The Lakeland Central School District (District) is governed by the Board of Education (Board) which comprises nine elected members. The Board is responsible for the general management and control of the District’s financial and educational affairs. The Superintendent of Schools (Superintendent) is the chief executive officer of the District and is responsible, along with other administrative staff, for the day-to-day management of the District under the direction of the Board.

Districts officials are responsible for maintaining accurate and complete accounting records and providing reports to the Board. The Board should then utilize these reports to make sound and prudent decisions about the District’s financial condition, including capital projects.

Scope and Objectives

The objectives of our audit were to evaluate the District’s financial condition and internal controls over capital projects for the period July 1, 2004 through April 12, 2006. Our audit addressed the following related questions:

• What underlying factors contributed to the District’s deteriorating financial condition?
  
  
• Did the Board and District officials provide adequate oversight and management of the District’s capital projects?

Audit Results

The District’s financial condition has deteriorated due to recurring operating deficits in the general fund that totaled over $4.2 million for the fiscal years 2002-03 through 2004-05. The District planned to use fund balance in 2002-03 and 2003-04 as a financing source as opposed to raising real property tax revenue. This decreased the amount of fund balance available to help finance the 2004-05 budget. However, the District then incurred an unplanned operating deficit of approximately $1.2 million in 2004-05, which resulted in a $10,895 general fund accumulated deficit on June 30, 2005.

The District’s deteriorating financial condition was largely the result of the Board’s failure to monitor spending and the District’s failure to maintain accurate and complete accounting records, and implement proper budgetary practices. In June 2005, the Board made significant changes in the District’s senior management to address the fiscal stress. Over the next several months, the Board implemented a District-wide “freeze” to correct the current spending plan and respond to the potential overspending of the 2005-06 budget. The new administration began tracking budgeted appropriations to actual expenditures. However, reporting deficiencies still existed on April 2006.

The lack of accurate and complete financial records also prevented the Board and other officials from properly overseeing and managing the District’s capital projects. As a result, expenditures for the District’s capital project exceeded the $22.8 million budget by $563,488 by the end of our audit period.

Comments of District Officials

The results of our audit and recommendations have been discussed with District officials and their comments, which appear in Appendix A, have been considered in preparing this report. Except as noted in Appendix A, District officials generally agreed with our recommendations and indicated they planned to initiate corrective action. OSC comments on the District’s response can be found in Appendix B.