Professional Documents
Culture Documents
COMPTROLLER
N ew Yo r k St a t e Co m p t ro ll e r
THOMAS P. DiNAPOLI
OCTOBER 2017
Introduction
Most households and businesses
in New York State receive water Highlights
either from municipal systems
operated by a county, city, town or 168 water systems audited since 2012:
village, or from systems operated 77 villages
by public authorities.1 These public
73 town districts governed by town boards
water services are responsible
for functions such as budgeting; 6 cities
rate setting, billing and collection; 7 public authorities
infrastructure maintenance, repair 4 districts governed by boards of commissioners
and expansion; and water quality 1 intermunicipal water commission
treatment and monitoring. There
are many ongoing challenges Major findings:
related to water delivery, notably Water loss
aging infrastructure, source Inadequate revenues and incorrect billing
contamination and water losses. Improper transfers
Problems of this nature will
Weak internal controls
undoubtedly require concerted
long-term efforts to overcome.2 Lack of planning
However, other challenges, such
as maintaining efficient utilization
of current infrastructure and
implementing sound financial management practices, can be addressed without significant
additional resources. Unfortunately, many local governments are falling short in these areas.
The Division of Local Government and School Accountability (LGSA) in the Office of the New
York State Comptroller (OSC) periodically audits local governments and authorities financial
management and operation of water services to assess the performance of these functions.
LGSA does not audit New York City or its water system.
This report summarizes common findings from audits of 161 local government and 7 public
authority water systems from January 2012 through May 2017 (out of 939 local government water
systems and 25 water authorities, excluding New York City).3 These audits identify deficiencies
in financial management, including consistent overestimation of water revenues, incorrect billing,
improper transfer of money between water and other funds, and insufficient internal controls and
long-term planning. Many audits have also found other problems in water system operations,
including significant losses as water travels from its sources to its users.4
This report is the second in a series examining various aspects of municipal water systems,
including infrastructure, finances and organization. The first report, Drinking Water Systems in
New York: The Challenges of Aging Infrastructure, was published in February 2017.
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Most cities and villages account for water system financial activity in a water fund. This fund is
separate from the general fund, which covers most general government activities. Sometimes
capital spending for water infrastructure is accounted for in a capital projects fund and project debt
is paid from a debt service fund. (See Figure 1.)
Towns that provide water typically use water districts serving certain designated areas, although
some town water districts cover the entire town and are component units of the town. (See Figure 2.)
While town boards directly oversee most of these water districts, a number have separately elected
boards of commissioners.
The audits reviewed in this report typically examined not only the performance of the water fund and
the management of water systems, but also the broader financial operations of the municipalities
and the interactions of the water fund, the general fund and other funds.
Figure 1 Figure 2
Water Loss
Water systems may lose a substantial volume of water between the source and their customers.
In some cases, this loss exceeded 50 percent of the water produced. For systems with water
loss, the cost of treating, distributing and, often, procuring the water was therefore greater than
necessary, and the revenue generated from water charges was usually insufficient to offset water
production costs. OSC has conducted focused audits on water loss and conservation, based
in part on discussions with the Natural Resources Defense Council, to bring attention to this
persistent and critical problem for local government water systems.
Effective accounting should include the reconciliation of water produced with water billed to customers
and otherwise used for municipal purposes. There should be procedures to monitor and identify water
loss. Water loss makes it more expensive for those paying for the service and can lead to deficits in
water system finances. This can strain operating budgets and cause problems for a municipalitys
overall finances. A review of 22 audits that identified water loss as an issue estimated that as much as
$2.2 million in savings could be achieved if the losses could be eliminated.
In some cases, auditors found that what may first appear to be water loss might actually be a matter
of inaccurate meters or improper billing. This can mean that some customers are paying too much
and others too little. Efficient operations would require that officials upgrade meters or improve the
accuracy of the billing process.
However, much of the missing water is likely lost to leaks from broken or aging underground
pipes. This problem not only represents a drain on the systems current finances and increases
costs for system users, but also signals potential significant infrastructure problems that need to
be addressed.6 Water is a valuable asset and municipalities should work to minimize its loss and
exercise prudent water supply and infrastructure management.7
OSC audits found that many municipal water systems fell short of self-sufficiency. Due to deficient
budgeting practices, water revenues were less than the amount needed to adequately fund
related operations. Improper billing often contributed to these revenue shortfalls. In some cases,
officials consistently overestimated the amount of revenue they expected to receive from water
charges, so that a seemingly balanced budget would result in deficits at the end of the year. As
with water loss, this practice negatively affected water system operating budgets and overall
municipal finances. A review of 16 municipalities with revenue or billing deficiencies found that
corrective action could enhance revenues by over $400,000.
Municipalities often used fund balance in their water fund to cover operating deficits, eventually
depleting these funds. Once a municipality exhausted its water fund balance, it would cover
deficits by transfers from other funds, usually the general fund. While municipalities are permitted
to use temporary advances between funds, they may do so only to cover short-term cash flow
needs. They must then repay these advances before the end of the fiscal year.10 In several audits,
municipalities were not repaying the advances as required and were routinely transferring money
into the water fund from other funds, which continued to mask revenue shortfalls.
Village of Speculator
The Board did not develop sound revenue estimates or increase water fees. It overestimated
water revenues by an average of 25 percent, causing fund balance to decrease significantly.
Eventually the water fund had a deficit fund balance.11
Town of Chazy
The Town lacked effective water billing, collection and enforcement procedures. There was
no review to ensure that all water customers were properly billed. Some customers were not
billed in accordance with rates, and delinquent customer accounts did not always include late
payment penalties.12
City of Troy
The Citys water fund subsidized the general fund through interfund transfers of $6.4 million over
three years. The City also made unbudgeted transfers totaling $6 million from the water fund to
the capital projects fund in 2013 and 2014. In addition, water fund budgets were not realistic. As
a result, the total balance in the water fund declined by 67 percent over three years.13
A general lack of oversight by governing boards often contributed to an insufficient internal control
environment. Audits found that they did not adequately monitor system finances and were often
unaware of ongoing deficits and repeated use of fund balance.
Town of Waverly
The Town lacked written policies and procedures to provide internal controls over cash
receipts from water, as well as other collections. The informal process that was in place did
not segregate duties. A lack of oversight by the Board combined with these internal control
weaknesses failed to ensure that all billing was in accordance with established rates and that
there was a proper application of late payments.14
Because many municipal water systems in the State have aging and deteriorating infrastructure,
planning is particularly important to address any necessary and potentially costly replacements
and renovations.15
In addition, there will be upcoming audits of the cybersecurity of computer-based systems used to
monitor, modify, regulate or manage municipal water facilities. In the wake of recent cyberattacks
that have disrupted a number of local governments, including a municipal-owned dam in Rye, these
systems have come to the forefront as a critical risk area.19
As the water systems operated by local governments and authorities continue to age, the cost
of their repair and replacement will present increasing challenges. OSCs report on Drinking
Water Systems in New York: The Challenges of Aging Infrastructure discussed the role of local
governments in public water services. The audit findings summarized and presented here can help
guide local government officials in their day-to-day work, while future OSC reports on this topic will
help frame the complex issues facing system operators and the communities they serve.
Executive ...................................................................................................................................................................474-4037
Gabriel F. Deyo, Deputy Comptroller
Tracey Hitchen Boyd, Assistant Comptroller
www.osc.state.ny.us/localgov/index.htm