Town of Islip and all the work that was put in by your staff. As we have noted, many of the items that were identified have since been corrected or will be corrected in the near term. The Town will work to get all items corrected as soon as it is practicable. Sincerely, Phil Nolan, Supervisor
THE TOWN CLERK RESPONDED
On July 8, 2010 the same day Phil Nolan sent a letter to the New York State Comptroller's office,
Ms. Regina Duffy, the Islip Town Clerk, also sent them a letter in response to the preliminary draft
findings that related to her office.
Ms. Duffy wrote; 80% of the unaccounted-for-funds were accounted for by a newly hired account clerk, with a strong bookkeeping background.
The State denied this was so, when the auditor replied to Ms. Duffy's statement in the published audit:
On July 23, 2010, we received additional documentation provided by the Town Clerk regarding the moneys that they have accounted for. Our review showed that the funds referred to in the Clerk's response were not the unaccounted-for-moneys referenced in our report. The unaccounted-for-moneys identified in our audit were not deposited in the Town Clerk's bank account. We have referred this matter to the Suffolk County District Attorney for investigation.
Suffolk County District Attorney Thomas Spota's Media Liaison, did not answer inquiries from Freelance Investigations to determine what if anything came of their investigation at time of publication.
"While the Clerk's office looks for a new software program to provide proper audit trails and necessary securities to ensure funds or information are not lost or altered, in the interim, the Clerk will prepare an inventory of all manual receipt books and will reconcile receipts versus monies received", according to Ms. Duffy.
"While the Clerk's office looks for a new software program to provide proper audit trails and necessary securities to ensure funds or information are not lost or altered, in the interim, the Clerk will prepare an inventory of all manual receipt books and will reconcile receipts versus monies received", according to Ms. Duffy.
Ms. Duffy capitulated to the auditors recommendations and assigned the duty of the cash drawer reconciliation to an employee who does not collect cash and she agreed they will now enter cash receipt transactions into the computer system, according to her letter to the State Comptroller, Mr. Jeffrey Leonard.
In February 2010 the Clerk's office hired two new employees, both of whom have bookkeeping experience. Collection of cash receipts, reporting and reconciliation procedures have now been spread out to several employees and the reconciliation and reporting are done by two individuals who are not involved in the collection of the receipts as was recommended by the audit, according to Ms. Duffy's correspondence.
The Clerk has taken steps to secure the permits, receipts and licenses and now keeps them locked in her desk in her private office. Only Ms. Duffy has the key to her desk, according to the letter.
Ms. Duffy has assigned the responsibility of recording all checks received by mail to one employee.
All are stamped "For Deposit Only" as suggested should be done, by the draft audit and now a daily log is being maintained, according to her letter.
Ms. Duffy has established procedures detailing the proper way to handle all cash receipts, including a copy of each check received will be made and they will be listed individually on the deposit ticket along with the check number, which was not being done prior and was an issue, according to the State Comptroller's audit report.
The Clerk and the Town Comptroller will now perform monthly bank reconciliations and will reconcile past months which were never done, according to Ms. Duffy's letter.
As part of the reorganization of the Town Clerk's office which took place in 2010, deposits are now made on a timely basis (daily). Monthly remittances are also made to all appropriate State and local governments within prescribed times and according to deadlines, according to Ms. Duffy.
Now the Town Clerk is the only System Administrator and the only one who has full access to the system. There is one employee who has "supervisory" rights, but needs to have the Clerk sign off on any adjustments or amendments made to the system, according to Ms. Duffy who now is the only one who can change user rights.
Ms. Duffy said she would make a recommendation to the committee responsible for reviewing various insurance coverage with regard to the auditor's suggestion of obtaining additional insurance coverage for the rest of the Town Clerk's staff.
Ms. Duffy concluded by stating:
As an elected official, I take great pride in the office I hold and as a result, I appreciate the work that was done by your office. The comments and suggestions were taken seriously by my office and I have worked very hard to address all of the comments. I want to thank your office for their time and attention to this matter. Sincerely, Regina Duffy, Town Clerk
The preceding documented information came directly from the New York State Comptroller's report, (almost verbatim), all credit and publication rights to the State.
If you would like to obtain a copy of the audit or to view the complete audit report and the Town's responses, go to the link provided below, call the office of the State Comptroller at (518) 474-4015 or write to:
Public Information Office
110 State Street, 15 Floor
