Selected reports issued by the Office of the State Comptroller during the week ending June 18, 2016
These audits, summaries of which are set out below, are designed to assist schools improve their financial management practices and ensure proper policies and procedures are in place to protect public funds from waste, fraud and abuse. For additional background or a comment on a specific audit, contact Brian Butry, 518-474-4015 at the Office of the State Comptroller or email: firstname.lastname@example.org
Addison Central School District – Financial Condition (Steuben County)
During the last three completed fiscal years (2012-13 through 2014-15), the board and district officials overestimated general fund appropriations by $7.3 million (9 percent) resulting in combined operating surpluses totaling $6.4 million. District officials used the operating surpluses to make interfund transfers totaling approximately $4 million and increase reserves by $1.6 million. As a result, four reserves with balances totaling $2.9 million (48 percent of total reserves) are overfunded and potentially unnecessary. In addition, $570,000 in appropriated fund balance was not needed to finance operations. These practices allowed the district to report year-end unrestricted fund balance at levels that essentially complied with the statutory 4 percent fund balance limit. However, the district’s recalculated unrestricted fund balance ranged between 16 to 18 percent of the ensuing year’s appropriations. As a result, the district’s tax levy was higher than necessary to fund operations.
The unrestricted fund balance for the district has consistently exceeded Real Property Tax Law limits. The district’s unrestricted fund balance was approximately $3.6 million (14 percent of the ensuing year’s budget) or approximately $2.6 million over the legally allowable limit and is projected to remain at nearly the same level at the end of 2015-16. Although the board and district officials annually appropriated a portion of fund balance towards the subsequent year’s budget, the total amounts appropriated were mostly not used because district officials overestimated appropriations. In addition, district officials consistently budgeted for expenditures that could have been paid for with reserve funds. Had district officials retained the same tax levy each subsequent year as in 2012-13, residents could have realized approximately $410,000 in cumulative tax savings.
Each year during the audit period (July 1, 2014 through November 9, 2015), district officials appropriated more fund balance than needed, which artificially reduced unrestricted fund balance to within the 4 percent statutory limit percentage. Instead of having operating deficits totaling $2.8 million for the period, as planned, the district’s net result of operations was a surplus of $705,000. In addition, district officials overfunded five of the six reserves as of June 30, 2015. Moreover, district officials did not use debt service funds to make payments on long-term debt. With the inclusion of the unused appropriated fund balance, the overfunded reserves and the unused debt service funds, the fund balance for the five years ranged from 26.7 percent to 29.4 percent of the ensuing year’s appropriations.
Although claims were generally supported by adequate documentation and were for appropriate purposes, they were not always audited and approved prior to payment. The business manager, who also serves as the district’s treasurer, prints signed checks prior to the claims auditor’s audit and approval of the corresponding claims. When signed checks are generated prior to the claims auditor’s audit and approval, there is an increased risk that improper claims could be paid by the district.
The district has no written plan that details the appropriate and necessary levels for reserve funds and prescribes how the reserve fund balances are to be monitored, analyzed and maintained. As a result, four of the district’s 11 reserve funds, totaling more than $6.8 million, may be overfunded or unnecessary. Additionally, district officials have not developed formal multiyear financial or capital plans, which would greatly benefit it in meeting its current and future obligations.
The board and district officials consistently overestimated appropriations. When the appropriated fund balance not needed to finance operations is included in unrestricted fund balance, the district’s recalculated unrestricted fund balance from 2012 to 2014 ranged from approximately $2 million (9 percent) to $2.2 million (11 percent), exceeding the statutory limit. This trend is projected to continue through 2015-16. The board and district officials have not properly managed four reserves that appear to be overfunded or contain funds that are improperly restricted by approximately $7.6 million, which is approximately 35 percent of 2015-16 budgeted appropriations. District officials also consistently budgeted for expenditures that could have been paid for with reserve funds. Had district officials maintained the same tax levy as in 2012-13, residents could have realized approximately $720,000 in cumulative tax savings.
The board consistently overestimated appropriations in the district’s adopted budgets. Although the district reported year-end unrestricted general fund balance at levels that essentially complied with the 4 percent statutory limit, the board adopted budgets which included appropriated fund balance and reserves that were not needed as funding sources because the board and district officials overestimated appropriations by an average of 8.8 percent over the last three fiscal years. As a result, the district experienced an operating surplus in 2011-12 and operating deficits in 2012-13 and 2014-15 that were significantly less than planned. When the unused appropriated fund balance was added back, recalculated unrestricted fund balance averaged about 8 percent of the ensuing year’s appropriations exceeding the legal limit.
The board has consistently overestimated appropriations in its adopted budgets by about 9 percent over the past three years. As a result, a significant portion of the fund balance appropriated in the general fund was not needed to finance operations and unassigned fund balance has exceeded the 4 percent legal limit from fiscal years 2012-13 through 2014-15. The district has reduced the reported level of year-end unassigned fund balance from 12 percent of the ensuing year’s budget at the end of 2012-13 to 8.6 percent at the end of 2014-15. However, when the unused appropriated fund balance was added back, the recalculated unassigned fund balance exceeded 15 percent of the next year’s appropriations in all three years.
Although the district has procedures specific to the maintenance of IT inventory, the board has not adopted an asset policy establishing capitalization or tagging thresholds, control over assets, or how to maintain records for these assets. Consequently, three assets valued at $1,650 could not be located and 21 assets valued at $69,370 were either not tagged or the asset tag numbers did not agree with the asset records. Furthermore, 10 assets purchased in 2015-16 valued at $57,573 were not recorded on the asset list and nine assets valued at $45,750 were listed as disposed of, but were still in service. Auditors found that 18 of 20 assets listed as disposed of, valued at $32,920, did not have documentation indicating authorization or approval.
The district’s unassigned fund balance has exceeded the 4 percent legal limit from fiscal years 2012-13 through 2014-15. At the end of 2014-15, the district’s fund balance was approximately $2.4 million, or 9.7 percent of the ensuing year’s appropriations. Although the district’s unassigned fund balance has exceeded the statutory limit for the past three fiscal years, the board increased the tax levy from $7.8 million in 2012-13 to $8.3 million in 2015-16, an increase of about 6 percent.
District officials ensured that retiree health insurance contributions were properly billed, collected and deposited. Although the account clerk performs most of the duties, district officials implemented proper compensating controls to ensure bills are accurate, money is collected from all retirees and money is deposited into district bank accounts.
The district has overestimated appropriations in the adopted budgets by about an average of 14 percent annually over the past three years. As a result, a significant portion of the fund balance appropriated in the general fund was not needed to finance operations and unassigned fund balance has exceeded the 4 percent legal limit each of the last three fiscal years. The district reduced the reported level of year-end unassigned fund balance from 9.3 percent at the end of 2012-13 to 6.9 percent at the end of 2014-15, but when the unused appropriated fund balance is added back, the recalculated unassigned fund balance exceeds 20 percent of the next year’s appropriations for each of the three years.
The district has not correctly recorded and reported the composition of its fund balance. Since the fiscal year ending June 30, 2013, the treasurer has recorded and reported the amount of unrestricted fund balance that exceeds the statutory limit at the end of each fiscal year as “other restricted fund balance” to keep the unrestricted fund balance within the limit. This accounting practice understates the true amount of the general fund’s unrestricted fund balance and circumvents the statutory limit the district is permitted to retain. As a result, over the four past fiscal years the district retained unrestricted fund balance amounts that ranged from 15 percent to 34 percent of the ensuing year’s appropriations.
Although the board has developed a purchasing policy and district officials have developed corresponding regulations, they do not provide guidance for seeking competition when procuring professional services. The policy and regulations do not indicate when, or at what monetary threshold, it is appropriate to use written requests for proposals, written quotes or oral quotes. Additionally, the policy and regulations do not outline the specific documentation requirements to be used during the solicitation process.
The district has accumulated unrestricted fund balance that exceeds the statutory limit by approximately $977,000 (nearly 12 percent) and has levied more taxes than were needed to fund operations during the 2013-14 through 2015-16 fiscal years. The board also overestimated appropriations in the 2012-13 through 2014-15 budgets by more than $2.3 million (10 percent). The district’s budgeting practices made it appear that they needed to both raise taxes and appropriate fund balance and reserves to close projected budget gaps, despite an operating surplus of $51,390 during the 2012-13 fiscal year and smaller-than-planned operating deficits of $24,169 in 2013-14 and $39,578 in 2014-15.