June 14, 2011
District encourages community to read Comptroller’s Audit
Bethlehem Central School District officials say that they have already addressed many items cited in an audit released this week by the Office of the New York State Comptroller, and that it’s important to clarify some other issues raised in the report.
The routine audit cites the district for its procedures in setting up a reserve fund eight years ago; the purchase of $50 gift cards to recognize retirees last year; and the manner with which the district obtained competitive prices for some services.
The audit covered the district’s internal controls over budgeting and purchasing for the period of July 2009 through August 2010. The Comptroller’s Office audits all school districts in New York on a rotating basis. View the report [PDF]
“The Comptroller’s review was helpful in highlighting some areas where we can further tighten fiscal controls,” Superintendent Michael Tebbano said. “Clearly there are also some other practices that needed to be addressed proactively, and we have done just that. There are also some issues in the report that merit some clarification for our community, and we want to take this opportunity to do that.”
The district has taken several steps to tighten its financial controls in recent years, both before this audit and in light of some of its suggestions. These include: continuing to strengthen training program for those involved in financial transactions; ensuring appropriate separation of duties when it comes to fiscal functions; and distributing a purchasing manual to all employees involved in fiscal transactions.
The audit report includes the district’s response and corrective action plan.
“We recognize the importance of these audits and appreciate not just the recommendations, but also the professional and positive manner in which it was conducted,” Dr. Tebbano said. “We encourage the community to read the report, as well as our corrective action plan that is part of it, and contact us with any questions.”
Additional Information about June 2011 New York State Comptroller Audit Report
The fund balance issue in the audit stems from a decade ago when the district settled an assessment challenge with its largest commercial taxpayer, Public Services Electric & Gas (PSEG). The settlement resulted in the annual tax payments generated from that property declining from about $5.2 million to $2 million, with the provision for some transition payments in the first few years after the settlement.
District officials at that time used these payments to establish a “Tax Reduction Reserve” of about $2.7 million in 2003, which was designed to help cushion this large loss of property tax base for the rest of taxpayers.
According to the 2011 Comptroller’s audit, however, school districts in New York can only set up a Tax Reduction Reserve with the proceeds from the sale of district property, which did not apply to BC in this case.
The report indicates that the district should use the “Tax Reduction Reserve” that it did set up in 2003 in a manner that benefits district taxpayers, which is exactly what it has been doing. In the recent years of reduced state aid, the district has used the reserve to offset additional program cuts or tax increases. Next year — when the district is losing $2.3 million in state aid — it plans to spend the rest of this reserve for these same purposes. At that point, it will be gone.
The district has given the community a full report of all of its reserves, including this one, at community budget forums and year-end financial presentations in recent years.
“We have been fully upfront with our community about the existence of this particular reserve and our stewardship and use of it,” Dr. Tebbano said. “While the report contains some technical information related to how it was established, the larger point is that it has benefited taxpayers greatly. This is particularly true when you consider the extreme fiscal challenges of recent years.”
In New York, districts have designated reserves that are restricted for certain purposes by law, and undesignated fund balance, which can be used for any purpose including to fund programs in subsequent budgets. By law, districts can have no more than 4 percent of their total general fund budget total in their undesignated, fund balance.
According to the audit, the $1.89 million in this tax reduction reserve in 2010 should have been included in this calculation, meaning the district exceeded the 4 percent limit by having 6.5 percent of its budget total in its undesignated reserves.
It is worth noting that when Standard & Poor's extended the district’s superb AA bond rating this past fall, it cited the district’s strong fiscal reserves as a positive factor in its favor.
The audit report cites the district for purchasing 26 gift cards of $50 each to give to retiring employees at a May 2010 staff recognition dinner. The district also spent $2,974 that year to pay for or offset the cost of the dinner for honorees and attendees.
The state allows school districts to expend funds for tokens of appreciation for years of service or a milestone such as retirement. It does not give districts the authority to pay for meals consumed by officers, employees or guests, according to the audit.
“To be clear about this, like any other district, we believe it is important to recognize the careers of those who do so much to provide for Bethlehem’s kids,” Dr. Tebbano said. “We held a staff recognition dinner and gave retirees $50 gift cards to show this appreciation. The District also purchased meals for the retirees attending this dinner. We now accept that this was more than we should have been doing, and it won’t happen again.”
There will be a 30-minute recognition event for this year’s retirees just prior to the June 15 Board of Education meeting; Honorees will be given certificates to mark their service to the district.
Although the district obtains competitive prices for goods and services, the audit cites some instances where it did not fully comply with policies.
The report outlines five areas of professional services where the district did not seek competitive bids in the manner outlined in its policies. It suggests that this tallies up to $718,000 in services for which it did not seek competitive pricing. This is not accurate.
For example, rather than soliciting the bids directly for general liability and workers’ compensation insurance, services that added up to about $650,000, the district used a broker that obtained competitive quotes from carriers on its behalf. The district then chose the carrier that offered the lowest price.
“While the figure in the report is a large one, a closer review, and an understanding of how insurance is procured, indicates that we have obtained the best possible price for this service,” Chief Business and Financial Officer Judith E. Kehoe said.
The report also indicates the district expended about $5,000 for products from employee-owned businesses. While officials said additional steps should have been taken to ensure these transactions more fully met policies, the district did solicit multiple quotes in these cases and the businesses selected were offering the lowest prices.