DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY

REPORT OF EXAMINATION | 2021M-27

Henrietta Fire District

Financial Condition
JULY 2021
Contents

Report Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Financial Management. . . . . . . . . . . . . . . . . . . . . . . . . . . 2

What Is Proper Financial Management?. . . . . . . . . . . . . . . . . 2

The Board Did Not Effectively Manage Financial Condition. . . . . . . 2

The Board Did Not Adopt Formal Multiyear Plans. . . . . . . . . . . . 3

What Do We Recommend? . . . . . . . . . . . . . . . . . . . . . . . 4

Appendix A – Response From District Officials . . . . . . . . . . . . . 5

Appendix B – OSC Comments on the District’s Response. . . . . . . 8

Appendix C – Audit Methodology and Standards . . . . . . . . . . . . 9

Appendix D – Resources and Services. . . . . . . . . . . . . . . . . 10

Report Highlights
Henrietta Fire District

Audit Objective
Background
Determine whether the Board of Commissioners
(Board) effectively managed the Henrietta Fire The District provides fire protection
District’s (District’s) financial condition. services for the Town of Henrietta in
Monroe County. The District provides
Key Findings fire protection and emergency medical
services to approximately 45,700
The Board did not effectively manage the District’s residents residing in over 39 square
financial condition and presented budgets indicating miles.
the District needed to both increase real property
taxes and use appropriated fund balance to close An elected five-member Board is
projected budget gaps. As a result, more real responsible for the general management
property taxes were levied than needed. and control of financial operations,
ll The Board did not adopt realistic budgets including adopting annual budgets and
from 2017 through 2021. As a result, fund establishing financial policies.
balance increased to $4.4 million on December
The Board appoints a Treasurer who acts
31, 2020, which is excessive and enough
as the District’s chief fiscal officer and is
to pay 41.5 percent of the District’s 2020
responsible for receiving and maintaining
expenditures.
custody of and disbursing and accurately
ll The Board unnecessarily overrode the 2019 accounting for District funds and
and 2020 tax cap. The 2021 tax cap override preparing periodic financial reports.
will likely be unnecessary because the 2021
budget overestimated appropriations by Quick Facts
approximately $1.4 million, and the $1 million 2021
appropriated fund balance will likely not be
Appropriations $14,291,166
used.
Real Property Tax Levy $13,069,310
ll The Board did not adopt budgeting, fund 2020
balance or reserve policies or multiyear Expenditures $10,686,588
financial and capital plans. Revenues $11,996,687
2017-2020 Year-End Deficit Results
Key Recommendations Budgeted (B) to Actual Results (A) with
Variance (V) in millions
ll Adopt realistic budgets. Year B A V

ll Establish budgeting, fund balance and reserve 2017 -$1.8 $0.5 $2.2

policies and develop multiyear financial and 2018 -$2.0 -$0.5 $1.5
capital plans. 2019 -$1.2 $0.0 $1.2
2020 -$0.9 $1.3 $2.2
Officials generally disagreed with our
recommendations, but indicated they planned to
take some corrective action. Appendix B includes Audit Period
our comments on issues raised in the District’s
response. January 1, 2017 – February 19, 2021

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Financial Management
What Is Proper Financial Management?
A board is responsible for making financial decisions that are in the best interest
of the district and its residents. To properly manage financial condition, a board
should adopt reasonably estimated and structurally balanced budgets based on
historical data or known trends. In preparing the budget, a board must estimate
the amounts that will be spent and received and the amount of fund balance that
may be available to fund appropriations.

A reasonable portion of fund balance may be retained for unforeseen

circumstances and to provide cash flow – for example, to compensate for timing
differences between when revenues are received and expenditures are made.
A board can also legally set aside, or reserve, a portion of fund balance to
finance future costs for specific purposes (e.g., capital improvements or vehicle
replacements). Properly funded reserves can reduce reliance on debt to finance
capital projects and other acquisitions and can help district officials finance the
costs of capital expenditures.

A board is also responsible for adopting written policies and procedures governing
the budgeting process, which include defining the amounts of fund balance
and reserves that a district should reasonably maintain. To effectively manage
operations, a board must ensure a treasurer provides complete and accurate
accounting reports that properly reflect the activity of the general and capital
project funds and include up-to-date prepaid expenditures.

Prudent fiscal management requires a board to establish long-term financial and

capital plans. Planning on a multiyear basis allows district officials to identify
developing revenue and expenditure trends, set long-term priorities and goals and
consider the impact of current budget decisions on future fiscal years. Effective
multiyear plans project operating and capital needs and financing sources
over a three- to five-year period. Continually monitoring and updating these
plans provides a reliable framework for preparing budgets and to ensure that
information used to guide decisions is current and accurate. For more information
refer to OSC’s publications titled Multiyear Financial Planning1 and Multiyear
Capital Planning.2

The Board Did Not Effectively Manage Financial Condition

The Board adopted unrealistic budgets from 2017 through 2020 by annually
appropriating fund balance totaling $5.4 million that was not needed to finance

1 See https://www.osc.state.ny.us/files/local-government/publications/pdf/multiyear.pdf.

2 See https://www.osc.state.ny.us/files/local-government/publications/pdf/capital_planning.pdf.

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appropriations and overestimating appropriations by $8.4 million (17 percent).
As a result, operating surpluses or smaller than anticipated operating deficits
occurred (Figure 1).

FIGURE 1

Variance Between Planned Deficit and Operating Results

The Board did

not develop
The Board adopted budgets that gave taxpayers the impression that the District written
needed to both increase real property taxes and use appropriated fund balance
to close projected budget gaps. As a result, more real property taxes were levied comprehensive
than needed to fund operations. During this period, the Board overrode the tax
cap for both 2019 and 2020. As a result of these non-transparent practices, the
multiyear
District’s fund balance has increased to $4.4 million on December 31, 2020, which financial and
is excessive when compared to 2020 expenditures (41.5 percent). Because the
Board did not adopt budgeting, fund balance and reserve policies, no rationale capital plans
was provided for maintaining this level of fund balance. In addition, the Board’s that set long-
ability to effectively monitor the District’s financial condition was hampered
because the Treasurer’s reports inaccurately combined the general and capital term objectives
project funds and did not always reflect accurate and up-to-date prepaid
expenditures. and goals.
The Board continued these budgeting practices when adopting the 2021 budget
by overestimating appropriations by approximately $1.4 million when compared
to historical results and again overriding the tax cap. As a result, the planned
operating deficit will most likely not occur, the appropriated fund balance totaling
$1 million will not be needed and fund balance will remain higher than necessary.

The Board Did Not Adopt Formal Multiyear Plans

The Board did not develop written comprehensive multiyear financial and capital
plans that set long-term objectives and goals. Such plans would be useful to

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address the large fund balance in the District’s operating fund and to maintain
a reasonable level of unexpended surplus funds at year-end. The plans could
outline the Board’s intentions for financing future capital improvements and
maintaining the existing infrastructure.

Although a Commissioner prepares a multiyear budget, it compares budget

figures instead of actual expenditures from year-to-year, so inaccuracies continue.
Also, the Board has not formally approved or adopted it. Further, this is not an
adequate multiyear capital plan because it does not identify financing sources,
nor set long-term priorities and goals.

Without developing formal multiyear financial and capital plans, the Board cannot
adequately plan for the future and there is a risk that the Board’s intentions for
the District will not be fulfilled. Further, comparing budget figures instead of
actual expenditures from year-to-year only amplifies the District’s poor budgeting
practices.

Our fieldwork was completed in February 2021, during the pandemic. Given the
negative financial effect of the pandemic, it is even more important for District
officials to develop and monitor appropriate annual budgets and begin multiyear
financial and capital planning.

What Do We Recommend?
The Board should:

1. Adopt realistic budget estimates of appropriations that are based on

available current data and historical or known trends of expenditures.

2. Establish written policies and procedures governing the budgeting

process, which include defining the amounts of fund balance and reserves
that the District should reasonably maintain.

3. Develop a plan to reduce the amounts of fund balance in a manner that

benefits District taxpayers. Surplus funds can be used as a financing
source for:
ll Funding one-time expenditures.
ll Funding needed reserves.
ll Paying off debt.
ll Reducing property taxes.

4. Develop comprehensive multiyear financial and capital plans that set long-
term objectives and goals. These plans should be monitored and updated
on an ongoing basis.

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Appendix A: Response From District Officials

See
Note 1
Page 8

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 See
Note 2
Page 8

See
Note 3
Page 8

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Appendix B: OSC Comments on the District’s Response

Note 1 - While some variance can be expected as a result of the timing of projects
or adoption of the budget, this does not explain variances of the magnitude noted
in our audit. More effective analysis of historical data will ensure only necessary
real property taxes are levied.

Note 2 - Based on our analysis of the 2021 budget, appropriations will again be
overestimated by approximately $1.4 million. As a result, the $1.024 million of
appropriated fund balance will most likely not be needed to finance the budget.
Our analysis is consistent with the pattern we observed over the last four years.

Note 3 - Because the Board consistently overestimated appropriations, it

appeared that real property taxes needed to be increased by overriding the tax
cap. However, this was not the case.

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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:
ll We interviewed District officials and reviewed Board meeting minutes to gain
an understanding of the budget process and to determine whether the Board
adopted relevant policies and multiyear plans.
ll We compared budgeted revenues and appropriations to the actual revenues
and expenditures for 2017 through 2020 to determine whether budgets were
realistic.
ll We reviewed tax cap filing for 2017 through 2021.
ll We reviewed the 2021 adopted budget to determine whether the Board
addressed prior years’ budgeting issues.
ll We reviewed fund balances levels for 2017 through 2020 to determine
whether balances were reasonable.

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. Pursuant to Section
181-b of New York State Town Law, a written corrective action plan (CAP) that
addresses the findings and recommendations in this report must be prepared and
forwarded to our office within 90 days. 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 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.

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Appendix D: Resources and Services

Regional Office Directory

https://www.osc.state.ny.us/files/local-government/pdf/regional-directory.pdf

Cost-Saving Ideas – Resources, advice and assistance on cost-saving ideas

https://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
https://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
https://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
https://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

ROCHESTER REGIONAL OFFICE – Edward V. Grant Jr., Chief Examiner

The Powers Building • 16 West Main Street – Suite 522 • Rochester, New York 14614-1608
Tel (585) 454-2460 • Fax (585) 454-3545 • Email: Muni-Rochester@osc.ny.gov
Serving: Cayuga, Chemung, Livingston, Monroe, Ontario, Schuyler, Seneca, Steuben, Wayne,
Yates counties

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