The audit’s findings were clear. No real deficit ever existed, but ratherimproper accounting practices made it seem like one did. The salary account for grades 9-12 is the only one that showed a deficit at the end of year. It went $5 million over budget after transferring $5.7 million from the 2015-2016 salaries accounts into other under-budgeted accounts, such as healthcare and tuition to private and charter schools.
“The most significant of our conclusions from our audit work was the fact that the budget never should have shown a deficit,” said State Auditor Stephen Eells. “Everyone should understand that this money is not missing. It is just not part of an allocation that should have been shown.”
The school district failed to disclose the transfer of $4.7 million of excess funds into a reserve fund, effectively starving the general fund of enough money to run the district.
“We have to examine this for what it is. It’s mistakes. It’s inappropriate funding,” said Alicia Losonczy, President of the Henry Harris Community School Parent Teacher Association. “There needs to be more done. How can you assure the parents that this isn’t going to happen again?”
Moving forward, all financial operations will be managed by Interim Superintendent Dr. Michael A. Wanko. Per statute, the Office of the State Auditor will follow up with a compliance review in January of 2019 to ensure the district has followed proper accounting procedures.
Meanwhile, rice letters were sent to all employees of the district’s business office, which notify employees that the state of their employment will be on the agenda at a future meeting.
The accounting practices by the board, and its former accountant were improper, but not explicitly illegal, according to both the State Auditor and the BBOED attorney, Robert Clark.
“To make the determination of well, there’s somebody who just made the bad decision or something was intentional is a tough line to draw,” said Eells. “If we felt there was something to be hidden, then we would report that. That’s not the case here.”
“The accounting procedures that were followed unfortunately were in violation of [accounting procedures],” said Clark. “It is not a criminal offense. There is not a law in the books about that.”
Clark continued, “Through the years, the work of this CPA was spot on. For some reason, during this period of time there was a serious issue.”
“The most significant of our conclusions from our audit work was the fact that the budget never should have shown a deficit.” – Stephen Eells
Those who were hoping for closure or further elaboration on the audit were disappointed. “The purpose of [the state auditor] being here isn’t the purpose he actually came here for,” said BBOED Trustee Ava Finnerty.“We wanted answers. We got none.”
“The fix is up to the board of education,” Eells said.“We are not policy setters. What we do is display the facts and let you know the situation. We lay out recommendations, such as allowing transparency in the transfer process,” meaning transferring funds into accounts earmarked for future expenses.“That needs to be better understood, so you know that other accounts are being fed. That process for the board needs to be very transparent, so you understand the impact of those accounts.”
Eells touched on the importance of practicing financial transparency, calling it “imperative.” According to board trustees, they were left out of the loop.
A deflated cushion
Even though the district technically does not have a deficit, it did not emerge from the mess unscathed. The district’s surplus account is now at an uncomfortably low mark – around one percent of annual expenditures.
Eells was complimentary of the board’s prior ability to set aside enough money to pay for competitive teacher union contracts.
“Fortunately, the district had been prudent enough to set aside funds from each year to handle the liability,” Eells said. “But that type of a cushion no longer exists.” That means the district is in sound financial shape for now, but an emergency could send it back into crisis.
Mayor James Davis made a rare statement at the meeting, directed to the trustees. “As the leader of this city, I will do anything and everything to work side by side with each and every one of you, so we can learn from our past and fix our mistakes and move forward with our district together,” he said. “We owe it to the students and teachers of this city.”
Rory Pasquariello can be reached at email@example.com.