ALEXANDER — An audit by the state Comptroller’s Office found Alexander Central School didn’t use excess reserve funds in accordance with state statutes.
Key findings in the audit included: $3.1 million in excess reserve funds to financially back a capital project were not done with applicable statutes; appropriations were overestimated by a total of $7 million from 2015-16 through 2018-19; and an average of $500,000 of fund balance was appropriated each year, but was not used to finance operations.
When auditors compared estimated revenues with actual operating results, they found that although the revenue estimates were reasonable, appropriations were overestimated by an average of almost $1.8 million or 11 percent each year.
“However, budget estimates appeared to be improving from 2015-16 through 2018-19 and were more consistent with actual expenditures,” the comptroller’s office stated.
Due to overestimating appropriations, the state Comptroller’s Office noted it appeared Alexander needed to appropriate fund balance to close projected budget gaps.
“The board and district officials’ practice of annually appropriating fund balance that is not needed to finance operations is, in effect, a reservation of fund balance that is not provided for by statute and is a circumvention of the statutory limit imposed on the level of surplus fund balance,” the state comptroller’s office said.
Schools are authorized by law to establish reserve funds for certain future purposes. If the specific reserve fund has more than what is needed or required, the school board can reduce the level to reasonable levels as long as they comply with the legal requirements specific for each reserve.
In Alexander’s case, voters approved a $6.8 million capital project in December 2014 for building reconstruction and improvements. It was to be funded by using $615,000 from existing capital reserves, $540,000 from available funds and by issuing debt.
The school board decided to use fund balance and excess reserves to fund the project instead of issuing debt.
“However, the board did not amend the bond resolution to reflect this decision, or otherwise adopt a resolution to formalize the project’s updated financing plan,” the audit report stated. “As a result, the change in funding sources was not recorded in the board’s minutes.”
In May 2016, voters approved a $1.3 million transfer from the retirement contribution reserve fund to the capital projects fund.
Then in June 2017, a resolution was adopted to transfer excess funds from the workers’ compensation reserve fund to the capital projects fund, as well as to transfer excess funds from the unemployment insurance payment reserve fund to the capital projects fund.
“However, according to (state General Municipal Law), these funds could be transferred only to certain other reserve funds, not to the capital projects fund, which is not a reserve fund,” the Comptroller’s Office said. “If the board’s intent was to transfer money into a capital reserve fund, the board should have established a capital reserve in accordance with Education Law. Then it should have transferred the funds to the properly established capital reserve, instead of transferring the funds into the capital projects fund.”
The comptroller office recommended Alexander:
• Develop and adopt budgets that include realistic estimates for appropriations and the amount of fund balance that will be used to fund operations.
• Discontinue the practice of appropriating fund balance that is not needed or used to fund operations.
• Use reserves in accordance with legal requirements.
• Ensure that financing plans for capital projects are properly documented in the board’s minutes.
Alexander’s response was the district consistently takes a conservative approach to budgeting, which includes long-term view in the budgeting process and strategic use of its reserves. However, it said the district will continue to review actual expenditures when developing the budget and develop budgets that only appropriate the fund balances needed or used to fund district operations.
The full report can be read on the state comptroller’s website.