A State Comptroller’s audit issued on July 23 determined that the Montgomery Village Board did not provide adequate oversight of the treasurer’s financial operations. The audit period was from June 1, 2018 through Dec. 3, 2019, however the audit scope was extended to May 31, 2020 for testing water and sewer payments.

The State Comptroller found that the board did not know the treasurer did not comply with water and sewer village laws and codes resulting in $29,300 in penalties not being assessed. The audit also uncovered that the board did not implement sufficient compensating controls to minimize the risks associated with the lack of segregation of duties within the treasurer’s office. In addition, the State Comptroller found that the board did not approve or authorize anyone to approve billing adjustments for water and sewer bills nor require adjustments to be documented and retained. Another key finding from the audit was that the board did not perform required annual audits. The last required audit was conducted in 2016.

The board reviews financial activity through monthly budget to actual reports they receive from the treasurer. However, they did not have sufficient internal controls or compensating controls in place to adequately monitor cash receipts, cash disbursements, billings or wire transfers.

Due to the incompatible duties of the treasurer’s office, the State Comptroller reviewed cash receipts for real property tax, sewer, water, recreation and other miscellaneous receipts; disbursements; and payroll. The comptroller found that, with the exception of minor deficiencies discussed with village officials, the transactions were accurately accounted for.

The State Comptroller reviewed the 20 billing adjustments made during the 2019-20 fiscal year totaling $9,803 and determined the adjustments were valid and supported. However, without formal approval, adjustments can be made to water and sewer bills that would allow the opportunity to carry out and conceal errors or fraud in the normal course of their duties without detection.

Although the comptroller did not identify any significant discrepancies during their audit testing, a lack of segregation of duties without compensating controls increases the risk that errors and irregularities could occur without detection.

The comptroller reviewed water and sewer collections for the 2019-20 fiscal year totaling $627,064 to determine if penalties were properly assessed. Water and sewer bills are due and payable on the first day of June and on the first day of December. Bills not paid within 30 days thereafter should be assessed with a 10 percent penalty. Additionally, June sewer bills still delinquent 30 days after the December payments are due should be charged an additional 10 percent penalty.

The comptroller’s review found that the treasurer assessed June 2019 penalties 14 days late (on July 15) and December 2019 penalties 22 days late (Jan. 23). For the 2019-20 fiscal year, the village collected $363,125 for principal payments more than 30 days after payments were due and charged $7,428 for penalties. However, because the date the penalties began to be assessed were 14 and 22 days later than those legally required, it resulted in a difference of as much as $29,300 in penalties that may not have been charged.

The inaccurate penalties charged occurred because the treasurer mailed the water and sewer bills out with later due dates, as he was not aware of the village code regarding penalty dates. Additionally, the board did not monitor the financial activities of the treasurer’s office to ensure village water and sewer codes were being followed. As a result, the village may have forfeited water and sewer revenue because errors occurred and went undetected.

The treasurer provided monthly reports to the board. However, the board did not perform the required annual audit, nor did they contract with an independent auditor to audit the treasurer’s books and records during the comptroller’s audit period.

The mayor told the comptroller that no external audit has been done on the treasurer’s records since the current treasurer was appointed in May 2016.

Also, village officials could not provide the comptroller with any evidence that they confirmed the completeness or accuracy of the treasurer’s records as part of their review. Without sufficient oversight of the treasurer’s financial duties and an annual audit, the village has an increased risk that errors and/or irregularities could occur and remain uncorrected. The improper handling of late payment penalties is one example of the risk from lack of proper oversight of village finances.

The State Comptroller recommends the board develop policies and procedures to segregate the responsibilities of the treasurer’s and deputy’s duties or implement compensating controls. The comptroller also recommends the board approve all or designate someone independent of the process to approve all billing adjustments, write-offs and refunds prior to them being made, and require the documentation to be maintained. Following the audit, the comptroller advocates for the board to periodically review billing adjustment reports, ensure the treasurer’s office complies with water and sewer village laws and codes and perform, or contract for, an annual audit of the treasurer’s records.

Village officials agreed with the recommendations and indicated they planned to initiate corrective action.

“The Village of Montgomery is committed to the highest levels of integrity regarding the financial transactions of the village,” Village of Montgomery Mayor Stephen Brescia said in a letter to Lisa Reynolds, chief examiner at the New York State Comptroller’s Newburgh Regional Office. “As such, we take the audit findings very seriously and plan to remedy any weaknesses in our internal controls over the financial transactions. We are happy to note that the audit did not find any instances of fraud or misappropriation of financial assets.”