State audit prompts school questions

WATKINS GLEN--The state comptroller conducted a financial audit of the Watkins Glen Central School District for the period of July 1, 2015 to Feb. 27, 2019. During the audit period, the school district was under the leadership of Superintendent Tom Phillips until October 2017 when he was replaced by current superintendent, Greg Kelahan.
The state comptroller listed these key findings from the school audit:
Key Findings
Conservative budgeting resulted in operating surpluses, negating the use of appropriated fund balance. In the last three completed fiscal years, the district generated $2.3 million in unplanned operating surpluses instead of $1.4 million in planned deficits.
Certain reserve balances were excessive or not needed. Of $3.7 million in seven reserves, three reserves totaling $636,665 may be unnecessary because related expenses were paid from operating funds.
District officials did not develop comprehensive written multiyear financial or capital plans, according to the audit.
State Recommendations
Discontinue the practice of appropriating fund balance that is not needed or used to fund operations.
Review reserve balances and develop a plan to reduce balances to reasonable levels in accordance with applicable statutes.
Develop multiyear financial and capital plans that set long-term objectives and goals.
The audit report states that by maintaining overfunded and or unnecessary reserves, district officials have levied more taxes than necessary to sustain school operations and may have compromised transparency of district finances. The district had $1.44 million from unused appropriated fund balances from school years 2015'16 to 2017-'18.
In the district's written response to the audit, Board President Gloria Brubaker and Superintendent Kelahan stated, "The district makes exceptionally conservative estimates of the fund balance needed as revenue in response to changing annual state aid and limited opportunity for tax levy increases due to the tax cap."
While Kelahan and board members differed with the comptroller's report on what constitutes "reasonable levels" of reserves, school officials said they will work with financial planners, architects and construction managers to improve long-range planning.
During a budget discussion with Kelahan and the school's Business Manager Gayle Sedlack, Sedlack pointed out the recent 2011-'12 school year funding gaps that resulted in the loss of 37-39 district jobs and the role of the reserve fund in offsetting program cuts during that time of financial turmoil. Brubaker and Kelahan asserted "it is the district's practice to substantiate reserve balances when reserves are established or adjusted. The district will establish and communicate optimal funding levels as well as the conditions under which each fund's assets will be used and replenished."
The state comptroller's office asserted that when unused appropriated fund balances are added back, the surplus fund balance exceeded the statutory limit of 4 percent. The report asserts that the recalculated surplus fund was 5.88 percent of the 2015-'16 budget, 5.49 percent of the 2016-'17 budget, and 5.04 percent for the 2017-'18 budget. The comptroller's office report recommends that surplus funds be used as a financing source of funding for one-time expenditures, funding needed reserves, paying off debt or reducing district property taxes.
The state comptroller also asserted that the district's school service fund budget is unrealistic and is operating at a surplus. Sedlack explained the district has undergone significant changes to its food service program and the surplus will be righted. The district is now part of the Community Eligibility Program (CEP) that allows schools with a high percentage of low income children to offer free breakfast and lunch for all students, regardless of income. 50 percent to 56 percent of the school's students are eligible for free or reduced lunch. The CEP program is available to all district children in Pre K to grade 6. Students at the high school who received reduced lunch now get free lunch.
Kelahan said the district is complying with all the audit recommendations with the exception of discontinuing the practice of appropriating a fund balance that is not needed or used to fund operations. The superintendent said the district will develop, monitor and update on an ongoing basis for comprehensive multiyear financial and capital plans that set long term objectives and goals. Kelahan also said the district will develop a fund balance policy and plan to reduce surplus fund balance in a manner that benefits residents and adopt a comprehensive reserve policy that clearly communicates the purpose and intent for establishing each reserve fund.
Additional audit information and school officials' responses are posted on the district's website.