A three-and-a-half-year audit of the Margaretville Central School District by the New York State Comptroller’s Office found that district officials did not effectively manage the school’s fund balance.

Defining fund balance as “the difference between revenues and expenditures accumulated over time,” the June 26 audit report found that the Margaretville Board of Education overestimated appropriations and appropriated approximately $1.4 million in fund balance from 2016-17 through 2018-19 that it did not use to fund operations because of generated operating surpluses.

“A district may retain a portion of surplus fund balance to provide a cushion against unforeseen events and to provide for fluctuations in cash flow,” the report read. “New York State Real Property Tax Law currently limits the amount of surplus fund balance that a school district can retain to no more than 4 percent of the next year’s budget appropriations.”

As of June 30, 2019, surplus fund balance totaled approximately $3.9 million, or 32%, of the next year’s budget, exceeding the statutory limit, according to the report. When unused appropriated fund balance was added back to and overstated receivables were deducted from surplus fund balance, it totaled almost $3.2 million, exceeding the statutory limit by approximately $2.7 million, or 22%, as of June 30, 2019.

By overestimating appropriations, the school board’s budgeting practices made it appear that “more revenue and financing sources (fund balance) were needed to maintain a structurally balanced budget and address budgeted operating deficits, despite historical trends showing otherwise,” according to the report.

Rather than generate planned operating deficits totaling almost $1.4 million, the board’s conservative budgeting over the last three fiscal years resulted in increased tax levies and operating surpluses of close to $2.1 million, according to the report.

“Had officials maintained the same tax levy from 2016-17 through 2018-19, taxpayers could have realized nearly $445,000 in cumulative savings and the District still would not have used any of the appropriated fund balance,” the report read. “Annually appropriating fund balance that is not needed to finance operations is, in effect, a reservation of fund balance not provided for by statute and circumvents the statutory limit imposed on the surplus fund balance level.”

Noting that the district’s current treasurer, Greg Beall, was not involved in developing the current or past budgets, the audit stated that district officials said employee benefits are intentionally overestimated “to provide a cushion in case of an emergency or to cover unexpected expenditures.”

The examiners’ analysis of balance sheet accounts revealed that district officials “improperly carried forward several balances with no supporting documentation to justify the amounts recorded.” 

Accounts receivables, interfund loans and accrued liabilities were overstated with total combined balances of $867,099 that “should not have been recorded and inappropriately increased surplus fund balance,” according to the report.

Noting that the school’s budgeting practices made it appear that the district needed to both increase taxes and use appropriated and reserve funds to close projected budget gaps, the report noted that the “experienced operating surpluses and, consequently, fund balance, was not needed to finance operations during the past three years.”

“We believe that District officials may not need to use surplus funds to finance operations in 2019-20,” the report read. “Given the District’s budgeting practices and fund balance levels, the Board levied more taxes than necessary to sustain operations and missed opportunities to more effectively manage fund balance and potentially reduce taxes.”

A March 7 letter signed by school board President Doris E. Warner acknowledged the audit’s findings and accepted its recommendations, including adopting budgets that include “reasonable estimates” for appropriations and the amount of fund balance used to fund operations, and reducing surplus fund balance to comply with the statutory limit and “use excess funds in a manner beneficial to taxpayers.”

According to Warner, the district reduced property taxes for the 2020-2021 school year; will continue to fund the retirement contribution reserve and is considering funding one-time expenditures and “will consider paying off debt that is legally allowed.”

Sarah Eames, staff writer, can be reached at seames@thedailystar.com or 607-441-7213. Follow her @DS_SarahE on Twitter.

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