The City of Niagara Falls has a growing disparity between its revenues and expenditures, forcing city officials to use nearly $22 million of its rainy day funds for operating costs from 2009 through 2013, according to an audit issued by State Comptroller Thomas P. DiNapoli.
The report also highlighted how the loss of gaming revenues has significantly affected the city's finances. Niagara Falls is home to a casino operated by the Seneca Nation and has not received its "local share" of gaming revenues since 2009, when the Senecas halted gambling compact payments to the state.
"Niagara Falls has nearly exhausted its resources to avoid a fiscal crisis. City officials cannot continue to walk a financial tightrope for much longer," DiNapoli said. "While the dispute over gaming revenue is significant, the city's budget challenges also stem from a number of socio-economic factors, including population loss and a high unemployment rate. The mayor and the city council are actively trying to manage their considerable hurdles, but getting on firmer financial footing will require a resolution of casino gaming issues and likely even greater assistance from the state."
Auditors found city officials regularly passed budgets by using fund balance and an estimate for casino revenue that averaged $5.3 million annually. According to the audit, however, the city's general fund incurred average annual deficits of $12.4 million from 2009 through 2013. During this same time, the city's unassigned fund balance declined from $16.4 million to a deficit of $5.2 million.
In 2013, the city's budget decreased nearly $5 million from the prior year, but still incurred a structural deficit of $12 million. The spending plan also included the use of $2 million of unavailable fund balance; $2.9 million in transfers from the capital projects fund; $850,000 in transfers from the debt service fund; and $1 million from property sale revenue.
DiNapoli's audit also reviewed the city's information technology systems. The findings included:
•The city implemented IT policies and procedures, including a computer use policy, but has implemented adequate controls and restrictions over user access to the financial system;
•The city has not developed adequate procedures for data backup and storage; and
•The city has not adopted a formal disaster recovery plan that includes policies and procedures to help prevent or minimize the loss of computer equipment and data.
DiNapoli recommends city officials:
•Establish policies and procedures for access controls to restrict financial software permissions to only those functions that are necessary for employees' job duties;
•Designate someone independent of the city controller's office as the city's financial system administrator;
•Ensure that logs for the financial system are maintained and periodically reviewed; and
•Establish policies and procedures for data backup and storage, and comprehensive guidelines for disaster recovery.
The response of city officials is included in the audit. For a copy of the report, visit: http://www.osc.state.ny.us/localgov/audits/cities/2013/niagarafalls.pdf.
DiNapoli released a fiscal profile of the city in December that highlighted many of the fiscal and demographic challenges that have plagued the city in recent years. For a copy of the report, visit: http://www.osc.state.ny.us/localgov/pubs/fiscalprofiles/niagarafalls.pdf.
For access to state and local government spending and more than 60,000 state contracts, visit http://www.openbooknewyork.com/. The website was created by DiNapoli to promote openness in government and provide taxpayers with better access to the financial workings of government.