Archive for Thursday, August 17, 2006

School district is showing red

August 17, 2006

As the reality of a $300,000 shortfall in the Baldwin School District sinks in, reaction has started and solutions are being sought. Bottom line is, school will go on. Budgets will be tight.

"The supplemental general fund was overspent to the tune of $295,000," School Board Attorney Bob Bezek told the board at a special meeting last Thursday that was attended by well over 60 people.

Although the district is broke, it's not a matter of any criminal wrongdoing with funds being taken.

"This is not a case of taking any money, no suggestion of that at all," said Bezek. "Overspending your checkbook is not good, but it's not a criminal thing."

The revelation during the special meeting came as a result of new Supt. Paul Dorathy asking for a thorough audit of the school district books once he started in July. That audit lasted for well over a week and found numerous problems with how money was moved from one fund account to another and other problems, such as unchecked use of district credit cards and unposted written checks.

The spending resulted in charges against petty cash at $75,000. Bezek told the board the petty cash fund should never be over $13,000. The board was told that most of the problems occurred in the spring during then-Supt. James White's tenure. White retired at the end of June. Dorathy took over in July and found the books just didn't make sense. That's when he asked for the audit.

Although school board members made no comment after the special meeting, they have started talking.

"I want our community to understand that the school board never authorized this kind of over spending," said Board Member Ande Parks. "Of course, the spending authority ultimately rests upon our shoulders, but we had no idea until Mr. Dorathy arrived that things were this dire.

"Frankly, we were making spending decisions based upon bad or insufficient data," said Parks. "I'm as disappointed as anyone that things were not being handled properly."

Bezek and Tom Thomas, the auditor, told the board money was moved from one account to another to pay for various items. Since then, Thomas has been able to move the money back around to where the shortfall is in the supplemental general fund.

"They robbed Peter and the whole gang to pay Paul," said Thomas. "Most of this happened in the spring."

Dorathy, Bezek and Thomas have come up with a plan on how to get the district through the first semester until new tax money arrives in January. There will be no disruption in classes or activities as a result of a district-wide belt tightening, they said.

"It's not about salaries and school will go on," said Bezek.

Dorathy told the board that numerous items will be tried to ease the situation, including a request for more state aid. But, he said times will be tough -- but school will go on.

"We've got four really tough months that are going to be tight," said Dorathy. "We are looking at ways to solve this so that the buses will run, the kids will be in class, food will be served, teachers will teach and football games will be played on Friday night.

"Those things are going to continue to happen as long as we can get what we plan done," he said. "We will fix the problem. A year from now, it will be better. In two years, we will have this district back fiscally sound."

The problems

Bezek outlined the problems associated with the district's monetary shortfall, some worse than others.

The first -- which is cut and dried -- fund balances were overspent, he said. Capital Outlay Funds were used to pay for items unrelated to capital. Expenses were moved around and paid for with money unintended for those purposes, he said. Between that and the problem with petty cash, the bottom line is the $295,000 deficit.

"That's a lot of money," said Bezek.

He said there was an excessive number of credit cards used in the district. Hand-written checks that weren't posted amounted to 30 or 40 a month, he said. The school board never saw those entries.

"This is clearly an overuse of that," said Bezek.

He explained another big problem was the district didn't receive state aid it should have because expenses that are reimbursable weren't entered. He gave transportation as an example of that. The state reimburses districts for fuel used in buses, etc.

"If you don't show an expense for gasoline, you don't get reimbursed by the state," said Bezek. "The auditors have been working on this nonstop."

Another big problem is a failure in securing Capital Outlay Funds amounting to around $300,000. The school board approved seeking the funds. The public notice regarding Capital Outlay was published in the Signal once in December, rather than the twice required by law.

"As it stands now, you don't have the authority to get Capital Outlay money," said Bezek.

Another problem was the school board was not being informed about spending. Not only will that be changed, but the information will also be on the district Web site, as well as the Signal's Web site at www.baldwincity.com, Bezek told the board.

The solutions

The first step in solving the district's plight was taken at Monday's meeting, when the school board passed a new Capital Outlay resolution, which is in this week's Signal and will be run again next week.

"We're asking you to pass the resolution again," said Bezek. "Right now, the district is in a hole. Right now, you don't have enough money to pay your bills.

"Right now, the district is cash poor," he said. "We'll suggest bonding against the Capital Outlay once its approved to help with the immediate crisis now."

Another solution is to end the wide-spread use of credit cards and checks.

"We've pulled up all the credit cards," he said. "We've met with everyone regarding spending practices."

Dorathy also told the board that he would seek additional state aid.

"I will ask for an extra $130,000 from the state," Dorathy said.

He also told the board that the $300,000 shortfall actually gets worse when factoring in purchases that have already been approved.

"In actuality, we're $480,000 in the hole," he said.

Of course, that's compounded even more if the Capital Outlay measure doesn't come through at around $300,000.

Also, Thomas told the board that he was in the process of shaving another $106,000 from spending.

"This is still a work in process," said Thomas.

That's for this year. Thomas told the board, and the audience, that the budget for 2006-2007 will have to go up.

"It will take a 7 mill increase," he said. "No way around it. The deficit from last year will cost you about 4 mills. The correction for overspending is going to happen one time."

The audit

When Dorathy first arrived in Baldwin in early July, he found financial records that he couldn't make heads or tails of. He called the auditors. They had no answers. He called the state. No answers there, either.

Dorathy suggested to the board that a thorough audit be done by Thomas, who specializes in such matters for the firm Aggler and Gaedert. The Signal met with him, Dorathy and Bezek in a session prior to last week's special board meeting.

Although he's done many such audits, Thomas has never seen one like this.

"I've been through a lot of them. This is a tough one," he said. "I've never seen one spent in the hole like this one.

"We're digging out of such a deep hole," said Thomas. "It's going to look tragic. This next five months are going to be miserable for everyone. We're looking into state aid. At this point, we don't have the background to know what we're going to need in the next five months."

His best guess on how it happened?

"People have just been told to do this and do that," he said.

The bottom line

Ugly financial matter aside, what matters most is ensuring the educational capabilities of the district, all involved said. It will take help from many people, but the board and Dorathy are confident that the community will rally around the district.

"The bottom line is this: if we pull together as a team to serve kids through this process, we're going to emerge as a stronger district," said Parks, a board member. "These accounting problems are going to be set right. For new, we need to focus on getting our house in order, getting our mill levy approved and educating our kids.

"We still have an excellent staff and I have complete faith that they're going to do the job this year, despite the obstacles," he said.

The Signal will continue to update this story online and a full story and pictures will be in this week's Signal.

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