HomeMy WebLinkAbout2022-12-07 OSC-Audit-Danby Town BoardREPORT OF EXAMINATION | 2022M-127
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY
DECEMBER 2022
Town of Danby
Claims Processing and Procurement
Contents
Report Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Claims Auditing and Procurement . . . . . . . . . . . . . . . . . . . 2
What Is an Effective Claims Audit Process? 2
The Board Did Not Properly Audit Claims 2
The Board Did Not Properly Audit Credit Card Purchases 4
How Should Town Officials Procure Goods and Services? 5
Officials Did Not Always Competitively Procure Goods and Services 6
What Do We Recommend? 8
Appendix A – Response From Town Officials . . . . . . . . . . . . .10
Appendix B – OSC Comment on the Town’s Response . . . . . . . .17
Appendix C – Audit Methodology and Standards . . . . . . . . . . .18
Appendix D – Resources and Services . . . . . . . . . . . . . . . . .20
Office of the New York State Comptroller 1
Report Highlights
Audit Objective
Determine whether the Town of Danby (Town) Board (Board)
sought competition when procuring goods and services and
audited claims prior to payment.
Key Findings
The Board did not always seek competition when procuring
goods and services or ensure all claims were properly audited
and approved. When goods and services are not competitively
procured, they may not be procured in a cost-effective manner.
Also, when claims are not properly audited, the Board’s ability to
effectively monitor the Town’s financial operations is diminished.
l Officials did not solicit bids for five commodities totaling
$197,266 or obtain the minimum required quotes for
purchases totaling $80,360.
l The Board approved unsupported claims totaling $223,781
for payment.
l The Board approved 19 claims twice, resulting in duplicate
payments totaling $33,282.
l 44 of 97 credit card purchases, totaling $12,695, reviewed
were paid prior to Board audit and 13 purchases totaling
$4,936 were never presented to the Board for audit.
l The Board did not monitor the health insurance payments
to the former Town Supervisor (Supervisor), resulting in
overpayments totaling at least $12,043.
Key Recommendations
l Determine how to appropriately address the former
Supervisor’s health insurance payments.
l Properly audit and approve all claims timely.
l Comply with Board policies and statutes requiring
competition when procuring goods and services.
Town officials generally agreed with our recommendations and
indicated they plan to take corrective action. Appendix B includes
our comment on an issue raised in the Town’s response.
Background
The Town is located in Tompkins
County (County) and is governed
by an elected five-member Board
including the Supervisor. The Board is
responsible for the general oversight
of the Town’s operations and finances.
The Supervisor serves as the chief
fiscal officer and is responsible for the
day-to-day operations. The Town’s
bookkeeper assists the Supervisor by
maintaining accounting records and
generating financial reports.
The Town has an elected Highway
Superintendent (Superintendent)
who is responsible for overseeing all
highway department operations.
The elected Town Clerk (Clerk) is the
Clerk of the Board and is responsible
for preparing and certifying an abstract
of audited claims, authorizing the
Supervisor to make payments.
Audit Period
January 1, 2020 – July 11, 2022
We extended the audit period back to
July 11, 2016 to review certain health
insurance payments.
Town of Danby
Quick Facts
Population 3,363
Number of Claims
Processed 1,153
Total Dollar Amount of
Claims $3.8 million
2 Office of the New York State Comptroller
A board is responsible for overseeing financial activities and safeguarding
resources. Appropriate oversight and monitoring include establishing policies
and procedures to help ensure that all purchases are authorized, adequately
supported and are actual and necessary expenditures.
What Is an Effective Claims Audit Process?
An effective claims audit process ensures that every claim against a town is
subjected to an independent, thorough and deliberate review; that each claim
contains enough supporting documentation to determine whether it complies with
statutory requirements and town policies (e.g., procurement policy) and that the
amounts claimed represent appropriate town expenditures. Unless an exception
applies, the board is required to audit all claims before payment.
The Board Did Not Properly Audit Claims
We reviewed 249 claims totaling $744,566 to determine whether they were
properly supported, Board-audited and for legitimate purposes. Unless stated
otherwise, we were able to determine that the claims were for legitimate Town
expenditures by reviewing support we requested from the vendors, vendor
business descriptions and from discussions with officials. However, certain
payments for health insurance exceeded Board-approved amounts. Furthermore,
some claims lacked adequate support, were paid in duplicate, included
unnecessary taxes and fees and/or were paid prior to Board audit.
Health Insurance Payments – In 2010, the Board adopted a resolution authorizing
payment of the former Supervisor’s health insurance costs, for amounts not
to exceed $600 per month. From 2016 through 2019, the Town paid a total of
$29,011 for the former Supervisor’s monthly insurance premiums. The Town did
not have records prior to 2016 for us to determine the monthly health insurance
payments. However, from 2016 through 2019, the monthly premiums ranged from
$547 to $671, resulting in total overpayments of $995.
Furthermore, in 2020, the Town made a Board-approved lump sum retroactive
payment totaling $17,739 to reimburse the former Supervisor for monthly
out-of-pocket health insurance costs, ranging from $100 to $136 per month,
incurred for the period 2010 through 2019. Combined with the $995 in premium
overpayments, the lump sum payment for unreimbursed monthly health insurance
costs increased the amount the Town exceeded the allowable amount by an
additional $11,048, totaling $12,043 for the period 2016 through 2019 (Figure 1).
Claims Auditing and Procurement
…[P]ayments for
health insurance
exceeded
Board-approved
amounts.
Office of the New York State Comptroller 3
Because records for the period 2010 through 2015 were not available for us to
review, the amount overpaid may be greater.
The Supervisor told us the Board did not monitor whether the payments exceeded
the authorized amount.
Unsupported Payments – 55 claims totaling $223,781 lacked support, such as
receipts, weigh tickets, or itemized invoices. Unsupported purchases included
47 purchases totaling $217,590 for highway building materials, seven utility
payments totaling $1,800 and one purchase for snow plow parts totaling $4,391
to a highway supply store.
Duplicate Payments – The Board approved duplicate claims resulting in
overpayments totaling $33,282. In some instances, duplicate invoices or receipts,
such as the Town copy of the invoice and the vendor carbon copy for the same
purchase, were attached to a single claim presented to the Board for audit.
Duplicate payments included:
l One payment totaling $16,161 for deicing salt, where the first payment was
made in 2020 and a duplicate payment made in 2021,
l Four payments totaling $15,564 for propane, and
l Fourteen payments totaling $1,557 for various other purchases.
We determined that the Town received credit for six duplicate payments totaling
$31,833 for the deicing salt, propane and vehicle equipment. However, we were
unable to determine whether the remaining 13 payments, totaling $1,449, from
various auto parts dealers and a training event, were credited to the Town. The
bookkeeper stated that the Town likely received credits for the overpayments
that were not reflected on the account statements. However, our review of Town
records did not affirm this assertion.
Taxes and Fees – The Town paid unnecessary bank account analysis fees and
taxes that could have been avoided if the bookkeeper presented the payments
to the Board and if the Board ensured the Town was receiving tax-exempt status.
The unnecessary fees and taxes included:
Figure 1: Former Supervisor’s Health Insurance Payments
Year
Monthly
Premiums
Retroactive
Payments Total
2016 $578 $1,364 $1,942
2017 0 3,216 3,216
2018 0 3,216 3,216
2019 417 3,252 3,669
Total Payments $995 $11,048 $12,043
4 Office of the New York State Comptroller
l Nineteen monthly recurring bank account analysis fees totaling $1,901.
These fees were not audited by the Board and were automatically withdrawn
from the Town’s bank account. The Supervisor stated that he was unaware
of these charges and he was uncertain what value the Town received for
these charges.
l Six sales tax payments totaling $351 attributable to purchases for office
supplies, building materials, food, pest removal services and New York State
compliance posters.
Claims Paid Prior to Audit – Three claims totaling $27,748 were paid prior to
Board audit. These claims included highway materials, repairs made at the Town
Hall and Internet service.
These errors occurred because the Board relied on the bookkeeper to provide
the Board with sufficient supporting documentation and did not understand the
documentation requirements for an adequate claims audit.
Finally, the Board did not ensure that purchases subject to competitive bid
requirements and the Town’s procurement policy were supported with appropriate
supporting documentation, as required. Additional details are discussed in the
procurement section of this report.
The Board Did Not Properly Audit Credit Card Purchases
The Town issued credit cards to several Town officials including the bookkeeper,
Superintendent and Clerk. The Town also maintains several store credit accounts
with hardware and office supply vendors and a local fuel supplier.
The Board is required to annually perform a credit card compliance audit to
ensure that the Board-adopted credit card policy is being followed. The policy
requires that proper documentation be maintained, such as receipts or invoices
from the vendor, in order to determine whether credit card transactions are
appropriate. The policy also requires the Clerk to check all receipts against the
credit card statements and the bookkeeper to monitor for missing information and
notify the Board of discrepancies.
We reviewed 97 purchases made with the credit cards or on account totaling
$33,498 to determine whether they were properly audited, supported and for
legitimate Town purposes. We determined that these purchases were legitimate
based on support we requested from the vendors, vendor descriptions and from
discussions with officials. However, we found the following discrepancies:
l 44 purchases totaling $12,695 were paid prior to Board audit. In some
instances, the purchases were audited two months after payment.
Office of the New York State Comptroller 5
l 36 purchases totaling $10,490 lacked adequate support, such as
itemized receipts. For example, 17 of the purchases totaling $4,503 were
unsupported. These included purchases for office equipment and office
furniture. Furthermore, 13 of the 36 purchases totaling $4,936 were not
audited.
l Three duplicate payments totaling $1,499. Two of these payments totaling
$803 were audited and approved. However, one payment totaling $696
was not audited. These payments were credited to the Town on ensuing
statements.
l The Town incurred late fees totaling $131.
Because of the lack of supporting documentation for credit card purchases, we
performed additional testing of all 43 purchases totaling $3,830 made to an online
vendor to determine the propriety of the account activity. We determined these
purchases were for appropriate Town purposes.
These discrepancies occurred because the Clerk and bookkeeper did not ensure
that credit card purchases were adequately supported, as required. Furthermore,
the Board did not perform an annual credit card compliance audit as required by
the credit card policy. Several Board members told us they were unaware of the
requirements of the credit card policy.
Because officials did not follow procedures outlined in the credit card policy, they
had no assurance that credit card purchases were appropriate. Furthermore,
since the Board was unaware of payments made on credit cards, the possibility
for misappropriation of Town assets was greatly increased.
Without a thorough review of all claims to be paid by the Town, the Board’s ability
to effectively monitor Town financial operations is diminished and errors and
irregularities can occur and remain undetected and uncorrected. We met with the
Superintendent, Deputy Highway Superintendent and all of the Board members
to discuss guidance available in our claims audit publication Improving the
Effectiveness of Your Claims Auditing Process.1
How Should Town Officials Procure Goods and Services?
Officials should ensure compliance with New York State General Municipal Law
(GML) Section 103 which generally requires competitive bidding for purchase
contracts exceeding $20,000, with certain exceptions. In lieu of seeking
competition, towns are also authorized to make purchases using other publicly
awarded government contracts, such as those of a county, or the New York State
1 https://www.osc.state.ny.us/files/local-government/publications/pdf/improving-the-effectiveness-of-claims-
auditing-process.pdf
6 Office of the New York State Comptroller
Office of General Services (OGS). To determine whether competitive bidding is
necessary, town officials must consider whether the aggregate cost of a good or
service within a 12-month period will exceed competitive thresholds.
Officials should procure goods and services not subject to competitive bidding
requirements in a manner that helps ensure the prudent and economical use
of public funds in the taxpayers’ best interest. Soliciting proposals by issuing a
request for proposals or obtaining written or verbal quotes are effective ways to
help ensure that a town receives the needed goods and services for the best
price.
Officials should comply with the Town’s procurement policy, which outlines the
purchasing process for goods not required by law to be bid. Purchases made for
materials, equipment and supplies costing between:
l $0 and $1,500 are left to the discretion of the purchaser.
l $1,500 and $2,999 require written quotes from two vendors.
l $3,000 and $9,999 require written quotes from three vendors.
Officials Did Not Always Competitively Procure Goods and Services
We reviewed 194 purchases totaling $636,183 made during the audit period to
determine whether Town officials obtained quotes or solicited competitive bids, as
appropriate. We found that officials either did not seek competition, or maintain
supporting documentation to show they sought competition, for 85 purchases
totaling $244,394.
Competitive Bidding – We aggregated 110 purchases totaling $254,957 for six
commodities that were subject to competitive bidding requirements (see Figure 2)
and found that 64 purchases for five commodities
totaling $197,266 were not properly purchased
using competitive bidding or other competitive
methods, such as the use of State or County
contracts.
We compared the prices the Town paid for these
purchases with the prices available from State and
County contracts to determine whether the Town
paid the rates available to municipalities. While the
Town paid at or below the State contract prices for
two commodities totaling $104,750, when officials
do not seek competition as a part of the purchasing process, they cannot provide
assurance to taxpayers that public funds were used prudently and economically.
Figure 2: Aggregate Commodity Purchases
Product 2020 Claim Voucher Total
Deicing Sand $54,402
Deicing Salt 50,390
Asphalt Emulsion 50,348
Unknown Aggregate 38,469
Shoulder Mix 34,660
Cold Patch 26,688
Total $254,957
Office of the New York State Comptroller 7
Furthermore, we were unable to compare two commodities totaling $73,129 with
State or County contract pricing because the product description did not match
the naming convention used on State and County contracts.
Quotes – We reviewed 28 purchases totaling $97,248 and all propane purchases
totaling $30,511 to determine whether Town officials obtained the minimum
required number of quotes. We found that Town officials did not obtain the
minimum required quotes for all propane purchases2 and 17 other purchases
totaling $49,849. For example, officials could not provide quotes for 12 purchases
totaling $33,233 for highway commodities, one purchase totaling $4,924 for a
truck cylinder, labor and parts for a vehicle repair totaling $3,673, a laptop for the
planning office totaling $2,009 and New York State compliance posters totaling
$1,620. Because the invoices for the highway commodities were not sufficiently
detailed for us to determine the actual commodities purchased, we could not
determine whether they should have been aggregated for competitive bidding
purposes. We found no exceptions with the remaining 11 purchases.
We compared the prices the Town paid for the propane with the prices available
from a State contract. We found that the Town overpaid for propane by $15,364
(101 percent) when compared to the State contract rate. Town officials told us
they believed they were purchasing the propane at the State contract rate since
they purchased from the State contract vendor. As a result of our audit, near
the end of our audit fieldwork, officials reached out to OGS and the vendor, to
investigate the propane pricing difference.
These deficiencies occurred because Town officials did not follow their own policy
or competitive bid requirements. The Superintendent and the bookkeeper told
us that quotes are solicited, but not always documented and retained, and that
all documentation may not be provided to the Board. When officials do not use
a competitive process to procure goods and services, there is an increased risk
that goods and services may not be procured in the most cost-effective manner to
help ensure the most prudent and economical use of public money.
We met with Board members and officials to discuss guidance available in our
publication, Seeking Competition in Procurement 3 In addition, we referred the
Board and officials to the OGS website for information on the procurement of
aggregate commodity products (e.g., road salt, asphalt, stone and aggregates)
and fuel products (e.g., diesel, fuel oil, gasoline and propane).
2 Includes two fiscal years’ payments which aggregated less than $20,000 per year and therefore why we
applied the quotes requirement instead of competitive bidding requirement.
3 https://www.osc.state.ny.us/files/local-government/publications/pdf/seekingcompetition.pdf
8 Office of the New York State Comptroller
What Do We Recommend?
The Board should:
1. Consult with the Town’s attorney to determine how to appropriately
address the health insurance payments for the former Supervisor.
2. Only approve health insurance payments or cost reimbursements that
comply with Board resolutions.
3. Perform a deliberate and thorough audit of all claims and supporting
documentation in a timely manner ensuring that claims are adequate,
complete, do not include tax and fees charges, and are for appropriate
Town purposes.
4. Ensure the necessary paperwork is filed to recoup all sales tax paid on
purchases during the audit period from the New York State Department of
Taxation and Finance.
5. Enforce the credit card policy, which details authorized use, the approval
process, documentation requirements and receipt verification, and perform
an annual credit card compliance audit.
6. Require adequate supporting documentation for credit card purchases.
7. Thoroughly audit credit card claims, ensuring that documentation to
support credit card purchases is attached before approving claims for
payment and ensure credit card statements are reconciled to itemized
supporting documentation.
8. Ensure the credit card statements are paid in full and in a timely manner to
avoid unnecessary late fees and interest charges.
9. Ensure Town officials comply with Board policies and statutes requiring
competition when procuring goods and services.
Town officials should:
10. Ensure all claims requiring Board audit are presented to the Board
for audit prior to payment, including adequate, originating supporting
documentation.
11. Ensure the Town receives credit for all remaining unresolved duplicate
payments.
12. Request the unnecessary bank fees be removed from Town bank
accounts.
Office of the New York State Comptroller 9
13. Adhere to all Town policies and procedures, including the procurement
and credit card policies.
14. Periodically compare quotes from vendors to State and other government
contracts to help ensure purchases are cost effective and in the best
interest of taxpayers.
10 Office of the New York State Comptroller
Appendix A: Response From Town Officials
Office of the New York State Comptroller 11
See
Note 1
Page 17
12 Office of the New York State Comptroller
Office of the New York State Comptroller 13
14 Office of the New York State Comptroller
Office of the New York State Comptroller 15
16 Office of the New York State Comptroller
Office of the New York State Comptroller 17
Appendix B: OSC Comment on the Town’s Response
Note 1
The Board approved claims that lacked support and several payments were made
prior to Board audit.
18 Office of the New York State Comptroller
Appendix C: Audit Methodology and Standards
We conducted this audit pursuant to Article V, Section 1 of the State Constitution
and the State Comptroller’s authority as set forth in Article 3 of the New York
State General Municipal Law. To achieve the audit objective and obtain valid audit
evidence, our audit procedures included the following:
l We interviewed Town officials and reviewed Town policies and procedures
and Board meeting minutes and resolutions to gain an understanding of and
evaluate the adequacy of procurement policies and procedures.
l We reviewed the abstract sequencing for the general and highway funds
for the audit period to determine whether the Board was presented with the
claims recorded on the copy of the abstract filed with the Clerk.
l We compared all recorded disbursement activity for the general and
highway funds in the cash disbursements journal to bank activity to gain an
accountability and determine the reliability of the cash disbursements journal.
l We used our professional judgment to select a sample of 219 claims totaling
$711,068 to determine whether they were properly supported, for appropriate
Town purposes, no unnecessary fees or interest was paid and were audited
and approved by the Board. We included claims from various procurement
policy and competitive bidding thresholds, aggregated vendor purchases,
all propane and utility purchases and health insurance payments to officials.
These claims were selected from the period January 1, 2020 through
August 31, 2021. We expanded our audit period to July 11, 2022 to review
documentation provided to us pertaining to the procurement policy and
County contracts and discussions with officials.
l We reviewed all purchases recorded in the cash disbursements journal
to determine whether the Town made any duplicate payments. We then
reviewed Town records to determine whether the Town received credits for
any duplicate payments.
l We reviewed all 19 Town credit card statements for the audit period and
used our professional judgment to select a sample of 86 purchases, totaling
$29,590, for amounts greater than $100 or made to high-risk vendors, to
determine their propriety, and whether they were properly supported, audited
prior to payment, adhered to established Town policies and no unnecessary
fees were incurred.
l We reviewed all Town credit accounts and used our professional judgment
to select a sample of 11 purchases for amounts of $100 or greater totaling
$3,908, to determine their nature and propriety, and whether they were
properly supported, audited prior to payment, adhered to established Town
policies and no unnecessary fees were incurred.
l We reviewed all 43 purchases made by Town officials with the Town credit
card to an online vendor, totaling $3,830 to determine their nature and
Office of the New York State Comptroller 19
propriety and reconcile the online vendor purchase activity to the Town credit
card activity.
l We aggregated 161 purchases based on product description recorded in the
cash disbursements journal for 2020 totaling $395,730 to determine whether
the Town properly bid these purchases or obtained and documented the
minimum required number of quotes.
l We used our professional judgment to select a sample of five individual
purchases totaling $145,927 that exceeded the competitive bidding
thresholds to determine whether officials properly bid each of the purchases.
l We used our professional judgment to select a sample of 16 purchases
totaling $64,015 that included all thresholds of the Town’s procurement policy
to determine whether they adhered to the policy.
l We reviewed all 12 propane purchases totaling $30,511 to determine
whether aggregate purchases were subject to bidding or procurement policy
requirements and whether the Town procured fuel at a competitive rate.
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.
Unless otherwise indicated in this report, samples for testing were selected
based on professional judgment, as it was not the intent to project the results
onto the entire population. Where applicable, information is presented concerning
the value and/or size of the relevant population and the sample selected for
examination.
The Board has the responsibility to initiate corrective action. We encourage
the Board to prepare a written corrective action plan (CAP) that addresses the
recommendations in this report and forward it to our office within 90 days. 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 the CAP available for public review.
20 Office of the New York State Comptroller
Appendix D: Resources and Services
Regional Office Directory
www.osc.state.ny.us/files/local-government/pdf/regional-directory.pdf
Cost-Saving Ideas – Resources, advice and assistance on cost-saving ideas
www.osc.state.ny.us/local-government/publications
Fiscal Stress Monitoring – Resources for local government officials experiencing fiscal problems
www.osc.state.ny.us/local-government/fiscal-monitoring
Local Government Management Guides – Series of publications that include technical information
and suggested practices for local government management
www.osc.state.ny.us/local-government/publications
Planning and Budgeting Guides – Resources for developing multiyear financial, capital, strategic and
other plans
www.osc.state.ny.us/local-government/resources/planning-resources
Protecting Sensitive Data and Other Local Government Assets – A non-technical cybersecurity
guide for local government leaders
www.osc.state.ny.us/files/local-government/publications/pdf/cyber-security-guide.pdf
Required Reporting – Information and resources for reports and forms that are filed with the Office of
the State Comptroller
www.osc.state.ny.us/local-government/required-reporting
Research Reports/Publications – Reports on major policy issues facing local governments and State
policy-makers
www.osc.state.ny.us/local-government/publications
Training – Resources for local government officials on in-person and online training opportunities on a
wide range of topics
www.osc.state.ny.us/local-government/academy
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Contact
Office of the New York State Comptroller
Division of Local Government and School Accountability
110 State Street, 12th Floor, Albany, New York 12236
Tel: (518) 474-4037 • Fax: (518) 486-6479 • Email: localgov@osc.ny.gov
www.osc.state.ny.us/local-government
Local Government and School Accountability Help Line: (866) 321-8503
BINGHAMTON REGIONAL OFFICE – Ann C. Singer, Chief of Municipal Audits
State Office Building, Suite 1702 • 44 Hawley Street • Binghamton, New York 13901-4417
Tel (607) 721-8306 • Fax (607) 721-8313 • Email: Muni-Binghamton@osc.ny.gov
Serving: Broome, Chenango, Chemung, Cortland, Delaware, Otsego, Schoharie, Tioga,
Tompkins counties