Cites ‘Board and District management not effectively managing District’s financial condition’
(Brookfield, NY – May 2014) The Office of the State Comptroller recently released the results of its audit at the Brookfield Central School district. The OSC reports the Board and District management are not effectively managing the District’s financial condition; the audit report reads that it is declining.
“While the District’s reported fund balance shows a deficit, most of its fund balance appropriations are in fact not being used,” the report reads. “District officials appropriated fund balance as a funding source for the past three years in amounts that were unnecessary and exceeded the fund balance actually available. As a result, at the end of 2012-13 fiscal year, the District’s reported unassigned fund balance had declined to a deficit of $369,347.
“The District could improve its reported financial position by not appropriating unnecessary fund balance and, further, by appropriately transferring retired debt proceeds to the general fund. Additionally, the Board does not effectively monitor the budget throughout the year, and the business manager/treasurer did not provide the Board with budget status reports or budget transfer reports.”
The report goes on to say that district officials did not have an explanation for why they continued to appropriate fund balance that was not available and also, in large part, not needed. Even though the District did not use as much fund balance as budgeted, it spent nearly $500,000 more than it received over the past three years; this reduced the unrestricted fund balance by 52 percent from the end of 2010-11 to $322,857 as of June 30, 2013.
“If the District continues to generate operating deficits each year, it will gradually deplete fund balance, leaving nothing available to be used for financing future budgets,” the report read. “This will require the Board to either increase revenues (such as property taxes) and/or decrease appropriations (potentially reducing services) in order to adopt a structurally balanced budget. The Board needs to discontinue its excessive appropriations of fund balance and develop reasonably accurate budget estimates to maintain its financial stability.
Auditors reported that if the District continues to generate operating deficits each year, it will gradually deplete fund balance, leaving nothing available to be used for financing future budgets.
“This will require the Board to either increase revenues (such as property taxes) and/or decrease appropriations (potentially reducing services) in order to adopt a structurally balanced budget. The Board needs to discontinue its excessive appropriations of fund balance and develop reasonably accurate budget estimates to maintain its financial stability.”
According to the report, the Board also authorized the superintendent to approve budget transfers but did not establish any dollar limits.
“Additionally, our review of financial information provided to the Board for 16 months did not find any budget-to-actual or budget transfer reports, nor did the Board meeting minutes make reference to such reports,” the report read. “The Board has not developed a multiyear financial plan and, therefore, lacks an important tool for improving the budgeting process and making timely and informed decisions about District programs and operations.”
Recommendations
1. District officials should carefully consider the amount of fund balance they appropriate to fund future budgets and retain a reasonable amount of fund balance to address unanticipated needs and provide necessary cash flow for operations. Furthermore, the appropriated fund balance, if any, should not exceed the current unrestricted funds available.
2. The Board needs to evaluate the balance in the debt service fund and determine how best to use those funds to benefit District taxpayers. Residual bond proceeds should be used to pay related debt service obligations. Any remaining proceeds from retired debt should be transferred to the general fund.
3. District officials should ensure that all cash is recorded in the appropriate fund.
4. If the Board authorizes the Superintendent to approve budgetary transfers, it should establish a threshold limit that the Superintendent is allowed to make without prior Board approval.
5. The Business Manager/Treasurer should provide the Board with monthly budget status reports. The Board should review the budget reports to monitor the District’s budget throughout the year.
6. District officials should develop and regularly update a multiyear financial plan to provide a framework for future budgets and facilitate management of the District’s financial operations.
District Response
In his response to the report, Superintendent James Plows, Jr., said the state’s diminishing aid has put pressure on the district.
“As a result, in order to continue to provide appropriate educational opportunities for our students, it has been necessary for the district to use substantial portions of our fund balance,” Plows wrote. “In doing so, district officials have and will continue to attempt to retain a reasonable fund balance level to address our cash flow needs.”
In addition, Plows said the district is working to comply with the recommendations of auditors. He wrote that the district will review its budget practices to reduce future budgets’ fund balances, the board will develop guidelines to move proceeds from retired debt to the general fund, all cash has been recorded in the appropriate fund, the Board will revise its annual resolution authorizing the superintendent to make budget transfers to designate a threshold amount, the board will be provided regular budget status reports, and administration and the Board of Education will review projected fund balance amounts during the annual budget process “…and attempt to expand this information as recommended.”
Plows wrote the district strongly disagrees with the wording of recommendation No. 3.
“The wording implies that assets are recognized in incorrect funds, which is not the case,” Plows wrote. “The transfer of cash between funds to meet cash flow needs is a generally accepted account practice. At the time of the transfer, the appropriate current asset and current liability has been recognized in the appropriate funds, as required by generally accepted accounting practices for governments; however, the district will more closely monitor these amounts in the future so that when cash becomes available, appropriate funds are repaid in a timely manner.”