THOMAS P.

DiNAPOLI COMPTROLLER

STATE OF NEW YORK

OFFICE OF THE STATE COMPTROLLER

110 STATE STREET ALBANY, NEW YORK 12236

STEVEN J. HANCOX DEPUTY COMPTROLLER DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY Tel: (518) 474-4037 Fax: (518) 486-6479

March 23, 2012 Mr. Tom Grabbatin, Chairman Members of the Board of Fire Commissioners Savannah Fire District P.O. Box 178 1770 NYS Route 89 N Savannah, New York 13146 Report Number: 2011M-267 Dear Mr. Grabbatin and Members of the Board of Fire Commissioners: One of the Office of the State Comptrollers primary objectives is to identify areas where local government officials can improve their operations and provide guidance and services that will assist them in making those improvements. Our goals are to develop and promote short-term and long-term strategies to enable and encourage local government officials to reduce costs, improve service delivery and account for and protect their entitys assets. In accordance with these goals, we conducted an audit of the Savannah Fire District (District) which addressed the following question: Are District controls adequate to ensure that financial activity is properly recorded and that District moneys are safeguarded?

We discussed the findings and recommendations with District officials and considered their comments in preparing this report. The Districts response is attached to this report in Appendix A. District officials agreed with our recommendations and indicated they planned to initiate corrective action. Background and Methodology The Savannah Fire District is a district corporation of the State, distinct and separate from the Town of Savannah in Wayne County. The Districts general fund budget totaled $85,000 for the 2011 fiscal year. The Board of Fire Commissioners (Board) consists of five elected members who are responsible for the Districts overall financial management. The District has an elected Treasurer who is responsible for the receipt, custody, and disbursement of and accounting for District funds and for preparing monthly and annual financial reports and other reporting requirements. We examined the internal controls over the Districts financial operations for the period January 1, 2010 to October 3, 2011. We interviewed District officials and reviewed financial records and

Board minutes. We conducted this performance audit in accordance with generally accepted government auditing standards. 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. Audit Results The Board is responsible for overseeing the Districts fiscal activities and safeguarding its resources. To fulfill this duty, it is essential that the Board establish a system of internal controls, which consists of policies and procedures that ensure transactions are authorized and properly recorded; that financial reports are accurate, reliable, and filed in a timely manner; and that the District complies with applicable laws, rules and regulations. The Treasurer must maintain complete, accurate and timely records to account for all of the Districts financial activities properly. The Treasurer should prepare and submit monthly reports to the Board and is required to prepare and submit an annual financial report of the Districts financial condition to the Office of the State Comptroller (OSC) within 60 days after the close of the fiscal year. This report is an important fiscal tool, which provides the Board with information necessary to monitor District operations. The Board is responsible for performing a thorough audit of claims before they are paid to ensure that District funds are used for legitimate District expenditures. The General Municipal Law (GML) authorizes fire districts to maintain certain reserve funds, including capital reserve funds.1 With respect to capital reserve funds, the GML includes specific requirements regarding the establishment, funding, administration and use of the reserve funds. The Board must ensure that it complies with the statutory referendum requirements related to the establishment of capital reserve funds and use of moneys in those funds. The Board also should ensure that the financing of capital reserve funds is appropriately transparent to the public by including appropriations specific to each reserve fund in the annual budget. The Board did not establish policies or procedures to guide the Districts management in the establishment, use and recordkeeping requirements of reserve funds.2 The District reports a capital reserve fund (reserve), which was established prior to 1989, and had a balance of $59,800 as of December 31, 2010. District officials were unable to provide us with resolutions or other documentation as to the reserve funds purpose or the exact date this reserve was established. Depending on the date of establishment and purpose of this reserve fund, different rules may apply for public participation in the establishment of and expenditures made from it.3 The Board
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General Municipal Law Section 6-g Guidance is available in the OSC publication entitled Local Government Management Guide: Reserve Funds http://www.osc.state.ny.us/localgov/pubs/lgmg/reservefunds.pdf 3 Effective January 1, 2007, General Municipal Law Section 6-g(3) was amended to require that any resolution establishing a capital reserve fund is subject to mandatory referendum. Prior to this amendment, the establishment of a capital reserve fund for a specific item of equipment or specific improvement was subject to permissive referendum and a capital reserve fund for a type of equipment or improvement could be established by resolution with no referendum requirements. General Municipal Law Section 6-g(7) provides, in effect, that an expenditure from a capital reserve fund established for a type of equipment or improvement is subject to permissive referendum requirements.
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finances this reserve fund with a budgetary appropriation each year4 and also transfers any remaining general fund balance to the reserve fund at the end of each year. The District had not made expenditures from the reserve fund since its equipment purchases in 2009. We found that the Board generally provides adequate oversight of District financial activities. We found that vouchers were properly signed by the Board and resolutions authorizing the payment of bills were documented in the minutes. The Board also conducts an annual audit of the Treasurers financial records. The Board was unable to provide us with adopted procurement5 and investment6 policies, and a code of ethics,7 as required by the GML. The Board also has not adopted written procedures concerning financial recording and reporting. We found that the Treasurer submitted detailed monthly financial reports to the Board, but did not file the required annual financial reports timely with the Office of the State Comptroller for 2009 and 2010. The Treasurer resolved an accounting error and filed the 2009 report in May 2010. She filed the 2010 report in September 2011, upon realizing that the report had not been properly transferred electronically when she completed it. Due to the lack of written policies and procedures, we reviewed 22 check disbursements8 totaling over $15,000, and all bank account transfers totaling over $75,000, made within our audit scope. Generally, we found that the financial activity was properly supported and disbursements appeared to be for legitimate District purposes. Recommendations 1. The Board should adopt reserve fund, procurement and investment policies, and a code of ethics, and should ensure that formal written financial procedures are established. 2. The Board should research the origin of the existing capital reserve. If it is determined that there is no evidence that the existing capital reserve was established in conformance with statutory requirements, the Board should take steps to ratify and legalize the reserve fund by following the procedures for establishing a capital reserve fund in conformance with the General Municipal Law. The Board has the responsibility to initiate corrective action. Pursuant to Section 181-b of the Town Law, a written corrective action plan (CAP) that addresses the findings and recommendations in this report must be prepared within 90 days of receipt of this report, and forwarded to our Office. To the extent practicable, implementation of the CAP must begin by the end of the next fiscal year. For more information on preparing and filing your CAP, please refer
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$10,000 annually for 2010 and 2011 General Municipal Law Section 104-b 6 General Municipal Law Section 39 7 General Municipal Law Section 806 8 We selected our non-biased judgmental sample by selecting the first check listed on each abstract for all of 2010 and from January through September 2011 (except where the first check was for a payee previously reviewed in that fiscal year, in which case we selected the next payee on the list that had not been previously reviewed).

to our brochure, Responding to an OSC Audit Report, which you received with the draft audit report. The Board should make the CAP available for public review in the Secretarys office. Sincerely,

Steven J. Hancox Deputy Comptroller Division of Local Government and School Accountability

APPENDIX A RESPONSE OF LOCAL OFFICALS

The local officials response to this audit can be found on the following page.