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Town of
West Seneca
Misuse of Town
Credit Cards and
Resources
Report of Examination
Period Covered:
January 1, 2006 January 21, 2010
2010M-22
Thomas P. DiNapoli
Table of Contents
Page
AUTHORITY LETTER 2
EXECUTIVE SUMMARY 3
INTRODUCTION 5
Background 5
Objective 7
Scope and Methodology 7
Comments of Local Officials and Corrective Action 7
September 2010
A top priority of the Office of the State Comptroller is to help local government officials manage
government resources efficiently and effectively and, by so doing, provide accountability for
tax dollars spent to support government operations. The Comptroller oversees the fiscal affairs of
local governments statewide, as well as compliance with relevant statutes and observance of good
business practices. This fiscal oversight is accomplished, in part, through our audits, which identify
opportunities for improving operations and Board governance. Audits also can identify strategies to
reduce costs and to strengthen controls intended to safeguard local government assets.
Following is a report of our audit of the Town of West Seneca entitled Misuse of Town Credit Cards
and Resources. This audit was conducted pursuant to Article V, Section 1 of the State Constitution and
the State Comptrollers authority as set forth in Article 3 of the General Municipal Law.
This audits results and recommendations are resources for local government officials to use in
effectively managing operations and in meeting the expectations of their constituents. If you have
questions about this report, please feel free to contact the local regional office for your county, as listed
at the end of this report.
Respectfully submitted,
The Town of West Seneca is located in Erie County, and has a population of approximately 45,000
residents. The Town provides various governmental services to its residents. For the fiscal year ending
December 31, 2008, the Towns general fund expenditures totaled approximately $23 million and the
special grant fund expenditures totaled $2.2 million.
Since at least 1991 the Town has entered into various grant agreements with Federal and State
agencies. The Towns Youth Bureau Executive Director was affiliated with a not-for-profit corporation
named Western New York AmeriCorps (WNY AmeriCorps). This entitys purpose is to solicit and
maintain funds for charitable endeavors.
The objective of our audit was to evaluate the Towns internal controls over certain financial activity
for the period January 1, 2006 to January 21, 2010. Our audit addressed the following related
questions:
Does the Town Comptroller properly account for financial activity and audit payments?
Does the Town Board ensure that internal controls over credit card usage are appropriately
designed and operating effectively?
Audit Results
Town officials did not take the proper steps to control WNY AmeriCorps activities and as a result the
Town has suffered financial losses. The Town has already lost over $400,000 and could potentially
lose another $2.4 million because of poor oversight by the Board and the improper activities of the
Executive Director and the functions that he managed within the Towns Youth Bureau and the WNY
AmeriCorps program.
The Town Board failed to establish policies for how the Town would handle WNY AmeriCorps
financial transactions and policies for governing WNY AmeriCorps activities when performed by
Town employees. The Board also did not properly monitor the activities of the Town Comptroller. In
the absence of such guidance and oversight, the Town Comptroller has inappropriately handled WNY
AmeriCorps transactions.
The Comptroller did not properly record inter-fund activity associated with cash advances made to the
special grant fund from other Town funds. As a result, the Towns 2008 audited financial statements
report a liability referred to as a cash overdraft totaling $2.4 million in the special grant fund. If future
grant receipts do not materialize, moneys will not be available to liquidate some or all of the $2.4
million liability in the special grant fund. If and when that occurs, it is not clear how the Town will
allocate this shortfall among the operating funds that presently report inappropriately inflated cash
positions. Moreover, the operating fund(s) selected by the Town to bear the cost of this shortfall will
also sustain a corresponding decrease in fund balance to reflect this loss.
The Towns Youth Bureau Executive Director and employees under his supervision improperly
used Town credit cards and resources. This misuse occurred over a period of time because the Town
Comptroller consistently failed to properly audit claims, safeguard credit cards and record certain
financial activity and the Town Board did not establish appropriate controls over credit card usage and
did not provide appropriate oversight of the Town Comptroller. We have referred this matter to law
enforcement for investigation.
The Youth Bureau charged over 8,000 transactions totaling approximately $1 million during the
period we reviewed. We analyzed 200 transactions totaling $142,188 on credit cards that were under
the supervision of the Executive Director and found exceptions with 194 of them. These exceptions
included improper and unsupported cash advances, purchases of gift cards and alcoholic beverages,
and payments that personally benefited the Executive Director. We also reviewed 20 claims, totaling
approximately $94,000, and found insufficient information to demonstrate they represented proper,
Town charges.
The Boards and the Comptrollers failure to adequately fulfill their duties allowed the Youth Bureau
Executive Director and other employees to improperly use taxpayer money.
The results of our audit and recommendations have been discussed with Town officials and their
comments, which appear in Appendix A, have been considered in preparing this report. As
specified in Appendix A, Town officials generally disagreed with certain aspects of our findings and
recommendations in our report. Appendix B includes our comments on issues raised in the Towns
response letter.
Background The Town of West Seneca is located in Erie County and has a
population of approximately 45,000 residents. The Town provides
various governmental services to its residents and also administers
certain grant programs. For the fiscal year ending December 31, 2008,
the Towns general fund expenditures totaled approximately $23
million and the special grant fund expenditures totaled $2.2 million.
Since at least 1991 the Town entered into various grant agreements
with Federal and State agencies. The Towns Youth Bureau Executive
Director (Executive Director),1 and those under his supervision,
generally fulfilled the grantee responsibilities of the Town. This
included raising local matching share through grant related program
income,2 donations and other grants, as well as administering the
grant programs. They submitted claim forms to the respective Federal
and State agencies for reimbursement of grant eligible expenditures.
1
The Towns Youth Bureau Executive Director was hired in 1991.
2
Program income is restricted revenue received for services performed. Other
grants are also considered restricted revenue to comply with specific program
requirements. Donations are considered unrestricted revenue.
3
Formed under Section 402 of Not-For-Profit Corporation Law
In June 2008, the Town and WNY AmeriCorps entered into a grant
administration agreement, whereby, effective August 2008, the Town
formally assigned its grantee responsibilities to WNY AmeriCorps4 to
establish its own business functions (payroll processing, bill paying,
etc.). In addition, certain Youth Bureau employees became employees
of WNY AmeriCorps. The Town provides a pre-determined monthly
cash advance to WNY AmeriCorps to sustain its grantee operations
through December 2010. The monthly cash advance amount ranges
between $288,548 in September 2008 to a projected amount of
$91,980 in December 2010.
4
The scope of our audit did not include making a determination as to whether the
Town had the authority to engage in these previous activities and whether the Town
could assign grantee responsibilities.
5
There is no formal agreement in place requiring WNY AmeriCorps to pay this
amount.
Objective The objective of our audit was to evaluate the Towns internal
controls over certain financial activity. Our audit addressed the
following related questions:
Scope and We examined the Towns internal controls over certain financial
Methodology activity for the period January 1, 2006 to January 21, 2010.
Comments of The results of our audit and recommendations have been discussed
Local Officials and with Town officials and their comments, which appear in Appendix
Corrective Action A, have been considered in preparing this report. As specified in
Appendix A, Town officials generally disagreed with certain aspects
of our findings and recommendations in our report. Appendix B
includes our comments on issues raised in the Towns response letter.
Failure to Establish The Town Board (Board) failed to establish policies for how the
Policies Town would handle WNY AmeriCorps financial transactions and
policies for governing WNY AmeriCorps activities when performed
by Town employees. The Board also did not properly monitor the
activities of the Town Comptroller. In the absence of such guidance
and oversight, the Town Comptroller has inappropriately handled
WNY AmeriCorps transactions. In addition, Town employees have
operated WNY AmeriCorps in a manner that did not benefit the Town
and may not have contributed to the mission of AmeriCorps.
Town Comptroller The Town established the office of Town Comptroller6 (Comptroller)
Duties to assume certain accounting and financial duties of the Board, Town
Supervisor (Supervisor) and Town Clerk. The Comptrollers duties
include auditing claims, preparing an abstract of audited claims
directing the Supervisor to make payment, accounting for financial
activity, providing monthly financial reports to the Board and annually
auditing Town departments. We found that the Comptroller did not
perform certain fundamental duties of his office. The Comptroller
failed to properly audit claims submitted by the Executive Director, or
those he supervised. The Comptroller also failed to prepare abstracts,
and did not properly record all WNY AmeriCorps financial activity.
He also did not provide monthly financial reports to the Board,
annually audit departments as required, and failed to provide Board
members the results of the Towns external audits.
The trust and agency fund is used to account for assets held
by the Town as an agent for individuals, private organizations
or other governments. Agency funds are custodial in nature.
Transactions such as payroll withholdings are accounted
for in the agency fund because they are withheld, pending
transmittal at a later date.
The Towns external auditor also analyzes the various grant programs
and, with assistance from WNY AmeriCorps members, establishes
the amount expected to be received in reimbursements from the
Federal and State agencies funding the grant programs. This analysis
by the external auditor cannot be performed until he reclassifies all
of the cash activity from the trust and agency fund as revenues and
expenditures. At that point, he establishes which expenditures are
eligible for reimbursement.
The Town and WNY AmeriCorps have made attempts to address the
cash overdraft liability and the receivable from WNY AmeriCorps.
In September 2009, the Town and WNY AmeriCorps amended their
grant administration agreement and formalized a plan to address their
respective roles and responsibilities with respect to grant activities.
The amended agreement is subject to approval by the New York State
Comptrollers Office and the New York State Attorney General. As
Town Board Oversight The Supervisor and the four14 Council members of the Town Board are
responsible for overseeing the operations and finances of the Town.
The Supervisor, along with other administrative staff, is generally
responsible for the administration and supervision of day-to-day
Town operations. The Board is responsible for monitoring the Towns
financial activity and providing proper oversight of the Comptroller.
The Board can fulfill this obligation by ensuring that the Comptroller
prepare and present monthly financial reports, conduct annual audits
and present external audit reports for review. We found that the Board
has not fulfilled its oversight functions as follows:
14
A public referendum was passed in June 2009 to downsize the Board by two
members, effective January 1, 2010.
15
We reviewed Town Board minutes for the period August 2008 through August
2009.
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY 13
13
period. Board members were aware16 of this obligation and did not
require corrective action be taken. The failure to perform an annual
audit reduces accountability over Town assets and increases the risk
that errors and irregularities will not be detected and corrected.
Misuse of Town For the period January 1, 2006 through June 29, 2009, the Town paid
Credit Cards approximately $1 million for charges on 35 Town credit card accounts
that were used by the Town Youth Bureau and WNY AmeriCorps. The
credit cards were routinely used for a variety of purchases including,
but not limited to: cash advances ($21,000), meals and refreshments
($130,000), travel and entertainment ($250,000), gift cards and
certificates ($30,000), donations and sponsorships ($50,000), home
improvement and landscaping materials and supplies ($140,000),
apparel and sporting/outdoor supplies ($95,000), administrative and
office items ($195,000), and vehicle and equipment items ($60,000).
Some of these items, such as donations and gift cards, would generally
not be appropriate Town purchases. We have referred this matter to
law enforcement for investigation.
16
In the March 2, 2009 Board minutes, a Board member questioned the Comptroller
regarding annual audits. The Comptroller responded that he had not performed
them.
17
For the fiscal years ending December 31, 2006, 2007 and 2008 (completed
November 25, 2009).
The Board did not establish appropriate controls over Town credit
cards and did not develop a credit card policy until November 2009.
Although the Board had a purchasing policy, it did not provide
adequate guidance to the Comptroller, department heads and staff
with respect to credit card transactions. The Board did not monitor
how the cards were distributed, controlled and used. Ten individuals
had credit card administrator functions; they had the authority to
modify credit card parameters such as credit limits, cash advance
options and provide additional cards to other individuals. Further, the
credit limit on the master account under the Executive Director was
excessive as the limit was as high as $42,000. Finally, we noted that
22 of these monthly billings were paid late, resulting in late fees that
the Town paid totaling approximately $3,000.
At its August 24, 2009 meeting, the Board directed the Comptroller
to cancel the Town credit cards under the control of the Youth
Bureau Executive Director which included cards being used by
WNY AmeriCorps members that were no longer Town employees.
While WNY AmeriCorps staff provided a bag of shredded credit
cards, Town officials should have contacted the credit card company
and proactively canceled the cards to ensure that all the credit card
accounts under the Executive Directors master account were closed.
18
Twelve transactions totaling $2,678 were cash advances that generally lacked
any supporting documentation. During our review of credit card billing statements
we totaled cash advances and cash advance fees on the credit cards and found that
a total of $20,188 was advanced from January 2006 through December 2008 and
cash advance fees totaled $542.
19
All 20 tested claims had some supporting documentation attached; however,
18 of the 20 were not sufficiently itemized or detailed to determine whether they
represented appropriate Town charges.
7. The Comptroller should provide the Board with the results of the
Towns external audits.
11. The Board should consult with the Town Attorney to determine if
there are grounds for recouping any improper payments that were
made.
The local officials response to this audit can be found on the following pages.
See
Note 1
Page 31
See
Note 3
Page 31
See
Note 4
Page 31
See
Note 5
Page 31
Note 1
We identified significant control weaknesses and process deficiencies that were still occurring as of
the end of our field work. Furthermore, we reviewed and found exceptions with transactions that
occurred in 2008 and 2009.
We acknowledge that the current Board has taken significant steps to separate WNY AmeriCorps
operations from those of the Town to correct the overlapping of operations that had persisted for many
years. While actions have been taken, it is essential that the Board address the deficiencies identified
in our report. Further, the Town should take appropriate action to ensure that it receives all the
monies it is due as a result of WNY AmeriCorps activities.
Note 2
We confirmed with various department heads that the Town Comptroller did not require them to
submit supporting documentation for credit card activity.
Note 3
During our fieldwork the Town Comptroller was not properly accounting for certain financial activity
and had not made significant adjustments to the Towns financial records to ensure that they agreed
with the audited financial statements. To a great degree, the Town Comptroller is relying upon the
external auditor to properly account for certain financial activity. Because the Town Comptroller waits
for significant adjustments from the auditor, the financial records are not reliable during the year.
Note 4
The Town Comptroller failed to perform his duty to annually audit all town officers or employees who
received or disbursed any monies, as required by Town Law.
Note 5
The Town Comptroller did not provide, or discuss the external audit results with Board members. He
also did not provide the required monthly revenue and expenditure report to the Board.
During this audit, we evaluated the Towns internal controls over certain financial activity for the
period January 1, 2006 to January 21, 2010. To accomplish our audit objective and obtain relevant
audit evidence, we performed the following procedures:
We reviewed Town Board meeting minutes, vendor history reports, claim vouchers and
supporting documents, purchase logs, bank statements, check registers, canceled checks, bank
reconciliations, cash receipts and supporting documents, general ledger activity reports, journal
entries, financial statements, internal memos, and credit card agreements.
We reviewed records provided by the Towns external auditor to assist in determining whether
Town funds were properly used.
We used a risk based judgmental process to select credit card transactions and claims for
review, focusing on high risk transactions and payments to vendors not typically used by
municipalities.
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.
Serving: Allegany, Cattaraugus, Chautauqua, Erie, Serving: Cayuga, Chemung, Livingston, Monroe,
Genesee, Niagara, Orleans, Wyoming counties Ontario, Schuyler, Seneca, Steuben, Wayne, Yates counties