An audit of the finances at the Bayonne Board of Education (BBOED) between July of 2015 and June of 2016 by the Office of the State Auditor was released lastweek. The report showed the district did not 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 and leading to the $2.2 million budget deficit in November. If not for “inappropriate” budgeting practices, the district could have turned up a $3 million surplus.
The audit also revealed that the district transferred $5.7 million from its 2015-2016 salaries accounts into other under-budgeted accounts, such as health benefits ($2.5 million), and tuition to private and charter schools ($1.4 million). That year, the district paid $80 million in salaries, going $5 million over budget. “The original budget for total salaries would have been sufficient to provide for these salaries,” the Executive Summary reads.
The Office of the State Auditor recommended a state monitor who would oversee the board’s finances, including teachers’ contract negotiations and the school budget. Meanwhile, rice letters have been sent to employees of the district’s business office. A rice letter is an official notice that a public body will discuss that person’s employment status in an upcoming meeting.
The state audit results conflict with an internal audit performed by local accounting firm, Donohue, Gironda, and Doria, that showed a deficit in the district’s general fund from the previous year that carried over to 2016. Then the state rejected the district’s proposed budget when it wanted to use money from its capital funds and levy a property tax of 2.9 percent, and demanded the district levy a 5.6 percent tax.
The deficit ultimately resulted in the layoffs of more than 200 staff and a shorter teachers’ contract than might have otherwise been agreed to. That contract, signed in January, will be up in June. The district has been in ongoing negotiations with the Bayonne Teachers’ Association on the next contract.
Unexpected results and confusion
When the internal audit said the district was missing $2.2 million, and the state audit said it had $3 million in surplus, confusion naturally followed, as trustees and administrators alike are still trying to make sense of the results.
“I think the audit raised more questions than it does answers,” said BBOED President Joseph Broderick. “I’m basically confused on this and somewhat disappointed.”
Trustee Christopher Munoz shared that sentiment. “This took eight months,” he said. “And there’s still no clarity to the situation.”
Interim Superintendent Dr. Michael A. Wanko called the disparity between the two audit reports a “dilemma,” which he is hoping will be clarified when a representative from the Office of the State Auditor will attend the November 30 BBOED meeting to respond to questions from board members and residents.
Though the district has spent down most of its fund balance, administrators and trustees maintain the district is on sound financial footing, thanks to the measures taken after the deficit was unearthed in November.
“If we did not reduce the staff, if we did not decentralize, if we did not do the things we did, we would not be in a position to at least be even,” Wanko said. “They were spending money they didn’t have. Now we have to make sure that doesn’t happen again.”
Mayor James Davis expressed frustration over what now appears to be avoidable consequences.
“What I find troubling is that it seems that we went through a whole year of turmoil with our teachers,” he said.“Now, it appears now that none of this was necessary. To me, that just screams of gross incompetence,” adding, “I believe moving forward with Dr. Wanko in charge that we will be in a much better place.”
“They were spending money they didn’t have. Now we have to make sure that doesn’t happen again.” – Interim Superintendent Dr. Michael A. Wanko
In defense of the BBOED
In a November letter to the Office of the State Auditor, Business Administrator Leo Smith assured future compliance with the Department of Education financial protocols and noted two major factors that “weighed heavily in our financial situation.”
Much of the increased cost in staff salary and benefits in 2015 were educators in special education and ESL that the district was mandated to hire to bring its programs into compliance with state law. Smith said that 15 new special needs staff from that year cost the district $975,000 in salary and benefits.
Smith also said that the district lost millions when its auditor in June of 2011 recommended that $6.9 million owed to the BBOED by the City of Bayonne as its share of the Early Retirement Incentive in 2003-2004 be written off as uncollectable. “The City was to make good on this at a future date and never did,” Smith wrote.
“These two items taken separately or combined would have significantly reduced our ‘over commitment’ in other areas,” wrote Smith. “They also would have made it possible to fund our retro payment of December 2015 without the severe consequences that followed.”
Like he and Superintendent Dr. Patricia McGeehan have done in the past, Leo Smith faulted, to some extent, the district’s former accountant.
“I relied on our in-house accountant to effectively manage the budget and all of its details,” wrote Smith. “Somewhere along the line he stopped effectively managing these details.”
A steady hand, or repudiation of local democracy?
Board members and administrators seem unanimously concerned about a state monitor. Interim Superintendent Wanko said he was “perturbed” by the recommendation. “But you could also look at it as you didn’t know what you are doing.”
Broderick, noting the surplus reported in the audit, asked, “If there’s no problem here, why are they sending the monitor?”
Trustee Christopher Munoz is cautious about the idea of a state monitor and recognizes the irony in the possibility of Bayonne’s first elected Board of Education in decades coming under state control.
“When a state monitor comes in, they have a final say-so on who we hire, what programs we put in. They can override a board,” he said. “You elected a board to run your school, so I don’t think this is something anyone wants.”
In defense of the elected board, the “inappropriate” budgeting practices the audit refers to were made during a time when the mayor appointed trustees to the Board of Education. The city’s first elected board in decades was sworn in in January of 2016.
“This shouldn’t be a reflection on the elected board,” said Munoz. “They packed the budget before we got there, which had these deficiencies. This bomb was ready to go off when we got in.”
Rory Pasquariello can be reached at email@example.com.