DIVISION OF LOCAL GOVERNMENT

& SCHOOL ACCOUNTABILITY

OF F I C E O F T H E NE W Y O R K S T A T E CO M P T R O L L E R
Report of Examination
Period Covered:
January 1, 2014 May 30, 2014
2014M-195
City of Lockport
Cash Flow
Thomas P. DiNapoli
11
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY

Page
AUTHORITY LETTER 2
INTRODUCTION 3
Background 3
Objective 3
Scope and Methodology 3
Comments of Local Ofcials and Corrective Action 4
CASH FLOW 5
Cash Flow Analysis 6
Accounting Records 6
Recommendations 7
APPENDIX A Cash Flow Analysis 8
APPENDIX B Response From Local Ofcials 10
APPENDIX C OSC Comment on the Citys Response 14
APPENDIX D Audit Methodology and Standards 15
APPENDIX E How to Obtain Additional Copies of the Report 17
APPENDIX F Local Regional Ofce Listing 18
Table of Contents
2
OFFICE OF THE NEW YORK STATE COMPTROLLER
2
State of New York
Ofce of the State Comptroller
Division of Local Government
and School Accountability

August 2014
Dear City Ofcials:
A top priority of the Ofce of the State Comptroller is to help local government ofcials manage
government resources efciently and effectively and, by so doing, provide accountability for tax
dollars spent to support government operations. The Comptroller oversees the scal affairs of local
governments statewide, as well as compliance with relevant statutes and observance of good business
practices. This scal oversight is accomplished, in part, through our audits, which identify opportunities
for improving operations and Common Council 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 City of Lockport, entitled Cash Flow. 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 ofcials 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 ofce for your county, as listed
at the end of this report.
Respectfully submitted,
Ofce of the State Comptroller
Division of Local Government
and School Accountability
State of New York
Ofce of the State Comptroller
33
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY
Background
Introduction
Objective
Scope and
Methodology
The City of Lockport (City) is located in Niagara County, encompasses
8.4 square miles and serves approximately 21,100 residents. The
elected Common Council (Council) is the legislative body responsible
for managing City operations, including establishing internal controls
over nancial operations and for maintaining sound nancial
condition. The Mayor is a member of the Council and serves as the
Citys chief executive ofcer. The elected City Treasurer (Treasurer),
as chief nancial ofcer, oversees accounting and nancial reporting
controls, supervises the preparation of accounting records, produces
nancial reports and ensures compliance with various State and
Federal laws.
As of J anuary 1, 2014, the City had 224 employees. The Citys
budgeted appropriations for the 2014 scal year are approximately
$33.4 million
1
and are funded primarily with real property taxes,
sales tax and State aid. The City provides services for its residents
including police and re protection, public works, recreation, water,
sewer, refuse collection and general government support.
The Council is responsible for adopting and monitoring the
Citys budget and nancial condition. The Treasurer is responsible
for providing the Council with accurate and up-to-date nancial
information so that the Council may carry out its nancial
responsibilities. The availability of adequate reports is especially
critical as the Ofce of the State Comptrollers Fiscal Stress
Monitoring System has determined that the City has been classied
as in moderate stress.
The objective of our audit was to assess the nancial condition of the
City. Our audit addressed the following related question:
Will the City be able to fund cash disbursements with cash
receipts generated from operations?
We examined the Citys accounting records and cash ow for the
period J anuary 1, 2014 through May 30, 2014.
We conducted our audit in accordance with generally accepted
government auditing standards (GAGAS). More information on such
standards and the methodology used in performing this audit are
included in Appendix D of this report.
1
$23.7 million in the general fund, $4 million in the water fund, $4.4 million the
sewer fund and $1.3 million in the refuse fund
4
OFFICE OF THE NEW YORK STATE COMPTROLLER
4
Comments of
Local Ofcials and
Corrective Action
The results of our audit and recommendations have been discussed
with City ofcials and their comments, which appear in Appendix B,
have been considered in preparing this report. City ofcials generally
agreed with our ndings and recommendations and planned to initiate
corrective action. Appendix C includes our comment on an issue
raised in the Citys response.
The Council has the responsibility to initiate corrective action. A
written corrective action plan (CAP) that addresses the ndings and
recommendations in this report should be prepared and forwarded
to our ofce within 90 days, pursuant to Section 35 of the General
Municipal Law. For more information on preparing and ling your
CAP, please refer to our brochure, Responding to an OSC Audit
Report, which you received with the draft audit report. We encourage
the City to make this plan available for public review in the City
Clerks ofce.
55
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY
Cash Flow
Without cash ow nancing or drastic reductions in expenditures, the
City will run out of cash to nance operations in September 2014.
Further, the cash ow deciency will grow to nearly $4.6 million by
December 31, 2014.
2
The Citys cash ow problem is the result of
two factors. First, the City used fund balance as a nancing source for
operating expenditures until it was depleted. Second, the Treasurer
failed to maintain accurate accounting records or prepare an adequate
cash ow analysis, and the Citys audited nancial statements for the
scal year ending December 31, 2012 included account balances that
were materially misstated. Thus, reliable nancial records were not
available to disclose the depletion of fund balance to City ofcials
and alert them of the impending nancial crisis. Now, City ofcials
are faced with the likelihood that they will need to signicantly raise
real property taxes and user fees or cut costs and related services.
Cash shortfalls occur when bills must be paid before cash generated
from operations is received to pay them. Cash shortfalls also happen
when expenditures consistently exceed revenue in a scal year, and
ofcials use available fund balance to nance the difference. To avoid
cash shortfalls, the Council, the Mayor and the Treasurer should
monitor the Citys cash balances to ensure that they are sufcient to
liquidate current obligations, without relying on short-term borrowing
or one-shot funding mechanisms to address cash ow needs.
As indicated in our 2013 report, the City managed cash shortfalls
during the last two completed scal years
3
as follows:
In 2012, the City inappropriately loaned $2.3 million in bond
anticipation note proceeds from the capital projects fund to
the general fund. This loan was subsequently repaid in 2013.
In October 2013, the City issued a $2.7 million revenue
anticipation note (RAN) for cash ow purposes. In early
2014, the Treasurers Ofce appropriately set aside $2.7
million to repay the RAN when it matures in October 2014.
City ofcials cannot use the cash set aside to repay the RAN
to fund current operations. The cash set aside to repay the
RAN has signicantly increased the cash ow deciency
expected later in 2014.
2
See cash ow analysis in Appendix A.
3
See our audit report 2013M-330 entitled Fiscal Stress for further details.
Appendix D includes the Internet address of the report.
6
OFFICE OF THE NEW YORK STATE COMPTROLLER
6
An important tool to measure nancial condition is the cash ow
analysis. The cash ow analysis is a record of actual and projected
cash inows and outows within an accounting period. It is important
to consider the timing and amounts of cash receipts and disbursements
within a given period. As actual data becomes available, the cash ow
analysis should be updated and analyzed to rene future projections.
A cash ow analysis is a useful tool to identify cash decits in
advance. This advance warning may give the City more corrective
action options to help ease the cash decit.

The Treasurer does not routinely prepare cash ow analyses. We
found that the Treasurer was only maintaining a record of daily cash
ows of cash receipt and disbursement activity and was not analyzing
future cash ow for the scal year. Without cash ow projections,
the Council and City ofcials were unaware of the magnitude of the
Citys shortfall.
We prepared a cash ow analysis for 2014. Our analysis found that the
City will run out of cash in September 2014 and the cash deciency
will increase to nearly $4.6 million by the end of the scal year. A
detailed cash ow analysis with a description of our assumptions can
be found in Appendix A of this report.
The Treasurer is responsible for maintaining accurate and up-to-date
accounting records and for providing accurate nancial reports to the
Council so they can monitor and control City nances.
The Citys accounting records are in such poor condition that City
ofcials do not know the severity of their scal problems. The books
for the 2013 scal year were not closed as of J une 2014. The general
ledger cash balances were unreliable and were not reconciled to cash
in the bank. Further, City ofcials anticipate that the audited nancial
statements will not be available until October 2014. These delays
have put the Council and City ofcials at a disadvantage as they try
to resolve the current cash ow shortfall, begin the 2015 budgeting
process and develop a long-term plan that would address the Citys
scal problems.
Throughout the course of our eldwork, we met with City ofcials on
numerous occasions to discuss our cash ow assumptions, calculations
and projections, and disclose our ndings so City ofcials could start
developing immediate and long-term nancial plans to address the
Citys scal problems.
Subsequent to the completion of eldwork, the New York State
Legislature authorized the City to issue decit nancing to address
the accumulated decits from previous scal years. While this is a
Cash Flow Analysis
Accounting Records
77
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY
step in addressing the Citys immediate scal problems, City ofcials
need to take further action to address the underlying causes of the
poor nancial condition and unreliable records of the City.
The Treasurer should:
1. Ensure that the Citys accounting records are complete, accurate
and maintained in a timely manner so that the Council and City
ofcials can properly assess the magnitude of the Citys scal
problems and subsequently monitor nancial activity.
2. Prepare adequate cash ow analyses and provide them to the
Council for review.
The Council should:
3. Develop a multiyear scal plan that builds a cash balance
sufcient to eliminate the need for signicant short-term cash
ow borrowing.
4. Adopt structurally balanced budgets that rely on recurring
revenues to fund recurring expenditures.
Recommendations
8
OFFICE OF THE NEW YORK STATE COMPTROLLER
8
APPENDIX A
CASH FLOW ANALYSIS
We prepared a cash ow analysis for the 2014 scal year, using certain necessary assumptions,
calculations and projections. These assumptions and projections have been made in advance of actual
nancial transactions, and any unanticipated events in the near future will impact our estimates. For
example, the Council included a $1.05 million State grant as an estimated revenue in the 2014 general
fund budget. After reviewing the grant documents, we believe the grant cannot be used to fund general
City operations, but was meant for two specic capital projects. Therefore, we did not include this
revenue as a cash receipt on our cash ow analysis. The inability to use this revenue will impact the
Citys ability to nance 2014 general fund appropriations. Furthermore, based on current contractual
obligations and stafng levels, we are conservatively projecting that 2014 overtime costs will exceed
the budgeted appropriations by at least $200,000 or 15 percent. However, our estimate could be
impacted by an expected court ruling regarding re department minimum platoon stafng levels.
Finally, water and sewer rates have not been increased over the past six years. Our cash ow analysis
assumes that the Council will not increase water and sewer rates during 2014.
99
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY
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10
OFFICE OF THE NEW YORK STATE COMPTROLLER
10
APPENDIX B
RESPONSE FROM LOCAL OFFICIALS
The local ofcials response to this audit can be found on the following pages.
11 11
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY
12
OFFICE OF THE NEW YORK STATE COMPTROLLER
12
13 13
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY
See
Note 1
Page 14
14
OFFICE OF THE NEW YORK STATE COMPTROLLER
14
APPENDIX C
OSC COMMENT ON THE CITYS RESPONSE
Note 1
Since we completed our eldwork, City ofcials informed us that they repaid a $450,000 loan from
the capital projects fund, paid the Lockport City School District $438,300 in school taxes and reduced
debt service costs by $466,500. The net effect of these transactions reduces the Citys operating cash
by $421,800. As a result, the City may run out of cash for operations sooner than we projected in our
cash ow analysis. These issues should be reected in the cash ow analysis recently prepared by the
Treasurer.
15 15
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY
APPENDIX D
AUDIT METHODOLOGY AND STANDARDS
The Ofce of the State Comptrollers Fiscal Stress Monitoring System evaluates local governments
based on both nancial and environmental indicators. These indicators are calculated using the local
governments annual update document (AUD)
4
and information from the United States Census
Bureau, the New York State Department of Labor and the New York State Education Department,
among other sources. The City demonstrated signs of scal stress in several areas. Due in part to these
scal stress indicators, we conducted an audit of the City in 2013. The results of that audit can be
found at http://www.osc.state.ny.us/localgov/audits/cities/2013/lockport.pdf.
We continued to monitor the Citys nancial condition and determined that an additional audit was
warranted. Our overall goal with this audit was to assess the Citys 2014 cash ow. To accomplish our
audit objective and obtain relevant audit evidence, our procedures included the following:
We interviewed City ofcials responsible for nancial oversight and maintaining accounting
records and reviewed Council minutes and the City Charter to obtain an understanding of the
Citys policies and procedures and job descriptions.
We examined the December 2013 bank reconciliations and 2013 and 2014 general ledger
reports to obtain an accurate beginning cash balance.
We reviewed the Treasurers ofce actual cash ow data for accuracy and completeness by
comparing the activity to the J anuary through April 2014 bank statements and daily deposit
reports. All differences were discussed with the Treasurers ofce and reconciled as needed.
We evaluated each material revenue and expenditure to determine the most accurate method
for projecting cash ow through the 2014 scal year. In some instances, more than one method
was used. Projections were based on the following:
2013 operating results,
Two to six year average of prior scal year activity provided by AUD reports or actual
billing data,
2014 budgeted appropriations or estimated revenues,
Average of J anuary through April 2014 actual activity and
Third-party billing information.
We reviewed our projections with City ofcials on several occasions to ensure that we were
using the most accurate assumptions available.
We conducted this performance audit in accordance with GAGAS. Those standards require that we
plan and perform the audit to obtain sufcient, appropriate evidence to provide a reasonable basis
4
Required to be submitted annually by the City to the Ofce of the State Comptroller
16
OFFICE OF THE NEW YORK STATE COMPTROLLER
16
for our ndings and conclusions based on our audit objective. We believe that the evidence obtained
provides a reasonable basis for our ndings and conclusions based on our audit objective.
17 17
DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY
APPENDIX E
HOW TO OBTAIN ADDITIONAL COPIES OF THE REPORT
Ofce of the State Comptroller
Public Information Ofce
110 State Street, 15th Floor
Albany, New York 12236
(518) 474-4015
http://www.osc.state.ny.us/localgov/
To obtain copies of this report, write or visit our web page:
18
OFFICE OF THE NEW YORK STATE COMPTROLLER
18
APPENDIX F
OFFICE OF THE STATE COMPTROLLER
DIVISION OF LOCAL GOVERNMENT
AND SCHOOL ACCOUNTABILITY
Andrew A. SanFilippo, Executive Deputy Comptroller
Gabriel F. Deyo, Deputy Comptroller
Nathaalie N. Carey, Assistant Comptroller
LOCAL REGIONAL OFFICE LISTING
BINGHAMTON REGIONAL OFFICE
H. Todd Eames, Chief Examiner
Ofce of the State Comptroller
State Ofce Building - Suite 1702
44 Hawley Street
Binghamton, New York 13901-4417
(607) 721-8306 Fax (607) 721-8313
Email: Muni-Binghamton@osc.state.ny.us
Serving: Broome, Chenango, Cortland, Delaware,
Otsego, Schoharie, Sullivan, Tioga, Tompkins Counties
BUFFALO REGIONAL OFFICE
J effrey D. Mazula, Chief Examiner
Ofce of the State Comptroller
295 Main Street, Suite 1032
Buffalo, New York 14203-2510
(716) 847-3647 Fax (716) 847-3643
Email: Muni-Buffalo@osc.state.ny.us
Serving: Allegany, Cattaraugus, Chautauqua, Erie,
Genesee, Niagara, Orleans, Wyoming Counties
GLENS FALLS REGIONAL OFFICE
J effrey P. Leonard, Chief Examiner
Ofce of the State Comptroller
One Broad Street Plaza
Glens Falls, New York 12801-4396
(518) 793-0057 Fax (518) 793-5797
Email: Muni-GlensFalls@osc.state.ny.us
Serving: Albany, Clinton, Essex, Franklin,
Fulton, Hamilton, Montgomery, Rensselaer,
Saratoga, Schenectady, Warren, Washington Counties
HAUPPAUGE REGIONAL OFFICE
Ira McCracken, Chief Examiner
Ofce of the State Comptroller
NYS Ofce Building, Room 3A10
250 Veterans Memorial Highway
Hauppauge, New York 11788-5533
(631) 952-6534 Fax (631) 952-6530
Email: Muni-Hauppauge@osc.state.ny.us
Serving: Nassau and Suffolk Counties
NEWBURGH REGIONAL OFFICE
Tenneh Blamah, Chief Examiner
Ofce of the State Comptroller
33 Airport Center Drive, Suite 103
New Windsor, New York 12553-4725
(845) 567-0858 Fax (845) 567-0080
Email: Muni-Newburgh@osc.state.ny.us
Serving: Columbia, Dutchess, Greene, Orange,
Putnam, Rockland, Ulster, Westchester Counties
ROCHESTER REGIONAL OFFICE
Edward V. Grant, J r., Chief Examiner
Ofce of the State Comptroller
The Powers Building
16 West Main Street Suite 522
Rochester, New York 14614-1608
(585) 454-2460 Fax (585) 454-3545
Email: Muni-Rochester@osc.state.ny.us
Serving: Cayuga, Chemung, Livingston, Monroe,
Ontario, Schuyler, Seneca, Steuben, Wayne, Yates Counties
SYRACUSE REGIONAL OFFICE
Rebecca Wilcox, Chief Examiner
Ofce of the State Comptroller
State Ofce Building, Room 409
333 E. Washington Street
Syracuse, New York 13202-1428
(315) 428-4192 Fax (315) 426-2119
Email: Muni-Syracuse@osc.state.ny.us
Serving: Herkimer, J efferson, Lewis, Madison,
Oneida, Onondaga, Oswego, St. Lawrence Counties
STATEWIDE AUDITS
Ann C. Singer, Chief Examiner
State Ofce Building - Suite 1702
44 Hawley Street
Binghamton, New York 13901-4417
(607) 721-8306 Fax (607) 721-8313