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1999 Letter from Comptroller H. CARL McCALL STATE COMPTROLLER PATRICIA LAMB McCARTHY DEPUTY COMPTROLLER DIVISION OF MUNICIPAL AFFAIRS it STATE OF NEW YORK OFFICE OF THE STATE COMPTROLLER 22 COMPUTER DRIVE WEST ALBANY, NEW YORK 12205 THOMAS J. KELLY CHIEF EXAMINER Tel: (518) 438-0093 Fax: (518) 438-0367 August 24, 1999 Supervisor and Members of the Town Board Town of Wappinger 20 Middlebush Road P.O. Box 324 Wappingers Falls, New York 12590-0324 RECEIVED AUG 27 1999 ELAINE SNOWDEN TOWN CLPRK Dear Supervisor Constance Smith and Members of the Town Board: One of the State Comptroller's top priorities is to establish and maintain a strong partnership between this office and the local governments of New York State. A primary objective of this partnership is to identify areas where local governments can improve their fiscal operations and provide guidance that will assist local officials in making those improvements. We believe that regular contact with local governments constitutes one of the major components in effectively and efficiently accomplishing this objective. In accordance with these objectives, we conducted a survey in July 1999 to assess the financial operations of the Town of Wappinger. This survey was limited to interviews with town personnel, observations, and inspection of financial records and reports. Using these limited procedures we assessed the financial condition of the various town funds, reviewed key financial operations and evaluated the Town of Wappinger's corrective action plan relating to the findings contained in our prior Report of Examination dated December 15, 1994. It was not our objective to and we do not express an audit opinion on the financial statements of the town. Further, our procedures were not designed to provide assurance as to either the internal control structure or the extent of compliance with statutory and regulatory requirements. During our survey, we discussed certain internal control and compliance issues with appropriate town personnel, and the operational considerations relating to those issues. In addition, our procedures disclosed the following conditions that require attention. We have developed recommendations for corrective action which have been discussed with local officials. Accumulated Fund Balance The town has accumulated significant unreserved, unappropriated fund balances in the general-town outside village fund, the Myers Comers, Ardmore, WatchHill, Oakwood, and Tall Trees water districts, and the Fleetwood, Watch Hill, Rockingham, Sewer Improvement # 1, and Wildwood sewer district funds. A comparison of the unreserved, unappropriated fund balances with the amount appropriated in the ensuing year's budget for these funds is as follows: -2- Unappropriated Unappropriated Unreserved Appropriated Unreserved Fund Balance Fund Balance at in the Fund Balance at as a % of the Fund/District December 31, 1998 1999 Budget December 31,1998 1999 Budget General-Town Outside Village $1,250,341 $622,299 $628,042 36% Water Districts: Myers Comers 5,436 1,050 4,386 34% Ardmore 24,684 2,908 21,776 64% Watch Hill 23,190 6,553 16,637 46% Oakwood 17,312 844 16,468 48% Tall Trees 17,836 1,692 16,144 50% Sewer Districts: Fleetwood 26,727 1,324 25,403 29% Watch Hill 11,436 2,000 9,436 42% Rockingham 238,506 83,018 155,488 36% Improvement # 1 296,875 85,515 211,360 27% Wildwood 36,406 959 35,447 25% The cause of the accumulation and retention of these fund balances has been the underestimation of revenue and the overestimation of appropriations when preparing the annual budget. A budget, which in effect, acts as a control over the financial operations of the town should be a realistic document that parallels the expected operation of the respective funds. Furthermore, prudent fiscal management requires that only those amounts necessary to provide for the current fiscal needs of a fund be raised by taxation and/or user fees. The Town Board should review its budgetary practices and adopt more realistic budget estimates. Revenues, expenditures, and available fund balance should be estimated based on such factors as prior financial activity and expected operations of the ensuing year. Careful projections should be made to ensure that taxes and user charges are not raised in amounts greater than necessary to provide anticipated services. Competitive Biddin\:: There was no evidence in the minutes ofthe proceedings of the Town Board or otherwise presented to us by town officials indicating that bids had been requested by public advertisement for the purchase of computer equipment from one vendor at an aggregate cost of $18,505 during the fiscal year ended December 31, 1998. Town officials stated that the vendor indicated the equipment would be sold to the town equal to or lower than the state contract price. With certain exceptions which appear not to be applicable in the above instance, purchase contracts in excess of $10,000 and public work contracts in excess of $20,000 should be awarded to the lowest responsible bidder after public advertisement for bids (General Municipal Law, S 103). In determining the necessity for competitive bidding, the aggregate amount to be expended for an item or service in a fiscal year should be considered. The bidding statutes may not be avoided by splitting contracts into smaller components, each of which is below the bidding threshold. Competitive bidding is required when it is known, or can reasonably be anticipated, '" -3- that the aggregate amount to be spent on like items or services will exceed the competitive bidding threshold over the course of a fiscal year. Generally, items or services of the same or similar nature which are customarily handled by the same vendor should be treated as a single item for the purpose of determining whether the dollar threshold will be exceeded. However, we note that Sections 103(3) and 104 of the General Municipal Law authorize town officials to purchase materials and commodities which would otherwise be subject to competitive bidding through county or state contracts which have been duly extended to the town, without competitive bidding. In order for the town to be exempt from competitive bidding, purchases must be made from vendors who have been awarded a current county or state contract. Purchases from any other vendor, even at a price equal to or lower than the state or county contract price, do not fall within this exception and, therefore, are subject to normal competitive bidding requirements. The Town Board should develop procedures to help ensure that all commodities whose annual purchases are likely to aggregate in excess of $10,000 are identified and procured in accordance with the competitive bidding requirements of General Municipal Law. The management of the Town of Wappinger is responsible for its financial affairs. This responsibility includes establishing and maintaining internal controls to provide reasonable, but not absolute, assurance that resources are safeguarded against loss from unauthorized use or disposition; that transactions are executed in accordance with management's authorizations and are properly recorded; that appropriate financial reports are prepared; that applicable laws, rules and regulations are observed, and that corrective action is taken when appropriate. The Town Board should prepare a plan of action that addresses the recommendations in this letter, which would be available for public review in the office of the town clerk and the Office of the State Comptroller. I trust that this service was of assistance to you. If you have any further questions, please feel free to contact us at (518) 438-0093. :;;2/~/ Thomas 1. Kelly, Jr. Chief Examiner/Municipal Affairs TJK:kg ~c: Elaine H. Snowden, Town Clerk