School Board To Review Finance Procedures After Hearing From Auditor

By Eliza Hallabeck

After hearing from the auditing firm Kostin, Ruffkess & Company, LLC, which produced Newtown’s latest municipal audit, at the Board of Education’s special meeting January 6, school board members postponed a decision to either change practices or change board policy until after the board’s finance subcommittee has a chance to review the information.

The auditors’ report, submitted to the Legislative Council in November, indicated that the school district’s procedures for reporting budget transfers was not in compliance with state statutes.

Board of Education Chair William Hart began the discussion on the town’s audit report by saying it is his hope that speaking with the auditor, on ways the school board could improve financial reporting and ways the school board is appropriately reporting information, could become a yearly discussion.

Joseph Centofanti, a partner with Kostin, Ruffkess & Company, LLC, was present at the meeting to explain the audit report prepared by him for the firm.

In response to school board member David Nanavaty requesting a synopsis of the yearly auditing procedure, Mr Centofanti explained every year the audit, required by state statute, is filed with the state’s Office of Policy Management and the Department of Education.

“The town has a responsibility to provide a copy of the report to every state department that provides you funding,” said Mr Centofanti.

Thursday’s special meeting came roughly two months after the audit report was submitted to the Legislative Council, and roughly one month after school board Vice Chair Debbie Leidlein requested discussing the audit as an agenda item for the board’s December 7 meeting. Ms Leidlein’s requested discussion was denied before talks could begin when member Andrew Buzzi requested tabling the matter until the board received an official presentation from Kostin, Ruffkess & Company, LLC. A vote of 6-1 supported tabling the agenda item with only Ms Leidlein opposing.

As submitted to the Legislative Council in November, Kostin, Ruffkess & Company, LLC, raised concerns about the failure of the school district’s business office to properly report financial transfers to the Board of Education. According to the audit, the Newtown school board’s policy, which complies with state statutes, “requires that budget transfers between objects be approved by the Board of Education. The board policy provides that management is authorized to make and approve transfers within object codes.”

The Board of Education changed its budget reporting practices in a 5-2 vote to what is described as an “encumbrance-based” system. At issue is whether the change, which was recommended by the school board’s finance subcommittee and employed during most of the last budget cycle, obviates statutory requirements to discuss and approve transfers within its budget on an ongoing basis.

The audit also noted the school district has not maintained its accounting records under general ledger control, instead continuing to maintain various fund accounting records on a manual basis.

“General ledger control encompasses the recording of all transactions utilizing double entry procedures,” the audit states. “Assets, liabilities, along with revenue and expenditure activity should all be recorded and controlled by the general ledger.”

Although expenditures transactions are currently processed through the computer system, the remainder of the general ledger accounting is done outside the general ledger software, according to the audit.

 

Recommendations

Mr Centofanti explained to the Board of Education the audit covered all funds of the town. The complete audit, he said, is roughly 100 pages and only 20 pages of the report concern the school board. In the audit, Mr Centofanti made three recommendations for the school board.

The first recommendation, Mr Centofanti said, “is that you have a general list system, and that everything go under the general list system. It’s better control, consistency, and actually will add efficiency to the process.”

 The second recommendation concerned grants, according to Mr Centofanti.

“This relates to a cash management type thing,” Mr Centofanti said. “In the drawdown for grants, you didn’t have a problem with cash management, but this is to say there should be some oversight process for that.”

The final recommendation, Mr Centofanti continued, regarded budget transfers. As required by state statute, budget transfers, he said, require certain transfers to be approved by the board.

“This didn’t happen for three object levels last year,” he said. “This recommendation is that transfers be approved in accordance with the policy and the statutes.”

If the recommendations are not followed up with a written response to the state, Mr Centofanti said in response to a question from Ms Leidlein, the recommendation would then be considered a finding. Mr Centofanti said he could not give an example of what a concrete impact a finding would have on the town, but said it would not be positive.

Board member Andrew Buzzi said it is important for the school board to promote public confidence in everything the board may do.

“This board is going to have to come to a determination as to how we report this year,” Mr Buzzi said, “and we are coming to a season in the next couple of months where transfers are going to be discussed.”

He continued to ask Mr Centofanti for help determining how the school board should report how money is being spent in the future. Mr Buzzi also said the school board does not purchase anything based out of a transfer.

As Mr Buzzi said after the meeting, the school board spent less than its anticipated budget in the 2009-2010 fiscal year, and gave $155,000 back to the town. Also at the end of the year, the school board approved the June 30 fiscal year end report, “with certain line items showing a deficit.”

Money was approved in the June year-end report to purchase computers for Reed Intermediate School. Mr Buzzi said the motion is listed in the school board’s meeting minutes from June 15.

“Upon actual investigation of the issue, it appears that the board is not in violation of its policy,” said Mr Buzzi.

 Transfers Before Expenditures

During the meeting, Mr Centofanti said he would like to see transfers completed before money is spent, in accordance with statutes, except for emergency procedures.

School District Business Manager Ron Bienkowski said sometimes the district does not know until the end of June that deficits will be in the budget.

“There are certain circumstances,” he said, “when it is impossible to have [money] in place before you spend it. My view of it has always been the appropriation is the money that is available to spend.”

Mr Bienkowski also said deficits can also be offset by expected incoming revenue, but, sometimes, the expected money may not be reflected in the report.

“We probably need to put something in our policy to address that,” said Mr Bienkowski. “That’s my recommendation when I read the policy.”

Board member Lillian Bittman said the school board could have avoided recommendations from the firm by making two motions during the board’s June 15 meeting regarding the money for computers at Reed.

Both First Selectman Pat Llodra and Board of Finance Chair John Kortze were in attendance at the meeting, and commented during the discussion.

 “I think the point that needs to be made,” said Mr Kortze, “is there are really three issues here: There is a fiduciary issue, which I take very seriously; there is a legal issue, which the auditor has brought up; and there is the issue of the audit.”

The town, he said, needs the school board’s help.

“The Board of Ed used to have a policy and [Mr Bienkowski] had a great reporting system where he would highlight the transfers and give a real short blurb as to what the explanation was,” said Mr Kortze. “That made things very clear. You could see where the money was coming from and where it was going.”

Transfers, he continued, must have a debit and a credit. When the computers were purchased, no debit was recorded for another account.

Mr Kortze said it is also important to note no corrections have been made in previous reports, and said he hopes that can be changed in the future.

“We don’t want to have a finding in our financial reports,” said Mr Kortze. “It’s that simple.”

The board’s finance subcommittee, Mr Buzzi and Ms Bittman, will meet before the board discusses how the school board will handle the third recommendation made by Mr Centofanti.

Mr Hart said 60 days after the report is received, the administration should come up with a plan to handle the recommendations, per board policy.

“I’d like to bring this to a conclusion quickly,” said Mr Hart. “Preferably before budget season starts.”

On Friday, January 7, Mr Buzzi said the auditor’s recommendations are sparse where board policy is concerned, “and do not contain statutory references or policy numbers.”

Concerning future action, Mr Buzzi said the board is committed to reviewing its “policy and procedures in light of the auditors recommendations and make changes as appropriate.”