The Village of Flower Hill adopted unreasonable estimates in budgets, threw out financial records that should have been kept and did not adequately control the fringe benefits it offered to its board of trustees, according to an audit by the state comptroller's office.

The audit, released Friday, found that village officials significantly underestimated revenues and overestimated expenditures in budgets from 2006-2007 to 2010-2011, creating $8.6 million in budget variances.

In one example, officials estimated building-permit fees at $70,000 for 2009-2010; instead, the revenue from such fees ended up being 10 times that number.

"These budgetary practices are misleading to taxpayers and may lead to fiscal stress," the report said.

In a written response, Mayor Elaine Phillips said that the village has already begun making changes.

The audit also found that the village's former clerk-treasurer, who has since retired, did not keep records of the bond money that applicants for building permits, road openings and the like deposited with the village, and unlawfully threw out many village records dated before January 2009. That left the village's CPA firm unable to say whether three years -- 2006-07, 2007-08 and 2008-09 -- of the village's financial records were accurate.

"Village officials cannot be assured that all village resources were accounted for or appropriately used," the audit said.

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The audit also found that the village, which provided insurance to its mayor and trustees as a fringe benefit, did not ensure that all the types of insurance it paid for -- health, life or long-term care -- were in accordance with its law, nor did it ensure that only board members were covered, not their spouses as well.

Despite a requirement that independent contractors cannot assume police duties, such as code enforcement or building inspections, the audit found that independent contractors assumed both functions in the village.

The audit also suggested that the board create a capital-projects fund for multiyear projects, and that it stop appropriating more for the village's fund balance than is necessary. It also suggested that the village tighten access to its financial software by its treasurer, and establish auditing logs and separate user accounts.

Phillips said the board of trustees has worked to make budget estimates more accurate, is beefing up its accounting techniques and hiring employees to fill the roles taken by independent contractors. She said the board is continuing to discuss "an appropriate corrective action" regarding the issue of insurance paid for board members' spouses. She also said that the board voted last month to terminate "all village-paid fringe benefits to board members."

Auditors' "comments and suggestions have made the Village of Flower Hill a more viable and secure entity," Phillips wrote.