CANTON — A state audit report harshly criticizes village officials for failing to maintain accurate financial records and keeping an excessive amount of money in the village’s general fund balance.

Canton officials blame some of the problems on a software upgrade and said corrective actions are being taken.

A 15-page report from the state Comptroller’s Office released Wednesday identifies several problems with the village’s accounting from June 1, 2010 to May 31, 2011.

“The board needs to improve its oversight of the village’s financial activities,” the report states. “The clerk-treasurer did not maintain accurate computerized accounting records and reports which impaired the board’s ability to monitor the village’s financial operations.”

Among other problems, the report claims the village allowed its fund balance to exceed $2.4 million as of May 31, 2011, while its sewer fund had a deficit fund balance of nearly $400,000.

“The board consistently overestimated expenditures in the general fund budget which resulted in operating surpluses and increasing the excessive unexpended surplus fund balance,” according to the report. “The board should use surplus fund balance in the general fund in a manner that benefits village taxpayers.”

Those uses could include increasing or establishing necessary reserves, paying off debt, financing one-time expenses and reducing property taxes.

Also, the report said $79,051 was recorded as a liability in the overpayment and clearing account that should have been recorded as revenue. In addition, state auditors said they identified receipts totaling $102,959 that were deposited, but not recorded in the computerized accounting records.

Auditors found that cash balances in the village’s general ledger did not match the actual amount of cash in the bank. The total adjusted book balance was greater than the adjusted bank balance by $87,979. Also, the board did not have procedures in place to ensure that annual financial reports were completed and filed in a timely manner. The board did not audit or contract with an independent auditor to audit the records maintained by the clerk-treasurer.

“The failure to properly reconcile bank accounts in a timely manner limits the village officials’ ability to identify and correct errors and irregularities,” according to the report.

Sally L. Noble, the village’s longtime clerk-treasurer, said problems with the village’s financial software created many of the issues addressed in the report.

She said the village is in the process of upgrading its software and has also hired a certified public accountant, John C. Parcell, Canton, to assist her office in catching up with records.

“He (Mr. Parcell) is helping us transition to a new program that will alleviate many of these issues,” Mrs. Noble said. “I’m very confident with my office and we’re working to correct the issues with the software.”

Since the audit took place, she said the village board decreased the general fund balance by $1.3 million to pay for water and sewer work related to the Main Street reconstruction project that began in May. Some of the fund balance has been used to lower village property taxes.

“We’ve lowered taxes the last three years in a row,” Mrs. Noble said.

The village board is establishing a committee that will develop a five-year plan for excess funds in the general fund balance.

Village Mayor David P. Curry said he is confident that any problems with financial records will be resolved. He took office Jan. 1 after former mayor Charlotte C. Ramsay did not seek re-election.

“I have a lot of confidence in Sally Noble and I know the board has full confidence in her,” the mayor said. “She knows what she’s doing, and she’ll take care of it.”

The village Board of Trustees has 90 days to submit a written corrective action plan to the state comptroller’s office. The plan is required to address findings and recommendations identified in the report.

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